AT&T INC. - Quarter Report: 2022 September (Form 10-Q)

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, 2022


☐			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

AT&T INC.

Incorporated under the laws of the State of Delaware

I.R.S. Employer Identification Number 43-1301883

208 S. Akard St., Dallas, Texas 75202

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
Common Shares (Par Value $1.00 Per Share)	T	New York Stock Exchange
Depositary Shares, each representing a 1/1000th interest in a share of 5.000% Perpetual Preferred Stock, Series A	T PRA	New York Stock Exchange
Depositary Shares, each representing a 1/1000th interest in a share of 4.750% Perpetual Preferred Stock, Series C	T PRC	New York Stock Exchange
AT&T Inc. 2.500% Global Notes due March 15, 2023	T 23	New York Stock Exchange
AT&T Inc. 2.750% Global Notes due May 19, 2023	T 23C	New York Stock Exchange
AT&T Inc. Floating Rate Global Notes due September 5, 2023	T 23D	New York Stock Exchange
AT&T Inc. 1.050% Global Notes due September 5, 2023	T 23E	New York Stock Exchange
AT&T Inc. 1.300% Global Notes due September 5, 2023	T 23A	New York Stock Exchange
AT&T Inc. 1.950% Global Notes due September 15, 2023	T 23F	New York Stock Exchange
AT&T Inc. 2.400% Global Notes due March 15, 2024	T 24A	New York Stock Exchange
AT&T Inc. 3.500% Global Notes due December 17, 2025	T 25	New York Stock Exchange
AT&T Inc. 0.250% Global Notes due March 4, 2026	T 26E	New York Stock Exchange
AT&T Inc. 1.800% Global Notes due September 5, 2026	T 26D	New York Stock Exchange
AT&T Inc. 2.900% Global Notes due December 4, 2026	T 26A	New York Stock Exchange
AT&T Inc. 1.600% Global Notes due May 19, 2028	T 28C	New York Stock Exchange


		Name of each exchange
Title of each class	Trading Symbol(s)	on which registered
AT&T Inc. 2.350% Global Notes due September 5, 2029	T 29D	New York Stock Exchange
AT&T Inc. 4.375% Global Notes due September 14, 2029	T 29B	New York Stock Exchange
AT&T Inc. 2.600% Global Notes due December 17, 2029	T 29A	New York Stock Exchange
AT&T Inc. 0.800% Global Notes due March 4, 2030	T 30B	New York Stock Exchange
AT&T Inc. 2.050% Global Notes due May 19, 2032	T 32A	New York Stock Exchange
AT&T Inc. 3.550% Global Notes due December 17, 2032	T 32	New York Stock Exchange
AT&T Inc. 5.200% Global Notes due November 18, 2033	T 33	New York Stock Exchange
AT&T Inc. 3.375% Global Notes due March 15, 2034	T 34	New York Stock Exchange
AT&T Inc. 2.450% Global Notes due March 15, 2035	T 35	New York Stock Exchange
AT&T Inc. 3.150% Global Notes due September 4, 2036	T 36A	New York Stock Exchange
AT&T Inc. 2.600% Global Notes due May 19, 2038	T 38C	New York Stock Exchange
AT&T Inc. 1.800% Global Notes due September 14, 2039	T 39B	New York Stock Exchange
AT&T Inc. 7.000% Global Notes due April 30, 2040	T 40	New York Stock Exchange
AT&T Inc. 4.250% Global Notes due June 1, 2043	T 43	New York Stock Exchange
AT&T Inc. 4.875% Global Notes due June 1, 2044	T 44	New York Stock Exchange
AT&T Inc. 4.000% Global Notes due June 1, 2049	T 49A	New York Stock Exchange
AT&T Inc. 4.250% Global Notes due March 1, 2050	T 50	New York Stock Exchange
AT&T Inc. 3.750% Global Notes due September 1, 2050	T 50A	New York Stock Exchange
AT&T Inc. 5.350% Global Notes due November 1, 2066	TBB	New York Stock Exchange
AT&T Inc. 5.625% Global Notes due August 1, 2067	TBC	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 of 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.

Yes ☒ No ☐

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 during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or emerging growth company. See definition of “accelerated filer,” “large accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large Accelerated Filer	☒	Accelerated Filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
		Emerging growth company	☐

If an emerging growth company, indicate by checkmark 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.

Yes ☐ No ☐

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 31, 2022, there were 7,127 million 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,
	2022		2021		2022		2021
Operating Revenues
Service	$	24,731	$	26,247	$	72,998	$	87,340
Equipment	5,312		5,079		16,400		15,603
Total operating revenues	30,043		31,326		89,398		102,943

Operating Expenses
Cost of revenues
Equipment	5,440		5,401		17,010		16,242
Broadcast, programming and operations	—		1,117		—		8,106
Other cost of revenues (exclusive of depreciation and amortization shown separately below)	6,761		6,915		20,267		21,834
Selling, general and administrative	7,202		7,094		21,445		22,301
Asset impairments and abandonments and restructuring	114		105		745		105
Depreciation and amortization	4,514		4,457		13,426		13,352
Total operating expenses	24,031		25,089		72,893		81,940
Operating Income	6,012		6,237		16,505		21,003
Other Income (Expense)
Interest expense	(1,420)		(1,627)		(4,548)		(5,090)
Equity in net income (loss) of affiliates	392		183		1,417		159
Other income (expense) — net	2,270		1,522		6,729		6,958
Total other income (expense)	1,242		78		3,598		2,027
Income from Continuing Operations Before Income Taxes	7,254		6,315		20,103		23,030
Income tax expense on continuing operations	908		1,296		3,857		4,456
Income from Continuing Operations	6,346		5,019		16,246		18,574
Income (loss) from discontinued operations, net of tax	53		1,254		(146)		(2,485)
Net Income	6,399		6,273		16,100		16,089
Less: Net Income Attributable to Noncontrolling Interest	(373)		(355)		(1,107)		(1,051)
Net Income Attributable to AT&T	$	6,026	$	5,918	$	14,993	$	15,038
Less: Preferred Stock Dividends	(49)		(50)		(149)		(156)
Net Income Attributable to Common Stock	$	5,977	$	5,868	$	14,844	$	14,882
Basic Earnings Per Share from continuing operations	$	0.82	$	0.64	$	2.08	$	2.40
Basic Earnings Per Share from discontinued operations	$	0.01	$	0.18	$	(0.02)	$	(0.33)
Basic Earnings Per Share Attributable to Common Stock	$	0.83	$	0.82	$	2.06	$	2.07
Diluted Earnings Per Share from continuing operations	$	0.79	$	0.63	$	2.03	$	2.37
Diluted Earnings Per Share from discontinued operations	$	0.01	$	0.17	$	(0.02)	$	(0.33)
Diluted Earnings Per Share Attributable to Common Stock	$	0.80	$	0.80	$	2.01	$	2.04
Weighted Average Number of Common Shares Outstanding — Basic (in millions)	7,153		7,171		7,169		7,167
Weighted Average Number of Common Shares Outstanding — with Dilution (in millions)	7,647		7,506		7,605		7,491

See Notes to Consolidated Financial Statements.


AT&T INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Dollars in millions
(Unaudited)
	Three months ended				Nine months ended
	September 30,				September 30,
	2022		2021		2022		2021
Net income	$	6,399	$	6,273	$	16,100	$	16,089
Other comprehensive income (loss), net of tax:
Foreign currency:
Translation adjustment (includes $0, $(4), $0 and $(2) attributable to noncontrolling interest), net of taxes of $(38), $(17), $25 and $(13)	(88)		(86)		160		106
Distribution of WarnerMedia, net of taxes of $0, $0, $(38) and $0	(12)		—		(182)		—
Securities:
Net unrealized gains (losses), net of taxes of $(15), $(1), $(52) and $(13)	(43)		(4)		(152)		(39)
Reclassification adjustment included in net income, net of taxes of $1, $0, $3 and $(1)	1		(1)		7		(4)
Derivative instruments:
Net unrealized gains (losses), net of taxes of $(143), $(54) $(246) and $(160)	(540)		(195)		(885)		(593)
Reclassification adjustment included in net income, net of taxes of $3, $4, $22 and $16	12		11		85		57
Distribution of WarnerMedia, net of taxes of $0, $0, $(12) and $0	—		—		(24)		—
Defined benefit postretirement plans:
Net prior service credit arising during the period, net of taxes of $583, $0, $583 and $0	1,787		—		1,787		$	—
Amortization of net prior service credit included in net income, net of taxes of $(180), $(165), $(484) and $(495)	(551)		(505)		(1,477)		(1,516)
Distribution of WarnerMedia, net of taxes of $0, $0, $5 and $0	—		—		25		—
Other comprehensive income (loss)	566		(780)		(656)		(1,989)
Total comprehensive income	6,965		5,493		15,444		14,100
Less: Total comprehensive income attributable to noncontrolling interest	(373)		(351)		(1,107)		(1,049)
Total Comprehensive Income Attributable to AT&T	$	6,592	$	5,142	$	14,337	$	13,051

See Notes to Consolidated Financial Statements.


AT&T INC.
CONSOLIDATED BALANCE SHEETS
Dollars in millions except per share amounts
(Unaudited)
	September 30,		December 31,
	2022		2021
Assets
Current Assets
Cash and cash equivalents	$	2,423	$	19,223
Accounts receivable – net of related allowances for credit loss of $646 and $658	11,384		12,313
Inventories	3,935		3,325
Prepaid and other current assets	14,553		16,131
Assets from discontinued operations	—		119,776
Total current assets	32,295		170,768

Property, plant and equipment	327,903		324,613
Less: accumulated depreciation and amortization	(200,858)		(202,964)
Property, Plant and Equipment – Net	127,045		121,649
Goodwill	92,725		92,740
Licenses – Net	123,856		113,830


Other Intangible Assets – Net	5,362		5,391
Investments in and Advances to Equity Affiliates	3,964		6,168
Operating Lease Right-Of-Use Assets	21,782		21,824

Other Assets	19,434		19,252
Total Assets	$	426,463	$	551,622
Liabilities and Stockholders’ Equity
Current Liabilities
Debt maturing within one year	$	9,626	$	24,620
Note payable to DIRECTV	271		1,245
Accounts payable and accrued liabilities	36,642		39,095
Advanced billings and customer deposits	3,705		3,966
Dividends payable	2,013		3,749
Liabilities from discontinued operations	—		33,555
Total current liabilities	52,257		106,230
Long-Term Debt	123,854		151,011
Deferred Credits and Other Noncurrent Liabilities
Deferred income taxes	56,055		53,767
Postemployment benefit obligation	6,152		12,560
Operating lease liabilities	18,741		18,956
Other noncurrent liabilities	29,426		25,243

Total deferred credits and other noncurrent liabilities	110,374		110,526
Stockholders’ Equity
Preferred stock ($1 par value, 10,000,000 authorized at September 30, 2022 and December 31, 2021):
Series A (48,000 issued and outstanding at September 30, 2022 and December 31, 2021)	—		—
Series B (20,000 issued and outstanding at September 30, 2022 and December 31, 2021)	—		—
Series C (70,000 issued and outstanding at September 30, 2022 and December 31, 2021)	—		—
Common stock ($1 par value, 14,000,000,000 authorized at September 30, 2022 and December 31, 2021: issued 7,620,748,598 at September 30, 2022 and December 31, 2021)	7,621		7,621
Additional paid-in capital	122,933		130,112
Retained earnings	6,127		42,350
Treasury stock (494,560,271 at September 30, 2022 and 479,684,705 at December 31, 2021, at cost)	(17,148)		(17,280)
Accumulated other comprehensive income	2,873		3,529
Noncontrolling interest	17,572		17,523
Total stockholders’ equity	139,978		183,855
Total Liabilities and Stockholders’ Equity	$	426,463	$	551,622

See Notes to Consolidated Financial Statements.


AT&T INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Dollars in millions
(Unaudited)
	Nine months ended
	September 30,
	2022		2021
Operating Activities
Income from continuing operations	$	16,246	$	18,574
Adjustments to reconcile income from continuing operations to net cash provided by operating activities from continuing operations:
Depreciation and amortization	13,426		13,352


Provision for uncollectible accounts	1,323		857
Deferred income tax expense	2,947		5,234
Net (gain) loss on investments, net of impairments	412		(298)
Pension and postretirement benefit expense (credit)	(2,529)		(2,876)
Actuarial (gain) loss on pension and postretirement benefits	(3,838)		(3,021)
Asset impairments and abandonments and restructuring	745		105
Changes in operating assets and liabilities:
Receivables	1,021		(101)
Other current assets	(799)		(484)
Accounts payable and other accrued liabilities	(3,261)		(2,660)
Equipment installment receivables and related sales	906		715
Deferred customer contract acquisition and fulfillment costs	(756)		287
Postretirement claims and contributions	(443)		(425)
Other - net	64		(166)
Total adjustments	9,218		10,519
Net Cash Provided by Operating Activities from Continuing Operations	25,464		29,093
Investing Activities
Capital expenditures	(15,397)		(12,051)
Acquisitions, net of cash acquired	(9,959)		(23,533)
Dispositions	49		7,061
Distributions from DIRECTV in excess of cumulative equity in earnings	2,205		—
Other - net	91		(5)


Net Cash Used in Investing Activities from Continuing Operations	(23,011)		(28,528)
Financing Activities
Net change in short-term borrowings with original maturities of three months or less	84		630
Issuance of other short-term borrowings	3,955		17,476
Repayment of other short-term borrowings	(16,861)		(2,448)
Issuance of long-term debt	479		9,931
Repayment of long-term debt	(24,412)		(1,574)
Note payable to DIRECTV, net of payments	(1,070)		1,439
Payment of vendor financing	(4,237)		(4,013)

Purchase of treasury stock	(875)		(191)
Issuance of treasury stock	28		89


Dividends paid	(7,845)		(11,319)

Other - net	(3,649)		(1,567)
Net Cash (Used in) Provided by Financing Activities from Continuing Operations	(54,403)		8,453
Net (decrease) increase in cash and cash equivalents and restricted cash from continuing operations	(51,950)		9,018
Cash flows from Discontinued Operations:
Cash (used in) provided by operating activities	(3,754)		1,610
Cash provided by (used in) investing activities	1,029		1,195
Cash provided by (used in) financing activities	35,853		(288)
Net increase (decrease) in cash and cash equivalents and restricted cash from discontinued operations	33,128		2,517
Net (decrease) increase in cash and cash equivalents and restricted cash	$	(18,822)	$	11,535
Cash and cash equivalents and restricted cash beginning of year	21,316		9,870
Cash and Cash Equivalents and Restricted Cash End of Period	$	2,494	$	21,405
See Notes to Consolidated Financial Statements.


