AT&T INC. 10-Q

Item 1. Financial Statements AT&T INC. CONSOLIDATED STATEMENTS OF INCOME Dollars in millions except per share amounts (Unaudited) Three months ended March 31, 2024 2023 Operating Revenues Service $ 24,842 $ 24,617 Equipment 5,186 5,522 Total operating revenues 30,028 30,139 Operating Expenses Cost of revenues Equipment 5,143 5,658 Other cost of revenues (exclusive of depreciation and amortization shown separately below) 6,811 6,673 Selling, general and administrative 7,021 7,175 Asset impairments and abandonments and restructuring 159 — Depreciation and amortization 5,047 4,631 Total operating expenses 24,181 24,137 Operating Income 5,847 6,002 Other Income (Expense) Interest expense ( 1,724 ) ( 1,708 ) Equity in net income of affiliates 295 538 Other income (expense) — net 451 935 Total other income (expense) ( 978 ) ( 235 ) Income Before Income Taxes 4,869 5,767 Income tax expense 1,118 1,314 Net Income 3,751 4,453 Less: Net Income Attributable to Noncontrolling Interest ( 306 ) ( 225 ) Net Income Attributable to AT&T $ 3,445 $ 4,228 Less: Preferred Stock Dividends ( 50 ) ( 52 ) Net Income Attributable to Common Stock $ 3,395 $ 4,176 Basic Earnings Per Share Attributable to Common Stock $ 0.47 $ 0.58 Diluted Earnings Per Share Attributable to Common Stock $ 0.47 $ 0.57 Weighted Average Number of Common Shares Outstanding — Basic (in millions) 7,192 7,168 Weighted Average Number of Common Shares Outstanding — with Dilution (in millions) 7,193 7,474 See Notes to Consolidated Financial Statements. 3 AT&T INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME Dollars in millions (Unaudited) Three months ended March 31, 2024 2023 Net income $ 3,751 $ 4,453 Other comprehensive income (loss), net of tax: Foreign currency: Translation adjustment, net of taxes of $ 8 and $ 52 29 193 Securities: Net unrealized gains (losses), net of taxes of $( 2 ) and $ 8 ( 10 ) 23 Reclassification adjustment included in net income, net of taxes of $ 2 and $ 1 6 3 Derivative instruments: Net unrealized gains (losses), net of taxes of $ 49 and $( 43 ) 211 ( 152 ) Reclassification adjustment included in net income, net of taxes of $ 3 and $ 3 12 12 Defined benefit postretirement plans: Amortization of net prior service credit included in net income, net of taxes of $( 123 ) and $( 160 ) ( 381 ) ( 491 ) Other comprehensive income (loss) ( 133 ) ( 412 ) Total comprehensive income 3,618 4,041 Less: Total comprehensive income attributable to noncontrolling interest ( 306 ) ( 225 ) Total Comprehensive Income Attributable to AT&T $ 3,312 $ 3,816 See Notes to Consolidated Financial Statements. 4 AT&T INC. CONSOLIDATED BALANCE SHEETS Dollars in millions except per share amounts March 31, December 31, 2024 2023 Assets (Unaudited) Current Assets Cash and cash equivalents $ 3,520 $ 6,722 Accounts receivable – net of related allowances for credit loss of $ 463 and $ 499 9,577 10,289 Inventories 2,127 2,177 Prepaid and other current assets 15,221 17,270 Total current assets 30,445 36,458 Property, plant and equipment 339,115 339,891 Less: accumulated depreciation and amortization ( 211,264 ) ( 211,402 ) Property, Plant and Equipment – Net 127,851 128,489 Goodwill – Net 67,854 67,854 Licenses – Net 127,423 127,219 Other Intangible Assets – Net 5,281 5,283 Investments in and Advances to Equity Affiliates 891 1,251 Operating Lease Right-Of-Use Assets 20,668 20,905 Other Assets 19,015 19,601 Total Assets $ 399,428 $ 407,060 Liabilities and Stockholders’ Equity Current Liabilities Debt maturing within one year $ 7,060 $ 9,477 Accounts payable and accrued liabilities 31,973 35,852 Advanced billings and customer deposits 3,713 3,778 Dividends payable 2,088 2,020 Total current liabilities 44,834 51,127 Long-Term Debt 125,704 127,854 Deferred Credits and Other Noncurrent Liabilities Deferred income taxes 58,820 58,666 Postemployment benefit obligation 8,743 8,734 Operating lease liabilities 17,291 17,568 Other noncurrent liabilities 23,441 23,696 Total deferred credits and other noncurrent liabilities 108,295 108,664 Redeemable Noncontrolling Interest 1,975 1,973 Stockholders’ Equity Preferred stock ($ 1 par value, 10,000,000 authorized at March 31, 2024 and December 31, 2023): Series A ( 48,000 issued and outstanding at March 31, 2024 and December 31, 2023) — — Series B ( 20,000 issued and outstanding at March 31, 2024 and December 31, 2023) — — Series C ( 70,000 issued and outstanding at March 31, 2024 and December 31, 2023) — — Common stock ($ 1 par value, 14,000,000,000 authorized at March 31, 2024 and December 31, 2023: issued 7,620,748,598 at March 31, 2024 and December 31, 2023) 7,621 7,621 Additional paid-in capital 111,599 114,519 Retained (deficit) earnings ( 1,570 ) ( 5,015 ) Treasury stock ( 450,713,156 at March 31, 2024 and 470,685,237 at December 31, 2023, at cost) ( 15,277 ) ( 16,128 ) Accumulated other comprehensive income 2,167 2,300 Noncontrolling interest 14,080 14,145 Total stockholders’ equity 118,620 117,442 Total Liabilities and Stockholders’ Equity $ 399,428 $ 407,060 See Notes to Consolidated Financial Statements. 5 AT&T INC. CONSOLIDATED STATEMENTS OF CASH FLOWS Dollars in millions (Unaudited) Three months ended March 31, 2024 2023 Operating Activities Net Income $ 3,751 $ 4,453 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 5,047 4,631 Provision for uncollectible accounts 472 477 Deferred income tax expense 479 529 Net (gain) loss on investments, net of impairments 201 ( 93 ) Pension and postretirement benefit expense (credit) ( 471 ) ( 670 ) Asset impairments and abandonments and restructuring 159 — Changes in operating assets and liabilities: Receivables 512 620 Other current assets 629 364 Accounts payable and other accrued liabilities ( 3,497 ) ( 3,409 ) Equipment installment receivables and related sales 24 ( 243 ) Deferred customer contract acquisition and fulfillment costs 103 ( 22 ) Postretirement claims and contributions ( 54 ) ( 89 ) Other - net 192 130 Total adjustments 3,796 2,225 Net Cash Provided by Operating Activities 7,547 6,678 Investing Activities Capital expenditures ( 3,758 ) ( 4,335 ) Acquisitions, net of cash acquired ( 211 ) ( 291 ) Dispositions 8 15 Distributions from DIRECTV in excess of cumulative equity in earnings 194 774 (Purchases), sales and settlements of securities and investments - net 1,079 19 Other - net ( 273 ) — Net Cash Used in Investing Activities ( 2,961 ) ( 3,818 ) Financing Activities Net change in short-term borrowings with original maturities of three months or less 1,933 ( 536 ) Issuance of other short-term borrowings 491 3,627 Repayment of other short-term borrowings ( 1,996 ) — Issuance of long-term debt — 3,366 Repayment of long-term debt ( 4,685 ) ( 5,945 ) Repayment of note payable to DIRECTV — ( 130 ) Payment of vendor financing ( 841 ) ( 2,113 ) Purchase of treasury stock ( 157 ) ( 188 ) Issuance of treasury stock — 3 Dividends paid ( 2,034 ) ( 2,014 ) Other - net ( 526 ) 219 Net Cash Used in Financing Activities ( 7,815 ) ( 3,711 ) Net increase (decrease) in cash and cash equivalents and restricted cash $ ( 3,229 ) $ ( 851 ) Cash and cash equivalents and restricted cash beginning of year 6,833 3,793 Cash and Cash Equivalents and Restricted Cash End of Period $ 3,604 $ 2,942 See Notes to Consolidated Financial Statements. 6 AT&T INC. CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY Dollars and shares in millions except per share amounts (Unaudited) Three months ended March 31, 2024 March 31, 2023 Shares Amount Shares Amount Preferred Stock - Series A Balance at beginning of period — $ — — $ — Balance at end of period — $ — — $ — Preferred Stock - Series B Balance at beginning of period — $ — — $ — Balance at end of period — $ — — $ — Preferred Stock - Series C Balance at beginning of period — $ — — $ — Balance at end of period — $ — — $ — Common Stock Balance at beginning of period 7,621 $ 7,621 7,621 $ 7,621 Balance at end of period 7,621 $ 7,621 7,621 $ 7,621 Additional Paid-In Capital Balance at beginning of period $ 114,519 $ 123,610 Preferred stock dividends ( 98 ) ( 98 ) Common stock dividends ($ 0.2775 and $ 0.2775 per share) ( 2,003 ) ( 2,002 ) Issuance of treasury stock ( 413 ) ( 365 ) Share-based payments ( 266 ) ( 371 ) Redemption or reclassification of interest held by noncontrolling owners ( 140 ) — Balance at end of period $ 111,599 $ 120,774 Retained (Deficit) Earnings Balance at beginning of period $ ( 5,015 ) $ ( 19,415 ) Net income attributable to AT&T 3,445 4,228 Balance at end of period $ ( 1,570 ) $ ( 15,187 ) See Notes to Consolidated Financial Statements. 