Item 1. Financial Statements

AT&T INC.
CONSOLIDATED STATEMENTS OF INCOME
Dollars in millions except per share amounts
(Unaudited)
			Three months ended												Six months ended
			June 30,												June 30,
			2023						2022						2023						2022
Operating Revenues
Service			$	24,850					$	24,268					$	49,467					$	48,267
Equipment			5,067						5,375						10,589						11,088
Total operating revenues			29,917						29,643						60,056						59,355
Operating Expenses
Cost of revenues
Equipment			5,056						5,534						10,714						11,570
Other cost of revenues (exclusive of depreciation and amortization shown separately below)			6,771						6,807						13,444						13,506
Selling, general and administrative			7,009						7,265						14,184						14,243
Asset impairments and abandonments and restructuring			—						631						—						631
Depreciation and amortization			4,675						4,450						9,306						8,912
Total operating expenses			23,511						24,687						47,648						48,862
Operating Income			6,406						4,956						12,408						10,493
Other Income (Expense)
Interest expense			(1,608)						(1,502)						(3,316)						(3,128)
Equity in net income of affiliates			380						504						918						1,025
Other income (expense) — net			987						2,302						1,922						4,459
Total other income (expense)			(241)						1,304						(476)						2,356
Income from Continuing Operations Before Income Taxes			6,165						6,260						11,932						12,849
Income tax expense on continuing operations			1,403						1,509						2,717						2,949
Income from Continuing Operations			4,762						4,751						9,215						9,900
Income (loss) from discontinued operations, net of tax			—						(214)						—						(199)
Net Income			4,762						4,537						9,215						9,701
Less: Net Income Attributable to Noncontrolling Interest			(273)						(380)						(498)						(734)
Net Income Attributable to AT&T			$	4,489					$	4,157					$	8,717					$	8,967
Less: Preferred Stock Dividends			(52)						(52)						(104)						(100)
Net Income Attributable to Common Stock			$	4,437					$	4,105					$	8,613					$	8,867
Basic Earnings Per Share from continuing operations			$	0.61					$	0.60					$	1.19					$	1.26
Basic Earnings (Loss) Per Share from discontinued operations			$	—					$	(0.03)					$	—					$	(0.03)
Basic Earnings Per Share Attributable to Common Stock			$	0.61					$	0.57					$	1.19					$	1.23
Diluted Earnings Per Share from continuing operations			$	0.61					$	0.59					$	1.19					$	1.23
Diluted Earnings (Loss) Per Share from discontinued operations			$	—					$	(0.03)					$	—					$	(0.02)
Diluted Earnings Per Share Attributable to Common Stock			$	0.61					$	0.56					$	1.19					$	1.21
Weighted Average Number of Common Shares Outstanding — Basic (in millions)			7,180						7,169						7,174						7,176
Weighted Average Number of Common Shares Outstanding — with Dilution (in millions)			7,180						7,611						7,327						7,584

See Notes to Consolidated Financial Statements.

AT&T INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Dollars in millions
(Unaudited)
			Three months ended												Six months ended
			June 30,												June 30,
			2023						2022						2023						2022
Net income			$	4,762					$	4,537					$	9,215					$	9,701
Other comprehensive income (loss), net of tax:
Foreign currency:
Translation adjustment, net of taxes of $88, $58, $140 and $63			264						229						457						248
Distribution of WarnerMedia, net of taxes of $0, $(38), $0 and $(38)			—						(170)						—						(170)
Securities:
Net unrealized gains (losses), net of taxes of $(4), $(14), $4 and $(37)			(11)						(40)						12						(109)
Reclassification adjustment included in net income, net of taxes of $1, $1, $2 and $2			2						3						5						6
Derivative instruments:
Net unrealized gains (losses), net of taxes of $45, $(172), $2 and $(103)			176						(603)						24						(345)
Reclassification adjustment included in net income, net of taxes of $3, $15, $6 and $19			11						58						23						73
Distribution of WarnerMedia, net of taxes of $0, $(12), $0 and $(12)			—						(24)						—						(24)
Defined benefit postretirement plans:
Amortization of net prior service credit included in net income, net of taxes of $(161), $(152), $(321) and $(304)			(491)						(461)						(982)						(926)
Distribution of WarnerMedia, net of taxes of $0, $5, $0 and $5			—						25						—						25
Other comprehensive income (loss)			(49)						(983)						(461)						(1,222)
Total comprehensive income			4,713						3,554						8,754						8,479
Less: Total comprehensive income attributable to noncontrolling interest			(273)						(380)						(498)						(734)
Total Comprehensive Income Attributable to AT&T			$	4,440					$	3,174					$	8,256					$	7,745

See Notes to Consolidated Financial Statements.

AT&T INC.
CONSOLIDATED BALANCE SHEETS
Dollars in millions except per share amounts
(Unaudited)
			June 30,						December 31,
			2023						2022
Assets
Current Assets
Cash and cash equivalents			$	9,528					$	3,701
Accounts receivable – net of related allowances for credit loss of $528 and $588			9,304						11,466
Inventories			2,348						3,123
Prepaid and other current assets			15,492						14,818
Total current assets			36,672						33,108
Property, plant and equipment			334,206						329,630
Less: accumulated depreciation and amortization			(205,423)						(202,185)
Property, Plant and Equipment – Net			128,783						127,445
Goodwill – Net			67,854						67,895
Licenses – Net			125,049						124,092
Other Intangible Assets – Net			5,339						5,354
Investments in and Advances to Equity Affiliates			2,779						3,533
Operating Lease Right-Of-Use Assets			21,581						21,814
Other Assets			20,396						19,612
Total Assets			$	408,453					$	402,853
Liabilities and Stockholders’ Equity
Current Liabilities
Debt maturing within one year			$	15,268					$	7,467
Note payable to DIRECTV			—						130
Accounts payable and accrued liabilities			33,038						42,644
Advanced billings and customer deposits			3,833						3,918
Dividends payable			2,020						2,014
Total current liabilities			54,159						56,173
Long-Term Debt			128,012						128,423
Deferred Credits and Other Noncurrent Liabilities
Deferred income taxes			57,972						57,032
Postemployment benefit obligation			6,696						7,260
Operating lease liabilities			18,311						18,659
Other noncurrent liabilities			25,258						28,849
Total deferred credits and other noncurrent liabilities			108,237						111,800
Redeemable Noncontrolling Interest			1,970						—
Stockholders’ Equity
Preferred stock ($1 par value, 10,000,000 authorized at June 30, 2023 and December 31, 2022):
Series A (48,000 issued and outstanding at June 30, 2023 and December 31, 2022)			—						—
Series B (20,000 issued and outstanding at June 30, 2023 and December 31, 2022)			—						—
Series C (70,000 issued and outstanding at June 30, 2023 and December 31, 2022)			—						—
Common stock ($1 par value, 14,000,000,000 authorized at June 30, 2023 and December 31, 2022: issued 7,620,748,598 at June 30, 2023 and December 31, 2022)			7,621						7,621
Additional paid-in capital			118,833						123,610
Retained (deficit) earnings			(10,698)						(19,415)
Treasury stock (471,323,301 at June 30, 2023 and 493,156,816 at December 31, 2022, at cost)			(16,158)						(17,082)
Accumulated other comprehensive income			2,305						2,766
Noncontrolling interest			14,172						8,957
Total stockholders’ equity			116,075						106,457
Total Liabilities and Stockholders’ Equity			$	408,453					$	402,853

See Notes to Consolidated Financial Statements.