AT&T INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
Dollars and shares in millions except per share amounts
(Unaudited)
	Three months ended						Nine months ended
	September 30, 2022			September 30, 2021			September 30, 2022			September 30, 2021
	Shares	Amount		Shares	Amount		Shares	Amount		Shares	Amount
Preferred Stock - Series A
Balance at beginning of period	—	$	—	—	$	—	—	$	—	—	$	—

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

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

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

Balance at end of period	7,621	$	7,621	7,621	$	7,621	7,621	$	7,621	7,621	$	7,621
Additional Paid-In Capital
Balance at beginning of period		$	122,850		$	129,941		$	130,112		$	130,175
Distribution of WarnerMedia		—			—			(6,832)			—


Issuance of treasury stock		(5)			(2)			(149)			(77)
Share-based payments		88			96			(198)			(63)

Balance at end of period		$	122,933		$	130,035		$	122,933		$	130,035
Retained Earnings
Balance at beginning of period		$	2,128		$	38,947		$	42,350		$	37,457


Net income attributable to AT&T		6,026			5,918			14,993			15,038
Distribution of WarnerMedia		—			—			(45,041)			—
Preferred stock dividends		(36)			(36)			(171)			(188)
Common stock dividends ($0.2775, $0.52, $0.8325 and $1.56 per share)		(1,991)			(3,738)			(6,004)			(11,216)
Balance at end of period		$	6,127		$	41,091		$	6,127		$	41,091

See Notes to Consolidated Financial Statements.


AT&T INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY - continued
Dollars and shares in millions except per share amounts
(Unaudited)
	Three months ended						Nine months ended
	September 30, 2022			September 30, 2021			September 30, 2022			September 30, 2021
	Shares	Amount		Shares	Amount		Shares	Amount		Shares	Amount
Treasury Stock
Balance at beginning of period	(495)	$	(17,160)	(481)	$	(17,332)	(480)	$	(17,280)	(495)	$	(17,910)
Repurchase and acquisition of common stock	—	(3)		(1)	(10)		(43)	(875)		(8)	(225)
Reissuance of treasury stock	—	15		1	23		28	1,007		22	816
Balance at end of period	(495)	$	(17,148)	(481)	$	(17,319)	(495)	$	(17,148)	(481)	$	(17,319)
Accumulated Other Comprehensive Income Attributable to AT&T, net of tax
Balance at beginning of period		$	2,307		$	3,119		$	3,529		$	4,330
Other comprehensive income attributable to AT&T		566			(776)			(656)			(1,987)
Balance at end of period		$	2,873		$	2,343		$	2,873		$	2,343
Noncontrolling Interest
Balance at beginning of period		$	17,561		$	17,550		$	17,523		$	17,567


Net income attributable to noncontrolling interest		373			355			1,107			1,051

Acquisition of interest held by noncontrolling owners		(18)			—			(34)			—
Distributions		(344)			(369)			(1,024)			(1,084)

Translation adjustments attributable to noncontrolling interest, net of taxes		—			(4)			—			(2)
Balance at end of period		$	17,572		$	17,532		$	17,572		$	17,532
Total Stockholders' Equity at beginning of period		$	135,307		$	179,846		$	183,855		$	179,240
Total Stockholders' Equity at end of period		$	139,978		$	181,303		$	139,978		$	181,303

See Notes to Consolidated Financial Statements.

AT&T INC.

SEPTEMBER 30, 2022

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, 2021. 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.

On April 8, 2022, we completed the separation of our WarnerMedia business, which represented substantially all of our WarnerMedia segment, in a Reverse Morris Trust transaction, under which Magallanes, Inc. (Spinco), a formerly wholly-owned subsidiary of AT&T that held the WarnerMedia business, was distributed to AT&T stockholders via a pro rata dividend, followed by the combination of Spinco with a subsidiary of Discovery, Inc. (Discovery), which was renamed Warner Bros. Discovery, Inc. (WBD). (See Notes 8 and 13)

Upon the separation and distribution, the WarnerMedia business met the criteria for discontinued operations. For discontinued operations, we also evaluated transactions that were components of AT&T’s single plan of a strategic shift, including dispositions that previously did not individually meet the criteria due to materiality, and have determined discontinued operations to be comprised of WarnerMedia, Vrio, Xandr and Playdemic Ltd. (Playdemic). These businesses are reflected in our historical financial statements as discontinued operations, including for periods prior to the consummation of the WarnerMedia/Discovery transaction.

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

The preparation of financial statements in conformity with U.S. generally accepted accounting principles (GAAP) requires management to make estimates and assumptions, including estimates of fair value, probable losses and expenses, that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Moreover, unfavorable changes in market conditions, including interest rates, could adversely impact those estimates and result in asset impairments. Certain prior period amounts have been conformed to the current period’s presentation. Unless otherwise noted, the information in Notes 1 through 12 refer only to our continuing operations and do not include discussion of balances or activity of WarnerMedia, Vrio, Xandr and Playdemic, which are part of discontinued operations.

Accounting Policies, Adopted and Pending Accounting Standards and Other Changes

Customer Acquisition and Fulfillment Costs During the first quarter of 2022, we updated our analysis of expected economic lives of customer relationships. As of January 1, 2022, we extended the amortization period for deferred acquisition and fulfillment contract costs within Mobility and broadband/fiber in Consumer Wireline and Business Wireline to better reflect the estimated economic lives of the relationships. These changes in accounting estimate decreased other cost of revenues approximately $80, or $0.01 per diluted share from continuing operations in the third quarter and $335, or $0.03 per diluted share from continuing operations for the first nine months of 2022.

Fiber Network Assets During the first quarter of 2022, we updated our analysis of economic lives of AT&T owned fiber network assets. As of January 1, 2022, we extended the estimated economic life and depreciation period of such costs to better reflect the physical life of the assets that we had been experiencing and absence of technological changes that would replace fiber as the best broadband technology in the industry. The change in accounting estimate decreased depreciation expense $70, or $0.01 per diluted share from continuing operations in the third quarter and $210, or $0.02 per diluted share from continuing operations for the first nine months of 2022.

AT&T INC.

SEPTEMBER 30, 2022

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued

Dollars in millions except per share amounts

Convertible Instruments As of January 1, 2022, we adopted, through retrospective application, Accounting Standards Update (ASU) No. 2020-06, “Debt—Debt With Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity” (ASU 2020-06). ASU 2020-06 requires that instruments which may be settled in cash or stock are presumed settled in stock in calculating diluted earnings per share. While our intent is to settle the Series A Cumulative Perpetual Membership Interests in AT&T Mobility II LLC (Mobility preferred interests) in cash, the ability to settle this instrument in AT&T shares will result in additional dilutive impact, the magnitude of which is influenced by the fair value of the Mobility II preferred interests and the average AT&T common stock price during the reporting period, which could vary from period-to-period.

The following table presents the impact of the adoption of ASU 2020-06 on our diluted earnings per share from continuing operations:


	Historical Accounting Method	Effect of Adoption of ASU 2020-061		Under ASU 2020-06


Diluted earnings per share from continuing operations:
Three months ended September 30, 2022		$	0.82	$	(0.03)	$	0.79
Three months ended September 30, 2021		$	0.64	$	(0.01)	$	0.63

Nine months ended September 30, 2022		$	2.08	$	(0.05)	$	2.03
Nine months ended September 30, 2021		$	2.40	$	(0.03)	$	2.37

1See Note 2 for a discussion of the numerator and denominator adjustments.

Government Assistance The Financial Accounting Standards Board (FASB) issued ASU No, 2021-10, “Government Assistance (Topic 832): Disclosures by Business Entities about Government Assistance” (ASU 2021-10), which requires annual disclosures, beginning with the 2022 Annual Report on Form 10-K, in the notes to the financial statements, about transactions with a government that are accounted for by applying a grant or contribution accounting model by analogy to other guidance. The annual disclosures include terms and conditions, accounting treatment and impacted financial statement lines reflecting the impact of the transactions. ASU 2021-10 will be effective for annual reporting periods beginning after December 15, 2021, which we plan to adopt under prospective application for all in scope government transactions in the financial statements as of our adoption date or thereafter.

Supplier Finance Obligations In September 2022, the FASB issued ASU No. 2022-04, “Liabilities – Supplier Finance Programs (Subtopic 405-50): Disclosure of Supplier Finance Program Obligations” (ASU 2022-04), which establishes interim and annual reporting disclosure requirements about a company’s supplier finance programs for its purchase of goods and services. Interim and annual requirements include disclosure of outstanding amounts under the obligations as of the end of the reporting period, and annual requirements include a rollforward of those obligations for the annual reporting period, as well as a description of payment and other key terms of the programs. ASU 2022-04 will be effective for interim and annual periods beginning after December 15, 2022, with retrospective application, except for the annual rollforward requirement, which becomes effective for annual periods beginning after December 15, 2023, with prospective application. The standard allows early adoption of all requirements. In the year of adoption, the disclosure of payment and other key terms under the programs and outstanding balances under the obligations will also apply to interim reporting dates. We are in the process of evaluating the impact of our adoption of ASU 2022-04.

Subsequent Event

Mobility II Preferred Interests On October 24, 2022, approximately 105 million Mobility preferred interests of the 319 million outstanding were put to AT&T by a third-party investor. We paid approximately $2,600 cash to redeem the Mobility preferred interest, funded with commercial paper borrowings. As of October 31, 2022, we have approximately 213 million Mobility preferred interests outstanding, which have a redemption value of approximately $5,300 and pay cash distributions of $373 per annum, subject to declaration. Under the terms of the Mobility preferred interests, holders can put no more than 107 million interests in any 12-month period. As a result, future puts can be exercised in the fourth quarter of 2023, at the earliest.

AT&T INC.

SEPTEMBER 30, 2022

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, 2022 and 2021, is shown in the table below:


	Three months ended				Nine months ended
	September 30,				September 30,
	2022		2021		2022		2021
Numerators
Numerator for basic earnings per share:
Income from continuing operations, net of tax	$	6,346	$	5,019	$	16,246	$	18,574
Net income from continuing operations attributable to noncontrolling interests	(373)		(356)		(1,107)		(1,137)
Preferred Stock Dividends	(49)		(50)		(149)		(156)
Income from continuing operations attributable to common stock	5,924		4,613		14,990		17,281
Income (loss) from discontinued operations, net of tax	53		1,254		(146)		(2,485)
Net (income) loss from discontinued operations attributable to noncontrolling interests	—		1		—		86
Income (loss) from discontinued operations attributable to common stock	53		1,255		(146)		(2,399)
Net Income Attributable to Common Stock	$	5,977	$	5,868	$	14,844	$	14,882
Dilutive potential common shares:
Mobility II preferred interests	139		140		419		420
Share-based payment	4		6		13		17
Numerator for diluted earnings per share	$	6,120	$	6,014	$	15,276	$	15,319
Denominators (000,000)
Denominator for basic earnings per share:
Weighted average number of common shares outstanding	7,153		7,171		7,169		7,167
Dilutive potential common shares:
Mobility II preferred interests (in shares)	446		304		394		294
Share-based payment (in shares)	48		31		42		30
Denominator for diluted earnings per share	7,647		7,506		7,605		7,491

Upon the adoption of ASU 2020-06 in the first quarter of 2022, the ability to settle our Mobility II preferred interests in stock is reflected in our diluted earnings per share calculation. While our intent is to settle the Mobility II preferred interests in cash, the ability to settle this instrument in AT&T shares will result in additional dilutive impact, the magnitude of which is influenced by the fair value of the Mobility II preferred interests and the average AT&T common stock price during the reporting period, which could vary from period-to-period. The numerator includes an adjustment to add back to income the earned distributions on the Mobility II preferred interests, included in net income attributable to noncontrolling interest, and the denominator includes the potential issuance of AT&T common stock to settle the Mobility II preferred interests outstanding. (See Note 1)

AT&T INC.

