Item 8.01 Other Events.
Throughout this document, AT&T Inc. is referred to as "we" or "AT&T." AT&T is a
holding company whose subsidiaries and affiliates operate worldwide in the
telecommunications, media and technology industries.
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. Fourth-quarter 2020 earnings include
approximately $650 million, or $0.08 per diluted share of COVID-19 impacts,
including $90 million, or $0.01 per diluted share, of cost reductions reflecting
insurance recoveries associated with WarnerMedia business disruption recoveries
offset by additional incremental expense.
In addition to the incremental impact, we estimate that our operations and
comparability were impacted by an estimated $740 million, or $0.09 per diluted
share, for the following COVID-19 related pressures: (1) lower television
licensing and production revenues due to production delays and the partial
closure of movie theaters and postponement of theatrical releases, leading to
lower content revenues and associated expenses, and (2) 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.
Fourth-quarter 2020 subscriber net adds include 35,000 postpaid (28,000 phone),
4,000 broadband and 4,000 premium TV "Keep Americans Connected Pledge" paying
accounts. The "Keep Americans Connected Pledge" has concluded and will not
impact future subscriber counts.
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, the efficacy and widespread distribution
of a vaccine, global economic conditions, changes to our operations, changes in
consumer confidence, behaviors and spending, work and learn 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 2021 results to be impacted by the following:
•Lower revenues from the continued partial closure of movie theaters and higher
costs based on our decision to distribute films in 2021 on HBO Max in the U.S.
simultaneous with theaters for 31 days;
•The decline in revenues from international roaming wireless services due to
reduced travel, particularly in the first quarter; and
•Continued expenses to protect front-line employees, contractors and customers.
Overview
We announced on January 27, 2021 that fourth-quarter 2020 net loss attributable
to common stock totaled $(13.9) billion, or $(1.95) per diluted share.
Fourth-quarter 2020 loss per diluted share includes amounts totaling to $(19.3)
billion, or $(2.70) per share, resulting from the following significant items:
$(2.02) per share from the impairment of assets, $(0.43) per share for noncash
losses for the annual adjustment related to pension and postemployment benefit
accounting, $(0.22) per share for the amortization of merger-related intangible
assets, and a combined $(0.03) per share for tax-related items, employee
separation charges and other items. The results compare with a reported net
income attributable to common stock of $2.4 billion, or $0.33 per diluted share,
in the fourth quarter of 2019. For the full year 2020, net income (loss)
attributable to common stock was $(5.4) billion versus $13.9 billion in 2019;
earnings (loss) per diluted share were $(0.75) compared with $1.89 for 2019.
Fourth-quarter 2020 revenues were $45.7 billion, down 2.4 percent from the
fourth quarter of 2019, and full-year 2020 revenues were $171.8 billion, down
5.2 percent from the previous full year. Revenues were impacted by the COVID-19
pandemic across all segments, most significantly contributing to lower content
revenues at WarnerMedia and roaming wireless revenues in the Communications
segment. Revenues were also lower due to continued declines in domestic video
and legacy wireline services and were impacted by Latin America foreign exchange
pressure.
Compared with results for the fourth quarter of 2019, current quarter operating
expenses were $56.4 billion, up 36.0 percent, and full-year 2020 operating
expenses were $165.4 billion, up 7.9 percent from the previous full year.
Expenses reflect noncash impairment charges of $15.5 billion resulting from
changes in our management strategy and our evaluation of the domestic video
business. These changes, including our decision to operate our video business
separately from our broadband and legacy telephony operations, required us to
identify a separate Video reporting unit and to assess both the recoverability
of its long-lived assets and any assigned goodwill for impairment.
Fourth-quarter expenses also include charges of approximately $780 million from
the impairment of production and other content inventory at WarnerMedia, with
$520 million resulting from the continued shutdown of theaters during the
pandemic and the hybrid distribution model for our 2021 film slate.
