Discussion and Reconciliation of Non-GAAP Measures

We believe the following measures are relevant and useful information to investors as they are part of AT&T's internal management reporting and planning processes and are important metrics that management uses to evaluate the operating performance of AT&T and its segments. Management also uses these measures as a method of comparing performance with that of many of our competitors. These measures should be considered in addition to, but not as a substitute for, other measures of financial performance reported in accordance with U.S. generally accepted accounting principles (GAAP).

Free Cash Flow

Free cash flow is defined as cash from operations and cash distributions from DIRECTV (classified as investing activities) minus capital expenditures. Free cash flow after dividends is defined as cash from operations minus capital expenditures and dividends on common and preferred shares. Free cash flow dividend payout ratio is defined as the percentage of dividends paid on common and preferred shares to free cash flow. We believe these metrics provide useful information to our investors because management views free cash flow as an important indicator of how much cash is generated by routine business operations, including capital expenditures, and from our continued economic interest in the U.S. video operations as part of our DIRECTV equity method investment, and makes decisions based on it. Management also views free cash flow as a measure of cash available to pay debt and return cash to shareowners.

Free Cash Flow and Free Cash Flow Dividend Payout Ratio
Dollars in millions
			Fourth Quarter									Year Ended
			2021			2020						2021			2020
Net cash provided by operating activities1			$	11,254		$	10,082					$	41,957		$	43,130
Add: Distributions from DIRECTV classified as investing          activities			1,323			—						1,323			—
Less: Capital expenditures			(3,831)			(2,392)						(16,527)			(15,675)
Free Cash Flow			8,746			7,690						26,753			27,455
Less: Dividends paid			(3,749)			(3,741)						(15,068)			(14,956)
Free Cash Flow after Dividends			$	4,997		$	3,949					$	11,685		$	12,499
Free Cash Flow Dividend Payout Ratio			42.9		%	48.6		%				56.3		%	54.5		%
1Includes distributions from DIRECTV of $489 in the fourth quarter and $619 for the year ended December 31, 2021. Total distributions from DIRECTV were $1,812 in the fourth quarter and $1,942 for the year ended December 31, 2021.

Cash Paid for Capital Investment

In connection with capital improvements, we negotiate with some of our vendors to obtain favorable payment terms of 120 days or more, referred to as vendor financing, which are excluded from capital expenditures and reported in accordance with GAAP as financing activities. We present an additional view of cash paid for capital investment to provide investors with a comprehensive view of cash used to invest in our networks, product developments and support systems. 

Cash Paid for Capital Investment
Dollars in millions
			Fourth Quarter									Year Ended
			2021			2020						2021			2020
Capital Expenditures			$	(3,831)		$	(2,392)					$	(16,527)		$	(15,675)
Cash paid for vendor financing			(583)			(1,001)						(4,596)			(2,966)
Cash paid for Capital Investment			$	(4,414)		$	(3,393)					$	(21,123)		$	(18,641)
FirstNet reimbursement			(515)			(920)						(515)			(1,063)
Gross Capital Investment			$	(4,929)		$	(4,313)					$	(21,638)		$	(19,704)

1

EBITDA

Our calculation of EBITDA, as presented, may differ from similarly titled measures reported by other companies. For AT&T, EBITDA excludes other income (expense) – net, and equity in net income (loss) of affiliates, as these do not reflect the operating results of our subscriber base or operations that are not under our control. Equity in net income (loss) of affiliates represents the proportionate share of the net income (loss) of affiliates in which we exercise significant influence, but do not control. Because we do not control these entities, management excludes these results when evaluating the performance of our primary operations. EBITDA also excludes interest expense and the provision for income taxes. Excluding these items eliminates the expenses associated with our capital and tax structures. Finally, EBITDA excludes depreciation and amortization in order to eliminate the impact of capital investments. EBITDA does not give effect to cash used for debt service requirements and thus does not reflect available funds for distributions, reinvestment or other discretionary uses. EBITDA is not presented as an alternative measure of operating results or cash flows from operations, as determined in accordance with GAAP.

EBITDA service margin is calculated as EBITDA divided by service revenues.

When discussing our segment, business unit and supplemental results, EBITDA excludes equity in net income (loss) of affiliates, and depreciation and amortization from operating contribution.

These measures are used by management as a gauge of our success in acquiring, retaining and servicing subscribers because we believe these measures reflect AT&T's ability to generate and grow subscriber revenues while providing a high level of customer service in a cost-effective manner. Management also uses these measures as a method of comparing operating performance with that of many of its competitors. The financial and operating metrics which affect EBITDA include the key revenue and expense drivers for which management is responsible and upon which we evaluate performance.

