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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2021

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

For the transition period from to
Commission File Number 001-8610

AT&T INC.

Incorporated under the laws of the State of Delaware
I.R.S. Employer Identification Number 43-1301883

208 S. Akard St., Dallas, Texas 75202
Telephone Number: (210) 821-4105

Securities registered pursuant to Section 12(b) of the Act
    Name of each exchange
Title of each class Trading Symbol(s) on which registered
Common Shares (Par Value $1.00 Per Share) T New York Stock Exchange
Depositary Shares, each representing a 1/1000th interest in a
share of 5.000% Perpetual Preferred Stock, Series A
T PRA New York Stock Exchange
Depositary Shares, each representing a 1/1000th interest in a
share of 4.750% Perpetual Preferred Stock, Series C
T PRC New York Stock Exchange
AT&T Inc. 2.650% Global Notes due December 17, 2021 T 21B New York Stock Exchange
AT&T Inc. 1.450% Global Notes due June 1, 2022 T 22B New York Stock Exchange
AT&T Inc. 2.500% Global Notes due March 15, 2023 T 23 New York Stock Exchange
AT&T Inc. 2.750% Global Notes due May 19, 2023 T 23C New York Stock Exchange
AT&T Inc. Floating Rate Global Notes due September 5, 2023 T 23D New York Stock Exchange
AT&T Inc. 1.050% Global Notes due September 5, 2023 T 23E New York Stock Exchange
AT&T Inc. 1.300% Global Notes due September 5, 2023 T 23A New York Stock Exchange
AT&T Inc. 1.950% Global Notes due September 15, 2023 T 23F New York Stock Exchange
AT&T Inc. 2.400% Global Notes due March 15, 2024 T 24A New York Stock Exchange
AT&T Inc. 3.500% Global Notes due December 17, 2025 T 25 New York Stock Exchange
AT&T Inc. 0.250% Global Notes due March 4, 2026 T 26E New York Stock Exchange
AT&T Inc. 1.800% Global Notes due September 5, 2026 T 26D New York Stock Exchange
AT&T Inc. 2.900% Global Notes due December 4, 2026 T 26A New York Stock Exchange
AT&T Inc. 1.600% Global Notes due May 19, 2028 T 28C New York Stock Exchange
    Name of each exchange
Title of each class Trading Symbol(s) on which registered
AT&T Inc. 2.350% Global Notes due September 5, 2029 T 29D New York Stock Exchange
AT&T Inc. 4.375% Global Notes due September 14, 2029 T 29B New York Stock Exchange
AT&T Inc. 2.600% Global Notes due December 17, 2029 T 29A New York Stock Exchange
AT&T Inc. 0.800% Global Notes due March 4, 2030 T 30B New York Stock Exchange
AT&T Inc. 2.050% Global Notes due May 19, 2032 T 32A New York Stock Exchange
AT&T Inc. 3.550% Global Notes due December 17, 2032 T 32 New York Stock Exchange
AT&T Inc. 5.200% Global Notes due November 18, 2033 T 33 New York Stock Exchange
AT&T Inc. 3.375% Global Notes due March 15, 2034 T 34 New York Stock Exchange
AT&T Inc. 2.450% Global Notes due March 15, 2035 T 35 New York Stock Exchange
AT&T Inc. 3.150% Global Notes due September 4, 2036 T 36A New York Stock Exchange
AT&T Inc. 2.600% Global Notes due May 19, 2038 T 38C New York Stock Exchange
AT&T Inc. 1.800% Global Notes due September 14, 2039 T 39B New York Stock Exchange
AT&T Inc. 7.000% Global Notes due April 30, 2040 T 40 New York Stock Exchange
AT&T Inc. 4.250% Global Notes due June 1, 2043 T 43 New York Stock Exchange
AT&T Inc. 4.875% Global Notes due June 1, 2044 T 44 New York Stock Exchange
AT&T Inc. 4.000% Global Notes due June 1, 2049 T 49A New York Stock Exchange
AT&T Inc. 4.250% Global Notes due March 1, 2050 T 50 New York Stock Exchange
AT&T Inc. 3.750% Global Notes due September 1, 2050 T 50A New York Stock Exchange
AT&T Inc. 5.350% Global Notes due November 1, 2066 TBB New York Stock Exchange
AT&T Inc. 5.625% Global Notes due August 1, 2067 TBC New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 of 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Yes No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or emerging growth company. See definition of “accelerated filer,” “large accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer Accelerated Filer
Non-accelerated filer Smaller reporting company
    Emerging growth company
If an emerging growth company, indicate by checkmark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Yes No

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes No

At October 29, 2021, there were 7,141 million 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,
  2021 2020 2021 2020
Operating Revenues        
Service $ 34,843  $ 37,782  $ 112,303  $ 113,716 
Equipment 5,079  4,558  15,603  12,353 
Total operating revenues 39,922  42,340  127,906  126,069 
Operating Expenses
Cost of revenues
Equipment 5,427  4,552  16,324  12,622 
Broadcast, programming and operations 4,750  6,912  19,891  19,555 
Other cost of revenues (exclusive of depreciation and
amortization shown separately below)
7,649  8,375  23,797  24,833 
Selling, general and administrative 9,207  9,266  27,950  27,857 
Asset impairments and abandonments 161  73  4,716  2,515 
Depreciation and amortization 5,619  7,030  17,189  21,537 
Total operating expenses 32,813  36,208  109,867  108,919 
Operating Income 7,109  6,132  18,039  17,150 
Other Income (Expense)
Interest expense (1,667) (1,972) (5,221) (6,031)
Equity in net income (loss) of affiliates 91  184  (11)
Other income (expense) — net
2,279  (231) 7,499  1,589 
Total other income (expense) 703  (2,198) 2,462  (4,453)
Income Before Income Taxes 7,812  3,934  20,501  12,697 
Income tax expense 1,539  766  4,412  3,003 
Net Income 6,273  3,168  16,089  9,694 
Less: Net Income Attributable to Noncontrolling Interest (355) (352) (1,051) (987)
Net Income Attributable to AT&T $ 5,918  $ 2,816  $ 15,038  $ 8,707 
Less: Preferred Stock Dividends (50) (54) (156) (138)
Net Income Attributable to Common Stock $ 5,868  $ 2,762  $ 14,882  $ 8,569 
Basic Earnings Per Share Attributable to
Common Stock
$ 0.82  $ 0.39  $ 2.07  $ 1.19 
Diluted Earnings Per Share Attributable to
Common Stock
$ 0.82  $ 0.39  $ 2.07  $ 1.19 
Weighted Average Number of Common Shares
Outstanding — Basic (in millions)
7,171  7,147  7,167  7,160 
Weighted Average Number of Common Shares
Outstanding with Dilution (in millions)
7,202  7,173  7,197  7,186 
See Notes to Consolidated Financial Statements.
3


AT&T INC.        
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME      
Dollars in millions        
(Unaudited)        
  Three months ended Nine months ended
  September 30, September 30,
  2021 2020 2021 2020
Net income $ 6,273  $ 3,168  $ 16,089  $ 9,694 
Other comprehensive income (loss), net of tax:
Foreign currency:
Translation adjustment (includes $(4), $(2), $(2) and $(61)
attributable to noncontrolling interest), net of taxes
of $(17), $47, $(13) and $(150)
(86) 90  106  (1,459)
Securities:
Net unrealized gains (losses), net of taxes of $(1), $1, $(13)
and $28
(4) (39) 81 
Reclassification adjustment included in net income, net of
taxes of $0, $0, $(1) and $0
(1) —  (4) — 
Derivative instruments:
Net unrealized gains (losses), net of taxes of $(54), $229,
$(160) and $(574)
(195) 860  (593) (2,166)
Reclassification adjustment included in net income, net of
taxes of $4, $7, $16 and $11
11  27  57  44 
Defined benefit postretirement plans:
Amortization of net prior service credit included in net
income, net of taxes of $(165), $(150), $(495) and $(451)
(505) (460) (1,516) (1,382)
Other comprehensive income (loss) (780) 518  (1,989) (4,882)
Total comprehensive income 5,493  3,686  14,100  4,812 
Less: Total comprehensive income attributable to
noncontrolling interest
(351) (350) (1,049) (926)
Total Comprehensive Income Attributable to AT&T $ 5,142  $ 3,336  $ 13,051  $ 3,886 
See Notes to Consolidated Financial Statements.

4


AT&T INC.
CONSOLIDATED BALANCE SHEETS
Dollars in millions except per share amounts
September 30, December 31,
  2021 2020
Assets (Unaudited)  
Current Assets    
Cash and cash equivalents $ 21,270  $ 9,740 
Accounts receivable – net of related allowances for credit loss of $806 and $1,221
16,304  20,215 
Inventories 3,088  3,695 
Prepaid and other current assets 16,568  18,358 
Total current assets 57,230  52,008 
Noncurrent Inventories and Theatrical Film and Television Production Costs 17,811  14,752 
Property, plant and equipment 325,866  327,751 
Less: accumulated depreciation and amortization (201,447) (200,436)
Property, Plant and Equipment – Net 124,419  127,315 
Goodwill 133,663  135,259 
Licenses – Net 112,423  93,840 
Trademarks and Trade Names – Net 22,097  23,297 
Distribution Networks – Net 12,408  13,793 
Other Intangible Assets – Net 12,338  15,386 
Investments in and Advances to Equity Affiliates 8,629  1,780 
Operating Lease Right-Of-Use Assets 24,341  24,714 
Other Assets 21,748  23,617 
Total Assets $ 547,107  $ 525,761 
Liabilities and Stockholders’ Equity
Current Liabilities
Debt maturing within one year $ 23,755  $ 3,470 
Note payable to DIRECTV 1,180  — 
Accounts payable and accrued liabilities 47,926  50,051 
Advanced billings and customer deposits 4,991  6,176 
Dividends payable 3,749  3,741 
Total current liabilities 81,601  63,438 
Long-Term Debt 155,406  153,775 
Deferred Credits and Other Noncurrent Liabilities
Deferred income taxes 63,405  60,472 
Postemployment benefit obligation 14,158  18,276 
Operating lease liabilities 21,510  22,202 
Other noncurrent liabilities 29,466  28,358 
Noncurrent portion of note payable to DIRECTV 258  — 
Total deferred credits and other noncurrent liabilities 128,797  129,308 
Stockholders’ Equity
Preferred stock ($1 par value, 10,000,000 authorized at September 30, 2021 and December 31, 2020):
Series A (48,000 issued and outstanding at September 30, 2021 and December 31, 2020)
  — 
Series B (20,000 issued and outstanding at September 30, 2021 and December 31, 2020)
  — 
Series C (70,000 issued and outstanding at September 30, 2021 and December 31, 2020)
  — 
Common stock ($1 par value, 14,000,000,000 authorized at September 30, 2021 and
December 31, 2020: issued 7,620,748,598 at September 30, 2021 and December 31, 2020)
7,621  7,621 
Additional paid-in capital 130,035  130,175 
Retained earnings 41,091  37,457 
Treasury stock (480,656,332 at September 30, 2021 and 494,826,583 at December 31, 2020, at cost)
(17,319) (17,910)
Accumulated other comprehensive income 2,343  4,330 
Noncontrolling interest 17,532  17,567 
Total stockholders’ equity 181,303  179,240 
Total Liabilities and Stockholders’ Equity $ 547,107  $ 525,761 
See Notes to Consolidated Financial Statements.
5


AT&T INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Dollars in millions
(Unaudited)    
  Nine months ended
  September 30,
  2021 2020
Operating Activities    
Net income $ 16,089  $ 9,694 
Adjustments to reconcile net income to net cash provided by operating activities:
   Depreciation and amortization 17,189  21,537 
   Amortization of film and television costs 8,421  6,448 
Distributed (undistributed) earnings from investments in equity affiliates 102  108 
   Provision for uncollectible accounts 858  1,611 
   Deferred income tax expense 3,187  2,248 
   Net (gain) loss on investments, net of impairments (965) (689)
   Pension and postretirement benefit expense (credit) (2,870) (2,245)
Actuarial (gain) loss on pension and postretirement benefits (3,021) 63 
Asset impairments and abandonments 4,716  2,515 
Changes in operating assets and liabilities:
   Receivables 57  2,321 
   Other current assets, inventories and theatrical film and television production costs (11,928) (7,836)
   Accounts payable and other accrued liabilities (2,254) (4,905)
   Equipment installment receivables and related sales 715  (148)
   Deferred customer contract acquisition and fulfillment costs 316  453 
Postretirement claims and contributions (425) (409)
Other - net 516  2,282 
Total adjustments 14,614  23,354 
Net Cash Provided by Operating Activities 30,703  33,048 
Investing Activities
Capital expenditures (12,696) (13,283)
Acquisitions, net of cash acquired (23,533) (1,215)
Dispositions 9,086  428 
Other - net (190) 344 
Net Cash Used in Investing Activities (27,333) (13,726)
Financing Activities
Net change in short-term borrowings with original maturities of three months or less 630  (17)
Issuance of other short-term borrowings 17,476  9,440 
Repayment of other short-term borrowings (2,448) (7,710)
Issuance of long-term debt 9,931  31,987 
Repayment of long-term debt (1,653) (37,583)
Note payable to DIRECTV, net of payments of $361
1,439  — 
Payment of vendor financing (4,013) (1,965)
Issuance of preferred stock   3,869 
Purchase of treasury stock (191) (5,483)
Issuance of treasury stock 89  88 
Issuance of preferred interests in subsidiaries   1,979 
Dividends paid (11,319) (11,215)
Other - net (1,776) (5,158)
Net Cash Provided by (Used in) Financing Activities 8,165  (21,768)
Net increase (decrease) in cash and cash equivalents and restricted cash 11,535  (2,446)
Cash and cash equivalents and restricted cash beginning of year 9,870  12,295 
Cash and Cash Equivalents and Restricted Cash End of Period $ 21,405  $ 9,849 
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, 2021 September 30, 2020 September 30, 2021 September 30, 2020
  Shares Amount Shares Amount Shares Amount Shares Amount
Preferred Stock - Series A                
Balance at beginning of period   $   —  $ —    $   —  $ — 
Issuance of stock     —  —      —  — 
Balance at end of period   $   —  $ —    $   —  $ — 
Preferred Stock - Series B
Balance at beginning of period   $   —  $ —    $   —  $ — 
Issuance of stock     —  —      —  — 
Balance at end of period   $   —  $ —    $   —  $ — 
Preferred Stock - Series C
Balance at beginning of period   $   —  $ —    $   —  $ — 
Issuance of stock     —  —      —  — 
Balance at end of period   $   —  $ —    $   —  $ — 
Common Stock
Balance at beginning of period 7,621  $ 7,621  7,621  $ 7,621  7,621  $ 7,621  7,621  $ 7,621 
Issuance of stock     —  —      —  — 
Balance at end of period 7,621  $ 7,621  7,621  $ 7,621  7,621  $ 7,621  7,621  $ 7,621 
Additional Paid-In Capital
Balance at beginning of period $ 129,941  $ 130,046  $ 130,175  $ 126,279 
Repurchase and acquisition of
common stock
  —    67 
Issuance of preferred stock   —    3,869 
Issuance of treasury stock (2) (2) (77) (56)
Share-based payments 96  91  (63) (24)
Changes related to acquisition of
interests held by noncontrolling owners
   
