What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-05-02 compared with 2023-10-31 · 74 added, 98 removed, 53 unchanged (76% of the section changed)

1 unchanged sentence

Dollars in millions except per share amounts

Operating income improved in the first quarter of 2024.

Our Mexico operating income margin in the first quarter increased from (3.4)% in 2023 to 0.3% in 2024.

Our Mexico EBITDA margin in the first quarter increased from 16.4% in 2023 to 16.9% in 2024.

COMPETITIVE AND REGULATORY ENVIRONMENT

2 unchanged sentences

In the Telecommunications Act of 1996 (Telecom Act), Congress established a national policy framework intended to bring the benefits of competition and investment in advanced telecommunications facilities and services to all Americans by opening all telecommunications markets to competition and reducing or eliminating regulatory burdens that harm consumer welfare.

Nonetheless, over the ensuing two decades, the FCC and some state regulatory commissions have maintained or expanded certain regulatory requirements that were imposed decades ago on our traditional wireline subsidiaries when they operated as legal monopolies.

More recently, 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.

Nonetheless, since then, the FCC and some state regulatory commissions have maintained, re-imposed or expanded certain regulatory requirements that were imposed decades ago on our traditional wireline subsidiaries when they operated as legal monopolies.

Recently, the FCC’s regulatory approach has depended on control of the executive branch, eliminating a variety of antiquated and unnecessary regulations in a number of areas, while imposing or re-imposing regulations in other areas.

We continue to support regulatory and legislative measures and efforts, at both the state and federal levels, to reduce inappropriate regulatory burdens that inhibit our ability to compete effectively and offer needed services to our customers, including initiatives to transition services from traditional networks to all IP-based networks.

At the same time, we also seek to ensure that legacy regulations are not further extended to broadband or wireless services, which are subject to vigorous competition.

Communications Segment

Internet The FCC currently classifies fixed and mobile consumer broadband services as information services, subject to light-touch regulation.

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 decision is pending.

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.

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.

The legislation appropriates $65,000 to support broadband deployment and adoption, including $42,500 administered by the National Telecommunications and Information Agency (NTIA) in state grants for broadband deployment projects, $1,000 for middle mile broadband infrastructure, and $1,500 for digital equity programs.

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 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.

AT&T is a participating provider in the ACP program and is participating in deployment programs where appropriate.

Absent additional funding, at present pace the ACP fund will likely exhaust in 2024.

Privacy-related legislation continues to be adopted or considered in a number of jurisdictions, including at the federal level.

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.

SEPTEMBER 30, 2023

Until 2015, the FCC classified fixed and mobile consumer broadband internet access services as information services subject to minimal regulation.

In 2015, the FCC reclassified such services as telecommunications services subject to broader regulation by the FCC and imposed “net neutrality rules.” Since then, the FCC has twice reversed course, most recently again reclassifying such services as telecommunications services subject to broader regulation by the FCC on April 25, 2024, in a yet-to-be released order.

Since 2018, some states have adopted legislation or issued executive orders that established state net neutrality rules.

Suits were filed challenging two such laws in California and Vermont.

The California statute is now in effect.

The challenge to the Vermont statute was stayed pending resolution of a separate challenge to a New York statute raising similar preemption issues.

On April 26, 2024, the Second Circuit overturned a lower court’s decision that the New York statute was preempted, which could have the effect of restarting the Vermont litigation.

We expect additional states may seek to impose net neutrality and other requirements on broadband in the future.

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

The legislation appropriates $65,000 to support broadband deployment and adoption.

The National Telecommunications and Information Agency (NTIA) is responsible for distributing more than $48,000 of this funding, including $42,500 in state grants for broadband deployment projects in unserved and underserved areas through the Broadband, Equity, Access, and Deployment (BEAD) Programs.

NTIA and states are in the process of administering these grants.

Where appropriate, AT&T may apply for grants under this or other government infrastructure programs.

The IIJA also appropriated $14,200 for establishment of the Affordable Connectivity Program (ACP), an FCC-administered monthly, low-income broadband benefit program, replacing the Emergency Broadband Benefit program (established in December 2020 by the Consolidated Appropriations Act, 2021).