AT&T INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Dollars in millions
(Unaudited)
			Six months ended
			June 30,
			2023						2022
Operating Activities
Income from continuing operations			$	9,215					$	9,900
Adjustments to reconcile income from continuing operations to net cash provided by operating activities from continuing operations:
Depreciation and amortization			9,306						8,912
Provision for uncollectible accounts			929						870
Deferred income tax expense			1,836						2,324
Net (gain) loss on investments, net of impairments			(160)						333
Pension and postretirement benefit expense (credit)			(1,341)						(1,735)
Actuarial and settlement (gain) loss on pension and postretirement benefits - net			(74)						(2,398)
Asset impairments and abandonments and restructuring			—						631
Changes in operating assets and liabilities:
Receivables			1,342						1,292
Other current assets			1,106						11
Accounts payable and other accrued liabilities			(5,769)						(3,905)
Equipment installment receivables and related sales			(302)						342
Deferred customer contract acquisition and fulfillment costs			34						(506)
Postretirement claims and contributions			(556)						(186)
Other - net			1,034						(515)
Total adjustments			7,385						5,470
Net Cash Provided by Operating Activities from Continuing Operations			16,600						15,370
Investing Activities
Capital expenditures			(8,605)						(9,476)
Acquisitions, net of cash acquired			(515)						(9,570)
Dispositions			16						22
Distributions from DIRECTV in excess of cumulative equity in earnings			974						1,638
(Purchases), sales and settlements of securities and investments - net			(1,056)						73
Other - net			(55)						2
Net Cash Used in Investing Activities from Continuing Operations			(9,241)						(17,311)
Financing Activities
Net change in short-term borrowings with original maturities of three months or less			(914)						172
Issuance of other short-term borrowings			5,406						2,593
Repayment of other short-term borrowings			(867)						(15,613)
Issuance of long-term debt			9,633						479
Repayment of long-term debt			(7,609)						(24,213)
Repayment of note payable to DIRECTV			(130)						(722)
Payment of vendor financing			(3,756)						(3,337)
Purchase of treasury stock			(189)						(872)
Issuance of treasury stock			3						28
Issuance of preferred interests in subsidiary			7,151						—
Redemption of preferred interests in subsidiary			(5,333)						—
Dividends paid			(4,097)						(5,835)
Other - net			(828)						(2,144)
Net Cash Used in Financing Activities from Continuing Operations			(1,530)						(49,464)
Net increase (decrease) in cash and cash equivalents and restricted cash from continuing operations			5,829						(51,405)
Cash flows from Discontinued Operations:
Cash (used in) provided by operating activities			—						(3,731)
Cash provided by (used in) investing activities			—						872
Cash provided by (used in) financing activities			—						37,065
Net increase (decrease) in cash and cash equivalents and restricted cash from discontinued operations			—						34,206
Net increase (decrease) in cash and cash equivalents and restricted cash			$	5,829					$	(17,199)
Cash and cash equivalents and restricted cash beginning of year			3,793						21,316
Cash and Cash Equivalents and Restricted Cash End of Period			$	9,622					$	4,117
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																								Six months ended
			June 30, 2023												June 30, 2022												June 30, 2023												June 30, 2022
			Shares						Amount						Shares						Amount						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					7,621						$	7,621					7,621						$	7,621
Balance at end of period			7,621						$	7,621					7,621						$	7,621					7,621						$	7,621					7,621						$	7,621
Additional Paid-In Capital
Balance at beginning of period									$	120,774											$	129,637											$	123,610											$	130,112
Distribution of WarnerMedia									—												(6,832)												—												(6,832)
Preferred stock dividends									(36)												—												(134)												—
Common stock dividends ($0.2775 and $0.5550 per share in 2023)									(1,999)												—												(4,001)												—
Issuance of treasury stock									(3)												(18)												(368)												(144)
Share-based payments									97												63												(274)												(286)
Balance at end of period									$	118,833											$	122,850											$	118,833											$	122,850
Retained (Deficit) Earnings
Balance at beginning of period									$	(15,187)											$	45,041											$	(19,415)											$	42,350
Net income attributable to AT&T									4,489												4,157												8,717												8,967
Distribution of WarnerMedia									—												(45,041)												—												(45,041)
Preferred stock dividends									—												(36)												—												(135)
Common stock dividends ($0.2775 and $0.5550 per share in 2022)									—												(1,993)												—												(4,013)
Balance at end of period									$	(10,698)											$	2,128											$	(10,698)											$	2,128

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																								Six months ended
			June 30, 2023												June 30, 2022												June 30, 2023												June 30, 2022
			Shares						Amount						Shares						Amount						Shares						Amount						Shares						Amount
Treasury Stock
Balance at beginning of period			(472)						$	(16,166)					(462)						$	(16,553)					(493)						$	(17,082)					(480)						$	(17,280)
Repurchase and acquisition of common stock			—						(1)						(35)						(675)						(10)						(189)						(43)						(872)
Reissuance of treasury stock			1						9						2						68						32						1,113						28						992
Balance at end of period			(471)						$	(16,158)					(495)						$	(17,160)					(471)						$	(16,158)					(495)						$	(17,160)
Accumulated Other Comprehensive Income Attributable to AT&T, net of tax
Balance at beginning of period									$	2,354											$	3,290											$	2,766											$	3,529
Other comprehensive income attributable to AT&T									(49)												(983)												(461)												(1,222)
Balance at end of period									$	2,305											$	2,307											$	2,305											$	2,307
Noncontrolling Interest
Balance at beginning of period									$	8,950											$	17,520											$	8,957											$	17,523
Net income attributable to noncontrolling interest									267												380												492												734
Issuance and acquisition by noncontrolling owners									5,181												—												5,181												—
Redemption of noncontrolling interest									—												—												—												(16)
Distributions									(226)												(339)												(458)												(680)
Balance at end of period									$	14,172											$	17,561											$	14,172											$	17,561
Total Stockholders' Equity at beginning of period									$	108,346											$	186,556											$	106,457											$	183,855
Total Stockholders' Equity at end of period									$	116,075											$	135,307											$	116,075											$	135,307

See Notes to Consolidated Financial Statements.