7 AT&T INC. CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY - continued Dollars and shares in millions except per share amounts (Unaudited) Three months ended March 31, 2024 March 31, 2023 Shares Amount Shares Amount Treasury Stock Balance at beginning of period ( 471 ) $ ( 16,128 ) ( 493 ) $ ( 17,082 ) Repurchase and acquisition of common stock ( 9 ) ( 157 ) ( 10 ) ( 188 ) Reissuance of treasury stock 29 1,008 31 1,104 Balance at end of period ( 451 ) $ ( 15,277 ) ( 472 ) $ ( 16,166 ) Accumulated Other Comprehensive Income Attributable to AT&T, net of tax Balance at beginning of period $ 2,300 $ 2,766 Other comprehensive income (loss) attributable to AT&T ( 133 ) ( 412 ) Balance at end of period $ 2,167 $ 2,354 Noncontrolling Interest 1 Balance at beginning of period $ 14,145 $ 8,957 Net income attributable to noncontrolling interest 270 225 Redemption of noncontrolling interest ( 17 ) — Distributions ( 318 ) ( 232 ) Balance at end of period $ 14,080 $ 8,950 Total Stockholders' Equity at beginning of period $ 117,442 $ 106,457 Total Stockholders' Equity at end of period $ 118,620 $ 108,346 1 Excludes redeemable noncontrolling interest See Notes to Consolidated Financial Statements. 8 AT&T INC. MARCH 31, 2024 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) Dollars in millions except per share amounts NOTE 1. PREPARATION OF INTERIM FINANCIAL STATEMENTS Basis of Presentation Throughout this document, AT&T Inc. is referred to as “we,” “AT&T” or the “Company.” The consolidated financial statements include the accounts of the Company and subsidiaries and affiliates which we control. AT&T is a holding company whose subsidiaries and affiliates operate worldwide in the telecommunications and technology industries. You should read this document in conjunction with the consolidated financial statements and accompanying notes included in our Annual Report on Form 10-K for the year ended December 31, 2023. The results for the interim periods are not necessarily indicative of those for the full year. These consolidated financial statements include all adjustments that are necessary to present fairly the results for the presented interim periods, consisting of normal recurring accruals and other items. All significant intercompany transactions are eliminated in the consolidation process. Investments in subsidiaries and partnerships which we do not control but have significant influence are accounted for under the equity method. Earnings from certain investments accounted for using the equity method are included in our results on a one quarter lag. We also record our proportionate share of our equity method investees’ other comprehensive income (OCI) items, including translation adjustments. The preparation of financial statements in conformity with U.S. generally accepted accounting principles (GAAP) requires management to make estimates and assumptions, including estimates of fair value, probable losses and expenses, that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. NOTE 2. EARNINGS PER SHARE A reconciliation of the numerators and denominators of basic and diluted earnings per share for the three months ended March 31, 2024 and 2023, is shown in the table below: Three months ended March 31, 2024 2023 Numerators Numerator for basic earnings per share: Net Income Attributable to Common Stock $ 3,395 $ 4,176 Dilutive potential common shares: Mobility preferred interests — 72 Share-based payment — 4 Numerator for diluted earnings per share $ 3,395 $ 4,252 Denominators (000,000) Denominator for basic earnings per share: Weighted average number of common shares outstanding 7,192 7,168 Dilutive potential common shares: Mobility preferred interests (in shares) — 284 Share-based payment (in shares) 1 22 Denominator for diluted earnings per share 7,193 7,474 On April 5, 2023, we repurchased all our Series A Cumulative Perpetual Preferred Membership Interests in AT&T Mobility II LLC (Mobility preferred interests). For periods prior to repurchase, under Accounting Standards Update (ASU) No. 2020-06, “Debt—Debt With Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity” (ASU 2020-06), the ability to settle the Mobility preferred interests in stock was reflected in our diluted earnings per share calculation. 9 AT&T INC. MARCH 31, 2024 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued Dollars in millions except per share amounts NOTE 3. OTHER COMPREHENSIVE INCOME Changes in the balances of each component included in accumulated OCI are presented below. All amounts are net of tax and exclude noncontrolling interest. Foreign Currency Translation Adjustment Net Unrealized Gains (Losses) on Securities Net Unrealized Gains (Losses) on Derivative Instruments Defined Benefit Postretirement Plans Accumulated Other Comprehensive Income (Loss) Balance as of December 31, 2023 $ ( 1,337 ) $ ( 57 ) $ ( 1,029 ) $ 4,723 $ 2,300 Other comprehensive income (loss) before reclassifications 29 ( 10 ) 211 — 230 Amounts reclassified from accumulated OCI — 1 6 1 12 2 ( 381 ) 3 ( 363 ) Net other comprehensive income (loss) 29 ( 4 ) 223 ( 381 ) ( 133 ) Balance as of March 31, 2024 $ ( 1,308 ) $ ( 61 ) $ ( 806 ) $ 4,342 $ 2,167 Foreign Currency Translation Adjustment Net Unrealized Gains (Losses) on Securities Net Unrealized Gains (Losses) on Derivative Instruments Defined Benefit Postretirement Plans Accumulated Other Comprehensive Income (Loss) Balance as of December 31, 2022 $ ( 1,800 ) $ ( 90 ) $ ( 1,998 ) $ 6,654 $ 2,766 Other comprehensive income (loss) before reclassifications 193 23 ( 152 ) — 64 Amounts reclassified from accumulated OCI — 1 3 1 12 2 ( 491 ) 3 ( 476 ) Net other comprehensive income (loss) 193 26 ( 140 ) ( 491 ) ( 412 ) Balance as of March 31, 2023 $ ( 1,607 ) $ ( 64 ) $ ( 2,138 ) $ 6,163 $ 2,354 1 (Gains) losses are included in “Other income (expense) - net” in the consolidated statements of income. 2 (Gains) losses are primarily included in “Interest expense” in the consolidated statements of income (see Note 7). 3 The amortization of prior service credits associated with postretirement benefits are included in “Other income (expense) - net” in the consolidated statements of income (see Note 6). NOTE 4. SEGMENT INFORMATION Our segments are comprised of strategic business units or other operations that offer products and services to different customer segments over various technology platforms and/or in different geographies that are managed accordingly. We have two reportable segments: Communications and Latin America. We also evaluate segment and business unit performance based on EBITDA and/or EBITDA margin, which is defined as operating income excluding depreciation and amortization. EBITDA is used as part of our management reporting and we believe EBITDA to be a relevant and useful measurement to our investors as it measures the cash generation potential of our business units. EBITDA does not give effect to depreciation and amortization expenses incurred in operating income nor is it burdened by cash used for debt service requirements and thus does not reflect available funds for distributions, reinvestment or other discretionary uses. EBITDA margin is EBITDA divided by total revenue. 10 AT&T INC. MARCH 31, 2024 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued Dollars in millions except per share amounts The Communications segment provides wireless and wireline telecom and broadband services to consumers located in the U.S. and businesses globally. Our business strategies reflect 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. In the first quarter of 2024, we began offering our fixed wireless access product that provides internet services delivered over our 5G wireless network where available. • 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 provides wireless services and equipment in Mexico. Corporate and Other reconciles our segment results to consolidated operating income and income before income taxes. Corporate includes : • DTV-related retained costs , which are costs previously allocated to the Video business that were retained after the transaction, net of reimbursements from DIRECTV Entertainment Holdings, LLC (DIRECTV) under transition service agreements. • Parent administration support , which includes costs borne by AT&T where the business units do not influence decision making. • Securitization fees associated with our sales of receivables (see Note 8). • Value portfolio , which are businesses no longer integral to our operations or which we no longer actively market. Other items consists of : • Certain significant items , which includes items associated with the merger and integration of acquired or divested businesses, including amortization of intangible assets, employee separation charges associated with voluntary and/or strategic offers, asset impairments and abandonments and restructuring, and other items for which the segments are not being evaluated. “Interest expense” and “Other income (expense) – net” are managed only on a total company basis and are, accordingly, reflected only in consolidated results. 