AT&T INC. Form 10-K Annual Report Filed 2017-02-17

SECURITIES AND EXCHANGE COMMISSION

FORM 10-K Annual report pursuant to section 13 and 15(d)

Filing Date: 2017-02-17 | Period of Report: 2016-12-31 SEC Accession No. 0000732717-17-000021

(HTML Version on secdatabase.com)

FILER AT&T INC. Mailing Address Business Address 208 S. AKARD ST 208 S. AKARD ST CIK:732717| IRS No.: 431301883 | State of Incorp.:DE | Fiscal Year End: 1231 ATTN : JAMES LACY ATTN : JAMES LACY Type: 10-K | Act: 34 | File No.: 001-08610 | Film No.: 17622494 DALLAS TX 75202 DALLAS TX 75202 SIC: 4813 Telephone communications (no radiotelephone) 2108214105

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549

(Mark One)

x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2016

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number 1-8610

AT&T INC.

Incorporated under the laws of the State of Delaware I.R.S. Employer Identification Number 43-1301883

208 S. Akard St., Dallas, Texas, 75202 Telephone Number 210-821-4105

Securities registered pursuant to Section 12(b) of the Act: (See attached Schedule A)

Securities registered pursuant to Section 12(g) of the Act: None.

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes [X] No [ ]

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes [ ] No [X]

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 Regulation S-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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X]

Copyright © 2013 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Based on the closing price of $43.21 per share on June 30, 2016, the aggregate market value of our voting and non-voting common stock held by non- affiliates was $266 billion.

At February 10, 2017, common shares outstanding were 6,141,570,142.

(1) Portions of AT&T Inc.’s Annual Report to Stockholders for the fiscal year ended December 31, 2016 (Parts I and II).

(2) Portions of AT&T Inc.’s Notice of 2017 Annual Meeting and Proxy Statement dated on or about March 10, 2017 to be filed within the period permitted under General Instruction G(3) (Parts III and IV).

Securities Registered Pursuant To Section 12(b) Of The Act:

Name of each exchange Title of each class on which registered

Common Shares (Par Value $1.00 New York Stock Exchange Per Share)

5.875% AT&T Inc. New York Stock Exchange Global Notes due April 28, 2017

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

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

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

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

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

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

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

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

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

4.375% AT&T Inc. New York Stock Exchange Global Notes due September 14, 2029

2.60% AT&T Inc. New York Stock Exchange Global Notes due December 17, 2029

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

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

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

Copyright © 2013 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Copyright © 2013 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document SCHEDULE A - Continued

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

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

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

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

Item Page

PART I

1. Business 1 1A. Risk Factors 11 2. Properties 12 3. Legal Proceedings 12 4. Mine Safety Disclosures 12

Executive Officers of the Registrant 13

PART II

5. Market for Registrant’s Common Equity, Related Stockholder Matters 14 and Issuer Purchases of Equity Securities 6. Selected Financial Data 15 7. Management’s Discussion and Analysis of Financial Condition 15 and Results of Operations 7A. Quantitative and Qualitative Disclosures about Market Risk 15 8. Financial Statements and Supplementary Data 15 9. Changes in and Disagreements with Accountants on Accounting 15 and Financial Disclosure 9A. Controls and Procedures 15 9B. Other Information 16

PART III

10. Directors, Executive Officers and Corporate Governance 16 11. Executive Compensation 16 12. Security Ownership of Certain Beneficial Owners and 16 Management and Related Stockholder Matters 13. Certain Relationships and Related Transactions, and Director Independence 17 14. Principal Accountant Fees and Services 18

PART IV

15. Exhibits and Financial Statement Schedules 18

PART I

ITEM 1. BUSINESS

GENERAL

AT&T Inc. (“AT&T,” “we” or the “Company”) is a holding company incorporated under the laws of the State of Delaware in 1983 and has its principal executive offices at 208 S. Akard St., Dallas, Texas, 75202 (telephone number 210-821-4105). We maintain an internet website at www.att.com. (This website address is for information only and is not intended to be an active link or to incorporate any website information into this document.) We make available, free of charge, on our website our annual report on Form 10-K, our quarterly reports on Form 10-Q, current reports on Form 8-K and all amendments to those reports as soon as reasonably practicable after such reports are electronically filed with, or furnished to, the Securities and Exchange Commission (SEC). We also make available on that website, and in print, if any stockholder or other person so requests, our “Code of Ethics” applicable to all employees and Directors, our “Corporate Governance Guidelines,” and the charters for all committees of our Board of Directors, including Audit, Human Resources and Corporate Governance and Nominating. Any changes to our Code of Ethics or waiver of our Code of Ethics for senior financial officers, executive officers or Directors will be posted on that website.

History AT&T, formerly known as SBC Communications Inc. (SBC), was formed as one of several regional holding companies created to hold AT&T Corp.’s (ATTC) local telephone companies. On January 1, 1984, we were spun-off from ATTC pursuant to an anti-trust consent decree, becoming an independent publicly-traded telecommunications services provider. At formation, we primarily operated in five southwestern states. Our subsidiaries merged with Pacific Telesis Group in 1997, Southern New England Telecommunications Corporation in 1998 and Ameritech Corporation in 1999, thereby expanding our wireline operations as the incumbent local exchange carrier (ILEC) into a total of 13 states. In November 2005, one of our subsidiaries merged with ATTC, creating one of the world’s leading telecommunications providers. In connection with the merger, we changed the name of our company from “SBC Communications Inc.” to “AT&T Inc.” In December 2006, one of our subsidiaries merged with BellSouth Corporation (BellSouth) making us the ILEC in an additional nine states. With the BellSouth acquisition, we also acquired BellSouth’s 40 percent economic interest in AT&T Mobility LLC (AT&T Mobility), formerly Cingular Wireless LLC, resulting in 100 percent ownership of AT&T Mobility. In 2014, we completed the acquisition of wireless provider Leap Wireless International, Inc. (Leap) and sold our ILEC operations in Connecticut, which we had previously acquired in 1998. In 2015, we completed acquisitions of wireless properties in Mexico and DIRECTV, a leading provider of digital television entertainment services in both the United States and Latin America. Our services and products are marketed under the AT&T, Cricket, DIRECTV, SKY, and Unefon brand names.

Scope We are a leading provider of communications and digital entertainment services in the United States and the world. We offer our services and products to consumers in the U.S., Mexico and Latin America and to businesses and other providers of telecommunications services worldwide. We also own and operate three regional TV sports networks, and retain non-controlling interests in another regional sports network and a network dedicated to game-related programming as well as internet interactive game playing.

The services and products that we offer vary by market, and include: wireless communications, data/broadband and internet services, digital video services, local and long-distance telephone services, telecommunications equipment, managed networking, and wholesale services. Our operating subsidiaries are organized as follows, corresponding to our operating segments for financial reporting purposes: · Business Solutions business units provide services to business customers, including multinational companies; governmental and wholesale 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, collectively referred to as fixed strategic services; as well as traditional data and voice products. We utilize our wireless and wired networks (referred to as “wired” or “wireline”) to provide a complete integrated communications solution to our business customers. · Entertainment Group business units provide video, internet, voice communication, and interactive and targeted advertising services to customers located in the United States or in U.S. territories. We utilize our copper and IP-based network and/or our satellite technology. · Consumer Mobility business units provide nationwide wireless service to consumers, and wholesale and resale subscribers located in the United States or in U.S. territories. We utilize our network to provide voice and data services, including high-speed internet, video and home-monitoring services over wireless devices.

· International business units provide 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 wireless networks in Mexico to provide consumer and business customers with wireless data and voice communication services.

Our Corporate and Other unit 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.

With continuing advances in technology and in response to changing demands from our customers, in recent years we have focused on providing enhanced broadband, video and voice services. In 2015, we purchased DIRECTV to expand our involvement in the digital entertainment space. The nationwide reach of DIRECTV and superior content-owner relationships significantly improve the economics and expanded the geographic reach of our pre-existing AT&T U-verse® video service. We also purchased wireless operations in Mexico, moving quickly to build a world-class mobile business in a country with a strong economic outlook, a growing middle class, and cultural and geographic ties to the United States. These acquisitions and our continued investment in a premier network experience make our customers’ lives more convenient and productive and foster competition and further innovation in the communications and entertainment industry. In late 2016, we took another step in our strategy of providing an unmatched communication and entertainment experience for our customers when we agreed to purchase Time Warner Inc., a global leader in creating premium media and entertainment content. In 2017, we plan to focus on the areas discussed below.

Wireless AT&T Mobility began operations in October 2000 as a joint venture between us and BellSouth and, in 2004, acquired AT&T Wireless Services, Inc. Upon our acquisition of BellSouth in 2006, AT&T Mobility became a wholly-owned subsidiary. We provide wireless video, data and voice services. We are experiencing rapid growth in video and data usage as consumers are demanding seamless access across their wired and wireless devices, and as more and more machines are being connected to the internet.

As of December 31, 2016, we served 146.8 million wireless subscribers in North America, with nearly 135 million in the United States. Our LTE technology covers almost 400 million people in North America, and, in the United States, we cover all major metropolitan areas and almost 320 million people with our LTE technology. We also provide 4G coverage using another technology (HSPA+), and, when combined with our upgraded backhaul network, we are able to enhance our network capabilities and provide superior mobile broadband speeds for data and video services. Our wireless network also relies on other GSM digital transmission technologies for 3G data communications.

We have also started planning for deployment of the latest wireless technology (5G) and are currently testing in our labs and in the field various ways to deploy that technology. We expect global 5G technology standards to be set over the next two years or so, enabling companies to begin commercial deployment thereafter. The increased speeds and network operating efficiency expected with 5G technology should enable massive deployment of devices connected to the internet as well as faster delivery of video and data services.

As the wireless industry continues to mature, future wireless growth will become increasingly dependent on our ability to offer innovative video and data services and a wireless network that has sufficient spectrum and capacity to support these innovations. 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 submitted winning bids for 251 AWS spectrum licenses for a near-nationwide contiguous block of high-quality AWS spectrum in the AWS-3 Auction (FCC Auction 97). Our strategy also includes redeploying spectrum previously used for basic 2G services to support more advanced mobile internet services on our 3G and 4G networks. We have bid on FirstNet, the First Responder Network Authority, which if awarded will provide access to a nationwide low band 20 MHz of spectrum, assuming all states “opt in,” and are participating in the FCC 600 MHz Auction (Auction 1000). We will continue to invest in our wireless network as we look to provide future service offerings and participate in technologies such as 5G and millimeter-wave bands.

Business Solutions We expect to continue to strengthen the reach and sophistication of our network facilities and our ability to offer a variety of communications services, both fixed and mobile, to businesses customers, including multinational companies; governmental and wholesale customers; and individual subscribers who purchase wireless services through employer-sponsored plans.

Internet Protocol (IP) Technology IP is generally used to describe the transmission of data, which can include voice (called voice over IP or VoIP), using a software-based technology rather than a traditional wire and physical switch-based telephone network. A company using this technology can provide voice and data services at a lower cost because this technology uses bandwidth more efficiently than a traditional network. Using this technology also presents growth opportunities, especially in providing data and video services to both fixed locations and mobile devices. To take advantage of both these growth and cost-savings opportunities, we have encouraged the migration of wireline customers in our current 21-state ILEC service area to services using IP, and expect to continue this transition through at least 2020.

Integration of Data/Broadband and Entertainment Services As the communications industry continues to move toward internet-based technologies that are capable of blending traditional wireline and wireless services, we plan to offer services that take advantage of these new and more sophisticated technologies. In particular, we intend to continue to focus on expanding our high-speed internet and video offerings and on developing IP-based services that allow customers to unite their home or business fixed services with their mobile service. During 2017, we will continue to develop and provide unique integrated video, mobile and broadband solutions, including our recently introduced over-the-top video service, DIRECTV NOW.

International We believe that the wireless model in the U.S., with exploding demand for mobile internet service and the associated economic benefits, will be repeated around the world as companies invest in high-speed mobile networks. Due in part to changes in the legal and regulatory framework in Mexico in 2015, we acquired Mexican wireless operations to establish a unique, seamless, cross-border North American wireless network covering nearly 400 million people and businesses in the United States and Mexico. During 2017, we will continue to build a world-class mobile business and network in Mexico.

BUSINESS OPERATIONS

OPERATING SEGMENTS 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. We analyze our operating segments based on Segment Contribution, which consists of operating income, excluding acquisition-related costs and other significant items, and equity in net income (loss) of affiliates for investments managed within each operating segment. We have four reportable segments: (1) Business Solutions, (2) Entertainment Group, (3) Consumer Mobility and (4) International.

Additional information about our segments, including financial information, is included under the heading “Segment Results” on pages 13 through 21 and in Note 4 of the Annual Report and is incorporated herein by reference pursuant to General Instruction G(2).

BUSINESS SOLUTIONS Our Business Solutions segment provides services to business customers, including multinational companies; governmental and wholesale 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, collectively referred to as fixed strategic services; as well as traditional data and voice products. We utilize our wireless and wired networks (referred to as “wired” or “wireline”) to provide a complete integrated communications solution to our business customers. The Business Solutions segment provided approximately 44% of 2016 segment operating revenues and 52% of our 2016 total Segment Contribution. We divide Business Solutions revenue into the following categories: wireless service, fixed strategic services, legacy voice and data services, other services and wireless equipment.

Wireless Service – We offer a comprehensive range of high-quality nationwide wireless voice and data communications services in a variety of pricing plans to approximately 81.4 million Business Solutions wireless subscribers. Our offerings are tailored to meet the communications needs of targeted customer categories. We classify our subscribers as either postpaid, connected device or reseller.

Wireless data services continue to be a growing area for this segment, representing an increasing share of overall subscriber revenue. We are experiencing solid growth in this area as an increasing number of our subscribers have upgraded their handsets to more advanced integrated devices, are using data-centric devices such as tablets and connected cars and are utilizing the network to connect and control physical devices using embedded computing systems and/or software, commonly called the Internet of Things (IoT). We offer both Mobile Share plans and an integrated offer combining unlimited wireless data with our video services. These plans allow sharing of voice, text and data across multiple devices. We also offer equipment installment programs, such as AT&T NextSM (AT&T Next), a program allowing subscribers to more frequently upgrade handsets using an installment payment plan; and Rollover Data on Mobile Share plans, which allows unused shareable plan data to be rolled over and used within the next month. Such offerings are intended to encourage existing subscribers to upgrade their current services and/or add connected devices, attract subscribers from other providers and minimize subscriber churn. Participation in these plans continues to increase. Customers in our “connected device” category (e.g., users of session-based tablets, monitoring devices and automobile systems) purchase those devices from third-party suppliers that buy data access supported by our network. We continue to upgrade our network and coordinate with equipment manufacturers and applications developers to further capitalize on the continued growing demand for wireless data services.

During the first quarter of 2016, we discontinued offering subsidized smartphones to most of our customers. Under our no-subsidy model, subscribers must purchase a device under an equipment installment program or choose to bring their own device, with no annual service contract. Our wireless services include data and voice services, including long-distance service and roaming services. Roaming services enable our subscribers to utilize other carriers’ networks when they are “roaming” outside our network footprint.

Fixed Strategic Services – Fixed strategic services (previously known as strategic business services) are our most advanced business solutions. Our offerings use high-capacity digital circuits, and allow customers to create internal data networks and access external data networks. Switched Transport services transmit data using switching equipment to transfer the data between multiple lines before reaching its destination. Dedicated transport services use a single direct line to transmit data between destinations. Due to advances in technology, our most advanced business solutions are subject to change periodically. We review and evaluate our fixed strategic service offerings annually, which may result in an updated definition and the recast of our historical financial information to conform to the current period presentation. Any modifications will be reflected in the first quarter.

We provide businesses voice applications over IP-based networks (i.e., Enhanced Virtual Private Networks or “EVPN”). Over the past several years, we have built out our new IP/MPLS (Internet Protocol/MultiProtocol Label Switching) network, to supplement our IP-based product set, and eventually replace our older circuit-based networks and services. These products allow us to provide highly complex global data networks. Additional IP-based services include internet access and network integration, network security, dedicated internet and enterprise networking services. These advanced IP-based services continued to grow during 2016 as customers shift from our older circuit-based services. We expect this trend to continue in 2017 as customers continue to use more services based on internet access and demand ever-increasing transmission speeds, especially for video. To align with these trends, we continue to reconfigure our wireline network to take advantage of the latest technologies and services.

Packet services consist of data networks using packet switching and transmission technologies, including traditional circuit-based and IP connectivity services. Packet services enable customers to transmit large volumes of data economically and securely and are used for local area network (LAN) interconnection and inter-office communications. High-speed packet services are used extensively by enterprise (large business) customers.

Enterprise networking services provide comprehensive support from network design, implementation and installation to ongoing network operations and management for networks of varying scales, including LANs and virtual private networks. These services include applications such as e-mail, order entry systems, employee directories, human resource transactions and other database applications. We also offer Wi-Fi service.

Legacy Voice and Data Services – Voice services include traditional local and long-distance service provided directly to business and governmental customers, or through wholesale arrangements with other service providers. Our circuit-based, traditional data products include switched and dedicated transport services that allow customers to transmit data at high speeds, as well as access the internet using a DSL connection.

Revenues from our traditional voice services continue to decline as customers switch to wireless or VoIP services provided by either us, cable companies or other internet-based providers. In addition, the continuing slow economic growth and business starts have led some wireline customers to terminate their business phone service. We have responded by offering packages of combined voice and data services, including broadband and video, and intend to continue this strategy during 2017.

Other Services – Other service revenues include project-based revenue, which is nonrecurring in nature, as well as revenues from other managed services, outsourcing, government professional service and equipment.

We provide intrastate, interstate and international wholesale networking capacity to other service providers. We offer a combination of high-volume transmission capacity and conventional dedicated line services on a regional, national and international basis to our wholesale customers, which are primarily wireless carriers, interexchange carriers, Internet Service Providers (ISPs), and facility-based and switchless resellers.

Wireless Equipment – We sell a wide variety of handsets, wirelessly enabled computers (e.g., tablets and notebooks) and personal computer wireless data cards manufactured by various suppliers for use with our voice and data services. We sell through our own company-owned stores, agents and third-party retail stores. Like other wireless service providers, we have historically provided postpaid contract subscribers substantial equipment subsidies to initiate, renew or upgrade service. We have now largely eliminated these subsidies and provide our customers with more service options, the ability to purchase handsets on an installment basis and the opportunity to bring their own device. With the elimination of handset subsidies, our subscribers have been retaining their handsets for longer periods; accordingly, we expect equipment revenues to be pressured in 2017. We also sell accessories, such as carrying cases, hands-free devices and other items.

Additional information on our Business Solutions segment is contained in the Annual Report in the “Operating Environment Overview” section beginning on page 14 and is incorporated herein by reference pursuant to General Instruction G(2).

ENTERTAINMENT GROUP Our Entertainment Group segment provides video, internet, voice communication, and interactive and targeted advertising services to customers in the United States and U.S. territories by utilizing our copper and IP-based wired network and/or our satellite technology. In July 2015, we acquired DIRECTV, a leading provider of digital television entertainment engaged in acquiring, promoting, selling and distributing digital entertainment programming primarily via satellite to subscribers. The Entertainment Group segment provided approximately 32% of 2016 segment operating revenues and 19% of our 2016 total Segment Contribution. We divide this segment’s revenue into the following categories: video entertainment, high- speed internet, legacy voice and data services, and equipment and other.

Video Entertainment – We offer video entertainment services using satellite and IP-based technologies (referred to as “linear”) as well as a streaming option that does not require either satellite or wired IP services (referred to as “over-the-top”). Our offerings are structured to provide customers with the best video experience both inside and outside of the home by offering subscribers attractive programming, technology and customer service. Due to the rising cost of programming as well as higher costs to acquire new subscribers in an increasingly competitive industry, it is even more important to distinguish and elevate our video entertainment experience for our new and existing customers.

We provide approximately 25.3 million subscribers with access to hundreds of channels of digital-quality video entertainment and audio programming. For our satellite subscribers, we provide video-on-demand (VOD) by “pushing” top-rated movies onto customers’ digital video recorders (DVRs) for instant viewing, as well as via broadband to our subscribers who have connected their set-top receiver to their broadband service. In addition, our video entertainment subscribers have the ability to use the internet and/or our mobile applications for smartphones and tablets to view authorized content, search program listings and schedule DVR recordings.

We believe it is critical that we continue to extend our brand leadership as the premium pay-TV provider in the marketplace by providing the best video experience both at home and on mobile devices. We believe that our flexible platform that uses a combination of satellite, IP-based and cloud infrastructure with a broadband and wireless connection is the most efficient way to transport content to subscribers when and where they want it. Through this integrated approach, we’re able to optimize the use of storage in the home as well as in the cloud, while also providing a seamless service for consumers across screens and locations.

High-Speed Internet – We offer broadband and internet services to 12.9 million residential subscribers. Our IP-based technology provides more advanced high-speed internet services.

Legacy Voice and Data Services – Voice services include traditional local and long-distance service provided to residential customers. Our circuit- based, traditional data products include DSL internet access.

Revenues from our traditional voice services continue to decline as customers switch to wireless or VoIP services provided by either us, cable or other internet-based providers. We have responded by offering packages of combined voice and data services, including broadband, video and wireless, and intend to continue this strategy during 2017.

Equipment and Other – Other service revenues include revenue from voice services provided over IP-based technology (VoIP) as well as revenues associated with technical support and other customer service functions and equipment.

Additional information on our Entertainment Group segment is contained in the Annual Report in the “Operating Environment Overview” section beginning on page 16 and is incorporated herein by reference pursuant to General Instruction G(2).

CONSUMER MOBILITY Our Consumer Mobility segment consists of AT&T Mobility operations that provide nationwide wireless services to consumers and wholesale and resale wireless subscribers located in the United States or U.S. territories by utilizing our network to provide voice and data services, including high- speed internet, video and home-monitoring services over wireless devices. Wireless services include data and voice, including long-distance and roaming services. Roaming services enable our subscribers to utilize other carriers’ networks when they are “roaming” outside our network footprint. The Consumer Mobility segment provided approximately 20% of 2016 total segment operating revenues and 31% of our 2016 total Segment Contribution. We classify our subscribers as either postpaid, prepaid, connected device or reseller. At December 31, 2016, we served 53.5 million Consumer Mobility subscribers, including 27.1 million postpaid, 13.5 million prepaid, 11.9 million reseller and 942,000 connected devices. We divide our revenue into the following categories: services and equipment.

Wireless Services – We offer a comprehensive range of high-quality nationwide wireless voice and data communications services in a variety of postpaid and prepaid pricing plans. Wireless data services continue to be a growing area of Consumer Mobility’s business, representing an increasing share of overall subscriber revenue. Subscribers continue to upgrade their handsets to more advanced integrated devices, contributing to growth from wireless data services. We offer Mobile Share plans and an integrated offer combining our unlimited wireless data with our video services. These plans allow sharing of voice, text and data across multiple devices. We also offer equipment installment programs, such as AT&T Next, a program allowing subscribers to more frequently upgrade handsets using an installment payment plan; and Rollover Data on Mobile Share plans, which allows unused shareable plan data to be rolled over and used within the next month. We also launched in 2016 a program for wireless subscribers that also purchase our video service to view such programming without it counting against their wireless data allowances. Such offerings are intended to encourage existing subscribers to upgrade their current services and/or add connected devices, attract subscribers from other providers, and minimize subscriber churn. Participation in these plans continues to increase. Customers in our “connected device” category (e.g., users of session-based tablets) purchase those devices from third-party suppliers that buy data access supported by our network. We continue to upgrade our network and coordinate with equipment manufacturers and applications developers in order to further capitalize on the continued growth in the demand for wireless data services.

During the first quarter of 2016, we discontinued offering subsidized smartphones to most of our customers. Under our no-subsidy model, subscribers must purchase a device under an equipment installment program or choose to bring their own device, with no annual service contract. Market maturity, competition and the migration of subscribers to employer plans offered by our Business Solutions segment have slowed the growth in subscribers.

We also offer nationwide wireless voice and data communications to certain customers who prefer to pay in advance. These services are offered under the Cricket and Go Phone brands and are typically monthly prepaid services.

Other Service – Other services includes consulting, advertising, application and co-location, as well as fees we charge to other carriers for providing roaming services to their customers utilizing our network.

Equipment – We sell a wide variety of handsets, wirelessly enabled computers (e.g., tablets and notebooks) and personal computer wireless data cards manufactured by various suppliers for use with our voice and data services. We sell through our own company-owned stores, agents and third-party retail stores. Like other wireless service providers, we have historically provided postpaid contract subscribers substantial equipment subsidies to initiate, renew or upgrade service. We have now largely eliminated these subsidies and provide our customers with more service options, the ability to purchase handsets on an installment basis and the opportunity to bring their own device. We also sell accessories, such as carrying cases, hands-free devices, and other items, to consumers, as well as to agents and third-party distributors for resale.

Additional information on our Consumer Mobility segment is contained in the Annual Report in the “Operating Environment Overview” section beginning on page 18 and is incorporated herein by reference pursuant to General Instruction G(2).

INTERNATIONAL Our 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 wireless networks in Mexico to provide consumer and business customers with wireless data and voice communication services. The International segment provided approximately 4% of 2016 segment operating revenues. We divide our revenue into the following categories: video entertainment, wireless service and wireless equipment.

Video Entertainment – We are a leading provider of digital television services throughout Latin America, providing a wide selection of local and international digital-quality video entertainment and audio programming under the DIRECTV and SKY brands. We believe we provide one of the most extensive collections of programming available in the Latin America pay-TV market, including HD sports video content and the most innovative interactive technology across the region. In addition, we have the unique ability to sell superior offerings of our differentiated products and services on a continent-wide basis with an operational cost structure that we believe to be lower than that of our competition.

We have approximately 12.5 million video subscribers in Latin America. Our operations are comprised of: PanAmericana, which provides services in Argentina, Chile, Colombia, Ecuador, Peru, Venezuela and certain other countries in the region; and SKY Brasil Servicos Ltda., or SKY Brasil, which is a 93% owned subsidiary. Our Latin American operations also include our 41% equity method investment in Innova, S. de R.L. de C.V., or SKY Mexico, which we include in our International segment. As of December 31, 2016, PanAmericana had approximately 7.2 million subscribers and SKY Brasil had approximately 5.3 million subscribers.

Wireless – We offer postpaid and prepaid wireless services in Mexico to approximately 12.0 million subscribers under the AT&T and Unefon brands. Postpaid services allow for (1) no annual service contract for subscribers who bring their own device or purchase a device on installment (the device must be paid in full if the customer chooses to drop their service from AT&T); and (2) service contracts for periods up to 24 months for subscribers who purchase their equipment under the traditional device subsidy model. All plans offer no roaming charges in the United States or Canada, unlimited minutes and messages to the extended AT&T community and unlimited social networking. We also offer prepaid services to certain customers who prefer to pay in advance.

Equipment – We sell a wide variety of handsets, including smartphones manufactured by various suppliers for use with our voice and data services. We sell through our own company-owned stores, agents and third-party retail stores.

Additional information on our International segment is contained in the Annual Report in the “Operating Environment Overview” section beginning on page 20 and is incorporated herein by reference pursuant to General Instruction G(2).

MAJOR CLASSES OF SERVICE

The following table sets forth the percentage of total consolidated reported operating revenues by any class of service that accounted for 10% or more of our consolidated total operating revenues in any of the last three fiscal years:

Percentage of Total Consolidated Operating Revenues 2016 2015 2014 Business Solutions Segment Wireless service 19 % 21 % 23 % Legacy voice and data services 10 12 15 Equipment 1 5 6 6 Entertainment Group Segment Video entertainment 22 14 5 Legacy voice and data services 3 4 6 Consumer Mobility Segment Wireless service 17 20 23 Equipment 3 4 4 International Segment Video entertainment 3 1 - 1 Includes customer premises equipment of $982 million in 2016, $929 million in 2015 and $979 million in 2014 that is reported as other service and equipment revenues in our Business Solutions segment.

Additional information on our geographical distribution of revenues is contained in the Annual Report in the “Segment Information” section beginning on page 54 and is incorporated herein by reference pursuant to General Instruction G(2).

GOVERNMENT REGULATION

Wireless communications providers must be licensed by the U.S. Federal Communications Commission (FCC) to provide communications services at specified spectrum frequencies within defined geographic areas and must comply with the rules and policies governing the use of the spectrum as adopted by the FCC. The FCC’s rules have a direct impact on whether the wireless industry has sufficient spectrum available to support the high- quality, innovative services our customers demand. Wireless licenses are issued for a fixed time period, typically 10 years, and we must seek renewal of these licenses. While the FCC has generally renewed licenses given to operating companies such as us, the FCC has authority to both revoke a license for cause and to deny a license renewal if a renewal is not in the public interest. Additionally, while wireless communications providers’ prices and service offerings are generally not subject to regulation, the federal government and various states are considering new regulations and legislation relating to various aspects of wireless services.

The Communications Act of 1934 and other related acts give the FCC broad authority to regulate the U.S. operations of our satellite services, which are licensed by the FCC. In addition, states representing a majority of our local service access lines have adopted legislation that enables us to provide IP-based video 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 retail services. Regulatory reform and passage of legislation is uncertain and depends on many factors.

In February 2015, the FCC released an order in response to the D.C. Circuit’s January 2014 decision adopting new rules, and classifying both fixed and mobile consumer broadband internet access as telecommunications services, subject to comprehensive regulation under the Telecommunications Act of 1996. The FCC’s decision significantly expands its existing authority to regulate the provision of fixed and mobile broadband internet access services. The FCC also asserted jurisdiction over internet interconnection arrangements, which until now have been unregulated. These actions could have an adverse impact on our fixed and mobile broadband services and operating results. AT&T and several other parties, including US Telecom and CTIA trade groups, have challenged the FCC’s order.

Our ILEC subsidiaries are subject to regulation by state governments, which have the power to regulate intrastate rates and services, including local, long-distance and network access services, provided such state regulation is consistent with federal law. Some states have eliminated or reduced regulations on our retail offerings. These subsidiaries are also subject to the jurisdiction of the FCC with respect to intercarrier compensation, interconnection, and interstate and international rates and services, including interstate access charges. Access charges are a form of intercarrier compensation designed to reimburse our wireline subsidiaries for the use of their networks by other carriers.

Our subsidiaries operating outside the United States are subject to the jurisdiction of national and supranational regulatory authorities in the market where service is provided.

Additional information relating to regulation of our subsidiaries is contained in the Annual Report under the headings “Operating Environment Overview” beginning on page 24 and “Regulatory Developments” beginning on page 27 and is incorporated herein by reference pursuant to General Instruction G(2).

IMPORTANCE, DURATION AND EFFECT OF LICENSES

Certain of our subsidiaries own or have licenses to various patents, copyrights, trademarks and other intellectual property necessary to conduct business. Many of our subsidiaries also hold government-issued licenses or franchises to provide wireline, satellite or wireless services and additional information relating to regulation affecting those rights is contained in the Annual Report under the heading “Operating Environment Overview” beginning on page 24 and is incorporated herein by reference pursuant to General Instruction G(2). We actively pursue patents, trademarks and service marks to protect our intellectual property within the United States and abroad. We maintain a significant global portfolio of patents, trademarks and service mark registrations. We have also entered into agreements that permit other companies, in exchange for fees and subject to appropriate safeguards and restrictions, to utilize certain of our trademarks and service marks. We periodically receive offers from third parties to obtain licenses for patents and other intellectual rights in exchange for royalties or other payments. We also receive notices asserting that our products or services infringe on their patents and other intellectual property rights. These claims, whether against us directly or against third-party suppliers of products or services that we, in turn, sell to our customers, such as wireless handsets, could require us to pay damages, royalties, stop offering the relevant products or services and/or cease other activities. While the outcome of any litigation is uncertain, we do not believe that the resolution of any of these infringement claims or the expiration or non-renewal of any of our intellectual property rights would have a material adverse effect on our results of operations.

MAJOR CUSTOMER

No customer accounted for 10% or more of our consolidated revenues in 2016, 2015 or 2014.

COMPETITION

Information relating to competition in each of our operating segments is contained in the Annual Report under the heading “Competition” beginning on page 27, and is incorporated herein by reference pursuant to General Instruction G(2).

RESEARCH AND DEVELOPMENT

AT&T scientists and engineers conduct research in a variety of areas, including IP networking, advanced network design and architecture, network and cyber security, network operations support systems, satellite technology and data analytics. The majority of the development activities are performed to create new services and to invent tools and systems to manage secure and reliable networks for us and our customers. In recent years, we initiated a technology outreach effort aimed at venture capital funded startups with the objective of rapidly introducing new solutions, products and applications developed by third parties. Research and development expenses were $1,649 million in 2016, $1,693 million in 2015, and $1,730 million in 2014.

EMPLOYEES

As of January 31, 2017, we employed approximately 268,000 persons. Approximately 48% of our employees are represented by the Communications Workers of America, the International Brotherhood of Electrical Workers or other unions. Contracts covering approximately 20,000 mobility employees across the country and approximately 25,000 traditional wireline employees in our Southwest and Midwest regions will expire in 2017. Additionally, negotiations continue with approximately 15,000 traditional wireline employees in our West region where the contract expired in April 2016. Approximately 11,000 former DIRECTV employees were eligible for and chose union representation. Bargaining has resulted in approximately 70% of these employees now being covered under ratified contracts that expire between 2017 and 2020. After expiration of the current agreements, work stoppages or labor disruptions may occur in the absence of new contracts or other agreements being reached.

At December 31, 2016, we had approximately 533,000 retirees and dependents that were eligible to receive retiree benefits.

ITEM 1A. RISK FACTORS

Information required by this Item is included in the Annual Report under the heading “Risk Factors” on pages 39 through 43 which is incorporated herein by reference pursuant to General Instruction G(2).

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) 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 to IP-based infrastructure, including the withdrawal of legacy TDM-based services; universal service; broadband deployment; E911 services; competition policy; privacy net neutrality, including the FCC’s order classifying broadband as Title II services subject to much more comprehensive regulation; unbundled network elements and other wholesale obligations; multi-channel video programming distributor services and equipment; 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 of IP-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. · Our ability to absorb revenue losses caused by increasing competition, including offerings that use alternative technologies or delivery methods (e.g., cable, wireless, VoIP and over-the-top video service) and our ability to maintain capital expenditures. · The extent of competition including from governmental networks and other providers and the resulting pressure on customer and access line totals and segment operating margins. · Our ability to develop attractive and profitable product/service offerings to offset increasing competition. · 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, including state regulatory proceedings relating to unbundled network elements and non-regulation of comparable alternative technologies (e.g., VoIP). · The continued development and delivery of attractive and profitable video offerings through satellite and IP-based networks; the extent to which regulatory and build-out requirements apply to our offerings; 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 wireless service and devices and device financing plans. · The availability and cost of additional wireless spectrum 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 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, natural disasters, 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. · Our ability to integrate our acquisition of DIRECTV. · Our ability to close our pending acquisition of Time Warner Inc. and successfully integrate its operations. · Our ability to adequately fund our wireless operations, including payment for additional spectrum, network upgrades and technological advancements. · Our increased exposure to video competition and foreign economies due to our recent acquisitions of DIRECTV and Mexican wireless properties, 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.

Copyright © 2013 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document · 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. · The uncertainty and impact of anticipated regulatory and corporate tax reform, which may impact the overall economy and incentives for business investments.

Readers are cautioned that other factors discussed in this report, although not enumerated here, also could materially affect our future earnings.

ITEM 2. PROPERTIES

Our properties do not lend themselves to description by character and location of principal units. At December 31, 2016, central office equipment represented 29%; outside plant (including cable, wiring and other non-central office network equipment) represented approximately 25%; satellites represented 1%; other equipment, comprised principally of wireless network equipment attached to towers, furniture and office equipment and vehicles and other work equipment, represented 27%; land, building and wireless communications towers represented 12%; and other miscellaneous property represented 6%.

Substantially all of the installations of central office equipment are located in buildings and on land we own. Many garages, administrative and business offices, wireless towers, telephone centers and retail stores are leased. Property on which communication towers are located may be either owned or leased.

ITEM 3. LEGAL PROCEEDINGS

We are a party to numerous lawsuits, regulatory proceedings and other matters arising in the ordinary course of business. As of the date of this report, we do not believe any pending legal proceedings to which we or our subsidiaries are subject are required to be disclosed as material legal proceedings pursuant to this item.

We are subject from time to time to judicial and administrative proceedings brought by various governmental authorities under federal, state or local environmental laws. We are required to discuss three of these proceedings in our Forms 10-Q and 10-K, because each could result in monetary sanctions (exclusive of interest and costs) of $100,000 or more. However, we do not believe that any of them currently pending will have a material adverse effect on our results of operations.

(a) Waste Disposal Inquiry Involving DIRECTV In August 2012, a unit organized by the California Attorney General and the District Attorney for Alameda County, California notified DIRECTV that the unit was examining allegations that DIRECTV had failed to properly manage, store, transport and dispose of Hazardous and Universal Waste in accordance with the California Health & Safety Code. No litigation has been filed. DIRECTV is cooperating with the unit and is seeking to resolve all claims. A monetary settlement has been proposed and agreed to in principle by DIRECTV in an amount that is not material. Negotiation of final terms is proceeding.

(b) San Diego County Inquiry Involving Cricket Communications, Inc. In February 2014, the San Diego County Air Pollution Control District began inquiring into alleged violations of California regulations governing removal, handling and disposal of asbestos containing materials arising from an independent dealer’s demolition and construction activity in preparation to install upgraded point of purchase and fixtures in accordance with Cricket Dealer Guidelines. While the independent dealer was in sole control of contractors performing the work at issue, the County has focused on Cricket Communications dealer agreement terms and interactions with the independent dealer as a basis for asserting direct liability against Cricket Communications, Inc. After discussions, in November 2015, the County issued a penalty demand in excess of $100,000. In October 2016, we reached a monetary settlement with the County of this matter for an immaterial amount.

