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iAT&T
Inc. 1.800% Global Notes due September 14, 2039
iT 39B
iNew York Stock Exchange
iAT&T
Inc. 7.000% Global Notes due April 30, 2040
iT 40
iNew York Stock Exchange
iAT&T
Inc. 4.250% Global Notes due June 1, 2043
iT 43
iNew York Stock Exchange
iAT&T
Inc. 4.875% Global Notes due June 1, 2044
iT 44
iNew York Stock Exchange
iAT&T
Inc. 4.000% Global Notes due June 1, 2049
iT 49A
iNew York Stock Exchange
iAT&T
Inc. 4.250% Global Notes due March 1, 2050
iT 50
iNew York Stock Exchange
iAT&T
Inc. 3.750% Global Notes due September 1, 2050
iT 50A
iNew York Stock Exchange
iAT&T
Inc. 5.350% Global Notes due November 1, 2066
iTBB
iNew York Stock Exchange
iAT&T
Inc. 5.625% Global Notes due August 1, 2067
iTBC
iNew York Stock Exchange
Indicate by check mark whether the registrant (1) has
filed all reports required to be filed by Section 13 of 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
iYes☒No ☐
Indicate by check mark whether the
registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
iYes☒No ☐
Indicate by check mark whether the
registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or emerging growth company. See definition of “accelerated filer,”“large accelerated filer,”“smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
iLarge Accelerated Filer
☒
Accelerated
Filer
☐
Non-accelerated filer
☐
Smaller reporting company
i☐
Emerging growth company
i☐
If
an emerging growth company, indicate by checkmark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Yes ☐ No ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes i☐ No ☒
At April 30, 2021, there were i7,140 million common shares outstanding.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Dollars in millions except per share amounts
i
NOTE
1. PREPARATION OF INTERIM FINANCIAL STATEMENTS
Basis of Presentation Throughout this document, AT&T Inc. is referred to as “we,”“AT&T” or the “Company.” The consolidated financial statements include the accounts of the Company and subsidiaries and affiliates which we control. AT&T is a holding company whose subsidiaries and affiliates operate worldwide in the telecommunications, media and technology industries. You should read this document in conjunction with the consolidated financial statements and accompanying notes included in our Annual Report on Form 10-K for the year ended December 31,
2020. The results for the interim periods are not necessarily indicative of those for the full year. These consolidated financial statements include all adjustments that are necessary to present fairly the results for the presented interim periods, consisting of normal recurring accruals and other items.
iAll significant intercompany transactions are eliminated in the consolidation process. Investments in subsidiaries and partnerships which we do not control but have significant influence
are accounted for under the equity method. Earnings from certain investments accounted for using the equity method are included for periods ended within up to one quarter of our period end. We also record our proportionate share of our equity method investees’ other comprehensive income (OCI) items.
iThe preparation of financial statements in conformity with U.S. generally accepted accounting principles (GAAP) requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual
results could differ from those estimates. Certain prior period amounts have been conformed to the current period’s presentation (see Note 4 and Note 5).
In the tables throughout this document, percentage increases and decreases that are not considered meaningful are denoted with a dash.
/
i
NOTE
2. EARNINGS PER SHARE
i
A reconciliation of the numerators and denominators of basic and diluted earnings per share for the three months ended March 31, 2021 and 2020, is shown in the table below:
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Dollars in millions except per share amounts
i
NOTE 3. OTHER COMPREHENSIVE INCOME
i
Changes
in the balances of each component included in accumulated OCI are presented below. All amounts are net of tax and exclude noncontrolling interest.
Foreign Currency Translation Adjustment
Net
Unrealized Gains (Losses) on Securities
Net Unrealized Gains (Losses) on Derivative Instruments
1(Gains)
losses are included in “Other income (expense) - net” in the consolidated statements of income.
2(Gains) losses are primarily included in “Interest expense” in the consolidated statements of income (see Note 7).
3The amortization of prior service credits associated with postretirement benefits are included in “Other income (expense) - net” in the consolidated statements of income (see Note 6).
//
i
NOTE
4. SEGMENT INFORMATION
Our segments are comprised of strategic business units or other operations that offer products and services to different customer segments over various technology platforms and/or in different geographies that are managed accordingly. We analyze our segments based on segment operating contribution, which consists of operating income, excluding acquisition-related costs and other significant items (as discussed below), and equity in net income (loss) of affiliates for investments managed within each segment. We have ithree
reportable segments: (1) Communications, (2) WarnerMedia and (3) Latin America.
We also evaluate segment and business unit performance based on EBITDA and/or EBITDA margin, which is defined as operating contribution excluding equity in net income (loss) of affiliates and depreciation and amortization. We believe EBITDA to be a relevant and useful measurement to our investors as it is part of our internal management reporting and planning processes and it is an important metric that management uses to evaluate operating performance. EBITDA does not give effect to depreciation and amortization expenses incurred in operating contribution nor is it burdened by cash used for debt service requirements and thus does not reflect available funds for distributions, reinvestment or other discretionary uses. EBITDA margin is EBITDA divided by total revenues.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Dollars in millions except per share amounts
We have recast our segment results for all prior periods to reflect the following:
Communications segment results were recast to remove the Video and Government Solutions held-for-sale businesses, instead reporting those results in Corporate and Other, consistent with our historical practice. Additionally, we refined the allocation of shared infrastructure and deferred customer acquisition costs between Consumer Wireline and Video.
WarnerMedia segment
results reflect our operation of WarnerMedia as one integrated organization.
The Communications segment provides wireless and wireline telecom and broadband services to consumers located in the U.S. and businesses globally. Our business strategies reflect bundled product offerings that cut across product lines and utilize shared assets. This segment contains the following business units:
•Mobility provides nationwide wireless service and equipment.
•Business Wireline provides advanced IP-based services, as well as traditional voice and data services and related equipment to business customers.
•Consumer Wireline provides
internet, including broadband fiber, and legacy telephony voice communication services to residential customers.
The WarnerMedia segment develops, produces and distributes feature films, television, gaming and other content in various physical and digital formats globally. WarnerMedia content is distributed through Basic Networks, Direct-to-Consumer (DTC) or Theatrical, TV Content and Games Licensing. Segment results also include Xandr advertising, Otter Media Holdings and eliminations of intercompany transactions within WarnerMedia.
Effective January 1, 2021, we updated our reporting units to reflect recent changes in how WarnerMedia, an integrated content organization that distributes across various platforms, is managed and evaluated. With
this operational change, the reporting unit is deemed to be the operating segment. The previous reporting units, Turner, Home Box Office, Warner Bros. and Xandr, and the new WarnerMedia reporting unit were tested for goodwill impairment on January 1, 2021, for which there was none.
The Latin America segment provides entertainment and wireless services outside of the U.S. This segment contains the following business units:
•Vrio provides video services primarily to residential customers using satellite technology in Latin America and the Caribbean.
•Mexico provides wireless service and equipment to customers in Mexico.
Corporate
and Other reconciles our segment results to consolidated operating income and income before income taxes, and includes:
•Corporate, which consists of: (1) businesses no longer integral to our operations or which we no longer actively market, (2) corporate support functions, (3) impacts of corporate-wide decisions for which the individual operating segments are not being evaluated, and (4) the reclassification of the amortization of prior service credits, which we continue to report with segment operating expenses, to consolidated “Other income (expense) – net.”
•Video, whichconsists of our held-for-sale video operations, which provides video, including over-the-top (OTT) services and
also sells multiplatform advertising services.
•Acquisition-related items, which consists of items associated with the merger and integration of acquired or divested businesses, including amortization of intangible assets.
•Certain significant items, which includes (1) employee separation charges associated with voluntary and/or strategic offers, (2) asset impairments and abandonments, and (3) other items for which the segments are not being evaluated.
•Eliminations and consolidations, which (1) removes transactions involving dealings between our segments, including channel distribution between WarnerMedia and Video, and (2) includes adjustments for our reporting of the advertising business.
“Interest
expense” and “Other income (expense) – net,” are managed only on a total company basis and are, accordingly, reflected only in consolidated results.
1Amounts
above, including December 31, 2020, have been updated to reflect the classification of our Video business as held-for-sale, which included the recast of historical results to remove Video from our Communications segment and instead report in Corporate and Other (see Note 8).
i
NOTE 5. REVENUE RECOGNITION
Revenue
Categories
i
The following tables set forth reported revenue by category and by business unit, prior period amounts have been recast to conform to the current period presentation with our segment updates (see Note 4).
1Represents
intercompany video distribution arrangements primarily to DIRECTV/U-Verse from WarnerMedia.
2Represents intercompany transactions in the WarnerMedia segment.
Deferred Customer Contract Acquisition and Fulfillment Costs
Costs to acquire and fulfill customer contracts, including commissions on service activations, for our wireless, business wireline, consumer wireline and video services, are deferred and amortized over the contract
period or expected customer relationship life, which typically ranges from iithree years/ to iifive
years/. For contracts with an estimated amortization period of less than one year, we expense incremental costs immediately.
i
The following table presents the deferred customer contract
acquisition and fulfillment costs included on our consolidated balance sheets:
March 31,
December 31,
Consolidated Balance Sheets
2021
2020
Deferred Acquisition Costs
Prepaid
and other current assets
$
i3,788
$
i3,087
Other
Assets
i2,693
i3,198
Total
deferred customer contract acquisition costs
$
i6,481
$
i6,285
Deferred
Fulfillment Costs
Prepaid and other current assets
$
i4,945
$
i4,118
Other
Assets
i4,367
i5,634
Total
deferred customer contract fulfillment costs
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Dollars in millions except per share amounts
Deferred customer contract acquisition and fulfillment costs included in “Prepaid and other current assets” at March 31, 2021, include $i1,350
of deferred acquisition costs ($i594 of which were reclassified from “Other Assets”) and $i2,417 of deferred fulfillment costs ($i984
of which were reclassified from “Other Assets”) for our Video business, reflecting the held-for-sale treatment of the business (see Note 8).
