at&t 2020 earnings report 4th quarter

Fourth-Quarter Highlights

Communications

• Mobility:
  • 800,000 postpaid phone net adds; 1.5 million for full year
  • 1.2 million postpaid net adds; 2.2 million for full year
  • Nearly 6 million total domestic wireless net adds
  • Postpaid phone churn of 0.76%, second-lowest quarter ever; full-year churn of 0.79%
  • Revenues up 7.6%; service revenues up 0.5%; equipment revenues up 28.3%
  • Nations fastest 5G wireless network and, for the 8^th consecutive quarter in a row, the fastest network in the nation⁴
• Broadband:
  • 273,000 AT&T Fiber net adds; more than 1 million for full year
  • Solid IP broadband ARPU growth of 4.6% growth
• Video:
  • AT&T TV gains helped offset premium TV loss
    • 617,000 net loss, the result of lower churn and higher quality base

WarnerMedia

• Total domestic HBO Max and HBO subscribers⁵ top 41 million and nearly 61 million⁶ worldwide
• HBO Max activations double since end of third-quarter 2020; 17.2 million as of end of 4Q

Consolidated Financial Results

AT&Ts consolidated revenues for the fourth quarter totaled $45.7 billion versus $46.8 billion in the year-ago quarter. The COVID-19 pandemic impacted revenues across most businesses, particularly WarnerMedia and domestic wireless service revenues, which were pressured from lower international roaming. For the quarter, revenue declines included domestic video, Warner Bros. television and theatrical products, legacy wireline services, and Latin America, which includes foreign exchange pressure. These declines were partly offset by higher domestic wireless revenues, primarily from equipment sales.

Operating expenses were $56.4 billion versus $41.5 billion in the year-ago quarter. Expenses increased due to higher non-cash asset impairments and abandonments (including $15.5 billion for the Video business), higher domestic wireless equipment costs and higher HBO Max investments. These increases were partially offset by lower Video and Warner Bros. costs associated with lower revenues and foreign exchange impacts on Latin America expenses.

Operating income/(loss) was ($10.7) billion versus $5.3 billion in the year-ago quarter due to the non-cash asset impairments in the quarter and the impact of lower revenues. Operating income margin was (23.5%) versus 11.4% in the year-ago quarter. When adjusted for non-cash asset impairments, merger-amortization costs and other items, operating income was $7.8 billion versus $9.2 billion in the year-ago quarter, and operating income margin was 17.1% versus 19.6% in the year-ago quarter.

Fourth-quarter net loss attributable to common stock was ($13.9) billion, or ($1.95) per common share, versus net income attributable to common stock of $2.4 billion, or $0.33 per diluted common share, in the year-ago quarter. Adjusting for $2.70, which includes asset impairments, an actuarial loss on benefit plans, merger-amortization costs and other items, earnings per diluted common share was $0.75 compared to an adjusted $0.89 in the year-ago quarter. The company did not adjust for COVID-19 impacts of ($0.08): $0.01 incremental cost reductions and ($0.09) of estimated revenues.

Cash from operating activities was $10.1 billion, and capital expenditures were $2.4 billion. Gross capital investment which consists of capital expenditures, cash payments for vendor payments and excludes FirstNet reimbursements totaled $4.3 billion. Capital investment which consists of capital expenditures plus cash payments for vendor financing totaled $3.4 billion, which includes $1.0 billion of cash payments for vendor financing and $920 million of FirstNet reimbursements. Free cash flow cash from operating activities minus capital expenditures was $7.7 billion for the quarter. Net debt declined by $1.6 billion sequentially in the quarter, and net debt to adjusted EBITDA at the end of the fourth quarter was 2.70x.⁷

QUESTION 1. Prepare the journal entry to record AT&T impairment charge. Discuss how AT& arrived at the impairment amount

QUESTION 2. Critique AT&T press release regarding its 4th quarter earnings. Do you think it adequately disclosed its impairment charge?