News Column

AT&T INC. - 10-Q - Management's Discussion and Analysis of Financial Condition and Results of Operations Dollars in millions except per share amounts

August 1, 2014

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, 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 second quarter and for the first six months of 2014 and 2013 are summarized as follows:

Second Quarter Six-Month Period Percent Percent 2014 2013 Change 2014 2013 Change Operating Revenues $ 32,575$ 32,075 1.6 % $ 65,051$ 63,431 2.6 % Operating expenses Cost of services and sales 14,212 13,270 7.1 27,533 25,824 6.6 Selling, general and administrative 8,197 8,121 0.9 16,457 16,454 - Depreciation and amortization 4,550 4,571 (0.5 ) 9,167 9,100 0.7 Total Operating Expenses 26,959 25,962 3.8 53,157 51,378 3.5 Operating Income 5,616 6,113 (8.1 ) 11,894 12,053 (1.3 ) Income Before Income Taxes 6,106 5,794 5.4 11,757 11,124 5.7 Net Income 3,621 3,880 (6.7 ) 7,355 7,653 (3.9 ) Net Income Attributable to AT&T $ 3,547$ 3,822 (7.2 ) % $ 7,199$ 7,522 (4.3 ) % Overview Operating income decreased $497, or 8.1%, in the second quarter and $159, or 1.3%, for the first six months of 2014. Operating income in the second quarter reflects lower wireless service revenues resulting from the popularity of 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 AT&T NextSM (AT&T Next) program as well as continued growth in our U-verse and strategic business services. Our operating results include the operations of Leap Wireless International, Inc. (Leap) from March 13, 2014, the date of acquisition. Operating revenues increased $500, or 1.6%, in the second quarter and $1,620, or 2.6%, for the first six months of 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 revenue recognized for device sales, partially offset by 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 data products. The telecommunications industry is rapidly evolving from fixed location, voice-oriented services into an industry driven by customer demand for instantly available, data-based services (including video). Our products, services and plans are changing as we transition to sophisticated, high-speed, IP-based alternatives. 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 wireless model by moving to simple pricing and no-device-subsidy plans. We expect continued growth in our wireless and wireline IP-based services as we bundle and price plans with greater focus on data and video offerings. We expect continued declines in voice services and our basic wireline data services as customers choose these next-generation services. 21 --------------------------------------------------------------------------------

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 Cost of services and sales expenses increased $942, or 7.1%, in the second quarter and $1,709, or 6.6%, for the first six months of 2014. The increases were primarily due to customers choosing higher-priced devices, which contributed to increased wireless equipment costs and handset insurance costs. The increases also reflect higher wireless network costs and wireline costs attributable to U-verse subscriber growth and employee-related charges. Selling, general and administrative expenses increased $76, or 0.9%, in the second quarter and $3 for the first six months of 2014. The increases were primarily due to 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 employee-related costs in our Wireline segment. Depreciation and amortization expense decreased $21, or 0.5%, in the second quarter and increased $67, or 0.7%, for the first six months of 2014. The second-quarter decrease was primarily due to 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, which were partially offset by ongoing capital spending for network upgrades and expansion and additional expense for assets acquired from Leap. The increase for the first six months was primarily due to increased capital spending for network upgrades and expansion. Interest expense increased $56, or 6.8%, in the second quarter and $89, or 5.4%, for the first six months of 2014. The increases were primarily due to higher interest related to our December 2013 tower transaction, partially offset by lower interest incurred as a result of 2013 refinancing activity. Equity in net income of affiliates decreased $116, or 53.2%, in the second quarter and $213, or 52.9%, for the first six months of 2014. Decreased equity in net income of affiliates in the 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). The second-quarter 2014 results also reflect our change in accounting for AmÉrica MÓvil (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 $1,269 in the second quarter and $1,414 for the first six months of 2014, compared to other income of $288 in the second quarter and $320 for the first six months of 2013. Results in the second quarter and for the first six months of 2014 included a net gain on the sale of AmÉrica MÓvil shares and other investments of $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 second quarter and for the first six months of 2013 included a net gain on the sale of AmÉrica MÓvil shares and other investments of $249 and $260, interest and dividend income of $23 and $40 and leveraged lease income of $10 and $15, respectively. Income taxes increased $571, or 29.8%, in the second quarter and $931, or 26.8%, for the first six months of 2014. Our effective tax rate was 40.7% for the second quarter and 37.4% for the first six months of 2014, as compared to 33.0% for the second quarter and 31.2% for the first six months of 2013. The increase in effective tax rate for both the second quarter and the first six months was primarily due to the sale of 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 credits were not available to be realized. 22 --------------------------------------------------------------------------------

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



Selected Financial and Operating Data

June 30,



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

47.6 % 46.6 %



Ratio of earnings to fixed charges2 5.53 5.51 Number of AT&T employees

248,170 245,350



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 See exhibit 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 our strategic direction of the business, needs of the network (wireless or wireline) 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 results. The customers and long-lived assets of our reportable segments are predominantly in the United States. We have two reportable segments: (1) Wireless and (2) 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 wallet joint venture which is accounted for as an equity 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 Internet, video and VoIP services and managed networking to business customers.



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

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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 Wireless Segment Results Second Quarter Six-Month Period Percent Percent 2014 2013 Change 2014 2013 Change Segment operating revenues Service $ 15,148$ 15,370 (1.4 ) % $ 30,535$ 30,432 0.3 % Equipment 2,782 1,921 44.8 5,261 3,550 48.2 Total Segment Operating Revenues 17,930 17,291 3.7 35,796 33,982 5.3 Segment operating expenses Operations and support 11,568 10,770 7.4 22,450 20,950 7.2 Depreciation and amortization 2,035 1,843 10.4 3,966 3,678 7.8 Total Segment Operating Expenses 13,603 12,613 7.8 26,416 24,628 7.3 Segment Operating Income 4,327 4,678 (7.5 ) 9,380 9,354 0.3 Equity in Net Income (Loss) of Affiliates (29 ) (19) (52.6 ) (49 ) (37) (32.4 ) Segment Income $ 4,298$ 4,659 (7.7 ) % $ 9,331$ 9,317 0.2 % 24

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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 The following table highlights other key measures of performance for the Wireless segment: Second Quarter Six-Month Period Percent Percent (in 000s) 2014 2013 Change 2014 2013 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 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. 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 on as broad a geographic basis as possible. To attract and retain subscribers in a maturing market, we have launched a wide variety of 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. 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 prior year. Our subscriber base consists primarily of postpaid accounts. Our prepaid services, which include results from services sold under the Cricket brand, are monthly, pay-as-you-go services. 25 --------------------------------------------------------------------------------

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



ARPU

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 to our network. Postpaid churn was lower for both the second quarter and 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 95% of our postpaid smartphone subscribers are on plans that provide for service on multiple devices at reduced rates, and such subscribers tend to have higher retention and lower churn rates. A growing percentage of our postpaid smartphone subscribers are on usage-based data plans, with approximately 80% on these plans as compared to 71% in the prior year, and about 49% of our Mobile Share accounts have chosen the 10 gigabyte or higher plans. Device connections on our Mobile Share plans 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 June 30, 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 63% of our postpaid smartphone subscribers use an LTE device. 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 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 original device for 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 second quarter of 2014, we began offering the AT&T Next program through other distributors and we plan to expand the offering to additional distributors, which is expected to further accelerate the impacts on service revenues.



Prepaid

In March 2014, we completed our acquisition of Leap, which included approximately 4.5 million prepaid subscribers at closing. Prepaid subscribers decreased 4.0% during the second quarter due to expected transition of Cricket subscribers. Excluding merger and acquisition related additions, prepaid subscribers decreased 3.9% when compared to June 30, 2013. As of July 31, we have approximately 1 million Leap and former Aio subscribers on our GSM network. 26 --------------------------------------------------------------------------------

