What changed in this filing

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Item 1. Financial Statements

2023-07-27 compared with 2023-05-01 · 448 added, 250 removed, 895 unchanged (44% of the section changed)

2 unchanged sentences

Dollars in millions except per share amounts

Three months ended

Three months ended Six months ended

June 30, June 30,

2023 2022 2023 2022

Operating Revenues

7 unchanged sentences

amortization shown separately below)

6,771 6,807 13,444 13,506

Selling, general and administrative 7,009 7,265 14,184 14,243

Asset impairments and abandonments and restructuring

Depreciation and amortization 4,675 4,450 9,306 8,912

5 unchanged sentences

Other income (expense) — net

987 2,302 1,922 4,459

Total other income (expense) ( 241 ) 1,304 ( 476 ) 2,356

2 unchanged sentences

Income from Continuing Operations 4,762 4,751 9,215 9,900

Income from discontinued operations, net of tax

Income (loss) from discontinued operations, net of tax

— ( 214 ) — ( 199 )

Net Income 4,762 4,537 9,215 9,701

4 unchanged sentences

Basic Earnings Per Share from continuing operations $ 0.61 $ 0.60 $ 1.19 $ 1.26

Basic Earnings Per Share from discontinued operations $ — $ —

Basic Earnings (Loss) Per Share from discontinued operations $ — $ ( 0.03 ) $ — $ ( 0.03 )

Basic Earnings Per Share Attributable to Common Stock $ 0.61 $ 0.57 $ 1.19 $ 1.23

Diluted Earnings Per Share from continuing operations $ 0.61 $ 0.59 $ 1.19 $ 1.23

Diluted Earnings Per Share from discontinued operations $ — $ —

Diluted Earnings (Loss) Per Share from discontinued operations $ — $ ( 0.03 ) $ — $ ( 0.02 )

Diluted Earnings Per Share Attributable to Common Stock $ 0.61 $ 0.56 $ 1.19 $ 1.21

1 unchanged sentence

Outstanding — Basic (in millions)

7,180 7,169 7,174 7,176

Weighted Average Number of Common Shares

Outstanding — with Dilution (in millions)

7,180 7,611 7,327 7,584

See Notes to Consolidated Financial Statements.

1 unchanged sentence

Dollars in millions

Three months ended

Three months ended Six months ended

June 30, June 30,

2023 2022 2023 2022

Net income $ 4,762 $ 4,537 $ 9,215 $ 9,701

1 unchanged sentence

Foreign currency:

Translation adjustment, net of taxes of $ 52 and $ 5

Net unrealized gains (losses), net of taxes of $ 8 and $( 23 )

Reclassification adjustment included in net income, net of taxes of $ 1 and $ 1

Translation adjustment, net of taxes of $ 88 , $ 58 , $ 140

264 229 457 248

Distribution of WarnerMedia, net of taxes of $ 0 , $( 38 ),

$ 0 and $( 38 )

— ( 170 ) — ( 170 )

Net unrealized gains (losses), net of taxes of $( 4 ), $( 14 ),

$ 4 and $( 37 )

( 11 ) ( 40 ) 12 ( 109 )

Reclassification adjustment included in net income,

net of taxes of $ 1 , $ 1 , $ 2 and $ 2

Derivative instruments:

Net unrealized gains (losses), net of taxes of $( 43 ) and $ 69

Reclassification adjustment included in net income, net of taxes of $ 3 and $ 4

Defined benefit postretirement plans:

Amortization of net prior service credit included in net income, net of taxes of

Net unrealized gains (losses), net of taxes of $ 45 , $( 172 ),

$ 2 and $( 103 )

176 ( 603 ) 24 ( 345 )

Reclassification adjustment included in net income,

net of taxes of $ 3 , $ 15 , $ 6 and $ 19

Distribution of WarnerMedia, net of taxes of $ 0 , $( 12 ),

$ 0 and $( 12 )

— ( 24 ) — ( 24 )

Defined benefit postretirement plans:

Amortization of net prior service credit included in

net income, net of taxes of $( 161 ), $( 152 ), $( 321 )

( 491 ) ( 461 ) ( 982 ) ( 926 )

Distribution of WarnerMedia, net of taxes of $ 0 , $ 5 , $ 0

Other comprehensive income (loss) ( 49 ) ( 983 ) ( 461 ) ( 1,222 )

7 unchanged sentences

Dollars in millions except per share amounts

March 31, December 31,

June 30, December 31,

Current Assets

1 unchanged sentence

Accounts receivable – net of related allowances for credit loss of $ 528 and $ 588

10,214 11,466

Inventories 2,348 3,123

26 unchanged sentences

Total deferred credits and other noncurrent liabilities 108,237 111,800

Redeemable Noncontrolling Interest 1,970 —

Stockholders’ Equity

Preferred stock ($ 1 par value, 10,000,000 authorized at March 31, 2023 and December 31, 2022):

Series A ( 48,000 issued and outstanding at March 31, 2023 and December 31, 2022)

Series B ( 20,000 issued and outstanding at March 31, 2023 and December 31, 2022)

Series C ( 70,000 issued and outstanding at March 31, 2023 and December 31, 2022)

Common stock ($ 1 par value, 14,000,000,000 authorized at March 31, 2023 and

Preferred stock ($ 1 par value, 10,000,000 authorized at June 30, 2023 and December 31, 2022):

Series A ( 48,000 issued and outstanding at June 30, 2023 and December 31, 2022)

Series B ( 20,000 issued and outstanding at June 30, 2023 and December 31, 2022)

Series C ( 70,000 issued and outstanding at June 30, 2023 and December 31, 2022)

Common stock ($ 1 par value, 14,000,000,000 authorized at June 30, 2023 and

December 31, 2022:

issued 7,620,748,598 at March 31, 2023 and December 31, 2022)

issued 7,620,748,598 at June 30, 2023 and December 31, 2022)

Additional paid-in capital 118,833 123,610

Retained (deficit) earnings ( 10,698 ) ( 19,415 )

Treasury stock ( 471,514,050 at March 31, 2023 and 493,156,816 at December 31, 2022, at cost)

Treasury stock ( 471,323,301 at June 30, 2023 and 493,156,816 at December 31, 2022, at cost)

( 16,158 ) ( 17,082 )

6 unchanged sentences

Dollars in millions

Three months ended

Six months ended

Operating Activities

6 unchanged sentences

Pension and postretirement benefit expense (credit) ( 1,341 ) ( 1,735 )

Actuarial (gain) loss on pension and postretirement benefits — ( 1,053 )

Actuarial and settlement (gain) loss on pension and postretirement benefits - net ( 74 ) ( 2,398 )

Asset impairments and abandonments and restructuring — 631

Changes in operating assets and liabilities:

13 unchanged sentences

Distributions from DIRECTV in excess of cumulative equity in earnings 974 1,638

(Purchases), sales and settlements of securities and investments - net ( 1,056 ) 73

Other - net ( 55 ) 2

10 unchanged sentences

Issuance of treasury stock 3 28

Issuance of preferred interests in subsidiary 7,151 —

Redemption of preferred interests in subsidiary ( 5,333 ) —

Dividends paid ( 4,097 ) ( 5,835 )

1 unchanged sentence

Net Cash Used in Financing Activities from Continuing Operations ( 1,530 ) ( 49,464 )

Net decrease in cash and cash equivalents and restricted cash from continuing operations ( 851 ) ( 10,378 )

Net increase (decrease) in cash and cash equivalents and restricted cash from continuing operations 5,829 ( 51,405 )

Cash flows from Discontinued Operations:

3 unchanged sentences

Net increase (decrease) in cash and cash equivalents and restricted cash from discontinued operations — 34,206

Net (decrease) increase in cash and cash equivalents and restricted cash $ ( 851 ) $ 17,332

Net increase (decrease) in cash and cash equivalents and restricted cash $ 5,829 $ ( 17,199 )

Cash and cash equivalents and restricted cash beginning of year 3,793 21,316

3 unchanged sentences

Dollars and shares in millions except per share amounts

Three months ended

March 31, 2023 March 31, 2022

Shares Amount Shares Amount

Three months ended Six months ended

June 30, 2023 June 30, 2022 June 30, 2023 June 30, 2022

Shares Amount Shares Amount Shares Amount Shares Amount

Preferred Stock - Series A

11 unchanged sentences

Balance at beginning of period $ 120,774 $ 129,637 $ 123,610 $ 130,112

Distribution of WarnerMedia — ( 6,832 ) — ( 6,832 )

