At&T Inc 10-Q for FY2023 Q3
At&T Inc. (T)
10-Q
2023-10-31
For: 2023-09-30
View Original
Added on
April 12, 2026
About this 10-Q
At&T Inc filed this 10-Q on October 31, 2023, covering the quarter ended September 30, 2023 (FY2023 Q3).
Headline figures
Quarter ended September 30, 2023, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $30.35B
- up 1.0% from $30.04B a year earlier
- Net income
- $3.5B
- down 42.0% from net income of $6.03B a year earlier
- Diluted EPS
- $0.48
- down 40.0% from $0.80 a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
| (Mark One) | ||||||||
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | ||||||||
For the quarterly period ended September 30, 2023
or
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | ||||||||
For the transition period from to
Commission File Number 001-8610
Incorporated under the laws of the State of Delaware
I.R.S. Employer Identification Number 43-1301883
Telephone Number: (210 ) 821-4105
Securities registered pursuant to Section 12(b) of the Act:
| Name of each exchange | ||||||||
| Title of each class | Trading Symbol(s) | on which registered | ||||||
Depositary Shares, each representing a 1/1000th interest in a share of 5.000% Perpetual Preferred Stock, Series A | ||||||||
Depositary Shares, each representing a 1/1000th interest in a share of 4.750% Perpetual Preferred Stock, Series C | ||||||||
| Name of each exchange | ||||||||
| Title of each class | Trading Symbol(s) | on which registered | ||||||
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definition of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| ☒ | Accelerated Filer | ☐ | |||||||||
| Non-accelerated filer | ☐ | Smaller reporting company | |||||||||
| Emerging growth company | |||||||||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ☐ No ☒
At October 25, 2023, there were 7,150,020,118 common shares outstanding.
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
| AT&T INC. | |||||||||||||||||||||||
| CONSOLIDATED STATEMENTS OF INCOME | |||||||||||||||||||||||
| Dollars in millions except per share amounts | |||||||||||||||||||||||
| (Unaudited) | |||||||||||||||||||||||
| Three months ended | Nine months ended | ||||||||||||||||||||||
| September 30, | September 30, | ||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
| Operating Revenues | |||||||||||||||||||||||
| Service | $ | $ | $ | $ | |||||||||||||||||||
| Equipment | |||||||||||||||||||||||
| Total operating revenues | |||||||||||||||||||||||
| Operating Expenses | |||||||||||||||||||||||
| Cost of revenues | |||||||||||||||||||||||
| Equipment | |||||||||||||||||||||||
Other cost of revenues (exclusive of depreciation and amortization shown separately below) | |||||||||||||||||||||||
| Selling, general and administrative | |||||||||||||||||||||||
Asset impairments and abandonments and restructuring | |||||||||||||||||||||||
| Depreciation and amortization | |||||||||||||||||||||||
| Total operating expenses | |||||||||||||||||||||||
| Operating Income | |||||||||||||||||||||||
| Other Income (Expense) | |||||||||||||||||||||||
| Interest expense | ( | ( | ( | ( | |||||||||||||||||||
| Equity in net income of affiliates | |||||||||||||||||||||||
Other income (expense) — net | |||||||||||||||||||||||
| Total other income (expense) | ( | ( | |||||||||||||||||||||
| Income from Continuing Operations Before Income Taxes | |||||||||||||||||||||||
| Income tax expense on continuing operations | |||||||||||||||||||||||
| Income from Continuing Operations | |||||||||||||||||||||||
Income (loss) from discontinued operations, net of tax | ( | ||||||||||||||||||||||
| Net Income | |||||||||||||||||||||||
| Less: Net Income Attributable to Noncontrolling Interest | ( | ( | ( | ( | |||||||||||||||||||
| Net Income Attributable to AT&T | $ | $ | $ | $ | |||||||||||||||||||
| Less: Preferred Stock Dividends | ( | ( | ( | ( | |||||||||||||||||||
| Net Income Attributable to Common Stock | $ | $ | $ | $ | |||||||||||||||||||
| Basic Earnings Per Share from continuing operations | $ | $ | $ | $ | |||||||||||||||||||
| Basic Earnings (Loss) Per Share from discontinued operations | $ | $ | $ | $ | ( | ||||||||||||||||||
| Basic Earnings Per Share Attributable to Common Stock | $ | $ | $ | $ | |||||||||||||||||||
| Diluted Earnings Per Share from continuing operations | $ | $ | $ | $ | |||||||||||||||||||
| Diluted Earnings (Loss) Per Share from discontinued operations | $ | $ | $ | $ | ( | ||||||||||||||||||
| Diluted Earnings Per Share Attributable to Common Stock | $ | $ | $ | $ | |||||||||||||||||||
Weighted Average Number of Common Shares Outstanding — Basic (in millions) | |||||||||||||||||||||||
Weighted Average Number of Common Shares Outstanding — with Dilution (in millions) | |||||||||||||||||||||||
See Notes to Consolidated Financial Statements.
3
| AT&T INC. | |||||||||||||||||||||||
| CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME | |||||||||||||||||||||||
| Dollars in millions | |||||||||||||||||||||||
| (Unaudited) | |||||||||||||||||||||||
| Three months ended | Nine months ended | ||||||||||||||||||||||
| September 30, | September 30, | ||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
| Net income | $ | $ | $ | $ | |||||||||||||||||||
| Other comprehensive income (loss), net of tax: | |||||||||||||||||||||||
| Foreign currency: | |||||||||||||||||||||||
Translation adjustment, net of taxes of $( and $ | ( | ( | |||||||||||||||||||||
Distribution of WarnerMedia, net of taxes of $ $ | ( | ( | |||||||||||||||||||||
| Securities: | |||||||||||||||||||||||
Net unrealized gains (losses), net of taxes of $( $( | ( | ( | ( | ( | |||||||||||||||||||
Reclassification adjustment included in net income, net of taxes of $ | |||||||||||||||||||||||
| Derivative instruments: | |||||||||||||||||||||||
Net unrealized gains (losses), net of taxes of $ $ | ( | ( | |||||||||||||||||||||
Reclassification adjustment included in net income, net of taxes of $ | |||||||||||||||||||||||
Distribution of WarnerMedia, net of taxes of $ $ | ( | ||||||||||||||||||||||
| Defined benefit postretirement plans: | |||||||||||||||||||||||
Net prior service credit arising during the period, net of taxes of $ | |||||||||||||||||||||||
Amortization of net prior service credit included in net income, net of taxes of $( and $( | ( | ( | ( | ( | |||||||||||||||||||
Distribution of WarnerMedia, net of taxes of $ and $ | |||||||||||||||||||||||
| Other comprehensive income (loss) | ( | ( | |||||||||||||||||||||
| Total comprehensive income | |||||||||||||||||||||||
Less: Total comprehensive income attributable to noncontrolling interest | ( | ( | ( | ( | |||||||||||||||||||
| Total Comprehensive Income Attributable to AT&T | $ | $ | $ | $ | |||||||||||||||||||
See Notes to Consolidated Financial Statements.
4
| AT&T INC. | |||||||||||
| CONSOLIDATED BALANCE SHEETS | |||||||||||
| Dollars in millions except per share amounts | |||||||||||
| (Unaudited) | |||||||||||
| September 30, | December 31, | ||||||||||
| 2023 | 2022 | ||||||||||
| Assets | |||||||||||
| Current Assets | |||||||||||
| Cash and cash equivalents | $ | $ | |||||||||
Accounts receivable – net of related allowances for credit loss of $ | |||||||||||
| Inventories | |||||||||||
| Prepaid and other current assets | |||||||||||
| Total current assets | |||||||||||
| Property, plant and equipment | |||||||||||
| Less: accumulated depreciation and amortization | ( | ( | |||||||||
| Property, Plant and Equipment – Net | |||||||||||
| Goodwill – Net | |||||||||||
| Licenses – Net | |||||||||||
| Other Intangible Assets – Net | |||||||||||
| Investments in and Advances to Equity Affiliates | |||||||||||
| Operating Lease Right-Of-Use Assets | |||||||||||
| Other Assets | |||||||||||
| Total Assets | $ | $ | |||||||||
| Liabilities and Stockholders’ Equity | |||||||||||
| Current Liabilities | |||||||||||
| Debt maturing within one year | $ | $ | |||||||||
| Note payable to DIRECTV | |||||||||||
| Accounts payable and accrued liabilities | |||||||||||
| Advanced billings and customer deposits | |||||||||||
| Dividends payable | |||||||||||
| Total current liabilities | |||||||||||
| Long-Term Debt | |||||||||||
| Deferred Credits and Other Noncurrent Liabilities | |||||||||||
| Deferred income taxes | |||||||||||
| Postemployment benefit obligation | |||||||||||
| Operating lease liabilities | |||||||||||
| Other noncurrent liabilities | |||||||||||
| Total deferred credits and other noncurrent liabilities | |||||||||||
| Redeemable Noncontrolling Interest | |||||||||||
| Stockholders’ Equity | |||||||||||
Preferred stock ($ | |||||||||||
Series A ( | |||||||||||
Series B ( | |||||||||||
Series C ( | |||||||||||
Common stock ($ December 31, 2022: issued | |||||||||||
| Additional paid-in capital | |||||||||||
| Retained (deficit) earnings | ( | ( | |||||||||
Treasury stock ( | ( | ( | |||||||||
| Accumulated other comprehensive income | |||||||||||
| Noncontrolling interest | |||||||||||
| Total stockholders’ equity | |||||||||||
| Total Liabilities and Stockholders’ Equity | $ | $ | |||||||||
See Notes to Consolidated Financial Statements.
5
| AT&T INC. | |||||||||||
| CONSOLIDATED STATEMENTS OF CASH FLOWS | |||||||||||
| Dollars in millions | |||||||||||
| (Unaudited) | |||||||||||
| Nine months ended | |||||||||||
| September 30, | |||||||||||
| 2023 | 2022 | ||||||||||
| Operating Activities | |||||||||||
| Income from continuing operations | $ | $ | |||||||||
| Adjustments to reconcile income from continuing operations to net cash provided by operating activities from continuing operations: | |||||||||||
| Depreciation and amortization | |||||||||||
| Provision for uncollectible accounts | |||||||||||
| Deferred income tax expense | |||||||||||
| Net (gain) loss on investments, net of impairments | |||||||||||
| Pension and postretirement benefit expense (credit) | ( | ( | |||||||||
| Actuarial and settlement (gain) loss on pension and postretirement benefits - net | ( | ( | |||||||||
| Asset impairments and abandonments and restructuring | |||||||||||
| Changes in operating assets and liabilities: | |||||||||||
| Receivables | |||||||||||
| Other current assets | ( | ||||||||||
| Accounts payable and other accrued liabilities | ( | ( | |||||||||
| Equipment installment receivables and related sales | ( | ||||||||||
| Deferred customer contract acquisition and fulfillment costs | ( | ||||||||||
| Postretirement claims and contributions | ( | ( | |||||||||
| Other - net | |||||||||||
| Total adjustments | |||||||||||
| Net Cash Provided by Operating Activities from Continuing Operations | |||||||||||
| Investing Activities | |||||||||||
| Capital expenditures | ( | ( | |||||||||
| Acquisitions, net of cash acquired | ( | ( | |||||||||
| Dispositions | |||||||||||
| Distributions from DIRECTV in excess of cumulative equity in earnings | |||||||||||
| (Purchases), sales and settlements of securities and investments - net | ( | ||||||||||
| Other - net | ( | ( | |||||||||
| Net Cash Used in Investing Activities from Continuing Operations | ( | ( | |||||||||
| Financing Activities | |||||||||||
| Net change in short-term borrowings with original maturities of three months or less | ( | ||||||||||
| Issuance of other short-term borrowings | |||||||||||
| Repayment of other short-term borrowings | ( | ( | |||||||||
| Issuance of long-term debt | |||||||||||
| Repayment of long-term debt | ( | ( | |||||||||
| Repayment of note payable to DIRECTV | ( | ( | |||||||||
| Payment of vendor financing | ( | ( | |||||||||
| Purchase of treasury stock | ( | ( | |||||||||
| Issuance of treasury stock | |||||||||||
| Issuance of preferred interests in subsidiary | |||||||||||
| Redemption of preferred interests in subsidiary | ( | ||||||||||
| Dividends paid | ( | ( | |||||||||
| Other - net | ( | ( | |||||||||
| Net Cash Used in Financing Activities from Continuing Operations | ( | ( | |||||||||
| Net increase (decrease) in cash and cash equivalents and restricted cash from continuing operations | ( | ||||||||||
| Cash flows from Discontinued Operations: | |||||||||||
| Cash (used in) provided by operating activities | ( | ||||||||||
| Cash provided by (used in) investing activities | |||||||||||
| Cash provided by (used in) financing activities | |||||||||||
| Net increase (decrease) in cash and cash equivalents and restricted cash from discontinued operations | |||||||||||
| Net increase (decrease) in cash and cash equivalents and restricted cash | $ | $ | ( | ||||||||
| Cash and cash equivalents and restricted cash beginning of year | |||||||||||
| Cash and Cash Equivalents and Restricted Cash End of Period | $ | $ | |||||||||
| See Notes to Consolidated Financial Statements. | |||||||||||
6
| AT&T INC. | |||||||||||||||||||||||||||||||||||||||||||||||
| CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY | |||||||||||||||||||||||||||||||||||||||||||||||
| Dollars and shares in millions except per share amounts | |||||||||||||||||||||||||||||||||||||||||||||||
| (Unaudited) | |||||||||||||||||||||||||||||||||||||||||||||||
| Three months ended | Nine months ended | ||||||||||||||||||||||||||||||||||||||||||||||
| September 30, 2023 | September 30, 2022 | September 30, 2023 | September 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 | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||||||
| Balance at end of period | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||||||
| Additional Paid-In Capital | |||||||||||||||||||||||||||||||||||||||||||||||
| Balance at beginning of period | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||||||
| Distribution of WarnerMedia | ( | ||||||||||||||||||||||||||||||||||||||||||||||
| Preferred stock dividends | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||
Common stock dividends ($ in 2023) | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||
| Issuance of treasury stock | ( | ( | ( | ( | |||||||||||||||||||||||||||||||||||||||||||
| Share-based payments | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||
| Balance at end of period | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||||||
| Retained (Deficit) Earnings | |||||||||||||||||||||||||||||||||||||||||||||||
| Balance at beginning of period | $ | ( | $ | $ | ( | $ | |||||||||||||||||||||||||||||||||||||||||
| Net income attributable to AT&T | |||||||||||||||||||||||||||||||||||||||||||||||
| Distribution of WarnerMedia | ( | ||||||||||||||||||||||||||||||||||||||||||||||
| Preferred stock dividends | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||
Common stock dividends ($ in 2022) | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||
| Balance at end of period | $ | ( | $ | $ | ( | $ | |||||||||||||||||||||||||||||||||||||||||
7
| AT&T INC. | |||||||||||||||||||||||||||||||||||||||||||||||
| CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY - continued | |||||||||||||||||||||||||||||||||||||||||||||||
| Dollars and shares in millions except per share amounts | |||||||||||||||||||||||||||||||||||||||||||||||
| (Unaudited) | |||||||||||||||||||||||||||||||||||||||||||||||
| Three months ended | Nine months ended | ||||||||||||||||||||||||||||||||||||||||||||||
| September 30, 2023 | September 30, 2022 | September 30, 2023 | September 30, 2022 | ||||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | ||||||||||||||||||||||||||||||||||||||||
| Treasury Stock | |||||||||||||||||||||||||||||||||||||||||||||||
| Balance at beginning of period | ( | $ | ( | ( | $ | ( | ( | $ | ( | ( | $ | ( | |||||||||||||||||||||||||||||||||||
Repurchase and acquisition of common stock | ( | ( | ( | ( | ( | ( | |||||||||||||||||||||||||||||||||||||||||
| Reissuance of treasury stock | |||||||||||||||||||||||||||||||||||||||||||||||
| Balance at end of period | ( | $ | ( | ( | $ | ( | ( | $ | ( | ( | $ | ( | |||||||||||||||||||||||||||||||||||
Accumulated Other Comprehensive Income Attributable to AT&T, net of tax | |||||||||||||||||||||||||||||||||||||||||||||||
| Balance at beginning of period | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||||||
Other comprehensive income (loss) attributable to AT&T | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||
| Balance at end of period | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||||||
Noncontrolling Interest1 | |||||||||||||||||||||||||||||||||||||||||||||||
| Balance at beginning of period | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||||||
Net income attributable to noncontrolling interest | |||||||||||||||||||||||||||||||||||||||||||||||
Issuance and acquisition (disposition) by noncontrolling owners | ( | ||||||||||||||||||||||||||||||||||||||||||||||
Redemption of noncontrolling interest | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||
| Distributions | ( | ( | ( | ( | |||||||||||||||||||||||||||||||||||||||||||
| Balance at end of period | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||||||
Total Stockholders' Equity at beginning of period | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||||||
Total Stockholders' Equity at end of period | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||||||
1Excludes redeemable noncontrolling interest | |||||||||||||||||||||||||||||||||||||||||||||||
See Notes to Consolidated Financial Statements.
