AT&T INC. 2019 ANNUAL REPORT AT&T INC. FINANCIAL REVIEW 2019 Selected Financial and Operating Data ................................................................................. 14 Management’s Discussion and Analysis of Financial Condition and Results of Operations ............................................................ 15 Consolidated Financial Statements ........................................................................................ 50 Notes to Consolidated Financial Statements ..................................................................... 55 Report of Management ................................................................................................................. 97 Report of Independent Registered Public Accounting Firm ....................................... 98 References ........................................................................................................................................... 102 AT&T Inc. Board of Directors ....................................................................................................... 103 Officers of AT&T Inc. ....................................................................................................................... 104 13 Selected Financial and Operating Data Dollars in millions except per share amounts At December 31 and for the year ended: 2019 2018 2017 2016 2015 Financial Data Operating revenues $181,193 $170,756 $160,546 $163,786 $146,801 Operating expenses $153,238 $144,660 $140,576 $140,243 $126,439 Operating income $ 27,955 $ 26,096 $ 19,970 $ 23,543 $ 20,362 Interest expense $ 8,422 $ 7,957 $ 6,300 $ 4,910 $ 4,120 Equity in net income (loss) of affiliates $ 6 $ (48) $ (128) $ 98 $ 79 Other income (expense) – net $ (1,071) $ 6,782 $ 1,597 $ 1,081 $ 4,371 Income tax (benefit) expense $ 3,493 $ 4,920 $ (14,708) $ 6,479 $ 7,005 Net Income $ 14,975 $ 19,953 $ 29,847 $ 13,333 $ 13,687 Less: Net Income Attributable to Noncontrolling Interest $ (1,072) $ (583) $ (397) $ (357) $ (342) Net Income Attributable to AT&T $ 13,903 $ 19,370 $ 29,450 $ 12,976 $ 13,345 Net Income Attributable to Common Stock $ 13,900 $ 19,370 $ 29,450 $ 12,976 $ 13,345 Basic Earnings Per Common Share: Net Income Attributable to Common Stock $ 1.90 $ 2.85 $ 4.77 $ 2.10 $ 2.37 Diluted Earnings Per Common Share: Net Income Attributable to Common Stock $ 1.89 $ 2.85 $ 4.76 $ 2.10 $ 2.37 Weighted-average common shares outstanding (000,000) 7,319 6,778 6,164 6,168 5,628 Weighted-average common shares outstanding with dilution (000,000) 7,348 6,806 6,183 6,189 5,646 End of period common shares outstanding (000,000) 7,255 7,282 6,139 6,139 6,145 Dividends declared per common share $ 2.05 $ 2.01 $ 1.97 $ 1.93 $ 1.89 Cash and cash equivalents $ 12,130 $ 5,204 $ 50,498 $ 5,788 $ 5,121 Total assets $551,669 $531,864 $444,097 $403,821 $402,672 Long-term debt $151,309 $166,250 $125,972 $113,681 $118,515 Total debt $163,147 $176,505 $164,346 $123,513 $126,151 Debt ratio 44.7% 47.7% 53.6% 49.9% 50.5% Net debt ratio 41.4% 46.2% 37.2% 47.5% 48.5% Book value per common share $ 27.84 $ 26.63 $ 23.13 $ 20.22 $ 20.12 Capital expenditures $ 19,635 $ 21,251 $ 21,550 $ 22,408 $ 20,015 Vendor financing payments $ 3,050 $ 560 $ 572 $ — $ — Gross capital investment1 $ 23,690 $ 23,240 $ 22,401 $ 22,408 $ 20,015 Spectrum acquisitions2 $ 1,316 $ 447 $ (1,380) $ 2,477 $ 17,740 Number of employees 247,800 268,220 254,000 268,540 281,450 1 Includes capital expenditures and vendor financing payments and excludes FirstNet reimbursements of $1,005 in 2019, $1,429 in 2018, $279 in 2017 and $0 in 2016-2015 (see Note 20). 2 Cash paid for FCC license and domestic spectrum acquired in business acquisitions and swaps, net of auction deposit returns. 14 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” in Part II, Item 7 of our Annual Report on Form 10-K for throughout this document, and the names of the particular the fiscal year ended December 31, 2018. subsidiaries and affiliates providing the services generally We have four reportable segments: (1) Communications, have been omitted. AT&T is a holding company whose (2) WarnerMedia, (3) Latin America and (4) Xandr. Our subsidiaries and affiliates operate worldwide in the segment results presented in Note 4 and discussed below telecommunications, media and technology industries. follow our internal management reporting. We analyze our You should read this discussion in conjunction with the segments based on segment operating contribution, which consolidated financial statements and accompanying notes consists of operating income, excluding acquisition-related (Notes). We completed the acquisition of Time Warner Inc. costs and