UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

	x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

		For the quarterly period ended ~~September~~June 30, ~~2013~~2014

		or

	o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number 1-8610

AT&T INC.

Incorporated under the laws of the State of Delaware

I.R.S. Employer Identification Number 43-1301883

208 S. Akard St., Dallas, Texas 75202

Telephone Number: (210) 821-4105

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ]

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes [X] No [ ]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “accelerated filer,” “large accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	[X]		Accelerated filer	[ ]
Non-accelerated filer	[ ]	(Do not check if a smaller reporting company)	Smaller reporting company	[ ]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes [ ] No [X]

At ~~October~~July 31, ~~2013~~2014, there were ~~5,268~~5,186 million common shares outstanding.

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

AT&T INC.	AT&T INC.								AT&T INC.
CONSOLIDATED STATEMENTS OF INCOME	CONSOLIDATED STATEMENTS OF INCOME								CONSOLIDATED STATEMENTS OF INCOME
Dollars in millions except per share amounts	Dollars in millions except per share amounts								Dollars in millions except per share amounts
(Unaudited)	(Unaudited)								(Unaudited)
		Three months ended				Nine months ended				Three months ended						Six months ended
		September 30,				September 30,				June 30,						June 30,
		2013		2012		2013		2012		2014			2013			2014			2013
Operating Revenues	$	32,158	$	31,459	$	95,589	$	94,856		$	32,575		$	32,075		$	65,051		$	63,431
Operating Expenses
Cost of services and sales (exclusive of depreciation
and amortization shown separately below)		13,403		12,602		39,227		37,673			14,212			13,270			27,533			25,824
Selling, general and administrative		7,952		8,308		24,406		24,657			8,197			8,121			16,457			16,454
Depreciation and amortization		4,615		4,512		13,715		13,571			4,550			4,571			9,167			9,100
Total operating expenses		25,970		25,422		77,348		75,901			26,959			25,962			53,157			51,378
Operating Income		6,188		6,037		18,241		18,955			5,616			6,113			11,894			12,053
Other Income (Expense)
Interest expense		(829)		(824)		(2,481)		(2,624)			(881	)		(825	)		(1,741	)		(1,652	)
Equity in net income of affiliates		91		182		494		537			102			218			190			403
Other income (expense) – net		50		47		370		122			1,269			288			1,414			320
Total other income (expense)		(688)		(595)		(1,617)		(1,965)			490			(319	)		(137	)		(929	)
Income Before Income Taxes		5,500		5,442		16,624		16,990			6,106			5,794			11,757			11,124
Income tax expense		1,595		1,741		5,066		5,672			2,485			1,914			4,402			3,471
Net Income		3,905		3,701		11,558		11,318			3,621			3,880			7,355			7,653
Less: Net Income Attributable to Noncontrolling Interest		(91)		(66)		(222)		(197)			(74	)		(58	)		(156	)		(131	)
Net Income Attributable to AT&T	$	3,814	$	3,635	$	11,336	$	11,121		$	3,547		$	3,822		$	7,199		$	7,522
Basic Earnings Per Share Attributable to AT&T	$	0.72	$	0.63	$	2.10	$	1.90		$	0.68		$	0.71		$	1.38		$	1.38
Diluted Earnings Per Share Attributable to AT&T	$	0.72	$	0.63	$	2.09	$	1.90		$	0.68		$	0.71		$	1.38		$	1.38
Weighted Average Number of Common Shares
Outstanding – Basic (in millions)		5,315		5,771		5,402		5,848			5,204			5,381			5,213			5,446
Weighted Average Number of Common Shares
Outstanding – with Dilution (in millions)		5,331		5,792		5,419		5,869			5,220			5,397			5,229			5,463
Dividends Declared Per Common Share	$	0.45	$	0.44	$	1.35	$	1.32		$	0.46		$	0.45		$	0.92		$	0.90
See Notes to Consolidated Financial Statements.

AT&T INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Dollars in millions
(Unaudited)
Three months ended Nine months ended
September 30, September 30,
2013 2012 2013 2012
Net income $ 3,905 $ 3,701 $ 11,558 $ 11,318
Other comprehensive income, net of tax:
    Foreign Currency:
     Translation adjustment (includes $(1), $0, $(2) and $0 attributable
           to noncontrolling interest), net of taxes of $(21), $33, $(86)
           and $109
(37) 57 (155) 199
     Reclassification adjustment included in net income, net of
           taxes of $0, $0, $19 and $0
- - 34 -
    Available-for-sale securities:
     Net unrealized gains (losses), net of taxes of $38, $31, $84
            and $58
69 59 155 108
     Reclassification adjustment realized in net income, net of
           taxes of $(2), $(28), $(7) and $(34)
(3) (51) (13) (63)
    Cash flow hedges:
     Net unrealized gains (losses), net of taxes of $171, $126, $286
           and $68
316 232 526 125
     Reclassification adjustment included in net income, net of
           taxes of $4, $4, $12 and $11
7 8 22 21
    Defined benefit postretirement plans:
     Net unrealized gains (losses) from equity method investees
           arising during period, net of taxes of $0, $0, $0 and $(29)
- - - (53)
     Reclassification adjustment included in net income, net of taxes
           of $0, $0, $5 and $0
- - 8 -
     Amortization of net prior service credit included in net income,
           net of taxes of $(109), $(84), $(327) and ($255)
(178) (137) (533) (411)
     Other - (1) - -
Other comprehensive income (loss) 174 167 44 (74)
Total comprehensive income 4,079 3,868 11,602 11,244
Less: Total comprehensive income attributable to
           noncontrolling interest
(90) (66) (220) (197)
Total Comprehensive Income Attributable to AT&T $ 3,989 $ 3,802 $ 11,382 $ 11,047
See Notes to Consolidated Financial Statements.

AT&T INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Dollars in millions
(Unaudited)
	Three months ended						Six months ended
	June 30,						June 30,
	2014			2013			2014			2013
Net income	$	3,621		$	3,880		$	7,355		$	7,653
Other comprehensive income, net of tax:
Foreign Currency:
Translation adjustments (includes $1, $(1), $1 and $(1) attributable to noncontrolling interest), net of taxes of $15, $(127), $5 and $(65)		26			(239	)		6			(118	)
Reclassification adjustment included in net income, net of taxes of $210, $19, $224 and $19		391			34			416			34
Available-for-sale securities:
Net unrealized gains, net of taxes of $24, $6, $34 and $46		43			11			59			86
Reclassification adjustment realized in net income, net of taxes of $(1), $(1), $(8) and $(5)		(3	)		(3	)		(14	)		(10	)
Cash flow hedges:
Net unrealized gains (losses), net of taxes of $(56), $66, $(53) and $115		(104	)		120			(98	)		210
Reclassification adjustment included in net income, net of taxes of $7, $4, $11 and $8		14			8			21			15
Defined benefit postretirement plans:
Reclassification adjustment included in net income, net of taxes $31, $5, $33 and $5		58			8			61			8
Amortization of net prior service credit included in net income, net of taxes of $(142), $(109), $(289) and $(218)		(239	)		(177	)		(479	)		(355	)
Other comprehensive income (loss)		186			(238	)		(28	)		(130	)
Total comprehensive income		3,807			3,642			7,327			7,523
Less: Total comprehensive income attributable to noncontrolling interest		(75	)		(57	)		(157	)		(130	)
Total Comprehensive Income Attributable to AT&T	$	3,732		$	3,585		$	7,170		$	7,393
See Notes to Consolidated Financial Statements.

AT&T INC.
CONSOLIDATED BALANCE SHEETS
Dollars in millions except per share amounts
	June 30,			December 31,
	2014			2013
Assets	(Unaudited)
Current Assets
Cash and cash equivalents	$	11,305		$	3,339
Accounts receivable - net of allowances for doubtful accounts of $461 and $483		13,001			12,918
Prepaid expenses		928			960
Deferred income taxes		1,180			1,199
Other current assets		6,698			4,780
Total current assets		33,112			23,196
Property, plant and equipment		283,252			274,798
Less: accumulated depreciation and amortization		(168,892	)		(163,830	)
Property, Plant and Equipment – Net		114,360			110,968
Goodwill		70,094			69,273
Licenses		59,655			56,433
Other Intangible Assets – Net		6,380			5,779
Investments in Equity Affiliates		159			3,860
Other Assets		9,706			8,278
Total Assets	$	293,466		$	277,787

Liabilities and Stockholders’ Equity
Current Liabilities
Debt maturing within one year	$	10,482		$	5,498
Accounts payable and accrued liabilities		22,966			21,107
Advanced billing and customer deposits		3,990			4,212
Accrued taxes		3,962			1,774
Dividends payable		2,388			2,404
Total current liabilities		43,788			34,995
Long-Term Debt		73,570			69,290
Deferred Credits and Other Noncurrent Liabilities
Deferred income taxes		36,835			36,308
Postemployment benefit obligation		30,070			29,946
Other noncurrent liabilities		16,578			15,766
Total deferred credits and other noncurrent liabilities		83,483			82,020

Stockholders’ Equity
Common stock ($1 par value, 14,000,000,000 authorized at June 30, 2014 and
December 31, 2013: issued 6,495,231,088 at June 30, 2014 and December 31, 2013)		6,495			6,495
Additional paid-in capital		91,057			91,091
Retained earnings		33,554			31,141
Treasury stock (1,304,409,511 at June 30, 2014 and 1,268,914,913
at December 31, 2013, at cost)		(46,825	)		(45,619	)
Accumulated other comprehensive income		7,851			7,880
Noncontrolling interest		493			494
Total stockholders’ equity		92,625			91,482
Total Liabilities and Stockholders’ Equity	$	293,466		$	277,787
See Notes to Consolidated Financial Statements.

AT&T INC.
CONSOLIDATED BALANCE SHEETS
Dollars in millions except per share amounts
September 30, December 31,
2013 2012
Assets (Unaudited)
Current Assets
Cash and cash equivalents $ 1,371 $ 4,868
Accounts receivable - net of allowances for doubtful accounts of $491 and $547 12,444 12,657
Prepaid expenses 1,022 1,035
Deferred income taxes 682 1,036
Other current assets 2,916 3,110
Total current assets 18,435 22,706
Property, plant and equipment 282,445 270,907
   Less: accumulated depreciation and amortization (170,021) (161,140)
Property, Plant and Equipment – Net 112,424 109,767
Goodwill 70,014 69,773
Licenses 56,304 52,352
Customer Lists and Relationships – Net 876 1,391
Other Intangible Assets – Net 5,020 5,032
Investments in and Advances to Equity Affiliates 3,949 4,581
Other Assets 7,577 6,713
Total Assets $ 274,599 $ 272,315

Liabilities and Stockholders’ Equity
Current Liabilities
Debt maturing within one year $ 7,873 $ 3,486
Accounts payable and accrued liabilities 20,433 20,494
Advanced billing and customer deposits 4,013 4,225
Accrued taxes 1,488 1,026
Dividends payable 2,376 2,556
Total current liabilities 36,183 31,787
Long-Term Debt 68,350 66,358
Deferred Credits and Other Noncurrent Liabilities
Deferred income taxes 30,666 28,491
Postemployment benefit obligation 42,036 41,392
Other noncurrent liabilities 11,234 11,592
Total deferred credits and other noncurrent liabilities 83,936 81,475

Stockholders’ Equity
Common stock ($1 par value, 14,000,000,000 authorized at September 30, 2013 and
   December 31, 2012: issued 6,495,231,088 at September 30, 2013 and December 31, 2012) 6,495 6,495
Additional paid-in capital 91,021 91,038
Retained earnings 26,648 22,481
Treasury stock (1,214,987,626 at September 30, 2013 and 913,836,325
   at December 31, 2012, at cost) (43,731) (32,888)
Accumulated other comprehensive income 5,282 5,236
Noncontrolling interest 415 333
Total stockholders’ equity 86,130 92,695
Total Liabilities and Stockholders’ Equity $ 274,599 $ 272,315
See Notes to Consolidated Financial Statements.

AT&T INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Dollars in millions
(Unaudited)
		Six months ended
		June 30,
		2014			2013
Operating Activities
Net income		$	7,355		$	7,653
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization			9,167			9,100
Undistributed earnings from investments in equity affiliates			(58	)		(198	)
Provision for uncollectible accounts			444			439
Deferred income tax expense			546			1,081
Net gain from sale of investments, net of impairments			(1,365	)		(260	)
Changes in operating assets and liabilities:
Accounts receivable			(566	)		(290	)
Other current assets			(771	)		784
Accounts payable and accrued liabilities			2,894			(340	)
Retirement benefit funding			(280	)		-
Other - net			(497	)		(258	)
Total adjustments			9,514			10,058
Net Cash Provided by Operating Activities			16,869			17,711

Investing Activities
Construction and capital expenditures:
Capital expenditures			(11,649	)		(9,665	)
Interest during construction			(118	)		(140	)
Acquisitions, net of cash acquired			(857	)		(1,182	)
Dispositions			4,921			825
Return of advances to and investments in equity affiliates			2			301
Other			-			(4	)
Net Cash Used in Investing Activities	��		(7,701	)		(9,865	)

Financing Activities
Net change in short-term borrowings with original maturities of three months or less			134			-
Issuance of other short-term borrowings			-			1,476
Repayment of other short-term borrowings			-			(233	)
Issuance of long-term debt			8,564			6,416
Repayment of long-term debt			(3,508	)		(1,823	)
Purchase of treasury stock			(1,396	)		(9,217	)
Issuance of treasury stock			27			104
Dividends paid			(4,784	)		(4,930	)
Other			(239	)		41
Net Cash Used in Financing Activities			(1,202	)		(8,166	)
Net increase (decrease) in cash and cash equivalents			7,966			(320	)
Cash and cash equivalents beginning of year			3,339			4,868
Cash and Cash Equivalents End of Period		$	11,305		$	4,548
Cash paid during the six months ended June 30 for:
Interest		$	2,292		$	2,002
Income taxes, net of refunds		$	987		$	591
See Notes to Consolidated Financial Statements.

AT&T INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Dollars in millions
(Unaudited)
Nine months ended
September 30,
2013 2012
Operating Activities
Net income $ 11,558 $ 11,318
Adjustments to reconcile net income to net cash provided by operating activities:
   Depreciation and amortization 13,715 13,571
   Undistributed earnings from investments in equity affiliates (232) (483)
   Provision for uncollectible accounts 653 835
   Deferred income tax expense and noncurrent unrecognized tax benefits 2,389 3,441
   Net (gain) loss from sale of investments, net of impairments (272) (27)
Changes in operating assets and liabilities:
      Accounts receivable (440) (571)
      Other current assets 520 1,581
      Accounts payable and accrued liabilities (420) (156)
Retirement benefit funding (175) -
Other - net (417) (853)
Total adjustments 15,321 17,338
Net Cash Provided by Operating Activities 26,879 28,656

Investing Activities
Construction and capital expenditures:
   Capital expenditures (15,565) (13,619)
   Interest during construction (213) (197)
Acquisitions, net of cash acquired (4,025) (551)
Dispositions 846 807
Sales (purchases) of securities, net - 311
Return of advances to and investments in equity affiliates 301 -
Other (4) (2)
Net Cash Used in Investing Activities (18,660) (13,251)

Financing Activities
Net change in short-term borrowings with original maturities of three months or less 1,851 -
Issuance of other short-term borrowings 1,476 -
Repayment of other short-term borrowings (1,476) -
Issuance of long-term debt 6,416 6,935
Repayment of long-term debt (2,131) (8,042)
Purchase of treasury stock (11,134) (8,374)
Issuance of treasury stock 108 460
Dividends paid (7,325) (7,738)
Other 499 98
Net Cash Used in Financing Activities (11,716) (16,661)
Net decrease in cash and cash equivalents (3,497) (1,256)
Cash and cash equivalents beginning of year 4,868 3,045
Cash and Cash Equivalents End of Period $ 1,371 $ 1,789
Cash paid during the nine months ended September 30 for:
   Interest $ 2,980 $ 3,214
   Income taxes, net of refunds $ 1,573 $ 390
See Notes to Consolidated Financial Statements.

AT&T INC.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY
Dollars and shares in millions except per share amounts
(Unaudited)
	June 30, 2014
	Shares	Amount
Common Stock
Balance at beginning of year	6,495	$	6,495
Issuance of stock	-		-
Balance at end of period	6,495	$	6,495

Additional Paid-In Capital
Balance at beginning of year		$	91,091
Issuance of treasury stock			4
Share-based payments			(34)
Change related to acquisition of interests held by noncontrolling owners			(4)
Balance at end of period		$	91,057

Retained Earnings
Balance at beginning of year		$	31,141
Net income attributable to AT&T ($1.38 per diluted share)			7,199
Dividends to stockholders ($0.92 per share)			(4,786)
Balance at end of period		$	33,554

Treasury Stock
Balance at beginning of year	(1,269)	$	(45,619)
Repurchase of common stock	(42)		(1,396)
Issuance of treasury stock	7		190
Balance at end of period	(1,304)	$	(46,825)

Accumulated Other Comprehensive Income Attributable to AT&T, net of tax
Balance at beginning of year		$	7,880
Other comprehensive loss attributable to AT&T			(29)
Balance at end of period		$	7,851

Noncontrolling Interest
Balance at beginning of year		$	494
Net income attributable to noncontrolling interest			156
Distributions			(158)
Translation adjustments attributable to noncontrolling interest, net of taxes			1
Balance at end of period		$	493

Total Stockholders’ Equity at beginning of year		$	91,482
Total Stockholders’ Equity at end of period		$	92,625
See Notes to Consolidated Financial Statements.

AT&T INC.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY
Dollars and shares in millions except per share amounts
(Unaudited)
September 30, 2013
Shares Amount
Common Stock
Balance at beginning of year 6,495 $ 6,495
Issuance of stock - -
Balance at end of period 6,495 $ 6,495

Additional Paid-In Capital
Balance at beginning of year $ 91,038
Issuance of treasury stock (8)
Share-based payments (9)
Balance at end of period $ 91,021

Retained Earnings
Balance at beginning of year $ 22,481
Net income attributable to AT&T ($2.09 per diluted share) 11,336
Dividends to stockholders ($1.35 per share) (7,169)
Balance at end of period $ 26,648

Treasury Stock
Balance at beginning of year (914) $ (32,888)
Repurchase of common stock (312) (11,134)
Issuance of treasury stock 11 291
Balance at end of period (1,215) $ (43,731)

Accumulated Other Comprehensive Income Attributable to AT&T, net of tax
Balance at beginning of year $ 5,236
Other comprehensive income attributable to AT&T 46
Balance at end of period $ 5,282

Noncontrolling Interest
Balance at beginning of year $ 333
Net income attributable to noncontrolling interest 222
Distributions (161)
Acquisitions of noncontrolling interests 23
Translation adjustments attributable to noncontrolling interest, net of taxes (2)
Balance at end of period $ 415

Total Stockholders’ Equity at beginning of year $ 92,695
Total Stockholders’ Equity at end of period $ 86,130
See Notes to Consolidated Financial Statements.

AT&T INC.

~~SEPTEMBER~~JUNE 30, ~~2013~~2014

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Dollars in millions except per share amounts

NOTE 1. PREPARATION OF INTERIM FINANCIAL STATEMENTS

Basis of Presentation Throughout this document, AT&T Inc. is referred to as “AT&T,” “we” or the “Company.” We believe that these consolidated financial statements include all adjustments, consisting only of normal recurring accruals, that are necessary to present fairly the results for the presented interim periods. The results for the interim periods are not necessarily indicative of those for the full year. You should read this document in conjunction with the consolidated financial statements and accompanying notes included in our Annual Report on Form 10-K for the year ended December 31, ~~2012.~~2013. On March 13, 2014, we closed our acquisition of Leap Wireless International, Inc. (Leap) (see Note 7), and we incorporated Leap into our wireless operations following the date of acquisition.

The consolidated financial statements include the accounts of the Company and our majority-owned subsidiaries and affiliates. Our subsidiaries and affiliates operate in the communications services industry both domestically and internationally, providing wireless communications services, traditional wireline voice services, data/broadband and Internet services, video services, telecommunications equipment, managed networking and wholesale services.

All significant intercompany transactions are eliminated in the consolidation process. Investments in ~~partnerships and~~ less than majority-owned subsidiaries and partnerships where we have significant influence are accounted for under the equity method. Earnings from certain foreign equity investments accounted for using the equity method are included for periods ended within up to one month of our period end. We also record our proportionate share of our equity method investees’ other comprehensive income (OCI) items, including actuarial gains and losses on pension and other postretirement benefit obligations. On June 30, 2014, we completed the sale of our investment in América Móvil, S.A.B. de C.V. (América Móvil) to an unrelated third party (see Note 7).

The preparation of financial statements in conformity with U.S. generally accepted accounting principles (GAAP) requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes, including estimates of probable losses and expenses. Actual results could differ from those estimates. Certain amounts have been reclassified to conform to the current period’s presentation.