Balance at end of period $ 130,035  $ 130,139  $ 130,035  $ 130,139 
Retained Earnings
Balance at beginning of period $ 38,947  $ 56,045  $ 37,457  $ 57,936 
Cumulative effect of accounting
change and other adjustments
  —    (293)
Adjusted beginning balance 38,947  56,045  37,457  57,643 
Net income attributable to AT&T 5,918  2,816  15,038  8,707 
Preferred stock dividends (36) (35) (188) (103)
Common stock dividends ($0.52,
$0.52, $1.56 and $1.56 per share)
(3,738) (3,732) (11,216) (11,153)
Balance at end of period $ 41,091  $ 55,094  $ 41,091  $ 55,094 
See Notes to Consolidated Financial Statements.
7


AT&T INC.        
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY - continued
Dollars and shares in millions except per share amounts        
(Unaudited)        
  Three months ended Nine months ended
  September 30, 2021 September 30, 2020 September 30, 2021 September 30, 2020
  Shares Amount Shares Amount Shares Amount Shares Amount
Treasury Stock                
Balance at beginning of period (481) $ (17,332) (495) $ (17,945) (495) $ (17,910) (366) $ (13,085)
Repurchase and acquisition of
common stock
(1) (10) (1) (19) (8) (225) (149) (5,600)
Reissuance of treasury stock 1  23  —  14  22  816  19  735 
Balance at end of period (481) $ (17,319) (496) $ (17,950) (481) $ (17,319) (496) $ (17,950)
Accumulated Other Comprehensive Income
Attributable to AT&T, net of tax
Balance at beginning of period $ 3,119  $ 129  $ 4,330  $ 5,470 
Other comprehensive income
attributable to AT&T
(776) 520  (1,987) (4,821)
Balance at end of period $ 2,343  $ 649  $ 2,343  $ 649 
Noncontrolling Interest
Balance at beginning of period $ 17,550  $ 17,557  $ 17,567  $ 17,713 
Cumulative effect of accounting
change and other adjustments
  —    (7)
Adjusted beginning balance 17,550  17,557  17,567  17,706 
Net income attributable to
noncontrolling interest
355  352  1,051  987 
Issuance and acquisition by
noncontrolling owners
  1,978    1,979 
Distributions (369) (382) (1,084) (1,108)
Translation adjustments attributable
to noncontrolling interest, net of
taxes
(4) (2) (2) (61)
Balance at end of period $ 17,532  $ 19,503  $ 17,532  $ 19,503 
Total Stockholders' Equity at
beginning of period
$ 179,846  $ 193,453  $ 179,240  $ 201,934 
Total Stockholders' Equity at
end of period
$ 181,303  $ 195,056  $ 181,303  $ 195,056 
See Notes to Consolidated Financial Statements.

8

AT&T INC.
SEPTEMBER 30, 2021

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Dollars in millions except per share amounts

NOTE 1. PREPARATION OF INTERIM FINANCIAL STATEMENTS
 
Basis of Presentation Throughout this document, AT&T Inc. is referred to as “we,” “AT&T” or the “Company.” The consolidated financial statements include the accounts of the Company and subsidiaries and affiliates which we control. AT&T is a holding company whose subsidiaries and affiliates operate worldwide in the telecommunications, media and technology industries. You should read this document in conjunction with the consolidated financial statements and accompanying notes included in our Annual Report on Form 10-K for the year ended December 31, 2020. The results for the interim periods are not necessarily indicative of those for the full year. These consolidated financial statements include all adjustments that are necessary to present fairly the results for the presented interim periods, consisting of normal recurring accruals and other items.

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

All significant intercompany transactions are eliminated in the consolidation process. Investments in subsidiaries and partnerships which we do not control but have significant influence are accounted for under the equity method. Earnings from certain investments accounted for using the equity method are included in our results on a one quarter lag. We also record our proportionate share of our equity method investees’ other comprehensive income (OCI) items.

The preparation of financial statements in conformity with U.S. generally accepted accounting principles (GAAP) requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Certain prior period amounts have been conformed to the current period’s presentation (see Note 4 and Note 5).

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

NOTE 2. EARNINGS PER SHARE
 
A reconciliation of the numerators and denominators of basic and diluted earnings per share for the three months and nine months ended September 30, 2021 and 2020, is shown in the table below:
  Three months ended Nine months ended
  September 30, September 30,
  2021 2020 2021 2020
Numerators        
Numerator for basic earnings per share:        
Net Income Attributable to Common Stock $ 5,868  $ 2,762  $ 14,882  $ 8,569 
Dilutive potential common shares:
Share-based payment 6  17  16 
Numerator for diluted earnings per share $ 5,874  $ 2,767  $ 14,899  $ 8,585 
Denominators (000,000)
Denominator for basic earnings per share:
Weighted average number of common shares outstanding 7,171  7,147  7,167  7,160 
Dilutive potential common shares:
Share-based payment (in shares) 31  26  30  26 
Denominator for diluted earnings per share 7,202  7,173  7,197  7,186 



9

AT&T INC.
SEPTEMBER 30, 2021

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Dollars in millions except per share amounts

NOTE 3. OTHER COMPREHENSIVE INCOME
 
Changes in the balances of each component included in accumulated OCI are presented below. All amounts are net of tax and exclude noncontrolling interest.
  Foreign Currency Translation Adjustment   Net Unrealized Gains (Losses) on Securities   Net Unrealized Gains (Losses) on Derivative Instruments   Defined Benefit Postretirement Plans   Accumulated Other Comprehensive Income (Loss)
Balance as of December 31, 2020 $ (3,926) $ 111  $ (779) $ 8,924  $ 4,330 
Other comprehensive income
(loss) before reclassifications
108  (39) (593) —  (524)
Amounts reclassified from
accumulated OCI
—  1 (4) 1 57  2 (1,516) 3 (1,463)
Net other comprehensive
income (loss)
108  (43) (536) (1,516) (1,987)
Balance as of September 30, 2021 $ (3,818) $ 68  $ (1,315) $ 7,408  $ 2,343 
  Foreign Currency Translation Adjustment   Net Unrealized Gains (Losses) on Securities   Net Unrealized Gains (Losses) on Derivative Instruments   Defined Benefit Postretirement Plans   Accumulated Other Comprehensive Income (Loss)
Balance as of December 31, 2019 $ (3,056) $ 48  $ (37) $ 8,515  $ 5,470 
Other comprehensive income
(loss) before reclassifications
(1,398) 81  (2,166) —  (3,483)
Amounts reclassified from
accumulated OCI
—  1 —  1 44  2 (1,382) 3 (1,338)
Net other comprehensive
income (loss)
(1,398) 81  (2,122) (1,382) (4,821)
Balance as of September 30, 2020 $ (4,454) $ 129  $ (2,159) $ 7,133  $ 649 
1(Gains) losses are included in Other income (expense) - net in the consolidated statements of income.
2(Gains) losses are primarily included in Interest expense in the consolidated statements of income (see Note 7).
3The amortization of prior service credits associated with postretirement benefits are included in Other income (expense) - net in the consolidated statements of income (see Note 6).

NOTE 4. SEGMENT INFORMATION
 
Our segments are comprised of strategic business units or other operations that offer products and services to different customer segments over various technology platforms and/or in different geographies that are managed accordingly. We analyze our segments based on segment operating contribution, which consists of operating income, excluding acquisition-related costs and other significant items (as discussed below), and equity in net income (loss) of affiliates for investments managed within each segment. We have three reportable segments: (1) Communications, (2) WarnerMedia and (3) Latin America.
 
We also evaluate segment and business unit performance based on EBITDA and/or EBITDA margin, which is defined as operating contribution excluding equity in net income (loss) of affiliates and depreciation and amortization. We believe EBITDA to be a relevant and useful measurement to our investors as it is part of our internal management reporting and planning processes and it is an important metric that management uses to evaluate operating performance. EBITDA does not give effect to depreciation and amortization expenses incurred in operating contribution nor is it burdened by cash used for debt service requirements and thus does not reflect available funds for distributions, reinvestment or other discretionary uses. EBITDA margin is EBITDA divided by total revenues.

10

AT&T INC.
SEPTEMBER 30, 2021

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Dollars in millions except per share amounts

In the first quarter of 2021, we recast our segment results for all prior periods to reflect the following:
Communications segment results were recast to remove the held-for-sale businesses, principally Video, instead reporting those results in Corporate and Other. Additionally, we refined the allocation of shared infrastructure and deferred customer acquisition costs between Consumer Wireline and Video.
WarnerMedia segment results reflect our operation of WarnerMedia as one integrated organization.

The Communications segment provides wireless and wireline telecom and broadband services to consumers located in the U.S. and businesses globally. Our business strategies reflect bundled product offerings that cut across product lines and utilize shared assets. This segment contains the following business units:
Mobility provides nationwide wireless service and equipment.
Business Wireline provides advanced IP-based services, as well as traditional voice and data services and related equipment to business customers.
Consumer Wireline provides internet, including broadband fiber, and legacy telephony voice communication services to residential customers.
 
The WarnerMedia segment develops, produces and distributes feature films, television, gaming and other content in various physical and digital formats globally. WarnerMedia content is distributed through basic networks, Direct-to-Consumer (DTC) or theatrical, TV content and games licensing. Segment results also include Xandr advertising and Otter Media Holdings (Otter Media). We disposed of substantially all Otter Media assets in the third quarter of 2021 (see Note 8).

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

Effective January 1, 2021, we updated our reporting units to reflect recent changes in how WarnerMedia, an integrated content organization that distributes across various platforms, is managed and evaluated. With this operational change, the reporting unit is deemed to be the operating segment. The previous reporting units, Turner, Home Box Office, Warner Bros., and Xandr, and the new WarnerMedia reporting unit were tested for goodwill impairment on January 1, 2021, for which there was none.
 
The Latin America segment provides entertainment and wireless services outside of the U.S. This segment contains the following business units:
Vrio provides video services primarily to residential customers using satellite technology in Latin America and the Caribbean.
Mexico provides wireless service and equipment to customers in Mexico.

On July 21, 2021, we entered into an agreement to sell our Vrio business to Grupo Werthein (see Note 8). The transaction is expected to close during the fourth quarter of 2021. We applied held-for-sale accounting to Vrio as of June 30, 2021, and continue to present the Vrio results within the Latin America segment consistent with how performance was assessed and resource allocation decisions were made through September 30, 2021.
 
Corporate and Other reconciles our segment results to consolidated operating income and income before income taxes, and includes:
Corporate, which consists of: (1) businesses no longer integral to our operations or which we no longer actively market, (2) corporate support functions, (3) impacts of corporate-wide decisions for which the individual operating segments are not being evaluated, and (4) the reclassification of the amortization of prior service credits, which we continue to report with segment operating expenses, to consolidated “Other income (expense) – net.” Costs previously allocated to the Video business that were retained after the transaction, net of reimbursements from DIRECTV under transition service agreements, are reported in Corporate for the remainder of 2021, to maintain comparability of our operating segment results, and while operational plans and continued cost reduction initiatives are implemented.
Video, which consisted of our former U.S. video operations that were contributed to DIRECTV on July 31, 2021.
Acquisition-related items, which consists of items associated with the merger and integration of acquired or divested businesses, including amortization of intangible assets.
Certain significant items, which includes (1) employee separation charges associated with voluntary and/or strategic offers, (2) asset impairments and abandonments, and (3) other items for which the segments are not being evaluated.
Eliminations and consolidations, which (1) removes transactions involving dealings between our segments, including channel distribution between WarnerMedia and Video prior to its separation, and (2) includes adjustments for our reporting of the advertising business.
11

AT&T INC.
SEPTEMBER 30, 2021

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Dollars in millions except per share amounts

 
“Interest expense” and “Other income (expense) – net,” are managed only on a total company basis and are, accordingly, reflected only in consolidated results.
12

AT&T INC.
SEPTEMBER 30, 2021

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Dollars in millions except per share amounts

For the three months ended September 30, 2021
  Revenues Operations
and Support
Expenses
EBITDA Depreciation
and
Amortization
Operating
Income (Loss)
Equity in Net
Income (Loss) of
Affiliates
Segment
Contribution
Communications              
Mobility $ 19,138  $ 11,148  $ 7,990  $ 2,035  $ 5,955  $   $ 5,955 
Business Wireline 5,938  3,649  2,289  1,304  985    985 
Consumer Wireline 3,142  2,184  958  775  183    183 
Total Communications 28,218  16,981  11,237  4,114  7,123    7,123 
WarnerMedia 8,442  6,271  2,171  163  2,008  (73) 1,935 
Latin America
Vrio 756  660  96    96  9  105 
Mexico 724  697  27  157  (130)   (130)
Total Latin America 1,480  1,357  123  157  (34) 9  (25)
Segment Total 38,140  24,609  13,531  4,434  9,097  $ (64) $ 9,033 
Corporate and Other
Corporate1
278  1,109  (831) 129  (960)
Video 2,149  1,731  418  44  374 
Acquisition-related items   130  (130) 1,012  (1,142)
Certain significant items   161  (161)   (161)
Eliminations and consolidations (645) (546) (99)   (99)
AT&T Inc. $ 39,922  $ 27,194  $ 12,728  $ 5,619  $ 7,109 
1Operations and Support Expenses include $670 for the reclassification of prior service credit amortization.

