Item 1. Financial Statements

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Item 1. Financial Statements


AT&T INC.
CONSOLIDATED STATEMENTS OF INCOME
Dollars in millions except per share amounts
(Unaudited)
	Three months ended
	March 31,
		2023		2022
Operating Revenues
Service		$	24,617	$	23,999
Equipment		5,522		5,713
Total operating revenues		30,139		29,712

Operating Expenses
Cost of revenues
Equipment		5,658		6,036

Other cost of revenues (exclusive of depreciation and amortization shown separately below)		6,673		6,699
Selling, general and administrative		7,175		6,978

Depreciation and amortization		4,631		4,462
Total operating expenses		24,137		24,175
Operating Income		6,002		5,537
Other Income (Expense)
Interest expense		(1,708)		(1,626)
Equity in net income of affiliates		538		521
Other income (expense) — net		935		2,157
Total other income (expense)		(235)		1,052
Income from Continuing Operations Before Income Taxes		5,767		6,589
Income tax expense on continuing operations		1,314		1,440
Income from Continuing Operations		4,453		5,149
Income from discontinued operations, net of tax		—		15
Net Income		4,453		5,164
Less: Net Income Attributable to Noncontrolling Interest		(225)		(354)
Net Income Attributable to AT&T		$	4,228	$	4,810
Less: Preferred Stock Dividends		(52)		(48)
Net Income Attributable to Common Stock		$	4,176	$	4,762
Basic Earnings Per Share from continuing operations		$	0.58	$	0.66
Basic Earnings Per Share from discontinued operations		$	—	$	—
Basic Earnings Per Share Attributable to Common Stock		$	0.58	$	0.66
Diluted Earnings Per Share from continuing operations		$	0.57	$	0.65
Diluted Earnings Per Share from discontinued operations		$	—	$	—
Diluted Earnings Per Share Attributable to Common Stock		$	0.57	$	0.65
Weighted Average Number of Common Shares Outstanding — Basic (in millions)		7,168		7,184
Weighted Average Number of Common Shares Outstanding — with Dilution (in millions)		7,474		7,556

See Notes to Consolidated Financial Statements.


AT&T INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Dollars in millions
(Unaudited)
	Three months ended
	March 31,
		2023		2022
Net income		$	4,453	$	5,164
Other comprehensive income (loss), net of tax:
Foreign currency:
Translation adjustment, net of taxes of $52 and $5		193		19

Securities:
Net unrealized gains (losses), net of taxes of $8 and $(23)		23		(69)
Reclassification adjustment included in net income, net of taxes of $1 and $1		3		3
Derivative instruments:
Net unrealized gains (losses), net of taxes of $(43) and $69		(152)		258
Reclassification adjustment included in net income, net of taxes of $3 and $4		12		15

Defined benefit postretirement plans:

Amortization of net prior service credit included in net income, net of taxes of $(160) and $(152)		(491)		(465)

Other comprehensive income (loss)		(412)		(239)
Total comprehensive income		4,041		4,925
Less: Total comprehensive income attributable to noncontrolling interest		(225)		(354)
Total Comprehensive Income Attributable to AT&T		$	3,816	$	4,571

See Notes to Consolidated Financial Statements.


AT&T INC.
CONSOLIDATED BALANCE SHEETS
Dollars in millions except per share amounts
(Unaudited)
	March 31,		December 31,
	2023		2022
Assets
Current Assets
Cash and cash equivalents	$	2,821	$	3,701
Accounts receivable – net of related allowances for credit loss of $619 and $588	10,214		11,466
Inventories	2,791		3,123
Prepaid and other current assets	14,077		14,818
Total current assets	29,903		33,108
Property, plant and equipment	330,486		329,630
Less: accumulated depreciation and amortization	(202,028)		(202,185)
Property, Plant and Equipment – Net	128,458		127,445
Goodwill – Net	67,895		67,895
Licenses – Net	124,502		124,092
Other Intangible Assets – Net	5,346		5,354
Investments in and Advances to Equity Affiliates	2,810		3,533
Operating Lease Right-Of-Use Assets	21,619		21,814

Other Assets	20,340		19,612
Total Assets	$	400,873	$	402,853
Liabilities and Stockholders’ Equity
Current Liabilities
Debt maturing within one year	$	13,757	$	7,467
Note payable to DIRECTV	—		130
Accounts payable and accrued liabilities	38,389		42,644
Advanced billings and customer deposits	3,922		3,918
Dividends payable	2,082		2,014
Total current liabilities	58,150		56,173
Long-Term Debt	123,727		128,423
Deferred Credits and Other Noncurrent Liabilities
Deferred income taxes	57,294		57,032
Postemployment benefit obligation	7,060		7,260
Operating lease liabilities	18,413		18,659
Other noncurrent liabilities	27,883		28,849
Total deferred credits and other noncurrent liabilities	110,650		111,800
Stockholders’ Equity
Preferred stock ($1 par value, 10,000,000 authorized at March 31, 2023 and December 31, 2022):
Series A (48,000 issued and outstanding at March 31, 2023 and December 31, 2022)	—		—
Series B (20,000 issued and outstanding at March 31, 2023 and December 31, 2022)	—		—
Series C (70,000 issued and outstanding at March 31, 2023 and December 31, 2022)	—		—
Common stock ($1 par value, 14,000,000,000 authorized at March 31, 2023 and December 31, 2022: issued 7,620,748,598 at March 31, 2023 and December 31, 2022)	7,621		7,621
Additional paid-in capital	120,774		123,610
Retained (deficit) earnings	(15,187)		(19,415)
Treasury stock (471,514,050 at March 31, 2023 and 493,156,816 at December 31, 2022, at cost)	(16,166)		(17,082)
Accumulated other comprehensive income	2,354		2,766
Noncontrolling interest	8,950		8,957
Total stockholders’ equity	108,346		106,457
Total Liabilities and Stockholders’ Equity	$	400,873	$	402,853

See Notes to Consolidated Financial Statements.


AT&T INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Dollars in millions
(Unaudited)
	Three months ended
	March 31,
	2023		2022
Operating Activities
Income from continuing operations	$	4,453	$	5,149
Adjustments to reconcile income from continuing operations to net cash provided by operating activities from continuing operations:
Depreciation and amortization	4,631		4,462


Provision for uncollectible accounts	477		430
Deferred income tax expense	529		1,150
Net (gain) loss on investments, net of impairments	(93)		87
Pension and postretirement benefit expense (credit)	(670)		(940)
Actuarial (gain) loss on pension and postretirement benefits	—		(1,053)

Changes in operating assets and liabilities:
Receivables	620		864
Other current assets	364		244
Accounts payable and other accrued liabilities	(3,409)		(2,651)
Equipment installment receivables and related sales	(243)		541
Deferred customer contract acquisition and fulfillment costs	(22)		(259)
Postretirement claims and contributions	(89)		(97)
Other - net	130		(297)
Total adjustments	2,225		2,481
Net Cash Provided by Operating Activities from Continuing Operations	6,678		7,630
Investing Activities
Capital expenditures	(4,335)		(4,568)
Acquisitions, net of cash acquired	(291)		(9,244)
Dispositions	15		7
Distributions from DIRECTV in excess of cumulative equity in earnings	774		1,315
Other - net	19		32


Net Cash Used in Investing Activities from Continuing Operations	(3,818)		(12,458)
Financing Activities
Net change in short-term borrowings with original maturities of three months or less	(536)		2,285
Issuance of other short-term borrowings	3,627		2,593
Repayment of other short-term borrowings	—		(3,407)
Issuance of long-term debt	3,366		479
Repayment of long-term debt	(5,945)		(790)
Repayment of note payable to DIRECTV	(130)		(294)
Payment of vendor financing	(2,113)		(1,566)

Purchase of treasury stock	(188)		(197)
Issuance of treasury stock	3		26


Dividends paid	(2,014)		(3,749)

Other - net	219		(930)
Net Cash Used in Financing Activities from Continuing Operations	(3,711)		(5,550)
Net decrease in cash and cash equivalents and restricted cash from continuing operations	(851)		(10,378)
Cash flows from Discontinued Operations:
Cash (used in) provided by operating activities	—		(1,898)
Cash provided by (used in) investing activities	—		(193)
Cash provided by (used in) financing activities	—		29,801
Net increase (decrease) in cash and cash equivalents and restricted cash from discontinued operations	—		27,710
Net (decrease) increase in cash and cash equivalents and restricted cash	$	(851)	$	17,332
Cash and cash equivalents and restricted cash beginning of year	3,793		21,316
Cash and Cash Equivalents and Restricted Cash End of Period	$	2,942	$	38,648
See Notes to Consolidated Financial Statements.