(c) South Coast Air Quality In January 2016, AT&T Mobility received an offer to enter into an administrative settlement with California’s South Coast Air Quality Management District associated with a Notice of Violation (NOV) received in 2015. The 2015 NOV alleged violations of local environmental air permitting and emissions rules issued by the District in connection with operation of a back-up power generator system at one AT&T Mobility facility. After discussions, the parties resolved the alleged violations without admission of fault by AT&T Mobility for a payment of civil penalties in an amount of less than $100,000.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

EXECUTIVE OFFICERS OF THE REGISTRANT (As of February 1, 2017)

Name Age Position Held Since

Randall L. Stephenson 56 Chairman of the Board, Chief Executive Officer 6/2007 and President

F. Thaddeus Arroyo 53 Chief Executive Officer – Business Solutions and International 1/2017

William A. Blase Jr. 61 Senior Executive Vice President – Human Resources 6/2007

John M. Donovan 56 Chief Strategy Officer and Group President – AT&T Technology 2/2016 and Operations

David S. Huntley 58 Senior Executive Vice President and Chief Compliance Officer 12/2014

Lori M. Lee 51 Senior Executive Vice President and Global Marketing Officer 4/2015

David R. McAtee II 48 Senior Executive Vice President and General Counsel 10/2015

Robert W. Quinn Jr. 56 Senior Executive Vice President – External and Legislative 10/2016 Affairs, AT&T Services, Inc.

John T. Stankey 54 Chief Executive Officer-AT&T Entertainment Group, 7/2015 AT&T Services, Inc.

John J. Stephens 57 Senior Executive Vice President and Chief Financial Officer 6/2011

All of the above executive officers have held high-level managerial positions with AT&T or its subsidiaries for more than the past five years. Executive officers are not appointed to a fixed term of office.

PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

(a) Our common stock is listed on the New York Stock Exchange. The number of stockholders of record as of December 31, 2016 and 2015 was 1,020,203 and 1,074,894. The number of stockholders of record as of February 10, 2017, was 1,015,975. We declared dividends, on a quarterly basis, totaling $1.93 per share in 2016 and $1.89 per share in 2015.

Other information required by this Item is included in the Annual Report under the headings “Quarterly Financial Information” on page 83, “Selected Financial and Operating Data” on page 10, and “Stock Trading Information” on the back cover, which are incorporated herein by reference pursuant to General Instruction G(2).

(c) In July 2012, the Board of Directors approved an authorization to repurchase 300 million shares, which we completed in May 2013. In March 2013, our Board of Directors approved an authorization to repurchase up to an additional 300 million shares of our common stock. In March 2014, our Board of Directors approved another authorization to repurchase up to an additional 300 million shares of our common stock. For the year ended December 31, 2016, we repurchased 11 million shares for distribution through our employee benefit plans, totaling $444 million under the March 2013 authorization. For the year ended December 31, 2015, we repurchased 8 million shares totaling $269 million under the March 2013 authorization. The emphasis of our 2017 financing activities will be the issuance of debt and the payment of dividends, subject to approval by our Board of Directors, and the repayment of debt.

To implement these authorizations, we used open market repurchase programs, relying on Rule 10b5-1 of the Securities Exchange Act of 1934 where feasible.

We will continue to fund any share repurchases through a combination of cash from operations, borrowings dependent on market conditions, or cash from the disposition of certain non-strategic investments.

A summary of our repurchases of common stock during the fourth quarter of 2016 is as follows:

ISSUER PURCHASES OF EQUITY SECURITIES

(a) (b) (c) (d)

Maximum Number (or Total Number of Approximate Dollar Shares (or Units) Value) of Shares (or Total Number of Purchased as Part of Units) That May Yet Be Shares (or Units) Average Price Paid Publicly Announced Purchased Under The Period Purchased1,2,3 Per Share (or Unit) Plans or Programs1 Plans or Programs

October 1, 2016 - October 31, 2016 45,330 $ - - 395,550,000 November 1, 2016 - November 30, 2016 1,841,719 - - 395,550,000 December 1, 2016 - December 31, 2016 528,674 - - 395,550,000 Total 2,415,723 $ - - 1 In March 2014, our Board of Directors approved an authorization to repurchase up to 300 million shares of our common stock. In March 2013, our Board of Directors approved an authorization to repurchase up to 300 million shares of our common stock. The authorizations have no expiration date. 2 Of the shares purchased, 73,743 shares were acquired through the withholding of taxes on the vesting of restricted stock or through the payment in stock of taxes on the exercise price of options. 3 Of the shares repurchased, 2,341,980 were acquired through reimbursements from the AT&T maintained Voluntary Employee Benefit Association (VEBA) trusts or through litigation settlement.

ITEM 6. SELECTED FINANCIAL DATA

Information required by this Item is included in the Annual Report under the heading “Selected Financial and Operating Data” on page 10, which is incorporated herein by reference pursuant to General Instruction G(2).

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Information required by this Item is included in the Annual Report on pages 11 through 44, which is incorporated herein by reference pursuant to General Instruction G(2).

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Information required by this Item is included in the Annual Report under the heading “Market Risk” on page 38, which is incorporated herein by reference pursuant to General Instruction G(2).

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Information required by this Item is included in the Annual Report on pages 45 through 83, which is incorporated herein by reference pursuant to General Instruction G(2).

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

During our two most recent fiscal years, there has been no change in the independent accountant engaged as the principal accountant to audit our financial statements, and the independent accountant has not expressed reliance on other independent accountants in its reports during such time period.

ITEM 9A. CONTROLS AND PROCEDURES

Disclosure 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 SEC’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 December 31, 2016. 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 December 31, 2016.

Internal Control Over Financial Reporting

(a) Management’s Annual Report on Internal Control over Financial Reporting The management of AT&T is responsible for establishing and maintaining adequate internal control over financial reporting. AT&T’s internal control system was designed to provide reasonable assurance as to the integrity and reliability of the published financial statements. AT&T management assessed the effectiveness of the company’s internal control over financial reporting as of December 31, 2016. In making this assessment, it used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control – Integrated Framework (2013 framework). Based on its assessment, AT&T management believes that, as of December 31, 2016, the Company’s internal control over financial reporting is effective based on those criteria.

(b) Attestation Report of the Independent Registered Public Accounting Firm The independent registered public accounting firm that audited the financial statements included in the Annual Report containing the disclosure required by this Item, Ernst & Young LLP, has issued an attestation report on the Company’s internal control over financial reporting. The attestation report issued by Ernst & Young LLP is included in the Annual Report on page 85, which is incorporated herein by reference pursuant to General Instruction G(2).

ITEM 9B. OTHER INFORMATION

There is no information that was required to be disclosed in a report on Form 8-K during the fourth quarter of 2016 but was not reported.

PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

Information regarding executive officers required by Item 401 of Regulation S-K is furnished in a separate disclosure at the end of Part I of this report since the registrant did not furnish such information in its definitive proxy statement prepared in accordance with Schedule 14A. Information regarding directors required by Item 401 of Regulation S-K is incorporated herein by reference pursuant to General Instruction G(3) from the registrant’s definitive proxy statement, dated on or about March 10, 2017 (Proxy Statement) under the heading “Management Proposal Item 1. Election of Directors.”

Information required by Item 405 of Regulation S-K is incorporated herein by reference pursuant to General Instruction G(3) from the registrant’s Proxy Statement under the heading “Section 16(a) Beneficial Ownership Reporting Compliance.”

The registrant has a separately-designated standing audit committee established in accordance with Section 3(a)(58)(A) of the Securities Exchange Act of 1934. The members of the committee are Messrs. Di Piazza, Jr. and McCallister, and Mses. Taylor and Tyson. The additional information required by Item 407(d)(5) of Regulation S-K is incorporated herein by reference pursuant to General Instruction G(3) from the registrant’s Proxy Statement under the heading “Audit Committee.”

The registrant has adopted a code of ethics entitled “Code of Ethics” that applies to the registrant’s principal executive officer, principal financial officer, principal accounting officer, or controller or persons performing similar functions. The additional information required by Item 406 of Regulation S-K is provided in this report under the heading “General” under Part I, Item 1. Business.

ITEM 11. EXECUTIVE COMPENSATION

Information required by Item 402(k) of Regulation S-K is incorporated herein by reference pursuant to General Instruction G(3) from the registrant’s Proxy Statement under the heading “Director Compensation.” Information regarding officers is included in the registrant’s Proxy Statement on the pages beginning with the heading “Compensation Discussion and Analysis” and ending with, and including, the pages under the heading “Potential Payments upon Change in Control” which are incorporated herein by reference pursuant to General Instruction G(3). Information required by Item 407(e)(5) of Regulation S-K is included in the registrant’s Proxy Statement under the heading “Compensation Committee Report” and is incorporated herein by reference pursuant to General Instruction G(3) and shall be deemed furnished in this Annual Report on Form 10-K and will not be deemed incorporated by reference into any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934.

Information required by this Item is included in the registrant’s Proxy Statement, under the heading “Director Compensation,” and the pages beginning with the heading “Summary Compensation Table,” and ending with, and including, the page immediately before the heading “Cost of Proxy Solicitation” which are incorporated herein by reference pursuant to General Instruction G(3).

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

Information required by Item 403 of Regulation S-K is included in the registrant’s Proxy Statement under the heading “Common Stock Ownership,” which is incorporated herein by reference pursuant to General Instruction G(3).

Equity Compensation Plan Information

The following table provides information as of December 31, 2016, concerning shares of AT&T common stock authorized for issuance under AT&T’s existing equity compensation plans.

Equity Compensation Plan Information Number of securities Weighted- remaining available for average exercise future issuance under Number of securities to be price of equity compensation issued upon exercise of outstanding Plans (excluding outstanding options, options, warrants securities reflected in Plan Category warrants and rights and rights column (a)) (a) (b) (c) Equity compensation plans approved by 38,989,880 (1) 29.46 129,216,883(2) security holders Equity compensation plans not approved - - - by security holders Total 38,989,880 (3) $29.46 129,216,883 (2)

(1) Includes stock to be issued in connection with the following stockholder approved plans: (a) 5,684,800 stock options under the Stock Purchase and Deferral Plan (SPDP), (b) 2,086,954 phantom stock units under the Stock Savings Plan (SSP), 10,124,461 phantom stock units under the SPDP, 13,515 restricted stock units under the 2016 Incentive Plan, and 6,094,321 restricted stock units under the 2011 Incentive Plan, and (c) 6,022 target number of stock-settled performance shares under the 2016 Incentive Plan, and 12,690,355 target number of stock-settled performance shares under the 2011 Incentive Plan. At payout, the target number of performance shares may be reduced to zero or increased by up to 150%. Each phantom stock unit and performance share is settleable in stock on a 1-to-1 basis. The weighted-average exercise price in the table does not include outstanding performance shares or phantom stock units.

The SSP was approved by stockholders in 1994 and then was amended by the Board of Directors in 2000 to increase the number of shares available for purchase under the plan (including shares from the Company match and reinvested dividend equivalents). Stockholder approval was not required for the amendment. To the extent applicable, the amount shown for approved plans in column (a), in addition to the above amounts, includes 2,289,453 phantom stock units (computed on a first-in-first-out basis) that were approved by the Board in 2000. Under the SSP, shares could be purchased with payroll deductions and reinvested dividend equivalents by mid-level and above managers and limited Company partial matching contributions. No new contributions may be made to the plan.

(2) Includes 20,429,062 shares that remain available for future issuance under the SPDP, 88,541,244 shares remaining under the 2011 Incentive Plan, and up to 2,943,330 shares that may be purchased through reinvestment of dividends on phantom shares held in the SSP.

(3) Does not include certain stock options issued by companies acquired by AT&T that were converted into options to acquire AT&T stock. As of December 31, 2016, there were 640,749 shares of AT&T common stock subject to the converted options, having a weighted-average exercise price of $19.34. Also, does not include 3,570,683 outstanding phantom stock units that were issued by companies acquired by AT&T that are convertible into stock on a 1-to-1 basis, along with up to 120,227 shares that may be purchased with reinvested dividend equivalents paid on the outstanding phantom stock units. No further phantom stock units, other than reinvested dividends, may be issued under the assumed plans. The weighted-average exercise price in the table does not include outstanding performance shares or phantom stock units.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

Information required by Item 404 of Regulation S-K is included in the registrant’s Proxy Statement under the heading “Related Person Transactions Disclosure,” which is incorporated herein by reference pursuant to General Instruction G(3). Information required by Item 407(a) of Regulation S-K is included in the registrant’s Proxy Statement under the heading “Director Independence,” which is incorporated herein by reference pursuant to General Instruction G(3).

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

Information required by this Item is included in the registrant’s Proxy Statement under the heading “Principal Accountant Fees and Services,” which is incorporated herein by reference pursuant to General Instruction G(3).

Part IV

ITEM 15. EXHIBITS and FINANCIAL STATEMENT SCHEDULES (a) Documents filed as a part of the report:

Page (1) Report of Independent Registered Public Accounting Firm * Financial Statements covered by Report of Independent Registered Public Accounting Firm: * Consolidated Statements of Income * Consolidated Statements of Comprehensive Income * Consolidated Balance Sheets * Consolidated Statements of Cash Flows Consolidated Statements of Changes in Stockholders’ * Equity * Notes to Consolidated Financial Statements

* Incorporated herein by reference to the appropriate portions of the registrant’s Annual Report to Stockholders for the fiscal year ended December 31, 2016. (See Part II.)

Page (2) Financial Statement Schedules: 23 II - Valuation and Qualifying Accounts

Financial statement schedules other than those listed above have been omitted because the required information is contained in the financial statements and notes thereto, or because such schedules are not required or applicable.

(3) Exhibits:

Exhibits identified in parentheses below, on file with the SEC, are incorporated herein by reference as exhibits hereto. Unless otherwise indicated, all exhibits so incorporated are from File No. 1-8610.

Exhibit Number

2 Agreement and Plan of Merger, dated as of October 22, 2016, among AT&T Inc., Time Warner Inc. and West Merger Sub, Inc. (Exhibit 10.1 to Form 8-K dated October 24, 2016.)

3-a Restated Certificate of Incorporation, filed with the Secretary of State of Delaware on December 13, 2013. (Exhibit 3.1 to Form 8-K dated December 13, 2013.)

3-b Bylaws amended December 18, 2015. (Exhibit 3 to Form 8-K dated December 18, 2015.)

4-a No instrument which defines the rights of holders of long-term debt of the registrant and all of its consolidated subsidiaries is filed herewith pursuant to Regulation S-K, Item 601(b)(4)(iii)(A), except for the instruments referred to in 4-b, 4-c, 4-d, 4-e, 4-f, 4-g, 4-h, 4-i, and 4-j below. Pursuant to this regulation, the registrant hereby agrees to furnish a copy of any such instrument not filed herewith to the SEC upon request.

4-b Guaranty of certain obligations of Pacific Bell Telephone Co. and Southwestern Bell Telephone Co. (Exhibit 4-c to Form 10-K for 2011.)

4-c Guaranty of certain obligations of Ameritech Capital Funding Corp., Indiana Bell Telephone Co. Inc., Michigan Bell Telephone Co., Pacific Bell Telephone Co., Southwestern Bell Telephone Company, Illinois Bell Telephone Company, The Ohio Bell Telephone Company, The Southern New England Telephone Company, Southern New England Telecommunications Corporation, and Wisconsin Bell, Inc. (Exhibit 4-d to Form 10-K for 2011.)

4-d Guarantee of certain obligations of AT&T Corp. (Exhibit 4-e to Form 10-K for 2011.)

4-e Indenture, dated as of May 15, 2013, between AT&T Inc. and The Bank of New York Mellon Trust Company, N.A. as Trustee. (Exhibit 4.1 to Form 8-K dated May 15, 2013.)

4-f Indenture dated as of November 1, 1994 between SBC Communications Inc. and The Bank of New York, as Trustee. (Exhibit 4-h to Form 10-K for 2013.)

10-a 2016 Incentive Plan (Exhibit 10-a to Form 10-Q filed for March 31, 2016.)

10-b 2011 Incentive Plan, amended September 24, 2015. (Exhibit 10-a to Form 10-Q filed for September 30, 2015.)

10-c Supplemental Life Insurance Plan, amended September 24, 2015. (Exhibit 10-e to Form 10-Q filed for September 30, 2015.)

10-d Supplemental Retirement Income Plan, amended December 31, 2008. (Exhibit 10-e to Form 10-K for 2013.)

10-e 2005 Supplemental Employee Retirement Plan, amended December 18, 2014. (Exhibit 10.1 to Form 8-K dated December 18, 2014.)

10-f Senior Management Deferred Compensation Program of 1988 (effective for Units of Participation Having a Unit Start Date of January 1, 1988 or later) as amended through April 1, 2002. (Exhibit 10-g to Form 10-K for 2013.)

10-g Salary and Incentive Award Deferral Plan, amended December 31, 2004. (Exhibit 10-k to Form 10-K for 2011.)

10-h Stock Savings Plan, amended December 31, 2004. (Exhibit 10-l to Form 10-K for 2011.)

10-i Stock Purchase and Deferral Plan, amended September 24, 2015. (Exhibit 10-d to Form 10-Q filed for September 30, 2015.)

10-j Cash Deferral Plan, amended September 24, 2015. (Exhibit 10-c to Form 10-Q filed for September 30, 2015.)

10-k Master Trust Agreement for AT&T Inc. Deferred Compensation Plans and Other Executive Benefit Plans and subsequent amendments dated August 1, 1995 and November 1, 1999. (Exhibit 10-dd to Form 10-K for 2009.)

10-l Officer Disability Plan, amended January 1, 2010. (Exhibit 10-i to Form 10-Q filed for June 30, 2009.)

10-m AT&T Inc. Health Plan, amended January 1, 2017. (Exhibit 10-a to Form 10-Q filed for September 30, 2016.)

10-n Pension Benefit Makeup Plan No.1, amended December 31, 2016.

10-o AT&T Inc. Equity Retention and Hedging Policy. (Exhibit 10.2 to Form 8-K dated December 15, 2011.)

10-p Administrative Plan, amended September 24, 2015.

10-q AT&T Inc. Non-Employee Director Stock and Deferral Plan, amended September 25, 2015. (Exhibit 99.1 to Form 8-K dated September 25, 2015.)

10-r AT&T Inc. Non-Employee Director Stock Purchase Plan, dated June 27, 2008. (Exhibit 10-t to Form 10-K for 2013.)

10-s Communications Concession Program for Directors, amended and restated February 1, 2013. (Exhibit 10-aa to Form 10-K for 2012.)

10-t Form of Indemnity Agreement, effective July 1, 1986, between SBC (now AT&T Inc.) and its directors and officers. (Exhibit 10-bb to Form 10-K for 2011.)

10-u Transition Agreement by and between BellSouth Corporation and Rafael de la Vega, dated December 29, 2003. (Exhibit 10-cc to Form 10-K for 2011.)

10-v AT&T Corp. Executive Deferred Compensation Plan (formerly known as AT&T Corp. Senior Management Incentive Award Deferral Plan), amended and restated January 1, 2008. (Exhibit 10-aa to Form 10-K for 2013.)

10-w Master Trust Agreement for AT&T Corp. Deferred Compensation Plans and Other Executive Benefit Plans, effective January 13, 1994. (Exhibit 10-nn to Form 10-K for 2011.)

10-w(i) First Amendment to Master Trust Agreement, effective December 23, 1997. (Exhibit 10-nn(i) to Form 10-K for 2011.)

10-x AT&T Corp. Non-Qualified Pension Plan, amended December 31, 2008. (Exhibit 10-cc to Form 10-K for 2013.)

10-y AT&T Corp. Excess Benefit and Compensation Plan, amended December 31, 2008. (Exhibit 10-dd to Form 10-K for 2013.)

10-z BellSouth Corporation Nonqualified Deferred Compensation Plan, dated January 1, 2005. (Exhibit 10-ss to Form 10-K for 2011.)

10-aa BellSouth Corporation Stock and Incentive Compensation Plan, amended June 28, 2004. (Exhibit 10-qq for Form 10-K for 2009.)

10-aa(i) First Amendment to the BellSouth Corporation Stock and Incentive Compensation Plan, dated September 26, 2005. (Exhibit 10-xx(i) to Form 10-K for 2011.)

10-aa(ii) Second Amendment to BellSouth Corporation Stock and Incentive Compensation Plan, effective June 26, 2008. (Exhibit 10-hh(ii) to Form 10-K for 2013.)

10-bb BellSouth Corporation Supplemental Executive Retirement Plan, amended December 18, 2014. (Exhibit 10.2 to Form 8-K dated December 18, 2014.)

10-cc BellSouth Nonqualified Deferred Income Plan, amended May 1, 2012. (Exhibit 10-fff to Form 10-K for 2012.)

10-dd Cingular Wireless Cash Deferral Plan, dated November 1, 2001. (Exhibit 10-hhh to Form 10-K for 2011.)

10-ee AT&T Mobility 2005 Cash Deferral Plan, dated January 1, 2005. (Exhibit 10-lll to Form 10-K for 2011.)

10-ff AT&T Executive Physical Program, dated January 1, 2011.

10-gg Equalization Agreement for John Stankey (Exhibit 10.1 to Form 8-K dated August 20, 2015.)

10-hh Agreement between D. Wayne Watts and AT&T Inc. (Exhibit 10.2 to Form 8-K dated August 20, 2015.)

10-ii Agreement between James Cicconi and AT&T Inc. (Exhibit 10-b to Form 10-Q filed for September 30, 2016.)

10-jj Agreement between Ralph de la Vega and AT&T Inc. (Exhibit 10.1 to Form 8-K dated December 16, 2016.)

10-kk $9,155,000,000 Term Loan Credit Agreement, dated January 21, 2015, among AT&T, certain lenders named therein and Mizuho Bank, Ltd., as administrative agent. (Exhibit 10.1 to Form 8-K dated January 21, 2015.)

10-ll $12,000,000,000 Amended and Restated Credit Agreement, dated December 11, 2015, among AT&T, certain lenders named therein and Citibank, N.A., as administrative agent. (Exhibit 10 to Form 8-K dated December 15, 2015.)

10-mm $40,000,000,000 Term Loan Credit Agreement, dated October 22, 2016, among AT&T Inc., certain lenders named therein, and JPMorgan Chase Bank, N.A., as agent. (Exhibit 10.2 to Form 8-K dated October 24, 2016.)

10-mm (i) $30,000,000,000 Term Loan Credit Agreement, dated October 22, 2016, amended November 15, 2016, among AT&T Inc., the initial lenders named therein, and JPMorgan Chase Bank, N.A, as agent.

10-mm (ii) $30,000,000,000 Term Loan Credit Agreement, dated October 22, 2016, amended February 10, 2017, among AT&T Inc., the initial lenders named therein, and JPMorgan Chase Bank, N.A, as agent.

10-nn $10,000,000,000 Term Loan Credit Agreement, dated as of November 15, 2016, among AT&T Inc., the lenders named therein and JPMorgan Chase Bank, N.A., as Agent (Exhibit 10.1 to Form 8-K dated November 15, 2016.)

12 Computation of Ratios of Earnings to Fixed Charges

13 Portions of AT&T’s Annual Report to Stockholders for the fiscal year ended December 31, 2016. Only the information incorporated by reference into this Form 10-K is included in the exhibit.

21 Subsidiaries of AT&T Inc.

23 Consent of Ernst & Young LLP

24 Powers of Attorney

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 Certification

99 Supplemental Interim Financial Information

101 XBRL Instance Document

We will furnish to stockholders upon request, and without charge, a copy of the Annual Report to Stockholders and the Proxy Statement, portions of which are incorporated by reference in the Form 10-K. We will furnish any other exhibit at cost.

AT&T INC. SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS Allowance for Doubtful Accounts Dollars in Millions

COL. A COL. B COL. C COL. D COL. E Additions (1) (2) (3) Balance at Charged to Charged to Beginning of Costs and Other Acquisitions Balance at End Period Expenses (a) Accounts (b) (c) Deductions (d) of Period

Year 2016 $ 704 1,474 - - 1,517 $ 661 Year 2015 $ 454 1,416 - 214 1,380 $ 704 Year 2014 $ 483 1,032 (32) - 1,029 $ 454

(a) Includes amounts previously written off which were credited directly to this account when recovered. Excludes direct charges and credits to expense for nontrade receivables in the consolidated statements of income. (b) Includes amounts related to long-distance carrier receivables which were billed by AT&T. (c) Acquisitions of DIRECTV and wireless properties in Mexico in 2015. (d) Amounts written off as uncollectible, or related to divested entities.

AT&T INC. SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS Allowance for Deferred Tax Assets Dollars in Millions

COL. A COL. B COL. C COL. D COL. E Additions (1) (2) (3) Balance at Charged to Charged to Beginning of Costs and Other Acquisitions Balance at End Period Expenses Accounts (a) (b) Deductions (c) of Period

Year 2016 $ 2,141 81 61 - - $ 2,283 Year 2015 $ 1,182 283 373 420 117 $ 2,141 Year 2014 $ 927 - 445 - 190 $ 1,182

(a) Includes current year reclassifications from other balance sheet accounts. (b) Acquisitions of DIRECTV and wireless properties in Mexico in 2015. (c) Reductions to valuation allowances related to deferred tax assets.

Pursuant to the requirements of Section 13 or 15(d) 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, on the 17th day of February, 2017.

AT&T INC.

/s/ John J. Stephens John J. Stephens Senior Executive Vice President and Chief Financial Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the date indicated.

Principal Executive Officer: Randall Stephenson* Chairman of the Board, Chief Executive Officer and President

Principal Financial and Accounting Officer: John J. Stephens Senior Executive Vice President and Chief Financial Officer

/s/ John J. Stephens John J. Stephens, as attorney-in-fact and on his own behalf as Principal Financial Officer and Principal Accounting Officer

February 17, 2017

Directors: Randall L. Stephenson* Michael B. McCallister* Samuel A. Di Piazza, Jr.* Beth E. Mooney* Richard W. Fisher* Joyce M. Roché* Scott T. Ford* Matthew K. Rose* Glenn H. Hutchins* Cynthia B. Taylor* William E. Kennard* Laura D’Andrea Tyson* Geoffrey Y. Yang* * by power of attorney

AT&T EXECUTIVE PHYSICAL PROGRAM

Effective: January 1, 2011

TABLE OF CONTENTS

ARTICLE 1 PURPOSE...... 1 ARTICLE 2 DEFINITIONS...... 1 ARTICLE 3 ELIGIBILITY...... 3 ARTICLE 4 COVERED BENEFITS...... 3 ARTICLE 5 TERMINATION OF PARTICIPATION...... 5 ARTICLE 6 DISABILITY...... 6 ARTICLE 7 LOYALTY CONDITIONS...... 6 ARTICLE 8 MISCELLANEOUS...... 10 ARTICLE 9 COBRA...... 11 ARTICLE 10 PRIVACY OF MEDICAL INFORMATION...... 13 ARTICLE 11 CLAIM AND APPEAL PROCESS...... 17

Copyright © 2013 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document ARTICLE 1 PURPOSE The AT&T Executive Physical Program ("Program") is a self-insured medical program that provides reimbursement of expenses incurred by Eligible Employees for a physical exam. The Program is intended to provide nontaxable benefits within the meaning of Treasury Regulation Section 1.105-11(g) that also constitute preventive care within the meaning of IRS Notice 2004-23.

ARTICLE 2 DEFINITIONS For purposes of this Program, the following words and phrases shall have the meanings indicated, unless the context clearly indicates otherwise:

2.1 AT&T. "AT&T" shall mean AT&T Inc. References to "Company" shall mean AT&T.

2.2 Authorized Provider. "Authorized Provider" shall mean those entities that provide Medical Diagnostic Procedures listed in Attachment A.

2.3 Basic Plan. "Basic Plan" shall mean the AT&T Medical Plan or, for Officers serving in expatriate positions with the Company, the AT&T International Health Plan.

2.4 CEO. "CEO" shall mean the Chief Executive Officer of AT&T Inc.

2.5 COBRA. "COBRA" shall mean the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended.

2.6 Code. "Code" shall mean the Internal Revenue Code of 1986, as amended, and the Treasury Regulations issued thereunder.

2.7 Committee. "Committee" shall mean the Human Resources Committee of the Board of Directors of AT&T Inc.

2.8 Covered Benefits. "Covered Benefits" shall mean the benefits provided by the Program, as provided for and governed by Article 4 of the Program, but only to the extent not paid under the Basic Plans.

2.9 Disability. "Disability" shall mean qualification for long term disability benefits under Section 3.1 of the Officer Disability Program.

2.10 Eligible Employee. "Eligible Employee" shall mean an Officer while in active service, on a Leave of Absence, or while receiving short term disability benefits under the Officer Disability Program. Notwithstanding the foregoing, the CEO may, from time to time, exclude any Officer or group of Officers from being an "Eligible Employee" under this Program. Employees of a company acquired by AT&T (or any Subsidiary thereof) shall not be considered an Eligible Employee unless designated as such by the CEO. Notwithstanding the foregoing, only the Committee shall have the authority to exclude from participation or take any action with respect to an Executive Officer.

2.12 Executive Officer. "Executive Officer" shall mean any executive officer of AT&T, as that term is used under the Securities Exchange Act of 1934.

2.13 Leave of Absence. "Leave of Absence" shall mean a Company-approved leave of absence.

2.14 Medical Diagnostic Procedures. "Medical Diagnostic Procedures" shall have the meaning provided in Section 4.1(a) of this Program.

2.15 Officer. "Officer" shall mean an individual who is designated, on or after March 23, 2010, as an officer level employee for compensation purposes on the records of AT&T.

2.16 Program Administrator. "Program Administrator" shall mean the SEVP- HR, or any other person or persons whom the SEVP-HR or the Committee may appoint to administer the Program; provided that the Committee may act as the Program Administrator at any time.

2.17 Program Year. "Program Year" shall mean the calendar year.

2.18 Qualifying Event. "Qualifying Event" shall mean any of the following events if, but for COBRA continuation coverage, they would result in an Eligible Employee's loss of coverage under this Program:

(a) termination (other than by reason of such Eligible Employee's gross misconduct) of an Eligible Employee's employment;

(b) reduction in an Eligible Employee's hours of employment; or

2.19 SEVP-HR. "SEVP-HR" shall mean AT&T's highest ranking officer, specifically responsible for human resources matters.

Copyright © 2013 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document 2.20 Subsidiary. "Subsidiary" shall mean any corporation, partnership, venture or other entity in which AT&T holds, directly or indirectly, a 50% or greater ownership interest. The Program Administrator may, at its sole discretion, designate any other corporation, partnership, venture or other entity a Subsidiary for the purpose of participating in this Program.

ARTICLE 3 ELIGIBILITY

3.1 Eligible Employees. Each Eligible Employee shall be eligible to participate in this Program beginning on the effective date of becoming an Eligible Employee. The Eligible Employee's spouse and dependents are not participants in the Program and are not eligible for Covered Benefits.

3.2 Requirement to Enroll and Participate in Basic Plan. Notwithstanding any provision in this Program to the contrary, as a condition to receiving Covered Benefits, each Eligible Employee must be enrolled in, paying required contributions for, and participating in a Basic Plan.

ARTICLE 4 COVERED BENEFITS

4.1 Covered Benefits. Subject to the limitations in this Program (including but not limited to the limits and conditions set forth in this Article 4 and the Loyalty Conditions set forth in Article 7 below), this Program provides reimbursement of Medical Diagnostic Procedures and Transportation Expenses described below.

(a) Medical Diagnostic Procedures - Medical Diagnostic Procedures are those described in Attachment B, which:

(1) are incurred for services rendered by an Authorized Provider;

(2) are 'preventive care' services within the meaning of Section 1871 of the Social Security Act, except as otherwise provided by the United States Secretary of the Treasury; and

(3) are performed at a facility that provides no services (directly or indirectly) other than medical, and ancillary, services.

Medical Diagnostic Procedures shall not include expenses incurred for:

(1) the treatment, cure or testing of a known illness or disability or for the treatment of any existing illness, injury, or condition;

Copyright © 2013 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document (2) the treatment or testing for a physical injury, complaint or specific symptom of a bodily malfunction; or

(3) any activity undertaken for exercise, fitness, nutrition, recreation, or the general improvement of health unless they are for medical care as defined in Code Section 213(e).

(b) Transportation Expenses - Transportation Expenses are expenses incurred primarily to travel to a facility to receive Medical Diagnostic Procedures, but only to the extent they are ordinary and necessary.

Transportation Expenses shall not include amounts incurred:

(1) for transportation undertaken merely for the general improvement of health,

(2) in connection with a vacation,

(3) for any incidental expenses for food or lodging, or

(4) for travel to an Approved Provider's facility if there is an Approved Provider's facility within fifty (50) miles of the Eligible Employee's principal place of work or residence.

4.2 Covered Benefit Limits. Covered Benefits eligible for reimbursement hereunder shall not exceed $5,000 per Program Year per Eligible Employee; provided, however, the SEVP-HR shall have the discretionary authority to increase this annual limit for any Program Year after 2011 but not in excess of the cumulative increase in the Medical Consumer Price Index issued by the United States Department of Labor Bureau of Labor Statistics measured from 2011. Amounts paid to or on behalf of an Eligible Employee under any other AT&T sponsored group health Program will not be included in these limits. Unused balances in one Program Year may not be carried over into a subsequent Program Year.

4.3 Priority of Paying Covered Claims. Claims for Covered Services will be coordinated with, applied against, and paid by the Basic Plan to the extent covered under the Basic Plan, prior to coverage under the Program.

4.4 Procedural Matters.

(a) At the Program Administrator's discretion, Covered Benefits may be provided to Eligible Employees by:

(1) reimbursing the Eligible Employee;

(3) any other method determined by the Program Administrator.

(b) Eligible Employees who pay or make arrangements to pay for Covered Benefits and who seek reimbursement, must pay bills for such Covered Benefits prior to requesting reimbursement through the Company's or its Subsidiary's appropriate reimbursement system. Amounts incurred for items that are not Covered Benefits under the Program are not eligible for reimbursement under this Program and cannot be submitted for reimbursement. Reimbursements will be audited for compliance with this Program, and a request for reimbursement outside of the prescribed limits or for items not provided under this Program is a violation of the AT&T Code of Business Conduct.

(c) Expenses for Covered Benefits will be charged against the Covered Benefit Limit for the Program Year based on the date of the invoice, regardless of when an invoice is submitted for reimbursement.

(d) Amounts eligible for reimbursement under this Program must be submitted to/under the Company's or its Subsidiary's appropriate reimbursement system no later than March 15 of the Program Year immediately following the Program Year in which the Covered Benefits were provided. Bills submitted for reimbursement on or after March 16 of the Program Year following the Program Year of the date on the invoice are not eligible for reimbursement and are not Covered Benefits under this Program.

(e) Eligible Employees may not use a company-issued credit or purchasing card to pay for Covered Benefits under this Program.

ARTICLE 5 TERMINATION OF PARTICIPATION

5.1 Termination of Participation. Participation will cease upon the occurrence of any of the following events:

(a) The Eligible Employee's termination of employment, including by reason of the Eligible Employee's death, Disability, or retirement;

(b) The demotion or designation of an individual so as to no longer be an Eligible Employee;

(c) The Eligible Employee's participation in an activity that constitutes engaging in competitive activity with AT&T (or any Subsidiary thereof) or engaging in conduct disloyal to AT&T (or any Subsidiary thereof) under Article 7; or

Copyright © 2013 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document (d) Discontinuance of the Program by AT&T, or, with respect to a Subsidiary's Eligible Employees, such Subsidiary's failure to make the Covered Benefits hereunder available to Eligible Employees employed by it.

Expenses for Covered Benefits incurred by an Eligible Employee prior to termination of participation, except with respect to termination of participation pursuant to Section 5.1(c), may be reimbursed subject to the Procedural Matters provisions of Section 4.3.

ARTICLE 6 DISABILITY

6.1 Disability. With respect to any Eligible Employee who commences receipt of short term or long term disability benefits under the Officer Disability Program, participation under this Program will be as follows:

(a) The Eligible Employee will continue to participate in this Program for the period during which he/she receives short term disability benefits under the Officer Disability Program.

(b) An Eligible Employee who commences long term disability benefits under the Officer Disability Program shall cease participation in this Program effective as of the commencement of eligibility to receive long term disability benefits under the Officer Disability Program.

ARTICLE 7 LOYALTY CONDITIONS

7.1 Loyalty. Eligible Employees acknowledge that no coverage and benefits would be provided under this Program but for the loyalty conditions and covenants set forth in this Article, and that the conditions and covenants herein are a material inducement to AT&T's willingness to sponsor the Program and to offer Program coverage and benefits for the Eligible Employees. Accordingly, as a condition of receiving coverage and any Program benefits, each Eligible Employee is deemed to agree that he shall not, without obtaining the written consent of the Program Administrator in advance, participate in activities that constitute engaging in competition with AT&T (or any Subsidiary thereof) or engaging in conduct disloyal to AT&T (or any Subsidiary thereof), as those terms are defined in this Article. Further and notwithstanding any other provision of this Program, all coverage and benefits under this Program with respect to an Eligible Employee shall be subject in their entirety to the enforcement provisions of this Article if the Eligible Employee, without the Program Administrator's consent, participates in an activity that constitutes engaging in competition with AT&T (or any Subsidiary thereof) or engaging in conduct disloyal to AT&T (or any Subsidiary thereof), as defined below.