AT&T INC.

JUNE 30, 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 12 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. 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.

JUNE 30, 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 and six months ended June 30, 2023 and 2022, is shown in the table below:

			Three months ended												Six months ended
			June 30,												June 30,
			2023						2022						2023						2022
Numerators
Numerator for basic earnings per share:
Income from continuing operations, net of tax			$	4,762					$	4,751					$	9,215					$	9,900
Net income from continuing operations attributable to noncontrolling interests			(273)						(380)						(498)						(734)
Preferred Stock Dividends			(52)						(52)						(104)						(100)
Income from continuing operations attributable to common stock			4,437						4,319						8,613						9,066
Income (loss) from discontinued operations attributable to common stock			—						(214)						—						(199)
Net Income Attributable to Common Stock			$	4,437					$	4,105					$	8,613					$	8,867
Dilutive potential common shares:
Mobility preferred interests			—						140						72						280
Share-based payment			—						3						7						9
Numerator for diluted earnings per share			$	4,437					$	4,248					$	8,692					$	9,156
Denominators (000,000)
Denominator for basic earnings per share:
Weighted average number of common shares outstanding			7,180						7,169						7,174						7,176
Dilutive potential common shares:
Mobility preferred interests (in shares)			—						399						142						368
Share-based payment (in shares)			—						43						11						40
Denominator for diluted earnings per share			7,180						7,611						7,327						7,584

On April 5, 2023, we repurchased all our Series A Cumulative Perpetual Preferred Membership Interests in AT&T Mobility II LLC (Mobility preferred interests) (see Note 12). For periods prior to repurchase, 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 the Mobility preferred interests in stock was reflected in our diluted earnings per share calculation.

AT&T INC.

JUNE 30, 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			457						12						24						—						493
Amounts reclassified from accumulated OCI			—			1			5			1			23			2			(982)			3			(954)
Net other comprehensive income (loss)			457						17						47						(982)						(461)
Balance as of June 30, 2023			$	(1,343)					$	(73)					$	(1,951)					$	5,672					$	2,305
			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			248						(109)						(345)						—						(206)
Amounts reclassified from accumulated OCI			—			1			6			1			73			2			(926)			3			(847)
Distribution of WarnerMedia			(170)						—						(24)						25						(169)
Net other comprehensive income (loss)			78						(103)						(296)						(901)						(1,222)
Balance as of June 30, 2022			$	(1,886)					$	(58)					$	(1,718)					$	5,969					$	2,307
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.

JUNE 30, 2023

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued

Dollars in millions except per share amounts

Effective for the first quarter of 2023, we stopped recording 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 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.

JUNE 30, 2023

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued

Dollars in millions except per share amounts

For the three months ended June 30, 2023
			Revenues						Operations and Support Expenses						EBITDA						Depreciation and Amortization						Operating Income (Loss)
Communications
Mobility			$	20,315					$	11,579					$	8,736					$	2,123					$	6,613
Business Wireline			5,279						3,550						1,729						1,333						396
Consumer Wireline			3,251						2,226						1,025						857						168
Total Communications			28,845						17,355						11,490						4,313						7,177
Latin America - Mexico			967						821						146						185						(39)
Segment Total			29,812						18,176						11,636						4,498						7,138
Corporate and Other
Corporate:
DTV-related retained costs			—						178						(178)						152						(330)
Parent administration support			(3)						332						(335)						2						(337)
Securitization fees			17						154						(137)						—						(137)
Value portfolio			91						24						67						6						61
Total Corporate			105						688						(583)						160						(743)
Certain significant items			—						(28)						28						17						11
Total Corporate and Other			105						660						(555)						177						(732)
AT&T Inc.			$	29,917					$	18,836					$	11,081					$	4,675					$	6,406

For the three months ended June 30, 2022
			Revenues						Operations and Support Expenses						EBITDA						Depreciation and Amortization						Operating Income (Loss)
Communications
Mobility			$	19,926					$	11,861					$	8,065					$	2,017					$	6,048
Business Wireline			5,595						3,792						1,803						1,313						490
Consumer Wireline			3,174						2,244						930						785						145
Total Communications			28,695						17,897						10,798						4,115						6,683
Latin America - Mexico			808						721						87						169						(82)
Segment Total			29,503						18,618						10,885						4,284						6,601
Corporate and Other
Corporate:
DTV-related retained costs			—						239						(239)						135						(374)
Parent administration support			(6)						341						(347)						4						(351)
Securitization fees			17						78						(61)						—						(61)
Value portfolio			129						37						92						10						82
Total Corporate			140						695						(555)						149						(704)
Certain significant items			—						924						(924)						17						(941)
Total Corporate and Other			140						1,619						(1,479)						166						(1,645)
AT&T Inc.			$	29,643					$	20,237					$	9,406					$	4,450					$	4,956

AT&T INC.

JUNE 30, 2023

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued

Dollars in millions except per share amounts

For the six months ended June 30, 2023
			Revenues						Operations and Support Expenses						EBITDA						Depreciation and Amortization						Operating Income (Loss)
Communications
Mobility			$	40,897					$	23,792					$	17,105					$	4,221					$	12,884
Business Wireline			10,610						7,173						3,437						2,663						774
Consumer Wireline			6,490						4,510						1,980						1,718						262
Total Communications			57,997						35,475						22,522						8,602						13,920
Latin America - Mexico			1,850						1,559						291						360						(69)
Segment Total			59,847						37,034						22,813						8,962						13,851
Corporate and Other
Corporate:
DTV-related retained costs			—						347						(347)						296						(643)
Parent administration support			(12)						706						(718)						3						(721)
Securitization fees			36						275						(239)						—						(239)
Value portfolio			185						52						133						11						122
Total Corporate			209						1,380						(1,171)						310						(1,481)
Certain significant items			—						(72)						72						34						38
Total Corporate and Other			209						1,308						(1,099)						344						(1,443)
AT&T Inc.			$	60,056					$	38,342					$	21,714					$	9,306					$	12,408

For the six months ended June 30, 2022
			Revenues						Operations and Support Expenses						EBITDA						Depreciation and Amortization						Operating Income (Loss)
Communications
Mobility			$	40,001					$	24,188					$	15,813					$	4,076					$	11,737
Business Wireline			11,235						7,494						3,741						2,612						1,129
Consumer Wireline			6,335						4,480						1,855						1,551						304
Total Communications			57,571						36,162						21,409						8,239						13,170
Latin America - Mexico			1,498						1,352						146						330						(184)
Segment Total			59,069						37,514						21,555						8,569						12,986
Corporate and Other
Corporate:
DTV-related retained costs			8						399						(391)						269						(660)
Parent administration support			(18)						688						(706)						10						(716)
Securitization fees			33						160						(127)						—						(127)
Value portfolio			263						74						189						20						169
Total Corporate			286						1,321						(1,035)						299						(1,334)
Certain significant items			—						1,115						(1,115)						44						(1,159)
Total Corporate and Other			286						2,436						(2,150)						343						(2,493)
AT&T Inc.			$	59,355					$	39,950					$	19,405					$	8,912					$	10,493

AT&T INC.