11 AT&T INC. MARCH 31, 2024 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued Dollars in millions except per share amounts For the three months ended March 31, 2024 Revenues Operations and Support Expenses EBITDA Depreciation and Amortization Operating Income (Loss) Communications Mobility $ 20,594 $ 11,639 $ 8,955 $ 2,487 $ 6,468 Business Wireline 4,913 3,487 1,426 1,362 64 Consumer Wireline 3,350 2,256 1,094 881 213 Total Communications 28,857 17,382 11,475 4,730 6,745 Latin America - Mexico 1,063 883 180 177 3 Segment Total 29,920 18,265 11,655 4,907 6,748 Corporate and Other Corporate: DTV-related retained costs — 134 ( 134 ) 120 ( 254 ) Parent administration support — 392 ( 392 ) 1 ( 393 ) Securitization fees 26 165 ( 139 ) — ( 139 ) Value portfolio 82 26 56 4 52 Total Corporate 108 717 ( 609 ) 125 ( 734 ) Certain significant items — 152 ( 152 ) 15 ( 167 ) Total Corporate and Other 108 869 ( 761 ) 140 ( 901 ) AT&T Inc. $ 30,028 $ 19,134 $ 10,894 $ 5,047 $ 5,847 For the three months ended March 31, 2023 Revenues Operations and Support Expenses EBITDA Depreciation and Amortization Operating Income (Loss) Communications Mobility $ 20,582 $ 12,213 $ 8,369 $ 2,098 $ 6,271 Business Wireline 5,331 3,623 1,708 1,330 378 Consumer Wireline 3,239 2,284 955 861 94 Total Communications 29,152 18,120 11,032 4,289 6,743 Latin America - Mexico 883 738 145 175 ( 30 ) Segment Total 30,035 18,858 11,177 4,464 6,713 Corporate and Other Corporate: DTV-related retained costs — 169 ( 169 ) 144 ( 313 ) Parent administration support ( 9 ) 374 ( 383 ) 1 ( 384 ) Securitization fees 19 121 ( 102 ) — ( 102 ) Value portfolio 94 28 66 5 61 Total Corporate 104 692 ( 588 ) 150 ( 738 ) Certain significant items — ( 44 ) 44 17 27 Total Corporate and Other 104 648 ( 544 ) 167 ( 711 ) AT&T Inc. $ 30,139 $ 19,506 $ 10,633 $ 4,631 $ 6,002 12 AT&T INC. MARCH 31, 2024 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 Before Income Taxes” reported in our consolidated statements of income: Three months ended March 31, 2024 2023 Communications $ 6,745 $ 6,743 Latin America 3 ( 30 ) Segment Operating Income 6,748 6,713 Reconciling Items: Corporate ( 734 ) ( 738 ) Transaction and other costs ( 32 ) — Amortization of intangibles acquired ( 15 ) ( 17 ) Asset impairments and abandonments and restructuring ( 159 ) — Benefit-related gains (losses) 39 44 AT&T Operating Income 5,847 6,002 Interest expense 1,724 1,708 Equity in net income of affiliates 295 538 Other income (expense) — net 451 935 Income Before Income Taxes $ 4,869 $ 5,767 NOTE 5. REVENUE RECOGNITION Revenue Categories The following tables set forth reported revenue by category and by business unit: For the three months ended March 31, 2024 Communications Mobility Business Wireline Consumer Wireline Latin America Corporate & Other Total Wireless service $ 15,994 $ — $ — $ 690 $ — $ 16,684 Business service — 4,700 — — — 4,700 Broadband — — 2,722 — — 2,722 Legacy voice and data — — 342 — 62 404 Other — — 286 — 46 332 Total Service 15,994 4,700 3,350 690 108 24,842 Equipment 4,600 213 — 373 — 5,186 Total $ 20,594 $ 4,913 $ 3,350 $ 1,063 $ 108 $ 30,028 13 AT&T INC. MARCH 31, 2024 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued Dollars in millions except per share amounts For the three months ended March 31, 2023 Communications Mobility Business Wireline Consumer Wireline Latin America Corporate & Other Total Wireless service $ 15,483 $ — $ — $ 591 $ — $ 16,074 Business service — 5,200 — — — 5,200 Broadband — — 2,527 — — 2,527 Legacy voice and data — — 396 — 83 479 Other — — 316 — 21 337 Total Service 15,483 5,200 3,239 591 104 24,617 Equipment 5,099 131 — 292 — 5,522 Total $ 20,582 $ 5,331 $ 3,239 $ 883 $ 104 $ 30,139 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 . The following table presents the deferred customer contract acquisition and fulfillment costs included on our consolidated balance sheets: March 31, December 31, Consolidated Balance Sheets 2024 2023 Deferred Acquisition Costs Prepaid and other current assets $ 3,187 $ 3,233 Other Assets 4,102 4,077 Total deferred customer contract acquisition costs $ 7,289 $ 7,310 Deferred Fulfillment Costs Prepaid and other current assets $ 2,274 $ 2,340 Other Assets 3,640 3,843 Total deferred customer contract fulfillment costs $ 5,914 $ 6,183 The following table presents deferred customer contract acquisition and fulfillment cost amortization, which are primarily included in “Selling, general and administrative” and “Other cost of revenues,” respectively, for the three months ended: March 31, March 31, Consolidated Statements of Income 2024 2023 Deferred acquisition cost amortization $ 894 $ 830 Deferred fulfillment cost amortization 660 678 Contract Assets and Liabilities A contract asset is recorded when revenue is recognized in advance of our right to bill and receive consideration. The contract asset will decrease as services are provided and billed. For example, when installment sales include promotional discounts (e.g., trade-in device credits) the difference between revenue recognized and consideration received is recorded as a contract asset to be amortized over the contract term. Our contract assets primarily relate to our wireless businesses. Promotional equipment sales where we offer handset credits, which are allocated between equipment and service in proportion to their standalone selling prices, when customers commit to a 14 AT&T INC. MARCH 31, 2024 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued Dollars in millions except per share amounts specified service period result in additional contract assets recognized. These contract assets will amortize over the service contract period, resulting in lower future service revenue. When consideration is received in advance of the delivery of goods or services, a contract liability is recorded. Reductions in the contract liability will be recorded as we satisfy the performance obligations. The following table presents contract assets and liabilities on our consolidated balance sheets: March 31, December 31, Consolidated Balance Sheets 2024 2023 Contract asset $ 6,520 $ 6,518 Current portion in “Prepaid and other current assets” 3,627 3,549 Contract liability 3,896 3,994 Current portion in “Advanced billings and customer deposits” 3,594 3,666 Our beginning of period contract liability recorded as customer contract revenue during 2024 was $ 2,675 . Remaining Performance Obligations Remaining performance obligations represent services we are required to provide to customers under bundled or discounted arrangements, which are satisfied as services are provided over the contract term. In determining the transaction price allocated, we do not include non-recurring charges and estimates for usage, nor do we consider arrangements with an original expected duration of less than one year, which are primarily prepaid wireless and residential internet agreements. Remaining performance obligations associated with business contracts reflect recurring charges billed, adjusted to reflect estimates for sales incentives and revenue adjustments. Performance obligations associated with wireless contracts are estimated using a portfolio approach in which we review all relevant promotional activities, calculating the remaining performance obligation using the average service component for the portfolio and the average device price. As of March 31, 2024, the aggregate amount of the transaction price allocated to remaining performance obligations was $ 38,866 , of which we expect to recognize approximately 80 % by the end of 2025, with the balance recognized thereafter. NOTE 6. PENSION AND POSTRETIREMENT BENEFITS Many of our employees are covered by one of our noncontributory pension plans. We also provide certain medical, dental, life insurance and death benefits to certain retired employees under various plans and accrue actuarially determined postretirement benefit costs. Our objective in funding these plans, in combination with the standards of the Employee Retirement Income Security Act of 1974, as amended (ERISA), is to accumulate assets sufficient to provide benefits described in the plans to employees upon their retirement. We do not have significant funding requirements in 2024. 