We believe EBITDA Service Margin (EBITDA as a percentage of service revenues) to be a more relevant measure than EBITDA Margin (EBITDA as a percentage of total revenue) for our Mobility business unit operating margin. We also use wireless service revenues to calculate margin to facilitate comparison, both internally and externally with our wireless competitors, as they calculate their margins using wireless service revenues as well.

There are material limitations to using these non-GAAP financial measures. EBITDA, EBITDA margin and EBITDA service margin, as we have defined them, may not be comparable to similarly titled measures reported by other companies. Furthermore, these performance measures do not take into account certain significant items, including depreciation and amortization, interest expense, tax expense and equity in net income (loss) of affiliates. For market comparability, management analyzes performance measures that are similar in nature to EBITDA as we present it, and considering the economic effect of the excluded expense items independently as well as in connection with its analysis of net income as calculated in accordance with GAAP. EBITDA, EBITDA margin and EBITDA service margin should be considered in addition to, but not as a substitute for, other measures of financial performance reported in accordance with GAAP.

EBITDA, EBITDA Margin and EBITDA Service Margin
Dollars in millions
			Fourth Quarter									Year Ended
			2021			2020						2021			2020
Net Income (Loss)			$	5,390		$	(13,515)					$	21,479		$	(3,821)
Additions:
Income Tax Expense			1,056			(2,038)						5,468			965
Interest Expense			1,663			1,894						6,884			7,925
Equity in Net (Income) Loss of Affiliates			(447)			(106)						(631)			(95)
Other (Income) Expense - Net			(2,354)			3,020						(9,853)			1,431
Depreciation and amortization			5,673			6,979						22,862			28,516
EBITDA			10,981			(3,766)						46,209			34,921
Merger costs and revenue adjustments			132			37						299			468
Employee separation costs and benefit-related (gain) loss			—			253						57			1,177
Impairments			188			16,365						4,904			18,880
Gain on spectrum transactions			—			—						—			(900)
Adjusted EBITDA1			$	11,301		$	12,889					$	51,469		$	54,546
1 See page 5 for additional discussion and reconciliation of adjusted items.

2

Segment and Business Unit EBITDA, EBITDA Margin and EBITDA Service Margin
Dollars in millions
			Fourth Quarter									Year Ended
			2021			2020						2021			2020
Communications Segment
Operating Contribution			$	6,451		$	6,360					$	28,279		$	28,313
Additions:
Depreciation and amortization			4,156			4,062						16,409			16,216
EBITDA			10,607			10,422						44,688			44,529
Total Operating Revenues			30,206			29,486						114,730			109,965
Operating Income Margin			21.4		%	21.6		%				24.6		%	25.7		%
EBITDA Margin			35.1		%	35.3		%				39.0		%	40.5		%
Mobility
Operating Contribution			$	5,353		$	5,088					$	23,312		$	22,372
Additions:
Depreciation and amortization			2,050			2,008						8,122			8,086
EBITDA			7,403			7,096						31,434			30,458
Total Operating Revenues			21,146			20,119						78,254			72,564
Service Revenues			14,669			14,022						57,590			55,542
Operating Income Margin			25.3		%	25.3		%				29.8		%	30.8		%
EBITDA Margin			35.0		%	35.3		%				40.2		%	42.0		%
EBITDA Service Margin			50.5		%	50.6		%				54.6		%	54.8		%
Business Wireline
Operating Contribution			$	897		$	997					$	3,990		$	4,564
Additions:
Depreciation and amortization			1,317			1,316						5,192			5,216
EBITDA			2,214			2,313						9,182			9,780
Total Operating Revenues			5,901			6,251						23,937			25,083
Operating Income Margin			15.2		%	15.9		%				16.7		%	18.2		%
EBITDA Margin			37.5		%	37.0		%				38.4		%	39.0		%
Consumer Wireline
Operating Contribution			$	201		$	275					$	977		$	1,377
Additions:
Depreciation and amortization			789			738						3,095			2,914
EBITDA			990			1,013						4,072			4,291
Total Operating Revenues			3,159			3,116						12,539			12,318
Operating Income Margin			6.4		%	8.8		%				7.8		%	11.2		%
EBITDA Margin			31.3		%	32.5		%				32.5		%	34.8		%