13

AT&T INC.
SEPTEMBER 30, 2021

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Dollars in millions except per share amounts

For the three months ended September 30, 2020
  Revenues Operations and Support Expenses EBITDA Depreciation and Amortization Operating Income (Loss) Equity in Net
Income (Loss) of
Affiliates
Segment Contribution
Communications              
Mobility $ 17,894  $ 10,182  $ 7,712  $ 2,021  $ 5,691  $ —  $ 5,691 
Business Wireline 6,261  3,764  2,497  1,313  1,184  —  1,184 
Consumer Wireline 3,040  2,117  923  734  189  —  189 
Total Communications 27,195  16,063  11,132  4,068  7,064  —  7,064 
WarnerMedia 7,395  5,483  1,912  169  1,743  12  1,755 
Latin America
Vrio 753  675  78  126  (48) 14  (34)
Mexico 643  662  (19) 124  (143) —  (143)
Total Latin America 1,396  1,337  59  250  (191) 14  (177)
Segment Total 35,986  22,883  13,103  4,487  8,616  $ 26  $ 8,642 
Corporate and Other
Corporate1
628  1,175  (547) 65  (612)
Video 7,014  5,887  1,127  557  570 
Acquisition-related items —  38  (38) 1,921  (1,959)
Certain significant items —  113  (113) —  (113)
Eliminations and consolidations (1,288) (918) (370) —  (370)
AT&T Inc. $ 42,340  $ 29,178  $ 13,162  $ 7,030  $ 6,132 
1Operations and Support Expenses include $610 for the reclassification of prior service credit amortization.
14

AT&T INC.
SEPTEMBER 30, 2021

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Dollars in millions except per share amounts

For the nine months ended September 30, 2021
  Revenues Operations
and Support
Expenses
EBITDA Depreciation
and
Amortization
Operating
Income (Loss)
Equity in Net
Income (Loss) of
Affiliates
Segment
Contribution
Communications              
Mobility $ 57,108  $ 33,077  $ 24,031  $ 6,072  $ 17,959  $   $ 17,959 
Business Wireline 18,036  11,068  6,968  3,875  3,093    3,093 
Consumer Wireline 9,380  6,298  3,082  2,306  776    776 
Total Communications 84,524  50,443  34,081  12,253  21,828    21,828 
WarnerMedia 25,759  19,608  6,151  491  5,660  44  5,704 
Latin America
Vrio 2,248  1,981  267  231  36  7  43 
Mexico 2,043  1,984  59  452  (393)   (393)
Total Latin America 4,291  3,965  326  683  (357) 7  (350)
Segment Total 114,574  74,016  40,558  13,427  27,131  $ 51  $ 27,182 
Corporate and Other              
Corporate1
1,065  3,482  (2,417) 194  (2,611)    
Video 15,513  12,666  2,847  356  2,491 
Acquisition-related items   167  (167) 3,212  (3,379)    
Certain significant items   4,773  (4,773)   (4,773)    
Eliminations and consolidations (3,246) (2,426) (820)   (820)    
AT&T Inc. $ 127,906  $ 92,678  $ 35,228  $ 17,189  $ 18,039     
1Operations and Support Expenses include $2,011 for the reclassification of prior service credit amortization.
15

AT&T INC.
SEPTEMBER 30, 2021

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Dollars in millions except per share amounts

For the nine months ended September 30, 2020
  Revenues Operations and Support Expenses EBITDA Depreciation and Amortization Operating Income (Loss) Equity in Net
Income (Loss) of
Affiliates
Segment Contribution
Communications              
Mobility $ 52,445  $ 29,083  $ 23,362  $ 6,078  $ 17,284  $ —  $ 17,284 
Business Wireline 18,832  11,365  7,467  3,900  3,567  —  3,567 
Consumer Wireline 9,202  5,924  3,278  2,176  1,102  —  1,102 
Total Communications 80,479  46,372  34,107  12,154  21,953  —  21,953 
WarnerMedia 21,888  15,744  6,144  494  5,650  31  5,681 
Latin America
Vrio 2,392  2,119  273  400  (127) 26  (101)
Mexico 1,826  1,914  (88) 373  (461) —  (461)
Total Latin America 4,218  4,033  185  773  (588) 26  (562)
Segment Total 106,585  66,149  40,436  13,421  27,015  $ 57  $ 27,072 
Corporate and Other              
Corporate1
1,751  3,256  (1,505) 254  (1,759)    
Video 21,442  17,716  3,726  1,741  1,985 
Acquisition-related items —  431  (431) 6,122  (6,553)    
Certain significant items —  2,539  (2,539) —  (2,539)    
Eliminations and consolidations (3,709) (2,709) (1,000) (1) (999)    
AT&T Inc. $ 126,069  $ 87,382  $ 38,687  $ 21,537  $ 17,150     
1Operations and Support Expenses include $1,833 for the reclassification of prior service credit amortization.

16

AT&T INC.
SEPTEMBER 30, 2021

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Dollars in millions except per share amounts

The following table is a reconciliation of Segment Contributions to “Income Before Income Taxes” reported in our consolidated statements of income:
  Three months ended
September 30,
Nine months ended
September 30,
  2021 2020 2021 2020
Communications $ 7,123  $ 7,064  $ 21,828  $ 21,953 
WarnerMedia 1,935  1,755  5,704  5,681 
Latin America (25) (177) (350) (562)
Segment Contribution 9,033  8,642  27,182  27,072 
Reconciling Items:
Corporate and Other (960) (612) (2,611) (1,759)
Video 374  570  2,491  1,985 
Merger costs (130) (38) (167) (431)
Amortization of intangibles acquired (1,012) (1,921) (3,212) (6,122)
Asset impairments and abandonments (161) (73) (4,716) (2,515)
Gain on spectrum transaction1
  —    900 
Employee separation costs and benefit-related losses   (40) (57) (924)
Segment equity in net income of affiliates 64  (26) (51) (57)
Eliminations and consolidations (99) (370) (820) (999)
AT&T Operating Income 7,109  6,132  18,039  17,150 
Interest Expense 1,667  1,972  5,221  6,031 
Equity in net income (loss) of affiliates 91  184  (11)
Other income (expense) - net 2,279  (231) 7,499  1,589 
Income Before Income Taxes $ 7,812  $ 3,934  $ 20,501  $ 12,697 
1Included as a reduction of "Selling, general and administrative expenses" in the consolidated statement of income.

The following tables presents intersegment revenues and assets by segment:
Intersegment Reconciliation        
  Three months ended
September 30,
Nine months ended
September 30,
  2021 2020 2021 2020
Intersegment Revenues        
Communications $ 2  $ $ 8  $
WarnerMedia 515  812  2,193  2,402 
Latin America   —    — 
Total Intersegment Revenues 517  815  2,201  2,409 
Consolidations 128  473  1,045  1,300 
Eliminations and consolidations $ 645  $ 1,288  $ 3,246  $ 3,709 


17

AT&T INC.
SEPTEMBER 30, 2021

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, prior period amounts have been recast to conform to the current period presentation with our first quarter 2021 segment updates (see Note 4).

For the three months ended September 30, 2021
  Communications  
  Mobility Business Wireline Consumer Wireline WarnerMedia Latin America Corporate & Other
Elim.
Total
Wireless service $ 14,450  $   $   $   $ 463  $ 28  $   $ 14,941 
Video service         756  2,041    2,797 
Business service   5,765            5,765 
Broadband     2,290          2,290 
Subscription       3,988        3,501 
DTC (HBO Max)1
            (261)
Other2
            (226)
Content       3,495        2,783 
DTC (HBO Max)3
      (413)      
Other3
      (299)      
Advertising 77      1,401    111  (111) 1,478 
Legacy voice and data     484      97    581 
Other     351  270    133  (47) 707 
Total Service 14,527  5,765  3,125  8,442  1,219  2,410  (645) 34,843 
Equipment 4,611  173  17    261  17    5,079 
Total $ 19,138  $ 5,938  $ 3,142  $ 8,442  $ 1,480  $ 2,427  $ (645) $ 39,922 
1Represents DTC (HBO Max) intercompany sales to the Communications segment ($174 with Mobility and $87 with Consumer Wireline).
2Represents intercompany video distribution arrangements primarily to DIRECTV/U-verse from WarnerMedia prior to August 1, 2021 (see Note 11).
3Represents intercompany transactions in the WarnerMedia segment.
18

AT&T INC.
SEPTEMBER 30, 2021

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Dollars in millions except per share amounts

For the three months ended September 30, 2020
  Communications  
  Mobility Business Wireline Consumer Wireline WarnerMedia Latin America Corporate & Other Elim. Total
Wireless service $ 13,811  $ —  $ —  $ —  $ 385  $ 169  $ —  $ 14,365 
Video service —  —  —  —  753  6,557  —  7,310 
Business service —  6,079  —  —  —  88  —  6,167 
Broadband —  —  2,128  —  —  —  —  2,128 
Subscription —  —  —  3,477  —  —  —  2,687 
   DTC (HBO Max)1
—  —  —  —  —  —  (190)
   Other2
—  —  —  —  —  —  (600)
Content —  —  —  2,618  —  —  —  2,108 
   DTC (HBO Max)3
—  —  —  (199) —  —  — 
   Other3
—  —  —  (311) —  —  — 
Advertising 72  —  —  1,600  —  408  (408) 1,672 
Legacy voice and data —  —  538  —  —  137  —  675 
Other —  —  372  210  —  178  (90) 670 
Total Service 13,883  6,079  3,038  7,395  1,138  7,537  (1,288) 37,782 
Equipment 4,011  182  —  258  105  —  4,558 
Total $ 17,894  $ 6,261  $ 3,040  $ 7,395  $ 1,396  $ 7,642  $ (1,288) $ 42,340 
1Represents DTC (HBO Max) intercompany sales to the Communications segment ($116 with Mobility and $74 with Consumer Wireline).
2Represents intercompany video distribution arrangements primarily to DIRECTV/U-verse from WarnerMedia.
3Represents intercompany transactions in the WarnerMedia segment.
19

AT&T INC.
SEPTEMBER 30, 2021

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Dollars in millions except per share amounts

For the nine months ended September 30, 2021
  Communications  
  Mobility Business Wireline Consumer Wireline WarnerMedia Latin America Corporate & Other
Elim.
Total
Wireless service $ 42,667  $   $   $   $ 1,349  $ 65  $   $ 44,081 
Video service         2,248  14,534    16,782 
Business service   17,497        70    17,567 
Broadband     6,761          6,761 
Subscription       11,779        9,649 
DTC (HBO Max)1
            (749)
Other2
            (1,381)
Content       10,411        8,440 
DTC (HBO Max)3
      (1,136)      
Other3
      (835)      
Advertising 254      4,877    909  (909) 5,131 
Legacy voice and data     1,507      334    1,841 
Other     1,019  663    576  (207) 2,051 
Total Service 42,921  17,497  9,287  25,759  3,597  16,488  (3,246) 112,303 
Equipment 14,187  539  93    694  90    15,603 
Total $ 57,108  $ 18,036  $ 9,380  $ 25,759  $ 4,291  $ 16,578  $ (3,246) $ 127,906 
1Represents DTC (HBO Max) intercompany sales to the Communications segment ($481 with Mobility and $268 with Consumer Wireline).
2Represents intercompany video distribution arrangements primarily to DIRECTV/U-verse from WarnerMedia prior to August 1, 2021 (see Note 11).
3Represents intercompany transactions in the WarnerMedia segment.
20

AT&T INC.
SEPTEMBER 30, 2021

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Dollars in millions except per share amounts

For the nine months ended September 30, 2020
  Communications  
  Mobility Business Wireline Consumer Wireline WarnerMedia Latin America Corporate & Other
Elim.
Total
Wireless service $ 41,314  $ —  $ —  $ —  $ 1,197  $ 464  $ —  $ 42,975 
Video service —  —  —  —  2,392  20,226  —  22,618 
Business service —  18,271  —  —  —  243  —  18,514 
Broadband —  —  6,329  —  —  —  —  6,329 
Subscription —  —  —  10,142  —  —  —  7,793 
DTC (HBO Max)1
—  —  —  —  —  —  (251)
Other2
—  —  —  —  —  —  (2,098)
Content —  —  —  9,615  —  —  —  6,988 
DTC (HBO Max)3
—  —  —  (1,848) —  —  — 
Other3
—  —  —  (779) —  —  — 
Advertising 206  —  —  4,236  —  1,115  (1,115) 4,442 
Legacy voice and data —  —  1,679  —  —  424  —  2,103 
Other —  —  1,189  522  —  488  (245) 1,954 
Total Service 41,520  18,271  9,197  21,888  3,589  22,960  (3,709) 113,716 
Equipment 10,925  561  —  629  233  —  12,353 
Total $ 52,445  $ 18,832  $ 9,202  $ 21,888  $ 4,218  $ 23,193  $ (3,709) $ 126,069 
1Represents DTC (HBO Max) intercompany sales to the Communications segment ($153 with Mobility and $98 with Consumer Wireline).
2Represents intercompany video distribution arrangements primarily to DIRECTV/U-verse from WarnerMedia.
3Represents intercompany transactions in the WarnerMedia segment.
Deferred Customer Contract Acquisition and Fulfillment Costs
Costs to acquire and fulfill customer contracts, including commissions on service activations, for our wireless, business wireline, consumer wireline and video services, are deferred and amortized over the contract period or expected customer relationship life, which typically ranges from three years to five years. For contracts with an estimated amortization period of less than one year, we expense incremental costs immediately.
 
The following table presents the deferred customer contract acquisition and fulfillment costs included on our consolidated balance sheets:
  September 30, December 31,
Consolidated Balance Sheets 2021 2020
Deferred Acquisition Costs    
Prepaid and other current assets $ 2,615  $ 3,087 
Other Assets 3,056  3,198 
Total deferred customer contract acquisition costs $ 5,671  $ 6,285 
Deferred Fulfillment Costs
Prepaid and other current assets $ 2,611  $ 4,118 
Other Assets 4,196  5,634 
Total deferred customer contract fulfillment costs $ 6,807  $ 9,752 

21

AT&T INC.
SEPTEMBER 30, 2021

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Dollars in millions except per share amounts

The decline in deferred acquisition and fulfillment costs from December 31, 2020 reflects the July 2021 separation of the U.S. Video business. At separation, we removed $1,218 of deferred acquisitions costs ($693 originally classified as “Prepaid and other current assets” and $525 originally classified as “Other assets”) and $2,025 of deferred fulfillment costs ($1,134 originally classified as “Prepaid and other current assets” and $891 originally classified as “Other assets”). (See Note 8)

The following table presents deferred customer contract acquisition and fulfillment cost amortization included in “Other cost of revenue” for the nine months ended:
  September 30, September 30,
Consolidated Statements of Income 2021 2020
Deferred acquisition cost amortization $ 2,358  $ 1,969 
Deferred fulfillment cost amortization 3,290  3,888 

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

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

When consideration is received in advance of the delivery of goods or services, a contract liability is recorded. 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 2021 2020
Contract asset $ 3,889  $ 3,501 
   Current portion in “Prepaid and other current assets” 2,329  2,054 
Contract liability 5,385  6,879 
   Current portion in “Advanced billings and customer deposits” 4,779  6,071 
   Current portion in “Accounts payable and accrued liabilities” 74  — 

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

Changes in our contract asset and contract liability from December 31, 2020 include the impact of the July 2021 separation of the U.S. Video business. At separation, the contract asset was reduced $303 and the contract liability was reduced $1,098, both of which were predominantly the current portion. (See Note 8)
 
Remaining Performance Obligations
Remaining performance obligations primarily relate to our Communications segment and represent services we are required to provide to customers under bundled or discounted arrangements, which are satisfied as services are provided over the contract term. In our WarnerMedia segment, the most significant remaining performance obligations relate to the licensing of theatrical and television content which will be made available to customers at some point in the future. In determining the transaction price allocated, we do not include non-recurring charges and estimates for usage, nor do we consider arrangements with an original expected duration of less than one year, which are primarily prepaid wireless, video and residential internet agreements.
 
22

AT&T INC.
SEPTEMBER 30, 2021

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Dollars in millions except per share amounts

Remaining performance obligations associated with business contracts reflect recurring charges billed, adjusted to reflect estimates for sales incentives and revenue adjustments. Performance obligations associated with wireless contracts are estimated using a portfolio approach in which we review all relevant promotional activities, calculating the remaining performance obligation using the average service component for the portfolio and the average device price. As of September 30, 2021, the aggregate amount of the transaction price allocated to remaining performance obligations was $42,106, of which we expect to recognize approximately 74% by the end of 2022, 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 2021.
 