Stock Repurchase Program ~~In May 2013,~~During the first six months of 2014, we ~~completed~~repurchased approximately 42 million shares for $1,396 under a repurchase authorization that was approved by our Board of Directors in ~~July 2012.~~March 2013. In March ~~2013,~~2014, our Board of Directors ~~authorized the~~approved another authorization to repurchase ~~of up to an additional~~ 300 million shares of our common stock. ~~During the first nine months of 2013, we repurchased 312 million shares for $11,134 under these authorizations.~~ At ~~September~~June 30, ~~2013,~~2014, we had ~~216~~421 million shares remaining under ~~the March 2013 authorization.~~these authorizations. The ~~authorization has~~repurchase authorizations have no expiration ~~date.~~date, and we expect to make future repurchases opportunistically.

Software Costs During 2014, we completed a study evaluating the periods that we were utilizing our non-network software assets. As of April 1, 2014, we modified our amortization period for capitalized non-network software to five years to better reflect the estimated periods during which these assets will remain in service and to align with amortization periods used in the industry. Had we not revised the amortization period, our depreciation and amortization expense would have been $4,763 in the second quarter and $9,380 for the first six months.

New Accounting Standards In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update No. 2014-09, “Revenue from Contracts with Customers (Topic 606)” (ASU 2014-09), which replaces existing revenue recognition rules with a comprehensive revenue measurement and recognition standard and expanded disclosure requirements. Upon initial evaluation, we believe the key changes in the standard that impact our revenue recognition relate to the allocation of contract revenues between service and equipment, and the timing in which those revenues are recognized. ASU 2014-09 also specifies that incremental costs of obtaining or fulfilling our contracts with customers should be deferred. ASU 2014-09 becomes effective for annual reporting periods beginning after December 15, 2016.

The FASB will allow two adoption methods under ASU 2014-09. Under one method, a company will apply the rules to contracts in all reporting periods presented, subject to certain allowable exceptions. Under the other method, a company will apply the rules to all contracts existing as of January 1, 2017, recognizing in beginning retained earnings an adjustment for the cumulative effect of the change and provide additional disclosures comparing results to previous rules. We continue to evaluate the impact of the new standard and available adoption methods.

AT&T INC.

~~SEPTEMBER~~JUNE 30, ~~2013~~2014

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued

Dollars in millions except per share amounts

NOTE 2. EARNINGS PER SHARE

A reconciliation of the numerators and denominators of basic earnings per share and diluted earnings ~~per share for net income attributable to AT&T~~ for the three and ~~nine~~six months ended ~~September~~June 30, ~~2013~~2014 and ~~2012,~~2013, is shown in the table below:

	Three months ended				Nine months ended				Three months ended						Six months ended
	September 30,				September 30,				June 30,						June 30,
	2013		2012		2013		2012		2014			2013			2014			2013
Numerators
Numerator for basic earnings per share:
Net income	$	3,905	$	3,701	$	11,558	$	11,318
Net income attributable to noncontrolling interest		(91)		(66)		(222)		(197)
Net income attributable to AT&T		3,814		3,635		11,336		11,121
Net Income									$	3,621		$	3,880		$	7,355		$	7,653
Less: Net income attributable to noncontrolling interest										(74	)		(58	)		(156	)		(131	)
Net Income attributable to AT&T										3,547			3,822			7,199			7,522
Dilutive potential common shares:
Share-based payment		3		3		9		9		3			2			7			6
Numerator for diluted earnings per share	$	3,817	$	3,638	$	11,345	$	11,130	$	3,550		$	3,824		$	7,206		$	7,528
Denominators (000,000)
Denominator for basic earnings per share:
Weighted average number of common shares outstanding		5,315		5,771		5,402		5,848		5,204			5,381			5,213			5,446
Dilutive potential common shares:
Share-based payment		16		21		17		21
Share-based payment (in shares)										16			16			16			17
Denominator for diluted earnings per share		5,331		5,792		5,419		5,869		5,220			5,397			5,229			5,463
Basic earnings per share attributable to AT&T	$	0.72	$	0.63	$	2.10	$	1.90	$	0.68		$	0.71		$	1.38		$	1.38
Diluted earnings per share attributable to AT&T	$	0.72	$	0.63	$	2.09	$	1.90	$	0.68		$	0.71		$	1.38		$	1.38

At ~~September~~June 30, ~~2013~~2014 and ~~2012,~~2013, we had issued and outstanding options to purchase approximately 1211 million and 1813 million shares of AT&T common stock. For the quarter ended ~~September~~June 30, ~~2013~~2014 and ~~2012,~~2013, the exercise prices of 3 million and 2 million shares were above the market price of AT&T stock for the respective periods. Accordingly, we did not include these amounts in determining the dilutive potential common shares. ~~At September 30, 2013 and 2012, the exercise prices of 9 million and 16 million vested stock options were below market price.~~

AT&T INC.

~~SEPTEMBER~~JUNE 30, ~~2013~~2014

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued

Dollars in millions except per share amounts

NOTE 3. OTHER COMPREHENSIVE INCOME

Changes in the balances of each component included in accumulated ~~OCI~~other comprehensive income (accumulated OCI) for the ~~nine~~six months ended ~~September~~June 30, 2014 and 2013, are presented below. For the period ended June 30, 2014, the amounts reclassified from accumulated OCI include the adjustments resulting from our change in accounting for América Móvil (see Note 7). All amounts are net of tax and exclude noncontrolling interest.

At September 30, 2013 and for the period ended:
At June 30, 2014 and for the period ended:																At June 30, 2014 and for the period ended:
			Foreign Currency Translation Adjustment			Net Unrealized Gain (Loss) on Available- for-Sale Securities			Net Unrealized Gains (Losses) on Cash Flow Hedges			Defined Benefit Postretirement Plans			Accumulated Other Comprehensive Income		Foreign Currency Translation Adjustment			Net Unrealized Gains (Losses) on Available- for-Sale Securities			Net Unrealized Gains (Losses) on Cash Flow Hedges			Defined Benefit Postretirement Plans			Accumulated Other Comprehensive Income
Balance as of January 1, 2013		$	(284)		$	272		$	(110)		$	5,358		$	5,236
Balance as of December 31, 2013																Balance as of December 31, 2013	$	(367)		$	450		$	445		$	7,352		$	7,880
Other comprehensive income (loss) before reclassifications	Other comprehensive income (loss) before reclassifications		(153)			155			526			-			528	Other comprehensive income (loss) before reclassifications		5			59			(98)			-			(34)
Amounts reclassified from accumulated OCI	Amounts reclassified from accumulated OCI		34	1		(13)	2		22	3		(525)	4		(482)	Amounts reclassified from accumulated OCI		416	1		(14)	2		21	3		(418)	4		5
Net other comprehensive income (loss)	Net other comprehensive income (loss)		(119)			142			548			(525)			46	Net other comprehensive income (loss)		421			45			(77)			(418)			(29)
Balance as of September 30, 2013		$	(403)		$	414		$	438		$	4,833		$	5,282
Balance as of June 30, 2014																Balance as of June 30, 2014	$	54		$	495		$	368		$	6,934		$	7,851

At June 30, 2013 and for the period ended:																At June 30, 2013 and for the period ended:
																	Foreign Currency Translation Adjustment			Net Unrealized Gains (Losses) on Available- for-Sale Securities			Net Unrealized Gains (Losses) on Cash Flow Hedges			Defined Benefit Postretirement Plans			Accumulated Other Comprehensive Income
Balance as of December 31, 2012																Balance as of December 31, 2012	$	(284)		$	272		$	(110)		$	5,358		$	5,236
Other comprehensive income (loss) before reclassifications																Other comprehensive income (loss) before reclassifications		(117)			86			210			-			179
Amounts reclassified from accumulated OCI																Amounts reclassified from accumulated OCI		34	1		(10)	2		15	3		(347)	4		(308)
Net other comprehensive income (loss)																Net other comprehensive income (loss)		(83)			76			225			(347)			(129)
Balance as of June 30, 2013																Balance as of June 30, 2013	$	(367)		$	348		$	115		$	5,011		$	5,107
1	Pre-tax translation loss reclassifications are included in Other income (expense) - net in the consolidated statements of income.															Pre-tax translation loss reclassifications are included in Other income (expense) - net in the consolidated statements of income.
2	Realized gains are included in Other income (expense) - net in the consolidated statements of income.															Pre-tax gains are included in Other income (expense) - net in the consolidated statements of income.
3	Realized (gains) losses are included in interest expense in the consolidated statements of income. See Note 6 for additional information.															(Gains) losses are included in interest expense in the consolidated statements of income. See Note 6 for additional information.
4	The amortization of prior service credits associated with postretirement benefits, net of amounts capitalized as part of construction labor, are included in Cost of services and sales and Selling, general and administrative in the consolidated statements of income (see Note 5). Actuarial loss															The amortization of prior service credits associated with postretirement benefits, net of amounts capitalized as part of construction labor, are included in Cost of services and sales and Selling, general and administrative in the consolidated statements of income (see Note 5).
	reclassifications related to our equity method investees are included in Other income (expense) - net in the consolidated statements of income.															Actuarial loss reclassifications related to our equity method investees are included in Other income (expense) - net in the consolidated statements of income.

AT&T INC.

JUNE 30, 2014

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued

Dollars in millions except per share amounts

NOTE 4. SEGMENT INFORMATION

Our segments are strategic business units that offer different products and services over various technology platforms and are managed accordingly. We analyze our operating segments based on segment income before income taxes. We make our capital allocation decisions based on ~~the~~our strategic ~~needs~~direction of the business, needs of the network (wireless or wireline) ~~provided~~providing services and demands to provide emerging services to our customers. Actuarial gains and losses from pension and other postretirement benefits, interest expense and other income (expense) – net, are managed only on a total company basis and are, accordingly, reflected only in consolidated results. Therefore, these items are not included in each segment’s reportable ~~segment’s~~ results. The customers and long-lived assets of our reportable segments are predominantly in the United States. We have ~~three~~two reportable segments: (1) Wireless and (2) ~~Wireline and (3) Other. Our operating results prior to May 9, 2012, also included our Advertising Solutions segment, which was subsequently sold.~~Wireline.

The Wireless segment uses our nationwide network to provide consumer and business customers with wireless data and voice communications services. This segment includes our portion of the results from our mobile ~~payment~~wallet joint venture ~~marketed as the Isis Mobile Wallet~~TM ~~(ISIS),~~ which is accounted for as an equity ~~method~~ investment.

The Wireline segment uses our regional, national and global network to provide consumer and business customers with data and voice communications services, AT&T U-verse® ~~high-speed broadband,~~high speed Internet, video and ~~voice~~VoIP services and managed networking to business customers. ~~Additionally, commissions on sales of satellite television services offered through our agency arrangements are included in the segment.~~

The Corporate and Other ~~segment~~column includes ~~our portion of the results from our international equity investment, our equity interest in YP Holdings LLC (YP Holdings), and~~unallocated corporate expenses, which includes costs to support corporate-driven activities and ~~operations. Also included in the Other segment are~~operations, impacts of corporate-wide decisions for which the individual operating segments are not being evaluated, including interest costs and expected return on plan assets for our pension and postretirement benefit ~~plans.~~plans as well as our actuarial gains and losses on our pension and postretirement plan valuations. Results from equity method investments in América Móvil (prior to our May 2014 announcement of our intention to dispose of our investment), YP Holdings LLC, and Otter Media (our joint venture with The Chernin Group), are also excluded from our segment results as those results are nonoperational and not considered in our assessment of segment performance. We have revised our prior-period presentation to conform to our current reporting.

AT&T INC.

~~SEPTEMBER~~JUNE 30, ~~2013~~2014

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued

Dollars in millions except per share amounts

In the following tables, we show how our segment results are reconciled to our consolidated results reported.

For the three months ended September 30, 2013						Advertising						Consolidated Results
For the three months ended June 30, 2014												Consolidated Results	For the three months ended June 30, 2014
		Wireless		Wireline		Solutions		Other		Consolidations		Consolidated Results		Wireless			Wireline		Corporate and Other			Consolidated Results
Data	$	5,509	$	8,457	$	-	$	-	$	-	$	Consolidated Results
Voice, text and other		9,951		5,023		-		-		-		14,974
Equipment and other		2,020		1,190		-		8		-		3,218
Service														$	15,148		$	14,408	$	-		$	29,556
Equipment															2,782			229		8			3,019
Total segment operating revenues															17,930			14,637		8			32,575
Operations and support expenses															11,568			10,700		141			22,409
Depreciation and amortization expenses															2,035			2,514		1			4,550
Total segment operating expenses															13,603			13,214		142			26,959
Segment operating income (loss)															4,327			1,423		(134	)		5,616
Interest expense															-			-		881			881
Equity in net income (loss) of affiliates															(29	)		-		131			102
Other income (expense) – net															-			-		1,269			1,269
Segment income before income taxes														$	4,298		$	1,423	$	385		$	6,106

For the six months ended June 30, 2014													For the six months ended June 30, 2014									Consolidated Results
														Wireless			Wireline		Corporate and Other			Consolidated Results
Service														$	30,535		$	28,797	$	-		$	59,332
Equipment															5,261			441		17			5,719
Total segment operating revenues		17,480		14,670		-		8		-		32,158			35,796			29,238		17			65,051
Operations and support expenses		10,982		10,385		-		(12)		-		21,355			22,450			21,157		383			43,990
Depreciation and amortization expenses		1,875		2,736		-		4		-		4,615			3,966			5,198		3			9,167
Total segment operating expenses		12,857		13,121		-		(8)		-		25,970			26,416			26,355		386			53,157
Segment operating income (loss)		4,623		1,549		-		16		-		6,188			9,380			2,883		(369	)		11,894
Interest expense		-		-		-		-		829		829			-			-		1,741			1,741
Equity in net income (loss) of affiliates		(18)		-		-		109		-		91			(49	)		1		238			190
Other income (expense) – net		-		-		-		-		50		50			-			-		1,414			1,414
Segment income (loss) before income taxes	$	4,605	$	1,549	$	-	$	125	$	(779)	$	5,500		$	9,331		$	2,884	$	(458	)	$	11,757

For the nine months ended September 30, 2013						Advertising						Consolidated Results
		Wireless		Wireline		Solutions		Other		Consolidations		Consolidated Results
Data	$	15,990	$	25,019	$	-	$	-	$	-	$	41,009
Voice, text and other		29,902		15,470		-		-		-		45,372
Equipment and other		5,570		3,609		-		29		-		9,208
Total segment operating revenues		51,462		44,098		-		29		-		95,589
Operations and support expenses		31,932		31,137		-		564		-		63,633
Depreciation and amortization expenses		5,553		8,146		-		16		-		13,715
Total segment operating expenses		37,485		39,283		-		580		-		77,348
Segment operating income (loss)		13,977		4,815		-		(551)		-		18,241
Interest expense		-		-		-		-		2,481		2,481
Equity in net income (loss) of affiliates		(55)		1		-		548		-		494
Other income (expense) – net		-		-		-		-		370		370
Segment income (loss) before income taxes	$	13,922	$	4,816	$	-	$	(3)	$	(2,111)	$	16,624

AT&T INC.

~~SEPTEMBER~~JUNE 30, ~~2013~~2014

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued

Dollars in millions except per share amounts

For the three months ended September 30, 2012						Advertising						Consolidated Results
For the three months ended June 30, 2013												Consolidated Results	For the three months ended June 30, 2013
		Wireless		Wireline		Solutions		Other		Consolidations		Consolidated Results		Wireless			Wireline		Corporate and Other			Consolidated Results
Data	$	4,686	$	7,987	$	-	$	-	$	-	$	Consolidated Results
Voice, text and other		10,220		5,563		-		-		-		15,783
Equipment and other		1,726		1,264		-		13		-		3,003
Service														$	15,370		$	14,482	$	-		$	29,852
Equipment															1,921			291		11			2,223
Total segment operating revenues		16,632		14,814		-		13		-		31,459			17,291			14,773		11			32,075
Operations and support expenses		10,432		10,246		-		232		-		20,910			10,770			10,417		204			21,391
Depreciation and amortization expenses		1,730		2,774		-		8		-		4,512			1,843			2,722		6			4,571
Total segment operating expenses		12,162		13,020		-		240		-		25,422			12,613			13,139		210			25,962
Segment operating income (loss)		4,470		1,794		-		(227)		-		6,037			4,678			1,634		(199	)		6,113
Interest expense		-		-		-		-		824		824			-			-		825			825
Equity in net income (loss) of affiliates		(17)		-		-		199		-		182			(19	)		-		237			218
Other income (expense) – net		-		-		-		-		47		47			-			-		288			288
Segment income (loss) before income taxes	$	4,453	$	1,794	$	-	$	(28)	$	(777)	$	5,442		$	4,659		$	1,634	$	(499	)	$	5,794

For the nine months ended September 30, 2012						Advertising						Consolidated Results
For the six months ended June 30, 2013												Consolidated Results	For the six months ended June 30, 2013									Consolidated Results
		Wireless		Wireline		Solutions		Other		Consolidations		Consolidated Results		Wireless			Wireline		Corporate and Other			Consolidated Results
Data	$	13,392	$	23,722	$	-	$	-	$	-	$	Consolidated Results
Voice, text and other		30,845		17,151		-		-		-		47,996
Equipment and other		4,884		3,777		1,049		36		-		9,746
Service														$	30,432		$	28,863	$	-		$	59,295
Equipment															3,550			565		21			4,136
Total segment operating revenues		49,121		44,650		1,049		36		-		94,856			33,982			29,428		21			63,431
Operations and support expenses		30,000		30,849		773		708		-		62,330			20,950			20,752		576			42,278
Depreciation and amortization expenses		5,092		8,348		106		25		-		13,571			3,678			5,410		12			9,100
Total segment operating expenses		35,092		39,197		879		733		-		75,901			24,628			26,162		588			51,378
Segment operating income (loss)		14,029		5,453		170		(697)		-		18,955			9,354			3,266		(567	)		12,053
Interest expense		-		-		-		-		2,624		2,624			-			-		1,652			1,652
Equity in net income (loss) of affiliates		(45)		(1)		-		583		-		537			(37	)		1		439			403
Other income (expense) – net		-		-		-		-		122		122			-			-		320			320
Segment income (loss) before income taxes	$	13,984	$	5,452	$	170	$	(114)	$	(2,502)	$	16,990		$	9,317		$	3,267	$	(1,460	)	$	11,124

NOTE 5. PENSION AND POSTRETIREMENT BENEFITS

Substantially all of our employees are covered by one of our noncontributory pension plans. We also provide certain medical, dental, life insurance, and death benefits to certain retired employees under various plans and accrue actuarially determined postretirement benefit costs as active employees earn these benefits. Our objective in funding these plans, in combination with the standards of the Employee Retirement Income Security Act of 1974, as amended (ERISA), is to accumulate assets sufficient to meet the plans’ obligations to provide benefits to employees upon their retirement.

OnIn July 2014, the U.S. Department of Labor (DOL) published in the Federal Register their final retroactive approval of our September 9, 2013 ~~we made a~~ voluntary contribution of a preferred equity interest in AT&T Mobility II LLC, ~~(Mobility),~~ the primary holding company for our wireless business, to the trust used to pay pension benefits under our qualified pension plans. The preferred equity interest had a value of ~~$9,104 on the contribution date.~~$9,187 at June 30, 2014. The trust is entitled to receive cumulative cash distributions of $560 per annum, which will be distributed quarterly in equal amounts and will be accounted for as contributions. We distributed $280 to the trust during the six months ended June 30, 2014. So long as we make the distributions, the terms of the preferred interest will impose no limitations on our ability to declare a dividend, or repurchase shares. This preferred equity interest is a plan asset under ERISA and is recognized as such in the plan’s separate financial statements. However, because the preferred equity interest is not unconditionally transferable to an unrelated party, it is not ~~included~~reflected in plan assets in our consolidated financial ~~statements. At the time of the contribution of the preferred equity interest, we made an additional cash contribution of $175~~statements and have agreed to annual cash contributions of $175 no later than the due date for our federal income tax return for each of 2014, 2015 and 2016. These contributions combined with our existing pension assets, are essentially equivalent to the expected pension obligation at year-end.instead has been eliminated in consolidation.

AT&T INC.

~~SEPTEMBER~~JUNE 30, ~~2013~~2014

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued

Dollars in millions except per share amounts

We recognize actuarial gains and losses on pension and postretirement plan assets in our operating results at our annual measurement date of December 31, unless earlier remeasurements are required. The following table details pension and postretirement benefit costs included in operating expenses in the accompanying consolidated statements of income, expense credits are denoted with parentheses. A portion of these ~~costs~~expenses is capitalized as part of internal construction projects, providing a small reduction in the net expense recorded.