SEPTEMBER 30, 2022

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, 2021	$	(1,964)		$	45		$	(1,422)		$	6,870		$	3,529
Other comprehensive income (loss) before reclassifications	160			(152)			(885)			1,787			910
Amounts reclassified from accumulated OCI	—		1	7		1	85		2	(1,477)		3	(1,385)
Distribution of WarnerMedia	(182)			—			(24)			25			(181)
Net other comprehensive income (loss)	(22)			(145)			(824)			335			(656)
Balance as of September 30, 2022	$	(1,986)		$	(100)		$	(2,246)		$	7,205		$	2,873

	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, 2020	$	(3,926)		$	111		$	(779)		$	8,924		$	4,330
Other comprehensive income (loss) before reclassifications	108			(39)			(593)			—			(524)
Amounts reclassified from accumulated OCI	—		1	(4)		1	57		2	(1,516)		3	(1,463)

Net other comprehensive income (loss)	108			(43)			(536)			(1,516)			(1,987)
Balance as of September 30, 2021	$	(3,818)		$	68		$	(1,315)		$	7,408		$	2,343
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 revenues.

AT&T INC.

SEPTEMBER 30, 2022

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued

Dollars in millions except per share amounts

In the first quarter of 2022, we reclassified into “Corporate” certain administrative costs borne by AT&T where the business units do not influence decision making to conform with the current period presentation. This recast increased Corporate operations and support expenses by approximately $270 for full-year 2021. Correspondingly, this recast lowered administrative expenses at AT&T’s Communications operations and Video (our former U.S. video operations contributed to DIRECTV Entertainment Holdings, LLC (DIRECTV) in July 2021), with no change on a consolidated basis.

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

•Mobility provides nationwide wireless service and equipment.

•Business Wireline provides advanced ethernet-based fiber services, IP Voice and managed professional services, as well as traditional voice and data services and related equipment to business customers.

•Consumer Wireline provides broadband services, including fiber connections that now provide our multi-gig services to residential customers. 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 9).

•Value portfolio, which are businesses no longer integral to our operations or which we no longer actively market.

Other items consist of:

•Video, which includes our former U.S. video operations that were contributed to DIRECTV on July 31, 2021, and our share of DIRECTV’s earnings as equity in net income of affiliates (see Note 11).

•Held-for-sale and other reclassifications, which includes our former Crunchyroll and Government Solutions operations.

•Reclassification of prior service credits, which includes the reclassification of prior service credit amortization, where we present the impact of benefit plan amendments in our business unit results. Prior service credit amortization is presented in “Other Income (Expense) - Net” in the consolidated statements of income and therefore has no impact on consolidated operating income or EBITDA.

•Merger & 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.

•Eliminations and consolidations, removed transactions involving dealings between Mobility and our Video business, prior to the July 31, 2021 separation of Video.

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

AT&T INC.

SEPTEMBER 30, 2022

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued

Dollars in millions except per share amounts


For the three months ended September 30, 2022
	Revenues		Operations and Support Expenses		EBITDA		Depreciation and Amortization		Operating Income (Loss)
Communications
Mobility	$	20,278	$	11,817	$	8,461	$	2,042	$	6,419
Business Wireline	5,668		3,444		2,224		1,342		882
Consumer Wireline	3,185		2,055		1,130		800		330
Total Communications	29,131		17,316		11,815		4,184		7,631
Latin America - Mexico	785		684		101		164		(63)
Segment Total	29,916		18,000		11,916		4,348		7,568
Corporate and Other
Corporate:
DTV-related retained costs	—		197		(197)		139		(336)
Parent administration support	(6)		266		(272)		2		(274)
Securitization fees	15		103		(88)		—		(88)
Value portfolio	118		32		86		9		77
Total Corporate	127		598		(471)		150		(621)





Reclassification of prior service credits	—		731		(731)		—		(731)
Merger & Significant Items	—		188		(188)		16		(204)

Total Corporate and Other	127		1,517		(1,390)		166		(1,556)
AT&T Inc.	$	30,043	$	19,517	$	10,526	$	4,514	$	6,012

AT&T INC.

SEPTEMBER 30, 2022

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued

Dollars in millions except per share amounts


For the three months ended September 30, 2021
	Revenues		Operations and Support Expenses		EBITDA		Depreciation and Amortization		Operating Income (Loss)
Communications
Mobility	$	19,138	$	11,116	$	8,022	$	2,035	$	5,987
Business Wireline	5,938		3,632		2,306		1,304		1,002
Consumer Wireline	3,142		2,188		954		775		179
Total Communications	28,218		16,936		11,282		4,114		7,168
Latin America - Mexico	724		697		27		157		(130)
Segment Total	28,942		17,633		11,309		4,271		7,038
Corporate and Other
Corporate:
DTV-related retained costs	20		69		(49)		92		(141)
Parent administration support	—		360		(360)		12		(372)
Securitization fees	16		1		15		—		15
Value portfolio	152		46		106		10		96
Total Corporate	188		476		(288)		114		(402)
Video	2,149		1,731		418		44		374



Held-for-sale and other reclassifications	64		31		33		—		33
Reclassification of prior service credits	—		670		(670)		—		(670)
Merger & Significant Items	—		108		(108)		28		(136)
Eliminations and consolidations	(17)		(17)		—		—		—
Total Corporate and Other	2,384		2,999		(615)		186		(801)
AT&T Inc.	$	31,326	$	20,632	$	10,694	$	4,457	$	6,237

AT&T INC.

SEPTEMBER 30, 2022

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued

Dollars in millions except per share amounts


For the nine months ended September 30, 2022
	Revenues		Operations and Support Expenses		EBITDA		Depreciation and Amortization		Operating Income (Loss)
Communications
Mobility	$	60,279	$	35,677	$	24,602	$	6,118	$	18,484
Business Wireline	16,903		10,498		6,405		3,954		2,451
Consumer Wireline	9,520		6,218		3,302		2,351		951
Total Communications	86,702		52,393		34,309		12,423		21,886
Latin America - Mexico	2,283		2,036		247		494		(247)
Segment Total	88,985		54,429		34,556		12,917		21,639
Corporate and Other
Corporate:
DTV-related retained costs	8		532		(524)		408		(932)
Parent administration support	(24)		873		(897)		12		(909)
Securitization fees	48		263		(215)		—		(215)
Value portfolio	381		106		275		29		246
Total Corporate	413		1,774		(1,361)		449		(1,810)


Reclassification of prior service credits	—		1,961		(1,961)		—		(1,961)
Merger & Significant Items	—		1,303		(1,303)		60		(1,363)

Total Corporate and Other	413		5,038		(4,625)		509		(5,134)
AT&T Inc.	$	89,398	$	59,467	$	29,931	$	13,426	$	16,505

AT&T INC.

SEPTEMBER 30, 2022

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued

Dollars in millions except per share amounts


For the nine months ended September 30, 2021
	Revenues		Operations and Support Expenses		EBITDA		Depreciation and Amortization		Operating Income (Loss)
Communications
Mobility	$	57,108	$	32,998	$	24,110	$	6,072	$	18,038
Business Wireline	18,036		11,010		7,026		3,875		3,151
Consumer Wireline	9,380		6,280		3,100		2,306		794
Total Communications	84,524		50,288		34,236		12,253		21,983
Latin America - Mexico	2,043		1,984		59		452		(393)
Segment Total	86,567		52,272		34,295		12,705		21,590
Corporate and Other
Corporate:
DTV-related retained costs	20		69		(49)		92		(141)
Parent administration support	(12)		1,147		(1,159)		27		(1,186)
Securitization fees	44		53		(9)		—		(9)
Value portfolio	494		161		333		30		303
Total Corporate	546		1,430		(884)		149		(1,033)
Video	15,513		12,666		2,847		356		2,491
Held-for-sale and other reclassifications	453		306		147		—		147
Reclassification of prior service credits	—		2,011		(2,011)		—		(2,011)
Merger & Significant Items	—		39		(39)		142		(181)
Eliminations and consolidations	(136)		(136)		—		—		—
Total Corporate and Other	16,376		16,316		60		647		(587)
AT&T Inc.	$	102,943	$	68,588	$	34,355	$	13,352	$	21,003

AT&T INC.

SEPTEMBER 30, 2022

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,
	2022		2021		2022		2021
Communications	$	7,631	$	7,168	$	21,886	$	21,983
Latin America	(63)		(130)		(247)		(393)
Segment Operating Income	7,568		7,038		21,639		21,590
Reconciling Items:
Corporate	(621)		(402)		(1,810)		(1,033)
Video	—		374		—		2,491
Held-for-sale and other reclassifications	—		33		—		147
Transaction and other costs	(58)		(8)		(341)		(43)
Amortization of intangibles acquired	(16)		(28)		(60)		(142)
Asset impairments and abandonments and restructuring	(114)		(105)		(745)		(105)
Benefit-related gains (losses), and other employee-related costs	(16)		5		(217)		109

Reclassification of prior service credits	(731)		(670)		(1,961)		(2,011)


AT&T Operating Income	6,012		6,237		16,505		21,003
Interest Expense	1,420		1,627		4,548		5,090
Equity in net income (loss) of affiliates	392		183		1,417		159
Other income (expense) — net	2,270		1,522		6,729		6,958
Income from Continuing Operations Before Income Taxes	$	7,254	$	6,315	$	20,103	$	23,030

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, 2022
	Communications
	Mobility		Business Wireline		Consumer Wireline		Latin America		Corporate & Other		Elim.		Total
Wireless service	$	15,256	$	—	$	—	$	559	$	4	$	—	$	15,819
Video service	—		—		—		—		—		—		—
Business service	—		5,524		—		—		—		—		5,524
Broadband	—		—		2,429		—		—		—		2,429
Advertising	81		—		—		—		—		—		81
Legacy voice and data	—		—		427		—		87		—		514
Other	—		—		329		—		35		—		364
Total Service	15,337		5,524		3,185		559		126		—		24,731
Equipment	4,941		144		—		226		1		—		5,312
Total	$	20,278	$	5,668	$	3,185	$	785	$	127	$	—	$	30,043

AT&T INC.

SEPTEMBER 30, 2022

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued

Dollars in millions except per share amounts


For the three months ended September 30, 2021
	Communications
	Mobility		Business Wireline		Consumer Wireline		Latin America		Corporate & Other		Elim.		Total
Wireless service	$	14,450	$	—	$	—	$	463	$	29	$	—	$	14,942
Video service	—		—		—		—		2,132		—		2,132
Business service	—		5,765		—		—		—		—		5,765
Broadband	—		—		2,290		—		—		—		2,290
Advertising	77		—		—		—		17		(17)		77
Legacy voice and data	—		—		484		—		98		—		582
Other	—		—		351		—		108		—		459
Total Service	14,527		5,765		3,125		463		2,384		(17)		26,247
Equipment	4,611		173		17		261		17		—		5,079
Total	$	19,138	$	5,938	$	3,142	$	724	$	2,401	$	(17)	$	31,326


For the nine months ended September 30, 2022
	Communications
	Mobility		Business Wireline		Consumer Wireline		Latin America		Corporate & Other		Elim.		Total
Wireless service	$	44,825	$	—	$	—	$	1,583	$	23	$	—	$	46,431
Video service	—		—		—		—		—		—		—
Business service	—		16,418		—		—		—		—		16,418
Broadband	—		—		7,177		—		—		—		7,177
Advertising	240		—		—		—		—		—		240
Legacy voice and data	—		—		1,332		—		242		—		1,574
Other	—		—		1,011		—		147		—		1,158
Total Service	45,065		16,418		9,520		1,583		412		—		72,998
Equipment	15,214		485		—		700		1		—		16,400
Total	$	60,279	$	16,903	$	9,520	$	2,283	$	413	$	—	$	89,398

AT&T INC.

SEPTEMBER 30, 2022

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued

Dollars in millions except per share amounts


For the nine months ended September 30, 2021
	Communications
	Mobility		Business Wireline		Consumer Wireline		Latin America		Corporate & Other		Elim.		Total
Wireless service	$	42,667	$	—	$	—	$	1,349	$	66	$	—	$	44,082
Video service	—		—		—				15,423		—		15,423
Business service	—		17,497		—		—		70		—		17,567
Broadband	—		—		6,761		—		—		—		6,761
Advertising	254		—		—		—		136		(136)		254
Legacy voice and data	—		—		1,507		—		334		—		1,841
Other	—		—		1,019		—		393		—		1,412
Total Service	42,921		17,497		9,287		1,349		16,422		(136)		87,340
Equipment	14,187		539		93		694		90		—		15,603
Total	$	57,108	$	18,036	$	9,380	$	2,043	$	16,512	$	(136)	$	102,943

Deferred Customer Contract Acquisition and Fulfillment Costs

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

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


	September 30,		December 31,
Consolidated Balance Sheets	2022		2021
Deferred Acquisition Costs
Prepaid and other current assets	$	2,772	$	2,551
Other Assets	3,790		3,247
Total deferred customer contract acquisition costs	$	6,562	$	5,798
Deferred Fulfillment Costs
Prepaid and other current assets	$	2,489	$	2,600
Other Assets	4,252		4,148
Total deferred customer contract fulfillment costs	$	6,741	$	6,748

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


	September 30,		September 30,
Consolidated Statements of Income	2022		20211
Deferred acquisition cost amortization	$	2,138	$	2,266
Deferred fulfillment cost amortization	2,000		3,285
1Includes deferred acquisition amortization of $409 and deferred fulfillment cost amortization of $1,162 from our separated Video business for the nine months ended September 30, 2021.

Contract Assets and Liabilities

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

AT&T INC.

