AT&T Inc. — FY2020 Form 10-K
Reporting period: Fiscal year ended December 31, 2020; filed February 25, 2021. Unless noted, amounts are in U.S. dollars, millions. AT&T operates Communications, WarnerMedia and Latin America businesses. This is an annual filing, not a standalone fourth-quarter report.
Key financial metrics
| Metric | 2020 | 2019 | Change / context |
|---|---|---|---|
| Operating revenue | $171,760 | $181,193 | Down 5.2% |
| Operating income | $6,405 | $27,955 | Down 77.1%; operating margin 3.7% versus 15.4% |
| Net income (loss) attributable to AT&T common stock | $(5,369) | $13,900 | Basic and diluted EPS $(0.75), versus $1.90 and $1.89 |
| Cash from operating activities | $43,130 | $48,668 | Down $5,538 |
| Capital expenditures | $15,675 | $19,635 | Gross capital investment was $19,704, including vendor-financing payments and excluding FirstNet reimbursements |
| Cash and cash equivalents | $9,740 | $12,130 | At year-end |
| Total debt | $157,245 | $163,147 | Year-end; includes $3,470 maturing within one year |
| Common dividend declared per share | $2.08 | $2.05 | Cash dividends paid on common and preferred shares totaled $14,956 |
Business performance and changes versus 2019
- Communications: Revenue fell 2.5% to $138,850; segment operating contribution fell 5.3% to $30,521. Mobility revenue rose 2.1% to $72,564, supported by subscriber growth and equipment sales. Video revenue declined 10.9% to $28,610; premium TV and OTT connections fell 16.0% to 17.2 million. Broadband revenue declined 5.3% to $12,318, while fiber connections rose 27.4% to 4.95 million. Business Wireline revenue fell 3.1% to $25,358.
- WarnerMedia: Revenue declined 13.7% to $30,442 and segment contribution declined 23.0% to $8,210. Theater closures, delayed productions and releases, and lower sports-related advertising weighed on results. HBO subscription revenue increased, but programming investment and marketing for HBO Max substantially reduced HBO operating income. AT&T reported 41.5 million U.S. HBO and HBO Max subscribers at year-end.
- Latin America: Revenue decreased 17.9% to $5,716 and segment contribution was a loss of $729, versus a loss of $635. Foreign exchange, economic conditions, subscriber losses and the Venezuela shutdown affected performance.
- Consolidated operating expenses rose 7.9% to $165,355, chiefly because asset impairments and abandonments increased to $18,880 from $1,458. Fourth-quarter charges included $15,508 tied to the domestic video business; Vrio recorded a separate $2,212 goodwill impairment during the second quarter. The impairments drove much of the reported loss and are noncash charges.
Cash, debt and liquidity
- Operating cash flow decreased to $43,130, with management citing working-capital timing. Investing activities used $13,548; financing activities used $32,007. AT&T paid $14,956 in dividends and repurchased approximately 142 million shares for $5,278 during 2020.
- Year-end debt was $157,245 and the reported debt ratio was 46.7%; the net debt ratio was 43.8%. The weighted-average interest rate on long-term debt, including derivatives, was approximately 4.1%. AT&T reported compliance with debt covenants; its credit agreements include a maximum net debt-to-EBITDA ratio of 3.5-to-1.
- Liquidity included $9,740 in cash and $15,000 of revolving credit facilities with no year-end borrowings. Approximately $2,205 of cash was held by foreign entities and may face repatriation restrictions. Vendor financing payments were $2,966 in 2020, with approximately $3,761 of related payables outstanding at year-end.
Outlook, risks and notable items
- Management expects 2021 growth opportunities in wireless, fiber broadband and HBO Max, while linear video and legacy voice and data remain under pressure. It expects 2021 gross capital investment of about $21 billion, including capital expenditures of about $18 billion and approximately $1 billion of FirstNet reimbursements.
- Management expects continued pandemic effects, including uncertainty in international roaming, ongoing theater disruption, and costs from simultaneous U.S. theatrical and HBO Max releases of 2021 films for 31 days. It also anticipates continued investment in 5G, fiber, FirstNet and HBO Max.
- AT&T estimated that COVID-19 affected 2020 comparability by approximately $2,925, or $0.33 per diluted share, and recorded approximately $850, or $0.10 per diluted share, of incremental pandemic-related costs. The company said the duration and financial effects of the pandemic remained uncertain.
- Subsequent events: In February 2021, AT&T agreed to contribute its U.S. Video business to a new DIRECTV entity with TPG, expects $7,600 cash proceeds and a 70% economic interest, and agreed to cover up to $2,500 of net losses under the remaining NFL SUNDAY TICKET contract. Closing was expected in the second half of 2021, subject to conditions.
- AT&T won 80 MHz of nationwide C-band spectrum in a February 2021 auction. The stated remaining payment was $18,725, in addition to a $4,681 down payment, plus estimated incentive payments and relocation costs. The filing says funding may include cash, operating funds and short- or long-term debt.
- Principal risks include intense wireless and streaming competition, customer losses in traditional video, high debt and financing needs, spectrum and network investment requirements, content costs, COVID-19 uncertainty, foreign currency and political risks, pension assumptions, cyber and supply-chain disruptions, regulation, litigation, and uncertain tax positions. The filing reports $12,451 of gross unrecognized tax benefits, including accrued interest and penalties.
Most important facts for investors to verify
- Whether cash generation and operating performance recover after the unusually large 2020 impairments, and whether further impairments occur.
- Progress and economics of HBO Max, fiber and 5G, including subscriber retention, customer acquisition costs and returns on network and spectrum spending.
- Execution, final terms and cash/debt implications of the DIRECTV transaction, including potential NFL SUNDAY TICKET losses.
- Funding and deployment costs for the C-band licenses, including incentive payments and relocation expenses, and the effect on leverage and interest costs.
- Dividend sustainability relative to operating cash flow, capital investment, debt reduction plans and remaining share repurchases.
- The audited statements received an unqualified opinion, and management and the auditor reported effective internal control over financial reporting as of December 31, 2020.