8
AT&T INC.
SEPTEMBER 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.
Accounting Policies, Adopted and Pending Accounting Standards and Other Changes
9
AT&T INC.
SEPTEMBER 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 nine months ended September 30, 2023 and 2022, is shown in the table below:
| Three months ended | Nine months ended | ||||||||||||||||||||||
| September 30, | September 30, | ||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
| Numerators | |||||||||||||||||||||||
| Numerator for basic earnings per share: | |||||||||||||||||||||||
| Income from continuing operations, net of tax | $ | $ | $ | $ | |||||||||||||||||||
Net income from continuing operations attributable to noncontrolling interests | ( | ( | ( | ( | |||||||||||||||||||
| Preferred Stock Dividends | ( | ( | ( | ( | |||||||||||||||||||
Income from continuing operations attributable to common stock | |||||||||||||||||||||||
Income (loss) from discontinued operations attributable to common stock | ( | ||||||||||||||||||||||
| Net Income Attributable to Common Stock | $ | $ | $ | $ | |||||||||||||||||||
| Dilutive potential common shares: | |||||||||||||||||||||||
| Mobility preferred interests | |||||||||||||||||||||||
| Share-based payment | |||||||||||||||||||||||
| Numerator for diluted earnings per share | $ | $ | $ | $ | |||||||||||||||||||
| Denominators (000,000) | |||||||||||||||||||||||
| Denominator for basic earnings per share: | |||||||||||||||||||||||
| Weighted average number of common shares outstanding | |||||||||||||||||||||||
| Dilutive potential common shares: | |||||||||||||||||||||||
| Mobility preferred interests (in shares) | |||||||||||||||||||||||
| Share-based payment (in shares) | |||||||||||||||||||||||
| Denominator for diluted earnings per share | |||||||||||||||||||||||
10
AT&T INC.
SEPTEMBER 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 | $ | ( | $ | ( | $ | ( | $ | $ | |||||||||||||||||||||
Other comprehensive income (loss) before reclassifications | ( | ||||||||||||||||||||||||||||
Amounts reclassified from accumulated OCI | 1 | 1 | 2 | ( | 3 | ( | |||||||||||||||||||||||
Net other comprehensive income (loss) | ( | ( | ( | ||||||||||||||||||||||||||
| Balance as of September 30, 2023 | $ | ( | $ | ( | $ | ( | $ | $ | |||||||||||||||||||||
| 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 | $ | ( | $ | $ | ( | $ | $ | ||||||||||||||||||||||
Other comprehensive income (loss) before reclassifications | ( | ( | |||||||||||||||||||||||||||
Amounts reclassified from accumulated OCI | 1 | 1 | 2 | ( | 3 | ( | |||||||||||||||||||||||
| Distribution of WarnerMedia | ( | ( | ( | ||||||||||||||||||||||||||
Net other comprehensive income (loss) | ( | ( | ( | ( | |||||||||||||||||||||||||
| Balance as of September 30, 2022 | $ | ( | $ | ( | $ | ( | $ | $ | |||||||||||||||||||||
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.
11
AT&T INC.
SEPTEMBER 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.
12
AT&T INC.
SEPTEMBER 30, 2023
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Dollars in millions except per share amounts
| For the three months ended September 30, 2023 | |||||||||||||||||||||||||||||
| Revenues | Operations and Support Expenses | EBITDA | Depreciation and Amortization | Operating Income (Loss) | |||||||||||||||||||||||||
| Communications | |||||||||||||||||||||||||||||
| Mobility | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Business Wireline | |||||||||||||||||||||||||||||
| Consumer Wireline | |||||||||||||||||||||||||||||
| Total Communications | |||||||||||||||||||||||||||||
| Latin America - Mexico | ( | ||||||||||||||||||||||||||||
| Segment Total | |||||||||||||||||||||||||||||
| Corporate and Other | |||||||||||||||||||||||||||||
| Corporate: | |||||||||||||||||||||||||||||
| DTV-related retained costs | ( | ( | |||||||||||||||||||||||||||
| Parent administration support | ( | ( | ( | ||||||||||||||||||||||||||
Securitization fees | ( | ( | |||||||||||||||||||||||||||
| Value portfolio | |||||||||||||||||||||||||||||
| Total Corporate | ( | ( | |||||||||||||||||||||||||||
| Certain significant items | ( | ( | |||||||||||||||||||||||||||
| Total Corporate and Other | ( | ( | |||||||||||||||||||||||||||
| AT&T Inc. | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| For the three months ended September 30, 2022 | |||||||||||||||||||||||||||||
| Revenues | Operations and Support Expenses | EBITDA | Depreciation and Amortization | Operating Income (Loss) | |||||||||||||||||||||||||
| Communications | |||||||||||||||||||||||||||||
| Mobility | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Business Wireline | |||||||||||||||||||||||||||||
| Consumer Wireline | |||||||||||||||||||||||||||||
| Total Communications | |||||||||||||||||||||||||||||
| Latin America - Mexico | ( | ||||||||||||||||||||||||||||
| Segment Total | |||||||||||||||||||||||||||||
| Corporate and Other | |||||||||||||||||||||||||||||
| Corporate: | |||||||||||||||||||||||||||||
| DTV-related retained costs | ( | ( | |||||||||||||||||||||||||||
| Parent administration support | ( | ( | ( | ||||||||||||||||||||||||||
Securitization fees | ( | ( | |||||||||||||||||||||||||||
| Value portfolio | |||||||||||||||||||||||||||||
| Total Corporate | ( | ( | |||||||||||||||||||||||||||
| Certain significant items | ( | ( | |||||||||||||||||||||||||||
| Total Corporate and Other | ( | ( | |||||||||||||||||||||||||||
| AT&T Inc. | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
13
AT&T INC.
SEPTEMBER 30, 2023
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Dollars in millions except per share amounts
| For the nine months ended September 30, 2023 | |||||||||||||||||||||||||||||
| Revenues | Operations and Support Expenses | EBITDA | Depreciation and Amortization | Operating Income (Loss) | |||||||||||||||||||||||||
| Communications | |||||||||||||||||||||||||||||
| Mobility | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Business Wireline | |||||||||||||||||||||||||||||
| Consumer Wireline | |||||||||||||||||||||||||||||
| Total Communications | |||||||||||||||||||||||||||||
| Latin America - Mexico | ( | ||||||||||||||||||||||||||||
| Segment Total | |||||||||||||||||||||||||||||
| Corporate and Other | |||||||||||||||||||||||||||||
| Corporate: | |||||||||||||||||||||||||||||
| DTV-related retained costs | ( | ( | |||||||||||||||||||||||||||
| Parent administration support | ( | ( | ( | ||||||||||||||||||||||||||
| Securitization fees | ( | ( | |||||||||||||||||||||||||||
| Value portfolio | |||||||||||||||||||||||||||||
| Total Corporate | ( | ( | |||||||||||||||||||||||||||
| Certain significant items | ( | ( | |||||||||||||||||||||||||||
| Total Corporate and Other | ( | ( | |||||||||||||||||||||||||||
| AT&T Inc. | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| For the nine months ended September 30, 2022 | |||||||||||||||||||||||||||||
| Revenues | Operations and Support Expenses | EBITDA | Depreciation and Amortization | Operating Income (Loss) | |||||||||||||||||||||||||
| Communications | |||||||||||||||||||||||||||||
| Mobility | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Business Wireline | |||||||||||||||||||||||||||||
| Consumer Wireline | |||||||||||||||||||||||||||||
| Total Communications | |||||||||||||||||||||||||||||
| Latin America - Mexico | ( | ||||||||||||||||||||||||||||
| Segment Total | |||||||||||||||||||||||||||||
| Corporate and Other | |||||||||||||||||||||||||||||
| Corporate: | |||||||||||||||||||||||||||||
| DTV-related retained costs | ( | ( | |||||||||||||||||||||||||||
| Parent administration support | ( | ( | ( | ||||||||||||||||||||||||||
| Securitization fees | ( | ( | |||||||||||||||||||||||||||
| Value portfolio | |||||||||||||||||||||||||||||
| Total Corporate | ( | ( | |||||||||||||||||||||||||||
| Certain significant items | ( | ( | |||||||||||||||||||||||||||
| Total Corporate and Other | ( | ( | |||||||||||||||||||||||||||
| AT&T Inc. | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
14
AT&T INC.
SEPTEMBER 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 September 30, | Nine months ended September 30, | ||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
| Communications | $ | $ | $ | $ | |||||||||||||||||||
| Latin America | ( | ( | ( | ( | |||||||||||||||||||
| Segment Operating Income | |||||||||||||||||||||||
| Reconciling Items: | |||||||||||||||||||||||
| Corporate | ( | ( | ( | ( | |||||||||||||||||||
| Transaction and other costs | ( | ( | ( | ( | |||||||||||||||||||
| Amortization of intangibles acquired | ( | ( | ( | ( | |||||||||||||||||||
| Asset impairments and abandonments and restructuring | ( | ( | ( | ( | |||||||||||||||||||
| Benefit-related gains (losses) | ( | ( | ( | ||||||||||||||||||||
| AT&T Operating Income | |||||||||||||||||||||||
| Interest expense | |||||||||||||||||||||||
| Equity in net income of affiliates | |||||||||||||||||||||||
Other income (expense) — net | |||||||||||||||||||||||
| Income from Continuing Operations Before Income Taxes | $ | $ | $ | $ | |||||||||||||||||||
NOTE 5. REVENUE RECOGNITION
Revenue Categories
The following tables set forth reported revenue by category and by business unit:
| For the three months ended September 30, 2023 | |||||||||||||||||||||||||||||||||||||||||
| Communications | |||||||||||||||||||||||||||||||||||||||||
| Mobility | Business Wireline | Consumer Wireline | Latin America | Corporate & Other | Total | ||||||||||||||||||||||||||||||||||||
| Wireless service | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||
| Business service | |||||||||||||||||||||||||||||||||||||||||
| Broadband | |||||||||||||||||||||||||||||||||||||||||
| Legacy voice and data | |||||||||||||||||||||||||||||||||||||||||
| Other | |||||||||||||||||||||||||||||||||||||||||
| Total Service | |||||||||||||||||||||||||||||||||||||||||
| Equipment | |||||||||||||||||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||
15
AT&T INC.
SEPTEMBER 30, 2023
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Dollars in millions except per share amounts
| For the three months ended September 30, 2022 | |||||||||||||||||||||||||||||||||||||||||
| Communications | |||||||||||||||||||||||||||||||||||||||||
| Mobility | Business Wireline | Consumer Wireline | Latin America | Corporate & Other | Total | ||||||||||||||||||||||||||||||||||||
| Wireless service | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||
| Business service | |||||||||||||||||||||||||||||||||||||||||
| Broadband | |||||||||||||||||||||||||||||||||||||||||
| Legacy voice and data | |||||||||||||||||||||||||||||||||||||||||
| Other | |||||||||||||||||||||||||||||||||||||||||
| Total Service | |||||||||||||||||||||||||||||||||||||||||
| Equipment | |||||||||||||||||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||
| For the nine months ended September 30, 2023 | |||||||||||||||||||||||||||||||||||||||||
| Communications | |||||||||||||||||||||||||||||||||||||||||
| Mobility | Business Wireline | Consumer Wireline | Latin America | Corporate & Other | Total | ||||||||||||||||||||||||||||||||||||
| Wireless service | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||
| Business service | |||||||||||||||||||||||||||||||||||||||||
| Broadband | |||||||||||||||||||||||||||||||||||||||||
| Legacy voice and data | |||||||||||||||||||||||||||||||||||||||||
| Other | |||||||||||||||||||||||||||||||||||||||||
| Total Service | |||||||||||||||||||||||||||||||||||||||||
| Equipment | |||||||||||||||||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||
| For the nine months ended September 30, 2022 | |||||||||||||||||||||||||||||||||||||||||
| Communications | |||||||||||||||||||||||||||||||||||||||||
| Mobility | Business Wireline | Consumer Wireline | Latin America | Corporate & Other | Total | ||||||||||||||||||||||||||||||||||||
| Wireless service | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||
| Business service | |||||||||||||||||||||||||||||||||||||||||
| Broadband | |||||||||||||||||||||||||||||||||||||||||
| Legacy voice and data | |||||||||||||||||||||||||||||||||||||||||
| Other | |||||||||||||||||||||||||||||||||||||||||
| Total Service | |||||||||||||||||||||||||||||||||||||||||
| Equipment | |||||||||||||||||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||
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 five years
16
AT&T INC.