3

Segment and Business Unit EBITDA, EBITDA Margin and EBITDA Service Margin
Dollars in millions
			Fourth Quarter									Year Ended
			2021			2020						2021			2020
WarnerMedia Segment
Operating Contribution			$	1,573		$	2,529					$	7,277		$	8,210
Additions:
Equity in Net (Income) Loss of Affiliates			6			13						(38)			(18)
Depreciation and amortization			165			177						656			671
EBITDA			1,744			2,719						7,895			8,863
Total Operating Revenues			9,873			8,554						35,632			30,442
Operating Income Margin			16.0		%	29.7		%				20.3		%	26.9		%
EBITDA Margin			17.7		%	31.8		%				22.2		%	29.1		%

Segment and Business Unit EBITDA, EBITDA Margin and EBITDA Service Margin
Dollars in millions
			Fourth Quarter									Year Ended
			2021			2020						2021			2020
Latin America Segment
Operating Contribution			$	(80)		$	(167)					$	(430)		$	(729)
Additions:
Equity in Net (Income) Loss of Affiliates			1			2						(6)			(24)
Depreciation and amortization			153			260						836			1,033
EBITDA			74			95						400			280
Total Operating Revenues			1,063			1,498						5,354			5,716
Operating Income Margin			-7.4		%	-11.0		%				-8.1		%	-13.2		%
EBITDA Margin			7.0		%	6.3		%				7.5		%	4.9		%
Mexico
Operating Contribution			$	(117)		$	(126)					$	(510)		$	(587)
Additions:
Depreciation and amortization			153			140						605			513
EBITDA			36			14						95			(74)
Total Operating Revenues			704			736						2,747			2,562
Operating Income Margin			-16.6		%	-17.1		%				-18.6		%	-22.9		%
EBITDA Margin			5.1		%	1.9		%				3.5		%	-2.9		%

4

Adjusting Items

Adjusting items include revenues and costs we consider non-operational in nature, including items arising from asset acquisitions or dispositions. We also adjust for net actuarial gains or losses associated with our pension and postemployment benefit plans due to the often-significant impact on our results (we immediately recognize this gain or loss in the income statement, pursuant to our accounting policy for the recognition of actuarial gains and losses). Consequently, our adjusted results reflect an expected return on plan assets rather than the actual return on plan assets, as included in the GAAP measure of income.

The tax impact of adjusting items is calculated using the effective tax rate during the quarter except for adjustments that, given their magnitude, can drive a change in the effective tax rate, in these cases we use the actual tax expense or combined marginal rate of approximately 25%.

Adjusting Items
Dollars in millions
			Fourth Quarter									Year Ended
			2021			2020						2021			2020
Operating Expenses
Merger costs			132			37						299			468
Employee separation costs and benefit-related (gain) loss1			—			253						57			1,177
Asset impairments and abandonment			188			16,365						4,904			18,880
Gain (loss) on spectrum transaction			—			—						—			(900)
Adjustments to Operations and Support Expenses			320			16,655						5,260			19,625
Amortization of intangible assets			1,021			1,890						4,233			8,012
Impairments			—			14						—			14
Adjustments to Operating Expenses			1,341			18,559						9,493			27,651
Other
DIRECTV intangible amortization (proportionate share)			434			—						826			—
(Gain) loss on sale of assets			172			43						(660)			(50)
Debt redemption, impairments and other adjustments			22			(29)						235			1,735
Actuarial (gain) loss			(1,119)			4,106						(4,140)			4,169
Employee benefit-related (gain) loss1			—			(149)						—			(172)
Adjustments to Income Before Income Taxes			850			22,530						5,754			33,333
Tax impact of adjustments			(40)			3,186						580			4,977
Tax-related items			264			41						505			41
Impairment attributable to noncontrolling interest			—			—						81			105
Adjustments to Net Income			$	626		$	19,303					$	4,588		$	28,210
1Mark-to-market gains and losses on benefit-related investments were adjusted in 2020 reflecting more significant market volatility and uncertainty experienced as a result of the onset of the COVID-19 pandemic. Benefit-related investment gains were approximately $160 and $430 in the fourth quarter and for the year ended December 31, 2021, and $205 and $330 in the fourth quarter and for the year ended December 31, 2020.

Adjusted Operating Income, Adjusted Operating Income Margin, Adjusted EBITDA, Adjusted EBITDA margin, Adjusted EBITDA service margin and Adjusted diluted EPS are non-GAAP financial measures calculated by excluding from operating revenues, operating expenses and income tax expense certain significant items that are non-operational or non-recurring in nature, including dispositions and merger integration and transaction costs, actuarial gains and losses, significant abandonments and impairment, severance and other material gains and losses. Management believes that these measures provide relevant and useful information to investors and other users of our financial data in evaluating the effectiveness of our operations and underlying business trends.