Qualifying customers can receive up to thirty dollars per month (or seventy-five dollars per month for those on Tribal lands) to assist with their internet bill.

AT&T is a participating provider in the ACP program.

Absent additional funding, on January 11, 2024 the FCC announced that it currently projects April 2024 to be the last month providers will be fully reimbursed for the ACP benefit provided to enrolled households and established February 7, 2024 as the last date for new enrollments into the program.

On March 4, 2024, the FCC issued a Public Notice confirming that April 2024 is the last fully funded month for the ACP benefit.

On November 15, 2023, the FCC adopted rules to “facilitate” equal access to broadband and prevent digital discrimination in broadband access.

The rules, which became effective March 22, 2024, prohibit covered entities from implementing policies or practices not justified by genuine issues of technical or economic feasibility, that differentially impact consumers’ access to broadband internet access service based on prohibited characteristics (including income level, race, and ethnicity) or that have such differential impact, whether intentional or not.

The rules broadly apply prospectively to all aspects of an ISP’s service that could impact a consumer’s ability to access broadband, including deployment, marketing, and credit checks, among other things.

We may be required to answer complaints alleging that the company has violated the FCC rules and those complaints may seek relief, including changes to our business practices or civil forfeitures that could result in significant costs or reputational harm.

It is currently uncertain how the FCC will implement and enforce these new rules.

Several business and

MARCH 31, 2024

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.

consumer-oriented associations have filed appeals challenging the rules and those appeals have been consolidated in the Eighth Circuit.

Privacy-related legislation continues to be adopted or considered in a number of jurisdictions.

During 2020-2021, we deployed 5G nationwide on “low band” spectrum on macro towers.

Executing on recent spectrum purchases, we announced ongoing construction and continuing deployment of 5G on 3.45 GHz and C-band spectrum in 2022 and beyond.

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

The federal government is developing a national spectrum strategy but its ability and intent to make sufficient spectrum available to the industry in needed timeframes remains uncertain.

In 2023, the federal government released a national spectrum strategy that focused on spectrum sharing but did not include specific timelines to make additional spectrum bands available for 5G and future generations of service.

As a result, the federal government’s ability and intent to make sufficient spectrum available to the industry in needed timeframes remains uncertain.

LIQUIDITY AND CAPITAL RESOURCES

Continuing operations for nine months ended September 30,

For three months ended March 31,

Cash provided by operating activities

4 unchanged sentences

(7,815) (3,711)

September 30, December 31,

March 31, December 31,

Cash and cash equivalents

1 unchanged sentence

132,764 137,331

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

We had $3,520 in cash and cash equivalents available at March 31, 2024, decreasing $3,202 since December 31, 2023.

Cash and cash equivalents included cash of $1,202 and money market funds and other cash equivalents of $2,318.

1 unchanged sentence

and may be subject to restrictions on repatriation.

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.

For the first three months of 2024, cash inflows were primarily provided by cash receipts from operations, including cash from our sale and transfer of our receivables to third parties, issuance of commercial paper 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, repayment of short-term borrowings and long-term debt, funding capital expenditures and vendor financing payments, and dividend payments to stockholders.

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

Cash Provided by Operating Activities from Continuing Operations

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).

Cash Provided by Operating Activities

During the first three months of 2024, cash provided by operating activities was $7,547, compared to $6,678 for the first three months of 2023, reflecting operational growth and timing of working capital, including the expansion of committed, cost-efficient receivable sales programs that were partially offset by higher device payments.

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 $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.

The net impact of direct supplier financing, including principal and interest payments, was to decrease cash from operating activities $1,584 and $432 for the three months ended March 31, 2024 and 2023, respectively.

All supplier financing payments are due within one year.

(See Note 10)

Cash Used in or Provided by Investing Activities from Continuing Operations

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

MARCH 31, 2024

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.

