AT&T INC. 10-K

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW AT&T Inc. is referred to as “we,” “AT&T” or the “Company” throughout this document. AT&T products and services are provided or offered by subsidiaries and affiliates of AT&T Inc. under the AT&T brand and not by AT&T Inc., and the names of the particular subsidiaries and affiliates providing the services generally have been omitted. AT&T is a holding company whose subsidiaries and affiliates operate worldwide in the telecommunications and technology industries. You should read this discussion in conjunction with the consolidated financial statements and accompanying notes (Notes). Unless otherwise noted, this discussion refers only to our continuing operations and does not include discussion of balances or activity of WarnerMedia, Vrio, Xandr and Playdemic Ltd. (Playdemic), which are part of discontinued operations. Our Management’s Discussion and Analysis of Financial Condition and Results of Operations included in this document generally discusses 2023 and 2022 items and year-to-year comparisons between 2023 and 2022. Discussions of 2021 items and year-to-year comparisons between 2022 and 2021 that are not included in this document can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of our Annual Report on Form 10 ‑ K for the fiscal year ended December 31, 2022. 19 AT&T Inc. Dollars in millions except per share amounts On April 8, 2022, we closed our transaction to combine substantially all of our previous WarnerMedia segment (WarnerMedia) 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 determined discontinued operations to be comprised of WarnerMedia, Vrio, Xandr and Playdemic. These businesses are reflected in the accompanying financial statements as discontinued operations, including for periods prior to the consummation of the WarnerMedia/Discovery transaction. (See Notes 6 and 24) On July 31, 2021, we closed our transaction with TPG Capital (TPG) to form a new company named DIRECTV Entertainment Holdings, LLC (DIRECTV). With the close of the transaction, we separated our Video business, comprised of our U.S. video operations, and began accounting for our investment in DIRECTV under the equity method. (See Note 6) We have two reportable segments: Communications and Latin America. Our segment results presented in Note 4 and discussed below follow our internal management reporting. Each segment’s percentage calculation of total segment operating revenue is derived from our segment results table in Note 4. Segment operating income is attributable to our Communications segment due to operating losses in Latin America. Percentage increases and decreases that are not considered meaningful are denoted with a dash. Percent Change Operating Revenues 2023 2022 2021 2023 vs. 2022 2022 vs. 2021 Communications $ 118,038 $ 117,067 $ 114,730 0.8 % 2.0 % Latin America 3,932 3,144 2,747 25.1 14.5 Corporate and Other: Corporate 458 530 731 (13.6) (27.5) Video — — 15,513 — — Held-for-sale and other reclassifications — — 453 — — Eliminations and consolidations — — (136) — — AT&T Operating Revenues $ 122,428 $ 120,741 $ 134,038 1.4 % (9.9) % Operating Income Communications $ 27,801 $ 26,736 $ 26,293 4.0 % 1.7 % Latin America (141) (326) (510) 56.7 36.1 Segment Operating Income 27,660 26,410 25,783 4.7 2.4 Corporate (2,961) (2,890) (1,990) (2.5) (45.2) Video — — 2,257 — — Held-for-sale and other reclassifications — — 143 — — Certain significant items (1,238) (28,107) (296) 95.6 — AT&T Operating Income (Loss) $ 23,461 $ (4,587) $ 25,897 — % — % The Communications segment accounted for approximately 97% of our 2023 and 2022 total segment operating revenues and accounted for all segment operating income in 2023 and 2022. This segment provides services to businesses and consumers located in the U.S. and businesses globally. Our business strategies reflect integrated product offerings that cut across product lines and utilize shared assets. This segment contains the following business units: • Mobility provides nationwide wireless service and equipment. • Business Wireline provides advanced ethernet-based fiber services, IP Voice and managed professional services, as well as traditional voice and data services and related equipment to business customers. • Consumer Wireline provides broadband services, including fiber connections that provide multi-gig services to residential customers in select locations and our fixed wireless access product that provides home internet services delivered over our 5G wireless network where available. Consumer Wireline also provides legacy telephony voice communication services. The Latin America segment accounted for approximately 3% of our 2023 and 2022 total segment operating revenues. This segment provides wireless services and equipment in Mexico. 20 AT&T Inc. Dollars in millions except per share amounts RESULTS OF OPERATIONS Consolidated Results Our financial results from continuing operations are summarized in the following table. We then discuss factors affecting our overall results from continuing operations. Additional analysis is discussed in our “Segment Results” section. We also discuss our expected revenue and expense trends for 2024 in the “Operating Environment and Trends of the Business” section. Percent Change 2023 2022 2021 2023 vs. 2022 2022 vs. 2021 Operating revenues Service $ 99,649 $ 97,831 $ 111,565 1.9 % (12.3) % Equipment 22,779 22,910 22,473 (0.6) 1.9 Total Operating Revenues 122,428 120,741 134,038 1.4 (9.9) Operating expenses Operations and support 78,997 79,809 90,076 (1.0) (11.4) Asset impairments and abandonments and restructuring 1,193 27,498 213 (95.7) — Depreciation and amortization 18,777 18,021 17,852 4.2 0.9 Total Operating Expenses 98,967 125,328 108,141 (21.0) 15.9 Operating Income (Loss) 23,461 (4,587) 25,897 — — Interest expense 6,704 6,108 6,716 9.8 (9.1) Equity in net income of affiliates 1,675 1,791 603 (6.5) — Other income (expense) – net 1,416 5,810 9,387 (75.6) (38.1) Income (Loss) from Continuing Operations Before Income Taxes 19,848 (3,094) 29,171 — — Income (Loss) from Continuing Operations $ 15,623 $ (6,874) $ 23,776 — % — % OVERVIEW Operating revenues increased in 2023. The increase reflects growth in Mobility and Consumer Wireline revenues, partially offset by continued declines in Business Wireline revenues. Revenue increases also reflect higher revenues in our Mexico business unit, including favorable impacts from foreign exchange. Operations and support expenses decreased in 2023, reflecting benefits of our continued transformation efforts, including lower personnel costs, partially offset by inflationary increases. The decrease also reflects lower Mobility equipment and associated selling costs, driven by lower device sales in 2023 and 3G network shutdown costs in the first quarter of 2022, higher returns on benefit-related assets and lower customer support costs. Partially offsetting the decreases were higher amortization of deferred customer acquisition costs and unfavorable impact of foreign exchange. Asset impairments and abandonments and restructuring decreased in 2023, with higher impairments in 2022. Noncash charges in 2023 primarily relate to severance and restructuring charges, as well as the abandonment of non-deployed wireless equipment associated with our recently announced plans to collaborate with Ericsson to deploy commercial scale open radio access network (Open RAN), which will further the telecommunications industry efforts and align with the federal government’s goal to build a more robust ecosystem of network infrastructure providers and suppliers. This network transformation is expected to result in additional cash charges in 2024. Noncash charges in 2022 were primarily due to the impairment of $24,812 of goodwill associated with our Business Wireline, Consumer Wireline and Mexico reporting units, and were driven by higher interest rates consistent with the macroeconomic environment, with secular declines also impacting Business Wireline growth rates (see Note 9). The charges in 2022 also included $1,413 of wireline conduit asset abandonments and $1,273 of restructuring and other impairment charges due to updated network build plans stemming from spectrum acquired in recent auctions, severance charges associated with transformation initiatives and impairment of personal protective equipment inventory. 