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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
| | | | | | | | |
| (Mark One) | |
| ☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 | |
For the quarterly period ended September 30, 20202021
or
| | | | | | | | |
| ☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 | |
For the transition period from to
Commission File Number 001-8610
AT&T INC.
Incorporated under the laws of the State of Delaware
I.R.S. Employer Identification Number 43-1301883
208 S. Akard St., Dallas, Texas 75202
Telephone Number: (210) 821-4105
Securities registered pursuant to Section 12(b) of the Act
| | | | | | | | |
| | | Name of each exchange |
| Title of each class | Trading Symbol(s) | on which registered |
| Common Shares (Par Value $1.00 Per Share) | T | New York Stock Exchange |
Depositary Shares, each representing a 1/1000th interest in a share of 5.000% Perpetual Preferred Stock, Series A | T PRA | New York Stock Exchange |
Depositary Shares, each representing a 1/1000th interest in a share of 4.750% Perpetual Preferred Stock, Series C | T PRC | New York Stock Exchange |
AT&T Inc. 1.875% Global Notes due December 4, 2020 | T 20 | New York Stock Exchange |
| AT&T Inc. 2.650% Global Notes due December 17, 2021 | T 21B | New York Stock Exchange |
| AT&T Inc. 1.450% Global Notes due June 1, 2022 | T 22B | New York Stock Exchange |
| AT&T Inc. 2.500% Global Notes due March 15, 2023 | T 23 | New York Stock Exchange |
| AT&T Inc. 2.750% Global Notes due May 19, 2023 | T 23C | New York Stock Exchange |
| AT&T Inc. Floating Rate Global Notes due September 5, 2023 | T 23D | New York Stock Exchange |
| AT&T Inc. 1.050% Global Notes due September 5, 2023 | T 23E | New York Stock Exchange |
| AT&T Inc. 1.300% Global Notes due September 5, 2023 | T 23A | New York Stock Exchange |
| AT&T Inc. 1.950% Global Notes due September 15, 2023 | T 23F | New York Stock Exchange |
| AT&T Inc. 2.400% Global Notes due March 15, 2024 | T 24A | New York Stock Exchange |
| AT&T Inc. 3.500% Global Notes due December 17, 2025 | T 25 | New York Stock Exchange |
| AT&T Inc. 0.250% Global Notes due March 4, 2026 | T 26E | New York Stock Exchange |
| AT&T Inc. 1.800% Global Notes due September 5, 2026 | T 26D | New York Stock Exchange |
| | | | | | | | |
| | Name of each exchange |
Title of each class | Trading Symbol(s) | on which registered |
| AT&T Inc. 2.900% Global Notes due December 4, 2026 | T 26A | New York Stock Exchange |
| AT&T Inc. 1.600% Global Notes due May 19, 2028 | T 28C | New York Stock Exchange |
| | | | | | | | |
| | Name of each exchange |
| Title of each class | Trading Symbol(s) | on which registered |
| AT&T Inc. 2.350% Global Notes due September 5, 2029 | T 29D | New York Stock Exchange |
| AT&T Inc. 4.375% Global Notes due September 14, 2029 | T 29B | New York Stock Exchange |
| AT&T Inc. 2.600% Global Notes due December 17, 2029 | T 29A | New York Stock Exchange |
| AT&T Inc. 0.800% Global Notes due March 4, 2030 | T 30B | New York Stock Exchange |
| AT&T Inc. 2.050% Global Notes due May 19, 2032 | T 32A | New York Stock Exchange |
| AT&T Inc. 3.550% Global Notes due December 17, 2032 | T 32 | New York Stock Exchange |
| AT&T Inc. 5.200% Global Notes due November 18, 2033 | T 33 | New York Stock Exchange |
| AT&T Inc. 3.375% Global Notes due March 15, 2034 | T 34 | New York Stock Exchange |
| AT&T Inc. 2.450% Global Notes due March 15, 2035 | T 35 | New York Stock Exchange |
| AT&T Inc. 3.150% Global Notes due September 4, 2036 | T 36A | New York Stock Exchange |
| AT&T Inc. 2.600% Global Notes due May 19, 2038 | T 38C | New York Stock Exchange |
| AT&T Inc. 1.800% Global Notes due September 14, 2039 | T 39B | New York Stock Exchange |
| AT&T Inc. 7.000% Global Notes due April 30, 2040 | T 40 | New York Stock Exchange |
| AT&T Inc. 4.250% Global Notes due June 1, 2043 | T 43 | New York Stock Exchange |
| AT&T Inc. 4.875% Global Notes due June 1, 2044 | T 44 | New York Stock Exchange |
| AT&T Inc. 4.000% Global Notes due June 1, 2049 | T 49A | New York Stock Exchange |
| AT&T Inc. 4.250% Global Notes due March 1, 2050 | T 50 | New York Stock Exchange |
| AT&T Inc. 3.750% Global Notes due September 1, 2050 | T 50A | New York Stock Exchange |
| AT&T Inc. 5.350% Global Notes due November 1, 2066 | TBB | New York Stock Exchange |
| AT&T Inc. 5.625% Global Notes due August 1, 2067 | TBC | New 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.
Yes ☒ 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).
Yes ☒ 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.
| | | | | | | | | | | |
| Large Accelerated Filer | ☒ | Accelerated Filer | ☐ |
| Non-accelerated filer | ☐ | Smaller reporting company | ☐ |
| | | Emerging growth company | ☐ |
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 ☐ No ☒
At October 31, 2020,29, 2021, there were 7,1267,141 million common shares outstanding.
AT&T INC.
SEPTEMBER 30, 2020
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
| | AT&T INC. | AT&T INC. | AT&T INC. |
| CONSOLIDATED STATEMENTS OF INCOME | CONSOLIDATED STATEMENTS OF INCOME | CONSOLIDATED STATEMENTS OF INCOME |
| Dollars in millions except per share amounts | Dollars in millions except per share amounts | Dollars in millions except per share amounts |
| (Unaudited) | (Unaudited) | (Unaudited) |
| | | Three months ended | | Nine months ended | | Three months ended | | Nine months ended |
| | | September 30, | | September 30, | | September 30, | | September 30, |
| | | 2020 | | 2019 | | 2020 | | 2019 | | 2021 | | 2020 | | 2021 | | 2020 |
| Operating Revenues | Operating Revenues | | | | | | | | Operating Revenues | | | | | | | |
| Service | Service | $ | 37,782 | | | $ | 40,317 | | | $ | 113,716 | | | $ | 122,024 | | Service | $ | 34,843 | | | $ | 37,782 | | | $ | 112,303 | | | $ | 113,716 | |
| Equipment | Equipment | 4,558 | | | 4,271 | | | 12,353 | | | 12,348 | | Equipment | 5,079 | | | 4,558 | | | 15,603 | | | 12,353 | |
| Total operating revenues | Total operating revenues | 42,340 | | | 44,588 | | | 126,069 | | | 134,372 | | Total operating revenues | 39,922 | | | 42,340 | | | 127,906 | | | 126,069 | |
| | Operating Expenses | Operating Expenses | | Operating Expenses | |
| Cost of revenues | Cost of revenues | | Cost of revenues | |
| Equipment | Equipment | 4,552 | | | 4,484 | | | 12,622 | | | 13,047 | | Equipment | 5,427 | | | 4,552 | | | 16,324 | | | 12,622 | |
| Broadcast, programming and operations | Broadcast, programming and operations | 6,912 | | | 7,066 | | | 19,555 | | | 22,448 | | Broadcast, programming and operations | 4,750 | | | 6,912 | | | 19,891 | | | 19,555 | |
Other cost of revenues (exclusive of depreciation and amortization shown separately below) | Other cost of revenues (exclusive of depreciation and amortization shown separately below) | 8,375 | | | 8,604 | | | 24,833 | | | 25,910 | | Other cost of revenues (exclusive of depreciation and amortization shown separately below) | 7,649 | | | 8,375 | | | 23,797 | | | 24,833 | |
| Selling, general and administrative | Selling, general and administrative | 9,266 | | | 9,584 | | | 27,857 | | | 29,077 | | Selling, general and administrative | 9,207 | | | 9,266 | | | 27,950 | | | 27,857 | |
| Asset impairments and abandonments | Asset impairments and abandonments | 73 | | | 0 | | | 2,515 | | | 0 | | Asset impairments and abandonments | 161 | | | 73 | | | 4,716 | | | 2,515 | |
| Depreciation and amortization | Depreciation and amortization | 7,030 | | | 6,949 | | | 21,537 | | | 21,256 | | Depreciation and amortization | 5,619 | | | 7,030 | | | 17,189 | | | 21,537 | |
| Total operating expenses | Total operating expenses | 36,208 | | | 36,687 | | | 108,919 | | | 111,738 | | Total operating expenses | 32,813 | | | 36,208 | | | 109,867 | | | 108,919 | |
| Operating Income | Operating Income | 6,132 | | | 7,901 | | | 17,150 | | | 22,634 | | Operating Income | 7,109 | | | 6,132 | | | 18,039 | | | 17,150 | |
| Other Income (Expense) | Other Income (Expense) | | Other Income (Expense) | |
| Interest expense | Interest expense | (1,972) | | | (2,083) | | | (6,031) | | | (6,373) | | Interest expense | (1,667) | | | (1,972) | | | (5,221) | | | (6,031) | |
| Equity in net income (loss) of affiliates | Equity in net income (loss) of affiliates | 5 | | | 3 | | | (11) | | | 36 | | Equity in net income (loss) of affiliates | 91 | | | 5 | | | 184 | | | (11) | |
| Other income (expense) — net | Other income (expense) — net | (231) | | | (935) | | | 1,589 | | | (967) | | Other income (expense) — net | 2,279 | | | (231) | | | 7,499 | | | 1,589 | |
| Total other income (expense) | Total other income (expense) | (2,198) | | | (3,015) | | | (4,453) | | | (7,304) | | Total other income (expense) | 703 | | | (2,198) | | | 2,462 | | | (4,453) | |
| Income Before Income Taxes | Income Before Income Taxes | 3,934 | | | 4,886 | | | 12,697 | | | 15,330 | | Income Before Income Taxes | 7,812 | | | 3,934 | | | 20,501 | | | 12,697 | |
| Income tax expense | Income tax expense | 766 | | | 937 | | | 3,003 | | | 3,059 | | Income tax expense | 1,539 | | | 766 | | | 4,412 | | | 3,003 | |
| Net Income | Net Income | 3,168 | | | 3,949 | | | 9,694 | | | 12,271 | | Net Income | 6,273 | | | 3,168 | | | 16,089 | | | 9,694 | |
| Less: Net Income Attributable to Noncontrolling Interest | Less: Net Income Attributable to Noncontrolling Interest | (352) | | | (249) | | | (987) | | | (762) | | Less: Net Income Attributable to Noncontrolling Interest | (355) | | | (352) | | | (1,051) | | | (987) | |
| Net Income Attributable to AT&T | Net Income Attributable to AT&T | $ | 2,816 | | | $ | 3,700 | | | $ | 8,707 | | | $ | 11,509 | | Net Income Attributable to AT&T | $ | 5,918 | | | $ | 2,816 | | | $ | 15,038 | | | $ | 8,707 | |
| Less: Preferred Stock Dividends | Less: Preferred Stock Dividends | (54) | | | 0 | | | (138) | | | 0 | | Less: Preferred Stock Dividends | (50) | | | (54) | | | (156) | | | (138) | |
| Net Income Attributable to Common Stock | Net Income Attributable to Common Stock | $ | 2,762 | | | $ | 3,700 | | | $ | 8,569 | | | $ | 11,509 | | Net Income Attributable to Common Stock | $ | 5,868 | | | $ | 2,762 | | | $ | 14,882 | | | $ | 8,569 | |
Basic Earnings Per Share Attributable to Common Stock | Basic Earnings Per Share Attributable to Common Stock | $ | 0.39 | | | $ | 0.50 | | | $ | 1.19 | | | $ | 1.57 | | Basic Earnings Per Share Attributable to Common Stock | $ | 0.82 | | | $ | 0.39 | | | $ | 2.07 | | | $ | 1.19 | |
Diluted Earnings Per Share Attributable to Common Stock | Diluted Earnings Per Share Attributable to Common Stock | $ | 0.39 | | | $ | 0.50 | | | $ | 1.19 | | | $ | 1.57 | | Diluted Earnings Per Share Attributable to Common Stock | $ | 0.82 | | | $ | 0.39 | | | $ | 2.07 | | | $ | 1.19 | |
Weighted Average Number of Common Shares Outstanding — Basic (in millions) | Weighted Average Number of Common Shares Outstanding — Basic (in millions) | 7,147 | | | 7,327 | | | 7,160 | | | 7,321 | | Weighted Average Number of Common Shares Outstanding — Basic (in millions) | 7,171 | | | 7,147 | | | 7,167 | | | 7,160 | |
Weighted Average Number of Common Shares Outstanding — with Dilution (in millions) | Weighted Average Number of Common Shares Outstanding — with Dilution (in millions) | 7,173 | | | 7,356 | | | 7,186 | | | 7,350 | | Weighted Average Number of Common Shares Outstanding — with Dilution (in millions) | 7,202 | | | 7,173 | | | 7,197 | | | 7,186 | |
See Notes to Consolidated Financial Statements.
| | AT&T INC. | AT&T INC. | | | | | | | | AT&T INC. | | | | | | | |
| CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME | CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME | | | | | | | CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME | | | | | | |
| Dollars in millions | Dollars in millions | | | | | | | | Dollars in millions | | | | | | | |
| (Unaudited) | (Unaudited) | | | | | | | | (Unaudited) | | | | | | | |
| | | Three months ended | | Nine months ended | | Three months ended | | Nine months ended |
| | | September 30, | | September 30, | | September 30, | | September 30, |
| | | 2020 | | 2019 | | 2020 | | 2019 | | 2021 | | 2020 | | 2021 | | 2020 |
| Net income | Net income | $ | 3,168 | | | $ | 3,949 | | | $ | 9,694 | | | $ | 12,271 | | Net income | $ | 6,273 | | | $ | 3,168 | | | $ | 16,089 | | | $ | 9,694 | |
| Other comprehensive income (loss), net of tax: | Other comprehensive income (loss), net of tax: | | Other comprehensive income (loss), net of tax: | |
| Foreign currency: | Foreign currency: | | Foreign currency: | |
Translation adjustment (includes $(2), $(17), $(61) and $(15) attributable to noncontrolling interest), net of taxes of $47, $(69), $(150) and $(21) | 90 | | | (342) | | | (1,459) | | | (181) | | |
Translation adjustment (includes $(4), $(2), $(2) and $(61) attributable to noncontrolling interest), net of taxes of $(17), $47, $(13) and $(150) | | Translation adjustment (includes $(4), $(2), $(2) and $(61) attributable to noncontrolling interest), net of taxes of $(17), $47, $(13) and $(150) | (86) | | | 90 | | | 106 | | | (1,459) | |
| Securities: | Securities: | | Securities: | |
Net unrealized gains (losses), net of taxes of $1, $7, $28 and $22 | 1 | | | 25 | | | 81 | | | 67 | | |
Net unrealized gains (losses), net of taxes of $(1), $1, $(13) and $28 | | Net unrealized gains (losses), net of taxes of $(1), $1, $(13) and $28 | (4) | | | 1 | | | (39) | | | 81 | |
Reclassification adjustment included in net income, net of taxes of $0, $0, $(1) and $0 | | Reclassification adjustment included in net income, net of taxes of $0, $0, $(1) and $0 | (1) | | | — | | | (4) | | | — | |
| Derivative instruments: | Derivative instruments: | | Derivative instruments: | |
Net unrealized gains (losses), net of taxes of $229, $(168), $(574) and $(299) | 860 | | | (516) | | | (2,166) | | | (1,006) | | |
Reclassification adjustment included in net income, net of taxes of $7, $2, $11 and $7 | 27 | | | 7 | | | 44 | | | 24 | | |
Net unrealized gains (losses), net of taxes of $(54), $229, $(160) and $(574) | | Net unrealized gains (losses), net of taxes of $(54), $229, $(160) and $(574) | (195) | | | 860 | | | (593) | | | (2,166) | |
Reclassification adjustment included in net income, net of taxes of $4, $7, $16 and $11 | | Reclassification adjustment included in net income, net of taxes of $4, $7, $16 and $11 | 11 | | | 27 | | | 57 | | | 44 | |
| Defined benefit postretirement plans: | Defined benefit postretirement plans: | | Defined benefit postretirement plans: | |
Amortization of net prior service credit included in net income, net of taxes of $(150), $(112), $(451) and $(332) | (460) | | | (343) | | | (1,382) | | | (1,031) | | |
Amortization of net prior service credit included in net income, net of taxes of $(165), $(150), $(495) and $(451) | | Amortization of net prior service credit included in net income, net of taxes of $(165), $(150), $(495) and $(451) | (505) | | | (460) | | | (1,516) | | | (1,382) | |
| Other comprehensive income (loss) | Other comprehensive income (loss) | 518 | | | (1,169) | | | (4,882) | | | (2,127) | | Other comprehensive income (loss) | (780) | | | 518 | | | (1,989) | | | (4,882) | |
| Total comprehensive income | Total comprehensive income | 3,686 | | | 2,780 | | | 4,812 | | | 10,144 | | Total comprehensive income | 5,493 | | | 3,686 | | | 14,100 | | | 4,812 | |
Less: Total comprehensive income attributable to noncontrolling interest | Less: Total comprehensive income attributable to noncontrolling interest | (350) | | | (232) | | | (926) | | | (747) | | Less: Total comprehensive income attributable to noncontrolling interest | (351) | | | (350) | | | (1,049) | | | (926) | |
| Total Comprehensive Income Attributable to AT&T | Total Comprehensive Income Attributable to AT&T | $ | 3,336 | | | $ | 2,548 | | | $ | 3,886 | | | $ | 9,397 | | Total Comprehensive Income Attributable to AT&T | $ | 5,142 | | | $ | 3,336 | | | $ | 13,051 | | | $ | 3,886 | |
See Notes to Consolidated Financial Statements.
| | AT&T INC. | AT&T INC. | AT&T INC. |
| CONSOLIDATED BALANCE SHEETS | CONSOLIDATED BALANCE SHEETS | CONSOLIDATED BALANCE SHEETS |
| Dollars in millions except per share amounts | Dollars in millions except per share amounts | Dollars in millions except per share amounts |
| | | September 30, 2020 | | December 31, 2019 | | September 30, | | December 31, |
| | | | 2021 | | 2020 |
| Assets | Assets | (Unaudited) | | | Assets | (Unaudited) | | |
| Current Assets | Current Assets | | | | Current Assets | | | |
| Cash and cash equivalents | Cash and cash equivalents | $ | 9,758 | | | $ | 12,130 | | Cash and cash equivalents | $ | 21,270 | | | $ | 9,740 | |
| Accounts receivable — net of related allowances for credit loss of $1,386 and $1,235 | 19,379 | | | 22,636 | | |
| Prepaid expenses | 1,420 | | | 1,631 | | |
| Other current assets | 19,414 | | | 18,364 | | |
| Accounts receivable – net of related allowances for credit loss of $806 and $1,221 | | Accounts receivable – net of related allowances for credit loss of $806 and $1,221 | 16,304 | | | 20,215 | |
| Inventories | | Inventories | 3,088 | | | 3,695 | |
| Prepaid and other current assets | | Prepaid and other current assets | 16,568 | | | 18,358 | |
| Total current assets | Total current assets | 49,971 | | | 54,761 | | Total current assets | 57,230 | | | 52,008 | |
| Noncurrent Inventories and Theatrical Film and Television Production Costs | Noncurrent Inventories and Theatrical Film and Television Production Costs | 13,948 | | | 12,434 | | Noncurrent Inventories and Theatrical Film and Television Production Costs | 17,811 | | | 14,752 | |
| Property, plant and equipment | Property, plant and equipment | 333,797 | | | 333,538 | | Property, plant and equipment | 325,866 | | | 327,751 | |
| Less: accumulated depreciation and amortization | Less: accumulated depreciation and amortization | (205,075) | | | (203,410) | | Less: accumulated depreciation and amortization | (201,447) | | | (200,436) | |
| Property, Plant and Equipment — Net | 128,722 | | | 130,128 | | |
| Property, Plant and Equipment – Net | | Property, Plant and Equipment – Net | 124,419 | | | 127,315 | |
| Goodwill | Goodwill | 143,688 | | | 146,241 | | Goodwill | 133,663 | | | 135,259 | |
| Licenses — Net | 98,397 | | | 97,907 | | |
| Trademarks and Trade Names — Net | 23,575 | | | 23,567 | | |
| Distribution Networks — Net | 14,249 | | | 15,345 | | |
| Other Intangible Assets — Net | 17,523 | | | 20,798 | | |
| Licenses – Net | | Licenses – Net | 112,423 | | | 93,840 | |
| Trademarks and Trade Names – Net | | Trademarks and Trade Names – Net | 22,097 | | | 23,297 | |
| Distribution Networks – Net | | Distribution Networks – Net | 12,408 | | | 13,793 | |
| Other Intangible Assets – Net | | Other Intangible Assets – Net | 12,338 | | | 15,386 | |
| Investments in and Advances to Equity Affiliates | Investments in and Advances to Equity Affiliates | 2,325 | | | 3,695 | | Investments in and Advances to Equity Affiliates | 8,629 | | | 1,780 | |
| Operating Lease Right-Of-Use Assets | Operating Lease Right-Of-Use Assets | 24,546 | | | 24,039 | | Operating Lease Right-Of-Use Assets | 24,341 | | | 24,714 | |
| Other Assets | Other Assets | 21,609 | | | 22,754 | | Other Assets | 21,748 | | | 23,617 | |
| Total Assets | Total Assets | $ | 538,553 | | | $ | 551,669 | | Total Assets | $ | 547,107 | | | $ | 525,761 | |
| Liabilities and Stockholders’ Equity | Liabilities and Stockholders’ Equity | | Liabilities and Stockholders’ Equity | |
| Current Liabilities | Current Liabilities | | Current Liabilities | |
| Debt maturing within one year | Debt maturing within one year | $ | 5,898 | | | $ | 11,838 | | Debt maturing within one year | $ | 23,755 | | | $ | 3,470 | |
| Note payable to DIRECTV | | Note payable to DIRECTV | 1,180 | | | — | |
| Accounts payable and accrued liabilities | Accounts payable and accrued liabilities | 42,728 | | | 45,956 | | Accounts payable and accrued liabilities | 47,926 | | | 50,051 | |
| Advanced billings and customer deposits | Advanced billings and customer deposits | 5,862 | | | 6,124 | | Advanced billings and customer deposits | 4,991 | | | 6,176 | |
| Accrued taxes | 1,336 | | | 1,212 | | |
| Dividends payable | Dividends payable | 3,741 | | | 3,781 | | Dividends payable | 3,749 | | | 3,741 | |
| Total current liabilities | Total current liabilities | 59,565 | | | 68,911 | | Total current liabilities | 81,601 | | | 63,438 | |
| Long-Term Debt | Long-Term Debt | 152,980 | | | 151,309 | | Long-Term Debt | 155,406 | | | 153,775 | |
| Deferred Credits and Other Noncurrent Liabilities | Deferred Credits and Other Noncurrent Liabilities | | Deferred Credits and Other Noncurrent Liabilities | |
| Deferred income taxes | Deferred income taxes | 60,448 | | | 59,502 | | Deferred income taxes | 63,405 | | | 60,472 | |
| Postemployment benefit obligation | Postemployment benefit obligation | 17,928 | | | 18,788 | | Postemployment benefit obligation | 14,158 | | | 18,276 | |
| Operating lease liabilities | Operating lease liabilities | 22,056 | | | 21,804 | | Operating lease liabilities | 21,510 | | | 22,202 | |
| Other noncurrent liabilities | Other noncurrent liabilities | 30,520 | | | 29,421 | | Other noncurrent liabilities | 29,466 | | | 28,358 | |
| Noncurrent portion of note payable to DIRECTV | | Noncurrent portion of note payable to DIRECTV | 258 | | | — | |
| Total deferred credits and other noncurrent liabilities | Total deferred credits and other noncurrent liabilities | 130,952 | | | 129,515 | | Total deferred credits and other noncurrent liabilities | 128,797 | | | 129,308 | |
| Stockholders’ Equity | Stockholders’ Equity | | Stockholders’ Equity | |
| Preferred stock ($1 par value, 10,000,000 authorized): | | |
| Series A (48,000 issued and outstanding at September 30, 2020 and December 31, 2019) | 0 | | | 0 | | |
Series B (20,000 issued and outstanding at September 30, 2020 and 0 issued and outstanding at December 31, 2019) | 0 | | | 0 | | |
Series C (70,000 issued and outstanding at September 30, 2020 and 0 issued and outstanding at December 31, 2019) | 0 | | | 0 | | |
Common stock ($1 par value, 14,000,000,000 authorized at September 30, 2020 and December 31, 2019: issued 7,620,748,598 at September 30, 2020 and December 31, 2019) | 7,621 | | | 7,621 | | |
| Preferred stock ($1 par value, 10,000,000 authorized at September 30, 2021 and December 31, 2020): | | Preferred stock ($1 par value, 10,000,000 authorized at September 30, 2021 and December 31, 2020): | |
| Series A (48,000 issued and outstanding at September 30, 2021 and December 31, 2020) | | Series A (48,000 issued and outstanding at September 30, 2021 and December 31, 2020) | — | | | — | |
| Series B (20,000 issued and outstanding at September 30, 2021 and December 31, 2020) | | Series B (20,000 issued and outstanding at September 30, 2021 and December 31, 2020) | — | | | — | |
| Series C (70,000 issued and outstanding at September 30, 2021 and December 31, 2020) | | Series C (70,000 issued and outstanding at September 30, 2021 and December 31, 2020) | — | | | — | |
Common stock ($1 par value, 14,000,000,000 authorized at September 30, 2021 and December 31, 2020: issued 7,620,748,598 at September 30, 2021 and December 31, 2020) | | Common stock ($1 par value, 14,000,000,000 authorized at September 30, 2021 and December 31, 2020: issued 7,620,748,598 at September 30, 2021 and December 31, 2020) | 7,621 | | | 7,621 | |
| Additional paid-in capital | Additional paid-in capital | 130,139 | | | 126,279 | | Additional paid-in capital | 130,035 | | | 130,175 | |
| Retained earnings | Retained earnings | 55,094 | | | 57,936 | | Retained earnings | 41,091 | | | 37,457 | |
Treasury stock (495,703,331 at September 30, 2020 and 366,193,458 at December 31, 2019, at cost) | (17,950) | | | (13,085) | | |
| Treasury stock (480,656,332 at September 30, 2021 and 494,826,583 at December 31, 2020, at cost) | | Treasury stock (480,656,332 at September 30, 2021 and 494,826,583 at December 31, 2020, at cost) | (17,319) | | | (17,910) | |
| Accumulated other comprehensive income | Accumulated other comprehensive income | 649 | | | 5,470 | | Accumulated other comprehensive income | 2,343 | | | 4,330 | |
| Noncontrolling interest | Noncontrolling interest | 19,503 | | | 17,713 | | Noncontrolling interest | 17,532 | | | 17,567 | |
| Total stockholders’ equity | Total stockholders’ equity | 195,056 | | | 201,934 | | Total stockholders’ equity | 181,303 | | | 179,240 | |
| Total Liabilities and Stockholders’ Equity | Total Liabilities and Stockholders’ Equity | $ | 538,553 | | | $ | 551,669 | | Total Liabilities and Stockholders’ Equity | $ | 547,107 | | | $ | 525,761 | |
See Notes to Consolidated Financial Statements.
| | AT&T INC. | AT&T INC. | AT&T INC. |
| CONSOLIDATED STATEMENTS OF CASH FLOWS | CONSOLIDATED STATEMENTS OF CASH FLOWS | CONSOLIDATED STATEMENTS OF CASH FLOWS |
| Dollars in millions | Dollars in millions | Dollars in millions |
| (Unaudited) | (Unaudited) | | | | (Unaudited) | | | |
| | | Nine months ended | | Nine months ended |
| | | September 30, | | September 30, |
| | | 2020 | | 2019 | | 2021 | | 2020 |
| Operating Activities | Operating Activities | | | | Operating Activities | | | |
| Net income | Net income | $ | 9,694 | | | $ | 12,271 | | Net income | $ | 16,089 | | | $ | 9,694 | |
| Adjustments to reconcile net income to net cash provided by operating activities: | Adjustments to reconcile net income to net cash provided by operating activities: | | Adjustments to reconcile net income to net cash provided by operating activities: | |
| Depreciation and amortization | Depreciation and amortization | 21,537 | | | 21,256 | | Depreciation and amortization | 17,189 | | | 21,537 | |
| Amortization of television and film costs | 6,448 | | | 7,059 | | |
| Undistributed earnings from investments in equity affiliates | 108 | | | 81 | | |
| Amortization of film and television costs | | Amortization of film and television costs | 8,421 | | | 6,448 | |
| Distributed (undistributed) earnings from investments in equity affiliates | | Distributed (undistributed) earnings from investments in equity affiliates | 102 | | | 108 | |
| Provision for uncollectible accounts | Provision for uncollectible accounts | 1,611 | | | 1,855 | | Provision for uncollectible accounts | 858 | | | 1,611 | |
| Deferred income tax expense | Deferred income tax expense | 2,248 | | | 1,039 | | Deferred income tax expense | 3,187 | | | 2,248 | |
| Net (gain) loss on investments, net of impairments | Net (gain) loss on investments, net of impairments | (689) | | | (1,014) | | Net (gain) loss on investments, net of impairments | (965) | | | (689) | |
| Pension and postretirement benefit expense (credit) | Pension and postretirement benefit expense (credit) | (2,245) | | | (1,297) | | Pension and postretirement benefit expense (credit) | (2,870) | | | (2,245) | |
| Actuarial (gain) loss on pension and postretirement benefits | Actuarial (gain) loss on pension and postretirement benefits | 63 | | | 4,048 | | Actuarial (gain) loss on pension and postretirement benefits | (3,021) | | | 63 | |
| Asset impairments and abandonments | Asset impairments and abandonments | 2,515 | | | 0 | | Asset impairments and abandonments | 4,716 | | | 2,515 | |
| Changes in operating assets and liabilities: | Changes in operating assets and liabilities: | | Changes in operating assets and liabilities: | |
| Receivables | Receivables | 2,321 | | | 2,503 | | Receivables | 57 | | | 2,321 | |
| Other current assets, inventories and theatrical film and television production costs | Other current assets, inventories and theatrical film and television production costs | (7,836) | | | (9,337) | | Other current assets, inventories and theatrical film and television production costs | (11,928) | | | (7,836) | |
| Accounts payable and other accrued liabilities | Accounts payable and other accrued liabilities | (4,905) | | | (936) | | Accounts payable and other accrued liabilities | (2,254) | | | (4,905) | |
| Equipment installment receivables and related sales | Equipment installment receivables and related sales | (148) | | | 848 | | Equipment installment receivables and related sales | 715 | | | (148) | |
| Deferred customer contract acquisition and fulfillment costs | Deferred customer contract acquisition and fulfillment costs | 453 | | | (796) | | Deferred customer contract acquisition and fulfillment costs | 316 | | | 453 | |
| Postretirement claims and contributions | Postretirement claims and contributions | (409) | | | (635) | | Postretirement claims and contributions | (425) | | | (409) | |
| Other - net | Other - net | 2,282 | | | (220) | | Other - net | 516 | | | 2,282 | |
| Total adjustments | Total adjustments | 23,354 | | | 24,454 | | Total adjustments | 14,614 | | | 23,354 | |
| Net Cash Provided by Operating Activities | Net Cash Provided by Operating Activities | 33,048 | | | 36,725 | | Net Cash Provided by Operating Activities | 30,703 | | | 33,048 | |
| Investing Activities | Investing Activities | | Investing Activities | |
| Capital expenditures, including $(92) and $(160) of interest during construction | (13,283) | | | (15,843) | | |
| Capital expenditures | | Capital expenditures | (12,696) | | | (13,283) | |
| Acquisitions, net of cash acquired | Acquisitions, net of cash acquired | (1,215) | | | (1,124) | | Acquisitions, net of cash acquired | (23,533) | | | (1,215) | |
| Dispositions | Dispositions | 428 | | | 3,775 | | Dispositions | 9,086 | | | 428 | |
| (Purchases), sales and settlements of securities and investments, net | 444 | | | 523 | | |
| Advances to and investments in equity affiliates, net | (100) | | | (333) | | |
| Other - net | | Other - net | (190) | | | 344 | |
| | Net Cash Used in Investing Activities | Net Cash Used in Investing Activities | (13,726) | | | (13,002) | | Net Cash Used in Investing Activities | (27,333) | | | (13,726) | |
| Financing Activities | Financing Activities | | Financing Activities | |
| Net change in short-term borrowings with original maturities of three months or less | Net change in short-term borrowings with original maturities of three months or less | (17) | | | (22) | | Net change in short-term borrowings with original maturities of three months or less | 630 | | | (17) | |
| Issuance of other short-term borrowings | Issuance of other short-term borrowings | 9,440 | | | 4,012 | | Issuance of other short-term borrowings | 17,476 | | | 9,440 | |
| Repayment of other short-term borrowings | Repayment of other short-term borrowings | (7,710) | | | (4,702) | | Repayment of other short-term borrowings | (2,448) | | | (7,710) | |
| Issuance of long-term debt | Issuance of long-term debt | 31,987 | | | 15,034 | | Issuance of long-term debt | 9,931 | | | 31,987 | |
| Repayment of long-term debt | Repayment of long-term debt | (37,583) | | | (24,368) | | Repayment of long-term debt | (1,653) | | | (37,583) | |
| Note payable to DIRECTV, net of payments of $361 | | Note payable to DIRECTV, net of payments of $361 | 1,439 | | | — | |
| Payment of vendor financing | Payment of vendor financing | (1,965) | | | (2,601) | | Payment of vendor financing | (4,013) | | | (1,965) | |
| Issuance of preferred stock | Issuance of preferred stock | 3,869 | | | 0 | | Issuance of preferred stock | — | | | 3,869 | |
| Purchase of treasury stock | Purchase of treasury stock | (5,483) | | | (409) | | Purchase of treasury stock | (191) | | | (5,483) | |
| Issuance of treasury stock | Issuance of treasury stock | 88 | | | 576 | | Issuance of treasury stock | 89 | | | 88 | |
| Issuance of preferred interests in subsidiary | 1,979 | | | 1,488 | | |
| Issuance of preferred interests in subsidiaries | | Issuance of preferred interests in subsidiaries | — | | | 1,979 | |
| Dividends paid | Dividends paid | (11,215) | | | (11,162) | | Dividends paid | (11,319) | | | (11,215) | |
| Other - net | Other - net | (5,158) | | | (187) | | Other - net | (1,776) | | | (5,158) | |
| Net Cash Used in Financing Activities | (21,768) | | | (22,341) | | |
| Net (decrease) increase in cash and cash equivalents and restricted cash | (2,446) | | | 1,382 | | |
| Net Cash Provided by (Used in) Financing Activities | | Net Cash Provided by (Used in) Financing Activities | 8,165 | | | (21,768) | |
| Net increase (decrease) in cash and cash equivalents and restricted cash | | Net increase (decrease) in cash and cash equivalents and restricted cash | 11,535 | | | (2,446) | |
| Cash and cash equivalents and restricted cash beginning of year | Cash and cash equivalents and restricted cash beginning of year | 12,295 | | | 5,400 | | Cash and cash equivalents and restricted cash beginning of year | 9,870 | | | 12,295 | |
| Cash and Cash Equivalents and Restricted Cash End of Period | Cash and Cash Equivalents and Restricted Cash End of Period | $ | 9,849 | | | $ | 6,782 | | Cash and Cash Equivalents and Restricted Cash End of Period | $ | 21,405 | | | $ | 9,849 | |
See Notes to Consolidated Financial Statements.