Cash Used in Investing Activities

For the first three months of 2024, cash used in investing activities totaled $2,961 and consisted primarily of $3,758 (including interest during construction) for capital expenditures.

During the first three months of 2024, we also paid $266 in cash on FirstNet sustainability payment.

During the first three months of 2024, we received a return of investment of $194 from DIRECTV representing distributions in excess of cumulative equity in earnings from DIRECTV (see Note 9).

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

For the first nine months of 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).

For the first three months of 2024, vendor financing payments were $841, compared to $2,113 for the first three months of 2023.

Capital expenditures for the first three months of 2024 were $3,758, and when including $841 cash paid for vendor financing, capital investment was $4,599 ($1,849 lower than the prior-year comparable period).

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

During the first nine months of 2023, we placed $2,128 of equipment in service under vendor financing arrangements (compared to $3,916 in the prior-year comparable period).

During the first three months of 2024, we placed $99 of equipment in service under vendor financing arrangements (compared to $1,021 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 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 Third

Quarter Nine months ended

September 30, 2023

Cash Provided by or Used in Financing Activities

For the first three months of 2024, cash used in financing activities totaled $7,815 and was comprised of debt issuances and repayments, payments of dividends and vendor financing payments.

A tabular summary of our debt activities for the three months ended March 31, 2024 is as follows:

Three months ended

March 31, 2024

Net commercial paper borrowings $ 428

Issuance of Notes and Debentures:

USD notes $ (2,300)

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)

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

— — (450) (450)

2025 Term Loan (2,500) — — (2,500)

Other (1,443) (441) (327) (2,211)

Repayments of long-term debt $ (4,685)

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.

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 March 31, 2024 and December 31, 2023.

We had $128,533 of total notes and debentures outstanding at March 31, 2024.

This also included Euro, British pound sterling, Canadian dollar, Swiss franc, and Australian dollar denominated debt that totaled approximately $32,738.

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

At March 31, 2024, we had $7,060 of debt maturing within one year, consisting of $2,430 of commercial paper borrowings and $4,630 of long-term debt issuances.

The weighted average interest rate on our outstanding short-term borrowings was approximately 5.5% as of March 31, 2024 and 6.0% as of December 31, 2023.

For the first three months of 2024, we paid $841 of cash under our vendor financing program, compared to $2,113 in the prior-year comparable period.

Total vendor financing payables included in our March 31, 2024 consolidated balance sheet were $2,021, with $1,215 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, 2024, we had approximately 144 million shares remaining from our share repurchase authorizations approved by the Board of Directors in 2014.

We paid dividends on common and preferred shares of $2,034 during the first three months of 2024, compared with $2,014 for the first three months of 2023.

MARCH 31, 2024

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

Dollars in millions except per share amounts

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.

Dividends on common stock declared by our Board of Directors totaled $0.2775 per share in the first three months of 2024 and 2023.

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

In April 2023, we expanded our September 2020 sale of Telco LLC cumulative preferred interests and issued an additional $5,250 of nonconvertible cumulative preferred interests (April preferreds).

The April preferreds pay an initial preferred distribution of 6.85% annually, subject to declaration, and subject to reset on November 1, 2027, and every seven years thereafter.

(See Note 12)

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.

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

2 unchanged sentences

We currently have one $12,000 revolving credit agreement that terminates on November 18, 2028 (Revolving Credit Agreement).

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

On March 30, 2023, the 2025 Term Loan was paid off and terminated.

No amount was outstanding under the Revolving Credit Agreement as of March 31, 2024.

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

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 September 30, 2023, we were in compliance with the covenants for our credit facilities.

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

As of March 31, 2024, 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 $37,600 derivative portfolio, counterparties are still required to post collateral.

During the first nine months of 2023, we received approximately $200 of cash collateral, on a net basis.

During the first three months of 2024, we received approximately $140 of cash collateral, on a net basis.

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

SEPTEMBER 30, 2023

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

Dollars in millions except per share amounts

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.

At March 31, 2024, our debt ratio was 52.4%, compared to 55.9% at March 31, 2023 and 53.5% at December 31, 2023.

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

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