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TMCNet:  AT&T Reports Strong Results in First Quarter while Investing in Growth Transformation:

[April 22, 2014]

AT&T Reports Strong Results in First Quarter while Investing in Growth Transformation:

DALLAS --(Business Wire)--

AT&T Inc. (NYSE:T) today reported strong first-quarter consolidated revenue and EPS growth driven by strong wireless results and accelerating wireline consumer revenues.

"We have been working very deliberately to transform our business, and this quarter you really start to see the benefits," said Randall Stephenson, AT&T chairman and CEO. "Customers really like the new mobility value proposition and are choosing to move off device subsidies to simpler pricing while at the same time, they are continuing to move to smartphones with larger data plans.

"Wireless postpaid net adds were more than twice as many as a year ago, AT&T Next sales surpassed our expectations, and we had a tremendous surge in Mobile Share plans of 10 gigs or higher. We also had our best wireline consumer revenue growth since we first introduced U-verse in 2006 as our Project VIP build continues to make progress."

First-Quarter Financial Results

For the quarter ended March 31, 2014, AT&T's consolidated revenues totaled $32.5 billion, up 3.6 percent versus the year-earlier period, the company's strongest growth in more than two years. Compared with results for the first quarter of 2013, operating expenses were $26.2�billion versus $25.4�billion; operating income was $6.3�billion compared to $5.9�billion; and operating income margin was 19.3 percent compared to 18.9 percent.

First-quarter 2014 net income attributable to AT&T totaled $3.7 billion, or $0.70 per diluted share, compared to $3.7 billion, or $0.67, in the year-ago quarter. Adjusting for $0.01 of Leap transaction-related costs, earnings per share was $0.71 compared to an adjusted $0.64 in the year-ago quarter, an increase of almost 11 percent.

First-quarter 2014 cash from operating activities totaled $8.8�billion, and capital expenditures totaled $5.8�billion. Free cash flow - cash from operating activities minus capital expenditures - totaled $3.0�billion.

AT&T closed its acquisition of Leap Wireless on March 13, 2014 and incurred some transaction-related costs in the quarter. The company expects to incur approximately $1.2 billion of integration costs over the next two years and expects $0.05 EPS dilution in 2014. Leap operating results since the close of the acquisition had minimal impact on the company's first-quarter results.

Share Repurchases

The company continues to repurchase shares opportunistically. During the quarter, the company repurchased 37 million of its shares for $1.2�billion. In March, the board of directors authorized the repurchase of another 300 million shares with no expiration date. This gives the company 425 million shares remaining in its repurchase authorizations. This is the fourth recent 300 million share authorization. Since the company began buying back shares in 2012, it has bought back about 13 percent of outstanding shares.

Guidance Update

The company is updating its full-year 2014 outlook to reflect the Leap acquisition and strong first-quarter growth and now expects:

  • Consolidated revenue growth of 4 percent or greater;
  • Stable consolidated margins which include Leap operational pressure;
  • Adjusted earnings per share growth in the mid-single digit range including Leap operational pressure;
  • Capital expenditures remaining in the $21 billion range;
  • Free cash flow in the $11 billion range, which anticipates strong AT&T Next take rates and Leap costs;
  • Continued investment in business transformation and growth.

WIRELESS OPERATIONAL HIGHLIGHTS

With a best-in-class network, AT&T delivered strong wireless revenue and postpaid subscriber gains, continued margin expansion and strong adoption of Mobile Share and AT&T Next plans. Highlights included:

Wireless Revenues Grow 7.0 Percent. Total wireless revenues, which include equipment sales, were up 7.0�percent year over year to $17.9�billion. Wireless service revenues increased 2.2�percent in the first quarter to $15.4�billion. First-quarter wireless operating expenses totaled $12.8�billion, up 6.6�percent versus the year-earlier quarter, and wireless operating income was $5.1 billion, up 8.1 percent year over year. First-quarter 2014 includes pressure from strong sales, promotional activities, accelerated upgrades and new business initiatives.

The success related to AT&T Next, the company's equipment installment plan, and the increasing number of lower-ARPU but high-margin tablets pressured postpaid service ARPUs. Phone-only postpaid ARPU increased 0.4 percent versus the year-earlier quarter. Phone-only postpaid ARPU with AT&T Next monthly billings increased 2.0 percent.

