AT&T INC.
CONSOLIDATED STATEMENTS OF INCOME
Dollars in millions except per share amounts
(Unaudited)
		Three months ended								Nine months ended
		September 30,								September 30,
		2015				2014				2015				2014
						As Adjusted								As Adjusted
Operating Revenues
Service		$	35,625			$	29,790			$	94,128			$	89,122
Equipment			3,466				3,167				10,554				8,886
Total operating revenues			39,091				32,957				104,682				98,008
Operating Expenses
Cost of services and sales
Equipment			4,501				4,432				13,400				12,503
Broadcast, programming and operations			4,081				1,038				6,351				3,019
Other cost of services (exclusive of depreciation and          amortization shown separately below)			9,214				8,866				27,604				26,167
Selling, general and administrative			9,107				8,475				24,535				24,932
Depreciation and amortization			6,265				4,539				15,539				13,706
Total operating expenses			33,168				27,350				87,429				80,327
Operating Income			5,923				5,607				17,253				17,681
Other Income (Expense)
Interest expense			(1,146	)			(1,016	)			(2,977	)			(2,757	)
Equity in net income (loss) of affiliates			15				(2	)			48				188
Other (expense) income – net			(57	)			42				61				1,456
Total other income (expense)			(1,188	)			(976	)			(2,868	)			(1,113	)
Income Before Income Taxes			4,735				4,631				14,385				16,568
Income tax expense			1,657				1,444				4,784				5,914
Net Income			3,078				3,187				9,601				10,654
Less: Net Income Attributable to Noncontrolling Interest			(84	)			(57	)			(262	)			(213	)
Net Income Attributable to AT&T		$	2,994			$	3,130			$	9,339			$	10,441
Basic Earnings Per Share Attributable to AT&T		$	0.50			$	0.60			$	1.71			$	2.00
Diluted Earnings Per Share Attributable to AT&T		$	0.50			$	0.60			$	1.71			$	2.00
Weighted Average Number of Common Shares
Outstanding – Basic (in millions)			5,924				5,198				5,447				5,208
Weighted Average Number of Common Shares
Outstanding – with Dilution (in millions)			5,943				5,214				5,463				5,224
Dividends Declared Per Common Share		$	0.47			$	0.46			$	1.41			$	1.38
See Notes to Consolidated Financial Statements.

AT&T INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Dollars in millions
(Unaudited)
		Three months ended								Nine months ended
		September 30,								September 30,
		2015				2014				2015				2014
						As Adjusted								As Adjusted
Net income		$	3,078			$	3,187			$	9,601			$	10,654
Other comprehensive income (loss), net of tax:
Foreign Currency:
Translation adjustment (includes $(20), $(1), $(20) and $0             attributable to noncontrolling interest), net of taxes of             $(535), $(22), $(638) and $(17)			(1,039	)			(35	)			(1,224	)			(29	)
Reclassification adjustment included in net income,             net of taxes of $0, $0, $0 and $224			-				-				-				416
Available-for-sale securities:
Net unrealized gains (losses), net of taxes of $(49), $(15), $(30)            and $19			(85	)			(29	)			(51	)			30
Reclassification adjustment included in net income, net of            taxes of $2, $(1), $(3) and $(9)			3				(1	)			(6	)			(15	)
Cash flow hedges:
Net unrealized gains (losses), net of taxes of $(237), $201,            $(479) and $148			(441	)			370				(890	)			272
Reclassification adjustment included in net income,            net of taxes of $6, $3, $15 and $14			11				8				28				29
Defined benefit postretirement plans:
Amortization of net prior service credit included in            net income, net of taxes of $(131), $(146), $(393)            and $(435)			(215	)			(239	)			(644	)			(718	)
Reclassification adjustment included in net income, net of            taxes $0, $0, $0 and $33			-				-				-				61
Other comprehensive income (loss)			(1,766	)			74				(2,787	)			46
Total comprehensive income			1,312				3,261				6,814				10,700
Less: Total comprehensive income attributable to      noncontrolling interest			(64	)			(56	)			(242	)			(213	)
Total Comprehensive Income Attributable to AT&T		$	1,248			$	3,205			$	6,572			$	10,487
See Notes to Consolidated Financial Statements.

