Discussion and Reconciliation of Non-GAAP Measures for Continuing Operations

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 and cash paid for vendor financing (classified as financing activities). Free cash flow after dividends is defined as cash from operations and cash distributions from DIRECTV classified as investing activities, minus capital expenditures, cash paid for vendor financing 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 vendor financing, 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
	2023			2022			2023			2022
Net cash provided by operating activities from continuing operations1	$	11,378		$	10,348		$	38,314		$	35,812
Add: Distributions from DIRECTV classified as investing          activities	602			444			2,049			2,649
Less: Capital expenditures	(4,601)			(4,229)			(17,853)			(19,626)
Less: Cash paid for vendor financing	(1,006)			(460)			(5,742)			(4,697)
Free Cash Flow	6,373			6,103			16,768			14,138
Less: Dividends paid	(2,020)			(2,014)			(8,136)			(9,859)
Free Cash Flow after Dividends	$	4,353		$	4,089		$	8,632		$	4,279
Free Cash Flow Dividend Payout Ratio	31.7		%	33.0		%	48.5		%	69.7		%
1Includes distributions from DIRECTV of $332 and $1,666 in the fourth quarter and for the year ended December 31, 2023, and $379 and $1,808 in the fourth quarter and for the year ended December 31, 2022.

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
	2023		2022		2023		2022
Capital Expenditures	$	(4,601)	$	(4,229)	$	(17,853)	$	(19,626)
Cash paid for vendor financing	(1,006)		(460)		(5,742)		(4,697)
Cash paid for Capital Investment	$	(5,607)	$	(4,689)	$	(23,595)	$	(24,323)

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.

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 cash generation potential 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
	2023		2022		2023		2022
Income (Loss) from Continuing Operations	$	2,582	$	(23,120)	$	15,623	$	(6,874)
Additions:
Income Tax Expense (Benefit)	354		(77)		4,225		3,780
Interest Expense	1,726		1,560		6,704		6,108
Equity in Net (Income) of Affiliates	(337)		(374)		(1,675)		(1,791)
Other (Income) Expense - Net	946		919		(1,416)		(5,810)
Depreciation and amortization	4,766		4,595		18,777		18,021
EBITDA	10,037		(16,497)		42,238		13,434
Transaction and other cost	26		84		98		425
Benefit-related (gain) loss	(97)		(109)		(129)		108
Asset impairments and abandonments and restructuring	589		26,753		1,193		27,498
Adjusted EBITDA1	$	10,555	$	10,231	$	43,400	$	41,465
1See "Adjusting Items" section 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
	2023			2022			2023			2022
Communications Segment
Operating Income	$	6,608		$	6,577		$	27,801		$	26,736
Add: Depreciation and amortization	4,411			4,258			17,363			16,681
EBITDA	11,019			10,835			45,164			43,417
Total Operating Revenues	30,797			30,365			118,038			117,067
Operating Income Margin	21.5		%	21.7		%	23.6		%	22.8		%
EBITDA Margin	35.8		%	35.7		%	38.3		%	37.1		%
Mobility
Operating Income	$	6,214		$	5,849		$	25,861		$	23,812
Add: Depreciation and amortization	2,162			2,080			8,517			8,198
EBITDA	8,376			7,929			34,378			32,010
Total Operating Revenues	22,393			21,501			83,982			81,780
Service Revenues	16,039			15,434			63,175			60,499
Operating Income Margin	27.7		%	27.2		%	30.8		%	29.1		%
EBITDA Margin	37.4		%	36.9		%	40.9		%	39.1		%
EBITDA Service Margin	52.2		%	51.4		%	54.4		%	52.9		%
Business Wireline
Operating Income	$	165		$	540		$	1,289		$	2,290
Add: Depreciation and amortization	1,369			1,360			5,377			5,314
EBITDA	1,534			1,900			6,666			7,604
Total Operating Revenues	5,052			5,635			20,883			22,538
Operating Income Margin	3.3		%	9.6		%	6.2		%	10.2		%
EBITDA Margin	30.4		%	33.7		%	31.9		%	33.7		%
Consumer Wireline
Operating Income	$	229		$	188		$	651		$	634
Add: Depreciation and amortization	880			818			3,469			3,169
EBITDA	1,109			1,006			4,120			3,803
Total Operating Revenues	3,352			3,229			13,173			12,749
Operating Income Margin	6.8		%	5.8		%	4.9		%	5.0		%
EBITDA Margin	33.1		%	31.2		%	31.3		%	29.8		%
Latin America Segment
Operating Income	$	(43)		$	(79)		$	(141)		$	(326)
Add: Depreciation and amortization	180			164			724			658
EBITDA	137			85			583			332
Total Operating Revenues	1,090			861			3,932			3,144
Operating Income Margin	-3.9		%	-9.2		%	-3.6		%	-10.4		%
EBITDA Margin	12.6		%	9.9		%	14.8		%	10.6		%