SEPTEMBER 30, 2022

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued

Dollars in millions except per share amounts

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	2022		2021
Contract asset	$	5,047	$	4,389
Current portion in “Prepaid and other current assets”	2,827		2,582
Contract liability	3,938		4,133
Current portion in “Advanced billings and customer deposits”	3,597		3,766

Our contract asset balances for the quarter ended September 30, 2022 and December 31, 2021 reflect increased promotional equipment sales in our wireless business. We expect the amortization of these promotional costs to increase throughout 2022 and the contract asset to flatten in 2023.

Our beginning of period contract liability recorded as customer contract revenue during 2022 was $3,527.

Remaining Performance Obligations

Remaining performance obligations primarily relate to our Communications segment and 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, 2022, the aggregate amount of the transaction price allocated to remaining performance obligations was $34,309, of which we expect to recognize approximately 70% by the end of 2023, 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 2022.

We recognize actuarial gains and losses on pension and postretirement plan assets in our consolidated results as a component of “Other income (expense) – net” at our annual measurement date of December 31, unless earlier remeasurements are required. Total distributions from the pension plan exceeded the threshold of service and interest costs for 2022, requiring us to follow settlement accounting and remeasure our pension benefit plan assets and obligations at each quarter-end in 2022. These remeasurements resulted in the recognition of an actuarial gain of $216 in the third quarter and $2,573 for the first nine months of 2022. Similar to 2022, in 2021, we were required to follow settlement accounting and remeasure our pension benefit plan assets and obligations at each quarter end.

AT&T INC.

SEPTEMBER 30, 2022

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued

Dollars in millions except per share amounts

During the third quarter of 2022, we committed to, and reflected in our results, plan changes impacting postretirement health and welfare benefits. This plan change reduced our postretirement benefit obligation approximately $2,400 and aligns our benefit plans to market level. In conjunction with this plan change, we also remeasured the postretirement plan assets and liabilities as of July 1, 2022, and recognized an actuarial gain of $1,084.

As part of our 2022 remeasurements, we updated the weighted-average discount rates used to measure our pension and postretirement benefit obligations as summarized in the table below.


	Pension Benefits								Postretirement Benefits
	Dec. 31, 2021		Mar. 31, 2022		Jun. 30, 2022		Sep. 30, 2022		Dec. 31, 2021		Jul. 1, 2022
Weighted-average discount rate for determining benefit obligation	3.00	%	3.70	%	4.80	%	5.50	%	2.80	%	4.70	%
Discount rate in effect for determining service cost, for period beginning	3.20	%	3.80	%	4.90	%	5.50	%	3.10	%	4.90	%
Discount rate in effect for determining interest cost, for period beginning	2.30	%	3.40	%	4.40	%	5.30	%	2.10	%	4.20	%
Expected long-term rate of return on plan assets (annual rate)	6.75	%							4.50	%
Actual return on plan assets (YTD rate)			(5.20	%)	(11.30	%)	(15.40	%)			(12.20	%)

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,
	2022		2021		2022		2021
Pension cost:
Service cost – benefits earned during the period	$	141	$	241	$	488	$	723
Interest cost on projected benefit obligation	481		321		1,216		951
Expected return on assets	(740)		(890)		(2,410)		(2,617)
Amortization of prior service credit	(33)		(36)		(100)		(108)
Net pension (credit) cost before remeasurement	(151)		(364)		(806)		(1,051)
Actuarial (gain) loss	(216)		(374)		(2,573)		(3,021)
Net pension (credit) cost	$	(367)	$	(738)	$	(3,379)	$	(4,072)

Postretirement cost:
Service cost – benefits earned during the period	$	7	$	11	$	25	$	34
Interest cost on accumulated postretirement benefit obligation	75		53		201		158
Expected return on assets	(23)		(38)		(88)		(114)
Amortization of prior service credit	(697)		(634)		(1,861)		(1,903)
Net postretirement (credit) cost before remeasurement	(638)		(608)		(1,723)		(1,825)
Actuarial (gain) loss	(1,084)		—		(1,084)		—
Net postretirement (credit) cost	$	(1,722)	$	(608)	$	(2,807)	$	(1,825)

Combined net pension and postretirement (credit) cost	$	(2,089)	$	(1,346)	$	(6,186)	$	(5,897)

AT&T INC.

SEPTEMBER 30, 2022

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued

Dollars in millions except per share amounts

We also provide senior- and middle-management employees with nonqualified, unfunded supplemental retirement and savings plans. Net supplemental pension benefits costs not included in the table above were $13 and $12 in the third quarter and $37 and $35 for the first nine months of 2022 and 2021, respectively. Actuarial gains were $140 in the third quarter and $181 for the first nine months of 2022.

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, 2021.

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, 2022				December 31, 2021
	Carrying		Fair		Carrying		Fair
	Amount		Value		Amount		Value
Notes and debentures1	$	129,688	$	116,586	$	167,475	$	193,068
Commercial paper	2,161		2,161		6,586		6,586

Investment securities2	2,595		2,595		3,214		3,214
1Includes credit agreement borrowings. Excludes note payable to DIRECTV.
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.

AT&T INC.

SEPTEMBER 30, 2022

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued

Dollars in millions except per share amounts

Following is the fair value leveling for investment securities that are measured at fair value and derivatives as of September 30, 2022 and December 31, 2021. Derivatives designated as hedging instruments are reflected as “Other assets,” “Other noncurrent liabilities,” “Prepaid and other current assets” and “Accounts payable and accrued liabilities” on our consolidated balance sheets.


	September 30, 2022
	Level 1		Level 2		Level 3		Total
Equity Securities
Domestic equities	$	912	$	—	$	—	$	912
International equities	178		—		—		178
Fixed income equities	185		—		—		185
Available-for-Sale Debt Securities	—		1,142		—		1,142





Liability Derivatives

Cross-currency swaps	—		(8,882)		—		(8,882)

Foreign exchange contracts	—		(69)		—		(69)


	December 31, 2021
	Level 1		Level 2		Level 3		Total
Equity Securities
Domestic equities	$	1,213	$	—	$	—	$	1,213
International equities	221		—		—		221
Fixed income equities	219		—		—		219
Available-for-Sale Debt Securities	—		1,380		—		1,380
Asset Derivatives

Cross-currency swaps	—		211		—		211


Liability Derivatives

Cross-currency swaps	—		(3,170)		—		(3,170)

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,
	2022		2021		2022		2021
Total gains (losses) recognized on equity securities	$	(79)	$	9	$	(411)	$	151
Gains (Losses) recognized on equity securities sold	(8)		(2)		(56)		(2)
Unrealized gains (losses) recognized on equity securities held at end of period	$	(71)	$	11	$	(355)	$	153

At September 30, 2022, available-for-sale debt securities totaling $1,142 have maturities as follows - less than one year: $71; one to three years: $140; three to five years: $187; five or more years: $744.

AT&T INC.

SEPTEMBER 30, 2022

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued

Dollars in millions except per share amounts

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 some 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 market 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, 2022 and 2021, no ineffectiveness was measured on fair value hedges.

Cash Flow Hedging We designated most of our cross-currency swaps as cash flow hedges through September 30, 2022. We have entered into multiple cross-currency swaps to hedge our exposure to variability in expected future cash flows that are attributable to foreign currency risk generated from our foreign-denominated debt. These agreements include initial and final exchanges of principal from fixed foreign currency 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 currency-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 amounting to $1,857 related to cash flow hedges on the de-designation date 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. Existing cross-currency swaps with a maturity of less than 12 months will retain their cash flow hedge designation. 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.

AT&T INC.

SEPTEMBER 30, 2022

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued

Dollars in millions except per share amounts

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, 2022, we had posted collateral of $1,767 (a deposit asset) and held collateral of $0 (a receipt liability). Under the agreements, if AT&T’s credit rating had been downgraded two ratings levels by Fitch Ratings, one level by S&P and one level by Moody’s before the final collateral exchange in September, we would have been required to post additional collateral of $23. 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 $7,811. At December 31, 2021, we had posted collateral of $135 (a deposit asset) and held collateral of $7 (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,
	2022		2021

Cross-currency swaps	$	38,213	$	40,737

Foreign exchange contracts	617		—
Total	$	38,830	$	40,737

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	2022		2021		2022		2021
Interest rate swaps (Interest expense):
Gain (Loss) on interest rate swaps	$	(1)	$	(1)	$	(3)	$	(3)
Gain (Loss) on long-term debt	1		1		3		3
Cross-currency swaps:
Gain (Loss) on cross-currency swaps	(52)		(34)		7		(66)
Gain (Loss) on long-term debt	52		34		(7)		66
Gain (Loss) recognized in accumulated OCI	12		2		(48)		3
Foreign exchange contracts:
Gain (Loss) on foreign exchange contracts	(37)		—		(60)		—
Gain (Loss) on long-term debt	37		—		60		—
Gain (Loss) recognized in accumulated OCI	(5)		—		(9)		—

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

AT&T INC.

SEPTEMBER 30, 2022

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued

Dollars in millions except per share amounts

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	2022		2021		2022		2021
Cross-currency swaps:
Gain (Loss) recognized in accumulated OCI	$	(690)	$	(237)	$	(1,077)	$	(742)
Foreign exchange contracts:
Gain (Loss) recognized in accumulated OCI	—		(14)		3		(14)
Other income (expense) - net reclassified from accumulated OCI into income	—		7		1		(3)
Interest rate locks:

Interest income (expense) reclassified from accumulated OCI into income	(15)		(22)		(51)		(70)
Other income (expense) reclassified from accumulated OCI into income	—		—		(45)		—
Distribution of WarnerMedia	—		—		(12)		—

NOTE 8. ACQUISITIONS, DISPOSITIONS AND OTHER ADJUSTMENTS

Acquisitions

Spectrum Auction On January 14, 2022, the Federal Communications Commission (FCC) announced that we were the winning bidder for 1,624 3.45 GHz licenses in Auction 110. We provided the FCC with an upfront deposit of $123 in the third quarter of 2021 and paid the remaining $8,956 in the first quarter of 2022, for a total of $9,079. We funded the purchase price using cash and short-term investments. We received the licenses in May 2022 and classified the auction deposits and related capitalized interest as “Licenses - Net” on our September 30, 2022 consolidated balance sheet.

In February 2021, the FCC announced that we were the winning bidder for 1,621 C-Band licenses. We provided the FCC an upfront deposit of $550 in 2020 and cash payments totaling $22,856 in the first quarter of 2021, for a total of $23,406. The licenses were received in July 2021. In the third quarter of 2022, we paid $98 of compensable relocation costs for a total of $1,703 Incentive Payments and compensable relocation costs paid to date for the C-Band licenses, with $1,605 paid in 2021.

Cash paid, including spectrum deposits (net of refunds), capitalized interest, and any payments for incentive and relocation costs are included in “Acquisitions, net of cash acquired” on our consolidated statements of cash flows. Interest is capitalized until the spectrum is ready for its intended use.

Dispositions

WarnerMedia On April 8, 2022, we completed the separation and distribution of our WarnerMedia business, and merger of Spinco, an AT&T subsidiary formed to hold the WarnerMedia business, with a subsidiary of Discovery, Inc., which was renamed Warner Bros. Discovery, Inc (WBD). Each AT&T shareholder was entitled to receive 0.241917 shares of WBD common stock for each share of AT&T common stock held as of the record date, which represented approximately 71% of WBD. In connection with and in accordance with the terms of the Separation and Distribution Agreement (SDA), prior to the distribution and merger, AT&T received approximately $40,400, which includes $38,800 of Spinco cash and $1,600 of debt retained by WarnerMedia. During the second quarter, assets of approximately $121,100 and liabilities of $70,600 were removed from our balance sheet as well as $45,041 of retained earnings and $5,632 of additional paid-in capital associated with the transaction. Additionally, in August 2022, we and WBD finalized the post-closing adjustment, pursuant to section 1.3 of the SDA, which resulted in a $1,200 payment to WBD in the third quarter of 2022. The $1,200 post-closing adjustment was included in the change in additional paid-in capital for the three months ended June 30, 2022, and for balance sheets ended June 30, 2022 and September 30, 2022. (See Note 13)

AT&T INC.

SEPTEMBER 30, 2022

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued

Dollars in millions except per share amounts

AT&T, Spinco and Discovery entered into a Tax Matters Agreement, which governs the parties’ rights, responsibilities and obligations with respect to tax liabilities and benefits, the preservation of the expected tax-free status of the transactions contemplated by the SDA, and other matters regarding taxes.

Xandr On June 6, 2022, we completed the sale of the marketplace component of Xandr to Microsoft Corporation. Xandr was reflected in our historical financial statements as discontinued operations. (See Note 13)

NOTE 9. 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.

For the nine months ended September 30, 2022, cash flows from operating activities included net cash proceeds received from the sales of receivables of approximately $2,180, comprised of equipment installment receivable sales of $8,598, or approximately $1,540 cash received net of remittances paid, and approximately $640 from other programs. For the nine months ended September 30, 2021, net cash proceeds received from the sales of receivables were approximately $940, comprised of equipment installment receivable sales of $7,231, or approximately $940 cash received net of remittances paid.

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.

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


	September 30, 2022		December 31, 2021


Gross receivables:	$	4,309		$	4,361
Balance sheet classification
Accounts receivable
Notes receivable	1,894			1,846
Trade receivables	693			606
Other Assets
Noncurrent notes and trade receivables	1,722			1,909

Outstanding portfolio of receivables derecognized from our consolidated balance sheets	10,049			9,767
Cash proceeds received, net of remittances1	8,180			6,644
1Represents amounts to which financial institutions remain entitled, excluding the deferred purchase price.