| | AT&T INC. | AT&T INC. | | | | | | | | | AT&T INC. | | | | | | | | |
| CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY | CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY | CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY |
| Dollars and shares in millions except per share amounts | Dollars and shares in millions except per share amounts | | | | | | | | | Dollars and shares in millions except per share amounts | | | | | | | | |
| (Unaudited) | (Unaudited) | | | | | | | | | (Unaudited) | | | | | | | | |
| | | Three months ended | | Nine months ended | | Three months ended | | Nine months ended |
| | | September 30, 2020 | | September 30, 2019 | | September 30, 2020 | | September 30, 2019 | | September 30, 2021 | | September 30, 2020 | | September 30, 2021 | | September 30, 2020 |
| | | Shares | | Amount | | Shares | | Amount | | Shares | | Amount | | Shares | | Amount | | Shares | | Amount | | Shares | | Amount | | Shares | | Amount | | Shares | | Amount |
| Preferred Stock - Series A | Preferred Stock - Series A | | | | | | | | | | | | | | | | Preferred Stock - Series A | | | | | | | | | | | | | | | |
| Balance at beginning of period | Balance at beginning of period | 0 | | | $ | 0 | | | 0 | | | $ | 0 | | | 0 | | | $ | 0 | | | 0 | | | $ | 0 | | Balance at beginning of period | — | | | $ | — | | | — | | | $ | — | | | — | | | $ | — | | | — | | | $ | — | |
| Issuance of stock | Issuance of stock | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | Issuance of stock | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| Balance at end of period | Balance at end of period | 0 | | | $ | 0 | | | 0 | | | $ | 0 | | | 0 | | | $ | 0 | | | 0 | | | $ | 0 | | Balance at end of period | — | | | $ | — | | | — | | | $ | — | | | — | | | $ | — | | | — | | | $ | — | |
| Preferred Stock - Series B | Preferred Stock - Series B | | Preferred Stock - Series B | |
| Balance at beginning of period | Balance at beginning of period | 0 | | | $ | 0 | | | 0 | | | $ | 0 | | | 0 | | | $ | 0 | | | 0 | | | $ | 0 | | Balance at beginning of period | — | | | $ | — | | | — | | | $ | — | | | — | | | $ | — | | | — | | | $ | — | |
| Issuance of stock | Issuance of stock | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | Issuance of stock | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| Balance at end of period | Balance at end of period | 0 | | | $ | 0 | | | 0 | | | $ | 0 | | | 0 | | | $ | 0 | | | 0 | | | $ | 0 | | Balance at end of period | — | | | $ | — | | | — | | | $ | — | | | — | | | $ | — | | | — | | | $ | — | |
| Preferred Stock - Series C | Preferred Stock - Series C | | Preferred Stock - Series C | |
| Balance at beginning of period | Balance at beginning of period | 0 | | | $ | 0 | | | 0 | | | $ | 0 | | | 0 | | | $ | 0 | | | 0 | | | $ | 0 | | Balance at beginning of period | — | | | $ | — | | | — | | | $ | — | | | — | | | $ | — | | | — | | | $ | — | |
| Issuance of stock | Issuance of stock | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | Issuance of stock | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| Balance at end of period | Balance at end of period | 0 | | | $ | 0 | | | 0 | | | $ | 0 | | | 0 | | | $ | 0 | | | 0 | | | $ | 0 | | Balance at end of period | — | | | $ | — | | | — | | | $ | — | | | — | | | $ | — | | | — | | | $ | — | |
| Common Stock | Common Stock | | Common Stock | |
| Balance at beginning of period | Balance at beginning of period | 7,621 | | | $ | 7,621 | | | 7,621 | | | $ | 7,621 | | | 7,621 | | | $ | 7,621 | | | 7,621 | | | $ | 7,621 | | Balance at beginning of period | 7,621 | | | $ | 7,621 | | | 7,621 | | | $ | 7,621 | | | 7,621 | | | $ | 7,621 | | | 7,621 | | | $ | 7,621 | |
| Issuance of stock | Issuance of stock | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | Issuance of stock | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| Balance at end of period | Balance at end of period | 7,621 | | | $ | 7,621 | | | 7,621 | | | $ | 7,621 | | | 7,621 | | | $ | 7,621 | | | 7,621 | | | $ | 7,621 | | Balance at end of period | 7,621 | | | $ | 7,621 | | | 7,621 | | | $ | 7,621 | | | 7,621 | | | $ | 7,621 | | | 7,621 | | | $ | 7,621 | |
| Additional Paid-In Capital | Additional Paid-In Capital | | Additional Paid-In Capital | |
| Balance at beginning of period | Balance at beginning of period | | $ | 130,046 | | | $ | 125,109 | | | $ | 126,279 | | | $ | 125,525 | | Balance at beginning of period | | $ | 129,941 | | | $ | 130,046 | | | $ | 130,175 | | | $ | 126,279 | |
Repurchase and acquisition of common stock | Repurchase and acquisition of common stock | | 0 | | | 0 | | | 67 | | | 0 | | Repurchase and acquisition of common stock | | — | | | — | | | — | | | 67 | |
| Issuance of preferred stock | Issuance of preferred stock | | 0 | | | 0 | | | 3,869 | | | 0 | | Issuance of preferred stock | | — | | | — | | | — | | | 3,869 | |
| Issuance of treasury stock | Issuance of treasury stock | | (2) | | | (1) | | | (56) | | | (128) | | Issuance of treasury stock | | (2) | | | (2) | | | (77) | | | (56) | |
| Share-based payments | Share-based payments | | 91 | | | 31 | | | (24) | | | (258) | | Share-based payments | | 96 | | | 91 | | | (63) | | | (24) | |
Changes related to acquisition of interests held by noncontrolling owners | Changes related to acquisition of interests held by noncontrolling owners | | 4 | | | 0 | | | 4 | | | 0 | | Changes related to acquisition of interests held by noncontrolling owners | | — | | | 4 | | | — | | | 4 | |
| Balance at end of period | Balance at end of period | | $ | 130,139 | | | $ | 125,139 | | | $ | 130,139 | | | $ | 125,139 | | Balance at end of period | | $ | 130,035 | | | $ | 130,139 | | | $ | 130,035 | | | $ | 130,139 | |
| Retained Earnings | Retained Earnings | | Retained Earnings | |
| Balance at beginning of period | Balance at beginning of period | | $ | 56,045 | | | $ | 59,389 | | | $ | 57,936 | | | $ | 58,753 | | Balance at beginning of period | | $ | 38,947 | | | $ | 56,045 | | | $ | 37,457 | | | $ | 57,936 | |
Cumulative effect of accounting change and other adjustments | Cumulative effect of accounting change and other adjustments | | 0 | | | 0 | | | (293) | | | 316 | | Cumulative effect of accounting change and other adjustments | | — | | | — | | | — | | | (293) | |
| Adjusted beginning balance | Adjusted beginning balance | | 56,045 | | | 59,389 | | | 57,643 | | | 59,069 | | Adjusted beginning balance | | 38,947 | | | 56,045 | | | 37,457 | | | 57,643 | |
| Net income attributable to AT&T | Net income attributable to AT&T | | 2,816 | | | 3,700 | | | 8,707 | | | 11,509 | | Net income attributable to AT&T | | 5,918 | | | 2,816 | | | 15,038 | | | 8,707 | |
| Preferred stock dividends | Preferred stock dividends | | (35) | | | 0 | | | (103) | | | 0 | | Preferred stock dividends | | (36) | | | (35) | | | (188) | | | (103) | |
Common stock dividends ( $0.52, $0.51, $1.56, and $1.53 per share) | | (3,732) | | | (3,742) | | | (11,153) | | | (11,231) | | |
Common stock dividends ($0.52, $0.52, $1.56 and $1.56 per share) | | Common stock dividends ($0.52, $0.52, $1.56 and $1.56 per share) | | (3,738) | | | (3,732) | | | (11,216) | | | (11,153) | |
| Balance at end of period | Balance at end of period | | $ | 55,094 | | | $ | 59,347 | | | $ | 55,094 | | | $ | 59,347 | | Balance at end of period | | $ | 41,091 | | | $ | 55,094 | | | $ | 41,091 | | | $ | 55,094 | |
See Notes to Consolidated Financial Statements.
| | AT&T INC. | AT&T INC. | | | | | | | | | AT&T INC. | | | | | | | | |
| CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY - continued | CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY - continued | CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY - continued |
| Dollars and shares in millions except per share amounts | Dollars and shares in millions except per share amounts | | | | | | | | | Dollars and shares in millions except per share amounts | | | | | | | | |
| (Unaudited) | (Unaudited) | | | | | | | | | (Unaudited) | | | | | | | | |
| | | Three months ended | | Nine months ended | | Three months ended | | Nine months ended |
| | | September 30, 2020 | | September 30, 2019 | | September 30, 2020 | | September 30, 2019 | | September 30, 2021 | | September 30, 2020 | | September 30, 2021 | | September 30, 2020 |
| | | Shares | | Amount | | Shares | | Amount | | Shares | | Amount | | Shares | | Amount | | Shares | | Amount | | Shares | | Amount | | Shares | | Amount | | Shares | | Amount |
| Treasury Stock | Treasury Stock | | | | | | | | | | | | | | | | Treasury Stock | | | | | | | | | | | | | | | |
| Balance at beginning of period | Balance at beginning of period | (495) | | | $ | (17,945) | | | (316) | | | $ | (11,151) | | | (366) | | | $ | (13,085) | | | (339) | | | $ | (12,059) | | Balance at beginning of period | (481) | | | $ | (17,332) | | | (495) | | | $ | (17,945) | | | (495) | | | $ | (17,910) | | | (366) | | | $ | (13,085) | |
Repurchase and acquisition of common stock | Repurchase and acquisition of common stock | (1) | | | (19) | | | (5) | | | (186) | | | (149) | | | (5,600) | | | (14) | | | (466) | | Repurchase and acquisition of common stock | (1) | | | (10) | | | (1) | | | (19) | | | (8) | | | (225) | | | (149) | | | (5,600) | |
| Issuance of treasury stock | 0 | | | 14 | | | 4 | | | 142 | | | 19 | | | 735 | | | 36 | | | 1,330 | | |
| Reissuance of treasury stock | | Reissuance of treasury stock | 1 | | | 23 | | | — | | | 14 | | | 22 | | | 816 | | | 19 | | | 735 | |
| Balance at end of period | Balance at end of period | (496) | | | $ | (17,950) | | | (317) | | | $ | (11,195) | | | (496) | | | $ | (17,950) | | | (317) | | | $ | (11,195) | | Balance at end of period | (481) | | | $ | (17,319) | | | (496) | | | $ | (17,950) | | | (481) | | | $ | (17,319) | | | (496) | | | $ | (17,950) | |
Accumulated Other Comprehensive Income Attributable to AT&T, net of tax | Accumulated Other Comprehensive Income Attributable to AT&T, net of tax | | Accumulated Other Comprehensive Income Attributable to AT&T, net of tax | |
| Balance at beginning of period | Balance at beginning of period | | $ | 129 | | | $ | 3,289 | | | $ | 5,470 | | | $ | 4,249 | | Balance at beginning of period | | $ | 3,119 | | | $ | 129 | | | $ | 4,330 | | | $ | 5,470 | |
Other comprehensive income attributable to AT&T | Other comprehensive income attributable to AT&T | | 520 | | | (1,152) | | | (4,821) | | | (2,112) | | Other comprehensive income attributable to AT&T | | (776) | | | 520 | | | (1,987) | | | (4,821) | |
| Balance at end of period | Balance at end of period | | $ | 649 | | | $ | 2,137 | | | $ | 649 | | | $ | 2,137 | | Balance at end of period | | $ | 2,343 | | | $ | 649 | | | $ | 2,343 | | | $ | 649 | |
| Noncontrolling Interest | Noncontrolling Interest | | Noncontrolling Interest | |
| Balance at beginning of period | Balance at beginning of period | | $ | 17,557 | | | $ | 9,824 | | | $ | 17,713 | | | $ | 9,795 | | Balance at beginning of period | | $ | 17,550 | | | $ | 17,557 | | | $ | 17,567 | | | $ | 17,713 | |
Cumulative effect of accounting change and other adjustments | Cumulative effect of accounting change and other adjustments | | 0 | | | 0 | | | (7) | | | 29 | | Cumulative effect of accounting change and other adjustments | | — | | | — | | | — | | | (7) | |
| Adjusted beginning balance | Adjusted beginning balance | | 17,557 | | | 9,824 | | | 17,706 | | | 9,824 | | Adjusted beginning balance | | 17,550 | | | 17,557 | | | 17,567 | | | 17,706 | |
Net income attributable to noncontrolling interest | Net income attributable to noncontrolling interest | | 352 | | | 249 | | | 987 | | | 762 | | Net income attributable to noncontrolling interest | | 355 | | | 352 | | | 1,051 | | | 987 | |
Issuance and acquisition of noncontrolling owners | | 1,978 | | | 1,488 | | | 1,979 | | | 1,498 | | |
Issuance and acquisition by noncontrolling owners | | Issuance and acquisition by noncontrolling owners | | — | | | 1,978 | | | — | | | 1,979 | |
| Distributions | Distributions | | (382) | | | (266) | | | (1,108) | | | (791) | | Distributions | | (369) | | | (382) | | | (1,084) | | | (1,108) | |
Translation adjustments attributable to noncontrolling interest, net of taxes | Translation adjustments attributable to noncontrolling interest, net of taxes | | (2) | | | (17) | | | (61) | | | (15) | | Translation adjustments attributable to noncontrolling interest, net of taxes | | (4) | | | (2) | | | (2) | | | (61) | |
| Balance at end of period | Balance at end of period | | $ | 19,503 | | | $ | 11,278 | | | $ | 19,503 | | | $ | 11,278 | | Balance at end of period | | $ | 17,532 | | | $ | 19,503 | | | $ | 17,532 | | | $ | 19,503 | |
Total Stockholders' Equity at beginning of period | Total Stockholders' Equity at beginning of period | | $ | 193,453 | | | $ | 194,081 | | | $ | 201,934 | | | $ | 193,884 | | Total Stockholders' Equity at beginning of period | | $ | 179,846 | | | $ | 193,453 | | | $ | 179,240 | | | $ | 201,934 | |
Total Stockholders' Equity at end of period | Total Stockholders' Equity at end of period | | $ | 195,056 | | | $ | 194,327 | | | $ | 195,056 | | | $ | 194,327 | | Total Stockholders' Equity at end of period | | $ | 181,303 | | | $ | 195,056 | | | $ | 181,303 | | | $ | 195,056 | |
See Notes to Consolidated Financial Statements.
AT&T INC.
SEPTEMBER 30, 20202021
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Dollars in millions except per share amounts
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, 2019.2020. 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.
On July 31, 2021, we closed our transaction with TPG Capital (TPG) to form a new company named DIRECTV Entertainment Holdings, LLC (DIRECTV). With the close of the transaction, we separated our Video business, comprised of our U.S. video operations, and began accounting for our investment in DIRECTV under the equity method. (See Note 8)
All 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 toin our results on a one quarter of our period end.lag. We also record our proportionate share of our equity method investees’ other comprehensive income (OCI) items.
The preparation of financial statements in conformity with U.S. generally accepted accounting principles (GAAP) requires management to make estimates and assumptions including potential impacts arising from the COVID-19 pandemic, 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 including the combination of our prior Xandr segment with the WarnerMedia segment.(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.
Adopted and Pending Accounting Standards and Other Changes
Credit Losses As of January 1, 2020, we adopted, through modified retrospective application, the Financial Accounting Standards Board’s (FASB) Accounting Standards Update (ASU) No. 2016-13, “Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments” (ASU 2016-13, as amended), which replaces the incurred loss impairment methodology under prior GAAP with an expected credit loss model. ASU 2016-13 affects trade receivables, loans, contract assets, certain beneficial interests, off-balance-sheet credit exposures not accounted for as insurance and other financial assets that are not subject to fair value through net income, as defined by the standard. Under the expected credit loss model, we are required to consider future economic trends to estimate expected credit losses over the lifetime of the asset. Upon adoption, we recorded a $293 reduction to “Retained earnings,” $395 increase to “allowances for doubtful accounts” applicable to our trade and loan receivables, $10 reduction of contract assets, $105 reduction of net deferred income tax liability and $7 reduction of “Noncontrolling interest” as an opening adjustment. Our adoption of ASU 2016-13 did not have a material impact on our financial statements.
Reference Rate Reform In March 2020, the FASB issued ASU No. 2020-04, “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting” (ASU 2020-04), which provides optional expedients, and allows for certain exceptions to existing GAAP, for contract modifications triggered by the expected market transition of certain benchmark interest rates to alternative reference rates. ASU 2020-04 applies to contracts, hedging relationships and other arrangements that reference the London Interbank Offering Rate (LIBOR) or any other rates ending after December 31, 2022. We are evaluating the impact of our adoption of ASU 2020-04, including optional expedients, to our financial statements.
Convertible Instruments In August 2020, the FASB issued ASU No. 2020-06, “Debt—Debt With Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity's Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity's Own Equity” (ASU 2020-06), which eliminated certain separation models regarding cash conversion and beneficial conversion features to simplify reporting for convertible instruments as a single liability or equity, with no separate accounting for embedded conversion features. ASU 2020-06 will be effective for fiscal years beginning after December 31, 2021, under modified retrospective or full retrospective application, subject to early adoption in 2021. We are evaluating the impact of our adoption of ASU 2020-06 on our financial statements.
AT&T INC.
SEPTEMBER 30, 2020
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Dollars in millions except per share amounts
Intangible Assets In the second quarter, driven by significant and adverse economic and political environments in Latin America, including the impact of the COVID-19 pandemic, we experienced accelerated subscriber losses and revenue decline in the region, as well as closure of our operations in Venezuela. When combining these business trends and higher weighted-average cost of capital resulting from the increase in country-risk premiums in the region, we concluded that it is more likely than not that the fair value of the Vrio reporting unit, estimated using discounted cash flow and market multiple approaches, is less than its carrying amount. We recorded a $2,212 goodwill impairment in the reporting unit in the second quarter, with $105 attributable to noncontrolling interest. The impairment is not deductible for tax purposes and resulted in an increase in our effective tax rate.
During the first quarter of 2020, we reassessed and changed the estimated economic lives of certain trade names in our Latin America business from indefinite to finite-lived and began amortizing them using the straight-line method over their average remaining economic life of 15 years. This change had an insignificant impact on our financial statements.
Also during the first quarter of 2020, in conjunction with the nationwide launch of AT&T TV and our customers’ continued shift from linear to streaming video services, we reassessed the estimated economic lives and renewal assumptions for our orbital slot licenses. As a result, we have changed the estimated lives of these licenses from indefinite to finite-lived, effective January 1, 2020, and began amortizing our orbital slot licenses using the sum-of-months-digits method over their average remaining economic life of 15 years. This change in accounting increased amortization expense $373, or $0.04 per diluted share available to common stock during the third quarter and $1,138, or $0.12, per diluted share available to common stock for the first nine months of 2020.
NOTE 2. EARNINGS PER SHARE
A reconciliation of the numerators and denominators of basic and diluted earnings per share for the three months and nine months ended September 30, 20202021 and 2019,2020, is shown in the table below.below:
| | | | Three months ended | | Nine months ended | | Three months ended | | Nine months ended |
| | | September 30, | | September 30, | | September 30, | | September 30, |
| | | 2020 | | 2019 | | 2020 | | 2019 | | 2021 | | 2020 | | 2021 | | 2020 |
| Numerators | Numerators | | | | | | | | Numerators | | | | | | | |
| Numerator for basic earnings per share: | Numerator for basic earnings per share: | | | | | | | | Numerator for basic earnings per share: | | | | | | | |
| Net Income | $ | 3,168 | | | $ | 3,949 | | | $ | 9,694 | | | $ | 12,271 | | |
| Less: Net income attributable to noncontrolling interest | (352) | | | (249) | | | (987) | | | (762) | | |
| Net Income attributable to AT&T | 2,816 | | | 3,700 | | | 8,707 | | | 11,509 | | |
| Less: Preferred stock dividends | (54) | | | 0 | | | (138) | | | 0 | | |
| Net income attributable to common stock | 2,762 | | | 3,700 | | | 8,569 | | | 11,509 | | |
| Net Income Attributable to Common Stock | | Net Income Attributable to Common Stock | $ | 5,868 | | | $ | 2,762 | | | $ | 14,882 | | | $ | 8,569 | |
| Dilutive potential common shares: | Dilutive potential common shares: | | Dilutive potential common shares: | |
| Share-based payment | Share-based payment | 5 | | | 6 | | | 16 | | | 16 | | Share-based payment | 6 | | | 5 | | | 17 | | | 16 | |
| Numerator for diluted earnings per share | Numerator for diluted earnings per share | $ | 2,767 | | | $ | 3,706 | | | $ | 8,585 | | | $ | 11,525 | | Numerator for diluted earnings per share | $ | 5,874 | | | $ | 2,767 | | | $ | 14,899 | | | $ | 8,585 | |
| Denominators (000,000) | Denominators (000,000) | | Denominators (000,000) | |
| Denominator for basic earnings per share: | Denominator for basic earnings per share: | | Denominator for basic earnings per share: | |
| Weighted average number of common shares outstanding | Weighted average number of common shares outstanding | 7,147 | | | 7,327 | | | 7,160 | | | 7,321 | | Weighted average number of common shares outstanding | 7,171 | | | 7,147 | | | 7,167 | | | 7,160 | |
| Dilutive potential common shares: | Dilutive potential common shares: | | Dilutive potential common shares: | |
| Share-based payment (in shares) | Share-based payment (in shares) | 26 | | | 29 | | | 26 | | | 29 | | Share-based payment (in shares) | 31 | | | 26 | | | 30 | | | 26 | |
| Denominator for diluted earnings per share | Denominator for diluted earnings per share | 7,173 | | | 7,356 | | | 7,186 | | | 7,350 | | Denominator for diluted earnings per share | 7,202 | | | 7,173 | | | 7,197 | | | 7,186 | |
| Basic earnings per share attributable to Common Stock | $ | 0.39 | | | $ | 0.50 | | | $ | 1.19 | | | $ | 1.57 | | |
| Diluted earnings per share attributable to Common Stock | $ | 0.39 | | | $ | 0.50 | | | $ | 1.19 | | | $ | 1.57 | | |
AT&T INC.
SEPTEMBER 30, 20202021
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Dollars in millions except per share amounts
In the first quarter of 2020, we completed an accelerated share repurchase agreement with a third-party financial institution to repurchase AT&T common stock. Under the terms of the agreement, we paid the financial institution $4,000 and received 104.8 million shares.
NOTE 3. OTHER COMPREHENSIVE INCOME
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 | | Defined Benefit Postretirement Plans | | Accumulated Other Comprehensive Income (Loss) |
| Balance as of December 31, 2020 | | Balance as of December 31, 2020 | $ | (3,926) | | | $ | 111 | | | $ | (779) | | | $ | 8,924 | | | $ | 4,330 | |
Other comprehensive income (loss) before reclassifications | | Other comprehensive income (loss) before reclassifications | 108 | | | (39) | | | (593) | | | — | | | (524) | |
Amounts reclassified from accumulated OCI | | Amounts reclassified from accumulated OCI | — | | 1 | (4) | | 1 | 57 | | 2 | (1,516) | | 3 | (1,463) | |
Net other comprehensive income (loss) | | Net other comprehensive income (loss) | 108 | | | (43) | | | (536) | | | (1,516) | | | (1,987) | |
| Balance as of September 30, 2021 | | Balance as of September 30, 2021 | $ | (3,818) | | | $ | 68 | | | $ | (1,315) | | | $ | 7,408 | | | $ | 2,343 | |
| | | | Foreign Currency Translation Adjustment | | Net Unrealized Gains (Losses) on Securities | | Net Unrealized Gains (Losses) on Derivative Instruments | | Defined Benefit Postretirement Plans | | Accumulated Other Comprehensive Income | | Foreign Currency Translation Adjustment | | Net Unrealized Gains (Losses) on Securities | | Net Unrealized Gains (Losses) on Derivative Instruments | | Defined Benefit Postretirement Plans | | Accumulated Other Comprehensive Income (Loss) |
| Balance as of December 31, 2019 | Balance as of December 31, 2019 | $ | (3,056) | | | $ | 48 | | | $ | (37) | | | $ | 8,515 | | | $ | 5,470 | | Balance as of December 31, 2019 | $ | (3,056) | | | $ | 48 | | | $ | (37) | | | $ | 8,515 | | | $ | 5,470 | |
Other comprehensive income (loss) before reclassifications | Other comprehensive income (loss) before reclassifications | (1,398) | | | 81 | | | (2,166) | | | 0 | | | (3,483) | | Other comprehensive income (loss) before reclassifications | (1,398) | | | 81 | | | (2,166) | | | — | | | (3,483) | |
Amounts reclassified from accumulated OCI | Amounts reclassified from accumulated OCI | 0 | | 1 | 0 | | 1 | 44 | | 2 | (1,382) | | 3 | (1,338) | | Amounts reclassified from accumulated OCI | — | | 1 | — | | 1 | 44 | | 2 | (1,382) | | 3 | (1,338) | |
Net other comprehensive income (loss) | Net other comprehensive income (loss) | (1,398) | | | 81 | | | (2,122) | | | (1,382) | | | (4,821) | | Net other comprehensive income (loss) | (1,398) | | | 81 | | | (2,122) | | | (1,382) | | | (4,821) | |
| Balance as of September 30, 2020 | Balance as of September 30, 2020 | $ | (4,454) | | | $ | 129 | | | $ | (2,159) | | | $ | 7,133 | | | $ | 649 | | Balance as of September 30, 2020 | $ | (4,454) | | | $ | 129 | | | $ | (2,159) | | | $ | 7,133 | | | $ | 649 | |
| | | Foreign Currency Translation Adjustment | | Net Unrealized Gains (Losses) on Securities | | Net Unrealized Gains (Losses) on Derivative Instruments | | Defined Benefit Postretirement Plans | | Accumulated Other Comprehensive Income | |
| Balance as of December 31, 2018 | $ | (3,084) | | | $ | (2) | | | $ | 818 | | | $ | 6,517 | | | $ | 4,249 | | |
Other comprehensive income (loss) before reclassifications | (166) | | | 67 | | | (1,006) | | | 0 | | | (1,105) | | |
Amounts reclassified from accumulated OCI | 0 | | 1 | 0 | | 1 | 24 | | 2 | (1,031) | | 3 | (1,007) | | |
Net other comprehensive income (loss) | (166) | | | 67 | | | (982) | | | (1,031) | | | (2,112) | | |
| Balance as of September 30, 2019 | $ | (3,250) | | | $ | 65 | | | $ | (164) | | | $ | 5,486 | | | $ | 2,137 | | |
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).
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 3 reportable segments: (1) Communications, (2) WarnerMedia and (3) Latin America.
We have recast our segment results for all prior periods to include our prior Xandr segment within our WarnerMedia segment.
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.
AT&T INC.
SEPTEMBER 30, 20202021
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Dollars in millions except per share amounts
In the first quarter of 2021, we recast our segment results for all prior periods to reflect the following:
•Communications segment results were recast to remove the held-for-sale businesses, principally Video, instead reporting those results in Corporate and Other. 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 video 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.
•Entertainment Group provides video, including over-the-top (OTT) services, broadband and voice communications services primarily to residential customers. This segment also records advertising revenue.
•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. Historical financialWarnerMedia content is distributed through basic networks, Direct-to-Consumer (DTC) or theatrical, TV content and games licensing. Segment results fromalso include Xandr previously a separate reportable segment, have been combined with the WarnerMedia segment within Eliminations and other. This segment contains the following:
•Turner primarily operates multichannel basic television networks and digital properties. Turner also sells advertising on its networks and digital properties.
•Home Box Office consists of premium pay television and OTT and streaming services domestically and premium pay, basic tier television and OTT services internationally, as well as content licensing and home entertainment.
•Warner Bros. primarily consists of the production, distribution and licensing of television programming and feature films, the distribution of home entertainment products and the production and distribution of games.
•Eliminations & Other includes the Xandr advertising business and Otter Media Holdings operations,(Otter Media). We disposed of substantially all Otter Media assets in the third quarter of 2021 (see Note 8).
On May 17, 2021, we entered into an agreement to combine our WarnerMedia segment, subject to certain exceptions, with a subsidiary of Discovery Inc. (See Note 8)
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 also removes transactions betweenevaluated. With this operational change, the reporting unit is deemed to be the operating segment. The previous reporting units, Turner, Home Box Office, and Warner Bros. business units, including internal sales of content to, and Xandr, and the HBO Max platform that began in the fourth quarter of 2019 (see Note 5).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.
On July 21, 2021, we entered into an agreement to sell our Vrio business to Grupo Werthein (see Note 8). The transaction is expected to close during the fourth quarter of 2021. We applied held-for-sale accounting to Vrio as of June 30, 2021, and continue to present the Vrio results within the Latin America segment consistent with how performance was assessed and resource allocation decisions were made through September 30, 2021.
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.” Costs previously allocated to the Video business that were retained after the transaction, net of reimbursements from DIRECTV under transition service agreements, are reported in Corporate for the remainder of 2021, to maintain comparability of our operating segment results, and while operational plans and continued cost reduction initiatives are implemented.
•Video, whichconsisted of our former U.S. video operations that were contributed to DIRECTV on July 31, 2021.
•Acquisition-related items, which consists of items associated with the merger and integration of acquired or divested businesses, including amortization of intangible assetsassets.
•Certain significant items, which includes (1) employee separation charges associated with voluntary and/or strategic offers, (2) losses resulting from abandonment of network assetsasset impairments and impairments,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 Communications,Video prior to its separation, and (2) includes adjustments for our reporting of the advertising business.
AT&T INC.
SEPTEMBER 30, 2021
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Dollars in millions except per share amounts
“Interest expense” and “Other income (expense) – net,” are managed only on a total company basis and are, accordingly, reflected only in consolidated results.
AT&T INC.
SEPTEMBER 30, 20202021
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Dollars in millions except per share amounts
| | For the three months ended September 30, 2020 | |
| For the three months ended September 30, 2021 | | For the three months ended September 30, 2021 |
| | | Revenues | | Operations
and Support
Expenses | | EBITDA | | Depreciation
and
Amortization | | Operating
Income (Loss) | | Equity in Net
Income (Loss) of
Affiliates | | Segment
Contribution | | Revenues | | Operations
and Support
Expenses | | EBITDA | | Depreciation
and
Amortization | | Operating
Income (Loss) | | Equity in Net
Income (Loss) of
Affiliates | | Segment
Contribution |
| Communications | Communications | | | | | | | | | | | | | | Communications | | | | | | | | | | | | | |
| Mobility | Mobility | $ | 17,894 | | | $ | 10,182 | | | $ | 7,712 | | | $ | 2,021 | | | $ | 5,691 | | | $ | 0 | | | $ | 5,691 | | Mobility | $ | 19,138 | | | $ | 11,148 | | | $ | 7,990 | | | $ | 2,035 | | | $ | 5,955 | | | $ | — | | | $ | 5,955 | |
| Entertainment Group | 10,053 | | | 7,997 | | | 2,056 | | | 1,277 | | | 779 | | | 0 | | | 779 | | |
| Business Wireline | Business Wireline | 6,340 | | | 3,833 | | | 2,507 | | | 1,329 | | | 1,178 | | | 0 | | | 1,178 | | Business Wireline | 5,938 | | | 3,649 | | | 2,289 | | | 1,304 | | | 985 | | | — | | | 985 | |
| Consumer Wireline | | Consumer Wireline | 3,142 | | | 2,184 | | | 958 | | | 775 | | | 183 | | | — | | | 183 | |
| Total Communications | Total Communications | 34,287 | | | 22,012 | | | 12,275 | | | 4,627 | | | 7,648 | | | 0 | | | 7,648 | | Total Communications | 28,218 | | | 16,981 | | | 11,237 | | | 4,114 | | | 7,123 | | | — | | | 7,123 | |
| | WarnerMedia | WarnerMedia | | WarnerMedia | 8,442 | | | 6,271 | | | 2,171 | | | 163 | | | 2,008 | | | (73) | | | 1,935 | |
| Turner | 3,176 | | | 2,088 | | | 1,088 | | | 69 | | | 1,019 | | | (6) | | | 1,013 | | |
| Home Box Office | 1,781 | | | 1,694 | | | 87 | | | 27 | | | 60 | | | 0 | | | 60 | | |
| Warner Bros. | 2,411 | | | 1,973 | | | 438 | | | 43 | | | 395 | | | (23) | | | 372 | | |
| Eliminations and other | 146 | | | (171) | | | 317 | | | 32 | | | 285 | | | 40 | | | 325 | | |
| Total WarnerMedia | 7,514 | | | 5,584 | | | 1,930 | | | 171 | | | 1,759 | | | 11 | | | 1,770 | | |
| Latin America | Latin America | | Latin America | |
| Vrio | Vrio | 753 | | | 675 | | | 78 | | | 126 | | | (48) | | | 14 | | | (34) | | Vrio | 756 | | | 660 | | | 96 | | | — | | | 96 | | | 9 | | | 105 | |
| Mexico | Mexico | 643 | | | 662 | | | (19) | | | 124 | | | (143) | | | 0 | | | (143) | | Mexico | 724 | | | 697 | | | 27 | | | 157 | | | (130) | | | — | | | (130) | |
| Total Latin America | Total Latin America | 1,396 | | | 1,337 | | | 59 | | | 250 | | | (191) | | | 14 | | | (177) | | Total Latin America | 1,480 | | | 1,357 | | | 123 | | | 157 | | | (34) | | | 9 | | | (25) | |
| Segment Total | Segment Total | 43,197 | | | 28,933 | | | 14,264 | | | 5,048 | | | 9,216 | | | $ | 25 | | | $ | 9,241 | | Segment Total | 38,140 | | | 24,609 | | | 13,531 | | | 4,434 | | | 9,097 | | | $ | (64) | | | $ | 9,033 | |
| Corporate and Other | Corporate and Other | | | | | | | | | | | | | Corporate and Other | |
| Corporate | 431 | | | 1,012 | | | (581) | | | 61 | | | (642) | | | | | | |
Corporate1 | | Corporate1 | 278 | | | 1,109 | | | (831) | | | 129 | | | (960) | | |
| Video | | Video | 2,149 | | | 1,731 | | | 418 | | | 44 | | | 374 | | |
Acquisition-related items | Acquisition-related items | 0 | | | 38 | | | (38) | | | 1,921 | | | (1,959) | | | | | | Acquisition-related items | — | | | 130 | | | (130) | | | 1,012 | | | (1,142) | | |
| Certain significant items | Certain significant items | 0 | | | 113 | | | (113) | | | 0 | | | (113) | | | | | | Certain significant items | — | | | 161 | | | (161) | | | — | | | (161) | | |
Eliminations and consolidations | Eliminations and consolidations | (1,288) | | | (918) | | | (370) | | | 0 | | | (370) | | | | | | Eliminations and consolidations | (645) | | | (546) | | | (99) | | | — | | | (99) | | |
| AT&T Inc. | AT&T Inc. | $ | 42,340 | | | $ | 29,178 | | | $ | 13,162 | | | $ | 7,030 | | | $ | 6,132 | | | | | | AT&T Inc. | $ | 39,922 | | | $ | 27,194 | | | $ | 12,728 | | | $ | 5,619 | | | $ | 7,109 | | |
1Operations and Support Expenses include $670 for the reclassification of prior service credit amortization. | | 1Operations and Support Expenses include $670 for the reclassification of prior service credit amortization. |
AT&T INC.
SEPTEMBER 30, 20202021
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Dollars in millions except per share amounts
| | For the three months ended September 30, 2019 | |
| For the three months ended September 30, 2020 | | For the three months ended September 30, 2020 |
| | | Revenues | | Operations and Support Expenses | | EBITDA | | Depreciation and Amortization | | Operating Income (Loss) | | Equity in Net
Income (Loss) of
Affiliates | | Segment Contribution | | Revenues | | Operations and Support Expenses | | EBITDA | | Depreciation and Amortization | | Operating Income (Loss) | | Equity in Net
Income (Loss) of
Affiliates | | Segment Contribution |
| Communications | Communications | | | | | | | | | | | | | | Communications | | | | | | | | | | | | | |
| Mobility | Mobility | $ | 17,701 | | | $ | 9,948 | | | $ | 7,753 | | | $ | 2,011 | | | $ | 5,742 | | | $ | 0 | | | $ | 5,742 | | Mobility | $ | 17,894 | | | $ | 10,182 | | | $ | 7,712 | | | $ | 2,021 | | | $ | 5,691 | | | $ | — | | | $ | 5,691 | |
| Entertainment Group | 11,197 | | | 8,797 | | | 2,400 | | | 1,316 | | | 1,084 | | | 0 | | | 1,084 | | |
| Business Wireline | Business Wireline | 6,503 | | | 4,022 | | | 2,481 | | | 1,271 | | | 1,210 | | | 0 | | | 1,210 | | Business Wireline | 6,261 | | | 3,764 | | | 2,497 | | | 1,313 | | | 1,184 | | | — | | | 1,184 | |
| Consumer Wireline | | Consumer Wireline | 3,040 | | | 2,117 | | | 923 | | | 734 | | | 189 | | | — | | | 189 | |
| Total Communications | Total Communications | 35,401 | | | 22,767 | | | 12,634 | | | 4,598 | | | 8,036 | | | 0 | | | 8,036 | | Total Communications | 27,195 | | | 16,063 | | | 11,132 | | | 4,068 | | | 7,064 | | | — | | | 7,064 | |
| | WarnerMedia | WarnerMedia | | WarnerMedia | 7,395 | | | 5,483 | | | 1,912 | | | 169 | | | 1,743 | | | 12 | | | 1,755 | |
| Turner | 3,007 | | | 1,460 | | | 1,547 | | | 68 | | | 1,479 | | | 10 | | | 1,489 | | |
| Home Box Office | 1,819 | | | 1,072 | | | 747 | | | 33 | | | 714 | | | 10 | | | 724 | | |
| Warner Bros. | 3,333 | | | 2,706 | | | 627 | | | 39 | | | 588 | | | (25) | | | 563 | | |
| Eliminations and other | 191 | | | 91 | | | 100 | | | 25 | | | 75 | | | 20 | | | 95 | | |
| Total WarnerMedia | 8,350 | | | 5,329 | | | 3,021 | | | 165 | | | 2,856 | | | 15 | | | 2,871 | | |
| Latin America | Latin America | | Latin America | |
| Vrio | Vrio | 1,013 | | | 851 | | | 162 | | | 162 | | | 0 | | | 13 | | | 13 | | Vrio | 753 | | | 675 | | | 78 | | | 126 | | | (48) | | | 14 | | | (34) | |
| Mexico | Mexico | 717 | | | 774 | | | (57) | | | 122 | | | (179) | | | 0 | | | (179) | | Mexico | 643 | | | 662 | | | (19) | | | 124 | | | (143) | | | — | | | (143) | |
| Total Latin America | Total Latin America | 1,730 | | | 1,625 | | | 105 | | | 284 | | | (179) | | | 13 | | | (166) | | Total Latin America | 1,396 | | | 1,337 | | | 59 | | | 250 | | | (191) | | | 14 | | | (177) | |
| Segment Total | Segment Total | 45,481 | | | 29,721 | | | 15,760 | | | 5,047 | | | 10,713 | | | $ | 28 | | | $ | 10,741 | | Segment Total | 35,986 | | | 22,883 | | | 13,103 | | | 4,487 | | | 8,616 | | | $ | 26 | | | $ | 8,642 | |
| Corporate and Other | Corporate and Other | | | | | | | | | | | | | | Corporate and Other | |
| Corporate | 407 | | | 703 | | | (296) | | | 131 | | | (427) | | | | | | |
Corporate1 | | Corporate1 | 628 | | | 1,175 | | | (547) | | | 65 | | | (612) | | |
| Video | | Video | 7,014 | | | 5,887 | | | 1,127 | | | 557 | | | 570 | | |
Acquisition-related items | Acquisition-related items | 0 | | | 190 | | | (190) | | | 1,771 | | | (1,961) | | | | | | Acquisition-related items | — | | | 38 | | | (38) | | | 1,921 | | | (1,959) | | |
Certain significant items | Certain significant items | 0 | | | 39 | | | (39) | | | 0 | | | (39) | | | | | | Certain significant items | — | | | 113 | | | (113) | | | — | | | (113) | | |
Eliminations and consolidations | Eliminations and consolidations | (1,300) | | | (915) | | | (385) | | | 0 | | | (385) | | | | | | Eliminations and consolidations | (1,288) | | | (918) | | | (370) | | | — | | | (370) | | |
| AT&T Inc. | AT&T Inc. | $ | 44,588 | | | $ | 29,738 | | | $ | 14,850 | | | $ | 6,949 | | | $ | 7,901 | | | | | | AT&T Inc. | $ | 42,340 | | | $ | 29,178 | | | $ | 13,162 | | | $ | 7,030 | | | $ | 6,132 | | |
1Operations and Support Expenses include $610 for the reclassification of prior service credit amortization. | | 1Operations and Support Expenses include $610 for the reclassification of prior service credit amortization. |
AT&T INC.