We recognize actuarial gains and losses on pension and postretirement plan assets in our consolidated results as a component of “Other income (expense) – net” at our annual measurement date of December 31, unless earlier remeasurements are required. Total distributions from the pension plan exceeded the threshold of service and interest costs for 2021, requiring us to follow settlement accounting and remeasure our pension benefit plan assets and obligations at each quarter-end in 2021, as we expected settlements to occur during each quarter. These remeasurements resulted in the recognition of actuarial gains of $374 in the third quarter and $3,021 for the nine months ended September 30, 2021.

As part of our 2021 remeasurements, the weighted-average discount rate used to measure our pension benefit obligation remained consistent at 3.00% at September 30, 2021 as compared to June 30, 2021, increasing from 2.70% at December 31, 2020. The discount rate in effect for determining pension service and interest costs after our September 30 remeasurement is 3.30% and 2.30% respectively. The remeasurements also reflect actual returns on pension plan assets of 6.30% (nine-month rate) relative to our expected long-term rate of 6.75% (annual rate).
 
The following table details pension and postretirement benefit costs included in the accompanying consolidated statements of income. The service cost component of net periodic pension (credit) cost is recorded in operating expenses in the consolidated statements of income while the remaining components are recorded in “Other income (expense) – net.”
  Three months ended Nine months ended
  September 30, September 30,
  2021 2020 2021 2020
Pension cost:        
Service cost – benefits earned during the period $ 241  $ 257  $ 723  $ 772 
Interest cost on projected benefit obligation 321  421  951  1,265 
Expected return on assets (890) (888) (2,617) (2,667)
Amortization of prior service credit (36) (28) (108) (85)
Actuarial (gain) loss (374) —  (3,021) — 
Net pension (credit) cost $ (738) $ (238) $ (4,072) $ (715)
Postretirement cost:
Service cost – benefits earned during the period $ 11  $ 14  $ 34  $ 40 
Interest cost on accumulated postretirement benefit obligation 53  104  158  312 
Expected return on assets (38) (44) (114) (133)
Amortization of prior service credit (634) (583) (1,903) (1,747)
Net postretirement (credit) cost $ (608) $ (509) $ (1,825) $ (1,528)
Combined net pension and postretirement (credit) cost $ (1,346) $ (747) $ (5,897) $ (2,243)

23

AT&T INC.
SEPTEMBER 30, 2021

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Dollars in millions except per share amounts

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

NOTE 7. FAIR VALUE MEASUREMENTS AND DISCLOSURE
 
The Fair Value Measurement and Disclosure framework in ASC 820, “Fair Value Measurement,” provides a three-tiered fair value hierarchy based on the reliability of the inputs used to determine fair value. Level 1 refers to fair values determined based on quoted prices in active markets for identical assets. Level 2 refers to fair values estimated using significant other observable inputs and Level 3 includes fair values estimated using significant unobservable inputs.
 
The level of an asset or liability within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Our valuation techniques maximize the use of observable inputs and minimize the use of unobservable inputs.
 
The valuation methodologies described above may produce a fair value calculation that may not be indicative of future net realizable value or reflective of future fair values. We believe our valuation methods are appropriate and consistent with other market participants. The use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different fair value measurement at the reporting date. There have been no changes in the methodologies used since December 31, 2020.
 
Long-Term Debt and Other Financial Instruments
The carrying amounts and estimated fair values of our long-term debt, including current maturities, and other financial instruments, are summarized as follows:
  September 30, 2021 December 31, 2020
  Carrying Fair Carrying Fair
  Amount Value Amount Value
Notes and debentures1
$ 170,841  $ 197,467  $ 155,209  $ 187,224 
Commercial paper 6,576  6,576  —  — 
Investment securities2
3,282  3,282  3,249  3,249 
1Includes credit agreement borrowings. Excludes note payable to DIRECTV. Amounts at September 30, 2021 exclude $32 associated with Vrio, which were classified as held-for-sale (see Note 8).
2Excludes investments accounted for under the equity method.

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.
 
24

AT&T INC.
SEPTEMBER 30, 2021

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Dollars in millions except per share amounts

Following is the fair value leveling for investment securities that are measured at fair value and derivatives as of September 30, 2021 and December 31, 2020. Derivatives designated as hedging instruments are reflected as “Other assets,” “Other noncurrent liabilities,” “Prepaid and other current assets” and “Accounts payable and accrued liabilities” on our consolidated balance sheets.
  September 30, 2021
  Level 1 Level 2 Level 3 Total
Equity Securities        
Domestic equities $ 1,137  $   $   $ 1,137 
International equities 212      212 
Fixed income equities 231      231 
Available-for-Sale Debt Securities   1,426    1,426 
Asset Derivatives
Cross-currency swaps   430    430 
Foreign exchange contracts   2    2 
Liability Derivatives
Cross-currency swaps   (3,000)   (3,000)
Foreign exchange contracts   (36)   (36)
  December 31, 2020
  Level 1 Level 2 Level 3 Total
Equity Securities        
Domestic equities $ 1,010  $ —  $ —  $ 1,010 
International equities 180  —  —  180 
Fixed income equities 236  —  —  236 
Available-for-Sale Debt Securities —  1,479  —  1,479 
Asset Derivatives
Cross-currency swaps —  1,721  —  1,721 
Foreign exchange contracts —  — 
Liability Derivatives
Cross-currency swaps —  (1,814) —  (1,814)
Foreign exchange contracts —  (9) —  (9)

Investment Securities
Our investment securities include both equity and debt securities that are measured at fair value, as well as equity securities without readily determinable fair values. A substantial portion of the fair values of our investment securities is estimated based on quoted market prices. Investments in equity securities not traded on a national securities exchange are valued at cost, less any impairment, and adjusted for changes resulting from observable, orderly transactions for identical or similar securities. Investments in debt securities not traded on a national securities exchange are valued using pricing models, quoted prices of securities with similar characteristics or discounted cash flows.
 
25

AT&T INC.
SEPTEMBER 30, 2021

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Dollars in millions except per share amounts

The components comprising total gains and losses in the period on equity securities are as follows:
  Three months ended Nine months ended
  September 30, September 30,
  2021 2020 2021 2020
Total gains (losses) recognized on equity securities $ 9  $ 64  $ 151  $ 22 
Gains (Losses) recognized on equity securities sold (2) —  (2) (24)
Unrealized gains (losses) recognized on equity securities
held at end of period
$ 11  $ 64  $ 153  $ 46 

At September 30, 2021, available-for-sale debt securities totaling $1,426 have maturities as follows - less than one year: $65; one to three years: $209; three to five years: $185; five or more years: $967.
 
Our cash equivalents (money market securities), short-term investments (certificate and time deposits) and nonrefundable customer deposits are recorded at amortized cost, and the respective carrying amounts approximate fair values. Short-term investments and nonrefundable customer deposits are recorded in “Prepaid and other current assets” and our investment securities are recorded in “Other Assets” on the consolidated balance sheets.
 
Derivative Financial Instruments
We enter into derivative transactions to manage certain market risks, primarily interest rate risk and foreign currency exchange risk. This includes the use of interest rate swaps, interest rate locks, foreign exchange forward contracts and combined interest rate foreign exchange contracts (cross-currency swaps). We do not use derivatives for trading or speculative purposes. We record derivatives on our consolidated balance sheets at fair value that is derived from observable market data, including yield curves and foreign exchange rates (all of our derivatives are Level 2). Cash flows associated with derivative instruments are presented in the same category on the consolidated statements of cash flows as the item being hedged.
 
Fair Value Hedging Periodically, we enter into and designate fixed-to-floating interest rate swaps as fair value hedges. The purpose of these swaps is to manage interest rate risk by managing our mix of fixed-rate and floating-rate debt. These swaps involve the receipt of fixed-rate amounts for floating interest rate payments over the life of the swaps without exchange of the underlying principal amount.
 
We also designate some of our cross-currency swaps as fair value hedges. The purpose of these contracts is to hedge foreign currency risk associated with changes in spot rates on foreign denominated debt. For these hedges we have elected to exclude the change in fair value of the cross-currency swap related to both time value and cross-currency basis spread 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 through the swap accrual over the life of the hedging instrument. Unrealized gains on derivatives designated as fair value hedges are recorded at fair market value as assets, and unrealized losses are recorded at fair market value as liabilities. Except for excluded components, changes in the fair value of derivative instruments designated as fair value hedges are offset against the change in fair value of the hedged assets or liabilities through earnings. In the nine months ended September 30, 2021 and 2020, no ineffectiveness was measured on fair value hedges.
 
Cash Flow Hedging We designate most of our cross-currency swaps as cash flow hedges. We have entered into multiple cross-currency swaps to hedge our exposure to variability in expected future cash flows that are attributable to foreign currency risk generated from our foreign-denominated debt. These agreements include initial and final exchanges of principal from fixed foreign currency denominated amounts to fixed U.S. dollar denominated amounts, to be exchanged at a specified rate that is usually determined by the market spot rate upon issuance. They also include an interest rate swap of a fixed or floating foreign currency-denominated interest rate to a fixed U.S. dollar denominated interest rate.
 
We also designate some of our foreign exchange contracts as cash flow hedges. The purpose of these contracts is to hedge certain forecasted film production costs and film tax incentives denominated in foreign currencies.
26

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SEPTEMBER 30, 2021

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Dollars in millions except per share amounts

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

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

Net Investment Hedging We have designated €1,450 million aggregate principal amount of debt as a hedge of the variability of some of the Euro-denominated net investments of our subsidiaries. The gain or loss on the debt that is designated as, and is effective as, an economic hedge of the net investment in a foreign operation is recorded as a currency translation adjustment within accumulated OCI, net on the consolidated balance sheets. Net gains on net investment hedges recognized in accumulated OCI in the third quarter were $40 and net gains for the first nine months of 2021 were $91.
 
Collateral and Credit-Risk Contingency We have entered into agreements with our derivative counterparties establishing collateral thresholds based on respective credit ratings and netting agreements. At September 30, 2021, we had posted collateral of $116 (a deposit asset) and held collateral of $189 (a receipt liability). Under the agreements, if AT&T’s credit rating had been downgraded two ratings levels by Fitch Ratings, one level by S&P and one level by Moody’s before the final collateral exchange in September, we would have been required to post additional collateral of $54. If AT&T’s credit rating had been downgraded three ratings levels by Fitch Ratings, two levels by S&P, and two levels by Moody’s, we would have been required to post additional collateral of $2,536. At December 31, 2020, we had posted collateral of $53 (a deposit asset) and held collateral of $694 (a receipt liability). We do not offset the fair value of collateral, whether the right to reclaim cash collateral (a receivable) or the obligation to return cash collateral (a payable) exists, against the fair value of the derivative instruments.
 
Following are the notional amounts of our outstanding derivative positions:
  September 30, December 31,
2021 2020
Cross-currency swaps $ 42,085  $ 40,745 
Foreign exchange contracts 191  90 
Total $ 42,276  $ 40,835 

Following are the related hedged items affecting our financial position and performance:
Effect of Derivatives on the Consolidated Statements of Income      
  Three months ended Nine months ended
  September 30, September 30,
Fair Value Hedging Relationships 2021 2020 2021 2020
Interest rate swaps (Interest expense):        
Gain (Loss) on interest rate swaps $ (1) $ (1) $ (3) $ (5)
Gain (Loss) on long-term debt 1  3 
Cross-currency swaps:
Gain (Loss) on cross-currency swaps (34) —  (66) — 
Gain (Loss) on long-term debt 34  —  66  — 
Gain (Loss) recognized in accumulated OCI 2  —  3  — 

In addition, the net swap settlements that accrued and settled in the periods above were offset against “Interest expense.” 
27

AT&T INC.
SEPTEMBER 30, 2021

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Dollars in millions except per share amounts

The following table presents information for our cash flow hedging relationships:
  Three months ended Nine months ended
  September 30, September 30,
Cash Flow Hedging Relationships 2021 2020 2021 2020
Cross-currency swaps:        
Gain (Loss) recognized in accumulated OCI $ (237) $ 1,079  $ (742) $ (2,091)
Foreign exchange contracts:
Gain (Loss) recognized in accumulated OCI (14) 10  (14) (1)
Other income (expense) - net reclassified from
accumulated OCI into income
7  (9) (3)
Interest rate locks:
Gain (Loss) recognized in accumulated OCI   —    (648)
Interest income (expense) reclassified from
accumulated OCI into income
(22) (25) (70) (59)

NOTE 8. ACQUISITIONS, DISPOSITIONS AND OTHER ADJUSTMENTS
 
Acquisitions
 
Spectrum Auction On February 24, 2021, the Federal Communications Commission (FCC) announced that AT&T was the winning bidder for 1,621 C-Band licenses, comprised of a total of 80 MHz nationwide, including 40 MHz in Phase I. We provided to the FCC an upfront deposit of $550 in 2020 and cash payments totaling $22,856 in the first quarter of 2021, for a total of $23,406. We received the licenses in July 2021 and classified the auction deposits, related capitalized interest and billed relocation costs as “Licenses - Net” on our September 30, 2021 consolidated balance sheet. We estimate that we will be responsible for $955 of Incentive Payments upon clearing of Phase I spectrum, expected by the end of 2021, and $2,112 upon clearing of Phase II spectrum, expected by the end of 2023. Additionally, we are responsible for approximately $1,000 of compensable relocation costs over the next several years as the spectrum is being cleared by satellite operators, of which $650 was billed in the third quarter and paid in the fourth quarter of 2021. Cash paid, including spectrum deposits (net of refunds), capitalized interest, and any payments for incentive and relocation costs are included in “Acquisitions, net of cash acquired” on our consolidated statements of cash flows. Interest is capitalized until the spectrum is ready for its intended use. Funding for the purchase price of the spectrum included a combination of cash on hand and short-term investments, as well as short- and long-term debt.

Dispositions

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

In connection with the transaction, we contributed our U.S. Video business unit to DIRECTV for $4,250 of junior preferred units, an additional distribution preference of $4,200 and a 70% economic interest in common units (collectively “equity considerations”). TPG contributed approximately $1,800 in cash to DIRECTV for $1,800 of senior preferred units and a 30% economic interest in common units. See Note 11 for additional information on our accounting for our investment in and transactions with DIRECTV.

In the third quarter, we received approximately $7,170 in cash from DIRECTV ($7,600, net of $430 cash on hand) and transferred $195 of DIRECTV debt. Approximately $1,800 of the cash received is reported as cash received from financing activities in our consolidated statement of cash flows, as it relates to a note payable to DIRECTV, for which payment is tied to our agreement to cover net losses under the remaining term of the NFL SUNDAY TICKET contract up to a cap of $2,100 over the remaining period of the contract. The remainder of the net proceeds is reported as cash from investing activities. This transaction did not result in a material gain or loss.