AT&T INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
Dollars and shares in millions except per share amounts
(Unaudited)
	Three months ended
		March 31, 2023	March 31, 2022
			Shares	Amount		Shares	Amount
Preferred Stock - Series A
Balance at beginning of period			—	$	—	—	$	—

Balance at end of period			—	$	—	—	$	—
Preferred Stock - Series B
Balance at beginning of period			—	$	—	—	$	—

Balance at end of period			—	$	—	—	$	—
Preferred Stock - Series C
Balance at beginning of period			—	$	—	—	$	—

Balance at end of period			—	$	—	—	$	—
Common Stock
Balance at beginning of period			7,621	$	7,621	7,621	$	7,621

Balance at end of period			7,621	$	7,621	7,621	$	7,621
Additional Paid-In Capital
Balance at beginning of period				$	123,610		$	130,112


Preferred stock dividends				(98)			—
Common stock dividends ($0.2775 per share in 2023)				(2,002)			—

Issuance of treasury stock				(365)			(126)
Share-based payments				(371)			(349)

Balance at end of period				$	120,774		$	129,637
Retained (Deficit) Earnings
Balance at beginning of period				$	(19,415)		$	42,350


Net income attributable to AT&T				4,228			4,810

Preferred stock dividends				—			(99)
Common stock dividends ($0.2775 per share in 2022)				—			(2,020)
Balance at end of period				$	(15,187)		$	45,041

See Notes to Consolidated Financial Statements.


AT&T INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY - continued
Dollars and shares in millions except per share amounts
(Unaudited)
	Three months ended
		March 31, 2023	March 31, 2022
			Shares	Amount		Shares	Amount
Treasury Stock
Balance at beginning of period			(493)	$	(17,082)	(480)	$	(17,280)
Repurchase and acquisition of common stock			(10)	(188)		(8)	(197)
Reissuance of treasury stock			31	1,104		26	924
Balance at end of period			(472)	$	(16,166)	(462)	$	(16,553)
Accumulated Other Comprehensive Income Attributable to AT&T, net of tax
Balance at beginning of period				$	2,766		$	3,529
Other comprehensive income attributable to AT&T				(412)			(239)
Balance at end of period				$	2,354		$	3,290
Noncontrolling Interest
Balance at beginning of period				$	8,957		$	17,523


Net income attributable to noncontrolling interest				225			354

Redemption of noncontrolling interest				—			(16)
Distributions				(232)			(341)


Balance at end of period				$	8,950		$	17,520
Total Stockholders' Equity at beginning of period				$	106,457		$	183,855
Total Stockholders' Equity at end of period				$	108,346		$	186,556

See Notes to Consolidated Financial Statements.

AT&T INC.

MARCH 31, 2023

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Dollars in millions except per share amounts

NOTE 1. PREPARATION OF INTERIM FINANCIAL STATEMENTS

Basis of Presentation Throughout this document, AT&T Inc. is referred to as “we,” “AT&T” or the “Company.” The consolidated financial statements include the accounts of the Company and subsidiaries and affiliates which we control. AT&T is a holding company whose subsidiaries and affiliates operate worldwide in the telecommunications and technology industries. You should read this document in conjunction with the consolidated financial statements and accompanying notes included in our Annual Report on Form 10-K for the year ended December 31, 2022. The results for the interim periods are not necessarily indicative of those for the full year. These consolidated financial statements include all adjustments that are necessary to present fairly the results for the presented interim periods, consisting of normal recurring accruals and other items.

All significant intercompany transactions are eliminated in the consolidation process. Investments in subsidiaries and partnerships which we do not control but have significant influence are accounted for under the equity method. Earnings from certain investments accounted for using the equity method are included in our results on a one quarter lag. We also record our proportionate share of our equity method investees’ other comprehensive income (OCI) items, including translation adjustments.

The preparation of financial statements in conformity with U.S. generally accepted accounting principles (GAAP) requires management to make estimates and assumptions, including estimates of fair value, probable losses and expenses, that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Certain prior period amounts have been conformed to the current period’s presentation. Unless otherwise noted, the information in Notes 1 through 13 refer only to our continuing operations and do not include discussion of balances or activity of WarnerMedia, Vrio, Xandr and Playdemic Ltd., which were part of discontinued operations.

Accounting Policies, Adopted and Pending Accounting Standards and Other Changes

Supplier Finance Obligations As of January 1, 2023, we adopted, with retrospective application, the Financial Accounting Standards Board’s (FASB) Accounting Standards Update (ASU) No. 2022-04, “Liabilities – Supplier Finance Programs (Subtopic 405-50): Disclosure of Supplier Finance Program Obligations” (ASU 2022-04), which establishes interim and annual reporting disclosure requirements about a company’s supplier finance programs for its purchase of goods and services. Interim and annual requirements include disclosure of outstanding amounts under the obligations as of the end of the reporting period, and annual requirements include a rollforward of those obligations for the annual reporting period, as well as a description of payment and other key terms of the programs. The annual rollforward requirement becomes effective for annual periods beginning after December 15, 2023, with prospective application. The standard allows early adoption of this requirement. In the year of adoption, the disclosure of payment and other key terms under the programs and outstanding balances under the obligations also applies to interim reporting dates.

AT&T INC.

MARCH 31, 2023

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued

Dollars in millions except per share amounts

NOTE 2. EARNINGS PER SHARE

A reconciliation of the numerators and denominators of basic and diluted earnings per share for the three months ended March 31, 2023 and 2022, is shown in the table below:


	Three months ended
	March 31,
		2023		2022
Numerators
Numerator for basic earnings per share:
Income from continuing operations, net of tax		$	4,453	$	5,149
Net income from continuing operations attributable to noncontrolling interests		(225)		(354)
Preferred Stock Dividends		(52)		(48)
Income from continuing operations attributable to common stock		4,176		4,747


Income from discontinued operations attributable to common stock		—		15
Net Income Attributable to Common Stock		$	4,176	$	4,762
Dilutive potential common shares:
Mobility preferred interests		72		140
Share-based payment		4		6
Numerator for diluted earnings per share		$	4,252	$	4,908
Denominators (000,000)
Denominator for basic earnings per share:
Weighted average number of common shares outstanding		7,168		7,184
Dilutive potential common shares:
Mobility preferred interests (in shares)		284		337
Share-based payment (in shares)		22		35
Denominator for diluted earnings per share		7,474		7,556

Under ASU No. 2020-06, “Debt—Debt With Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity” (ASU 2020-06), the ability to settle our Series A Cumulative Perpetual Preferred Membership Interests in AT&T Mobility II LLC (Mobility preferred interests) in stock is reflected in our diluted earnings per share calculation. While our intent is to settle the Mobility preferred interests in cash, the ability to settle this instrument in AT&T shares will result in additional dilutive impact, the magnitude of which is influenced by the fair value of the Mobility preferred interests and the average AT&T common stock price during the reporting period, which could vary from period-to-period. On April 5, 2023, we repurchased the remaining Mobility preferred interests and our calculation of diluted earnings per share will not reflect the dilutive potential of these instruments for the quarterly periods after the repurchase.

AT&T INC.

MARCH 31, 2023

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued

Dollars in millions except per share amounts

NOTE 3. OTHER COMPREHENSIVE INCOME

Changes in the balances of each component included in accumulated OCI are presented below. All amounts are net of tax and exclude noncontrolling interest.


	Foreign Currency Translation Adjustment			Net Unrealized Gains (Losses) on Securities			Net Unrealized Gains (Losses) on Derivative Instruments			Defined Benefit Postretirement Plans			Accumulated Other Comprehensive Income (Loss)
Balance as of December 31, 2022	$	(1,800)		$	(90)		$	(1,998)		$	6,654		$	2,766
Other comprehensive income (loss) before reclassifications	193			23			(152)			—			64
Amounts reclassified from accumulated OCI	—		1	3		1	12		2	(491)		3	(476)

Net other comprehensive income (loss)	193			26			(140)			(491)			(412)
Balance as of March 31, 2023	$	(1,607)		$	(64)		$	(2,138)		$	6,163		$	2,354

	Foreign Currency Translation Adjustment			Net Unrealized Gains (Losses) on Securities			Net Unrealized Gains (Losses) on Derivative Instruments			Defined Benefit Postretirement Plans			Accumulated Other Comprehensive Income (Loss)
Balance as of December 31, 2021	$	(1,964)		$	45		$	(1,422)		$	6,870		$	3,529
Other comprehensive income (loss) before reclassifications	19			(69)			258			—			208
Amounts reclassified from accumulated OCI	—		1	3		1	15		2	(465)		3	(447)

Net other comprehensive income (loss)	19			(66)			273			(465)			(239)
Balance as of March 31, 2022	$	(1,945)		$	(21)		$	(1,149)		$	6,405		$	3,290
1(Gains) losses are included in “Other income (expense) - net” in the consolidated statements of income.
2(Gains) losses are primarily included in “Interest expense” in the consolidated statements of income (see Note 7).
3The amortization of prior service credits associated with postretirement benefits are included in “Other income (expense) - net” in the consolidated statements of income (see Note 6).

