UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM10-Q


(Mark One) ☒		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended ~~June 30, 2018~~ March 31, 2019 or
☐
	☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period fromto

Commission File Number1-8610

AT&T INC.

Incorporated under the laws of the State of Delaware

I.R.S. Employer Identification Number43-1301883

208 S. Akard St., Dallas, Texas 75202

Telephone Number: (210)821-4105

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes [X] No [ ]

Indicate by check mark whether the registrant has submitted electronically ~~and posted on its corporate Web site, if any,~~ every Interactive Data File required to be submitted ~~and posted~~ pursuant to Rule 405 of RegulationS-T during the preceding 12 months (or for such shorter period that the registrant was required to submit ~~and post~~ such files).

Yes [X] No [ ]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, anon-accelerated filer, a smaller reporting company, or emerging growth company. See definition of “accelerated filer,” “large accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule12b-2 of the Exchange Act.


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

If an emerging growth company, indicate by checkmark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Yes [ ] No [ ]

Indicate by check mark whether the registrant is a shell company (as defined in Rule12b-2 of the Exchange Act).

Yes [ ] No [X]

Securities registered pursuant to Section 12(b) of the Act

		Name of each exchange
Title of each class	Trading Symbol(s)	on which registered
Common Shares (Par Value $1.00 Per Share)	T	New York Stock Exchange

Floating Rate AT&T Inc.	T 19B	New York Stock Exchange
Global Notes due June 4, 2019

Floating Rate AT&T Inc.	T 20C	New York Stock Exchange
Global Notes due August 3, 2020

1.875% AT&T Inc.	T 20	New York Stock Exchange
Global Notes due December 4, 2020


2.65% AT&T Inc.	T 21B	New York Stock Exchange
Global Notes due December 17, 2021

1.45% AT&T Inc.	T 22B	New York Stock Exchange
Global Notes due June 1, 2022

2.50% AT&T Inc.	T 23	New York Stock Exchange
Global Notes due March 15, 2023

Floating Rate AT&T Inc.	T23 D	New York Stock Exchange
Global Notes due September 5, 2023

1.05% AT&T Inc.	T 23E	New York Stock Exchange
Global Notes due September 5, 2023

1.30% AT&T Inc.	T 23A	New York Stock Exchange
Global Notes due September 5, 2023

2.75% AT&T Inc.	T 23C	New York Stock Exchange
Global Notes due May 19, 2023

2.40% AT&T Inc.	T 24A	New York Stock Exchange
Global Notes due March 15, 2024

3.50% AT&T Inc.	T 25	New York Stock Exchange
Global Notes due December 17, 2025

1.80% AT&T Inc.	T 26D	New York Stock Exchange
Global Notes due September 5, 2026

		Name of each exchange
Title of each class	Trading Symbol(s)	on which registered
2.90% AT&T Inc.	T 26A	New York Stock Exchange
Global Notes due December 4, 2026

2.35% AT&T Inc.	T 29D	New York Stock Exchange
Global Notes due September 5, 2029

4.375% AT&T Inc.	T 29B	New York Stock Exchange
Global Notes due September 14, 2029
��
2.60% AT&T Inc.	T 29A	New York Stock Exchange
Global Notes due December 17, 2029

3.55% AT&T Inc.	T 32	New York Stock Exchange
Global Notes due December 17, 2032

5.20% AT&T Inc.	T 33	New York Stock Exchange
Global Notes due November 18, 2033

3.375% AT&T Inc.	T 34	New York Stock Exchange
Global Notes due March 15, 2034

2.45% AT&T Inc.	T 35	New York Stock Exchange
Global Notes due March 15, 2035

3.15% AT&T Inc.	T 36A	New York Stock Exchange
Global Notes due September 4, 2036

7.00% AT&T Inc.	T 40	New York Stock Exchange
Global Notes due April 30, 2040

4.25% AT&T Inc.	T 43	New York Stock Exchange
Global Notes due June 1, 2043

4.875% AT&T Inc.	T 44	New York Stock Exchange
Global Notes due June 1, 2044


5.35% AT&T Inc.	TBB	New York Stock Exchange
Global Notes due November 1, 2066

5.625% AT&T Inc.	TBC	New York Stock Exchange
Global Notes due August 1, 2067

At ~~July 31, 2018,~~April 30, 2019, there were ~~7,262~~7,298 million common shares outstanding.

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

AT&T INC.
CONSOLIDATED STATEMENTS OF INCOME
Dollars in millions except per share amounts
(Unaudited)
		Three months ended
		March 31,
		2019		2018
Operating Revenues
Service	$	40,684	$	33,646
Equipment		4,143		4,392
Total operating revenues		44,827		38,038

Operating Expenses
Cost of revenues
Equipment		4,502		4,848
Broadcast, programming and operations		7,652		5,166
Other cost of revenues (exclusive of depreciation and amortization shown separately below)		8,585		7,932
Selling, general and administrative		9,649		7,897
Depreciation and amortization		7,206		5,994
Total operating expenses		37,594		31,837
Operating Income		7,233		6,201
Other Income (Expense)
Interest expense		(2,141)		(1,771)
Equity in net income (loss) of affiliates		(7)		9
Other income (expense) – net		286		1,702
Total other income (expense)		(1,862)		(60)
Income Before Income Taxes		5,371		6,141
Income tax expense		1,023		1,382
Net Income		4,348		4,759
Less: Net Income Attributable to Noncontrolling Interest		(252)		(97)
Net Income Attributable to AT&T	$	4,096	$	4,662
Basic Earnings Per Share Attributable to AT&T	$	0.56	$	0.75
Diluted Earnings Per Share Attributable to AT&T	$	0.56	$	0.75
Weighted Average Number of Common Shares Outstanding – Basic (in millions)		7,313		6,161
Weighted Average Number of Common Shares Outstanding – with Dilution (in millions)		7,342		6,180
See Notes to Consolidated Financial Statements.

AT&T INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Dollars in millions
(Unaudited)
	Three months ended
	March 31,
	2019		2018
Net income	$	4,348	$	4,759
Other comprehensive income (loss), net of tax:
Foreign currency:
Translation adjustment (includes $0 and $2 attributable to noncontrolling interest), net of taxes of $49 and $175		288		108
Securities:
Net unrealized gains (losses), net of taxes of $5 and $(4)		16		(12)
Derivative instruments:
Net unrealized gains, net of taxes of $34 and $180		127		674
Reclassification adjustment included in net income, net of taxes of $2 and $3		11		12
Defined benefit postretirement plans:
Net prior service (cost) credit arising during period, net of taxes of $0 and $185		-		567
Amortization of net prior service credit included in net income, net of taxes of $(113) and $(105)		(346)		(323)
Other comprehensive income (loss)		96		1,026
Total comprehensive income		4,444		5,785
Less: Total comprehensive income attributable to noncontrolling interest		(252)		(99)
Total Comprehensive Income Attributable to AT&T	$	4,192	$	5,686
See Notes to Consolidated Financial Statements.

AT&T INC.
CONSOLIDATED BALANCE SHEETS
Dollars in millions except per share amounts
	March 31,		December 31,
	2019		2018
Assets	(Unaudited)
Current Assets
Cash and cash equivalents	$	6,516	$	5,204
Accounts receivable - net of allowances for doubtful accounts of $905 and $907		23,863		26,472
Prepaid expenses		1,518		2,047
Other current assets		14,575		17,704
Total current assets		46,472		51,427
Noncurrent Inventories and Theatrical Film and Television Production Costs		10,270		7,713
Property, plant and equipment		332,517		330,690
Less: accumulated depreciation and amortization		(200,466)		(199,217)
Property, Plant and Equipment – Net		132,051		131,473
Goodwill		146,434		146,370
Licenses – Net		97,001		96,144
Trademarks and Trade Names – Net		24,218		24,345
Distribution Networks – Net		16,623		17,069
Other Intangible Assets – Net		24,732		26,269
Investments in and Advances to Equity Affiliates		6,230		6,245
Operating Lease Right-of-Use Assets		20,235		-
Other Assets		24,118		24,809
Total Assets	$	548,384	$	531,864

Liabilities and Stockholders’ Equity
Current Liabilities
Debt maturing within one year	$	11,538	$	10,255
Accounts payable and accrued liabilities		42,306		43,184
Advanced billings and customer deposits		5,956		5,948
Accrued taxes		1,130		1,179
Dividends payable		3,722		3,854
Total current liabilities		64,652		64,420
Long-Term Debt		163,942		166,250
Deferred Credits and Other Noncurrent Liabilities
Deferred income taxes		59,207		57,859
Postemployment benefit obligation		19,664		19,218
Operating lease liabilities		18,253		-
Other noncurrent liabilities		27,715		30,233
Total deferred credits and other noncurrent liabilities		124,839		107,310

Stockholders’ Equity
Common stock ($1 par value, 14,000,000,000 authorized at March 31, 2019 and December 31, 2018: issued 7,620,748,598 at March 31, 2019 and December 31, 2018)		7,621		7,621
Additional paid-in capital		125,174		125,525
Retained earnings		59,424		58,753
Treasury stock (323,523,763 at March 31, 2019 and 339,120,073
at December 31, 2018, at cost)		(11,452)		(12,059)
Accumulated other comprehensive income		4,345		4,249
Noncontrolling interest		9,839		9,795
Total stockholders’ equity		194,951		193,884
Total Liabilities and Stockholders’ Equity	$	548,384	$	531,864
See Notes to Consolidated Financial Statements.

AT&T INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Dollars in millions
(Unaudited)
	Three months ended
	March 31,
	2019		2018

Operating Activities
Net income	$	4,348	$	4,759
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		7,206		5,994
Amortization of television and film costs		2,497		-
Undistributed earnings from investments in equity affiliates		112		(2)
Provision for uncollectible accounts		592		438
Deferred income tax expense		1,069		1,222
Net (gain) loss from investments, net of impairments		(175)		2
Actuarial (gain) loss on pension and postretirement benefits		432		(930)
Changes in operating assets and liabilities:
Accounts receivable		1,894		(439)
Other current assets, inventories and theatrical film and television production costs		(2,510)		614
Accounts payable and other accrued liabilities		(3,686)		(1,962)
Equipment installment receivables and related sales		652		505
Deferred customer contract acquisition and fulfillment costs		(375)		(826)
Retirement benefit funding		-		(140)
Other - net		(1,004)		(288)
Total adjustments		6,704		4,188
Net Cash Provided by Operating Activities		11,052		8,947

Investing Activities
Capital expenditures:
Purchase of property and equipment		(5,121)		(5,957)
Interest during construction		(61)		(161)
Acquisitions, net of cash acquired		(117)		(234)
Dispositions		10		56
(Purchases) sales of securities, net		(1)		(116)
Advances to and investments in equity affiliates, net		(111)		(1,007)
Cash collections of deferred purchase price		-		267
Net Cash Used in Investing Activities		(5,401)		(7,152)

Financing Activities
Net change in short-term borrowings with original maturities of three months or less		(256)		-
Issuance of other short-term borrowings		296		-
Repayment of other short-term borrowings		(176)		-
Issuance of long-term debt		9,182		2,565
Repayment of long-term debt		(9,840)		(4,911)
Purchase of treasury stock		(189)		(145)
Issuance of treasury stock		167		11
Dividends paid		(3,714)		(3,070)
Other		109		2,048
Net Cash Used in Financing Activities		(4,421)		(3,502)
Net increase (decrease) in cash and cash equivalents and restricted cash		1,230		(1,707)
Cash and cash equivalents and restricted cash beginning of year		5,400		50,932
Cash and Cash Equivalents and Restricted Cash End of Period	$	6,630	$	49,225
See Notes to Consolidated Financial Statements.

AT&T INC.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY
Dollars and shares in millions except per share amounts
(Unaudited)
	March 31, 2019			March 31, 2018
	Shares	Amount		Shares	Amount
Common Stock
Balance at beginning of year	7,621	$	7,621	6,495	$	6,495
Issuance of stock	-		-	-		-
Balance at end of period	7,621	$	7,621	6,495	$	6,495

Additional Paid-In Capital
Balance at beginning of year		$	125,525		$	89,563
Issuance of treasury stock			(77)			(4)
Share-based payments			(274)			(155)
Balance at end of period		$	125,174		$	89,404

Retained Earnings
Balance at beginning of year		$	58,753		$	50,500
Net income attributable to AT&T ($0.56 and $0.75 per diluted share)			4,096			4,662
Dividends to stockholders ($0.51 and $0.50 per share)			(3,741)			(3,092)
Cumulative effect of accounting changes			316			2,997
Balance at end of period		$	59,424		$	55,067

Treasury Stock
Balance at beginning of year	(339)	$	(12,059)	(356)	$	(12,714)
Repurchase and acquisition of common stock	(7)		(208)	(4)		(164)
Issuance of treasury stock	22		815	12		446
Balance at end of period	(324)	$	(11,452)	(348)	$	(12,432)

Accumulated Other Comprehensive Income Attributable to AT&T, net of tax
Balance at beginning of year		$	4,249		$	7,017
Other comprehensive income attributable to AT&T			96			1,024
Amounts reclassified to retained earnings			-			(655)
Balance at end of period		$	4,345		$	7,386

Noncontrolling Interest
Balance at beginning of year		$	9,795		$	1,146
Net income attributable to noncontrolling interest			252			97
Interest acquired by noncontrolling owners			9			-
Distributions			(246)			(124)
Translation adjustments attributable to noncontrolling interest, net of taxes			-			2
Cumulative effect of accounting changes			29			35
Balance at end of period		$	9,839		$	1,156
			��
Total Stockholders’ Equity at beginning of year		$	193,884		$	142,007
Total Stockholders’ Equity at end of period		$	194,951		$	147,076
See Notes to Consolidated Financial Statements.

AT&T INC.

MARCH 31, 2019

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ~~OF INCOME~~

(UNAUDITED)

Dollars in millions except per share amounts

~~(Unaudited)~~

      Three months ended Six months ended
   June 30, June 30,
      2018 2017 2018 2017
   As Adjusted As Adjusted
Operating Revenues

Service
   $     33,773 $     36,538 $     67,419 $     72,994
Equipment
   4,080 3,299 8,472 6,208
Media
   1,133 - 1,133 -
Total operating revenues
   38,986 39,837 77,024 79,202
Operating Expenses

Cost of revenues

Equipment
   4,377 4,138 9,225 7,986
Broadcast, programming and operations
   5,449 4,898 10,615 9,872
Other cost of revenues (exclusive of depreciation and amortization shown separately below)
   7,632 9,569 15,564 18,857
Selling, general and administrative
   8,684 8,559 16,581 17,331
Depreciation and amortization
   6,378 6,147 12,372 12,274
Total operating expenses
   32,520 33,311 64,357 66,320
Operating Income
   6,466 6,526 12,667 12,882
Other Income (Expense)

Interest expense
   (2,023 ) (1,395 ) (3,794 ) (2,688 )
Equity in net income (loss) of affiliates
   (16 ) 14 (7 ) (159 )
Other income (expense) – net
   2,353 925 4,055 1,413
Total other income (expense)
   314 (456 ) 254 (1,434 )
Income Before Income Taxes
   6,780 6,070 12,921 11,448
Income tax expense
   1,532 2,056 2,914 3,860
Net Income
   5,248 4,014 10,007 7,588
Less: Net Income Attributable to Noncontrolling Interest
   (116 ) (99 ) (213 ) (204 )
Net Income Attributable to AT&T
   $ 5,132 $ 3,915 $ 9,794 $ 7,384

Basic Earnings Per Share Attributable to AT&T
   $ 0.81 $ 0.63 $ 1.56 $ 1.19
Diluted Earnings Per Share Attributable to AT&T
   $ 0.81 $ 0.63 $ 1.56 $ 1.19
Weighted Average Number of Common Shares
Outstanding – Basic (in millions)
   6,351 6,165 6,257 6,166
Weighted Average Number of Common Shares
Outstanding – with Dilution (in millions)
   6,374 6,184 6,277 6,185
Dividends Declared Per Common Share
   $ 0.50 $ 0.49 $ 1.00 $ 0.98

~~See Notes to Consolidated Financial Statements.~~

~~AT&T INC.~~

~~CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME~~

~~Dollars in millions~~

~~(Unaudited)~~

      Three months ended Six months ended
   June 30, June 30,
      2018 2017 2018 2017
Net income
   $       5,248 $       4,014 $       10,007 $       7,588
Other comprehensive income (loss), net of tax:

Foreign currency:

Translation adjustment (includes $(32), $(10), $(30) and $(4)
attributable to noncontrolling interest), net of taxes of $(318), $115, $(143) and $506
   (918 ) (33 ) (810 ) 339
Available-for-sale securities:

Net unrealized gains (losses), net of taxes of $0, $29, $(4) and $44
   - 50 (12 ) 83
Reclassification adjustment included in net income, net of taxes of $0, $(7), $0 and $(4)
   - (12 ) - (7 )
Cash flow hedges:

Net unrealized gains (losses), net of taxes of $(112), $(279), $68 and $(272)
   (421 ) (517 ) 253 (504 )
Reclassification adjustment included in net income, net of taxes of $3, $5, $6 and $10
   11 9 23 19
Defined benefit postretirement plans:

Net prior service (cost) credit arising during period, net of taxes of $(12), $594, $173 and $594
   (37 ) 969 530 969
Amortization of net prior service credit included in net income, net of taxes of $(109), $(151), $(214) and $(290)
   (334 ) (247 ) (657 ) (475 )
Other comprehensive income (loss)
   (1,699 ) 219 (673 ) 424
Total comprehensive income
   3,549 4,233 9,334 8,012
Less: Total comprehensive income attributable to noncontrolling interest
   (84 ) (89 ) (183 ) (200 )
Total Comprehensive Income Attributable to AT&T
   $ 3,465 $ 4,144 $ 9,151 $ 7,812

~~See Notes to Consolidated Financial Statements.~~

~~AT&T INC.~~

~~CONSOLIDATED BALANCE SHEETS~~

~~Dollars in millions except per share amounts~~

      June 30, December 31,
      2018 2017
Assets    (Unaudited)
Current Assets

Cash and cash equivalents
   $ 13,523 $ 50,498
Accounts receivable - net of allowances for doubtful accounts of $804 and $663
   25,492 16,522
Prepaid expenses
   1,966 1,369
Other current assets
   14,305 10,757
Total current assets
   55,286 79,146
Noncurrent Inventories and Theatrical Film and Television Production Costs
   5,849 -
Property, plant and equipment
   324,889 313,499
Less: accumulated depreciation and amortization
   (195,333 ) (188,277 )
Property, Plant and Equipment – Net
   129,556 125,222
Goodwill
   142,607 105,449
Licenses
   96,802 96,136
Trademarks and Trade Names – Net
   24,440 7,021
Distribution Networks – Net
   17,403 -
Other Intangible Assets – Net
   30,800 11,119
Investments in and Advances to Equity Affiliates
   8,007 1,560
Other Assets
   23,941 18,444
Total Assets
   $ 534,691 $ 444,097

Liabilities and Stockholders’ Equity

Current Liabilities

Debt maturing within one year
   $ 21,672 $ 38,374
Accounts payable and accrued liabilities
   35,488 34,470
Advanced billing and customer deposits
   5,914 4,213
Accrued taxes
   1,889 1,262
Dividends payable
   3,630 3,070
Total current liabilities
   68,593 81,389
Long-Term Debt
   168,495 125,972
Deferred Credits and Other Noncurrent Liabilities

Deferred income taxes
   59,665 43,207
Postemployment benefit obligation
   28,791 31,775
Other noncurrent liabilities
   25,017 19,747
Total deferred credits and other noncurrent liabilities
   113,473 94,729
Stockholders’ Equity

Common stock ($1 par value, 14,000,000,000 authorized at June 30, 2018 and December 31, 2017: issued 7,620,748,598 at June 30, 2018 and 6,495,231,088 at December 31, 2017)
   7,621 6,495
Additionalpaid-in capital
   125,960 89,563
Retained earnings
   56,555 50,500
Treasury stock (360,993,619 at June 30, 2018 and 355,806,544 at December 31, 2017, at cost)
   (12,872 ) (12,714 )
Accumulated other comprehensive income
   5,716 7,017
Noncontrolling interest
   1,150 1,146
Total stockholders’ equity
   184,130 142,007
Total Liabilities and Stockholders’ Equity
   $       534,691 $       444,097

~~See Notes to Consolidated Financial Statements.~~

~~AT&T INC.~~

~~CONSOLIDATED STATEMENTS OF CASH FLOWS~~

~~Dollars in millions~~

~~(Unaudited)~~

Six months ended
June 30,

      2018 2017
   As Adjusted
Operating Activities

Net income
   $         10,007 $       7,588
Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization
   12,372 12,274
Amortization of television and film costs
   168 -
Undistributed earnings from investments in equity affiliates
   235 167
Provision for uncollectible accounts
   808 795
Deferred income tax expense
   2,032 964
Net (gain) loss from investments, net of impairments
   (29 ) 12
Actuarial (gain) loss on pension and postretirement benefits
   (2,726 ) (259 )
Changes in operating assets and liabilities:

Accounts receivable
   233 119
Other current assets, inventories and theatrical film and television production costs
   1,039 470
Accounts payable and other accrued liabilities
   (3,890 ) (2,761 )
Equipment installment receivables and related sales
   490 525
Deferred customer contract acquisition and fulfillment costs
   (1,725 ) (796 )
Retirement benefit funding
   (280 ) (280 )
Other – net
   442 (1,148 )
Total adjustments
   9,169 10,082
Net Cash Provided by Operating Activities
   19,176 17,670
Investing Activities

Capital expenditures:

Purchase of property and equipment
   (10,959 ) (10,750 )
Interest during construction
   (267 ) (473 )
Acquisitions, net of cash acquired
   (40,715 ) 1,224
Dispositions
   59 51
(Purchases) sales of securities, net
   (218 ) 169
Advances to and investments in equity affiliates, net
   (1,035 ) -
Cash collections of deferred purchase price
   500 382
Net Cash Used in Investing Activities
   (52,635 ) (9,397 )
Financing Activities

Net change in short-term borrowings with original maturities of three months or less
   2,227 (2 )
Issuance of other short-term borrowings
   4,839 -
Issuance of long-term debt
   26,478 24,115
Repayment of long-term debt
   (29,447 ) (6,118 )
Purchase of treasury stock
   (564 ) (458 )
Issuance of treasury stock
   12 24
Dividends paid
   (6,144 ) (6,021 )
Other
   (1,121 ) 77
Net Cash (Used in) Provided by Financing Activities
   (3,720 ) 11,617
Net (decrease) increase in cash and cash equivalents and restricted cash
   (37,179 ) 19,890
Cash and cash equivalents and restricted cash beginning of year
   50,932 5,935
Cash and Cash Equivalents and Restricted Cash End of Period
   $ 13,753 $         25,825

~~See Notes to Consolidated Financial Statements.~~

~~AT&T INC.~~

~~CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY~~

~~Dollars and shares in millions except per share amounts~~

~~(Unaudited)~~

      June 30, 2018
      Shares Amount
Common Stock

Balance at beginning of year
   6,495 $ 6,495
Issuance of stock
   1,126 1,126
Balance at end of period
   7,621 $ 7,621

AdditionalPaid-In Capital

Balance at beginning of year
   $ 89,563
Issuance of common stock
   35,473
Issuance of treasury stock
   (4 )
Share-based payments
   928
Balance at end of period
   $ 125,960

Retained Earnings

Balance at beginning of year
   $ 50,500
Net income attributable to AT&T ($1.56 per diluted share)
   9,794
Dividends to stockholders ($1.00 per share)
   (6,739 )
Cumulative effect of accounting changes
   3,000
Balance at end of period
   $ 56,555

Treasury Stock

Balance at beginning of year
   (356 ) $ (12,714 )
Repurchase and acquisition of common stock
   (18 ) (607 )
Issuance of treasury stock
   13 449
Balance at end of period
   (361 ) $ (12,872 )

Accumulated Other Comprehensive Income Attributable to AT&T, net of tax

Balance at beginning of year
   $ 7,017
Other comprehensive income attributable to AT&T
   (643 )
Amounts reclassified to retained earnings
   (658 )
Balance at end of period
   $ 5,716

Noncontrolling Interest

Balance at beginning of year
   $ 1,146
Net income attributable to noncontrolling interest
   213
Contributions
   8
Distributions
   (223 )
Acquisition of noncontrolling interest
   1
Translation adjustments attributable to noncontrolling interest, net of taxes
   (30 )
Cumulative effect of accounting changes
   35
Balance at end of period
   $ 1,150

Total Stockholders’ Equity at beginning of year
   $ 142,007

Total Stockholders’ Equity at end of period
   $       184,130

~~See Notes to Consolidated Financial Statements.~~

~~AT&T INC.~~

~~JUNE 30, 2018~~

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 worldwide in the telecommunications, media and technology industries. You should read this document in conjunction with the consolidated financial statements and accompanying notes included in our Annual Report on Form~~10-K~~ ~~for the year ended December 31, 2017. The results for the interim periods are not necessarily indicative of those for the full year.~~

~~In the tables throughout this document, percentage increases and decreases that are not considered meaningful are denoted with a dash.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)~~

~~Dollars in millions except per share amounts~~

NOTE 1. PREPARATION OF INTERIM FINANCIAL STATEMENTS

Basis of PresentationThroughout this document, AT&T Inc. is referred to as “we,” “AT&T” or the “Company.” The consolidated financial statements include the accounts of the Company and subsidiaries and affiliates which we control, including the operating results of Warner Media, LLC (formerly Time Warner Inc. and referred to as “Time Warner” or “WarnerMedia”), which was acquired on June 14, 2018 (see Note 8). AT&T is a holding company whose subsidiaries and affiliates operate worldwide in the telecommunications, media and technology industries. You should read this document in conjunction with the consolidated financial statements and accompanying notes included in our Annual Report on Form 10-K for the year ended December 31, 2018. The results for the interim periods are not necessarily indicative of those for the full year. These consolidated financial statements include all adjustments that are necessary to present fairly the results for the presented interim periods, consisting of normal recurring accruals and other items. The consolidated financial statements include the accounts of the Company and our majority-owned subsidiaries and affiliates, including the operating results of recently acquired Time Warner Inc. (referred to as “Time Warner” or “WarnerMedia”) as of June 15, 2018 (see Note 8).

All significant intercompany transactions are eliminated in the consolidation process. Investments in ~~less than majority-owned~~ subsidiaries and partnerships ~~where~~which we do not control but have significant influence are accounted for under the equity method. Earnings from certain investments accounted for using the equity method are included for periods ended within up to one quarter of our period end. We also record our proportionate share of our equity method investees’ other comprehensive income (OCI) ~~items, including translation adjustments.~~

items.

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

In the ~~adoption of recent accounting standards~~tables throughout this document, percentage increases and ~~the realignment of certain business units within our reportable segments (see Note 4).~~

~~Tax Reform~~~~The Tax Cuts and Jobs Act (the Act) was enacted on December 22, 2017. The Act reduced the U.S. federal corporate income tax rate from 35% to 21% and required companies to pay~~decreases that are not considered meaningful are denoted with a~~one-time~~ transition tax on earnings of certain foreign subsidiaries that were previously tax deferred. Recognizing the late enactment of the Act and complexity of accurately accounting for its impact, the Securities and Exchange Commission (SEC) in Staff Accounting Bulletin (SAB) 118 provided guidance that allows registrants to provide a reasonable estimate of the impact to their financial statements and adjust the reported impact in a measurement period not to exceed one year. We included the estimated impact of the Act in our financial results at or for the period ended December 31, 2017 and did not record any adjustments thereto during the first six months of 2018. Our future results could include additional adjustments, and those adjustments could be material.

~~Customer Fulfillment Costs~~ During the second quarter of 2018, we updated our analysis of economic lives of customer relationships. As of April 1, 2018, we extended the amortization period to 58 months to better reflect the estimated economic lives of our entertainment group customers. This change in accounting estimate decreased other cost of revenues and impacted net income $126, or $0.02 per diluted share, in the second quarter of 2018.

~~Recently~~ dash.

Adopted Accounting Standards

~~Revenue Recognition~~ and Other Changes

Leases As of January 1, ~~2018,~~2019, we adopted, ~~Financial Accounting Standards Board (FASB)~~with modified retrospective application, Accounting Standards Update (ASU)~~No. 2014-09,~~ “Revenue from Contracts with Customers (Topic 606),” as modified (ASC 606), using the modified retrospective method, which does not allow us to adjust prior periods. We applied the rules to all open contracts existing as of January 1, 2018, recording an increase of $2,342 to retained earnings for the cumulative effect of the change, with an offsetting contract asset of $1,737, deferred contract acquisition costs of $1,454, other asset reductions of $239, other liability reductions of $212, deferred income taxes of $787 and noncontrolling interest of $35. (See Note 5)

~~AT&T INC.~~

~~JUNE 30, 2018~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued~~

~~Dollars in millions except per share amounts~~

~~Pension and Other Postretirement Benefits~~ ~~As of January 1, 2018, we adopted, with retrospective application, ASUNo. 2017-07,~~ ~~“Compensation – Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost” (ASU2017-07).~~ We are no longer allowed to present interest, estimated return on assets and amortization of prior service credits components of our net periodic benefit cost in our consolidated operating expenses, but rather are required to include those amounts in “other income (expense) – net” in our consolidated statements of income. We continue to present service costs with the associated compensation costs within our operating expenses. As a practical expedient, we used the amounts disclosed as the estimated basis for applying the retrospective presentation requirement.

~~The following table presents our results under our historical method and as adjusted to reflect ASU2017-07~~ ~~(presentation of~~~~benefit cost~~):

            Pension and Postretirement Benefits
            Historical
Accounting
Method          Effect of
Adoption of
ASU 2017-07       As
Adjusted
For the three months ended June 30, 2018

Consolidated Statements of Income

Other cost of revenues
   $    7,068    $    564 $    7,632
Selling, general and administrative expenses
      6,896       1,788    8,684
Operating Income
      8,818       (2,352 )    6,466
Other Income (Expense) – net
      1       2,352    2,353
Net Income
      5,248       -    5,248

For the three months ended June 30, 2017

Consolidated Statements of Income

Other cost of revenues
   $    9,218    $    351 $    9,569
Selling, general and administrative expenses
      8,113       446    8,559
Operating Income
      7,323       (797 )    6,526
Other Income (Expense) – net
      128       797    925
Net Income
      4,014       -    4,014

For the six months ended June 30, 2018

Consolidated Statements of Income

Other cost of revenues
   $    14,639    $    925 $    15,564
Selling, general and administrative expenses
      13,652       2,929    16,581
Operating Income
      16,521       (3,854 )    12,667
Other Income (Expense) – net
      201       3,854    4,055
Net Income
      10,007       -    10,007

For the six months ended June 30, 2017

Consolidated Statements of Income

Other cost of revenues
   $    18,283    $    574 $    18,857
Selling, general and administrative expenses
      16,600       731    17,331
Operating Income
      14,187       (1,305 )    12,882
Other Income (Expense) – net
      108       1,305    1,413
Net Income
      7,588       -    7,588

~~AT&T INC.~~

~~JUNE 30, 2018~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued~~

~~Dollars in millions except per share amounts~~

~~Cash Flows~~ ~~As of January 1, 2018, we adopted, with retrospective application, ASUNo. 2016-15,~~ ~~“Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments” (ASU2016-15).~~ ~~Under ASU2016-15,~~ we continue to recognize cash receipts on owned equipment installment receivables as cash flows from operations. However, cash receipts on the deferred purchase price described in Note 9 are now required to be classified as cash flows from investing activities instead of cash flows from operating activities.

~~As of January 1, 2018, we adopted, with retrospective application, ASUNo. 2016-18,~~ ~~“Statement of Cash Flows (Topic 230) – Restricted Cash,” (ASU2016-18).~~ ~~The primary impact of ASU2016-18~~ was to require us to include restricted cash in our reconciliation of beginning and ending cash and cash equivalents (restricted and unrestricted) on the face of the statements of cash flows. (See Note 11)

~~The following table presents our results under our historical method and as adjusted to reflect ASU2016-15~~ (~~cash receipts on deferred purchase price~~~~) and ASU2016-18~~ (~~restricted cash~~):

            Cash Flows
            Historical
Accounting
Method Effect of
Adoption of
ASU 2016-15 Effect of
Adoption of
ASU 2016-18
As
Adjusted

For the six months ended June 30, 2018

Consolidated Statements of Cash Flows

Equipment installment receivables and related sales
   $    990 $ (500 ) $ - $    490
Other – net
      431 - 11    442
Cash Provided by (Used in) Operating Activities
      19,665 (500 ) 11    19,176
(Purchases) sales of securities – net
      4 - (222 )    (218 )
Cash collections of deferred purchase price
      - 500 -    500
Cash (Used in) Provided by Investing Activities
      (52,913 ) 500 (222 )    (52,635 )
Change in cash and cash equivalents and restricted cash
   $    (36,968 ) $ - $ (211 ) $    (37,179 )

For the six months ended June 30, 2017

Consolidated Statements of Cash Flows

Changes in other current assets
   $    471 $ - $ (1 ) $    470
Equipment installment receivables and related sales
      907 (382 ) -    525
Other – net
      (1,041 ) - (107 )    (1,148 )
Cash Provided by (Used in) Operating Activities
      18,160 (382 ) (108 )    17,670
(Purchases) sales of securities – net
      - - 169    169
Cash collections of deferred purchase price
      - 382 -    382
Cash (Used in) Provided by Investing Activities
      (9,948 ) 382 169    (9,397 )
Change in cash and cash equivalents and restricted cash
   $    19,829 $ - $ 61 $    19,890

~~Financial Instruments~~ ~~As of January 1, 2018, we adopted ASUNo. 2016-01,~~ ~~“Financial Instruments – Overall (Subtopic825-10):~~ ~~Recognition and Measurement of Financial Assets and Financial Liabilities” (ASU2016-01),~~ which requires us to prospectively record changes in the fair value of our equity investments, except for those accounted for under the equity method, in net income instead of in accumulated other comprehensive income. As of January 1, 2018, we recorded an increase of $658 in retained earnings for the cumulative effect of the adoption of ASU~~2016-01,~~ ~~with an offset to accumulated other comprehensive income (accumulated OCI).~~

~~AT&T INC.~~

~~JUNE 30, 2018~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued~~

~~Dollars in millions except per share amounts~~

~~New Accounting Standards and Accounting Standards Not Yet Adopted~~

~~Leases~~ ~~In February 2016, the FASB issued ASU~~No. 2016-02, “Leases (Topic 842),” as modified (ASC 842), which replaces existing leasing rules with a comprehensive lease measurement and recognition standard and expanded disclosure ~~requirements.~~requirements (see Note 10). ASC 842 ~~will require~~requires lessees to recognize most leases on their balance sheets as liabilities, with corresponding~~“right-of-use”~~ “right-of-use” assets. For income statement recognition purposes, leases ~~will be~~are classified as either a finance or an operating lease without relying upon bright-line tests.

The key change upon adoption of the ~~bright-line tests under~~standard was balance sheet recognition, given that the recognition of lease expense on our income statement is similar to our current ~~GAAP. In July 2018,~~accounting. Using the ~~FASB amended ASC 842 to provide another~~modified retrospective transition method ~~allowing~~of adoption, we did not adjust the balance sheet for comparative periods but recorded a cumulative effect adjustment to ~~the opening balance of~~ retained earnings ~~during~~on January 1, 2019. We elected the ~~period~~package of ~~adoption. Through~~practical expedients permitted under the transition guidance within the new standard, which, among other things, allowed us to carry forward our historical lease classification. We also elected the practical expedient related to land easements, allowing us to carry forward our accounting treatment for land easements on existing agreements that were not accounted for as leases. We excluded all the leases with original terms of one year or less. Additionally, we elected to not separate lease and non-lease components for certain classes of assets in arrangements where we are the lessee and for certain classes of assets where we are the lessor. Our accounting for finance leases did not change from our prior accounting for capital leases.

The adoption of ASC 842 resulted in the recognition of an operating lease liability of $22,121 and an operating right-of-use asset of the same ~~amendment,~~amount. Existing prepaid and deferred rent accruals were recorded as an offset to the right-of-use asset, resulting in a net asset of $20,960. The cumulative effect of the adoption to retained earnings was an increase of $316 reflecting the reclassification of deferred gains related to sale/leaseback transactions. We do not believe the standard will materially impact our future income statements or have a notable impact on our liquidity. The standard will have no impact on our debt-covenant compliance under our current agreements.