(a) an "Employer Business" shall mean AT&T, any Subsidiary, or any business in which AT&T or a Subsidiary or an affiliated company of AT&T has a substantial ownership or joint venture interest;

(b) "engaging in competition with AT&T (or any Subsidiary thereof)" shall mean, while employed by an Employer Business or within two (2) years after the Eligible Employee's termination of employment, engaging by the Eligible Employee in any business or activity in all or any portion of the same geographical market where the same or substantially similar business or activity is being carried on by an Employer Business. "Engaging in competition with AT&T (or any Subsidiary thereof)" shall not include owning a nonsubstantial publicly traded interest as a shareholder in a business that competes with an Employer Business. "Engaging in competition with AT&T (or any Subsidiary thereof)" shall include representing or providing consulting services to, or being an employee or director of, any person or entity that is engaged in competition with any Employer Business or that takes a position adverse to any Employer Business.

(c) "engaging in conduct disloyal to AT&T (or any Subsidiary thereof)" means, while employed by an Employer Business or within two (2) years after the Eligible Employee's termination of employment, (i) soliciting for employment or hire, whether as an employee or as an independent contractor, for any business in competition with an Employer Business, any person employed by AT&T or its affiliates during the one (1) year prior to the termination of the Eligible Employee's employment, whether or not acceptance of such position would constitute a breach of such person's contractual obligations to AT&T and its affiliates; (ii) soliciting, encouraging, or inducing any vendor or supplier with which Eligible Employee had business contact on behalf of any Employer Business during the two (2) years prior to the termination of the Eligible Employee's employment, for any reason to terminate, discontinue, renegotiate, reduce, or otherwise cease or modify its relationship with AT&T (or any Subsidiary thereof) or its affiliate; or (iii) soliciting, encouraging, or inducing any customer or active prospective customer with whom Eligible Employee had business contact, whether in person or by other media, on behalf of any Employer Business during the two (2) years prior to the termination of Eligible Employee's employment for any reason ("Customer"), to terminate, discontinue, renegotiate, reduce, or otherwise cease or modify its relationship with any Employer Business, or to purchase competing goods or services from a business competing with any Employer Business, or accepting or servicing business from such Customer on behalf of himself or any other business. "Engaging in conduct disloyal to AT&T (or any Subsidiary thereof)" also means, disclosing Confidential Information to any third party or using Confidential Information, other than for an Employer Business, or failing to return any Confidential Information to the Employer Business following termination of employment.

Copyright © 2013 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document (d) "Confidential Information" shall mean all information belonging to, or otherwise relating to, an Employer Business, which is not generally known, regardless of the manner in which it is stored or conveyed to the Eligible Employee, and which the Employer Business has taken reasonable measures under the circumstances to protect from unauthorized use or disclosure. Confidential Information includes trade secrets as well as other proprietary knowledge, information, know-how, and non-public intellectual property rights, including unpublished or pending patent applications and all related patent rights, formulae, processes, discoveries, improvements, ideas, conceptions, compilations of data, and data, whether or not patentable or copyrightable and whether or not it has been conceived, originated, discovered, or developed in whole or in part by the Eligible Employee. For example, Confidential Information includes, but is not limited to, information concerning the Employer Business' business Programs, budgets, operations, products, strategies, marketing, sales, inventions, designs, costs, legal strategies, finances, employees, customers, prospective customers, licensees, or licensors; information received from third parties under confidential conditions; or other valuable financial, commercial, business, technical or marketing information concerning the Employer Business, or any of the products or services made, developed or sold by the Employer Business. Confidential Information does not include information that (i) was generally known to the public at the time of disclosure; (ii) was lawfully received by the Eligible Employee from a third party; (iii) was known to the Eligible Employee prior to receipt from the Employer Business; or (iv) was independently developed by the Eligible Employee or independent third parties; in each of the foregoing circumstances, this exception applies only if such public knowledge or possession by an independent third party was without breach by the Eligible Employee or any third party of any obligation of confidentiality or non-use, including but not limited to the obligations and restrictions set forth in this Program.

7.2 Forfeiture of Benefits. Coverage and benefits shall be forfeited and shall not be provided under this Program for any period as to which the Program Administrator determines that, within the time period and without the written consent specified, the Eligible Employee has been either engaging in competition with AT&T (or any Subsidiary thereof) or engaging in conduct disloyal to AT&T (or any Subsidiary thereof).

Copyright © 2013 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document 7.3 Equitable Relief. The parties recognize that any Eligible Employee's breach of any of the covenants in this Article will cause irreparable injury to AT&T (or any Subsidiary thereof), will represent a failure of the consideration under which AT&T (in its capacity as creator and sponsor of the Program) agreed to provide the Eligible Employee with the opportunity to receive Program coverage and benefits, and that monetary damages would not provide AT&T with an adequate or complete remedy that would warrant AT&T's continued sponsorship of the Program and payment of Program benefits for all Eligible Employees. Accordingly, in the event of an Eligible Employee's actual or threatened breach of the covenants in this Article, the Program Administrator, in addition to all other rights and acting as a fiduciary under ERISA on behalf of all Eligible Employees, shall have a fiduciary duty (in order to assure that AT&T receives fair and promised consideration for its continued Program sponsorship and funding) to seek an injunction restraining the Eligible Employee from breaching the covenants in this Article. In addition, AT&T shall pay for any Program expenses that the Program Administrator incurs hereunder, and shall be entitled to recover from the Eligible Employee its reasonable attorneys' fees and costs incurred in obtaining such injunctive remedies. To enforce its repayment rights with respect to an Eligible Employee, the Program shall have a first priority, equitable lien on all Program benefits provided to or for the Eligible Employee. In the event the Program Administrator succeeds in enforcing the terms of this Article through a written settlement with the Eligible Employee or a court order granting an injunction hereunder, the Eligible Employee shall be entitled to collect Program benefits collect Program benefits prospectively, if the Eligible Employee is otherwise entitled to such benefits, net of any fees and costs assessed pursuant hereto (which fees and costs shall be paid to AT&T as a repayment on behalf of the Eligible Employee), provided that the Eligible Employee complies with said settlement or injunction.

7.4 Uniform Enforcement. In recognition of AT&T's need for nationally uniform standards for the Program administration, it is an absolute condition in consideration of any Eligible Employee's accrual or receipt of benefits under the Program after January 1, 2010 that each and all of the following conditions apply to all Eligible Employees and to any benefits that are paid or are payable under the Program:

(a) ERISA shall control all issues and controversies hereunder, and the Committee shall serve for purposes hereof as a "fiduciary" of the Program, and as its "named fiduciary" within the meaning of ERISA.

Copyright © 2013 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document (b) All litigation between the parties relating to this Article shall occur in federal court, which shall have exclusive jurisdiction, any such litigation shall be held in the United States District Court for the Northern District of Texas, and the only remedies available with respect to the Program shall be those provided under ERISA.

(c) If the Program Administrator determines in its sole discretion either (I) that AT&T or its affiliate that employed the Eligible Employee terminated the Eligible Employee's employment for cause, or (II) that equitable relief enforcing the Eligible Employee's covenants under this Article is either not reasonably available, not ordered by a court of competent jurisdiction, or circumvented because the Eligible Employee has sued in state court, or has otherwise sought remedies not available under ERISA, then in any and all of such instances the Eligible Employee shall not be entitled to collect any Program benefits, and if any Program benefits have been paid to the, the Eligible Employee shall immediately repay all Program benefits to the Program (with such repayments being used within such year for increased benefits for other Eligible Employees in any manner determined in the Program Administrator's discretion) upon written demand from the Program Administrator. Furthermore, the Eligible Employee shall hold AT&T and its affiliates harmless from any loss, expense, or damage that may arise from any of the conduct described in clauses (I) and (II) hereof.

ARTICLE 8 MISCELLANEOUS

8.1 Administration. The Program Administrator is the named fiduciary of the Program and has the power and duty to do all things necessary to carry out the terms of the Program. The Program Administrator has the sole and absolute discretion to interpret the provisions of the Program, to make findings of fact, to determine the rights and status of Eligible Employees and other under the Program, to determine which expenses and benefits qualify as Covered Benefits, to make all benefit determinations under the Program, to decide disputes under the Program and to delegate all or a part of this discretion to third parties and insurers. To the fullest extent permitted by law, such interpretations, findings, determinations and decisions shall be final, binding and conclusive on all persons for all purposes of the Program. The Program Administrator may delegate any or all of its authority and responsibility under the Program to other individuals, committees, third party administrators, claims administrators or insurers for any purpose, including, but not limited to the processing of Covered Benefits and claims related thereto. In carrying out these functions, these individuals or entities have been delegated responsibility and discretion for interpreting the provisions of the Program, making findings of fact, determining the rights and status of Eligible Employees under the Program, and deciding disputes under the Program and such interpretations, findings, determinations and decisions shall be final, binding and conclusive on all persons for all purposes of the Program.

Copyright © 2013 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document 8.2 Amendments and Termination. This Program may be modified or terminated at any time in accordance with the provisions of AT&T's Schedule of Authorizations; provided, however, the Program Administrator shall have the authority to amend Attachment A, B or C at any time in the Program Administrator's sole discretion.

8.3 Rights While on Military Leave. Pursuant to the provisions of the Uniformed Services Employment and Reemployment Rights Act of 1994, an Eligible Employee on military leave will be considered to be on a Leave of Absence and will be entitled during the leave to the health and welfare benefits that would be made available to other similarly situated employees if they were on a Leave of Absence. This entitlement will end if the individual provides written notice of intent not to return to work following the completion of the military leave. The individual shall have the right to continue his/her coverage for the lesser of the length of the leave or 18 months. If the military leave is for a period of 31 days or more, the individual may be required to pay 102 percent of the total premium (determined in the same manner as a COBRA continuation coverage premium). If coverage is not continued during the entire period of the military leave because the individual declines to pay the premium or the leave extends beyond 18 months, the coverage must be reinstated upon reemployment with no pre-existing condition exclusions (other than for service-related illnesses or injuries) or waiting periods (other than those applicable to all Eligible Employees).

8.4 Right of Recovery. If an erroneous or excess payment is made under the Program to any Eligible Employee, the Program Administrator shall be entitled to recover such excess from the individual or entity to whom such payments were made. The recovery of such overpayment may be made by offsetting the amount of any other benefit or amount payable by the amount of the overpayment under the Program.

ARTICLE 9 COBRA

9.1 Continuation of Coverage Under COBRA. Eligible Employees shall have all COBRA continuation rights required by federal law and all conversion rights. COBRA continuation coverage shall be continued as provided in this Article.

9.2 COBRA Continuation Coverage for Terminated Eligible Employees. An Eligible Employee may elect COBRA continuation coverage, at his/her own expense, if his participation under this Program would terminate as a result of an Eligible Employee's termination of employment or reduction of hours with an Employer.

Copyright © 2013 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document 9.3 Period of Continuation Coverage for Eligible Employees. An Eligible Employee who qualifies for COBRA continuation coverage as a result of his/her termination of employment or reduction in hours of employment described in Section 9.2 may elect COBRA continuation coverage for up to 18 months measured from the date of the Qualifying Event. COBRA coverage may not continue beyond the:

(a) date on which the Eligible Employee's Employer ceases to maintain this Program;

(b) last day of the month for which premium payments have been made with respect to this Program, if the individual fails to make premium payments on time, in accordance with Section 9.4;

(d) date the Eligible Employee is no longer subject to a pre-existing condition exclusion under the Eligible Employee's other coverage or new employer Program for the type of coverage available under the COBRA eligible program for which the COBRA election was made.

9.4 Contribution Requirements for COBRA Continuation Coverage. An Eligible Employee who elects COBRA continuation coverage as a result of a Qualifying Event will be required to pay continuation coverage payments. Continuation coverage payments are the payments required for COBRA continuation coverage that is an amount equal to a reasonable estimate of the cost to this Program of providing coverage for all Eligible Employees at the time of the Qualifying Event plus a 2% administrative expense. In the case of a disabled individual who receives an additional 11-month extended coverage period under COBRA, the Employer may assess up to 150% of the cost for this extended coverage period. Such cost shall be determined on an actuarial basis and take into account such factors as the Secretary of the Treasury may prescribe in regulations.

An Eligible Employee must make the continuation coverage payment prior to the first day of the month in which such coverage will take effect. However, an Eligible Employee has 45 days from the date of an affirmative election to pay the continuation coverage payment for the first month's payment and the cost for the period between the date medical coverage would otherwise have terminated due to the Qualifying Event and the date the Eligible Employee actually elects COBRA continuation coverage.

The Eligible Employee shall have a 30-day grace period to make the continuation coverage payments due thereafter. Continuation coverage payments must be postmarked on or before the completion of the 30-day grace period. If continuation coverage payments are not made on a timely basis, COBRA continuation coverage will terminate as of the last day of the month for which timely premiums were made.

Copyright © 2013 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document The 30-day grace period shall not apply to the 45-day period for the first month's payment of COBRA premiums as set out in the paragraph above.

If payment is received that is significantly less than the required continuation coverage payment, then continuation coverage will terminate as of the last day of the month for which premiums were paid. A payment is considered significantly less than the amount due if it is greater than the lesser of $50 or 10% of the required continuation coverage payment. Upon receipt of a continuation coverage payment that is insignificantly less than the required amount, the Program Administrator must notify the Eligible Employee of the amount of the shortfall and provide them with an additional 30-day grace period from the date of the notice for this payment only.

9.5 Limitation on Eligible Employee's Rights to COBRA Continuation Coverage. An Eligible Employee must complete and return the required enrollment materials within 60 days from the later of (a) the date of loss of coverage, or (b) the date the Program Administrator sends notice of eligibility for COBRA continuation coverage. Failure to enroll for COBRA continuation coverage during this 60-day period will terminate all rights to COBRA continuation coverage under this Article.

9.6 Subsequent Qualifying Event. If a second Qualifying Event occurs during an 18-month extension explained above, coverage may be continued for a maximum of 36 months from the date of the first Qualifying Event.

9.7 Extension of COBRA Continuation Period for Disabled Individuals. The period of continuation shall be extended to 29 months in total (measured from the date of the Qualifying Event) in the event the individual is disabled as determined by the Social Security laws within 60 days of the Qualifying Event. The individual must provide evidence to the Program Administrator of such Social Security determination prior to the earlier of 60 days after the date of the Social Security determination, or the expiration of the initial 18 months of COBRA continuation coverage. In such event, the Employer may charge the individual up to 150% of the COBRA cost of the coverage.

ARTICLE 10 PRIVACY OF MEDICAL INFORMATION

10.1 Definitions. For purposes of this Article, the following defined terms shall have the meaning assigned them below:

(a) "Business Associate" shall have the meaning assigned to such phrase at 45 C.F.R. § 160.103;

(b) "Health Care Operations" shall have the meaning assigned to such phrase at 45 C.F.R. § 164.501;

Copyright © 2013 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document (c) "HIPAA" shall mean Parts 160 ("General Administrative Requirements") and 164 ("Security and Privacy") of Title 45 of the Code of Federal Regulations as such parts are amended from time to time;

(d) "Payment" shall have the meaning assigned to such phrase at 45 C.F.R. § 160.103;

(e) "Protected Health Information" or "PHI" shall have the meaning assigned to such phrase at 45 C.F.R. § 160.103; and

(f) "Treatment" shall have the meaning assigned to such phrase at 45 C.F.R. § 164.501.

10.2 Privacy Provisions Relating to Protected Health Information ("PHI"). The Program and its Business Associates shall use and disclose PHI to the extent permitted by, and in accordance with, HIPAA, for purposes of providing benefits under the Program and for purposes of administering the Program, including, by way of illustration and not by way of limitation, for purposes of Treatment, Payment, and Health Care Operations.

10.3 Disclosure of De-Identified or Summary Health Information. The HIPAA Program, or, with respect to the HIPAA Program, a health insurance issuer, may disclose summary health information (as that phrase is defined at 45 C.F.R. § 160.5049a)) to the Program Sponsor of the HIPAA Program (and its affiliates) if such entity requests such information for the purpose of:

(a) Obtaining premium bids from health Programs for providing health insurance coverage under the HIPAA Program;

(b) Modifying, amending or terminating the group health benefits under the HIPAA Program.

In addition, the HIPAA Program or a health insurance insurer with respect to the HIPAA Program may disclose to the Program Sponsor of the HIPAA Program (or its affiliates) information on whether an individual is participating in the group health benefits provided by the HIPAA Program or is enrolled in, or has ceased enrollment with health insurance offered by the HIPAA Program.

10.4 The HIPAA Program Will Use and Disclose PHI as Required by Law or as Permitted by the Authorization of the Eligible Employee or Beneficiary.

Upon submission of an authorization signed by an Eligible Employee, beneficiary, subscriber or personal representative that meets HIPAA requirements, the HIPAA Program will disclose PHI.

Copyright © 2013 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document In addition, PHI will be disclosed to the extent permitted or required by law, without the submission of an authorization form.

10.5 Disclosure of PHI to the Program Sponsor. The HIPAA Program will disclose information to the Program Sponsor only upon certification from the Program Sponsor that the HIPAA Program documents have been amended to incorporate the assurances provided below.

The Program Sponsor agrees to:

(a) not use or further disclose PHI other than as permitted or required by the HIPAA Program document or as required by law;

(b) ensure that any affiliates or agents, including a subcontractor, to whom the Program Sponsor provides PHI received from the HIPAA Program, agrees to the same restrictions and conditions that apply to the Program Sponsor with respect to such PHI;

(c) not use or disclose PHI for employment-related actions and decisions unless authorized by the individual to whom the PHI relates;

(d) not use or disclose PHI in connection with any other benefits or employee benefit Program of the Program Sponsor or its affiliates unless permitted by the Program or authorized by an individual to whom the PHI relates;

(e) report to the Program any PHI use or disclosure that is inconsistent with the uses or disclosures provided for of which it becomes aware;

(f) make PHI available to an individual in accordance with HIPAA's access rules;

(g) make PHI available for amendment and incorporate any amendments to PHI in accordance with HIPAA;

(h) make available the information required to provide an accounting of disclosures;

(i) make internal practices, books and records relating to the use and disclosure of PHI received from the HIPAA Program available to the Secretary of the United States Department of Health and Human Resources for purposes of determining the Program's compliance with HIPAA; and

(j) if feasible, return or destroy all PHI received from the HIPAA Program that the Program Sponsor still maintains in any form, and retain no copies of such PHI when no longer needed for the purpose for which disclosure was made (or if return or destruction is not feasible, limit further uses and disclosures to those purposes that make the return or destruction infeasible).

Copyright © 2013 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document 10.6 Separation Between the Program Sponsor and the HIPAA Program. In accordance with HIPAA, only the following employees and Business Associate personnel shall be given access to PHI:

(a) employees of the AT&T Benefits and/or AT&T Executive Compensation organizations responsible for administering group health program benefits under the HIPAA Program, including those employees whose functions in the regular course of business include Payment, Health Care Operations or other matters pertaining to the health care programs under a HIPAA Program;

(b) employees who supervise the work of the employees described in Section 10.6(a), above;

(c) support personnel, including other employees outside of the AT&T Benefits or AT&T Executive Compensation organizations whose duties require them to rule on health Program-related appeals or perform functions concerning the HIPAA Program;

(d) investigatory personnel to the limited extent that such PHI is necessary to conduct investigations of possible fraud;

(e) outside and in-house legal counsel providing counsel to the HIPAA Program;

(f) consultants providing advice concerning the administration of the HIPAA Program; and

(g) the employees of Business Associates charged with providing services to the HIPAA Program.

The persons identified above shall have access to and use PHI to the extent that such access and use is necessary for the administration of group health benefits under a HIPAA Program. If these persons do not comply with this Program document, the Program Sponsor shall provide a mechanism for resolving issues of noncompliance, including disciplinary sanctions.

Copyright © 2013 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document 10.7 Enforcement.Enforcement of this Article shall be as provided for by HIPAA. In particular, Eligible Employees are not authorized to sue with regard to purported breaches of this Article except as explicitly permitted by HIPAA.

ARTICLE 11 CLAIM AND APPEAL PROCESS

11.1 Claims for Benefits under the Program. – See Attachment C.

11.2 Claims Related to Program Eligibility and Loyalty Conditions.

(a) Claims. A person who believes that he or she is being denied a benefit to which he or she is entitled under this Program (hereinafter referred to as a "Claimant") based on a claim for basic eligibility for coverage under the Program or a claim related to the Article 7 Loyalty Conditions may file a written request for such benefit with the Executive Compensation Administration Department, setting forth his or her claim. The request must be addressed to the AT&T Executive Compensation Administration Department at its then principal place of business.

(b) Claim Decision. Upon receipt of a claim, the AT&T Executive Compensation Administration Department shall review the claim and provide the Claimant with a written notice of its decision within a reasonable period of time, not to exceed ninety (90) days, after the claim is received. If the AT&T Executive Compensation Administration Department determines that special circumstances require an extension of time beyond the initial ninety (90)- day claim review period, the AT&T Executive Compensation Administration Department shall notify the Claimant in writing within the initial ninety (90)-day period and explain the special circumstances that require the extension and state the date by which the AT&T Executive Compensation Administration Department expects to render its decision on the claim. If this notice is provided, the AT&T Executive Compensation Administration Department may take up to an additional ninety (90) days (for a total of one hundred eighty (180) days after receipt of the claim) to render its decision on the claim.

If the claim is denied by the AT&T Executive Compensation Administration Department, in whole or in part, the AT&T Executive Compensation Administration Department shall provide a written decision using language calculated to be understood by the Claimant and setting forth: (i) the specific reason or reasons for such denial; (ii) specific references to pertinent provisions of this Program on which such denial is based; (iii) a description of any additional material or information necessary for the Claimant to perfect his or her claim and an explanation of why such material or such information is necessary; (iv) a description of the Program's procedures for review of denied claims and the steps to be taken if the Claimant wishes to submit the claim for review; (v) the time limits for requesting a review of a denied claim under this Section and for conducting the review under this Section ; and (vi) a statement of the Claimant's right to bring a civil action under Section 502(a) of ERISA if the claim is denied following review under this Section.

Copyright © 2013 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document (c) Request for Review. Within sixty (60) days after the receipt by the Claimant of the written decision on the claim provided for in this Section, the Claimant may request in writing that the Program Administrator review the determination of the AT&T Executive Compensation Administration Department. Such request must be addressed to the Program Administrator at the address provided in the written decision regarding the claim. To assist the Claimant in deciding whether to request a review of a denied claim or in preparing a request for review of a denied claim, a Claimant shall be provided, upon written request to the Program Administrator and free of charge, reasonable access to, and copies of, all documents, records and other information relevant to the claim. The Claimant or his or her duly authorized representative may, but need not, submit a statement of the issues and comments in writing, as well as other documents, records or other information relating to the claim for consideration by the Committee. If the Claimant does not request a review by the Program Administrator of the AT&T Executive Compensation Administration Department's decision within such sixty (60)-day period, the Claimant shall be barred and estopped from challenging the determination of the AT&T Executive Compensation Administration Department.

(d) Review of Decision. Within sixty (60) days after the Program Administrator's receipt of a request for review, the Program Administrator will review the decision of the AT&T Executive Compensation Administration Department. If the Program Administrator determines that special circumstances require an extension of time beyond the initial sixty (60)-day review period, the Program Administrator shall notify the Claimant in writing within the initial sixty (60)-day period and explain the special circumstances that require the extension and state the date by which the Program Administrator expects to render its decision on the review of the claim. If this notice is provided, the Program Administrator may take up to an additional sixty (60) days (for a total of one hundred twenty (120) days after receipt of the request for review) to render its decision on the review of the claim.

During its review of the claim, the Program Administrator shall:

(a) Take into account all comments, documents, records, and other information submitted by the Claimant relating to the claim, without regard to whether such information was submitted or considered in the initial review of the claim conducted pursuant to this Section;

Copyright © 2013 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document (b) Follow reasonable procedures to verify that its benefit determination is made in accordance with the applicable Program documents; and

(c) Follow reasonable procedures to ensure that the applicable Program provisions are applied to the Eligible Employee to whom the claim relates in a manner consistent with how such provisions have been applied to other similarly-situated Eligible Employees.

After considering all materials presented by the Claimant, the Program Administrator will render a decision, written in a manner designed to be understood by the Claimant. If the Program Administrator denies the claim on review, the written decision will include (i) the specific reasons for the decision; (ii) specific references to the pertinent provisions of this Program on which the decision is based; (iii) a statement that the Claimant is entitled to receive, upon request to the Program Administrator and free of charge, reasonable access to, and copies of, all documents, records, and other information relevant to the claim; and (iv) a statement of the Claimant's right to bring a civil action under Section 502(a) of ERISA.

In any case, an Eligible Employee or Beneficiary may have further rights under ERISA. The Program provisions require that Eligible Employees or Beneficiary pursue all claim and appeal rights described in this Section before they seek any other legal recourse regarding claims for benefits.

Authorized Providers

Medical Diagnostic Procedures

Subject to Section 4.1(a), Medical Diagnostic Procedures may include: · Routine medical examinations, blood tests, and X-rays; · Immunizations; · Screening services, as follows: o Cancer Screening § Breast Cancer (e.g., Mammogram) § Cervical Cancer (e.g., Pap Smear) § Colorectal Cancer § Prostate Cancer (e.g., PSA Test) § Skin Cancer § Oral Cancer § Ovarian Cancer § Testicular Cancer § Thyroid Cancer o Heart and Vascular Diseases Screening § Abdominal Aortic Aneurysm § Carotid Artery Stenosis § Coronary Heart Disease § Hemoglobinopathies § Hypertension § Lipid Disorders o Infectious Diseases Screening § Bacteriuria § Chlamydial Infection § Gonorrhea § Hepatitis B Virus Infection § Hepatitis CvHuman Immunodeficiency Virus (HIV) Infection § Syphilis § Tuberculosis Infection o Mental Health Conditions and Substance Abuse Screening § Dementia § Depression § Drug Abuse § Problem Drinking § Suicide Risk § Family Violence o Metabolic, Nutritional, and Endocrine Conditions Screening § Anemia, Iron Deficiency § Dental and Periodontal Disease § Diabetes Mellitus § Obesity in Adults § Thyroid Disease

Copyright © 2013 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document o Musculoskeletal Disorders Screening § Osteoporosis o Obstetric and Gynecologic Conditions Screening § Bacterial Vaginosis in Pregnancy § Gestational Diabetes Mellitus § Home Uterine Activity Monitoring § Neural Tube Defects § Preeclampsia § Rh Incompatibility § Rubella § Ultrasonography in Pregnancy o Vision and Hearing Disorders Screening § Glaucoma § Hearing Impairment in Older Adults

Claims Procedure Applicable to Claims for Benefits under the Program

Claim for Benefits Procedures You or a duly authorized person has the right under ERISA and the Program to file a written claim for benefits under the Program. The following describes the procedures used by the Program to process claims for benefits, along with your rights and responsibilities. These procedures were designed to comply with the rules of the Department of Labor (DOL) concerning claims for Benefits. It is important that you follow these procedures to make sure that you receive full benefits under the Program. The Program is an ERISA Program, and you may file suit in federal court if you are denied benefits you believe are due you under the Program. However, you must complete the full claims and appeal process offered under the Program before filing a lawsuit. Filing a Claim for Benefits When filing a claim for benefits, you should file the claim with the Claims Administrator. The Claims Administrator is the third party to whom claims and appeal responsibility has been delegated as permitted under Section 8.1 of the Program.

The following are not considered claims for benefits under the Program:

· A claim related to basic eligibility for coverage under the Program (See Section 11.2 of the Program).

· A claim related to the Loyalty Conditions contained in Article 7 of the Program (See Section 11.2 of the Program).

Claim Filing Limits A request for payment of benefits must be submitted within one year after the date of service or the date the prescription was provided. Required Information When you request payment of benefits from the Program, you must provide certain information as requested by the Claims Administrator.

Benefit Determinations Post-Service Claims Post-service claims are those claims that are filed for payment of benefits after medical care has been received. If your post- service claim is denied, you will receive a written notice from the Claims Administrator within 30 days of receipt of the claim, as long as all needed information identified above and any other information that the Claims Administrator may request in connection with services rendered to you was provided with the claim. The Claims Administrator will notify you within this 30-day period if additional information is needed to process the Claim and may request a one- time extension not longer than 15 days and pend your Claim until all information is received. Once notified of the extension, you then have 45 days to provide this information. If all of the needed information is received within the 45-day time frame and the claim is denied, the claims Administrator will notify you of the denial within 15 days after the information is received. If you don't provide the needed information within the 45-day period, your claim will be denied. A denial notice will explain the reason for denial, refer to the part of the Program on which the denial is based, and provide the claim appeal procedures.

Copyright © 2013 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Pre-Service Claims Pre-service claims are those claims that require notification or approval prior to receiving medical care or require notification within a specified time period after service begins as required under the Program provisions. If your claim is a pre-service claim and is submitted properly with all needed information, you will receive written notice of the claim decision from the Claims Administrator within 15 days of receipt of the claim. If you file a pre-service claim improperly, the Claims Administrator will notify you of the improper filing and how to correct it within five days after the pre-service claim is received. If additional information is needed to process the pre-service claim, the Claims Administrator will notify you of the information needed within 15 days after the claim was received and may request a one-time extension not longer than 15 days and pend your claim until all information is received. Once notified of the extension, you then have 45 days to provide this information. If all of the needed information is received within the 45-day time frame, the Claims Administrator will notify you of the determination within 15 days after the information is received. If you don't provide the needed information within the 45-day period, your claim will be denied. A denial notice will explain the reason for denial, refer to the part of the Program on which the denial is based, and provide the claim appeal procedures. Urgent Care Claims That Require Immediate Action Urgent care claims are those claims that require notification or approval prior to receiving medical care in which a delay in treatment could seriously jeopardize your life or health or the ability to regain maximum function or, in the opinion of a physician with knowledge of your medical condition, could cause severe pain. In these situations:

· You will receive notice of the benefit determination in writing or electronically within 72 hours after the Claims Administrator receives all necessary information, taking into account the seriousness of your condition.

· Notice of denial may be oral with a written or electronic confirmation to follow within three days. If you filed an urgent claim improperly, the Claims Administrator will notify you of the improper filing and how to correct it within 24 hours after the urgent claim was received. If additional information is needed to process the claim, the Claims Administrator will notify you of the information needed within 24 hours after the claim was received. You then have 48 hours to provide the requested information. You will be notified of a determination no later than 48 hours after either:

· The Claims Administrator's receipt of the requested information.

· The end of the 48-hour period within which you were to provide the additional information, if the information is not received within that time. A denial notice will explain the reason for denial, refer to the part of the Program on which the denial is based, and provide the claim appeal procedures. Concurrent Care Claims If an ongoing course of treatment was previously approved for a specific period of time or number of treatments, and your request to extend the treatment is an urgent care claim as defined above, your request will be decided within 24 hours, provided your request is made at least 24 hours prior to the end of the approved treatment. The Claims Administrator will make a determination on your request for the extended treatment within 24 hours from receipt of your request. If your request for extended treatment is not made at least 24 hours prior to the end of the approved treatment, the request will be treated as an urgent care claim and decided according to the time

Copyright © 2013 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document frames described above. If an ongoing course of treatment was previously approved for a specific period of time or number of treatments, and you request to extend treatment in a non-urgent circumstance, your request will be considered a new claim and decided according to post-service or pre-service timeframes, whichever applies. How to Appeal a Claim Decision If you disagree with a pre-service or post-service claim determination after following the above steps, you can contact the applicable Claims Administrator in writing to formally request an appeal. Your first appeal request must be submitted to the Claims Administrator within 180 days after you receive the Claim denial.

Appeal Process A qualified individual who was not involved in the decision being appealed will be appointed to decide the appeal. The Claims Administrator may consult with, or seek the participation of, medical experts as part of the appeal resolution process. You must consent to this referral and the sharing of pertinent medical claim information. Upon written request and free of charge you have the right to reasonable access to and copies of all documents, records and other information relevant to your claim for benefits. Appeals Determinations Pre-Service and Post-Service Claim Appeals You will be provided written or electronic notification of the decision on your appeal as follows:

· For appeals of pre-service claims, the first-level appeal will be conducted and you will be notified by the Claims Administrator of the decision within 15 days from receipt of a request for appeal of a denied Claim. The second-level appeal will be conducted and you will be notified by the Claims Administrator of the decision within 15 days from receipt of a request for review of the first-level appeal decision.

· For appeals of post-service claims, the first-level appeal will be conducted and you will be notified by the Claims Administrator of the decision within 30 days from receipt of a request for appeal of a denied claim. The second-level appeal will be conducted and you will be notified by the Claims Administrator of the decision within 30 days from receipt of a request for review of the first-level appeal decision.

· For procedures associated with urgent Claims, refer to the following "Urgent Claim Appeals That Require Immediate Action" Section.

· If you are not satisfied with the first-level appeal decision of the Claims Administrator, you have the right to request a second-level appeal from the Claims Administrator. Your second level appeal request must be submitted to the Claims Administrator in writing within 60 days from receipt of the first-level appeal decision.

· For pre-service and post-service claim appeals, the Program Administrator has delegated to the Claims Administrator the exclusive right to interpret and administer the provisions of the Program. The Claims Administrator's decisions are conclusive and binding. Please note that the Claims Administrator's decision is based only on whether or not benefits are available under the Program for the proposed treatment or procedure. The determination as to whether the pending health service is necessary or appropriate is between you and your physician. Urgent Claim Appeals That Require Immediate Action Your appeal may require immediate action if a delay in treatment could significantly increase the risk to your health or the ability to regain maximum function or cause severe pain.

Copyright © 2013 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document In these urgent situations, the appeal does not need to be submitted in writing. You or your physician should call the Claims Administrator as soon as possible. The Claims Administrator will provide you with a written or electronic determination within 72 hours following receipt by the Claims Administrator of your request for review of the determination taking into account the seriousness of your condition. For urgent claim appeals, the Program Administrator has delegated to the applicable Claims Administrator the exclusive right to interpret and administer the provisions of the Program. The Claims Administrator's decisions are conclusive and binding.

In any case, an Eligible Employee or Beneficiary may have further rights under ERISA. The Program provisions require that Eligible Employees or Beneficiary pursue and exhaust all claim and appeal rights described in this Section before they seek any other legal recourse regarding claims for benefits.

EXECUTION VERSION

U.S. $30,000,000,000

TERM LOAN CREDIT AGREEMENT

Dated as of October 22, 2016,

As amended and restated as of November 15, 2016

Among

AT&T INC.

as Borrower

THE INITIAL LENDERS NAMED HEREIN

as Initial Lenders

and

JPMORGAN CHASE BANK, N.A.

as Agent

______

JPMORGAN CHASE BANK, N.A., MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED, BANK OF TOKYO-MITSUBISHI UFJ, LTD., BARCLAYS BANK PLC and MIZUHO BANK, LTD. as Joint Lead Arrangers

JPMORGAN CHASE BANK, N.A. and MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED as Joint Bookrunners

Copyright © 2013 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document BANCO BILBAO VIZCAYA ARGENTARIA, S.A., NEW YORK BRANCH, BANK OF CHINA, NEW YORK BRANCH, BNP PARIBAS SECURITIES CORP., COMMERZBANK AG, NEW YORK BRANCH, CREDIT SUISSE SECURITIES (USA) LLC, DEUTSCHE BANK SECURITIES INC., GOLDMAN SACHS BANK USA, ROYAL BANK OF CANADA, SANTANDER BANK, N.A., SG AMERICAS SECURITIES, LLC,

TD SECURITIES (USA) LLC and WELLS FARGO SECURITIES, LLC as Co-Arrangers

BANK OF AMERICA, N.A., BANK OF TOKYO-MITSUBISHI UFJ, LTD., BARCLAYS BANK PLC and MIZUHO BANK, LTD. as Syndication Agents

BANCO BILBAO VIZCAYA ARGENTARIA, S.A., NEW YORK BRANCH, BANK OF CHINA, NEW YORK BRANCH, BNP PARIBAS, COMMERZBANK AG, NEW YORK BRANCH, CREDIT SUISSE AG, DEUTSCHE BANK SECURITIES INC., GOLDMAN SACHS BANK USA, ROYAL BANK OF CANADA, SANTANDER BANK, N.A., SG AMERICAS SECURITIES, LLC, TD SECURITIES (USA) LLC and WELLS FARGO BANK, NATIONAL ASSOCIATION, as Documentation Agents

Page

Article I DEFINITIONS AND ACCOUNTING TERMS ...... 1

Section 1.01 Certain Defined Terms ...... 1 Section 1.02 Computation of Time Periods ...... 16 Section 1.03 Accounting Terms …………………………………………………………………………………………...... ………………………………………………………...…....……… 17 Article II AMOUNTS AND TERMS OF THE ADVANCES …………………………………………………………………………………………………………………………………...... ………………...... …...... 17 Section 2.01 The Advances ……………………………………………………………………………………………………………………………………..………………………...…….…...... … 17 Section 2.02 Making the Advances ………………………………………………………………………………………………………………………………………………………..…...... … 17 Section 2.03 Fees ………………………………………………………………………………………………………………………………………………………………………………....……...… 18 Section 2.04 Optional Termination or Reduction of the Commitments ………………………………………………………….…………………………………….…………………….……...... …19 Section 2.05 Repayment of Advances ……………………………………………………………………………………………………………………………………………………..…...... … 19 Section 2.06 Commitment Termination and Mandatory Prepayments ……………………………………………………………………………………………………………………...……..…...... … 19 Section 2.07 Interest on Advances …………………………………………………………………………………………………………………………………………………………..…...... … 20 Section 2.08 Interest Rate Determination …………………………………………………………………………………………………………………………………………….....……...... 20 Section 2.09 Optional Conversion of Advances ……………………………………………………………………………………………………………………………………….……..……...... 22 Section 2.10 Optional Prepayments of Advances ………………………………………………………………………………………………………………...... ……………………………...... … 22 Section 2.11 Increased Costs …………………………………………………………………………………………………………………………………………………………….....………...... 22 Section 2.12 Illegality …………………………………………………………………………………………………………………………………………………………………….…....….…...... …. 23 Section 2.13 Payments and Computations...... 24 Section 2.14 Taxes...... 25 Section 2.15 Sharing of Payments, Etc...... 28 Section 2.16 Evidence of Debt...... 28 Section 2.17 Use of Proceeds...... 29 Section 2.18 Defaulting Lenders...... 29 Section 2.19 Replacement of Lenders...... 30 Article III CONDITIONS PRECEDENT...... 31 Section 3.01 Conditions Precedent to Effectiveness...... 31 Section 3.02 Conditions Precedent to Effectiveness of Amendment and Restatement...... 32 Section 3.03 Conditions Precedent to Closing Date...... 32 Article IV REPRESENTATIONS AND WARRANTIES...... 34 Section 4.01 Representations and Warranties...... 34 Article V COVENANTS OF THE BORROWER...... 36

Copyright © 2013 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Section 5.01 Affirmative 36 Covenants...... Section 5.02 Negative Covenants...... 39 Section 5.03 Financial 40 Covenant...... Article VI EVENTS OF 40 DEFAULT...... Section 6.01 Events of Default...... 40 Article VII THE 43 AGENT...... Section 7.01 Authorization and Authority...... 43 Section 7.02 Agent Individually...... 43 Section 7.03 Duties of Agent; Exculpatory Provisions...... 43 Section 7.04 Reliance by 44 Agent...... Section 7.05 Delegation of Duties...... 45 Section 7.06 Resignation of Agent...... 45 Section 7.07 Non-Reliance on Agent and Other Lenders...... 45 Section 7.08 Indemnification...... 46 Section 7.09 Other Agents...... 46 Article VIII 46 MISCELLANEOUS...... Section 8.01 Amendments, 46 Etc...... Section 8.02 Notices; Effectiveness; Electronic Communication...... 47 Section 8.03 No Waiver; Remedies...... 49 Section 8.04 Costs and Expenses...... 49 Section 8.05 Binding Effect...... 50 Section 8.06 Assignments and Participations...... 50 Section 8.07 Confidentiality; PATRIOT Act...... 54 Section 8.08 Governing Law...... 55 Section 8.09 Jurisdiction, Etc...... 55 Section 8.10 Severability...... 56 Section 8.11 Waiver of Jury 56 Trial...... Section 8.12 No Fiduciary 56 Duties...... Section 8.13 Acknowledgement and Consent to Bail-In of EEA Financial Institutions...... 57

Schedule I - Commitments

Schedule 5.02(a) - Existing Liens

Exhibits

Exhibit A - Form of Note

Exhibit B-1 - Form of Notice of Borrowing

Exhibit B-2 - Form of Notice of Continuation/Conversion

Exhibit C - Form of Assignment and Assumption

Exhibit D - Form of Opinion of In-House Counsel for the Borrower

Exhibit E - Non-U.S. Lender Form

Dated as of October 22, 2016, as amended and restated as of November 15, 2016

AT&T Inc., a Delaware corporation (the "Borrower"), the banks, financial institutions and other institutional lenders listed on the signature pages hereof (the "Initial Lenders"), and JPMorgan Chase Bank, N.A., as agent (in such capacity, the "Agent") for the Lenders (as hereinafter defined), agree as follows:

PRELIMINARY STATEMENT.

The Borrower, the lenders parties thereto and the Agent were parties to that certain $40,000,000,000 Term Loan Credit Agreement dated as of October 22, 2016 (the "Existing Bridge Credit Agreement"). Subject to the satisfaction of the conditions set forth in Section 3.02, the Borrower, the parties hereto and the Agent desire to amend and restate the Existing Bridge Credit Agreement as herein set forth and in connection with such amendment and restatement, to substitute as lenders the Lenders listed on Schedule I hereto.

ARTICLE I

DEFINITIONS AND ACCOUNTING TERMS

Section 1.01 Certain Defined Terms. As used in this Agreement, the following terms shall have the following meanings (such meanings to be equally applicable to both the singular and plural forms of the terms defined):

"Acquiror Material Adverse Effect" means "Parent Material Adverse Effect," as defined in the Acquisition Agreement.

"Acquisition" means the acquisition by the Borrower by merger of the Target pursuant to the Acquisition Agreement.

"Acquisition Agreement" means that certain Agreement and Plan of Merger, dated as of October 22, 2016, by and among Time Warner Inc., AT&T Inc. and West Merger Sub, Inc.

"Acquisition Agreement Representations" means those representations and warranties made by the Target with respect to the Target in the Acquisition Agreement that are material to the interests of the Lenders, but only to the extent that the Borrower (or its applicable Subsidiary) has the right to terminate its obligation to consummate the Acquisition under the Acquisition Agreement or the right not to consummate the Acquisition pursuant to the Acquisition Agreement as a result of a breach of such representations and warranties.

"Administrative Questionnaire" means an Administrative Questionnaire in a form supplied by the Agent.

"Advance" means an advance by a Lender pursuant to its Commitment to the Borrower as part of a Borrowing.

Copyright © 2013 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document "Affiliate" means, as to any Person, any other Person that, directly or indirectly, controls, is controlled by or is under common control with such Person or is a director or officer of such Person. For purposes of this definition, the term "control" (including the terms "controlling", "controlled by" and "under common control with") of a Person means the possession, direct or indirect, of the power to vote 15% or more of the Voting Stock of such Person or to direct or cause the direction of the management and policies of such Person, whether through the ownership of Voting Stock, by contract or otherwise; provided, however, that with respect to the Agent or any Lender, the term "control" (including the terms "controlling", "controlled by" and "under common control with") of a Person means the possession, direct or indirect, of the power to vote 5% or more of the Voting Stock of such Person.

"Agent" has the meaning specified in the preamble hereto.

"Agent's Account" means (a) the account of the Agent maintained by the Agent at JPMorgan Chase Bank, N.A., Account No. 9008113381H4032, Attention: Loan & Agency or (b) such other account of the Agent as is designated in writing from time to time by the Agent to the Borrower and the Lenders for such purpose.

"Agent Parties" has the meaning specified in Section 8.02(d)(ii).

"Agreement" means this Term Loan Credit Agreement.

"Anti-Corruption Laws" means all laws, rules, and regulations of any jurisdiction applicable to the Borrower or its Subsidiaries from time to time concerning or relating to bribery or corruption.

"Applicable Lending Office" means, with respect to each Lender, such Lender's Domestic Lending Office in the case of a Base Rate Advance and such Lender's Eurodollar Lending Office in the case of a Eurodollar Rate Advance.

"Applicable Margin" means, as of any date, a percentage per annum determined by reference to the applicable Public Debt Rating in effect on such date as set forth below:

Public Debt Rating Applicable Margin for Applicable Margin for S&P/Moody's/Fitch Eurodollar Rate Advances Base Rate Advances Level 1 A / A2 / A or higher 0.750% 0.000% Level 2 A- / A3 / A- 1.000% 0.000% Level 3 BBB+ / Baa1 / BBB+ 1.125% 0.125% Level 4 BBB/Baa2/BBB 1.250% 0.250% Level 5 Lower than Level 4 1.500% 0.500%

; provided that the Applicable Margin set forth above shall increase for each Level by an additional 0.25% on the date that is 90 days after the Closing Date and every 90 days thereafter.

"Applicable Percentage" means, as of any date, a percentage per annum determined by reference to the Public Debt Rating in effect on such date as set forth below under the heading "Applicable Percentage":

Copyright © 2013 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Public Debt Rating S&P/Moody's/Fitch Applicable Percentage Level 1 A / A2 / A or higher 0.070% Level 2 A- / A3 / A- 0.090% Level 3 BBB+ / Baa1 / BBB+ 0.100% Level 4 BBB/Baa2/BBB 0.125% Level 5 Lower than Level 4 0.175%

"Approved Fund" means any Fund that is administered or managed by (a) a Lender, (b) an Affiliate of a Lender or (c) an entity or an Affiliate of an entity that administers or manages a Lender.

"Asset Sale" means the sale, transfer, license, lease or other disposition (including any sale and leaseback transaction) of any property of the Borrower or any of its Subsidiaries, including any loss of or damage to, or any condemnation or other taking of, any such property, except Excluded Asset Sales.

"Assignment and Assumption" means an assignment and assumption entered into by a Lender and an Eligible Assignee, and accepted by the Agent, in substantially the form of Exhibit C hereto.

"Audited Financial Statements" means the Consolidated balance sheet of the Borrower and its Subsidiaries as at December 31, 2015, and the related Consolidated statements of income and cash flows of the Borrower and its Subsidiaries for the fiscal year then ended.

"Bail-In Action" means the exercise of any Write-Down and Conversion Powers by the applicable EEA Resolution Authority in respect of any liability of an EEA Financial Institution.

"Bail-In Legislation" means, with respect to any EEA Member Country implementing Article 55 of Directive 2014/59/EU of the European Parliament and of the Council of the European Union, the implementing law for such EEA Member Country from time to time which is described in the EU Bail-In Legislation Schedule.

"Base Rate" means a fluctuating interest rate per annum in effect from time to time, which rate per annum shall at all times be equal to the highest of:

(a) the rate of interest announced publicly by JPMorgan Chase in New York, New York, from time to time, as its prime rate;

(b) 1⁄2 of one percent per annum above the Federal Funds Rate; and

(c) the ICE Benchmark Administration Limited Settlement Rate (or the successor thereto if ICE Benchmark Administration Limited is no longer making such a rate available) applicable to Dollars for a period of one month ("One Month LIBOR") plus 1.00% (for the avoidance of doubt, the One Month LIBOR for any day shall be based on the rate appearing on Reuters Screen LIBOR01 Page (or other commercially available source providing such quotations as designated by the Agent from time to time) at approximately 11:00 A.M. London time on such day);

Copyright © 2013 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document provided that if One Month LIBOR shall be less than zero, such rate shall be deemed to be zero for the purposes of this Agreement.

"Base Rate Advance" means an Advance denominated in Dollars that bears interest as provided in Section 2.07(a)(i).

"Board of Directors" shall mean the governing body of a corporation, limited liability company or equivalent business organization.

"Borrower" has the meaning specified in the preamble hereto.

"Borrowing" means a borrowing consisting of simultaneous Advances of the same Type made by each of the Lenders pursuant to Section 2.01.

"Business Day" means a day of the year on which banks are not required or authorized by law to close in New York City and, if the applicable Business Day relates to any Eurodollar Rate Advances, on which dealings are carried on in the London interbank market and banks are open for business in London.

"Closing Date" means the first date all the conditions precedent in Section 3.03 are satisfied or waived in accordance with Section 8.01.

"Commitment" means, with respect to any Lender (a) the Dollar amount set forth under the caption "Commitments" opposite such Lender's name on Schedule I hereto or (b) if such Lender has entered into any Assignment and Assumption, the Dollar amount set forth for such Lender in the Register maintained by the Agent pursuant to Section 8.06(c), in each case, as such amount may be reduced pursuant to Section 2.04 or Section 2.06. As of the Restatement Effective Date, the aggregate amount of the Commitments is $30,000,000,000.

"Commitment Fees" has the meaning set forth in Section 2.03(a).

"Commitment Termination Date" means October 23, 2017; provided that to the extent that pursuant to Section 8.2 of the Acquisition Agreement (as of the date thereof) the "Termination Date" (as defined therein) is extended to a date (or dates) on or before April 22, 2018 (each such date, an "Extended Termination Date"), the Commitment Termination Date shall be automatically extended to the date that is one day after such Extended Termination Date, which date shall be no later than April 23, 2018 (and the Borrower shall provide prompt written notice of such extension to the Agent, but such notice shall not be a condition to such automatic extension).

"Communications" has the meaning specified in Section 8.02(d)(ii).

"Confidential Information" means information that is furnished to the Agent or any Lender by or on behalf of the Borrower, but does not include any such information that is or becomes generally available to the public (other than as a result of a violation of this Agreement).

"Consolidated" refers to the consolidation of accounts in accordance with GAAP.

Copyright © 2013 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document "Consolidated EBITDA" means, for any Person for any period, Consolidated Net Income of such Person for such period adjusted to exclude the effects of (a) gains or losses from discontinued operations, (b) any extraordinary or other non-recurring non-cash gains or losses (including non-cash restructuring charges), (c) accounting changes including any changes to Accounting Standards Codification 715 (or any subsequently adopted standards relating to pension and postretirement benefits) adopted by the Financial Accounting Standards Board after the date hereof, (d) interest expense, (e) income tax expense or benefit, (f) depreciation, amortization and other non-cash charges (including actuarial gains or losses from pension and postretirement plans), (g) interest income, (h) equity income and losses, and (i) other non-operating income or expense. For the purpose of calculating Consolidated EBITDA for any Person for any period, if during such period such Person or any Subsidiary of such Person shall have made a Material Acquisition or Material Disposition, Consolidated EBITDA for such period shall be calculated after giving pro forma effect to such Material Acquisition or Material Disposition as if such Material Acquisition or Material Disposition occurred on the first day of such period. "Material Acquisition" means any acquisition or series of related acquisitions that involves consideration (including non-cash consideration) with a fair market value, as of the date of the closing thereof, in excess of $10,000,000,000. "Material Disposition" means any disposition of property or series of related dispositions of property that involves consideration (including non-cash consideration) with a fair market value, as of the date of the closing thereof, in excess of $1,000,000,000.

"Consolidated Net Income" means, for any Person for any period, the net income of such Person and its Consolidated Subsidiaries, determined on a Consolidated basis for such period in accordance with GAAP.

"Convert", "Conversion" and "Converted" each refers to a conversion of Advances of one Type into Advances of the other Type pursuant to Section 2.08, 2.09 or 2.12.

"Debt" of any Person means, without duplication, (a) all obligations of such Person for borrowed money or with respect to deposits or advances of any kind, (b) all obligations of such Person evidenced by bonds, debentures, notes or similar instruments and (c) all guarantees by such Person of Debt of others.

"Debt Issuance" means the borrowing, issuance or other incurrence of Debt for borrowed money (including hybrid securities and debt securities convertible into equity), in each case, by the Borrower or any of its Subsidiaries, except Excluded Debt.

"Default" means any Event of Default or any event that would constitute an Event of Default but for the requirement that notice be given or time elapse or both.

"Defaulting Lender" means, subject to Section 2.18(c), at any time, any Lender that, at such time (a) has failed to perform any of its funding obligations hereunder, including in respect of its Advances, on the date required to be funded by it hereunder, (b) has notified the Borrower or the Agent that it does not intend to comply with its funding obligations or has made a public statement to that effect with respect to its funding obligations hereunder or generally under other agreements in which it commits to extend credit, (c) has failed, within three Business Days after written request by the Agent or the Borrower (based on its reasonable belief that such Lender

Copyright © 2013 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document may not fulfill its funding obligations hereunder), to confirm in a manner reasonably satisfactory to the Agent and the Borrower that it will comply with its funding obligations hereunder, provided that such Lender shall cease to be a Defaulting Lender upon receipt of such confirmation by, in form and substance reasonably acceptable to, the Agent and the Borrower, (d) has, or has a direct or indirect parent company that has, (i) become the subject of a proceeding under any debtor relief law, (ii) had a receiver, conservator, trustee, administrator, assignee for the benefit of creditors or similar Person charged with reorganization or liquidation of its business or a custodian appointed for it, (iii) taken any action in furtherance of, or indicated its consent to, approval of or acquiescence in any such proceeding or appointment or (iv) become the subject of a Bail-In Action, or (e) shall generally not pay its debts as those debts come due or shall admit in writing its inability to pay its debts or shall become insolvent; provided that a Lender shall not be a Defaulting Lender solely by virtue of the control, ownership or acquisition of any equity interest in that Lender or any direct or indirect parent company thereof by a governmental authority, so long as such ownership interest does not result in or provide such Lender with immunity from the jurisdiction of courts within the United States or from the enforcement of judgments or writs of attachment on its assets or permit such Lender (or such governmental authority or instrumentality) to reject, repudiate, disavow or disaffirm any contracts or agreements made with such Lender.

"Dollars" and the "$" sign each means lawful currency of the United States of America.

"Domestic Lending Office" means, with respect to any Lender, the office of such Lender specified as its "Domestic Lending Office" in its Administrative Questionnaire delivered to the Agent, or such other office of such Lender as such Lender may from time to time specify to the Borrower and the Agent.

"Duration Fee" means with respect to any Lender, as of any date of determination, the amount equal to (a) the Duration Percentage in effect on such date of determination, times (b) the outstanding principal amount of such Lender's Advances on such date of determination.

"Duration Percentage" means as of any day set forth below, the rate set forth below under the heading "Duration Percentage" opposite such day:

Day after Closing Date: Duration Percentage 90th day 0.50% 180th day 0.75% 270th day 1.00%

"EEA Financial Institution" means (a) any credit institution or investment firm established in any EEA Member Country which is subject to the supervision of an EEA Resolution Authority, (b) any entity established in an EEA Member Country which is a parent of an institution described in clause (a) of this definition, or (c) any financial institution established in an EEA Member Country which is a subsidiary of an institution described in clauses (a) or (b) of this definition and is subject to consolidated supervision with its parent.

Copyright © 2013 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document "EEA Member Country" means any of the member states of the European Union, Iceland, Liechtenstein, and Norway.

"EEA Resolution Authority" means any public administrative authority or any Person entrusted with public administrative authority of any EEA Member Country (including any delegee) having responsibility for the resolution of any EEA Financial Institution.

"Effective Date" has the meaning specified in Section 3.01, which was October 22, 2016.

"Eligible Assignee" means any (i) Lender, Affiliate of a Lender or Approved Fund and (ii) bank, financial institution or other institutional lender that meets the requirements to be an assignee under Section 8.06(b)(iii), (v) and (vi) (subject to such consents, if any, as may be required under Section 8.06(b)(iii)).

"Equity Issuance" means the issuance of any equity interest (including equity-linked securities) of the Borrower or any of its Subsidiaries to any Person except (a) issuances as consideration for the Acquisition or any other acquisition, (b) issuances pursuant to any employee stock plans and retirement plans or issued as compensation to officers and/or non-employee directors, (c) issuances of directors' qualifying shares and/or other nominal amounts required to be held by Persons other than the Borrower or its Subsidiaries under applicable Law, (d) issuances to the Borrower or any of its Subsidiaries or in the case of any non-wholly owned Subsidiary pro rata to its equity holders or on a more than pro rata basis to the Borrower or its Subsidiaries and (e) other equity issuances (including issuances of preferred stock of the Borrower) in an aggregate amount up to $5,000,000,000.

"ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time, and the regulations promulgated and rulings issued thereunder.

"ERISA Affiliate" means any Person that for purposes of Title IV of ERISA is a member of the Borrower's controlled group, or under common control with the Borrower, within the meaning of Section 414 of the Internal Revenue Code.

"EU Bail-In Legislation Schedule" means the EU Bail-In Legislation Schedule published by the Loan Market Association (or any successor Person), as in effect from time to time.

"Eurocurrency Liabilities" has the meaning assigned to that term in Regulation D of the Board of Governors of the Federal Reserve System, as in effect from time to time.

"Eurodollar Lending Office" means, with respect to any Lender, the office of such Lender specified as its "Eurodollar Lending Office" in its Administrative Questionnaire delivered to the Agent, or such other office of such Lender as such Lender may from time to time specify to the Borrower and the Agent.

"Eurodollar Rate" means, for any Interest Period for each Eurodollar Rate Advance comprising part of the same Borrowing, an interest rate per annum equal to the rate per annum obtained by dividing (a) the rate per annum appearing on Reuters Screen LIBOR01 Page (or any successor page) as the London interbank offered rate for deposits in Dollars at approximately 11:00 A.M. (London time) two Business Days prior to the first day of such Interest Period for a

Copyright © 2013 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document term comparable to such Interest Period or, if for any reason such rate is not available, the average of the rate per annum at which deposits in Dollars are offered by the principal office of each of the Reference Banks in London, England to prime banks in the London interbank market at 11:00 A.M. (London time) two Business Days before the first day of such Interest Period in an amount substantially equal to such Reference Bank's Eurodollar Rate Advance comprising part of such Borrowing to be outstanding during such Interest Period and for a period equal to such Interest Period by (b) a percentage equal to 100% minus the Eurodollar Rate Reserve Percentage for such Interest Period; provided that if the Eurodollar Rate shall be less than zero, such rate shall be deemed to be zero for the purposes of this Agreement. If the Reuters Screen LIBOR01 Page (or any successor page) is unavailable, the Eurodollar Rate for any Interest Period for each Eurodollar Rate Advance comprising part of the same Borrowing shall be determined by the Agent on the basis of applicable rates furnished to and received by the Agent from the Reference Banks two Business Days before the first day of such Interest Period, subject, however, to the provisions of Section 2.08.

"Eurodollar Rate Advance" means an Advance denominated in Dollars that bears interest as provided in Section 2.07(a)(ii).

"Eurodollar Rate Reserve Percentage" for any Interest Period for all Eurodollar Rate Advances comprising part of the same Borrowing means the reserve percentage applicable two Business Days before the first day of such Interest Period under regulations issued from time to time by the Board of Governors of the Federal Reserve System (or any successor) for determining the maximum reserve requirement (including, without limitation, any emergency, supplemental or other marginal reserve requirement) for a member bank of the Federal Reserve System in New York City with respect to liabilities or assets consisting of or including Eurocurrency Liabilities (or with respect to any other category of liabilities that includes deposits by reference to which the interest rate on Eurodollar Rate Advances is determined) having a term equal to such Interest Period.

"Events of Default" has the meaning specified in Section 6.01.

"Excluded Asset Sale" means (a) the unwinding of hedging arrangements, (b) the sale or other disposition of accounts receivable as part of collection or as part of any factoring, financing or similar transaction (including any Receivables Securitization), (c) the sale or other disposition of inventory or assets to the Borrower or any of its Subsidiaries, (d) any sale or other disposition of assets in the ordinary course of business (as reasonably determined in good faith by the Borrower), (e) any sale or other disposition of assets pursuant to a contract or arrangement in effect as of the date hereof and (f) any other sale or other disposition of assets the Net Cash Proceeds of which do not exceed $1,000,000,000 in any single transaction or series of related transactions.

Copyright © 2013 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document replacement or refinancing thereof), factoring arrangements, capital leases, financial leases, hedging and cash management, (e) purchase money and equipment financings and similar obligations, (f) any Debt incurred to refinance any Debt outstanding on the date hereof (or Debt that was incurred to refinance such Debt), including through an exchange offer, together in each case with accrued and unpaid interest and any expenses, costs, premiums or other amounts payable in connection with such refinancings, (g) any Debt incurred in connection with a financing based on accounts receivable (including any Receivables Securitization) and (h) other Debt (excluding any Permanent Financing) in an aggregate principal amount up to $5,000,000,000.

"Existing Bridge Credit Agreement" has the meaning specified in the preliminary statement.

"Existing Credit Agreement" means the $12,000,000,000 Amended and Restated Credit Agreement, dated as of December 11, 2015, among the Borrower, the lenders parties thereto and Citibank, N.A., as administrative agent, as such credit agreement may be amended from time to time.

"FATCA" means Sections 1471 through 1474 of the Internal Revenue Code, as in effect on the date hereof, (or any amended or successor version that is substantively comparable and not materially more onerous to comply with), any current or future regulations or official interpretations thereof and any agreements entered into pursuant to Section 1471(b)(1) of the Internal Revenue Code.

"Federal Funds Rate" means, for any period, a fluctuating interest rate per annum equal for each day during such period to the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers, as published for such day (or, if such day is not a Business Day, for the next preceding Business Day) by the Federal Reserve Bank of New York, or, if such rate is not so published for any day that is a Business Day, the average of the quotations for such day on such transactions received by the Agent from three Federal funds brokers of recognized standing selected by it; provided that if the Federal Funds Rate shall be less than zero, such rate shall be deemed to be zero for the purposes of this Agreement.

"Fee Letter" means that certain syndication and fee letter, dated as of the Effective Date, between the Joint Bookrunners and the Borrower.

"Fitch" means Fitch, Inc.

"Fund" means any Person (other than a natural Person) that is (or will be) engaged in making, purchasing, holding or otherwise investing in commercial loans and similar extensions of credit in the ordinary course of its activities.

"GAAP" has the meaning specified in Section 1.03.

"Indemnified Costs" has the meaning specified in Section 7.08.

"Indemnified Party" has the meaning specified in Section 8.04(b).

"Interest Period" means, for each Eurodollar Rate Advance comprising part of the same Borrowing, the period commencing on the date of such Eurodollar Rate Advance or the date of the Conversion of any Base Rate Advance into such Eurodollar Rate Advance and ending on the last day of the period selected by the Borrower pursuant to the provisions below and, thereafter, each subsequent period commencing on the last day of the immediately preceding Interest Period and ending on the last day of the period selected by the Borrower pursuant to the provisions below. The duration of each such Interest Period shall be one, two, three or six months as the Borrower may, upon notice received by the Agent not later than 11:00 A.M. (New York City time) on the third Business Day prior to the first day of such Interest Period, select; provided, however, that:

(a) the Borrower may not select any Interest Period that ends after the Maturity Date;

(b) Interest Periods commencing on the same date for Eurodollar Rate Advances comprising part of the same Borrowing shall be of the same duration;

(c) whenever the last day of any Interest Period would otherwise occur on a day other than a Business Day, the last day of such Interest Period shall be extended to occur on the next succeeding Business Day, provided, however, that, if such extension would cause the last day of such Interest Period to occur in the next following calendar month, the last day of such Interest Period shall occur on the next preceding Business Day; and

(d) whenever the first day of any Interest Period occurs on a day of an initial calendar month for which there is no numerically corresponding day in the calendar month that succeeds such initial calendar month by the number of months equal to the number of months in such Interest Period, such Interest Period shall end on the last Business Day of such succeeding calendar month.

"Internal Revenue Code" means the Internal Revenue Code of 1986, as amended from time to time, and the regulations promulgated and rulings issued thereunder.

"IRS" has the meaning specified in Section 2.14(f)(i).

"Joint Bookrunners" means JPMorgan Chase and Merrill Lynch, Pierce, Fenner & Smith Incorporated.

"JPMorgan Chase" means JPMorgan Chase Bank, N.A.

"Lender Appointment Period" has the meaning specified in Section 7.06.

"Lenders" means the Initial Lenders, and each Person that shall become a party hereto pursuant to Section 8.06.

Copyright © 2013 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document "Lien" means any lien, security interest or other charge or encumbrance of any kind, or any other type of preferential arrangement, including, without limitation, the lien or retained security title of a conditional vendor.

"Material Adverse Effect" means a material adverse effect on (a) the financial condition, properties, assets, liabilities, business or results of operations of the Borrower and its Subsidiaries, taken as a whole, (b) the material rights and remedies of the Agent or any Lender under this Agreement or any Note or (c) the ability of the Borrower to perform its payment obligations under this Agreement or any Note.

"Material Subsidiary" means, at any time, any Subsidiary of the Borrower to which 5% or more of Net Tangible Assets of the Borrower are attributable.

"Maturity Date" means the date that is 364 days after the Closing Date.

"Moody's" means Moody's Investors Service, Inc.

"Multiple Employer Plan" means a single employer plan, as defined in Section 4001(a)(15) of ERISA, that (a) is maintained for employees of the Borrower or any ERISA Affiliate and at least one Person other than the Borrower and the ERISA Affiliates or (b) was so maintained and in respect of which the Borrower or any ERISA Affiliate could have liability under Section 4064 or 4069 of ERISA in the event such plan has been or were to be terminated.

"Net Cash Proceeds" means:

(a) with respect to any Asset Sale, the aggregate amount of all cash (which term, for the purpose of this paragraph (a), shall include cash equivalents) proceeds (including any cash proceeds received by way of deferred payment of principal pursuant to a note or installment receivable or purchase price adjustment or otherwise, but only as and when received) actually received in respect of such Asset Sale, including property insurance or condemnation proceeds paid on account of any loss of or damage to, or any condemnation or other taking of, any property, net of (i) all attorneys' fees, accountants' fees, investment banking fees, brokerage, consultant and other customary fees and survey costs, title insurance premiums, and related search and recording charges, commissions, title and recording tax expenses and other fees and expenses incurred in connection therewith, (ii) all taxes paid or estimated to be payable as a result thereof, (iii) all payments made, and all installment payments required to be made, with respect to any obligation (A) that is secured by any assets subject to such Asset Sale, in accordance with the terms of any Lien upon such assets, or (B) that must by its terms, or in order to obtain a necessary consent to such Asset Sale, or by applicable law, be repaid out of the proceeds from such Asset Sale, (iv) all distributions and other payments required to be made to minority interest holders in Subsidiaries or joint ventures as a result of such Asset Sale, or to any other Person (other than the Borrower or any of its Subsidiaries) owning a beneficial interest in the assets disposed of in such Asset Sale, and (v) the amount of any reserves established by the Borrower or any of its Subsidiaries in accordance with GAAP to fund purchase price or similar adjustments, indemnities or liabilities, contingent or otherwise, estimated to be payable in connection with such Asset Sale (provided that to the extent and at the time any such amounts

Copyright © 2013 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document are released from such reserve, such amounts shall constitute Net Cash Proceeds); provided that such Net Cash Proceeds of Asset Sale shall not include proceeds of any Asset Sale received (x) to the extent reinvested (or committed to be reinvested) in other assets used or useful in the business of the Borrower or any of its Subsidiaries (including any investments and acquisitions) within one year of receipt of such proceeds by the Borrower or any of its Subsidiaries or (y) by a Subsidiary of the Borrower not organized in the United States to the extent repatriation of such proceeds would or may result in adverse tax consequences to the Borrower or any of its Subsidiaries or would be prohibited by applicable law; and

(b) with respect to any Equity Issuance or Debt Issuance, the aggregate amount of all cash proceeds received (including in escrow) in respect of such Equity Issuance or Debt Issuance, net of all attorneys' fees, accountants' fees, investment banking fees, brokerage, consultant and other customary fees and other fees, expenses, costs, underwriting discounts and commissions incurred in connection therewith and net of taxes paid or reasonably estimated to be payable as a result thereof.

"Net Debt for Borrowed Money" of any Person means (a) all items that, in accordance with GAAP, would be classified as indebtedness on a Consolidated balance sheet of such Person minus (b) the amount by which the sum of (i) 100% of unrestricted cash and cash equivalents held by the Borrower and its Subsidiaries in the United States (it being understood and agreed that any proceeds of any Permanent Financing held or placed into escrow shall be deemed to be unrestricted for purposes of this definition), and funds available on demand by the Borrower and its Subsidiaries in the United States (including but not limited to time deposits), and (ii) 65% of unrestricted cash and cash equivalents held by the Borrower and its Subsidiaries outside of the United States, exceeds $2,000,000,000 in the aggregate. For the avoidance of doubt, any cash and cash equivalents held by the Borrower and its Subsidiaries outside of the United States shall not be considered "restricted" solely as a result of the repatriation of such cash and cash equivalents being subject to any legal limitation or otherwise resulting in adverse tax consequences to the Borrower or any of its Subsidiaries.

"Net Tangible Assets" means, at any date, with respect to the Borrower, the total assets appearing on the most recently prepared Consolidated balance sheet of the Borrower and its Subsidiaries as of the end of the most recent fiscal quarter of the Borrower for which such balance sheet is available, prepared in accordance with GAAP, less (a) all current liabilities as shown on such balance sheet and (b) the value (net of any applicable reserves), as shown on such balance sheet of (i) all trade names, trademarks, licenses, patents, copyrights and goodwill, (ii) organizational costs and (iii) deferred charges (other than prepaid items such as insurance, taxes, interest, commissions, rents and similar items and tangible assets being amortized), as adjusted in good faith by the Borrower to give pro forma effect to any Material Acquisition or Material Disposition occurring after the end of such fiscal quarter.

"Non-Consenting Lender" means any Lender that does not approve any consent, waiver or amendment that (i) requires the approval of all or all affected Lenders in accordance with the terms of Section 8.01 and (ii) has been approved by the Required Lenders.

"Non-U.S. Lender" has the meaning specified in Section 2.14(f)(i).

Copyright © 2013 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document "Note" means a promissory note of the Borrower payable to any Lender, delivered pursuant to a request made under Section 2.16 in substantially the form of Exhibit A hereto, evidencing the aggregate indebtedness of the Borrower to such Lender resulting from the Advances made by such Lender.

"Notice of Borrowing" has the meaning specified in Section 2.02(a).

"Other Connection Taxes" means, with respect to any Lender or Agent, taxes imposed as a result of a present or former connection between such Person and the jurisdiction imposing such tax (other than connections arising solely from such Person having executed, delivered, become a party to, performed obligations under, received payments under, received or perfected a security interest under, engaged in any other transaction pursuant to or enforced this Agreement, or the Notes or any other documents to be delivered hereunder, or sold or assigned an interest in any such documents).

"Other Taxes" has the meaning specified in Section 2.14(b).

"Participant Register" has the meaning specified in Section 8.06(d).

"PATRIOT Act" means the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001, Pub. L. 107-56, as it may be amended or otherwise modified from time to time.

"Permanent Financings" means the issuance by the Borrower of unsecured debt securities and/or the borrowing of term loans (or, at the Borrower's option, issuance of equity or other securities) in connection with financing the Transactions (other than the Advances hereunder).

"Permitted Liens" means such of the following as to which no enforcement, collection, execution, levy or foreclosure proceeding shall have been commenced: (a) Liens for taxes, assessments and governmental charges or levies to the extent not required to be paid under Section 5.01(b) hereof; (b) Liens imposed by law, such as materialmen's, mechanics', carriers', workmen's and repairmen's Liens and other similar Liens arising in the ordinary course of business securing obligations that are not overdue for a period of more than 30 days; (c) pledges or deposits to secure obligations under workers' compensation laws or similar legislation or to secure public or statutory obligations; (d) easements, rights of way and other encumbrances on title to real property that do not render title to the property encumbered thereby unmarketable or materially adversely affect the use of such property for its present purposes; (e) any interest or title of a lessor or sublessor under, and Liens arising from Uniform Commercial Code financing statements (or equivalent filings, registrations or agreements in foreign jurisdictions) relating to, leases and subleases entered into by the Borrower or any of its Subsidiaries in the ordinary course of its business and covering only the assets so leased or subleased; (f) Liens that are contractual rights of set-off generally; (g) licenses, sublicenses, leases or subleases of intellectual property granted to Persons who are not Affiliates of the Borrower in the ordinary course of business not interfering in any material respect with the business of the Borrower or any of its Subsidiaries; and (h) Liens on deposit or securities accounts arising solely by virtue of any statutory or common law provisions or ordinary course contractual provisions, in each case, relating to banker's Liens, rights of set-off or similar rights and remedies for account and

Copyright © 2013 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document transaction fees and other amounts due to the depository institution or securities intermediary where any deposit, securities or brokerage accounts are maintained so long as the amounts subject to such Liens do not secure Debt.

"Person" means an individual, partnership, corporation (including a business trust), joint stock company, trust, unincorporated association, joint venture, limited liability company or other entity, or a government or any political subdivision or agency thereof.

"Plan" means a Single Employer Plan or a Multiple Employer Plan.

"Platform" has the meaning specified in Section 8.02(d)(i).

"Process Agent" has the meaning specified in Section 8.09(c).

"Public Debt Rating" means, as of any date, the rating that has been most recently announced by any of S&P, Moody's or Fitch, as the case may be, for any class of non-credit enhanced long-term senior unsecured debt issued by the Borrower or, if any such rating agency shall have issued more than one such rating, the lowest such rating issued by such rating agency. For purposes of the foregoing, (a) if only one of S&P, Moody's and Fitch shall have in effect a Public Debt Rating, the Applicable Margin and Applicable Percentage shall be determined by reference to the available rating; (b) if none of S&P, Moody's or Fitch shall have in effect a Public Debt Rating, the Applicable Margin and Applicable Percentage will be set in accordance with Level 5 under the definition of "Applicable Margin" or "Applicable Percentage", as the case may be; (c) if the ratings established by S&P, Moody's and Fitch fall within different levels, the Applicable Margin and Applicable Percentage shall be based upon the highest rating, unless the lowest of such ratings is more than one level below the highest of such ratings, in which case the Applicable Margin and Applicable Percentage shall be based upon the rating that is one level above the lowest of such ratings; (d) if any rating established by S&P, Moody's or Fitch shall be changed, such change shall be effective as of the date on which such change is first announced publicly by the rating agency making such change; provided that if, at any time between the Effective Date and the Closing Date, any of S&P, Moody's or Fitch provides a written, publicly released indicative or expected (or similar) rating giving effect to the Transactions, then such indicative or expected (or similar) rating shall be treated as a change in such rating effective as of the date on which such indicative or expected (or similar) rating is provided by the applicable rating agency; and (e) if S&P, Moody's or Fitch shall change the basis on which ratings are established, each reference to the Public Debt Rating announced by S&P, Moody's or Fitch, as the case may be, shall refer to the then equivalent rating by S&P, Moody's or Fitch, as the case may be.

"Quarterly Financial Statements" means the Consolidated balance sheet of the Borrower and its Subsidiaries as at June 30, 2016, and the related Consolidated statements of income and cash flows of the Borrower and its Subsidiaries for the six-month period then ended.