NOTE 4. SEGMENT INFORMATION

Our segments are comprised of strategic business units or other operations that offer products and services to different customer segments over various technology platforms and/or in different geographies that are managed accordingly. We have two reportable segments: Communications and Latin America.

We also evaluate segment and business unit performance based on EBITDA and/or EBITDA margin, which is defined as operating income excluding depreciation and amortization. EBITDA is used as part of our management reporting and we believe EBITDA to be a relevant and useful measurement to our investors as it measures the cash generation potential of our business units. EBITDA does not give effect to depreciation and amortization expenses incurred in operating income nor is it burdened by cash used for debt service requirements and thus does not reflect available funds for distributions, reinvestment or other discretionary uses. EBITDA margin is EBITDA divided by total revenue.

AT&T INC.

MARCH 31, 2023

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued

Dollars in millions except per share amounts

Effective for the first quarter of 2023, we no longer record prior service credits to our individual business units or the corresponding charge to Corporate and Other, and segment operating expenses were recast to remove prior service credits from our historical reporting. Prior service credits are, and will continue to be, recorded as other income in our consolidated income statement in accordance with GAAP. This recast increased Communications segment operations and support expenses by approximately $2,400 for full-year 2022. Correspondingly, this recast lowered administrative expenses within Corporate and Other, with no change on a consolidated basis.

The Communications segment provides wireless and wireline telecom and broadband services to consumers located in the U.S. and businesses globally. Our business strategies reflect bundled product offerings that cut across product lines and utilize shared assets. This segment contains the following business units:

Mobility** provides nationwide wireless service and equipment.
Business Wireline** provides advanced ethernet-based fiber services, IP Voice and managed professional services, as well as traditional voice and data services and related equipment to business customers.
Consumer Wireline** provides broadband services, including fiber connections that now provide our multi-gig services to residential customers in select locations. Consumer Wireline also provides legacy telephony voice communication services.

The Latin America segment provides wireless services and equipment in Mexico.

Corporate and Other reconciles our segment results to consolidated operating income and income before income taxes.

Corporate includes*:*

DTV-related retained costs, which are costs previously allocated to the Video business that were retained after the transaction, net of reimbursements from DIRECTV under transition service agreements.
Parent administration support, which includes costs borne by AT&T where the business units do not influence decision making.
Securitization fees associated with our sales of receivables (see Note 8).
Value portfolio, which are businesses no longer integral to our operations or which we no longer actively market.

Other items consist of*:*

Certain significant items, which includes items associated with the merger and integration of acquired or divested businesses, including amortization of intangible assets, employee separation charges associated with voluntary and/or strategic offers, asset impairments and abandonments, and other items for which the segments are not being evaluated.

“Interest expense” and “Other income (expense) – net” are managed only on a total company basis and are, accordingly, reflected only in consolidated results.

AT&T INC.

MARCH 31, 2023

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued

Dollars in millions except per share amounts


For the three months ended March 31, 2023
	Revenues		Operations and Support Expenses		EBITDA		Depreciation and Amortization		Operating Income (Loss)
Communications
Mobility	$	20,582	$	12,213	$	8,369	$	2,098	$	6,271
Business Wireline	5,331		3,623		1,708		1,330		378
Consumer Wireline	3,239		2,284		955		861		94
Total Communications	29,152		18,120		11,032		4,289		6,743
Latin America - Mexico	883		738		145		175		(30)
Segment Total	30,035		18,858		11,177		4,464		6,713
Corporate and Other
Corporate:
DTV-related retained costs	—		169		(169)		144		(313)
Parent administration support	(9)		374		(383)		1		(384)
Securitization fees	19		121		(102)		—		(102)
Value portfolio	94		28		66		5		61
Total Corporate	104		692		(588)		150		(738)


Certain significant items	—		(44)		44		17		27

Total Corporate and Other	104		648		(544)		167		(711)
AT&T Inc.	$	30,139	$	19,506	$	10,633	$	4,631	$	6,002


For the three months ended March 31, 2022
	Revenues		Operations and Support Expenses		EBITDA		Depreciation and Amortization		Operating Income (Loss)
Communications
Mobility	$	20,075	$	12,327	$	7,748	$	2,059	$	5,689
Business Wireline	5,640		3,702		1,938		1,299		639
Consumer Wireline	3,161		2,236		925		766		159
Total Communications	28,876		18,265		10,611		4,124		6,487
Latin America - Mexico	690		631		59		161		(102)
Segment Total	29,566		18,896		10,670		4,285		6,385
Corporate and Other
Corporate:
DTV-related retained costs	8		160		(152)		134		(286)
Parent administration support	(12)		347		(359)		6		(365)
Securitization fees	16		82		(66)		—		(66)
Value portfolio	134		37		97		10		87
Total Corporate	146		626		(480)		150		(630)
Certain significant items	—		191		(191)		27		(218)
Total Corporate and Other	146		817		(671)		177		(848)
AT&T Inc.	$	29,712	$	19,713	$	9,999	$	4,462	$	5,537

AT&T INC.

MARCH 31, 2023

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued

Dollars in millions except per share amounts

The following table is a reconciliation of Segment Operating Income to “Income from Continuing Operations Before Income Taxes” reported in our consolidated statements of income:


	Three months ended March 31,
		2023		2022
Communications		$	6,743	$	6,487
Latin America		(30)		(102)
Segment Operating Income		6,713		6,385
Reconciling Items:
Corporate		(738)		(630)
Transaction and other costs		—		(98)
Amortization of intangibles acquired		(17)		(27)

Benefit-related gains (losses)		44		(93)



AT&T Operating Income		6,002		5,537
Interest expense		1,708		1,626
Equity in net income of affiliates		538		521
Other income (expense) — net		935		2,157
Income from Continuing Operations Before Income Taxes		$	5,767	$	6,589

NOTE 5. REVENUE RECOGNITION

Revenue Categories

The following tables set forth reported revenue by category and by business unit:


For the three months ended March 31, 2023
	Communications
	Mobility		Business Wireline		Consumer Wireline		Latin America		Corporate & Other		Total
Wireless service	$	15,483	$	—	$	—	$	591	$	—	$	16,074
Business service	—		5,200		—		—		—		5,200
Broadband	—		—		2,527		—		—		2,527

Legacy voice and data	—		—		396		—		83		479
Other	—		—		316		—		21		337
Total Service	15,483		5,200		3,239		591		104		24,617
Equipment	5,099		131		—		292		—		5,522
Total	$	20,582	$	5,331	$	3,239	$	883	$	104	$	30,139

AT&T INC.

MARCH 31, 2023

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued

Dollars in millions except per share amounts


For the three months ended March 31, 2022
	Communications
	Mobility		Business Wireline		Consumer Wireline		Latin America		Corporate & Other		Total
Wireless service	$	14,724	$	—	$	—	$	490	$	—	$	15,214
Business service	—		5,478		—		—		—		5,478
Broadband	—		—		2,355		—		—		2,355

Legacy voice and data	—		—		460		—		89		549
Other	—		—		346		—		57		403
Total Service	14,724		5,478		3,161		490		146		23,999
Equipment	5,351		162		—		200		—		5,713
Total	$	20,075	$	5,640	$	3,161	$	690	$	146	$	29,712

Deferred Customer Contract Acquisition and Fulfillment Costs

Costs to acquire and fulfill customer contracts, including commissions on service activations, for our Mobility, Business Wireline, and Consumer Wireline services, are deferred and amortized over the contract period or expected customer relationship life, which typically ranges from three years to five years.

The following table presents the deferred customer contract acquisition and fulfillment costs included on our consolidated balance sheets:


	March 31,		December 31,
Consolidated Balance Sheets	2023		2022
Deferred Acquisition Costs
Prepaid and other current assets	$	2,988	$	2,893
Other Assets	3,962		3,913
Total deferred customer contract acquisition costs	$	6,950	$	6,806
Deferred Fulfillment Costs
Prepaid and other current assets	$	2,433	$	2,481
Other Assets	4,133		4,206
Total deferred customer contract fulfillment costs	$	6,566	$	6,687

The following table presents deferred customer contract acquisition and fulfillment cost amortization included in “Other cost of revenue” for the three months ended:


	March 31,		March 31,
Consolidated Statements of Income	2023		2022
Deferred acquisition cost amortization	$	830	$	663
Deferred fulfillment cost amortization	678		664

Contract Assets and Liabilities

A contract asset is recorded when revenue is recognized in advance of our right to bill and receive consideration. The contract asset will decrease as services are provided and billed. For example, when installment sales include promotional discounts (e.g., “buy one get one free”), the difference between revenue recognized and consideration received is recorded as a contract asset to be amortized over the contract term.

Our contract assets primarily relate to our wireless businesses. Promotional equipment sales where we offer handset credits, which are allocated between equipment and service in proportion to their standalone selling prices, when customers commit to a

AT&T INC.

MARCH 31, 2023

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued

Dollars in millions except per share amounts

specified service period result in additional contract assets recognized. These contract assets will amortize over the service contract period, resulting in lower future service revenue.

