AT&T INC.
10-Qs and 10-Ks
PROXIES
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
10-Q
| (Mark One) | ||||||||
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 |
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For the quarterly period ended
September 30, 2024
or
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 |
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For the transition period from to
Commission File Number
001-08610
Incorporated under the laws of the State of
Delaware
I.R.S. Employer Identification Number
43-1301883
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 | ||||||
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Depositary Shares, each representing a 1/1000th interest in a
share of 5.000% Perpetual Preferred Stock, Series A
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Depositary Shares, each representing a 1/1000th interest in a
share of 4.750% Perpetual Preferred Stock, Series C
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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
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 (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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☒ | Accelerated Filer | ☐ | ||||||||
| Non-accelerated filer | ☐ | Smaller reporting company |
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| Emerging growth company |
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If an emerging growth company, indicate by check mark 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.
☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes
☐
No
☒
At October 24, 2024, there were
7,175,289,157
common shares outstanding.
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
| AT&T INC. | |||||||||||||||||||||||
| CONSOLIDATED STATEMENTS OF INCOME | |||||||||||||||||||||||
| Dollars in millions except per share amounts | |||||||||||||||||||||||
| (Unaudited) | |||||||||||||||||||||||
| Three months ended | Nine months ended | ||||||||||||||||||||||
| September 30, | September 30, | ||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | ||||||||||||||||||||
| Operating Revenues | |||||||||||||||||||||||
| Service | $ |
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$ |
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$ |
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$ |
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| Equipment |
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| Total operating revenues |
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| Operating Expenses | |||||||||||||||||||||||
| Cost of revenues | |||||||||||||||||||||||
| Equipment |
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Other cost of revenues (exclusive of depreciation and
amortization shown separately below)
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| Selling, general and administrative |
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Asset impairments and abandonments and restructuring
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| Depreciation and amortization |
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| Total operating expenses |
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| Operating Income |
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| Other Income (Expense) | |||||||||||||||||||||||
| Interest expense |
(
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(
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(
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(
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| Equity in net income of affiliates |
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Other income (expense) — net
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| Total other income (expense) |
(
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(
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(
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(
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| Income Before Income Taxes |
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| Income tax expense |
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| Net Income |
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| Less: Net Income Attributable to Noncontrolling Interest |
(
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(
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(
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(
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Net Income (Loss) Attributable to AT&T
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$ |
(
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$ |
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$ |
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$ |
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| Less: Preferred Stock Dividends |
(
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(
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(
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(
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Net Income (Loss) Attributable to Common Stock
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$ |
(
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$ |
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$ |
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$ |
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Basic Earnings (Loss) Per Share Attributable to
Common Stock
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$ |
(
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$ |
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$ |
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$ |
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Diluted Earnings (Loss) Per Share Attributable to
Common Stock
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$ |
(
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$ |
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$ |
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$ |
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Weighted Average Number of Common Shares
Outstanding — Basic (in millions)
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Weighted Average Number of Common Shares
Outstanding
—
with Dilution (in millions)
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See Notes to Consolidated Financial Statements.
3
| AT&T INC. | |||||||||||||||||||||||
| CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME | |||||||||||||||||||||||
| Dollars in millions | |||||||||||||||||||||||
| (Unaudited) | |||||||||||||||||||||||
| Three months ended | Nine months ended | ||||||||||||||||||||||
| September 30, | September 30, | ||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | ||||||||||||||||||||
| Net income | $ |
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$ |
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$ |
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$ |
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| Other comprehensive income (loss), net of tax: | |||||||||||||||||||||||
| Foreign currency: | |||||||||||||||||||||||
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Translation adjustment, net of taxes of $(
and $
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(
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(
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(
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Reclassification adjustment included in net income, net of
taxes of $
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| Securities: | |||||||||||||||||||||||
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Net unrealized gains (losses), net of taxes of $
and $(
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(
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(
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Reclassification adjustment included in net income, net of
taxes of $
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| Derivative instruments: | |||||||||||||||||||||||
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Net unrealized gains (losses), net of taxes of $(
$(
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(
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(
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Reclassification adjustment included in net income, net of
taxes of $
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| Defined benefit postretirement plans: | |||||||||||||||||||||||
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Amortization of net prior service credit included in net
income, net of taxes of $(
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(
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(
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(
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| Other comprehensive income (loss) |
(
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Total comprehensive income (loss)
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(
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Less: Total comprehensive income attributable to
noncontrolling interest
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(
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(
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(
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(
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Total Comprehensive Income (Loss) Attributable to AT&T
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$ |
(
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$ |
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$ |
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$ |
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See Notes to Consolidated Financial Statements.
4
| AT&T INC. | |||||||||||
| CONSOLIDATED BALANCE SHEETS | |||||||||||
| Dollars in millions except per share amounts | |||||||||||
| September 30, | December 31, | ||||||||||
| 2024 | 2023 | ||||||||||
| Assets | (Unaudited) | ||||||||||
| Current Assets | |||||||||||
| Cash and cash equivalents | $ |
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$ |
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Accounts receivable – net of related allowances for credit loss of $
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| Inventories |
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| Prepaid and other current assets |
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| Total current assets |
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| Property, plant and equipment |
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| Less: accumulated depreciation and amortization |
(
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(
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| Property, Plant and Equipment – Net |
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| Goodwill – Net |
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| Licenses – Net |
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| Other Intangible Assets – Net |
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| Investments in and Advances to Equity Affiliates |
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| Operating Lease Right-Of-Use Assets |
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| Other Assets |
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| Total Assets | $ |
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$ |
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| Liabilities and Stockholders’ Equity | |||||||||||
| Current Liabilities | |||||||||||
| Debt maturing within one year | $ |
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$ |
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| Accounts payable and accrued liabilities |
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| Advanced billings and customer deposits |
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| Dividends payable |
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| Total current liabilities |
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| Long-Term Debt |
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| Deferred Credits and Other Noncurrent Liabilities | |||||||||||
| Deferred income taxes |
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| Postemployment benefit obligation |
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| Operating lease liabilities |
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| Other noncurrent liabilities |
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| Total deferred credits and other noncurrent liabilities |
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| Redeemable Noncontrolling Interest |
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| Stockholders’ Equity | |||||||||||
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Preferred stock ($
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Series A (
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Series B (
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Series C (
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Common stock ($
December 31, 2023: issued
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| Additional paid-in capital |
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| Retained (deficit) earnings |
(
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(
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Treasury stock (
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(
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(
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| Accumulated other comprehensive income |
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| Noncontrolling interest |
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| Total stockholders’ equity |
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| Total Liabilities and Stockholders’ Equity | $ |
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$ |
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See Notes to Consolidated Financial Statements.
5
| AT&T INC. | |||||||||||
| CONSOLIDATED STATEMENTS OF CASH FLOWS | |||||||||||
| Dollars in millions | |||||||||||
| (Unaudited) | |||||||||||
| Nine months ended | |||||||||||
| September 30, | |||||||||||
| 2024 | 2023 | ||||||||||
| Operating Activities | |||||||||||
| Net Income | $ |
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$ |
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| Adjustments to reconcile net income to net cash provided by operating activities: | |||||||||||
| Depreciation and amortization |
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| Provision for uncollectible accounts |
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| Deferred income tax expense |
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| Net (gain) loss on investments, net of impairments |
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| Pension and postretirement benefit expense (credit) |
(
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(
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| Actuarial and settlement (gain) loss on pension and postretirement benefits - net |
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(
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| Asset impairments and abandonments and restructuring |
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| Changes in operating assets and liabilities: | |||||||||||
| Receivables |
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Inventories, prepaid and other current assets
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| Accounts payable and other accrued liabilities |
(
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(
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| Equipment installment receivables and related sales |
(
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(
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| Deferred customer contract acquisition and fulfillment costs |
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| Postretirement claims and contributions |
(
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(
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| Other - net |
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| Total adjustments |
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| Net Cash Provided by Operating Activities |
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| Investing Activities | |||||||||||
| Capital expenditures |
(
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(
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| Acquisitions, net of cash acquired |
(
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(
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| Dispositions |
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| Distributions from DIRECTV in excess of cumulative equity in earnings |
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| (Purchases), sales and settlements of securities and investments - net |
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(
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| Other - net |
(
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(
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| Net Cash Used in Investing Activities |
(
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(
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| Financing Activities | |||||||||||
| Net change in short-term borrowings with original maturities of three months or less |
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(
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| Issuance of other short-term borrowings |
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| Repayment of other short-term borrowings |
(
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(
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| Issuance of long-term debt |
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| Repayment of long-term debt |
(
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(
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| Repayment of note payable to DIRECTV |
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(
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| Payment of vendor financing |
(
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(
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| Purchase of treasury stock |
(
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(
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| Issuance of treasury stock |
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| Issuance of preferred interests in subsidiary |
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| Redemption of preferred interests in subsidiary |
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(
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| Dividends paid |
(
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(
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| Other - net |
(
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(
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| Net Cash Used in Financing Activities |
(
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(
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| Net increase (decrease) in cash and cash equivalents and restricted cash | $ |
(
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$ |
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| Cash and cash equivalents and restricted cash beginning of year |
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| Cash and Cash Equivalents and Restricted Cash End of Period | $ |
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$ |
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| See Notes to Consolidated Financial Statements. | |||||||||||
6
| AT&T INC. | |||||||||||||||||||||||||||||||||||||||||||||||
| CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY | |||||||||||||||||||||||||||||||||||||||||||||||
| Dollars and shares in millions except per share amounts | |||||||||||||||||||||||||||||||||||||||||||||||
| (Unaudited) | |||||||||||||||||||||||||||||||||||||||||||||||
| Three months ended | Nine months ended | ||||||||||||||||||||||||||||||||||||||||||||||
| September 30, 2024 | September 30, 2023 | September 30, 2024 | September 30, 2023 | ||||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | ||||||||||||||||||||||||||||||||||||||||
| Preferred Stock - Series A | |||||||||||||||||||||||||||||||||||||||||||||||
| Balance at beginning of period |
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$ |
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$ |
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$ |
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$ |
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| Balance at end of period |
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$ |
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$ |
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$ |
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$ |
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| Preferred Stock - Series B | |||||||||||||||||||||||||||||||||||||||||||||||
| Balance at beginning of period |
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$ |
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$ |
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$ |
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$ |
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| Balance at end of period |
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$ |
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$ |
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$ |
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$ |
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| Preferred Stock - Series C | |||||||||||||||||||||||||||||||||||||||||||||||
| Balance at beginning of period |
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$ |
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$ |
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$ |
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$ |
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| Balance at end of period |
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$ |
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$ |
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$ |
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$ |
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| Common Stock | |||||||||||||||||||||||||||||||||||||||||||||||
| Balance at beginning of period |
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$ |
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$ |
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$ |
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$ |
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| Balance at end of period |
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$ |
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$ |
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$ |
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$ |
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| Additional Paid-In Capital | |||||||||||||||||||||||||||||||||||||||||||||||
| Balance at beginning of period | $ |
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$ |
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$ |
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$ |
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| Preferred stock dividends |
(
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(
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(
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(
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Common stock dividends
($
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(
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(
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(
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(
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| Issuance of treasury stock |
(
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(
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(
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(
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| Share-based payments |
(
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(
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(
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Redemption or reclassification of
interest held by noncontrolling owners
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(
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| Balance at end of period | $ |
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$ |
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$ |
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$ |
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Retained (Deficit) Earnings
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| Balance at beginning of period | $ |
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$ |
(
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$ |
(
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$ |
(
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Net income (loss) attributable to AT&T
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(
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| Preferred stock dividends |
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(
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Common stock dividends
($
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(
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(
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| Balance at end of period | $ |
(
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$ |
(
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$ |
(
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$ |
(
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7
| AT&T INC. | |||||||||||||||||||||||||||||||||||||||||||||||
| CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY - continued | |||||||||||||||||||||||||||||||||||||||||||||||
| Dollars and shares in millions except per share amounts | |||||||||||||||||||||||||||||||||||||||||||||||
| (Unaudited) | |||||||||||||||||||||||||||||||||||||||||||||||
| Three months ended | Nine months ended | ||||||||||||||||||||||||||||||||||||||||||||||
| September 30, 2024 | September 30, 2023 | September 30, 2024 | September 30, 2023 | ||||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | ||||||||||||||||||||||||||||||||||||||||
| Treasury Stock | |||||||||||||||||||||||||||||||||||||||||||||||
| Balance at beginning of period |
(
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$ |
(
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(
|
$ |
(
|
(
|
$ |
(
|
(
|
$ |
(
|
|||||||||||||||||||||||||||||||||||
|
Repurchase and acquisition of
common stock
|
(
|
(
|
|
(
|
(
|
(
|
(
|
(
|
|||||||||||||||||||||||||||||||||||||||
| Reissuance of treasury stock |
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||||||||||||||
| Balance at end of period |
(
|
$ |
(
|
(
|
$ |
(
|
(
|
$ |
(
|
(
|
$ |
(
|
|||||||||||||||||||||||||||||||||||
|
Accumulated Other Comprehensive Income
Attributable to AT&T, net of tax
|
|||||||||||||||||||||||||||||||||||||||||||||||
| Balance at beginning of period | $ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||||||||||||||||||||||||||
|
Other comprehensive income
(loss) attributable to AT&T
|
(
|
|
(
|
(
|
|||||||||||||||||||||||||||||||||||||||||||
| Balance at end of period | $ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||||||||||||||||||||||||||
|
Noncontrolling Interest
1
|
|||||||||||||||||||||||||||||||||||||||||||||||
| Balance at beginning of period | $ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||||||||||||||||||||||||||
|
Net income attributable to
noncontrolling interest
|
|
|
|
|
|||||||||||||||||||||||||||||||||||||||||||
|
Issuance and acquisition by
noncontrolling owners
|
|
(
|
|
|
|||||||||||||||||||||||||||||||||||||||||||
|
Redemption of noncontrolling
interest
|
|
|
(
|
|
|||||||||||||||||||||||||||||||||||||||||||
| Distributions |
(
|
(
|
(
|
(
|
|||||||||||||||||||||||||||||||||||||||||||
| Balance at end of period | $ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||||||||||||||||||||||||||
|
Total Stockholders' Equity at
beginning of period
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||||||||||||||||||||||||||
|
Total Stockholders' Equity at
end of period
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||||||||||||||||||||||||||
|
1
Excludes redeemable noncontrolling interest
|
|||||||||||||||||||||||||||||||||||||||||||||||
See Notes to Consolidated Financial Statements.
8
AT&T INC.
SEPTEMBER 30, 2024
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Dollars in millions except per share amounts
NOTE 1. PREPARATION OF INTERIM FINANCIAL STATEMENTS
Basis of Presentation
Throughout this document, AT&T Inc. is referred to as “we,” “AT&T” or the “Company.” The consolidated financial statements include the accounts of the Company and subsidiaries and affiliates which we control. AT&T is a holding company whose subsidiaries and affiliates operate worldwide in the telecommunications and technology industries. You should read this document in conjunction with the consolidated financial statements and accompanying notes included in our Annual Report on Form 10-K for the year ended December 31, 2023. The results for the interim periods are not necessarily indicative of those for the full year. These consolidated financial statements include all adjustments that are necessary to present fairly the results for the presented interim periods, consisting of normal recurring accruals and other items.