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

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

AT&T INC.

SEPTEMBER 30, 2022

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, 2022 and 2021:


	Three months ended				Nine months ended
	September 30,				September 30,
	2022		2021		2022		2021
Gross receivables sold	$	2,698	$	2,123	$	8,950	$	8,067
Net receivables sold1	2,590		2,069		8,623		7,858
Cash proceeds received	2,664		1,981		8,598		7,231
Deferred purchase price recorded	—		158		245		864
Guarantee obligation recorded	173		94		469		321
1Receivables 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, 2022 and 2021:


	Three months ended				Nine months ended
	September 30,				September 30,
	2022		2021		2022		2021
Fair value of repurchased receivables	$	1,386	$	471	$	3,314	$	1,094
Carrying value of deferred purchase price	1,395		440		3,335		1,019
Gain (loss) on repurchases1	$	(9)	$	31	$	(21)	$	75
1These gains (losses) are included in “Selling, general and administrative” in the consolidated statements of income.

At September 30, 2022 and December 31, 2021, our deferred purchase price receivable was $1,740 and $3,177, respectively, of which $821 and $2,123 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, 2022 and December 31, 2021 was $345 and $371, respectively, of which $64 and $101 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 10. LEASES

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

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

AT&T INC.

SEPTEMBER 30, 2022

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,
	2022		2021		2022		2021
Operating lease cost	$	1,368	$	1,343	$	4,072	$	4,021

Finance lease cost:
Amortization of right-of-use assets	$	55	$	47	$	149	$	134
Interest on lease obligation	39		38		120		108
Total finance lease cost	$	94	$	85	$	269	$	242

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


	Nine months ended
	September 30,
	2022		2021
Cash Flows from Operating Activities
Cash paid for amounts included in lease obligations:
Operating cash flows for operating leases	$	3,507	$	3,442
Supplemental Lease Cash Flow Disclosures
Operating lease right-of-use assets obtained in exchange for new operating lease obligations	2,775		2,667

AT&T INC.

SEPTEMBER 30, 2022

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued

Dollars in millions except per share amounts

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


	September 30, 2022			December 31, 2021
Operating Leases
Operating lease right-of-use assets	$	21,782		$	21,824

Accounts payable and accrued liabilities	$	3,468		$	3,393
Operating lease obligation	18,741			18,956
Total operating lease obligation	$	22,209		$	22,349
Finance Leases
Property, plant and equipment, at cost	$	2,612		$	2,494
Accumulated depreciation and amortization	(1,141)			(1,053)
Property, plant and equipment, net	$	1,471		$	1,441

Current portion of long-term debt	$	155		$	127
Long-term debt	1,476			1,442
Total finance lease obligation	$	1,631		$	1,569

	September 30,
	2022			2021
Weighted-Average Remaining Lease Term (years)
Operating leases	8.1			8.2
Finance leases	7.9			9.0

Weighted-Average Discount Rate
Operating leases	3.6		%	3.7		%
Finance leases	7.9		%	8.3		%

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


At September 30, 2022	Operating		Finance
	Leases		Leases
Remainder of 2022	$	1,162	$	70
2023	4,486		279
2024	4,062		270
2025	3,413		274
2026	2,703		253
Thereafter	10,539		1,136
Total lease payments	26,365		2,282
Less: imputed interest	(4,156)		(651)
Total	$	22,209	$	1,631

AT&T INC.

SEPTEMBER 30, 2022

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued

Dollars in millions except per share amounts

NOTE 11. TRANSACTIONS WITH DIRECTV

On July 31, 2021, we closed our transaction with TPG to form a new company named DIRECTV. The transaction resulted in our deconsolidation of the Video business. As DIRECTV is jointly governed by a board with representation from both AT&T and TPG, with TPG having tie-breaking authority on certain key decisions, most significantly the appointment and removal of the CEO, we have concluded that we are not the primary beneficiary of DIRECTV. Effective August 1, 2021, we began accounting for our investment in DIRECTV under the equity method and recorded our share of DIRECTV earnings as equity in net income of affiliates, with DIRECTV considered a related party.

For the nine months ended September 30, 2022, our share of DIRECTV’s earnings included in equity in net income of affiliates was $1,429. Cash distributions from DIRECTV for the first nine months totaled $3,634, with $1,429 classified as operating activities and $2,205 classified as investing activities in our consolidated statement of cash flows. Our investment in DIRECTV at September 30, 2022 was $3,352.

In addition to the assets and liabilities contributed to DIRECTV, at close we recorded total obligations of $2,100 to cover certain net losses under the NFL SUNDAY TICKET contract, of which $1,800 is in the form of a note payable to DIRECTV. During the first nine months of 2022, cash payments to DIRECTV on the note totaled $1,070 and were classified as financing activities in our consolidated statement of cash flows. Amounts due under the DIRECTV note were $271 at September 30, 2022.

We also provide DIRECTV with network transport for U-verse products and sales services under commercial arrangements for up to five years. Under separate transition services agreements, we provide DIRECTV certain operational support, including servicing of certain of their customer receivables for up to three years. For the nine months ended September 30, 2022, we billed DIRECTV approximately $920 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 $197 in the third quarter and $532 for the first nine months of 2022.

At September 30, 2022, we had accounts receivable from DIRECTV of $571 and accounts payable to DIRECTV of $210.

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

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,
	2022		2021		2021		2020
Cash and cash equivalents from continuing operations	$	2,423	$	18,485	$	19,223	$	7,924
Cash and cash equivalents from discontinued operations	—		2,785		1,946		1,816
Restricted cash in Prepaid and other current assets	1		2		3		9
Restricted cash in Other Assets	70		133		144		121
Cash and Cash Equivalents and Restricted Cash	$	2,494	$	21,405	$	21,316	$	9,870

AT&T INC.

SEPTEMBER 30, 2022

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:	2022		2021
Interest	$	5,981	$	5,931
Income taxes, net of refunds	400		215


The following table summarizes capital expenditures:
	Nine months ended
	September 30,
	2022		2021
Purchase of property and equipment	$	15,273	$	11,919
Interest during construction - capital expenditures1	124		132
Total Capital Expenditures	$	15,397	$	12,051

The following table summarizes acquisitions, net of cash acquired:
	Nine months ended
	September 30,
	2022		2021
Business acquisitions	$	—	$	—
Spectrum acquisitions	9,076		23,017
Interest during construction - spectrum1	883		516
Total Acquisitions	$	9,959	$	23,533
1 Total capitalized interest was $1,007 and $648 for the nine months ended September 30, 2022 and 2021, respectively.

Noncash Investing and Financing Activities In connection with capital improvements and the acquisition of other productive assets, we negotiate favorable payment terms (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, 2022 and 2021, we recorded vendor financing commitments related to capital investments of approximately $3,916 and $3,624, respectively.

Total vendor financing payables included in our September 30, 2022 consolidated balance sheet were approximately $4,635, with $3,105 due within one year (in “Accounts payable and accrued liabilities”) and the remainder predominantly due within two to five years (in “Other noncurrent liabilities”).

AT&T INC.

SEPTEMBER 30, 2022

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued

Dollars in millions except per share amounts

Debt Transactions At September 30, 2022, our debt obligations totaled $133,480. Our debt activity primarily consisted of the following:


	First Quarter		Second Quarter		Third Quarter		Nine months ended September 30, 2022
Net commercial paper borrowings	$	1,471	$	(5,219)	$	(724)	$	(4,472)
Issuance of Notes and Debentures:








Private financing	$	—	$	—	$	750	$	750
Other	479		—		—		479
Debt Issuances	$	479	$	—	$	750	$	1,229

Repayments:
2021 Syndicated Term Loan	$	—	$	(7,350)	$	—	$	(7,350)
BAML Bilateral Term Loan – Tranche A	—		(1,000)		—		(1,000)
Private financing	—		(750)		—		(750)

Repayment of other short-term borrowings	$	—	$	(9,100)	$	—	$	(9,100)

USD notes1,2,3	$	(123)	$	(18,957)	$	—	$	(19,080)
Euro notes	—		(3,343)		—		(3,343)
BAML Bilateral Term Loan – Tranche B	—		(1,000)		—		(1,000)

Other	(667)		(123)		(199)		(989)
Repayments of long-term debt	$	(790)	$	(23,423)	$	(199)	$	(24,412)
1On March 31, 2022, we issued a notice for the redemption in full of all of the outstanding $1,962 aggregate principal amount of 3.000% Global Notes due June 30, 2022. We redeemed the notes on April 30, 2022 at 100% of the principal amount.
2On April 11, 2022, we issued notices for the redemption in full of all of the outstanding approximately $9,042 aggregate principal amount of various global notes due 2022 to 2026 with coupon rates ranging from 2.625% to 4.450% (Make-Whole Notes). The Make-Whole Notes were redeemed on the redemption dates set forth in the notices of redemption, at “make whole” redemption prices calculated as set forth in the respective redemption notices in the second quarter.
3Includes $7,954 of cash paid toward the $8,822 aggregate principal amount of various notes that were tendered for cash in May 2022. The notes had interest rates ranging between 3.100% and 8.750% and original maturities ranging from 2026 to 2061.

NOTE 13. DISCONTINUED OPERATIONS

Upon the separation and distribution, the WarnerMedia business met the criteria for discontinued operations. For discontinued operations, we also evaluated transactions completed that were components of AT&T’s single plan of a strategic shift, including dispositions that previously did not individually meet the criteria due to materiality, and have determined discontinued operations to be comprised of WarnerMedia, Vrio, Xandr and Playdemic.

AT&T INC.

SEPTEMBER 30, 2022

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued

Dollars in millions except per share amounts

The following is a summary of operating results included in income (loss) from discontinued operations for the third quarter and nine months ended September 30:


	Three months ended				Nine months ended
	September 30,				September 30,
	20221		2021		2022		2021
Revenues	$	4	$	8,596	$	9,454	$	24,963
Operating Expenses
Cost of revenues	1		4,392		5,481		13,830
Selling, general and administrative	10		2,113		2,789		5,649
Asset abandonments and impairments	—		57		—		4,612
Depreciation and amortization	1		1,163		1,173		3,837
Total operating expenses	12		7,725		9,443		27,928
Interest expense	—		40		131		131
Equity in net income (loss) of affiliates	—		(93)		(27)		25
Other income (expense) – net2	71		757		(68)		541
Total other income (expense)	71		624		(226)		435
Income (Loss) before income taxes	63		1,495		(215)		(2,530)
Income tax expense (benefit)	10		241		(69)		(45)
Net income (loss) from discontinued operations	$	53	$	1,254	$	(146)	$	(2,485)
1Includes results from WarnerMedia operations in Mexico that were subject to regulatory approval that transferred in September 2022.
2“Other income (expense) - net” includes a gain from post-closing adjustment related to the sale of the marketplace component of Xandr in the three and nine months ended September 30, 2022, and a gain of $766 from the sale of Playdemic for the three months and nine months ended September 30, 2021.

The following is a summary of assets and liabilities attributable to discontinued operations, which were included in our Consolidated Balance Sheet at December 31, 2021:


	December 31,
	2021
Assets:
Current assets	$	9,005
Noncurrent Inventories and Theatrical Film and Television Production Costs	18,983
Property, plant and equipment, net	4,255
Goodwill	40,484
Other Intangibles – Net	40,273
Other assets	6,776
Total assets, discontinued operations	$	119,776

Liabilities:
Current liabilities	$	12,912
Other liabilities	20,643
Total liabilities, discontinued operations	$	33,555

In preparation for close, on April 7, 2022, Spinco drew $10,000 on its $10,000 term loan credit agreement (Spinco Term Loan), which conveyed to WBD. Total debt conveyed was approximately $41,600, which includes $1,600 of existing WarnerMedia debt, $30,000 of Spinco senior notes issued in March 2022 and the $10,000 Spinco Term Loan. WarnerMedia cash transfer to Discovery was approximately $2,660.

AT&T INC.

SEPTEMBER 30, 2022

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, 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. Our comparative results are impacted by the July 2021 separation of our Video business. 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.

On April 8, 2022, we closed on our transaction to combine substantially all of our WarnerMedia segment (WarnerMedia business) with a subsidiary of Discovery, Inc (Discovery). Upon the separation and distribution of WarnerMedia, the WarnerMedia business met the criteria for discontinued operations. For discontinued operations, we also evaluated transactions that were components of AT&T’s single plan of a strategic shift, including dispositions that did not individually meet the criteria due to materiality, and have determined discontinued operations to be comprised of WarnerMedia, Vrio, Xandr and Playdemic Ltd. These businesses are reflected in our historical financial statements as discontinued operations, including for periods prior to the consummation of the WarnerMedia/Discovery transaction.