The following table presents deferred customer contract acquisition and fulfillment cost amortization included in “Other cost of revenue” for the three months ended:
A contract asset is recorded when revenue is recognized in advance of our right to bill and receive consideration. The contract asset will decrease as services are provided and billed. For example, when installment sales include promotional discounts (e.g., “buy one get one free”) the difference between revenue recognized and consideration received is recorded as a contract asset to be amortized over the contract term.
When consideration is received in advance of the delivery of goods
or services, a contract liability is recorded for deferred revenue. Reductions in the contract liability will be recorded as we satisfy the performance obligations.
i
The following table presents contract assets and liabilities on our consolidated balance sheets:
Our
consolidated balance sheets at March 31, 2021 and December 31, 2020 included $i2,208 and $i2,054,
respectively, for the current portion of our contract asset in “Prepaid and other current assets” and $i4,839 and $i6,071,
respectively, for the current portion of our contract liability in “Advanced billings and customer deposits.”
Our beginning of period contract liability recorded as customer contract revenue during 2021 was $i4,509.
Remaining
Performance Obligations
Remaining performance obligations primarily relate to our Communications segment and represent services we are required to provide to customers under bundled or discounted arrangements, which are satisfied as services are provided over the contract term. In our WarnerMedia segment, the most significant remaining performance obligations relate to the licensing of theatrical and television content which will be made available to customers at some point in the future. In determining the transaction price allocated, we do not include non-recurring charges and estimates for usage, nor do we consider arrangements with an original expected duration of less than one year, which are primarily prepaid wireless, video and residential internet agreements.
Remaining performance
obligations associated with business contracts reflect recurring charges billed, adjusted to reflect estimates for sales incentives and revenue adjustments. Performance obligations associated with wireless contracts are estimated using a portfolio approach in which we review all relevant promotional activities, calculating the remaining performance obligation using the average service component for the portfolio and the average device price. As of March 31, 2021, the aggregate amount of the transaction price allocated to remaining performance obligations was $i41,259,
of which we expect to recognize approximately i87% by the end of 2022, with the balance recognized thereafter. Approximately $i2,085 of the $i41,259
remaining performance obligation relates to the Video business.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Dollars in millions except per share amounts
i
NOTE
6. PENSION AND POSTRETIREMENT BENEFITS
Many of our employees are covered by one of our noncontributory pension plans. We also provide certain medical, dental, life insurance and death benefits to certain retired employees under various plans and accrue actuarially determined postretirement benefit costs. Our objective in funding these plans, in combination with the standards of the Employee Retirement Income Security Act of 1974, as amended (ERISA), is to accumulate assets sufficient to provide benefits described in the plans to employees upon their retirement. We do not have significant funding requirements in 2021.
iWe
recognize actuarial gains and losses on pension and postretirement plan assets in our consolidated results as a component of “Other income (expense) – net” at our annual measurement date of December 31, unless earlier remeasurements are required. We anticipate total distributions from the pension plan will exceed the threshold of service and interest costs for 2021, requiring us to follow settlement accounting and remeasure our pension benefit plan assets and obligations at each quarter-end in 2021, as we expect settlements to occur during each quarter.
As part of our first-quarter 2021 remeasurement, we increased the weighted-average discount rate used to measure our pension benefit obligation from i2.70%
to i3.30%. The discount rate in effect for determining pension service and interest costs after remeasurement is i3.60%
and i2.50% respectively. The remeasurement reflects an actual return on pension plan assets of (i1.33)%
(three-month rate) relative to our expected long-term rate of i6.75% (annual rate).
i
The
following table details pension and postretirement benefit costs included in the accompanying consolidated statements of income. The service cost component of net periodic pension (credit) cost is recorded in operating expenses in the consolidated statements of income while the remaining components are recorded in “Other income (expense) – net.”
Interest
cost on accumulated postretirement benefit obligation
i53
i104
Expected
return on assets
(i38)
(i44)
Amortization
of prior service credit
(i634)
(i582)
Net
postretirement (credit) cost
$
(i608)
$
(i509)
Combined
net pension and postretirement (credit) cost
$
(i3,820)
$
(i747)
/
We
also provide senior- and middle-management employees with nonqualified, unfunded supplemental retirement and savings plans. For the first quarter ended 2021 and 2020, net supplemental pension benefits costs not included in the table above were $i12 and $i19.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Dollars in millions except per share amounts
i
NOTE 7. FAIR VALUE MEASUREMENTS AND DISCLOSURE
The Fair Value Measurement and Disclosure framework in ASC 820, “Fair Value Measurement,” provides
a three-tiered fair value hierarchy based on the reliability of the inputs used to determine fair value. Level 1 refers to fair values determined based on quoted prices in active markets for identical assets. Level 2 refers to fair values estimated using significant other observable inputs and Level 3 includes fair values estimated using significant unobservable inputs.
The level of an asset or liability within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Our valuation techniques maximize the use of observable inputs and minimize the use of unobservable inputs.
The valuation methodologies described above may produce a fair value calculation that may not be indicative of future net realizable value or reflective of future fair values. We believe our valuation methods
are appropriate and consistent with other market participants. The use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different fair value measurement at the reporting date. There have been no changes in the methodologies used since December 31, 2020.
Long-Term Debt and Other Financial Instruments
i
The carrying amounts and estimated fair values of our long-term debt, including current maturities,
and other financial instruments, are summarized as follows:
1Includes
credit agreement borrowings. Amounts at March 31, 2021 exclude $i205 associated with Video business that was classified as held-for-sale (see Note 8).
2Excludes investments accounted for under the equity method.
/
The
carrying amount of debt with an original maturity of less than one year approximates fair value. The fair value measurements used for notes and debentures are considered Level 2 and are determined using various methods, including quoted prices for identical or similar securities in both active and inactive markets.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Dollars in millions except per share amounts
i
Following
is the fair value leveling for investment securities that are measured at fair value and derivatives as of March 31, 2021 and December 31, 2020. Derivatives designated as hedging instruments are reflected as “Other assets,”“Other noncurrent liabilities,”“Prepaid and other current assets” and “Accounts payable and accrued liabilities” on our consolidated balance sheets.
Our investment securities include both equity and debt securities that are measured at fair value, as well as equity securities without readily determinable fair values. A substantial portion of the fair values of our investment securities is estimated based on quoted market prices. Investments in equity securities not traded on a national securities exchange are valued at cost, less any impairment, and adjusted for changes resulting from observable, orderly transactions for identical or similar securities. Investments in debt securities not traded on a national securities exchange are valued using pricing models, quoted prices of securities with similar characteristics or discounted cash flows.
Total gains (losses) recognized on equity securities
$
i55
$
(i203)
Gains
(Losses) recognized on equity securities sold
i—
(i33)
Unrealized
gains (losses) recognized on equity securities
held at end of period
$
i55
$
(i170)
/
At
March 31, 2021, available-for-sale debt securities totaling $i1,404 have maturities as follows - less than one year: $i33;
one to three years: $i186; three to five years: $i206;
five or more years: $i979.
Our cash equivalents (money market securities), short-term investments (certificate and time deposits) and nonrefundable customer deposits are recorded at amortized cost, and the respective carrying amounts approximate fair values. Short-term investments and nonrefundable customer deposits are recorded in “Prepaid and other current assets” and our investment securities are recorded
in “Other Assets” on the consolidated balance sheets.
Derivative Financial Instruments
We enter into derivative transactions to manage certain market risks, primarily interest rate risk and foreign currency exchange risk. This includes the use of interest rate swaps, interest rate locks, foreign exchange forward contracts and combined interest rate foreign exchange contracts (cross-currency swaps). We do not use derivatives for trading or speculative purposes. We record derivatives on our consolidated balance sheets at fair value that is derived from observable market data, including yield curves and foreign exchange rates (all of our derivatives are Level 2). Cash flows associated
with derivative instruments are presented in the same category on the consolidated statements of cash flows as the item being hedged.
Fair Value Hedging Periodically, we enter into and designate fixed-to-floating interest rate swaps as fair value hedges. The purpose of these swaps is to manage interest rate risk by managing our mix of fixed-rate and floating-rate debt. These swaps involve the receipt of fixed-rate amounts for floating interest rate payments over the life of the swaps without exchange of the underlying principal amount.
We also designate some of our cross-currency swaps as fair value hedges. The purpose of these contracts is to hedge foreign currency risk associated with changes in spot rates on foreign denominated
debt. The changes in fair values of currency swaps attributable to the cross-currency basis spread are considered excluded components.
Unrealized and realized gains or losses from fair value hedges impact the same category on the consolidated statements of income as the item being hedged. In instances where we have designated excluded components related to fair value hedges, unrealized gains or losses on such excluded components are recorded as a component of accumulated OCI and recognized into earnings through the swap accrual. Unrealized gains on derivatives designated as fair value hedges are recorded at fair market value as assets, and unrealized losses are recorded at fair market value as liabilities. Except for excluded components, changes in the fair value of derivative instruments designated as fair value hedges are offset against the change in fair value of the hedged assets or liabilities through
earnings. In the three months ended March 31, 2021 and 2020, no ineffectiveness was measured on fair value hedges.
Cash Flow Hedging We designate most of our cross-currency swaps as cash flow hedges. We have entered into multiple cross-currency swaps to hedge our exposure to variability in expected future cash flows that are attributable to foreign currency risk generated from our foreign-denominated debt. These agreements include initial and final exchanges of principal from fixed foreign currency denominated amounts to fixed U.S. dollar denominated amounts, to be exchanged at a specified rate that is usually determined by the market spot rate upon issuance. They also include an interest rate swap of a fixed or floating foreign currency-denominated interest rate to a fixed U.S.
dollar denominated interest rate.