"Receivables Securitization" means sales of accounts receivable of the Borrower or any of its Subsidiaries in connection with agreements for limited recourse or non-recourse sales by the Borrower or Subsidiary for cash; provided that (a) any such agreement is of a type and on terms customary for comparable transactions in the good faith judgment of the Board of

Copyright © 2013 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Directors of the Borrower or Subsidiary and (b) such agreement does not create any interest in any asset other than accounts receivable (and property securing or otherwise supporting accounts receivable), proceeds of the foregoing and accounts into which such proceeds are paid or held.

"Reference Banks" means JPMorgan Chase and Bank of America, N.A.

"Register" has the meaning specified in Section 8.06(c).

"Related Parties" means, with respect to any Person, such Person's Affiliates and the partners, directors, officers, employees, agents and advisors of such Person and of such Person's Affiliates.

"Required Lenders" means at any time Lenders owed at least a majority in interest of the then aggregate unpaid principal amount of the Advances, or, if no such principal amount is then outstanding, Lenders having at least a majority in interest of the Commitments, provided that if any Lender shall be a Defaulting Lender at such time, there shall be excluded from the determination of Required Lenders at such time the Advances or Commitments, as applicable, of such Lender at such time.

"Restatement Effective Date" has the meaning specified in Section 3.02.

"S&P" means Standard & Poor's Financial Services LLC.

"Sanctions" means economic or financial sanctions or trade embargoes imposed, administered or enforced from time to time by (a) the U.S. government, including those administered by the Office of Foreign Assets Control of the U.S. Department of the Treasury or the U.S. Department of State, or (b) the United Nations Security Council, the European Union or Her Majesty's Treasury of the United Kingdom.

"Securities Act" means the Securities Act of 1933, as amended from time to time, and any successor statute.

"Single Employer Plan" means a single employer plan, as defined in Section 4001(a)(15) of ERISA, that (a) is maintained for employees of the Borrower or any ERISA Affiliate and no Person other than the Borrower and the ERISA Affiliates or (b) was so maintained and in respect of which the Borrower or any ERISA Affiliate could have liability under Section 4069 of ERISA in the event such plan has been or were to be terminated.

"Specified Default" means any Default or Event of Default under Section 6.01(a) or 6.01(e).

"Specified Representations" means the representations and warranties in Sections 4.01(a)(i), 4.01(b) (other than clause (iii)(B) thereof, and limited in the case of clause (iii)(C) thereof to contracts with respect to Debt of the Borrower or its Subsidiaries in an outstanding principal amount in excess of the Threshold Amount), 4.01(c), 4.01(d), 4.01(g), 4.01(h) and, solely with respect to the use of the proceeds of the Advances, 4.01(i).

Copyright © 2013 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document "Subsidiary" of any Person means any corporation, partnership, joint venture, limited liability company, trust or estate of which (or in which) more than 50% of (a) the issued and outstanding capital stock having ordinary voting power to elect a majority of the Board of Directors of such corporation (irrespective of whether at the time capital stock of any other class or classes of such corporation shall or might have voting power upon the occurrence of any contingency), (b) the interest in the capital or profits of such limited liability company, partnership or joint venture or (c) the beneficial interest in such trust or estate is at the time directly or indirectly owned or controlled by such Person, by such Person and one or more of its other Subsidiaries or by one or more of such Person's other Subsidiaries.

"Target" means Time Warner Inc.

"Target Material Adverse Effect" means "Company Material Adverse Effect," as defined in the Acquisition Agreement.

"Taxes" has the meaning specified in Section 2.14(a).

"Telco" has the meaning specified in Section 5.02(a)(vi).

"Threshold Amount" means $750,000,000 or, if higher, the cross default threshold, judgment threshold or ERISA threshold, as applicable, then set forth in the Existing Credit Agreement (or any credit agreement refinancing thereof), but in no event exceeding $2,000,000,000.

"Transactions" means the effectiveness of the Acquisition, the refinancing of debt contemplated by the Acquisition Agreement or otherwise required in connection with the Acquisition, the making of the Advances hereunder, the payment of fees and expenses in connection therewith and the other transactions contemplated hereby or related thereto.

"Type" refers to a Base Rate Advance or a Eurodollar Rate Advance.

"Voting Stock" means capital stock issued by a corporation, or equivalent interests in any other Person, the holders of which are ordinarily, in the absence of contingencies, entitled to vote for the election of directors (or persons performing similar functions) of such Person, even if the right to so vote has been suspended by the happening of such a contingency.

"Write-Down and Conversion Powers" means, with respect to any EEA Resolution Authority, the write-down and conversion powers of such EEA Resolution Authority from time to time under the Bail-In Legislation for the applicable EEA Member Country, which write-down and conversion powers are described in the EU Bail-In Legislation Schedule.

Section 1.02 Computation of Time Periods. In this Agreement in the computation of periods of time from a specified date to a later specified date, the word "from" means "from and including" and the words "to" and "until" each mean "to but excluding".

Copyright © 2013 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Section 1.03 Accounting Terms. All accounting terms not specifically defined herein shall be construed in accordance with generally accepted accounting principles consistent with those applied in the preparation of the Audited Financial Statements ("GAAP"); provided that whether a lease constitutes a capital lease or an operating lease shall be determined based on GAAP as in effect on the date hereof, notwithstanding any modification or interpretative change thereto after the date hereof (including without giving effect to any treatment of leases under Accounting Standards Codification 842 (or any other Accounting Standards Codification or Financial Accounting Standard having a similar result or effect)), and provided further that all terms of an accounting or financial nature used herein shall be construed, and all computations of amounts and ratios referred to herein shall be made (i) without giving effect to any election under Accounting Standards Codification 825-10-25 (or any other Accounting Standards Codification or Financial Accounting Standard having a similar result or effect) to value any Debt or other liabilities of the Borrower or any Subsidiary thereof at "fair value", as defined therein and (ii) without giving effect to any treatment of Debt in respect of convertible debt instruments under Accounting Standards Codification 470-20 (or any other Accounting Standards Codification or Financial Accounting Standard having a similar result or effect) to value any such Debt in a reduced or bifurcated manner as described therein, and such Debt shall at all times be valued at the full stated principal amount thereof.

ARTICLE II

AMOUNTS AND TERMS OF THE ADVANCES

Section 2.01 The Advances. Each Lender severally agrees, on the terms and conditions hereinafter set forth, to make an Advance to the Borrower on the Closing Date in an amount not to exceed such Lender's Commitment immediately prior to the making of the Advance. Each Borrowing shall consist of Advances of the same Type made simultaneously by the Lenders ratably according to their respective Commitments. Amounts borrowed under this Section 2.01 and repaid or prepaid may not be reborrowed.

Section 2.02 Making the Advances. (a) Each Borrowing shall be made on notice, given not later than (x) 11:00 A.M. (New York City time) on the third Business Day prior to the date of the proposed Borrowing in the case of a Borrowing consisting of Eurodollar Rate Advances, or (y) 12:00 P.M. (New York City time) on the date of the proposed Borrowing in the case of a Borrowing consisting of Base Rate Advances, by the Borrower to the Agent, which shall give to each Lender prompt notice thereof by telecopier. Each such notice of a Borrowing (a "Notice of Borrowing") shall be by telephone, confirmed immediately in writing, or telecopier in substantially the form of Exhibit B-1 hereto, specifying therein the requested (i) date of such Borrowing, (ii) Type of Advances comprising such Borrowing, (iii) aggregate amount of such Borrowing, and (iv) in the case of a Borrowing consisting of Eurodollar Rate Advances, initial Interest Period for each such Advance. Each Lender shall, before 2:00 P.M. (New York City time) on the date of such Borrowing, make available for the account of its Applicable Lending Office to the Agent at the Agent's Account, in same day funds, such Lender's ratable portion of such Borrowing. After the Agent's receipt of such funds and upon fulfillment of the applicable conditions set forth in Article III, the Agent will make such funds available to the Borrower at the Agent's address referred to in Section 8.02.

Copyright © 2013 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document (b) Anything in subsection (a) above to the contrary notwithstanding, (i) the Borrower may not select Eurodollar Rate Advances for any Borrowing if the aggregate amount of such Borrowing is less than $10,000,000 or if the obligation of the Lenders to make Eurodollar Rate Advances shall then be suspended pursuant to Section 2.08 or 2.12 and (ii) the Eurodollar Rate Advances may not be outstanding as part of more than 12 separate Borrowings.

(c) Each Notice of Borrowing shall be irrevocable and binding on the Borrower. In the case of any Borrowing that the related Notice of Borrowing specifies is to be comprised of Eurodollar Rate Advances, the Borrower shall indemnify each Lender against any loss, cost or expense incurred by such Lender as a result of any failure to fulfill on or before the date specified in such Notice of Borrowing for such Borrowing the applicable conditions set forth in Article III, including, without limitation, any loss (excluding loss of anticipated profits), cost or expense incurred by reason of the liquidation or reemployment of deposits or other funds acquired by such Lender to fund the Advance to be made by such Lender as part of such Borrowing when such Advance, as a result of such failure, is not made on such date.

(d) Unless the Agent shall have received notice from a Lender prior to the time of any Borrowing that such Lender will not make available to the Agent such Lender's ratable portion of such Borrowing, the Agent may assume that such Lender has made such portion available to the Agent on the date of such Borrowing in accordance with subsection (a) of this Section 2.02 and the Agent may, in reliance upon such assumption, make available to the Borrower on such date a corresponding amount. If and to the extent that such Lender shall not have so made such ratable portion available to the Agent, such Lender and the Borrower severally agree to repay to the Agent forthwith on demand such corresponding amount together with interest thereon, for each day from the date such amount is made available to the Borrower until the date such amount is repaid to the Agent, at (i) in the case of the Borrower, the higher of (A) the interest rate applicable at the time to Advances comprising such Borrowing and (B) the cost of funds incurred by the Agent in respect of such amount and (ii) in the case of such Lender, the Federal Funds Rate. If such Lender shall repay to the Agent such corresponding amount, such amount so repaid shall constitute such Lender's Advance as part of such Borrowing for purposes of this Agreement.

(e) The failure of any Lender to make the Advance to be made by it as part of any Borrowing shall not relieve any other Lender of its obligation, if any, hereunder to make its Advance on the date of such Borrowing, but no Lender shall be responsible for the failure of any other Lender to make the Advance to be made by such other Lender on the date of any Borrowing.

Section 2.03 Fees.

(a) Commitment Fee. The Borrower shall pay to the Agent for the account of each Lender commitment fees (the "Commitment Fees") on the daily average undrawn Commitment of such Lender, accruing during the period from the date that is 60 days after the Effective Date and ending on the earlier of (x) the date of termination of the Commitments and (y) the Closing Date, at a rate per annum equal to the Applicable Percentage in effect from time to time, payable in arrears on the last Business Day of each March, June, September and December and on the earliest of (1) the Commitment Termination Date, (2) the Closing Date and (3) the date all

Copyright © 2013 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Commitments have been terminated. Anything herein to the contrary notwithstanding, during such period as a Lender is a Defaulting Lender, such Defaulting Lender will not be entitled to Commitment Fees accruing with respect to its Commitment during such period pursuant to this Section 2.03(a).

(b) Duration Fee. On each of the 90th, 180th and 270th days after the Closing Date, the Borrower agrees to pay to the Agent for the account of each Lender a Duration Fee.

(c) Agent's Fees. The Borrower shall pay to the Agent for its own account such fees as may from time to time be agreed between the Borrower and the Agent.

(d) Other Fees. The Borrower also agrees to pay to the Agent, the Joint Bookrunners and the Lenders the other applicable fees respectively required to be paid to them in the amounts and the times set forth in the Fee Letter.

Section 2.04 Optional Termination or Reduction of the Commitments. The Borrower shall have the right, upon at least three Business Days' notice to the Agent, to terminate in whole or permanently reduce ratably in part the unused portions of the respective Commitments of the Lenders, provided that each partial reduction shall be in the aggregate amount of $10,000,000 or an integral multiple of $1,000,000 in excess thereof.

Section 2.05 Repayment of Advances. The Borrower shall repay to the Agent for the ratable account of the Lenders the aggregate outstanding principal amount of the Advances on the Maturity Date.

Section 2.06 Commitment Termination and Mandatory Prepayments

(a) Unless previously terminated, the Commitments shall terminate on the first to occur of (i)(x) the consummation of the Acquisition without the borrowing of the Advances or (y) in the event that an overdraft is made prior to the borrowing of the Advances for the sole purpose of financing the Transactions that will be refinanced with the Advances, 5:00 P.M., New York City time, on the Business Day after the consummation of the Acquisition without the borrowing of the Advances, (ii) the valid termination of the Acquisition Agreement in accordance with its terms and (iii) the Commitment Termination Date.

(b) In the event that the Borrower or any of its Subsidiaries receives any Net Cash Proceeds (including, with respect to a Debt Issuance or an Equity Issuance, into escrow) arising from any Debt Issuance, Equity Issuance or Asset Sale on or after the Effective Date, then the Borrower shall reduce the Commitments or prepay the Advances in an amount equal to 100% of such Net Cash Proceeds not later than three Business Days following such receipt (in the case of prepayment of Advances) or on the date of such receipt (in the case of a reduction of Commitments), in each case, by the Borrower or such Subsidiary of such Net Cash Proceeds; provided that, notwithstanding the foregoing, the first $5,000,000,000 of Net Cash Proceeds received from Asset Sales by the Borrower and its Subsidiaries as a whole shall be excluded from the requirements of this Section 2.06(b). The Borrower shall promptly, within three Business Days (in the case of prepayment of Advances) or on the date of (in the case of a reduction of Commitments), notify the Agent upon the receipt by the Borrower or such

Copyright © 2013 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Subsidiary of any such Net Cash Proceeds, and the Agent will promptly notify each Lender of its receipt of each such notice.

(c) Each prepayment of Advances pursuant to this Section 2.06 shall be applied to the Advances of the Lenders in accordance with their respective pro rata shares.

Section 2.07 Interest on Advances

(a) Scheduled Interest. The Borrower shall pay interest on the unpaid principal amount of each Advance made to it owing to each Lender from the date of such Advance until such principal amount shall be paid in full, at the following rates per annum:

(i) Base Rate Advances. During such periods as such Advance is a Base Rate Advance, a rate per annum equal at all times to the sum of (x) the Base Rate in effect from time to time plus (y) the Applicable Margin in effect from time to time, payable in arrears quarterly on the last day of each March, June, September and December during such periods and on the date such Base Rate Advance shall be Converted or paid in full.

(ii) Eurodollar Rate Advances. During such periods as such Advance is a Eurodollar Rate Advance, a rate per annum equal at all times during each Interest Period for such Advance to the sum of (x) the Eurodollar Rate for such Interest Period for such Advance plus (y) the Applicable Margin in effect from time to time, payable in arrears on the last day of such Interest Period and, if such Interest Period has a duration of more than three months, on each day that occurs during such Interest Period every three months from the first day of such Interest Period and on the date such Eurodollar Rate Advance shall be Converted or paid in full.

(b) Default Interest. Upon the occurrence and during the continuance of an Event of Default under Section 6.01(a), the Agent shall, and upon the occurrence and during the continuance of any other Event of Default, the Agent may, and upon the request of the Required Lenders shall, require the Borrower to pay interest ("Default Interest") on (A) the unpaid principal amount of each Advance, payable in arrears on the dates referred to in clause (a)(i) or (a)(ii) above, at a rate per annum equal at all times to 2% per annum above the rate per annum required to be paid on such Advance pursuant to clause (a)(i) or (a)(ii) above and (B) to the fullest extent permitted by law, the amount of any interest, fee or other amount payable hereunder by the Borrower that is not paid when due, from the date such amount shall be due until such amount shall be paid in full, payable in arrears on the date such amount shall be paid in full and on demand, at a rate per annum equal at all times to 2% per annum above the rate per annum required to be paid on Base Rate Advances pursuant to clause (a)(i) above, provided, however, that following acceleration of the Advances pursuant to Section 6.01, Default Interest shall accrue and be payable hereunder whether or not previously required by the Agent.

Section 2.08 Interest Rate Determination.

(a) Each Reference Bank agrees to furnish to the Agent timely information for the purpose of determining each Eurodollar Rate. If any one or more of the Reference Banks shall not furnish such timely information to the Agent for the purpose of determining any such interest rate, the Agent shall determine such interest rate on the basis of timely information furnished by the remaining Reference Banks. The Agent shall give prompt notice (i) to the Borrower and the Lenders of the applicable interest rate determined

Copyright © 2013 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document by the Agent for purposes of Section 2.07(a)(i) or (a)(ii) and (ii) to the Borrower the rate, if any, furnished by each Reference Bank for the purpose of determining the interest rate under Section 2.07(a)(ii) (it being understood that the Agent shall not be required to disclose to any party hereto (other than the Borrower) any information regarding any Reference Bank or any rate provided by such Reference Bank in accordance with the definition of "Eurodollar Rate", including, without limitation, whether a Reference Bank has provided a rate or the rate provided by any individual Reference Bank). Each determination by the Agent of an interest rate hereunder shall be conclusive and binding for all purposes, absent manifest error.

(b) If, with respect to any Eurodollar Rate Advances, the Required Lenders notify the Agent that (i) they are unable to obtain matching deposits in the London interbank market at or about 11:00 A.M. (London time) on the second Business Day before the making of a Borrowing in sufficient amounts to fund their respective Advances as a part of such Borrowing during its Interest Period or (ii) the Eurodollar Rate for any Interest Period for such Advances will not adequately reflect the cost to such Required Lenders of making, funding or maintaining their respective Eurodollar Rate Advances for such Interest Period, the Agent shall forthwith so notify the Borrower and the Lenders, whereupon (A) the Borrower will, on the last day of the then existing Interest Period therefor either (x) prepay such Advances or (y) Convert such Advances into Base Rate Advances and (B) the obligation of the Lenders to make, or to Convert Advances into, Eurodollar Rate Advances shall be suspended until the Agent shall notify the Borrower and the Lenders that the circumstances causing such suspension no longer exist.

(c) If the Borrower shall fail to select the duration of any Interest Period for any Eurodollar Rate Advances made to it in accordance with the provisions contained in the definition of "Interest Period" in Section 1.01, the Agent will forthwith so notify the Borrower and the Lenders and such Advances will automatically, on the last day of the then existing Interest Period therefor, Convert into Base Rate Advances; provided, that the Borrower may direct the Agent in the applicable Notice of Borrowing to continue Eurodollar Rate Advances as successive Interest Periods of the same duration until the Borrower shall give the Agent written notice at least five Business Days prior to the end of an Interest Period in the form of Exhibit B-2 that, as of the end of such Interest Period, the applicable Eurodollar Rate Advances shall Convert into Base Rate Advances or shall be continued as Eurodollar Rate Advances having an Interest Period as so notified.

(d) On the date on which the aggregate unpaid principal amount of Eurodollar Rate Advances comprising any Borrowing shall be reduced, by payment or prepayment or otherwise, to less than $10,000,000, such Advances shall automatically Convert into Base Rate Advances.

(e) Upon the occurrence and during the continuance of any Event of Default (i) each Eurodollar Rate Advance will automatically, on the last day of the then existing Interest Period therefor, be Converted into Base Rate Advances and (ii) the obligation of the Lenders to make, or to Convert Advances into, Eurodollar Rate Advances shall be suspended.

(f) If Reuters Screen LIBOR01 Page is unavailable and no Reference Bank furnishes timely information to the Agent for determining the Eurodollar Rate for any Eurodollar Rate Advances,

Copyright © 2013 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document (i) the Agent shall forthwith notify the Borrower and the Lenders that the interest rate cannot be determined for such Eurodollar Rate Advances,

(ii) with respect to Eurodollar Rate Advances, each such Advance will automatically, on the last day of the then existing Interest Period, Convert into a Base Rate Advance (or if such Advance is then a Base Rate Advance, will continue as a Base Rate Advance), and

(iii) the obligation of the Lenders to make Eurodollar Rate Advances or to Convert Advances into Eurodollar Rate Advances shall be suspended until the Agent shall notify the Borrower and the Lenders that the circumstances causing such suspension no longer exist.

Section 2.09 Optional Conversion of Advances. The Borrower of any Advance may on any Business Day, upon notice given to the Agent not later than 11:00 A.M. (New York City time) on the third Business Day prior to the date of the proposed Conversion and subject to the provisions of Sections 2.08 and 2.12, Convert all Advances of one Type comprising the same Borrowing into Advances of the other Type; provided, however, that any Conversion of Eurodollar Rate Advances into Base Rate Advances shall be made only on the last day of an Interest Period for such Eurodollar Rate Advances, any Conversion of Base Rate Advances into Eurodollar Rate Advances shall be in an amount not less than the minimum amount specified in Section 2.02(b) and no Conversion of any Advances shall result in more separate Borrowings than permitted under Section 2.02(b). Each such notice of a Conversion shall, within the restrictions specified above, specify (i) the date of such Conversion, (ii) the Advances to be Converted, and (iii) if such Conversion is into Eurodollar Rate Advances, the duration of the initial Interest Period for each such Advance. Each notice of Conversion shall be irrevocable and binding on the Borrower giving such notice.

Section 2.10 Optional Prepayments of Advances. The Borrower may at any time or from time to time voluntarily prepay Advances in whole or in part without premium or penalty, upon notice to the Agent (i) at least two Business Days' prior to the date of such prepayment, in the case of Eurodollar Rate Advances, and (ii) not later than 11:00 A.M. (New York City time) on the date of such prepayment, in the case of Base Rate Advances, stating the proposed date and aggregate principal amount of the prepayment; provided, however, that (x) each partial prepayment shall be in an aggregate principal amount of $10,000,000 or an integral multiple of $1,000,000 in excess thereof and (y) in the event of any such prepayment of a Eurodollar Rate Advance, the Borrower shall be obligated to reimburse the Lenders in respect thereof pursuant to Section 8.04(c). On the prepayment date, the Borrower shall prepay the principal amount specified in the prepayment notice, together with accrued interest to the date of such prepayment on the principal amount prepaid.

Section 2.11 Increased Costs. (a) If, due to either (i) the introduction of or any change in or in the interpretation of any law or regulation or (ii) the compliance with any guideline or request from any central bank or other governmental authority including, without limitation, any agency of the European Union or similar monetary or multinational authority (whether or not having the force of law), there shall be any increase in the cost to any Lender of agreeing to make or making, continuing, converting to, funding or maintaining Eurodollar Rate Advances (excluding for purposes of this Section 2.11(a) and Section 2.11(b) any such increased

Copyright © 2013 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document costs resulting from (i) Taxes or taxes described in clauses (w) – (z) of the definition of Taxes, imposed on or with respect to any payment made by or on behalf of the Borrower, or Other Taxes (as to which Section 2.14 shall govern) and (ii) Other Connection Taxes that are imposed on or measured by overall net income, or that are franchise taxes or branch profits taxes), then the Borrower shall, from time to time, upon demand by such Lender (with a copy of such demand to the Agent), pay to the Agent for the account of such Lender additional amounts sufficient to compensate such Lender for such increased cost provided, however, that before making any such demand, each Lender agrees to use reasonable efforts (consistent with its internal policy and legal and regulatory restrictions) to designate a different Applicable Lending Office if the making of such a designation would avoid the need for, or reduce the amount of, such increased cost and would not, in the reasonable judgment of such Lender, be otherwise disadvantageous to such Lender. A certificate as to the amount of such increased cost, submitted to the Borrower and the Agent by such Lender, shall be conclusive and binding for all purposes, absent manifest error.

(b) If any Lender determines that compliance with any law or regulation or any guideline or request from any central bank or other governmental authority (whether or not having the force of law) affects or would affect the amount of capital or liquidity required or expected to be maintained by such Lender or any corporation or other entity controlling such Lender and that the amount of such capital is increased by or based upon the existence of such Lender's commitment to lend hereunder and other commitments of this type, then, upon demand by such Lender (with a copy of such demand to the Agent), the Borrower shall pay to the Agent for the account of such Lender, from time to time as specified by such Lender, additional amounts sufficient to compensate such Lender or such corporation in the light of such circumstances, to the extent that such Lender reasonably determines such increase in capital or liquidity to be allocable to the existence of such Lender's commitment to lend hereunder. A certificate as to such amounts submitted to the Borrower and the Agent by such Lender shall be conclusive and binding for all purposes, absent manifest error. For the avoidance of doubt, this Section 2.11(b) shall apply to all requests, rules, guidelines or directives concerning capital adequacy or liquidity issued in connection with the Dodd-Frank Wall Street Reform and Consumer Protection Act and all requests, rules, guidelines or directives concerning capital adequacy or liquidity promulgated by the Bank for International Settlements, the Basel Committee on Banking Regulations and Supervisory Practices (or any successor or similar authority) or the United States financial regulatory authorities, regardless of the date adopted, issued, promulgated or implemented.

Section 2.12 Illegality. Notwithstanding any other provision of this Agreement, if any Lender shall notify the Agent that the introduction of or any change in or in the interpretation of any law or regulation makes it unlawful, or any central bank or other governmental authority asserts that it is unlawful, for any Lender or its Eurodollar Lending Office to perform its obligations hereunder to make Eurodollar Rate Advances or to fund or maintain Eurodollar Rate Advances hereunder (a) each Eurodollar Rate Advance will automatically, upon such demand, be Converted into a Base Rate Advance and (b) the obligation of the Lenders to make Eurodollar Rate Advances or to Convert Advances into Eurodollar Rate Advances shall be suspended until the Agent shall notify the Borrower and the Lenders that the circumstances causing such suspension no longer exist; provided, however, that before making any such demand, each Lender agrees to use reasonable efforts (consistent with its internal

Copyright © 2013 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document policy and legal and regulatory restrictions) to designate a different Eurodollar Lending Office if the making of such a designation would allow such Lender or its Eurodollar Lending Office to continue to perform its obligations to make Eurodollar Rate Advances or to continue to fund or maintain Eurodollar Rate Advances and would not, in the judgment of such Lender, be otherwise disadvantageous to such Lender.

Section 2.13 Payments and Computations. (a) The Borrower shall make each payment hereunder, without counterclaim or set-off, not later than 11:00 A.M. (New York City time) on the day when due in Dollars to the Agent at the Agent's Account in same day funds. The Agent will promptly thereafter cause to be distributed like funds relating to the payment of principal or interest or commitment fees ratably (other than amounts payable pursuant to Section 2.11, 2.14 or 8.04(c)) to the Lenders for the account of their respective Applicable Lending Offices, and like funds relating to the payment of any other amount payable to any Lender to such Lender for the account of its Applicable Lending Office, in each case to be applied in accordance with the terms of this Agreement. Upon its acceptance of an Assignment and Assumption and recording of the information contained therein in the Register pursuant to Section 8.06(c), from and after the effective date specified in such Assignment and Assumption, the Agent shall make all payments hereunder and under the Notes in respect of the interest assigned thereby to the Lender assignee thereunder, and the parties to such Assignment and Assumption shall make all appropriate adjustments in such payments for periods prior to such effective date directly between themselves.

(b) All computations of interest based on the Base Rate shall be made by the Agent on the basis of a year of 365 or 366 days, as the case may be, and all computations of interest based on the Eurodollar Rate or the Federal Funds Rate and of commitment fees shall be made by the Agent on the basis of a year of 360 days, in each case for the actual number of days (including the first day but excluding the last day) occurring in the period for which such interest or commitment fees are payable. Each determination by the Agent of an interest rate hereunder shall be conclusive and binding for all purposes, absent manifest error.

(c) Whenever any payment hereunder or under the Notes shall be stated to be due on a day other than a Business Day, such payment shall be made on the next succeeding Business Day, and such extension of time shall in such case be included in the computation of payment of interest or commitment fee, as the case may be; provided, however, that, if such extension would cause payment of interest on or principal of Eurodollar Rate Advances to be made in the next following calendar month, such payment shall be made on the next preceding Business Day.

(d) Unless the Agent shall have received notice from the Borrower prior to the date on which any payment is due to the Lenders hereunder that the Borrower will not make such payment in full, the Agent may assume that the Borrower has made such payment in full to the Agent on such date and the Agent may, in reliance upon such assumption, cause to be distributed to each Lender on such due date an amount equal to the amount then due such Lender. If and to the extent the Borrower shall not have so made such payment in full to the Agent, each Lender shall repay to the Agent forthwith on demand such amount distributed to such Lender together with interest thereon, for each day from the date such amount is distributed to such Lender until the date such Lender repays such amount to the Agent, at the Federal Funds Rate.

Copyright © 2013 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Section 2.14 Taxes. (a) Any and all payments by or on behalf of the Borrower to or for the account of any Lender or the Agent hereunder or under the Notes or any other documents to be delivered hereunder shall be made, in accordance with Section 2.13 or the applicable provisions of such other documents, free and clear of and without deduction or withholding for any and all present or future taxes, levies, imposts, deductions, charges or withholdings, and all liabilities, including any interest, additions to tax or penalties applicable with respect thereto, excluding, in the case of each Lender and the Agent, (v) taxes imposed on overall net income, branch profits taxes, franchise taxes imposed in lieu of net income taxes and other similar taxes, in each case by the jurisdiction under the laws of which such Lender or the Agent (as the case may be) is organized or any political subdivision thereof and, in the case of each Lender, taxes imposed on its overall net income, branch profits taxes, franchise taxes imposed on it in lieu of net income taxes, by the jurisdiction of such Lender's Applicable Lending Office or any political subdivision thereof, or by any other jurisdiction with respect to which the Lender or the Agent, as the case may be, has a present or former connection (other than connections arising from such Person having executed, delivered, become a party to, performed obligations under, received payments under, received or perfected a security interest under, engaged in any other transaction pursuant to or enforced this Agreement, or the Notes or any other documents to be delivered hereunder, or sold or assigned an interest in any such documents), (w) taxes that are attributable to a Lender's failure to comply with the requirements of paragraph (f) of this Section, (x) United States federal withholding taxes imposed on amounts payable to such Lender on the date such Lender becomes a party to this Agreement, or changes its Applicable Lending Office except to the extent that such Lender or its assignor (if any) was entitled, at the time of the change in Applicable Lending Office (or assignment) to receive additional amounts from the Borrower pursuant to this paragraph, (y) any United States withholding taxes imposed pursuant to FATCA and (z) any interest, additions to tax or penalties applicable to such excluded taxes (all such non-excluded taxes, levies, imposts, deductions, charges, withholdings and liabilities in respect of payments hereunder or under the Notes being hereinafter referred to as "Taxes"). If any Taxes from or in respect of any sum payable hereunder or under any Note or any other documents to be delivered hereunder to any Lender or the Agent are required by law to be deducted or withheld, (i) the sum payable by the Borrower shall be increased as may be necessary so that after making all required withholdings or deductions (including withholdings or deductions applicable to additional sums payable under this Section 2.14) such Lender or the Agent (as the case may be) receives an amount equal to the sum it would have received had no such deductions been made and (ii) if the Borrower is the withholding agent under applicable law, the Borrower shall make such deductions and shall pay the full amount deducted to the relevant taxation authority or other authority in accordance with applicable law.

(b) In addition, the Borrower shall pay any present or future stamp or documentary taxes or any other excise or property taxes, charges or similar levies that arise from any payment made hereunder or under the Notes or any other documents to be delivered hereunder or from the execution, delivery or registration of, performing under, or otherwise with respect to, this Agreement or the Notes or any other documents to be delivered hereunder except any such taxes that are Other Connection Taxes imposed with respect to any assignment (other than an assignment pursuant to Section 2.14(g)) (hereinafter referred to as "Other Taxes").

(c) The Borrower shall indemnify each Lender and the Agent for and hold it harmless against the full amount of Taxes or Other Taxes (including, without limitation, taxes of any kind

Copyright © 2013 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document imposed or asserted by any jurisdiction on amounts payable under this Section 2.14) imposed on or paid by such Lender or the Agent (as the case may be) and any liability (including penalties, interest and expenses) arising therefrom or with respect thereto. This indemnification shall be made within 30 days from the date such Lender or the Agent (as the case may be) makes written demand therefor.

(d) Within 30 days after the date of any payment of Taxes by the Borrower, the Borrower shall furnish to the Agent, at its address referred to in Section 8.02, the original or a certified copy of a receipt evidencing such payment to the extent such a receipt is issued therefor, or other written proof of payment thereof that is reasonably satisfactory to the Agent.

(e) Each Lender shall indemnify the Agent for the full amount of any taxes, levies, imposts, duties, charges, fees, deductions, withholdings or similar charges imposed by any governmental authority that are attributable to such Lender and that are payable or paid by the Agent in good faith, and any liability (including penalties, interest and expenses) arising therefrom or with respect thereto. This indemnification shall be made within 30 days from the date the Agent makes written demand therefor. Notwithstanding anything to the contrary, nothing in this Section 2.14(e) shall affect the Lender's rights with respect to the Borrower pursuant to this Agreement or the Notes.

(f) (i) (A) Each Lender that is a "United States Person" as defined in Section 7701(a)(30) of the Internal Revenue Code shall deliver to the Borrower and the Agent on or before the date on which it becomes a party to this Agreement two properly completed and duly signed originals of U.S. Internal Revenue Service Form W-9 (or any successor form) certifying that such Lender is exempt from U.S. federal withholding tax. (B) Each Lender that is not a "United States Person" as defined in Section 7701(a)(30) of the Internal Revenue Code (a "Non-U.S. Lender") shall deliver to the Borrower and the Agent, whichever of the following is applicable: (w) in the case of a Non-U.S. Lender claiming the benefits of an income tax treaty to which the United States is a party (i) with respect to payments of interest under this Agreement and the Notes, two properly completed and duly signed originals of U.S. Internal Revenue Service ("IRS") Form W-8BEN-E (or any subsequent versions thereof or successors thereto) establishing an exemption from or reduction of, U.S. federal withholding tax pursuant to an "interest" article of such tax treaty, and (ii) with respect to any other applicable payments under this Agreement and the Notes, IRS Form W-8BEN-E (or any subsequent versions thereof or successors thereto) establishing an exemption from, or reduction of, U.S. federal withholding tax pursuant to the "business profits" or "other income" article of such tax treaty, (x) two properly completed and duly signed originals of IRS Form W-8ECI (or any subsequent versions thereof or successors thereto); (y) in the case of a Non-U.S. Lender claiming exemption from U.S. federal withholding tax under Section 871(h) or 881(c) of the Internal Revenue Code with respect to payments of "portfolio interest", a statement substantially in the form of Exhibit E-1 to the effect that such Non-U.S. Lender is not a "bank" within the meaning of Section 881(c)(3)(A) of the Internal Revenue Code, a "10 percent shareholder" of the Borrower within the meaning of Section 881(c)(3)(B) of the Internal Revenue Code, or a "controlled foreign corporation" described in Section 881(c)(3)(C) of the Internal Revenue Code (a "U.S. Tax Compliance Certificate") and two properly completed and duly signed originals of IRS Form W-8BEN-E (or any subsequent versions thereof or successors thereto), (z) to the extent the Non-U.S. Lender is not the beneficial owner, two properly completed and signed originals of IRS Form W-8IMY,

Copyright © 2013 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document accompanied by IRS Form W-8ECI, IRS Form W-8BEN-E, a U.S. Tax Compliance certificate substantially in the form of Exhibit E-2 or Exhibit E-3, IRS Form W-9, and/or other certification documents from each beneficial owner, as applicable, provided that if a Non- U.S. Lender is a partnership and one or more direct or indirect partners of such Non-U.S. Lender are claiming the portfolio interest exemption, such Non-U.S. Lender may provide a U.S. Tax Compliance Certificate substantially in the form of Exhibit E-4 on behalf of each such direct or indirect partner. Any Non-U.S. Lender shall, to the extent it is legally entitled to do so, deliver to the Borrower and the Agent any other form prescribed by applicable requirements of U.S. federal income tax law as a basis for claiming exemption from, or a reduction in, U.S. federal withholding tax, in each case, duly completed and signed together with such supplementary documentation as may be prescribed by applicable requirements of law which permits the Borrower and/or the Agent to determine any withholdings or deductions required to be made. Forms referred to in this Section 2.14(f)(i) shall be delivered by each Lender on or before the date it becomes a party to this Agreement and from time to time thereafter upon the request of the Borrower or the Agent. In addition, each Lender shall deliver such forms promptly upon the obsolescence or invalidity of any form previously delivered by such Lender. Each Lender shall promptly notify the Borrower and the Agent at any time it determines that it is no longer in a position to provide any previously delivered certificate to the Borrower and the Agent (or any other form of certification adopted by the U.S. taxing authorities for such purpose). Notwithstanding any other provision of this Section, a Lender shall not be required to deliver any form pursuant to this Section that such Lender is not legally able to deliver or would materially prejudice the commercial position of such Lender.

(ii) If a payment made to a Lender hereunder would be subject to United States federal withholding tax imposed by FATCA if such Lender were to fail to comply with the applicable reporting requirements of FATCA (including those contained in Section 1471(b) or 1472(b) of the Internal Revenue Code, as applicable), such Lender shall deliver to the Borrower and the Agent, at the time or times prescribed by law and at such time or times reasonably requested by the Borrower or the Agent, such documentation prescribed by applicable law (including as prescribed by Section 1471(b)(3)(C)(i) of the Internal Revenue Code) and such additional documentation reasonably requested by the Borrower or the Agent as may be necessary for the Borrower or the Agent to comply with its obligations under FATCA, to determine that such Lender has complied with such Lender's obligations under FATCA or to determine the amount to deduct and withhold from such payment. Solely for purposes of this clause (ii), FATCA shall include any amendments to FATCA after the date hereof.