Strongest First-Quarter Postpaid Net Adds in Five Years. AT&T added more than 1 million subscribers in the first quarter, with year-over-year improvements in every category. Total wireless subscribers increased by 1,062,000 in the quarter, led by 625,000 postpaid net adds and 693,000 connected device net adds. This was the strongest first-quarter postpaid growth in five years. These gains were offset somewhat by a net loss of 50,000 prepaid subscribers, due to declines in session-based tablets, and a net loss of 206,000 reseller subscribers, primarily due to losses in low-revenue 2G subscriber accounts. Prepaid net adds include first-quarter results from Leap Wireless only after AT&T acquired the company on March 13.

Postpaid net adds include 311,000 smartphones. Total branded smartphone net adds (both postpaid and prepaid) were 566,000. Total branded tablet net adds were 313,000.

Total Churn Stable. Total churn was essentially stable at 1.39 percent compared to 1.38 percent in the year-ago quarter. Postpaid churn of 1.07 was down sequentially and up slightly compared to 1.04 percent in the year-ago quarter.

Postpaid Smartphone Base Continues to Expand. AT&T added 1.1�million postpaid smartphones in the first quarter. At the end of the quarter, 78�percent, or 53.0�million, of AT&T's postpaid phone subscribers had smartphones, up from 72�percent, or 48.3�million, a year earlier. Smartphones accounted for 92�percent of postpaid phone sales in the quarter, a first-quarter record. AT&T's ARPU for smartphones is about twice that of non-smartphone subscribers. At the end of the first quarter, 57 percent of AT&T's postpaid smartphone customers used an LTE-capable device. The company sold 5.8�million smartphones in the quarter.

Transformation of Customer Experience with Mobile Share and AT&T Next. AT&T is transforming the customer experience with attractive Mobile Share pricing for customers who move off of the traditional device subsidization model. In the first quarter, an increasing number of subscribers chose AT&T Next and Mobile Share plans. Mobile Share plans, including Mobile Share Value, now represent nearly 33 million connections, or about 45 percent of postpaid subscribers. The number of Mobile Share accounts more than tripled year over year and reached 11.3 million with an average of about three devices per account. Take rates on the higher-data plans showed strong growth as well. At the end of the first quarter, 46 percent of Mobile Share accounts had 10 gigabyte or higher plans, up from 28 percent in the year-ago quarter and 27 percent in the fourth quarter of 2013. In total, about 81 percent, or 42.9�million, of postpaid smartphone subscribers are on usage-based data plans (tiered data and Mobile Share plans). This compares to 33.5 million a year ago.

Sales on AT&T Next, the company's equipment installment plan, also increased during the first quarter. During the quarter, more than 40 percent of all postpaid smartphone gross adds and upgrades, or about 2.9 million, took Next, up from 15 percent in the fourth quarter of 2013. Next sales included 1.1 million accelerated smartphone upgrades in the first quarter. Without these upgrades, Next take rates would have been about 35 percent.

Strong Wireless Margin Expansion. Expanding wireless margins reflect the impact of AT&T Next sales which helped offset pressure from strong customer growth, early Next upgrades and continued investment in new services. AT&T's first-quarter wireless operating income margin was 28.3 percent versus 28.0 percent in the year-earlier quarter. AT&T's wireless EBITDA margin was up slightly versus the year-ago quarter to 39.1 percent. (EBITDA margin is operating income before depreciation and amortization, divided by total wireless revenues.) Wireless EBITDA service margin was 45.4 percent, compared with 43.2 percent in the first quarter of 2013. (EBITDA service margin is operating income before depreciation and amortization, divided by total service revenues.)

WIRELINE OPERATIONAL HIGHLIGHTS

Accelerating wireline consumer revenue growth led AT&T's wireline results with strong U-verse gains. Highlights included:

Wireline Service Revenues Stable. Total first-quarter wireline revenues were $14.6�billion, down 0.4�percent versus the year-earlier quarter. Wireline service revenues were up 0.1 percent year over year. Total U-verse revenues grew 29.0�percent year over year. First-quarter wireline operating expenses were $13.1�billion, up 0.9 percent versus the first quarter of 2013. AT&T's wireline operating income totaled $1.5�billion, down 10.5 percent versus the first quarter of 2013. First-quarter wireline operating income margin was 10.0�percent versus 11.1�percent in the year-earlier quarter, primarily due to U-verse content price increases, declines in voice revenues, success-based growth and costs incurred as part of Project VIP.

Consumer Revenue Growth Accelerates. Revenues from residential customers totaled $5.7�billion, an increase of 4.3�percent versus the first quarter a year ago. This is the strongest consumer revenue growth since the introduction of U-verse eight years ago. Continued strong growth in consumer IP data services in the first quarter more than offset lower revenues from legacy voice and data products. U-verse, which includes TV, high speed Internet and voice over IP, now represents 59 percent of wireline consumer revenues, up from 48�percent in the year-earlier quarter. Consumer U-verse revenues grew 28.3�percent year over year.