Adjusted Operating Revenues, Adjusted Operating Income, Adjusted Operating Income Margin, Adjusted EBITDA, Adjusted EBITDA margin, Adjusted EBITDA service margin and Adjusted diluted EPS should be considered in addition to, but not as a substitute for, other measures of financial performance reported in accordance with GAAP. AT&T's calculation of Adjusted items, as presented, may differ from similarly titled measures reported by other companies.

5

Adjusted Operating Income, Adjusted Operating Income Margin, Adjusted EBITDA and Adjusted EBITDA Margin
Dollars in millions
			Fourth Quarter									Year Ended
			2021			2020						2021			2020
Operating Income			$	5,308		$	(10,745)					$	23,347		$	6,405
Adjustments to Operating Expenses			1,341			18,559						9,493			27,651
Adjusted Operating Income			6,649			7,814						32,840			34,056
EBITDA			10,981			(3,766)						46,209			34,921
Adjustments to Operations and Support Expenses			320			16,655						5,260			19,625
Adjusted EBITDA			11,301			12,889						51,469			54,546
Total Operating Revenues			40,958			45,691						168,864			171,760
Operating Income Margin			13.0		%	(23.5)		%				13.8		%	3.7		%
Adjusted Operating Income Margin			16.2		%	17.1		%				19.4		%	19.8		%
Adjusted EBITDA Margin			27.6		%	28.2		%				30.5		%	31.8		%

Adjusted Diluted EPS
			Fourth Quarter									Year Ended
			2021			2020						2021			2020
Diluted Earnings Per Share (EPS)			$	0.69		$	(1.95)					$	2.76		$	(0.75)
Amortization of intangible assets			0.12			0.22						0.47			0.90
DIRECTV intangible amortization (proportionate share)			0.05			—						0.09			—
Impairments			0.02			2.02						0.56			2.37
(Gain) loss on sale of assets			0.04			0.03						(0.05)			0.02
Actuarial (gain) loss 1			(0.12)			0.43						(0.43)			0.44
Debt redemption, merger and other adjustments			0.02			0.01						0.07			0.21
Tax-related items			(0.04)			(0.01)						(0.07)			(0.01)
Adjusted EPS			$	0.78		$	0.75					$	3.40		$	3.18
Year-over-year growth - Adjusted			4.0		%							6.9		%
Weighted Average Common Shares Outstanding    with Dilution (000,000)			7,204			7,176						7,199			7,183
1Includes adjustments for actuarial gains or losses associated with our postemployment benefit plans, which we immediately recognize in the income statement, pursuant to our accounting policy for the recognition of actuarial gains/losses. We recorded total net actuarial gain of $4.1 billion in 2021. As a result, adjusted EPS reflects an expected return on plan assets of $3.7 billion (based on an average expected return on plan assets of 6.75% for our pension trust and 4.50% for our VEBA trusts), rather than the actual return on plan assets of $5.9 billion gain (actual pension return of 11.4% and VEBA return of 6.3%), included in the GAAP measure of income.

6

Net Debt to Pro Forma Adjusted EBITDA

Net Debt to EBITDA ratios are non-GAAP financial measures frequently used by investors and credit rating agencies and management believes these measures provide relevant and useful information to investors and other users of our financial data. Our Net Debt to Pro Forma Adjusted EBITDA ratio is calculated by dividing the Net Debt by the sum of the most recent four quarters Pro Forma Adjusted EBITDA. Net Debt is calculated by subtracting cash and cash equivalents and certificates of deposit and time deposits that are greater than 90 days, from the sum of debt maturing within one year and long-term debt.

Net Debt to Pro Forma Adjusted EBITDA - 2021
Dollars in millions
						Three Months Ended
						March. 31						June 30,						Sept. 30,						Dec. 31,						Four Quarters
						2021 1						2021 1						2021 1						2021
Adjusted EBITDA						$	13,564					$	13,585					$	13,019					$	11,301					$	51,469
Less: Historical Video						(1,065)						(1,364)						(418)						—						(2,847)
Add: WarnerMedia sale of DIRECTV advertising						349						372						99						—						820
Add: WarnerMedia/DIRECTV revenue share						(271)						(287)						(78)						—						(636)
Less: Historical Vrio						(82)						(89)						(96)						(38)						(305)
Pro Forma Adjusted EBITDA						12,495						12,217						12,526						11,263						48,501
End-of-period current debt																														24,630
End-of-period long-term debt																														152,724
Total End-of-Period Debt																														177,354
Less: Cash and Cash Equivalents																														21,169
Net Debt Balance																														156,185
Annualized Net Debt to Pro Forma    Adjusted EBITDA Ratio 2																														3.22
1Adjusted EBITDA as reported in AT&T's Form 8-K filed April 22, 2021, July 22, 2021 and October 21, 2021.
2Annualized Net Debt to Adjusted EBITDA Ratio of 3.03 (excluding pro forma).