	Third Quarter						Nine-Month Period
					Percent						Percent
	2022		2021		Change		2022		2021		Change
Operating Revenues
Communications	$	29,131	$	28,218	3.2	%	$	86,702	$	84,524	2.6	%
Latin America - Mexico	785		724		8.4		2,283		2,043		11.7
Corporate and Other:
Corporate	127		188		(32.4)		413		546		(24.4)
Video	—		2,149		—		—		15,513		—


Held-for-sale and other reclassifications	—		64		—		—		453		—
Eliminations and consolidation	—		(17)		—		—		(136)		—
AT&T Operating Revenues	30,043		31,326		(4.1)		89,398		102,943		(13.2)

Operating Income
Communications	7,631		7,168		6.5		21,886		21,983		(0.4)
Latin America - Mexico	(63)		(130)		51.5		(247)		(393)		37.2
Segment Operating Income	7,568		7,038		7.5		21,639		21,590		0.2
Corporate	(621)		(402)		(54.5)		(1,810)		(1,033)		(75.2)
Video	—		374		—		—		2,491		—
Held-for-sale and other reclassifications	—		33		—		—		147		—
Reclassification of prior service credits	(731)		(670)		(9.1)		(1,961)		(2,011)		2.5
Merger and Significant Items	(204)		(136)		(50.0)		(1,363)		(181)		—

AT&T Operating Income	$	6,012	$	6,237	(3.6)	%	$	16,505	$	21,003	(21.4)	%

AT&T INC.

SEPTEMBER 30, 2022

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

Dollars in millions except per share amounts

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.

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

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. Certain prior period amounts have been reclassified to conform to the current period’s presentation.


	Third Quarter						Nine-Month Period
					Percent						Percent
	2022		2021		Change		2022		2021		Change
Operating Revenues
Service	$	24,731	$	26,247	(5.8)	%	$	72,998	$	87,340	(16.4)	%
Equipment	5,312		5,079		4.6		16,400		15,603		5.1
Total Operating Revenues	30,043		31,326		(4.1)		89,398		102,943		(13.2)

Operating expenses
Operations and support	19,517		20,632		(5.4)		59,467		68,588		(13.3)
Depreciation and amortization	4,514		4,457		1.3		13,426		13,352		0.6
Total Operating Expenses	24,031		25,089		(4.2)		72,893		81,940		(11.0)
Operating Income	6,012		6,237		(3.6)		16,505		21,003		(21.4)
Interest expense	1,420		1,627		(12.7)		4,548		5,090		(10.6)
Equity in net income (loss) of affiliates	392		183		—		1,417		159		—
Other income (expense) - net	2,270		1,522		49.1		6,729		6,958		(3.3)
Income from Continuing Operations Before Income Taxes	7,254		6,315		14.9		20,103		23,030		(12.7)
Income from Continuing Operations	$	6,346	$	5,019	26.4	%	$	16,246	$	18,574	(12.5)	%

Operating revenues decreased in the third quarter and for the first nine months of 2022, reflecting the July 31, 2021 separation of the U.S. video business, other business divestitures that were not included in discontinued operations and lower Business Wireline revenues driven by lower demand for legacy services and product simplification. Partially offsetting declines were higher Mobility service and equipment revenues and, to a lesser extent, gains in broadband service in our Communications segment and growth in Mexico wireless operations.

Operations and support expenses decreased in the third quarter and for the first nine months of 2022. The expense decrease reflects the separation of U.S. video and 3G shutdown costs in the prior-year third quarter. Offsetting these decreases were expense increases resulting from noncash impairment charges in the second quarter of 2022 of approximately $600, due primarily to updated network build plans stemming from spectrum acquired in recent auctions and impairment of personal

AT&T INC.

SEPTEMBER 30, 2022

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

Dollars in millions except per share amounts

protective equipment inventory. Expense increases were also driven by higher domestic wireless equipment expense from increased sales volumes and the sale of higher-priced smartphones, increased wholesale network access charges, increased bad debt expense and 3G network shutdown costs in the first quarter of 2022. These increases were partially offset by our first-quarter 2022 updates to the expected economic lives of customer relationships, which extended the amortization period of deferred acquisition and fulfillment costs and reduced expenses approximately $85 in the third quarter and $340 for the first nine months, with $30 in the third quarter and $130 for the nine-month period recorded to Mobility, $25 in the third quarter and $100 for the nine-month period to Business Wireline and $30 in the third quarter and $110 for the nine-month period to Consumer Wireline.

Depreciation and amortization expense increased in the third quarter and for the first nine months of 2022.

Depreciation expense increased $69, or 1.6% in the third quarter and $156, or 1.2% for the first nine months of 2022. The increases were primarily due to ongoing capital spending for network upgrades and expansion, partially offset by updates to extend the estimated lives of our fiber assets.

Amortization expense decreased $12, or 42.9% in the third quarter and $82, or 57.7% for the first nine months of 2022 reflecting the accelerated method of amortization applied to intangibles associated with prior acquisitions.

Operating income decreased in the third quarter and for the first nine months of 2022, reflecting the separation of the U.S. video business. Our operating income margin for the third quarter increased from 19.9% in 2021 to 20.0% in 2022 and for the first nine months decreased from 20.4% in 2021 to 18.5% in 2022.

Interest expense decreased in the third quarter and for the first nine months of 2022, primarily due to lower debt balances and higher capitalized interest associated with spectrum acquisitions, partially offset by higher interest rates.

Equity in net income of affiliates increased in the third quarter and for the first nine months of 2022, primarily due to the close of our transaction with TPG and our accounting for our investment in DIRECTV Entertainment Holdings, LLC (DIRECTV) under the equity method of accounting beginning August 1, 2021 (see Note 11).

Other income (expense) – net increased in the third quarter and decreased for the first nine months of 2022. The increase in the third quarter was primarily driven by the recognition of an actuarial gain of $1,440 compared to $374 in 2021, partially offset by lower returns on benefit-related investments and benefit expense accrual increases that resulted from previous 2022 quarterly remeasurements of plan assets and obligations, which included increases in the assumed discount rates. Third-quarter 2022 benefit expense includes approximately $140 favorable impact from a retirement benefit plan change, with $115 resulting from prior service credits (approximately $50 for Business Wireline, $40 for Consumer Wireline and $20 for Mobility) (see Note 6).

The decrease for the first nine months resulted from the aforementioned lower returns on benefit-related investments, higher

benefit expense accruals, and the impact of gains on investment and business sales in the prior year. (see Note 6).

Income tax expense decreased in the third quarter and for the first nine months of 2022. The decrease in the third quarter was primarily driven by one-time benefits in the third quarter of 2022 offset by higher income before income tax. One-time benefits are primarily due to a tax election which generated incremental tax benefit on the sale of Vrio and audit settlements in 2022. Our effective tax rate was 12.5% in the third quarter of 2022, versus 20.5% in the comparable period in the prior year.

The decrease for the first nine months was primarily due to lower income before income tax. Our effective tax rate was 19.2% for the first nine months of 2022, versus 19.3% for the comparable period in the prior year.

AT&T INC.

SEPTEMBER 30, 2022

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

Dollars in millions except per share amounts


COMMUNICATIONS SEGMENT	Third Quarter						Nine-Month Period
					Percent						Percent
	2022		2021		Change		2022		2021		Change
Segment Operating Revenues
Mobility	$	20,278	$	19,138	6.0	%	$	60,279	$	57,108	5.6	%
Business Wireline	5,668		5,938		(4.5)		16,903		18,036		(6.3)
Consumer Wireline	3,185		3,142		1.4		9,520		9,380		1.5
Total Segment Operating Revenues	29,131		28,218		3.2		86,702		84,524		2.6

Segment Operating Income
Mobility	6,419		5,987		7.2		18,484		18,038		2.5
Business Wireline	882		1,002		(12.0)		2,451		3,151		(22.2)
Consumer Wireline	330		179		84.4		951		794		19.8
Total Segment Operating Income	$	7,631	$	7,168	6.5	%	$	21,886	$	21,983	(0.4)	%


Selected Subscribers and Connections
	September 30,
(000s)	2022	2021
Mobility Subscribers	210,678	196,519
Total domestic broadband connections	15,452	15,510
Network access lines in service	5,466	6,404
U-verse VoIP connections	3,022	3,440

Operating revenues increased in the third quarter and for the first nine months of 2022, 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 and equipment 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 decreased for the first nine months of 2022, 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 lower operating income from our Business Wireline business unit, partially offset by increases in our Mobility and Consumer Wireline business units. Our Communications segment operating income margin in the third quarter increased from 25.4% in 2021 to 26.2% in 2022 and for the first nine months of the year decreased from 26.0% in 2021 to 25.2% in 2022, reflecting, in part, increased equipment sales with negative margins.

AT&T INC.

SEPTEMBER 30, 2022

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

Dollars in millions except per share amounts


Communications Business Unit Discussion
Mobility Results
	Third Quarter						Nine-Month Period
					Percent						Percent
	2022		2021		Change		2022		2021		Change
Operating revenues
Service	$	15,337	$	14,527	5.6	%	$	45,065	$	42,921	5.0	%
Equipment	4,941		4,611		7.2		15,214		14,187		7.2
Total Operating Revenues	20,278		19,138		6.0		60,279		57,108		5.6

Operating expenses
Operations and support	11,817		11,116		6.3		35,677		32,998		8.1
Depreciation and amortization	2,042		2,035		0.3		6,118		6,072		0.8
Total Operating Expenses	13,859		13,151		5.4		41,795		39,070		7.0
Operating Income	$	6,419	$	5,987	7.2	%	$	18,484	$	18,038	2.5	%

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


Subscribers
	September 30,		Percent
(in 000s)	2022	2021	Change
Postpaid	83,614	80,249	4.2	%
Postpaid phone	68,969	66,396	3.9
Prepaid	19,215	19,028	1.0
Reseller	5,854	6,263	(6.5)
Connected devices1	101,995	90,979	12.1
Total Mobility Subscribers2	210,678	196,519	7.2	%
1Includes data-centric devices such as session-based tablets, monitoring devices and primarily wholesale automobile systems.
2Wireless subscribers at September 30, 2022 excludes the impact of 10,707 subscriber and connected device disconnections resulting from our 3G network shutdown in February 2022. Postpaid disconnections were 899, including 438 phone, 234 prepaid, 749 reseller subscribers, and 8,825 connected devices. The third quarter includes an adjustment of approximately 170 subscribers, primarily connected devices.

AT&T INC.

SEPTEMBER 30, 2022

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

Dollars in millions except per share amounts


Net Additions
	Third Quarter						Nine-Month Period
					Percent						Percent
(in 000s)	2022		2021		Change		2022		2021		Change
Postpaid Phone Net Additions	708		928		(23.7)	%	2,212		2,312		(4.3)	%
Total Phone Net Additions	816		1,177		(30.7)		2,629		2,942		(10.6)

Postpaid2	964		1,218		(20.9)		2,987		3,197		(6.6)
Prepaid	141		351		(59.8)		488		927		(47.4)
Reseller	308		(164)		—		312		(357)		—
Connected devices3	5,716		3,468		64.8		15,476		10,194		51.8
Mobility Net Subscriber Additions1	7,129		4,873		46.3	%	19,263		13,961		38.0	%

Postpaid Churn4	1.01	%	0.92	%	9	BP	0.96	%	0.91	%	5	BP
Postpaid Phone-Only Churn4	0.84	%	0.72	%	12	BP	0.79	%	0.72	%	7	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 33 and 34 for the three months ended September 30, 2022 and 2021 and 118 and (16) for the first nine months ended September 30, 2022 and 2021. Wearables and other net adds were 223 and 256 for the quarter ended September 30, 2022 and 2021 and 657 and 901 for the first nine months ended September 30, 2022 and 2021.
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 2,600 for the quarter ended September 30, 2022 and 7,400 for the nine months ended September 30, 2022.
4Calculated by dividing the aggregate number of wireless subscribers who canceled service during a month divided 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 2022. The increases are largely due to growth from subscriber gains and postpaid average revenue per subscriber (ARPU) growth.

ARPU

ARPU increased in the third quarter and for the first nine months of 2022. ARPU during 2022 reflects pricing actions, improved international roaming and customers shifting to higher priced unlimited plans, partially offset by the impact of higher promotional discount amortization (see Note 5).

Churn

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

Equipment revenue increased in the third quarter and for the first nine months of 2022, primarily driven by a higher volume of devices sold and the sale of higher-priced smartphones.

Operations and support expenses increased in the third quarter and for the first nine months of 2022 largely driven by growth in equipment sales and associated expenses, bad debt expense, higher network costs and the elimination of Connect America Fund Phase II (CAF II) government credits. HBO Max licensing fees and FirstNet costs also contributed to increases for the nine-month period. Offsetting increases in the third quarter were third-quarter 2021 3G network shutdown costs. In the first quarter of 2022, we updated our analysis of economic lives of customer relationships and extended the amortization period of Mobility deferred customer contract costs, which decreased expense approximately $30 and $130 in the third quarter and for the first nine months of 2022.

AT&T INC.

SEPTEMBER 30, 2022

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

Dollars in millions except per share amounts

Depreciation expense increased in the third quarter and for the first nine months of 2022, primarily due to ongoing capital spending for network upgrades and expansion, partially offset by ceasing use of 3G network assets.

Operating income increased in the third quarter and for the first nine months of 2022. Our Mobility operating income margin in the third quarter increased from 31.3% in 2021 to 31.7% in 2022 and for the first nine months decreased from 31.6% in 2021 to 30.7% in 2022. Our Mobility EBITDA margin in the third quarter decreased from 41.9% in 2021 to 41.7% in 2022 and for the first nine months decreased from 42.2% in 2021 to 40.8% in 2022. EBITDA is defined as operating income excluding depreciation and amortization.

