(A) Issue identified in the scenario that is also facing the company
None of the cash flow issues facing Lawrence Sports is a significant problem for AT&T. Its is using cash, primarily for investment in its wireless service and the introduction of the Apple 3G phone, and increased dividends paid after repurchasing approximately 195 million shares. It also increased its investment in new construction by $2.26 billion. It shows no indication of problems in meeting its obligations. It is deliberately increasing investments in what amount to plant and equipment while repurchasing shares on the open market. This caused the shareholder equity to decrease $2.8 billion, but that was after an increase in treasury shares of $5.7 billion which effectively reduced reported stockholder equity. The repurchased shares produced a decrease in shares outstanding, but are available for reissue, which would alter stock equity.
(B) How the company responded to the issue
The underlying issue in the scenario is inability to collect receivables. At the same time the company has utilized it credit line to the full. The statements of AT&T indicate none of these problems. Receivables are up only slightly on higher revenues. The fact that the company was able to purchase several billion of its common stock in the open market is not indicative of a cash shortage.
Accounts payable at the end of the third quarter are actually down slightly from the levels of 2007 year-end as are accrued taxes. The only possibly troubling item is the $17.4 billion in debt maturing within one year as of September 30. In the current credit market refinancing that debt may pose a challenge. While AT&T will probably be somewhat less exposed to the current economic problems, it will be difficult to grow revenues or earnings in this environment. The offset to this problem is the nature of the company's businesses. It is likely its data services will conti...