JUNE 30, 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 June 30,												Six months ended June 30,
			2023						2022						2023						2022
Communications			$	7,177					$	6,683					$	13,920					$	13,170
Latin America			(39)						(82)						(69)						(184)
Segment Operating Income			7,138						6,601						13,851						12,986
Reconciling Items:
Corporate			(743)						(704)						(1,481)						(1,334)
Transaction and other costs			—						(185)						—						(283)
Amortization of intangibles acquired			(17)						(17)						(34)						(44)
Asset impairments and abandonments and restructuring			—						(631)						—						(631)
Benefit-related gains (losses)			28						(108)						72						(201)
AT&T Operating Income			6,406						4,956						12,408						10,493
Interest expense			1,608						1,502						3,316						3,128
Equity in net income of affiliates			380						504						918						1,025
Other income (expense) — net			987						2,302						1,922						4,459
Income from Continuing Operations Before Income Taxes			$	6,165					$	6,260					$	11,932					$	12,849

NOTE 5. REVENUE RECOGNITION

Revenue Categories

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

For the three months ended June 30, 2023
			Communications
			Mobility						Business Wireline						Consumer Wireline						Latin America						Corporate & Other												Total
Wireless service			$	15,745					$	—					$	—					$	635					$	—											$	16,380
Business service			—						5,114						—						—						—												5,114
Broadband			—						—						2,561						—						—												2,561
Legacy voice and data			—						—						383						—						80												463
Other			—						—						307						—						25												332
Total Service			15,745						5,114						3,251						635						105												24,850
Equipment			4,570						165						—						332						—												5,067
Total			$	20,315					$	5,279					$	3,251					$	967					$	105											$	29,917

AT&T INC.

JUNE 30, 2023

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued

Dollars in millions except per share amounts

For the three months ended June 30, 2022
			Communications
			Mobility						Business Wireline						Consumer Wireline						Latin America						Corporate & Other												Total
Wireless service			$	15,004					$	—					$	—					$	534					$	12											$	15,550
Business service			—						5,416						—						—						—												5,416
Broadband			—						—						2,393						—						—												2,393
Legacy voice and data			—						—						445						—						108												553
Other			—						—						336						—						20												356
Total Service			15,004						5,416						3,174						534						140												24,268
Equipment			4,922						179						—						274						—												5,375
Total			$	19,926					$	5,595					$	3,174					$	808					$	140											$	29,643

For the six months ended June 30, 2023
			Communications
			Mobility						Business Wireline						Consumer Wireline						Latin America						Corporate & Other												Total
Wireless service			$	31,228					$	—					$	—					$	1,226					$	—											$	32,454
Business service			—						10,314						—						—						—												10,314
Broadband			—						—						5,088						—						—												5,088
Legacy voice and data			—						—						779						—						163												942
Other			—						—						623						—						46												669
Total Service			31,228						10,314						6,490						1,226						209												49,467
Equipment			9,669						296						—						624						—												10,589
Total			$	40,897					$	10,610					$	6,490					$	1,850					$	209											$	60,056

For the six months ended June 30, 2022
			Communications
			Mobility						Business Wireline						Consumer Wireline						Latin America						Corporate & Other												Total
Wireless service			$	29,728					$	—					$	—					$	1,024					$	12											$	30,764
Business service			—						10,894						—						—						—												10,894
Broadband			—						—						4,748						—						—												4,748
Legacy voice and data			—						—						905						—						225												1,130
Other			—						—						682						—						49												731
Total Service			29,728						10,894						6,335						1,024						286												48,267
Equipment			10,273						341						—						474						—												11,088
Total			$	40,001					$	11,235					$	6,335					$	1,498					$	286											$	59,355

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.

AT&T INC.

JUNE 30, 2023

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued

Dollars in millions except per share amounts

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

			June 30,						December 31,
Consolidated Balance Sheets			2023						2022
Deferred Acquisition Costs
Prepaid and other current assets			$	3,069					$	2,893
Other Assets			3,953						3,913
Total deferred customer contract acquisition costs			$	7,022					$	6,806
Deferred Fulfillment Costs
Prepaid and other current assets			$	2,410					$	2,481
Other Assets			4,027						4,206
Total deferred customer contract fulfillment costs			$	6,437					$	6,687

The following table presents deferred customer contract acquisition and fulfillment cost amortization included in “Cost of revenues” for the six months ended:

			June 30,						June 30,
Consolidated Statements of Income			2023						2022
Deferred acquisition cost amortization			$	1,688					$	1,381
Deferred fulfillment cost amortization			1,353						1,321

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., trade-in device credits), 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 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:

			June 30,						December 31,
Consolidated Balance Sheets			2023						2022
Contract asset			$	5,793					$	5,512
Current portion in “Prepaid and other current assets”			3,130						2,941
Contract liability			4,058						4,170
Current portion in “Advanced billings and customer deposits”			3,731						3,816

Our contract asset balances at June 30, 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 $3,292.

AT&T INC.

JUNE 30, 2023

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued

Dollars in millions except per share amounts

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 June 30, 2023, the aggregate amount of the transaction price allocated to remaining performance obligations was $36,156, 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.

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 agreed to purchase nonparticipating single premium group annuity contracts that would 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 closed on May 3, 2023, covering 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, 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 does not change the amount of pension benefits payable to the Transferred Participants.

The purchase of the group annuity contracts was funded directly by assets of the Plan via the pension trust underlying the Plan and required no cash or asset contributions by AT&T. We transferred approximately $8,050 of pension benefit obligation and related plan assets upon close of the transaction and recognized a pre-tax pension settlement gain of $363. The funded status of the Plan did not materially change due to this transaction.