SEPTEMBER 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:
| September 30, | December 31, | ||||||||||
| Consolidated Balance Sheets | 2023 | 2022 | |||||||||
| Deferred Acquisition Costs | |||||||||||
| Prepaid and other current assets | $ | $ | |||||||||
| Other Assets | |||||||||||
| Total deferred customer contract acquisition costs | $ | $ | |||||||||
| Deferred Fulfillment Costs | |||||||||||
| Prepaid and other current assets | $ | $ | |||||||||
| Other Assets | |||||||||||
| Total deferred customer contract fulfillment costs | $ | $ | |||||||||
The following table presents deferred customer contract acquisition and fulfillment cost amortization (primarily included in “Selling, general and administrative” and “Other cost of revenues,” respectively) for the nine months ended:
| September 30, | September 30, | ||||||||||
| Consolidated Statements of Income | 2023 | 2022 | |||||||||
| Deferred acquisition cost amortization | $ | $ | |||||||||
| Deferred fulfillment cost amortization | |||||||||||
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:
| September 30, | December 31, | ||||||||||
| Consolidated Balance Sheets | 2023 | 2022 | |||||||||
| Contract asset | $ | $ | |||||||||
| Current portion in “Prepaid and other current assets” | |||||||||||
| Contract liability | |||||||||||
| Current portion in “Advanced billings and customer deposits” | |||||||||||
Our contract asset balances at September 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 $3,576 .
17
AT&T INC.
SEPTEMBER 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 September 30, 2023, the aggregate amount of the transaction price allocated to remaining performance obligations was $36,686 , of which we expect to recognize approximately 63 % 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.
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 is 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 third quarter 2023 remeasurement resulted in the recognition of an actuarial gain of $71 in the third quarter and an actuarial loss of $218 for the first nine months of 2023.
As part of our remeasurement, the weighted-average discount rate used to measure our pension benefit obligation was approximately 5.90 % at September 30, 2023 compared to 5.20 % at June 30, 2023, an increase of 70 basis points. The discount rates in effect for determining pension service and interest costs after our September 30 remeasurement are 5.90 % and 5.70 %, respectively. The remeasurement also reflects actual returns on pension plan assets of (1.10 )% (nine-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.
18
AT&T INC.
SEPTEMBER 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 | Nine months ended | ||||||||||||||||||||||
| September 30, | September 30, | ||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
| Pension cost: | |||||||||||||||||||||||
| Service cost – benefits earned during the period | $ | $ | $ | $ | |||||||||||||||||||
| Interest cost on projected benefit obligation | |||||||||||||||||||||||
| Expected return on assets | ( | ( | ( | ( | |||||||||||||||||||
| Amortization of prior service credit | ( | ( | ( | ( | |||||||||||||||||||
| Net pension (credit) cost before remeasurement | ( | ( | ( | ( | |||||||||||||||||||
| Actuarial (gain) loss | ( | ( | ( | ||||||||||||||||||||
| Settlement (gain) loss | ( | ||||||||||||||||||||||
| Net pension (credit) cost | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||
| Postretirement cost: | |||||||||||||||||||||||
| Service cost – benefits earned during the period | $ | $ | $ | $ | |||||||||||||||||||
Interest cost on accumulated postretirement benefit obligation | |||||||||||||||||||||||
| Expected return on assets | ( | ( | ( | ( | |||||||||||||||||||
| Amortization of prior service credit | ( | ( | ( | ( | |||||||||||||||||||
| Net postretirement (credit) cost before remeasurement | ( | ( | ( | ( | |||||||||||||||||||
| Actuarial (gain) loss | ( | ( | |||||||||||||||||||||
| Net postretirement (credit) cost | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||
| Combined net pension and postretirement (credit) cost | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||
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.
19
AT&T INC.
SEPTEMBER 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:
| September 30, 2023 | December 31, 2022 | ||||||||||||||||||||||
| Carrying | Fair | Carrying | Fair | ||||||||||||||||||||
| Amount | Value | Amount | Value | ||||||||||||||||||||
Notes and debentures1 | $ | $ | $ | $ | |||||||||||||||||||
| Commercial paper | |||||||||||||||||||||||
Investment securities2 | |||||||||||||||||||||||
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 September 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.
| September 30, 2023 | |||||||||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||||||
| Equity Securities | |||||||||||||||||||||||
| Domestic equities | $ | $ | $ | $ | |||||||||||||||||||
| International equities | |||||||||||||||||||||||
| Fixed income equities | |||||||||||||||||||||||
| Available-for-Sale Debt Securities | |||||||||||||||||||||||
| Asset Derivatives | |||||||||||||||||||||||
| Cross-currency swaps | |||||||||||||||||||||||
| Liability Derivatives | |||||||||||||||||||||||
| Interest rate swaps | ( | ( | |||||||||||||||||||||
| Cross-currency swaps | ( | ( | |||||||||||||||||||||
| December 31, 2022 | |||||||||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||||||
| Equity Securities | |||||||||||||||||||||||
| Domestic equities | $ | $ | $ | $ | |||||||||||||||||||
| International equities | |||||||||||||||||||||||
| Fixed income equities | |||||||||||||||||||||||
| Available-for-Sale Debt Securities | |||||||||||||||||||||||
| Asset Derivatives | |||||||||||||||||||||||
| Cross-currency swaps | |||||||||||||||||||||||
| Liability Derivatives | |||||||||||||||||||||||
| Cross-currency swaps | ( | ( | |||||||||||||||||||||
| Foreign exchange contracts | ( | ( | |||||||||||||||||||||
20
AT&T INC.
SEPTEMBER 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 | Nine months ended | ||||||||||||||||||||||
| September 30, | September 30, | ||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
| Total gains (losses) recognized on equity securities | $ | ( | $ | ( | $ | $ | ( | ||||||||||||||||
| Gains (losses) recognized on equity securities sold | ( | ( | ( | ( | |||||||||||||||||||
| Unrealized gains (losses) recognized on equity securities held at end of period | $ | ( | $ | ( | $ | $ | ( | ||||||||||||||||
At September 30, 2023, available-for-sale debt securities totaling $1,176 have maturities as follows - less than one year: $94 ; one to three years: $189 ; three to five years: $147 ; five or more years: $746 .
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 nine months ended September 30, 2023 and 2022, no ineffectiveness was measured on fair value hedges.
21
AT&T INC.
SEPTEMBER 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 September 30, 2023, we had posted collateral of $689 (a deposit asset) and held collateral of $1 (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 September, we would have been required to post additional collateral of $53 . 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 $4,642 . 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:
| September 30, | December 31, | ||||||||||
| 2023 | 2022 | ||||||||||
| Interest rate swaps | $ | $ | |||||||||
| Cross-currency swaps | |||||||||||
| Foreign exchange contracts | |||||||||||
| Total | $ | $ | |||||||||
22
AT&T INC.
SEPTEMBER 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 | Nine months ended | ||||||||||||||||||||||
| September 30, | September 30, | ||||||||||||||||||||||
| Fair Value Hedging Relationships | 2023 | 2022 | 2023 | 2022 | |||||||||||||||||||
| Interest rate swaps (“Interest expense”): | |||||||||||||||||||||||
| Gain (loss) on interest rate swaps | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||
| Gain (loss) on long-term debt | |||||||||||||||||||||||
| Cross-currency swaps: | |||||||||||||||||||||||
| Gain (loss) on cross-currency swaps | ( | ( | ( | ||||||||||||||||||||
| Gain (loss) on long-term debt | ( | ||||||||||||||||||||||
| Gain (loss) recognized in accumulated OCI | ( | ||||||||||||||||||||||
| Foreign exchange contracts: | |||||||||||||||||||||||
| Gain (loss) on foreign exchange contracts | ( | ( | |||||||||||||||||||||
| Gain (loss) on long-term debt | ( | ( | |||||||||||||||||||||
| Gain (loss) recognized in accumulated OCI | ( | ( | |||||||||||||||||||||
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 | Nine months ended | ||||||||||||||||||||||
| September 30, | September 30, | ||||||||||||||||||||||
| Cash Flow Hedging Relationships | 2023 | 2022 | 2023 | 2022 | |||||||||||||||||||
| Cross-currency swaps: | |||||||||||||||||||||||
| Gain (loss) recognized in accumulated OCI | $ | $ | ( | $ | $ | ( | |||||||||||||||||
| Foreign exchange contracts: | |||||||||||||||||||||||
| Gain (loss) recognized in accumulated OCI | |||||||||||||||||||||||
Other income (expense) - net reclassified from accumulated OCI into income | |||||||||||||||||||||||
| Interest rate locks: | |||||||||||||||||||||||
Interest income (expense) reclassified from accumulated OCI into income | ( | ( | ( | ( | |||||||||||||||||||
| Other income (expense) reclassified from accumulated OCI into income | ( | ||||||||||||||||||||||
| Distribution of WarnerMedia | ( | ||||||||||||||||||||||
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.
23
AT&T INC.
SEPTEMBER 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 nine months ended September 30, 2023 and 2022:
| Three months ended | Nine months ended | ||||||||||||||||||||||
| September 30, | September 30, | ||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
Net cash (paid) received from equipment installment receivables1 | $ | $ | $ | $ | |||||||||||||||||||
Net cash received from other programs2 | |||||||||||||||||||||||
| Total net cash impact to cash flows from operating activities | $ | $ | $ | $ | |||||||||||||||||||
1Cash from initial sales of $ | |||||||||||||||||||||||
2Certain transferred receivables are guaranteed by a subsidiary that holds additional receivables in the amount of $ | |||||||||||||||||||||||
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:
| September 30, 2023 | December 31, 2022 | ||||||||||||||||||||||
| Gross receivables: | $ | $ | |||||||||||||||||||||
| Balance sheet classification | |||||||||||||||||||||||
| Accounts receivable | |||||||||||||||||||||||
| Notes receivable | |||||||||||||||||||||||
| Trade receivables | |||||||||||||||||||||||
| Other Assets | |||||||||||||||||||||||
| Noncurrent notes and trade receivables | |||||||||||||||||||||||
Outstanding portfolio of receivables derecognized from our consolidated balance sheets | $ | $ | |||||||||||||||||||||
Cash proceeds received, net of remittances1 | |||||||||||||||||||||||
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.
24
AT&T INC.
SEPTEMBER 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 nine months ended September 30, 2023 and 2022:
| Three months ended | Nine months ended | ||||||||||||||||||||||
| September 30, | September 30, | ||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
Gross receivables sold1 | $ | $ | $ | $ | |||||||||||||||||||
Net receivables sold2 | |||||||||||||||||||||||
| Cash proceeds received | |||||||||||||||||||||||
| Deferred purchase price recorded | |||||||||||||||||||||||
| Guarantee obligation recorded | |||||||||||||||||||||||
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 nine months ended September 30, 2023 and 2022:
| Three months ended | Nine months ended | ||||||||||||||||||||||
| September 30, | September 30, | ||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
| Fair value of repurchased receivables | $ | $ | $ | $ | |||||||||||||||||||
| Carrying value of deferred purchase price | |||||||||||||||||||||||
Gain (loss) on repurchases1 | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||
1These gains (losses) are included in “Selling, general and administrative” expense in the consolidated statements of income. | |||||||||||||||||||||||
At September 30, 2023 and December 31, 2022, our deferred purchase price receivable was $2,459 and $2,318 , respectively, of which $1,538 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 September 30, 2023 and December 31, 2022 was $349 and $419 , respectively, of which $116 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
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.
25
AT&T INC.
SEPTEMBER 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 | Nine months ended | ||||||||||||||||||||||
| September 30, | September 30, | ||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
| Operating lease cost | $ | $ | $ | $ | |||||||||||||||||||
| Finance lease cost: | |||||||||||||||||||||||
| Amortization of leased assets in property, plant and equipment | $ | $ | $ | $ | |||||||||||||||||||
| Interest on lease obligation | |||||||||||||||||||||||
| Total finance lease cost | $ | $ | $ | $ | |||||||||||||||||||
The following table provides supplemental cash flows information related to leases:
| Nine months ended | ||||||||||||||
| September 30, | ||||||||||||||
| 2023 | 2022 | |||||||||||||
| Cash Flows from Operating Activities | ||||||||||||||
| Cash paid for amounts included in lease obligations: | ||||||||||||||
| Operating cash flows for operating leases | $ | $ | ||||||||||||
| Supplemental Lease Cash Flow Disclosures | ||||||||||||||
Operating lease right-of-use assets obtained in exchange for new operating lease obligations | ||||||||||||||
The following tables set forth supplemental balance sheet information related to leases:
| September 30, 2023 | December 31, 2022 | ||||||||||
| Operating Leases | |||||||||||
| Operating lease right-of-use assets | $ | $ | |||||||||
| $ | $ | ||||||||||
| Total operating lease obligation | $ | $ | |||||||||
| Finance Leases | |||||||||||
| Property, plant and equipment, at cost | $ | $ | |||||||||
| Accumulated depreciation and amortization | ( | ( | |||||||||
| $ | $ | ||||||||||
| $ | $ | ||||||||||
| Total finance lease obligation | $ | $ | |||||||||
26
AT&T INC.
SEPTEMBER 30, 2023
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Dollars in millions except per share amounts
| September 30, | |||||||||||
| 2023 | 2022 | ||||||||||
| Weighted-Average Remaining Lease Term (years) | |||||||||||
| Operating leases | |||||||||||
| Finance leases | |||||||||||
| Weighted-Average Discount Rate | |||||||||||
| Operating leases | % | % | |||||||||
| Finance leases | % | % | |||||||||
The following table provides the expected future minimum maturities of lease obligations:
| At September 30, 2023 | Operating | Finance | |||||||||
| Leases | Leases | ||||||||||
| Remainder of 2023 | $ | $ | |||||||||
| 2024 | |||||||||||
| 2025 | |||||||||||
| 2026 | |||||||||||
| 2027 | |||||||||||
| Thereafter | |||||||||||
| Total lease payments | |||||||||||
| Less: imputed interest | ( | ( | |||||||||
| Total | $ | $ | |||||||||
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 $1,334 and $1,429 for the nine months ended September 30, 2023 and 2022, respectively. Cash distributions from DIRECTV for the first nine months of 2023 totaled $2,781 , with $1,334 classified as operating activities and $1,447 classified as investing activities in our consolidated statement of cash flows versus total cash distributions of $3,634 ($1,429 operating and $2,205 investing) in the comparable prior period. Our investment in DIRECTV at September 30, 2023 was $1,476 .