AT&T INC.
CONSOLIDATED BALANCE SHEETS
Dollars in millions except per share amounts
		September 30,				December 31,
		2015				2014
Assets		(Unaudited)				As Adjusted
Current Assets
Cash and cash equivalents		$	6,202			$	8,603
Accounts receivable - net of allowances for doubtful accounts of $656 and $454			16,329				14,527
Prepaid expenses			1,166				831
Other current assets			11,254				9,802
Total current assets			34,951				33,763
Property, plant and equipment			302,194				282,295
Less: accumulated depreciation and amortization			(179,358	)			(169,397	)
Property, Plant and Equipment – Net			122,836				112,898
Goodwill			105,966				69,692
Licenses			93,063				60,824
Customer Lists and Relationships - Net			19,608				812
Other Intangible Assets – Net			8,236				5,327
Investments in Equity Affiliates			1,744				250
Other Assets			13,585				13,659
Total Assets		$	399,989			$	297,225
Liabilities and Stockholders' Equity
Current Liabilities
Debt maturing within one year		$	7,535			$	6,056
Accounts payable and accrued liabilities			28,280				23,592
Advanced billing and customer deposits			4,640				4,105
Accrued taxes			4,591				1,136
Dividends payable			2,892				2,438
Total current liabilities			47,938				37,327
Long-Term Debt			119,395				76,011
Deferred Credits and Other Noncurrent Liabilities
Deferred income taxes			53,044				38,549
Postemployment benefit obligation			36,396				37,079
Other noncurrent liabilities			20,427				17,989
Total deferred credits and other noncurrent liabilities			109,867				93,617
Stockholders' Equity
Common stock ($1 par value, 14,000,000,000 authorized at September 30, 2015 and
December 31, 2014: issued 6,495,231,088 at September 30, 2015 and December 31, 2014)			6,495				6,495
Additional paid-in capital			89,717				91,108
Retained earnings			32,627				31,081
Treasury stock (342,990,428 at September 30, 2015 and 1,308,318,131
at December 31, 2014, at cost)			(12,309	)			(47,029	)
Accumulated other comprehensive income			5,294				8,061
Noncontrolling interest			965				554
Total stockholders' equity			122,789				90,270
Total Liabilities and Stockholders' Equity		$	399,989			$	297,225
See Notes to Consolidated Financial Statements.

AT&T INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Dollars in millions
(Unaudited)
		Nine months ended
		September 30,
		2015				2014
Operating Activities						As Adjusted
Net income		$	9,601			$	10,654
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization			15,539				13,706
Undistributed earnings from investments in equity affiliates			(36	)			(45	)
Provision for uncollectible accounts			895				692
Deferred income tax expense			1,539				1,450
Net gain from sale of investments, net of impairments			(46	)			(1,374	)
Changes in operating assets and liabilities:
Accounts receivable			453				(1,269	)
Other current assets			350				(840	)
Accounts payable and accrued liabilities			1,279				4,790
Retirement benefit funding			(595	)			(420	)
Other - net			(2,284	)			(1,751	)
Total adjustments			17,094				14,939
Net Cash Provided by Operating Activities			26,695				25,593
Investing Activities
Construction and capital expenditures:
Capital expenditures			(13,356	)			(16,829	)
Interest during construction			(566	)			(178	)
Acquisitions, net of cash acquired			(30,694	)			(2,053	)
Dispositions			79				6,074
Sales (purchases) of securities, net			1,490				(1,996	)
Return of advances to and investments in equity affiliates			-				3
Other			-				(1	)
Net Cash Used in Investing Activities			(43,047	)			(14,980	)
Financing Activities
Net change in short-term borrowings with original maturities of three months or less			(1	)			(16	)
Issuance of long-term debt			33,967				8,564
Repayment of long-term debt			(9,962	)			(10,376	)
Purchase of treasury stock			-				(1,617	)
Issuance of treasury stock (excluding acquisition of DIRECTV)			133				34
Dividends paid			(7,311	)			(7,170	)
Other			(2,875	)			(913	)
Net Cash Provided by (Used in) Financing Activities			13,951				(11,494	)
Net decrease in cash and cash equivalents			(2,401	)			(881	)
Cash and cash equivalents beginning of year			8,603				3,339
Cash and Cash Equivalents End of Period		$	6,202			$	2,458
Cash paid during the nine months ended September 30 for:
Interest		$	3,462			$	3,351
Income taxes, net of refunds		$	873			$	1,337
See Notes to Consolidated Financial Statements.