Preferred stock dividends ( 36 ) — ( 134 ) —

Common stock dividends ($ 0.2775 per share in 2023)

Common stock dividends

($ 0.2775 and $ 0.5550 per share

( 1,999 ) — ( 4,001 ) —

Issuance of treasury stock ( 3 ) ( 18 ) ( 368 ) ( 144 )

4 unchanged sentences

Net income attributable to AT&T 4,489 4,157 8,717 8,967

Distribution of WarnerMedia — ( 45,041 ) — ( 45,041 )

Preferred stock dividends — ( 36 ) — ( 135 )

Common stock dividends ($ 0.2775 per share in 2022)

Common stock dividends

($ 0.2775 and $ 0.5550 per share

— ( 1,993 ) — ( 4,013 )

Balance at end of period $ ( 10,698 ) $ 2,128 $ ( 10,698 ) $ 2,128

2 unchanged sentences

Dollars and shares in millions except per share amounts

Three months ended

March 31, 2023 March 31, 2022

Shares Amount Shares Amount

Three months ended Six months ended

June 30, 2023 June 30, 2022 June 30, 2023 June 30, 2022

Shares Amount Shares Amount Shares Amount Shares Amount

Treasury Stock

Balance at beginning of period ( 472 ) $ ( 16,166 ) ( 462 ) $ ( 16,553 ) ( 493 ) $ ( 17,082 ) ( 480 ) $ ( 17,280 )

Repurchase and acquisition of common stock ( 10 ) ( 188 ) ( 8 ) ( 197 )

Repurchase and acquisition of

— ( 1 ) ( 35 ) ( 675 ) ( 10 ) ( 189 ) ( 43 ) ( 872 )

Reissuance of treasury stock 1 9 2 68 32 1,113 28 992

3 unchanged sentences

Balance at beginning of period $ 2,354 $ 3,290 $ 2,766 $ 3,529

Other comprehensive income attributable to AT&T ( 412 ) ( 239 )

Other comprehensive income

attributable to AT&T

( 49 ) ( 983 ) ( 461 ) ( 1,222 )

Balance at end of period $ 2,305 $ 2,307 $ 2,305 $ 2,307

1 unchanged sentence

Balance at beginning of period $ 8,950 $ 17,520 $ 8,957 $ 17,523

Net income attributable to noncontrolling interest 225 354

Redemption of noncontrolling interest — ( 16 )

Net income attributable to

noncontrolling interest

267 380 492 734

Issuance and acquisition by

noncontrolling owners

5,181 — 5,181 —

Redemption of noncontrolling

Distributions ( 226 ) ( 339 ) ( 458 ) ( 680 )

Balance at end of period $ 14,172 $ 17,561 $ 14,172 $ 17,561

Total Stockholders' Equity at beginning of period $ 106,457 $ 183,855

Total Stockholders' Equity at end of period $ 108,346 $ 186,556

Total Stockholders' Equity

at beginning of period

$ 108,346 $ 186,556 $ 106,457 $ 183,855

Total Stockholders' Equity

at end of period

$ 116,075 $ 135,307 $ 116,075 $ 135,307

See Notes to Consolidated Financial Statements.

MARCH 31, 2023

JUNE 30, 2023

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

22 unchanged sentences

The annual rollforward requirement becomes effective for annual periods beginning after December 15, 2023, with prospective application.

The standard allows early adoption of this requirement.

In the year of adoption, the disclosure of payment and other key terms under the programs and outstanding balances under the obligations also applies to interim reporting dates.

MARCH 31, 2023

JUNE 30, 2023

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued

1 unchanged sentence

EARNINGS PER SHARE

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

Three months ended

A reconciliation of the numerators and denominators of basic and diluted earnings per share for the three months and six months ended June 30, 2023 and 2022, is shown in the table below:

Three months ended Six months ended

June 30, June 30,

2023 2022 2023 2022

Numerator for basic earnings per share:

Income from continuing operations, net of tax $ 4,762 $ 4,751 $ 9,215 $ 9,900

Net income from continuing operations attributable to noncontrolling interests ( 225 ) ( 354 )

Net income from continuing operations attributable to

noncontrolling interests

( 273 ) ( 380 ) ( 498 ) ( 734 )

Preferred Stock Dividends ( 52 ) ( 52 ) ( 104 ) ( 100 )

Income from continuing operations attributable to common stock 4,176 4,747

Income from discontinued operations attributable to common stock — 15

Income from continuing operations attributable to

4,437 4,319 8,613 9,066

Income (loss) from discontinued operations attributable to

— ( 214 ) — ( 199 )

Net Income Attributable to Common Stock $ 4,437 $ 4,105 $ 8,613 $ 8,867

10 unchanged sentences

Denominator for diluted earnings per share 7,180 7,611 7,327 7,584

Under ASU No.

On April 5, 2023, we repurchased all our Series A Cumulative Perpetual Preferred Membership Interests in AT&T Mobility II LLC (Mobility preferred interests) (see Note 12).

For periods prior to repurchase, under ASU No.

2020-06, “Debt—Debt With Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40):

Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity” (ASU 2020-06), the ability to settle our Series A Cumulative Perpetual Preferred Membership Interests in AT&T Mobility II LLC (Mobility preferred interests) in stock is reflected in our diluted earnings per share calculation.

While our intent is to settle the Mobility preferred interests in cash, the ability to settle this instrument in AT&T shares will result in additional dilutive impact, the magnitude of which is influenced by the fair value of the Mobility preferred interests and the average AT&T common stock price during the reporting period, which could vary from period-to-period.

On April 5, 2023, we repurchased the remaining Mobility preferred interests and our calculation of diluted earnings per share will not reflect the dilutive potential of these instruments for the quarterly periods after the repurchase.

MARCH 31, 2023

Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity” (ASU 2020-06), the ability to settle the Mobility preferred interests in stock was reflected in our diluted earnings per share calculation.

JUNE 30, 2023

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued

14 unchanged sentences

457 17 47 ( 982 ) ( 461 )

Balance as of March 31, 2023 $ ( 1,607 ) $ ( 64 ) $ ( 2,138 ) $ 6,163 $ 2,354

Balance as of June 30, 2023 $ ( 1,343 ) $ ( 73 ) $ ( 1,951 ) $ 5,672 $ 2,305

Foreign Currency Translation Adjustment Net Unrealized Gains (Losses) on Securities Net Unrealized Gains (Losses) on Derivative Instruments Defined Benefit Postretirement Plans Accumulated Other Comprehensive Income (Loss)

6 unchanged sentences

— 1 6 1 73 2 ( 926 ) 3 ( 847 )

Distribution of WarnerMedia ( 170 ) — ( 24 ) 25 ( 169 )

Net other comprehensive

1 unchanged sentence

78 ( 103 ) ( 296 ) ( 901 ) ( 1,222 )

Balance as of March 31, 2022 $ ( 1,945 ) $ ( 21 ) $ ( 1,149 ) $ 6,405 $ 3,290

Balance as of June 30, 2022 $ ( 1,886 ) $ ( 58 ) $ ( 1,718 ) $ 5,969 $ 2,307

1 (Gains) losses are included in “Other income (expense) - net” in the consolidated statements of income.

9 unchanged sentences

EBITDA margin is EBITDA divided by total revenue.

MARCH 31, 2023

JUNE 30, 2023

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued

Dollars in millions except per share amounts

Effective for the first quarter of 2023, we no longer record prior service credits to our individual business units or the corresponding charge to Corporate and Other, and segment operating expenses were recast to remove prior service credits from our historical reporting.

Effective for the first quarter of 2023, we stopped recording prior service credits to our individual business units or the corresponding charge to Corporate and Other, and segment operating expenses were recast to remove prior service credits from our historical reporting.

Prior service credits are, and will continue to be, recorded as other income in our consolidated income statement in accordance with GAAP.

7 unchanged sentences

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

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

• Consumer Wireline provides broadband services, including fiber connections that provide our multi-gig services to residential customers in select locations.

Consumer Wireline also provides legacy telephony voice communication services.