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Adjusting Items

Adjusting items include revenues and costs we consider non-operational in nature, including items arising from asset acquisitions or dispositions, including the amortization of intangible assets. While the expense associated with the amortization of certain wireless licenses and customer lists is excluded, the revenue of the acquired companies is reflected in the measure and that those assets contribute to revenue generation. 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
	2023		2022		2023		2022
Operating Expenses
Transaction and other costs	$	26	$	84	$	98	$	425
Benefit-related (gain) loss	(97)		(109)		(129)		108
Asset impairments and abandonments and restructuring	589		26,753		1,193		27,498
Adjustments to Operations and Support Expenses	518		26,728		1,162		28,031
Amortization of intangible assets	21		16		76		76
Adjustments to Operating Expenses	539		26,744		1,238		28,107
Other
DIRECTV intangible amortization (proportionate share)	294		359		1,269		1,547
Benefit-related (gain) loss, impairment of equity investment and other	76		420		390		1,242
Actuarial and settlement (gain) loss – net	1,739		1,839		1,594		(1,999)
Adjustments to Income Before Income Taxes	2,648		29,362		4,491		28,897
Tax impact of adjustments	632		1,082		1,038		882
Tax-related items	271		329		271		977
Adjustments to Net Income	$	1,745	$	27,951	$	3,182	$	27,038

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, other income (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, benefit-related gains and losses, employee separation 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.

4

Adjusted Operating Income, Adjusted Operating Income Margin, Adjusted EBITDA and Adjusted EBITDA Margin
Dollars in millions
	Fourth Quarter						Year Ended
	2023			2022			2023			2022
Operating Income	$	5,271		$	(21,092)		$	23,461		$	(4,587)
Adjustments to Operating Expenses	539			26,744			1,238			28,107
Adjusted Operating Income	5,810			5,652			24,699			23,520
EBITDA	10,037			(16,497)			42,238			13,434
Adjustments to Operations and Support Expenses	518			26,728			1,162			28,031
Adjusted EBITDA	10,555			10,231			43,400			41,465
Total Operating Revenues	32,022			31,343			122,428			120,741
Operating Income Margin	16.5		%	(67.3)		%	19.2		%	(3.8)		%
Adjusted Operating Income Margin	18.1		%	18.0		%	20.2		%	19.5		%
Adjusted EBITDA Margin	33.0		%	32.6		%	35.4		%	34.3		%

Adjusted Diluted EPS
	Fourth Quarter					Year Ended
	2023			2022		2023			2022
Diluted Earnings Per Share (EPS)	$	0.30		$	(3.20)	$	1.97		$	(1.10)
DIRECTV intangible amortization (proportionate share)	0.03			0.04		0.14			0.16
Actuarial and settlement (gain) loss – net1	0.18			0.19		0.17			(0.20)
Restructuring and impairments	0.06			3.57		0.18			3.59
Benefit-related, transaction and other costs1, 2	0.01			0.05		(0.01)			0.25
Tax-related items	(0.04)			(0.04)		(0.04)			(0.13)
Adjusted EPS	$	0.54		$	0.61	$	2.41		$	2.57
Year-over-year growth - Adjusted	-11.5		%			-6.2		%
Weighted Average Common Shares Outstanding    with Dilution (000,000)	7,191			7,533		7,258			7,587
1Includes adjustments for actuarial gains or losses associated with our pension and 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 and settlement losses of $1.6 billion in 2023. As a result, adjusted EPS reflects an expected return on plan assets of $2.7 billion (based on an average expected return on plan assets of 7.5% for our pension trust and 6.5% for our VEBA trusts), rather than the actual return on plan assets of $2.0 billion (actual pension return of 5.2% and VEBA return of 9.1%), included in the GAAP measure of income.
2As of January 1, 2022, we adopted Accounting Standards Update (ASU) No. 2020-06, which requires that instruments which may be settled in cash or stock to be presumed settled in stock in calculating diluted EPS. While our intent was to settle the Mobility II preferred interests in cash, the ability to settle this instrument in AT&T shares resulted in additional dilutive impact, the magnitude of which was influenced by the fair value of the Mobility II preferred interests and the average AT&T common stock price during the reporting period, which could vary from period-to-period. For these reasons, we excluded the impact of ASU 2020-06 from our adjusted EPS calculation. The per share impact of ASU 2020-06 was to decrease reported diluted EPS $0.00 and $0.01 for the quarters ended December 31, 2023 and 2022, and $0.00 and $0.06 for the year ended December 31, 2023 and 2022, respectively. The Mobility II preferred interests were repurchased on April 5, 2023.

5

Net Debt to 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 Adjusted EBITDA ratio is calculated by dividing the Net Debt by the sum of the most recent four quarters Adjusted EBITDA. Net Debt is calculated by subtracting cash and cash equivalents and deposits at financial institutions that are greater than 90 days (e.g., certificates of deposit and time deposits), from the sum of debt maturing within one year and long-term debt.