We also designate some of our foreign exchange contracts as cash flow hedges. The purpose of these contracts is to hedge certain forecasted film production costs and film tax incentives denominated in foreign currencies.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Dollars in
millions except per share amounts
Unrealized gains on derivatives designated as cash flow hedges are recorded at fair value as assets, and unrealized losses are recorded at fair value as liabilities. For derivative instruments designated as cash flow hedges, changes in fair value are reported as a component of accumulated OCI and are reclassified into the consolidated statements of income in the same period the hedged transaction affects earnings.
Periodically, we enter into and designate interest rate locks to partially hedge the risk of changes in interest payments attributable to increases in the benchmark interest rate during the period leading up to the probable issuance of fixed-rate debt. We designate our interest rate locks as cash flow hedges. Gains and losses when we settle our interest rate locks are amortized into income over the
life of the related debt. Over the next 12 months, we expect to reclassify $i87 from accumulated OCI to “Interest expense” due to the amortization of net losses on historical interest rate locks.
Net Investment Hedging We have designated €i1,433
million aggregate principal amount of debt as a hedge of the variability of some of the Euro-denominated net investments of our subsidiaries. The gain or loss on the debt that is designated as, and is effective as, an economic hedge of the net investment in a foreign operation is recorded as a currency translation adjustment within accumulated OCI, net on the consolidated balance sheets. Net gains on net investment hedges recognized in accumulated OCI in the first quarter were $i70.
Collateral
and Credit-RiskContingency We have entered into agreements with our derivative counterparties establishing collateral thresholds based on respective credit ratings and netting agreements. At March 31, 2021, we had posted collateral of $i47 (a deposit asset) and held collateral of $i781
(a receipt liability). Under the agreements, if AT&T’s credit rating had been downgraded two ratings levels by Fitch Ratings, one level by S&P and one level by Moody’s before the final collateral exchange in March, we would have been required to post additional collateral of $i48. If AT&T’s credit rating had been downgraded three ratings levels by Fitch Ratings, two levels by S&P, and two levels by Moody’s, we would have been required to post additional collateral of $i1,160.
If DIRECTV Holdings LLC’s credit rating had been downgraded below BBB- by S&P, we would have been required to post additional collateral of $i36. At December 31, 2020, we had posted collateral of $i53
(a deposit asset) and held collateral of $i694 (a receipt liability). iWe do not offset the fair value of collateral, whether the right to reclaim cash collateral (a
receivable) or the obligation to return cash collateral (a payable) exists, against the fair value of the derivative instruments.
i
Following are the notional amounts of our outstanding derivative positions:
NOTE
8. ACQUISITIONS, DISPOSITIONS AND OTHER ADJUSTMENTS
Acquisitions
Spectrum Auction On February 24, 2021, the Federal Communications Commission (FCC) announced that AT&T was the winning bidder for i1,621 C-Band licenses, comprised of a total of 80 MHz nationwide, including 40 MHz in Phase I. We provided to the
FCC an upfront deposit of $i550 in 2020 and cash payments totaling $i22,856 in the first quarter of 2021, for a total of $i23,406
to date. We estimate that we will be responsible for $i955 of Incentive Payments upon clearing of Phase I spectrum and $i2,112
upon clearing of Phase II spectrum. Additionally, we will be responsible for approximately $i1,000 of compensable relocation costs over the next several years as the spectrum is being cleared by satellite operators. Cash paid, including deposits and refunds, for spectrum is included in “Acquisitions, net of cash acquired” on our consolidated statements of cash flows. Funding for the purchase price of the spectrum included a combination of cash on hand and short-term investments, as well as short- and long-term
debt.
We expect the FCC to begin granting the licenses in the second half of 2021 through 2023. The amounts deposited toward the acquisition of the licenses are reported as “Deposits on Wireless Licenses” on our consolidated balance sheet as of March 31, 2021. Interest incurred to finance this spectrum acquisition is capitalized until the licenses are granted and the activities required to ready the spectrum for use are complete.
Held-for-Sale
Video Business On February 25, 2021, we signed an agreement with TPG Capital (TPG) to form a new company named DIRECTV (New DTV), which will be jointly governed by a board with representation from both AT&T and TPG, with TPG having
tie-breaking authority on certain decisions. Under the agreement, we will contribute our Video business unit to New DTV for $i4,250 of junior preferred units, an additional distribution preference of $i4,200
and a i70% economic interest in common units. We expect to receive $i7,800
from New DTV at closing ($i7,600 in cash and approximately $i200 of transferred DIRECTV debt). TPG will
contribute approximately $i1,800 in cash to New DTV for $i1,800 of senior preferred units and a i30%
economic interest in common units. The remaining $i5,800 will be funded by debt issued by New DTV. As part of this transaction, we agreed to pay net losses under the NFL SUNDAY TICKET contract up to a cap of $i2,500
over the remaining period of the contract.
The transaction is expected to close in the second half of 2021, pending customary closing conditions. The total of $i7,600 of proceeds from the transaction are expected to reduce our total and net debt positions.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Dollars in millions except per share amounts
In the first quarter of 2021, we applied held-for-sale accounting treatment to the assets and liabilities of the U.S. video business, and, accordingly, include the assets in “Prepaid and other current assets,” and the related liabilities in “Accounts payable and accrued liabilities,” on our consolidated balance sheet. The held-for-sale classification also resulted in ceasing depreciation and amortization on the designated assets.
i
Assets
and liabilities of the Video operations included the following as of March 31, 2021:
Assets held-for-sale:
Current assets
$
i3,776
Property,
plant and equipment - net
i2,410
Licenses, net
i5,798
Other
intangible assets, net
i1,633
Other assets
i1,948
Total
assets
$
i15,565
Liabilities related to assets held-for-sale:
Current
liabilities
$
i4,022
Long-term debt
i205
Other
noncurrent liabilities
i351
Total liabilities
$
i4,578
/
i
NOTE
9. SALES OF RECEIVABLES
We have agreements with various third-party financial institutions pertaining to the sales of certain types of our accounts receivable. The most significant of these programs are discussed in detail below and generally consist of (1) receivables arising from equipment installment plans, which are sold for cash and a deferred purchase price, and (2) revolving service and trade receivables. Under these programs, we transfer receivables to purchasers in exchange for cash and additional consideration upon settlement of the receivables, where applicable. Under the terms of our agreements for these programs, we continue to bill and collect the payments from our customers on behalf of the financial institutions.
The sales of receivables did not have a material impact on our consolidated statements of income or to “Total
Assets” reported on our consolidated balance sheets. We reflect cash receipts on sold receivables as cash flows from operations in our consolidated statements of cash flows. Cash receipts on the deferred purchase price are classified as cash flows from investing activities.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Dollars in millions except per share amounts
i
Our
equipment installment and revolving receivable programs are discussed in detail below. The following table sets forth a summary of the receivables and accounts being serviced:
Outstanding
portfolio of receivables derecognized from
our consolidated balance sheets
i9,448
i5,755
i7,827
i5,300
Cash
proceeds received, net of remittances1
i7,176
i5,755
i5,646
i5,300
1Represents
amounts to which financial institutions remain entitled, excluding the deferred purchase price.
/
Equipment Installment Receivables Program
We offer our customers the option to purchase certain wireless devices in installments over a specified period of time and, in many cases, once certain conditions are met, they may be eligible to trade in the original equipment for a new device and have the remaining unpaid balance paid or settled.
We maintain a program under which we transfer a portion of these receivables through our bankruptcy-remote subsidiary in exchange for cash and additional consideration upon settlement of the
receivables, referred to as the deferred purchase price. In the event a customer trades in a device prior to the end of the installment contract period, we agree to make a payment to the financial institutions equal to any outstanding remaining installment receivable balance. Accordingly, we record a guarantee obligation for this estimated amount at the time the receivables are transferred.
The following table sets forth a summary of equipment installment receivables sold under this program during the three months ended March 31, 2021 and 2020:
1Receivables
net of allowance, imputed interest and equipment trade-in right guarantees.
The deferred purchase price and guarantee obligation are initially recorded at estimated fair value and subsequently adjusted for changes in present value of expected cash flows. The estimation of their fair values is based on remaining installment payments expected to be collected and the expected timing and value of device trade-ins. The estimated value of the device trade-ins considers prices offered to us by independent third parties that contemplate changes in value after the launch of a device model. The fair value measurements used for the deferred purchase price and the guarantee obligation are considered Level 3 under the Fair Value Measurement and Disclosure framework (see Note 7).
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Dollars in millions except per share amounts
The following table presents the previously transferred equipment installment receivables, which we repurchased in exchange for the associated deferred purchase price during the three months ended March 31, 2021 and 2020:
1These
gains are included in "Selling, general and administrative" in the consolidated statements of income.
At March 31, 2021 and December 31, 2020, our deferred purchase price receivable was $i2,283 and $i1,991,
respectively, of which $i1,515 and $i1,476 are included in “Prepaid and other current assets” on our consolidated balance sheets, with the remainder in “Other Assets.” The guarantee obligation at March 31,
2021 and December 31, 2020 was $i285 and $i228, respectively, of which $i129
and $i161 are included in “Accounts payable and accrued liabilities” on our consolidated balance sheets, with the remainder in “Other noncurrent liabilities.” Our maximum exposure to loss as a result of selling these equipment installment receivables is limited to the total amount of our deferred purchase price and guarantee obligation.
Revolving Receivables Program
We have a revolving agreement to transfer up to $i6,000
of certain receivables through our bankruptcy-remote subsidiaries to various financial institutions on a recurring basis in exchange for cash equal to the gross receivables transferred. This agreement is subject to renewal on an annual basis and the transfer limit may be expanded from time to time. As customers pay their balances, we transfer additional receivables into the program, resulting in our gross receivables sold exceeding net cash flow impacts (e.g., collect and reinvest). The transferred receivables are fully guaranteed by our bankruptcy-remote subsidiaries, which hold additional receivables in the amount of $i3,718
that are pledged as collateral under this agreement. The transfers are recorded at fair value of the proceeds received and obligations assumed less derecognized receivables. The obligation is subsequently adjusted for changes in estimated expected credit losses and interest rates. Our maximum exposure to loss related to these receivables transferred is limited to the amount outstanding.