SEPTEMBER 30, 20202021
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Dollars in millions except per share amounts
| | For the nine months ended September 30, 2020 | |
| For the nine months ended September 30, 2021 | | For the nine months ended September 30, 2021 |
| | | Revenues | | Operations
and Support
Expenses | | EBITDA | | Depreciation
and
Amortization | | Operating
Income (Loss) | | Equity in Net
Income (Loss) of
Affiliates | | Segment
Contribution | | Revenues | | Operations
and Support
Expenses | | EBITDA | | Depreciation
and
Amortization | | Operating
Income (Loss) | | Equity in Net
Income (Loss) of
Affiliates | | Segment
Contribution |
| Communications | Communications | | | | | | | | | | | | | | Communications | | | | | | | | | | | | | |
| Mobility | Mobility | $ | 52,445 | | | $ | 29,083 | | | $ | 23,362 | | | $ | 6,078 | | | $ | 17,284 | | | $ | 0 | | | $ | 17,284 | | Mobility | $ | 57,108 | | | $ | 33,077 | | | $ | 24,031 | | | $ | 6,072 | | | $ | 17,959 | | | $ | — | | | $ | 17,959 | |
| Entertainment Group | 30,637 | | | 23,618 | | | 7,019 | | | 3,875 | | | 3,144 | | | 0 | | | 3,144 | | |
| Business Wireline | Business Wireline | 19,046 | | | 11,563 | | | 7,483 | | | 3,948 | | | 3,535 | | | 0 | | | 3,535 | | Business Wireline | 18,036 | | | 11,068 | | | 6,968 | | | 3,875 | | | 3,093 | | | — | | | 3,093 | |
| Consumer Wireline | | Consumer Wireline | 9,380 | | | 6,298 | | | 3,082 | | | 2,306 | | | 776 | | | — | | | 776 | |
| Total Communications | Total Communications | 102,128 | | | 64,264 | | | 37,864 | | | 13,901 | | | 23,963 | | | 0 | | | 23,963 | | Total Communications | 84,524 | | | 50,443 | | | 34,081 | | | 12,253 | | | 21,828 | | | — | | | 21,828 | |
| | WarnerMedia | WarnerMedia | | WarnerMedia | 25,759 | | | 19,608 | | | 6,151 | | | 491 | | | 5,660 | | | 44 | | | 5,704 | |
| Turner | 9,326 | | | 5,145�� | | | 4,181 | | | 207 | | | 3,974 | | | 0 | | | 3,974 | | |
| Home Box Office | 4,905 | | | 4,236 | | | 669 | | | 73 | | | 596 | | | 15 | | | 611 | | |
| Warner Bros. | 8,907 | | | 7,506 | | | 1,401 | | | 124 | | | 1,277 | | | (50) | | | 1,227 | | |
| Eliminations and other | (962) | | | (882) | | | (80) | | | 97 | | | (177) | | | 65 | | | (112) | | |
| Total WarnerMedia | 22,176 | | | 16,005 | | | 6,171 | | | 501 | | | 5,670 | | | 30 | | | 5,700 | | |
| Latin America | Latin America | | Latin America | |
| Vrio | Vrio | 2,392 | | | 2,119 | | | 273 | | | 400 | | | (127) | | | 26 | | | (101) | | Vrio | 2,248 | | | 1,981 | | | 267 | | | 231 | | | 36 | | | 7 | | | 43 | |
| Mexico | Mexico | 1,826 | | | 1,914 | | | (88) | | | 373 | | | (461) | | | 0 | | | (461) | | Mexico | 2,043 | | | 1,984 | | | 59 | | | 452 | | | (393) | | | — | | | (393) | |
| Total Latin America | Total Latin America | 4,218 | | | 4,033 | | | 185 | | | 773 | | | (588) | | | 26 | | | (562) | | Total Latin America | 4,291 | | | 3,965 | | | 326 | | | 683 | | | (357) | | | 7 | | | (350) | |
| Segment Total | Segment Total | 128,522 | | | 84,302 | | | 44,220 | | | 15,175 | | | 29,045 | | | $ | 56 | | | $ | 29,101 | | Segment Total | 114,574 | | | 74,016 | | | 40,558 | | | 13,427 | | | 27,131 | | | $ | 51 | | | $ | 27,182 | |
| Corporate and Other | Corporate and Other | | | | | | | | | | | | | | Corporate and Other | | | | | | | | | | | | | |
| Corporate | 1,256 | | | 2,819 | | | (1,563) | | | 241 | | | (1,804) | | | | | | |
Corporate1 | | Corporate1 | 1,065 | | | 3,482 | | | (2,417) | | | 194 | | | (2,611) | | | | | |
| Video | | Video | 15,513 | | | 12,666 | | | 2,847 | | | 356 | | | 2,491 | | |
Acquisition-related items | Acquisition-related items | 0 | | | 431 | | | (431) | | | 6,122 | | | (6,553) | | | | | | Acquisition-related items | — | | | 167 | | | (167) | | | 3,212 | | | (3,379) | | | | | |
Certain significant items | Certain significant items | 0 | | | 2,539 | | | (2,539) | | | 0 | | | (2,539) | | | | | | Certain significant items | — | | | 4,773 | | | (4,773) | | | — | | | (4,773) | | | | | |
Eliminations and consolidations | Eliminations and consolidations | (3,709) | | | (2,709) | | | (1,000) | | | (1) | | | (999) | | | | | | Eliminations and consolidations | (3,246) | | | (2,426) | | | (820) | | | — | | | (820) | | | | | |
| AT&T Inc. | AT&T Inc. | $ | 126,069 | | | $ | 87,382 | | | $ | 38,687 | | | $ | 21,537 | | | $ | 17,150 | | | | | | AT&T Inc. | $ | 127,906 | | | $ | 92,678 | | | $ | 35,228 | | | $ | 17,189 | | | $ | 18,039 | | | | | |
1Operations and Support Expenses include $2,011 for the reclassification of prior service credit amortization. | | 1Operations and Support Expenses include $2,011 for the reclassification of prior service credit amortization. |
AT&T INC.
SEPTEMBER 30, 20202021
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Dollars in millions except per share amounts
| | For the nine months ended September 30, 2019 | |
| For the nine months ended September 30, 2020 | | For the nine months ended September 30, 2020 |
| | | Revenues | | Operations and Support Expenses | | EBITDA | | Depreciation and Amortization | | Operating Income (Loss) | | Equity in Net
Income (Loss) of
Affiliates | | Segment Contribution | | Revenues | | Operations and Support Expenses | | EBITDA | | Depreciation and Amortization | | Operating Income (Loss) | | Equity in Net
Income (Loss) of
Affiliates | | Segment Contribution |
| Communications | Communications | | | | | | | | | | | | | | Communications | | | | | | | | | | | | | |
| Mobility | Mobility | $ | 52,356 | | | $ | 29,511 | | | $ | 22,845 | | | $ | 6,027 | | | $ | 16,818 | | | $ | 0 | | | $ | 16,818 | | Mobility | $ | 52,445 | | | $ | 29,083 | | | $ | 23,362 | | | $ | 6,078 | | | $ | 17,284 | | | $ | — | | | $ | 17,284 | |
| Entertainment Group | 33,893 | | | 25,839 | | | 8,054 | | | 3,978 | | | 4,076 | | | 0 | | | 4,076 | | |
| Business Wireline | Business Wireline | 19,588 | | | 12,029 | | | 7,559 | | | 3,735 | | | 3,824 | | | 0 | | | 3,824 | | Business Wireline | 18,832 | | | 11,365 | | | 7,467 | | | 3,900 | | | 3,567 | | | — | | | 3,567 | |
| Consumer Wireline | | Consumer Wireline | 9,202 | | | 5,924 | | | 3,278 | | | 2,176 | | | 1,102 | | | — | | | 1,102 | |
| Total Communications | Total Communications | 105,837 | | | 67,379 | | | 38,458 | | | 13,740 | | | 24,718 | | | 0 | | | 24,718 | | Total Communications | 80,479 | | | 46,372 | | | 34,107 | | | 12,154 | | | 21,953 | | | — | | | 21,953 | |
| | WarnerMedia | WarnerMedia | | WarnerMedia | 21,888 | | | 15,744 | | | 6,144 | | | 494 | | | 5,650 | | | 31 | | | 5,681 | |
| Turner | 9,860 | | | 5,813 | | | 4,047 | | | 167 | | | 3,880 | | | 46 | | | 3,926 | | |
| Home Box Office | 5,045 | | | 3,124 | | | 1,921 | | | 67 | | | 1,854 | | | 40 | | | 1,894 | | |
| Warner Bros. | 10,240 | | | 8,543 | | | 1,697 | | | 122 | | | 1,575 | | | (19) | | | 1,556 | | |
| Eliminations and other | 845 | | | 438 | | | 407 | | | 69 | | | 338 | | | 70 | | | 408 | | |
| Total WarnerMedia | 25,990 | | | 17,918 | | | 8,072 | | | 425 | | | 7,647 | | | 137 | | | 7,784 | | |
| Latin America | Latin America | | Latin America | |
| Vrio | Vrio | 3,112 | | | 2,598 | | | 514 | | | 496 | | | 18 | | | 25 | | | 43 | | Vrio | 2,392 | | | 2,119 | | | 273 | | | 400 | | | (127) | | | 26 | | | (101) | |
| Mexico | Mexico | 2,093 | | | 2,312 | | | (219) | | | 372 | | | (591) | | | 0 | | | (591) | | Mexico | 1,826 | | | 1,914 | | | (88) | | | 373 | | | (461) | | | — | | | (461) | |
| Total Latin America | Total Latin America | 5,205 | | | 4,910 | | | 295 | | | 868 | | | (573) | | | 25 | | | (548) | | Total Latin America | 4,218 | | | 4,033 | | | 185 | | | 773 | | | (588) | | | 26 | | | (562) | |
| Segment Total | Segment Total | 137,032 | | | 90,207 | | | 46,825 | | | 15,033 | | | 31,792 | | | $ | 162 | | | $ | 31,954 | | Segment Total | 106,585 | | | 66,149 | | | 40,436 | | | 13,421 | | | 27,015 | | | $ | 57 | | | $ | 27,072 | |
| Corporate and Other | Corporate and Other | | | | | | | | | | | | | | Corporate and Other | | | | | | | | | | | | | |
| Corporate | 1,290 | | | 2,129 | | | (839) | | | 505 | | | (1,344) | | | | | | |
Corporate1 | | Corporate1 | 1,751 | | | 3,256 | | | (1,505) | | | 254 | | | (1,759) | | | | | |
| Video | | Video | 21,442 | | | 17,716 | | | 3,726 | | | 1,741 | | | 1,985 | | |
Acquisition-related items | Acquisition-related items | (72) | | | 579 | | | (651) | | | 5,719 | | | (6,370) | | | | | | Acquisition-related items | — | | | 431 | | | (431) | | | 6,122 | | | (6,553) | | | | | |
Certain significant items | Certain significant items | 0 | | | 381 | | | (381) | | | 0 | | | (381) | | | | | | Certain significant items | — | | | 2,539 | | | (2,539) | | | — | | | (2,539) | | | | | |
Eliminations and consolidations | Eliminations and consolidations | (3,878) | | | (2,814) | | | (1,064) | | | (1) | | | (1,063) | | | | | | Eliminations and consolidations | (3,709) | | | (2,709) | | | (1,000) | | | (1) | | | (999) | | | | | |
| AT&T Inc. | AT&T Inc. | $ | 134,372 | | | $ | 90,482 | | | $ | 43,890 | | | $ | 21,256 | | | $ | 22,634 | | | | | | AT&T Inc. | $ | 126,069 | | | $ | 87,382 | | | $ | 38,687 | | | $ | 21,537 | | | $ | 17,150 | | | | | |
1Operations and Support Expenses include $1,833 for the reclassification of prior service credit amortization. | | 1Operations and Support Expenses include $1,833 for the reclassification of prior service credit amortization. |
AT&T INC.
SEPTEMBER 30, 20202021
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Dollars in millions except per share amounts
The following table is a reconciliation of Segment Contributions to “Income Before Income Taxes” reported onin our consolidated statements of income:
| | | | Three months ended
September 30, | | Nine months ended
September 30, | | Three months ended
September 30, | | Nine months ended
September 30, |
| | | 2020 | | 2019 | | 2020 | | 2019 | | 2021 | | 2020 | | 2021 | | 2020 |
| Communications | Communications | $ | 7,648 | | | $ | 8,036 | | | $ | 23,963 | | | $ | 24,718 | | Communications | $ | 7,123 | | | $ | 7,064 | | | $ | 21,828 | | | $ | 21,953 | |
| WarnerMedia | WarnerMedia | 1,770 | | | 2,871 | | | 5,700 | | | 7,784 | | WarnerMedia | 1,935 | | | 1,755 | | | 5,704 | | | 5,681 | |
| Latin America | Latin America | (177) | | | (166) | | | (562) | | | (548) | | Latin America | (25) | | | (177) | | | (350) | | | (562) | |
| Segment Contribution | Segment Contribution | 9,241 | | | 10,741 | | | 29,101 | | | 31,954 | | Segment Contribution | 9,033 | | | 8,642 | | | 27,182 | | | 27,072 | |
| Reconciling Items: | Reconciling Items: | | Reconciling Items: | |
| Corporate and Other | Corporate and Other | (642) | | | (427) | | | (1,804) | | | (1,344) | | Corporate and Other | (960) | | | (612) | | | (2,611) | | | (1,759) | |
| Merger and integration items | (38) | | | (190) | | | (431) | | | (651) | | |
| Video | | Video | 374 | | | 570 | | | 2,491 | | | 1,985 | |
| Merger costs | | Merger costs | (130) | | | (38) | | | (167) | | | (431) | |
| Amortization of intangibles acquired | Amortization of intangibles acquired | (1,921) | | | (1,771) | | | (6,122) | | | (5,719) | | Amortization of intangibles acquired | (1,012) | | | (1,921) | | | (3,212) | | | (6,122) | |
| Asset impairments and abandonments | Asset impairments and abandonments | (73) | | | 0 | | | (2,515) | | | 0 | | Asset impairments and abandonments | (161) | | | (73) | | | (4,716) | | | (2,515) | |
Gain on spectrum transaction1 | Gain on spectrum transaction1 | 0 | | | 0 | | | 900 | | | 0 | | Gain on spectrum transaction1 | — | | | — | | | — | | | 900 | |
| Employee separation costs and benefit-related losses | Employee separation costs and benefit-related losses | (40) | | | (39) | | | (924) | | | (381) | | Employee separation costs and benefit-related losses | — | | | (40) | | | (57) | | | (924) | |
| Segment equity in net income of affiliates | Segment equity in net income of affiliates | (25) | | | (28) | | | (56) | | | (162) | | Segment equity in net income of affiliates | 64 | | | (26) | | | (51) | | | (57) | |
| Eliminations and consolidations | Eliminations and consolidations | (370) | | | (385) | | | (999) | | | (1,063) | | Eliminations and consolidations | (99) | | | (370) | | | (820) | | | (999) | |
| AT&T Operating Income | AT&T Operating Income | 6,132 | | | 7,901 | | | 17,150 | | | 22,634 | | AT&T Operating Income | 7,109 | | | 6,132 | | | 18,039 | | | 17,150 | |
| Interest Expense | Interest Expense | 1,972 | | | 2,083 | | | 6,031 | | | 6,373 | | Interest Expense | 1,667 | | | 1,972 | | | 5,221 | | | 6,031 | |
| Equity in net income (loss) of affiliates | Equity in net income (loss) of affiliates | 5 | | | 3 | | | (11) | | | 36 | | Equity in net income (loss) of affiliates | 91 | | | 5 | | | 184 | | | (11) | |
| Other income (expense) - net | Other income (expense) - net | (231) | | | (935) | | | 1,589 | | | (967) | | Other income (expense) - net | 2,279 | | | (231) | | | 7,499 | | | 1,589 | |
| Income Before Income Taxes | Income Before Income Taxes | $ | 3,934 | | | $ | 4,886 | | | $ | 12,697 | | | $ | 15,330 | | Income Before Income Taxes | $ | 7,812 | | | $ | 3,934 | | | $ | 20,501 | | | $ | 12,697 | |
1Included as a reduction of "Selling, general and administrative expenses" in the consolidated statement of income.
The following tabletables presents intersegment revenues and assets by segment:
| | Intersegment Reconciliation | Intersegment Reconciliation | | | | | | | | Intersegment Reconciliation | | | | | | | |
| | | Three months ended
September 30, | | Nine months ended
September 30, | | Three months ended
September 30, | | Nine months ended
September 30, |
| | | 2020 | | 2019 | | 2020 | | 2019 | | 2021 | | 2020 | | 2021 | | 2020 |
| Intersegment Revenues | Intersegment Revenues | | | | | | | | Intersegment Revenues | | | | | | | |
| Communications | Communications | $ | 3 | | | $ | 2 | | | $ | 7 | | | $ | 10 | | Communications | $ | 2 | | | $ | 3 | | | $ | 8 | | | $ | 7 | |
| WarnerMedia | WarnerMedia | 812 | | | 819 | | | 2,402 | | | 2,538 | | WarnerMedia | 515 | | | 812 | | | 2,193 | | | 2,402 | |
| Latin America | Latin America | 0 | | | 0 | | | 0 | | | 0 | | Latin America | — | | | — | | | — | | | — | |
| Total Intersegment Revenues | Total Intersegment Revenues | 815 | | | 821 | | | 2,409 | | | 2,548 | | Total Intersegment Revenues | 517 | | | 815 | | | 2,201 | | | 2,409 | |
| Consolidations | Consolidations | 473 | | | 479 | | | 1,300 | | | 1,330 | | Consolidations | 128 | | | 473 | | | 1,045 | | | 1,300 | |
| Eliminations and consolidations | Eliminations and consolidations | $ | 1,288 | | | $ | 1,300 | | | $ | 3,709 | | | $ | 3,878 | | Eliminations and consolidations | $ | 645 | | | $ | 1,288 | | | $ | 3,246 | | | $ | 3,709 | |
AT&T INC.
SEPTEMBER 30, 20202021
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Dollars in millions except per share amounts
NOTE 5. REVENUE RECOGNITION
Revenue Categories
The following tables set forth reported revenue by category and by business unit. Intercompany transactions between segments andunit, prior period amounts have been recast to conform to the dual reporting of certain advertising revenues are included in “Eliminations and consolidations.” Intercompany transactions between Turner, Home Box Office and Warner Bros., including internal sales of HBO Max that began in the fourthcurrent period presentation with our first quarter of 2019, are included in “Eliminations and other.”2021 segment updates (see Note 4).
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| For the three months ended September 30, 2020 |
| | Service Revenues | | | | |
| | Wireless | | Advanced Data | | Legacy Voice & Data | | Subscription | | Content | | Advertising | | Other | | Equipment | | Total |
| Communications | | | | | | | | | | | | | | | | | |
| Mobility | $ | 13,811 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 72 | | | $ | 0 | | | $ | 4,011 | | | $ | 17,894 | |
Entertainment Group | 0 | | | 2,128 | | | 538 | | | 6,556 | | | 0 | | | 408 | | | 373 | | | 50 | | | 10,053 | |
Business Wireline | 0 | | | 3,348 | | | 2,031 | | | 0 | | | 0 | | | 0 | | | 780 | | | 181 | | | 6,340 | |
| WarnerMedia | | | | | | | | | | | | | | | | | |
| Turner | 0 | | | 0 | | | 0 | | | 1,840 | | | 175 | | | 1,077 | | | 84 | | | 0 | | | 3,176 | |
Home Box Office | 0 | | | 0 | | | 0 | | | 1,624 | | | 150 | | | 0 | | | 7 | | | 0 | | | 1,781 | |
| Warner Bros. | 0 | | | 0 | | | 0 | | | 11 | | | 2,293 | | | 1 | | | 106 | | | 0 | | | 2,411 | |
Eliminations and other1 | 0 | | | 0 | | | 0 | | | 87 | | | (488) | | | 529 | | | 18 | | | 0 | | | 146 | |
| Latin America | | | | | | | | | | | | | | | | | |
| Vrio | 0 | | | 0 | | | 0 | | | 753 | | | 0 | | | 0 | | | 0 | | | 0 | | | 753 | |
| Mexico | 385 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 258 | | | 643 | |
Corporate and Other | 169 | | | 14 | | | 138 | | | 0 | | | 0 | | | 0 | | | 52 | | | 58 | | | 431 | |
Eliminations and consolidations2 | 0 | | | 0 | | | 0 | | | (790) | | | 0 | | | (408) | | | (90) | | | 0 | | | (1,288) | |
Total Operating Revenues | $ | 14,365 | | | $ | 5,490 | | | $ | 2,707 | | | $ | 10,081 | | | $ | 2,130 | | | $ | 1,679 | | | $ | 1,330 | | | $ | 4,558 | | | $ | 42,340 | |
1“Eliminations and other” of $488 include Warner Bros. content sales of approximately $200 with HBO Max, $180 with HBO linear and $100 with Turner. |
2“Eliminations and consolidations” of $790 include approximately $370 and $250 of Turner and HBO linear channel distribution arrangements with the Entertainment Group, respectively, and $120 of HBO Max customer subscriptions at Mobility. |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| For the three months ended September 30, 2021 |
| | Communications | | | | | | | | | | |
| | Mobility | | Business Wireline | | Consumer Wireline | | WarnerMedia | | Latin America | | Corporate & Other | | Elim. | | Total |
| Wireless service | $ | 14,450 | | | $ | — | | | $ | — | | | $ | — | | | $ | 463 | | | $ | 28 | | | $ | — | | | $ | 14,941 | |
| Video service | — | | | — | | | — | | | — | | | 756 | | | 2,041 | | | — | | | 2,797 | |
| Business service | — | | | 5,765 | | | — | | | — | | | — | | | — | | | — | | | 5,765 | |
| Broadband | — | | | — | | | 2,290 | | | — | | | — | | | — | | | — | | | 2,290 | |
| Subscription | — | | | — | | | — | | | 3,988 | | | — | | | — | | | — | | | 3,501 | |
DTC (HBO Max)1 | — | | | — | | | — | | | — | | | — | | | — | | | (261) | | | |
Other2 | — | | | — | | | — | | | — | | | — | | | — | | | (226) | | | |
| Content | — | | | — | | | — | | | 3,495 | | | — | | | — | | | — | | | 2,783 | |
DTC (HBO Max)3 | — | | | — | | | — | | | (413) | | | — | | | — | | | — | | | |
Other3 | — | | | — | | | — | | | (299) | | | — | | | — | | | — | | | |
| Advertising | 77 | | | — | | | — | | | 1,401 | | | — | | | 111 | | | (111) | | | 1,478 | |
| Legacy voice and data | — | | | — | | | 484 | | | — | | | — | | | 97 | | | — | | | 581 | |
| Other | — | | | — | | | 351 | | | 270 | | | — | | | 133 | | | (47) | | | 707 | |
| Total Service | 14,527 | | | 5,765 | | | 3,125 | | | 8,442 | | | 1,219 | | | 2,410 | | | (645) | | | 34,843 | |
| Equipment | 4,611 | | | 173 | | | 17 | | | — | | | 261 | | | 17 | | | — | | | 5,079 | |
| Total | $ | 19,138 | | | $ | 5,938 | | | $ | 3,142 | | | $ | 8,442 | | | $ | 1,480 | | | $ | 2,427 | | | $ | (645) | | | $ | 39,922 | |
1Represents DTC (HBO Max) intercompany sales to the Communications segment ($174 with Mobility and $87 with Consumer Wireline). |
2Represents intercompany video distribution arrangements primarily to DIRECTV/U-verse from WarnerMedia prior to August 1, 2021 (see Note 11). |
3Represents intercompany transactions in the WarnerMedia segment. |
AT&T INC.
SEPTEMBER 30, 20202021
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Dollars in millions except per share amounts
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| For the three months ended September 30, 2019 |
| | Service Revenues | | | | |
| | Wireless | | Advanced Data | | Legacy Voice & Data | | Subscription | | Content | | Advertising | | Other | | Equipment | | Total |
| Communications | | | | | | | | | | | | | | | | | |
| Mobility | $ | 13,856 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 74 | | | $ | 0 | | | $ | 3,771 | | | $ | 17,701 | |
Entertainment Group | 0 | | | 2,117 | | | 628 | | | 7,512 | | | 0 | | | 421 | | | 517 | | | 2 | | | 11,197 | |
Business Wireline | 0 | | | 3,269 | | | 2,252 | | | 0 | | | 0 | | | 0 | | | 783 | | | 199 | | | 6,503 | |
| WarnerMedia | | | | | | | | | | | | | | | | | |
| Turner | 0 | | | 0 | | | 0 | | | 1,927 | | | 89 | | | 913 | | | 78 | | | 0 | | | 3,007 | |
Home Box Office | 0 | | | 0 | | | 0 | | | 1,533 | | | 284 | | | 0 | | | 2 | | | 0 | | | 1,819 | |
| Warner Bros. | 0 | | | 0 | | | 0 | | | 23 | | | 3,129 | | | 13 | | | 168 | | | 0 | | | 3,333 | |
Eliminations and other1 | 0 | | | 0 | | | 0 | | | 57 | | | (387) | | | 523 | | | (2) | | | 0 | | | 191 | |
| Latin America | | | | | | | | | | | | | | | | | |
| Vrio | 0 | | | 0 | | | 0 | | | 1,013 | | | 0 | | | 0 | | | 0 | | | 0 | | | 1,013 | |
| Mexico | 455 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 262 | | | 717 | |
Corporate and Other | 124 | | | 13 | | | 6 | | | 0 | | | 0 | | | 0 | | | 227 | | | 37 | | | 407 | |
Eliminations and consolidations2 | 0 | | | 0 | | | 0 | | | (798) | | | 0 | | | (421) | | | (81) | | | 0 | | | (1,300) | |
Total Operating Revenues | $ | 14,435 | | | $ | 5,399 | | | $ | 2,886 | | | $ | 11,267 | | | $ | 3,115 | | | $ | 1,523 | | | $ | 1,692 | | | $ | 4,271 | | | $ | 44,588 | |
1“Eliminations and other” of $387 include Warner Bros. content sales of approximately $110 with HBO linear and $170 with Turner. |
2“Eliminations and consolidations” of $798 include approximately $430 and $330 of Turner and HBO linear channel distribution arrangements with the Entertainment Group, respectively. |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| For the three months ended September 30, 2020 |
| | Communications | | | | | | | | | | |
| | Mobility | | Business Wireline | | Consumer Wireline | | WarnerMedia | | Latin America | | Corporate & Other | | Elim. | | Total |
| Wireless service | $ | 13,811 | | | $ | — | | | $ | — | | | $ | — | | | $ | 385 | | | $ | 169 | | | $ | — | | | $ | 14,365 | |
| Video service | — | | | — | | | — | | | — | | | 753 | | | 6,557 | | | — | | | 7,310 | |
| Business service | — | | | 6,079 | | | — | | | — | | | — | | | 88 | | | — | | | 6,167 | |
| Broadband | — | | | — | | | 2,128 | | | — | | | — | | | — | | | — | | | 2,128 | |
| Subscription | — | | | — | | | — | | | 3,477 | | | — | | | — | | | — | | | 2,687 | |
DTC (HBO Max)1 | — | | | — | | | — | | | — | | | — | | | — | | | (190) | | | |
Other2 | — | | | — | | | — | | | — | | | — | | | — | | | (600) | | | |
| Content | — | | | — | | | — | | | 2,618 | | | — | | | — | | | — | | | 2,108 | |
DTC (HBO Max)3 | — | | | — | | | — | | | (199) | | | — | | | — | | | — | | | |
Other3 | — | | | — | | | — | | | (311) | | | — | | | — | | | — | | | |
| Advertising | 72 | | | — | | | — | | | 1,600 | | | — | | | 408 | | | (408) | | | 1,672 | |
| Legacy voice and data | — | | | — | | | 538 | | | — | | | — | | | 137 | | | — | | | 675 | |
| Other | — | | | — | | | 372 | | | 210 | | | — | | | 178 | | | (90) | | | 670 | |
| Total Service | 13,883 | | | 6,079 | | | 3,038 | | | 7,395 | | | 1,138 | | | 7,537 | | | (1,288) | | | 37,782 | |
| Equipment | 4,011 | | | 182 | | | 2 | | | — | | | 258 | | | 105 | | | — | | | 4,558 | |
| Total | $ | 17,894 | | | $ | 6,261 | | | $ | 3,040 | | | $ | 7,395 | | | $ | 1,396 | | | $ | 7,642 | | | $ | (1,288) | | | $ | 42,340 | |
1Represents DTC (HBO Max) intercompany sales to the Communications segment ($116 with Mobility and $74 with Consumer Wireline). |
2Represents intercompany video distribution arrangements primarily to DIRECTV/U-verse from WarnerMedia. |
3Represents intercompany transactions in the WarnerMedia segment. |
AT&T INC.
SEPTEMBER 30, 20202021
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Dollars in millions except per share amounts
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| For the nine months ended September 30, 2020 |
| | Service Revenues | | | | |
| | Wireless | | Advanced Data | | Legacy Voice & Data | | Subscription | | Content | | Advertising | | Other | | Equipment | | Total |
| Communications | | | | | | | | | | | | | | | | | |
| Mobility | $ | 41,314 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 206 | | | $ | 0 | | | $ | 10,925 | | | $ | 52,445 | |
Entertainment Group | 0 | | | 6,329 | | | 1,679 | | | 20,220 | | | 0 | | | 1,115 | | | 1,189 | | | 105 | | | 30,637 | |
Business Wireline | 0 | | | 9,943 | | | 6,227 | | | 0 | | | 0 | | | 0 | | | 2,315 | | | 561 | | | 19,046 | |
| WarnerMedia | | | | | | | | | | | | | | | | | |
| Turner | 0 | | | 0 | | | 0 | | | 5,693 | | | 595 | | | 2,830 | | | 208 | | | 0 | | | 9,326 | |
Home Box Office | 0 | | | 0 | | | 0 | | | 4,403 | | | 488 | | | 0 | | | 14 | | | 0 | | | 4,905 | |
| Warner Bros. | 0 | | | 0 | | | 0 | | | 37 | | | 8,532 | | | 4 | | | 334 | | | 0 | | | 8,907 | |
Eliminations and other1 | 0 | | | 0 | | | 0 | | | 221 | | | (2,650) | | | 1,416 | | | 51 | | | 0 | | | (962) | |
| Latin America | | | | | | | | | | | | | | | | | |
| Vrio | 0 | | | 0 | | | 0 | | | 2,392 | | | 0 | | | 0 | | | 0 | | | 0 | | | 2,392 | |
| Mexico | 1,197 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 629 | | | 1,826 | |
Corporate and Other | 464 | | | 38 | | | 424 | | | 0 | | | 0 | | | 0 | | | 197 | | | 133 | | | 1,256 | |
Eliminations and consolidations2 | 0 | | | 0 | | | 0 | | | (2,349) | | | 0 | | | (1,115) | | | (245) | | | 0 | | | (3,709) | |
Total Operating Revenues | $ | 42,975 | | | $ | 16,310 | | | $ | 8,330 | | | $ | 30,617 | | | $ | 6,965 | | | $ | 4,456 | | | $ | 4,063 | | | $ | 12,353 | | | $ | 126,069 | |
1“Eliminations and other” of $2,650 include Warner Bros. contents sales of approximately $1,850 with HBO Max, $510 with HBO linear and $220 with Turner. |
2“Eliminations and consolidations” of $2,349 include approximately $1,170 and $880 of Turner and HBO linear channel distribution arrangements with the Entertainment Group, respectively, and $150 of HBO Max customer subscriptions at Mobility. |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| For the nine months ended September 30, 2021 |
| | Communications | | | | | | | | | | |
| | Mobility | | Business Wireline | | Consumer Wireline | | WarnerMedia | | Latin America | | Corporate & Other | | Elim. | | Total |
| Wireless service | $ | 42,667 | | | $ | — | | | $ | — | | | $ | — | | | $ | 1,349 | | | $ | 65 | | | $ | — | | | $ | 44,081 | |
| Video service | — | | | — | | | — | | | — | | | 2,248 | | | 14,534 | | | — | | | 16,782 | |
| Business service | — | | | 17,497 | | | — | | | — | | | — | | | 70 | | | — | | | 17,567 | |
| Broadband | — | | | — | | | 6,761 | | | — | | | — | | | — | | | — | | | 6,761 | |
| Subscription | — | | | — | | | — | | | 11,779 | | | — | | | — | | | — | | | 9,649 | |
DTC (HBO Max)1 | — | | | — | | | — | | | — | | | — | | | — | | | (749) | | | |
Other2 | — | | | — | | | — | | | — | | | — | | | — | | | (1,381) | | | |
| Content | — | | | — | | | — | | | 10,411 | | | — | | | — | | | — | | | 8,440 | |
DTC (HBO Max)3 | — | | | — | | | — | | | (1,136) | | | — | | | — | | | — | | | |
Other3 | — | | | — | | | — | | | (835) | | | — | | | — | | | — | | | |
| Advertising | 254 | | | — | | | — | | | 4,877 | | | — | | | 909 | | | (909) | | | 5,131 | |
| Legacy voice and data | — | | | — | | | 1,507 | | | — | | | — | | | 334 | | | — | | | 1,841 | |
| Other | — | | | — | | | 1,019 | | | 663 | | | — | | | 576 | | | (207) | | | 2,051 | |
| Total Service | 42,921 | | | 17,497 | | | 9,287 | | | 25,759 | | | 3,597 | | | 16,488 | | | (3,246) | | | 112,303 | |
| Equipment | 14,187 | | | 539 | | | 93 | | | — | | | 694 | | | 90 | | | — | | | 15,603 | |
| Total | $ | 57,108 | | | $ | 18,036 | | | $ | 9,380 | | | $ | 25,759 | | | $ | 4,291 | | | $ | 16,578 | | | $ | (3,246) | | | $ | 127,906 | |
1Represents DTC (HBO Max) intercompany sales to the Communications segment ($481 with Mobility and $268 with Consumer Wireline). |
2Represents intercompany video distribution arrangements primarily to DIRECTV/U-verse from WarnerMedia prior to August 1, 2021 (see Note 11). |
3Represents intercompany transactions in the WarnerMedia segment. |
AT&T INC.
SEPTEMBER 30, 20202021
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Dollars in millions except per share amounts
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| For the nine months ended September 30, 2019 |
| | Service Revenues | | | | |
| | Wireless | | Advanced Data | | Legacy Voice & Data | | Subscription | | Content | | Advertising | | Other | | Equipment | | Total |
| Communications | | | | | | | | | | | | | | | | | |
| Mobility | $ | 41,171 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 212 | | | $ | 0 | | | $ | 10,973 | | | $ | 52,356 | |
Entertainment Group | 0 | | | 6,296 | | | 1,969 | | | 22,872 | | | 0 | | | 1,170 | | | 1,580 | | | 6 | | | 33,893 | |
Business Wireline | 0 | | | 9,649 | | | 6,973 | | | 0 | | | 0 | | | 0 | | | 2,430 | | | 536 | | | 19,588 | |
| WarnerMedia | | | | | | | | | | | | | | | | | |
| Turner | 0 | | | 0 | | | 0 | | | 5,835 | | | 335 | | | 3,440 | | | 250 | | | 0 | | | 9,860 | |
Home Box Office | 0 | | | 0 | | | 0 | | | 4,383 | | | 655 | | | 0 | | | 7 | | | 0 | | | 5,045 | |
| Warner Bros. | 0 | | | 0 | | | 0 | | | 67 | | | 9,636 | | | 33 | | | 504 | | | 0 | | | 10,240 | |
Eliminations and other1 | 0 | | | 0 | | | 0 | | | 160 | | | (776) | | | 1,451 | | | 10 | | | 0 | | | 845 | |
| Latin America | | | | | | | | | | | | | | | | | |
| Vrio | 0 | | | 0 | | | 0 | | | 3,112 | | | 0 | | | 0 | | | 0 | | | 0 | | | 3,112 | |
| Mexico | 1,376 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 717 | | | 2,093 | |
Corporate and Other | 437 | | | 40 | | | 20 | | | 0 | | | 0 | | | 0 | | | 605 | | | 116 | | | 1,218 | |
Eliminations and consolidations2 | 0 | | | 0 | | | 0 | | | (2,475) | | | 0 | | | (1,170) | | | (233) | | | 0 | | | (3,878) | |
Total Operating Revenues | $ | 42,984 | | | $ | 15,985 | | | $ | 8,962 | | | $ | 33,954 | | | $ | 9,850 | | | $ | 5,136 | | | $ | 5,153 | | | $ | 12,348 | | | $ | 134,372 | |
1“Eliminations and other” of $776 included Warner Bros. content sales of approximately $310 with HBO linear and $290 with Turner. |
2“Eliminations and consolidations” of $2,475 include approximately $1,340 and $1,000 of Turner and HBO linear channel distribution arrangements with the Entertainment Group, respectively. |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| For the nine months ended September 30, 2020 |
| | Communications | | | | | | | | | | |
| | Mobility | | Business Wireline | | Consumer Wireline | | WarnerMedia | | Latin America | | Corporate & Other | | Elim. | | Total |
| Wireless service | $ | 41,314 | | | $ | — | | | $ | — | | | $ | — | | | $ | 1,197 | | | $ | 464 | | | $ | — | | | $ | 42,975 | |
| Video service | — | | | — | | | — | | | — | | | 2,392 | | | 20,226 | | | — | | | 22,618 | |
| Business service | — | | | 18,271 | | | — | | | — | | | — | | | 243 | | | — | | | 18,514 | |
| Broadband | — | | | — | | | 6,329 | | | — | | | — | | | — | | | — | | | 6,329 | |
| Subscription | — | | | — | | | — | | | 10,142 | | | — | | | — | | | — | | | 7,793 | |
DTC (HBO Max)1 | — | | | — | | | — | | | — | | | — | | | — | | | (251) | | | |
Other2 | — | | | — | | | — | | | — | | | — | | | — | | | (2,098) | | | |
| Content | — | | | — | | | — | | | 9,615 | | | — | | | — | | | — | | | 6,988 | |
DTC (HBO Max)3 | — | | | — | | | — | | | (1,848) | | | — | | | — | | | — | | | |
Other3 | — | | | — | | | — | | | (779) | | | — | | | — | | | — | | | |
| Advertising | 206 | | | — | | | — | | | 4,236 | | | — | | | 1,115 | | | (1,115) | | | 4,442 | |
| Legacy voice and data | — | | | — | | | 1,679 | | | — | | | — | | | 424 | | | — | | | 2,103 | |
| Other | — | | | — | | | 1,189 | | | 522 | | | — | | | 488 | | | (245) | | | 1,954 | |
| Total Service | 41,520 | | | 18,271 | | | 9,197 | | | 21,888 | | | 3,589 | | | 22,960 | | | (3,709) | | | 113,716 | |
| Equipment | 10,925 | | | 561 | | | 5 | | | — | | | 629 | | | 233 | | | — | | | 12,353 | |
| Total | $ | 52,445 | | | $ | 18,832 | | | $ | 9,202 | | | $ | 21,888 | | | $ | 4,218 | | | $ | 23,193 | | | $ | (3,709) | | | $ | 126,069 | |
1Represents DTC (HBO Max) intercompany sales to the Communications segment ($153 with Mobility and $98 with Consumer Wireline). |
2Represents intercompany video distribution arrangements primarily to DIRECTV/U-verse from WarnerMedia. |
3Represents 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 entertainment services, are deferred and amortized over the contract period or expected customer relationship life, which typically ranges from three years to five years. For contracts with an estimated amortization period of less than one year, we expense incremental costs immediately.
The following table presents the deferred customer contract acquisition and fulfillment costs included on our consolidated balance sheets:
| | | | | | | | | | | |
| | September 30, | | December 31, |
| Consolidated Balance Sheets | 2021 | | 2020 |
| Deferred Acquisition Costs | | | |
| Prepaid and other current assets | $ | 2,615 | | | $ | 3,087 | |
| Other Assets | 3,056 | | | 3,198 | |
| Total deferred customer contract acquisition costs | $ | 5,671 | | | $ | 6,285 | |
| Deferred Fulfillment Costs | | | |
| Prepaid and other current assets | $ | 2,611 | | | $ | 4,118 | |
| Other Assets | 4,196 | | | 5,634 | |
| Total deferred customer contract fulfillment costs | $ | 6,807 | | | $ | 9,752 | |
AT&T INC.