Net Debt to Adjusted EBITDA - 2023
Dollars in millions
	Three Months Ended
	March. 31		June 30,		Sept. 30,		Dec. 31,		Four Quarters
	2023 1		2023 1		2023 1		2023
Adjusted EBITDA	$	10,589	$	11,053	$	11,203	$	10,555	$	43,400
End-of-period current debt									9,477
End-of-period long-term debt									127,854
Total End-of-Period Debt									137,331
Less: Cash and Cash Equivalents									6,722
Less: Time Deposits									1,750
Net Debt Balance									128,859
Annualized Net Debt to Adjusted EBITDA Ratio									2.97
1As reported in AT&T's Form 8-K filed October 19, 2023.

Net Debt to Adjusted EBITDA - 2022
Dollars in millions
	Three Months Ended
	March 31,		June 30,		Sept. 30,		Dec. 31,		Four Quarters
	2022 1		2022 1		2022 1		2022 1
Adjusted EBITDA	$	10,190	$	10,330	$	10,714	$	10,231	$	41,465
End-of-period current debt									7,467
End-of-period long-term debt									128,423
Total End-of-Period Debt									135,890
Less: Cash and Cash Equivalents									3,701
Net Debt Balance									132,189
Annualized Net Debt to Adjusted EBITDA Ratio									3.19
1As reported in AT&T's Form 8-K filed October 19, 2023.

6

Supplemental Operational Measures

As a supplemental presentation to our Communications segment operating results, we are providing a view of our AT&T Business Solutions results which includes both wireless and fixed operations. This combined view presents a complete profile of the entire business customer relationship and underscores the importance of mobile solutions to serving our business customers. Our supplemental presentation of business solutions operations 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, 2023									December 31, 2022
	Mobility		Business Wireline		Adj.1		Business Solutions			Mobility		Business Wireline		Adj.1		Business Solutions			Percent Change
Operating Revenues
Wireless service	$	16,039	$	—	$	(13,648)	$	2,391		$	15,434	$	—	$	(13,176)	$	2,258		5.9	%
Wireline services	—		4,873		—		4,873			—		5,473		—		5,473			(11.0)	%
Wireless equipment	6,354		—		(5,451)		903			6,067		—		(5,130)		937			(3.6)	%
Wireline equipment	—		179		—		179			—		162		—		162			10.5	%
Total Operating Revenues	22,393		5,052		(19,099)		8,346			21,501		5,635		(18,306)		8,830			(5.5)	%
Operating Expenses
Operations and support	14,017		3,518		(11,683)		5,852			13,572		3,735		(11,354)		5,953			(1.7)	%
EBITDA	8,376		1,534		(7,416)		2,494			7,929		1,900		(6,952)		2,877			(13.3)	%
Depreciation and amortization	2,162		1,369		(1,765)		1,766			2,080		1,360		(1,716)		1,724			2.4	%
Total Operating Expenses	16,179		4,887		(13,448)		7,618			15,652		5,095		(13,070)		7,677			(0.8)	%
Operating Income	$	6,214	$	165	$	(5,651)	$	728		$	5,849	$	540	$	(5,236)	$	1,153		(36.9)	%
Operating Income Margin							8.7		%							13.1		%
1Non-business wireless reported in the Communications segment under the Mobility business unit.
Results have been recast to conform to the current period's classification.

Supplemental Operational Measure
	Year Ended
	December 31, 2023									December 31, 2022
	Mobility		Business Wireline		Adj.1		Business Solutions			Mobility		Business Wireline		Adj.1		Business Solutions			Percent Change
Operating Revenues
Wireless service	$	63,175	$	—	$	(53,752)	$	9,423		$	60,499	$	—	$	(51,710)	$	8,789		7.2	%
Wireline service	—		20,274		—		20,274			—		21,891		—		21,891			(7.4)	%
Wireless equipment	20,807		—		(17,585)		3,222			21,281		—		(17,712)		3,569			(9.7)	%
Wireline equipment	—		609		—		609			—		647		—		647			(5.9)	%
Total Operating Revenues	83,982		20,883		(71,337)		33,528			81,780		22,538		(69,422)		34,896			(3.9)	%
Operating Expenses
Operations and support	49,604		14,217		(40,980)		22,841			49,770		14,934		(41,127)		23,577			(3.1)	%
EBITDA	34,378		6,666		(30,357)		10,687			32,010		7,604		(28,295)		11,319			(5.6)	%
Depreciation and amortization	8,517		5,377		(6,951)		6,943			8,198		5,314		(6,763)		6,749			2.9	%
Total Operating Expenses	58,121		19,594		(47,931)		29,784			57,968		20,248		(47,890)		30,326			(1.8)	%
Operating Income	$	25,861	$	1,289	$	(23,406)	$	3,744		$	23,812	$	2,290	$	(21,532)	$	4,570		(18.1)	%
Operating Income Margin							11.2		%							13.1		%
1Non-business wireless reported in the Communications segment under the Mobility business unit.
Results have been recast to conform to the current period's classification.

7