9 unchanged sentences

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

MARCH 31, 2023

JUNE 30, 2023

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued

Dollars in millions except per share amounts

For the three months ended March 31, 2023

For the three months ended June 30, 2023

Revenues Operations

13 unchanged sentences

Securitization fees

17 154 ( 137 ) — ( 137 )

Value portfolio 91 24 67 6 61

3 unchanged sentences

$ 29,917 $ 18,836 $ 11,081 $ 4,675 $ 6,406

For the three months ended March 31, 2022

For the three months ended June 30, 2022

Revenues Operations and Support Expenses EBITDA Depreciation and Amortization Operating Income (Loss)

10 unchanged sentences

Securitization fees

17 78 ( 61 ) — ( 61 )

Value portfolio 129 37 92 10 82

3 unchanged sentences

$ 29,643 $ 20,237 $ 9,406 $ 4,450 $ 4,956

MARCH 31, 2023

JUNE 30, 2023

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued

Dollars in millions except per share amounts

For the six months ended June 30, 2023

Revenues Operations

Expenses EBITDA Depreciation

Amortization Operating

Income (Loss)

Communications

Mobility $ 40,897 $ 23,792 $ 17,105 $ 4,221 $ 12,884

Business Wireline 10,610 7,173 3,437 2,663 774

Consumer Wireline 6,490 4,510 1,980 1,718 262

Total Communications 57,997 35,475 22,522 8,602 13,920

Latin America - Mexico 1,850 1,559 291 360 ( 69 )

Segment Total 59,847 37,034 22,813 8,962 13,851

Corporate and Other

DTV-related retained costs — 347 ( 347 ) 296 ( 643 )

Parent administration support ( 12 ) 706 ( 718 ) 3 ( 721 )

Securitization fees 36 275 ( 239 ) — ( 239 )

Value portfolio 185 52 133 11 122

Total Corporate 209 1,380 ( 1,171 ) 310 ( 1,481 )

Certain significant items — ( 72 ) 72 34 38

Total Corporate and Other 209 1,308 ( 1,099 ) 344 ( 1,443 )

$ 60,056 $ 38,342 $ 21,714 $ 9,306 $ 12,408

For the six months ended June 30, 2022

Revenues Operations and Support Expenses EBITDA Depreciation and Amortization Operating Income (Loss)

Communications

Mobility $ 40,001 $ 24,188 $ 15,813 $ 4,076 $ 11,737

Business Wireline 11,235 7,494 3,741 2,612 1,129

Consumer Wireline 6,335 4,480 1,855 1,551 304

Total Communications 57,571 36,162 21,409 8,239 13,170

Latin America - Mexico 1,498 1,352 146 330 ( 184 )

Segment Total 59,069 37,514 21,555 8,569 12,986

Corporate and Other

DTV-related retained costs 8 399 ( 391 ) 269 ( 660 )

Parent administration support ( 18 ) 688 ( 706 ) 10 ( 716 )

Securitization fees 33 160 ( 127 ) — ( 127 )

Value portfolio 263 74 189 20 169

Total Corporate 286 1,321 ( 1,035 ) 299 ( 1,334 )

Certain significant items — 1,115 ( 1,115 ) 44 ( 1,159 )

Total Corporate and Other 286 2,436 ( 2,150 ) 343 ( 2,493 )

$ 59,355 $ 39,950 $ 19,405 $ 8,912 $ 10,493

JUNE 30, 2023

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued

Dollars in millions except per share amounts

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

Three months ended

June 30, Six months ended

2023 2022 2023 2022

Communications $ 7,177 $ 6,683 $ 13,920 $ 13,170

5 unchanged sentences

Amortization of intangibles acquired ( 17 ) ( 17 ) ( 34 ) ( 44 )

Asset impairments and abandonments and restructuring — ( 631 ) — ( 631 )

Benefit-related gains (losses) 28 ( 108 ) 72 ( 201 )

3 unchanged sentences

Other income (expense) — net

987 2,302 1,922 4,459

Income from Continuing Operations Before Income Taxes $ 6,165 $ 6,260 $ 11,932 $ 12,849

2 unchanged sentences

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

For the three months ended March 31, 2023

For the three months ended June 30, 2023

Communications

8 unchanged sentences

Total $ 20,315 $ 5,279 $ 3,251 $ 967 $ 105 $ 29,917

MARCH 31, 2023

JUNE 30, 2023

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued

Dollars in millions except per share amounts

For the three months ended March 31, 2022

For the three months ended June 30, 2022

Communications

8 unchanged sentences

Total $ 19,926 $ 5,595 $ 3,174 $ 808 $ 140 $ 29,643

For the six months ended June 30, 2023

Communications

Mobility Business Wireline Consumer Wireline Latin America Corporate & Other Total

Wireless service $ 31,228 $ — $ — $ 1,226 $ — $ 32,454

Business service — 10,314 — — — 10,314

Broadband — — 5,088 — — 5,088

Legacy voice and data — — 779 — 163 942

Other — — 623 — 46 669

Total Service 31,228 10,314 6,490 1,226 209 49,467

Equipment 9,669 296 — 624 — 10,589

Total $ 40,897 $ 10,610 $ 6,490 $ 1,850 $ 209 $ 60,056

For the six months ended June 30, 2022

Communications

Mobility Business Wireline Consumer Wireline Latin America Corporate & Other Total

Wireless service $ 29,728 $ — $ — $ 1,024 $ 12 $ 30,764

Business service — 10,894 — — — 10,894

Broadband — — 4,748 — — 4,748

Legacy voice and data — — 905 — 225 1,130

Other — — 682 — 49 731

Total Service 29,728 10,894 6,335 1,024 286 48,267

Equipment 10,273 341 — 474 — 11,088

Total $ 40,001 $ 11,235 $ 6,335 $ 1,498 $ 286 $ 59,355

Deferred Customer Contract Acquisition and Fulfillment Costs

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

JUNE 30, 2023

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued

Dollars in millions except per share amounts

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

March 31, December 31,

June 30, December 31,

Consolidated Balance Sheets 2023 2022

7 unchanged sentences

Total deferred customer contract fulfillment costs $ 6,437 $ 6,687

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

March 31, March 31,

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

June 30, June 30,

Consolidated Statements of Income 2023 2022

4 unchanged sentences

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.

For example, when installment sales include promotional discounts (e.g., trade-in device credits), the difference between revenue recognized and consideration received is recorded as a contract asset to be amortized over the contract term.

Our contract assets primarily relate to our wireless businesses.

Promotional equipment sales where we offer handset credits, which are allocated between equipment and service in proportion to their standalone selling prices, when customers commit to a

MARCH 31, 2023

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued

Dollars in millions except per share amounts

specified service period result in additional contract assets recognized.

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.

2 unchanged sentences

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

March 31, December 31,

June 30, December 31,

Consolidated Balance Sheets 2023 2022

3 unchanged sentences

Current portion in “Advanced billings and customer deposits” 3,731 3,816

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

Our contract asset balances at June 30, 2023 and December 31, 2022 reflect increased promotional equipment sales in our wireless business.

Our beginning of period contract liability recorded as customer contract revenue during 2023 was $ 3,292 .

JUNE 30, 2023

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued

Dollars in millions except per share amounts

Remaining Performance Obligations

3 unchanged sentences

Performance obligations associated with wireless contracts are estimated using a portfolio approach in which we review all relevant promotional activities, calculating the remaining performance obligation using the average service component for the portfolio and the average device price.

As of March 31, 2023, the aggregate amount of the transaction price allocated to remaining performance obligations was $ 36,722 , of which we expect to recognize approximately 70 % by the end of 2024, with the balance recognized thereafter.

As of June 30, 2023, the aggregate amount of the transaction price allocated to remaining performance obligations was $ 36,156 , of which we expect to recognize approximately 70 % by the end of 2024, with the balance recognized thereafter.

PENSION AND POSTRETIREMENT BENEFITS

4 unchanged sentences

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.

MARCH 31, 2023

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

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

The purchase of the group annuity contracts closed on May 3, 2023, covering approximately 96,000 AT&T participants and beneficiaries (Transferred Participants).

Under the group annuity contracts, Athene, through its wholly-owned subsidiaries Athene Annuity and Life Company and Athene Annuity & Life Assurance Company of New York, made an irrevocable commitment, and will be solely responsible, to pay the pension benefits of each Transferred Participant beginning with their August 2023 pension payments.

The transaction does not change the amount of pension benefits payable to the Transferred Participants.

The purchase of the group annuity contracts was funded directly by assets of the Plan via the pension trust underlying the Plan and required no cash or asset contributions by AT&T.

We transferred approximately $ 8,050 of pension benefit obligation and related plan assets upon close of the transaction and recognized a pre-tax pension settlement gain of $ 363 .

The funded status of the Plan did not materially change due to this transaction.

This transaction with Athene is considered a settlement for accounting purposes and requires us to remeasure our pension plan assets and obligations at each remaining quarter-end in 2023.

The second quarter 2023 remeasurement resulted in the recognition of an actuarial loss of $ 289 in the second quarter and for the first six months of 2023.

As part of our remeasurement, the weighted-average discount rate used to measure our pension benefit obligation was approximately 5.20 % at June 30, 2023, a decrease of 5 basis points.

The discount rates in effect for determining pension service and interest costs after our June 30 remeasurement are 5.20 %.

The remeasurement also reflects actual returns on pension plan assets of 4.10 % (six-month rate) relative to our expected long-term rate of 7.50 % (annual rate).

Similar to 2023, in 2022 we were required to follow settlement accounting and remeasure our pension benefit plan assets and obligations at each remaining quarter end.

JUNE 30, 2023

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued

2 unchanged sentences

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

Three months ended Six months ended

June 30, June 30,

2023 2022 2023 2022

Pension cost:

5 unchanged sentences

Actuarial (gain) loss 289 ( 1,345 ) 289 ( 2,357 )

Settlement (gain) loss ( 363 ) — ( 363 ) —

Net pension (credit) cost $ ( 185 ) $ ( 1,602 ) $ ( 295 ) $ ( 3,012 )

1 unchanged sentence

Service cost – benefits earned during the period $ 6 $ 9 $ 12 $ 18

Interest cost on accumulated postretirement benefit obligation 85 63

Interest cost on accumulated postretirement benefit

85 63 170 126

Expected return on assets ( 33 ) ( 33 ) ( 66 ) ( 65 )

3 unchanged sentences

We also provide senior- and middle-management employees with nonqualified, unfunded supplemental retirement and savings plans.

Net supplemental pension benefits costs not included in the table above were $ 19 and $ 12 for the first quarter ended 2023 and 2022, respectively, predominantly due to higher interest costs.

Net supplemental pension benefits costs not included in the table above were $ 18 and $ 12 in the second quarter and $ 37 and $ 24 for the first six months of 2023 and 2022, respectively, predominantly due to higher interest costs.

FAIR VALUE MEASUREMENTS AND DISCLOSURE

8 unchanged sentences

There have been no changes in the methodologies used since December 31, 2022.

MARCH 31, 2023

JUNE 30, 2023

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued

2 unchanged sentences

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

March 31, 2023 December 31, 2022

June 30, 2023 December 31, 2022

Carrying Fair Carrying Fair

9 unchanged sentences

The fair value measurements used for notes and debentures are considered Level 2 and are determined using various methods, including quoted prices for identical or similar securities in both active and inactive markets.

Following is the fair value leveling for investment securities that are measured at fair value and derivatives as of March 31, 2023 and December 31, 2022.

Derivatives designated as hedging instruments are reflected as “Other Assets,” “Other noncurrent liabilities,” “Prepaid and other current assets” and “Accounts payable and accrued liabilities” on our consolidated balance sheets.

March 31, 2023

Following is the fair value leveling for investment securities that are measured at fair value and derivatives as of June 30, 2023 and December 31, 2022.

Derivatives designated as hedging instruments are reflected as “Prepaid and other current assets,” “Other Assets,” “Accounts payable and accrued liabilities,” and “Other noncurrent liabilities” on our consolidated balance sheets.

June 30, 2023

Level 1 Level 2 Level 3 Total

5 unchanged sentences

Asset Derivatives

Interest rate swaps — 7 — 7

Cross-currency swaps — 168 — 168

Liability Derivatives

Interest rate swaps — ( 5 ) — ( 5 )

Cross-currency swaps — ( 4,958 ) — ( 4,958 )

12 unchanged sentences

Foreign exchange contracts — ( 23 ) — ( 23 )

MARCH 31, 2023

JUNE 30, 2023

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued

6 unchanged sentences

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

Three months ended

Three months ended Six months ended

June 30, June 30,

2023 2022 2023 2022

Total gains (losses) recognized on equity securities $ 82 $ ( 237 ) $ 165 $ ( 332 )

1 unchanged sentence

Unrealized gains (losses) recognized on equity securities held at end of period $ 85 $ ( 196 ) $ 164 $ ( 284 )

At March 31, 2023, available-for-sale debt securities totaling $ 1,214 have maturities as follows - less than one year:

At June 30, 2023, available-for-sale debt securities totaling $ 1,214 have maturities as follows - less than one year:

one to three years:

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Except for excluded components, changes in the fair value of derivative instruments designated as fair value hedges are offset against the change in fair value of the hedged assets or liabilities through earnings.

In the three months ended March 31, 2023 and 2022, no ineffectiveness was measured on fair value hedges.

MARCH 31, 2023

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

JUNE 30, 2023

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued

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Collateral and Credit-Risk Contingency We have entered into agreements with our derivative counterparties establishing collateral thresholds based on respective credit ratings and netting agreements.

At March 31, 2023, we had posted collateral of $ 50 (a deposit asset) and held collateral of $ 0 (a receipt liability).

Under the agreements, if AT&T’s credit rating had been downgraded two ratings levels by Fitch Ratings, one level by S&P and one level by Moody’s before the final collateral exchange in March, we would have been required to post additional collateral of $ 55 .

At June 30, 2023, we had posted collateral of $ 709 (a deposit asset) and held collateral of $ 0 (a receipt liability).

Under the agreements, if AT&T’s credit rating had been downgraded two ratings levels by Fitch Ratings, one level by S&P and one level by Moody’s before the final collateral exchange in June, we would have been required to post additional collateral of $ 52 .

If AT&T’s credit rating had been downgraded three ratings levels by Fitch Ratings, two levels by S&P, and two levels by Moody’s, we would have been required to post additional collateral of $ 4,704 .

2 unchanged sentences

Following are the notional amounts of our outstanding derivative positions:

March 31, December 31,

June 30, December 31,

Interest rate swaps $ 1,750 $ —

2 unchanged sentences

Total $ 43,353 $ 38,830

MARCH 31, 2023

JUNE 30, 2023

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued

2 unchanged sentences

Effect of Derivatives on the Consolidated Statements of Income

Three months ended

Three months ended Six months ended

June 30, June 30,

Fair Value Hedging Relationships 2023 2022 2023 2022

12 unchanged sentences

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

Three months ended

Three months ended Six months ended

June 30, June 30,

Cash Flow Hedging Relationships 2023 2022 2023 2022

3 unchanged sentences

Gain (loss) recognized in accumulated OCI — — — 3

Other income (expense) - net reclassified from accumulated OCI into income — 1

Other income (expense) - net reclassified from

accumulated OCI into income

Interest rate locks:

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

Interest income (expense) reclassified from accumulated

OCI into income

( 14 ) ( 16 ) ( 29 ) ( 36 )

Other income (expense) reclassified from accumulated OCI into income — ( 45 ) — ( 45 )

Distribution of WarnerMedia — ( 12 ) — ( 12 )

SALES OF RECEIVABLES

3 unchanged sentences

Under the terms of our agreement for this program, we continue to service the transferred receivables on behalf of the financial institutions.

MARCH 31, 2023

JUNE 30, 2023

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued

Dollars in millions except per share amounts

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

Three months ended

Net cash received from equipment installment receivables 1

Net cash (paid) received from other programs ( 114 ) 288

The following table sets forth a summary of cash proceeds received, net of remittances paid, from sales of receivables during the three and six months ended June 30, 2023 and 2022:

Three months ended Six months ended

June 30, June 30,

2023 2022 2023 2022

Net cash (paid) received from equipment installment

receivables 1

$ ( 36 ) $ 52 $ ( 60 ) $ 1,093

Net cash received from other programs 2

858 41 744 329

Total net cash impact to cash flows from operating activities $ 822 $ 93 $ 684 $ 1,422

1 Net cash from initial sales of $ 2,529 and $ 3,316 during the three months ended March 31, 2023 and 2022, respectively.

1 Cash from initial sales of $ 2,656 and $ 2,618 for the three months and $ 5,185 and $ 5,934 for the six months ended June 30, 2023 and 2022, respectively.

2 Certain transferred receivables are guaranteed by a subsidiary that holds additional receivables in the amount of $ 1,498 , which are pledged as collateral and represent our maximum exposure to loss.

The sales of receivables did not have a material impact on our consolidated statements of income or to “Total Assets” reported on our consolidated balance sheets.