AT&T INC.

MARCH 31, 2019

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued

Dollars in millions except per share amounts

Deferral of Episodic Television and Film Costs In March 2019, the FASB ~~will allow lessors the option~~issued ASU No. 2019-02, “Entertainment—Films—Other Assets—Film Costs (Subtopic 926-20) and Entertainment—Broadcasters—Intangibles—Goodwill and Other (Subtopic 920-350): Improvements to ~~make a policy election to treat lease~~Accounting for Costs of Films and ~~nonlease components~~License Agreements for Program Materials” (ASU 2019-02), which we early adopted as ~~a single lease component~~of January 1, 2019, with prospective application. The standard eliminates certain revenue-related constraints on capitalization of inventory costs for episodic television that existed under ~~certain conditions. ASC 842 is effective for annual reporting periods beginning after December 15, 2018, subject to early adoption.~~

~~Upon initial evaluation, we believe the key change upon adoption will be~~prior guidance. In addition, the balance sheet ~~recognition. The~~classification requirements that existed in prior guidance for film production costs and programming inventory were eliminated. As of January 1, 2019, we reclassified $2,274 of our programming inventory costs from “Other current assets” to “Other Assets” in accordance with the guidance. This change in accounting does not materially impact our income ~~statement recognition~~statement.

Spectrum Licenses in Mexico During the first quarter of ~~lease expense appears similar~~2019, in conjunction with the renewal process of certain spectrum licenses in Mexico, we reassessed the estimated economic lives and renewal assumptions for these licenses. As a result, we have changed the life of these licenses from indefinite to finite-lived. On January 1, 2019, we began amortizing our ~~current methodology. We are continuing to evaluate the magnitude and other potential impacts to~~spectrum licenses in Mexico over their average remaining economic life of 25 years. This change in accounting does not materially impact our ~~financial statements.~~

income statement.

NOTE 2. EARNINGS PER SHARE

A reconciliation of the numerators and denominators of basic and diluted earnings per share for the three months ended March 31, 2019 and ~~six months ended June 30,~~ 2018, ~~and 2017,~~ is shown in the table below:

            Three months ended
June 30,       Six months ended
June 30,
            2018       2017       2018       2017
Numerators

Numerator for basic earnings per share:

Net Income
   $    5,248 $    4,014 $    10,007 $    7,588
Less: Net income attributable to noncontrolling interest
      (116 )    (99 )    (213 )    (204 )
Net Income attributable to AT&T
      5,132    3,915    9,794    7,384
Dilutive potential common shares:

Share-based payment
      4    2    9    6
Numerator for diluted earnings per share
   $    5,136 $    3,917 $    9,803 $    7,390

Denominators (000,000)

Denominator for basic earnings per share:

Weighted average number of common shares outstanding
      6,351    6,165    6,257    6,166
Dilutive potential common shares:

Share-based payment (in shares)
      23    19    20    19
Denominator for diluted earnings per share
      6,374    6,184    6,277    6,185

Basic earnings per share attributable to AT&T
   $    0.81 $    0.63 $    1.56 $    1.19
Diluted earnings per share attributable to AT&T
   $    0.81 $    0.63 $    1.56 $    1.19

	Three months ended
	March 31,
	2019		2018
Numerators
Numerator for basic earnings per share:
Net Income	$	4,348	$	4,759
Less: Net income attributable to noncontrolling interest		(252)		(97)
Net Income attributable to AT&T		4,096		4,662
Dilutive potential common shares:
Share-based payment		6		5
Numerator for diluted earnings per share	$	4,102	$	4,667
Denominators (000,000)
Denominator for basic earnings per share:
Weighted average number of common shares outstanding		7,313		6,161
Dilutive potential common shares:
Share-based payment (in shares)		29		19
Denominator for diluted earnings per share		7,342		6,180
Basic earnings per share attributable to AT&T	$	0.56	$	0.75
Diluted earnings per share attributable to AT&T	$	0.56	$	0.75

AT&T INC.

~~JUNE 30, 2018~~

MARCH 31, 2019

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued

Dollars in millions except per share amounts

NOTE 3. OTHER COMPREHENSIVE INCOME

Changes in the balances of each component included in accumulated OCI are presented below. All amounts are net of tax and exclude noncontrolling interest.

      Foreign
Currency
Translation
Adjustment Net Unrealized
Gains (Losses)
onAvailable-
for-Sale
Securities Net Unrealized
Gains (Losses)
on Cash Flow
Hedges Defined Benefit
Postretirement
Plans Accumulated
Other
Comprehensive
Income
Balance as of December 31, 2017
   $             (2,054) $ 660 $ 1,402 $ 7,009 $ 7,017
Other comprehensive income (loss) before reclassifications
   (780) (12 ) 253 530 (9 )
Amounts reclassified from accumulated OCI
   -¹ - ¹   23 ²   (657 )³ (634 )
Net other comprehensive income (loss)
   (780) (12 ) 276 (127 ) (643 )
Amounts reclassified to retained earnings
   -   (658 )⁴ - - (658 )
Balance as of June 30, 2018
   $ (2,834) $ (10 ) $ 1,678 $ 6,882 $ 5,716



      Foreign
Currency
Translation
Adjustment Net Unrealized
Gains (Losses)
onAvailable-
for-Sale
Securities Net Unrealized
Gains (Losses)
on Cash Flow
Hedges Defined Benefit
Postretirement
Plans Accumulated
Other
Comprehensive
Income
Balance as of December 31, 2016
   $ (1,995 ) $ 541 $ 744 $ 5,671 $ 4,961
Other comprehensive income (loss) before reclassifications
   343 83 (504 ) 969 891
Amounts reclassified from accumulated OCI
   - ¹   (7 )¹ 19 ²   (475 )³ (463 )
Net other comprehensive income (loss)
   343 76 (485 ) 494 428
Balance as of June 30, 2017
   $ (1,652 ) $ 617 $ 259 $ 6,165 $ 5,389

¹	~~(Gains) losses are included in Other income (expense) – net in the consolidated statements of income.~~

²	~~(Gains) losses are included in Interest expense in the consolidated statements of income (see Note 7).~~

³	~~The amortization of prior service credits associated with postretirement benefits are included in Other income (expense) in the consolidated statements of income (see Note 6).~~

⁴

~~With the adoption of ASU~~

		Foreign Currency Translation Adjustment		Net Unrealized Gains (Losses) on Securities			Net Unrealized Gains (Losses) on Derivative Instruments			Defined Benefit Postretirement Plans			Accumulated Other Comprehensive Income
Balance as of December 31, 2018		$	(3,084)	$	(2)		$	818		$	6,517		$	4,249
Other comprehensive income (loss) before reclassifications			288		16			127			-			431
Amounts reclassified from accumulated OCI			-		-			11	¹		(346)	²		(335)
Net other comprehensive income (loss)			288		16			138			(346)			96
Balance as of March 31, 2019		$	(2,796)	$	14		$	956		$	6,171		$	4,345

		Foreign Currency Translation Adjustment		Net Unrealized Gains (Losses) on Securities			Net Unrealized Gains (Losses) on Derivative Instruments			Defined Benefit Postretirement Plans			Accumulated Other Comprehensive Income
Balance as of December 31, 2017		$	(2,054)	$	660		$	1,402		$	7,009		$	7,017
Other comprehensive income (loss) before reclassifications			106		(12)			674			567			1,335
Amounts reclassified from accumulated OCI			-		-			12	¹		(323)	²		(311)
Net other comprehensive income (loss)			106		(12)			686			244			1,024
Amounts reclassified to retained earnings			-		(655)	³		-			-			(655)
Balance as of March 31, 2018		$	(1,948)	$	(7)		$	2,088		$	7,253		$	7,386
¹	(Gains) losses are included in Interest expense in the consolidated statements of income (see Note 7).
²	The amortization of prior service credits associated with postretirement benefits are included in Other income (expense) in the
	consolidated statements of income (see Note 6).
³	With the adoption of ASU 2016-01, the unrealized (gains) losses on our equity investments are reclassified to retained earnings.

~~2016-01,~~ ~~the unrealized (gains) losses on our equity investments are reclassified to retained earnings (see Note 1).~~

AT&T INC.

~~JUNE 30, 2018~~

MARCH 31, 2019

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued

Dollars in millions except per share amounts

NOTE 4. SEGMENT INFORMATION

Our segments are strategic business units that offer products and services to different customer segments over various technology platforms and/or in different geographies that are managed accordingly. We analyze our segments based on ~~Segment Contribution,~~segment operating contribution, which consists of operating income, excluding acquisition-related costs and other significant items (as discussed below), and equity in net income (loss) of affiliates for investments managed within each segment. We have ~~five~~four reportable segments: (1) ~~Consumer Mobility,~~Communications, (2) ~~Business Solutions,~~WarnerMedia, (3) ~~Entertainment Group,~~Latin America, and (4) ~~International, and (5) WarnerMedia.~~

Xandr.

We also evaluate segment and business unit performance based on EBITDA and/or EBITDA margin, which is defined as ~~Segment Contribution~~operating contribution excluding equity in net income (loss) of affiliates and depreciation and amortization. We believe EBITDA to be a relevant and useful measurement to our investors as it is part of our internal management reporting and planning processes and it is an important metric that management uses to evaluate ~~segment~~ operating 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 margin is EBITDA divided by total revenues.

~~To most effectively implement our strategies for 2018, effective January 1, 2018, we retrospectively realigned certain responsibilities~~

The Communications segment provides wireless and ~~operations within our reportable segments. The most significant of these changes is~~wireline telecom, video and broadband services to report individual wireless accounts with employer discounts in our Consumer Mobility segment, instead of our Business Solutions segment. As a result of these realignments, $19,686 of goodwill from the Business Solutions segment was reallocated to the Consumer Mobility segment. Our reported segment results include the impact for the adoption of recent accounting standards, which affects the comparability between 2018 and 2017 (see Note 5).

With our acquisition of WarnerMedia, programming released on or before the June 14, 2018 acquisition date was recorded at fair value as an intangible asset (see Note 8). For consolidated reporting, all amortization of~~pre-acquisition~~ released programming is reported as amortization expense on our consolidated income statement. To best present comparable results, we will continue to report the historic content production cost amortization as operations and support expense within the WarnerMedia segment. The amount of historic content production cost amortization reported in the segment results was $189 for the~~16-day~~ ~~period ended June 30, 2018, $98 of which was forpre-acquisition~~ ~~released programming.~~

~~The~~~~Consumer Mobility segment~~~~provides nationwide wireless service to~~ consumers ~~wholesale and resale wireless subscribers~~ located in the ~~United States~~U.S. or in U.S. ~~territories. We provide voice~~territories and ~~data services, including high-speed internet over wireless devices.~~

~~The~~~~Business Solutions~~businesses globally. This segment ~~provides services to~~ contains the following business ~~customers, including multinational companies~~units:

●	Mobility provides nationwide wireless service and equipment.

●	Entertainment Group provides video, including over-the-top (OTT) services, broadband and voice communications services primarily to residential customers. This segment also sells advertising on DIRECTV and U-verse distribution platforms.

●	Business Wireline provides advanced IP-based services, as well as traditional voice and data services to business customers.

The WarnerMedia segment develops, produces and ~~governmental~~distributes feature films, television, gaming and ~~wholesale customers. We provide advancedIP-based~~ ~~services including Virtual Private~~other content in various physical and digital formats globally. Historical financial results from AT&T’s Regional Sports Networks ~~(VPN); Ethernet-related products; FlexWare, a service that relies on Software Defined Networking~~(RSNs) and equity investments (predominantly Game Show Network ~~Function Virtualization to provide application-based routing,~~ and ~~broadband, collectively referred to as strategic services; as well as traditional data~~Otter Media), previously included in Entertainment Group, have been reclassified into the WarnerMedia segment and ~~voice products. We provide a complete communications solution~~are combined with the Time Warner operations for the period subsequent to our acquisition on June 14, 2018. This segment contains the following business ~~customers.~~

units:

●	Turner is comprised of the historic Turner division as well as the financial results of our RSNs. This business unit primarily operates multichannel basic television networks and digital properties. Turner also sells advertising on its networks and digital properties.

●	Home Box Office consists of premium pay television and OTT services domestically and premium pay, basic tier television and OTT services internationally, as well as content licensing and home entertainment.

●	Warner Bros. consists of the production, distribution and licensing of television programming and feature films, the distribution of home entertainment products and the production and distribution of games.

The~~Entertainment Group~~Latin America segment ~~provides video, internet, voice communication, and interactive and targeted advertising services to customers located in the United States or in U.S. territories.~~

~~The~~~~International segment~~ provides entertainment ~~services in Latin America~~ and wireless services in Mexico. Video entertainment services are provided to primarily residential customers using satellite technology. We utilize our regional and national networks in Mexico to provide consumer and business customers with wireless data and voice communication services. Our international subsidiaries conduct business in their local currency, and operating results are converted to U.S. dollars using official exchange rates (operations in countries with highly inflationary economies consideroutside of the U.S. ~~dollar as~~This segment contains the ~~functional currency).~~

following business units:

●	Vrio provides video services primarily to residential customers using satellite technology in Latin America and the Caribbean.

●	Mexico provides wireless service and equipment to customers in Mexico.

The~~WarnerMedia~~Xandr segment provides ~~global media~~advertising services and ~~entertainment~~includes AppNexus, an advertising technology company we acquired in August 2018. Xander services ~~through television networks and film, using its brands~~utilize data insights to ~~create, package~~develop and deliver ~~high-quality content worldwide. The~~targeted advertising across video and digital platforms. Certain revenues in this segment ~~consists of Turner, HBO~~are also reported by the Communications segment and ~~Warner Bros. businesses.~~

are eliminated upon consolidation.

AT&T INC.

~~JUNE 30, 2018~~

MARCH 31, 2019

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued

Dollars in millions except per share amounts

Corporate and Other ~~items~~ reconcile our segment results to consolidated operating income and income before income taxes, and include:

•●

Corporate, which consists of: (1) ~~operations that are~~businesses no longer integral to our operations or which we no longer actively market, (2) corporate support functions, ~~and operations,~~ (3) impacts of corporate-wide decisions for which the individual operating segments are not being evaluated, (4) the reclassification of the amortization of prior service credits, which we continue to report with segment operating expenses, to consolidated other income (expense) ~~– net~~-net and (5) the recharacterization of $150 of programming ~~cost~~intangible asset amortization, for released programming acquired in the Time Warner acquisition, which we continue to report ~~with~~within WarnerMedia segment operating expense, to consolidated amortization expense.

•●

Acquisition-related items which consists of items associated with the merger and integration of acquired businesses, including amortization of intangible assets.

•●

Certain significant items ~~which consists of~~ includes (1) employee separation charges associated with voluntary and/or strategic offers, (2) losses resulting from abandonment or impairment of assets and (3) other items for which the segments are not being evaluated.

•●

Eliminations and consolidations, which ~~remove~~(1) removes transactions involving dealings between ~~AT&T companies,~~our segments, including content licensing ~~with WarnerMedia.~~between WarnerMedia and Communications, and (2) includes adjustments for our reporting of the advertising business.

Interest expense and other income (expense) – net, are managed only on a total company basis and are, accordingly, reflected only in consolidated results.

Our domestic business strategies reflect bundled product offerings that increasingly cut across product lines and utilize our shared asset base. Therefore, asset information and capital expenditures by segment are not presented. Depreciation is allocated based on asset utilization by segment.

For the three months ended March 31, 2019
		Revenues		Operations and Support Expenses		EBITDA		Depreciation and Amortization		Operating Income (Loss)		Equity in Net Income (Loss) of Affiliates		Segment Contribution
Communications
Mobility	$	17,567	$	10,181	$	7,386	$	2,035	$	5,351	$	-	$	5,351
Entertainment Group		11,328		8,527		2,801		1,323		1,478		-		1,478
Business Wireline		6,498		4,040		2,458		1,235		1,223		-		1,223
Total Communications		35,393		22,748		12,645		4,593		8,052		-		8,052
WarnerMedia
Turner		3,443		2,136		1,307		60		1,247		25		1,272
Home Box Office		1,510		921		589		22		567		15		582
Warner Bros.		3,518		2,919		599		52		547		6		553
Other		(92)		17		(109)		9		(118)		21		(97)
Total WarnerMedia		8,379		5,993		2,386		143		2,243		67		2,310
Latin America
Vrio		1,067		866		201		169		32		-		32
Mexico		651		725		(74)		131		(205)		-		(205)
Total Latin America		1,718		1,591		127		300		(173)		-		(173)
Xandr		426		160		266		13		253		-		253
Segment Total		45,916		30,492		15,424		5,049		10,375	$	67	$	10,442
Corporate and Other
Corporate		209		513		(304)		169		(473)
Acquisition-related items		(42)		73		(115)		1,988		(2,103)
Certain significant items		-		248		(248)		-		(248)
Eliminations and consolidations		(1,256)		(938)		(318)		-		(318)
AT&T Inc.	$	44,827	$	30,388	$	14,439	$	7,206	$	7,233

AT&T INC. MARCH 31, 2019 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued Dollars in millions except per share amounts For the three months ended March 31, 2018
		Revenues		Operations and Support Expenses		EBITDA		Depreciation and Amortization		Operating Income (Loss)		Equity in Net Income (Loss) of Affiliates		Segment Contribution
Communications
Mobility	$	17,355	$	10,102	$	7,253	$	2,095	$	5,158	$	-	$	5,158
Entertainment Group		11,431		8,811		2,620		1,310		1,310		(1)		1,309
Business Wireline		6,747		4,016		2,731		1,170		1,561		(1)		1,560
Total Communications		35,533		22,929		12,604		4,575		8,029		(2)		8,027
WarnerMedia
Turner		112		74		38		1		37		27		64
Home Box Office		-		-		-		-		-		-		-
Warner Bros.		-		-		-		-		-		-		-
Other		-		8		(8)		-		(8)		(17)		(25)
Total WarnerMedia		112		82		30		1		29		10		39
Latin America
Vrio		1,354		1,001		353		205		148		-		148
Mexico		671		803		(132)		127		(259)		-		(259)
Total Latin America		2,025		1,804		221		332		(111)		-		(111)
Xandr		337		50		287		1		286		-		286
Segment Total		38,007		24,865		13,142		4,909		8,233	$	8	$	8,241
Corporate and Other
Corporate		333		735		(402)		23		(425)
Acquisition-related items		-		67		(67)		1,062		(1,129)
Certain significant items		-		180		(180)		-		(180)
Eliminations and consolidations		(302)		(4)		(298)		-		(298)
AT&T Inc.	$	38,038	$	25,843	$	12,195	$	5,994	$	6,201

AT&T INC.

~~JUNE 30, 2018~~

MARCH 31, 2019

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued

Dollars in millions except per share amounts

For the three months ended June 30, 2018
      Revenues
Operations
and Support
Expenses
   EBITDA
Depreciation
and
Amortization

Operating
Income (Loss)

Equity in Net
Income (Loss)
of
Affiliates

Segment
Contribution

Consumer Mobility
$ 14,869 $ 8,085 $ 6,784 $ 1,806 $ 4,978 $ - $ 4,978
Business Solutions
9,063 5,616 3,447 1,487 1,960 1 1,961
Entertainment Group
11,650 8,852 2,798 1,346 1,452 (20 ) 1,432
International
1,951 1,803 148 313 (165 ) 15 (150 )
WarnerMedia
1,275 794 481 30 451 (6 ) 445
Segment Total
38,808 25,150 13,658 4,982 8,676 $ (10 ) $ 8,666
Corporate and Other

Corporate
319 660 (341 ) 118 (459 )
Acquisition-related items
- 321 (321 ) 1,278 (1,599 )
Certain significant items
- 152 (152 ) - (152 )
Eliminations
(141 ) (141 ) - - -
AT&T Inc.
$ 38,986 $ 26,142 $ 12,844 $ 6,378 $ 6,466

For the six months ended June 30, 2018
      Revenues
Operations
and Support
Expenses
   EBITDA
Depreciation
and
Amortization

Operating
Income (Loss)

Equity in Net
Income (Loss)
of
Affiliates

Segment
Contribution

Consumer Mobility
$ 29,855 $ 16,609 $ 13,246 $ 3,613 $ 9,633 $ - $ 9,633
Business Solutions
18,179 11,210 6,969 2,945 4,024 - 4,024
Entertainment Group
23,227 17,791 5,436 2,658 2,778 (11 ) 2,767
International
3,976 3,607 369 645 (276 ) 15 (261 )
WarnerMedia
1,275 794 481 30 451 (6 ) 445
Segment Total
76,512 50,011 26,501 9,891 16,610 $ (2 ) $ 16,608
Corporate and Other

Corporate
653 1,395 (742 ) 141 (883 )
Acquisition-related items
- 388 (388 ) 2,340 (2,728 )
Certain significant items
- 332 (332 ) - (332 )
Eliminations
(141 ) (141 ) - - -
AT&T Inc.
$ 77,024 $ 51,985 $ 25,039 $ 12,372 $ 12,667

~~AT&T INC.~~

~~JUNE 30, 2018~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued~~

~~Dollars in millions except per share amounts~~

For the three months ended June 30, 2017
            Revenues
Operations
and Support
Expenses
      EBITDA
Depreciation
and
Amortization

Operating
Income (Loss)

Equity in Net
Income (Loss)
of
Affiliates

Segment
Contribution

Consumer Mobility
   $    15,091    $    8,636 $    6,455 $    1,716    $    4,739 $    - $    4,739
Business Solutions
      9,667       6,053    3,614    1,483       2,131    -    2,131
Entertainment Group
      12,661       9,561    3,100    1,458       1,642    (12 )    1,630
International
      2,026       1,772    254    311       (57 )    25    (32 )
Segment Total
      39,445       26,022    13,423    4,968       8,455 $    13 $    8,468
Corporate and Other

Corporate
      392       766    (374 )    9       (383 )
Acquisition-related items
      -       281    (281 )    1,170       (1,451 )
Certain significant items
      -       95    (95 )    -       (95 )
AT&T Inc.
   $    39,837    $    27,164 $    12,673 $    6,147    $    6,526

For the six months ended June 30, 2017
      Revenues
Operations
and Support
Expenses
   EBITDA
Depreciation
and
Amortization

Operating
Income (Loss)

Equity in Net
Income (Loss)
of
Affiliates

Segment
Contribution

Consumer Mobility
   $    29,897    $    17,196 $    12,701 $    3,432    $    9,269 $    - $    9,269
Business Solutions
      19,288       12,051    7,237    2,943       4,294    -    4,294
Entertainment Group
      25,262       19,166    6,096    2,878       3,218    (18 )    3,200
International
      3,955       3,531    424    601       (177 )    45    (132 )
Segment Total
      78,402       51,944    26,458    9,854       16,604 $    27 $    16,631
Corporate and Other

Corporate
      800       1,637    (837 )    48       (885 )
Acquisition-related items
      -       488    (488 )    2,372       (2,860 )
Certain significant items
      -       (23 )    23    -       23
AT&T Inc.
   $    79,202    $    54,046 $    25,156 $    12,274    $    12,882

~~AT&T INC.~~

~~JUNE 30, 2018~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued~~

~~Dollars in millions except per share amounts~~

The following table is a reconciliation of Segment ~~Contribution~~Contributions to “Income Before Income Taxes” reported on our consolidated statements of income.

            Three months ended          Six months ended
      June 30,       June 30,
            2018 2017             2018 2017
Consumer Mobility
   $            4,978 $         4,739    $            9,633 $         9,269
Business Solutions
      1,961 2,131       4,024 4,294
Entertainment Group
      1,432 1,630       2,767 3,200
International
      (150 ) (32 )       (261 ) (132 )
WarnerMedia
      445 -       445 -
Segment Contribution
      8,666 8,468       16,608 16,631
Reconciling Items:

Corporate and Other
      (459 ) (383 )       (883 ) (885 )
Merger and integration items
      (321 ) (281 )       (388 ) (488 )
Amortization of intangibles acquired
      (1,278 ) (1,170 )       (2,340 ) (2,372 )
Employee separation charges
      (133 ) (60 )       (184 ) (60 )
Gain on wireless spectrum transactions
      - 63       - 181
Natural disaster items
      - -       (104 ) -
Foreign currency devaluation
      (19 ) (98 )       (44 ) (98 )
Segment equity in net income of affiliates
      10 (13 )       2 (27 )
AT&T Operating Income
      6,466 6,526       12,667 12,882
Interest Expense
      2,023 1,395       3,794 2,688
Equity in net income (loss) of affiliates
      (16 ) 14       (7 ) (159 )
Other income (expense) - Net
      2,353 925       4,055 1,413
Income Before Income Taxes
   $    6,780 $ 6,070    $    12,921 $ 11,448

		Three months ended March 31,
		2019		2018
Communications	$	8,052	$	8,027
WarnerMedia		2,310		39
Latin America		(173)		(111)
Xandr		253		286
Segment Contribution		10,442		8,241
Reconciling Items:
Corporate and Other		(473)		(425)
Merger and integration items		(115)		(67)
Amortization of intangibles acquired		(1,988)		(1,062)
Employee separation charges		(248)		(51)
Natural disaster items		-		(104)
Foreign currency devaluation		-		(25)
Segment equity in net income of affiliates		(67)		(8)
Eliminations and consolidations		(318)		(298)
AT&T Operating Income		7,233		6,201
Interest Expense		2,141		1,771
Equity in net income (loss) of affiliates		(7)		9
Other income (expense) - net		286		1,702
Income Before Income Taxes	$	5,371	$	6,141

The following table presents intersegment revenues by segment.

Intersegment Reconciliation
	Three months ended March 31,
	2019		2018
Intersegment revenues
Communications	$	-	$	-
WarnerMedia		858		31
Latin America		-		-
Xandr		-		-
Total Intersegment Revenues		858		31
Consolidations		398		271
Eliminations and consolidations	$	1,256	$	302

AT&T INC.

MARCH 31, 2019

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued

Dollars in millions except per share amounts

NOTE 5. REVENUE RECOGNITION

~~As of January 1, 2018, we adopted FASB ASU~~

Revenue Categories
The following tables set forth reported revenue by category:

For the three months ended March 31, 2019
	Service Revenues
		Wireless		Advanced Data		Legacy Voice & Data		Subscription		Content		Advertising		Other		Equipment		Total
Communications
Mobility	$	13,725	$	-	$	-	$	-	$	-	$	67	$	-	$	3,775	$	17,567
Entertainment Group		-		2,070		683		7,724		-		350		501		-		11,328
Business Wireline		-		3,186		2,404		-		-		-		749		159		6,498
WarnerMedia
Turner		-		-		-		1,965		135		1,261		82		-		3,443
Home Box Office		-		-		-		1,334		173		-		3		-		1,510
Warner Bros.		-		-		-		21		3,332		10		155		-		3,518
Eliminations and Other		-		-		-		49		(152)		8		3		-		(92)
Latin America
Vrio		-		-		-		1,067		-		-		-		-		1,067
Mexico		442		-		-		-		-		-		-		209		651
Xandr		-		-		-		-		-		426		-		-		426
Corporate and Other		-		-		-		-		-		-		167		-		167
Eliminations and consolidations		-		-		-		-		(837)		(350)		(69)		-		(1,256)
Total Operating Revenues	$	14,167	$	5,256	$	3,087	$	12,160	$	2,651	$	1,772	$	1,591	$	4,143	$	44,827

For the three months ended March 31, 2018
	Service Revenues
		Wireless		Advanced Data		Legacy Voice & Data		Subscription		Content		Advertising		Other		Equipment		Total
Communications
Mobility	$	13,362	$	-	$	-	$	-	$	-	$	41	$	-	$	3,952	$	17,355
Entertainment Group		-		1,878		806		7,891		-		334		519		3		11,431
Business Wireline		-		3,043		2,865		-		-		-		669		170		6,747
WarnerMedia
Turner		-		-		-		98		-		14		-		-		112
Home Box Office		-		-		-		-		-		-		-		-		-
Warner Bros.		-		-		-		-		-		-		-		-		-
Eliminations and Other		-		-		-		-		-		-		-		-		-
Latin America
Vrio		-		-		-		1,354		-		-		-		-		1,354
Mexico		404		-		-		-		-		-		-		267		671
Xandr		-		-		-		-		-		337		-		-		337
Corporate and Other		-		-		-		-		-		-		333		-		333
Eliminations and consolidations		-		-		-		-		-		(334)		32		-		(302)
Total Operating Revenues	$	13,766	$	4,921	$	3,671	$	9,343	$	-	$	392	$	1,553	$	4,392	$	38,038

~~2014-09,~~17 “Revenue from Contracts with Customers (Topic 606),” as modified (ASC 606). With our adoption of ASC 606, we made a policy election to record certain regulatory fees, primarily Universal Service Fund (USF) fees, on a net basis. See the Notes to the Consolidated Financial Statements of our 2017 Annual Report on Form

~~10-K~~ ~~for additional information regarding our policies prior to adoption of ASC 606.~~

When implementing ASC 606, we utilized the practical expedient allowing us to reflect the aggregate effect of all contract modifications occurring before the beginning of the earliest period presented when allocating the transaction price to performance obligations.

~~Service and Equipment Revenues~~

Our products and services are offered to customers in service-only contracts and in contracts that bundle equipment used to access the services and/or with other service offerings. Service revenue is recognized when services are provided, based upon either usage (e.g., minutes of traffic/bytes of data processed) or period of time (e.g., monthly service fees). We record the sale of equipment when title has passed and the products are accepted by the customer. Some contracts have fixed terms and others are cancellable on a short-term basis (i.e.,~~month-to-month~~ ~~arrangements).~~

Revenues from transactions between us and our customers are recorded net of regulatory fees and taxes. Cash incentives given to customers are recorded as a reduction of revenue. Nonrefundable, upfront service activation and setup fees associated with service arrangements are deferred and recognized over the associated service contract period or customer life. We record the sale of equipment and services to customers as gross revenue when we are the principal in the arrangement and net of the associated costs incurred when we act as an agent in the arrangement.

AT&T INC.

~~JUNE 30, 2018~~

MARCH 31, 2019

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued

Dollars in millions except per share amounts

Our contracts allow for customers to frequently modify their arrangement, without incurring penalties in many cases. When a contract is modified, we evaluate the change in scope or price of the contract to determine if the modification should be treated as a new contract or if it should be considered a change of the existing contract. We generally do not have significant impacts from contract modifications.

~~Service-Only Contracts and Standalone Equipment Sales~~

Revenue is recognized as service is provided or when control has transferred. For devices sold through indirect channels (e.g., national dealers), revenue is recognized when the dealer accepts the device, not upon activation.

~~Arrangements with Multiple Performance Obligations~~

Revenue recognized from fixed term contracts that bundle services and/or equipment are allocated based on the standalone selling price of all required performance obligations of the contract (i.e., each item included in the bundle). Promotional discounts are attributed to each required component of the arrangement, resulting in recognition over the contract term. Standalone selling prices are determined by assessing prices paid for service-only contracts (e.g., arrangements where customers bring their own devices) and standalone device pricing.

We offer the majority of our customers the option to purchase certain wireless devices in installments over a specified period of time, and, in many cases, they may be eligible to trade in the original equipment for a new device and have the remaining unpaid balance paid or settled. For customers that elect these equipment installment payment programs, at the point of sale, we recognize revenue for the entire amount of revenue allocated to the customer receivable net of fair value of the

~~trade-in~~
right guarantee. The difference between the revenue recognized and the consideration received is recorded as a note receivable when the devices are not discounted and our right to consideration is unconditional. When installment sales include promotional discounts (e.g., “buy one get one free”), the difference between revenue recognized and consideration received is recorded as a contract asset to be amortized over the contract term.

Less commonly, we offer certain customers highly discounted devices when they enter into a minimum service agreement term. For these contracts, we recognize equipment revenue at the point of sale based on a standalone selling price allocation. The difference between the revenue recognized and the cash received is recorded as a contract asset that will amortize over the contract term.

~~For contracts that require the use of certain equipment in order to receive service (e.g., AT&TU-verse~~^® ~~and DIRECTV linear video services), we allocate the total transaction price to service if the equipment does not meet the criteria to be a distinct performance obligation.~~

~~Media Revenues~~

Media revenues are primarily derived from content production and distribution (i.e., content revenue), providing programming to distributors that have contracted to receive and distribute this programming to their subscribers (i.e., subscription revenue) and the sale of advertising on our networks and digital properties and the digital properties we manage and/or operate for others (i.e., advertising revenue).

~~AT&T INC.~~

~~JUNE 30, 2018~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued~~

~~Dollars in millions except per share amounts~~

~~Disaggregation of Revenue~~

~~The following tables set forth disaggregated reported revenue by category:~~

For the three months ended June 30, 2018

Consumer
Mobility

Business
Solutions

Entertainment
Group
         International          WarnerMedia       Corporate
and Other         Total
Wireless service
   $    11,853    $    1,829    $    -    $    417    $    - $    - $    14,099
Video entertainment
      -       -       8,331       1,254       -    -    9,585
Strategic services
      -       3,039       -       -       -    -    3,039
High-speed internet
      -       -       1,981       -       -    -    1,981
Legacy voice and data
      -       2,723       785       -       -    -    3,508
Content
      -       -       -       -       487    -    487
Subscription
      -       -       -       -       591    -    591
Advertising
      -       -       -       -       208    -    208
Other media revenues
      -       -       -       -       51    (1 )    50
Other service
      -       691       550       -       -    320    1,561
Wireless equipment
      3,016       584       -       280       -    -    3,880
Other equipment
      -       197       3       -       -    -    200
Eliminations
      -       -       -       -       (62 )    (141 )    (203 )
Total Operating Revenues
   $    14,869    $    9,063    $    11,650    $    1,951    $    1,275 $    178 $    38,986

~~AT&T INC.~~

~~JUNE 30, 2018~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued~~

~~Dollars in millions except per share amounts~~

For the six months ended June 30, 2018

Consumer
Mobility

Business
Solutions

Entertainment
Group
         International          WarnerMedia       Corporate
and Other       Total
Wireless service
   $    23,465    $    3,620    $    -    $    821    $    - $    - $    27,906
Video entertainment
      -       -       16,690       2,608       -    -    19,298
Strategic services
      -       6,109       -       -       -    -    6,109
High-speed internet
      -       -       3,859       -       -    -    3,859
Legacy voice and data
      -       5,561       1,604       -       -    -    7,165
Content
      -       -       -       -       487    -    487
Subscription
      -       -       -       -       591    -    591
Advertising
      -       -       -       -       208    -    208
Other media revenues
      -       -       -       -       51    (1 )    50
Other service
      -       1,360       1,069       -       -    653    3,082
Wireless equipment
      6,390       1,162       -       547       -    -    8,099
Other equipment
      -       367       5       -       -    1    373
Eliminations
      -       -       -       -       (62 )    (141 )    (203 )
Total Operating Revenues
   $    29,855    $    18,179    $    23,227    $    3,976    $    1,275 $    512 $            77,024

~~AT&T INC.~~

~~JUNE 30, 2018~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued~~

~~Dollars in millions except per share amounts~~

Deferred Customer Contract Acquisition and Fulfillment Costs

Costs to acquire customer contracts, including commissions on service activations, for our wireless, business wireline and video entertainment services, are deferred and amortized over the contract period or expected customer relationship life, which typically ranges from two to five years. Costs to fulfill customer contracts are deferred and amortized over periods ranging generally from four to five years, reflecting the estimated economic lives of the respective customer relationships, subject to an assessment of the recoverability of such costs. For contracts with an estimated amortization period of less than one year, we expense incremental costs immediately.

Our deferred customer contract acquisition costs and deferred customer contract fulfillment costs balances were ~~$2,764~~$4,297 and ~~$11,017~~$11,592 as of ~~June 30, 2018,~~March 31, 2019, respectively, of which ~~$1,250~~$2,143 and ~~$3,715~~$4,214 were included in Other current assets on our consolidated balance sheets. For the ~~six~~three months ended ~~June 30,~~March 31, 2019, we amortized $547 and $1,098 of these costs, respectively.

Our deferred customer contract acquisition costs and deferred customer contract fulfillment costs balances were $3,974 and $11,540 as of December 31, 2018, respectively, of which $1,901 and $4,090 were included in Other current assets on our consolidated balance sheets. For the three months ended March 31, 2018, we amortized ~~$595~~$263 and ~~$1,889~~$1,047 of these costs, respectively.