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 the three and nine months ended September 30, 2023, we billed DIRECTV approximately $160 and $580 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 $167 in the third quarter and $514 for the first nine months of 2023.
At September 30, 2023, we had accounts receivable from DIRECTV of $245 and accounts payable to DIRECTV of $40 .
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.
27
AT&T INC.
SEPTEMBER 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 from 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 $2,394 and $2,869 of our outstanding payment obligations as of September 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 $2,645 of direct supplier financing outstanding at September 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 nine months ended September 30, 2023 and 2022, we recorded vendor financing commitments related to capital investments of approximately $2,128 and $3,916 , respectively. We had $3,336 vendor financing payables at September 30, 2023, with $2,092 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:
| September 30, | December 31, | ||||||||||||||||||||||
| 2023 | 2022 | 2022 | 2021 | ||||||||||||||||||||
| Cash and cash equivalents from continuing operations | $ | $ | $ | $ | |||||||||||||||||||
| Cash and cash equivalents from discontinued operations | |||||||||||||||||||||||
| Restricted cash in Prepaid and other current assets | |||||||||||||||||||||||
| Restricted cash in Other Assets | |||||||||||||||||||||||
| Cash and Cash Equivalents and Restricted Cash | $ | $ | $ | $ | |||||||||||||||||||
28
AT&T INC.
SEPTEMBER 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:
| Nine months ended | |||||||||||
| September 30, | |||||||||||
| Cash paid (received) during the period for: | 2023 | 2022 | |||||||||
| Interest | $ | $ | |||||||||
| Income taxes, net of refunds | |||||||||||
| The following table summarizes capital expenditures: | |||||||||||
| Nine months ended | |||||||||||
| September 30, | |||||||||||
| 2023 | 2022 | ||||||||||
| Purchase of property and equipment | $ | $ | |||||||||
Interest during construction - capital expenditures1 | |||||||||||
| Total Capital Expenditures | $ | $ | |||||||||
| The following table summarizes acquisitions, net of cash acquired: | |||||||||||
| Nine months ended | |||||||||||
| September 30, | |||||||||||
| 2023 | 2022 | ||||||||||
| Business acquisitions | $ | $ | |||||||||
| Spectrum acquisitions | |||||||||||
Interest during construction - spectrum1 | |||||||||||
| Total Acquisitions | $ | $ | |||||||||
1 Total capitalized interest was $ | |||||||||||
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 primarily 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
29
AT&T INC.
SEPTEMBER 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.
30
AT&T INC.
SEPTEMBER 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.
| Third Quarter | Nine-Month Period | |||||||||||||||||||||||||||||||||||||
| Percent | Percent | |||||||||||||||||||||||||||||||||||||
| 2023 | 2022 | Change | 2023 | 2022 | Change | |||||||||||||||||||||||||||||||||
| Operating Revenues | ||||||||||||||||||||||||||||||||||||||
| Communications | $ | 29,244 | $ | 29,131 | 0.4 | % | $ | 87,241 | $ | 86,702 | 0.6 | % | ||||||||||||||||||||||||||
| Latin America - Mexico | 992 | 785 | 26.4 | 2,842 | 2,283 | 24.5 | ||||||||||||||||||||||||||||||||
| Corporate and Other: | ||||||||||||||||||||||||||||||||||||||
| Corporate | 114 | 127 | (10.2) | 323 | 413 | (21.8) | ||||||||||||||||||||||||||||||||
| AT&T Operating Revenues | $ | 30,350 | $ | 30,043 | 1.0 | % | $ | 90,406 | $ | 89,398 | 1.1 | % | ||||||||||||||||||||||||||
| Operating Income | ||||||||||||||||||||||||||||||||||||||
| Communications | $ | 7,273 | $ | 6,989 | 4.1 | % | $ | 21,193 | $ | 20,159 | 5.1 | % | ||||||||||||||||||||||||||
| Latin America - Mexico | (29) | (63) | 54.0 | (98) | (247) | 60.3 | ||||||||||||||||||||||||||||||||
| Segment Operating Income | 7,244 | 6,926 | 4.6 | 21,095 | 19,912 | 5.9 | ||||||||||||||||||||||||||||||||
| Corporate | (725) | (710) | (2.1) | (2,206) | (2,044) | (7.9) | ||||||||||||||||||||||||||||||||
| Certain significant items | (737) | (204) | — | (699) | (1,363) | 48.7 | ||||||||||||||||||||||||||||||||
| AT&T Operating Income | $ | 5,782 | $ | 6,012 | (3.8) | % | $ | 18,190 | $ | 16,505 | 10.2 | % | ||||||||||||||||||||||||||
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.
31
AT&T INC.
SEPTEMBER 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.
| Third Quarter | Nine-Month Period | |||||||||||||||||||||||||||||||||||||
| Percent | Percent | |||||||||||||||||||||||||||||||||||||
| 2023 | 2022 | Change | 2023 | 2022 | Change | |||||||||||||||||||||||||||||||||
| Operating Revenues | ||||||||||||||||||||||||||||||||||||||
| Service | $ | 25,112 | $ | 24,731 | 1.5 | % | $ | 74,579 | $ | 72,998 | 2.2 | % | ||||||||||||||||||||||||||
| Equipment | 5,238 | 5,312 | (1.4) | 15,827 | 16,400 | (3.5) | ||||||||||||||||||||||||||||||||
| Total Operating Revenues | 30,350 | 30,043 | 1.0 | 90,406 | 89,398 | 1.1 | ||||||||||||||||||||||||||||||||
Operating Expenses | ||||||||||||||||||||||||||||||||||||||
| Operations and support | 19,863 | 19,517 | 1.8 | 58,205 | 59,467 | (2.1) | ||||||||||||||||||||||||||||||||
| Depreciation and amortization | 4,705 | 4,514 | 4.2 | 14,011 | 13,426 | 4.4 | ||||||||||||||||||||||||||||||||
| Total Operating Expenses | 24,568 | 24,031 | 2.2 | 72,216 | 72,893 | (0.9) | ||||||||||||||||||||||||||||||||
| Operating Income | 5,782 | 6,012 | (3.8) | 18,190 | 16,505 | 10.2 | ||||||||||||||||||||||||||||||||
| Interest expense | 1,662 | 1,420 | 17.0 | 4,978 | 4,548 | 9.5 | ||||||||||||||||||||||||||||||||
| Equity in net income of affiliates | 420 | 392 | 7.1 | 1,338 | 1,417 | (5.6) | ||||||||||||||||||||||||||||||||
Other income (expense) — net | 440 | 2,270 | (80.6) | 2,362 | 6,729 | (64.9) | ||||||||||||||||||||||||||||||||
Income from Continuing Operations Before Income Taxes | 4,980 | 7,254 | (31.3) | 16,912 | 20,103 | (15.9) | ||||||||||||||||||||||||||||||||
| Income from Continuing Operations | $ | 3,826 | $ | 6,346 | (39.7) | % | $ | 13,041 | $ | 16,246 | (19.7) | % | ||||||||||||||||||||||||||
Operating revenues increased in the third quarter and for the first nine months of 2023, reflecting growth in Mobility and Consumer Wireline revenues, partially offset by continued declines in Business Wireline revenues. Revenue increases also reflect favorable impacts of foreign exchange rates in Mexico.
Operations and support expenses increased in the third quarter and decreased for the first nine months of 2023. The increase for the third quarter reflects higher severance and restructuring charges and continued inflationary cost increases, partially offset by our continued transformation efforts. Operating expense increases also include increased network expense, unfavorable impact of foreign exchange rates, and higher amortization of deferred customer acquisition costs, partially offset by lower Mobility equipment and associated selling costs from lower wireless sales volumes and lower personnel costs.
Expense decreases for the first nine months reflect lower Mobility equipment and associated selling costs, lower personnel costs and higher returns on benefit-related assets, partially offset by higher amortization of deferred customer acquisition costs. The decrease was also driven by the absence of first-quarter 2022 3G network shutdown costs and higher noncash impairment and restructuring charges in 2022, partially offset by higher network and bad debt expenses in 2023.
Depreciation and amortization expense increased in the third quarter and for the first nine months of 2023.
Depreciation expense increased $175, or 3.9%, in the third quarter and $551, or 4.1%, for the first nine months of 2023 primarily due to ongoing capital spending for strategic initiatives such as fiber and network upgrades.
Amortization expense increased $16, or 45.7%, in the third quarter and $34, or 32.4%, for the first nine months of 2023 primarily due to the amortization of wireless licenses in Mexico.
Operating income decreased in the third quarter and increased for the first nine months of 2023. Our operating income margin in the third quarter decreased from 20.0% in 2022 to 19.1% in 2023, reflecting higher severance and restructuring charges, and for the first nine months increased from 18.5% in 2022 to 20.1% in 2023, reflecting lower equipment revenues which have lower margins as well as cost savings from our continued transformation efforts.
32
AT&T INC.
SEPTEMBER 30, 2023
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations- Continued
Dollars in millions except per share amounts
Interest expense increased in the third quarter and for the first nine months of 2023, primarily due to lower capitalized interest associated with spectrum acquisitions and higher interest rates. Interest expense for the first nine months of 2023 also includes the reclassification of Mobility preferred interests distributions, which were repurchased on April 5, 2023 (see Note 12). Mobility preferred interest distributions were recorded as noncontrolling interest in 2022.
Late in the third quarter of 2023, we received the majority of our C-band licenses from the Federal Communications Commission (FCC) auction in 2021, and we have ceased capitalization of interest for licenses that have been placed into service.
Equity in net income of affiliates increased in the third quarter and decreased for the first nine months of 2023, primarily due to the performance of our investment in DIRECTV (see Note 10). The decrease for the first nine 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 third quarter and for the first nine months of 2023. The decreases were primarily driven by actuarial remeasurement of pension plan assets and obligations, with net actuarial and settlement gains of $71 in the third quarter and $145 for the first nine months of 2023, compared to gains of $1,440 in the third quarter and $3,838 for the first nine months of 2022 (see Note 6). Also contributing to the decrease was a $450 impairment of an equity investment in a Latin America satellite business and lower pension and postretirement benefit credits in 2023, which were 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 for the first nine months.
Income tax expense increased in the third quarter and for the first nine months of 2023. The increases were primarily driven by lower expense in 2022 resulting from one-time benefits due to a tax election that generated incremental tax benefit on the sale of Vrio and audit settlements, partially offset by lower income before income tax in 2023.
Our effective tax rate was 23.2% in the third quarter of 2023 and 22.9% for the first nine months of 2023, versus 12.5% and 19.2% in the comparable periods in the prior year. The effective tax rates in 2022 were lower primarily due to the previously mentioned third-quarter 2022 tax benefits.
| COMMUNICATIONS SEGMENT | Third Quarter | Nine-Month Period | ||||||||||||||||||||||||||||||||||||
| Percent | Percent | |||||||||||||||||||||||||||||||||||||
| 2023 | 2022 | Change | 2023 | 2022 | Change | |||||||||||||||||||||||||||||||||
| Segment Operating Revenues | ||||||||||||||||||||||||||||||||||||||
| Mobility | $ | 20,692 | $ | 20,278 | 2.0 | % | $ | 61,589 | $ | 60,279 | 2.2 | % | ||||||||||||||||||||||||||
| Business Wireline | 5,221 | 5,668 | (7.9) | 15,831 | 16,903 | (6.3) | ||||||||||||||||||||||||||||||||
| Consumer Wireline | 3,331 | 3,185 | 4.6 | 9,821 | 9,520 | 3.2 | ||||||||||||||||||||||||||||||||
| Total Segment Operating Revenues | $ | 29,244 | $ | 29,131 | 0.4 | % | $ | 87,241 | $ | 86,702 | 0.6 | % | ||||||||||||||||||||||||||
| Segment Operating Income | ||||||||||||||||||||||||||||||||||||||
| Mobility | $ | 6,763 | $ | 6,226 | 8.6 | % | $ | 19,647 | $ | 17,963 | 9.4 | % | ||||||||||||||||||||||||||
| Business Wireline | 350 | 621 | (43.6) | 1,124 | 1,750 | (35.8) | ||||||||||||||||||||||||||||||||
| Consumer Wireline | 160 | 142 | 12.7 | 422 | 446 | (5.4) | ||||||||||||||||||||||||||||||||
| Total Segment Operating Income | $ | 7,273 | $ | 6,989 | 4.1 | % | $ | 21,193 | $ | 20,159 | 5.1 | % | ||||||||||||||||||||||||||
33
AT&T INC.
SEPTEMBER 30, 2023
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations- Continued
Dollars in millions except per share amounts
| Selected Subscribers and Connections | ||||||||||||||
| September 30, | ||||||||||||||
| (000s) | 2023 | 2022 | ||||||||||||
| Mobility Subscribers | 235,585 | 210,678 | ||||||||||||
| Total domestic broadband connections | 15,296 | 15,452 | ||||||||||||
| Network access lines in service | 4,421 | 5,466 | ||||||||||||
VoIP connections | 2,649 | 3,022 | ||||||||||||
Operating revenues increased in the third quarter and for the first nine 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.
Operating income increased in the third quarter and for the first nine 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 third quarter. Operating income for the first nine 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 third quarter increased from 24.0% in 2022 to 24.9% in 2023 and for the first nine months increased from 23.3% in 2022 to 24.3% in 2023.
| Communications Business Unit Discussion | ||||||||||||||||||||||||||||||||||||||
| Mobility Results | ||||||||||||||||||||||||||||||||||||||
| Third Quarter | Nine-Month Period | |||||||||||||||||||||||||||||||||||||
| Percent | Percent | |||||||||||||||||||||||||||||||||||||
| 2023 | 2022 | Change | 2023 | 2022 | Change | |||||||||||||||||||||||||||||||||
| Operating revenues | ||||||||||||||||||||||||||||||||||||||
| Service | $ | 15,908 | $ | 15,337 | 3.7 | % | $ | 47,136 | $ | 45,065 | 4.6 | % | ||||||||||||||||||||||||||
| Equipment | 4,784 | 4,941 | (3.2) | 14,453 | 15,214 | (5.0) | ||||||||||||||||||||||||||||||||
| Total Operating Revenues | 20,692 | 20,278 | 2.0 | 61,589 | 60,279 | 2.2 | ||||||||||||||||||||||||||||||||
| Operating expenses | ||||||||||||||||||||||||||||||||||||||
| Operations and support | 11,795 | 12,010 | (1.8) | 35,587 | 36,198 | (1.7) | ||||||||||||||||||||||||||||||||
| Depreciation and amortization | 2,134 | 2,042 | 4.5 | 6,355 | 6,118 | 3.9 | ||||||||||||||||||||||||||||||||
| Total Operating Expenses | 13,929 | 14,052 | (0.9) | 41,942 | 42,316 | (0.9) | ||||||||||||||||||||||||||||||||
| Operating Income | $ | 6,763 | $ | 6,226 | 8.6 | % | $ | 19,647 | $ | 17,963 | 9.4 | % | ||||||||||||||||||||||||||
34
AT&T INC.