2 unchanged sentences

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

March 31, 2023 December 31, 2022

June 30, 2023 December 31, 2022

Gross receivables:

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Noncurrent notes and trade receivables 2,002 1,854

Outstanding portfolio of receivables derecognized from our consolidated balance sheets $ 11,221 $ 11,030

Outstanding portfolio of receivables derecognized from

our consolidated balance sheets

$ 11,283 $ 11,030

Cash proceeds received, net of remittances 1

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Accordingly, we record a guarantee obligation for this estimated amount at the time the receivables are transferred.

MARCH 31, 2023

JUNE 30, 2023

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued

Dollars in millions except per share amounts

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

Three months ended

The following table sets forth a summary of equipment installment receivables sold under this program during the three and six months ended June 30, 2023 and 2022:

Three months ended Six months ended

June 30, June 30,

2023 2022 2023 2022

Gross receivables sold 1

1 unchanged sentence

Net receivables sold 2

2,554 2,555 4,992 6,033

Cash proceeds received 2,656 2,618 5,185 5,934

7 unchanged sentences

The fair value measurements used for the deferred purchase price and the guarantee obligation are considered Level 3 under the Fair Value Measurement and Disclosure framework (see Note 7).

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

Three months ended

Three months ended Six months ended

June 30, June 30,

2023 2022 2023 2022

Fair value of repurchased receivables $ 765 $ 1,023 $ 1,306 $ 1,928

1 unchanged sentence

Gain (loss) on repurchases 1

$ ( 4 ) $ ( 15 ) $ ( 5 ) $ ( 12 )

1 These gains (losses) are included in “Selling, general and administrative” expense in the consolidated statements of income.

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

At June 30, 2023 and December 31, 2022, our deferred purchase price receivable was $ 2,425 and $ 2,318 , respectively, of which $ 1,329 and $ 1,278 are included in “Prepaid and other current assets” on our consolidated balance sheets, with the remainder in “Other Assets.” The guarantee obligation at June 30, 2023 and December 31, 2022 was $ 441 and $ 419 , respectively, of which $ 150 and $ 73 are included in “Accounts payable and accrued liabilities” on our consolidated balance sheets, with the remainder in “Other noncurrent liabilities.” Our maximum exposure to loss as a result of selling these equipment installment receivables is limited to the total amount of our deferred purchase price and guarantee obligation.

We have operating and finance leases for certain facilities and equipment used in operations.

Our leases generally have remaining lease terms of up to 15 years.

Some of our real estate operating leases contain renewal options that may be exercised, and some of our leases include options to terminate the lease within one year.

Some of our operating leases (e.g., for towers and real estate) contain renewal options that may be exercised, and some of our leases include options to terminate the lease within one year.

We have recognized a right-of-use asset for both operating and finance leases and an operating lease liability that represents the present value of our obligation to make payments over the lease term.

1 unchanged sentence

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.

MARCH 31, 2023

JUNE 30, 2023

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued

1 unchanged sentence

The components of lease expense were as follows:

Three months ended

Three months ended Six months ended

June 30, June 30,

2023 2022 2023 2022

Operating lease cost $ 1,362 $ 1,357 $ 2,757 $ 2,704

Finance lease cost:

Amortization of right-of-use assets $ 57 $ 45

Amortization of leased assets in

property, plant and equipment $ 62 $ 49 $ 119 $ 94

Interest on lease obligation 47 44 93 81

1 unchanged sentence

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

Three months ended

Six months ended

Cash Flows from Operating Activities

18 unchanged sentences

Total finance lease obligation $ 2,032 $ 1,817

MARCH 31, 2023

JUNE 30, 2023

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued

7 unchanged sentences

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

At March 31, 2023 Operating Finance

At June 30, 2023 Operating Finance

Leases Leases

10 unchanged sentences

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

O ur share of DIRECTV’s earnings included in equity in net income of affiliates was $ 534 and $ 522 f or the three months ended March 31, 2023 and 2022, respectively .

Cash distributions from DIRECTV for the first three months of 2023 totaled $ 1,308 , with $ 534 classified as operating activities and $ 774 classified as investing activities in our consolidated statement of cash flows versus total cash distributions of $ 1,837 ($ 522 operating and $ 1,315 investing) in the comparable prior period.

Our investment in DIRECTV at March 31, 2023 was $ 2,142 .

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

Our share of DIRECTV’s earnings included in equity in net income of affiliates was $ 911 and $ 1,037 for the six months ended June 30, 2023 and 2022, respectively.

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

Our investment in DIRECTV at June 30, 2023 was $ 1,946 .

In February 2023, we repaid all outstanding notes payable to DIRECTV.

We provide DIRECTV with network transport for U-verse products and sales services under commercial arrangements for up to five years .

Under separate transition services agreements, we provide DIRECTV certain operational support, including servicing of certain of their customer receivables for up to three years .

For the three months ended March 31, 2023, we billed DIRECTV approximately $ 240 for these costs, which were recorded as a reduction to the operations and support expenses incurred and resulted in net retained costs to AT&T of $ 169 in the first quarter of 2023.

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

For the three and six months ended June 30, 2023, we billed DIRECTV approximately $ 180 and $ 420 for these costs, which were recorded as a reduction to the operations and support expenses incurred and resulted in net retained costs to AT&T of $ 178 in the second quarter and $ 347 for the first six months of 2023.

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

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

MARCH 31, 2023

JUNE 30, 2023

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued

8 unchanged sentences

We do not have pledged assets or other guarantees under our supplier financing program.

Based on data from our financial institution partners, suppliers had elected to sell $ 2,557 of our outstanding payment obligations as of March 31, 2023 and $ 2,869 as of December 31, 2022, which are included in “Accounts payable and accrued liabilities” on our consolidated balance sheets.

Suppliers had elected to sell to the third-party financial institutions $ 3,007 and $ 2,869 of our outstanding payment obligations as of June 30, 2023 and December 31, 2022, respectively.

These amounts are included in “Accounts payable and accrued liabilities” on our consolidated balance sheets.

Our supplier financing programs are reported as operating or investing (when capitalizable) activities in our statements of cash flows when paid.

1 unchanged sentence

We also have arrangements with suppliers of handset inventory that allow us to extend the stated payment terms by up to 90 days at an additional cost to us (variable rate extension fee).

All payments are due within one year.

We had $ 5,129 of direct supplier financing outstanding at March 31, 2023 and $ 5,486 as of December 31, 2022, which are included in “Accounts payable and accrued liabilities” on our consolidated balance sheets.

We had $ 3,539 of direct supplier financing outstanding at June 30, 2023 and $ 5,486 as of December 31, 2022, which are included in “Accounts payable and accrued liabilities” on our consolidated balance sheets.

Our direct supplier financing is reported as operating activities in our statements of cash flows when paid.

1 unchanged sentence

In connection with capital improvements and the acquisition of other productive assets, we negotiate favorable payment terms of 120 days or more (referred to as vendor financing), which are reported as financing activities in our statements of cash flows when paid.

For the three months ended March 31, 2023 and 2022, we recorded vendor financing commitments related to capital investments of approximately $ 1,021 and $ 954 , respectively.

We had $ 5,003 vendor financing payables at March 31, 2023, with $ 3,531 included in “Accounts payable and accrued liabilities” and $ 6,147 vendor financing payables at December 31, 2022, with $ 4,592 included in “Accounts payable and accrued liabilities.”

For the six months ended June 30, 2023 and 2022, we recorded vendor financing commitments related to capital investments of approximately $ 1,341 and $ 2,012 , respectively.

We had $ 3,587 vendor financing payables at June 30, 2023, with $ 2,177 included in “Accounts payable and accrued liabilities” and $ 6,147 vendor financing payables at December 31, 2022, with $ 4,592 included in “Accounts payable and accrued liabilities.”

ADDITIONAL FINANCIAL INFORMATION

2 unchanged sentences

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

March 31, December 31,

June 30, December 31,

2023 2022 2022 2021

4 unchanged sentences

Cash and Cash Equivalents and Restricted Cash $ 9,622 $ 4,117 $ 3,793 $ 21,316

MARCH 31, 2023

JUNE 30, 2023

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued

1 unchanged sentence

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

Three months ended

Six months ended

Cash paid (received) during the period for:

2 unchanged sentences

The following table summarizes capital expenditures:

Three months ended

Six months ended

Purchase of property and equipment $ 8,515 $ 9,399

2 unchanged sentences

The following table summarizes acquisitions, net of cash acquired:

Three months ended

Six months ended

Business acquisitions $ — $ —

2 unchanged sentences

Total Acquisitions $ 515 $ 9,570

1 Total capitalized interest was $ 272 and $ 324 for the three months ended March 31, 2023 and 2022, respectively.

SUBSEQUENT EVENTS

Telco LLC Preferred Interests

In April 2023, we expanded our September 2020 sale of Telco LLC cumulative preferred interests and issued an additional $ 5,250 of nonconvertible cumulative preferred interests (Class A-2 and A-3, collectively the “April preferreds”).