Contract Assets and Liabilities

A contract asset is recorded when revenue is recognized in advance of our right to bill and receive consideration (i.e., we must perform additional services or satisfy another performance obligation in order to bill and receive consideration). The contract asset will decrease as services are provided and billed. When consideration is received in advance of the delivery of goods or services, a contract liability is recorded. Reductions in the contract liability will be recorded as we satisfy the performance obligations.

The following table presents contract assets and liabilities at March 31, 2019 and December 31, 2018:

		March 31,		December 31,
		2019		2018

Contract asset	$	2,198	$	1,896
Contract liability		6,899		6,856

Our beginning of period contract liability recorded as customer contract revenue ~~recorded at or for the period ended June 30, 2018:~~


	~~June 30,~~
	~~2018~~

~~Contract asset~~	$	~~1,906~~
~~Contract liability~~		~~6,853~~

~~Beginning of period contract liability recorded as customer contract revenue during the period~~		~~3,839~~

during 2019 was $4,379.

Our consolidated balance ~~sheet~~sheets at ~~June 30,~~March 31, 2019 and December 31, 2018 included approximately ~~$1,257~~$1,462 and $1,244, respectively, for the current portion of our contract asset in “Other current assets” and ~~$5,723~~$5,715 and $5,752, respectively, for the current portion of our contract liability in “Advanced billings and customer deposits.”

~~AT&T INC.~~

~~JUNE 30, 2018~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued~~

~~Dollars in millions except per share amounts~~

Remaining Performance Obligations

Remaining performance obligations represent services we are required to provide to customers under bundled or discounted arrangements, which are satisfied as services are provided over the contract term. In determining the transaction price allocated, we do not includenon-recurring charges and estimates for usage, nor do we consider arrangements with an original expected duration of less than one year, which are primarily prepaid wireless, video and residential internet agreements.

Remaining performance obligations associated with business contracts reflect recurring charges billed, adjusted to reflect estimates for sales incentives and revenue adjustments. Performance obligations associated with wireless contracts are estimated using a portfolio approach in which we review all relevant promotional activities, calculating the remaining performance obligation using the average service component for the portfolio and the average device price. As of ~~June 30, 2018,~~March 31, 2019, the aggregate amount of the transaction price allocated to remaining performance obligations was ~~$41,838,~~$39,627 of which we expect to recognize approximately 80% ~~over~~by the ~~next two years,~~end of 2020, with the balance recognized thereafter.

The aggregate amount of transaction price allocated to remaining performance obligations included $13,623 related to WarnerMedia operations, which relates to the licensing of theatrical and television content that will be made available to customers at some point in the future. It excludes advertising and subscription arrangements that have an expected contract duration of one year or less.

~~Comparative Results~~

Prior to 2018, revenue recognized from contracts that bundle services and equipment was limited to the lesser of the amount allocated based on the relative selling price of the equipment and service already delivered or the consideration received from the customer for the equipment and service already delivered. Our prior accounting also separately recognized regulatory fees as operating revenue when received and as an expense when incurred. Sales commissions were previously expensed as incurred.

AT&T INC.

~~JUNE 30, 2018~~

MARCH 31, 2019

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued

Dollars in millions except per share amounts

~~The following table presents our reported results under ASC 606 and our pro forma results using the historical accounting method:~~

For the three months ended June 30, 2018
As
Reported
   Historical
Accounting
Method
Consolidated Statements of Income:

Service Revenues
   $                     33,773    $                     35,163
Equipment Revenues
   4,080    3,611
Media Revenues
   1,133    1,135
Total Operating Revenues
   38,986    39,909
Other cost of revenue
   7,632    8,535
Selling, general and administrative expenses
   8,684    9,267
Total Operating Expenses
   32,520    34,006
Operating income
   6,466    5,903
Income before income taxes
   6,780    6,217
Income tax expense
   1,532    1,394
Net income
   5,248    4,823
Net income attributable to AT&T
   5,132    4,713
Basic Earnings per Share Attributable to AT&T
   $ 0.81    $ 0.74
Diluted Earnings per Share Attributable to AT&T
   $ 0.81    $ 0.74
For the six months ended June 30, 2018

Consolidated Statements of Income:

Service Revenues
   $ 67,419    $ 70,232
Equipment Revenues
   8,472    7,472
Media Revenues
   1,133    1,135
Total Operating Revenues
   77,024    78,839
Other cost of revenue
   15,564    17,396
Selling, general and administrative expenses
   16,581    17,764
Total Operating Expenses
   64,357    67,372
Operating income
   12,667    11,467
Income before income taxes
   12,921    11,721
Income tax expense
   2,914    2,620
Net income
   10,007    9,101
Net income attributable to AT&T
   9,794    8,900
Basic Earnings per Share Attributable to AT&T
   $ 1.56    $ 1.42
Diluted Earnings per Share Attributable to AT&T
   $ 1.56    $ 1.42
At June 30, 2018

Consolidated Balance Sheets:

Other current assets
   14,305    11,961
Other Assets
   23,941    21,983
Accounts payable and accrued liabilities
   35,488    35,667
Advanced billings and customer deposits
   5,914    5,978
Deferred income taxes
   59,665    58,585
Other noncurrent liabilities
   25,017    24,832
Retained earnings
   56,555    53,313
Accumulated other comprehensive income
   5,716    5,723
Noncontrolling interest
   1,150    1,103

~~AT&T INC.~~

~~JUNE 30, 2018~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued~~

~~Dollars in millions except per share amounts~~

NOTE 6. PENSION AND POSTRETIREMENT BENEFITS

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

~~In 2013,~~

During the quarter, for certain management participants in our pension plan who terminated employment before April 1, 2019, we ~~made~~offered the option of more favorable 2018 interest rates and mortality basis for determining lump-sum distributions. For the quarter ended March 31, 2019 we recorded special termination benefits of $93 associated with this offer in “Other income (expense) – net.” During the first quarter, we also committed to a ~~voluntary contribution of a preferred equity interest in AT&T Mobility II LLC,~~plan to offer certain terminated vested pension plan participants the primary holding company for our domestic wireless business, to the trust used to pay pension benefits under our qualified pension plans. The preferred equity interest had a value of $8,829 at June 30, 2018. The trust is entitledopportunity to receive ~~cumulative cash distributions of $560 per annum, which are distributed quarterly by AT&T Mobility II LLC to the trust,~~their benefit in equal amounts and accounted for as contributions. We distributed $280 to the trust during the six months ended June 30, 2018. So long as we make the distributions, we will have no limitations on our ability to declare a dividend or repurchase shares. This preferred equity interest is a plan asset under ERISA and is recognized as such in the plan’s separate financial statements. However, because the preferred equity interest is not unconditionally transferable to an unrelated party, it is not reflected in plan assets in our consolidated financial statements and instead has been eliminated in consolidation.

lump-sum amount.

We recognize actuarial gains and losses on pension and postretirement plan assets in our consolidated results as a component of other income (expense) – net at our annual measurement date of December 31, unless earlier remeasurements are required. During the first quarter of 2018, a substantive plan change involving the frequency of future health reimbursement account credit increases was communicated to our retirees. During the second quarter of 2018, a written plan change involving the ability of certain participants ofWe anticipate total distributions from the pension plan will exceed the threshold of service and interest costs for 2019, requiring us to ~~receive their benefit in alump-sum~~ ~~amount upon retirement was communicated to~~follow settlement accounting. We have remeasured our employees. These plan changes resulted in additional prior service credits recognized in other comprehensive income, reducing our liability by $752, and increasing our liability by $50 in the first and second quarters of 2018, respectively. Such credits amortize through earnings over a period approximating the average service period to full eligibility. These plan changes also triggered a remeasurement of our postretirement and pension benefit obligations ~~resulting in an actuarial gain of $930 in the first quarter~~at March 31, 2019, and ~~$1,796 in the second quarter of 2018. As a result of the plan changes and remeasurements,~~will remeasure our pension ~~and postretirement~~ benefit obligation at each quarter-end of 2019 as we expect settlements to occur during each quarter.

As part of our first-quarter 2019 remeasurement, we decreased ~~$1,746~~the weighted-average discount rate used to measure our pension benefit obligation from 4.50% to 4.10%. The discount rate in effect for determining pension service and ~~$1,682,~~interest costs after remeasurement is 4.30% and 3.70%, respectively.

The remeasurement reflects an actual return on plan assets of 5.80% (quarterly rate) relative to our expected long-term rate of 7.00% (annual rate).

~~AT&T INC.~~

~~JUNE 30, 2018~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued~~

~~Dollars in millions except per share amounts~~

The following table details pension and postretirement benefit costs included in the accompanying consolidated statements of income. The service cost component of net periodic pension cost (benefit) is recorded in operating expenses in the consolidated statements of income while the remaining components are recorded in ~~other~~“Other income (expense) – net. ~~Service costs are eligible for capitalization as part of internal construction projects, providing a small reduction~~”

	Three months ended
	March 31,
	2019		2018
Pension cost:
Service cost – benefits earned during the period	$	240	$	291
Interest cost on projected benefit obligation		549		487
Expected return on assets		(851)		(760)
Amortization of prior service credit		(33)		(30)
Actuarial (gain) loss		432		-
Net pension (credit) cost	$	337	$	(12)

Postretirement cost:
Service cost – benefits earned during the period	$	18	$	29
Interest cost on accumulated postretirement benefit obligation		186		191
Expected return on assets		(56)		(77)
Amortization of prior service credit		(426)		(397)
Actuarial (gain) loss		-		(930)
Net postretirement (credit) cost	$	(278)	$	(1,184)

Combined net pension and postretirement (credit) cost	$	59	$	(1,196)

AT&T INC.

MARCH 31, 2019

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued

Dollars in ~~the net expense recorded.~~

      Three months ended    Six months ended
   June 30,    June 30,
      2018    2017    2018    2017
Pension cost:

Service cost – benefits earned during the period
   $             284    $             282    $             575    $             564
Interest cost on projected benefit obligation
   504    484    991    968
Expected return on assets
   (755)    (784)    (1,515)    (1,567)
Amortization of prior service credit
   (29)    (31)    (59)    (62)
Actuarial (gain) loss
   (1,796)    -    (1,796)    -
Net pension (credit) cost
   $ (1,792)    $ (49)    $ (1,804)    $ (97)

Postretirement cost:

Service cost – benefits earned during the period
   $ 26    $ 34    $ 55    $ 75
Interest cost on accumulated postretirement benefit obligation
   195    202    386    424
Expected return on assets
   (75)    (79)    (152)    (159)
Amortization of prior service credit
   (413)    (366)    (810)    (702)
Actuarial (gain) loss
   -    (259)    (930)    (259)
Net postretirement (credit) cost
   $ (267)    $ (468)    $ (1,451)    $ (621)

Combined net pension and postretirement (credit) cost
   $ (2,059)    $ (517)    $ (3,255)    $ (718)

As part of our first- and second-quarter 2018 remeasurements, we modified the weighted-average discount rate used to measure our benefit obligations increasing the rate to 4.10% for the postretirement obligation and to 4.30% for the pension obligation. The discount rate in effect for determining service and interest costs after remeasurement is 4.30% and 3.70%, respectively, for postretirement and 4.40% and 4.00% for pension. As a result of our plan changes and remeasurements, the total estimated prior service credits that will be amortized from accumulated OCI into net periodic benefit cost over the second half of 2018 is $882 ($665 net of tax) for postretirement benefits.

millions except per share amounts

We also provide senior- and middle-management employees with nonqualified, unfunded supplemental retirement and savings plans. For the ~~second~~first quarter ended ~~2018~~2019 and ~~2017,~~2018, net supplemental pension benefits costs not included in the table above were ~~$21~~$25 and ~~$23. For the first six months of 2018 and 2017, net supplemental pension benefit costs were $42 and $45.~~

$21.

~~AT&T INC.~~

~~JUNE 30, 2018~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued~~

~~Dollars in millions except per share amounts~~

NOTE 7. FAIR VALUE MEASUREMENTS AND DISCLOSURE

The Fair Value Measurement and Disclosure framework provides a three-tiered fair value hierarchy ~~that gives highest priority~~based on the reliability of the inputs used to ~~unadjusted~~determine fair value. Level 1 refers to fair values determined based on quoted prices in active markets for identical ~~assets or liabilities (Level 1 measurements)~~assets. Level 2 refers to fair values estimated using significant other observable inputs and ~~the lowest priority to~~Level 3 includes fair values estimated using significant unobservable ~~inputs (Level 3 measurements). The three levels of the fair value hierarchy are described below:~~


~~Level 1~~		~~Inputs to the valuation methodology are unadjusted quoted prices for identical assets or liabilities in active markets that we have the ability to access.~~

~~Level 2~~		~~Inputs to the valuation methodology include:~~ ~~● Quoted prices for similar assets and liabilities in active markets.~~ ~~● Quoted prices for identical or similar assets or liabilities in inactive markets.~~ ~~● Inputs other than quoted market prices that are observable for the asset or liability.~~ ~~● Inputs that are derived principally from or corroborated by observable market data by correlation or other means.~~

~~Level 3~~		~~Inputs to the valuation methodology are unobservable and significant to the fair value measurement.~~ ~~● Fair value is often based on developed models in which there are few, if any, external observations.~~

inputs.

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

The valuation methodologies described above may produce a fair value calculation that may not be indicative of future net realizable value or reflective of future fair values. We believe our valuation methods are appropriate and consistent with other market participants. The use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different fair value measurement at the reporting date. There have been no changes in the methodologies used since December 31, ~~2017.~~

2018.

Long-Term Debt and Other Financial Instruments

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

      June 30, 2018    December 31, 2017
      Carrying
Amount    Fair
Value    Carrying
Amount    Fair
Value
Notes and debentures¹
   $         180,209    $         182,732    $         162,526    $         171,938
Commercial paper
   8,139    8,139    -    -
Bank borrowings
   15    15    2    2
Investment securities²
   3,511    3,511    2,447    2,447

¹~~Includes credit agreement borrowings.~~

² ~~Excludes investments accounted for under the equity method.~~

		March 31, 2019				December 31, 2018
		Carrying		Fair		Carrying		Fair
		Amount		Value		Amount		Value
Notes and debentures¹		$	170,532	$	179,576	$	171,529	$	172,287
Commercial paper			2,957		2,957		3,048		3,048
Bank borrowings			4		4		4		4
Investment securities²			3,606		3,606		3,409		3,409
¹	Includes credit agreement borrowings.
²	Excludes investments accounted for under the equity method.

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

AT&T INC.

~~JUNE 30, 2018~~

MARCH 31, 2019

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued

Dollars in millions except per share amounts

Following is the fair value leveling for investment securities that are measured at fair value and derivatives as of ~~June 30, 2018~~March 31, 2019 and December 31, ~~2017.~~2018. Derivatives designated as hedging instruments are reflected as “Other assets,” “Other noncurrent liabilities” and, for a portion of interest rate swaps, “Other current assets” on our consolidated balance sheets.

      June 30, 2018
      Level 1    Level 2    Level 3    Total
Equity Securities

Domestic equities
   $         1,252    $             -    $             -    $         1,252
International equities
   304    -    -    304
Fixed income equities
   149    -    -    149
Available-for-Sale Debt Securities
   -    890    -    890
Asset Derivatives

Cross-currency swaps
   -    1,216    -    1,216
Foreign exchange contracts
   -    55    -    55
Liability Derivatives

Interest rate swaps
   -    (89)    -    (89)
Cross-currency swaps
   -    (1,506)    -    (1,506)

      December 31, 2017
      Level 1    Level 2    Level 3    Total
Equity Securities

Domestic equities
   $         1,142    $             -    $             -    $         1,142
International equities
   321    -    -    321
Fixed income equities
   -    152    -    152
Available-for-Sale Debt Securities
   -    581    -    581
Asset Derivatives

Interest rate swaps
   -    17    -    17
Cross-currency swaps
   -    1,753    -    1,753
Liability Derivatives

Interest rate swaps
   -    (31)    -    (31)
Cross-currency swaps
   -    (1,290)    -    (1,290)

	March 31, 2019
	Level 1		Level 2		Level 3		Total
Equity Securities
Domestic equities	$	1,092	$	-	$	-	$	1,092
International equities		263		-		-		263
Fixed income equities		208		-		-		208
Available-for-Sale Debt Securities		-		989		-		989
Asset Derivatives
Interest rate swaps		-		2		-		2
Cross-currency swaps		-		427		-		427
Foreign exchange contracts		-		87		-		87
Liability Derivatives
Interest rate swaps		-		(13)		-		(13)
Cross-currency swaps		-		(2,697)		-		(2,697)
Foreign exchange contracts		-		(6)		-		(6)

	December 31, 2018
	Level 1		Level 2		Level 3		Total
Equity Securities
Domestic equities	$	1,061	$	-	$	-	$	1,061
International equities		256		-		-		256
Fixed income equities		172		-		-		172
Available-for-Sale Debt Securities		-		870		-		870
Asset Derivatives
Cross-currency swaps		-		472		-		472
Foreign exchange contracts		-		87		-		87
Liability Derivatives
Interest rate swaps		-		(39)		-		(39)
Cross-currency swaps		-		(2,563)		-		(2,563)
Foreign exchange contracts		-		(2)		-		(2)

Investment Securities

Our investment securities include both equity and debt securities that are measured at fair value, as well as equity securities without readily determinable fair values. A substantial portion of the fair values of our investment securities are estimated based on quoted market prices. Investments in equity securities not traded on a national securities exchange are valued at cost, less any impairment, and adjusted for changes resulting from observable, orderly transactions for identical or similar securities. Investments in debt securities not traded on a national securities exchange are valued using pricing models, quoted prices of securities with similar characteristics or discounted cash flows.

~~Upon the adoption of ASU~~

~~2016-01,~~21 we reclassified $658 of such unrealized gains and losses on equity securities to retained earnings and beginning in 2018, gains and losses, both realized and unrealized, on equity securities measured at fair value are included in “Other income (expense) – net” in the consolidated statements of income using the specific identification method.

AT&T INC.

~~JUNE 30, 2018~~

MARCH 31, 2019

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued

Dollars in millions except per share amounts

The components comprising total gains and losses on equity securities are as follows:

      Three months ended    Six months ended
   June 30,    June 30,
      2018 2017    2018 2017
Total gains (losses) recognized on equity securities
   $             21 $             14    $             8 $         103
Gains (Losses) recognized on equity securities sold
   (3 ) -    49 11
Unrealized gains (losses) recognized on equity securities held at end of period
   24 14    (41 ) 92

~~Debt~~

	Three months ended
	March 31,
	2019		2018
Total gains (losses) recognized on equity securities	$	160	$	(13)
Gains (Losses) recognized on equity securities sold		86		52
Unrealized gains (losses) recognized on equity securities held at end of period		74		(65)

At March 31, 2019, available-for-sale debt securities ~~of $34~~totaling $989 have maturities ofas follows - less than one ~~year, $136 within~~year: $46; one to three ~~years, $117 within~~years: $178; three to five ~~years and $603~~years: $98; for five or more ~~years.~~

years: $667.

Our cash equivalents (money market securities), short-term investments (certificate and time deposits) and nonrefundable customer deposits are recorded at amortized cost, and the respective carrying amounts approximate fair values. Short-term investments and nonrefundable customer deposits are recorded in “Other current assets” and our investment securities are recorded in “Other Assets” on the consolidated balance sheets.

Derivative Financial Instruments

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

Fair Value HedgingWe designate ourfixed-to-floating interest rate swaps as fair value hedges. The purpose of these swaps is to manage interest rate risk by managing our mix of fixed-rate and floating-rate debt. These swaps involve the receipt of fixed-rate amounts for floating interest rate payments over the life of the swaps without exchange of the underlying principal amount.

We also designate some of our foreign exchange contracts as fair value hedges. The purpose of these contracts is to hedge currency risk associated with foreign-currency-denominated operating assets and liabilities.

Accrued and realized gains or losses from ~~interest rate swaps~~fair value hedges impact ~~interest expense in~~the same category on the consolidated statements of ~~income.~~income as the item being hedged. Unrealized gains on ~~interest rate swaps~~fair value hedges are recorded at fair market value as assets, and unrealized losses ~~on interest rate swaps~~ are recorded at fair market value as liabilities. Changes in the fair ~~values~~value of derivative instruments designated as fair value hedges are offset against the ~~interest rate swaps are exactly offset by changes~~change in ~~the~~ fair value of the ~~underlying debt. Gains~~hedged assets or ~~losses realized upon early termination of our fair value hedges are recognized in interest expense.~~liabilities through earnings. In the ~~six~~three months ended ~~June 30,~~March 31, 2019 and 2018, ~~and June 30, 2017,~~ no ineffectiveness was measured on ~~interest rate swaps designated as~~ fair value ~~hedges.~~

hedges.

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

We also designate some of our foreign exchange contracts as cash flow hedges. The purpose of these contracts is to hedge currency risk associated with variability in anticipated foreign-currency-denominated cash flows, such as unremitted or forecasted royalty and license fees owed to WarnerMedia’s domestic companies for the sale or anticipated sale of U.S. copyrighted products abroad or cash flows for certain film production costs denominated in a foreign currency.

AT&T INC.

MARCH 31, 2019

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued

Dollars in millions except per share amounts

Unrealized gains on derivatives designated as cash flow hedges are recorded at fair value as assets, and unrealized losses ~~on derivatives designated as cash flow hedges~~ are recorded at fair value as liabilities. For derivative instruments designated as cash flow hedges, the effective portion is reported as a component of accumulated OCI until reclassified into ~~interest expense~~the consolidated statements of income in the same period the hedged transaction affects earnings. The gain or loss on the ineffective portion is recognized as “Other income (expense) – net” in the consolidated statements of income in each period. We evaluate the effectiveness of our ~~cross-currency swaps~~cash flow hedges each quarter. In the ~~six~~three months ended ~~June 30,~~March 31, 2019 and 2018, ~~and June 30, 2017,~~ no ineffectiveness was measured on ~~cross-currency swaps designated as~~ cash flow hedges.

~~AT&T INC.~~

~~JUNE 30, 2018~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued~~

~~Dollars in millions except per share amounts~~

Periodically, we enter into and designate interest rate locks to partially hedge the risk of changes in interest payments attributable to increases in the benchmark interest rate during the period leading up to the probable issuance of fixed-rate debt. We designate our interest rate locks as cash flow hedges. Gains and losses when we settle our interest rate locks are amortized into income over the life of the related debt, except where a material amount is deemed to be ineffective, which would be immediately reclassified to “Other income (expense) – net” in the consolidated statements of income. Over the next 12 months, we expect to reclassify ~~$60~~$63 from accumulated OCI to interest expense due to the amortization of net losses on historical interest rate locks.

Net Investment HedgingWe ~~hedge~~have designated €700 million aggregate principal amount of debt as a ~~portion~~hedge of the ~~exchange risk involved~~variability of some of the Euro-denominated net investments of WarnerMedia. The gain or loss on the debt that is designated as, and is effective as, an economic hedge of the net investment in ~~anticipation of highly probable~~a foreign ~~currency-denominated transactions. In anticipation of these transactions, we often enter into foreign exchange contracts to provide~~operation is recorded as a currency ~~at a fixed rate. Gains and losses at the time we settle or take delivery~~translation adjustment within accumulated other comprehensive income, net on our designated foreign exchange contracts are amortized into income in the same period the hedged transaction affects earnings, except where an amount is deemed to be ineffective, which would be immediately reclassified to “Other income (expense) – net” in the consolidated ~~statements of income. In the six months ended June 30, 2018 and June 30, 2017, no ineffectiveness was measured on foreign exchange contracts designated as cash flow hedges.~~

balance sheet.

Collateral and Credit-Risk Contingency We have entered into agreements with our derivative counterparties establishing collateral thresholds based on respective credit ratings and netting agreements. At ~~June 30, 2018,~~March 31, 2019, we had posted collateral of ~~$580~~$334 (a deposit asset) and held collateral of ~~$687~~$166 (a receipt liability). Under the agreements, if AT&T’s credit rating had been downgraded one rating level by Fitch Ratings, before the final collateral exchange in ~~June,~~March, we would have been required to post additional collateral of ~~$138.~~$175. If AT&T’s credit rating had been downgraded four ratings levels by Fitch Ratings, two levels by S&P, and two levels by Moody’s, we would have been required to post additional collateral of $1,360. If DIRECTV Holdings LLC’s credit rating had been downgraded belowBBB- ~~(S&P),~~ by S&P, we would have been required to post additional collateral of ~~$199.~~$258. At December 31, ~~2017,~~2018, we had posted collateral of ~~$495~~$1,675 (a deposit asset) and held collateral of ~~$968~~$103 (a receipt liability). We do not offset the fair value of collateral, whether the right to reclaim cash collateral (a receivable) or the obligation to return cash collateral (a payable) exists, against the fair value of the derivative instruments.

Following are the notional amounts of our outstanding derivative positions:

      June 30,
2018    December 31,
2017
Interest rate swaps
   $             7,333    $             9,833
Cross-currency swaps
   36,092    38,694
Foreign exchange contracts
   2,399    -
Total
   $ 45,824    $ 48,527

	March 31,		December 31,
	2019		2018
Interest rate swaps	$	1,633	$	3,483
Cross-currency swaps		42,192		42,192
Foreign exchange contracts		1,238		2,094
Total	$	45,063	$	47,769

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

Effect of Derivatives on the Consolidated Statements of Income

      Three months ended    Six months ended
   June 30,    June 30,
Fair Value Hedging Relationships    2018    2017    2018    2017
Interest rate swaps (Interest expense):

Gain (Loss) on interest rate swaps
   $                   (9)    $                 (23)    $                 (62)    $                 (48)
Gain (Loss) on long-term debt
   9    23    62    48

Effect of Derivatives on the Consolidated Statements of Income
	Three months ended
	March 31,
Fair Value Hedging Relationships	2019		2018
Interest rate swaps (Interest expense):
Gain (Loss) on interest rate swaps	$	24	$	(53)
Gain (Loss) on long-term debt		(24)		53

AT&T INC.

MARCH 31, 2019

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued

Dollars in millions except per share amounts

In addition, the net swap settlements that accrued and settled in the quarter ended ~~June 30~~March 31 were offset against interest expense.

~~AT&T INC.~~

~~JUNE 30, 2018~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued~~

~~Dollars in millions except per share amounts~~

      Three months ended    Six months ended
   June 30,    June 30,
Cash Flow Hedging Relationships    2018    2017    2018    2017
Cross-currency swaps:

Gain (Loss) recognized in accumulated OCI
   $             (533)    $             (717)    $             321    $             (697)
Interest rate locks:

Gain (Loss) recognized in accumulated OCI
   -    (79)    -    (79)
Interest income (expense) reclassified from accumulated OCI into income
   (14)    (14)    (29)    (29)

	Three months ended
	March 31,
Cash Flow Hedging Relationships	2019		2018
Cross-currency swaps:
Gain (Loss) recognized in accumulated OCI	$	168	$	854
Foreign exchange contracts:
Gain (Loss) recognized in accumulated OCI		(7)		-
Other income (expense) - net reclassified from accumulated OCI into income		3		-
Interest rate locks:
Interest income (expense) reclassified from accumulated OCI into income		(16)		(15)

NOTE 8. ACQUISITIONS, DISPOSITIONS AND OTHER ADJUSTMENTS

Acquisitions

Time WarnerOn June 14, 2018, we completed our acquisition of Time Warner, a leader in media and entertainment whose major businesses encompass an array of some of the most respected media brands. The deal combines Time Warner’s vast library of content and ability to create new premium content for audiences around the world with our extensive customer relationships and distribution, one of the ~~world’s~~world's largestpay-TV subscriber bases and scale in TV, mobile and broadband distribution. We expect that the transaction will advance ourdirect-to-consumer efforts and provide us with the ability to develop innovative new offerings.

~~Under~~

In July 2018, the ~~merger agreement, each share~~U.S. Department of ~~Time Warner stock was exchanged~~Justice (DOJ) appealed the U.S. District Court’s decision permitting the merger. On February 26, 2019, the D.C. Circuit unanimously affirmed our win. AT&T’s representations to the DOJ regarding its operation of Turner expired on February 28, 2019. The DOJ did not ask the D.C. Circuit to rehear its appeal before the applicable April 12, 2019 deadline, and it stated publicly on February 26, 2018 that “[t]he department has no plans to seek further review” of the D.C. Circuit’s decision. The DOJ’s deadline to file a petition for ~~$53.75 cash plus 1.437 shares~~writ of our common stock. After adjustment for shares issued to trusts consolidated by AT&T, share-based payment arrangements and fractional shares, which were settled in cash, AT&T issued 1,125,517,510 shares to Time Warner shareholders, giving them an approximate 16% stake incertiorari with the ~~combined company. Based on our $32.52 per share closing stock price on June 14, 2018, we~~United States Supreme Court is May 28, 2019.

We paid Time Warner shareholders $36,599 in AT&T stock and $42,100 in cash. Total consideration, including share-based payment arrangements and other adjustments totaled $79,114. On July 12, 2018, the U.S. Department of Justice (DOJ) appealed the U.S. District Court’s decision permitting the merger. We believe the DOJ’s appeal is without merit and we will continue to vigorously defend our legal position in the appellate court.

~~Our second-quarter 2018 operating results include the results of~~$79,358, excluding Time ~~Warner following the acquisition date.~~Warner’s net debt at acquisition. The fair values of the assets acquired and liabilities assumed were preliminarily determined using the income, cost and market approaches. The fair value measurements were primarily based on significant inputs that are not observable in the market and thus represent a Level 3 measurement as defined in ASC 820, “Fair Value Measurement,” other than cash and long-term debt acquired in the acquisition. The income approach was primarily used to value the intangible assets, consisting primarily of distribution network, released TV and film content,in-place advertising network, trade names, and franchises. The income approach estimates fair value for an asset based on the present value of cash flow projected to be generated by the asset. Projected cash flow is discounted at a required rate of return that reflects the relative risk of achieving the cash flow and the time value of money. The cost approach, which estimates value by determining the current cost of replacing an asset with another of equivalent economic utility, was used, as appropriate, for plant, property and equipment. The cost to replace a given asset reflects the estimated reproduction or replacement cost for the property, less an allowance for loss in value due to depreciation. ~~Our June 30, 2018, consolidated balance sheet includes the assets and liabilities of Time Warner, which have been measured at fair value.~~

AT&T INC.

~~JUNE 30, 2018~~

MARCH 31, 2019

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued

Dollars in millions except per share amounts



~~Assets acquired~~
~~Cash~~	$	~~1,655~~
~~Accounts receivable~~		~~9,166~~
~~All other current assets~~		~~3,405~~
~~Noncurrent inventory and theatrical film and television production costs~~		~~5,778~~
~~Property, plant and equipment~~		~~4,699~~
~~Intangible assets subject to amortization~~
~~Distribution network~~		~~17,480~~
~~Released television and film content~~		~~11,322~~
~~Trademarks and trade names~~		~~18,100~~
~~Other~~		~~10,290~~
~~Investments and other assets~~		~~9,669~~
~~Goodwill~~		~~38,102~~

~~Total assets acquired~~		~~129,666~~


~~Liabilities assumed~~
~~Current liabilities, excluding current portion of long-term debt~~		~~8,513~~
~~Long-term debt~~		~~22,846~~
~~Other noncurrent liabilities~~		~~19,192~~

~~Total liabilities assumed~~		~~50,551~~

~~Net assets acquired~~		~~79,115~~

~~Noncontrolling interest~~		(1	)

~~Aggregate value of consideration paid~~	$	~~79,114~~

The following table summarizes the preliminary estimated fair values of the Time Warner assets acquired and liabilities assumed and related deferred income taxes as of the acquisition date:

Assets acquired
Cash	$	1,889
Accounts receivable		9,052
All other current assets		2,913
Noncurrent inventory and theatrical film and television production costs		5,591
Property, plant and equipment		4,785
Intangible assets subject to amortization
Distribution network		18,040
Released television and film content		10,806
Trademarks and trade names		18,081
Other		10,300
Investments and other assets		9,449
Goodwill		38,569
Total assets acquired		129,475

Liabilities assumed
Current liabilities, excluding current portion of long-term debt		8,303
Debt maturing within one year		4,471
Long-term debt		18,394
Other noncurrent liabilities		18,948
Total liabilities assumed		50,116
Net assets acquired		79,359
Noncontrolling interest		(1)
Aggregate value of consideration paid	$	79,358

These estimates are preliminary in nature and subject to adjustments, which could be material. Any necessary adjustments will be finalized within one year from the date of acquisition. Substantially all the receivables acquired are expected to be collectible. We have not identified any material unrecordedpre-acquisition contingencies where the related asset or liability, or an impairment is probable and the amount can be reasonably estimated. Goodwill is calculated as the difference between the acquisition date fair value of the consideration transferred and the fair value of the net assets acquired, and represents the future economic benefits that we expect to achieve as a result of the acquisition. Prior to the finalization of the purchase price allocation, if information becomes available that would indicate it is probable that ~~such~~unknown events had occurred and the amounts can be reasonably estimated, such items will be included in the final purchase price allocation and may change goodwill. Purchased goodwill is not expected to be deductible for tax purposes. As we finalize the valuation of assets acquired and liabilities assumed, we will determine to which reporting units within the WarnerMedia segment any changes in goodwill should be recorded.

~~Excluded from the table above are commitments of approximately $35,000 for future purchases primarily related to network programming obligations, including contracts to license sports programming.~~

~~Due to the proximity of the closing of this acquisition to the end of the quarter, we were not able to provide the requisite combined pro forma financial information.~~

~~Held-for-Sale~~25

In June 2018, we entered into an agreement to sell 31 of our data centers to Brookfield Infrastructure Partners (Brookfield) for $1,100. We expect the transaction to close within the next six to eight months, subject to customary closing conditions.

~~We applied~~

~~held-for-sale~~ treatment to the assets associated with the data centers to be sold, which primarily consist of net property, plant and equipment of approximately $279 and goodwill of $236. These assets are included in “Other current assets,” on our June 30, 2018 consolidated balance sheet.

AT&T INC.

~~JUNE 30, 2018~~

MARCH 31, 2019

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued

Dollars in millions except per share amounts

NOTE 9. SALES OF ~~EQUIPMENT INSTALLMENT~~ RECEIVABLES

As described further below, we have agreements with various third-party financial institutions pertaining to the sale of certain types of our accounts receivable. The most significant of these programs are discussed in detail below and generally consist of (1) receivables arising from equipment installment plans, which are sold for cash and a deferred purchase price, and (2) receivables related to licensed programming and advertising. Under these programs, we transfer receivables to purchasers in exchange for cash and additional consideration upon settlement of the receivables, where applicable. Under the terms of our agreements for these programs, we continue to bill and collect the payments from our customers on behalf of the financial institutions.

As of March 31, 2019 and December 31, 2018, gross receivables included on our consolidated balance sheets, related to these programs, are $6,611 and $5,994, respectively, of which $3,072 and $3,457 are notes receivable that are included in “Accounts receivable - net.”

The outstanding portfolio of receivables derecognized from our consolidated balance sheets, but which we continue to service, was $10,863 and $9,065 at March 31, 2019 and December 31, 2018, respectively. As of March 31, 2019, total cash proceeds received, net of remittances (excluding amounts returned as deferred purchase price), were $8,387.

The following table sets forth a summary of receivables sold during the three months ended March 31, 2019 and 2018:

		Three months ended
		March 31,
		2019		2018
Gross receivables sold		$	4,101	$	3,010
Net receivables sold¹			3,909		2,795
Cash proceeds received			3,675		2,395
Deferred purchase price recorded			309		519
Guarantee obligation recorded			138		123
¹	Receivables net of allowance, imputed interest and trade-in right guarantees.

The sales of receivables did not have a material impact on our consolidated statements of income or to “Total Assets” reported on our consolidated balance sheets. We reflect cash receipts on sold receivables as cash flows from operations in our consolidated statements of cash flows. Cash receipts on the deferred purchase price are classified as cash flows from investing activities.