When consideration is received in advance of the delivery of goods or services, a contract liability is recorded. Reductions in the contract liability will be recorded as we satisfy the performance obligations.

The following table presents contract assets and liabilities on our consolidated balance sheets:


	March 31,		December 31,
Consolidated Balance Sheets	2023		2022
Contract asset	$	5,812	$	5,512
Current portion in “Prepaid and other current assets”	3,058		2,941
Contract liability	4,158		4,170
Current portion in “Advanced billings and customer deposits”	3,818		3,816

Our contract asset balances for the quarter ended March 31, 2023 and December 31, 2022 reflect increased promotional equipment sales in our wireless business.

Our beginning of period contract liability recorded as customer contract revenue during 2023 was $2,821.

Remaining Performance Obligations

Remaining performance obligations represent services we are required to provide to customers under bundled or discounted arrangements, which are satisfied as services are provided over the contract term. In determining the transaction price allocated, we do not include non-recurring charges and estimates for usage, nor do we consider arrangements with an original expected duration of less than one year, which are primarily prepaid wireless and residential internet agreements.

Remaining performance obligations associated with business contracts reflect recurring charges billed, adjusted to reflect estimates for sales incentives and revenue adjustments. Performance obligations associated with wireless contracts are estimated using a portfolio approach in which we review all relevant promotional activities, calculating the remaining performance obligation using the average service component for the portfolio and the average device price. As of March 31, 2023, the aggregate amount of the transaction price allocated to remaining performance obligations was $36,722, of which we expect to recognize approximately 70% by the end of 2024, with the balance recognized thereafter.

NOTE 6. PENSION AND POSTRETIREMENT BENEFITS

Many of our employees are covered by one of our noncontributory pension plans. We also provide certain medical, dental, life insurance and death benefits to certain retired employees under various plans and accrue actuarially determined postretirement benefit costs. Our objective in funding these plans, in combination with the standards of the Employee Retirement Income Security Act of 1974, as amended (ERISA), is to accumulate assets sufficient to provide benefits described in the plans to employees upon their retirement. We do not have significant funding requirements in 2023.

We recognize actuarial gains and losses on pension and postretirement plan assets in our consolidated results as a component of “Other income (expense) – net” at our annual measurement date of December 31, unless earlier remeasurements are required.

AT&T INC.

MARCH 31, 2023

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued

Dollars in millions except per share amounts

The following table details qualified pension and postretirement benefit costs included in the accompanying consolidated statements of income. The service cost component of net periodic pension (credit) cost is recorded in operating expenses in the consolidated statements of income while the remaining components are recorded in “Other income (expense) – net.”


	Three months ended
	March 31,
	2023		2022
Pension cost:
Service cost – benefits earned during the period	$	121	$	183
Interest cost on projected benefit obligation	516		320
Expected return on assets	(714)		(868)
Amortization of prior service credit	(33)		(33)
Net pension (credit) cost before remeasurement	(110)		(398)
Actuarial (gain) loss	—		(1,012)
Net pension (credit) cost	$	(110)	$	(1,410)

Postretirement cost:
Service cost – benefits earned during the period	$	6	$	9
Interest cost on accumulated postretirement benefit obligation	85		63
Expected return on assets	(33)		(32)
Amortization of prior service credit	(618)		(582)


Net postretirement (credit) cost	$	(560)	$	(542)
Combined net pension and postretirement (credit) cost	$	(670)	$	(1,952)

We also provide senior- and middle-management employees with nonqualified, unfunded supplemental retirement and savings plans. Net supplemental pension benefits costs not included in the table above were $19 and $12 for the first quarter ended 2023 and 2022, respectively, predominantly due to higher interest costs.

NOTE 7. FAIR VALUE MEASUREMENTS AND DISCLOSURE

The Fair Value Measurement and Disclosure framework in ASC 820, “Fair Value Measurement,” provides a three-tiered fair value hierarchy based on the reliability of the inputs used to determine fair value. Level 1 refers to fair values determined based on quoted prices in active markets for identical assets. Level 2 refers to fair values estimated using significant other observable inputs and Level 3 includes fair values estimated using significant unobservable inputs.

The level of an asset or liability within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Our valuation techniques maximize the use of observable inputs and minimize the use of unobservable inputs.

The valuation methodologies described above may produce a fair value calculation that may not be indicative of future net realizable value or reflective of future fair values. We believe our valuation methods are appropriate and consistent with other market participants. The use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different fair value measurement at the reporting date. There have been no changes in the methodologies used since December 31, 2022.

AT&T INC.

MARCH 31, 2023

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued

Dollars in millions except per share amounts

Long-Term Debt and Other Financial Instruments

The carrying amounts and estimated fair values of our long-term debt, including current maturities, and other financial instruments are summarized as follows:


	March 31, 2023				December 31, 2022
	Carrying		Fair		Carrying		Fair
	Amount		Value		Amount		Value
Notes and debentures1	$	132,260	$	126,075	$	133,207	$	122,524
Commercial paper	3,258		3,258		866		866

Investment securities2	2,762		2,762		2,692		2,692
1Includes credit agreement borrowings.
2Excludes investments accounted for under the equity method.

The carrying amount of debt with an original maturity of less than one year approximates fair value. The fair value measurements used for notes and debentures are considered Level 2 and are determined using various methods, including quoted prices for identical or similar securities in both active and inactive markets.

Following is the fair value leveling for investment securities that are measured at fair value and derivatives as of March 31, 2023 and December 31, 2022. Derivatives designated as hedging instruments are reflected as “Other Assets,” “Other noncurrent liabilities,” “Prepaid and other current assets” and “Accounts payable and accrued liabilities” on our consolidated balance sheets.


	March 31, 2023
	Level 1		Level 2		Level 3		Total
Equity Securities
Domestic equities	$	986	$	—	$	—	$	986
International equities	184		—		—		184
Fixed income equities	203		—		—		203
Available-for-Sale Debt Securities	—		1,214		—		1,214
Asset Derivatives
Interest rate swaps	—		7		—		7
Cross-currency swaps	—		45		—		45


Liability Derivatives

Cross-currency swaps	—		(5,485)		—		(5,485)

Foreign exchange contracts	—		(20)		—		(20)


	December 31, 2022
	Level 1		Level 2		Level 3		Total
Equity Securities
Domestic equities	$	995	$	—	$	—	$	995
International equities	198		—		—		198
Fixed income equities	189		—		—		189
Available-for-Sale Debt Securities	—		1,132		—		1,132
Asset Derivatives

Cross-currency swaps	—		28		—		28


Liability Derivatives

Cross-currency swaps	—		(6,010)		—		(6,010)

Foreign exchange contracts	—		(23)		—		(23)

AT&T INC.

MARCH 31, 2023

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued

Dollars in millions except per share amounts

Investment Securities

Our investment securities include both equity and debt securities that are measured at fair value, as well as equity securities without readily determinable fair values. A substantial portion of the fair values of our investment securities is estimated based on quoted market prices. Investments in equity securities not traded on a national securities exchange are valued at cost, less any impairment, and adjusted for changes resulting from observable, orderly transactions for identical or similar securities. Investments in debt securities not traded on a national securities exchange are valued using pricing models, quoted prices of securities with similar characteristics or discounted cash flows.

The components comprising total gains and losses in the period on equity securities are as follows:


	Three months ended
	March 31,
		2023		2022
Total gains (losses) recognized on equity securities		$	83	$	(95)
Gains (losses) recognized on equity securities sold		4		(7)
Unrealized gains (losses) recognized on equity securities held at end of period		$	79	$	(88)

At March 31, 2023, available-for-sale debt securities totaling $1,214 have maturities as follows - less than one year: $39; one to three years: $192; three to five years: $167; five or more years: $816.

Our cash equivalents (money market securities), short-term investments (certificate and time deposits) and nonrefundable customer deposits are recorded at amortized cost, and the respective carrying amounts approximate fair values. Short-term investments and nonrefundable customer deposits are recorded in “Prepaid and other current assets” and our investment securities are recorded in “Other Assets” on the consolidated balance sheets.

Derivative Financial Instruments

We enter into derivative transactions to manage certain market risks, primarily interest rate risk and foreign currency exchange risk. This includes the use of interest rate swaps, interest rate locks, foreign exchange forward contracts and combined interest rate foreign exchange contracts (cross-currency swaps). We do not use derivatives for trading or speculative purposes. We record derivatives on our consolidated balance sheets at fair value that is derived from observable market data, including yield curves and foreign exchange rates (all of our derivatives are Level 2). Cash flows associated with derivative instruments are presented in the same category on the consolidated statements of cash flows as the item being hedged.

Fair Value Hedging Periodically, we enter into and designate fixed-to-floating interest rate swaps as fair value hedges. The purpose of these swaps is to manage interest rate risk by managing our mix of fixed-rate and floating-rate debt. These swaps involve the receipt of fixed-rate amounts for floating interest rate payments over the life of the swaps without exchange of the underlying principal amount.