The fair value measurement used for the obligation is considered Level 3 under the Fair Value Measurement and Disclosure framework (see Note 7).
i
The
following table sets forth a summary of receivables sold:
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Dollars in millions except per share amounts
ii
NOTE
10. LEASES
We have operating and finance leases for certain facilities and equipment used in operations. Our leases generally have remaining lease terms of up to ii15/
years. Some of our real estate operating leases contain renewal options that may be exercised, and some of our leases include options to terminate the leases within one year.
We have recognized a right-of-use asset for both operating and finance leases, and an operating lease liability that represents the present value of our obligation to make payments over the lease term. The present value of the lease payments is calculated using the incremental borrowing rate for operating and finance leases, which was determined using a portfolio approach based on the rate of interest that we would have to pay to borrow an amount equal to the lease payments on a collateralized basis over a similar term. We use the unsecured borrowing rate and risk-adjust that rate to approximate a collateralized rate in the currency of the lease, which will be updated on a quarterly basis for measurement of new lease liabilities.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Dollars in millions except per share amounts
i
NOTE 11. ADDITIONAL FINANCIAL INFORMATION
Cash and Cash Flows
We typically
maintain our restricted cash balances for purchases and sales of certain investment securities and funding of certain deferred compensation benefit payments.
i
The following table summarizes cash and cash equivalents and restricted cash balances contained on our consolidated balance sheets:
Restricted
cash in Prepaid and other current assets
i2
i8
i9
i69
Restricted
cash in Other Assets
i84
i77
i121
i96
Cash
and Cash Equivalents and Restricted Cash
$
i11,428
$
i10,040
$
i9,870
$
i12,295
The
following table summarizes cash paid during the periods for interest, income taxes and spectrum:
Consolidated Statements of Cash Flows
Three months ended
March 31,
Cash paid (received) during the period for:
2021
2020
Interest
$
i2,134
$
i2,376
Income
taxes, net of refunds
i5
(i354)
Spectrum
acquisitions
i22,876
i97
/
Noncash
Investing and Financing Activities In connection with capital improvements and the acquisition of other productive assets, we negotiate favorable payment terms (referred to as vendor financing), which are reported as financing activities in our statements of cash flows when paid. For the three months ended March 31, 2021 and 2020, we recorded vendor financing commitments related to capital investments of approximately $i998
and $i449.
Total vendor financing payables included in our March 31, 2021 consolidated balance sheet were approximately $i3,552,
with $i2,883 due within one year (in “Accounts payable and accrued liabilities”) and the remainder predominantly due within two to ithree years (in “Other noncurrent liabilities”).
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Dollars in millions except per share amounts
Debt Transactions At March 31, 2021, our debt obligations totaled $i180,199. Our debt activity during the three months ended March
31, 2021 primarily consisted of the following:
Net commercial paper borrowings
$
i7,072
Issuance
of Notes and Debentures1:
U.S. dollar denominated global notes
$
i6,000
Initial average rate of i1.27%
Euro
denominated global notes
i1,461
Rate of i0.00%
2021
Syndicated Term Loan
i7,350
BAML Bilateral Term Loan
i2,000
Private
financing
i750
Other
i636
Debt
Issuances
$
i18,197
Repayments:
Private financing
$
(i649)
Other
(i253)
Repayments
of long-term debt
$
(i902)
1 Includes credit agreement borrowings.
Credit Facilities
On January 29, 2021, we entered into a $i14,700
Term Loan Credit Agreement (2021 Syndicated Term Loan), with Bank of America, N.A., as agent. On March 23, 2021, we borrowed $i7,350 under the 2021 Syndicated Term Loan and the remaining $i7,350
of lenders’ commitments were terminated. As of March 31, 2021, $i7,350 was outstanding and is due on March 22, 2022.
In March 2021, we entered into and drew on a $ii2,000/
term loan credit agreement (BAML Bilateral Term Loan) consisting of (i) a i0.75 year $i1,000 facility due December 31, 2021 (BAML Tranche A Facility), and (ii) a i1.75
year $i1,000 facility due December 31, 2022 (BAML Tranche B Facility), with Bank of America, N.A., as agent. At March 31, 2021, $i2,000
was outstanding under these facilities.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Dollars in millions except per share amounts
OVERVIEW
AT&T Inc. is referred to as “we,”“AT&T” or the “Company” throughout
this document, and the names of the particular subsidiaries and affiliates providing the services generally have been omitted. AT&T is a holding company whose subsidiaries and affiliates operate worldwide in the telecommunications, media and technology industries. You should read this discussion in conjunction with the consolidated financial statements and accompanying notes (Notes).
We have three reportable segments: (1) Communications, (2) WarnerMedia and (3) Latin America. Our segment results presented in Note 4 and discussed below follow our internal management reporting. We analyze our segments based on segment operating contribution, which consists of operating income, excluding acquisition-related costs and other
significant items and equity in net income (loss) of affiliates for investments managed within each segment. Percentage increases and decreases that are not considered meaningful are denoted with a dash.
We have recast our segment results for all prior periods to reflect the following:
Communications segment results were recast to remove the Video and Government Solutions held-for-sale businesses, instead reporting those results in Corporate and Other, consistent with our historical practice. Additionally, we refined the allocation of shared infrastructure and deferred customer acquisition costs between Consumer Wireline and Video.
WarnerMedia segment results reflect our operation of WarnerMedia as one integrated organization.
First Quarter
Percent
2021
2020
Change
Operating
Revenues
Communications
$
28,178
$
26,779
5.2
%
WarnerMedia
8,526
7,765
9.8
Latin
America
1,374
1,590
(13.6)
Corporate
426
534
(20.2)
Video
6,725
7,407
(9.2)
Eliminations
and consolidation
(1,290)
(1,296)
0.5
AT&T Operating Revenues
43,939
42,779
2.7
Operating
Contribution
Communications
7,365
7,401
(0.5)
WarnerMedia
2,030
2,014
0.8
Latin
America
(173)
(184)
6.0
Segment Operating Contribution
$
9,222
$
9,231
(0.1)
%
The
Communications segment provides services to businesses and consumers located in the U.S. and businesses globally. Our business strategies reflect bundled product offerings that cut across product lines and utilize shared assets. This segment contains the following business units:
•Mobility provides nationwide wireless service and equipment.
•Business Wireline provides advanced IP-based services, as well as traditional voice and data services and related equipment to business customers.
•Consumer Wireline provides internet, including broadband fiber, and legacy telephony voice communications services to residential customers.
The
WarnerMedia segment develops, produces and distributes feature films, television, gaming and other content in various physical and digital formats globally. WarnerMedia content is distributed through Basic Networks, Direct-to-Consumer (DTC) or Theatrical, TV Content and Games Licensing. Segment results also include Xandr advertising, Otter Media Holdings and eliminations of intercompany transactions within WarnerMedia.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations- Continued
Dollars in millions except per share
amounts
The Latin America segment provides entertainment and wireless services outside of the U.S. This segment contains the following business units:
•Vrio provides video services primarily to residential customers using satellite technology in Latin America and the Caribbean.
•Mexico provides wireless service and equipment to customers in Mexico.
RESULTS OF OPERATIONS
Consolidated Results Our financial results are summarized in the discussions
that follow. Additional analysis is discussed in our “Segment Results” section. Certain prior period amounts have been reclassified to conform to the current period’s presentation.
First
Quarter
Percent
2021
2020
Change
Operating
Revenues
Service
$
38,504
$
38,883
(1.0)
%
Equipment
5,435
3,896
39.5
Total
Operating Revenues
43,939
42,779
2.7
Operating
expenses
Operations and support
30,469
28,071
8.5
Depreciation
and amortization
5,809
7,222
(19.6)
Total Operating Expenses
36,278
35,293
2.8
Operating
Income
7,661
7,486
2.3
Interest expense
1,870
2,018
(7.3)
Equity
in net income (loss) of affiliates
52
(6)
—
Other income (expense) - net
4,221
803
—
Income
Before Income Taxes
10,064
6,265
60.6
Net Income
7,942
4,963
60.0
Net
Income Attributable to AT&T
7,550
4,610
63.8
Net Income Attributable to Common Stock
$
7,500
$
4,578
63.8
%
Operating
revenues increased in the first quarter of 2021. The revenue increase was driven by higher Mobility revenues in our Communications segment, primarily from equipment sales, and growth in DTC subscription and advertising revenues in our WarnerMedia segment. This increase was partially offset by declines in Video, lower Business Wireline services in our Communications segment and foreign exchange pressure in our Latin America segment. Operating revenues were also impacted by the fourth-quarter 2020 sale of our wireless and wireline operations in Puerto Rico and the U.S. Virgin Islands.
Operations and support expenses increased in the first quarter of 2021. The expense increase was primarily due to increased domestic wireless equipment expense, additional DTC programming and marketing and higher sports costs. Also contributing to the higher comparative expenses
was the first-quarter 2020 gain on spectrum transaction, which did not recur in 2021.
Depreciation and amortization expense decreased in the first quarter of 2021.
Amortization expense decreased $925, or 45.0% in the first quarter primarily due to the lower cost basis of long-lived assets resulting from Video impairments taken in the fourth quarter of 2020 and ceasing amortization on held-for-sale Video assets in the first quarter of 2021.
Depreciation expense decreased $488, or 9.4% in the first quarter primarily due to the lower cost basis of property, plant and equipment resulting from Video impairments taken in the fourth quarter of 2020 and ceasing depreciation on held-for-sale Video assets in the first quarter of 2021.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations- Continued
Dollars in millions except per share amounts
Operating income increased in the first quarter of 2021. Our operating income margin for the first quarter decreased from 17.5% in 2020 to 17.4% in 2021.
Interest expense decreased in the first quarter of 2021, primarily due to lower interest rates. For the remainder of 2021, we expect higher capitalized interest associated with putting spectrum into network service.