Cumulative preferred interests in our Telco LLC total $ 7,250 , collectively the “Telco preferred interests” (see Note 16 to AT&T’s 2022 Annual Report on Form 10-K).

1 Total capitalized interest was $ 537 and $ 682 for the six months ended June 30, 2023 and 2022, respectively.

Preferred Interests Issued by Subsidiary

Telco LLC Preferred Interests In April 2023, we expanded our September 2020 sale of Telco LLC cumulative preferred interests and issued an additional $ 5,250 of nonconvertible cumulative preferred interests (Class A-2 and A-3, collectively the “April preferreds”).

Cumulative preferred interests in our Telco LLC total $ 7,250 , collectively the “Telco preferred interests,” and are included in “Noncontrolling interest” on the consolidated balance sheets (see Note 16 to AT&T’s 2022 Annual Report on Form 10-K).

The April preferreds pay an initial preferred distribution of 6.85 % annually, subject to declaration and subject to reset on November 1, 2027, and every seven years thereafter.

1 unchanged sentence

The holders of the Telco preferred interests have the option to require redemption upon the occurrence of certain contingent events, such as the failure of Telco LLC to pay the preferred distribution for two or more periods or to meet certain other requirements, including a minimum credit rating.

If notice is given, all other holders of equal or more subordinate classes of members’ equity are entitled to receive the same form of consideration payable to the holders of the preferred interests, resulting in a deemed liquidation for accounting purposes.

Mobility II Preferred Interests

In April 2023, we accepted the December 2022 put option notice from the AT&T pension trust and repurchased the remaining 213 million Series A Cumulative Perpetual Preferred Membership Interests in AT&T Mobility II LLC (Mobility preferred interests) for a purchase price, including accrued and unpaid distributions, of $ 5,414 .

At March 31, 2023, the Mobility preferred interests had a redemption value of $ 5,320 , with approximately $ 2,650 recorded in “Accounts payable and accrued liabilities” and $ 2,670 recorded in “Other noncurrent liabilities.” The repurchase was funded with proceeds from the April preferreds.

AT&T Pension Benefit Plan

(Athene) under which

MARCH 31, 2023

If notice is given, all other holders of equal or more subordinate classes of members’ equity are entitled to receive the same form of consideration payable to the holders of the Telco preferred interests, resulting in a deemed liquidation for accounting purposes.

Mobility II Preferred Interests In April 2023, we accepted the December 2022 put option notice from the AT&T pension trust and repurchased the remaining 213 million Series A Cumulative Perpetual Preferred Membership Interests in AT&T Mobility II LLC (Mobility preferred interests) for a purchase price, including accrued and unpaid distributions, of $ 5,414 .

The Mobility preferred interests had a redemption value of $ 5,320 , with approximately $ 2,650 removed from “Accounts payable and accrued liabilities” and $ 2,670 removed from “Other noncurrent liabilities.” The repurchase was funded with proceeds from the April preferreds.

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

So long as the distributions are declared and paid, the terms of the Mobility noncontrolling

JUNE 30, 2023

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued

Dollars in millions except per share amounts

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

The purchase of the group annuity contracts is expected to close on May 3, 2023.

The contracts cover approximately 96,000 AT&T participants and beneficiaries (Transferred Participants).

Under the group annuity contracts, Athene, through its wholly-owned subsidiaries Athene Annuity and Life Company and Athene Annuity & Life Assurance Company of New York, has made an irrevocable commitment, and will be solely responsible, to pay the pension benefits of each Transferred Participant beginning with their August 2023 pension payments.

The transaction will result in no changes to the amount of pension benefits payable to the Transferred Participants.

The purchase of the group annuity contracts will be funded directly by assets of the Plan via the pension trust underlying the Plan and requires no cash or asset contributions by AT&T.

As a result of the transaction, we expect to recognize a one-time non-cash pre-tax pension settlement gain of approximately $ 350 in the second quarter of 2023.

The actual gain will depend on finalization of the actuarial and other assumptions.

We expect to transfer approximately $ 8,050 of benefit obligation and related plan assets upon close of the transaction and that the funded status of the Plan is not expected to change due to this transaction.

MARCH 31, 2023

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

A holder of the Mobility noncontrolling interests may put the interests to Mobility II on or after the earliest of certain events or each June 15 and December 15, beginning on June 15, 2028.

Mobility II may redeem the interests on each March 15 and September 15, beginning on March 15, 2028.

The price at which a put option or a redemption option can be exercised is the sum of (a) $ 1,000 per Mobility noncontrolling interest plus (b) any accrued and unpaid distributions.

The redemption price must be paid in cash.

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

JUNE 30, 2023

Management’s Discussion and Analysis of Financial Condition and Results of Operations

10 unchanged sentences

Percentage increases and decreases that are not considered meaningful are denoted with a dash.

First Quarter

2023 2022 Change

Second Quarter Six-Month Period

Percent Percent

2023 2022 Change 2023 2022 Change

Operating Revenues

20 unchanged sentences

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

Prior service credits are, and will continue to be, recorded as other income in our consolidated income statement in accordance with U.S.

2 unchanged sentences

Correspondingly, this recast lowered administrative expenses within Corporate and Other, with no change on a consolidated basis.

MARCH 31, 2023

JUNE 30, 2023

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

3 unchanged sentences

Additional analysis is discussed in our “Segment Results” section.

First Quarter

2023 2022 Change

Second Quarter Six-Month Period

Percent Percent

2023 2022 Change 2023 2022 Change

Operating Revenues

10 unchanged sentences

Other income (expense) - net 987 2,302 (57.1) 1,922 4,459 (56.9)

Income from Continuing Operations Before Income Taxes 5,767 6,589 (12.5)

Income from Continuing Operations

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

Operations and support expenses decreased in the first quarter of 2023, reflecting the benefits of our continued transformation efforts, mostly offset by inflationary increases.

In particular, operating expense declines were driven by lower domestic wireless equipment and associated selling costs from lower sales volumes, absence of first-quarter 2022 3G network shutdown costs, lower personnel costs and higher returns on benefit-related assets.

Expense decreases were partially offset by higher amortization of deferred customer acquisition costs and increased bad debt expense.

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

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

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

Operating income increased in the first quarter of 2023.

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

Interest expense increased in the first quarter of 2023, primarily due to higher interest rates and lower capitalized interest associated with spectrum acquisitions.

Interest expense in 2023 also includes the reclassification of Mobility preferred interests distributions, previously recorded as noncontrolling interest.

These items were partially offset by lower debt balances.

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

MARCH 31, 2023

Before Income Taxes

6,165 6,260 (1.5) 11,932 12,849 (7.1)

Income from Continuing Operations $ 4,762 $ 4,751 0.2 % $ 9,215 $ 9,900 (6.9) %

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

Operations and support expenses decreased in the second quarter and for the first six months of 2023, reflecting prior year noncash impairment charges of approximately $600 million and benefits of our continued transformation efforts, partially offset by inflationary increases.

In particular, operating expense declines were driven by lower domestic wireless equipment and associated selling costs from lower sales volumes, lower personnel costs and higher returns on benefit-related assets, partially offset by higher amortization of deferred customer acquisition costs.

Expense decrease for the first six months was also driven by the absence of first-quarter 2022 3G network shutdown costs, partially offset by higher network and bad debt expenses in 2023.

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

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

Amortization expense increased $10, or 28.6%, in the second quarter and $18, or 25.7%, for the first six months of 2023 primarily due to the amortization of wireless licenses in Mexico offset by lower amortization of intangible assets from previous acquisitions.

Operating income increased in the second quarter and for the first six months of 2023.

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

Interest expense increased in the second quarter and for the first six months of 2023, primarily due to lower capitalized interest associated with spectrum acquisitions and higher interest rates, partially offset by lower average debt balances.

Interest expense for the first six months of 2023 also includes the reclassification of Mobility preferred interests distributions, which were

JUNE 30, 2023

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

Dollars in millions except per share amounts

Other income (expense) – net decreased in the first quarter of 2023.

