AT&T INC. OVERVIEW
AT&T Inc. is referred to as "we," "AT&T" or the "Company" throughout this document, and the names of the particular subsidiaries and affiliates providing the services generally have been omitted.AT&T is a holding company whose subsidiaries and affiliates operate worldwide in the telecommunications, media and technology industries. You should read this discussion in conjunction with the consolidated financial statements and accompanying notes (Notes). We have three reportable segments: (1) Communications, (2) WarnerMedia and (3)Latin America . Our segment results presented in Note 4 and discussed below follow our internal management reporting. We analyze our segments based on segment operating contribution, which consists of operating income, excluding acquisition-related costs and other significant items and equity in net income (loss) of affiliates for investments managed within each segment. Percentage increases and decreases that are not considered meaningful are denoted with a dash. In the first quarter of 2021, we recast our segment results for all prior periods to reflect the following: •Communications segment results were recast to remove the held-for-sale businesses, principally Video, instead reporting those results in Corporate and Other. Additionally, we refined the allocation of shared infrastructure and deferred customer acquisition costs between Consumer Wireline and Video. •WarnerMedia segment results reflect our operation of WarnerMedia as one integrated organization. Second Quarter Six-Month Period Percent Percent 2021 2020 Change 2021 2020 Change Operating Revenues Communications$ 28,128 $ 26,505 6.1 %$ 56,306 $ 53,284 5.7 % WarnerMedia 8,791 6,728 30.7 17,317 14,493 19.5 Latin America 1,437 1,232 16.6 2,811 2,822 (0.4) Corporate 361 589 (38.7) 787 1,123 (29.9) Video 6,639 7,021 (5.4) 13,364 14,428 (7.4) Eliminations and consolidation (1,311) (1,125) (16.5) (2,601) (2,421) (7.4) AT&T Operating Revenues 44,045 40,950 7.6 87,984 83,729 5.1 Operating Contribution Communications 7,340 7,488 (2.0) 14,705 14,889 (1.2) WarnerMedia 1,739 1,912 (9.0) 3,769 3,926 (4.0) Latin America (152) (201) 24.4 (325) (385) 15.6 Segment Operating Contribution$ 8,927 $ 9,199 (3.0) %
The Communications segment provides services to businesses and consumers located in theU.S. and businesses globally. Our business strategies reflect bundled product offerings that cut across product lines and utilize shared assets. This segment contains the following business units: •Mobility provides nationwide wireless service and equipment. •Business Wireline provides advanced IP-based services, as well as traditional voice and data services and related equipment to business customers. •Consumer Wireline provides internet, including broadband fiber, and legacy telephony voice communications services to residential customers. The WarnerMedia segment develops, produces and distributes feature films, television, gaming and other content in various physical and digital formats globally. WarnerMedia content is distributed through basic networks, Direct-to-Consumer (DTC) or theatrical, TV content and games licensing. Segment results also includeXandr advertising andOtter Media Holdings . 35 --------------------------------------------------------------------------------AT&T INC. JUNE 30, 2021 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations- Continued Dollars in millions except per share amounts TheLatin America segment provides entertainment and wireless services outside of theU.S. This segment contains the following business units: •Vrio provides video services primarily to residential customers using satellite technology inLatin America and theCaribbean . •Mexico provides wireless service and equipment to customers inMexico .
RESULTS OF OPERATIONS
Consolidated Results Our financial results are summarized in the discussions
that follow. Additional analysis is discussed in our "Segment Results" section.
Certain prior period amounts have been reclassified to conform to the current
period's presentation.
Second Quarter Six-Month Period
Percent Percent
2021 2020 Change 2021 2020 Change
Operating Revenues
Service $ 38,956 $ 37,051 5.1 % $ 77,460 $ 75,934 2.0 %
Equipment 5,089 3,899 30.5 10,524 7,795 35.0
Total Operating Revenues 44,045 40,950 7.6 87,984 83,729 5.1
Operating expenses
Operations and support 35,015 30,133 16.2 65,484 58,204 12.5
Depreciation and amortization 5,761 7,285 (20.9) 11,570 14,507 (20.2)
Total Operating Expenses 40,776 37,418 9.0 77,054 72,711 6.0
Operating Income 3,269 3,532 (7.4) 10,930 11,018 (0.8)
Interest expense 1,684 2,041 (17.5) 3,554 4,059 (12.4)
Equity in net income (loss) of
affiliates 41 (10) - 93 (16) -
Other income (expense) - net 999 1,017 (1.8) 5,220 1,820 -
Income Before Income Taxes 2,625 2,498 5.1 12,689 8,763 44.8
Net Income 1,874 1,563 19.9 9,816 6,526 50.4
Net Income Attributable to AT&T 1,570 1,281 22.6 9,120 5,891 54.8
Net Income Attributable to Common
Stock $ 1,514 $ 1,229 23.2 % $ 9,014 $ 5,807 55.2 %
Operating revenues increased in the second quarter and in the first six months
of 2021. The revenue increase was driven by higher content, Direct-to-Consumer
(DTC) subscription and advertising revenues in our WarnerMedia segment; Mobility
equipment and service revenue growth and gains in broadband service in our
Communications segment; and growth in Mexico wireless operations and favorable
foreign exchange impacts. This increase was partially offset by declines in our
Video business and lower Business Wireline revenues resulting from higher demand
for pandemic-related connectivity in the prior-year. Operating revenues in 2021
were also impacted by the absence of revenue from our wireless and wireline
operations in Puerto Rico and the U.S. Virgin Islands which were sold in the
fourth quarter of 2020.
Operations and support expenses increased in the second quarter and in the first
six months of 2021. The expense increase was primarily due to a noncash
impairment charge of $4,555 resulting from our assessment of the recoverability
of the net assets of Vrio, including approximately $2,100 of historical currency
translation adjustments (see Note 8). The expense increase was also driven in
part by increased domestic wireless equipment expense from higher smartphone
sales, higher sports-related programming costs, and additional DTC programming
and marketing costs. Also contributing to the higher comparative expenses was
the first-quarter 2020 gain on spectrum transaction, which did not recur in
2021. Partially offsetting the expense increases were severance charges in the
prior-year quarter and lower Video costs in the current year.
Depreciation and amortization expense decreased in the second quarter and for the first six months of 2021.
36
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AT&T INC.
JUNE 30, 2021
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations- Continued
Dollars in millions except per share amounts
Amortization expense decreased $1,076 , or 50.2% in the second quarter and
$2,001 , or 47.6% for the first six months of 2021 primarily due to the lower
cost basis of long-lived assets resulting from Video impairments taken in the
fourth quarter of 2020 and ceasing amortization on held-for-sale Video assets in
2021.
Depreciation expense decreased $448 , or 8.7% in the second quarter and $936 , or
9.1% for the first six months of 2021 primarily due to the lower cost basis of
property, plant and equipment resulting from Video impairments taken in the
fourth quarter of 2020 and ceasing depreciation on held-for-sale Video assets in
2021.
Operating income decreased in the second quarter and in the first six months of
2021. Our operating income margin for the second quarter decreased from 8.6% in
2020 to 7.4% in 2021 and in the first six months decreased from 13.2% in 2020 to
12.4% in 2021.
Interest expense decreased in the second quarter and first six months of 2021,
primarily due to lower interest rates and capitalized interest associated with
the spectrum acquisitions.
Equity in net income of affiliates increased in the second quarter and for the
first six months of 2021, primarily due to improved performance from certain
WarnerMedia investments.
Other income (expense) - net decreased in the second quarter and increased for
the first six months of 2021. The decrease in the second quarter was driven by
the recognition of an actuarial loss of $197 , with no comparable interim
remeasurement in 2020, greater returns on benefit-related investments and gains
on assets sales in 2020, and fewer impairments taken on investments in 2021.
Partially offsetting these decreases were higher net pension and postretirement
benefit credits resulting from lower interest costs on the benefit obligation
and higher prior service credit amortization (see Note 6).
The increase for the first six months was primarily due to the recognition of an
actuarial gain of $2,647 , with no comparable interim remeasurement in 2020, and
an increase in net pension and postretirement benefit credits resulting from
lower interest costs on the benefit obligation and higher prior service credit
amortization. The increase also includes higher returns on benefit-related
investments for the six-month comparable period and fewer impairments taken in
2021.
Income taxes decreased in the second quarter and increased for the first six
months of 2021. The decrease in the second quarter was primarily driven by the
tax benefit resulting from the Vrio held-for-sale classification and tax
planning initiatives, including state apportionment analysis and filing
methodology offset by higher income before income tax. Our effective tax rate
was 28.6% in the second quarter of 2021, versus 37.5% in the comparable period
in the prior year. The effective tax rate in 2020 was higher primarily due to
our prior-year impairment of Vrio goodwill, which was not deductible for tax
purpose.
The increase for the first six months was primarily due to higher income before
income tax, offset by tax benefit resulting from the Vrio held-for-sale
classification, tax initiatives and audit settlements. Our effective tax rate
was 22.6% for the first six months of 2021, versus 25.5% for the comparable
period in the prior year.
COMMUNICATIONS SEGMENT Second Quarter Six-Month Period
Percent Percent
2021 2020 Change 2021 2020 Change
Segment Operating Revenues
Mobility $ 18,936 $ 17,149 10.4 % $ 37,970 $ 34,551 9.9 %
Business Wireline 6,052 6,305 (4.0) 12,098 12,571 (3.8)
Consumer Wireline 3,140 3,051 2.9 6,238 6,162 1.2
Total Segment Operating Revenues 28,128 26,505 6.1 56,306 53,284 5.7
Segment Operating Contribution
Mobility 6,002 5,805 3.4 12,004 11,593 3.5
Business Wireline 1,050 1,290 (18.6) 2,108 2,383 (11.5)
Consumer Wireline 288 393 (26.7) 593 913 (35.0)
Total Segment Operating Contribution
(2.0) %$ 14,705 $ 14,889 (1.2) % 37 --------------------------------------------------------------------------------AT&T INC. JUNE 30, 2021 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations- Continued Dollars in millions except per share amounts
Selected Subscribers and Connections
June 30,
(000s) 2021 2020
Mobility Subscribers 191,646 171,407
Total domestic broadband connections 15,481 15,201 Network access lines in service
6,691 7,878
U-verse VoIP connections 3,559 4,058
Operating revenues increased in the second quarter and for the first six months
of 2021, driven by increases in our Mobility and Consumer Wireline business
units, partially offset by decreases in our Business Wireline business unit. The
increases are primarily driven by wireless equipment revenue growth and wireless
service revenue improvements and gains in broadband service.
Operating contribution decreased in the second quarter and for the first six
months of 2021, reflecting lower operating contribution from our Business
Wireline and Consumer Wireline business units, largely offset by increases in
our Mobility business unit. Our Communications segment operating income margin
in the second quarter decreased from 28.3% in 2020 to 26.1% in 2021 and for the
first six months decreased from 27.9% in 2020 to 26.1% in 2021, reflecting, in
part, increased equipment sales with no margins.
Communications Business Unit Discussion
Mobility Results
Second Quarter Six-Month Period
Percent Percent
2021 2020 Change 2021 2020 Change
Operating revenues
Service $ 14,346 $ 13,669 5.0 % $ 28,394 $ 27,637 2.7 %
Equipment 4,590 3,480 31.9 9,576 6,914 38.5
Total Operating Revenues 18,936 17,149 10.4 37,970 34,551 9.9
Operating expenses
Operations and support 10,911 9,332 16.9 21,929 18,901 16.0
Depreciation and amortization 2,023 2,012 0.5 4,037 4,057 (0.5)
Total Operating Expenses 12,934 11,344 14.0 25,966 22,958 13.1
Operating Income 6,002 5,805 3.4 12,004 11,593 3.5
Equity in Net Income (Loss) of
Affiliates - - - - - -
Operating Contribution $ 6,002 $ 5,805 3.4 % $ 12,004 $ 11,593 3.5 %
38--------------------------------------------------------------------------------AT&T INC. JUNE 30, 2021 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations- Continued Dollars in millions except per share amounts The following tables highlight other key measures of performance for Mobility: Subscribers June 30, Percent (in 000s) 2021 2020 Change Postpaid 79,059 74,919 5.5 % Postpaid phone 65,503 62,882 4.2 Prepaid 18,681 18,008 3.7 Reseller 6,406 6,718 (4.6) Connected devices1 87,500 71,762 21.9 Total Mobility Subscribers 191,646 171,407 11.8 % 1Includes data-centric devices such as session-based tablets, monitoring devices and primarily wholesale automobile systems. Net Additions Second Quarter Six-Month Period Percent Percent (in 000s) 2021 2020 Change 2021 2020 Change Postpaid Phone Net Additions 789 (151) - % 1,384 12 - % Total Phone Net Additions 963 (16) - 1,765 104 - Postpaid2 1,156 (154) - 1,979 (127) - Prepaid 297 165 80.0 576 120 - Reseller (125) (58) - (193) (248) 22.2 Connected devices3 4,209 2,255 86.7 6,726 5,773 16.5 Mobility Net Subscriber 5,537 2,208 - % 9,088 5,518 64.7 % Additions1 Postpaid Churn4 0.87 % 1.05 % (18) BP 0.90 % 1.06 % (16) BP Postpaid Phone-Only Churn4 0.69 % 0.84 % (15) BP 0.73 % 0.85 % (12) BP 1Excludes migrations and acquisition-related activities during the period. 2In addition to postpaid phones, includes tablets and wearables and other. Tablet net adds (losses) were 13 and (159) for the three months endedJune 30, 2021 and 2020 and (50) and (426) for the six months endedJune 30, 2021 and 2020. Wearables and other net adds were 352 and 155 for the quarter endedJune 30, 2021 and 2020 and 643 and 287 for the six monthsJune 30, 2021 and 2020. 3Includes data-centric devices such as session-based tablets, monitoring devices and primarily wholesale automobile systems. Excludes postpaid tablets and other postpaid data devices. Wholesale connected car net adds were 2.5 million for the quarter endedJune 30, 2021 and 3.7 million for the six months endedJune 30, 2021 . 4Calculated by dividing the aggregate number of wireless subscribers who canceled service during a month divided by the total number of wireless subscribers at the beginning of that month. The churn rate for the period is equal to the average of the churn rate for each month of that period.
