What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-07-27 compared with 2023-05-01 · 55 added, 61 removed, 89 unchanged (57% of the section changed)

1 unchanged sentence

Dollars in millions except per share amounts

Equipment revenues increased in the first quarter of 2023 driven by higher equipment sales and favorable foreign exchange impacts.

Operations and support expenses increased in the first quarter of 2023 driven by unfavorable impact of foreign exchange, increased equipment costs resulting from higher sales, and increased bad debt expense.

Approximately 5% of Mexico expenses are U.S.

dollar based, with the remainder in the local currency.

Depreciation and amortization expense increased in the first quarter of 2023, driven by unfavorable impact of foreign exchange.

Operating income improved in the first quarter of 2023.

Our Mexico operating income margin in the first quarter increased from (14.8)% in 2022 to (3.4)% in 2023.

Our Mexico EBITDA margin in the first quarter increased from 8.6% in 2022 to 16.4% in 2023.

COMPETITIVE AND REGULATORY ENVIRONMENT

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The IIJA also appropriated $14,200 for establishment of the Affordable Connectivity Program (ACP), an FCC-administered monthly, low-income broadband benefit program.

The ACP provides qualifying customers up to thirty dollars per month (or seventy-five dollars per month for those on Tribal lands) to

MARCH 31, 2023

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

Dollars in millions except per share amounts

assist with their internet bill.

The ACP provides qualifying customers up to thirty dollars per month (or seventy-five dollars per month for those on Tribal lands) to assist with their internet bill.

These funds are in addition to or replacements for other significant pandemic-related funds designated or that could be used for broadband deployment and subscription.

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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.

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 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.

JUNE 30, 2023

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

Dollars in millions except per share amounts

Wireless During 2020-2021, we 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 and 3.45 GHz spectrum in 2022 and beyond.

Additional spectrum will be needed industrywide for 5G and future services.

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LIQUIDITY AND CAPITAL RESOURCES

Continuing operations for three months ended March 31,

Continuing operations for six months ended June 30,

Cash provided by operating activities

4 unchanged sentences

(1,530) (49,464)

March 31, December 31,

June 30, December 31,

Cash and cash equivalents

1 unchanged sentence

143,280 135,890

We had $2,821 in cash and cash equivalents available at March 31, 2023, decreasing $880 since December 31, 2022.

We had $9,528 in cash and cash equivalents available at June 30, 2023, increasing $5,827 since December 31, 2022.

Cash and cash equivalents included cash of $1,049 and money market funds and other cash equivalents of $8,479.

1 unchanged sentence

and may be subject to restrictions on repatriation.

For the first three months of 2023, cash inflows were primarily provided by cash receipts from operations, including cash from our sale and transfer of our receivables to third parties, issuance of commercial paper and long-term debt and distributions from DIRECTV.

These inflows were exceeded by cash used to meet the needs of the business, including, but not limited to, payment of operating expenses, funding capital expenditures and vendor financing payments, repayment of short-term borrowings and long-term debt, and dividend payments to stockholders.

For the first six months of 2023, cash inflows were primarily provided by cash receipts from operations, including cash from our sale and transfer of our receivables to third parties, issuance of commercial paper, long-term debt and cumulative preferred interests in subsidiaries and distributions from DIRECTV.

These inflows exceeded cash used to meet the needs of the business, including, but not limited to, payment of operating expenses, funding capital expenditures and vendor financing payments, repayment of short-term borrowings and long-term debt, repurchase of the Series A Cumulative Perpetual Preferred Membership Interests in AT&T Mobility II LLC (Mobility preferred interests) and dividend payments to stockholders.

We maintain availability under our credit facilities and our commercial paper program to meet our short-term liquidity requirements.

Cash Provided by Operating Activities from Continuing Operations

During the first three months of 2023, cash provided by operating activities was $6,678, compared to $7,630 for the first three months of 2022, reflecting timing of working capital, including fewer receivable sales.

MARCH 31, 2023

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

Dollars in millions except per share amounts

During the first six months of 2023, cash provided by operating activities was $16,600, compared to $15,370 for the first six months of 2022, reflecting operational growth and a focus to lower working capital programs, which resulted in lower device payments partially offset by lower receivable sales, net of remittances (see Note 8).

We actively manage the timing of our supplier payments for operating items to optimize the use of our cash.

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In addition, for payments to suppliers of handset inventory, as part of our working capital initiatives, we have arrangements that allow us to extend the stated payment terms by up to 90 days at an additional cost to us (referred to as direct supplier financing).

The net impact of direct supplier financing was to decrease cash from operating activities $432 and $95 for the three months ended March 31, 2023 and 2022, respectively.

The net impact of direct supplier financing was to decrease cash from operating activities $2,100 and $916 for the six months ended June 30, 2023 and 2022, respectively.

All direct supplier financing payments are due within one year.