Goodwill Impairment
During the third quarter of 2024, we updated the long-term strategic plan of our Business Wireline reporting unit. The updated plans reflected lower long-term projected future cash flows associated with the industry-wide secular decline, including a faster-than-previously anticipated decline of legacy services. We identified this as an impairment indicator and performed an interim quantitative goodwill impairment test of our Business Wireline reporting unit. The interim impairment test methodology was consistent with our approach for annual impairment testing, using similar models updated with our current view of key inputs and assumptions. We concluded that the calculated fair value of the Business Wireline reporting unit was lower than the book value, resulting in a goodwill impairment. As a result, in the third quarter of 2024, we recorded a noncash goodwill impairment charge of $
4,422
in our consolidated statements of income, which represented the entirety of Business Wireline reporting unit goodwill. “Goodwill – Net” included on our consolidated balance sheet at September 30, 2024 totaled $
63,432
, which is attributable to our Mobility and Consumer Wireline reporting units in the Communications segment. No indicators of impairment were identified for our Mobility and Consumer Wireline reporting units.
9
AT&T INC.
SEPTEMBER 30, 2024
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Dollars in millions except per share amounts
NOTE 2. EARNINGS PER SHARE
A reconciliation of the numerators and denominators of basic and diluted earnings per share is shown in the table below:
| Three months ended | Nine months ended | ||||||||||||||||||||||
| September 30, | September 30, | ||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | ||||||||||||||||||||
| Numerators | |||||||||||||||||||||||
| Numerator for basic earnings per share: | |||||||||||||||||||||||
| Net Income (Loss) Attributable to Common Stock | $ |
(
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
| Dilutive potential common shares: | |||||||||||||||||||||||
| Mobility preferred interests |
|
|
|
|
|||||||||||||||||||
| Share-based payment |
|
|
|
|
|||||||||||||||||||
| Numerator for diluted earnings per share | $ |
(
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
| Denominators (000,000) | |||||||||||||||||||||||
| Denominator for basic earnings per share: | |||||||||||||||||||||||
| Weighted average number of common shares outstanding |
|
|
|
|
|||||||||||||||||||
| Dilutive potential common shares: | |||||||||||||||||||||||
| Mobility preferred interests (in shares) |
|
|
|
|
|||||||||||||||||||
|
Share-based payment (in shares)
1
|
|
|
|
|
|||||||||||||||||||
| Denominator for diluted earnings per share |
|
|
|
|
|||||||||||||||||||
|
1
For the three months ended September 30, 2024, dilutive potential common shares are not included in the computation of diluted earnings per share because their effect is antidilutive as a result of the net loss attributable to common stock.
|
|||||||||||||||||||||||
On April 5, 2023, we repurchased all our Series A Cumulative Perpetual Preferred Membership Interests in AT&T Mobility II LLC (Mobility preferred interests). For periods prior to repurchase, under Accounting Standards Update (ASU) No. 2020-06, “Debt—Debt With Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity” (ASU 2020-06), the ability to settle the Mobility preferred interests in stock was reflected in our diluted earnings per share calculation.
10
AT&T INC.
SEPTEMBER 30, 2024
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Dollars in millions except per share amounts
NOTE 3. OTHER COMPREHENSIVE INCOME
Changes in the balances of each component included in accumulated OCI are presented below. All amounts are net of tax.
| Foreign Currency Translation Adjustment | Net Unrealized Gains (Losses) on Securities | Net Unrealized Gains (Losses) on Derivative Instruments | Defined Benefit Postretirement Plans | Accumulated Other Comprehensive Income (Loss) | |||||||||||||||||||||||||
| Balance as of December 31, 2023 | $ |
(
|
$ |
(
|
$ |
(
|
$ |
|
$ |
|
|||||||||||||||||||
|
Other comprehensive income
(loss) before reclassifications
|
(
|
|
(
|
|
(
|
||||||||||||||||||||||||
|
Amounts reclassified from
accumulated OCI
|
|
1 |
|
1 |
|
2 |
(
|
3 |
(
|
||||||||||||||||||||
|
Net other comprehensive
income (loss)
|
(
|
|
(
|
(
|
(
|
||||||||||||||||||||||||
| Balance as of September 30, 2024 | $ |
(
|
$ |
(
|
$ |
(
|
$ |
|
$ |
|
|||||||||||||||||||
| Foreign Currency Translation Adjustment | Net Unrealized Gains (Losses) on Securities | Net Unrealized Gains (Losses) on Derivative Instruments | Defined Benefit Postretirement Plans | Accumulated Other Comprehensive Income (Loss) | |||||||||||||||||||||||||
| Balance as of December 31, 2022 | $ |
(
|
$ |
(
|
$ |
(
|
$ |
|
$ |
|
|||||||||||||||||||
|
Other comprehensive income
(loss) before reclassifications
|
|
(
|
|
|
|
||||||||||||||||||||||||
|
Amounts reclassified from
accumulated OCI
|
|
1 |
|
1 |
|
2 |
(
|
3 |
(
|
||||||||||||||||||||
|
Net other comprehensive
income (loss)
|
|
(
|
|
(
|
(
|
||||||||||||||||||||||||
| Balance as of September 30, 2023 | $ |
(
|
$ |
(
|
$ |
(
|
$ |
|
$ |
|
|||||||||||||||||||
|
1
(Gains) losses are included in “Other income (expense) - net” in the consolidated statements of income.
|
|||||||||||||||||||||||||||||
|
2
(Gains) losses are primarily included in “Interest expense” in the consolidated statements of income (see Note 7).
|
|||||||||||||||||||||||||||||
|
3
The amortization of prior service credits associated with postretirement benefits are included in “Other income (expense) - net” in the consolidated statements of income (see Note 6).
|
|||||||||||||||||||||||||||||
NOTE 4. SEGMENT INFORMATION
Our segments are comprised of strategic business units or other operations that offer products and services to different customer segments over various technology platforms and/or in different geographies that are managed accordingly. We have
two
reportable segments: Communications and Latin America.
We also evaluate segment and business unit performance based on EBITDA and/or EBITDA margin, which is defined as operating income excluding depreciation and amortization. EBITDA is used as part of our management reporting and we believe EBITDA to be a relevant and useful measurement to our investors as it measures the cash generation potential of our business units. EBITDA does not give effect to depreciation and amortization expenses incurred in operating income nor is it burdened by cash used for debt service requirements and thus does not reflect available funds for distributions, reinvestment or other discretionary uses. EBITDA margin is EBITDA divided by total revenue.
The
Communications segment
provides wireless and wireline telecom and broadband services to consumers located in the U.S. and businesses globally. Our business strategies reflect integrated product offerings that cut across product lines and utilize shared assets. This segment contains the following business units:
•
Mobility
provides nationwide wireless service and equipment.
•
Business Wireline
provides advanced ethernet-based fiber services, IP Voice and managed professional services, as well as traditional voice and data services and related equipment to business customers. In the first quarter of 2024, we began
11
AT&T INC.
SEPTEMBER 30, 2024
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Dollars in millions except per share amounts
offering our fixed wireless access product that provides internet services delivered over our 5G wireless network where available.
•
Consumer Wireline
provides broadband services, including fiber connections that provide multi-gig services to residential customers in select locations and our fixed wireless access product that provides home internet services delivered over our 5G wireless network where available. Consumer Wireline also provides legacy telephony voice communication services.
The
Latin America segment
provides wireless services and equipment in Mexico.
Corporate and Other
reconciles our segment results to consolidated operating income and income before income taxes.
Corporate includes
:
•
DTV-related retained costs
, which are costs previously allocated to the Video business that were retained after the transaction, net of reimbursements from DIRECTV Entertainment Holdings, LLC (DIRECTV) under transition service agreements.
•
Parent administration support
, which includes costs borne by AT&T where the business units do not influence decision making.
•
Securitization fees
associated with our sales of receivables (see Note 8).
•
Value portfolio
, which are businesses no longer integral to our operations or which we no longer actively market.
Other items consist of
:
•
Certain significant items
, which includes items associated with the merger and integration of acquired or divested businesses, including amortization of intangible assets, employee separation charges associated with voluntary and/or strategic offers, asset impairments and abandonments and restructuring, and other items for which the segments are not being evaluated.
“Interest expense,” “Other income (expense) – net” and “Equity in net income of affiliates” are managed only on a total company basis and are, accordingly, reflected only in consolidated results.
| For the three months ended September 30, 2024 | |||||||||||||||||||||||||||||
| Revenues |
Operations
and Support Expenses |
EBITDA |
Depreciation
and Amortization |
Operating
Income (Loss) |
|||||||||||||||||||||||||
| Communications | |||||||||||||||||||||||||||||
| Mobility | $ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||||||
| Business Wireline |
|
|
|
|
(
|
||||||||||||||||||||||||
| Consumer Wireline |
|
|
|
|
|
||||||||||||||||||||||||
| Total Communications |
|
|
|
|
|
||||||||||||||||||||||||
| Latin America - Mexico |
|
|
|
|
|
||||||||||||||||||||||||
| Segment Total |
|
|
|
|
|
||||||||||||||||||||||||
| Corporate and Other | |||||||||||||||||||||||||||||
| Corporate: | |||||||||||||||||||||||||||||
| DTV-related retained costs |
|
|
(
|
|
(
|
||||||||||||||||||||||||
| Parent administration support |
|
|
(
|
|
(
|
||||||||||||||||||||||||
|
Securitization fees
|
|
|
(
|
|
(
|
||||||||||||||||||||||||
| Value portfolio |
|
|
|
|
|
||||||||||||||||||||||||
| Total Corporate |
|
|
(
|
|
(
|
||||||||||||||||||||||||
| Certain significant items |
|
|
(
|
|
(
|
||||||||||||||||||||||||
| Total Corporate and Other |
|
|
(
|
|
(
|
||||||||||||||||||||||||
| AT&T Inc. | $ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||||||
12
AT&T INC.
SEPTEMBER 30, 2024
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Dollars in millions except per share amounts
| For the three months ended September 30, 2023 | |||||||||||||||||||||||||||||
| Revenues | Operations and Support Expenses | EBITDA | Depreciation and Amortization | Operating Income (Loss) | |||||||||||||||||||||||||
| Communications | |||||||||||||||||||||||||||||
| Mobility | $ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||||||
| Business Wireline |
|
|
|
|
|
||||||||||||||||||||||||
| Consumer Wireline |
|
|
|
|
|
||||||||||||||||||||||||
| Total Communications |
|
|
|
|
|
||||||||||||||||||||||||
| Latin America - Mexico |
|
|
|
|
(
|
||||||||||||||||||||||||
| Segment Total |
|
|
|
|
|
||||||||||||||||||||||||
| Corporate and Other | |||||||||||||||||||||||||||||
| Corporate: | |||||||||||||||||||||||||||||
| DTV-related retained costs |
|
|
(
|
|
(
|
||||||||||||||||||||||||
| Parent administration support |
(
|
|
(
|
|
(
|
||||||||||||||||||||||||
|
Securitization fees
|
|
|
(
|
|
(
|
||||||||||||||||||||||||
| Value portfolio |
|
|
|
|
|
||||||||||||||||||||||||
| Total Corporate |
|
|
(
|
|
(
|
||||||||||||||||||||||||
| Certain significant items |
|
|
(
|
|
(
|
||||||||||||||||||||||||
| Total Corporate and Other |
|
|
(
|
|
(
|
||||||||||||||||||||||||
| AT&T Inc. | $ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||||||
| For the nine months ended September 30, 2024 | |||||||||||||||||||||||||||||
| Revenues |
Operations
and Support Expenses |
EBITDA |
Depreciation
and Amortization |
Operating
Income (Loss) |
|||||||||||||||||||||||||
| Communications | |||||||||||||||||||||||||||||
| Mobility | $ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||||||
| Business Wireline |
|
|
|
|
|
||||||||||||||||||||||||
| Consumer Wireline |
|
|
|
|
|
||||||||||||||||||||||||
| Total Communications |
|
|
|
|
|
||||||||||||||||||||||||
| Latin America - Mexico |
|
|
|
|
|
||||||||||||||||||||||||
| Segment Total |
|
|
|
|
|
||||||||||||||||||||||||
| Corporate and Other | |||||||||||||||||||||||||||||
| Corporate: | |||||||||||||||||||||||||||||
| DTV-related retained costs |
|
|
(
|
|
(
|
||||||||||||||||||||||||
| Parent administration support |
|
|
(
|
|
(
|
||||||||||||||||||||||||
| Securitization fees |
|
|
(
|
|
(
|
||||||||||||||||||||||||
| Value portfolio |
|
|
|
|
|
||||||||||||||||||||||||
| Total Corporate |
|
|
(
|
|
(
|
||||||||||||||||||||||||
| Certain significant items |
|
|
(
|
|
(
|
||||||||||||||||||||||||
| Total Corporate and Other |
|
|
(
|
|
(
|
||||||||||||||||||||||||
| AT&T Inc. | $ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||||||
13
AT&T INC.
SEPTEMBER 30, 2024
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Dollars in millions except per share amounts
| For the nine months ended September 30, 2023 | |||||||||||||||||||||||||||||
| Revenues | Operations and Support Expenses | EBITDA | Depreciation and Amortization | Operating Income (Loss) | |||||||||||||||||||||||||
| Communications | |||||||||||||||||||||||||||||
| Mobility | $ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||||||
| Business Wireline |
|
|
|
|
|
||||||||||||||||||||||||
| Consumer Wireline |
|
|
|
|
|
||||||||||||||||||||||||
| Total Communications |
|
|
|
|
|
||||||||||||||||||||||||
| Latin America - Mexico |
|
|
|
|
(
|
||||||||||||||||||||||||
| Segment Total |
|
|
|
|
|
||||||||||||||||||||||||
| Corporate and Other | |||||||||||||||||||||||||||||
| Corporate: | |||||||||||||||||||||||||||||
| DTV-related retained costs |
|
|
(
|
|
(
|
||||||||||||||||||||||||
| Parent administration support |
(
|
|
(
|
|
(
|
||||||||||||||||||||||||
| Securitization fees |
|
|
(
|
|
(
|
||||||||||||||||||||||||
| Value portfolio |
|
|
|
|
|
||||||||||||||||||||||||
| Total Corporate |
|
|
(
|
|
(
|
||||||||||||||||||||||||
| Certain significant items |
|
|
(
|
|
(
|
||||||||||||||||||||||||
| Total Corporate and Other |
|
|
(
|
|
(
|
||||||||||||||||||||||||
| AT&T Inc. | $ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||||||
The following table is a reconciliation of Segment Operating Income to “Income Before Income Taxes” reported in our consolidated statements of income:
|
Three months ended
September 30, |
Nine months ended
September 30, |
||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | ||||||||||||||||||||
| Communications | $ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
| Latin America |
|
(
|
|
(
|
|||||||||||||||||||
| Segment Operating Income |
|
|
|
|
|||||||||||||||||||
| Reconciling Items: | |||||||||||||||||||||||
| Corporate |
(
|
(
|
(
|
(
|
|||||||||||||||||||
| Transaction and other costs |
(
|
(
|
(
|
(
|
|||||||||||||||||||
| Amortization of intangibles acquired |
(
|
(
|
(
|
(
|
|||||||||||||||||||
| Asset impairments and abandonments and restructuring |
(
|
(
|
(
|
(
|
|||||||||||||||||||
| Benefit-related gains (losses) |
|
(
|
|
|
|||||||||||||||||||
| AT&T Operating Income |
|
|
|
|
|||||||||||||||||||
| Interest expense |
|
|
|
|
|||||||||||||||||||
| Equity in net income of affiliates |
|
|
|
|
|||||||||||||||||||
|
Other income (expense) — net
|
|
|
|
|
|||||||||||||||||||
| Income Before Income Taxes | $ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
14
AT&T INC.