Service revenue increased in the second quarter and for the first six months of 2021. The increases are largely due to growth in our subscribers and slight improvements in second-quarter 2021 international roaming revenues.
ARPU
Average revenue per subscriber (ARPU) decreased in the second quarter and for the first six months of 2021. ARPU during 2021 reflects the impact of higher promotional discount amortization.
Churn
The effective management of subscriber churn is critical to our ability to
maximize revenue growth and to maintain and improve margins. Postpaid churn and
postpaid phone-only churn were lower in the first six months due to retention
offers, migrations to unlimited plans and continued network performance.
39
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AT&T INC.
JUNE 30, 2021
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations- Continued
Dollars in millions except per share amounts
Equipment revenue increased in the second quarter and for the first six months
of 2021, primarily driven by the sale of higher-priced smartphones and a mix of
higher-priced postpaid smartphones and higher sales of postpaid data devices.
Operations and support expenses increased in the second quarter and for the
first six months of 2021 largely driven by growth in equipment sales and
associated expenses, higher network and technology costs, increased commissions
and cost deferral amortization and content costs associated with bundling HBO
Max. Also contributing to higher comparative expenses were larger second-quarter
2020 gains on tower sales. The expense increase was offset by lower sales costs
and, for the six-month period, lower bad debt expense.
Depreciation expense increased in the second quarter and decreased for the first six months of 2021.
Operating income increased in the second quarter and for the first six months of 2021. Our Mobility operating income margin in the second quarter decreased from 33.9% in 2020 to 31.7% in 2021, and for the first six months decreased from 33.6% in 2020 to 31.6% in 2021. Our Mobility EBITDA margin in the second quarter decreased from 45.6% in 2020 to 42.4% in 2021, and for the first six months decreased from 45.3% in 2020 to 42.2% in 2021. EBITDA is defined as operating contribution excluding equity in net income (loss) of affiliates and depreciation and amortization. Subscriber Relationships As the wireless industry has matured, future wireless growth will depend on our ability to offer innovative services, plans and devices that take advantage of our 5G wireless network, which went nationwide inJuly 2020 , and to provide these services in bundled product offerings. Subscribers that purchase two or more services from us have significantly lower churn than subscribers that purchase only one service. To support higher mobile data usage, our priority is to best utilize a wireless network that has sufficient spectrum and capacity to support these innovations on as broad a geographic basis as possible. To attract and retain subscribers in a mature and highly competitive market, we have launched a wide variety of plans, including our FirstNet and prepaid products, and arrangements that bundle our video services. Virtually all of our postpaid smartphone subscribers are on plans that provide for service on multiple devices at reduced rates, and subscribers to such plans tend to have higher retention and lower churn rates. We offer unlimited data plans and subscribers to such plans also tend to have higher retention and lower churn rates. Our offerings are intended to encourage existing subscribers to upgrade their current services and/or add devices, attract subscribers from other providers and/or minimize subscriber churn. Business Wireline Results Second Quarter Six-Month Period Percent Percent 2021 2020 Change 2021 2020 Change Operating revenues Service$ 5,860 $ 6,101 (4.0) %$ 11,732 $ 12,192 (3.8) % Equipment 192 204 (5.9) 366 379 (3.4) Total Operating Revenues 6,052 6,305 (4.0) 12,098 12,571 (3.8) Operating expenses Operations and support 3,709 3,714 (0.1) 7,419 7,601 (2.4) Depreciation and amortization 1,293 1,301 (0.6) 2,571 2,587 (0.6) Total Operating Expenses 5,002 5,015 (0.3) 9,990 10,188 (1.9) Operating Income 1,050 1,290 (18.6) 2,108 2,383 (11.5) Equity in Net Income (Loss) of Affiliates - - - - - - Operating Contribution$ 1,050 $ 1,290 (18.6) %$ 2,108 $ 2,383 (11.5) % Service revenues decreased in the second quarter and for the first six months of 2021, driven by lower demand for legacy voice and data services in the current year and higher demand for pandemic-related connectivity in the prior-year. We expect this trend to continue for the remainder of the year. 40 --------------------------------------------------------------------------------AT&T INC. JUNE 30, 2021 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations- Continued Dollars in millions except per share amounts
Equipment revenues decreased in the second quarter and for the first six months of 2021, driven by declines in legacy and non-core services.
Operations and support expenses decreased in the second quarter and for the first six months of 2021, primarily due to our continued efforts to drive efficiencies in our network operations through automation and reductions in customer support expenses through digitization.
Depreciation expense decreased in the second quarter and for the first six months of 2021, primarily due to certain network assets becoming fully depreciated.
Operating income decreased in the second quarter and for the first six months of
2021. Our Business Wireline operating income margin in the second quarter
decreased from 20.5% in 2020 to 17.3% in 2021, and for the first six months
decreased from 19.0% in 2020 to 17.4% in 2021. Our Business Wireline EBITDA
margin in the second quarter decreased from 41.1% in 2020 to 38.7% in 2021, and
decreased from 39.5% in 2020 to 38.7% in 2021.