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Fourth-quarter operating income (loss) was $(10.7) billion compared to $5.3
billion in the comparable 2019 period, and full-year 2020 operating income was
$6.4 billion, down 77.1 percent from the full-year 2019. AT&T's fourth-quarter
operating income margin was (23.5) percent, compared to 11.4 percent in the
comparable 2019 period, and full-year 2020 operating income margin was 3.7
percent compared to 15.4 percent.
For the full year, cash from operating activities was $43.1 billion, down $5.5
billion when compared to 2019, impacted by the timing of working capital
payments. Capital expenditures in 2020 were $15.7 billion, and when including
$3.0 billion cash paid for vendor financing, gross capital investment was $19.7
billion (excluding $1.1 billion FirstNet reimbursements).
Segment Summary
We analyze our segments based on, among other things, segment 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. Our reportable segments are:
Communications, WarnerMedia and Latin America. During 2020, we recast our
segment results for all prior periods to include our prior Xandr segment within
our WarnerMedia segment (in the second quarter) and to remove the Crunchyroll
anime business that was classified as held-for-sale from the WarnerMedia
segment, instead including it in Corporate and Other (in the fourth quarter).
Communications
Our Communications segment consists of our Mobility, Video, Broadband and
Business Wireline business units. To further accelerate our ability to innovate
and execute in our fast-growing broadband and fiber business, we began operating
our video business separately from our broadband and legacy telephony
operations. We have recast our results for all prior periods to split the
Entertainment Group into two separate business units, Video and Broadband, and
remove video operations from Business Wireline, combining all video operations
in Video.
Fourth-quarter 2020 operating revenues were $36.7 billion, up 0.5 percent versus
fourth-quarter 2019, with segment operating contribution of $6.6 billion, down
12.7 percent versus the year-ago quarter. The Communications segment operating
income margin was 17.9 percent, compared to 20.6 percent in the year-earlier
quarter.
Mobility
Mobility revenues for the fourth quarter of 2020 were $20.1 billion, up 7.6
percent versus the fourth quarter of 2019, primarily due to equipment revenue
growth from higher upgrade volumes, the mix of higher-priced smartphones and
sales of postpaid data devices, such as wearables, wireless modems and hotspots.
Service revenue also increased as subscriber gains offset declines in
international roaming services. Mobility operating expenses totaled $15.0
billion, up 13.9 percent versus the fourth quarter of 2019 driven by higher
equipment costs, increased commission expense and intercompany content costs
associated with plans offering HBO Max, partially offset by lower bad debt
expense. Mobility's operating income margin was 25.3 percent compared to 29.4
percent in the year-ago quarter.
In our Mobility business unit, during the fourth quarter of 2020, we reported a
net gain of 5.9 million wireless subscribers. At December 31, 2020, wireless
subscribers totaled 182.6 million (including more than 1.9 million FirstNet
connections) compared to 165.9 million at December 31, 2019.
During the fourth quarter, total phone net adds were 760,000, with total net
adds by subscriber category as follows:
•Postpaid subscriber net adds were 1.2 million, with phone net adds of 800,000
and additions from wearables and non-tablet computing devices more than
offsetting losses in tablets.
•Prepaid subscriber net adds were 14,000, with phone net losses of 40,000.
•Reseller net losses were (197,000).
•Connected device net adds were 4.8 million, 3.2 million of which were primarily
attributable to wholesale connected cars.
For the quarter ended December 31, 2020, postpaid phone-only ARPU decreased 1.9
percent versus the year-earlier quarter due to lower international roaming
revenues.
Postpaid phone-only churn was 0.76 percent (0.78 percent excluding "Keep
Americans Connected Pledge" paying accounts) compared to 1.07 percent in the
fourth quarter of 2019. Total postpaid churn was 0.94 percent (0.96 percent
excluding "Keep Americans Connected Pledge" paying accounts) compared to 1.29
percent in the year-ago quarter. The "Keep Americans Connected Pledge" did not
impact churn for the year ended December 31, 2020.