Equity in net income of affiliates
increased in the first quarter of 2021, primarily due to improved performance from certain investments.
Other income (expense) – net increased in the first quarter of 2021. The increase was primarily due to the recognition of an actuarial gain of $2,844, with no comparable interim remeasurement in 2020, and an increase in net benefit credit resulting from lower interest costs on the benefit obligation and higher prior service credit amortization (see Note 6).
Income taxes increased in the first quarter of 2021. The increase in income tax expense was primarily due to higher income before income taxes in the first quarter of 2021. Our effective tax rate was 21.1% for the first quarter of 2021, versus 20.8% for the comparable period in the prior year, and includes the impact of tax settlements.
COMMUNICATIONS
SEGMENT
First Quarter
Percent
2021
2020
Change
Segment
Operating Revenues
Mobility
$
19,034
$
17,402
9.4
%
Business
Wireline
6,046
6,266
(3.5)
Consumer Wireline
3,098
3,111
(0.4)
Total
Segment Operating Revenues
28,178
26,779
5.2
Segment
Operating Contribution
Mobility
6,002
5,788
3.7
Business
Wireline
1,058
1,093
(3.2)
Consumer Wireline
305
520
(41.3)
Total
Segment Operating Contribution
$
7,365
$
7,401
(0.5)
%
Selected
Subscribers and Connections
March 31,
(000s)
2021
2020
Mobility Subscribers
186,108
169,198
Total
domestic broadband connections
15,435
15,315
Network access lines in service
6,988
8,160
U-verse VoIP connections
3,684
4,213
Operating
revenues increased in the first quarter of 2021, driven by increases in our Mobility business unit, partially offset by decreases in our Business Wireline and Consumer Wireline business units. The increase is primarily driven by equipment revenue growth and service revenue improvements with subscriber gains offsetting declines in international roaming services.
Operating contribution decreased in the first quarter 2021. The decline in the first quarter reflects lower contribution from our Business Wireline and Consumer Wireline business units, largely offset by increases in our Mobility business unit. Our Communications segment operating income margin in the first quarter decreased from 27.6% in 2020 to 26.1% in 2021.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations- Continued
Dollars in millions except per share amounts
Net
Additions
First Quarter
Percent
(in
000s)
2021
2020
Change
Postpaid Phone Net Additions
595
163
—
%
Total
Phone Net Additions
802
120
—
Postpaid2
823
27
—
Prepaid
279
(45)
—
Reseller
(68)
(190)
64.2
Connected
devices3
2,517
3,518
(28.5)
Mobility Net Subscriber Additions1
3,551
3,310
7.3
%
Postpaid
Churn4
0.93
%
1.08
%
(15)
BP
Postpaid Phone-Only Churn4
0.76
%
0.86
%
(10)
BP
1Excludes
migrations and acquisition-related activities during the period.
2In addition to postpaid phones, includes tablets and wearables and other. Tablet net (losses) were (63) and (267) for the quarter ended March 31, 2021 and 2020. Wearables and other net adds were 291 and 131 for the quarter ended March 31, 2021 and 2020.
3Includes data-centric devices such as session-based tablets, monitoring devices and primarily wholesale automobile systems. Excludes postpaid tablets and other postpaid data devices. Wholesale connected car net adds were 1.2 million for the quarter
ended March 31, 2021.
4Calculated by dividing the aggregate number of wireless subscribers who canceled service during a month divided by the total number of wireless subscribers at the beginning of that month. The churn rate for the period is equal to the average of the churn rate for each month of that period.
Service revenue increased in the first quarter of 2021. The first quarter increase is largely due to growth in subscribers, partially offset by declines in international roaming revenue due to reduced travel during the pandemic.
ARPU
Average revenue per subscriber
(ARPU) decreased in the first quarter. ARPU during 2021 reflects the impact of higher promotional discount amortization and a decline in international roaming revenues and waived fees.
Churn
The effective management of subscriber churn is critical to our ability to maximize revenue growth and to maintain and improve margins. Postpaid churn and postpaid phone-only churn were lower in the first three months due to retention offers, migrations to unlimited plans and continued network improvements.
Equipment revenue increased in the first quarter of 2021. The increase in the first quarter is primarily driven by increased postpaid smartphone volumes, higher-priced smartphones and growth in data devices.
Operations
and support expenses increased in the first quarter of 2021 largely driven by growth in equipment sales and associated expenses and higher content costs associated with bundling HBO Max. The expense increase was offset by lower sales costs and bad debt expense. Commission deferral amortization was up slightly versus the prior year, including the impact of first-quarter 2021 updates to extend the estimated economic life for our subscribers.
Depreciation expense decreased in the first quarter of 2021 primarily due to network assets becoming fully depreciated.
Operating income increased in the first quarter of 2021. Our Mobility operating income margin in the first quarter decreased from 33.3% in 2020 to 31.5% in 2021. Our Mobility EBITDA margin in the first quarter decreased
from 45.0% in 2020 to 42.1% in 2021. EBITDA is defined as operating contribution excluding equity in net income (loss) of affiliates and depreciation and amortization.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations- Continued
Dollars in millions except per share amounts
Subscriber Relationships
As the wireless industry has matured, future wireless growth will depend on our ability to offer innovative services, plans and devices that take advantage of our
5G wireless network, which went nationwide in July 2020, and to provide these services in bundled product offerings. Subscribers that purchase two or more services from us have significantly lower churn than subscribers that purchase only one service. To support higher mobile data usage, our priority is to best utilize a wireless network that has sufficient spectrum and capacity to support these innovations on as broad a geographic basis as possible.
To attract and retain subscribers in a mature and highly competitive market, we have launched a wide variety of plans, including our FirstNet and prepaid products, and arrangements that bundle our video services. Virtually all of our postpaid smartphone subscribers are on plans that provide for service on multiple devices at reduced rates, and subscribers to such plans tend to have higher retention and lower churn rates. We offer unlimited data plans and
subscribers to such plans also tend to have higher retention and lower churn rates. Our offerings are intended to encourage existing subscribers to upgrade their current services and/or add devices, attract subscribers from other providers and/or minimize subscriber churn.
Business
Wireline Results
First Quarter
Percent
2021
2020
Change
Operating
revenues
Service
$
5,872
$
6,091
(3.6)
%
Equipment
174
175
(0.6)
Total
Operating Revenues
6,046
6,266
(3.5)
Operating
expenses
Operations and support
3,710
3,887
(4.6)
Depreciation
and amortization
1,278
1,286
(0.6)
Total Operating Expenses
4,988
5,173
(3.6)
Operating
Income
1,058
1,093
(3.2)
Equity in Net Income (Loss) of Affiliates
—
—
—
Operating
Contribution
$
1,058
$
1,093
(3.2)
%
Service revenues decreased in the first quarter of 2021, driven by lower demand for legacy voice and data services as customers continue to shift to more advanced IP-based offerings.
Equipment
revenues remained consistent in the first quarter of 2021.
Operations and support expenses decreased in the first quarter of 2021, primarily due to our continued efforts to drive efficiencies in our network operations through automation and reductions in customer support expenses through digitization.
Depreciation expense decreased in the first quarter of 2021, primarily due to network assets becoming fully depreciated.
Operating income decreased in the first quarter of 2021. Our Business Wireline operating income margin in the first quarter increased from 17.4% in 2020 and 17.5% in 2021. Our Business Wireline EBITDA margin in the first quarter increased from 38.0% in 2020 to 38.6% in 2021.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations- Continued
Dollars in millions except per share amounts
Consumer
Wireline Results
First Quarter
Percent
2021
2020
Change
Operating
revenues
IP Broadband
$
2,205
$
2,109
4.6
%
Legacy
voice and data services
519
581
(10.7)
Other service and equipment
374
421
(11.2)
Total
Operating Revenues
3,098
3,111
(0.4)
Operating
expenses
Operations and support
2,031
1,879
8.1
Depreciation
and amortization
762
712
7.0
Total Operating Expenses
2,793
2,591
7.8
Operating
Income
305
520
(41.3)
Equity in Net Income (Loss) of Affiliates
—
—
—
Operating
Contribution
$
305
$
520
(41.3)
%
The following tables highlight other key measures of performance for Consumer Wireline:
Connections
March
31,
Percent
(in 000s)
2021
2020
Change
Broadband Connections
Total
Broadband Connections
14,146
14,046
0.7
%
Fiber Broadband Connections
5,186
4,096
26.6
Voice
Connections
Retail Consumer Switched Access Lines
2,740
3,196
(14.3)
U-verse
Consumer VoIP Connections
3,096
3,630
(14.7)
Total Retail Consumer Voice Connections
5,836
6,826
(14.5)
%
Net
Additions
First Quarter
Percent
(in
000s)
2021
2020
Change
Broadband Net Additions
Total Broadband Net Additions
46
(73)
—
%
Fiber
Broadband Net Additions
235
209
12.4
%
IP Broadband (high-speed internet) revenues increased in the first quarter of 2021, driven by higher ARPU resulting from an increase in fiber customers and pricing.
Legacy voice and data service revenues
decreased in the first quarter of 2021, reflecting the continued decline in the number of customers.
Other service and equipment revenues decreased in 2021, reflecting the continued decline in the number of VoIP customers.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations- Continued
Dollars in millions except per share amounts
Operations and support expenses increased in the first quarter of 2021, primarily driven
by content costs associated with plans bundling HBO Max and higher customer support costs. Partially offsetting these increases was lower cost deferral amortization, including the impact of the first-quarter 2021 updates to extend the economic life for our subscribers.
Depreciation expense increased in the first quarter of 2021, primarily due to ongoing capital spending for network upgrades and expansion.
Operating income decreased in the first quarter of 2021. Our Consumer Wireline operating income margin in the first quarter decreased from 16.7% in 2020 to 9.8% in 2021. Our Consumer Wireline EBITDA margin in the first quarter decreased from 39.6% in 2020 to 34.4% in 2021.