Consumer Wireline Results
Second Quarter Six-Month Period
Percent Percent
2021 2020 Change 2021 2020 Change
Operating revenues
Broadband $ 2,266 $ 2,092 8.3 % $ 4,471 $ 4,201 6.4 %
Legacy voice and data services 504 560 (10.0) 1,023 1,141 (10.3)
Other service and equipment 370 399 (7.3) 744 820 (9.3)
Total Operating Revenues 3,140 3,051 2.9 6,238 6,162 1.2
Operating expenses
Operations and support 2,083 1,928 8.0 4,114 3,807 8.1
Depreciation and amortization 769 730 5.3 1,531 1,442 6.2
Total Operating Expenses 2,852 2,658 7.3 5,645 5,249 7.5
Operating Income 288 393 (26.7) 593 913 (35.0)
Equity in Net Income (Loss) of
Affiliates - - - - - -
Operating Contribution $ 288 $ 393 (26.7) % $ 593 $ 913 (35.0) %
The following tables highlight other key measures of performance for Consumer
Wireline:
Connections
June 30, Percent
(in 000s) 2021 2020 Change
Broadband Connections
Total Broadband and DSL Connections 14,174 13,944 1.6 %
Fiber Broadband Connections 5,432 4,321 25.7
Voice Connections
Retail Consumer Switched Access Lines 2,631 3,096 (15.0)
U-verse Consumer VoIP Connections 2,965 3,480 (14.8)
Total Retail Consumer Voice Connections 5,596 6,576 (14.9) %
41--------------------------------------------------------------------------------AT&T INC. JUNE 30, 2021 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations- Continued Dollars in millions except per share amounts Net Additions Second Quarter Six-Month Period Percent Percent (in 000s) 2021 2020 Change 2021 2020 Change Broadband Net Additions Total Broadband and DSL Net Additions 28 (102) - % 74 (175) - % Fiber Broadband Net Additions 246 225 9.3 % 481 434
10.8 %
Broadband (high-speed internet) revenues increased in the second quarter and for the first six months of 2021, driven by an increase in fiber customers and pricing, which we expect to continue during the remainder of the year.
Legacy voice and data service revenues decreased in the second quarter and for the first six months of 2021, reflecting the continued decline in the number of customers. Other service and equipment revenues decreased in the second quarter and for the first six months of 2021, reflecting the continued decline in the number of VoIP customers, which we expect to continue. Operations and support expenses increased in the second quarter and for the first six months of 2021, primarily driven by content costs associated with plans bundling HBO Max and higher customer support costs. Partially offsetting these increases was lower cost deferral amortization, including the impact of the first-quarter 2021 updates to extend the economic life for our subscribers.
Depreciation expense increased in the second quarter and for the first six months of 2021, primarily due to ongoing capital spending for network upgrades and expansion.
Operating income decreased in the second quarter and for the first six months of
2021. Our Consumer Wireline operating income margin in the second quarter
decreased from 12.9% in 2020 to 9.2% in 2021, and for the first six months
decreased from 14.8% in 2020 to 9.5% in 2021. Our Consumer Wireline EBITDA
margin in the second quarter decreased from 36.8% in 2020 to 33.7% in 2021, and
for the first six months decreased from 38.2% in 2020 to 34.0% in 2021.
42
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AT&T INC.
JUNE 30, 2021
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations- Continued
Dollars in millions except per share amounts
WARNERMEDIA SEGMENT Second Quarter Six-Month Period
Percent Percent
2021 2020 Change 2021 2020 Change
Segment Operating Revenues
Subscription $ 3,961 $ 3,265 21.3 % $ 7,791 $ 6,665 16.9 %
Content and other 3,091 2,292 34.9 6,050 5,192 16.5
Advertising 1,739 1,171 48.5 3,476 2,636 31.9
Total Segment Operating Revenues 8,791 6,728 30.7 17,317 14,493 19.5
Segment Operating Expenses
Direct Costs
Programming 4,154 2,375 74.9 7,928 5,457 45.3
Marketing 983 545 80.4 1,833 1,095 67.4
Other 854 820 4.1 1,667 1,595 4.5
General and administrative 943 916 2.9 1,909 2,114 (9.7)
Depreciation and amortization 165 164 0.6 328 325 0.9
Total Operating Expenses 7,099 4,820 47.3 13,665 10,586 29.1
Operating Income 1,692 1,908 (11.3) 3,652 3,907 (6.5)
Equity in Net Income (Loss) of
Affiliates 47 4 - 117 19 -
Total Segment Operating
Contribution $ 1,739 $ 1,912 (9.0) % $ 3,769 $ 3,926 (4.0) %
Our WarnerMedia segment is operated as a content organization that distributes
across various platforms, including basic networks, Direct-to-Consumer (DTC) or
theatrical, TV content and games licensing.
On
Operating revenues increased in the second quarter and for the first six months of 2021, primarily due to higher subscription, advertising and content revenues, reflecting the partial recovery from prior-year impacts of the pandemic. Subscription revenues increased reflecting growth of DTC domestic HBO Max andHBO subscribers after the launch of HBO Max in the year-ago quarter, and, for the six-month period, theMay 2020 acquisition of the remaining interest inHBO Latin America Group . DTC subscription revenues were$1,996 and$3,806 , for the three- and six-month periods of 2021, versus$1,441 and$2,779 in the year-ago periods and include growth from intercompany relationships with the Communications segment. Advertising revenues improved when compared to the prior year resulting from the return in 2021 of major sporting events, such as the NBA in the second quarter and theNCAA Division I Men's Championship Basketball Tournament for the first six months. Revenue growth also was driven by strength in news.
Content and other revenues increased due to higher third-party TV production and theatrical.