21 AT&T Inc. Dollars in millions except per share amounts Depreciation and amortization expense increased in 2023, primarily due to higher depreciation expense related to ongoing capital spending for strategic initiatives such as fiber and network upgrades. We expect depreciation expense to increase due to continued fiber and 5G investment and approximately $850 in 2024 due to the expected shortening of estimated economic lives of wireless equipment that will be replaced earlier than originally anticipated with our deployment of Open RAN. Operating income increased in 2023 and decreased in 2022. Our operating margin was 19.2% in 2023, compared to (3.8)% in 2022, which included noncash impairment charges, and 19.3% in 2021. Interest expense increased in 2023, primarily due to lower capitalized interest associated with spectrum acquisitions and higher interest rates. Interest expense in 2023 also includes the reclassification of Mobility preferred interests distributions, which were repurchased on April 5, 2023 (see Note 16). Mobility preferred interest distributions were recorded as noncontrolling interest in 2022. Late in the third quarter of 2023, C-band incumbents completed their transition out of the spectrum band, allowing us to use all C-band licenses awarded to us in the Federal Communications Commission (FCC) auction in 2021, and we have ceased capitalization of interest for licenses that have been placed into service. We expect interest expense to increase approximately $400 in 2024 as a result. Equity in net income of affiliates decreased in 2023. The decrease was primarily due to the performance of our investment in DIRECTV, which included our share of a gain on a sale-leaseback transaction by DIRECTV of approximately $100 in 2023 (see Notes 6, 10 and 19). Other income (expense) – net decreased in 2023. The decrease was primarily driven by actuarial remeasurement of pension plan assets and obligations, with net actuarial and settlement losses of $1,594 in 2023, compared to gains of $1,999 in 2022 (see Note 14). Also contributing to the decrease was a $450 impairment of an equity investment in a Latin America satellite business and lower net pension and postretirement benefit credits in 2023 (see Note 14). Partially offsetting the decrease were higher returns on other benefit-related investments. Income tax expense increased in 2023, primarily driven by higher income before income tax in 2023, partially offset by deferred tax benefits related to updated estimates. Our effective tax rate was 21.3% in 2023, (122.2)% in 2022, and 18.5% in 2021. The effective tax rate in 2022 was lower primarily due to our goodwill impairments associated with our Business Wireline, Consumer Wireline and Mexico reporting units, which are not deductible for tax purposes. 22 AT&T Inc. Dollars in millions except per share amounts Segment Results 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 evaluate segment performance based on operating income as well as 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. Effective for the first quarter of 2023, we stopped recording prior service credits to our individual business units or the corresponding charge to Corporate and Other, and segment operating expenses were recast to remove prior service credits from our historical reporting. Prior service credits are, and will continue to be, recorded as other income in our consolidated income statement in accordance with U.S. generally accepted accounting principles (see Note 14). This recast increased Communications segment operations and support expenses by approximately $2,400 in 2022 and $2,100 in 2021. Correspondingly, this recast lowered administrative expenses within Corporate and Other, with no change on a consolidated basis. COMMUNICATIONS SEGMENT Percent Change 2023 2022 2021 2023 vs. 2022 2022 vs. 2021 Segment Operating Revenues Mobility $ 83,982 $ 81,780 $ 78,254 2.7 % 4.5 % Business Wireline 20,883 22,538 23,937 (7.3) (5.8) Consumer Wireline 13,173 12,749 12,539 3.3 1.7 Total Segment Operating Revenues $ 118,038 $ 117,067 $ 114,730 0.8 % 2.0 % Segment Operating Income Mobility $ 25,861 $ 23,812 $ 22,679 8.6 % 5.0 % Business Wireline 1,289 2,290 3,092 (43.7) (25.9) Consumer Wireline 651 634 522 2.7 21.5 Total Segment Operating Income $ 27,801 $ 26,736 $ 26,293 4.0 % 1.7 % Selected Subscribers and Connections December 31, (in 000s) 2023 2022 2021 Mobility subscribers 241,532 217,397 201,791 Total domestic broadband connections 15,288 15,386 15,504 Network access lines in service 4,185 5,213 6,177 VoIP connections 2,558 2,930 3,333 Operating revenues increased in 2023, driven by increases in our Mobility and Consumer Wireline business units, partially offset by a decrease in our Business Wireline business unit. The increases are primarily driven by gains in wireless service and broadband service. Business Wireline continues to reflect lower demand for legacy services and product simplification. Operating income increased in 2023 and 2022. The 2023 operating income reflects an increase in operating income from our Mobility and Consumer Wireline business units, partially offset by declines in our Business Wireline business unit. Our Communications segment operating income margin was 23.6% in 2023, 22.8% in 2022 and 22.9% in 2021. 23 AT&T Inc. Dollars in millions except per share amounts Communications Business Unit Discussion Mobility Results Percent Change 2023 2022 2021 2023 vs. 2022 2022 vs. 2021 Operating revenues Service $ 63,175 $ 60,499 $ 57,590 4.4 % 5.1 % Equipment 20,807 21,281 20,664 (2.2) 3.0 Total Operating Revenues 83,982 81,780 78,254 2.7 4.5 Operating expenses Operations and support 49,604 49,770 47,453 (0.3) 4.9 Depreciation and amortization 8,517 8,198 8,122 3.9 0.9 Total Operating Expenses 58,121 57,968 55,575 0.3 4.3 Operating Income $ 25,861 $ 23,812 $ 22,679 8.6 % 5.0 % The following tables highlight other key measures of performance for Mobility: Subscribers Percent Change (in 000s) 2023 2022 2021 2023 vs. 2022 2022 vs. 2021 Postpaid 87,104 84,700 81,534 2.8 % 3.9 % Postpaid phone 71,255 69,596 67,260 2.4 3.5 Prepaid 19,236 19,176 19,028 0.3 0.8 Reseller 7,468 6,043 6,113 23.6 (1.1) Connected devices 1 127,724 107,478 95,116 18.8 13.0 Total Mobility Subscribers 2 241,532 217,397 201,791 11.1 % 7.7 % 1 Includes data-centric devices such as session-based tablets, monitoring devices and primarily wholesale automobile systems. 2 Wireless subscribers at December 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 in February 2022. Wireless subscribers at December 31, 2022 excludes the impact of 10,176 subscriber and connected device disconnections resulting from our 3G network shutdown. Postpaid disconnections were 897, including 437 phone, 234 prepaid, 749 reseller subscribers, and 8,296 connected devices. Mobility Net Additions Percent Change (in 000s) 2023 2022 2021 2023 vs. 2022 2022 vs. 2021 Postpaid Phone Net Additions 1,744 2,868 3,196 (39.2) % (10.3) % Total Phone Net Additions 1,801 3,272 3,850 (45.0) (15.0) Postpaid 2 2,315 4,091 4,482 (43.4) (8.7) Prepaid 128 479 956 (73.3) (49.9) Reseller 1,279 462 (534) — — Connected devices 3 20,118 20,594 14,328 (2.3) 43.7 Mobility Net Subscriber Additions 1 23,840 25,626 19,232 (7.0) % 33.2 % Postpaid Churn 4 0.98 % 0.97 % 0.94 % 1 BP 3 BP Postpaid Phone-Only Churn 4 0.81 % 0.81 % 0.76 % — BP 5 BP 1 Excludes migrations and acquisition-related activity during the period. 2 In addition to postpaid phones, includes tablets and wearables and other. Tablet net adds (losses) were (68), 203 and 28 for the years ended December 31, 2023, 2022 and 2021, respectively. Wearables and other net adds were 639, 1,020 and 1,258 for the years ended December 31, 2023, 2022 and 2021, respectively. 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 11,570, 9,980 and 7,875 for the years ended December 31, 2023, 2022 and 2021, respectively. 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, excluding the impact of disconnections resulting from our 3G network shutdown in February 2022. 