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. 15 AT&T INC. MARCH 31, 2024 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued Dollars in millions except per share amounts The following table details qualified pension and postretirement benefit costs included in the accompanying consolidated statements of income. The service cost component of net periodic pension (credit) cost is recorded in operating expenses in the consolidated statements of income while the remaining components are recorded in “Other income (expense) – net.” Three months ended March 31, 2024 2023 Pension cost: Service cost – benefits earned during the period $ 122 $ 121 Interest cost on projected benefit obligation 396 516 Expected return on assets ( 553 ) ( 714 ) Amortization of prior service credit ( 22 ) ( 33 ) Net pension (credit) cost $ ( 57 ) $ ( 110 ) Postretirement cost: Service cost – benefits earned during the period $ 5 $ 6 Interest cost on accumulated postretirement benefit obligation 77 85 Expected return on assets ( 14 ) ( 33 ) Amortization of prior service credit ( 482 ) ( 618 ) Net postretirement (credit) cost $ ( 414 ) $ ( 560 ) Combined net pension and postretirement (credit) cost $ ( 471 ) $ ( 670 ) 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 $ 17 and $ 19 in the first quarter ended 2024 and 2023, respectively. NOTE 7. FAIR VALUE MEASUREMENTS AND DISCLOSURE The Fair Value Measurement and Disclosure framework in ASC 820, “Fair Value Measurement,” provides a three-tiered fair value hierarchy based on the reliability of the inputs used to determine fair value. Level 1 refers to fair values determined based on quoted prices in active markets for identical assets. Level 2 refers to fair values estimated using significant other observable inputs and Level 3 includes fair values estimated using significant unobservable inputs. The level of an asset or liability within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Our valuation techniques maximize the use of observable inputs and minimize the use of unobservable inputs. The valuation methodologies described above may produce a fair value calculation that may not be indicative of future net realizable value or reflective of future fair values. We believe our valuation methods are appropriate and consistent with other market participants. The use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different fair value measurement at the reporting date. There have been no changes in the methodologies used since December 31, 2023. 16 AT&T INC. MARCH 31, 2024 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued Dollars in millions except per share amounts Long-Term Debt and Other Financial Instruments The carrying amounts and estimated fair values of our long-term debt, including current maturities, and other financial instruments are summarized as follows: March 31, 2024 December 31, 2023 Carrying Fair Carrying Fair Amount Value Amount Value Notes and debentures 1 $ 128,533 $ 121,877 $ 133,402 $ 128,474 Commercial paper 2,430 2,430 2,091 2,091 Investment securities 2 2,947 2,947 2,836 2,836 1 Includes credit agreement borrowings. 2 Excludes investments accounted for under the equity method. The carrying amount of debt with an original maturity of less than one year approximates fair value. The fair value measurements used for notes and debentures are considered Level 2 and are determined using various methods, including quoted prices for identical or similar securities in both active and inactive markets. Following is the fair value leveling for investment securities that are measured at fair value and derivatives as of March 31, 2024 and December 31, 2023. 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. March 31, 2024 Level 1 Level 2 Level 3 Total Equity Securities Domestic equities $ 1,053 $ — $ — $ 1,053 International equities 276 — — 276 Fixed income equities 208 — — 208 Available-for-Sale Debt Securities — 1,188 — 1,188 Asset Derivatives Cross-currency swaps — 202 — 202 Liability Derivatives Interest rate swaps — ( 2 ) — ( 2 ) Cross-currency swaps — ( 3,397 ) — ( 3,397 ) December 31, 2023 Level 1 Level 2 Level 3 Total Equity Securities Domestic equities $ 1,002 $ — $ — $ 1,002 International equities 215 — — 215 Fixed income equities 209 — — 209 Available-for-Sale Debt Securities — 1,228 — 1,228 Asset Derivatives Cross-currency swaps — 424 — 424 Liability Derivatives Interest rate swaps — ( 2 ) — ( 2 ) Cross-currency swaps — ( 3,601 ) — ( 3,601 ) 17 AT&T INC. MARCH 31, 2024 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued Dollars in millions except per share amounts Investment Securities Our investment securities include both equity and debt securities that are measured at fair value, as well as equity securities without readily determinable fair values. A substantial portion of the fair values of our investment securities is estimated based on quoted market prices. Investments in equity securities not traded on a national securities exchange are valued at cost, less any impairment, and adjusted for changes resulting from observable, orderly transactions for identical or similar securities. Investments in debt securities not traded on a national securities exchange are valued using pricing models, quoted prices of securities with similar characteristics or discounted cash flows. The components comprising total gains and losses in the period on equity securities are as follows: Three months ended March 31, 2024 2023 Total gains (losses) recognized on equity securities $ 97 $ 83 Gains (losses) recognized on equity securities sold ( 3 ) 4 Unrealized gains (losses) recognized on equity securities held at end of period $ 100 $ 79 At March 31, 2024, available-for-sale debt securities totaling $ 1,188 have maturities as follows - less than one year: $ 66 ; one to three years: $ 208 ; three to five years: $ 137 ; five or more years: $ 777 . Our cash equivalents (money market securities), short-term investments (certificate and time deposits) and nonrefundable customer deposits are recorded at amortized cost, and the respective carrying amounts approximate fair values. Short-term investments and nonrefundable customer deposits are recorded in “Prepaid and other current assets” and our investment securities are recorded in “Other Assets” on the consolidated balance sheets. Derivative Financial Instruments We enter into derivative transactions to manage certain market risks, primarily interest rate risk and foreign currency exchange risk. This includes the use of interest rate swaps, interest rate locks, foreign exchange forward contracts and combined interest rate foreign exchange contracts (cross-currency swaps). We do not use derivatives for trading or speculative purposes. We record derivatives on our consolidated balance sheets at fair value that is derived from observable market data, including yield curves and foreign exchange rates (all of our derivatives are Level 2). Cash flows associated with derivative instruments are presented in the same category on the consolidated statements of cash flows as the item being hedged. Fair Value Hedging Periodically, we enter into and designate fixed-to-floating interest rate swaps as fair value hedges. The purpose of these swaps is to manage interest rate risk by managing our mix of fixed-rate and floating-rate debt. These swaps involve the receipt of fixed-rate amounts for floating interest rate payments over the life of the swaps without exchange of the underlying principal amount. We also designate most of our cross-currency swaps and foreign exchange contracts as fair value hedges. The purpose of these contracts is to hedge foreign currency risk associated with changes