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Cash Used in or Provided by Investing Activities from Continuing Operations

For the first three months of 2023, cash used in investing activities totaled $3,818 and consisted primarily of $4,335 (including interest during construction) for capital expenditures.

During the first three months of 2023, we received a return of investment of $774 from DIRECTV representing distributions in excess of cumulative equity in earnings from DIRECTV (see Note 10).

For the first six months of 2023, cash used in investing activities totaled $9,241 and consisted primarily of $8,605 (including interest during construction) for capital expenditures.

During the first six months of 2023, we received a return of investment of $974 from DIRECTV representing distributions in excess of cumulative equity in earnings from DIRECTV (see Note 10).

We expect to pay approximately $2,100 of spectrum clearing costs in the second half of 2023, which we report as “Acquisitions, net of cash acquired” on our consolidated statements of cash flows.

JUNE 30, 2023

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

Dollars in millions except per share amounts

For capital improvements, we have negotiated favorable vendor payment terms of 120 days or more (referred to as vendor financing) with some of our vendors, which are excluded from capital expenditures and reported as financing activities.

For the first three months of 2023, vendor financing payments were $2,113, compared to $1,566 for the first three months of 2022.

Capital expenditures for the first three months of 2023 were $4,335, and when including $2,113 cash paid for vendor financing, capital investment was $6,448 ($314 higher than the prior-year comparable period).

For the first six months of 2023, vendor financing payments were $3,756, compared to $3,337 for the first six months of 2022.

Capital expenditures for the first six months of 2023 were $8,605, and when including $3,756 cash paid for vendor financing, capital investment was $12,361 ($452 lower than the prior-year comparable period).

The vast majority of our capital expenditures are spent on our networks, including product development and related support systems.

During the first three months of 2023, we placed $1,021 of equipment in service under vendor financing arrangements (compared to $954 in the prior-year comparable period).

During the first six months of 2023, we placed $1,341 of equipment in service under vendor financing arrangements (compared to $2,012 in the prior-year comparable period).

The amount of capital expenditures is influenced by demand for services and products, capacity needs and network enhancements.

Cash Provided by or Used in Financing Activities from Continuing Operations

For the first three months of 2023, cash used in financing activities totaled $3,711 and was comprised of debt issuances and repayments, vendor financing payments, and payments of dividends.

A tabular summary of our debt activities for the three months ended March 31, 2023 is as follows:

Three months ended

March 31, 2023

For the first six months of 2023, cash used in financing activities totaled $1,530 and was comprised of debt issuances and repayments, issuances and repurchase of preferred interests in subsidiaries, payments of dividends and vendor financing payments.

A tabular summary of our debt activities for the six months ended June 30, 2023 is as follows:

Quarter Second

Quarter Six months ended

June 30, 2023

Net commercial paper borrowings $ 2,341 $ 1,284 $ 3,625

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Euro notes 1,319 3,537 4,856

Other 1,050 — 1,050

Debt Issuances $ 4,116 $ 6,267 $ 10,383

Private financing $ — $ (750) $ (750)

Repayment of other short-term borrowings $ — $ (750) $ (750)

USD notes $ (376) $ (750) $ (1,126)

3 unchanged sentences

Repayments of long-term debt $ (5,945) $ (1,664) $ (7,609)

The weighted average interest rate of our long-term debt portfolio, including the impact of derivatives, was approximately 4.1% as of March 31, 2023 and as of December 31, 2022.

We had $132,260 of total notes and debentures outstanding at March 31, 2023 .

The weighted average interest rate of our long-term debt portfolio, including credit agreement borrowings and the impact of derivatives, was approximately 4.1% as of June 30, 2023 and as of December 31, 2022.

We had $136,629 of total notes and debentures outstanding at June 30, 2023.

This also included Euro, British pound sterling, Canadian dollar, Australian dollar, and Swiss franc denominated debt that totaled approximately $38,261.

MARCH 31, 2023

At June 30, 2023, we had $15,268 of debt maturing within one year, consisting of $4,619 of commercial paper borrowings and $10,649 of long-term debt issuances.

The weighted average interest rate on our outstanding short-term borrowings was approximately 5.9% as of June 30, 2023 and 4.8% as of December 31, 2022.

For the first six months of 2023, we paid $3,756 of cash under our vendor financing program, compared to $3,337 in the prior-year comparable period.

Total vendor financing payables included in our June 30, 2023 consolidated balance sheet were $3,587, with $2,177 due within one year (in “Accounts payable and accrued liabilities”) and the remainder predominantly due within five years (in “Other noncurrent liabilities”).

JUNE 30, 2023

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

Dollars in millions except per share amounts

At March 31, 2023, we had $13,757 of debt maturing within one year, consisting of $3,258 of commercial paper borrowings, $750 of credit agreement borrowings and $9,749 of long-term debt issuances.

The weighted average interest rate on our outstanding short-term borrowings was approximately 5.7% as of March 31, 2023 and 4.8% as of December 31, 2022.