WARNERMEDIA
SEGMENT
First Quarter
Percent
2021
2020
Change
Segment
Operating Revenues
Subscription
$
3,830
$
3,401
12.6
%
Content
3,420
3,303
3.5
Advertising
1,750
1,477
18.5
Other
169
254
(33.5)
Eliminations
(643)
(670)
4.0
Total
Segment Operating Revenues
8,526
7,765
9.8
Segment
Operating Expenses
Direct Costs
Programming
4,383
3,513
24.8
Marketing
849
526
61.4
Other
722
669
7.9
General
and administrative
967
1,222
(20.9)
Eliminations and other
(518)
(325)
(59.4)
Depreciation
and amortization
163
161
1.2
Total Operating Expenses
6,566
5,766
13.9
Operating
Income
1,960
1,999
(2.0)
Equity in Net Income (Loss) of Affiliates
70
15
—
Total
Segment Operating Contribution
$
2,030
$
2,014
0.8
%
Our WarnerMedia segment is operated as a content organization that distributes across various platforms, including Basic Networks, Direct-to-Consumer (DTC) and Theatrical, TV Content and Games Licensing.
Operating
revenues increased in the first quarter of 2021, primarily due to higher subscription, advertising and content revenues, reflecting the partial recovery from prior-year impacts of COVID-19. Subscription revenues increased reflecting growth of DTC domestic HBO Max and HBO subscribers, and, to a lesser extent, the May 2020 acquisition of the remaining interest in HBO Latin America Group. DTC subscription revenues were $1,810 versus $1,338 in the year-ago quarter and include growth from intercompany relationships with the Communications segment. Advertising revenues improved when compared to the prior year resulting from the return in 2021 of the NCAA Division I Men's Championship Basketball Tournament. Content revenues increased due to higher sales to HBO Max for theatrical product and increases in Basic Networks licensing, partly offset by lower television product licensing from prior-year licensing to HBO Max.
Direct
costs increased in the first quarter of 2021, driven by higher programming and marketing costs for HBO Max and higher sports programming, including NCAA. Direct costs supporting DTC revenues were $1,685 in the first quarter of 2021, versus $911 in the year-ago quarter.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations- Continued
Dollars in millions except per share amounts
General and administrative expenses decreased in the first quarter of 2021, primarily due to lower bad
debt expense and integration of support functions.
Operating contribution increased in the first quarter of 2021. The WarnerMedia segment operating income margin decreased from 25.7% in 2020 to 23.0% in 2021.
LATIN
AMERICA SEGMENT
First Quarter
Percent
2021
2020
Change
Segment
Operating Revenues
Vrio
$
743
$
887
(16.2)
%
Mexico
631
703
(10.2)
Total
Segment Operating Revenues
1,374
1,590
(13.6)
Segment
Operating Contribution
Vrio
(39)
(39)
—
Mexico
(134)
(145)
7.6
Total
Segment Operating Contribution
$
(173)
$
(184)
6.0
%
Operating Results
Our Latin America operations conduct business in their local currency and operating results are converted to U.S. dollars using official exchange rates, subjecting results to foreign currency fluctuations.
Operating
revenues decreased in the first quarter of 2021, primarily driven by foreign exchange and COVID-19 impacts.
Operating contribution improved in the first quarter of 2021, reflecting foreign exchange rates and the impact of COVID-19. Our Latin America segment operating income margin in the first quarter decreased from (11.8)% in 2020 to (12.3)% in 2021.
Item 2. Management’s Discussion
and Analysis of Financial Condition and Results of Operations- Continued
Dollars in millions except per share amounts
The following tables highlight other key measures of performance for Vrio:
March
31,
Percent
(in 000s)
2021
2020
Change
Vrio Video Subscribers
10,559
13,217
(20.1)
%
First
Quarter
Percent
(in 000s)
2021
2020
Change
Vrio
Video Net Additions
(383)
(114)
—
%
Operating revenues decreased in the first quarter of 2021, primarily driven by foreign exchange impacts.
Operations and support expenses decreased in the first quarter of 2021, primarily driven by economic
pressures, the restructuring of sales channels in Brazil, and COVID-19 impacts. Approximately 23% of Vrio expenses are U.S. dollar based, with the remainder in the local currency.
Depreciation expense decreased in the first quarter of 2021, primarily due to lower in-service assets and foreign exchange impacts.
Operating loss improved in the first quarter of 2021. Our Vrio operating income margin for the first quarter increased from (4.8)% in 2020 to (4.7)% in 2021. Our Vrio EBITDA margin in the first quarter decreased from 11.7% in 2020 to 11.0% in 2021.
Mexico
Results
First Quarter
2021
2020
Percent
Change
Operating revenues
Service
$
439
$
467
(6.0)
%
Equipment
192
236
(18.6)
Total
Operating Revenues
631
703
(10.2)
Operating
expenses
Operations and support
620
714
(13.2)
Depreciation
and amortization
145
134
8.2
Total Operating Expenses
765
848
(9.8)
Operating
Income (Loss)
(134)
(145)
7.6
Equity in Net Income (Loss) of Affiliates
—
—
—
Operating
Contribution
$
(134)
$
(145)
7.6
%
The following tables highlight other key measures of performance for Mexico:
March
31,
Percent
(in 000s)
2021
2020
Change
Mexico Wireless Subscribers
Postpaid
4,725
4,962
(4.8)
%
Prepaid
13,756
13,692
0.5
Reseller
500
504
(0.8)
Total
Mexico Wireless Subscribers
18,981
19,158
(0.9)
%
First
Quarter
Percent
(in 000s)
2021
2020
Change
Mexico
Wireless Net Additions
Postpaid
29
(141)
—
%
Prepaid
(2)
108
—
Reseller
11
32
(65.6)
Total
Mexico Wireless Net Additions
38
(1)
—
%
Service revenues decreased in the first quarter of 2021, primarily due to lower ARPU and foreign exchange impacts.
Equipment revenues decreased in the first quarter of 2021, primarily due to lower equipment sales volumes and foreign
exchange impacts.
Operations and support expenses decreased in the first quarter of 2021, primarily due to a decline in customer growth, lower sales volumes and foreign exchange impacts. Approximately 7% of Mexico expenses are U.S. dollar based, with the remainder in the local currency.
Depreciation and amortization expense increased in the first quarter of 2021, primarily due to higher in-service assets. These increases were partially offset by changes in foreign exchange rates.
Operating loss improved in the first quarter of 2021. Our Mexico operating income margin in the first quarter decreased from (20.6)% in 2020 to (21.2)% in 2021. Our Mexico EBITDA margin in the first quarter increased from (1.6)% in 2020 to 1.7%
in 2021.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations- Continued
Dollars in millions except per share amounts
SUPPLEMENTAL VIDEO INFORMATION
As a supplemental presentation, we are providing a view of our Video business that is accounted for as held-for-sale and included in Corporate and Other. Our Video business provides video, including
over-the-top (OTT) services and also sells advertising on video distribution platforms.
Video
Results
First Quarter
Percent
2021
2020
Change
Operating
revenues
Service
$
6,684
$
7,397
(9.6)
%
Equipment
41
10
—
Total
Operating Revenues
6,725
7,407
(9.2)
Operating
expenses
Operations and support
5,660
6,020
(6.0)
Depreciation
and amortization1
164
591
(72.3)
Total Operating Expenses
5,824
6,611
(11.9)
Operating
Income
901
796
13.2
Equity in Net Income (Loss) of Affiliates
—
—
—
Operating
Contribution
$
901
$
796
13.2
%
1Includes depreciation on assets that support AT&T U-verse products that provide both video and broadband services to customers over a shared network infrastructure.
The
following tables highlight other key measures of performance for Video:
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations- Continued
Dollars in millions except per share amounts
OTHER BUSINESS MATTERS
Video Business On February 25, 2021, we signed an agreement with TPG Capital (TPG) to form a new company named DIRECTV (New DTV), which will be jointly governed by a board with representation from both AT&T and TPG, with TPG having tie-breaking authority on certain key decisions. Under the agreement, we will contribute our Video business unit to New DTV for $4,250 of junior preferred units, an additional distribution
preference of $4,200 and a 70% economic interest in common units. We expect to receive 7,800 from New DTV at closing ($7,600 in cash and approximately $200 of transferred DIRECTV debt). TPG will contribute approximately $1,800 in cash to New DTV for $1,800 of senior preferred units and a 30% economic interest in common units. The remaining $5,800 will be funded by debt issued by New DTV. As part of this transaction, we agreed to pay net losses under the NFL SUNDAY TICKET contract up to a cap of $2,500 over the remaining period of the contract.
The transaction is expected to close in the second half of 2021, pending customary closing conditions. The total of $7,600 of proceeds from the transaction are expected to reduce our total
and net debt positions. (See Note 8)
Spectrum Auction On February 24, 2021, the Federal Communications Commission (FCC) announced that AT&T was the winning bidder for 1,621 C-Band licenses, comprised of a total of 80 MHz nationwide, including 40 MHz in Phase I. We provided to the FCC an upfront deposit of $550 in 2020 and cash payments totaling $22,856 in the first quarter of 2021, for a total of $23,406 to date. We estimate that we will be responsible for $955 of Incentive Payments upon clearing of Phase I spectrum and $2,112 upon clearing of Phase II spectrum. Additionally, we will be responsible for approximately $1,000 of compensable relocation costs over the next several years as the spectrum is being cleared by satellite operators. (See Note 8)
COMPETITIVE
AND REGULATORY ENVIRONMENT
Overview AT&T subsidiaries operating within the United States are subject to federal and state regulatory authorities. AT&T subsidiaries operating outside the United States are subject to the jurisdiction of national and supranational regulatory authorities in the markets where service is provided.