Strong U-verse Gains Drive Broadband Growth. Total U-verse subscribers (TV and high speed Internet) reached 11.3�million in the first quarter. U-verse TV added 201,000 subscribers in the first quarter to reach 5.7 million in service. AT&T has more pay TV subscribers than any other telecommunications company. U-verse high speed Internet had a first-quarter net gain of 634,000 subscribers, to reach a total of 11.0�million. That marks seven consecutive quarters with U-verse broadband net adds of more than 600,000. Overall, total wireline broadband subscribers increased by 78,000. Total wireline broadband ARPU was up 9 percent year over year. Total U-verse high speed Internet subscribers now represent more than two-thirds of all wireline broadband subscribers, compared with 51 percent in the year-earlier quarter.

About 60 percent of U-verse broadband subscribers have a plan delivering speeds of 12�Mbps or higher. In the first quarter, 90�percent of new U-verse TV customers also signed up for U-verse high speed Internet. About two-thirds of AT&T U-verse TV subscribers take three or four services from AT&T. ARPU for U-verse triple-play customers continues to be more than $170. At the end of the quarter, U-verse TV penetration was more than 21 percent. U-verse broadband penetration was near 20 percent at the end of the first quarter.

Strategic Business Services Continues Strong Growth. Total revenues from business customers were $8.7�billion, down 2.7�percent versus the year-earlier quarter. Business service revenues declined 2.1�percent year over year. Overall, declines in legacy products were partially offset by continued double-digit growth in strategic business services. Revenues from these services, the next-generation capabilities that lead AT&T's most advanced business solutions - including VPN, Ethernet, cloud, hosting and other advanced IP services - grew 16.1�percent versus the year-earlier quarter. These services represent an annualized revenue stream of more than $9 billion and are more than 26 percent of wireline business revenues. During the first quarter, the company also added 64,000 business U-verse high speed broadband subscribers.

AT&T products and services are provided or offered by subsidiaries and affiliates of AT&T Inc. under the AT&T brand and not by AT&T Inc.

About AT&T

AT&T Inc. (NYSE:T) is a premier communications holding company and one of the most honored companies in the world. Its subsidiaries and affiliates - AT&T operating companies - are the providers of AT&T services in the United States and internationally. With a powerful array of network resources that includes the nation's most reliable 4G LTE network, AT&T is a leading provider of wireless, Wi-Fi, high speed Internet, voice and cloud-based services. A leader in mobile Internet, AT&T also offers the best wireless coverage worldwide of any U.S. carrier, offering the most wireless phones that work in the most countries. It also offers advanced TV service with the AT&T U-verse® brand. The company's suite of IP-based business communications services is one of the most advanced in the world.

Additional information about AT&T Inc. and the products and services provided by AT&T subsidiaries and affiliates is available at http://www.att.com/aboutus or follow our news on Twitter at @ATT, on Facebook at http://www.facebook.com/att and YouTube at http://www.youtube.com/att.

© 2014 AT&T Intellectual Property. All rights reserved. AT&T, the AT&T logo and all other marks contained herein are trademarks of AT&T Intellectual Property and/or AT&T affiliated companies. All other marks contained herein are the property of their respective owners.

Reliability claim based on data transfer completion rates on nationwide 4G LTE networks. 4G LTE availability varies.

Cautionary Language Concerning Forward-Looking Statements

Information set forth in this news release contains financial estimates and other forward-looking statements that are subject to risks and uncertainties, and actual results may differ materially. A discussion of factors that may affect future results is contained in AT&T's filings with the Securities and Exchange Commission. AT&T disclaims any obligation to update or revise statements contained in this news release based on new information or otherwise. This news release may contain certain non-GAAP financial measures. Reconciliations between the non-GAAP financial measures and the GAAP financial measures are available on the company's website at www.att.com/investor.relations. Accompanying financial statements follow.

NOTE: EBITDA is defined as operating income before depreciation and amortization. EBITDA differs from Segment Operating Income (loss), as calculated in accordance with U.S. generally accepted accounting principles (GAAP), in that it excludes depreciation and amortization. EBITDA does not give effect to cash used for debt service requirements and thus does not reflect available funds for distributions, reinvestment or other discretionary uses. EBITDA is not presented as an alternative measure of operating results or cash flows from operations, as determined in accordance with GAAP. Our calculation of EBITDA, as presented, may differ from similarly titled measures reported by other companies.