28

AT&T INC.
SEPTEMBER 30, 2021

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Dollars in millions except per share amounts

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

The assets and liabilities of the Video operations, transferred to DIRECTV upon close of the transaction, were as follows:
   Current assets $ 4,893 
   Property, plant and equipment - net 2,673 
   Licenses, net 5,798 
   Other intangible assets, net 1,634 
   Other assets 1,787 
Total Video assets $ 16,785 
   Current liabilities $ 4,267 
   Long-term debt 206 
   Other noncurrent liabilities 343 
Total Video liabilities $ 4,816 

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

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

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

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

Magallanes, Inc. (Spinco), a subsidiary of AT&T, entered into a $41,500 commitment letter (Bridge Loan) on May 17, 2021. On June 4, 2021, Spinco entered into a $10,000 term loan credit agreement (Spinco Term Loan) and reduced the aggregate commitment amount under the Bridge Loan to $31,500. There have been no draws on the Bridge Loan or the Spinco Term Loan. In the event advances are made under the Bridge Loan or Spinco Term Loan, those advances will be used by Spinco to finance a portion of the cash distribution to AT&T in connection with the transaction.
29

AT&T INC.
SEPTEMBER 30, 2021

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Dollars in millions except per share amounts


Vrio On July 21, 2021, we entered into an agreement to sell our Latin America video operations, Vrio, to Grupo Werthein. In the second quarter of 2021, we classified the Vrio disposal group as held-for-sale and reported the disposal group at fair value less cost to sell, which resulted in a noncash, pre-tax impairment charge of $4,555, including approximately $2,100 related to accumulated foreign currency translation adjustments and $2,500 related to property, plant and equipment and intangible assets. Approximately $80 of the impairment was attributable to noncontrolling interest. At September 30, 2021, our consolidated balance sheet included $853 of Vrio held-for-sale assets reported in “Prepaid and other current assets,” primarily related to deferred customer contract acquisition and fulfillment costs, prepaids and other deferred charges, and $2,819 of related liabilities reported in “Accounts payable and accrued liabilities,” primarily for reserves associated with accumulated foreign currency translation adjustments, which will reverse against accumulated other comprehensive income upon close of the transaction.
The transaction is expected to close during the fourth quarter of 2021, pending customary closing conditions. We will retain our 41.3% interest in SKY Mexico, a leading pay-TV provider in Mexico.

NOTE 9. SALES OF RECEIVABLES
 
We have agreements with various third-party financial institutions pertaining to the sales of certain types of our accounts receivable. The most significant of these programs are discussed in detail below and generally consist of (1) receivables arising from equipment installment plans, which are sold for cash and a deferred purchase price, and (2) revolving service and trade receivables. Under these programs, we transfer receivables to purchasers in exchange for cash and additional consideration upon settlement of the receivables, where applicable. Under the terms of our agreements for these programs, we continue to bill and collect the payments from our customers on behalf of the financial institutions.

The sales of receivables did not have a material impact on our consolidated statements of income or to “Total Assets” reported on our consolidated balance sheets. We reflect cash receipts on sold receivables as cash flows from operations in our consolidated statements of cash flows. Cash receipts on the deferred purchase price are classified as cash flows from investing activities.
 
Our equipment installment and revolving receivable programs are discussed in detail below. The following table sets forth a summary of the receivables and accounts being serviced:
  September 30, 2021 December 31, 2020
  Equipment   Equipment  
  Installment Revolving Installment Revolving
Gross receivables: $ 3,671  $ 3,371  $ 5,565  $ 3,909 
Balance sheet classification
   Accounts receivable
     Notes receivable 1,746    2,716  — 
     Trade receivables 438  3,163  554  3,715 
   Other Assets
     Noncurrent notes and trade receivables 1,487  208  2,295  194 
Outstanding portfolio of receivables derecognized from
our consolidated balance sheets
9,380  5,562  7,827  5,300 
Cash proceeds received, net of remittances1
6,588  5,562  5,646  5,300 
1Represents amounts to which financial institutions remain entitled, excluding the deferred purchase price.

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.
 
30

AT&T INC.
SEPTEMBER 30, 2021

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Dollars in millions except per share amounts

We maintain a program under which we transfer a portion of these receivables through our bankruptcy-remote subsidiary in exchange for cash and additional consideration upon settlement of the receivables, referred to as the deferred purchase price. In the event a customer trades in a device prior to the end of the installment contract period, we agree to make a payment to the financial institutions equal to any outstanding remaining installment receivable balance. Accordingly, we record a guarantee obligation for this estimated amount at the time the receivables are transferred.
 
The following table sets forth a summary of equipment installment receivables sold under this program during the three and nine months ended September 30, 2021 and 2020:
  Three months ended Nine months ended
  September 30, September 30,
  2021 2020 2021 2020
Gross receivables sold $ 2,123  $ 1,624  $ 8,067  $ 5,497 
Net receivables sold1
2,069  1,578  7,858  5,300 
Cash proceeds received 1,981  1,387  7,231  4,562 
Deferred purchase price recorded 158  226  864  811 
Guarantee obligation recorded 94  55  321  126 
1Receivables net of allowance, imputed interest and equipment trade-in right guarantees.

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

The following table presents the previously transferred equipment installment receivables, which we repurchased in exchange for the associated deferred purchase price during the three and nine months ended September 30, 2021 and 2020:
  Three months ended Nine months ended
  September 30, September 30,
  2021 2020 2021 2020
Fair value of repurchased receivables $ 471  $ 373  $ 1,094  $ 946 
Carrying value of deferred purchase price 440  373  1,019  931 
Gain on repurchases1
$ 31  $ —  $ 75  $ 15 
1These gains are included in "Selling, general and administrative" in the consolidated statements of income.

At September 30, 2021 and December 31, 2020, our deferred purchase price receivable was $2,797 and $1,991, respectively, of which $1,757 and $1,476 are included in “Prepaid and other current assets” on our consolidated balance sheets, with the remainder in “Other Assets.” The guarantee obligation at September 30, 2021 and December 31, 2020 was $352 and $228, respectively, of which $124 and $161 are included in “Accounts payable and accrued liabilities” on our consolidated balance sheets, with the remainder in “Other noncurrent liabilities.” Our maximum exposure to loss as a result of selling these equipment installment receivables is limited to the total amount of our deferred purchase price and guarantee obligation.
 
Revolving Receivables Program
We have a revolving agreement to transfer up to $6,000 of certain receivables through our bankruptcy-remote subsidiaries to various financial institutions on a recurring basis in exchange for cash equal to the gross receivables transferred. This agreement is subject to renewal on an annual basis and the transfer limit may be expanded or reduced from time to time. As customers pay their balances, we transfer additional receivables into the program, resulting in our gross receivables sold exceeding net cash flow impacts (e.g., collect and reinvest). The transferred receivables are fully guaranteed by our bankruptcy-remote subsidiaries, which hold additional receivables in the amount of $3,371 that are pledged as collateral under this agreement. The transfers are recorded at fair value of the proceeds received and obligations assumed less derecognized receivables. The
31

AT&T INC.
SEPTEMBER 30, 2021

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Dollars in millions except per share amounts

obligation is subsequently adjusted for changes in estimated expected credit losses and interest rates. Our maximum exposure to loss related to these receivables transferred is limited to the amount outstanding.
 
The fair value measurement used for the obligation is considered Level 3 under the Fair Value Measurement and Disclosure framework (see Note 7).
 
The following table sets forth a summary of receivables sold:
  Three months ended Nine months ended
  September 30, September 30,
  2021 2020 2021 2020
Gross receivables sold/cash proceeds received1
$ 4,472  $ 3,563  $ 14,813  $ 11,590 
Total collections under revolving agreement2
4,631  3,763  14,381  10,790 
Receivables repurchased 170  —  170  — 
Net cash proceeds received (paid) $ (329) $ (200) $ 262  $ 800 
Net receivables sold3
$ 4,301  $ 3,553  $ 14,558  $ 11,510 
Obligations recorded (reversed) (60) 58  (49) 172 
1Includes initial sales of receivables of $0 for each of the three months and $700 and $1,000 for the nine months ended September 30, 2021 and 2020, respectively.
2Includes collections of $159 and $200 for the three months and $268 and $200 for the nine months ended September 30, 2021 and 2020, respectively, that were not reinvested under the revolving agreement.
3Receivables net of allowance, return and incentive reserves and imputed interest.

NOTE 10. LEASES
 
We have operating and finance leases for certain facilities and equipment used in operations. Our leases generally have remaining lease terms of up to 15 years. Some of our real estate operating leases contain renewal options that may be exercised, and some of our leases include options to terminate the leases within one year.
 
We have recognized a right-of-use asset for both operating and finance leases, and an operating lease liability that represents the present value of our obligation to make payments over the lease term. The present value of the lease payments is calculated using the incremental borrowing rate for operating and finance leases, which was determined using a portfolio approach based on the rate of interest that we would have to pay to borrow an amount equal to the lease payments on a collateralized basis over a similar term. We use the unsecured borrowing rate and risk-adjust that rate to approximate a collateralized rate in the currency of the lease, which will be updated on a quarterly basis for measurement of new lease liabilities.
 
The components of lease expense were as follows:
  Three months ended Nine months ended
  September 30, September 30,
  2021 2020 2021 2020
Operating lease cost $ 1,454  $ 1,546  $ 4,343  $ 4,372 
Finance lease cost:
Amortization of right-of-use assets $ 59  $ 76  $ 198  $ 216 
Interest on lease obligation 43  39  123  116 
Total finance lease cost $ 102  $ 115  $ 321  $ 332 

32

AT&T INC.
SEPTEMBER 30, 2021

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Dollars in millions except per share amounts

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


The following tables set forth supplemental balance sheet information related to leases:
  September 30,
2021
December 31,
2020
Operating Leases
Operating lease right-of-use assets $ 24,341  $ 24,714 
Accounts payable and accrued liabilities $ 3,675  $ 3,537 
Operating lease obligation 21,510  22,202 
Total operating lease obligation $ 25,185  $ 25,739 
Finance Leases
Property, plant and equipment, at cost $ 2,774  $ 3,586 
Accumulated depreciation and amortization (1,166) (1,361)
Property, plant and equipment, net $ 1,608  $ 2,225 
Current portion of long-term debt $ 169  $ 189 
Long-term debt 1,574  1,847 
Total finance lease obligation $ 1,743  $ 2,036 
September 30,
2021 2020
Weighted-Average Remaining Lease Term (years)
Operating leases 8.4 8.5
Finance leases 8.5 10.1
Weighted-Average Discount Rate
Operating leases 3.8  % 4.1  %
Finance leases 8.0  % 8.1  %

33

AT&T INC.
SEPTEMBER 30, 2021

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Dollars in millions except per share amounts

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

NOTE 11. INVESTMENT IN AND TRANSACTIONS WITH DIRECTV

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

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

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

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

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

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

34

AT&T INC.
SEPTEMBER 30, 2021

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Dollars in millions except per share amounts

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

NOTE 12. ADDITIONAL FINANCIAL INFORMATION
 
Cash and Cash Flows
We typically maintain our restricted cash balances for purchases and sales of certain investment securities and funding of certain deferred compensation benefit payments.

The following table summarizes cash and cash equivalents and restricted cash balances contained on our consolidated balance sheets:
  September 30, December 31,
  2021 2020 2020 2019
Cash and cash equivalents $ 21,270  $ 9,758  $ 9,740  $ 12,130 
Restricted cash in Prepaid and other current assets 2  69 
Restricted cash in Other Assets 133  89  121  96 
Cash and Cash Equivalents and Restricted Cash $ 21,405  $ 9,849  $ 9,870  $ 12,295 

The following table summarizes cash paid during the periods for interest, income taxes and spectrum:
Consolidated Statements of Cash Flows Nine months ended
  September 30,
Cash paid (received) during the period for: 2021 2020
Interest $ 6,079  $ 6,661 
Income taxes, net of refunds 538  306 
Spectrum acquisitions1
23,017  1,062 
1 Included as cash paid for “Acquisitions, net of cash acquired” on our consolidated statement of cash flows. Excludes interest
    during construction.
The following table summarizes interest capitalized during construction:
Nine months ended
September 30,
Interest during construction: 2021 2020
Capital expenditures $ (132) $ (92)
Spectrum1
(516) — 
Interest During Construction $ (648) $ (92)
1 Included in “Acquisitions, net of cash acquired” on our consolidated statement of cash flows.

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

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

35

AT&T INC.
SEPTEMBER 30, 2021

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Dollars in millions except per share amounts

Debt Transactions At September 30, 2021, our debt obligations totaled $179,161. Our debt activity during the nine months ended September 30, 2021 primarily consisted of the following:
First
Quarter
Second
Quarter
Third
Quarter
Nine months ended
September 30, 2021
Net commercial paper borrowings $ 7,072  $ (513) $ (2) $ 6,557 
Issuance of Notes and Debentures1:
U.S. dollar denominated global notes $ 6,000 $ $ $ 6,000 
Initial average rate of 1.27%
Euro denominated global notes 1,461 1,461 
Rate of 0.00%
2021 Syndicated Term Loan 7,350 7,350 
BAML Bilateral Term Loan 2,000 2,000 
Private financing 750 750 
Other 636 835 1,471 
Debt Issuances $ 18,197 $ $ 835 $ 19,032 
Repayments:
Private financing $ (649) $ $ $ (649)
Other (253) (253) (498) (1,004)
Repayments of long-term debt $ (902) $ (253) $ (498) $ (1,653)
1 Includes credit agreement borrowings.

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

In March 2021, we entered into and drew on a $2,000 term loan credit agreement (BAML Bilateral Term Loan) consisting of (i) a 0.75 year $1,000 facility due December 31, 2021 (BAML Tranche A Facility), and (ii) a 1.75 year $1,000 facility due December 31, 2022 (BAML Tranche B Facility), with Bank of America, N.A., as agent. At September 30, 2021, $2,000 was outstanding under these facilities.
36

AT&T INC.
SEPTEMBER 30, 2021

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Dollars in millions except per share amounts


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

On July 31, 2021, we closed our transaction with TPG Capital (TPG) to form a new company named DIRECTV Entertainment Holdings, LLC (DIRECTV). With the close of the transaction, we separated our Video business, comprised of our U.S. video operations, and began accounting for our investment in DIRECTV under the equity method. (See Note 8)
 
We have three reportable segments: (1) Communications, (2) WarnerMedia and (3) Latin America. Our segment results presented in Note 4 and discussed below follow our internal management reporting. We analyze our segments based on segment operating contribution, which consists of operating income, excluding acquisition-related costs and other significant items and equity in net income (loss) of affiliates for investments managed within each segment. Percentage increases and decreases that are not considered meaningful are denoted with a dash.

In the first quarter of 2021, we recast our segment results for all prior periods to reflect the following:
Communications segment results were recast to remove the held-for-sale businesses, principally Video, instead reporting those results in Corporate and Other. Additionally, we refined the allocation of shared infrastructure and deferred customer acquisition costs between Consumer Wireline and Video.
WarnerMedia segment results reflect our operation of WarnerMedia as one integrated organization.
 