24 AT&T Inc. Dollars in millions except per share amounts Service revenue increased during 2023, largely due to growth from subscriber gains and higher postpaid average revenue per subscriber (ARPU). ARPU ARPU increased in 2023 and 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 consistent with 2022. Equipment revenue decreased in 2023, primarily driven by a lower volume of devices sold. Operations and support expenses decreased in 2023, largely due to lower equipment costs, driven by lower device sales and associated selling costs, and 3G network shutdown costs in the first quarter of 2022. These decreases were offset by increased network expenses and higher amortization of deferred customer acquisition costs. Depreciation expense increased in 2023, primarily due to ongoing capital spending for network upgrades and expansion. We expect increased depreciation expense in 2024 due to the expected shortening of estimated economic lives of wireless equipment that will be replaced earlier than originally anticipated with our Open RAN deployment and our network transformation and continued 5G investment. Operating income increased in 2023 and 2022. Our Mobility operating income margin was 30.8% in 2023, 29.1% in 2022 and 29.0% in 2021. Our Mobility EBITDA margin was 40.9% in 2023, 39.1% in 2022 and 39.4% in 2021. Business Wireline Results Percent Change 2023 2022 2021 2023 vs. 2022 2022 vs. 2021 Operating revenues Service $ 20,274 $ 21,891 $ 23,224 (7.4) % (5.7) % Equipment 609 647 713 (5.9) (9.3) Total Operating Revenues 20,883 22,538 23,937 (7.3) (5.8) Operating expenses Operations and support 14,217 14,934 15,653 (4.8) (4.6) Depreciation and amortization 5,377 5,314 5,192 1.2 2.3 Total Operating Expenses 19,594 20,248 20,845 (3.2) (2.9) Operating Income $ 1,289 $ 2,290 $ 3,092 (43.7) % (25.9) % Service revenues decreased in 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 2023, driven by declines in legacy and non-core services, which we expect to continue. Operations and support expenses decreased in 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, lower network access, customer support and marketing costs. The decrease in network access costs also included approximately $75 of benefit related to settlement of a dispute in the second quarter of 2023. As part of our transformation activities, we expect operations and support expense improvements through 2024, as we further right size our operations in alignment with the strategic direction of the business. Depreciation expense increased in 2023, primarily due to ongoing capital investment for strategic initiatives such as fiber, which we expect to further increase in 2024. Operating income decreased in 2023 and 2022. Our Business Wireline operating income margin was 6.2% in 2023, 10.2% in 2022 and 12.9% in 2021. Our Business Wireline EBITDA margin was 31.9% in 2023, 33.7% in 2022 and 34.6% in 2021. 25 AT&T Inc. Dollars in millions except per share amounts Consumer Wireline Results Percent Change 2023 2022 2021 2023 vs. 2022 2022 vs. 2021 Operating revenues Broadband $ 10,455 $ 9,669 $ 9,085 8.1 % 6.4 % Legacy voice and data services 1,508 1,746 1,977 (13.6) (11.7) Other service and equipment 1,210 1,334 1,477 (9.3) (9.7) Total Operating Revenues 13,173 12,749 12,539 3.3 1.7 Operating expenses Operations and support 9,053 8,946 8,922 1.2 0.3 Depreciation and amortization 3,469 3,169 3,095 9.5 2.4 Total Operating Expenses 12,522 12,115 12,017 3.4 0.8 Operating Income $ 651 $ 634 $ 522 2.7 % 21.5 % The following tables highlight other key measures of performance for Consumer Wireline: Connections Percent Change (in 000s) 2023 2022 2021 2023 vs. 2022 2022 vs. 2021 Broadband Connections Total Broadband and DSL Connections 13,890 13,991 14,160 (0.7) % (1.2) % Broadband 1 13,729 13,753 13,845 (0.2) (0.7) Fiber Broadband Connections 8,307 7,215 5,992 15.1 20.4 Voice Connections Retail Consumer Switched Access Lines 1,651 2,028 2,423 (18.6) (16.3) Consumer VoIP Connections 1,953 2,311 2,736 (15.5) (15.5) Total Retail Consumer Voice Connections 3,604 4,339 5,159 (16.9) % (15.9) % 1 Includes AT&T Internet Air. Broadband Net Additions Percent Change (in 000s) 2023 2022 2021 2023 vs. 2022 2022 vs. 2021 Total Broadband and DSL Net Additions (101) (169) 60 40.2 % — % Broadband Net Additions 1 (24) (92) 152 73.9 — Fiber Broadband Net Additions 1,092 1,223 1,041 (10.7) % 17.5 % 1 Includes AT&T Internet Air. Broadband revenues increased in 2023, driven by an increase in fiber customers, which we expect to continue as we invest further in building our fiber footprint, and higher ARPU due to prior-year promotional pricing, partially offset by declines in copper-based broadband services. Legacy voice and data service revenues decreased in 2023, reflecting the continued decline in the number of customers. Other service and equipment revenues decreased in 2023, reflecting the continued decline in the number of VoIP customers. Operations and support expenses increased in 2023, primarily due to higher network-related costs as our fiber build scales, partially offset by lower customer support costs, lower Max licensing fees in the first half of 2023, and approximately $35 of benefit from a vendor dispute resolution in the second quarter of 2023. 26 AT&T Inc. Dollars in millions except per share amounts Depreciation expense increased in 2023, primarily due to ongoing capital spending for strategic initiatives such as fiber and network upgrades and expansion, which we expect to further increase in 2024. Operating income increased in 2023 and 2022. Our Consumer Wireline operating income margin was 4.9% in 2023, 5.0% in 2022 and 4.2% in 2021. Our Consumer Wireline EBITDA margin was 31.3% in 2023, 29.8% in 2022 and 28.8% in 2021. LATIN AMERICA SEGMENT Percent Change 2023 2022 2021 2023 vs. 2022 2022 vs. 2021 Segment Operating revenues Service $ 2,569 $ 2,162 $ 1,834 18.8 % 17.9 % Equipment 1,363 982 913 38.8 7.6 Total Segment Operating Revenues 3,932 3,144 2,747 25.1 14.5 Segment Operating expenses Operations and support 3,349 2,812 2,652 19.1 6.0 Depreciation and amortization 724 658 605 10.0 8.8 Total Segment Operating Expenses 4,073 3,470 3,257 17.4 6.5 Operating Income (Loss) $ (141) $ (326) $ (510) 56.7 % 36.1 % The following tables highlight other key measures of performance for Mexico: Subscribers Percent Change (in 000s) 2023 2022 2021 2023 vs. 2022 2022 vs. 2021 Postpaid 5,236 4,925 4,807 6.3 % 2.5 % Prepaid 16,663 16,204 15,057 2.8 7.6 Reseller 417 474 498 (12.0) (4.8) Mexico Wireless Subscribers 22,316 21,603 20,362 3.3 % 6.1 % Mexico Wireless Net Additions Percent Change (in 000s) 2023 2022 2021 2023 vs. 2022 2022 vs. 2021 Postpaid 311 118 111 — % 6.3 % Prepaid 459 1,147 1,299 (60.0) (11.7) Reseller (57) (24) 9 — — Mexico Wireless Net Additions 713 1,241 1,419 (42.5) % (12.5) % Service revenues increased in 2023, reflecting favorable foreign exchange impacts, growth in subscribers and higher wholesale revenues. Equipment revenues increased in 2023, driven by higher equipment sales and favorable foreign exchange impacts. Operations and support expenses increased in 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 expense increased in 2023, driven by unfavorable impact of foreign exchange partially offset by lower in-service assets. Operating income improved in 2023 and 2022. Our Mexico operating income margin was (3.6)% in 2023, (10.4)% in 2022 and (18.6)% in 2021. Our Mexico EBITDA margin was 14.8% in 2023, 10.6% in 2022 and 3.5% in 2021. 27 AT&T Inc. Dollars in millions except per share amounts OPERATING ENVIRONMENT AND TRENDS OF THE BUSINESS 2024 Revenue Trends We expect revenue growth in our wireless and broadband businesses as customers demand instant connectivity and higher speeds made possible by wireless network enhancements through 5G deployment and our fiber network expansion. We believe that our simplified go-to-market strategy for 5G in underpenetrated markets will continue to contribute to wireless subscriber and service revenue growth and that expansion of our fiber footprint and our multi-gig offerings will drive greater demand for broadband services on our fast-growing fiber network. As we expand our fiber reach, we will be orienting our business portfolio to leverage this opportunity to offset continuing declines in legacy Business Wireline products by growing connectivity with small to mid-sized businesses. We plan to use our strong fiber and wireless assets, broad distribution and integrated product offers to strengthen our overall market position. We will continue to rationalize our product portfolio with a longer-term shift of the business to fiber and mobile connectivity, and growth in value-added services. 