AT&T INC.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
Dollars and shares in millions except per share amounts
(Unaudited)
		September 30, 2015
		Shares				Amount
						As Adjusted
Common Stock
Balance at beginning of year			6,495			$	6,495
Issuance of stock			-				-
Balance at end of period			6,495			$	6,495
Additional Paid-In Capital
Balance at beginning of year						$	91,108
Issuance of treasury stock							(1,593	)
Share-based payments							202
Balance at end of period						$	89,717
Retained Earnings
Balance at beginning of year						$	31,081
Net income attributable to AT&T ($1.71 per diluted share)							9,339
Dividends to stockholders ($1.41 per share)							(7,793	)
Balance at end of period						$	32,627
Treasury Stock
Balance at beginning of year			(1,308	)		$	(47,029	)
Repurchase of common stock			(1	)			(10	)
Issuance of treasury stock			967				34,730
Balance at end of period			(342	)		$	(12,309	)
Accumulated Other Comprehensive Income Attributable to AT&T, net of tax
Balance at beginning of year						$	8,061
Other comprehensive loss attributable to AT&T							(2,767	)
Balance at end of period						$	5,294
Noncontrolling Interest
Balance at beginning of year						$	554
Net income attributable to noncontrolling interest							262
Distributions							(214	)
Acquisition of noncontrolling interests							383
Translation adjustments attributable to noncontrolling interest, net of taxes							(20	)
Balance at end of period						$	965
Total Stockholders' Equity at beginning of year						$	90,270
Total Stockholders' Equity at end of period						$	122,789
See Notes to Consolidated Financial Statements.

 

NOTE 1. PREPARATION OF INTERIM FINANCIAL STATEMENTS

Basis of Presentation  Throughout this document, AT&T Inc. is referred to as "AT&T," "we" or the "Company." 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 results for the interim periods are not necessarily indicative of those for the full year. You should read this document in conjunction with the consolidated financial statements and accompanying notes included in our Annual Report on Form 10-K for the year ended December 31, 2014.

The consolidated financial statements include the accounts of the Company and our majority-owned subsidiaries and affiliates, including the results of DIRECTV for the 68-day period ended September 30, 2015. Our subsidiaries and affiliates operate in the communications and digital entertainment services industry, providing services and equipment that deliver voice, video and broadband services domestically and internationally.

All significant intercompany transactions are eliminated in the consolidation process. Investments in less than majority-owned subsidiaries and partnerships where we 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 month of our period end. We also recorded our proportionate share of our equity method investees' other comprehensive income (OCI) items, including actuarial gains and losses on pension and other postretirement benefit obligations and cumulative translation adjustments.

The preparation of financial statements in conformity with U.S. generally accepted accounting principles (GAAP) requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes, including estimates of probable losses and expenses. Actual results could differ from those estimates. Certain amounts have been reclassified to conform to the current period's presentation, including our presentation of "Equipment" and "Broadcast, programming and operations" expenses separately from other cost of services in the consolidated statements of income.

Due to recent organizational changes and our July 24, 2015 acquisition of DIRECTV, effective for the quarter ended September 30, 2015, we are revising our operating segments to align with the new management structure and organizational responsibilities. We have revised our prior-period presentation to conform to our current reporting. (See Note 4)

Customer Fulfillment Costs  In August 2015, with our acquisition of DIRECTV, we announced a change in accounting for customer set-up and installation costs. Historically we have followed an accounting policy of deferring customer set-up and installation costs only to the extent of deferred revenues recorded for upfront fees (e.g., activation charges), and to expense any costs that exceed deferred revenues. After discussing this change with the Securities and Exchange Commission, we changed our accounting to a preferable method of capitalizing these costs and amortizing them over the expected economic life of the customer relationship of approximately four years, subject to an assessment of the recoverability of such costs. This change in accounting principle impacts video, broadband Internet and wireline voice services and is considered preferable in that it provides an accurate reflection of assets (i.e., the contractual customer relationship obtained through the set-up and installation) generated by those specific business activities. Our new accounting method is more comparable with the accounting method used in the cable entertainment industry. With our acquisition of DIRECTV, changing to this accounting method will enhance comparability to other companies in the industry. This change in accounting does not have an impact on our wireless results, due to the absence of these types of expenses in those business activities.

The cumulative effect of the change on Retained Earnings as of January 1, 2014, was an increase of approximately $3,128 on our consolidated balance sheets. This change did not have an impact on cash provided by or used in operations for any period presented.

The following tables present our results under our historical method and as adjusted to reflect the accounting change:

		Historical Accounting Method				As Adjusted				Effect of Change
For the three months ended September 30, 2015
Other cost of services		$	9,290			$	9,214			$	(76	)
Income tax expense			1,628				1,657				29
Net Income			3,031				3,078				47
Net Income Attributable to AT&T			2,947				2,994				47
Basic Earnings per Share Attributable to AT&T		$	0.50			$	0.50			$	-
Diluted Earnings per Share Attributable to AT&T			0.50				0.50				-
At September 30, 2015 or for the nine months ended
Other cost of services		$	27,842			$	27,604			$	(238	)
Income tax expense			4,694				4,784				90
Net Income			9,453				9,601				148
Net Income Attributable to AT&T			9,191				9,339				148
Basic Earnings per Share Attributable to AT&T		$	1.68			$	1.71			$	0.03
Diluted Earnings per Share Attributable to AT&T			1.68				1.71				0.03
Other current assets		$	9,579			$	11,254			$	1,675
Other Assets			10,671				13,585				2,914
Deferred income taxes			51,949				53,044				1,095
Retained earnings			29,133				32,627				3,494

		Historical Accounting Method				As Adjusted				Effect of Change
For the three months ended September 30, 2014
Other cost of services		$	9,071			$	8,866			$	(205	)
Income tax expense			1,367				1,444				77
Net Income			3,059				3,187				128
Net Income Attributable to AT&T			3,002				3,130				128
Basic Earnings per Share Attributable to AT&T		$	0.58			$	0.60			$	0.02
Diluted Earnings per Share Attributable to AT&T			0.58				0.60				0.02
For the nine months ended September 30, 2014
Other cost of services		$	26,552			$	26,167			$	(385	)
Income tax expense			5,769				5,914				145
Net Income			10,414				10,654				240
Net Income Attributable to AT&T			10,201				10,441				240
Basic Earnings per Share Attributable to AT&T		$	1.96			$	2.00			$	0.04
Diluted Earnings per Share Attributable to AT&T			1.95				2.00				0.05

 

		Historical Accounting Method				As Adjusted				Effect of Change
At December 31, 2014
Other current assets		$	8,067			$	9,802			$	1,735
Other Assets			10,998				13,659				2,661
Accrued taxes			1,091				1,136				45
Deferred income taxes			37,544				38,549				1,005
Retained earnings			27,736				31,081				3,345

New Accounting Standards

Revenue Recognition  In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update No. 2014-09, "Revenue from Contracts with Customers (Topic 606)" (ASU 2014-09), which replaces existing revenue recognition rules with a comprehensive revenue measurement and recognition standard and expanded disclosure requirements. ASU 2014-09 becomes effective for annual reporting periods beginning after December 15, 2017, following the July 2015 approval of a one-year deferral of the effective date by the FASB. While we continue to evaluate the impact of the new standard on revenue and costs of acquisition as well as available adoption methods, the requirement to defer costs is not expected to have a significant impact on our operating results as a result of our policy change on fulfillment costs.

Long-Term Debt and Debt Issuance Costs  In April 2015, the FASB issued ASU No. 2015-03, "Interest—Imputation of Interest: Simplifying the Presentation of Debt Issuance Costs" (ASU 2015-03), which will result in the reclassification of debt issuance costs from "Other Assets" to inclusion as a reduction of our reportable "Long-Term Debt" balance on our consolidated balance sheets. Since ASU 2015-03 does not address deferred issuance costs for line-of-credit arrangements, the FASB issued ASU No. 2015-15, "Interest—Imputation of Interest:  Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements" (ASU 2015-15), in August 2015. ASU 2015-15 allows a company to defer debt issuance costs associated with line-of-credit arrangements, including arrangements with no outstanding borrowings, classify them as an asset, and amortize them over the term of the arrangements. ASU 2015-03 becomes effective January 1, 2016, subject to early adoption, and will require full retrospective application. We do not expect these new standards to have a material impact on our consolidated balance sheets.

Business Combinations  In September 2015, the FASB issued ASU No 2015-16, "Business Combinations—Simplifying the Accounting for Measurement-Period Adjustments" (ASU 2015-16), which will result in the ability to recognize, in current-period earnings, any changes in provisional amounts during the measurement period after the closing of an acquisition, instead of retroactively accounting for these changes. ASU 2015-16 becomes effective January 1, 2016, subject to early adoption, and will require prospective application to adjustments to provisional amounts that occur after the effective date of ASU 2015-16. We are evaluating the impact of the new standard on our operating results.

 

AT&T INC.

SEPTEMBER 30, 2015

Dollars in millions except per share amounts

 

NOTE 2. EARNINGS PER SHARE

A reconciliation of the numerators and denominators of basic and diluted earnings per share for the three and nine months ended September 30, 2015 and 2014, is shown in the table below:

		Three months ended								Nine months ended
		September 30,								September 30,
		2015				2014				2015				2014
Numerators
Numerator for basic earnings per share:
Net Income		$	3,078			$	3,187			$	9,601			$	10,654
Less:  Net income attributable to noncontrolling interest			(84	)			(57	)			(262	)			(213	)
Net Income attributable to AT&T			2,994				3,130				9,339				10,441
Dilutive potential common shares:
Share-based payment			3				2				9				9
Numerator for diluted earnings per share		$	2,997			$	3,132			$	9,348			$	10,450
Denominators (000,000)
Denominator for basic earnings per share:
Weighted average number of common shares outstanding			5,924				5,198				5,447				5,208
Dilutive potential common shares:
Share-based payment (in shares)			19				16				16				16
Denominator for diluted earnings per share			5,943				5,214				5,463				5,224
Basic earnings per share attributable to AT&T		$	0.50			$	0.60			$	1.71			$	2.00
Diluted earnings per share attributable to AT&T		$	0.50			$	0.60			$	1.71			$	2.00

 

NOTE 3. OTHER COMPREHENSIVE INCOME

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

 

At September 30, 2015 and for the period ended:
		Foreign Currency Translation Adjustment			Net Unrealized Gains (Losses) on Available- for-Sale Securities			Net Unrealized Gains (Losses) on Cash Flow Hedges			Defined Benefit Postretirement Plans			Accumulated Other Comprehensive Income
Balance as of December 31, 2014		$	(26)		$	499		$	741		$	6,847		$	8,061
Other comprehensive income    (loss) before reclassifications			(1,204)			(51)			(890)			-			(2,145)
Amounts reclassified    from accumulated OCI			-	1		(6)	2		28	3		(644)	4		(622)
Net other comprehensive    income (loss)			(1,204)			(57)			(862)			(644)			(2,767)
Balance as of September 30,    2015		$	(1,230)		$	442		$	(121)		$	6,203		$	5,294
At September 30, 2014 and for the period ended:
		Foreign Currency Translation Adjustment			Net Unrealized Gains (Losses) on Available- for-Sale Securities			Net Unrealized Gains (Losses) on Cash Flow Hedges			Defined Benefit Postretirement Plans			Accumulated Other Comprehensive Income
Balance as of December 31, 2013		$	(367)		$	450		$	445		$	7,352		$	7,880
Other comprehensive income    (loss) before reclassifications			(29)			30			272			-			273
Amounts reclassified    from accumulated OCI			416	1		(15)	2		29	3		(657)	4		(227)
Net other comprehensive    income (loss)			387			15			301			(657)			46
Balance as of September 30,    2014		$	20		$	465		$	746		$	6,695		$	7,926
1 Translation (gain) loss reclassifications are included in Other income (expense) - net in the consolidated statements of income.
2 (Gains) losses are included in Other income (expense) - net in the consolidated statements of income.
3 (Gains) losses are included in Interest expense in the consolidated statements of income. See Note 6 for additional information.
4 The amortization of prior service credits associated with postretirement benefits, net of amounts capitalized as part of construction labor, are included in Other cost of services and Selling, general and administrative in the consolidated statements of income (see Note 5). Actuarial loss
reclassifications related to our equity method investees are included in Other income (expense) - net in the consolidated statements of income.

