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Item 2. Management’s Discussion and Analysis

2024-10-29 compared with 2024-07-25 · 42 added, 44 removed, 78 unchanged (52% of the section changed)

1 unchanged sentence

Dollars in millions except per share amounts

reclassification decision in appeals consolidated in the U.S.

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 in an order adopted on April 25, 2024.

Multiple trade associations and other parties have challenged the FCC’s 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.

On August 1, 2024, the Sixth Circuit issued a stay of the FCC order pending review of the appeals, holding that broadband providers are likely to succeed on the merits.

The appeals are now being briefed, with oral argument scheduled for October 31, 2024.

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

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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 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.

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

The ACP ended earlier this year.

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

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

Several business and 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, which held oral argument on September 25, 2024.

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

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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

SEPTEMBER 30, 2024

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

1 unchanged sentence

LIQUIDITY AND CAPITAL RESOURCES

For six months ended June 30,

For nine months ended September 30,

Cash provided by operating activities

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(18,855) (9,284)

June 30, December 31,

September 30, December 31,

Cash and cash equivalents

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129,012 137,331

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

We had $2,586 in cash and cash equivalents available at September 30, 2024, decreasing $4,136 since December 31, 2023.

Cash and cash equivalents included cash of $1,062 and money market funds and other cash equivalents of $1,524.

Approximately $1,397 of our cash and cash equivalents were held by our foreign entities in accounts predominantly outside of the U.S.

Approximately $965 of our cash and cash equivalents were held in accounts outside of the U.S.

and may be subject to restrictions on repatriation.

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.

For the first nine 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 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.

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Cash Provided by Operating Activities

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.

During the first nine months of 2024, cash provided by operating activities was $26,875, compared to $26,936 for the first nine months of 2023, reflecting the timing of working capital associated with device payments, as well as the expansion of committed, cost-efficient receivable sales programs in 2024, offset by operational growth.

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, 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.

The net impact of direct supplier financing, including principal and interest payments, was to decrease cash from operating activities approximately $3,648 and $3,054 for the nine months ended September 30, 2024 and 2023, respectively.

All supplier financing payments are due within one year.

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Cash Used in Investing Activities

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 the first nine months of 2024, cash used in investing activities totaled $12,127 and consisted primarily of $13,420 (including interest during construction) for capital expenditures.

During the first nine months of 2024, we also paid $457 in cash on FirstNet sustainability payment.

During the first nine months of 2024, we received a return of investment of $928 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 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).

For the first nine months of 2024, vendor financing payments were $1,571, compared to $4,736 for the first nine months of 2023.

Capital expenditures for the first nine months of 2024 were $13,420, and when including $1,571 cash paid for vendor financing, capital investment was $14,991 ($2,997 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 2024, we placed $523 of productive assets (primarily software) in service under vendor

JUNE 30, 2024

During the first nine months of 2024, we placed $581 of productive assets (primarily software) in service under vendor

SEPTEMBER 30, 2024

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

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Cash Provided by or Used in Financing Activities

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:

For the first nine months of 2024, cash used in financing activities totaled $18,855 and was primarily comprised of debt repayments, payments of dividends and vendor financing payments.

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

Quarter Second

Quarter Six months ended

June 30, 2024

Quarter Third

Quarter Nine months ended

September 30, 2024

Net commercial paper borrowings $ 428 $ 262 $ (2,686) $ (1,996)

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Repayments of long-term debt $ (4,685) $ (2,225) $ (203) $ (7,113)

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.

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, 2024 and as of December 31, 2023.

We had $127,501 of total notes and debentures outstanding at September 30, 2024.

This also included Euro, British pound sterling, Canadian dollar, Swiss franc, and Australian dollar denominated debt that totaled approximately $33,477.

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.

At September 30, 2024, we had $2,637 of long-term debt maturing within one year.

We had no outstanding commercial paper or other short-term borrowings on September 30, 2024.

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

For the first nine months of 2024, we paid $1,571 of cash under our vendor financing program, compared to $4,736 in the prior-year comparable period.

Total vendor financing payables included in our September 30, 2024 consolidated balance sheet were $1,660, with $843 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, 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 $6,171 during the first nine months of 2024, compared with $6,116 for the first nine months of 2023.

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

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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 June 30, 2024.

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

SEPTEMBER 30, 2024

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

1 unchanged sentence

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 June 30, 2024, we were in compliance with the covenants for our credit facilities.

As of September 30, 2024, we were in compliance with the covenants for our credit facilities.

Collateral Arrangements

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Under these arrangements, which cover the majority of our approximate $35,400 derivative portfolio, counterparties are still required to post collateral.

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

During the first nine months of 2024, we posted $3 of cash collateral, on a net basis.

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

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

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.

At September 30, 2024, our debt ratio was 52.2%, compared to 53.5% at September 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