in spot rates on foreign denominated debt. For cross-currency hedges, we have elected to exclude the change in fair value of the swap related to both time value and cross-currency basis spread from the assessment of hedge effectiveness. For foreign exchange contracts, we have elected to exclude the change in fair value of forward points from the assessment of hedge effectiveness. Unrealized and realized gains or losses from fair value hedges impact the same category on the consolidated statements of income as the item being hedged, including the earnings impact of excluded components. In instances where we have elected to exclude components from the assessment of hedge effectiveness related to fair value hedges, unrealized gains or losses on such excluded components are recorded as a component of accumulated OCI and recognized into earnings over the life of the hedging instrument. Unrealized gains on derivatives designated as fair value hedges are recorded at fair value as assets, and unrealized losses are recorded at fair market value as liabilities. Except for excluded components, changes in the fair value of derivative instruments designated as fair value hedges are offset against the change in fair value of the hedged assets or liabilities through earnings. In the three months ended March 31, 2024 and 2023, no ineffectiveness was measured on fair value hedges. 18 AT&T INC. MARCH 31, 2024 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued Dollars in millions except per share amounts Cash Flow Hedging We designate some of our cross-currency swaps as cash flow hedges to hedge our exposure to variability in expected future cash flows that are attributable to foreign currency risk and interest rate risk generated from our foreign-denominated debt. These agreements include initial and final exchanges of principal from fixed foreign denominated amounts to fixed U.S. dollar denominated amounts, to be exchanged at a specified rate that is usually determined by the market spot rate upon issuance. They also include an interest rate swap of a fixed or floating foreign denominated interest rate to a fixed U.S. dollar denominated interest rate. Unrealized gains on derivatives designated as cash flow hedges are recorded at fair value as assets and unrealized losses are recorded at fair value as liabilities. For derivative instruments designated as cash flow hedges, changes in fair value are reported as a component of accumulated OCI and are reclassified into the consolidated statements of income in the same period the hedged transaction affects earnings. Periodically, we enter into and designate interest rate locks to partially hedge the risk of changes in interest payments attributable to increases in the benchmark interest rate during the period leading up to the probable issuance of fixed-rate debt. We designate our interest rate locks as cash flow hedges. Gains and losses when we settle our interest rate locks are amortized into income over the life of the related debt. Over the next 12 months, we expect to reclassify $ 59 from accumulated OCI to “Interest expense” due to the amortization of net losses on historical interest rate locks. Collateral and Credit-Risk Contingency We have entered into agreements with our derivative counterparties establishing collateral thresholds based on respective credit ratings and netting agreements. At March 31, 2024, we had posted collateral of $ 524 (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 $ 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 $ 3,121 . At December 31, 2023, we had posted collateral of $ 670 (a deposit asset) and held collateral of $ 5 (a receipt liability). We do not offset the fair value of collateral, whether the right to reclaim cash collateral (a receivable) or the obligation to return cash collateral (a payable) exists, against the fair value of the derivative instruments. Following are the notional amounts of our outstanding derivative positions: March 31, December 31, 2024 2023 Interest rate swaps $ 1,750 $ 1,750 Cross-currency swaps 35,825 38,006 Total $ 37,575 $ 39,756 19 AT&T INC. MARCH 31, 2024 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued Dollars in millions except per share amounts Following are the related hedged items affecting our financial position and performance: Effect of Derivatives on the Consolidated Statements of Income Three months ended March 31, Fair Value Hedging Relationships 2024 2023 Interest rate swaps (“Interest expense”): Gain (loss) on interest rate swaps $ — $ 7 Gain (loss) on long-term debt — ( 7 ) Cross-currency swaps: Gain (loss) on cross-currency swaps ( 246 ) 380 Gain (loss) on long-term debt 246 ( 380 ) Gain (loss) recognized in accumulated OCI 255 ( 182 ) Foreign exchange contracts: Gain (loss) on foreign exchange contracts — 7 Gain (loss) on long-term debt — ( 7 ) Gain (loss) recognized in accumulated OCI — ( 3 ) In addition, the net swap settlements that accrued and settled in the periods above were offset against “Interest expense.” The following table presents information for our cash flow hedging relationships: Three months ended March 31, Cash Flow Hedging Relationships 2024 2023 Cross-currency swaps: Gain (loss) recognized in accumulated OCI $ 5 $ ( 10 ) Interest rate locks: Interest income (expense) reclassified from accumulated OCI into income ( 15 ) ( 15 ) NOTE 8. SALES OF RECEIVABLES We have agreements with various third-party financial institutions pertaining to the sales of certain types of our accounts receivable. The most significant of these programs are discussed in detail below and generally consist of (1) receivables arising from equipment installment plans, which are sold for cash and beneficial interests, such as deferred purchase price, when applicable, and (2) revolving trade receivables, which are sold for cash. Under the terms of our agreements for these programs, we continue to service the transferred receivables on behalf of the financial institutions. 20 AT&T INC. MARCH 31, 2024 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, 2024 and 2023: Three months ended March 31, 2024 2023 Net cash received from equipment installment receivables program 1 $ 121 $ 10 Net cash received from revolving receivables program 276 — Net cash received (paid) from other programs — ( 114 ) Total net cash impact to cash flows from operating activities 2 $ 397 $ ( 104 ) 1 Cash from initial sales of $ 2,874 and $ 2,529 for the three months ended March 31, 2024 and 2023, respectively. 2 Net of facility fees. The sales of receivables did not have a material impact on our consolidated statements of income or to “Total Assets” reported on our consolidated balance sheets. We reflect cash receipts on sold receivables as cash flows from operations in our consolidated statements of cash flows. In the event cash is received on the beneficial interests, those receipts are classified as cash flows from investing activities, when applicable. Our equipment installment and revolving receivables programs are discussed in detail below. The following table sets forth a summary of the receivables and accounts being serviced: March 31, 2024 December 31, 2023 Equipment Equipment Installment Revolving Installment Revolving Gross receivables: $ 3,226 $ 698 $ 3,714 $ 924 Balance sheet classification Accounts receivable Notes receivable 1,607 — 1,695 — Trade receivables 551 698 548 924 Other Assets Noncurrent notes and trade receivables 1,068 — 1,471 — Outstanding portfolio of receivables derecognized from our consolidated balance sheets $ 12,490 $ 1,800 $ 12,027 $ 1,500 Cash proceeds received, net of remittances 1 9,539 1,800 9,361 1,500 1 Represents amounts to which financial institutions remain entitled, excluding the beneficial interests. Equipment Installment Receivables Program We offer our customers the option to purchase certain wireless devices in installments over a specified period of time and, in many cases, once certain conditions are met, they may be eligible to trade in the original equipment for a new device and have the remaining unpaid balance paid or settled. We maintain a program under which we transfer a portion of these receivables through our bankruptcy-remote subsidiary in exchange for cash and beneficial interests. In the event a customer trades in a device prior to the end of the installment contract period, we agree to make a payment to the financial institutions equal to any outstanding remaining installment receivable balance. Accordingly, we record a guarantee obligation for this estimated amount at the time the receivables are transferred. 21 AT&T INC. MARCH 31, 2024 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, 2024 and 2023: Three months ended March 31, 2024 2023 Gross receivables sold 1 $ 2,904 $ 2,560 Net receivables sold 2 2,757 2,438 Cash proceeds received 2,874 2,529 Guarantee obligation recorded 266 206 1 Receivables net of promotion credits. 2 Receivables net of allowance and other reserves. Beneficial interests, when applicable, and guarantee obligations are initially recorded at estimated fair value and subsequently adjusted for changes in present value of expected cash flows. The estimation of their fair values is based on remaining installment payments expected to be collected and the expected timing and value of device trade-ins. The estimated value of the device trade-ins considers prices offered to us by independent third parties and contemplates changes in value after the launch of a device model. The fair value measurements used for the beneficial interests 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 beneficial interests during the three months ended March 31, 2024 and 2023: Three months ended March 31, 2024 2023 Fair value of repurchased receivables $ 718 $ 541 Carrying value of beneficial interests 721 542 Gain (loss) on repurchases 1 $ ( 3 ) $ ( 1 ) 1 These gains (losses) are included in “Selling, general and administrative” expense in the consolidated statements of income. At March 31, 2024 and December 31, 2023, our beneficial interests were $ 2,483 and $ 2,270 , respectively, of which $ 1,449 and $ 1,296 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, 2024 and December 31, 2023 was $ 335 and $ 385 , respectively, of which $ 120 and $ 111 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 beneficial interests and guarantee obligation. Revolving Receivables Program During the first quarter of 2024, we expanded our revolving agreement to transfer up to $ 1,800 of certain receivables through our bankruptcy-remote subsidiary to various financial institutions on a recurring basis in exchange for cash equal to the gross receivables transferred. This agreement is subject to renewal on an annual basis and the transfer limit may be expanded or reduced from time to time. As customers pay their balances, we transfer additional receivables into the program, resulting in our gross receivables sold exceeding net cash flow impacts (e.g., collect and reinvest). The transferred receivables are fully guaranteed by our bankruptcy-remote subsidiary, which holds additional receivables in the amount of $ 698 that are pledged as collateral under this agreement. The transfers are recorded at fair value of the proceeds received and obligations assumed less derecognized receivables. Our maximum exposure to loss related to these receivables transferred is limited to the derecognized amount outstanding. 22 AT&T INC. MARCH 31, 2024 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued Dollars in millions except per share amounts The following table sets forth a summary of the revolving receivables sold during the three months ended March 31, 2024 and 2023: Three months ended March 31, 2024 2023 Gross receivables sold/cash proceeds received 1 $ 4,174 $ — Total collections under revolving agreement 3,874 — Net cash proceeds received $ 300 $ — Net receivables sold 2 $ 4,063 $ — 1 Includes initial sales of receivables of $ 300 and $ 0 for the three months ended March 31, 2024 and 2023, respectively. 2 Receivables net of allowance and other reserves. NOTE 9. TRANSACTIONS WITH DIRECTV We account for our investment in DIRECTV under the equity method and record our share of DIRECTV earnings as equity in net income of affiliates, with DIRECTV considered a related party. At March 31, 2024, our investment in DIRECTV was $ 685 . The following table sets forth our share of DIRECTV’s earnings included in equity in net income of affiliates and cash distributions received from DIRECTV as of March 31: March 31, 2024 2023 DIRECTV’s earnings included in equity in net income of affiliates $ 324 $ 534 Distributions classified as operating activities $ 324 $ 534 Distributions classified as investing activities 194 774 Cash distributions received from DIRECTV $ 518 $ 1,308 For the three months ended March 31, 2024 and 2023, we billed DIRECTV approximately $ 145 and $ 240 under commercial arrangements and transition service agreements, which were recorded as a reduction to the operations and support expenses incurred. At March 31, 2024 , we had accounts receivable from DIRECTV of $ 255 and accounts payable to DIRECTV of $ 41 . 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 consolidated balance sheet. NOTE 10. SUPPLIER AND VENDOR FINANCING PROGRAMS Supplier Financing Program We actively manage the timing of our supplier payments for operating items to optimize the use of our cash and seek to make payments on 90-day or greater terms, while providing suppliers with access to bank facilities that permit earlier payment at their cost. Our supplier financing program does not result in changes to our normal, contracted payment cycles or cash from operations. At the supplier’s election, they can receive payment of AT&T obligations prior to the scheduled due dates, at a discounted price from the third-party financial institution. The discounted price paid by participating suppliers is based on a variable rate that is 23 AT&T INC. MARCH 31, 2024 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued Dollars in millions except per share amounts indexed to the overnight borrowing rate. We agree to pay the financial institution the stated amount generally within 90 days of receipt of the invoice. We do not have pledged assets or other guarantees under our supplier financing program. Suppliers had elected to sell to the third-party financial institutions $ 3,203 and $ 2,844 of our outstanding payment obligations as of March 31, 2024 and December 31, 2023, respectively. These amounts are included in “Accounts payable and accrued liabilities” on our consolidated balance sheets. Our supplier financing programs are reported as operating or investing (when capitalizable) activities in our statements of cash flows when paid. Direct Supplier Financing We also have arrangements with suppliers of handset inventory that allow us to extend the stated payment terms by up to 90 days at an additional cost to us (variable rate extension fee). We had $ 3,917 of direct supplier financing outstanding at March 31, 2024 and $ 5,442 as of December 31, 2023, which are included in “Accounts payable and accrued liabilities” on our consolidated balance sheets. Our direct supplier financing is reported as operating activities in our statements of cash flows when paid. Vendor Financing In connection with capital improvements and the acquisition of other productive assets, we negotiate favorable payment terms of 120 days or more (referred to as vendor financing), which are reported as financing activities in our statements of cash flows when paid. For the three months ended March 31, 2024 and 2023, we recorded vendor financing commitments related to capital investments of $ 99 and $ 1,021 , respectively. We had $ 2,021 vendor financing payables at March 31, 2024, with $ 1,215 included in “Accounts payable and accrued liabilities” and $ 2,833 vendor financing payables at December 31, 2023, with $ 1,975 included in “Accounts payable and accrued liabilities.” NOTE 11. ADDITIONAL FINANCIAL INFORMATION Cash and Cash Flows We typically maintain our restricted cash balances for purchases and sales of certain investment securities and funding of certain deferred compensation benefit payments. The following table summarizes cash and cash equivalents and restricted cash balances contained on our consolidated balance sheets: March 31, December 31, 2024 2023 2023 2022 Cash and cash equivalents $ 3,520 $ 2,821 $ 6,722 $ 3,701 Restricted cash in Prepaid and other current assets 1 1 2 1 Restricted cash in Other Assets 83 120 109 91 Cash and Cash Equivalents and Restricted Cash $ 3,604 $ 2,942 $ 6,833 $ 3,793 24 AT&T INC. MARCH 31, 2024 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued Dollars in millions except per share amounts The following table summarizes cash paid during the periods for interest and income taxes: Three months ended March 31, Cash paid (received) during the period for: 2024 2023 Interest $ 2,077 $ 1,971 Income taxes, net of refunds ( 9 ) 10 The following table summarizes capital expenditures: Three months ended March 31, 2024 2023 Purchase of property and equipment $ 3,721 $ 4,291 Interest during construction - capital expenditures 1 37 44 Total Capital Expenditures $ 3,758 $ 4,335 The following table summarizes acquisitions, net of cash acquired: Three months ended March 31, 2024 2023 Business acquisitions $ — $ — Spectrum acquisitions 145 63 Interest during construction - spectrum 1 66 228 Total Acquisitions $ 211 $ 291 1 Total capitalized interest was $ 103 and $ 272 for the three months ended March 31, 2024 and 2023, respectively. 