 

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. Due to recent organizational changes and our July 24, 2015 acquisition of DIRECTV, effective for the quarter ended September 30, 2015, we are revising our operating segments to align with our new management structure and organizational responsibilities. We analyze our operating segments based on segment contribution, which consists of operating income, excluding acquisition-related costs and other significant items (as discussed below), and equity in net income of affiliates for investments managed within each operating segment. We have four reportable segments: (1) Business Solutions, (2) Entertainment and Internet Services, (3) Consumer Mobility and (4) International. We have revised our prior-period presentation to conform to our current reporting.

We also evaluate segment performance based on segment operating income before depreciation and amortization, which we refer to as EBITDA and/or EBITDA margin. For AT&T, EBITDA is defined as operating income before 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.

The Business Solutions segment provides both wireless and wireline services to business customers and individual subscribers who purchase wireless services through employer-sponsored plans. We provide advanced IP-based services including Virtual Private Networks (VPN), Ethernet-related products and broadband (strategic business services) as well as traditional data and voice products. Services in this segment utilize our wireless and wired network and are marketed to provide a complete communications solution to our business customers.

The Entertainment and Internet Services segment provides video, Internet and voice communication services to residential customers located in the U.S. or in U.S. territories. Services utilize our copper and IP-based wired network and/or our satellite technology to provide video, high speed Internet and voice services.

The Consumer Mobility segment provides nationwide wireless service to consumers, wholesale and resale subscribers located in the U.S. or in U.S. territories. Services utilize our U.S. wireless network to provide voice and data services, including high-speed Internet, video entertainment and home monitoring services.

The International segment provides entertainment services in Latin America and wireless services in Mexico. Video entertainment services are provided primarily to residential customers using satellite technology. Wireless services utilize our regional and national networks in Mexico to provide consumer and business customers with wireless data and voice communication services. Our international subsidiaries transact in their local currency and operating results are converted to U.S. dollars using official exchange rates. The exchange rate used to report net monetary assets and operating results of our Venezuelan subsidiary is the Sistema Marginal de Divisas (SIMADI), which was 199.65 and 199.42 Venezuelan bolivars per U.S. dollar at July 24, 2015 and September 30, 2015, respectively. Our International segment is subject to foreign currency fluctuations.

In reconciling items to consolidated operating income, Corporate and Other includes: (1) operations that are not considered reportable segments and that are no longer integral to our operations or which we no longer actively market, and (2) impacts of corporate-wide decisions for which the individual operating segments are not being evaluated, including interest costs and expected return on plan assets for our pension and postretirement benefit plans.

Certain operating items are not allocated to our business segments:

·	Acquisition-related items include (1) operations and support items associated with the merger and integration of newly acquired businesses, and (2) the noncash amortization of intangible assets acquired in acquisitions.

·

Certain significant items include (1) noncash actuarial gains and losses from pension and other postretirement benefits, (2) employee separation charges associated with voluntary and/or strategic offers, (3) abandonment or impairments of assets and (4) other items for which the segments are not being evaluated.

Interest expense and other income (expense) – net, are managed only on a total company basis and are, accordingly, reflected only in consolidated results. Therefore, these items are also not included in each segment's reportable results.

Our operating assets are shared by multiple segments and consist of our wireless and wired networks as well as an international satellite fleet. We manage our assets on a total company basis, not by operating segment, and therefore asset information and capital expenditures by operating segment are not presented. Depreciation is allocated based on network usage or asset utilization by segment.

 