SEPTEMBER 30, 20202021
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Dollars in millions except per share amounts
The following table presents thedecline in deferred customer contract acquisition and fulfillment costs included on our consolidated balance sheets:
| | | | | | | | | | | |
| | September 30, | | December 31, |
| Consolidated Balance Sheets | 2020 | | 2019 |
| Deferred Acquisition Costs | | | |
| Other current assets | $ | 2,831 | | | $ | 2,462 | |
| Other Assets | 3,114 | | | 2,991 | |
| Total deferred customer contract acquisition costs | $ | 5,945 | | | $ | 5,453 | |
| Deferred Fulfillment Costs | | | |
| Other current assets | $ | 4,234 | | | $ | 4,519 | |
| Other Assets | 5,781 | | | 6,439 | |
| Total deferred customer contract fulfillment costs | $ | 10,015 | | | $ | 10,958 | |
The following table presents deferred customer contract acquisition and fulfillment cost amortization included in “Other cost of revenue” for the nine months ended:
| | | | September 30, | | September 30, | | September 30, | | September 30, |
| Consolidated Statements of Income | Consolidated Statements of Income | 2020 | | 2019 | Consolidated Statements of Income | 2021 | | 2020 |
| Deferred acquisition cost amortization | Deferred acquisition cost amortization | $ | 1,969 | | | $ | 1,565 | | Deferred acquisition cost amortization | $ | 2,358 | | | $ | 1,969 | |
| Deferred fulfillment cost amortization | Deferred fulfillment cost amortization | 3,888 | | | 3,656 | | Deferred fulfillment cost amortization | 3,290 | | | 3,888 | |
Contract Assets and Liabilities
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.
Our contract assets primarily relate to our wireless businesses. Promotional equipment sales where we offer handset credits, which are allocated between equipment and service in proportion to their standalone selling prices, when customers commit to a specified service period result in additional contract assets recognized. These contract assets will amortize over the service contract period, resulting in lower future service revenue.
When consideration is received in advance of the delivery of goods or services, a contract liability is recorded for deferred revenue.recorded. Reductions in the contract liability will be recorded as we satisfy the performance obligations.
The following table presents contract assets and liabilities on our consolidated balance sheets:
| | | | September 30, | | December 31, | | September 30, | | December 31, |
| Consolidated Balance Sheets | Consolidated Balance Sheets | 2020 | | 2019 | Consolidated Balance Sheets | 2021 | | 2020 |
| Contract asset | Contract asset | $ | 2,817 | | | $ | 2,472 | | Contract asset | $ | 3,889 | | | $ | 3,501 | |
| Current portion in “Prepaid and other current assets” | | Current portion in “Prepaid and other current assets” | 2,329 | | | 2,054 | |
| Contract liability | Contract liability | 6,617 | | | 6,999 | | Contract liability | 5,385 | | | 6,879 | |
| Current portion in “Advanced billings and customer deposits” | | Current portion in “Advanced billings and customer deposits” | 4,779 | | | 6,071 | |
| Current portion in “Accounts payable and accrued liabilities” | | Current portion in “Accounts payable and accrued liabilities” | 74 | | | — | |
Our beginning of period contract liability recorded as customer contract revenue during 20202021 was $5,340.$5,150.
Our consolidated balance sheets at September 30, 2020 and December 31, 2019 included $1,729 and $1,611, respectively, for the current portion ofChanges in our contract asset in “Other current assets” and $5,762contract liability from December 31, 2020 include the impact of the July 2021 separation of the U.S. Video business. At separation, the contract asset was reduced $303 and $5,939, respectively, forthe contract liability was reduced $1,098, both of which were predominantly the current portion of our contract liability in “Advanced billings and customer deposits.”portion. (See Note 8)
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.
AT&T INC.
SEPTEMBER 30, 20202021
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Dollars in millions except per share amounts
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 September 30, 2020,2021, the aggregate amount of the transaction price allocated to remaining performance obligations was $39,385,$42,106, of which we expect to recognize approximately 74% by the end of 2021,2022, with the balance recognized thereafter.
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 2020.2021.
We 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. Total distributions from the pension plan exceeded 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 expected settlements to occur during each quarter. These remeasurements resulted in the recognition of actuarial gains of $374 in the third quarter and $3,021 for the nine months ended September 30, 2021.
As part of our 2021 remeasurements, the weighted-average discount rate used to measure our pension benefit obligation remained consistent at 3.00% at September 30, 2021 as compared to June 30, 2021, increasing from 2.70% at December 31, 2020. The discount rate in effect for determining pension service and interest costs after our September 30 remeasurement is 3.30% and 2.30% respectively. The remeasurements also reflect actual returns on pension plan assets of 6.30% (nine-month rate) relative to our expected long-term rate of 6.75% (annual rate).
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 (benefit) is recorded in operating expenses in the consolidated statements of income while the remaining components are recorded in “Other income (expense) – net.”
| | | | Three months ended | | Nine months ended | | Three months ended | | Nine months ended |
| | | September 30, | | September 30, | | September 30, | | September 30, |
| | | 2020 | | 2019 | | 2020 | | 2019 | | 2021 | | 2020 | | 2021 | | 2020 |
| Pension cost: | Pension cost: | | | | | | | | Pension cost: | | | | | | | |
| Service cost - benefits earned during the period | $ | 257 | | | $ | 260 | | | $ | 772 | | | $ | 743 | | |
| Service cost – benefits earned during the period | | Service cost – benefits earned during the period | $ | 241 | | | $ | 257 | | | $ | 723 | | | $ | 772 | |
| Interest cost on projected benefit obligation | Interest cost on projected benefit obligation | 421 | | | 463 | | | 1,265 | | | 1,520 | | Interest cost on projected benefit obligation | 321 | | | 421 | | | 951 | | | 1,265 | |
| Expected return on assets | Expected return on assets | (888) | | | (905) | | | (2,667) | | | (2,636) | | Expected return on assets | (890) | | | (888) | | | (2,617) | | | (2,667) | |
| Amortization of prior service credit | Amortization of prior service credit | (28) | | | (28) | | | (85) | | | (85) | | Amortization of prior service credit | (36) | | | (28) | | | (108) | | | (85) | |
| Actuarial (gain) loss | Actuarial (gain) loss | 0 | | | 1,888 | | | 0 | | | 4,019 | | Actuarial (gain) loss | (374) | | | — | | | (3,021) | | | — | |
| Net pension (credit) cost | Net pension (credit) cost | $ | (238) | | | $ | 1,678 | | | $ | (715) | | | $ | 3,561 | | Net pension (credit) cost | $ | (738) | | | $ | (238) | | | $ | (4,072) | | | $ | (715) | |
| | Postretirement cost: | Postretirement cost: | | Postretirement cost: | |
| Service cost – benefits earned during the period | Service cost – benefits earned during the period | $ | 14 | | | $ | 19 | | | $ | 40 | | | $ | 55 | | Service cost – benefits earned during the period | $ | 11 | | | $ | 14 | | | $ | 34 | | | $ | 40 | |
| Interest cost on accumulated postretirement benefit obligation | Interest cost on accumulated postretirement benefit obligation | 104 | | | 185 | | | 312 | | | 557 | | Interest cost on accumulated postretirement benefit obligation | 53 | | | 104 | | | 158 | | | 312 | |
| Expected return on assets | Expected return on assets | (44) | | | (57) | | | (133) | | | (169) | | Expected return on assets | (38) | | | (44) | | | (114) | | | (133) | |
| Amortization of prior service credit | Amortization of prior service credit | (583) | | | (425) | | | (1,747) | | | (1,277) | | Amortization of prior service credit | (634) | | | (583) | | | (1,903) | | | (1,747) | |
| Net postretirement (credit) cost | Net postretirement (credit) cost | $ | (509) | | | $ | (278) | | | $ | (1,528) | | | $ | (834) | | Net postretirement (credit) cost | $ | (608) | | | $ | (509) | | | $ | (1,825) | | | $ | (1,528) | |
| Combined net pension and postretirement (credit) cost | Combined net pension and postretirement (credit) cost | $ | (747) | | | $ | 1,400 | | | $ | (2,243) | | | $ | 2,727 | | Combined net pension and postretirement (credit) cost | $ | (1,346) | | | $ | (747) | | | $ | (5,897) | | | $ | (2,243) | |
AT&T INC.
SEPTEMBER 30, 2021
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Dollars in millions except per share amounts
We also provide senior- and middle-management employees with nonqualified, unfunded supplemental retirement and savings plans. Net supplemental pension benefits costs not included in the table above were $19$12 and $24$19 in the third quarter and $57$35 and $74$57 for the first nine months of 2021 and 2020, and 2019, respectively. During the third quarter of 2020, we recorded an actuarial loss of $63.
AT&T INC.
SEPTEMBER 30, 2020
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Dollars in millions except per share amounts
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, 2019.2020.
Long-Term Debt and Other Financial Instruments
The carrying amounts and estimated fair values of our long-term debt, including current maturities, and other financial instruments, are summarized as follows:
| | | | September 30, 2020 | | December 31, 2019 | | September 30, 2021 | | December 31, 2020 |
| | | Carrying | | Fair | | Carrying | | Fair | | Carrying | | Fair | | Carrying | | Fair |
| | | Amount | | Value | | Amount | | Value | | Amount | | Value | | Amount | | Value |
Notes and debentures1 | Notes and debentures1 | $ | 155,218 | | | $ | 181,872 | | | $ | 161,109 | | | $ | 182,124 | | Notes and debentures1 | $ | 170,841 | | | $ | 197,467 | | | $ | 155,209 | | | $ | 187,224 | |
| Commercial paper | Commercial paper | 1,754 | | | 1,754 | | | 0 | | | 0 | | Commercial paper | 6,576 | | | 6,576 | | | — | | | — | |
| Bank borrowings | 0 | | | 0 | | | 4 | | | 4 | | |
| Investment securities2 | Investment securities2 | 3,669 | | | 3,669 | | | 3,723 | | | 3,723 | | Investment securities2 | 3,282 | | | 3,282 | | | 3,249 | | | 3,249 | |
1Includes credit agreement borrowings. | |
1Includes credit agreement borrowings. Excludes note payable to DIRECTV. Amounts at September 30, 2021 exclude $32 associated with Vrio, which were classified as held-for-sale (see Note 8). | | 1Includes credit agreement borrowings. Excludes note payable to DIRECTV. Amounts at September 30, 2021 exclude $32 associated with Vrio, which were classified as held-for-sale (see Note 8). |
2Excludes investments accounted for under the equity method. | 2Excludes investments accounted for under the equity method. | 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.
AT&T INC.
SEPTEMBER 30, 20202021
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Dollars in millions except per share amounts
Following is the fair value leveling for investment securities that are measured at fair value and derivatives as of September 30, 20202021 and December 31, 2019.2020. Derivatives designated as hedging instruments are reflected as “Other assets,” “Other noncurrent liabilities,” “Other“Prepaid and other current assets” and “Accounts payable and accrued liabilities” on our consolidated balance sheets.
| | | | September 30, 2020 | | September 30, 2021 |
| | | Level 1 | | Level 2 | | Level 3 | | Total | | Level 1 | | Level 2 | | Level 3 | | Total |
| Equity Securities | Equity Securities | | | | | | | | Equity Securities | | | | | | | |
| Domestic equities | Domestic equities | $ | 893 | | | $ | 0 | | | $ | 0 | | | $ | 893 | | Domestic equities | $ | 1,137 | | | $ | — | | | $ | — | | | $ | 1,137 | |
| International equities | International equities | 148 | | | 0 | | | 0 | | | 148 | | International equities | 212 | | | — | | | — | | | 212 | |
| Fixed income equities | Fixed income equities | 233 | | | 0 | | | 0 | | | 233 | | Fixed income equities | 231 | | | — | | | — | | | 231 | |
| Available-for-Sale Debt Securities | Available-for-Sale Debt Securities | 0 | | | 1,524 | | | 0 | | | 1,524 | | Available-for-Sale Debt Securities | — | | | 1,426 | | | — | | | 1,426 | |
| Asset Derivatives | Asset Derivatives | | Asset Derivatives | |
| | Cross-currency swaps | Cross-currency swaps | 0 | | | 322 | | | 0 | | | 322 | | Cross-currency swaps | — | | | 430 | | | — | | | 430 | |
| | Foreign exchange contracts | Foreign exchange contracts | 0 | | | 16 | | | 0 | | | 16 | | Foreign exchange contracts | — | | | 2 | | | — | | | 2 | |
| Liability Derivatives | Liability Derivatives | | Liability Derivatives | |
| | Cross-currency swaps | Cross-currency swaps | 0 | | | (4,244) | | | 0 | | | (4,244) | | Cross-currency swaps | — | | | (3,000) | | | — | | | (3,000) | |
| | Foreign exchange contracts | Foreign exchange contracts | 0 | | | (6) | | | 0 | | | (6) | | Foreign exchange contracts | — | | | (36) | | | — | | | (36) | |
| | | | December 31, 2019 | | December 31, 2020 |
| | | Level 1 | | Level 2 | | Level 3 | | Total | | Level 1 | | Level 2 | | Level 3 | | Total |
| Equity Securities | Equity Securities | | | | | | | | Equity Securities | | | | | | | |
| Domestic equities | Domestic equities | $ | 844 | | | $ | 0 | | | $ | 0 | | | $ | 844 | | Domestic equities | $ | 1,010 | | | $ | — | | | $ | — | | | $ | 1,010 | |
| International equities | International equities | 183 | | | 0 | | | 0 | | | 183 | | International equities | 180 | | | — | | | — | | | 180 | |
| Fixed income equities | Fixed income equities | 229 | | | 0 | | | 0 | | | 229 | | Fixed income equities | 236 | | | — | | | — | | | 236 | |
| Available-for-Sale Debt Securities | Available-for-Sale Debt Securities | 0 | | | 1,444 | | | 0 | | | 1,444 | | Available-for-Sale Debt Securities | — | | | 1,479 | | | — | | | 1,479 | |
| Asset Derivatives | Asset Derivatives | | Asset Derivatives | |
| Interest rate swaps | 0 | | | 2 | | | 0 | | | 2 | | |
| | Cross-currency swaps | Cross-currency swaps | 0 | | | 172 | | | 0 | | | 172 | | Cross-currency swaps | — | | | 1,721 | | | — | | | 1,721 | |
| Interest rate locks | 0 | | | 11 | | | 0 | | | 11 | | |
| | Foreign exchange contracts | Foreign exchange contracts | 0 | | | 89 | | | 0 | | | 89 | | Foreign exchange contracts | — | | | 6 | | | — | | | 6 | |
| Liability Derivatives | Liability Derivatives | | Liability Derivatives | |
| | Cross-currency swaps | Cross-currency swaps | 0 | | | (3,187) | | | 0 | | | (3,187) | | Cross-currency swaps | — | | | (1,814) | | | — | | | (1,814) | |
| Interest rate locks | 0 | | | (95) | | | 0 | | | (95) | | |
| | Foreign exchange contracts | | Foreign exchange contracts | — | | | (9) | | | — | | | (9) | |
Investment Securities
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.
AT&T INC.
SEPTEMBER 30, 20202021
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Dollars in millions except per share amounts
The components comprising total gains and losses in the period on equity securities are as follows:
| | | | Three months ended | | Nine months ended | | Three months ended | | Nine months ended |
| | | September 30, | | September 30, | | September 30, | | September 30, |
| | | 2020 | | 2019 | | 2020 | | 2019 | | 2021 | | 2020 | | 2021 | | 2020 |
| Total gains (losses) recognized on equity securities | Total gains (losses) recognized on equity securities | $ | 64 | | | $ | 21 | | | $ | 22 | | | $ | 231 | | Total gains (losses) recognized on equity securities | $ | 9 | | | $ | 64 | | | $ | 151 | | | $ | 22 | |
| Gains (Losses) recognized on equity securities sold | Gains (Losses) recognized on equity securities sold | 0 | | | 74 | | | (24) | | | 101 | | Gains (Losses) recognized on equity securities sold | (2) | | | — | | | (2) | | | (24) | |
Unrealized gains (losses) recognized on equity securities held at end of period | Unrealized gains (losses) recognized on equity securities held at end of period | $ | 64 | | | $ | (53) | | | $ | 46 | | | $ | 130 | | Unrealized gains (losses) recognized on equity securities held at end of period | $ | 11 | | | $ | 64 | | | $ | 153 | | | $ | 46 | |
At September 30, 2020,2021, available-for-sale debt securities totaling $1,524$1,426 have maturities as follows - less than one year: $62;$65; one to three years: $155;$209; three to five years: $163;$185; five or more years: $1,144.$967.
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 “Other“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 foreign exchange contractscross-currency swaps as fair value hedges. The purpose of these contracts is to hedge foreign currency risk associated with foreign-currency-denominated operating assetschanges in spot rates on foreign denominated debt. For these hedges we have elected to exclude the change in fair value of the cross-currency swap related to both time value and liabilities.cross-currency basis spread from the assessment of hedge effectiveness.
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.hedged, including the earnings impact of excluded components. In instances where we have elected to exclude components from the assessment of hedge effectiveness 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 over the life of the hedging instrument. 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. ChangesExcept 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 nine months ended September 30, 20202021 and 2019,2020, 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.
AT&T INC.
SEPTEMBER 30, 2021
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.
AT&T INC.
SEPTEMBER 30, 2020
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Dollars in millions except per share amounts
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 $95$77 from accumulated OCI to “Interest expense” due to the amortization of net losses on historical interest rate locks.
We settled all interest rate locks in May 2020 in conjunction with the issuance of fixed rate debt obligations that the interest rate locks were hedging and paid $731 that was largely offset by the return of collateral at the time of settlement. Cash flows from the interest rate lock settlements and return of collateral were reported as Financing Activities in our Statement of Cash Flows, consistent with our accounting policy for these instruments.
Net Investment Hedging We have designated €1,450 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 sheet.sheets. Net lossesgains on net investment hedges recognized in accumulated OCI in the third quarter were $70$40 and net gains for the first nine months of 20202021 were $75.$91.
Collateral and Credit-Risk Contingency We have entered into agreements with our derivative counterparties establishing collateral thresholds based on respective credit ratings and netting agreements. At September 30, 2020,2021, we had posted collateral of $485$116 (a deposit asset) and held collateral of $4$189 (a receipt liability). Under the agreements, if AT&T’s credit rating had been downgraded two ratings levels by Fitch Ratings, one rating level by Fitch Ratings,S&P and one level by Moody’s before the final collateral exchange in September, we would have been required to post additional collateral of $25.$54. If AT&T’s credit rating had been downgraded fourthree 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 $3,237. 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 $241.$2,536. At December 31, 2019,2020, we had posted collateral of $204$53 (a deposit asset) and held collateral of $44$694 (a receipt liability). We 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.
Following are the notional amounts of our outstanding derivative positions:
| | | | September 30, | | December 31, | | September 30, | | December 31, |
| 2020 | | 2019 | 2021 | | 2020 |
| Interest rate swaps | $ | 0 | | | $ | 853 | | |
| | Cross-currency swaps | Cross-currency swaps | 42,969 | | | 42,325 | | Cross-currency swaps | $ | 42,085 | | | $ | 40,745 | |
| Interest rate locks | 0 | | | 3,500 | | |
| | Foreign exchange contracts | Foreign exchange contracts | 204 | | | 269 | | Foreign exchange contracts | 191 | | | 90 | |
| Total | Total | $ | 43,173 | | | $ | 46,947 | | Total | $ | 42,276 | | | $ | 40,835 | |
Following are the related hedged items affecting our financial position and performance:
| | Effect of Derivatives on the Consolidated Statements of Income | Effect of Derivatives on the Consolidated Statements of Income | | | | | | | Effect of Derivatives on the Consolidated Statements of Income | | | | | | |
| | | Three months ended | | Nine months ended | | Three months ended | | Nine months ended |
| | | September 30, | | September 30, | | September 30, | | September 30, |
| Fair Value Hedging Relationships | Fair Value Hedging Relationships | 2020 | | 2019 | | 2020 | | 2019 | Fair Value Hedging Relationships | 2021 | | 2020 | | 2021 | | 2020 |
| Interest rate swaps (Interest expense): | Interest rate swaps (Interest expense): | | | | | | | | Interest rate swaps (Interest expense): | | | | | | | |
| Gain (Loss) on interest rate swaps | Gain (Loss) on interest rate swaps | $ | (1) | | | $ | 0 | | | $ | (5) | | | $ | 59 | | Gain (Loss) on interest rate swaps | $ | (1) | | | $ | (1) | | | $ | (3) | | | $ | (5) | |
| Gain (Loss) on long-term debt | Gain (Loss) on long-term debt | 1 | | | 0 | | | 5 | | | (59) | | Gain (Loss) on long-term debt | 1 | | | 1 | | | 3 | | | 5 | |
| Cross-currency swaps: | | Cross-currency swaps: | |
| Gain (Loss) on cross-currency swaps | | Gain (Loss) on cross-currency swaps | (34) | | | — | | | (66) | | | — | |
| Gain (Loss) on long-term debt | | Gain (Loss) on long-term debt | 34 | | | — | | | 66 | | | — | |
| Gain (Loss) recognized in accumulated OCI | | Gain (Loss) recognized in accumulated OCI | 2 | | | — | | | 3 | | | — | |
In addition, the net swap settlements that accrued and settled in the quarters ended September 30, 2020 and 2019periods above were offset against interest“Interest expense.
”
AT&T INC.
SEPTEMBER 30, 20202021
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Dollars in millions except per share amounts
The following table presents information for our cash flow hedging relationships:
| | | | Three months ended | | Nine months ended | | Three months ended | | Nine months ended |
| | | September 30, | | September 30, | | September 30, | | September 30, |
| Cash Flow Hedging Relationships | Cash Flow Hedging Relationships | 2020 | | 2019 | | 2020 | | 2019 | Cash Flow Hedging Relationships | 2021 | | 2020 | | 2021 | | 2020 |
| Cross-currency swaps: | Cross-currency swaps: | | | | | | | | Cross-currency swaps: | | | | | | | |
| Gain (Loss) recognized in accumulated OCI | Gain (Loss) recognized in accumulated OCI | $ | 1,079 | | | $ | (487) | | | $ | (2,091) | | | $ | (1,082) | | Gain (Loss) recognized in accumulated OCI | $ | (237) | | | $ | 1,079 | | | $ | (742) | | | $ | (2,091) | |
| Foreign exchange contracts: | Foreign exchange contracts: | | Foreign exchange contracts: | |
| Gain (Loss) recognized in accumulated OCI | Gain (Loss) recognized in accumulated OCI | 10 | | | 5 | | | (1) | | | 2 | | Gain (Loss) recognized in accumulated OCI | (14) | | | 10 | | | (14) | | | (1) | |
Other income (expense) - net reclassified from accumulated OCI into income | Other income (expense) - net reclassified from accumulated OCI into income | (9) | | | 6 | | | 4 | | | 16 | | Other income (expense) - net reclassified from accumulated OCI into income | 7 | | | (9) | | | (3) | | | 4 | |
| Interest rate locks: | Interest rate locks: | | Interest rate locks: | |
| Gain (Loss) recognized in accumulated OCI | Gain (Loss) recognized in accumulated OCI | 0 | | | (202) | | | (648) | | | (225) | | Gain (Loss) recognized in accumulated OCI | — | | | — | | | — | | | (648) | |
Interest income (expense) reclassified from accumulated OCI into income | Interest income (expense) reclassified from accumulated OCI into income | (25) | | | (15) | | | (59) | | | (47) | | Interest income (expense) reclassified from accumulated OCI into income | (22) | | | (25) | | | (70) | | | (59) | |
NOTE 8. ACQUISITIONS, DISPOSITIONS AND OTHER ADJUSTMENTS
Acquisitions
HBO Latin America Group (HBO LAG)Spectrum Auction In May 2020, we acquiredOn February 24, 2021, the remaining interest in HBO LAG for $141, net of cash acquired. At acquisition, we remeasured the fair value of the total business, which exceeded the carrying amount of our equity method investment and resulted in a pre-tax gain of $68. We consolidated that business upon close and recorded those assets at fair value, including $640 of trade names, $271 of distribution networks and $343 of goodwill that is reported in the WarnerMedia segment. These estimates are preliminary in nature and subject to adjustments, which will be finalized within one year from the date of acquisition.
Spectrum Auctions In June 2020, we completed the acquisition of $2,379 of 37/39 GHz spectrum in a Federal Communications Commission (FCC) auction. Priorannounced 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 auction, we exchanged the 39 GHz licenses with a book valueFCC an upfront deposit of approximately $300 that were previously acquired through FiberTower Corporation for vouchers to be applied against the winning bids$550 in 2020 and recorded a $900 gaincash payments totaling $22,856 in the first quarter of 2020. These vouchers yielded2021, for a valuetotal of $23,406. We received the licenses in July 2021 and classified the auction deposits, related capitalized interest and billed relocation costs as “Licenses - Net” on our September 30, 2021 consolidated balance sheet. We estimate that we will be responsible for $955 of Incentive Payments upon clearing of Phase I spectrum, expected by the end of 2021, and $2,112 upon clearing of Phase II spectrum, expected by the end of 2023. Additionally, we are responsible for approximately $1,200,$1,000 of compensable relocation costs over the next several years as the spectrum is being cleared by satellite operators, of which $650 was applied toward our gross bids. Inbilled in the secondthird quarter and paid in the fourth quarter of 2020, we made2021. Cash paid, including spectrum deposits (net of refunds), capitalized interest, and any payments for incentive and relocation costs are included in “Acquisitions, net of cash acquired” on our consolidated statements of cash flows. Interest is capitalized until the finalspectrum is ready for its intended use. Funding for the purchase price of the spectrum included a combination of cash payment of $949, bringing the total cash payment to $1,186.on hand and short-term investments, as well as short- and long-term debt.
Dispositions Subsequent to the Third Quarter
Central European Media Enterprises Ltd. (CME)Video Business On October 13, 2020,July 31, 2021, we completed the sale ofclosed our 65.3% interest in CME,transaction with TPG to form a European broadcastingnew company named DIRECTV, which is jointly governed by a board with representation from both AT&T and received $1,100. Upon close, we received relief from a debt guarantee originally covering approximately $1,100 that was reduced to $600 by September 30, 2020.TPG, with TPG having tie-breaking authority on certain key decisions.
OperationsIn connection with the transaction, we contributed our U.S. Video business unit to DIRECTV for $4,250 of junior preferred units, an additional distribution preference of $4,200 and a 70% economic interest in Puerto Rico On October 31, 2020, we completed the salecommon units (collectively “equity considerations”). TPG contributed approximately $1,800 in cash to DIRECTV for $1,800 of wirelesssenior preferred units and wireline operationsa 30% economic interest in Puerto Rico and the U.S. Virgin Islandscommon units. See Note 11 for approximately $1,950. These operations were classified as held-for-sale, and, accordingly, we included the assets in “Other current assets,” and the related liabilities in “Accounts payable and accrued liabilities,”additional information on our consolidated balance sheet at September 30, 2020.accounting for our investment in and transactions with DIRECTV.
In the third quarter, we received approximately $7,170 in cash from DIRECTV ($7,600, net of $430 cash on hand) and transferred $195 of DIRECTV debt. Approximately $1,800 of the cash received is reported as cash received from financing activities in our consolidated statement of cash flows, as it relates to a note payable to DIRECTV, for which payment is tied to our agreement to cover net losses under the remaining term of the NFL SUNDAY TICKET contract up to a cap of $2,100 over the remaining period of the contract. The remainder of the net proceeds will be used to redeem $1,950 of cumulative preferred interestsis reported as cash from investing activities. This transaction did not result in a subsidiary that held notes secured by the proceeds of this sale.material gain or loss.
AT&T INC.
SEPTEMBER 30, 20202021
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, included the assets in “Prepaid and other current assets,” and the related liabilities in “Accounts payable and accrued liabilities,” on our consolidated balance sheet, up until the close of the transaction. The held-for-sale classification also resulted in ceasing depreciation and amortization on the designated assets.
The assets and liabilities of the Video operations, transferred to DIRECTV upon close of the transaction, were as follows:
| | | | | | | | | | | | | | |
| Current assets | | | | $ | 4,893 | |
| Property, plant and equipment - net | | | | 2,673 | |
| Licenses, net | | | | 5,798 | |
| Other intangible assets, net | | | | 1,634 | |
| Other assets | | | | 1,787 | |
| Total Video assets | | | | $ | 16,785 | |
| | | | |
| Current liabilities | | | | $ | 4,267 | |
| Long-term debt | | | | 206 | |
| Other noncurrent liabilities | | | | 343 | |
| Total Video liabilities | | | | $ | 4,816 | |
Otter Media During the third quarter of 2021, we disposed of substantially all of the assets of Otter Media. We received approximately $1,540 in cash and removed approximately $1,200 of goodwill associated with these assets. The dispositions did not result in a material gain or loss.
Playdemic Ltd. On September 20, 2021, we sold WarnerMedia’s mobile games app studio, Playdemic Ltd. (Playdemic) for approximately $1,400 in cash and recognized a pre-tax gain of $766 in “Other income (expense) - net,” on our consolidated statement of income. Approximately $600 of goodwill was removed related to this business. Playdemic was excluded from the pending WarnerMedia/Discovery transaction.
Pending Dispositions
WarnerMedia On May 17, 2021, we entered into an agreement to combine our WarnerMedia segment, subject to certain exceptions, with a subsidiary of Discovery, Inc. (Discovery). The agreement is structured as a Reverse Morris Trust transaction, under which WarnerMedia will be distributed to AT&T’s shareholders via a pro rata dividend, an exchange offer, or a combination of both, followed by its combination with Discovery. The transaction is expected to be tax-free to AT&T and AT&T’s shareholders. AT&T will receive approximately $43,000 (subject to adjustment) in a combination of cash, debt securities, and WarnerMedia’s retention of certain debt. AT&T’s shareholders will receive stock representing approximately 71% of the new company; Discovery shareholders will own approximately 29% of the new company. The transaction is expected to close in mid-2022, subject to approval by Discovery shareholders and customary closing conditions, including receipt of regulatory approvals. No vote is required by AT&T shareholders.
The merger agreement contains certain customary termination rights for AT&T and Discovery, including, without limitation, a right for either party to terminate if the transaction is not completed on or before July 15, 2023. Termination fees under specified circumstances will require Discovery to pay AT&T $720 or AT&T to pay Discovery $1,770.
Magallanes, Inc. (Spinco), a subsidiary of AT&T, entered into a $41,500 commitment letter (Bridge Loan) on May 17, 2021. On June 4, 2021, Spinco entered into a $10,000 term loan credit agreement (Spinco Term Loan) and reduced the aggregate commitment amount under the Bridge Loan to $31,500. There have been no draws on the Bridge Loan or the Spinco Term Loan. In the event advances are made under the Bridge Loan or Spinco Term Loan, those advances will be used by Spinco to finance a portion of the cash distribution to AT&T in connection with the transaction.
AT&T INC.
SEPTEMBER 30, 2021
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Dollars in millions except per share amounts
Vrio On July 21, 2021, we entered into an agreement to sell our Latin America video operations, Vrio, to Grupo Werthein. In the second quarter of 2021, we classified the Vrio disposal group as held-for-sale and reported the disposal group at fair value less cost to sell, which resulted in a noncash, pre-tax impairment charge of $4,555, including approximately $2,100 related to accumulated foreign currency translation adjustments and $2,500 related to property, plant and equipment and intangible assets. Approximately $80 of the impairment was attributable to noncontrolling interest. At September 30, 2021, our consolidated balance sheet included $853 of Vrio held-for-sale assets reported in “Prepaid and other current assets,” primarily related to deferred customer contract acquisition and fulfillment costs, prepaids and other deferred charges, and $2,819 of related liabilities reported in “Accounts payable and accrued liabilities,” primarily for reserves associated with accumulated foreign currency translation adjustments, which will reverse against accumulated other comprehensive income upon close of the transaction.
The transaction is expected to close during the fourth quarter of 2021, pending customary closing conditions. We will retain our 41.3% interest in SKY Mexico, a leading pay-TV provider in Mexico.
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.
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:
| | | | September 30, 2020 | | December 31, 2019 | | September 30, 2021 | | December 31, 2020 |
| | | Equipment | | | | Equipment | | | | Equipment | | | | Equipment | | |
| | | Installment | | Revolving | | Installment | | Revolving | | Installment | | Revolving | | Installment | | Revolving |
| Gross receivables: | Gross receivables: | $ | 4,241 | | | $ | 3,516 | | | $ | 4,576 | | | $ | 3,324 | | Gross receivables: | $ | 3,671 | | | $ | 3,371 | | | $ | 5,565 | | | $ | 3,909 | |
| Balance sheet classification | Balance sheet classification | | Balance sheet classification | |
| Accounts receivable | Accounts receivable | | Accounts receivable | |
| Notes receivable | Notes receivable | 2,190 | | | 0 | | | 2,467 | | | 0 | | Notes receivable | 1,746 | | | — | | | 2,716 | | | — | |
| Trade receivables | Trade receivables | 481 | | | 3,329 | | | 477 | | | 2,809 | | Trade receivables | 438 | | | 3,163 | | | 554 | | | 3,715 | |
| Other Assets | Other Assets | | Other Assets | |
| Noncurrent notes and trade receivables | Noncurrent notes and trade receivables | 1,570 | | | 187 | | | 1,632 | | | 515 | | Noncurrent notes and trade receivables | 1,487 | | | 208 | | | 2,295 | | | 194 | |
| Outstanding portfolio of receivables derecognized from our consolidated balance sheets | Outstanding portfolio of receivables derecognized from our consolidated balance sheets | 8,238 | | | 5,100 | | | 9,713 | | | 4,300 | | Outstanding portfolio of receivables derecognized from our consolidated balance sheets | 9,380 | | | 5,562 | | | 7,827 | | | 5,300 | |
Cash proceeds received, net of remittances1 | Cash proceeds received, net of remittances1 | 5,944 | | | 5,100 | | | 7,211 | | | 4,300 | | Cash proceeds received, net of remittances1 | 6,588 | | | 5,562 | | | 5,646 | | | 5,300 | |
1Represents amounts to which financial institutions remain entitled, excluding the deferred purchase price. | 1Represents amounts to which financial institutions remain entitled, excluding the deferred purchase price. | 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.
AT&T INC.
SEPTEMBER 30, 2021
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Dollars in millions except per share amounts
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.
AT&T INC.
SEPTEMBER 30, 2020
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Dollars in millions except per share amounts
The following table sets forth a summary of equipment installment receivables sold under this program during the three and nine months ended September 30, 20202021 and 2019:2020:
| | | | Three months ended | | Nine months ended | | Three months ended | | Nine months ended |
| | | September 30, | | September 30, | | September 30, | | September 30, |
| | | 2020 | | 2019 | | 2020 | | 2019 | | 2021 | | 2020 | | 2021 | | 2020 |
| Gross receivables sold | Gross receivables sold | $ | 1,624 | | | $ | 2,098 | | | $ | 5,497 | | | $ | 7,043 | | Gross receivables sold | $ | 2,123 | | | $ | 1,624 | | | $ | 8,067 | | | $ | 5,497 | |
Net receivables sold1 | Net receivables sold1 | 1,578 | | | 2,014 | | | 5,300 | | | 6,693 | | Net receivables sold1 | 2,069 | | | 1,578 | | | 7,858 | | | 5,300 | |
| Cash proceeds received | Cash proceeds received | 1,387 | | | 1,700 | | | 4,562 | | | 5,895 | | Cash proceeds received | 1,981 | | | 1,387 | | | 7,231 | | | 4,562 | |
| Deferred purchase price recorded | Deferred purchase price recorded | 226 | | | 352 | | | 811 | | | 922 | | Deferred purchase price recorded | 158 | | | 226 | | | 864 | | | 811 | |
| Guarantee obligation recorded | Guarantee obligation recorded | 55 | | | 67 | | | 126 | | | 261 | | Guarantee obligation recorded | 94 | | | 55 | | | 321 | | | 126 | |
1Receivables net of allowance, imputed interest and equipment trade-in right guarantees. | 1Receivables net of allowance, imputed interest and equipment trade-in right guarantees. | 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 thatand 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).
The following table presents the previously transferred equipment installment receivables, which we repurchased in exchange for the associated deferred purchase price during the three and nine months ended September 30, 20202021 and 2019:2020:
| | | | Three months ended | | Nine months ended | | Three months ended | | Nine months ended |
| | | September 30, | | September 30, | | September 30, | | September 30, |
| | | 2020 | | 2019 | | 2020 | | 2019 | | 2021 | | 2020 | | 2021 | | 2020 |
| Fair value of repurchased receivables | Fair value of repurchased receivables | $ | 373 | | | $ | 268 | | | $ | 946 | | | $ | 926 | | Fair value of repurchased receivables | $ | 471 | | | $ | 373 | | | $ | 1,094 | | | $ | 946 | |
| Carrying value of deferred purchase price | Carrying value of deferred purchase price | 373 | | | 259 | | | 931 | | | 891 | | Carrying value of deferred purchase price | 440 | | | 373 | | | 1,019 | | | 931 | |
Gain on repurchases1 | Gain on repurchases1 | $ | 0 | | | $ | 9 | | | $ | 15 | | | $ | 35 | | Gain on repurchases1 | $ | 31 | | | $ | — | | | $ | 75 | | | $ | 15 | |
1These gains are included in "Selling, general and administrative" in the consolidated statements of income. | 1These gains are included in "Selling, general and administrative" in the consolidated statements of income. | 1These gains are included in "Selling, general and administrative" in the consolidated statements of income. |
At September 30, 20202021 and December 31, 2019,2020, our deferred purchase price receivable was $2,163$2,797 and $2,336,$1,991, respectively, of which $1,538$1,757 and $1,569$1,476 are included in “Other“Prepaid and other current assets” on our consolidated balance sheets, with the remainder in “Other Assets.” The guarantee obligation at September 30, 20202021 and December 31, 20192020 was $319$352 and $384,$228, respectively, of which $234$124 and $148$161 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
In 2019, we entered intoWe have a one-year revolving agreement to transfer up to $4,300$6,000 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. InThis agreement is subject to renewal on an annual basis and the first quarter of 2020, wetransfer limit may be expanded the program limitor reduced from time to $5,300. In the second quarter of 2020, we extended the agreement by one year.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 $3,516$3,371 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
AT&T INC.
SEPTEMBER 30, 2021
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Dollars in millions except per share amounts
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).
AT&T INC.