Subscriber Relationships

As the wireless industry has matured, with nearly full penetration of smartphones in the U.S. population, future wireless growth will depend on our ability to offer innovative services, plans and devices that bundle product offerings and take advantage of our 5G wireless network. We believe 5G opens up vast possibilities of connecting sensors, devices, and autonomous things, commonly referred to as the Internet of Things (IoT). More and more, these devices are performing use cases that require high bandwidth, ultra-reliability and low latency that only 5G and edge computing can bring. To support higher mobile data usage, our priority is to best utilize a wireless network that has sufficient spectrum and capacity to support these innovations on as broad a geographic basis as possible.


Business Wireline Results
	Third Quarter						Nine-Month Period
					Percent						Percent
	2022		2021		Change		2022		2021		Change
Operating revenues
Service	$	5,524	$	5,765	(4.2)	%	$	16,418	$	17,497	(6.2)	%
Equipment	144		173		(16.8)		485		539		(10.0)
Total Operating Revenues	5,668		5,938		(4.5)		16,903		18,036		(6.3)

Operating expenses
Operations and support	3,444		3,632		(5.2)		10,498		11,010		(4.7)
Depreciation and amortization	1,342		1,304		2.9		3,954		3,875		2.0
Total Operating Expenses	4,786		4,936		(3.0)		14,452		14,885		(2.9)
Operating Income	$	882	$	1,002	(12.0)	%	$	2,451	$	3,151	(22.2)	%

Service revenues decreased in the third quarter and for the first nine months of 2022, driven by lower demand for legacy voice and data services and product simplification. Also contributing to the decline was lower revenues from the government sector. Partially offsetting revenue declines was growth in connectivity services and revenues of approximately $100 from intellectual property sales in the third quarter of 2022. We expect these overall revenue trends to continue for the remainder of the year.

Equipment revenues decreased in the third quarter and for the first nine months of 2022, driven by declines in legacy and non-core services.

Operations and support expenses decreased in the third quarter and for the first nine months of 2022, primarily due to our continued efforts to drive efficiencies in our network operations through automation and reductions in customer support expenses through digitization, and credits from a third-quarter 2022 retirement benefit plan change. Expense declines were also driven by lower amortization of deferred fulfillment costs, including our first-quarter 2022 updates to the estimated economic lives of subscribers, which decreased expense approximately $25 and $100 in the third quarter and for the first nine months of 2022. The declines were partially offset by higher wholesale access network costs for the nine-month period. As part of our transformation activities, we expect operations and support expense improvements through the remainder of 2022 and into 2023 as we size our operations consistent with the strategic direction of the business.

AT&T INC.

SEPTEMBER 30, 2022

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

Dollars in millions except per share amounts

Operating income decreased in the third quarter and for the first nine months of 2022. Our Business Wireline operating income margin in the third quarter decreased from 16.9% in 2021 to 15.6% in 2022 and for the first nine months decreased from 17.5% in 2021 to 14.5% in 2022. Our Business Wireline EBITDA margin in the third quarter increased from 38.8% in 2021 to 39.2% in 2022 and for the first nine months decreased from 39.0% in 2021 to 37.9% in 2022.


Consumer Wireline Results
	Third Quarter						Nine-Month Period
					Percent						Percent
	2022		2021		Change		2022		2021		Change
Operating revenues
Broadband	$	2,429	$	2,290	6.1	%	$	7,177	$	6,761	6.2	%
Legacy voice and data services	427		484		(11.8)		1,332		1,507		(11.6)
Other service and equipment	329		368		(10.6)		1,011		1,112		(9.1)
Total Operating Revenues	3,185		3,142		1.4		9,520		9,380		1.5

Operating expenses
Operations and support	2,055		2,188		(6.1)		6,218		6,280		(1.0)
Depreciation and amortization	800		775		3.2		2,351		2,306		2.0
Total Operating Expenses	2,855		2,963		(3.6)		8,569		8,586		(0.2)
Operating Income	$	330	$	179	84.4	%	$	951	$	794	19.8	%

The following tables highlight other key measures of performance for Consumer Wireline:


Connections
	September 30,		Percent
(in 000s)	2022	2021	Change
Broadband Connections
Total Broadband and DSL Connections	14,055	14,180	(0.9)	%
Broadband	13,796	13,846	(0.4)
Fiber Broadband Connections	6,935	5,721	21.2

Voice Connections
Retail Consumer Switched Access Lines	2,123	2,527	(16.0)
U-verse Consumer VoIP Connections	2,409	2,843	(15.3)
Total Retail Consumer Voice Connections	4,532	5,370	(15.6)	%


Net Additions
	Third Quarter				Nine-Month Period
			Percent				Percent
(in 000s)	2022	2021	Change		2022	2021	Change
Broadband Net Additions
Total Broadband and DSL Net Additions	(50)	6	—	%	(105)	80	—	%
Broadband Net Additions	(29)	28	—		(49)	153	—
Fiber Broadband Net Additions	338	289	17.0	%	943	770	22.5	%

AT&T INC.

SEPTEMBER 30, 2022

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

Dollars in millions except per share amounts

Broadband revenues increased in the third quarter and for the first nine months of 2022, driven by an increase in fiber customers, which we expect to continue for the foreseeable future as we invest further in building our fiber footprint.

Legacy voice and data service revenues decreased in the third quarter and for the first nine months of 2022, reflecting the continued decline in the number of customers, which we expect to continue.

Other service and equipment revenues decreased in the third quarter and for the first nine months of 2022, reflecting the continued decline in the number of VoIP customers, which we expect to continue.

Operations and support expenses decreased in the third quarter and for the first nine months of 2022, primarily driven by lower network and customer support costs, fewer employee-related costs, including the impact of a retirement benefit plan change, and lower HBO Max licensing fees in the third-quarter of 2022. Also contributing to the decline was lower amortization of deferred fulfillment costs, including our first-quarter 2022 updates to the estimated economic lives of broadband/fiber subscribers, which decreased expenses approximately $30 in the third quarter and $110 for the first nine months of 2022. The declines were partially offset by the elimination of CAF II government credits, higher bad debt expense and advertising costs for the nine-month period.

Operating income increased in the third quarter and for the first nine months of 2022. Our Consumer Wireline operating income margin in the third quarter increased from 5.7% in 2021 to 10.4% in 2022 and for the first nine months increased from 8.5% in 2021 to 10.0% in 2022. Our Consumer Wireline EBITDA margin in the third quarter increased from 30.4% in 2021 to 35.5% in 2022 and for the first nine months increased from 33.0% in 2021 to 34.7% in 2022.


LATIN AMERICA SEGMENT	Third Quarter						Nine-Month Period
	2022		2021		Percent Change		2022		2021		Percent Change
Segment Operating Revenues
Service	$	559	$	463	20.7	%	$	1,583	$	1,349	17.3	%
Equipment	226		261		(13.4)		700		694		0.9
Total Segment Operating Revenues	785		724		8.4		2,283		2,043		11.7

Segment Operating Expenses
Operations and support	684		697		(1.9)		2,036		1,984		2.6
Depreciation and amortization	164		157		4.5		494		452		9.3
Total Segment Operating Expenses	848		854		(0.7)		2,530		2,436		3.9
Operating Income (Loss)	$	(63)	$	(130)	51.5	%	$	(247)	$	(393)	37.2	%

AT&T INC.

SEPTEMBER 30, 2022

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:


					September 30,		Percent
(in 000s)					2022	2021	Change
Mexico Wireless Subscribers
Postpaid					4,854	4,781	1.5	%
Prepaid					15,689	14,199	10.5
Reseller					455	493	(7.7)
Total Mexico Wireless Subscribers					20,998	19,473	7.8	%

	Third Quarter				Nine-Month Period
			Percent				Percent
(in 000s)	2022	2021	Change		2022	2021	Change
Mexico Wireless Net Additions
Postpaid	19	36	(47.2)	%	47	85	(44.7)	%
Prepaid	267	389	(31.4)		632	441	43.3
Reseller	12	2	—		(43)	4	—
Total Mexico Wireless Net Additions	298	427	(30.2)	%	636	530	20.0	%

Service revenues increased in the third quarter and for the first nine months of 2022 reflecting growth in wholesale services and improvements in subscriber growth.

Equipment revenues decreased in the third quarter and increased for the first nine months of 2022. The decrease in the third quarter was due to lower equipment sales. The increase for the first nine months was due to higher equipment sales.

Operations and support expenses decreased in the third quarter and increased for the first nine months of 2022. The decrease in the third quarter was driven by lower equipment costs resulting from lower sales, partially offset by bad debt expense. The increase for the first nine months was due to higher bad debt, partially offset by lower equipment costs in the third-quarter of 2022. Approximately 7% 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 2022, reflecting higher in-service assets.

Operating income improved in the third quarter and for the first nine months of 2022. Our Mexico operating income margin in the third quarter increased from (18.0)% in 2021 to (8.0)% in 2022 and for the first nine months increased from (19.2)% in 2021 to (10.8)% in 2022. Our Mexico EBITDA margin in the third quarter increased from 3.7% in 2021 to 12.9% in 2022 and for the first nine months increased from 2.9% in 2021 to 10.8% in 2022.

OTHER BUSINESS MATTERS

Spectrum Auction On January 14, 2022, the Federal Communications Commission (FCC) announced that we were the winning bidder for 1,624 3.45 GHz licenses in Auction 110. We provided the FCC with an upfront deposit of $123 in the third quarter of 2021 and paid the remaining $8,956 in the first quarter of 2022, for a total of $9,079. We funded the purchase price using cash and short-term investments. We received the licenses in May 2022, and classified the auction deposits and related capitalized interest as “Licenses - Net” on our September 30, 2022 consolidated balance sheet. (See Note 8)

AT&T INC.

SEPTEMBER 30, 2022

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

Dollars in millions except per share amounts

WarnerMedia On April 8, 2022, we completed the separation and distribution of our WarnerMedia business, and merger of Magallanes, Inc. (Spinco), an AT&T subsidiary formed to hold the WarnerMedia business, with a subsidiary of Discovery, Inc., which was renamed Warner Bros. Discovery Inc. (WBD). Each AT&T shareholder was entitled to receive 0.241917 shares of WBD common stock for each share of AT&T common stock held as of the record date, which represented approximately 71% of WBD. In connection with and in accordance with the terms of the Separation and Distribution Agreement (SDA), prior to the distribution and merger, AT&T received approximately $40,400, which includes $38,800 of Spinco cash and $1,600 of debt retained by WarnerMedia. During the second quarter, assets of approximately $121,100 and liabilities of $70,600 were removed from our balance sheet as well as $45,041 of retained earnings and $5,632 of additional paid-in capital associated with the transaction. Additionally, in August 2022, we and WBD finalized the post-closing adjustment, pursuant to section 1.3 of the SDA, which resulted in a $1,200 payment to WBD in the third quarter of 2022. The $1,200 post-closing adjustment was included in the change in additional paid-in capital for the three months ended June 30, 2022, and for balance sheets ended June 30, 2022 and September 30, 2022. The payment was accounted for as cash used in financing activities in our statement of cash flows in third quarter of 2022. (See Note 8)

Additionally, we entered into an adjusted HBO Max agreement with WBD that provides us with expanded distribution rights and additional flexibility to market and sell the service in a cost-efficient manner. Under the terms of the agreement, we are permitted to include HBO Max in our customer offerings in exchange for a licensing fee. Furthermore, AT&T has the right, but not the obligation, to market and distribute HBO Max to its customers in plans, bundles, and promotional offers.

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.

The Inflation Reduction Act of 2022 (Inflation Reduction Act) was enacted on August 16, 2022. The Inflation Reduction Act imposes a new 15% corporate alternative minimum tax (CAMT) on “applicable corporations” for taxable years beginning after December 31, 2022. The CAMT is imposed to the extent the alternative minimum tax exceeds a company’s regular tax liability. A corporation that pays alternative minimum tax is eligible for a credit against income tax in future years. Subject to future regulatory guidance, we currently do not believe the CAMT will have a material impact on our 2023 tax liability.

AT&T INC.

SEPTEMBER 30, 2022

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

Dollars in millions except per share amounts

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.

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. We expect that going forward additional states may seek to impose net neutrality requirements.

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. The National Telecommunications and Information Agency (NTIA) is responsible for distributing more than $48,000 of this funding, including $42,500 in state grants for broadband deployment projects in unserved and underserved areas, $1,000 for middle mile broadband infrastructure, and $1,500 for digital equity programs. On May 13, 2022 NTIA issued three Notices of Funding Opportunity for these initiatives – the Broadband Equity, Access, and Deployment Program, the Enabling Middle Mile Broadband Infrastructure Program, and the State Digital Equity Program. NTIA will continue to administer and implement these programs. The IIJA also appropriated $14,200 for establishment of the Affordable Connectivity Program (ACP), an FCC-administered monthly, low-income broadband benefit program, replacing the Emergency Broadband Benefit program (established in December 2020 by the Consolidated Appropriations Act 2021). Qualifying customers can receive up to thirty dollars per month (or seventy-five dollars per month for those on Tribal lands) to assist with their internet bill. AT&T is a participating provider in the ACP program and will consider participating in the deployment program where appropriate. The IIJA includes various provisions that have resulted in FCC proceedings regarding ACP program administration and consumer protection, reform of the existing universal support program, and broadband labeling and equal access.

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.