For the three months ended September 30, 2015
		Revenue				Operations and Support Expenses				EBITDA				Depreciation and Amortization				Operating Income (Loss)				Equity in Net Income (Loss) of Affiliates				Segment Contribution
Business Solutions		$	17,692			$	10,921			$	6,771			$	2,474			$	4,297			$	-			$	4,297
Entertainment and Internet Services			10,858				8,450				2,408				1,389				1,019				2				1,021
Consumer Mobility			8,784				5,065				3,719				976				2,743				-				2,743
International			1,526				1,384				142				225				(83	)			(4	)			(87	)
Segment Total			38,860				25,820				13,040				5,064				7,976				(2	)			7,974
Corporate and Other			316				315				1				3				(2	)
Acquisition-related items			(85	)			611				(696	)			1,198				(1,894	)
Certain significant items			-				157				(157	)			-				(157	)
AT&T Inc.		$	39,091			$	26,903			$	12,188			$	6,265			$	5,923
For the nine months ended September 30, 2015
		Revenue				Operations and Support Expenses				EBITDA				Depreciation and Amortization				Operating Income (Loss)				Equity in Net Income (Loss) of Affiliates				Segment Contribution
Business Solutions		$	52,913			$	32,966			$	19,947			$	7,276			$	12,671			$	-			$	12,671
Entertainment and Internet Services			22,300				18,222				4,078				3,519				559				(16	)			543
Consumer Mobility			26,317				15,808				10,509				2,912				7,597				-				7,597
International			2,253				2,131				122				346				(224	)			(4	)			(228	)
Segment Total			103,783				69,127				34,656				14,053				20,603				(20	)			20,583
Corporate and Other			984				785				199				47				152
Acquisition-related items			(85	)			1,604				(1,689	)			1,439				(3,128	)
Certain significant items			-				374				(374	)			-				(374	)
AT&T Inc.		$	104,682			$	71,890			$	32,792			$	15,539			$	17,253

 

For the three months ended September 30, 2014
		Revenue				Operations and Support Expenses				EBITDA				Depreciation and Amortization				Operating Income (Loss)				Equity in Net Income (Loss) of Affiliates				Segment Contribution
Business Solutions		$	17,487			$	11,295			$	6,192			$	2,331			$	3,861			$	-			$	3,861
Entertainment and Internet Services			5,553				4,781				772				1,109				(337	)			-				(337	)
Consumer Mobility			9,208				5,731				3,477				950				2,527				(1	)			2,526
International			-				-				-				-				-				-				-
Segment Total			32,248				21,807				10,441				4,390				6,051				(1	)			6,050
Corporate and Other			709				791				(82	)			24				(106	)
Acquisition-related items			-				213				(213	)			125				(338	)
Certain significant items			-				-				-				-				-
AT&T Inc.		$	32,957			$	22,811			$	10,146			$	4,539			$	5,607
For the nine months ended September 30, 2014
		Revenue				Operations and Support Expenses				EBITDA				Depreciation and Amortization				Operating Income (Loss)				Equity in Net Income (Loss) of Affiliates				Segment Contribution
Business Solutions		$	51,877			$	32,836			$	19,041			$	7,009			$	12,032			$	-			$	12,032
Entertainment and Internet Services			16,640				14,182				2,458				3,396				(938	)			-				(938	)
Consumer Mobility			27,247				17,173				10,074				2,846				7,228				(1	)			7,227
International			-				-				-				-				-				153				153
Segment Total			95,764				64,191				31,573				13,251				18,322				152				18,474
Corporate and Other			2,244				2,027				217				77				140
Acquisition-related items			-				403				(403	)			378				(781	)
Certain significant items			-				-				-				-				-
AT&T Inc.		$	98,008			$	66,621			$	31,387			$	13,706			$	17,681

AT&T INC.

The following table is a reconciliation of operating income (loss) to "Income Before Income Taxes" reported on our consolidated statements of income.
		Third Quarter								Nine-Month Period
		2015				2014				2015				2014
Business Solutions		$	4,297			$	3,861			$	12,671			$	12,032
Entertainment and Internet Services			1,021				(337	)			543				(938	)
Consumer Mobility			2,743				2,526				7,597				7,227
International			(87	)			-				(228	)			153
Segment Contribution			7,974				6,050				20,583				18,474
Reconciling Items:
Corporate and Other			(2	)			(106	)			152				140
Merger and integration charges			(696	)			(213	)			(1,689	)			(403	)
Amortization of intangibles acquired			(1,198	)			(125	)			(1,439	)			(378	)
Employee separation charges			(122	)			-				(339	)			-
Other (expenses) credits			(35	)			-				(35	)			-
Less: segment equity in net (income) loss     of affiliates			2				1				20				(152	)
AT&T Operating Income			5,923				5,607				17,253				17,681
Interest Expense			1,146				1,016				2,977				2,757
Equity in net income (loss) of affiliates			15				(2	)			48				188
Other income (expense) - Net			(57	)			42				61				1,456
Income Before Income Taxes		$	4,735			$	4,631			$	14,385			$	16,568