SEPTEMBER 30, 2024
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Dollars in millions except per share amounts
NOTE 5. REVENUE RECOGNITION
Revenue Categories
The following tables set forth reported revenue by category and by business unit:
| For the three months ended September 30, 2024 | |||||||||||||||||||||||||||||||||||
| Communications | |||||||||||||||||||||||||||||||||||
| Mobility | Business Wireline | Consumer Wireline | Latin America | Corporate & Other | Total | ||||||||||||||||||||||||||||||
| Wireless service | $ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||||||||||
| Business service |
|
|
|
|
|
|
|||||||||||||||||||||||||||||
| Broadband |
|
|
|
|
|
|
|||||||||||||||||||||||||||||
| Legacy voice and data |
|
|
|
|
|
|
|||||||||||||||||||||||||||||
| Other |
|
|
|
|
|
|
|||||||||||||||||||||||||||||
| Total Service |
|
|
|
|
|
|
|||||||||||||||||||||||||||||
| Equipment |
|
|
|
|
|
|
|||||||||||||||||||||||||||||
| Total | $ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||||||||||
| For the three months ended September 30, 2023 | |||||||||||||||||||||||||||||||||||
| Communications | |||||||||||||||||||||||||||||||||||
| Mobility | Business Wireline | Consumer Wireline | Latin America | Corporate & Other | Total | ||||||||||||||||||||||||||||||
| Wireless service | $ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||||||||||
| Business service |
|
|
|
|
|
|
|||||||||||||||||||||||||||||
| Broadband |
|
|
|
|
|
|
|||||||||||||||||||||||||||||
| Legacy voice and data |
|
|
|
|
|
|
|||||||||||||||||||||||||||||
| Other |
|
|
|
|
|
|
|||||||||||||||||||||||||||||
| Total Service |
|
|
|
|
|
|
|||||||||||||||||||||||||||||
| Equipment |
|
|
|
|
|
|
|||||||||||||||||||||||||||||
| Total | $ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||||||||||
| For the nine months ended September 30, 2024 | |||||||||||||||||||||||||||||||||||
| Communications | |||||||||||||||||||||||||||||||||||
| Mobility | Business Wireline | Consumer Wireline | Latin America | Corporate & Other | Total | ||||||||||||||||||||||||||||||
| Wireless service | $ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||||||||||
| Business service |
|
|
|
|
|
|
|||||||||||||||||||||||||||||
| Broadband |
|
|
|
|
|
|
|||||||||||||||||||||||||||||
| Legacy voice and data |
|
|
|
|
|
|
|||||||||||||||||||||||||||||
| Other |
|
|
|
|
|
|
|||||||||||||||||||||||||||||
| Total Service |
|
|
|
|
|
|
|||||||||||||||||||||||||||||
| Equipment |
|
|
|
|
|
|
|||||||||||||||||||||||||||||
| Total | $ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||||||||||
15
AT&T INC.
SEPTEMBER 30, 2024
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Dollars in millions except per share amounts
| For the nine months ended September 30, 2023 | |||||||||||||||||||||||||||||||||||
| Communications | |||||||||||||||||||||||||||||||||||
| Mobility | Business Wireline | Consumer Wireline | Latin America | Corporate & Other | Total | ||||||||||||||||||||||||||||||
| Wireless service | $ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||||||||||
| Business service |
|
|
|
|
|
|
|||||||||||||||||||||||||||||
| Broadband |
|
|
|
|
|
|
|||||||||||||||||||||||||||||
| Legacy voice and data |
|
|
|
|
|
|
|||||||||||||||||||||||||||||
| Other |
|
|
|
|
|
|
|||||||||||||||||||||||||||||
| Total Service |
|
|
|
|
|
|
|||||||||||||||||||||||||||||
| Equipment |
|
|
|
|
|
|
|||||||||||||||||||||||||||||
| Total | $ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||||||||||
Deferred Customer Contract Acquisition and Fulfillment Costs
Costs to acquire and fulfill customer contracts, including commissions on service activations for our Mobility, Business Wireline and Consumer Wireline services, are deferred and amortized over the contract period or expected customer relationship life, which typically ranges from
three years
to
five years
.
The following table presents the deferred customer contract acquisition and fulfillment costs included on our consolidated balance sheets:
| September 30, | December 31, | ||||||||||
| Consolidated Balance Sheets | 2024 | 2023 | |||||||||
| Deferred Acquisition Costs | |||||||||||
| Prepaid and other current assets | $ |
|
$ |
|
|||||||
| Other Assets |
|
|
|||||||||
| Total deferred customer contract acquisition costs | $ |
|
$ |
|
|||||||
| Deferred Fulfillment Costs | |||||||||||
| Prepaid and other current assets | $ |
|
$ |
|
|||||||
| Other Assets |
|
|
|||||||||
| Total deferred customer contract fulfillment costs | $ |
|
$ |
|
|||||||
The following table presents deferred customer contract acquisition and fulfillment cost amortization, which are primarily included in “Selling, general and administrative” and “Other cost of revenues,” respectively, for the nine months ended:
| September 30, | September 30, | ||||||||||
| Consolidated Statements of Income | 2024 | 2023 | |||||||||
| Deferred acquisition cost amortization | $ |
|
$ |
|
|||||||
| Deferred fulfillment cost amortization |
|
|
|||||||||
Contract Assets and Liabilities
A contract asset is recorded when revenue is recognized in advance of our right to bill and receive consideration. The contract asset will decrease as services are provided and billed. For example, when installment sales include promotional discounts (e.g., trade-in device credits) the difference between revenue recognized and consideration received is recorded as a contract asset to be amortized over the contract term.
Our contract assets primarily relate to our wireless businesses. Promotional equipment sales where we offer handset credits, which are allocated between equipment and service in proportion to their standalone selling prices, when customers commit to a
16
AT&T INC.
SEPTEMBER 30, 2024
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Dollars in millions except per share amounts
specified service period result in additional contract assets recognized. These contract assets will amortize over the service contract period, resulting in lower future service revenue.
When consideration is received in advance of the delivery of goods or services, a contract liability is recorded. Reductions in the contract liability will be recorded as we satisfy the performance obligations.
The following table presents contract assets and liabilities on our consolidated balance sheets:
| September 30, | December 31, | ||||||||||
| Consolidated Balance Sheets | 2024 | 2023 | |||||||||
| Contract asset | $ |
|
$ |
|
|||||||
| Current portion in “Prepaid and other current assets” |
|
|
|||||||||
| Contract liability |
|
|
|||||||||
| Current portion in “Advanced billings and customer deposits” |
|
|
|||||||||
Our beginning of period contract liability recorded as customer contract revenue during 2024 was $
3,512
.
Remaining Performance Obligations
Remaining performance obligations represent services we are required to provide to customers under bundled or discounted arrangements, which are satisfied as services are provided over the contract term. In determining the transaction price allocated, we do not include non-recurring charges and estimates for usage, nor do we consider arrangements with an original expected duration of less than one year, which are primarily prepaid wireless and residential internet agreements.
Remaining performance obligations associated with business contracts reflect recurring charges billed, adjusted to reflect estimates for sales incentives and revenue adjustments. Performance obligations associated with wireless contracts are estimated using a portfolio approach in which we review all relevant promotional activities, calculating the remaining performance obligation using the average service component for the portfolio and the average device price. As of September 30, 2024, the aggregate amount of the transaction price allocated to remaining performance obligations was $
38,581
, of which we expect to recognize approximately
63
% by the end of 2025, with the balance recognized thereafter.
NOTE 6. PENSION AND POSTRETIREMENT BENEFITS
Many of our employees are covered by one of our noncontributory pension plans. We also provide certain medical, dental, life insurance and death benefits to certain retired employees under various plans and accrue actuarially determined postretirement benefit costs. Our objective in funding these plans, in combination with the standards of the Employee Retirement Income Security Act of 1974, as amended (ERISA), is to accumulate assets sufficient to provide benefits described in the plans to employees upon their retirement. We do not have significant funding requirements in 2024.
17
AT&T INC.
SEPTEMBER 30, 2024
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Dollars in millions except per share amounts
The following table details qualified pension and postretirement benefit costs included in the accompanying consolidated statements of income. The service cost component of net periodic pension (credit) cost is recorded in operating expenses in the consolidated statements of income while the remaining components are recorded in “Other income (expense) – net.”
| Three months ended | Nine months ended | ||||||||||||||||||||||
| September 30, | September 30, | ||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | ||||||||||||||||||||
| Pension cost: | |||||||||||||||||||||||
| Service cost – benefits earned during the period | $ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
| Interest cost on projected benefit obligation |
|
|
|
|
|||||||||||||||||||
| Expected return on assets |
(
|
(
|
(
|
(
|
|||||||||||||||||||
| Amortization of prior service credit |
(
|
(
|
(
|
(
|
|||||||||||||||||||
| Net pension (credit) cost before remeasurement |
(
|
(
|
(
|
(
|
|||||||||||||||||||
| Actuarial (gain) loss |
|
(
|
|
|
|||||||||||||||||||
| Settlement (gain) loss |
|
|
|
(
|
|||||||||||||||||||
| Net pension (credit) cost | $ |
(
|
$ |
(
|
$ |
(
|
$ |
(
|
|||||||||||||||
| Postretirement cost: | |||||||||||||||||||||||
| Service cost – benefits earned during the period | $ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
|
Interest cost on accumulated postretirement benefit
obligation
|
|
|
|
|
|||||||||||||||||||
| Expected return on assets |
(
|
(
|
(
|
(
|
|||||||||||||||||||
| Amortization of prior service credit |
(
|
(
|
(
|
(
|
|||||||||||||||||||
| Net postretirement (credit) cost | $ |
(
|
$ |
(
|
$ |
(
|
$ |
(
|
|||||||||||||||
| Combined net pension and postretirement (credit) cost | $ |
(
|
$ |
(
|
$ |
(
|
$ |
(
|
|||||||||||||||
We also provide senior- and middle-management employees with nonqualified, unfunded supplemental retirement and savings plans. Net supplemental pension benefits costs not included in the table above were $
17
and $
19
in the third quarter and $
50
and $
56
for the first nine months of 2024 and 2023, respectively.
NOTE 7. FAIR VALUE MEASUREMENTS AND DISCLOSURE
The Fair Value Measurement and Disclosure framework in ASC 820, “Fair Value Measurement,” provides a three-tiered fair value hierarchy based on the reliability of the inputs used to determine fair value. Level 1 refers to fair values determined based on quoted prices in active markets for identical assets. Level 2 refers to fair values estimated using significant other observable inputs and Level 3 includes fair values estimated using significant unobservable inputs.
The level of an asset or liability within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Our valuation techniques maximize the use of observable inputs and minimize the use of unobservable inputs.
The valuation methodologies described above may produce a fair value calculation that may not be indicative of future net realizable value or reflective of future fair values. We believe our valuation methods are appropriate and consistent with other market participants. The use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different fair value measurement at the reporting date. There have been no changes in the methodologies used since December 31, 2023.
18
AT&T INC.
SEPTEMBER 30, 2024
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Dollars in millions except per share amounts
Long-Term Debt and Other Financial Instruments
The carrying amounts and estimated fair values of our long-term debt, including current maturities, and other financial instruments are summarized as follows:
| September 30, 2024 | December 31, 2023 | ||||||||||||||||||||||
| Carrying | Fair | Carrying | Fair | ||||||||||||||||||||
| Amount | Value | Amount | Value | ||||||||||||||||||||
|
Notes and debentures
1
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
| Commercial paper |
|
|
|
|
|||||||||||||||||||
|
Investment securities
2
|
|
|
|
|
|||||||||||||||||||
|
1
Includes credit agreement borrowings.
|
|||||||||||||||||||||||
|
2
Excludes investments accounted for under the equity method.
|
|||||||||||||||||||||||
The carrying amount of debt with an original maturity of less than one year approximates fair value. The fair value measurements used for notes and debentures are considered Level 2 and are determined using various methods, including quoted prices for identical or similar securities in both active and inactive markets.
Following is the fair value leveling for investment securities that are measured at fair value and derivatives as of September 30, 2024 and December 31, 2023. Derivatives designated as hedging instruments are reflected as “Prepaid and other current assets,” “Other Assets,” “Accounts payable and accrued liabilities,” and “Other noncurrent liabilities” on our consolidated balance sheets.
| September 30, 2024 | |||||||||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||||||
| Equity Securities | |||||||||||||||||||||||
| Domestic equities | $ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
| International equities |
|
|
|
|
|||||||||||||||||||
| Fixed income equities |
|
|
|
|
|||||||||||||||||||
| Available-for-Sale Debt Securities |
|
|
|
|
|||||||||||||||||||
| Asset Derivatives | |||||||||||||||||||||||
| Cross-currency swaps |
|
|
|
|
|||||||||||||||||||
| Liability Derivatives | |||||||||||||||||||||||
| Cross-currency swaps |
|
(
|
|
(
|
|||||||||||||||||||
| December 31, 2023 | |||||||||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||||||
| Equity Securities | |||||||||||||||||||||||
| Domestic equities | $ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
| International equities |
|
|
|
|
|||||||||||||||||||
| Fixed income equities |
|
|
|
|
|||||||||||||||||||
| Available-for-Sale Debt Securities |
|
|
|
|
|||||||||||||||||||
| Asset Derivatives | |||||||||||||||||||||||
| Cross-currency swaps |
|
|
|
|
|||||||||||||||||||
| Liability Derivatives | |||||||||||||||||||||||
| Interest rate swaps |
|
(
|
|
(
|
|||||||||||||||||||
| Cross-currency swaps |
|
(
|
|
(
|
|||||||||||||||||||
19
AT&T INC.
SEPTEMBER 30, 2024
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Dollars in millions except per share amounts
Investment Securities
Our investment securities include both equity and debt securities that are measured at fair value, as well as equity securities without readily determinable fair values. A substantial portion of the fair values of our investment securities is estimated based on quoted market prices. Investments in equity securities not traded on a national securities exchange are valued at cost, less any impairment, and adjusted for changes resulting from observable, orderly transactions for identical or similar securities. Investments in debt securities not traded on a national securities exchange are valued using pricing models, quoted prices of securities with similar characteristics or discounted cash flows.
The components comprising total gains and losses in the period on equity securities are as follows:
| Three months ended | Nine months ended | ||||||||||||||||||||||
| September 30, | September 30, | ||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | ||||||||||||||||||||
| Total gains (losses) recognized on equity securities | $ |
|
$ |
(
|
$ |
|
$ |
|
|||||||||||||||
| Gains (losses) recognized on equity securities sold |
|
(
|
(
|
(
|
|||||||||||||||||||
| Unrealized gains (losses) recognized on equity securities held at end of period | $ |
|
$ |
(
|
$ |
|
$ |
|
|||||||||||||||
At September 30, 2024, available-for-sale debt securities totaling $
1,198
have maturities as follows - less than one year: $
61
; one to three years: $
173
; three to five years: $
106
; five or more years: $
858
.