In the Telecommunications Act of 1996 (Telecom Act), Congress established a national policy framework intended to bring the benefits of competition and investment in advanced telecommunications facilities and services to all Americans by opening all telecommunications markets to competition and reducing or eliminating
regulatory burdens that harm consumer welfare. Nonetheless, over the ensuing two decades, the FCC and some state regulatory commissions have maintained or expanded certain regulatory requirements that were imposed decades ago on our traditional wireline subsidiaries when they operated as legal monopolies. More recently, the FCC has pursued a more deregulatory agenda, eliminating a variety of antiquated and unnecessary regulations and streamlining its processes in a number of areas. We continue to support regulatory and legislative measures and efforts, at both the state and federal levels, to reduce inappropriate regulatory burdens that inhibit our ability to compete effectively and offer needed services to our customers, including initiatives to transition services from traditional networks to all IP-based networks. At the same time, we also seek to ensure that legacy regulations
are not further extended to broadband or wireless services, which are subject to vigorous competition.
Communications Segment
Internet The FCC currently classifies fixed and mobile consumer broadband services as information services, subject to light-touch regulation. The D.C. Circuit upheld the FCC’s current classification, although it remanded three discrete issues to the FCC for further consideration. These issues related to the effect of the FCC’s decision to classify broadband services as information services on public safety, the regulation of pole attachments, and universal service support for low-income consumers through the Lifeline program. Because no party sought Supreme Court review of the D.C. Circuit’s decision to uphold the FCC’s classification of broadband as an information service, that decision is final.
In
October 2020, the FCC adopted an order addressing the three issues remanded by the D.C. Circuit for further consideration. After considering those issues, the FCC concluded they provided no grounds to depart from its determination that fixed and mobile consumer broadband services should be classified as information services. An appeal of the FCC’s remand order is pending.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations- Continued
Dollars in millions except per share amounts
Some states have
adopted legislation or issued executive orders that would reimpose net neutrality rules repealed by the FCC. Suits have been filed concerning such laws in two states.
Privacy-related legislation continues to be adopted or considered in a number of jurisdictions. Legislative, regulatory and litigation actions could result in increased costs of compliance, further regulation or claims against broadband internet access service providers and others, and increased uncertainty in the value and availability of data.
Wireless The industry-wide deployment of 5G technology, which is needed to satisfy extensive demand for video and internet access, will involve significant deployment of “small cell” equipment and therefore increase the need for local permitting processes that allow for the placement of small cell equipment on reasonable timelines and
terms. Between 2018 and 2019, the FCC streamlined multiple federal wireless structure review processes with the potential to delay and impede deployment of infrastructure used to provide telecommunications and broadband services, including small cell equipment. Recognizing that state and local regulations have the same potential, in November 2020 the FCC adopted an order tightening the limits on state and local authority to deny requests to use existing structures for wireless facilities. These orders were appealed to the 9th Circuit Court of Appeals, where the appeals remain pending.
LIQUIDITY AND CAPITAL RESOURCES
We had $11,342 in cash and cash equivalents available at
March 31, 2021. Cash and cash equivalents included cash of $2,465 and money market funds and other cash equivalents of $8,877. Approximately $2,433 of our cash and cash equivalents were held by our foreign entities in accounts predominantly outside of the U.S. and may be subject to restrictions on repatriation.
Cash and cash equivalents increased $1,602 since December 31, 2020. In the first three months of 2021, cash inflows were primarily provided by cash receipts from operations, including cash from our sale and transfer of our receivables to third parties, and issuance of long-term debt and commercial paper. These inflows were offset by cash used to meet the needs of the business, including, but not limited to, payment of operating expenses, spectrum acquisitions, funding capital expenditures and vendor financing
payments, and dividends to stockholders.
Cash Provided by or Used in Operating Activities
During the first three months of 2021, cash provided by operating activities was $9,927, compared to $8,866 for the first three months of 2020. Higher operating cash flows in 2021 were primarily driven by higher sales of receivables (see Note 9), working capital improvements and lower interest partially offset by cash taxes. Total cash paid for WarnerMedia’s content investment was $4,508 in the first quarter of 2021 ($186 higher than the prior-year comparable period).
We actively manage the timing of our supplier payments for operating items to optimize the use of our cash. Among other things, we seek to make payments on 90-day or greater terms, while providing the suppliers with access to bank facilities that permit earlier
payments at their cost. In addition, for payments to a key supplier, as part of our working capital initiatives, we have arrangements that allow us to extend payment terms up to 90 days at an additional cost to us (referred to as supplier financing). The net impact of supplier financing was to decrease cash from operating activities $1,071 and $1,075 for the three months ended March 31, 2021 and 2020, respectively. All supplier financing payments are due within one year.
Cash Used in or Provided by Investing Activities
For the first three months of 2021, cash used in investing activities totaled $26,852, and consisted primarily of $4,033 (including interest during construction) for capital expenditures, and payment of $22,876, primarily for C-Band spectrum licenses won in Auction
107.
For capital improvements, we have negotiated favorable vendor payment terms of 120 days or more (referred to as vendor financing) with some of our vendors, which are excluded from capital expenditures and reported as financing activities. For the first three months of 2021, vendor financing payments were $1,690, compared to $791 for the first three months of 2020. Capital expenditures in the first three months of 2021 were $4,033, and when including $1,690 cash paid for vendor financing, gross capital investment was $5,723 ($41 lower than the prior-year comparable period).
The vast majority of our capital expenditures are spent on our networks, including product development and related support systems. During the first three months of 2021, we placed $998 of equipment in service under vendor financing arrangements (compared to $449 in
the prior-year comparable period) and approximately $240 of assets related to the FirstNet build (compared to $338 in the prior-year comparable period). The amount of capital expenditures is influenced by demand for services and products, capacity needs and network enhancements.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations- Continued
Dollars in millions except per share amounts
Cash Provided by or Used in Financing Activities
For the first three months of 2021, cash provided by financing
activities totaled $18,483 and was comprised of issuances of debt, offset by payments of dividends, and vendor financing payments.
A tabular summary or our debt activity for the three months ended March 31, 2021 is as follows:
Net commercial paper borrowings
$
7,072
Issuance of Notes and Debentures1:
U.S. dollar denominated
global notes
$
6,000
Initial average rate of 1.27%
Euro denominated global notes (converted to USD at issuance)
1,461
Rate of 0.00%
2021 Syndicated Term Loan
7,350
BAML Bilateral Term Loan
2,000
Private
financing
750
Other
636
Debt Issuances
$
18,197
Repayments:
Private financing
$
(649)
Other
(253)
Repayments
of long-term debt
$
(902)
1Includes credit agreement borrowings.
The weighted average interest rate of our entire long-term debt portfolio, including term loans and the impact of derivatives, was approximately 3.8% as of March 31, 2021 and 4.1% as of December 31, 2020. We had $171,194 of total notes and debentures outstanding at March 31, 2021, which included Euro, British pound sterling, Canadian dollar, Mexican peso, Australian dollar, Swiss franc and
Brazilian real denominated debt that totaled approximately $43,525.
At March 31, 2021, we had $19,505 of debt maturing within one year, consisting of $7,078 of commercial paper borrowings, $9,100 of bank borrowings, and $3,327 of long-term debt issuances. Debt maturing within one year includes an accreting zero-coupon note that may be redeemed each May until maturity in 2022. If the remainder of the zero-coupon note (issued for principal of $500 in 2007 and partially exchanged in the 2017 debt exchange offers) is held to maturity, the redemption amount will be $592.
For the first three months of 2021, we paid $1,690 of cash under our vendor financing program, compared to $791 in the first three months of 2020. Total vendor financing payables included in our March 31,
2021 consolidated balance sheet were $3,552, with $2,883 due within one year (in “Accounts payable and accrued liabilities”) and the remainder predominantly due within two to three years (in “Other noncurrent liabilities”).
At March 31, 2021, we had approximately 178 million shares remaining from our share repurchase authorizations approved by the Board of Directors in 2014.
We paid dividends on common and preferred shares of $3,741 during the first three months of 2021, compared with $3,737 for the first three months of 2020.
Dividends on common stock declared by our Board of Directors totaled $0.52 per share in the first three months of 2021 and $0.52 per share for the first three months of 2020. Our dividend
policy considers the expectations and requirements of stockholders, capital funding requirements of AT&T and long-term growth opportunities.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations- Continued
Dollars in millions except per share amounts
Credit Facilities
The following summary of our various credit and loan agreements does not purport to be complete and is qualified in its entirety by reference to each agreement filed as exhibits to our Annual Report
on Form 10-K.
We use credit facilities as a tool in managing our liquidity status. In November 2020, we amended one of our $7,500 revolving credit agreements by extending the termination date. In total, we have two $7,500 revolving credit agreements, totaling $15,000, with one terminating on December 11, 2023 and the other terminating on November 17, 2025. No amounts were outstanding under either agreement as of March 31, 2021.
On January 29, 2021, we entered into a $14,700 Term Loan Credit Agreement (2021 Syndicated Term Loan), with Bank of America, N.A., as agent. On March 23, 2021, we borrowed
$7,350 under the 2021 Syndicated Term Loan and the remaining $7,350 of lenders’ commitments were terminated. As of March 31, 2021, $7,350 was outstanding and is due on March 22, 2022.
In March 2021, we entered into and drew on a $2,000 term loan credit agreement (BAML Bilateral Term Loan) consisting of (i) a 0.75 year $1,000 facility due December 31 2021 (BAML Tranche A Facility), and (ii) a 1.75 year $1,000 facility due December 31, 2022 (BAML Tranche B Facility), with Bank of America, N.A., as agent. At March 31, 2021, $2,000 was outstanding under these facilities.
We also utilize other external financing sources, which include various credit arrangements
supported by government agencies to support network equipment purchases as well as a commercial paper program.
Each of our credit and loan agreements contains covenants that are customary for an issuer with an investment grade senior debt credit rating as well as a net debt-to-EBITDA financial ratio covenant requiring AT&T to maintain, as of the last day of each fiscal quarter, a ratio of not more than 4.0-to-1 in the case of the BAML Bilateral Term Loan and not more than 3.5-to-1 for all other credit agreements. As of March 31, 2021, we were in compliance with the covenants for our credit facilities.