	Three months ended				Nine months ended				Three months ended						Six months ended
	September 30,				September 30,				June 30,						June 30,
	2013		2012		2013		2012		2014			2013			2014			2013
Pension cost:
Service cost – benefits earned during the period	$	331	$	301	$	991	$	915	$	282		$	330		$	564		$	660
Interest cost on projected benefit obligation		608		700		1,822		2,100		662			607			1,323			1,214
Expected return on assets		(828)		(880)		(2,484)		(2,640)		(851	)		(828	)		(1,700	)		(1,656	)
Amortization of prior service (credit)		(25)		(3)		(71)		(11)
Amortization of prior service credit										(23	)		(23	)		(47	)		(46	)
Net pension cost	$	86	$	118	$	258	$	364	$	70		$	86		$	140		$	172

Postretirement cost:
Service cost – benefits earned during the period	$	95	$	81	$	286	$	247	$	58		$	96		$	116		$	191
Interest cost on accumulated postretirement benefit obligation		389		446		1,168		1,340		364			389			729			779
Expected return on assets		(177)		(200)		(533)		(601)		(162	)		(178	)		(326	)		(356	)
Amortization of prior service (credit)		(263)		(215)		(788)		(647)
Net postretirement cost	$	44	$	112	$	133	$	339
Amortization of prior service credit										(362	)		(262	)		(724	)		(525	)
Net postretirement (credit) cost									$	(102	)	$	45		$	(205	)	$	89

Combined net pension and postretirement cost	$	130	$	230	$	391	$	703
Combined net pension and postretirement (credit) cost									$	(32	)	$	131		$	(65	)	$	261

Our combined net pension and postretirement cost decreased ~~$100~~$163 in the ~~third~~second quarter and ~~$312~~$326 for the first ~~nine~~six months of ~~2013.~~2014. The decrease ~~is driven by lower interest costs, which reflect the declining bond rates used when valued at the beginning of the year and~~reflects higher amortization of prior service credits due to plan changes, including changes to ~~retiree~~future costs for continued retiree healthcare coverage. The decrease also reflects increasing corporate bond rates, which contributed to lower service cost and higher interest costs.

Due in part to our 2013 enhanced retirement offer and projected distribution levels, we expect that lump sum distributions from the plan during 2014 could exceed service and interest costs, resulting in settlement accounting for a portion of our pension plan. This ~~decrease is partially offset by lower expected long-term return on plan~~would result in remeasurement of the plans assets ~~reflecting~~and obligations, with remeasurement for each ~~plan’s asset mix and continued uncertainty in the securities markets and the U.S. economy.~~interim period thereafter.

We also provide senior- and middle-management employees with nonqualified, unfunded supplemental retirement and savings plans. Net supplemental retirement pension benefits cost, which is not included in the table above, was ~~$27~~$29 in the ~~third~~second quarter of ~~2013,~~2014, of which ~~$25~~$28 was interest cost, and ~~$82~~$58 for the first ~~nine~~six months, of which ~~$76~~$55 was interest cost. In ~~2012,~~2013, net supplemental retirement pension benefits cost was ~~$31~~$28 in the ~~third~~second quarter, of which ~~$29~~$26 was interest cost, and ~~$94~~$55 for the first ~~nine~~six months, of which ~~$87~~$51 was interest cost.

AT&T INC.

~~SEPTEMBER~~JUNE 30, ~~2013~~2014

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued

Dollars in millions except per share amounts

NOTE 6. FAIR VALUE MEASUREMENTS AND DISCLOSURE

The Fair Value Measurement and Disclosure framework provides a three-tiered fair value hierarchy that gives highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are described below:

Level 1

Inputs to the valuation methodology are unadjusted quoted prices for identical assets or liabilities in active markets that we have the ability to access.

Level 2

Inputs to the valuation methodology include:

·	Quoted prices for similar assets and liabilities in active markets.

·	Quoted prices for identical or similar assets or liabilities in inactive markets.

·	Inputs other than quoted market prices that are observable for the asset or liability.

·	Inputs that are derived principally from or corroborated by observable market data by correlation or other means.

Level 3

Inputs to the valuation methodology are unobservable and significant to the fair value measurement.

·	Fair value is often based on developed models in which there are few, if any, external observations.

The fair value measurements level of an asset or liability within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Valuation techniques used should maximize the use of observable inputs and minimize the use of unobservable inputs.

The valuation methodologies described above may produce a fair value calculation that may not be indicative of future net realizable value or reflective of future fair values. We believe our valuation methods are appropriate and consistent with other market participants. The use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different fair value measurement at the reporting date. There have been no changes in the methodologies used since December 31, ~~2012.~~2013.

Long-Term Debt and Other Financial Instruments

The carrying amounts and estimated fair values of our long-term debt, including current maturities and other financial instruments, are summarized as follows:

	September 30, 2013				December 31, 2012				June 30, 2014					December 31, 2013
	Carrying		Fair		Carrying		Fair		Carrying		Fair			Carrying			Fair
	Amount		Value		Amount		Value		Amount		Value			Amount			Value
Notes and debentures	$	74,103	$	79,156	$	69,578	$	81,310	$	83,548		$	91,833		$	74,484		$	79,309
Commercial paper		1,851		1,851		-		-		150			150			20			20
Bank borrowings		1		1		1		1		5			5			1			1
Investment securities		2,525		2,525		2,218		2,218		2,708			2,708			2,450			2,450

The carrying value of debt with an original maturity of less than one year approximates market value. The fair value measurements used for notes and debentures are considered Level 2.
2 and are determined using various methods, including quoted prices for identical or similar securities in both active and inactive markets.

AT&T INC.

~~SEPTEMBER~~JUNE 30, ~~2013~~2014

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued

Dollars in millions except per share amounts

Following is the fair value leveling for available-for-sale securities and derivatives as of June 30, 2014 and December 31, 2013:

	June 30, 2014
	Level 1		Level 2			Level 3		Total
Available-for-Sale Securities
Domestic equities	$	1,113	$	-		$	-	$	1,113
International equities		566		-			-		566
Fixed income bonds		-		949			-		949
Asset Derivatives1
Interest rate swaps		-		203			-		203
Cross-currency swaps		-		2,011			-		2,011
Liability Derivatives1
Cross-currency swaps		-		(503	)		-		(503	)

	December 31, 2013
		Level 1		Level 2			Level 3		Total
Available-for-Sale Securities
Domestic equities	$	1,049	$	-		$	-	$	1,049
International equities		563		-			-		563
Fixed income bonds		-		759			-		759
Asset Derivatives1
Interest rate swaps		-		191			-		191
Cross-currency swaps		-		1,951			-		1,951
Liability Derivatives1
Interest rate swaps		-		(7	)		-		(7	)
Cross-currency swaps		-		(519	)		-		(519	)
1 Derivatives designated as hedging instruments are reflected as Other assets, Other noncurrent liabilities and, for a portion of interest rate swaps, Other current assets.

Investment Securities

Our investment securities include equities, fixed income bonds and other securities. A substantial portion of the fair values of our available-for-sale securities was estimated based on quoted market prices. Investments in securities not traded on a national securities exchange are valued using pricing models, quoted prices of securities with similar characteristics or discounted cash flows. Realized gains and losses on securities are included in “Other income (expense) – net” in the consolidated statements of income using the specific identification method. Unrealized gains and losses, net of tax, on available-for-sale securities are recorded in accumulated OCI. Unrealized losses that are considered other than temporary are recorded in “Other income (expense) – net” with the corresponding reduction to the carrying basis of the investment. Fixed income investments of ~~$109~~$90 have maturities of less than one year, ~~$279~~$285 within one to three years, ~~$175~~$300 within three to five years, and ~~$252~~$274 for five or more years.

Our short-term investments (including money market securities) and customer deposits are recorded at amortized cost, and the respective carrying amounts approximate fair values. Our investment securities are recorded in “Other Assets” on the consolidated balance sheets.

~~Following is the fair value leveling for available-for-sale securities and derivatives as of September 30, 2013 and December 31, 2012:~~

September 30, 2013
Level 1 Level 2 Level 3 Total
Available-for-Sale Securities
   Domestic equities $ 1,065 $ - $ - $ 1,065
   International equities 583 - - 583
   Fixed income bonds - 815 - 815
Asset Derivatives1

   Interest rate swaps - 216 - 216
   Cross-currency swaps - 1,657 - 1,657
Liability Derivatives1

   Interest rate swaps - (4) - (4)
   Cross-currency swaps - (557) - (557)

December 31, 2012
Level 1 Level 2 Level 3 Total
Available-for-Sale Securities
   Domestic equities $ 873 $ - $ - $ 873
   International equities 469 - - 469
   Fixed income bonds - 837 - 837
Asset Derivatives1

   Interest rate swaps - 287 - 287
   Cross-currency swaps - 752 - 752
   Foreign exchange contracts - 1 - 1
Liability Derivatives1

   Cross-currency swaps - (672) - (672)
1 Derivatives designated as hedging instruments are reflected as Other assets, Other noncurrent liabilities and, for a portion of interest rate swaps, Other current assets.

AT&T INC.

~~SEPTEMBER~~JUNE 30, ~~2013~~2014

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued

Dollars in millions except per share amounts

Derivative Financial Instruments

We employ derivatives to manage certain market risks, primarily interest rate risk and foreign currency exchange risk. This includes the use of interest rate swaps, interest rate locks, foreign exchange forward contracts and combined interest rate foreign exchange contracts (cross-currency swaps). We do not use derivatives for trading or speculative purposes. We record derivatives on our consolidated balance sheets at fair value that is derived from observable market data, including yield curves and foreign exchange rates (all of our derivatives are Level 2). Cash flows associated with derivative instruments are presented in the same category on the consolidated statements of cash flows as the item being hedged.

The majority of our derivatives are designated either as a hedge of the fair value of a recognized asset or liability or of an unrecognized firm commitment (fair value hedge), or as a hedge of a forecasted transaction or of the variability of cash flows to be received or paid related to a recognized asset or liability (cash flow hedge).

Fair Value Hedging We designate our fixed-to-floating interest rate swaps as fair value hedges. The purpose of these swaps is to manage interest rate risk by managing our mix of fixed-rate and floating-rate debt. These swaps involve the receipt of fixed-rate amounts for floating interest rate payments over the life of the swaps without exchange of the underlying principal amount. Accrued and realized gains or losses from interest rate swaps impact interest expense onin the consolidated statements of income. Unrealized gains on interest rate swaps are recorded at fair market value as assets, and unrealized losses on interest rate swaps are recorded at fair market value as liabilities. Changes in the fair ~~value~~values of the interest rate swaps are exactly offset by changes in the fair value of the ~~fixed-rate notes payable they hedge due to changes in the designated benchmark interest rate and are recognized in interest expense.~~underlying debt. Gains or losses realized upon early termination of our fair value hedges are recognized in interest expense. In the ~~nine~~six months ended ~~September~~June 30, ~~2013~~2014 and ~~September~~June 30, ~~2012,~~2013, no ineffectiveness was ~~measured.~~measured on interest rate swaps designated as fair value hedges.

Cash Flow Hedging We designate our cross-currency swaps as cash flow hedges. We have entered into multiple cross-currency swaps to hedge our exposure to variability in expected future cash flows that are attributable to foreign currency risk generated from the issuance of our Euro, British pound sterling and Canadian dollar denominated debt. These agreements include initial and final exchanges of principal from fixed foreign denominations to fixed U.S. denominated amounts, to be exchanged at a specified rate, which was determined by the market spot rate upon issuance. They also include an interest rate swap of a fixed foreign-denominated rate to a fixed U.S. denominated interest rate.

Unrealized gains on derivatives designated as cash flow hedges are recorded at fair value as assets, and unrealized losses on derivatives designated as cash flow hedges are recorded at fair value as liabilities, both for the period they are outstanding. For derivative instruments designated as cash flow hedges, the effective portion is reported as a component of accumulated OCI until reclassified into interest expense in the same period the hedged transaction affects earnings. The gain or loss on the ineffective portion is recognized as ~~other~~“Other income ~~or expense~~(expense) – net” in the consolidated statements of income in each period.

We designate our cross-currency swaps as cash flow hedges. We have entered into multiple cross-currency swaps to hedge our exposure to variability in expected future cash flows that are attributable to foreign currency risk generated from the issuance of our Euro and British pound sterling denominated debt. These agreements include initial and final exchanges of principal from fixed foreign denominations to fixed U.S. denominated amounts, to be exchanged at a specified rate, which was determined by the market spot rate upon issuance. They also include an interest rate swap of a fixed foreign-denominated rate to a fixed U.S. denominated interest rate. We evaluate the effectiveness of our cross-currency swaps each quarter. In the ~~nine~~six months ended ~~September~~June 30, ~~2013~~2014 and ~~September~~June 30, ~~2012,~~2013, no ineffectiveness was ~~measured.~~measured on cross-currency swaps designated as cash flow hedges.

Periodically, we enter into and designate interest rate locks to partially hedge the risk of changes in interest payments attributable to increases in the benchmark interest rate during the period leading up to the probable issuance of fixed-rate debt. We designate our interest rate locks as cash flow hedges. Gains and losses when we settle our interest rate locks are amortized into income over the life of the related debt, except where a material amount is deemed to be ineffective, which would be immediately reclassified to “Other income (expense) – net” in the consolidated statements of income. Over the next 12 months, we expect to reclassify ~~$45~~$43 from accumulated OCI to interest expense due to the amortization of net losses on historical interest rate locks.

We ~~may~~ hedge a portion of the exchange risk involved in anticipation of highly probable foreign currency-denominated transactions. In anticipation of these transactions, we often enter into foreign exchange contracts to provide currency at a fixed rate. Some of these instruments are designated as cash flow hedges while others remain nondesignated, largely based on size and duration. Gains and losses at the time we settle or take delivery on our designated foreign exchange contracts are amortized into income in the same period the hedged transaction affects earnings, except where an amount is deemed to be ineffective, which would be immediately reclassified to “Other income (expense) – net” in the consolidated statements of income. In the ~~nine~~six months ended ~~September~~June 30, ~~2013~~2014 and ~~September~~June 30, ~~2012,~~2013, no ineffectiveness was ~~measured.~~measured on foreign exchange contracts designated as cash flow hedges.

AT&T INC.

~~SEPTEMBER~~JUNE 30, ~~2013~~2014

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued

Dollars in millions except per share amounts

Collateral and Credit-Risk Contingency We have entered into agreements with our derivative counterparties establishing collateral thresholds based on respective credit ratings and netting agreements. At ~~September~~June 30, ~~2013,~~2014, we had posted collateral of ~~$17~~$3 (a deposit asset) and held collateral of ~~$1,190~~$1,755 (a receipt liability). Under the agreements, if our credit rating had been downgraded one rating level by Moody’s Investors Service and ~~Standards~~Standard & Poor’s Rating Services and two rating levels by Fitch ~~Inc.,~~Ratings, before the final collateral exchange in ~~September,~~June, we would have been required to post additional collateral of ~~$55.~~$50. At December 31, ~~2012,~~2013, we had posted collateral of ~~$22~~$8 (a deposit asset) and held collateral of ~~$543~~$1,600 (a receipt liability). We do not offset the fair value of collateral, whether the right to reclaim cash collateral (a receivable) or the obligation to return cash collateral (a payable), against the fair value of the derivative instruments.

Following is the notional amount of our outstanding derivative positions:

	September 30,		December 31,		June 30,			December 31,
	2013		2012		2014			2013
Interest rate swaps	$	4,750	$	3,000		$	6,350		$	4,750
Cross-currency swaps		14,136		12,071			20,650			17,787
Foreign exchange contracts		4		51
Total	$	18,890	$	15,122		$	27,000		$	22,537

Following is the related hedged items affecting our financial position and performance:	Following is the related hedged items affecting our financial position and performance:																Following is the related hedged items affecting our financial position and performance:

Effect of Derivatives on the Consolidated Statements of Income	Effect of Derivatives on the Consolidated Statements of Income																Effect of Derivatives on the Consolidated Statements of Income
Fair Value Hedging Relationships	Three months ended								Nine months ended
Fair Value Hedging Relationships																		Three months ended						Six months ended
Fair Value Hedging Relationships	September 30, 2013				September 30, 2012				September 30, 2013				September 30, 2012					June 30, 2014			June 30, 2013			June 30, 2014			June 30, 2013
Fair Value Hedging Relationships
Gain (Loss) on interest rate swaps		$	9			$	(21	)		$	(78	)		$	(158	)		$	22		$	(63	)	$	11		$	(87	)
Gain (Loss) on long-term debt			(9	)			21				78				158				(22	)		63			(11	)		87

In addition, the net swap settlements that accrued and settled in the ~~quarters~~quarter ended ~~September~~June 30 were offset against interest expense.

	Three months ended						Nine months ended						Three months ended						Six months ended
Cash Flow Hedging Relationships	September 30, 2013			September 30, 2012			September 30, 2013			September 30, 2012			June 30, 2014			June 30, 2013			June 30, 2014			June 30, 2013
Cross-currency swaps:
Gain (Loss) recognized in accumulated OCI	$	482		$	355		$	807		$	190		$	(160	)	$	184		$	(149	)	$	325

Interest rate locks:
Interest income (expense) reclassified from accumulated OCI into income		(11	)		(12	)		(34	)		(32	)		(11	)		(12	)		(22	)		(23	)

Foreign exchange contracts:
Gain (Loss) recognized in accumulated OCI		5			3			5			3			-			2			(2	)		-

AT&T INC.

~~SEPTEMBER~~JUNE 30, ~~2013~~2014

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued

Dollars in millions except per share amounts

NOTE 7. ACQUISITIONS, DISPOSITIONS AND OTHER ADJUSTMENTS

Acquisitions

~~Atlantic Tele-Network, Inc.~~Leap ~~In September 2013,~~On March 13, 2014, we acquired Atlantic Tele-Network, Inc.’s U.S. retail wireless operations, operated under the Alltel brand, for $806 in cash, which includes closing adjustments. Under the terms of the agreement, we acquired wireless properties, with a preliminary value of $322 in licenses and $239 of goodwill.

~~700 MHz Spectrum~~ In September 2013, we acquired spectrum in the 700 MHz B band from Verizon Wireless for $1,900 in cash and an assignment of Advanced Wireless Service (AWS) spectrum licenses in five markets. The 700 MHz licenses acquired by AT&T cover 42 million people in 18 states. We recognized a gain of approximately $293 on this and other spectrum transactions.

~~Pending Acquisitions~~

Leap,~~In July 2013, we announced an agreement to acquire Leap Wireless International, Inc. (Leap),~~ a provider of prepaid wireless service, for fifteen dollars per outstanding share of Leap’s common stock, or ~~approximately $1,260,~~$1,248 (excluding Leap’s cash on hand), plus one ~~non-transferable~~nontransferable contingent value right (CVR) per share. The CVR will entitle each Leap stockholder to a pro rata share of the net proceeds of the future sale of the Chicago 700 MHz A-band Federal Communications Commission (FCC) license held by Leap. As

The preliminary values of ~~June 30, 2013, Leap had approximately $2,700 of debt, net of cash. Under~~assets acquired under the terms of the agreement ~~we will acquire~~were: $3,000 in licenses, $510 in property, plant and equipment, $520 of customer lists, $340 for trade names and $716 of goodwill. The estimated fair value of debt associated with the acquisition of Leap was $3,889, all of ~~Leap’s~~which was redeemed or matured by July 31, 2014.

Pending Acquisition

DIRECTV On May 18, 2014, we announced an agreement to acquire DIRECTV in a stock-and-cash transaction for ninety-five dollars per share of DIRECTV’s common stock, or approximately $48,500 at the date of announcement. As of June 30, 2014, DIRECTV had approximately $17,691 in net debt. Each DIRECTV shareholder will receive cash of $28.50 per share and ~~thereby, acquire all~~$66.50 per share in our stock. The stock portion will be subject to a collar such that DIRECTV shareholders will receive 1.905 AT&T shares if our stock price is below $34.90 per share at closing and 1.724 AT&T shares if our stock price is above $38.58 at closing. If our stock price is between $34.90 and $38.58 at closing, then DIRECTV shareholders will receive a number of ~~its wireless properties, including spectrum licenses, network assets, retail stores~~shares between 1.724 and ~~approximately 5 million subscribers. Leap’s spectrum licenses include Personal Communications Services (PCS)~~1.905, equal to $66.50 in value. DIRECTV is a premier pay TV provider in the United States and ~~AWS bands~~Latin America, with a high-quality customer base, the best selection of programming, the best technology for delivering and ~~are largely complementary to our licenses. Leap’s network covers approximately 96 million people in 35 states~~viewing high-quality video on any device and ~~consists of a 3G CDMA network~~the best customer satisfaction among major U.S. cable and ~~an LTE network covering approximately 21 million people.~~satellite TV providers.