SEPTEMBER 30, 2023
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations- Continued
Dollars in millions except per share amounts
The following tables highlight other key measures of performance for Mobility:
| Subscribers | ||||||||||||||||||||
| September 30, | Percent | |||||||||||||||||||
| (in 000s) | 2023 | 2022 | Change | |||||||||||||||||
| Postpaid | 86,365 | 83,614 | 3.3 | % | ||||||||||||||||
| Postpaid phone | 70,757 | 68,969 | 2.6 | |||||||||||||||||
Prepaid | 19,391 | 19,215 | 0.9 | |||||||||||||||||
| Reseller | 7,101 | 5,854 | 21.3 | |||||||||||||||||
Connected devices1 | 122,728 | 101,995 | 20.3 | |||||||||||||||||
Total Mobility Subscribers2 | 235,585 | 210,678 | 11.8 | % | ||||||||||||||||
1Includes data-centric devices such as session-based tablets, monitoring devices and primarily wholesale automobile systems. | ||||||||||||||||||||
2Wireless subscribers at September 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. | ||||||||||||||||||||
| Mobility Net Additions | ||||||||||||||||||||||||||||||||||||||
| Third Quarter | Nine-Month Period | |||||||||||||||||||||||||||||||||||||
| Percent | Percent | |||||||||||||||||||||||||||||||||||||
| (in 000s) | 2023 | 2022 | Change | 2023 | 2022 | Change | ||||||||||||||||||||||||||||||||
| Postpaid Phone Net Additions | 468 | 708 | (33.9) | % | 1,218 | 2,212 | (44.9) | % | ||||||||||||||||||||||||||||||
| Total Phone Net Additions | 494 | 816 | (39.5) | 1,407 | 2,629 | (46.5) | ||||||||||||||||||||||||||||||||
Postpaid2 | 550 | 964 | (42.9) | 1,556 | 2,987 | (47.9) | ||||||||||||||||||||||||||||||||
| Prepaid | 56 | 141 | (60.3) | 263 | 488 | (46.1) | ||||||||||||||||||||||||||||||||
| Reseller | 401 | 308 | 30.2 | 941 | 312 | — | ||||||||||||||||||||||||||||||||
Connected devices3 | 5,547 | 5,716 | (3.0) | 15,133 | 15,476 | (2.2) | ||||||||||||||||||||||||||||||||
Mobility Net Subscriber Additions1 | 6,554 | 7,129 | (8.1) | % | 17,893 | 19,263 | (7.1) | % | ||||||||||||||||||||||||||||||
Postpaid Churn4 | 0.95 | % | 1.01 | % | (6) | BP | 0.97 | % | 0.96 | % | 1 | BP | ||||||||||||||||||||||||||
Postpaid Phone-Only Churn4 | 0.79 | % | 0.84 | % | (5) | BP | 0.80 | % | 0.79 | % | 1 | 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 (36) and 33 for the quarters ended September 30, 2023 and 2022 and (85) and 118 for the first nine months of September 30, 2023 and 2022. Wearables and other net adds were 118 and 223 for the quarters ended September 30, 2023 and 2022 and 423 and 657 for the first nine months ended September 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 2,800 and 2,600 for the quarters ended September 30, 2023 and 2022 and 8,400 and 7,400 for the first nine months ended September 30, 2023 and 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 third quarter and for the first nine months of 2023. The increases are largely due to growth from subscriber gains and postpaid phone average revenue per subscriber (ARPU) growth.
ARPU
ARPU increased in the third quarter and for the first nine 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).
35
AT&T INC.
SEPTEMBER 30, 2023
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations- Continued
Dollars in millions except per share amounts
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 lower in the third quarter and slightly higher for the first nine months of 2023.
Equipment revenue decreased in the third quarter and for the first nine months of 2023, primarily driven by a lower volume of devices sold.
Operations and support expenses decreased in the third quarter and for the first nine months of 2023 largely due to lower equipment costs and associated selling costs driven by lower device sales. These decreases were offset by increased network and customer support expenses and higher amortization of deferred customer acquisition costs. Expense decrease for the first nine 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 third quarter and for the first nine months of 2023, primarily due to ongoing capital spending for network upgrades and expansion.
Operating income increased in the third quarter and for the first nine months of 2023. Our Mobility operating income margin in the third quarter increased from 30.7% in 2022 to 32.7% in 2023 and for the first nine months increased from 29.8% in 2022 to 31.9% in 2023. Our Mobility EBITDA margin in the third quarter increased from 40.8% in 2022 to 43.0% in 2023 and for the nine months increased from 39.9% in 2022 to 42.2% in 2023. EBITDA is defined as operating income excluding depreciation and amortization.
| Business Wireline Results | ||||||||||||||||||||||||||||||||||||||
| Third Quarter | Nine-Month Period | |||||||||||||||||||||||||||||||||||||
| Percent | Percent | |||||||||||||||||||||||||||||||||||||
| 2023 | 2022 | Change | 2023 | 2022 | Change | |||||||||||||||||||||||||||||||||
| Operating revenues | ||||||||||||||||||||||||||||||||||||||
| Service | $ | 5,087 | $ | 5,524 | (7.9) | % | $ | 15,401 | $ | 16,418 | (6.2) | % | ||||||||||||||||||||||||||
| Equipment | 134 | 144 | (6.9) | 430 | 485 | (11.3) | ||||||||||||||||||||||||||||||||
| Total Operating Revenues | 5,221 | 5,668 | (7.9) | 15,831 | 16,903 | (6.3) | ||||||||||||||||||||||||||||||||
| Operating expenses | ||||||||||||||||||||||||||||||||||||||
| Operations and support | 3,526 | 3,705 | (4.8) | 10,699 | 11,199 | (4.5) | ||||||||||||||||||||||||||||||||
| Depreciation and amortization | 1,345 | 1,342 | 0.2 | 4,008 | 3,954 | 1.4 | ||||||||||||||||||||||||||||||||
| Total Operating Expenses | 4,871 | 5,047 | (3.5) | 14,707 | 15,153 | (2.9) | ||||||||||||||||||||||||||||||||
| Operating Income | $ | 350 | $ | 621 | (43.6) | % | $ | 1,124 | $ | 1,750 | (35.8) | % | ||||||||||||||||||||||||||
Service revenues decreased in the third quarter and for the first nine 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 third quarter and for the first nine months of 2023, driven by declines in legacy and non-core services, which we expect to continue.
Operations and support expenses decreased in the third quarter and for the first nine 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, customer support and marketing expenses. The decrease for the first nine months also included approximately $75 of benefit related to settlement of a dispute in the second quarter of 2023, partially offset by favorable compensation true-ups in the first quarter of 2022. As part of our
36
AT&T INC.
SEPTEMBER 30, 2023
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations- Continued
Dollars in millions except per share amounts
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 third quarter and for the first nine months of 2023, primarily due to ongoing capital investment for strategic initiatives such as fiber.
Operating income decreased in the third quarter and for the first nine months of 2023. Our Business Wireline operating income margin in the third quarter decreased from 11.0% in 2022 to 6.7% in 2023 and for the first nine months decreased from 10.4% in 2022 to 7.1% in 2023. Our Business Wireline EBITDA margin in the third quarter decreased from 34.6% in 2022 to 32.5% in 2023 and for the first nine months decreased from 33.7% in 2022 to 32.4% in 2023.
| Consumer Wireline Results | ||||||||||||||||||||||||||||||||||||||
| Third Quarter | Nine-Month Period | |||||||||||||||||||||||||||||||||||||
| Percent | Percent | |||||||||||||||||||||||||||||||||||||
| 2023 | 2022 | Change | 2023 | 2022 | Change | |||||||||||||||||||||||||||||||||
| Operating revenues | ||||||||||||||||||||||||||||||||||||||
| Broadband | $ | 2,667 | $ | 2,429 | 9.8 | % | $ | 7,755 | $ | 7,177 | 8.1 | % | ||||||||||||||||||||||||||
| Legacy voice and data services | 368 | 427 | (13.8) | 1,147 | 1,332 | (13.9) | ||||||||||||||||||||||||||||||||
| Other service and equipment | 296 | 329 | (10.0) | 919 | 1,011 | (9.1) | ||||||||||||||||||||||||||||||||
| Total Operating Revenues | 3,331 | 3,185 | 4.6 | 9,821 | 9,520 | 3.2 | ||||||||||||||||||||||||||||||||
| Operating expenses | ||||||||||||||||||||||||||||||||||||||
| Operations and support | 2,300 | 2,243 | 2.5 | 6,810 | 6,723 | 1.3 | ||||||||||||||||||||||||||||||||
| Depreciation and amortization | 871 | 800 | 8.9 | 2,589 | 2,351 | 10.1 | ||||||||||||||||||||||||||||||||
| Total Operating Expenses | 3,171 | 3,043 | 4.2 | 9,399 | 9,074 | 3.6 | ||||||||||||||||||||||||||||||||
| Operating Income | $ | 160 | $ | 142 | 12.7 | % | $ | 422 | $ | 446 | (5.4) | % | ||||||||||||||||||||||||||
The following tables highlight other key measures of performance for Consumer Wireline:
| Connections | ||||||||||||||||||||||||||||||||||||||
| September 30, | Percent | |||||||||||||||||||||||||||||||||||||
| (in 000s) | 2023 | 2022 | Change | |||||||||||||||||||||||||||||||||||
| Broadband Connections | ||||||||||||||||||||||||||||||||||||||
| Total Broadband and DSL Connections | 13,887 | 14,055 | (1.2) | % | ||||||||||||||||||||||||||||||||||
Broadband1 | 13,710 | 13,796 | (0.6) | |||||||||||||||||||||||||||||||||||
| Fiber Broadband Connections | 8,034 | 6,935 | 15.8 | |||||||||||||||||||||||||||||||||||
| Voice Connections | ||||||||||||||||||||||||||||||||||||||
| Retail Consumer Switched Access Lines | 1,737 | 2,123 | (18.2) | |||||||||||||||||||||||||||||||||||
Consumer VoIP Connections | 2,035 | 2,409 | (15.5) | |||||||||||||||||||||||||||||||||||
| Total Retail Consumer Voice Connections | 3,772 | 4,532 | (16.8) | % | ||||||||||||||||||||||||||||||||||
1Includes AT&T Internet Air. | ||||||||||||||||||||||||||||||||||||||
37
AT&T INC.
SEPTEMBER 30, 2023
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations- Continued
Dollars in millions except per share amounts
| Broadband Net Additions | ||||||||||||||||||||||||||||||||||||||
| Third Quarter | Nine-Month Period | |||||||||||||||||||||||||||||||||||||
| Percent | Percent | |||||||||||||||||||||||||||||||||||||
| (in 000s) | 2023 | 2022 | Change | 2023 | 2022 | Change | ||||||||||||||||||||||||||||||||
| Total Broadband and DSL Net Additions | (8) | (50) | 84.0 | % | (104) | (105) | 1.0 | % | ||||||||||||||||||||||||||||||
Broadband Net Additions1 | 15 | (29) | — | (43) | (49) | 12.2 | ||||||||||||||||||||||||||||||||
| Fiber Broadband Net Additions | 296 | 338 | (12.4) | % | 819 | 943 | (13.1) | % | ||||||||||||||||||||||||||||||
1Includes AT&T Internet Air. | ||||||||||||||||||||||||||||||||||||||
Broadband revenues increased in the third quarter and for the first nine months of 2023, driven by an increase in fiber customers, which we expect to continue as we invest further in building our fiber footprint, and higher ARPU due to prior-year promotional pricing, partially offset by declines in copper-based broadband services.
Legacy voice and data service revenues decreased in the third quarter and for the first nine months of 2023, reflecting the continued decline in the number of customers.
Other service and equipment revenues decreased in the third quarter and for the first nine months of 2023, reflecting the continued decline in the number of VoIP customers.
Operations and support expenses increased in the third quarter and for the first nine months of 2023. Expense increases were primarily due to higher network-related costs as our fiber build scales, partially offset by lower customer support costs. The increase for the first nine months was also partially offset by lower Max licensing fees in the first half of 2023, approximately $35 of benefit from a vendor dispute resolution in the second quarter of 2023 and favorable compensation true-ups in the first quarter of 2022.
Depreciation expense increased in the third quarter and for the first nine months of 2023, primarily due to ongoing capital spending for strategic initiatives such as fiber and network upgrades and expansion.
Operating income increased in the third quarter and decreased for the first nine months of 2023. Our Consumer Wireline operating income margin in the third quarter increased from 4.5% in 2022 to 4.8% in 2023 and for the first nine months decreased from 4.7% in 2022 to 4.3% in 2023. Our Consumer Wireline EBITDA margin in the third quarter increased from 29.6% in 2022 to 31.0% in 2023 and for the first nine months increased from 29.4% in 2022 to 30.7% in 2023.
| LATIN AMERICA SEGMENT | Third Quarter | Nine-Month Period | ||||||||||||||||||||||||||||||||||||
| 2023 | 2022 | Percent Change | 2023 | 2022 | Percent Change | |||||||||||||||||||||||||||||||||
| Segment Operating Revenues | ||||||||||||||||||||||||||||||||||||||
| Service | $ | 672 | $ | 559 | 20.2 | % | $ | 1,898 | $ | 1,583 | 19.9 | % | ||||||||||||||||||||||||||
| Equipment | 320 | 226 | 41.6 | 944 | 700 | 34.9 | ||||||||||||||||||||||||||||||||
| Total Segment Operating Revenues | 992 | 785 | 26.4 | 2,842 | 2,283 | 24.5 | ||||||||||||||||||||||||||||||||
| Segment Operating Expenses | ||||||||||||||||||||||||||||||||||||||
| Operations and support | 837 | 684 | 22.4 | 2,396 | 2,036 | 17.7 | ||||||||||||||||||||||||||||||||
| Depreciation and amortization | 184 | 164 | 12.2 | 544 | 494 | 10.1 | ||||||||||||||||||||||||||||||||
| Total Segment Operating Expenses | 1,021 | 848 | 20.4 | 2,940 | 2,530 | 16.2 | ||||||||||||||||||||||||||||||||
| Operating Income (Loss) | $ | (29) | $ | (63) | 54.0 | % | $ | (98) | $ | (247) | 60.3 | % | ||||||||||||||||||||||||||
38
AT&T INC.