25 AT&T INC. MARCH 31, 2024 Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations Dollars in millions except per share amounts OVERVIEW AT&T Inc. is referred to as “we,” “AT&T” or the “Company” throughout this document. AT&T products and services are provided or offered by subsidiaries and affiliates of AT&T Inc. under the AT&T brand and not by AT&T Inc., and the names of the particular subsidiaries and affiliates providing the services generally have been omitted. AT&T is a holding company whose subsidiaries and affiliates operate worldwide in the telecommunications and technology industries. You should read this discussion in conjunction with the consolidated financial statements and accompanying notes (Notes). We have two reportable segments: Communications and Latin America. Our segment results presented in Note 4 and discussed below follow our internal management reporting. Percentage increases and decreases that are not considered meaningful are denoted with a dash. First Quarter Percent 2024 2023 Change Operating Revenues Communications $ 28,857 $ 29,152 (1.0) % Latin America - Mexico 1,063 883 20.4 Corporate 108 104 3.8 AT&T Operating Revenues $ 30,028 $ 30,139 (0.4) % Operating Income Communications $ 6,745 $ 6,743 — % Latin America - Mexico 3 (30) — Segment Operating Income 6,748 6,713 0.5 Corporate (734) (738) 0.5 Certain significant items (167) 27 — AT&T Operating Income $ 5,847 $ 6,002 (2.6) % The Communications 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. In the first quarter of 2024, we began offering our fixed wireless access product that provides internet services delivered over our 5G wireless network where available. • 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 provides wireless services and equipment in Mexico. 26 AT&T INC. MARCH 31, 2024 Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations- Continued Dollars in millions except per share amounts RESULTS OF OPERATIONS Consolidated Results Our financial results are summarized in the discussions that follow. Additional analysis is discussed in our “Segment Results” section. First Quarter Percent 2024 2023 Change Operating Revenues Service $ 24,842 $ 24,617 0.9 % Equipment 5,186 5,522 (6.1) Total Operating Revenues 30,028 30,139 (0.4) Operating Expenses Operations and support 19,134 19,506 (1.9) Depreciation and amortization 5,047 4,631 9.0 Total Operating Expenses 24,181 24,137 0.2 Operating Income 5,847 6,002 (2.6) Interest expense 1,724 1,708 0.9 Equity in net income of affiliates 295 538 (45.2) Other income (expense) — net 451 935 (51.8) Income Before Income Taxes 4,869 5,767 (15.6) Net Income 3,751 4,453 (15.8) Net Income Attributable to AT&T 3,445 4,228 (18.5) Net Income Attributable to Common Stock $ 3,395 $ 4,176 (18.7) % Operating revenues decreased in the first quarter of 2024, reflecting declines in Mobility equipment revenue and Business Wireline service revenues, partially offset by Mobility service, Consumer Wireline and Mexico revenues . Operations and support expenses decreased in the first quarter of 2024, reflecting lower Mobility equipment costs resulting from lower wireless sales volumes. Also contributing to expense declines are our continued transformation efforts that were offset by higher restructuring charges associated with our deployment of Open RAN, our collaboration with Ericsson for commercial scale open radio access network deployment. Depreciation and amortization expense increased in the first quarter of 2024, primarily due to higher depreciation expense related to ongoing capital spending for strategic initiatives such as fiber and network upgrades. Also contributing to higher depreciation expense was the impact of shortening of estimated economic lives of wireless network equipment that will be replaced earlier than originally anticipated with our deployment of Open RAN. Operating income decreased in the first quarter of 2024. Our operating income margin in the first quarter decreased from 19.9% in 2023 to 19.5% in 2024. Interest expense increased in the first quarter of 2024, primarily due to lower capitalized interest associated with spectrum acquisitions, partially offset by lower debt balances. Interest expense in 2023 also included distributions on Mobility preferred interests, which were repurchased on April 5, 2023. Equity in net income of affiliates decreased in the first quarter of 2024, 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 the first quarter of 2023 (see Note 9). 27 AT&T INC. MARCH 31, 2024 Item 2. 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 2024. The decrease was primarily driven by lower pension and postretirement benefit credits in 2024 (see Note 6), and noncash impairments recognized on a held-for-sale business and an equity investment in a Latin America satellite business. Income tax expense decreased in the first quarter of 2024. The decrease was primarily driven by lower income before income tax. Our effective tax rate was 23.0% in the first quarter of 2024, versus 22.8% in the comparable period in the prior year. COMMUNICATIONS SEGMENT First Quarter Percent 2024 2023 Change Segment Operating Revenues Mobility $ 20,594 $ 20,582 0.1 % Business Wireline 4,913 5,331 (7.8) Consumer Wireline 3,350 3,239 3.4 Total Segment Operating Revenues $ 28,857 $ 29,152 (1.0) % Segment Operating Income Mobility $ 6,468 $ 6,271 3.1 % Business Wireline 64 378 (83.1) Consumer Wireline 213 94 — Total Segment Operating Income $ 6,745 $ 6,743 — % Selected Subscribers and Connections March 31, (in 000s) 2024 2023 Mobility Subscribers 114,513 110,813 Total domestic broadband connections 15,334 15,345 Network access lines in service 3,934 4,938 VoIP connections 2,467 2,835 Operating revenues decreased in the first quarter of 2024, driven by decreases in our Mobility equipment revenue and Business Wireline business unit, which continues to reflect lower demand for legacy services and product simplification. These decreases were partially offset by increases in our Mobility and Consumer Wireline business units, driven by gains in wireless and broadband services. Operating income remains consistent in the first quarter of 2024. Our Communications segment operating income margin in the first quarter increased from 23.1% in 2023 to 23.4% in 2024. 28 AT&T INC. MARCH 31, 2024 Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations- Continued Dollars in millions except per share amounts Communications Business Unit Discussion Mobility Results First Quarter Percent 2024 2023 Change Operating revenues Service $ 15,994 $ 15,483 3.3 % Equipment 4,600 5,099 (9.8) Total Operating Revenues 20,594 20,582 0.1 Operating expenses Operations and support 11,639 12,213 (4.7) Depreciation and amortization 2,487 2,098 18.5 Total Operating Expenses 14,126 14,311 (1.3) Operating Income $ 6,468 $ 6,271 3.1 % The following tables highlight other key measures of performance for Mobility: Subscribers March 31, Percent (in 000s) 2024 2023 Change Postpaid 87,450 85,421 2.4 % Postpaid phone 71,558 70,049 2.2 Prepaid 19,211 19,200 0.1 Reseller 7,852 6,192 26.8 Total Mobility Subscribers 1 114,513 110,813 3.3 % 1 Effective with our first-quarter 2024 reporting, we have removed connected devices from our total Mobility subscribers, consistent with industry standards and our key performance metrics. Connected devices include data-centric devices such as session-based tablets, monitoring devices and primarily wholesale automobile systems. 