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 Operating Results Our Wireless segment operating income margin in the second quarter decreased from 27.1% in 2013 to 24.1% in 2014 and for the first six months decreased from 27.5% in 2013 to 26.2% in 2014. Our Wireless segment operating income decreased $351, or 7.5%, in the second quarter and increased $26, or 0.3%, for the first six months of 2014. The decreases in operating margin and income in the second quarter reflected the increasing popularity of Mobile Share plans, promotional activities and new business initiatives. The increase in segment operating income for the first six months was primarily driven by overall growth in the number of subscribers using smartphones with larger data plans, which was mostly offset by lower service revenues from Mobile Share plans and new business initiatives. Service revenues decreased $222, or 1.4%, in the second quarter and increased $103, or 0.3%, for the first six months of 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 first six months was primarily due to the increased number of subscribers using smartphones with larger data plans and revenues from Cricket subscribers, which were partially offset by the expanding Mobile Share plans. While we expect monthly service revenues to continue to be pressured as customers move to Mobile Share plans, we expect equipment revenues to increase for those subscribers who elect the AT&T Next program. Equipment revenues increased $861, or 44.8%, in the second quarter and $1,711, or 48.2%, for the first six months of 2014. The increases were primarily related to 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 timing of the recognition of the sale resulted in lower revenue through these distributors during the second quarter of 2014. Operations and support expenses increased $798, or 7.4%, in the second quarter and $1,500, or 7.2%, in the first six months of 2014. The increases in the second quarter and for the first six months were primarily due to the following: · Selling (other than commissions) and administrative expenses increased $416



and $699 due primarily to increases of: $177 and $165 primarily due to legal

costs and accruals including fees and costs related to acquisitions; $65 and

$110 in sales expense; $41 and $56 in bad debt expense; $36 and $96 in

customer service expense; $32 and $68 in information technology costs in

conjunction with ongoing support systems development; and $22 and $48 in

marketing expense. Each of these increases included additional costs related

to the acquisition of Leap.

· Network system costs increased $242 and $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 decline in upgrade transactions and lower average commission rates.

Depreciation and amortization expenses increased $192, or 10.4%, in the second quarter and $288, or 7.8%, for the first six months of 2014. Depreciation expense increased $193, or 10.8%, in the second quarter and $339, or 9.6%, for the first six months primarily due to ongoing capital spending for network upgrades and expansion. Amortization expense decreased $1, or 1.6%, in the second quarter and $51, or 36.4%, for the first six months primarily due to 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 our acquisition of Leap. 27

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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 Wireline Segment Results Second Quarter Six-Month Period Percent Percent 2014 2013 Change 2014 2013 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 ) % 28

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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. 29 --------------------------------------------------------------------------------

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

Service revenues from residential customers increased $175, or 3.1%, in the second quarter 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 our legacy voice and DSL services. In the second quarter and for the first 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 $62, or 21.3%, in the second quarter of 2014, and $124, or 21.9%, for the first six months of 2014. Our equipment revenues are mainly attributable to our business customers. Operations and support expenses increased $283, or 2.7%, in the second quarter and $405, or 2.0%, for the first six months of 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 increases in expenses were primarily due to increased cost of sales of $111 and $253, related to U-verse related content fees; higher nonemployee expenses of $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 energy costs of $34 and $74; and higher traffic compensation costs of $28 and $67. These increases were partially offset by lower employee related expense of $69 and $278, reflecting ongoing workforce reduction initiatives. Depreciation and amortization expenses decreased $208, or 7.6%, in the second quarter and $212, or 3.9%, for the first six months of 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 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. 30 --------------------------------------------------------------------------------

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



OTHER BUSINESS MATTERS

U-verse Services As part of Project VIP, we plan to expand our IP-broadband service to approximately 57 million customer locations. As of June 30, 2014, we had 11.8 million total U-verse subscribers (high-speed Internet and video), including 11.5 million Internet and 5.9 million video subscribers (subscribers to both services are only counted once in the total). 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 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. 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. DIRECTV Acquisition 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 $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 shares between 1.724 and 1.905, equal to $66.50 in value. DIRECTV is a premier pay TV provider in the United States and Latin America, with a high-quality customer base, the best selection of programming, the best technology for delivering and viewing high-quality video on any device and the best customer satisfaction among major U.S. cable and satellite TV providers. The merger agreement must be adopted by DIRECTV's stockholders and is subject to review by the FCC and the Department of Justice and to other closing conditions. It is 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 within 12 months of the announcement. The agreement provides certain mutual termination rights for us and DIRECTV, including the right of either party to terminate the agreement if the merger is not consummated by 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 the DIRECTV stockholders' approval has not been 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 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 relating to a competing transaction, DIRECTV may be required to pay a termination fee to us in connection with or following a termination of the agreement. Based on synergies we expect to realize with the acquisition, we have also committed to the following upon closing of the 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. 31

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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 Connecticut Wireline Disposition In December 2013, we agreed to sell our incumbent local exchange operations in 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 FCC on July 25, 2014 and is pending before the Connecticut Public Utilities Regulatory Authority and other state regulatory authorities. We expect the transaction to close in the fourth quarter of 2014, subject to 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 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 (the "600 MHz Auction"). The FCC has initiated proceedings to establish rules that would govern 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. 32 --------------------------------------------------------------------------------

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, the FCC issued an order revising its policies governing mobile spectrum 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 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 auction process and otherwise, to obtain the spectrum we need to provide our customers with high-quality 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 broadband services, unless we are able to 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 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. 33 --------------------------------------------------------------------------------

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 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 adopts rules to address immediately certain practices that artificially increase ICC payments, as well as other practices to avoid such payments. The order also 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 is transitioning support amounts disbursed through its existing high-cost program to its new Connect America Fund (CAF). In 2013, the FCC awarded us approximately $100 in new CAF funding to deploy broadband in unserved areas. On May 23, 2014, the United States Court of Appeals for the Tenth Circuit denied all challenges to the universal service and intercarrier compensation rules adopted in the 2011 order. Two petitions for rehearing on discrete issues affirmed in the 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 conjunction with Project VIP, we filed a petition with the FCC asking it to open a proceeding to facilitate our transition to all IP-based networks and services to promote consumer interests and incentivize private investment in broadband infrastructure. In 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 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 take several years. 34 --------------------------------------------------------------------------------

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



LIQUIDITY AND CAPITAL RESOURCES

We had $11,305 in cash and cash equivalents available at June 30, 2014. Cash and cash equivalents included cash of $1,756 and money market funds and other cash equivalents of $9,549. In the first six months of 2014, cash 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. We discuss many of these factors in detail below. Cash Provided by or Used in Operating Activities During the first six months of 2014, cash provided by operating activities was $16,869, compared to $17,711 for the first six months of 2013. Lower operating cash flows in 2014 were primarily due to increased 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 equipment. Cash Used in or Provided by Investing Activities For the first six months of 2014, cash used in investing activities totaled $7,701 and consisted primarily of $11,649 for capital expenditures, excluding interest during construction, and $857 for the acquisitions of Leap, other operations and spectrum. These expenditures were partially offset by cash receipts of approximately $4,885 from the sale of our shares in AmÉrica MÓvil. 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 expenditures, excluding interest during construction, increased $1,984 in the first six months. Our Wireless segment represented 56% of our total spending and increased 24% in the first six months. The Wireline segment, which includes U-verse services, represented 44% of the total capital expenditures and increased 17% in the first six months, primarily reflecting our ongoing implementation of Project VIP.



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

Cash Used in or Provided by Financing Activities For the first six months of 2014, cash used in financing activities totaled $1,202 and included net proceeds of $8,564 from the following long-term debt issuances: · March 2014 issuance of $1,100 of 2.300% global notes due 2019, $1,000 of



3.900% global notes due 2024 and $400 of floating rate global notes due 2019.

The floating rate for the notes is based upon the three-month London Interbank

Offered Rate (LIBOR), reset quarterly, plus 67 basis points.

· March 2014 issuance of $500 of floating rate global notes due 2017. The

floating rate for the notes is based upon the three-month LIBOR, reset

quarterly, plus 42 basis points.

· May 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 $2,000 of 4.800% global notes due 2044.

· June 2014 issuance of €1,600 (equivalent to $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. 35

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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



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 $4,784 during the first six months of 2014, compared with $4,930 for the first six months of 2013, primarily reflecting the decline in shares outstanding due to our repurchase activity, partially offset by the increase in the quarterly dividend approved by our Board of Directors in December 2013. Dividends declared by our Board of Directors totaled $0.46 per share in the second quarter and $0.92 per share for the first six months of 2014 and $0.45 in the second quarter and $0.90 per share for the first six months of 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 June 30, 2014, we had $10,482 of debt maturing within one year, $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 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 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 June 30, 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 YP Holdings and other investees. At June 30, 2014, our debt ratio was 47.6%, compared to 46.6% at June 30, 2013, and 45.0% at December 31, 2013. The debt ratio is affected by the same factors that affect total capital, and reflects our recent debt issuances, debt in connection with acquisitions and stock repurchases. 36

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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 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, the terms of the preferred equity interest will not impose any limitations on our ability to declare a dividend, or repurchase shares. 37



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AT&T INC.JUNE 30, 2014


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