SEPTEMBER 30, 2023
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations- Continued
Dollars in millions except per share amounts
The following tables highlight other key measures of performance for Mexico:
| Subscribers | ||||||||||||||||||||||||||||||||||||||
| September 30, | Percent | |||||||||||||||||||||||||||||||||||||
| (in 000s) | 2023 | 2022 | Change | |||||||||||||||||||||||||||||||||||
| Mexico Wireless Subscribers | ||||||||||||||||||||||||||||||||||||||
| Postpaid | 5,085 | 4,854 | 4.8 | % | ||||||||||||||||||||||||||||||||||
| Prepaid | 16,213 | 15,689 | 3.3 | |||||||||||||||||||||||||||||||||||
| Reseller | 456 | 455 | 0.2 | |||||||||||||||||||||||||||||||||||
| Total Mexico Wireless Subscribers | 21,754 | 20,998 | 3.6 | % | ||||||||||||||||||||||||||||||||||
| Mexico Wireless Net Additions | ||||||||||||||||||||||||||||||||||||||
Third Quarter | Nine-Month Period | |||||||||||||||||||||||||||||||||||||
| Percent | Percent | |||||||||||||||||||||||||||||||||||||
| (in 000s) | 2023 | 2022 | Change | 2023 | 2022 | Change | ||||||||||||||||||||||||||||||||
| Mexico Wireless Net Additions | ||||||||||||||||||||||||||||||||||||||
| Postpaid | 55 | 19 | — | % | 160 | 47 | — | % | ||||||||||||||||||||||||||||||
| Prepaid | 17 | 267 | (93.6) | 9 | 632 | (98.6) | ||||||||||||||||||||||||||||||||
| Reseller | (7) | 12 | — | (18) | (43) | 58.1 | ||||||||||||||||||||||||||||||||
| Total Mexico Wireless Net Additions | 65 | 298 | (78.2) | % | 151 | 636 | (76.3) | % | ||||||||||||||||||||||||||||||
Service revenues increased in the third quarter and for the first nine months of 2023 reflecting favorable foreign exchange impacts and growth in subscribers. The increase for the first nine months of 2023 also reflects higher wholesale revenues.
Equipment revenues increased in the third quarter and for the first nine months of 2023 driven by favorable foreign exchange impacts and higher equipment sales.
Operations and support expenses increased in the third quarter and for the first nine months of 2023 driven by unfavorable impact of foreign exchange and increased equipment costs resulting from higher sales. Approximately 5% of Mexico expenses are U.S. dollar based, with the remainder in the local currency.
Depreciation and amortization expense increased in the third quarter and for the first nine months of 2023, driven by unfavorable impact of foreign exchange partially offset by lower in-service assets.
Operating income improved in the third quarter and for the first nine months of 2023. Our Mexico operating income margin in the third quarter increased from (8.0)% in 2022 to (2.9)% in 2023 and for the first nine months increased from (10.8)% in 2022 to (3.4)% in 2023. Our Mexico EBITDA margin in the third quarter increased from 12.9% in 2022 to 15.6% in 2023 and for the first nine months increased from 10.8% in 2022 to 15.7% in 2023.
OTHER BUSINESS MATTERS
Gigapower, LLC On May 11, 2023, we closed the transaction with BlackRock, through a fund managed by its Diversified Infrastructure business, related to Gigapower, LLC (Gigapower). The joint venture will provide a fiber network to Internet service providers and other businesses across the U.S. that serve customers outside of our traditional wireline service area. We have agreed to contribute incremental funding of up to approximately $700, which will be funded as the network is constructed. We deconsolidated Gigapower’s operations in the second quarter of 2023.
39
AT&T INC.
SEPTEMBER 30, 2023
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations- Continued
Dollars in millions except per share amounts
COMPETITIVE AND REGULATORY ENVIRONMENT
Overview AT&T subsidiaries operating within the United States are subject to federal and state regulatory authorities. AT&T subsidiaries operating outside the United States are subject to the jurisdiction of national and supranational regulatory authorities in the markets where service is provided.
In the Telecommunications Act of 1996 (Telecom Act), Congress established a national policy framework intended to bring the benefits of competition and investment in advanced telecommunications facilities and services to all Americans by opening all telecommunications markets to competition and reducing or eliminating regulatory burdens that harm consumer welfare. Nonetheless, over the ensuing two decades, the FCC and some state regulatory commissions have maintained or expanded certain regulatory requirements that were imposed decades ago on our traditional wireline subsidiaries when they operated as legal monopolies. More recently, the FCC has pursued a more deregulatory agenda, eliminating a variety of antiquated and unnecessary regulations and streamlining its processes in a number of areas. We continue to support regulatory and legislative measures and efforts, at both the state and federal levels, to reduce inappropriate regulatory burdens that inhibit our ability to compete effectively and offer needed services to our customers, including initiatives to transition services from traditional networks to all IP-based networks. At the same time, we also seek to ensure that legacy regulations are not further extended to broadband or wireless services, which are subject to vigorous competition.
Communications Segment
Internet The FCC currently classifies fixed and mobile consumer broadband services as information services, subject to light-touch regulation. The D.C. Circuit upheld the FCC’s current classification, although it remanded three discrete issues to the FCC for further consideration. These issues related to the effect of the FCC’s decision to classify broadband services as information services on public safety, the regulation of pole attachments, and universal service support for low-income consumers through the Lifeline program. Because no party sought Supreme Court review of the D.C. Circuit’s decision to uphold the FCC’s classification of broadband as an information service, that decision is final.
In October 2020, the FCC adopted an order addressing the three issues remanded by the D.C. Circuit for further consideration. After considering those issues, the FCC concluded they provided no grounds to depart from its determination that fixed and mobile consumer broadband services should be classified as information services. An appeal of the FCC’s remand decision is pending.
On September 28, 2023, the FCC released a draft Notice of Proposed Rulemaking (NPRM) that was adopted at the FCC’s open meeting on October 19, 2023. The NPRM proposes to reclassify broadband internet access service as a telecommunications service under Title II of the Communications Act of 1934 and reestablish conduct rules for internet service providers.
In the interim, some states have adopted legislation or issued executive orders, including California, that would reimpose net neutrality rules similar to those repealed by the FCC. The California statute is now in effect, and challenges regarding other states’ net neutrality laws are pending. It is unclear whether additional states may seek to impose net neutrality requirements now that the FCC has announced its intent to reimpose net neutrality rules and whether existing state net neutrality laws will continue to apply if the FCC does so.
On November 15, 2021, President Biden signed the Infrastructure Investment and Jobs Act (IIJA) into law. The legislation appropriates $65,000 to support broadband deployment and adoption, including $42,500 administered by the National Telecommunications and Information Agency (NTIA) in state grants for broadband deployment projects, $1,000 for middle mile broadband infrastructure, and $1,500 for digital equity programs. The IIJA also appropriated $14,200 for establishment of the Affordable Connectivity Program (ACP), an FCC-administered monthly, low-income broadband benefit program. The ACP provides qualifying customers up to thirty dollars per month (or seventy-five dollars per month for those on Tribal lands) to assist with their internet bill. These funds are in addition to or replacements for other significant pandemic-related funds designated or that could be used for broadband deployment and subscription. AT&T is a participating provider in the ACP program and is participating in deployment programs where appropriate. Absent additional funding, at present pace the ACP fund will likely exhaust in 2024.
Privacy-related legislation continues to be adopted or considered in a number of jurisdictions, including at the federal level. Legislative, regulatory and litigation actions could result in increased costs of compliance, further regulation or claims against broadband internet access service providers and others, and increased uncertainty in the value and availability of data.
40
AT&T INC.
SEPTEMBER 30, 2023
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations- Continued
Dollars in millions except per share amounts
Wireless During 2020-2021, we deployed 5G nationwide on “low band” spectrum on macro towers. Executing on the recent spectrum purchase, we announced on-going construction and continuing deployment of 5G on C-band and 3.45 GHz spectrum in 2022 and beyond. Additional spectrum will be needed industrywide for 5G and future services. The federal government is developing a national spectrum strategy but its ability and intent to make sufficient spectrum available to the industry in needed timeframes remains uncertain.
LIQUIDITY AND CAPITAL RESOURCES
Continuing operations for nine months ended September 30, | 2023 | 2022 | |||||||||
Cash provided by operating activities | $ | 26,936 | $ | 25,464 | |||||||
Cash used in investing activities | (13,786) | (23,011) | |||||||||
Cash used in financing activities | (9,284) | (54,403) | |||||||||
| September 30, | December 31, | ||||||||||
| 2023 | 2022 | ||||||||||
Cash and cash equivalents | $ | 7,540 | $ | 3,701 | |||||||
Total debt | 138,003 | 135,890 | |||||||||
We had $7,540 in cash and cash equivalents available at September 30, 2023, increasing $3,839 since December 31, 2022. Cash and cash equivalents included cash of $1,423 and money market funds and other cash equivalents of $6,117. Approximately $1,297 of our cash and cash equivalents were held by our foreign entities in accounts predominantly outside of the U.S. and may be subject to restrictions on repatriation.
For the first nine months of 2023, cash inflows were primarily provided by cash receipts from operations, including cash from our sale and transfer of our receivables to third parties, issuance of commercial paper, long-term debt and cumulative preferred interests in subsidiaries and distributions from DIRECTV. These inflows exceeded cash used to meet the needs of the business, including, but not limited to, payment of operating expenses, funding capital expenditures and vendor financing payments, repayment of short-term borrowings and long-term debt, repurchase of the Series A Cumulative Perpetual Preferred Membership Interests in AT&T Mobility II LLC (Mobility preferred interests) and dividend payments to stockholders. We maintain availability under our credit facilities and our commercial paper program to meet our short-term liquidity requirements.
Cash Provided by Operating Activities from Continuing Operations
During the first nine months of 2023, cash provided by operating activities was $26,936, compared to $25,464 for the first nine months of 2022, reflecting operational growth and a focus to lower working capital programs, which resulted in lower device payments partially offset by lower receivable sales, net of remittances (see Note 8).
We actively manage the timing of our supplier payments for operating items to optimize the use of our cash. Among other things, we seek to make payments on 90-day or greater terms, while providing the suppliers with access to bank facilities that permit earlier payments at their cost (referred to as supplier financing program). In addition, for payments to suppliers of handset inventory, as part of our working capital initiatives, we have arrangements that allow us to extend the stated payment terms by up to 90 days at an additional cost to us (referred to as direct supplier financing). The net impact of direct supplier financing was to decrease cash from operating activities $3,054 and $1,653 for the nine months ended September 30, 2023 and 2022, respectively. All direct supplier financing payments are due within one year. (See Note 11)
Cash Used in or Provided by Investing Activities from Continuing Operations
For the first nine months of 2023, cash used in investing activities totaled $13,786 and consisted primarily of $13,252 (including interest during construction) for capital expenditures. During the first nine months of 2023, we received a return of investment of $1,447 from DIRECTV representing distributions in excess of cumulative equity in earnings from DIRECTV (see Note 10). We paid $297 of spectrum relocation and clearing costs during the first nine months of 2023 and $1,923 in
41
AT&T INC.
SEPTEMBER 30, 2023
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations- Continued
Dollars in millions except per share amounts
October 2023, respectively, which we report as “Acquisitions, net of cash acquired” on our consolidated statements of cash flows.
For capital improvements, we have negotiated favorable vendor payment terms of 120 days or more (referred to as vendor financing) with some of our vendors, which are excluded from capital expenditures and reported as financing activities. For the first nine months of 2023, vendor financing payments were $4,736, compared to $4,237 for the first nine months of 2022. Capital expenditures for the first nine months of 2023 were $13,252, and when including $4,736 cash paid for vendor financing, capital investment was $17,988 ($1,646 lower than the prior-year comparable period).
The vast majority of our capital expenditures are spent on our networks, including product development and related support systems. During the first nine months of 2023, we placed $2,128 of equipment in service under vendor financing arrangements (compared to $3,916 in the prior-year comparable period). The amount of capital expenditures is influenced by demand for services and products, capacity needs and network enhancements.
Cash Provided by or Used in Financing Activities from Continuing Operations
For the first nine months of 2023, cash used in financing activities totaled $9,284 and was comprised of debt issuances and repayments, issuances and repurchase of preferred interests in subsidiaries, payments of dividends and vendor financing payments.
A tabular summary of our debt activities for the nine months ended September 30, 2023 is as follows:
| First Quarter | Second Quarter | Third Quarter | Nine months ended September 30, 2023 | |||||||||||
| Net commercial paper borrowings | $ | 2,341 | $ | 1,284 | $ | (112) | $ | 3,513 | ||||||
| Issuance of Notes and Debentures: | ||||||||||||||
| USD notes | $ | 1,747 | $ | 2,730 | $ | — | $ | 4,477 | ||||||
EUR notes | 1,319 | 3,537 | — | 4,856 | ||||||||||
| Other | 1,050 | — | — | 1,050 | ||||||||||
| Debt Issuances | $ | 4,116 | $ | 6,267 | $ | — | $ | 10,383 | ||||||
| Repayments: | ||||||||||||||
| Private financing | $ | — | $ | (750) | $ | — | $ | (750) | ||||||
| Repayment of other short-term borrowings | $ | — | $ | (750) | $ | — | $ | (750) | ||||||
| USD notes | $ | (376) | $ | (750) | $ | — | $ | (1,126) | ||||||
EUR notes | (1,626) | (473) | (3,503) | (5,602) | ||||||||||
AUD notes | — | — | (450) | (450) | ||||||||||
| 2025 Term Loan | (2,500) | — | — | (2,500) | ||||||||||
| Other | (1,443) | (441) | (327) | (2,211) | ||||||||||
| Repayments of long-term debt | $ | (5,945) | $ | (1,664) | $ | (4,280) | $ | (11,889) | ||||||
The weighted average interest rate of our long-term debt portfolio, including credit agreement borrowings and the impact of derivatives, was approximately 4.2% as of September 30, 2023 and 4.1% as of December 31, 2022. We had $131,587 of total notes and debentures outstanding at September 30, 2023. This also included Euro, British pound sterling, Canadian dollar, Swiss franc, and Australian dollar denominated debt that totaled approximately $33,340.
At September 30, 2023, we had $11,302 of debt maturing within one year, consisting of $4,575 of commercial paper borrowings and $6,727 of long-term debt issuances. The weighted average interest rate on our outstanding short-term borrowings was approximately 5.9% as of September 30, 2023 and 4.8% as of December 31, 2022.
42
AT&T INC.