This transaction with Athene is considered a settlement for accounting purposes and requires us to remeasure our pension plan assets and obligations at each remaining quarter-end in 2023. The second quarter 2023 remeasurement resulted in the recognition of an actuarial loss of $289 in the second quarter and for the first six months of 2023.

As part of our remeasurement, the weighted-average discount rate used to measure our pension benefit obligation was approximately 5.20% at June 30, 2023, a decrease of 5 basis points. The discount rates in effect for determining pension service and interest costs after our June 30 remeasurement are 5.20%. The remeasurement also reflects actual returns on pension plan assets of 4.10% (six-month rate) relative to our expected long-term rate of 7.50% (annual rate). Similar to 2023, in 2022 we were required to follow settlement accounting and remeasure our pension benefit plan assets and obligations at each remaining quarter end.

AT&T INC.

JUNE 30, 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												Six months ended
			June 30,												June 30,
			2023						2022						2023						2022
Pension cost:
Service cost – benefits earned during the period			$	122					$	164					$	243					$	347
Interest cost on projected benefit obligation			516						415						1,032						735
Expected return on assets			(715)						(802)						(1,429)						(1,670)
Amortization of prior service credit			(34)						(34)						(67)						(67)
Net pension (credit) cost before remeasurement			(111)						(257)						(221)						(655)
Actuarial (gain) loss			289						(1,345)						289						(2,357)
Settlement (gain) loss			(363)						—						(363)						—
Net pension (credit) cost			$	(185)					$	(1,602)					$	(295)					$	(3,012)
Postretirement cost:
Service cost – benefits earned during the period			$	6					$	9					$	12					$	18
Interest cost on accumulated postretirement benefit obligation			85						63						170						126
Expected return on assets			(33)						(33)						(66)						(65)
Amortization of prior service credit			(618)						(582)						(1,236)						(1,164)
Net postretirement (credit) cost			$	(560)					$	(543)					$	(1,120)					$	(1,085)
Combined net pension and postretirement (credit) cost			$	(745)					$	(2,145)					$	(1,415)					$	(4,097)

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 $18 and $12 in the second quarter and $37 and $24 for the first six months of 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.

JUNE 30, 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:

			June 30, 2023												December 31, 2022
			Carrying						Fair						Carrying						Fair
			Amount						Value						Amount						Value
Notes and debentures1			$	136,629					$	127,569					$	133,207					$	122,524
Commercial paper			4,619						4,619						866						866
Investment securities2			2,857						2,857						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 June 30, 2023 and December 31, 2022. Derivatives designated as hedging instruments are reflected as “Prepaid and other current assets,” “Other Assets,” “Accounts payable and accrued liabilities,” and “Other noncurrent liabilities” on our consolidated balance sheets.

			June 30, 2023
			Level 1						Level 2						Level 3						Total
Equity Securities
Domestic equities			$	1,073					$	—					$	—					$	1,073
International equities			191						—						—						191
Fixed income equities			202						—						—						202
Available-for-Sale Debt Securities			—						1,214						—						1,214
Asset Derivatives
Cross-currency swaps			—						168						—						168
Liability Derivatives
Interest rate swaps			—						(5)						—						(5)
Cross-currency swaps			—						(4,958)						—						(4,958)
Foreign exchange contracts			—						(19)						—						(19)

			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.

JUNE 30, 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												Six months ended
			June 30,												June 30,
			2023						2022						2023						2022
Total gains (losses) recognized on equity securities			$	82					$	(237)					$	165					$	(332)
Gains (losses) recognized on equity securities sold			(3)						(41)						1						(48)
Unrealized gains (losses) recognized on equity securities held at end of period			$	85					$	(196)					$	164					$	(284)

At June 30, 2023, available-for-sale debt securities totaling $1,214 have maturities as follows - less than one year: $74; one to three years: $160; three to five years: $157; five or more years: $823.

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 six months ended June 30, 2023 and 2022, no ineffectiveness was measured on fair value hedges.

AT&T INC.

JUNE 30, 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 June 30, 2023, we had posted collateral of $709 (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 June, we would have been required to post additional collateral of $52. 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 $4,704. 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:

			June 30,						December 31,
2023						2022
Interest rate swaps			$	1,750					$	—
Cross-currency swaps			40,986						38,213
Foreign exchange contracts			617						617
Total			$	43,353					$	38,830

AT&T INC.

JUNE 30, 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												Six months ended
			June 30,												June 30,
Fair Value Hedging Relationships			2023						2022						2023						2022
Interest rate swaps (“Interest expense”):
Gain (loss) on interest rate swaps			$	(14)					$	(1)					$	(7)					$	(2)
Gain (loss) on long-term debt			14						1						7						2
Cross-currency swaps:
Gain (loss) on cross-currency swaps			389						96						769						59
Gain (loss) on long-term debt			(389)						(96)						(769)						(59)
Gain (loss) recognized in accumulated OCI			222						(69)						40						(60)
Foreign exchange contracts:
Gain (loss) on foreign exchange contracts			4						(23)						11						(23)
Gain (loss) on long-term debt			(4)						23						(11)						23
Gain (loss) recognized in accumulated OCI			(3)						(4)						(6)						(4)

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												Six months ended
			June 30,												June 30,
Cash Flow Hedging Relationships			2023						2022						2023						2022
Cross-currency swaps:
Gain (loss) recognized in accumulated OCI			$	2					$	(702)					$	(8)					$	(387)
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			(14)						(16)						(29)						(36)
Other income (expense) reclassified from accumulated OCI into income			—						(45)						—						(45)
Distribution of WarnerMedia			—						(12)						—						(12)

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.

JUNE 30, 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 and six months ended June 30, 2023 and 2022:

			Three months ended												Six months ended
			June 30,												June 30,
			2023						2022						2023						2022
Net cash (paid) received from equipment installment receivables1			$	(36)					$	52					$	(60)					$	1,093
Net cash received from other programs2			858						41						744						329
Total net cash impact to cash flows from operating activities			$	822					$	93					$	684					$	1,422
1Cash from initial sales of $2,656 and $2,618 for the three months and $5,185 and $5,934 for the six months ended June 30, 2023 and 2022, respectively.
2Certain transferred receivables are guaranteed by a subsidiary that holds additional receivables in the amount of $1,498, which are pledged as collateral and represent our maximum exposure to loss.

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:

			June 30, 2023						December 31, 2022
Gross receivables:			$	3,845											$	4,165
Balance sheet classification
Accounts receivable
Notes receivable			1,343												1,789
Trade receivables			500												522
Other Assets
Noncurrent notes and trade receivables			2,002												1,854
Outstanding portfolio of receivables derecognized from our consolidated balance sheets			$	11,283											$	11,030
Cash proceeds received, net of remittances1			8,551												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.