Equipment Installment Receivables

We offer our customers the option to purchase certain wireless devices in installments over a specified period of time and, in many cases, once certain conditions are met, they may be eligible to trade in the original equipment for a new device and have the remaining unpaid balance paid or settled. ~~As of June 30, 2018 and December 31, 2017, gross equipment installment receivables of $5,853 and $6,079 were included on our consolidated balance sheets, of~~

We maintain a program, under which ~~$3,781 and $3,340 are notes receivable that are included in “Accounts receivable - net.”~~

In 2014, we entered into an uncommitted agreement pertaining to the sale of equipment installment receivables and related security with Citibank and various other relationship banks as purchasers (collectively, the Purchasers). Under this agreement, we transfer ~~certain~~a portion of these receivables ~~to the Purchasers~~in exchange for cash and additional consideration upon settlement of the receivables, referred to as the deferred purchase price. Since 2014, we have made beneficial modifications to the agreement. During 2017, we modified the agreement and entered into a second uncommitted agreement with the Purchasers such that we receive more upfront cash consideration at the time the receivables are transferred to the Purchasers. Additionally, inIn the event a customer trades in a device prior to the end of the installment contract period, we agree to make a payment to the ~~Purchasers~~financial institutions equal to any outstanding remaining installment receivable balance. Accordingly, we record a guarantee obligation ~~to the Purchasers~~ for this estimated amount at the time the receivables are transferred. Under the terms of the agreement, we continue to bill and collect the payments from our customers on behalf of the Purchasers. As of June 30, 2018, total cash proceeds received, net of remittances (excluding amounts returned as deferred purchase price), were $5,723.

~~The following table sets forth a summary of equipment installment receivables sold during the three and six months ended June 30, 2018 and 2017:~~

      Three months ended    Six months ended
   June 30,    June 30,
      2018    2017    2018    2017
Gross receivables sold
   $             1,906    $             1,752    $             4,916    $             4,598
Net receivables sold¹
   1,811    1,599    4,606    4,220
Cash proceeds received
   1,532    1,415    3,927    2,847
Deferred purchase price recorded
   307    293    826    1,482
Guarantee obligation recorded
   72    74    195    74

¹ ~~Receivables net of allowance, imputed interest andtrade-in~~ ~~right guarantees.~~

The deferred purchase price and guarantee obligation are initially recorded at estimated fair value and subsequently carried at the lower of cost or net realizable value. The estimation of their fair values is based on remaining installment payments expected to be collected and the expected timing and value of devicetrade-ins. The estimated value of the devicetrade-ins considers prices offered to us by independent third parties that contemplate changes in value after the launch of a device model. The fair value measurements used for the deferred purchase price and the guarantee obligation are considered Level 3 under the Fair Value Measurement and Disclosure framework (see Note 7).

AT&T INC.

~~JUNE 30, 2018~~

MARCH 31, 2019

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued

Dollars in millions except per share amounts

The following table shows the previously transferred equipment installment receivables, ~~previously sold to the Purchasers,~~ which we repurchased in exchange for the associated deferred purchase price and cash during the three months ended March 31, 2019 and ~~six months ended June 30, 2018 and 2017:~~

      Three months ended    Six months ended
   June 30,    June 30,
      2018    2017    2018    2017
Fair value of repurchased receivables
   $             1,481    $                337    $             1,481    $                714
Carrying value of deferred purchase price
   1,393    301    1,393    640
Gain (loss) on repurchases¹
   $ 88    $ 36    $ 88    $ 74

¹ ~~These gains (losses) are included in “Selling, general and administrative” in the consolidated statements of income.~~

2018:

		Three months ended
		March 31,
		2019		2018
Fair value of repurchased receivables		$	423	$	-
Carrying value of deferred purchase price			407		-
Gain (loss) on repurchases¹		$	16	$	-
¹	These gains (losses) are included in “Selling, general and administrative” in the consolidated statements of income.

At ~~June 30, 2018~~March 31, 2019 and December 31, ~~2017,~~2018, our deferred purchase price receivable was ~~$1,686~~$2,240 and ~~$2,749,~~$2,370, respectively, of which ~~$813~~$1,418 and ~~$1,781~~$1,448 are included in “Other current assets” on our consolidated balance sheets, with the remainder in “Other Assets.” The guarantee obligation at ~~June 30, 2018~~March 31, 2019 and December 31, ~~2017~~2018 was ~~$362~~$430 and ~~$204,~~$439, respectively, of which ~~$111~~$160 and ~~$55~~$196 are included in “Accounts payable and accrued liabilities” on our consolidated balance sheets, with the remainder in “Other noncurrent liabilities.” Our maximum exposure to loss as a result of selling these equipment installment receivables is limited to the total amount of our deferred purchase price and guarantee obligation.

Programming and Advertising Receivables

In March 2019, we entered into a revolving agreement to transfer certain receivables from our WarnerMedia business to various financial institutions in exchange for cash. These receivables originate from the sale of licensed programming and advertising. Upon sale, we reclassify the allowance against these receivables to a guarantee liability. We have fully guaranteed the repayment of the transferred receivables and have also pledged, as collateral under this agreement, additional receivables in the amount of $1,402. Our maximum exposure to loss related to selling these receivables is limited to the outstanding $1,400 of sold receivables.

NOTE 10. LEASES

We have operating and finance leases for certain facilities and equipment used in operations. Our leases have remaining lease terms of 1 year to 13 years. Some of our real estate operating leases contain renewal options that may be exercised, and some of our leases include options to terminate the leases within one year.

We have recognized a right-of-use asset for both operating and finance leases, and an operating lease liability that represents the present value of our obligation to make payments over the lease term. The ~~sales~~present value of ~~equipment installment receivables did not have~~the lease payments is calculated using the incremental borrowing rate for operating and finance leases, which was determined using a material impact on our consolidated statements of income or to “Total Assets” reported on our consolidated balance sheets. We reflect cash receipts on owned equipment installment receivables as cash flows from operations in our consolidated statements of cash flows. With the retrospective adoption of ASU~~2016-15~~ ~~in 2018 (see Note 1), cash receipts~~portfolio approach based on the ~~deferred purchase price are now classified~~rate of interest that we would have to pay to borrow an amount equal to the lease payments on a collateralized basis over a similar term. We use the unsecured borrowing rate and risk-adjust that rate to approximate a collateralized rate in the currency of the lease, which will be updated on a quarterly basis for measurement of new lease liabilities.

The components of lease expense were as ~~cash flows from investing activities instead of cash flows from operating activities for all periods presented.~~

The outstanding portfolio of installment receivables derecognized from our consolidated balance sheets, but which we continue to service, was $7,564 and $7,446 at June 30, 2018 and December 31, 2017.

follows:

	Three months ended
	March 31, 2019
Operating lease cost	$	1,242

Finance lease cost:
Amortization of right-of-use assets	$	66
Interest on lease obligation		42
Total finance lease cost	$	108

AT&T INC.

~~JUNE 30, 2018~~

MARCH 31, 2019

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued

Dollars in millions except per share amounts

~~NOTE 10. INVENTORIES AND THEATRICAL FILM AND TELEVISION PRODUCTION COSTS~~

~~Film and television production costs~~

Supplemental balance sheet information related to leases is as follows:

At March 31, 2019

Operating Leases
Operating lease right-of-use assets	$	20,235

Accounts payable and accrued liabilities	$	3,072
Operating lease obligation		18,253
Total operating lease obligation	$	21,325

Finance Leases
Property, plant and equipment, at cost	$	3,377
Accumulated depreciation and amortization		(1,173)
Property, plant and equipment, net	$	2,204

Current portion of long-term debt	$	135
Long-term debt		1,852
Total finance lease obligation	$	1,987

Weighted-Average Remaining Lease Term
Operating leases		7.9	yrs
Finance leases		10.9	yrs

Weighted-Average Discount Rate
Operating leases		4.7	%
Finance leases		8.6	%

Future minimum maturities of lease liabilities are stated at the lower of cost, less accumulated amortization, or fair value and include the unamortized cost of completed theatrical films and television episodes, theatrical films and television series in production and undeveloped film and television rights. The amount of capitalized film and television production costs recognized as ~~broadcast, programming and operations expenses for a given period is determined using the film forecast computation method.~~

~~The following table summarizes inventories and theatrical film and television production costs as of June 30, 2018:~~

      June 30,
2018
Inventories:

Programming costs, less amortization¹
   $ 4,252
Other inventory, primarily DVD andBlu-ray Discs
   154
Total inventories
   4,406
Less: current portion of inventory
   (2,313 )
Total noncurrent inventories
   2,093

Theatrical film production costs:²

Released, less amortization
   6
Completed and not released
   49
In production
   1,249
Development andpre-production
   171
Television production costs:²

Released, less amortization
   168
Completed and not released
   534
In production
   1,556
Development andpre-production
   23
Total theatrical film and television production costs
   3,756
Total noncurrent inventories and theatrical film and television production costs
   $           5,849

follows:

At March 31, 2019	Operating		Finance
	Leases		Leases
Remainder of 2019	$	3,201	$	246
2020		3,981		290
2021		3,533		279
2022		3,231		263
2023		2,893		254
Thereafter		9,633		1,828
Total lease payments		26,472		3,160
Less imputed interest		(5,147)		(1,173)
Total	$	21,325	$	1,987

~~Includes the costs of certain programming rights, primarily sports, for which payments have been made prior to the related rights being received.~~

²	~~Does not include $11,150 of acquired film and television library intangible assets as of June 30, 2018, which are included in “Other Intangible Assets – Net” on our consolidated balance sheet.~~

AT&T INC.

~~JUNE 30, 2018~~

MARCH 31, 2019

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued

Dollars in millions except per share amounts

NOTE 11. ADDITIONAL FINANCIAL INFORMATION

Cash and Cash ~~Flow~~

Flows

We typically maintain our restricted cash balances for purchases and sales of certain investment securities and funding of certain deferred compensation benefit payments. ~~The following summarizes cash and cash equivalents and restricted cash balances contained on our consolidated balance sheets:~~

      June 30,          December 31,
Cash and Cash Equivalents and Restricted Cash    2018    2017       2017 2016
Cash and cash equivalents
   $ 13,523    $ 25,617       $ 50,498 $ 5,788
Restricted cash in Other current assets
   12    6       6 7
Restricted cash in Other Assets
   218    202       428 140
Cash and cash equivalents and restricted cash
   $         13,753    $         25,825       $         50,932 $         5,935


                        Six months ended
                        June 30,
Consolidated Statements of Cash Flows                      2018 2017
Cash paid (received) during the period for:

Interest
            $ 4,045 $ 3,095
Income taxes, net of refunds
            (757 ) 1,470

~~Debt Transactions~~

~~As of June 30, 2018, our total long-term debt obligations totaled $190,167. During the first six months we completed the following debt activity:~~

●

For the purpose of providing financing in connection with our Time Warner acquisition, we drew the following on our lines of credit: $16,175 with JPMorgan Chase Bank, N.A., $2,500 with BNP Paribas and $2,250 with Bank of Nova Scotia.

●

~~Issuance of approximately $1,500 three-year floating rate note and other borrowings totaling $2,100.~~

●

~~Borrowings of approximately $7,900 of debt under our commercial paper program.~~

●

~~Net borrowings of approximately $1,000 by subsidiaries in Latin America.~~

●

~~Redemptions totaling approximately $4,550 for AT&T notes that matured prior to June 30, 2018.~~

●

~~Redemption of $21,235 of AT&T notes issued in anticipation of the Time Warner acquisition that were subject to mandatory redemption.~~

●

~~With the acquisition of Time Warner, we acquired $22,846 of debt, of which we repaid $2,000 for amounts outstanding under term credit agreements, $600 of notes and $765 of commercial paper borrowings.~~

	March 31,				December 31,
Cash and Cash Equivalents and Restricted Cash		2019		2018		2018		2017
Cash and cash equivalents	$	6,516	$	48,872	$	5,204	$	50,498
Restricted cash in Other current assets		20		8		61		6
Restricted cash in Other Assets		94		345		135		428
Cash and cash equivalents and restricted cash	$	6,630	$	49,225	$	5,400	$	50,932

	Three months ended
	March 31,
Cash Paid for Amounts Included in the Measurement of Lease Liabilities:	2019		2018
Operating cash flows from operating leases	$	1,332	$	1,207

	Three months ended
	March 31,
Cash Paid (Received) During the Period for:		2019		2018
Interest	$	2,507	$	2,408
Income taxes, net of refunds		(379)		(1,089)

AT&T INC.

~~JUNE 30, 2018~~

MARCH 31, 2019

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

Dollars, subscribers and connections in millions, except per share and per subscriber amounts

~~RESULTS OF OPERATIONS~~

OVERVIEW

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 worldwide in the telecommunications, media and technology industries. You should read this discussion in conjunction with the consolidated financial statements and accompanying notes ~~(“Notes”)~~(Notes). We completed the acquisition of Time Warner Inc. ~~(referred to as “Time Warner” or “WarnerMedia”)~~(Time Warner) on June 14, 2018, and have included ~~WarnerMedia~~its results ~~for the16-day~~ ~~period ended June 30, 2018.~~after that date. In accordance with U.S. generally accepted accounting principles (GAAP), operating results from ~~WarnerMedia~~Time Warner prior to the acquisition are excluded.

~~Consolidated Results~~~~In the first quarter of 2018, we adopted new revenue accounting rules that significantly affect the comparability of~~

We have four reportable segments: (1) Communications, (2) WarnerMedia, (3) Latin America and (4) Xandr. Our segment results presented in Note 4 and discussed below follow our ~~consolidated and~~internal management reporting. We analyze our segments based on segment operating ~~results (see Note 5). As a supplement to our discussion~~contribution, which consists of operating ~~results, comparable financial results presented under the historical method~~income, excluding acquisition-related costs and other significant items, and equity in net income (loss) of ~~accounting~~affiliates for investments managed within each segment. Percentage increases and decreases that are ~~available in “Supplemental Results Under Historical Accounting Method.” Our financial results~~not considered meaningful are denoted with a dash.

	First Quarter
					Percent
	2019		2018		Change
Operating Revenues
Communications	$	35,393	$	35,533	(0.4)	%
WarnerMedia		8,379		112	-
Latin America		1,718		2,025	(15.2)
Xandr		426		337	26.4
Corporate and other		167		333	(49.8)
Eliminations and consolidation		(1,256)		(302)	-
AT&T Operating Revenues		44,827		38,038	17.8

Operating Contribution
Communications		8,052		8,027	0.3
WarnerMedia		2,310		39	-
Latin America		(173)		(111)	(55.9)
Xandr		253		286	(11.5)
Segment Operating Contribution	$	10,442	$	8,241	26.7	%

The Communications segment provides services to businesses and consumers located in the ~~second quarter~~U.S. or in U.S. territories and ~~for~~businesses globally. Our business strategies reflect bundled product offerings that cut across product lines and utilize shared assets. This segment contains the ~~first six months of 2018, including impacts from new revenue accounting rules, and 2017 are summarized as follows:~~

      Second Quarter Six-Month Period
         Percent       Percent
      2018    2017    Change 2018    2017    Change
Operating Revenues

Service
   $         33,773    $         36,538    (7.6 )% $         67,419    $         72,994    (7.6 )%
Equipment
   4,080    3,299    23.7 8,472    6,208    36.5
Media
   1,133    -    - 1,133    -    -
Total Operating Revenues
   38,986    39,837    (2.1 ) 77,024    79,202    (2.7 )
Operating expenses

Cost of revenues

Equipment
   4,377    4,138    5.8 9,225    7,986    15.5
Broadcast, programming and operations
   5,449    4,898    11.2 10,615    9,872    7.5
Other cost of revenues
   7,632    9,569    (20.2 ) 15,564    18,857    (17.5 )
Selling, general and administrative
   8,684    8,559    1.5 16,581    17,331    (4.3 )
Depreciation and amortization
   6,378    6,147    3.8 12,372    12,274    0.8
Total Operating Expenses
   32,520    33,311    (2.4 ) 64,357    66,320    (3.0 )
Operating Income
   6,466    6,526    (0.9 ) 12,667    12,882    (1.7 )
Income Before Income Taxes
   6,780    6,070    11.7 12,921    11,448    12.9
Net Income
   5,248    4,014    30.7 10,007    7,588    31.9
Net Income Attributable to AT&T
   $ 5,132    $ 3,915    31.1 % $ 9,794    $ 7,384    32.6 %

~~Overview~~

~~Operating revenues~~~~decreased $851, or 2.1%, in the second quarter and $2,178, or 2.7%, for the first six months of 2018.~~

~~Service~~revenues decreased $2,765, or 7.6%, in the second quarter and $5,575, or 7.6%, for the first six months of 2018. The decreases in the second quarter and first six months were primarily due to our adoption of a new revenue accounting standard, which included our policy election to record Universal Service Fund (USF) fees on a net basis and also resulted in less revenue allocation to the service component of bundled contracts. Also contributing to the decrease was the continued decline in video services and legacy wireline voice and data products.

~~Equipment~~revenues increased $781, or 23.7%, in the second quarter and $2,264, or 36.5%, for the first six months of 2018. The increases were due to the adoption of new revenue accounting standards that contributed to higher revenue allocations from bundled contracts and the sale of higher-priced devices.

following business units:

Mobility provides nationwide wireless service and equipment.

Entertainment Group provides video, including over-the-top (OTT) services, broadband and voice communications services primarily to residential customers. This segment also sells advertising on DIRECTV and U-verse distribution platforms.

Business Wireline provides advanced IP-based services, as well as traditional voice and data services to business customers.

AT&T INC.

~~JUNE 30, 2018~~

MARCH 31, 2019

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

Dollars, subscribers and connections in millions, except per share and per subscriber amounts

~~Media~~ ~~revenues for~~

The WarnerMedia segment develops, produces and distributes feature films, television, gaming and other content over various physical and digital formats. This segment contains the ~~second quarter~~following business units:

Turner is comprised of the historic Turner division as well as the financial results of our AT&T's Regional Sports Networks (RSNs). This business unit primarily operates multichannel basic television networks and digital properties. Turner also sells advertising on its networks and digital properties.

Home Box Office consists of premium pay television and OTT services domestically and premium pay, basic tier television and OTT services internationally, as well as content licensing and home entertainment.

Warner Bros. consists of the production, distribution and licensing of television programming and feature films, the distribution of home entertainment products and the production and distribution of games.

The Latin America segment provides entertainment and ~~first six months were $1,133~~wireless services outside of the U.S. This segment contains the following business units:

Vrio provides video services primarily to residential customers using satellite technology in Latin America and the Caribbean.

Mexico provides wireless service and equipment to customers in Mexico.

The Xandrsegment provides advertising services and ~~in each case~~includes our recently acquired AppNexus. These services utilize data insights to develop and deliver targeted advertising across video and digital platforms.

RESULTS OF OPERATIONS

Consolidated Results Our financial results are ~~attributable to the16-day~~ ~~period since acquiring WarnerMedia.~~

~~Operating~~~~expenses~~ ~~decreased $791, or 2.4%,~~summarized in the ~~second quarter~~following discussions. Additional analysis is discussed in our “Segment Results” section. Percentage increases and ~~$1,963, or 3.0%, for~~decreases that are not considered meaningful are denoted with a dash. Certain prior period amounts have been reclassified to conform to the current period’s presentation.

	First Quarter
					Percent
	2019		2018		Change
Operating Revenues
Service	$	40,684	$	33,646	20.9	%
Equipment		4,143		4,392	(5.7)
Total Operating Revenues		44,827		38,038	17.8

Operating expenses
Operations and support		30,388		25,843	17.6
Depreciation and amortization		7,206		5,994	20.2
Total Operating Expenses		37,594		31,837	18.1
Operating Income		7,233		6,201	16.6
Interest expense		2,141		1,771	20.9
Equity in net income (loss) of affiliates		(7)		9	-
Other income (expense) – net		286		1,702	(83.2)
Income Before Income Taxes		5,371		6,141	(12.5)
Net Income		4,348		4,759	(8.6)
Net Income Attributable to AT&T	$	4,096	$	4,662	(12.1)	%

Operating revenues increased in the first ~~six months~~quarter of ~~2018.~~

~~Equipment~~2019. The increase was primarily due to our 2018 acquisition of Time Warner. Partially offsetting these increases in revenues were declines in our Latin America segment and Communications segment, driven by lower legacy services, video and wireless equipment revenues. Revenues were also negatively impacted by foreign exchange pressure.

AT&T INC.

MARCH 31, 2019

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

Dollars, subscribers and connections in millions, except per share and per subscriber amounts

Operations and support expenses increased ~~$239, or 5.8%,~~ in the ~~second~~first quarter ~~and $1,239, or 15.5%, for the first six months~~ of ~~2018.~~2019. The ~~increases during the second quarter and the first six months were driven by an~~ increase ~~in the sale of higher-priced devices.~~

~~Broadcast, programming and operations~~ ~~expenses increased $551, or 11.2%, in the second quarter and $743, or 7.5%, for the first six months of 2018. Expense increases during the second quarter and first six months were~~was primarily due to ~~annual content cost increases~~our 2018 acquisition of Time Warner, partially offset by lower equipment costs in our Communications and ~~additional programming costs, including programming~~Latin America segments and ~~production costs associated with WarnerMedia for the16-day~~ ~~period since acquisition.~~

~~Other cost of revenues~~expenses decreased $1,937, or 20.2%, in the second quarter and $3,293, or 17.5%, for the first six months of 2018. The decreases during the second quarter and first six months reflect our adoption of new accounting rules, which included our policy election to record USF fees net. Also contributing to the decreases were lower expenses due to our continued focus on cost ~~management~~management.

Depreciation and ~~utilization of automation and digitalization where appropriate.~~

~~Selling, general and administrative~~~~expenses~~amortization expense increased ~~$125, or 1.5%,~~ in the ~~second~~first quarter ~~and decreased $750,~~of 2019. Depreciation expense increased $285, or ~~4.3%~~5.8%, ~~for the first six months of 2018. The increase in the second quarter was~~ primarily ~~attributable to expenses from WarnerMedia, including acquisition-related expenses~~ due to the ~~closing of the~~ Time Warner transaction. Also contributing to the second quarter increase were higher employee separation costs. Offsetting some of the increases during the second quarter, and contributing to the overall decrease during the first six months, was the effect of new accounting standards, which resulted in commissions being deferred and amortized over the contract period or expected customer life, in addition to expense reductions due to our disciplined cost management. Partially offsetting the decrease during the first six months were higher costs due to natural disasters and, in the comparable period of 2017, gains on wireless spectrum transactions.

~~Depreciation and amortization~~ expense increased $231, or 3.8%, in the second quarter and $98, or 0.8%, for the first six months of 2018. Depreciation expense increased $123, or 2.5%, in the second quarter and $130, or 1.3%, for the first six months of 2018. The increases were primarily due to~~16-days~~ ~~of WarnerMedia results~~acquisition as well as ongoing capital spending for network upgrades and ~~expansion offset by lower expense resulting from our fourth-quarter 2017 abandonment of certain copper network assets.~~

expansion.

Amortization expense increased ~~$108, or 9.2%,~~$927 in ~~the second quarter and decreased $32, or 1.3%, for the first six months of 2018. The increase in the second quarter was~~2019 primarily due to the amortization of intangibles associated with ~~the previously mentioned acquisition. For the~~WarnerMedia.

~~six-month~~Operating income ~~period, the decrease was due to amortization of intangibles for customer lists associated with prior acquisitions mostly offset by the WarnerMedia acquisition.~~

~~Operating~~~~income~~~~decreased $60, or 0.9%,~~increased in the ~~second~~first quarter ~~and decreased $215, or 1.7%, for the first six months~~ of ~~2018.~~2019. Our operating income margin in the ~~second~~first quarter ~~increased from 16.4% in 2017 to 16.6% in 2018, and for the first six months increased~~decreased from 16.3% in ~~2017~~2018 to ~~16.4%~~16.1% in ~~2018.~~

2019.

Interest expense increased ~~$628, or 45.0%,~~ in the ~~second~~first quarter ~~and $1,106, or 41.1%, for the first six months~~ of ~~2018.~~2019. The increase was primarily due to higher debt balances related to our acquisition of Time Warner, including interest expense on Time Warner ~~notes for~~notes.

~~16-days,~~ ~~and an increase in average interest rates when compared to the prior year.~~

Equity in net income ~~(loss)~~ of affiliates decreased ~~$30~~in the first quarter of 2019, primarily due to basis amortization of Time Warner investments, which were acquired in the second quarter of ~~2018 and increased $152, or 95.6%, for the first six months of~~ 2018. ~~Results for the second quarter and the first six months of 2018 include~~

Other income (expense) – net ~~losses from investments acquired through our purchase of Time Warner. The increase in the first six months of 2018 was predominantly due to losses~~decreased in the first quarter of ~~2017 from~~2019. The decrease was primarily due to actuarial losses of $432 in 2019 compared to an actuarial gain of $930 in the comparable prior year. First-quarter 2019 also includes $45 of debt redemption expenses.

Income taxes decreased in the first quarter of 2019. Our effective tax rate was 19.0% for the first quarter of 2019, versus 22.5% for the comparable year prior. The decrease in income tax expense was primarily due to lower income before income taxes and the impacts of tax settlements in the first quarter of 2019. The decrease in our ~~legacy publishing business, which~~effective tax rate was ~~sold in June 2017.~~

primarily due to the impacts of tax settlements.

COMMUNICATIONS SEGMENT	First Quarter
					Percent
	2019		2018		Change
Segment Operating Revenues
Mobility	$	17,567	$	17,355	1.2	%
Entertainment Group		11,328		11,431	(0.9)
Business Wireline		6,498		6,747	(3.7)
Total Segment Operating Revenues		35,393		35,533	(0.4)

Segment Operating Contribution
Mobility		5,351		5,158	3.7
Entertainment Group		1,478		1,309	12.9
Business Wireline		1,223		1,560	(21.6)
Total Segment Operating Contribution	$	8,052	$	8,027	0.3	%

AT&T INC.

~~JUNE 30,~~

MARCH 31, 2019

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

Dollars, subscribers and connections in millions, except per share and per subscriber amounts

Selected Subscribers and Connections
	First Quarter
(000s)	2019	2018
Total domestic broadband connections	15,737	15,775
Network access lines in service	9,576	11,288
U-verse VoIP connections	4,935	5,585

Operating revenues decreased in the first quarter of 2019, driven by declines in our Entertainment Group and Business Wireline business units, partially offset by increases in our Mobility business unit. The decreases reflect continued declines in legacy voice and data products, decreased equipment revenues from lower postpaid smartphone sales and the shift to over-the-top (OTT) video offerings, largely offset by higher wireless service and advanced data revenues.

Operating contribution increased in the first quarter of 2019, reflecting improvement in our Mobility and Entertainment Group business units, partially offset by declines in our Business Wireline business unit. Our Communications segment operating income margin in the first quarter increased from 22.6% in 2018

to 22.8% in 2019.

Communications Business Unit Discussion
Mobility Results
First Quarter
Percent
2019 2018 Change
Operating revenues
   Service $ 13,792 $ 13,403 2.9 %
   Equipment 3,775 3,952 (4.5)
Total Operating Revenues 17,567 17,355 1.2

Operating expenses
   Operations and support 10,181 10,102 0.8
   Depreciation and amortization 2,035 2,095 (2.9)
Total Operating Expenses 12,216 12,197 0.2
Operating Income 5,351 5,158 3.7
Equity in Net Income (Loss) of Affiliates - - -
Operating Contribution $ 5,351 $ 5,158 3.7 %

AT&T INC.
MARCH 31, 2019

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

Dollars, subscribers and connections in millions, except per share and per subscriber amounts

~~Other income (expense) – net~~

The following tables highlight other key measures of performance for Mobility:

		First Quarter		Percent
(in 000s)		2019	2018	Change
Wireless Subscribers
Postpaid smartphones		60,597	60,002	1.0	%
Postpaid feature phones and data-centric devices		15,953	17,429	(8.5)
Postpaid		76,550	77,431	(1.1)
Prepaid		17,180	15,671	9.6
Reseller		7,574	9,002	(15.9)
Connected devices¹		54,428	41,728	30.4
Total Wireless Subscribers		155,732	143,832	8.3

Wireless Net Additions²
Postpaid		(204)	49	-
Prepaid		96	241	(60.2)
Reseller		(253)	(388)	34.8
Connected devices¹		3,088	2,728	13.2
Wireless Net Subscriber Additions		2,727	2,630	3.7

Postpaid Phone Subscribers		63,438	63,657	(0.3)
Postpaid Phone Net Additions		80	(60)	-	%

Postpaid Churn³		1.17	1.06	11	BP
Postpaid Phone-Only Churn ³		0.93	0.84	9	BP
¹	Includes data-centric devices such as session-based tablets, monitoring devices and primarily wholesale automobile systems. Excludes
	postpaid tablets.
²	Excludes acquisition-related additions during the period.
³	Calculated by dividing the aggregate number of wireless subscribers who canceled service during a month divided by the total number
	of wireless subscribers at the beginning of that month. The churn rate for the period is equal to the average of the churn rate for
	each month of that period.

Service revenue increased ~~$1,428~~ in the ~~second~~first quarter largely due to higher average revenue per subscriber (ARPU) and ~~$2,642 for~~growth in Cricket and AT&T PREPAID^SM subscribers.

ARPU

ARPU increased in the first ~~six months. The increases were~~quarter primarily due to actuarial gains of $1,796 and $2,726, resulting from remeasurement of our pension and postretirement benefit obligations and increased interest income of $94 and $258, partially offset by premiums on the redemption of debt of $226price actions that were not in effect in the ~~second quarter~~comparative prior year.

Churn

The effective management of ~~2018.~~

~~Income taxes~~~~decreased $524, or 25.5%,~~subscriber churn is critical to our ability to maximize revenue growth and to maintain and improve margins. Postpaid churn and postpaid phone-only churn was higher in the ~~second~~first quarter ~~of 2018 and~~due to continued competitive pricing in the industry.

Equipment revenue decreased ~~$946, or 24.5%, for~~in the first ~~six months~~quarter driven by lower postpaid smartphone sales, resulting from the continuing trend of ~~2018. Our effective tax rate was 22.6% in the second quarter and for the first six months of 2018, as compared~~customers choosing to ~~33.9% for the second quarter and 33.7% for the first six months of 2017. The stand-alone effective tax rate of WarnerMedia was 20.3% for the~~upgrade devices less frequently or bring their own.

~~16-day~~34 period ended June 30, 2018. The decreases in income tax expense and our effective tax rates for the second quarter and the first six months of 2018 were primarily due to the December 2017 enactment of U.S. corporate tax reform, which reduced the federal tax rate from 35% to 21%. Partially offsetting the decreased tax rates was higher earnings in the second quarter and first six months of 2018. We continue to expect our effective tax rate for 2018, including WarnerMedia, to be approximately 23%.

Selected Financial and Operating Data

     June 30,
Subscribers and connections in (000s)
     2018      2017
Domestic wireless subscribers
     146,889      136,102
Mexican wireless subscribers
     16,398      13,082
North American wireless subscribers
     163,287      149,184

North American branded subscribers
     109,806      104,022
North American branded net additions
     2,138      1,639
Domestic satellite video subscribers
     19,984      20,856
AT&TU-verse^®(U-verse) video subscribers
     3,680      3,853
DIRECTV NOW video subscribers
     1,809      491
Latin America satellite video subscribers¹
     13,713      13,622
Total video subscribers
     39,186      38,822

Total domestic broadband connections
     15,772      15,686
Network access lines in service
     10,832      12,791
U-verse VoIP connections
     5,449      5,853
Debt ratio²
     50.8%      53.3%
Net debt ratio³
     47.2%      43.8%
Ratio of earnings to fixed charges⁴
     3.64      3.84
Number of AT&T employees
     273,210      260,480

¹	~~Excludes subscribers of our International segment equity investments in SKY Mexico, in which we own a 41.3% stake. At March 31, 2018. SKY Mexico had 8.0 million subscribers.~~

²	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.

³	~~Net debt ratios are calculated by dividing total debt (debt maturing within one year plus long-term debt) less cash available by total capital (total debt plus total stockholders’ equity).~~

⁴	~~See Exhibit 12.~~

AT&T INC.

~~JUNE 30, 2018~~

MARCH 31, 2019

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

Dollars, subscribers and connections in millions, except per share and per subscriber amounts

~~Segment Results~~

Operations and support expenses increased in the first quarter primarily due to higher commission deferral amortization, partially offset by lower postpaid smartphone volumes and increased operational efficiencies.

Depreciation expense decreased in the first quarter primarily due to fully depreciated assets, partially offset by ongoing capital spending for network upgrades and expansion.

Operating income increased in the first quarter. Our segments are strategic business units that offer different products and services over various technology platforms and/or in different geographies that are managed accordingly. Our segment results presented in Note 4 and discussed below for each segment follow our internal management reporting. We analyze our segments based on Segment Contribution, which consists ofMobility operating income ~~excluding acquisition-related costs and other significant items, and equity~~margin in ~~net income (loss) of affiliates for investments managed within each segment. We have five reportable segments: (1) Consumer~~the first quarter increased from 29.7% in 2018 to 30.5% in 2019. Our Mobility ~~(2) Business Solutions, (3) Entertainment Group (4) International, and (5) WarnerMedia.~~

~~We also evaluate segment performance based on EBITDA and/or~~ EBITDA margin ~~which~~in the first quarter increased from 41.8% in 2018 to 42.0% in 2019. EBITDA is defined as ~~Segment Contribution,~~operating contribution excluding equity in net income (loss) of affiliates and depreciation and amortization. We believe EBITDA to be a relevant and useful measurement to our investors as it is part of our internal management reporting and planning processes and it is an important metric that management uses to evaluate operating 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 margin is EBITDA divided by total revenues.

To most effectively implement our strategies for 2018, effective January 1, 2018, we retrospectively realigned certain responsibilities and operations within our reportable segments. The most significant of these changes was to report individual wireless accounts with employer discounts in our Consumer Mobility segment, instead of our Business Solutions segment.

With our acquisition of WarnerMedia, programming released on or before the June 14, 2018 acquisition date was recorded at fair value as an intangible asset. For consolidated reporting, all amortization of~~pre-acquisition~~ released programming is reported as amortization expense on our consolidated income statement. To best present comparable results, we will continue to report the historic content production cost amortization as operations and support expense within the WarnerMedia segment. The amount of historic content production cost amortization reported in the segment results was $189 for the~~16-day~~ ~~period ended June 30, 2018, $98 of which was forpre-acquisition~~ ~~released programming.~~

~~The~~~~Consumer Mobility segment~~provides nationwide wireless service to consumers, wholesale and resale wireless subscribers located in the United States or in U.S. territories. We provide voice and data services, including high-speed internet over wireless devices.

~~The~~~~Business Solutions segment~~ ~~provides services to business customers, including multinational companies and governmental and wholesale customers. We provide advancedIP-based~~ services including Virtual Private Networks (VPN); Ethernet-related products; FlexWare, a service that relies on Software Defined Networking and Network Function Virtualization to provide application-based routing, and broadband, collectively referred to as strategic services; as well as traditional data and voice products. We provide a complete communications solution to our business customers.

~~The~~~~Entertainment Group segment~~ ~~provides video, internet, voice communication, and interactive and targeted advertising services to customers located in the United States or in U.S. territories.~~

~~The~~~~International segment~~ provides entertainment services in Latin America and wireless services in Mexico. Video entertainment services are provided to primarily residential customers using satellite technology. We utilize our regional and national networks in Mexico to provide consumer and business customers with wireless data and voice communication services. Our international subsidiaries conduct business in their local currency, and operating results are converted to U.S. dollars using official exchange rates. Our International segment is subject to foreign currency fluctuations (operations in countries with highly inflationary economies consider the U.S. dollar as the functional currency).

~~The~~~~WarnerMedia~~~~segment~~ provides global media and entertainment services through television networks and film, using its brands to create, package and deliver high-quality content worldwide. The segment consists of Turner, Home Box Office (HBO) and Warner Bros. businesses.