SEPTEMBER 30, 2023
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations- Continued
Dollars in millions except per share amounts
For the first nine months of 2023, we paid $4,736 of cash under our vendor financing program, compared to $4,237 in the prior-year comparable period. Total vendor financing payables included in our September 30, 2023 consolidated balance sheet were $3,336, with $2,092 due within one year (in “Accounts payable and accrued liabilities”) and the remainder predominantly due within five years (in “Other noncurrent liabilities”).
At September 30, 2023, we had approximately 144 million shares remaining from our share repurchase authorizations approved by the Board of Directors in 2014.
We paid dividends on common and preferred shares of $6,116 during the first nine months of 2023, compared with $7,845 for the first nine months of 2022.
Dividends on common stock declared by our Board of Directors totaled $0.8325 per share in the first nine months of 2023 and 2022. Our dividend policy considers the expectations and requirements of stockholders, capital funding requirements of AT&T and long-term growth opportunities.
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 (April preferreds). 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. (See Note 12)
In April 2023, we also accepted the December 2022 put option notice from the AT&T pension trust and repurchased the remaining 213 million 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 primarily funded with proceeds from the April 2023 issuances of Telco LLC preferred interests. (See Note 12)
In June 2023, we issued $2,000 of 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. The Mobility noncontrolling interests are included in “Redeemable Noncontrolling Interest” on the consolidated balance sheets. (See Note 12)
Credit Facilities
The following summary of our various credit and loan agreements does not purport to be complete and is qualified in its entirety by reference to each agreement filed as exhibits to our Annual Report on Form 10-K.
We use credit facilities as a tool in managing our liquidity status. We currently have one $12,000 revolving credit agreement that terminates on November 18, 2027 (Revolving Credit Agreement). No amount was outstanding under the Revolving Credit Agreement as of September 30, 2023.
In November 2022, we entered into and drew on a $2,500 term loan agreement due February 16, 2025 (2025 Term Loan), with Mizuho Bank, Ltd., as agent. On March 30, 2023, the 2025 Term Loan was paid off and terminated.
We also utilize other external financing sources, which include various credit arrangements supported by government agencies to support network equipment purchases as well as a commercial paper program.
Each of our credit and loan agreements contains covenants that are customary for an issuer with an investment grade senior debt credit rating as well as a net debt-to-EBITDA financial ratio covenant requiring AT&T to maintain, as of the last day of each fiscal quarter, a ratio of not more than 3.75-to-1. As of September 30, 2023, we were in compliance with the covenants for our credit facilities.
Collateral Arrangements
Most of our counterparty collateral arrangements require cash collateral posting by AT&T only when derivative market values exceed certain thresholds. Under these arrangements, which cover the majority of our approximate $39,400 derivative portfolio, counterparties are still required to post collateral. During the first nine months of 2023, we received approximately $200 of cash collateral, on a net basis. Cash postings under these arrangements vary with changes in credit ratings and netting agreements. (See Note 7)
43
AT&T INC.
SEPTEMBER 30, 2023
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations- Continued
Dollars in millions except per share amounts
Other
Our total capital consists of debt (long-term debt and debt maturing within one year), redeemable noncontrolling interest and stockholders’ equity. Our capital structure does not include debt issued by our equity method investments. At September 30, 2023, our debt ratio was 53.5%, compared to 48.8% at September 30, 2022 and 56.1% at December 31, 2022. The debt ratio is affected by the same factors that affect total capital, and reflects our recent debt issuances, repayments and reclassifications related to redemption of noncontrolling interests.
CRITICAL ACCOUNTING ESTIMATES
Asset Valuations and Impairments As discussed in Note 1 of our 2022 Annual Report on Form 10-K, goodwill and other indefinite-lived assets are tested for impairment at least annually as of October 1, generally utilizing a quantitative approach. While an interim quantitative impairment was not warranted in the third quarter of 2023, because of possible sustained higher discount rates and declines in the value of AT&T’s common stock, it is possible that the book values of one or more of our reporting units will exceed their respective fair values, which may result in the recognition of a noncash impairment of goodwill and/or indefinite-lived intangible assets in the fourth quarter of 2023 that could be material.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
At September 30, 2023, we had interest rate swaps with a notional value of $1,750 and a fair value of $(9).
We have fixed-to-fixed and floating-to-fixed cross-currency swaps on foreign currency-denominated debt instruments with a U.S. dollar notional value of $37,617 to hedge our exposure to changes in foreign currency exchange rates and interest rates. These derivatives have been designated as cash flow or fair value hedges with a net fair value of $(4,725) at September 30, 2023. We had no rate locks at September 30, 2023.
Item 4. Controls and Procedures
The registrant maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed by the registrant is recorded, processed, summarized, accumulated and communicated to its management, including its principal executive and principal financial officers, to allow timely decisions regarding required disclosure, and reported within the time periods specified in the SEC’s rules and forms. The Chief Executive Officer and Chief Financial Officer have performed an evaluation of the effectiveness of the design and operation of the registrant’s disclosure controls and procedures as of September 30, 2023. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the registrant’s disclosure controls and procedures were effective as of September 30, 2023.
There have not been any changes in our internal control over financial reporting during our most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
44
AT&T INC.
SEPTEMBER 30, 2023
CAUTIONARY LANGUAGE CONCERNING FORWARD-LOOKING STATEMENTS
Information set forth in this report contains forward-looking statements that are subject to risks and uncertainties, and actual results could differ materially. Many of these factors are discussed in more detail in the “Risk Factors” section herein and in our most recent Form 10-K and Form 10-Q. We claim the protection of the safe harbor for forward-looking statements provided by the Private Securities Litigation Reform Act of 1995.
The following factors could cause our future results to differ materially from those expressed in the forward-looking statements:
•The severity, magnitude and duration of the COVID-19 pandemic and containment, mitigation and other measures taken in response, including the potential impacts of these matters on our business and operations.
•Our inability to predict the extent to which the COVID-19 pandemic and related impacts will continue to impact our business operations, financial performance and results of operations.
•Adverse economic, political and/or capital access changes or war or other hostilities in the markets served by us or in countries in which we have investments and/or operations, including inflationary pressures, the impact on customer demand and our ability and our suppliers’ ability to access financial markets at favorable rates and terms.
•Increases in our benefit plans’ costs, including increases due to adverse changes in the United States and foreign securities markets, resulting in worse-than-assumed investment returns and discount rates; adverse changes in mortality assumptions; adverse medical cost trends; and unfavorable or delayed implementation or repeal of healthcare legislation, regulations or related court decisions.
•The final outcome of FCC and other federal, state or foreign government agency proceedings (including judicial review, if any, of such proceedings) and legislative efforts involving issues that are important to our business, including, without limitation, pending Notices of Apparent Liability; the transition from legacy technologies to IP-based infrastructure, including the withdrawal of legacy TDM-based services; universal service; broadband deployment; wireless equipment siting regulations and, in particular, siting for 5G service; E911 services; rules concerning digital discrimination; competition policy; privacy; net neutrality; copyright protection; availability of new spectrum on fair and balanced terms; and wireless and satellite license awards and renewals.
•Enactment of additional state, local, federal and/or foreign regulatory and tax laws and regulations, or changes to existing standards and actions by tax agencies and judicial authorities including the resolution of disputes with any taxing jurisdictions, pertaining to our subsidiaries and foreign investments, including laws and regulations that reduce our incentive to invest in our networks, resulting in lower revenue growth and/or higher operating costs.
•U.S. and foreign laws and regulations regarding intellectual property rights protection and privacy, personal data protection and user consent, which are complex and rapidly evolving and could result in adverse impacts to our business plans, increased costs, or claims against us that may harm our reputation.
•Our ability to compete in an increasingly competitive industry and against competitors that can offer product/service offerings at lower prices due to lower cost structures and regulatory and legislative actions adverse to us, including non-regulation of comparable alternative technologies and/or government-owned or subsidized networks.
•Disruption in our supply chain for a number of reasons, including, difficulties in obtaining export licenses for certain technology, inability to secure component parts, general business disruption, workforce shortage, natural disasters, safety issues, vendor fraud, economic and political instability, including the outbreak of war or other hostilities, and public health emergencies.
•The continued development and delivery of attractive and profitable wireless, and broadband offerings and devices; the extent to which regulatory and build-out requirements apply to our offerings; our ability to match speeds offered by our competitors; and the availability, cost and/or reliability of the various technologies and/or content required to provide such offerings.
•The availability and cost and our ability to adequately fund additional wireless spectrum and network development, deployment and maintenance; and regulations and conditions relating to spectrum use, licensing, obtaining additional spectrum, technical standards and deployment and usage, including network management rules.
•Our ability to manage growth in wireless data services, including network quality and acquisition of adequate spectrum at reasonable costs and terms.
•The outcome of pending, threatened or potential litigation (which includes arbitrations), including, without limitation, patent and product safety claims by or against third parties or claims based on alleged misconduct by employees.
•The impact from major equipment or software failures on our networks or cyber incidents; the effect of security breaches related to the network or customer information; our inability to obtain handsets, equipment/software or have handsets, equipment/software serviced in a timely and cost-effective manner from suppliers; or severe weather conditions or other climate related events including flooding and hurricanes, natural disasters including earthquakes and forest fires, pandemics, energy shortages, wars or terrorist attacks.
•The issuance by the FASB or other accounting oversight bodies of new accounting standards or changes to existing standards.
•Our response to competition and regulatory, legislative and technological developments.
•The uncertainty surrounding further congressional action regarding spending and taxation, which may result in changes in government spending and affect the ability and willingness of businesses and consumers to spend in general.
•Our ability to realize or sustain the expected benefits of our business transformation initiatives, which are designed to reduce costs, streamline distribution, remove redundancies and simplify and improve processes and support functions.
•Our ability to successfully complete divestitures, as well as achieve our expectations regarding the financial impact of the completed and/or pending transactions.
Readers are cautioned that other factors discussed in this report, although not enumerated here, also could materially affect our future earnings.
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AT&T INC.
SEPTEMBER 30, 2023
PART II – OTHER INFORMATION
Dollars in millions except per share amounts
Item 1A. Risk Factors
We discuss in our Annual Report on Form 10-K for the year ended December 31, 2022 and in our Quarterly Report on Form 10-Q for the quarter ended June 30, 2023 various risks that may materially affect our business. We use this section to update this discussion to reflect material developments. For the third quarter of 2023, there were no such material developments.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
(c) A summary of our repurchases of common stock during the third quarter of 2023 is as follows:
| (a) | (b) | (c) | (d) | |||||||||||||||||||||||
| Period | Total Number of Shares (or Units) Purchased1, 2 | Average Price Paid Per Share (or Unit) | Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs1 | Maximum Number (or Approximate Dollar Value) of Shares (or Units) That May Yet Be Purchased Under The Plans or Programs | ||||||||||||||||||||||
| July 1, 2023 - July 31, 2023 | 28,043 | $ | 15.96 | — | 143,731,972 | |||||||||||||||||||||
| August 1, 2023 - August 31, 2023 | 19,566 | 14.86 | — | 143,731,972 | ||||||||||||||||||||||
| September 1, 2023 - September 30, 2023 | 26,847 | 14.46 | — | 143,731,972 | ||||||||||||||||||||||
| Total | 74,456 | $ | 15.13 | — | ||||||||||||||||||||||
1In March 2014, our Board of Directors approved an authorization to repurchase up to 300 million shares of our common stock. The authorization has no expiration date.
2These shares were acquired through the withholding of taxes on the vesting of restricted stock and performance shares or in respect of the exercise price of options.
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AT&T INC.
SEPTEMBER 30, 2023
Item 6. Exhibits
The following exhibits are filed or incorporated by reference as a part of this report:
| Exhibit | ||||||||
| Number | Exhibit Description | |||||||
| 10.1 | ||||||||
| 31 | Rule 13a-14(a)/15d-14(a) Certifications | |||||||
| 32 | ||||||||
| 101 | The following financial statements from the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 2023, formatted in Inline XBRL: (i) Consolidated Statements of Cash Flows, (ii) Consolidated Statements of Operations, (iii) Consolidated Statements of Comprehensive Income, (iv) Consolidated Balance Sheets, and (v) Notes to Consolidated Financial Statements, tagged as blocks of text and including detailed tags. | |||||||
| 104 | The cover page from the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 2023, (formatted as Inline XBRL and contained in Exhibit 101). | |||||||
47
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| AT&T Inc. | |||||
| October 31, 2023 | /s/ Pascal Desroches | ||||
| Pascal Desroches | |||||
| Senior Executive Vice President | |||||
| and Chief Financial Officer | |||||
48
Exhibit 10.1
Administrative Plan
Effective September 26, 2023
The benefits under this Plan are offered by AT&T Inc. (“AT&T”) to persons who have been identified by AT&T as executive officers of AT&T under Rule 3b-7 of the Securities Exchange Act of 1934 (“Executive Officers”).
Administration of Plan. The Plan or the benefits hereunder may be modified or terminated by the Human Resources Committee in its sole discretion at any time.
Except to the extent otherwise provided herein, the Senior Executive Vice President responsible for Human Resources (or the successor to such position) shall be the Administrator of the Plan and will administer the Plan, interpret, construe and apply its provisions in accordance with its terms. The Administrator, in his or her sole discretion, may establish, adopt or revise rules, as he or she may deem necessary or advisable for the administration of the Plan, including the allocation or limitation of benefits.
The Administrator may adopt another plan or plans, not to exceed the benefits included herein, for the benefit of non Executive Officer employees or former employees of AT&T and/or its subsidiaries, as the Administrator may determine in his or her sole discretion and on such terms and conditions as the Administrator shall determine. In addition, the Administrator may provide current or former non Executive Officer employees with:
(a) an amount equal to that necessary to offset the Federal, state and local income taxes, as well as associated employment taxes, of the recipient (including taxes on tax reimbursements) resulting from the benefits in such plan or plans, other than (1) the monthly automobile allowance, and (2) personal use of aircraft; and/or
(b) social club and country club memberships as approved by the CEO or the Administrator (without the limits otherwise provided in this Plan).
The benefit under (a), above, shall also apply to Executive Officers who retired prior to 2010. The Administrator may, from time to time, revise the plan solely to increase the financial limits on benefits, not to exceed the corresponding proportional increase in the consumer price index from January 1, 2003, through the date of change.
All decisions of the Administrator shall be final and binding unless the Board of Directors or its delegate should determine otherwise.
No Employment Rights. Nothing herein shall constitute a contract of continuing employment or in any manner obligate AT&T or any Executive Officer to continue the employment relationship of, or obligate an Executive Officer to continue in the service of AT&T or any Affiliate.
