What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2024-07-25 compared with 2024-05-02 · 58 added, 63 removed, 64 unchanged (65% 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

Overview AT&T subsidiaries operating within the United States are subject to federal and state regulatory authorities.

AT&T subsidiaries operating outside the United States are subject to the jurisdiction of national and supranational regulatory authorities in the markets where service is provided.

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

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

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

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

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

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

In 2015, the FCC reclassified such services as telecommunications services subject to broader regulation by 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.

reclassification decision in appeals consolidated in the U.S.

Court of Appeals for the Sixth Circuit.

The trade associations have petitioned the Sixth Circuit to stay the FCC’s order.

On July 12, 2024, the Sixth Circuit issued a temporary administrative stay of the FCC order until August 5, 2024, and requested additional briefing from the parties on the impact of the recent United States Supreme Court decision in Loper Bright Enterprises v.

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

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

3 unchanged sentences

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.

Where appropriate, AT&T has applied for, and in some cases has been awarded, and may continue to apply for grants under this or other government infrastructure programs.

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

AT&T participated in the ACP program.

On March 4, 2024, the FCC announced that absent additional funding from Congress, April 2024 would be the last fully funded month for the ACP benefit.

The ACP has now ended.

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

3 unchanged sentences

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

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

Several business and 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.

5 unchanged sentences

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

JUNE 30, 2024

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

Dollars in millions except per share amounts

LIQUIDITY AND CAPITAL RESOURCES

For three months ended March 31,

For six months ended June 30,

Cash provided by operating activities

4 unchanged sentences

(13,293) (1,530)

March 31, December 31,

June 30, December 31,

Cash and cash equivalents

1 unchanged sentence

130,604 137,331

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

We had $3,093 in cash and cash equivalents available at June 30, 2024, decreasing $3,629 since December 31, 2023.

Cash and cash equivalents included cash of $1,094 and money market funds and other cash equivalents of $1,999.

1 unchanged sentence

and may be subject to restrictions on repatriation.

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.

For the first six 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.

The cash generated from operating activities was used to repay short-term borrowings and long-term debt, funding capital expenditures and vendor financing payments, and dividend payments to stockholders.

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

Cash Provided by Operating Activities

During the first 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.

During the first six months of 2024, cash provided by operating activities was $16,640, compared to $16,600 for the first six months of 2023, reflecting operational growth and timing of working capital associated with device payments, as well as the first-quarter 2024 expansion of committed, cost-efficient receivable sales programs.

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, 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.

The net impact of direct supplier financing, including principal and interest payments, was to decrease cash from operating activities approximately $2,120 and $2,100 for the six months ended June 30, 2024 and 2023, respectively.

All supplier financing payments are due within one year.

(See Note 10)

MARCH 31, 2024

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

Dollars in millions except per share amounts

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 the first six months of 2024, cash used in investing activities totaled $6,977 and consisted primarily of $8,118 (including interest during construction) for capital expenditures.

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

During the first six months of 2024, we received a return of investment of $586 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 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).

For the first six months of 2024, vendor financing payments were $1,391, compared to $3,756 for the first six months of 2023.

Capital expenditures for the first six months of 2024 were $8,118, and when including $1,391 cash paid for vendor financing, capital investment was $9,509 ($2,852 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 2024, we placed $99 of equipment in service under vendor financing arrangements (compared to $1,021 in the prior-year comparable period).

During the first six months of 2024, we placed $523 of productive assets (primarily software) in service under vendor

JUNE 30, 2024

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

Dollars in millions except per share amounts

financing arrangements (compared to $1,341 in the prior-year comparable period).

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

Cash Provided by or Used in Financing Activities

For the first 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

For the first six months of 2024, cash used in financing activities totaled $13,293 and was comprised of debt issuances and repayments, payments of dividends and vendor financing payments.

A tabular summary of our debt activities for the six months ended June 30, 2024 is as follows:

Quarter Second

Quarter Six months ended

June 30, 2024

Net commercial paper borrowings $ 428 $ 262 $ 690

USD notes $ (2,300) $ (1,615) $ (3,915)

(2,181) (32) (2,213)

— (442) (442)

Other (204) (136) (340)

Repayments of long-term debt $ (4,685) $ (2,225) $ (6,910)

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.

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 June 30, 2024 and as of December 31, 2023.

We had $126,253 of total notes and debentures outstanding at June 30, 2024.

This also included Euro, British pound sterling, Canadian dollar, Swiss franc, and Australian dollar denominated debt that totaled approximately $32,113.

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

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

At June 30, 2024, we had $5,249 of debt maturing within one year, consisting of $2,693 of commercial paper borrowings and $2,556 of long-term debt issuances.

The weighted average interest rate on our outstanding short-term borrowings was approximately 5.5% as of June 30, 2024 and 6.0% as of December 31, 2023.

For the first six months of 2024, we paid $1,391 of cash under our vendor financing program, compared to $3,756 in the prior-year comparable period.

Total vendor financing payables included in our June 30, 2024 consolidated balance sheet were $1,827, with $883 due within one year (in “Accounts payable and accrued liabilities”) and the remainder predominantly due within five years (in “Other noncurrent liabilities”).

At June 30, 2024, we had approximately 144 million shares remaining from our share repurchase authorizations approved by the Board of Directors in 2014.

We paid dividends on common and preferred shares of $4,133 during the first six months of 2024, compared with $4,097 for the first six months of 2023.

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

3 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 March 31, 2024.

No amount was outstanding under the Revolving Credit Agreement as of June 30, 2024.

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

JUNE 30, 2024

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

Dollars in millions except per share amounts

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

As of March 31, 2024, we were in compliance with the covenants for our credit facilities.

As of June 30, 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 $37,100 derivative portfolio, counterparties are still required to post collateral.

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

During the first six months of 2024, we posted approximately $15 of cash collateral, on a net basis.

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

1 unchanged sentence

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

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.

At June 30, 2024, our debt ratio was 51.8%, compared to 54.8% at June 30, 2023 and 53.5% at December 31, 2023.

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

CRITICAL ACCOUNTING ESTIMATES

Asset Valuations and Impairments As discussed in Note 1 of our 2023 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 second quarter of 2024, because of the industry-wide secular decline of legacy voice, which has led to a faster-than-anticipated rate of decline for our legacy voice services in our Business Wireline reporting unit, and the potential of sustained higher discount rates, 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 third or fourth quarters of 2024 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