AT&T Inc. — 2022 Form 10-K
Reporting period: Year ended December 31, 2022. Unless noted, financial amounts below are in U.S. dollars. The filing presents WarnerMedia, Vrio, Xandr and Playdemic as discontinued operations; continuing-operations comparisons therefore reflect a substantially changed business mix.
Business context and reporting period
AT&T’s continuing operations comprise Communications (U.S. wireless, business wireline and consumer wireline) and Latin America (wireless in Mexico). Management’s priorities are 5G and fiber connectivity, subscriber growth, cost transformation and debt reduction. The WarnerMedia separation closed April 8, 2022; AT&T also separated its U.S. video operations into DIRECTV in July 2021 and accounts for its DIRECTV investment under the equity method.
Key financial metrics
| Metric | 2022 | 2021 |
|---|---|---|
| Operating revenue, continuing operations | $120.741bn | $134.038bn |
| Operating income (loss) | $(4.587)bn | $25.897bn |
| Operating margin | (3.8)% | 19.3% |
| Income (loss) from continuing operations | $(6.874)bn | $23.776bn |
| Net income (loss) attributable to AT&T | $(8.524)bn | $20.081bn |
| Diluted EPS from continuing operations | $(1.10) | $3.02 |
| Cash from operating activities, continuing operations | $35.812bn | $37.170bn |
| Capital expenditures | $19.626bn | $15.545bn |
| Total debt at year-end | $135.890bn | $175.631bn |
| Cash and cash equivalents at year-end | $3.701bn | $19.223bn |
| Common dividend declared per share | $1.11 | $2.08 |
2022 cash used in investing activities was $26.899bn and cash used in financing activities was $59.564bn. Capital investment, including cash paid for vendor financing, was $24.323bn. The debt ratio was 56.1%, up from 48.9%. AT&T had $7.467bn of debt maturing within one year and a $12bn undrawn revolving credit facility; it reported compliance with debt covenants at year-end.
Communications revenue rose 2.0% to $117.067bn and operating income rose 2.5% to $29.107bn; segment operating margin was 24.9%. Mobility revenue grew 4.5%, while Business Wireline revenue fell 5.8% and operating income fell 19.2%. Consumer Wireline revenue rose 1.7%; fiber broadband connections increased 20.4% to 7.215 million. Mexico revenue rose 14.5%, but the segment remained loss-making, with a $326 million operating loss.
Material changes versus the prior comparable period
- Continuing-operations revenue declined 9.9%, mainly reflecting the separation of U.S. video and other portfolio changes, plus continuing declines in legacy Business Wireline services. Higher Mobility and broadband revenue partly offset these reductions.
- Operating results swung to a loss, primarily due to $24.812bn of noncash goodwill impairments in Business Wireline, Consumer Wireline and Mexico. The company also recorded $1.413bn of wireline conduit abandonments and other restructuring and impairment charges.
- Fourth-quarter continuing-operations revenue was $31.343bn; operating loss was $21.092bn, continuing-operations net loss was $23.120bn and diluted continuing-operations EPS was $(3.20). The quarter included the goodwill impairments and conduit abandonment charge.
- Operating cash flow declined 3.7%. Capital expenditures increased to $19.626bn, and reported capital investment including vendor-financing payments was higher than in 2021.
- Total debt fell by $39.741bn, while year-end cash declined by $15.522bn. The common dividend was reduced to $1.11 per share for 2022 from $2.08 in 2021.
Outlook, management commentary, risks and unusual items
Management expects 2023 revenue growth in wireless and broadband, supported by 5G deployment, subscriber gains and fiber expansion. It expects continued declines in legacy Business Wireline products. Capital investment, including capital expenditures and vendor-financing payments, is expected to be consistent with 2022 levels; spending to support 5G and fiber growth is expected to pressure expenses. Management says cost transformation and product simplification will support efficiencies and debt reduction. The filing does not provide a clear quantified full-year revenue, earnings or free-cash-flow guidance figure.
- Unusual items and estimates: Goodwill impairment charges were noncash and driven principally by higher discount rates and, especially in Business Wireline, lower projected cash flows. Management reports sensitivity to discount rates, terminal growth and margins, and warns further adverse changes could cause additional impairments. Extending estimated customer-relationship lives reduced 2022 expense by about $395 million; extending fiber-asset useful lives reduced depreciation by about $280 million.
- Debt, dividends and preferred interests: AT&T expects financing activities to focus on debt management and dividends, subject to board approval. Remaining Mobility preferred interests with an approximately $5.34bn redemption value are expected to be redeemed primarily in 2023 and 2024; the filing reports $2.67bn due in each period.
- Spectrum and network commitments: The company paid $9.079bn for 3.45 GHz licenses in 2022. It also expects approximately $2.112bn in C-band incentive payments upon Phase II clearing, expected by the end of 2023, plus approximately $1.1bn of relocation costs over several years. FAA precautionary measures may affect some C-band deployments.
- Other risks: The filing highlights intense wireless and broadband competition, inflation and supplier constraints, interest-rate and capital-market volatility, regulation and privacy requirements, cyberattacks, extreme weather, labor negotiations and potential tax consequences if the WarnerMedia separation fails to retain tax-free treatment. AT&T says pending legal matters are not expected to have a material adverse effect, while acknowledging outcomes are uncertain.
- Liquidity considerations: Operating cash flow includes cash benefits from receivables-sale programs and supplier financing; supplier financing improved 2022 operating cash flow by $851 million. These arrangements and substantial contractual obligations merit attention alongside reported cash and debt.
Important facts for investors to verify
- Whether wireless subscriber and service-revenue growth, fiber additions and pricing can offset legacy wireline declines while maintaining margins.
- The assumptions behind the $24.812bn goodwill impairment and the potential for further charges if discount rates or operating forecasts worsen.
- Progress on debt reduction and dividend coverage by recurring operating cash flow, considering capital investment, vendor financing and preferred-interest redemptions.
- The timing and total cost of C-band clearing and relocation commitments, and any effect of FAA measures on deployment.
- The tax-free status and related indemnities for the WarnerMedia separation, as well as the sustainability and terms of cash distributions from DIRECTV.