  Third Quarter Nine-Month Period
      Percent     Percent
  2021 2020 Change 2021 2020 Change
Operating Revenues            
Communications $ 28,218  $ 27,195  3.8  % $ 84,524  $ 80,479  5.0  %
WarnerMedia 8,442  7,395  14.2  25,759  21,888  17.7 
Latin America 1,480  1,396  6.0  4,291  4,218  1.7 
Corporate 278  628  (55.7) 1,065  1,751  (39.2)
Video 2,149  7,014  (69.4) 15,513  21,442  (27.7)
Eliminations and consolidation (645) (1,288) 49.9  (3,246) (3,709) 12.5 
AT&T Operating Revenues 39,922  42,340  (5.7) 127,906  126,069  1.5 
Operating Contribution        
Communications 7,123  7,064  0.8  21,828  21,953  (0.6)
WarnerMedia 1,935  1,755  10.3  5,704  5,681  0.4 
Latin America (25) (177) 85.9  (350) (562) 37.7 
Segment Operating Contribution $ 9,033  $ 8,642  4.5  % $ 27,182  $ 27,072  0.4  %

The Communications segment provides services to businesses and consumers located in the U.S. and businesses globally. Our business strategies reflect bundled product offerings that cut across product lines and utilize shared assets. This segment contains the following business units:
Mobility provides nationwide wireless service and equipment.
Business Wireline provides advanced IP-based services, as well as traditional voice and data services and related equipment to business customers.
Consumer Wireline provides internet, including broadband fiber, and legacy telephony voice communications services to residential customers.

37

AT&T INC.
SEPTEMBER 30, 2021
 
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations- Continued
Dollars in millions except per share amounts

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

The Latin America segment provides entertainment and wireless services outside of the U.S. This segment contains the following business units:
Vrio provides video services primarily to residential customers using satellite technology in Latin America and the Caribbean.
Mexico provides wireless service and equipment to customers in Mexico.

RESULTS OF OPERATIONS
 
Consolidated Results Our financial results are summarized in the discussions that follow. Additional analysis is discussed in our “Segment Results” section. Certain prior period amounts have been reclassified to conform to the current period’s presentation.
  Third Quarter Nine-Month Period
      Percent     Percent
  2021 2020 Change 2021 2020 Change
Operating Revenues            
Service $ 34,843  $ 37,782  (7.8) % $ 112,303  $ 113,716  (1.2) %
Equipment 5,079  4,558  11.4  15,603  12,353  26.3 
Total Operating Revenues 39,922  42,340  (5.7) 127,906  126,069  1.5 
Operating expenses        
Operations and support 27,194  29,178  (6.8) 92,678  87,382  6.1 
Depreciation and amortization 5,619  7,030  (20.1) 17,189  21,537  (20.2)
Total Operating Expenses 32,813  36,208  (9.4) 109,867  108,919  0.9 
Operating Income 7,109  6,132  15.9  18,039  17,150  5.2 
Interest expense 1,667  1,972  (15.5) 5,221  6,031  (13.4)
Equity in net income (loss) of affiliates 91  —  184  (11) — 
Other income (expense) - net 2,279  (231) —  7,499  1,589  — 
Income Before Income Taxes 7,812  3,934  98.6  20,501  12,697  61.5 
Net Income 6,273  3,168  98.0  16,089  9,694  66.0 
Net Income Attributable to AT&T 5,918  2,816  —  15,038  8,707  72.7 
Net Income Attributable to Common
Stock
$ 5,868  $ 2,762  —  % $ 14,882  $ 8,569  73.7  %

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

The increase for the first nine months was driven by higher Mobility equipment and service revenues and gains in broadband service in our Communications segment; higher DTC subscription, and content revenues in our WarnerMedia segment; and growth in Mexico wireless operations from favorable foreign exchange impacts. Partially offsetting the increases was the loss of revenue resulting from the separation of our U.S. video business in July and the sale of our wireless and wireline operations in Puerto Rico and the U.S. Virgin Islands, which were sold in the fourth quarter of 2020.

38

AT&T INC.
SEPTEMBER 30, 2021
 
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations- Continued
Dollars in millions except per share amounts

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

The increase for the first nine months included a noncash impairment charge of $4,555 in the second quarter of 2021, resulting from our assessment of the recoverability of the net assets of Vrio, including approximately $2,100 of historical currency translation adjustments (see Note 8). Also contributing to the expense increase was higher WarnerMedia non-sports programming and marketing activities and increased domestic wireless equipment expense. Partially offsetting these increases was the impact of the separation of the U.S. video business, lower bad debt expense and lower personnel costs associated with our ongoing transformation initiatives.
 
Depreciation and amortization expense decreased in the third quarter and for the first nine months of 2021.
Amortization expense decreased $909, or 47.3% in the third quarter and $2,910, or 47.5% for the first nine months of 2021 primarily due to ceasing amortization on Vrio held-for-sale assets in 2021.

Depreciation expense decreased $502, or 9.8% in the third quarter and $1,438, or 9.3% for the first nine months of 2021 primarily due to the lower cost basis of property, plant and equipment resulting from Video impairments taken in the fourth quarter of 2020 and ceasing depreciation on Video and Vrio held-for-sale assets in 2021.
Operating income increased in the third quarter and in the first nine months of 2021. Our operating income margin for the third quarter increased from 14.5% in 2020 to 17.8% in 2021 and in the first nine months increased from 13.6% in 2020 to 14.1% in 2021.
 
Interest expense decreased in the third quarter and first nine months of 2021, primarily due to lower interest rates and capitalized interest associated with the spectrum acquisitions.
 
Equity in net income of affiliates increased in the third quarter and for the first nine months of 2021. The third quarter increase was primarily due to the close of our transaction with TPG and our accounting for our investment in DIRECTV under the equity method of accounting beginning August 1, 2021 (see Note 8 and Note 11), partially offset by decreases from certain WarnerMedia investments. The increase for the first nine months was also due to the DIRECTV investment, combined with improved performance from WarnerMedia investments for the nine-month period.
 
Other income (expense) – net increased in the third quarter and for the first nine months of 2021. The increases were primarily due to actuarial gains of $374 and $3,021 in the third quarter and first nine months of 2021, respectively, a $766 gain on sale of our interest in Playdemic Ltd. (Playdemic), and higher net pension and postretirement benefit credits resulting from lower interest costs on the benefit obligation and higher prior service credit amortization (see Note 6). The increase also includes higher returns on benefit-related investments for the nine-month comparable period and fewer impairments taken in 2021.
 
Income taxes increased in the third quarter and the first nine months of 2021. The increase in the third quarter was primarily driven by higher income before income tax. Our effective tax rate was 19.7% in the third quarter of 2021, versus 19.5% in the comparable period in the prior year.

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

39

AT&T INC.
SEPTEMBER 30, 2021
 
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations- Continued
Dollars in millions except per share amounts

COMMUNICATIONS SEGMENT Third Quarter Nine-Month Period
      Percent     Percent
  2021 2020 Change 2021 2020 Change
Segment Operating Revenues            
Mobility $ 19,138  $ 17,894  7.0  % $ 57,108  $ 52,445  8.9  %
Business Wireline 5,938  6,261  (5.2) 18,036  18,832  (4.2)
Consumer Wireline 3,142  3,040  3.4  9,380  9,202  1.9 
Total Segment Operating Revenues 28,218  27,195  3.8  84,524  80,479  5.0 
Segment Operating Contribution        
Mobility 5,955  5,691  4.6  17,959  17,284  3.9 
Business Wireline 985  1,184  (16.8) 3,093  3,567  (13.3)
Consumer Wireline 183  189  (3.2) 776  1,102  (29.6)
Total Segment Operating Contribution $ 7,123  $ 7,064  0.8  % $ 21,828  $ 21,953  (0.6) %

Selected Subscribers and Connections    
  September 30,
(000s) 2021 2020
Mobility Subscribers 196,519  176,744 
Total domestic broadband connections 15,510  15,375 
Network access lines in service 6,404  7,562 
U-verse VoIP connections 3,440  3,942 

Operating revenues increased in the third quarter and for the first nine months of 2021, driven by increases in our Mobility and Consumer Wireline business units, partially offset by decreases in our Business Wireline business unit. The increases are primarily driven by wireless service and equipment revenue growth and gains in broadband service.
 
Operating contribution increased in the third quarter and decreased for the first nine months of 2021, reflecting lower operating contribution from our Business Wireline and Consumer Wireline business units, offset by increases in our Mobility business unit. Our Communications segment operating income margin in the third quarter decreased from 26.0% in 2020 to 25.2% in 2021 and for the first nine months decreased from 27.3% in 2020 to 25.8% in 2021, reflecting, in part, increased equipment sales with no margins.

40

AT&T INC.
SEPTEMBER 30, 2021
 
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations- Continued
Dollars in millions except per share amounts

Communications Business Unit Discussion
Mobility Results            
  Third Quarter Nine-Month Period
      Percent     Percent
  2021 2020 Change 2021 2020 Change
Operating revenues            
Service $ 14,527  $ 13,883  4.6  % $ 42,921  $ 41,520  3.4  %
Equipment 4,611  4,011  15.0  14,187  10,925  29.9 
Total Operating Revenues 19,138  17,894  7.0  57,108  52,445  8.9 
Operating expenses        
Operations and support 11,148  10,182  9.5  33,077  29,083  13.7 
Depreciation and amortization 2,035  2,021  0.7  6,072  6,078  (0.1)
Total Operating Expenses 13,183  12,203  8.0  39,149  35,161  11.3 
Operating Income 5,955  5,691  4.6  17,959  17,284  3.9 
Equity in Net Income (Loss) of Affiliates   —  —    —  — 
Operating Contribution $ 5,955  $ 5,691  4.6  % $ 17,959  $ 17,284  3.9  %

The following tables highlight other key measures of performance for Mobility:
Subscribers      
  September 30, Percent
(in 000s) 2021 2020 Change
Postpaid 80,249  75,969  5.6  %
Postpaid phone 66,396  63,485  4.6 
Prepaid 
19,028  18,100  5.1 
Reseller 6,263  6,708  (6.6)
Connected devices1
90,979  75,967  19.8 
Total Mobility Subscribers 196,519  176,744  11.2  %
1Includes data-centric devices such as session-based tablets, monitoring devices and primarily wholesale automobile systems.

41

AT&T INC.
SEPTEMBER 30, 2021
 
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations- Continued
Dollars in millions except per share amounts

Net Additions            
  Third Quarter Nine-Month Period
      Percent     Percent
(in 000s) 2021 2020 Change 2021 2020 Change
Postpaid Phone Net Additions 928  645  43.9  % 2,312  657  —  %
Total Phone Net Additions 1,177  776  51.7  2,942  880  — 
Postpaid2
1,218  1,081  12.7  3,197  954  — 
Prepaid 351  245  43.3  927  365  — 
Reseller (164) (4) —  (357) (252) (41.7)
Connected devices3
3,468  4,203  (17.5) 10,194  9,976  2.2 
Mobility Net Subscriber Additions1
4,873  5,525  (11.8) % 13,961  11,043  26.4  %
Postpaid Churn4
0.92  % 0.85  % BP 0.91  % 0.99  % (8) BP
Postpaid Phone-Only Churn4
0.72  % 0.69  % BP 0.72  % 0.80  % (8) BP
1Excludes migrations and acquisition-related activities during the period.
2In addition to postpaid phones, includes tablets and wearables and other. Tablet net adds (losses) were 34 and (44) for the three months ended September 30, 2021 and 2020 and (16) and (470) for the nine months ended September 30, 2021 and 2020. Wearables and other net adds were 256 and 480 for the quarter ended September 30, 2021 and 2020 and 899 and 767 for the nine months September 30, 2021 and 2020.
3Includes data-centric devices such as session-based tablets, monitoring devices and primarily wholesale automobile systems. Excludes postpaid tablets and other postpaid data devices. Wholesale connected car net adds were 1.8 million for the quarter ended September 30, 2021 and 5.5 million for the nine months ended September 30, 2021.
4Calculated by dividing the aggregate number of wireless subscribers who canceled service during a month divided by the total number of wireless subscribers at the beginning of that month. The churn rate for the period is equal to the average of the churn rate for each month of that period.

Service revenue increased in the third quarter and for the first nine months of 2021. The increases are largely due to growth from subscriber gains.

ARPU
Average revenue per subscriber (ARPU) decreased in the third quarter and for the first nine months of 2021. ARPU during 2021 reflects the impact of higher promotional discount amortization (see Note 5).
 
Churn
The effective management of subscriber churn is critical to our ability to maximize revenue growth and to maintain and improve margins. Postpaid churn and postpaid phone-only churn were lower in the first nine months due to retention offers, migrations to unlimited plans, continued network performance and lower involuntary disconnects.
 
Equipment revenue increased in the third quarter and for the first nine months of 2021, primarily driven by the sale of higher-priced smartphones and a mix of higher-priced postpaid smartphones, including the quarterly shift in product launch timing versus the prior year, and higher sales of postpaid data devices for the nine-month period.
 
Operations and support expenses increased in the third quarter and for the first nine months of 2021 largely driven by growth in equipment sales and associated expenses, including 3G network shutdown costs, increased amortization of deferred contract acquisition costs, and content costs associated with bundling HBO Max, and, for the nine-month period, higher network and technology costs. The expense increase was offset by lower sales costs and lower bad debt expense.
 
Depreciation expense increased in the third quarter and decreased for the first nine months of 2021. The third quarter increase is due to ongoing capital spending for network upgrades and expansion partially offset by fully depreciated assets. For the nine months the decrease is primarily due to network assets becoming fully depreciated.
 
42

AT&T INC.
SEPTEMBER 30, 2021
 
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations- Continued
Dollars in millions except per share amounts

Operating income increased in the third quarter and for the first nine months of 2021. Our Mobility operating income margin in the third quarter decreased from 31.8% in 2020 to 31.1% in 2021, and for the first nine months decreased from 33.0% in 2020 to 31.4% in 2021. Our Mobility EBITDA margin in the third quarter decreased from 43.1% in 2020 to 41.7% in 2021, and for the first nine months decreased from 44.5% in 2020 to 42.1% in 2021. EBITDA is defined as operating contribution excluding equity in net income (loss) of affiliates and depreciation and amortization.
Subscriber Relationships
As the wireless industry has matured, future wireless growth will depend on our ability to offer innovative services, plans and devices that take advantage of our 5G wireless network, which went nationwide in July 2020, and to provide these services in bundled product offerings. Subscribers that purchase two or more services from us have significantly lower churn than subscribers that purchase only one service. To support higher mobile data usage, our priority is to best utilize a wireless network that has sufficient spectrum and capacity to support these innovations on as broad a geographic basis as possible.
 
To attract and retain subscribers in a mature and highly competitive market, we have launched a wide variety of plans, including our FirstNet and prepaid products, and arrangements that bundle our video services. Virtually all of our postpaid smartphone subscribers are on plans that provide for service on multiple devices at reduced rates, and subscribers to such plans tend to have higher retention and lower churn rates. We offer unlimited data plans and subscribers to such plans also tend to have higher retention and lower churn rates. Our offerings are intended to encourage existing subscribers to upgrade their current services and/or add devices, attract subscribers from other providers and/or minimize subscriber churn.