Non-Transferability. No recipient of benefits under this Plan nor any other person shall have any right to sell, assign, transfer, pledge, anticipate, mortgage or otherwise encumber, transfer, hypothecate or convey any of the benefits hereunder, or any part thereof, which are, and all rights to which are, expressly declared to be unassignable and non-transferable.
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Notice. Any notice required or permitted to be given to the Administrator under the Plan shall be sufficient if in writing and hand delivered, or sent by certified mail, to the principal office of AT&T, directed to the attention of the Senior Executive Vice President-Human Resources. Any notice required or permitted to be given to any other person shall be sufficient if in writing and hand delivered, or sent by certified mail, to the person at the person's last known mailing address as reflected on the records of his or her employing company. Notice shall be deemed given as of the date of delivery or, if delivery is made by mail, as of the date shown on the postmark or on the receipt for certification.
Validity. In the event any provision of this Plan is held invalid, void or unenforceable, the same shall not affect, in any respect whatsoever, the validity of any other provision of this plan.
Applicable Law. This Plan shall be governed and construed in accordance with the laws of the State of Texas to the extent not preempted by the Employee Retirement Income Security Act of 1974, as amended, and regulations thereunder ("ERISA").
Automobile. Each Executive Officer may receive the use of a four-door automobile or an automobile allowance and expenses associated with the operation of the automobile. The Administrator shall determine the amount of the allowance for each Executive Officer provided that the allowance shall not exceed $2,000 per month.
Company Services. Each Executive Officer may receive reasonable communications and entertainment services. Such services shall only be provided by AT&T, except wireline and Internet services where AT&T service is not reasonably available.
Financial Counseling. Executive Officers may receive income tax preparation services and financial planning services from a list of designated providers not to exceed $14,000 per year.
Estate Planning. Executive Officers may receive estate planning documentation services not to exceed $10,000 per year. The Estate Planning limit restarts in the event of a company-initiated relocation to another state.
Annual Limits. Expenses will be charged against the annual limits for the calendar year based on the date of the invoice.
Clubs. Executive Officers may receive social club and country club memberships (along with transfer fees and assessments) as approved by the CEO or the Administrator. Executive officers, but not persons other than Executive Officers, shall be limited to transferable country club memberships and shall not receive other country club fees, including dues.
AT&T does not reimburse for any expenses incurred in connection with a membership in a club that discriminates in its membership policies based on race, creed, gender or ethnic origin. The Administrator shall report annually to the Human Resources Committee any changes in memberships for the Chief Executive Officer.
Executive Protection. Based upon the concern for the security of Executive Officers, the need to secure their optimum availability for business purposes and to permit uninterrupted communications between them, the Executive Officers are authorized to receive home security services, and, whenever feasible, to use AT&T provided aircraft in connection with business travel. The Chief Executive Officer may use such aircraft for personal travel. Other Executive
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Officers may also use such aircraft for personal travel where the Chief Executive Officer, in his or her sole discretion, deems such personal use appropriate.
Except where prohibited by law, Executive Officers shall be required to reimburse the Company for the incremental cost of personal use of AT&T provided aircraft. For Executive Officers other than the Chief Executive Officer, the Chief Executive Officer may determine, in his or her sole discretion, that such reimbursement is not required.
Retirement. Upon the Retirement of an Executive Officer, he or she may receive up to an additional amount for financial consulting reasonably in connection with his/her Retirement, as follows: In any given year, for retirements occurring:
1. from January 1 through June 30 (inclusive), the amount will be $20,000 in the calendar year of retirement;
2. from July 1 through November 30 (inclusive), the amount will be $10,000 in the calendar year of retirement and $10,000 in the immediately following calendar year; and
3. from December 1 through December 31 (inclusive), the amount will be $20,000 in the year following retirement.
A Retired Executive Officer shall continue to receive the communications benefits until death and his or her survivor shall receive the communications benefit for twenty-four (24) billing cycles after the Executive Officer’s death.
Executive Officers who retire:
1.on or before December 31, 2009, shall continue to receive the financial counseling and estate planning benefits until his or her death.
2.on or after January 1, 2010 shall continue to receive the financial counseling and estate planning benefits for up to 36 months following retirement or until his/her death.
After the death of an Executive Officer or Retired Executive Officer, his or her survivor shall receive the communications benefit for twenty-four (24) billing cycles after the Executive Officer or Retired Executive Officer’s death and shall receive the financial counseling and estate planning benefits for the remainder of the year of death and the immediately following calendar year. In a Retired Executive Officer’s final calendar year of eligibility, the Annual Limits shall be pro-rated on a monthly basis, based on the number of full or partial months the Retired Executive Officer worked in the calendar year of Retirement divided by twelve (12).
Loyalty Conditions.
This Section applies to Executive Officers who are actively employed on or after January 1, 2010.
Executive Officers acknowledge that no coverage and benefits would be provided under this Plan on and after January 1, 2010 but for the loyalty conditions and covenants set forth below, and that the conditions and covenants herein are a material inducement to AT&T’s willingness to sponsor the Plan and to offer Plan coverage and benefits for the Executive Officers on or after January 1, 2010. Accordingly, as a condition of receiving coverage and any Plan benefits on or after January 1, 2010, each Executive Officer is deemed to agree that he shall not, without obtaining the written consent of AT&T in advance, participate in activities that constitute engaging in
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competition with AT&T or engaging in conduct disloyal to AT&T, as those terms are defined in this Section. Further, notwithstanding any other provision of this Plan, all coverage and benefits under this Plan on and after January 1, 2010 with respect to an Executive Officer and his or her Dependents shall be subject in their entirety to the enforcement provisions below if the Executive Officer, without the Administrator’s consent participates in an activity that constitutes engaging in competition with AT&T or engaging in conduct disloyal to AT&T, as defined below.
Definitions. For purposes of this Section and of the Plan generally:
an “Employer Business” shall mean AT&T, any subsidiary, or any business in which AT&T or a subsidiary or an affiliated company of AT&T has a substantial ownership or joint venture interest;
“engaging in competition with AT&T” shall mean, while employed by an Employer Business or within two (2) years after the Executive Officer’s termination of employment, engaging by the Executive Officer in any business or activity in all or any portion of the same geographical market where the same or substantially similar business or activity is being carried on by an Employer Business. “Engaging in competition with AT&T” shall not include owning a nonsubstantial publicly traded interest as a shareholder in a business that competes with an Employer Business. “Engaging in competition with AT&T” shall include representing or providing consulting services to, or being an employee or director of, any person or entity that is engaged in competition with any Employer Business or that takes a position adverse to any Employer Business.
“engaging in conduct disloyal to AT&T” means, while employed by an Employer Business or within two (2) years after the Executive Officer’s termination of employment, (i) soliciting for employment or hire, whether as an employee or as an independent contractor, for any business in competition with an Employer Business, any person employed by AT&T or its affiliates during the one (1) year prior to the termination of the Executive Officer’s employment, whether or not acceptance of such position would constitute a breach of such person’s contractual obligations to AT&T and its affiliates; (ii) soliciting, encouraging, or inducing any vendor or supplier with which the Executive Officer had business contact on behalf of any Employer Business during the two (2) years prior to the termination of the Executive Officer’s employment, for any reason to terminate, discontinue, renegotiate, reduce, or otherwise cease or modify its relationship with AT&T or its affiliate; or (iii) soliciting, encouraging, or inducing any customer or active prospective customer with whom Executive Officer had business contact, whether in person or by other media, on behalf of any Employer Business during the two (2) years prior to the termination of Executive Officer’s employment for any reason (“Customer”), to terminate, discontinue, renegotiate, reduce, or otherwise cease or modify its relationship with any Employer Business, or to purchase competing goods or services from a business competing with any Employer Business, or accepting or servicing business from such Customer on behalf of himself or any other business. “Engaging in conduct disloyal to AT&T” also means, disclosing Confidential Information to any third party or using Confidential Information, other than for an Employer Business, or failing to return any Confidential Information to the Employer Business following termination of employment.
“Confidential Information” shall mean all information belonging to, or otherwise relating to, an Employer Business, which is not generally known, regardless of the manner in which it is stored or conveyed to the Executive Officer, and which the Employer Business has taken reasonable measures under the circumstances to protect from unauthorized use or disclosure. Confidential Information includes trade secrets as well as other proprietary knowledge, information, know-how, and non-public intellectual property rights, including unpublished or pending patent applications and all related patent rights, formulae, processes, discoveries, improvements, ideas, conceptions,
4
compilations of data, and data, whether or not patentable or copyrightable and whether or not it has been conceived, originated, discovered, or developed in whole or in part by the Executive Officer. For example, Confidential Information includes, but is not limited to, information concerning the Employer Business’ business plans, budgets, operations, products, strategies, marketing, sales, inventions, designs, costs, legal strategies, finances, employees, customers, prospective customers, licensees, or licensors; information received from third parties under confidential conditions; or other valuable financial, commercial, business, technical or marketing information concerning the Employer Business, or any of the products or services made, developed or sold by the Employer Business. Confidential Information does not include information that (i) was generally known to the public at the time of disclosure; (ii) was lawfully received by the Executive Officer from a third party; (iii) was known to the Executive Officer prior to receipt from the Employer Business; or (iv) was independently developed by the Executive Officer or independent third parties; in each of the foregoing circumstances, this exception applies only if such public knowledge or possession by an independent third party was without breach by the Executive Officer or any third party of any obligation of confidentiality or non-use, including but not limited to the obligations and restrictions set forth in this Plan.
Forfeiture of Benefits. Coverage and benefits under this Plan shall be forfeited and shall not be provided under this Plan for any period as to which the Administrator determines that, within the time period and without the written consent specified, the Executive Officer has been either engaging in competition with AT&T or engaging in conduct disloyal to AT&T.
Equitable Relief. The parties recognize that any Executive Officer’s breach of any of the covenants in this Section will cause irreparable injury to AT&T, will represent a failure of the consideration under which AT&T (in its capacity as creator and sponsor of the Plan) agreed to provide the Executive Officer with the opportunity to receive Plan coverage and benefits, and that monetary damages would not provide AT&T with an adequate or complete remedy that would warrant AT&T’s continued sponsorship of the Plan and payment of Plan benefits for all Executive Officers. Accordingly, in the event of an Executive Officer’s actual or threatened breach of the covenants herein, the Administrator, in addition to all other rights and acting as a fiduciary under ERISA on behalf of all Executive Officers, shall have a fiduciary duty (in order to assure that AT&T receives fair and promised consideration for its continued Plan sponsorship and funding) to seek an injunction restraining the Executive Officer from breaching the covenants in this Section. In addition, AT&T shall pay for any Plan expenses that the Administrator incurs hereunder, and shall be entitled to recover from the Executive Officer its reasonable attorneys’ fees and costs incurred in obtaining such injunctive remedies. To enforce its repayment rights with respect to an Executive Officer, the Plan shall have a first priority, equitable lien on all Plan benefits provided to or for the Executive Officer and his or her Dependents. In the event the Administrator succeeds in enforcing the terms of this Article through a written settlement with the Executive Officer or a court order granting an injunction hereunder, the Executive Officer shall be entitled to collect Plan benefits prospectively, if the Executive Officer is otherwise entitled to such benefits, net of any fees and costs assessed pursuant hereto (which fees and costs shall be paid to AT&T as a repayment on behalf of the Executive Officer), provided that the Executive Officer complies with said settlement or injunction.
Uniform Enforcement. In recognition of AT&T’s need for nationally uniform standards for the Plan administration, it is an absolute condition in consideration of any Executive Officer’s accrual or receipt of benefits under the Plan after January 1, 2010 that each and all of the following conditions apply to all Executive Officers and to any benefits that are paid or are payable under the Plan:
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(1)To the maximum extent applicable ERISA shall control all issues and controversies hereunder, and the Administrator shall serve for purposes hereof as a “fiduciary” of the Plan, and as its “named fiduciary” within the meaning of ERISA.
(2)All litigation between the parties relating to this Article shall occur in federal court, which shall have exclusive jurisdiction, any such litigation shall be held in the United States District Court for the Northern District of Texas, and the only remedies available with respect to the Plan shall be those provided under ERISA to the extent it is applicable.
(3)If the Administrator determines in its sole discretion either (I) that AT&T or its affiliate that employed the Executive Officer terminated the Executive Officer’s employment for cause, or (II) that equitable relief enforcing the Executive Officer’s covenants under this Section is either not reasonably available, not ordered by a court of competent jurisdiction, or circumvented because the Executive Officer has sued in state court, or has otherwise sought remedies not available under ERISA (to the extent applicable), then in any and all of such instances the Executive Officer shall not be entitled to collect any Plan benefits, and if any Plan benefits have been paid to the Executive Officer, the Executive Officer shall immediately repay all Plan benefits to the Plan (which shall be used to pay Plan administrative expenses or Plan benefits) upon written demand from the Administrator. Furthermore, the Executive Officer shall hold AT&T and its affiliates harmless from any loss, expense, or damage that may arise from any of the conduct described in clauses (I) and (II) hereof.
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Exhibit 31.1
CERTIFICATION
I, John T. Stankey, certify that:
1. I have reviewed this report on Form 10-Q of AT&T Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: October 31, 2023
| /s/ John T. Stankey | |||||
| John T. Stankey | |||||
| Chief Executive Officer and | |||||
| President | |||||
Exhibit 31.2
CERTIFICATION
I, Pascal Desroches, certify that:
1. I have reviewed this report on Form 10-Q of AT&T Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: October 31, 2023
/s/ Pascal Desroches . | |||||
| Pascal Desroches | |||||
| Senior Executive Vice President | |||||
| and Chief Financial Officer | |||||
Exhibit 32
Certification of Periodic Financial Reports
Pursuant to 18 U.S.C. Section 1350, each of the undersigned officers of AT&T Inc. (the “Company”) hereby certifies that the Company’s Quarterly Report on Form 10-Q for the three months ended September 30, 2023 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934 and that information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
| October 31, 2023 | October 31, 2023 | ||||||||||||||||
| By: | /s/ John T. Stankey | By: | /s/ Pascal Desroches | ||||||||||||||
| John T. Stankey | Pascal Desroches | ||||||||||||||||
| Chief Executive Officer | Senior Executive Vice President | ||||||||||||||||
| and President | and Chief Financial Officer | ||||||||||||||||
The foregoing certification is being furnished solely pursuant to 18 U.S.C. Section 1350 and is not being filed as part of the Report or as a separate disclosure document. This certification shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934 (“Exchange Act”) or otherwise subject to liability under that section. This certification shall not be deemed to be incorporated by reference into any filing under the Securities Act of 1933 or the Exchange Act except to the extent this Exhibit 32 is expressly and specifically incorporated by reference in any such filing. A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to AT&T Inc. and will be retained by AT&T Inc. and furnished to the Securities and Exchange Commission or its staff upon request.