Collateral Arrangements
Most of our counterparty collateral arrangements require cash collateral posting by AT&T only when derivative market values exceed
certain thresholds. Under these arrangements, which cover over 95% of our approximate $42,000 derivative portfolio, counterparties are still required to post collateral. During the first three months of 2021, we received approximately $90 of cash collateral, on a net basis. Cash postings under these arrangements vary with changes in credit ratings and netting agreements. (See Note 7)
Other
Our total capital consists of debt (long-term debt and debt maturing within one year) and stockholders’ equity. Our capital structure does not include debt issued by our equity method investments. At March 31, 2021, our debt ratio was 49.6%, compared to 45.7% at March 31, 2020 and 46.7% at December 31, 2020. Our net debt ratio was 46.5% at
March 31, 2021, compared to 42.9% at March 31, 2020 and 43.8% at December 31, 2020. The debt ratio is affected by the same factors that affect total capital, and reflects our recent debt issuances and repayments and debt acquired in business combinations.
On February 25, 2021, we signed an agreement to form a new company named DIRECTV (New DTV) with a subsidiary of TPG Capital, which will be jointly governed by a board with representation from both AT&T and TPG. The transaction is expected to close in the second half of 2021, pending customary closing conditions. We expect to receive $7,600 in cash from the transaction at closing. (See Note 8)
We have fixed-to-fixed and floating-to-fixed cross-currency swaps on foreign currency-denominated debt instruments with a U.S. dollar notional value of $42,186 to hedge our exposure to changes in foreign currency exchange rates. These derivatives have been designated at inception and qualify as cash flow or fair value hedges with a net fair value of $(577) at March 31, 2021. We had no rate locks at March 31,
2021.
We have foreign exchange contracts with a U.S. dollar notional value of $228 to provide currency at a fixed rate to hedge a portion of the exchange risk involved in foreign currency-denominated transactions. These foreign exchange contracts include fair value hedges, cash flow hedges and economic (nonqualifying) hedges with a total net fair value of $1 at March 31, 2021.
We have designated €1,433 million aggregate principal amount of debt as a hedge of the variability of some of the Euro-denominated net investments of our subsidiaries.
The gain or loss on the debt that is designated as, and is effective as, an economic hedge of the net investment in a foreign operation is recorded as a currency translation adjustment within accumulated other comprehensive income, net on the consolidated balance sheet.
Item 4. Controls and Procedures
The registrant maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed by the registrant is recorded, processed, summarized, accumulated and communicated to its management, including its principal executive
and principal financial officers, to allow timely decisions regarding required disclosure, and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms. The chief executive officer and chief financial officer have performed an evaluation of the effectiveness of the design and operation of the registrant’s disclosure controls and procedures as of March 31, 2021. Based on that evaluation, the chief executive officer and chief financial officer concluded that the registrant’s disclosure controls and procedures were effective as of March 31, 2021.
There have not been any changes in our internal
control over financial reporting during our most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. Due to the COVID-19 pandemic, most of our corporate employees are working remotely. We continue to monitor and assess the COVID-19 situation on our internal control over financial reporting to address any potential impact on their design and operating effectiveness.
CAUTIONARY LANGUAGE CONCERNING FORWARD-LOOKING
STATEMENTS
Information set forth in this report contains forward-looking statements that are subject to risks and uncertainties, and actual results could differ materially. Many of these factors are discussed in more detail in the “Risk Factors” section. We claim the protection of the safe harbor for forward-looking statements provided by the Private Securities Litigation Reform Act of 1995.
The following factors could cause our future results to differ materially from those expressed in the forward-looking statements:
•The severity, magnitude and duration of the COVID-19 pandemic and containment, mitigation and other measures taken in response, including the potential impacts of these matters on our business and operations.
•Our
inability to predict the extent to which the COVID-19 pandemic and related impacts will continue to impact our business operations, financial performance and results of operations.
•Adverse economic, political and/or capital access changes in the markets served by us or in countries in which we have significant investments and/or operations, including the impact on customer demand and our ability and our suppliers’ ability to access financial markets at favorable rates and terms.
•Increases in our benefit plans’ costs, including increases due to adverse changes in the United States and foreign securities markets, resulting in worse-than-assumed investment returns and discount rates; adverse changes in mortality assumptions; adverse medical cost trends; and unfavorable or delayed implementation or repeal of healthcare legislation, regulations
or related court decisions.
•The final outcome of FCC and other federal, state or foreign government agency proceedings (including judicial review, if any, of such proceedings) and legislative efforts involving issues that are important to our business, including, without limitation, pending Notices of Apparent Liability; the transition from legacy technologies to IP-based infrastructure, including the withdrawal of legacy TDM-based services; universal service; broadband deployment; wireless equipment siting regulations and, in particular, siting for 5G service; E911 services; competition policy; privacy; net neutrality; multichannel video programming distributor services and equipment; content licensing and copyright protection; availability of new spectrum on fair and balanced terms; and wireless and satellite license awards and renewals.
•Enactment
of additional state, local, federal and/or foreign regulatory and tax laws and regulations, or changes to existing standards and actions by tax agencies and judicial authorities including the resolution of disputes with any taxing jurisdictions, pertaining to our subsidiaries and foreign investments, including laws and regulations that reduce our incentive to invest in our networks, resulting in lower revenue growth and/or higher operating costs.
•Potential changes to the electromagnetic spectrum currently used for broadcast television and satellite distribution being considered by the FCC could negatively impact WarnerMedia’s ability to deliver linear network feeds of its domestic cable networks to its affiliates, and in some cases, WarnerMedia’s ability to produce high-value news and entertainment programming
on location.
•U.S. and foreign laws and regulations regarding intellectual property rights protection and privacy, personal data protection and user consent are complex and rapidly evolving and could result in adverse impacts to our business plans, increased costs, or claims against us that may harm our reputation.
•The ability of our competitors to offer product/service offerings at lower prices due to lower cost structures and regulatory and legislative actions adverse to us, including non-regulation of comparable alternative technologies and/or government-owned or subsidized networks.
•Disruption in our supply chain for a number of reasons, including, difficulties in obtaining export licenses for certain technology, inability to secure component parts, general business
disruption, natural disasters, safety issues, economic and political instability and public health emergencies.
•The continued development and delivery of attractive and profitable wireless, video and broadband offerings and devices, and, in particular, the success of our new HBO Max platform; the extent to which regulatory and build-out requirements apply to our offerings; our ability to match speeds offered by our competitors and the availability, cost and/or reliability of the various technologies and/or content required to provide such offerings.
•Our ability to generate subscription and advertising revenue from attractive video content, especially from WarnerMedia, in the face of unpredictable and rapidly evolving public viewing habits and legal restrictions on using personal data for advertising.
•The
availability and cost and our ability to adequately fund additional wireless spectrum and network upgrades; and regulations and conditions relating to spectrum use, licensing, obtaining additional spectrum, technical standards and deployment and usage, including network management rules.
•Our ability to manage growth in wireless data services, including network quality and acquisition of adequate spectrum at reasonable costs and terms.
•The outcome of pending, threatened or potential litigation (which includes arbitrations), including, without limitation, patent and product safety claims by or against third parties or claims based on alleged misconduct by employees.
CAUTIONARY LANGUAGE CONCERNING FORWARD-LOOKING STATEMENTS - continued
•The impact from major equipment or software failures on our networks, including satellites operated by DIRECTV; the effect of security breaches related to the network or customer information; our inability to obtain handsets, equipment/software or have handsets, equipment/software serviced in a timely and cost-effective manner from suppliers; and in the case of satellites launched, timely provisioning of services from vendors; or severe weather conditions including flooding and hurricanes, natural disasters including earthquakes and forest fires, pandemics, energy shortages, wars or terrorist attacks.
•The issuance by the Financial Accounting Standards Board or other accounting oversight
bodies of new accounting standards or changes to existing standards.
•Our ability to successfully integrate our WarnerMedia operations, including the ability to manage various businesses in widely dispersed business locations and with decentralized management.
•Changes in our corporate strategies to respond to competition and regulatory, legislative and technological developments.
•Our ability to realize or sustain the expected benefits of our business transformation initiatives, which are designed to reduce costs, streamline distribution, remove redundancies and simplify and improve processes and support functions.
Readers are cautioned that other factors discussed in this report, although not enumerated
here, also could materially affect our future earnings.
We discuss in our Annual Report on Form 10-K various risks that may materially affect our business. We use this section to update this discussion to reflect
material developments since our Form 10-K was filed. For the first quarter 2021, there were no such material developments.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
(c) A summary of our repurchases of common stock during the first quarter of 2021 is as follows:
(a)
(b)
(c)
(d)
Period
Total
Number of Shares (or Units) Purchased1, 2, 3
Average Price Paid Per Share (or Unit)
Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs1
Maximum Number (or Approximate Dollar Value) of Shares (or Units) That May Yet Be Purchased Under The Plans or Programs
1In
March 2014, our Board of Directors approved an authorization to repurchase up to 300 million shares of our common stock. The authorization has no expiration date.
2Of the shares repurchased, 5,979,814 shares were acquired through the withholding of taxes on the vesting of restricted stock and performance shares or in respect of the exercise price of options.
3Of the shares repurchased, no shares were acquired through reimbursements from AT&T maintained Voluntary Employee Benefit Association (VEBA) trusts during the period.
The following financial statements from the
Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 2021, formatted in Inline XBRL: (i) Consolidated Statements of Cash Flows, (ii) Consolidated Statements of Operations, (iii) Consolidated Statements of Comprehensive Income, (iv) Consolidated Balance Sheets, and (v) Notes to Consolidated Financial Statements, tagged as blocks of text and including detailed tags.
104
The cover page from the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 2021, (formatted as Inline XBRL and contained in Exhibit 101).
49
SIGNATURE
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.