~~AT&T INC.~~

~~JUNE 30, 2018~~

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

~~Dollars in millions except per share and per subscriber amounts~~

~~Consumer Mobility~~

~~Segment Results~~

      Second Quarter Six-Month Period
      2018    2017    Percent
Change 2018    2017    Percent
Change
Segment operating revenues

Service
   $           11,853    $           12,467    (4.9 )% $           23,465    $ 24,932    (5.9 )%
Equipment
   3,016    2,624    14.9 6,390    4,965    28.7




Total Segment Operating Revenues
   14,869    15,091    (1.5 ) 29,855    29,897    (0.1 )




Segment operating expenses

Operations and support
   8,085    8,636    (6.4 ) 16,609            17,196    (3.4 )
Depreciation and amortization
   1,806    1,716    5.2 3,613    3,432    5.3




Total Segment Operating Expenses
   9,891    10,352    (4.5 ) 20,222    20,628    (2.0 )




Segment Operating Income
   4,978    4,739    5.0 9,633    9,269    3.9
Equity in Net Income of Affiliates
   -    -    - -    -    -




Segment Contribution
   $ 4,978    $ 4,739    5.0 % $ 9,633    $ 9,269    3.9 %

~~The following tables highlight other key measures of performance for the Consumer Mobility segment:~~

        June 30,      Percent
(in 000s)      2018      2017      Change
Consumer Mobility Subscribers

Postpaid
     65,326      65,570      (0.4 )%
Prepaid
     15,376      14,187      8.4
Branded
     80,702      79,757      1.2
Reseller
     8,484      10,182      (16.7 )
Total Consumer Mobility Subscribers
     89,186      89,939      (0.8 )%

        Second Quarter    Six-Month Period
(in 000s)      2018      2017      Percent
Change    2018      2017      Percent
Change
Consumer Mobility Net Additions¹

Postpaid
     (49 )      (28 )      (75.0 )%    (113 )      (310 )      63.5 %
Prepaid
     356      267      33.3    548      549      (0.2 )
Branded Net Additions
     307      239      28.5    435      239      82.0
Reseller
     (451 )      (364 )      (23.9 )    (841 )      (951 )      11.6
Consumer Mobility Net Subscriber Additions
     (144 )      (125 )      (15.2 )%    (406 )      (712 )      43.0 %

¹ ~~Excludes migrations between AT&T segments and/or subscriber categories and acquisition-related additions during the period.~~

~~Operating Revenues~~decreased $222, or 1.5%, in the second quarter and $42, or 0.1%, for the first six months of 2018. The decreases were due to lower service revenues resulting from customers choosing unlimited plans and the impact of newly adopted accounting rules, which include our policy election to record USF fees on a net basis. Lower service revenues were partially offset by higher equipment revenues.

~~AT&T INC.~~

~~JUNE 30, 2018~~

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

~~Dollars in millions except per share and per subscriber amounts~~

~~Service~~revenue decreased $614, or 4.9%, in the second quarter and $1,467, or 5.9%, for the first six months of 2018. The decreases were largely due to our adoption of a new accounting standard that included our policy election to no longer include USF fees in revenues which resulted in less revenue being allocated to the service component of bundled contracts. Also contributing to the decrease was the impact of customers continuing to shift to discounted monthly service charges under our unlimited plans, partially offset by higher prepaid service revenues resulting from growth in Cricket and AT&T PREPAID^SM ~~subscribers. Since our unlimited plans have now been in effect for a year, service revenues on a comparable basis should increase for the remainder of 2018.~~

~~Equipment~~ revenue increased $392, or 14.9%, in the second quarter and $1,425, or 28.7%, for the first six months of 2018. The increases in equipment revenues resulted from the sale of higher-priced devices as well as the adoption of new accounting standards that contributed to higher revenue allocations from bundled contracts. Equipment revenue is unpredictable as customers are choosing to upgrade devices less frequently or bring their own devices.

~~Operations and support~~expenses decreased $551, or 6.4%, in the second quarter and $587, or 3.4%, for the first six months of 2018. Operations and support expenses consist of costs incurred to provide our products and services, including costs of operating and maintaining our networks and personnel expenses, such as compensation and benefits.

Decreased operations and support expenses were primarily due to our adoption of new accounting rules, resulting in commission deferrals and netting of USF fees in 2018. Also contributing to the decrease were increased operational efficiencies, partially offset by increased equipment costs related to wireless equipment sales and upgrades.

~~Depreciation~~ expense increased $90, or 5.2%, in the second quarter and $181, or 5.3%, for the first six months of 2018. The increases were primarily due to ongoing capital spending for network upgrades and expansion, partially offset by fully depreciated assets.

~~Operating income~~ increased $239, or 5.0%, in the second quarter and $364, or 3.9%, for the first six months of 2018. Our Consumer Mobility segment operating income margin in the second quarter increased from 31.4% in 2017 to 33.5% in 2018, and for the first six months increased from 31.0% in 2017 to 32.3% in 2018. Our Consumer Mobility EBITDA margin in the second quarter increased from 42.8% in 2017 to 45.6% in 2018, and for the first six months increased from 42.5% in 2017 to 44.4% in 2018.

~~AT&T INC.~~

~~JUNE 30, 2018~~

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

~~Dollars in millions except per share and per subscriber amounts~~

~~Business Solutions~~

~~Segment Results~~

      Second Quarter Six-Month Period
      2018    2017    Percent
Change 2018    2017    Percent
Change
Segment operating revenues

Wireless service
   $         1,829    $         2,004    (8.7 )% $         3,620    $         4,007    (9.7) %
Strategic services
   3,039    2,958    2.7 6,109    5,862    4.2
Legacy voice and data services
   2,723    3,423    (20.4 ) 5,561    6,971    (20.2)
Other service and equipment
   888    922    (3.7 ) 1,727    1,800    (4.1)
Wireless equipment
   584    360    62.2 1,162    648    79.3




Total Segment Operating Revenues
   9,063    9,667    (6.2 ) 18,179    19,288    (5.7)




Segment operating expenses

Operations and support
   5,616    6,053    (7.2 ) 11,210    12,051    (7.0)
Depreciation and amortization
   1,487    1,483    0.3 2,945    2,943    0.1




Total Segment Operating Expenses
   7,103    7,536    (5.7 ) 14,155    14,994    (5.6)




Segment Operating Income
   1,960    2,131    (8.0 ) 4,024    4,294    (6.3)
Equity in Net Income of Affiliates
   1    -    - -    -    -



Segment Contribution
   $ 1,961    $ 2,131    (8.0 )% $ 4,024    $ 4,294    (6.3) %

~~The following tables highlight other key measures of performance for the Business Solutions segment:~~

                        June 30,    Percent
(in 000s)                      2018    2017    Change
Business Wireless Subscribers

Postpaid
            12,046    11,432    5.4 %
Prepaid¹
            841    -    -
Branded
            12,887    11,432    12.7
Reseller
            98    73    34.2
Connected devices^1,2
            44,718                34,658    29.0
Total Business Wireless Subscribers
            57,703    46,163    25.0


Business IP Broadband Connections
            1,017    992    2.5 %

¹	Beginning in the third quarter of 2017, we began reporting prepaid Internet of Things (IoT) connections, which primarily consist of connected cars, as a component of prepaid subscribers instead of connected devices.

²	~~Includes data-centric devices such as session-based tablets and automobile systems. Excludes postpaid tablets.~~

~~AT&T INC.~~

~~JUNE 30, 2018~~

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

~~Dollars in millions except per share and per subscriber amounts~~

      Second Quarter Six-Month Period
(in 000s)    2018 2017 Percent
Change 2018 2017    Percent
Change
Business Wireless Net Additions¹

Postpaid
   122 171 (28.7 )% 235 259    (9.3 )%
Prepaid²
   97 - - 146 -    -
Branded
   219 171 28.1 381 259    47.1
Reseller
   7 (4 ) - 9 1    -
Connected devices³
   2,982 2,256 32.2 5,710 4,828    18.3
Business Wireless Net SubscriberAdditions
           3,208         2,423         32.4         6,100         5,088            19.9


Business IP Broadband Net Additions
   (4 ) 12 - % (8 ) 16    - %

¹	~~Excludes migrations between AT&T segments and/or subscriber categories and acquisition-related additions during the period.~~

²	~~Beginning in the third quarter of 2017, we began reporting prepaid IoT connections, which primarily consist of connected cars, as a component of prepaid subscribers instead of connected devices.~~

³	~~Includes data-centric devices such as session-based tablets, monitoring devices and automobile systems. Excludes postpaid tablets.~~

~~Operating Revenues~~ decreased $604, or 6.2%, in the second quarter and $1,109 or 5.7%, for the first six months of 2018, primarily due to our adoption of a new revenue accounting standard, which included our policy election to no longer include USF fees in revenue. Technological shifts away from legacy products, as well as decreasing wireless service revenues resulting from customers shifting to unlimited plans, also contributed to revenue declines. These decreases were partially offset by continued but slowing growth in strategic services, which represent 46% of~~non-wireless~~ ~~(or fixed) revenues and wireless equipment revenue.~~

~~Wireless service~~revenues decreased $175, or 8.7%, in the second quarter and $387, or 9.7%, for the first six months of 2018. The decrease was due to our adoption of a new accounting standard that resulted in less revenue allocation to the service component of bundled contracts and included our policy election to no longer include USF fees in revenues.

At June 30, 2018, we served 57.7 million subscribers, an increase of 25.0% from the prior year. Connected devices, which have lower average revenue per average subscriber (ARPU) and churn, increased 29.0% from the prior year. Connected devices include our connected car business and other data centric devices that connect to the network and rely on embedded computing systems and/or software, commonly known as IoT.

~~Strategic services~~revenues increased $81, or 2.7%, in the second quarter and $247, or 4.2%, for the first six months of 2018. Our revenues increased in the second quarter and first six months of 2018 primarily due to: Dedicated Internet services of $26 and $63; Ethernet services of $20 and $56; VoIP of $14 and $49; and Security services of $20 and $43, respectively.

~~Legacy wired voice and data service~~revenues decreased $700, or 20.4%, in the second quarter and $1,410, or 20.2%, for the first six months of 2018. The decrease was primarily due to lower demand, as customers continue to shift to our more advanced~~IP-based~~ ~~offerings or to competitors, and our netting of USF fees in 2018.~~

~~Wireless equipment~~ revenues increased $224, or 62.2%, in the second quarter and $514, or 79.3%, for the first six months of 2018, primarily due to the adoption of new accounting standards which increased the amount of revenue attributable to equipment from our bundled contracts.

~~AT&T INC.~~

~~JUNE 30, 2018~~

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

~~Dollars in millions except per share and per subscriber amounts~~

~~Operations and support~~expenses decreased $437, or 7.2%, in the second quarter and $841, or 7.0%, for the first six months of 2018. 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.

Decreased operations and support expenses for the second quarter and first six months were primarily due to our adoption of new accounting rules, resulting in commission deferrals and netting of USF fees in 2018. Also contributing to declines were our ongoing efforts to automate and digitize our support activities, partially offset by higher costs from our implementation of FirstNet and higher equipment costs from increased sales of higher-priced wireless devices.

~~Depreciation~~expense increased $4, or 0.3%, in the second quarter and $2, or 0.1%, for the first six months of 2018. The increases were primarily due to ongoing capital spending for network upgrades and expansion, partially offset by updates to the asset lives of certain network assets and our fourth-quarter 2017 abandonment of certain copper network assets.

~~Operating income~~ decreased $171, or 8.0%, in the second quarter and $270, or 6.3%, for the first six months of 2018. Our Business Solutions segment operating income margin in the second quarter decreased from 22.0% in 2017 to 21.6% in 2018, and for the first six months decreased from 22.3% in 2017 to 22.1% in 2018. Our Business Solutions EBITDA margin in the second quarter increased from 37.4% in 2017 to 38.0% in 2018, and for the first six months increased from 37.5% in 2017 to 38.3% in 2018.

~~Entertainment Group~~

~~Segment Results~~

      Second Quarter Six-Month Period
      2018 2017 Percent
Change 2018 2017    Percent
Change
Segment operating revenues

Video entertainment
   $         8,331 $         9,153 (9.0 )% $         16,690 $         18,173    (8.2 )%
High-speed internet
   1,981 1,927 2.8 3,859 3,868    (0.2 )
Legacy voice and data services
   785 981 (20.0 ) 1,604 2,012    (20.3 )
Other service and equipment
   553 600 (7.8 ) 1,074 1,209    (11.2 )




Total Segment Operating Revenues
   11,650 12,661 (8.0 ) 23,227 25,262    (8.1 )




Segment operating expenses

Operations and support
   8,852 9,561 (7.4 ) 17,791 19,166    (7.2 )
Depreciation and amortization
   1,346 1,458 (7.7 ) 2,658 2,878    (7.6 )




Total Segment Operating Expenses
   10,198 11,019 (7.5 ) 20,449 22,044    (7.2 )




Segment Operating Income
   1,452 1,642 (11.6 ) 2,778 3,218    (13.7 )
Equity in Net Income (Loss) of Affiliates
   (20 ) (12 ) (66.7 ) (11 ) (18)    38.9




Segment Contribution
   $ 1,432 $ 1,630 (12.1 )% $ 2,767 $ 3,200    (13.5 )%

~~AT&T INC.~~

~~JUNE 30, 2018~~

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

~~Dollars in millions except per share and per subscriber amounts~~

~~The following tables highlight other key measures of performance for the Entertainment Group segment:~~

                        June 30,    Percent
(in 000s)                      2018        2017        Change
Video Connections

Satellite
            19,984                20,856    (4.2 )%
U-verse
            3,656    3,825    (4.4 )
DIRECTV NOW¹
            1,809    491    -
Total Video Connections
            25,449    25,172    1.1


Broadband Connections

IP
            13,692    13,242    3.4
DSL
            763    1,060    (28.0 )
Total Broadband Connections
            14,455    14,302    1.1


Retail Consumer Switched Access Lines
            4,333    5,257    (17.6 )
U-verse Consumer VoIP Connections
            4,950    5,439    (9.0 )
Total Retail Consumer Voice Connections
            9,283    10,696    (13.2 )%

¹	~~Consistent with industry practice, DIRECTV NOW includesover-the-top~~ ~~connections that are on a free-trial.~~

      Second Quarter Six-Month Period
(in 000s)    2018         2017         Percent
Change 2018     2017     Percent
Change
Video Net Additions

Satellite¹
   (286 ) (156 ) (83.3 )% (474 ) (156 ) - %
U-verse¹
   24 (195 ) -    25 (428 ) -
DIRECTV NOW²
   342 152 -    654 224 -
Net Video Additions
   80 (199 ) -    205 (360 ) -

Broadband Net Additions

IP
   76 112 (32.1 ) 230 354 (35.0 )
DSL
   (53 ) (104 ) 49.0 (125 ) (231 ) 45.9
Net Broadband Additions
   23 8 - % 105 123 (14.6 )%

¹	~~Includes disconnections for customers that migrated to DIRECTV NOW.~~

²	~~Consistent with industry practice, DIRECTV NOW includesover-the-top~~ ~~connections that are on a free-trial.~~

~~Operating revenues~~decreased $1,011, or 8.0%, in the second quarter and $2,035, or 8.1%, for the first six months of 2018, primarily due to lower video and legacy service revenues, and to a lesser extent, new accounting rules.

~~As consumers continue to demand more mobile access to video, we provide streaming access to our subscribers, including mobile access for existing satellite andU-verse~~ ~~subscribers. In November 2016, we launched DIRECTV NOW, our video streaming option that does not require either satellite orU-verse~~ ~~service (commonly calledover-the-top~~ ~~video service).~~

~~Video entertainment~~~~revenues decreased $822, or 9.0%, in the second quarter and $1,483, or 8.2%, for the first six months of 2018, largely driven by a 4.2% decline in linear video subscribers. Ourover-the-top~~ video subscriber net adds more than offset our decline in linear video connections. However, this shift by our customers, consistent with the rest of the industry, from a premium linear service to our more economically priced~~over-the-top~~ video service has pressured our video revenues. Also contributing to the decrease was the impact of newly adopted accounting rules, which resulted in less revenue allocated to video services when these services are bundled with other offerings. Churn rose for subscribers with linear video only service, partially reflecting price increases.

~~AT&T INC.~~

~~JUNE 30, 2018~~

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

~~Dollars in millions except per share and per subscriber amounts~~

~~High-speed internet~~ revenues increased $54, or 2.8%, in the second quarter and decreased slightly for the first six months of 2018. During the quarter, we reviewed and refined the estimates used to allocate customer discounts amongst bundled services, contributing to higher high-speed internet revenues in the second quarter of 2018. When compared to 2017, IP broadband subscribers increased 3.4%, to 13.7 million subscribers at June 30, 2018. Our bundling strategy is helping to lower churn with subscribers who bundle broadband with another AT&T service having about half the churn of broadband-only subscribers.

~~To compete more effectively against other broadband providers, we continued to deploy ourall-fiber,~~ high-speed wireline network, which has improved customer retention rates. We also expect our planned 5G national deployment to aid in our ability to provide more locations with competitive broadband speeds.

~~Legacy voice and data service~~revenues decreased $196, or 20.0%, in the second quarter and $408, or 20.3%, for the first six months of 2018, reflecting continued decreases in local voice, long-distance and traditional data services. The decreases reflect the continued migration of customers to our more advanced~~IP-based~~ ~~offerings or to competitors, and the impact of netting USF fees.~~

~~Operations and support~~expenses decreased $709, or 7.4%, in the second quarter and $1,375, or 7.2%, for the first six months of 2018. Operations and support expenses consist of costs associated with providing video content, and expenses incurred to provide our products and services, including costs of operating and maintaining our networks, as well as personnel charges for compensation and benefits.

Decreased operations and support expenses were primarily impacted by our adoption of new accounting rules, resulting in commission deferrals and netting of USF fees in 2018. Also contributing to the decreases was our ongoing focus on cost efficiencies and merger synergies, lower employee-related expenses resulting from workforce reductions, lower amortization of fulfillment cost deferrals due to a longer estimated economic life for our entertainment group customers (see Note 1) and lower advertising costs, which were partially offset by annual content cost increases.

~~Depreciation~~ expense decreased $112, or 7.7%, in the second quarter and $220, or 7.6%, for the first six months of 2018. The decreases were primarily due to our fourth-quarter 2017 abandonment of certain copper network assets, partially offset by ongoing capital spending for network upgrades and expansion.

~~Operating income~~ decreased $190, or 11.6%, in the second quarter and $440, or 13.7%, for the first six months of 2018. Our Entertainment Group segment operating income margin in the second quarter decreased from 13.0% in 2017 to 12.5% in 2018, and for the first six months decreased from 12.7% in 2017 to 12.0% in 2018. Our Entertainment Group segment EBITDA margin in the second quarter decreased from 24.5% in 2017 to 24.0% in 2018, and for the first six months decreased from 24.1% in 2017 to 23.4% in 2018.

~~AT&T INC.~~

~~JUNE 30, 2018~~

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

~~Dollars in millions except per share and per subscriber amounts~~

~~International~~

~~Segment Results~~

      Second Quarter Six-Month Period
      2018     2017     Percent
Change 2018     2017     Percent
Change
Segment operating revenues

Video entertainment
   $         1,254 $         1,361 (7.9 )% $         2,608 $         2,702 (3.5 )%
Wireless service
   417 535 (22.1 ) 821 1,010 (18.7 )
Wireless equipment
   280 130 115.4 547 243 125.1
Total Segment Operating Revenues
   1,951 2,026 (3.7 ) 3,976 3,955 0.5
Segment operating expenses

Operations and support
   1,803 1,772 1.7 3,607 3,531 2.2
Depreciation and amortization
   313 311 0.6 645 601 7.3
Total Segment Operating Expenses
   2,116 2,083 1.6 4,252 4,132 2.9
Segment Operating Income (Loss)
   (165 ) (57 ) - (276 ) (177 ) (55.9 )
Equity in Net Income (Loss) of Affiliates
   15 25 (40.0 ) 15 45 (66.7 )
Segment Contribution
   $ (150 ) $ (32 ) - % $ (261 ) $ (132 ) (97.7 )%

~~The following tables highlight other key measures of performance for the International segment:~~

                        June 30,    Percent
(in 000s)                      2018    2017    Change
Mexican Wireless Subscribers

Postpaid
            5,749    5,187    10.8 %
Prepaid
            10,468    7,646    36.9
Branded
            16,217    12,833    26.4
Reseller
            181    249    (27.3 )
Total Mexican Wireless Subscribers
            16,398    13,082    25.3


Latin America Satellite Subscribers

Total Latin America Satellite Subscribers¹
            13,713    13,622    0.7 %

¹	~~Excludes subscribers of our International segment equity investment in SKY Mexico, in which we own a 41.3% stake. SKY Mexico had 8.0 million subscribers at March 31, 2018 and December 31, 2017.~~

~~AT&T INC.~~

~~JUNE 30, 2018~~

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

~~Dollars in millions except per share and per subscriber amounts~~

      Second Quarter Six-Month Period
(in 000s)    2018    2017
Percent
Change
2018 2017
Percent
Change

Mexican Wireless Net Additions

Postpaid
           142    92 54.3 % 251 222 13.1 %
Prepaid
   611            402 52.0 1,070 919 16.4
Branded Net Additions
   753    494 52.4 1,321 1,141 15.8
Reseller
   3    (18 ) - (22 ) (32 ) 31.3
Mexican Wireless
Net Subscriber Additions
   756    476         58.8         1,299         1,109         17.1

Latin America Satellite Net Additions

Latin America Satellite
Net Subscriber Additions¹
   140    (56 ) - % 125 35 - %

¹	~~Excludes SKY Mexico net subscriber losses of 92 and 18 for the quarter ended March 31, 2018 and 2017, respectively.~~

~~Operating Results~~

Our International segment consists of the Latin American satellite video operations as well as our Mexican wireless operations. Our international subsidiaries conduct business in their local currency and operating results are converted to U.S. dollars using official exchange rates. Our International segment is subject to foreign currency fluctuations.

~~Operating revenues~~ decreased $75, or 3.7%, in the second quarter and increased $21, or 0.5%, for the first six months of 2018. Revenue from video services in Latin America decreased $107 and $94 due to foreign exchange pressures. Mexico wireless revenues increased $32, or 4.8%, in the second quarter and $115, or 9.2%, for the first six months of 2018, primarily due to growth in equipment revenues as we have increased our subscriber base, partially offset by competitive pricing for services, our shutdown of a legacy wholesale business and our adoption of the new U.S. revenue accounting standard.

~~Operations and support~~ expenses increased $31, or 1.7%, in the second quarter and $76, or 2.2%, for the first six months of 2018. Operations and support expenses consist of costs incurred to provide our products and services, including costs of operating and maintaining our networks and providing video content and personnel expenses, such as compensation and benefits. The increase in expenses is primarily due to higher programming, including World Cup programming costs in the second quarter, and other operating costs partially offset by changes in foreign currency exchange rates and lower wholesale costs in Mexico. Approximately 15 % of our expenses in Mexico and Latin America are U.S. dollar based, with the remainder in the local currency.

~~Depreciation~~expense increased $2, or 0.6%, in the second quarter and $44, or 7.3%, for the first six months of 2018. The increases were primarily due to higher capital spending in Mexico as we essentially complete our network upgrades.

~~Operating income~~ decreased $108 in the second quarter and $99, or 55.9%, for the first six months of 2018, and were negatively impacted by foreign exchange pressure. Our International segment operating income margin in the second quarter decreased from (2.8)% in 2017 to (8.5)% in 2018, and for the first six months decreased from (4.5)% in 2017 to (6.9)% in 2018. Our International EBITDA margin in the second quarter decreased from 12.5% in 2017 to 7.6% in 2018, and for the first six months decreased from 10.7% in 2017 to 9.3% in 2018.

~~AT&T INC.~~

~~JUNE 30, 2018~~

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

~~Dollars in millions except per share and per subscriber amounts~~

~~WarnerMedia~~

~~Segment Results for the period from June 15, 2018 to June 30, 2018~~

      Second Quarter Six-Month Period
      2018 2017    Percent
Change 2018 2017    Percent
Change
Segment operating revenues

Content
   $             487 $                 -    - % $             487 $                 -    - %
Subscription
   591 -    - 591 -    -
Advertising
   208 -    - 208 -    -
Other
   51 -    - 51 -    -
Intrasegment eliminations
   (62 ) -    - (62 ) -    -
Total Segment Operating Revenues
   1,275 -    - 1,275 -    -
Segment operating expenses

Operations and support
   794 -    - 794 -    -
Depreciation and amortization
   30 -    - 30 -    -
Total Segment Operating Expenses
   824 -    - 824 -    -
Segment Operating Income (Loss)
   451 -    - 451 -    -
Equity in Net Income (Loss) of Affiliates
   (6 ) -    - (6 ) -    -
Segment Contribution
   $ 445 $ -    - % $ 445 $ -    - %

~~The WarnerMedia segment consists of the results of Time Warner after we completed our acquisition June 14, 2018. Our WarnerMedia segment operating income margin was 35.4% for the16-day~~ period ended June 30, 2018. Consistent with our past practice, many of the fair value adjustments from the application of purchase accounting required under GAAP have not been allocated to the segment, instead they are reported as acquisition-related items in the reconciliation to consolidated results. The WarnerMedia segment consists of the following businesses:

●

~~Turner, consisting principally of cable networks and digital media properties.~~

●

~~HBO consisting principally of premium pay television and OTT services.~~

●

~~Warner Bros., consisting principally of television, feature film, home video and game production and distribution.~~

~~AT&T INC.~~

~~JUNE 30, 2018~~

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

~~Dollars in millions except per share and per subscriber amounts~~

~~WarnerMedia~~

~~Segment Results for the period from June 15, 2018 to June 30, 2018~~

      Second Quarter       Six-Month Period
      2018 2017    Percent
Change       2018 2017    Percent
Change
Segment operating revenues

Turner
   $ 549 $             -    - %    $            549 $             -    - %
Warner Bros.
   507 -    -    507 -    -
HBO
   281 -    -    281 -    -
Intrasegment eliminations
   (62 ) -    -    (62 ) -    -
Total Segment Operating Revenues
               1,275 -    -    1,275 -    -
Segment Operating Contribution

Turner
   280 -    -    280 -    -
Warner Bros.
   90 -    -    90 -    -
HBO
   105 -    -    105 -    -
Corporate
   (13 ) -    -    (13 ) -    -
Intrasegment eliminations
   (11 ) -    -    (11 ) -    -
Segment Operating Income (Loss)
   $ 451 $ -    - %    $            451 $ -    - %

~~Operating Revenues~~ ~~were $1,275 for the16-day~~ ~~period ended June 30, 2018.~~

~~Content~~revenues were $487 for the period, including $455 from Warner Bros., $21 from Turner and $11 from HBO. Content revenues are derived from content production and distribution. Revenue from the distribution of television programs and series totaled $186 for Warner Bros. for the~~16-day~~ ~~period. Revenues from the distribution of feature films by Warner Bros., or theatrical revenues, were $222 and revenues from games and other totaled $47 for the period.~~

~~Subscription~~ revenues were $591 for the period, including $314 from Turner, $270 from HBO and $7 from Warner Bros. Subscription revenues are derived from the provision of programming to operators and digital distributors who have contracted to receive and distribute programming to their customers. Revenues reflect higher domestic rates and growth at Turner’s international networks, partially offset by the impact of lower domestic subscribers and unfavorable foreign exchange rates. Subscriber trends remain stable with growth from virtual MVPDs and international offset by lower traditional subscribers.

~~Advertising~~revenues were $208 for the period, including $200 from Turner and $8 from Warner Bros. These revenues result from sale of advertising on our networks and digital properties and the digital properties we manage and/or operate for others.

~~Operations and support~~ ~~expenses were $794 for the period and are primarily attributable to programming expenses along with marketing costs. Programming expenses reflect higher original and acquired programming costs.~~

~~Depreciation~~ ~~expense was $30 for the16-day~~ ~~period ended June 30, 2018.~~

~~AT&T INC.~~

~~JUNE 30, 2018~~

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

~~Dollars in millions except per share and per subscriber amounts~~

~~Supplemental Operating Information~~

As a supplemental discussion of our operating results, for comparison purposes, we are providing a view of our combined domestic wireless operations (AT&T Mobility). See “Discussion and Reconciliation of~~Non-GAAP~~ Measures” for a reconciliation of these supplemental measures to the most directly comparable financial measures calculated and presented in accordance with U.S. generally accepted accounting principles.

~~AT&T Mobility Results~~

      Second Quarter Six-Month Period
      2018    2017    Percent
Change 2018    2017    Percent
Change
Operating revenues

Service
   $ 13,682    $ 14,471    (5.5 )% $ 27,085    $ 28,939        (6.4) %
Equipment
   3,600    2,984    20.6 7,552    5,613    34.5




Total Operating Revenues
   17,282    17,455    (1.0 ) 34,637    34,552    0.2




Operating expenses

Operations and support
   9,663    10,091    (4.2 ) 19,765    19,976    (1.1)




EBITDA
   7,619    7,364    3.5 14,872    14,576    2.0




Depreciation and amortization
   2,113    1,988    6.3 4,208    3,980    5.7




Total Operating Expenses
       11,776        12,079    (2.5 ) 23,973    23,956    0.1




Operating Income
   $ 5,506    $ 5,376            2.4 % $         10,664    $         10,596    0.6 %

~~The following tables highlight other key measures of performance for AT&T Mobility:~~

        June 30,      Percent
Change
(in 000s)      2018      2017
Wireless Subscribers¹

Postpaid smartphones
     60,183      59,178      1.7 %
Postpaid feature phones and data-centric devices
     17,189      17,824      (3.6)
Postpaid
     77,372      77,002      0.5
Prepaid³
     16,217      14,187      14.3
Branded
     93,589      91,189      2.6
Reseller
     8,582      10,255      (16.3)
Connected devices^{2, 3}
     44,718      34,658      29.0
Total Wireless Subscribers
     146,889      136,102      7.9

Branded Smartphones
     73,797      71,818      2.8
Smartphones under our installment programs at end of period
     31,918      31,649      0.8 %

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

²	~~Includes data-centric devices such as session-based tablets, monitoring devices and primarily wholesale automobile systems. Excludes postpaid tablets.~~

³	~~Beginning in the third quarter of 2017, we began reporting prepaid IoT connections, which primarily consist of connected cars, as a component of prepaid subscribers.~~

~~AT&T INC.~~

~~JUNE 30, 2018~~

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

~~Dollars in millions except per share and per subscriber amounts~~

      Second Quarter    Six-Month Period
(in 000s)    2018 2017 Percent
Change    2018 2017 Percent
Change
Wireless Net Additions¹

Postpaid⁵
   73 143 (49.0)%    122 (51) - %
Prepaid⁴
   453 267 69.7        694 549 26.4
Branded Net Additions
   526 410 28.3        816 498 63.9
Reseller
   (444 ) (368 ) (20.7)      (832 ) (950 ) 12.4
Connected devices^{2, 4}
   2,982 2,256 32.2        5,710 4,828 18.3
Wireless Net Subscriber Additions
   3,064 2,298 33.3        5,694 4,376     30.1

Smartphones sold under our installment programs during period
   3,644 3,583 1.7 %    7,637 7,084 7.8 %
Branded Churn³
   1.50% 1.57% (7) BP    1.57% 1.64% (7) BP
Postpaid Churn³
   1.02% 1.01% 1 BP    1.04% 1.07% (3) BP
Postpaid Phone Only Churn^3,5
       0.82%     0.79% 3 BP    0.83% 0.84% (1) BP

¹	~~Excludes acquisition-related additions during the period.~~

²	~~Includes data-centric devices such as session-based tablets, monitoring devices and primarily wholesale automobile systems. Excludes postpaid tablets. See (5) below.~~

³	Calculated by dividing the aggregate number of wireless subscribers who canceled service during a month divided by the total number of wireless subscribers at the beginning of that month. The churn rate for the period is equal to the average of the churn rate for each month of that period.

⁴	Beginning in the third quarter of 2017, we began reporting prepaid IoT connections, which primarily consist of connected cars, as a component of prepaid subscribers, resulting in 97 and 146 additional prepaid net adds in the second quarter and first six months of 2018.

⁵	~~Postpaid phone net adds were 46 and (89) in the second quarter and 24 and (437) for the first six months of 2018 and 2017, respectively.~~

~~Operating income~~ increased $130, or 2.4%, in the second quarter and $68, or 0.6%, for the first six months of 2018. The second-quarter operating income margin of AT&T Mobility increased from 30.8% in 2017 to 31.9% in 2018 and for the first six months increased from 30.7% in 2017 to 30.8% in 2018. AT&T Mobility’s second-quarter EBITDA margin increased from 42.2% in 2017 to 44.1% in 2018 and for the first six months increased from 42.2% in 2017 to 42.9% in 2018. AT&T Mobility’s second-quarter EBITDA service margin increased from 50.9% in 2017 to 55.7% in 2018 and for the first six months increased from 50.4% in 2017 to 54.9% in 2018 (EBITDA service margin is operating income before depreciation and amortization, divided by total service revenues). Our 2018 margins were positively impacted by our policy election to net USF fees.

Subscriber Relationships

As the wireless industry has matured, future wireless growth will increasingly depend on our ability to offer innovative services, plans and devices and to provide these services in bundled product offerings with our video and broadband services. Subscribers that purchase two or more services from us have significantly lower churn than subscribers that purchase only one service. To support higher mobile video and data usage, our priority is to best utilize 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 mature and highly competitive market, we have launched a wide variety of plans ~~including unlimited and bundled services, as well as equipment installment programs.~~

~~ARPU~~

Postpaid phone-only ARPU was $54.18 for the second quarter and $53.63 for the first six months of 2018, compared to $58.30 and $58.20 in 2017, primarily reflecting lower revenues recognized under new revenue accounting standards. ARPU

~~AT&T INC.~~

~~JUNE 30, 2018~~

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

~~Dollars in millions except per share and per subscriber amounts~~

~~has also been affected by customers shifting to unlimited plans, which decreases overage revenues; however, customers are adding additional devices helping to offset that decline.~~

~~Churn~~

The effective management of subscriber churn is critical to our ability to maximize revenue growth and to maintain and improve margins. Postpaid churn was slightly higher in the second quarter, but lower for the first six months of 2018, even with higher tablet churn. Postpaid phone only churn was higher in the second quarter, but lower for the six months.

~~Branded Subscribers~~

Branded subscribers increased 0.5% in the second quarter of 2018 when compared to March 31, 2018 and increased 2.6% when compared to June 30, 2017. The year-over-year increase includes increases of 0.5% and 14.3% in postpaid and prepaid subscribers, respectively.

At June 30, 2018, approximately 94% of our postpaid phone subscriber base used smartphones, compared to 92% at June 30, 2017, with the majority of phone sales during both years attributable to smartphones. . Virtually all 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. Such offerings are intended to encourage existing subscribers to upgrade their current services and/or add connected devices, attract subscribers from other providers and/or minimize subscriber churn.

Our equipment installment purchase programs allow for postpaid subscribers to purchase certain devices in installments over a specified period of time, with the option to trade in the original device for a new device and have the remaining unpaid balance paid or settled once conditions are met. A significant percentage of our customers choosing equipment installment programs pay a lower monthly service charge, which results in lower service revenue recorded for these subscribers. Over half of the postpaid smartphone base is on an equipment installment program and the majority of postpaid smartphone gross adds and upgrades for all periods presented were either equipment installment plans or Bring Your Own Device (BYOD). While BYOD customers do not generate equipment revenue or expense, the service revenue helps improve our margins.

Connected Devices

Connected devices ~~includes~~include data-centric devices such as session-based tablets, monitoring devices and primarily wholesale automobile systems. ~~Connected~~The number of connected device ~~subscribers~~subscriber relationships increased ~~7.2%~~ during the ~~second~~first quarter ~~when compared to March 31, 2018 and 29.0% when compared to June 30, 2017. During~~of 2019, driven by the ~~second quarter and first six months~~addition of ~~2018, we added~~ approximately ~~1.9 million and 3.6~~2.0 million wholesale connected cars through agreements with various carmakers and ~~experienced~~ strong growth in other ~~IoT connections as well.~~ Internet of Things (IoT) connections. We believe that these connected car agreements give us the opportunity to create future retail relationships with the car owners.

Entertainment Group Results
	First Quarter
					Percent
	2019		2018		Change
Operating revenues
Video entertainment	$	8,074	$	8,225	(1.8)	%
High-speed internet		2,070		1,878	10.2
Legacy voice and data services		683		806	(15.3)
Other service and equipment		501		522	(4.0)
Total Operating Revenues		11,328		11,431	(0.9)

Operating expenses
Operations and support		8,527		8,811	(3.2)
Depreciation and amortization		1,323		1,310	1.0
Total Operating Expenses		9,850		10,121	(2.7)
Operating Income		1,478		1,310	12.8
Equity in Net Income (Loss) of Affiliates		-		(1)	-
Operating Contribution	$	1,478	$	1,309	12.9	%

AT&T INC.