Direct costs increased in the second quarter and for the first six months of 2021, driven by higher programming and marketing costs for HBO Max and higher film and programming, including sports costs, and marketing resulting from the return of major sporting events versus last year's second quarter that was impacted by sports cancellations resulting from the pandemic. Direct costs supporting DTC revenues were$1,894 and$3,579 for the three- and sixth-month periods of 2021, versus$1,361 and$2,272 in the year-ago periods. General and administrative expenses increased in the second quarter and decreased for the first six months of 2021. The increase for the quarter was primarily due to lower bad debt expense in the second of quarter 2020, which resulted from 43 --------------------------------------------------------------------------------AT&T INC. JUNE 30, 2021 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations- Continued Dollars in millions except per share amounts favorable collection experience that allowed us to reduce our pandemic-related bad debt estimates. The decrease for the first six months was primarily due to lower bad debt expense, and integration of support functions. Operating contribution decreased in the second quarter and for the first six months of 2021. The WarnerMedia segment operating income margin in the second quarter decreased from 28.4% in 2020 to 19.2% in 2021 and for the first six months decreased from 27.0% in 2020 to 21.1% in 2021. LATIN AMERICA SEGMENT Second Quarter Six-Month Period Percent Percent 2021 2020 Change 2021 2020 Change Segment Operating Revenues Vrio$ 749 $ 752 (0.4) %$ 1,492 $ 1,639 (9.0) % Mexico 688 480 43.3 1,319 1,183 11.5 Total Segment Operating Revenues 1,437 1,232 16.6
2,811 2,822 (0.4)
Segment Operating Contribution Vrio (23) (28) 17.9 (62) (67) 7.5 Mexico (129) (173) 25.4
(263) (318) 17.3
Total Segment Operating Contribution
Operating Results OurLatin America operations conduct business in their local currency and operating results are converted toU.S. dollars using average exchange rates during the period, subjecting results to foreign currency fluctuations. OnJuly 21, 2021 , we entered into an agreement to sell our Vrio business to Grupo Werthein (see Note 8). We applied held-for-sale accounting to Vrio as ofJune 30, 2021 and continue to present the Vrio results within theLatin America segment. Operating revenues increased in the second quarter and slightly decreased for the first six months of 2021. The increase in the second quarter reflects growth in theMexico wireless operations and favorable foreign exchange impacts, with improvements forMexico more than offsetting pressure in Vrio. The decrease for the first six months is primarily driven by foreign exchange impacts inArgentina for Vrio, partially offset by growth in ourMexico wireless operations and improvements inMexico's foreign exchange impacts. Operating contribution improved in the second quarter and for the first six months of 2021, reflecting foreign exchange rates. OurLatin America segment operating income margin in the second quarter increased from (17.0)% in 2020 to (10.7)% in 2021, and for the first six months increased from (14.1)% in 2020 to (11.5)% in 2021. 44 --------------------------------------------------------------------------------AT&T INC. JUNE 30, 2021 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations- Continued Dollars in millions except per share amounts Latin America Business Unit Discussion Vrio Results Second Quarter Six-Month Period Percent Percent 2021 2020 Change 2021 2020 Change Operating revenues$ 749 $ 752 (0.4) %$ 1,492 $ 1,639 (9.0) % Operating expenses Operations and support 660 661 (0.2) 1,321 1,444 (8.5) Depreciation and amortization 114 127 (10.2) 231 274 (15.7) Total Operating Expenses 774 788 (1.8) 1,552 1,718 (9.7) Operating Income (Loss) (25) (36) 30.6 (60) (79) 24.1 Equity in Net Income (Loss) of Affiliates 2 8 (75.0) (2) 12 - Operating Contribution$ (23) $ (28) 17.9 %$ (62) $ (67) 7.5 %
The following tables highlight other key measures of performance for Vrio:
June 30, Percent
(in 000s) 2021 2020 Change
Vrio Video Subscribers 10,320 10,664 (3.2) %
Second Quarter Six-Month Period
Percent Percent
(in 000s) 2021 2020 Change 2021 2020 Change
Vrio Video Net Additions (239) (312) 23.4 % (622) (426) (46.0) %
Operating revenues decreased in the second quarter and for the first six months of 2021, primarily driven by foreign exchange impacts.
Operations and support expenses decreased in the second quarter and for the
first six months of 2021, primarily driven by foreign exchange impacts.
Approximately 23% of Vrio expenses are
Depreciation expense decreased in the second quarter and for the first six months of 2021, primarily due to lower in-service assets and foreign exchange impacts. As a result of the held-for-sale accounting treatment, depreciation will no longer be recorded on Vrio assets beginningJuly 1, 2021 (see Note 8). Operating loss improved in the second quarter and for the first six months of 2021. Vrio operating income margin for the second quarter increased from (4.8)% in 2020 to (3.3)% in 2021, and for the first six months increased from (4.8)% in 2020 to (4.0)% in 2021. Vrio EBITDA margin in the second quarter decreased from 12.1% in 2020 to 11.9% in 2021, and for the first six months decreased from 11.9% in 2020 to 11.5% in 2021. 45 --------------------------------------------------------------------------------AT&T INC. JUNE 30, 2021 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations- Continued Dollars in millions except per share amounts Mexico Results Second Quarter Six-Month Period 2021 2020 Percent Change 2021 2020 Percent Change Operating revenues Service$ 447 $ 345 29.6 %$ 886 $ 812 9.1 % Equipment 241 135 78.5 433 371 16.7 Total Operating Revenues 688 480 43.3 1,319 1,183 11.5 Operating expenses Operations and support 667 538 24.0 1,287 1,252 2.8 Depreciation and amortization 150 115 30.4 295 249 18.5 Total Operating Expenses 817 653 25.1 1,582 1,501 5.4 Operating Income (Loss) (129) (173) 25.4 (263) (318) 17.3 Equity in Net Income (Loss) of Affiliates - - - - - - Operating Contribution$ (129) $ (173) 25.4 %$ (263) $ (318) 17.3 % The following tables highlight other key measures of performance forMexico : June 30, Percent (in 000s) 2021 2020 Change Mexico Wireless Subscribers Postpaid 4,745 4,771 (0.5) % Prepaid 13,810 12,777 8.1 Reseller 491 425 15.5 Total Mexico Wireless Subscribers 19,046 17,973 6.0 % Second Quarter Six-Month Period Percent Percent (in 000s) 2021 2020 Change 2021 2020 Change Mexico Wireless Net Additions Postpaid 20 (191) - % 49 (332) - % Prepaid 54 (915) - 52 (807) - Reseller (9) 21 - 2 53 (96.2) Total Mexico Wireless Net Additions 65 (1,085) - % 103 (1,086) - % Service revenues increased in the second quarter and for the first six months of 2021, reflecting improvements in foreign exchange and COVID-19 related store closures in the prior year. Equipment revenues increased in the second quarter and for the first six months of 2021, driven by higher equipment sales volumes and improvements in foreign exchange.
Operations and support expenses increased in the second quarter and for the
first six months of 2021, primarily due to an increase in customer growth,
higher sales volumes and foreign exchange impacts. Approximately 6% of
Depreciation and amortization expense increased in the second quarter and for
the first six months of 2021, reflecting higher in-service assets and, for the
second quarter, foreign exchange impacts.
46
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AT&T INC.
JUNE 30, 2021
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations- Continued
Dollars in millions except per share amounts
Operating loss improved in the second quarter and for the first six months of
2021. Our Mexico operating income margin in the second quarter increased from
(36.0)% in 2020 to (18.8)% in 2021, and for the first six months increased from
(26.9)% in 2020 to (19.9)% in 2021. Our Mexico EBITDA margin in the second
quarter increased from (12.1)% in 2020 to 3.1% in 2021, and for the first six
months increased from (5.8)% in 2020 to 2.4% in 2021.