(g) Any Lender claiming any additional amounts payable pursuant to Section 2.11 or this Section 2.14 agrees to use reasonable efforts (consistent with its internal policy and legal and regulatory restrictions) to change the jurisdiction of its Eurodollar Lending Office if the making of such a change would avoid the need for, or reduce the amount of, any such additional amounts that may thereafter accrue and would not, in the reasonable judgment of such Lender, be otherwise disadvantageous to such Lender; provided, however, that if any such Lender fails to change the jurisdiction of its Applicable Lending Office to a jurisdiction with respect to which no additional amounts are owed under this Section 2.14 within of 30 days of receiving such a request from the Borrower, the Borrower may replace such Lender in accordance with Section 2.19.

Copyright © 2013 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document (h) If any party determines, in its sole discretion exercised in good faith, that it has received a refund of any amount as to which it has been indemnified pursuant to this Section 2.14 (including additional amounts paid pursuant to this Section 2.14), it shall pay to the indemnifying party an amount equal to such refund (but only to the extent of indemnity payments made under this Section with respect to the amounts giving rise to such refund), net of all out-of-pocket expenses (including any taxes) of such indemnified party and without interest (other than any interest paid by the relevant governmental authority with respect to such refund). Such indemnifying party, upon the request of such indemnified party, shall repay to such indemnified party the amount paid to such indemnified party pursuant to the previous sentence (plus any penalties, interest or other charges imposed by the relevant governmental authority) in the event such indemnified party is required to repay such refund to such governmental authority. Notwithstanding anything to the contrary in this Section 2.14(h), in no event will any indemnified party be required to pay any amount to any indemnifying party pursuant to this Section 2.14(h) if such payment would place such indemnified party in a less favorable position (on a net after-tax basis) than such indemnified party would have been in if the tax subject to indemnification and giving rise to such refund had not been deducted, withheld or otherwise imposed, and the indemnification payments or additional amounts with respect to such tax had never been paid. This Section 2.14(h) shall not be construed to require any indemnified party to make available its tax returns (or any other information relating to its taxes which it deems confidential) to the indemnifying party or any other Person.

Section 2.15 Sharing of Payments, Etc. If any Lender shall obtain any payment (whether voluntary, involuntary, through the exercise of any right of set-off, or otherwise) on account of the Advances owing to it (other than pursuant to Sections 2.11, 2.14 or 8.04(c)) in excess of its ratable share of payments on account of the Advances obtained by all the Lenders, such Lender shall forthwith purchase from the other Lenders such participations in the Advances owing to them as shall be necessary to cause such purchasing Lender to share the excess payment ratably with each of them; provided, however, that if all or any portion of such excess payment is thereafter recovered from such purchasing Lender, such purchase from each Lender shall be rescinded and such Lender shall repay to the purchasing Lender the purchase price to the extent of such recovery together with an amount equal to such Lender's ratable share (according to the proportion of (i) the amount of such Lender's required repayment to (ii) the total amount so recovered from the purchasing Lender) of any interest or other amount paid or payable by the purchasing Lender in respect of the total amount so recovered. The Borrower agrees that any Lender so purchasing a participation from another Lender pursuant to this Section 2.15 may, to the fullest extent permitted by law, exercise all its rights of payment with respect to such participation as fully as if such Lender were the direct creditor of the Borrower in the amount of such participation.

Section 2.16 Evidence of Debt. (a) Each Lender shall maintain in accordance with its usual practice an account or accounts evidencing the indebtedness of the Borrower to such Lender resulting from each Advance owing to such Lender from time to time, including the amounts of principal and interest payable and paid to such Lender from time to time hereunder in respect of Advances. The Borrower agrees that upon notice by any Lender to the Borrower (with a copy of such notice to the Agent) to the effect that a Note is required or appropriate in order for such Lender to evidence (whether for purposes of pledge, enforcement or otherwise) the Advances owing to, or to be made by, such Lender, the Borrower shall promptly execute and

Copyright © 2013 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document deliver to such Lender a Note payable to such Lender in a principal amount up to the Commitment of such Lender. Each Lender that receives a Note pursuant to this Section 2.16 agrees that, upon the earlier of the termination or expiration of this Agreement, such Lender will return such Note to the Borrower.

(b) The Register maintained by the Agent pursuant to Section 8.06(c) shall include a control account, and a subsidiary account for each Lender, in which accounts (taken together) shall be recorded (i) the date and amount of each Borrowing made hereunder, the Type of Advances comprising such Borrowing and, if appropriate, the Interest Period applicable thereto, (ii) the terms of each Assignment and Assumption delivered to and accepted by it, (iii) the amount of any principal or interest due and payable or to become due and payable from the Borrower to each Lender hereunder and (iv) the amount of any sum received by the Agent from the Borrower hereunder and each Lender's share thereof.

(c) Entries made in good faith by the Agent in the Register pursuant to subsection (b) above, and by each Lender in its account or accounts pursuant to subsection (a) above, shall be prima facie evidence of the amount of principal and interest due and payable or to become due and payable from the Borrower to, in the case of the Register, each Lender and, in the case of such account or accounts, such Lender, under this Agreement, absent manifest error; provided, however, that the failure of the Agent or such Lender to make an entry, or any finding that an entry is incorrect, in the Register or such account or accounts shall not limit or otherwise affect the obligations of the Borrower under this Agreement.

Section 2.17 Use of Proceeds. The proceeds of the Advances shall be available (and the Borrower agrees that it shall use such proceeds) solely for financing the Transactions (or refinancing any overdrafts made prior to the borrowing of the Advances for sole purpose of financing the Transactions).

Section 2.18 Defaulting Lenders. (a) Notwithstanding anything to the contrary contained in this Agreement, any payment by the Borrower for the account of a Defaulting Lender under this Agreement shall not be paid or distributed to such Defaulting Lender, but shall instead be retained by the Agent in a segregated non-interest bearing account until the earlier of the date the Defaulting Lender is no longer a Defaulting Lender or the termination of the Commitments and payment in full of all obligations of the Borrower hereunder and shall be applied at such time or times as may be determined by the Agent as follows: first, to the payment of any amounts owing by such Defaulting Lender to the Agent hereunder; second, as the Borrower may request (so long as no Default exists), to the funding of any Advance in respect of which that Defaulting Lender has failed to fund its portion thereof as required by this Agreement, as reasonably determined by the Agent or if no such funding has been requested, to be held by the Agent as cash collateral to fund future Advances by such Defaulting Lender; third, to the payment of any amounts owing to the Lenders as a result of any judgment of a court of competent jurisdiction obtained by any Lender against such Defaulting Lender as a result of such Defaulting Lender's breach of its obligations under this Agreement; fourth, so long as no Default exists, to the payment of any amounts owing to the Borrower as a result of any judgment of a court of competent jurisdiction obtained by the Borrower against such Defaulting Lender as a result of such Defaulting Lender's breach of its obligations under this Agreement; and fifth, to such Defaulting Lender or as otherwise directed by a court of competent jurisdiction; provided

Copyright © 2013 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document that any amounts held as cash collateral for funding obligations of a Defaulting Lender shall be returned to such Defaulting Lender upon the termination or expiration of this Agreement and the satisfaction of such Defaulting Lender's obligations hereunder. Any payments, prepayments or other amounts paid or payable to a Defaulting Lender that are applied (or held) to pay amounts owed by a Defaulting Lender or to post cash collateral pursuant to this Section 2.18 shall be deemed paid to and redirected by such Defaulting Lender, and each Lender irrevocably consents hereto.

(b) No Commitment of any Lender shall be increased or otherwise affected, and, except as otherwise expressly provided in this Section 2.18, performance by the Borrower of its obligations shall not be excused or otherwise modified as a result of the operation of this Section 2.18. The rights and remedies against a Defaulting Lender under this Section 2.18 are in addition to any other rights and remedies which the Borrower, the Agent or any Lender may have against such Defaulting Lender.

(c) If the Borrower and the Agent agree in writing in their reasonable determination that a Defaulting Lender should no longer be deemed to be a Defaulting Lender, the Agent will so notify the parties hereto, whereupon as of the effective date specified in such notice and subject to any conditions set forth therein (which may include arrangements with respect to any cash collateral), that Lender will, to the extent applicable, purchase that portion of outstanding Advances of the other Lenders or take such other actions as the Agent may determine to be necessary to cause the Advances to be funded and held on a pro rata basis by the Lenders in accordance with their pro rata share, whereupon such Lender will cease to be a Defaulting Lender; provided that no adjustments will be made retroactively with respect to fees accrued or payments made by or on behalf of the Borrower while that Lender was a Defaulting Lender; and provided, further, that except to the extent otherwise expressly agreed by the affected parties, no change hereunder from Defaulting Lender to Lender will constitute a waiver or release of any claim of any party hereunder arising from such Lender's having been a Defaulting Lender.

Section 2.19 Replacement of Lenders. If (a) any Lender requests compensation under Section 2.11, (b) the Borrower is required to pay additional amounts to any Lender or any governmental authority for the account of any Lender pursuant to Section 2.14 or (c) any Lender is a Defaulting Lender or a Non-Consenting Lender, then the Borrower may, at its sole expense and effort and so long as no Default is continuing, upon notice to such Lender and the Agent, require such Lender to assign and delegate, without recourse (in accordance with and subject to the restrictions contained in, and consents required by, Section 8.06), all of its interests, rights and obligations under this Agreement to an Eligible Assignee that shall assume such obligations (which assignee may be another Lender, if a Lender accepts such assignment); provided that:

(i) the Borrower shall have paid to the Agent the assignment fee (if any) specified in Section 8.06;

(ii) such assigning Lender shall have received payment of an amount equal to the outstanding principal of its Advances, accrued interest thereon, accrued fees and all other amounts then payable to it hereunder (including any amounts under Section 8.04(c)) from the assignee (to the extent of such outstanding principal and accrued interest and fees) or the Borrower (in the case of all other amounts);

Copyright © 2013 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document (iii) in the case of any such assignment resulting from a claim for compensation under Section 2.11 or payments required to be made pursuant to Section 2.14, such assignment will result in a reduction in such compensation or payments after the date of such assignment;

(iv) such assignment does not conflict with applicable law; and

(v) in the case of any assignment resulting from a Lender becoming a Non-Consenting Lender, the applicable assignee shall have consented to the applicable amendment, waiver or consent.

A Lender shall not be required to make any such assignment or delegation if, prior thereto, as a result of a waiver by such Lender or otherwise, the circumstances entitling the Borrower to require such assignment and delegation cease to apply.

ARTICLE III

CONDITIONS PRECEDENT

Section 3.01 Conditions Precedent to Effectiveness . This Agreement shall become effective on and as of the first date (the "Effective Date") on which the following conditions precedent have been satisfied (or waived in accordance with Section 8.01):

(a) The Agent's receipt of the following, each properly executed by a duly authorized officer of the Borrower (where applicable), each dated as of the Effective Date (or, in the case of certificates of governmental officials, a recent date before the Effective Date):

(i) (x) executed counterparts of this Agreement signed on behalf of each party hereto or (y) written evidence (which may include electronic transmission of a signed signature page of this Agreement) that each party hereto has signed a counterpart of this Agreement;

(ii) certified copies of resolutions or other action of the Board of Directors of the Borrower, incumbency certificates and/or other certificates of the Secretary or Assistant Secretary of the Borrower establishing the identities of and verifying the authority and capacity of each officer thereof authorized to sign this Agreement and the Notes; and

(iii) certified copies of the Borrower's organizational documents and certificate of good standing in the Borrower's jurisdiction of incorporation.

(b) All costs, fees, expenses to the extent invoiced at least one day prior to the Effective Date and the fees payable pursuant to Section 2.03 to the Joint Bookrunners, the Agent or the Lenders shall have been paid on or prior to the Effective Date, in each case, to the extent required by this Agreement to be paid on or prior to the Effective Date.

(c) To the extent reasonably requested reasonably in advance of the Effective Date by any of the Agent, the Joint Bookrunners or the Lenders, the Agent shall have received, prior to the Effective Date, all documentation and other information required by bank regulatory authorities

Copyright © 2013 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document under applicable "know-your-customer" and anti-money laundering rules and regulations, including the PATRIOT Act.

Promptly upon the occurrence thereof, the Agent shall notify the Borrower and the Lenders as to the Effective Date, and such notice shall be conclusive and binding. Delivery by any Lender or the Agent of an executed signature page to this Agreement shall be conclusive evidence that such Person has determined the conditions to the Effective Date have been met for purposes of this Section 3.01.

Section 3.02 Conditions Precedent to Effectiveness of Amendment and Restatement. This amendment and restatement of the Existing Bridge Credit Agreement shall become effective on and as of the first date (the "Restatement Effective Date") on which the Agent receives (x) executed counterparts of this Agreement signed on behalf of each party hereto (properly executed by a duly authorized officer of the Borrower (where applicable)) or (y) written evidence (which may include electronic transmission of a signed signature page of this Agreement) that each party hereto has signed a counterpart of this Agreement.

Section 3.03 Conditions Precedent to Closing Date. The obligation of each Lender to make an Advance shall be subject to all of the following conditions precedent having been satisfied (or waived in accordance with Section 8.01) on or before the Commitment Termination Date:

(a) The Effective Date shall have occurred.

(b) (i) The Acquisition shall have been, or substantially concurrently with the funding of the Advances shall be, consummated in accordance with the terms of the Acquisition Agreement (as may be amended, supplemented or otherwise modified pursuant to subclause (ii)) and (ii) no provision of the Acquisition Agreement shall have been waived, amended, supplemented or otherwise modified, and no consent by the Borrower or any of its Subsidiaries shall have been provided thereunder, in each case which is materially adverse to the interests of the Lenders without the Joint Bookrunners' prior written consent (such consent not to be unreasonably withheld, delayed or conditioned); provided that, (w)(i) any increase in the non-cash portion of the purchase consideration and (ii) any decrease in the non-cash portion of the purchase consideration equal to or less than 10% of the purchase consideration shall in each case be deemed not materially adverse to the Lenders, (x) any decrease in the cash portion of the purchase consideration for the Acquisition shall be deemed not materially adverse to the Lenders so long as it shall have been allocated to reduce the Commitments in an amount equal to such reduction in the cash portion of the purchase consideration and (y) any increase or decrease in the cash portion of the purchase consideration equal to or less than 10% of the purchase consideration shall be deemed not materially adverse to the Lenders. The Agent shall have received from the Borrower certified copies of the Acquisition Agreement and all amendments, modifications, waivers and consents, if applicable, under the Acquisition Agreement.

(c) Except as set forth in the corresponding sections or subsections of the Company Disclosure Letter (as defined in the Acquisition Agreement) (it being understood that any disclosure set forth in one section or subsection of the Company Disclosure Letter shall be deemed disclosure with respect to, and shall be deemed to apply to and qualify, the section or

Copyright © 2013 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document subsection of the Acquisition Agreement to which it corresponds in number and each other section or subsection of the Acquisition Agreement to the extent the qualifying nature of such disclosure with respect to such other section or subsection is reasonably apparent on the face of such disclosure) or, to the extent the qualifying nature of such disclosure with respect to a specific representation and warranty is reasonably apparent therefrom, as set forth in the Company Reports (as defined in the Acquisition Agreement) filed on or after January 1, 2016 and prior to the date of the Acquisition Agreement (excluding all disclosures (other than statements of historical fact) in any "Risk Factors" section and any disclosures included in any such Company Reports that are cautionary, predictive or forward looking in nature), since December 31, 2015 there shall not have been any change, effect, circumstance or development which has had or would, individually or in the aggregate, reasonably be likely to have a Target Material Adverse Effect.

(d) The Joint Bookrunners shall have received (i) audited consolidated balance sheets and related statements of income, comprehensive income and cash flows of the Borrower and its Subsidiaries for the last three full fiscal years ended at least 75 days prior to the Closing Date, and unaudited consolidated and (to the extent available) consolidating balance sheets and related statements of income, comprehensive income and cash flows of the Borrower and its Subsidiaries for each subsequent fiscal quarterly interim period or periods ended at least 40 days prior to the Closing Date (and the corresponding period(s) of the prior fiscal year) (other than the last fiscal quarter of any fiscal year), which shall have been reviewed by the independent accountants for the Borrower as provided in Statement of Auditing Standards No. 100, and prepared in accordance with the requirements of Form 10-K and 10-Q under the Securities Act and under Regulation S-X under the Securities Act (it being understood that, with respect to such financial information for each such fiscal year and subsequent interim period, such condition shall be deemed satisfied through the filing by the Borrower of its annual report on Form 10-K or quarterly report on Form 10-Q with respect to such fiscal year or interim period); and (ii) to the extent as would be required by Rule 3-05 and Article 11 of Regulation S-X if the Permanent Financings were registered on Form S-1 under the Securities Act on the Closing Date, (A) audited consolidated annual balance sheets and related statements of income, comprehensive income and cash flows of the Target, as well as unaudited interim consolidated balance sheets and related statements of income, comprehensive income and cash flows of the Target (which shall have been reviewed by the independent accountants for the Target as provided in Statement of Auditing Standards No. 100) and prepared in accordance with GAAP (it being understood that, with respect to such financial information for each such fiscal year and subsequent interim period, such condition shall be deemed satisfied through the filing by the Target of its annual report on Form 10-K or quarterly report on Form 10-Q with respect to such fiscal year or interim period) and (B) pro forma financial statements of the Borrower reflecting the Transactions, which meet the requirements of Regulation S-X under the Securities Act, and all other accounting rules and regulations of the SEC promulgated thereunder applicable to registration statements on Form S-1, in each case in all material respects.

(e) All costs, fees, expenses (including legal fees and expenses) to the extent invoiced at least three Business Days prior to the Closing Date and the fees payable pursuant to Section 2.03 to the Joint Bookrunners, the Agent or the Lenders shall have been paid on or prior to the Closing Date, in each case, to the extent required by this Agreement to be paid on or prior to the Closing Date.

Copyright © 2013 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document (f) The Agent shall have received (i) a customary legal opinion of the Senior Executive Vice President and General Counsel or Vice President, Associate General Counsel and Assistant Secretary of the Borrower substantially in the form of Exhibit D hereto and (ii) a customary legal opinion of Simpson Thacher & Bartlett LLP, special New York counsel to the Agent, as to the enforceability of this Agreement and the Notes.

(g) The Agent shall have received an officer's certificate dated as of the Closing Date from the Borrower that there has been no change to the matters previously certified pursuant to Sections 3.01(a)(ii) and (iii) (or otherwise providing updates to such certifications) and that the conditions set forth in Sections 3.02(b) and (h) have been satisfied as of the Closing Date.

(h) (i) There shall exist no Specified Default and (ii) each of the Acquisition Agreement Representations and the Specified Representations shall be true and correct in all material respects (except Acquisition Agreement Representations and Specified Representations that are qualified by materiality, which shall be true and correct), in each case at the time of, and after giving effect to, the making of the Advances on the Closing Date.

(i) The Agent shall have received a Notice of Borrowing in accordance with Section 2.02(a).

ARTICLE IV

REPRESENTATIONS AND WARRANTIES

Section 4.01 Representations and Warranties. The Borrower represents and warrants as of the Effective Date and as of the Closing Date as follows:

(a) The Borrower is (i) a corporation duly organized and validly existing and (ii) in good standing under the laws of its jurisdiction of organization.

(b) The execution, delivery and performance by the Borrower of this Agreement and the Notes, and the borrowing of the Advances hereunder on the Closing Date, (i) are within the Borrower's corporate powers, (ii) have been duly authorized by all necessary corporate action, and (iii) do not contravene (A) the Borrower's charter or by-laws, (B) any material law applicable to the Borrower in any material respect or (C) any material contractual restriction binding on or affecting the Borrower.

(c) No authorization or approval or other action by, and no notice to or filing with, any governmental authority or regulatory body or any other third party is required for the due execution, delivery and performance by the Borrower of this Agreement or the Notes.

(d) This Agreement has been, and each of the Notes when delivered hereunder will have been, duly executed and delivered by the Borrower. This Agreement is, and each of the Notes when delivered hereunder will be, the legal, valid and binding obligation of the Borrower enforceable against the Borrower in accordance with their respective terms, except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the enforcement of creditors' rights generally and by general equitable principles (whether enforcement is sought by proceedings in equity or at law).

Copyright © 2013 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document (e) (i) The Audited Financial Statements, accompanied by an opinion of Ernst & Young LLP, independent public accountants (or other independent public accountants of national standing), and the Quarterly Financial Statements, duly certified by the chief financial officer of the Borrower, copies of which have been furnished to each Lender, fairly present in all material respects, subject, in the case of said Quarterly Financial Statements, to year-end audit adjustments, the Consolidated financial condition of the Borrower and its Subsidiaries as at such dates and the Consolidated results of the operations of the Borrower and its Subsidiaries for the periods ended on such dates, all in accordance with generally accepted accounting principles consistently applied. (ii) Except as set forth in the corresponding sections or subsections of the Parent Disclosure Letter (as defined in the Acquisition Agreement) (it being understood that any disclosure set forth in one section or subsection of the Parent Disclosure Letter shall be deemed disclosure with respect to, and shall be deemed to apply to and qualify, the section or subsection of the Acquisition Agreement to which it corresponds in number and each other section or subsection of the Acquisition Agreement to the extent the qualifying nature of such disclosure with respect to such other section or subsection is reasonably apparent on the face of such disclosure) or, to the extent the qualifying nature of such disclosure with respect to a specific representation and warranty is reasonably apparent therefrom, as set forth in all forms, statements, certifications, reports and documents filed or furnished by the Borrower with or to the SEC pursuant to the Exchange Act or the Securities Act on or after January 1, 2016 and prior to the date of the Acquisition Agreement (excluding all disclosures (other than statements of historical fact) in any "Risk Factors" section and any disclosures included in any such forms, statements, certifications, reports and documents that are cautionary, predictive or forward looking in nature), since December 31, 2015, there has not been any change, effect, circumstance or development which has had or would, individually or in the aggregate, reasonably be likely to have an Acquiror Material Adverse Effect.

(f) There is no pending or, to the knowledge of the Borrower, threatened action, suit, investigation, litigation or proceeding affecting the Borrower or any of its Subsidiaries before any court, governmental agency or arbitrator that (i) is not disclosed in a filing by the Borrower with the Securities and Exchange Commission and would be reasonably likely to have a Material Adverse Effect or (ii) purports to affect the legality, validity or enforceability of this Agreement or any Note or the consummation of the transactions contemplated hereby.

(g) The Borrower is not engaged in the business of extending credit for the purpose of purchasing or carrying margin stock (within the meaning of Regulation U issued by the Board of Governors of the Federal Reserve System), and no proceeds of any Advance will be used to purchase or carry any margin stock or to extend credit to others for the purpose of purchasing or carrying any margin stock. Following application of the proceeds of each Advance, not more than 25 percent of the value of the assets (either of the Borrower only or of the Borrower and its Subsidiaries on a Consolidated basis) that are subject to a restriction on sale, pledge, or disposal under this Agreement will be represented by margin stock (within the meaning of Regulation U issued by the Board of Governors of the Federal Reserve System).

(h) The Borrower is not an "investment company", or a company "controlled" by an "investment company", within the meaning of the Investment Company Act of 1940, as amended.

Copyright © 2013 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document (i) (i) None of the Borrower or any of the Borrower's Subsidiaries is a Person that is, or is owned or controlled by Persons that are the subject or target of any Sanctions; (ii) the Borrower has implemented and maintains in effect policies and procedures designed to promote compliance by the Borrower with Anti-Corruption Laws, and (iii) the Borrower and its Subsidiaries are in compliance with Anti-Corruption Laws and applicable Sanctions in all material respects.

(j) The Borrower is not an EEA Financial Institution.

ARTICLE V

COVENANTS OF THE BORROWER

Section 5.01 Affirmative Covenants. So long as any Advance shall remain unpaid or any Lender shall have any Commitment hereunder, the Borrower will:

(a) Compliance with Laws, Etc. Comply, and cause each of its Subsidiaries to comply with all applicable laws, rules, regulations and orders, such compliance to include, without limitation, compliance with ERISA and the PATRIOT Act, except where the failure to do so, individually or in the aggregate, would not reasonably be expected to result in a Material Adverse Effect.

(b) Payment of Taxes, Etc. Pay and discharge, and cause each of its Subsidiaries to pay and discharge, before the same shall become delinquent, (i) all federal and other material taxes, assessments and governmental charges or levies imposed upon it or upon its property and (ii) all lawful claims that, if unpaid, might by law become a Lien upon its material property; provided, however, that neither the Borrower nor any of its Subsidiaries shall be required to pay or discharge any such tax, assessment, charge or claim that is being contested in good faith and by proper proceedings and as to which appropriate reserves are being maintained, unless and until any Lien resulting therefrom attaches to its property and becomes enforceable against its other creditors.

(c) Maintenance of Insurance. Maintain, and cause each of its Subsidiaries to maintain, insurance with responsible and reputable insurance companies or associations in such amounts and covering such risks as is usually carried by companies engaged in similar businesses and owning similar properties in the same general areas in which the Borrower or such Subsidiary operates; provided, however, that the Borrower and its Subsidiaries may self-insure (including through captive insurance subsidiaries) to the extent consistent with prudent business practice.

(d) Preservation of Corporate Existence, Etc. Preserve and maintain, and cause each of its Subsidiaries to preserve and maintain, its corporate existence and its material rights (charter and statutory) and franchises; provided, however, that the Borrower and its Subsidiaries may consummate any merger or consolidation permitted under Section 5.02(b) and provided further that neither the Borrower nor any of its Subsidiaries shall be required to preserve any right or franchise, or in the case of any Subsidiary its corporate existence, if the Board of Directors of the Borrower or such Subsidiary shall determine that the preservation thereof is no

Copyright © 2013 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document longer desirable in the conduct of the business of the Borrower or such Subsidiary, as the case may be, and that the loss thereof is not disadvantageous in any material respect to the Borrower or such Subsidiary.

(e) Visitation Rights. At any reasonable time and from time to time during normal business hours, permit the Agent or any of the Lenders or any agents or representatives thereof, to examine the records and books of account of, and visit the properties of, the Borrower and any of its Subsidiaries, and, upon execution of a confidentiality agreement, to discuss the affairs, finances and accounts of the Borrower and any of its Subsidiaries with any of the officers or directors of the Borrower and with their independent certified public accountants, provided, however, that examination of the records and books of account of the Borrower or any of its Subsidiaries shall occur only at times when an Advance shall be outstanding.

(f) Keeping of Books. Keep, and cause each of its Subsidiaries to keep, proper books of record and account, in which full and correct entries shall be made of all financial transactions and the assets and business of the Borrower and each such Subsidiary in accordance with generally accepted accounting principles in effect from time to time.

(g) Maintenance of Properties, Etc. Maintain and preserve, and cause each of its Subsidiaries to maintain and preserve, all of its properties that are used or useful in the conduct of its business in good working order and condition, ordinary wear and tear excepted, except where the failure to do so, individually or in the aggregate, would not reasonably be expected to result in a Material Adverse Effect.

(h) Reporting Requirements. Furnish to the Lenders:

(i) as soon as available and in any event within 40 days after the end of each of the first three quarters of each fiscal year of the Borrower, the Consolidated balance sheet of the Borrower and its Subsidiaries as of the end of such quarter and Consolidated statements of income and cash flows of the Borrower and its Subsidiaries for the period commencing at the end of the previous fiscal year and ending with the end of such quarter, duly certified (subject to year-end audit adjustments) by the chief financial officer of the Borrower as having been prepared in accordance with generally accepted accounting principles (it being understood that the certification provided by the chief financial officer in compliance with the Sarbanes-Oxley Act is acceptable for this purpose) and prepare and deliver a certificate of the chief financial officer of the Borrower as to compliance with the terms of this Agreement and setting forth in reasonable detail the calculations necessary to demonstrate compliance with Section 5.03 (it being understood that the only certification regarding pro forma adjustments included in such calculation shall be that the adjustments are reasonable good faith estimates prepared on the basis of information available as of the date that such pro forma adjustments are determined), provided that in the event of any change since the date hereof in generally accepted accounting principles used in the preparation of such financial statements, the Borrower shall provide the financial information required for the determination of compliance with Section 5.03 based on GAAP in effect as of the date hereof;

(ii) as soon as available and in any event within 75 days after the end of each fiscal year of the Borrower, a copy of the annual report for such year for the Borrower containing

Copyright © 2013 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document the Consolidated balance sheet of the Borrower and its Subsidiaries as of the end of such fiscal year and Consolidated statements of income and cash flows of the Borrower and its Subsidiaries for such fiscal year, in each case accompanied by an opinion by Ernst & Young LLP or other independent public accountants of national standing to the effect that such Consolidated financial statements fairly present its financial condition and results of operations on a Consolidated basis in accordance with generally accepted accounting principles consistently applied and prepare and deliver a certificate of the chief financial officer of the Borrower as to compliance with the terms of this Agreement and setting forth in reasonable detail the calculations necessary to demonstrate compliance with Section 5.03 (it being understood that the only certification regarding pro forma adjustments included in such calculation shall be that the adjustments are reasonable good faith estimates prepared on the basis of information available as of the date that such pro forma adjustments are determined), provided that in the event of any change since the date hereof in generally accepted accounting principles used in the preparation of such financial statements, the Borrower shall provide the financial information required for the determination of compliance with Section 5.03 based on GAAP in effect as of the date hereof;

(iii) as soon as possible and in any event within five Business Days after the occurrence of each Default continuing on the date of such statement, a statement of the chief financial officer of the Borrower setting forth details of such Default and the action that the Borrower has taken and proposes to take with respect thereto;

(iv) if Advances are outstanding and if such are not available on the Internet at www.att.com, www.sec.gov or another website designated by the Borrower, promptly after the sending or filing thereof, copies of all reports that the Borrower sends to any of its securityholders, and copies of all reports and registration statements that the Borrower or any Subsidiary files with the Securities and Exchange Commission or any national securities exchange;

(v) prompt notice of the commencement of all actions and proceedings before any court, governmental agency or arbitrator affecting the Borrower or any of its Subsidiaries of the type described in Section 4.01(f); and

(vi) such other information respecting the Borrower or any of its Subsidiaries as any Lender through the Agent may from time to time reasonably request of a material nature that may reasonably relate to the condition (financial or otherwise), operations, properties or prospects of the Borrower or the Borrower and its Subsidiaries taken as a whole.

Reports and financial statements required to be furnished by the Borrower pursuant to clauses (i), (ii) and (iv) of this subsection (h) shall be deemed to have been furnished on the earlier of (A) the date on which such reports and financial statements are posted on the Internet at www.sec.gov or (B) the date on which the Borrower posts such reports, or reports containing such financial statements, on its website on the Internet at www.att.com or at such other website identified by the Borrower in a notice to the Agent and the Lenders and that is accessible by the Lenders without charge; provided that the Lenders shall be deemed to have received the information specified in clauses (i), (ii) and (iv) of this subsection (h) on the date (x) such information is posted at the website of the Agent identified from time to time by the Agent to the Lenders and the Borrower and (y) such posting is notified to the Lenders (it being understood

Copyright © 2013 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document that the Borrower shall have satisfied the timing obligations imposed by those clauses as of the earliest date such information is posted on the Internet at www.sec.gov or the website referred to in clause (B) above).

Section 5.02 Negative Covenants. So long as any Advance shall remain unpaid or any Lender shall have any Commitment hereunder, the Borrower shall not:

(a) Liens, Etc. Create or suffer to exist, or permit any of its Subsidiaries to create or suffer to exist, any Lien on or with respect to any of its properties, whether now owned or hereafter acquired, or assign, or permit any of its Subsidiaries to assign, any right to receive income, other than:

(i) Permitted Liens,

(ii) purchase money Liens upon or in any real property or equipment acquired or held by the Borrower or any Subsidiary of the Borrower in the ordinary course of business to secure the purchase price of such property or equipment or to secure Debt incurred solely for the purpose of financing the acquisition of such property or equipment (including capital leases), or Liens existing on such property or equipment at the time of its acquisition (other than any such Liens created in contemplation of such acquisition that were not incurred to finance the acquisition of such property) or extensions, renewals or replacements of any of the foregoing for the same or a lesser amount, provided, however, that no such Lien shall extend to or cover any properties of any character other than the real property or equipment being acquired, and no such extension, renewal or replacement shall extend to or cover any properties not theretofore subject to the Lien being extended, renewed or replaced,

(iii) the Liens existing on the date hereof and described on Schedule 5.02(a) hereto,

(iv) Liens on property of a Person existing at the time such Person is merged into or consolidated with the Borrower or any Subsidiary of the Borrower or becomes a Subsidiary of the Borrower; provided that such Liens were not created in contemplation of such merger, consolidation or acquisition and do not extend to any assets other than those of the Person so merged into or consolidated with the Borrower or such Subsidiary or acquired by the Borrower or such Subsidiary,

(v) Liens securing Debt incurred by the Borrower or its Subsidiaries in connection with a financing based on accounts receivable (including any Receivables Securitization),

(vi) Liens on assets of a Subsidiary that is a regulated telephone company (a "Telco") that, pursuant to the public debt indenture(s) of such Telco, are created upon the merger or conveyance or sale of all or substantially all of the assets of such Telco,

(vii) Liens on real property securing Debt and other obligations in an aggregate principal amount not to exceed $1,000,000,000 at any time outstanding,

Copyright © 2013 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document (viii) other Liens securing Debt and other obligations in an aggregate principal amount not to exceed at any time outstanding ten percent of Net Tangible Assets, and

(ix) the replacement, extension or renewal of any Lien permitted by clause (iii) or (iv) above upon or in the same property theretofore subject thereto or the replacement, extension or renewal (without increase in the amount or change in any direct or contingent obligor) of the Debt secured thereby.

(b) Mergers, Etc. Merge or consolidate with or into, or, directly or indirectly, convey, transfer, lease or otherwise dispose of (whether in one transaction or in a series of transactions) all or substantially all of its assets (whether now owned or hereafter acquired) to, any Person.

(c) Accounting Changes. Make or permit, or permit any of its Subsidiaries to make or permit, any change in accounting policies or reporting practices, except as required or permitted by generally accepted accounting principles.

(d) Sanctions and Anti-Corruption. Request any Borrowing, nor directly or to its knowledge indirectly use the proceeds of any Borrowing, in each case (i) in furtherance of an offer, payment, promise to pay, or authorization of the payment or giving of money, or anything else of value, to any Person in violation of any Anti-Corruption Laws, or (ii) in any manner that would result in the violation of any Sanctions applicable to the Borrower or its Subsidiaries or, to the knowledge of the Borrower, any other party hereto.

Section 5.03 Financial Covenant. Beginning on the last day of the first full fiscal quarter ending after the Closing Date, the Borrower will maintain, as of the last day of each fiscal quarter, a ratio of Net Debt for Borrowed Money to Consolidated EBITDA of the Borrower and its Subsidiaries for the four quarters then ended of not more than 3.5 to 1.