We also designate most of our cross-currency swaps and foreign exchange contracts as fair value hedges. The purpose of these contracts is to hedge foreign currency risk associated with changes in spot rates on foreign denominated debt. For cross-currency hedges, we have elected to exclude the change in fair value of the swap related to both time value and cross-currency basis spread from the assessment of hedge effectiveness. For foreign exchange contracts, we have elected to exclude the change in fair value of forward points from the assessment of hedge effectiveness.

Unrealized and realized gains or losses from fair value hedges impact the same category on the consolidated statements of income as the item being hedged, including the earnings impact of excluded components. In instances where we have elected to exclude components from the assessment of hedge effectiveness related to fair value hedges, unrealized gains or losses on such excluded components are recorded as a component of accumulated OCI and recognized into earnings over the life of the hedging instrument. Unrealized gains on derivatives designated as fair value hedges are recorded at fair value as assets, and unrealized losses are recorded at fair market value as liabilities. Except for excluded components, changes in the fair value of derivative instruments designated as fair value hedges are offset against the change in fair value of the hedged assets or liabilities through earnings. In the three months ended March 31, 2023 and 2022, no ineffectiveness was measured on fair value hedges.

AT&T INC.

MARCH 31, 2023

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued

Dollars in millions except per share amounts

Cash Flow Hedging We designate some of our cross-currency swaps as cash flow hedges to hedge our exposure to variability in expected future cash flows that are attributable to foreign currency risk and interest rate risk generated from our foreign-denominated debt. These agreements include initial and final exchanges of principal from fixed foreign denominated amounts to fixed U.S. dollar denominated amounts, to be exchanged at a specified rate that is usually determined by the market spot rate upon issuance. They also include an interest rate swap of a fixed or floating foreign denominated interest rate to a fixed U.S. dollar denominated interest rate.

On September 30, 2022, we de-designated most of our cross-currency swaps from cash flow hedges and re-designated these swaps as fair value hedges. The amount remaining in accumulated other comprehensive loss related to cash flow hedges on the de-designation date was $1,857. The amount will be reclassified to earnings when the hedged item is recognized in earnings or when it becomes probable that the forecasted transactions will not occur. The election of fair value hedge designation for cross-currency swaps does not have an impact on our financial results.

Unrealized gains on derivatives designated as cash flow hedges are recorded at fair value as assets and unrealized losses are recorded at fair value as liabilities. For derivative instruments designated as cash flow hedges, changes in fair value are reported as a component of accumulated OCI and are reclassified into the consolidated statements of income in the same period the hedged transaction affects earnings.

Periodically, we enter into and designate interest rate locks to partially hedge the risk of changes in interest payments attributable to increases in the benchmark interest rate during the period leading up to the probable issuance of fixed-rate debt. We designate our interest rate locks as cash flow hedges. Gains and losses when we settle our interest rate locks are amortized into income over the life of the related debt. Over the next 12 months, we expect to reclassify $59 from accumulated OCI to “Interest expense” due to the amortization of net losses on historical interest rate locks.

Collateral and Credit-Risk Contingency We have entered into agreements with our derivative counterparties establishing collateral thresholds based on respective credit ratings and netting agreements. At March 31, 2023, we had posted collateral of $50 (a deposit asset) and held collateral of $0 (a receipt liability). Under the agreements, if AT&T’s credit rating had been downgraded two ratings levels by Fitch Ratings, one level by S&P and one level by Moody’s before the final collateral exchange in March, we would have been required to post additional collateral of $55. If AT&T’s credit rating had been downgraded three ratings levels by Fitch Ratings, two levels by S&P, and two levels by Moody’s, we would have been required to post additional collateral of $5,348. At December 31, 2022, we had posted collateral of $886 (a deposit asset) and held collateral of $0 (a receipt liability). We do not offset the fair value of collateral, whether the right to reclaim cash collateral (a receivable) or the obligation to return cash collateral (a payable) exists, against the fair value of the derivative instruments.

Following are the notional amounts of our outstanding derivative positions:


	March 31,			December 31,
2023			2022
Interest rate swaps	$	1,750		$	—
Cross-currency swaps	37,908			38,213

Foreign exchange contracts	617			617
Total	$	40,275		$	38,830

AT&T INC.

MARCH 31, 2023

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued

Dollars in millions except per share amounts

Following are the related hedged items affecting our financial position and performance:


Effect of Derivatives on the Consolidated Statements of Income
	Three months ended
	March 31,
Fair Value Hedging Relationships		2023		2022
Interest rate swaps (“Interest expense”):
Gain (loss) on interest rate swaps		$	7	$	(1)
Gain (loss) on long-term debt		(7)		1
Cross-currency swaps:
Gain (loss) on cross-currency swaps		380		(37)
Gain (loss) on long-term debt		(380)		37
Gain (loss) recognized in accumulated OCI		(182)		9
Foreign exchange contracts:
Gain (loss) on foreign exchange contracts		7		—
Gain (loss) on long-term debt		(7)		—
Gain (loss) recognized in accumulated OCI		(3)		—

In addition, the net swap settlements that accrued and settled in the periods above were offset against “Interest expense.”

The following table presents information for our cash flow hedging relationships:


	Three months ended
	March 31,
Cash Flow Hedging Relationships		2023		2022
Cross-currency swaps:
Gain (loss) recognized in accumulated OCI		$	(10)	$	315
Foreign exchange contracts:
Gain (loss) recognized in accumulated OCI		—		3
Other income (expense) - net reclassified from accumulated OCI into income		—		1
Interest rate locks:

Interest income (expense) reclassified from accumulated OCI into income		(15)		(20)

NOTE 8. SALES OF RECEIVABLES

We have agreements with various third-party financial institutions pertaining to the sales of certain types of our accounts receivable. The most significant of these programs consists of receivables arising from equipment installment plans, which are sold for cash and a deferred purchase price. Under this program, we transfer receivables to purchasers in exchange for cash and additional consideration upon settlement of the receivables. Under the terms of our agreement for this program, we continue to service the transferred receivables on behalf of the financial institutions.

AT&T INC.

MARCH 31, 2023

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued

Dollars in millions except per share amounts

The following table sets forth a summary of cash proceeds received, net of remittances paid, from sales of receivables during the three months ended March 31, 2023 and 2022 that are included in cash flows from operating activities:


	Three months ended
	March 31,
		2023		2022
Net cash received from equipment installment receivables1		$	10	$	1,026
Net cash (paid) received from other programs		(114)		288
Total net cash impact to cash flows from operating activities		$	(104)	$	1,314
1Net cash from initial sales of $2,529 and $3,316 during the three months ended March 31, 2023 and 2022, respectively.

The sales of receivables did not have a material impact on our consolidated statements of income or to “Total Assets” reported on our consolidated balance sheets. We reflect cash receipts on sold receivables as cash flows from operations in our consolidated statements of cash flows. Cash receipts on the deferred purchase price are classified as cash flows from investing activities, when applicable.

The following table sets forth a summary of the equipment installment receivables and accounts being serviced:


	March 31, 2023		December 31, 2022


Gross receivables:	$	4,109		$	4,165
Balance sheet classification
Accounts receivable
Notes receivable	1,387			1,789
Trade receivables	610			522
Other Assets
Noncurrent notes and trade receivables	2,112			1,854

Outstanding portfolio of receivables derecognized from our consolidated balance sheets	$	11,221		$	11,030
Cash proceeds received, net of remittances1	8,529			8,519
1Represents amounts to which financial institutions remain entitled, excluding the deferred purchase price.

We offer our customers the option to purchase certain wireless devices in installments over a specified period of time and, in many cases, once certain conditions are met, they may be eligible to trade in the original equipment for a new device and have the remaining unpaid balance paid or settled.

We maintain a program under which we transfer a portion of these receivables through our bankruptcy-remote subsidiary in exchange for cash and additional consideration upon settlement of the receivables, referred to as the deferred purchase price. In the event a customer trades in a device prior to the end of the installment contract period, we agree to make a payment to the financial institutions equal to any outstanding remaining installment receivable balance. Accordingly, we record a guarantee obligation for this estimated amount at the time the receivables are transferred.

AT&T INC.

MARCH 31, 2023

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued

Dollars in millions except per share amounts

The following table sets forth a summary of equipment installment receivables sold under this program during the three months ended March 31, 2023 and 2022:


	Three months ended
	March 31,
		2023		2022
Gross receivables sold1		$	2,560	$	3,601
Net receivables sold2		2,438		3,478
Cash proceeds received		2,529		3,316
Deferred purchase price recorded		—		245
Guarantee obligation recorded		206		152
1Receivables net of promotion credits.
2Receivables net of allowance, imputed interest and equipment trade-in right guarantees.