SUPPLEMENTAL VIDEO INFORMATION
As a supplemental presentation, we are providing a view of our Video business
that was accounted for as held-for-sale and included in Corporate and Other. On
July 31, 2021 , we closed our transaction with TPG Capital (TPG) to form a new
company named DIRECTV (New DTV). We began accounting for our investment in New
DTV under the equity method, effective August 1, 2021 . The Video business
provides U.S. video operations, including over-the-top (OTT) services, and also
sells advertising on video distribution platforms.
Video Results
Second Quarter Six-Month Period
Percent Percent
2021 2020 Change 2021 2020 Change
Operating revenues
Service $ 6,607 6,979 (5.3) % $ 13,291 $ 14,376 (7.5) %
Equipment 32 42 (23.8) 73 52 40.4
Total Operating Revenues 6,639 7,021 (5.4) 13,364 14,428 (7.4)
Operating expenses
Operations and support 5,275 5,809 (9.2) 10,935 11,829 (7.6)
Depreciation and amortization1 148 593 (75.0) 312 1,184 (73.6)
Total Operating Expenses 5,423 6,402 (15.3) 11,247 13,013 (13.6)
Operating Income 1,216 619 96.4 2,117 1,415 49.6
Equity in Net Income (Loss) of
Affiliates - - - - - -
Operating Contribution $ 1,216 $ 619 96.4 % $ 2,117 $ 1,415 49.6 %
1Includes depreciation on assets that support AT&T U-verse products that provide both video and broadband services to customers over a shared network infrastructure.
The following tables highlight other key measures of performance for Video:
Connections
June 30, Percent
(in 000s) 2021 2020 Change
Premium TV Connections 15,412 17,712 (13.0) %
Net Additions
Second Quarter Six-Month Period
Percent Percent
(in 000s) 2021 2020 Change 2021 2020 Change
Premium TV Net Additions (473) (887) 46.7 % (1,093) (1,784) 38.7 %
47--------------------------------------------------------------------------------AT&T INC. JUNE 30, 2021 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations- Continued Dollars in millions except per share amounts
OTHER BUSINESS MATTERS
Spectrum Auction OnFebruary 24, 2021 , theFederal Communications Commission (FCC ) announced thatAT&T was the winning bidder for 1,621 C-Band licenses, comprised of a total of 80 MHz nationwide, including 40 MHz in Phase I. We provided to theFCC an upfront deposit of$550 in 2020 and cash payments totaling$22,856 in the first quarter of 2021, for a total of$23,406 to date. The licenses were granted by theFCC inJuly 2021 and remain subject to clearing. We estimate that we will be responsible for$955 of Incentive Payments upon clearing of Phase I spectrum, expected by the end of 2021 and$2,112 upon clearing of Phase II spectrum, expected by the end of 2023. Additionally, we will be responsible for approximately$1,000 of compensable relocation costs over the next several years as the spectrum is being cleared by satellite operators. (See Note 8) Video Business OnJuly 31, 2021 , we closed our transaction with TPG to form a new company named DIRECTV (New DTV), which is jointly governed by a board with representation from bothAT&T and TPG, with TPG having tie-breaking authority on certain key decisions. We began accounting for our investment in New DTV under the equity method, effectiveAugust 1, 2021 . After the close of the transaction, New DTV issued$6,200 of long-term debt onAugust 2, 2021 . In connection with the transaction, we contributed ourU.S. Video business unit to New DTV for$4,250 of junior preferred units, an additional distribution preference of$4,200 and a 70% economic interest in common units (collectively "equity considerations"). Upon close, we received approximately$7,130 in cash from New DTV ($7,600 , net of$470 cash on hand) and transferred$195 of DIRECTV debt. TPG contributed approximately$1,800 in cash to New DTV for$1,800 of senior preferred units and a 30% economic interest in common units. As part of this transaction, we agreed to pay net losses under the NFL SUNDAY TICKET contract up to a cap of$2,100 over the remaining period of the contract. (See Note 8) Due to the timing of the transaction, the separation of shared operations, and finalization of commercial and transition service arrangements, our assessment of the third-quarter 2021 financial impacts of the sale is ongoing. Under separate transition services agreements, we will provide New DTV certain operational support for up to three years. We also have entered into commercial arrangements, for up to five years, to provide network transport for U-verse products and sales services. WarnerMedia OnMay 17, 2021 , we entered into an agreement to combine our WarnerMedia segment, subject to certain exceptions, with a subsidiary of Discovery, Inc. (Discovery). The agreement is structured as aReverse Morris Trust transaction, under which WarnerMedia will be distributed toAT&T's shareholders via a pro rata dividend, an exchange offer, or a combination of both, followed by its combination with Discovery. The transaction is expected to be tax-free toAT&T andAT&T's shareholders.AT&T will receive approximately$43,000 (subject to adjustment) in a combination of cash, debt securities, and WarnerMedia's retention of certain debt; andAT&T's shareholders will receive stock representing approximately 71% of the new company; Discovery shareholders will own approximately 29% of the new company. The transaction is expected to close in mid-2022, subject to approval by Discovery shareholders and customary closing conditions, including receipt of regulatory approvals. No vote is required byAT&T shareholders. The merger agreement contains certain customary termination rights forAT&T and Discovery, including, without limitation, a right for either party to terminate if the transaction is not completed on or beforeJuly 15, 2023 . Termination under specified circumstances will require Discovery to payAT&T a termination fee of$720 orAT&T to pay Discovery a termination fee of$1,770 .Magallanes, Inc. (Spinco ), a subsidiary ofAT&T , entered into a$41,500 commitment letter (Bridge Loan ) onMay 17, 2021 . OnJune 4, 2021 ,Spinco entered into a$10,000 term loan credit agreement (Spinco Term Loan) and reduced the aggregate commitment amount under the Bridge Loan to$31,500 . There have been no draws on the Bridge Loan or the Spinco Term Loan. In the event advances are made under the Bridge Loan or Spinco Term Loan, those advances will be used bySpinco to finance a portion of the cash distribution toAT&T in connection with the transaction. Also, onJune 23, 2021 , we entered into an agreement to sell WarnerMedia's mobile games app studio,Playdemic Ltd. (Playdemic ), to Electronic Arts (EA) for approximately$1,400 in cash.Playdemic was excluded from the pending WarnerMedia/Discovery transaction. In the second quarter of 2021, we classifiedPlaydemic as held-for-sale and included$564 of goodwill in "Prepaid and other current assets" on our consolidated balance sheet atJune 30, 2021 . This transaction is subject to customary regulatory approvals and is expected to close by the end of 2021. 48 --------------------------------------------------------------------------------AT&T INC. JUNE 30, 2021 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations- Continued Dollars in millions except per share amounts Vrio OnJuly 21, 2021 , we entered into an agreement to sell ourLatin America video operations, Vrio, to Grupo Werthein. In the second quarter of 2021, we classified the Vrio disposal group as held-for-sale and reported the disposal group at fair value less cost to sell, which resulted in a noncash, pre-tax impairment charge of$4,555 , including approximately$2,100 related to accumulated foreign currency translation adjustments and$2,500 related to property, plant and equipment and intangible assets. Approximately$80 of the impairment was attributable to noncontrolling interest. AtJune 30, 2021 , our consolidated balance sheet included$883 of Vrio held-for-sale assets reported in "Prepaid and other current assets," primarily related to deferred customer contract acquisition and fulfillment costs, prepaids and other deferred charges, and$2,849 of related liabilities reported in "Accounts payable and accrued liabilities," primarily for reserves associated with accumulated foreign currency translation adjustments, which will reverse against accumulated other comprehensive income upon close of the transaction. The transaction is expected to close in early 2022, pending customary closing conditions. We will retain our 41.3% interest in SKY Mexico, a leading pay-TV provider inMexico .