2024 Expense Trends During 2024, we will continue to focus on efficiency, led by our cost transformation initiative. We expect the spending required to support growth and efficiency initiatives, primarily our continued deployment of fiber and 5G, including our deployment of Open RAN, and associated accelerated depreciation, to pressure expense trends in 2024. These investments will help prepare us to meet increased customer demand for enhanced wireless and broadband services, including video streaming, augmented reality and “smart” technologies. The software benefits of our 5G wireless technology should result in a more efficient use of capital and lower network-related expenses in the coming years. Furthermore, to the extent customers upgrade their handsets in 2024, the expenses associated with those device sales are expected to contribute to higher costs. We continue to transform our operations to be more efficient and effective. We are restructuring businesses, sunsetting legacy networks, improving customer service and ordering functions through digital transformation, sizing our support costs and staffing with current activity levels, and reassessing overall benefit costs. We also expect cost savings through AI-driven efficiencies in our network design, software development and customer support services. Market Conditions During 2023, uncertainty surrounding global growth rates, inflation, and an increasing interest rate environment continued to produce volatility in the credit, currency and equity markets. Additionally, several factors, including changes in workplace behavior that have continued since the COVID-19 pandemic, have resulted in changes in demand in business communication services. The global pandemic caused, and future public health emergencies could again cause, delays in the development, manufacturing (including the sourcing of key components) and shipment of products, as well as continued tight labor market and inflationary impacts. Most of our products and services are not directly affected by the imposition of tariffs on Chinese goods. However, we expect ongoing pressure on pricing during 2024 as we respond to the geopolitical and macroeconomic environment and our competitive marketplace, especially in wireless services. Included on our consolidated balance sheets are assets held by benefit plans for the payment of future benefits. Our pension plans are subject to funding requirements of the Employee Retirement Income Security Act of 1974, as amended (ERISA). We expect only minimal ERISA contribution requirements to our pension plans for 2024. Investment returns on these assets depend largely on trends in the economy, and a weakness in the equity, fixed income and real asset markets could require us to make future contributions to the pension plans. In addition, our policy of recognizing actuarial gains and losses related to our pension and other postretirement plans in the period in which they arise subjects us to earnings volatility caused by changes in market conditions; however, these actuarial gains and losses do not impact segment performance as they are required to be recorded in “Other income (expense) – net.” Changes in our discount rate, which are tied to changes in the bond market, and changes in the performance of equity markets, may have significant impacts on the valuation of our pension and other postretirement obligations at the end of 2024 (see “Critical Accounting Policies and Estimates”). Expected Growth Areas Over the next few years, we expect our growth to come from wireless and IP-based fiber broadband services. We provide integrated services to diverse groups of customers in the U.S. on a converged telecommunications network utilizing different technological platforms. In 2024, our key initiatives include: • Continuing our wireless subscriber momentum and 5G deployment, with expansion of 5G service, including to underpenetrated markets. • Continuing our fiber deployment, improving fiber penetration, accelerating subscriber growth and increasing broadband revenues. • Deploying Open RAN to build a more robust ecosystem of network infrastructure providers and suppliers, fostering lower network costs, improved operational efficiencies and allowing for continued investment in our fast-growing broadband network. • Continuing to drive efficiencies and a competitive advantage through cost transformation initiatives and product simplification. 28 AT&T Inc. Dollars in millions except per share amounts Wireless We expect to continue to deliver revenue growth in the coming years. We are in a period of rapid growth in wireless video and data usage and believe that there are substantial opportunities available for next-generation integrated services that combine technologies and services. As of December 31, 2023, we served 264 million wireless subscribers in North America, with 242 million in the United States. Our LTE technology covers over 438 million people in North America, and in the United States, we cover all major metropolitan areas and over 334 million people. When combined with our upgraded backhaul network, we provide enhanced network capabilities and superior mobile broadband speeds for data and video services. In December 2018, we introduced the nation’s first commercial mobile 5G service and expanded that deployment nationwide in July 2020. At December 31, 2023, our network covers more than 302 million people with 5G technology in the United States and North America. Our networks covering both the U.S. and Mexico have enabled our customers to use wireless services without roaming on other companies’ networks. We believe this seamless access will prove attractive to customers and provide a significant growth opportunity. At December 31, 2023, we provided LTE coverage to over 104 million people in Mexico. Integration of Wireless and Fiber Services The communications industry has evolved into internet-based technologies capable of converging the offering of wireline and wireless services. As the owner and operator of scaled wireless and fiber networks, we plan to focus on expanding our wireless network capabilities and providing broadband offerings that allow customers to integrate their home or business fixed services with their mobile service. In January 2022, we launched our multi-gig rollout, which brings the fastest internet to AT&T Fiber customers in select locations with symmetrical 2 gig and 5 gig tiers. We intend to continue to develop and provide unique integrated mobile and broadband/fiber solutions. REGULATORY LANDSCAPE AT&T subsidiaries operating within the United States are subject to federal and state regulatory authorities. While these issues may apply only to certain subsidiaries, the words “we,” “AT&T” and “our” are used to simplify the discussion. The following discussions are intended as a condensed summary of the issues rather than as a comprehensive legal analysis and description of all of these specific issues. International Regulation Our subsidiaries operating outside the United States are subject to the jurisdiction of regulatory authorities in the territories in which the subsidiaries operate. Our licensing, compliance and advocacy initiatives in foreign countries primarily enable the provision of enterprise (i.e., large business) services globally and wireless services in Mexico. The General Data Protection Regulation went into effect in Europe in May of 2018. This regulation created a range of new compliance obligations and significantly increased financial penalties for noncompliance. AT&T processes and handles personal data of its customers and subscribers, employees of its enterprise customers and its employees. Federal Regulation 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. We have organized the following discussion by service impacted. Internet The FCC currently classifies fixed and mobile consumer broadband services as information services, subject to light-touch regulation. In response to a challenge to the FCC’s classification, in 2019, the D.C. Circuit upheld the FCC’s current classification, although it remanded three discrete issues related to the effect of the classification on public safety, the regulation of pole attachments, and universal service support for low-income consumers through the Lifeline program to the FCC for further consideration. Since 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 there were 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. 