other significant items and equity in net income (Time Warner) on June 14, 2018, and have included its (loss) of affiliates for investments managed within each results after that date. In accordance with U.S. generally segment. Each segment’s percentage calculation of total accepted accounting principles (GAAP), operating results segment operating revenue and contribution is derived from Time Warner prior to the acquisition are excluded. from our segment results table in Note 4 and may total Our Management’s Discussion and Analysis of Financial more than 100% due to losses in one or more segments. Condition and Results of Operations included in this Percentage increases and decreases that are not considered document generally discusses 2019 and 2018 items and meaningful are denoted with a dash. We have recast our year-to-year comparisons between 2019 and 2018. segment results for all prior periods presented to exclude Discussions of 2017 items and year-to-year comparisons wireless and wireline operations in Puerto Rico and the between 2018 and 2017 that are not included in this U.S. Virgin Islands from our Mobility and Business Wireline document can be found in “Management’s Discussion and business units of the Communications segment, instead Analysis of Financial Condition and Results of Operations” reporting them with Corporate and Other (see Note 6). Percent Change 2019 vs. 2018 vs. 2019 2018 2017 2018 2017 Operating Revenues Communications $142,359 $143,721 $149,457 (0.9)% (3.8)% WarnerMedia 33,499 18,941 430 76.9 — Latin America 6,963 7,652 8,269 (9.0) (7.5) Xandr 2,022 1,740 1,373 16.2 26.7 Corporate and other 1,603 2,101 2,200 (23.7) (4.5) Eliminations and consolidation (5,253) (3,399) (1,183) (54.5) — AT&T Operating Revenues 181,193 170,756 160,546 6.1 6.4 Operating Contribution Communications 32,230 32,108 31,488 0.4 2.0 WarnerMedia 9,326 5,695 62 63.8 — Latin America (635) (710) (266) 10.6 — Xandr 1,318 1,333 1,202 (1.1) 10.9 Segment Operating Contribution $ 42,239 $ 38,426 $ 32,486 9.9% 18.3% The Communications segment accounted for approximately • Entertainment Group provides video, including 77% of our 2019 total segment operating revenues over-the-top (OTT) services, broadband and voice compared to 84% in 2018 and 76% of our 2019 total communications services to residential customers. segment operating contribution as compared to 84% in This segment also sells advertising on DIRECTV 2018. This segment provides services to businesses and and U-verse distribution platforms. consumers located in the U.S. and businesses globally. • Business Wireline provides advanced IP-based Our business strategies reflect bundled product offerings services, as well as traditional voice and data services that cut across product lines and utilize shared assets. to business customers. This segment contains the following business units: • Mobility provides nationwide wireless service The WarnerMedia segment accounted for approximately and equipment. 18% of our 2019 total segment operating revenues compared to 11% in 2018 and 22% of our 2019 total segment operating contribution compared to 15% in 2018. 15 Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued) Dollars in millions except per share amounts This segment develops, produces and distributes feature • Mexico provides wireless service and equipment films, television, gaming and other content over various to customers in Mexico. physical and digital formats. This segment contains the • Vrio provides video services primarily to residential following business units: customers using satellite technology in Latin America • Turner primarily operates multichannel basic television and the Caribbean. networks and digital properties. Turner also sells advertising on its networks and digital properties. The Xandr segment accounted for approximately 1% of our total segment operating revenues in 2019 and 2018 • Home Box Office consists of premium pay television and 3% of our total segment operating contribution in and OTT and streaming services domestically and 2019 and 2018. This segment provides advertising services. premium pay, basic tier television and OTT and These services utilize data insights to develop and deliver streaming services internationally, as well as content targeted advertising across video and digital platforms. licensing and home entertainment. • Warner Bros. consists of the production, distribution RESULTS OF OPERATIONS and licensing of television programming and feature Consolidated Results Our financial results are summarized films, the distribution of home entertainment products in the following table. We then discuss factors affecting our and the production