~~JUNE 30, 2018~~

MARCH 31, 2019

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

Dollars, subscribers and connections in millions, except per share and per subscriber amounts

~~Supplemental Results Under Historical Accounting Method~~

The following tables highlight other key measures of performance for the Entertainment Group business unit:

		First Quarter		Percent Change
(in 000s)		2019	2018	Percent Change
Video Connections
Premium TV¹		22,359	23,902	(6.5)	%
DIRECTV NOW²		1,508	1,467	2.8
Total Video Connections		23,867	25,369	(5.9)

Broadband Connections
IP¹		13,822	13,616	1.5
DSL		632	816	(22.5)
Total Broadband Connections		14,454	14,432	0.2

Retail Consumer Switched Access Lines		3,787	4,535	(16.5)
U-verse Consumer VoIP Connections		4,393	5,105	(13.9)
Total Retail Consumer Voice Connections		8,180	9,640	(15.1)

Video Net Additions
Premium TV^{1, 3}		(544)	(187)	-
DIRECTV NOW²		(83)	312	-
Net Video Additions		(627)	125	-

Broadband Net Additions
IP¹		93	154	(39.6)
DSL		(48)	(72)	33.3
Net Broadband Additions		45	82	(45.1)

Fiber Broadband Connections (included in IP)		3,060	1,955	56.5
Fiber Broadband Net Additions (included in IP)		297	226	31.4	%
¹	2019 includes the impact of aligning our subscriber billing practice with the industry and AT&T Mobility to extend customer business
	disconnection period to the end of the billing cycle, resulting in an increase of 117 net video and 38 net broadband subscribers at March
	31, 2019.
²	Consistent with industry practice, DIRECTV NOW includes connections that are on a free-trial.
³	Includes disconnections for customers that migrated to DIRECTV NOW.

Video entertainment revenues are comprised of subscription and advertising revenues. Revenues decreased in the first quarter of 2019, largely driven by a ~~supplemental discussion~~6.5% decline in premium TV subscribers. Our customers continue to shift, consistent with the rest of ~~our operating results, we are providing results under~~ the ~~comparative historical accounting method prior~~industry, from a premium linear service to our ~~adoption~~more economically priced OTT video service which has pressured our video revenues. OTT net additions declined in the first quarter due to price changes and promotions. Churn rose for subscribers with premium TV only service, partially reflecting price increases.

High-speed internet revenues increased in the first quarter of ~~ASC 606 for~~2019. In addition to the ~~three-months ended June 30, 2018.~~

      Second Quarter
      Reported Promotions
& Other USF    Commission
Deferrals Historical
Accounting
Service Revenues

Consumer Mobility
   $           11,853 $ (245 ) $          (358)    $             - $             12,456
Business Solutions
   8,282 (146 ) (384)    - 8,812
Entertainment Group
   11,647 (44 ) (162)    - 11,853
International
   1,671 (40 ) -    - 1,711
Corporate and Other
   320 (7 ) (4)    - 331
AT&T Service Revenues
   33,773 (482 ) (908)    - 35,163
AT&T Mobility
   13,682 (390 ) (423)    - 14,495
Equipment Revenues

Consumer Mobility
   3,016 291 -    - 2,725
Business Solutions
   781 158 -    - 623
Entertainment Group
   3 - -    - 3
International
   280 18 -    - 262
Corporate and Other
   - 2 -    - (2 )
AT&T Equipment Revenues
   4,080 469 -    - 3,611
AT&T Mobility
   3,600 451 -    - 3,149
Total Operating Revenues

Consumer Mobility
   14,869 46 (358)    - 15,181
Business Solutions
   9,063 12 (384)    - 9,435
Entertainment Group
   11,650 (44 ) (162)    - 11,856
International
   1,951 (22 ) -    - 1,973
WarnerMedia
   1,275 (2 ) -    - 1,277
Corporate and Other
   319 (5 ) (4)    - 328
Eliminations
   (141 ) - -    - (141 )
AT&T Operating Revenues
   38,986 (15 ) (908)    - 39,909
AT&T Mobility
   17,282 61 (423)    - 17,644
Total Operating Expenses

Consumer Mobility
   9,891 85 (358)    (298 ) 10,462
Business Solutions
   7,103 4 (384)    (63 ) 7,546
Entertainment Group
   10,198 2 (162)    (265 ) 10,623
International
   2,116 6 -    (47 ) 2,157
WarnerMedia
   824 (6 ) -    - 830
Corporate and Other
   2,529 4 (4)    - 2,529
Eliminations
   (141 ) - -    - (141 )
AT&T Operating Expenses
   32,520 95 (908)    (673 ) 34,006
AT&T Mobility
   11,776 86 (423)    (333 ) 12,446
Total Operating Income

Consumer Mobility
   4,978 (39 ) -    298 4,719
Business Solutions
   1,960 8 -    63 1,889
Entertainment Group
   1,452 (46 ) -    265 1,233
International
   (165 ) (28 ) -    47 (184 )
WarnerMedia
   451 4 -    - 447
Corporate and Other
   (2,210 ) (9 ) -    - (2,201 )
AT&T Operating Income
   6,466 (110 ) -    673 5,903
AT&T Mobility
   5,506 (25 ) -    333 5,198

shift of subscribers to our higher-speed fiber services, our bundling strategy is helping to lower churn with subscribers who bundle broadband with another AT&T service, having about half the churn of broadband-only subscribers.

AT&T INC.

~~JUNE 30, 2018~~

MARCH 31, 2019

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

Dollars, subscribers and connections in millions, except per share and per subscriber amounts

~~Consumer Mobility~~

~~Supplemental Segment Results~~

        Second Quarter
        Reported
2018      Accounting
Impact    Historical
Method
2018      2017      Percent
Change
Segment operating revenues

Service
     $ 11,853      $ (603 )    $ 12,456      $         12,467      (0.1 )%
Equipment
     3,016      291    2,725      2,624      3.8
Total Segment Operating Revenues
     14,869      (312 )    15,181      15,091      0.6
Segment operating expenses

Operations and support
     8,085      (571 )    8,656      8,636      0.2
EBITDA
     6,784      259    6,525      6,455      1.1
Depreciation and amortization
     1,806      -    1,806      1,716      5.2
Total Segment Operating Expenses
     9,891      (571 )    10,462      10,352      1.1
Segment Operating Income
     4,978      259    4,719      4,739      (0.4 )
Equity in Net Income of Affiliates
     -      -    -      -      -
Segment Contribution
     $ 4,978      $ 259    $ 4,719      $ 4,739      (0.4 )%

Operating Income Margin
     33.5%         31.1%      31.4%      (30)BP
EBITDA Margin
     45.6%         43.0%      42.8%      20 BP
EBITDA Service Margin
     57.2%         52.4%      51.8%      60 BP

Legacy voice and data service revenues decreased in the first quarter of 2019, reflecting the continued migration of customers to our more advanced IP-based offerings or to competitors.

Operations and support expenses decreased in the first quarter of 2019. Contributing to the decreases were lower marketing costs and volumes, our ongoing focus on cost efficiencies, a one-time settlement of a carriage dispute and the impact of a prior update to the estimated economic life for our entertainment group customers.

Depreciation expense increased in the first quarter of 2019, primarily due to our ongoing capital spending for network upgrades and expansion.

Operating income increased in the first quarter of 2019. Our Entertainment Group operating income margin in the first quarter increased from 11.5% in 2018 to 13.0% in 2019. Our Entertainment Group EBITDA margin in the first quarter increased from 22.9% in 2018 to 24.7% in 2019.

Business Wireline Results
	First Quarter
					Percent
	2019		2018		Change
Operating revenues
Strategic and managed services	$	3,792	$	3,595	5.5	%
�� Legacy voice and data services		2,404		2,865	(16.1)
Other service and equipment		302		287	5.2
Total Operating Revenues		6,498		6,747	(3.7)

Operating expenses
Operations and support		4,040		4,016	0.6
Depreciation and amortization		1,235		1,170	5.6
Total Operating Expenses		5,275		5,186	1.7
Operating Income		1,223		1,561	(21.7)
Equity in Net Income (Loss) of Affiliates		-		(1)	-
Operating Contribution	$	1,223	$	1,560	(21.6)	%

Strategic and managed services revenues increased in the first quarter of 2019. Our strategic services are made up of (1) data services, including our VPN, dedicated internet ethernet and broadband, (2) voice service, including VoIP and cloud-based voice solutions, (3) security and cloud solutions, and (4) managed, professional and outsourcing services. Revenue increases were primarily attributable to growth in our security and cloud solutions and managed services.

Legacy voice and dataservice revenues decreased in the first quarter of 2019, primarily due to lower demand as customers continue to shift to our more advanced IP-based offerings or our competitors.

Other service and equipment revenues increased in the first quarter of 2019, driven by revenues from intellectual property. Other service revenues include project-based revenue, which is nonrecurring in nature, as well as revenues from customer premises equipment.

Operations and support expenses increased in the first quarter of 2019, primarily due to higher fulfillment deferral amortization. Partially offsetting the increase is our continued efforts to shift to a software-based network and automate and digitize our customer support activities.

Depreciation expense increased in the first quarter, primarily due to increases in capital spending for network upgrades and expansion.

AT&T INC.

~~JUNE 30, 2018~~

MARCH 31, 2019

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

Dollars, subscribers and connections in millions, except per share and per subscriber amounts

Operating income decreased in the first quarter of 2019. Our Business ~~Solutions~~

~~Supplemental Segment Results~~

      Second Quarter
      Reported
2018    Accounting
Impact    Historical
Method
2018    2017    Percent
Change
Segment operating revenues

Wireless service
   $ 1,829      $        (209)    $ 2,038      $ 2,004      1.7   %
Strategic services
   3,039      (2)    3,041      2,958      2.8
Legacy voice and data services
   2,723      (251)    2,974      3,423      (13.1)
Other service and equipment
   888      (70)    958      922      3.9
Wireless equipment
   584      160    424      360      17.8
Total Segment Operating Revenues
   9,063      (372)    9,435      9,667      (2.4)
Segment operating expenses

Operations and support
   5,616      (443)    6,059      6,053      0.1
EBITDA
   3,447      71    3,376      3,614      (6.6)
Depreciation and amortization
   1,487      -    1,487      1,483      0.3
Total Segment Operating Expenses
   7,103      (443)    7,546      7,536      0.1
Segment Operating Income
   1,960      71    1,889      2,131      (11.4)
Equity in Net Income of Affiliates
   1      -    1      -      -
Segment Contribution
   $         1,961      $ 71    $         1,890      $         2,131      (11.3) %

Operating Income Margin
       21.6%           20.0%    22.0%      (200) BP
EBITDA Margin
   38.0%       35.8%    37.4%      (160) BP

Wireline operating income margin in the first quarter decreased from 23.1% in 2018 to 18.8% in 2019. Our Business Wireline EBITDA margin in the first quarter decreased from 40.5% in 2018 to 37.8% in 2019.

WARNERMEDIA SEGMENT	First Quarter
					Percent
	2019		2018		Change
Segment Operating Revenues
Turner	$	3,443	$	112	-	%
Home Box Office		1,510		-	-
Warner Bros.		3,518		-	-
Eliminations & Other		(92)		-	-
Total Segment Operating Revenues		8,379		112	-

Segment Operating Contribution
Turner		1,272		64	-
Home Box Office		582		-	-
Warner Bros.		553		-	-
Eliminations & Other		(97)		(25)	-
Total Segment Operating Contribution	$	2,310	$	39	-	%

Our WarnerMedia segment consists of our Turner, Home Box Office and Warner Bros. business units. The order of presentation reflects the consistency of revenue streams, rather than overall magnitude as that is subject to timing and frequency of studio releases. WarnerMedia also includes our financial results for RSNs, which comprise the prior period results reported in this segment.

The WarnerMedia segment does not include results from Time Warner operations for the periods prior to our June 14, 2018 acquisition. Otter Media is included as an equity method investment for periods prior to our August 7, 2018 acquisition of the remaining interest and is in the segment operating results following the acquisition. Consistent with our past practice, many of the fair value adjustments from the application of purchase accounting required under GAAP have not been allocated to the segment, instead they are reported as acquisition-related items in the reconciliation to consolidated results.

Operating revenues were $8,379 in the first quarter of 2019.

Operating contribution was $2,310 for the first quarter of 2019. Our WarnerMedia segment operating income margin was 26.8%.

AT&T INC.

~~JUNE 30, 2018~~

MARCH 31, 2019

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

Dollars, subscribers and connections in millions, except per share and per subscriber amounts

~~Entertainment Group~~

~~Supplemental Segment Results~~

      Second Quarter
      Reported
2018 Accounting
Impact    Historical
Method
2018 2017 Percent
Change
Segment operating revenues

Video entertainment
   $ 8,331   $         (107)    $ 8,438   $ 9,153     (7.8) %
High-speed internet
   1,981   -    1,981   1,927 2.8
Legacy voice and data services
   785   (33)    818   981 (16.6)
Other service and equipment
   553   (66)    619   600 3.2

Total Segment Operating Revenues
   11,650   (206)    11,856   12,661 (6.4)

Segment operating expenses

Operations and support
   8,852   (425)    9,277   9,561 (3.0)

EBITDA
   2,798   219    2,579   3,100 (16.8)

Depreciation and amortization
   1,346   -    1,346   1,458 (7.7)

Total Segment Operating Expenses
   10,198   (425)    10,623   11,019 (3.6)

Segment Operating Income
   1,452   219    1,233   1,642 (24.9)
Equity in Net Income (Loss) of Affiliates
   (20)   -    (20) (12) (66.7)

Segment Contribution
   $         1,432   $ 219    $         1,213   $         1,630 (25.6 )%

Operating Income Margin
   12.5   %    10.4   % 13.0 % (260) BP
EBITDA
   24.0   %    21.8   % 24.5 % (270) BP

WarnerMedia Business Unit Discussion
Turner Results
	First Quarter
					Percent
	2019		2018		Change
Operating revenues
Subscription	$	1,965	$	98	-	%
Advertising		1,261		14	-
Content and other		217		-	-
Total Operating Revenues		3,443		112	-

Operating expenses
Operations and support		2,136		74	-
Depreciation and amortization		60		1	-
Total Operating Expenses		2,196		75	-
Operating Income		1,247		37	-
Equity in Net Income of Affiliates		25		27	(7.4)
Operating Contribution	$	1,272	$	64	-	%

Turner includes the WarnerMedia businesses managed by Turner as well as our financial results for RSNs, which comprise the prior period results reported in this business unit.

Operating revenues for Turner are generated primarily from licensing programming to distribution affiliates and from selling advertising on its networks and digital properties. Revenues for the first quarter included $1,965 of subscription, $1,261 of advertising and $217 of content and other revenue.

Operations and support expenses totaled $2,136 for the first quarter of 2019.

Operating income was $1,247 in the first quarter of 2019. Our Turner operating income margin was 36.2% in the first quarter of 2019. Our Turner EBITDA margin was 38.0% in the first quarter of 2019.

Home Box Office Results
	First Quarter
					Percent
	2019		2018		Change
Operating revenues
Subscription	$	1,334	$	-	-	%
Content and other		176		-	-
Total Operating Revenues		1,510		-	-

Operating expenses
Operations and support		921		-	-
Depreciation and amortization		22		-	-
Total Operating Expenses		943		-	-
Operating Income		567		-	-
Equity in Net Income of Affiliates		15		-	-
Operating Contribution	$	582	$	-	-	%

AT&T INC.

~~JUNE 30, 2018~~

MARCH 31, 2019

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

Dollars, subscribers and connections in millions, except per share and per subscriber amounts

~~International~~

~~Supplemental Segment Results~~

      Second Quarter
   Historical
   Reported Accounting Method Percent
      2018 Impact 2018 2017 Change
Segment operating revenues

Video entertainment
   $ 1,254 $ - $ 1,254 $         1,361 (7.9)%
Wireless service
   417 (40 ) 457 535 (14.6)
Wireless equipment
   280 18 262 130 -
Total Segment Operating Revenues
   1,951 (22 ) 1,973 2,026 (2.6)
Segment operating expenses

Operations and support
   1,803 (41 ) 1,844 1,772 4.1
EBITDA
   148 19 129 254 (49.2)
Depreciation and amortization
   313 - 313 311 0.6
Total Segment Operating Expenses
   2,116 (41 ) 2,157 2,083 3.6
Segment Operating Income (Loss)
   (165 ) 19 (184 ) (57 ) -
Equity in Net Income (Loss) of Affiliates
   15 - 15 25 (40.0)
Segment Contribution
   $ (150 ) $ 19 $ (169 ) $ (32 ) - %

Operating Income Margin
   -8.5 % -9.3 % -2.8 % (650)BP
EBITDA Margin
   7.6 % 6.5 % 12.5 % (600)BP

~~AT&T Mobility Supplemental Results~~

      Second Quarter
      Historical
   Reported    Accounting Method       Percent
      2018    Impact 2018    2017    Change
Operating revenues

Service
   $ 13,682    $ (813 ) $ 14,495    $         14,471    0.2%
Equipment
   3,600    451 3,149    2,984    5.5
Total Operating Revenues
   17,282    (362 ) 17,644    17,455    1.1
Operating expenses

Operations and support
   9,663    (670 ) 10,333    10,091    2.4
EBITDA
   7,619    308 7,311    7,364    (0.7)
Depreciation and amortization
   2,113    - 2,113    1,988    6.3
Total Operating Expenses
   11,776    (670 ) 12,446    12,079    3.0
Operating Income
   $ 5,506    $ 308 $ 5,198    $ 5,376    (3.3) %

Operating Income Margin
   31.9%    29.5%    30.8%    (130)BP
EBITDA Margin
   44.1%    41.4%    42.2%    (80)BP
EBITDA Service Margin
   55.7%    50.4%    50.9%    (50)BP

Operatingrevenues for Home Box Office are generated from the exploitation of original and licensed programming through distribution outlets. Revenues for the first quarter included $1,334 of subscription and $176 of content and other revenue.

Operations and support expenses totaled $921 for the first quarter of 2019.

Operating income was $567 in the first quarter of 2019. Our Home Box Office operating income margin was 37.5% in the first quarter of 2019. Our Home Box Office EBITDA margin was 39.0% in the first quarter of 2019.

Warner Bros. Results
	First Quarter
					Percent
	2019		2018		Change
Operating revenues
Theatrical product	$	1,506	$	-	-	%
Television product		1,613		-	-
Games and other		399		-	-
Total Operating Revenues		3,518		-	-

Operating expenses
Operations and support		2,919		-	-
Depreciation and amortization		52		-	-
Total Operating Expenses		2,971		-	-
Operating Income		547		-	-
Equity in Net Income of Affiliates		6		-	-
Operating Contribution	$	553	$	-	-	%

Operating revenues for Warner Bros. primarily relate to theatrical product (which is content made available for initial exhibition in theaters) and television product (which is content made available for initial airing on television or OTT services). For the first quarter, total operating revenues were $3,518 and included $1,506 from theatrical product, $1,613 from television product and $399 from games and other.

Operations and support expenses totaled $2,919 for the first quarter of 2019.

Operating income was $547 in the first quarter of 2019. Our Warner Bros. operating income margin was 15.5% in the first quarter of 2019. Our Warner Bros. EBITDA margin was 17.0% in the first quarter of 2019.

LATIN AMERICA SEGMENT	First Quarter
					Percent
	2019		2018		Change
Segment Operating Revenues
Vrio	$	1,067	$	1,354	(21.2)	%
Mexico		651		671	(3.0)
Total Segment Operating Revenues		1,718		2,025	(15.2)

Segment Operating Contribution
Vrio		32		148	(78.4)
Mexico		(205)		(259)	20.8
Total Segment Operating Contribution	$	(173)	$	(111)	(55.9)	%

AT&T INC.

~~JUNE 30, 2018~~

MARCH 31, 2019

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

Dollars, subscribers and connections in millions, except per share and per subscriber amounts

Operating Results

Our Latin America operations conduct business in their local currency and operating results are converted to U.S. dollars using official exchange rates, subjecting results to foreign currency fluctuations.

Operating revenues decreased in the first quarter of 2019 driven by lower revenues for Vrio, primarily resulting from foreign exchange pressure.

Operating contribution decreased in the first quarter of 2019, reflecting foreign exchange pressure. Our Latin America segment operating income margin in the first quarter was (10.1)% in 2019 and (5.5)% in 2018.

Latin America Business Unit Discussion
Vrio Results
First Quarter
Percent
2019 2018 Change
Operating revenues $ 1,067 $ 1,354 (21.2) %

Operating expenses
     Operations and support 866 1,001 (13.5)
     Depreciation and amortization 169 205 (17.6)
Total Operating Expenses 1,035 1,206 (14.2)
Operating Income 32 148 (78.4)
Operating Contribution $ 32 $ 148 (78.4) %

The following tables highlight other key measures of performance for Vrio:

First Quarter
Percent
(in 000s) 2019 2018 Change
Vrio Video Subscribers^1,2
13,584 13,573 0.1 %

Vrio Video Net Subscriber Additions³
(32) (15) - %
¹
Excludes subscribers of our equity investment in SKY Mexico, in which we own a 41.3% stake. SKY Mexico had 7.6 million
subscribers at December 31, 2018 and 7.9 million subscribers at March 31, 2018.
²
2019 excludes the impact of 222 subscriber disconnections resulting from conforming our video credit policy across the region, which is
reflected in beginning of period subscribers.
³
Excludes SKY Mexico net subscriber losses of 199 and 92 for the quarter ended December 31, 2018 and March 31, 2018, respectively.

Operating revenues decreased in the first quarter of 2019, primarily due to foreign exchange pressures.

Operations and support expenses decreased in the first quarter of 2019, primarily due to changes in foreign currency exchange rates. Approximately 17% of Vrio expenses are U.S. dollar based, with the remainder in the local currency.

Depreciation expense decreased in the first quarter of 2019, primarily due to changes in foreign currency exchange rates.

Operating income decreased in the first quarter of 2019. Our Vrio operating income margin in the first quarter decreased from 10.9% in 2018 to 3.0% in 2019. Our Vrio EBITDA margin in the first quarter decreased from 26.1% in 2018 to 18.8% in 2019.

41
AT&T INC.
MARCH 31, 2019

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Continued
Dollars, subscribers and connections in millions, except per share and per subscriber amounts

Mexico Results

First Quarter
2019 2018
Percent
Change
Operating revenues
     Service $ 442 $ 404 9.4 %
     Equipment 209 267 (21.7)
Total Operating Revenues 651 671 (3.0)

Operating expenses
     Operations and support 725 803 (9.7)
     Depreciation and amortization 131 127 3.1
Total Operating Expenses 856 930 (8.0)
Operating Income (Loss) (205) (259) 20.8
Operating Contribution $ (205) $ (259) 20.8 %

The following tables highlight other key measures of performance for Mexico:

First Quarter
Percent
(in 000s) 2019 2018 Change
Mexico Wireless Subscribers¹

   Postpaid 5,642 5,607 0.6 %
   Prepaid 11,779 9,857 19.5
   Reseller 301 178 69.1
   Total Mexico Wireless Subscribers 17,722 15,642 13.3 %

Mexico Wireless Net Additions
   Postpaid (69) 109 - %
   Prepaid 114 459 (75.2)
   Reseller 48 (25) -
   Mexico Wireless
      Net Subscriber Additions
93 543 (82.9) %
¹
2019 excludes the impact of 692 subscriber disconnections resulting from the churn of customers related to sales by certain third-party
distributors and the sunset of 2G services in Mexico, which are reflected in beginning of period subscribers.

Service revenues increased in the first quarter of 2019, primarily due to growth in our subscriber base.

Equipment revenues decreased in the first quarter of 2019, primarily due to higher demand in the prior year for our initial offering of equipment installment programs partially offset by growth in our subscriber base.

Operations and support expenses decreased in the first quarter of 2019, primarily driven by equipment sales and inventory reserves. These decreases were partially offset by higher bad debt expenses. Approximately 7% of Mexico expenses are U.S. dollar based, with the remainder in the local currency.

Depreciation and amortization expense increased in the first quarter of 2019 primarily due to the amortization of spectrum licenses and higher in-service assets, partly offset by changes in the useful lives of certain assets.

42
AT&T INC.
MARCH 31, 2019

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Continued
Dollars, subscribers and connections in millions, except per share and per subscriber amounts

Operating income increased in the first quarter of 2019. Our Mexico operating income margin in the first quarter increased from (38.6)% in 2018 to (31.5)% in 2019. Our Mexico EBITDA margin in the first quarter increased from (19.7)% in 2018 to (11.4)% in 2019.

XANDR SEGMENT
First Quarter
Percent
2019 2018 Change
Operating revenues $ 426 $ 337 26.4 %

Operating expenses
     Operations and support 160 50 -
     Depreciation and amortization 13 1 -
Total Operating Expenses 173 51 -
Operating Income 253 286 (11.5)
Equity in Net Income of Affiliates - - -
Operating Contribution $ 253 $ 286 (11.5) %

Operating revenues increased in the first quarter of 2019, primarily due to our acquisition of AppNexus in August 2018.

Operations and support expenses increased in the first quarter of 2019, primarily due to our acquisition of AppNexus and our ongoing development of the platform supporting Xandr’s business.

Operating income decreased in the first quarter of 2019. Our Xandr segment operating income margin in the first quarter decreased from 84.9% in 2018 to 59.4% in 2019.

SUPPLEMENTAL TOTAL ADVERTISING REVENUE INFORMATION

As a supplemental presentation to our Xandr segment operating results, we are providing a view of total advertising revenues generated by AT&T. This combined view presents the entire portfolio of advertising revenues reported across all operating segments and represents a significant strategic initiative and growth opportunity for AT&T. See revenue categories tables in Note 5 for a reconciliation.

Total Advertising Revenues
First Quarter
Percent
2019 2018 Change
Operating Revenues
     WarnerMedia $ 1,279 $ 14 - %
     Communications 417 375 11.2
     Xandr 426 337 26.4
     Eliminations (350) (334) (4.8)
Total Advertising Revenues $ 1,772 $ 392 - %

43
AT&T INC.
MARCH 31, 2019

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Continued
Dollars, subscribers and connections in millions, except per share and per subscriber amounts

SUPPLEMENTAL COMMUNICATIONS OPERATING INFORMATION

As a supplemental presentation to our Communications segment operating results, we are providing a view of our AT&T Business Solutions results which includes both wireless and wireline operations. This combined view presents a complete profile of the entire business customer relationship, and underscores the importance of mobile solutions to serving our business customers. See “Discussion and Reconciliation of Non-GAAP Measures” for a reconciliation of these supplemental measures to the most directly comparable financial measures calculated and presented in accordance with GAAP.

Business Solutions Results
First Quarter
2019 2018
Percent
Change

Operating revenues
     Wireless service $ 1,913 $ 1,791 6.8 %
     Strategic and managed services 3,792 3,595 5.5
     Legacy voice and data services 2,404 2,865 (16.1)
     Other service and equipment 302 287 5.2
     Wireless equipment 596 578 3.1
Total Operating Revenues 9,007 9,116 (1.2)

Operating expenses
     Operations and support 5,640 5,594 0.8
     Depreciation and amortization 1,541 1,458 5.7
Total Operating Expenses 7,181 7,052 1.8
Operating Income 1,826 2,064 (11.5)
Equity in Net Income of Affiliates - (1) -
Operating Contribution $ 1,826 $ 2,063 (11.5) %

OTHER BUSINESS MATTERS

Time WarnerOnIn June ~~14,~~ 2018, we completed our acquisition of Time Warner, a leader in media and entertainment whose major businesses encompass an array of some of the most respected media brands. The deal combines Time Warner’s vast library of content and ability to create new premium content for audiences around the world with our extensive customer relationships and distribution, one of the world’s largest~~pay-TV~~ ~~subscriber bases and scale in TV, mobile and broadband distribution. We expect that the transaction will advance ourdirect-to-consumer~~ ~~efforts and provide us with the ability to develop innovative new content offerings.~~

Under the merger agreement, each share of Time Warner stock was exchanged for $53.75 cash plus 1.437 shares of our common stock. After adjustment for shares issued to trusts consolidated by AT&T, share-based payment arrangements and fractional shares, which were settled in cash, AT&T issued 1,125,517,510 shares to Time Warner shareholders, giving them an approximate 16% stake in the combined company. Based on our $32.52 per share closing stock price on June 14, 2018, we paid Time Warner shareholders $36,599 in AT&T stock and $42,100 in cash. Total consideration, including share-based payment arrangements and other adjustments totaled $79,114. OnIn July ~~12,~~ 2018, the U.S. Department of Justice (DOJ) appealed the U.S. District Court’s decision permitting the merger. ~~We believe~~On February 26, 2019, the D.C. Circuit unanimously affirmed our win. AT&T’s representations to the DOJ regarding its operation of Turner expired on February 28, 2019. The DOJ did not ask the D.C. Circuit to rehear its appeal before the applicable April 12, 2019 deadline, and it stated publicly on February 26, 2018 that “[t]he department has no plans to seek further review” of the D.C. Circuit’s decision. The DOJ’s ~~appeal~~deadline to file a petition for writ of certiorari with the United States Supreme Court is ~~without merit and~~May 28, 2019.

Labor Contracts As of March 31, 2019, we ~~will continue to vigorously defend~~employed approximately 262,000 persons. Approximately 40% of our ~~legal position~~employees are represented by the Communications Workers of America (CWA), the International Brotherhood of Electrical Workers (IBEW) or other unions. After expiration of the agreements, work stoppages or labor disruptions may occur in the ~~appellate court.~~

~~Litigation Challenging DIRECTV’s NFL SUNDAY TICKET~~~~More than two dozen putative class actions were filed in the U.S. District Courts for the Central District~~absence of California and the Southern District of New York against DIRECTV and the National Football League (NFL). These cases were brought by residential and commercial DIRECTV subscribers that have purchased NFL SUNDAY TICKET. The plaintiffs allege that (i) the 32 NFL teams have unlawfully agreed not to compete with eachnew contracts or other in the market for nationally televised NFL football games and instead have “pooled” their broadcasts and assigned to the NFL the exclusive right to market them; and (ii) the NFL and DIRECTV have entered into an unlawful exclusive distribution agreement that allows DIRECTV to charge “supra-competitive” prices for the NFL SUNDAY TICKET package. The complaints seek unspecified treble damages and attorneys’ fees along with injunctive relief. The first complaint, Abrahamian v. National Football League, Inc., et al., was served in June 2015. In December 2015, the Judicial Panel on Multidistrict Litigation transferred the cases outside the Central District of California to that court for consolidation and management of~~pre-trial~~ proceedings. We vigorously dispute the allegations the complaints have asserted. In August 2016, DIRECTV filed a motion to compel arbitration and the NFL defendants filed a motion to dismiss the complaint. In June 2017, the court granted the NFL defendants’ motion to dismiss the complaint without leave to amend, finding that: (1) the plaintiffs did not plead a viable market; (2) the plaintiffs did not plead facts supporting the contention that the exclusive agreement between the NFL and DIRECTV harms competition; (3) the claims failed to overcome the fact that the NFL and its teams must cooperate to sell broadcasts; and (4) the plaintiffs do not have standing to challenge the horizontal agreement among the NFL and the teams. In light of the order granting the motion to dismiss, the court denied DIRECTV’s motion to compel arbitration as moot. In July 2017, plaintiffs filed an appeal in the U.S. Court of Appeals for the Ninth Circuit, which is pending. The appeal has been fully briefed and we anticipate the oral argument will occur in 2019.

~~Federal Trade Commission Litigation Involving DIRECTV~~In March 2015, the Federal Trade Commission (FTC) filed a civil suit in the U.S. District Court for the Northern District of California against DIRECTV seeking injunctive relief and money damages under Section 5 of the Federal Trade Commission Act and Section 4 of the Restore Online Shoppers’ Confidence Act. The FTC’s allegations concern DIRECTV’s advertising, marketing and sale of programming packages. The FTC alleges that DIRECTV did not adequately disclose all relevant terms. We vigorously dispute these allegations. A bench trial began in August 2017, and was suspended after the FTC rested its case, so that the court could consider DIRECTV’s motion for judgment. The hearing on the motion occurred in October 2017, and the judge took it under advisement.

~~Unlimited Data Plan Claims~~ In October 2014, the FTC filed a civil suit in the U.S. District Court for the Northern District of California against AT&T Mobility, LLC seeking injunctive relief and unspecified money damages under Section 5 of the Federal Trade Commission Act. The FTC’s allegations concern the application of AT&T’s Maximum Bit Rate (MBR) program to customers who enrolled in our Unlimited Data Plan from 2007-2010. MBR temporarily reduces in certain instances the download speeds of a small portion of our legacy Unlimited Data Plan customers each month after the customer exceeds a designated amount of data during the customer’s billing cycle. MBR is an industry-standard practice that is designed to affect only the most data-intensive applications (such as video streaming). Texts, emails, tweets, social media

~~AT&T INC.~~

~~JUNE 30, 2018~~

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

~~Dollars in millions except per share and per subscriber amounts~~

posts, internet browsing and many other applications are typically unaffected. Contrary to the FTC’s allegations, our MBR program is permitted by our customer contracts, was fully disclosed in advance to our Unlimited Data Plan customers, and was implemented to protect the network for the benefit of all customers. In March 2015, our motion to dismiss the litigation on the grounds that the FTC lacked jurisdiction to file suit was denied. In May 2015, the Court granted our motion to certify its decision for immediate appeal. The United States Court of Appeals for the Ninth Circuit subsequently granted our petition to accept the appeal, and, in August 2016, issued its decision reversing the district court and finding that the FTC lacked jurisdiction to proceed with the action. The FTC asked the Court of Appeals to reconsider the decision “~~en banc,~~~~” which the Court agreed to do. In February 2018, the Court issued its~~~~en banc~~ decision, finding that the FTC had jurisdiction to proceed with the lawsuit. In addition to the FTC case, several class actions were filed challenging our MBR program. We secured dismissals in each of these cases except~~Roberts v. AT&T Mobility LLC, which is ongoing.~~

~~Labor Contracts~~agreements being reached. A contract now covering approximately ~~9,500~~8,000 traditional wireline employees in our Midwest region expired in April 2018 and employees are working under the terms of the prior contract, including benefits, while negotiations continue. In addition, a contract now covering approximately ~~3,600~~3,000 traditional wireline employees in our legacy AT&T Corp. business also expired in April 2018. Those employees are ~~also~~ working under the terms of their prior contract, including benefits, while negotiations continue. ~~Work stoppages or labor disruptions may occur~~

AT&T INC.

MARCH 31, 2019

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

Dollars, subscribers and connections in ~~the absence of new contracts or other agreements being reached.~~

millions, except per share and per subscriber amounts

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.

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. Since the Telecom Act was passed, the Federal Communications Commission (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. The new leadership at the FCC is charting a more predictable and balanced regulatory course that will encourage long-term investment and benefit consumers. Based on its public statements, we expect the FCC to continue to eliminate antiquated, unnecessary regulations and streamline processes. In addition, 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 allIP-based networks. At the same time, we also seek to ensure that legacy regulations are not further extended to broadband or wireless services, which are subject to vigorous competition.

~~In April 2017,~~

We have organized the FCC adopted an order that maintains light touch pricing regulation of packet-based services, extends such light touch pricing regulation to high-speed Time Division Multiplex (TDM) transport services and to most of our TDM channel termination services, based on a competitive market test for such services. For those services that do not qualify for light touch regulation, the order allows companies to offer volume and term discounts, as well as contract tariffs. Several parties appealed the FCC’s decision. These appeals were consolidated in the U.S. Court of Appeals for the Eighth Circuit, where they remain pending.

~~In October 2016, a sharply divided FCC adopted new rules governing the use of customer information~~following discussion by ~~providers of broadband internet access service. Those rules were more restrictive in certain respects than those governing other participants in the internet economy, including~~reportable segment.

Communications Segment

~~so-called~~Internet “edge” providers such as Google and Facebook. In April 2017, the President signed a resolution passed by Congress repealing the new rules under the Congressional Review Act, which prohibits the issuance of a new rule that is substantially the same as a rule repealed under its provisions, or the reissuance of the repealed rule, unless the new or reissued rule is specifically authorized by a subsequent act of Congress.