JUNE 30, 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 and six months ended June 30, 2023 and 2022:

			Three months ended												Six months ended
			June 30,												June 30,
			2023						2022						2023						2022
Gross receivables sold1			$	2,687					$	2,651					$	5,247					$	6,252
Net receivables sold2			2,554						2,555						4,992						6,033
Cash proceeds received			2,656						2,618						5,185						5,934
Deferred purchase price recorded			—						—						—						245
Guarantee obligation recorded			242						144						448						296
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 and six months ended June 30, 2023 and 2022:

			Three months ended												Six months ended
			June 30,												June 30,
			2023						2022						2023						2022
Fair value of repurchased receivables			$	765					$	1,023					$	1,306					$	1,928
Carrying value of deferred purchase price			769						1,038						1,311						1,940
Gain (loss) on repurchases1			$	(4)					$	(15)					$	(5)					$	(12)
1These gains (losses) are included in “Selling, general and administrative” expense in the consolidated statements of income.

At June 30, 2023 and December 31, 2022, our deferred purchase price receivable was $2,425 and $2,318, respectively, of which $1,329 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 June 30, 2023 and December 31, 2022 was $441 and $419, respectively, of which $150 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 operating leases (e.g., for towers and real estate) 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.

JUNE 30, 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												Six months ended
			June 30,												June 30,
			2023						2022						2023						2022
Operating lease cost			$	1,362					$	1,357					$	2,757					$	2,704
Finance lease cost:
Amortization of leased assets in property, plant and equipment			$	62					$	49					$	119					$	94
Interest on lease obligation			47						44						93						81
Total finance lease cost			$	109					$	93					$	212					$	175

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

						Six months ended
						June 30,
						2023						2022
Cash Flows from Operating Activities
Cash paid for amounts included in lease obligations:
Operating cash flows for operating leases						$	2,385					$	2,334
Supplemental Lease Cash Flow Disclosures
Operating lease right-of-use assets obtained in exchange for new operating lease obligations						1,610						1,796

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

			June 30, 2023						December 31, 2022
Operating Leases
Operating lease right-of-use assets			$	21,581					$	21,814
Accounts payable and accrued liabilities			$	3,515					$	3,547
Operating lease obligation			18,311						18,659
Total operating lease obligation			$	21,826					$	22,206
Finance Leases
Property, plant and equipment, at cost			$	3,080					$	2,770
Accumulated depreciation and amortization			(1,401)						(1,224)
Property, plant and equipment, net			$	1,679					$	1,546
Current portion of long-term debt			$	221					$	170
Long-term debt			1,811						1,647
Total finance lease obligation			$	2,032					$	1,817

AT&T INC.

JUNE 30, 2023

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued

Dollars in millions except per share amounts

			June 30,
			2023						2022
Weighted-Average Remaining Lease Term (years)
Operating leases			8.0						8.1
Finance leases			7.1						8.1
Weighted-Average Discount Rate
Operating leases			3.8		%				3.6		%
Finance leases			8.0		%				7.9		%

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

At June 30, 2023			Operating						Finance
			Leases						Leases
Remainder of 2023			$	2,351					$	189
2024			4,451						384
2025			3,819						387
2026			3,130						330
2027			2,577						327
Thereafter			9,835						1,166
Total lease payments			26,163						2,783
Less: imputed interest			(4,337)						(751)
Total			$	21,826					$	2,032

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 $911 and $1,037 for the six months ended June 30, 2023 and 2022, respectively. Cash distributions from DIRECTV for the first six months of 2023 totaled $1,885, with $911 classified as operating activities and $974 classified as investing activities in our consolidated statement of cash flows versus total cash distributions of $2,675 ($1,037 operating and $1,638 investing) in the comparable prior period. Our investment in DIRECTV at June 30, 2023 was $1,946.

In February 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 and six months ended June 30, 2023, we billed DIRECTV approximately $180 and $420 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 $178 in the second quarter and $347 for the first six months of 2023.

At June 30, 2023, we had accounts receivable from DIRECTV of $252 and accounts payable to DIRECTV of $60.

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.

JUNE 30, 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.

Suppliers had elected to sell to the third-party financial institutions $3,007 and $2,869 of our outstanding payment obligations as of June 30, 2023 and December 31, 2022, respectively. These amounts 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). We had $3,539 of direct supplier financing outstanding at June 30, 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 six months ended June 30, 2023 and 2022, we recorded vendor financing commitments related to capital investments of approximately $1,341 and $2,012, respectively. We had $3,587 vendor financing payables at June 30, 2023, with $2,177 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:

			June 30,												December 31,
			2023						2022						2022						2021
Cash and cash equivalents from continuing operations			$	9,528					$	4,018					$	3,701					$	19,223
Cash and cash equivalents from discontinued operations			—						—						—						1,946
Restricted cash in Prepaid and other current assets			1						1						1						3
Restricted cash in Other Assets			93						98						91						144
Cash and Cash Equivalents and Restricted Cash			$	9,622					$	4,117					$	3,793					$	21,316

AT&T INC.

JUNE 30, 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:

			Six months ended
			June 30,
Cash paid (received) during the period for:			2023						2022
Interest			$	3,604					$	4,028
Income taxes, net of refunds			335						338
The following table summarizes capital expenditures:
			Six months ended
			June 30,
			2023						2022
Purchase of property and equipment			$	8,515					$	9,399
Interest during construction - capital expenditures1			90						77
Total Capital Expenditures			$	8,605					$	9,476
The following table summarizes acquisitions, net of cash acquired:
			Six months ended
			June 30,
			2023						2022
Business acquisitions			$	—					$	—
Spectrum acquisitions			68						8,965
Interest during construction - spectrum1			447						605
Total Acquisitions			$	515					$	9,570
1 Total capitalized interest was $537 and $682 for the six months ended June 30, 2023 and 2022, respectively.

Preferred Interests Issued by Subsidiary

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,” and are included in “Noncontrolling interest” on the consolidated balance sheets (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 Telco 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. The Mobility preferred interests had a redemption value of $5,320, with approximately $2,650 removed from “Accounts payable and accrued liabilities” and $2,670 removed from “Other noncurrent liabilities.” The repurchase was funded with proceeds from the April preferreds.

Mobility II Redeemable Noncontrolling Interests In June 2023, we issued two million Series B Cumulative Perpetual Preferred Membership Interests in Mobility II LLC (Mobility noncontrolling interests), which pay cash distributions of 6.8% per annum, subject to declaration. So long as the distributions are declared and paid, the terms of the Mobility noncontrolling

AT&T INC.

