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
	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
	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
	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

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.