SEPTEMBER 30, 2020
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Dollars in millions except per share amounts
The following table sets forth a summary of receivables sold:
| | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended | | Nine months ended |
| | September 30, | | September 30, |
| | 2020 | | 2019 | | 2020 | | 2019 |
Gross receivables sold/cash proceeds received1 | $ | 3,563 | | | $ | 2,873 | | | $ | 11,590 | | | $ | 8,725 | |
| Collections reinvested under revolving agreement | 3,563 | | | 2,873 | | | 10,590 | | | 5,000 | |
| Collections not reinvested | 200 | | | 269 | | | 200 | | | 269 | |
| Net cash proceeds received (remitted) | $ | (200) | | | $ | (269) | | | $ | 800 | | | $ | 3,456 | |
| | | | | | | |
Net receivables sold2 | $ | 3,553 | | | $ | 2,864 | | | $ | 11,510 | | | $ | 8,361 | |
| Obligations recorded (reversed) | 58 | | | 39 | | | 172 | | | 475 | |
1There were 0 initial sales of receivables in either of the three-month periods and $1,000 and $3,725 for the nine months ended September 30, 2020 and 2019, respectively. |
2Receivables net of allowance, return and incentive reserves and imputed interest. |
| | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended | | Nine months ended |
| | September 30, | | September 30, |
| | 2021 | | 2020 | | 2021 | | 2020 |
Gross receivables sold/cash proceeds received1 | $ | 4,472 | | | $ | 3,563 | | | $ | 14,813 | | | $ | 11,590 | |
Total collections under revolving agreement2 | 4,631 | | | 3,763 | | | 14,381 | | | 10,790 | |
| Receivables repurchased | 170 | | | — | | | 170 | | | — | |
| | | | | | | |
| Net cash proceeds received (paid) | $ | (329) | | | $ | (200) | | | $ | 262 | | | $ | 800 | |
| | | | | | | |
Net receivables sold3 | $ | 4,301 | | | $ | 3,553 | | | $ | 14,558 | | | $ | 11,510 | |
| Obligations recorded (reversed) | (60) | | | 58 | | | (49) | | | 172 | |
1Includes initial sales of receivables of $0 for each of the three months and $700 and $1,000 for the nine months ended September 30, 2021 and 2020, respectively. |
2Includes collections of $159 and $200 for the three months and $268 and $200 for the nine months ended September 30, 2021 and 2020, respectively, that were not reinvested under the revolving agreement. |
3Receivables net of allowance, return and incentive reserves and imputed interest. |
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 15 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.
The components of lease expense were as follows:
| | | | Three months ended | | Nine months ended | | Three months ended | | Nine months ended |
| | | September 30, | | September 30, | | September 30, | | September 30, |
| | | 2020 | | 2019 | | 2020 | | 2019 | | 2021 | | 2020 | | 2021 | | 2020 |
| Operating lease cost | Operating lease cost | $ | 1,546 | | | $ | 1,481 | | | $ | 4,372 | | | $ | 4,333 | | Operating lease cost | $ | 1,454 | | | $ | 1,546 | | | $ | 4,343 | | | $ | 4,372 | |
| | Finance lease cost: | Finance lease cost: | | Finance lease cost: | |
| Amortization of right-of-use assets | Amortization of right-of-use assets | $ | 76 | | | $ | 67 | | | $ | 216 | | | $ | 203 | | Amortization of right-of-use assets | $ | 59 | | | $ | 76 | | | $ | 198 | | | $ | 216 | |
| Interest on lease obligation | Interest on lease obligation | 39 | | | 42 | | | 116 | | | 126 | | Interest on lease obligation | 43 | | | 39 | | | 123 | | | 116 | |
| Total finance lease cost | Total finance lease cost | $ | 115 | | | $ | 109 | | | $ | 332 | | | $ | 329 | | Total finance lease cost | $ | 102 | | | $ | 115 | | | $ | 321 | | | $ | 332 | |
AT&T INC.
SEPTEMBER 30, 20202021
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Dollars in millions except per share amounts
SupplementalThe following table provides supplemental cash flowflows information related to leases is as follows:leases:
| | | | | | | | | | | | | | |
| | Nine months ended |
| | September 30, |
| | 2020 | | 2019 |
| Cash Flows from Operating Activities | | | | |
| Cash paid for amounts included in lease obligations | | | | |
| Operating cash flows from operating leases | | $ | 3,651 | | | $ | 3,338 | |
| Supplemental Lease Cash Flow Disclosures | | | | |
| Operating lease right-of-use assets obtained in exchange for new operating lease obligations | 3,908 | | | 7,068 | |
| | | | | | | | | | | | | | |
| | Nine months ended |
| | September 30, |
| | 2021 | | 2020 |
| Cash Flows from Operating Activities | | | | |
| Cash paid for amounts included in lease obligations: | | | |
| Operating cash flows for operating leases | | $ | 3,754 | | | $ | 3,651 | |
| Supplemental Lease Cash Flow Disclosures | | | | |
Operating lease right-of-use assets obtained in exchange for new
operating lease obligations | 3,543 | | | 3,908 | |
SupplementalThe following tables set forth supplemental balance sheet information related to leases is as follows:leases:
| | | | September 30,
2020 | | December 31,
2019 | | September 30,
2021 | | December 31,
2020 |
| Operating Leases | Operating Leases | | Operating Leases | |
| Operating lease right-of-use assets | Operating lease right-of-use assets | $ | 24,546 | | | $ | 24,039 | | Operating lease right-of-use assets | $ | 24,341 | | | $ | 24,714 | |
| | Accounts payable and accrued liabilities | Accounts payable and accrued liabilities | $ | 3,483 | | | $ | 3,451 | | Accounts payable and accrued liabilities | $ | 3,675 | | | $ | 3,537 | |
| Operating lease obligation | Operating lease obligation | 22,056 | | | 21,804 | | Operating lease obligation | 21,510 | | | 22,202 | |
| Total operating lease obligation | Total operating lease obligation | $ | 25,539 | | | $ | 25,255 | | Total operating lease obligation | $ | 25,185 | | | $ | 25,739 | |
| Finance Leases | Finance Leases | | Finance Leases | |
| Property, plant and equipment, at cost | Property, plant and equipment, at cost | $ | 3,485 | | | $ | 3,534 | | Property, plant and equipment, at cost | $ | 2,774 | | | $ | 3,586 | |
| Accumulated depreciation and amortization | Accumulated depreciation and amortization | (1,363) | | | (1,296) | | Accumulated depreciation and amortization | (1,166) | | | (1,361) | |
| Property, plant and equipment, net | Property, plant and equipment, net | $ | 2,122 | | | $ | 2,238 | | Property, plant and equipment, net | $ | 1,608 | | | $ | 2,225 | |
| | Current portion of long-term debt | Current portion of long-term debt | $ | 174 | | | $ | 162 | | Current portion of long-term debt | $ | 169 | | | $ | 189 | |
| Long-term debt | Long-term debt | 1,732 | | | 1,872 | | Long-term debt | 1,574 | | | 1,847 | |
| Total finance lease obligation | Total finance lease obligation | $ | 1,906 | | | $ | 2,034 | | Total finance lease obligation | $ | 1,743 | | | $ | 2,036 | |
| | | September 30, | | September 30, |
| | 2020 | | 2019 | | 2021 | | 2020 |
| Weighted-Average Remaining Lease Term (years) | Weighted-Average Remaining Lease Term (years) | | Weighted-Average Remaining Lease Term (years) | |
| Operating leases | Operating leases | 8.5 | | 8.7 | Operating leases | 8.4 | | 8.5 |
| Finance leases | Finance leases | 10.1 | | 10.4 | Finance leases | 8.5 | | 10.1 |
| | Weighted-Average Discount Rate | Weighted-Average Discount Rate | | Weighted-Average Discount Rate | |
| Operating leases | Operating leases | 4.1 | % | | 4.3 | % | Operating leases | 3.8 | % | | 4.1 | % |
| Finance leases | Finance leases | 8.1 | % | | 8.4 | % | Finance leases | 8.0 | % | | 8.1 | % |
AT&T INC.
SEPTEMBER 30, 20202021
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Dollars in millions except per share amounts
FutureThe following table provides the expected future minimum maturities of lease obligations are as follows:obligations:
| | At September 30, 2020 | Operating | | Finance | |
| At September 30, 2021 | | At September 30, 2021 | Operating | | Finance |
| | Leases | | Leases | | Leases | | Leases |
| Remainder of 2020 | $ | 1,226 | | | $ | 99 | | |
| 2021 | 4,679 | | | 316 | | |
| Remainder of 2021 | | Remainder of 2021 | $ | 1,252 | | | $ | 84 | |
| 2022 | 2022 | 4,372 | | | 298 | | 2022 | 4,897 | | | 340 | |
| 2023 | 2023 | 3,981 | | | 278 | | 2023 | 4,467 | | | 315 | |
| 2024 | 2024 | 3,449 | | | 258 | | 2024 | 3,931 | | | 290 | |
| 2025 | | 2025 | 3,211 | | | 281 | |
| Thereafter | Thereafter | 13,543 | | | 1,720 | | Thereafter | 12,734 | | | 1,466 | |
| Total lease payments | Total lease payments | 31,250 | | | 2,969 | | Total lease payments | 30,492 | | | 2,776 | |
| Less imputed interest | (5,711) | | | (1,063) | | |
| Less: imputed interest | | Less: imputed interest | (5,307) | | | (1,033) | |
| Total | Total | $ | 25,539 | | | $ | 1,906 | | Total | $ | 25,185 | | | $ | 1,743 | |
NOTE 11. STOCKHOLDERS' EQUITYINVESTMENT IN AND TRANSACTIONS WITH DIRECTV
We have authorized 10 million preferred sharesOn July 31, 2021, we closed our transaction with TPG to form a new company named DIRECTV (see Note 8). The transaction resulted in our deconsolidation of the Video Business, with DIRECTV being considered a variable interest entity for accounting purposes. As DIRECTV is jointly governed by a board with representation from both AT&T stock, eachand TPG, with a par value of $1.00 per share. Cumulative perpetual preferred shares consistTPG having tie-breaking authority on certain key decisions, most significantly the appointment and removal of the following:CEO, we have concluded that we are not the primary beneficiary of DIRECTV. As a result, effective August 1, 2021, we accounted for our investments in DIRECTV under the equity method and recorded our share of DIRECTV earnings as equity in net income of affiliates as DIRECTV is considered a related party upon deconsolidation. Our share of net income or loss may differ from the stated ownership percentage interest of DIRECTV as the terms of the arrangement prescribe substantive non-proportionate cash distributions, both from operations and in liquidation, that are based on classes of interests held by investors. In the event that DIRECTV records a loss, that loss will be allocated to ownership interests based on their seniority, beginning with the most subordinated interests.
•
Series A: 48 thousand shares outstandingOur investment in DIRECTV at September 30, 20202021 was $6,883, based upon the initial fair value of the equity considerations on July 31, 2021 of $6,852 which was determined using a discounted cash flow model reflecting distribution rights and December 31, 2019, with a $25,000 perpreference of the individual instruments. For the two months ended September 30, 2021, our share liquidation preferenceof DIRECTV’s earnings included in equity in net income of affiliates was $157. Cash distributions from DIRECTV in the third quarter totaled $130 and a dividend ratewere classified as operating activities in our consolidated statement of 5.00%.cash flows.
•
Series B: 20 thousand shares outstanding
In addition to the assets and liabilities contributed to DIRECTV (see Note 8), we recorded total obligations of $2,100 to cover certain net losses under the NFL SUNDAY TICKET contract, of which $1,800 is in the form of a note payable to DIRECTV (see Note 8). During the third quarter of 2021, cash payments to DIRECTV on the note totaled $361 and were classified as financing activities in our consolidated statement of cash flows. Amounts due under the DIRECTV note were $1,438 at September 30, 2020 and 0 issued and outstanding at December 31, 2019, with a €100,000 per share liquidation preference, and an initial dividend rate of 2.875%, subject to reset beginning on May 1, 2025.
•Series C: 70 thousand shares outstanding at September 30, 2020 and 0 issued and outstanding at December 31, 2019, with a $25,000 per share liquidation preference and a dividend rate of 4.75%.
So long as the preferred dividends are declared and paid on a timely basis on each series of preferred shares, there are no limitations on our ability to declare a dividend on or repurchase AT&T common shares. The preferred shares are optionally redeemable by AT&T at the liquidation price generally on or after five years from the issuance date, or upon certain other contingent events.2021.
Telco LLC
InThrough our WarnerMedia properties, we license content and programming and provide advertising services to DIRECTV. Revenue recognized from DIRECTV, which was previously eliminated, totaled approximately $280 for the two months ended September 2020, we issued $2,000 nonconvertible cumulative preferred interests out of a newly created limited liability company (Telco LLC) that was formed30, 2021. We also provide DIRECTV with network transport for U-verse products and sales services under commercial arrangements for up to hold telecommunication-related assets. The preferred interests are entitled to cash distributions, subject to declaration and are included in “Noncontrolling interest” on the consolidated balance sheets.five years.
Members’ equityPursuant to a commercial agreement, WarnerMedia continues to sell DIRECTV’s advertising inventory under a revenue sharing agreement. WarnerMedia records amounts billed as advertising revenue and recognizes expense for DIRECTV’s revenue share, which was approximately $200 for the two months ended September 30, 2021. Under separate transition services agreements, we provide DIRECTV certain operational support, including servicing of certain of their customer receivables for up to three years. For the two months ended September 30, 2021, we billed DIRECTV approximately $240 for these costs, which were recorded as a reduction to the operations and support expenses incurred and resulted in Telco LLC consistnet retained costs to AT&T of (1) member’s interests, which are held by a consolidated subsidiary of AT&T, and (2) preferred interests (Telco preferred interests), which pay an initial preferred distribution of 4.25% annually, subject to declaration, and subject to reset every seven years. Failure to pay distributions onapproximately $50 in the Telco preferred interests would not limit cash movements between affiliates, or our ability to declare a dividend on or repurchase AT&T shares. We can call the Telco preferred interests at the issue price beginning seven years from the issuance date.third quarter.
The Telco preferred interests holders have the option to require redemption upon the occurrenceAt September 30, 2021, we had accounts receivable from DIRECTV of certain contingent events, such as the failure of Telco LLC to pay the preferred distribution for 2 or more periods or to meet certain other requirements, including a minimum credit rating. If notice is given, all other holders of equal or more subordinate classes of members equity are entitled to receive the same form of consideration$433 and accounts payable to the holdersDIRECTV of the preferred interests, resulting in a deemed liquidation for accounting purposes.$659.
AT&T INC.
SEPTEMBER 30, 20202021
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Dollars in millions except per share amounts
We are not committed, implicitly or explicitly to provide financial or other support, other than noted above, as our involvement with DIRECTV is limited to the carrying amount of the assets and liabilities recognized on our balance sheet.
NOTE 12. 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:
| | | | | | | | | | | | | | | | | | | | | | | |
| | September 30, | | December 31, |
| | 2020 | | 2019 | | 2019 | | 2018 |
| Cash and cash equivalents | $ | 9,758 | | | $ | 6,588 | | | $ | 12,130 | | | $ | 5,204 | |
| Restricted cash in Other current assets | 2 | | | 15 | | | 69 | | | 61 | |
| Restricted cash in Other Assets | 89 | | | 179 | | | 96 | | | 135 | |
| Cash and Cash Equivalents and Restricted Cash | $ | 9,849 | | | $ | 6,782 | | | $ | 12,295 | | | $ | 5,400 | |
| | | | | | | | | | | |
| Consolidated Statements of Cash Flows | Nine months ended |
| | September 30, |
| Cash paid (received) during the period for: | 2020 | | 2019 |
| Interest | $ | 6,661 | | | $ | 6,938 | |
| Income taxes, net of refunds | 306 | | | 420 | |
| Spectrum acquisitions | 1,062 | | | 1,022 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| | September 30, | | December 31, |
| | 2021 | | 2020 | | 2020 | | 2019 |
| Cash and cash equivalents | $ | 21,270 | | | $ | 9,758 | | | $ | 9,740 | | | $ | 12,130 | |
| Restricted cash in Prepaid and other current assets | 2 | | | 2 | | | 9 | | | 69 | |
| Restricted cash in Other Assets | 133 | | | 89 | | | 121 | | | 96 | |
| Cash and Cash Equivalents and Restricted Cash | $ | 21,405 | | | $ | 9,849 | | | $ | 9,870 | | | $ | 12,295 | |
The following table summarizes cash paid during the periods for interest, income taxes and spectrum:
| | | | | | | | | | | |
| Consolidated Statements of Cash Flows | Nine months ended |
| | September 30, |
| Cash paid (received) during the period for: | 2021 | | 2020 |
| Interest | $ | 6,079 | | | $ | 6,661 | |
| Income taxes, net of refunds | 538 | | | 306 | |
Spectrum acquisitions1 | 23,017 | | | 1,062 | |
1 Included as cash paid for “Acquisitions, net of cash acquired” on our consolidated statement of cash flows. Excludes interest during construction. |
| | | |
| The following table summarizes interest capitalized during construction: | | | |
| Nine months ended |
| September 30, |
| Interest during construction: | 2021 | | 2020 |
| Capital expenditures | $ | (132) | | | $ | (92) | |
Spectrum1 | (516) | | | — | |
| Interest During Construction | $ | (648) | | | $ | (92) | |
1 Included in “Acquisitions, net of cash acquired” on our consolidated statement of cash flows. |
Other 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 first nine months ended September 30, 2021 and 2020, we recorded vendor financing commitments related to capital investments of approximately $3,148 in 2020$3,624 and $1,917 in 2019.$3,148.
Total vendor financing payables included in our September 30, 20202021 consolidated balance sheet were approximately $3,252,$3,752, with $1,474$2,866 due within one year (in “Accounts payable and accrued liabilities”) and the remainder predominantly due within two to three years (in “Other noncurrent liabilities”).
Financing Activities
Debt Transactions At September 30, 2020, our total long-term debt obligations totaled $158,878. Our debt activity during the nine months ended September 30, 2020 primarily consisted of the following:
•Net borrowings of approximately $1,710 of debt under our commercial paper program during the first nine months.
•Entry into and draw on a $5,500 Term Loan Credit Agreement, with certain commercial banks and Bank of America, N.A., as lead agent, in April 2020, which was redeemed in May 2020 (originally due on December 31, 2020).
•Issuance of $16,545 of AT&T global notes due 2027 to 2060 in the second quarter.
•Issuance of €3,000 million global notes ($3,281 at issuance) due 2028 to 2038 in the second quarter.
•Issuance of $11,000 of global notes due 2028 to 2061 in the third quarter.
•Redemption of $12,689 of AT&T global notes due 2020 to 2047 in the second quarter.
•Redemption of $1,800 under term loan credit agreements with certain banks in the second quarter.
•Redemption of $1,000 annual put reset securities issued by BellSouth in the second quarter.
•Redemption of $4,264 of AT&T, WarnerMedia and DIRECTV notes due 2022 in the third quarter.
•Redemption of $1,158 of AT&T and WarnerMedia global notes due 2022 to 2023 in the third quarter.
•Redemption of €2,250 of AT&T floating-rate notes due 2020 (approximately $2,637 at maturity) in the third quarter.
•Redemption of R$3,381 of Sky Serviços de Banda Larga Ltda. floating-rate private loan due 2021 (approximately $1,000 when issued in April 2018 and $638 at redemption due to strengthening of the U.S. dollar against Brazilian real) in the third quarter.
•Repurchases of $11,384 of AT&T global notes and subsidiary notes due 2021 to 2025 tendered for cash in the third quarter.
•Exchange of $17,677 of AT&T and subsidiary notes, due 2031 to 2058, for $1,459 of cash and $21,500 of three new series of AT&T global notes due 2053 to 2059 in the third quarter.
AT&T INC.
SEPTEMBER 30, 20202021
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Dollars in millions except per share amounts
Debt Transactions At September 30, 2021, our debt obligations totaled $179,161. Our long-term debt issuances carriedactivity during the nine months ended September 30, 2021 primarily consisted of the following:
| | | | | | | | | | | | | | |
| First
Quarter | Second
Quarter | Third
Quarter | Nine months ended
September 30, 2021 |
| Net commercial paper borrowings | $ | 7,072 | | $ | (513) | $ | (2) | $ | 6,557 | |
Issuance of Notes and Debentures1: | | | | |
| U.S. dollar denominated global notes | $ | 6,000 | $ | — | $ | — | $ | 6,000 | |
| Initial average rate of 1.27% | | | | |
| Euro denominated global notes | 1,461 | — | — | 1,461 | |
| Rate of 0.00% | | | | |
| 2021 Syndicated Term Loan | 7,350 | — | — | 7,350 | |
| BAML Bilateral Term Loan | 2,000 | — | — | 2,000 | |
| Private financing | 750 | — | — | 750 | |
| Other | 636 | — | 835 | 1,471 | |
| Debt Issuances | $ | 18,197 | $ | — | $ | 835 | $ | 19,032 | |
| | | | |
| Repayments: | | | | |
| Private financing | $ | (649) | $ | — | $ | — | $ | (649) | |
| Other | (253) | (253) | (498) | (1,004) | |
| Repayments of long-term debt | $ | (902) | $ | (253) | $ | (498) | $ | (1,653) | |
1 Includes credit agreement borrowings.
Credit Facilities
On January 29, 2021, we entered into a weighted average interest rate$14,700 Term Loan Credit Agreement (2021 Syndicated Term Loan), with Bank of 3.2%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 September 30, 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 our long-term debt redemptions had(ii) a weighted average interest rate1.75 year $1,000 facility due December 31, 2022 (BAML Tranche B Facility), with Bank of 3.2%.America, N.A., as agent. At September 30, 2021, $2,000 was outstanding under these facilities.
AT&T INC.
SEPTEMBER 30, 20202021
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).
On July 31, 2021, we closed our transaction with TPG Capital (TPG) to form a new company named DIRECTV Entertainment Holdings, LLC (DIRECTV). With the close of the transaction, we separated our Video business, comprised of our U.S. video operations, and began accounting for our investment in DIRECTV under the equity method. (See Note 8)
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 haveIn the first quarter of 2021, we recast our segment results for all prior periods to includereflect the following:
•Communications segment results were recast to remove the held-for-sale businesses, principally Video, instead reporting those results in Corporate and Other. Additionally, we refined the allocation of shared infrastructure and deferred customer acquisition costs between Consumer Wireline and Video.
•WarnerMedia segment results reflect our prior Xandr segment within ouroperation of WarnerMedia segment.as one integrated organization.
| | | | | Third Quarter | | Nine-Month Period | | | Third Quarter | | Nine-Month Period |
| | | | | | | | Percent | | | | | | Percent | | | | | | | Percent | | | | | | Percent |
| | | | 2020 | | 2019 | | Change | | 2020 | | 2019 | | Change | | | 2021 | | 2020 | | Change | | 2021 | | 2020 | | Change |
| Operating Revenues | Operating Revenues | | | | | | | | | | | | | Operating Revenues | | | | | | | | | | | | |
| Communications | Communications | | $ | 34,287 | | | $ | 35,401 | | | (3.1) | % | | $ | 102,128 | | | $ | 105,837 | | | (3.5) | % | Communications | | $ | 28,218 | | | $ | 27,195 | | | 3.8 | % | | $ | 84,524 | | | $ | 80,479 | | | 5.0 | % |
| WarnerMedia | WarnerMedia | | 7,514 | | | 8,350 | | | (10.0) | | | 22,176 | | | 25,990 | | | (14.7) | | WarnerMedia | | 8,442 | | | 7,395 | | | 14.2 | | | 25,759 | | | 21,888 | | | 17.7 | |
| Latin America | Latin America | | 1,396 | | | 1,730 | | | (19.3) | | | 4,218 | | | 5,205 | | | (19.0) | | Latin America | | 1,480 | | | 1,396 | | | 6.0 | | | 4,291 | | | 4,218 | | | 1.7 | |
| Corporate and other | | 431 | | | 407 | | | 5.9 | | | 1,256 | | | 1,218 | | | 3.1 | | |
| Corporate | | Corporate | | 278 | | | 628 | | | (55.7) | | | 1,065 | | | 1,751 | | | (39.2) | |
| Video | | Video | | 2,149 | | | 7,014 | | | (69.4) | | | 15,513 | | | 21,442 | | | (27.7) | |
| Eliminations and consolidation | Eliminations and consolidation | | (1,288) | | | (1,300) | | | 0.9 | | | (3,709) | | | (3,878) | | | 4.4 | | Eliminations and consolidation | | (645) | | | (1,288) | | | 49.9 | | | (3,246) | | | (3,709) | | | 12.5 | |
| AT&T Operating Revenues | AT&T Operating Revenues | | 42,340 | | | 44,588 | | | (5.0) | | | 126,069 | | | 134,372 | | | (6.2) | | AT&T Operating Revenues | | 39,922 | | | 42,340 | | | (5.7) | | | 127,906 | | | 126,069 | | | 1.5 | |
| | Operating Contribution | Operating Contribution | | | | | | | | | | Operating Contribution | | | | | | | | | |
| Communications | Communications | | 7,648 | | | 8,036 | | | (4.8) | | | 23,963 | | | 24,718 | | | (3.1) | | Communications | | 7,123 | | | 7,064 | | | 0.8 | | | 21,828 | | | 21,953 | | | (0.6) | |
| WarnerMedia | WarnerMedia | | 1,770 | | | 2,871 | | | (38.3) | | | 5,700 | | | 7,784 | | | (26.8) | | WarnerMedia | | 1,935 | | | 1,755 | | | 10.3 | | | 5,704 | | | 5,681 | | | 0.4 | |
| Latin America | Latin America | | (177) | | | (166) | | | (6.6) | | | (562) | | | (548) | | | (2.6) | | Latin America | | (25) | | | (177) | | | 85.9 | | | (350) | | | (562) | | | 37.7 | |
| Segment Operating Contribution | Segment Operating Contribution | | $ | 9,241 | | | $ | 10,741 | | | (14.0) | % | | $ | 29,101 | | | $ | 31,954 | | | (8.9) | % | Segment Operating Contribution | | $ | 9,033 | | | $ | 8,642 | | | 4.5 | % | | $ | 27,182 | | | $ | 27,072 | | | 0.4 | % |
|
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.
•Entertainment Group provides video, including over-the-top (OTT) services, broadband and voice communications services primarily to residential customers. This segment also records advertising revenues.
•Business Wireline provides advanced IP-based services, as well as traditional voice and data services and related equipment to business customers.
The WarnerMedia segment develops, produces and distributes feature films, television, gaming and other content in various physical and digital formats globally. Historical financial results from Xandr, previously a separate reportable segment, have been combined with the WarnerMedia segment within Eliminations and other. This segment contains the following:
•Turner primarily operates multichannel basic television networks and digital properties. Turner also sells advertising on its networks and digital properties.
•Home Box Office consists of premium pay television and OTT and streaming services domestically and premium pay, basic tier television and OTT services internationally, as well as content licensing and home entertainment.
•Warner Bros. primarily consists of the production, distribution and licensing of television programming and feature films, the distribution of home entertainment products and the production and distribution of games.
•Eliminations & Other includes the Xandr advertising business and Otter Media Holdings operations, and also removes transactions between the Turner, Home Box Office and Warner Bros. business units, including internal sales of content to the HBO Max platform that began in the fourth quarter of 2019 (see Note 5).
AT&T INC.
SEPTEMBER 30, 20202021
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations- Continued
Dollars in millions except per share amounts
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 and Otter Media Holdings (Otter Media). We disposed of substantially all of the Otter Media assets in the third quarter of 2021 (see Note 8).
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.
COVID-19 Update
Disruptions caused by the coronavirus (COVID-19) and measures taken to prevent its spread or mitigate its effects both domestically and internationally have impacted our results of operations. We recorded approximately $190, or $0.02 per diluted share, in the third quarter and $940, or $0.10 per diluted share, for the first nine months of 2020, of incremental costs associated with voluntary corporate actions taken to protect and compensate front-line employees and contractors or additional WarnerMedia production disruption.
In addition to these incremental costs, we estimate that our operations and comparability were impacted by approximately $1,715, or $0.19 per diluted share, in the third quarter and $2,185, or $0.24 per diluted share, for the first nine months of 2020, for: (1) the resumption of the NBA season, resulting in the shift to third quarter of sports costs historically incurred during the second quarter, and associated advertising revenues, (2) lower television licensing and production revenues due to production hiatus, (3) the partial closure of movie theaters and postponement of theatrical releases, leading to lower content revenues and associated expenses, and (4) the reluctance of consumers to travel at previous levels, driving significantly lower international wireless roaming services that do not have a directly correlated expense reduction.
Subscriber counts at September 30, 2020, exclude customers who we have agreed not to terminate service under the Federal Communications Commission (FCC) "Keep Americans Connected Pledge" or state mandates. For reporting purposes, we excluded 121,000 postpaid (97,000 phone), 13,000 broadband (4,000 fiber) and 7,000 premium TV nonpaying customers even though they are still receiving service.
Third-quarter 2020 subscriber net adds include 233,000 postpaid (151,000 phone), 104,000 broadband (28,000 fiber) and 116,000 premium TV "Keep Americans Connected Pledge" paying accounts.
With partial reopening of the economy and improved collections experience, the economic effects of the pandemic and resulting societal changes remain unpredictable. There are a number of uncertainties that could impact our future results of operations, including the effectiveness of COVID-19 mitigation measures; the duration of the pandemic; global economic conditions; changes to our operations; changes in consumer confidence, behaviors and spending; work from home trends; and the sustainability of supply chains. We expect operating results and cash flows to continue to be adversely impacted by COVID-19 for the duration of the pandemic. We expect our fourth-quarter results to be impacted by the following:
•Lower revenues from the partial closure of movie theaters and postponement of theatrical releases, partially offset by lower production and other programming expenses;
•The decline in revenues from international roaming wireless services due to reduced travel; and
•Higher expenses to protect front-line employees, contractors and customers.
AT&T INC.
SEPTEMBER 30, 2020
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations- Continued
Dollars in millions except per share amounts
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.
| | | | | Third Quarter | | Nine-Month Period | | | Third Quarter | | Nine-Month Period |
| | | | | | | | Percent | | | | | | Percent | | | | | | | Percent | | | | | | Percent |
| | | | 2020 | | 2019 | | Change | | 2020 | | 2019 | | Change | | | 2021 | | 2020 | | Change | | 2021 | | 2020 | | Change |
| Operating Revenues | Operating Revenues | | | | | | | | | | | | | Operating Revenues | | | | | | | | | | | | |
| Service | Service | | $ | 37,782 | | | $ | 40,317 | | | (6.3) | % | | $ | 113,716 | | | $ | 122,024 | | | (6.8) | % | Service | | $ | 34,843 | | | $ | 37,782 | | | (7.8) | % | | $ | 112,303 | | | $ | 113,716 | | | (1.2) | % |
| Equipment | Equipment | | 4,558 | | | 4,271 | | | 6.7 | | | 12,353 | | | 12,348 | | | — | | Equipment | | 5,079 | | | 4,558 | | | 11.4 | | | 15,603 | | | 12,353 | | | 26.3 | |
| Total Operating Revenues | Total Operating Revenues | | 42,340 | | | 44,588 | | | (5.0) | | | 126,069 | | | 134,372 | | | (6.2) | | Total Operating Revenues | | 39,922 | | | 42,340 | | | (5.7) | | | 127,906 | | | 126,069 | | | 1.5 | |
| | Operating expenses | Operating expenses | | | | | | | | | | Operating expenses | | | | | | | | | |
| Operations and support | Operations and support | | 29,178 | | | 29,738 | | | (1.9) | | | 87,382 | | | 90,482 | | | (3.4) | | Operations and support | | 27,194 | | | 29,178 | | | (6.8) | | | 92,678 | | | 87,382 | | | 6.1 | |
| Depreciation and amortization | Depreciation and amortization | | 7,030 | | | 6,949 | | | 1.2 | | | 21,537 | | | 21,256 | | | 1.3 | | Depreciation and amortization | | 5,619 | | | 7,030 | | | (20.1) | | | 17,189 | | | 21,537 | | | (20.2) | |
| Total Operating Expenses | Total Operating Expenses | | 36,208 | | | 36,687 | | | (1.3) | | | 108,919 | | | 111,738 | | | (2.5) | | Total Operating Expenses | | 32,813 | | | 36,208 | | | (9.4) | | | 109,867 | | | 108,919 | | | 0.9 | |
| Operating Income | Operating Income | | 6,132 | | | 7,901 | | | (22.4) | | | 17,150 | | | 22,634 | | | (24.2) | | Operating Income | | 7,109 | | | 6,132 | | | 15.9 | | | 18,039 | | | 17,150 | | | 5.2 | |
| Interest expense | Interest expense | | 1,972 | | | 2,083 | | | (5.3) | | | 6,031 | | | 6,373 | | | (5.4) | | Interest expense | | 1,667 | | | 1,972 | | | (15.5) | | | 5,221 | | | 6,031 | | | (13.4) | |
Equity in net income (loss) of affiliates | Equity in net income (loss) of affiliates | | 5 | | | 3 | | | 66.7 | | | (11) | | | 36 | | | — | | Equity in net income (loss) of affiliates | | 91 | | | 5 | | | — | | | 184 | | | (11) | | | — | |
| Other income (expense) - net | Other income (expense) - net | | (231) | | | (935) | | | (75.3) | | | 1,589 | | | (967) | | | — | | Other income (expense) - net | | 2,279 | | | (231) | | | — | | | 7,499 | | | 1,589 | | | — | |
| Income Before Income Taxes | Income Before Income Taxes | | 3,934 | | | 4,886 | | | (19.5) | | | 12,697 | | | 15,330 | | | (17.2) | | Income Before Income Taxes | | 7,812 | | | 3,934 | | | 98.6 | | | 20,501 | | | 12,697 | | | 61.5 | |
| Net Income | Net Income | | 3,168 | | | 3,949 | | | (19.8) | | | 9,694 | | | 12,271 | | | (21.0) | | Net Income | | 6,273 | | | 3,168 | | | 98.0 | | | 16,089 | | | 9,694 | | | 66.0 | |
| Net Income Attributable to AT&T | Net Income Attributable to AT&T | | 2,816 | | | 3,700 | | | (23.9) | | | 8,707 | | | 11,509 | | | (24.3) | | Net Income Attributable to AT&T | | 5,918 | | | 2,816 | | | — | | | 15,038 | | | 8,707 | | | 72.7 | |
Net Income Attributable to Common Stock | Net Income Attributable to Common Stock | | $ | 2,762 | | | $ | 3,700 | | | (25.4) | % | | $ | 8,569 | | | $ | 11,509 | | | (25.5) | % | Net Income Attributable to Common Stock | | $ | 5,868 | | | $ | 2,762 | | | — | % | | $ | 14,882 | | | $ | 8,569 | | | 73.7 | % |
Operating revenues decreased in the third quarter and increased in the first nine months of 2020. Communications segment2021. The revenue declines were driven by continued declines in video and legacy services, partially offset by increases in strategic and managed business service and third-quarter growth in wireless equipment revenues. Lower WarnerMedia segment revenues reflect limited and postponed theatrical releases and home entertainment releases as well as lower television licensing and productions revenues, partially offset by increased sports-related advertising revenuedecrease in the third quarter that shifted fromreflects our July 31, 2021 separation of the second quarter. Latin America segment revenueU.S. video business and lower Business Wireline revenues due in part to higher demand for pandemic-related connectivity in the prior-year. Partially offsetting these declines were primarily due to foreign exchange rates.
OperationsMobility service and support expenses decreasedequipment revenue growth and gains in the third quarter and in the first nine months of 2020. The decreases were driven by lower broadcast and programming costsbroadband service in our Communications segment and higher content and Direct-to-Consumer (DTC) subscription revenues in our WarnerMedia segment.
The increase for the first nine months was driven by higher Mobility equipment and service revenues and gains in broadband service in our Communications segment; higher DTC subscription, and content revenues in our WarnerMedia segment. Expense declinessegment; and growth in Mexico wireless operations from favorable foreign exchange impacts. Partially offsetting the increases was the loss of revenue resulting from the separation of our U.S. video business in July and the sale of our wireless and wireline operations in Puerto Rico and the U.S. Virgin Islands, which were sold in the third quarter were partially offset by increased sports-related programming costs that shifted from the second quarter and increased HBO Max investments in the WarnerMedia segment. Expense declines for the first nine months were also driven by a noncash gain of $900 on a spectrum transaction in the first quarter and our continued focus on cost management, partially offset by charges for a goodwill impairment at our Vrio business unit in the second quarter, employee separation charges and incremental costs related to COVID-19. As part of our cost and efficiency initiatives, we expect operations and support expense improvements to continue as we size our operations to reflect the current economic activity level.
Depreciation and amortization expense increased in the third quarter and for the first nine months of 2020.
Amortization expense increased $87, or 4.6% in the third quarter and $222, or 3.6% for the first nine months of 2020 due to the amortization of orbital slot licenses, which began in the firstfourth quarter of 2020 (see Note 1).2020.
AT&T INC.
SEPTEMBER 30, 20202021
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations- Continued
Dollars in millions except per share amounts
DepreciationOperations and support expenses expense decreased $6, or 0.1% in the third quarter and increased $59, or 0.4%in the first nine months of 2021. The expense decrease in the third quarter reflects our July 31, 2021 separation of the U.S. video business and the timing of the NBA season in 2020, partially offset by increased domestic wireless equipment expense, including 3G network shutdown costs, and higher WarnerMedia non-sports programming, marketing activities, and incremental selling costs associated with a DIRECTV advertising revenue sharing arrangement with WarnerMedia. Also contributing to expense declines were lower personnel costs associated with our ongoing transformation initiatives.
The increase for the first nine months included a noncash impairment charge of 2020. The$4,555 in the second quarter of 2021, resulting from our assessment of the recoverability of the net assets of Vrio, including approximately $2,100 of historical currency translation adjustments (see Note 8). Also contributing to the expense increase forwas higher WarnerMedia non-sports programming and marketing activities and increased domestic wireless equipment expense. Partially offsetting these increases was the nine months period was primarily due toimpact of the separation of the U.S. video business, lower bad debt expense and lower personnel costs associated with our ongoing capital spend for network upgrades and expansion partially offset by fully depreciated assets in our Communications segment.transformation initiatives.
Operating incomeDepreciation and amortization expense decreased in the third quarter and for the first nine months of 2020.2021.
Amortization expense decreased $909, or 47.3% in the third quarter and $2,910, or 47.5% for the first nine months of 2021 primarily due to ceasing amortization on Vrio held-for-sale assets in 2021.
Depreciation expense decreased $502, or 9.8% in the third quarter and $1,438, or 9.3% for the first nine months of 2021 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 Video and Vrio held-for-sale assets in 2021.
Operating income increased in the third quarter and in the first nine months of 2021. Our operating income margin for the third quarter decreasedincreased from 17.7% in 2019 to 14.5% in 2020 to 17.8% in 2021 and forin the first nine months decreasedincreased from 16.8% in 2019 to 13.6% in 2020.2020 to 14.1% in 2021.
Interest expense decreased in the third quarter and first nine months of 2020,2021, primarily due to lower interest rates and debt balances.capitalized interest associated with the spectrum acquisitions.
