What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-10-31 compared with 2023-07-27 · 49 added, 42 removed, 102 unchanged (47% of the section changed)

19 unchanged sentences

An appeal of the FCC’s remand decision is pending.

Some states have adopted legislation or issued executive orders, including California, that would reimpose net neutrality rules similar to those repealed by the FCC.

On September 28, 2023, the FCC released a draft Notice of Proposed Rulemaking (NPRM) that was adopted at the FCC’s open meeting on October 19, 2023.

The NPRM proposes to reclassify broadband internet access service as a telecommunications service under Title II of the Communications Act of 1934 and reestablish conduct rules for internet service providers.

In the interim, some states have adopted legislation or issued executive orders, including California, that would reimpose net neutrality rules similar to those repealed by the FCC.

The California statute is now in effect, and challenges regarding other states’ net neutrality laws are pending.

We expect that going forward additional states may seek to impose net neutrality requirements.

It is unclear whether additional states may seek to impose net neutrality requirements now that the FCC has announced its intent to reimpose net neutrality rules and whether existing state net neutrality laws will continue to apply if the FCC does so.

On November 15, 2021, President Biden signed the Infrastructure Investment and Jobs Act (IIJA) into law.

7 unchanged sentences

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.

JUNE 30, 2023

SEPTEMBER 30, 2023

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

5 unchanged sentences

LIQUIDITY AND CAPITAL RESOURCES

Continuing operations for six months ended June 30,

Continuing operations for nine months ended September 30,

Cash provided by operating activities

4 unchanged sentences

(9,284) (54,403)

June 30, December 31,

September 30, December 31,

Cash and cash equivalents

1 unchanged sentence

138,003 135,890

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

We had $7,540 in cash and cash equivalents available at September 30, 2023, increasing $3,839 since December 31, 2022.

Cash and cash equivalents included cash of $1,423 and money market funds and other cash equivalents of $6,117.

1 unchanged sentence

and may be subject to restrictions on repatriation.

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.

For the first nine 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.

1 unchanged sentence

Cash Provided by Operating Activities from Continuing Operations

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).

During the first nine months of 2023, cash provided by operating activities was $26,936, compared to $25,464 for the first nine 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.

1 unchanged sentence

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 $2,100 and $916 for the six months ended June 30, 2023 and 2022, respectively.

The net impact of direct supplier financing was to decrease cash from operating activities $3,054 and $1,653 for the nine months ended September 30, 2023 and 2022, respectively.

All direct supplier financing payments are due within one year.

1 unchanged sentence

Cash Used in or Provided by Investing Activities from Continuing Operations

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

For the first nine months of 2023, cash used in investing activities totaled $13,786 and consisted primarily of $13,252 (including interest during construction) for capital expenditures.

During the first nine months of 2023, we received a return of investment of $1,447 from DIRECTV representing distributions in excess of cumulative equity in earnings from DIRECTV (see Note 10).

We paid $297 of spectrum relocation and clearing costs during the first nine months of 2023 and $1,923 in

SEPTEMBER 30, 2023

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

Dollars in millions except per share amounts

October 2023, respectively, which we report as “Acquisitions, net of cash acquired” on our consolidated statements of cash flows.

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 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).

For the first nine months of 2023, vendor financing payments were $4,736, compared to $4,237 for the first nine months of 2022.

Capital expenditures for the first nine months of 2023 were $13,252, and when including $4,736 cash paid for vendor financing, capital investment was $17,988 ($1,646 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 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).

During the first nine months of 2023, we placed $2,128 of equipment in service under vendor financing arrangements (compared to $3,916 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 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:

For the first nine months of 2023, cash used in financing activities totaled $9,284 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 nine months ended September 30, 2023 is as follows:

Quarter Second

Quarter Six months ended

June 30, 2023

Quarter Third

Quarter Nine months ended

September 30, 2023

Net commercial paper borrowings $ 2,341 $ 1,284 $ (112) $ 3,513

1 unchanged sentence

USD notes $ 1,747 $ 2,730 $ — $ 4,477

Euro notes 1,319 3,537 4,856

1,319 3,537 — 4,856

Other 1,050 — — 1,050

3 unchanged sentences

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

Euro notes (1,626) (473) (2,099)

(1,626) (473) (3,503) (5,602)

— — (450) (450)

2025 Term Loan (2,500) — — (2,500)

1 unchanged sentence

Repayments of long-term debt $ (5,945) $ (1,664) $ (4,280) $ (11,889)

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.

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

The weighted average interest rate of our long-term debt portfolio, including credit agreement borrowings and the impact of derivatives, was approximately 4.2% as of September 30, 2023 and 4.1% as of December 31, 2022.

We had $131,587 of total notes and debentures outstanding at September 30, 2023.

This also included Euro, British pound sterling, Canadian dollar, Swiss franc, and Australian dollar denominated debt that totaled approximately $33,340.

At September 30, 2023, we had $11,302 of debt maturing within one year, consisting of $4,575 of commercial paper borrowings and $6,727 of long-term debt issuances.

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

SEPTEMBER 30, 2023

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

Dollars in millions except per share amounts

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.

For the first nine months of 2023, we paid $4,736 of cash under our vendor financing program, compared to $4,237 in the prior-year comparable period.

Total vendor financing payables included in our September 30, 2023 consolidated balance sheet were $3,336, with $2,092 due within one year (in “Accounts payable and accrued liabilities”) and the remainder predominantly due within five years (in “Other noncurrent liabilities”).

At September 30, 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 $6,116 during the first nine months of 2023, compared with $7,845 for the first nine months of 2022.

Dividends on common stock declared by our Board of Directors totaled $0.8325 per share in the first nine 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.

12 unchanged sentences

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 June 30, 2023.

No amount was outstanding under the Revolving Credit Agreement as of September 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.

2 unchanged sentences

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.

As of September 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 $39,400 derivative portfolio, counterparties are still required to post collateral.

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

During the first nine months of 2023, we received approximately $200 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), redeemable noncontrolling interest and stockholders’ equity.

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

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

SEPTEMBER 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.

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

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

At September 30, 2023, our debt ratio was 53.5%, compared to 48.8% at September 30, 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.

CRITICAL ACCOUNTING ESTIMATES

Asset Valuations and Impairments As discussed in Note 1 of our 2022 Annual Report on Form 10-K, goodwill and other indefinite-lived assets are tested for impairment at least annually as of October 1, generally utilizing a quantitative approach.

While an interim quantitative impairment was not warranted in the third quarter of 2023, because of possible sustained higher discount rates and declines in the value of AT&T’s common stock, it is possible that the book values of one or more of our reporting units will exceed their respective fair values, which may result in the recognition of a noncash impairment of goodwill and/or indefinite-lived intangible assets in the fourth quarter of 2023 that could be material.

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