NOTE: Free cash flow is defined as cash from operations minus capital expenditures. We believe this metric provides useful information to our investors because management regularly reviews free cash flow as an important indicator of how much cash is generated by normal business operations, including capital expenditures, and makes decisions based on it. Management also views it as a measure of cash available to pay debt and return cash to shareowners.

NOTE: Adjusted Operating Income, Adjusted Operating Expenses, Adjusted Operating Revenues, Adjusted Operating Income Margin and Adjusted diluted EPS are non-GAAP financial measures calculated by excluding from operating revenues, operating expenses and equity in net income of affiliates certain significant items that are non-operational or non-recurring in nature, including dispositions. Management believes that these measures provide relevant and useful information to investors and other users of our financial data in evaluating the effectiveness of our operations and underlying business trends. Adjusted Operating Income, Adjusted Operating Expenses, Adjusted Operating Revenues, Adjusted Operating Income Margin and Adjusted diluted EPS should be considered in addition to, but not as a substitute for, other measures of financial performance reported in accordance with GAAP. Our calculations of Adjusted Operating Income and Adjusted diluted EPS, as presented, may differ from similarly titled measures reported by other companies.



Financial Data
AT&T Inc.
Consolidated Statements of Income
Dollars in millions except per share amounts
Unaudited Three Months Ended
3/31/2014 3/31/2013 % Chg
Operating Revenues $ 32,476 $ 31,356 3.6 %
Operating Expenses

Cost of services and sales (exclusive of depreciation and amortization shown separately below)

13,321 12,554 6.1 %
Selling, general and administrative 8,260 8,333 -0.9 %
Depreciation and amortization 4,617 4,529 1.9 %
Total Operating Expenses 26,198 25,416 3.1 %
Operating Income 6,278 5,940 5.7 %
Interest Expense 860 827 4.0 %
Equity in Net Income of Affiliates 88 185 -52.4 %
Other Income (Expense) - Net 145 32 -
Income Before Income Taxes 5,651 5,330 6.0 %
Income Tax Expense 1,917 1,557 23.1 %
Net Income 3,734 3,773 -1.0 %
Less: Net Income Attributable to Noncontrolling Interest (82 ) (73 ) -12.3 %
Net Income Attributable to AT&T $ 3,652 $ 3,700 -1.3 %
Basic Earnings Per Share Attributable to AT&T $ 0.70 $ 0.67 4.5 %

Weighted Average Common Shares Outstanding (000,000)

5,222 5,513 -5.3 %
Diluted Earnings Per Share Attributable to AT&T $ 0.70 $ 0.67 4.5 %

Weighted Average Common Shares Outstanding with Dilution (000,000)

5,238 5,530 -5.3 %

� � � � � � � � � � � Financial Data � � � � AT&T Inc. � � � � � � � � � � � Statements of Segment Income Dollars in millions � � � � � � � � � � � Unaudited Three Months Ended Wireless � � 3/31/2014 � � � 3/31/2013 � � % Chg Segment Operating Revenues Service $ 15,387 $ 15,062 2.2 % Equipment � � 2,479 � � � � 1,629 � � � 52.2 % Total Segment Operating Revenues � � 17,866 � � � � 16,691 � � � 7.0 % � Segment Operating Expenses Operations and support 10,882 10,180 6.9 % Depreciation and amortization � � 1,931 � � � � 1,835 � � � 5.2 % Total Segment Operating Expenses � � 12,813 � � � � 12,015 � � � 6.6 % Segment Operating Income 5,053 4,676 8.1 % Equity in Net Income (Loss) of Affiliates � � (20 ) � � � (18 ) � � -11.1 % Segment Income$ 5,033 � � � $ 4,658 � � � 8.1 % � Segment Operating Income Margin 28.3

%

28.0 % � Wireline � � � � � � � � � � � Segment Operating Revenues Service $ 14,389 $ 14,381 0.1 % Equipment � � 212 � � � � 274 � � � -22.6 % Total Segment Operating Revenues � � 14,601 � � � � 14,655 � � � -0.4 % � Segment Operating Expenses Operations and support 10,457 10,335 1.2 % Depreciation and amortization � � 2,684 � � � � 2,688 � � � -0.1 % Total Segment Operating Expenses � � 13,141 � � � � 13,023 � � � 0.9 % Segment Operating Income 1,460 1,632 -10.5 % Equity in Net Income of Affiliates � � 1 � � � � 1 � � � 0.0 % Segment Income$ 1,461 � � � $ 1,633 � � � -10.5 % � Segment Operating Income Margin 10.0