The deferred purchase price and guarantee obligation are initially recorded at estimated fair value and subsequently adjusted for changes in present value of expected cash flows. The estimation of their fair values is based on remaining installment payments expected to be collected and the expected timing and value of device trade-ins. The estimated value of the device trade-ins considers prices offered to us by independent third parties and contemplate changes in value after the launch of a device model. The fair value measurements used for the deferred purchase price and the guarantee obligation are considered Level 3 under the Fair Value Measurement and Disclosure framework (see Note 7).

The following table presents the previously transferred equipment installment receivables, which we repurchased in exchange for the associated deferred purchase price during the three months ended March 31, 2023 and 2022:


	Three months ended
	March 31,
		2023		2022
Fair value of repurchased receivables		$	541	$	905
Carrying value of deferred purchase price		542		902
Gain (loss) on repurchases1		$	(1)	$	3
1These gains (losses) are included in “Selling, general and administrative” expense in the consolidated statements of income.

At March 31, 2023 and December 31, 2022, our deferred purchase price receivable was $2,451 and $2,318, respectively, of which $1,395 and $1,278 are included in “Prepaid and other current assets” on our consolidated balance sheets, with the remainder in “Other Assets.” The guarantee obligation at March 31, 2023 and December 31, 2022 was $399 and $419, respectively, of which $55 and $73 are included in “Accounts payable and accrued liabilities” on our consolidated balance sheets, with the remainder in “Other noncurrent liabilities.” Our maximum exposure to loss as a result of selling these equipment installment receivables is limited to the total amount of our deferred purchase price and guarantee obligation.

NOTE 9. LEASES

We have operating and finance leases for certain facilities and equipment used in operations. Our leases generally have remaining lease terms of up to 15 years. Some of our real estate operating leases contain renewal options that may be exercised, and some of our leases include options to terminate the lease within one year.

We have recognized a right-of-use asset for both operating and finance leases and an operating lease liability that represents the present value of our obligation to make payments over the lease term. The present value of the lease payments is calculated using the incremental borrowing rate for operating and finance leases, which was determined using a portfolio approach based on the rate of interest that we would have to pay to borrow an amount equal to the lease payments on a collateralized basis over a similar term. We use the unsecured borrowing rate and risk-adjust that rate to approximate a collateralized rate in the currency of the lease, which will be updated on a quarterly basis for measurement of new lease liabilities.

AT&T INC.

MARCH 31, 2023

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued

Dollars in millions except per share amounts

The components of lease expense were as follows:


	Three months ended
	March 31,
		2023		2022
Operating lease cost		$	1,395	$	1,347

Finance lease cost:
Amortization of right-of-use assets		$	57	$	45
Interest on lease obligation		46		37
Total finance lease cost		$	103	$	82

The following table provides supplemental cash flows information related to leases:


	Three months ended
	March 31,
	2023		2022
Cash Flows from Operating Activities
Cash paid for amounts included in lease obligations:
Operating cash flows for operating leases	$	1,166	$	1,173
Supplemental Lease Cash Flow Disclosures
Operating lease right-of-use assets obtained in exchange for new operating lease obligations	707		689

The following tables set forth supplemental balance sheet information related to leases:


	March 31, 2023		December 31, 2022
Operating Leases
Operating lease right-of-use assets	$	21,619	$	21,814

Accounts payable and accrued liabilities	$	3,530	$	3,547
Operating lease obligation	18,413		18,659
Total operating lease obligation	$	21,943	$	22,206
Finance Leases
Property, plant and equipment, at cost	$	2,972	$	2,770
Accumulated depreciation and amortization	(1,314)		(1,224)
Property, plant and equipment, net	$	1,658	$	1,546

Current portion of long-term debt	$	209	$	170
Long-term debt	1,758		1,647
Total finance lease obligation	$	1,967	$	1,817

AT&T INC.

MARCH 31, 2023

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued

Dollars in millions except per share amounts



	March 31,
	2023		2022
Weighted-Average Remaining Lease Term (years)
Operating leases	8.1		8.2
Finance leases	7.3		8.5

Weighted-Average Discount Rate
Operating leases	3.8	%	3.7	%
Finance leases	7.8	%	8.1	%

The following table provides the expected future minimum maturities of lease obligations:


At March 31, 2023	Operating		Finance
	Leases		Leases
Remainder of 2023	$	3,537	$	273
2024	4,309		364
2025	3,652		367
2026	2,942		309
2027	2,415		306
Thereafter	9,427		1,091
Total lease payments	26,282		2,710
Less: imputed interest	(4,339)		(743)
Total	$	21,943	$	1,967

NOTE 10. TRANSACTIONS WITH DIRECTV

We account for our investment in DIRECTV under the equity method and record our share of DIRECTV earnings as equity in net income of affiliates, with DIRECTV considered a related party.

Our share of DIRECTV’s earnings included in equity in net income of affiliates was $534 and $522 for the three months ended March 31, 2023 and 2022, respectively. Cash distributions from DIRECTV for the first three months of 2023 totaled $1,308, with $534 classified as operating activities and $774 classified as investing activities in our consolidated statement of cash flows versus total cash distributions of $1,837 ($522 operating and $1,315 investing) in the comparable prior period. Our investment in DIRECTV at March 31, 2023 was $2,142.

During the first three months of 2023, we repaid all outstanding notes payable to DIRECTV.

We provide DIRECTV with network transport for U-verse products and sales services under commercial arrangements for up to five years. Under separate transition services agreements, we provide DIRECTV certain operational support, including servicing of certain of their customer receivables for up to three years. For the three months ended March 31, 2023, we billed DIRECTV approximately $240 for these costs, which were recorded as a reduction to the operations and support expenses incurred and resulted in net retained costs to AT&T of $169 in the first quarter of 2023.

At March 31, 2023, we had accounts receivable from DIRECTV of $320 and accounts payable to DIRECTV of $80.

We are not committed, implicitly or explicitly to provide financial or other support, other than as noted above, as our involvement with DIRECTV is limited to the carrying amount of the assets and liabilities recognized on our balance sheet.

AT&T INC.

MARCH 31, 2023

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued

Dollars in millions except per share amounts

NOTE 11. SUPPLIER AND VENDOR FINANCING PROGRAMS

Supplier Financing Program

We actively manage the timing of our supplier payments for operating items to optimize the use of our cash and seek to make payments on 90-day or greater terms, while providing suppliers with access to bank facilities that permit earlier payment at their cost. Our supplier financing program does not result in changes to our normal, contracted payment cycles or cash from operations.

At the supplier’s election, they can receive payment of AT&T obligations prior to the scheduled due dates, at a discounted price to the third-party financial institution. The discounted price paid by participating suppliers is based on a variable rate that is indexed to the overnight borrowing rate. We agree to pay the financial institution the stated amount generally within 90 days of receipt of the invoice. We do not have pledged assets or other guarantees under our supplier financing program.

Based on data from our financial institution partners, suppliers had elected to sell $2,557 of our outstanding payment obligations as of March 31, 2023 and $2,869 as of December 31, 2022, which are included in “Accounts payable and accrued liabilities” on our consolidated balance sheets. Our supplier financing programs are reported as operating or investing (when capitalizable) activities in our statements of cash flows when paid.

Direct Supplier Financing

We also have arrangements with suppliers of handset inventory that allow us to extend the stated payment terms by up to 90 days at an additional cost to us (variable rate extension fee). All payments are due within one year. We had $5,129 of direct supplier financing outstanding at March 31, 2023 and $5,486 as of December 31, 2022, which are included in “Accounts payable and accrued liabilities” on our consolidated balance sheets. Our direct supplier financing is reported as operating activities in our statements of cash flows when paid.

Vendor Financing

In connection with capital improvements and the acquisition of other productive assets, we negotiate favorable payment terms of 120 days or more (referred to as vendor financing), which are reported as financing activities in our statements of cash flows when paid. For the three months ended March 31, 2023 and 2022, we recorded vendor financing commitments related to capital investments of approximately $1,021 and $954, respectively. We had $5,003 vendor financing payables at March 31, 2023, with $3,531 included in “Accounts payable and accrued liabilities” and $6,147 vendor financing payables at December 31, 2022, with $4,592 included in “Accounts payable and accrued liabilities.”

NOTE 12. ADDITIONAL FINANCIAL INFORMATION

Cash and Cash Flows

We typically maintain our restricted cash balances for purchases and sales of certain investment securities and funding of certain deferred compensation benefit payments.

The following table summarizes cash and cash equivalents and restricted cash balances contained on our consolidated balance sheets:


	March 31,				December 31,
	2023		2022		2022		2021
Cash and cash equivalents from continuing operations	$	2,821	$	17,084	$	3,701	$	19,223
Cash and cash equivalents from discontinued operations	—		21,481		—		1,946
Restricted cash in Prepaid and other current assets	1		2		1		3
Restricted cash in Other Assets	120		81		91		144
Cash and Cash Equivalents and Restricted Cash	$	2,942	$	38,648	$	3,793	$	21,316

AT&T INC.