Our cash equivalents (money market securities) and short-term investments (certificate and time deposits) are recorded at amortized cost, and the respective carrying amounts approximate fair values. Short-term investments are recorded in “Prepaid and other current assets” and our investment securities are recorded in “Other Assets” on the consolidated balance sheets.
Derivative Financial Instruments
We enter into derivative transactions to manage certain market risks, primarily interest rate risk and foreign currency exchange risk. This includes the use of interest rate swaps, interest rate locks, foreign exchange forward contracts and combined interest rate foreign exchange contracts (cross-currency swaps). We do not use derivatives for trading or speculative purposes. We record derivatives on our consolidated balance sheets at fair value that is derived from observable market data, including yield curves and foreign exchange rates (all of our derivatives are Level 2). Cash flows associated with derivative instruments are presented in the same category on the consolidated statements of cash flows as the item being hedged.
Fair Value Hedging
Periodically, we enter into and designate fixed-to-floating interest rate swaps as fair value hedges. The purpose of these swaps is to manage interest rate risk by managing our mix of fixed-rate and floating-rate debt. These swaps involve the receipt of fixed-rate amounts for floating interest rate payments over the life of the swaps without exchange of the underlying principal amount.
We also designate most of our cross-currency swaps and foreign exchange contracts as fair value hedges. The purpose of these contracts is to hedge foreign currency risk associated with changes in spot rates on foreign denominated debt. For cross-currency hedges, we have elected to exclude the change in fair value of the swap related to both time value and cross-currency basis spread from the assessment of hedge effectiveness. For foreign exchange contracts, we have elected to exclude the change in fair value of forward points from the assessment of hedge effectiveness.
Unrealized and realized gains or losses from fair value hedges impact the same category on the consolidated statements of income as the item being hedged, including the earnings impact of excluded components. In instances where we have elected to exclude components from the assessment of hedge effectiveness related to fair value hedges, unrealized gains or losses on such excluded components are recorded as a component of accumulated OCI and recognized into earnings over the life of the hedging instrument. Unrealized gains on derivatives designated as fair value hedges are recorded at fair value as assets, and unrealized losses are recorded at fair market value as liabilities. Except for excluded components, changes in the fair value of derivative instruments designated as fair value hedges are offset against the change in fair value of the hedged assets or liabilities through earnings. In the nine months ended September 30, 2024 and 2023, no ineffectiveness was measured on fair value hedges.
20
AT&T INC.
SEPTEMBER 30, 2024
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Dollars in millions except per share amounts
Cash Flow Hedging
We designate some of our cross-currency swaps as cash flow hedges to hedge our exposure to variability in expected future cash flows that are attributable to foreign currency risk and interest rate risk generated from our foreign-denominated debt. These agreements include initial and final exchanges of principal from fixed foreign denominated amounts to fixed U.S. dollar denominated amounts, to be exchanged at a specified rate that is usually determined by the market spot rate upon issuance. They also include an interest rate swap of a fixed or floating foreign denominated interest rate to a fixed U.S. dollar denominated interest rate.
Unrealized gains on derivatives designated as cash flow hedges are recorded at fair value as assets and unrealized losses are recorded at fair value as liabilities. For derivative instruments designated as cash flow hedges, changes in fair value are reported as a component of accumulated OCI and are reclassified into the consolidated statements of income in the same period the hedged transaction affects earnings.
Periodically, we enter into and designate interest rate locks to partially hedge the risk of changes in interest payments attributable to increases in the benchmark interest rate during the period leading up to the probable issuance of fixed-rate debt. We designate our interest rate locks as cash flow hedges. Gains and losses when we settle our interest rate locks are amortized into income over the life of the related debt. Over the next 12 months, we expect to reclassify $
59
from accumulated OCI to “Interest expense” due to the amortization of net losses on historical interest rate locks.
Collateral and Credit-Risk
Contingency
We have entered into agreements with our derivative counterparties establishing collateral thresholds based on respective credit ratings and netting agreements. At September 30, 2024, we had posted collateral of $
670
(a deposit asset) and held collateral of $
2
(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 September, we would have been required to post additional collateral of $
52
. If AT&T’s credit rating had been downgraded three ratings levels by Fitch Ratings, two levels by S&P, and two levels by Moody’s, we would have been required to post additional collateral of $
2,661
. At December 31, 2023, we had posted collateral of $
670
(a deposit asset) and held collateral of $
5
(a receipt liability).
We do not offset the fair value of collateral, whether the right to reclaim cash collateral (a receivable) or the obligation to return cash collateral (a payable) exists, against the fair value of the derivative instruments.
Following are the notional amounts of our outstanding derivative positions:
| September 30, | December 31, | ||||||||||
| 2024 | 2023 | ||||||||||
| Interest rate swaps | $ |
|
$ |
|
|||||||
| Cross-currency swaps |
|
|
|||||||||
| Total | $ |
|
$ |
|
|||||||
21
AT&T INC.
SEPTEMBER 30, 2024
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Dollars in millions except per share amounts
Following are the related hedged items affecting our financial position and performance:
| Effect of Derivatives on the Consolidated Statements of Income | |||||||||||||||||||||||
| Three months ended | Nine months ended | ||||||||||||||||||||||
| September 30, | September 30, | ||||||||||||||||||||||
| Fair Value Hedging Relationships | 2024 | 2023 | 2024 | 2023 | |||||||||||||||||||
| Interest rate swaps (“Interest expense”): | |||||||||||||||||||||||
| Gain (loss) on interest rate swaps | $ |
|
$ |
(
|
$ |
|
$ |
(
|
|||||||||||||||
| Gain (loss) on long-term debt |
(
|
|
|
|
|||||||||||||||||||
| Cross-currency swaps: | |||||||||||||||||||||||
| Gain (loss) on cross-currency swaps |
|
(
|
|
(
|
|||||||||||||||||||
| Gain (loss) on long-term debt |
(
|
|
(
|
|
|||||||||||||||||||
| Gain (loss) recognized in accumulated OCI |
(
|
|
(
|
|
|||||||||||||||||||
| Foreign exchange contracts: | |||||||||||||||||||||||
| Gain (loss) on foreign exchange contracts |
|
|
|
|
|||||||||||||||||||
| Gain (loss) on long-term debt |
|
(
|
|
(
|
|||||||||||||||||||
| Gain (loss) recognized in accumulated OCI |
|
|
|
|
|||||||||||||||||||
In addition, the net swap settlements that accrued and settled in the periods above were offset against “Interest expense.”
The following table presents information for our cash flow hedging relationships:
| Three months ended | Nine months ended | ||||||||||||||||||||||
| September 30, | September 30, | ||||||||||||||||||||||
| Cash Flow Hedging Relationships | 2024 | 2023 | 2024 | 2023 | |||||||||||||||||||
| Cross-currency swaps: | |||||||||||||||||||||||
| Gain (loss) recognized in accumulated OCI | $ |
(
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
| Interest rate locks: | |||||||||||||||||||||||
|
Interest income (expense) reclassified from accumulated
OCI into income
|
(
|
(
|
(
|
(
|
|||||||||||||||||||
Nonrecurring Fair Value Measurements
NOTE 8. SALES OF RECEIVABLES
We have agreements with various third-party financial institutions pertaining to the sales of certain types of our accounts receivable. The most significant of these programs are discussed in detail below and generally consist of (1) receivables arising from equipment installment plans, which are sold for cash and beneficial interests, such as deferred purchase price, when applicable, and (2) revolving trade receivables, which are sold for cash. Under the terms of our agreements for these programs, we continue to service the transferred receivables on behalf of the financial institutions.
22
AT&T INC.
SEPTEMBER 30, 2024
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Dollars in millions except per share amounts
The following table sets forth a summary of cash proceeds received, net of remittances paid, from sales of receivables:
| Three months ended | Nine months ended | ||||||||||||||||||||||
| September 30, | September 30, | ||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | ||||||||||||||||||||
|
Net cash received (paid) from equipment installment
receivables program
1
|
$ |
(
|
$ |
|
$ |
(
|
$ |
|
|||||||||||||||
|
Net cash received (paid) from revolving receivables program
|
|
|
|
|
|||||||||||||||||||
|
Net cash received (paid) from other programs
|
|
(
|
|
(
|
|||||||||||||||||||
|
Total net cash impact to cash flows from operating activities
2
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
|
1
Cash from initial sales of $
|
|||||||||||||||||||||||
|
2
Net of facility fees.
|
|||||||||||||||||||||||
The sales of receivables did not have a material impact on our consolidated statements of income or to “Total Assets” reported on our consolidated balance sheets. We reflect cash receipts on sold receivables as cash flows from operations in our consolidated statements of cash flows. In the event cash is received on the beneficial interests, those receipts are classified as cash flows from investing activities, when applicable.
Our equipment installment and revolving receivables programs are discussed in detail below.
The following table sets forth a summary of the receivables and accounts being serviced:
| September 30, 2024 | December 31, 2023 | ||||||||||||||||||||||
| Equipment | Equipment | ||||||||||||||||||||||
| Installment | Revolving | Installment | Revolving | ||||||||||||||||||||
| Gross receivables: | $ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
| Balance sheet classification | |||||||||||||||||||||||
| Accounts receivable | |||||||||||||||||||||||
| Notes receivable |
|
|
|
|
|||||||||||||||||||
| Trade receivables |
|
|
|
|
|||||||||||||||||||
| Other Assets | |||||||||||||||||||||||
| Noncurrent notes and trade receivables |
|
|
|
|
|||||||||||||||||||
|
Outstanding portfolio of receivables derecognized from
our consolidated balance sheets
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
|
Cash proceeds received, net of remittances
1
|
|
|
|
|
|||||||||||||||||||
|
1
Represents amounts to which financial institutions remain entitled, excluding the beneficial interests.
|
|||||||||||||||||||||||
Equipment Installment Receivables Program
We offer our customers the option to purchase certain wireless devices in installments over a specified period of time and, in many cases, once certain conditions are met, they may be eligible to trade in the original equipment for a new device and have the remaining unpaid balance paid or settled.
We maintain a program under which we transfer a portion of these receivables through our bankruptcy-remote subsidiary in exchange for cash and beneficial interests. In the event a customer trades in a device prior to the end of the installment contract period, we agree to make a payment to the financial institutions equal to any outstanding remaining installment receivable balance. Accordingly, we record a guarantee obligation for this estimated amount at the time the receivables are transferred.
23
AT&T INC.
SEPTEMBER 30, 2024
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Dollars in millions except per share amounts
The following table sets forth a summary of equipment installment receivables sold under this program:
| Three months ended | Nine months ended | ||||||||||||||||||||||
| September 30, | September 30, | ||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | ||||||||||||||||||||
|
Gross receivables sold
1
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
|
Net receivables sold
2
|
|
|
|
|
|||||||||||||||||||
| Cash proceeds received |
|
|
|
|
|||||||||||||||||||
| Guarantee obligation recorded |
|
|
|
|
|||||||||||||||||||
|
1
Receivables net of promotion credits.
|
|||||||||||||||||||||||
|
2
Receivables net of allowance and other reserves.
|
|||||||||||||||||||||||
Beneficial interests, when applicable, and guarantee obligations are initially recorded at estimated fair value and subsequently adjusted for changes in present value of expected cash flows. The estimation of their fair values is based on remaining installment payments expected to be collected and the expected timing and value of device trade-ins. The estimated value of the device trade-ins considers prices offered to us by independent third parties and contemplates changes in value after the launch of a device model. The fair value measurements used for the beneficial interests and the guarantee obligation are considered Level 3 under the Fair Value Measurement and Disclosure framework (see Note 7).
The following table presents the previously transferred equipment installment receivables, which we repurchased in exchange for the associated beneficial interests:
| Three months ended | Nine months ended | ||||||||||||||||||||||
| September 30, | September 30, | ||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | ||||||||||||||||||||
| Fair value of repurchased receivables | $ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
| Carrying value of beneficial interests |
|
|
|
|
|||||||||||||||||||
|
Gain (loss) on repurchases
1
|
$ |
(
|
$ |
(
|
$ |
(
|
$ |
(
|
|||||||||||||||
|
1
These gains (losses) are included in “Selling, general and administrative” expense in the consolidated statements of income.
|
|||||||||||||||||||||||
At September 30, 2024 and December 31, 2023, our beneficial interests were $
2,875
and $
2,270
, respectively, of which $
1,681
and $
1,296
are included in “Prepaid and other current assets” on our consolidated balance sheets, with the remainder in “Other Assets.” The guarantee obligation at September 30, 2024 and December 31, 2023 was $
236
and $
385
, respectively, of which $
121
and $
111
are included in “Accounts payable and accrued liabilities” on our consolidated balance sheets, with the remainder in “Other noncurrent liabilities.” Our maximum exposure to loss as a result of selling these equipment installment receivables is limited to the total amount of our beneficial interests and guarantee obligation.
Revolving Receivables Program
During 2024, we expanded our revolving agreement to transfer up to $
2,770
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 $
195
that are pledged as collateral under this agreement. The transfers are recorded at fair value of the proceeds received and obligations assumed less derecognized receivables. Our maximum exposure to loss related to these receivables transferred is limited to the derecognized amount outstanding.
24
AT&T INC.
SEPTEMBER 30, 2024
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Dollars in millions except per share amounts
The following table sets forth a summary of the revolving receivables sold:
| Three months ended | Nine months ended | ||||||||||||||||||||||
| September 30, | September 30, | ||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | ||||||||||||||||||||
|
Gross receivables sold/cash proceeds received
1
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
|
Total collections under revolving agreement
|
|
|
|
|
|||||||||||||||||||
|
Net cash proceeds received
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
|
Net receivables sold
2
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
|
1
Includes initial sales of receivables of $
|
|||||||||||||||||||||||
|
2
Receivables net of allowance and other reserves.
|
|||||||||||||||||||||||
NOTE 9. TRANSACTIONS WITH DIRECTV
We account for our investment in DIRECTV under the equity method and record our share of DIRECTV earnings as equity in net income of affiliates, with DIRECTV considered a related party.
On September 29, 2024, we agreed to sell our interest in DIRECTV to TPG Capital for approximately $
7,600
in cash payments through 2029, inclusive of third-quarter 2024 distributions of $
623
. In addition to quarterly distributions through 2025, including payout of common catch-up units, this consideration includes notes payable to AT&T of approximately $
2,550
and a dividend of $
1,150
. The transaction is expected to close in mid-2025, pending customary closing conditions. We expect a gain on sale, whose amount will be dependent on the timing of close.
At September 30, 2024, our investment in DIRECTV was reduced to
zero
on our consolidated balance sheet, resulting from aggregate cash receipts exceeding our initial investment balance plus our cumulative equity in DIRECTV earnings. As we are not committed, implicitly or explicitly, to provide financial or other support to DIRECTV, we will record future cash distributions received in excess of our share of DIRECTV’s earnings in “Equity in net income from affiliates” in the consolidated statements of income and as cash provided by operations in the consolidated statements of cash flows.