COMPETITIVE AND REGULATORY ENVIRONMENT
OverviewAT&T subsidiaries operating withinthe United States are subject to federal and state regulatory authorities.AT&T subsidiaries operating outsidethe 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, over the ensuing two decades, theFCC and some state regulatory commissions have maintained or expanded certain regulatory requirements that were imposed decades ago on our traditional wireline subsidiaries when they operated as legal monopolies. Over the past several years, theFCC has pursued a more deregulatory agenda, eliminating a variety of antiquated and unnecessary regulations and streamlining its processes in a number of 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. Communications Segment Internet TheFCC currently classifies fixed and mobile consumer broadband services as information services, subject to light-touch regulation. The D.C. Circuit upheld theFCC 's current classification, although it remanded three discrete issues to theFCC for further consideration. These issues related to the effect of theFCC 's decision to classify broadband services as information services on public safety, the regulation of pole attachments, and universal service support for low-income consumers through the Lifeline program. Because no party soughtSupreme Court review of the D.C. Circuit's decision to uphold theFCC 's classification of broadband as an information service, that decision is final. InOctober 2020 , theFCC adopted an order addressing the three issues remanded by the D.C. Circuit for further consideration. After considering those issues, theFCC concluded they provided no grounds to depart from its determination that fixed and mobile consumer broadband services should be classified as information services. An appeal of theFCC 's remand order is pending.
Some states have adopted legislation or issued executive orders that would
reimpose net neutrality rules repealed by the
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. Wireless The industry-wide deployment of 5G technology, which is needed to satisfy extensive demand for video and internet access, will involve significant deployment of "small cell" equipment and therefore increase the need for local permitting processes that allow for the placement of small cell equipment on reasonable timelines and terms. Between 2018 and 2020, theFCC adopted multiple Orders streamlining federal wireless structure review processes and limiting state and local review processes, each with the potential to delay and impede deployment of infrastructure used to provide telecommunications and 49 --------------------------------------------------------------------------------AT&T INC. JUNE 30, 2021 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations- Continued Dollars in millions except per share amounts broadband services, including small cell equipment. The key elements of these orders have been affirmed on judicial review, although two Orders limiting state and local review are pending judicial review and/orFCC reconsideration.
LIQUIDITY AND CAPITAL RESOURCES
We had$11,869 in cash and cash equivalents available atJune 30, 2021 . Cash and cash equivalents included cash of$3,867 and money market funds and other cash equivalents of$8,002 . Approximately$2,559 of our cash and cash equivalents were held by our foreign entities in accounts predominantly outside of theU.S. and may be subject to restrictions on repatriation. Cash and cash equivalents increased$2,129 sinceDecember 31, 2020 . In the first six months of 2021, cash inflows were primarily provided by cash receipts from operations, including cash from our sale and transfer of our receivables to third parties, and issuance of long-term debt and commercial paper. These inflows were offset by cash used to meet the needs of the business, including, but not limited to, payment of operating expenses, spectrum acquisitions, funding capital expenditures and vendor financing payments, and dividends to stockholders. Our cash and debt management over the remainder of the year will be impacted by the WarnerMedia/Discovery transaction, including theIRS private letter ruling process. During this time, it is likely that our cash and cash equivalent balances will increase above historical thresholds, including cash received from our recently completedU.S. video business transaction. Cash Provided by or Used in Operating Activities During the first six months of 2021, cash provided by operating activities was$20,837 , compared to$20,925 for the first six months of 2020, impacted by content investment and the timing of working capital payments. Total cash paid for WarnerMedia's content investment was$9,769 in the first six months of 2021 ($2,550 higher than the prior-year comparable period). 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. In addition, for payments to a key supplier, as part of our working capital initiatives, we have arrangements that allow us to extend payment terms up to 90 days at an additional cost to us (referred to as supplier financing). The net impact of supplier financing was to decrease cash from operating activities$1,256 and$1,452 for the six months endedJune 30, 2021 and 2020, respectively. All supplier financing payments are due within one year. Cash Used in or Provided by Investing Activities For the first six months of 2021, cash used in investing activities totaled$30,631 , and consisted primarily of$7,992 for capital expenditures, and acquisitions of$23,169 , which include C-Band spectrum licenses won in Auction 107 and associated capitalized interest. 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 2021, vendor financing payments were$2,994 , compared to$1,354 for the first six months of 2020. Capital expenditures in the first six months of 2021 were$7,992 , and when including$2,994 cash paid for vendor financing, gross capital investment was$10,986 ($121 higher 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 2021, we placed$1,778 of equipment in service under vendor financing arrangements (compared to$1,680 in the prior-year comparable period) and$450 of assets related to the FirstNet build (compared to$640 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 six months of 2021, cash provided by financing activities totaled$11,900 and was comprised of debt issuances and repayments, payments of dividends, and vendor financing payments. 50 --------------------------------------------------------------------------------AT&T INC. JUNE 30, 2021 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations- Continued Dollars in millions except per share amounts
A tabular summary of our debt activity for the six months ended
First Second Six months ended
Quarter Quarter June 30, 2021
Net commercial paper borrowings $ 7,072 $ (513) $ 6,559
Issuance of Notes and Debentures1:
U.S. dollar denominated global notes $ 6,000 $ - $ 6,000
Initial average rate of 1.27%
Euro denominated global notes (converted to USD at
issuance) 1,461 - 1,461
Rate of 0.00%
2021 Syndicated Term Loan 7,350 - 7,350
BAML Bilateral Term Loan 2,000 - 2,000
Private financing 750 - 750
Other 636 - 636
Debt Issuances $ 18,197 $ - $ 18,197
Repayments:
Private financing $ (649) $ - $ (649)
Other (253) (253) (506)
Repayments of long-term debt $ (902) $ (253) $ (1,155)
1 Includes credit agreement borrowings.
The weighted average interest rate of our entire long-term debt portfolio,
including term loans and the impact of derivatives, was approximately 3.8% as of
June 30, 2021 and 4.1% as of December 31, 2020 . We had $171,445 of total notes
and debentures outstanding at June 30, 2021 , which included Euro, British pound
sterling, Canadian dollar, Mexican peso, Australian dollar, and Swiss franc
denominated debt that totaled approximately $43,932 .
At June 30, 2021 , we had $24,016 of debt maturing within one year, consisting of
$6,571 of commercial paper borrowings, $9,100 of bank borrowings, and $8,345 of
long-term debt issuances. Debt maturing within one year includes an accreting
zero-coupon note that may be redeemed each May until maturity in 2022. If the
remainder of the zero-coupon note (issued for principal of $500 in 2007 and
partially exchanged in the 2017 debt exchange offers) is held to maturity, the
redemption amount will be $592 .
For the first six months of 2021, we paid $2,994 of cash under our vendor
financing program, compared to $1,354 in the first six months of 2020. Total
vendor financing payables included in our June 30, 2021 consolidated balance
sheet were $2,948 , with $2,149 due within one year (in "Accounts payable and
accrued liabilities") and the remainder predominantly due within two to three
years (in "Other noncurrent liabilities").
At
We paid dividends on common and preferred shares of
Dividends on common stock declared by our Board of Directors totaled$1.04 per share in the first six months of 2021 and 2020. Our dividend policy considers the expectations and requirements of stockholders, capital funding requirements ofAT&T and long-term growth opportunities. We do not expect changes to our dividend policy prior to the close of the pending WarnerMedia and Discovery transaction, which is expected to close in mid-2022. After close and subject to AT&T Board approval, we anticipate an annual dividend level of approximately$8,000 to$9,000 per year. 51 --------------------------------------------------------------------------------AT&T INC. JUNE 30, 2021 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations- Continued Dollars in millions except per share amounts 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. InNovember 2020 , we amended one of our$7,500 revolving credit agreements by extending the termination date. In total, we have two$7,500 revolving credit agreements, totaling$15,000 , with one terminating onDecember 11, 2023 and the other terminating onNovember 17, 2025 . No amounts were outstanding under either agreement as ofJune 30, 2021 . OnJanuary 29, 2021 , we entered into a$14,700 Term Loan Credit Agreement (2021 Syndicated Term Loan), withBank of America, N.A ., as agent. OnMarch 23, 2021 , we borrowed$7,350 under the 2021 Syndicated Term Loan and the remaining$7,350 of lenders' commitments were terminated. As ofJune 30, 2021 ,$7,350 was outstanding and is due onMarch 22, 2022 . InMarch 2021 , we entered into and drew on a$2,000 term loan credit agreement (BAML Bilateral Term Loan) consisting of (i) a 0.75 year$1,000 facility dueDecember 31, 2021 (BAML Tranche A Facility), and (ii) a 1.75 year$1,000 facility dueDecember 31, 2022 (BAML Tranche B Facility), withBank of America, N.A ., as agent. AtJune 30, 2021 ,$2,000 was outstanding under these facilities.
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.
Each of our credit and loan agreements contains covenants that are customary for an issuer with an investment grade senior debt credit rating as well as a net debt-to-EBITDA financial ratio covenant requiringAT&T to maintain, as of the last day of each fiscal quarter, a ratio of not more than 4.0-to-1 for the 2021 Syndicated Term Loan, BAML Bilateral Term Loan, and revolving credit agreements and 3.5-to-1 for all other credit agreements. As ofJune 30, 2021 , we were in compliance with the covenants for our credit facilities. Collateral Arrangements Most of our counterparty collateral arrangements require cash collateral posting byAT&T only when derivative market values exceed certain thresholds. Under these arrangements, which cover over 95% of our approximate$43,000 derivative portfolio, counterparties are still required to post collateral. During the first six months of 2021, we deposited approximately$300 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) and stockholders' equity. Our capital structure does not include debt issued by our equity method investments. AtJune 30, 2021 , our debt ratio was 50.0%, compared to 46.6% atJune 30, 2020 and 46.7% atDecember 31, 2020 . Our net debt ratio was 46.7% atJune 30, 2021 , compared to 41.9% atJune 30, 2020 and 43.8% atDecember 31, 2020 . The debt ratio is affected by the same factors that affect total capital, and reflects our recent debt issuances and repayments and debt acquired in business combinations. OnJuly 31, 2021 , we closed our transaction with TPG to form a new company named DIRECTV, which is jointly governed by a board with representation from bothAT&T and TPG. Upon close, we received approximately$7,130 in cash from New DTV ($7,600 , net of$470 cash on hand) and transferred$195 of DIRECTV debt. (See Note 8) OnMay 17, 2021 , we entered into an agreement to combine our WarnerMedia segment with a subsidiary of Discovery. The transaction is anticipated to close in mid-2022, subject to approval by Discovery shareholders and customary closing conditions, including receipt of regulatory approvals. We expect to receive$43,000 (subject to adjustment) in a combination of cash, debt securities, and WarnerMedia's retention of certain debt. (See Note 8) OnMay 17, 2021 , in anticipation of the separation of WarnerMedia business from us,Spinco , a wholly owned subsidiary, entered into a$41,500 commitment letter (Bridge Loan ). OnJune 4, 2021 ,Spinco entered into a$10,000 term loan credit agreement (Spinco Term Loan) consisting of (i) an 18 month$3,000 tranche (Tranche 1 Facility), and (ii) a 3 year$7,000 tranche (Tranche 2 Facility), withJPMorgan Chase Bank, N.A ., as agent. In connection with the execution of the Spinco Term Loan, the aggregate commitment amount under the Bridge Loan was reduced to$31,500 . No amounts were outstanding as ofJune 30, 2021 . 52 --------------------------------------------------------------------------------AT&T INC. JUNE 30, 2021 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations- Continued Dollars in millions except per share amounts
On
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AT&T INC. JUNE 30, 2021
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