ARTICLE VI

EVENTS OF DEFAULT

Section 6.01 Events of Default. If any of the following events ("Events of Default") shall occur and be continuing:

(a) Failure to pay any principal of any Advance when the same becomes due and payable; or the Borrower shall fail to pay any interest on any Advance or to make any other payment of fees or other amounts payable under this Agreement or any Note within three Business Days after the same becomes due and payable; or

(b) Any representation or warranty made by the Borrower herein or in connection with this Agreement shall prove to have been incorrect in any material respect when made; or

(c) (i) The Borrower shall fail to perform or observe any term, covenant or agreement applicable to it contained in Sections 5.01(d), (e) or (h), 5.02 or 5.03, or (ii) the Borrower shall fail to perform or observe any term, covenant or agreement (other than those referred to in clauses (a) and (c)(i) above) contained in this Agreement on its part to be performed or observed

Copyright © 2013 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document and such failure shall remain unremedied for 10 days after written notice thereof shall have been given to the Borrower by the Agent or any Lender; or

(d) (i) The Borrower or any of its Subsidiaries shall fail to pay any principal of or premium or interest on any Debt that is outstanding in a principal or net amount of at least the Threshold Amount in the aggregate (but excluding Debt owing by the Borrower outstanding hereunder) of the Borrower or such Subsidiary (as the case may be), when the same becomes due and payable (whether by scheduled maturity, required prepayment, acceleration, demand or otherwise), and such failure shall continue after the applicable grace period, if any, specified in the agreement or instrument relating to such Debt; (ii) any other event shall occur or condition shall exist under any agreement or instrument relating to any such Debt and shall continue after the applicable grace period, if any, specified in such agreement or instrument, if the effect of such event or condition is to accelerate the maturity of such Debt; or (iii) any such Debt shall be declared to be due and payable, or required to be prepaid or redeemed (other than by a regularly scheduled required prepayment or redemption), purchased or defeased, or an offer to prepay, redeem, purchase or defease such Debt shall be required to be made, in each case prior to the stated maturity thereof; provided, that, (x) the Debt subject of clause (ii) or (iii) above shall not include Debt of a Person that is merged into or consolidated with the Borrower or any Subsidiary of the Borrower or that becomes a Subsidiary of the Borrower for a period of 90 days after the date that such Debt becomes Debt of the Borrower or any of its Subsidiaries and (y) clauses (ii) and (iii) above shall not apply to any prepayment, redemption, repurchase or defeasance required to be made as a result of the obligor of such Debt making a voluntary notice of prepayment, voluntary notice of redemption, voluntary notice of repurchase, voluntary notice of defeasance or taking similar action with comparable effect; or

(e) The Borrower or any of its Material Subsidiaries shall generally not pay its debts as such debts become due, or shall admit in writing its inability to pay its debts generally, or shall make a general assignment for the benefit of creditors; or any proceeding shall be instituted by or against the Borrower or any of its Material Subsidiaries seeking to adjudicate it a bankrupt or insolvent, or seeking liquidation, winding up, reorganization, arrangement, adjustment, protection, relief, or composition of it or its debts under any law relating to bankruptcy, insolvency or reorganization or relief of debtors, or seeking the entry of an order for relief or the appointment of a receiver, trustee, custodian or other similar official for it or for any substantial part of its property and, in the case of any such proceeding instituted against it (but not instituted by it), either such proceeding shall remain undismissed or unstayed for a period of 30 days, or any of the actions sought in such proceeding (including, without limitation, the entry of an order for relief against, or the appointment of a receiver, trustee, custodian or other similar official for, it or for any substantial part of its property) shall occur; or the Borrower or any of its Material Subsidiaries shall take any corporate action to authorize any of the actions set forth above in this subsection (e); or

(f) Final and non-appealable judgments or orders for the payment of money in excess of the Threshold Amount in the aggregate shall be rendered against the Borrower or any of its Subsidiaries, 30 days shall have passed since such judgment became final and non-appealable and enforcement proceedings shall have been commenced by any creditor upon such judgment or order; provided, however, that any such judgment or order shall not be an Event of Default under this Section 6.01(f) if and for so long as (i) the amount of such judgment or order is

Copyright © 2013 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document covered by a valid and binding policy of insurance between the defendant and the insurer covering payment thereof and (ii) such insurer, which shall be rated at least "A" by A.M. Best Company, has been notified of, and has not disputed the claim made for payment of, the amount of such judgment or order; or

(g) (i) Any Person or two or more Persons acting in concert shall have acquired beneficial ownership (within the meaning of Rule 13d-3 of the Securities and Exchange Commission under the Securities Exchange Act of 1934), directly or indirectly, of Voting Stock of the Borrower (or other securities convertible into such Voting Stock) representing more than 50% of the combined voting power of all Voting Stock of the Borrower; or (ii) during any period of 24 consecutive months, commencing after the date of this Agreement, individuals who at the beginning of such 24-month period were directors of the Borrower shall cease for any reason (other than due to retirement, death or disability) to constitute a majority of the Board of Directors of the Borrower (except to the extent that such individuals were replaced by individuals (x) elected by 66-2/3% of the members of the Board of Directors of the Borrower or (y) nominated for election by a majority of the members of the Board of Directors of the Borrower and thereafter elected as directors by the shareholders of the Borrower); or

(h) The Borrower or any ERISA Affiliate shall fail to satisfy minimum funding requirements under Section 412 of the Internal Revenue Code or Section 302 of ERISA to any Plan, or apply for a waiver of such requirements, and such failure could reasonably be expected to subject the Borrower or any of its Subsidiaries to any liabilities in the aggregate in excess of the Threshold Amount; then the Agent (i) at any time prior to the Closing Date during which an Event of Default pursuant to Section 6.01(a) has occurred and is continuing, shall at the request, or may with the consent, of the Required Lenders, by notice to the Borrower, declare the obligation of each Lender to make Advances to be terminated, whereupon the same shall forthwith terminate, and (ii) at any time following the making of the Advances on the Closing Date during which any Event of Default has occurred and is continuing, shall at the request, or may with the consent, of the Required Lenders, by notice to the Borrower, declare the Advances, all interest thereon and all other amounts payable by the Borrower under this Agreement to be forthwith due and payable, whereupon such Advances, all such interest and all such amounts shall become and be forthwith due and payable, without presentment, demand, protest or further notice of any kind, all of which are hereby expressly waived by the Borrower; provided, however, that, notwithstanding anything in clauses (i) and (ii) to the contrary, in the event of an actual or deemed entry of an order for relief with respect to the Borrower under the Federal Bankruptcy Code, (A) the obligation of each Lender to make Advances shall automatically be terminated and (B) the Advances, all such interest and all such amounts shall automatically become and be due and payable, without presentment, demand, protest or any notice of any kind, all of which are hereby expressly waived by the Borrower.

THE AGENT

Section 7.01 Authorization and Authority. Each Lender hereby irrevocably appoints JPMorgan Chase to act on its behalf as the Agent hereunder and under the Notes and authorizes the Agent to take such actions on its behalf and to exercise such powers as are delegated to the Agent by the terms hereof, together with such actions and powers as are reasonably incidental thereto. The provisions of this Article are solely for the benefit of the Agent and the Lenders, and the Borrower shall have no rights as a third party beneficiary of any of such provisions. It is understood and agreed that the use of the term "agent" herein (or any other similar term) with reference to the Agent is not intended to connote any fiduciary or other implied (or express) obligations arising under agency doctrine of any applicable law. Instead such term is used as a matter of market custom, and is intended to create or reflect only an administrative relationship between contracting parties.

Section 7.02 Agent Individually. The Person serving as the Agent hereunder shall have the same rights and powers in its capacity as a Lender as any other Lender and may exercise the same as though it were not the Agent and the term "Lender" or "Lenders" shall, unless otherwise expressly indicated or unless the context otherwise requires, include the Person serving as the Agent hereunder in its individual capacity. Such Person and its Affiliates may accept deposits from, lend money to, own securities of, act as the financial advisor or in any other advisory capacity for and generally engage in any kind of business with the Borrower or any Subsidiary or other Affiliate thereof as if such Person were not the Agent hereunder and without any duty to account therefor to the Lenders.

Section 7.03 Duties of Agent; Exculpatory Provisions. (a) The Agent's duties hereunder are solely ministerial and administrative in nature and the Agent shall not have any duties or obligations except those expressly set forth herein. Without limiting the generality of the foregoing, the Agent:

(i) shall not be subject to any fiduciary or other implied duties, regardless of whether a Default has occurred and is continuing;

(ii) shall not have any duty to take any discretionary action or exercise any discretionary powers, except discretionary rights and powers expressly contemplated hereby that the Agent is required to exercise as directed in writing by the Required Lenders (or such other number or percentage of the Lenders as shall be expressly provided for herein); provided that the Agent shall not be required to take any action that, in its opinion or the opinion of its counsel, may expose the Agent to liability or that is contrary to this Agreement or applicable law, including for the avoidance of doubt any action that may be in violation of the automatic stay under any debtor relief law or that may effect a forfeiture, modification or termination of property of a Defaulting Lender in violation of any debtor relief law; and

(iii) shall not, except as expressly set forth herein, have any duty to disclose, and shall not be liable for the failure to disclose, any information relating to the Borrower or any

Copyright © 2013 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document of its Affiliates that is communicated to or obtained by the Person serving as the Agent or any of its Affiliates in any capacity.

(b) The Agent shall not be liable for any action taken or not taken by it (i) with the consent or at the request of the Required Lenders (or such other number or percentage of the Lenders as shall be necessary, or as the Agent shall believe in good faith shall be necessary, under the circumstances as provided in Sections 8.01 or 6.01) or (ii) in the absence of its own gross negligence or willful misconduct. The Agent shall be deemed not to have knowledge of any Default or the event or events that give or may give rise to any Default unless and until the Borrower or any Lender shall have given notice to the Agent describing such Default and such event or events.

(c) The Agent shall not be responsible for or have any duty to ascertain or inquire into (i) any statement, warranty, representation or other information made or supplied in or in connection with this Agreement or any information memorandum provided to prospective investors during syndication of the Advances (if any), (ii) the contents of any certificate, report or other document delivered hereunder or thereunder or in connection herewith or therewith or the adequacy, accuracy and/or completeness of the information contained therein, (iii) the performance or observance of any of the covenants, agreements or other terms or conditions set forth herein or therein or the occurrence of any Default, (iv) the validity, enforceability, effectiveness or genuineness of this Agreement or any other agreement, instrument or document or the perfection or priority of any Lien or security interest created or purported to be created hereby or (v) the satisfaction of any condition set forth in Article III or elsewhere herein, other than (but subject to the foregoing clause (ii)) to confirm receipt of items expressly required to be delivered to the Agent.

(d) Nothing in this Agreement shall require the Agent or any of its Related Parties to carry out any "know your customer" or other checks in relation to any Person on behalf of any Lender and each Lender confirms to the Agent that it is solely responsible for any such checks it is required to carry out and that it may not rely on any statement in relation to such checks made by the Agent or any of its Related Parties.

Section 7.04 Reliance by Agent. The Agent shall be entitled to rely upon, and shall not incur any liability for relying upon, any notice, request, certificate, consent, statement, instrument, document or other writing (including any electronic message, Internet or intranet website posting or other distribution) believed by it to be genuine and to have been signed, sent or otherwise authenticated by the proper Person. The Agent also may rely upon any statement made to it orally or by telephone and believed by it to have been made by the proper Person, and shall not incur any liability for relying thereon. In determining compliance with any condition hereunder to the making of an Advance that by its terms must be fulfilled to the satisfaction of a Lender, the Agent may presume that such condition is satisfactory to such Lender unless an officer of the Agent responsible for the transactions contemplated hereby shall have received notice to the contrary from such Lender prior to the making of such Advance, and such Lender shall not have made available to the Agent such Lender's ratable portion of the applicable Borrowing. The Agent may consult with legal counsel (who may be counsel for the Borrower), independent accountants and other experts selected by it, and shall not be liable for any action

Copyright © 2013 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document taken or not taken by it in accordance with the advice of any such counsel, accountants or experts.

Section 7.05 Delegation of Duties. The Agent may perform any and all of its duties and exercise its rights and powers hereunder by or through any one or more sub-agents appointed by the Agent. The Agent and any such sub-agent may perform any and all of its duties and exercise its rights and powers by or through their respective Related Parties. Each such sub-agent and the Related Parties of the Agent and each such sub-agent shall be entitled to the benefits of all provisions of this Article VII and Section 8.04 (as though such sub-agents were the "Agent" hereunder) as if set forth in full herein with respect thereto.

Section 7.06 Resignation of Agent. The Agent may at any time give notice of its resignation to the Lenders and the Borrower. At any time when the Agent or its Affiliate is a Defaulting Lender, the Required Lenders may, and upon the request of the Borrower shall, remove the Agent by giving notice to the Agent. Upon receipt or giving of any such notice of resignation, the Required Lenders shall have the right, in consultation with the Borrower (unless an Event of Default under Section 6.01(a) or 6.01(e) shall have occurred and be continuing), to appoint a successor, which shall be a bank with an office in the United States, or an Affiliate of any such bank with an office in the United States. If no such successor shall have been so appointed by the Required Lenders and shall have accepted such appointment within 30 days after the retiring Agent gives notice of its resignation (such 30-day period, the "Lender Appointment Period"), then the retiring Agent may on behalf of the Lenders, appoint a successor Agent meeting the qualifications set forth above. In addition and without any obligation on the part of the retiring Agent to appoint, on behalf of the Lenders, a successor Agent, the retiring Agent may at any time upon or after the end of the Lender Appointment Period notify the Borrower and the Lenders that no qualifying Person has accepted appointment as successor Agent and the effective date of such retiring Agent's resignation. Upon the resignation effective date established in such notice and regardless of whether a successor Agent has been appointed and accepted such appointment, the retiring Agent's resignation shall nonetheless become effective and (i) the retiring Agent shall be discharged from its duties and obligations as Agent hereunder and (ii) all payments, communications and determinations provided to be made by, to or through the Agent shall instead be made by or to each Lender directly, until such time as the Required Lenders appoint a successor Agent as provided for above in this paragraph. Upon the acceptance of a successor's appointment as Agent hereunder, such successor shall succeed to and become vested with all of the rights, powers, privileges and duties as Agent of the retiring (or retired) Agent, and the retiring Agent shall be discharged from all of its duties and obligations as Agent hereunder (if not already discharged therefrom as provided above in this paragraph). The fees payable by the Borrower to a successor Agent shall be the same as those payable to its predecessor unless otherwise agreed between the Borrower and such successor. After the retiring Agent's resignation hereunder, the provisions of this Article and Section 8.04 shall continue in effect for the benefit of such retiring Agent, its sub-agents and their respective Related Parties in respect of any actions taken or omitted to be taken by any of them while the retiring Agent was acting as Agent.

Section 7.07 Non-Reliance on Agent and Other Lenders. Each Lender acknowledges that it has, independently and without reliance upon the Agent or any other Lender or any of their Related Parties and based on such documents and information as it has deemed

Copyright © 2013 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document appropriate, made its own credit analysis and decision to enter into this Agreement. Each Lender also acknowledges that it will, independently and without reliance upon the Agent or any other Lender or any of their Related Parties and based on such documents and information as it shall from time to time deem appropriate, continue to make its own decisions in taking or not taking action under or based upon this Agreement or any related agreement or any document furnished hereunder.

Section 7.08 Indemnification. The Lenders agree to indemnify the Agent (to the extent not reimbursed by the Borrower and without limiting its obligation to do so), ratably according to the respective principal amounts of the Advances then owed to each of them (or if no Advances are at the time outstanding, ratably according to the respective amounts of their Commitments), from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever that may be imposed on, incurred by, or asserted against the Agent in any way relating to or arising out of this Agreement or any action taken or omitted by the Agent under this Agreement (collectively, the "Indemnified Costs"), provided that no Lender shall be liable for any portion of the Indemnified Costs resulting from the Agent's gross negligence or willful misconduct. Without limitation of the foregoing, each Lender agrees to reimburse the Agent promptly upon demand for its ratable share of any out- of-pocket expenses (including reasonable counsel fees) incurred by the Agent in connection with the preparation, execution, delivery, administration, modification, amendment or enforcement (whether through negotiations, legal proceedings or otherwise) of, or legal advice in respect of rights or responsibilities under, this Agreement, to the extent that the Agent is not reimbursed for such expenses by the Borrower. In the case of any investigation, litigation or proceeding giving rise to any Indemnified Costs, this Section 7.08 applies whether any such investigation, litigation or proceeding is brought by the Agent, any Lender or a third party.

Section 7.09 Other Agents. Each Lender hereby acknowledges that neither the syndication agent, the documentation agents nor any other Lender designated as any "Agent" on the signature pages hereof (other than the Agent) has any liability hereunder other than in its capacity as a Lender.

ARTICLE VIII

MISCELLANEOUS

Section 8.01 Amendments, Etc. (a) No amendment or waiver of any provision of this Agreement or the Notes, nor consent to any departure by the Borrower therefrom, shall in any event be effective unless the same shall be in writing and signed by the Required Lenders, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given; provided, however, that no amendment, waiver or consent shall: (a) waive any of the conditions specified in Section 3.01 without the written consent of all Lenders, (b) increase or extend the Commitment of any Lender without the written consent of such Lender, (c) reduce the principal of, or rate of interest on, the Advances or any fees or other amounts payable hereunder without the written consent of all Lenders directly affected thereby, (d) postpone any date fixed for any payment of principal of, or interest on, the Advances or any fees or other amounts payable hereunder without the written consent of all Lenders directly affected thereby, (e) change the definition of "Required Lenders", or the percentage of the Commitments or of the aggregate unpaid principal amount of the Advances, or the number of Lenders, that shall be required for the Lenders or any of them to take any action hereunder without the written consent of all Lenders or (f) amend this Section 8.01 without the written consent of all Lenders; and provided further that (i) no amendment, waiver or consent shall, unless in writing and signed by the Agent in addition to the Lenders required above to take such action, affect the rights or duties of the Agent under this Agreement or any Note and (ii) the Fee Letter may be amended, or rights or privileges thereunder waived, in a writing executed only by the respective parties thereto. Notwithstanding the foregoing or any other provision of this Agreement, in the event that the terms of this Agreement are required to be modified as specified in the applicable provisions of the Fee Letter, then this Agreement shall be deemed modified (to the extent not adverse to the Lenders) in accordance therewith, effective immediately upon written notice thereof being given by the Agent to the Borrower and the Lenders and without requiring any other action to be taken hereunder.

(b) Any term or provision of this Section 8.01 to the contrary notwithstanding, if the Agent and the Borrower shall have jointly identified an obvious error or any error or omission of a technical or immaterial nature in any provision of this Agreement, then the Agent and the Borrower shall be permitted to amend such provision and such amendment shall become effective without any further action or consent of any other party to this Agreement so long as the Lenders shall have received prior written notice thereof and the Agent shall not have received, within two Business Days of the date of its delivery to the Lenders of such notice, a written notice from the Required Lenders stating that the Required Lenders object to such amendment.

Section 8.02 Notices; Effectiveness; Electronic Communication.

Copyright © 2013 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document (a) Notices Generally. Except in the case of notices and other communications expressly permitted to be given by telephone (and except as provided in paragraph (b) below), all notices and other communications provided for herein shall be in writing and shall be delivered by hand or overnight courier service, mailed by certified or registered mail or sent by facsimile as follows:

(i) if to the Borrower, to it at 208 S. Akard Street, 18th Floor, Dallas, Texas 75202, Attention: Assistant Treasurer (Telephone No. (214) 757-4681; Facsimile No. (214) 653-2578; Email: [email protected]) with a copy to Attention: Vice President, Associate General Counsel and Assistant Secretary – Securities (Telephone No.: (214) 757-3344; Facsimile No. (214) 486-8100; Email: [email protected]);

(ii) if to the Agent, to it at 500 Stanton Christiana Road, NCC5, Floor 01 Newark, DE, 19713-2107, United States, Attention of James Campbell (Facsimile No. 302-634-1417; Email: [email protected]); and

(iii) if to a Lender, to it at its address (or facsimile number) set forth in its Administrative Questionnaire.

Copyright © 2013 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Notices sent by hand or overnight courier service, or mailed by certified or registered mail, shall be deemed to have been given when received; notices sent by facsimile shall be deemed to have been given when sent (except that, if not given during normal business hours for the recipient, shall be deemed to have been given at the opening of business on the next Business Day for the recipient). Notices delivered through electronic communications, to the extent provided in paragraph (b) below, shall be effective as provided in said paragraph (b).

(b) Electronic Communications. Notices and other communications to the Lenders hereunder may be delivered or furnished by electronic communication (including e-mail and Internet or intranet websites) pursuant to procedures approved by the Agent, provided that the foregoing shall not apply to notices to any Lender pursuant to Article II if such Lender has notified the Agent that it is incapable of receiving notices under such Article by electronic communication. The Agent or the Borrower may, in its discretion, agree to accept notices and other communications to it hereunder by electronic communications pursuant to procedures approved by it; provided that approval of such procedures may be limited to particular notices or communications.

Unless the Agent otherwise prescribes, (i) notices and other communications sent to an e-mail address shall be deemed received upon the sender's receipt of an acknowledgement from the intended recipient (such as by the "return receipt requested" function, as available, return e-mail or other written acknowledgement), and (ii) notices or communications posted to an Internet or intranet website shall be deemed received upon the deemed receipt by the intended recipient, at its e-mail address as described in the foregoing clause (i), of notification that such notice or communication is available and identifying the website address therefor; provided that, for both clauses (i) and (ii) above, if such notice, email or other communication is not sent during the normal business hours of the recipient, such notice or communication shall be deemed to have been sent at the opening of business on the next Business Day for the recipient.

(c) Change of Address, etc. Any party hereto may change its address or facsimile number for notices and other communications hereunder by notice to the other parties hereto.

(d) Platform.

(i) The Borrower agrees that the Agent may, but shall not be obligated to, make the Communications (as defined below) available to the Lenders by posting the Communications on Debt Domain, Intralinks, Syndtrak or a substantially similar electronic transmission system (the "Platform").

(ii) The Platform is provided "as is" and "as available." The Agent Parties (as defined below) do not warrant the adequacy of the Platform and expressly disclaim liability for errors or omissions in the Communications. No warranty of any kind, express, implied or statutory, including, without limitation, any warranty of merchantability, fitness for a particular purpose, non- infringement of third-party rights or freedom from viruses or other code defects, is made by any Agent Party in connection with the Communications or the Platform. In no event shall the Agent or any of its Related Parties (collectively, the "Agent Parties") have any liability to the Borrower, any Lender or any other Person or entity for damages of any kind, including, without limitation, direct or indirect, special, incidental or consequential damages, losses or

Copyright © 2013 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document expenses (whether in tort, contract or otherwise) arising out of the Borrower's or the Agent's transmission of communications through the Platform. "Communications" means, collectively, any notice, demand, communication, information, document or other material that the Borrower provides to the Agent pursuant to this Agreement or the transactions contemplated herein which is distributed to the Agent any Lender by means of electronic communications pursuant to this Section, including through the Platform.

Section 8.03 No Waiver; Remedies. No failure on the part of any Lender or the Agent to exercise, and no delay in exercising, any right hereunder or under any Note shall operate as a waiver thereof; nor shall any single or partial exercise of any such right preclude any other or further exercise thereof or the exercise of any other right. The remedies herein provided are cumulative and not exclusive of any remedies provided by law.

Section 8.04 Costs and Expenses. (a) The Borrower agrees to pay within 20 days of demand all costs and expenses of the Agent in connection with the preparation, execution, delivery, administration, modification and amendment of this Agreement, the Notes and the other documents to be delivered hereunder, including, without limitation, (A) all due diligence, syndication (including printing, distribution and bank meetings), transportation, computer, duplication, appraisal, consultant, and audit expenses and (B) the reasonable fees and expenses of one counsel for the Agent with respect thereto and with respect to advising the Agent as to its rights and responsibilities under this Agreement. The Borrower further agrees to pay on demand all costs and expenses of the Agent and the Lenders, if any (including, without limitation, reasonable counsel fees and expenses), in connection with the enforcement against the Borrower (whether through negotiations, legal proceedings or otherwise) of this Agreement, the Notes and the other documents to be delivered hereunder, including, without limitation, reasonable fees and expenses of counsel for the Agent and each Lender in connection with the enforcement of its rights under this Section 8.04(a).

(b) The Borrower agrees to indemnify and hold harmless the Agent and each Lender and each of their Related Parties (each, an "Indemnified Party") from and against any and all claims, damages, losses, liabilities and expenses (including, without limitation, reasonable and out of pocket fees and disbursements of one counsel to such Indemnified Party and its Related Parties) incurred by or asserted or awarded against any Indemnified Party or such Indemnified Party's Related Parties, in each case arising out of or in connection with or by reason of (including, without limitation, in connection with any investigation, litigation or proceeding or preparation of a defense in connection therewith) the Notes, this Agreement, any of the transactions contemplated herein or the actual or proposed use of the proceeds of the Advances, except to the extent such claim, damage, loss, liability or expense is found in a final, non- appealable judgment by a court of competent jurisdiction to have resulted from the gross negligence, material breach of its obligations under this Agreement or willful misconduct of such Indemnified Party or its Related Parties. In the case of an investigation, litigation or other proceeding to which the indemnity in this Section 8.04(b) applies, such indemnity shall be effective whether or not such investigation, litigation or proceeding is brought by the Borrower, its directors, equityholders or creditors, an Indemnified Party, a Related Party or any other Person (except for any disputes among any Indemnified Party and its Related Parties), whether or not any Indemnified Party or Related Party is otherwise a party thereto and whether or not the transactions contemplated hereby are consummated. The Borrower also agrees not to assert any

Copyright © 2013 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document claim for special, indirect, consequential or punitive damages against the Agent, any Lender, any of their Affiliates, or any of their respective directors, officers, employees, attorneys and agents, on any theory of liability, arising out of or otherwise relating to the Notes, this Agreement, any of the transactions contemplated herein or the actual or proposed use of the proceeds of the Advances.

(c) If any payment of principal of, or Conversion of, any Eurodollar Rate Advance is made by the Borrower to or for the account of a Lender other than on the last day of the Interest Period for such Advance, as a result of a payment or Conversion pursuant to Section 2.08(d) or (e), 2.10 or 2.12, acceleration of the maturity of the Notes pursuant to Section 6.01 or for any other reason, or by an Eligible Assignee to a Lender other than on the last day of the Interest Period for such Advance upon an assignment of rights and obligations under this Agreement pursuant to Section 8.06 as a result of a demand by the Borrower pursuant to Section 2.19, the Borrower shall, upon demand by such Lender (with a copy of such demand to the Agent), pay to the Agent for the account of such Lender any amounts required to compensate such Lender for any additional losses, costs or expenses that it may reasonably incur as a result of such payment or Conversion, including, without limitation, any loss (excluding loss of anticipated profits), cost or expense incurred by reason of the liquidation or reemployment of deposits or other funds acquired by such Lender to fund or maintain such Advance.

(d) Without prejudice to the survival of any other agreement of the Borrower hereunder, the agreements and obligations of the Borrower contained in Sections 2.11, 2.14 and 8.04 shall survive the payment in full of principal, interest and all other amounts payable hereunder and under the Notes.

Section 8.05 Binding Effect. (a) Counterparts; Effectiveness. This Agreement may be executed in counterparts (and by different parties hereto in different counterparts), each of which shall constitute an original, but all of which when taken together shall constitute a single contract. Except as provided in Article III, this Agreement shall become effective when it shall have been executed by the Agent and when the Agent shall have received counterparts hereof that, when taken together, bear the signatures of each of the other parties hereto. Delivery of an executed counterpart of a signature page of this Agreement by facsimile or in electronic (i.e., "pdf" or "tif") format shall be effective as delivery of an original manually executed counterpart of this Agreement.

(b) Electronic Execution of Assignments. The words "execution," "signed," "signature," and words of like import in any Assignment and Assumption shall be deemed to include electronic signatures or the keeping of records in electronic form, each of which shall be of the same legal effect, validity or enforceability as a manually executed signature or the use of a paper-based recordkeeping system, as the case may be, to the extent and as provided for in any applicable law, including the Federal Electronic Signatures in Global and National Commerce Act, the New York State Electronic Signatures and Records Act, or any other similar state laws based on the Uniform Electronic Transactions Act.

Section 8.06 Assignments and Participations. (a) Successors and Assigns Generally. The provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns permitted hereby, except that the Borrower

Copyright © 2013 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document may not assign or otherwise transfer any of its rights or obligations hereunder without the prior written consent of the Agent and each Lender, and no Lender may assign or otherwise transfer any of its rights or obligations hereunder except (i) to an assignee in accordance with the provisions of paragraph (b) of this Section, (ii) by way of participation in accordance with the provisions of paragraph (d) of this Section, or (iii) by way of pledge or assignment of a security interest subject to the restrictions of paragraph (f) of this Section (and any other attempted assignment or transfer by any party hereto shall be null and void). Nothing in this Agreement, expressed or implied, shall be construed to confer upon any Person (other than the parties hereto, their respective successors and assigns permitted hereby, participants to the extent provided in paragraph (d) of this Section and, to the extent expressly contemplated hereby, the Related Parties of each of the Agent and the Lenders) any legal or equitable right, remedy or claim under or by reason of this Agreement.

(b) Assignments by Lenders. Any Lender may at any time assign to one or more assignees all or a portion of its rights and obligations under this Agreement (including all or a portion of its Commitment and the Advances at the time owing to it); provided any such assignment shall be subject to the following conditions:

(i) Minimum Amounts.

(A) in the case of an assignment of the entire remaining amount of the assigning Lender's Commitment and/or the Advances at the time owing to it or contemporaneous assignments to related Approved Funds that equal at least the amount specified in paragraph (b)(i)(B) of this Section in the aggregate or in the case of an assignment to a Lender, an Affiliate of a Lender or an Approved Fund, no minimum amount need be assigned; and

(B) in any case not described in paragraph (b)(i)(A) of this Section, the aggregate amount of the Commitment (which for this purpose includes Advances outstanding thereunder) or, if the applicable Commitment is not then in effect, the principal outstanding balance of the Advances of the assigning Lender subject to each such assignment (determined as of the date the Assignment and Assumption with respect to such assignment is delivered to the Agent or, if "Trade Date" is specified in the Assignment and Assumption, as of the Trade Date) shall not be less than $10,000,000, unless each of the Agent and, so long as no Event of Default under Section 6.01(a) or 6.01(e) has occurred and is continuing, the Borrower otherwise consents (such consent not to be unreasonably withheld or delayed).

(ii) Proportionate Amounts. Each partial assignment shall be made as an assignment of a proportionate part of all the assigning Lender's rights and obligations under this Agreement with respect to the Advances and/or the Commitment assigned.

(iii) Required Consents. No consent shall be required for any assignment except to the extent required by paragraph (b)(i)(B) of this Section and, in addition:

(A) the consent of the Borrower (such consent not to be unreasonably withheld or delayed) shall be required unless:

Copyright © 2013 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document (x) an Event of Default under Section 6.01(a) or 6.01(e) has occurred and is continuing at the time of such assignment or any Advances have been accelerated in accordance with Section 6.01, or

(y) such assignment is to a Lender, an Affiliate of a Lender or an Approved Fund (provided that, in the case of an assignment of a Commitment, unless the Borrower shall have otherwise consented to such assignment, the applicable Lender shall remain obligated to fund any portion of such Commitment not funded by any Affiliate of a Lender or an Approved Fund);

provided that the Borrower shall be deemed to have consented to any such assignment made after the Closing Date unless it shall object thereto by written notice to the Agent within five Business Days after having received notice thereof pursuant to clause (iv) below; and

(B) the consent of the Agent (such consent not to be unreasonably withheld or delayed) shall be required for assignments in respect of any Commitments or Advances if such assignment is to a Person that is not a Lender, an Affiliate of such Lender or an Approved Fund with respect to such Lender.

(iv) Assignment and Assumption. The parties to each assignment shall execute and deliver to the Agent an Assignment and Assumption, together with a processing and recordation fee of $3,500; provided that the Agent may, in its sole discretion, elect to waive such processing and recordation fee in the case of any assignment. The assignee, if it is not a Lender, shall deliver to the Agent an Administrative Questionnaire. The Agent shall notify the Borrower of each Assignment and Assumption within three Business Days of receipt thereof.

(v) No Assignment to Certain Persons. No such assignment shall be made to (A) the Borrower or any of the Borrower's Affiliates or Subsidiaries or (B) any Defaulting Lender or any of its Subsidiaries, or any Person who, upon becoming a Lender hereunder, would constitute any of the foregoing Persons described in this clause (B).

(vi) No Assignment to Natural Persons. No such assignment shall be made to a natural Person.

(vii) Certain Additional Payments. In connection with any assignment of rights and obligations of any Defaulting Lender hereunder, no such assignment shall be effective unless and until, in addition to the other conditions thereto set forth herein, the parties to the assignment shall make such additional payments to the Agent in an aggregate amount sufficient, upon distribution thereof as appropriate (which may be outright payment, purchases by the assignee of participations, or other compensating actions, including funding, with the consent of the Borrower and the Agent, the applicable pro rata share of Advances previously requested but not funded by the Defaulting Lender, to each of which the applicable assignee and assignor hereby irrevocably consent), to (x) pay and satisfy in full all payment liabilities then owed by such Defaulting Lender to the Agent and each other Lender hereunder (and interest accrued thereon), and (y) acquire (and fund as appropriate) its full pro rata share of all Advances in accordance with its Commitment. Notwithstanding the foregoing, in the event that any assignment of rights

Copyright © 2013 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document and obligations of any Defaulting Lender hereunder shall become effective under applicable law without compliance with the provisions of this paragraph, then the assignee of such interest shall be deemed to be a Defaulting Lender for all purposes of this Agreement until such compliance occurs.

Subject to consent from the Borrower where required and acceptance and recording thereof by the Agent pursuant to paragraph (c) of this Section, from and after the effective date specified in each Assignment and Assumption, the assignee thereunder shall be a party to this Agreement and, to the extent of the interest assigned by such Assignment and Assumption, have the rights and obligations of a Lender under this Agreement, and the assigning Lender thereunder shall, to the extent of the interest assigned by such Assignment and Assumption, be released from its obligations under this Agreement (and, in the case of an Assignment and Assumption covering all of the assigning Lender's rights and obligations under this Agreement, such Lender shall cease to be a party hereto) but shall continue to be entitled to the benefits of Sections 2.11 and 8.04 with respect to facts and circumstances occurring prior to the effective date of such assignment; provided, that except to the extent otherwise expressly agreed by the affected parties, no assignment by a Defaulting Lender will constitute a waiver or release of any claim of any party hereunder arising from that Lender's having been a Defaulting Lender. Any assignment or transfer by a Lender of rights or obligations under this Agreement that does not comply with this paragraph shall be treated for purposes of this Agreement as a sale by such Lender of a participation in such rights and obligations in accordance with paragraph (d) of this Section.

(c) Register. The Agent, acting solely for this purpose as an agent of the Borrower, shall maintain at one of its offices in the United States a copy of each Assignment and Assumption delivered to it and a register for the recordation of the names and addresses of the Lenders, and the Commitments of, and principal amounts of the Advances owing to, each Lender pursuant to the terms hereof from time to time (the "Register"). The entries in the Register shall be conclusive absent manifest error, and the Borrower, the Agent and the Lenders shall treat each Person whose name is recorded in the Register pursuant to the terms hereof as a Lender hereunder for all purposes of this Agreement. The Register shall be available for inspection by the Borrower and any Lender, at any reasonable time and from time to time upon reasonable prior notice.

(d) Participations. Each Lender may sell participations to one or more banks or other entities (other than the Borrower or any of its Affiliates) in or to all or a portion of its rights and obligations under this Agreement (including, without limitation, all or a portion of its Commitment, the Advances owing to it and any Note or Notes held by it); provided, however, that (i) such Lender's obligations under this Agreement (including, without limitation, its Commitment to the Borrower hereunder) shall remain unchanged, (ii) such Lender shall remain solely responsible to the other parties hereto for the performance of such obligations, (iii) such Lender shall remain the holder of any such Note for all purposes of this Agreement, (iv) the Borrower, the Agent and the other Lenders shall continue to deal solely and directly with such Lender in connection with such Lender's rights and obligations under this Agreement and (v) no participant under any such participation shall have any right to obtain any Confidential Information except in accordance with Section 8.06(e), or approve or disapprove any amendment or waiver of any provision of this Agreement or any Note or any consent or withholding of

Copyright © 2013 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document consent to any departure by the Borrower therefrom, except to the extent that such amendment, waiver or consent would reduce the principal of, or interest on, the Notes or any fees or other amounts payable hereunder, in each case to the extent subject to such participation, or postpone any date fixed for any payment of principal of, or interest on, the Notes or any fees or other amounts payable hereunder, in each case to the extent subject to such participation.

The Borrower agrees that each participant shall be entitled to the benefits of, and subject to the limitations of, Section 2.11 and 2.14 to the same extent as if it were a Lender and had acquired its interest by assignment, provided that, such participant shall not be entitled to receive any greater payment under Section 2.11 or 2.14 than the applicable Lender would have been entitled to receive with respect to the participation sold to such participant, unless the sale of the participation is made with the Borrower's prior written consent, and that no participant shall be entitled to the benefits of Section 2.14 unless such participant complies with Section 2.14(f) as if it were a Lender. Each Lender that sells a participation, acting solely for this purpose as a nonfiduciary agent of the Borrower, shall maintain a register on which it enters the name and address of each participant and the principal amounts (and stated interest) of each participant's interest in the obligations under this Agreement (the "Participant Register"). The entries in the Participant Register shall be conclusive absent manifest error, and such Lender, the Borrower and the Agent shall treat each Person whose name is recorded in the Participant Register pursuant to the terms hereof as the owner of such participation upon the terms and subject to the conditions of this Agreement. Upon the reasonable request of the Agent or the Borrower, each Lender shall promptly provide to the Agent or the Borrower, as the case may be, the identity of such Lender's participants and the aggregate amount of the participation interests held by each such participant and its Affiliates as set forth on the Participant Register maintained by such Lender, as of the date specified in such request.

(e) Sharing of Information. Any Lender may, in connection with any assignment or participation or proposed assignment or participation pursuant to this Section 8.06, disclose to the assignee or participant or proposed assignee or participant, any information relating to the Borrower furnished to such Lender by or on behalf of the Borrower; provided that, prior to any such disclosure, the assignee or participant or proposed assignee or participant shall enter into a binding agreement enforceable by the Borrower containing provisions to preserve the confidentiality of any Confidential Information relating to the Borrower or any of its Affiliates received by it from such Lender, at least as favorable to the Borrower as Section 8.07.

(f) Certain Pledges. Notwithstanding any other provision set forth in this Agreement, any Lender may at any time create a security interest in all or any portion of its rights under this Agreement to secure obligations of such Lender, including, without limitation, any pledge or assignment to secure obligations to a central bank having jurisdiction over such Lender or to a Federal Reserve Bank in accordance with Regulation A of the Board of Governors of the Federal Reserve System.

Section 8.07 Confidentiality; PATRIOT Act. (a) Neither the Agent nor any Lender shall disclose any Confidential Information to any other Person without the consent of the Borrower, other than (i) to the Agent's or such Lender's Affiliates and their officers, directors, employees, agents and advisors on a "need to know" basis and subject to the requirements of Section 8.06(e), to actual or prospective assignees and participants, (ii) as required by any law,

Copyright © 2013 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document rule or regulation or judicial process, (iii) as requested or required by any state, federal or foreign authority or examiner regulating banks or banking or other financial institutions or self regulatory authority, (iv) in connection with the exercise of any remedies hereunder or any suit, action or proceeding relating to this Agreement or the enforcement of rights hereunder, (v) subject to an agreement containing provisions substantially the same as those of this Section, to any actual or prospective party (or its Related Parties) to any swap, derivative or other transaction under which payments are to be made by reference to the Borrower and its obligations, this Agreement or payments hereunder, (vi) subject to an agreement containing provisions substantially the same as those of this Section, to any counterparties in securitizations, or to any credit insurance provider relating to the Borrower and its obligations and (vii) with the consent of the Borrower. In the case of a disclosure pursuant to clause (ii) above, the disclosing party agrees, to the extent practicable and permitted by applicable law, to promptly notify the Borrower prior to such disclosure and to request confidential treatment.