29 AT&T Inc. Dollars in millions except per share amounts On September 28, 2023, the FCC released a draft Notice of Proposed Rulemaking (NPRM) that was adopted at the FCC’s open meeting on October 19, 2023. The NPRM proposes to again reclassify broadband internet access service as a telecommunications service under Title II of the Communications Act of 1934 and reestablish conduct rules for internet service providers. In the interim, some states have adopted legislation or issued executive orders that would reimpose net neutrality rules repealed by the FCC. Suits were filed concerning such laws in California and Vermont. The California statute is now in effect. The litigation challenging the Vermont statute has been stayed pending the Second Circuit’s disposition of an appeal by the State of New York of an order enjoining enforcement of a New York statute regulating broadband rates on the ground that such statute is preempted by federal law. We expect additional states may seek to impose net neutrality requirements in the future. On November 15, 2023, the FCC adopted rules to “facilitate” equal access to broadband and prevent digital discrimination in broadband access. The rules, which will become effective March 22, 2024, prohibit covered entities from implementing policies or practices not justified by genuine issues of technical or economic feasibility, that differentially impact consumers’ access to broadband internet access service based on prohibited characteristics (including income level, race, and ethnicity) or that have such differential impact, whether intentional or not. The rules broadly apply prospectively to all aspects of an ISP’s service that could impact a consumer’s ability to access broadband, including deployment, marketing, and credit checks, among other things. We may be required to answer complaints alleging that the company has violated the FCC rules and those complaints may seek relief, including changes to our business practices or civil forfeitures that could result in significant costs or reputational harm. It is currently uncertain how the FCC will implement and enforce these new rules. Several business associations have filed appeals challenging the rules and several of those appeals have been consolidated in the Eighth Circuit. Privacy-related legislation continues to be adopted or considered in a number of jurisdictions. 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. Infrastructure Investment On November 15, 2021, the Infrastructure Investment and Jobs Act (IIJA) was signed 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. 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. Absent additional funding, on January 11, 2024 the FCC announced that it currently projects April 2024 to be the last month providers will be fully reimbursed for the ACP benefit provided to enrolled households and established February 7, 2024 as the last date for new enrollments into the program. 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. The FCC has 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. During 2020-2021, we deployed 5G nationwide on “low band” spectrum on macro towers. Executing on the recent spectrum purchase, we announced ongoing construction and continuing deployment of 5G on C-band spectrum in 2022 and beyond. Additional spectrum will be needed industrywide for 5G and future services. In 2023, the federal government released a national spectrum strategy that focused on spectrum sharing and did not include specific timelines to make additional spectrum bands available for 5G and future generations of service. As a result, the federal government’s ability and intent to make sufficient spectrum available to the industry in needed timeframes remains uncertain. In June and November 2020, the FCC issued a Declaratory Ruling clarifying the limits on state and local authority to deny applications to modify existing structures to accommodate wireless facilities. Appeals of the November 2020 order remain pending in the Ninth Circuit Court of Appeals. If sustained on appeal, these FCC decisions will remove state and local regulatory barriers and reduce the costs of the infrastructure needed for 5G and FirstNet deployments, which will enhance our ability to place small cell facilities on utility poles, expand existing facilities to accommodate public safety services, and replace legacy facilities and services with advanced broadband infrastructure and services. In 2022, we began deploying 5G nationwide on “low band” spectrum on macro towers. 30 AT&T Inc. Dollars in millions except per share amounts In March 2020, the FCC released its order setting rules for certain spectrum bands (C-band) for 5G operations. In that order, the FCC concluded that C-band 5G services that met the agency’s technical limits on power and emissions would not cause harmful interference with aircraft operations. In reliance on that order, AT&T bid a total of $23,406 and was awarded 1,621 C-band licenses, including 40 MHz available for deployment in December 2021, with the remainder available for deployment no later than December 2023. In late 2021, the Federal Aviation Administration (FAA) questioned whether the C-band launch could impact radio altimeter equipment on airplanes, which operate on spectrum bands over 400 MHz away from the spectrum AT&T launched in 2022 and 220 MHz away from spectrum AT&T launched in 2023. In response, to allow the FAA more time to evaluate, AT&T and Verizon delayed their planned December 2021 5G C-band launch by six weeks and voluntarily committed to a series of temporary, precautionary measures, in addition to deferring turning on a limited number of towers around certain airports. In 2023, we and all other C-band licensees entered into a voluntarily commitment to extend precautionary measures near certain airports through January 1, 2028, which may have limited impacts to deployments and services. In recent years, the FCC took several actions to make spectrum available for 5G services, including the auction of 280 MHz of mid-band spectrum previously used for satellite service (the “C Band” auction) and 39 GHz band spectrum. AT&T obtained spectrum in these auctions. The FCC also made 150 MHz of mid-band CBRS spectrum available, to be shared with Federal incumbents, which enjoy priority. In addition, in 2022, the FCC completed Auction 110, in which AT&T won 40 MHz of 3.45 GHz spectrum nationwide at a cost of $9,079. (See Note 6) ACCOUNTING POLICIES AND STANDARDS Critical Accounting Policies and Estimates Because of the size of the financial statement line items they relate to or the extent of judgment required by our management, some of our accounting policies and estimates have a more significant impact on our consolidated financial statements than others. Pension and Postretirement Benefits Our actuarial estimates of retiree benefit expense and the associated significant weighted-average assumptions are discussed in Note 14. Our assumed weighted-average discount rates for both pension and postretirement benefits of 5.00%, at December 31, 2023, reflect the hypothetical rate at which the projected benefit obligations could be effectively settled or paid out to participants. We determined our discount rate based on a range of factors, including a yield curve composed of the rates of return on several hundred high-quality, fixed income corporate bonds available at the measurement date and corresponding to the related expected durations of future cash outflows for the obligations. These bonds had an average rating of at least Aa3 or AA- by the nationally recognized statistical rating organizations, denominated in U.S. dollars, and generally not callable, convertible or index linked. For the year ended December 31, 2023, when compared to the year ended December 31, 2022, we decreased our pension and postretirement discount rates each by 0.20%, resulting in an increase in our pension plan benefit obligation of $916 and an increase in our postretirement benefit obligation of $110. Our expected long-term