The merger agreement ~~was approved~~must be adopted by ~~Leap’s~~DIRECTV’s stockholders ~~on October 30, 2013. The transaction~~and is subject to review by the FCC and the Department of Justice ~~(DOJ). The review process~~and to other closing conditions. It is ~~underway at both agencies.~~also a condition that all necessary consents by certain state public utility commissions and foreign governmental entities have been obtained and are in full force and effect. We have obtained all required state regulatory consents. The transaction is expected to close inwithin 12 months of the ~~first quarter of 2014.~~announcement. The agreement provides ~~both parties with~~ certain mutual termination rights for us and DIRECTV, including the right of either party to terminate the agreement if the ~~transaction does~~merger is not ~~close~~consummated by ~~July 11, 2014, which can be extended until January 11,~~May 18, 2015, subject to extension in certain cases to a date no later than November 13, 2015. Either party may also terminate the agreement if ~~certain conditions have~~the DIRECTV stockholders' approval has not been ~~met by~~obtained at a duly convened meeting of DIRECTV stockholders or an order permanently restraining, enjoining, or otherwise prohibiting consummation of the merger becomes final and non-appealable. In addition, we may terminate the agreement if the DIRECTV board of directors changes its recommendation of the merger in a manner adverse to AT&T prior to the DIRECTV stockholders’ approval having been obtained. The parties also have agreed that ~~date.~~in the event that DIRECTV’s agreement for the “NFL Sunday Ticket” service is not renewed substantially on the terms discussed between the parties, the Company may elect not to consummate the Merger, but the Company will not have a damages claim arising out of such failure so long as DIRECTV used its reasonable best efforts to obtain such renewal. Under certain circumstances ~~Leap~~relating to a competing transaction, DIRECTV may be required to pay a termination fee to us in connection with or ~~AT&T may be required to provide Leap with~~following a three-year roaming agreement for LTE data coverage in certain Leap markets lacking LTE coverage, if the transaction does not close. If Leap enters into the roaming agreement, AT&T will then have the option within 30 days after entry into the roaming agreement to purchase certain specified Leap spectrum assets. If AT&T does not exercise its right to purchase alltermination of the ~~specified Leap spectrum assets, Leap can then within 60 days after expiration of AT&T’s option require AT&T to purchase all of the specified spectrum assets.~~agreement.

~~NOTE 8. SUBSEQUENT EVENTS~~

On October 20, 2013, we announced an agreement with Crown Castle International Corp. (Crown Castle) in which Crown Castle will have the exclusive rights to lease and operate approximately 9,100 and purchase approximately 600 of our wireless towers for $4,850. Under the terms of the leases, Crown Castle will have exclusive rights to lease and operate the towers over an average term of approximately 28 years. As the leases expire, Crown Castle will have fixed price purchase options for these towers totaling approximately $4,200, based on their estimated fair market values at the end of the lease terms. We will sublease capacity on the towers from Crown Castle for a minimum of 10 years at current market rates, with options to renew. We plan to account for the proceeds as a financing obligation and expect this transaction to close by year-end 2013, subject to standard closing conditions.

AT&T INC.

~~SEPTEMBER~~JUNE 30, ~~2013~~2014

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued

Dollars in millions except per share amounts

Disposition

América Móvil In May 2014, in conjunction with the announcement of our intention to dispose of our investment in América Móvil and the resignation of our board members from the board of América Móvil, we discontinued accounting for this investment under the equity method due to our lack of significant influence. On June 30, 2014, we sold our remaining stake in América Móvil for approximately $5,566 and recorded a pre-tax gain of $1,243. At closing, we received $4,565 cash and have agreed to receive a final cash payment of approximately $1,001 within 60 days. To date we have received partial payments totaling $650.

Pending Disposition

Connecticut Wireline In December 2013, we entered into an agreement to sell our incumbent local exchange operations in Connecticut for $2,000 in cash. The transaction was approved by the FCC on July 25, 2014 and is pending before the Connecticut Public Utilities Regulatory Authority and other state regulatory authorities. We expect the deal to close in the fourth quarter of 2014, subject to customary closing conditions.

We applied held-for-sale treatment to the assets and liabilities of the Connecticut operations, and, accordingly, included the assets in “Other current assets,” and the related liabilities in “Accounts payable and accrued liabilities,” on our consolidated balance sheets. However, the business does not qualify as discontinued operations as we expect significant continuing direct cash flows related to the disposed operations. Assets and liabilities of the Connecticut operations included the following:

	June 30,		December 31,
	2014		2013
Assets held for sale:
Current assets	$	122	$	155
Property, plant and equipment - net		1,388		1,289
Goodwill		799		799
Other assets		18		17
Total assets	$	2,327	$	2,260

Liabilities related to assets held for sale:
Current liabilities	$	125	$	128
Noncurrent liabilities		478		480
Total liabilities	$	603	$	608

AT&T INC.

JUNE 30, 2014

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued

Dollars in millions except per share amounts

NOTE 8. SALE OF EQUIPMENT INSTALLMENT RECEIVABLES

We offer our customers the option to purchase certain wireless devices in installments over a period of up to 24 months, with the right to trade in the original equipment for a new device and have the remaining unpaid balance satisfied. As of June 30, 2014, gross equipment installment receivables of $2,427 were included on our consolidated balance sheets.

On June 27, 2014, we entered into uncommitted agreements pertaining to the sale of equipment installment receivables and related security with Citibank, N.A. and various other relationship banks as purchasers (collectively, the Purchasers) with a funding amount not expected to exceed $2,000 at any given time. Under the agreement, we may transfer the receivables to the Purchasers for cash and additional consideration upon settlement of the receivables. Under the terms of the arrangement, we continue to bill and collect on behalf of our customers for the receivables sold.

On June 27, 2014, we sold to the Purchasers equipment installment receivables totaling $1,637 (or $1,391 net of allowance, imputed interest and trade-in right guarantees) and received cash proceeds of $819 and will collect the remaining balance over the remaining term of the equipment installment contracts. We have recorded a deferred purchase price of $565 that assumes customers elect to trade-in their device and agree to a new contract with AT&T; however, if customers choose not to trade-in, we expect to receive the remaining installments. The deferred purchase price was recorded at estimated fair value, which was based on remaining installment payments expected to be collected, adjusted by the expected timing and value of the device trade-ins. The value of the device trade-ins considers estimated prices offered to us by independent, third parties that contemplate changes in value after the launch of a device. Our maximum exposure to loss as a result of selling these is limited to the amount of our deferred purchase price at any point in time.

This transaction did not have a material impact in our consolidated statements of income or to "Total Assets" reported on our consolidated balance sheet. We will reflect the cash flows related to the arrangement as operating activities in our consolidated statements of cash flows because the cash received from the Purchasers upon both the sale of the receivables and the collection of the deferred purchase price is not subject to significant interest rate risk.

AT&T INC.

JUNE 30, 2014

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Dollars in millions except per share amounts

RESULTS OF OPERATIONS

For ease of reading, 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 in the communications services industry both in the United States and internationally, providing wireless and wireline telecommunication services and equipment. You should read this discussion in conjunction with the consolidated financial statements, accompanying notes and management’s discussion and analysis of financial condition and results of operations included in our Annual Report on Form 10-K for the year ended December 31, ~~2012.~~2013. A reference to a “Note” in this section refers to the accompanying Notes to Consolidated Financial Statements. In the tables throughout this section, percentage increases and decreases that are not considered meaningful are denoted with a dash. Certain amounts have been reclassified to conform to the current period’s presentation.

Consolidated Results Our financial results in the ~~third~~second quarter and for the first ~~nine~~six months of ~~2013~~2014 and ~~2012~~2013 are summarized as follows:

	Third Quarter							Nine-Month Period							Second Quarter							Six-Month Period
	2013		2012		Percent Change			2013		2012		Percent Change			2014		2013		Percent Change			2014		2013		Percent Change
	2013		2012		Percent Change			2013		2012		Percent Change			2014		2013		Percent Change			2014		2013		Percent Change
Operating Revenues	$	32,158	$	31,459		2.2	%	$	95,589	$	94,856		0.8	%	$	32,575	$	32,075		1.6	%	$	65,051	$	63,431		2.6	%
Operating expenses
Cost of services and sales		13,403		12,602		6.4			39,227		37,673		4.1			14,212		13,270		7.1			27,533		25,824		6.6
Selling, general and administrative		7,952		8,308		(4.3	)		24,406		24,657		(1.0	)		8,197		8,121		0.9			16,457		16,454		-
Depreciation and amortization		4,615		4,512		2.3			13,715		13,571		1.1			4,550		4,571		(0.5	)		9,167		9,100		0.7
Total Operating Expenses		25,970		25,422		2.2			77,348		75,901		1.9			26,959		25,962		3.8			53,157		51,378		3.5
Operating Income		6,188		6,037		2.5			18,241		18,955		(3.8	)		5,616		6,113		(8.1	)		11,894		12,053		(1.3	)
Income Before Income Taxes		5,500		5,442		1.1			16,624		16,990		(2.2	)		6,106		5,794		5.4			11,757		11,124		5.7
Net Income		3,905		3,701		5.5			11,558		11,318		2.1			3,621		3,880		(6.7	)		7,355		7,653		(3.9	)
Net Income Attributable to AT&T	$	3,814	$	3,635		4.9	%	$	11,336	$	11,121		1.9	%	$	3,547	$	3,822		(7.2	) %	$	7,199	$	7,522		(4.3	) %

Overview

Operating income ~~increased $151,~~decreased $497, or ~~2.5%~~8.1%, in the ~~third~~second quarter and ~~decreased $714,~~$159, or ~~3.8%~~1.3%, for the first ~~nine~~six months of ~~2013. Both operating revenues and expenses~~2014. Operating income in the ~~first nine months~~second quarter reflects lower wireless service revenues resulting from the popularity of ~~2012 include results~~Mobile Share plans, continued decline in legacy voice and data product revenues as well as higher AT&T U-verse® (U-verse) content costs. This decline is partially offset by higher wireless equipment revenue for device sales under our ~~sold Advertising Solutions segment, which had a negative impact on comparisons to operating income for the first nine months of 2013. Operating income increased in the third quarter reflecting~~AT&T NextSM (AT&T Next) program as well as continued growth in ~~wireless data and equipment revenues, increased revenues from AT&T U-verse® (U-verse)~~our U-verse and strategic services, and gains realized on spectrum transactions. These increases were partially offset by continued declines in our traditional voice and data services, higher wireless equipment costs, increased expenses for new product development as well as increased expenses supporting U-verse subscriber growth. Operating income for the first nine months was driven by the same factors as for the quarter; however it was also impacted by higher wireless commission expenses and the sale of our Advertising Solutions segment.business services. Our operating ~~income margin in~~results include the ~~third quarter was 19.2% in both 2012 and 2013 and for~~operations of Leap Wireless International, Inc. (Leap) from March 13, 2014, the ~~first nine months decreased from 20.0% in 2012 to 19.1% in 2013.~~date of acquisition.

Operating revenues increased ~~$699,~~$500, or ~~2.2%~~1.6%, in the ~~third~~second quarter and ~~$733,~~$1,620, or ~~0.8%~~2.6%, for the first ~~nine~~six months of ~~2013. Wireless data and~~2014. Growth in wireless revenues reflected the continuing trend by our postpaid subscribers to choose devices on installment purchase rather than the device subsidy model, which resulted in increased equipment revenues increased, reflecting the increasing percentage of wireless subscribers choosing smartphones. Continued growth in U-verse services from residential customers and strategic services also contributed to higher operating revenues. The revenue ~~increases were~~recognized for device sales, partially offset by ~~continued declines in wireline~~lower wireless service revenues. Wireline revenues were slightly lower and continue to be driven by service revenues from our U-verse services and strategic business services, which almost offset decreases from our legacy voice and ~~wireless voice and text revenues. The sale of our Advertising Solutions segment also contributed to lower revenues for the first nine months.~~data products.

~~As the~~The telecommunications industry ~~continues to evolve~~is rapidly evolving from fixed location, voice-oriented services into an industry driven by customer demand for instantly available, data-based services ~~technology, and efficiencies, our~~(including video). Our products, services and plans ~~have also changed~~are changing as we transition ~~from traditional voice and basic data services~~ to sophisticated, high-speed, IP-based alternatives. ~~This transition~~In addition to re-designing our networks to accommodate these new demands and to take advantage of related technological efficiencies, we are also repositioning our ~~offerings will result in~~wireless model by moving to simple pricing and no-device-subsidy plans. We expect continued growth in our wireless and wireline IP-based ~~data revenues~~services as we bundle and price plans with greater focus on ~~the~~ data ~~services that our customers desire, provide new products~~ and ~~services, and transition customers from their current traditional services.~~video offerings. We expect continued declines in voice ~~revenues~~services and our basic wireline data services as customers choose these next-generation services.

AT&T INC.

~~SEPTEMBER 30, 2013~~

JUNE 30, 2014

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Continued

Dollars in millions except per share amounts

Cost of services and sales expenses increased ~~$801,~~$942, or ~~6.4%~~7.1%, in the ~~third~~second quarter and ~~$1,554,~~$1,709, or ~~4.1%~~6.6%, for the first ~~nine~~six months of ~~2013.~~2014. The increases were primarily due to customers choosing higher-priced devices, which contributed to increased wireless equipment costs ~~related to device sales, increased~~and handset insurance costs. The increases also reflect higher wireless network costs and wireline costs attributable to U-verse subscriber growth and wireless network costs. The increases were partially offset by decreased wireless interconnect and long-distance costs, and lower costs associated with Universal Service Fund (USF) fees. For the first nine months offsets also included the sale of the Advertising Solutions segment.employee-related charges.

Selling, general and administrative expenses ~~decreased $356,~~increased $76, or ~~4.3%~~0.9%, in the ~~third~~second quarter and ~~$251, or 1.0%,~~$3 for the first ~~nine~~six months of ~~2013.~~2014. The ~~decreases~~increases were primarily due to ~~gains on spectrum transactions, decreased wireline employee~~increased nonemployee related expenses related to information technology enhancements, and higher selling (other than commissions) and administrative expenses in our Wireless segment. Partially offsetting the increases were lower commissions expenses and lower ~~financing-related~~employee-related costs ~~associated with~~in our ~~pension and postretirement benefits (referred to as Pension/OPEB expenses) and, for the first nine months, the sale of the Advertising Solutions~~Wireline segment. ~~These lower expenses were partially offset by increased commissions related to smartphone upgrades, wireless selling and administrative expenses and higher wireline contract service expenses.~~

Depreciation and amortization ~~expenses increased $103,~~expense decreased $21, or ~~2.3%~~0.5%, in the ~~third~~second quarter and ~~$144,~~increased $67, or ~~1.1%~~0.7%, for the first ~~nine~~six months of ~~2013. Expenses increased~~2014. The second-quarter decrease was primarily due to ~~ongoing capital spending for network upgrades and expansion, partially offset by~~an increase in the useful life of non-network software, an increase in fully depreciated assets and lower amortization of intangibles for customer lists related to ~~acquisitions.~~acquisitions, which were partially offset by ongoing capital spending for network upgrades and expansion and additional expense for assets acquired from Leap. The ~~sale of our Advertising Solutions segment also contributed to lower depreciation and amortization expenses~~increase for the first ~~nine months.~~six months was primarily due to increased capital spending for network upgrades and expansion.

Interest expense increased ~~$5,~~$56, or ~~0.6%~~6.8%, in the ~~third~~second quarter and ~~decreased $143,~~$89, or 5.4%, for the first ~~nine~~six months of ~~2013.~~2014. The ~~increase in the third quarter was~~increases were primarily due to higher ~~average debt balances~~interest related to our December 2013 tower transaction, partially offset by lower ~~average~~ interest ~~rates. The decrease for the first nine months reflects our prior-year debt~~incurred as a result of 2013 refinancing activity, which contributed to lower average interest rates in 2013 and one-time charges associated with the early redemption of debt in 2012. These decreases were partially offset by higher average debt balances.activity.

Equity in net income of affiliates decreased ~~$91,~~$116, or ~~50.0%~~53.2%, in the ~~third~~second quarter and ~~$43,~~$213, or ~~8.0%~~52.9%, for the first ~~nine~~six months of ~~2013.~~2014. Decreased equity in net income of affiliates in the ~~third~~second quarter, and for the first six months, was primarily due to decreased earnings at América Móvil, S.A. de C.V. (América Móvil) and YP Holdings LLC (YP Holdings). ~~Decreased equity~~The second-quarter 2014 results also reflect our change in ~~net income of affiliates~~accounting for ~~the first nine months was primarily due to foreign exchange impacts at~~ América Móvil ~~partially offset by earnings from YP Holdings.~~(see Note 7).

	Second Quarter						Six-Month Period
	2014			2013			2014			2013
América Móvil	$	99		$	174		$	153		$	325
YP Holdings		31			63			85			115
Mobile Wallet Joint Venture		(29	)		(19	)		(49	)		(37	)
Other		1			-			1			-
Equity in Net Income of Affiliates	$	102		$	218		$	190		$	403

Other income (expense) – net We had other income of ~~$50~~$1,269 in the ~~third~~second quarter and ~~$370~~$1,414 for the first ~~nine~~six months of ~~2013,~~2014, compared to other income of ~~$47~~$288 in the ~~third~~second quarter and ~~$122~~$320 for the first ~~nine~~six months of ~~2012.~~2013. Results in the ~~third~~second quarter and for the first ~~nine~~six months of ~~2013 included interest and dividend income of $14 and $54 and leveraged lease income of $6 and $21, respectively. Income for the first nine months of 2013 also~~2014 included a net gain on the sale of América Móvil shares and other investments of ~~$272.~~$1,245 and $1,367, interest and dividend income of $23 and $36 and leveraged lease income of $7 and $13, respectively.

Other income in the ~~third~~second quarter and for the first ~~nine~~six months of ~~2012~~2013 included ~~interest and dividend income of $17 and $51 and leveraged lease income of $5 and $46 and~~ a net gain on the sale of América Móvil shares and other investments of ~~$83~~$249 and ~~$82,~~$260, interest and dividend income of $23 and $40 and leveraged lease income of $10 and $15, respectively. ~~This income was partially offset by a third-quarter investment impairment of $55.~~

Income taxes ~~decreased $146,~~increased $571, or ~~8.4%~~29.8%, in the ~~third~~second quarter and ~~$606,~~$931, or ~~10.7%~~26.8%, for the first ~~nine~~six months of ~~2013.~~2014. Our effective tax rate was ~~29.0%~~40.7% for the ~~third~~second quarter and ~~30.5%~~37.4% for the first ~~nine~~six months of ~~2013,~~2014, as compared to ~~32.0%~~33.0% for the ~~third~~second quarter and ~~33.4%~~31.2% for the first ~~nine~~six months of ~~2012.~~2013. The ~~decrease~~increase in effective tax rate for both the ~~third~~second quarter and the first ~~nine~~six months was primarily due to ~~recognition~~the sale of ~~benefits related~~América Móvil shares in 2014. We had previously assumed that undistributed earnings for our investment in América Móvil would be returned through dividends that, when received, would qualify for foreign tax credits. As a result of our strategic decision to sell this equity position in connection with our pending acquisition of DIRECTV, these foreign tax ~~audit settlements and prior-year asset sales.~~credits were not available to be realized.

AT&T INC.

~~SEPTEMBER 30, 2013~~

JUNE 30, 2014

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Continued

Dollars in millions except per share amounts

Selected Financial and Operating Data
	September 30,		June 30,
	2013	2012
Wireless subscribers (000)	109,460	105,871
Network access lines in service (000)	25,680	30,443
Total wireline broadband connections (000)	16,427	16,392
Subscribers and connections in (000s)			2014			2013
Wireless subscribers				116,634			107,884
Network access lines in service				22,547			26,849
U-Verse VoIP connections				4,411			3,379
Total wireline broadband connections				16,448			16,453
Debt ratio1	46.9%	38.6%		47.6	%		46.6	%
Ratio of earnings to fixed charges2	5.43	5.36		5.53			5.51
Number of AT&T employees	246,740	241,130		248,170			245,350

1	1 Debt ratios are calculated by dividing total debt (debt maturing within one year plus long-term debt) by total capital (total debt plus total stockholders’ equity) and do not consider cash available to pay down debt. See our “Liquidity and Capital Resources” section for discussion.

2	2 See exhibit ~~12.~~12

Segment Results

Our segments are strategic business units that offer different products and services over various technology platforms and are managed accordingly. Our operating segment results presented in Note 4 and discussed below for each segment follow our internal management reporting. We analyze our operating segments based on segment income before income taxes. We make our capital allocation decisions based on ~~the~~our strategic ~~needs~~direction of the business, needs of the network (wireless or wireline) ~~provided~~providing services and demands to provide emerging services to our customers. Actuarial gains and losses from pension and other ~~postemployment~~postretirement benefits, interest expense and other income (expense) – net, are managed only on a total company basis and are, accordingly, reflected only in consolidated results. Therefore, these items are not included in each segment’s reportable results. The customers and long-lived assets of our reportable segments are predominantly in the United States. We have ~~three~~two reportable segments: (1) Wireless and (2) ~~Wireline and (3) Other. Our operating results prior to May 9, 2012, also included Advertising Solutions, which was previously a reportable segment.~~Wireline.

The Wireless segment uses our nationwide network to provide consumer and business customers with wireless data and voice communications services. This segment includes our portion of the results from our mobile ~~payment~~wallet joint venture ~~marketed as the ISIS Mobile Wallet~~TM ~~(ISIS),~~ which is accounted for as an equity ~~method~~ investment.

The Wireline segment uses our regional, national and global network to provide consumer and business customers with data and voice communications services, U-verse ~~high-speed broadband,~~high speed Internet, video ~~voice~~and VoIP services and managed networking to business customers. ~~Additionally, commissions on sales of satellite television services offered through our agency arrangements are included in the segment.~~

~~The~~ ~~Advertising Solutions segment~~ ~~included our directory operations, which published Yellow and White Pages directories and sold directory advertising, Internet-based advertising and local search through May 8, 2012.~~

~~The~~ ~~Other segment~~ includes our portion of the results from our international equity investment, our equity interest in YP Holdings, and costs to support corporate-driven activities and operations. Also included in the Other segment are impacts of corporate-wide decisions for which the individual operating segments are not being evaluated, including interest costs and expected return on plan assets for our pension and postretirement benefit plans.

The following sections discuss our operating results by segment. Operations and support expenses include certain network planning and engineering expenses; information technology; our repair technicians and repair services; property taxes; bad debt expense; advertising costs; sales and marketing functions, including customer service centers; real estate costs, including maintenance and utilities on all buildings; credit and collection functions; and corporate support costs, such as finance, legal, human resources and external affairs. Pension and postretirement service costs, net of amounts capitalized as part of construction labor, are also included to the extent that they are associated with employees who perform these functions.

We discuss capital expenditures for each segment in “Liquidity and Capital Resources.”

AT&T INC.

~~SEPTEMBER 30, 2013~~

JUNE 30, 2014

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Continued

Dollars in millions except per share amounts

Wireless
Segment Results
	Third Quarter							Nine-Month Period							Second Quarter								Six-Month Period
	2013		2012		Percent Change			2013		2012		Percent Change			2014			2013		Percent Change			2014			2013		Percent Change
	2013		2012		Percent Change			2013		2012		Percent Change			2014			2013		Percent Change			2014			2013		Percent Change
Segment operating revenues
Data	$	5,509	$	4,686		17.6	%	$	15,990	$	13,392		19.4	%
Voice, text and other service		9,951		10,220		(2.6)			29,902		30,845		(3.1)
Service															$	15,148		$	15,370		(1.4	) %	$	30,535		$	30,432		0.3	%
Equipment		2,020		1,726		17.0			5,570		4,884		14.0			2,782			1,921		44.8			5,261			3,550		48.2
Total Segment Operating Revenues		17,480		16,632		5.1			51,462		49,121		4.8			17,930			17,291		3.7			35,796			33,982		5.3
Segment operating expenses
Operations and support		10,982		10,432		5.3			31,932		30,000		6.4			11,568			10,770		7.4			22,450			20,950		7.2
Depreciation and amortization		1,875		1,730		8.4			5,553		5,092		9.1			2,035			1,843		10.4			3,966			3,678		7.8
Total Segment Operating Expenses		12,857		12,162		5.7			37,485		35,092		6.8			13,603			12,613		7.8			26,416			24,628		7.3
Segment Operating Income		4,623		4,470		3.4			13,977		14,029		(0.4)			4,327			4,678		(7.5	)		9,380			9,354		0.3
Equity in Net Income (Loss) of Affiliates		(18)		(17)		(5.9)			(55)		(45)		(22.2)
Equity in Net Income (Loss) of
Affiliates																(29	)		(19)		(52.6	)		(49	)		(37)		(32.4	)
Segment Income	$	4,605	$	4,453		3.4	%	$	13,922	$	13,984		(0.4)	%	$	4,298		$	4,659		(7.7	) %	$	9,331		$	9,317		0.2	%

AT&T INC.

~~SEPTEMBER 30, 2013~~

JUNE 30, 2014

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Continued

Dollars in millions except per share amounts

The following table highlights other key measures of performance for the Wireless segment:

	Second Quarter								Six-Month Period
	2014			2013		Percent Change			2014			2013		Percent Change
(in 000s)	2014			2013		Percent Change			2014			2013		Percent Change
Wireless Subscribers 1										116,634			107,884		8.1	%
Postpaid smartphones										54,629			49,462		10.4
Postpaid feature phones and data-centric
devices										19,703			21,816		(9.7	)
Postpaid										74,332			71,278		4.3
Prepaid										11,343			7,084		60.1
Reseller										13,756			14,330		(4.0	)
Connected devices 2										17,203			15,192		13.2
Total Wireless Subscribers										116,634			107,884		8.1

Net Additions 3
Postpaid		1,026			551		86.2	%		1,651			847		94.9
Prepaid		(405	)		11		-			(455	)		(173)		-
Reseller		(162	)		(414)		60.9			(368	)		(666)		44.7
Connected devices2		175			484		(63.8	)		868			915		(5.1	)
Net Subscriber Additions		634			632		0.3			1,696			923		83.7

Mobile Share connections										41,291			13,077		-
Smartphones sold under our installment
program during period		3,142			-		-			6,010			-		-

Total Churn4		1.47%			1.36%	11 BP				1.43%			1.37%	6 BP
Postpaid Churn4		0.86%			1.02%	(16) BP				0.96%			1.03%	(7) BP

The following table highlights other key measures of performance for the Wireless segment:

Third Quarter Nine-Month Period

Percent

Percent

(Subscribers in 000s) 2013 2012 Change 2013 2012 Change
Wireless Subscribers1
109,460 105,871 3.4 %

Gross Subscriber Additions2
5,251 4,914 6.9 % 14,978 15,162 (1.2)

Net Subscriber Additions2
989 678 45.9 1,912 2,670 (28.4)

Total Churn3
1.31 % 1.34 % (3) BP 1.35 % 1.33 % 2 BP

Postpaid Smartphone Subscribers 50,637 44,528 13.7 %
Postpaid Data-Centric Device and Other
Phone Subscribers
21,395 25,219 (15.2)
Total Postpaid Subscribers 72,032 69,747 3.3

Net Postpaid Subscriber Additions2
363 151 - 1,210 658 83.9

Postpaid Churn3
1.07 % 1.08 % (1) BP 1.04 % 1.05 % (1) BP

Prepaid Subscribers 7,425 7,545 (1.6) %

Net Prepaid Subscriber Additions2
192 77 - 19 294 (93.5)

Reseller Subscribers 14,089 14,573 (3.3) %

Net Reseller Subscriber Additions2
(285 ) 137 - (951 ) 793 -

Connected Device Subscribers4
15,914 14,006 13.6 %

Net Connected Device Subscriber
Additions
719 313 - 1,634 925 76.6
1 Represents 100% of AT&T Mobility wireless subscribers.
2 Excludes merger and acquisition-related additions during the period.
3 Calculated by dividing the aggregate number of wireless subscribers who canceled service during a period divided by the total number of wireless subscribers at the beginning of that period. The churn rate for the period is equal to the average of the churn rate for each month of that period.
4 Includes data-centric devices such as eReaders, automobile monitoring systems, and fleet management - excludes tablet subscribers, which are primarily reflected in our postpaid subscriber category, with the remainder in prepaid.

1	Represents 100% of AT&T Mobility wireless subscribers.

2	Includes data-centric devices (eReaders and automobile monitoring systems). Excludes tablets, which are primarily included in postpaid.

3	Excludes merger and acquisition-related additions during the period.

4	Calculated by dividing the aggregate number of wireless subscribers who canceled service during a period divided by the total number of wireless subscribers at the beginning of that period. The churn rate for the period is equal to the average of the churn rate for each month of that period.

~~Wireless~~ Subscriber Relationships

As the wireless industry continues to mature, we believe that future wireless growth will increasingly depend on our ability to offer innovative services, plans and devices and a wireless network that has sufficient spectrum and capacity to support these innovations ~~and make them available to more subscribers.~~on as broad a geographic basis as possible. To attract and retain subscribers in a maturing market, we ~~offer a broad handset line and~~have launched a wide variety of ~~service plans.~~plans, including Mobile Share and AT&T NextSM (AT&T Next). While we have historically focused on attracting and retaining postpaid subscribers, we have recently increased our focus on prepaid subscribers with our acquisition of Leap.

~~As technology evolves, rapid changes are occurring in~~At June 30, 2014, we served 116.6 million subscribers (including approximately 4.5 million Cricket subscribers from our March 13, 2014 acquisition of Leap), an increase of 8.1% from the handset and device industry with the continual introduction of new models or significant revisions of existing models. We believe a broad offering of a wide variety of smartphones reduces dependence on any single operating system or manufacturer as these products continue to evolve in terms of technology and subscriber appeal. In the first nine months of 2013, we continued to see increasing use of smartphones by our postpaid subscribers. Of our total postpaid phoneprior year. Our subscriber base ~~74.7% (or 50.6 million subscribers) use smartphones, up~~consists primarily of postpaid accounts. Our prepaid services, which include results from ~~66.1% (or 44.5 million subscribers) a year earlier. As is common in~~services sold under the ~~industry, most of our subscribers’ phones~~Cricket brand, are ~~designed to work only with our wireless technology, requiring subscribers who desire to move to a new carrier with a different technology to purchase a new device.~~monthly, pay-as-you-go services.

AT&T INC.

~~SEPTEMBER 30, 2013~~

JUNE 30, 2014

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Continued

Dollars in millions except per share amounts

ARPU

~~Our~~

Total ARPU (average service revenue per average wireless subscribers) was down 8.9 % in the second quarter and 5.5% for the first six months of 2014. Postpaid ARPU was down 9.6% and 5.5% when compared to the second quarter and first six months of 2013, primarily due to the attractive Mobile Share Value pricing. As we adjust our service offerings and pricing structures, management believes that postpaid phone-only ARPU plus Next subscriber installment billings (postpaid phone-only ARPU plus AT&T Next) is a better representation of the monthly economic value per postpaid subscriber. For the quarter and six months, postpaid phone-only ARPU decreased 7.7% and 3.7% versus the year-ago periods and postpaid phone-only ARPU plus AT&T Next decreased 4.7% and 1.4% compared to the same periods last year.

Churn

The effective management of subscriber churn is critical to our ability to maximize revenue growth and to maintain and improve margins. Total churn was higher in the second quarter and for the first six months of 2014 due to the expected pressure in prepaid with the transition of Cricket subscribers ~~typically sign a two-year contract, which includes discounted handsets~~to our network. Postpaid churn was lower for both the second quarter and ~~early termination fees.~~the first six months.

Postpaid

Postpaid subscribers increased 1.4% during the second quarter and 4.3% when compared to June 30, 2013. At June 30, 2014, 80% of our postpaid phone subscriber base used smartphones, compared to 73% at June 30, 2013. About ~~90%~~95% of our postpaid smartphone subscribers are on ~~FamilyTalk~~® ~~Plans (family plans), Mobile Share~~ plans ~~or business plans, which~~that provide for service on multiple devices at reduced rates, and such subscribers tend to have higher retention and lower churn rates. We offer our Mobile to Any Mobile feature, which enables our subscribers on these and other qualifying plans to make unlimited mobile calls to any mobile number in the United States, subject to certain conditions. We also offer data plans at different price levels (usage-based data plans) to attract a wide variety of subscribers and to differentiate us from our competitors. Our postpaid subscribers on data plans increased 12.0% year over year. A growing percentage of our postpaid smartphone subscribers are on usage-based data plans, with ~~72.0% (or 36.4 million)~~approximately 80% on these plans as compared to 71% in the prior year, and about 49% of ~~September 30, 2013, up from 63.9% (or 28.5 million) as of September 30, 2012. About 80% of subscribers on usage-based data plans~~our Mobile Share accounts have chosen the ~~higher-priced~~10 gigabyte or higher plans. ~~We recently expanded~~Device connections on our Mobile Share ~~data~~ plans to include additional, larger usage levels, and we have introduced a program allowing subscribers to more frequently upgrade handsets using an installment payment plan. Participation in these plans continues to increase.now represent about 56% of our postpaid customer base. Such offerings are intended to encourage existing subscribers to upgrade their current services and/or add connected devices, attract subscribers from other providers and minimize subscriber churn.

As of ~~September~~June 30, ~~2013, about 70%~~2014, approximately 84% of our postpaid smartphone subscribers use a 4G-capable device (i.e., a device that would operate on our HSPA+ or LTE network), and about ~~42%~~63% of our postpaid smartphone subscribers use an LTE device. ~~Due~~

Historically, our postpaid customers have signed two-year service contracts for subsidized handsets. However, through our Mobile Share plans, we have recently begun offering postpaid services at lower prices for those customers who either bring their own devices or participate in our AT&T Next program. Our AT&T Next program allows for postpaid subscribers to ~~substantial increases~~purchase certain devices in installments over a period of up to 24 months. Additionally, after a specified period of time they also have the right to trade in the ~~demand~~original device for ~~wireless~~a new device and have the remaining unpaid balance satisfied. For customers that elect these trade-in programs, at the time of the sale, we recognize equipment revenue for the amount of the customer receivable, net of the fair value of the trade-in right guarantee and imputed interest. A significant percentage of our customers on the AT&T Next program pay a lower monthly service charge, which results in lower service revenue recorded for these subscribers. In the ~~United States,~~second quarter of 2014, we began offering the AT&T ~~is facing significant spectrum~~Next program through other distributors and ~~capacity constraints on its wireless network in certain markets. We expect such constraints~~we plan to ~~increase and~~ expand the offering to additional ~~markets in~~distributors, which is expected to further accelerate the coming years. While we are continuing to invest significant capital in expanding our network capacity, our capacity constraints could affect the quality of existing voice and data services and our ability to launch new, advanced wireless broadband services, unless we are able to obtain more spectrum. Any long-term spectrum solution will require that the Federal Communications Commission (FCC) make new or existing spectrum available to the wireless industry to meet the expanding needs of our subscribers. We will continue to attempt to address spectrum and capacity constraintsimpacts on ~~a market-by-market basis.~~service revenues.

~~Wireless Metrics~~Prepaid

~~Subscriber Additions~~ AsIn March 2014, we completed our acquisition of ~~September 30, 2013, we served 109.5~~Leap, which included approximately 4.5 million ~~wireless~~prepaid subscribers ~~an increase~~at closing. Prepaid subscribers decreased 4.0% during the second quarter due to expected transition of ~~3.4%~~Cricket subscribers. Excluding merger and acquisition related additions, prepaid subscribers decreased 3.9% when compared to ~~the prior year. Gross subscriber additions (gross additions) in the third quarter were 6.9% higher than in the third quarter~~June 30, 2013. As of ~~2012, primarily due to increased smartphone sales~~July 31, we have approximately 1 million Leap and growth in the connected device subscriber base. Gross additions for the first nine months of 2013 were 1.2% lower than the comparable period of the prior year, reflecting competition in the wireless industry and market saturation, which we expect will continue to limit the rate of growth in the industry’s subscriber base. Higher net subscriber additions (net additions) in the third quarter were primarily due to growth in smartphone sales and the connected device subscriber base. Lower net subscriber additions (net additions) for the first nine months of 2013 were primarily attributable to losses in reseller low-revenue accounts.

The increases in net postpaid additions reflect the migration of prepaid tablet subscribers to our postpaid plans, contributing to an increase in postpaid tablet subscribers of 388,000 in the third quarter and 1,151,000 for the first nine months of 2013. The introduction of LTE-capable GoPhones and new pricing plans contributed to the increase in net prepaid additions when compared to the third quarter of 2012.

~~Average service revenue per user (ARPU) – Postpaid~~ increased 1.5% in the third quarter and 1.4% for the first nine months of 2013. Postpaid data services ARPU increased 16.6% in the third quarter and 17.4% for the first nine months of 2013, reflecting greater use of smartphones and data-centric devices by our subscribers.

The growth in postpaid data services ARPU was partially offset by a 5.1% decrease in postpaid voice, text and other service ARPU in the third quarter and 5.3% decrease for the first nine months of 2013. Voice, text and other service ARPU declined due to lower access and airtime charges, triggered in part by postpaidformer Aio subscribers on our ~~discount plans and lower roaming revenues.~~

~~ARPU – Total~~ increased 0.9% in the third quarter and 0.7% for the first nine months of 2013, reflecting growth in data services as more subscribers are using smartphones and tablets and choosing higher-priced usage-based data plans. Data services ARPU increased 14.3% in the third quarter and 15.9% for the first nine months of 2013. Voice, text and other service ARPU declined 5.3% in the third quarter and 5.9% for the first nine months of 2013 primarily due to voice access and usage trends and a shift toward a greater percentage of data-centric devices, as well as lower regulatory fees. We expect continued growth in data services ARPU as more subscribers use smartphones and data-centric devices and continue to choose higher-priced usage-based data plans. As technology and devices evolve, we also expect continued pressure on voice, text and other service ARPU.GSM network.

AT&T INC.

~~SEPTEMBER 30, 2013~~

JUNE 30, 2014

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Continued

Dollars in millions except per share amounts

~~Churn~~ The effective management of subscriber churn is critical to our ability to maximize revenue growth and to maintain and improve margins. The total churn rate was lower in the third quarter with higher net postpaid additions and improvements in net connected device additions. A higher total churn rate for the first nine months of 2013 was primarily associated with the disconnection of reseller low-revenue accounts. The postpaid churn rate was slightly lower in the third quarter and for the first nine months of 2013.

Operating Results

Our Wireless segment operating income margin in the ~~third~~second quarter decreased from ~~26.9%~~27.1% in ~~2012~~2013 to ~~26.4%~~24.1% in ~~2013~~2014 and for the first ~~nine~~six months decreased from ~~28.6%~~27.5% in ~~2012~~2013 to ~~27.2%~~26.2% in ~~2013.~~2014. Our Wireless segment operating income ~~increased $153,~~decreased $351, or ~~3.4%~~7.5%, in the ~~third~~second quarter and ~~decreased $52,~~increased $26, or ~~0.4%~~0.3%, for the first ~~nine~~six months of ~~2013.~~2014. The decreases in operating margin and ~~year-to-date operating~~ income in the second quarter reflected ~~higher costs associated with upgrade activity~~the increasing popularity of Mobile Share plans, promotional activities and ~~subsidies associated with growing smartphone sales, partially offset by continued data revenue growth.~~new business initiatives. The increase in ~~third-quarter~~segment operating income ~~reflected continued~~for the first six months was primarily driven by overall growth in the number of subscribers using smartphones with larger data ~~growth and higher smartphone sales and upgrades, partially~~plans, which was mostly offset by ~~the costs of higher smartphone sales~~lower service revenues from Mobile Share plans and ~~upgrade activity.~~new business initiatives.

~~Voice, text and other~~Service ~~service~~ revenues decreased ~~$269,~~$222, or ~~2.6%~~1.4%, in the ~~third~~second quarter and ~~$943,~~increased $103, or ~~3.1%~~0.3%, for the first ~~nine~~six months of ~~2013. While we had a 3.4% year-over-year~~2014. The decrease in the second quarter is due to customers shifting to no-device subsidy plans, which allow for discounted monthly service charges under our Mobile Share plans. This decrease was largely offset by revenues from Cricket subscribers that were not included in our 2013 results. The increase in the ~~number of wireless subscribers, these revenues continue to decline due to lower access and airtime charges.~~

~~Data~~ ~~service revenues increased $823, or 17.6%, in the third quarter and $2,598, or 19.4%, for the~~ first ~~nine~~six months ~~of 2013. The increases were~~was primarily due to the increased number of subscribers using smartphones with larger data plans and ~~data-centric devices, such as tablets, eReaders, and mobile navigation devices. Data~~revenues from Cricket subscribers, which were partially offset by the expanding Mobile Share plans. While we expect monthly service revenues ~~accounted~~to continue to be pressured as customers move to Mobile Share plans, we expect equipment revenues to increase for ~~34.8% of our wireless service revenues for~~those subscribers who elect the ~~first nine months of 2013, compared to 30.3% last year.~~AT&T Next program.

Equipment revenues increased ~~$294,~~$861, or ~~17.0%~~44.8%, in the ~~third~~second quarter and ~~$686,~~$1,711, or ~~14.0%~~48.2%, for the first ~~nine~~six months of ~~2013 due~~2014. The increases were primarily related to ~~year-over-year increases~~devices sold under our AT&T Next program. During the second quarter, with the launch of the AT&T Next program through other distributors we began deferring the recognition of equipment revenue and costs until the device is sold to the end subscriber and the trade-in right is conveyed. This lag in ~~smartphone sales as a percentage~~timing of ~~total device sales to postpaid subscribers and higher device upgrades.~~the recognition of the sale resulted in lower revenue through these distributors during the second quarter of 2014.