NOTE 5. PENSION AND POSTRETIREMENT BENEFITS

Substantially all of our employees are covered by one of our noncontributory pension plans. We also provide certain medical, dental, life insurance, and death benefits to certain retired employees under various plans and accrue actuarially determined postretirement benefit costs. 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 December 2014, we offered an opportunity for certain management employees who were retirement eligible as of March 31, 2015 to elect an enhanced, full lump sum payment option of their accrued pension if they retired on or before March 31, 2015. The lump sum value totaled approximately $1,200 which was distributed in 2015. We recorded special termination benefits of approximately $150 as a result of this offer.

In 2013, we made a voluntary contribution of a preferred equity interest in AT&T Mobility II LLC, 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 $8,838 at September 30, 2015. The trust is entitled to receive cumulative cash distributions of $560 per annum, which are distributed quarterly in equal amounts and accounted for as contributions. We distributed $420 to the trust during the nine months ended September 30, 2015. 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. We also agreed to make a cash contribution to the trust of $175 no later than the due date of our federal income tax return for 2014. This contribution was made in June 2015.

 

16

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

		Three months ended								Nine months ended
		September 30,								September 30,
		2015				2014				2015				2014
Pension cost:
Service cost – benefits earned during the period		$	305			$	282			$	904			$	846
Interest cost on projected benefit obligation			477				661				1,424				1,984
Expected return on assets			(832	)			(849	)			(2,484	)			(2,549	)
Amortization of prior service credit			(25	)			(24	)			(77	)			(71	)
Net pension (credit) cost		$	(75	)		$	70			$	(233	)		$	210
Postretirement cost:
Service cost – benefits earned during the period		$	55			$	59			$	166			$	175
Interest cost on accumulated postretirement benefit obligation			242				365				725				1,094
Expected return on assets			(105	)			(165	)			(315	)			(491	)
Amortization of prior service credit			(320	)			(362	)			(959	)			(1,086	)
Net postretirement (credit) cost		$	(128	)		$	(103	)		$	(383	)		$	(308	)
Combined net pension and postretirement (credit) cost		$	(203	)		$	(33	)		$	(616	)		$	(98	)

Our combined net pension and postretirement cost decreased $170 in the third quarter and $518 for the first nine months of 2015. Our combined net pension and postretirement cost decreased $223 in the third quarter and $669 for the first nine months due to the change in the method used to estimate the service and interest components of net periodic benefit cost for pension and other postretirement benefits. While this change, which was made in the fourth quarter of 2014, provides a more precise measurement of interim service and interest costs, it will not affect the measurement of our total benefit obligations as of December 31 or our annual net periodic benefit cost as the change in the service and interest costs is completely offset in the actuarial gain or loss reported. The decrease in cost resulting from this change was partially offset by lower amortization of prior service credits as previous postretirement plan changes have become fully amortized, our lower expected long-term rate of return on our postretirement plan assets and updated assumed mortality rates.

We also provide senior- and middle-management employees with nonqualified, unfunded supplemental retirement and savings plans. Net supplemental retirement pension benefits cost, which is not included in the table above, was $22 in the third quarter of 2015, of which $20 was interest cost, and $63 for the first nine months, of which $57 was interest cost. In 2014, net supplemental retirement pension benefits cost was $29 in the third quarter, of which $27 was interest cost, and $87 for the first nine months, of which $82 was interest cost.

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

Level 1

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

Level 2

Inputs to the valuation methodology include:

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

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

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

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

Level 3

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

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

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

The valuation methodologies described above may produce a fair value calculation that may not be indicative of future net realizable value or reflective of future fair values. We believe our valuation methods are appropriate and consistent with other market participants. The use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different fair value measurement at the reporting date. There have been no changes in the methodologies used since December 31, 2014.

Long-Term Debt and Other Financial Instruments

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

	September 30, 2015							December 31, 2014
	Carrying			Fair				Carrying				Fair
	Amount			Value				Amount				Value
Notes and debentures	$	126,042			$	129,524			$	81,632			$	90,367
Bank borrowings		4				4				5				5
Investment securities		2,644				2,644				2,735				2,735