%

11.1 % �
� � � � � � � Financial Data � � � AT&T Inc. � � � � � � Consolidated Balance Sheets Dollars in millions � � � � � �

3/31/14

12/31/13 � � � Unaudited � � � � Assets Current Assets Cash and cash equivalents $ 3,611 $ 3,339 Accounts receivable - net of allowances for doubtful accounts of $483 and $483 13,120 12,918 Prepaid expenses 1,000 960 Deferred income taxes 1,171 1,199 Other current assets � � 5,187 � � � 4,780 � Total current assets � � 24,089 � � � 23,196 � Property, Plant and Equipment - Net 112,809 110,968 Goodwill 69,720 69,273 Licenses 59,584 56,433 Other Intangible Assets - Net 6,515 5,779 Investments in Equity Affiliates 3,613 3,860 Other Assets � � 9,010 � � � 8,278 � Total Assets$ 285,340 � � $ 277,787 � � Liabilities and Stockholders' Equity Current Liabilities Debt maturing within one year $ 8,301 $ 5,498 Accounts payable and accrued liabilities 22,234 21,107 Advanced billing and customer deposits 4,121 4,212 Accrued taxes 2,784 1,774 Dividends payable � � 2,390 � � � 2,404 � Total current liabilities � � 39,830 � � � 34,995 � Long-Term Debt � � 71,575 � � � 69,290 � Deferred Credits and Other Noncurrent Liabilities Deferred income taxes 36,448 36,308 Postemployment benefit obligation 30,029 29,946 Other noncurrent liabilities � � 16,089 � � � 15,766 � Total deferred credits and other noncurrent liabilities � � 82,566 � � � 82,020 � Stockholders' Equity Common stock 6,495 6,495 Additional paid-in capital 91,027 91,091 Retained earnings 32,402 31,141 Treasury stock (46,684 ) (45,619 ) Accumulated other comprehensive income 7,666 7,880 Noncontrolling interest � � 463 � � � 494 � Total stockholders' equity � � 91,369 � � � 91,482 � Total Liabilities and Stockholders' Equity$ 285,340 � � $ 277,787 � �
� � � � � � � Financial Data � � � AT&T Inc. � � � � � � Consolidated Statements of Cash Flows Dollars in millions � � � � � � Unaudited Three months ended March 31, � � � 2014 � � 2013 � Operating Activities Net income $ 3,734 $ 3,773

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization 4,617 4,529 Undistributed earnings from investments in equity affiliates 17 (185 ) Provision for uncollectible accounts 241 262 Deferred income tax expense 578 433 Net (gain) loss from sale of investments, net of impairments (122 ) (11 ) Changes in operating assets and liabilities: Accounts receivable (498 ) 295 Other current assets (340 ) 864 Accounts payable and accrued liabilities 1,025 (1,675 ) Retirement benefit funding (140 ) - Other - net � � (313 ) � � (86 ) Total adjustments � � 5,065 � � � 4,426 � Net Cash Provided by Operating Activities � � 8,799 � � � 8,199 � � Investing Activities Construction and capital expenditures: Capital expenditures (5,716 ) (4,252 ) Interest during construction (55 ) (66 ) Acquisitions, net of cash acquired (662 ) (1,045 ) Dispositions 351 5 Other � � - � � � 1 � Net Cash Used in Investing Activities � � (6,082 ) � � (5,357 ) � Financing Activities

Net change in short-term borrowings with original maturities of three months or less

(17 ) 274 Issuance of other short-term borrowings - 1,474 Issuance of long-term debt 2,987 4,875 Repayment of long-term debt (1,867 ) (1,791 ) Purchase of treasury stock (1,237 ) (5,911 ) Issuance of treasury stock 13 56 Dividends paid (2,398 ) (2,502 ) Other � � 74 � � � (310 ) Net Cash Used in Financing Activities � � (2,445 ) � � (3,835 ) Net increase (decrease) in cash and cash equivalents 272 (993 ) Cash and cash equivalents beginning of year � � 3,339 � � � 4,868 � Cash and Cash Equivalents End of Period$ 3,611 � � $ 3,875 � �
� � � � � � � � � � � Financial Data � � � � � AT&T Inc. � � � � � � � � Supplementary Operating and Financial Data Dollars in millions except per share amounts, subscribers and connections in (000s) Unaudited Three Months Ended � � � � 3/31/2014 � 3/31/2013 � � % Chg � Wireless Subscribers and Connections � � � � Total � � 116,014 � � � 107,251 � 8.2 % Postpaid 73,291 70,749 3.6 % Prepaid 11,812 7,104 66.3 % Reseller 13,886 14,702 -5.6 % Connected Devices 17,025 14,696 15.8 % � Wireless Net Adds � � � � Total � � 1,062 � � � 291 � - Postpaid 625 296 - Prepaid (50 ) (184 ) 72.8 % Reseller (206 ) (252 ) 18.3 % Connected Devices 693 431 60.8 % M&A Activity, Partitioned Customers and Other Adjs. 4,576 3 - � Wireless Churn Postpaid Churn 1.07 % 1.04 %