The decrease in the first quarter was primarily driven by the recognition of $1,053 actuarial gain in the first quarter of 2022, with no comparative actuarial remeasurement in the first quarter of 2023.

repurchased on April 5, 2023 (see Note 12).

Mobility preferred interest distributions were recorded as noncontrolling interest in 2022.

Equity in net income of affiliates decreased in the second quarter and for the first six months of 2023, primarily due to the performance of our investment in DIRECTV (see Note 10).

The decrease for the first six months was partially offset by our share of a gain on a sale-leaseback transaction by DIRECTV of approximately $100 in the first quarter of 2023.

Other income (expense) – net decreased in the second quarter and for the first six months of 2023.

The decreases were primarily driven by actuarial remeasurement of pension plan assets and obligations, with a $74 net actuarial and settlement gain in the second quarter and for the first six months of 2023, compared to a $1,345 gain in the second quarter and $2,398 for the first six months of 2022 (see Note 6).

Also contributing to the decrease were lower pension and postretirement benefit credits in 2023, primarily driven by higher interest costs from discount rate increases (see Note 6).

Partially offsetting the decreases were higher returns on other benefit-related investments.

Income tax expense decreased in the first quarter of 2023.

The decrease in the first quarter was primarily driven by lower income before income tax.

Our effective tax rate was 22.8% in the first quarter of 2023, versus 21.9% in the comparable period in the prior year.

COMMUNICATIONS SEGMENT First Quarter

2023 2022 Change

Income tax expense decreased in the second quarter and for the first six months of 2023.

The decrease in the second quarter was primarily driven by lower income before income tax and lower state income tax expense.

Our effective tax rate was 22.8% in the second quarter of 2023, versus 24.1% in the comparable period in the prior year.

The decrease for the first six months of 2023 was primarily due to lower income before income tax.

Our effective tax rate was 22.8% for the first six months of 2023, versus 23.0% for the comparable period in the prior year.

COMMUNICATIONS SEGMENT Second Quarter Six-Month Period

Percent Percent

2023 2022 Change 2023 2022 Change

Segment Operating Revenues

14 unchanged sentences

U-verse VoIP connections 2,749 3,124

Operating revenues increased in the first quarter of 2023, driven by increases in our Mobility and Consumer Wireline business units, partially offset by decreases in our Business Wireline business unit.

Operating revenues increased in the second quarter and for the first six months of 2023, driven by increases in our Mobility and Consumer Wireline business units, partially offset by decreases in our Business Wireline business unit.

The increases are primarily driven by wireless service revenue growth and gains in broadband service.

Business Wireline continues to reflect lower demand for legacy services and product simplification.

Operating income increased in the first quarter of 2023, reflecting increases in our Mobility business unit, offset by lower operating income from our Business Wireline and Consumer Wireline business units in the first quarter.

Our Communications segment operating income margin in the first quarter increased from 22.5% in 2022 to 23.1% in 2023.

MARCH 31, 2023

JUNE 30, 2023

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

Dollars in millions except per share amounts

Operating income increased in the second quarter and for the first six months of 2023, reflecting increases in our Mobility and Consumer Wireline business units, offset by lower operating income from our Business Wireline business unit in the second quarter.

Operating income for the first six months reflects an increase in our Mobility business unit, offset by lower operating income from our Business Wireline and Consumer Wireline business units.

Our Communications segment operating income margin in the second quarter increased from 23.3% in 2022 to 24.9% in 2023 and for the first six months increased from 22.9% in 2022 to 24.0% in 2023.

Communications Business Unit Discussion

Mobility Results

First Quarter

2023 2022 Change

Second Quarter Six-Month Period

Percent Percent

2023 2022 Change 2023 2022 Change

Operating revenues

8 unchanged sentences

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

March 31, Percent

June 30, Percent

(in 000s) 2023 2022 Change

8 unchanged sentences

1 Includes data-centric devices such as session-based tablets, monitoring devices and primarily wholesale automobile systems.

2 Wireless subscribers at March 31, 2023 includes an increase of 295 subscribers and connections (206 postpaid, including 74 phone, and 89 connected devices) resulting from our 3G network shutdown.

MARCH 31, 2023

2 Wireless subscribers at June 30, 2023 includes an increase of 295 subscribers and connections (206 postpaid, including 74 phone, and 89 connected devices) resulting from our 3G network shutdown.

JUNE 30, 2023

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

1 unchanged sentence

Mobility Net Additions

First Quarter

(in 000s) 2023 2022 Change

Second Quarter Six-Month Period

Percent Percent

(in 000s) 2023 2022 Change 2023 2022 Change

Postpaid Phone Net Additions 326 813 (59.9) % 750 1,504 (50.1) %

8 unchanged sentences

Postpaid Churn 4

0.99 % 0.94 % 5 BP

0.95 % 0.93 % 2 BP 0.97 % 0.93 % 4 BP

Postpaid Phone-Only Churn 4

0.81 % 0.79 % 2 BP

0.79 % 0.75 % 4 BP 0.80 % 0.77 % 3 BP

1 Excludes migrations and acquisition-related activities during the period.

2 In addition to postpaid phones, includes tablets and wearables and other.

Tablet net adds (losses) were (18) and 31 for the quarter ended March 31, 2023 and 2022.

Wearables and other net adds were 136 and 243 for the quarter ended March 31, 2023 and 2022.

Tablet net adds (losses) were (31) and 54 for the quarter ended June 30, 2023 and 2022 and (49) and 85 for the first six months of June 30, 2023 and 2022.

Wearables and other net adds were 169 and 191 for the quarter ended June 30, 2023 and 2022 and 305 and 434 for the first six months ended June 30, 2023 and 2022.

3 Includes data-centric devices such as session-based tablets, monitoring devices and primarily wholesale automobile systems.

Excludes postpaid tablets and other postpaid data devices.

Wholesale connected car net adds were approximately 2,700 and 1,900 for the quarter ended March 31, 2023 and March 31, 2022.

Wholesale connected car net adds were approximately 2,900 and 2,800 for the quarter ended June 30, 2023 and June 30, 2022 and 5,600 and 4,700 for the first six months ended June 30, 2023 and June 30, 2022.

4 Calculated by dividing the aggregate number of wireless subscribers who canceled service during a month by the total number of wireless subscribers at the beginning of that month.

The churn rate for the period is equal to the average of the churn rate for each month of that period.

Service revenue increased in the first quarter 2023.

Service revenue increased in the second quarter and for the first six months of 2023.

The increases are largely due to growth from subscriber gains and postpaid average revenue per subscriber (ARPU) growth.

ARPU increased in the first quarter of 2023.

ARPU increased in the second quarter and for the first six months of 2023.

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

The effective management of subscriber churn is critical to our ability to maximize revenue growth and to maintain and improve margins.

Postpaid churn and postpaid phone-only churn were higher for the first quarter due to a return to pre-pandemic consumer behavior as well as pricing actions and the resulting increase in voluntary disconnects.

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

Operations and support expenses decreased in the first quarter of 2023 largely due to lower equipment costs driven by lower device sales, first-quarter 2022 3G network shutdown costs and lower HBO Max licensing fees.

These decreases were offset by higher amortization of deferred customer acquisition costs and increased network and customer support, marketing and bad debt expenses.

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

Operating income increased in the first quarter of 2023.

Our Mobility operating income margin in the first quarter increased from 28.3% in 2022 to 30.5% in 2023.

Our Mobility EBITDA margin in the first quarter increased from 38.6% in 2022 to 40.7% in 2023.

EBITDA is defined as operating income excluding depreciation and amortization.

MARCH 31, 2023

Postpaid churn and postpaid phone-only churn were higher in the second quarter and for the first six months due to a return to pre-pandemic consumer behavior as well as pricing actions and the resulting increase in voluntary disconnects.

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

Operations and support expenses decreased in the second quarter and for the first six months of 2023 largely due to lower equipment costs driven by lower device sales and lower HBO Max licensing fees.

These decreases were offset by higher amortization of deferred customer acquisition costs and increased network and customer support expenses.

Expense decrease for the first six months was also driven by the absence of first-quarter 2022 3G network shutdown costs, partially offset by higher marketing and bad debt expenses.

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

JUNE 30, 2023

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

Dollars in millions except per share amounts

Operating income increased in the second quarter and for the first six months of 2023.

Our Mobility operating income margin in the second quarter increased from 30.4% in 2022 to 32.6% in 2023 and for the first six months increased from 29.3% in 2022 to 31.5% in 2023.