Net Debt to Adjusted EBITDA - 2020
Dollars in millions
						Three Months Ended
						March 31,						June 30,						Sept. 30,						Dec. 31,						Four Quarters
						2020 1						2020 1						2020 1						2020
Adjusted EBITDA						$	14,232					$	14,112					$	13,313					$	12,889					$	54,546
End-of-period current debt																														3,470
End-of-period long-term debt																														153,775
Total End-of-Period Debt																														157,245
Less: Cash and Cash Equivalents																														9,740
Net Debt Balance																														147,505
Annualized Net Debt to Adjusted EBITDA Ratio																														2.70
1As reported in AT&T's Form 8-K filed April 22, 2020, July 23, 2020, and October 22, 2020.

7

Supplemental Operational Measures

We provide a supplemental discussion of our business solutions operations that is calculated by combining our Mobility and Business Wireline operating units, and then adjusting to remove non-business operations. The following table presents a reconciliation of our supplemental Business Solutions results.

Supplemental Operational Measure
			Fourth Quarter
			December 31, 2021															December 31, 2020
			Mobility			Business Wireline			Adjustments1			Business Solutions						Mobility			Business Wireline			Adjustments1			Business Solutions
Operating Revenues
Wireless service			$	14,669		$	—		$	(12,561)		$	2,108					$	14,022		$	—		$	(12,074)		$	1,948
Wireline services			—			5,727			—			5,727						—			6,042			—			6,042
Wireless equipment			6,477			—			(5,447)			1,030						6,097			—			(5,172)			925
Wireline equipment			—			174			—			174						—			209			—			209
Total Operating Revenues			21,146			5,901			(18,008)			9,039						20,119			6,251			(17,246)			9,124
Operating Expenses
Operations and support			13,743			3,687			(11,419)			6,011						13,023			3,938			(10,926)			6,035
EBITDA			7,403			2,214			(6,589)			3,028						7,096			2,313			(6,320)			3,089
Depreciation and amortization			2,050			1,317			(1,700)			1,667						2,008			1,316			(1,686)			1,638
Total Operating Expenses			15,793			5,004			(13,119)			7,678						15,031			5,254			(12,612)			7,673
Operating Income			5,353			897			(4,889)			1,361						5,088			997			(4,634)			1,451
Equity in Net Income (Loss) of Affiliates			—			—			—			—						—			—			—			—
Operating Contribution			$	5,353		$	897		$	(4,889)		$	1,361					$	5,088		$	997		$	(4,634)		$	1,451
1Non-business wireless reported in the Communication segment under the Mobility business unit.

Supplemental Operational Measure
			Year Ended
			December 31, 2021															December 31, 2020
			Mobility			Business Wireline			Adjustments1			Business Solutions						Mobility			Business Wireline			Adjustments1			Business Solutions
Operating Revenues
Wireless service			$	57,590		$	—		$	(49,429)		$	8,161					$	55,542		$	—		$	(47,810)		$	7,732
Wireline service			—			23,224			—			23,224						—			24,313			—			24,313
Wireless equipment			20,664			—			(17,250)			3,414						17,022			—			(14,140)			2,882
Wireline equipment			—			713			—			713						—			770			—			770
Total Operating Revenues			78,254			23,937			(66,679)			35,512						72,564			25,083			(61,950)			35,697
Operating Expenses
Operations and support			46,820			14,755			(38,749)			22,826						42,106			15,303			(34,927)			22,482
EBITDA			31,434			9,182			(27,930)			12,686						30,458			9,780			(27,023)			13,215
Depreciation and amortization			8,122			5,192			(6,744)			6,570						8,086			5,216			(6,802)			6,500
Total Operating Expenses			54,942			19,947			(45,493)			29,396						50,192			20,519			(41,729)			28,982
Operating Income			23,312			3,990			(21,186)			6,116						22,372			4,564			(20,221)			6,715
Equity in Net Income (Loss) of Affiliates			—			—			—			—						—			—			—			—
Operating Contribution			$	23,312		$	3,990		$	(21,186)		$	6,116					$	22,372		$	4,564		$	(20,221)		$	6,715
1Non-business wireless reported in the Communication segment under the Mobility business unit.

8