3

�BP

Total Churn 1.39 % 1.38 %

1

�BP

Other Licensed POPs (000,000) 321 317 1.3 % � Wireline Voice � � � � � Total Wireline Voice Connections � � 27,716 � � � 31,163 � -11.1 % Net Change (773 ) (1,021 ) 24.3 % � Broadband � � � � Total Wireline Broadband Connections � � 16,503 � � � 16,514 � -0.1 % Net Change 78 124 -37.1 % � Video � � � � � Total U-verse Video Connections � � 5,661 � � � 4,768 � 18.7 % Net Change 201 232 -13.4 % � Consumer Revenue Connections � � � � Broadband1 14,807 14,686 0.8 % U-verse Video Connections 5,642 4,755 18.7 % Voice2 � � 15,775 � � � 17,960 � -12.2 % Total Consumer Revenue Connections1 � � 36,224 � � � 37,401 � -3.1 % Net Change (166 ) (266 ) 37.6 % � AT&T Inc. Construction and capital expenditures Capital expenditures $ 5,716 $ 4,252 34.4 % Interest during construction $ 55 $ 66 -16.7 % Dividends Declared per Share $ 0.46 $ 0.45 2.2 %

End of Period Common Shares Outstanding (000,000)

5,195 5,423 -4.2 % Debt Ratio3 46.6 % 45.6 %

100

�BP

Total Employees 246,730 243,340 1.4 % � � � � � � � � � � �

1

Consumer wireline broadband connections include DSL lines, U-verse High Speed Internet access and satellite broadband.

2

Includes consumer U-verse Voice over Internet Protocol connections of 4,120 as of March 31, 2014.

3

Total long-term debt plus debt maturing within one year divided by total debt plus total stockholders' equity.

Note: For the end of 1Q14, total switched access lines were 23,582; retail business switched access lines totaled 10,088; and wholesale, national mass markets and coin switched access lines totaled 1,839.

� � � � � � � � � � � Financial Data � � � � � � AT&T Inc. Non-GAAP Wireless Reconciliation � � � � � � � � � � Wireless Segment EBITDA Dollars in millions Unaudited Three Months Ended 3/31/13 � 6/30/13 � 9/30/13 � 12/31/13 � 3/31/14Segment Operating Revenues Service $ 15,062 $ 15,370 $ 15,460 $ 15,660 $ 15,387 Equipment � � 1,629 � � � 1,921 � � � 2,020 � � � 2,777 � � � 2,479Total Segment Operating Revenues � $ 16,691 � � $ 17,291 � � $ 17,480 � � $ 18,437 � � $ 17,866 � � Segment Operating Expenses Operations and support 10,180 10,770 10,982 12,576 10,882 Depreciation and amortization � � 1,835 � � � 1,843 � � � 1,875 � � � 1,915 � � � 1,931Total Segment Operating Expenses � � 12,015 � � � 12,613 � � � 12,857 � � � 14,491 � � � 12,813Segment Operating Income � � 4,676 � � � 4,678 � � � 4,623 � � � 3,946 � � � 5,053Segment Operating Income Margin 28.0 % 27.1 % 26.4 % 21.4 % 28.3 % � Plus: Depreciation and amortization � � 1,835 � � � 1,843 � � � 1,875 � � � 1,915 � � � 1,931EBITDA1 � $ 6,511 � � $ 6,521 � � $ 6,498 � � $ 5,861 � � $ 6,984EBITDA as a % of Service Revenues2 43.2 % 42.4 % 42.0 % 37.4 % 45.4 %

1 EBITDA is defined as Operating Income Before Depreciation and Amortization.

2 Service revenues include Wireless data, voice, text and other service revenues.

� � � � � Financial Data � � � AT&T Inc. Non-GAAP Consolidated Reconciliation � � � � Free Cash Flow Dollars in millions Unaudited Three Months Ended March 31, � � 2013 � 2014 Net cash provided by operating activities $ 8,199 $ 8,799 Less: Construction and capital expenditures � � (4,318 ) � � (5,771 ) Free Cash Flow � $ 3,881 � � $ 3,028 � � � � � � � Free Cash Flow after Dividends Dollars in millions Unaudited Three Months Ended March 31, � � 2013 � 2014 Net cash provided by operating activities $ 8,199 $ 8,799 Less: Construction and capital expenditures � � (4,318 ) � � (5,771 ) Free Cash Flow � � 3,881 � � � 3,028 � Less: Dividends paid � � (2,502 ) � � (2,398 ) Free Cash Flow after Dividends � $ 1,379 � � $ 630 � � Free cash flow includes reimbursements of certain postretirement benefits paid. �

Free cash flow is defined as cash from operations minus construction and capital expenditures. Free cash flow after dividends is defined as cash from operations minus construction, capital expenditures and dividends. We believe these metrics provide useful information to our investors because management regularly reviews free cash flow as an important indicator of how much cash is generated by normal business operations, including capital expenditures, and makes decisions based on it. Management also views free cash flow as a measure of cash available to pay debt and return cash to shareowners.

� � � � � � � � Financial Data � � � � � � AT&T Inc. Non-GAAP Consolidated Reconciliation � � � � � � � Annualized Net-Debt-to-Adjusted-EBITDA Ratio Dollars in millions Unaudited � � � � � � 3/31/14 � 2014 YTD Operating Revenues $ 32,476 $ 32,476 Operating Expenses 26,198 26,198 Total Operating Income 6,278 6,278 Add back Depreciation and Amortization 4,617 4,617 Consolidated Reported EBITDA 10,895 10,895 Add Back: Leap Transaction-related Costs1 81 81 Total Consolidated Adjusted EBITDA 10,976 10,976 Annualized Consolidated Adjusted EBITDA $ 43,904 $ 43,904 End-of-period current debt 8,301 End-of-period long-term debt 71,575 Total End-of-Period Debt 79,876 Less Cash and Cash Equivalents 3,611 Net Debt Balance � � � � � � $ 76,265 Annualized Net-Debt-to-Adjusted-EBITDA Ratio � � � � � � � 1.74

1 Adjustments include Operations and Support expenses included in Leap Transaction-related Costs.

Net-Debt-to-EBITDA ratios are non-GAAP financial measures frequently used by investors and credit rating agencies. Management believes these measures provide relevant and useful information to investors and other users of our financial data. Net debt is calculated by subtracting cash and cash equivalents from the sum of debt maturing within one year and long-term debt. The Net-Debt-to-EBITDA ratio is calculated by dividing the Net Debt by annualized EBITDA. Annualized EBITDA is calculated by annualizing the year-to-date EBITDA.

Our calculation of EBITDA, as presented, may differ from similarly titled measures reported by other companies.

� � � � � � � Financial Data � � � � � AT&T Inc. Non-GAAP Consolidated Reconciliation � � � � � � Adjusted Diluted EPS Unaudited � Three Months Ended March 31, � � � � 2013 � 2014 Reported Diluted EPS $ 0.67 $ 0.70 Adjustments: Income Tax Settlement (0.03 ) - Leap Transaction-related Costs � � � � - � � � 0.01Adjusted Diluted EPS � � � $ 0.64 � � $ 0.71Year-over-year growth - Adjusted � � � � � � 10.9 %

Weighted Average Common Shares Outstanding with Dilution (000,000)

� � � � 5,530 � � � 5,238 � �

Adjusted Diluted EPS is a non-GAAP financial measure calculated by excluding from operating revenues, operating expenses and equity in net income of affiliates certain significant items that are non-operational or non-recurring in nature, including dispositions. Management believes that this measure provides relevant and useful information to investors and other users of our financial data in evaluating the effectiveness of our operations and underlying business trends.

Adjusted Diluted EPS should be considered in addition to, but not as a substitute for, other measures of financial performance reported in accordance with GAAP. Our calculation of Adjusted Diluted EPS, as presented, may differ from similarly titled measures reported by other companies.

EBITDA DISCUSSION

For AT&T, EBITDA is defined as operating income before depreciation and amortization. EBITDA service margin is calculated as EBITDA divided by service revenues. EBITDA differs from Segment Operating Income (Loss), as calculated in accordance with U.S. generally accepted accounting principles (GAAP), in that it excludes depreciation and amortization. EBITDA does not give effect to cash used for debt service requirements and thus does not reflect available funds for distributions, reinvestment or other discretionary uses. EBITDA is not presented as an alternative measure of operating results or cash flows from operations, as determined in accordance with GAAP. Our calculation of EBITDA, as presented, may differ from similarly titled measures reported by other companies.