Our Mobility EBITDA margin in the second quarter increased from 40.5% in 2022 to 43.0% in 2023 and for the six months increased from 39.5% in 2022 to 41.8% in 2023.

EBITDA is defined as operating income excluding depreciation and amortization.

Business Wireline Results

First Quarter

2023 2022 Change

Second Quarter Six-Month Period

Percent Percent

2023 2022 Change 2023 2022 Change

Operating revenues

7 unchanged sentences

Operating Income $ 396 $ 490 (19.2) % $ 774 $ 1,129 (31.4) %

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

Service revenues decreased in the second quarter and for the first six months of 2023, driven by lower demand for legacy voice, data and network services along with product simplification, partially offset by growth in connectivity services.

We expect these trends to continue.

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

Operations and support expenses decreased in the first quarter of 2023, primarily due to our continued efforts to drive efficiencies in our network operations through automation, reductions in customer support expenses through digitization and proactive rationalization of low profit margin products.

Expense declines were also driven by lower personnel costs associated with ongoing transformation initiatives, and lower network access costs and marketing expenses.

The declines were partially offset by favorable compensation true-ups in the first quarter of 2022.

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

Operations and support expenses decreased in the second quarter and for the first six months of 2023, primarily due to our continued efforts to drive efficiencies in our network operations through automation, reductions in customer support expenses through digitization and proactive rationalization of low profit margin products.

Expense declines were also driven by lower personnel costs associated with ongoing transformation initiatives, lower network access costs, which contained approximately $75 of benefit related to settlement of a dispute, and lower marketing expenses.

The declines for the first six months were partially offset by favorable compensation true-ups in the first quarter of 2022.

As part of our transformation activities, we expect operations and support expense improvements through the remainder of 2023 as we further right size our operations in alignment with the strategic direction of the business.

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

Operating income decreased in the first quarter of 2023.

Our Business Wireline operating income margin in the first quarter decreased from 11.3% in 2022 to 7.1% in 2023.

Our Business Wireline EBITDA margin in the first quarter decreased from 34.4% in 2022 to 32.0% in 2023.

MARCH 31, 2023

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

Operating income decreased in the second quarter and for the first six months of 2023.

Our Business Wireline operating income margin in the second quarter decreased from 8.8% in 2022 to 7.5% in 2023 and for the first six months decreased from 10.0% in 2022 to 7.3% in 2023.

Our Business Wireline EBITDA margin in the second quarter increased from 32.2% in 2022 to 32.8% in 2023 and for the first six months decreased from 33.3% in 2022 to 32.4% in 2023.

JUNE 30, 2023

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

1 unchanged sentence

Consumer Wireline Results

First Quarter

2023 2022 Change

Second Quarter Six-Month Period

Percent Percent

2023 2022 Change 2023 2022 Change

Operating revenues

9 unchanged sentences

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

March 31, Percent

June 30, Percent

(in 000s) 2023 2022 Change

8 unchanged sentences

Broadband Net Additions

First Quarter

(in 000s) 2023 2022 Change

Second Quarter Six-Month Period

Percent Percent

(in 000s) 2023 2022 Change 2023 2022 Change

Total Broadband and DSL Net Additions (54) (43) (25.6) % (96) (55) (74.5) %

1 unchanged sentence

Fiber Broadband Net Additions 251 316 (20.6) % 523 605 (13.6) %

Broadband revenues increased in the first quarter of 2023, driven by an increase in fiber customers, which we expect to continue as we invest further in building our fiber footprint, partially offset by declines in copper-based broadband services.

Legacy voice and data service revenues decreased in the first quarter of 2023, reflecting the continued decline in the number of customers.

Other service and equipment revenues decreased in the first quarter of 2023, reflecting the continued decline in the number of VoIP customers.

MARCH 31, 2023

Broadband revenues increased in the second quarter and for the first six months of 2023, driven by an increase in fiber customers, which we expect to continue as we invest further in building our fiber footprint, partially offset by declines in copper-based broadband services.

Legacy voice and data service revenues decreased in the second quarter and for the first six months of 2023, reflecting the continued decline in the number of customers.

Other service and equipment revenues decreased in the second quarter and for the first six months of 2023, reflecting the continued decline in the number of VoIP customers.

JUNE 30, 2023

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

Dollars in millions except per share amounts

Operations and support expenses increased in the first quarter, primarily driven by higher network and customer support costs and higher amortization of deferred acquisition costs and favorable compensation true-ups in the first quarter of 2022.

Expense increases were offset by lower sales and advertising costs and lower HBO Max licensing fees.

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

Operating income decreased in the first quarter of 2023.

Our Consumer Wireline operating income margin in the first quarter decreased from 5.0% in 2022 to 2.9% in 2023.

Our Consumer Wireline EBITDA margin in the first quarter increased from 29.3% in 2022 to 29.5% in 2023.

LATIN AMERICA SEGMENT First Quarter

2023 2022 Percent Change

Operations and support expenses decreased in the second quarter and increased for the first six months of 2023.

Expense decreases in the second quarter were primarily due to lower customer support costs, including approximately $35 of benefit from a vendor dispute resolution, and lower HBO Max licensing fees, partially offset by higher network and maintenance costs and higher amortization of deferred acquisition costs.

Expense increases for the first six months reflect higher network and maintenance costs and higher amortization of deferred acquisition costs, partially offset by lower sales and advertising costs, lower HBO Max licensing fees and favorable compensation true-ups in the first quarter of 2022.

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

Operating income increased in the second quarter and decreased for the first six months of 2023.

Our Consumer Wireline operating income margin in the second quarter increased from 4.6% in 2022 to 5.2% in 2023 and for the first six months decreased from 4.8% in 2022 to 4.0% in 2023.

Our Consumer Wireline EBITDA margin in the second quarter increased from 29.3% in 2022 to 31.5% in 2023 and for the first six months increased from 29.3% in 2022 to 30.5% in 2023.

LATIN AMERICA SEGMENT Second Quarter

Six-Month Period

2023 2022 Percent Change 2023 2022 Percent Change

Segment Operating Revenues

7 unchanged sentences

Operating Income (Loss) $ (39) $ (82) 52.4 % $ (69) $ (184) 62.5 %

JUNE 30, 2023

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:

March 31, Percent

June 30, Percent

(in 000s) 2023 2022 Change

5 unchanged sentences

Mexico Wireless Net Additions

First Quarter

(in 000s) 2023 2022 Change

Second Quarter

Six-Month Period

Percent Percent

(in 000s) 2023 2022 Change 2023 2022 Change

Mexico Wireless Net Additions

3 unchanged sentences

Total Mexico Wireless Net Additions 76 197 (61.4) % 86 338 (74.6) %

Service revenues increased in the first quarter of 2023 reflecting favorable foreign exchange, higher wholesale revenues and growth in subscribers.

MARCH 31, 2023

Service revenues increased in the second quarter and for the first six months of 2023 reflecting favorable foreign exchange impacts, higher wholesale revenues and growth in subscribers.

Equipment revenues increased in the second quarter and for the first six months of 2023 driven by favorable foreign exchange impacts and higher equipment sales.

Operations and support expenses increased in the second quarter and for the first six months of 2023 driven by unfavorable impact of foreign exchange and increased equipment costs resulting from higher sales.

Approximately 5% of Mexico expenses are U.S.

dollar based, with the remainder in the local currency.

Depreciation and amortization expense increased in the second quarter and for the first six months of 2023, driven by unfavorable impact of foreign exchange.

Operating income improved in the second quarter and for the first six months of 2023.

Our Mexico operating income margin in the second quarter increased from (10.1)% in 2022 to (4.0)% in 2023 and for the first six months increased from (12.3)% in 2022 to (3.7)% in 2023.

Our Mexico EBITDA margin in the second quarter increased from 10.8% in 2022 to 15.1% in 2023 and for the first six months increased from 9.7% in 2022 to 15.7% in 2023.

OTHER BUSINESS MATTERS

Gigapower, LLC On May 11, 2023, we closed the transaction with BlackRock, through a fund managed by its Diversified Infrastructure business, related to Gigapower, LLC (Gigapower).

The joint venture will provide a fiber network to Internet service providers and other businesses across the U.S.

that serve customers outside of our traditional wireline service area.

We have agreed to contribute incremental funding of up to approximately $700, which will be funded as the network is constructed.

We deconsolidated Gigapower’s operations in the second quarter of 2023.

JUNE 30, 2023

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements