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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 ~~March 31,~~September 30, 2021


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number 001-8610

AT&T INC.

Incorporated under the laws of the State of Delaware

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

208 S. Akard St., Dallas, Texas 75202

Telephone Number: (210) 821-4105

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


		Name of each exchange
Title of each class	Trading Symbol(s)	on which registered
Common Shares (Par Value $1.00 Per Share)	T	New York Stock Exchange
Depositary Shares, each representing a 1/1000th interest in a share of 5.000% Perpetual Preferred Stock, Series A	T PRA	New York Stock Exchange
Depositary Shares, each representing a 1/1000th interest in a share of 4.750% Perpetual Preferred Stock, Series C	T PRC	New York Stock Exchange
AT&T Inc. 2.650% Global Notes due December 17, 2021	T 21B	New York Stock Exchange
AT&T Inc. 1.450% Global Notes due June 1, 2022	T 22B	New York Stock Exchange
AT&T Inc. 2.500% Global Notes due March 15, 2023	T 23	New York Stock Exchange
AT&T Inc. 2.750% Global Notes due May 19, 2023	T 23C	New York Stock Exchange
AT&T Inc. Floating Rate Global Notes due September 5, 2023	T 23D	New York Stock Exchange
AT&T Inc. 1.050% Global Notes due September 5, 2023	T 23E	New York Stock Exchange
AT&T Inc. 1.300% Global Notes due September 5, 2023	T 23A	New York Stock Exchange
AT&T Inc. 1.950% Global Notes due September 15, 2023	T 23F	New York Stock Exchange
AT&T Inc. 2.400% Global Notes due March 15, 2024	T 24A	New York Stock Exchange
AT&T Inc. 3.500% Global Notes due December 17, 2025	T 25	New York Stock Exchange
AT&T Inc. 0.250% Global Notes due March 4, 2026	T 26E	New York Stock Exchange
AT&T Inc. 1.800% Global Notes due September 5, 2026	T 26D	New York Stock Exchange


		~~Name of each exchange~~
~~Title of each class~~	~~Trading Symbol(s)~~	~~on which registered~~
AT&T Inc. 2.900% Global Notes due December 4, 2026	T 26A	New York Stock Exchange
AT&T Inc. 1.600% Global Notes due May 19, 2028	T 28C	New York Stock Exchange


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

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

Yes ☒ No ☐

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

Yes ☒ No ☐

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


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

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

Yes ☐ No ☐

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

Yes ☐ No ☒

At ~~April 30,~~October 29, 2021, there were ~~7,140~~7,141 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				Three months ended						Nine months ended
		March 31,				September 30,						September 30,
				2021			2020			2021		2020		2021		2020
Operating Revenues	Operating Revenues								Operating Revenues
Service	Service			$	38,504		$	38,883	Service	$	34,843	$	37,782	$	112,303	$	113,716
Equipment	Equipment			5,435			3,896		Equipment	5,079		4,558		15,603		12,353
Total operating revenues	Total operating revenues			43,939			42,779		Total operating revenues	39,922		42,340		127,906		126,069

Operating Expenses	Operating Expenses								Operating Expenses
Cost of revenues	Cost of revenues								Cost of revenues
Equipment	Equipment			5,556			4,092		Equipment	5,427		4,552		16,324		12,622
Broadcast, programming and operations	Broadcast, programming and operations			7,538			6,754		Broadcast, programming and operations	4,750		6,912		19,891		19,555
Other cost of revenues (exclusive of depreciation and amortization shown separately below)	Other cost of revenues (exclusive of depreciation and amortization shown separately below)			7,993			8,342		Other cost of revenues (exclusive of depreciation and amortization shown separately below)	7,649		8,375		23,797		24,833
Selling, general and administrative	Selling, general and administrative			9,382			8,760		Selling, general and administrative	9,207		9,266		27,950		27,857
Asset impairments and abandonments	Asset impairments and abandonments			0			123		Asset impairments and abandonments	161		73		4,716		2,515
Depreciation and amortization	Depreciation and amortization			5,809			7,222		Depreciation and amortization	5,619		7,030		17,189		21,537
Total operating expenses	Total operating expenses			36,278			35,293		Total operating expenses	32,813		36,208		109,867		108,919
Operating Income	Operating Income			7,661			7,486		Operating Income	7,109		6,132		18,039		17,150
Other Income (Expense)	Other Income (Expense)								Other Income (Expense)
Interest expense	Interest expense			(1,870)			(2,018)		Interest expense	(1,667)		(1,972)		(5,221)		(6,031)
Equity in net income (loss) of affiliates	Equity in net income (loss) of affiliates			52			(6)		Equity in net income (loss) of affiliates	91		5		184		(11)
Other income (expense) — net	Other income (expense) — net			4,221			803		Other income (expense) — net	2,279		(231)		7,499		1,589
Total other income (expense)	Total other income (expense)			2,403			(1,221)		Total other income (expense)	703		(2,198)		2,462		(4,453)
Income Before Income Taxes	Income Before Income Taxes			10,064			6,265		Income Before Income Taxes	7,812		3,934		20,501		12,697
Income tax expense	Income tax expense			2,122			1,302		Income tax expense	1,539		766		4,412		3,003
Net Income	Net Income			7,942			4,963		Net Income	6,273		3,168		16,089		9,694
Less: Net Income Attributable to Noncontrolling Interest	Less: Net Income Attributable to Noncontrolling Interest			(392)			(353)		Less: Net Income Attributable to Noncontrolling Interest	(355)		(352)		(1,051)		(987)
Net Income Attributable to AT&T	Net Income Attributable to AT&T			$	7,550		$	4,610	Net Income Attributable to AT&T	$	5,918	$	2,816	$	15,038	$	8,707
Less: Preferred Stock Dividends	Less: Preferred Stock Dividends			(50)			(32)		Less: Preferred Stock Dividends	(50)		(54)		(156)		(138)
Net Income Attributable to Common Stock	Net Income Attributable to Common Stock			$	7,500		$	4,578	Net Income Attributable to Common Stock	$	5,868	$	2,762	$	14,882	$	8,569
Basic Earnings Per Share Attributable to Common Stock	Basic Earnings Per Share Attributable to Common Stock			$	1.04		$	0.63	Basic Earnings Per Share Attributable to Common Stock	$	0.82	$	0.39	$	2.07	$	1.19
Diluted Earnings Per Share Attributable to Common Stock	Diluted Earnings Per Share Attributable to Common Stock			$	1.04		$	0.63	Diluted Earnings Per Share Attributable to Common Stock	$	0.82	$	0.39	$	2.07	$	1.19
Weighted Average Number of Common Shares Outstanding — Basic (in millions)	Weighted Average Number of Common Shares Outstanding — Basic (in millions)			7,161			7,187		Weighted Average Number of Common Shares Outstanding — Basic (in millions)	7,171		7,147		7,167		7,160
Weighted Average Number of Common Shares Outstanding — with Dilution (in millions)	Weighted Average Number of Common Shares Outstanding — with Dilution (in millions)			7,188			7,214		Weighted Average Number of Common Shares Outstanding — with Dilution (in millions)	7,202		7,173		7,197		7,186

See Notes to Consolidated Financial Statements.


AT&T INC.	AT&T INC.							AT&T INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME	CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME					CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Dollars in millions	Dollars in millions							Dollars in millions
(Unaudited)	(Unaudited)							(Unaudited)
		Three months ended			Three months ended						Nine months ended
		March 31,			September 30,						September 30,
			2021			2020			2021		2020		2021		2020
Net income	Net income		$	7,942		$	4,963	Net income	$	6,273	$	3,168	$	16,089	$	9,694
Other comprehensive income (loss), net of tax:	Other comprehensive income (loss), net of tax:							Other comprehensive income (loss), net of tax:
Foreign currency:	Foreign currency:							Foreign currency:
Translation adjustment (includes $(4) and $(51) attributable to noncontrolling interest), net of taxes of $(37) and $(62)			(109)			(1,854)
Translation adjustment (includes $(4), $(2), $(2) and $(61) attributable to noncontrolling interest), net of taxes of $(17), $47, $(13) and $(150)								Translation adjustment (includes $(4), $(2), $(2) and $(61) attributable to noncontrolling interest), net of taxes of $(17), $47, $(13) and $(150)	(86)		90		106		(1,459)
Securities:	Securities:							Securities:
Net unrealized gains (losses), net of taxes of $(18) and $22			(55)			66
Reclassification adjustment included in net income, net of taxes of $(1) and $0			(2)			0
Net unrealized gains (losses), net of taxes of $(1), $1, $(13) and $28								Net unrealized gains (losses), net of taxes of $(1), $1, $(13) and $28	(4)		1		(39)		81
Reclassification adjustment included in net income, net of taxes of $0, $0, $(1) and $0								Reclassification adjustment included in net income, net of taxes of $0, $0, $(1) and $0	(1)		—		(4)		—
Derivative instruments:	Derivative instruments:							Derivative instruments:
Net unrealized gains (losses), net of taxes of $136 and $(971)			511			(3,657)
Reclassification adjustment included in net income, net of taxes of $6 and $0			24			0
Net unrealized gains (losses), net of taxes of $(54), $229, $(160) and $(574)								Net unrealized gains (losses), net of taxes of $(54), $229, $(160) and $(574)	(195)		860		(593)		(2,166)
Reclassification adjustment included in net income, net of taxes of $4, $7, $16 and $11								Reclassification adjustment included in net income, net of taxes of $4, $7, $16 and $11	11		27		57		44
Defined benefit postretirement plans:	Defined benefit postretirement plans:							Defined benefit postretirement plans:
Amortization of net prior service credit included in net income, net of taxes of $(165) and $(151)			(504)			(461)
Amortization of net prior service credit included in net income, net of taxes of $(165), $(150), $(495) and $(451)								Amortization of net prior service credit included in net income, net of taxes of $(165), $(150), $(495) and $(451)	(505)		(460)		(1,516)		(1,382)
Other comprehensive income (loss)	Other comprehensive income (loss)		(135)			(5,906)		Other comprehensive income (loss)	(780)		518		(1,989)		(4,882)
Total comprehensive income (loss)			7,807			(943)
Total comprehensive income								Total comprehensive income	5,493		3,686		14,100		4,812
Less: Total comprehensive income attributable to noncontrolling interest	Less: Total comprehensive income attributable to noncontrolling interest		(388)			(302)		Less: Total comprehensive income attributable to noncontrolling interest	(351)		(350)		(1,049)		(926)
Total Comprehensive Income (Loss) Attributable to AT&T			$	7,419		$	(1,245)
Total Comprehensive Income Attributable to AT&T								Total Comprehensive Income Attributable to AT&T	$	5,142	$	3,336	$	13,051	$	3,886

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
		March 31, 2021		December 31, 2020			September 30,		December 31,
							2021		2020
Assets	Assets	(Unaudited)				Assets	(Unaudited)
Current Assets	Current Assets					Current Assets
Cash and cash equivalents	Cash and cash equivalents	$	11,342	$	9,740	Cash and cash equivalents	$	21,270	$	9,740
Accounts receivable – net of related allowances for credit loss of $954 and $1,221		16,971		20,215
Accounts receivable – net of related allowances for credit loss of $806 and $1,221						Accounts receivable – net of related allowances for credit loss of $806 and $1,221	16,304		20,215
Inventories	Inventories	3,347		3,695		Inventories	3,088		3,695
Prepaid and other current assets	Prepaid and other current assets	31,094		18,358		Prepaid and other current assets	16,568		18,358
Total current assets	Total current assets	62,754		52,008		Total current assets	57,230		52,008
Noncurrent Inventories and Theatrical Film and Television Production Costs	Noncurrent Inventories and Theatrical Film and Television Production Costs	15,626		14,752		Noncurrent Inventories and Theatrical Film and Television Production Costs	17,811		14,752
Property, plant and equipment	Property, plant and equipment	322,534		327,751		Property, plant and equipment	325,866		327,751
Less: accumulated depreciation and amortization	Less: accumulated depreciation and amortization	(197,927)		(200,436)		Less: accumulated depreciation and amortization	(201,447)		(200,436)
Property, Plant and Equipment – Net	Property, Plant and Equipment – Net	124,607		127,315		Property, Plant and Equipment – Net	124,419		127,315
Goodwill	Goodwill	135,168		135,259		Goodwill	133,663		135,259
Licenses – Net	Licenses – Net	87,947		93,840		Licenses – Net	112,423		93,840
Trademarks and Trade Names – Net	Trademarks and Trade Names – Net	23,043		23,297		Trademarks and Trade Names – Net	22,097		23,297
Distribution Networks – Net	Distribution Networks – Net	13,334		13,793		Distribution Networks – Net	12,408		13,793
Other Intangible Assets – Net	Other Intangible Assets – Net	13,384		15,386		Other Intangible Assets – Net	12,338		15,386
Investments in and Advances to Equity Affiliates	Investments in and Advances to Equity Affiliates	1,805		1,780		Investments in and Advances to Equity Affiliates	8,629		1,780
Operating Lease Right-Of-Use Assets	Operating Lease Right-Of-Use Assets	24,415		24,714		Operating Lease Right-Of-Use Assets	24,341		24,714
Deposits on Wireless Licenses		23,406		0
Other Assets	Other Assets	21,496		23,617		Other Assets	21,748		23,617
Total Assets	Total Assets	$	546,985	$	525,761	Total Assets	$	547,107	$	525,761
Liabilities and Stockholders’ Equity	Liabilities and Stockholders’ Equity					Liabilities and Stockholders’ Equity
Current Liabilities	Current Liabilities					Current Liabilities
Debt maturing within one year	Debt maturing within one year	$	19,505	$	3,470	Debt maturing within one year	$	23,755	$	3,470
Note payable to DIRECTV						Note payable to DIRECTV	1,180		—
Accounts payable and accrued liabilities	Accounts payable and accrued liabilities	48,245		50,051		Accounts payable and accrued liabilities	47,926		50,051
Advanced billings and customer deposits	Advanced billings and customer deposits	5,029		6,176		Advanced billings and customer deposits	4,991		6,176
Dividends payable	Dividends payable	3,829		3,741		Dividends payable	3,749		3,741
Total current liabilities	Total current liabilities	76,608		63,438		Total current liabilities	81,601		63,438
Long-Term Debt	Long-Term Debt	160,694		153,775		Long-Term Debt	155,406		153,775
Deferred Credits and Other Noncurrent Liabilities	Deferred Credits and Other Noncurrent Liabilities					Deferred Credits and Other Noncurrent Liabilities
Deferred income taxes	Deferred income taxes	61,886		60,472		Deferred income taxes	63,405		60,472
Postemployment benefit obligation	Postemployment benefit obligation	14,723		18,276		Postemployment benefit obligation	14,158		18,276
Operating lease liabilities	Operating lease liabilities	21,766		22,202		Operating lease liabilities	21,510		22,202
Other noncurrent liabilities	Other noncurrent liabilities	28,229		28,358		Other noncurrent liabilities	29,466		28,358
Noncurrent portion of note payable to DIRECTV						Noncurrent portion of note payable to DIRECTV	258		—
Total deferred credits and other noncurrent liabilities	Total deferred credits and other noncurrent liabilities	126,604		129,308		Total deferred credits and other noncurrent liabilities	128,797		129,308
Stockholders’ Equity	Stockholders’ Equity					Stockholders’ Equity
Preferred stock ($1 par value, 10,000,000 authorized):
Series A (48,000 issued and outstanding at March 31, 2021 and December 31, 2020)		0		0
Series B (20,000 issued and outstanding at March 31, 2021 and December 31, 2020)		0		0
Series C (70,000 issued and outstanding at March 31, 2021 and December 31, 2020)		0		0
Common stock ($1 par value, 14,000,000,000 authorized at March 31, 2021 and December 31, 2020: issued 7,620,748,598 at March 31, 2021 and December 31, 2020)		7,621		7,621
Preferred stock ($1 par value, 10,000,000 authorized at September 30, 2021 and December 31, 2020):						Preferred stock ($1 par value, 10,000,000 authorized at September 30, 2021 and December 31, 2020):
Series A (48,000 issued and outstanding at September 30, 2021 and December 31, 2020)						Series A (48,000 issued and outstanding at September 30, 2021 and December 31, 2020)	—		—
Series B (20,000 issued and outstanding at September 30, 2021 and December 31, 2020)						Series B (20,000 issued and outstanding at September 30, 2021 and December 31, 2020)	—		—
Series C (70,000 issued and outstanding at September 30, 2021 and December 31, 2020)						Series C (70,000 issued and outstanding at September 30, 2021 and December 31, 2020)	—		—
Common stock ($1 par value, 14,000,000,000 authorized at September 30, 2021 and December 31, 2020: issued 7,620,748,598 at September 30, 2021 and December 31, 2020)						Common stock ($1 par value, 14,000,000,000 authorized at September 30, 2021 and December 31, 2020: issued 7,620,748,598 at September 30, 2021 and December 31, 2020)	7,621		7,621
Additional paid-in capital	Additional paid-in capital	129,856		130,175		Additional paid-in capital	130,035		130,175
Retained earnings	Retained earnings	41,154		37,457		Retained earnings	41,091		37,457
Treasury stock (480,892,174 at March 31, 2021 and 494,826,583 at December 31, 2020, at cost)		(17,342)		(17,910)
Treasury stock (480,656,332 at September 30, 2021 and 494,826,583 at December 31, 2020, at cost)						Treasury stock (480,656,332 at September 30, 2021 and 494,826,583 at December 31, 2020, at cost)	(17,319)		(17,910)
Accumulated other comprehensive income	Accumulated other comprehensive income	4,199		4,330		Accumulated other comprehensive income	2,343		4,330
Noncontrolling interest	Noncontrolling interest	17,591		17,567		Noncontrolling interest	17,532		17,567
Total stockholders’ equity	Total stockholders’ equity	183,079		179,240		Total stockholders’ equity	181,303		179,240
Total Liabilities and Stockholders’ Equity	Total Liabilities and Stockholders’ Equity	$	546,985	$	525,761	Total Liabilities and Stockholders’ Equity	$	547,107	$	525,761

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)	(Unaudited)					(Unaudited)
		Three months ended					Nine months ended
		March 31,					September 30,
		2021		2020			2021		2020
Operating Activities	Operating Activities					Operating Activities
Net income	Net income	$	7,942	$	4,963	Net income	$	16,089	$	9,694
Adjustments to reconcile net income to net cash provided by operating activities:	Adjustments to reconcile net income to net cash provided by operating activities:					Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	Depreciation and amortization	5,809		7,222		Depreciation and amortization	17,189		21,537
Amortization of film and television costs	Amortization of film and television costs	2,886		2,269		Amortization of film and television costs	8,421		6,448
Undistributed earnings from investments in equity affiliates		(47)		39
Distributed (undistributed) earnings from investments in equity affiliates						Distributed (undistributed) earnings from investments in equity affiliates	102		108
Provision for uncollectible accounts	Provision for uncollectible accounts	321		780		Provision for uncollectible accounts	858		1,611
Deferred income tax expense	Deferred income tax expense	1,848		259		Deferred income tax expense	3,187		2,248
Net (gain) loss on investments, net of impairments	Net (gain) loss on investments, net of impairments	(119)		(646)		Net (gain) loss on investments, net of impairments	(965)		(689)
Pension and postretirement benefit expense (credit)	Pension and postretirement benefit expense (credit)	(974)		(748)		Pension and postretirement benefit expense (credit)	(2,870)		(2,245)
Actuarial (gain) loss on pension and postretirement benefits	Actuarial (gain) loss on pension and postretirement benefits	(2,844)		0		Actuarial (gain) loss on pension and postretirement benefits	(3,021)		63
Asset impairments and abandonments	Asset impairments and abandonments	0		123		Asset impairments and abandonments	4,716		2,515
Changes in operating assets and liabilities:	Changes in operating assets and liabilities:					Changes in operating assets and liabilities:
Receivables	Receivables	751		1,695		Receivables	57		2,321
Other current assets, inventories and theatrical film and television production costs	Other current assets, inventories and theatrical film and television production costs	(3,518)		(3,267)		Other current assets, inventories and theatrical film and television production costs	(11,928)		(7,836)
Accounts payable and other accrued liabilities	Accounts payable and other accrued liabilities	(3,060)		(3,884)		Accounts payable and other accrued liabilities	(2,254)		(4,905)
Equipment installment receivables and related sales	Equipment installment receivables and related sales	1,190		535		Equipment installment receivables and related sales	715		(148)
Deferred customer contract acquisition and fulfillment costs	Deferred customer contract acquisition and fulfillment costs	244		105		Deferred customer contract acquisition and fulfillment costs	316		453
Postretirement claims and contributions	Postretirement claims and contributions	(343)		(111)		Postretirement claims and contributions	(425)		(409)
Other - net	Other - net	(159)		(468)		Other - net	516		2,282
Total adjustments	Total adjustments	1,985		3,903		Total adjustments	14,614		23,354
Net Cash Provided by Operating Activities	Net Cash Provided by Operating Activities	9,927		8,866		Net Cash Provided by Operating Activities	30,703		33,048
Investing Activities	Investing Activities					Investing Activities
Capital expenditures, including $(61) and $(28) of interest during construction		(4,033)		(4,966)
Capital expenditures						Capital expenditures	(12,696)		(13,283)
Acquisitions, net of cash acquired	Acquisitions, net of cash acquired	(22,884)		(100)		Acquisitions, net of cash acquired	(23,533)		(1,215)
Dispositions	Dispositions	51		118		Dispositions	9,086		428
(Purchases), sales and settlements of securities and investments, net		(4)		(6)
Advances to and investments in equity affiliates, net		18		(68)
Other - net						Other - net	(190)		344

Net Cash Used in Investing Activities	Net Cash Used in Investing Activities	(26,852)		(5,022)		Net Cash Used in Investing Activities	(27,333)		(13,726)
Financing Activities	Financing Activities					Financing Activities
Net change in short-term borrowings with original maturities of three months or less	Net change in short-term borrowings with original maturities of three months or less	687		1,742		Net change in short-term borrowings with original maturities of three months or less	630		(17)
Issuance of other short-term borrowings	Issuance of other short-term borrowings	15,485		1,390		Issuance of other short-term borrowings	17,476		9,440
Repayment of other short-term borrowings						Repayment of other short-term borrowings	(2,448)		(7,710)
Issuance of long-term debt	Issuance of long-term debt	9,097		4,357		Issuance of long-term debt	9,931		31,987
Repayment of long-term debt	Repayment of long-term debt	(902)		(4,422)		Repayment of long-term debt	(1,653)		(37,583)
Note payable to DIRECTV, net of payments of $361						Note payable to DIRECTV, net of payments of $361	1,439		—
Payment of vendor financing	Payment of vendor financing	(1,690)		(791)		Payment of vendor financing	(4,013)		(1,965)
Issuance of preferred stock	Issuance of preferred stock	0		3,869		Issuance of preferred stock	—		3,869
Purchase of treasury stock	Purchase of treasury stock	(176)		(5,463)		Purchase of treasury stock	(191)		(5,483)
Issuance of treasury stock	Issuance of treasury stock	63		58		Issuance of treasury stock	89		88
Issuance of preferred interests in subsidiaries						Issuance of preferred interests in subsidiaries	—		1,979
Dividends paid	Dividends paid	(3,741)		(3,737)		Dividends paid	(11,319)		(11,215)
Other - net	Other - net	(340)		(3,102)		Other - net	(1,776)		(5,158)
Net Cash Provided by (Used in) Financing Activities	Net Cash Provided by (Used in) Financing Activities	18,483		(6,099)		Net Cash Provided by (Used in) Financing Activities	8,165		(21,768)
Net increase (decrease) in cash and cash equivalents and restricted cash	Net increase (decrease) in cash and cash equivalents and restricted cash	1,558		(2,255)		Net increase (decrease) in cash and cash equivalents and restricted cash	11,535		(2,446)
Cash and cash equivalents and restricted cash beginning of year	Cash and cash equivalents and restricted cash beginning of year	9,870		12,295		Cash and cash equivalents and restricted cash beginning of year	9,870		12,295
Cash and Cash Equivalents and Restricted Cash End of Period	Cash and Cash Equivalents and Restricted Cash End of Period	$	11,428	$	10,040	Cash and Cash Equivalents and Restricted Cash End of Period	$	21,405	$	9,849

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				Three months ended									Nine months ended
			March 31, 2021		March 31, 2020				September 30, 2021					September 30, 2020			September 30, 2021			September 30, 2020
					Shares		Amount			Shares	Amount			Shares	Amount		Shares	Amount		Shares	Amount		Shares	Amount
Preferred Stock - Series A	Preferred Stock - Series A												Preferred Stock - Series A
Balance at beginning of period	Balance at beginning of period				0		$	0		0	$	0	Balance at beginning of period	—	$	—	—	$	—	—	$	—	—	$	—
Issuance of stock	Issuance of stock				0		0			0	0		Issuance of stock	—	—		—	—		—	—		—	—
Balance at end of period	Balance at end of period				0		$	0		0	$	0	Balance at end of period	—	$	—	—	$	—	—	$	—	—	$	—
Preferred Stock - Series B	Preferred Stock - Series B												Preferred Stock - Series B
Balance at beginning of period	Balance at beginning of period				0		$	0		0	$	0	Balance at beginning of period	—	$	—	—	$	—	—	$	—	—	$	—
Issuance of stock	Issuance of stock				0		0			0	0		Issuance of stock	—	—		—	—		—	—		—	—
Balance at end of period	Balance at end of period				0		$	0		0	$	0	Balance at end of period	—	$	—	—	$	—	—	$	—	—	$	—
Preferred Stock - Series C	Preferred Stock - Series C												Preferred Stock - Series C
Balance at beginning of period	Balance at beginning of period				0		$	0		0	$	0	Balance at beginning of period	—	$	—	—	$	—	—	$	—	—	$	—
Issuance of stock	Issuance of stock				0		0			0	0		Issuance of stock	—	—		—	—		—	—		—	—
Balance at end of period	Balance at end of period				0		$	0		0	$	0	Balance at end of period	—	$	—	—	$	—	—	$	—	—	$	—
Common Stock	Common Stock												Common Stock
Balance at beginning of period	Balance at beginning of period				7,621		$	7,621		7,621	$	7,621	Balance at beginning of period	7,621	$	7,621	7,621	$	7,621	7,621	$	7,621	7,621	$	7,621
Issuance of stock	Issuance of stock				0		0			0	0		Issuance of stock	—	—		—	—		—	—		—	—
Balance at end of period	Balance at end of period				7,621		$	7,621		7,621	$	7,621	Balance at end of period	7,621	$	7,621	7,621	$	7,621	7,621	$	7,621	7,621	$	7,621
Additional Paid-In Capital	Additional Paid-In Capital												Additional Paid-In Capital
Balance at beginning of period	Balance at beginning of period						$	130,175			$	126,279	Balance at beginning of period		$	129,941		$	130,046		$	130,175		$	126,279
Repurchase and acquisition of common stock	Repurchase and acquisition of common stock						0				67		Repurchase and acquisition of common stock		—			—			—			67
Issuance of preferred stock	Issuance of preferred stock						0				3,869		Issuance of preferred stock		—			—			—			3,869
Issuance of treasury stock	Issuance of treasury stock						(70)				(47)		Issuance of treasury stock		(2)			(2)			(77)			(56)
Share-based payments	Share-based payments						(249)				(202)		Share-based payments		96			91			(63)			(24)

Changes related to acquisition of interests held by noncontrolling owners													Changes related to acquisition of interests held by noncontrolling owners		—			4			—			4
Balance at end of period	Balance at end of period						$	129,856			$	129,966	Balance at end of period		$	130,035		$	130,139		$	130,035		$	130,139
Retained Earnings	Retained Earnings												Retained Earnings
Balance at beginning of period	Balance at beginning of period						$	37,457			$	57,936	Balance at beginning of period		$	38,947		$	56,045		$	37,457		$	57,936
Cumulative effect of accounting change and other adjustments	Cumulative effect of accounting change and other adjustments						0				(293)		Cumulative effect of accounting change and other adjustments		—			—			—			(293)
Adjusted beginning balance	Adjusted beginning balance						37,457				57,643		Adjusted beginning balance		38,947			56,045			37,457			57,643
Net income attributable to AT&T	Net income attributable to AT&T						7,550				4,610		Net income attributable to AT&T		5,918			2,816			15,038			8,707
Preferred stock dividends	Preferred stock dividends						(117)				(32)		Preferred stock dividends		(36)			(35)			(188)			(103)
Common stock dividends ($0.52 and $0.52 per share)							(3,736)				(3,687)
Common stock dividends ($0.52, $0.52, $1.56 and $1.56 per share)													Common stock dividends ($0.52, $0.52, $1.56 and $1.56 per share)		(3,738)			(3,732)			(11,216)			(11,153)
Balance at end of period	Balance at end of period						$	41,154			$	58,534	Balance at end of period		$	41,091		$	55,094		$	41,091		$	55,094

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				Three months ended									Nine months ended
			March 31, 2021		March 31, 2020				September 30, 2021					September 30, 2020			September 30, 2021			September 30, 2020
					Shares		Amount			Shares	Amount			Shares	Amount		Shares	Amount		Shares	Amount		Shares	Amount
Treasury Stock	Treasury Stock												Treasury Stock
Balance at beginning of period	Balance at beginning of period				(495)		$	(17,910)		(366)	$	(13,085)	Balance at beginning of period	(481)	$	(17,332)	(495)	$	(17,945)	(495)	$	(17,910)	(366)	$	(13,085)
Repurchase and acquisition of common stock	Repurchase and acquisition of common stock				(6)		(176)			(148)	(5,547)		Repurchase and acquisition of common stock	(1)	(10)		(1)	(19)		(8)	(225)		(149)	(5,600)
Reissuance of treasury stock	Reissuance of treasury stock				20		744			18	675		Reissuance of treasury stock	1	23		—	14		22	816		19	735
Balance at end of period	Balance at end of period				(481)		$	(17,342)		(496)	$	(17,957)	Balance at end of period	(481)	$	(17,319)	(496)	$	(17,950)	(481)	$	(17,319)	(496)	$	(17,950)
Accumulated Other Comprehensive Income Attributable to AT&T, net of tax	Accumulated Other Comprehensive Income Attributable to AT&T, net of tax			Accumulated Other Comprehensive Income Attributable to AT&T, net of tax
Balance at beginning of period	Balance at beginning of period						$	4,330			$	5,470	Balance at beginning of period		$	3,119		$	129		$	4,330		$	5,470
Other comprehensive income attributable to AT&T	Other comprehensive income attributable to AT&T						(131)				(5,855)		Other comprehensive income attributable to AT&T		(776)			520			(1,987)			(4,821)
Balance at end of period	Balance at end of period						$	4,199			$	(385)	Balance at end of period		$	2,343		$	649		$	2,343		$	649
Noncontrolling Interest	Noncontrolling Interest												Noncontrolling Interest
Balance at beginning of period	Balance at beginning of period						$	17,567			$	17,713	Balance at beginning of period		$	17,550		$	17,557		$	17,567		$	17,713
Cumulative effect of accounting change and other adjustments	Cumulative effect of accounting change and other adjustments						0				(7)		Cumulative effect of accounting change and other adjustments		—			—			—			(7)
Adjusted beginning balance	Adjusted beginning balance						17,567				17,706		Adjusted beginning balance		17,550			17,557			17,567			17,706
Net income attributable to noncontrolling interest	Net income attributable to noncontrolling interest						392				353		Net income attributable to noncontrolling interest		355			352			1,051			987
Issuance and acquisition by noncontrolling owners	Issuance and acquisition by noncontrolling owners						0				1		Issuance and acquisition by noncontrolling owners		—			1,978			—			1,979
Distributions	Distributions						(364)				(339)		Distributions		(369)			(382)			(1,084)			(1,108)
Translation adjustments attributable to noncontrolling interest, net of taxes	Translation adjustments attributable to noncontrolling interest, net of taxes						(4)				(51)		Translation adjustments attributable to noncontrolling interest, net of taxes		(4)			(2)			(2)			(61)
Balance at end of period	Balance at end of period						$	17,591			$	17,670	Balance at end of period		$	17,532		$	19,503		$	17,532		$	19,503
Total Stockholders' Equity at beginning of period	Total Stockholders' Equity at beginning of period						$	179,240			$	201,934	Total Stockholders' Equity at beginning of period		$	179,846		$	193,453		$	179,240		$	201,934
Total Stockholders' Equity at end of period	Total Stockholders' Equity at end of period						$	183,079			$	195,449	Total Stockholders' Equity at end of period		$	181,303		$	195,056		$	181,303		$	195,056

See Notes to Consolidated Financial Statements.

AT&T INC.

~~MARCH 31,~~SEPTEMBER 30, 2021

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Dollars in millions except per share amounts

NOTE 1. PREPARATION OF INTERIM FINANCIAL STATEMENTS

Basis of Presentation Throughout this document, AT&T Inc. is referred to as “we,” “AT&T” or the “Company.” The consolidated financial statements include the accounts of the Company and subsidiaries and affiliates which we control. AT&T is a holding company whose subsidiaries and affiliates operate worldwide in the telecommunications, 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, 2020. The results for the interim periods are not necessarily indicative of those for the full year. These consolidated financial statements include all adjustments that are necessary to present fairly the results for the presented interim periods, consisting of normal recurring accruals and other items.

On July 31, 2021, we closed our transaction with TPG Capital (TPG) to form a new company named DIRECTV Entertainment Holdings, LLC (DIRECTV). With the close of the transaction, we separated our Video business, comprised of our U.S. video operations, and began accounting for our investment in DIRECTV under the equity method. (See Note 8)

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~~in our results on a one quarter ~~of our period end.~~lag. 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 that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Certain prior period amounts have been conformed to the current period’s presentation (see Note 4 and Note 5).

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

NOTE 2. EARNINGS PER SHARE

A reconciliation of the numerators and denominators of basic and diluted earnings per share for the three months and nine months ended ~~March 31,~~September 30, 2021 and 2020, is shown in the table below:


		Three months ended			Three months ended						Nine months ended
		March 31,			September 30,						September 30,
			2021			2020			2021		2020		2021		2020
Numerators	Numerators							Numerators
Numerator for basic earnings per share:	Numerator for basic earnings per share:							Numerator for basic earnings per share:

Net Income Attributable to Common Stock	Net Income Attributable to Common Stock		$	7,500		$	4,578	Net Income Attributable to Common Stock	$	5,868	$	2,762	$	14,882	$	8,569
Dilutive potential common shares:	Dilutive potential common shares:							Dilutive potential common shares:
Share-based payment	Share-based payment		6			6		Share-based payment	6		5		17		16
Numerator for diluted earnings per share	Numerator for diluted earnings per share		$	7,506		$	4,584	Numerator for diluted earnings per share	$	5,874	$	2,767	$	14,899	$	8,585
Denominators (000,000)	Denominators (000,000)							Denominators (000,000)
Denominator for basic earnings per share:	Denominator for basic earnings per share:							Denominator for basic earnings per share:
Weighted average number of common shares outstanding	Weighted average number of common shares outstanding		7,161			7,187		Weighted average number of common shares outstanding	7,171		7,147		7,167		7,160
Dilutive potential common shares:	Dilutive potential common shares:							Dilutive potential common shares:
Share-based payment (in shares)	Share-based payment (in shares)		27			27		Share-based payment (in shares)	31		26		30		26
Denominator for diluted earnings per share	Denominator for diluted earnings per share		7,188			7,214		Denominator for diluted earnings per share	7,202		7,173		7,197		7,186

AT&T INC.

~~MARCH 31,~~SEPTEMBER 30, 2021

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued

Dollars in millions except per share amounts

NOTE 3. OTHER COMPREHENSIVE INCOME

Changes in the balances of each component included in accumulated OCI are presented below. All amounts are net of tax and exclude noncontrolling interest.


		Foreign Currency Translation Adjustment			Net Unrealized Gains (Losses) on Securities			Net Unrealized Gains (Losses) on Derivative Instruments			Defined Benefit Postretirement Plans			Accumulated Other Comprehensive Income (Loss)			Foreign Currency Translation Adjustment			Net Unrealized Gains (Losses) on Securities			Net Unrealized Gains (Losses) on Derivative Instruments			Defined Benefit Postretirement Plans			Accumulated Other Comprehensive Income (Loss)
Balance as of December 31, 2020	Balance as of December 31, 2020	$	(3,926)		$	111		$	(779)		$	8,924		$	4,330	Balance as of December 31, 2020	$	(3,926)		$	111		$	(779)		$	8,924		$	4,330
Other comprehensive income (loss) before reclassifications	Other comprehensive income (loss) before reclassifications	(105)			(55)			511			0			351		Other comprehensive income (loss) before reclassifications	108			(39)			(593)			—			(524)
Amounts reclassified from accumulated OCI	Amounts reclassified from accumulated OCI	0		1	(2)		1	24		2	(504)		3	(482)		Amounts reclassified from accumulated OCI	—		1	(4)		1	57		2	(1,516)		3	(1,463)
Net other comprehensive income (loss)	Net other comprehensive income (loss)	(105)			(57)			535			(504)			(131)		Net other comprehensive income (loss)	108			(43)			(536)			(1,516)			(1,987)
Balance as of March 31, 2021		$	(4,031)		$	54		$	(244)		$	8,420		$	4,199
Balance as of September 30, 2021																Balance as of September 30, 2021	$	(3,818)		$	68		$	(1,315)		$	7,408		$	2,343

		Foreign Currency Translation Adjustment			Net Unrealized Gains (Losses) on Securities			Net Unrealized Gains (Losses) on Derivative Instruments			Defined Benefit Postretirement Plans			Accumulated Other Comprehensive Income (Loss)			Foreign Currency Translation Adjustment			Net Unrealized Gains (Losses) on Securities			Net Unrealized Gains (Losses) on Derivative Instruments			Defined Benefit Postretirement Plans			Accumulated Other Comprehensive Income (Loss)
Balance as of December 31, 2019	Balance as of December 31, 2019	$	(3,056)		$	48		$	(37)		$	8,515		$	5,470	Balance as of December 31, 2019	$	(3,056)		$	48		$	(37)		$	8,515		$	5,470
Other comprehensive income (loss) before reclassifications	Other comprehensive income (loss) before reclassifications	(1,803)			66			(3,657)			0			(5,394)		Other comprehensive income (loss) before reclassifications	(1,398)			81			(2,166)			—			(3,483)
Amounts reclassified from accumulated OCI	Amounts reclassified from accumulated OCI	0		1	0		1	0		2	(461)		3	(461)		Amounts reclassified from accumulated OCI	—		1	—		1	44		2	(1,382)		3	(1,338)
Net other comprehensive income (loss)	Net other comprehensive income (loss)	(1,803)			66			(3,657)			(461)			(5,855)		Net other comprehensive income (loss)	(1,398)			81			(2,122)			(1,382)			(4,821)
Balance as of March 31, 2020		$	(4,859)		$	114		$	(3,694)		$	8,054		$	(385)
Balance as of September 30, 2020																Balance as of September 30, 2020	$	(4,454)		$	129		$	(2,159)		$	7,133		$	649

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

2(Gains) losses are primarily included in “Interest expense” in the consolidated statements of income (see Note 7).

3The amortization of prior service credits associated with postretirement benefits are included in “Other income (expense) - net” in the consolidated statements of income (see Note 6).

NOTE 4. SEGMENT INFORMATION

Our segments are comprised of strategic business units or other operations that offer products and services to different customer segments over various technology platforms and/or in different geographies that are managed accordingly. We 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 3 reportable segments: (1) Communications, (2) WarnerMedia and (3) Latin America.

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 depreciation and amortization expenses incurred in operating contribution nor is it burdened by cash used for debt service requirements and thus does not reflect available funds for distributions, reinvestment or other discretionary uses. EBITDA margin is EBITDA divided by total revenues.

AT&T INC.

~~MARCH 31,~~SEPTEMBER 30, 2021

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued

Dollars in millions except per share amounts

~~We have~~In the first quarter of 2021, we recast our segment results for all prior periods to reflect the following:

•

Communications segment results were recast to remove the ~~Video and Government Solutions~~ held-for-sale businesses, principally Video, instead reporting those results in Corporate and ~~Other, consistent with our historical practice.~~Other. Additionally, we refined the allocation of shared infrastructure and deferred customer acquisition costs between Consumer Wireline and Video.

•

WarnerMedia segment results reflect our operation of WarnerMedia as one integrated organization.

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

•Mobility provides nationwide wireless service and equipment.

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

•Consumer Wireline provides internet, including broadband fiber, and legacy telephony voice communication services to residential customers.

The WarnerMedia segment develops, produces and distributes feature films, television, gaming and other content in various physical and digital formats globally. WarnerMedia content is distributed through ~~Basic Networks,~~basic networks, Direct-to-Consumer (DTC) or ~~Theatrical,~~theatrical, TV ~~Content~~content and ~~Games Licensing.~~games licensing. Segment results also include Xandr advertising and Otter Media Holdings ~~and eliminations~~(Otter Media). We disposed of ~~intercompany transactions within WarnerMedia.~~substantially all Otter Media assets in the third quarter of 2021 (see Note 8).

On May 17, 2021, we entered into an agreement to combine our WarnerMedia segment, subject to certain exceptions, with a subsidiary of Discovery Inc. (See Note 8)

Effective January 1, 2021, we updated our reporting units to reflect recent changes in how WarnerMedia, an integrated content organization that distributes across various platforms, is managed and evaluated. With this operational change, the reporting unit is deemed to be the operating segment. The previous reporting units, Turner, Home Box Office, Warner Bros., and Xandr, and the new WarnerMedia reporting unit were tested for goodwill impairment on January 1, 2021, for which there was none.

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

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

•Mexico provides wireless service and equipment to customers in Mexico.

On July 21, 2021, we entered into an agreement to sell our Vrio business to Grupo Werthein (see Note 8). The transaction is expected to close during the fourth quarter of 2021. We applied held-for-sale accounting to Vrio as of June 30, 2021, and continue to present the Vrio results within the Latin America segment consistent with how performance was assessed and resource allocation decisions were made through September 30, 2021.

Corporate and Other reconciles our segment results to consolidated operating income and income before income taxes, and 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 income (expense) – net.” Costs previously allocated to the Video business that were retained after the transaction, net of reimbursements from DIRECTV under transition service agreements, are reported in Corporate for the remainder of 2021, to maintain comparability of our operating segment results, and while operational plans and continued cost reduction initiatives are implemented.

•Video, which ~~consists~~consisted of our ~~held-for-sale~~former U.S. video operations ~~which provides video, including over-the-top (OTT) services and also sells multiplatform advertising services.~~that were contributed to DIRECTV on July 31, 2021.

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

•Certain significant items, which includes (1) employee separation charges associated with voluntary and/or strategic offers, (2) asset impairments and abandonments, 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 channel distribution between WarnerMedia and Video prior to its separation, and (2) includes adjustments for our reporting of the advertising business.

AT&T INC.

SEPTEMBER 30, 2021

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued

Dollars in millions except per share amounts

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

1112

AT&T INC.

~~MARCH 31,~~SEPTEMBER 30, 2021

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued

Dollars in millions except per share amounts


For the three months ended March 31, 2021
For the three months ended September 30, 2021																For the three months ended September 30, 2021
		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	Communications															Communications
Mobility	Mobility	$	19,034	$	11,018	$	8,016	$	2,014	$	6,002	$	0	$	6,002	Mobility	$	19,138	$	11,148	$	7,990	$	2,035	$	5,955	$	—	$	5,955
Business Wireline	Business Wireline	6,046		3,710		2,336		1,278		1,058		0		1,058		Business Wireline	5,938		3,649		2,289		1,304		985		—		985
Consumer Wireline	Consumer Wireline	3,098		2,031		1,067		762		305		0		305		Consumer Wireline	3,142		2,184		958		775		183		—		183
Total Communications	Total Communications	28,178		16,759		11,419		4,054		7,365		0		7,365		Total Communications	28,218		16,981		11,237		4,114		7,123		—		7,123

WarnerMedia	WarnerMedia	8,526		6,403		2,123		163		1,960		70		2,030		WarnerMedia	8,442		6,271		2,171		163		2,008		(73)		1,935
Latin America	Latin America															Latin America
Vrio	Vrio	743		661		82		117		(35)		(4)		(39)		Vrio	756		660		96		—		96		9		105
Mexico	Mexico	631		620		11		145		(134)		0		(134)		Mexico	724		697		27		157		(130)		—		(130)
Total Latin America	Total Latin America	1,374		1,281		93		262		(169)		(4)		(173)		Total Latin America	1,480		1,357		123		157		(34)		9		(25)
Segment Total	Segment Total	38,078		24,443		13,635		4,479		9,156		$	66	$	9,222	Segment Total	38,140		24,609		13,531		4,434		9,097		$	(64)	$	9,033
Corporate and Other	Corporate and Other															Corporate and Other
Corporate1	Corporate1	426		1,213		(787)		35		(822)						Corporate1	278		1,109		(831)		129		(960)
Video	Video	6,725		5,660		1,065		164		901						Video	2,149		1,731		418		44		374
Acquisition-related items	Acquisition-related items	0		37		(37)		1,131		(1,168)						Acquisition-related items	—		130		(130)		1,012		(1,142)
Certain significant items	Certain significant items	0		57		(57)		0		(57)						Certain significant items	—		161		(161)		—		(161)
Eliminations and consolidations	Eliminations and consolidations	(1,290)		(941)		(349)		0		(349)						Eliminations and consolidations	(645)		(546)		(99)		—		(99)
AT&T Inc.	AT&T Inc.	$	43,939	$	30,469	$	13,470	$	5,809	$	7,661					AT&T Inc.	$	39,922	$	27,194	$	12,728	$	5,619	$	7,109
1Operations and Support Expenses include $669 for the reclassification of prior service credit amortization.
1Operations and Support Expenses include $670 for the reclassification of prior service credit amortization.																1Operations and Support Expenses include $670 for the reclassification of prior service credit amortization.

1213

AT&T INC.

~~MARCH 31,~~SEPTEMBER 30, 2021

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued

Dollars in millions except per share amounts

For the three months ended March 31, 2020
Revenues Operations and Support Expenses EBITDA Depreciation and Amortization Operating Income (Loss) Equity in Net
Income (Loss) of
Affiliates Segment Contribution
Communications
Mobility $ 17,402 $ 9,569 $ 7,833 $ 2,045 $ 5,788 $ 0 $ 5,788
Business Wireline 6,266 3,887 2,379 1,286 1,093 0 1,093
Consumer Wireline 3,111 1,879 1,232 712 520 0 520
Total Communications 26,779 15,335 11,444 4,043 7,401 0 7,401
WarnerMedia 7,765 5,605 2,160 161 1,999 15 2,014
Latin America
Vrio 887 783 104 147 (43) 4 (39)
Mexico 703 714 (11) 134 (145) 0 (145)
Total Latin America 1,590 1,497 93 281 (188) 4 (184)
Segment Total 36,134 22,437 13,697 4,485 9,212 $ 19 $ 9,231
Corporate and Other
Corporate1
534 1,012 (478) 90 (568)
Video 7,407 6,020 1,387 591 796
Acquisition-related items 0 182 (182) 2,056 (2,238)
Certain significant items 0 (658) 658 0 658
Eliminations and consolidations (1,296) (922) (374) 0 (374)
AT&T Inc. $ 42,779 $ 28,071 $ 14,708 $ 7,222 $ 7,486
1Operations and Support Expenses include $612 for the reclassification of prior service credit amortization.


For the three months ended September 30, 2020
	Revenues		Operations and Support Expenses		EBITDA		Depreciation and Amortization		Operating Income (Loss)		Equity in Net Income (Loss) of Affiliates		Segment Contribution
Communications
Mobility	$	17,894	$	10,182	$	7,712	$	2,021	$	5,691	$	—	$	5,691
Business Wireline	6,261		3,764		2,497		1,313		1,184		—		1,184
Consumer Wireline	3,040		2,117		923		734		189		—		189
Total Communications	27,195		16,063		11,132		4,068		7,064		—		7,064





WarnerMedia	7,395		5,483		1,912		169		1,743		12		1,755
Latin America
Vrio	753		675		78		126		(48)		14		(34)
Mexico	643		662		(19)		124		(143)		—		(143)
Total Latin America	1,396		1,337		59		250		(191)		14		(177)
Segment Total	35,986		22,883		13,103		4,487		8,616		$	26	$	8,642
Corporate and Other
Corporate1	628		1,175		(547)		65		(612)
Video	7,014		5,887		1,127		557		570
Acquisition-related items	—		38		(38)		1,921		(1,959)
Certain significant items	—		113		(113)		—		(113)
Eliminations and consolidations	(1,288)		(918)		(370)		—		(370)
AT&T Inc.	$	42,340	$	29,178	$	13,162	$	7,030	$	6,132
1Operations and Support Expenses include $610 for the reclassification of prior service credit amortization.

1314

AT&T INC.

~~MARCH 31,~~SEPTEMBER 30, 2021

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued

Dollars in millions except per share amounts


For the nine months ended September 30, 2021
	Revenues		Operations and Support Expenses		EBITDA		Depreciation and Amortization		Operating Income (Loss)		Equity in Net Income (Loss) of Affiliates		Segment Contribution
Communications
Mobility	$	57,108	$	33,077	$	24,031	$	6,072	$	17,959	$	—	$	17,959
Business Wireline	18,036		11,068		6,968		3,875		3,093		—		3,093
Consumer Wireline	9,380		6,298		3,082		2,306		776		—		776
Total Communications	84,524		50,443		34,081		12,253		21,828		—		21,828





WarnerMedia	25,759		19,608		6,151		491		5,660		44		5,704
Latin America
Vrio	2,248		1,981		267		231		36		7		43
Mexico	2,043		1,984		59		452		(393)		—		(393)
Total Latin America	4,291		3,965		326		683		(357)		7		(350)
Segment Total	114,574		74,016		40,558		13,427		27,131		$	51	$	27,182
Corporate and Other
Corporate1	1,065		3,482		(2,417)		194		(2,611)
Video	15,513		12,666		2,847		356		2,491
Acquisition-related items	—		167		(167)		3,212		(3,379)
Certain significant items	—		4,773		(4,773)		—		(4,773)
Eliminations and consolidations	(3,246)		(2,426)		(820)		—		(820)
AT&T Inc.	$	127,906	$	92,678	$	35,228	$	17,189	$	18,039
1Operations and Support Expenses include $2,011 for the reclassification of prior service credit amortization.

AT&T INC.

SEPTEMBER 30, 2021

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued

Dollars in millions except per share amounts


For the nine months ended September 30, 2020
	Revenues		Operations and Support Expenses		EBITDA		Depreciation and Amortization		Operating Income (Loss)		Equity in Net Income (Loss) of Affiliates		Segment Contribution
Communications
Mobility	$	52,445	$	29,083	$	23,362	$	6,078	$	17,284	$	—	$	17,284
Business Wireline	18,832		11,365		7,467		3,900		3,567		—		3,567
Consumer Wireline	9,202		5,924		3,278		2,176		1,102		—		1,102
Total Communications	80,479		46,372		34,107		12,154		21,953		—		21,953





WarnerMedia	21,888		15,744		6,144		494		5,650		31		5,681
Latin America
Vrio	2,392		2,119		273		400		(127)		26		(101)
Mexico	1,826		1,914		(88)		373		(461)		—		(461)
Total Latin America	4,218		4,033		185		773		(588)		26		(562)
Segment Total	106,585		66,149		40,436		13,421		27,015		$	57	$	27,072
Corporate and Other
Corporate1	1,751		3,256		(1,505)		254		(1,759)
Video	21,442		17,716		3,726		1,741		1,985
Acquisition-related items	—		431		(431)		6,122		(6,553)
Certain significant items	—		2,539		(2,539)		—		(2,539)
Eliminations and consolidations	(3,709)		(2,709)		(1,000)		(1)		(999)
AT&T Inc.	$	126,069	$	87,382	$	38,687	$	21,537	$	17,150
1Operations and Support Expenses include $1,833 for the reclassification of prior service credit amortization.

AT&T INC.

SEPTEMBER 30, 2021

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 in our consolidated statements of income:


		Three months ended March 31,			Three months ended September 30,						Nine months ended September 30,
			2021			2020			2021		2020		2021		2020
Communications	Communications		$	7,365		$	7,401	Communications	$	7,123	$	7,064	$	21,828	$	21,953
WarnerMedia	WarnerMedia		2,030			2,014		WarnerMedia	1,935		1,755		5,704		5,681
Latin America	Latin America		(173)			(184)		Latin America	(25)		(177)		(350)		(562)
Segment Contribution	Segment Contribution		9,222			9,231		Segment Contribution	9,033		8,642		27,182		27,072
Reconciling Items:	Reconciling Items:							Reconciling Items:
Corporate and Other	Corporate and Other		(822)			(568)		Corporate and Other	(960)		(612)		(2,611)		(1,759)
Video	Video		901			796		Video	374		570		2,491		1,985
Merger costs	Merger costs		(37)			(182)		Merger costs	(130)		(38)		(167)		(431)
Amortization of intangibles acquired	Amortization of intangibles acquired		(1,131)			(2,056)		Amortization of intangibles acquired	(1,012)		(1,921)		(3,212)		(6,122)
Asset impairments and abandonments	Asset impairments and abandonments		0			(123)		Asset impairments and abandonments	(161)		(73)		(4,716)		(2,515)
Gain on spectrum transaction1	Gain on spectrum transaction1		0			900		Gain on spectrum transaction1	—		—		—		900
Employee separation costs and benefit-related losses	Employee separation costs and benefit-related losses		(57)			(119)		Employee separation costs and benefit-related losses	—		(40)		(57)		(924)
Segment equity in net income of affiliates	Segment equity in net income of affiliates		(66)			(19)		Segment equity in net income of affiliates	64		(26)		(51)		(57)
Eliminations and consolidations	Eliminations and consolidations		(349)			(374)		Eliminations and consolidations	(99)		(370)		(820)		(999)
AT&T Operating Income	AT&T Operating Income		7,661			7,486		AT&T Operating Income	7,109		6,132		18,039		17,150
Interest Expense	Interest Expense		1,870			2,018		Interest Expense	1,667		1,972		5,221		6,031
Equity in net income (loss) of affiliates	Equity in net income (loss) of affiliates		52			(6)		Equity in net income (loss) of affiliates	91		5		184		(11)
Other income (expense) - net	Other income (expense) - net		4,221			803		Other income (expense) - net	2,279		(231)		7,499		1,589
Income Before Income Taxes	Income Before Income Taxes		$	10,064		$	6,265	Income Before Income Taxes	$	7,812	$	3,934	$	20,501	$	12,697

1Included as a reduction of "Selling, general and administrative expenses" in the consolidated statement of income.

The following tables presents intersegment revenues and assets by segment:


Intersegment Reconciliation	Intersegment Reconciliation							Intersegment Reconciliation
		Three months ended March 31,			Three months ended September 30,						Nine months ended September 30,
			2021			2020			2021		2020		2021		2020
Intersegment Revenues	Intersegment Revenues							Intersegment Revenues
Communications	Communications		$	3		$	2	Communications	$	2	$	3	$	8	$	7
WarnerMedia	WarnerMedia		838			817		WarnerMedia	515		812		2,193		2,402
Latin America	Latin America		0			0		Latin America	—		—		—		—
Total Intersegment Revenues	Total Intersegment Revenues		841			819		Total Intersegment Revenues	517		815		2,201		2,409
Consolidations	Consolidations		449			477		Consolidations	128		473		1,045		1,300
Eliminations and consolidations	Eliminations and consolidations		$	1,290		$	1,296	Eliminations and consolidations	$	645	$	1,288	$	3,246	$	3,709

1417

AT&T INC.

~~MARCH 31,~~SEPTEMBER 30, 2021

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued

Dollars in millions except per share amounts

March 31, 2021 December 31, 2020
Assets
Communications1
$ 506,168 $ 506,102
WarnerMedia 148,588 148,037
Latin America 15,522 15,811
Corporate and eliminations1
(123,293) (144,189)
Total $ 546,985 $ 525,761
1Amounts above, including December 31, 2020, have been updated to reflect the classification of our Video business as held-for-sale, which included the recast of historical results to remove Video from our Communications segment and instead report in Corporate and Other (see Note 8).

NOTE 5. REVENUE RECOGNITION

Revenue Categories

The following tables set forth reported revenue by category and by business unit, prior period amounts have been recast to conform to the current period presentation with our first quarter 2021 segment updates (see Note 4).

For the three months ended March 31, 2021
Communications
Mobility Business Wireline Consumer Wireline WarnerMedia Latin America Corporate & Other
Elim.
Total
Wireless service $ 13,965 $ 0 $ 0 $ 0 $ 439 $ 10 $ 0 $ 14,414
Video service 0 0 0 0 743 6,295 0 7,038
Business service 0 5,872 0 0 0 70 0 5,942
IP Broadband 0 0 2,205 0 0 0 0 2,205
Subscription 0 0 0 3,830 0 0 0 3,010
DTC (HBO Max)1
0 0 0 0 0 0 (235)
Other2
0 0 0 0 0 0 (585)
Content 0 0 0 3,420 0 0 0 2,777
DTC (HBO Max)3
0 0 0 (331) 0 0 0
Other3
0 0 0 (312) 0 0 0
Advertising 83 0 0 1,750 0 388 (388) 1,833
Legacy voice and data 0 0 519 0 0 123 0 642
Other 0 0 332 169 0 224 (82) 643
Total Service $ 14,048 $ 5,872 $ 3,056 $ 8,526 $ 1,182 $ 7,110 $ (1,290) $ 38,504
Equipment 4,986 174 42 0 192 41 0 5,435
Total $ 19,034 $ 6,046 $ 3,098 $ 8,526 $ 1,374 $ 7,151 $ (1,290) $ 43,939
1Represents DTC (HBO Max) intercompany sales to the Communications segment ($145 with Mobility and $90 with Consumer Wireline).
2Represents intercompany video distribution arrangements primarily to DIRECTV/U-Verse from WarnerMedia.
3Represents intercompany transactions in the WarnerMedia segment.


For the three months ended September 30, 2021
	Communications
	Mobility		Business Wireline		Consumer Wireline		WarnerMedia		Latin America		Corporate & Other		Elim.		Total
Wireless service	$	14,450	$	—	$	—	$	—	$	463	$	28	$	—	$	14,941
Video service	—		—		—		—		756		2,041		—		2,797
Business service	—		5,765		—		—		—		—		—		5,765
Broadband	—		—		2,290		—		—		—		—		2,290
Subscription	—		—		—		3,988		—		—		—		3,501
DTC (HBO Max)1	—		—		—		—		—		—		(261)
Other2	—		—		—		—		—		—		(226)
Content	—		—		—		3,495		—		—		—		2,783
DTC (HBO Max)3	—		—		—		(413)		—		—		—
Other3	—		—		—		(299)		—		—		—
Advertising	77		—		—		1,401		—		111		(111)		1,478
Legacy voice and data	—		—		484		—		—		97		—		581
Other	—		—		351		270		—		133		(47)		707
Total Service	14,527		5,765		3,125		8,442		1,219		2,410		(645)		34,843
Equipment	4,611		173		17		—		261		17		—		5,079
Total	$	19,138	$	5,938	$	3,142	$	8,442	$	1,480	$	2,427	$	(645)	$	39,922
1Represents DTC (HBO Max) intercompany sales to the Communications segment ($174 with Mobility and $87 with Consumer Wireline).
2Represents intercompany video distribution arrangements primarily to DIRECTV/U-verse from WarnerMedia prior to August 1, 2021 (see Note 11).
3Represents intercompany transactions in the WarnerMedia segment.

1518

AT&T INC.

~~MARCH 31,~~SEPTEMBER 30, 2021

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued

Dollars in millions except per share amounts


For the three months ended March 31, 2020
For the three months ended September 30, 2020																		For the three months ended September 30, 2020
		Communications																	Communications
		Mobility		Business Wireline		Consumer Wireline		WarnerMedia		Latin America		Corporate & Other		Elim.		Total			Mobility		Business Wireline		Consumer Wireline		WarnerMedia		Latin America		Corporate & Other		Elim.		Total
Wireless service	Wireless service	$	13,892	$	0	$	0	$	0	$	467	$	116	$	0	$	14,475	Wireless service	$	13,811	$	—	$	—	$	—	$	385	$	169	$	—	$	14,365
Video service	Video service	0		0		0		0		887		6,984		0		7,871		Video service	—		—		—		—		753		6,557		—		7,310
Business service	Business service	0		6,091		0		0		0		77		0		6,168		Business service	—		6,079		—		—		—		88		—		6,167
IP Broadband		0		0		2,109		0		0		0		0		2,109
Broadband																		Broadband	—		—		2,128		—		—		—		—		2,128
Subscription	Subscription	0		0		0		3,401		0		0		0		2,607		Subscription	—		—		—		3,477		—		—		—		2,687
DTC (HBO Max)		0		0		0		0		0		0		0
Other1		0		0		0		0		0		0		(794)
DTC (HBO Max)1																		DTC (HBO Max)1	—		—		—		—		—		—		(190)
Other2																		Other2	—		—		—		—		—		—		(600)
Content	Content	0		0		0		3,303		0		0		0		2,633		Content	—		—		—		2,618		—		—		—		2,108
DTC (HBO Max)2		0		0		0		(401)		0		0		0
Other2		0		0		0		(269)		0		0		0
DTC (HBO Max)3																		DTC (HBO Max)3	—		—		—		(199)		—		—		—
Other3																		Other3	—		—		—		(311)		—		—		—
Advertising	Advertising	76		0		0		1,477		0		413		(413)		1,553		Advertising	72		—		—		1,600		—		408		(408)		1,672
Legacy voice and data	Legacy voice and data	0		0		581		0		0		134		0		715		Legacy voice and data	—		—		538		—		—		137		—		675
Other	Other	0		0		419		254		0		168		(89)		752		Other	—		—		372		210		—		178		(90)		670
Total Service	Total Service	$	13,968	$	6,091	$	3,109	$	7,765	$	1,354	$	7,892	$	(1,296)	$	38,883	Total Service	13,883		6,079		3,038		7,395		1,138		7,537		(1,288)		37,782
Equipment	Equipment	3,434		175		2		0		236		49		0		3,896		Equipment	4,011		182		2		—		258		105		—		4,558
Total	Total	$	17,402	$	6,266	$	3,111	$	7,765	$	1,590	$	7,941	$	(1,296)	$	42,779	Total	$	17,894	$	6,261	$	3,040	$	7,395	$	1,396	$	7,642	$	(1,288)	$	42,340
1Represents intercompany video distribution arrangements primarily to DIRECTV/U-Verse from WarnerMedia.
2Represents intercompany transactions in the WarnerMedia segment.
1Represents DTC (HBO Max) intercompany sales to the Communications segment ($116 with Mobility and $74 with Consumer Wireline).																		1Represents DTC (HBO Max) intercompany sales to the Communications segment ($116 with Mobility and $74 with Consumer Wireline).
2Represents intercompany video distribution arrangements primarily to DIRECTV/U-verse from WarnerMedia.																		2Represents intercompany video distribution arrangements primarily to DIRECTV/U-verse from WarnerMedia.
3Represents intercompany transactions in the WarnerMedia segment.																		3Represents intercompany transactions in the WarnerMedia segment.

AT&T INC.

SEPTEMBER 30, 2021

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued

Dollars in millions except per share amounts


For the nine months ended September 30, 2021
	Communications
	Mobility		Business Wireline		Consumer Wireline		WarnerMedia		Latin America		Corporate & Other		Elim.		Total
Wireless service	$	42,667	$	—	$	—	$	—	$	1,349	$	65	$	—	$	44,081
Video service	—		—		—		—		2,248		14,534		—		16,782
Business service	—		17,497		—		—		—		70		—		17,567
Broadband	—		—		6,761		—		—		—		—		6,761
Subscription	—		—		—		11,779		—		—		—		9,649
DTC (HBO Max)1	—		—		—		—		—		—		(749)
Other2	—		—		—		—		—		—		(1,381)
Content	—		—		—		10,411		—		—		—		8,440
DTC (HBO Max)3	—		—		—		(1,136)		—		—		—
Other3	—		—		—		(835)		—		—		—
Advertising	254		—		—		4,877		—		909		(909)		5,131
Legacy voice and data	—		—		1,507		—		—		334		—		1,841
Other	—		—		1,019		663		—		576		(207)		2,051
Total Service	42,921		17,497		9,287		25,759		3,597		16,488		(3,246)		112,303
Equipment	14,187		539		93		—		694		90		—		15,603
Total	$	57,108	$	18,036	$	9,380	$	25,759	$	4,291	$	16,578	$	(3,246)	$	127,906
1Represents DTC (HBO Max) intercompany sales to the Communications segment ($481 with Mobility and $268 with Consumer Wireline).
2Represents intercompany video distribution arrangements primarily to DIRECTV/U-verse from WarnerMedia prior to August 1, 2021 (see Note 11).
3Represents intercompany transactions in the WarnerMedia segment.

AT&T INC.

SEPTEMBER 30, 2021

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued

Dollars in millions except per share amounts


For the nine months ended September 30, 2020
	Communications
	Mobility		Business Wireline		Consumer Wireline		WarnerMedia		Latin America		Corporate & Other		Elim.		Total
Wireless service	$	41,314	$	—	$	—	$	—	$	1,197	$	464	$	—	$	42,975
Video service	—		—		—		—		2,392		20,226		—		22,618
Business service	—		18,271		—		—		—		243		—		18,514
Broadband	—		—		6,329		—		—		—		—		6,329
Subscription	—		—		—		10,142		—		—		—		7,793
DTC (HBO Max)1	—		—		—		—		—		—		(251)
Other2	—		—		—		—		—		—		(2,098)
Content	—		—		—		9,615		—		—		—		6,988
DTC (HBO Max)3	—		—		—		(1,848)		—		—		—
Other3	—		—		—		(779)		—		—		—
Advertising	206		—		—		4,236		—		1,115		(1,115)		4,442
Legacy voice and data	—		—		1,679		—		—		424		—		2,103
Other	—		—		1,189		522		—		488		(245)		1,954
Total Service	41,520		18,271		9,197		21,888		3,589		22,960		(3,709)		113,716
Equipment	10,925		561		5		—		629		233		—		12,353
Total	$	52,445	$	18,832	$	9,202	$	21,888	$	4,218	$	23,193	$	(3,709)	$	126,069
1Represents DTC (HBO Max) intercompany sales to the Communications segment ($153 with Mobility and $98 with Consumer Wireline).
2Represents intercompany video distribution arrangements primarily to DIRECTV/U-verse from WarnerMedia.
3Represents intercompany transactions in the WarnerMedia segment.

Deferred Customer Contract Acquisition and Fulfillment Costs

Costs to acquire and fulfill customer contracts, including commissions on service activations, for our wireless, business wireline, consumer wireline and video 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 and fulfillment costs included on our consolidated balance sheets:


		March 31,		December 31,			September 30,		December 31,
Consolidated Balance Sheets	Consolidated Balance Sheets	2021		2020		Consolidated Balance Sheets	2021		2020
Deferred Acquisition Costs	Deferred Acquisition Costs					Deferred Acquisition Costs
Prepaid and other current assets	Prepaid and other current assets	$	3,788	$	3,087	Prepaid and other current assets	$	2,615	$	3,087
Other Assets	Other Assets	2,693		3,198		Other Assets	3,056		3,198
Total deferred customer contract acquisition costs	Total deferred customer contract acquisition costs	$	6,481	$	6,285	Total deferred customer contract acquisition costs	$	5,671	$	6,285
Deferred Fulfillment Costs	Deferred Fulfillment Costs					Deferred Fulfillment Costs
Prepaid and other current assets	Prepaid and other current assets	$	4,945	$	4,118	Prepaid and other current assets	$	2,611	$	4,118
Other Assets	Other Assets	4,367		5,634		Other Assets	4,196		5,634
Total deferred customer contract fulfillment costs	Total deferred customer contract fulfillment costs	$	9,312	$	9,752	Total deferred customer contract fulfillment costs	$	6,807	$	9,752

1621

AT&T INC.

~~MARCH 31,~~SEPTEMBER 30, 2021

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued

Dollars in millions except per share amounts

~~Deferred customer contract~~The decline in deferred acquisition and fulfillment costs ~~included in~~from December 31, 2020 reflects the July 2021 separation of the U.S. Video business. At separation, we removed $1,218 of deferred acquisitions costs ($693 originally classified as “Prepaid and other current assets” ~~at March 31, 2021, include $1,350 of deferred acquisition costs ($594 of which were reclassified from~~and $525 originally classified as “Other ~~Assets”~~assets”) and ~~$2,417~~$2,025 of deferred fulfillment costs ($~~984 of which were reclassified from~~1,134 originally classified as “Prepaid and other current assets” and $891 originally classified as “Other ~~Assets”~~assets”) ~~for our Video business, reflecting the held-for-sale treatment of the business (see~~. (See Note 8).

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


		March 31,		March 31,			September 30,		September 30,
Consolidated Statements of Income	Consolidated Statements of Income	2021		2020		Consolidated Statements of Income	2021		2020
Deferred acquisition cost amortization	Deferred acquisition cost amortization	$	764	$	636	Deferred acquisition cost amortization	$	2,358	$	1,969
Deferred fulfillment cost amortization	Deferred fulfillment cost amortization	1,290		1,305		Deferred fulfillment cost amortization	3,290		3,888

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.

Our contract assets primarily relate to our wireless businesses. Promotional equipment sales where we offer handset credits, which are allocated between equipment and service in proportion to their standalone selling prices, when customers commit to a specified service period result in additional contract assets recognized. These contract assets will amortize over the service contract period, resulting in lower future service revenue.

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

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

March 31, December 31,
Consolidated Balance Sheets 2021 2020
Contract asset $ 3,554 $ 3,501
Contract liability 5,517 6,879

Our consolidated balance sheets at March 31, 2021 and December 31, 2020 included $2,208 and $2,054, respectively, for the current portion of our contract asset in “Prepaid and other current assets” and $4,839 and $6,071, respectively, for the current portion of our contract liability in “Advanced billings and customer deposits.”


	September 30,		December 31,
Consolidated Balance Sheets	2021		2020
Contract asset	$	3,889	$	3,501
Current portion in “Prepaid and other current assets”	2,329		2,054
Contract liability	5,385		6,879
Current portion in “Advanced billings and customer deposits”	4,779		6,071
Current portion in “Accounts payable and accrued liabilities”	74		—

Our beginning of period contract liability recorded as customer contract revenue during 2021 was ~~$4,509.~~$5,150.

Changes in our contract asset and contract liability from December 31, 2020 include the impact of the July 2021 separation of the U.S. Video business. At separation, the contract asset was reduced $303 and the contract liability was reduced $1,098, both of which were predominantly the current portion. (See Note 8)

Remaining Performance Obligations

Remaining performance obligations primarily relate to our Communications segment and represent services we are required to provide to customers under bundled or discounted arrangements, which are satisfied as services are provided over the contract term. In our WarnerMedia segment, the most significant remaining performance obligations relate to the licensing of theatrical and television content which will be made available to customers at some point in the future. 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.

AT&T INC.

SEPTEMBER 30, 2021

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued

Dollars in millions except per share amounts

Remaining performance obligations associated with business contracts reflect recurring charges billed, adjusted to reflect estimates for sales incentives and revenue adjustments. Performance obligations associated with wireless contracts are estimated using a portfolio approach in which we review all relevant promotional activities, calculating the remaining performance obligation using the average service component for the portfolio and the average device price. As of ~~March 31,~~September 30, 2021, the aggregate amount of the transaction price allocated to remaining performance obligations was ~~$41,259,~~$42,106, of which we expect to recognize approximately ~~87%~~74% by the end of 2022, with the balance recognized thereafter. ~~Approximately $2,085 of the $41,259 remaining performance obligation relates to the Video business.~~

~~AT&T INC.~~

~~MARCH 31, 2021~~

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

~~Dollars in millions except per share amounts~~

NOTE 6. PENSION AND POSTRETIREMENT BENEFITS

Many of our employees are covered by one of our noncontributory pension plans. We also provide certain medical, dental, life insurance and death benefits to certain retired employees under various plans and accrue actuarially determined postretirement benefit costs. Our objective in funding these plans, in combination with the standards of the Employee Retirement Income Security Act of 1974, as amended (ERISA), is to accumulate assets sufficient to provide benefits described in the plans to employees upon their retirement. We do not have significant funding requirements in 2021.

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 anticipate total~~Total distributions from the pension plan ~~will exceed~~exceeded the threshold of service and interest costs for 2021, requiring us to follow settlement accounting and remeasure our pension benefit plan assets and obligations at each quarter-end in 2021, as we ~~expect~~expected settlements to occur during each quarter. These remeasurements resulted in the recognition of actuarial gains of $374 in the third quarter and $3,021 for the nine months ended September 30, 2021.

As part of our ~~first-quarter~~ 2021 ~~remeasurement, we increased~~remeasurements, the weighted-average discount rate used to measure our pension benefit obligation remained consistent at 3.00% at September 30, 2021 as compared to June 30, 2021, increasing from 2.70% ~~to 3.30%.~~at December 31, 2020. The discount rate in effect for determining pension service and interest costs after our September 30 remeasurement is ~~3.60%~~3.30% and ~~2.50%~~2.30% respectively. The ~~remeasurement reflects an~~remeasurements also reflect actual ~~return~~returns on pension plan assets of ~~(1.33)% (three-month~~6.30% (nine-month rate) relative to our expected long-term rate of 6.75% (annual rate).

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 (credit) cost is recorded in operating expenses in the consolidated statements of income while the remaining components are recorded in “Other income (expense) – net.”

Three months ended
March 31,
2021 2020
Pension cost:
Service cost - benefits earned during the period $ 254 $ 257
Interest cost on projected benefit obligation 291 422
Expected return on assets (877) (889)
Amortization of prior service credit (36) (28)
Actuarial (gain) loss (2,844) 0
Net pension (credit) cost $ (3,212) $ (238)
Postretirement cost:
Service cost – benefits earned during the period $ 11 $ 13
Interest cost on accumulated postretirement benefit obligation 53 104
Expected return on assets (38) (44)
Amortization of prior service credit (634) (582)
Net postretirement (credit) cost $ (608) $ (509)
Combined net pension and postretirement (credit) cost $ (3,820) $ (747)

We also provide senior- and middle-management employees with nonqualified, unfunded supplemental retirement and savings plans. For the first quarter ended 2021 and 2020, net supplemental pension benefits costs not included in the table above were $12 and $19.


	Three months ended				Nine months ended
	September 30,				September 30,
	2021		2020		2021		2020
Pension cost:
Service cost – benefits earned during the period	$	241	$	257	$	723	$	772
Interest cost on projected benefit obligation	321		421		951		1,265
Expected return on assets	(890)		(888)		(2,617)		(2,667)
Amortization of prior service credit	(36)		(28)		(108)		(85)
Actuarial (gain) loss	(374)		—		(3,021)		—
Net pension (credit) cost	$	(738)	$	(238)	$	(4,072)	$	(715)

Postretirement cost:
Service cost – benefits earned during the period	$	11	$	14	$	34	$	40
Interest cost on accumulated postretirement benefit obligation	53		104		158		312
Expected return on assets	(38)		(44)		(114)		(133)
Amortization of prior service credit	(634)		(583)		(1,903)		(1,747)
Net postretirement (credit) cost	$	(608)	$	(509)	$	(1,825)	$	(1,528)
Combined net pension and postretirement (credit) cost	$	(1,346)	$	(747)	$	(5,897)	$	(2,243)

1823

AT&T INC.

~~MARCH 31,~~SEPTEMBER 30, 2021

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued

Dollars in millions except per share amounts

We also provide senior- and middle-management employees with nonqualified, unfunded supplemental retirement and savings plans. Net supplemental pension benefits costs not included in the table above were $12 and $19 in the third quarter and $35 and $57 for the first nine months of 2021 and 2020, respectively.

NOTE 7. FAIR VALUE MEASUREMENTS AND DISCLOSURE

The Fair Value Measurement and Disclosure framework in ASC 820, “Fair Value Measurement,” provides a three-tiered fair value hierarchy based on the reliability of the inputs used to determine fair value. Level 1 refers to fair values determined based on quoted prices in active markets for identical assets. Level 2 refers to fair values estimated using significant other observable inputs and Level 3 includes fair values estimated using significant unobservable inputs.

The level of an asset or liability within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Our valuation techniques maximize the use of observable inputs and minimize the use of unobservable inputs.

The valuation methodologies described above may produce a fair value calculation that may not be indicative of future net realizable value or reflective of future fair values. We believe our valuation methods are appropriate and consistent with other market participants. The use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different fair value measurement at the reporting date. There have been no changes in the methodologies used since December 31, 2020.

Long-Term Debt and Other Financial Instruments

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


		March 31, 2021				December 31, 2020					September 30, 2021				December 31, 2020
		Carrying		Fair		Carrying		Fair			Carrying		Fair		Carrying		Fair
		Amount		Value		Amount		Value			Amount		Value		Amount		Value
Notes and debentures1	Notes and debentures1	$	171,194	$	192,420	$	155,209	$	187,224	Notes and debentures1	$	170,841	$	197,467	$	155,209	$	187,224
Commercial paper	Commercial paper	7,078		7,078		0		0		Commercial paper	6,576		6,576		—		—

Investment securities2	Investment securities2	3,208		3,208		3,249		3,249		Investment securities2	3,282		3,282		3,249		3,249
1Includes credit agreement borrowings. Amounts at March 31, 2021 exclude $205 associated with Video business that was classified as held-for-sale (see Note 8).
1Includes credit agreement borrowings. Excludes note payable to DIRECTV. Amounts at September 30, 2021 exclude $32 associated with Vrio, which were classified as held-for-sale (see Note 8).										1Includes credit agreement borrowings. Excludes note payable to DIRECTV. Amounts at September 30, 2021 exclude $32 associated with Vrio, which were classified as held-for-sale (see Note 8).
2Excludes investments accounted for under the equity method.	2Excludes investments accounted for under the equity method.									2Excludes investments accounted for under the equity method.

The carrying amount of debt with an original maturity of less than one year approximates fair value. The fair value measurements used for notes and debentures are considered Level 2 and are determined using various methods, including quoted prices for identical or similar securities in both active and inactive markets.

1924

AT&T INC.

~~MARCH 31,~~SEPTEMBER 30, 2021

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued

Dollars in millions except per share amounts

Following is the fair value leveling for investment securities that are measured at fair value and derivatives as of ~~March 31,~~September 30, 2021 and December 31, 2020. Derivatives designated as hedging instruments are reflected as “Other assets,” “Other noncurrent liabilities,” “Prepaid and other current assets” and “Accounts payable and accrued liabilities” on our consolidated balance sheets.


		March 31, 2021									September 30, 2021
		Level 1		Level 2		Level 3		Total			Level 1		Level 2		Level 3		Total
Equity Securities	Equity Securities									Equity Securities
Domestic equities	Domestic equities	$	1,060	$	0	$	0	$	1,060	Domestic equities	$	1,137	$	—	$	—	$	1,137
International equities	International equities	198		0		0		198		International equities	212		—		—		212
Fixed income equities	Fixed income equities	227		0		0		227		Fixed income equities	231		—		—		231
Available-for-Sale Debt Securities	Available-for-Sale Debt Securities	0		1,404		0		1,404		Available-for-Sale Debt Securities	—		1,426		—		1,426
Asset Derivatives	Asset Derivatives									Asset Derivatives

Cross-currency swaps	Cross-currency swaps	0		1,461		0		1,461		Cross-currency swaps	—		430		—		430

Foreign exchange contracts	Foreign exchange contracts	0		8		0		8		Foreign exchange contracts	—		2		—		2
Liability Derivatives	Liability Derivatives									Liability Derivatives

Cross-currency swaps	Cross-currency swaps	0		(2,038)		0		(2,038)		Cross-currency swaps	—		(3,000)		—		(3,000)

Foreign exchange contracts	Foreign exchange contracts	0		(7)		0		(7)		Foreign exchange contracts	—		(36)		—		(36)


		December 31, 2020									December 31, 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	$	1,010	$	0	$	0	$	1,010	Domestic equities	$	1,010	$	—	$	—	$	1,010
International equities	International equities	180		0		0		180		International equities	180		—		—		180
Fixed income equities	Fixed income equities	236		0		0		236		Fixed income equities	236		—		—		236
Available-for-Sale Debt Securities	Available-for-Sale Debt Securities	0		1,479		0		1,479		Available-for-Sale Debt Securities	—		1,479		—		1,479
Asset Derivatives	Asset Derivatives									Asset Derivatives

Cross-currency swaps	Cross-currency swaps	0		1,721		0		1,721		Cross-currency swaps	—		1,721		—		1,721

Foreign exchange contracts	Foreign exchange contracts	0		6		0		6		Foreign exchange contracts	—		6		—		6
Liability Derivatives	Liability Derivatives									Liability Derivatives

Cross-currency swaps	Cross-currency swaps	0		(1,814)		0		(1,814)		Cross-currency swaps	—		(1,814)		—		(1,814)

Foreign exchange contracts	Foreign exchange contracts	0		(9)		0		(9)		Foreign exchange contracts	—		(9)		—		(9)

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.

2025

AT&T INC.

~~MARCH 31,~~SEPTEMBER 30, 2021

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued

Dollars in millions except per share amounts

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


		Three months ended			Three months ended						Nine months ended
		March 31,			September 30,						September 30,
			2021			2020			2021		2020		2021		2020
Total gains (losses) recognized on equity securities	Total gains (losses) recognized on equity securities		$	55		$	(203)	Total gains (losses) recognized on equity securities	$	9	$	64	$	151	$	22
Gains (Losses) recognized on equity securities sold	Gains (Losses) recognized on equity securities sold		0			(33)		Gains (Losses) recognized on equity securities sold	(2)		—		(2)		(24)
Unrealized gains (losses) recognized on equity securities held at end of period	Unrealized gains (losses) recognized on equity securities held at end of period		$	55		$	(170)	Unrealized gains (losses) recognized on equity securities held at end of period	$	11	$	64	$	153	$	46

At ~~March 31,~~September 30, 2021, available-for-sale debt securities totaling ~~$1,404~~$1,426 have maturities as follows - less than one year: ~~$33;~~$65; one to three years: ~~$186;~~$209; three to five years: ~~$206;~~$185; five or more years: ~~$979.~~$967.

Our cash equivalents (money market securities), short-term investments (certificate and time deposits) and nonrefundable customer deposits are recorded at amortized cost, and the respective carrying amounts approximate fair values. Short-term investments and nonrefundable customer deposits are recorded in “Prepaid and other current assets” and our investment securities are recorded in “Other Assets” on the consolidated balance sheets.

Derivative Financial Instruments

We enter into derivative transactions to manage certain market risks, primarily interest rate risk and foreign currency exchange risk. This includes the use of interest rate swaps, interest rate locks, foreign exchange forward contracts and combined interest rate foreign exchange contracts (cross-currency swaps). We do not use derivatives for trading or speculative purposes. We record derivatives on our consolidated balance sheets at fair value that is derived from observable market data, including yield curves and foreign exchange rates (all of our derivatives are Level 2). Cash flows associated with derivative instruments are presented in the same category on the consolidated statements of cash flows as the item being hedged.

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

We also designate some of our cross-currency swaps as fair value hedges. The purpose of these contracts is to hedge foreign currency risk associated with changes in spot rates on foreign denominated debt. ~~The changes~~For these hedges we have elected to exclude the change in fair ~~values~~value of ~~currency swaps attributable~~the cross-currency swap related to ~~the~~both time value and cross-currency basis spread ~~are considered excluded components.~~from the assessment of hedge effectiveness.

Unrealized and realized gains or losses from fair value hedges impact the same category on the consolidated statements of income as the item being ~~hedged.~~hedged, including the earnings impact of excluded components. In instances where we have ~~designated excluded~~elected to exclude components from the assessment of hedge effectiveness related to fair value hedges, unrealized gains or losses on such excluded components are recorded as a component of accumulated OCI and recognized into earnings through the swap ~~accrual.~~accrual over the life of the hedging instrument. Unrealized gains on derivatives designated as fair value hedges are recorded at fair market value as assets, and unrealized losses are recorded at fair market value as liabilities. Except for excluded components, changes in the fair value of derivative instruments designated as fair value hedges are offset against the change in fair value of the hedged assets or liabilities through earnings. In the ~~three~~nine months ended ~~March 31,~~September 30, 2021 and 2020, no ineffectiveness was measured on fair value hedges.

Cash Flow Hedging We designate most of 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 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 certain forecasted film production costs and film tax incentives denominated in foreign currencies.

2126

AT&T INC.

~~MARCH 31,~~SEPTEMBER 30, 2021

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued

Dollars in millions except per share amounts

Unrealized gains on derivatives designated as cash flow hedges are recorded at fair value as assets, and unrealized losses are recorded at fair value as liabilities. For derivative instruments designated as cash flow hedges, changes in fair value are reported as a component of accumulated OCI and are reclassified into the consolidated statements of income in the same period the hedged transaction affects earnings.

Periodically, we enter into and designate interest rate locks to partially hedge the risk of changes in interest payments attributable to increases in the benchmark interest rate during the period leading up to the probable issuance of fixed-rate debt. We designate our interest rate locks as cash flow hedges. Gains and losses when we settle our interest rate locks are amortized into income over the life of the related debt. Over the next 12 months, we expect to reclassify ~~$87~~$77 from accumulated OCI to “Interest expense” due to the amortization of net losses on historical interest rate locks.

Net Investment Hedging We have designated ~~€1,433~~€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 sheets. Net gains on net investment hedges recognized in accumulated OCI in the ~~first~~third quarter were ~~$70.~~$40 and net gains for the first nine months of 2021 were $91.

Collateral and Credit-Risk Contingency We have entered into agreements with our derivative counterparties establishing collateral thresholds based on respective credit ratings and netting agreements. At ~~March 31,~~September 30, 2021, we had posted collateral of ~~$47~~$116 (a deposit asset) and held collateral of ~~$781~~$189 (a receipt liability). Under the agreements, if AT&T’s credit rating had been downgraded two ratings levels by Fitch Ratings, one level by S&P and one level by Moody’s before the final collateral exchange in ~~March,~~September, we would have been required to post additional collateral of ~~$48.~~$54. If AT&T’s credit rating had been downgraded three ratings levels by Fitch Ratings, two levels by S&P, and two levels by Moody’s, we would have been required to post additional collateral of ~~$1,160. 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 $36.~~$2,536. At December 31, 2020, we had posted collateral of $53 (a deposit asset) and held collateral of $694 (a receipt liability). We do not offset the fair value of collateral, whether the right to reclaim cash collateral (a receivable) or the obligation to return cash collateral (a payable) exists, against the fair value of the derivative instruments.

Following are the notional amounts of our outstanding derivative positions:


		March 31,		December 31,			September 30,		December 31,
		2021		2020			2021		2020

Cross-currency swaps	Cross-currency swaps	$	42,186	$	40,745	Cross-currency swaps	$	42,085	$	40,745

Foreign exchange contracts	Foreign exchange contracts	228		90		Foreign exchange contracts	191		90
Total	Total	$	42,414	$	40,835	Total	$	42,276	$	40,835

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			Three months ended						Nine months ended
		March 31,			September 30,						September 30,
Fair Value Hedging Relationships	Fair Value Hedging Relationships		2021			2020		Fair Value Hedging Relationships	2021		2020		2021		2020
Interest rate swaps (Interest expense):	Interest rate swaps (Interest expense):							Interest rate swaps (Interest expense):
Gain (Loss) on interest rate swaps	Gain (Loss) on interest rate swaps		$	(1)		$	10	Gain (Loss) on interest rate swaps	$	(1)	$	(1)	$	(3)	$	(5)
Gain (Loss) on long-term debt	Gain (Loss) on long-term debt		1			(10)		Gain (Loss) on long-term debt	1		1		3		5
Cross-currency swaps:	Cross-currency swaps:							Cross-currency swaps:
Gain (Loss) on cross-currency swaps	Gain (Loss) on cross-currency swaps		(48)			0		Gain (Loss) on cross-currency swaps	(34)		—		(66)		—
Gain (Loss) on long-term debt	Gain (Loss) on long-term debt		48			0		Gain (Loss) on long-term debt	34		—		66		—
Gain (Loss) recognized in accumulated OCI	Gain (Loss) recognized in accumulated OCI		(1)			0		Gain (Loss) recognized in accumulated OCI	2		—		3		—

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

2227

AT&T INC.

~~MARCH 31,~~SEPTEMBER 30, 2021

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued

Dollars in millions except per share amounts

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


		Three months ended			Three months ended						Nine months ended
		March 31,			September 30,						September 30,
Cash Flow Hedging Relationships	Cash Flow Hedging Relationships		2021			2020		Cash Flow Hedging Relationships	2021		2020		2021		2020
Cross-currency swaps:	Cross-currency swaps:							Cross-currency swaps:
Gain (Loss) recognized in accumulated OCI	Gain (Loss) recognized in accumulated OCI		$	644		$	(3,979)	Gain (Loss) recognized in accumulated OCI	$	(237)	$	1,079	$	(742)	$	(2,091)
Foreign exchange contracts:	Foreign exchange contracts:							Foreign exchange contracts:
Gain (Loss) recognized in accumulated OCI	Gain (Loss) recognized in accumulated OCI		4			(13)		Gain (Loss) recognized in accumulated OCI	(14)		10		(14)		(1)
Other income (expense) - net reclassified from accumulated OCI into income	Other income (expense) - net reclassified from accumulated OCI into income		(5)			16		Other income (expense) - net reclassified from accumulated OCI into income	7		(9)		(3)		4
Interest rate locks:	Interest rate locks:							Interest rate locks:
Gain (Loss) recognized in accumulated OCI	Gain (Loss) recognized in accumulated OCI		0			(636)		Gain (Loss) recognized in accumulated OCI	—		—		—		(648)
Interest income (expense) reclassified from accumulated OCI into income	Interest income (expense) reclassified from accumulated OCI into income		(25)			(16)		Interest income (expense) reclassified from accumulated OCI into income	(22)		(25)		(70)		(59)

NOTE 8. ACQUISITIONS, DISPOSITIONS AND OTHER ADJUSTMENTS

Acquisitions

Spectrum Auction On February 24, 2021, the Federal Communications Commission (FCC) announced that AT&T was the winning bidder for 1,621 C-Band licenses, comprised of a total of 80 MHz nationwide, including 40 MHz in Phase I. We provided to the FCC an upfront deposit of $550 in 2020 and cash payments totaling $22,856 in the first quarter of 2021, for a total of ~~$23,406 to date.~~$23,406. We received the licenses in July 2021 and classified the auction deposits, related capitalized interest and billed relocation costs as “Licenses - Net” on our September 30, 2021 consolidated balance sheet. We estimate that we will be responsible for $955 of Incentive Payments upon clearing of Phase I spectrum, expected by the end of 2021, and $2,112 upon clearing of Phase II ~~spectrum.~~spectrum, expected by the end of 2023. Additionally, we ~~will be~~are responsible for approximately $1,000 of compensable relocation costs over the next several years as the spectrum is being cleared by satellite ~~operators.~~operators, of which $650 was billed in the third quarter and paid in the fourth quarter of 2021. Cash paid, including spectrum deposits (net of refunds), capitalized interest, and ~~refunds,~~any payments for ~~spectrum is~~incentive and relocation costs are included in “Acquisitions, net of cash acquired” on our consolidated statements of cash flows. Interest is capitalized until the spectrum is ready for its intended use. Funding for the purchase price of the spectrum included a combination of cash on hand and short-term investments, as well as short- and long-term debt.

We expect the FCC to begin granting the licenses in the second half of 2021 through 2023. The amounts deposited toward the acquisition of the licenses are reported as “Deposits on Wireless Licenses” on our consolidated balance sheet as of March 31, 2021. Interest incurred to finance this spectrum acquisition is capitalized until the licenses are granted and the activities required to ready the spectrum for use are complete.

~~Held-for-Sale~~Dispositions

Video Business On ~~February 25,~~July 31, 2021, we ~~signed an agreement~~closed our transaction with TPG ~~Capital (TPG)~~ to form a new company named DIRECTV, ~~(New DTV),~~ which ~~will be~~is jointly governed by a board with representation from both AT&T and TPG, with TPG having tie-breaking authority on certain key decisions. ~~Under~~

In connection with the ~~agreement,~~transaction, we ~~will contribute~~contributed our U.S. Video business unit to ~~New DTV~~DIRECTV for $4,250 of junior preferred units, an additional distribution preference of $4,200 and a 70% economic interest in common ~~units. We expect to receive $7,800 from New DTV at closing ($7,600 in cash and approximately $200 of transferred DIRECTV debt)~~units (collectively “equity considerations”). TPG ~~will contribute~~contributed approximately $1,800 in cash to ~~New DTV~~DIRECTV for $1,800 of senior preferred units and a 30% economic interest in common units. ~~The remaining $5,800 will be funded by debt issued by New DTV. As part~~See Note 11 for additional information on our accounting for our investment in and transactions with DIRECTV.

In the third quarter, we received approximately $7,170 in cash from DIRECTV ($7,600, net of ~~this transaction, we agreed~~$430 cash on hand) and transferred $195 of DIRECTV debt. Approximately $1,800 of the cash received is reported as cash received from financing activities in our consolidated statement of cash flows, as it relates to ~~pay~~a note payable to DIRECTV, for which payment is tied to our agreement to cover net losses under the remaining term of the NFL SUNDAY TICKET contract up to a cap of ~~$2,500~~$2,100 over the remaining period of the contract.

The remainder of the net proceeds is reported as cash from investing activities. This transaction ~~is expected to close~~did not result in ~~the second half of 2021, pending customary closing conditions. The total of $7,600 of proceeds from the transaction are expected to reduce our total and net debt positions.~~a material gain or loss.

2328

AT&T INC.

~~MARCH 31,~~SEPTEMBER 30, 2021

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued

Dollars in millions except per share amounts

In the first quarter of 2021, we applied held-for-sale accounting treatment to the assets and liabilities of the U.S. video business, and, accordingly, ~~include~~included the assets in “Prepaid and other current assets,” and the related liabilities in “Accounts payable and accrued liabilities,” on our consolidated balance ~~sheet.~~sheet, up until the close of the transaction. The held-for-sale classification also resulted in ceasing depreciation and amortization on the designated assets.

~~Assets~~The assets and liabilities of the Video operations, ~~included~~transferred to DIRECTV upon close of the ~~following~~transaction, were as ~~of March 31, 2021:~~

follows:

~~Assets held-for-sale:~~

Current assets

~~3,776~~4,893

Property, plant and equipment - net

~~2,410~~2,673

Licenses, net

5,798

Other intangible assets, net

~~1,633~~1,634

Other assets

~~1,948~~1,787

Total Video assets

~~15,565~~16,785

~~Liabilities related to assets held-for-sale:~~

Current liabilities

~~4,022~~4,267

Long-term debt

~~205~~206

Other noncurrent liabilities

~~351~~343

Total Video liabilities

~~4,578~~4,816

Otter Media During the third quarter of 2021, we disposed of substantially all of the assets of Otter Media. We received approximately $1,540 in cash and removed approximately $1,200 of goodwill associated with these assets. The dispositions did not result in a material gain or loss.

Playdemic Ltd. On September 20, 2021, we sold WarnerMedia’s mobile games app studio, Playdemic Ltd. (Playdemic) for approximately $1,400 in cash and recognized a pre-tax gain of $766 in “Other income (expense) - net,” on our consolidated statement of income. Approximately $600 of goodwill was removed related to this business. Playdemic was excluded from the pending WarnerMedia/Discovery transaction.

Pending Dispositions

WarnerMedia On May 17, 2021, we entered into an agreement to combine our WarnerMedia segment, subject to certain exceptions, with a subsidiary of Discovery, Inc. (Discovery). The agreement is structured as a Reverse Morris Trust transaction, under which WarnerMedia will be distributed to AT&T’s shareholders via a pro rata dividend, an exchange offer, or a combination of both, followed by its combination with Discovery. The transaction is expected to be tax-free to AT&T and AT&T’s shareholders. AT&T will receive approximately $43,000 (subject to adjustment) in a combination of cash, debt securities, and WarnerMedia’s retention of certain debt. AT&T’s shareholders will receive stock representing approximately 71% of the new company; Discovery shareholders will own approximately 29% of the new company. The transaction is expected to close in mid-2022, subject to approval by Discovery shareholders and customary closing conditions, including receipt of regulatory approvals. No vote is required by AT&T shareholders.

The merger agreement contains certain customary termination rights for AT&T and Discovery, including, without limitation, a right for either party to terminate if the transaction is not completed on or before July 15, 2023. Termination fees under specified circumstances will require Discovery to pay AT&T $720 or AT&T to pay Discovery $1,770.

Magallanes, Inc. (Spinco), a subsidiary of AT&T, entered into a $41,500 commitment letter (Bridge Loan) on May 17, 2021. On June 4, 2021, Spinco entered into a $10,000 term loan credit agreement (Spinco Term Loan) and reduced the aggregate commitment amount under the Bridge Loan to $31,500. There have been no draws on the Bridge Loan or the Spinco Term Loan. In the event advances are made under the Bridge Loan or Spinco Term Loan, those advances will be used by Spinco to finance a portion of the cash distribution to AT&T in connection with the transaction.

AT&T INC.

SEPTEMBER 30, 2021

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued

Dollars in millions except per share amounts

Vrio On July 21, 2021, we entered into an agreement to sell our Latin America video operations, Vrio, to Grupo Werthein. In the second quarter of 2021, we classified the Vrio disposal group as held-for-sale and reported the disposal group at fair value less cost to sell, which resulted in a noncash, pre-tax impairment charge of $4,555, including approximately $2,100 related to accumulated foreign currency translation adjustments and $2,500 related to property, plant and equipment and intangible assets. Approximately $80 of the impairment was attributable to noncontrolling interest. At September 30, 2021, our consolidated balance sheet included $853 of Vrio held-for-sale assets reported in “Prepaid and other current assets,” primarily related to deferred customer contract acquisition and fulfillment costs, prepaids and other deferred charges, and $2,819 of related liabilities reported in “Accounts payable and accrued liabilities,” primarily for reserves associated with accumulated foreign currency translation adjustments, which will reverse against accumulated other comprehensive income upon close of the transaction.

The transaction is expected to close during the fourth quarter of 2021, pending customary closing conditions. We will retain our 41.3% interest in SKY Mexico, a leading pay-TV provider in Mexico.

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) 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.

~~AT&T INC.~~

~~MARCH 31, 2021~~

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

~~Dollars in millions except per share amounts~~

Our equipment installment and revolving receivable programs are discussed in detail below. The following table sets forth a summary of the receivables and accounts being serviced:


		March 31, 2021				December 31, 2020					September 30, 2021				December 31, 2020
		Equipment				Equipment					Equipment				Equipment
		Installment		Revolving		Installment		Revolving			Installment		Revolving		Installment		Revolving
Gross receivables:	Gross receivables:	$	3,857	$	3,718	$	5,565	$	3,909	Gross receivables:	$	3,671	$	3,371	$	5,565	$	3,909
Balance sheet classification	Balance sheet classification									Balance sheet classification
Accounts receivable	Accounts receivable									Accounts receivable
Notes receivable	Notes receivable	1,846		0		2,716		0		Notes receivable	1,746		—		2,716		—
Trade receivables	Trade receivables	452		3,543		554		3,715		Trade receivables	438		3,163		554		3,715
Other Assets	Other Assets									Other Assets
Noncurrent notes and trade receivables	Noncurrent notes and trade receivables	1,559		175		2,295		194		Noncurrent notes and trade receivables	1,487		208		2,295		194

Outstanding portfolio of receivables derecognized from our consolidated balance sheets	Outstanding portfolio of receivables derecognized from our consolidated balance sheets	9,448		5,755		7,827		5,300		Outstanding portfolio of receivables derecognized from our consolidated balance sheets	9,380		5,562		7,827		5,300
Cash proceeds received, net of remittances1	Cash proceeds received, net of remittances1	7,176		5,755		5,646		5,300		Cash proceeds received, net of remittances1	6,588		5,562		5,646		5,300
1Represents amounts to which financial institutions remain entitled, excluding the deferred purchase price.	1Represents amounts to which financial institutions remain entitled, excluding the deferred purchase price.									1Represents amounts to which financial institutions remain entitled, excluding the deferred purchase price.

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.

AT&T INC.

SEPTEMBER 30, 2021

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued

Dollars in millions except per share amounts

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.

The following table sets forth a summary of equipment installment receivables sold under this program during the three and nine months ended ~~March 31,~~September 30, 2021 and 2020:


		Three months ended				Three months ended						Nine months ended
		March 31,				September 30,						September 30,
				2021			2020			2021		2020		2021		2020
Gross receivables sold	Gross receivables sold			$	3,935		$	2,367	Gross receivables sold	$	2,123	$	1,624	$	8,067	$	5,497
Net receivables sold1	Net receivables sold1			3,826			2,273		Net receivables sold1	2,069		1,578		7,858		5,300
Cash proceeds received	Cash proceeds received			3,519			1,950		Cash proceeds received	1,981		1,387		7,231		4,562
Deferred purchase price recorded	Deferred purchase price recorded			414			353		Deferred purchase price recorded	158		226		864		811
Guarantee obligation recorded	Guarantee obligation recorded			146			44		Guarantee obligation recorded	94		55		321		126
1Receivables net of allowance, imputed interest and equipment trade-in right guarantees.	1Receivables net of allowance, imputed interest and equipment trade-in right guarantees.		1Receivables net of allowance, imputed interest and equipment trade-in right guarantees.

The deferred purchase price and guarantee obligation are initially recorded at estimated fair value and subsequently adjusted for changes in present value of expected cash flows. The estimation of their fair values is based on remaining installment payments expected to be collected and the expected timing and value of device trade-ins. The estimated value of the device trade-ins considers prices offered to us by independent third parties ~~that~~and contemplate changes in value after the launch of a device model. The fair value measurements used for the deferred purchase price and the guarantee obligation are considered Level 3 under the Fair Value Measurement and Disclosure framework (see Note 7).

~~AT&T INC.~~

~~MARCH 31, 2021~~

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

~~Dollars in millions except per share amounts~~

The following table presents the previously transferred equipment installment receivables, which we repurchased in exchange for the associated deferred purchase price during the three and nine months ended ~~March 31,~~September 30, 2021 and 2020:


		Three months ended				Three months ended						Nine months ended
		March 31,				September 30,						September 30,
				2021			2020			2021		2020		2021		2020
Fair value of repurchased receivables	Fair value of repurchased receivables			$	273		$	288	Fair value of repurchased receivables	$	471	$	373	$	1,094	$	946
Carrying value of deferred purchase price	Carrying value of deferred purchase price			253			277		Carrying value of deferred purchase price	440		373		1,019		931
Gain on repurchases1	Gain on repurchases1			$	20		$	11	Gain on repurchases1	$	31	$	—	$	75	$	15
1These gains are included in "Selling, general and administrative" in the consolidated statements of income.	1These gains are included in "Selling, general and administrative" in the consolidated statements of income.		1These gains are included in "Selling, general and administrative" in the consolidated statements of income.

At ~~March 31,~~September 30, 2021 and December 31, 2020, our deferred purchase price receivable was ~~$2,283~~$2,797 and $1,991, respectively, of which ~~$1,515~~$1,757 and $1,476 are included in “Prepaid and other current assets” on our consolidated balance sheets, with the remainder in “Other Assets.” The guarantee obligation at ~~March 31,~~September 30, 2021 and December 31, 2020 was ~~$285~~$352 and $228, respectively, of which ~~$129~~$124 and $161 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.

Revolving Receivables Program

We have a revolving agreement to transfer up to $6,000 of certain receivables through our bankruptcy-remote subsidiaries to various financial institutions on a recurring basis in exchange for cash equal to the gross receivables transferred. This agreement is subject to renewal on an annual basis and the transfer limit may be expanded or reduced from time to time. As customers pay their balances, we transfer additional receivables into the program, resulting in our gross receivables sold exceeding net cash flow impacts (e.g., collect and reinvest). The transferred receivables are fully guaranteed by our bankruptcy-remote subsidiaries, which hold additional receivables in the amount of ~~$3,718~~$3,371 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

AT&T INC.

SEPTEMBER 30, 2021

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued

Dollars in millions except per share amounts

obligation is subsequently adjusted for changes in estimated expected credit losses and interest rates. Our maximum exposure to loss related to these receivables transferred is limited to the amount outstanding.

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

The following table sets forth a summary of receivables sold:

Three months ended
March 31,
2021 2020
Gross receivables sold/cash proceeds received1
$ 5,204 $ 4,222
Collections reinvested under revolving agreement 4,504 3,222
Collections not reinvested 245 0
Net cash proceeds received (remitted) $ 455 $ 1,000
Net receivables sold2
$ 5,125 $ 4,138
Obligations recorded (reversed) 142 126
1Includes initial sales of receivables of $700 and $1,000 for the three months ended March 31, 2021 and 2020, respectively.
2Receivables net of allowance, return and incentive reserves and imputed interest.


	Three months ended				Nine months ended
	September 30,				September 30,
	2021		2020		2021		2020
Gross receivables sold/cash proceeds received1	$	4,472	$	3,563	$	14,813	$	11,590
Total collections under revolving agreement2	4,631		3,763		14,381		10,790
Receivables repurchased	170		—		170		—

Net cash proceeds received (paid)	$	(329)	$	(200)	$	262	$	800

Net receivables sold3	$	4,301	$	3,553	$	14,558	$	11,510
Obligations recorded (reversed)	(60)		58		(49)		172
1Includes initial sales of receivables of $0 for each of the three months and $700 and $1,000 for the nine months ended September 30, 2021 and 2020, respectively.
2Includes collections of $159 and $200 for the three months and $268 and $200 for the nine months ended September 30, 2021 and 2020, respectively, that were not reinvested under the revolving agreement.
3Receivables net of allowance, return and incentive reserves and imputed interest.

~~AT&T INC.~~

~~MARCH 31, 2021~~

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

~~Dollars in millions except per share amounts~~

NOTE 10. LEASES

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

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

The components of lease expense were as follows:

Three months ended
March 31,
2021 2020
Operating lease cost $ 1,458 $ 1,377
Finance lease cost:
Amortization of right-of-use assets $ 69 $ 67
Interest on lease obligation 39 41
Total finance lease cost $ 108 $ 108

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

Three months ended
March 31,
2021 2020
Cash Flows from Operating Activities
Cash paid for amounts included in lease obligations:
Operating cash flows for operating leases $ 1,254 $ 1,217
Supplemental Lease Cash Flow Disclosures
Operating lease right-of-use assets obtained in exchange for new
operating lease obligations 1,050 1,013


	Three months ended				Nine months ended
	September 30,				September 30,
	2021		2020		2021		2020
Operating lease cost	$	1,454	$	1,546	$	4,343	$	4,372

Finance lease cost:
Amortization of right-of-use assets	$	59	$	76	$	198	$	216
Interest on lease obligation	43		39		123		116
Total finance lease cost	$	102	$	115	$	321	$	332

2732

AT&T INC.

~~MARCH 31,~~SEPTEMBER 30, 2021

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued

Dollars in millions except per share amounts

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


	Nine months ended
	September 30,
	2021		2020
Cash Flows from Operating Activities
Cash paid for amounts included in lease obligations:
Operating cash flows for operating leases	$	3,754	$	3,651
Supplemental Lease Cash Flow Disclosures
Operating lease right-of-use assets obtained in exchange for new operating lease obligations	3,543		3,908

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

March 31,
2021 December 31,
2020
Operating Leases
Operating lease right-of-use assets $ 24,415 $ 24,714
Accounts payable and accrued liabilities $ 3,564 $ 3,537
Operating lease obligation 21,766 22,202
Total operating lease obligation $ 25,330 $ 25,739
Finance Leases
Property, plant and equipment, at cost $ 3,414 $ 3,586
Accumulated depreciation and amortization (1,308) (1,361)
Property, plant and equipment, net $ 2,106 $ 2,225
Current portion of long-term debt $ 180 $ 189
Long-term debt 1,747 1,847
Total finance lease obligation $ 1,927 $ 2,036
March 31,
2021 2020
Weighted-Average Remaining Lease Term (years)
Operating leases 8.4 8.4
Finance leases 9.8 10.7
Weighted-Average Discount Rate
Operating leases 4.0 % 4.2 %
Finance leases 8.0 % 8.4 %

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

At March 31, 2021 Operating Finance
Leases Leases
Remainder of 2021 $ 3,631 $ 242
2022 4,647 314
2023 4,212 291
2024 3,671 272
2025 3,015 269
Thereafter 11,668 1,587
Total lease payments 30,844 2,975
Less: imputed interest (5,514) (1,048)
Total $ 25,330 $ 1,927


	September 30, 2021			December 31, 2020
Operating Leases
Operating lease right-of-use assets	$	24,341		$	24,714

Accounts payable and accrued liabilities	$	3,675		$	3,537
Operating lease obligation	21,510			22,202
Total operating lease obligation	$	25,185		$	25,739
Finance Leases
Property, plant and equipment, at cost	$	2,774		$	3,586
Accumulated depreciation and amortization	(1,166)			(1,361)
Property, plant and equipment, net	$	1,608		$	2,225

Current portion of long-term debt	$	169		$	189
Long-term debt	1,574			1,847
Total finance lease obligation	$	1,743		$	2,036

	September 30,
	2021			2020
Weighted-Average Remaining Lease Term (years)
Operating leases	8.4			8.5
Finance leases	8.5			10.1

Weighted-Average Discount Rate
Operating leases	3.8		%	4.1		%
Finance leases	8.0		%	8.1		%

2833

AT&T INC.

~~MARCH 31,~~SEPTEMBER 30, 2021

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued

Dollars in millions except per share amounts

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


At September 30, 2021	Operating		Finance
	Leases		Leases
Remainder of 2021	$	1,252	$	84
2022	4,897		340
2023	4,467		315
2024	3,931		290
2025	3,211		281
Thereafter	12,734		1,466
Total lease payments	30,492		2,776
Less: imputed interest	(5,307)		(1,033)
Total	$	25,185	$	1,743

NOTE 11. INVESTMENT IN AND TRANSACTIONS WITH DIRECTV

On July 31, 2021, we closed our transaction with TPG to form a new company named DIRECTV (see Note 8). The transaction resulted in our deconsolidation of the Video Business, with DIRECTV being considered a variable interest entity for accounting purposes. As DIRECTV is jointly governed by a board with representation from both AT&T and TPG, with TPG having tie-breaking authority on certain key decisions, most significantly the appointment and removal of the CEO, we have concluded that we are not the primary beneficiary of DIRECTV. As a result, effective August 1, 2021, we accounted for our investments in DIRECTV under the equity method and recorded our share of DIRECTV earnings as equity in net income of affiliates as DIRECTV is considered a related party upon deconsolidation. Our share of net income or loss may differ from the stated ownership percentage interest of DIRECTV as the terms of the arrangement prescribe substantive non-proportionate cash distributions, both from operations and in liquidation, that are based on classes of interests held by investors. In the event that DIRECTV records a loss, that loss will be allocated to ownership interests based on their seniority, beginning with the most subordinated interests.

Our investment in DIRECTV at September 30, 2021 was $6,883, based upon the initial fair value of the equity considerations on July 31, 2021 of $6,852 which was determined using a discounted cash flow model reflecting distribution rights and preference of the individual instruments. For the two months ended September 30, 2021, our share of DIRECTV’s earnings included in equity in net income of affiliates was $157. Cash distributions from DIRECTV in the third quarter totaled $130 and were classified as operating activities in our consolidated statement of cash flows.

In addition to the assets and liabilities contributed to DIRECTV (see Note 8), we recorded total obligations of $2,100 to cover certain net losses under the NFL SUNDAY TICKET contract, of which $1,800 is in the form of a note payable to DIRECTV (see Note 8). During the third quarter of 2021, cash payments to DIRECTV on the note totaled $361 and were classified as financing activities in our consolidated statement of cash flows. Amounts due under the DIRECTV note were $1,438 at September 30, 2021.

Through our WarnerMedia properties, we license content and programming and provide advertising services to DIRECTV. Revenue recognized from DIRECTV, which was previously eliminated, totaled approximately $280 for the two months ended September 30, 2021. We also provide DIRECTV with network transport for U-verse products and sales services under commercial arrangements for up to five years.

Pursuant to a commercial agreement, WarnerMedia continues to sell DIRECTV’s advertising inventory under a revenue sharing agreement. WarnerMedia records amounts billed as advertising revenue and recognizes expense for DIRECTV’s revenue share, which was approximately $200 for the two months ended September 30, 2021. Under separate transition services agreements, we provide DIRECTV certain operational support, including servicing of certain of their customer receivables for up to three years. For the two months ended September 30, 2021, we billed DIRECTV approximately $240 for these costs, which were recorded as a reduction to the operations and support expenses incurred and resulted in net retained costs to AT&T of approximately $50 in the third quarter.

At September 30, 2021, we had accounts receivable from DIRECTV of $433 and accounts payable to DIRECTV of $659.

AT&T INC.

SEPTEMBER 30, 2021

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued

Dollars in millions except per share amounts

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

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


		March 31,				December 31,					September 30,				December 31,
		2021		2020		2020		2019			2021		2020		2020		2019
Cash and cash equivalents	Cash and cash equivalents	$	11,342	$	9,955	$	9,740	$	12,130	Cash and cash equivalents	$	21,270	$	9,758	$	9,740	$	12,130
Restricted cash in Prepaid and other current assets	Restricted cash in Prepaid and other current assets	2		8		9		69		Restricted cash in Prepaid and other current assets	2		2		9		69
Restricted cash in Other Assets	Restricted cash in Other Assets	84		77		121		96		Restricted cash in Other Assets	133		89		121		96
Cash and Cash Equivalents and Restricted Cash	Cash and Cash Equivalents and Restricted Cash	$	11,428	$	10,040	$	9,870	$	12,295	Cash and Cash Equivalents and Restricted Cash	$	21,405	$	9,849	$	9,870	$	12,295

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


Consolidated Statements of Cash Flows	Consolidated Statements of Cash Flows	Three months ended				Consolidated Statements of Cash Flows	Nine months ended
		March 31,					September 30,
Cash paid (received) during the period for:	Cash paid (received) during the period for:	2021		2020		Cash paid (received) during the period for:	2021		2020
Interest	Interest	$	2,134	$	2,376	Interest	$	6,079	$	6,661
Income taxes, net of refunds	Income taxes, net of refunds	5		(354)		Income taxes, net of refunds	538		306
Spectrum acquisitions		22,876		97
Spectrum acquisitions1						Spectrum acquisitions1	23,017		1,062
1 Included as cash paid for “Acquisitions, net of cash acquired” on our consolidated statement of cash flows. Excludes interest during construction.						1 Included as cash paid for “Acquisitions, net of cash acquired” on our consolidated statement of cash flows. Excludes interest during construction.

The following table summarizes interest capitalized during construction:						The following table summarizes interest capitalized during construction:
							Nine months ended
							September 30,
Interest during construction:						Interest during construction:	2021		2020
Capital expenditures						Capital expenditures	$	(132)	$	(92)
Spectrum1						Spectrum1	(516)		—
Interest During Construction						Interest During Construction	$	(648)	$	(92)
1 Included in “Acquisitions, net of cash acquired” on our consolidated statement of cash flows.						1 Included in “Acquisitions, net of cash acquired” on our consolidated statement of cash flows.

Noncash Investing and Financing Activities In connection with capital improvements and the acquisition of other productive assets, we negotiate favorable payment terms (referred to as vendor financing), which are reported as financing activities in our statements of cash flows when paid. For the ~~three~~nine months ended ~~March 31,~~September 30, 2021 and 2020, we recorded vendor financing commitments related to capital investments of approximately ~~$998~~$3,624 and ~~$449.~~$3,148.

Total vendor financing payables included in our ~~March 31,~~September 30, 2021 consolidated balance sheet were approximately ~~$3,552,~~$3,752, with ~~$2,883~~$2,866 due within one year (in “Accounts payable and accrued liabilities”) and the remainder predominantly due within two to three years (in “Other noncurrent liabilities”).

2935

AT&T INC.

~~MARCH 31,~~SEPTEMBER 30, 2021

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued

Dollars in millions except per share amounts

Debt Transactions At ~~March 31,~~September 30, 2021, our debt obligations totaled ~~$180,199.~~$179,161. Our debt activity during the ~~three~~nine months ended ~~March 31,~~September 30, 2021 primarily consisted of the following:

~~Net commercial paper borrowings~~

~~7,072~~

~~Issuance of Notes and Debentures~~1:

~~U.S. dollar denominated global notes~~

~~6,000~~

~~Initial average rate of 1.27%~~

~~Euro denominated global notes~~

~~1,461~~

~~Rate of 0.00%~~

~~2021 Syndicated Term Loan~~

~~7,350~~

~~BAML Bilateral Term Loan~~

~~2,000~~

~~Private financing~~

~~750~~

~~Other~~

~~636~~

~~Debt Issuances~~

~~18,197~~

~~Repayments:~~

~~Private financing~~

~~(649)~~

~~Other~~

~~(253)~~

~~Repayments of long-term debt~~

~~(902)~~


	First Quarter		Second Quarter		Third Quarter		Nine months ended September 30, 2021
Net commercial paper borrowings	$	7,072	$	(513)	$	(2)	$	6,557
Issuance of Notes and Debentures1:
U.S. dollar denominated global notes	$	6,000	$	—	$	—	$	6,000
Initial average rate of 1.27%
Euro denominated global notes	1,461		—		—		1,461
Rate of 0.00%
2021 Syndicated Term Loan	7,350		—		—		7,350
BAML Bilateral Term Loan	2,000		—		—		2,000
Private financing	750		—		—		750
Other	636		—		835		1,471
Debt Issuances	$	18,197	$	—	$	835	$	19,032

Repayments:
Private financing	$	(649)	$	—	$	—	$	(649)
Other	(253)		(253)		(498)		(1,004)
Repayments of long-term debt	$	(902)	$	(253)	$	(498)	$	(1,653)

1 Includes credit agreement borrowings.

Credit Facilities

On January 29, 2021, we entered into a $14,700 Term Loan Credit Agreement (2021 Syndicated Term Loan), with Bank of America, N.A., as agent. On March 23, 2021, we borrowed $7,350 under the 2021 Syndicated Term Loan and the remaining $7,350 of lenders’ commitments were terminated. As of ~~March 31,~~September 30, 2021, $7,350 was outstanding and is due on March 22, 2022.

In March 2021, we entered into and drew on a $2,000 term loan credit agreement (BAML Bilateral Term Loan) consisting of (i) a 0.75 year $1,000 facility due December 31, 2021 (BAML Tranche A Facility), and (ii) a 1.75 year $1,000 facility due December 31, 2022 (BAML Tranche B Facility), with Bank of America, N.A., as agent. At ~~March 31,~~September 30, 2021, $2,000 was outstanding under these facilities.

3036

AT&T INC.

~~MARCH 31,~~SEPTEMBER 30, 2021

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

Dollars in millions except per share amounts

OVERVIEW

AT&T Inc. is referred to as “we,” “AT&T” or the “Company” throughout this document, and the names of the particular subsidiaries and affiliates providing the services generally have been omitted. AT&T is a holding company whose subsidiaries and affiliates operate worldwide in the telecommunications, media and technology industries. You should read this discussion in conjunction with the consolidated financial statements and accompanying notes (Notes).

We have three reportable segments: (1) Communications, (2) WarnerMedia and (3) Latin 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~~In the first quarter of 2021, we recast our segment results for all prior periods to reflect the following:

•

WarnerMedia segment results reflect our operation of WarnerMedia as one integrated organization.


		First Quarter					Third Quarter						Nine-Month Period
								Percent							Percent						Percent
			2021		2020			Change			2021		2020		Change		2021		2020		Change
Operating Revenues	Operating Revenues									Operating Revenues
Communications	Communications		$	28,178	$	26,779		5.2	%	Communications	$	28,218	$	27,195	3.8	%	$	84,524	$	80,479	5.0	%
WarnerMedia	WarnerMedia		8,526		7,765			9.8		WarnerMedia	8,442		7,395		14.2		25,759		21,888		17.7
Latin America	Latin America		1,374		1,590			(13.6)		Latin America	1,480		1,396		6.0		4,291		4,218		1.7
Corporate	Corporate		426		534			(20.2)		Corporate	278		628		(55.7)		1,065		1,751		(39.2)
Video	Video		6,725		7,407			(9.2)		Video	2,149		7,014		(69.4)		15,513		21,442		(27.7)
Eliminations and consolidation	Eliminations and consolidation		(1,290)		(1,296)			0.5		Eliminations and consolidation	(645)		(1,288)		49.9		(3,246)		(3,709)		12.5
AT&T Operating Revenues	AT&T Operating Revenues		43,939		42,779			2.7		AT&T Operating Revenues	39,922		42,340		(5.7)		127,906		126,069		1.5

Operating Contribution	Operating Contribution									Operating Contribution
Communications	Communications		7,365		7,401			(0.5)		Communications	7,123		7,064		0.8		21,828		21,953		(0.6)
WarnerMedia	WarnerMedia		2,030		2,014			0.8		WarnerMedia	1,935		1,755		10.3		5,704		5,681		0.4
Latin America	Latin America		(173)		(184)			6.0		Latin America	(25)		(177)		85.9		(350)		(562)		37.7
Segment Operating Contribution	Segment Operating Contribution		$	9,222	$	9,231		(0.1)	%	Segment Operating Contribution	$	9,033	$	8,642	4.5	%	$	27,182	$	27,072	0.4	%

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 and related equipment to business customers.

•Consumer Wireline provides internet, including broadband fiber, and legacy telephony voice communications services to residential customers.

~~The~~ ~~WarnerMedia segment~~ develops, produces and distributes feature films, television, gaming and other content in various physical and digital formats globally. WarnerMedia content is distributed through Basic Networks, Direct-to-Consumer (DTC) or Theatrical, TV Content and Games Licensing. Segment results also include Xandr advertising, Otter Media Holdings and eliminations of intercompany transactions within WarnerMedia.

3137

AT&T INC.

~~MARCH 31,~~SEPTEMBER 30, 2021

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

Dollars in millions except per share amounts

The WarnerMedia segment develops, produces and distributes feature films, television, gaming and other content in various physical and digital formats globally. WarnerMedia content is distributed through basic networks, Direct-to-Consumer (DTC) or theatrical, TV content and games licensing. Segment results also include Xandr advertising and Otter Media Holdings (Otter Media). We disposed of substantially all of the Otter Media assets in the third quarter of 2021 (see Note 8).

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

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

•Mexico provides wireless service and equipment to customers in Mexico.

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.


		First Quarter					Third Quarter						Nine-Month Period
								Percent							Percent						Percent
			2021		2020			Change			2021		2020		Change		2021		2020		Change
Operating Revenues	Operating Revenues									Operating Revenues
Service	Service		$	38,504	$	38,883		(1.0)	%	Service	$	34,843	$	37,782	(7.8)	%	$	112,303	$	113,716	(1.2)	%
Equipment	Equipment		5,435		3,896			39.5		Equipment	5,079		4,558		11.4		15,603		12,353		26.3
Total Operating Revenues	Total Operating Revenues		43,939		42,779			2.7		Total Operating Revenues	39,922		42,340		(5.7)		127,906		126,069		1.5

Operating expenses	Operating expenses									Operating expenses
Operations and support	Operations and support		30,469		28,071			8.5		Operations and support	27,194		29,178		(6.8)		92,678		87,382		6.1
Depreciation and amortization	Depreciation and amortization		5,809		7,222			(19.6)		Depreciation and amortization	5,619		7,030		(20.1)		17,189		21,537		(20.2)
Total Operating Expenses	Total Operating Expenses		36,278		35,293			2.8		Total Operating Expenses	32,813		36,208		(9.4)		109,867		108,919		0.9
Operating Income	Operating Income		7,661		7,486			2.3		Operating Income	7,109		6,132		15.9		18,039		17,150		5.2
Interest expense	Interest expense		1,870		2,018			(7.3)		Interest expense	1,667		1,972		(15.5)		5,221		6,031		(13.4)
Equity in net income (loss) of affiliates	Equity in net income (loss) of affiliates		52		(6)			—		Equity in net income (loss) of affiliates	91		5		—		184		(11)		—
Other income (expense) - net	Other income (expense) - net		4,221		803			—		Other income (expense) - net	2,279		(231)		—		7,499		1,589		—
Income Before Income Taxes	Income Before Income Taxes		10,064		6,265			60.6		Income Before Income Taxes	7,812		3,934		98.6		20,501		12,697		61.5
Net Income	Net Income		7,942		4,963			60.0		Net Income	6,273		3,168		98.0		16,089		9,694		66.0
Net Income Attributable to AT&T	Net Income Attributable to AT&T		7,550		4,610			63.8		Net Income Attributable to AT&T	5,918		2,816		—		15,038		8,707		72.7
Net Income Attributable to Common Stock	Net Income Attributable to Common Stock		$	7,500	$	4,578		63.8	%	Net Income Attributable to Common Stock	$	5,868	$	2,762	—	%	$	14,882	$	8,569	73.7	%

Operating revenues decreased in the third quarter and increased in the first ~~quarter~~nine months of 2021. The revenue decrease in the third quarter reflects our July 31, 2021 separation of the U.S. video business and lower Business Wireline revenues due in part to higher demand for pandemic-related connectivity in the prior-year. Partially offsetting these declines were Mobility service and equipment revenue growth and gains in broadband service in our Communications segment and higher content and Direct-to-Consumer (DTC) subscription revenues in our WarnerMedia segment.

The increase for the first nine months was driven by higher Mobility equipment and service revenues and gains in broadband service in our Communications ~~segment, primarily from equipment sales, and growth in~~segment; higher DTC subscription, and ~~advertising~~content revenues in our WarnerMedia ~~segment. This increase was partially offset by declines~~segment; and growth in ~~Video, lower Business Wireline services in our Communications segment and~~Mexico wireless operations from favorable foreign exchange ~~pressure~~impacts. Partially offsetting the increases was the loss of revenue resulting from the separation of our U.S. video business in ~~our Latin America segment. Operating revenues were also impacted by~~July and the ~~fourth-quarter 2020~~ sale of our wireless and wireline operations in Puerto Rico and the U.S. Virgin ~~Islands.~~Islands, which were sold in the fourth quarter of 2020.

AT&T INC.

SEPTEMBER 30, 2021

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

Dollars in millions except per share amounts

Operations and support expenses decreased in the third quarter and increased in the first ~~quarter~~nine months of 2021. The expense ~~increase was primarily due to~~decrease in the third quarter reflects our July 31, 2021 separation of the U.S. video business and the timing of the NBA season in 2020, partially offset by increased domestic wireless equipment expense, ~~additional DTC programming and marketing~~including 3G network shutdown costs, and higher ~~sports costs.~~WarnerMedia non-sports programming, marketing activities, and incremental selling costs associated with a DIRECTV advertising revenue sharing arrangement with WarnerMedia. Also contributing to expense declines were lower personnel costs associated with our ongoing transformation initiatives.

The increase for the first nine months included a noncash impairment charge of $4,555 in the second quarter of 2021, resulting from our assessment of the recoverability of the net assets of Vrio, including approximately $2,100 of historical currency translation adjustments (see Note 8). Also contributing to the expense increase was higher ~~comparative expenses~~WarnerMedia non-sports programming and marketing activities and increased domestic wireless equipment expense. Partially offsetting these increases was the ~~first-quarter 2020 gain on spectrum transaction, which did not recur in 2021.~~impact of the separation of the U.S. video business, lower bad debt expense and lower personnel costs associated with our ongoing transformation initiatives.

Depreciation and amortization expense decreased in the third quarter and for the first ~~quarter~~nine months of 2021.

Amortization expense decreased ~~$925,~~$909, or ~~45.0%~~47.3% in the third quarter and $2,910, or 47.5% for the first ~~quarter~~nine months of 2021 primarily due to ~~the lower cost basis of long-lived assets resulting from Video impairments taken in the fourth quarter of 2020 and~~ ceasing amortization on Vrio held-for-sale ~~Video~~ assets in ~~the first quarter of~~ 2021.

Depreciation expense decreased ~~$488,~~$502, or ~~9.4%~~9.8% in the third quarter and $1,438, or 9.3% for the first ~~quarter~~nine months of 2021 primarily due to the lower cost basis of property, plant and equipment resulting from Video impairments taken in the fourth quarter of 2020 and ceasing depreciation on Video and Vrio held-for-sale ~~Video~~ assets in 2021.

Operating income increased in the third quarter and in the first nine months of 2021. Our operating income margin for the third quarter increased from 14.5% in 2020 to 17.8% in 2021 and in the first nine months increased from 13.6% in 2020 to 14.1% in 2021.

Interest expense decreased in the third quarter and first nine months of 2021, primarily due to lower interest rates and capitalized interest associated with the spectrum acquisitions.

Equity in net income of affiliates increased in the third quarter and for the first nine months of 2021. The third quarter increase was primarily due to the close of our transaction with TPG and our accounting for our investment in DIRECTV under the equity method of accounting beginning August 1, 2021 (see Note 8 and Note 11), partially offset by decreases from certain WarnerMedia investments. The increase for the first nine months was also due to the DIRECTV investment, combined with improved performance from WarnerMedia investments for the nine-month period.

Other income (expense) – net increased in the third quarter and for the first nine months of 2021. The increases were primarily due to actuarial gains of $374 and $3,021 in the third quarter and first nine months of 2021, respectively, a $766 gain on sale of our interest in Playdemic Ltd. (Playdemic), and higher net pension and postretirement benefit credits resulting from lower interest costs on the benefit obligation and higher prior service credit amortization (see Note 6). The increase also includes higher returns on benefit-related investments for the nine-month comparable period and fewer impairments taken in 2021.

Income taxes increased in the third quarter and the first nine months of 2021. The increase in the third quarter was primarily driven by higher income before income tax. Our effective tax rate was 19.7% in the third quarter of ~~2021.~~2021, versus 19.5% in the comparable period in the prior year.

The increase for the first nine months was primarily due to higher income before income tax, offset by Vrio tax benefit, tax initiatives and audit settlements in the current year. Our effective tax rate was 21.5% for the first nine months of 2021, versus 23.7% for the comparable period in the prior year. The effective tax rate in 2020 was higher primarily due to our prior-year impairment of Vrio goodwill, which was not deductible for tax purposes.

3239

AT&T INC.

~~MARCH 31,~~SEPTEMBER 30, 2021

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

Dollars in millions except per share amounts

~~Operating income~~ ~~increased in the first quarter of 2021. Our operating income margin for the first quarter decreased from 17.5% in 2020 to 17.4% in 2021.~~

~~Interest expense~~ ~~decreased in the first quarter of 2021, primarily due to lower interest rates. For the remainder of 2021, we expect higher capitalized interest associated with putting spectrum into network service.~~

~~Equity in net income of affiliates~~ ~~increased in the first quarter of 2021, primarily due to improved performance from certain investments.~~

~~Other income (expense) – net~~ increased in the first quarter of 2021. The increase was primarily due to the recognition of an actuarial gain of $2,844, with no comparable interim remeasurement in 2020, and an increase in net benefit credit resulting from lower interest costs on the benefit obligation and higher prior service credit amortization (see Note 6).

~~Income taxes~~ increased in the first quarter of 2021. The increase in income tax expense was primarily due to higher income before income taxes in the first quarter of 2021. Our effective tax rate was 21.1% for the first quarter of 2021, versus 20.8% for the comparable period in the prior year, and includes the impact of tax settlements.


COMMUNICATIONS SEGMENT	Third Quarter						Nine-Month Period
					Percent						Percent
	2021		2020		Change		2021		2020		Change
Segment Operating Revenues
Mobility	$	19,138	$	17,894	7.0	%	$	57,108	$	52,445	8.9	%
Business Wireline	5,938		6,261		(5.2)		18,036		18,832		(4.2)
Consumer Wireline	3,142		3,040		3.4		9,380		9,202		1.9
Total Segment Operating Revenues	28,218		27,195		3.8		84,524		80,479		5.0

Segment Operating Contribution
Mobility	5,955		5,691		4.6		17,959		17,284		3.9
Business Wireline	985		1,184		(16.8)		3,093		3,567		(13.3)
Consumer Wireline	183		189		(3.2)		776		1,102		(29.6)
Total Segment Operating Contribution	$	7,123	$	7,064	0.8	%	$	21,828	$	21,953	(0.6)	%

COMMUNICATIONS SEGMENT First Quarter
Percent
2021 2020 Change
Segment Operating Revenues
Mobility $ 19,034 $ 17,402 9.4 %
Business Wireline 6,046 6,266 (3.5)
Consumer Wireline 3,098 3,111 (0.4)
Total Segment Operating Revenues 28,178 26,779 5.2
Segment Operating Contribution
Mobility 6,002 5,788 3.7
Business Wireline 1,058 1,093 (3.2)
Consumer Wireline 305 520 (41.3)
Total Segment Operating Contribution $ 7,365 $ 7,401 (0.5) %


Selected Subscribers and Connections	Selected Subscribers and Connections			Selected Subscribers and Connections
		March 31,			September 30,
(000s)	(000s)	2021	2020	(000s)	2021	2020
Mobility Subscribers	Mobility Subscribers	186,108	169,198	Mobility Subscribers	196,519	176,744
Total domestic broadband connections	Total domestic broadband connections	15,435	15,315	Total domestic broadband connections	15,510	15,375
Network access lines in service	Network access lines in service	6,988	8,160	Network access lines in service	6,404	7,562
U-verse VoIP connections	U-verse VoIP connections	3,684	4,213	U-verse VoIP connections	3,440	3,942

Operating revenues increased in the third quarter and for the first ~~quarter~~nine months of 2021, driven by increases in our Mobility and Consumer Wireline business ~~unit,~~units, partially offset by decreases in our Business Wireline ~~and Consumer Wireline~~ business ~~units.~~unit. The ~~increase is~~increases are primarily driven by wireless service and equipment revenue growth and ~~service revenue improvements with subscriber~~ gains ~~offsetting declines~~ in ~~international roaming services.~~broadband service.

Operating contribution ~~decreased~~increased in the ~~first~~third quarter ~~2021. The decline in~~and decreased for the first ~~quarter reflects~~nine months of 2021, reflecting lower operating contribution from our Business Wireline and Consumer Wireline business units, ~~largely~~ offset by increases in our Mobility business unit. Our Communications segment operating income margin in the ~~first~~third quarter decreased from ~~27.6%~~26.0% in 2020 to ~~26.1%~~25.2% in ~~2021.~~2021 and for the first nine months decreased from 27.3% in 2020 to 25.8% in 2021, reflecting, in part, increased equipment sales with no margins.

3340

AT&T INC.

~~MARCH 31,~~SEPTEMBER 30, 2021

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

Dollars in millions except per share amounts


Communications Business Unit Discussion	Communications Business Unit Discussion		Communications Business Unit Discussion
Mobility Results	Mobility Results										Mobility Results
		First Quarter						Third Quarter						Nine-Month Period
									Percent							Percent						Percent
				2021		2020			Change			2021		2020		Change		2021		2020		Change
Operating revenues	Operating revenues										Operating revenues
Service	Service			$	14,048	$	13,968		0.6	%	Service	$	14,527	$	13,883	4.6	%	$	42,921	$	41,520	3.4	%
Equipment	Equipment			4,986		3,434			45.2		Equipment	4,611		4,011		15.0		14,187		10,925		29.9
Total Operating Revenues	Total Operating Revenues			19,034		17,402			9.4		Total Operating Revenues	19,138		17,894		7.0		57,108		52,445		8.9

Operating expenses	Operating expenses										Operating expenses
Operations and support	Operations and support			11,018		9,569			15.1		Operations and support	11,148		10,182		9.5		33,077		29,083		13.7
Depreciation and amortization	Depreciation and amortization			2,014		2,045			(1.5)		Depreciation and amortization	2,035		2,021		0.7		6,072		6,078		(0.1)
Total Operating Expenses	Total Operating Expenses			13,032		11,614			12.2		Total Operating Expenses	13,183		12,203		8.0		39,149		35,161		11.3
Operating Income	Operating Income			6,002		5,788			3.7		Operating Income	5,955		5,691		4.6		17,959		17,284		3.9
Equity in Net Income (Loss) of Affiliates	Equity in Net Income (Loss) of Affiliates			—		—			—		Equity in Net Income (Loss) of Affiliates	—		—		—		—		—		—
Operating Contribution	Operating Contribution			$	6,002	$	5,788		3.7	%	Operating Contribution	$	5,955	$	5,691	4.6	%	$	17,959	$	17,284	3.9	%

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


Subscribers	Subscribers					Subscribers
		March 31,		Percent			September 30,		Percent
(in 000s)	(in 000s)	2021	2020	Change		(in 000s)	2021	2020	Change
Postpaid	Postpaid	77,934	75,148	3.7	%	Postpaid	80,249	75,969	5.6	%
Postpaid phone	Postpaid phone	64,752	63,105	2.6		Postpaid phone	66,396	63,485	4.6
Prepaid	Prepaid	18,387	17,808	3.3		Prepaid	19,028	18,100	5.1
Reseller	Reseller	6,501	6,736	(3.5)		Reseller	6,263	6,708	(6.6)
Connected devices1	Connected devices1	83,286	69,506	19.8		Connected devices1	90,979	75,967	19.8
Total Mobility Subscribers	Total Mobility Subscribers	186,108	169,198	10.0	%	Total Mobility Subscribers	196,519	176,744	11.2	%
1Includes data-centric devices such as session-based tablets, monitoring devices and primarily wholesale automobile systems.						1Includes data-centric devices such as session-based tablets, monitoring devices and primarily wholesale automobile systems.

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

3441

AT&T INC.

~~MARCH 31,~~SEPTEMBER 30, 2021

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

Dollars in millions except per share amounts


Net Additions	Net Additions								Net Additions
		First Quarter						Third Quarter						Nine-Month Period
							Percent							Percent						Percent
(in 000s)	(in 000s)		2021		2020		Change		(in 000s)	2021		2020		Change		2021		2020		Change
Postpaid Phone Net Additions	Postpaid Phone Net Additions		595		163		—	%	Postpaid Phone Net Additions	928		645		43.9	%	2,312		657		—	%
Total Phone Net Additions	Total Phone Net Additions		802		120		—		Total Phone Net Additions	1,177		776		51.7		2,942		880		—

Postpaid2	Postpaid2		823		27		—		Postpaid2	1,218		1,081		12.7		3,197		954		—
Prepaid	Prepaid		279		(45)		—		Prepaid	351		245		43.3		927		365		—
Reseller	Reseller		(68)		(190)		64.2		Reseller	(164)		(4)		—		(357)		(252)		(41.7)
Connected devices3	Connected devices3		2,517		3,518		(28.5)		Connected devices3	3,468		4,203		(17.5)		10,194		9,976		2.2
Mobility Net Subscriber Additions1	Mobility Net Subscriber Additions1		3,551		3,310		7.3	%	Mobility Net Subscriber Additions1	4,873		5,525		(11.8)	%	13,961		11,043		26.4	%

Postpaid Churn4	Postpaid Churn4		0.93	%	1.08	%	(15)	BP	Postpaid Churn4	0.92	%	0.85	%	7	BP	0.91	%	0.99	%	(8)	BP
Postpaid Phone-Only Churn4	Postpaid Phone-Only Churn4		0.76	%	0.86	%	(10)	BP	Postpaid Phone-Only Churn4	0.72	%	0.69	%	3	BP	0.72	%	0.80	%	(8)	BP
1Excludes migrations and acquisition-related activities during the period.	1Excludes migrations and acquisition-related activities during the period.	1Excludes migrations and acquisition-related activities during the period.
2In addition to postpaid phones, includes tablets and wearables and other. Tablet net (losses) were (63) and (267) for the quarter ended March 31, 2021 and 2020. Wearables and other net adds were 291 and 131 for the quarter ended March 31, 2021 and 2020.
3Includes data-centric devices such as session-based tablets, monitoring devices and primarily wholesale automobile systems. Excludes postpaid tablets and other postpaid data devices. Wholesale connected car net adds were 1.2 million for the quarter ended March 31, 2021.
2In addition to postpaid phones, includes tablets and wearables and other. Tablet net adds (losses) were 34 and (44) for the three months ended September 30, 2021 and 2020 and (16) and (470) for the nine months ended September 30, 2021 and 2020. Wearables and other net adds were 256 and 480 for the quarter ended September 30, 2021 and 2020 and 899 and 767 for the nine months September 30, 2021 and 2020.									2In addition to postpaid phones, includes tablets and wearables and other. Tablet net adds (losses) were 34 and (44) for the three months ended September 30, 2021 and 2020 and (16) and (470) for the nine months ended September 30, 2021 and 2020. Wearables and other net adds were 256 and 480 for the quarter ended September 30, 2021 and 2020 and 899 and 767 for the nine months September 30, 2021 and 2020.
3Includes data-centric devices such as session-based tablets, monitoring devices and primarily wholesale automobile systems. Excludes postpaid tablets and other postpaid data devices. Wholesale connected car net adds were 1.8 million for the quarter ended September 30, 2021 and 5.5 million for the nine months ended September 30, 2021.									3Includes data-centric devices such as session-based tablets, monitoring devices and primarily wholesale automobile systems. Excludes postpaid tablets and other postpaid data devices. Wholesale connected car net adds were 1.8 million for the quarter ended September 30, 2021 and 5.5 million for the nine months ended September 30, 2021.
4Calculated by dividing the aggregate number of wireless subscribers who canceled service during a month divided by the total number of wireless subscribers at the beginning of that month. The churn rate for the period is equal to the average of the churn rate for each month of that period.	4Calculated by dividing the aggregate number of wireless subscribers who canceled service during a month divided by the total number of wireless subscribers at the beginning of that month. The churn rate for the period is equal to the average of the churn rate for each month of that period.	4Calculated by dividing the aggregate number of wireless subscribers who canceled service during a month divided by the total number of wireless subscribers at the beginning of that month. The churn rate for the period is equal to the average of the churn rate for each month of that period.

Service revenue increased in the third quarter and for the first ~~quarter~~nine months of 2021. The ~~first quarter increase is~~increases are largely due to growth ~~in subscribers, partially offset by declines in international roaming revenue due to reduced travel during the pandemic.~~from subscriber gains.

ARPU

Average revenue per subscriber (ARPU) decreased in the third quarter and for the first ~~quarter.~~nine months of 2021. ARPU during 2021 reflects the impact of higher promotional discount amortization ~~and a decline in international roaming revenues and waived fees.~~(see Note 5).

Churn

The effective management of subscriber churn is critical to our ability to maximize revenue growth and to maintain and improve margins. Postpaid churn and postpaid phone-only churn were lower in the first ~~three~~nine months due to retention offers, migrations to unlimited plans, ~~and~~ continued network ~~improvements.~~performance and lower involuntary disconnects.

Equipment revenue increased in the ~~first~~third quarter ~~of 2021. The increase in~~and for the first ~~quarter is~~nine months of 2021, primarily driven by ~~increased postpaid smartphone volumes,~~the sale of higher-priced smartphones and ~~growth~~a mix of higher-priced postpaid smartphones, including the quarterly shift in product launch timing versus the prior year, and higher sales of postpaid data ~~devices.~~devices for the nine-month period.

Operations and support expenses increased in the third quarter and for the first ~~quarter~~nine months of 2021 largely driven by growth in equipment sales and associated expenses, including 3G network shutdown costs, increased amortization of deferred contract acquisition costs, and ~~higher~~ content costs associated with bundling HBO ~~Max.~~Max, and, for the nine-month period, higher network and technology costs. The expense increase was offset by lower sales costs and lower bad debt expense. ~~Commission deferral amortization was up slightly versus the prior year, including the impact of first-quarter 2021 updates to extend the estimated economic life for our subscribers.~~

Depreciation expense ~~decreased~~increased in the third quarter and decreased for the first nine months of 2021. The third quarter ~~of 2021~~increase is due to ongoing capital spending for network upgrades and expansion partially offset by fully depreciated assets. For the nine months the decrease is primarily due to network assets becoming fully depreciated.

AT&T INC.

SEPTEMBER 30, 2021

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

Dollars in millions except per share amounts

Operating income increased in the third quarter and for the first ~~quarter~~nine months of 2021. Our Mobility operating income margin in the ~~first~~third quarter decreased from ~~33.3%~~31.8% in 2020 to ~~31.5%~~31.1% in 2021, and for the first nine months decreased from 33.0% in 2020 to 31.4% in 2021. Our Mobility EBITDA margin in the ~~first~~third quarter decreased from ~~45.0%~~43.1% in 2020 to 41.7% in 2021, and for the first nine months decreased from 44.5% in 2020 to 42.1% in 2021. EBITDA is defined as operating contribution excluding equity in net income (loss) of affiliates and depreciation and amortization.

~~AT&T INC.~~

~~MARCH 31, 2021~~

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

~~Dollars in millions except per share amounts~~

Subscriber Relationships

As the wireless industry has matured, future wireless growth will depend on our ability to offer innovative services, plans and devices that take advantage of our 5G wireless network, which went nationwide in July 2020, and to provide these services in bundled product 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 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 subscribers to such plans tend to have higher retention and lower churn rates. We offer unlimited data plans and subscribers to such plans 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.


Business Wireline Results	Business Wireline Results									Business Wireline Results
		First Quarter					Third Quarter						Nine-Month Period
								Percent							Percent						Percent
			2021		2020			Change			2021		2020		Change		2021		2020		Change
Operating revenues	Operating revenues									Operating revenues
Service	Service		$	5,872	$	6,091		(3.6)	%	Service	$	5,765	$	6,079	(5.2)	%	$	17,497	$	18,271	(4.2)	%
Equipment	Equipment		174		175			(0.6)		Equipment	173		182		(4.9)		539		561		(3.9)
Total Operating Revenues	Total Operating Revenues		6,046		6,266			(3.5)		Total Operating Revenues	5,938		6,261		(5.2)		18,036		18,832		(4.2)

Operating expenses	Operating expenses									Operating expenses
Operations and support	Operations and support		3,710		3,887			(4.6)		Operations and support	3,649		3,764		(3.1)		11,068		11,365		(2.6)
Depreciation and amortization	Depreciation and amortization		1,278		1,286			(0.6)		Depreciation and amortization	1,304		1,313		(0.7)		3,875		3,900		(0.6)
Total Operating Expenses	Total Operating Expenses		4,988		5,173			(3.6)		Total Operating Expenses	4,953		5,077		(2.4)		14,943		15,265		(2.1)
Operating Income	Operating Income		1,058		1,093			(3.2)		Operating Income	985		1,184		(16.8)		3,093		3,567		(13.3)
Equity in Net Income (Loss) of Affiliates	Equity in Net Income (Loss) of Affiliates		—		—			—		Equity in Net Income (Loss) of Affiliates	—		—		—		—		—		—
Operating Contribution	Operating Contribution		$	1,058	$	1,093		(3.2)	%	Operating Contribution	$	985	$	1,184	(16.8)	%	$	3,093	$	3,567	(13.3)	%

Service revenues decreased in the third quarter and for the first ~~quarter~~nine months of 2021, driven by lower demand for legacy voice and data services ~~as customers~~in the current year, proactive rationalization of low profit margin products and higher demand for pandemic-related connectivity in the prior-year. We expect this trend to continue ~~to shift to more advanced IP-based offerings.~~for the remainder of the year.

Equipment revenues ~~remained consistent~~decreased in the third quarter and for the first ~~quarter~~nine months of ~~2021.~~2021, driven by declines in legacy and non-core services.

Operations and support expenses decreased in the third quarter and for the first ~~quarter~~nine months of 2021, primarily due to our continued efforts to drive efficiencies in our network operations through automation and reductions in customer support expenses through ~~digitization.~~digitization and proactive rationalization of low profit margin products.

Depreciation expense decreased in the third quarter and for the first ~~quarter~~nine months of 2021, primarily due to certain network assets becoming fully depreciated.

~~Operating income~~ decreased in the first quarter of 2021. Our Business Wireline operating income margin in the first quarter increased from 17.4% in 2020 and 17.5% in 2021. Our Business Wireline EBITDA margin in the first quarter increased from 38.0% in 2020 to 38.6% in 2021.

3643

AT&T INC.

~~MARCH 31,~~SEPTEMBER 30, 2021

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

Dollars in millions except per share amounts

Consumer Wireline Results
First Quarter
Percent
2021 2020 Change
Operating revenues
IP Broadband $ 2,205 $ 2,109 4.6 %
Legacy voice and data services 519 581 (10.7)
Other service and equipment 374 421 (11.2)
Total Operating Revenues 3,098 3,111 (0.4)
Operating expenses
Operations and support 2,031 1,879 8.1
Depreciation and amortization 762 712 7.0
Total Operating Expenses 2,793 2,591 7.8
Operating Income 305 520 (41.3)
Equity in Net Income (Loss) of Affiliates — — —
Operating Contribution $ 305 $ 520 (41.3) %
Operating income decreased in the third quarter and for the first nine months of 2021. Our Business Wireline operating income margin in the third quarter decreased from 18.9% in 2020 to 16.6% in 2021, and for the first nine months decreased from 18.9% in 2020 to 17.1% in 2021. Our Business Wireline EBITDA margin in the third quarter decreased from 39.9% in 2020 to 38.5% in 2021, and for the first nine months decreased from 39.7% in 2020 to 38.6% in 2021.


Consumer Wireline Results
	Third Quarter						Nine-Month Period
					Percent						Percent
	2021		2020		Change		2021		2020		Change
Operating revenues
Broadband	$	2,290	$	2,128	7.6	%	$	6,761	$	6,329	6.8	%
Legacy voice and data services	484		538		(10.0)		1,507		1,679		(10.2)
Other service and equipment	368		374		(1.6)		1,112		1,194		(6.9)
Total Operating Revenues	3,142		3,040		3.4		9,380		9,202		1.9

Operating expenses
Operations and support	2,184		2,117		3.2		6,298		5,924		6.3
Depreciation and amortization	775		734		5.6		2,306		2,176		6.0
Total Operating Expenses	2,959		2,851		3.8		8,604		8,100		6.2
Operating Income	183		189		(3.2)		776		1,102		(29.6)
Equity in Net Income (Loss) of Affiliates	—		—		—		—		—		—
Operating Contribution	$	183	$	189	(3.2)	%	$	776	$	1,102	(29.6)	%

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


Connections	Connections					Connections
		March 31,		Percent			September 30,		Percent
(in 000s)	(in 000s)	2021	2020	Change		(in 000s)	2021	2020	Change
Broadband Connections	Broadband Connections					Broadband Connections
Total Broadband Connections		14,146	14,046	0.7	%
Total Broadband and DSL Connections						Total Broadband and DSL Connections	14,180	14,102	0.6	%
Fiber Broadband Connections	Fiber Broadband Connections	5,186	4,096	26.6		Fiber Broadband Connections	5,721	4,678	22.3

Voice Connections	Voice Connections					Voice Connections
Retail Consumer Switched Access Lines	Retail Consumer Switched Access Lines	2,740	3,196	(14.3)		Retail Consumer Switched Access Lines	2,527	2,977	(15.1)
U-verse Consumer VoIP Connections	U-verse Consumer VoIP Connections	3,096	3,630	(14.7)		U-verse Consumer VoIP Connections	2,843	3,361	(15.4)
Total Retail Consumer Voice Connections	Total Retail Consumer Voice Connections	5,836	6,826	(14.5)	%	Total Retail Consumer Voice Connections	5,370	6,338	(15.3)	%


Net Additions	Net Additions						Net Additions
		First Quarter				Third Quarter				Nine-Month Period
					Percent					Percent				Percent
(in 000s)	(in 000s)		2021	2020	Change		(in 000s)	2021	2020	Change		2021	2020	Change
Broadband Net Additions	Broadband Net Additions						Broadband Net Additions
Total Broadband Net Additions			46	(73)	—	%
Total Broadband and DSL Net Additions							Total Broadband and DSL Net Additions	6	158	(96.2)	%	80	(17)	—	%
Fiber Broadband Net Additions	Fiber Broadband Net Additions		235	209	12.4	%	Fiber Broadband Net Additions	289	357	(19.0)	%	770	791	(2.7)	%

IP Broadband (high-speed internet) revenues increased in the third quarter and for the first ~~quarter~~nine months of 2021, driven by ~~higher ARPU resulting from~~ an increase in fiber customers and ~~pricing.~~pricing, which we expect to continue for the foreseeable future.

~~Legacy voice and data service~~ ~~revenues decreased in the first quarter of 2021, reflecting the continued decline in the number of customers.~~

~~Other service and equipment~~ ~~revenues decreased in 2021, reflecting the continued decline in the number of VoIP customers.~~

3744

AT&T INC.

~~MARCH 31,~~SEPTEMBER 30, 2021

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

Dollars in millions except per share amounts

Legacy voice and data service revenues decreased in the third quarter and for the first nine months of 2021, reflecting the continued decline in the number of customers, which we expect to continue.

Other service and equipment revenues decreased in the third quarter and for the first nine months of 2021, reflecting the continued decline in the number of VoIP customers, which we expect to continue.

Operations and support expenses increased in the third quarter and for the first ~~quarter~~nine months of 2021, primarily driven by higher technology and customer support costs and, for the nine-month period, content costs associated with plans bundling HBO ~~Max and higher customer support costs.~~Max. Partially offsetting these increases was lower ~~cost deferral~~ amortization of deferred fulfillment costs, including the impact of the first-quarter 2021 updates to extend the economic life for our subscribers.

Depreciation expense increased in the third quarter and for the first ~~quarter~~nine months of 2021, primarily due to ongoing capital spending for network upgrades and expansion.

Operating income decreased in the third quarter and for the first ~~quarter~~nine months of 2021. Our Consumer Wireline operating income margin in the ~~first~~third quarter decreased from ~~16.7%~~6.2% in 2020 to ~~9.8%~~5.8% in 2021, and for the first nine months decreased from 12.0% in 2020 to 8.3% in 2021. Our Consumer Wireline EBITDA margin in the ~~first~~third quarter ~~decreased~~increased from ~~39.6%~~30.4% in 2020 to ~~34.4%~~30.5% in 2021, and for the first nine months decreased from 35.6% in 2020 to 32.9% in 2021.


WARNERMEDIA SEGMENT	WARNERMEDIA SEGMENT	First Quarter			WARNERMEDIA SEGMENT			Third Quarter						Nine-Month Period
									Percent							Percent						Percent
			2021			2020			Change			2021		2020		Change		2021		2020		Change
Segment Operating Revenues	Segment Operating Revenues										Segment Operating Revenues
Subscription	Subscription		$	3,830		$	3,401		12.6	%	Subscription	$	3,988	$	3,477	14.7	%	$	11,779	$	10,142	16.1	%
Content			3,420			3,303			3.5
Content and other											Content and other	3,053		2,318		31.7		9,103		7,510		21.2
Advertising	Advertising		1,750			1,477			18.5		Advertising	1,401		1,600		(12.4)		4,877		4,236		15.1
Other			169			254			(33.5)
Eliminations			(643)			(670)			4.0

Total Segment Operating Revenues	Total Segment Operating Revenues		8,526			7,765			9.8		Total Segment Operating Revenues	8,442		7,395		14.2		25,759		21,888		17.7

Segment Operating Expenses	Segment Operating Expenses										Segment Operating Expenses
Direct Costs	Direct Costs										Direct Costs
Programming	Programming		4,383			3,513			24.8		Programming	3,068		3,181		(3.6)		10,996		8,638		27.3
Marketing	Marketing		849			526			61.4		Marketing	1,096		655		67.3		2,929		1,750		67.4
Other	Other		722			669			7.9		Other	932		734		27.0		2,599		2,329		11.6
General and administrative			967			1,222			(20.9)
Eliminations and other			(518)			(325)			(59.4)
Selling, general and administrative											Selling, general and administrative	1,175		913		28.7		3,084		3,027		1.9

Depreciation and amortization	Depreciation and amortization		163			161			1.2		Depreciation and amortization	163		169		(3.6)		491		494		(0.6)
Total Operating Expenses	Total Operating Expenses		6,566			5,766			13.9		Total Operating Expenses	6,434		5,652		13.8		20,099		16,238		23.8
Operating Income	Operating Income		1,960			1,999			(2.0)		Operating Income	2,008		1,743		15.2		5,660		5,650		0.2
Equity in Net Income (Loss) of Affiliates	Equity in Net Income (Loss) of Affiliates		70			15			—		Equity in Net Income (Loss) of Affiliates	(73)		12		—		44		31		41.9
Total Segment Operating Contribution	Total Segment Operating Contribution		$	2,030		$	2,014		0.8	%	Total Segment Operating Contribution	$	1,935	$	1,755	10.3	%	$	5,704	$	5,681	0.4	%

Our WarnerMedia segment is operated as a content organization that distributes across various platforms, including ~~Basic Networks,~~basic networks, Direct-to-Consumer (DTC) or theatrical, TV content and ~~Theatrical, TV Content and Games Licensing.~~games licensing.

On May 17, 2021, we entered into an agreement to combine our WarnerMedia segment, subject to certain exceptions with a subsidiary of Discovery Inc. (See Note 8)

Operating revenues increased in the third quarter and for the first ~~quarter~~nine months of 2021, primarily due to ~~higher~~increases in subscription ~~advertising~~ and content revenues, reflecting the partial recovery from prior-year impacts of ~~COVID-19. Subscription~~the pandemic. These increases were partially offset by decreased advertising revenues ~~increased reflecting growth of DTC domestic HBO Max and HBO subscribers, and,~~during the third quarter primarily due to ~~a lesser extent,~~ the ~~May 2020 acquisition~~timing of the ~~remaining interest~~NBA season in HBO Latin America Group. DTC subscription revenues were $1,810 versus $1,338 in the year-ago quarter and include growth from intercompany relationships with the Communications segment. Advertising revenues improved when compared to the prior year resulting from the return in 2021 of the NCAA Division I Men's Championship Basketball Tournament. Content revenues increased due to higher sales to HBO Max for theatrical product and increases in Basic Networks licensing, partly offset by lower television product licensing from prior-year licensing to HBO Max.2020.

~~Direct costs~~ increased in the first quarter of 2021, driven by higher programming and marketing costs for HBO Max and higher sports programming, including NCAA. Direct costs supporting DTC revenues were $1,685 in the first quarter of 2021, versus $911 in the year-ago quarter.

3845

AT&T INC.

~~MARCH 31,~~SEPTEMBER 30, 2021

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

Dollars in millions except per share amounts

~~General~~Subscription revenues increased in the third quarter and for the first nine months of 2021, reflecting growth of DTC domestic HBO Max and HBO subscribers, and, for the nine-month period, the May 2020 acquisition of the remaining interest in HBO Latin America Group. DTC subscription revenues were $2,036 and $5,842, for the three- and nine-month periods of 2021, versus $1,624 and $4,403 in the year-ago periods and include growth from intercompany relationships with the Communications segment.

Content and other revenues increased in the third quarter and for the first nine months of 2021 due to higher TV production and licensing, as well as higher theatrical, with the prior-year quarter including only one worldwide theatrical release compared to five in the third quarter of 2021.

Advertising revenues decreased in the third quarter and increased for the first nine months of 2021. The decrease for the quarter resulted from the timing of the NBA season in 2020 and was affected by lower political advertising spending in 2021. The increase for the first nine months resulted from the return in 2021 of major sporting events, including the NCAA Division I Men's Championship Basketball Tournament.

Direct costs increased in the third quarter and for the first nine months of 2021, driven by higher film and programming costs and increased costs for HBO Max. Third quarter increases were partially offset by lower sports costs resulting from the shift in timing of the NBA season in the prior year. Direct costs supporting DTC revenues were $2,041 and $5,620 for the three- and nine-month periods of 2021, versus $1,551 and $3,823 in the year-ago periods.

Selling, general and administrative expenses ~~decreased~~increased in the third quarter and for the first nine months of 2021. The increase for the quarter ~~of 2021,~~was primarily due to incremental selling costs associated with a DIRECTV advertising revenue sharing arrangement. For the nine months, these increases were largely offset by lower bad debt expense and integration of support functions.

Operating contribution increased in the third quarter and for the first ~~quarter~~nine months of 2021. The WarnerMedia segment operating income margin ~~decreased~~in the third quarter increased from ~~25.7%~~23.6% in 2020 to ~~23.0%~~23.8% in 2021 and for the first nine months decreased from 25.8% in 2020 to 22.0% in 2021.


LATIN AMERICA SEGMENT	LATIN AMERICA SEGMENT	First Quarter			LATIN AMERICA SEGMENT			Third Quarter						Nine-Month Period
									Percent							Percent						Percent
			2021			2020			Change			2021		2020		Change		2021		2020		Change
Segment Operating Revenues	Segment Operating Revenues										Segment Operating Revenues
Vrio	Vrio		$	743		$	887		(16.2)	%	Vrio	$	756	$	753	0.4	%	$	2,248	$	2,392	(6.0)	%
Mexico	Mexico		631			703			(10.2)		Mexico	724		643		12.6		2,043		1,826		11.9
Total Segment Operating Revenues	Total Segment Operating Revenues		1,374			1,590			(13.6)		Total Segment Operating Revenues	1,480		1,396		6.0		4,291		4,218		1.7

Segment Operating Contribution	Segment Operating Contribution										Segment Operating Contribution
Vrio	Vrio		(39)			(39)			—		Vrio	105		(34)		—		43		(101)		—
Mexico	Mexico		(134)			(145)			7.6		Mexico	(130)		(143)		9.1		(393)		(461)		14.8
Total Segment Operating Contribution	Total Segment Operating Contribution		$	(173)		$	(184)		6.0	%	Total Segment Operating Contribution	$	(25)	$	(177)	85.9	%	$	(350)	$	(562)	37.7	%

Operating Results

Our Latin America operations conduct business in their local currency and operating results are converted to U.S. dollars using ~~official~~average exchange rates during the period, subjecting results to foreign currency fluctuations.

On July 21, 2021, we entered into an agreement to sell our Vrio business to Grupo Werthein (see Note 8). We applied held-for-sale accounting to Vrio as of June 30, 2021 and continue to present the Vrio results within the Latin America segment.

Operating revenues ~~decreased~~increased in the ~~first~~third quarter ~~of 2021, primarily driven by foreign exchange~~ and ~~COVID-19 impacts.~~

~~Operating contribution~~ ~~improved in~~for the first ~~quarter~~nine months of 2021, reflecting ~~foreign exchange rates~~growth at Vrio and ~~the impact of COVID-19. Our Latin America segment operating income margin~~ in the ~~first~~Mexico wireless operations. Foreign exchange impacts were neutral in the third quarter, ~~decreased from (11.8)%~~and for the nine-month period, pressure in ~~2020 to (12.3)%~~Vrio was partially offset by improvements in ~~2021.~~Mexico.

Latin America Business Unit Discussion
Vrio Results
First Quarter
Percent
2021 2020 Change
Operating revenues $ 743 $ 887 (16.2) %
Operating expenses
Operations and support 661 783 (15.6)
Depreciation and amortization 117 147 (20.4)
Total Operating Expenses 778 930 (16.3)
Operating Income (Loss) (35) (43) 18.6
Equity in Net Income (Loss) of Affiliates (4) 4 —
Operating Contribution $ (39) $ (39) — %

3946

AT&T INC.

~~MARCH 31,~~SEPTEMBER 30, 2021

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

Dollars in millions except per share amounts

Operating contribution improved in the third quarter and for the first nine months of 2021, reflecting foreign exchange rates. Our Latin America segment operating income margin in the third quarter increased from (13.7)% in 2020 to (2.3)% in 2021, and for the first nine months increased from (13.9)% in 2020 to (8.3)% in 2021.


Latin America Business Unit Discussion
Vrio Results
	Third Quarter						Nine-Month Period
					Percent						Percent
	2021		2020		Change		2021		2020		Change
Operating revenues	$	756	$	753	0.4	%	$	2,248	$	2,392	(6.0)	%

Operating expenses
Operations and support	660		675		(2.2)		1,981		2,119		(6.5)
Depreciation and amortization	—		126		—		231		400		(42.3)
Total Operating Expenses	660		801		(17.6)		2,212		2,519		(12.2)
Operating Income (Loss)	96		(48)		—		36		(127)		—
Equity in Net Income (Loss) of Affiliates	9		14		(35.7)		7		26		(73.1)
Operating Contribution	$	105	$	(34)	—	%	$	43	$	(101)	—	%

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


			March 31,			Percent							September 30,		Percent
(in 000s)	(in 000s)		2021	2020		Change		(in 000s)					2021	2020	Change
Vrio Video Subscribers	Vrio Video Subscribers		10,559	13,217		(20.1)	%	Vrio Video Subscribers					10,142	10,893	(6.9)	%

		First Quarter			Third Quarter					Nine-Month Period
						Percent					Percent				Percent
(in 000s)	(in 000s)		2021	2020		Change		(in 000s)	2021	2020	Change		2021	2020	Change
Vrio Video Net Additions	Vrio Video Net Additions		(383)	(114)		—	%	Vrio Video Net Additions	(178)	229	—	%	(800)	(197)	—	%

Operating revenues slightlyincreased in the third quarter and decreased for the first nine months of 2021. The increase in the third quarter is primarily driven by higher ARPU. The decrease in the first ~~quarter of 2021,~~nine months is primarily driven by foreign exchange impacts.

Operations and support expenses decreased in the third quarter and for the first ~~quarter~~nine months of 2021, primarily driven by ~~economic pressures, the restructuring of sales channels in Brazil, and COVID-19~~foreign exchange impacts. Approximately 23% 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 ~~quarter~~nine months of 2021 ~~primarily~~ due to ~~lower in-service assets~~ceasing depreciation on held-for-sale Vrio assets. We applied held-for-sale accounting to Vrio on June 30, 2021 and ~~foreign exchange impacts.~~ceased depreciation beginning July 1, 2021.

Operating ~~loss~~income improved in the third quarter and for the first ~~quarter~~nine months of 2021. ~~Our~~ Vrio operating income margin for the ~~first~~third quarter increased from ~~(4.8)~~(6.4)% in 2020 to ~~(4.7)~~12.7% in 2021, and for the first nine months increased from (5.3)% in 2020 to 1.6% in 2021. ~~Our~~ Vrio EBITDA margin in the ~~first~~third quarter ~~decreased~~increased from ~~11.7%~~10.4% in 2020 to ~~11.0%~~12.7% in 2021, and for the first nine months increased from 11.4% in 2020 to 11.9% in 2021.

Mexico Results
First Quarter
2021 2020 Percent Change
Operating revenues
Service $ 439 $ 467 (6.0) %
Equipment 192 236 (18.6)
Total Operating Revenues 631 703 (10.2)
Operating expenses
Operations and support 620 714 (13.2)
Depreciation and amortization 145 134 8.2
Total Operating Expenses 765 848 (9.8)
Operating Income (Loss) (134) (145) 7.6
Equity in Net Income (Loss) of Affiliates — — —
Operating Contribution $ (134) $ (145) 7.6 %

AT&T INC.

SEPTEMBER 30, 2021

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

Dollars in millions except per share amounts


Mexico Results
	Third Quarter						Nine-Month Period
	2021		2020		Percent Change		2021		2020		Percent Change
Operating revenues
Service	$	463	$	385	20.3	%	$	1,349	$	1,197	12.7	%
Equipment	261		258		1.2		694		629		10.3
Total Operating Revenues	724		643		12.6		2,043		1,826		11.9

Operating expenses
Operations and support	697		662		5.3		1,984		1,914		3.7
Depreciation and amortization	157		124		26.6		452		373		21.2
Total Operating Expenses	854		786		8.7		2,436		2,287		6.5
Operating Income (Loss)	(130)		(143)		9.1		(393)		(461)		14.8
Equity in Net Income (Loss) of Affiliates	—		—		—		—		—		—
Operating Contribution	$	(130)	$	(143)	9.1	%	$	(393)	$	(461)	14.8	%

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


			March 31,				Percent							September 30,		Percent
(in 000s)	(in 000s)		2021	2020			Change		(in 000s)					2021	2020	Change
Mexico Wireless Subscribers	Mexico Wireless Subscribers								Mexico Wireless Subscribers
Postpaid	Postpaid		4,725	4,962			(4.8)	%	Postpaid					4,781	4,710	1.5	%
Prepaid	Prepaid		13,756	13,692			0.5		Prepaid					14,199	13,249	7.2
Reseller	Reseller		500	504			(0.8)		Reseller					493	455	8.4
Total Mexico Wireless Subscribers	Total Mexico Wireless Subscribers		18,981	19,158			(0.9)	%	Total Mexico Wireless Subscribers					19,473	18,414	5.8	%

		First Quarter			Third Quarter						Nine-Month Period
							Percent					Percent				Percent
(in 000s)	(in 000s)		2021	2020			Change		(in 000s)	2021	2020	Change		2021	2020	Change
Mexico Wireless Net Additions	Mexico Wireless Net Additions					Mexico Wireless Net Additions
Postpaid	Postpaid		29	(141)			—	%	Postpaid	36	(61)	—	%	85	(393)	—	%
Prepaid	Prepaid		(2)	108			—		Prepaid	389	472	(17.6)		441	(335)	—
Reseller	Reseller		11	32			(65.6)		Reseller	2	30	(93.3)		4	83	(95.2)
Total Mexico Wireless Net Additions	Total Mexico Wireless Net Additions		38	(1)			—	%	Total Mexico Wireless Net Additions	427	441	(3.2)	%	530	(645)	—	%

Service revenues ~~decreased~~increased in the third quarter reflecting improvements in foreign exchange, subscriber growth, and growth in other services, and for the first ~~quarter~~nine months of 2021, ~~primarily due to lower ARPU and~~driven by improvements in foreign exchange ~~impacts.~~and growth in other services.

Equipment revenues ~~decreased~~increased in the ~~first~~third quarter ~~of 2021, primarily due to~~driven by improvements in foreign exchange partially offset by lower equipment sales volumes, and for the first nine months of 2021, driven by improvements in foreign exchange ~~impacts.~~and higher equipment sales volumes.

Operations and support expenses ~~decreased~~increased in the ~~first~~third quarter ~~of 2021,~~ primarily due to ~~a decline~~foreign exchange impact partially offset by lower customer costs, and for the first nine months of 2021, due to foreign exchange impact and an increase in customer ~~growth, lower sales volumes and foreign exchange impacts.~~growth. Approximately 7% of Mexico expenses are U.S. dollar based, with the remainder in the local currency.

Depreciation and amortization expense increased in the third quarter and for the first ~~quarter~~nine months of 2021, ~~primarily due to~~reflecting higher in-service ~~assets. These increases were partially offset by changes in~~assets and foreign exchange ~~rates.~~

~~Operating loss~~ improved in the first quarter of 2021. Our Mexico operating income margin in the first quarter decreased from (20.6)% in 2020 to (21.2)% in 2021. Our Mexico EBITDA margin in the first quarter increased from (1.6)% in 2020 to 1.7% in 2021.

impacts.

4048

AT&T INC.

~~MARCH 31,~~SEPTEMBER 30, 2021

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

Dollars in millions except per share amounts

~~SUPPLEMENTAL VIDEO INFORMATION~~

As a supplemental presentation, we are providing a view of our Video business that is accounted for as held-for-sale and included in Corporate and Other. Our Video business provides video, including over-the-top (OTT) services and also sells advertising on video distribution platforms.

Video Results
First Quarter
Percent
2021 2020 Change
Operating revenues
Service $ 6,684 $ 7,397 (9.6) %
Equipment 41 10 —
Total Operating Revenues 6,725 7,407 (9.2)
Operating expenses
Operations and support 5,660 6,020 (6.0)
Depreciation and amortization1
164 591 (72.3)
Total Operating Expenses 5,824 6,611 (11.9)
Operating Income 901 796 13.2
Equity in Net Income (Loss) of Affiliates — — —
Operating Contribution $ 901 $ 796 13.2 %
1Includes depreciation on assets that support AT&T U-verse products that provide both video and broadband services to customers over a shared network infrastructure.

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

Connections
March 31, Percent
(in 000s) 2021 2020 Change
Premium TV Connections 15,885 18,599 (14.6) %

Net Additions
First Quarter
Percent
(in 000s) 2021 2020 Change
Premium TV Net Additions (620) (897) 30.9 %

Operating loss

~~AT&T INC.~~

~~MARCH 31, 2021~~

~~Item 2. Management’s Discussion~~ improved in the third quarter and ~~Analysis~~for the first nine months of ~~Financial Condition~~2021. Our Mexico operating income margin in the third quarter increased from (22.2)% in 2020 to (18.0)% in 2021, and ~~Results of Operations- Continued~~

~~Dollars~~for the first nine months increased from (25.2)% in ~~millions except per share amounts~~

~~OTHER BUSINESS MATTERS~~

~~Video Business~~ ~~On February 25,~~2020 to (19.2)% in 2021. Our Mexico EBITDA margin in the third quarter increased from (3.0)% in 2020 to 3.7% in 2021, ~~we signed an agreement with TPG Capital (TPG)~~and for the first nine months increased from (4.8)% in 2020 to form a new company named DIRECTV (New DTV), which will be jointly governed by a board with representation from both AT&T and TPG, with TPG having tie-breaking authority on certain key decisions. Under the agreement, we will contribute our Video business unit to New DTV for $4,250 of junior preferred units, an additional distribution preference of $4,200 and a 70% economic interest2.9% in common units. We expect to receive 7,800 from New DTV at closing ($7,600 in cash and approximately $200 of transferred DIRECTV debt). TPG will contribute approximately $1,800 in cash to New DTV for $1,800 of senior preferred units and a 30% economic interest in common units. The remaining $5,800 will be funded by debt issued by New DTV. As part of this transaction, we agreed to pay net losses under the NFL SUNDAY TICKET contract up to a cap of $2,500 over the remaining period of the contract.2021.

The transaction is expected to close in the second half of 2021, pending customary closing conditions. The total of $7,600 of proceeds from the transaction are expected to reduce our total and net debt positions. (See Note 8)

OTHER BUSINESS MATTERS

Spectrum Auction On February 24, 2021, the Federal Communications Commission (FCC) announced that AT&T was the winning bidder for 1,621 C-Band licenses, comprised of a total of 80 MHz nationwide, including 40 MHz in Phase I. We provided to the FCC an upfront deposit of $550 in 2020 and cash payments totaling $22,856 in the first quarter of 2021, for a total of ~~$23,406 to date.~~$23,406. We received the licenses in July 2021 and classified the auction deposits, related capitalized interest and billed relocation costs as “Licenses - Net” on our September 30, 2021 consolidated balance sheet. We estimate that we will be responsible for $955 of Incentive Payments upon clearing of Phase I spectrum, expected by the end of 2021 and $2,112 upon clearing of Phase II ~~spectrum.~~spectrum, expected by the end of 2023. Additionally, we ~~will be~~are responsible for approximately $1,000 of compensable relocation costs over the next several years as the spectrum is being cleared by satellite ~~operators.~~operators, of which $650 was billed in the third quarter of 2021 and will be paid in the fourth quarter of 2021. (See Note 8)

Video Business On July 31, 2021, we closed our transaction with TPG to form a new company named DIRECTV, which is jointly governed by a board with representation from both AT&T and TPG, with TPG having tie-breaking authority on certain key decisions.

In connection with the transaction, we contributed our U.S. Video business unit to DIRECTV for $4,250 of junior preferred units, an additional distribution preference of $4,200 and a 70% economic interest in common units (collectively “equity considerations”). Upon close, we received approximately $7,170 in cash from DIRECTV ($7,600, net of $430 cash on hand) and transferred $195 of DIRECTV debt. TPG contributed approximately $1,800 in cash to DIRECTV for $1,800 of senior preferred units and a 30% economic interest in common units. As part of this transaction, we agreed to cover net losses under the NFL SUNDAY TICKET contract up to a cap of $2,100 over the remaining period of the contract, of which $1,800 was a note payable to DIRECTV. (See Note 8)

Under separate transition services agreements, we will provide DIRECTV certain operational support for up to three years. We also have entered into commercial arrangements, for up to five years, to provide network transport for U-verse products and sales services.

The merger agreement contains certain customary termination rights for AT&T and Discovery, including, without limitation, a right for either party to terminate if the transaction is not completed on or before July 15, 2023. Termination fees under specified circumstances will requireDiscovery to pay AT&T $720 or AT&T to pay Discovery $1,770.

On September 20, 2021, we sold WarnerMedia’s mobile games app studio, Playdemic Ltd. for approximately $1,400 in cash and recognized a pre-tax gain of $766. Playdemic was excluded from the pending WarnerMedia/Discovery transaction.

AT&T INC.

SEPTEMBER 30, 2021

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

Dollars in millions except per share amounts

The transaction is expected to close during the fourth quarter of 2021, pending customary closing conditions. We will retain our 41.3% interest in SKY Mexico, a leading pay-TV provider in Mexico.

COMPETITIVE AND REGULATORY ENVIRONMENT

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

In the Telecommunications Act of 1996 (Telecom Act), Congress established a national policy framework intended to bring the benefits of competition and investment in advanced telecommunications facilities and services to all Americans by opening all telecommunications markets to competition and reducing or eliminating regulatory burdens that harm consumer welfare. Nonetheless, over the ensuing two decades, the FCC and some state regulatory commissions have maintained or expanded certain regulatory requirements that were imposed decades ago on our traditional wireline subsidiaries when they operated as legal monopolies. ~~More recently,~~Over the past several years, the FCC has pursued a more deregulatory agenda, eliminating a variety of antiquated and unnecessary regulations and streamlining its processes in a number of areas. We continue to support regulatory and legislative measures and efforts, at both the state and federal levels, to reduce inappropriate regulatory burdens that inhibit our ability to compete effectively and offer needed services to our customers, including initiatives to transition services from traditional networks to all IP-based networks. At the same time, we also seek to ensure that legacy regulations are not further extended to broadband or wireless services, which are subject to vigorous competition.

Communications Segment

Internet The FCC currently classifies fixed and mobile consumer broadband services as information services, subject to light-touch regulation. The D.C. Circuit upheld the FCC’s current classification, although it remanded three discrete issues to the FCC for further consideration. These issues related to the effect of the FCC’s decision to classify broadband services as information services on public safety, the regulation of pole attachments, and universal service support for low-income consumers through the Lifeline program. Because no party sought Supreme Court review of the D.C. Circuit’s decision to uphold the FCC’s classification of broadband as an information service, that decision is final.

In October 2020, the FCC adopted an order addressing the three issues remanded by the D.C. Circuit for further consideration. After considering those issues, the FCC concluded they provided no grounds to depart from its determination that fixed and mobile consumer broadband services should be classified as information services. An appeal of the FCC’s remand order is pending.

~~AT&T INC.~~

~~MARCH 31, 2021~~

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

~~Dollars in millions except per share amounts~~

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.

Privacy-related legislation continues to be adopted or considered in a number of jurisdictions. Legislative, regulatory and litigation actions could result in increased costs of compliance, further regulation or claims against broadband internet access service providers and others, and increased uncertainty in the value and availability of data.

AT&T INC.

SEPTEMBER 30, 2021

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

Dollars in millions except per share amounts

Wireless ~~The industry-wide deployment of~~Industry-wide network densification and 5G technology expansion efforts, which isare needed to satisfy extensive demand for video and internet access, will involve significant deployment of “small cell” ~~equipment and therefore increase~~equipment. This increases the ~~need for~~importance of local permitting processes that allow for the placement of small cell equipment in the public right-of-way on reasonable timelines and terms. Between 2018 and ~~2019,~~2020, the FCC ~~streamlined~~adopted multiple Orders streamlining federal, state, and local wireless structure review processes ~~with~~that had the ~~potential~~tendency to delay and impede deployment of small cell and related infrastructure used to provide telecommunications and broadband ~~services, including small cell equipment. Recognizing that state~~services. The key elements of these orders have been affirmed on judicial review. During 2020-2021, we have also deployed 5G nationwide on “low band” spectrum on macro towers. Executing on the recent spectrum purchase, we announced on-going construction and ~~local regulations have the same potential,~~continuing deployment of 5G on C-band spectrum in ~~November 2020 the FCC adopted an order tightening the limits on state~~2022 and ~~local authority to deny requests to use existing structures for wireless facilities. These orders were appealed to the 9~~th ~~Circuit Court of Appeals, where the appeals remain pending.~~beyond.

LIQUIDITY AND CAPITAL RESOURCES

We had ~~$11,342~~$21,270 in cash and cash equivalents available at ~~March 31,~~September 30, 2021. Cash and cash equivalents included cash of ~~$2,465~~$4,552 and money market funds and other cash equivalents of ~~$8,877.~~$16,718. Approximately ~~$2,433~~$3,417 of our cash and cash equivalents were held by our foreign entities in accounts predominantly outside of the U.S. and may be subject to restrictions on repatriation.

Cash and cash equivalents increased ~~$1,602~~$11,530 since December 31, 2020. In the first ~~three~~nine months of 2021, cash inflows were primarily provided by cash receipts from operations, including cash from our sale and transfer of our receivables to third parties, the disposition of businesses, including our recently completed U.S. video business transaction, and issuance of long-term debt and commercial paper. 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, funding capital expenditures and vendor financing payments, investment in WarnerMedia content and dividends to stockholders.

Our cash and debt management will be impacted by the WarnerMedia/Discovery transaction, including the IRS private letter ruling process. During this time, we plan to maintain cash and cash equivalent balances above historical thresholds.

Cash Provided by or Used in Operating Activities

During the first ~~three~~nine months of 2021, cash provided by operating activities was ~~$9,927,~~$30,703, compared to ~~$8,866~~$33,048 for the first ~~three~~nine months of ~~2020. Higher operating cash flows in 2021 were primarily driven~~2020, impacted by ~~higher sales~~content investment and the separation of ~~receivables (see Note 9), working capital improvements and lower interest partially offset by cash taxes.~~the U.S. video business. Total cash paid for WarnerMedia’s content investment was ~~$4,508~~$14,562 in the first ~~quarter~~nine months of 2021 ($~~186~~4,281 higher than the prior-year comparable period).

We actively manage the timing of our supplier payments for operating items to optimize the use of our cash. Among other things, we seek to make payments on 90-day or greater terms, while providing the suppliers with access to bank facilities that permit earlier payments at their cost. In addition, for payments to a key supplier, as part of our working capital initiatives, we have arrangements that allow us to extend payment terms up to 90 days at an additional cost to us (referred to as supplier financing). The net impact of supplier financing was to decrease cash from operating activities ~~$1,071~~$1,803 and ~~$1,075~~$1,051 for the ~~three~~nine months ended ~~March 31,~~September 30, 2021 and 2020, respectively. All supplier financing payments are due within one year.

Cash Used in or Provided by Investing Activities

For the first ~~three~~nine months of 2021, cash used in investing activities totaled ~~$26,852,~~$27,333, and consisted primarily of ~~$4,033 (including interest during construction)~~$12,696 for capital expenditures, and ~~payment~~acquisitions of ~~$22,876, primarily for~~$23,533, which include C-Band spectrum licenses won in Auction 107 and associated capitalized interest. During the third quarter, investing activities also included cash receipts of approximately $5,370 (excluding cash on hand and $1,800 of financing activities) from the sale of our Video business and $2,940 from the sale of Otter Media assets and Playdemic (see Note 8). In the fourth quarter of 2021, we paid $650 of compensable relocation costs to clear C-Band spectrum licenses won in Auction 107.

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 ~~three~~nine months of 2021, vendor financing payments were ~~$1,690,~~$4,013, compared to ~~$791~~$1,965 for the first ~~three~~nine months of 2020. Capital expenditures in the first ~~three~~nine months of 2021 were ~~$4,033,~~$12,696, and when including ~~$1,690~~$4,013 cash paid for vendor financing, gross capital investment was ~~$5,723~~$16,709 ($~~41 lower~~1,318 higher than the prior-year comparable period).

The vast majority of our capital expenditures are spent on our networks, including product development and related support systems. During the first ~~three~~nine months of 2021, we placed ~~$998~~$3,624 of equipment in service under vendor financing arrangements (compared to ~~$449~~$3,148 in the prior-year comparable period) and ~~approximately $240~~$610 of assets related to the FirstNet build (compared to ~~$338~~$940 in ~~the prior-year comparable period). The amount of capital expenditures is influenced by demand for services and products, capacity needs and network enhancements.~~

4351

AT&T INC.

~~MARCH 31,~~SEPTEMBER 30, 2021

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

Dollars in millions except per share amounts

the prior-year comparable period). The amount of capital expenditures is influenced by demand for services and products, capacity needs and network enhancements.

Cash Provided by or Used in Financing Activities

For the first ~~three~~nine months of 2021, cash provided by financing activities totaled ~~$18,483~~$8,165 and was comprised of debt issuances ~~of debt, offset by~~and repayments, payments of dividends, and vendor financing payments.During the third quarter of 2021, we also paid approximately $361 in cash on the $1,800 note payable to DIRECTV (see Note 11).

A tabular summary orof our debt activity for the ~~three~~nine months ended ~~March 31,~~September 30, 2021 is as follows:


~~Net commercial paper borrowings~~	$	~~7,072~~
~~Issuance of Notes and Debentures~~1:
~~U.S. dollar denominated global notes~~	$	~~6,000~~
~~Initial average rate of 1.27%~~
~~Euro denominated global notes (converted to USD at issuance)~~	~~1,461~~
~~Rate of 0.00%~~
~~2021 Syndicated Term Loan~~	~~7,350~~
~~BAML Bilateral Term Loan~~	~~2,000~~
~~Private financing~~	~~750~~
~~Other~~	~~636~~
~~Debt Issuances~~	$	~~18,197~~

~~Repayments:~~
~~Private financing~~	$	~~(649)~~
~~Other~~	~~(253)~~
~~Repayments of long-term debt~~	$	~~(902)~~
1~~Includes credit agreement borrowings.~~


	First Quarter		Second Quarter		Third Quarter		Nine months ended September 30, 2021
Net commercial paper borrowings	$	7,072	$	(513)	$	(2)	$	6,557
Issuance of Notes and Debentures1:
U.S. dollar denominated global notes	$	6,000	$	—	$	—	$	6,000
Initial average rate of 1.27%
Euro denominated global notes (converted to USD at issuance)	1,461		—		—		1,461
Rate of 0.00%
2021 Syndicated Term Loan	7,350		—		—		7,350
BAML Bilateral Term Loan	2,000		—		—		2,000
Private financing	750		—		—		750
Other	636		—		835		1,471
Debt Issuances	$	18,197	$	—	$	835	$	19,032

Repayments:
Private financing	$	(649)	$	—	$	—	$	(649)
Other	(253)		(253)		(498)		(1,004)
Repayments of long-term debt	$	(902)	$	(253)	$	(498)	$	(1,653)
1 Includes credit agreement borrowing.

The weighted average interest rate of our entire long-term debt portfolio, including term loans and the impact of derivatives, was approximately 3.8% as of ~~March 31,~~September 30, 2021 and 4.1% as of December 31, 2020. We had ~~$171,194~~$170,841 of total notes and debentures outstanding at ~~March 31,~~September 30, 2021, which included Euro, British pound sterling, Canadian dollar, Mexican peso, Australian dollar, and Swiss franc ~~and Brazilian real~~ denominated debt that totaled approximately ~~$43,525.~~$42,897.

At ~~March 31,~~September 30, 2021, we had ~~$19,505~~$23,755 of debt maturing within one year, consisting of ~~$7,078~~$6,576 of commercial paper borrowings, $9,100 of bank borrowings, and ~~$3,327~~$8,079 of long-term debt issuances. Debt maturing within one year includes an accreting zero-coupon note that may be redeemed each May until maturity in November 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 ~~three~~nine months of 2021, we paid ~~$1,690~~$4,013 of cash under our vendor financing program, compared to ~~$791~~$1,965 in the first ~~three~~nine months of 2020. Total vendor financing payables included in our ~~March 31,~~September 30, 2021 consolidated balance sheet were ~~$3,552,~~$3,752, with ~~$2,883~~$2,866 due within one year (in “Accounts payable and accrued liabilities”) and the remainder predominantly due within two to three years (in “Other noncurrent liabilities”).

At ~~March 31,~~September 30, 2021, we had approximately 178 million shares remaining from our share repurchase authorizations approved by the Board of Directors in 2014.

We paid dividends on common and preferred shares of ~~$3,741~~$11,319 during the first ~~three~~nine months of 2021, compared with ~~$3,737~~$11,215 for the first ~~three~~nine months of 2020.

Dividends on common stock declared by our Board of Directors totaled $0.52 per share in the first three months of 2021 and $0.52 per share for the first three months of 2020. Our dividend policy considers the expectations and requirements of stockholders, capital funding requirements of AT&T and long-term growth opportunities.

4452

AT&T INC.

~~MARCH 31,~~SEPTEMBER 30, 2021

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

Dollars in millions except per share amounts

Dividends on common stock declared by our Board of Directors totaled $1.56 per share in the first nine months of 2021 and 2020. Our dividend policy considers the expectations and requirements of stockholders, capital funding requirements of AT&T and long-term growth opportunities. We do not expect changes to our dividend policy prior to the close of the pending WarnerMedia/Discovery transaction, which is expected to close in mid-2022. After close and subject to AT&T Board approval, we anticipate an annual dividend level of approximately $8,000 to $9,000 per year.

Credit Facilities

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

We use credit facilities as a tool in managing our liquidity status. In November 2020, we amended one of our $7,500 revolving credit agreements by extending the termination date. In total, we have two $7,500 revolving credit agreements, totaling $15,000, with one terminating on December 11, 2023 and the other terminating on November 17, 2025. No amounts were outstanding under either agreement as of ~~March 31,~~September 30, 2021.

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

Each of our credit and loan agreements contains covenants that are customary for an issuer with an investment grade senior debt credit rating as well as a net debt-to-EBITDA financial ratio covenant requiring AT&T to maintain, as of the last day of each fiscal quarter through June 30, 2023, a ratio of not more than 4.0-to-1, ~~in the case~~and a ratio of ~~the BAML Bilateral Term Loan and~~ not more than 3.5-to-1 for ~~all other credit agreements.~~any fiscal quarter thereafter. As of ~~March 31,~~September 30, 2021, we were in compliance with the covenants for our credit facilities.

Collateral Arrangements

Most of our counterparty collateral arrangements require cash collateral posting by AT&T only when derivative market values exceed certain thresholds. Under these arrangements, which cover over ~~95%~~96% of our approximate $42,000 derivative portfolio, counterparties are still required to post collateral. During the first ~~three~~nine months of 2021, we ~~received~~posted approximately ~~$90~~$570 of cash collateral, on a net basis. Cash postings under these arrangements vary with changes in credit ratings and netting agreements. (See Note 7)

Other

Our total capital consists of debt (long-term debt and debt maturing within one year) and stockholders’ equity. Our capital structure does not include debt issued by our equity method investments. At ~~March 31,~~September 30, 2021, our debt ratio was ~~49.6%~~49.7%, compared to ~~45.7%~~44.9% at ~~March 31,~~September 30, 2020 and 46.7% at December 31, 2020. Our net debt ratio was ~~46.5%~~43.8% at ~~March 31,~~September 30, 2021, compared to ~~42.9%~~42.1% at ~~March 31,~~September 30, 2020 and 43.8% at December 31, 2020. The debt ratio is affected by the same factors that affect total capital, and reflects our recent debt issuances and repayments and debt acquired in business combinations.

On ~~February 25,~~May 17, 2021, we ~~signed~~entered into an agreement to ~~form a new company named DIRECTV (New DTV)~~combine our WarnerMedia segment with a subsidiary of ~~TPG Capital, which will be jointly governed by a board with representation from both AT&T and TPG.~~Discovery. The transaction is ~~expected~~anticipated to close in ~~the second half of 2021, pending~~mid-2022, subject to approval by Discovery shareholders and customary closing ~~conditions.~~conditions, including receipt of regulatory approvals. We expect to receive ~~$7,600~~$43,000 (subject to adjustment) in a combination of cash, ~~from the transaction at closing.~~debt securities, and WarnerMedia’s retention of certain debt. (See Note 8)

AT&T INC.

~~MARCH 31,~~SEPTEMBER 30, 2021

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

Dollars in millions except per share amounts

On May 17, 2021, in anticipation of the separation of WarnerMedia business from us, Spinco, a wholly owned subsidiary, entered into a $41,500 commitment letter (Bridge Loan). On June 4, 2021, Spinco entered into a $10,000 term loan credit agreement (Spinco Term Loan) consisting of (i) an 18 month $3,000 tranche (Tranche 1 Facility), and (ii) a 3 year $7,000 tranche (Tranche 2 Facility), with JPMorgan Chase Bank, N.A., as agent. In connection with the execution of the Spinco Term Loan, the aggregate commitment amount under the Bridge Loan was reduced to $31,500. No amounts were outstanding as of September 30, 2021.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Dollars in millions except per share amounts

At ~~March 31,~~September 30, 2021, we had no interest rate swaps.

We have fixed-to-fixed and floating-to-fixed cross-currency swaps on foreign currency-denominated debt instruments with a U.S. dollar notional value of ~~$42,186~~$42,085 to hedge our exposure to changes in foreign currency exchange rates. These derivatives have been designated at inception and qualify as cash flow or fair value hedges with a net fair value of ~~$(577)~~$(2,570) at ~~March 31,~~September 30, 2021. We had no rate locks at ~~March 31,~~September 30, 2021.

We have foreign exchange contracts with a U.S. dollar notional value of ~~$228~~$191 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 $1$(34) at ~~March 31,~~September 30, 2021.

We have designated ~~€1,433~~€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 ~~March 31,~~September 30, 2021. 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 ~~March 31,~~September 30, 2021.

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 control over financial reporting to address any potential impact on their design and operating effectiveness.

4654

AT&T INC.

~~MARCH 31,~~SEPTEMBER 30, 2021

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, pending Notices of Apparent Liability; the transition from legacy technologies to IP-based infrastructure, including the withdrawal of legacy TDM-based services; universal service; broadband deployment; wireless equipment siting regulations and, in particular, siting for 5G service; E911 services; competition policy; privacy; net neutrality; 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 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, workforce shortage, natural disasters, safety issues, economic and political instability and public health emergencies.

•The continued development and delivery of attractive and profitable wireless, video content and broadband offerings and 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 subscription and advertising revenue from attractive video content, especially from WarnerMedia, in the face of unpredictable and rapidly evolving public viewing habits and legal restrictions on using personal data for advertising.

•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.

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

4755

AT&T INC.

~~MARCH 31,~~SEPTEMBER 30, 2021

CAUTIONARY LANGUAGE CONCERNING FORWARD-LOOKING STATEMENTS - continued

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

•Changes in our corporate strategies to respond to competition and regulatory, legislative and technological developments.

•Our ability to realize or sustain the expected benefits of our business transformation initiatives, which are designed to reduce costs, streamline distribution, remove redundancies and simplify and improve processes and support functions.

•Our ability to successfully complete divestitures, including the separation of the WarnerMedia business, as well as achieve our expectations regarding the financial impact of the completed and/or pending transactions.

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

4856

AT&T INC.

~~MARCH 31,~~SEPTEMBER 30, 2021

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, 2020 and in our Quarterly Report on Form 10-Q for the quarter ended June 30, 2021 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 ~~first~~third quarter of 2021, there were no such material developments.

PART II – OTHER INFORMATION - CONTINUED

Dollars in millions except per share amounts

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

(a) (b) (c) (d)
Period
Total Number of Shares (or Units) Purchased1, 2, 3
Average Price Paid Per Share (or Unit)
Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs1
Maximum Number (or Approximate Dollar Value) of Shares (or Units) That May Yet Be Purchased Under The Plans or Programs
January 1, 2021 - January 31, 2021 246,890 $ 29.62 13,563 177,916,645
February 1, 2021 - February 28, 2021 3,540,401 29.09 13,724 177,902,921
March 1, 2021 - March 31, 2021 2,219,810 29.60 — 177,902,921
Total 6,007,101 $ 29.30 27,287


	(a)	(b)		(c)	(d)
Period	Total Number of Shares (or Units) Purchased1, 2, 3	Average Price Paid Per Share (or Unit)		Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs1	Maximum Number (or Approximate Dollar Value) of Shares (or Units) That May Yet Be Purchased Under The Plans or Programs
July 1, 2021 - July 31, 2021	100,782	$	29.10	—	177,902,921
August 1, 2021 - August 31, 2021	99,720	28.09		—	177,902,921
September 1, 2021 - September 30, 2021	200,899	27.28		—	177,902,921
Total	401,401	$	27.94	—

1In March 2014, our Board of Directors approved an authorization to repurchase up to 300 million shares of our common stock. The authorization has no expiration date.

2Of the shares repurchased, ~~5,979,814~~220,908 shares were acquired through the withholding of taxes on the vesting of restricted stock and performance shares or in respect of the exercise price of options.

3Of the shares repurchased, no180,493 shares were acquired through reimbursements from AT&T maintained Voluntary Employee Benefit Association (VEBA) trusts during the period.

AT&T INC.

SEPTEMBER 30, 2021

Item 6. Exhibits

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


Exhibit
Number						Exhibit Description
10.1						~~Consulting Services~~Amended and Restated Limited Liability Company Agreement of DIRECTV Entertainment Holdings LLC, dated ~~March 30,~~July 31, 2021, among AT&T MVPD Holdings LLC, TPG VIII Merlin Investment Holdings, L.P. and DIRECTV Entertainment Holdings LLC (Exhibit 10.1 to Form 8-K filed on ~~March 30,~~August 2, 2021)
10.2						~~Agreement of Contribution and Subscriptions dated February 25, 2021, among Services, HoldCo, New DTV and Investor~~ ~~(Exhibit 10.1 to Form 8-K filed on February 25, 2021)~~AT&T Management Relocation Plan
10.3						~~U.S. $14,700,000,000 Term Loan Credit Agreement, dated as of January 29, 2021, among~~Amendment to AT&T ~~Inc., the lenders named therein~~Executive Physical Program, Officer Disability Plan and ~~Bank of America, N.A., as agent.~~ ~~(Exhibit 10.1 to Form 8-K filed on January 29, 2021)~~Supplemental Life Insurance Plan
10.4						~~Consulting Services Agreement dated~~AT&T Inc. Health Plan effective January ~~20,~~1, 2022
10.5						AT&T Cash Deferral Plan as amended July 29, 2021
10.6						~~(Exhibit 10.1 to Form 8-K filed on January 25, 2021)~~AT&T Stock Purchase and Deferral Plan as amended July 29, 2021
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 ~~March 31,~~September 30, 2021, 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 ~~March 31,~~September 30, 2021, (formatted as Inline XBRL and contained in Exhibit 101).
*						Certain schedules (or similar attachments) have been omitted pursuant to Item 601(a)(5) or Item 601(b)(2) of Regulation S-K. The registrant agrees to furnish copies of such schedules (or similar attachments) to the U.S. Securities and Exchange Commission upon request.

4958

SIGNATURE

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


			AT&T Inc.

~~May 6,~~November 4, 2021			/s/ Pascal Desroches
			Pascal Desroches
			Senior Executive Vice President
			and Chief Financial Officer

5059


	March 31, 2021			December 31, 2020
Operating Leases
Operating lease right-of-use assets	$	24,415		$	24,714

Accounts payable and accrued liabilities	$	3,564		$	3,537
Operating lease obligation	21,766			22,202
Total operating lease obligation	$	25,330		$	25,739
Finance Leases
Property, plant and equipment, at cost	$	3,414		$	3,586
Accumulated depreciation and amortization	(1,308)			(1,361)
Property, plant and equipment, net	$	2,106		$	2,225

Current portion of long-term debt	$	180		$	189
Long-term debt	1,747			1,847
Total finance lease obligation	$	1,927		$	2,036

	March 31,
	2021			2020
Weighted-Average Remaining Lease Term (years)
Operating leases	8.4			8.4
Finance leases	9.8			10.7

Weighted-Average Discount Rate
Operating leases	4.0		%	4.2		%
Finance leases	8.0		%	8.4		%


At March 31, 2021	Operating		Finance
	Leases		Leases
Remainder of 2021	$	3,631	$	242
2022	4,647		314
2023	4,212		291
2024	3,671		272
2025	3,015		269
Thereafter	11,668		1,587
Total lease payments	30,844		2,975
Less: imputed interest	(5,514)		(1,048)
Total	$	25,330	$	1,927



Video Results
	First Quarter
						Percent
		2021		2020		Change
Operating revenues
Service		$	6,684	$	7,397	(9.6)	%
Equipment		41		10		—
Total Operating Revenues		6,725		7,407		(9.2)

Operating expenses
Operations and support		5,660		6,020		(6.0)
Depreciation and amortization1		164		591		(72.3)
Total Operating Expenses		5,824		6,611		(11.9)
Operating Income		901		796		13.2
Equity in Net Income (Loss) of Affiliates		—		—		—
Operating Contribution		$	901	$	796	13.2	%
1Includes depreciation on assets that support AT&T U-verse products that provide both video and broadband services to customers over a shared network infrastructure.