Operations and support expenses increased ~~$550,~~$798, or ~~5.3%~~7.4%, in the ~~third~~second quarter and ~~$1,932,~~$1,500, or ~~6.4%~~7.2%, ~~for~~in the first ~~nine~~six months of ~~2013.~~2014. The increases in the ~~third~~second quarter and for the first ~~nine~~six months were primarily due to the following:

·	~~Equipment costs increased $521 and $1,526 reflecting an increase in upgrade activity and total device sales, as well as the sales of more expensive smartphones.~~

·	~~Commission expenses increased $105 and $316 due primarily to higher upgrade activity and total device sales and a year-over-year increase in smartphone sales as a percentage of total device sales.~~

Selling ~~expenses~~ (other than commissions) and administrative expenses increased ~~$36~~$416 and ~~$377~~$699 due primarily to increases of: ~~$35~~$177 and ~~$197~~$165 primarily due to legal costs and accruals including fees and costs related to acquisitions; $65 and $110 in ~~employee-related costs; $138~~sales expense; $41 and $56 in ~~advertising costs for the first nine months of 2013;~~bad debt expense; $36 and ~~$40~~$96 in customer service expense; $32 and ~~$148~~$68 in information technology costs in conjunction with ongoing support systems ~~development. Partially offsetting~~development; and $22 and $48 in marketing expense. Each of these increases ~~were bad debt expense declines~~included additional costs related to the acquisition of ~~$36 and $138.~~Leap.

·	Network system costs increased ~~$32~~$242 and ~~$187~~$353 due to higher network traffic and personnel-related network support costs and cell site related costs in conjunction with our network enhancement efforts.

·	Equipment costs increased $175 and $544 reflecting the sales of more expensive smartphones.

·	Handset insurance cost increased $84 and $163 due to an increase in the cost of replacement phones.

Partially offsetting these increases were lower commission expenses of $240 and $340 primarily due to the ~~following:~~

·	~~Interconnect and long-distance costs decreased $114 and $326 due to third-party credits and lower usage costs in the current period.~~

·	~~USF fees decreased $4 and $102 primarily due to federal rate decreases, which are offset by lower USF revenues.~~

decline in upgrade transactions and lower average commission rates.

Depreciation and amortization expenses increased ~~$145,~~$192, or ~~8.4%~~10.4%, in the ~~third~~second quarter and ~~$461,~~$288, or ~~9.1%~~7.8%, for the first ~~nine~~six months of ~~2013.~~2014. Depreciation expense increased ~~$213,~~$193, or ~~13.2%~~10.8%, in the ~~third~~second quarter and ~~$670,~~$339, or ~~14.3%~~9.6%, for the first ~~nine~~six months primarily due to ongoing capital spending for network upgrades and expansion. Amortization expense decreased ~~$68,~~$1, or ~~59.1%~~1.6%, in the ~~third~~second quarter and ~~$209,~~$51, or ~~52.8%~~36.4%, for the first ~~nine~~six months primarily due to ~~lower~~the fact we have fully amortized customer lists acquired in our acquisition of BellSouth Corporation. The change in the second quarter includes higher amortization of intangibles for customer lists related to ~~acquisitions.~~our acquisition of Leap.

AT&T INC.

~~SEPTEMBER 30, 2013~~

JUNE 30, 2014

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Continued

Dollars in millions except per share amounts

Wireline
Segment Results
	Second Quarter							Six-Month Period
	2014		2013		Percent Change			2014		2013		Percent Change
	2014		2013		Percent Change			2014		2013		Percent Change
Segment operating revenues
Service	$	14,408	$	14,482		(0.5	) %	$	28,797	$	28,863		(0.2	) %
Equipment		229		291		(21.3	)		441		565		(21.9	)
Total Segment Operating Revenues		14,637		14,773		(0.9	)		29,238		29,428		(0.6	)
Segment operating expenses
Operations and support		10,700		10,417		2.7			21,157		20,752		2.0
Depreciation and amortization		2,514		2,722		(7.6	)		5,198		5,410		(3.9	)
Total Segment Operating Expenses		13,214		13,139		0.6			26,355		26,162		0.7
Segment Operating Income		1,423		1,634		(12.9	)		2,883		3,266		(11.7	)
Equity in Net Income of Affiliates		-		-		-			1		1		-
Segment Income	$	1,423	$	1,634		(12.9	) %	$	2,884	$	3,267		(11.7	) %

AT&T INC.

JUNE 30, 2014

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Continued

Dollars in millions except per share amounts

Supplemental Information

Wireline Broadband, Telephone and Video Connections Summary

Our broadband, switched access lines and other services provided at June 30, 2014 and 2013 are shown below and trends are addressed throughout this segment discussion.

	June 30,		June 30,		Percent
(in 000s)	2014		2013		Change
U-verse high speed Internet		11,497		9,090		26.5	%
DSL and Other Broadband Connections		4,951		7,363		(32.8	)
Total Wireline Broadband Connections1		16,448		16,453		-

Total U-verse Video Connections		5,851		5,001		17.0

Retail Consumer Switched Access Lines		10,935		13,983		(21.8	)
U-verse Consumer VoIP Connections		4,379		3,379		29.6
Total Retail Consumer Voice Connections		15,314		17,362		(11.8	)

Switched Access Lines
Retail Consumer		10,935		13,983		(21.8	)
Retail Business		9,808		10,904		(10.1	)
Retail Subtotal		20,743		24,887		(16.7	)

Wholesale Subtotal		1,581		1,687		(6.3	)

Total Switched Access Lines2		22,547		26,849		(16.0	) %

1	Total wireline broadband connections include DSL, U-verse high speed Internet and satellite broadband.

2	Total switched access lines includes access lines provided to national mass markets and private payphone service providers of 223 at June 30, 2014 and 276 at June 30, 2013.

Operating Results

Our Wireline segment operating income margin in the second quarter decreased from 11.1% in 2013 to 9.7% in 2014, and for the first six months decreased from 11.1% in 2013 to 9.9% in 2014. Our Wireline segment operating income decreased $211, or 12.9%, in the second quarter and $383, or 11.7%, for the first six months of 2014. The decrease in operating margins and income was driven primarily by continued decrease in our legacy voice and data products and increased U-verse content costs, largely offset by increased revenues from our U-verse and strategic business services.

Service revenues decreased $74, or 0.5%, in the second quarter and $66, or 0.2%, for the first six months of 2014. Lower service revenues from business customers, which include integration, government-related and outsourcing services, were largely offset by higher service revenues from our residential customers.

Business

Service revenues from business customers decreased $197, or 2.3%, in the second quarter and $379, or 2.2%, for the first six months of 2014. The revenue decreases were due to a $115 and $264 decrease in long-distance and local voice revenues and a $329 and $644 decrease in traditional data revenues, which include circuit-based and packet-switched data services. The decreases were primarily due to lower demand as customers continue to shift to our most advanced IP-based offerings such as Ethernet, VPN, U-verse high speed Internet access and managed Internet services. The lower traditional service revenues were largely offset by higher demand for our next generation services. Strategic business service revenues, which include VPNs, Ethernet, hosting, IP conferencing, VoIP, Ethernet-access to Managed Internet Service (EaMIS), security services, and U-verse services provided to business customers increased $283, or 13.5%, in the second quarter and $601, or 14.7%, for the first six months of 2014. In the second quarter and for the first six months, revenue from VPN increased $88 and $188, Ethernet increased $85 and $165, U-verse services increased $34 and $78 and EaMIS increased $37 and $73.

AT&T INC.

JUNE 30, 2014

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Continued

Dollars in millions except per share amounts

Consumer

Wireline
Segment Results
Third Quarter Nine-Month Period
2013 2012
Percent
Change
2013 2012
Percent
Change

Segment operating revenues
   Data $ 8,457 $ 7,987 5.9 % $ 25,019 $ 23,722 5.5 %
   Voice 5,023 5,563 (9.7 ) 15,470 17,151 (9.8 )
   Other 1,190 1,264 (5.9 ) 3,609 3,777 (4.4 )
Total Segment Operating Revenues 14,670 14,814 (1.0 ) 44,098 44,650 (1.2 )
Segment operating expenses
   Operations and support 10,385 10,246 1.4 31,137 30,849 0.9
   Depreciation and amortization 2,736 2,774 (1.4 ) 8,146 8,348 (2.4 )
Total Segment Operating Expenses 13,121 13,020 0.8 39,283 39,197 0.2
Segment Operating Income 1,549 1,794 (13.7 ) 4,815 5,453 (11.7 )
Equity in Net Income (Loss) of
   Affiliates
- - - 1 (1) -
Segment Income $ 1,549 $ 1,794 (13.7 ) % $ 4,816 $ 5,452 (11.7 ) %

~~Operating Results~~

~~Our Wireline segment operating income margin~~Service revenues from residential customers increased $175, or 3.1%, in the ~~third~~second quarter ~~decreased~~and $415, or 3.8%, for the first six months of 2014. The increases were driven by higher IP data revenue reflecting increased U-verse penetration, customer additions, and migration from ~~12.1% in 2012 to 10.6% in 2013,~~our legacy voice and DSL services. In the second quarter and for the first ~~nine~~six months, U-verse revenue from consumers increased $341 and $702 for high-speed Internet access, $265 and $541 for video and $94 and $205 for voice. These increases were partially offset by a decrease of $187 and $352 in DSL revenue as customers continue to shift to our strategic high-speed Internet access offerings, and a $347 and $700 decrease in traditional voice revenues.

Equipment revenues decreased ~~from 12.2% in 2012 to 10.9% in 2013. Segment operating income decreased $245,~~$62, or ~~13.7%~~21.3%, in the ~~third~~second quarter of 2014, and ~~$638,~~$124, or ~~11.7%~~21.9%, for the first ~~nine~~six months of 2013. The decrease in operating margins and income was driven primarily by lower voice revenue and higher operations and support expense, partially offset by data revenue growth and lower depreciation and amortization expenses.

~~Data~~ revenues increased $470, or 5.9%, in the third quarter and $1,297, or 5.5%, for the first nine months of 2013. Data revenues accounted for approximately 57% of wireline operating revenues for the first nine months of 2013 and 53% for the first nine months of 2012. Data revenue includes IP, strategic business and traditional data services.

IP data revenues (excluding strategic business services below) increased $428, or 11.5%, in the third quarter and $1,237, or 11.4%, for the first nine months of 2013 primarily driven by higher U-verse penetration, customer additions, and migration from our legacy voice and DSL services. In the third quarter and for the first nine months U-verse revenue from consumer customers increased $318 and $957 for high speed Internet access, $244 and $736 for video and $76 and $198 for voice, respectively. These increases were partially offset by a decrease of $191 and $557 in DSL revenue as customers continue to shift to our U-verse or competitors’ high speed Internet access offerings. We expect DSL revenue to continue to decline as a percentage of our overall data revenues.

Strategic business services, which include VPNs, Ethernet, hosting, IP conferencing, VoIP, Ethernet-access to Managed Internet Service (EaMIS), security services, and U-verse services provided to business customers, increased $293, or 15.7%, in the third quarter and $772, or 14.1%, for the first nine months of 2013 primarily driven by migration from our legacy services. In the third quarter and for the first nine months revenue from Ethernet increased $76 and $215, VPN increased by $116 and $251, U-verse services increased $32 and $103, VoIP increased $27 and $78 and EaMIS increased $22 and $78, respectively.

Traditional data revenues, which include circuit-based and packet-switched data services, decreased $251, or 10.5%, in the third quarter and $719, or 9.7%, for the first nine months of 2013. This decrease was primarily due to lower demand as customers continue to shift to more advanced IP-based technology such as Ethernet, VPN, U-verse High Speed Internet access and managed Internet services. We expect these traditional services to continue to decline as a percentage of our overall data revenues.

~~AT&T INC.~~

~~SEPTEMBER 30, 2013~~

~~Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Continued~~

~~Dollars in millions except per share amounts~~

~~Voice~~ revenues decreased $540, or 9.7%, in the third quarter and $1,681, or 9.8%, for the first nine months of 2013 primarily due to declining demand for traditional voice services by our consumer and business customers. Included in voice2014. Our equipment revenues are ~~revenues from local voice, long-distance (including international) and local wholesale services. Voice revenues do not include VoIP revenues, which are included in data revenues.~~

Local voice revenues decreased $341, or 9.9%, in the third quarter and $1,051, or 9.9%, for the first nine months of 2013. The decrease was driven primarily by a 15.6% decline in total switched access lines. We expect our local voice revenue to continue to be negatively affected by competition from alternative technologies, primarily wireless and VoIP.

Long-distance revenues decreased $192, or 10.3%, in the third quarter and $617, or 10.7%, for the first nine months of 2013. Lower demand for long-distance service from our business and consumer customers decreased revenues $158 in the third quarter and $514 for the first nine months of 2013. Additionally, expected declines in the number of our national mass-market customers decreased revenues $33 in the third quarter and $103 for the first nine months of 2013.

~~Other~~ operating revenues decreased $74, or 5.9%, in the third quarter and $168, or 4.4%, for the first nine months of 2013. Major items included in other operating revenues are integration services and customer premises equipment, government-related services and outsourcing, which account for approximately 60% of total other revenue for the periods reported.mainly attributable to our business customers.

Operations and support expenses increased ~~$139,~~$283, or ~~1.4%~~2.7%, in the ~~third~~second quarter and ~~$288,~~$405, or ~~0.9%~~2.0%, for the first ~~nine~~six months of ~~2013.~~2014. Operations and support expenses consist of costs incurred to provide our products and services, including costs of operating and maintaining our networks and personnel costs, such as compensation and benefits.

The ~~increase~~increases in ~~the third quarter of 2013 was~~expenses were primarily due to increased cost of sales of ~~$167, primarily~~$111 and $253, related to U-verse related content fees; higher nonemployee expenses ~~contract services~~ of ~~$56,~~$155 and $242 in conjunction with Project Velocity IP (VIP) investments, information technology enhancements and U-verse business growth; higher Universal Service Fund (USF) fees of $44 and $103, which are offset by higher USF revenues; higher materials and ~~supplies expense~~energy costs of ~~$32.~~$34 and $74; and higher traffic compensation costs of $28 and $67. These increases were partially offset by lower employee related ~~expenses of $138.~~

~~The increase for the first nine months of 2013 was primarily due to increased cost of sales of $533, primarily related to U-verse related expenses, contract services of $166, and advertising~~ expense of ~~$131. These increases were partially offset by lower employee related expenses of $382~~$69 and ~~USF fees of $122, which are offset by lower USF revenue.~~$278, reflecting ongoing workforce reduction initiatives.

Depreciation and amortization expenses decreased ~~$38,~~$208, or ~~1.4%~~7.6%, in the ~~third~~second quarter and ~~$202,~~$212, or ~~2.4%~~3.9%, for the first ~~nine~~six months of ~~2013. The decrease was~~2014. Depreciation expense decreased $172, or 6.6%, in the second quarter and $140, or 2.7%, for the first six months of 2014 primarily ~~related~~due to the increase in the useful life of non-network software, partially offset by ongoing capital spending for network upgrades and expansion. Amortization expense decreased $36, or 32.1%, and $72, or 30.9%, for the first six months of 2014 primarily due to lower amortization of intangibles for the customer lists associated with ~~acquisitions and lower depreciation as assets become fully depreciated.~~acquisitions.

AT&T INC.

~~SEPTEMBER 30, 2013~~

JUNE 30, 2014

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Continued

Dollars in millions except per share amounts

~~Supplemental Information~~

~~Wireline Broadband, Telephone and Video Connections Summary~~

~~Our broadband, switched access lines and other services provided at September 30, 2013 and 2012 are shown below and trends are addressed throughout the preceding segment discussion.~~

September 30, September 30, Percent
(in 000s) 2013 2012 Change
U-verse High Speed Internet 9,745 7,108 37.1 %
DSL and Other Broadband Connections 6,682 9,284 (28.0 )
Total Wireline Broadband Connections1
16,427 16,392 0.2

Total U-verse Video Connections 5,266 4,344 21.2

Retail Consumer Switched Access Lines 13,133 16,486 (20.3 )
U-verse Consumer VoIP Connections 3,616 2,733 32.3
Total Retail Consumer Voice Connections 16,749 19,219 (12.9 )

Switched Access Lines
Retail Consumer 13,133 16,486 (20.3 )
Retail Business 10,633 11,784 (9.8 )
Retail Subtotal 23,766 28,270 (15.9 )

Wholesale Subtotal 1,654 1,848 (10.5 )

Total Switched Access Lines2
25,680 30,443 (15.6 ) %

1	~~Total wireline broadband connections include DSL, U-verse High Speed Internet and satellite broadband.~~

2	~~Total switched access lines includes access lines provided to national mass markets and private payphone service providers of 260 at September 30, 2013 and 325 at September 30, 2012.~~

Advertising Solutions
Segment Results
Third Quarter Nine-Month Period
2013 2012
Percent
Change
2013 2012
Percent
Change

Total Segment Operating Revenues $ - $ - - $ - $ 1,049 -
Segment operating expenses
Operations and support - - - - 773 -
Depreciation and amortization - - - - 106 -
Total Segment Operating Expenses - - - - 879 -
Segment Income $ - $ - - $ - $ 170 -

~~On May 8, 2012, we completed the sale of our Advertising Solutions segment to an affiliate of Cerberus Capital Management, L.P.~~

~~AT&T INC.~~

~~SEPTEMBER 30, 2013~~

~~Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Continued~~

~~Dollars in millions except per share amounts~~

Other
Segment Results
Third Quarter Nine-Month Period
2013 2012 Percent Change 2013 2012 Percent Change

Total Segment Operating Revenues $ 8 $ 13 (38.5) % $ 29 $ 36 (19.4) %
Total Segment Operating Expenses (8) 240 - 580 733 (20.9)
Segment Operating Income (Loss) 16 (227) - (551) (697) 20.9
Equity in Net Income of Affiliates 109 199 (45.2) 548 583 (6.0)
Segment Income (Loss) $ 125 $ (28) - $ (3) $ (114) 97.4 %

The Other segment includes our portion of the results from América Móvil, our equity interest in YP Holdings, and costs to support corporate-driven activities and operations. Also included in the Other segment are impacts of corporate-wide decisions for which the individual operating segments are not being evaluated, including interest costs and expected return on plan assets for our pension and postretirement benefit plans.

~~Segment operating revenues~~ ~~decreased $5, or 38.5%, in the third quarter and $7, or 19.4%, for the first nine months of 2013. Operating revenues are from leased equipment programs.~~

~~Segment operating expenses~~ decreased $248 in the third quarter and $153, or 20.9%, for the first nine months of 2013. Operating expenses in the third quarter and for the first nine months of 2013 include gains of $293 associated with the transfers of Advanced Wireless Service (AWS) licenses as part of our 700 MHz spectrum acquisitions. Lower operating expenses were also due to lower Pension/OPEB financing costs, which were partially offset by higher new product development expenses and higher corporate support and capital leasing operations costs.

~~Equity in net income of affiliates~~ decreased $90, or 45.2%, in the third quarter and $35, or 6.0%, for the first nine months of 2013. Decreased equity in net income of affiliates in the third quarter was primarily due to reduced earnings from América Móvil and YP Holdings. The decrease for the first nine months was primarily due to foreign exchange impacts at América Móvil, partially offset by earnings from YP Holdings.

~~Our equity in net income of affiliates by major investment is listed below:~~

Third Quarter Nine-Month Period
2013 2012 2013 2012
América Móvil $ 85 $ 126 $ 410 $ 490
YP Holdings 23 75 138 94
Other 1 (2) - (1)
Other Segment Equity in Net Income of Affiliates $ 109 $ 199 $ 548 $ 583

~~AT&T INC.~~

~~SEPTEMBER 30, 2013~~

~~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

U-verse Services As part of ~~September 30, 2013,~~Project VIP, we ~~are marketing U-verse services~~plan to expand our IP-broadband service to approximately ~~26.0~~57 million customer ~~locations (locations eligible to receive U-verse service).~~locations. As of ~~September~~June 30, ~~2013,~~2014, we had ~~10.0~~11.8 million total U-verse subscribers (high-speed Internet and video), including ~~9.7~~11.5 million Internet and ~~5.3~~5.9 million video subscribers (subscribers to both services are only counted once in the total). ~~As part of Project Velocity IP (VIP), we plan to expand our U-verse services to a total of approximately 33 million customer locations and expect to be essentially complete by year-end 2015.~~

We believe that our U-verse TV service is a “video service” under the Federal Communications Act. However, some cable providers and municipalities have claimed that certain IP services should be treated as a traditional cable service and therefore subject to the applicable state and local cable regulation. Petitions have been filed at the ~~FCC~~Federal Communications Commission (FCC) alleging that the manner in which we provision “public, educational and governmental” (PEG) programming over our U-verse TV service conflicts with federal ~~law, and a lawsuit has been filed in a California state superior court raising similar allegations under California~~ law. If courts having jurisdiction where we have significant deployments of our U-verse services were to decide that federal, state and/or local cable regulation were applicable to our U-verse services, or if the FCC, state agencies or the courts were to rule that we must deliver PEG programming in a manner substantially different from the way we do today or in ways that are inconsistent with our current network architecture, it could have a material adverse effect on the cost and extent of our U-verse offerings.

~~Atlantic Tele-Network, Inc. Transaction~~DIRECTV Acquisition In September 2013, we acquired Atlantic Tele-Network, Inc.’s U.S. retail wireless operations, operated under the Alltel brand, for $806 in cash, which includes closing adjustments. Under the terms of the agreement, we acquired wireless properties, including licenses, network assets, retail stores and approximately 550,000 subscribers.