JUNE 30, 2023

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued

Dollars in millions except per share amounts

interests will not impose any limitations on cash movements between affiliates, or our ability to declare a dividend on or repurchase AT&T shares.

A holder of the Mobility noncontrolling interests may put the interests to Mobility II on or after the earliest of certain events or each June 15 and December 15, beginning on June 15, 2028. Mobility II may redeem the interests on each March 15 and September 15, beginning on March 15, 2028. The price at which a put option or a redemption option can be exercised is the sum of (a) $1,000 per Mobility noncontrolling interest plus (b) any accrued and unpaid distributions. The redemption price must be paid in cash.

The Mobility noncontrolling interests are required to be initially recorded at fair value less issuance costs and will accrete to redemption value of $2,000 through “Net Income Attributable to Noncontrolling Interest.” The Mobility noncontrolling interests are considered Level 3 under the Fair Value Measurement and Disclosures framework (see Note 7) and included in “Redeemable Noncontrolling Interest” on the consolidated balance sheets.

AT&T INC.

JUNE 30, 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.

						Second Quarter																		Six-Month Period
																		Percent																		Percent
						2023						2022						Change						2023						2022						Change
Operating Revenues
Communications						$	28,845					$	28,695					0.5		%				$	57,997					$	57,571					0.7		%
Latin America - Mexico						967						808						19.7						1,850						1,498						23.5
Corporate and Other:
Corporate						105						140						(25.0)						209						286						(26.9)
AT&T Operating Revenues						$	29,917					$	29,643					0.9		%				$	60,056					$	59,355					1.2		%
Operating Income
Communications						$	7,177					$	6,683					7.4		%				$	13,920					$	13,170					5.7		%
Latin America - Mexico						(39)						(82)						52.4						(69)						(184)						62.5
Segment Operating Income						7,138						6,601						8.1						13,851						12,986						6.7
Corporate						(743)						(704)						(5.5)						(1,481)						(1,334)						(11.0)
Certain significant items						11						(941)						—						38						(1,159)						—
AT&T Operating Income						$	6,406					$	4,956					29.3		%				$	12,408					$	10,493					18.3		%

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 stopped recording 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.

JUNE 30, 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.

						Second Quarter																		Six-Month Period
																		Percent																		Percent
						2023						2022						Change						2023						2022						Change
Operating Revenues
Service						$	24,850					$	24,268					2.4		%				$	49,467					$	48,267					2.5		%
Equipment						5,067						5,375						(5.7)						10,589						11,088						(4.5)
Total Operating Revenues						29,917						29,643						0.9						60,056						59,355						1.2
Operating expenses
Operations and support						18,836						20,237						(6.9)						38,342						39,950						(4.0)
Depreciation and amortization						4,675						4,450						5.1						9,306						8,912						4.4
Total Operating Expenses						23,511						24,687						(4.8)						47,648						48,862						(2.5)
Operating Income						6,406						4,956						29.3						12,408						10,493						18.3
Interest expense						1,608						1,502						7.1						3,316						3,128						6.0
Equity in net income of affiliates						380						504						(24.6)						918						1,025						(10.4)
Other income (expense) - net						987						2,302						(57.1)						1,922						4,459						(56.9)
Income from Continuing Operations Before Income Taxes						6,165						6,260						(1.5)						11,932						12,849						(7.1)
Income from Continuing Operations						$	4,762					$	4,751					0.2		%				$	9,215					$	9,900					(6.9)		%

Operating revenues increased in the second quarter and for the first six months 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 second quarter and for the first six months of 2023, reflecting prior year noncash impairment charges of approximately $600 million and benefits of our continued transformation efforts, partially offset by inflationary increases. In particular, operating expense declines were driven by lower domestic wireless equipment and associated selling costs from lower sales volumes, lower personnel costs and higher returns on benefit-related assets, partially offset by higher amortization of deferred customer acquisition costs. Expense decrease for the first six months was also driven by the absence of first-quarter 2022 3G network shutdown costs, partially offset by higher network and bad debt expenses in 2023.

Depreciation and amortization expense increased in the second quarter and for the first six months of 2023.

Depreciation expense increased $215, or 4.9%, in the second quarter and $376, or 4.3%, for the first six months of 2023 primarily due to ongoing capital spending for strategic initiatives such as fiber and network upgrades.

Amortization expense increased $10, or 28.6%, in the second quarter and $18, or 25.7%, for the first six months 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 second quarter and for the first six months of 2023. Our operating income margin in the second quarter increased from 16.7% in 2022 to 21.4% in 2023, and for the first six months increased from 17.7% in 2022 to 20.7% in 2023, reflecting lower equipment revenues which have lower margins as well as cost savings from our continued transformation efforts.

Interest expense increased in the second quarter and for the first six months of 2023, primarily due to lower capitalized interest associated with spectrum acquisitions and higher interest rates, partially offset by lower average debt balances. Interest expense for the first six months of 2023 also includes the reclassification of Mobility preferred interests distributions, which were

AT&T INC.

JUNE 30, 2023

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

Dollars in millions except per share amounts

repurchased on April 5, 2023 (see Note 12). Mobility preferred interest distributions were recorded as noncontrolling interest in 2022.

Equity in net income of affiliates decreased in the second quarter and for the first six months of 2023, primarily due to the performance of our investment in DIRECTV (see Note 10). The decrease for the first six months was partially offset by our share of a gain on a sale-leaseback transaction by DIRECTV of approximately $100 in the first quarter of 2023.

Other income (expense) – net decreased in the second quarter and for the first six months of 2023. The decreases were primarily driven by actuarial remeasurement of pension plan assets and obligations, with a $74 net actuarial and settlement gain in the second quarter and for the first six months of 2023, compared to a $1,345 gain in the second quarter and $2,398 for the first six months of 2022 (see Note 6). 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 second quarter and for the first six months of 2023. The decrease in the second quarter was primarily driven by lower income before income tax and lower state income tax expense. Our effective tax rate was 22.8% in the second quarter of 2023, versus 24.1% in the comparable period in the prior year.

The decrease for the first six months of 2023 was primarily due to lower income before income tax. Our effective tax rate was 22.8% for the first six months of 2023, versus 23.0% for the comparable period in the prior year.

