AT&T INC.
MARCH 31, 2021
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Dollars in millions except per share amounts
Our equipment installment and revolving receivable programs are discussed in detail below. The following table sets forth a summary of the receivables and accounts being serviced:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2021
|
|
December 31, 2020
|
|
|
Equipment
|
|
|
|
Equipment
|
|
|
|
|
Installment
|
|
Revolving
|
|
Installment
|
|
Revolving
|
|
Gross receivables:
|
$
|
3,857
|
|
|
$
|
3,718
|
|
|
$
|
5,565
|
|
|
$
|
3,909
|
|
|
Balance sheet classification
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
|
|
|
|
|
|
Notes receivable
|
1,846
|
|
|
—
|
|
|
2,716
|
|
|
—
|
|
|
Trade receivables
|
452
|
|
|
3,543
|
|
|
554
|
|
|
3,715
|
|
|
Other Assets
|
|
|
|
|
|
|
|
|
Noncurrent notes and trade receivables
|
1,559
|
|
|
175
|
|
|
2,295
|
|
|
194
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding portfolio of receivables derecognized from
our consolidated balance sheets
|
9,448
|
|
|
5,755
|
|
|
7,827
|
|
|
5,300
|
|
|
Cash proceeds received, net of remittances1
|
7,176
|
|
|
5,755
|
|
|
5,646
|
|
|
5,300
|
|
|
1Represents amounts to which financial institutions remain entitled, excluding the deferred purchase price.
|
Equipment Installment Receivables Program
We offer our customers the option to purchase certain wireless devices in installments over a specified period of time and, in many cases, once certain conditions are met, they may be eligible to trade in the original equipment for a new device and have the remaining unpaid balance paid or settled.
We maintain a program under which we transfer a portion of these receivables through our bankruptcy-remote subsidiary in exchange for cash and additional consideration upon settlement of the receivables, referred to as the deferred purchase price. In the event a customer trades in a device prior to the end of the installment contract period, we agree to make a payment to the financial institutions equal to any outstanding remaining installment receivable balance. Accordingly, we record a guarantee obligation for this estimated amount at the time the receivables are transferred.
The following table sets forth a summary of equipment installment receivables sold under this program during the three months ended March 31, 2021 and 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
|
|
|
March 31,
|
|
|
|
|
|
|
2021
|
|
2020
|
|
Gross receivables sold
|
|
|
|
|
$
|
3,935
|
|
|
$
|
2,367
|
|
|
Net receivables sold1
|
|
|
|
|
3,826
|
|
|
2,273
|
|
|
Cash proceeds received
|
|
|
|
|
3,519
|
|
|
1,950
|
|
|
Deferred purchase price recorded
|
|
|
|
|
414
|
|
|
353
|
|
|
Guarantee obligation recorded
|
|
|
|
|
146
|
|
|
44
|
|
|
1Receivables net of allowance, imputed interest and equipment trade-in right guarantees.
|
The deferred purchase price and guarantee obligation are initially recorded at estimated fair value and subsequently adjusted for changes in present value of expected cash flows. The estimation of their fair values is based on remaining installment payments expected to be collected and the expected timing and value of device trade-ins. The estimated value of the device trade-ins considers prices offered to us by independent third parties that contemplate changes in value after the launch of a device model. The fair value measurements used for the deferred purchase price and the guarantee obligation are considered Level 3 under the Fair Value Measurement and Disclosure framework (see Note 7).
AT&T INC.
MARCH 31, 2021
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Dollars in millions except per share amounts
The following table presents the previously transferred equipment installment receivables, which we repurchased in exchange for the associated deferred purchase price during the three months ended March 31, 2021 and 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
|
|
|
March 31,
|
|
|
|
|
|
|
2021
|
|
2020
|
|
Fair value of repurchased receivables
|
|
|
|
|
$
|
273
|
|
|
$
|
288
|
|
|
Carrying value of deferred purchase price
|
|
|
|
|
253
|
|
|
277
|
|
|
Gain on repurchases1
|
|
|
|
|
$
|
20
|
|
|
$
|
11
|
|
|
1These gains are included in "Selling, general and administrative" in the consolidated statements of income.
|
At March 31, 2021 and December 31, 2020, our deferred purchase price receivable was $2,283 and $1,991, respectively, of which $1,515 and $1,476 are included in “Prepaid and other current assets” on our consolidated balance sheets, with the remainder in “Other Assets.” The guarantee obligation at March 31, 2021 and December 31, 2020 was $285 and $228, respectively, of which $129 and $161 are included in “Accounts payable and accrued liabilities” on our consolidated balance sheets, with the remainder in “Other noncurrent liabilities.” Our maximum exposure to loss as a result of selling these equipment installment receivables is limited to the total amount of our deferred purchase price and guarantee obligation.
Revolving Receivables Program
We have a revolving agreement to transfer up to $6,000 of certain receivables through our bankruptcy-remote subsidiaries to various financial institutions on a recurring basis in exchange for cash equal to the gross receivables transferred. This agreement is subject to renewal on an annual basis and the transfer limit may be expanded from time to time. As customers pay their balances, we transfer additional receivables into the program, resulting in our gross receivables sold exceeding net cash flow impacts (e.g., collect and reinvest). The transferred receivables are fully guaranteed by our bankruptcy-remote subsidiaries, which hold additional receivables in the amount of $3,718 that are pledged as collateral under this agreement. The transfers are recorded at fair value of the proceeds received and obligations assumed less derecognized receivables. The obligation is subsequently adjusted for changes in estimated expected credit losses and interest rates. Our maximum exposure to loss related to these receivables transferred is limited to the amount outstanding.
The fair value measurement used for the obligation is considered Level 3 under the Fair Value Measurement and Disclosure framework (see Note 7).
The following table sets forth a summary of receivables sold:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
|
|
|
March 31,
|
|
|
|
|
|
|
2021
|
|
2020
|
|
Gross receivables sold/cash proceeds received1
|
|
|
|
|
$
|
5,204
|
|
|
$
|
4,222
|
|
|
Collections reinvested under revolving agreement
|
|
|
|
|
4,504
|
|
|
3,222
|
|
|
Collections not reinvested
|
|
|
|
|
245
|
|
|
—
|
|
|
Net cash proceeds received (remitted)
|
|
|
|
|
$
|
455
|
|
|
$
|
1,000
|
|
|
|
|
|
|
|
|
|
|
|
Net receivables sold2
|
|
|
|
|
$
|
5,125
|
|
|
$
|
4,138
|
|
|
Obligations recorded (reversed)
|
|
|
|
|
142
|
|
|
126
|
|
|
1Includes initial sales of receivables of $700 and $1,000 for the three months ended March 31, 2021 and 2020, respectively.
|
|
2Receivables net of allowance, return and incentive reserves and imputed interest.
|
AT&T INC.
MARCH 31, 2021
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Dollars in millions except per share amounts
NOTE 10. LEASES
We have operating and finance leases for certain facilities and equipment used in operations. Our leases generally have remaining lease terms of up to 15 years. Some of our real estate operating leases contain renewal options that may be exercised, and some of our leases include options to terminate the leases within one year.
We have recognized a right-of-use asset for both operating and finance leases, and an operating lease liability that represents the present value of our obligation to make payments over the lease term. The present value of the lease payments is calculated using the incremental borrowing rate for operating and finance leases, which was determined using a portfolio approach based on the rate of interest that we would have to pay to borrow an amount equal to the lease payments on a collateralized basis over a similar term. We use the unsecured borrowing rate and risk-adjust that rate to approximate a collateralized rate in the currency of the lease, which will be updated on a quarterly basis for measurement of new lease liabilities.