Video
Video revenues for the fourth quarter of 2020 were $7.2 billion, down 11.2
percent versus the year-ago quarter, reflecting continuing declines in video
subscribers partially offset by increased advertising revenues during the
general election, higher premium TV ARPUs and equipment sales. In addition to
the continuing impact of COVID-19 on commercial revenues, fourth
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quarter service revenues include estimated 2020 billing credits to be provided
to subscribers for lower delivery of regional sports networks programming. Video
operating expenses totaled $7.1 billion, down 12.0 percent versus the fourth
quarter of 2019, largely driven by lower content costs resulting from fewer
subscribers, estimated reimbursements from regional sports networks for lower
delivery of programming and ongoing cost initiatives. Partially offsetting these
declines were annual content rate increases, including increased costs
associated with NFL SUNDAY TICKET. Video operating income margin was 1.4 percent
compared to 0.5 percent in the year-earlier quarter.
At December 31, 2020, Video had approximately 17.2 million video connections
compared to 20.4 million at December 31, 2019. During the fourth quarter of
2020, premium TV video subscribers, which includes AT&T TV, had a net loss of
617,000. Subscribers to AT&T TV NOW, our OTT video service, had a net loss of
27,000. Beginning in January 2021, AT&T TV NOW has been combined with AT&T TV.
Broadband
Broadband revenues for the fourth quarter of 2020 were $3.1 billion, down 1.4
percent versus the year-ago quarter, reflecting continuing declines in legacy
services partially offset by higher broadband ARPUs resulting from an increase
in high-speed fiber customers and pricing actions. Broadband operating expenses
totaled $2.8 billion, up 11.1 percent versus the fourth quarter of 2019, largely
driven by content costs associated with plans offering HBO Max, higher sales and
customer support costs and higher amortization of cost deferrals. Broadband
operating income margin was 11.7 percent compared to 21.7 percent in the
year-earlier quarter.
At December 31, 2020, our Broadband segment had approximately 14.1 million
broadband connections compared to 14.1 million at December 31, 2019. During the
fourth quarter, broadband subscribers had net losses of 2,000 (including fiber
broadband net adds of 273,000).
Business Wireline
Business Wireline (Business) revenues for the fourth quarter of 2020 were $6.3
billion, down 4.1 percent versus the year-ago quarter, reflecting continued
declines in legacy services partially offset by growth in strategic and managed
services. Business operating expenses totaled $5.3 billion, up 0.2 percent when
compared to the fourth quarter of 2019, driven by higher depreciation expenses
related to network upgrades and expansion, offset by our ongoing focus on cost
initiatives. Business operating income margin was 15.9 percent compared to 19.5
percent in the year-earlier quarter.
At December 31, 2020, our total switched access lines (Broadband and Business)
were 7.3 million compared to 8.5 million at December 31, 2019. The number of
U-verse voice connections (which use VoIP technology and therefore are not
included in the access line total) decreased by 126,000 in the quarter, totaling
3.8 million at December 31, 2020, compared to 4.4 million at December 31, 2019.
WarnerMedia
Our WarnerMedia segment consists of our Turner, Home Box Office (HBO) and Warner
Bros. business units. In the second quarter of 2020, the former Xandr segment
combined with the Other operations of the WarnerMedia segment; certain
advertising revenues are also reported by the Communications segment and are
eliminated upon consolidation. In the fourth quarter of 2020, the Crunchyroll
anime business was classified as held-for-sale and removed from Other operations
of this segment. Historical WarnerMedia results have been recast for all prior
periods to reflect these changes.
Fourth-quarter 2020 operating revenues were $8.6 billion, down 9.5 percent
versus fourth-quarter 2019, with segment operating contribution of $2.5 billion,
down 11.5 percent versus the year-ago quarter. The WarnerMedia segment operating
income margin was 29.7 percent, compared to 30.0 percent in the year-earlier
quarter.
Turner
Turner revenues for the fourth quarter of 2020 were $3.2 billion, down 0.6
percent versus the year-ago quarter, primarily due to the delayed start of the
. . .
Item 9.01 Financial Statements and Exhibits.
The following exhibits are furnished as part of this report:
(d) Exhibits
99.1 AT&T Inc. selected financial statements and operating data.
99.2 Discussion and reconciliation of non-GAAP measures.
104 Cover Page Interactive Data File (embedded within the Inline XBRL document)
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