COMMUNICATIONS SEGMENT						Second Quarter																		Six-Month Period
																		Percent																		Percent
						2023						2022						Change						2023						2022						Change
Segment Operating Revenues
Mobility						$	20,315					$	19,926					2.0		%				$	40,897					$	40,001					2.2		%
Business Wireline						5,279						5,595						(5.6)						10,610						11,235						(5.6)
Consumer Wireline						3,251						3,174						2.4						6,490						6,335						2.4
Total Segment Operating Revenues						$	28,845					$	28,695					0.5		%				$	57,997					$	57,571					0.7		%
Segment Operating Income
Mobility						$	6,613					$	6,048					9.3		%				$	12,884					$	11,737					9.8		%
Business Wireline						396						490						(19.2)						774						1,129						(31.4)
Consumer Wireline						168						145						15.9						262						304						(13.8)
Total Segment Operating Income						$	7,177					$	6,683					7.4		%				$	13,920					$	13,170					5.7		%

Selected Subscribers and Connections
						June 30,
(000s)						2023						2022
Mobility Subscribers						229,031						203,373
Total domestic broadband connections						15,304						15,509
Network access lines in service						4,677						5,725
U-verse VoIP connections						2,749						3,124

Operating revenues increased in the second quarter and for the first six months 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.

AT&T INC.

JUNE 30, 2023

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

Dollars in millions except per share amounts

Operating income increased in the second quarter and for the first six months of 2023, reflecting increases in our Mobility and Consumer Wireline business units, offset by lower operating income from our Business Wireline business unit in the second quarter. Operating income for the first six months reflects an increase in our Mobility business unit, offset by lower operating income from our Business Wireline and Consumer Wireline business units. Our Communications segment operating income margin in the second quarter increased from 23.3% in 2022 to 24.9% in 2023 and for the first six months increased from 22.9% in 2022 to 24.0% in 2023.

Communications Business Unit Discussion
Mobility Results
						Second Quarter																		Six-Month Period
																		Percent																		Percent
						2023						2022						Change						2023						2022						Change
Operating revenues
Service						$	15,745					$	15,004					4.9		%				$	31,228					$	29,728					5.0		%
Equipment						4,570						4,922						(7.2)						9,669						10,273						(5.9)
Total Operating Revenues						20,315						19,926						2.0						40,897						40,001						2.2
Operating expenses
Operations and support						11,579						11,861						(2.4)						23,792						24,188						(1.6)
Depreciation and amortization						2,123						2,017						5.3						4,221						4,076						3.6
Total Operating Expenses						13,702						13,878						(1.3)						28,013						28,264						(0.9)
Operating Income						$	6,613					$	6,048					9.3		%				$	12,884					$	11,737					9.8		%

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

Subscribers
						June 30,												Percent
(in 000s)						2023						2022						Change
Postpaid						85,846						82,694						3.8		%
Postpaid phone						70,331						68,311						3.0
Prepaid						19,352						19,095						1.3
Reseller						6,656						5,480						21.5
Connected devices1						117,177						96,104						21.9
Total Mobility Subscribers2						229,031						203,373						12.6		%
1Includes data-centric devices such as session-based tablets, monitoring devices and primarily wholesale automobile systems.
2Wireless subscribers at June 30, 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.

JUNE 30, 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
						Second Quarter																		Six-Month Period
																		Percent																		Percent
(in 000s)						2023						2022						Change						2023						2022						Change
Postpaid Phone Net Additions						326						813						(59.9)		%				750						1,504						(50.1)		%
Total Phone Net Additions						449						1,009						(55.5)						913						1,813						(49.6)
Postpaid2						464						1,058						(56.1)						1,006						2,023						(50.3)
Prepaid						167						231						(27.7)						207						347						(40.3)
Reseller						432						21						—						540						4						—
Connected devices3						5,129						5,292						(3.1)						9,586						9,760						(1.8)
Mobility Net Subscriber Additions1						6,192						6,602						(6.2)		%				11,339						12,134						(6.6)		%
Postpaid Churn4						0.95		%				0.93		%				2		BP				0.97		%				0.93		%				4		BP
Postpaid Phone-Only Churn4						0.79		%				0.75		%				4		BP				0.80		%				0.77		%				3		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 (31) and 54 for the quarter ended June 30, 2023 and 2022 and (49) and 85 for the first six months of June 30, 2023 and 2022. Wearables and other net adds were 169 and 191 for the quarter ended June 30, 2023 and 2022 and 305 and 434 for the first six months ended June 30, 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 2,900 and 2,800 for the quarter ended June 30, 2023 and June 30, 2022 and 5,600 and 4,700 for the first six months ended June 30, 2023 and June 30, 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 second quarter and for the first six months of 2023. The increases are largely due to growth from subscriber gains and postpaid average revenue per subscriber (ARPU) growth.

ARPU

ARPU increased in the second quarter and for the first six months 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 in the second quarter and for the first six months 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 second quarter and for the first six months of 2023, primarily driven by a lower volume of devices sold.

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

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

AT&T INC.

JUNE 30, 2023

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

Dollars in millions except per share amounts

Operating income increased in the second quarter and for the first six months of 2023. Our Mobility operating income margin in the second quarter increased from 30.4% in 2022 to 32.6% in 2023 and for the first six months increased from 29.3% in 2022 to 31.5% in 2023. Our Mobility EBITDA margin in the second quarter increased from 40.5% in 2022 to 43.0% in 2023 and for the six months increased from 39.5% in 2022 to 41.8% in 2023. EBITDA is defined as operating income excluding depreciation and amortization.

Business Wireline Results
						Second Quarter																		Six-Month Period
																		Percent																		Percent
						2023						2022						Change						2023						2022						Change
Operating revenues
Service						$	5,114					$	5,416					(5.6)		%				$	10,314					$	10,894					(5.3)		%
Equipment						165						179						(7.8)						296						341						(13.2)
Total Operating Revenues						5,279						5,595						(5.6)						10,610						11,235						(5.6)
Operating expenses
Operations and support						3,550						3,792						(6.4)						7,173						7,494						(4.3)
Depreciation and amortization						1,333						1,313						1.5						2,663						2,612						2.0
Total Operating Expenses						4,883						5,105						(4.3)						9,836						10,106						(2.7)
Operating Income						$	396					$	490					(19.2)		%				$	774					$	1,129					(31.4)		%

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

Operations and support expenses decreased in the second quarter and for the first six months 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, lower network access costs, which contained approximately $75 of benefit related to settlement of a dispute, and lower marketing expenses. The declines for the first six months 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 second quarter and for the first six months of 2023, primarily due to ongoing capital investment for strategic initiatives such as fiber.

Operating income decreased in the second quarter and for the first six months of 2023. Our Business Wireline operating income margin in the second quarter decreased from 8.8% in 2022 to 7.5% in 2023 and for the first six months decreased from 10.0% in 2022 to 7.3% in 2023. Our Business Wireline EBITDA margin in the second quarter increased from 32.2% in 2022 to 32.8% in 2023 and for the first six months decreased from 33.3% in 2022 to 32.4% in 2023.

AT&T INC.

JUNE 30, 2023