29 AT&T INC. MARCH 31, 2024 Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations- Continued Dollars in millions except per share amounts Mobility Net Additions First Quarter Percent (in 000s) 2024 2023 Change Postpaid Phone Net Additions 349 424 (17.7) % Total Phone Net Additions 350 464 (24.6) Postpaid 2 389 542 (28.2) Prepaid 1 40 (97.5) Reseller 351 108 — Mobility Net Subscriber Additions 1 741 690 7.4 % Postpaid Churn 3 0.89 % 0.99 % (10) BP Postpaid Phone-Only Churn 3 0.72 % 0.81 % (9) BP 1 Excludes migrations between wireless subscriber categories, including connected devices, and acquisition-related activity during the period. 2 In addition to postpaid phones, includes tablets and wearables and other. Tablet net adds (losses) were (12) and (18) for the quarters ended March 31, 2024 and 2023. Wearables and other net adds were 52 and 136 for the quarters ended March 31, 2024 and 2023. 3 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 of 2024. The increases are largely due to growth from subscriber gains and postpaid phone average revenue per subscriber (ARPU) growth. ARPU ARPU increased in the first quarter of 2024, reflecting pricing actions taken in the third quarter of 2023. Churn The effective management of subscriber churn is critical to our ability to maximize revenue growth and to maintain and improve margins. Postpaid churn and postpaid phone-only churn were lower in the first quarter of 2024. Equipment revenue decreased in the first quarter of 2024, primarily driven by a lower wireless sales volumes. Operations and support expenses decreased in the first quarter of 2024 largely due to lower equipment costs. Depreciation expense increased in the first quarter of 2024, primarily due to shortening of estimated economic lives of wireless equipment that will be replaced earlier than originally anticipated with our Open RAN deployment and network transformation, and ongoing capital spending for network upgrades and expansion, which we expect to continue through the remainder of 2024. Operating income increased in the first quarter of 2024. Our Mobility operating income margin in the first quarter increased from 30.5% in 2023 to 31.4% in 2024. Our Mobility EBITDA margin in the first quarter increased from 40.7% in 2023 to 43.5% in 2024. EBITDA is defined as operating income excluding depreciation and amortization. 30 AT&T INC. MARCH 31, 2024 Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations- Continued Dollars in millions except per share amounts Business Wireline Results First Quarter Percent 2024 2023 Change Operating revenues Service $ 4,700 $ 5,200 (9.6) % Equipment 213 131 62.6 Total Operating Revenues 4,913 5,331 (7.8) Operating expenses Operations and support 3,487 3,623 (3.8) Depreciation and amortization 1,362 1,330 2.4 Total Operating Expenses 4,849 4,953 (2.1) Operating Income $ 64 $ 378 (83.1) % Service revenues decreased in the first quarter of 2024, 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 increased in the first quarter of 2024, driven by higher customer premises equipment sales, which are nonrecurring in nature. Operations and support expenses decreased in the first quarter of 2024, primarily driven by lower personnel costs associated with ongoing transformation initiatives, lower marketing and customer support expenses, partially offset by higher equipment costs. As part of our transformation activities, we expect operations and support expense improvements through the remainder of 2024 as we further right size our operations in alignment with the strategic direction of the business. Depreciation expense increased in the first quarter of 2024, primarily due to ongoing capital investment for strategic initiatives such as fiber, which we expect to continue through the remainder of 2024. Operating income decreased in the first quarter of 2024. Our Business Wireline operating income margin in the first quarter decreased from 7.1% in 2023 to 1.3% in 2024. Our Business Wireline EBITDA margin in the first quarter decreased from 32.0% in 2023 to 29.0% in 2024. Consumer Wireline Results First Quarter Percent 2024 2023 Change Operating revenues Broadband $ 2,722 $ 2,527 7.7 % Legacy voice and data services 342 396 (13.6) Other service and equipment 286 316 (9.5) Total Operating Revenues 3,350 3,239 3.4 Operating expenses Operations and support 2,256 2,284 (1.2) Depreciation and amortization 881 861 2.3 Total Operating Expenses 3,137 3,145 (0.3) Operating Income $ 213 $ 94 — % 31 AT&T INC. MARCH 31, 2024 Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations- Continued Dollars in millions except per share amounts The following tables highlight other key measures of performance for Consumer Wireline: Connections March 31, Percent (in 000s) 2024 2023 Change Broadband Connections Total Broadband and DSL Connections 13,930 13,949 (0.1) % Broadband 1 13,784 13,730 0.4 Fiber Broadband Connections 8,559 7,487 14.3 Voice Connections Retail Consumer Switched Access Lines 1,553 1,921 (19.2) Consumer VoIP Connections 1,869 2,212 (15.5) Total Retail Consumer Voice Connections 3,422 4,133 (17.2) % 1 Includes AT&T Internet Air. Broadband Net Additions First Quarter Percent (in 000s) 2024 2023 Change Total Broadband and DSL Net Additions 40 (42) — % Broadband Net Additions 1 55 (23) — Fiber Broadband Net Additions 252 272 (7.4) % 1 Includes AT&T Internet Air. Broadband revenues increased in the first quarter of 2024, driven by an increase in fiber customers, which we expect to continue as we invest further in building our fiber footprint, and higher ARPU due to prior-year promotional pricing, partially offset by declines in copper-based broadband services. Legacy voice and data service revenues decreased in the first quarter of 2024, reflecting the continued decline in demand for these services in favor of other technologies, such as wireless and fiber services. Other service and equipment revenues decreased in the first quarter of 2024, reflecting the continued decline in the number of VoIP customers. Operations and support expenses decreased in the first quarter of 2024. Expense decreases were primarily due to lower customer support costs, partially offset by higher network-related costs as our fiber build scales. Depreciation expense increased in the first quarter of 2024, primarily due to ongoing capital spending for strategic initiatives such as fiber and network upgrades and expansion, which we expect to continue through the remainder of 2024. Operating income increased in the first quarter of 2024. Our Consumer Wireline operating income margin in the first quarter increased from 2.9% in 2023 to 6.4% in 2024. Our Consumer Wireline EBITDA margin in the first quarter increased from 29.5% in 2023 to 32.7% in 2024. 32 AT&T INC. MARCH 31, 2024 Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations- Continued Dollars in millions except per share amounts LATIN AMERICA SEGMENT First Quarter 2024 2023 Percent Change Segment Operating Revenues Service $ 690 $ 591 16.8 % Equipment 373 292 27.7 Total Segment Operating Revenues 1,063 883 20.4 Segment Operating Expenses Operations and support 883 738 19.6 Depreciation and amortization 177 175 1.1 Total Segment Operating Expenses 1,060 913 16.1 Operating Income (Loss) $ 3 $ (30) — % The following tables highlight other key measures of performance for Mexico: Subscribers March 31, Percent (in 000s) 2024 2023 Change Mexico Wireless Subscribers Postpaid 5,352 4,973 7.6 % Prepaid 16,742 16,146 3.7 Reseller 365 494 (26.1) Total Mexico Wireless Subscribers 22,459 21,613 3.9 % Mexico Wireless Net Additions First Quarter Percent (in 000s) 2024 2023 Change Mexico Wireless Net Additions Postpaid 116 49 — % Prepaid 79 (58) — Reseller (52) 19 — Total Mexico Wireless Net Additions 143 10 — % Service revenues increased in the first quarter of 2024 reflecting favorable foreign exchange impacts and growth in subscribers. Equipment revenues increased in the first quarter of 2024 driven by higher equipment sales and favorable foreign exchange impacts. Operations and support expenses increased in the first quarter of 2024 driven by unfavorable impact of foreign exchange and increased equipment costs resulting from higher sales. Approximately 4% of Mexico expenses are U.S. dollar based, with the remainder in the local currency. Depreciation and amortization expense increased in the first quarter of 2024 driven by unfavorable impact of foreign exchange partially offset by lower in-service assets. 33 AT&T INC. MARCH 31, 2024