It has come to light that AT&T, a leading telecommunications company in the US, has amassed a significant amount of debt, totaling over $130 billion. This debt is larger than that of many countries.
Moreover, recent accounting changes have revealed that AT&T also has a substantial amount of “hidden debt.” This liability, worth billions of dollars, had not been previously disclosed.
One form of financing that AT&T has used is supply-chain finance, also known as “reverse factoring.” This method involves a financial institution paying a company’s suppliers earlier than expected, allowing the smaller suppliers to receive payment more quickly. However, the trade-off is that they receive a slightly lesser amount than what they are owed, while the financial institution later collects the full amount of the invoice from the larger company.
The use of supply-chain finance by companies has several benefits, such as increasing the time it takes to pay bills and improving balance sheets. However, the most concerning aspect is that accountants do not classify these facilities as debt, even though the company owes money to a financial institution. The lack of disclosure has made it difficult for investors to understand a company’s use of supply-chain finance.
Typically, supply-chain finance obligations are recorded under the “accounts payable” line of a company’s balance sheet. Unfortunately, these obligations are mixed with all other bills owed to suppliers, making it hard to determine how much is owed to financial institutions. In the past, there was no requirement to disclose the use of supply-chain finance.
Recently, the Financial Accounting Standards Board in the United States introduced new accounting rules mandating companies to disclose their use of “supplier finance.” Consequently, many U.S. companies revealed their supply-chain finance programs for the first time in their first-quarter results this year. Bloomberg analyzed the disclosures and discovered that $64 billion of “hidden leverage” was revealed across corporate America through these disclosures. They produced a chart of the largest users of supply-chain finance.
It has been noticed by FTAV that a well-known company is missing from the top five, despite having “payables finance” programs that extend to almost $13 billion.
Upon further investigation as to why this company doesn’t classify all of these facilities as supply-chain finance, it was discovered that there are critical limitations in the new FASB-mandated disclosures.
AT&T had over $2.5 billion in outstanding supplier financing as of March 31, which is more than 3.5 times the equivalent at Verizon. Additionally, they had even larger amounts outstanding under the “Direct Supplier Financing” and “Vendor Financing” programs, totaling $12.69 billion as of March 31, 2023, and $14.5 billion as of December 31, 2022.
AT&T books the majority of these liabilities through its accounts payable line, with a portion of the vendor financing being elsewhere due to its longer term. However, AT&T books repayments of the vendor financing through the financing activities section of its cash flow statements, along with debt and dividend payments.
AT&T Short (Sell)
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