The components of lease expense were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
|
March 31,
|
|
|
2021
|
|
2020
|
|
Operating lease cost
|
$
|
1,458
|
|
|
$
|
1,377
|
|
|
|
|
|
|
|
Finance lease cost:
|
|
|
|
|
Amortization of right-of-use assets
|
$
|
69
|
|
|
$
|
67
|
|
|
Interest on lease obligation
|
39
|
|
|
41
|
|
|
Total finance lease cost
|
$
|
108
|
|
|
$
|
108
|
|
The following table provides supplemental cash flows information related to leases:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
|
|
March 31,
|
|
|
|
2021
|
|
2020
|
|
Cash Flows from Operating Activities
|
|
|
|
|
|
Cash paid for amounts included in lease obligations:
|
|
|
|
|
Operating cash flows for operating leases
|
|
$
|
1,254
|
|
|
$
|
1,217
|
|
|
Supplemental Lease Cash Flow Disclosures
|
|
|
|
|
Operating lease right-of-use assets obtained in exchange for new
operating lease obligations
|
1,050
|
|
|
1,013
|
|
AT&T INC.
MARCH 31, 2021
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Dollars in millions except per share amounts
The following tables set forth supplemental balance sheet information related to leases:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
2021
|
|
December 31,
2020
|
|
Operating Leases
|
|
|
|
|
Operating lease right-of-use assets
|
$
|
24,415
|
|
|
$
|
24,714
|
|
|
|
|
|
|
|
Accounts payable and accrued liabilities
|
$
|
3,564
|
|
|
$
|
3,537
|
|
|
Operating lease obligation
|
21,766
|
|
|
22,202
|
|
|
Total operating lease obligation
|
$
|
25,330
|
|
|
$
|
25,739
|
|
|
Finance Leases
|
|
|
|
|
Property, plant and equipment, at cost
|
$
|
3,414
|
|
|
$
|
3,586
|
|
|
Accumulated depreciation and amortization
|
(1,308)
|
|
|
(1,361)
|
|
|
Property, plant and equipment, net
|
$
|
2,106
|
|
|
$
|
2,225
|
|
|
|
|
|
|
|
Current portion of long-term debt
|
$
|
180
|
|
|
$
|
189
|
|
|
Long-term debt
|
1,747
|
|
|
1,847
|
|
|
Total finance lease obligation
|
$
|
1,927
|
|
|
$
|
2,036
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
2021
|
|
2020
|
|
Weighted-Average Remaining Lease Term (years)
|
|
|
|
|
Operating leases
|
8.4
|
|
8.4
|
|
Finance leases
|
9.8
|
|
10.7
|
|
|
|
|
|
|
Weighted-Average Discount Rate
|
|
|
|
|
Operating leases
|
4.0
|
%
|
|
4.2
|
%
|
|
Finance leases
|
8.0
|
%
|
|
8.4
|
%
|
The following table provides the expected future minimum maturities of lease obligations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At March 31, 2021
|
Operating
|
|
Finance
|
|
|
Leases
|
|
Leases
|
|
Remainder of 2021
|
$
|
3,631
|
|
|
$
|
242
|
|
|
2022
|
4,647
|
|
|
314
|
|
|
2023
|
4,212
|
|
|
291
|
|
|
2024
|
3,671
|
|
|
272
|
|
|
2025
|
3,015
|
|
|
269
|
|
|
Thereafter
|
11,668
|
|
|
1,587
|
|
|
Total lease payments
|
30,844
|
|
|
2,975
|
|
|
Less: imputed interest
|
(5,514)
|
|
|
(1,048)
|
|
|
Total
|
$
|
25,330
|
|
|
$
|
1,927
|
|
AT&T INC.
MARCH 31, 2021
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Dollars in millions except per share amounts
NOTE 11. ADDITIONAL FINANCIAL INFORMATION
Cash and Cash Flows
We typically maintain our restricted cash balances for purchases and sales of certain investment securities and funding of certain deferred compensation benefit payments.
The following table summarizes cash and cash equivalents and restricted cash balances contained on our consolidated balance sheets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
December 31,
|
|
|
2021
|
|
2020
|
|
2020
|
|
2019
|
|
Cash and cash equivalents
|
$
|
11,342
|
|
|
$
|
9,955
|
|
|
$
|
9,740
|
|
|
$
|
12,130
|
|
|
Restricted cash in Prepaid and other current assets
|
2
|
|
|
8
|
|
|
9
|
|
|
69
|
|
|
Restricted cash in Other Assets
|
84
|
|
|
77
|
|
|
121
|
|
|
96
|
|
|
Cash and Cash Equivalents and Restricted Cash
|
$
|
11,428
|
|
|
$
|
10,040
|
|
|
$
|
9,870
|
|
|
$
|
12,295
|
|
The following table summarizes cash paid during the periods for interest, income taxes and spectrum:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated Statements of Cash Flows
|
Three months ended
|
|
|
March 31,
|
|
Cash paid (received) during the period for:
|
2021
|
|
2020
|
|
Interest
|
$
|
2,134
|
|
|
$
|
2,376
|
|
|
Income taxes, net of refunds
|
5
|
|
|
(354)
|
|
|
Spectrum acquisitions
|
22,876
|
|
|
97
|
|
Noncash Investing and Financing Activities In connection with capital improvements and the acquisition of other productive assets, we negotiate favorable payment terms (referred to as vendor financing), which are reported as financing activities in our statements of cash flows when paid. For the three months ended March 31, 2021 and 2020, we recorded vendor financing commitments related to capital investments of approximately $998 and $449.
Total vendor financing payables included in our March 31, 2021 consolidated balance sheet were approximately $3,552, with $2,883 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&T INC.
MARCH 31, 2021
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Dollars in millions except per share amounts
Debt Transactions At March 31, 2021, our debt obligations totaled $180,199. Our debt activity during the three months ended March 31, 2021 primarily consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net commercial paper borrowings
|
$
|
7,072
|
|
|
Issuance of Notes and Debentures1:
|
|
|
U.S. dollar denominated global notes
|
$
|
6,000
|
|
|
Initial average rate of 1.27%
|
|
|
Euro denominated global notes
|
1,461
|
|
|
Rate of 0.00%
|
|
|
2021 Syndicated Term Loan
|
7,350
|
|
|
BAML Bilateral Term Loan
|
2,000
|
|
|
Private financing
|
750
|
|
|
Other
|
636
|
|
|
Debt Issuances
|
$
|
18,197
|
|
|
|
|
|
|
|
|
Repayments:
|
|
|
Private financing
|
$
|
(649)
|
|
|
Other
|
(253)
|
|
|
Repayments of long-term debt
|
$
|
(902)
|
|
1 Includes credit agreement borrowings.
Credit Facilities
On January 29, 2021, we entered into a $14,700 Term Loan Credit Agreement (2021 Syndicated Term Loan), with Bank of America, N.A., as agent. On March 23, 2021, we borrowed $7,350 under the 2021 Syndicated Term Loan and the remaining $7,350 of lenders’ commitments were terminated. As of March 31, 2021, $7,350 was outstanding and is due on March 22, 2022.
In March 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 due December 31, 2021 (BAML Tranche A Facility), and (ii) a 1.75 year $1,000 facility due December 31, 2022 (BAML Tranche B Facility), with Bank of America, N.A., as agent. At March 31, 2021, $2,000 was outstanding under these facilities.
AT&T INC.
MARCH 31, 2021
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Dollars in millions except per share amounts
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.
We have recast our segment results for all prior periods to reflect the following:
Communications segment results were recast to remove the Video and Government Solutions held-for-sale businesses, instead reporting those results in Corporate and Other, consistent with our historical practice. 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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percent
|
|
|
|
|
|
|
|
|
|
2021
|
|
2020
|
|
Change
|
|
Operating Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Communications
|
|
|
|
|
|
|
|
$
|
28,178
|
|
|
$
|
26,779
|
|
|
5.2
|
%
|
|
WarnerMedia
|
|
|
|
|
|
|
|
8,526
|
|
|
7,765
|
|
|
9.8
|
|
|
Latin America
|
|
|
|
|
|
|
|
1,374
|
|
|
1,590
|
|
|
(13.6)
|
|
|
Corporate
|
|
|
|
|
|
|
|
426
|
|
|
534
|
|
|
(20.2)
|
|
|
Video
|
|
|
|
|
|
|
|
6,725
|
|
|
7,407
|
|
|
(9.2)
|
|
|
Eliminations and consolidation
|
|
|
|
|
|
|
|
(1,290)
|
|
|
(1,296)
|
|
|
0.5
|
|
|
AT&T Operating Revenues
|
|
|
|
|
|
|
|
43,939
|
|
|
42,779
|
|
|
2.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Contribution
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Communications
|
|
|
|
|
|
|
|
7,365
|
|
|
7,401
|
|
|
(0.5)
|
|
|
WarnerMedia
|
|
|
|
|
|
|
|
2,030
|
|
|
2,014
|
|
|
0.8
|
|
|
Latin America
|
|
|
|
|
|
|
|
(173)
|
|
|
(184)
|
|
|
6.0
|
|
|
Segment Operating Contribution
|
|
|
|
|
|
|
|
$
|
9,222
|
|
|
$
|
9,231
|
|
|
(0.1)
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Communications segment provides services to businesses and consumers located in the U.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 include Xandr advertising, Otter Media Holdings and eliminations of intercompany transactions within WarnerMedia.
AT&T INC.
MARCH 31, 2021
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations- Continued
Dollars in millions except per share amounts
The Latin America segment provides entertainment and wireless services outside of the U.S. This segment contains the following business units:
•Vrio provides video services primarily to residential customers using satellite technology in Latin America and the Caribbean.
•Mexico provides wireless service and equipment to customers in Mexico.
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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percent
|
|
|
|
|
|
|
|
|
|
2021
|
|
2020
|
|
Change
|
|
Operating Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service
|
|
|
|
|
|
|
|
$
|
38,504
|
|
|
$
|
38,883
|
|
|
(1.0)
|
%
|
|
Equipment
|
|
|
|
|
|
|
|
5,435
|
|
|
3,896
|
|
|
39.5
|
|
|
Total Operating Revenues
|
|
|
|
|
|
|
|
43,939
|
|
|
42,779
|
|
|
2.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operations and support
|
|
|
|
|
|
|
|
30,469
|
|
|
28,071
|
|
|
8.5
|
|
|
Depreciation and amortization
|
|
|
|
|
|
|
|
5,809
|
|
|
7,222
|
|
|
(19.6)
|
|
|
Total Operating Expenses
|
|
|
|
|
|
|
|
36,278
|
|
|
35,293
|
|
|
2.8
|
|
|
Operating Income
|
|
|
|
|
|
|
|
7,661
|
|
|
7,486
|
|
|
2.3
|
|
|
Interest expense
|
|
|
|
|
|
|
|
1,870
|
|
|
2,018
|
|
|
(7.3)
|
|
|
Equity in net income (loss) of affiliates
|
|
|
|
|
|
|
|
52
|
|
|
(6)
|
|
|
—
|
|
|
Other income (expense) - net
|
|
|
|
|
|
|
|
4,221
|
|
|
803
|
|
|
—
|
|
|
Income Before Income Taxes
|
|
|
|
|
|
|
|
10,064
|
|
|
6,265
|
|
|
60.6
|
|
|
Net Income
|
|
|
|
|
|
|
|
7,942
|
|
|
4,963
|
|
|
60.0
|
|
|
Net Income Attributable to AT&T
|
|
|
|
|
|
|
|
7,550
|
|
|
4,610
|
|
|
63.8
|
|
|
Net Income Attributable to Common Stock
|
|
|
|
|
|
|
|
$
|
7,500
|
|
|
$
|
4,578
|
|
|
63.8
|
%
|
Operating revenues increased in the first quarter of 2021. The revenue increase was driven by higher Mobility revenues in our Communications segment, primarily from equipment sales, and growth in DTC subscription and advertising revenues in our WarnerMedia segment. This increase was partially offset by declines in Video, lower Business Wireline services in our Communications segment and foreign exchange pressure in our Latin America segment. Operating revenues were also impacted by the fourth-quarter 2020 sale of our wireless and wireline operations in Puerto Rico and the U.S. Virgin Islands.
Operations and support expenses increased in the first quarter of 2021. The expense increase was primarily due to increased domestic wireless equipment expense, additional DTC programming and marketing and higher sports costs. Also contributing to the higher comparative expenses was the first-quarter 2020 gain on spectrum transaction, which did not recur in 2021.
Depreciation and amortization expense decreased in the first quarter of 2021.
Amortization expense decreased $925, or 45.0% in the first quarter 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 the first quarter of 2021.
Depreciation expense decreased $488, or 9.4% in the first quarter 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 the first quarter of 2021.
AT&T INC.
MARCH 31, 2021
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations- Continued
Dollars in millions except per share amounts
Operating income increased in the first quarter of 2021. Our operating income margin for the first quarter decreased from 17.5% in 2020 to 17.4% in 2021.
Interest expense decreased in the first quarter of 2021, primarily due to lower interest rates. For the remainder of 2021, we expect higher capitalized interest associated with putting spectrum into network service.
Equity in net income of affiliates increased in the first quarter of 2021, primarily due to improved performance from certain investments.
Other income (expense) – net increased in the first quarter of 2021. The increase was primarily due to the recognition of an actuarial gain of $2,844, with no comparable interim remeasurement in 2020, and an increase in net benefit credit resulting from lower interest costs on the benefit obligation and higher prior service credit amortization (see Note 6).
Income taxes increased in the first quarter of 2021. The increase in income tax expense was primarily due to higher income before income taxes in the first quarter of 2021. Our effective tax rate was 21.1% for the first quarter of 2021, versus 20.8% for the comparable period in the prior year, and includes the impact of tax settlements.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COMMUNICATIONS SEGMENT
|
|
|
|
First Quarter
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percent
|
|
|
|
|
|
|
|
|
|
2021
|
|
2020
|
|
Change
|
|
Segment Operating Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mobility
|
|
|
|
|
|
|
|
$
|
19,034
|
|
|
$
|
17,402
|
|
|
9.4
|
%
|
|
Business Wireline
|
|
|
|
|
|
|
|
6,046
|
|
|
6,266
|
|
|
(3.5)
|
|
|
Consumer Wireline
|
|
|
|
|
|
|
|
3,098
|
|
|
3,111
|
|
|
(0.4)
|
|
|
Total Segment Operating Revenues
|
|
|
|
|
|
|
|
28,178
|
|
|
26,779
|
|
|
5.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment Operating Contribution
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mobility
|
|
|
|
|
|
|
|
6,002
|
|
|
5,788
|
|
|
3.7
|
|
|
Business Wireline
|
|
|
|
|
|
|
|
1,058
|
|
|
1,093
|
|
|
(3.2)
|
|
|
Consumer Wireline
|
|
|
|
|
|
|
|
305
|
|
|
520
|
|
|
(41.3)
|
|
|
Total Segment Operating Contribution
|
|
|
|
|
|
|
|
$
|
7,365
|
|
|
$
|
7,401
|
|
|
(0.5)
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected Subscribers and Connections
|
|
|
|
|
|
|
|
March 31,
|
|
(000s)
|
|
2021
|
|
2020
|
|
Mobility Subscribers
|
|
186,108
|
|
|
169,198
|
|
|
Total domestic broadband connections
|
|
15,435
|
|
|
15,315
|
|
|
Network access lines in service
|
|
6,988
|
|
|
8,160
|
|
|
U-verse VoIP connections
|
|
3,684
|
|
|
4,213
|
|
|
|
Operating revenues increased in the first quarter of 2021, driven by increases in our Mobility business unit, partially offset by decreases in our Business Wireline and Consumer Wireline business units. The increase is primarily driven by equipment revenue growth and service revenue improvements with subscriber gains offsetting declines in international roaming services.
Operating contribution decreased in the first quarter 2021. The decline in the first quarter reflects lower 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 first quarter decreased from 27.6% in 2020 to 26.1% in 2021.
AT&T INC.
MARCH 31, 2021
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations- Continued
Dollars in millions except per share amounts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Communications Business Unit Discussion
|
|
Mobility Results
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percent
|
|
|
|
|
|
|
|
|
|
2021
|
|
2020
|
|
Change
|
|
Operating revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service
|
|
|
|
|
|
|
|
$
|
14,048
|
|
|
$
|
13,968
|
|
|
0.6
|
%
|
|
Equipment
|
|
|
|
|
|
|
|
4,986
|
|
|
3,434
|
|
|
45.2
|
|
|
Total Operating Revenues
|
|
|
|
|
|
|
|
19,034
|
|
|
17,402
|
|
|
9.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operations and support
|
|
|
|
|
|
|
|
11,018
|
|
|
9,569
|
|
|
15.1
|
|
|
Depreciation and amortization
|
|
|
|
|
|
|
|
2,014
|
|
|
2,045
|
|
|
(1.5)
|
|
|
Total Operating Expenses
|
|
|
|
|
|
|
|
13,032
|
|
|
11,614
|
|
|
12.2
|
|
|
Operating Income
|
|
|
|
|
|
|
|
6,002
|
|
|
5,788
|
|
|
3.7
|
|
|
Equity in Net Income (Loss) of Affiliates
|
|
|
|
|
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Operating Contribution
|
|
|
|
|
|
|
|
$
|
6,002
|
|
|
$
|
5,788
|
|
|
3.7
|
%
|
The following tables highlight other key measures of performance for Mobility:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subscribers
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
Percent
|
|
(in 000s)
|
|
2021
|
|
2020
|
|
Change
|
|
Postpaid
|
|
77,934
|
|
|
75,148
|
|
|
3.7
|
%
|
|
Postpaid phone
|
|
64,752
|
|
|
63,105
|
|
|
2.6
|
|
|
Prepaid
|
|
18,387
|
|
|
17,808
|
|
|
3.3
|
|
|
Reseller
|
|
6,501
|
|
|
6,736
|
|
|
(3.5)
|
|
|
Connected devices1
|
|
83,286
|
|
|
69,506
|
|
|
19.8
|
|
|
Total Mobility Subscribers
|
|
186,108
|
|
|
169,198
|
|
|
10.0
|
%
|
1Includes data-centric devices such as session-based tablets, monitoring devices and primarily wholesale automobile systems.
AT&T INC.
MARCH 31, 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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percent
|
|
(in 000s)
|
|
|
|
|
|
|
|
2021
|
|
2020
|
|
Change
|
|
Postpaid Phone Net Additions
|
|
|
|
|
|
|
|
595
|
|
|
163
|
|
|
—
|
%
|
|
Total Phone Net Additions
|
|
|
|
|
|
|
|
802
|
|
|
120
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Postpaid2
|
|
|
|
|
|
|
|
823
|
|
|
27
|
|
|
—
|
|
|
Prepaid
|
|
|
|
|
|
|
|
279
|
|
|
(45)
|
|
|
—
|
|
|
Reseller
|
|
|
|
|
|
|
|
(68)
|
|
|
(190)
|
|
|
64.2
|
|
|
Connected devices3
|
|
|
|
|
|
|
|
2,517
|
|
|
3,518
|
|
|
(28.5)
|
|
|
Mobility Net Subscriber Additions1
|
|
|
|
|
|
|
|
3,551
|
|
|
3,310
|
|
|
7.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Postpaid Churn4
|
|
|
|
|
|
|
|
0.93
|
%
|
|
1.08
|
%
|
|
(15)
|
BP
|
|
Postpaid Phone-Only Churn4
|
|
|
|
|
|
|
|
0.76
|
%
|
|
0.86
|
%
|
|
(10)
|
BP
|
|
1Excludes migrations and acquisition-related activities during the period.
|
|
2In addition to postpaid phones, includes tablets and wearables and other. Tablet net (losses) were (63) and (267) for the quarter ended March 31, 2021 and 2020. Wearables and other net adds were 291 and 131 for the quarter ended March 31, 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 1.2 million for the quarter ended March 31, 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 first quarter of 2021. The first quarter increase is largely due to growth in subscribers, partially offset by declines in international roaming revenue due to reduced travel during the pandemic.
ARPU
Average revenue per subscriber (ARPU) decreased in the first quarter. ARPU during 2021 reflects the impact of higher promotional discount amortization and a decline in international roaming revenues and waived fees.
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 three months due to retention offers, migrations to unlimited plans and continued network improvements.
Equipment revenue increased in the first quarter of 2021. The increase in the first quarter is primarily driven by increased postpaid smartphone volumes, higher-priced smartphones and growth in data devices.
Operations and support expenses increased in the first quarter of 2021 largely driven by growth in equipment sales and associated expenses and higher content costs associated with bundling HBO Max. The expense increase was offset by lower sales costs and bad debt expense. Commission deferral amortization was up slightly versus the prior year, including the impact of first-quarter 2021 updates to extend the estimated economic life for our subscribers.
Depreciation expense decreased in the first quarter of 2021 primarily due to network assets becoming fully depreciated.
Operating income increased in the first quarter of 2021. Our Mobility operating income margin in the first quarter decreased from 33.3% in 2020 to 31.5% in 2021. Our Mobility EBITDA margin in the first quarter decreased from 45.0% in 2020 to 42.1% in 2021. EBITDA is defined as operating contribution excluding equity in net income (loss) of affiliates and depreciation and amortization.
AT&T INC.
MARCH 31, 2021
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations- Continued
Dollars in millions except per share amounts
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 in July 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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percent
|
|
|
|
|
|
|
|
|
|
2021
|
|
2020
|
|
Change
|
|
Operating revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service
|
|
|
|
|
|
|
|
$
|
5,872
|
|
|
$
|
6,091
|
|
|
(3.6)
|
%
|
|
Equipment
|
|
|
|
|
|
|
|
174
|
|
|
175
|
|
|
(0.6)
|
|
|
Total Operating Revenues
|
|
|
|
|
|
|
|
6,046
|
|
|
6,266
|
|
|
(3.5)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operations and support
|
|
|
|
|
|
|
|
3,710
|
|
|
3,887
|
|
|
(4.6)
|
|
|
Depreciation and amortization
|
|
|
|
|
|
|
|
1,278
|
|
|
1,286
|
|
|
(0.6)
|
|
|
Total Operating Expenses
|
|
|
|
|
|
|
|
4,988
|
|
|
5,173
|
|
|
(3.6)
|
|
|
Operating Income
|
|
|
|
|
|
|
|
1,058
|
|
|
1,093
|
|
|
(3.2)
|
|
|
Equity in Net Income (Loss) of Affiliates
|
|
|
|
|
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Operating Contribution
|
|
|
|
|
|
|
|
$
|
1,058
|
|
|
$
|
1,093
|
|
|
(3.2)
|
%
|
Service revenues decreased in the first quarter of 2021, driven by lower demand for legacy voice and data services as customers continue to shift to more advanced IP-based offerings.
Equipment revenues remained consistent in the first quarter of 2021.
Operations and support expenses decreased in the first quarter 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 first quarter of 2021, primarily due to network assets becoming fully depreciated.
Operating income decreased in the first quarter of 2021. Our Business Wireline operating income margin in the first quarter increased from 17.4% in 2020 and 17.5% in 2021. Our Business Wireline EBITDA margin in the first quarter increased from 38.0% in 2020 to 38.6% in 2021.
AT&T INC.
MARCH 31, 2021
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations- Continued
Dollars in millions except per share amounts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer Wireline Results
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percent
|
|
|
|
|
|
|
|
|
|
2021
|
|
2020
|
|
Change
|
|
Operating revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
IP Broadband
|
|
|
|
|
|
|
|
$
|
2,205
|
|
|
$
|
2,109
|
|
|
4.6
|
%
|
|
Legacy voice and data services
|
|
|
|
|
|
|
|
519
|
|
|
581
|
|
|
(10.7)
|
|
|
Other service and equipment
|
|
|
|
|
|
|
|
374
|
|
|
421
|
|
|
(11.2)
|
|
|
Total Operating Revenues
|
|
|
|
|
|
|
|
3,098
|
|
|
3,111
|
|
|
(0.4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operations and support
|
|
|
|
|
|
|
|
2,031
|
|
|
1,879
|
|
|
8.1
|
|
|
Depreciation and amortization
|
|
|
|
|
|
|
|
762
|
|
|
712
|
|
|
7.0
|
|
|
Total Operating Expenses
|
|
|
|
|
|
|
|
2,793
|
|
|
2,591
|
|
|
7.8
|
|
|
Operating Income
|
|
|
|
|
|
|
|
305
|
|
|
520
|
|
|
(41.3)
|
|
|
Equity in Net Income (Loss) of Affiliates
|
|
|
|
|
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Operating Contribution
|
|
|
|
|
|
|
|
$
|
305
|
|
|
$
|
520
|
|
|
(41.3)
|
%
|
The following tables highlight other key measures of performance for Consumer Wireline:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Connections
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
Percent
|
|
(in 000s)
|
|
|
|
|
|
|
|
2021
|
|
2020
|
|
Change
|
|
Broadband Connections
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Broadband Connections
|
|
|
|
|
|
14,146
|
|
|
14,046
|
|
|
0.7
|
%
|
|
Fiber Broadband Connections
|
|
5,186
|
|
|
4,096
|
|
|
26.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Voice Connections
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail Consumer Switched Access Lines
|
|
|
|
|
|
2,740
|
|
|
3,196
|
|
|
(14.3)
|
|
|
U-verse Consumer VoIP Connections
|
|
|
|
|
|
3,096
|
|
|
3,630
|
|
|
(14.7)
|
|
|
Total Retail Consumer Voice Connections
|
|
|
|
5,836
|
|
|
6,826
|
|
|
(14.5)
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Additions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percent
|
|
(in 000s)
|
|
|
|
|
|
|
|
2021
|
|
2020
|
|
Change
|
|
Broadband Net Additions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Broadband Net Additions
|
|
|
|
|
|
|
|
46
|
|
|
(73)
|
|
|
—
|
%
|
|
Fiber Broadband Net Additions
|
|
|
|
|
|
|
|
235
|
|
|
209
|
|
|
12.4
|
%
|
|
|
IP Broadband (high-speed internet) revenues increased in the first quarter of 2021, driven by higher ARPU resulting from an increase in fiber customers and pricing.
Legacy voice and data service revenues decreased in the first quarter of 2021, reflecting the continued decline in the number of customers.
Other service and equipment revenues decreased in 2021, reflecting the continued decline in the number of VoIP customers.
AT&T INC.
MARCH 31, 2021
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations- Continued
Dollars in millions except per share amounts
Operations and support expenses increased in the first quarter 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 first quarter of 2021, primarily due to ongoing capital spending for network upgrades and expansion.
Operating income decreased in the first quarter of 2021. Our Consumer Wireline operating income margin in the first quarter decreased from 16.7% in 2020 to 9.8% in 2021. Our Consumer Wireline EBITDA margin in the first quarter decreased from 39.6% in 2020 to 34.4% in 2021.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
WARNERMEDIA SEGMENT
|
|
|
|
First Quarter
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percent
|
|
|
|
|
|
|
|
|
|
2021
|
|
2020
|
|
Change
|
|
Segment Operating Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subscription
|
|
|
|
|
|
|
|
$
|
3,830
|
|
|
$
|
3,401
|
|
|
12.6
|
%
|
|
Content
|
|
|
|
|
|
|
|
3,420
|
|
|
3,303
|
|
|
3.5
|
|
|
Advertising
|
|
|
|
|
|
|
|
1,750
|
|
|
1,477
|
|
|
18.5
|
|
|
Other
|
|
|
|
|
|
|
|
169
|
|
|
254
|
|
|
(33.5)
|
|
|
Eliminations
|
|
|
|
|
|
|
|
(643)
|
|
|
(670)
|
|
|
4.0
|
|
|
Total Segment Operating Revenues
|
|
|
|
|
|
|
|
8,526
|
|
|
7,765
|
|
|
9.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment Operating Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct Costs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Programming
|
|
|
|
|
|
|
|
4,383
|
|
|
3,513
|
|
|
24.8
|
|
|
Marketing
|
|
|
|
|
|
|
|
849
|
|
|
526
|
|
|
61.4
|
|
|
Other
|
|
|
|
|
|
|
|
722
|
|
|
669
|
|
|
7.9
|
|
|
General and administrative
|
|
|
|
|
|
|
|
967
|
|
|
1,222
|
|
|
(20.9)
|
|
|
Eliminations and other
|
|
|
|
|
|
|
|
(518)
|
|
|
(325)
|
|
|
(59.4)
|
|
|
Depreciation and amortization
|
|
|
|
|
|
|
|
163
|
|
|
161
|
|
|
1.2
|
|
|
Total Operating Expenses
|
|
|
|
|
|
|
|
6,566
|
|
|
5,766
|
|
|
13.9
|
|
|
Operating Income
|
|
|
|
|
|
|
|
1,960
|
|
|
1,999
|
|
|
(2.0)
|
|
|
Equity in Net Income (Loss) of Affiliates
|
|
|
|
|
|
|
|
70
|
|
|
15
|
|
|
—
|
|
|
Total Segment Operating Contribution
|
|
|
|
|
|
|
|
$
|
2,030
|
|
|
$
|
2,014
|
|
|
0.8
|
%
|
Our WarnerMedia segment is operated as a content organization that distributes across various platforms, including Basic Networks, Direct-to-Consumer (DTC) and Theatrical, TV Content and Games Licensing.
Operating revenues increased in the first quarter of 2021, primarily due to higher subscription, advertising and content revenues, reflecting the partial recovery from prior-year impacts of COVID-19. Subscription revenues increased reflecting growth of DTC domestic HBO Max and HBO subscribers, and, to a lesser extent, the May 2020 acquisition of the remaining interest in HBO Latin America Group. DTC subscription revenues were $1,810 versus $1,338 in the year-ago quarter 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 the NCAA Division I Men's Championship Basketball Tournament. Content revenues increased due to higher sales to HBO Max for theatrical product and increases in Basic Networks licensing, partly offset by lower television product licensing from prior-year licensing to HBO Max.
Direct costs increased in the first quarter of 2021, driven by higher programming and marketing costs for HBO Max and higher sports programming, including NCAA. Direct costs supporting DTC revenues were $1,685 in the first quarter of 2021, versus $911 in the year-ago quarter.
AT&T INC.
MARCH 31, 2021
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations- Continued
Dollars in millions except per share amounts
General and administrative expenses decreased in the first quarter of 2021, primarily due to lower bad debt expense and integration of support functions.
Operating contribution increased in the first quarter of 2021. The WarnerMedia segment operating income margin decreased from 25.7% in 2020 to 23.0% in 2021.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LATIN AMERICA SEGMENT
|
|
|
|
First Quarter
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percent
|
|
|
|
|
|
|
|
|
|
2021
|
|
2020
|
|
Change
|
|
Segment Operating Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vrio
|
|
|
|
|
|
|
|
$
|
743
|
|
|
$
|
887
|
|
|
(16.2)
|
%
|
|
Mexico
|
|
|
|
|
|
|
|
631
|
|
|
703
|
|
|
(10.2)
|
|
|
Total Segment Operating Revenues
|
|
|
|
|
|
|
|
1,374
|
|
|
1,590
|
|
|
(13.6)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment Operating Contribution
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vrio
|
|
|
|
|
|
|
|
(39)
|
|
|
(39)
|
|
|
—
|
|
|
Mexico
|
|
|
|
|
|
|
|
(134)
|
|
|
(145)
|
|
|
7.6
|
|
|
Total Segment Operating Contribution
|
|
|
|
|
|
|
|
$
|
(173)
|
|
|
$
|
(184)
|
|
|
6.0
|
%
|
Operating Results
Our Latin America operations conduct business in their local currency and operating results are converted to U.S. dollars using official exchange rates, subjecting results to foreign currency fluctuations.
Operating revenues decreased in the first quarter of 2021, primarily driven by foreign exchange and COVID-19 impacts.
Operating contribution improved in the first quarter of 2021, reflecting foreign exchange rates and the impact of COVID-19. Our Latin America segment operating income margin in the first quarter decreased from (11.8)% in 2020 to (12.3)% in 2021.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Latin America Business Unit Discussion
|
|
|
|
|
|
|
|
|
|
|
|
Vrio Results
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percent
|
|
|
|
|
|
|
|
|
|
2021
|
|
2020
|
|
Change
|
|
Operating revenues
|
|
|
|
|
|
|
|
$
|
743
|
|
|
$
|
887
|
|
|
(16.2)
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operations and support
|
|
|
|
|
|
|
|
661
|
|
|
783
|
|
|
(15.6)
|
|
|
Depreciation and amortization
|
|
|
|
|
|
|
|
117
|
|
|
147
|
|
|
(20.4)
|
|
|
Total Operating Expenses
|
|
|
|
|
|
|
|
778
|
|
|
930
|
|
|
(16.3)
|
|
|
Operating Income (Loss)
|
|
|
|
|
|
|
|
(35)
|
|
|
(43)
|
|
|
18.6
|
|
|
Equity in Net Income (Loss) of Affiliates
|
|
|
|
|
|
|
|
(4)
|
|
|
4
|
|
|
—
|
|
|
Operating Contribution
|
|
|
|
|
|
|
|
$
|
(39)
|
|
|
$
|
(39)
|
|
|
—
|
%
|
AT&T INC.
MARCH 31, 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 Vrio:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
Percent
|
|
(in 000s)
|
|
|
|
|
|
|
|
2021
|
|
2020
|
|
Change
|
|
Vrio Video Subscribers
|
|
|
|
|
|
|
|
10,559
|
|
|
13,217
|
|
|
(20.1)
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percent
|
|
(in 000s)
|
|
|
|
|
|
|
|
2021
|
|
2020
|
|
Change
|
|
Vrio Video Net Additions
|
|
|
|
|
|
|
|
(383)
|
|
|
(114)
|
|
|
—
|
%
|
|
|
Operating revenues decreased in the first quarter of 2021, primarily driven by foreign exchange impacts.
Operations and support expenses decreased in the first quarter of 2021, primarily driven by economic pressures, the restructuring of sales channels in Brazil, and COVID-19 impacts. Approximately 23% of Vrio expenses are U.S. dollar based, with the remainder in the local currency.
Depreciation expense decreased in the first quarter of 2021, primarily due to lower in-service assets and foreign exchange impacts.
Operating loss improved in the first quarter of 2021. Our Vrio operating income margin for the first quarter increased from (4.8)% in 2020 to (4.7)% in 2021. Our Vrio EBITDA margin in the first quarter decreased from 11.7% in 2020 to 11.0% in 2021.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mexico Results
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter
|
|
|
|
|
|
|
|
|
|
2021
|
|
2020
|
|
Percent Change
|
|
Operating revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service
|
|
|
|
|
|
|
|
$
|
439
|
|
|
$
|
467
|
|
|
(6.0)
|
%
|
|
Equipment
|
|
|
|
|
|
|
|
192
|
|
|
236
|
|
|
(18.6)
|
|
|
Total Operating Revenues
|
|
|
|
|
|
|
|
631
|
|
|
703
|
|
|
(10.2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operations and support
|
|
|
|
|
|
|
|
620
|
|
|
714
|
|
|
(13.2)
|
|
|
Depreciation and amortization
|
|
|
|
|
|
|
|
145
|
|
|
134
|
|
|
8.2
|
|
|
Total Operating Expenses
|
|
|
|
|
|
|
|
765
|
|
|
848
|
|
|
(9.8)
|
|
|
Operating Income (Loss)
|
|
|
|
|
|
|
|
(134)
|
|
|
(145)
|
|
|
7.6
|
|
|
Equity in Net Income (Loss) of Affiliates
|
|
|
|
|
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Operating Contribution
|
|
|
|
|
|
|
|
$
|
(134)
|
|
|
$
|
(145)
|
|
|
7.6
|
%
|
The following tables highlight other key measures of performance for Mexico:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
Percent
|
|
(in 000s)
|
|
|
|
|
|
|
|
2021
|
|
2020
|
|
Change
|
|
Mexico Wireless Subscribers
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Postpaid
|
|
|
|
|
|
|
|
4,725
|
|
|
4,962
|
|
|
(4.8)
|
%
|
|
Prepaid
|
|
|
|
|
|
|
|
13,756
|
|
|
13,692
|
|
|
0.5
|
|
|
Reseller
|
|
|
|
|
|
|
|
500
|
|
|
504
|
|
|
(0.8)
|
|
|
Total Mexico Wireless Subscribers
|
|
|
|
|
|
|
|
18,981
|
|
|
19,158
|
|
|
(0.9)
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percent
|
|
(in 000s)
|
|
|
|
|
|
|
|
2021
|
|
2020
|
|
Change
|
|
Mexico Wireless Net Additions
|
|
|
|
|
|
|
|
|
|
|
|
Postpaid
|
|
|
|
|
|
|
|
29
|
|
|
(141)
|
|
|
—
|
%
|
|
Prepaid
|
|
|
|
|
|
|
|
(2)
|
|
|
108
|
|
|
—
|
|
|
Reseller
|
|
|
|
|
|
|
|
11
|
|
|
32
|
|
|
(65.6)
|
|
|
Total Mexico Wireless Net Additions
|
|
|
|
|
|
|
|
38
|
|
|
(1)
|
|
|
—
|
%
|
Service revenues decreased in the first quarter of 2021, primarily due to lower ARPU and foreign exchange impacts.
Equipment revenues decreased in the first quarter of 2021, primarily due to lower equipment sales volumes and foreign exchange impacts.
Operations and support expenses decreased in the first quarter of 2021, primarily due to a decline in customer growth, lower sales volumes and foreign exchange impacts. Approximately 7% of Mexico expenses are U.S. dollar based, with the remainder in the local currency.
Depreciation and amortization expense increased in the first quarter of 2021, primarily due to higher in-service assets. These increases were partially offset by changes in foreign exchange rates.
Operating loss improved in the first quarter of 2021. Our Mexico operating income margin in the first quarter decreased from (20.6)% in 2020 to (21.2)% in 2021. Our Mexico EBITDA margin in the first quarter increased from (1.6)% in 2020 to 1.7% in 2021.
AT&T INC.
MARCH 31, 2021
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations- Continued
Dollars in millions except per share amounts
SUPPLEMENTAL VIDEO INFORMATION
As a supplemental presentation, we are providing a view of our Video business that is accounted for as held-for-sale and included in Corporate and Other. Our Video business provides video, including over-the-top (OTT) services and also sells advertising on video distribution platforms.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Video Results
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percent
|
|
|
|
|
|
|
|
|
|
2021
|
|
2020
|
|
Change
|
|
Operating revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service
|
|
|
|
|
|
|
|
$
|
6,684
|
|
|
$
|
7,397
|
|
|
(9.6)
|
%
|
|
Equipment
|
|
|
|
|
|
|
|
41
|
|
|
10
|
|
|
—
|
|
|
Total Operating Revenues
|
|
|
|
|
|
|
|
6,725
|
|
|
7,407
|
|
|
(9.2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operations and support
|
|
|
|
|
|
|
|
5,660
|
|
|
6,020
|
|
|
(6.0)
|
|
|
Depreciation and amortization1
|
|
|
|
|
|
|
|
164
|
|
|
591
|
|
|
(72.3)
|
|
|
Total Operating Expenses
|
|
|
|
|
|
|
|
5,824
|
|
|
6,611
|
|
|
(11.9)
|
|
|
Operating Income
|
|
|
|
|
|
|
|
901
|
|
|
796
|
|
|
13.2
|
|
|
Equity in Net Income (Loss) of Affiliates
|
|
|
|
|
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Operating Contribution
|
|
|
|
|
|
|
|
$
|
901
|
|
|
$
|
796
|
|
|
13.2
|
%
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
Percent
|
|
(in 000s)
|
|
|
|
|
|
|
|
2021
|
|
2020
|
|
Change
|
|
Premium TV Connections
|
|
|
|
|
|
|
|
15,885
|
|
|
18,599
|
|
|
(14.6)
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Additions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percent
|
|
(in 000s)
|
|
|
|
|
|
|
|
2021
|
|
2020
|
|
Change
|
|
Premium TV Net Additions
|
|
|
|
|
|
|
|
(620)
|
|
(897)
|
|
30.9
|
%
|
AT&T INC.
MARCH 31, 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
Video Business On February 25, 2021, we signed an agreement with TPG Capital (TPG) to form a new company named DIRECTV (New DTV), which will be jointly governed by a board with representation from both AT&T and TPG, with TPG having tie-breaking authority on certain key decisions. Under the agreement, we will contribute our 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. We expect to receive 7,800 from New DTV at closing ($7,600 in cash and approximately $200 of transferred DIRECTV debt). TPG will contribute approximately $1,800 in cash to New DTV for $1,800 of senior preferred units and a 30% economic interest in common units. The remaining $5,800 will be funded by debt issued by New DTV. As part of this transaction, we agreed to pay net losses under the NFL SUNDAY TICKET contract up to a cap of $2,500 over the remaining period of the contract.
The transaction is expected to close in the second half of 2021, pending customary closing conditions. The total of $7,600 of proceeds from the transaction are expected to reduce our total and net debt positions. (See Note 8)
Spectrum Auction On February 24, 2021, the Federal Communications Commission (FCC) announced that AT&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 the FCC 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. We estimate that we will be responsible for $955 of Incentive Payments upon clearing of Phase I spectrum and $2,112 upon clearing of Phase II spectrum. 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)
COMPETITIVE AND REGULATORY ENVIRONMENT
Overview AT&T subsidiaries operating within the United States are subject to federal and state regulatory authorities. AT&T subsidiaries operating outside the 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, the FCC 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. More recently, the FCC 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 The FCC currently classifies fixed and mobile consumer broadband services as information services, subject to light-touch regulation. The D.C. Circuit upheld the FCC’s current classification, although it remanded three discrete issues to the FCC for further consideration. These issues related to the effect of the FCC’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 sought Supreme Court review of the D.C. Circuit’s decision to uphold the FCC’s classification of broadband as an information service, that decision is final.
In October 2020, the FCC adopted an order addressing the three issues remanded by the D.C. Circuit for further consideration. After considering those issues, the FCC 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 the FCC’s remand order is pending.
AT&T INC.
MARCH 31, 2021
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations- Continued
Dollars in millions except per share amounts
Some states have adopted legislation or issued executive orders that would reimpose net neutrality rules repealed by the FCC. Suits have been filed concerning such laws in two states.
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 2019, the FCC streamlined multiple federal wireless structure review processes with the potential to delay and impede deployment of infrastructure used to provide telecommunications and broadband services, including small cell equipment. Recognizing that state and local regulations have the same potential, in November 2020 the FCC adopted an order tightening the limits on state and local authority to deny requests to use existing structures for wireless facilities. These orders were appealed to the 9th Circuit Court of Appeals, where the appeals remain pending.
LIQUIDITY AND CAPITAL RESOURCES
We had $11,342 in cash and cash equivalents available at March 31, 2021. Cash and cash equivalents included cash of $2,465 and money market funds and other cash equivalents of $8,877. Approximately $2,433 of our cash and cash equivalents were held by our foreign entities in accounts predominantly outside of the U.S. and may be subject to restrictions on repatriation.
Cash and cash equivalents increased $1,602 since December 31, 2020. In the first three 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.
Cash Provided by or Used in Operating Activities
During the first three months of 2021, cash provided by operating activities was $9,927, compared to $8,866 for the first three months of 2020. Higher operating cash flows in 2021 were primarily driven by higher sales of receivables (see Note 9), working capital improvements and lower interest partially offset by cash taxes. Total cash paid for WarnerMedia’s content investment was $4,508 in the first quarter of 2021 ($186 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 $1,071 and $1,075 for the three months ended March 31, 2021 and 2020, respectively. All supplier financing payments are due within one year.
Cash Used in or Provided by Investing Activities
For the first three months of 2021, cash used in investing activities totaled $26,852, and consisted primarily of $4,033 (including interest during construction) for capital expenditures, and payment of $22,876, primarily for C-Band spectrum licenses won in Auction 107.
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 three months of 2021, vendor financing payments were $1,690, compared to $791 for the first three months of 2020. Capital expenditures in the first three months of 2021 were $4,033, and when including $1,690 cash paid for vendor financing, gross capital investment was $5,723 ($41 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 three months of 2021, we placed $998 of equipment in service under vendor financing arrangements (compared to $449 in the prior-year comparable period) and approximately $240 of assets related to the FirstNet build (compared to $338 in the prior-year comparable period). The amount of capital expenditures is influenced by demand for services and products, capacity needs and network enhancements.
AT&T INC.
MARCH 31, 2021
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations- Continued
Dollars in millions except per share amounts
Cash Provided by or Used in Financing Activities
For the first three months of 2021, cash provided by financing activities totaled $18,483 and was comprised of issuances of debt, offset by payments of dividends, and vendor financing payments.
A tabular summary or our debt activity for the three months ended March 31, 2021 is as follows:
|
|
|
|
|
|
|
|
Net commercial paper borrowings
|
$
|
7,072
|
|
|
Issuance of Notes and Debentures1:
|
|
|
U.S. dollar denominated global notes
|
$
|
6,000
|
|
|
Initial average rate of 1.27%
|
|
|
Euro denominated global notes (converted to USD at issuance)
|
1,461
|
|
|
Rate of 0.00%
|
|
|
2021 Syndicated Term Loan
|
7,350
|
|
|
BAML Bilateral Term Loan
|
2,000
|
|
|
Private financing
|
750
|
|
|
Other
|
636
|
|
|
Debt Issuances
|
$
|
18,197
|
|
|
|
|
|
Repayments:
|
|
|
Private financing
|
$
|
(649)
|
|
|
Other
|
(253)
|
|
|
Repayments of long-term debt
|
$
|
(902)
|
|
|
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 March 31, 2021 and 4.1% as of December 31, 2020. We had $171,194 of total notes and debentures outstanding at March 31, 2021, which included Euro, British pound sterling, Canadian dollar, Mexican peso, Australian dollar, Swiss franc and Brazilian real denominated debt that totaled approximately $43,525.
At March 31, 2021, we had $19,505 of debt maturing within one year, consisting of $7,078 of commercial paper borrowings, $9,100 of bank borrowings, and $3,327 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 three months of 2021, we paid $1,690 of cash under our vendor financing program, compared to $791 in the first three months of 2020. Total vendor financing payables included in our March 31, 2021 consolidated balance sheet were $3,552, with $2,883 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 March 31, 2021, we had approximately 178 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 $3,741 during the first three months of 2021, compared with $3,737 for the first three months of 2020.
Dividends on common stock declared by our Board of Directors totaled $0.52 per share in the first three months of 2021 and $0.52 per share for the first three months of 2020. Our dividend policy considers the expectations and requirements of stockholders, capital funding requirements of AT&T and long-term growth opportunities.
AT&T INC.
MARCH 31, 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. In November 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 on December 11, 2023 and the other terminating on November 17, 2025. No amounts were outstanding under either agreement as of March 31, 2021.
On January 29, 2021, we entered into a $14,700 Term Loan Credit Agreement (2021 Syndicated Term Loan), with Bank of America, N.A., as agent. On March 23, 2021, we borrowed $7,350 under the 2021 Syndicated Term Loan and the remaining $7,350 of lenders’ commitments were terminated. As of March 31, 2021, $7,350 was outstanding and is due on March 22, 2022.
In March 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 due December 31 2021 (BAML Tranche A Facility), and (ii) a 1.75 year $1,000 facility due December 31, 2022 (BAML Tranche B Facility), with Bank of America, N.A., as agent. At March 31, 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 requiring AT&T to maintain, as of the last day of each fiscal quarter, a ratio of not more than 4.0-to-1 in the case of the BAML Bilateral Term Loan and not more than 3.5-to-1 for all other credit agreements. As of March 31, 2021, 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 over 95% of our approximate $42,000 derivative portfolio, counterparties are still required to post collateral. During the first three months of 2021, we received approximately $90 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. At March 31, 2021, our debt ratio was 49.6%, compared to 45.7% at March 31, 2020 and 46.7% at December 31, 2020. Our net debt ratio was 46.5% at March 31, 2021, compared to 42.9% at March 31, 2020 and 43.8% at December 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.
On February 25, 2021, we signed an agreement to form a new company named DIRECTV (New DTV) with a subsidiary of TPG Capital, which will be jointly governed by a board with representation from both AT&T and TPG. The transaction is expected to close in the second half of 2021, pending customary closing conditions. We expect to receive $7,600 in cash from the transaction at closing. (See Note 8)
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Dollars in millions except per share amounts
At March 31, 2021, we had no interest rate swaps.
We have fixed-to-fixed and floating-to-fixed cross-currency swaps on foreign currency-denominated debt instruments with a U.S. dollar notional value of $42,186 to hedge our exposure to changes in foreign currency exchange rates. These derivatives have been designated at inception and qualify as cash flow or fair value hedges with a net fair value of $(577) at March 31, 2021. We had no rate locks at March 31, 2021.
We have foreign exchange contracts with a U.S. dollar notional value of $228 to provide currency at a fixed rate to hedge a portion of the exchange risk involved in foreign currency-denominated transactions. These foreign exchange contracts include fair value hedges, cash flow hedges and economic (nonqualifying) hedges with a total net fair value of $1 at March 31, 2021.
We have designated €1,433 million aggregate principal amount of debt as a hedge of the variability of some of the Euro-denominated net investments of our subsidiaries. The gain or loss on the debt that is designated as, and is effective as, an economic hedge of the net investment in a foreign operation is recorded as a currency translation adjustment within accumulated other comprehensive income, net on the consolidated balance sheet.
Item 4. Controls and Procedures
The registrant maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed by the registrant is recorded, processed, summarized, accumulated and communicated to its management, including its principal executive and principal financial officers, to allow timely decisions regarding required disclosure, and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms. The chief executive officer and chief financial officer have performed an evaluation of the effectiveness of the design and operation of the registrant’s disclosure controls and procedures as of March 31, 2021. Based on that evaluation, the chief executive officer and chief financial officer concluded that the registrant’s disclosure controls and procedures were effective as of March 31, 2021.
There have not been any changes in our internal control over financial reporting during our most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. Due to the COVID-19 pandemic, most of our corporate employees are working remotely. We continue to monitor and assess the COVID-19 situation on our internal control over financial reporting to address any potential impact on their design and operating effectiveness.
AT&T INC.
MARCH 31, 2021
CAUTIONARY LANGUAGE CONCERNING FORWARD-LOOKING STATEMENTS
Information set forth in this report contains forward-looking statements that are subject to risks and uncertainties, and actual results could differ materially. Many of these factors are discussed in more detail in the “Risk Factors” section. We claim the protection of the safe harbor for forward-looking statements provided by the Private Securities Litigation Reform Act of 1995.
The following factors could cause our future results to differ materially from those expressed in the forward-looking statements:
•The severity, magnitude and duration of the COVID-19 pandemic and containment, mitigation and other measures taken in response, including the potential impacts of these matters on our business and operations.
•Our inability to predict the extent to which the COVID-19 pandemic and related impacts will continue to impact our business operations, financial performance and results of operations.
•Adverse economic, political and/or capital access changes in the markets served by us or in countries in which we have significant investments and/or operations, including the impact on customer demand and our ability and our suppliers’ ability to access financial markets at favorable rates and terms.
•Increases in our benefit plans’ costs, including increases due to adverse changes in the United States and foreign securities markets, resulting in worse-than-assumed investment returns and discount rates; adverse changes in mortality assumptions; adverse medical cost trends; and unfavorable or delayed implementation or repeal of healthcare legislation, regulations or related court decisions.
•The final outcome of FCC and other federal, state or foreign government agency proceedings (including judicial review, if any, of such proceedings) and legislative efforts involving issues that are important to our business, including, without limitation, pending Notices of Apparent Liability; the transition from legacy technologies to IP-based infrastructure, including the withdrawal of legacy TDM-based services; universal service; broadband deployment; wireless equipment siting regulations and, in particular, siting for 5G service; E911 services; competition policy; privacy; net neutrality; multichannel video programming distributor services and equipment; content licensing and copyright protection; availability of new spectrum on fair and balanced terms; and wireless and satellite license awards and renewals.
•Enactment of additional state, local, federal and/or foreign regulatory and tax laws and regulations, or changes to existing standards and actions by tax agencies and judicial authorities including the resolution of disputes with any taxing jurisdictions, pertaining to our subsidiaries and foreign investments, including laws and regulations that reduce our incentive to invest in our networks, resulting in lower revenue growth and/or higher operating costs.
•Potential changes to the electromagnetic spectrum currently used for broadcast television and satellite distribution being considered by the FCC could negatively impact WarnerMedia’s ability to deliver linear network feeds of its domestic cable networks to its affiliates, and in some cases, WarnerMedia’s ability to produce high-value news and entertainment programming on location.
•U.S. and foreign laws and regulations regarding intellectual property rights protection and privacy, personal data protection and user consent are complex and rapidly evolving and could result in adverse impacts to our business plans, increased costs, or claims against us that may harm our reputation.
•The ability of our competitors to offer product/service offerings at lower prices due to lower cost structures and regulatory and legislative actions adverse to us, including non-regulation of comparable alternative technologies and/or government-owned or subsidized networks.
•Disruption in our supply chain for a number of reasons, including, difficulties in obtaining export licenses for certain technology, inability to secure component parts, general business disruption, natural disasters, safety issues, economic and political instability and public health emergencies.
•The continued development and delivery of attractive and profitable wireless, video and broadband offerings and devices, and, in particular, the success of our new HBO Max platform; the extent to which regulatory and build-out requirements apply to our offerings; our ability to match speeds offered by our competitors and the availability, cost and/or reliability of the various technologies and/or content required to provide such offerings.
•Our ability to generate subscription and advertising revenue from attractive video content, especially from WarnerMedia, in the face of unpredictable and rapidly evolving public viewing habits and legal restrictions on using personal data for advertising.
•The availability and cost and our ability to adequately fund additional wireless spectrum and network upgrades; and regulations and conditions relating to spectrum use, licensing, obtaining additional spectrum, technical standards and deployment and usage, including network management rules.
•Our ability to manage growth in wireless data services, including network quality and acquisition of adequate spectrum at reasonable costs and terms.
•The outcome of pending, threatened or potential litigation (which includes arbitrations), including, without limitation, patent and product safety claims by or against third parties or claims based on alleged misconduct by employees.
AT&T INC.
MARCH 31, 2021
CAUTIONARY LANGUAGE CONCERNING FORWARD-LOOKING STATEMENTS - continued
•The impact from major equipment or software failures on our networks, including satellites operated by DIRECTV; the effect of security breaches related to the network or customer information; our inability to obtain handsets, equipment/software or have handsets, equipment/software serviced in a timely and cost-effective manner from suppliers; and in the case of satellites launched, timely provisioning of services from vendors; or severe weather conditions including flooding and hurricanes, natural disasters including earthquakes and forest fires, pandemics, energy shortages, wars or terrorist attacks.
•The issuance by the Financial Accounting Standards Board or other accounting oversight bodies of new accounting standards or changes to existing standards.
•Our ability to successfully integrate our WarnerMedia operations, including the ability to manage various businesses in widely dispersed business locations and with decentralized management.
•Changes in our corporate strategies to respond to competition and regulatory, legislative and technological developments.
•Our ability to realize or sustain the expected benefits of our business transformation initiatives, which are designed to reduce costs, streamline distribution, remove redundancies and simplify and improve processes and support functions.
Readers are cautioned that other factors discussed in this report, although not enumerated here, also could materially affect our future earnings.