~~Spectrum Acquisitions~~ In September 2013, we acquired spectrum in the 700 MHz B band from Verizon Wireless for $1,900 in cash and an assignment of AWS spectrum licenses in five markets. The 700 MHz licenses acquired by AT&T cover 42 million people inOn May 18, ~~states.~~

~~Leap Acquisition~~ ~~In July 2013,~~2014, we announced an agreement to acquire ~~Leap Wireless International, Inc. (Leap),~~DIRECTV in a ~~provider of prepaid wireless service,~~stock-and-cash transaction for ~~fifteen~~ninety-five dollars per ~~outstanding~~ share of ~~Leap’s~~DIRECTV’s common stock, or approximately ~~$1,260, plus one non-transferable contingent value right (CVR) per share. The CVR will entitle each Leap stockholder to a pro rata share~~$48,500 at the date of ~~the net proceeds of the future sale of the Chicago 700 MHz A-band FCC license held by Leap.~~announcement. As of June 30, ~~2013, Leap~~2014, DIRECTV had approximately ~~$2,700~~$17,691 in net debt. Each DIRECTV shareholder will receive cash of ~~debt, net~~$28.50 per share and $66.50 per share in our stock. The stock portion will be subject to a collar such that DIRECTV shareholders will receive 1.905 AT&T shares if our stock price is below $34.90 per share at closing and 1.724 AT&T shares if our stock price is above $38.58 at closing. If our stock price is between $34.90 and $38.58 at closing, then DIRECTV shareholders will receive a number of ~~cash. Under~~shares between 1.724 and 1.905, equal to $66.50 in value. DIRECTV is a premier pay TV provider in the ~~terms~~United States and Latin America, with a high-quality customer base, the best selection of programming, the ~~agreement, we will acquire all of Leap’s stock~~best technology for delivering and ~~thereby, acquire all of its wireless properties, including spectrum licenses, network assets, retail stores~~viewing high-quality video on any device and ~~approximately 5 million subscribers. Leap’s spectrum licenses include Personal Communications Services (PCS)~~the best customer satisfaction among major U.S. cable and AWS bands and are largely complementary to our licenses. Leap’s network covers approximately 96 million people in 35 states and consists of a 3G CDMA network and an LTE network covering approximately 21 million people.satellite TV providers.

The merger agreement ~~was approved~~must be adopted by ~~more than 99 percent of votes cast by Leap’s~~DIRECTV’s stockholders ~~on October 30, 2013. The transaction~~and is subject to review by the FCC and the Department of Justice ~~(DOJ). The review process~~and to other closing conditions. It is ~~underway at both agencies.~~also a condition that all necessary consents by certain state public utility commissions and foreign governmental entities have been obtained and are in full force and effect. We have obtained all required state regulatory consents. The transaction is expected to close inwithin 12 months of the ~~first quarter of 2014.~~announcement. The agreement provides ~~both parties with~~ certain mutual termination rights for us and DIRECTV, including the right of either party to terminate the agreement if the ~~transaction does~~merger is not ~~close~~consummated by ~~July 11, 2014, which can be extended until January 11,~~May 18, 2015, subject to extension in certain cases to a date no later than November 13, 2015. Either party may also terminate the agreement if ~~certain conditions have~~the DIRECTV stockholders' approval has not been ~~met by~~obtained at a duly convened meeting of DIRECTV stockholders or an order permanently restraining, enjoining, or otherwise prohibiting consummation of the merger becomes final and non-appealable. In addition, we may terminate the agreement if the DIRECTV board of directors changes its recommendation of the merger in a manner adverse to AT&T prior to the DIRECTV stockholders’ approval having been obtained. The parties also have agreed that ~~date.~~in the event that DIRECTV’s agreement for the “NFL Sunday Ticket” service is not renewed substantially on the terms discussed between the parties, the Company may elect not to consummate the Merger, but the Company will not have a damages claim arising out of such failure so long as DIRECTV used its reasonable best efforts to obtain such renewal. Under certain circumstances ~~Leap~~relating to a competing transaction, DIRECTV may be required to pay a termination fee to us in connection with or ~~AT&T may be required to provide Leap with~~following a three-year roaming agreement for LTE data coverage in certain Leap markets lacking LTE coverage, if the transaction does not close. If Leap enters into the roaming agreement, AT&T will then have the option within 30 days after entry into the roaming agreement to purchase certain specified Leap spectrum assets. If AT&T does not exercise its right to purchase alltermination of the ~~specified Leap spectrum assets, Leap can then within 60 days after expiration of AT&T’s option require AT&T~~agreement.

Based on synergies we expect to ~~purchase all~~realize with the acquisition, we have also committed to the following upon closing of the ~~specified spectrum assets.~~transaction: (1) expanding and enhancing our deployment of both wireline and fixed wireless broadband to at least 15 million customer locations across 48 states, with most of the locations in underserved rural areas, (2) adhering to the FCC’s Open Internet protections established in 2010 for three years after closing, regardless of whether the FCC re-establishes such protections for other industry participants following the D.C. Circuit’s vacating of those rules, (3) for three years after closing, offering standalone retail broadband Internet access service at reasonable market-based prices, including a service of at least 6 Mbps down (where feasible) at guaranteed prices, in areas where we offer wireline broadband service today, and (4) offering, for three years after closing, standalone DIRECTV satellite video service at nationwide package prices that do not differ between customers in AT&T’s wireline footprint and customers outside our current 22-state wireline footprint.

AT&T INC.

~~SEPTEMBER 30, 2013~~

JUNE 30, 2014

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Continued

Dollars in millions except per share amounts

~~Tower Transaction~~ Connecticut Wireline Disposition~~On October 20,~~ In December 2013, we ~~announced an agreement with Crown Castle International Corp. (Crown Castle)~~agreed to sell our incumbent local exchange operations in ~~which Crown Castle will have~~Connecticut to Frontier Communications Corporation for $2,000 in cash. These Connecticut operations represent approximately $1,200 in annual revenues as of 2013. The transaction was approved by the ~~exclusive rights to lease~~FCC on July 25, 2014 and ~~operate approximately 9,100~~is pending before the Connecticut Public Utilities Regulatory Authority and ~~purchase approximately 600 of our wireless towers for $4,850. Under~~other state regulatory authorities. We expect the terms of the leases, Crown Castle will have exclusive rights to lease and operate the towers over an average term of approximately 28 years. As the leases expire, Crown Castle will have fixed price purchase options for these towers totaling approximately $4,200, based on their estimated fair market values at the end of the lease terms. We will sublease capacity on the towers from Crown Castle for a minimum of 10 years at current market rates, with options to renew. We plan to account for the proceeds as a financing obligation and expect this transaction to close ~~by year-end 2013,~~in the fourth quarter of 2014, subject to ~~standard~~customary closing conditions. We anticipate the cash tax impact of the transaction would be partially offset by the availability of capital loss carryforwards.

Environmental On March 29, 2012, attorneys in an investigation led by the California Attorney General’s Office informed us of claimed violations of California state hazardous waste statutes arising from the disposal of batteries, aerosol cans, and electronic waste at various California facilities. We are analyzing the claims while cooperating with investigators and implementing remedial measures where appropriate. At this time, we anticipate we will face civil penalties in excess of one hundred thousand dollars, but we do not anticipate such fines would be in an amount that would be material.

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, and regulation is generally limited to operational licensing authority for the provision of services to enterprise customers.

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 ~~consumers.~~consumer welfare. However, since the Telecom Act was passed, 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. We are pursuing, at both the state and federal levels, additional legislative and regulatory measures to reduce regulatory burdens that are no longer appropriate in a competitive telecommunications market and that inhibit our ability to compete more effectively and offer services wanted and needed by 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 extended to broadband or wireless services, which are subject to vigorous competition.

In addition, states representing a majority of our local service access lines have adopted legislation that enables new video entrants to acquire a single statewide or state-approved franchise (as opposed to the need to acquire hundreds or even thousands of municipal-approved franchises) to offer competitive video services. We also are supporting efforts to update and improve regulatory treatment for retail services. Regulatory reform and passage of legislation is uncertain and depends on many factors.

We provide wireless services in robustly competitive markets, but those services are subject to substantial and increasing governmental regulation. Wireless communications providers must obtain licenses from the FCC to provide communications services at specified spectrum frequencies within specified geographic areas and must comply with the FCC rules and policies governing the use of the spectrum. While wireless communications providers’ prices and service offerings are generally not subject to state regulation, states sometimes attempt to regulate or legislate various aspects of wireless services, such as in the area of consumer protection.

The FCC has recognized that the explosive growth of bandwidth-intensive wireless data services requires the U.S. Government to make more spectrum available. In February 2012, Congress set forth specific spectrum blocks to be auctioned and licensed by February 2015 (the “AWS-3 Auction”), and also authorized the FCC to conduct an “incentive auction,” to make available for wireless broadband use certain spectrum that is currently used by broadcast television ~~licensees.~~licensees (the “600 MHz Auction”). The FCC has initiated proceedings to establish rules that would govern ~~this process. It also initiated~~these auctions. The AWS-3 Auction is expected to begin in the second half of 2014. We intend to bid at least $9,000 in connection with the 600 MHz auction, provided there is sufficient spectrum available in the auction to give us a viable path to at least a 2x10 MHz nationwide spectrum footprint.

AT&T INC.

JUNE 30, 2014

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Continued

Dollars in millions except per share amounts

In May 2014, in a separate proceeding, ~~to review~~the FCC issued an order revising its policies governing mobile spectrum ~~holdings and consider whether there should be limits~~holdings. The FCC rejected the imposition of caps on the amount of spectrum any carrier could acquire, retaining its case by case review policy. Moreover, it increased the amount of spectrum that could be acquired before exceeding an aggregation “screen” that would automatically trigger closer scrutiny of a ~~wireless service provider may possess.~~proposed transaction. On the other hand, it indicated that it will separately consider an acquisition of “low band” spectrum that exceeds one third of the available low band spectrum as presumptively harmful to competition. In addition, the FCC imposed limits on certain bidders in the 600 MHz Auction, including AT&T, restricting them from bidding on up to 40 percent of the available spectrum in the incentive auction in markets that cover as much as 70-80 percent of the U.S. population. On balance, the order and the new spectrum screen should allow AT&T to obtain additional spectrum to meet our customers’ needs, but because AT&T uses more “low band” spectrum in its network than some other national carriers, the separate consideration of low band spectrum acquisitions might affect AT&T’s ability to expand capacity in these bands (“low band” spectrum has better propagation characteristics than “high band” spectrum). We seek to ensure that we have the opportunity, through the ~~incentive~~ auction process and otherwise, to obtain the spectrum we need to provide our customers with high-quality ~~service.~~service in the future.

Due to substantial increases in the demand for wireless service in the United States, AT&T is facing significant spectrum and capacity constraints on its wireless network in certain markets. We expect such constraints to increase and expand to additional markets in the coming years. While we are continuing to invest significant capital in expanding our network capacity, our capacity constraints could affect the quality of existing data and voice services and our ability to launch new, advanced wireless ~~communications providers’ prices and service offerings~~broadband services, unless we are ~~generally not subject~~able to ~~state regulation, states sometimes~~obtain more spectrum. Any long-term spectrum solution will require that the FCC make new or existing spectrum available to the wireless industry to meet the expanding needs of our subscribers. We will continue to attempt to ~~regulate or legislate various aspects of wireless services, such as in the area of consumer protection.~~address spectrum and capacity constraints on a market-by-market basis.

Net Neutrality In January 2014, the D.C. Circuit released its decision on Verizon’s appeal of the FCC’s Net Neutrality rules. Those rules prohibited providers of fixed, mass market Internet access service from blocking access to lawful content, applications, services or non-harmful devices. The rules prohibited providers of mobile broadband Internet access service from blocking consumers from accessing lawful websites or applications that compete with the provider’s own voice or video telephony services. The rules also imposed transparency requirements on providers of both fixed and mobile broadband Internet access services, requiring public disclosure of information regarding network management practices, performance and commercial terms of their service offerings. In addition, the rules prohibited providers of fixed (but not mobile) broadband Internet access service from unreasonably discriminating in their transmission of lawful network traffic.

In its decision, the court found the FCC had authority under section 706 of the Act (which directs the FCC and state commissions to promote broadband deployment) to adopt rules designed to preserve the open Internet, but vacated and remanded the antidiscrimination and no-blocking rules on the ground that they impermissibly imposed common carrier regulation on broadband Internet access service. The court held that, having declared broadband Internet access services to be information services, the FCC could not regulate them as telecommunications services. The court did not vacate the transparency rules.

The invalidation of the no-blocking and antidiscrimination rules means that broadband Internet access providers have greater flexibility in their provision of mass market services. However, the court’s finding that section 706 provides the FCC independent authority to adopt rules to promote broadband deployment appears to give the FCC broad authority to regulate the Internet and, more generally, IP-based services, provided the FCC finds such regulation promotes deployment of broadband infrastructure. In addition, because section 706(a) grants authority to both the FCC and the states to adopt rules to promote broadband deployment, states could attempt to rely on that provision to regulate broadband services, although the states’ authority to do so appears to be narrower than the FCC’s. On May 15, 2014, the FCC released a notice of proposed rulemaking in response to the D.C. Circuit’s January decision that also asks wide-ranging questions that appear to re-open settled issues. Most significantly, the Commission asks whether it has sufficient authority under section 706 to reestablish protections against discrimination and blocking on broadband Internet access services or whether it needs to reclassify broadband Internet access service as a telecommunications service to achieve its regulatory goals. If the FCC were to reclassify broadband as a telecommunications service, or the FCC and/or the states were to impose additional regulation of the Internet or broadband services, it could have a material adverse impact on our broadband services and operating results.

AT&T INC.

~~SEPTEMBER 30, 2013~~

JUNE 30, 2014

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Continued

Dollars in millions except per share amounts

Intercarrier Compensation/Universal Service In October 2011, the FCC adopted an order fundamentally overhauling its high-cost universal service program, through which it disburses approximately $4,500 per year to carriers providing telephone service in high-cost areas, and its existing intercarrier compensation (ICC) rules, which govern payments between carriers for the exchange of traffic. The order ~~adopted~~adopts rules to address immediately ~~address~~ certain practices that artificially increase ICC payments, as well as other practices to avoid such payments. The order also ~~established~~establishes a new ICC regime that will result in the elimination of virtually all terminating switched access charges and reciprocal compensation payments over a six-year transition. In the order, the FCC also repurposed its high-cost universal service program to encourage providers to deploy broadband facilities in unserved areas. To accomplish this goal, the FCC ~~will transition~~is transitioning support amounts disbursed through its existing high-cost program to its new Connect America Fund ~~which eventually will award targeted high-cost support amounts~~(CAF). In 2013, the FCC awarded us approximately $100 in new CAF funding to ~~providers through a competitive process. We support many aspects~~deploy broadband in unserved areas. On May 23, 2014, the United States Court of ~~the order and new rules. AT&T and other parties have filed appeals of the FCC’s rules, which are pending in~~Appeals for the Tenth Circuit ~~Court of Appeals. Our appeal~~denied all challenges ~~only certain, narrow aspects of~~to the ~~order; AT&T intervened~~universal service and intercarrier compensation rules adopted in ~~support of~~ the ~~broad framework adopted by~~2011 order. Two petitions for rehearing on discrete issues affirmed in the ~~order. Oral argument on the appeal will take place November 19, 2013.~~court’s decision are pending. We do not expect the FCC’s rules to have a material impact on our operating results.

Transition to IP-Based Network ~~In November 2012, we announced plans to significantly expand and enhance our wireless and wireline broadband networks to support future IP data growth and new services (referred to as Project VIP).~~ In conjunction with Project VIP, we filed a petition with the FCC asking it to open a proceeding to facilitate ~~the “telephone” industry’s~~our transition ~~from traditional transmission platforms and services~~ to all IP-based networks and ~~services. Our petition asks the FCC to conduct trial runs of the transition to next-generation~~ services including the upgrading of traditional telephone facilities and offerings and their replacement with IP-based alternatives. The objective of the trials is to inform policymakers and other stakeholders regarding the technological and policy dimensions of the IP transition and, in the process, identify the regulatory reforms needed to promote consumer interests and ~~preserve~~incentivize private ~~incentives to upgrade America’s~~investment in broadband infrastructure. In ~~May 2013, the FCC’s Technology Transition Task Force sought comment on potential trials to obtain data to assist~~January 2014, the FCC adopted an order authorizing a broad set of voluntary experiments to measure the impact on consumers of the IP transition. Among other things, the order invites providers to submit proposals for all-IP trials in ~~managing~~discrete geographic areas. In February 2014, AT&T filed a detailed plan for two such trials. In June 2014, the FCC staff presented a status report on the AT&T trial to the commissioners. We do not expect any formal FCC action on the AT&T proposal at this time. We expect this transition to ~~next-generation networks. We expect to transition wireline customers to an all IP-based network by 2020.~~take several years.

AT&T INC.

~~SEPTEMBER 30, 2013~~

JUNE 30, 2014

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Continued

Dollars in millions except per share amounts

LIQUIDITY AND CAPITAL RESOURCES

We had ~~$1,371~~$11,305 in cash and cash equivalents available at ~~September~~June 30, ~~2013.~~2014. Cash and cash equivalents included cash of ~~$490~~$1,756 and money market funds and other cash equivalents of ~~$881.~~$9,549. In the first ~~nine~~six months of ~~2013,~~2014, cash ~~outflows~~inflows were primarily provided by cash receipts from operations and long-term debt issuances, with additional cash from the monetization of our investment in América Móvil and other assets. These inflows were largely offset by cash used to meet the needs of the business, including, but not limited to, payment of operating expenses, funding capital expenditures, dividends to stockholders, debt redemptions, stock repurchases and the acquisition of operations and wireless spectrum. ~~Cash flows were also used to return value to stockholders through dividends and stock repurchases.~~ We discuss many of these factors in detail below.

Cash Provided by or Used in Operating Activities

During the first ~~nine~~six months of ~~2013,~~2014, cash provided by operating activities was ~~$26,879,~~$16,869, compared to ~~$28,656~~$17,711 for the first ~~nine~~six months of ~~2012.~~2013. Lower operating cash flows ~~reflected~~in 2014 were primarily due to increased ~~income~~inventory levels, retirement benefit funding and wireless device financing related to our AT&T Next program, which results in cash collection over the installment period instead of at the time of sale. In June 2014, we entered into uncommitted agreements to periodically sell certain equipment installment receivables for cash and future consideration (see Note 8). Proceeds from the sale of equipment installment receivables and the timing of working capital payments partially offset the decline in operating cash flows. We expect lower cash from operations in 2014 as our AT&T Next program continues to gain popularity with customers, we incur Leap integration costs, and for increased tax payments resulting from prior-year deductions for our contribution to the pension plan and for changes in tax rules that allowed for us to more rapidly deduct the cost of ~~approximately $1,183 in 2013.~~ equipment.

Cash Used in or Provided by Investing Activities

For the first ~~nine~~six months of ~~2013,~~2014, cash used in investing activities totaled ~~$18,660, which~~$7,701 and consisted primarily of ~~$15,565~~$11,649 for capital expenditures, ~~(excluding~~excluding interest during ~~construction),~~construction, and ~~wireless spectrum and operations~~$857 for the acquisitions of ~~$3,984.~~Leap, other operations and spectrum. These expenditures were partially offset by cash receipts of approximately ~~$771~~$4,885 from the sale ~~of a portion~~ of our shares in América Mó~~vil, $200 from the repayment of advances to YP Holdings and $101 from the return of investment in YP Holdings.~~vil.

Virtually all of our capital expenditures are spent on our wireless and wireline networks, our U-verse services and support systems for our communications services. Capital ~~spending~~expenditures, excluding interest during construction, increased $1,984 in ~~our~~the first six months. Our Wireless segment ~~of $8,231~~ represented ~~53%~~56% of our total spending and increased ~~14%~~24% in the first ~~nine~~six months. ~~Wireless expenditures were primarily used for network capacity expansion, integration and the deployment of LTE equipment upgrades and our High-Speed Downlink Packet Access network.~~ The Wireline segment, which includes U-verse services, represented ~~47%~~44% of the total capital expenditures and increased ~~15%~~17% in the first ~~nine~~six months, primarily reflecting our ongoing implementation of Project VIP.

We continue to expect our capital expenditures during ~~2013~~2014 to be in the $21,000 ~~range~~range. We expect 2014 to be our peak investment year for Project VIP and ~~expect capital expenditures for 2014~~anticipate our Wireless and ~~2015~~Wireline segments’ spend to ~~each~~ be ~~in the $20,000 range.~~proportionally consistent to 2013.