The following table sets forth our share of DIRECTV’s earnings included in “Equity in net income of affiliates” and cash distributions received from DIRECTV:
| Three months ended | Nine months ended | ||||||||||||||||||||||
| September 30, | September 30, | ||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | ||||||||||||||||||||
|
DIRECTV’s earnings included in Equity in net income
of affiliates
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
|
Distributions classified as operating activities
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
|
Distributions classified as investing activities
|
|
|
|
|
|||||||||||||||||||
|
Cash distributions received from DIRECTV
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
For the three and nine months ended September 30, 2024, we billed DIRECTV approximately $
129
and $
408
under commercial arrangements and transition service agreements, which were recorded as a reduction to the operations and support expenses incurred.
At
September 30, 2024
, we had accounts receivable from DIRECTV of $
268
and accounts payable to DIRECTV of $
52
.
25
AT&T INC.
SEPTEMBER 30, 2024
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Dollars in millions except per share amounts
NOTE 10. SUPPLIER AND VENDOR FINANCING PROGRAMS
Supplier Financing Program
We actively manage the timing of our supplier payments for operating items to optimize the use of our cash and seek to make payments on 90-day or greater terms, while providing suppliers with access to bank facilities that permit earlier payment at their cost. Our supplier financing program does not result in changes to our normal, contracted payment cycles or cash from operations.
At the supplier’s election, they can receive payment of AT&T obligations prior to the scheduled due dates, at a discounted price from the third-party financial institution. The discounted price paid by participating suppliers is based on a variable rate that is indexed to the overnight borrowing rate. We agree to pay the financial institution the stated amount generally within 90 days of receipt of the invoice. We do not have pledged assets or other guarantees under our supplier financing program.
Suppliers had elected to sell to the third-party financial institutions $
3,229
and $
2,844
of our outstanding payment obligations as of September 30, 2024 and December 31, 2023, respectively. These amounts are included in “Accounts payable and accrued liabilities” on our consolidated balance sheets. Our supplier financing programs are reported as operating or investing (when capitalizable) activities in our statements of cash flows when paid.
Direct Supplier Financing
We also have arrangements with suppliers of handset inventory that allow us to extend the stated payment terms by up to 90 days at an additional cost to us (variable rate extension fee). We had $
1,942
of direct supplier financing outstanding at September 30, 2024 and $
5,442
as of December 31, 2023, which are included in “Accounts payable and accrued liabilities” on our consolidated balance sheets. Our direct supplier financing is reported as operating activities in our statements of cash flows when paid.
Vendor Financing
In connection with capital improvements and the acquisition of other productive assets, we negotiate favorable payment terms of 120 days or more (referred to as vendor financing), which are reported as financing activities in our statements of cash flows when paid. For the nine months ended September 30, 2024 and 2023, we recorded vendor financing commitments related to capital investments of $
581
and $
2,128
, respectively. We had $
1,660
of vendor financing payables at September 30, 2024, with $
843
included in “Accounts payable and accrued liabilities” and $
2,833
of vendor financing payables at December 31, 2023, with $
1,975
included in “Accounts payable and accrued liabilities.”
NOTE 11. ADDITIONAL FINANCIAL INFORMATION
Cash and Cash Flows
We typically maintain our restricted cash balances for purchases and sales of certain investment securities and funding of certain deferred compensation benefit payments.
The following table summarizes cash and cash equivalents and restricted cash balances contained on our consolidated balance sheets:
| September 30, | December 31, | ||||||||||||||||||||||
| 2024 | 2023 | 2023 | 2022 | ||||||||||||||||||||
|
Cash and cash equivalents
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
| Restricted cash in Prepaid and other current assets |
|
|
|
|
|||||||||||||||||||
| Restricted cash in Other Assets |
|
|
|
|
|||||||||||||||||||
| Cash and Cash Equivalents and Restricted Cash | $ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
26
AT&T INC.
SEPTEMBER 30, 2024
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Dollars in millions except per share amounts
The following table summarizes cash paid during the periods for interest and income taxes:
| Nine months ended | |||||||||||
| September 30, | |||||||||||
| Cash paid (received) during the period for: | 2024 | 2023 | |||||||||
| Interest | $ |
|
$ |
|
|||||||
| Income taxes, net of refunds |
|
|
|||||||||
| The following table summarizes capital expenditures: | |||||||||||
| Nine months ended | |||||||||||
| September 30, | |||||||||||
| 2024 | 2023 | ||||||||||
| Purchase of property and equipment | $ |
|
$ |
|
|||||||
|
Interest during construction - capital expenditures
1
|
|
|
|||||||||
| Total Capital Expenditures | $ |
|
$ |
|
|||||||
| The following table summarizes acquisitions, net of cash acquired: | |||||||||||
| Nine months ended | |||||||||||
| September 30, | |||||||||||
| 2024 | 2023 | ||||||||||
| Business acquisitions | $ |
|
$ |
|
|||||||
| Spectrum acquisitions |
|
|
|||||||||
|
Interest during construction - spectrum
1
|
|
|
|||||||||
| Total Acquisitions | $ |
|
$ |
|
|||||||
|
1
Total capitalized interest was $
|
|||||||||||
Preferred Interests Issued by Subsidiaries
Tower Holdings Preferred Interests
In 2019, we issued $
6,000
nonconvertible cumulative preferred interest in a wireless subsidiary (Tower Holdings) that holds interests in various tower assets and has the right to receive approximately $
6,000
if the purchase options from the tower companies are exercised.
The membership interests in Tower Holdings consist of (1) common interests, which are held by a consolidated subsidiary of AT&T, and (2) two series of preferred interests (collectively the “2019 Tower preferred interests”). The September series (Tower Class A-1) of the preferred interests totals $
1,500
and pays an initial preferred distribution of
5.0
%, and the December series (Tower Class A-2) totals $
4,500
and pays an initial preferred distribution of
4.75
%. Distributions are paid quarterly, subject to declaration and reset every
five years
.
In August 2024, we amended the 2019 Tower preferred interests, effective November 2024, to reset the rate and restructure the membership interests whereby all of the 2019 Tower preferred interests shall be designated Fixed Rate Class A Limited Membership Interests (Tower Fixed Rate Interests). A portion of the Tower Fixed Rate Interests will move to Floating Rate Class A Limited Membership Interests (Tower Floating Rate Interests) each year over a five-year period. The Tower Fixed Rate Interests pay a preferred distribution of
5.90
%, and the Tower Floating Rate Interests pay a preferred distribution equal to the Secured Overnight Financing Rate (SOFR) plus
250
basis points, as defined in the agreement. Any failure to declare or pay distributions on the Tower Fixed Rate Interests or Tower Floating Rate Interests (collectively, the “Tower preferred interests”) would not impose any limitation on cash movement between affiliates, or our ability to declare a dividend on or repurchase AT&T shares. We can call the Tower Fixed Rate Interests at the issue price beginning in November 2029, and we can call the Tower Floating Rate Interests at any time. The Tower preferred interests are included in “Noncontrolling interest” on the consolidated balance sheets.
27
AT&T INC.
SEPTEMBER 30, 2024
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Dollars in millions except per share amounts
The holders of the Tower preferred interests have the option to require redemption upon the occurrence of certain contingent events, such as the failure of AT&T to pay the preferred distribution for
two
or more periods or to meet certain other requirements, including a minimum credit rating. If notice is given upon such an event, all other holders of equal or more subordinate classes of membership interests in Tower Holdings are entitled to receive the same form of consideration payable to the holders of the Tower preferred interests, resulting in a deemed liquidation for accounting purposes.
Telco LLC Preferred Interests
At September 30, 2024, and as of the date of this report, we had $
7,250
outstanding cumulative preferred interests in a limited liability company (Telco LLC) that was formed to hold telecommunication-related assets. The cumulative preferred interests in Telco LLC are comprised of Telco Class A-1, A-2 and A-3 interests (collectively the “Telco preferred interests”) and are included in “Noncontrolling interest” on the consolidated balance sheets (see Note 16 to AT&T’s 2023 Annual Report on Form 10-K). The Telco preferred interests can be called at issue price beginning September 29, 2027. The holders of the Telco preferred interests have the option to require redemption upon the occurrence of certain contingent events, such as the failure of Telco LLC to pay the preferred distribution for
two
or more periods or to meet certain other requirements, including a minimum credit rating. If notice is given, all other holders of equal or more subordinate classes of members’ equity are entitled to receive the same form of consideration payable to the holders of the Telco preferred interests, resulting in a deemed liquidation for accounting purposes.
In October 2024, we entered into an agreement to issue in the first quarter of 2025, an additional $
2,250
of nonconvertible cumulative preferred interests in Telco LLC (Telco Class A-4). The Telco Class A-4 interests will pay an initial preferred distribution of
5.94
% annually, subject to declaration, and subject to reset on November 1, 2028, and every
four years
thereafter. The Telco Class A-4 interests can be called at issue price beginning November 1, 2028, and are subject to the same redemption and liquidation rights as the Telco Class A-1, A-2 and A-3 interests. Upon the expected issuance in the first quarter of 2025, we intend to use the Telco Class A-4 proceeds to fund the redemption of preferred equity securities.
28
AT&T INC.
SEPTEMBER 30, 2024
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Dollars in millions except per share amounts
OVERVIEW
AT&T Inc. is referred to as “we,” “AT&T” or the “Company” throughout this document. AT&T products and services are provided or offered by subsidiaries and affiliates of AT&T Inc. under the AT&T brand and not by AT&T Inc., and the names of the particular subsidiaries and affiliates providing the services generally have been omitted. AT&T is a holding company whose subsidiaries and affiliates operate worldwide in the telecommunications and technology industries. You should read this discussion in conjunction with the consolidated financial statements and accompanying notes (Notes).
We have two reportable segments: Communications and Latin America. Our segment results presented in Note 4 and discussed below follow our internal management reporting. Percentage increases and decreases that are not considered meaningful are denoted with a dash.
| Third Quarter | Nine-Month Period | |||||||||||||||||||||||||||||||||||||
| Percent | Percent | |||||||||||||||||||||||||||||||||||||
| 2024 | 2023 | Change | 2024 | 2023 | Change | |||||||||||||||||||||||||||||||||
| Operating Revenues | ||||||||||||||||||||||||||||||||||||||
| Communications | $ | 29,074 | $ | 29,244 | (0.6) | % | $ | 86,513 | $ | 87,241 | (0.8) | % | ||||||||||||||||||||||||||
| Latin America - Mexico | 1,022 | 992 | 3.0 | 3,188 | 2,842 | 12.2 | ||||||||||||||||||||||||||||||||
| Corporate | 117 | 114 | 2.6 | 337 | 323 | 4.3 | ||||||||||||||||||||||||||||||||
| AT&T Operating Revenues | $ | 30,213 | $ | 30,350 | (0.5) | % | $ | 90,038 | $ | 90,406 | (0.4) | % | ||||||||||||||||||||||||||
| Operating Income | ||||||||||||||||||||||||||||||||||||||
| Communications | $ | 7,156 | $ | 7,273 | (1.6) | % | $ | 20,906 | $ | 21,193 | (1.4) | % | ||||||||||||||||||||||||||
| Latin America - Mexico | 10 | (29) | — | 19 | (98) | — | ||||||||||||||||||||||||||||||||
| Segment Operating Income | 7,166 | 7,244 | (1.1) | 20,925 | 21,095 | (0.8) | ||||||||||||||||||||||||||||||||
| Corporate | (654) | (725) | 9.8 | (2,119) | (2,206) | 3.9 | ||||||||||||||||||||||||||||||||
| Certain significant items | (4,396) | (737) | — | (5,083) | (699) | — | ||||||||||||||||||||||||||||||||
| AT&T Operating Income | $ | 2,116 | $ | 5,782 | (63.4) | % | $ | 13,723 | $ | 18,190 | (24.6) | % | ||||||||||||||||||||||||||
The
Communications segment
provides services to businesses and consumers located in the U.S. and businesses globally. Our business strategies reflect integrated product offerings that cut across product lines and utilize shared assets. This segment contains the following business units:
•
Mobility
provides nationwide wireless service and equipment.
•
Business Wireline
provides advanced ethernet-based fiber services, IP Voice and managed professional services, as well as traditional voice and data services and related equipment to business customers. In the first quarter of 2024, we began offering our fixed wireless access product that provides internet services delivered over our 5G wireless network where available.
•
Consumer Wireline
provides broadband services, including fiber connections that provide multi-gig services to residential customers in select locations and our fixed wireless access product that provides home internet services delivered over our 5G wireless network where available. Consumer Wireline also provides legacy telephony voice communication services.
The
Latin America segment
provides wireless services and equipment in Mexico.
29
AT&T INC.
SEPTEMBER 30, 2024
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations- Continued
Dollars in millions except per share amounts
RESULTS OF OPERATIONS
Consolidated Results
Our financial results are summarized in the discussions that follow. Additional analysis is discussed in our “Segment Results” section.
| Third Quarter | Nine-Month Period | |||||||||||||||||||||||||||||||||||||
| Percent | Percent | |||||||||||||||||||||||||||||||||||||
| 2024 | 2023 | Change | 2024 | 2023 | Change | |||||||||||||||||||||||||||||||||
| Operating Revenues | ||||||||||||||||||||||||||||||||||||||
| Service | $ | 25,134 | $ | 25,112 | 0.1 | % | $ | 74,982 | $ | 74,579 | 0.5 | % | ||||||||||||||||||||||||||
| Equipment | 5,079 | 5,238 | (3.0) | 15,056 | 15,827 | (4.9) | ||||||||||||||||||||||||||||||||
| Total Operating Revenues | 30,213 | 30,350 | (0.5) | 90,038 | 90,406 | (0.4) | ||||||||||||||||||||||||||||||||
|
Operating Expenses
|
||||||||||||||||||||||||||||||||||||||
| Operations and support | 23,010 | 19,863 | 15.8 | 61,109 | 58,205 | 5.0 | ||||||||||||||||||||||||||||||||
| Depreciation and amortization | 5,087 | 4,705 | 8.1 | 15,206 | 14,011 | 8.5 | ||||||||||||||||||||||||||||||||
| Total Operating Expenses | 28,097 | 24,568 | 14.4 | 76,315 | 72,216 | 5.7 | ||||||||||||||||||||||||||||||||
| Operating Income | 2,116 | 5,782 | (63.4) | 13,723 | 18,190 | (24.6) | ||||||||||||||||||||||||||||||||
| Interest expense | 1,675 | 1,662 | 0.8 | 5,098 | 4,978 | 2.4 | ||||||||||||||||||||||||||||||||
| Equity in net income of affiliates | 272 | 420 | (35.2) | 915 | 1,338 | (31.6) | ||||||||||||||||||||||||||||||||
|
Other income (expense) — net
|
717 | 440 | 63.0 | 1,850 | 2,362 | (21.7) | ||||||||||||||||||||||||||||||||
| Income Before Income Taxes | 1,430 | 4,980 | (71.3) | 11,390 | 16,912 | (32.7) | ||||||||||||||||||||||||||||||||
| Net Income | 145 | 3,826 | (96.2) | 7,845 | 13,041 | (39.8) | ||||||||||||||||||||||||||||||||
|
Net Income (Loss) Attributable
to AT&T
|
(174) | 3,495 | — | 6,868 | 12,212 | (43.8) | ||||||||||||||||||||||||||||||||
|
Net Income (Loss) Attributable to
Common Stock
|
$ | (226) | $ | 3,444 | — | % | $ | 6,715 | $ | 12,057 | (44.3) | % | ||||||||||||||||||||||||||
Operating revenues
decreased in the third quarter and for the first nine months of 2024,
reflecting declines in Business Wireline service and Mobility equipment revenues, partially offset by Mobility service, Consumer Wireline and Mexico revenues
.