MARCH 31, 2023

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued

Dollars in millions except per share amounts

The following table summarizes cash paid during the periods for interest and income taxes:


	Three months ended
	March 31,
Cash paid (received) during the period for:	2023		2022
Interest	$	1,971	$	2,154
Income taxes, net of refunds	10		72


The following table summarizes capital expenditures:
	Three months ended
	March 31,
	2023		2022
Purchase of property and equipment	$	4,291	$	4,532
Interest during construction - capital expenditures1	44		36
Total Capital Expenditures	$	4,335	$	4,568

The following table summarizes acquisitions, net of cash acquired:
	Three months ended
	March 31,
	2023		2022
Business acquisitions	$	—	$	—
Spectrum acquisitions	63		8,956
Interest during construction - spectrum1	228		288
Total Acquisitions	$	291	$	9,244
1 Total capitalized interest was $272 and $324 for the three months ended March 31, 2023 and 2022, respectively.

NOTE 13. SUBSEQUENT EVENTS

Telco LLC Preferred Interests

In April 2023, we expanded our September 2020 sale of Telco LLC cumulative preferred interests and issued an additional $5,250 of nonconvertible cumulative preferred interests (Class A-2 and A-3, collectively the “April preferreds”). Cumulative preferred interests in our Telco LLC total $7,250, collectively the “Telco preferred interests” (see Note 16 to AT&T’s 2022 Annual Report on Form 10-K). The April preferreds pay an initial preferred distribution of 6.85% annually, subject to declaration and subject to reset on November 1, 2027, and every seven years thereafter. We can call the Telco preferred interests at the issue price beginning September 29, 2027. The holders of the Telco preferred interests have the option to require redemption upon the occurrence of certain contingent events, such as the failure of Telco LLC to pay the preferred distribution for two or more periods or to meet certain other requirements, including a minimum credit rating. If notice is given, all other holders of equal or more subordinate classes of members’ equity are entitled to receive the same form of consideration payable to the holders of the preferred interests, resulting in a deemed liquidation for accounting purposes.

Mobility II Preferred Interests

In April 2023, we accepted the December 2022 put option notice from the AT&T pension trust and repurchased the remaining 213 million Series A Cumulative Perpetual Preferred Membership Interests in AT&T Mobility II LLC (Mobility preferred interests) for a purchase price, including accrued and unpaid distributions, of $5,414. At March 31, 2023, the Mobility preferred interests had a redemption value of $5,320, with approximately $2,650 recorded in “Accounts payable and accrued liabilities” and $2,670 recorded in “Other noncurrent liabilities.” The repurchase was funded with proceeds from the April preferreds.

AT&T Pension Benefit Plan

On April 26, 2023, AT&T and State Street Global Advisors Trust Company, as independent fiduciary of the AT&T Pension Benefit Plan (Plan), entered into a commitment agreement with subsidiaries of Athene Holding Ltd. (Athene) under which

AT&T INC.

MARCH 31, 2023

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued

Dollars in millions except per share amounts

AT&T agreed to purchase nonparticipating single premium group annuity contracts that will transfer to Athene approximately $8,050 of the Plan’s defined benefit pension obligations related to certain retirees, participants and beneficiaries under the Plan.

The purchase of the group annuity contracts is expected to close on May 3, 2023. The contracts cover approximately 96,000 AT&T participants and beneficiaries (Transferred Participants). Under the group annuity contracts, Athene, through its wholly-owned subsidiaries Athene Annuity and Life Company and Athene Annuity & Life Assurance Company of New York, has made an irrevocable commitment, and will be solely responsible, to pay the pension benefits of each Transferred Participant beginning with their August 2023 pension payments. The transaction will result in no changes to the amount of pension benefits payable to the Transferred Participants.

The purchase of the group annuity contracts will be funded directly by assets of the Plan via the pension trust underlying the Plan and requires no cash or asset contributions by AT&T. As a result of the transaction, we expect to recognize a one-time non-cash pre-tax pension settlement gain of approximately $350 in the second quarter of 2023. The actual gain will depend on finalization of the actuarial and other assumptions. We expect to transfer approximately $8,050 of benefit obligation and related plan assets upon close of the transaction and that the funded status of the Plan is not expected to change due to this transaction.

AT&T INC.

MARCH 31, 2023

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Dollars in millions except per share amounts

OVERVIEW

AT&T Inc. is referred to as “we,” “AT&T” or the “Company” throughout this document. AT&T products and services are provided or offered by subsidiaries and affiliates of AT&T Inc. under the AT&T brand and not by AT&T Inc., and the names of the particular subsidiaries and affiliates providing the services generally have been omitted. AT&T is a holding company whose subsidiaries and affiliates operate worldwide in the telecommunications and technology industries. Unless otherwise noted, this discussion refers only to our continuing operations and does not include discussion of balances or activity of WarnerMedia, Vrio, Xandr and Playdemic Ltd., which were part of discontinued operations. You should read this discussion in conjunction with the consolidated financial statements and accompanying notes (Notes).

We have two reportable segments: Communications and Latin America. Our segment results presented in Note 4 and discussed below follow our internal management reporting. Percentage increases and decreases that are not considered meaningful are denoted with a dash.


	First Quarter
						Percent
		2023		2022		Change
Operating Revenues
Communications		$	29,152	$	28,876	1.0	%
Latin America - Mexico		883		690		28.0
Corporate and Other:
Corporate		104		146		(28.8)
AT&T Operating Revenues		$	30,139	$	29,712	1.4	%

Operating Income
Communications		$	6,743	$	6,487	3.9	%
Latin America - Mexico		(30)		(102)		70.6
Segment Operating Income		6,713		6,385		5.1
Corporate		(738)		(630)		(17.1)
Certain significant items		27		(218)		—
AT&T Operating Income		$	6,002	$	5,537	8.4	%

The Communications segment provides services to businesses and consumers located in the U.S. and businesses globally. Our business strategies reflect bundled product offerings that cut across product lines and utilize shared assets. This segment contains the following business units:

Mobility** provides nationwide wireless service and equipment.
Business Wireline** provides advanced ethernet-based fiber services, IP Voice and managed professional services, as well as traditional voice and data services and related equipment to business customers.
Consumer Wireline** provides broadband services, including fiber connections that provide our multi-gig services to residential customers in select locations. Consumer Wireline also provides legacy telephony voice communication services.

The Latin America segment provides wireless services and equipment in Mexico.

Effective for the first quarter of 2023, we no longer record prior service credits to our individual business units or the corresponding charge to Corporate and Other, and segment operating expenses were recast to remove prior service credits from our historical reporting. Prior service credits are, and will continue to be, recorded as other income in our consolidated income statement in accordance with U.S. generally accepted accounting principles. This recast increased Communications segment operations and support expenses by approximately $2,400 for full-year 2022. Correspondingly, this recast lowered administrative expenses within Corporate and Other, with no change on a consolidated basis.

AT&T INC.

MARCH 31, 2023

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations- Continued

Dollars in millions except per share amounts

RESULTS OF OPERATIONS

Consolidated Results Our financial results from continuing operations are summarized in the discussions that follow. Additional analysis is discussed in our “Segment Results” section.


	First Quarter
						Percent
		2023		2022		Change
Operating Revenues
Service		$	24,617	$	23,999	2.6	%
Equipment		5,522		5,713		(3.3)
Total Operating Revenues		30,139		29,712		1.4

Operating expenses
Operations and support		19,506		19,713		(1.1)
Depreciation and amortization		4,631		4,462		3.8
Total Operating Expenses		24,137		24,175		(0.2)
Operating Income		6,002		5,537		8.4
Interest expense		1,708		1,626		5.0
Equity in net income of affiliates		538		521		3.3
Other income (expense) - net		935		2,157		(56.7)
Income from Continuing Operations Before Income Taxes		5,767		6,589		(12.5)
Income from Continuing Operations		$	4,453	$	5,149	(13.5)	%

Operating revenues increased in the first quarter of 2023, reflecting growth in Mobility, Mexico and Consumer Wireline revenues, partially offset by continued declines in Business Wireline revenues.

Operations and support expenses decreased in the first quarter of 2023, reflecting the benefits of our continued transformation efforts, mostly offset by inflationary increases. In particular, operating expense declines were driven by lower domestic wireless equipment and associated selling costs from lower sales volumes, absence of first-quarter 2022 3G network shutdown costs, lower personnel costs and higher returns on benefit-related assets. Expense decreases were partially offset by higher amortization of deferred customer acquisition costs and increased bad debt expense.

Depreciation and amortization expense increased in the first quarter of 2023.

Depreciation expense increased $161, or 3.6%, in the first quarter of 2023 primarily due to ongoing capital spending for strategic initiatives such as fiber and network upgrades.

Amortization expense increased $8, or 22.9%, in the first quarter of 2023 primarily due to the amortization of wireless licenses in Mexico offset by lower amortization of intangible assets from previous acquisitions.