~~AT&T INC.~~

~~JUNE 30, 2018~~

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

~~Dollars in millions except per share and per subscriber amounts~~

Privacy-related legislation has been considered in a number of states since the Congressional Review act was passed. The policy environment is complex and rapidly evolving. Legislative and regulatory action could result in increased costs of compliance, claims against broadband internet access service providers and others, and increased uncertainty in the value and availability of data. On June 28, 2018, the State of California enacted comprehensive privacy legislation that gives California consumers the right to know what personal information is being collected about them, to know whether and to whom it is sold or disclosed, and to access and request deletion of this information. Subject to certain exceptions, it also gives consumers the right to~~opt-out~~ of the sale of personal information. The law applies the same rules to all companies that collect consumer information. The new law could significantly affect how data markets operate and will impose implementation costs and challenges. We will continue to support congressional action to codify a set of standard consumer rules of the internet including a federal privacy framework, which would have the effect of preempting state law under the supremacy clause of the U.S. Constitution.

In February 2015, the FCC released an order classifying both fixed and mobile consumer broadband internet access services as telecommunications services, subject to Title II of the Communications Act. The Order, which represented a departure from longstanding bipartisan precedent, significantly expanded the FCC’s authority to regulate broadband internet access services, as well as internet interconnection arrangements. ~~AT&T and several other parties appealed the FCC’s order.~~ In ~~June 2016, a divided panel of the District of Columbia Court of Appeals upheld the FCC’s rules by a2-1~~ ~~vote, and petitions for rehearing en banc were denied in May 2017. Petitions for a writ of Certiorari at the U.S. Supreme Court remain pending. Meanwhile, in~~ December 2017, the FCC reversed its 2015 decision by reclassifying fixed and mobile consumer broadband services as information services and repealing most of the rules that were adopted in 2015. In lieu of broad conduct prohibitions, the order requires internet service providers to disclose information about their network practices and terms of service, including whether they block or throttle internet traffic or offer paid prioritization. Several parties ~~including several state Attorneys General, net neutrality advocacy groups and others, have~~ appealed the FCC’s December 2017 ~~decision. Those appeals, which initially were consolidated in the U.S. Court of Appeals for the Ninth Circuit, were transferred at the request of the parties to~~decision and the D.C. ~~Circuit. In addition, although~~Circuit heard oral argument on the appeals on February 1, 2019. Although the FCC order expressly preempted inconsistent state or local measures, a number of states are considering or have adopted legislation that would reimpose the very rules the FCC repealed, and in some cases, establish additional requirements that go beyond the FCC’s February 2015 order. Additionally, some state governors have issued executive orders that effectively reimpose the repealed requirements. ~~AT&T expects that these measures could result~~Suits have recently been filed concerning laws in ~~further litigation.~~California and Vermont, and other lawsuits are possible. The California and Vermont suits have been stayed pursuant to agreements by those states not to enforce their laws pending resolution of appeals of the FCC’s December 2017 order. We will continue to support congressional action to codify a set of standard consumer rules for the internet.

~~We provide satellite video service through our subsidiary DIRECTV, whose satellites are licensed by the FCC. The Communications Act of 1934 and other related acts give the~~

In October 2016, a sharply divided FCC ~~broad authority to regulate the U.S. operations of DIRECTV. In addition, states representing a majority of our local service access lines have~~ adopted ~~legislation that enables us to provideIP-based~~ service through a single statewide or state-approved franchise (as opposed to the need to acquire hundreds or even thousands of municipal-approved franchises) to offer a competitive video product. We also are supporting efforts to update and improve regulatory treatment for our services. Regulatory reform and passage of legislation is uncertain and depends on many factors.

We provide wireless services in robustly competitive markets, but are subject to substantial 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 FCCnew rules ~~and policies~~ governing the use of customer information by providers of broadband internet access service. Those rules were more restrictive in certain respects than those governing other participants in the spectrum. While wireless communications providers’ prices and offerings are generally not subject to state or local regulation, states sometimes attempt to regulate or legislate various aspects of wireless services,internet economy, including so-called “edge” providers such as Google and Facebook. In April 2017, the president signed a resolution passed by Congress repealing the new rules under the Congressional Review Act.

Privacy-related legislation has been considered in a number of states. Legislative and regulatory action could result in increased costs of compliance, claims against broadband internet access service providers and others, and increased uncertainty in the ~~areas~~value and availability of data. On June 28, 2018, the state of California enacted comprehensive privacy legislation that effective as of January 1, 2020, gives California consumers the right to know what personal information is being collected about them, and whether and to whom it is sold or disclosed, and to access and request deletion of this information. Subject to certain exceptions, it also gives consumers the right to opt-out of the sale of personal information. The law applies the same rules to all companies that collect consumer ~~protection~~information.

AT&T INC.

MARCH 31, 2019

Item 2. Management’s Discussion and ~~the deployment~~Analysis of ~~cell sites~~Financial Condition and ~~equipment.~~ Results of Operations - Continued

Dollars, subscribers and connections in millions, except per share and per subscriber amounts

Wireless The ~~anticipated~~ industry-wide deployment of 5G technology, which is needed to satisfy extensive demand for video and internet access, will involve significant deployment of “small cell” equipment and therefore increase the need for local permitting processes that allow for the placement of small cell equipment on reasonable timelines and terms. Federal regulations also can delay and impede broadband services, including small cell equipment. In March, August and September 2018, the FCC adopted ~~an order~~orders to streamline the wireless infrastructure review process in order to facilitate deployment of next-generation wireless facilities. ~~Among other actions, the order excludes most small cell facilities from federal review under the National Environmental Policy Act~~Those orders have been appealed and the ~~National Historic Preservation Act, while clarifying~~various appeals remain pending in the DC Circuit and ~~streamlining the process for tribal participation in historic preservation reviews where such review is still required.~~9^th Circuit Court of Appeals. In addition, to date, 21 states have adopted legislation to facilitate small cell deployment.

~~AT&T INC.~~

~~JUNE 30,~~

In December 2018,

~~Item 2. Management’s Discussion~~ we introduced the nation’s first commercial mobile 5G service. We currently have mobile 5G in parts of 19 U.S. cities and ~~Analysis of Financial Condition and Results of Operations - Continued~~

~~Dollars~~will have launched mobile 5G service in ~~millions except per share and per subscriber amounts~~

~~Also facilitating~~at least 22 major cities by the deployment of next-generation wireless facilities, in May 2014, 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~~end of the ~~available low band spectrum as presumptively harmful~~year. We expect to ~~competition. The spectrum screen (including the low band screen) recently increased~~have mobile 5G service nationwide to more than 200 million people by ~~23 MHz. On balance, the order and the spectrum screen should allow AT&T to obtain additional spectrum to meet our customers’ needs.~~

As the wireless industry has matured, future wireless growth will increasingly depend on our ability to offer innovative services, plans and devices and to provide these services in bundled product offerings to best utilize a wireless network that has sufficient spectrum and capacity to support these innovations on as broad a geographic basis as possible. We continue to invest significant capital in expanding our network capacity, as well as to secure and utilize spectrum that meets our long-term needs. To that end, we have:

●

~~Submitted winning bids for 251 Advanced Wireless Services (AWS) spectrum licenses for a near-nationwide contiguous block of high-quality spectrum in theAWS-3~~ ~~Auction.~~

●

~~Redeployed spectrum previously used for basic 2G services to support more advanced mobile internet services on our 3G and 4G networks.~~

●

~~Secured the First Responder Network Authority (FirstNet) contract, which provides us with access to 20 MHz of nationwide low band spectrum.~~

●

Invested in 5G and millimeter-wave technologies with our acquisition of Fiber-Tower Corporation, which holds significant amounts of spectrum in the millimeter wave bands (28 GHz and 39 GHz) that the FCC recently reallocated for mobile broadband services. These bands will help to accelerate our entry into 5G services.

~~Connect America Fund Phase II Auction (Auction 903)~~ The FCC plans to conduct a reverse auction to award government funding to the lowest bidders in exchange for providing broadband service to rural, high-cost areas in the U.S. where it is uneconomic for carriers to offer broadband. This is the first time the FCC will award universal service funding through an auction.

early 2020.

LIQUIDITY AND CAPITAL RESOURCES

~~With the completion of the Time Warner transaction, we~~

We had ~~$13,523~~$6,516 in cash and cash equivalents available at ~~June 30, 2018.~~March 31, 2019. Cash and cash equivalents included cash of ~~$3,457~~$2,786 and money market funds and other cash equivalents of ~~$10,066.~~$3,730. Approximately ~~$1,226~~$2,443 of our cash and cash equivalents ~~resided~~were held by our foreign entities in ~~foreign jurisdictions~~accounts predominantly outside of the U.S. and ~~were in foreign currencies, some of which~~ may be subject to restrictions on repatriation.

Cash and cash equivalents ~~decreased $36,975~~increased $1,312 since December 31, ~~2017.~~2018. In the first ~~six~~three months of ~~2018,~~2019, cash inflows were primarily provided by the cash receipts from operations, including cash from our sale and transfer of certain wireless equipment installment ~~receivables~~ and other customer receivables to third parties, issuance of commercial paper and long-term debt and collateral received from banks and other participants in our derivative arrangements. These inflows were offset by cash used to meet the needs of the business, including, but not limited to, ~~the acquisition of Time Warner and wireless spectrum,~~ payment of operating expenses, debt repayments, funding capital expenditures ~~debt repayments,~~and vendor financing payments, and dividends to stockholders.

Cash Provided by or Used in Operating Activities

During the first three months of 2019, cash provided by operating activities was $11,052, compared to $8,947 for the first three months of 2018. Higher operating cash flows in 2019 were primarily due to contributions from WarnerMedia, including our new securitization program (see Note 9), and higher cash flows from working capital initiatives, partly offset by lower net tax refunds.

We actively manage the timing of our ~~vendor~~supplier payments for non-capital items to optimize the use of our cash. Among other things, we seek to have ~~vendor~~ payments made on90-day or greater terms, while providing ~~vendors~~the suppliers with access to bank facilities that permit earlier payments at ~~the vendors’~~their cost. ~~For example,~~In addition, for payments to a key supplier, we have arrangements that allow us to extend payment terms ~~between approximately 40~~up to 6090 days at an additional cost to ~~us. We believe these arrangements provide benefits~~us (referred to ~~us relative to alternative financing arrangements. During the second quarter of 2018 and for the first six months then ended, the~~as supplier financing). The net impact of ~~these~~supplier financing reduced cash ~~management activities on our cash flows provided by~~from operating activities by $904 and $344 for the three months ended March 31, 2019 and 2018, respectively. All supplier financing payments are due within one year.

Cash Used in or Provided by Investing Activities

For the first three months of 2019, cash used in investing activities totaled $5,401, and consisted primarily of $5,182 for capital expenditures, including interest during construction ($936 lower than the prior-year comparable period).

For capital improvements, we have negotiated favorable vendor payment terms of 120 days or more (referred to as vendor financing) with some of our vendors, which are excluded from capital expenditures and reported as financing activities. For the first three months of 2019, these vendor financing payments were $820, and when combined with $5,182 of capital expenditures, total capital investment was ~~not material.~~

$6,002 ($288 lower than the prior-year comparable period). In the first quarter of 2019, we placed $733 of equipment in service under vendor financing arrangements. Total vendor financing payables included in our March 31, 2019 consolidated balance sheets were $2,403, with $1,883 due within one year (in “Accounts payable and accrued liabilities”) and the remainder predominately due within two to three years (in “Other noncurrent liabilities”).

AT&T INC.

~~JUNE 30, 2018~~

MARCH 31, 2019

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

Dollars, subscribers and connections in millions, except per share and per subscriber amounts

On December 22, 2017, federal tax reform was enacted into law. Beginning with 2018, the Act reduces the U.S. federal corporate tax rate from 35% to 21% and permits immediate deductions for certain new assets. As a result, cash taxes will be significantly lower than they would have been in 2018 and beyond without federal tax reform.

~~Cash Provided by or Used in Operating Activities~~

During the first six months of 2018, cash provided by operating activities was $19,176, compared to $17,670 for the first six months of 2017. Higher operating cash flows in 2018 were primarily due to net tax refunds and contributions from WarnerMedia, offset by higher interest payments and acquisition-related costs.

~~Cash Used in or Provided by Investing Activities~~

For the first six months of 2018, cash used in investing activities totaled $52,635, and consisted primarily of $40,715 for acquisition costs related to Time Warner and other acquisitions and $10,959 for capital expenditures, excluding interest during construction.

The vast majority of our capital expenditures are spent on our networks, including product development and related support systems. Capital expenditures, excluding interest during construction, increased $209 in the first six months. We do not report capital expenditures at the segment level. During 2018, approximately $800 of assets for FirstNet build have been placed into service with a net cash impact of $100. Total reimbursements from the government for FirstNet during the first six months of 2018 were $336.

In connection with capital improvements, we negotiate favorable payment terms (referred to as vendor financing), which are excluded from our investing activities and reported as financing activities. We enter into these supplier arrangements when the terms provide benefits to us relative to alternative financing arrangements. For the first six months of 2018, vendor financing payments related to capital investments were approximately $257. During the first ~~six months, we entered~~quarter, approximately $300 of assets related to the FirstNet build were placed into $188 of new vendor financing commitments, with $825 of vendor financing payables included in on our June 30, 2018 consolidated balance sheet, of which $340 are due within one year and the remainder are due between two and five years.

service.

The amount of capital expenditures is influenced by demand for services and products, capacity needs and network enhancements. We are also focused on ensuring DIRECTV merger commitments are met. As of ~~June 30, 2018,~~March 31, 2019, we market ourfiber-to-the-premises network to ~~9.2~~more than 12 million customer locations and are on track to meet our FCC commitment of 12.5 million locations bymid-2019.

In 2018, we expect Capital investment, which consists of capital expenditures plus vendor financing payments, of approximately $25,000, $22,000 net of expected FirstNet reimbursements and vendor financing.

Cash Provided by or Used in Financing Activities

For the first ~~six~~three months of ~~2018,~~2019, cash used in financing activities totaled ~~$3,720~~$4,421 and included net proceeds of ~~$26,478,~~$9,182, which consisted primarily ~~resulting from drawing $20,925 on our Term Loan Credit Agreements in connection with our acquisition~~ of ~~Time Warner. Net proceeds for~~ the ~~first six months of 2018 also include a $1,500 three-year floating rate note and $2,000 of notes issued by our subsidiary, Vrio Corp. (Vrio), see discussion below.~~

following issuances:

●	January draw of $2,850 on an 11-month syndicated term loan agreement.

●	January borrowings of $725 supported by government agencies to support network equipment purchases.

●	January draw of $750 on a private financing agreement.

●	February issuance of $3,000 of 4.350% global notes due 2029.

●	February issuance of $2,000 of 4.850% global notes due 2039.

During the first ~~six~~three months of ~~2018, we redeemed $29,447~~2019, repayment of ~~debt. Approximately $21,236 were notes subject to mandatory redemption if we did not complete our acquisition of Time Warner by April 22, 2018. The remaining amount primarily consisted~~long-term debt totaled $9,840, consisting of the ~~following redemptions:~~

following:

●

~~$2,500 of 5.500% notes due 2018.~~

●

~~$750 of 1.750% notes due 2018.~~

●

~~$300 of 6.450% notes due 2018.~~

●

~~$1,000 of 5.600% notes due 2018.~~

●

~~$1,000 of notes issued by our subsidiary, Vrio.~~

●

~~$2,000 repayment~~The final $2,625 of amounts outstanding under ~~WarnerMedia’s~~our Acquisition Term ~~Credit Agreement.~~

Loan (defined below).

●

$750 of January borrowings under a private financing agreement.

●	$~~600~~1,850 of ~~6.875% WarnerMedia~~2.300% notes due ~~2018.~~ 2019.

●	$400 of floating rate notes due 2019.

●	$890 of 5.200% notes due 2020.

●	$1,120 of 5.000% notes due 2021.

●	$1,000 of 4.700% Warner Media, LLC notes due 2021.

●	$1,000 of 4.750% Warner Media, LLC notes due 2021.

●	$38 of 4.600% DIRECTV Holdings LLC and DIRECTV Financing Co., Inc. notes due 2021.

●	$40 of 5.000% DIRECTV Holdings LLC and DIRECTV Financing Co., Inc. notes due 2021.

Our weighted average interest rate of our entire long-term debt portfolio, including the impact of derivatives, was approximately ~~4.3% as of June 30, 2018 and~~ 4.4% as of March 31, 2019 and December 31, ~~2017.~~2018. We had ~~$180,209~~$170,532 of total notes and debentures outstanding at ~~June 30, 2018,~~March 31, 2019, which included Euro, British pound sterling, Swiss franc, Brazilian real, Mexican peso, Canadian dollar and ~~Canadian~~Australian dollar denominated debt that totaled approximately ~~$36,146.~~

$41,061.

~~AT&T INC.~~

~~JUNE 30, 2018~~

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

~~Dollars in millions except per share and per subscriber amounts~~

As a result of the Time Warner acquisition, we acquired debt with a fair value of $22,846 at the time of acquisition, of which $18,876 at face value remained on our balance sheet as of June 30, 2018. The face value of the remaining debt acquired is summarized primarily as follows:

●

~~$1,108 maturing between 2018 and 2019 with an interest rate ranging from 1.250% to 2.100%.~~

●

~~$6,906 maturing between 2020 and 2024 with an interest rate ranging from 1.950% to 9.150%.~~

●

~~$5,898 maturing between 2025 and 2034 with an interest rate ranging from 2.950% to 7.700%.~~

●

~~$4,964 maturing between 2035 and 2045 with an interest rate ranging from 4.650% to 8.300%.~~

At ~~June 30, 2018,~~March 31, 2019, we had ~~$21,672~~$11,538 of debt maturing within one year, including ~~$8,139~~$2,957 of commercial paper ~~borrowing~~borrowings and ~~$13,323~~$8,441 of 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 accretingzero-coupon note that may be redeemed each May until maturity in 2022. ~~In May 2017, $1 was redeemed by the holder for $1.~~ If the remainder of thezero-coupon note (issued for principal of $500 in 2007 and partially exchanged in the 2017 debt exchange offers) is held to maturity, the redemption amount will be $592.

Vrio, a consolidated holding company for our Latin American digital entertainment services units, DIRECTV Latin American and SKY Brasil, subsidiaries of Vrio, entered into the following long-term debt issuances:

●

~~April 5, 2018 issuance of $650 of 6.25% notes due 2023 and $350 of 6.875% notes due 2028. These notes were redeemed following our April 2018 withdrawal of the planned IPO of Vrio.~~

●

April 11, 2018 borrowing of approximately $1,000 of debt denominated in Brazilian reais that matures in 2023. The floating rate for the facility is based upon the Brazil interbank deposit rate annualized (DI Rate), plus 175 basis points.

~~On July 25, 2018 we issued $750 of 5.625% global notes due 2067. The underwriters have an option to purchase up to an additional $113 aggregate principal amount within 30 days of the offering.~~

~~On July 30, 2018 we issued €2,250 ($2,637 U.S. dollar equivalent) floating rate global notes due 2020.~~

At ~~June 30, 2018,~~March 31, 2019, we had approximately 376 million shares remaining from share repurchase authorizations approved by the Board of Directors in 2013 and 2014. ~~During the first six months of 2018, we repurchased approximately 13 million shares under these authorizations.~~

We paid dividends of ~~$6,144~~$3,714 during the first ~~six~~three months of ~~2018,~~2019, compared with ~~$6,021~~$3,070 for the first ~~six~~three months of ~~2017,~~2018, primarily reflecting the increase in the number of shares outstanding related to our acquisition of Time Warner as well as an increase in our quarterly dividend approved by our Board of Directors in December ~~2017.~~2018. Dividends declared by our Board of Directors totaled ~~$1.00~~$0.51 per share in the first ~~six~~three months of ~~2018~~2019 and ~~$0.98~~$0.50 per share for the first ~~six~~three months of ~~2017.~~2018. Our dividend policy considers the expectations and requirements of stockholders, capital funding 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&T INC.

MARCH 31, 2019

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

Dollars, subscribers and connections in millions, except per share and per subscriber amounts

Credit Facilities

The following summary of our various credit and loan agreements does not purport to be complete and is qualified in its entirety by reference to each agreement filed as exhibits to our Annual Report on Form10-K.

We use credit facilities as a tool in managing our liquidity status. ~~At June 30,~~In December 2018, we ~~had no amounts outstanding on~~amended our five-year ~~$12,000~~ revolving credit ~~agreement.~~

agreement (the “Amended and Restated Credit Agreement”) and concurrently entered into a new five-year agreement (the “Five Year Credit Agreement”) such that we now have two $7,500 revolving credit agreements totaling $15,000. The Amended and Restated Credit Agreement terminates on December 11, 2021 and the Five Year Credit Agreement terminates on December 11, 2023. No amounts were outstanding under either agreement as of March 31, 2019.

In September 2017, we entered into a $2,250 syndicated term loan credit agreement containing (i) a three-year $750 term loan facility, ~~(the “Tranche A Facility”),~~ (ii) a four-year $750 term loan facility ~~(the “Tranche B Facility”)~~ and (iii) a five-year $750 term loan facility, ~~(the “Tranche C Facility”),~~ with certain investment and commercial banks and The Bank of Nova Scotia, as administrative agent. We drew on ~~the Tranche A Facility, the Tranche B Facility and the Tranche C Facility~~all three facilities during the first quarter of 2018, with $2,250 in advances outstanding as of ~~June 30,~~March 31, 2019.

On November 20, 2018, we entered into and drew on a 4.5 year $3,550 term loan credit agreement (the “November 2018 Term Loan”) with Bank of America, N.A., as agent. We used the proceeds to finance the repayment, in part, of loans outstanding under the Acquisition Term Loan. As of March 31, 2019, $3,550 was outstanding under this agreement.

On January 31, 2019, we entered into and drew on an 11-month $2,850 syndicated term loan credit agreement (the “Citibank Term Loan”), with certain investment and commercial banks and Citibank, N.A., as administrative agent. As of March 31, 2019, $2,850 was outstanding under this agreement.

In anticipation of the Time Warner acquisition, we entered into a $16,175 term loan agreement (“Acquisition Term Loan”) containing (i) a 2.5 year $8,087.5 facility (the “Tranche A Facility”) and (ii) a 4.5 year $8,087.5 facility (the “Tranche B Facility”) with a commitment termination date of December 31, 2018.

~~AT&T INC.~~

~~JUNE 30,~~As of December 31, 2018,

~~Item 2. Management’s Discussion~~ $2,625 was outstanding of Tranche A advances. We paid $2,625 of the Tranche A advances on February 20, 2019, and ~~Analysis of Financial Condition and Results of Operations - Continued~~

~~Dollars in millions except per share and per subscriber amounts~~

terminated the facility.

We also utilize other external financing sources, which include various credit arrangements supported by government agencies to support network equipment purchases, as well as a commercial paper program.

In anticipation of the Time Warner acquisition, we entered into a $10,000 term loan agreement (“Term Loan”). In February 2018, we amended the Term Loan to extend the commitment termination date to December 31, 2018 and increased the commitments to $16,175 from $10,000. We drew on the Term Loan for the acquisition during the second quarter of 2018, with $16,175 outstanding as of June 30, 2018.

On June 13, 2018, we entered into an additional $2,500 Term Loan Credit Agreement (“June 2018 Term Loan”) to finance a portion of the cash consideration of the Time Warner acquisition. We accordingly drew on the agreement, with $2,500 outstanding as of June 30, 2018.

On June 26, 2018, we repaid and terminated the $2,000 unsecured term loan agreement that Time Warner had in place at the time the merger closed. At June 14, 2018, Time Warner had approximately $1,100 of commercial paper outstanding, all of which was repaid by July 23, 2018.

Each of our credit and loan agreements contains covenants that are customary for an issuer with an investment grade senior debt credit rating as well as a netdebt-to-EBITDA financial ratio covenant requiring AT&T to maintain, as of the last day of each fiscal quarter, a ratio of not more than3.5-to-1. As of ~~June 30, 2018,~~March 31, 2019, we were in compliance with the covenants for our credit facilities.

Collateral Arrangements

During the quarter, we amended collateral arrangements with certain counterparties to require cash collateral posting by AT&T only when deposit amounts exceed certain thresholds. Under these arrangements, counterparties are still required to post collateral. During the first ~~six~~three months of ~~2018,~~2019, we ~~posted $365~~received $1,404 of ~~additional~~ cash collateral, on a net basis, ~~from banks and other participants in our derivative~~primarily driven by the amended arrangements. Cash postings under these arrangements vary with changes in credit ratings and netting agreements. (See Note 7)

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 debt issued by our equity method investments. At ~~June 30, 2018,~~March 31, 2019, our debt ratio was ~~50.8%~~47.4%, compared to ~~53.3%~~52.6% at ~~June 30, 2017~~March 31, 2018 and ~~53.6%~~47.7% at December 31, ~~2017.~~2018. Our net debt ratio was ~~47.2%~~45.6% at ~~June 30, 2018,~~March 31, 2019, compared to ~~43.8%~~36.8% at ~~June 30, 2017~~March 31, 2018 and ~~37.2%~~46.2% at December 31, ~~2017.~~2018. The debt ratio is affected by the same factors that affect total capital, and reflects our recent debt issuances and repayments.

During the first six months of 2018, we received $4,212 from the monetization of various assets, primarily the sale of certain equipment installment receivables. We plan to continue to explore similar opportunities.

In 2013, we made a voluntary contribution of a preferred equity interest in AT&T Mobility II LLC (Mobility), the holding company for our U.S. wireless operations, to the trust used to pay benefits under our qualified pension plans. The preferred equity interest had a value of $8,829 as of June 30, 2018, and $9,155 as of December 31, 2017, 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 are distributed quarterly in equal amounts. We distributed $280 to the trust during the first six months of 2018. 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.

AT&T INC.

~~JUNE 30, 2018~~

MARCH 31, 2019

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

Dollars, subscribers and connections in millions, except per share and per subscriber amounts

During the first three months of 2019, we received $4,460 from the monetization of various assets, primarily from the sale of certain equipment installment and other customer receivables. We plan to continue to explore similar opportunities. To that end, in April 2019, we received $1,430 cash for the sale of our minority stake in Hulu. We also entered into an agreement to sell WarnerMedia’s headquarters (Hudson Yards) for approximately $2,200 under a sale/leaseback agreement, which is expected to close late in the second quarter. Proceeds from both transactions will be used to reduce debt levels.

DISCUSSION AND RECONCILIATION OF NON-GAAP MEASURE

~~NON-GAAP~~ ~~MEASURES~~

We believe the following ~~measures are~~measure is relevant and useful information to investors as it is used by management as a method of comparing performance with that of many of our competitors. ~~These~~This supplemental ~~measures~~measure should be considered in addition to, but not as a substitute of, our consolidated and segment financial information.

~~Supplemental Operational Measures~~

Business Solutions Reconciliation

We provide a supplemental discussion of our ~~domestic wireless~~Business Solutions operations that is calculated by combining our ~~Consumer~~ Mobility and Business ~~Solutions segments,~~Wireline business units, and then adjusting to remove~~non-wireless~~ non-business operations. The following table presents a reconciliation of our supplemental ~~AT&T Mobility results.~~

      Three Months Ended
      June 30, 2018       June 30, 2017

      Consumer
Mobility    Business
Solutions    Adjustments¹ AT&T
Mobility       Consumer
Mobility    Business
Solutions    Adjustments¹ AT&T
Mobility
Operating Revenues

Wireless service
   $ 11,853    $ 1,829    $ - $ 13,682       $ 12,467    $ 2,004    $ - $ 14,471
Strategic services
   -    3,039    (3,039 ) -       -    2,958    (2,958 ) -
Legacy voice and data services
   -    2,723    (2,723 ) -       -    3,423    (3,423 ) -
Other service and equipment
   -    888    (888 ) -       -    922    (922 ) -
Wireless equipment
   3,016    584    - 3,600       2,624    360    - 2,984
Total Operating Revenues
   14,869    9,063    (6,650 ) 17,282       15,091    9,667    (7,303 ) 17,455
Operating Expenses

Operations and support
   8,085    5,616    (4,038 ) 9,663       8,636    6,053    (4,598 ) 10,091
EBITDA
   6,784    3,447    (2,612 ) 7,619       6,455    3,614    (2,705 ) 7,364
Depreciation and amortization
   1,806    1,487    (1,180 ) 2,113       1,716    1,483    (1,211 ) 1,988
Total Operating Expense
   9,891    7,103    (5,218 ) 11,776       10,352    7,536    (5,809 ) 12,079
Operating Income
   $ 4,978    $ 1,960    $ (1,432 ) $ 5,506       $ 4,739    $ 2,131    $ (1,494 ) $ 5,376

¹~~Business wireline operations reported in~~ Business Solutions ~~segment.~~

results.

		First Quarter
		March 31, 2019								March 31, 2018
		Mobility		Business Wireline		Adjustments¹		Business Solutions		Mobility		Business Wireline		Adjustments¹		Business Solutions
Operating Revenues
Wireless service	$	13,792	$	-	$	(11,879)	$	1,913	$	13,403	$	-	$	(11,612)	$	1,791
Strategic and managed services		-		3,792		-		3,792		-		3,595		-		3,595
Legacy voice and data services		-		2,404		-		2,404		-		2,865		-		2,865
Other service and equipment		-		302		-		302		-		287		-		287
Wireless equipment		3,775		-		(3,179)		596		3,952		-		(3,374)		578
Total Operating Revenues		17,567		6,498		(15,058)		9,007		17,355		6,747		(14,986)		9,116

Operating Expenses
Operations and support		10,181		4,040		(8,581)		5,640		10,102		4,016		(8,524)		5,594
EBITDA		7,386		2,458		(6,477)		3,367		7,253		2,731		(6,462)		3,522
Depreciation and amortization		2,035		1,235		(1,729)		1,541		2,095		1,170		(1,807)		1,458
Total Operating Expense		12,216		5,275		(10,310)		7,181		12,197		5,186		(10,331)		7,052
Operating Income		5,351		1,223		(4,748)		1,826		5,158		1,561		(4,655)		2,064
Equity in net income (loss) of affiliates		-		-		-		-		-		(1)		-		(1)
Operating Contribution	$	5,351	$	1,223	$	(4,748)	$	1,826	$	5,158	$	1,560	$	(4,655)	$	2,063
¹Non-business wireless reported in the Communications segment under the Mobility business unit.

AT&T INC.

~~JUNE 30, 2018~~

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

~~Dollars in millions except per share and per subscriber amounts~~

   Six Months Ended
   June 30, 2018       June 30, 2017

   Consumer
Mobility    Business
Solutions    Adjustments¹ AT&T
Mobility       Consumer
Mobility    Business
Solutions    Adjustments¹ AT&T
Mobility
Operating Revenues

Wireless service
$ 23,465    $ 3,620    $ - $ 27,085       $ 24,932    $ 4,007    $ - $ 28,939
Strategic services
-    6,109    (6,109 ) -       -    5,862    (5,862 ) -
Legacy voice and data services
-    5,561    (5,561 ) -       -    6,971    (6,971 ) -
Other service and equipment
-    1,727    (1,727 ) -       -    1,800    (1,800 ) -
Wireless equipment
6,390    1,162    - 7,552       4,965    648    - 5,613
Total Operating Revenues
29,855    18,179    (13,397 ) 34,637       29,897    19,288    (14,633 ) 34,552
Operating Expenses

Operations and support
16,609    11,210    (8,054 ) 19,765       17,196    12,051    (9,271 ) 19,976
EBITDA
13,246    6,969    (5,343 ) 14,872       12,701    7,237    (5,362 ) 14,576
Depreciation and amortization
3,613    2,945    (2,350 ) 4,208       3,432    2,943    (2,395 ) 3,980
Total Operating Expense
20,222    14,155    (10,404 ) 23,973       20,628    14,994    (11,666 ) 23,956
Operating Income
$ 9,633    $ 4,024    $ (2,993 ) $ 10,664       $ 9,269    $ 4,294    $ (2,967 ) $ 10,596

¹~~Business wireline operations reported in Business Solutions segment.~~

~~AT&T INC.~~

~~JUNE 30, 2018~~

MARCH 31, 2019

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Dollars in millions except per share amounts

At ~~June 30, 2018,~~March 31, 2019, we had interest rate swaps with a notional value of ~~$7,333~~$1,633 and a fair value of ~~$(89)~~$(11).

We havefixed-to-fixed andfloating-to-fixed cross-currency swaps on foreign currency-denominated debt instruments with a U.S. dollar notional value of ~~$36,092~~$42,192 to hedge our exposure to changes in foreign currency exchange rates. These derivatives have been designated at inception and qualify as cash flow hedges with a net fair value of ~~$(290)~~$(2,270) at ~~June 30, 2018.~~

March 31, 2019.

We have foreign exchange contracts with a U.S. dollar notional value of ~~$2,399~~$1,238 to provide currency at a fixed rate to hedge a portion of the exchange risk involved in foreign currency-denominated transactions. These foreign exchange contracts ~~are amortized into income in the same period the hedged transaction affects earnings and qualify as~~include fair value hedges, cash flow hedges and economic (nonqualifying) hedges with a total net fair value of ~~$55~~$81 at ~~June 30, 2018.~~

March 31, 2019.

We have designated €700 million aggregate principal amount of debt as a hedge of the variability of some of the Euro-denominated net investments of WarnerMedia. The gain or loss on the debt that is designated as, and is effective as, an economic hedge of the net investment in a foreign operation is recorded as a currency translation adjustment within accumulated other comprehensive income, net on the consolidated balance sheet.

Item 4. Controls and Procedures

The registrant maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed by the registrant is recorded, processed, summarized, accumulated and communicated to its management, including its principal executive and principal financial officers, to allow timely decisions regarding required disclosure, and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms. The chief executive officer and chief financial officer have performed an evaluation of the effectiveness of the design and operation of the registrant’s disclosure controls and procedures as of ~~June 30, 2018.~~March 31, 2019. Based on that evaluation, the chief executive officer and chief financial officer concluded that the registrant’s disclosure controls and procedures were effective as of ~~June 30, 2018.~~

March 31, 2019.

AT&T INC.

~~JUNE 30, 2018~~

MARCH 31, 2019

CAUTIONARY LANGUAGE CONCERNING FORWARD-LOOKING STATEMENTS

Information set forth in this report contains forward-looking statements that are subject to risks and uncertainties, and actual results could differ materially. Many of these factors are discussed in more detail in the “Risk Factors” section. We claim the protection of the safe harbor for forward-looking statements provided by the Private Securities Litigation Reform Act of 1995.

The following factors could cause our future results to differ materially from those expressed in the forward-looking statements:

●

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

●

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

●

Increases in our benefit plans’ costs, including increases due to adverse changes in the United States and foreign securities markets, resulting in worse-than-assumed investment returns and discount rates; adverse changes in mortality assumptions; adverse medical cost trends; and unfavorable or delayed implementation or repeal of healthcare legislation, regulations or related court decisions.

●

The final outcome of FCC and other federal, state or foreign government agency proceedings (including judicial review, if any, of such proceedings) and legislative efforts involving issues that are important to our business, including, without limitation, special access and business data services; ~~intercarrier compensation; interconnection obligations;~~ pending Notices of Apparent Liability; the transition from legacy technologies toIP-based infrastructure, including the withdrawal of legacyTDM-based services; universal service; broadband deployment; wireless equipment siting regulations; E911 services; competition policy; privacy; net neutrality; ~~unbundled network elements and other wholesale obligations; multi-channel~~multichannel video programming distributor services and equipment; content licensing and copyright protection; availability of new spectrum, on fair and balanced terms; and wireless and satellite license awards and renewals.

●

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

●

Enactment of additional state, local, federal and/or foreign regulatory and tax laws and regulations, or changes to existing standards and actions by tax agencies and judicial authorities including the resolution of disputes with any taxing jurisdictions, pertaining to our subsidiaries and foreign investments, including laws and regulations that reduce our incentive to invest in our networks, resulting in lower revenue growth and/or higher operating costs.

●

Potential changes to the electromagnetic spectrum currently used for broadcast television and satellite distribution being considered by the FCC could negatively impact WarnerMedia’s ability to deliver linear network feeds of its domestic cable networks to its affiliates, and in some cases, WarnerMedia’s ability to produce high-value news and entertainment programming on location.

●	U.S. and foreign laws and regulations regarding intellectual property rights protection and privacy, personal data protection and user consent are complex and rapidly evolving and could result in impact to our business plans, increased costs, or claims against us that may harm our reputation.