Operations and support expenses
increased in the third quarter and for the first nine months of 2024, primarily due to a $4,422 noncash goodwill impairment. We performed an interim goodwill impairment test of the Business Wireline reporting unit and concluded that the calculated fair value was lower than the book value, which was driven by a faster-than-previously anticipated industry-wide secular decline of legacy services (see Note 1). The increases were partially offset by lower Mobility equipment costs resulting from lower wireless sales volumes and expense declines from our continued transformation efforts.
Depreciation and amortization
expense increased in the third quarter and for the first nine months of 2024, primarily due to the shortening of estimated economic lives of wireless network equipment that will be replaced earlier than originally anticipated with our Open RAN network modernization efforts. Also contributing to higher depreciation expense was the impact of ongoing capital spending for strategic initiatives such as fiber and network upgrades.
Operating income
decreased in the third quarter and for the first nine months of 2024. Our operating income margin in the third quarter decreased from 19.1% in 2023 to 7.0% in 2024 and for the first nine months decreased from 20.1% in 2023 to 15.2% in 2024.
Interest expense
increased in the third quarter and for the first nine months of 2024, primarily due to lower capitalized interest associated with spectrum acquisitions, mostly offset by lower debt balances. Interest expense for the first nine months of 2023 also included distributions on Mobility preferred interests, which were repurchased on April 5, 2023.
30
AT&T INC.
SEPTEMBER 30, 2024
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations- Continued
Dollars in millions except per share amounts
Equity in net income of affiliates
decreased in the third quarter and for the first nine months of 2024, primarily due to the performance of our investment in DIRECTV, which included our share of a gain on a sale-leaseback transaction by DIRECTV of approximately $100 in the first quarter of 2023 (see Note 9).
Other income (expense) – net
increased in the third quarter and decreased for the first nine months of 2024. The increase in the third quarter was primarily the result of a prior-year write-down of our SKY Mexico equity investment and higher returns on other benefit-related investments. These increases were partially offset by lower pension and postretirement benefit credits and an actuarial gain on our pension plan in 2023 with no corresponding remeasurement in 2024.
The decrease for the first nine months was primarily driven by lower pension and postretirement benefit credits in 2024 and net actuarial and settlement gains in 2023 with no corresponding remeasurement in 2024 (see Note 6) and an impairment recognized on a held-for-sale business, partially offset by the prior-year write-down of our SKY Mexico equity investment and higher returns on other benefit-related investments.
Income tax expense
increased in the third quarter and decreased for the first nine months of 2024. The increase in the third quarter was primarily due to a higher effective tax rate driven by a goodwill impairment (see Note 1), which is not deductible for tax purposes. The decrease for the first nine months was primarily due to lower income before income tax.
Our effective tax rate was 89.9% in the third quarter of 2024 and 31.1% for the first nine months of 2024, versus 23.2% and 22.9% in the comparable periods in the prior year. The increase in our effective tax rates were primarily due to the goodwill impairment, which is not deductible for tax purposes.
| COMMUNICATIONS SEGMENT | Third Quarter | Nine-Month Period | ||||||||||||||||||||||||||||||||||||
| Percent | Percent | |||||||||||||||||||||||||||||||||||||
| 2024 | 2023 | Change | 2024 | 2023 | Change | |||||||||||||||||||||||||||||||||
| Segment Operating Revenues | ||||||||||||||||||||||||||||||||||||||
| Mobility | $ | 21,052 | $ | 20,692 | 1.7 | % | $ | 62,126 | $ | 61,589 | 0.9 | % | ||||||||||||||||||||||||||
| Business Wireline | 4,606 | 5,221 | (11.8) | 14,274 | 15,831 | (9.8) | ||||||||||||||||||||||||||||||||
| Consumer Wireline | 3,416 | 3,331 | 2.6 | 10,113 | 9,821 | 3.0 | ||||||||||||||||||||||||||||||||
| Total Segment Operating Revenues | $ | 29,074 | $ | 29,244 | (0.6) | % | $ | 86,513 | $ | 87,241 | (0.8) | % | ||||||||||||||||||||||||||
|
Segment Operating Income (Loss)
|
||||||||||||||||||||||||||||||||||||||
| Mobility | $ | 7,003 | $ | 6,763 | 3.5 | % | $ | 20,190 | $ | 19,647 | 2.8 | % | ||||||||||||||||||||||||||
| Business Wireline | (43) | 350 | — | 123 | 1,124 | (89.1) | ||||||||||||||||||||||||||||||||
| Consumer Wireline | 196 | 160 | 22.5 | 593 | 422 | 40.5 | ||||||||||||||||||||||||||||||||
| Total Segment Operating Income | $ | 7,156 | $ | 7,273 | (1.6) | % | $ | 20,906 | $ | 21,193 | (1.4) | % | ||||||||||||||||||||||||||
| Selected Subscribers and Connections | ||||||||||||||
| September 30, | ||||||||||||||
|
(in 000s)
|
2024 | 2023 | ||||||||||||
|
Mobility Subscribers
1
|
116,066 | 112,857 | ||||||||||||
|
Total domestic broadband connections
2
|
15,344 | 15,296 | ||||||||||||
| Network access lines in service | 3,486 | 4,421 | ||||||||||||
|
VoIP connections
|
2,297 | 2,649 | ||||||||||||
|
1
Effective with our first-quarter 2024 reporting, we have removed connected devices from our total Mobility subscribers, consistent with industry standards and our key performance metrics. Connected devices include data-centric devices such as session-based tablets, monitoring devices and primarily wholesale automobile systems.
|
||||||||||||||
|
2
Excludes AT&T Internet Air for Business.
|
||||||||||||||
31
AT&T INC.
SEPTEMBER 30, 2024
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations- Continued
Dollars in millions except per share amounts
Operating revenues
decreased in the third quarter and for the first nine months of 2024, primarily driven by declines in our Business Wireline business unit, which reflects lower demand for legacy services and product simplification, as well as the absence of revenues from our cybersecurity business that was contributed to a new cybersecurity joint venture, LevelBlue, in the second quarter of 2024. Revenue declines were also driven by lower Mobility equipment revenue. These decreases were partially offset by increases in our Mobility and Consumer Wireline business units, driven by gains in wireless and broadband services.
Operating income
decreased in the third quarter and for the first nine months of 2024. Our Communications segment operating income margin in the third quarter decreased from 24.9% in 2023 to 24.6% in 2024 and for the first nine months decreased from 24.3% in 2023 to 24.2% in 2024.
| Communications Business Unit Discussion | ||||||||||||||||||||||||||||||||||||||
| Mobility Results | ||||||||||||||||||||||||||||||||||||||
| Third Quarter | Nine-Month Period | |||||||||||||||||||||||||||||||||||||
| Percent | Percent | |||||||||||||||||||||||||||||||||||||
| 2024 | 2023 | Change | 2024 | 2023 | Change | |||||||||||||||||||||||||||||||||
| Operating revenues | ||||||||||||||||||||||||||||||||||||||
| Service | $ | 16,539 | $ | 15,908 | 4.0 | % | $ | 48,810 | $ | 47,136 | 3.6 | % | ||||||||||||||||||||||||||
| Equipment | 4,513 | 4,784 | (5.7) | 13,316 | 14,453 | (7.9) | ||||||||||||||||||||||||||||||||
| Total Operating Revenues | 21,052 | 20,692 | 1.7 | 62,126 | 61,589 | 0.9 | ||||||||||||||||||||||||||||||||
| Operating expenses | ||||||||||||||||||||||||||||||||||||||
| Operations and support | 11,559 | 11,795 | (2.0) | 34,483 | 35,587 | (3.1) | ||||||||||||||||||||||||||||||||
| Depreciation and amortization | 2,490 | 2,134 | 16.7 | 7,453 | 6,355 | 17.3 | ||||||||||||||||||||||||||||||||
| Total Operating Expenses | 14,049 | 13,929 | 0.9 | 41,936 | 41,942 | — | ||||||||||||||||||||||||||||||||
| Operating Income | $ | 7,003 | $ | 6,763 | 3.5 | % | $ | 20,190 | $ | 19,647 | 2.8 | % | ||||||||||||||||||||||||||
The following tables highlight other key measures of performance for Mobility:
| Subscribers | ||||||||||||||||||||
| September 30, | Percent | |||||||||||||||||||
| (in 000s) | 2024 | 2023 | Change | |||||||||||||||||
| Postpaid | 88,384 | 86,365 | 2.3 | % | ||||||||||||||||
| Postpaid phone | 72,285 | 70,757 | 2.2 | |||||||||||||||||
|
Prepaid
|
19,200 | 19,391 | (1.0) | |||||||||||||||||
| Reseller | 8,482 | 7,101 | 19.4 | |||||||||||||||||
|
Total Mobility Subscribers
1
|
116,066 | 112,857 | 2.8 | % | ||||||||||||||||
|
1
Effective with our first-quarter 2024 reporting, we have removed connected devices from our total Mobility subscribers, consistent with industry standards and our key performance metrics. Connected devices include data-centric devices such as session-based tablets, monitoring devices and primarily wholesale automobile systems.
|
||||||||||||||||||||
32
AT&T INC.
SEPTEMBER 30, 2024
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations- Continued
Dollars in millions except per share amounts
| Mobility Net Additions | ||||||||||||||||||||||||||||||||||||||
| Third Quarter | Nine-Month Period | |||||||||||||||||||||||||||||||||||||
| Percent | Percent | |||||||||||||||||||||||||||||||||||||
| (in 000s) | 2024 | 2023 | Change | 2024 | 2023 | Change | ||||||||||||||||||||||||||||||||
| Postpaid Phone Net Additions | 403 | 468 | (13.9) | % | 1,171 | 1,218 | (3.9) | % | ||||||||||||||||||||||||||||||
| Total Phone Net Additions | 358 | 494 | (27.5) | 1,162 | 1,407 | (17.4) | ||||||||||||||||||||||||||||||||
|
Postpaid
2
|
429 | 550 | (22.0) | 1,411 | 1,556 | (9.3) | ||||||||||||||||||||||||||||||||
| Prepaid | (49) | 56 | — | 34 | 263 | (87.1) | ||||||||||||||||||||||||||||||||
| Reseller | 237 | 401 | (40.9) | 910 | 941 | (3.3) | ||||||||||||||||||||||||||||||||
|
Mobility Net Subscriber Additions
1
|
617 | 1,007 | (38.7) | % | 2,355 | 2,760 | (14.7) | % | ||||||||||||||||||||||||||||||
|
Postpaid Churn
3
|
0.93 | % | 0.95 | % | (2) | BP | 0.89 | % | 0.97 | % | (8) | BP | ||||||||||||||||||||||||||
|
Postpaid Phone-Only Churn
3
|
0.78 | % | 0.79 | % | (1) | BP | 0.73 | % | 0.80 | % | (7) | BP | ||||||||||||||||||||||||||
|
1
Excludes migrations between wireless subscriber categories, including connected devices, and acquisition-related activity during the period.
|
||||||||||||||||||||||||||||||||||||||
|
2
In addition to postpaid phones, includes tablets and wearables and other. Tablet net adds (losses) were (21) and (36) for the quarters ended September 30, 2024 and 2023 and 31 and (85) for the first nine months ended September 30, 2024 and 2023. Wearables and other net adds were 47 and 118 for the quarters ended September 30, 2024 and 2023 and 209 and 423 for the first nine months ended September 30, 2024 and 2023.
|
||||||||||||||||||||||||||||||||||||||
|
3
Calculated by dividing the aggregate number of wireless subscribers who canceled service during a month by the total number of wireless subscribers at the beginning of that month. The churn rate for the period is equal to the average of the churn rate for each month of that period.
|
||||||||||||||||||||||||||||||||||||||
Service
revenue increased in the third quarter and for the first nine months of 2024. The increases are largely due to growth from subscriber gains and postpaid phone average revenue per subscriber (ARPU) growth. As part of our transformation activities and our focus on simplification, we aligned the timing of certain administrative fees and recorded approximately $90 of one-time revenues in the third quarter of 2024.
ARPU
ARPU increased in the third quarter and for the first nine months of 2024, reflecting pricing actions.
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 third quarter and for the first nine months of 2024.
Equipment
revenue decreased in the third quarter and for the first nine months of 2024, primarily driven by lower wireless device sales volumes.
Operations and support
expenses decreased in the third quarter and for the first nine months of 2024, primarily due to lower equipment costs driven by lower wireless sales volumes.
Depreciation
expense increased in the third quarter and for the first nine months of 2024, primarily due to shortening of estimated economic lives of wireless equipment that will be replaced earlier than originally anticipated with our Open RAN deployment and network transformation, and ongoing capital spending for network upgrades and expansion, which we expect to continue through the remainder of 2024.
Operating income
increased in the third quarter and for the first nine months of 2024. Our Mobility operating income margin in the third quarter increased from 32.7% in 2023 to 33.3% in 2024 and for the first nine months increased from 31.9% in 2023 to 32.5% in 2024. Our Mobility EBITDA margin in the third quarter increased from 43.0% in 2023 to 45.1% in 2024 and for the first nine months increased from 42.2% in 2023 to 44.5% in 2024. EBITDA is defined as operating income excluding depreciation and amortization.
33
AT&T INC.
SEPTEMBER 30, 2024
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations- Continued
Dollars in millions except per share amounts
| Business Wireline Results | ||||||||||||||||||||||||||||||||||||||
| Third Quarter | Nine-Month Period | |||||||||||||||||||||||||||||||||||||
| Percent | Percent | |||||||||||||||||||||||||||||||||||||
| 2024 | 2023 | Change | 2024 | 2023 | Change | |||||||||||||||||||||||||||||||||
| Operating revenues | ||||||||||||||||||||||||||||||||||||||
| Service | $ | 4,417 | $ | 5,087 | (13.2) | % | $ | 13,688 | $ | 15,401 | (11.1) | % | ||||||||||||||||||||||||||
| Equipment | 189 | 134 | 41.0 | 586 | 430 | 36.3 | ||||||||||||||||||||||||||||||||
| Total Operating Revenues | 4,606 | 5,221 | (11.8) | 14,274 | 15,831 | (9.8) | ||||||||||||||||||||||||||||||||
| Operating expenses | ||||||||||||||||||||||||||||||||||||||
| Operations and support | 3,250 | 3,526 | (7.8) | 10,004 | 10,699 | (6.5) | ||||||||||||||||||||||||||||||||
| Depreciation and amortization | 1,399 | 1,345 | 4.0 | 4,147 | 4,008 | 3.5 | ||||||||||||||||||||||||||||||||
| Total Operating Expenses | 4,649 | 4,871 | (4.6) | 14,151 | 14,707 | (3.8) | ||||||||||||||||||||||||||||||||
|
Operating Income (Loss)
|
$ | (43) | $ | 350 | — | % | $ | 123 | $ | 1,124 | (89.1) | % | ||||||||||||||||||||||||||
Service
revenues decreased in the third quarter and for the first nine months of 2024, driven by lower demand for legacy voice, data and network services along with product simplification, partially offset by growth in connectivity services. We expect these trends to continue. Revenue declines also were impacted by prior-year intellectual property sales of approximately $100 and the absence of revenues from our cybersecurity business that was contributed to LevelBlue.
Equipment
revenues increased in the third quarter and for the first nine months of 2024, driven by higher customer premises equipment sales, which are nonrecurring in nature.
Operations and support
expenses decreased in the third quarter and for the first nine months of 2024, primarily driven by lower personnel costs associated with ongoing transformation initiatives, lower network access and customer support expenses and the contribution of our cybersecurity business. Partially offsetting the decreases for the first nine months were higher vendor credits in 2023 and higher equipment costs in 2024. As part of our transformation activities, we expect operations and support expense improvements through the remainder of 2024 as we further right size our operations in alignment with the strategic direction of the business.
Depreciation
expense increased in the third quarter and for the first nine months of 2024, primarily due to ongoing capital investment for strategic initiatives such as fiber, which we expect to continue through the remainder of 2024.
Operating income
decreased in the third quarter and for the first nine months of 2024. Our Business Wireline operating income margin in the third quarter decreased from 6.7% in 2023 to (0.9)% in 2024 and for the first nine months decreased from 7.1% in 2023 to 0.9% in 2024. Our Business Wireline EBITDA margin in the third quarter decreased from 32.5% in 2023 to 29.4% in 2024 and for the first nine months decreased from 32.4% in 2023 to 29.9% in 2024.
34
AT&T INC.
SEPTEMBER 30, 2024
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 | ||||||||||||||||||||||||||||||||||||||
| Third Quarter | Nine-Month Period | |||||||||||||||||||||||||||||||||||||
| Percent | Percent | |||||||||||||||||||||||||||||||||||||
| 2024 | 2023 | Change | 2024 | 2023 | Change | |||||||||||||||||||||||||||||||||
| Operating revenues | ||||||||||||||||||||||||||||||||||||||
| Broadband | $ | 2,838 | $ | 2,667 | 6.4 | % | $ | 8,301 | $ | 7,755 | 7.0 | % | ||||||||||||||||||||||||||
| Legacy voice and data services | 307 | 368 | (16.6) | 972 | 1,147 | (15.3) | ||||||||||||||||||||||||||||||||
| Other service and equipment | 271 | 296 | (8.4) | 840 | 919 | (8.6) | ||||||||||||||||||||||||||||||||
| Total Operating Revenues | 3,416 | 3,331 | 2.6 | 10,113 | 9,821 | 3.0 | ||||||||||||||||||||||||||||||||
| Operating expenses | ||||||||||||||||||||||||||||||||||||||
| Operations and support | 2,296 | 2,300 | (0.2) | 6,801 | 6,810 | (0.1) | ||||||||||||||||||||||||||||||||
| Depreciation and amortization | 924 | 871 | 6.1 | 2,719 | 2,589 | 5.0 | ||||||||||||||||||||||||||||||||
| Total Operating Expenses | 3,220 | 3,171 | 1.5 | 9,520 | 9,399 | 1.3 | ||||||||||||||||||||||||||||||||
| Operating Income | $ | 196 | $ | 160 | 22.5 | % | $ | 593 | $ | 422 | 40.5 | % | ||||||||||||||||||||||||||
The following tables highlight other key measures of performance for Consumer Wireline:
| Connections | ||||||||||||||||||||||||||||||||||||||
| September 30, | Percent | |||||||||||||||||||||||||||||||||||||
| (in 000s) | 2024 | 2023 | Change | |||||||||||||||||||||||||||||||||||
| Broadband Connections | ||||||||||||||||||||||||||||||||||||||
| Total Broadband and DSL Connections | 13,972 | 13,887 | 0.6 | % | ||||||||||||||||||||||||||||||||||
|
Broadband
1
|
13,864 | 13,710 | 1.1 | |||||||||||||||||||||||||||||||||||
| Fiber Broadband Connections | 9,024 | 8,034 | 12.3 | |||||||||||||||||||||||||||||||||||
| Voice Connections | ||||||||||||||||||||||||||||||||||||||
| Retail Consumer Switched Access Lines | 1,386 | 1,737 | (20.2) | |||||||||||||||||||||||||||||||||||
|
Consumer VoIP Connections
|
1,716 | 2,035 | (15.7) | |||||||||||||||||||||||||||||||||||
| Total Retail Consumer Voice Connections | 3,102 | 3,772 | (17.8) | % | ||||||||||||||||||||||||||||||||||
|
1
Includes AT&T Internet Air.
|
||||||||||||||||||||||||||||||||||||||
| Broadband Net Additions | ||||||||||||||||||||||||||||||||||||||
| Third Quarter | Nine-Month Period | |||||||||||||||||||||||||||||||||||||
| Percent | Percent | |||||||||||||||||||||||||||||||||||||
| (in 000s) | 2024 | 2023 | Change | 2024 | 2023 | Change | ||||||||||||||||||||||||||||||||
| Total Broadband and DSL Net Additions | 10 | (8) | — | % | 82 | (104) | — | % | ||||||||||||||||||||||||||||||
|
Broadband Net Additions
1
|
28 | 15 | 86.7 | 135 | (43) | — | ||||||||||||||||||||||||||||||||
| Fiber Broadband Net Additions | 226 | 296 | (23.6) | % | 717 | 819 | (12.5) | % | ||||||||||||||||||||||||||||||
|
1
Includes AT&T Internet Air.
|
||||||||||||||||||||||||||||||||||||||
Broadband
revenues increased in the third quarter and for the first nine months of 2024, driven by an increase in fiber customers, which we expect to continue as we invest further in building our fiber footprint and higher ARPU, partially offset by declines in copper-based broadband services.
Legacy voice and data service
revenues decreased in the third quarter and for the first nine months of 2024, reflecting the continued decline in demand for these services in favor of other technologies, such as wireless and fiber services.
35
AT&T INC.
SEPTEMBER 30, 2024
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations- Continued
Dollars in millions except per share amounts
Other service and equipment
revenues decreased in the third quarter and for the first nine months of 2024, reflecting the continued decline in the number of VoIP customers.
Operations and support
expenses decreased in the third quarter and for the first nine months of 2024. The expense decrease in the third quarter was primarily driven by lower customer support costs and network-related costs, partially offset by higher marketing expense. The expense decrease for the first nine months was driven by lower customer support costs and operating taxes that were offset by higher network-related costs as our fiber build scales.
Depreciation
expense increased in the third quarter and for the first nine months of 2024, primarily due to ongoing capital spending for strategic initiatives such as fiber and network upgrades and expansion, which we expect to continue through the remainder of 2024.
Operating income
increased in the third quarter and for the first nine months of 2024. Our Consumer Wireline operating income margin in the third quarter increased from 4.8% in 2023 to 5.7% in 2024 and for the first nine months increased from 4.3% in 2023 to 5.9% in 2024. Our Consumer Wireline EBITDA margin in the third quarter increased from 31.0% in 2023 to 32.8% in 2024 and for the first nine months increased from 30.7% in 2023 to 32.7% in 2024.
| LATIN AMERICA SEGMENT |
Third Quarter
|
Nine-Month Period | ||||||||||||||||||||||||||||||||||||
| 2024 | 2023 | Percent Change | 2024 | 2023 | Percent Change | |||||||||||||||||||||||||||||||||
| Segment Operating Revenues | ||||||||||||||||||||||||||||||||||||||
| Service | $ | 645 | $ | 672 | (4.0) | % | $ | 2,034 | $ | 1,898 | 7.2 | % | ||||||||||||||||||||||||||
| Equipment | 377 | 320 | 17.8 | 1,154 | 944 | 22.2 | ||||||||||||||||||||||||||||||||
| Total Segment Operating Revenues | 1,022 | 992 | 3.0 | 3,188 | 2,842 | 12.2 | ||||||||||||||||||||||||||||||||
| Segment Operating Expenses | ||||||||||||||||||||||||||||||||||||||
| Operations and support | 854 | 837 | 2.0 | 2,662 | 2,396 | 11.1 | ||||||||||||||||||||||||||||||||
| Depreciation and amortization | 158 | 184 | (14.1) | 507 | 544 | (6.8) | ||||||||||||||||||||||||||||||||
| Total Segment Operating Expenses | 1,012 | 1,021 | (0.9) | 3,169 | 2,940 | 7.8 | ||||||||||||||||||||||||||||||||
| Operating Income (Loss) | $ | 10 | $ | (29) | — | % | $ | 19 | $ | (98) | — | % | ||||||||||||||||||||||||||
The following tables highlight other key measures of performance for Mexico:
| Subscribers | ||||||||||||||||||||||||||||||||||||||
| September 30, | Percent | |||||||||||||||||||||||||||||||||||||
| (in 000s) | 2024 | 2023 | Change | |||||||||||||||||||||||||||||||||||
| Mexico Wireless Subscribers | ||||||||||||||||||||||||||||||||||||||
| Postpaid | 5,633 | 5,085 | 10.8 | % | ||||||||||||||||||||||||||||||||||
| Prepaid | 16,996 | 16,213 | 4.8 | |||||||||||||||||||||||||||||||||||
| Reseller | 282 | 456 | (38.2) | |||||||||||||||||||||||||||||||||||
| Total Mexico Wireless Subscribers | 22,911 | 21,754 | 5.3 | % | ||||||||||||||||||||||||||||||||||
36
AT&T INC.
SEPTEMBER 30, 2024
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations- Continued
Dollars in millions except per share amounts
| Mexico Wireless Net Additions | ||||||||||||||||||||||||||||||||||||||
|
Third Quarter
|
Nine-Month Period | |||||||||||||||||||||||||||||||||||||
| Percent | Percent | |||||||||||||||||||||||||||||||||||||
| (in 000s) | 2024 | 2023 | Change | 2024 | 2023 | Change | ||||||||||||||||||||||||||||||||
| Mexico Wireless Net Additions | ||||||||||||||||||||||||||||||||||||||
| Postpaid | 139 | 55 | — | % | 397 | 160 | — | % | ||||||||||||||||||||||||||||||
| Prepaid | 187 | 17 | — | 333 | 9 | — | ||||||||||||||||||||||||||||||||
| Reseller | (51) | (7) | — | (135) | (18) | — | ||||||||||||||||||||||||||||||||
| Total Mexico Wireless Net Additions | 275 | 65 | — | % | 595 | 151 | — | % | ||||||||||||||||||||||||||||||
Service
revenues decreased in the third quarter and increased for the first nine months of 2024. The decrease in the third quarter was primarily due to unfavorable foreign exchange impacts, partially offset by growth in subscribers and ARPU. The increase for the first nine months reflects growth in subscribers and favorable exchange rates primarily from the first quarter of 2024.
Equipment
revenues increased in the third quarter and for the first nine months of 2024. The increase in the third quarter was primarily driven by higher equipment sales, partially offset by unfavorable foreign exchange impacts. The increase for the first nine months was primarily driven by higher equipment sales and favorable exchange rates primarily from the first quarter of 2024.
Operations and support
expenses increased in the third quarter and for the first nine months of 2024, primarily due to increased equipment and selling costs resulting from higher sales. Foreign exchange impacts were favorable in the third quarter and unfavorable for the first nine months. Approximately 4% of Mexico expenses are U.S. dollar based, with the remainder in the local currency.
Depreciation and amortization
expense decreased in the third quarter and for the first nine months of 2024, primarily driven by lower in-service assets. Foreign exchange impacts were favorable in the third quarter and unfavorable for the first nine months.
Operating income
improved in the third quarter and for the first nine months of 2024. Our Mexico operating income margin in the third quarter increased from (2.9)% in 2023 to 1.0% in 2024 and for the first nine months increased from (3.4)% in 2023 to 0.6% in 2024. Our Mexico EBITDA margin in the third quarter increased from 15.6% in 2023 to 16.4% in 2024 and for the first nine months increased from 15.7% in 2023 to 16.5% in 2024.
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, since then, the FCC and some state regulatory commissions have maintained, re-imposed or expanded certain regulatory requirements that were imposed decades ago on our traditional wireline subsidiaries when they operated as legal monopolies. Recently, the FCC’s regulatory approach has depended on control of the executive branch, eliminating a variety of antiquated and unnecessary regulations in a number of areas, while imposing or re-imposing regulations in other 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.
Until 2015, the FCC classified fixed and mobile consumer broadband internet access services as information services subject to minimal regulation. In 2015, the FCC reclassified such services as telecommunications services subject to broader regulation by
37
AT&T INC.
SEPTEMBER 30, 2024
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations- Continued
Dollars in millions except per share amounts
the FCC and imposed “net neutrality rules.” Since then, the FCC has twice reversed course, most recently again reclassifying such services as telecommunications services subject to broader regulation by the FCC in an order adopted on April 25, 2024. Multiple trade associations and other parties have challenged the FCC’s reclassification decision in appeals consolidated in the U.S. Court of Appeals for the Sixth Circuit. The trade associations have petitioned the Sixth Circuit to stay the FCC’s order. On August 1, 2024, the Sixth Circuit issued a stay of the FCC order pending review of the appeals, holding that broadband providers are likely to succeed on the merits. The appeals are now being briefed, with oral argument scheduled for October 31, 2024.
Since 2018, some states have adopted legislation or issued executive orders that established state net neutrality rules, including California and Vermont. We expect additional states may seek to impose net neutrality and other requirements on broadband in the future.
On November 15, 2021, the Infrastructure Investment and Jobs Act (IIJA) was signed into law. The legislation appropriates $65,000 to support broadband deployment and adoption. The National Telecommunications and Information Agency (NTIA) is responsible for distributing more than $48,000 of this funding, including $42,500 in state grants for broadband deployment projects in unserved and underserved areas through the Broadband, Equity, Access, and Deployment (BEAD) Programs. NTIA and states are in the process of administering these grants. Where appropriate, AT&T has applied for, and in some cases has been awarded, and may continue to apply for grants under this or other government infrastructure programs. The IIJA also appropriated $14,200 for establishment of the Affordable Connectivity Program (ACP), an FCC-administered monthly, low-income broadband benefit program, in which AT&T participated. The ACP ended earlier this year.
On November 15, 2023, the FCC adopted rules to “facilitate” equal access to broadband and prevent digital discrimination in broadband access. The rules, which became effective March 22, 2024, prohibit covered entities from implementing policies or practices not justified by genuine issues of technical or economic feasibility, that differentially impact consumers’ access to broadband internet access service based on prohibited characteristics (including income level, race, and ethnicity) or that have such differential impact, whether intentional or not. The rules broadly apply prospectively to all aspects of an ISP’s service that could impact a consumer’s ability to access broadband, including deployment, marketing, and credit checks, among other things. We may be required to answer complaints alleging that the company has violated the FCC rules and those complaints may seek relief, including changes to our business practices or civil forfeitures that could result in significant costs or reputational harm. It is currently uncertain how the FCC will implement and enforce these new rules. Several business and consumer-oriented associations have filed appeals challenging the rules and those appeals have been consolidated in the Eighth Circuit, which held oral argument on September 25, 2024.
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.