rate of return was 7.50% on pension plan assets and 6.50% on postretirement plan assets for 2023. For 2024, we have increased our expected return on pension plan assets to 7.75%, reflecting higher yields for bonds and changes in the asset mix, and decreased our expected return on postretirement plan assets to 4.00%, reflecting reallocation of assets to cash for benefit payment. Our expected return on plan assets is calculated using the actual fair value of plan assets. If all other factors were to remain unchanged, we expect that a 0.50% decrease in the expected long-term rate of return would cause 2024 combined pension and postretirement cost to increase $150, which under our accounting policy would be adjusted to actual returns in the current year upon remeasurement of our retiree benefit plans. We recognize gains and losses on pension and postretirement plan assets and obligations immediately in “Other income (expense) – net” in our consolidated statements of income. These gains and losses are generally measured annually as of December 31, and accordingly, will normally be recorded during the fourth quarter, unless an earlier remeasurement is required. Should actual experience differ from actuarial assumptions, the projected pension benefit obligation and net pension cost and accumulated postretirement benefit obligation and postretirement benefit cost would be affected in future years. See Note 14 for additional discussions regarding our assumptions. Asset Valuations and Impairments Goodwill and other indefinite-lived intangible assets are not amortized but tested at least annually on October 1 for impairment. For impairment testing, we estimate fair values using models that predominantly rely on the expected cash flows to be derived from the reporting unit or use of the asset. Long-lived assets are reviewed for impairment whenever events or circumstances indicate that the book value may not be recoverable over the remaining life. Inputs underlying the expected cash flows include, but are not limited to, subscriber counts, revenue per user, capital investment and acquisition costs per subscriber, and ongoing operating costs. We based our assumptions on a combination of our historical results, trends, business plans and marketplace participant data. Annual Goodwill Testing Goodwill is tested on a reporting unit basis by comparing the estimated fair value of each reporting unit to its book value. If the fair value exceeds the book value, then no impairment is measured. We estimate fair values using an income approach (also 31 AT&T Inc. Dollars in millions except per share amounts known as a discounted cash flow model) and market multiple approaches. The income approach utilizes our future cash flow projections with a perpetuity value discounted at an appropriate weighted average cost of capital. The market multiple approach uses the multiples of publicly traded companies whose services are comparable to those offered by the reporting units. As of October 1, 2023, the calculated fair values of the reporting units exceeded their book values in all circumstances. However, the Consumer Wireline fair value exceeded its book value by less than 10%, with interest rates negatively impacting fair value offset by higher long-term cash flow projections driven by our fiber investment. For our Mobility and Business Wireline reporting units where fair values were in excess of 10%, if either the projected long-term growth rates declined by 0.5%, if the projected long-term EBITDA margin declined by 0.5%, or if the weighted average cost of capital increased by 0.5%, the fair values would still be higher than the book value of the reporting units. In the event of a 10% drop in the fair value of these reporting units, the fair value still would have exceeded the book value of the reporting units. For the Consumer Wireline reporting unit, as of October 1, 2023, if the projected rate of long-term growth declined by 0.75%, if the projected long-term EBITDA margin declined by 4.0%, or if the weighted average cost of capital increased by 0.25%, it would result in impairment of the goodwill. The fair values of our reporting units continue to be impacted by changes in the macroeconomic environment, namely increased weighted-average cost of capital. Also, inflation pressure and lower projected cash flows driven by secular declines, predominantly at Business Wireline, impacted the fair values. Future sustained declines in macroeconomic or business conditions, or higher discount rates or declines in the value of AT&T stock could result in goodwill impairment charges in future periods. U.S. Wireless Licenses The fair value of U.S. wireless licenses is assessed using a discounted cash flow model (the Greenfield Approach) and a qualitative corroborative market approach based on auction prices, depending upon auction activity. The Greenfield Approach assumes a company initially owns only the wireless licenses and makes investments required to build an operation comparable to current use. These licenses are tested annually for impairment on an aggregated basis, consistent with their use on a national scope for the United States. For impairment testing, we assume subscriber and revenue growth will trend up to projected levels, with a long-term growth rate reflecting expected long-term inflation trends. We assume churn rates will initially exceed our current experience but decline to rates that are in line with industry-leading churn. We used a discount rate of 10%, based on the optimal long-term capital structure of a market participant and its associated cost of debt and equity for the licenses, to calculate the present value of the projected cash flows. If either the projected rate of long-term growth of cash flows or revenues declined by 0.5%, or if the discount rate increased by 0.5%, the fair values of these wireless licenses would still be higher than the book value. The fair value of these wireless licenses exceeded their book values by more than 10%. Income Taxes Our estimates of income taxes and the significant items giving rise to the deferred assets and liabilities are shown in Note 13 and reflect our assessment of actual future taxes to be paid on items reflected in the financial statements, giving consideration to both timing and probability of these estimates. Actual income taxes could vary from these estimates due to future changes in income tax law or the final review of our tax returns by federal, state or foreign tax authorities. We use our judgment to determine whether it is more likely than not that we will sustain positions that we have taken on tax returns and, if so, the amount of benefit to initially recognize within our financial statements. We regularly review our uncertain tax positions and adjust our unrecognized tax benefits (UTBs) in light of changes in facts and circumstances, such as changes in tax law, interactions with taxing authorities and developments in case law. These adjustments to our UTBs may affect our income tax expense. Settlement of uncertain tax positions may require use of our cash. New Accounting Standards See Note 1 for discussion of recently issued or adopted accounting standards. 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 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. 