For the first three months of 2023, we paid $2,113 of cash under our vendor financing program, compared to $1,566 in the prior-year comparable period.

Total vendor financing payables included in our March 31, 2023 consolidated balance sheet were $5,003, with $3,531 due within one year (in “Accounts payable and accrued liabilities”) and the remainder predominantly due within five years (in “Other noncurrent liabilities”).

At March 31, 2023, we had approximately 144 million shares remaining from our share repurchase authorizations approved by the Board of Directors in 2014.

We paid dividends on common and preferred shares of $2,014 during the first three months of 2023, compared with $3,749 for the first three months of 2022.

Dividends on common stock declared by our Board of Directors totaled $0.2775 per share in the first three months of 2023 and 2022.

At June 30, 2023, we had approximately 144 million shares remaining from our share repurchase authorizations approved by the Board of Directors in 2014.

We paid dividends on common and preferred shares of $4,097 during the first six months of 2023, compared with $5,835 for the first six months of 2022.

Dividends on common stock declared by our Board of Directors totaled $0.5550 per share in the first six months of 2023 and 2022.

Our dividend policy considers the expectations and requirements of stockholders, capital funding requirements of AT&T and long-term growth opportunities.

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In April 2023, we also accepted the December 2022 put option notice from the AT&T pension trust and repurchased the remaining 213 million Mobility preferred interests for a purchase price, including accrued and unpaid distributions, of $5,414.

At March 31, 2023, the Mobility preferred interests had a redemption value of $5,320, with approximately $2,650 recorded in “Accounts payable and accrued liabilities” and $2,670 recorded in “Other noncurrent liabilities.” The repurchase was primarily funded with proceeds from the April 2023 issuances of Telco LLC preferred interests.

The Mobility preferred interests had a redemption value of $5,320, with approximately $2,650 removed from “Accounts payable and accrued liabilities” and $2,670 removed from “Other noncurrent liabilities.” The repurchase was primarily funded with proceeds from the April 2023 issuances of Telco LLC preferred interests.

(See Note 12)

In June 2023, we issued $2,000 of Series B Cumulative Perpetual Preferred Membership Interests in Mobility II LLC (Mobility noncontrolling interests), which pay cash distributions of 6.8% per annum, subject to declaration.

The Mobility noncontrolling interests are included in “Redeemable Noncontrolling Interest” on the consolidated balance sheets.

(See Note 12)

Credit Facilities

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We currently have one $12,000 revolving credit agreement that terminates on November 18, 2027 (Revolving Credit Agreement).

No amount was outstanding under the Revolving Credit Agreement as of March 31, 2023.

No amount was outstanding under the Revolving Credit Agreement as of June 30, 2023.

In November 2022, we entered into and drew on a $2,500 term loan agreement due February 16, 2025 (2025 Term Loan), with Mizuho Bank, Ltd., as agent.

1 unchanged sentence

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.

Our Revolving Credit Agreement includes a net debt-to-EBITDA financial ratio covenant requiring AT&T to maintain, as of the last day of each fiscal quarter, a ratio of not more than 3.75-to-1.

Other loan agreements include 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 March 31, 2023, we were in compliance with the covenants for our credit facilities.

MARCH 31, 2023

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

Dollars in millions except per share amounts

Each of our credit and loan agreements contains covenants that are customary for an issuer with an investment grade senior debt credit rating as well as a net debt-to-EBITDA financial ratio covenant requiring AT&T to maintain, as of the last day of each fiscal quarter, a ratio of not more than 3.75-to-1.

As of June 30, 2023, we were in compliance with the covenants for our credit facilities.

Collateral Arrangements

1 unchanged sentence

Under these arrangements, which cover the majority of our approximate $43,400 derivative portfolio, counterparties are still required to post collateral.

During the first three months of 2023, we received approximately $840 of cash collateral, on a net basis.

During the first six months of 2023, we received approximately $180 of cash collateral, on a net basis.

Cash postings under these arrangements vary with changes in credit ratings and netting agreements.

Our total capital consists of debt (long-term debt and debt maturing within one year) and stockholders’ equity.

Our total capital consists of debt (long-term debt and debt maturing within one year), redeemable noncontrolling interest and stockholders’ equity.

Our capital structure does not include debt issued by our equity method investments.

At March 31, 2023, our debt ratio was 55.9%, compared to 48.5% at March 31, 2022 and 56.1% at December 31, 2022.

The debt ratio is affected by the same factors that affect total capital, and reflects our recent debt issuances, repayments and reclassifications related to redemption of noncontrolling interests.

At June 30, 2023, our debt ratio was 54.8%, compared to 50.1% at June 30, 2022 and 56.1% at December 31, 2022.

The debt ratio is affected by

JUNE 30, 2023

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

Dollars in millions except per share amounts

the same factors that affect total capital, and reflects our recent debt issuances, repayments and reclassifications related to redemption of noncontrolling interests.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis