AT&T Senior Executive Vice President and CFO John Stephens Updates Shareholders - Seite 2

Stephens noted that under the terms of the deal, at closing AT&T will receive $7.6 billion in cash which it intends to use to reduce debt. The new DIRECTV entity will also assume $200 million of existing DIRECTV debt from AT&T. Thereafter, DIRECTV will make distributions to its equity holders as follows: First, $1.8 billion plus a 10% cash coupon will be paid to TPG; then approximately $8.45 billion will be paid to AT&T, including a $4.25 billion portion with a 6.5% payment-in-kind coupon. Thereafter, distributions will be made based on ownership of the common equity interest, which is expected to be 70% to AT&T and 30% to TPG. The transaction, which is expected to close in the second half of 2021, is subject to customary closing conditions and to regulatory reviews.

HBO Max and WarnerMedia. Stephens noted that AT&T has seen positive results from the hybrid distribution model for its 2021 film slate. This model has positioned Warner Bros. as the only major studio steadily releasing content to theaters as well as directly to consumers through HBO Max. Given the accelerating timeline for COVID-19 vaccines, the company expects a modest theatrical recovery in the second half of the year, but much uncertainty remains.

The company also remains focused on building on the success of HBO Max to establish relationships with most U.S. households and is focused on investing for the long-term. Stephens noted that HBO Max and HBO added more subscribers in 2020 than HBO added in the previous 10 years.² The company expects to begin international expansion of HBO Max in late June, giving the company additional opportunities to expand its customer base.

Financial Flexibility. The company remains committed to its capital allocation plan to: grow customer relationships across 5G wireless, fiber and HBO Max; sustain the dividend at current levels; reduce debt; and monetize non-core assets. Stephens expects that free cash flow after dividends, plus funds anticipated from the video transaction and other asset monetizations would give the company flexibility to reduce debt following the recent spectrum auction. The company plans to provide more information during its Analyst & Investor Day, which will be held at 10 a.m. Eastern time on Friday, March 12. A webcast of the event and presentation materials will be available on the AT&T Investor Relations website.