32 AT&T Inc. Dollars in millions except per share amounts Labor Contracts As of January 31, 2024, we employed approximately 149,900 persons. Approximately 42% of our employees are represented by the Communications Workers of America (CWA), the International Brotherhood of Electrical Workers (IBEW) or other unions. After expiration of the collective bargaining agreements, work stoppages or labor disruptions may occur in the absence of new contracts or other agreements being reached. The main contracts set to expire in 2024 include the following: • A contract covering approximately 5,000 Mobility employees in Arkansas, Kansas, Missouri, Oklahoma and Texas is set to expire in February. • A wireline contract covering approximately 8,500 employees in California and Nevada is set to expire in April. • Three wireline contracts covering approximately 15,000 employees in the southeastern United States are set to expire in August. Inflation Reduction Act 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 2024 tax liability. OECD On October 8, 2021, the Organization for Economic Co-operation and Development (OECD) announced the OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting which agreed to a two-pillar solution to address tax challenges arising from digitalization of the economy. On December 20, 2021, the OECD released Pillar Two Model Rules defining the global minimum tax, which calls for the taxation of large corporations at a minimum rate of 15%. The OECD has continued to release additional guidance on the two-pillar framework throughout 2022 and 2023. Several jurisdictions, including the European Union, have enacted Pillar Two legislation with varying dates into force, including January 1, 2024 for certain components. There can be no assurance that these new rules will not increase our taxes in these countries and have an adverse impact on our provision for income taxes, when enacted or enforced by participating countries in which we do business. Environmental We are subject from time to time to judicial and administrative proceedings brought by various governmental authorities under federal, state or local environmental laws. We reference in our Forms 10-Q and 10-K certain environmental proceedings that could result in monetary sanctions (exclusive of interest and costs) of three hundred thousand dollars or more. However, we do not believe that any of those currently pending will have a material adverse effect on our results of operations. LIQUIDITY AND CAPITAL RESOURCES Continuing operations for the years ended December 31, 2023 2022 2021 Cash provided by operating activities $ 38,314 $ 35,812 $ 37,170 Cash used in investing activities (19,660) (26,899) (32,489) Cash (used in) provided by financing activities (15,614) (59,564) 1,894 At December 31, 2023 2022 Cash and cash equivalents $ 6,722 $ 3,701 Total debt 137,331 135,890 We had $6,722 in cash and cash equivalents available at December 31, 2023, increasing $3,021 since December 31, 2022. Cash and cash equivalents included cash of $1,368 and money market funds and other cash equivalents of $5,354. Approximately $1,381 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. In 2023, cash inflows were primarily provided by cash receipts from operations, including cash from our sale and transfer of our receivables to third parties, issuance of commercial paper, long-term debt and cumulative preferred interests in subsidiaries and distributions from DIRECTV. These inflows exceeded cash used to meet the needs of the business, including, but not limited to, payment of operating expenses, funding capital expenditures and vendor financing payments, repayment of short-term borrowings and long-term debt, dividend payments to stockholders, and repurchase of the Series A Cumulative Perpetual Preferred Membership Interests in AT&T Mobility II LLC (Mobility preferred interests). We maintain availability under our credit facilities and our commercial paper program to meet our short-term liquidity requirements. Refer to “Contractual Obligations” discussion below for additional information regarding our cash requirements. 33 AT&T Inc. Dollars in millions except per share amounts Cash Provided by Operating Activities from Continuing Operations During 2023, cash provided by operating activities was $38,314 compared to $35,812 in 2022, reflecting operational growth and a focus to lower working capital programs, which resulted in lower device payments partially offset by lower receivable sales, net of remittances (see Note 17), and higher cash income tax payments. Cash from operating activities in 2022 also included higher voluntary benefit plan contributions. We actively manage the timing of our supplier payments for operating items to optimize the use of our cash. Among other things, we seek to make payments on 90-day or greater terms, while providing the suppliers with access to bank facilities that permit earlier payments at their cost (referred to as supplier financing program). In addition, for payments to suppliers of handset inventory, as part of our working capital initiatives, we have arrangements that allow us to extend the stated payment terms by up to 90 days at an additional cost to us (referred to as direct supplier financing). The net impact of direct supplier financing, including principal and interest payments, was to decrease cash from operating activities $299 in 2023 and improve cash from operating activities $851 in 2022. All supplier financing payments are due within one year. (See Note 22) Cash Used in Investing Activities from Continuing Operations During 2023, cash used in investing activities totaled $19,660, consisting primarily of $17,853 (including interest during construction) for capital expenditures. In 2023, we received a return of investment of $2,049 from DIRECTV representing distributions in excess of cumulative equity in earnings from DIRECTV (see Note 10). We paid $2,221 of spectrum relocation and clearing costs in 2023, which we report as “Acquisitions, net of cash acquired” on our consolidated statements of cash flows. For capital improvements, we have negotiated favorable vendor payment terms of 120 days or more (referred to as vendor financing) with some of our vendors, which are excluded from capital expenditures and reported as financing activities. Vendor financing payments were $5,742 in 2023, compared to $4,697 in 2022. Capital expenditures in 2023 were $17,853, and when including $5,742 cash paid for vendor financing, capital investment was $23,595 ($728 lower than the prior year). The vast majority of our capital expenditures are spent on our networks, including product development and related support systems. In 2023, we placed $2,651 of equipment in service under vendor financing arrangements (compared to $5,817 in 2022). 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 were slightly elevated in 2023, reflecting strategic investments. In 2024, we expect that our capital investment, which includes capital expenditures and cash paid for vendor financing, will be in the $21,000 to $22,000 range. Cash Provided by or Used in Financing Activities from Continuing Operations In 2023, cash used in financing activities totaled $15,614 and was comprised of debt issuances and repayments, payments of dividends, issuances and repurchase of preferred interests in subsidiaries and vendor financing payments. 34 AT&T Inc. Dollars in millions except per share amounts A tabular summary of our debt activity during 2023 is as follows: First Quarter Second Quarter Third Quarter Fourth Quarter Full Year 2023 Net commercial paper borrowings $ 2,341 $ 1,284 $ (112) $ (2,436) $ 1,077 Issuance of notes and debentures: USD notes $ 1,747 $ 2,730 $ — $ — $ 4,477 EUR notes 1,319 3,537 — — 4,856 Other 1,050 — — 371 1,421 Debt issuances $ 4,116 $ 6,267 $ — $ 371 $ 10,754 Repayments: Private financing $ — $ (750) $ — $ — $ (750) Repayments of other short-term borrowings $ — $ (750) $ — $ — $ (750) USD notes $ (376) $ (750) $ — $ — $ (1,126) EUR notes (1,626) (473) (3,503) — (5,602) AUD notes — — (450) — (450) 2025 Term Loan (2,500) — — — (2,500) Other (1,443) (441) (327) (155) (2,366) Repayments of long-term debt $ (5,945) $ (1,664) $ (4,280) $ (155) $ (12,044) The weighted average interest rate of our long-term debt portfolio, including credit agreement borrowings and the impact of derivatives, was approximately 4.2% as of December 31, 2023 and 4.1% as of December 31, 2022. We had $133,402 of total notes and debentures outstanding at December 31, 2023. This also included Euro, British pound sterling, Canadian dollar, Swiss franc, and Australian dollar denominated debt that totaled approximately $35,192. At December 31, 2023, we had $9,477 of debt maturing within one year, consisting of $2,091 of commercial paper borrowings and $7,386 of long-term debt issuances. The weighted average interest rate on our outstanding short-term borrowings was approximately 6.0% as of December 31, 2023 and 4.8% as of December 31, 2022. During 2023, we paid $5,742 of cash under our vendor financing program, compared to $4,697 in 2022. Total vendor financing payables included in our December 31, 2023 consolidated balance sheet were $2,833, with $1,975 due within one year (in “Accounts payable and accrued liabilities”) and the remainder predominantly due within five years (in “Other