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.
Overview
We announced on April 21, 2022 that first-quarter 2022 net income attributable
to common stock totaled $4.8 billion, or $0.65 per diluted share. First-quarter
2022 income per diluted share included amounts totaling to $(961) million
(pre-tax), or $(0.12) per share, resulting from the following significant items:
$(0.10) per share for the amortization of merger-related intangible assets,
$(0.04) per share of transaction costs, $(0.04) per share from our proportionate
share of DIRECTV intangible amortization, $(0.05) per share of other charges,
including the impact from the adoption of Accounting Standards Update (ASU) No.
2020-06 (ASU 2020-06), partially offset by an actuarial gain on remeasurement of
our pension benefit plan assets and obligations of $0.11. These results compare
with a reported net income attributable to common stock of $7.5 billion, or
$1.02 per diluted share, in the first quarter of 2021, which reflects our
retrospective adoption of ASU 2020-06.
Operating revenues in the first quarter of 2022 were $38.1 billion, down 13.3
percent from the first quarter of 2021, reflecting the impact of our divested
Video and Vrio businesses, which were sold in the third and fourth quarter of
2021, respectively, and lower Business Wireline revenues. The declines were
partially offset by higher Mobility, and, to a lesser extent, increased
WarnerMedia, Consumer Wireline and Mexico revenues.
Operating expenses in the first quarter of 2022 were $32.5 billion, down 10.5
percent, driven by impacts from divested businesses. Expenses in the quarter
reflect updates to the expected economic lives of customer relationships, which
extended the amortization period of deferred acquisition and fulfillment costs
and reduced expenses approximately $135 million, with approximately $60 million
recorded to Mobility, $35 million to Business Wireline and $40 million to
Consumer Wireline. Effective January 1, 2022, we also extended the estimated
economic lives and depreciation period of AT&T owned fiber assets, which
decreased depreciation expense approximately $70 million. Partially offsetting
the decreases were higher wireless equipment costs, including 3G network
shutdown costs, and higher WarnerMedia programming, marketing and selling costs.
Operating income in the first quarter was $5.6 billion compared to $7.7 billion
in the comparable 2021 period, and AT&T's first-quarter operating income margin
was 14.8 percent, compared to 17.4 percent in the comparable 2021 period.
Cash from operating activities in the first quarter of 2022 was $5.7 billion,
down $4.2 billion when compared to 2021, reflecting lower receivable
securitization, increased cash spend for content and higher bonus payouts. Total
cash paid for WarnerMedia's content investment in the first quarter of 2022 was
$5.1 billion ($0.6 billion higher than the prior-year comparable period).
Capital expenditures in the first quarter of 2022 were $4.7 billion, and when
including $1.6 billion cash paid for vendor financing, capital investment was
$6.3 billion, compared to prior-year first quarter capital investment of $5.7
billion (capital expenditures of $4.0 billion and vendor financing of $1.7
billion).
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.
For the quarter ended March 31, 2022, to conform with the current period
presentation, we have reclassified into "Corporate" certain administrative costs
borne by AT&T where the business units do not influence decision making. This
recast increased Corporate operations and support expenses by approximately $100
million in the first quarter of 2021 (full-year 2021 increase of $270 million).
Correspondingly, this recast lowered administrative expenses at AT&T's
Communications operations, Video and WarnerMedia with no change on a
consolidated basis.
Communications
Our Communications segment consists of our Mobility, Business Wireline and
Consumer Wireline business units.
First-quarter 2022 operating revenues were $28.9 billion, up 2.5 percent versus
first-quarter 2021, with segment operating contribution of $7.0 billion, down
5.4 percent versus the year-ago quarter. The Communications segment operating
income margin was 24.3 percent, compared to 26.4 percent in the year-earlier
quarter.
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Mobility
Mobility revenues for the first quarter of 2022 were $20.1 billion, up 5.5
percent versus the first quarter of 2021, driven by service revenue growth from
subscriber gains, and equipment revenue growth from higher priced smartphone
sales. Mobility operating expenses totaled $14.2 billion, up 9.5 percent versus
the first quarter of 2021 due to increased equipment costs, including 3G network
shutdown costs, higher costs associated with bundling HBO Max and the
elimination of CAF II government credits. Mobility's operating income margin was
29.2 percent compared to 31.8 percent in the year-ago quarter.
In our Mobility business unit, during the first quarter of 2022, we reported a
net gain of 5.5 million wireless subscribers. At March 31, 2022, wireless
subscribers totaled 196.6 million (including approximately 3.3 million FirstNet
connections) compared to 186.1 million at March 31, 2021. Wireless subscribers
at March 31, 2022, include a reduction of 10.7 million subscribers and
connections (899,000 postpaid, including 438,000 phones, 234,000 prepaid,
749,000 reseller and 8.8 million connected devices) resulting from our 3G
network shutdown in February 2022.
During the first quarter, total phone net adds (postpaid and prepaid) were
804,000 with total net adds by subscriber category as follows:
•Postpaid subscriber net adds were 965,000, with phone net adds of 691,000 and
additions from wearables and non-tablet computing devices.
•Prepaid subscriber net adds were 116,000, with phone net adds of 113,000.
•Reseller net losses were 17,000.
•Connected device net adds were 4.5 million, 1.5 million of which were primarily
attributable to wholesale connected cars.
For the quarter ended March 31, 2022, postpaid phone-only ARPU decreased 0.2
percent versus the year-earlier quarter.
Postpaid phone-only churn was 0.79 percent compared to 0.76 percent in the first
quarter of 2021. Total postpaid churn was 0.94 percent compared to 0.93 percent
in the year-ago quarter.
Business Wireline
Business Wireline revenues for the first quarter of 2022 were $5.6 billion, down
6.7 percent versus the year-ago quarter, primarily due to lower demand for
legacy voice and data services and a strategic decision to deemphasize non-core
services. Business Wireline operating expenses totaled $4.8 billion, down 3.7
percent when compared to the first quarter of 2021 due to ongoing operational
cost efficiencies and lower amortization of deferred fulfillment costs,
partially offset by higher depreciation expense. Business Wireline operating
income margin was 15.2 percent compared to 17.9 percent in the year-earlier
quarter.
Consumer Wireline
Consumer Wireline revenues for the first quarter of 2022 were $3.2 billion, up
2.0 percent versus the year-ago quarter, driven by growth in broadband revenues
attributable to fiber growth, partially offset by declines in legacy voice and
data services. Consumer Wireline operating expenses totaled $2.8 billion, up 1.9
percent versus the first quarter of 2021, largely driven by higher advertising
costs and the elimination of CAF II government credits. These expense increases
were partially offset by lower amortization of deferred fulfillment costs.
Consumer Wireline operating income margin was 10.0 percent compared to 9.9
percent in the year-earlier quarter.
At March 31, 2022, Consumer Wireline had approximately 13.9 million broadband
connections compared to 13.8 million at March 31, 2021. During the first
quarter, broadband subscriber net adds were 5,000, with fiber broadband net adds
of 289,000. Total broadband and DSL connection were 14.1 million at March 31,
2022, compared to 14.1 million at March 31, 2021.
WarnerMedia
WarnerMedia revenues for the first quarter of 2022 were $8.7 billion, up 2.5
percent versus the year-ago quarter, driven by increased subscription revenues
and higher content and other revenues, partially offset by lower advertising
revenues. Subscription revenues increased primarily due to growth of HBO Max
subscribers. Content and other revenues increased driven by higher theatrical
revenues, with higher HBO Max licensing, partially offset by lower TV licensing.
Advertising revenues declined from lower linear audiences and lower political ad
spending, partially offset by higher sports.
WarnerMedia operating expenses totaled $7.4 billion, up 13.0 percent when
compared to the first quarter of 2021, driven by higher marketing costs,
programming costs, and incremental selling costs associated with DIRECTV
advertising revenue sharing arrangements.
WarnerMedia segment operating contribution was $1.3 billion, down 35.7 percent.
The WarnerMedia segment operating income margin was 15.1 percent, compared to
23.0 percent in the year-earlier quarter.
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Latin America
Our Latin America segment consists of our Mexico business unit, and prior to the
November 2021 disposition of Vrio, our Vrio business unit, and is subject to
foreign currency fluctuations.
First-quarter 2022 operating revenues were $0.7 billion, down 49.8 percent
versus the prior year, reflecting the sale of Vrio in the fourth quarter of
2021. Segment operating contribution was $(102) million, versus $(173) million
in the comparable 2021 period. The Latin America operating income margin was
(14.8) percent, compared to (12.3) percent in the year-earlier quarter.
Mexico
Revenues were $690 million, up 9.4 percent when compared to the first quarter of
2021, primarily due to increased service revenues driven by growth in other
services and the subscriber base. Operating expenses were $792 million, up 3.5
percent, driven by increased depreciation expense from higher in-service assets
and equipment costs from customer growth. Mexico's operating income margin was
(14.8) percent, compared to (21.2) percent in the year-earlier quarter.
We had approximately 20.5 million Mexico wireless subscribers at March 31, 2022
compared to 19.0 million at March 31, 2021. During the first quarter of 2022, we
had postpaid net adds of 3,000 and prepaid net adds of 178,000.
Subsequent Event
On April 8, 2022, we completed the separation of our WarnerMedia business in a
Reverse Morris Trust transaction, under which Magallanes, Inc., which held the
WarnerMedia business (Spinco), was distributed to AT&T stockholders via a pro
rata dividend, followed by the combination of Spinco with a subsidiary of
Discovery, Inc., which was renamed Warner Bros. Discovery, Inc. (WBD). Each AT&T
shareholder was entitled to receive 0.241917 shares of WBD common stock for each
share of AT&T common stock held as of the record date.
With the separation and distribution of WarnerMedia, the WarnerMedia business
will meet the criteria for discontinued operations for our second-quarter 2022
reporting. For discontinued operations, we evaluated transactions completed
during 2021 that were components of AT&T's single plan of a strategic shift,
including dispositions that may not have individually met the criteria due to
materiality, and have determined discontinued operations to be comprised of the
WarnerMedia, Vrio, Xandr and Playdemic Ltd. transactions. Beginning with the
second quarter of 2022, the transactions will be reflected in our historical
financial statements as discontinued operations.
CAUTIONARY LANGUAGE CONCERNING FORWARD-LOOKING STATEMENTS
Information set forth in this filing contains financial estimates and other
forward-looking statements that are subject to risks and uncertainties. A
discussion of factors that may affect future results is contained in AT&T's
filings with the Securities and Exchange Commission. AT&T disclaims any
obligation to update or revise statements contained in this filing based on new
information or otherwise.
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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.
104 Cover Page Interactive Data File (embedded within the Inline XBRL document)
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