Equity in net income of affiliates increased in the third quarter and decreased for the first nine months of 2020, reflecting changes in2021. The third quarter increase was primarily due to the close of our transaction with TPG and our accounting for our investment portfolio, including our second-quarter 2020 acquisitionin DIRECTV under the equity method of accounting beginning August 1, 2021 (see Note 8 and Note 11), partially offset by decreases from certain WarnerMedia investments. The increase for the remaining interest in HBO Latin America Group (HBO LAG).first nine months was also due to the DIRECTV investment, combined with improved performance from WarnerMedia investments for the nine-month period.
Other income (expense) – net increased in the third quarter and for the first nine months of 2020.2021. The increases were primarily due to the recognitionactuarial gains of an actuarial loss of $63$374 and $3,021 in the third quarter and for the first nine months of 2020, compared to actuarial losses totaling $1,917 and $4,048 in the third quarter and for the first nine months of 2019,2021, respectively, and higher prior service credit amortization in 2020 (see Note 6). Partially offsetting the increases were $1,224 of debt redemption costs in the third quarter, the write-off of certain investments in 2020 and the second-quarter 2019a $766 gain on sale of our interest in Hulu.Playdemic Ltd. (Playdemic), and higher net pension and postretirement benefit credits resulting from lower interest costs on the benefit obligation and higher prior service credit amortization (see Note 6). The increase also includes higher returns on benefit-related investments for the nine-month comparable period and fewer impairments taken in 2021.
Income taxes decreasedincreased in the third quarter and for the first nine months of 2020.2021. The decrease in income tax expenseincrease in the third quarter was primarily attributable to lower income before tax. The decrease in income tax expense for the first nine months of 2020 was primarily attributable to lowerdriven by higher income before income tax offset by the second quarter Vrio goodwill impairment, which is not deductible for tax purposes.
tax. Our effective tax rate was 19.5% for19.7% in the third quarter and 23.7% for the first nine months of 2020,2021, versus 19.2% and 20.0% for19.5% in the comparable year-prior periods, respectively. period in the prior year.
The increase in our effective tax rate for the first nine months was primarily due to higher income before income tax, offset by Vrio tax benefit, tax initiatives and audit settlements in the second quartercurrent year. Our effective tax rate was 21.5% for the first nine months of 2021, versus 23.7% for the comparable period in the prior year. The effective tax rate in 2020 was higher primarily due to our prior-year impairment of Vrio goodwill, impairment, which iswas not deductible for tax purposes.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| COMMUNICATIONS SEGMENT | | Third Quarter | | Nine-Month Period |
| | | | | | | Percent | | | | | | Percent |
| | | 2020 | | 2019 | | Change | | 2020 | | 2019 | | Change |
| Segment Operating Revenues | | | | | | | | | | | | |
| Mobility | | $ | 17,894 | | | $ | 17,701 | | | 1.1 | % | | $ | 52,445 | | | $ | 52,356 | | | 0.2 | % |
| Entertainment Group | | 10,053 | | | 11,197 | | | (10.2) | | | 30,637 | | | 33,893 | | | (9.6) | |
| Business Wireline | | 6,340 | | | 6,503 | | | (2.5) | | | 19,046 | | | 19,588 | | | (2.8) | |
| Total Segment Operating Revenues | | 34,287 | | | 35,401 | | | (3.1) | | | 102,128 | | | 105,837 | | | (3.5) | |
| | | | | | | | | | | | |
| Segment Operating Contribution | | | | | | | | | | | | |
| Mobility | | 5,691 | | | 5,742 | | | (0.9) | | | 17,284 | | | 16,818 | | | 2.8 | |
| Entertainment Group | | 779 | | | 1,084 | | | (28.1) | | | 3,144 | | | 4,076 | | | (22.9) | |
| Business Wireline | | 1,178 | | | 1,210 | | | (2.6) | | | 3,535 | | | 3,824 | | | (7.6) | |
| Total Segment Operating Contribution | | $ | 7,648 | | | $ | 8,036 | | | (4.8) | % | | $ | 23,963 | | | $ | 24,718 | | | (3.1) | % |
AT&T INC.
SEPTEMBER 30, 20202021
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations- Continued
Dollars in millions except per share amounts
| | | | | | | | | | | | | | |
| Selected Subscribers and Connections | | | | |
| | | September 30, |
| (000s) | | 2020 | | 2019 |
Mobility Subscribers1 | | 176,744 | | | 162,300 | |
Total domestic broadband connections1 | | 15,375 | | | 15,575 | |
| Network access lines in service | | 7,562 | | | 8,831 | |
| U-verse VoIP connections | | 3,942 | | | 4,539 | |
1Excludes 121 wireless and 13 broadband customers who we have agreed not to terminate service under the "Keep Americans Connected Pledge," which was implemented March 13, 2020, or state mandates. |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| COMMUNICATIONS SEGMENT | | Third Quarter | | Nine-Month Period |
| | | | | | | Percent | | | | | | Percent |
| | | 2021 | | 2020 | | Change | | 2021 | | 2020 | | Change |
| Segment Operating Revenues | | | | | | | | | | | | |
| Mobility | | $ | 19,138 | | | $ | 17,894 | | | 7.0 | % | | $ | 57,108 | | | $ | 52,445 | | | 8.9 | % |
| Business Wireline | | 5,938 | | | 6,261 | | | (5.2) | | | 18,036 | | | 18,832 | | | (4.2) | |
| Consumer Wireline | | 3,142 | | | 3,040 | | | 3.4 | | | 9,380 | | | 9,202 | | | 1.9 | |
| Total Segment Operating Revenues | | 28,218 | | | 27,195 | | | 3.8 | | | 84,524 | | | 80,479 | | | 5.0 | |
| | | | | | | | | | | | |
| Segment Operating Contribution | | | | | | | | | | | | |
| Mobility | | 5,955 | | | 5,691 | | | 4.6 | | | 17,959 | | | 17,284 | | | 3.9 | |
| Business Wireline | | 985 | | | 1,184 | | | (16.8) | | | 3,093 | | | 3,567 | | | (13.3) | |
| Consumer Wireline | | 183 | | | 189 | | | (3.2) | | | 776 | | | 1,102 | | | (29.6) | |
| Total Segment Operating Contribution | | $ | 7,123 | | | $ | 7,064 | | | 0.8 | % | | $ | 21,828 | | | $ | 21,953 | | | (0.6) | % |
| | | | | | | | | | | | | | |
| Selected Subscribers and Connections | | | | |
| | | September 30, |
| (000s) | | 2021 | | 2020 |
| Mobility Subscribers | | 196,519 | | | 176,744 | |
| Total domestic broadband connections | | 15,510 | | | 15,375 | |
| Network access lines in service | | 6,404 | | | 7,562 | |
| U-verse VoIP connections | | 3,440 | | | 3,942 | |
|
Operating revenues decreasedincreased in the third quarter and for the first nine months of 2020,2021, driven by declinesincreases in our Entertainment GroupMobility and BusinessConsumer Wireline business units, partially offset by increasesdecreases in our MobilityBusiness Wireline business unit. The decreases reflect the continued shift away from linear video and legacy services and lowerincreases are primarily driven by wireless service revenues from a declineand equipment revenue growth and gains in international travel. Equipment sales increased in the third quarter but were down for the first nine months due to lower equipment sales in the first quarter of 2020 resulting from pandemic-related store closures. Partially offsetting these declines was growth in our prepaid subscriber base.broadband service.
Operating contribution decreasedincreased in the third quarter and decreased for the first nine months of 2020. The decline in the third quarter reflects2021, reflecting lower operating contribution from all business units. Lower contribution for the first nine months was due to declines in our Business Wireline and Entertainment GroupConsumer Wireline business units, largely offset by improvementincreases in our Mobility business unit. Our Communications segment operating income margin in the third quarter decreased from 22.7%26.0% in 20192020 to 22.3%25.2% in 20202021 and for the first nine months decreased from 27.3% in 2020 to 25.8% in 2021, reflecting, in part, increased from 23.4% in 2019 to 23.5% in 2020.equipment sales with no margins.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Communications Business Unit Discussion |
| Mobility Results | | | | | | | | | | | | |
| | | Third Quarter | | Nine-Month Period |
| | | | | | | Percent | | | | | | Percent |
| | | 2020 | | 2019 | | Change | | 2020 | | 2019 | | Change |
| Operating revenues | | | | | | | | | | | | |
| Service | | $ | 13,883 | | | $ | 13,930 | | | (0.3) | % | | $ | 41,520 | | | $ | 41,383 | | | 0.3 | % |
| Equipment | | 4,011 | | | 3,771 | | | 6.4 | | | 10,925 | | | 10,973 | | | (0.4) | |
| Total Operating Revenues | | 17,894 | | | 17,701 | | | 1.1 | | | 52,445 | | | 52,356 | | | 0.2 | |
| | | | | | | | | | | | |
| Operating expenses | | | | | | | | | | | | |
| Operations and support | | 10,182 | | | 9,948 | | | 2.4 | | | 29,083 | | | 29,511 | | | (1.5) | |
| Depreciation and amortization | | 2,021 | | | 2,011 | | | 0.5 | | | 6,078 | | | 6,027 | | | 0.8 | |
| Total Operating Expenses | | 12,203 | | | 11,959 | | | 2.0 | | | 35,161 | | | 35,538 | | | (1.1) | |
| Operating Income | | 5,691 | | | 5,742 | | | (0.9) | | | 17,284 | | | 16,818 | | | 2.8 | |
Equity in Net Income (Loss) of Affiliates | | — | | | — | | | — | | | — | | | — | | | — | |
| Operating Contribution | | $ | 5,691 | | | $ | 5,742 | | | (0.9) | % | | $ | 17,284 | | | $ | 16,818 | | | 2.8 | % |
AT&T INC.
SEPTEMBER 30, 20202021
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations- Continued
Dollars in millions except per share amounts
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Communications Business Unit Discussion |
| Mobility Results | | | | | | | | | | | | |
| | | Third Quarter | | Nine-Month Period |
| | | | | | | Percent | | | | | | Percent |
| | | 2021 | | 2020 | | Change | | 2021 | | 2020 | | Change |
| Operating revenues | | | | | | | | | | | | |
| Service | | $ | 14,527 | | | $ | 13,883 | | | 4.6 | % | | $ | 42,921 | | | $ | 41,520 | | | 3.4 | % |
| Equipment | | 4,611 | | | 4,011 | | | 15.0 | | | 14,187 | | | 10,925 | | | 29.9 | |
| Total Operating Revenues | | 19,138 | | | 17,894 | | | 7.0 | | | 57,108 | | | 52,445 | | | 8.9 | |
| | | | | | | | | | | | |
| Operating expenses | | | | | | | | | | | | |
| Operations and support | | 11,148 | | | 10,182 | | | 9.5 | | | 33,077 | | | 29,083 | | | 13.7 | |
| Depreciation and amortization | | 2,035 | | | 2,021 | | | 0.7 | | | 6,072 | | | 6,078 | | | (0.1) | |
| Total Operating Expenses | | 13,183 | | | 12,203 | | | 8.0 | | | 39,149 | | | 35,161 | | | 11.3 | |
| Operating Income | | 5,955 | | | 5,691 | | | 4.6 | | | 17,959 | | | 17,284 | | | 3.9 | |
| Equity in Net Income (Loss) of Affiliates | | — | | | — | | | — | | | — | | | — | | | — | |
| Operating Contribution | | $ | 5,955 | | | $ | 5,691 | | | 4.6 | % | | $ | 17,959 | | | $ | 17,284 | | | 3.9 | % |
The following tables highlight other key measures of performance for Mobility:
| | | | | | | | | | | | | | | | | | | | |
| Subscribers | | | | | | |
| | | September 30, | | Percent |
| (in 000s) | | 2020 | | 2019 | | Change |
Postpaid2 | | 75,969 | | | 75,152 | | | 1.1 | % |
Prepaid | | 18,100 | | | 17,740 | | | 2.0 | |
| Reseller | | 6,708 | | | 7,120 | | | (5.8) | |
Connected devices1 | | 75,967 | | | 62,288 | | | 22.0 | |
| Total Mobility Subscribers | | 176,744 | | | 162,300 | | | 8.9 | % |
1Includes data-centric devices such as session-based tablets, monitoring devices and primarily wholesale automobile systems.
2Excludes 121 customers who we have agreed not to terminate service under the "Keep Americans Connected Pledge" or state mandates.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Net Additions | | | | | | | | | | | | |
| | | Third Quarter | | | | Nine-Month Period | | |
| | | | | | | Percent | | | | | | Percent |
| (in 000s) | | 2020 | | 2019 | | Change | | 2020 | | 2019 | | Change |
Postpaid Phone Net Additions5 | | 645 | | | 101 | | | — | % | | 657 | | | 254 | | | — | % |
Total Phone Net Additions5 | | 776 | | | 255 | | | — | | | 880 | | | 780 | | | 12.8 | |
| | | | | | | | | | | | |
Postpaid2, 5, 6 | | 1,081 | | | (217) | | | — | | | 954 | | | (570) | | | — | |
Prepaid6, 7 | | 245 | | | 227 | | | 7.9 | | | 365 | | | 669 | | | (45.4) | |
Reseller6 | | (4) | | | (231) | | | 98.3 | | | (252) | | | (677) | | | 62.8 | |
Connected devices3 | | 4,203 | | | 3,900 | | | 7.8 | | | 9,976 | | | 10,947 | | | (8.9) | |
Mobility Net Subscriber Additions1 | | 5,525 | | | 3,679 | | | 50.2 | % | | 11,043 | | | 10,369 | | | 6.5 | % |
| | | | | | | | | | | | |
Postpaid Churn4, 5 | | 0.85 | % | | 1.19 | % | | (34) | BP | | 0.99 | % | | 1.14 | % | | (15) | BP |
Postpaid Phone-Only Churn4, 5 | | 0.69 | % | | 0.95 | % | | (26) | BP | | 0.80 | % | | 0.91 | % | | (11) | BP |
1Excludes acquisition-related additions during the period.
2In addition to postpaid phones, includes tablets and wearables and other. Tablet net (losses) were (44) and (397) for the three months and (470) and (1,164) for the nine months ended September 30, 2020 and 2019, respectively. Wearables and other net adds were 481 and 78 for the three months and 768 and 342 for the nine months ended September 30, 2020 and 2019, respectively.
3Includes data-centric devices such as session-based tablets, monitoring devices and primarily wholesale automobile systems. Excludes postpaid tablets and other postpaid data devices.
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.
5The third quarter includes 233 (151 phone) "Keep Americans Connected Pledge" paying accounts. The third quarter and nine-month periods ended September 30, 2020, exclude 121 (97 phone) customers who we have agreed not to terminate service under the "Keep Americans Connected Pledge" or state mandates. The third quarter and nine-month period ended September 30, 2020, churn excluding "Keep Americans Connected Pledge" paying accounts was 0.95% postpaid (0.77% phone) and 1.02% postpaid (0.82% phone), respectively.
6The third quarter and nine-month period ended September 30, 2020, exclude subscribers transferred in connection with business dispositions.
7The third quarter and nine-month period ended September 30, 2020, exclude 188 subscriber disconnections resulting from updating our prepaid activation policy. | | | | | | | | | | | | | | | | | | | | |
| Subscribers | | | | | | |
| | | September 30, | | Percent |
| (in 000s) | | 2021 | | 2020 | | Change |
| Postpaid | | 80,249 | | | 75,969 | | | 5.6 | % |
| Postpaid phone | | 66,396 | | | 63,485 | | | 4.6 | |
Prepaid | | 19,028 | | | 18,100 | | | 5.1 | |
| Reseller | | 6,263 | | | 6,708 | | | (6.6) | |
Connected devices1 | | 90,979 | | | 75,967 | | | 19.8 | |
| Total Mobility Subscribers | | 196,519 | | | 176,744 | | | 11.2 | % |
1Includes data-centric devices such as session-based tablets, monitoring devices and primarily wholesale automobile systems. |
Service revenue decreased in the third quarter and increased for the first nine months of 2020. The third quarter decrease is due to lower roaming revenue from continued declines in international travel. The increase for the first nine months was largely due to growth in prepaid subscribers and connected devices, offset by impacts of the pandemic.
AT&T INC.
SEPTEMBER 30, 20202021
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations- Continued
Dollars in millions except per share amounts
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Net Additions | | | | | | | | | | | | |
| | | Third Quarter | | Nine-Month Period |
| | | | | | | Percent | | | | | | Percent |
| (in 000s) | | 2021 | | 2020 | | Change | | 2021 | | 2020 | | Change |
| Postpaid Phone Net Additions | | 928 | | | 645 | | | 43.9 | % | | 2,312 | | | 657 | | | — | % |
| Total Phone Net Additions | | 1,177 | | | 776 | | | 51.7 | | | 2,942 | | | 880 | | | — | |
| | | | | | | | | | | | |
Postpaid2 | | 1,218 | | | 1,081 | | | 12.7 | | | 3,197 | | | 954 | | | — | |
| Prepaid | | 351 | | | 245 | | | 43.3 | | | 927 | | | 365 | | | — | |
| Reseller | | (164) | | | (4) | | | — | | | (357) | | | (252) | | | (41.7) | |
Connected devices3 | | 3,468 | | | 4,203 | | | (17.5) | | | 10,194 | | | 9,976 | | | 2.2 | |
Mobility Net Subscriber Additions1 | | 4,873 | | | 5,525 | | | (11.8) | % | | 13,961 | | | 11,043 | | | 26.4 | % |
| | | | | | | | | | | | |
Postpaid Churn4 | | 0.92 | % | | 0.85 | % | | 7 | BP | | 0.91 | % | | 0.99 | % | | (8) | BP |
Postpaid Phone-Only Churn4 | | 0.72 | % | | 0.69 | % | | 3 | BP | | 0.72 | % | | 0.80 | % | | (8) | BP |
1Excludes migrations and acquisition-related activities during the period. |
2In addition to postpaid phones, includes tablets and wearables and other. Tablet net adds (losses) were 34 and (44) for the three months ended September 30, 2021 and 2020 and (16) and (470) for the nine months ended September 30, 2021 and 2020. Wearables and other net adds were 256 and 480 for the quarter ended September 30, 2021 and 2020 and 899 and 767 for the nine months September 30, 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 1.8 million for the quarter ended September 30, 2021 and 5.5 million for the nine months ended September 30, 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 third quarter and for the first nine months of 2021. The increases are largely due to growth from subscriber gains.
ARPU
Postpaid ARPUAverage revenue per subscriber (ARPU) decreased in the third quarter and for the first nine months.months of 2021. ARPU during 20202021 reflects the decline in international roaming revenues and waived fees.impact of higher promotional discount amortization (see Note 5).
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 nine months due to retention offers, migrations to unlimited plans, continued network improvementsperformance and lower overall involuntary disconnects partly related to the "Keep Americans Connected Pledge."disconnects.
Equipment revenue increased in the third quarter and decreased for the first nine months of 2020. The increase in the third quarter is2021, primarily driven by the sale of higher-priced smartphones and a mix of higher-priced postpaid smartphones, including the quarterly shift in product launch timing versus the prior year, and higher sales of higher-priced postpaid smartphone sales and data devices such as wireless modems and hotspots. The decrease for the first nine months is due to suppressed equipment sales in the first quarter resulting from pandemic-related store closures.nine-month period.
Operations and support expenses increased in the third quarter and decreased for the first nine months of 2020. The increase in the third quarter is2021 largely driven by higher commission deferralgrowth in equipment sales and associated expenses, including 3G network shutdown costs, increased amortization of deferred contract acquisition costs, and content costs associated with plans offeringbundling HBO Max, and, for the nine-month period, higher sales costs, partiallynetwork and technology costs. The expense increase was offset by lower sales costs and lower bad debt expense. The increase in commission deferral amortization is partly offset by the impacts of the second-quarter 2020 updates to extend the expected economic life of our Mobility customers.
The decrease for the first nine months was driven by lower equipment sales and marketing expense, cost initiatives, asset optimization and higher bad debt expense in 2019 resulting from prior-year charges in response to credit easing policies. Partially offsetting the decrease were costs associated with plans offering HBO Max and higher commission deferral amortization.
Depreciation expense increased in the third quarter and decreased for the first nine months of 2020 primarily2021. The third quarter increase is due to ongoing capital spending for network upgrades and expansion partially offset by fully depreciated assets. For the nine months the decrease is primarily due to network assets becoming fully depreciated.
AT&T INC.
SEPTEMBER 30, 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 decreasedincreased in the third quarter and increased for the first nine months of 2020.2021. Our Mobility operating income margin in the third quarter decreased from 32.4% in 2019 to 31.8% in 2020 to 31.1% in 2021, and for the first nine months increaseddecreased from 32.1% in 2019 to 33.0% in 2020.2020 to 31.4% in 2021. Our Mobility EBITDA margin in the third quarter decreased from 43.8% in 2019 to 43.1% in 2020 to 41.7% in 2021, and for the first nine months increaseddecreased from 43.6% in 2019 to 44.5% in 2020.2020 to 42.1% in 2021. EBITDA is defined as operating contribution excluding equity in net income (loss) of affiliates and depreciation and amortization.
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 premier 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 subscribersplans tend to have higher retention and lower churn rates. We offer unlimited data plans and subscribers to such subscribersplans 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.
Connected Devices
Connected devices include data-centric devices such as wholesale automobile systems, monitoring devices, fleet management and session-based tablets. The number of connected device subscribers increased | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Business Wireline Results | | | | | | | | | | | | |
| | | Third Quarter | | Nine-Month Period |
| | | | | | | Percent | | | | | | Percent |
| | | 2021 | | 2020 | | Change | | 2021 | | 2020 | | Change |
| Operating revenues | | | | | | | | | | | | |
| Service | | $ | 5,765 | | | $ | 6,079 | | | (5.2) | % | | $ | 17,497 | | | $ | 18,271 | | | (4.2) | % |
| Equipment | | 173 | | | 182 | | | (4.9) | | | 539 | | | 561 | | | (3.9) | |
| Total Operating Revenues | | 5,938 | | | 6,261 | | | (5.2) | | | 18,036 | | | 18,832 | | | (4.2) | |
| | | | | | | | | | | | |
| Operating expenses | | | | | | | | | | | | |
| Operations and support | | 3,649 | | | 3,764 | | | (3.1) | | | 11,068 | | | 11,365 | | | (2.6) | |
| Depreciation and amortization | | 1,304 | | | 1,313 | | | (0.7) | | | 3,875 | | | 3,900 | | | (0.6) | |
| Total Operating Expenses | | 4,953 | | | 5,077 | | | (2.4) | | | 14,943 | | | 15,265 | | | (2.1) | |
| Operating Income | | 985 | | | 1,184 | | | (16.8) | | | 3,093 | | | 3,567 | | | (13.3) | |
| Equity in Net Income (Loss) of Affiliates | | — | | | — | | | — | | | — | | | — | | | — | |
| Operating Contribution | | $ | 985 | | | $ | 1,184 | | | (16.8) | % | | $ | 3,093 | | | $ | 3,567 | | | (13.3) | % |
Service revenues decreased in 2020, and during the third quarter and for the first nine months of 2020, we added approximately 3.0 million2021, driven by lower demand for legacy voice and 6.7 million wholesale connected cars, respectively,data services in the current year, proactive rationalization of low profit margin products and higher demand for pandemic-related connectivity in the prior-year. We expect this trend to continue for the remainder of the year.
Equipment revenues decreased in the third quarter and for the first nine months of 2021, driven by declines in legacy and non-core services.
Operations and support expenses decreased in the third quarter and for the first nine months of 2021, primarily due to our continued efforts to drive efficiencies in our network operations through agreements with various carmakersautomation and experienced strong growthreductions in other Internetcustomer support expenses through digitization and proactive rationalization of Things (IoT) connections. We believe that these connected car agreements give uslow profit margin products.
Depreciation expense decreased in the opportunitythird quarter and for the first nine months of 2021, primarily due to create future retail relationships with the car owners.certain network assets becoming fully depreciated.
AT&T INC.
SEPTEMBER 30, 20202021
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations- Continued
Dollars in millions except per share amounts
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Entertainment Group Results | | | | | | | | | | | | |
| | | Third Quarter | | Nine-Month Period |
| | | | | | | Percent | | | | | | Percent |
| | | 2020 | | 2019 | | Change | | 2020 | | 2019 | | Change |
| Operating revenues | | | | | | | | | | | | |
| Video entertainment | | $ | 6,964 | | | $ | 7,933 | | | (12.2) | % | | $ | 21,335 | | | $ | 24,042 | | | (11.3) | % |
| High-speed internet | | 2,128 | | | 2,117 | | | 0.5 | | | 6,329 | | | 6,296 | | | 0.5 | |
| Legacy voice and data services | | 538 | | | 628 | | | (14.3) | | | 1,679 | | | 1,969 | | | (14.7) | |
| Other service and equipment | | 423 | | | 519 | | | (18.5) | | | 1,294 | | | 1,586 | | | (18.4) | |
| Total Operating Revenues | | 10,053 | | | 11,197 | | | (10.2) | | | 30,637 | | | 33,893 | | | (9.6) | |
| | | | | | | | | | | | |
| Operating expenses | | | | | | | | | | | | |
| Operations and support | | 7,997 | | | 8,797 | | | (9.1) | | | 23,618 | | | 25,839 | | | (8.6) | |
| Depreciation and amortization | | 1,277 | | | 1,316 | | | (3.0) | | | 3,875 | | | 3,978 | | | (2.6) | |
| Total Operating Expenses | | 9,274 | | | 10,113 | | | (8.3) | | | 27,493 | | | 29,817 | | | (7.8) | |
| Operating Income | | 779 | | | 1,084 | | | (28.1) | | | 3,144 | | | 4,076 | | | (22.9) | |
Equity in Net Income (Loss) of Affiliates | | — | | | — | | | — | | | — | | | — | | | — | |
| Operating Contribution | | $ | 779 | | | $ | 1,084 | | | (28.1) | % | | $ | 3,144 | | | $ | 4,076 | | | (22.9) | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Consumer Wireline Results | | | | | | | | | | | | |
| | | Third Quarter | | Nine-Month Period |
| | | | | | | Percent | | | | | | Percent |
| | | 2021 | | 2020 | | Change | | 2021 | | 2020 | | Change |
| Operating revenues | | | | | | | | | | | | |
| Broadband | | $ | 2,290 | | | $ | 2,128 | | | 7.6 | % | | $ | 6,761 | | | $ | 6,329 | | | 6.8 | % |
| Legacy voice and data services | | 484 | | | 538 | | | (10.0) | | | 1,507 | | | 1,679 | | | (10.2) | |
| Other service and equipment | | 368 | | | 374 | | | (1.6) | | | 1,112 | | | 1,194 | | | (6.9) | |
| Total Operating Revenues | | 3,142 | | | 3,040 | | | 3.4 | | | 9,380 | | | 9,202 | | | 1.9 | |
| | | | | | | | | | | | |
| Operating expenses | | | | | | | | | | | | |
| Operations and support | | 2,184 | | | 2,117 | | | 3.2 | | | 6,298 | | | 5,924 | | | 6.3 | |
| Depreciation and amortization | | 775 | | | 734 | | | 5.6 | | | 2,306 | | | 2,176 | | | 6.0 | |
| Total Operating Expenses | | 2,959 | | | 2,851 | | | 3.8 | | | 8,604 | | | 8,100 | | | 6.2 | |
| Operating Income | | 183 | | | 189 | | | (3.2) | | | 776 | | | 1,102 | | | (29.6) | |
| Equity in Net Income (Loss) of Affiliates | | — | | | — | | | — | | | — | | | — | | | — | |
| Operating Contribution | | $ | 183 | | | $ | 189 | | | (3.2) | % | | $ | 776 | | | $ | 1,102 | | | (29.6) | % |
|
The following tables highlight other key measures of performance for Entertainment Group:Consumer Wireline:
| | Connections | Connections | | | | | | | | | | | | | Connections | | | | | | | | | | | | |
| | | | | | | | | | September 30, | | Percent | | | | | | | | | September 30, | | Percent |
| (in 000s) | (in 000s) | | | | | | | | 2020 | | 2019 | | Change | (in 000s) | | | | | | | | 2021 | | 2020 | | Change |
| Video Connections | | | | | | | | | | | | | |
Premium TV1 | | | | | | | | 17,100 | | | 20,418 | | | (16.3) | % | |
| AT&T TV Now | | | | | | | | 683 | | | 1,145 | | | (40.3) | | |
Total Video Connections1 | | | | | | | | 17,783 | | | 21,563 | | | (17.5) | | |
| Total Broadband Connections1 | | | | | | 14,102 | | | 14,301 | | | (1.4) | | |
| Broadband Connections | | Broadband Connections | | | | | | | | |
| Total Broadband and DSL Connections | | Total Broadband and DSL Connections | | | | | | 14,180 | | | 14,102 | | | 0.6 | % |
| Fiber Broadband Connections | Fiber Broadband Connections | | | | | | | | 4,678 | | | 3,696 | | | 26.6 | | Fiber Broadband Connections | | 5,721 | | | 4,678 | | | 22.3 | |
| | Voice Connections | | Voice Connections | |
| Retail Consumer Switched Access Lines | Retail Consumer Switched Access Lines | | | | | | 2,977 | | | 3,467 | | | (14.1) | | Retail Consumer Switched Access Lines | | | | | | 2,527 | | | 2,977 | | | (15.1) | |
| U-verse Consumer VoIP Connections | U-verse Consumer VoIP Connections | | | | | | 3,361 | | | 3,973 | | | (15.4) | | U-verse Consumer VoIP Connections | | | | | | 2,843 | | | 3,361 | | | (15.4) | |
| Total Retail Consumer Voice Connections | Total Retail Consumer Voice Connections | | | | 6,338 | | | 7,440 | | | (14.8) | % | Total Retail Consumer Voice Connections | | | | 5,370 | | | 6,338 | | | (15.3) | % |
1Excludes 7 premium TV and 13 broadband connections who we have agreed not to terminate service under the "Keep Americans Connected Pledge" or state mandates. | |
| | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Net Additions | | | | | | | | | | | | |
| | Third Quarter | | | | Nine-Month Period |
| | | | | | Percent | | | | | | Percent |
| (in 000s) | | 2021 | | 2020 | | Change | | 2021 | | 2020 | | Change |
| Broadband Net Additions | | | | | | | | | | | | |
Total Broadband and DSL Net Additions | | 6 | | | 158 | | | (96.2) | % | | 80 | | | (17) | | | — | % |
| Fiber Broadband Net Additions | | 289 | | | 357 | | | (19.0) | % | | 770 | | | 791 | | | (2.7) | % |
|
Broadband (high-speed internet) revenues increased in the third quarter and for the first nine months of 2021, driven by an increase in fiber customers and pricing, which we expect to continue for the foreseeable future.
AT&T INC.
SEPTEMBER 30, 20202021
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations- Continued
Dollars in millions except per share amounts
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Net Additions | | | | | | | | | | | | |
| | Third Quarter | | | | Nine-Month Period | | |
| | | | | | Percent | | | | | | Percent |
| (in 000s) | | 2020 | | 2019 | | Change | | 2020 | | 2019 | | Change |
| Video Net Additions | | | | | | | | | | | | |
Premium TV1 | | (590) | | | (1,163) | | | 49.3 | % | | (2,373) | | | (2,485) | | | 4.5 | % |
| AT&T TV Now | | (37) | | | (195) | | | 81.0 | | | (243) | | | (446) | | | 45.5 | |
Net Video Additions1 | | (627) | | | (1,358) | | | 53.8 | | | (2,616) | | | (2,931) | | | 10.7 | |
| | | | | | | | | | | | |
Net Broadband Additions1 | | 158 | | | (119) | | | — | | | (17) | | | (108) | | | 84.3 | |
Fiber Broadband Net Additions | | 357 | | | 318 | | | 12.3 | % | | 791 | | | 933 | | | (15.2) | % |
1The third quarter includes 116 video and 104 broadband (28 fiber) "Keep Americans Connected Pledge" paying accounts. The third quarter and nine-month period ended September 30, 2020, exclude 7 premium TV and 13 broadband (4 fiber) connections who we have agreed not to terminate service under the "Keep Americans Connected Pledge." |
Video entertainment revenues are comprised of subscription and advertising revenues. Revenues decreased in the third quarter and for the first nine months of 2020, largely driven by a decline in premium TV and OTT subscribers as we continue to focus on retention of existing subscribers with a particular focus on our high-value subscribers, and lower subscription-based advertising revenues driven by impacts of the pandemic. Consistent with the rest of the industry, our customers continue to shift from a premium linear service to more economically priced OTT and subscription video on demand offerings, which has impacted our video revenues.
High-speed internet revenues increased in the third quarter and for the first nine months of 2020, driven by higher ARPU resulting from an increase in high-speed fiber net additions and pricing, partially offset by a decline in the average subscriber base.
Legacy voice and data service revenues decreased in the third quarter and for the first nine months of 2020,2021, reflecting the continued decline in the number of customers.customers, which we expect to continue.
OperationsOther service and supportequipment expensesrevenues decreased in the third quarter and for the first nine months of 2020. Contributing to2021, reflecting the decreases were lower content and selling costs largely due to fewer subscribers, the impact of one less week of NFL games compared to the prior year, and our ongoing focus on cost initiatives. Partially offsetting the decreases were annual content rate increases, higher commission and fulfillment cost deferral amortization, including the impact of the second-quarter 2020 updates to decrease the estimated economic life for our Entertainment Group customers, and pandemic-related compassion payments madecontinued decline in the first halfnumber of 2020.VoIP customers, which we expect to continue.
DepreciationOperations and support expense decreasedexpenses increased in the third quarter and for the first nine months of 20202021, primarily driven by higher technology and customer support costs and, for the nine-month period, content costs associated with plans bundling HBO Max. Partially offsetting these increases was lower amortization of deferred fulfillment costs, including the impact of the first-quarter 2021 updates to extend the economic life for our subscribers.
Depreciation expense increased in the third quarter and for the first nine months of 2021, primarily due to network assets becoming fully depreciated, partially offset by ongoing capital spending for network upgrades and expansion.
Operating income decreased in the third quarter and for the first nine months of 2020.2021. Our Entertainment GroupConsumer Wireline operating income margin in the third quarter decreased from 9.7%6.2% in 20192020 to 7.7%5.8% in 2020,2021, and for the first nine months decreased from 12.0% in 20192020 to 10.3%8.3% in 2020.2021. Our Entertainment GroupConsumer Wireline EBITDA margin in the third quarter decreasedincreased from 21.4%30.4% in 20192020 to 20.5%30.5% in 2020,2021, and for the first nine months decreased from 23.8%35.6% in 20192020 to 22.9%32.9% in 2021.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| WARNERMEDIA SEGMENT | | Third Quarter | | Nine-Month Period |
| | | | | | | Percent | | | | | | Percent |
| | | 2021 | | 2020 | | Change | | 2021 | | 2020 | | Change |
| Segment Operating Revenues | | | | | | | | | | | | |
| Subscription | | $ | 3,988 | | | $ | 3,477 | | | 14.7 | % | | $ | 11,779 | | | $ | 10,142 | | | 16.1 | % |
| Content and other | | 3,053 | | | 2,318 | | | 31.7 | | | 9,103 | | | 7,510 | | | 21.2 | |
| Advertising | | 1,401 | | | 1,600 | | | (12.4) | | | 4,877 | | | 4,236 | | | 15.1 | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| Total Segment Operating Revenues | | 8,442 | | | 7,395 | | | 14.2 | | | 25,759 | | | 21,888 | | | 17.7 | |
| | | | | | | | | | | | |
| Segment Operating Expenses | | | | | | | | | | | | |
| Direct Costs | | | | | | | | | | | | |
| Programming | | 3,068 | | | 3,181 | | | (3.6) | | | 10,996 | | | 8,638 | | | 27.3 | |
| Marketing | | 1,096 | | | 655 | | | 67.3 | | | 2,929 | | | 1,750 | | | 67.4 | |
| Other | | 932 | | | 734 | | | 27.0 | | | 2,599 | | | 2,329 | | | 11.6 | |
| Selling, general and administrative | | 1,175 | | | 913 | | | 28.7 | | | 3,084 | | | 3,027 | | | 1.9 | |
| | | | | | | | | | | | |
| Depreciation and amortization | | 163 | | | 169 | | | (3.6) | | | 491 | | | 494 | | | (0.6) | |
| Total Operating Expenses | | 6,434 | | | 5,652 | | | 13.8 | | | 20,099 | | | 16,238 | | | 23.8 | |
| Operating Income | | 2,008 | | | 1,743 | | | 15.2 | | | 5,660 | | | 5,650 | | | 0.2 | |
| Equity in Net Income (Loss) of Affiliates | | (73) | | | 12 | | | — | | | 44 | | | 31 | | | 41.9 | |
| Total Segment Operating Contribution | | $ | 1,935 | | | $ | 1,755 | | | 10.3 | % | | $ | 5,704 | | | $ | 5,681 | | | 0.4 | % |
Our WarnerMedia segment is operated as a content organization that distributes across various platforms, including basic networks, Direct-to-Consumer (DTC) or theatrical, TV content and games licensing.
On May 17, 2021, we entered into an agreement to combine our WarnerMedia segment, subject to certain exceptions with a subsidiary of Discovery Inc. (See Note 8)
Operating revenues increased in the third quarter and for the first nine months of 2021, primarily due to increases in subscription and content revenues, reflecting the partial recovery from prior-year impacts of the pandemic. These increases were partially offset by decreased advertising revenues during the third quarter primarily due to the timing of the NBA season in 2020.
AT&T INC.
SEPTEMBER 30, 20202021
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations- Continued
Dollars in millions except per share amounts
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Business Wireline Results | | | | | | | | | | | | |
| | | Third Quarter | | Nine-Month Period |
| | | | | | | Percent | | | | | | Percent |
| | | 2020 | | 2019 | | Change | | 2020 | | 2019 | | Change |
| Operating revenues | | | | | | | | | | | | |
| Strategic and managed services | | $ | 3,967 | | | $ | 3,900 | | | 1.7 | % | | $ | 11,789 | | | $ | 11,513 | | | 2.4 | % |
| Legacy voice and data services | | 2,031 | | | 2,252 | | | (9.8) | | | 6,227 | | | 6,973 | | | (10.7) | |
| Other service and equipment | | 342 | | | 351 | | | (2.6) | | | 1,030 | | | 1,102 | | | (6.5) | |
| Total Operating Revenues | | 6,340 | | | 6,503 | | | (2.5) | | | 19,046 | | | 19,588 | | | (2.8) | |
| | | | | | | | | | | | |
| Operating expenses | | | | | | | | | | | | |
| Operations and support | | 3,833 | | | 4,022 | | | (4.7) | | | 11,563 | | | 12,029 | | | (3.9) | |
| Depreciation and amortization | | 1,329 | | | 1,271 | | | 4.6 | | | 3,948 | | | 3,735 | | | 5.7 | |
| Total Operating Expenses | | 5,162 | | | 5,293 | | | (2.5) | | | 15,511 | | | 15,764 | | | (1.6) | |
| Operating Income | | 1,178 | | | 1,210 | | | (2.6) | | | 3,535 | | | 3,824 | | | (7.6) | |
Equity in Net Income (Loss) of Affiliates | | — | | | — | | | — | | | — | | | — | | | — | |
| Operating Contribution | | $ | 1,178 | | | $ | 1,210 | | | (2.6) | % | | $ | 3,535 | | | $ | 3,824 | | | (7.6) | % |
Strategic and managed servicesSubscription revenues revenues increased in the third quarter and for the first nine months of 2020. Our strategic services are made up2021, reflecting growth of (1) data services, including our VPN, dedicated internet ethernetDTC domestic HBO Max and broadband, (2) voice service, including VoIP and cloud-based voice solutions, (3) security and cloud solutions, and (4) managed, professional and outsourcing services. Revenue increases were primarily attributable to growth in our security and cloud solutions, dedicated internet and voice services and also includes the impact of higher demand for connectivity due to the pandemic.