Cash Used in or Provided by Financing Activities

For the first ~~nine~~six months of ~~2013, our~~2014, cash used in financing activities totaled $1,202 and included net proceeds of ~~$6,416~~$8,564 from the following ~~long term~~long-term debt issuances:

~~February 2013~~March 2014 issuance of ~~$1,000~~$1,100 of ~~0.900%~~2.300% global notes due ~~2016~~2019, $1,000 of 3.900% global notes due 2024 and ~~$1,250~~$400 of floating rate global notes due ~~2016.~~2019. The floating rate for the ~~note~~notes is based upon the three-month London Interbank Offered Rate (LIBOR), reset quarterly, plus ~~38.5~~67 basis points.

·	March ~~2013~~2014 issuance of $500 of ~~1.400%~~floating rate global notes due 2017.

·	~~March 2013 issuance of €1,250 of 2.500% global~~ The floating rate for the notes ~~due 2023 (equivalent to $1,626 when issued) and €400 of 3.550% global notes due 2032 (equivalent to $520 when issued).~~is based upon the three-month LIBOR, reset quarterly, plus 42 basis points.

May ~~2013~~2014 draw of $750 on a private financing agreement with Export Development Canada due 2017. The agreement is designed to encourage the purchase of Canadian-sourced equipment. The agreement contains terms similar to that provided under our revolving credit arrangements, discussed below; the interest rate was privately negotiated at market rates. The rate for this agreement is based upon the three-month LIBOR, reset quarterly, plus 50 basis points.

·	June 2014 issuance of ~~£1,000~~$2,000 of ~~4.250%~~4.800% global notes due ~~2043~~2044.

·	June 2014 issuance of €1,600 (equivalent to ~~approximately $1,560~~$2,181 when issued). of 2.400% global notes due 2024 and €500 (equivalent to $681 when issued) of 3.375% global notes due 2034.

In March 2013, we repaid €1,250 of 4.375% notes (equivalent to $1,641 when repaid) and $147 of 6.5% notes. In July 2013, we repaid $300 of 7.375% notes. Additionally, in August 2013, we announced the redemption of $550 of 6.625% notes, which was completed in October 2013.

In May 2013, we completed a repurchase authorization that was approved by our Board of Directors in July 2012. In March 2013, our Board of Directors authorized the repurchase of an additional 300 million shares of our common stock. During the first nine months of 2013, we repurchased 312 million shares for $11,134 under these authorizations. At the end of the third quarter, we had 216 million shares remaining on the March 2013 authorization. We expect to make future repurchases opportunistically.

AT&T INC.

~~SEPTEMBER 30, 2013~~

JUNE 30, 2014

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Continued

Dollars in millions except per share amounts

For the first six months of 2014, we redeemed $3,508 of debt, primarily consisting of the following:

·	March 2014 redemption of $1,814 of Cricket Communications, Inc. term loans and $38 of 4.500% Leap convertible senior notes in connection with the Leap acquisition.

·	April 2014 redemption of Cricket Communications, Inc. 7.750% senior notes with a face value of $1,600 in connection with the Leap acquisition.

In July 2014, we redeemed $4,393 of debt consisting of all of the outstanding BellSouth 5.200% notes due 2014, AT&T 0.875% global notes due 2015, AT&T 5.625% global notes due 2016, and BellSouth 5.200% notes due 2016 as well as $750 in principal amount of the outstanding AT&T 2.500% global notes due 2015.

Our weighted average interest rate of our long-term debt portfolio was approximately 4.4% as of June 30, 2014, and 4.5% as of December 31, 2013. We had $83,548 of total notes and debentures outstanding at June 30, 2014, which included Euro, British pound sterling and Canadian dollar denominated debt of approximately $21,240.

Since the first quarter of 2012, we have been buying back shares of AT&T common stock under three previous 300 million share repurchase authorizations approved by our Board of Directors. During the first six months of 2014, we repurchased approximately 42 million shares for $1,396. In March 2014, our Board of Directors approved a fourth authorization to repurchase 300 million shares of our common stock, which has no expiration date. As of June 30, 2014, we had approximately 421 million shares remaining from the authorizations. We expect to make future repurchases opportunistically.

We paid dividends of ~~$7,325~~$4,784 during the first ~~nine~~six months of ~~2013,~~2014, compared with ~~$7,738~~$4,930 for the first ~~nine~~six months of ~~2012,~~2013, primarily reflecting the decline in shares outstanding due to our ~~repurchases during the year, which~~repurchase activity, partially offset by the increase in the quarterly dividend approved by our Board of Directors in ~~November 2012.~~December 2013. Dividends declared by our Board of Directors totaled ~~$0.45~~$0.46 per share in the ~~third~~second quarter ~~of 2013~~ and ~~$1.35~~$0.92 per share for the first ~~nine~~six months of ~~2013~~2014 and ~~$0.44 per share~~$0.45 in the ~~third~~second quarter and ~~$1.32~~$0.90 per share for the first ~~nine~~six months of ~~2012.~~2013. Our dividend policy considers the expectations and requirements of stockholders, internal requirements of AT&T and long-term growth opportunities. It is our intent to provide the financial flexibility to allow our Board of Directors to consider dividend growth and to recommend an increase in dividends to be paid in future periods. All dividends remain subject to declaration by our Board of Directors.

At ~~September~~June 30, ~~2013,~~2014, we had ~~$7,873~~$10,482 of debt maturing within one year, ~~$5,999~~$10,291 of which were related to long-term debt issuances. Debt maturing within one year includes the following notes that may be put back to us by the holders:

·	$1,000 of annual put reset securities issued by BellSouth ~~Corporation (BellSouth)~~ that may be put back to us each April until maturity in 2021.

·	An accreting zero-coupon note that may be redeemed each May until maturity in 2022. If the zero-coupon note (issued for principal of $500 in 2007) is held to maturity, the redemption amount will be $1,030.

We have two revolving credit agreements with a syndicate of banks: a $5,000 agreement expiring in December ~~2016~~2018 and a $3,000 agreement expiring in December 2017. Advances under either agreement may be used for general corporate purposes. Advances are not conditioned on the absence of a material adverse change. All advances must be repaid no later than the date on which lenders are no longer obligated to make any advances under each agreement. Under each agreement, we can terminate, in whole or in part, amounts committed by the lenders in excess of any outstanding advances; however, we cannot reinstate any such terminated commitments. Under each agreement, we must maintain a debt-to-EBITDA, including modifications described in the agreement, ratio of not more than three-to-one as of the last day of each fiscal quarter for the four quarters then ended. Both agreements also contain a negative pledge covenant, which generally provides that if we pledge assets or permit liens on our property, then any advances must also be secured. At ~~September~~June 30, ~~2013,~~2014, we had no advances outstanding under either agreement and were in compliance with all covenants under each agreement.

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 any debt issued by ~~América Móvil or~~ YP ~~Holdings.~~Holdings and other investees. At ~~September~~June 30, ~~2013,~~2014, our debt ratio was ~~46.9%~~47.6%, compared to ~~38.6%~~46.6% at ~~September~~June 30, ~~2012,~~2013, and ~~43.0%~~45.0% at December 31, ~~2012.~~2013. The debt ratio is affected by the same factors that affect total capital, and reflects our recent debt ~~issuances.~~issuances, debt in connection with acquisitions and stock repurchases.

AT&T INC.

JUNE 30, 2014

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Continued

Dollars in millions except per share amounts

During 2014, we also received approximately $4,994 from the monetization of various nonstrategic assets. A majority of that cash was attributable to sales of our investment in América Móvil and real estate holdings. We plan to continue to explore similar opportunities in the remainder of 2014.

In September 2013, we made a voluntary contribution of a preferred equity interest in AT&T Mobility II LLC (Mobility), the holding company for our wireless business, to the trust used to pay pension benefits under our qualified pension plans. In July 2014, the U.S. Department of Labor (DOL) published in the Federal Register their final retroactive approval of our voluntary contribution.

The preferred equity interest ~~preliminarily valued between $9,200 and $9,500,~~ had a value of $9,104 on the contribution date, does not have any voting rights and has a liquidation value of $8,000. The trust is entitled to receive cumulative cash distributions of $560 per annum, which will be distributed quarterly in equal amounts. We distributed $280 to the trust during the six months ended June 30, 2014. So long as we make the distributions, wethe terms of the preferred equity interest will ~~have no~~not impose any limitations on our ability to declare a dividend, or repurchase shares. At the time of the contribution of the preferred equity interest, we made an additional cash contribution of $175 and have agreed to annual cash contributions of $175 no later than the due date for our federal income tax return for each of 2014, 2015 and 2016. These contributions, combined with our existing pension assets, are essentially equivalent to the expected pension obligation at year-end.

AT&T INC.

~~SEPTEMBER~~JUNE 30, ~~2013~~2014

~~Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Continued~~

~~Dollars in millions except per share amounts~~

The preferred equity interest is not transferable by the trust except through its put and call features. After a period of five years from the contribution or, if earlier, the date upon which the pension plan trust is fully funded as determined under Employee Retirement Income Security Act of 1974, as amended (ERISA), AT&T has a right to purchase from the pension plan trust some or all the preferred equity interests at the greater of their fair market value or minimum liquidation value plus any unpaid cumulative dividends. In addition, AT&T will have the right to purchase the preferred equity interests in the event AT&T’s ownership of Mobility is less than fifty percent (50%) or there is a transaction that results in the transfer of 50% or more of the pension plan trust’s assets to an entity not under common control with AT&T (collectively, a change of control). The pension plan trust has the right to require AT&T to purchase the preferred equity interests at the greater of their fair market value or minimum liquidation value plus any unpaid cumulative dividends, and in installments, as specified in the contribution agreement upon the occurrence of any of the following: (1) at any time if the ratio of debt to total capitalization of Mobility exceeds that of AT&T, (2) the date on which AT&T Inc. is rated below investment grade for two consecutive calendar quarters, (3) upon a change of control if AT&T does not exercise its purchase option, or (4) at any time after a seven-year period from the contribution date. In the event AT&T elects or is required to purchase the preferred equity interests, AT&T may elect to settle the purchase price in shares of AT&T common stock.

On September 9, 2013, the DOL published a proposed exemption that authorizes retroactive approval of this voluntary contribution. The proposal is open for public comment for 55 days from the publication date. Our retirement benefit plans, including required contributions, are subject to the provisions of ERISA.

~~AT&T INC.~~

~~SEPTEMBER 30, 2013~~

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Dollars in millions except per share amounts

At ~~September~~June 30, ~~2013,~~2014, we had interest rate swaps with a notional value of ~~$4,750~~$6,350 and a fair value of ~~$212.~~$203.

We have fixed-to-fixed cross-currency swaps on foreign-currency-denominated debt instruments with a U.S. dollar notional value of ~~$14,136~~$20,650 to hedge our exposure to changes in foreign currency exchange rates. These derivatives have been designated at inception and qualify as cash flow hedges with a net fair value of ~~$1,100~~$1,508 at ~~September~~June 30, ~~2013. We have foreign exchange contracts with a notional value of $4 and a net fair value of less than $1 at September 30, 2013.~~2014.

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 ~~September~~June 30, ~~2013.~~2014. 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 ~~September~~June 30, ~~2013.~~2014.

AT&T INC.

~~SEPTEMBER~~JUNE 30, ~~2013~~2014

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:

·	Adverse economic and/or capital access changes in the markets served by us or in countries in which we have significant investments, including the impact on customer demand and our ability and our suppliers’ ability to access financial markets at favorable rates and terms.

·	Changes in available technology and the effects of such changes, including product substitutions and deployment costs.

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,~~rates; adverse medical cost trends, and unfavorable or delayed implementation of healthcare legislation, regulations or related court ~~decisions; and our inability to receive retroactive approval from the DOL of our voluntary contribution of a preferred interest in our wireless business.~~decisions.

The final outcome of FCC and other federal or state agency proceedings (including judicial review, if any, of such proceedings) involving issues that are important to our business, including, without limit, intercarrier compensation, interconnection obligations, the transition from legacy technologies to IP-based infrastructure, universal service, broadband deployment, E911 services, competition policy, net neutrality, unbundled network elements and other wholesale obligations, availability of new spectrum from the FCC on fair and balanced terms, and wireless license awards and renewals.

·	The final outcome of state and federal legislative efforts involving issues that are important to our business, including deregulation of IP-based services, relief from Carrier of Last Resort obligations, and elimination of state commission review of the withdrawal of services.

·	Enactment of additional state, federal and/or foreign regulatory and tax laws and regulations 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.

·	Our ability to absorb revenue losses caused by increasing competition, including offerings that use alternative technologies (e.g., cable, wireless and VoIP) and our ability to maintain capital expenditures.

·	The extent of competition and the resulting pressure on customer and access line totals and wireline and wireless operating margins.

·	Our ability to develop attractive and profitable product/service offerings to offset increasing competition in our wireless and wireline markets.

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 state regulatory proceedings relating to unbundled network elements and nonregulation of comparable alternative technologies (e.g., VoIP).

The continued development of attractive and profitable U-verse service offerings; the extent to which regulatory, franchise fees and build-out requirements apply to this initiative; and the availability, cost and/or reliability of the various technologies and/or content required to provide such offerings.

·	Our continued ability to attract and offer a diverse portfolio of wireless devices, some on an exclusive basis.

·	The availability and cost of additional wireless spectrum 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, including patent and product safety claims by or against third parties.

The impact on our networks and business from major equipment failures; 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; or severe weather conditions, natural disasters, 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.

The issuance by the Internal Revenue Service and/or state tax authorities of new tax regulations or changes to existing standards and actions by federal, state or local tax agencies and judicial authorities with respect to applying applicable tax laws and regulations and the resolution of disputes with any taxing jurisdictions.

·	Our pending acquisition of DIRECTV.

·	Our ability to adequately fund our wireless operations, including payment for additional spectrum, network upgrades and technological advancements.

·	Changes in our corporate strategies, such as changing network requirements or acquisitions and dispositions, which may require significant amounts of cash or stock, to respond to competition and regulatory, legislative and technological developments.

·	The uncertainty surrounding further congressional action to address spending reductions, which may result in a significant reduction in government spending and reluctance of businesses and consumers to spend in general and on our products and services specifically, due to this fiscal uncertainty.

Readers are cautioned that other factors discussed in this report, although not enumerated here, also could materially affect our future earnings.

AT&T INC.

~~SEPTEMBER 30, 2013~~

JUNE 30, 2014

PART II – OTHER INFORMATION

Dollars in millions except per share amounts

Item 1A. Risk Factors

We discuss in our Annual Report on Form 10-K various risks that may materially affect our business. We use this section to update this discussion to reflect material developments since our Form 10-K was filed. ~~For the third quarter 2013, there were no such material developments.~~The additional Risk Factor below reflects our pending acquisition of DIRECTV (See “Other Business Matters”).

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

(c) A summary of our repurchases of common stock during the third quarter of 2013 is as follows:

Period
(a)

Total Number of
Shares (or Units)
Purchased 1,2

(b)

Average Price Paid
Per Share (or Unit)

(c)

Total Number of
Shares (or Units)
Purchased as Part of
Publicly Announced
Plans or Programs 1

(d)

Maximum Number (or
Approximate Dollar
Value) of Shares (or
Units) That May Yet Be
Purchased Under The
Plans or Programs

July 1, 2013 -
July 31, 2013
24,608,211 $ 35.62 24,600,000 246,947,551
August 1, 2013 -
August 31, 2013
16,500,137 34.26 16,500,000 230,447,551
September 1, 2013 -
September 30, 2013
14,001,278 33.93 14,000,000 216,447,551
Total 55,109,626 $ 34.78 55,100,000
1 In March 2013, our Board of Directors authorized the repurchase of up to 300 million shares of our common stock. In July 2012, our Board of Directors also authorized the repurchase of up to 300 million shares of our common stock, which we completed in May 2013.
The March 2013 authorization has no expiration date.
2 Of the shares repurchased, 9,626 shares were acquired through the withholding of taxes on the vesting of restricted stock or through the payment in stock of taxes on the exercise price of options.
The impact of our pending acquisition of DIRECTV, including our ability to obtain governmental approvals on favorable terms including any required divestitures; the risk that the businesses will not be integrated successfully; the risk that the cost savings and any other synergies from the acquisition may not be fully realized or may take longer to realize than expected; our costs in financing the acquisition and potential adverse effects on our share price and dividend amount due to the issuance of additional shares; the addition of DIRECTV’s existing debt to our balance sheet; disruption from the acquisition making it more difficult to maintain relationships with customers, employees or suppliers; and competition and its effect on pricing, spending, third party relationships and revenues.

As discussed in Other Business Matters, on May 18, 2014, we agreed to acquire DIRECTV for approximately $48,500. We believe that the acquisition will give us the scale, resources and ability to deploy video technology to more customers than otherwise possible and to provide an integrated bundle of broadband, video and wireless services enabling us to compete more effectively against cable operators as well as other technology, media and communications companies. In addition, we believe the acquisition will result in cost savings, especially in the area of video content costs, and other potential synergies, enabling us to expand and enhance our broadband deployment and provide more video options across multiple fixed and mobile devices.

Achieving these results will depend upon obtaining governmental approvals on favorable terms within the time limits contemplated by the parties. Delays in closing, including as a result of delays in obtaining regulatory approval could divert attention from ongoing operations on the part of management and employees, adversely affecting customers and suppliers and therefore revenues. If such approvals are obtained and the transaction is consummated, then we must integrate a large number of video network and other operational systems and administrative systems, which may involve significant management time and create uncertainty for employees, customers and suppliers. The integration process may also result in significant expenses and charges against earnings, both cash and noncash. While we have successfully merged large companies into our operations in the past, delays in the process could have a material adverse effect on our revenues, expenses, operating results and financial condition. This acquisition also will increase the amount of debt on our balance sheet (both from DIRECTV’s debt and the indebtedness needed to pay a portion of the purchase price) leading to additional interest expense and, due to additional shares being issued, will result in additional cash being required for any dividends declared. Both of these factors could put pressure on our financial flexibility to continue capital investments, develop new services and declare future dividends. In addition, events outside of our control, including changes in regulation and laws as well as economic trends, could adversely affect our ability to realize the expected benefits from this acquisition.

AT&T INC.

~~SEPTEMBER 30, 2013~~

JUNE 30, 2014

PART II – OTHER INFORMATION

Dollars in millions except per share amounts

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

(c) A summary of our repurchases of common stock during the second quarter of 2014 is as follows:

Period		(a) Total Number of Shares (or Units) Purchased 1,2	(b) Average Price Paid Per Share (or Unit)		(c) Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs 1	(d) Maximum Number (or Approximate Dollar Value) of Shares (or Units) That May Yet Be Purchased Under The Plans or Programs

April 1, 2014 - April 30, 2014		4,500,637	$	35.43	4,500,000	420,750,000
May 1, 2014 - May 31, 2014		7,793		-	-	420,750,000
June 1, 2014 - June 30, 2014		12,851		-	-	420,750,000
Total		4,521,281	$	35.43	4,500,000
1	In March 2014, our Board of Directors approved a fourth authorization to repurchase up to 300 million shares of our common stock.
	In March 2013, our Board of Directors approved a third authorization to repurchase of up to an additional 300 million shares of our common stock. The authorizations have no expiration date.
2	Of the shares repurchased, 21,281 shares were acquired through the withholding of taxes on the vesting of restricted stock or through the payment in stock of taxes on the exercise price of options.

AT&T INC.

JUNE 30, 2014

��

Item 6. Exhibits

Exhibits identified in parentheses below, on file with the Securities and Exchange Commission, are incorporated by reference as exhibits hereto. Unless otherwise indicated, all exhibits so incorporated are from File No. 1-8610.


~~10-qqq~~	Agreement and Plan of Merger, dated as of July 12, 2013, by and among Leap Wireless International, Inc., AT&T Inc., Laser, Inc. and Mariner Acquisition Sub Inc. (Exhibit 10.1 to Form 8-K dated July 12, 2013.)
~~10-rrr~~	Form of Voting Agreement, dated as of July 12, 2013, by and among AT&T Inc., Leap Wireless International, Inc. and the stockholders listed on Schedule I thereto. (Exhibit 10.2 to Form 8-K dated July 12, 2013.)
~~10-sss~~	~~Form of CVR Agreement, by and among AT&T Inc., Leap Wireless International, Inc., Laser, Inc. and the Rights Agent. (Exhibit 10.3 to Form 8-K dated July 12, 2013.)~~
12	Computation of Ratios of Earnings to Fixed Charges
31	Rule 13a-14(a)/15d-14(a) Certifications 31.1 Certification of Principal Executive Officer 31.2 Certification of Principal Financial Officer
32	Section 1350 Certifications
101	XBRL Instance Document

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

AT&T Inc.

~~November~~August 1, ~~2013~~2014 /s/ John J. Stephens

John J. Stephens

Senior Executive Vice President

and Chief Financial Officer

Advertising Solutions
Segment Results
	Third Quarter								Nine-Month Period
	2013			2012			Percent Change		2013			2012			Percent Change
Total Segment Operating Revenues		$	-		$	-		-		$	-		$	1,049		-
Segment operating expenses
Operations and support			-			-		-			-			773		-
Depreciation and amortization			-			-		-			-			106		-
Total Segment Operating Expenses			-			-		-			-			879		-
Segment Income		$	-		$	-		-		$	-		$	170		-