●

Our ability to ~~absorb~~respond to revenue ~~losses caused by~~and margin pressures from increasing competition, including ~~offerings~~services that use alternative technologies and/or ~~delivery methods (e.g., cable, wireless, VoIP andover-the-top~~ ~~video service), subscriber reluctance to purchase new wireless handsets, and our ability to maintain capital expenditures.~~government-owned or subsidized networks.

●

~~The extent of competition including from governmental networks and other providers and the resulting pressure on customer totals and segment operating margins.~~

●

~~Our ability to develop attractive and profitable product/service offerings to offset increasing competition and increasing fragmentation of customer viewing habits.~~

●

The ability of our competitors to offer product/service offerings at lower prices due to lower cost structures and regulatory and legislative actions adverse to us, includingnon-regulation of comparable alternative technologies (e.g., VoIP and data usage).

●

The continued development and delivery of attractive and profitable wireless, video and broadband ~~offerings;~~offerings and devices; the extent to which regulatory andbuild-out requirements apply to our offerings; our ability to match speeds offered by our competitors and the availability, cost and/or reliability of the various technologies and/or content required to provide such offerings.

●

~~Our continued ability to maintain margins, attract and offer a diverse portfolio of video, wireless service and devices and device financing plans.~~

●

Our ability to generate advertising revenue from attractive video content, especially from WarnerMedia, in the face of unpredictable and rapidly evolving public viewing habits.

●

The availability and cost ofand our ability to adequately fund additional wireless spectrum and network upgrades; and regulations and conditions relating to spectrum use, licensing, obtaining additional spectrum, technical standards and deployment and usage, including network management rules.

●

Our ability to manage growth in wireless ~~video and~~ data services, including network quality and acquisition of adequate spectrum at reasonable costs and terms.

●

The outcome of pending, threatened or potential litigation (which includes arbitrations), including, without limitation, patent and product safety claims by or against third parties.

●

The impact from major equipment or software failures on our networks, including satellites operated by DIRECTV; the effect of security breaches related to the network or customer information; our inability to obtain handsets, equipment/software or have handsets, equipment/software serviced in a timely and cost-effective manner from suppliers; and in the case of satellites launched, timely provisioning of services from vendors; or severe weather conditions including flooding and hurricanes, natural disasters including earthquakes and forest fires, pandemics, energy shortages, wars or terrorist attacks.

●

The issuance by the Financial Accounting Standards Board or other accounting oversight bodies of new accounting standards or changes to existing standards.

●

~~The U.S. Department of Justice prevailing on its appeal of the court decision permitting our acquisition of Time Warner Inc.~~

●

Our ability to successfully integrate ~~the former Time Warner Inc.~~our WarnerMedia operations, including the ability to manage various businesses in widely dispersed business locations and with decentralized management.

●

Our ability to take advantage of the desire of advertisers to change traditional video advertising models.

●

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

●

Our increased exposure to foreign economies, including foreign exchange fluctuations as well as regulatory and political uncertainty.

●

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

●

The uncertainty surrounding further congressional action to address spending reductions, which may result in a significant decrease in government spending and reluctance of businesses and consumers to spend in general.

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

AT&T INC.

~~JUNE 30, 2018~~

MARCH 31, 2019

PART II – OTHER INFORMATION

Dollars in millions except per share amounts

Item 1A. Risk Factors

We discuss in our Annual Report on Form10-K various risks that may materially affect our business. We use this section to update this discussion to reflect material developments since our Form10-K was filed.

~~Our ability to successfully integrate our June 2018 acquisition of Time Warner, including~~ For the risk that the costs savings and revenue synergies from the acquisition may not be fully realized or may take longer to realize than expected; our costs in financing the acquisition and potential adverse effects on our share price and dividend amount due to the issuance of additional shares; the addition of Time Warner’s existing debt to our balance sheet; disruption from the acquisition making it more difficult to maintain relationships with customers, employees or suppliers; and competition and its effect on pricing, spending, third-party relationships and revenues.

We completed our acquisition of Time Warner in June 2018. We believe that the acquisition will give us the scale, resources and ability to deploy video content more efficiently to more customers than otherwise possible and to provide very attractive integrated offerings of video, broadband and wireless services; compete more effectively against other video providers as well as other technology, media and communications companies; create premium advertising opportunities, and produce cost and revenue synergies. We must integrate a large number of operational and administrative systems, which may involve significant management time and create uncertainty for employees, customers and suppliers. The integration process may also result in significant expenses and charges against earnings, both cash and noncash. This acquisition also has increased the amount of debt on our balance sheet leading to additional interest expense and, due to the additional shares issued, will result in additional cash being required for any dividends declared. Both of these factors could put pressure on our financial flexibility to continue capital investments, develop new services and declare future dividends. In addition, events outside our control, including changes in regulation and laws as well as economic trends, could adversely affect our ability to realize the expected benefits from this acquisition. Following the closing, the U.S. Department of Justice filed an appeal of the court decision allowing us to complete the acquisition; we believe the lower court decision will be upheld.

first quarter 2019, there were no such material developments.

~~AT&T INC.~~

~~JUNE 30, 2018~~

~~PART II – OTHER INFORMATION - CONTINUED~~

~~Dollars in millions except per share amounts~~

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

      (a)    (b)    (c)    (d)
Period    Total Number of
Shares (or Units)
Purchased^{1, 2, 3}    Average Price Paid
Per Share (or Unit)    Total Number of
Shares (or Units)
Purchased as Part of
Publicly Announced
Plans or Programs¹    Maximum Number (or
Approximate Dollar
Value) of Shares (or
Units) That May Yet Be
Purchased Under The
Plans or Programs
April 1, 2018 -
April 30, 2018
   6,318,863    $ 32.99    6,317,000    381,979,000
May 1, 2018 -
May 31, 2018
   6,319,909    33.37    6,317,000    375,662,000
June 1, 2018 -
June 30, 2018
   738,393    33.23    -    375,662,000
Total
   13,377,165    $ 33.18    12,634,000


		(a)	(b)		(c)	(d)
Period		Total Number of Shares (or Units) Purchased ^{1, 2, 3}	Average Price Paid Per Share (or Unit)		Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs¹	Maximum Number (or Approximate Dollar Value) of Shares (or Units) That May Yet Be Purchased Under The Plans or Programs

January 1, 2019 - January 31, 2019		710,607	$	30.46	-	375,662,000
February 1, 2019 - February 28, 2019		3,021,234		30.29	-	375,662,000
March 1, 2019 - March 31, 2019		3,113,701		30.52	-	375,662,000
Total		6,845,542	$	30.41	-
¹	In March 2014, our Board of Directors approved an additional authorization to repurchase up to 300 million shares of our common
	~~In March 2014, our Board of Directors approved an additional authorization to repurchase up to 300 million shares of our common~~ stock. In March 2013, our Board of Directors authorized the repurchase of up to an additional 300 million shares of our common stock.

The authorizations have no expiration date.

²	Of the shares repurchased, 6,237,118 shares were acquired through the withholding of taxes on the vesting of restricted stock
	~~Of the shares repurchased, 10,957 shares were acquired through the withholding of taxes on the vesting of restricted stock~~ and performance shares or on the exercise price of options.

³	Of the shares repurchased, 608,424 shares were acquired through reimbursements from AT&T maintained Voluntary Employee Benefit
	~~Of the shares repurchased, 732,208 shares were acquired through reimbursements from AT&T maintained Voluntary Employee Benefit~~ Association (VEBA) trusts.

Item 6. Exhibits

The following exhibits are filed or incorporated by reference as a part of this report:


Exhibit
Number		Exhibit Description
31		Rule 13a-14(a)/15d-14(a) Certifications
		31.1 Certification of Principal Executive Officer
		31.2 Certification of Principal Financial Officer
32		Section 1350 Certifications
101		XBRL Instance Document
~~Exhibit~~

SIGNATURE

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

May 6, 2019	AT&T Inc. /s/ John J. Stephens John J. Stephens Senior Executive Vice President and Chief Financial Officer
~~Number~~		~~Exhibit Description~~
~~10-a~~		~~AT&T Health Plan~~
~~10-b~~		~~Agreement between Robert Quinn and AT&T Inc.~~
12		~~Computation of Ratios of Earnings to Fixed Charges~~
31		~~Rule13a-14(a)/15d-14(a)~~

53 ~~Certifications~~

~~31.1 Certification of Principal Executive Officer~~

~~31.2 Certification of Principal Financial Officer~~

~~Section 1350 Certifications~~

~~101~~

~~XBRL Instance Document~~

~~SIGNATURE~~

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


	Three months ended						Six months ended
	June 30,						June 30,
	2018			2017			2018			2017
				As Adjusted						As Adjusted
Operating Revenues
Service	$	33,773		$	36,538		$	67,419		$	72,994
Equipment		4,080			3,299			8,472			6,208
Media		1,133			-			1,133			-
Total operating revenues		38,986			39,837			77,024			79,202

Operating Expenses
Cost of revenues
Equipment		4,377			4,138			9,225			7,986
Broadcast, programming and operations		5,449			4,898			10,615			9,872
Other cost of revenues (exclusive of depreciation and amortization shown separately below)		7,632			9,569			15,564			18,857
Selling, general and administrative		8,684			8,559			16,581			17,331
Depreciation and amortization		6,378			6,147			12,372			12,274
Total operating expenses		32,520			33,311			64,357			66,320
Operating Income		6,466			6,526			12,667			12,882
Other Income (Expense)
Interest expense		(2,023	)		(1,395	)		(3,794	)		(2,688	)
Equity in net income (loss) of affiliates		(16	)		14			(7	)		(159	)
Other income (expense) – net		2,353			925			4,055			1,413
Total other income (expense)		314			(456	)		254			(1,434	)
Income Before Income Taxes		6,780			6,070			12,921			11,448
Income tax expense		1,532			2,056			2,914			3,860
Net Income		5,248			4,014			10,007			7,588
Less: Net Income Attributable to Noncontrolling Interest		(116	)		(99	)		(213	)		(204	)
Net Income Attributable to AT&T	$	5,132		$	3,915		$	9,794		$	7,384

Basic Earnings Per Share Attributable to AT&T	$	0.81		$	0.63		$	1.56		$	1.19
Diluted Earnings Per Share Attributable to AT&T	$	0.81		$	0.63		$	1.56		$	1.19
Weighted Average Number of Common Shares Outstanding – Basic (in millions)		6,351			6,165			6,257			6,166
Weighted Average Number of Common Shares Outstanding – with Dilution (in millions)		6,374			6,184			6,277			6,185
Dividends Declared Per Common Share	$	0.50		$	0.49		$	1.00		$	0.98


	Six months ended June 30,
	2018			2017
					As Adjusted
Operating Activities
Net income	$	10,007		$	7,588
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		12,372			12,274
Amortization of television and film costs		168			-
Undistributed earnings from investments in equity affiliates		235			167
Provision for uncollectible accounts		808			795
Deferred income tax expense		2,032			964
Net (gain) loss from investments, net of impairments		(29	)		12
Actuarial (gain) loss on pension and postretirement benefits		(2,726	)		(259	)
Changes in operating assets and liabilities:
Accounts receivable		233			119
Other current assets, inventories and theatrical film and television production costs		1,039			470
Accounts payable and other accrued liabilities		(3,890	)		(2,761	)
Equipment installment receivables and related sales		490			525
Deferred customer contract acquisition and fulfillment costs		(1,725	)		(796	)
Retirement benefit funding		(280	)		(280	)
Other – net		442			(1,148	)
Total adjustments		9,169			10,082
Net Cash Provided by Operating Activities		19,176			17,670

Investing Activities
Capital expenditures:
Purchase of property and equipment		(10,959	)		(10,750	)
Interest during construction		(267	)		(473	)
Acquisitions, net of cash acquired		(40,715	)		1,224
Dispositions		59			51
(Purchases) sales of securities, net		(218	)		169
Advances to and investments in equity affiliates, net		(1,035	)		-
Cash collections of deferred purchase price		500			382
Net Cash Used in Investing Activities		(52,635	)		(9,397	)

Financing Activities
Net change in short-term borrowings with original maturities of three months or less		2,227			(2	)
Issuance of other short-term borrowings		4,839			-
Issuance of long-term debt		26,478			24,115
Repayment of long-term debt		(29,447	)		(6,118	)
Purchase of treasury stock		(564	)		(458	)
Issuance of treasury stock		12			24
Dividends paid		(6,144	)		(6,021	)
Other		(1,121	)		77
Net Cash (Used in) Provided by Financing Activities		(3,720	)		11,617
Net (decrease) increase in cash and cash equivalents and restricted cash		(37,179	)		19,890
Cash and cash equivalents and restricted cash beginning of year		50,932			5,935
Cash and Cash Equivalents and Restricted Cash End of Period	$	13,753		$	25,825


	June 30, 2018
	Shares			Amount
Common Stock
Balance at beginning of year		6,495		$	6,495
Issuance of stock		1,126			1,126
Balance at end of period		7,621		$	7,621


AdditionalPaid-In Capital
Balance at beginning of year				$	89,563
Issuance of common stock					35,473
Issuance of treasury stock					(4	)
Share-based payments					928
Balance at end of period				$	125,960


Retained Earnings
Balance at beginning of year				$	50,500
Net income attributable to AT&T ($1.56 per diluted share)					9,794
Dividends to stockholders ($1.00 per share)					(6,739	)
Cumulative effect of accounting changes					3,000
Balance at end of period				$	56,555


Treasury Stock
Balance at beginning of year		(356	)	$	(12,714	)
Repurchase and acquisition of common stock		(18	)		(607	)
Issuance of treasury stock		13			449
Balance at end of period		(361	)	$	(12,872	)


Accumulated Other Comprehensive Income Attributable to AT&T, net of tax
Balance at beginning of year				$	7,017
Other comprehensive income attributable to AT&T					(643	)
Amounts reclassified to retained earnings					(658	)
Balance at end of period				$	5,716


Noncontrolling Interest
Balance at beginning of year				$	1,146
Net income attributable to noncontrolling interest					213
Contributions					8
Distributions					(223	)
Acquisition of noncontrolling interest					1
Translation adjustments attributable to noncontrolling interest, net of taxes					(30	)
Cumulative effect of accounting changes					35
Balance at end of period				$	1,150


Total Stockholders’ Equity at beginning of year				$	142,007

Total Stockholders’ Equity at end of period				$	184,130


		*Pension and Postretirement Benefits*
		Historical Accounting Method			Effect of Adoption of ASU 2017-07				As Adjusted
For the three months ended June 30, 2018
Consolidated Statements of Income
Other cost of revenues	$		7,068	$		564		$		7,632
Selling, general and administrative expenses			6,896			1,788				8,684
Operating Income			8,818			(2,352	)			6,466
Other Income (Expense) – net			1			2,352				2,353
Net Income			5,248			-				5,248


For the three months ended June 30, 2017
Consolidated Statements of Income
Other cost of revenues	$		9,218	$		351		$		9,569
Selling, general and administrative expenses			8,113			446				8,559
Operating Income			7,323			(797	)			6,526
Other Income (Expense) – net			128			797				925
Net Income			4,014			-				4,014


For the six months ended June 30, 2018
Consolidated Statements of Income
Other cost of revenues	$		14,639	$		925		$		15,564
Selling, general and administrative expenses			13,652			2,929				16,581
Operating Income			16,521			(3,854	)			12,667
Other Income (Expense) – net			201			3,854				4,055
Net Income			10,007			-				10,007


For the six months ended June 30, 2017
Consolidated Statements of Income
Other cost of revenues	$		18,283	$		574		$		18,857
Selling, general and administrative expenses			16,600			731				17,331
Operating Income			14,187			(1,305	)			12,882
Other Income (Expense) – net			108			1,305				1,413
Net Income			7,588			-				7,588


		*Cash Flows*
		Historical Accounting Method			Effect of Adoption of ASU 2016-15			Effect of Adoption of ASU 2016-18				As Adjusted
For the six months ended June 30, 2018
Consolidated Statements of Cash Flows
Equipment installment receivables and related sales	$		990		$	(500	)	$	-		$		490
Other – net			431			-			11				442
Cash Provided by (Used in) Operating Activities			19,665			(500	)		11				19,176
(Purchases) sales of securities – net			4			-			(222	)			(218	)
Cash collections of deferred purchase price			-			500			-				500
Cash (Used in) Provided by Investing Activities			(52,913	)		500			(222	)			(52,635	)
Change in cash and cash equivalents and restricted cash	$		(36,968	)	$	-		$	(211	)	$		(37,179	)


For the six months ended June 30, 2017
Consolidated Statements of Cash Flows
Changes in other current assets	$		471		$	-		$	(1	)	$		470
Equipment installment receivables and related sales			907			(382	)		-				525
Other – net			(1,041	)		-			(107	)			(1,148	)
Cash Provided by (Used in) Operating Activities			18,160			(382	)		(108	)			17,670
(Purchases) sales of securities – net			-			-			169				169
Cash collections of deferred purchase price			-			382			-				382
Cash (Used in) Provided by Investing Activities			(9,948	)		382			169				(9,397	)
Change in cash and cash equivalents and restricted cash	$		19,829		$	-		$	61		$		19,890


		Three months ended June 30,								Six months ended June 30,
		2018				2017				2018				2017
Numerators
Numerator for basic earnings per share:
Net Income	$		5,248		$		4,014		$		10,007		$		7,588
Less: Net income attributable to noncontrolling interest			(116	)			(99	)			(213	)			(204	)
Net Income attributable to AT&T			5,132				3,915				9,794				7,384
Dilutive potential common shares:
Share-based payment			4				2				9				6
Numerator for diluted earnings per share	$		5,136		$		3,917		$		9,803		$		7,390

Denominators (000,000)
Denominator for basic earnings per share:
Weighted average number of common shares outstanding			6,351				6,165				6,257				6,166
Dilutive potential common shares:
Share-based payment (in shares)			23				19				20				19
Denominator for diluted earnings per share			6,374				6,184				6,277				6,185

Basic earnings per share attributable to AT&T	$		0.81		$		0.63		$		1.56		$		1.19
Diluted earnings per share attributable to AT&T	$		0.81		$		0.63		$		1.56		$		1.19



	Foreign Currency Translation Adjustment			Net Unrealized Gains (Losses) onAvailable- for-Sale Securities			Net Unrealized Gains (Losses) on Cash Flow Hedges			Defined Benefit Postretirement Plans			Accumulated Other Comprehensive Income
Balance as of December 31, 2017	$	(2,054)		$	660		$	1,402		$	7,009		$	7,017
Other comprehensive income (loss) before reclassifications		(780)			(12	)		253			530			(9	)
Amounts reclassified from accumulated OCI		-¹			-	¹		23	²		(657	)³		(634	)
Net other comprehensive income (loss)		(780)			(12	)		276			(127	)		(643	)
Amounts reclassified to retained earnings		-			(658	)⁴		-			-			(658	)
Balance as of June 30, 2018	$	(2,834)		$	(10	)	$	1,678		$	6,882		$	5,716



	Foreign Currency Translation Adjustment			Net Unrealized Gains (Losses) onAvailable- for-Sale Securities			Net Unrealized Gains (Losses) on Cash Flow Hedges			Defined Benefit Postretirement Plans			Accumulated Other Comprehensive Income
Balance as of December 31, 2016	$	(1,995	)	$	541		$	744		$	5,671		$	4,961
Other comprehensive income (loss) before reclassifications		343			83			(504	)		969			891
Amounts reclassified from accumulated OCI		-	¹		(7	)¹		19	²		(475	)³		(463	)
Net other comprehensive income (loss)		343			76			(485	)		494			428
Balance as of June 30, 2017	$	(1,652	)	$	617		$	259		$	6,165		$	5,389


For the three months ended June 30, 2018
		Consumer Mobility			Business Solutions			Entertainment Group			International			WarnerMedia				Corporate and Other				Total

Wireless service	$		11,853	$		1,829	$		-	$		417	$		-		$		-		$		14,099
Video entertainment			-			-			8,331			1,254			-				-				9,585
Strategic services			-			3,039			-			-			-				-				3,039
High-speed internet			-			-			1,981			-			-				-				1,981
Legacy voice and data			-			2,723			785			-			-				-				3,508
Content			-			-			-			-			487				-				487
Subscription			-			-			-			-			591				-				591
Advertising			-			-			-			-			208				-				208
Other media revenues			-			-			-			-			51				(1	)			50
Other service			-			691			550			-			-				320				1,561
Wireless equipment			3,016			584			-			280			-				-				3,880
Other equipment			-			197			3			-			-				-				200
Eliminations			-			-			-			-			(62	)			(141	)			(203	)
Total Operating Revenues	$		14,869	$		9,063	$		11,650	$		1,951	$		1,275		$		178		$		38,986


For the six months ended June 30, 2018
		Consumer Mobility			Business Solutions			Entertainment Group			International			WarnerMedia				Corporate and Other				Total
Wireless service	$		23,465	$		3,620	$		-	$		821	$		-		$		-		$		27,906
Video entertainment			-			-			16,690			2,608			-				-				19,298
Strategic services			-			6,109			-			-			-				-				6,109
High-speed internet			-			-			3,859			-			-				-				3,859
Legacy voice and data			-			5,561			1,604			-			-				-				7,165
Content			-			-			-			-			487				-				487
Subscription			-			-			-			-			591				-				591
Advertising			-			-			-			-			208				-				208
Other media revenues			-			-			-			-			51				(1	)			50
Other service			-			1,360			1,069			-			-				653				3,082
Wireless equipment			6,390			1,162			-			547			-				-				8,099
Other equipment			-			367			5			-			-				1				373
Eliminations			-			-			-			-			(62	)			(141	)			(203	)
Total Operating Revenues	$		29,855	$		18,179	$		23,227	$		3,976	$		1,275		$		512		$		77,024


For the three months ended June 30, 2018	As Reported		Historical Accounting Method
Consolidated Statements of Income:
Service Revenues	$	33,773	$	35,163
Equipment Revenues		4,080		3,611
Media Revenues		1,133		1,135
Total Operating Revenues		38,986		39,909
Other cost of revenue		7,632		8,535
Selling, general and administrative expenses		8,684		9,267
Total Operating Expenses		32,520		34,006
Operating income		6,466		5,903
Income before income taxes		6,780		6,217
Income tax expense		1,532		1,394
Net income		5,248		4,823
Net income attributable to AT&T		5,132		4,713

Basic Earnings per Share Attributable to AT&T	$	0.81	$	0.74
Diluted Earnings per Share Attributable to AT&T	$	0.81	$	0.74

For the six months ended June 30, 2018
Consolidated Statements of Income:
Service Revenues	$	67,419	$	70,232
Equipment Revenues		8,472		7,472
Media Revenues		1,133		1,135
Total Operating Revenues		77,024		78,839
Other cost of revenue		15,564		17,396
Selling, general and administrative expenses		16,581		17,764
Total Operating Expenses		64,357		67,372
Operating income		12,667		11,467
Income before income taxes		12,921		11,721
Income tax expense		2,914		2,620
Net income		10,007		9,101
Net income attributable to AT&T		9,794		8,900

Basic Earnings per Share Attributable to AT&T	$	1.56	$	1.42
Diluted Earnings per Share Attributable to AT&T	$	1.56	$	1.42

At June 30, 2018
Consolidated Balance Sheets:
Other current assets		14,305		11,961
Other Assets		23,941		21,983
Accounts payable and accrued liabilities		35,488		35,667
Advanced billings and customer deposits		5,914		5,978
Deferred income taxes		59,665		58,585
Other noncurrent liabilities		25,017		24,832
Retained earnings		56,555		53,313
Accumulated other comprehensive income		5,716		5,723
Noncontrolling interest		1,150		1,103


	June 30, 2018				December 31, 2017
	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Notes and debentures¹	$	180,209	$	182,732	$	162,526	$	171,938
Commercial paper		8,139		8,139		-		-
Bank borrowings		15		15		2		2
Investment securities²		3,511		3,511		2,447		2,447


	June 30, 2018		December 31, 2017
Interest rate swaps	$	7,333	$	9,833
Cross-currency swaps		36,092		38,694
Foreign exchange contracts		2,399		-
Total	$	45,824	$	48,527


	June 30, 2018
Inventories:
Programming costs, less amortization¹	$	4,252
Other inventory, primarily DVD andBlu-ray Discs		154
Total inventories		4,406
Less: current portion of inventory		(2,313	)
Total noncurrent inventories		2,093


Theatrical film production costs:²
Released, less amortization		6
Completed and not released		49
In production		1,249
Development andpre-production		171

Television production costs:²
Released, less amortization		168
Completed and not released		534
In production		1,556
Development andpre-production		23
Total theatrical film and television production costs		3,756
Total noncurrent inventories and theatrical film and television production costs	$	5,849


	Second Quarter							Six-Month Period
					Percent							Percent
	2018		2017		Change			2018		2017		Change
Operating Revenues
Service	$	33,773	$	36,538		(7.6	)%	$	67,419	$	72,994		(7.6	)%
Equipment		4,080		3,299		23.7			8,472		6,208		36.5
Media		1,133		-		-			1,133		-		-
Total Operating Revenues		38,986		39,837		(2.1	)		77,024		79,202		(2.7	)

Operating expenses
Cost of revenues
Equipment		4,377		4,138		5.8			9,225		7,986		15.5
Broadcast, programming and operations		5,449		4,898		11.2			10,615		9,872		7.5
Other cost of revenues		7,632		9,569		(20.2	)		15,564		18,857		(17.5	)
Selling, general and administrative		8,684		8,559		1.5			16,581		17,331		(4.3	)
Depreciation and amortization		6,378		6,147		3.8			12,372		12,274		0.8
Total Operating Expenses		32,520		33,311		(2.4	)		64,357		66,320		(3.0	)
Operating Income		6,466		6,526		(0.9	)		12,667		12,882		(1.7	)
Income Before Income Taxes		6,780		6,070		11.7			12,921		11,448		12.9
Net Income		5,248		4,014		30.7			10,007		7,588		31.9
Net Income Attributable to AT&T	$	5,132	$	3,915		31.1	%	$	9,794	$	7,384		32.6	%

Communications Business Unit Discussion
Mobility Results
	First Quarter
					Percent
	2019		2018		Change
Operating revenues
Service	$	13,792	$	13,403	2.9	%
Equipment		3,775		3,952	(4.5)
Total Operating Revenues		17,567		17,355	1.2

Operating expenses
Operations and support		10,181		10,102	0.8
Depreciation and amortization		2,035		2,095	(2.9)
Total Operating Expenses		12,216		12,197	0.2
Operating Income		5,351		5,158	3.7
Equity in Net Income (Loss) of Affiliates		-		-	-
Operating Contribution	$	5,351	$	5,158	3.7	%


Selected Financial and Operating Data
	June 30,
Subscribers and connections in (000s)		2018	2017
Domestic wireless subscribers		146,889	136,102
Mexican wireless subscribers		16,398	13,082
North American wireless subscribers		163,287	149,184


North American branded subscribers		109,806	104,022
North American branded net additions		2,138	1,639

Domestic satellite video subscribers		19,984	20,856
AT&TU-verse^®(U-verse) video subscribers		3,680	3,853
DIRECTV NOW video subscribers		1,809	491
Latin America satellite video subscribers¹		13,713	13,622
Total video subscribers		39,186	38,822


Total domestic broadband connections		15,772	15,686

Network access lines in service		10,832	12,791
U-verse VoIP connections		5,449	5,853

Debt ratio²		50.8%	53.3%
Net debt ratio³		47.2%	43.8%
Ratio of earnings to fixed charges⁴		3.64	3.84
Number of AT&T employees		273,210	260,480


	Second Quarter
	Reported			Promotions & Other			USF		Commission Deferrals			Historical Accounting
Service Revenues
Consumer Mobility	$	11,853		$	(245	)		$ (358)	$	-		$	12,456
Business Solutions		8,282			(146	)		(384)		-			8,812
Entertainment Group		11,647			(44	)		(162)		-			11,853
International		1,671			(40	)		-		-			1,711
Corporate and Other		320			(7	)		(4)		-			331
AT&T Service Revenues		33,773			(482	)		(908)		-			35,163
AT&T Mobility		13,682			(390	)		(423)		-			14,495

Equipment Revenues
Consumer Mobility		3,016			291			-		-			2,725
Business Solutions		781			158			-		-			623
Entertainment Group		3			-			-		-			3
International		280			18			-		-			262
Corporate and Other		-			2			-		-			(2	)
AT&T Equipment Revenues		4,080			469			-		-			3,611
AT&T Mobility		3,600			451			-		-			3,149

Total Operating Revenues
Consumer Mobility		14,869			46			(358)		-			15,181
Business Solutions		9,063			12			(384)		-			9,435
Entertainment Group		11,650			(44	)		(162)		-			11,856
International		1,951			(22	)		-		-			1,973
WarnerMedia		1,275			(2	)		-		-			1,277
Corporate and Other		319			(5	)		(4)		-			328
Eliminations		(141	)		-			-		-			(141	)
AT&T Operating Revenues		38,986			(15	)		(908)		-			39,909
AT&T Mobility		17,282			61			(423)		-			17,644

Total Operating Expenses
Consumer Mobility		9,891			85			(358)		(298	)		10,462
Business Solutions		7,103			4			(384)		(63	)		7,546
Entertainment Group		10,198			2			(162)		(265	)		10,623
International		2,116			6			-		(47	)		2,157
WarnerMedia		824			(6	)		-		-			830
Corporate and Other		2,529			4			(4)		-			2,529
Eliminations		(141	)		-			-		-			(141	)
AT&T Operating Expenses		32,520			95			(908)		(673	)		34,006
AT&T Mobility		11,776			86			(423)		(333	)		12,446

Total Operating Income
Consumer Mobility		4,978			(39	)		-		298			4,719
Business Solutions		1,960			8			-		63			1,889
Entertainment Group		1,452			(46	)		-		265			1,233
International		(165	)		(28	)		-		47			(184	)
WarnerMedia		451			4			-		-			447
Corporate and Other		(2,210	)		(9	)		-		-			(2,201	)
AT&T Operating Income		6,466			(110	)		-		673			5,903
AT&T Mobility		5,506			(25	)		-		333			5,198


	Second Quarter
	Reported 2018		Accounting Impact			Historical Method 2018		2017		Percent Change
Segment operating revenues
Service	$	11,853	$	(603	)	$	12,456	$	12,467		(0.1	)%
Equipment		3,016		291			2,725		2,624		3.8
Total Segment Operating Revenues		14,869		(312	)		15,181		15,091		0.6

Segment operating expenses
Operations and support		8,085		(571	)		8,656		8,636		0.2
EBITDA		6,784		259			6,525		6,455		1.1
Depreciation and amortization		1,806		-			1,806		1,716		5.2
Total Segment Operating Expenses		9,891		(571	)		10,462		10,352		1.1
Segment Operating Income		4,978		259			4,719		4,739		(0.4	)
Equity in Net Income of Affiliates		-		-			-		-		-
Segment Contribution	$	4,978	$	259		$	4,719	$	4,739		(0.4	)%


Operating Income Margin		33.5%					31.1%		31.4%		(30)BP
EBITDA Margin		45.6%					43.0%		42.8%		20 BP
EBITDA Service Margin		57.2%					52.4%		51.8%		60 BP


	Second Quarter
							Historical
	Reported			Accounting			Method						Percent
	2018			Impact			2018			2017			Change
Segment operating revenues
Video entertainment	$	1,254		$	-		$	1,254		$	1,361			(7.9)%
Wireless service		417			(40	)		457			535			(14.6)
Wireless equipment		280			18			262			130			-
Total Segment Operating Revenues		1,951			(22	)		1,973			2,026			(2.6)

Segment operating expenses
Operations and support		1,803			(41	)		1,844			1,772			4.1
EBITDA		148			19			129			254			(49.2)
Depreciation and amortization		313			-			313			311			0.6
Total Segment Operating Expenses		2,116			(41	)		2,157			2,083			3.6
Segment Operating Income (Loss)		(165	)		19			(184	)		(57	)		-
Equity in Net Income (Loss) of Affiliates		15			-			15			25			(40.0)
Segment Contribution	$	(150	)	$	19		$	(169	)	$	(32	)		- %


Operating Income Margin		-8.5	%					-9.3	%		-2.8	%		(650)BP
EBITDA Margin		7.6	%					6.5	%		12.5	%		(600)BP

Latin America Business Unit Discussion
Vrio Results
	First Quarter
					Percent
	2019		2018		Change
Operating revenues	$	1,067	$	1,354	(21.2)	%

Operating expenses
Operations and support		866		1,001	(13.5)
Depreciation and amortization		169		205	(17.6)
Total Operating Expenses		1,035		1,206	(14.2)
Operating Income		32		148	(78.4)
Operating Contribution	$	32	$	148	(78.4)	%

AT&T INC. MARCH 31, 2019 Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Continued Dollars, subscribers and connections in millions, except per share and per subscriber amounts Mexico Results
	First Quarter
	2019		2018		Percent Change
Operating revenues
Service	$	442	$	404	9.4	%
Equipment		209		267	(21.7)
Total Operating Revenues		651		671	(3.0)

Operating expenses
Operations and support		725		803	(9.7)
Depreciation and amortization		131		127	3.1
Total Operating Expenses		856		930	(8.0)
Operating Income (Loss)		(205)		(259)	20.8
Operating Contribution	$	(205)	$	(259)	20.8	%

XANDR SEGMENT
	First Quarter
					Percent
	2019		2018		Change
Operating revenues	$	426	$	337	26.4	%

Operating expenses
Operations and support		160		50	-
Depreciation and amortization		13		1	-
Total Operating Expenses		173		51	-
Operating Income		253		286	(11.5)
Equity in Net Income of Affiliates		-		-	-
Operating Contribution	$	253	$	286	(11.5)	%

Total Advertising Revenues
	First Quarter
					Percent
	2019		2018		Change
Operating Revenues
WarnerMedia	$	1,279	$	14	-	%
Communications		417		375	11.2
Xandr		426		337	26.4
Eliminations		(350)		(334)	(4.8)
Total Advertising Revenues	$	1,772	$	392	-	%

Business Solutions Results
	First Quarter
	2019		2018		Percent Change
	2019		2018		Percent Change
Operating revenues
Wireless service	$	1,913	$	1,791	6.8	%
Strategic and managed services		3,792		3,595	5.5
Legacy voice and data services		2,404		2,865	(16.1)
Other service and equipment		302		287	5.2
Wireless equipment		596		578	3.1
Total Operating Revenues		9,007		9,116	(1.2)

Operating expenses
Operations and support		5,640		5,594	0.8
Depreciation and amortization		1,541		1,458	5.7
Total Operating Expenses		7,181		7,052	1.8
Operating Income		1,826		2,064	(11.5)
Equity in Net Income of Affiliates		-		(1)	-
Operating Contribution	$	1,826	$	2,063	(11.5)	%


	Three Months Ended
	June 30, 2018									June 30, 2017

	Consumer Mobility		Business Solutions		Adjustments¹			AT&T Mobility		Consumer Mobility		Business Solutions		Adjustments¹			AT&T Mobility
Operating Revenues
Wireless service	$	11,853	$	1,829	$	-		$	13,682	$	12,467	$	2,004	$	-		$	14,471
Strategic services		-		3,039		(3,039	)		-		-		2,958		(2,958	)		-
Legacy voice and data services		-		2,723		(2,723	)		-		-		3,423		(3,423	)		-
Other service and equipment		-		888		(888	)		-		-		922		(922	)		-
Wireless equipment		3,016		584		-			3,600		2,624		360		-			2,984
Total Operating Revenues		14,869		9,063		(6,650	)		17,282		15,091		9,667		(7,303	)		17,455
Operating Expenses
Operations and support		8,085		5,616		(4,038	)		9,663		8,636		6,053		(4,598	)		10,091
EBITDA		6,784		3,447		(2,612	)		7,619		6,455		3,614		(2,705	)		7,364
Depreciation and amortization		1,806		1,487		(1,180	)		2,113		1,716		1,483		(1,211	)		1,988
Total Operating Expense		9,891		7,103		(5,218	)		11,776		10,352		7,536		(5,809	)		12,079
Operating Income	$	4,978	$	1,960	$	(1,432	)	$	5,506	$	4,739	$	2,131	$	(1,494	)	$	5,376

~~AT&T Inc.~~

~~August 2, 2018~~

~~/s/ John J. Stephens~~

~~John J. Stephens~~

~~Senior Executive Vice President~~
~~and Chief Financial Officer~~