Business Wireline Results            
  Third Quarter Nine-Month Period
      Percent     Percent
  2021 2020 Change 2021 2020 Change
Operating revenues            
Service $ 5,765  $ 6,079  (5.2) % $ 17,497  $ 18,271  (4.2) %
Equipment 173  182  (4.9) 539  561  (3.9)
Total Operating Revenues 5,938  6,261  (5.2) 18,036  18,832  (4.2)
Operating expenses        
Operations and support 3,649  3,764  (3.1) 11,068  11,365  (2.6)
Depreciation and amortization 1,304  1,313  (0.7) 3,875  3,900  (0.6)
Total Operating Expenses 4,953  5,077  (2.4) 14,943  15,265  (2.1)
Operating Income 985  1,184  (16.8) 3,093  3,567  (13.3)
Equity in Net Income (Loss) of Affiliates   —  —    —  — 
Operating Contribution $ 985  $ 1,184  (16.8) % $ 3,093  $ 3,567  (13.3) %

Service revenues decreased in the third quarter and for the first nine months of 2021, driven by lower demand for legacy voice and data services in the current year, proactive rationalization of low profit margin products and higher demand for pandemic-related connectivity in the prior-year. We expect this trend to continue for the remainder of the year.
 
Equipment revenues decreased in the third quarter and for the first nine months of 2021, driven by declines in legacy and non-core services.
 
Operations and support expenses decreased in the third quarter and for the first nine months of 2021, primarily due to our continued efforts to drive efficiencies in our network operations through automation and reductions in customer support expenses through digitization and proactive rationalization of low profit margin products.

Depreciation expense decreased in the third quarter and for the first nine months of 2021, primarily due to certain network assets becoming fully depreciated.
 
43

AT&T INC.
SEPTEMBER 30, 2021
 
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations- Continued
Dollars in millions except per share amounts

Operating income decreased in the third quarter and for the first nine months of 2021. Our Business Wireline operating income margin in the third quarter decreased from 18.9% in 2020 to 16.6% in 2021, and for the first nine months decreased from 18.9% in 2020 to 17.1% in 2021. Our Business Wireline EBITDA margin in the third quarter decreased from 39.9% in 2020 to 38.5% in 2021, and for the first nine months decreased from 39.7% in 2020 to 38.6% in 2021.

Consumer Wireline Results            
  Third Quarter Nine-Month Period
      Percent     Percent
  2021 2020 Change 2021 2020 Change
Operating revenues            
Broadband $ 2,290  $ 2,128  7.6  % $ 6,761  $ 6,329  6.8  %
Legacy voice and data services 484  538  (10.0) 1,507  1,679  (10.2)
Other service and equipment 368  374  (1.6) 1,112  1,194  (6.9)
Total Operating Revenues 3,142  3,040  3.4  9,380  9,202  1.9 
Operating expenses        
Operations and support 2,184  2,117  3.2  6,298  5,924  6.3 
Depreciation and amortization 775  734  5.6  2,306  2,176  6.0 
Total Operating Expenses 2,959  2,851  3.8  8,604  8,100  6.2 
Operating Income 183  189  (3.2) 776  1,102  (29.6)
Equity in Net Income (Loss) of Affiliates   —  —    —  — 
Operating Contribution $ 183  $ 189  (3.2) % $ 776  $ 1,102  (29.6) %

The following tables highlight other key measures of performance for Consumer Wireline:
Connections            
        September 30, Percent
(in 000s)       2021 2020 Change
Broadband Connections        
Total Broadband and DSL Connections     14,180  14,102  0.6  %
Fiber Broadband Connections 5,721  4,678  22.3 
Voice Connections
Retail Consumer Switched Access Lines     2,527  2,977  (15.1)
U-verse Consumer VoIP Connections     2,843  3,361  (15.4)
Total Retail Consumer Voice Connections   5,370  6,338  (15.3) %

Net Additions
Third Quarter Nine-Month Period
Percent Percent
(in 000s) 2021 2020 Change 2021 2020 Change
Broadband Net Additions
Total Broadband and DSL Net
Additions
6  158  (96.2) % 80  (17) —  %
Fiber Broadband Net Additions 289  357  (19.0) % 770  791  (2.7) %
Broadband (high-speed internet) revenues increased in the third quarter and for the first nine months of 2021, driven by an increase in fiber customers and pricing, which we expect to continue for the foreseeable future.

44

AT&T INC.
SEPTEMBER 30, 2021
 
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations- Continued
Dollars in millions except per share amounts

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

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

Operations and support expenses increased in the third quarter and for the first nine months of 2021, primarily driven by higher technology and customer support costs and, for the nine-month period, content costs associated with plans bundling HBO Max. Partially offsetting these increases was lower amortization of deferred fulfillment costs, including the impact of the first-quarter 2021 updates to extend the economic life for our subscribers.
 
Depreciation expense increased in the third quarter and for the first nine months of 2021, primarily due to ongoing capital spending for network upgrades and expansion.
 
Operating income decreased in the third quarter and for the first nine months of 2021. Our Consumer Wireline operating income margin in the third quarter decreased from 6.2% in 2020 to 5.8% in 2021, and for the first nine months decreased from 12.0% in 2020 to 8.3% in 2021. Our Consumer Wireline EBITDA margin in the third quarter increased from 30.4% in 2020 to 30.5% in 2021, and for the first nine months decreased from 35.6% in 2020 to 32.9% in 2021.

WARNERMEDIA SEGMENT Third Quarter Nine-Month Period
      Percent     Percent
  2021 2020 Change 2021 2020 Change
Segment Operating Revenues            
     Subscription $ 3,988  $ 3,477  14.7  % $ 11,779  $ 10,142  16.1  %
     Content and other 3,053  2,318  31.7  9,103  7,510  21.2 
     Advertising 1,401  1,600  (12.4) 4,877  4,236  15.1 
Total Segment Operating Revenues 8,442  7,395  14.2  25,759  21,888  17.7 
Segment Operating Expenses
Direct Costs          
     Programming 3,068  3,181  (3.6) 10,996  8,638  27.3 
     Marketing 1,096  655  67.3  2,929  1,750  67.4 
     Other 932  734  27.0  2,599  2,329  11.6 
Selling, general and administrative 1,175  913  28.7  3,084  3,027  1.9 
Depreciation and amortization 163  169  (3.6) 491  494  (0.6)
Total Operating Expenses 6,434  5,652  13.8  20,099  16,238  23.8 
Operating Income 2,008  1,743  15.2  5,660  5,650  0.2 
Equity in Net Income (Loss) of Affiliates (73) 12  —  44  31  41.9 
Total Segment Operating Contribution $ 1,935  $ 1,755  10.3  % $ 5,704  $ 5,681  0.4  %

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

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

Operating revenues increased in the third quarter and for the first nine months of 2021, primarily due to increases in subscription and content revenues, reflecting the partial recovery from prior-year impacts of the pandemic. These increases were partially offset by decreased advertising revenues during the third quarter primarily due to the timing of the NBA season in 2020.

45

AT&T INC.
SEPTEMBER 30, 2021
 
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations- Continued
Dollars in millions except per share amounts

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

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

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

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

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

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

LATIN AMERICA SEGMENT
Third Quarter
Nine-Month Period
      Percent     Percent
  2021 2020 Change 2021 2020 Change
Segment Operating Revenues            
Vrio $ 756  $ 753  0.4  % $ 2,248  $ 2,392  (6.0) %
Mexico 724  643  12.6  2,043  1,826  11.9 
Total Segment Operating Revenues 1,480  1,396  6.0  4,291  4,218  1.7 
Segment Operating Contribution        
Vrio 105  (34) —  43  (101) — 
Mexico (130) (143) 9.1  (393) (461) 14.8 
Total Segment Operating Contribution $ (25) $ (177) 85.9  % $ (350) $ (562) 37.7  %

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

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

Operating revenues increased in the third quarter and for the first nine months of 2021, reflecting growth at Vrio and in the Mexico wireless operations. Foreign exchange impacts were neutral in the third quarter, and for the nine-month period, pressure in Vrio was partially offset by improvements in Mexico.
46

AT&T INC.
SEPTEMBER 30, 2021
 
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations- Continued
Dollars in millions except per share amounts

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

Latin America Business Unit Discussion          
Vrio Results          
 
Third Quarter
Nine-Month Period
      Percent     Percent
  2021 2020 Change 2021 2020 Change
Operating revenues $ 756  $ 753  0.4  % $ 2,248  $ 2,392  (6.0) %
Operating expenses        
Operations and support 660  675  (2.2) 1,981  2,119  (6.5)
Depreciation and amortization   126  —  231  400  (42.3)
Total Operating Expenses 660  801  (17.6) 2,212  2,519  (12.2)
Operating Income (Loss) 96  (48) —  36  (127) — 
Equity in Net Income (Loss) of Affiliates 9  14  (35.7) 7  26  (73.1)
Operating Contribution $ 105  $ (34) —  % $ 43  $ (101) —  %

The following tables highlight other key measures of performance for Vrio:
        September 30, Percent
(in 000s)       2021 2020 Change
Vrio Video Subscribers       10,142  10,893  (6.9) %
 
Third Quarter
Nine-Month Period
      Percent     Percent
(in 000s) 2021 2020 Change 2021 2020 Change
Vrio Video Net Additions (178) 229  —  % (800) (197) —  %

Operating revenues slightly increased in the third quarter and decreased for the first nine months of 2021. The increase in the third quarter is primarily driven by higher ARPU. The decrease in the first nine months is primarily driven by foreign exchange impacts.
 
Operations and support expenses decreased in the third quarter and for the first nine months of 2021, primarily driven by foreign exchange impacts. Approximately 23% of Vrio expenses are U.S. dollar based, with the remainder in the local currency.
 
Depreciation expense decreased in the third quarter and for the first nine months of 2021 due to ceasing depreciation on held-for-sale Vrio assets. We applied held-for-sale accounting to Vrio on June 30, 2021 and ceased depreciation beginning July 1, 2021.
 
Operating income improved in the third quarter and for the first nine months of 2021. Vrio operating income margin for the third quarter increased from (6.4)% in 2020 to 12.7% in 2021, and for the first nine months increased from (5.3)% in 2020 to 1.6% in 2021. Vrio EBITDA margin in the third quarter increased from 10.4% in 2020 to 12.7% in 2021, and for the first nine months increased from 11.4% in 2020 to 11.9% in 2021.

47

AT&T INC.
SEPTEMBER 30, 2021
 
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations- Continued
Dollars in millions except per share amounts

Mexico Results            
 
Third Quarter
Nine-Month Period
  2021 2020 Percent Change 2021 2020 Percent Change
Operating revenues            
Service $ 463  $ 385  20.3  % $ 1,349  $ 1,197  12.7  %
Equipment 261  258  1.2  694  629  10.3 
Total Operating Revenues 724  643  12.6  2,043  1,826  11.9 
Operating expenses        
Operations and support 697  662  5.3  1,984  1,914  3.7 
Depreciation and amortization 157  124  26.6  452  373  21.2 
Total Operating Expenses 854  786  8.7  2,436  2,287  6.5 
Operating Income (Loss) (130) (143) 9.1  (393) (461) 14.8 
Equity in Net Income (Loss) of Affiliates   —  —    —  — 
Operating Contribution $ (130) $ (143) 9.1  % $ (393) $ (461) 14.8  %

The following tables highlight other key measures of performance for Mexico:
        September 30, Percent
(in 000s)       2021 2020 Change
Mexico Wireless Subscribers            
Postpaid       4,781  4,710  1.5  %
Prepaid       14,199  13,249  7.2 
Reseller       493  455  8.4 
Total Mexico Wireless Subscribers       19,473  18,414  5.8  %
 
Third Quarter
Nine-Month Period
      Percent     Percent
(in 000s) 2021 2020 Change 2021 2020 Change
Mexico Wireless Net Additions          
Postpaid 36  (61) —  % 85  (393) —  %
Prepaid 389  472  (17.6) 441  (335) — 
Reseller 2  30  (93.3) 4  83  (95.2)
Total Mexico Wireless Net Additions 427  441  (3.2) % 530  (645) —  %

Service revenues increased in the third quarter reflecting improvements in foreign exchange, subscriber growth, and growth in other services, and for the first nine months of 2021, driven by improvements in foreign exchange and growth in other services.

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

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

Depreciation and amortization expense increased in the third quarter and for the first nine months of 2021, reflecting higher in-service assets and foreign exchange impacts.
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AT&T INC.
SEPTEMBER 30, 2021
 
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations- Continued
Dollars in millions except per share amounts


Operating loss improved in the third quarter and for the first nine months of 2021. Our Mexico operating income margin in the third quarter increased from (22.2)% in 2020 to (18.0)% in 2021, and for the first nine months increased from (25.2)% in 2020 to (19.2)% in 2021. Our Mexico EBITDA margin in the third quarter increased from (3.0)% in 2020 to 3.7% in 2021, and for the first nine months increased from (4.8)% in 2020 to 2.9% in 2021.

OTHER BUSINESS MATTERS

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

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

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

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

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

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

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

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

49

AT&T INC.
SEPTEMBER 30, 2021
 
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations- Continued
Dollars in millions except per share amounts

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

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

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

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

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

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

Some states have adopted legislation or issued executive orders that would reimpose net neutrality rules repealed by the FCC. Suits have been filed concerning such laws in two states.

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

50

AT&T INC.
SEPTEMBER 30, 2021
 
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations- Continued
Dollars in millions except per share amounts

Wireless Industry-wide network densification and 5G technology expansion efforts, which are needed to satisfy extensive demand for video and internet access, will involve significant deployment of “small cell” equipment. This increases the importance of local permitting processes that allow for the placement of small cell equipment in the public right-of-way on reasonable timelines and terms. Between 2018 and 2020, the FCC adopted multiple Orders streamlining federal, state, and local wireless structure review processes that had the tendency to delay and impede deployment of small cell and related infrastructure used to provide telecommunications and broadband services. The key elements of these orders have been affirmed on judicial review. During 2020-2021, we have also deployed 5G nationwide on “low band” spectrum on macro towers. Executing on the recent spectrum purchase, we announced on-going construction and continuing deployment of 5G on C-band spectrum in 2022 and beyond.

LIQUIDITY AND CAPITAL RESOURCES
 
We had $21,270 in cash and cash equivalents available at September 30, 2021. Cash and cash equivalents included cash of $4,552 and money market funds and other cash equivalents of $16,718. Approximately $3,417 of our cash and cash equivalents were held by our foreign entities in accounts predominantly outside of the U.S. and may be subject to restrictions on repatriation.

Cash and cash equivalents increased $11,530 since December 31, 2020. In the first nine months of 2021, cash inflows were primarily provided by cash receipts from operations, including cash from our sale and transfer of our receivables to third parties, the disposition of businesses, including our recently completed U.S. video business transaction, and issuance of long-term debt and commercial paper. These inflows were offset by cash used to meet the needs of the business, including, but not limited to, payment of operating expenses, spectrum acquisitions, funding capital expenditures and vendor financing payments, investment in WarnerMedia content and dividends to stockholders.

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

Cash Provided by or Used in Operating Activities
During the first nine months of 2021, cash provided by operating activities was $30,703, compared to $33,048 for the first nine months of 2020, impacted by content investment and the separation of the U.S. video business. Total cash paid for WarnerMedia’s content investment was $14,562 in the first nine months of 2021 ($4,281 higher than the prior-year comparable period).