Legacy voice and data service revenues decreased in the third quarterHBO subscribers, and, for the first nine monthsnine-month period, the May 2020 acquisition of 2020, primarily due to lower demand as customers continue to shift to our more advanced IP-based offerings or our competitors.
Other servicethe remaining interest in HBO Latin America Group. DTC subscription revenues were $2,036 and equipment revenues decreased$5,842, for the three- and nine-month periods of 2021, versus $1,624 and $4,403 in the third quarteryear-ago periods and forinclude growth from intercompany relationships with the first nine months of 2020, reflecting prior-year licensing of intellectual property assets. Revenue trends are impacted by the licensing of intellectual property assets, which vary from period-to-period. Other service revenues include project-based revenue, which is nonrecurring in nature, as well as revenues from customer premises equipment.
Operations and support expenses decreased in the third quarter and for the first nine months of 2020, primarily due to our continued efforts to drive efficiencies in our network operations through automation and reductions in customer support expenses through digitization.Communications segment.
DepreciationContent and other revenues expense increased in the third quarter and for the first nine months of 2020, primarily2021 due to increases in capital spending for network upgradeshigher TV production and expansion.
Operating income decreasedlicensing, as well as higher theatrical, with the prior-year quarter including only one worldwide theatrical release compared to five in the third quarter and for the first nine months of 2020. Our Business Wireline operating income margin in the third quarter remained consistent at 18.6% in 2019 and 18.6% in 2020, and for the first nine months decreased from 19.5% in 2019 to 18.6% in 2020. Our Business Wireline EBITDA margin in the third quarter increased from 38.2% in 2019 to 39.5% in 2020, and for the first nine months increased from 38.6% in 2019 to 39.3% in 2020.
AT&T INC.
SEPTEMBER 30, 2020
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations- Continued
Dollars in millions except per share amounts
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| WARNERMEDIA SEGMENT | | Third Quarter | | Nine-Month Period |
| | | | | | | Percent | | | | | | Percent |
| | | 2020 | | 2019 | | Change | | 2020 | | 2019 | | Change |
| Segment Operating Revenues | | | | | | | | | | | | |
| Turner | | $ | 3,176 | | | $ | 3,007 | | | 5.6 | % | | $ | 9,326 | | | $ | 9,860 | | | (5.4) | % |
| Home Box Office | | 1,781 | | | 1,819 | | | (2.1) | | | 4,905 | | | 5,045 | | | (2.8) | |
| Warner Bros. | | 2,411 | | | 3,333 | | | (27.7) | | | 8,907 | | | 10,240 | | | (13.0) | |
| Eliminations and other | | 146 | | | 191 | | | (23.6) | | | (962) | | | 845 | | | — | |
| Total Segment Operating Revenues | | 7,514 | | | 8,350 | | | (10.0) | | | 22,176 | | | 25,990 | | | (14.7) | |
| | | | | | | | | | | | |
| Cost of revenues | | | | | | | | | | | | |
| Turner | | 1,689 | | | 1,036 | | | 63.0 | | | 3,974 | | | 4,512 | | | (11.9) | |
| Home Box Office | | 1,244 | | | 847 | | | 46.9 | | | 3,155 | | | 2,356 | | | 33.9 | |
| Warner Bros. | | 1,600 | | | 2,261 | | | (29.2) | | | 6,179 | | | 7,183 | | | (14.0) | |
| Selling, general and administrative | | 1,364 | | | 1,278 | | | 6.7 | | | 4,152 | | | 3,994 | | | 4.0 | |
| Eliminations and other | | (313) | | | (93) | | | — | | | (1,455) | | | (127) | | | — | |
| Depreciation and amortization | | 171 | | | 165 | | | 3.6 | | | 501 | | | 425 | | | 17.9 | |
| Total Operating Expenses | | 5,755 | | | 5,494 | | | 4.8 | | | 16,506 | | | 18,343 | | | (10.0) | |
| Operating Income | | 1,759 | | | 2,856 | | | (38.4) | | | 5,670 | | | 7,647 | | | (25.9) | |
| Equity in Net Income (Loss) of Affiliates | | 11 | | | 15 | | | (26.7) | | | 30 | | | 137 | | | (78.1) | |
| Total Segment Operating Contribution | | $ | 1,770 | | | $ | 2,871 | | | (38.3) | % | | $ | 5,700 | | | $ | 7,784 | | | (26.8) | % |
Our WarnerMedia segment includes our Turner, Home Box Office (HBO) and Warner Bros. business units. The order of presentation reflects the consistency of revenue streams, rather than overall magnitude as that is subject to timing and frequency of studio releases.
Operating revenues decreased in the third quarter and for the first nine months of 2020, primarily due to lower theatrical and television product revenues, reflecting the pandemic-related postponement of theatrical releases and television production delays at Warner Bros. HBO revenues also declined, driven by lower licensing revenues that were partially offset by growth in international revenues and domestic direct-to-consumer subscribers. Turner revenues were higher in the third quarter as a result of increased advertising revenues that shifted from the second quarter to the third quarter as a result of the restart of the NBA season, but lower for the nine months due to advertising revenues lost as a result of pandemic-related cancellation of other televised sporting events.2021.
Operating contribution decreased in the third quarter and for the first nine months of 2020. The WarnerMedia segment operating income margin in the third quarter decreased from 34.2% in 2019 to 23.4% in 2020 and for the first nine months decreased from 29.4% in 2019 to 25.6% in 2020.
AT&T INC.
SEPTEMBER 30, 2020
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations- Continued
Dollars in millions except per share amounts
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| WarnerMedia Business Unit Discussion |
| Turner Results | | | | | | | | | | | | |
| | | Third Quarter | | Nine-Month Period |
| | | | | | Percent | | | | | | Percent |
| | | 2020 | | 2019 | | Change | | 2020 | | 2019 | | Change |
| Operating revenues | | | | | | | | | | | | |
| Subscription | | $ | 1,840 | | | $ | 1,927 | | | (4.5) | % | | $ | 5,693 | | | $ | 5,835 | | | (2.4) | % |
| Advertising | | 1,077 | | | 913 | | | 18.0 | | | 2,830 | | | 3,440 | | | (17.7) | |
| Content and other | | 259 | | | 167 | | | 55.1 | | | 803 | | | 585 | | | 37.3 | |
| Total Operating Revenues | | 3,176 | | | 3,007 | | | 5.6 | | | 9,326 | | | 9,860 | | | (5.4) | |
| | | | | | | | | | | | |
| Operating expenses | | | | | | | | | | | | |
| Cost of revenues | | 1,689 | | | 1,036 | | | 63.0 | | | 3,974 | | | 4,512 | | | (11.9) | |
| Selling, general and administrative | | 399 | | | 424 | | | (5.9) | | | 1,171 | | | 1,301 | | | (10.0) | |
| Depreciation and amortization | | 69 | | | 68 | | | 1.5 | | | 207 | | | 167 | | | 24.0 | |
| Total Operating Expenses | | 2,157 | | | 1,528 | | | 41.2 | | | 5,352 | | | 5,980 | | | (10.5) | |
| Operating Income | | 1,019 | | | 1,479 | | | (31.1) | | | 3,974 | | | 3,880 | | | 2.4 | |
Equity in Net Income (Loss) of Affiliates | | (6) | | | 10 | | | — | | | — | | | 46 | | | — | |
| Operating Contribution | | $ | 1,013 | | | $ | 1,489 | | | (32.0) | % | | $ | 3,974 | | | $ | 3,926 | | | 1.2 | % |
OperatingAdvertising revenues increased in the third quarter and decreased for the first nine months of 2020. The increase in the quarter was primarily due to increases in advertising revenue resulting from shifting the remainder of the NBA season into the third quarter and higher content and other revenues from sales to HBO Max, which are eliminated in consolidation within the WarnerMedia segment. Partially offsetting the increases were unfavorable foreign exchange rates and lower subscription revenues at regional sports networks.
The decrease for the nine months was primarily due to lower advertising revenues resulting from the cancellation of the NCAA Division I Men’s Basketball Tournament in the first quarter of 2020; lower subscription revenues at regional sports networks; and unfavorable exchange rates. These decreases were partially offset by higher content and other revenue, including internal sales to HBO Max.
Cost of revenues increased in the third quarter and decreased for the first nine months of 2020. The increase in the third quarter was primarily due to higher programming costs, including sports costs of approximately $600 resulting from the shift of the remainder of the NBA season from the second to the third quarter. The decrease for the first nine months was primarily due to lower sports programming costs. We expect continued impacts from shifting sporting event schedules and/or compressed seasons, for example the delay of the NBA season that historically has started in the fourth quarter.
Selling, general and administrative decreased in the third quarter and for the first nine months of 2020.
Operating income decreased in the third quarter and increased for the first nine months of 2020. Our Turner operating income margin in2021. The decrease for the third quarter decreasedresulted from 49.2% in 2019 to 32.1%the timing of the NBA season in 2020 and was affected by lower political advertising spending in 2021. The increase for the first nine months increasedresulted from 39.4%the return in 2019 to 42.6% in 2020.
AT&T INC.
SEPTEMBER 30, 2020
Item 2. Management’s Discussion and Analysis2021 of Financial Condition and Results of Operations- Continued
Dollars in millions except per share amounts
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Home Box Office Results | | | | | | | | | | | | |
| | | Third Quarter | | Nine-Month Period |
| | | | | | | Percent | | | | | | Percent |
| | | 2020 | | 2019 | | Change | | 2020 | | 2019 | | Change |
| Operating revenues | | | | | | | | | | | | |
| Subscription | | $ | 1,624 | | | $ | 1,533 | | | 5.9 | % | | $ | 4,403 | | | $ | 4,383 | | | 0.5 | % |
| Content and other | | 157 | | | 286 | | | (45.1) | | | 502 | | | 662 | | | (24.2) | |
| Total Operating Revenues | | 1,781 | | | 1,819 | | | (2.1) | | | 4,905 | | | 5,045 | | | (2.8) | |
| | | | | | | | | | | | |
| Operating expenses | | | | | | | | | | | | |
| Cost of revenues | | 1,244 | | | 847 | | | 46.9 | | | 3,155 | | | 2,356 | | | 33.9 | |
| Selling, general and administrative | | 450 | | | 225 | | | — | | | 1,081 | | | 768 | | | 40.8 | |
| Depreciation and amortization | | 27 | | | 33 | | | (18.2) | | | 73 | | | 67 | | | 9.0 | |
| Total Operating Expenses | | 1,721 | | | 1,105 | | | 55.7 | | | 4,309 | | | 3,191 | | | 35.0 | |
| Operating Income | | 60 | | | 714 | | | (91.6) | | | 596 | | | 1,854 | | | (67.9) | |
Equity in Net Income (Loss) of Affiliates | | — | | | 10 | | | — | | | 15 | | | 40 | | | (62.5) | |
| Operating Contribution | | $ | 60 | | | $ | 724 | | | (91.7) | % | | $ | 611 | | | $ | 1,894 | | | (67.7) | % |
Operating revenues decreased in the third quarter and for the first nine months of 2020, primarily due to decreases in content and other revenue resulting from lower content licensing. Partially offsetting these decreases was growth in international subscription revenue primarily due to the May 2020 acquisition of HBO LAG and higher domestic direct-to-consumer subscribers. At September 30, 2020, we had 38.0 million U.S. subscribers from HBO Max and HBO, up from 34.6 million at December 31, 2019.
Cost of revenuesDirect costs increased in the third quarter and for the first nine months of 2020, primarily due to approximately $5602021, driven by higher film and programming costs and increased costs for HBO Max. Third quarter increases were partially offset by lower sports costs resulting from the shift in timing of programming investment related to HBO Max.the NBA season in the prior year. Direct costs supporting DTC revenues were $2,041 and $5,620 for the three- and nine-month periods of 2021, versus $1,551 and $3,823 in the year-ago periods.
Selling, general and administrative expenses increased in the third quarter and for the first nine months of 2020,2021. The increase for the quarter was primarily due to higher marketingincremental selling costs associated with HBO Max.a DIRECTV advertising revenue sharing arrangement. For the nine months, these increases were largely offset by lower bad debt expense and integration of support functions.
Operating incomecontribution decreasedincreased in the third quarter and for the first nine months of 2020. Our HBO2021. The WarnerMedia segment operating income margin in the third quarter decreasedincreased from 39.3%23.6% in 20192020 to 3.4%23.8% in 2020,2021 and for the first nine months decreased from 36.7%25.8% in 20192020 to 12.2%22.0% in 2020.
AT&T INC.
SEPTEMBER 30, 2020
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations- Continued
Dollars in millions except per share amounts
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Warner Bros. Results | | | | | | | | | | | | |
| | | Third Quarter | | Nine-Month Period |
| | | | | | | Percent | | | | | | Percent |
| | | 2020 | | 2019 | | Change | | 2020 | | 2019 | | Change |
| Operating revenues | | | | | | | | | | | | |
| Theatrical product | | $ | 1,068 | | | $ | 1,375 | | | (22.3) | % | | $ | 3,203 | | | $ | 4,408 | | | (27.3) | % |
| Television product | | 960 | | | 1,461 | | | (34.3) | | | 4,605 | | | 4,384 | | | 5.0 | |
| Games and other | | 383 | | | 497 | | | (22.9) | | | 1,099 | | | 1,448 | | | (24.1) | |
| Total Operating Revenues | | 2,411 | | | 3,333 | | | (27.7) | | | 8,907 | | | 10,240 | | | (13.0) | |
| | | | | | | | | | | | |
| Operating expenses | | | | | | | | | | | | |
| Cost of revenues | | 1,600 | | | 2,261 | | | (29.2) | | | 6,179 | | | 7,183 | | | (14.0) | |
| Selling, general and administrative | | 373 | | | 445 | | | (16.2) | | | 1,327 | | | 1,360 | | | (2.4) | |
| Depreciation and amortization | | 43 | | | 39 | | | 10.3 | | | 124 | | | 122 | | | 1.6 | |
| Total Operating Expenses | | 2,016 | | | 2,745 | | | (26.6) | | | 7,630 | | | 8,665 | | | (11.9) | |
| Operating Income | | 395 | | | 588 | | | (32.8) | | | 1,277 | | | 1,575 | | | (18.9) | |
Equity in Net Income (Loss) of Affiliates | | (23) | | | (25) | | | 8.0 | | | (50) | | | (19) | | | — | |
| Operating Contribution | | $ | 372 | | | $ | 563 | | | (33.9) | % | | $ | 1,227 | | | $ | 1,556 | | | (21.1) | % |
Operating revenues decreased in the third quarter and for the first nine months of 2020, primarily due to pandemic-related movie theater closures and television and theatrical production delays.2021.
Theatrical product revenues in the third quarter and for the first nine months were lower due to partial reopening of theaters, postponement of theatrical releases and unfavorable comparisons to the prior year, which included, in first-quarter 2019, carryover revenues from the theatrical release of Aquaman.
Television product revenues decreased in the third quarter, primarily due to lower initial telecast revenues resulting from television production delays and also lower licensing. For the first nine months, television product revenues increased from licensing, including internal sales to HBO Max, which are eliminated in consolidation within the WarnerMedia segment.
Games and other revenue declines in the third quarter and for the first nine months were primarily due to reduced studio operations and unfavorable games comparison to the prior year, which included the second-quarter 2019 release of Mortal Kombat 11.
Cost of revenues decreased in the third quarter and for the first nine months of 2020, primarily due to the production hiatus and lower marketing of theatrical product, partially offset by incremental production shutdown costs.
Selling, general and administrative decreased in the third quarter and for the first nine months of 2020, primarily due to lower print and advertising expenses and lower distribution fees. Favorable collection experience in the third quarter allowed us to reduce our first quarter bad debt estimates.
Operating income decreased in the third quarter and for the first nine months of 2020. Our Warner Bros. operating income margin in the third quarter decreased from 17.6% in 2019 to 16.4% in 2020, and for the first nine months decreased from 15.4% in 2019 to 14.3% in 2020.
AT&T INC.
SEPTEMBER 30, 2020
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations- Continued
Dollars in millions except per share amounts
| | LATIN AMERICA SEGMENT | LATIN AMERICA SEGMENT | | Third Quarter | | Nine-Month Period | LATIN AMERICA SEGMENT | | Third Quarter | | Nine-Month Period |
| | | | | | | | Percent | | | | | | Percent | | | | | | | Percent | | | | | | Percent |
| | | | 2020 | | 2019 | | Change | | 2020 | | 2019 | | Change | | | 2021 | | 2020 | | Change | | 2021 | | 2020 | | Change |
| Segment Operating Revenues | Segment Operating Revenues | | | | | | | | | | | | | Segment Operating Revenues | | | | | | | | | | | | |
| Vrio | Vrio | | $ | 753 | | | $ | 1,013 | | | (25.7) | % | | $ | 2,392 | | | $ | 3,112 | | | (23.1) | % | Vrio | | $ | 756 | | | $ | 753 | | | 0.4 | % | | $ | 2,248 | | | $ | 2,392 | | | (6.0) | % |
| Mexico | Mexico | | 643 | | | 717 | | | (10.3) | | | 1,826 | | | 2,093 | | | (12.8) | | Mexico | | 724 | | | 643 | | | 12.6 | | | 2,043 | | | 1,826 | | | 11.9 | |
| Total Segment Operating Revenues | Total Segment Operating Revenues | | 1,396 | | | 1,730 | | | (19.3) | | | 4,218 | | | 5,205 | | | (19.0) | | Total Segment Operating Revenues | | 1,480 | | | 1,396 | | | 6.0 | | | 4,291 | | | 4,218 | | | 1.7 | |
| | Segment Operating Contribution | Segment Operating Contribution | | | | | | | | | | Segment Operating Contribution | | | | | | | | | |
| Vrio | Vrio | | (34) | | | 13 | | | — | | | (101) | | | 43 | | | — | | Vrio | | 105 | | | (34) | | | — | | | 43 | | | (101) | | | — | |
| Mexico | Mexico | | (143) | | | (179) | | | 20.1 | | | (461) | | | (591) | | | 22.0 | | Mexico | | (130) | | | (143) | | | 9.1 | | | (393) | | | (461) | | | 14.8 | |
| Total Segment Operating Contribution | Total Segment Operating Contribution | | $ | (177) | | | $ | (166) | | | (6.6) | % | | $ | (562) | | | $ | (548) | | | (2.6) | % | Total Segment Operating Contribution | | $ | (25) | | | $ | (177) | | | 85.9 | % | | $ | (350) | | | $ | (562) | | | 37.7 | % |
Operating Results
Our Latin America operations conduct business in their local currency and operating results are converted to U.S. dollars using officialaverage exchange rates during the period, subjecting results to foreign currency fluctuations. In May 2020,
On July 21, 2021, we found it necessaryentered into an agreement to closesell our DIRECTV operations in Venezuela dueVrio business to political instability inGrupo Werthein (see Note 8). We applied held-for-sale accounting to Vrio as of June 30, 2021 and continue to present the country and to comply with sanctions ofVrio results within the U.S. government.Latin America segment.
Operating revenues decreasedincreased in the third quarter and for the first nine months of 2020 primarily driven by foreign2021, reflecting growth at Vrio and in the Mexico wireless operations. Foreign exchange rates and the impact of COVID-19.
Operating contribution decreasedimpacts were neutral in the third quarter, and for the first nine months of 2020, reflecting foreign exchange rates and the impact of COVID-19. Our Latin America segment operating income marginnine-month period, pressure in the third quarter decreased from (10.3)%Vrio was partially offset by improvements in 2019 to (13.7)% in 2020, and for the first nine months decreased from (11.0)% in 2019 to (13.9)% in 2020.Mexico.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Latin America Business Unit Discussion | | | | | | | | | | |
| Vrio Results | | | | | | | | | | |
| | | Third Quarter | | Nine-Month Period |
| | | | | | | Percent | | | | | | Percent |
| | | 2020 | | 2019 | | Change | | 2020 | | 2019 | | Change |
| Operating revenues | | $ | 753 | | | $ | 1,013 | | | (25.7) | % | | $ | 2,392 | | | $ | 3,112 | | | (23.1) | % |
| | | | | | | | | | | | |
| Operating expenses | | | | | | | | | | | | |
| Operations and support | | 675 | | | 851 | | | (20.7) | | | 2,119 | | | 2,598 | | | (18.4) | |
| Depreciation and amortization | | 126 | | | 162 | | | (22.2) | | | 400 | | | 496 | | | (19.4) | |
| Total Operating Expenses | | 801 | | | 1,013 | | | (20.9) | | | 2,519 | | | 3,094 | | | (18.6) | |
| Operating Income (Loss) | | (48) | | | — | | | — | | | (127) | | | 18 | | | — | |
Equity in Net Income (Loss) of Affiliates | | 14 | | | 13 | | | 7.7 | | | 26 | | | 25 | | | 4.0 | |
| Operating Contribution | | $ | (34) | | | $ | 13 | | | — | % | | $ | (101) | | | $ | 43 | | | — | % |
AT&T INC.
SEPTEMBER 30, 20202021
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations- Continued
Dollars in millions except per share amounts
Operating contribution improved in the third quarter and for the first nine months of 2021, reflecting foreign exchange rates. Our Latin America segment operating income margin in the third quarter increased from (13.7)% in 2020 to (2.3)% in 2021, and for the first nine months increased from (13.9)% in 2020 to (8.3)% in 2021.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Latin America Business Unit Discussion | | | | | | | | | | |
| Vrio Results | | | | | | | | | | |
| | | Third Quarter | | Nine-Month Period |
| | | | | | | Percent | | | | | | Percent |
| | | 2021 | | 2020 | | Change | | 2021 | | 2020 | | Change |
| Operating revenues | | $ | 756 | | | $ | 753 | | | 0.4 | % | | $ | 2,248 | | | $ | 2,392 | | | (6.0) | % |
| | | | | | | | | | | | |
| Operating expenses | | | | | | | | | | | | |
| Operations and support | | 660 | | | 675 | | | (2.2) | | | 1,981 | | | 2,119 | | | (6.5) | |
| Depreciation and amortization | | — | | | 126 | | | — | | | 231 | | | 400 | | | (42.3) | |
| Total Operating Expenses | | 660 | | | 801 | | | (17.6) | | | 2,212 | | | 2,519 | | | (12.2) | |
| Operating Income (Loss) | | 96 | | | (48) | | | — | | | 36 | | | (127) | | | — | |
| Equity in Net Income (Loss) of Affiliates | | 9 | | | 14 | | | (35.7) | | | 7 | | | 26 | | | (73.1) | |
| Operating Contribution | | $ | 105 | | | $ | (34) | | | — | % | | $ | 43 | | | $ | (101) | | | — | % |
The following tables highlight other key measures of performance for Vrio:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | September 30, | | Percent |
| (in 000s) | | | | | | | | 2020 | | 2019 | | Change |
| Vrio Video Subscribers | | | | | | | | 10,893 | | | 13,306 | | | (18.1) | % |
| | | | | | | | | | | | |
| | | Third Quarter | | Nine -Month Period |
| | | | | | | Percent | | | | | | Percent |
| (in 000s) | | 2020 | | 2019 | | Change | | 2020 | | 2019 | | Change |
Vrio Video Net Additions1 | | 229 | | | (167) | | | — | % | | (197) | | | (310) | | | 36.5 | % |
1The nine-month period ended September 30, 2020, excludes the impact of 2.2 million subscriber disconnections resulting from the closure of our DIRECTV operations in Venezuela. |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | September 30, | | Percent |
| (in 000s) | | | | | | | | 2021 | | 2020 | | Change |
| Vrio Video Subscribers | | | | | | | | 10,142 | | | 10,893 | | | (6.9) | % |
| | | | | | | | | | | | |
| | | Third Quarter | | Nine-Month Period |
| | | | | | | Percent | | | | | | Percent |
| (in 000s) | | 2021 | | 2020 | | Change | | 2021 | | 2020 | | Change |
| Vrio Video Net Additions | | (178) | | | 229 | | | — | % | | (800) | | | (197) | | | — | % |
|
Operating revenues decreasedslightlyincreased in the third quarter and decreased for the first nine months of 2020,2021. The increase in the third quarter is primarily driven by higher ARPU. The decrease in the first nine months is primarily driven by foreign exchange and COVID-19 impacts.
Operations and support expenses decreased in the third quarter and for the first nine months of 2020,2021, primarily driven by foreign exchange and COVID-19 impacts. Approximately 21%23% of Vrio expenses are U.S. dollar based, with the remainder in the local currency.
Depreciation expense decreased in the third quarter and for the first nine months of 2020, primarily2021 due to changes in foreign exchange rates.ceasing depreciation on held-for-sale Vrio assets. We applied held-for-sale accounting to Vrio on June 30, 2021 and ceased depreciation beginning July 1, 2021.
Operating income decreasedimproved in the third quarter and for the first nine months of 2020. Our Vrio operating income was $(48), or an operating income margin of (6.4)%, compared to an operating income of $0 in the year-earlier quarter. Our2021. Vrio operating income margin for the third quarter increased from (6.4)% in 2020 to 12.7% in 2021, and for the first nine months decreasedincreased from 0.6% in 2019 to (5.3)% in 2020. Our2020 to 1.6% in 2021. Vrio EBITDA margin in the third quarter decreasedincreased from 16.0% in 2019 to 10.4% in 2020 to 12.7% in 2021, and for the first nine months decreasedincreased from 16.5% in 2019 to 11.4% in 2020.2020 to 11.9% in 2021.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Mexico Results | | | | | | | | | | | | |
| | | Third Quarter | | Nine-Month Period |
| | | 2020 | | 2019 | | Percent Change | | 2020 | | 2019 | | Percent Change |
| Operating revenues | | | | | | | | | | | | |
| Service | | $ | 385 | | | $ | 455 | | | (15.4) | | | $ | 1,197 | | | $ | 1,376 | | | (13.0) | % |
| Equipment | | 258 | | | 262 | | | (1.5) | | | 629 | | | 717 | | | (12.3) | |
| Total Operating Revenues | | 643 | | | 717 | | | (10.3) | | | 1,826 | | | 2,093 | | | (12.8) | |
| | | | | | | | | | | | |
| Operating expenses | | | | | | | | | | | | |
| Operations and support | | 662 | | | 774 | | | (14.5) | | | 1,914 | | | 2,312 | | | (17.2) | |
| Depreciation and amortization | | 124 | | | 122 | | | 1.6 | | | 373 | | | 372 | | | 0.3 | |
| Total Operating Expenses | | 786 | | | 896 | | | (12.3) | | | 2,287 | | | 2,684 | | | (14.8) | |
| Operating Income (Loss) | | (143) | | | (179) | | | 20.1 | | | (461) | | | (591) | | | 22.0 | |
Equity in Net Income (Loss) of Affiliates | | — | | | — | | | — | | | — | | | — | | | — | |
| Operating Contribution | | $ | (143) | | | $ | (179) | | | 20.1 | % | | $ | (461) | | | $ | (591) | | | 22.0 | % |
AT&T INC.
SEPTEMBER 30, 2021
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations- Continued
Dollars in millions except per share amounts
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Mexico Results | | | | | | | | | | | | |
| | | Third Quarter | | Nine-Month Period |
| | | 2021 | | 2020 | | Percent Change | | 2021 | | 2020 | | Percent Change |
| Operating revenues | | | | | | | | | | | | |
| Service | | $ | 463 | | | $ | 385 | | | 20.3 | % | | $ | 1,349 | | | $ | 1,197 | | | 12.7 | % |
| Equipment | | 261 | | | 258 | | | 1.2 | | | 694 | | | 629 | | | 10.3 | |
| Total Operating Revenues | | 724 | | | 643 | | | 12.6 | | | 2,043 | | | 1,826 | | | 11.9 | |
| | | | | | | | | | | | |
| Operating expenses | | | | | | | | | | | | |
| Operations and support | | 697 | | | 662 | | | 5.3 | | | 1,984 | | | 1,914 | | | 3.7 | |
| Depreciation and amortization | | 157 | | | 124 | | | 26.6 | | | 452 | | | 373 | | | 21.2 | |
| Total Operating Expenses | | 854 | | | 786 | | | 8.7 | | | 2,436 | | | 2,287 | | | 6.5 | |
| Operating Income (Loss) | | (130) | | | (143) | | | 9.1 | | | (393) | | | (461) | | | 14.8 | |
| Equity in Net Income (Loss) of Affiliates | | — | | | — | | | — | | | — | | | — | | | — | |
| Operating Contribution | | $ | (130) | | | $ | (143) | | | 9.1 | % | | $ | (393) | | | $ | (461) | | | 14.8 | % |
The following tables highlight other key measures of performance for Mexico:
| | | | | | | | | | | September 30, | | Percent | | | | | | | | | September 30, | | Percent |
| (in 000s) | (in 000s) | | | | | | | | 2020 | | 2019 | | Change | (in 000s) | | | | | | | | 2021 | | 2020 | | Change |
| Mexico Wireless Subscribers | Mexico Wireless Subscribers | | | | | | | | | | | | | Mexico Wireless Subscribers | | | | | | | | | | | | |
| Postpaid | Postpaid | | | | | | | | 4,710 | | | 5,352 | | | (12.0) | % | Postpaid | | | | | | | | 4,781 | | | 4,710 | | | 1.5 | % |
| Prepaid | Prepaid | | | | | | | | 13,249 | | | 12,848 | | | 3.1 | | Prepaid | | | | | | | | 14,199 | | | 13,249 | | | 7.2 | |
| Reseller | Reseller | | | | | | | | 455 | | | 419 | | | 8.6 | | Reseller | | | | | | | | 493 | | | 455 | | | 8.4 | |
Total Mexico Wireless Subscribers | Total Mexico Wireless Subscribers | | | | | | | | 18,414 | | | 18,619 | | | (1.1) | % | Total Mexico Wireless Subscribers | | | | | | | | 19,473 | | | 18,414 | | | 5.8 | % |
| | | | | Third Quarter | | Nine-Month Period | | | Third Quarter | | Nine-Month Period |
| | | | | | | | Percent | | | | | | Percent | | | | | | | Percent | | | | | | Percent |
| (in 000s) | (in 000s) | | 2020 | | 2019 | | Change | | 2020 | | 2019 | | Change | (in 000s) | | 2021 | | 2020 | | Change | | 2021 | | 2020 | | Change |
Mexico Wireless Net Additions1 | | | | | | | | | | | |
| Mexico Wireless Net Additions | | Mexico Wireless Net Additions | | | | | | | | | | |
| Postpaid | Postpaid | | (61) | | | (137) | | | 55.5 | % | | (393) | | | (359) | | | (9.5) | % | Postpaid | | 36 | | | (61) | | | — | % | | 85 | | | (393) | | | — | % |
| Prepaid | Prepaid | | 472 | | | 668 | | | (29.3) | | | (335) | | | 1,183 | | | — | | Prepaid | | 389 | | | 472 | | | (17.6) | | | 441 | | | (335) | | | — | |
| Reseller | Reseller | | 30 | | | 67 | | | (55.2) | | | 83 | | | 166 | | | (50.0) | | Reseller | | 2 | | | 30 | | | (93.3) | | | 4 | | | 83 | | | (95.2) | |
Mexico Wireless Net Additions | | 441 | | | 598 | | | (26.3) | % | | (645) | | | 990 | | | — | % | |
1The nine-month period ended September 30, 2020, excludes the impact of 101 subscriber disconnections resulting from conforming our policy on reporting of fixed wireless resellers. | |
| Total Mexico Wireless Net Additions | | Total Mexico Wireless Net Additions | | 427 | | | 441 | | | (3.2) | % | | 530 | | | (645) | | | — | % |
Service revenues decreasedincreased in the third quarter reflecting improvements in foreign exchange, subscriber growth, and growth in other services, and for the first nine months of 2020, primarily due to2021, driven by improvements in foreign exchange rates, as well as lower volumes and store traffic related to COVID-19.growth in other services.
Equipment revenues decreasedincreased in the third quarter driven by improvements in foreign exchange partially offset by lower equipment sales volumes, and for the first nine months of 2020, primarily due to changes2021, driven by improvements in foreign exchange rates. The decrease for the first nine months also includes lowerand higher equipment sales volumes related to COVID-19.volumes.
Operations and support expenses decreasedincreased in the third quarter primarily due to foreign exchange impact partially offset by lower customer costs, and for the first nine months of 2020, primarily2021, due to changes in foreign exchange rates. The decrease for the first nine months also includes lower equipment sales.impact and an increase in customer growth. Approximately 7% of Mexico expenses are U.S. dollar based, with the remainder in the local currency.
Depreciation and amortization expense increased in the third quarter and for the first nine months of 2020, primarily due to the amortization of spectrum licenses and2021, reflecting higher in-service assets. These increases were partially offset by changes inassets and foreign exchange rates.
Operating income increased in the third quarter and first nine months of 2020. Our Mexico operating income margin in the third quarter increased from (25.0)% in 2019 to (22.2)% in 2020, and for the first nine months increased from (28.2)% in 2019 to (25.2)% in 2020. Our Mexico EBITDA margin in the third quarter increased from (7.9)% in 2019 to (3.0)% in 2020, and for the first nine months increased from (10.5)% in 2019 to (4.8)% in 2020.
AT&T INC.
SEPTEMBER 30, 20202021
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations- Continued
Dollars in millions except per share amounts
SUPPLEMENTAL TOTAL ADVERTISING REVENUE INFORMATION
As a supplemental presentation, we are providing a viewOperating loss improved in the third quarter and for the first nine months of total advertising revenues generated by AT&T. See revenue categories tables2021. Our Mexico operating income margin in Note 5the third quarter increased from (22.2)% in 2020 to (18.0)% in 2021, and for a reconciliation.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Total Advertising Revenues | | | | | | | | | | | | |
| | | Third Quarter | | Nine-Month Period |
| | | 2020 | | 2019 | | Percent
Change | | 2020 | | 2019 | | Percent
Change |
| Operating Revenues | | | | | | | | | | | | |
| Turner | | $ | 1,077 | | | $ | 913 | | | 18.0 | % | | $ | 2,830 | | | $ | 3,440 | | | (17.7) | % |
| Xandr | | 497 | | | 504 | | | (1.4) | | | 1,348 | | | 1,415 | | | (4.7) | |
| Entertainment Group | | 408 | | | 421 | | | (3.1) | | | 1,115 | | | 1,170 | | | (4.7) | |
| Other | | 105 | | | 106 | | | (0.9) | | | 278 | | | 281 | | | (1.1) | |
| Eliminations | | (408) | | | (421) | | | 3.1 | | | (1,115) | | | (1,170) | | | 4.7 | |
| Total Advertising Revenues | | $ | 1,679 | | | $ | 1,523 | | | 10.2 | % | | $ | 4,456 | | | $ | 5,136 | | | (13.2) | % |
SUPPLEMENTAL COMMUNICATIONS OPERATING INFORMATIONOTHER BUSINESS MATTERS
AsSpectrum 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 supplemental presentationtotal 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. We received the licenses in July 2021 and classified the auction deposits, related capitalized interest and billed relocation costs as “Licenses - Net” on our Communications segment operating results,September 30, 2021 consolidated balance sheet. We estimate that we will be responsible for $955 of Incentive Payments upon clearing of Phase I spectrum, expected by the end of 2021 and $2,112 upon clearing of Phase II spectrum, expected by the end of 2023. Additionally, we are providingresponsible for approximately $1,000 of compensable relocation costs over the next several years as the spectrum is being cleared by satellite operators, of which $650 was billed in the third quarter of 2021 and will be paid in the fourth quarter of 2021. (See Note 8)
Video Business On July 31, 2021, we closed our transaction with TPG to form a viewnew company named DIRECTV, which is jointly governed by a board with representation from both AT&T and TPG, with TPG having tie-breaking authority on certain key decisions.
In connection with the transaction, we contributed our U.S. Video business unit to DIRECTV for $4,250 of our AT&T Business Solutions results which includes both wirelessjunior preferred units, an additional distribution preference of $4,200 and wireline operations. This combined view presents a complete profile70% economic interest in common units (collectively “equity considerations”). Upon close, we received approximately $7,170 in cash from DIRECTV ($7,600, net of $430 cash on hand) and transferred $195 of DIRECTV debt. TPG contributed approximately $1,800 in cash to DIRECTV for $1,800 of senior preferred units and a 30% economic interest in common units. As part of this transaction, we agreed to cover net losses under the NFL SUNDAY TICKET contract up to a cap of $2,100 over the remaining period of the entire business customer relationshipcontract, of which $1,800 was a note payable to DIRECTV. (See Note 8)
Under separate transition services agreements, we will provide DIRECTV certain operational support for up to three years. We also have entered into commercial arrangements, for up to five years, to provide network transport for U-verse products and underscoressales services.
WarnerMedia On May 17, 2021, we entered into an agreement to combine our WarnerMedia segment, subject to certain exceptions, with a subsidiary of Discovery, Inc. (Discovery). The agreement is structured as a Reverse Morris Trust transaction, under which WarnerMedia will be distributed to AT&T’s shareholders via a pro rata dividend, an exchange offer, or a combination of both, followed by its combination with Discovery. The transaction is expected to be tax-free to AT&T and AT&T’s shareholders. AT&T will receive approximately $43,000 (subject to adjustment) in a combination of cash, debt securities, and WarnerMedia’s retention of certain debt. AT&T’s shareholders will receive stock representing approximately 71% of the importancenew company; Discovery shareholders will own approximately 29% of mobile solutionsthe new company. The transaction is expected to serving our business customers. Resultsclose in mid-2022, subject to approval by Discovery shareholders and customary closing conditions, including receipt of regulatory approvals. No vote is required by AT&T shareholders.
The merger agreement contains certain customary termination rights for AT&T and Discovery, including, without limitation, a right for either party to terminate if the transaction is not completed on or before July 15, 2023. Termination fees under specified circumstances will requireDiscovery to pay AT&T $720 or AT&T to pay Discovery $1,770.
Magallanes, Inc. (Spinco), a subsidiary of AT&T, entered into a $41,500 commitment letter (Bridge Loan) on May 17, 2021. On June 4, 2021, Spinco entered into a $10,000 term loan credit agreement (Spinco Term Loan) and reduced the aggregate commitment amount under the Bridge Loan to $31,500. There have been recastno draws on the Bridge Loan or the Spinco Term Loan. In the event advances are made under the Bridge Loan or Spinco Term Loan, those advances will be used by Spinco to conformfinance a portion of the cash distribution to AT&T in connection with the current period's classificationtransaction.