Wireless Industry-wide network densification and 5G technology expansion efforts, which are needed to satisfy extensive demand for video and internet access, will involve significant deployment of “small cell” equipment. This increases the importance of local permitting processes that allow for the placement of small cell equipment in the public right-of-way on reasonable timelines and terms. Between 2018 and 2020, the FCC adopted multiple Orders streamlining federal, state, and local wireless structure review processes that had the tendency to delay and impede deployment of small cell and related infrastructure used to provide telecommunications and broadband services. The key elements of these orders have been affirmed on judicial review. During 2020-2021, we have also 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 spectrum in 2022 and beyond.

AT&T INC.

SEPTEMBER 30, 2022

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

Dollars in millions except per share amounts

LIQUIDITY AND CAPITAL RESOURCES


Continuing operations for nine months ended September 30,	2022		2021
Cash provided by operating activities	$	25,464	$	29,093
Cash used in investing activities	(23,011)		(28,528)
Cash (used in) provided by financing activities	(54,403)		8,453


	September 30,		December 31,
	2022		2021
Cash and cash equivalents	$	2,423	$	19,223
Total debt	133,480		175,631

We had $2,423 in cash and cash equivalents available at September 30, 2022, decreasing $16,800 since December 31, 2021 and returning to historical thresholds with the close of the WarnerMedia/Discovery transaction. Cash and cash equivalents included cash of $1,132 and money market funds and other cash equivalents of $1,291. Approximately $957 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 2022, cash inflows were primarily provided by cash receipts from operations, including cash from our sale and transfer of our receivables to third parties, cash received in connection with the separation and distribution of the WarnerMedia business, issuance of commercial paper and long-term debt and distributions from DIRECTV. These inflows were exceeded by cash used to meet the needs of the business, including, but not limited to, payment of operating expenses, spectrum acquisitions, funding capital expenditures and vendor financing payments, repayment of short-term borrowings and long-term debt, 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 2022, cash provided by operating activities was $25,464, compared to $29,093 for the first nine months of 2021, reflecting working capital impacts including higher payments for wireless devices tied to accelerated subscriber growth and timing of customer collections. Although our credit policies have been consistent over the last few years, customer collections began to trend slower in the latter half of the second quarter of 2022 and remained relatively stable in the third quarter when compared to the second quarter of 2022, as customers returned to pre-pandemic payment trends. Stimulus payments during the pandemic contributed to better collection and bad debt expense trends than historical levels. Specifically, while bad debt expense was slightly higher than 2021, partially due to growth in our account base, it was relatively consistent with 2019 (pre-pandemic) levels.

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. In addition, for payments to a key supplier, 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 supplier financing). The net impact of supplier financing was to decrease cash from operating activities $1,653 and $1,803 for the nine months ended September 30, 2022 and 2021, respectively. All supplier financing payments are due within one year.

Cash Used in or Provided by Investing Activities from Continuing Operations

For the first nine months of 2022, cash used in investing activities totaled $23,011, and consisted primarily of $15,397 (including interest during construction) for capital expenditures and $9,959 for acquisitions of spectrum licenses won in Auction 110 and associated capitalized interest. During the first nine months of 2022, we received a return of investment of $2,205 from DIRECTV representing distributions in excess of cumulative equity in earnings from DIRECTV (see Note 11).

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 2022, vendor financing payments were $4,237, compared to $4,013 for the first nine months of 2021.

AT&T INC.

SEPTEMBER 30, 2022

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

Dollars in millions except per share amounts

Capital expenditures for the first nine months of 2022 were $15,397, and when including $4,237 cash paid for vendor financing, capital investment was $19,634 ($3,570 higher 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 2022, we placed $3,916 of equipment in service under vendor financing arrangements (compared to $3,624 in the prior-year comparable period) and approximately $250 of assets related to the FirstNet build (compared to $610 in the prior-year comparable period). The amount of capital expenditures is influenced by demand for services and products, capacity needs and network enhancements. Our capital expenditures and vendor financing payments are elevated in 2022, reflecting strategic investments.

Cash Provided by or Used in Financing Activities from Continuing Operations

For the first nine months of 2022, cash used in financing activities totaled $54,403 and was comprised of debt issuances and repayments, payments of dividends, vendor financing payments, and stock repurchases. During the first nine months of 2022, we also paid approximately $1,070 in cash on the note payable to DIRECTV, with $271 remaining due as of September 30, 2022.

A tabular summary of our debt activities for the nine months ended September 30, 2022 is as follows:


	First Quarter		Second Quarter		Third Quarter		Nine months ended September 30, 2022
Net commercial paper borrowings	$	1,471	$	(5,219)	$	(724)	$	(4,472)
Issuance of Notes and Debentures:
Private Financing	—		—		750		750
Other	479		—		—		479
Debt Issuances	$	479	$	—	$	750	$	1,229

Repayments:
2021 Syndicated Term Loan	$	—	$	(7,350)	$	—	$	(7,350)
BAML Bilateral Term Loan - Tranche A	—		(1,000)		—		(1,000)
Private financing	—		(750)		—		(750)
Repayment of other short-term borrowings	$	—	$	(9,100)	$	—	$	(9,100)

USD notes1, 2, 3	$	(123)	$	(18,957)	$	—	$	(19,080)
Euro notes	—		(3,343)		—		(3,343)
BAML Bilateral Term Loan - Tranche B	—		(1,000)		—		(1,000)
Other	(667)		(123)		(199)		(989)
Repayments of long-term debt	$	(790)	$	(23,423)	$	(199)	$	(24,412)
1On March 31, 2022, we issued a notice for the redemption in full of all of the outstanding $1,962 aggregate principal amount of 3.000% Global Notes due June 30, 2022. We redeemed the notes on April 30, 2022 at 100% of the principal amount.
2On April 11, 2022, we issued notices for the redemption in full of all of the outstanding approximately $9,042 aggregate principal amount of various global notes due 2022 to 2026 with coupon rates ranging from 2.625% to 4.450% (Make-Whole Notes). The Make-Whole Notes were redeemed on the redemption dates set forth in the notices of redemption, at “make whole” redemption prices calculated as set forth in the respective redemption notices in the second quarter.
3Includes $7,954 of cash paid toward the $8,822 aggregate principal amount of various notes that were tendered for cash in May 2022. The notes had interest rates ranging between 3.100% and 8.750% and original maturities ranging from 2026 to 2061.

The weighted average interest rate of our entire long-term debt portfolio, including credit agreement borrowings and the impact of derivatives, was approximately 4.1% as of September 30, 2022 and 3.8% as of December 31, 2021. We had $129,688 of total notes and debentures outstanding at September 30, 2022. This also included Euro, British pound sterling, Canadian dollar, Mexican peso, Australian dollar, and Swiss franc denominated debt that totaled approximately $32,822.

AT&T INC.

SEPTEMBER 30, 2022

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

Dollars in millions except per share amounts

At September 30, 2022, we had $9,626 of debt maturing within one year, consisting of $2,161 of commercial paper borrowings, $750 of credit agreement borrowings and $6,715 of long-term debt issuances.

For the first nine months of 2022, we paid $4,237 of cash under our vendor financing program, compared to $4,013 in the prior-year comparable period. Total vendor financing payables included in our September 30, 2022 consolidated balance sheet were $4,635, with $3,105 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, 2022, we had approximately 144 million shares remaining from our share repurchase authorizations approved by the Board of Directors in 2014. During the first nine months of 2022, we repurchased approximately 34 million shares under the March 2014 authorization.

We paid dividends on common and preferred shares of $7,845 during the first nine months of 2022, compared with $11,319 for the first nine months of 2021.

Dividends on common stock declared by our Board of Directors totaled $0.8325 per share in the first nine months of 2022 and $1.56 per share in the first nine months of 2021. Our dividend policy considers the expectations and requirements of stockholders, capital funding requirements of AT&T and long-term growth opportunities. On February 1, 2022, we announced that our Board of Directors approved an expected annual dividend level of $1.11 per common share, or approximately $8,000 per year, following the close of the WarnerMedia/Discovery transaction.

Subsequent to quarter end, on October 24, 2022, approximately 105 million Series A Cumulative Perpetual Preferred Membership Interests in AT&T Mobility II LLC (Mobility preferred interests) of the 319 million outstanding were put to AT&T by a third-party investor. We paid approximately $2,600 cash to redeem the Mobility preferred interest, funded with commercial paper borrowings. As of October 31, 2022, we have approximately 213 million Mobility preferred interests outstanding, which have a redemption value of approximately $5,300 and pay cash distributions of $373 per annum, subject to declaration. Under the terms of the Mobility preferred interests, holders can put no more than 107 million interests in any 12-month period. As a result, future puts can be exercised in the fourth quarter of 2023, at the earliest.

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. In November 2020, we amended one of our $7,500 revolving credit agreements by extending the termination date. In total, we have two $7,500 revolving credit agreements, totaling $15,000, with one terminating on December 11, 2023 and the other terminating on November 17, 2025. No amounts were outstanding under either agreement as of September 30, 2022.

On January 29, 2021, we entered into a $14,700 Term Loan Credit Agreement (2021 Syndicated Term Loan), with Bank of America, N.A., as agent. On March 23, 2021, we borrowed $7,350 under the 2021 Syndicated Term Loan and the remaining $7,350 of lenders’ commitments were terminated. In the first quarter of 2022, the maturity date of the 2021 Syndicated Term Loan was extended to December 31, 2022. On April 13, 2022, the 2021 Syndicated Term Loan was paid off and terminated.

In March 2021, we entered into and drew on a $2,000 term loan credit agreement (BAML Bilateral Term Loan) consisting of (i) a $1,000 facility originally due December 31, 2021 (BAML Tranche A Facility) and subsequently extended to December 31, 2022 in the fourth quarter of 2021, and (ii) a $1,000 facility due December 31, 2022 (BAML Tranche B Facility), with Bank of America, N.A., as agent. On April 13, 2022, the BAML Bilateral 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 through June 30, 2023, a ratio of not more than 4.0-to-1, and a ratio of not more than 3.5-to-1 for any fiscal quarter thereafter. As of September 30, 2022, we were in compliance with the covenants for our credit facilities.

AT&T INC.

SEPTEMBER 30, 2022

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

Dollars in millions except per share amounts

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 $38,800 derivative portfolio, counterparties are still required to post collateral. During the first nine months of 2022, we posted approximately $1,640 of cash collateral, on a net basis. Cash postings under these arrangements vary with changes in credit ratings and netting agreements. (See Note 7)

Other

Our total capital consists of debt (long-term debt and debt maturing within one year) and stockholders’ equity. Our capital structure does not include debt issued by our equity method investments. At September 30, 2022, our debt ratio was 48.8%, compared to 49.5% at September 30, 2021 and 48.9% at December 31, 2021. The debt ratio is affected by the same factors that affect total capital, and reflects our recent debt issuances and repayments.

CRITICAL ACCOUNTING ESTIMATES

Asset Valuations and Impairments As discussed in Note 1 of our 2021 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 2022, 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 2022 that could be material.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

At September 30, 2022, we had no interest rate swaps.

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 $38,213 to hedge our exposure to changes in foreign currency exchange rates. These derivatives have been designated as cash flow or fair value hedges with a net fair value of $(8,882) at September 30, 2022. We had no rate locks at September 30, 2022.

We have foreign exchange contracts with a U.S. dollar notional value of $617 to provide currency at a fixed rate to hedge a portion of the exchange risk involved in foreign currency-denominated transactions. These foreign exchange contracts include fair value hedges with a total net fair value of $(69) at September 30, 2022.

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, 2022. 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, 2022.

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.

AT&T INC.

SEPTEMBER 30, 2022

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. 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; 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 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, 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; 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 Financial Accounting Standards Board or other accounting oversight bodies of new accounting standards or changes to existing standards.

AT&T INC.

SEPTEMBER 30, 2022

CAUTIONARY LANGUAGE CONCERNING FORWARD-LOOKING STATEMENTS - continued

•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.

AT&T INC.

SEPTEMBER 30, 2022

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, 2021 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 2022, there were no such material developments.

PART II – OTHER INFORMATION - CONTINUED

Dollars in millions except per share amounts

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds


	(a)	(b)		(c)	(d)
Period	Total Number of Shares (or Units) Purchased1, 2, 3	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, 2022 - July 31, 2022	10,601	$	19.61	—	143,731,972
August 1, 2022 - August 31, 2022	42,245	18.69		—	143,731,972
September 1, 2022 - September 30, 2022	88,447	17.46		—	143,731,972
Total	141,293	$	17.99	—

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.

2Of the shares repurchased, 141,293 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.

3Of the shares repurchased, no shares were acquired through reimbursements from AT&T maintained Voluntary Employee Benefit Association (VEBA) trusts during the period.

AT&T INC.

SEPTEMBER 30, 2022

Item 6. Exhibits

The following exhibits are filed or incorporated by reference as a part of this report:


Exhibit
Number						Exhibit Description
10.1						AT&T Inc. Health Plan effective January 1, 2023
10.2						AT&T Cash Deferral Plan as amended July 28, 2022
10.3						AT&T Stock Purchase and Deferral Plan as amended July 28, 2022
31						Rule 13a-14(a)/15d-14(a) Certifications
						31.1 Certification of Principal Executive Officer
						31.2 Certification of Principal Financial Officer
32						Section 1350 Certifications
101						The following financial statements from the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 2022, 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, 2022, (formatted as Inline XBRL and contained in Exhibit 101).

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.

November 3, 2022			/s/ Pascal Desroches
			Pascal Desroches
			Senior Executive Vice President
			and Chief Financial Officer