noncurrent liabilities”). At December 31, 2023, we had approximately 144 million shares remaining from our share repurchase authorizations approved by the Board of Directors in 2014. We paid dividends on common shares and preferred shares of $8,136 in 2023, compared with $9,859 in 2022. Dividends on common stock declared by our Board of Directors totaled $1.11 per share in 2023 and in 2022. Our dividend policy considers the expectations and requirements of stockholders, capital funding requirements of AT&T and long-term growth opportunities. In April 2023, we expanded our September 2020 sale of Telco LLC cumulative preferred interests and issued an additional $5,250 of nonconvertible cumulative preferred interests (April preferreds). The April preferreds pay an initial preferred distribution of 6.85% annually, subject to declaration, and subject to reset on November 1, 2027, and every seven years thereafter. (See Note 16) In April 2023, we also accepted the December 2022 put option notice from the AT&T pension trust and repurchased the remaining 213 million Mobility preferred interests for a purchase price, including accrued and unpaid distributions, of $5,414. The Mobility preferred interests had a redemption value of $5,320, with approximately $2,650 removed from “Accounts payable and accrued liabilities” and $2,670 removed from “Other noncurrent liabilities.” The repurchase was primarily funded with proceeds from the April 2023 issuances of Telco LLC preferred interests. (See Note 16) In June 2023, we issued $2,000 of Series B Cumulative Perpetual Preferred Membership Interests in Mobility II LLC (Mobility noncontrolling interests), which pay cash distributions of 6.8% per annum, subject to declaration. The Mobility noncontrolling interests are included in “Redeemable Noncontrolling Interest” on the consolidated balance sheets. (See Note 16) 35 AT&T Inc. Dollars in millions except per share amounts Our 2024 financing activities will focus on managing our debt level and paying dividends, subject to approval by our Board of Directors. We plan to fund our financing uses of cash through a combination of cash from operations, issuance of debt, and asset sales. The timing and mix of any debt issuance and/or refinancing will be guided by credit market conditions and interest rate trends. Credit Facilities The following summary of our various credit and loan agreements does not purport to be complete and is qualified in its entirety by reference to each agreement filed as exhibits to our Annual Report on Form 10-K. We use credit facilities as a tool in managing our liquidity status. We currently have one $12,000 revolving credit agreement that terminates on November 18, 2028 (Revolving Credit Agreement). No amount was outstanding under the Revolving Credit Agreement as of December 31, 2023. In November 2022, we entered into and drew on a $2,500 term loan agreement due February 16, 2025 (2025 Term Loan), with Mizuho Bank, Ltd., as agent. On March 30, 2023, the 2025 Term Loan was paid off and terminated. We also utilize other external financing sources, which include various credit arrangements supported by government agencies to support network equipment purchases as well as a commercial paper program. Our Revolving Credit Agreement contains covenants that are customary for an issuer with investment grade senior debt credit rating as well as a net debt-to-EBITDA financial ratio covenant requiring AT&T to maintain, as of the last day of each fiscal quarter, a ratio of not more than 3.75-to-1. As of December 31, 2023, we were in compliance with the covenants for our credit facilities. Collateral Arrangements Most of our counterparty collateral arrangements require cash collateral posting by AT&T only when derivative market values exceed certain thresholds. Under these arrangements, which cover the majority of our approximately $39,800 derivative portfolio, counterparties are still required to post collateral. During 2023, we received approximately $220 of cash collateral, on a net basis. Cash postings under these arrangements vary with changes in credit ratings and netting agreements. (See Note 12) Other Our total capital consists of debt (long-term debt and debt maturing within one year), redeemable noncontrolling interest and stockholders’ equity. Our capital structure does not include debt issued by our equity method investments. At December 31, 2023, our debt ratio was 53.5%, compared to 56.1% at December 31, 2022 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, repayments and reclassifications related to redemption of noncontrolling interests. A significant amount of our cash outflows for continuing operations is related to tax items, acquisition of spectrum through FCC auctions and benefits paid for current and former employees: • Total taxes incurred, collected and remitted by AT&T during 2023 and 2022, were $16,877 and $16,630. These taxes include income, franchise, property, sales, excise, payroll, gross receipts and various other taxes and fees. • Total domestic spectrum acquired primarily through FCC auctions, including cash, exchanged spectrum, auction deposits and spectrum relocation and clearing costs was approximately $2,940 in 2023, $10,200 in 2022 and $25,400 in 2021. • Total health and welfare benefits provided to certain active and retired employees and their dependents totaled approximately $2,990 in 2023 and $3,200 in 2022, with $624 paid from plan assets in 2023 compared to $788 in 2022. Of those benefits, approximately $2,730 related to medical and prescription drug benefits in 2023 compared to $2,840 in 2022. In addition, in 2023, we prefunded $135 for future benefit payments versus $500 in 2022. We paid $4,863 of pension benefits out of plan assets in 2023 compared to $5,854 in 2022. 36 AT&T Inc. Dollars in millions except per share amounts Contractual Obligations Our contractual obligations as of December 31, 2023, and the estimated timing of payment, are in the following table: Payments Due By Period Total Less than 1 Year 1-3 Years 3-5 Years More than 5 Years Long-term debt obligations 1 $ 146,064 $ 7,537 $ 15,801 $ 13,215 $ 109,511 Interest payments on long-term debt 2 98,565 5,931 11,084 9,870 71,680 Purchase obligations 3 29,507 7,555 12,856 8,187 909 Operating lease obligations 4 25,356 4,699 7,548 4,977 8,132 FirstNet sustainability payments 5 17,010 561 1,316 3,224 11,909 Unrecognized tax benefits (UTB) 6 9,238 392 — — 8,846 Other finance obligations 7 11,733 2,692 2,374 1,763 4,904 Total Contractual Obligations $ 337,473 $ 29,367 $ 50,979 $ 41,236 $ 215,891 1 Represents principal or payoff amounts of notes, debentures and credit agreement borrowings at maturity (see Note 11). Foreign debt includes the impact from hedges, when applicable. 2 Includes credit agreement borrowings. 3 We expect to fund the purchase obligations with cash provided by operations or through incremental borrowings. The minimum commitment for certain obligations is based on termination penalties that could be paid to exit the contracts. (See Note 21) 4 Represents operating lease payments (see Note 8). 5 Represents contractual commitment to make sustainability payments over the 25-year contract. These sustainability payments represent our commitment to fund FirstNet’s operating expenses and future reinvestment in the network, which we own and operate. FirstNet has a statutory requirement to reinvest funds that exceed the agency’s operating expenses, which we anticipate to be $15,000. (See Note 20) 6 The noncurrent portion of the UTBs is included in the “More than 5 Years” column, as we cannot reasonably estimate the timing or amounts of additional cash payments, if any, at this time (see Note 13). 7 Represents future minimum payments under the Crown Castle and other arrangements (see Note 18), payables subject to extended payment terms (see Note 22) and finance lease payments (see Note 8). Certain items were excluded from this table because the year of payment is unknown and could not be reliably estimated, we believe the obligations are immaterial, or the settlement of the obligation will not require the use of cash. These items include: deferred income tax liability of $58,666 (see Note 13); net postemployment benefit obligations of $9,365 (including current portion); and other noncurrent liabilities of $8,272.