Operating income increased in the first quarter of 2023. Our operating income margin for the first quarter increased from 18.6% in 2022 to 19.9% in 2023, reflecting lower equipment revenues which have lower margins.

Interest expense increased in the first quarter of 2023, primarily due to higher interest rates and lower capitalized interest associated with spectrum acquisitions. Interest expense in 2023 also includes the reclassification of Mobility preferred interests distributions, previously recorded as noncontrolling interest. These items were partially offset by lower debt balances.

Equity in net income of affiliates increased in the first quarter of 2023, primarily due to the performance of our investment in DIRECTV, which included a gain on a sale-leaseback transaction of approximately $100 in the first quarter of 2023 (see Note 10).

AT&T INC.

MARCH 31, 2023

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations- Continued

Dollars in millions except per share amounts

Other income (expense) – net decreased in the first quarter of 2023. The decrease in the first quarter was primarily driven by the recognition of $1,053 actuarial gain in the first quarter of 2022, with no comparative actuarial remeasurement in the first quarter of 2023. Also contributing to the decrease were lower pension and postretirement benefit credits in 2023, primarily driven by higher interest costs from discount rate increases (see Note 6). Partially offsetting the decreases were higher returns on other benefit-related investments.

Income tax expense decreased in the first quarter of 2023. The decrease in the first quarter was primarily driven by lower income before income tax. Our effective tax rate was 22.8% in the first quarter of 2023, versus 21.9% in the comparable period in the prior year.


COMMUNICATIONS SEGMENT	First Quarter
						Percent
		2023		2022		Change
Segment Operating Revenues
Mobility		$	20,582	$	20,075	2.5	%
Business Wireline		5,331		5,640		(5.5)
Consumer Wireline		3,239		3,161		2.5
Total Segment Operating Revenues		$	29,152	$	28,876	1.0	%

Segment Operating Income
Mobility		$	6,271	$	5,689	10.2	%
Business Wireline		378		639		(40.8)
Consumer Wireline		94		159		(40.9)
Total Segment Operating Income		$	6,743	$	6,487	3.9	%


Selected Subscribers and Connections
	March 31,
(000s)	2023	2022
Mobility Subscribers	222,839	196,616
Total domestic broadband connections	15,345	15,533
Network access lines in service	4,938	5,956
U-verse VoIP connections	2,835	3,227

Operating revenues increased in the first quarter of 2023, driven by increases in our Mobility and Consumer Wireline business units, partially offset by decreases in our Business Wireline business unit. The increases are primarily driven by wireless service revenue growth and gains in broadband service. Business Wireline continues to reflect lower demand for legacy services and product simplification.

Operating income increased in the first quarter of 2023, reflecting increases in our Mobility business unit, offset by lower operating income from our Business Wireline and Consumer Wireline business units in the first quarter. Our Communications segment operating income margin in the first quarter increased from 22.5% in 2022 to 23.1% in 2023.

AT&T INC.

MARCH 31, 2023

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations- Continued

Dollars in millions except per share amounts


Communications Business Unit Discussion
Mobility Results
	First Quarter
						Percent
		2023		2022		Change
Operating revenues
Service		$	15,483	$	14,724	5.2	%
Equipment		5,099		5,351		(4.7)
Total Operating Revenues		20,582		20,075		2.5

Operating expenses
Operations and support		12,213		12,327		(0.9)
Depreciation and amortization		2,098		2,059		1.9
Total Operating Expenses		14,311		14,386		(0.5)
Operating Income		$	6,271	$	5,689	10.2	%

The following tables highlight other key measures of performance for Mobility:


Subscribers
	March 31,		Percent
(in 000s)	2023	2022	Change
Postpaid	85,421	81,639	4.6	%
Postpaid phone	70,049	67,518	3.7
Prepaid	19,200	18,859	1.8
Reseller	6,192	5,383	15.0
Connected devices1	112,026	90,735	23.5
Total Mobility Subscribers2	222,839	196,616	13.3	%
1Includes data-centric devices such as session-based tablets, monitoring devices and primarily wholesale automobile systems.
2Wireless subscribers at March 31, 2023 includes an increase of 295 subscribers and connections (206 postpaid, including 74 phone, and 89 connected devices) resulting from our 3G network shutdown.

AT&T INC.

MARCH 31, 2023

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations- Continued

Dollars in millions except per share amounts


Mobility Net Additions
	First Quarter
						Percent
(in 000s)		2023		2022		Change
Postpaid Phone Net Additions		424		691		(38.6)	%
Total Phone Net Additions		464		804		(42.3)

Postpaid2		542		965		(43.8)
Prepaid		40		116		(65.5)
Reseller		108		(17)		—
Connected devices3		4,457		4,468		(0.2)
Mobility Net Subscriber Additions1		5,147		5,532		(7.0)	%

Postpaid Churn4		0.99	%	0.94	%	5	BP
Postpaid Phone-Only Churn4		0.81	%	0.79	%	2	BP
1Excludes migrations and acquisition-related activities during the period.
2In addition to postpaid phones, includes tablets and wearables and other. Tablet net adds (losses) were (18) and 31 for the quarter ended March 31, 2023 and 2022. Wearables and other net adds were 136 and 243 for the quarter ended March 31, 2023 and 2022.
3Includes data-centric devices such as session-based tablets, monitoring devices and primarily wholesale automobile systems. Excludes postpaid tablets and other postpaid data devices. Wholesale connected car net adds were approximately 2,700 and 1,900 for the quarter ended March 31, 2023 and March 31, 2022.
4Calculated by dividing the aggregate number of wireless subscribers who canceled service during a month by the total number of wireless subscribers at the beginning of that month. The churn rate for the period is equal to the average of the churn rate for each month of that period.

Service revenue increased in the first quarter 2023. The increases are largely due to growth from subscriber gains and postpaid average revenue per subscriber (ARPU) growth.

ARPU

ARPU increased in the first quarter of 2023. ARPU during 2023 reflects pricing actions, improved international roaming and customers shifting to higher priced unlimited plans, partially offset by the impact of higher promotional discount amortization (see Note 5).

Churn

The effective management of subscriber churn is critical to our ability to maximize revenue growth and to maintain and improve margins. Postpaid churn and postpaid phone-only churn were higher for the first quarter due to a return to pre-pandemic consumer behavior as well as pricing actions and the resulting increase in voluntary disconnects.

Equipment revenue decreased in the first quarter of 2023, primarily driven by a lower volume of devices sold.

Operations and support expenses decreased in the first quarter of 2023 largely due to lower equipment costs driven by lower device sales, first-quarter 2022 3G network shutdown costs and lower HBO Max licensing fees. These decreases were offset by higher amortization of deferred customer acquisition costs and increased network and customer support, marketing and bad debt expenses.

Depreciation expense increased in the first quarter of 2023, primarily due to ongoing capital spending for network upgrades and expansion.

Operating income increased in the first quarter of 2023. Our Mobility operating income margin in the first quarter increased from 28.3% in 2022 to 30.5% in 2023. Our Mobility EBITDA margin in the first quarter increased from 38.6% in 2022 to 40.7% in 2023. EBITDA is defined as operating income excluding depreciation and amortization.

AT&T INC.

MARCH 31, 2023

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations- Continued

Dollars in millions except per share amounts


Business Wireline Results
	First Quarter
						Percent
		2023		2022		Change
Operating revenues
Service		$	5,200	$	5,478	(5.1)	%
Equipment		131		162		(19.1)
Total Operating Revenues		5,331		5,640		(5.5)

Operating expenses
Operations and support		3,623		3,702		(2.1)
Depreciation and amortization		1,330		1,299		2.4
Total Operating Expenses		4,953		5,001		(1.0)
Operating Income		$	378	$	639	(40.8)	%

Service revenues decreased in the first quarter of 2023, driven by lower demand for legacy voice, data and network services along with product simplification, partially offset by growth in connectivity services. We expect these trends to continue.

Equipment revenues decreased in the first quarter of 2023, driven by declines in legacy and non-core services which we expect to continue.

Operations and support expenses decreased in the first quarter of 2023, primarily due to our continued efforts to drive efficiencies in our network operations through automation, reductions in customer support expenses through digitization and proactive rationalization of low profit margin products. Expense declines were also driven by lower personnel costs associated with ongoing transformation initiatives, and lower network access costs and marketing expenses. The declines were partially offset by favorable compensation true-ups in the first quarter of 2022. As part of our transformation activities, we expect operations and support expense improvements through the remainder of 2023 as we further right size our operations in alignment with the strategic direction of the business.

Depreciation expense increased in the first quarter of 2023, primarily due to ongoing capital investment for strategic initiatives such as fiber.

Operating income decreased in the first quarter of 2023. Our Business Wireline operating income margin in the first quarter decreased from 11.3% in 2022 to 7.1% in 2023. Our Business Wireline EBITDA margin in the first quarter decreased from 34.4% in 2022 to 32.0% in 2023.

AT&T INC.

MARCH 31, 2023

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