AT&T INC. 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations- Continued Dollars in millions except per share amounts 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 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. 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 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, 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. 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 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. 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. 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. 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. 38 AT&T INC. SEPTEMBER 30, 2024 Item 2. 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 nine months ended September 30, 2024 2023 Cash provided by operating activities $ 26,875 $ 26,936 Cash used in investing activities (12,127) (13,786) Cash used in financing activities (18,855) (9,284) September 30, December 31, 2024 2023 Cash and cash equivalents $ 2,586 $ 6,722 Total debt 129,012 137,331 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 $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 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. 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 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. Among other things, we seek to make payments on 90-day or greater terms, while providing the suppliers with access to bank facilities that permit earlier payments at their cost (referred to as supplier financing program). 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 $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. (See Note 10) Cash Used in Investing Activities 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 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 nine months of 2024, we placed $581 of productive assets (primarily software) in service under vendor 39 AT&T INC. SEPTEMBER 30, 2024 Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations- Continued Dollars in millions except per share amounts financing arrangements (compared to $2,128 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 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: First Quarter Second Quarter Third Quarter Nine months ended September 30, 2024 Net commercial paper borrowings $ 428 $ 262 $ (2,686) $ (1,996) Repayments USD notes $ (2,300) $ (1,615) $ — $ (3,915) EUR notes (2,181) (32) — (2,213) CAD notes — (442) — (442) Other (204) (136) (203) (543) 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 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 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. Credit Facilities The following summary of our various credit and loan agreements does not purport to be complete and is qualified in its entirety by reference to each agreement filed as exhibits to our Annual Report on Form 10-K. We use credit facilities as a tool in managing our liquidity status. 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, 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. 40 AT&T INC. SEPTEMBER 30, 2024 Item 2. 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 September 30, 2024, we were in compliance with the covenants for our credit facilities. Collateral Arrangements Most of our counterparty collateral arrangements require cash collateral posting by AT&T only when derivative market values exceed certain thresholds. Under these arrangements, which cover the majority of our approximate $35,400 derivative portfolio, counterparties are still required to post collateral. 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. (See Note 7) Other 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, 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.