During 2020-2021, we deployed 5G nationwide on “low band” spectrum on macro towers. Executing on recent spectrum purchases, we announced ongoing construction and continuing deployment of 5G on 3.45 GHz and C-band spectrum in 2022 and beyond. Additional spectrum will be needed industrywide for 5G and future services. In 2023, the federal government released a national spectrum strategy that focused on spectrum sharing but did not include specific timelines to make additional spectrum bands available for 5G and future generations of service. As a result, the federal government’s ability and intent to make sufficient spectrum available to the industry in needed timeframes remains uncertain.
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AT&T INC.
SEPTEMBER 30, 2024
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations- Continued
Dollars in millions except per share amounts
LIQUIDITY AND CAPITAL RESOURCES
|
For nine months ended September 30,
|
2024 | 2023 | |||||||||
|
Cash provided by operating activities
|
$ | 26,875 | $ | 26,936 | |||||||
|
Cash used in investing activities
|
(12,127) | (13,786) | |||||||||
|
Cash used in financing activities
|
(18,855) | (9,284) | |||||||||
| September 30, | December 31, | ||||||||||
| 2024 | 2023 | ||||||||||
|
Cash and cash equivalents
|
$ | 2,586 | $ | 6,722 | |||||||
|
Total debt
|
129,012 | 137,331 | |||||||||
We had $2,586 in cash and cash equivalents available at September 30, 2024, decreasing $4,136 since December 31, 2023. Cash and cash equivalents included cash of $1,062 and money market funds and other cash equivalents of $1,524. Approximately $965 of our cash and cash equivalents were held in accounts outside of the U.S. and may be subject to restrictions on repatriation.
For the first nine months of 2024, cash inflows were primarily provided by cash receipts from operations, including cash from our sale and transfer of our receivables to third parties and distributions from DIRECTV. These inflows were exceeded by cash used to meet the needs of the business, including, but not limited to, payment of operating expenses. The cash generated
from operating activities was used to repay short-term borrowings and long-term debt, funding capital expenditures and vendor financing payments, and dividend payments to stockholders. We maintain availability under our credit facilities and our commercial paper program to meet our short-term liquidity requirements.
Cash Provided by Operating Activities
During the first nine months of 2024, cash provided by operating activities was $26,875, compared to $26,936 for the first nine months of 2023, reflecting the timing of working capital associated with device payments, as well as the expansion of committed, cost-efficient receivable sales programs in 2024, offset by operational growth.
We actively manage the timing of our supplier payments for operating items to optimize the use of our cash. Among other things, we seek to make payments on 90-day or greater terms, while providing the suppliers with access to bank facilities that permit earlier payments at their cost (referred to as supplier financing program). In addition, for payments to suppliers of handset inventory, as part of our working capital initiatives, we have arrangements that allow us to extend the stated payment terms by up to 90 days at an additional cost to us (referred to as direct supplier financing). The net impact of direct supplier financing, including principal and interest payments, was to decrease cash from operating activities approximately $3,648 and $3,054 for the nine months ended September 30, 2024 and 2023, respectively. All supplier financing payments are due within one year. (See Note 10)
Cash Used in Investing Activities
For the first nine months of 2024, cash used in investing activities totaled $12,127 and consisted primarily of $13,420 (including interest during construction) for capital expenditures. During the first nine months of 2024, we also paid $457 in cash on FirstNet sustainability payment. During the first nine months of 2024, we received a return of investment of $928 from DIRECTV representing distributions in excess of cumulative equity in earnings from DIRECTV (see Note 9).
For capital improvements, we have negotiated favorable vendor payment terms of 120 days or more (referred to as vendor financing) with some of our vendors, which are excluded from capital expenditures and reported as financing activities. For the first nine months of 2024, vendor financing payments were $1,571, compared to $4,736 for the first nine months of 2023. Capital expenditures for the first nine months of 2024 were $13,420, and when including $1,571 cash paid for vendor financing, capital investment was $14,991 ($2,997 lower 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 nine months of 2024, we placed $581 of productive assets (primarily software) in service under vendor
39
AT&T INC.
SEPTEMBER 30, 2024
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations- Continued
Dollars in millions except per share amounts
financing arrangements (compared to $2,128 in 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 nine months of 2024, cash used in financing activities totaled $18,855 and was primarily comprised of debt repayments, payments of dividends and vendor financing payments.
A tabular summary of our debt activities for the nine months ended September 30, 2024 is as follows:
|
First
Quarter |
Second
Quarter |
Third
Quarter |
Nine months ended
September 30, 2024 |
|||||||||||
| Net commercial paper borrowings | $ | 428 | $ | 262 | $ | (2,686) | $ | (1,996) | ||||||
| Repayments | ||||||||||||||
| USD notes | $ | (2,300) | $ | (1,615) | $ | — | $ | (3,915) | ||||||
|
EUR notes
|
(2,181) | (32) | — | (2,213) | ||||||||||
|
CAD notes
|
— | (442) | — | (442) | ||||||||||
| Other | (204) | (136) | (203) | (543) | ||||||||||
| Repayments of long-term debt | $ | (4,685) | $ | (2,225) | $ | (203) | $ | (7,113) | ||||||
The weighted average interest rate of our long-term debt portfolio, including credit agreement borrowings and the impact of derivatives, was approximately 4.2% as of September 30, 2024 and as of December 31, 2023. We had $127,501 of total notes and debentures outstanding at September 30, 2024. This also included Euro, British pound sterling, Canadian dollar, Swiss franc, and Australian dollar denominated debt that totaled approximately $33,477.
At September 30, 2024, we had $2,637 of long-term debt maturing within one year. We had no outstanding commercial paper or other short-term borrowings on September 30, 2024. The weighted average interest rate on our outstanding short-term borrowings was approximately 6.0% as of December 31, 2023.
For the first nine months of 2024, we paid $1,571 of cash under our vendor financing program, compared to $4,736 in the prior-year comparable period. Total vendor financing payables included in our September 30, 2024 consolidated balance sheet were $1,660, with $843 due within one year (in “Accounts payable and accrued liabilities”) and the remainder predominantly due within five years (in “Other noncurrent liabilities”).
At September 30, 2024, we had approximately 144 million shares remaining from our share repurchase authorizations approved by the Board of Directors in 2014.
We paid dividends on common and preferred shares of $6,171 during the first nine months of 2024, compared with $6,116 for the first nine months of 2023.
Dividends on common stock declared by our Board of Directors totaled $0.8325 per share in the first nine months of 2024 and 2023. Our dividend policy considers the expectations and requirements of stockholders, capital funding requirements of AT&T and long-term growth opportunities.
Credit Facilities
The following summary of our various credit and loan agreements does not purport to be complete and is qualified in its entirety by reference to each agreement filed as exhibits to our Annual Report on Form 10-K.
We use credit facilities as a tool in managing our liquidity status. We currently have one $12,000 revolving credit agreement that terminates on November 18, 2028 (Revolving Credit Agreement). No amount was outstanding under the Revolving Credit Agreement as of September 30, 2024.
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.
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AT&T INC.
SEPTEMBER 30, 2024
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations- Continued
Dollars in millions except per share amounts
Our Revolving Credit Agreement contains covenants that are customary for an issuer with investment grade senior debt credit rating as well as a net debt-to-EBITDA financial ratio covenant requiring AT&T to maintain, as of the last day of each fiscal quarter, a ratio of not more than 3.75-to-1. As of September 30, 2024, we were in compliance with the covenants for our credit facilities.
Collateral Arrangements
Most of our counterparty collateral arrangements require cash collateral posting by AT&T only when derivative market values exceed certain thresholds. Under these arrangements, which cover the majority of our approximate $35,400 derivative portfolio, counterparties are still required to post collateral. During the first nine months of 2024, we posted $3 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), redeemable noncontrolling interest and stockholders’ equity. Our capital structure does not include debt issued by our equity method investments. At September 30, 2024, our debt ratio was 52.2%, compared to 53.5% at September 30, 2023 and 53.5% at December 31, 2023. The debt ratio is affected by the same factors that affect total capital, and reflects our recent debt issuances, repayments and reclassifications related to redemption of noncontrolling interests.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
At September 30, 2024, 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 $35,351 to hedge our exposure to changes in foreign currency exchange rates and interest rates. These derivatives have been designated as cash flow or fair value hedges with a net fair value of $(2,732) at September 30, 2024.
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 SEC’s rules and forms. The Chief Executive Officer and Chief Financial Officer have performed an evaluation of the effectiveness of the design and operation of the registrant’s disclosure controls and procedures as of September 30, 2024. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the registrant’s disclosure controls and procedures were effective as of September 30, 2024.
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.
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AT&T INC.
SEPTEMBER 30, 2024
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 herein and in our most recent Form 10-K and Form 10-Q. 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:
•
Adverse economic and political changes, including inflation and rising interest rates, war or other hostilities, and public health emergencies, and our ability to access financial markets at favorable rates and terms.
•
Increases in our benefit plans’ costs, including due to worse-than-assumed investment returns and discount rates, mortality assumptions, medical cost trends, or healthcare laws or regulations.
•
The final outcome of FCC and other federal, state or foreign government agency proceedings (including judicial review of such proceedings) and legislative and regulatory efforts involving issues 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; rules concerning digital discrimination; competition policy; privacy; net neutrality; copyright protection; availability of new spectrum on fair and balanced terms; and wireless and satellite license awards and renewals, and our response to such legislative and regulatory efforts.
•
Enactment of or changes to state, local, federal and/or foreign tax laws and regulations, and actions by tax agencies and judicial authorities that reduce our incentive to invest in our networks, and the resolution of disputes with any taxing jurisdictions, pertaining to our subsidiaries and foreign investments.
•
U.S. and foreign laws and regulations regarding intellectual property rights protection and privacy, personal data protection and user consent, which are complex and rapidly evolving.
•
Our ability to compete in an increasingly competitive industry and against competitors that can 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, and our response to such competition and emerging technologies.
•
Disruption in our supply chain for a number of reasons, including, difficulties in obtaining export licenses for certain technology, an inability to secure component parts, lack of suppliers, general business disruption, workforce shortage, natural disasters, safety issues, vendor fraud, and economic and political instability, including disruptions in the capital markets, the outbreak of war or other hostilities, and public health emergencies.
•
The development and delivery of attractive and profitable wireless and broadband offerings and devices, including our ability to match speeds offered by competitors; the impact of regulatory and build-out requirements; and the availability, cost and/or reliability of technologies required to provide such offerings.
•
Our ability to adequately fund additional wireless spectrum and network development, deployment and maintenance; 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 and arbitration, including, without limitation, patent and product safety claims by or against third parties or claims based on alleged misconduct by employees.
•
The impact from major equipment, software or other failures or errors that disrupt our networks or cyber incidents; 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; or severe weather conditions or other natural disasters including earthquakes and forest fires, public health emergencies, energy shortages, wars or terrorist attacks.
•
The issuance by the FASB or other accounting oversight bodies of new or revised accounting standards.
•
The uncertainty surrounding further congressional action regarding spending and taxation, which may result in changes in government spending and affect the ability and willingness of businesses and consumers to spend in general.
•
Our ability to realize or sustain the expected benefits of our business transformation initiatives, which are designed to reduce costs, enable legacy rationalization, streamline distribution, remove redundancies and simplify and improve processes and support functions.
•
Our ability to successfully complete divestitures, as well as achieve our expectations regarding the financial impact of completed and/or pending transactions.
Readers are cautioned that other factors discussed in this report and our most recent Form 10-K, although not enumerated here, also could materially affect our future earnings.
42
AT&T INC.
SEPTEMBER 30, 2024
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, 2023 and in our Quarterly Report on Form 10-Q for the quarter ended June 30, 2024 various risks that may materially affect our business. We use this section to update this discussion to reflect material developments. For the third quarter of 2024, there were no such material developments.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
(c) A summary of our repurchases of common stock during the third quarter of 2024 is as follows:
| (a) | (b) | (c) | (d) | |||||||||||||||||||||||
| Period |
Total Number of Shares (or Units) Purchased
1, 2
|
Average Price Paid Per Share (or Unit) |
Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs
1
|
Maximum Number (or Approximate Dollar Value) of Shares (or Units) That May Yet Be Purchased Under The Plans or Programs | ||||||||||||||||||||||
|
July 1, 2024 - July 31, 2024
|
8,053 | $ | 18.82 | — | 143,731,972 | |||||||||||||||||||||
|
August 1, 2024 - August 31, 2024
|
20,122 | 19.40 | — | 143,731,972 | ||||||||||||||||||||||
|
September 1, 2024 - September 30, 2024
|
2,003,853 | 21.63 | — | 143,731,972 | ||||||||||||||||||||||
| Total | 2,032,028 | $ | 21.59 | — | ||||||||||||||||||||||
|
1
In 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.
|
||||||||||||||||||||||||||
|
2
These 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.
|
||||||||||||||||||||||||||
Item 5. Other Information
(c) During the quarter ended September 30, 2024, no director or officer (as defined in Rule 16a-1(f)) of the Company adopted or terminated a contract, instruction or written plan for the purchase or sale of securities of the Company intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) and/or a non-Rule 10b5-1 trading arrangement.
43
AT&T INC.
SEPTEMBER 30, 2024
Item 6. Exhibits
The following exhibits are filed or incorporated by reference as a part of this report:
| Exhibit | ||||||||
| Number | Exhibit Description | |||||||
| 2.1 | ||||||||
| 10.1 | ||||||||
| 10.2 | ||||||||
| 31 |
Rule 13a-14(a)/15d-14(a) Certifications
|
|||||||
| 32 | ||||||||
| 101 |
The following financial statements from the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 2024, formatted in Inline XBRL: (i) Consolidated Statements of Cash Flows, (ii) Consolidated Statements of Operations, (iii) Consolidated Statements of Comprehensive Income, (iv) Consolidated Balance Sheets, and (v) Notes to Consolidated Financial Statements, tagged as blocks of text and including detailed tags.
|
|||||||
| 104 |
The cover page from the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 2024, (formatted as Inline XBRL and contained in Exhibit 101).
|
|||||||
|
* Certain schedules (or similar attachments) have been omitted pursuant to Item 601(a)(5) 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.
|
||||||||
44
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. | |||||
| October 29, 2024 | /s/ Pascal Desroches | ||||
| Pascal Desroches | |||||
| Senior Executive Vice President | |||||
| and Chief Financial Officer | |||||
45
TABLE OF CONTENTS
Part I - Financial InformationprintItem 1. Financial StatementsprintNote 1. Preparation Of Interim Financial StatementsprintNote 2. Earnings Per ShareprintNote 3. Other Comprehensive IncomeprintNote 4. Segment InformationprintNote 5. Revenue RecognitionprintNote 6. Pension and Postretirement BenefitsprintNote 7. Fair Value Measurements and DisclosureprintNote 8. Sales Of ReceivablesprintNote 9. Transactions with DirectvprintNote 10. Supplier and Vendor Financing ProgramsprintNote 11. Additional Financial InformationprintItem 2. Management S Discussion and Analysis Of Financial Condition and Results Of OperationsprintItem 2. Management S Discussion and Analysis Of Financial Condition and Results Of Operations- ContinuedprintItem 3. Quantitative and Qualitative Disclosures About Market RiskprintItem 4. Controls and ProceduresprintPart II Other InformationprintItem 1A. Risk FactorsprintItem 2. Unregistered Sales Of Equity Securities and Use Of ProceedsprintItem 5. Other InformationprintItem 6. Exhibitsprint