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

Cash Used in or Provided by Investing Activities
For the first nine months of 2021, cash used in investing activities totaled $27,333, and consisted primarily of $12,696 for capital expenditures, and acquisitions of $23,533, which include C-Band spectrum licenses won in Auction 107 and associated capitalized interest. During the third quarter, investing activities also included cash receipts of approximately $5,370 (excluding cash on hand and $1,800 of financing activities) from the sale of our Video business and $2,940 from the sale of Otter Media assets and Playdemic (see Note 8). In the fourth quarter of 2021, we paid $650 of compensable relocation costs to clear C-Band spectrum licenses won in Auction 107.
 
For capital improvements, we have negotiated favorable vendor payment terms of 120 days or more (referred to as vendor financing) with some of our vendors, which are excluded from capital expenditures and reported as financing activities. For the first nine months of 2021, vendor financing payments were $4,013, compared to $1,965 for the first nine months of 2020. Capital expenditures in the first nine months of 2021 were $12,696, and when including $4,013 cash paid for vendor financing, gross capital investment was $16,709 ($1,318 higher than the prior-year comparable period).

The vast majority of our capital expenditures are spent on our networks, including product development and related support systems. During the first nine months of 2021, we placed $3,624 of equipment in service under vendor financing arrangements (compared to $3,148 in the prior-year comparable period) and $610 of assets related to the FirstNet build (compared to $940 in
51

AT&T INC.
SEPTEMBER 30, 2021
 
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations- Continued
Dollars in millions except per share amounts

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

A tabular summary of our debt activity for the nine months ended September 30, 2021 is as follows:
First
Quarter
Second
Quarter
Third
Quarter
Nine months ended
September 30, 2021
Net commercial paper borrowings $ 7,072  $ (513) $ (2) $ 6,557 
Issuance of Notes and Debentures1:
U.S. dollar denominated global notes $ 6,000  $ —  $ —  $ 6,000 
Initial average rate of 1.27%
Euro denominated global notes (converted to USD at issuance) 1,461  —  —  1,461 
Rate of 0.00%
2021 Syndicated Term Loan 7,350  —  —  7,350 
BAML Bilateral Term Loan 2,000  —  —  2,000 
Private financing 750  —  —  750 
Other 636  —  835  1,471 
Debt Issuances $ 18,197  $ —  $ 835  $ 19,032 
Repayments:
Private financing $ (649) $ —  $ —  $ (649)
Other (253) (253) (498) (1,004)
Repayments of long-term debt $ (902) $ (253) $ (498) $ (1,653)
1 Includes credit agreement borrowing.

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

At September 30, 2021, we had $23,755 of debt maturing within one year, consisting of $6,576 of commercial paper borrowings, $9,100 of bank borrowings, and $8,079 of long-term debt issuances. Debt maturing within one year includes an accreting zero-coupon note that may be redeemed each May until maturity in November 2022. If the remainder of the zero-coupon note (issued for principal of $500 in 2007 and partially exchanged in the 2017 debt exchange offers) is held to maturity, the redemption amount will be $592.

For the first nine months of 2021, we paid $4,013 of cash under our vendor financing program, compared to $1,965 in the first nine months of 2020. Total vendor financing payables included in our September 30, 2021 consolidated balance sheet were $3,752, with $2,866 due within one year (in “Accounts payable and accrued liabilities”) and the remainder predominantly due within two to three years (in “Other noncurrent liabilities”).

At September 30, 2021, we had approximately 178 million shares remaining from our share repurchase authorizations approved by the Board of Directors in 2014.
 
We paid dividends on common and preferred shares of $11,319 during the first nine months of 2021, compared with $11,215 for the first nine months of 2020.
 
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations- Continued
Dollars in millions except per share amounts

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

Credit Facilities
The following summary of our various credit and loan agreements does not purport to be complete and is qualified in its entirety by reference to each agreement filed as exhibits to our Annual Report on Form 10-K.
 
We use credit facilities as a tool in managing our liquidity status. In November 2020, we amended one of our $7,500 revolving credit agreements by extending the termination date. In total, we have two $7,500 revolving credit agreements, totaling $15,000, with one terminating on December 11, 2023 and the other terminating on November 17, 2025. No amounts were outstanding under either agreement as of September 30, 2021.

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

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

We also utilize other external financing sources, which include various credit arrangements supported by government agencies to support network equipment purchases as well as a commercial paper program.
 
Each of our credit and loan agreements contains covenants that are customary for an issuer with an investment grade senior debt credit rating as well as a net debt-to-EBITDA financial ratio covenant requiring AT&T to maintain, as of the last day of each fiscal quarter through June 30, 2023, a ratio of not more than 4.0-to-1, and a ratio of not more than 3.5-to-1 for any fiscal quarter thereafter. As of September 30, 2021, we were in compliance with the covenants for our credit facilities.

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

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

On May 17, 2021, we entered into an agreement to combine our WarnerMedia segment with a subsidiary of Discovery. The transaction is anticipated to close in mid-2022, subject to approval by Discovery shareholders and customary closing conditions, including receipt of regulatory approvals. We expect to receive $43,000 (subject to adjustment) in a combination of cash, debt securities, and WarnerMedia’s retention of certain debt. (See Note 8)

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SEPTEMBER 30, 2021
 
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations- Continued
Dollars in millions except per share amounts

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

Item 3. Quantitative and Qualitative Disclosures About Market Risk
Dollars in millions except per share amounts

At September 30, 2021, we had no interest rate swaps.
 
We have fixed-to-fixed and floating-to-fixed cross-currency swaps on foreign currency-denominated debt instruments with a U.S. dollar notional value of $42,085 to hedge our exposure to changes in foreign currency exchange rates. These derivatives have been designated at inception and qualify as cash flow or fair value hedges with a net fair value of $(2,570) at September 30, 2021. We had no rate locks at September 30, 2021.
 
We have foreign exchange contracts with a U.S. dollar notional value of $191 to provide currency at a fixed rate to hedge a portion of the exchange risk involved in foreign currency-denominated transactions. These foreign exchange contracts include cash flow hedges and economic (nonqualifying) hedges with a total net fair value of $(34) at September 30, 2021.
 
We have designated €1,450 million aggregate principal amount of debt as a hedge of the variability of some of the Euro-denominated net investments of our subsidiaries. The gain or loss on the debt that is designated as, and is effective as, an economic hedge of the net investment in a foreign operation is recorded as a currency translation adjustment within accumulated other comprehensive income, net on the consolidated balance sheet.

Item 4. Controls and Procedures

The registrant maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed by the registrant is recorded, processed, summarized, accumulated and communicated to its management, including its principal executive and principal financial officers, to allow timely decisions regarding required disclosure, and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms. The chief executive officer and chief financial officer have performed an evaluation of the effectiveness of the design and operation of the registrant’s disclosure controls and procedures as of September 30, 2021. Based on that evaluation, the chief executive officer and chief financial officer concluded that the registrant’s disclosure controls and procedures were effective as of September 30, 2021.
 
There have not been any changes in our internal control over financial reporting during our most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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AT&T INC.
SEPTEMBER 30, 2021

CAUTIONARY LANGUAGE CONCERNING FORWARD-LOOKING STATEMENTS
Information set forth in this report contains forward-looking statements that are subject to risks and uncertainties, and actual results could differ materially. Many of these factors are discussed in more detail in the “Risk Factors” section. We claim the protection of the safe harbor for forward-looking statements provided by the Private Securities Litigation Reform Act of 1995.
 
The following factors could cause our future results to differ materially from those expressed in the forward-looking statements:
The severity, magnitude and duration of the COVID-19 pandemic and containment, mitigation and other measures taken in response, including the potential impacts of these matters on our business and operations.
Our inability to predict the extent to which the COVID-19 pandemic and related impacts will continue to impact our business operations, financial performance and results of operations.
Adverse economic, political and/or capital access changes in the markets served by us or in countries in which we have significant investments and/or operations, including the impact on customer demand and our ability and our suppliers’ ability to access financial markets at favorable rates and terms.
Increases in our benefit plans’ costs, including increases due to adverse changes in the United States and foreign securities markets, resulting in worse-than-assumed investment returns and discount rates; adverse changes in mortality assumptions; adverse medical cost trends; and unfavorable or delayed implementation or repeal of healthcare legislation, regulations or related court decisions.
The final outcome of FCC and other federal, state or foreign government agency proceedings (including judicial review, if any, of such proceedings) and legislative efforts involving issues that are important to our business, including, without limitation, pending Notices of Apparent Liability; the transition from legacy technologies to IP-based infrastructure, including the withdrawal of legacy TDM-based services; universal service; broadband deployment; wireless equipment siting regulations and, in particular, siting for 5G service; E911 services; competition policy; privacy; net neutrality; multichannel video programming distributor services and equipment; content licensing and copyright protection; availability of new spectrum on fair and balanced terms; and wireless and satellite license awards and renewals.
Enactment of additional state, local, federal and/or foreign regulatory and tax laws and regulations, or changes to existing standards and actions by tax agencies and judicial authorities including the resolution of disputes with any taxing jurisdictions, pertaining to our subsidiaries and foreign investments, including laws and regulations that reduce our incentive to invest in our networks, resulting in lower revenue growth and/or higher operating costs.
Potential changes to the electromagnetic spectrum currently used for broadcast television and satellite distribution being considered by the FCC could negatively impact WarnerMedia’s ability to deliver linear network feeds of its domestic cable networks to its affiliates, and in some cases, WarnerMedia’s ability to produce high-value news and entertainment programming on location.
U.S. and foreign laws and regulations regarding intellectual property rights protection and privacy, personal data protection and user consent are complex and rapidly evolving and could result in adverse impacts to our business plans, increased costs, or claims against us that may harm our reputation.
The ability of our competitors to offer product/service offerings at lower prices due to lower cost structures and regulatory and legislative actions adverse to us, including non-regulation of comparable alternative technologies and/or government-owned or subsidized networks.
Disruption in our supply chain for a number of reasons, including, difficulties in obtaining export licenses for certain technology, inability to secure component parts, general business disruption, workforce shortage, natural disasters, safety issues, economic and political instability and public health emergencies.
The continued development and delivery of attractive and profitable wireless, video content and broadband offerings and devices, and, in particular, the success of our new HBO Max platform; the extent to which regulatory and build-out requirements apply to our offerings; our ability to match speeds offered by our competitors and the availability, cost and/or reliability of the various technologies and/or content required to provide such offerings.
Our ability to generate subscription and advertising revenue from attractive video content, especially from WarnerMedia, in the face of unpredictable and rapidly evolving public viewing habits and legal restrictions on using personal data for advertising.
The availability and cost and our ability to adequately fund additional wireless spectrum and network upgrades; and regulations and conditions relating to spectrum use, licensing, obtaining additional spectrum, technical standards and deployment and usage, including network management rules.
Our ability to manage growth in wireless data services, including network quality and acquisition of adequate spectrum at reasonable costs and terms.
The outcome of pending, threatened or potential litigation (which includes arbitrations), including, without limitation, patent and product safety claims by or against third parties or claims based on alleged misconduct by employees.
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AT&T INC.
SEPTEMBER 30, 2021

CAUTIONARY LANGUAGE CONCERNING FORWARD-LOOKING STATEMENTS - continued
The impact from major equipment or software failures on our networks; the effect of security breaches related to the network or customer information; our inability to obtain handsets, equipment/software or have handsets, equipment/software serviced in a timely and cost-effective manner from suppliers; or severe weather conditions including flooding and hurricanes, natural disasters including earthquakes and forest fires, pandemics, energy shortages, wars or terrorist attacks.
The issuance by the Financial Accounting Standards Board or other accounting oversight bodies of new accounting standards or changes to existing standards.
Changes in our corporate strategies to respond to competition and regulatory, legislative and technological developments.
Our ability to realize or sustain the expected benefits of our business transformation initiatives, which are designed to reduce costs, streamline distribution, remove redundancies and simplify and improve processes and support functions.
Our ability to successfully complete divestitures, including the separation of the WarnerMedia business, as well as achieve our expectations regarding the financial impact of the completed and/or pending transactions.

Readers are cautioned that other factors discussed in this report, although not enumerated here, also could materially affect our future earnings.
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AT&T INC.
SEPTEMBER 30, 2021
PART II – OTHER INFORMATION
Dollars in millions except per share amounts

Item 1A. Risk Factors

We discuss in our Annual Report on Form 10-K for the year ended December 31, 2020 and in our Quarterly Report on Form 10-Q for the quarter ended June 30, 2021 various risks that may materially affect our business. We use this section to update this discussion to reflect material developments. For the third quarter of 2021, there were no such material developments.

PART II – OTHER INFORMATION - CONTINUED
Dollars in millions except per share amounts

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

(c) A summary of our repurchases of common stock during the third quarter of 2021 is as follows:
  (a) (b) (c) (d)
Period
Total Number of Shares (or Units) Purchased1, 2, 3
Average Price Paid Per Share (or Unit)
Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs1
Maximum Number (or Approximate Dollar Value) of Shares (or Units) That May Yet Be Purchased Under The Plans or Programs
July 1, 2021 - July 31, 2021 100,782  $ 29.10  —  177,902,921
August 1, 2021 - August 31, 2021 99,720  28.09  —  177,902,921
September 1, 2021 - September 30, 2021 200,899  27.28  —  177,902,921
Total 401,401  $ 27.94  —   
1In March 2014, our Board of Directors approved an authorization to repurchase up to 300 million shares of our common stock. The authorization has no expiration date.
2Of the shares repurchased, 220,908 shares were acquired through the withholding of taxes on the vesting of restricted stock and performance shares or in respect of the exercise price of options.
3Of the shares repurchased, 180,493 shares were acquired through reimbursements from AT&T maintained Voluntary Employee Benefit Association (VEBA) trusts during the period.

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AT&T INC.
SEPTEMBER 30, 2021
Item 6. Exhibits

The following exhibits are filed or incorporated by reference as a part of this report:
Exhibit  
Number Exhibit Description
10.1
Amended and Restated Limited Liability Company Agreement of DIRECTV Entertainment Holdings LLC, dated July 31, 2021, among AT&T MVPD Holdings LLC, TPG VIII Merlin Investment Holdings, L.P. and DIRECTV Entertainment Holdings LLC (Exhibit 10.1 to Form 8-K filed on August 2, 2021)
10.2
10.3
10.4
10.5
10.6
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, 2021, formatted in Inline XBRL: (i) Consolidated Statements of Cash Flows, (ii) Consolidated Statements of Operations, (iii) Consolidated Statements of Comprehensive Income, (iv) Consolidated Balance Sheets, and (v) Notes to Consolidated Financial Statements, tagged as blocks of text and including detailed tags.
104
The cover page from the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 2021, (formatted as Inline XBRL and contained in Exhibit 101).
*
Certain schedules (or similar attachments) have been omitted pursuant to Item 601(a)(5) or Item 601(b)(2) of Regulation S-K. The registrant agrees to furnish copies of such schedules (or similar attachments) to the U.S. Securities and Exchange Commission upon request.

58


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

59
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