We believe these measures are relevant and useful information to our investors as they are part of AT&T's internal management reporting and planning processes and are important metrics that management uses to evaluate the operating performance of its wireless operations. These measures are used by management as a gauge of our success in acquiring, retaining and servicing wireless subscribers because we believe these measures reflect AT&T's ability to generate and grow subscriber revenues while providing a high level of customer service in a cost-effective manner. Management also uses these measures as a method of comparing our Wireless segment's performance with that of many of its competitors. The financial and operating metrics which affect EBITDA include the key revenue and expense drivers for which AT&T Mobility's operating managers are responsible and upon which we evaluate their performance.

EBITDA does not give effect to cash used for debt service requirements and thus does not reflect available funds for distributions, reinvestment or other discretionary uses. EBITDA excludes other income (expense) - net, net income attributable to noncontrolling interest and equity in net income (loss) of affiliates, as these do not reflect the operating results of our wireless subscriber base and national footprint that we utilizes to obtain and service our customers. Equity in net income (loss) of affiliates represents AT&T Mobility's proportionate share of the net income (loss) of affiliates in which it exercises significant influence, but does not control. As AT&T Mobility does not control these entities, our management excludes these results when evaluating the performance of our primary operations. EBITDA excludes interest expense and the provision for income taxes. Excluding these items eliminates the expenses associated with its capitalization and tax structures. Finally, EBITDA excludes depreciation and amortization, in order to eliminate the impact of capital investments.

We believe EBITDA as a percentage of service revenues to be a more relevant measure of our Wireless segment operating margin than EBITDA as a percentage of total revenue. We generally subsidize a portion of our wireless handset sales, all of which are recognized in the period in which we sell the handset. Management views this equipment subsidy as a cost to acquire or retain a subscriber, which is recovered through the ongoing service revenue that is generated by the subscriber. We also use wireless service revenues to calculate margin to facilitate comparison, both internally and externally with our wireless competitors, as they calculate their margins using wireless service revenues as well.

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

FREE CASH FLOW DISCUSSION

Free cash flow is defined as cash from operations minus construction and capital expenditures. Free cash flow after dividends is defined as cash from operations minus construction, capital expenditures and dividends. Free cash flow yield is defined as cash from continuing operations less construction and capital expenditures as a percentage of market capitalization computed on the last trading day of the quarter. Market capitalization is computed by multiplying the end of period stock price by the end of period shares outstanding. We believe these metrics provide useful information to our investors because management reviews free cash flow as an important indicator of how much cash is generated by normal business operations, including capital expenditures, and makes decisions based on it. Management also views it as a measure of cash available to pay debt and return cash to shareowners.

NET DEBT TO EBITDA DISCUSSION

Net Debt to EBITDA ratios are non-GAAP financial measures frequently used by investors and credit rating agencies and management believes these measures provide relevant and useful information to investors and other users of our financial data. The Net Debt to EBITDA ratio is calculated by dividing the Net Debt by annualized EBITDA. Net Debt is calculated by subtracting cash and cash equivalents from the sum of debt maturing within one year and long-term debt. Annualized EBITDA is calculated by annualizing the year-to-date EBITDA.

Adjusted EBITDA excludes net actuarial gains or losses associated with our pension and postemployment benefit plans, which we immediately recognize in the income statement, pursuant to our accounting policy for the recognition of actuarial gains/losses. As a result, the Adjusted EBITDA reflects an expected return on plan assets rather than the actual return on plan assets, as included in the GAAP measure of income. This measure is consistent with metrics under our existing credit agreements.

ADJUSTING ITEMS DISCUSSION

Adjusted Operating Revenues, Adjusted Operating Income, Adjusted Operating Income Margin and Adjusted diluted EPS are non-GAAP financial measures calculated by excluding from operating revenues, operating expenses and income tax expense certain significant items that are non-operational or non-recurring in nature, including dispositions. Management believes that these measures provide relevant and useful information to investors and other users of our financial data in evaluating the effectiveness of our operations and underlying business trends.

Adjusted Operating Revenues, Adjusted Operating Income, Adjusted Operating Income Margin and Adjusted diluted EPS should be considered in addition to, but not as a substitute for, other measures of financial performance reported in accordance with GAAP. Our calculations of Adjusted diluted EPS, as presented, may differ from similarly titled measures reported by other companies.


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