On September 20, 2021, we sold WarnerMedia’s mobile games app studio, Playdemic Ltd. for approximately $1,400 in cash and recognized a pre-tax gain of consumer and business wireless subscribers. See “Discussion and Reconciliation of Non-GAAP Measure” for a reconciliation of these supplemental measures to$766. Playdemic was excluded from the most directly comparable financial measures calculated and presented in accordance with GAAP.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Business Solutions Results | | | | | | | | | | | | |
| | | Third Quarter | | Nine-Month Period |
| | | 2020 | | 2019 | | Percent Change | | 2020 | | 2019 | | Percent Change |
| | |
| Operating revenues | | | | | | | | | | | | |
| Wireless service | | $ | 1,951 | | | $ | 1,888 | | | 3.3 | % | | $ | 5,784 | | | $ | 5,546 | | | 4.3 | % |
| Strategic and managed services | | 3,967 | | | 3,900 | | | 1.7 | | | 11,789 | | | 11,513 | | | 2.4 | |
| Legacy voice and data services | | 2,031 | | | 2,252 | | | (9.8) | | | 6,227 | | | 6,973 | | | (10.7) | |
| Other service and equipment | | 342 | | | 351 | | | (2.6) | | | 1,030 | | | 1,102 | | | (6.5) | |
| Wireless equipment | | 662 | | | 692 | | | (4.3) | | | 1,957 | | | 1,899 | | | 3.1 | |
| Total Operating Revenues | | 8,953 | | | 9,083 | | | (1.4) | | | 26,787 | | | 27,033 | | | (0.9) | |
| | | | | | | | | | | | | |
| Operating expenses | | | | | | | | | | | | |
| Operations and support | | 5,508 | | | 5,645 | | | (2.4) | | | 16,642 | | | 16,771 | | | (0.8) | |
| Depreciation and amortization | | 1,650 | | | 1,573 | | | 4.9 | | | 4,912 | | | 4,643 | | | 5.8 | |
| Total Operating Expenses | | 7,158 | | | 7,218 | | | (0.8) | | | 21,554 | | | 21,414 | | | 0.7 | |
| Operating Income | | 1,795 | | | 1,865 | | | (3.8) | | | 5,233 | | | 5,619 | | | (6.9) | |
Equity in Net Income (Loss) of Affiliates | | — | | | — | | | — | | | — | | | — | | | — | |
| Operating Contribution | | $ | 1,795 | | | $ | 1,865 | | | (3.8) | % | | $ | 5,233 | | | $ | 5,619 | | | (6.9) | % |
AT&T INC.
SEPTEMBER 30, 20202021
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
Spectrum AuctionVrio On July 21, 2021, we entered into an agreement to sell our Latin America video operations, Vrio, to Grupo Werthein. In March 2020, we were the winning bidder of high-frequency 37/39 GHz licenses in FCC Auction 103 covering an average of 786 MHz nationwide for approximately $2,400. Prior to the auction, we exchanged the 39 GHz licenses with a book value of approximately $300 that were previously acquired through FiberTower Corporation for vouchers to be applied against the winning bids and recorded a $900 gain in the firstsecond quarter of 2020. These vouchers yielded2021, we classified the Vrio disposal group as held-for-sale and reported the disposal group at fair value less cost to sell, which resulted in a valuenoncash, pre-tax impairment charge of $4,555, including approximately $1,200$2,100 related to accumulated foreign currency translation adjustments and $2,500 related to property, plant and equipment and intangible assets. Approximately $80 of the impairment was attributable to noncontrolling interest. At September 30, 2021, our consolidated balance sheet included $853 of Vrio held-for-sale assets reported in “Prepaid and other current assets,” primarily related to deferred customer contract acquisition and fulfillment costs, prepaids and other deferred charges, and $2,819 of related liabilities reported in “Accounts payable and accrued liabilities,” primarily for reserves associated with accumulated foreign currency translation adjustments, which was applied toward our $2,400 gross bids. We made our final paymentwill reverse against accumulated other comprehensive income upon close of approximately $950 for the Auction 103 payment in April 2020.The FCC granted the licenses in June 2020.transaction.
Labor Contracts AsThe transaction is expected to close during the fourth quarter of September 30, 2020, we employed approximately 235,000 persons. Approximately 40% of2021, pending customary closing conditions. We will retain our employees are represented by the Communications Workers of America (CWA), the International Brotherhood of Electrical Workers (IBEW) or other unions. After expiration of the collective bargaining agreements, work stoppages or labor disruptions may occur41.3% interest in the absence of new contracts or other agreements being reached.
•A contract covering approximately 7,000 Mobility employees expiredSKY Mexico, a leading pay-TV provider in February 2020. In March 2020, a new 4-year contract was ratified by employees and will expire in February 2024.
•A contract covering approximately 13,000 wireline employees in our West region expired in April 2020. In May 2020, a new 4-year contract was ratified by employees and will expire in April 2024.
•A contract covering approximately 14,000 employees in the Southwest region scheduled to expire in April 2021 was extended four years and will now expire in April 2025.
Pension Diversification In 2013, we made a voluntary contribution of 320 million Series A Cumulative Perpetual Preferred Membership Interests in Mobility II (Mobility preferred interests), the primary holding company for our wireless business, to the trust used to pay pension benefits under certain of our qualified pension plans. Since their contribution, the Mobility preferred interests are plan assets under the Employee Retirement Income Security Act of 1974, as amended (ERISA) and have been recognized as such in the plan’s separate financial statements. On September 28, 2020, the trust, through the independent investment manager/fiduciary, sold 106.7 million of these interests to unrelated third parties. The aggregate purchase price was $2,885, which includes accrued distributions through the date of sale.Mexico.
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,Over the past several years, 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. In addition, we are pursuing,We continue to support regulatory and legislative measures and efforts, at both the state and federal levels, additional legislative and regulatory measures to reduce inappropriate regulatory burdens that are no longer appropriate in a competitive telecommunications market and that inhibit our ability to compete more effectively and offer needed services wanted and needed byto 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. NoThese 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 soto uphold the FCC’s classification of broadband as an information service, that decision is final.
AT&T INC.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.
SEPTEMBER 30, 2020
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. In October 2016, the FCC adopted new rules governing the use of customer information by providers of broadband internet access service. Those rules were more restrictive in certain respects than those governing other participants in the internet economy, including so-called “edge” providers such as Google and Facebook. In April 2017, the President signed a resolution passed by Congress repealing the new rules under the Congressional Review Act.
Privacy-related legislation has beencontinues to be adopted or considered or adopted in a number of states.jurisdictions. Legislative, regulatory and regulatory action and ballot initiativeslitigation 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. Effective as of January 1, 2020, a California state law gives consumers the right to know what personal information is being collected about them, and whether and to whom it is sold or disclosed, and to access and request deletion of this information. Subject to certain exceptions, it also gives California consumers the right to opt out of the sale of personal information.
AT&T INC.
SEPTEMBER 30, 2021
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations- Continued
Dollars in millions except per share amounts
Wireless The industry-wide deployment ofIndustry-wide network densification and 5G technology expansion efforts, which isare needed to satisfy extensive demand for video and internet access, will involve significant deployment of “small cell” equipment and therefore increaseequipment. This increases the need forimportance of local permitting processes that allow for the placement of small cell equipment in the public right-of-way on reasonable timelines and terms. Federal regulations also canBetween 2018 and 2020, the FCC adopted multiple Orders streamlining federal, state, and local wireless structure review processes that had the tendency to delay and impede the deployment of small cell and related infrastructure used to provide telecommunications and broadband services, including small cell equipment. In March, Augustservices. The key elements of these orders have been affirmed on judicial review. During 2020-2021, we have also deployed 5G nationwide on “low band” spectrum on macro towers. Executing on the recent spectrum purchase, we announced on-going construction and September 2018, the FCC adopted orders to streamline federal and local wireless infrastructure review processes in order to facilitatecontinuing deployment of next-generation wireless facilities. Specifically, the FCC’s March 2018 Order streamlined historical, tribal,5G on C-band spectrum in 2022 and environmental review requirements for wireless infrastructure, including the exclusion of most small cell facilities from such review. The Order was appealed and in August 2019, the D.C. Circuit Court of Appeals vacated the FCC’s finding that most small cell facilities are excluded from review, but otherwise upheld the FCC’s Order. The FCC’s August and September 2018 Orders simplified the regulations for attaching telecommunications equipment to utility poles and clarified when local government right-of-way access and use restrictions can be preempted because they unlawfully prohibit the provision of telecommunications services. Those orders were appealed to the 9th Circuit Court of Appeals, which in August 2020 largely upheld the FCC Orders. In addition to the FCC’s actions, to date, 28 states and Puerto Rico have adopted legislation to facilitate small cell deployment.beyond.
In December 2018, we introduced the nation’s first commercial mobile 5G service. In July 2020, we announced nationwide 5G coverage. We anticipate the introduction of 5G handsets and devices will contribute to a renewed interest in equipment upgrades.
LIQUIDITY AND CAPITAL RESOURCES
We had $9,758$21,270 in “Cashcash and cash equivalents”equivalents available at September 30, 2020. “Cash2021. Cash and cash equivalents”equivalents included cash of $2,222$4,552 and money market funds and other cash equivalents of $7,536.$16,718. Approximately $2,031$3,417 of our “Cashcash and cash equivalents”equivalents were held by our foreign entities in accounts predominantly outside of the U.S. and may be subject to restrictions on repatriation.
The Company's liquidity and capital resources were not materially impacted by COVID-19 and related economic conditions during the first nine months of 2020. We will continue to monitor impacts on the COVID-19 pandemic on our liquidity and capital resources.
“Cash and cash equivalents” decreased $2,372equivalents increased $11,530 since December 31, 2019.2020. In the first nine months of 2020,2021, cash inflows were primarily provided by the cash receipts from operations, including cash from our sale and transfer of our receivables to third parties, the issuancesdisposition of commercial paperbusinesses, including our recently completed U.S. video business transaction, and issuance of long-term debt and the issuances of cumulative preferred stock and cumulative preferred interests in a subsidiary.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, debt repayments,spectrum acquisitions, funding capital expenditures and vendor financing payments, investment in WarnerMedia content and dividends to stockholders, share repurchases,stockholders.
Our cash and spectrum acquisitions.debt management will be impacted by the WarnerMedia/Discovery transaction, including the IRS private letter ruling process. During this time, we plan to maintain cash and cash equivalent balances above historical thresholds.
Cash Provided by or Used in Operating Activities
During the first nine months of 2020,2021, cash provided by operating activities was $33,048,$30,703, compared to $36,725$33,048 for the first nine months of 2019,2020, impacted by content investment and the timingseparation of working capital payments.the U.S. video business. Total cash paid for WarnerMedia’s content investment was $14,562 in the first nine months of 2021 ($4,281 higher than the prior-year comparable period).
AT&T INC.
SEPTEMBER 30, 2020
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations- Continued
Dollars in millions except per share amounts
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 $1,051$1,803 and $345$1,051 for the nine months ended September 30, 20202021 and 2019,2020, respectively. All supplier financing payments are due within one year.
Cash Used in or Provided by Investing Activities
For the first nine months of 2020,2021, cash used in investing activities totaled $13,726,$27,333, and consisted primarily of $13,283 (including interest during construction)$12,696 for capital expenditures, final paymentand acquisitions of approximately $950 for wireless$23,533, which include C-Band spectrum licenses won in Auction 103,107 and $141 for acquiring the remaining interest in HBO LAG.associated capitalized interest. During the third quarter, investing activities also included cash receipts of approximately $5,370 (excluding cash on hand and $1,800 of financing activities) from the sale of our Video business and $2,940 from the sale of Otter Media assets and Playdemic (see Note 8). In the fourth quarter of 2021, we also received approximately $400 from corporate owned life insurance investments.paid $650 of compensable relocation costs to clear 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 nine months of 2020,2021, vendor financing payments were $1,965,$4,013, compared to $2,601$1,965 for the first nine months of 2019.2020. Capital expenditures in the first nine months of 20202021 were $13,283,$12,696, and when including $1,965$4,013 cash paid for vendor financing, and excluding $143 of FirstNet reimbursements, gross capital investment was $15,391$16,709 ($3,156 lower1,318 higher 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 nine months of 2021, we placed $3,148$3,624 of equipment in service under vendor financing arrangements (compared to $1,917$3,148 in the prior-year comparable period) and approximately $940$610 of assets related to the FirstNet build (compared to $850$940 in
AT&T INC.
SEPTEMBER 30, 2021
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations- Continued
Dollars in millions except per share amounts
the prior-year comparable period). We expect to receive approximately $1,400 in reimbursement from the government by year-end for the completion of certain task orders. The amount of capital expenditures is influenced by demand for services and products, capacity needs and network enhancements.
Cash Provided by or Used in Financing Activities
For the first nine months of 2020,2021, cash used inprovided by financing activities totaled $21,768$8,165 and was comprised of debt issuances and repayments, issuances of preferred stock and preferred interests in a subsidiary, payments of dividends, and share repurchases.
During the first nine months of 2020, debt issuances included proceeds of $9,440 in short-term borrowings (including approximately $3,950 of commercial paper) and $31,987 of net proceeds from long-term debt. Borrowing activity included the following issuances:
Issued and redeemed in 2020:
•vendor financing payments. March draw of $750 on a private financing agreement (repaid in the second quarter).
•April draw of $5,500 on a term loan credit agreement with certain commercial banks and Bank of America, N.A., as lead agent (repaid in the second quarter).
Issued and outstanding in 2020:
•February issuance of $2,995 of 4.000% global notes due 2049.
•March borrowings of $665 from loan programs with export agencies of foreign governments to support network equipment purchases in those countries.
•May issuances totaling $12,500 in global notes, comprised of $2,500 of 2.300% global notes due 2027, $3,000 of 2.750% global notes due 2031, $2,500 of 3.500% global notes due 2041, $3,000 of 3.650% global notes due 2051 and $1,500 of 3.850% global notes due 2060.
•May issuances totaling €3,000 million in global notes (approximately $3,281 at issuance), comprised of €1,750 million of 1.600% global notes due 2028, €750 million of 2.050% global notes due 2032 and €500 million of 2.600% global notes due 2038.
•June issuance of $1,050 of 3.750% global notes due 2050.
•August issuances totaling $11,000 in global notes, comprised of $2,250 of 1.650% global notes due 2028, $2,500 of 2.250% global notes due 2032, $2,500 of 3.100% global notes due 2043, $2,250 of 3.300% global notes due 2052 and $1,500 of 3.500% global notes due 2061.
AT&T INC.
SEPTEMBER 30, 2020
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations- Continued
Dollars in millions except per share amounts
During the first nine months of 2020, repayments of debt included $7,710 of short-term borrowings (including $2,210 of commercial paper) and $37,583 of long-term debt. Repayments included:
Notes redeemed at maturity:
•$800 of AT&T floating-rate notes in the first quarter.
•$687 of AT&T floating-rate notes in the second quarter.
•€2,250 of AT&T floating-rate notes in the third quarter (approximately $2,637 at maturity).
Notes redeemed or repurchased prior to maturity:
•$2,619 of 4.600% AT&T global notes with original maturity in 2045, in the first quarter.
•$2,750 of 2.450% AT&T global notes with original maturity in 2020, in the second quarter
•$1,000 of annual put reset securities issued by BellSouth, in the second quarter.
•$683 of 4.600% AT&T global notes with original maturity in 2021, in the second quarter.
•$1,695 of 2.800% AT&T global notes with original maturity in 2021, in the second quarter.
•$853 of 4.450% AT&T global notes with original maturity in 2021, in the second quarter.
•$1,172 of 3.875% AT&T global notes with original maturity in 2021, in the second quarter.
•$1,430 of 5.500% AT&T global notes with original maturity in 2047, in the second quarter.
•$1,457 of 3.000% AT&T global notes with original maturity in 2022, in the third quarter.
•$1,250 of 3.200% AT&T global notes with original maturity in 2022, in the third quarter.
•$1,012 of 3.800% AT&T global notes with original maturity in 2022, in the third quarter.
•$422 of 4.000% AT&T global notes with original maturity in 2022, in the third quarter.
•$60 of 3.800% DIRECTV senior notes with original maturity in 2022, in the third quarter.
•$63 of 4.00% Warner Media, LLC notes with original maturity in 2022, in the third quarter.
•$11,384 of AT&T global notes and subsidiary notes that were tendered for cash in the third quarter. The notes had floating and fixed interest rates. The fixed rates ranged from 3.400% to 7.850% and original maturities ranging from 2021 to 2025.
•$53 of 3.400% Warner Media, LLC notes with original maturity in 2022, in the third quarter.
•$177 of 3.400% AT&T global notes with original maturity in 2022, in the third quarter.
•$928 of 3.600% AT&T global notes with original maturity in 2023, in the third quarter.
Credit facilities repaid and other borrowings:
•$750 of borrowings under a private financing agreement, in the first quarter.
•$750 of borrowings under a private financing agreement, in the second quarter.
•$5,500 under our April 2020 term loan credit agreement with certain commercial banks and Bank of America, in the second quarter.
•$1,300 under our term loan credit agreement with Bank of America, in the second quarter.
•$500 under our term loan credit agreement with Bank of Communications Co., in the second quarter.
•R$3,381 of Sky Serviços de Banda Larga Ltda. floating-rate loan in the third quarter (approximately $1,000 when issued in April 2018 and $638 at redemption due to strengthening of the U.S. dollar against Brazilian real).
During the third quarter of 2020,2021, we also exchanged $17,677 of AT&T and subsidiary notes, with interest rates ranging from 4.35%paid approximately $361 in cash on the $1,800 note payable to 8.75% and original maturities ranging from 2031 to 2058 for $1,459 of cash and $21,500 of three new series of AT&T global notes, with interest rates ranging from 3.50% to 3.65% and maturities ranging from 2053 to 2059.DIRECTV (see Note 11).
OurA tabular summary of our debt activity for the nine months ended September 30, 2021 is as follows:
| | | | | | | | | | | | | | |
| First
Quarter | Second
Quarter | Third
Quarter | Nine months ended
September 30, 2021 |
| Net commercial paper borrowings | $ | 7,072 | | $ | (513) | | $ | (2) | | $ | 6,557 | |
Issuance of Notes and Debentures1: | | | | |
| U.S. dollar denominated global notes | $ | 6,000 | | $ | — | | $ | — | | $ | 6,000 | |
| Initial average rate of 1.27% | | | | |
| Euro denominated global notes (converted to USD at issuance) | 1,461 | | — | | — | | 1,461 | |
| Rate of 0.00% | | | | |
| 2021 Syndicated Term Loan | 7,350 | | — | | — | | 7,350 | |
| BAML Bilateral Term Loan | 2,000 | | — | | — | | 2,000 | |
| Private financing | 750 | | — | | — | | 750 | |
| Other | 636 | | — | | 835 | | 1,471 | |
| Debt Issuances | $ | 18,197 | | $ | — | | $ | 835 | | $ | 19,032 | |
| | | | |
| Repayments: | | | | |
| Private financing | $ | (649) | | $ | — | | $ | — | | $ | (649) | |
| Other | (253) | | (253) | | (498) | | (1,004) | |
| Repayments of long-term debt | $ | (902) | | $ | (253) | | $ | (498) | | $ | (1,653) | |
1 Includes credit agreement borrowing. |
The weighted average interest rate of our entire long-term debt portfolio, including term loans and the impact of derivatives, was approximately 4.1%3.8% as of September 30, 20202021 and 4.4%4.1% as of December 31, 2019.2020. We had $155,218$170,841 of total notes and debentures outstanding at September 30, 2020,2021, which included Euro, British pound sterling, Canadian dollar, Swiss franc,Mexican peso, Australian dollar, Brazilian real, and Mexican pesoSwiss franc denominated debt that totaled approximately $43,347.$42,897.
At September 30, 2020,2021, we had $5,898$23,755 of debt maturing within one year, consisting of $1,754$6,576 of commercial paper borrowings, $9,100 of bank borrowings, and $4,144$8,079 of long-term debt issuances. Debt maturing within one year includes the following notes that may be put back to us by the holders:
•Anan accreting zero-coupon note that may be redeemed each May until maturity in November 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.
AT&T INC.
SEPTEMBER 30, 2020
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations- Continued
Dollars in millions except per share amounts
For the first nine months of 2020,2021, we paid $1,965$4,013 of cash under our vendor financing program, compared to $2,601$1,965 in the first nine months of 2019.2020. Total vendor financing payables included in our September 30, 20202021 consolidated balance sheet were approximately $3,252,$3,752, with $1,474$2,866 due within one year (in “Accounts payable and accrued liabilities”) and the remainder predominantly due within two to three years (in “Other noncurrent liabilities”).
Financing activities in the first nine months of 2020 also included $1,979 from the September issuance of preferred interests in a subsidiary and $3,869 for the February issuance of Series B and Series C preferred stock (see Note 11).
We repurchased approximately 142 million shares of common stock, predominantly in the first quarter, and completed the share repurchase authorization approved by the Board of Directors in 2013. In March 2020, we cancelled an accelerated share repurchase agreement that was planned for the second quarter and other repurchases to maintain flexibility and focus on continued investment in serving our customers, taking care of our employees and enhancing our network, including 5G. At September 30, 2020,2021, 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 $11,215$11,319 during the first nine months of 2020,2021, compared with $11,162$11,215 for the first nine months of 2019. Dividends were higher2020.
AT&T INC.
SEPTEMBER 30, 2021
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations- Continued
Dollars in 2020, primarily due to dividend payments to preferred stockholders and the increase in our quarterly dividend on common stock approved by our Board of Directors in December 2019, partially offset by fewer shares outstanding.millions except per share amounts
Dividends on common stock declared by our Board of Directors totaled $1.56 per share in the first nine months of 20202021 and $1.53 per share for the first nine months of 2019.2020. Our dividend policy considers the expectations and requirements of stockholders, capital funding requirements of AT&T and long-term growth opportunities. ItWe do not expect changes to our dividend policy prior to the close of the pending WarnerMedia/Discovery transaction, which is our intentexpected to provide the financial flexibility to allow our Board of Directors to consider dividend growthclose in mid-2022. After close and to recommend an increase in dividends to be paid in future periods. All dividends remain subject to declaration by ourAT&T Board approval, we anticipate an annual dividend level of Directors.approximately $8,000 to $9,000 per year.
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 December 2018,November 2020, we amended one of our five-year$7,500 revolving credit agreement (the “Amended and Restated Credit Agreement”) and concurrently entered into a new five-year agreement (the “Five Year Credit Agreement”) such thatagreements by extending the termination date. In total, we now have two $7,500 revolving credit agreements, totaling $15,000. The Amended and Restated Credit Agreement terminates$15,000, with one terminating on December 11, 20212023 and the Five Year Credit Agreement terminatesother terminating on December 11, 2023.November 17, 2025. No amounts were outstanding under either agreement as of September 30, 2020.2021.
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 September 30, 2021, $7,350 was outstanding and is due on March 22, 2022.
In September 2019,March 2021, we entered into and drew on a $1,300$2,000 term loan credit agreement containing(BAML Bilateral Term Loan) consisting of (i) a 1.250.75 year $400$1,000 facility due in 2020December 31, 2021 (BAML Tranche A Facility), and (ii) a 2.251.75 year $400$1,000 facility due in 2021December 31, 2022 (BAML Tranche B Facility), and (iii) a 3.25 year $500 facility due in 2022 (BAML Tranche C Facility), with Bank of America, N.A., as agent. These facilities were repaid and terminated in the second quarter of 2020.At September 30, 2021, $2,000 was outstanding under these facilities.
On April 6, 2020, we entered into and drew on a $5,500 Term Loan Credit Agreement (Term Loan) with 11 commercial banks and Bank of America, N.A. as lead agent. We repaid and terminated the Term Loan in May 2020.
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 through June 30, 2023, a ratio of not more than 3.5-to-1.4.0-to-1, and a ratio of not more than 3.5-to-1 for any fiscal quarter thereafter. As of September 30, 2020,2021, we were in compliance with the covenants for our credit facilities.
AT&T INC.
SEPTEMBER 30, 2020
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations- Continued
Dollars in millions except per share amounts
Collateral Arrangements
During 2019 and 2020, we amendedMost of our counterparty collateral arrangements with counterparties to require cash collateral posting by AT&T only when derivative market values exceed certain thresholds. Under these arrangements, which cover over 90%96% of our approximate $43,000$42,000 derivative portfolio, counterparties are still required to post collateral. During the first nine months of 2020,2021, we depositedposted approximately $320$570 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 September 30, 2020,2021, our debt ratio was 44.9%49.7%, compared to 45.9%44.9% at September 30, 20192020 and 44.7%46.7% at December 31, 2019.2020. Our net debt ratio was 43.8% at September 30, 2021, compared to 42.1% at September 30, 2020 compared to 44.1% at September 30, 2019 and 41.4%43.8% at December 31, 2019.2020. 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. In October 2020,
On May 17, 2021, we entered into an agreement to combine our WarnerMedia segment with the salea subsidiary of our stakeDiscovery. The transaction is anticipated to close in Central European Media Enterprises Ltd. (CME), we received relief frommid-2022, subject to approval by Discovery shareholders and customary closing conditions, including receipt of regulatory approvals. We expect to receive $43,000 (subject to adjustment) in a combination of cash, debt guarantee originally covering approximately $1,100 that was reduced to $600 by September 30, 2020.
During the first nine monthssecurities, and WarnerMedia’s retention of 2020, we have received $428 from the disposition of assets, and when combined with working capital monetization initiatives, which include the sale of receivables, total cash received from monetization efforts, net of $1,062 of spectrum acquisitions, was approximately $400. In October 2020, we completed the sale of our stake in CME for approximately $1,100 (seecertain debt. (See Note 8). We plan to continue to explore similar opportunities in the remainder of 2020.
AT&T INC.
SEPTEMBER 30, 20202021
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations- Continued
Dollars in millions except per share amounts
DISCUSSION AND RECONCILIATION OF NON-GAAP MEASUREOn May 17, 2021, in anticipation of the separation of WarnerMedia business from us, Spinco, a wholly owned subsidiary, entered into a $41,500 commitment letter (Bridge Loan). On June 4, 2021, Spinco entered into a $10,000 term loan credit agreement (Spinco Term Loan) consisting of (i) an 18 month $3,000 tranche (Tranche 1 Facility), and (ii) a 3 year $7,000 tranche (Tranche 2 Facility), with JPMorgan Chase Bank, N.A., as agent. In connection with the execution of the Spinco Term Loan, the aggregate commitment amount under the Bridge Loan was reduced to $31,500. No amounts were outstanding as of September 30, 2021.
We believe the following measure is relevant and useful information to investors as it is used by management as a method of comparing performance with that of many of our competitors. This supplemental measure should be considered in addition to, but not as a substitute of, our consolidated and segment financial information.
Business Solutions Reconciliation
We provide a supplemental discussion of our Business Solutions operations that is calculated by combining our Mobility and Business Wireline business units, and then adjusting to remove non-business operations. The following table presents a reconciliation of our supplemental Business Solutions results. Results have been recast to conform to the current period's classification.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended |
| | September 30, 2020 | | September 30, 2019 |
| | Mobility | | Business Wireline | | Adjustments1 | | Business Solutions | | Mobility | | Business Wireline | | Adjustments1 | | Business Solutions |
| Operating Revenues | | | | | | | | | | | | | | | |
| Wireless service | $ | 13,883 | | | $ | — | | | $ | (11,932) | | | $ | 1,951 | | | $ | 13,930 | | | $ | — | | | $ | (12,042) | | | $ | 1,888 | |
Strategic and managed services | — | | | 3,967 | | | — | | | 3,967 | | | — | | | 3,900 | | | — | | | 3,900 | |
Legacy voice and data services | — | | | 2,031 | | | — | | | 2,031 | | | — | | | 2,252 | | | — | | | 2,252 | |
Other service and equipment | — | | | 342 | | | — | | | 342 | | | — | | | 351 | | | — | | | 351 | |
| Wireless equipment | 4,011 | | | — | | | (3,349) | | | 662 | | | 3,771 | | | — | | | (3,079) | | | 692 | |
| Total Operating Revenues | 17,894 | | | 6,340 | | | (15,281) | | | 8,953 | | | 17,701 | | | 6,503 | | | (15,121) | | | 9,083 | |
| | | | | | | | | | | | | | | |
| Operating Expenses | | | | | | | | | | | | | | | |
| Operations and support | 10,182 | | | 3,833 | | | (8,507) | | | 5,508 | | | 9,948 | | | 4,022 | | | (8,325) | | | 5,645 | |
| EBITDA | 7,712 | | | 2,507 | | | (6,774) | | | 3,445 | | | 7,753 | | | 2,481 | | | (6,796) | | | 3,438 | |
Depreciation and amortization | 2,021 | | | 1,329 | | | (1,700) | | | 1,650 | | | 2,011 | | | 1,271 | | | (1,709) | | | 1,573 | |
| Total Operating Expenses | 12,203 | | | 5,162 | | | (10,207) | | | 7,158 | | | 11,959 | | | 5,293 | | | (10,034) | | | 7,218 | |
| Operating Income | 5,691 | | | 1,178 | | | (5,074) | | | 1,795 | | | 5,742 | | | 1,210 | | | (5,087) | | | 1,865 | |
Equity in net income (loss) of affiliates | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| Operating Contribution | $ | 5,691 | | | $ | 1,178 | | | $ | (5,074) | | | $ | 1,795 | | | $ | 5,742 | | | $ | 1,210 | | | $ | (5,087) | | | $ | 1,865 | |
1Non-business wireless reported in the Communications segment under the Mobility business unit. |
AT&T INC.
SEPTEMBER 30, 2020
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations- Continued
Dollars in millions except per share amounts
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Nine- Months Ended |
| | September 30, 2020 | | September 30, 2019 |
| | Mobility | | Business Wireline | | Adjustments1 | | Business Solutions | | Mobility | | Business Wireline | | Adjustments1 | | Business Solutions |
| Operating Revenues | | | | | | | | | | | | | | | |
| Wireless service | $ | 41,520 | | | $ | — | | | $ | (35,736) | | | $ | 5,784 | | | $ | 41,383 | | | $ | — | | | $ | (35,837) | | | $ | 5,546 | |
| Strategic and managed services | — | | | 11,789 | | | — | | | 11,789 | | | — | | | 11,513 | | | — | | | 11,513 | |
| Legacy voice and data services | — | | | 6,227 | | | — | | | 6,227 | | | — | | | 6,973 | | | — | | | 6,973 | |
| Other service and equipment | — | | | 1,030 | | | — | | | 1,030 | | | — | | | 1,102 | | | — | | | 1,102 | |
| Wireless equipment | 10,925 | | | — | | | (8,968) | | | 1,957 | | | 10,973 | | | — | | | (9,074) | | | 1,899 | |
| Total Operating Revenues | 52,445 | | | 19,046 | | | (44,704) | | | 26,787 | | | 52,356 | | | 19,588 | | | (44,911) | | | 27,033 | |
| | | | | | | | | | | | | | | |
| Operating Expenses | | | | | | | | | | | | | | | |
| Operations and support | 29,083 | | | 11,563 | | | (24,004) | | | 16,642 | | | 29,511 | | | 12,029 | | | (24,769) | | | 16,771 | |
| EBITDA | 23,362 | | | 7,483 | | | (20,700) | | | 10,145 | | | 22,845 | | | 7,559 | | | (20,142) | | | 10,262 | |
| Depreciation and amortization | 6,078 | | | 3,948 | | | (5,114) | | | 4,912 | | | 6,027 | | | 3,735 | | | (5,119) | | | 4,643 | |
| Total Operating Expenses | 35,161 | | | 15,511 | | | (29,118) | | | 21,554 | | | 35,538 | | | 15,764 | | | (29,888) | | | 21,414 | |
| Operating Income | 17,284 | | | 3,535 | | | (15,586) | | | 5,233 | | | 16,818 | | | 3,824 | | | (15,023) | | | 5,619 | |
Equity in net income (loss)
of affiliates | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| Operating Contribution | $ | 17,284 | | | $ | 3,535 | | | $ | (15,586) | | | $ | 5,233 | | | $ | 16,818 | | | $ | 3,824 | | | $ | (15,023) | | | $ | 5,619 | |
1Non-business wireless reported in the Communications segment under the Mobility business unit. |
AT&T INC.
SEPTEMBER 30, 2020
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Dollars in millions except per share amounts
At September 30, 2020,2021, we had no interest rate swaps.
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 $42,969$42,085 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 $(3,922)$(2,570) at September 30, 2020.2021. We had no rate locks at September 30, 2020.2021.
We have foreign exchange contracts with a U.S. dollar notional value of $204$191 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 $10$(34) at September 30, 2020.2021.
We have designated €1,450 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 September 30, 2020.2021. 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 September 30, 2020.2021.
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.
AT&T INC.
SEPTEMBER 30, 20202021
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, workforce shortage, natural disasters, safety issues, economic and political instability and public health emergencies.
•The continued development and delivery of attractive and profitable wireless, video content 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 the use ofusing personal data.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.parties or claims based on alleged misconduct by employees.
AT&T INC.
SEPTEMBER 30, 20202021
CAUTIONARY LANGUAGE CONCERNING FORWARD-LOOKING STATEMENTS - continued
•The impact from major equipment or software failures on our networks, including satellites operated by DIRECTV;networks; 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 such as changing network-related requirements or acquisitions and dispositions, which may require significant amounts of cash or stock, to respond to competition and regulatory, legislative and technological developments.
•The uncertainty surrounding further congressional actionOur ability to address spending reductions,realize or sustain the expected benefits of our business transformation initiatives, which may result in a significant decrease in government spendingare designed to reduce costs, streamline distribution, remove redundancies and reluctancesimplify and improve processes and support functions.
•Our ability to successfully complete divestitures, including the separation of businesses and consumers to spend in general.the WarnerMedia business, as well as achieve our expectations regarding the financial impact of the completed and/or pending transactions.
Readers are cautioned that other factors discussed in this report, although not enumerated here, also could materially affect our future earnings.
AT&T INC.
SEPTEMBER 30, 20202021
PART II – OTHER INFORMATION
Dollars in millions except per share amounts
Item 1A. Risk Factors
We discuss in our Annual Report on Form 10-K for the year ended December 31, 2020 and in our Quarterly Report on Form 10-Q for the quarter ended June 30, 2021 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.developments. For the third quarter of 2021, there were no such material developments.
Our business is subject to risks arising from the recent outbreak of the COVID-19 virus.
The COVID-19 pandemic and resulting mitigation measures have caused, and may continue to cause, a negative effect on our operating results. To date, mitigation measures have caused sports leagues to suspend certain operations as the cancellation of many sporting events, including the NCAA tournament, which has adversely affected our advertising revenues, may result in contract disputes concerning carriage rights and has caused us to incur expenses relating to certain of these sporting events notwithstanding their cancellation. The closure, or the avoidance, of theaters, and the interruptions in movie production and other programming caused by COVID-19, are expected to impact the timing of revenues and may cause a loss of revenue to our Warner Media business over the long term. The number of subscribers to traditional linear programming in the U.S. has been declining in recent years, a trend that the current pandemic has accelerated, which has negatively affected subscription revenues, and this trend is expected to continue. If the mitigating measures or the associated effects are prolonged, we expect business customers in industries most significantly impacted will continue to reduce or terminate services, having a negative effect on the performance of our Business Wireline business unit. Further, concerns over the COVID-19 pandemic could again result in the prolonged closure of many of our retail stores and deter customers from accessing our stores even as the mitigation measures subside. These pandemic concerns may also result in continued impact to our customers’ ability to pay for our products and services. We may also continue to see significant impact on roaming revenues due to a downturn in international travel. The COVID-19 pandemic has caused and could further cause reduced staffing levels at our call centers and field operations resulting in delays in service. Further reductions in staffing levels could further limit our ability to provide services, adversely impacting our competitive position. We may also incur significantly higher expenses attributable to infrastructure investments required to meet higher network utilization from more customers consuming bandwidth from changes in work from home trends; extended cancellation periods; and increased labor costs if the COVID-19 pandemic continues for an extended period.
The COVID-19 pandemic and mitigation measures have caused, and may continue to cause, adverse impacts on global economic conditions and consumer confidence and spending, which affect demand for our products and services. The extent to which the COVID-19 pandemic impacts our business results of operations, cash flows and financial condition will depend on future developments that are highly uncertain and cannot be predicted, including new information that may emerge concerning the severity of the virus and the actions to contain its impact. Due to the speed with which the situation is developing, we are not able at this time to estimate the impact of COVID-19 on our financial or operational results, but the impact could be material.
AT&T INC.
SEPTEMBER 30, 2020
PART II – OTHER INFORMATION - CONTINUED
Dollars in millions except per share amounts
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
(c) A summary of our repurchases of common stock during the third quarter of 20202021 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 |
| July 1, 2020 - July 31, 2020 | | 47,279 | | | $ | 29.99 | | | — | | | 177,942,230 |
| August 1, 2020 - August 31, 2020 | | 24,431 | | | 29.90 | | | — | | | 177,942,230 |
| September 1, 2020 - September 30, 2020 | | 581,107 | | | 28.42 | | | — | | | 177,942,230 |
| Total | | 652,817 | | | $ | 28.59 | | | — | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | (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 |
| July 1, 2021 - July 31, 2021 | | 100,782 | | | $ | 29.10 | | | — | | | 177,902,921 |
| August 1, 2021 - August 31, 2021 | | 99,720 | | | 28.09 | | | — | | | 177,902,921 |
| September 1, 2021 - September 30, 2021 | | 200,899 | | | 27.28 | | | — | | | 177,902,921 |
| Total | | 401,401 | | | $ | 27.94 | | | — | | | |
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, 93,333220,908 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, 559,484180,493 shares were acquired through reimbursements from AT&T maintained Voluntary Employee Benefit Association (VEBA) trusts.trusts during the period.
AT&T INC.
SEPTEMBER 30, 2021
Item 6. Exhibits
The following exhibits are filed or incorporated by reference as a part of this report:
| | | | | | | | |
| Exhibit | | |
| Number | | Exhibit Description |
| 10.1 | | |
| 10.2 | | |
| 10.3 | | |
| 10.4 | | |
| 10.5 | | |
| 10.6 | | |
| 31 | | Rule 13a-14(a)/15d-14(a) Certifications |
| | | |
| | | |
| 32 | | |
| 101 | | The following financial statements from the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 2020,2021, 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 September 30, 2020,2021, (formatted as Inline XBRL and contained in Exhibit 101). |
| * | | Certain schedules (or similar attachments) have been omitted pursuant to Item 601(a)(5) or Item 601(b)(2) of Regulation S-K. The registrant agrees to furnish copies of such schedules (or similar attachments) to the U.S. Securities and Exchange Commission upon request. |
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.
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| | AT&T Inc. | |
| | | |
November 5, 20204, 2021 | | /s/ John J. StephensPascal Desroches | |
| | John J. StephensPascal Desroches | |
| | Senior Executive Vice President | |
| | and Chief Financial Officer |
| |