0000732717 us-gaap:~~OperatingSegmentsMember t:WarnerMediaMember t:WarnerBrosMember t:SubscriptionArrangementServiceRevenueMember 2018-01-01 2018-09-30~~FundedPlanMember us-gaap:OtherPostretirementBenefitPlansDefinedBenefitMember us-gaap:QualifiedPlanMember 2019-01-01 2019-06-30

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☒

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~September~~June 30, ~~2019~~2020

☐

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number 001-8610

AT&T INC.

Incorporated under the laws of the State of Delaware

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

208 S. Akard St., Dallas, Texas 75202

Telephone Number: (210) 821-4105

Securities registered pursuant to Section 12(b) of the Act

		Name of each exchange
Title of each class	Trading Symbol(s)	on which registered
Common Shares (Par Value $1.00 Per Share)	T	New York Stock Exchange
Depositary Shares, each representing a 1/1000th interest in a share of 5.000% Perpetual Preferred Stock, Series A	T PRA	New York Stock Exchange
Depositary Shares, each representing a 1/1000th interest in a share of 4.750% Perpetual Preferred Stock, Series C	T PRC	New York Stock Exchange
AT&T Inc. Floating Rate Global Notes due August 3, 2020	T 20C	New York Stock Exchange
AT&T Inc. 1.875% Global Notes due December 4, 2020	T 20	New York Stock Exchange
AT&T Inc. ~~2.65%~~2.650% Global Notes due December 17, 2021	T 21B	New York Stock Exchange
AT&T Inc. ~~1.45%~~1.450% Global Notes due June 1, 2022	T 22B	New York Stock Exchange
AT&T Inc. ~~2.50%~~2.500% Global Notes due March 15, 2023	T 23	New York Stock Exchange
AT&T Inc. ~~2.75%~~2.750% Global Notes due May 19, 2023	T 23C	New York Stock Exchange
AT&T Inc. Floating Rate Global Notes due September 5, 2023	T 23D	New York Stock Exchange
AT&T Inc. ~~1.05%~~1.050% Global Notes due September 5, 2023	T 23E	New York Stock Exchange
AT&T Inc. ~~1.30%~~1.300% Global Notes due September 5, 2023	T 23A	New York Stock Exchange
AT&T Inc. ~~1.95%~~1.950% Global Notes due September 15, 2023	T 23F	New York Stock Exchange
AT&T Inc. ~~2.40%~~2.400% Global Notes due March 15, 2024	T 24A	New York Stock Exchange
AT&T Inc. ~~3.50%~~3.500% Global Notes due December 17, 2025	T 25	New York Stock Exchange
~~AT&T Inc. 0.250% Global Notes due March 4, 2026~~	~~T 26E~~	~~New York Stock Exchange~~
~~AT&T Inc. 1.80% Global Notes due September 5, 2026~~	~~T 26D~~	~~New York Stock Exchange~~
~~AT&T Inc. 2.90% Global Notes due December 4, 2026~~	~~T 26A~~	~~New York Stock Exchange~~

		Name of each exchange
Title of each class	Trading Symbol(s)	on which registered
AT&T Inc. ~~2.35%~~0.250% Global Notes due March 4, 2026	T 26E	New York Stock Exchange
AT&T Inc. 1.800% Global Notes due September 5, 2026	T 26D	New York Stock Exchange
AT&T Inc. 2.900% Global Notes due December 4, 2026	T 26A	New York Stock Exchange
AT&T Inc. 1.600% Global Notes due May 19, 2028	T 28C	New York Stock Exchange
AT&T Inc. 2.350% Global Notes due September 5, 2029	T 29D	New York Stock Exchange
AT&T Inc. 4.375% Global Notes due September 14, 2029	T 29B	New York Stock Exchange
AT&T Inc. ~~2.60%~~2.600% Global Notes due December 17, 2029	T 29A	New York Stock Exchange
AT&T Inc. 0.800% Global Notes due March 4, 2030	T 30B	New York Stock Exchange
AT&T Inc. ~~3.55%~~2.050% Global Notes due May 19, 2032	T 32A	New York Stock Exchange
AT&T Inc. 3.550% Global Notes due December 17, 2032	T 32	New York Stock Exchange
AT&T Inc. ~~5.20%~~5.200% Global Notes due November 18, 2033	T 33	New York Stock Exchange
AT&T Inc. 3.375% Global Notes due March 15, 2034	T 34	New York Stock Exchange
AT&T Inc. ~~2.45%~~2.450% Global Notes due March 15, 2035	T 35	New York Stock Exchange
AT&T Inc. ~~3.15%~~3.150% Global Notes due September 4, 2036	T 36A	New York Stock Exchange
AT&T Inc. 2.600% Global Notes due May 19, 2038	T 38C	New York Stock Exchange
AT&T Inc. 1.800% Global Notes due September 14, 2039	T 39B	New York Stock Exchange
AT&T Inc. ~~7.00%~~7.000% Global Notes due April 30, 2040	T 40	New York Stock Exchange
AT&T Inc. ~~4.25%~~4.250% Global Notes due June 1, 2043	T 43	New York Stock Exchange
AT&T Inc. 4.875% Global Notes due June 1, 2044	T 44	New York Stock Exchange
AT&T Inc. ~~5.35%~~4.000% Global Notes due June 1, 2049	T 49A	New York Stock Exchange
AT&T Inc. 4.250% Global Notes due March 1, 2050	T 50	New York Stock Exchange
AT&T Inc. 3.750% Global Notes due September 1, 2050	T 50A	New York Stock Exchange
AT&T Inc. 5.350% Global Notes due November 1, 2066	TBB	New York Stock Exchange
AT&T Inc. 5.625% Global Notes due August 1, 2067	TBC	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes [X] No [ ]

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes [X] No [ ]

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

Large Accelerated Filer	[X]	Accelerated Filer	[ ]
Non-accelerated filer	[ ]	Smaller reporting company	[ ]
		Emerging growth company	[ ]

If an emerging growth company, indicate by checkmark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Yes [ ] No [ ]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes [ ] No [X]

At ~~October~~July 31, ~~2019,~~2020, there were ~~7,305~~7,125 million common shares outstanding.

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

AT&T INC.	AT&T INC.								AT&T INC.
CONSOLIDATED STATEMENTS OF INCOME	CONSOLIDATED STATEMENTS OF INCOME								CONSOLIDATED STATEMENTS OF INCOME
Dollars in millions except per share amounts	Dollars in millions except per share amounts								Dollars in millions except per share amounts
(Unaudited)	(Unaudited)								(Unaudited)
		Three months ended				Nine months ended				Three months ended				Six months ended
		September 30,				September 30,				June 30,				June 30,
		2019		2018		2019		2018		2020		2019		2020		2019
Operating Revenues
Service	$	40,317	$	41,297	$	122,024	$	109,849	$	37,051	$	41,023	$	75,934	$	81,707
Equipment		4,271		4,442		12,348		12,914		3,899		3,934		7,795		8,077
Total operating revenues		44,588		45,739		134,372		122,763		40,950		44,957		83,729		89,784

Operating Expenses
Cost of revenues
Equipment		4,484		4,828		13,047		14,053		3,978		4,061		8,070		8,563
Broadcast, programming and operations		7,066		7,227		22,448		17,842		5,889		7,730		12,643		15,382
Other cost of revenues (exclusive of depreciation and amortization shown separately below)		8,604		8,651		25,910		24,215
Other cost of revenues (exclusive of depreciation and
amortization shown separately below)										8,116		8,721		16,458		17,306
Selling, general and administrative		9,584		9,598		29,077		26,179		9,831		9,844		18,591		19,493
Asset impairments and abandonments										2,319		-		2,442		-
Depreciation and amortization		6,949		8,166		21,256		20,538		7,285		7,101		14,507		14,307
Total operating expenses		36,687		38,470		111,738		102,827		37,418		37,457		72,711		75,051
Operating Income		7,901		7,269		22,634		19,936		3,532		7,500		11,018		14,733
Other Income (Expense)
Interest expense		(2,083)		(2,051)		(6,373)		(5,845)		(2,041)		(2,149)		(4,059)		(4,290)
Equity in net income (loss) of affiliates		3		(64)		36		(71)		(10)		40		(16)		33
Other income (expense) – net		(935)		1,053		(967)		5,108		1,017		(318)		1,820		(32)
Total other income (expense)		(3,015)		(1,062)		(7,304)		(808)		(1,034)		(2,427)		(2,255)		(4,289)
Income Before Income Taxes		4,886		6,207		15,330		19,128		2,498		5,073		8,763		10,444
Income tax expense		937		1,391		3,059		4,305		935		1,099		2,237		2,122
Net Income		3,949		4,816		12,271		14,823		1,563		3,974		6,526		8,322
Less: Net Income Attributable to Noncontrolling Interest		(249)		(98)		(762)		(311)		(282)		(261)		(635)		(513)
Net Income Attributable to AT&T	$	3,700	$	4,718	$	11,509	$	14,512	$	1,281	$	3,713	$	5,891	$	7,809
Basic Earnings Per Share Attributable to AT&T	$	0.50	$	0.65	$	1.57	$	2.19
Diluted Earnings Per Share Attributable to AT&T	$	0.50	$	0.65	$	1.57	$	2.19
Weighted Average Number of Common Shares Outstanding – Basic (in millions)		7,327		7,284		7,321		6,603
Weighted Average Number of Common Shares Outstanding – with Dilution (in millions)		7,356		7,320		7,350		6,630
Less: Preferred Stock Dividends										(52)		-		(84)		-
Net Income Attributable to Common Stock									$	1,229	$	3,713	$	5,807	$	7,809
Basic Earnings Per Share Attributable to
Common Stock									$	0.17	$	0.51	$	0.81	$	1.06
Diluted Earnings Per Share Attributable to
Common Stock									$	0.17	$	0.51	$	0.81	$	1.06
Weighted Average Number of Common Shares
Outstanding – Basic (in millions)										7,145		7,323		7,166		7,318
Weighted Average Number of Common Shares
Outstanding – with Dilution (in millions)										7,170		7,353		7,192		7,347
See Notes to Consolidated Financial Statements.

AT&T INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME	CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME								CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Dollars in millions
(Unaudited)
	Three months ended				Nine months ended				Three months ended				Six months ended
	September 30,				September 30,				June 30,				June 30,
	2019		2018		2019		2018		2020		2019		2020		2019
Net income	$	3,949	$	4,816	$	12,271	$	14,823	$	1,563	$	3,974	$	6,526	$	8,322
Other comprehensive income (loss), net of tax:
Foreign currency:
Translation adjustment (includes $(17), $(7), $(15) and $(37)
Translation adjustment (includes $(8), $2, $(59) and $2
attributable to noncontrolling interest), net of taxes of
$(69), $(2), $(21) and $(145)		(342)		(14)		(181)		(824)
$(135), $(1), $(197) and $48										305		(127)		(1,549)		161
Securities:
Net unrealized gains (losses), net of taxes of $7, $(4), $22
and $(8)		25		(10)		67		(22)
Net unrealized gains (losses), net of taxes of $5, $10, $27
and $15										14		26		80		42
Derivative instruments:
Net unrealized gains (losses), net of taxes of $(168), $0,
$(299) and $68		(516)		4		(1,006)		257
Net unrealized gains (losses), net of taxes of $168, $(165),
$(803) and $(131)										631		(617)		(3,026)		(490)
Reclassification adjustment included in net income,
net of taxes of $2, $3, $7 and $9		7		12		24		35
net of taxes of $4, $3, $4 and $5										17		6		17		17
Defined benefit postretirement plans:
Net prior service (cost) credit arising during period, net of taxes of $0, $0, $0 and $173		-		-		-		530
Amortization of net prior service credit included in net
income, net of taxes of $(112), $(108), $(332)
and $(322)		(343)		(332)		(1,031)		(989)
income, net of taxes of $(150), $(107), $(301)
and $(220)										(461)		(342)		(922)		(688)
Other comprehensive income (loss)		(1,169)		(340)		(2,127)		(1,013)		506		(1,054)		(5,400)		(958)
Total comprehensive income		2,780		4,476		10,144		13,810		2,069		2,920		1,126		7,364
Less: Total comprehensive income attributable to
noncontrolling interest		(232)		(91)		(747)		(274)		(274)		(263)		(576)		(515)
Total Comprehensive Income Attributable to AT&T	$	2,548	$	4,385	$	9,397	$	13,536	$	1,795	$	2,657	$	550	$	6,849
See Notes to Consolidated Financial Statements.

AT&T INC.	AT&T INC.				AT&T INC.
CONSOLIDATED BALANCE SHEETS	CONSOLIDATED BALANCE SHEETS				CONSOLIDATED BALANCE SHEETS
Dollars in millions except per share amounts	Dollars in millions except per share amounts				Dollars in millions except per share amounts
	September 30,		December 31,		June 30,		December 31,
	2019		2018		2020		2019
Assets	(Unaudited)				(Unaudited)
Current Assets
Cash and cash equivalents	$	6,588	$	5,204	$	16,941	$	12,130
Accounts receivable - net of allowances for doubtful accounts of $1,121 and $907		22,921		26,472
Accounts receivable - net of related allowances for credit loss of $1,606 and $1,235						19,127		22,636
Prepaid expenses		1,493		2,047		1,439		1,631
Other current assets		19,693		17,704		19,048		18,364
Total current assets		50,695		51,427		56,555		54,761
Noncurrent Inventories and Theatrical Film and Television Production Costs		12,014		7,713		14,514		12,434
Property, plant and equipment		337,240		330,690		332,883		333,538
Less: accumulated depreciation and amortization		(205,924)		(199,217)		(203,938)		(203,410)
Property, Plant and Equipment – Net		131,316		131,473		128,945		130,128
Goodwill		146,106		146,370		143,651		146,241
Licenses – Net		96,026		96,144		98,763		97,907
Trademarks and Trade Names – Net		23,855		24,345		23,757		23,567
Distribution Networks – Net		15,806		17,069		14,704		15,345
Other Intangible Assets – Net		22,060		26,269		18,452		20,798
Investments in and Advances to Equity Affiliates		4,137		6,245		2,302		3,695
Operating lease right-of-use assets		24,477		-
Operating Lease Right-Of-Use Assets						24,692		24,039
Other Assets		22,304		24,809		21,563		22,754
Total Assets	$	548,796	$	531,864	$	547,898	$	551,669

Liabilities and Stockholders’ Equity
Current Liabilities
Debt maturing within one year	$	11,608	$	10,255	$	15,576	$	11,838
Accounts payable and accrued liabilities		43,955		43,184		41,881		45,956
Advanced billings and customer deposits		6,097		5,948		5,723		6,124
Accrued taxes		2,741		1,179		2,548		1,212
Dividends payable		3,725		3,854		3,741		3,781
Total current liabilities		68,126		64,420		69,469		68,911
Long-Term Debt		153,568		166,250		153,388		151,309
Deferred Credits and Other Noncurrent Liabilities
Deferred income taxes		57,786		57,859		58,387		59,502
Postemployment benefit obligation		22,853		19,218		18,167		18,788
Operating lease liabilities		22,288		-		22,230		21,804
Other noncurrent liabilities		29,848		30,233		32,804		29,421
Total deferred credits and other noncurrent liabilities		132,775		107,310		131,588		129,515

Stockholders’ Equity
Common stock ($1 par value, 14,000,000,000 authorized at September 30, 2019 and
December 31, 2018: issued 7,620,748,598 at September 30, 2019 and December 31, 2018)		7,621		7,621
Preferred stock ($1 par value, 10,000,000 authorized ):
Series A (48,000 issued and outstanding at June 30, 2020 and December 31, 2019)						-		-
Series B (20,000 issued and outstanding at June 30, 2020
and 0 issued and outstanding at December 31, 2019)						-		-
Series C (70,000 issued and outstanding at June 30, 2020
and 0 issued and outstanding at December 31, 2019)						-		-
Common stock ($1 par value, 14,000,000,000 authorized at June 30, 2020 and
December 31, 2019: issued 7,620,748,598 at June 30, 2020 and December 31, 2019)						7,621		7,621
Additional paid-in capital		125,139		125,525		130,046		126,279
Retained earnings		59,347		58,753		56,045		57,936
Treasury stock (317,374,689 at September 30, 2019 and 339,120,073 December 31, 2018,
Treasury stock (495,425,902 at June 30, 2020 and 366,193,458 December 31, 2019,
at cost)		(11,195)		(12,059)		(17,945)		(13,085)
Accumulated other comprehensive income		2,137		4,249		129		5,470
Noncontrolling interest		11,278		9,795		17,557		17,713
Total stockholders’ equity		194,327		193,884		193,453		201,934
Total Liabilities and Stockholders’ Equity	$	548,796	$	531,864	$	547,898	$	551,669
See Notes to Consolidated Financial Statements.

AT&T INC.	AT&T INC.				AT&T INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS	CONSOLIDATED STATEMENTS OF CASH FLOWS				CONSOLIDATED STATEMENTS OF CASH FLOWS
Dollars in millions	Dollars in millions				Dollars in millions
(Unaudited)
	Nine months ended				Six months ended
	September 30,				June 30,
	2019		2018		2020		2019
Operating Activities
Net income	$	12,271	$	14,823	$	6,526	$	8,322
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		21,256		20,538		14,507		14,307
Amortization of television and film costs		7,059		1,608		3,985		5,199
Undistributed earnings from investments in equity affiliates		81		312		64		76
Provision for uncollectible accounts		1,855		1,240		1,199		1,216
Deferred income tax expense		1,039		4,337		653		1,080
Net (gain) loss from investments, net of impairments		(1,014)		(501)
Net (gain) loss on investments, net of impairments						(705)		(905)
Pension and postretirement benefit expense (credit)		(1,297)		(762)		(1,495)		(808)
Actuarial (gain) loss on pension and postretirement benefits		4,048		(2,726)		-		2,131
Asset impairments and abandonments						2,442		-
Changes in operating assets and liabilities:
Receivables		2,503		(1,268)		2,522		3,584
Other current assets, inventories and theatrical film and television production costs		(9,337)		(2,729)		(5,592)		(5,422)
Accounts payable and other accrued liabilities		(936)		(1,385)		(3,847)		(3,056)
Equipment installment receivables and related sales		848		220		226		1,144
Deferred customer contract acquisition and fulfillment costs		(796)		(2,657)		322		(614)
Postretirement claims and contributions		(635)		(630)		(228)		(424)
Other - net		(220)		1,102		346		(494)
Total adjustments		24,454		16,699		14,399		17,014
Net Cash Provided by Operating Activities		36,725		31,522		20,925		25,336
Investing Activities
Capital expenditures:
Purchase of property and equipment		(15,683)		(16,695)		(9,372)		(10,542)
Interest during construction		(160)		(404)		(60)		(112)
Acquisitions, net of cash acquired		(1,124)		(43,116)		(1,174)		(320)
Dispositions		3,775		983		347		3,593
(Purchases), sales and settlements of securities and investments, net		523		(234)		47		396
Advances to and investments in equity affiliates, net		(333)		(1,021)		(66)		(314)
Cash collections of deferred purchase price		-		500
Net Cash Used in Investing Activities		(13,002)		(59,987)		(10,278)		(7,299)
Financing Activities
Net change in short-term borrowings with original maturities of three months or less		(22)		(1,071)		498		119
Issuance of other short-term borrowings		4,012		4,852		8,440		3,067
Repayment of other short-term borrowings		(4,702)		(1,075)		(5,975)		(3,148)
Issuance of long-term debt		15,034		38,325		21,060		10,030
Repayment of long-term debt		(24,368)		(43,579)		(17,284)		(16,124)
Payment of vendor financing		(2,601)		(347)		(1,354)		(1,836)
Issuance of preferred stock						3,869		-
Purchase of treasury stock		(409)		(577)		(5,480)		(240)
Issuance of treasury stock		576		359		84		455
Issuance of preferred interests in subsidiary		1,488		-
Dividends paid		(11,162)		(9,775)		(7,474)		(7,436)
Other		(187)		(791)		(2,295)		330
Net Cash Used in Financing Activities		(22,341)		(13,679)		(5,911)		(14,783)
Net increase (decrease) in cash and cash equivalents and restricted cash		1,382		(42,144)
Net increase in cash and cash equivalents and restricted cash						4,736		3,254
Cash and cash equivalents and restricted cash beginning of year		5,400		50,932		12,295		5,400
Cash and Cash Equivalents and Restricted Cash End of Period	$	6,782	$	8,788	$	17,031	$	8,654
See Notes to Consolidated Financial Statements.	See Notes to Consolidated Financial Statements.				See Notes to Consolidated Financial Statements.

AT&T INC.	AT&T INC.												AT&T INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY	CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY												CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
Dollars and shares in millions except per share amounts	Dollars and shares in millions except per share amounts												Dollars and shares in millions except per share amounts
(Unaudited)	(Unaudited)												(Unaudited)
	Three months ended						Nine months ended						Three months ended						Six months ended
	September 30, 2019			September 30, 2018			September 30, 2019			September 30, 2018			June 30, 2020			June 30, 2019			June 30, 2020			June 30, 2019
	Shares	Amount		Shares	Amount		Shares	Amount		Shares	Amount		Shares	Amount		Shares	Amount		Shares	Amount		Shares	Amount

Preferred Stock - Series A
Balance at beginning of year													-	$	-	-	$	-	-	$	-	-	$	-
Issuance of stock													-		-	-		-	-		-	-		-
Balance at end of period													-	$	-	-	$	-	-	$	-	-	$	-
Preferred Stock - Series B
Balance at beginning of year													-	$	-	-	$	-	-	$	-	-	$	-
Issuance of stock													-		-	-		-	-		-	-		-
Balance at end of period													-	$	-	-	$	-	-	$	-	-	$	-
Preferred Stock - Series C
Balance at beginning of year													-	$	-	-	$	-	-	$	-	-	$	-
Issuance of stock													-		-	-		-	-		-	-		-
Balance at end of period													-	$	-	-	$	-	-	$	-	-	$	-
Common Stock
Balance at beginning of period	7,621	$	7,621	7,621	$	7,621	7,621	$	7,621	6,495	$	6,495	7,621	$	7,621	7,621	$	7,621	7,621	$	7,621	7,621	$	7,621
Issuance of stock	-		-	-		-	-		-	1,126		1,126	-		-	-		-	-		-	-		-
Balance at end of period	7,621	$	7,621	7,621	$	7,621	7,621	$	7,621	7,621	$	7,621	7,621	$	7,621	7,621	$	7,621	7,621	$	7,621	7,621	$	7,621

Additional Paid-In Capital
Balance at beginning of period		$	125,109		$	125,960		$	125,525		$	89,563		$	129,966		$	125,174		$	126,279		$	125,525
Issuance of common stock			-			-			-			35,473
Repurchase and acquisition of common stock															-			-			67			-
Issuance of preferred stock															-			-			3,869			-
Issuance of treasury stock			(1)			(45)			(128)			(49)			(7)			(50)			(54)			(127)
Share-based payments			31			(209)			(258)			719			87			(15)			(115)			(289)
Balance at end of period		$	125,139		$	125,706		$	125,139		$	125,706		$	130,046		$	125,109		$	130,046		$	125,109

Retained Earnings
Balance at beginning of period		$	59,389		$	56,555		$	58,753		$	50,500		$	58,534		$	59,424		$	57,936		$	58,753
Net income attributable to AT&T ($0.50,
$0.65, $1.57 and $2.19 per diluted share)			3,700			4,718			11,509			14,512
Dividends to stockholders ($0.51, $0.50,
$1.53, and $1.50 per share)			(3,742)			(3,649)			(11,231)			(10,388)
Cumulative effect of accounting changes			-			-			316			3,000
Balance at end of period		$	59,347		$	57,624		$	59,347		$	57,624

Treasury Stock
Balance at beginning of period	(316)	$	(11,151)	(361)	$	(12,872)	(339)	$	(12,059)	(356)	$	(12,714)
Repurchase and acquisition of common stock	(5)		(186)	(1)		(34)	(14)		(466)	(19)		(641)
Issuance of treasury stock	4		142	11		420	36		1,330	24		869
Net income attributable to AT&T															1,281			3,713			5,891			7,809
Preferred stock dividends															(36)			-			(68)			-
Common stock dividends ( $0.52, $0.51,
$1.04, and $1.02 per share)															(3,734)			(3,748)			(7,421)			(7,489)
Cumulative effect of accounting change
and other adjustments															-			-			(293)			316
Balance at end of period	(317)	$	(11,195)	(351)	$	(12,486)	(317)	$	(11,195)	(351)	$	(12,486)		$	56,045		$	59,389		$	56,045		$	59,389
See Notes to Consolidated Financial Statements.	See Notes to Consolidated Financial Statements.												See Notes to Consolidated Financial Statements.

AT&T INC.	AT&T INC.												AT&T INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY - continued	CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY - continued												CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY - continued
Dollars and shares in millions except per share amounts	Dollars and shares in millions except per share amounts												Dollars and shares in millions except per share amounts
(Unaudited)	(Unaudited)												(Unaudited)
	Three months ended						Nine months ended						Three months ended						Six months ended
	September 30, 2019			September 30, 2018			September 30, 2019			September 30, 2018			June 30, 2020			June 30, 2019			June 30, 2020			June 30, 2019
	Shares	Amount		Shares	Amount		Shares	Amount		Shares	Amount		Shares	Amount		Shares	Amount		Shares	Amount		Shares	Amount
Treasury Stock
Balance at beginning of period													(496)	$	(17,957)	(324)	$	(11,452)	(366)	$	(13,085)	(339)	$	(12,059)
Repurchase and acquisition of common stock													-		(34)	(2)		(72)	(148)		(5,581)	(9)		(280)
Issuance of treasury stock													1		46	10		373	19		721	32		1,188
Balance at end of period													(495)	$	(17,945)	(316)	$	(11,151)	(495)	$	(17,945)	(316)	$	(11,151)
Accumulated Other Comprehensive
Income Attributable to AT&T, net of tax	Income Attributable to AT&T, net of tax
Balance at beginning of period		$	3,289		$	5,716		$	4,249		$	7,017		$	(385)		$	4,345		$	5,470		$	4,249
Other comprehensive income
attributable to AT&T			(1,152)			(333)			(2,112)			(976)			514			(1,056)			(5,341)			(960)
Amounts reclassified to retained earnings			-			-			-			(658)
Balance at end of period		$	2,137		$	5,383		$	2,137		$	5,383		$	129		$	3,289		$	129		$	3,289

Noncontrolling Interest
Balance at beginning of period		$	9,824		$	1,150		$	9,795		$	1,146		$	17,670		$	9,839		$	17,713		$	9,795
Net income attributable to
noncontrolling interest			249			98			762			311			282			261			635			513
Interest acquired by noncontrolling owners			1,488			-			1,498			8			-			1			1			10
Acquisition of noncontrolling interest			-			-			-			1
Acquisition of interests held by
noncontrolling owners			-			(9)			-			(9)
Distributions			(266)			(109)			(791)			(332)			(387)			(279)			(726)			(525)
Translation adjustments attributable to
noncontrolling interest, net of taxes			(17)			(7)			(15)			(37)			(8)			2			(59)			2
Cumulative effect of accounting changes			-			-			29			35
Cumulative effect of accounting change
and other adjustments															-			-			(7)			29
Balance at end of period		$	11,278		$	1,123		$	11,278		$	1,123		$	17,557		$	9,824		$	17,557		$	9,824

Total Stockholders’ Equity at beginning
of period		$	194,081		$	184,130		$	193,884		$	142,007		$	195,449		$	194,951		$	201,934		$	193,884
Total Stockholders’ Equity at end
of period		$	194,327		$	184,971		$	194,327		$	184,971		$	193,453		$	194,081		$	193,453		$	194,081
See Notes to Consolidated Financial Statements.	See Notes to Consolidated Financial Statements.												See Notes to Consolidated Financial Statements.

AT&T INC.

~~SEPTEMBER~~JUNE 30, ~~2019~~2020

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, including the operating results of Warner Media, LLC (referred to as “Time Warner” or “WarnerMedia”), which was acquired on June 14, 2018 (see Note 8). Our operating results for 2018 include the results from Time Warner following the acquisition date.control. AT&T is a holding company whose subsidiaries and affiliates operate worldwide in the telecommunications, media 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, ~~2018.~~2019. 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 for periods ended within up to one quarter of our period end. We also record our proportionate share of our equity method investees’ other comprehensive income (OCI) items.

The preparation of financial statements in conformity with U.S. generally accepted accounting principles (GAAP) requires management to make estimates and assumptions, including potential impacts arising from the COVID-19 pandemic, that affect the amounts reported in the financial statements and accompanying ~~notes, including estimates of probable losses and expenses.~~notes. Actual results could differ from those estimates. Certain prior period amounts have been conformed to the current period’s ~~presentation.~~presentation, including the combination of our prior Xandr segment with the WarnerMedia segment.

In the tables throughout this document, percentage increases and decreases that are not considered meaningful are denoted with a dash.

Adopted and Pending Accounting Standards and Other Changes

~~Leases~~Credit Losses As of January 1, ~~2019,~~2020, we adopted, ~~with~~through modified retrospective application, the Financial Accounting Standards Board’s (FASB) Accounting Standards Update (ASU) No. ~~2016-02, “Leases~~2016-13, “Financial Instruments—Credit Losses (Topic ~~842)” (ASC 842)~~326): Measurement of Credit Losses on Financial Instruments” (ASU 2016-13, as amended), which replaces ~~existing leasing rules~~the incurred loss impairment methodology under prior GAAP with an expected credit loss model. ASU 2016-13 affects trade receivables, loans, contract assets, certain beneficial interests, off-balance-sheet credit exposures not accounted for as insurance and other financial assets that are not subject to fair value through net income, as defined by the standard. Under the expected credit loss model, we are required to consider future economic trends to estimate expected credit losses over the lifetime of the asset. Upon adoption, we recorded a ~~comprehensive lease measurement~~$293 reduction to “Retained earnings,” $395 increase to “allowances for doubtful accounts” applicable to our trade and ~~recognition standard~~loan receivables, $10 reduction of contract assets, $105 reduction of net deferred income tax liability and ~~expanded disclosure requirements (see Note 10). ASC 842 requires lessees to recognize most leases~~$7 reduction of “Noncontrolling interest” as an opening adjustment. Our adoption of ASU 2016-13 did not have a material impact on their balance sheets as liabilities, with corresponding “right-of-use” assets. For income statement recognition purposes, leases are classified as either a finance or an operating lease without relying upon bright-line tests.our financial statements.

~~The key change upon~~Reference Rate ReformIn March 2020, the FASB issued ASU No. 2020-04, “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting” (ASU 2020-04), which provides optional expedients, and allows for certain exceptions to existing GAAP, for contract modifications triggered by the expected market transition of certain benchmark interest rates to alternative reference rates. ASU 2020-04 applies to contracts, hedging relationships and other arrangements that reference the London Interbank Offering Rate (LIBOR) or any other rates ending after December 31, 2022. We are evaluating the impact of our adoption of ~~the standard was balance sheet recognition, given that the recognition of lease expense on our income statement is similar~~ASU 2020-04, including optional expedients, to our historical accounting. Using the modified retrospective transition method of adoption, we did not adjust the balance sheet for comparative periods but recorded a cumulative effect adjustment to retained earnings on January 1, 2019. We elected the package of practical expedients permitted under the transition guidance within the new standard, which, among other things, allowed us to carry forward our historical lease classification. We also elected the practical expedient related to land easements, allowing us to carry forward our accounting treatment for land easements on existing agreements that were not accounted for as leases. We excluded leases with original terms of one year or less. Additionally, we elected to not separate lease and non-lease components for certain classes of assets in arrangements where we are the lessee and for certain classes of assets where we are the lessor. Our accounting for finance leases did not change from our prior accounting for capital leases.financial statements.

~~The adoption~~Intangible Assets Driven by significant and adverse economic and political environments in Latin America, including the impact of ~~ASC 842 resulted~~the COVID-19 pandemic, we have experienced accelerated subscriber losses and revenue decline in the ~~recognition~~region, as well as closure of ~~an operating lease liability~~our operations in Venezuela. When combining these business trends and higher weighted-average cost of $~~22,121~~ ~~and an operating right-of-use asset of~~capital resulting from the ~~same amount. Existing prepaid and deferred rent accruals were recorded as an offset to~~increase in country-risk premiums in the ~~right-of-use asset, resulting in a net asset of $20,960. The cumulative effect of~~region, we concluded that it is more likely than not that the ~~adoption to retained earnings was an increase of $316 reflecting the reclassification of deferred gains related to sale/leaseback transactions.~~ ~~The standard did not materially impact our income statements or statements of cash flows, and had no impact on our debt-covenant compliance under our current agreements.~~

AT&T INC.

~~SEPTEMBER~~JUNE 30, ~~2019~~2020

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued

Dollars in millions except per share amounts

~~Deferral~~fair value of ~~Episodic Television~~the Vrio reporting unit, estimated using discounted cash flow and ~~Film Costs~~ ~~In March 2019,~~market multiple approaches, is less than its carrying amount. We recorded a $2,212 goodwill impairment in the ~~FASB issued ASU No. 2019-02,~~ “~~Entertainment—Films—Other Assets—Film Costs (Subtopic 926-20)~~reporting unit, with $105 attributable to noncontrolling interest. The impairment is not deductible for tax purposes and Entertainment—Broadcasters—Intangibles—Goodwill and Other (Subtopic 920-350): Improvements to Accounting for Costs of Films and License Agreements for Program Materials” (ASU 2019-02), which we early adopted as of January 1, 2019, with ~~prospective~~ application. The standard eliminates certain revenue-related constraints on capitalization of inventory costs for episodic television that existed under prior guidance. In addition, the balance sheet classification requirements that existedresulted in ~~prior guidance for film production costs and programming inventory were eliminated. As of January 1, 2019, we reclassified $2,274~~ ofan increase in our ~~programming inventory costs from “Other current assets” to “Other Assets” in accordance with the guidance.~~ ~~This change in accounting does not materially impact our income statement.~~effective tax rate.

~~Spectrum Licenses in Mexico~~During the first quarter of ~~2019,~~2020, we reassessed and changed the estimated economic lives of certain trade names in our Latin America business from indefinite to finite-lived and began amortizing them using the straight-line method over their average remaining economic life of 15 years. This change had an insignificant impact on our financial statements.

Also during the first quarter of 2020, in conjunction with the ~~renewal process~~nationwide launch of ~~certain spectrum licenses in Mexico,~~AT&T TV and our customers’ continued shift from linear to streaming video services, we reassessed the estimated economic lives and renewal assumptions for ~~these~~our orbital slot licenses. As a result, we have changed the ~~life~~estimated lives of these licenses from indefinite to ~~finite-lived. On~~finite-lived, effective January 1, ~~2019, we~~2020, and began amortizing our ~~spectrum~~orbital slot licenses ~~in Mexico~~using the sum-of-months-digits method over their average remaining economic life of 2515 years. This change in accounting ~~does not materially impact our income statement.~~increased amortization expense $379, or $0.04 per diluted share available to common stock during the second quarter and $765, or $0.08, per diluted share available to common stock for the first six months of 2020.

~~Recently Issued Accounting Standards~~

~~Credit Loss Standard~~ In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments” (ASU 2016-13, as amended), which replaces the incurred loss impairment methodology under current GAAP. ASU 2016-13 affects trade receivables, loans and other financial assets that are not subject to fair value through net income, as defined by the standard. The amendments under ASU 2016-13 will be effective for years beginning after December 15, 2019, and interim periods within those years. We are currently evaluating ASU 2016-13 but do not anticipate it will have a material impact on our financial statements.

~~AT&T INC.~~

~~SEPTEMBER 30, 2019~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)~~ - ~~Continued~~

~~Dollars in millions except per share amounts~~

NOTE 2. EARNINGS PER SHARE

A reconciliation of the numerators and denominators of basic and diluted earnings per share for the three months and ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 and ~~2018,~~2019, is shown in the table ~~below:~~below.

Three months ended

Nine months ended

September 30,

September 30,

2019

2018

2019

2018
Numerators

Numerator for basic earnings per share:

Net Income
$
3,949

$
4,816

$
12,271

$
14,823
Less: Net income attributable to noncontrolling interest

(249)

(98)

(762)

(311)
Net Income attributable to AT&T

3,700

4,718

11,509

14,512
Dilutive potential common shares:

Share-based payment

6

4

16

13
Numerator for diluted earnings per share
$
3,706

$
4,722

$
11,525

$
14,525
Denominators (000,000)

Denominator for basic earnings per share:

Weighted average number of common shares outstanding

7,327

7,284

7,321

6,603
Dilutive potential common shares:

Share-based payment (in shares)

29

36

29

27
Denominator for diluted earnings per share

7,356

7,320

7,350

6,630
Basic earnings per share attributable to AT&T
$
0.50

$
0.65

$
1.57

$
2.19
Diluted earnings per share attributable to AT&T
$
0.50

$
0.65

$
1.57

$
2.19

	Three months ended				Six months ended
	June 30,				June 30,
	2020		2019		2020		2019
Numerators
Numerator for basic earnings per share:
Net Income	$	1,563	$	3,974	$	6,526	$	8,322
Less: Net income attributable to noncontrolling interest		(282)		(261)		(635)		(513)
Net Income attributable to AT&T		1,281		3,713		5,891		7,809
Less: Preferred stock dividends		(52)		-		(84)		-
Net income attributable to common stock		1,229		3,713		5,807		7,809
Dilutive potential common shares:
Share-based payment		5		4		11		10
Numerator for diluted earnings per share	$	1,234	$	3,717	$	5,818	$	7,819
Denominators (000,000)
Denominator for basic earnings per share:
Weighted average number of common shares outstanding		7,145		7,323		7,166		7,318
Dilutive potential common shares:
Share-based payment (in shares)		25		30		26		29
Denominator for diluted earnings per share		7,170		7,353		7,192		7,347
Basic earnings per share attributable to Common Stock	$	0.17	$	0.51	$	0.81	$	1.06
Diluted earnings per share attributable to Common Stock	$	0.17	$	0.51	$	0.81	$	1.06

In the first quarter of 2020, we completed an accelerated share repurchase agreement with a third-party financial institution to repurchase AT&T common stock. Under the terms of the agreement, we paid the financial institution $4,000 and received 104.8 million shares.

1110

AT&T INC.

~~SEPTEMBER~~JUNE 30, ~~2019~~2020

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
Balance as of December 31, 2018
$
(3,084)

$
(2)

$
818

$
6,517

$
4,249
Other comprehensive income
(loss) before reclassifications

(166)

67

(1,006)

-

(1,105)
Amounts reclassified
from accumulated OCI

-

-

24
¹

(1,031)
²

(1,007)
Net other comprehensive
income (loss)

(166)

67

(982)

(1,031)

(2,112)
Balance as of September 30, 2019
$
(3,250)

$
65

$
(164)

$
5,486

$
2,137

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
Balance as of December 31, 2017
$
(2,054)

$
660

$
1,402

$
7,009

$
7,017
Other comprehensive income
(loss) before reclassifications

(787)

(22)

257

530

(22)
Amounts reclassified
from accumulated OCI

-

-

35
¹

(989)
²

(954)
Net other comprehensive
income (loss)

(787)

(22)

292

(459)

(976)
Amounts reclassified to
retained earnings

-

(658)
³

-

-

(658)
Balance as of September 30, 2018
$
(2,841)

$
(20)

$
1,694

$
6,550

$
5,383
¹
(Gains) losses are included in Interest expense in the consolidated statements of income (see Note 7).
²
The amortization of prior service credits associated with postretirement benefits are included in Other income (expense) in the
consolidated statements of income (see Note 6).
³
With the adoption of ASU 2016-01, "Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial
Assets and Liabilities," the unrealized (gains) losses on our equity investments are reclassified to retained earnings.

		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
Balance as of December 31, 2019		$	(3,056)		$	48		$	(37)		$	8,515		$	5,470
Other comprehensive income
(loss) before reclassifications			(1,490)			80			(3,026)			-			(4,436)
Amounts reclassified
from accumulated OCI			-	¹		-	¹		17	²		(922)	³		(905)
Net other comprehensive
income (loss)			(1,490)			80			(3,009)			(922)			(5,341)
Balance as of June 30, 2020		$	(4,546)		$	128		$	(3,046)		$	7,593		$	129

		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
Balance as of December 31, 2018		$	(3,084)		$	(2)		$	818		$	6,517		$	4,249
Other comprehensive income
(loss) before reclassifications			159			42			(490)			-			(289)
Amounts reclassified
from accumulated OCI			-	¹		-	¹		17	²		(688)	³		(671)
Net other comprehensive
income (loss)			159			42			(473)			(688)			(960)
Balance as of June 30, 2019		$	(2,925)		$	40		$	345		$	5,829		$	3,289
¹	(Gains) losses are included in "Other income (expense) - net" in the consolidated statements of income.
²	(Gains) losses are 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).

1211

AT&T INC.

~~SEPTEMBER~~JUNE 30, ~~2019~~2020

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued

Dollars in millions except per share amounts

NOTE 4. SEGMENT INFORMATION

Our segments are strategic business units that offer products and services to different customer segments over various technology platforms and/or in different geographies that are managed accordingly. We analyze our segments based on segment operating contribution, which consists of operating income, excluding acquisition-related costs and other significant items (as discussed below), and equity in net income (loss) of affiliates for investments managed within each segment. We have 43 reportable segments: (1) Communications, (2) WarnerMedia and (3) Latin ~~America, and (4) Xandr.~~America.

We have recast our segment results for all prior periods to include our prior Xandr segment within our WarnerMedia segment.

We also evaluate segment and business unit performance based on EBITDA and/or EBITDA margin, which is defined as operating contribution excluding equity in net income (loss) of affiliates and depreciation and amortization. We believe EBITDA to be a relevant and useful measurement to our investors as it is part of our internal management reporting and planning processes and it is an important metric that management uses to evaluate operating performance. EBITDA does not give effect to 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.

We have recast our segment results for all prior periods to exclude our wireless and wireline operations in Puerto Rico and the U.S. Virgin Islands from our Mobility and Business Wireline business units of the Communications segment, instead reporting them with Corporate and Other. (See Note 8)

The Communications segment provides wireless and wireline telecom, video and broadband services to consumers located in the U.S. and businesses globally. This segment contains the following business units:

Mobility provides nationwide wireless service and equipment.

Entertainment Group provides video, including over-the-top (OTT) services, broadband and voice communications services primarily to residential customers. This segment also sells advertising on ~~DIRECTV and U-verse~~ distribution platforms.

Business Wireline provides advanced IP-based services, as well as traditional voice and data services to business customers.

The WarnerMedia segment develops, produces and distributes feature films, television, gaming and other content in various physical and digital formats globally. Historical financial results from ~~AT&T’s Regional Sports Networks (RSNs) and equity investments (predominantly Game Show Network and Otter Media),~~Xandr, previously ~~included in Entertainment Group,~~a separate reportable segment, have been ~~reclassified into~~combined with the WarnerMedia segment within Eliminations and ~~are combined with the Time Warner operations for the period subsequent to our acquisition on June 14, 2018.~~other. This segment contains the following business units:

Turner primarily operates multichannel basic television networks and digital properties. Turner also sells advertising on its networks and digital properties.

Home Box Office consists of premium pay television and OTT and streaming services domestically and premium pay, basic tier television and OTT services internationally, as well as content licensing and home entertainment.

Warner Bros. primarily consists of the production, distribution and licensing of television programming and feature films, the distribution of home entertainment products and the production and distribution of games.

The Latin America segment provides entertainment and wireless services outside of the U.S. This segment contains the following business units:

~~Mexico~~ ~~provides wireless service and equipment to customers in Mexico.~~

Vrio provides video services primarily to residential customers using satellite technology in Latin America and the Caribbean.



~~The~~Mexico ~~Xandr segment~~provides ~~advertising services~~wireless service and ~~includes AppNexus, an advertising technology company we acquired~~equipment to customers in ~~August 2018~~. Xandr services utilize data insights to develop and deliver targeted advertising across video and digital platforms. Certain revenues in this segment are also reported by the Communications segment and are eliminated upon consolidation.Mexico.

~~AT&T INC.~~

~~SEPTEMBER 30, 2019~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)~~ - ~~Continued~~

~~Dollars in millions except per share amounts~~

Corporate and Other ~~reconcile~~reconciles our segment results to consolidated operating income and income before income taxes, and ~~include:~~includes:

Corporate, which consists of: (1) businesses no longer integral to our operations or which we no longer actively market, (2) corporate support functions, (3) impacts of corporate-wide decisions for which the individual operating segments are not being evaluated, and (4) the reclassification of the amortization of prior service credits, which we continue to report with segment operating expenses, to consolidated ~~other~~“Other income (expense) – net and (5) the recharacterization of programming intangible asset amortization, for released programming acquired in the Time Warner acquisition, which we continue to report within WarnerMedia segment operating expense, to consolidated amortization expense. The programming and intangible asset amortization reclass was $108 and $772 in the third quarter and $370 and $870 for the first nine months of 2019 and 2018, respectively.net.”

Acquisition-related items which consists of items associated with the merger and integration of acquired businesses, including amortization of intangible assets.

AT&T INC.

JUNE 30, 2020

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued

Dollars in millions except per share amounts

Certain significant items includes (1) employee separation charges associated with voluntary and/or strategic offers, (2) losses resulting from abandonment ~~or impairment~~ of network assets and impairments and (3) other items for which the segments are not being evaluated.

Eliminations and consolidations, which (1) removes transactions involving dealings between our segments, including content licensing between WarnerMedia and Communications, and (2) includes adjustments for our reporting of the advertising business.

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

1413

AT&T INC.

~~SEPTEMBER~~JUNE 30, ~~2019~~2020

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued

Dollars in millions except per share amounts

For the three months ended September 30, 2019
For the three months ended June 30, 2020															For the three months ended June 30, 2020
		Revenues		Operations and Support Expenses		EBITDA		Depreciation and Amortization		Operating Income (Loss)		Equity in Net Income (Loss) of Affiliates		Segment Contribution		Revenues		Operations and Support Expenses		EBITDA		Depreciation and Amortization		Operating Income (Loss)		Equity in Net Income (Loss) of Affiliates		Segment Contribution
Communications
Mobility	$	17,701	$	9,948	$	7,753	$	2,011	$	5,742	$	-	$	5,742	$	17,149	$	9,332	$	7,817	$	2,012	$	5,805	$	-	$	5,805
Entertainment Group		11,197		8,797		2,400		1,316		1,084		1		1,085		10,069		7,730		2,339		1,309		1,030		-		1,030
Business Wireline		6,503		4,022		2,481		1,271		1,210		(1)		1,209		6,374		3,779		2,595		1,318		1,277		-		1,277
Total Communications		35,401		22,767		12,634		4,598		8,036		-		8,036		33,592		20,841		12,751		4,639		8,112		-		8,112
WarnerMedia
Turner		3,007		1,460		1,547		68		1,479		10		1,489		2,988		1,347		1,641		69		1,572		-		1,572
Home Box Office		1,819		1,072		747		33		714		10		724		1,627		1,489		138		25		113		(5)		108
Warner Bros.		3,333		2,706		627		39		588		(25)		563		3,256		2,583		673		40		633		(19)		614
Eliminations and other		(313)		(71)		(242)		10		(252)		20		(232)		(1,057)		(685)		(372)		33		(405)		28		(377)
Total WarnerMedia		7,846		5,167		2,679		150		2,529		15		2,544		6,814		4,734		2,080		167		1,913		4		1,917
Latin America
Vrio		1,013		851		162		162		-		13		13		752		661		91		127		(36)		8		(28)
Mexico		717		774		(57)		122		(179)		-		(179)		480		538		(58)		115		(173)		-		(173)
Total Latin America		1,730		1,625		105		284		(179)		13		(166)		1,232		1,199		33		242		(209)		8		(201)
Xandr		504		162		342		15		327		-		327
Segment Total		45,481		29,721		15,760		5,047		10,713	$	28	$	10,741		41,638		26,774		14,864		5,048		9,816	$	12	$	9,828
Corporate and Other
Corporate		407		703		(296)		131		(427)						437		933		(496)		93		(589)
Acquisition-related items		-		190		(190)		1,771		(1,961)						-		211		(211)		2,145		(2,356)
Certain significant items		-		39		(39)		-		(39)						-		3,084		(3,084)		-		(3,084)
Eliminations and consolidations		(1,300)		(915)		(385)		-		(385)						(1,125)		(869)		(256)		(1)		(255)
AT&T Inc.	$	44,588	$	29,738	$	14,850	$	6,949	$	7,901					$	40,950	$	30,133	$	10,817	$	7,285	$	3,532

1514

AT&T INC.

~~SEPTEMBER~~JUNE 30, ~~2019~~2020

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued

Dollars in millions except per share amounts

For the three months ended September 30, 2018
For the three months ended June 30, 2019															For the three months ended June 30, 2019
		Revenues		Operations and Support Expenses		EBITDA		Depreciation and Amortization		Operating Income (Loss)		Equity in Net Income (Loss) of Affiliates		Segment Contribution		Revenues		Operations and Support Expenses		EBITDA		Depreciation and Amortization		Operating Income (Loss)		Equity in Net Income (Loss) of Affiliates		Segment Contribution
Communications
Mobility	$	17,735	$	10,104	$	7,631	$	2,057	$	5,574	$	1	$	5,575	$	17,292	$	9,522	$	7,770	$	2,003	$	5,767	$	-	$	5,767
Entertainment Group		11,589		9,155		2,434		1,331		1,103		1		1,104		11,368		8,515		2,853		1,339		1,514		-		1,514
Business Wireline		6,683		4,022		2,661		1,187		1,474		(3)		1,471		6,607		3,975		2,632		1,242		1,390		-		1,390
Total Communications		36,007		23,281		12,726		4,575		8,151		(1)		8,150		35,267		22,012		13,255		4,584		8,671		-		8,671
WarnerMedia
Turner		2,988		1,487		1,501		59		1,442		7		1,449		3,410		2,217		1,193		39		1,154		11		1,165
Home Box Office		1,644		991		653		25		628		2		630		1,716		1,131		585		12		573		15		588
Warner Bros.		3,720		3,104		616		40		576		(23)		553		3,389		2,918		471		31		440		-		440
Eliminations and other		(148)		(79)		(69)		10		(79)		(25)		(104)		320		170		150		22		128		29		157
Total WarnerMedia		8,204		5,503		2,701		134		2,567		(39)		2,528		8,835		6,436		2,399		104		2,295		55		2,350
Latin America
Vrio		1,102		877		225		168		57		9		66		1,032		881		151		165		(14)		12		(2)
Mexico		731		869		(138)		129		(267)		-		(267)		725		813		(88)		119		(207)		-		(207)
Total Latin America		1,833		1,746		87		297		(210)		9		(201)		1,757		1,694		63		284		(221)		12		(209)
Xandr		445		109		336		3		333		-		333
Segment Total		46,489		30,639		15,850		5,009		10,841	$	(31)	$	10,810		45,859		30,142		15,717		4,972		10,745	$	67	$	10,812
Corporate and Other
Corporate		531		141		390		829		(439)						450		765		(315)		170		(485)
Acquisition-related items		-		362		(362)		2,329		(2,691)						(30)		316		(346)		1,960		(2,306)
Certain significant items		-		75		(75)		-		(75)						-		94		(94)		-		(94)
Eliminations and consolidations		(1,281)		(913)		(368)		(1)		(367)						(1,322)		(961)		(361)		(1)		(360)
AT&T Inc.	$	45,739	$	30,304	$	15,435	$	8,166	$	7,269					$	44,957	$	30,356	$	14,601	$	7,101	$	7,500

1615

AT&T INC.

~~SEPTEMBER~~JUNE 30, ~~2019~~2020

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued

Dollars in millions except per share amounts

For the nine months ended September 30, 2019
For the six months ended June 30, 2020															For the six months ended June 30, 2020
		Revenues		Operations and Support Expenses		EBITDA		Depreciation and Amortization		Operating Income (Loss)		Equity in Net Income (Loss) of Affiliates		Segment Contribution		Revenues		Operations and Support Expenses		EBITDA		Depreciation and Amortization		Operating Income (Loss)		Equity in Net Income (Loss) of Affiliates		Segment Contribution
Communications
Mobility	$	52,356	$	29,511	$	22,845	$	6,027	$	16,818	$	(1)	$	16,817	$	34,551	$	18,901	$	15,650	$	4,057	$	11,593	$	-	$	11,593
Entertainment Group		33,893		25,839		8,054		3,978		4,076		1		4,077		20,584		15,621		4,963		2,598		2,365		-		2,365
Business Wireline		19,588		12,029		7,559		3,735		3,824		-		3,824		12,706		7,730		4,976		2,619		2,357		-		2,357
Total Communications		105,837		67,379		38,458		13,740		24,718		-		24,718		67,841		42,252		25,589		9,274		16,315		-		16,315
WarnerMedia
Turner		9,860		5,813		4,047		167		3,880		46		3,926		6,150		3,057		3,093		138		2,955		6		2,961
Home Box Office		5,045		3,124		1,921		67		1,854		40		1,894		3,124		2,542		582		46		536		15		551
Warner Bros.		10,240		8,543		1,697		122		1,575		(19)		1,556		6,496		5,533		963		81		882		(27)		855
Eliminations and other		(570)		(31)		(539)		28		(567)		70		(497)		(1,108)		(711)		(397)		65		(462)		25		(437)
Total WarnerMedia		24,575		17,449		7,126		384		6,742		137		6,879		14,662		10,421		4,241		330		3,911		19		3,930
Latin America
Vrio		3,112		2,598		514		496		18		25		43		1,639		1,444		195		274		(79)		12		(67)
Mexico		2,093		2,312		(219)		372		(591)		-		(591)		1,183		1,252		(69)		249		(318)		-		(318)
Total Latin America		5,205		4,910		295		868		(573)		25		(548)		2,822		2,696		126		523		(397)		12		(385)
Xandr		1,415		469		946		41		905		-		905
Segment Total		137,032		90,207		46,825		15,033		31,792	$	162	$	31,954		85,325		55,369		29,956		10,127		19,829	$	31	$	19,860
Corporate and Other
Corporate		1,290		2,129		(839)		505		(1,344)						825		1,807		(982)		180		(1,162)
Acquisition-related items		(72)		579		(651)		5,719		(6,370)						-		393		(393)		4,201		(4,594)
Certain significant items		-		381		(381)		-		(381)						-		2,426		(2,426)		-		(2,426)
Eliminations and consolidations		(3,878)		(2,814)		(1,064)		(1)		(1,063)						(2,421)		(1,791)		(630)		(1)		(629)
AT&T Inc.	$	134,372	$	90,482	$	43,890	$	21,256	$	22,634					$	83,729	$	58,204	$	25,525	$	14,507	$	11,018

1716

AT&T INC.

~~SEPTEMBER~~JUNE 30, ~~2019~~2020

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued

Dollars in millions except per share amounts

For the nine months ended September 30, 2018
For the six months ended June 30, 2019															For the six months ended June 30, 2019
		Revenues		Operations and Support Expenses		EBITDA		Depreciation and Amortization		Operating Income (Loss)		Equity in Net Income (Loss) of Affiliates		Segment Contribution		Revenues		Operations and Support Expenses		EBITDA		Depreciation and Amortization		Operating Income (Loss)		Equity in Net Income (Loss) of Affiliates		Segment Contribution
Communications
Mobility	$	51,965	$	29,603	$	22,362	$	6,218	$	16,144	$	-	$	16,144	$	34,655	$	19,563	$	15,092	$	4,016	$	11,076	$	-	$	11,076
Entertainment Group		34,498		26,623		7,875		3,986		3,889		(1)		3,888		22,696		17,042		5,654		2,662		2,992		-		2,992
Business Wireline		20,035		12,047		7,988		3,520		4,468		(2)		4,466		13,085		8,007		5,078		2,464		2,614		-		2,614
Total Communications		106,498		68,273		38,225		13,724		24,501		(3)		24,498		70,436		44,612		25,824		9,142		16,682		-		16,682
WarnerMedia
Turner		3,767		1,933		1,834		71		1,763		39		1,802		6,853		4,353		2,500		99		2,401		36		2,437
Home Box Office		1,925		1,162		763		30		733		1		734		3,226		2,052		1,174		34		1,140		30		1,170
Warner Bros.		4,227		3,507		720		54		666		(24)		642		6,907		5,837		1,070		83		987		6		993
Eliminations and other		(210)		(106)		(104)		11		(115)		(71)		(186)		654		347		307		44		263		50		313
Total WarnerMedia		9,709		6,496		3,213		166		3,047		(55)		2,992		17,640		12,589		5,051		260		4,791		122		4,913
Latin America
Vrio		3,710		2,894		816		559		257		24		281		2,099		1,747		352		334		18		12		30
Mexico		2,099		2,459		(360)		383		(743)		-		(743)		1,376		1,538		(162)		250		(412)		-		(412)
Total Latin America		5,809		5,353		456		942		(486)		24		(462)		3,475		3,285		190		584		(394)		12		(382)
Xandr		1,174		218		956		4		952		-		952
Segment Total		123,190		80,340		42,850		14,836		28,014	$	(34)	$	27,980		91,551		60,486		31,065		9,986		21,079	$	134	$	21,213
Corporate and Other
Corporate		1,636		1,832		(196)		1,034		(1,230)						883		1,426		(543)		374		(917)
Acquisition-related items		-		750		(750)		4,669		(5,419)						(72)		389		(461)		3,948		(4,409)
Certain significant items		-		407		(407)		-		(407)						-		342		(342)		-		(342)
Eliminations and consolidations		(2,063)		(1,040)		(1,023)		(1)		(1,022)						(2,578)		(1,899)		(679)		(1)		(678)
AT&T Inc.	$	122,763	$	82,289	$	40,474	$	20,538	$	19,936					$	89,784	$	60,744	$	29,040	$	14,307	$	14,733

1817

AT&T INC.

~~SEPTEMBER~~JUNE 30, ~~2019~~2020

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued

Dollars in millions except per share amounts

The following table is a reconciliation of Segment Contributions to “Income Before Income Taxes” reported on our consolidated statements of income:

		Three months ended September 30,				Nine months ended September 30,					Three months ended June 30,				Six months ended June 30,
		2019		2018		2019		2018			2020		2019		2020		2019
Communications	$	8,036	$	8,150	$	24,718	$	24,498	Communications	$	8,112	$	8,671	$	16,315	$	16,682
WarnerMedia		2,544		2,528		6,879		2,992	WarnerMedia		1,917		2,350		3,930		4,913
Latin America		(166)		(201)		(548)		(462)	Latin America		(201)		(209)		(385)		(382)
Xandr		327		333		905		952
Segment Contribution		10,741		10,810		31,954		27,980	Segment Contribution		9,828		10,812		19,860		21,213
Reconciling Items:									Reconciling Items:
Corporate and Other		(427)		(439)		(1,344)		(1,230)	Corporate and Other		(589)		(485)		(1,162)		(917)
Merger and integration items		(190)		(362)		(651)		(794)	Merger and integration items		(211)		(346)		(393)		(461)
Amortization of intangibles acquired		(1,771)		(2,329)		(5,719)		(4,669)	Amortization of intangibles acquired		(2,145)		(1,960)		(4,201)		(3,948)
Employee separation charges		(39)		(75)		(381)		(259)
Natural disaster items		-		-		-		(104)
Impairments									Impairments		(2,319)		-		(2,442)		-
Gain on spectrum transaction¹									Gain on spectrum transaction¹		-		-		900		-
Employee separation costs and benefit-related losses									Employee separation costs and benefit-related losses		(765)		(94)		(884)		(342)
Segment equity in net income of affiliates		(28)		31		(162)		34	Segment equity in net income of affiliates		(12)		(67)		(31)		(134)
Eliminations and consolidations		(385)		(367)		(1,063)		(1,022)	Eliminations and consolidations		(255)		(360)		(629)		(678)
AT&T Operating Income		7,901		7,269		22,634		19,936	AT&T Operating Income		3,532		7,500		11,018		14,733
Interest Expense		(2,083)		(2,051)		(6,373)		(5,845)	Interest Expense		2,041		2,149		4,059		4,290
Equity in net income (loss) of affiliates		3		(64)		36		(71)	Equity in net income (loss) of affiliates		(10)		40		(16)		33
Other income (expense) - net		(935)		1,053		(967)		5,108	Other income (expense) - net		1,017		(318)		1,820		(32)
Income Before Income Taxes	$	4,886	$	6,207	$	15,330	$	19,128	Income Before Income Taxes	$	2,498	$	5,073	$	8,763	$	10,444
¹									Included as a reduction of "Selling, general and administrative expenses" in the consolidated statement of income.

The following table presents intersegment revenues by segment:

Intersegment Revenue Reconciliation
Intersegment Reconciliation
	Three months ended September 30,				Nine months ended September 30,				Three months ended June 30,				Six months ended June 30,
	2019		2018		2019			2018	2020		2019		2020			2019
Intersegment revenues
Intersegment Revenues
Communications	$	2	$	6	$	10	$	8	$	2	$	8	$	4	$	8
WarnerMedia		812		844		2,531		1,053		774		861		1,591		1,719
Latin America		-		-		-		-		-		-		-		-
Xandr		7		-		7		-
Total Intersegment Revenues		821		850		2,548		1,061		776		869		1,595		1,727
Consolidations		479		431		1,330		1,002		349		453		826		851
Eliminations and consolidations	$	1,300	$	1,281	$	3,878	$	2,063	$	1,125	$	1,322	$	2,421	$	2,578

1918

AT&T INC.

~~SEPTEMBER~~JUNE 30, ~~2019~~2020

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued

Dollars in millions except per share amounts

NOTE 5. REVENUE RECOGNITION

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

For the three months ended September 30, 2019
For the three months ended June 30, 2020																			For the three months ended June 30, 2020
	Service Revenues																		Service Revenues
		Wireless		Advanced Data		Legacy Voice & Data		Subscription		Content		Advertising		Other		Equipment		Total		Wireless		Advanced Data		Legacy Voice & Data		Subscription		Content		Advertising		Other		Equipment		Total
Communications
Mobility	$	13,856	$	-	$	-	$	-	$	-	$	74	$	-	$	3,771	$	17,701	$	13,611	$	-	$	-	$	-	$	-	$	58	$	-	$	3,480	$	17,149
Entertainment Group		-		2,117		628		7,512		-		421		517		2		11,197		-		2,092		560		6,682		-		294		397		44		10,069
Business Wireline		-		3,269		2,252		-		-		-		783		199		6,503		-		3,320		2,067		-		-		-		782		205		6,374
WarnerMedia
Turner		-		-		-		1,927		89		913		78		-		3,007		-		-		-		1,804		334		796		54		-		2,988
Home Box Office		-		-		-		1,533		284		-		2		-		1,819		-		-		-		1,441		181		-		5		-		1,627
Warner Bros.		-		-		-		23		3,129		13		168		-		3,333		-		-		-		16		3,179		1		60		-		3,256
Eliminations and Other		-		-		-		57		(387)		19		(2)		-		(313)
Eliminations and other																				-		-		-		71		(1,516)		378		10		-		(1,057)
Latin America
Vrio		-		-		-		1,013		-		-		-		-		1,013		-		-		-		752		-		-		-		-		752
Mexico		455		-		-		-		-		-		-		262		717		345		-		-		-		-		-		-		135		480
Xandr		-		-		-		-		-		504		-		-		504
Corporate and Other		124		13		6		-		-		-		227		37		407		178		10		152		-		-		-		62		35		437
Eliminations and consolidations		-		-		-		-		(798)		(421)		(81)		-		(1,300)
Eliminations and
consolidations																				-		-		-		-		(765)		(294)		(66)		-		(1,125)
Total Operating Revenues	$	14,435	$	5,399	$	2,886	$	12,065	$	2,317	$	1,523	$	1,692	$	4,271	$	44,588	$	14,134	$	5,422	$	2,779	$	10,766	$	1,413	$	1,233	$	1,304	$	3,899	$	40,950

2019

AT&T INC.

~~SEPTEMBER~~JUNE 30, ~~2019~~2020

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued

Dollars in millions except per share amounts

For the three months ended September 30, 2018
For the three months ended June 30, 2019																			For the three months ended June 30, 2019
	Service Revenues																		Service Revenues
		Wireless		Advanced Data		Legacy Voice & Data		Subscription		Content		Advertising		Other		Equipment		Total		Wireless		Advanced Data		Legacy Voice & Data		Subscription		Content		Advertising		Other		Equipment		Total
Communications
Mobility	$	13,751	$	-	$	-	$	-	$	-	$	77	$	-	$	3,907	$	17,735	$	13,753	$	-	$	-	$	-	$	-	$	71	$	-	$	3,468	$	17,292
Entertainment Group		-		2,045		739		7,882		-		401		518		4		11,589		-		2,109		658		7,636		-		399		563		3		11,368
Business Wireline		-		3,053		2,602		-		-		-		831		197		6,683		-		3,208		2,324		-		-		-		897		178		6,607
WarnerMedia
Turner		-		-		-		1,855		125		944		64		-		2,988		-		-		-		1,943		111		1,266		90		-		3,410
Home Box Office		-		-		-		1,517		125		-		2		-		1,644		-		-		-		1,516		198		-		2		-		1,716
Warner Bros.		-		-		-		20		3,494		20		186		-		3,720		-		-		-		23		3,175		10		181		-		3,389
Eliminations and Other		-		-		-		27		(199)		19		5		-		(148)
Eliminations and other																				-		-		-		54		(237)		494		9		-		320
Latin America
Vrio		-		-		-		1,102		-		-		-		-		1,102		-		-		-		1,032		-		-		-		-		1,032
Mexico		440		-		-		-		-		-		-		291		731		479		-		-		-		-		-		-		246		725
Xandr		-		-		-		-		-		445		-		-		445
Corporate and Other		161		13		7		-		-		-		307		43		531		150		14		7		-		-		-		210		39		420
Eliminations and consolidations		-		-		-		-		(830)		(401)		(50)		-		(1,281)
Eliminations and
consolidations																				-		-		-		-		(840)		(399)		(83)		-		(1,322)
Total Operating Revenues	$	14,352	$	5,111	$	3,348	$	12,403	$	2,715	$	1,505	$	1,863	$	4,442	$	45,739	$	14,382	$	5,331	$	2,989	$	12,204	$	2,407	$	1,841	$	1,869	$	3,934	$	44,957

2120

AT&T INC.

~~SEPTEMBER~~JUNE 30, ~~2019~~2020

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued

Dollars in millions except per share amounts

For the nine months ended September 30, 2019
For the six months ended June 30, 2020																			For the six months ended June 30, 2020
	Service Revenues																		Service Revenues
		Wireless		Advanced Data		Legacy Voice & Data		Subscription		Content		Advertising		Other		Equipment		Total		Wireless		Advanced Data		Legacy Voice & Data		Subscription		Content		Advertising		Other		Equipment		Total
Communications
Mobility	$	41,171	$	-	$	-	$	-	$	-	$	212	$	-	$	10,973	$	52,356	$	27,503	$	-	$	-	$	-	$	-	$	134	$	-	$	6,914	$	34,551
Entertainment Group		-		6,296		1,969		22,872		-		1,170		1,580		6		33,893		-		4,201		1,141		13,664		-		707		816		55		20,584
Business Wireline		-		9,649		6,973		-		-		-		2,430		536		19,588		-		6,595		4,196		-		-		-		1,535		380		12,706
WarnerMedia
Turner		-		-		-		5,835		335		3,440		250		-		9,860		-		-		-		3,853		420		1,753		124		-		6,150
Home Box Office		-		-		-		4,383		655		-		7		-		5,045		-		-		-		2,779		338		-		7		-		3,124
Warner Bros.		-		-		-		67		9,636		33		504		-		10,240		-		-		-		26		6,239		3		228		-		6,496
Eliminations and Other		-		-		-		160		(776)		36		10		-		(570)
Eliminations and other																				-		-		-		134		(2,162)		887		33		-		(1,108)
Latin America
Vrio		-		-		-		3,112		-		-		-		-		3,112		-		-		-		1,639		-		-		-		-		1,639
Mexico		1,376		-		-		-		-		-		-		717		2,093		812		-		-		-		-		-		-		371		1,183
Xandr		-		-		-		-		-		1,415		-		-		1,415
Corporate and Other		437		40		20		-		-		-		605		116		1,218		295		24		286		-		-		-		145		75		825
Eliminations and consolidations		-		-		-		-		(2,475)		(1,170)		(233)		-		(3,878)
Eliminations and
consolidations																				-		-		-		-		(1,559)		(707)		(155)		-		(2,421)
Total Operating Revenues	$	42,984	$	15,985	$	8,962	$	36,429	$	7,375	$	5,136	$	5,153	$	12,348	$	134,372	$	28,610	$	10,820	$	5,623	$	22,095	$	3,276	$	2,777	$	2,733	$	7,795	$	83,729

2221

AT&T INC.

~~SEPTEMBER~~JUNE 30, ~~2019~~2020

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued

Dollars in millions except per share amounts

For the nine months ended September 30, 2018
For the six months ended June 30, 2019																			For the six months ended June 30, 2019
	Service Revenues																		Service Revenues
		Wireless		Advanced Data		Legacy Voice & Data		Subscription		Content		Advertising		Other		Equipment		Total		Wireless		Advanced Data		Legacy Voice & Data		Subscription		Content		Advertising		Other		Equipment		Total
Communications
Mobility	$	40,432	$	-	$	-	$	-	$	-	$	162	$	-	$	11,371	$	51,965	$	27,315	$	-	$	-	$	-	$	-	$	138	$	-	$	7,202	$	34,655
Entertainment Group		-		5,904		2,317		23,559		-		1,122		1,588		8		34,498		-		4,179		1,341		15,360		-		749		1,063		4		22,696
Business Wireline		-		9,101		8,176		-		-		-		2,192		566		20,035		-		6,380		4,721		-		-		-		1,647		337		13,085
WarnerMedia
Turner		-		-		-		2,363		146		1,181		77		-		3,767		-		-		-		3,908		246		2,527		172		-		6,853
Home Box Office		-		-		-		1,787		136		-		2		-		1,925		-		-		-		2,850		371		-		5		-		3,226
Warner Bros.		-		-		-		27		3,949		28		223		-		4,227		-		-		-		44		6,507		20		336		-		6,907
Eliminations and Other		-		-		-		27		(255)		13		5		-		(210)
Eliminations and other																				-		-		-		103		(389)		928		12		-		654
Latin America
Vrio		-		-		-		3,710		-		-		-		-		3,710		-		-		-		2,099		-		-		-		-		2,099
Mexico		1,261		-		-		-		-		-		-		838		2,099		921		-		-		-		-		-		-		455		1,376
Xandr		-		-		-		-		-		1,174		-		-		1,174
Corporate and Other		480		39		28		-		-		-		958		131		1,636		272		27		14		-		-		-		419		79		811
Eliminations and consolidations		-		-		-		-		(1,039)		(1,122)		98		-		(2,063)
Eliminations and
consolidations																				-		-		-		-		(1,677)		(749)		(152)		-		(2,578)
Total Operating Revenues	$	42,173	$	15,044	$	10,521	$	31,473	$	2,937	$	2,558	$	5,143	$	12,914	$	122,763	$	28,508	$	10,586	$	6,076	$	24,364	$	5,058	$	3,613	$	3,502	$	8,077	$	89,784

2322

AT&T INC.

~~SEPTEMBER~~JUNE 30, ~~2019~~2020

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued

Dollars in millions except per share amounts

Deferred Customer Contract Acquisition and Fulfillment Costs

Costs to acquire and fulfill customer contracts, including commissions on service activations, for our wireless, business wireline and video entertainment services, are deferred and amortized over the contract period or expected customer relationship life, which typically ranges from three years to five years. For contracts with an estimated amortization period of less than one year, we expense incremental costs immediately.

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

		September 30,		December 31,		June 30,		December 31,
Consolidated Balance Sheets		2019		2018		2020		2019
Deferred Acquisition Costs
Other current assets	$	2,190	$	1,901	$	2,630	$	2,462
Other Assets		2,878		2,073		3,117		2,991
Total deferred customer contract acquisition costs		5,068		3,974	$	5,747	$	5,453

Deferred Fulfillment Costs
Other current assets		4,589		4,090	$	4,362	$	4,519
Other Assets		6,640		7,450		5,980		6,439
Total deferred customer contract fulfillment costs	$	11,229	$	11,540	$	10,342	$	10,958

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

		September 30,		September 30,		June 30,		June 30,
Consolidated Statements of Income		2019		2018		2020		2019
Deferred acquisition cost amortization	$	1,565	$	959	$	1,278	$	1,026
Deferred fulfillment cost amortization		3,656		2,983		2,636		2,381

Contract Assets and Liabilities

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

When consideration is received in advance of the delivery of goods or services, a contract liability is recorded for deferred revenue. Reductions in the contract liability will be recorded as we satisfy the performance obligations.

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

		September 30,		December 31,		June 30,		December 31,
Consolidated Balance Sheets		2019		2018		2020		2019

Contract asset	$	2,255	$	1,896	$	2,546	$	2,472
Contract liability		6,886		6,856		6,533		6,999

Our ~~December 31, 2018~~beginning of period contract liability recorded as customer contract revenue during ~~2019~~2020 was ~~$5,295.~~$5,004.

2423

AT&T INC.

~~SEPTEMBER~~JUNE 30, ~~2019~~2020

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued

Dollars in millions except per share amounts

Our consolidated balance sheets at ~~September~~June 30, ~~2019~~2020 and December 31, ~~2018~~2019 included approximately ~~$1,496~~$1,638 and ~~$1,244,~~$1,611, respectively, for the current portion of our contract asset in “Other current assets” and ~~$5,910~~$5,616 and ~~$5,752,~~$5,939, respectively, for the current portion of our contract liability in “Advanced billings and customer deposits.”

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, video and residential internet agreements.

Remaining performance obligations associated with business contracts reflect recurring charges billed, adjusted to reflect estimates for sales incentives and revenue adjustments. Performance obligations associated with wireless contracts are estimated using a portfolio approach in which we review all relevant promotional activities, calculating the remaining performance obligation using the average service component for the portfolio and the average device price. As of ~~September~~June 30, ~~2019,~~2020, the aggregate amount of the transaction price allocated to remaining performance obligations was ~~$40,216,~~$36,362, of which we expect to recognize approximately ~~70%~~82% by the end of ~~2020,~~2021, 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.

~~In first quarter of 2019, for certain management participants~~ We do not have significant funding requirements in our pension plan who terminated employment before April 1, 2019, we offered the option of more favorable 2018 interest rates and mortality basis for determining lump-sum distributions. During the first nine months of 2019, we have recorded special termination benefits of $81 in “Other income (expense) – net.” During 2019, we also offered certain terminated vested pension plan participants the opportunity to receive their benefit in a lump-sum amount.2020.

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. We anticipated total distributions from the pension plan would exceed the threshold of service and interest costs for 2019, requiring us to follow settlement accounting and remeasure our pension benefit obligation at each quarter-end, resulting in the recognition of actuarial losses of $432, $1,699, and $1,888 in the first, second and third quarters of 2019, respectively.

~~As part of our quarterly 2019 remeasurements, we decreased the weighted-average discount rate used to measure our pension benefit obligation from 4.50% at December 31, 2018 by~~ 40 basis points each quarter to 3.30% at September 30, 2019. Our remeasurements also reflect actual returns on plan assets of 13.40% (nine-month rate). Our expected long-term rate of return on pension plan assets is an annualized 7.00% for 2019.

~~AT&T INC.~~

~~SEPTEMBER 30, 2019~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)~~ - ~~Continued~~

~~Dollars in millions except per share amounts~~

The following table details pension and postretirement benefit costs included in the accompanying consolidated statements of income. The service cost component of net periodic pension cost (benefit) is recorded in operating expenses in the consolidated statements of income while the remaining components are recorded in “Other income (expense) – net.”

AT&T INC.

JUNE 30, 2020

Three months ended

Nine months ended

September 30,

September 30,

2019

2018

2019

2018
Pension cost:

Service cost – benefits earned during the period
$
260

$
270

$
743

$
845
Interest cost on projected benefit obligation

463

551

1,520

1,542
Expected return on assets

(905)

(761)

(2,636)

(2,276)
Amortization of prior service credit

(28)

(28)

(85)

(87)
Actuarial (gain) loss

1,888

-

4,019

(1,796)
Net pension (credit) cost
$
1,678

$
32

$
3,561

$
(1,772)

Postretirement cost:

Service cost – benefits earned during the period
$
19

$
27

$
55

$
82
Interest cost on accumulated postretirement benefit obligation

185

196

557

582
Expected return on assets

(57)

(76)

(169)

(228)
Amortization of prior service credit

(425)

(412)

(1,277)

(1,222)
Actuarial (gain) loss

-

-

-

(930)
Net postretirement (credit) cost
$
(278)

$
(265)

$
(834)

$
(1,716)

Combined net pension and postretirement (credit) cost
$
1,400

$
(233)

$
2,727

$
(3,488)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued

Dollars in millions except per share amounts

	Three months ended				Six months ended
	June 30,				June 30,
	2020		2019		2020		2019
Pension cost:
Service cost – benefits earned during the period	$	258	$	243	$	515	$	483
Interest cost on projected benefit obligation		422		508		844		1,057
Expected return on assets		(890)		(880)		(1,779)		(1,731)
Amortization of prior service credit		(29)		(24)		(57)		(57)
Actuarial (gain) loss		-		1,699		-		2,131
Net pension (credit) cost	$	(239)	$	1,546	$	(477)	$	1,883

Postretirement cost:
Service cost – benefits earned during the period	$	13	$	18	$	26	$	36
Interest cost on accumulated postretirement benefit obligation		104		186		208		372
Expected return on assets		(45)		(56)		(89)		(112)
Amortization of prior service credit		(582)		(426)		(1,164)		(852)
Net postretirement (credit) cost	$	(510)	$	(278)	$	(1,019)	$	(556)

Combined net pension and postretirement (credit) cost	$	(749)	$	1,268	$	(1,496)	$	1,327

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 ~~$24~~$19 and ~~$24~~$25 in the ~~third~~second quarter and ~~$74~~$38 and ~~$65~~$50 for the first ~~nine~~six months of 2020 and 2019, ~~and 2018,~~ respectively. ~~During the third quarter of 2019, we recorded an actuarial loss of $29.~~

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, ~~2018.~~2019.

2625

AT&T INC.

~~SEPTEMBER~~JUNE 30, ~~2019~~2020

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued

Dollars in millions except per share amounts

Long-Term Debt and Other Financial Instruments

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

		September 30, 2019				December 31, 2018					June 30, 2020				December 31, 2019
		Carrying		Fair		Carrying		Fair			Carrying		Fair		Carrying		Fair
		Amount		Value		Amount		Value			Amount		Value		Amount		Value
Notes and debentures¹	Notes and debentures¹	$	160,758	$	180,801	$	171,529	$	172,287	Notes and debentures¹	$	164,099	$	190,284	$	161,109	$	182,124
Commercial paper	Commercial paper		2,439		2,439		3,048		3,048	Commercial paper		3,001		3,001		-		-
Bank borrowings	Bank borrowings		4		4		4		4	Bank borrowings		-		-		4		4
Investment securities²	Investment securities²		3,599		3,599		3,409		3,409	Investment securities²		3,632		3,632		3,723		3,723
¹	Includes credit agreement borrowings.									Includes credit agreement borrowings.
²	Excludes investments accounted for under the equity method.									Excludes investments accounted for under the equity method.

The carrying amount of debt with an original maturity of less than one year approximates ~~market~~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.

~~The following tables present~~Following is the fair value leveling for investment securities ~~and derivatives~~ that are measured at fair value and derivatives as of ~~September~~June 30, ~~2019~~2020 and December 31, ~~2018.~~2019. Derivatives designated as hedging instruments are reflected as “Other assets,” “Other noncurrent ~~liabilities” and, for a portion of interest rate swaps,~~liabilities,” “Other current assets” and “Accounts payable and accrued liabilities” on our consolidated balance sheets.

		September 30, 2019									June 30, 2020
		Level 1		Level 2		Level 3		Total			Level 1		Level 2		Level 3		Total
Equity Securities	Equity Securities									Equity Securities
Domestic equities	Domestic equities	$	781	$	-	$	-	$	781	Domestic equities	$	832	$	-	$	-	$	832
International equities	International equities		171		-		-		171	International equities		141		-		-		141
Fixed income equities	Fixed income equities		227		-		-		227	Fixed income equities		230		-		-		230
Available-for-Sale Debt Securities	Available-for-Sale Debt Securities		-		1,380		-		1,380	Available-for-Sale Debt Securities		-		1,522		-		1,522
Asset Derivatives	Asset Derivatives									Asset Derivatives
Cross-currency swaps										Cross-currency swaps		-		67		-		67
Foreign exchange contracts										Foreign exchange contracts		-		14		-		14
Liability Derivatives										Liability Derivatives
Interest rate swaps	Interest rate swaps		-		2		-		2	Interest rate swaps		-		(3)		-		(3)
Cross-currency swaps	Cross-currency swaps		-		70		-		70	Cross-currency swaps		-		(6,767)		-		(6,767)
Foreign exchange contracts	Foreign exchange contracts		-		81		-		81	Foreign exchange contracts		-		(10)		-		(10)
Liability Derivatives
Cross-currency swaps			-		(4,553)		-		(4,553)
Interest rate locks			-		(225)		-		(225)
Foreign exchange contracts			-		(2)		-		(2)

2726

AT&T INC.

~~SEPTEMBER~~JUNE 30, ~~2019~~2020

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued

Dollars in millions except per share amounts

		December 31, 2018									December 31, 2019
		Level 1		Level 2		Level 3		Total			Level 1		Level 2		Level 3		Total
Equity Securities	Equity Securities									Equity Securities
Domestic equities	Domestic equities	$	1,061	$	-	$	-	$	1,061	Domestic equities	$	844	$	-	$	-	$	844
International equities	International equities		256		-		-		256	International equities		183		-		-		183
Fixed income equities	Fixed income equities		172		-		-		172	Fixed income equities		229		-		-		229
Available-for-Sale Debt Securities	Available-for-Sale Debt Securities		-		870		-		870	Available-for-Sale Debt Securities		-		1,444		-		1,444
Asset Derivatives	Asset Derivatives									Asset Derivatives
Interest rate swaps										Interest rate swaps		-		2		-		2
Cross-currency swaps	Cross-currency swaps		-		472		-		472	Cross-currency swaps		-		172		-		172
Interest rate locks										Interest rate locks		-		11		-		11
Foreign exchange contracts	Foreign exchange contracts		-		87		-		87	Foreign exchange contracts		-		89		-		89
Liability Derivatives	Liability Derivatives									Liability Derivatives
Interest rate swaps			-		(39)		-		(39)
Cross-currency swaps	Cross-currency swaps		-		(2,563)		-		(2,563)	Cross-currency swaps		-		(3,187)		-		(3,187)
Foreign exchange contracts			-		(2)		-		(2)
Interest rate locks										Interest rate locks		-		(95)		-		(95)

Investment Securities

Our investment securities include both equity and debt securities that are measured at fair value, as well as equity securities without readily determinable fair values. A substantial portion of the fair values of our investment securities is estimated based on quoted market prices. Investments in equity securities not traded on a national securities exchange are valued at cost, less any impairment, and adjusted for changes resulting from observable, orderly transactions for identical or similar securities. Investments in debt securities not traded on a national securities exchange are valued using pricing models, quoted prices of securities with similar characteristics or discounted cash flows.

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

	Three months ended				Nine months ended				Three months ended				Six months ended
	September 30,				September 30,				June 30,				June 30,
	2019		2018		2019		2018		2020		2019		2020		2019
Total gains (losses) recognized on equity securities	$	21	$	80	$	231	$	88	$	161	$	50	$	(42)	$	210
Gains (Losses) recognized on equity securities sold		8		(2)		101		(4)		9		9		(24)		27
Unrealized gains (losses) recognized on equity securities held at end of period		13		82		130		92
Unrealized gains (losses) recognized on equity securities
held at end of period										152		41		(18)		183

At ~~September~~June 30, ~~2019,~~2020, available-for-sale debt securities totaling ~~$1,380~~$1,522 have maturities as follows - less than one year: ~~$102;~~$64; one to three years: ~~$177;~~$175; three to five years: ~~$164;~~$156; five or more years: ~~$937.~~$1,127.

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 “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.

2827

AT&T INC.

~~SEPTEMBER~~JUNE 30, ~~2019~~2020

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued

Dollars in millions except per share amounts

Fair Value Hedging WePeriodically, we enter into and designate ~~our~~ fixed-to-floating interest rate swaps as fair value hedges. The purpose of these swaps is to manage interest rate risk by managing our mix of fixed-rate and floating-rate debt. These swaps involve the receipt of fixed-rate amounts for floating interest rate payments over the life of the swaps without exchange of the underlying principal amount.

We also designate some of our foreign exchange contracts as fair value hedges. The purpose of these contracts is to hedge currency risk associated with foreign-currency-denominated operating assets and liabilities.

Accrued and realized gains or losses from fair value hedges impact the same category on the consolidated statements of income as the item being hedged. Unrealized gains on fair value hedges are recorded at fair market value as assets, and unrealized losses are recorded at fair market value as liabilities. Changes in the fair value of derivative instruments designated as fair value hedges are offset against the change in fair value of the hedged assets or liabilities through earnings. In the ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 and ~~2018,~~2019, no ineffectiveness was measured on fair value hedges.

Cash Flow Hedging We designate our cross-currency swaps as cash flow hedges. We have entered into multiple cross-currency swaps to hedge our exposure to variability in expected future cash flows that are attributable to foreign currency risk generated from the issuance of our foreign-denominated debt. These agreements include initial and final exchanges of principal from fixed foreign currency denominated amounts to fixed U.S. dollar denominated amounts, to be exchanged at a specified rate that is usually determined by the market spot rate upon issuance. They also include an interest rate swap of a fixed or floating foreign currency-denominated interest rate to a fixed U.S. dollar denominated interest rate.

We also designate some of our foreign exchange contracts as cash flow hedges. The purpose of these contracts is to hedge currency risk associated with variability in anticipated foreign-currency-denominated cash flows, such as unremitted or forecasted royalty and license fees owed to WarnerMedia’s domestic companies for the sale or anticipated sale of U.S. copyrighted products abroad or cash flows for certain film production costs denominated in a foreign ~~currency.~~currencies.

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, ~~the effective portion is~~changes in fair value are reported as a component of accumulated OCI ~~until~~and are reclassified into the consolidated statements of income in the same period the hedged transaction affects earnings. The gain or loss on the ineffective portion is recognized as “Other income (expense) – net” in the consolidated statements of income in each period. We evaluate the effectiveness of our cash flow hedges each quarter. In the nine months ended September 30, 2019 and 2018, no ineffectiveness was measured on cash flow hedges.

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 ~~from the settlement of~~when we settle our interest rate locks are amortized into income over the life of the related ~~debt, except where a material amount is deemed to be ineffective, which would be immediately reclassified to “Other income (expense) – net” in the consolidated statements of income.~~debt. Over the next 12 months, we expect to reclassify ~~$62~~$98 from accumulated OCI to ~~interest expense~~“Interest expense” due to the amortization of net losses on historical interest rate locks.

We settled all interest rate locks in May 2020 in conjunction with issuance of fixed rate debt obligations that the interest rate locks were hedging. We paid $731 that was largely offset by the return of collateral at the time of settlement. Cash flows from the interest rate lock settlements and return of collateral were reported as Financing Activities in our Statement of Cash Flows, consistent with our accounting policy for these instruments.

Net Investment Hedging We have designated €1,450 million aggregate principal amount of debt as a hedge of the variability of some of the Euro-denominated net investments of our subsidiaries. The gain or loss on the debt that is designated as, and is effective as, an economic hedge of the net investment in a foreign operation is recorded as a currency translation adjustment within accumulated OCI, net on the consolidated balance sheet. Net ~~gains~~losses on net investment hedges recognized in accumulated OCI in the ~~third~~second quarter were $30 and for the first ~~nine~~six months of ~~2019 was $~~43.2020 were $5.

Collateral and Credit-Risk Contingency We have entered into agreements with our derivative counterparties establishing collateral thresholds based on respective credit ratings and netting agreements. At ~~September~~June 30, ~~2019,~~2020, we had posted collateral of ~~$407~~$694 (a deposit asset) and held collateral of ~~$38~~$16 (a receipt liability). Under the agreements, if AT&T’s credit rating had been downgraded one rating level by Fitch Ratings, before the final collateral exchange in ~~September,~~June, we would have been required to post additional collateral of ~~$122.~~$76. If AT&T’s credit rating had been downgraded four 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 $5,487. If DIRECTV

2928

AT&T INC.

~~SEPTEMBER~~JUNE 30, ~~2019~~2020

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued

Dollars in millions except per share amounts

~~$4,502. If DIRECTV~~ Holdings LLC’s credit rating had been downgraded below BBB- by S&P, we would have been required to post additional collateral of ~~$288.~~$321. At December 31, ~~2018,~~2019, we had posted collateral of ~~$1,675~~$204 (a deposit asset) and held collateral of ~~$103~~$44 (a receipt liability). We do not offset the fair value of collateral, whether the right to reclaim cash collateral (a receivable) or the obligation to return cash collateral (a payable) exists, against the fair value of the derivative instruments.

Following are the notional amounts of our outstanding derivative positions:

		September 30,		December 31,			June 30,		December 31,
		2019		2018			2020		2019
Interest rate swaps	Interest rate swaps	$	853	$	3,483	Interest rate swaps	$	21	$	853
Cross-currency swaps	Cross-currency swaps		42,792		42,192	Cross-currency swaps		45,606		42,325
Interest rate locks	Interest rate locks		3,500		-	Interest rate locks		-		3,500
Foreign exchange contracts	Foreign exchange contracts		473		2,094	Foreign exchange contracts		298		269
Total	Total	$	47,618	$	47,769	Total	$	45,925	$	46,947

Following are the related hedged items affecting our financial position and performance:

Effect of Derivatives on the Consolidated Statements of Income	Effect of Derivatives on the Consolidated Statements of Income								Effect of Derivatives on the Consolidated Statements of Income
	Three months ended				Nine months ended				Three months ended				Six months ended
	September 30,				September 30,				June 30,				June 30,
Fair Value Hedging Relationships	2019		2018		2019		2018		2020		2019		2020		2019
Interest rate swaps (Interest expense):
Gain (Loss) on interest rate swaps	$	-	$	2	$	59	$	(60)	$	(14)	$	35	$	(4)	$	59
Gain (Loss) on long-term debt		-		(2)		(59)		60		14		(35)		4		(59)

In addition, the net swap settlements that accrued and settled in the ~~quarter~~quarters ended ~~September~~June 30, 2020 and 2019 were offset against interest expense.

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

	Three months ended				Nine months ended				Three months ended				Six months ended
	September 30,				September 30,				June 30,				June 30,
Cash Flow Hedging Relationships	2019		2018		2019		2018		2020		2019		2020		2019
Cross-currency swaps:
Gain (Loss) recognized in accumulated OCI	$	(487)	$	(13)	$	(1,082)	$	308	$	809	$	(763)	$	(3,170)	$	(595)
Foreign exchange contracts:
Gain (Loss) recognized in accumulated OCI		5		17		2		17		2		4		(11)		(3)
Other income (expense) - net reclassified from accumulated OCI into income		6		-		16		-
Other income (expense) - net reclassified from
accumulated OCI into income										(3)		7		13		10
Interest rate locks:
Gain (Loss) recognized in accumulated OCI		(202)		-		(225)		-		(12)		(23)		(648)		(23)
Interest income (expense) reclassified from accumulated OCI into income		(15)		(15)		(47)		(44)
Interest income (expense) reclassified from
accumulated OCI into income										(18)		(16)		(34)		(32)

3029

AT&T INC.

~~SEPTEMBER~~JUNE 30, ~~2019~~2020

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued

Dollars in millions except per share amounts

NOTE 8. ACQUISITIONS, DISPOSITIONS AND OTHER ADJUSTMENTS

Acquisitions

~~Time Warner~~HBO Latin America Group (HBO LAG) ~~On June 14, 2018,~~In May 2020, we ~~completed our~~acquired the remaining interest in HBO LAG for $141, net of cash acquired. At acquisition, ~~of Time Warner,~~ ~~a leader in media and entertainment whose major businesses encompass an array of some~~we remeasured the fair value of the ~~most respected media brands.~~ total business, which exceeded the carrying amount of our equity method investment and resulted in a pre-tax gain of $68. We ~~paid Time Warner shareholders $36,599~~consolidated that business upon close and recorded those assets at fair value, including $640 of trade names, $271 of distribution networks and $343 of goodwill that is reported in ~~AT&T stock~~the WarnerMedia segment. These estimates are preliminary in nature and ~~$42,100 in cash. Total consideration, including share-based payment arrangements and other~~subject to adjustments, ~~totaled $79,358, excluding Time Warner’s net debt at~~which will be finalized within one year from the date of acquisition.

The fair values of the assets acquired and liabilities assumed were determined using the income, cost and market approaches. The fair value measurements were primarily based on significant inputs that are not observable in the market and thus represent a Level 3 measurement as defined in ASC 820, other than cash and long-term debt acquired in the acquisition. The income approach was primarily used to value the intangible assets, consisting primarily of distribution network, released TV and film content, in-place advertising network, trade names, and franchises. The income approach estimates fair value for an asset based on the present value of cash flow projected to be generated by the asset. Projected cash flow is discounted at a required rate of return that reflects the relative risk of achieving the cash flow and the time value of money. The cost approach, which estimates value by determining the current cost of replacing an asset with another of equivalent economic utility, was used, as appropriate, for plant, property and equipment. The cost to replace a given asset reflects the estimated reproduction or replacement cost for the property, less an allowance for loss in value due to depreciation.

Goodwill is calculated as the difference between the acquisition date fair value of the consideration transferred and the fair value of the net assets acquired, and represents the future economic benefits that we expect to achieve as a result of the acquisition.

~~AT&T INC.~~

~~SEPTEMBER 30, 2019~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)~~ - ~~Continued~~

~~Dollars in millions except per share amounts~~

~~The following table summarizes the fair values of the Time Warner assets acquired and liabilities assumed and related deferred income taxes as of the acquisition date:~~

Assets acquired

Cash

$
1,889
Accounts receivable

9,020
All other current assets

2,913
Noncurrent inventory and theatrical film and television production costs

5,591
Property, plant and equipment

4,693
Intangible assets subject to amortization

Distribution network

18,040
Released television and film content

10,806
Trademarks and trade names

18,081
Other

10,300
Investments and other assets

9,438
Goodwill

38,801
Total assets acquired

129,572

Liabilities assumed

Current liabilities, excluding current portion of long-term debt

8,294
Debt maturing within one year

4,471
Long-term debt

18,394
Other noncurrent liabilities

19,054
Total liabilities assumed

50,213
Net assets acquired

79,359
Noncontrolling interest

(1)
Aggregate value of consideration paid

$
79,358

~~Purchased goodwill is not expected to be deductible for tax purposes. All of the goodwill was allocated to the WarnerMedia segment.~~

~~Dispositions~~

~~Hudson Yards~~Spectrum Auctions In June ~~2019~~2020, we ~~sold our ownership in Hudson Yards North Tower Holdings LLC under a sale-leaseback arrangement for cash proceeds~~completed the acquisition of $~~2,081~~2,379 of 37/39 GHz spectrum in a Federal Communications Commission (FCC) auction. Prior to the auction, we exchanged the 39 GHz licenses with a book value of approximately $300 that were previously acquired through FiberTower Corporation for vouchers to be applied against the winning bids and recorded a ~~loss of approximately $100 resulting from transaction costs (primarily real estate transfer taxes).~~

~~Hulu~~ In ~~April 2019, we sold our ownership in Hulu for cash proceeds of $1,430 and recorded a~~$900 gain ~~of $740.~~

~~Held-for-Sale~~

In ~~October 2019, we entered into an agreement to sell our wireless and wireline operations in Puerto Rico and the U.S. Virgin Islands for approximately $1,950. We expect the transaction to close~~ in the first ~~half~~quarter of 2020. These vouchers yielded a value of approximately $1,200, which was applied toward our gross bids. In the second quarter of 2020, ~~subject~~we made the final cash payment of $949, bringing the total cash payment to ~~customary closing conditions.~~$1,186.

In the third quarter of 2019, we applied held-for-sale treatment to the assets and liabilities of these operations, and, accordingly, included the assets in “Other current assets,” and the related liabilities in “Accounts payable and accrued liabilities,” on our consolidated balance sheet at September 30, 2019.

~~AT&T INC.~~

~~SEPTEMBER 30, 2019~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)~~ - ~~Continued~~

~~Dollars in millions except per share amounts~~

~~The assets and liabilities primarily consist of approximately $700 of net property, plant and equipment; $1,100 of FCC licenses; $300 of goodwill; and $400 of net tax liabilities.~~

NOTE 9. SALES OF RECEIVABLES

We have agreements with various third-party financial institutions pertaining to the sales of certain types of our accounts receivable. The most significant of these programs are discussed in detail below and generally consist of (1) receivables arising from equipment installment plans, which are sold for cash and a deferred purchase price, and (2) ~~receivables related to our WarnerMedia business.~~revolving service and trade receivables. Under these programs, we transfer receivables to purchasers in exchange for cash and additional consideration upon settlement of the receivables, where applicable. Under the terms of our agreements for these programs, we continue to bill and collect the payments from our customers on behalf of the financial institutions.

The sales of receivables did not have a material impact on our consolidated statements of income or to “Total Assets” reported on our consolidated balance sheets. We reflect cash receipts on sold receivables as cash flows from operations in our consolidated statements of cash flows. Cash receipts on the deferred purchase price are classified as cash flows from investing activities.

Our equipment installment and ~~WarnerMedia~~revolving receivable programs are discussed in detail below. AThe following table sets forth a summary of the receivables and accounts being ~~serviced is as follows:~~serviced:

		September 30, 2019				December 31, 2018					June 30, 2020				December 31, 2019
		Equipment				Equipment					Equipment				Equipment
		Installment		WarnerMedia		Installment		WarnerMedia			Installment		Revolving		Installment		Revolving
Gross receivables:	Gross receivables:	$	4,425	$	3,147	$	5,994	$	-	Gross receivables:	$	3,931	$	3,745	$	4,576	$	3,324
Balance sheet classification	Balance sheet classification									Balance sheet classification
Accounts receivable	Accounts receivable									Accounts receivable
Notes receivable	Notes receivable		2,528		-		3,457		-	Notes receivable		2,056		-		2,467		-
Trade receivables	Trade receivables		460		2,626		438		-	Trade receivables		496		3,547		477		2,809
Other Assets	Other Assets									Other Assets
Noncurrent notes and trade receivables	Noncurrent notes and trade receivables		1,437		521		2,099		-	Noncurrent notes and trade receivables		1,379		198		1,632		515

Outstanding portfolio of receivables derecognized from our consolidated balance sheets			9,405		3,456		9,065		-
Outstanding portfolio of receivables derecognized from										Outstanding portfolio of receivables derecognized from
our consolidated balance sheets										our consolidated balance sheets		8,917		5,300		9,713		4,300
Cash proceeds received, net of remittances¹	Cash proceeds received, net of remittances¹		6,920		3,456		6,508		-	Cash proceeds received, net of remittances¹		6,429		5,300		7,211		4,300
¹	Represents amounts to which financial institutions remain entitled, excluding the deferred purchase price.									Represents amounts to which financial institutions remain entitled, excluding the deferred purchase price.

AT&T INC.

JUNE 30, 2020

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued

Dollars in millions except per share amounts

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 additional consideration upon settlement of the receivables, referred to as the deferred purchase price. In the event a customer trades in a device prior to the end of the installment contract period, we agree to make a payment to the financial institutions equal to any outstanding remaining installment receivable balance. Accordingly, we record a guarantee obligation for this estimated amount at the time the receivables are transferred.

~~AT&T INC.~~

~~SEPTEMBER 30, 2019~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)~~ - ~~Continued~~

~~Dollars in millions except per share amounts~~

The following table sets forth a summary of equipment installment receivables sold under this program during the three and ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 and ~~2018:~~2019:

		Three months ended				Nine months ended					Three months ended				Six months ended
		September 30,				September 30,					June 30,				June 30,
		2019		2018		2019		2018			2020		2019		2020		2019
Gross receivables sold	Gross receivables sold	$	2,098	$	2,161	$	7,043	$	7,077	Gross receivables sold	$	1,506	$	2,244	$	3,873	$	4,945
Net receivables sold¹	Net receivables sold¹		2,014		2,064		6,693		6,670	Net receivables sold¹		1,449		2,133		3,722		4,679
Cash proceeds received	Cash proceeds received		1,700		1,752		5,895		5,679	Cash proceeds received		1,225		1,920		3,175		4,195
Deferred purchase price recorded	Deferred purchase price recorded		352		335		922		1,161	Deferred purchase price recorded		232		261		585		570
Guarantee obligation recorded	Guarantee obligation recorded		67		75		261		270	Guarantee obligation recorded		27		93		71		194
¹	Receivables net of allowance, imputed interest and equipment trade-in right guarantees.									Receivables net of allowance, imputed interest and equipment trade-in right guarantees.

The deferred purchase price and guarantee obligation are initially recorded at estimated fair value and subsequently ~~carried at the lower~~adjusted for changes in present value of ~~cost or net realizable value.~~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 that contemplate changes in value after the launch of a device model. The fair value measurements used for the deferred purchase price and the guarantee obligation are considered Level 3 under the Fair Value Measurement and Disclosure framework (see Note 7).

The following table ~~shows~~presents the previously transferred equipment installment receivables, which we repurchased in exchange for the associated deferred purchase price during the three and ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 and ~~2018:~~2019:

		Three months ended				Nine months ended					Three months ended				Six months ended
		September 30,				September 30,					June 30,				June 30,
		2019		2018		2019		2018			2020		2019		2020		2019
Fair value of repurchased receivables	Fair value of repurchased receivables	$	268	$	-	$	926	$	1,481	Fair value of repurchased receivables	$	285	$	235	$	573	$	658
Carrying value of deferred purchase price	Carrying value of deferred purchase price		259		-		891		1,393	Carrying value of deferred purchase price		281		225		558		632
Gain (loss) on repurchases¹		$	9	$	-	$	35	$	88
Gain on repurchases¹										Gain on repurchases¹	$	4	$	10	$	15	$	26
¹	These gains (losses) are included in “Selling, general and administrative” in the consolidated statements of income.									These gains are included in “Selling, general and administrative” in the consolidated statements of income.

At ~~September~~June 30, ~~2019~~2020 and December 31, ~~2018,~~2019, our deferred purchase price receivable was ~~$2,300~~$2,319 and ~~$2,370,~~$2,336, respectively, of which ~~$1,605~~$1,591 and ~~$1,448~~$1,569 are included in “Other current assets” on our consolidated balance sheets, with the remainder in “Other Assets.” The guarantee obligation at ~~September~~June 30, ~~2019~~2020 and December 31, ~~2018~~2019 was ~~$427~~$315 and ~~$439,~~$384, respectively, of which ~~$152~~$213 and ~~$196~~$148 are included in “Accounts payable and accrued liabilities” on our consolidated balance sheets, with the remainder in “Other noncurrent liabilities.” Our maximum exposure to loss as a result of selling these equipment installment receivables is limited to the total amount of our deferred purchase price and guarantee obligation.

~~WarnerMedia~~31

AT&T INC.

JUNE 30, 2020

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued

Dollars in millions except per share amounts

Revolving Receivables Program

In ~~March~~ 2019, we entered into a one-year revolving agreement to transfer ~~$1,400~~up to $4,300 of certain receivables ~~from~~through our ~~WarnerMedia business~~bankruptcy-remote subsidiaries to various financial institutions on a recurring basis in exchange for cash equal to the gross receivables transferred. In the first quarter of 2020, we expanded the program limit to $5,300. In the second quarter of 2020, we extended the agreement by one year. 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). ~~In June 2019, we expanded the program another $2,600 for a total maximum outstanding amount of $4,000, of which approximately $3,456 is outstanding at September 30, 2019.~~ The transferred receivables are fully guaranteed by our ~~subsidiary,~~bankruptcy-remote subsidiaries, which ~~holds~~hold additional receivables in the amount of ~~$,3147~~$3,745 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. The obligation is subsequently adjusted for changes in estimated expected credit losses and interest rates. Our maximum exposure to loss related to ~~selling~~ these receivables transferred is limited to the amount outstanding.

~~AT&T INC.~~

~~SEPTEMBER 30, 2019~~The fair value measurement used for the obligation is considered Level 3 under the Fair Value Measurement and Disclosure framework (see Note 7).

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)~~ - ~~Continued~~

~~Dollars in millions except per share amounts~~

The following table sets forth a summary of ~~WarnerMedia~~ receivables ~~sold during the three and nine months ended September 30, 2019 and 2018:~~sold:

		Three months ended				Nine months ended					Three months ended				Six months ended
		September 30,				September 30,					June 30,				June 30,
		2019		2018		2019		2018			2020		2019		2020		2019
Gross receivables sold/cash proceeds received¹	Gross receivables sold/cash proceeds received¹	$	2,873	$	-	$	8,725	$	-	Gross receivables sold/cash proceeds received¹	$	3,805	$	4,452	$	8,027	$	5,852
Collections reinvested under revolving agreement	Collections reinvested under revolving agreement		2,873		-		5,000		-	Collections reinvested under revolving agreement		3,805		2,127		7,027		2,127
Collections not reinvested			269		-		269		-
Net cash proceeds received (remitted)	Net cash proceeds received (remitted)	$	(269)	$	-	$	3,456	$	-	Net cash proceeds received (remitted)	$	-	$	2,325	$	1,000	$	3,725

Net receivables sold²	Net receivables sold²	$	2,864	$	-	$	8,361	$	-	Net receivables sold²	$	3,819	$	4,134	$	7,957	$	5,497
Obligations recorded			39		-		475		-
Obligations recorded (reversed)										Obligations recorded (reversed)		(12)		384		114		436
¹	Includes initial sale of receivables of $0 for the three months ended and $3,725 for the nine months ended September 30, 2019.									Includes initial sale of receivables of $0 and $2,325 for the three months and $1,000 and $3,725 for the six months ended
										June 30, 2020 and 2019, respectively.
²	Receivables net of allowance, return and incentive reserves and imputed interest									Receivables net of allowance, return and incentive reserves and imputed interest

NOTE 10. LEASES

We have operating and finance leases for certain facilities and equipment used in ~~our~~ operations. ~~As of September 30, 2019, our~~Our leases generally have remaining lease terms of up to 15 years. Some of our real estate operating leases contain renewal options that may be exercised, and some of our leases include options to terminate the leases within one ~~year~~year..

~~Subsequent to the adoption of ASC 842 on January 1, 2019, we recognize~~We have recognized a right-of-use asset for both operating and finance leases, and an operating lease liability that represents the present value of our obligation to make payments over the lease term. The present value of the lease payments is calculated using the incremental borrowing rate for operating and finance leases, which was determined using a portfolio approach based on the rate of interest that we would have to pay to borrow an amount equal to the lease payments on a collateralized basis over a similar term. We use the unsecured borrowing rate and risk-adjust that rate to approximate a collateralized rate in the currency of the lease, which iswill be updated on a quarterly basis for measurement of new lease ~~obligations.~~liabilities.

~~The components of lease expense were as follows:~~

Three months ended

Nine months ended

September 30, 2019

September 30, 2019
Operating lease cost
$
1,481

$
4,333

Finance lease cost:

Amortization of right-of-use assets
$
67

$
203
Interest on lease obligation

42

126
Total finance lease cost
$
109

$
329

3532

AT&T INC.

~~SEPTEMBER~~JUNE 30, ~~2019~~2020

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued

Dollars in millions except per share amounts

The components of lease expense were as follows:

	Three months ended				Six months ended
	June 30,				June 30,
	2020		2019		2020		2019
Operating lease cost	$	1,449	$	1,610	$	2,826	$	2,852

Finance lease cost:
Amortization of right-of-use assets	$	73	$	70	$	140	$	136
Interest on lease obligation		36		42		77		84
Total finance lease cost	$	109	$	112	$	217	$	220

Supplemental balance sheet information related to leases is as follows:

At September 30, 2019

Operating Leases

Operating lease right-of-use assets
$
24,477

Accounts payable and accrued liabilities
$
3,453

Operating lease obligation

22,288

Total operating lease obligation
$
25,741

Finance Leases

Property, plant and equipment, at cost
$
3,438

Accumulated depreciation and amortization

(1,215)

Property, plant and equipment, net
$
2,223

Current portion of long-term debt
$
153

Long-term debt

1,823

Total finance lease obligation
$
1,976

Weighted-Average Remaining Lease Term

Operating leases

8.7
yrs
Finance leases

10.4
yrs

Weighted-Average Discount Rate

Operating leases

4.3
%
Finance leases

8.4
%

	June 30,		December 31,
	2020		2019
Operating Leases
Operating lease right-of-use assets	$	24,692	$	24,039

Accounts payable and accrued liabilities	$	3,474	$	3,451
Operating lease obligation		22,230		21,804
Total operating lease obligation	$	25,704	$	25,255

Finance Leases
Property, plant and equipment, at cost	$	3,468	$	3,534
Accumulated depreciation and amortization		(1,347)		(1,296)
Property, plant and equipment, net	$	2,121	$	2,238

Current portion of long-term debt	$	180	$	162
Long-term debt		1,683		1,872
Total finance lease obligation	$	1,863	$	2,034

Weighted-Average Remaining Lease Term (years)
Operating leases		8.5		8.4
Finance leases		10.2		10.7

Weighted-Average Discount Rate
Operating leases		4.2	%	4.7	%
Finance leases		8.2	%	8.5	%

3633

AT&T INC.

~~SEPTEMBER~~JUNE 30, ~~2019~~2020

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued

Dollars in millions except per share amounts

Future minimum maturities of lease obligations are as follows:

At September 30, 2019	Operating		Finance
At June 30, 2020					Operating		Finance
	Leases		Leases		Leases		Leases
Remainder of 2019	$	1,168	$	100
2020		4,643		306
Remainder of 2020					$	2,447	$	190
2021		4,258		287		4,582		309
2022		3,993		276		4,277		291
2023		3,609		264		3,889		262
2024		2,923		247		3,357		242
Thereafter		11,706		1,591		13,031		1,632
Total lease payments		32,300		3,071		31,583		2,926
Less imputed interest		(6,559)		(1,095)		(5,879)		(1,063)
Total	$	25,741	$	1,976	$	25,704	$	1,863

NOTE 11. PREFERRED SHARES

We have authorized 10 million preferred shares of AT&T stock, each with a par value of $1.00 per share. Cumulative perpetual preferred shares consist of the following:

Series A: 48 thousand shares outstanding at June 30, 2020 and December 31, 2019, with a $25,000 per share liquidation preference and a dividend rate of 5.00%.

Series B: 20 thousand shares outstanding at June 30, 2020 and 0 issued and outstanding at December 31, 2019, with a €100,000 per share liquidation preference, and an initial dividend rate of 2.875%, subject to reset beginning on May 1, 2025.

Series C: 70 thousand shares outstanding at June 30, 2020 and 0 issued and outstanding at December 31, 2019, with a $25,000 per share liquidation preference and a dividend rate of 4.75%.

So long as the preferred dividends are declared and paid on a timely basis on each series of preferred shares, there are no limitations on our ability to declare a dividend on or repurchase AT&T common shares. The preferred shares are optionally redeemable by AT&T at the liquidation price generally on or after five years from the issuance date, or upon certain other contingent events.

NOTE ~~11.~~12. ADDITIONAL FINANCIAL INFORMATION

Cash and Cash Flows

We typically maintain our restricted cash balances for purchases and sales of certain investment securities and funding of certain deferred compensation benefit ~~payments. The components comprising cash and cash equivalents and restricted cash are as follows:~~payments:

September 30,

December 31,

2019

2018

2018

2017
Cash and cash equivalents

$
6,588

$
8,657

$
5,204

$
50,498
Restricted cash in Other current assets

15

56

61

6
Restricted cash in Other Assets

179

75

135

428
Cash and cash equivalents and restricted cash

$
6,782

$
8,788

$
5,400

$
50,932

~~Supplemental disclosures for the statement of cash flows related to operating leases are as follows:~~

	June 30,				December 31,
		2020		2019		2019		2018
Cash and cash equivalents	$	16,941	$	8,423	$	12,130	$	5,204
Restricted cash in Other current assets		3		15		69		61
Restricted cash in Other Assets		87		216		96		135
Cash and Cash Equivalents and Restricted Cash	$	17,031	$	8,654	$	12,295	$	5,400

Nine months ended

September 30,

2019

2018
Cash Flows from Operating Activities

Cash paid for amounts included in lease obligations

Operating cash flows from operating leases

$
3,338

$
3,694

Supplemental Lease Cash Flow Disclosures

Operating lease right-of-use assets obtained

in exchange for new operating lease obligations

7,068

-

3734

AT&T INC.

~~SEPTEMBER~~JUNE 30, ~~2019~~2020

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued

Dollars in millions except per share amounts

~~Cash paid (received) from interest and income taxes during the period are as follows:~~

Consolidated Statements of Cash Flows	Six months ended
	June 30,
Cash paid (received) during the period for:		2020		2019
Interest	$	4,202	$	4,410
Income taxes, net of refunds		(214)		(32)

Nine months ended

September 30,

2019

2018
Interest
$
6,938

$
6,943
Income taxes, net of refunds

420

(537)

	Six months ended
	June 30,
	2020		2019
Cash Flows from Operating Activities
Cash paid for amounts included in lease obligations
Operating cash flows from operating leases	$	2,424	$	2,464

Supplemental Lease Cash Flow Disclosures
Operating lease right-of-use assets obtained
in exchange for new operating lease obligations		2,895		3,899

Other Noncash Investing and Financing Activities In ~~2019, we recorded approximately $1,920 of new vendor financing commitments related to capital investments, and we have repaid $2,601 of such obligations during the year. In~~ connection with capital improvements and the acquisition of other productive assets, we negotiate favorable payment terms (referred to as vendor financing), which are ~~excluded from our investing activities and~~ reported as financing ~~activities.~~activities when paid. For the first six months, we recorded vendor financing commitments related to capital investments of approximately $1,680 in 2020 and $1,265 in 2019.

~~Preferred Interests Issued by Subsidiary~~ ~~In September 2019, we issued $1,500 nonconvertible cumulative preferred interests in a wireless subsidiary that holds interests in various tower assets (Tower Holdings).~~

The membership interests in Tower Holdings consist of (1) common interests, which are held by a consolidated subsidiary of AT&T, and (2) these newly issued preferred interests (Tower preferred interests), which pay an initial preferred distribution of 5.0% annually, subject to declaration, resetting every five years. The declaration and payment of distributions on the preferred interests do not impose any limitation on cash movements between affiliates, or our ability to declare a dividend on or repurchase AT&T shares. We can call the Tower preferred interests beginning five years from the issuance date or upon the receipt of proceeds from the sale of the underlying assets. The preferred interests are included in “Noncontrolling interest” on the consolidated balance sheet.Financing Activities

~~The holders~~Debt Transactions At June 30, 2020, our total long-term debt obligations totaled $168,964. Our debt activity primarily consisted of the ~~Tower preferred interests have the option to require redemption upon the occurrence~~following:

Net borrowings of approximately $2,960 of debt under our commercial paper program.

In April 2020, entry into and draw on a $5,500 Term Loan Credit Agreement, with certain ~~contingent events, such~~commercial banks and Bank of America, N.A., as ~~the failure~~lead agent, which was redeemed in May 2020 (originally due on December 31, 2020).

Issuance of $16,545 of AT&T global notes due 2027 to ~~pay the preferred distribution for two or more periods or~~2060.

Issuance of €3,000 million global notes ($3,281 at issuance) due 2028 to ~~meet~~2038.

Redemptions of $12,689 of AT&T global notes due 2020 to 2047.

Redemptions of $1,800 under term loan credit agreements with certain ~~other requirements, including a minimum credit rating. If notice is given upon such an event, all other holders~~banks.

Redemptions of equal or more subordinate classes of membership interests in Tower Holdings are entitled to receive the same form of consideration payable to the holders of the preferred interests, resulting in a deemed liquidation for accounting purposes.$1,000 annual put reset securities issued by BellSouth.

Our long-term debt issuances carried a weighted average interest rate of 3.5%, and our long-term debt redemptions had a weighted average interest rate of 3.4%.

Subsequent Events In July 2020, we completed redemptions of $4,264 of AT&T, WarnerMedia and DIRECTV notes due 2022, with an average interest rate of 3.4%.

In August 2020, we issued $11,000 of global notes due 2028 to 2061, with an average interest rate of 2.7%.

3835

AT&T INC.

~~SEPTEMBER~~JUNE 30, ~~2019~~2020

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

Dollars, subscribers and connections in millions, except per share and per subscriber amounts

OVERVIEW

AT&T Inc. is referred to as “we,” “AT&T” or the “Company” throughout this document, and the names of the particular subsidiaries and affiliates providing the services generally have been omitted. AT&T is a holding company whose subsidiaries and affiliates operate worldwide in the telecommunications, media and technology industries. You should read this discussion in conjunction with the consolidated financial statements and accompanying notes (Notes). We completed the acquisition of Time Warner Inc. (Time Warner) on June 14, 2018, and have included its results after that date. In accordance with U.S. generally accepted accounting principles (GAAP), operating results from Time Warner prior to the acquisition are excluded.

We have ~~four~~three reportable segments: (1) Communications, (2) WarnerMedia and (3) Latin ~~America and (4) Xandr.~~America. Our segment results presented in Note 4 and discussed below follow our internal management reporting. We analyze our segments based on segment operating contribution, which consists of operating income, excluding acquisition-related costs and other significant items and equity in net income (loss) of affiliates for investments managed within each segment. Percentage increases and decreases that are not considered meaningful are denoted with a dash.

We have recast our segment results for all prior periods ~~presented~~ to ~~exclude~~include our ~~wireless and wireline operations in Puerto Rico and the U.S. Virgin Islands from~~prior Xandr segment within our ~~Mobility and Business Wireline business units of the Communications segment, instead reporting them with Corporate and Other (see Note 8).~~WarnerMedia segment.

	Third Quarter						Nine-Month Period						Second Quarter						Six-Month Period
					Percent						Percent						Percent						Percent
	2019		2018		Change		2019		2018		Change		2020		2019		Change		2020		2019		Change
Operating Revenues
Communications	$	35,401	$	36,007	(1.7)	%	$	105,837	$	106,498	(0.6)	%	$	33,592	$	35,267	(4.7)	%	$	67,841	$	70,436	(3.7)	%
WarnerMedia		7,846		8,204	(4.4)			24,575		9,709	-			6,814		8,835	(22.9)			14,662		17,640	(16.9)
Latin America		1,730		1,833	(5.6)			5,205		5,809	(10.4)			1,232		1,757	(29.9)			2,822		3,475	(18.8)
Xandr		504		445	13.3			1,415		1,174	20.5
Corporate and other		407		531	(23.4)			1,218		1,636	(25.6)			437		420	4.0			825		811	1.7
Eliminations and consolidation		(1,300)		(1,281)	(1.5)			(3,878)		(2,063)	(88.0)			(1,125)		(1,322)	14.9			(2,421)		(2,578)	6.1
AT&T Operating Revenues		44,588		45,739	(2.5)			134,372		122,763	9.5			40,950		44,957	(8.9)			83,729		89,784	(6.7)

Operating Contribution
Communications		8,036		8,150	(1.4)			24,718		24,498	0.9			8,112		8,671	(6.4)			16,315		16,682	(2.2)
WarnerMedia		2,544		2,528	0.6			6,879		2,992	-			1,917		2,350	(18.4)			3,930		4,913	(20.0)
Latin America		(166)		(201)	17.4			(548)		(462)	(18.6)			(201)		(209)	3.8			(385)		(382)	(0.8)
Xandr		327		333	(1.8)			905		952	(4.9)
Segment Operating Contribution	$	10,741	$	10,810	(0.6)	%	$	31,954	$	27,980	14.2	%	$	9,828	$	10,812	(9.1)	%	$	19,860	$	21,213	(6.4)	%

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

Mobility provides nationwide wireless service and equipment.

Business Wireline provides advanced IP-based services, as well as traditional voice and data services to business customers.

3936

AT&T INC.

~~SEPTEMBER~~JUNE 30, ~~2019~~2020

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

Dollars, subscribers and connections in millions, except per share and per subscriber amounts

The WarnerMedia segment develops, produces and distributes feature films, television, gaming and other content ~~over~~in various physical and digital ~~formats.~~formats globally. Historical financial results from Xandr, previously a separate reportable segment, have been combined with the WarnerMedia segment within Eliminations and other. This segment contains the following business units:

Turner primarily operates multichannel basic television networks and digital properties. Turner also sells advertising on its networks and digital properties.

The Latin America segment provides entertainment and wireless services outside of the U.S. This segment contains the following business units:

~~Mexico~~ ~~provides wireless service and equipment to customers in Mexico.~~

Vrio provides video services primarily to residential customers using satellite technology in Latin America and the Caribbean.



~~The~~Mexico ~~Xandrsegment~~provides ~~advertising services~~wireless service and ~~includes our recently acquired AppNexus. These services utilize data insights~~equipment to ~~develop and deliver targeted advertising across video and digital platforms.~~customers in Mexico.

~~RESULTS OF OPERATIONS~~COVID-19 Update

In March 2020, the World Health Organization designated the coronavirus (COVID-19) a pandemic and the President of the United States declared a national emergency. To date, COVID-19 has surfaced in nearly all regions around the world and resulted in travel restrictions and business slowdowns or shutdowns.

~~Consolidated Results~~ ~~Our financial~~Disruptions caused by COVID-19 and measures taken to prevent its spread or mitigate its effects both domestically and internationally have impacted our results ~~are summarized~~of operations. We recorded approximately $320, or $0.03 per diluted share, in the ~~following discussions. Additional analysis is discussed in our “Segment Results” section. Certain prior period amounts have been reclassified~~second quarter and $750, or $0.08 per diluted share, for the first six months of 2020, of incremental costs associated with voluntary corporate actions taken primarily to ~~conform to the current period’s presentation.~~protect and compensate front-line employees and contractors, and WarnerMedia production disruption costs.

Third Quarter

Nine-Month Period

Percent

Percent

2019

2018
Change

2019

2018
Change

Operating Revenues

Service
$
40,317

$
41,297
(2.4)
%

$
122,024

$
109,849
11.1
%
Equipment

4,271

4,442
(3.8)

12,348

12,914
(4.4)

Total Operating Revenues

44,588

45,739
(2.5)

134,372

122,763
9.5

Operating expenses

Operations and support

29,738

30,304
(1.9)

90,482

82,289
10.0

Depreciation and amortization

6,949

8,166
(14.9)

21,256

20,538
3.5

Total Operating Expenses

36,687

38,470
(4.6)

111,738

102,827
8.7

Operating Income

7,901

7,269
8.7

22,634

19,936
13.5

Interest expense

2,083

2,051
1.6

6,373

5,845
9.0

Equity in net income (loss)
of affiliates

3

(64)
-

36

(71)
-

Other income (expense) – net

(935)

1,053
-

(967)

5,108
-

Income Before Income Taxes

4,886

6,207
(21.3)

15,330

19,128
(19.9)

Net Income

3,949

4,816
(18.0)

12,271

14,823
(17.2)

Net Income Attributable to AT&T
$
3,700

$
4,718
(21.6)
%

$
11,509

$
14,512
(20.7)
%

In addition to these incremental costs, we estimate that our operations and comparability were impacted by approximately $510, or $0.06 per diluted share, in the second quarter and $470, or $0.05 per diluted share, for the first six months of 2020, for the following COVID-19 related pressures: (1) the cancellation and postponement of televised sporting events, resulting in lower advertising revenues and associated expenses, (2) the closure of movie theaters and postponement of theatrical releases, leading to lower content revenues and associated expenses, (3) the imposition of travel restrictions, driving significantly lower international wireless roaming services that do not have a directly correlated expense reduction and most significantly impact profitability and (4) closures of retail stores, contributing to lower wireless equipment sales, with a corresponding reduction in equipment expense.

~~Operating revenues~~ All subscriber counts at and for the period ended June 30, 2020, exclude customers who we have agreed not to terminate service under the FCC’s “Keep Americans Connected Pledge.” For reporting purposes, we count the following nonpaying subscribers as if they had disconnected, even though they are still receiving service:

~~decreased~~Postpaid subscribers totaling 466,0000 (including 338,000 postpaid phone) in the ~~third~~second quarter and ~~increased~~521,000 (including 382,000 postpaid phone) for the first six months;

Premium TV connections totaling 91,000 in the second quarter and 157,000 for the first ~~nine months of 2019. The decrease~~six months; and

Broadband connections totaling 159,000 (including 48,000 fiber) in the ~~third~~second quarter ~~was primarily due~~and 194,000 (including 58,000 fiber) for the first six months.

The economic effects of the pandemic and resulting societal changes are currently not predictable. There are a number of uncertainties that could impact our future results of operations, including the effectiveness of COVID-19 mitigation measures; the duration of the pandemic; global economic conditions; changes to ~~declines~~our operations; changes in consumer confidence, behaviors and spending; work from home trends; and the sustainability of supply chains. We expect operating results and cash flows to continue to be adversely impacted by COVID-19 for at least the duration of the pandemic. We expect our ~~Communications, WarnerMedia and Latin America segments. Communications segment decreases were due~~third-quarter results to ~~continued declines in legacy and video services and lower wireless device upgrades, partially offset~~be impacted by ~~growth in advanced data and wireless services. WarnerMedia segment declines were driven by lower theatrical~~the following:

4037

AT&T INC.

~~SEPTEMBER~~JUNE 30, ~~2019~~2020

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

Dollars, subscribers and connections in millions, except per share and per subscriber amounts

~~product compared to a more favorable mix~~The shift in timing of ~~box office~~advertising revenues from the postponement, restarting or cancellation of sporting events and the related timing of the sports costs;

Lower revenues from the closure of movie theaters and postponement of theatrical releases, ~~in the prior year,~~ partially offset by ~~higher~~lower production and marketing costs, and other programming expenses;

The decline in revenues from international ~~licenses revenues at Home Box Office. Latin America revenues were negatively impacted by foreign exchange pressures.~~roaming wireless services due to reduced travel;

Higher expenses to protect front-line employees, contractors and customers; and

The continued transition of customers to our fiber broadband services and the acceleration of the disconnection of linear TV services due to the pandemic.

~~The increase~~RESULTS OF OPERATIONS

Consolidated Results Our financial results are summarized in the discussions that follow. Additional analysis is discussed in our “Segment Results” section. Certain prior period amounts have been reclassified to conform to the current period’s presentation.

	Second Quarter						Six-Month Period
					Percent						Percent
	2020		2019		Change		2020		2019		Change
Operating Revenues
Service	$	37,051	$	41,023	(9.7)	%	$	75,934	$	81,707	(7.1)	%
Equipment		3,899		3,934	(0.9)			7,795		8,077	(3.5)
Total Operating Revenues		40,950		44,957	(8.9)			83,729		89,784	(6.7)

Operating expenses
Operations and support		30,133		30,356	(0.7)			58,204		60,744	(4.2)
Depreciation and amortization		7,285		7,101	2.6			14,507		14,307	1.4
Total Operating Expenses		37,418		37,457	(0.1)			72,711		75,051	(3.1)
Operating Income		3,532		7,500	(52.9)			11,018		14,733	(25.2)
Interest expense		2,041		2,149	(5.0)			4,059		4,290	(5.4)
Equity in net income (loss)
of affiliates		(10)		40	-			(16)		33	-
Other income (expense) – net		1,017		(318)	-			1,820		(32)	-
Income Before Income Taxes		2,498		5,073	(50.8)			8,763		10,444	(16.1)
Net Income		1,563		3,974	(60.7)			6,526		8,322	(21.6)
Net Income Attributable to AT&T		1,281		3,713	(65.5)			5,891		7,809	(24.6)
Net Income Attributable to
Common Stock	$	1,229	$	3,713	(66.9)	%	$	5,807	$	7,809	(25.6)	%

Operating revenues decreased in the second quarter and in the first ~~nine~~six months ~~was primarily~~of 2020, driven by declines in our WarnerMedia, Communications and Latin America segments. Lower WarnerMedia segment revenues reflect lower advertising revenue from cancelled and postponed live sports programming and lower revenue due to ~~our 2018 acquisition of Time Warner. Partially offsetting the increase were declines in the~~postponed theatrical releases. Communications segment revenue declines were driven by continued ~~pressure~~declines in ~~legacy~~video and ~~video~~legacy services, and lower wireless ~~equipment upgrades that~~revenues from the imposition of international travel restrictions and closure of retail stores. Latin America segment revenue declines were ~~offset by growth in advanced data and wireless services, and~~primarily due to foreign exchange ~~pressures~~rate pressure and store closures related to COVID-19. Partially offsetting these decreases were revenue increases in strategic and managed business service in our ~~Latin America~~Communications segment.

Operations and support expenses decreased in the ~~third~~second quarter and ~~increased~~ in the first ~~nine~~six months of ~~2019.~~2020. The ~~decrease in the third quarter~~ ~~was primarily due to declines in content costs reflecting continued declines in premium TV subscribers~~decreases were driven by lower broadcast and postpaid smartphone volumes in the Communications segment. Lower film and television production costs in the WarnerMedia segment and foreign exchange rate impacts in the Latin America segment also contributed to lower expense in 2019.

~~The increase in the first nine months of 2019 was~~ ~~primarily due to our 2018 acquisition of Time Warner. The increase was partially offset by lower~~programming costs in our Communications ~~segment, including lower content~~ and WarnerMedia segments. Expense declines in the first six months were also driven by a noncash gain of $900 on a spectrum transaction, reduced wireless equipment costs ~~foreign exchange rate impacts in our Latin America segment, and lower expenses due to our continued focus on cost management.~~

~~Depreciation and amortization~~ expense decreased in the third quarter and increased for the first nine months of 2019. Depreciation expense increased $5, or 0.1% in the third quarter and $168, or 1.1% for the first nine months of 2019. The increase in the nine-month period was primarily due to the Time Warner acquisition.

Amortization expense decreased $1,222, or 39.4% in the third quarter and increased $550, or 9.9% for the first nine months of 2019 primarily due to the amortization of intangibles associated with WarnerMedia. We expect continued quarterly declines in amortization expense, reflecting the accelerated method of amortization applied on the WarnerMedia intangibles.

~~Operatingincome~~ increased in the third quarter and the first nine months of 2019. Our operating income margin for the third quarter increased from 15.9% in 2018 to 17.7% in 2019 and for the first nine months increased from 16.2% in 2018 to 16.8% in 2019.

~~Interest expense~~ increased in the third quarter and first nine months of 2019. The increase was primarily due to lower capitalized interest associated with putting spectrum into network service. Higher debt balances related to our acquisition of Time Warner also contributed to higher expense for the nine-month period.

~~Equity in net income of affiliates~~ ~~increased in the third quarter and for the first nine months of 2019, primarily due to changes in our investment portfolio resulting from acquisitions and the second-quarter 2019 sale of Hulu.~~

~~Other income (expense) – net~~ decreased in the third quarter and for the first nine months of 2019. The decrease in the quarter was primarily due to the recognition of a $1,917 actuarial loss in 2019 with no comparable remeasurement in 2018, and higher income in the prior year resulting from a gain on our third-quarter 2018 ~~Otter Media transaction~~.

The decrease for the first nine months was primarily due to the recognition of an actuarial loss of $4,048 in 2019, compared to actuarial gain of $2,726 in 2018, and the prior-year gain on the Otter Media transaction. Partially offsetting the declines was a $740 gain on the second-quarter 2019 sale of our investment in Hulu and lower premiums on debt redemptions.

~~Income taxes~~ decreased in the third quarter and for the first nine months of 2019. Our effective tax rate was 19.2% for the third quarter and 20.0% for the first nine months of 2019, versus 22.4% for the third quarter and 22.5% for the first nine months of 2018. The decrease in income tax expense and the effective tax rate for the third quarter was primarily due to tax benefits related to internal restructurings and lower income before income taxes. The decrease in income tax expense and the effective tax rate for the first nine months was primarily due to benefits from tax settlements, internal restructurings and lower income before income taxes, including impacts of actuarial losses of $1,917 in the third quarter and $4,048 for the first nine months of 2019, compared to actuarial gains of $2,726 for the first nine months of 2018.

4138

AT&T INC.

~~SEPTEMBER~~JUNE 30, ~~2019~~2020

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

Dollars, subscribers and connections in millions, except per share and per subscriber amounts

resulting from lower device sales and our continued focus on cost management. Partially offsetting expense declines were charges for a goodwill impairment at our Vrio business unit, employee separation charges and incremental costs related to COVID-19, including increased first-quarter 2020 bad debt expense. As part of our cost and efficiency initiatives, we expect operations and support expense improvements to continue as we size our operations to reflect the new economic activity level.

COMMUNICATIONS SEGMENT
Third Quarter

Nine-Month Period

Percent

Percent

2019

2018
Change

2019

2018
Change

Segment Operating Revenues

Mobility
$
17,701

$
17,735
(0.2)
%

$
52,356

$
51,965
0.8
%
Entertainment Group

11,197

11,589
(3.4)

33,893

34,498
(1.8)

Business Wireline

6,503

6,683
(2.7)

19,588

20,035
(2.2)

Total Segment Operating Revenues

35,401

36,007
(1.7)

105,837

106,498
(0.6)

Segment Operating Contribution

Mobility

5,742

5,575
3.0

16,817

16,144
4.2

Entertainment Group

1,085

1,104
(1.7)

4,077

3,888
4.9

Business Wireline

1,209

1,471
(17.8)

3,824

4,466
(14.4)

Total Segment Operating Contribution
$
8,036

$
8,150
(1.4)
%

$
24,718

$
24,498
0.9
%

Selected Subscribers and Connections

September 30,
(000s)
2019

2018
Total domestic broadband connections
15,575

15,747
Network access lines in service
8,831

10,399
U-verse VoIP connections
4,539

5,274

~~Results~~Depreciation and amortization expense increased in the ~~Mobility~~second quarter and ~~Business Wireline business units~~for the first six months of 2020.

Depreciation expense increased $36, or 0.7% in the second quarter and $65, or 0.6% for the first six months of 2020, primarily due to ongoing capital spend for network upgrades and expansion in our Communications ~~segment have been recast~~segment.

Amortization expense increased $148, or 7.1% in the second quarter and $135, or 3.2% for ~~all prior periods presented~~the first six months of 2020 primarily due to ~~remove operations~~the amortization of orbital slot licenses, which began in ~~Puerto Rico and~~ the ~~U.S. Virgin Islands~~first quarter of 2020 (see Note 8)1).

Operating ~~revenues~~income decreased in the ~~third~~second quarter and the first six months of 2020. Our operating income margin for the second quarter decreased from 16.7% in 2019 to 8.6% in 2020 and for the first six months decreased from 16.4% in 2019 to 13.2% in 2020.

Interest expense decreased in the second quarter and first six months of 2020, primarily due to lower debt balances and interest rates.

Equity in net income of affiliates decreased in the second quarter and for the first ~~nine~~six months of ~~2019. The decrease~~2020, reflecting changes in our investment portfolio, including our second-quarter 2020 acquisition of the ~~quarter was driven by declines~~remaining interest in ~~each of our business units, Entertainment~~HBO Latin America Group Business Wireline and Mobility. Revenues reflect continued declines in legacy voice and data products, the shift to over-the-top (OTT) video offerings and decreased wireless equipment revenues, partially offset by growth in strategic and managed business services, wireless service and IP broadband.(HBO LAG).

~~The decrease~~Other income (expense) – net increased in the second quarter and for the first ~~nine~~six months ~~was~~of 2020. The increases were primarily due to ~~declines~~the recognition of actuarial losses in ~~our Entertainment Group~~2019, with no comparable interim remeasurement in 2020, totaling $1,699 and ~~Business Wireline business units,~~$2,131 in the second quarter and for the first six months of 2019, respectively, and higher prior service credit amortization in 2020 (see Note 6). The increase was partially offset by ~~increases~~the write-off of certain investments in 2020 and the second-quarter 2019 gain on sale of our Mobility business unit. The decrease reflects the shift away from legacy communications and linear video offerings, and lower wireless equipment revenues, largely offset by higher wireless service and advanced data revenues.interest in Hulu.

~~Operating contribution~~

Income taxes decreased in the ~~third~~second quarter and increased for the first ~~nine~~six months of ~~2019.~~2020. The decrease in income tax expense in the second quarter ~~reflects declines in our Business Wireline~~was primarily attributable to lower income before tax.

Our effective tax rate was 37.5% for the second quarter and ~~Entertainment Group business units, largely offset by improvement in our Mobility business unit. The increase~~25.5% for the first ~~nine~~six months ~~includes improvements~~of 2020, versus 21.7% and 20.3% for the comparable year-prior periods, respectively. The increases in our ~~Mobility and Entertainment Group business units, partially offset by declines in our Business Wireline business unit. Our Communications segment operating income margin in~~effective tax rates were primarily due to the ~~third quarter increased from 22.6% in 2018 to 22.7% in 2019 and~~Vrio goodwill impairment, which is not deductible for ~~the first nine months increased from 23.0% in 2018 to 23.4% in 2019.~~tax purposes.

4239

AT&T INC.

~~SEPTEMBER~~JUNE 30, ~~2019~~2020

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

Dollars, subscribers and connections in millions, except per share and per subscriber amounts

Communications Business Unit Discussion
Mobility Results

Third Quarter

Nine-Month Period

Percent

Percent

2019

2018
Change

2019

2018
Change
Operating revenues

Service
$
13,930

$
13,828
0.7
%

$
41,383

$
40,594
1.9
%
Equipment

3,771

3,907
(3.5)

10,973

11,371
(3.5)

Total Operating Revenues

17,701

17,735
(0.2)

52,356

51,965
0.8

Operating expenses

Operations and support

9,948

10,104
(1.5)

29,511

29,603
(0.3)

Depreciation and amortization

2,011

2,057
(2.2)

6,027

6,218
(3.1)

Total Operating Expenses

11,959

12,161
(1.7)

35,538

35,821
(0.8)

Operating Income

5,742

5,574
3.0

16,818

16,144
4.2

Equity in Net Income (Loss)
of Affiliates

-

1
-

(1)

-
-

Operating Contribution
$
5,742

$
5,575
3.0
%

$
16,817

$
16,144
4.2
%

COMMUNICATIONS SEGMENT	Second Quarter						Six-Month Period
					Percent						Percent
	2020		2019		Change		2020		2019		Change
Segment Operating Revenues
Mobility	$	17,149	$	17,292	(0.8)	%	$	34,551	$	34,655	(0.3)	%
Entertainment Group		10,069		11,368	(11.4)			20,584		22,696	(9.3)
Business Wireline		6,374		6,607	(3.5)			12,706		13,085	(2.9)
Total Segment Operating Revenues		33,592		35,267	(4.7)			67,841		70,436	(3.7)

Segment Operating Contribution
Mobility		5,805		5,767	0.7			11,593		11,076	4.7
Entertainment Group		1,030		1,514	(32.0)			2,365		2,992	(21.0)
Business Wireline		1,277		1,390	(8.1)			2,357		2,614	(9.8)
Total Segment Operating Contribution	$	8,112	$	8,671	(6.4)	%	$	16,315	$	16,682	(2.2)	%

Selected Subscribers and Connections
		June 30,
(000s)		2020	2019
Mobility Subscribers¹		171,407	158,622
Total domestic broadband connections¹		15,201	15,698
Network access lines in service		7,878	9,207
U-verse VoIP connections		4,058	4,766
¹	Excludes 521 wireless and 194 broadband customers who we have agreed not to terminate service under the FCC's "Keep Americans
	Connected Pledge," which was implemented March 13, 2020.

Operating revenues decreased in the second quarter and for the first six months of 2020, driven by declines in each of our business units, Entertainment Group, Business Wireline and Mobility. The ~~following tables highlight other key measures~~decreases reflect the continued shift away from linear video and legacy services, lower wireless service revenues from a decline in international travel and waived fees, and suppressed equipment sales in the first quarter of ~~performance for Mobility:~~2020 attributable to store closures. Partially offsetting these declines was growth in our prepaid subscriber base.

September 30,
Percent
(in 000s)

2019

2018
Change
Mobility Subscribers

Postpaid smartphones

60,306

59,829
0.8
%
Postpaid feature phones and
data-centric devices

14,846

16,344
(9.2)

Postpaid

75,152

76,173
(1.3)

Prepaid

17,740

16,721
6.1

Reseller

7,120

8,079
(11.9)

Connected devices¹

62,288

48,177
29.3

Total Mobility Subscribers

162,300

149,150
8.8

Postpaid Phone Subscribers

62,812

62,850
(0.1)

Total Phone Subscribers

79,462

78,639
1.0
%
¹
Includes data-centric devices such as wholesale automobile systems, monitoring devices, fleet management, and session-based tablets.

Operating contribution decreased in the second quarter and for the first six months of 2020, reflecting declines in our Business Wireline and Entertainment Group business units, largely offset by improvement in our Mobility business unit. Our Communications segment operating income margin in the second quarter decreased from 24.6% in 2019 to 24.1% in 2020 and for the first six months increased from 23.7% in 2019 to 24.0% in 2020.

4340

AT&T INC.

~~SEPTEMBER~~JUNE 30, ~~2019~~2020

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

Dollars, subscribers and connections in millions, except per share and per subscriber amounts

Third Quarter

Nine-Month Period

Percent

Percent
(in 000s)
2019

2018
Change

2019

2018
Change
Mobility Net Additions²

Postpaid
(217)

(231)
6.1
%

(570)

(105)
-
%
Prepaid
227

570
(60.2)

669

1,275
(47.5)

Reseller
(231)

(366)
36.9

(677)

(1,175)
42.4

Connected devices¹
3,900

3,459
12.7

10,947

9,171
19.4

Mobility Net Subscriber Additions
3,679

3,432
7.2

10,369

9,166
13.1

Postpaid Phone Net Additions
101

67
50.7

254

63
-

Total Phone Net Additions
255

547
(53.4)
%

780

1,104
(29.3)
%

Postpaid Churn³
1.19

1.16
3
BP

1.14

1.08
6
BP
Postpaid Phone-Only Churn³
0.95

0.93
2
BP

0.91

0.86
5
BP
¹
Includes data-centric devices such as wholesale automobile systems, monitoring devices, fleet management, and session-based tablets.
²
Excludes acquisition-related additions during the period.
³
Calculated by dividing the aggregate number of wireless subscribers who canceled service during a month divided by the total number

of wireless subscribers at the beginning of that month. The churn rate for the period is equal to the average of the churn rate for

each month of that period.

Communications Business Unit Discussion
Mobility Results
	Second Quarter						Six-Month Period
					Percent						Percent
	2020		2019		Change		2020		2019		Change
Operating revenues
Service	$	13,669	$	13,824	(1.1)	%	$	27,637	$	27,453	0.7	%
Equipment		3,480		3,468	0.3			6,914		7,202	(4.0)
Total Operating Revenues		17,149		17,292	(0.8)			34,551		34,655	(0.3)

Operating expenses
Operations and support		9,332		9,522	(2.0)			18,901		19,563	(3.4)
Depreciation and amortization		2,012		2,003	0.4			4,057		4,016	1.0
Total Operating Expenses		11,344		11,525	(1.6)			22,958		23,579	(2.6)
Operating Income		5,805		5,767	0.7			11,593		11,076	4.7
Equity in Net Income (Loss)
of Affiliates		-		-	-			-		-	-
Operating Contribution	$	5,805	$	5,767	0.7	%	$	11,593	$	11,076	4.7	%

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

Subscribers
		June 30,		Percent
(in 000s)		2020	2019	Change
Postpaid		74,919	75,478	(0.7)	%
Prepaid		18,008	17,434	3.3
Reseller		6,718	7,323	(8.3)
Connected devices¹		71,762	58,387	22.9
Total Mobility Subscribers²		171,407	158,622	8.1	%
¹	Includes data-centric devices such as session-based tablets, monitoring devices and primarily wholesale automobile systems.
²	Excludes 521 customers who we have agreed not to terminate service under the FCC's "Keep Americans Connected Pledge."

AT&T INC.

JUNE 30, 2020

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

Dollars, subscribers and connections in millions, except per share and per subscriber amounts

Net Additions
		Second Quarter				Six-Month Period
				Percent				Percent
(in 000s)		2020	2019	Change		2020	2019	Change
Postpaid Phone Net Additions		(151)	74	-	%	12	153	(92.2)	%
Total Phone Net Additions		(16)	357	-		104	525	(80.2)

Postpaid^{2, 5}		(154)	(146)	(5.5)		(127)	(353)	64.0
Prepaid		165	341	(51.6)		120	442	(72.9)
Reseller		(58)	(204)	71.6		(248)	(446)	44.4
Connected devices³		2,255	3,959	(43.0)		5,773	7,047	(18.1)
Mobility Net Subscriber Additions^{1, 5}		2,208	3,950	(44.1)	%	5,518	6,690	(17.5)	%

Postpaid Churn^{4, 5}		1.05	1.07	(2)	BP	1.06	1.12	(6)	BP
Postpaid Phone-Only Churn^{4, 5}		0.84	0.86	(2)	BP	0.85	0.89	(4)	BP
¹	Excludes acquisition-related additions during the period.
²	In addition to postpaid phones, includes tablets and wearables and other. Tablet net (losses) were (159) and (357) for the three months
	and (426) and (767) for the six months ended June 30, 2020 and 2019, respectively. Wearables and other net adds were 155 and 137 for
	the three months and 287 and 264 for the six months ended June 30, 2020 and 2019, respectively.
³	Includes data-centric devices such as session-based tablets, monitoring devices and primarily wholesale automobile systems. Excludes
	postpaid tablets.
⁴	Calculated by dividing the aggregate number of wireless subscribers who canceled service during a month divided by the total number
	of wireless subscribers at the beginning of that month. The churn rate for the period is equal to the average of the churn rate for
	each month of that period.
⁵	The second quarter and six-month period ended June 30, 2020, exclude 466 (338 phone) and 521 (382 phone), respectively, who we
	have agreed not to terminate service under the FCC’s “Keep Americans Connected Pledge.” The second quarter and six-month
	period ended June 30, 2020, postpaid churn includes 21 bps (18 bps phone) and 22 bps (19 bps phone) pressure for these customers.

Service revenue ~~increased~~decreased in the ~~third~~second quarter and increased for the first ~~nine~~six months of ~~2019 largely~~2020. The second quarter decrease is due to lower roaming revenue from decreased international travel and waived fees, reflecting a full quarter of pandemic-related impacts. Revenues from the first six months were not as affected by the pandemic, with approximately 15 days of impact in the first quarter. Increases in ~~higher~~ postpaid phone average revenue per subscriber (ARPU) and gains in prepaid ~~subscribers.~~subscribers, largely offset by impacts of the pandemic for the first six months.

ARPU

Postpaid ARPU ~~increased~~decreased in the ~~third~~second quarter and increased for the first ~~nine months primarily due to price actions that were not~~six months. ARPU during 2020 has been pressured by the decline in ~~effect in the comparative periods of the prior year.~~international roaming revenues and waived fees.

Churn

The effective management of subscriber churn is critical to our ability to maximize revenue growth and to maintain and improve margins. Postpaid churn ~~was~~ ~~higher~~and postpaid phone-only churn were lower in the first six months due to ~~tablet~~migrations to unlimited plans, continued network improvements and ~~involuntary churn.~~ ~~Postpaid phone-only churn was~~industry-wide store closures from COVID-19, partially offset by higher ~~due to involuntary churn.~~ ~~Also contributing to higher churn~~accrual for subscriber disconnections under the ~~first nine months~~ ~~was continued competitive pricing in the industry.~~“Keep Americans Connected Pledge.”

Equipment revenue ~~decreased~~was stable in the ~~third~~second quarter and decreased for the first ~~nine~~six months of ~~2019~~2020 driven by lower postpaid smartphone sales ~~resulting~~ ~~from the continuing trend of customers choosing to upgrade devices less frequently or bring their own~~.reflecting store closures.

Operations and support expenses decreased in the ~~third~~second quarter and for the first ~~nine~~six months of ~~2019.~~2020. The decreases were primarily due to higher bad debt expense in 2019 resulting from prior-year charges in response to credit easing policies, cost initiatives and asset optimization, and lower ~~postpaid smartphone volumes~~marketing and ~~increased operational efficiencies,~~sales costs, partially offset by higher ~~bad debt expense,~~ commission deferral amortization and handset insurance costs. In the second quarter of 2019, we extended the estimated economic life of our customers, which will result in a decline of commission deferral amortization in the second half of 2019.

~~Depreciation~~ ~~expense decreased in the third quarter and for the first nine months of 2019 primarily due to fully depreciated assets, partially offset by ongoing capital spending for network upgrades and expansion.~~

~~Operating income~~ increased in the third quarter and for the first nine months of 2019. Our Mobility operating income margin in the third quarter increased from 31.4% in 2018 to 32.4% in 2019, and for the first nine months increased from 31.1% in 2018 to 32.1% in 2019. Our Mobility EBITDA margin in the third quarter increased from 43.0% in 2018 to 43.8%

4442

AT&T INC.

~~SEPTEMBER~~JUNE 30, ~~2019~~2020

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

Dollars, subscribers and connections in millions, except per share and per subscriber amounts

amortization, including the impacts of second-quarter 2020 updates to extend the expected economic life of our Mobility customers.

Depreciation expense increased in ~~2019,~~the second quarter and for the first ~~nine~~six months of 2020 primarily due to ongoing capital spending for network upgrades and expansion partially offset by fully depreciated assets.

Operating income increased in the second quarter and for the first six months of 2020. Our Mobility operating income margin in the second quarter increased from 33.4% in 2019 to 33.9% in 2020, and for the first six months increased from ~~43.0%~~32.0% in ~~2018~~2019 to ~~43.6%~~33.6% in ~~2019.~~2020. Our Mobility EBITDA margin in the second quarter increased from 44.9% in 2019 to 45.6% in 2020, and for the first six months increased from 43.5% in 2019 to 45.3% in 2020. EBITDA is defined as operating contribution excluding equity in net income (loss) of affiliates and depreciation and amortization.

Subscriber Relationships

As the wireless industry has matured, future wireless growth will ~~increasingly~~ depend on our ability to offer innovative services, plans and devices that take advantage of our premier 5G wireless network, which recently went nationwide (in July 2020), and to provide these services in bundled product ~~offerings with our video and broadband services.~~offerings. Subscribers that purchase two or more services from us have significantly lower churn than subscribers that purchase only one service. To support higher mobile ~~video and~~ data usage, our priority is to best utilize a wireless network that has sufficient spectrum and capacity to support these innovations on as broad a geographic basis as possible.

To attract and retain subscribers in a mature and highly competitive market, we have launched a wide variety of plans,. including our FirstNet and prepaid products, and arrangements that bundle our video services. Virtually all of our postpaid smartphone subscribers are on plans that provide for service on multiple devices at reduced rates, and such subscribers tend to have higher retention and lower churn rates. ~~Such~~We offer unlimited data plans and such subscribers also tend to have higher retention and lower churn rates. Our offerings are intended to encourage existing subscribers to upgrade their current services and/or add devices, attract subscribers from other providers and/or minimize subscriber churn.

Connected Devices

Connected devices include data-centric devices such as wholesale automobile systems, monitoring devices, fleet management and session-based tablets. The number of connected ~~Connected~~ device subscribers increased in ~~2019,~~2020, and during the ~~third~~second quarter and for the first ~~nine~~six months of ~~2019,~~2020, we added approximately ~~2.1~~1.3 million and ~~6.2~~3.6 million wholesale connected cars through agreements with various carmakers, and experienced strong growth in other Internet of Things (IoT) connections. We believe that these connected car agreements give us the opportunity to create future retail relationships with the car owners.

Entertainment Group Results

Third Quarter

Nine-Month Period

Percent

Percent

2019

2018
Change

2019

2018
Change
Operating revenues

Video entertainment
$
7,933

$
8,283
(4.2)
%

$
24,042

$
24,681
(2.6)
%
High-speed internet

2,117

2,045
3.5

6,296

5,904
6.6

Legacy voice and data services

628

739
(15.0)

1,969

2,317
(15.0)

Other service and equipment

519

522
(0.6)

1,586

1,596
(0.6)

Total Operating Revenues

11,197

11,589
(3.4)

33,893

34,498
(1.8)

Operating expenses

Operations and support

8,797

9,155
(3.9)

25,839

26,623
(2.9)

Depreciation and amortization

1,316

1,331
(1.1)

3,978

3,986
(0.2)

Total Operating Expenses

10,113

10,486
(3.6)

29,817

30,609
(2.6)

Operating Income

1,084

1,103
(1.7)

4,076

3,889
4.8

Equity in Net Income (Loss)
of Affiliates

1

1
-

1

(1)
-

Operating Contribution
$
1,085

$
1,104
(1.7)
%

$
4,077

$
3,888
4.9
%

4543

AT&T INC.

~~SEPTEMBER~~JUNE 30, ~~2019~~2020

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

Dollars, subscribers and connections in millions, except per share and per subscriber amounts

Entertainment Group Results
	Second Quarter						Six-Month Period
					Percent						Percent
	2020		2019		Change		2020		2019		Change
Operating revenues
Video entertainment	$	6,976	$	8,035	(13.2)	%	$	14,371	$	16,109	(10.8)	%
High-speed internet		2,092		2,109	(0.8)			4,201		4,179	0.5
Legacy voice and data services		560		658	(14.9)			1,141		1,341	(14.9)
Other service and equipment		441		566	(22.1)			871		1,067	(18.4)
Total Operating Revenues		10,069		11,368	(11.4)			20,584		22,696	(9.3)

Operating expenses
Operations and support		7,730		8,515	(9.2)			15,621		17,042	(8.3)
Depreciation and amortization		1,309		1,339	(2.2)			2,598		2,662	(2.4)
Total Operating Expenses		9,039		9,854	(8.3)			18,219		19,704	(7.5)
Operating Income		1,030		1,514	(32.0)			2,365		2,992	(21.0)
Equity in Net Income (Loss)
of Affiliates		-		-	-			-		-	-
Operating Contribution	$	1,030	$	1,514	(32.0)	%	$	2,365	$	2,992	(21.0)	%

AT&T INC.

JUNE 30, 2020

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

Dollars, subscribers and connections in millions, except per share and per subscriber amounts

The following tables highlight other key measures of performance for Entertainment Group:

September 30,
Percent

2019

2018
Change
Video Connections

Premium TV

20,418

23,294
(12.3)
%
AT&T Now¹

1,145

1,858
(38.4)

Total Video Connections

21,563

25,152
(14.3)

Broadband Connections

IP

13,739

13,723
0.1

DSL

562

718
(21.7)

Total Broadband Connections

14,301

14,441
(1.0)

Retail Consumer Switched Access Lines

3,467

4,144
(16.3)

U-verse Consumer VoIP Connections

3,973

4,757
(16.5)

Total Retail Consumer Voice
Connections

7,440

8,901
(16.4)

Fiber Broadband Connections
(included in IP)

3,696

2,504
47.6
%
¹
Consistent with industry practice, connections that are on a free-trial are included.

Third Quarter

Nine-Month Period

Percent

Percent
(in 000s)
2019

2018
Change

2019

2018
Change
Video Net Additions

Premium TV²
(1,163)

(346)
-
%

(2,485)

(795)
-
%
AT&T Now¹
(195)

49
-

(446)

703
-

Net Video Additions
(1,358)

(297)
-

(2,931)

(92)
-

Broadband Net Additions

IP
(83)

31
-

10

261
(96.2)

DSL
(36)

(45)
20.0

(118)

(170)
30.6

Net Broadband Additions
(119)

(14)
-

(108)

91
-

Fiber Broadband Net Additions
(included in IP)
318

300
6.0
%

933

775
20.4
%
¹
Consistent with industry practice, connections that are on a free-trial are included.
²
Includes disconnections for customers that migrated to AT&T Now.

Connections
						June 30,		Percent
(in 000s)						2020	2019	Change
Video Connections
Premium TV¹						17,690	21,581	(18.0)	%
AT&T TV Now						720	1,340	(46.3)
Total Video Connections						18,410	22,921	(19.7)

Total Broadband Connections						13,944	14,420	(3.3)
Fiber Broadband Connections						4,321	3,378	27.9

Retail Consumer Switched Access Lines						3,096	3,630	(14.7)
U-verse Consumer VoIP Connections						3,480	4,211	(17.4)
Total Retail Consumer Voice Connections						6,576	7,841	(16.1)	%
¹	Excludes 157 premium TV and 194 broadband connections who we have agreed not to terminate service under the FCC's "Keep
	Americans Connected Pledge."

Net Additions
		Second Quarter				Six-Month Period
				Percent				Percent
(in 000s)		2020	2019	Change		2020	2019	Change
Video Net Additions
Premium TV¹		(886)	(778)	(13.9)	%	(1,783)	(1,322)	(34.9)	%
AT&T TV Now		(68)	(168)	59.5		(206)	(251)	17.9
Net Video Additions¹		(954)	(946)	(0.8)		(1,989)	(1,573)	(26.4)

Net Broadband Additions¹		(102)	(34)	-		(175)	11	-
Fiber Broadband Net Additions		225	318	(29.2)	%	434	615	(29.4)	%
¹	The second quarter and six-month period ended June 30, 2020, exclude 91 and 157 premium TV and 159 and 194 broadband (48 and 58
	fiber) connections, respectively, who we have agreed not to terminate service under the FCC's "Keep Americans Connected Pledge."

Video entertainment revenues are comprised of subscription and advertising revenues. Revenues decreased in the ~~third~~second quarter and for the first ~~nine~~six months of ~~2019,~~2020, largely driven by ~~an 12.3%~~a decline in premium TV and OTT subscribers as we continue to focus on retention of existing subscribers with a particular focus on our high-value ~~customers. Our customers continue to shift, consistent~~subscribers, and lower subscription-based advertising revenues driven by impacts of the pandemic. Consistent with the rest of the industry, our customers continue to shift from a premium linear service to ~~our~~ more economically priced OTT and subscription video ~~service, or to competitors,~~on demand services, which has pressured our video revenues. ~~Churn rose~~

High-speed internet revenues decreased in the second quarter and increased for ~~subscribers with premium TV-only~~the first six months of 2020. The decrease in the second quarter was driven by a decline in the average subscriber base, partially offset by higher ARPU. The increase for the six months reflects higher ARPU resulting from an increase in high-speed fiber and pricing.

Legacy voice and data service ~~partially~~revenues decreased in the second quarter and for the first six months of 2020, reflecting ~~price increases~~the continued decline in the number of customers.

~~. We also experienced~~

4645

AT&T INC.

~~SEPTEMBER~~JUNE 30, ~~2019~~2020

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

Dollars, subscribers and connections in millions, except per share and per subscriber amounts

~~increased churn in video (including customers who bundled broadband service) due to carriage disputes during the third quarter of 2019.~~

Revenue declines in our premium TV products were partially offset by growth in revenues from our OTT service, AT&T Now, which were primarily attributable to pricing actions. AT&T Now subscriber net additions declined in the third quarter and for the first nine months due to price increases and fewer promotions.

~~High-speed internet~~ revenues increased in the third quarter and for the first nine months of 2019 reflecting the continued shift of subscribers to our higher-speed fiber services. Our bundling strategy is helping to lower churn with subscribers who bundle broadband with another AT&T service.

~~Legacy voice and data servicerevenues decreased in the third quarter and for the first nine months of 2019, reflecting the continued migration of customers to our more advanced IP-based offerings or to competitors.~~

Operations and support expenses decreased in the ~~third~~second quarter and for the first ~~nine~~six months of ~~2019.~~2020. Contributing to the decreases were lower content and selling costs largely due to fewer subscribers, lower ~~subscribers~~marketing costs and our ongoing focus on cost initiatives. Partially offsetting the decreases were ~~increased costs associated with NFL SUNDAY TICKET and~~annual content rate increases, higher amortization of fulfillment cost deferrals, including the impact of second-quarter ~~2019~~2020 updates to decrease the estimated economic life for our Entertainment Group ~~customers.~~customers, and pandemic-related compassion payments.

Depreciation expense decreased in the ~~third~~second quarter and for the first ~~nine~~six months of ~~2019. The decreases were~~2020 due to network assets becoming fully ~~depreciated assets, largely offset by~~depreciated. Partially offsetting the decreases was ongoing capital spending for network upgrades and expansion.

Operating income decreased in the ~~third~~second quarter and ~~increased~~ for the first ~~nine~~six months of ~~2019.~~2020. Our Entertainment Group operating income margin in the ~~third~~second quarter ~~increased~~decreased from ~~9.5%~~13.3% in ~~2018~~2019 to ~~9.7%~~10.2% in ~~2019,~~2020, and for the first ~~nine~~six months ~~increased~~decreased from ~~11.3%~~13.2% in ~~2018~~2019 to ~~12.0%~~11.5% in ~~2019.~~2020. Our Entertainment Group EBITDA margin in the ~~third~~second quarter ~~increased~~decreased from ~~21.0%~~25.1% in ~~2018~~2019 to ~~21.4%~~23.2% in ~~2019,~~2020, and for the first ~~nine~~six months ~~increased~~decreased from ~~22.8%~~24.9% in ~~2018~~2019 to ~~23.8%~~24.1% in ~~2019.~~2020.

Business Wireline Results
	Third Quarter						Nine-Month Period						Second Quarter						Six-Month Period
					Percent						Percent						Percent						Percent
	2019		2018		Change		2019		2018		Change		2020		2019		Change		2020		2019		Change
Operating revenues
Strategic and managed services	$	3,900	$	3,677	6.1	%	$	11,513	$	10,849	6.1	%	$	3,943	$	3,834	2.8	%	$	7,822	$	7,613	2.7	%
Legacy voice and data services		2,252		2,602	(13.5)			6,973		8,176	(14.7)			2,067		2,324	(11.1)			4,196		4,721	(11.1)
Other service and equipment		351		404	(13.1)			1,102		1,010	9.1			364		449	(18.9)			688		751	(8.4)
Total Operating Revenues		6,503		6,683	(2.7)			19,588		20,035	(2.2)			6,374		6,607	(3.5)			12,706		13,085	(2.9)

Operating expenses
Operations and support		4,022		4,022	-			12,029		12,047	(0.1)			3,779		3,975	(4.9)			7,730		8,007	(3.5)
Depreciation and amortization		1,271		1,187	7.1			3,735		3,520	6.1			1,318		1,242	6.1			2,619		2,464	6.3
Total Operating Expenses		5,293		5,209	1.6			15,764		15,567	1.3			5,097		5,217	(2.3)			10,349		10,471	(1.2)
Operating Income		1,210		1,474	(17.9)			3,824		4,468	(14.4)			1,277		1,390	(8.1)			2,357		2,614	(9.8)
Equity in Net Income (Loss) of Affiliates		(1)		(3)	66.7			-		(2)	-
Equity in Net Income (Loss)
of Affiliates														-		-	-			-		-	-
Operating Contribution	$	1,209	$	1,471	(17.8)	%	$	3,824	$	4,466	(14.4)	%	$	1,277	$	1,390	(8.1)	%	$	2,357	$	2,614	(9.8)	%

Strategic and managed services revenues increased in the ~~third~~second quarter and for the first ~~nine~~six months of ~~2019.~~2020. Our strategic services are made up of (1) data services, including our VPN, dedicated internet ethernet and broadband, (2) voice service, including VoIP and cloud-based voice solutions, (3) security and cloud solutions, and (4) managed, professional and

~~AT&T INC.~~

~~SEPTEMBER 30, 2019~~

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

~~Dollars, subscribers and connections in millions, except per share and per subscriber amounts~~

outsourcing services. Revenue increases were primarily attributable to growth in our security and cloud solutions, dedicated internet and managed ~~services.~~services and also includes the impact of higher demand for connectivity due to the pandemic.

Legacy voice and data service revenues decreased in the ~~third~~second quarter and for the first ~~nine~~six months of ~~2019,~~2020, primarily due to lower demand as customers continue to shift to our more advanced IP-based offerings or our competitors.

Other service and equipment revenues decreased in the ~~third~~second quarter and ~~increased~~ for the first ~~nine~~six months of ~~2019.~~2020, reflecting prior-year licensing of intellectual property assets. Revenue trends are impacted by the licensing of intellectual property assets, which vary from period-to-period. In the third quarter, intellectual property revenues in 2018 exceeded 2019, which contributed to the revenue decline. During the first nine months, intellectual property revenues driven by second-quarter 2019 license sales, exceeded revenues recorded for the comparable 2018 period, which contributed to the revenue increase. Other service revenues include project-based revenue, which is nonrecurring in nature, as well as revenues from customer premises equipment.

Operations and support expenses ~~were flat~~decreased in the ~~third~~second quarter and ~~decreased~~ for the first ~~nine~~six months of ~~2019,~~2020, primarily due to our continued efforts to ~~shift to a software-based~~drive efficiencies in our network operations through automation and ~~automate and digitize our~~reductions in customer support ~~activities, partially offset by higher fulfillment deferral amortization.~~

~~Depreciation~~ ~~expense increased in the third quarter and for the first nine months of 2019, primarily due to increases in capital spending for network upgrades and expansion.~~

~~Operating income~~ decreased in the third quarter and for the first nine months of 2019. Our Business Wireline operating income margin in the third quarter decreased from 22.1% in 2018 to 18.6% in 2019, and for the first nine months decreased from 22.3% in 2018 to 19.5% in 2019. Our Business Wireline EBITDA margin in the third quarter decreased from 39.8% in 2018 to 38.2% in 2019, and for the first nine months decreased from 39.9% in 2018 to 38.6% in 2019.

WARNERMEDIA SEGMENT
Third Quarter

Nine-Month Period

Percent

Percent

2019

2018
Change

2019

2018
Change
Segment Operating Revenues

Turner
$
3,007

$
2,988
0.6
%

$
9,860

$
3,767
-
%
Home Box Office

1,819

1,644
10.6

5,045

1,925
-

Warner Bros.

3,333

3,720
(10.4)

10,240

4,227
-

Eliminations & Other

(313)

(148)
-

(570)

(210)
-

Total Segment Operating Revenues

7,846

8,204
(4.4)

24,575

9,709
-

Segment Operating Contribution

Turner

1,489

1,449
2.8

3,926

1,802
-

Home Box Office

724

630
14.9

1,894

734
-

Warner Bros.

563

553
1.8

1,556

642
-

Eliminations & Other

(232)

(104)
-

(497)

(186)
-

Total Segment Operating Contribution
$
2,544

$
2,528
0.6
%

$
6,879

$
2,992
-
%

Our WarnerMedia segment consists of our Turner, Home Box Office and Warner Bros. business units. The order of presentation reflects the consistency of revenue streams, rather than overall magnitude as that is subject to timing and frequency of studio releases. WarnerMedia also includes our financial results for RSNs.

The WarnerMedia segment does not include results from Time Warner operations for the periods prior to our June 14, 2018 acquisition. Otter Media is included as an equity method investment for periods prior to our August 7, 2018 acquisition of the remaining interest and is in the segment operating results following the acquisition. Consistent with our past practice, many of the impacts of the fair value adjustments from the application of purchase accounting required under GAAP have not been allocated to the segment, instead they are reported as acquisition-related items in the reconciliation to consolidated results.expenses through digitization.

4846

AT&T INC.

~~SEPTEMBER~~JUNE 30, ~~2019~~2020

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

Dollars, subscribers and connections in millions, except per share and per subscriber amounts

~~Segment~~Depreciation expense increased in the second quarter and ~~business unit results~~ for the first ~~nine~~six months ~~are not comparable~~of 2020, primarily due to increases in capital spending for network upgrades and expansion.

Operating income decreased in the ~~prior period~~second quarter and ~~therefore not discussed. Comparative results~~ for the ~~third~~first six months of 2020. Our Business Wireline operating income margin in the second quarter ~~are discussed below.~~decreased from 21.0% in 2019 to 20.0% in 2020, and for the first six months decreased from 20.0% in 2019 to 18.6% in 2020. Our Business Wireline EBITDA margin in the second quarter increased from 39.8% in 2019 to 40.7% in 2020, and for the first six months increased from 38.8% in 2019 to 39.2% in 2020.

WARNERMEDIA SEGMENT	Second Quarter						Six-Month Period
					Percent						Percent
	2020		2019		Change		2020		2019		Change
Segment Operating Revenues
Turner	$	2,988	$	3,410	(12.4)	%	$	6,150	$	6,853	(10.3)	%
Home Box Office		1,627		1,716	(5.2)			3,124		3,226	(3.2)
Warner Bros.		3,256		3,389	(3.9)			6,496		6,907	(6.0)
Eliminations and other		(1,057)		320	-			(1,108)		654	-
Total Segment Operating Revenues		6,814		8,835	(22.9)			14,662		17,640	(16.9)

Cost of revenues
Turner		965		1,796	(46.3)			2,285		3,476	(34.3)
Home Box Office		1,095		839	30.5			1,911		1,509	26.6
Warner Bros.		2,233		2,492	(10.4)			4,579		4,922	(7.0)
Selling, general and administrative		1,324		1,344	(1.5)			2,788		2,716	2.7
Eliminations and other		(883)		(35)	-			(1,142)		(34)	-
Depreciation and amortization		167		104	60.6			330		260	26.9
Total Operating Expenses		4,901		6,540	(25.1)			10,751		12,849	(16.3)
Operating Income		1,913		2,295	(16.6)			3,911		4,791	(18.4)
Equity in Net Income (Loss) of Affiliates		4		55	(92.7)			19		122	(84.4)
Total Segment Operating Contribution	$	1,917	$	2,350	(18.4)	%	$	3,930	$	4,913	(20.0)	%

Our WarnerMedia segment includes our Turner, Home Box Office (HBO) and Warner Bros. business units. The order of presentation reflects the consistency of revenue streams, rather than overall magnitude as that is subject to timing and frequency of studio releases.

Operating revenues decreased in the ~~third~~second quarter and for the first six months of ~~2019,~~2020, primarily due to lower ~~Warner Bros. revenues, partially offset by increased~~advertising revenues from ~~Home Box Office~~the postponement or cancellation of televised sporting events at Turner; lower theatrical product revenues, reflecting the pandemic-related closure of movie theaters and ~~Turner.~~postponement of theatrical releases, and unfavorable programming comparisons, including strong carryover revenues in the first quarter of 2019 at Warner Bros.; and lower linear subscription revenue at HBO.

Operating contribution ~~increased~~decreased in the ~~third~~second quarter and for the first six months of ~~2019.~~2020. The WarnerMedia segment operating income margin in the ~~third~~second quarter increased from ~~31.3%~~26.0% in ~~2018~~2019 to ~~32.2%~~28.1% in ~~2019.~~

WarnerMedia Business Unit Discussion
Turner Results

Third Quarter

Nine-Month Period

Percent

Percent

2019

2018
Change

2019

2018
Change
Operating revenues

Subscription
$
1,927

$
1,855
3.9
%

$
5,835

$
2,363
-
%
Advertising

913

944
(3.3)

3,440

1,181
-

Content and other

167

189
(11.6)

585

223
-

Total Operating Revenues

3,007

2,988
0.6

9,860

3,767
-

Operating expenses

Operations and support

1,460

1,487
(1.8)

5,813

1,933
-

Depreciation and amortization

68

59
15.3

167

71
-

Total Operating Expenses

1,528

1,546
(1.2)

5,980

2,004
-

Operating Income

1,479

1,442
2.6

3,880

1,763
-

Equity in Net Income of Affiliates

10

7
42.9

46

39
17.9

Operating Contribution
$
1,489

$
1,449
2.8
%

$
3,926

$
1,802
-
%

~~Turner includes~~2020 and for the ~~WarnerMedia businesses managed by Turner as well as our RSNs.~~

~~Operating revenues~~ ~~increased~~first six months decreased from 27.2% in ~~the third quarter of~~ 2019 reflecting higher subscription revenues driven by higher domestic affiliate rates and growth at Turner’s international networks. These increases were partially offset by lower advertising revenues, resulting from lower audience deliveryto 26.7% in ~~the domestic entertainment networks, reduced content revenue and foreign exchange pressure.~~

~~Operations and support~~ ~~expenses decreased in the third quarter of 2019 due to lower programming, marketing and direct operating costs.~~

~~Operating income~~ increased in the third quarter of 2019. Our Turner operating income margin in the third quarter increased from 48.3% in 2018 to 49.2% in 2019. Our Turner EBITDA margin increased from 50.2% in 2018 to 51.4% in 2019.2020.

4947

AT&T INC.

~~SEPTEMBER~~JUNE 30, ~~2019~~2020

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

Dollars, subscribers and connections in millions, except per share and per subscriber amounts

Home Box Office Results
WarnerMedia Business Unit Discussion													WarnerMedia Business Unit Discussion
Turner Results
	Third Quarter						Nine-Month Period						Second Quarter						Six-Month Period
					Percent						Percent						Percent						Percent
	2019		2018		Change		2019		2018		Change		2020		2019		Change		2020		2019		Change
Operating revenues
Subscription	$	1,533	$	1,517	1.1	%	$	4,383	$	1,787	-	%	$	1,804	$	1,943	(7.2)	%	$	3,853	$	3,908	(1.4)	%
Advertising														796		1,266	(37.1)			1,753		2,527	(30.6)
Content and other		286		127	-			662		138	-			388		201	93.0			544		418	30.1
Total Operating Revenues		1,819		1,644	10.6			5,045		1,925	-			2,988		3,410	(12.4)			6,150		6,853	(10.3)

Operating expenses
Operations and support		1,072		991	8.2			3,124		1,162	-
Cost of revenues														965		1,796	(46.3)			2,285		3,476	(34.3)
Selling, general and administrative														382		421	(9.3)			772		877	(12.0)
Depreciation and amortization		33		25	32.0			67		30	-			69		39	76.9			138		99	39.4
Total Operating Expenses		1,105		1,016	8.8			3,191		1,192	-			1,416		2,256	(37.2)			3,195		4,452	(28.2)
Operating Income		714		628	13.7			1,854		733	-			1,572		1,154	36.2			2,955		2,401	23.1
Equity in Net Income of Affiliates		10		2	-			40		1	-
Equity in Net Income (Loss) of Affiliates														-		11	-			6		36	(83.3)
Operating Contribution	$	724	$	630	14.9	%	$	1,894	$	734	-	%	$	1,572	$	1,165	34.9	%	$	2,961	$	2,437	21.5	%

Operating revenues ~~increased~~decreased in the ~~third~~second quarter and for the first six months of 2020, primarily due to decreases in advertising revenue largely resulting from the postponement of the NBA season and the cancellation of the NCAA Division I Men’s Basketball Tournament, in the first quarter of ~~2019, driven~~2020. Subscription revenue declines reflect lower regional sports network revenue and unfavorable exchange rates. These decreases were partially offset by higher content and other ~~revenues due~~revenue, including internal sales to ~~an increase~~HBO Max, which are eliminated in ~~international licensing. Subscription revenues also increased as a result of growth in digital and international subscriptions, partially offset by lower domestic linear subscribers.~~consolidation within the WarnerMedia segment.

~~Operations and support~~Cost of revenues ~~expenses increased~~decreased in the ~~third~~second quarter and for the first six months of ~~2019~~2020, primarily due to ~~higher~~lower programming ~~distribution~~costs, including a decline of approximately $850 in the second quarter and $1,125 for the first six months in sports costs resulting from the postponement of the NBA season, the cancellation of the NCAA tournament and other smaller items.

Selling, general and administrative decreased in the second quarter and for the first six months of 2020, primarily due to lower marketing ~~expenses.~~costs.

Operating income increased in the ~~third~~second quarter and for the first six months of ~~2019.~~2020. Our ~~Home Box Office~~Turner operating income margin in the ~~third~~second quarter increased from ~~38.2%~~33.8% in ~~2018~~2019 to ~~39.3%~~52.6% in ~~2019. Our Home Box Office EBITDA margin~~2020, and for the first six months increased from ~~39.7%~~35.0% in ~~2018~~2019 to ~~41.1%~~48.0% in 2020.

AT&T INC.

JUNE 30, 2020

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

Dollars, subscribers and connections in millions, except per share and per subscriber amounts

Home Box Office Results
	Second Quarter						Six-Month Period
					Percent						Percent
	2020		2019		Change		2020		2019		Change
Operating revenues
Subscription	$	1,441	$	1,516	(4.9)	%	$	2,779	$	2,850	(2.5)	%
Content and other		186		200	(7.0)			345		376	(8.2)
Total Operating Revenues		1,627		1,716	(5.2)			3,124		3,226	(3.2)

Operating expenses
Cost of revenues		1,095		839	30.5			1,911		1,509	26.6
Selling, general and administrative		394		292	34.9			631		543	16.2
Depreciation and amortization		25		12	-			46		34	35.3
Total Operating Expenses		1,514		1,143	32.5			2,588		2,086	24.1
Operating Income		113		573	(80.3)			536		1,140	(53.0)
Equity in Net Income (Loss) of Affiliates		(5)		15	-			15		30	(50.0)
Operating Contribution	$	108	$	588	(81.6)	%	$	551	$	1,170	(52.9)	%

Operating revenues decreased in the second quarter and for the first six months of 2020, primarily due to decreases in subscription revenue resulting from domestic linear subscriber decline, including Cinemax depackaging, partially offset by growth in digital and international, including HBO Latin America Group, following our May 2020 acquisition of the remaining interest in this entity. At June 30, 2020, we had 36.3 million U.S. subscribers from HBO Max and HBO, up from 34.6 million at December 31, 2019.

Warner Bros. Results

Third Quarter

Nine-Month Period

Percent

Percent

2019

2018
Change

2019

2018
Change
Operating revenues

Theatrical product
$
1,375

$
1,694
(18.8)
%

$
4,408

$
1,917
-
%
Television product

1,461

1,591
(8.2)

4,384

1,794
-

Games and other

497

435
14.3

1,448

516
-

Total Operating Revenues

3,333

3,720
(10.4)

10,240

4,227
-

Operating expenses

Operations and support

2,706

3,104
(12.8)

8,543

3,507
-

Depreciation and amortization

39

40
(2.5)

122

54
-

Total Operating Expenses

2,745

3,144
(12.7)

8,665

3,561
-

Operating Income

588

576
2.1

1,575

666
-

Equity in Net Income (Loss)
of Affiliates

(25)

(23)
(8.7)

(19)

(24)
20.8

Operating Contribution
$
563

$
553
1.8
%

$
1,556

$
642
-
%

Cost of revenues increased in the second quarter and for the first six months of 2020, primarily due to higher programming costs and expenses related to HBO Max.

Selling, general and administrative increased in the second quarter and for the first six months of 2020, primarily due to higher marketing costs associated with HBO Max.

Operating income decreased in the second quarter and for the first six months of 2020. Our HBO operating income margin in the second quarter decreased from 33.4% in 2019 to 6.9% in 2020, and for the first six months decreased from 35.3% in 2019 to 17.2% in 2020.

AT&T INC.

JUNE 30, 2020

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

Dollars, subscribers and connections in millions, except per share and per subscriber amounts

Warner Bros. Results
	Second Quarter						Six-Month Period
					Percent						Percent
	2020		2019		Change		2020		2019		Change
Operating revenues
Theatrical product	$	1,029	$	1,527	(32.6)	%	$	2,135	$	3,033	(29.6)	%
Television product		1,876		1,310	43.2			3,645		2,923	24.7
Games and other		351		552	(36.4)			716		951	(24.7)
Total Operating Revenues		3,256		3,389	(3.9)			6,496		6,907	(6.0)

Operating expenses
Cost of revenues		2,233		2,492	(10.4)			4,579		4,922	(7.0)
Selling, general and administrative		350		426	(17.8)			954		915	4.3
Depreciation and amortization		40		31	29.0			81		83	(2.4)
Total Operating Expenses		2,623		2,949	(11.1)			5,614		5,920	(5.2)
Operating Income		633		440	43.9			882		987	(10.6)
Equity in Net Income (Loss) of Affiliates		(19)		-	-			(27)		6	-
Operating Contribution	$	614	$	440	39.5	%	$	855	$	993	(13.9)	%

Operating revenues decreased in the second quarter and for the first six months of 2020, primarily due to lower theatrical product resulting from the absence of theatrical releases in the second quarter of 2020 and, for the six months, unfavorable comparisons to the prior year, which included, in 2019, carryover revenues from the theatrical release of Aquaman. Games and other revenue declines were primarily due to unfavorable games comparison to the prior year, which included the release of Mortal Kombat 11, and other revenue decreased due to reduced studio operations. Partially offsetting these decreases were higher television product revenues, driven by licensing, including internal sales to HBO Max, partially offset by lower initial telecast revenues resulting from pandemic-related television production delays.

Cost of revenues decreased in the second quarter and for the first six months of 2020, primarily due to lower marketing of theatrical product, partially offset by incremental costs incurred due to the production hiatus.

Selling, general and administrative decreased in the second quarter and increased for the first six months of 2020. The decrease in the quarter was primarily due to lower distribution fees and favorable collection experience that allowed us to reduce our first quarter bad debt estimates for COVID-19. The increase for the six months primarily resulted from higher first-quarter pandemic-relatedbad debt expense and other charges.

Operating income increased in the second quarter and decreased for the first six months of 2020. Our Warner Bros. operating income margin in the second quarter increased from 13.0% in 2019 to 19.4% in 2020, and for the first six months decreased from 14.3% in 2019 to 13.6% in 2020.

AT&T INC.

~~SEPTEMBER~~JUNE 30, 2020

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

Dollars, subscribers and connections in millions, except per share and per subscriber amounts

LATIN AMERICA SEGMENT	Second Quarter						Six-Month Period
					Percent						Percent
	2020		2019		Change		2020		2019		Change
Segment Operating Revenues
Vrio	$	752	$	1,032	(27.1)	%	$	1,639	$	2,099	(21.9)	%
Mexico		480		725	(33.8)			1,183		1,376	(14.0)
Total Segment Operating Revenues		1,232		1,757	(29.9)			2,822		3,475	(18.8)

Segment Operating Contribution
Vrio		(28)		(2)	-			(67)		30	-
Mexico		(173)		(207)	16.4			(318)		(412)	22.8
Total Segment Operating Contribution	$	(201)	$	(209)	3.8	%	$	(385)	$	(382)	(0.8)	%

Operating Results

Our Latin America operations conduct business in their local currency and operating results are converted to U.S. dollars using official exchange rates, subjecting results to foreign currency fluctuations. In May 2020, we found it necessary to close our DIRECTV operations in Venezuela dueto political instability in the country and to comply with sanctions of the U.S. government.

Operating revenues decreased in the second quarter and for the first six months of 2020 primarily driven by foreign exchange pressures and the impact of COVID-19.

Operating contribution increased in the second quarter and decreased for the first six months of 2020, reflecting foreign exchange pressures and the impact of COVID-19. Our Latin America segment operating income margin in the second quarter decreased from (12.6)% in 2019 to (17.0)% in 2020, and for the first six months decreased from (11.3)% in 2019 to (14.1)% in 2020.

Latin America Business Unit Discussion
Vrio Results
	Second Quarter						Six-Month Period
					Percent						Percent
	2020		2019		Change		2020		2019		Change
Operating revenues	$	752	$	1,032	(27.1)	%	$	1,639	$	2,099	(21.9)	%

Operating expenses
Operations and support		661		881	(25.0)			1,444		1,747	(17.3)
Depreciation and amortization		127		165	(23.0)			274		334	(18.0)
Total Operating Expenses		788		1,046	(24.7)			1,718		2,081	(17.4)
Operating Income		(36)		(14)	-			(79)		18	-
Equity in Net Income (Loss)
of Affiliates		8		12	(33.3)			12		12	-
Operating Contribution	$	(28)	$	(2)	-	%	$	(67)	$	30	-	%

AT&T INC.

JUNE 30, 2020

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

Dollars, subscribers and connections in millions, except per share and per subscriber amounts

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

						June 30,		Percent
(in 000s)						2020	2019	Change
Vrio Video Subscribers						10,664	13,473	(20.8)	%


		Second Quarter				Six -Month Period
				Percent				Percent
(in 000s)		2020	2019	Change		2020	2019	Change
Vrio Video Net Additions¹		(312)	(111)	-	%	(426)	(143)	-	%
¹	The second-quarter and six-month period ended June 30, 2020, exclude the impact of 2.2 million subscriber disconnections resulting
	from the closure of our DIRECTV operations in Venezuela.

Operating revenues decreased in the ~~third quarter of 2019, primarily due to lower theatrical product resulting from a more favorable mix of box office releases in the prior-year~~second quarter and ~~lower television licensing revenues. These decreases were partially offset~~for the first six months of 2020, primarily driven by ~~increases in games~~foreign exchange and ~~initial telecast revenues.~~COVID-19 pressures.

Operations and support expenses decreased in the ~~third~~second quarter and for the first six months of ~~2019~~2020, primarily driven by foreign exchange and COVID-19 pressures. Approximately 21% of Vrio expenses are U.S. dollar based, with the remainder in the local currency.

Depreciation expense decreased in the second quarter and for the first six months of 2020, primarily due to ~~lower film and television production costs.~~changes in foreign exchange rates.

Operating income ~~increased~~decreased in the ~~third~~second quarter and for the first six months of ~~2019.~~2020. Our ~~Warner Bros.~~Vrio operating income margin in the ~~third~~second quarter ~~increased~~decreased from ~~15.5% in 2018 to 17.6% in 2019.~~ ~~Our Warner Bros. EBITDA margin~~ ~~increased from 16.6% in 2018 to 18.8% in 2019~~.

LATIN AMERICA SEGMENT
Third Quarter

Nine-Month Period

Percent

Percent

2019

2018
Change

2019

2018
Change
Segment Operating Revenues

Vrio
$
1,013

$
1,102
(8.1)
%

$
3,112

$
3,710
(16.1)
%
Mexico

717

731
(1.9)

2,093

2,099
(0.3)

Total Segment Operating Revenues

1,730

1,833
(5.6)

5,205

5,809
(10.4)

Segment Operating Contribution

Vrio

13

66
(80.3)

43

281
(84.7)

Mexico

(179)

(267)
33.0

(591)

(743)
20.5

Total Segment Operating Contribution
$
(166)

$
(201)
17.4
%

$
(548)

$
(462)
(18.6)
%

~~Operating Results~~

~~Operating revenues~~ decreased in the third quarter and for the nine months of 2019 driven by lower revenues for Vrio, primarily resulting from foreign exchange pressures related to Argentina’s hyperinflationary economy.

~~Operating contribution~~ increased in the third quarter and decreased for the first nine months of 2019, reflecting foreign exchange pressure. Our Latin America segment operating income margin in the third quarter increased from (11.5)% in 2018 to (10.3)(1.4)% in 2019 to (4.8)% in 2020, and for the first ~~nine~~six months decreased from ~~(8.4)~~0.9% in 2019 to (4.8)% in ~~2018 to (11.0)% in 2019.~~

~~AT&T INC.~~

~~SEPTEMBER 30, 2019~~

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

~~Dollars, subscribers and connections in millions, except per share and per subscriber amounts~~

Latin America Business Unit Discussion

Mexico Results

Third Quarter

Nine-Month Period

2019

2018
Percent Change

2019

2018
Percent Change
Operating revenues

Service
$
455

$
440
3.4
%

$
1,376

$
1,261
9.1
%
Equipment

262

291
(10.0)

717

838
(14.4)

Total Operating Revenues

717

731
(1.9)

2,093

2,099
(0.3)

Operating expenses

Operations and support

774

869
(10.9)

2,312

2,459
(6.0)

Depreciation and amortization

122

129
(5.4)

372

383
(2.9)

Total Operating Expenses

896

998
(10.2)

2,684

2,842
(5.6)

Operating Income (Loss)

(179)

(267)
33.0

(591)

(743)
20.5

Equity in Net Income of Affiliates

-

-
-

-

-
-

Operating Contribution
$
(179)

$
(267)
33.0
%

$
(591)

$
(743)
20.5
%

~~The following tables highlight other key measures of performance for Mexico:~~

September 30,
Percent
(in 000s)

2019

2018
Change
Mexico Wireless Subscribers¹

Postpaid

5,352

5,822
(8.1)
%
Prepaid

12,848

11,270
14.0

Reseller

419

213
96.7

Total Mexico Wireless Subscribers

18,619

17,305
7.6
%

Third Quarter

Nine-Month Period

Percent

Percent
(in 000s)

2019

2018
Change

2019

2018
Change
Mexico Wireless Net Additions

Postpaid

(137)

73
-
%

(359)

324
-
%
Prepaid

668

802
(16.7)

1,183

1,873
(36.8)

Reseller

67

32
-

166

9
-

Mexico Wireless
Net Subscriber Additions

598

907
(34.1)
%

990

2,206
(55.1)
%
¹
2019 excludes the impact of 692 subscriber disconnections resulting from the churn of customers related to sales by certain third-party

distributors and the sunset of 2G services in Mexico, which are reflected in beginning of period subscribers.

~~Service~~ ~~revenues increased~~2020. Our Vrio EBITDA margin in the ~~third~~second quarter decreased from 14.6% in 2019 to 12.1% in 2020, and for the first ~~nine~~six months ofdecreased from 16.8% in 2019 ~~primarily due~~ to ~~growth~~11.9% in ~~our subscriber base.~~2020.

~~Equipment~~ ~~revenues decreased in the third quarter and for the first nine months of 2019, reflecting higher demand in the prior year for our initial offering of equipment installment programs.~~

Mexico Results
	Second Quarter						Six-Month Period
	2020		2019		Percent Change		2020		2019		Percent Change
Operating revenues
Service	$	345	$	479	(28.0)	%	$	812	$	921	(11.8)	%
Equipment		135		246	(45.1)			371		455	(18.5)
Total Operating Revenues		480		725	(33.8)			1,183		1,376	(14.0)

Operating expenses
Operations and support		538		813	(33.8)			1,252		1,538	(18.6)
Depreciation and amortization		115		119	(3.4)			249		250	(0.4)
Total Operating Expenses		653		932	(29.9)			1,501		1,788	(16.1)
Operating Income (Loss)		(173)		(207)	16.4			(318)		(412)	22.8
Equity in Net Income (Loss)
of Affiliates		-		-	-			-		-	-
Operating Contribution	$	(173)	$	(207)	16.4	%	$	(318)	$	(412)	22.8	%

AT&T INC.

~~SEPTEMBER~~JUNE 30, ~~2019~~2020

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

Dollars, subscribers and connections in millions, except per share and per subscriber amounts

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

							June 30,		Percent
(in 000s)							2020	2019	Change
Mexico Wireless Subscribers
Postpaid							4,771	5,489	(13.1)	%
Prepaid							12,777	12,180	4.9
Reseller							425	352	20.7
Total Mexico Wireless Subscribers							17,973	18,021	(0.3)	%

		Second Quarter					Six-Month Period
					Percent				Percent
(in 000s)			2020	2019	Change		2020	2019	Change
Mexico Wireless Net Additions¹
Postpaid			(191)	(153)	(24.8)	%	(332)	(222)	(49.5)	%
Prepaid			(915)	401	-		(807)	515	-
Reseller			21	51	(58.8)		53	99	(46.5)
Mexico Wireless Net Additions			(1,085)	299	-	%	(1,086)	392	-	%
¹	The second-quarter and six-month period ended June 30, 2020, exclude the impact of 101 subscriber disconnections resulting from
	conforming our policy on reporting of fixed wireless resellers.

Service revenues decreased in the second quarter and for the first six months of 2020, primarily due to foreign exchange pressures, as well as lower volumes and store traffic related to COVID-19.

Equipment revenues decreased in the second quarter and for the first six months of 2020, primarily due to lower equipment sales volumes related to COVID-19 and foreign exchange rates.

Operations and support expenses decreased in the ~~third~~second quarter and for the first ~~nine~~six months of ~~2019,~~2020, primarily due to changes in foreign exchange rates and lower equipment ~~sales, partially offset by higher bad debt expenses.~~sales. Approximately 6%8% of Mexico expenses are U.S. dollar based, with the remainder in the local currency.

Depreciation and amortization expense decreased in the ~~third~~second quarter and for the first ~~nine~~six months of ~~2019,~~2020, primarily due to ~~changes in the useful lives of certain assets, partially offset by the amortization of spectrum licenses and higher in-service assets.~~foreign exchange pressures.

Operating income increased in the ~~third~~second quarter and first ~~nine~~six months of ~~2019.~~2020. Our Mexico operating income margin in the ~~third~~second quarter ~~increased~~decreased from ~~(36.5)% in 2018 to (25.0)~~(28.6)% in 2019 to (36.0)% in 2020, and for the first ~~nine~~six months increased from ~~(35.4)~~(29.9)% in ~~2018~~2019 to ~~(28.2)~~(26.9)% in ~~2019.~~2020. Our Mexico EBITDA margin in the ~~third~~second quarter ~~increased from (18.9)% in 2018 to (7.9)~~was stable at (12.1)% in 2019 and ~~for the first nine months increased from (17.2)% in 2018 to (10.5)% in 2019.~~

Vrio Results

Third Quarter

Nine-Month Period

Percent

Percent

2019

2018
Change

2019

2018
Change
Operating revenues
$
1,013

$
1,102
(8.1)
%

$
3,112

$
3,710
(16.1)
%

Operating expenses

Operations and support

851

877
(3.0)

2,598

2,894
(10.2)

Depreciation and amortization

162

168
(3.6)

496

559
(11.3)

Total Operating Expenses

1,013

1,045
(3.1)

3,094

3,453
(10.4)

Operating Income

-

57
-

18

257
(93.0)

Equity in Net Income of Affiliates

13

9
44.4

25

24
4.2

Operating Contribution
$
13

$
66
(80.3)
%

$
43

$
281
(84.7)
%

~~The following tables highlight other key measures of performance for Vrio:~~

September 30,
Percent
(in 000s)

2019

2018
Change
Vrio Video Subscribers^1,2

13,306

13,640
(2.4)
%

Third Quarter

Nine -Month Period

Percent

Percent
(in 000s)

2019

2018
Change

2019

2018
Change
Vrio Video Net Subscriber Additions³

(167)

(73)
-
%

(310)

52
-
%
¹
Excludes subscribers of our equity investment in SKY Mexico, in which we own a 41.3% stake. SKY Mexico had 7.4 million

subscribers at June 30, 2019 and 7.8 million subscribers at September 30, 2018.
²
2019 excludes the impact of 222 subscriber disconnections resulting from conforming our video credit policy across the region, which is

reflected in beginning of period subscribers.
³
Excludes SKY Mexico net subscriber additions of 7 and losses of 126 for the quarter ended June 30, 2019 and September 30, 2018,

respectively.

~~Operating revenues~~ ~~decreased in the third quarter~~2020, and for the first ~~nine~~six months ofincreased from (11.8)% in 2019 ~~primarily due~~ to ~~foreign exchange pressures.~~

(5.8)% in 2020.

AT&T INC.

~~SEPTEMBER~~JUNE 30, ~~2019~~

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

~~Dollars, subscribers and connections in millions, except per share and per subscriber amounts~~

~~Operations and support~~ expenses decreased in the third quarter and for the first nine months of 2019, primarily due to changes in foreign currency exchange rates. Approximately 19% of Vrio expenses are U.S. dollar based, with the remainder in the local currency.

~~Depreciation~~ ~~expense decreased in the third quarter and for the first nine months of 2019, primarily due to changes in foreign currency exchange rates.~~

~~Operating income~~ decreased in the third quarter and for the first nine months of 2019. Our Vrio operating income was $0, compared to an operating income of $57, or an operating income margin of 5.2%, in the year-earlier quarter. For the first nine months our operating income margin decreased from 6.9% in 2018 to 0.6% in 2019. Our Vrio EBITDA margin in the third quarter decreased from 20.4% in 2018 to 16.0% in 2019, and for the first nine months decreased from 22.0% in 2018 to 16.5% in 2019.

XANDR SEGMENT
Third Quarter

Nine-Month Period

Percent

Percent

2019

2018
Change

2019

2018
Change
Operating revenues
$
504

$
445
13.3
%

$
1,415

$
1,174
20.5
%

Operating expenses

Operations and support

162

109
48.6

469

218
-

Depreciation and amortization

15

3
-

41

4
-

Total Operating Expenses

177

112
58.0

510

222
-

Operating Income

327

333
(1.8)

905

952
(4.9)

Equity in Net Income of Affiliates

-

-
-

-

-
-

Operating Contribution
$
327

$
333
(1.8)
%

$
905

$
952
(4.9)
%

~~Operating revenues~~ ~~increased in the third quarter and for the first nine months of 2019 primarily due to our acquisition of AppNexus in August 2018.~~

~~Operations and support~~ ~~expenses increased in the third quarter and for the first nine months of 2019, primarily due to our acquisition of AppNexus and our ongoing development of the platform supporting Xandr’s business.~~

~~Operating income~~ decreased in the third quarter and for the first nine months of 2019. Our Xandr segment operating income margin in the third quarter decreased from 74.8% in 2018 to 64.9% in 2019, and for the first nine months decreased from 81.1% in 2018 to 64.0% in 2019.

~~AT&T INC.~~

~~SEPTEMBER 30, 2019~~2020

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

Dollars, subscribers and connections in millions, except per share and per subscriber amounts

SUPPLEMENTAL TOTAL ADVERTISING REVENUE INFORMATION

As a supplemental presentation, ~~to our Xandr segment operating results,~~ we are providing a view of total advertising revenues generated by ~~AT&T. This combined view presents the entire portfolio of advertising revenues reported across all operating segments and represents a significant strategic initiative and growth opportunity for~~ AT&T. See revenue categories tables in Note 5 for a reconciliation.

Total Advertising Revenues
	Third Quarter						Nine-Month Period						Second Quarter						Six-Month Period
					Percent						Percent						Percent						Percent
	2019		2018		Change		2019		2018		Change		2020		2019		Change		2020		2019		Change
Operating Revenues
WarnerMedia	$	945	$	983	(3.9)	%	$	3,509	$	1,222	-	%
Communications		495		478	3.6			1,382		1,284	7.6
Turner													$	796	$	1,266	(37.1)	%	$	1,753	$	2,527	(30.6)	%
Entertainment Group														294		399	(26.3)			707		749	(5.6)
Xandr		504		445	13.3			1,415		1,174	20.5			362		485	(25.4)			851		911	(6.6)
Other														75		90	(16.7)			173		175	(1.1)
Eliminations		(421)		(401)	(5.0)			(1,170)		(1,122)	(4.3)			(294)		(399)	26.3			(707)		(749)	5.6
Total Advertising Revenues	$	1,523	$	1,505	1.2	%	$	5,136	$	2,558	-	%	$	1,233	$	1,841	(33.0)	%	$	2,777	$	3,613	(23.1)	%

SUPPLEMENTAL COMMUNICATIONS OPERATING INFORMATION

As a supplemental presentation to our Communications segment operating results, we are providing a view of our AT&T Business Solutions results which includes both wireless and wireline operations. This combined view presents a complete profile of the entire business customer relationship and underscores the importance of mobile solutions to serving our business customers. Results have been recast to conform to the current period's classification of consumer and business wireless subscribers. See “Discussion and Reconciliation of Non-GAAP Measure” for a reconciliation of these supplemental measures to the most directly comparable financial measures calculated and presented in accordance with GAAP.

Business Solutions Results
	Third Quarter						Nine-Month Period						Second Quarter						Six-Month Period
	2019		2018		Percent Change		2019		2018		Percent Change		2020		2019		Percent Change		2020		2019		Percent Change
	2019		2018		Percent Change		2019		2018		Percent Change		2020		2019		Percent Change		2020		2019		Percent Change
Operating revenues
Wireless service	$	2,009	$	1,857	8.2	%	$	5,901	$	5,440	8.5	%	$	1,884	$	1,881	0.2	%	$	3,833	$	3,658	4.8	%
Strategic and managed services		3,900		3,677	6.1			11,513		10,849	6.1			3,943		3,834	2.8			7,822		7,613	2.7
Legacy voice and data services		2,252		2,602	(13.5)			6,973		8,176	(14.7)			2,067		2,324	(11.1)			4,196		4,721	(11.1)
Other service and equipment		351		404	(13.1)			1,102		1,010	9.1			364		449	(18.9)			688		751	(8.4)
Wireless equipment		694		586	18.4			1,902		1,737	9.5			585		617	(5.2)			1,295		1,207	7.3
Total Operating Revenues		9,206		9,126	0.9			27,391		27,212	0.7			8,843		9,105	(2.9)			17,834		17,950	(0.6)

Operating expenses
Operations and support		5,643		5,575	1.2			16,770		16,724	0.3			5,424		5,512	(1.6)			11,134		11,126	0.1
Depreciation and amortization		1,573		1,485	5.9			4,643		4,408	5.3			1,637		1,545	6.0			3,262		3,070	6.3
Total Operating Expenses		7,216		7,060	2.2			21,413		21,132	1.3			7,061		7,057	0.1			14,396		14,196	1.4
Operating Income		1,990		2,066	(3.7)			5,978		6,080	(1.7)			1,782		2,048	(13.0)			3,438		3,754	(8.4)
Equity in Net Income (Loss) of Affiliates		(1)		(3)	66.7			-		(2)	-
Equity in Net Income (Loss)
of Affiliates														-		-	-			-		-	-
Operating Contribution	$	1,989	$	2,063	(3.6)	%	$	5,978	$	6,078	(1.6)	%	$	1,782	$	2,048	(13.0)	%	$	3,438	$	3,754	(8.4)	%

5554

AT&T INC.

~~SEPTEMBER~~JUNE 30, ~~2019~~2020

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

Dollars, subscribers and connections in millions, except per share and per subscriber amounts

OTHER BUSINESS MATTERS

~~Unlimited Data Plan Claims~~ Spectrum AuctionIn ~~October 2014,~~March 2020, we were the ~~FTC filed~~winning bidder of high-frequency 37/39 GHz licenses in FCC Auction 103 covering an average of 786 MHz nationwide for approximately $2,400. Prior to the auction, we exchanged the 39 GHz licenses with a ~~civil suit~~book value of approximately $300 that were previously acquired through FiberTower Corporation for vouchers to be applied against the winning bids and recorded a $900 gain in the ~~U.S. District Court~~first quarter of 2020. These vouchers yielded a value of approximately $1,200 which was applied toward our $2,400 gross bids. We made our final payment of approximately $950 for the ~~Northern District of California against AT&T Mobility, LLC seeking injunctive relief and unspecified money damages under Section 5 of~~Auction 103 payment in April 2020. The FCC granted the ~~Federal Trade Commission Act. The FTC’s allegations concern the application of AT&T’s Maximum Bit Rate (MBR) program to customers who enrolled~~ licenses in our Unlimited Data Plan from 2007-2010. MBR temporarily reduces in certain instances the download speeds of a small portion of our legacy Unlimited Data Plan customers each month after the customer exceeds a designated amount of data during the customer’s billing cycle. MBR is an industry-standard practice that is designed to affect only the most data-intensive applications (such as video streaming). Texts, emails, tweets, social media posts, internet browsing and many other applications are typically unaffected. Contrary to the FTC’s allegations, our MBR program is permitted by our customer contracts, was fully disclosed in advance to our Unlimited Data Plan customers, and was implemented to protect the network for the benefit of all customers. We ~~reached a tentative agreement with the FTC staff in August 2019, pending FTC approval. We~~ do not expect the resolution of the matter to have a material adverse impact on our financial results. We are not admitting culpability in the tentative agreement. In addition to the FTC case, several class actions were filed challenging our MBR program. We secured dismissals in each of these cases except Roberts v. AT&T Mobility LLC, which is ongoing.

June 2020.

Labor Contracts As of ~~September~~June 30, ~~2019,~~2020, we employed approximately ~~252,000~~243,000 persons. Approximately 40% 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.

A contract covering approximately ~~8,000 traditional wireline~~7,000 Mobility employees ~~in our Midwest region~~ expired in ~~April 2018.~~February 2020. In ~~August 2019,~~March 2020, a new ~~four-year~~4-year contract was ratified by employees and will expire in ~~April 2022.~~February 2024.

A contract covering approximately ~~3,000 traditional~~13,000 wireline employees in our ~~legacy AT&T Corp. business~~West region expired in April ~~2018.~~2020. In ~~August 2019,~~March 2020, a tentative agreement was reached on a new ~~four-year contract was ratified~~4-year contract. The tentative agreement is subject to ratification by ~~employees and will expire in April 2022.~~employees.

A contract covering approximately ~~20,000 traditional wireline~~14,000 employees in ~~our Southeast~~the Southwest region ~~expired~~scheduled to expire in ~~August 2019. In October 2019, a new five-year contract~~April 2021 was ~~ratified by employees~~extended 4 years and will now expire in ~~August 2024.~~April 2025.

COMPETITIVE AND REGULATORY ENVIRONMENT

Overview AT&T subsidiaries operating within the United States are subject to federal and state regulatory authorities. AT&T subsidiaries operating outside the United States are subject to the jurisdiction of national and supranational regulatory authorities in the markets where service is provided.

In the Telecommunications Act of 1996 (Telecom Act), Congress established a national policy framework intended to bring the benefits of competition and investment in advanced telecommunications facilities and services to all Americans by opening all telecommunications markets to competition and reducing or eliminating regulatory burdens that harm consumer welfare. ~~Since~~Nonetheless, over the ~~Telecom Act was passed,~~ensuing two decades, the ~~Federal Communications Commission (FCC)~~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. ~~The leadership at~~More recently, the FCC ~~is charting~~has pursued a more ~~predictable~~deregulatory agenda, eliminating a variety of antiquated and ~~balanced regulatory course that will encourage long-term investment and benefit consumers. Based on its public statements, we expect the FCC to continue to eliminate antiquated,~~ unnecessary regulations and ~~streamline processes.~~streamlining its processes in a number of areas. In addition, we are pursuing, at both the state and federal levels, additional legislative and regulatory measures to reduce regulatory burdens that are no longer appropriate in a competitive telecommunications market and that inhibit our ability to compete more effectively and offer services wanted and needed by 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 reportable segment.~~

~~AT&T INC.~~

~~SEPTEMBER 30, 2019~~

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

~~Dollars, subscribers and connections in millions, except per share and per subscriber amounts~~

Communications Segment

Internet ~~In February 2015, the~~The FCC released an order classifying both fixed and mobile consumer broadband internet access services as telecommunications services, subject to Title II of the Communications Act. The Order, which represented a departure from longstanding bipartisan precedent, significantly expanded the FCC’s authority to regulate broadband internet access services, as well as internet interconnection arrangements. In December 2017, the FCC reversed its 2015 decision by reclassifyingcurrently classifies fixed and mobile consumer broadband services as information services, ~~and repealing most of the rules that were adopted in 2015. In lieu of broad conduct prohibitions, the order requires internet service providers~~subject to ~~disclose information about their network practices and terms of service, including whether they block or throttle internet traffic or offer paid prioritization. Several parties appealed~~light-touch regulation. The D.C. Circuit upheld the FCC’s December 2017 decision and the D.C. Circuit heard oral argument on the appeals on February 1, 2019. On October 1, 2019, the court issued a unanimous opinion upholding the FCC’s reclassification of broadband as an information service, and its reliance on transparency requirements and competitive marketplace dynamics to safeguard net neutrality. While the court vacated the FCC’s express preemption of any state regulation of net neutrality,current classification, although it nevertheless stressed that its ruling does not prevent the FCC or ISPs from relying on conflict preemption to invalidate particular state laws that are inconsistent with the FCC’s regulatory objectives and framework. The court also concluded that the FCC failed to satisfy its obligation under the Administrative Procedure Act (APA) to consider the impact of its 2017 order inremanded three discrete ~~areas—public safety, the Lifeline program, and pole attachment regulation—and thus remanded it~~issues to the FCC for further proceedings on those issues, but without disturbing the operative effect of that order. A number of states have adopted legislation that would reimpose the very rules the FCC repealed, and in some cases, established additional requirements that go beyond the FCC’s February 2015 order. Additionally, some state governors have issued executive orders that effectively reimpose the repealed requirements. Suits have recently been filed concerning laws in California and Vermont, and other lawsuits are possible. The California and Vermont suits have been stayed pursuant to agreements by those states not to enforce their laws pending resolution of appeals of the FCC’s December 2017 order. If no one seeks rehearing orconsideration. No party sought Supreme Court review of the D.C. Circuit’s decision, so that decision is final, although the ~~foregoing litigation will recommence. We expect that additional states may seek to regulate net neutrality based on~~FCC’s consideration of the ~~D.C. Circuit’s decision. We will continue to support congressional action to codify a set of standard consumer rules for the internet.~~three issues remains pending.

Some states have adopted legislation or issued executive orders that would reimpose net neutrality rules repealed by the FCC. Suits have been filed concerning such laws in two states. In October 2016, ~~a sharply divided~~the FCC adopted new rules governing the use of customer information by providers of broadband internet access service. Those rules were more restrictive in certain respects than those governing other participants in the internet economy, including so-called “edge” providers such as Google and

AT&T INC.

JUNE 30, 2020

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

Dollars, subscribers and connections in millions, except per share and per subscriber amounts

Facebook. In April 2017, the ~~president~~President signed a resolution passed by Congress repealing the new rules under the Congressional Review Act.

Privacy-related legislation has been considered or adopted in a number of states. Legislative and regulatory action and ballot initiatives could result in increased costs of compliance, claims against broadband internet access service providers and others, and increased uncertainty in the value and availability of data. ~~On June 28, 2018, the state of California enacted comprehensive privacy legislation that, effective~~Effective as of January 1, 2020, a California state law gives ~~California~~ consumers the right to know what personal information is being collected about them, and whether and to whom it is sold or disclosed, and to access and request deletion of this information. Subject to certain exceptions, it also gives California consumers the right to ~~opt-out~~opt out of the sale of personal ~~information. The law applies the same rules to all companies that collect consumer~~ information.

Wireless The industry-wide deployment of 5G technology, which is needed to satisfy extensive demand for video and internet access, will involve significant deployment of “small cell” equipment and therefore increase the need for local permitting processes that allow for the placement of small cell equipment on reasonable timelines and terms. Federal regulations also can delay and impede the deployment of infrastructure used to provide telecommunications and broadband services, including small cell equipment. In March, August and September 2018, the FCC adopted orders to streamline ~~the~~federal and local wireless infrastructure review ~~process~~processes in order to facilitate deployment of next-generation wireless facilities. Specifically, the FCC’s March 2018 Order streamlined historical, tribal, and environmental review requirements for wireless infrastructure, including by excluding most small cell facilities from such review. The Order was appealed and in August 2019, the D.C. Circuit Court of Appeals vacated the FCC’s finding that most small cell facilities are excluded from review, but otherwise upheld the FCC’s Order. The FCC’s August and September 2018 Orders simplified the regulations for attaching telecommunications equipment to utility poles and clarified when local government right-of-way access and use restrictions can be preempted because they unlawfully prohibit the provision of telecommunications services. Those orders ~~have been~~were appealed ~~and~~to the ~~various appeals remain pending in the DC Circuit and~~ 9th Circuit Court of ~~Appeals.~~Appeals, where they remain pending. In addition to the FCC’s actions, to date, 28 states and Puerto Rico have adopted legislation to facilitate small cell deployment.

In December 2018, we introduced the nation’s first commercial mobile 5G service. In July 2020, we announced nationwide 5G coverage. We ~~currently have mobile~~anticipate the introduction of 5G handsets and devices will contribute to a renewed interest in parts of 21 U.S. cities and we plan to roll out mobile 5G service in parts of at least 29 cities by the end of the year. We expect to have mobile 5G service nationwide to more than 200 million people by the first half of 2020.equipment upgrades.

5756

AT&T INC.

~~SEPTEMBER~~JUNE 30, ~~2019~~2020

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

Dollars, subscribers and connections in millions, except per share and per subscriber amounts

LIQUIDITY AND CAPITAL RESOURCES

We had ~~$6,588~~$16,941 in ~~cash~~“Cash and cash ~~equivalents~~equivalents” available at ~~September~~June 30, ~~2019. Cash~~2020. “Cash and cash ~~equivalents~~equivalents” included cash of ~~$3,765~~$3,781 and money market funds and other cash equivalents of ~~$2,823.~~$13,160. Approximately ~~$2,200~~$2,529 of our ~~cash~~“Cash and cash ~~equivalents~~equivalents” were held by our foreign entities in accounts predominantly outside of the U.S. and may be subject to restrictions on repatriation.

The Company's liquidity and capital resources were not materially impacted by COVID-19 and related economic conditions during the first six months of 2020. We will continue to monitor impacts on the COVID-19 pandemic on our liquidity and capital resources.

“Cash and cash ~~equivalents~~equivalents” increased ~~$1,384~~$4,811 since December 31, ~~2018.~~2019. In the first ~~nine~~six months of ~~2019,~~2020, cash inflows were primarily provided by the cash receipts from operations, including cash from our sale and transfer of ~~certain wireless equipment installment and WarnerMedia~~our receivables to third parties, ~~sale of investments, issuance~~and the issuances of commercial paper, ~~and~~ long-term debt ~~collateral received from banks~~ and ~~other participants in our derivative arrangements and issuance of perpetual nonconvertible~~cumulative preferred ~~interests in a subsidiary.~~stock. These inflows were offset by cash used to meet the needs of the business, including, but not limited to, payment of operating expenses, spectrum acquisitions, debt repayments, funding capital expenditures and vendor financing payments, ~~spectrum deposits~~collateral posted to banks and other participants in derivative arrangements, share repurchase and dividends to stockholders.

Cash Provided by or Used in Operating Activities

During the first ~~nine~~six months of ~~2019,~~2020, cash provided by operating activities was ~~$36,725,~~$20,925, compared to ~~$31,522~~$25,336 for the first ~~nine~~six months of ~~2018. Higher~~2019. Lower operating cash flows in ~~2019~~2020 were primarily ~~due to contributions from WarnerMedia and higher cash flows from working capital initiatives, including sales of receivables~~driven by lower incremental receivable securitization (see Note 9)~~, partly offset by higher spend on film and television production and net tax payments in 2019 compared to net tax refunds in 2018.~~.

We actively manage the timing of our supplier payments for non-capital items to optimize the use of our cash. Among other things, we seek to make payments on 90-day or greater terms, while providing the suppliers with access to bank facilities that permit earlier payments at their cost. In addition, for payments to a key supplier, we have arrangements that allow us to extend payment terms up to 90 days at an additional cost to us (referred to as supplier financing). The net impact of supplier financing on cash from operating activities was to ~~reduce~~decrease working capital ~~$345~~$1,452 and $496 for the ~~first nine~~six months ofended June 30, 2020 and 2019, ~~and to improve working capital $284 for the first nine months of 2018.~~respectively. All supplier financing payments are due within one year.

Cash Used in or Provided by Investing Activities

For the first ~~nine~~six months of ~~2019,~~2020, cash used in investing activities totaled ~~$13,002,~~$10,278, and consisted primarily of ~~$15,843~~$9,432 (including interest during construction) for capital expenditures, ~~($1,256 lower than~~final payment of approximately $950 for wireless spectrum licenses won in Auction 103, and $141 for acquiring the ~~prior-year comparable period), offset by proceeds from the sales of our ownership interests~~remaining interest in ~~Hulu and WarnerMedia’s headquarters (Hudson Yards) under a sale-leaseback arrangement (see Note 8).~~HBO LAG.

For capital improvements, we have negotiated favorable vendor payment terms of 120 days or more (referred to as vendor financing) with some of our vendors, which are excluded from capital expenditures and reported as financing activities. For the first ~~nine~~six months of ~~2019, these~~2020, vendor financing payments were ~~$2,601,~~$1,354, compared to $1,836 for the first six months of 2019. Capital expenditures in the first six months of 2020 were $9,432, and when ~~combined with $15,843~~including $1,354 cash paid for vendor financing and excluding $79 of ~~capital expenditures, total~~FirstNet reimbursements, gross capital investment was ~~$18,444~~$10,865 ($~~998 higher~~1,728 lower than the prior-year comparable period). ~~In the first nine months of 2019, we placed $1,917 of equipment in service under vendor financing arrangements.~~

The vast majority of our capital expenditures are spent on our networks, including product development and related support systems. During the first ~~nine~~six months, we placed $1,681 of equipment in service under vendor financing arrangements (compared to $1,265 in the prior-year comparable period) and approximately ~~$850~~$640 of assets related to the FirstNet build ~~were placed into service. Total reimbursements from~~(compared to $600 in the ~~government for FirstNet during the first nine months were $134 for 2019 and $336 for 2018, predominantly for capital expenditures.~~

prior-year comparable period). The amount of capital expenditures is influenced by demand for services and products, capacity needs and network enhancements. ~~In July 2019, we completed our DIRECTV merger commitment, marketing fiber-to-the-premises network to nearly 14 million customer locations.~~

Cash Provided by or Used in Financing Activities

For the first ~~nine~~six months of ~~2019,~~2020, cash used in financing activities totaled ~~$22,341~~$5,911 and ~~included net proceeds~~was comprised of ~~$15,034, which consisted primarily~~debt issuances and repayments, issuances of ~~the following issuances:~~preferred stock, share repurchase, payments of dividends and required collateral deposits.

5857

AT&T INC.

~~SEPTEMBER~~JUNE 30, ~~2019~~2020

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

Dollars, subscribers and connections in millions, except per share and per subscriber amounts

During the first six months of 2020, debt issuances included proceeds of $8,440 in short-term borrowings and $21,060 of net proceeds from long-term debt. Borrowing activity consisted of approximately $2,940 in commercial paper draws and the following issuances:

Issued and redeemed in ~~2019~~2020:

~~January draw of $2,850 on an 11-month syndicated term loan agreement (repaid in the third quarter).~~

~~January~~March draw of $750 on a private financing agreement (repaid in the ~~first~~second quarter).

~~August borrowings~~April draw of ~~$400 under~~$5,500 on a ~~private financing~~term loan credit agreement with certain commercial banks and Bank of America, N.A., as lead agent (repaid in the ~~third~~second quarter).

Issued and outstanding ~~at September 30, 2019~~in 2020:

February issuance of ~~$3,000~~$2,995 of ~~4.350%~~4.000% global notes due ~~2029.~~2049.

~~February issuance~~March borrowings of ~~$2,000~~$665 from loan programs with export agencies of ~~4.850% global notes due 2039.~~

~~Borrowings of $725 in January and $525 in June that are supported by government agencies~~foreign governments to support network equipment ~~purchases.~~purchases in those countries.

~~June draw~~May issuances totaling $12,500 in global notes, comprised of ~~$300 on U.S. Bank credit agreement.~~$2,500 of 2.300% global notes due 2027, $3,000 of 2.750% global notes due 2031, $2,500 of 3.500% global notes due 2041, $3,000 of 3.650% global notes due 2051 and $1,500 of 3.850% global notes due 2060.

~~September issuance~~May issuances totaling €3,000 million in global notes (approximately $3,281 at issuance), comprised of ~~€1,000~~€1,750 million of ~~0.25%~~1.600% global notes due ~~2026, €1,250~~2028, €750 million of ~~0.80%~~2.050% global notes due ~~2030~~2032 and ~~€750~~€500 million of ~~1.80%~~2.600% global notes due ~~2039 (when combined, $3,308 at issuance).~~2038.

~~September draw~~June issuance of ~~$1,300 on a Bank~~$1,050 of ~~America term loan credit agreement.~~3.750% global notes due 2050.

During the first ~~nine~~six months of ~~2019, repayment~~2020, repayments of debt included $5,975 of short-term borrowings and $17,284 of long-term ~~debt totaled $24,368.~~debt. Repayments ~~primarily consisted~~were comprised of $475 in commercial paper and the following:

Notes redeemed at maturity:

$~~1,850 of 2.300% AT&T global notes in the first quarter.~~

~~$400~~800 of AT&T floating-rate notes in the first quarter.

~~€1,500~~$687 of AT&T floating-rate ~~notes in the second quarter ($1,882 at maturity).~~

~~$650 of 2.100% WarnerMedia, LLC~~ notes in the second quarter.

Notes redeemed prior to maturity:

$~~2,010~~2,619 of 4.600% AT&T global notes with ~~interest rates ranging from 4.750% to 5.200% and~~ original ~~maturities~~maturity in ~~2020 and 2021,~~2045, in the first quarter.

$~~2,000~~2,750 of ~~Warner Media, LLC~~2.450% AT&T global notes with ~~interest rates ranging from 4.700% to 5.200% and~~ original ~~maturities~~maturity in ~~2021,~~2020, in the ~~first quarter.~~second quarter

$~~590~~1,000 of Warner Media, LLC and/or Historic TW Inc. notes that were tendered for cash in our May 2019 obligor debt exchange. The notes had interest rates ranging between 6.500% and 9.150% and original maturities ranging from 2023 to 2036.

~~$243 of open market redemptions of AT&T notes, with interest rates ranging from 7.125% to 8.750% and original maturities in 2031,~~annual put reset securities issued by BellSouth, in the second quarter.

$~~154~~683 of ~~open market redemptions of WarnerMedia, LLC, Historic TW Inc., BellSouth LLC and~~4.600% AT&T ~~Mobility LLC~~global notes with ~~interest rates ranging from 2.95% to 7.625% and~~ original ~~maturities ranging from 2022 to 2097,~~maturity in 2021, in the ~~third~~second quarter.

$1,695 of 2.800% AT&T global notes with original maturity in 2021, in the second quarter.

$853 of 4.450% AT&T global notes with original maturity in 2021, in the second quarter.

$1,172 of 3.875% AT&T global notes with original maturity in 2021, in the second quarter.

$1,430 of 5.500% AT&T global notes with original maturity in 2047, in the second quarter.

Credit facilities repaid and other ~~redemptions:~~borrowings:

~~$2,625 of final amounts outstanding under our Acquisition Term Loan (defined below) in the first quarter.~~

$750 of ~~January~~ borrowings under a private financing agreement, in the first quarter.

~~$1,500 of four-year and five-year borrowings under the Nova Scotia Credit Agreement (defined below) in the second quarter and $750 of three-year borrowings in the third quarter.~~

~~$600 of borrowings under our credit agreement with Canadian Imperial Bank of Commerce in the second quarter.~~

~~$500 of advances under our November 2018 Term Loan (defined below) in the second quarter, with payment of the remaining $3,050 of advances in the third quarter.~~

~~$250 of borrowings under a U.S. Bank credit agreement in the second quarter.~~

$750 ~~of borrowings under a private credit agreement in the third quarter.~~

~~$400~~ of borrowings under a private financing agreement, in the ~~third~~second quarter.

$~~2,850 of borrowings~~5,500 under ~~an 11-month syndicated~~our April 2020 term loan credit agreement ~~from January 2019~~with certain commercial banks and Bank of America, in the ~~third~~second quarter.

$1,300 under our term loan credit agreement with Bank of America, in the second quarter.

$500 under our term loan credit agreement with Bank of Communications Co., in the second quarter.

Our weighted average interest rate of our entire long-term debt portfolio, including the impact of derivatives, was approximately 4.3% as of June 30, 2020 and 4.4% as of December 31, 2019. We had $164,099 of total notes and debentures outstanding at June 30, 2020, which included Euro, British pound sterling, Canadian dollar, Swiss franc, Australian dollar, Brazilian real, and Mexican peso denominated debt that totaled approximately $44,798.

5958

AT&T INC.

~~SEPTEMBER~~JUNE 30, ~~2019~~2020

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

Dollars, subscribers and connections in millions, except per share and per subscriber amounts

~~Our weighted average interest rate of our entire long-term debt portfolio, including the impact of derivatives, was approximately 4.4% as of September~~At June 30, 2019 and 4.4% as of December 31, 2018. We had $160,758 of total notes and debentures outstanding at September 30, 2019, which included Euro, British pound sterling, Swiss franc, Brazilian real, Mexican peso, Canadian dollar and Australian dollar denominated debt that totaled approximately $41,399.

~~At September 30, 2019,~~2020, we had ~~$11,608~~$15,576 of debt maturing within one year, consisting of ~~$2,443~~$3,001 of commercial paper ~~and other short-term~~ borrowings and ~~$9,165~~$12,575 of long-term debt issuances. Debt maturing within one year includes the following notes that may be put back to us by the holders:

~~$1,000 of annual put reset securities issued by BellSouth that may be put back to us each April until maturity in 2021.~~

An accreting zero-coupon note that may be redeemed each May until maturity in 2022. If the remainder of the zero-coupon note (issued for principal of $500 in 2007 and partially exchanged in the 2017 debt exchange offers) is held to maturity, the redemption amount will be $592.

For the first ~~nine~~six months of ~~2019,~~2020, we paid ~~$2,601~~$1,354 of cash under our vendor financing program, compared to ~~$347~~$1,836 in the first ~~nine~~six months of ~~2018.~~2019. Total vendor financing payables included in our ~~September~~June 30, ~~2019~~2020 consolidated balance sheet were approximately ~~$1,800,~~$1,556, with ~~$1,350~~$718 due within one year (in “Accounts payable and accrued liabilities”) and the remainder predominantly due within two to three years (in “Other noncurrent liabilities”).

~~In September 2019, we contributed certain tower assets to a wireless subsidiary and then generated $1,500~~Financing activities in the first six months of ~~capital from~~2020 also included $3,869 for the February issuance of ~~nonconvertible~~Series B and Series C preferred ~~interests, which we reported as financing activities~~stock (see Note 11).

We repurchased approximately 142 million shares of common stock, predominantly in the first quarter, and completed the share repurchase authorization approved by the Board of Directors in 2013. In March 2020, we cancelled an accelerated share repurchase agreement that was planned for the second quarter and other repurchases to maintain flexibility and focus on continued investment in serving our customers, taking care of our employees and enhancing our network, including 5G. At ~~September~~June 30, ~~2019,~~2020, we had approximately ~~371~~178 million shares remaining from our share repurchase authorizations approved by the Board of Directors in ~~2013 and~~ 2014.

We paid dividends on common and preferred shares of ~~$11,162~~$7,474 during the first ~~nine~~six months of ~~2019,~~2020, compared with ~~$9,775~~$7,436 for the first ~~nine~~six months of ~~2018,~~2019. Dividends were higher in 2020, primarily ~~reflecting~~due to dividend payments to preferred stockholders and the ~~increase in the number of shares outstanding related to our June 2018 acquisition of Time Warner as well as an~~ increase in our quarterly dividend on common stock approved by our Board of Directors in December ~~2018.~~ 2019, partially offset by fewer shares outstanding.

Dividends on common stock declared by our Board of Directors totaled ~~$1.53~~$1.04 per share in the first ~~nine~~six months of ~~2019~~2020 and ~~$1.50~~$1.02 per share for the first ~~nine~~six months of ~~2018.~~2019. Our dividend policy considers the expectations and requirements of stockholders, capital funding requirements of AT&T and long-term growth opportunities. It is our intent to provide the financial flexibility to allow our Board of Directors to consider dividend growth and to recommend an increase in dividends to be paid in future periods. All dividends remain subject to declaration by our Board of Directors.

Financing Activities Subsequent to the Second Quarter

Taking advantage of attractive rates, we completed the following financing activities subsequent to the second quarter of 2020.

In July 2020, we redeemed a total of $4,264 in notes:

$1,457 of 3.000% global notes due 2022 issued by AT&T.

$1,250 of 3.200% global notes due 2022 issued by AT&T.

$1,012 of 3.800% global notes due 2022 issued by AT&T.

$422 of 4.000% global notes due 2022 issued by AT&T.

$60 of 3.800% senior notes due 2022 issued by DIRECTV.

$63 of 4.00% notes due 2022 issued by WarnerMedia.

In August 2020, we issued a total of $11,000 in global notes and will use the proceeds to pay down near-term debt:

$2,250 of 1.650% global notes due 2028.

$2,500 of 2.250 % global notes due 2032.

$2,500 of 3.100% global notes due 2043.

$2,250 of 3.300% global notes due 2052.

$1,500 of 3.500% senior notes due 2061.

AT&T INC.

JUNE 30, 2020

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

Dollars, subscribers and connections in millions, except per share and per subscriber amounts

Credit Facilities

The following summary of our various credit and loan agreements does not purport to be complete and is qualified in its entirety by reference to each agreement filed as exhibits to our Annual Report on Form 10-K.

We use credit facilities as a tool in managing our liquidity status. In December 2018, we amended our five-year revolving credit agreement (the “Amended and Restated Credit Agreement”) and concurrently entered into a new five-year agreement (the “Five Year Credit Agreement”) such that we now have two $7,500 revolving credit agreements totaling $15,000. The Amended and Restated Credit Agreement terminates on December 11, 2021 and the Five Year Credit Agreement terminates on December 11, 2023. No amounts were outstanding under either agreement as of ~~September~~June 30, ~~2019.~~

In September 2017, we entered into a $2,250 syndicated term loan credit agreement (the “Nova Scotia Credit Agreement”) containing (i) a three-year $750 term loan facility (the “2021 facility”), (ii) a four-year $750 term loan facility (the “2022 facility”) and (iii) a five-year $750 term loan facility (the “2023 facility”), with certain investment and commercial banks and The Bank of Nova Scotia, as administrative agent. We drew on all three facilities during the first quarter of 2018, paid the 2022 and 2023 facilities during the second quarter of 2019 and paid the 2021 facility during the third quarter of 2019. No amounts were outstanding under the Nova Scotia Credit Agreement as of September 30, 2019.

On November 20, 2018, we entered into and drew on a 4.5 year $3,550 term loan credit agreement (the “November 2018 Term Loan”) with Bank of America, N.A., as agent. We used the proceeds to finance the repayment, in part, of loans

~~AT&T INC.~~

~~SEPTEMBER 30, 2019~~

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

~~Dollars, subscribers and connections in millions, except per share and per subscriber amounts~~

outstanding under the Acquisition Term Loan. We paid $500 of these borrowings in the second quarter of 2019, and paid the remaining $3,050 in the third quarter. No amounts were outstanding under this agreement as of September 30, 2019.

On January 31, 2019, we entered into and drew on an 11-month $2,850 syndicated term loan credit agreement (the “Citibank Term Loan”), with certain investment and commercial banks and Citibank, N.A., as administrative agent. We paid the borrowings under the Citibank Term Loan during the third quarter. As of September 30, 2019, no amounts were outstanding under this agreement.2020.

In September 2019, we entered into and drew on a $1,300 term loan credit agreement containing (i) a 1.25 year $400 facility due in 2020 (BAML Tranche A Facility), (ii) a 2.25 year $400 facility due in 2021 (BAML Tranche B Facility), and (iii) a 3.25 year $500 facility due in 2022 (BAML Tranche C Facility), with Bank of America, N.A., as agent. ~~No payment had been made under these~~These facilities were repaid and terminated in the second quarter of 2020.

On April 6, 2020, we entered into and drew on a $5,500 Term Loan Credit Agreement (Term Loan) with 11 commercial banks and Bank of America, N.A. as ~~of September 30, 2019.~~lead agent. We repaid and terminated the Term Loan in May 2020.

We also utilize other external financing sources, which include various credit arrangements supported by government agencies to support network equipment purchases as well as a commercial paper program.

Each of our credit and loan agreements contains covenants that are customary for an issuer with an investment grade senior debt credit rating as well as a net debt-to-EBITDA financial ratio covenant requiring AT&T to maintain, as of the last day of each fiscal quarter, a ratio of not more than 3.5-to-1. As of ~~September~~June 30, ~~2019,~~2020, we were in compliance with the covenants for our credit facilities.

Collateral Arrangements

During ~~the year,~~2019 and 2020, we amended collateral arrangements with certain counterparties to require cash collateral posting by AT&T only when derivative market values exceed certain thresholds. Under these arrangements, counterparties are still required to post collateral. During the first ~~nine~~six months of ~~2019,~~2020, we ~~received $1,204~~deposited approximately $518 of cash collateral, on a net basis ~~primarily driven by~~as we exceeded the ~~amended arrangements.~~market value thresholds with some of the counterparties. Cash postings under these arrangements vary with changes in credit ratings and netting agreements. (See Note 7)

Other

Our total capital consists of debt (long-term debt and debt maturing within one year) and stockholders’ equity. Our capital structure does not include debt issued by our equity method investments. At ~~September~~June 30, ~~2019,~~2020, our debt ratio was ~~45.9%~~46.6%, compared to ~~49.8%~~46.8% at ~~September~~June 30, ~~2018~~2019 and ~~47.7%~~44.7% at December 31, ~~2018.~~2019. Our net debt ratio was ~~44.1%~~41.9% at ~~September~~June 30, 2020, compared to 44.5% at June 30, 2019 ~~compared to 47.4% at September 30, 2018~~ and ~~46.2%~~41.4% at December 31, ~~2018.~~2019. The debt ratio is affected by the same factors that affect total capital, and reflects our recent debt issuances and ~~repayments.~~repayments and debt acquired in business combinations.

During the first ~~nine~~six months of ~~2019,~~2020, we have received ~~$3,775~~$347 from the disposition of assets, and when combined with ~~capital received from the external investors in a wireless tower subsidiary, an amendment of collateral arrangements, and~~ working capital monetization initiatives, which include the sale of receivables, total cash received from monetization efforts, net of $1,046 of spectrum acquisitions, was approximately ~~$10,800.~~$300. We plan to continue to explore similar opportunities. In October 2019, we entered into an agreement to sell our wireless and wireline operations in Puerto Rico and the U.S. Virgin Islands for approximately $1,950, which we expect to close in the first half of 2020 (Note 8). Also in October, we entered into a sale-leaseback of certain domestic company-owned wireless towers for approximately $680, with a substantial number of the towers expected to close by year-end 2019, and an agreement to sell our stake in Central European Media Enterprises Ltd. for approximately $1,100, which we expect to close in the second quarter ofopportunities throughout 2020.

6160

AT&T INC.

~~SEPTEMBER~~JUNE 30, ~~2019~~2020

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

Dollars, subscribers and connections in millions, except per share and per subscriber amounts

DISCUSSION AND RECONCILIATION OF NON-GAAP MEASURE

We believe the following measure is relevant and useful information to investors as it is used by management as a method of comparing performance with that of many of our competitors. This supplemental measure should be considered in addition to, but not as a substitute of, our consolidated and segment financial information.

Business Solutions Reconciliation

We provide a supplemental discussion of our Business Solutions operations that is calculated by combining our Mobility and Business Wireline business units, and then adjusting to remove non-business operations. The following table presents a reconciliation of our supplemental Business Solutions results.

		Three Months Ended																Three Months Ended
		September 30, 2019								September 30, 2018								June 30, 2020								June 30, 2019
		Mobility		Business Wireline		Adjustments¹		Business Solutions		Mobility		Business Wireline		Adjustments¹		Business Solutions		Mobility		Business Wireline		Adjustments¹		Business Solutions		Mobility		Business Wireline		Adjustments¹		Business Solutions
Operating Revenues
Wireless service	$	13,930	$	-	$	(11,921)	$	2,009	$	13,828	$	-	$	(11,971)	$	1,857	$	13,669	$	-	$	(11,785)	$	1,884	$	13,824	$	-	$	(11,943)	$	1,881
Strategic and managed services		-		3,900		-		3,900		-		3,677		-		3,677		-		3,943		-		3,943		-		3,834		-		3,834
Legacy voice and data services		-		2,252		-		2,252		-		2,602		-		2,602		-		2,067		-		2,067		-		2,324		-		2,324
Other service and equipment		-		351		-		351		-		404		-		404		-		364		-		364		-		449		-		449
Wireless equipment		3,771		-		(3,077)		694		3,907		-		(3,321)		586		3,480		-		(2,895)		585		3,468		-		(2,851)		617
Total Operating Revenues		17,701		6,503		(14,998)		9,206		17,735		6,683		(15,292)		9,126		17,149		6,374		(14,680)		8,843		17,292		6,607		(14,794)		9,105

Operating Expenses
Operations and support		9,948		4,022		(8,327)		5,643		10,104		4,022		(8,551)		5,575		9,332		3,779		(7,687)		5,424		9,522		3,975		(7,985)		5,512
EBITDA		7,753		2,481		(6,671)		3,563		7,631		2,661		(6,741)		3,551		7,817		2,595		(6,993)		3,419		7,770		2,632		(6,809)		3,593
Depreciation and amortization		2,011		1,271		(1,709)		1,573		2,057		1,187		(1,759)		1,485		2,012		1,318		(1,693)		1,637		2,003		1,242		(1,700)		1,545
Total Operating Expense		11,959		5,293		(10,036)		7,216		12,161		5,209		(10,310)		7,060		11,344		5,097		(9,380)		7,061		11,525		5,217		(9,685)		7,057
Operating Income		5,742		1,210		(4,962)		1,990		5,574		1,474		(4,982)		2,066		5,805		1,277		(5,300)		1,782		5,767		1,390		(5,109)		2,048
Equity in net income (loss) of affiliates		-		(1)		-		(1)		1		(3)		(1)		(3)		-		-		-		-		-		-		-		-
Operating Contribution	$	5,742	$	1,209	$	(4,962)	$	1,989	$	5,575	$	1,471	$	(4,983)	$	2,063	$	5,805	$	1,277	$	(5,300)	$	1,782	$	5,767	$	1,390	$	(5,109)	$	2,048
¹Non-business wireless reported in the Communications segment under the Mobility business unit.	¹Non-business wireless reported in the Communications segment under the Mobility business unit.																¹Non-business wireless reported in the Communications segment under the Mobility business unit.

6261

AT&T INC.

~~SEPTEMBER~~JUNE 30, ~~2019~~2020

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

Dollars, subscribers and connections in millions, except per share and per subscriber amounts

		Nine Months Ended																Six Months Ended
		September 30, 2019								September 30, 2018								June 30, 2020								June 30, 2019
		Mobility		Business Wireline		Adjustments¹		Business Solutions		Mobility		Business Wireline		Adjustments¹		Business Solutions		Mobility		Business Wireline		Adjustments¹		Business Solutions		Mobility		Business Wireline		Adjustments¹		Business Solutions
Operating Revenues
Wireless service	$	41,383	$	-	$	(35,482)	$	5,901	$	40,594	$	-	$	(35,154)	$	5,440	$	27,637	$	-	$	(23,804)	$	3,833	$	27,453	$	-	$	(23,795)	$	3,658
Strategic and managed services		-		11,513		-		11,513		-		10,849		-		10,849		-		7,822		-		7,822		-		7,613		-		7,613
Legacy voice and data services		-		6,973		-		6,973		-		8,176		-		8,176		-		4,196		-		4,196		-		4,721		-		4,721
Other service and equipment		-		1,102		-		1,102		-		1,010		-		1,010		-		688		-		688		-		751		-		751
Wireless equipment		10,973		-		(9,071)		1,902		11,371		-		(9,634)		1,737		6,914		-		(5,619)		1,295		7,202		-		(5,995)		1,207
Total Operating Revenues		52,356		19,588		(44,553)		27,391		51,965		20,035		(44,788)		27,212		34,551		12,706		(29,423)		17,834		34,655		13,085		(29,790)		17,950

Operating Expenses
Operations and support		29,511		12,029		(24,770)		16,770		29,603		12,047		(24,926)		16,724		18,901		7,730		(15,497)		11,134		19,563		8,007		(16,444)		11,126
EBITDA		22,845		7,559		(19,783)		10,621		22,362		7,988		(19,862)		10,488		15,650		4,976		(13,926)		6,700		15,092		5,078		(13,346)		6,824
Depreciation and amortization		6,027		3,735		(5,119)		4,643		6,218		3,520		(5,330)		4,408		4,057		2,619		(3,414)		3,262		4,016		2,464		(3,410)		3,070
Total Operating Expense		35,538		15,764		(29,889)		21,413		35,821		15,567		(30,256)		21,132		22,958		10,349		(18,911)		14,396		23,579		10,471		(19,854)		14,196
Operating Income		16,818		3,824		(14,664)		5,978		16,144		4,468		(14,532)		6,080		11,593		2,357		(10,512)		3,438		11,076		2,614		(9,936)		3,754
Equity in net income (loss) of affiliates		(1)		-		1		-		-		(2)		-		(2)		-		-		-		-		-		-		-		-
Operating Contribution	$	16,817	$	3,824	$	(14,663)	$	5,978	$	16,144	$	4,466	$	(14,532)	$	6,078	$	11,593	$	2,357	$	(10,512)	$	3,438	$	11,076	$	2,614	$	(9,936)	$	3,754
¹Non-business wireless reported in the Communications segment under the Mobility business unit.	¹Non-business wireless reported in the Communications segment under the Mobility business unit.																¹Non-business wireless reported in the Communications segment under the Mobility business unit.

6362

AT&T INC.

~~SEPTEMBER~~JUNE 30, ~~2019~~2020

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Dollars in millions except per share amounts

At ~~September~~June 30, ~~2019,~~2020, we had interest rate swaps with a notional value of ~~$853~~$21 and a fair value of ~~$2.~~$(3).

We have fixed-to-fixed and floating-to-fixed cross-currency swaps on foreign currency-denominated debt instruments with a U.S. dollar notional value of ~~$42,792~~$45,606 to hedge our exposure to changes in foreign currency exchange rates. These derivatives have been designated at inception and qualify as cash flow hedges with a net fair value of ~~$(4,483)~~$(6,700) at ~~September~~June 30, ~~2019.~~2020. We have no rate locks ~~with a notional value of $3,500 and a fair value of $(225)~~ at ~~September~~June 30, ~~2019.~~2020.

We have foreign exchange contracts with a U.S. dollar notional value of ~~$473~~$298 to provide currency at a fixed rate to hedge a portion of the exchange risk involved in foreign currency-denominated transactions. These foreign exchange contracts include fair value hedges, cash flow hedges and economic (nonqualifying) hedges with a total net fair value of ~~$79~~$4 at ~~September~~June 30, ~~2019.~~2020.

We have designated €1,450 million aggregate principal amount of debt as a hedge of the variability of some of the Euro-denominated net investments of our subsidiaries. The gain or loss on the debt that is designated as, and is effective as, an economic hedge of the net investment in a foreign operation is recorded as a currency translation adjustment within accumulated other comprehensive income, net on the consolidated balance sheet.

Item 4. Controls and Procedures

The registrant maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed by the registrant is recorded, processed, summarized, accumulated and communicated to its management, including its principal executive and principal financial officers, to allow timely decisions regarding required disclosure, and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms. The chief executive officer and chief financial officer have performed an evaluation of the effectiveness of the design and operation of the registrant’s disclosure controls and procedures as of ~~September~~June 30, ~~2019.~~2020. Based on that evaluation, the chief executive officer and chief financial officer concluded that the registrant’s disclosure controls and procedures were effective as of ~~September~~June 30, ~~2019.~~2020.

There have not been any changes in our internal control over financial reporting during our most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. Due to the COVID-19 pandemic, most of our corporate employees are working remotely. We continue to monitor and assess the COVID-19 situation on our internal controls over financial reporting to address any potential impact on their design and operating effectiveness.

6463

AT&T INC.

~~SEPTEMBER~~JUNE 30, ~~2019~~2020

CAUTIONARY LANGUAGE CONCERNING FORWARD-LOOKING STATEMENTS

Information set forth in this report contains forward-looking statements that are subject to risks and uncertainties, and actual results could differ materially. Many of these factors are discussed in more detail in the “Risk Factors” section. We claim the protection of the safe harbor for forward-looking statements provided by the Private Securities Litigation Reform Act of 1995.

The following factors could cause our future results to differ materially from those expressed in the forward-looking statements:



•The severity, magnitude and duration of the COVID-19 pandemic and containment, mitigation and other measures taken in response, including the potential impacts of these matters on our business and operations.

•Our inability to predict the extent to which the COVID-19 pandemic and related impacts will continue to impact our business operations, financial performance and results of operations.

•Adverse economic, political and/or capital access changes in the markets served by us or in countries in which we have significant investments and/or operations, including the impact on customer demand and our ability and our suppliers’ ability to access financial markets at favorable rates and terms.

•Increases in our benefit plans’ costs, including increases due to adverse changes in the United States and foreign securities markets, resulting in worse-than-assumed investment returns and discount rates; adverse changes in mortality assumptions; adverse medical cost trends; and unfavorable or delayed implementation or repeal of healthcare legislation, regulations or related court decisions.

•The final outcome of FCC and other federal, state or foreign government agency proceedings (including judicial review, if any, of such proceedings) and legislative efforts involving issues that are important to our business, including, without limitation, ~~special access and business data services;~~ pending Notices of Apparent Liability; the transition from legacy technologies to IP-based infrastructure, including the withdrawal of legacy TDM-based services; universal service; broadband deployment; wireless equipment siting ~~regulations;~~regulations and, in particular, siting for 5G service; E911 services; competition policy; privacy; net neutrality; multichannel video programming distributor services and equipment; content licensing and copyright protection; availability of new spectrum on fair and balanced terms; and wireless and satellite license awards and renewals.

•Enactment of additional state, local, federal and/or foreign regulatory and tax laws and regulations, or changes to existing standards and actions by tax agencies and judicial authorities including the resolution of disputes with any taxing jurisdictions, pertaining to our subsidiaries and foreign investments, including laws and regulations that reduce our incentive to invest in our networks, resulting in lower revenue growth and/or higher operating costs.

•Potential changes to the electromagnetic spectrum currently used for broadcast television and satellite distribution being considered by the FCC could negatively impact WarnerMedia’s ability to deliver linear network feeds of its domestic cable networks to its affiliates, and in some cases, WarnerMedia’s ability to produce high-value news and entertainment programming on location.

•U.S. and foreign laws and regulations regarding intellectual property rights protection and privacy, personal data protection and user consent are complex and rapidly evolving and could result in ~~impact~~adverse impacts to our business plans, increased costs, or claims against us that may harm our reputation.

•The ability of our competitors to offer product/service offerings at lower prices due to lower cost structures and regulatory and legislative actions adverse to us, including non-regulation of comparable alternative technologies and/or government-owned or subsidized networks.

•Disruption in our supply chain for a number of reasons, including, difficulties in obtaining export licenses for certain technology, inability to secure component parts, general business disruption, natural disasters, safety issues, economic and political instability and public health emergencies.

•The continued development and delivery of attractive and profitable wireless, video and broadband offerings and ~~devices;~~devices, and, in particular, the success of our new HBO Max platform; the extent to which regulatory and build-out requirements apply to our offerings; our ability to match speeds offered by our competitors and the availability, cost and/or reliability of the various technologies and/or content required to provide such offerings.

•Our ability to generate advertising revenue from attractive video content, especially from WarnerMedia, in the face of unpredictable and rapidly evolving public viewing ~~habits.~~habits and legal restrictions on the use of personal data.

•The availability and cost and our ability to adequately fund additional wireless spectrum and network upgrades; and regulations and conditions relating to spectrum use, licensing, obtaining additional spectrum, technical standards and deployment and usage, including network management rules.

•Our ability to manage growth in wireless data services, including network quality and acquisition of adequate spectrum at reasonable costs and terms.

64

AT&T INC.

JUNE 30, 2020

CAUTIONARY LANGUAGE CONCERNING FORWARD-LOOKING STATEMENTS

•The outcome of pending, threatened or potential litigation (which includes arbitrations), including, without limitation, patent and product safety claims by or against third parties.

•The impact from major equipment or software failures on our networks, including satellites operated by DIRECTV; the effect of security breaches related to the network or customer information; our inability to obtain handsets, equipment/software or have handsets, equipment/software serviced in a timely and cost-effective manner from suppliers; and in the case of satellites launched, timely provisioning of services from vendors; or severe weather conditions

~~AT&T INC.~~

~~SEPTEMBER 30, 2019~~

~~CAUTIONARY LANGUAGE CONCERNING FORWARD-LOOKING STATEMENTS~~

including flooding and hurricanes, natural disasters including earthquakes and forest fires, pandemics, energy shortages, wars or terrorist attacks.

•The issuance by the Financial Accounting Standards Board or other accounting oversight bodies of new accounting standards or changes to existing standards.

•Our ability to successfully integrate our WarnerMedia operations, including the ability to manage various businesses in widely dispersed business locations and with decentralized management.

•~~Our ability to take advantage of the desire of advertisers to change traditional video advertising models.~~

~~Our increased exposure to foreign economies, including foreign exchange fluctuations as well as regulatory and political uncertainty.~~

Changes in our corporate strategies, such as changing network-related requirements or acquisitions and dispositions, which may require significant amounts of cash or stock, to respond to competition and regulatory, legislative and technological developments.

•The uncertainty surrounding further congressional action to address spending reductions, which may result in a significant decrease in government spending and reluctance of businesses and consumers to spend in general.

Readers are cautioned that other factors discussed in this report, although not enumerated here, also could materially affect our future earnings.

6665

AT&T INC.

~~SEPTEMBER~~JUNE 30, ~~2019~~2020

PART II – OTHER INFORMATION

Dollars in millions except per share amounts

Item 1A. Risk Factors

We discuss in our Annual Report on Form 10-K for the year ended December 31, 2019 and in our Quarterly Report on Form 10-Q for the quarter ended March 31, 2020 various risks that may materially affect our business. We use this section to update this discussion to reflect material ~~developments since our Form 10-K was filed. For~~developments. For the ~~third~~second quarter of ~~2019,~~2020, there were no such material developments.

6766

AT&T INC.

~~SEPTEMBER~~JUNE 30, ~~2019~~2020

PART II – OTHER INFORMATION - CONTINUED

Dollars in millions except per share amounts

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

(c) A summary of our repurchases of common stock during the ~~third~~second quarter of ~~2019~~2020 is as follows:

(a)

(b)

(c)

(d)
Period
Total Number of Shares (or Units) Purchased ^{1, 2, 3}

Average Price Paid Per Share (or Unit)

Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs¹

Maximum Number (or Approximate Dollar Value) of Shares (or Units) That May Yet Be Purchased Under The Plans or Programs

~~July~~April 1, ~~2019~~2020 -
~~July 31, 2019~~April 30, 2020
~~220,880~~48,894

$
~~33.45~~33.41

-

~~375,662,000~~177,942,230
~~August~~May 1, ~~2019~~2020 -
~~August~~May 31, ~~2019~~2020
~~4,784,883~~145,630

~~33.73~~
~~4,764,343~~
~~370,897,657~~
~~September 1, 2019 -~~
~~September 30, 2019~~
~~447,419~~
~~37.32~~33.33

-

~~370,897,657~~177,942,230
June 1, 2020 -
June 30, 2020
937,490
29.85
-
177,942,230
Total
~~5,453,182~~1,132,014

$
~~34.01~~30.45

~~4,764,343~~-

¹
In March 2014, our Board of Directors approved an ~~additional~~ authorization to repurchase up to 300 million shares of our common

stock. ~~In March 2013, our Board of Directors authorized the repurchase of up to an additional 300 million shares of our common stock.~~
The ~~authorizations have~~authorization has no expiration date.
²
Of the shares repurchased, ~~258,198~~556,889 shares were acquired through the withholding of taxes on the vesting of restricted stock

and performance shares or on the exercise price of options.
³
Of the shares repurchased, ~~430,641~~575,125 shares were acquired through reimbursements from AT&T maintained Voluntary Employee Benefit

Association (VEBA) trusts.

68

~~AT&T INC.~~
~~SEPTEMBER 30, 2019~~
Item 6. Exhibits

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

~~Exhibit~~
~~Number~~
~~Exhibit Description~~
~~10-a~~
~~AT&T Health Plan~~
~~10-b~~
~~Stock Purchase and Deferral Plan~~
~~10-c~~
~~Agreement and Release of Waiver of Claims between AT&T Services, Inc. and John Donovan (Exhibit 10.1 to Form 8-K filed on September 6, 2019)~~
31
~~Rule 13a-14(a)/15d-14(a) Certifications~~
~~31.1 Certification of Principal Executive Officer~~
~~31.2 Certification of Principal Financial Officer~~
32
~~Section 1350 Certifications~~
~~101~~
The following financial statements from the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2019, formatted in Inline XBRL: (i) Consolidated Statements of Cash Flows, (ii) Consolidated Statements of Operations, (iii) Consolidated Statements of Comprehensive Income, (iv) Consolidated Balance Sheets, and (v) Notes to Consolidated Financial Statements, tagged as blocks of text and including detailed tags.
~~104~~
~~The cover page from the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2019, (formatted as Inline XBRL and contained in Exhibit 101).~~

69
Exhibit
Number
Exhibit Description
3.1
Bylaws (Exhibit 3.1 to Form 8-K filed on June 26, 2020)
4.1
Description of AT&T's Securities Registered Under Section 12 of the Exchange Act
10.1
Supplemental Life Insurance Plan (Exhibit 10.1 to Form 8-K filed on June 26, 2020)
10.2
Agreement between Jason Kilar and WarnerMedia LLC
31
Rule 13a-14(a)/15d-14(a) Certifications
31.1 Certification of Principal Executive Officer
31.2 Certification of Principal Financial Officer
32
Section 1350 Certifications
101
The following financial statements from the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2020, formatted in Inline XBRL: (i) Consolidated Statements of Cash Flows, (ii) Consolidated Statements of Operations, (iii) Consolidated Statements of Comprehensive Income, (iv) Consolidated Balance Sheets, and (v) Notes to Consolidated Financial Statements, tagged as blocks of text and including detailed tags.
104
The cover page from the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2020, (formatted as Inline XBRL and contained in Exhibit 101).
67

SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

~~Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.~~August 5, 2020
AT&T Inc.

~~November 4, 2019~~
~~AT&T Inc.~~
~~/s/ John J. Stephens~~
~~John J. Stephens~~
~~Senior Executive Vice President~~
~~and Chief Financial Officer~~

70/s/ John J. Stephens
John J. Stephens
Senior Executive Vice President
and Chief Financial Officer
68

Assets acquired
Cash	$	1,889
Accounts receivable		9,020
All other current assets		2,913
Noncurrent inventory and theatrical film and television production costs		5,591
Property, plant and equipment		4,693
Intangible assets subject to amortization
Distribution network		18,040
Released television and film content		10,806
Trademarks and trade names		18,081
Other		10,300
Investments and other assets		9,438
Goodwill		38,801
Total assets acquired		129,572

Liabilities assumed
Current liabilities, excluding current portion of long-term debt		8,294
Debt maturing within one year		4,471
Long-term debt		18,394
Other noncurrent liabilities		19,054
Total liabilities assumed		50,213
Net assets acquired		79,359
Noncontrolling interest		(1)
Aggregate value of consideration paid	$	79,358

XANDR SEGMENT	Third Quarter						Nine-Month Period
					Percent						Percent
	2019		2018		Change		2019		2018		Change
Operating revenues	$	504	$	445	13.3	%	$	1,415	$	1,174	20.5	%

Operating expenses
Operations and support		162		109	48.6			469		218	-
Depreciation and amortization		15		3	-			41		4	-
Total Operating Expenses		177		112	58.0			510		222	-
Operating Income		327		333	(1.8)			905		952	(4.9)
Equity in Net Income of Affiliates		-		-	-			-		-	-
Operating Contribution	$	327	$	333	(1.8)	%	$	905	$	952	(4.9)	%