(b) The Borrower agrees to maintain the confidentiality of any information relating to a rate provided by a Reference Bank, except (i) to its officers, directors, employees, agents, advisors or affiliates on a "need to know" basis, (ii) as required by any law, rule or regulation or judicial process, (iii) as requested or required by any state, federal or foreign authority or examiner or regulatory authority, (iv) in connection with the exercise of any remedies hereunder or any suit, action or proceeding relating to this Agreement or the enforcement of rights hereunder and (v) with the consent of the applicable Reference Bank. In the case of a disclosure pursuant to clause (ii) above, the disclosing party agrees, to the extent practicable and permitted by applicable law, to promptly notify the applicable Reference Bank prior to such disclosure and to request confidential treatment.

(c) Each of the Lenders hereby notifies the Borrower that, pursuant to the requirements of the PATRIOT Act, it is required to obtain, verify and record information that identifies the Borrower, which information includes the name and address of the Borrower and other information that will allow it to identify the Borrower in accordance with the PATRIOT Act.

Section 8.08 Governing Law. This Agreement and the Notes shall be governed by, and construed in accordance with, the law of the State of New York; provided, that the laws of Delaware shall govern in determining (i) whether the Acquisition has been consummated in accordance with the terms of the Acquisition Agreement, (ii) whether a Target Material Adverse Effect or an Acquiror Material Adverse Effect has occurred and (iii) compliance with any Acquisition Agreement Representations.

Section 8.09 Jurisdiction, Etc. (a) Each of the parties hereto irrevocably and unconditionally agrees that it will not commence any action, litigation or proceeding of any kind or description, whether in law or equity, whether in contract or in tort or otherwise, against the Agent, any Lender or any Related Party of the foregoing in any way relating to this Agreement or any Note or the transactions relating hereto or thereto, in any forum other than the courts of the State of New York sitting in New York County, and of the United States District Court for the Southern District of New York, and any appellate court from any thereof, and each of the parties hereto irrevocably and unconditionally submits to the jurisdiction of such courts and agrees that all claims in respect of any such action, litigation or proceeding may be heard and

Copyright © 2013 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document determined in such New York State court or, to the fullest extent permitted by applicable law, in such federal court. Each of the parties hereto agrees that a final judgment in any such action, litigation or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law.

(b) Waiver of Venue. Each of the parties hereto irrevocably and unconditionally waives, to the fullest extent permitted by applicable law, any objection that it may now or hereafter have to the laying of venue of any action or proceeding arising out of or relating to this Agreement or any Note in any court referred to in paragraph (a) of this Section. Each of the parties hereto hereby irrevocably waives, to the fullest extent permitted by applicable law, the defense of an inconvenient forum to the maintenance of such action or proceeding in any such court.

(c) Service of Process. Each party hereto irrevocably consents to service of process in the manner provided for notices in Section 8.02. Nothing in this Agreement will affect the right of any party hereto to serve process in any other manner permitted by applicable law. The Borrower hereby agrees that service of process in any such action or proceeding brought in any such New York State court or in such federal court may be made upon the Corporate Secretary of the Borrower at 208 S. Akard Street, 18th Floor, Dallas, Texas 75202 (the "Process Agent") and the Borrower hereby irrevocably appoints the Process Agent its authorized agent to accept such service of process.

Section 8.10 Severability. If any provision of this Agreement is held to be illegal, invalid or unenforceable, (a) the legality, validity and enforceability of the remaining provisions of this Agreement shall not be affected or impaired thereby and (b) the parties shall endeavor in good faith negotiations to replace the illegal, invalid or unenforceable provisions with valid provisions the economic effect of which comes as close as possible to that of the illegal, invalid or unenforceable provisions. The invalidity of a provision in a particular jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. Without limiting the foregoing provisions of this Section 8.10, if and to the extent that the enforceability of any provisions in this Agreement relating to Defaulting Lenders shall be limited by any debtor relief laws, then such provisions shall be deemed to be in effect only to the extent not so limited.

Section 8.11 Waiver of Jury Trial. Each of the Borrower, the Agent and the Lenders hereby irrevocably waives all right to trial by jury in any action, proceeding or counterclaim (whether based on contract, tort or otherwise) arising out of or relating to this Agreement or the Notes or the actions of the Agent or any Lender in the negotiation, administration, performance or enforcement thereof.

Section 8.12 No Fiduciary Duties. The Borrower acknowledges that the Agent, each Joint Bookrunner, each Lender and their respective Affiliates may have economic interests that conflict with those of the Borrower, its stockholders and/or its Affiliates. The Borrower agrees that in connection with all aspects of the financing transactions contemplated hereby and any communications in connection therewith, the Borrower and its Subsidiaries, on the one hand, and the Agent, the Joint Bookrunners and the Lenders and their respective Affiliates, on the other hand, will have a business relationship that does not create, by implication or otherwise, any fiduciary duty on the part of the Agent, the Joint Bookrunners and the Lenders or their respective

Copyright © 2013 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Affiliates and no such duty will be deemed to have arisen in connection with any such transactions or communications.

Section 8.13 Acknowledgement and Consent to Bail-In of EEA Financial Institutions. Notwithstanding anything to the contrary in this Agreement or in any other agreement, arrangement or understanding among any such parties, each party hereto acknowledges that any liability of any EEA Financial Institution arising under this Agreement may be subject to the write-down and conversion powers of an EEA Resolution Authority and agrees and consents to, and acknowledges and agrees to be bound by:

(a) the application of any Write-Down and Conversion Powers by an EEA Resolution Authority to any such liabilities arising hereunder which may be payable to it by any party hereto that is an EEA Financial Institution; and

(b) the effects of any Bail-In Action on any such liability, including, if applicable:

(i) a reduction in full or in part or cancellation of any such liability;

(ii) a conversion of all, or a portion of, such liability into shares or other instruments of ownership in such EEA Financial Institution, its parent entity, or a bridge institution that may be issued to it or otherwise conferred on it, and that such shares or other instruments of ownership will be accepted by it in lieu of any rights with respect to any such liability under this Agreement; or

(iii) the variation of the terms of such liability in connection with the exercise of the Write-Down and Conversion Powers of any EEA Resolution Authority.

[Signature Pages Follow]

Copyright © 2013 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their respective officers thereunto duly authorized, as of the date first above written.

AT&T INC.

By /s/ Jonathan P. Klug Name: Jonathan P. Klug Title: Senior Vice President and Treasurer

JPMORGAN CHASE BANK, N.A., as Agent

By /s/ Bruce S. Borden Name: Bruce S. Borden Title: Executive Director

Initial Lenders

JPMORGAN CHASE BANK, N.A., as Initial Lender

By /s/ Bruce S. Borden Name: Bruce S. Borden Title: Executive Director

BANK OF AMERICA, N.A., as Initial Lender

By /s/ Eric Ridgway Name: Eric Ridgway Title: Director

THE BANK OF TOKYO- MITSUBISHI UFJ, LTD., as Initial Lender

By /s/ Ola Anderssen Name: Ola Anderssen Title: Director

By /s/ Craig J. Malloy Name: Craig J. Malloy Title: Director

MIZUHO BANK, LTD., as Initial Lender

By /s/ Daniel Guevara Name: Daniel Guevara Title: Authorized Signatory

BANCO BILBAO VIZCAYA ARGENTARIA, S.A. NEW YORK BRANCH, as Initial Lender

By /s/ Mauricio Benitez Name: Mauricio Benitez Title: Director

By /s/ Brian Crowley Name: Brian Crowley Title: Managing Director

BANCO SANTANDER, S.A., as Initial Lender

By /s/ Federico Robin Name: Federico Robin Title: Executive Director

By /s/ Isabel Pastor Name: Isabel Pastor Title: Associate

By /s/ Chen Xu Name: Chen Xu Title: President and CEO

BNP PARIBAS, as Initial Lender

By /s/ Nicole Rodriguez Name: Nicole Rodriguez Title: Director

By /s/ Gregoire Poussard Name: Gregoire Poussard Title: Vice President

COMMERZBANK AG NEW YORK BRANCH, as Initial Lender

By /s/ Ignacio Campillo Name: Ignacio Campillo Title: Managing Director

By /s/ Michael Ravelo Name: Michael Ravelo Title: Director

CREDIT SUISSE AG, CAYMAN ISLANDS BRANCH, as Initial Lender

By /s/ Judith E. Smith Name: Judith E. Smith Title: Authorized Signatory

By /s/ Kelly Heimrich Name: Kelly Heimrich Title: Authorized Signatory

By /s/ Ming K. Chu Name: Ming K. Chu Title: Director

By /s/ Virginia Cosenza Name: Virginia Cosenza Title: Vice President

GOLDMAN SACHS BANK USA, as Initial Lender

By /s/ Ryan Durkin Name: Ryan Durkin Title: Authorized Signatory

ROYAL BANK OF CANADA, as Initial Lender

By /s/ Stephen Oben Name: Stephen Oben Title: Authorized Signatory

SOCIETE GENERALE, as Initial Lender

By /s/ Jonathan Logan Name: Jonathan Logan Title: Director

THE TORONTO-DOMINION BANK, NEW YORK BRANCH, as Initial Lender

By /s/ Annie Dorval Name: Annie Dorval Title: Authorized Signatory

By /s/ S. Michael St. Geme Name: S. Michael St. Geme Title: Managing Director

THE BANK OF NEW YORK MELLON, as Initial Lender

By /s/ William M. Feathers Name: William M. Feathers Title: Vice President

INTESA SANPAOLO S.p.A., NEW YORK BRANCH, as Initial Lender

By /s/ Glen Binder Name: Glen Binder Title: Global Relationship Manager

By /s/ Francesco Di Mario Name: Francesco Di Mario Title: FVP & Head of Credit

U.S. BANK NATIONAL ASSOCIATION, as Initial Lender

By /s/ Seth Caudill Name: Seth Caudill Title: Vice President

Dated as of February 10, 2017

To the banks, financial institutions and other institutional lenders (collectively, the "Lenders") party to the Term Loan Credit Agreement referred to below and to JPMorgan Chase Bank, N.A., as agent (the "Agent") for the Lenders

Ladies and Gentlemen:

We refer to the $30,000,000,000 Term Loan Credit Agreement dated as of October 22, 2016 and amended and restated as of November 15, 2016 (the "Credit Agreement") among AT&T Inc. (the "Borrower"), the Lenders and the Agent. Capitalized terms not otherwise defined in this letter amendment (this "Letter Amendment") have the same meanings as specified in the Credit Agreement.

You have indicated your willingness, on the terms and conditions stated below, to amend the Credit Agreement as herein set forth. Accordingly, it is hereby agreed by you and us as follows:

1. Amendments. The Credit Agreement is hereby amended by amending and restating the definition of "Excluded Debt" in its entirety as follows:

"Excluded Debt" means (a) intercompany Debt among the Borrower and its Subsidiaries or among Subsidiaries of the Borrower, (b) credit extensions under the Existing Credit Agreement (or any revolving facility entered into to refinance or replace the Existing Credit Agreement) up to the existing commitments thereunder, (c) commercial paper issuances and refinancings thereof, (d) ordinary course letter of credit facilities, overdraft protection and short term working capital facilities, ordinary course foreign credit facilities (including the renewal, replacement or refinancing thereof), factoring arrangements, capital leases, financial leases, hedging and cash management, (e) purchase money and equipment financings and similar obligations, (f) (i) any Debt under any credit facility or similar instrument (other than capital markets Debt) ("Bank Debt") incurred to refinance any Bank Debt outstanding on the date hereof (or Bank Debt that was incurred to refinance such Bank Debt), together in each case with accrued and unpaid interest and any expenses, costs, premiums or other amounts payable in connection with such refinancings and (ii) the notes to be issued by the Borrower pursuant to the terms of the prospectus supplement of the Borrower dated January 31, 2017 as in effect on such date, (g) any Debt incurred in connection with a financing based on accounts receivable (including any Receivables Securitization) and (h) other Debt (excluding any Permanent Financing) in an aggregate principal amount up to $10,000,000,000.

2. Effectiveness. This Letter Amendment shall become effective as of the date first above written when, and only when, the Agent shall have received counterparts of this Amendment executed by the undersigned and the Required Lenders. This Letter Amendment is subject to the provisions of Section 8.01 of the Credit Agreement.

3. Representations of the Borrower. The Borrower represents and warrants that after giving effect to this Letter Amendment, on and as of the date hereof, (i) the representations and warranties of the Borrower set forth in Article IV of the Credit Agreement are true and (ii) no Default has occurred and is continuing.

4. Effect of Letter Amendment; Miscellaneous. The Credit Agreement and the Notes, except to the extent of the amendments specifically provided in Section 1 above, are and shall continue to be in full force and effect and are hereby in all respects ratified and confirmed. The execution, delivery and effectiveness of this Letter Amendment shall not, except as expressly provided herein, operate as a waiver of any right, power or remedy of any Lender or the Agent under the Credit Agreement, nor constitute a waiver of any provision of the Credit Agreement.

If you agree to the terms and provisions hereof, please evidence such agreement by executing and returning a counterpart of this Letter Amendment.

Copyright © 2013 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document This Letter Amendment may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. Delivery of an executed counterpart of a signature page to this Letter Amendment by telecopier or electronic communication shall be effective as delivery of a manually executed counterpart of this Letter Amendment.

This Letter Amendment shall be governed by, and construed in accordance with, the laws of the State of New York.

[Signature Pages Follow]

AT&T INC.

By /s/ George B. Goeke Name: George B. Goeke Title: Senior Vice President and Treasurer

JPMORGAN CHASE BANK, N.A., as Agent and as Lender

By /s/ Bruce S. Borden Name: Bruce S. Borden Title: Executive Director

BANK OF AMERICA, N.A., as a Lender

By /s/ Eric Ridgway Name: Eric Ridgway Title: Director

THE BANK OF TOKYO-MITSUBISHI UFJ, LTD., as a Lender

By /s/ Ola Anderssen Name: Ola Anderssen Title: Director

BARCLAYS BANK PLC, as a Lender

By /s/ Vanessa Kurbatskiy Name: Vanessa Kurbatskiy Title: Vice President

MIZUHO BANK, LTD., as a Lender

By /s/ Daniel Guevara Name: Daniel Guevara Title: Authorized Signatory

BANCO BILBAO VIZCAYA ARGENTARIA, S.A., NEW YORK BRANCH, as a Lender

By /s/ Mauricio Benitez Name: Mauricio Benitez Title: Director

By /s/ Brian Crowley Name: Brian Crowley Title: Managing Director

BANCO SANTANDER, S.A., NEW YORK BRANCH, as a Lender

By /s/ Terence Corcoran Name: Terence Corcoran Title: Senior Vice President

BANK OF CHINA, NEW YORK BRANCH, as a Lender

By /s/ Raymond Qiao Name: Raymond Qiao Title: Managing Director

BNP PARIBAS, as a Lender

By /s/ Melissa Dyki Name: Melissa Dyki Title: Director

By /s/ Kwang Kyun Choi Name: Kwang Kyun Choi Title: Vice President

COMMERZBANK AG, NEW YORK BRANCH, as a Lender

By /s/ Tom Kang Name: Tom Kang Title: Head of TMT Coverage

By /s/ Anne Culver Name: Anne Culver Title: TMT Coverage

CREDIT SUISSE AG, CAYMAN ISLANDS BRANCH, as a Lender

By /s/ William O'Daly Name: William O'Daly Title: Authorized Signatory

By /s/ Kelly Heimrich Name: Kelly Heimrich Title: Authorized Signatory

By /s/ Ming K. Chu Name: Ming K. Chu Title: Director

By /s/ Virginia Cosenza Name: Virginia Cosenza Title: Vice President

GOLDMAN SACHS BANK USA, as a Lender

By /s/ Ushma Dedhiya Name: Ushma Dedhiya Title: Authorized Signatory

ROYAL BANK OF CANADA, as a Lender

By /s/ Alexander Oliver Name: Alexander Oliver Title: Authorized Signatory

SOCIETE GENERALE, as a Lender

By /s/ Jonathan Logan Name: Jonathan Logan Title: Director

THE TORONTO-DOMINION BANK, NEW YORK BRANCH, as a Lender

By /s/ Lexanne Cooper Name: Lexanne Cooper Title: Authorized Signatory

WELLS FARGO BANK, NATIONAL ASSOCIATION, as a Lender

THE BANK OF NEW YORK MELLON, as a Lender

By /s/ William M. Feathers Name: William M. Feathers Title: Vice President

INTESA SANPAOLO S.p.A. NEW YORK BRANCH, as a Lender

By /s/ Glen Binder Name: Glen Binder Title: Global Relationship Manager

By /s/ Francesco Di Mario Name: Francesco Di Mario Title: FVP & Head of Credit

U.S. BANK NATIONAL ASSOCIATION, as a Lender

By /s/ Seth Caudill Name: Seth Caudill Title: Vice President

Administrative Plan

Effective September 24, 2015

The benefits under this Plan are offered by AT&T Inc. ("AT&T") to persons who have been identified by AT&T as executive officers of AT&T under Rule 3b-7 of the Securities Exchange Act of 1934 ("Executive Officers").

Administration of Plan. The Plan or the benefits hereunder may be modified or terminated by the Human Resources Committee in its sole discretion at any time.

Except to the extent otherwise provided herein, the Vice President responsible for Human Resources (or the successor to such position) shall be the Administrator of the Plan and will administer the Plan, interpret, construe and apply its provisions in accordance with its terms. The Administrator, in his or her sole discretion, may establish, adopt or revise rules, as he or she may deem necessary or advisable for the administration of the Plan, including the allocation or limitation of benefits.

The Administrator may adopt another plan or plans, not to exceed the benefits included herein, for the benefit of non Executive Officer employees or former employees of AT&T and/or its subsidiaries, as the Administrator may determine in his or her sole discretion and on such terms and conditions as the Administrator shall determine. In addition, the Administrator may provide current or former non Executive Officer employees with:

(a) an amount equal to that necessary to offset the Federal, state and local income taxes, as well as associated employment taxes, of the recipient (including taxes on tax reimbursements) resulting from the benefits in such plan or plans, other than (1) the monthly automobile allowance, and (2) personal use of aircraft; and/or

(b) social club and country club memberships as approved by the CEO or the Administrator (without the limits otherwise provided in this Plan).

The benefit under (a), above, shall also apply to Executive Officers who retired prior to 2010. The Administrator may, from time to time, revise the plan solely to increase the financial limits on benefits, not to exceed the corresponding proportional increase in the consumer price index from January 1, 2003, through the date of change.

All decisions of the Administrator shall be final and binding unless the Board of Directors or its delegate should determine otherwise.

No Employment Rights. Nothing herein shall constitute a contract of continuing employment or in any manner obligate AT&T or any Executive Officer to continue the employment relationship of, or obligate an Executive Officer to continue in the service of AT&T or any Affiliate.

Non-Transferability. No recipient of benefits under this Plan nor any other person shall have any right to sell, assign, transfer, pledge, anticipate, mortgage or otherwise encumber, transfer, hypothecate or convey any of the benefits hereunder, or any part thereof, which are, and all rights to which are, expressly declared to be unassignable and non-transferable.

Copyright © 2013 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Notice. Any notice required or permitted to be given to the Administrator under the Plan shall be sufficient if in writing and hand delivered, or sent by certified mail, to the principal office of AT&T, directed to the attention of the Senior Executive Vice President- Human Resources. Any notice required or permitted to be given to any other person shall be sufficient if in writing and hand delivered, or sent by certified mail, to the person at the person's last known mailing address as reflected on the records of his or her employing company. Notice shall be deemed given as of the date of delivery or, if delivery is made by mail, as of the date shown on the postmark or on the receipt for certification.

Validity. In the event any provision of this Plan is held invalid, void or unenforceable, the same shall not affect, in any respect whatsoever, the validity of any other provision of this plan.

Applicable Law. This Plan shall be governed and construed in accordance with the laws of the State of Texas to the extent not preempted by the Employee Retirement Income Security Act of 1974, as amended, and regulations thereunder ("ERISA").

Automobile. Each Executive Officer may receive the use of a four-door automobile or an automobile allowance and expenses associated with the operation of the automobile. The Administrator shall determine the amount of the allowance for each Executive Officer provided that the allowance shall not exceed $2,000 per month.

Company Services. Each Executive Officer may receive reasonable communications and entertainment services. Such services shall only be provided by AT&T, except wireline and Internet services where AT&T service is not reasonably available.

Financial Counseling. Executive Officers may receive income tax preparation services and financial planning services from a list of designated providers not to exceed $14,000 per year.

Estate Planning. Executive Officers may receive estate planning documentation services not to exceed $10,000 per year. The Estate Planning limit restarts in the event of a company-initiated relocation to another state.

Annual Limits. Expenses will be charged against the annual limits for the calendar year based on the date of the invoice.

Clubs. Executive Officers may receive social club and country club memberships (along with transfer fees) as approved by the CEO or the Administrator. Executive officers, but not persons other than Executive Officers, shall be limited to transferable country club memberships and shall not receive other country club fees, including dues and assessments.

AT&T does not reimburse for any expenses incurred in connection with a membership in a club that discriminates in its membership policies based on race, creed, gender or ethnic origin. The Administrator shall report annually to the Human Resources Committee any changes in memberships for the Chief Executive Officer.

Executive Protection. Based upon the concern for the security of Executive Officers, the need to secure their optimum availability for business purposes and to permit uninterrupted communications between them, the Executive Officers are authorized to receive home security services, and, whenever feasible, to use AT&T provided aircraft in connection with business travel. The Chief Executive Officer may use such aircraft for personal travel. Other Executive Officers may also use such aircraft for personal travel where the Chief Executive Officer, in his or her sole discretion, deems such personal use appropriate.

Copyright © 2013 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Except where prohibited by law, Executive Officers shall be required to reimburse the Company for the incremental cost of personal use of AT&T provided aircraft. For Executive Officers other than the Chief Executive Officer, the Chief Executive Officer may determine, in his or her sole discretion, that such reimbursement is not required.

Retirement. Upon the Retirement of an Executive Officer, he or she may receive up to an additional amount for financial consulting reasonably in connection with his/her Retirement, as follows: In any given year, 1. for retirements occurring from January 1 through June 30 (inclusive), the amount will be $20,000 in the calendar year of retirement; 2. for retirements occurring from July 1 through November 30 (inclusive), the amount will be $10,000 in the calendar year of retirement and $10,000 in the immediately following calendar year; and 3. for retirements occurring from December 1 through December 31 (inclusive), the amount will be $20,000 in the year following retirement. A Retired Executive Officer shall continue to receive the communications benefits until death and his or her survivor shall receive the communications benefit for six (6) billing cycles. After the Retirement of an Executive Officer on or before December 31, 2009, he or she shall continue to receive the financial counseling and estate planning benefits until his or her death. Executive Officers that retire on or after January 1, 2010 shall continue to receive the financial counseling and estate planning benefits for up to 36 months following retirement or until the end of the year following the year of death, whichever occurs earlier. After the death of an Executive Officer or Retired Executive Officer, his or her survivor shall receive the communications benefit for 6 billing cycles and shall receive the financial counseling and estate planning benefits for the remainder of the year of death and the immediately following calendar year. In a Retired Executive Officer's final calendar year of eligibility, the Annual Limits shall be pro-rated on a monthly basis, based on the number of full or partial months the Retired Executive Officer worked in the calendar year of Retirement divided by twelve (12).

Loyalty Conditions.

This Section applies to Executive Officers who are actively employed on or after January 1, 2010.

Executive Officers acknowledge that no coverage and benefits would be provided under this Plan on and after January 1, 2010 but for the loyalty conditions and covenants set forth below, and that the conditions and covenants herein are a material inducement to AT&T's willingness to sponsor the Plan and to offer Plan coverage and benefits for the Executive Officers on or after January 1, 2010. Accordingly, as a condition of receiving coverage and any Plan benefits on or after January 1, 2010, each Executive Officer is deemed to agree that he shall not, without obtaining the written consent of AT&T in advance, participate in activities that constitute engaging in competition with AT&T or engaging in conduct disloyal to AT&T, as those terms are defined in this Section. Further, notwithstanding any other provision of this Plan, all coverage and benefits under this Plan on and after January 1, 2010 with respect to an Executive Officer and his or her Dependents shall be subject in their entirety to the enforcement provisions below if the Executive Officer, without the Administrator's consent participates in an activity that constitutes engaging in competition with AT&T or engaging in conduct disloyal to AT&T, as defined below.

Definitions. For purposes of this Section and of the Plan generally: an "Employer Business" shall mean AT&T, any subsidiary, or any business in which AT&T or a subsidiary or an affiliated company of AT&T has a substantial ownership or joint venture interest;

Copyright © 2013 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document "engaging in competition with AT&T" shall mean, while employed by an Employer Business or within two (2) years after the Executive Officer's termination of employment, engaging by the Executive Officer in any business or activity in all or any portion of the same geographical market where the same or substantially similar business or activity is being carried on by an Employer Business. "Engaging in competition with AT&T" shall not include owning a nonsubstantial publicly traded interest as a shareholder in a business that competes with an Employer Business. "Engaging in competition with AT&T" shall include representing or providing consulting services to, or being an employee or director of, any person or entity that is engaged in competition with any Employer Business or that takes a position adverse to any Employer Business.

"engaging in conduct disloyal to AT&T" means, while employed by an Employer Business or within two (2) years after the Executive Officer's termination of employment, (i) soliciting for employment or hire, whether as an employee or as an independent contractor, for any business in competition with an Employer Business, any person employed by AT&T or its affiliates during the one (1) year prior to the termination of the Executive Officer's employment, whether or not acceptance of such position would constitute a breach of such person's contractual obligations to AT&T and its affiliates; (ii) soliciting, encouraging, or inducing any vendor or supplier with which the Executive Officer had business contact on behalf of any Employer Business during the two (2) years prior to the termination of the Executive Officer's employment, for any reason to terminate, discontinue, renegotiate, reduce, or otherwise cease or modify its relationship with AT&T or its affiliate; or (iii) soliciting, encouraging, or inducing any customer or active prospective customer with whom Executive Officer had business contact, whether in person or by other media, on behalf of any Employer Business during the two (2) years prior to the termination of Executive Officer's employment for any reason ("Customer"), to terminate, discontinue, renegotiate, reduce, or otherwise cease or modify its relationship with any Employer Business, or to purchase competing goods or services from a business competing with any Employer Business, or accepting or servicing business from such Customer on behalf of himself or any other business. "Engaging in conduct disloyal to AT&T" also means, disclosing Confidential Information to any third party or using Confidential Information, other than for an Employer Business, or failing to return any Confidential Information to the Employer Business following termination of employment.

"Confidential Information" shall mean all information belonging to, or otherwise relating to, an Employer Business, which is not generally known, regardless of the manner in which it is stored or conveyed to the Executive Officer, and which the Employer Business has taken reasonable measures under the circumstances to protect from unauthorized use or disclosure. Confidential Information includes trade secrets as well as other proprietary knowledge, information, know-how, and non-public intellectual property rights, including unpublished or pending patent applications and all related patent rights, formulae, processes, discoveries, improvements, ideas, conceptions, compilations of data, and data, whether or not patentable or copyrightable and whether or not it has been conceived, originated, discovered, or developed in whole or in part by the Executive Officer. For example, Confidential Information includes, but is not limited to, information concerning the Employer Business' business plans, budgets, operations, products, strategies, marketing, sales, inventions, designs, costs, legal strategies, finances, employees, customers, prospective customers, licensees, or licensors; information received from third parties under confidential conditions; or other valuable financial, commercial, business, technical or marketing information concerning the Employer Business, or any of the products or services made, developed or sold by the Employer Business. Confidential Information does not include information that (i) was generally known to the public at the time of disclosure; (ii) was lawfully received by the Executive Officer from a third party; (iii) was known to the Executive Officer prior to receipt from the Employer Business; or (iv) was independently developed by the Executive Officer or independent third parties; in each of the foregoing circumstances, this exception applies only if such public knowledge or possession by an independent third party was without breach by the Executive Officer or any third party of any obligation of confidentiality or non-use, including but not limited to the obligations and restrictions set forth in this Plan.

Copyright © 2013 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Forfeiture of Benefits. Coverage and benefits under this Plan shall be forfeited and shall not be provided under this Plan for any period as to which the Administrator determines that, within the time period and without the written consent specified, the Executive Officer has been either engaging in competition with AT&T or engaging in conduct disloyal to AT&T.

Equitable Relief. The parties recognize that any Executive Officer's breach of any of the covenants in this Section will cause irreparable injury to AT&T, will represent a failure of the consideration under which AT&T (in its capacity as creator and sponsor of the Plan) agreed to provide the Executive Officer with the opportunity to receive Plan coverage and benefits, and that monetary damages would not provide AT&T with an adequate or complete remedy that would warrant AT&T's continued sponsorship of the Plan and payment of Plan benefits for all Executive Officers. Accordingly, in the event of an Executive Officer's actual or threatened breach of the covenants herein, the Administrator, in addition to all other rights and acting as a fiduciary under ERISA on behalf of all Executive Officers, shall have a fiduciary duty (in order to assure that AT&T receives fair and promised consideration for its continued Plan sponsorship and funding) to seek an injunction restraining the Executive Officer from breaching the covenants in this Section. In addition, AT&T shall pay for any Plan expenses that the Administrator incurs hereunder, and shall be entitled to recover from the Executive Officer its reasonable attorneys' fees and costs incurred in obtaining such injunctive remedies. To enforce its repayment rights with respect to an Executive Officer, the Plan shall have a first priority, equitable lien on all Plan benefits provided to or for the Executive Officer and his or her Dependents. In the event the Administrator succeeds in enforcing the terms of this Article through a written settlement with the Executive Officer or a court order granting an injunction hereunder, the Executive Officer shall be entitled to collect Plan benefits prospectively, if the Executive Officer is otherwise entitled to such benefits, net of any fees and costs assessed pursuant hereto (which fees and costs shall be paid to AT&T as a repayment on behalf of the Executive Officer), provided that the Executive Officer complies with said settlement or injunction.

Uniform Enforcement. In recognition of AT&T's need for nationally uniform standards for the Plan administration, it is an absolute condition in consideration of any Executive Officer's accrual or receipt of benefits under the Plan after January 1, 2010 that each and all of the following conditions apply to all Executive Officers and to any benefits that are paid or are payable under the Plan:

(1) To the maximum extent applicable ERISA shall control all issues and controversies hereunder, and the Administrator shall serve for purposes hereof as a "fiduciary" of the Plan, and as its "named fiduciary" within the meaning of ERISA.

(2) All litigation between the parties relating to this Article shall occur in federal court, which shall have exclusive jurisdiction, any such litigation shall be held in the United States District Court for the Northern District of Texas, and the only remedies available with respect to the Plan shall be those provided under ERISA to the extent it is applicable.

(3) If the Administrator determines in its sole discretion either (I) that AT&T or its affiliate that employed the Executive Officer terminated the Executive Officer's employment for cause, or (II) that equitable relief enforcing the Executive Officer's covenants under this Section is either not reasonably available, not ordered by a court of competent jurisdiction, or circumvented because the Executive Officer has sued in state court, or has otherwise sought remedies not available under ERISA (to the extent applicable), then in any and all of such instances the Executive Officer shall not be entitled to collect any Plan benefits, and if any Plan benefits have been paid to the Executive Officer, the Executive Officer shall immediately repay all Plan benefits to the Plan (which shall be used to pay Plan administrative expenses or Plan benefits) upon written demand from the Administrator. Furthermore, the Executive Officer shall hold AT&T and its affiliates harmless from any loss, expense, or damage that may arise from any of the conduct described in clauses (I) and (II) hereof.

AT&T PENSION BENEFIT MAKE UP PLAN NO. 1

Effective: January 1, 2005 Restated December 31, 2008 Amended December 31, 2016

SECTION 1: Purpose and History...... 1 1.1. Purpose...... 1 1.2. History...... 1 SECTION 2: Eligibility and Participation...... 2 2.1. Eligibility...... 2 2.2. Construction of Eligibility Provisions...... 3 2.3. Loss of Eligibility...... 3 2.4. Ineligible Participant...... 3 SECTION 3: Amount of Plan Benefits...... 3 3.1. Amount of Plan Benefits...... 3 3.2. Participants in Predecessor Plans...... 5 SECTION 4: Payment of Plan Benefits...... 5 4.1. Distribution of Plan Benefits...... 5 4.2. Form of Plan Benefits...... 5 4.3. Converting Form of Benefit...... 6 SECTION 5: General and Administrative Provisions...... 6 5.1. Plan Administration...... 6 5.3. Notices...... 7 5.4. Applicable Laws...... 7 5.5. Gender and Number...... 7 5.6. Benefits Determined as of Termination of Employment...... 7 5.7. Benefits Under Predecessor Plans...... 7 5.8. Plan Not Contract of Employment...... 7 5.9. Benefits May Not Be Assigned or Alienated...... 7 5.10. Beneficiary Designation...... 8 5.11. Amendments and Termination...... 8 5.12. Tax Withholding...... 8 5.13. Offsets and Overpayments...... 8

SECTION 1: Purpose and History

1.1. Purpose. The primary purpose of the AT&T Pension Benefit Make Up Plan No. 1 (the "Plan") is to supplement the benefits a Participant is entitled to receive under a pension plan that is qualified under Code Section 401(a) and is sponsored by AT&T Inc. ("AT&T" or the "Company") or one of its Subsidiaries (collectively, the "Pension Plans"). This Plan recognizes compensation earned by an individual who is eligible to participate in this Plan as provided in Section 2 (a "Participant") that is not recognized in the determination of benefits under the Participant's Pension Plan, and this Plan is intended to make up benefits that would otherwise be lost because of such Pension Plan limitations.

The Plan is intended to provide deferred compensation benefits by recognizing compensation earned by a Participant that is in excess of the amount that is recognized under Section 401(a)(17) of the Internal Revenue Code of 1986, as amended (the "Code"), and to provide benefits to the extent such Participant's Pension Plan benefits are limited by the provisions of Code Section 415.

1.2. History. The Plan is effective as of January 1, 2005, and constitutes an amendment and restatement of the plans listed in Attachment A (the "Predecessor Plans"). AT&T and companies whose equity interests are owned 100%, directly or indirectly, by AT&T ("Subsidiary") sponsored the Predecessor Plans for the benefit of their respective eligible employees. No additional benefits shall accrue under the Predecessor Plans after December 31, 2004, and benefits of Participants who terminate employment on or after January 1, 2005 shall be paid solely under this Plan. The Predecessor Plans were intended to supplement participants' Pension Plan benefits by (i) recognizing compensation that is not eligible to be recognized for purposes of calculating Pension Plan benefits, either as a result of statutory limitations or Pension Plan limitations, and/or (ii) providing benefits in excess of the limitations of Code Section 415. This Plan is intended to aggregate all of such Predecessor Plans and provide substantially similar benefits, on a going forward basis. Further, this Plan is intended to satisfy the requirements of Code Section 409A, effective with respect to amounts deferred after December 31, 2004. During the period from January 1, 2005 to December 31, 2008, the Plan has been operated in good faith compliance with the provisions of Code Section 409A, Internal Revenue Service Notice 2005-1, and the final Treasury Regulations for Code Section 409A, and any other generally applicable guidance published in the Internal Revenue Service Bulletin with an effective date prior to January 1, 2009. On or after January 1, 2009, this Plan shall be interpreted and construed consistent with the requirements of Code Section 409A and all applicable guidance issued thereunder.

2.1. Eligibility. Benefit accrual in this Plan is limited to each employee of any Subsidiary of AT&T who:

(a) participates in a Pension Plan;

(b) is a General Management level or above employee;

(d) receives types of compensation that are used to determine the employee's Pension Plan benefit (e.g., base salary or short term incentive compensation) in any calendar year, but that compensation is not recognized for purposes of determining such employee's Pension Plan benefit, or whose Pension Plan benefit is limited by Code Section 415; and

(e) is not an employee of a company acquired by AT&T on or after September 1, 2005 unless designated as eligible by AT&T's highest ranking officer specifically responsible for human resource matters; provided, however, effective January 1, 2009, this section 2.1(e) shall not apply to any employee who satisfies the eligibility provisions of this section 2.1 (a), (b), (c), and (d) and is employed by AT&T Inc. or any of its Subsidiaries on or after January 1, 2009, other than an employee who is a participant in the BellSouth Corporation Supplemental Executive Retirement Plan, the AT&T Corp. Nonqualified Pension Plan, or the AT&T Corp. Excess Pension Plan. Further provided, however, any employee of a company acquired by AT&T on or after January 1, 2017 shall not participate in this Plan unless designated by the SEVP-HR. Notwithstanding the foregoing, and for purposes of clarity, effective July 24, 2015, employees who participate in the DIRECTV Pension Plan shall not be eligible to participate in the Plan.

(f) Additionally, an employee who (i) meets the requirements of paragraphs (a), (b), (c), and (d), (ii) is employed by AT&T Inc. or any of its Subsidiaries on or after January 1, 2009 and (iii) either (x) participates in the BellSouth Corporation Supplemental Executive Retirement Plan ("BLS SERP") solely with a totally frozen BLS SERP benefit following a job demotion into an ineligible position prior to December 31, 2011 or (y) previously participated in the BLS SERP but whose annualized benefit under the BLS SERP as of December 31, 2011 was $0 and is not due any benefit under the BLS SERP pursuant to the amendment to Section 4.(a)(I)(A) of such plan effective December 31, 2011, may participate in the Plan.

Copyright © 2013 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document 2.2. Construction of Eligibility Provisions. The eligibility provisions of Section 2.1, above, shall be interpreted in the broadest possible sense in order that this Plan can recognize all base salary and short term incentive compensation, whenever earned, for the purpose of making up any benefit that would otherwise be lost due to the fact that the Pension Plan is unable to recognize any such compensation in determining retirement benefits.

2.3. Loss of Eligibility. In the event that any Participant ceases to satisfy the eligibility conditions of Section 2.1, such Participant shall nevertheless continue to be eligible to receive benefits under this Plan, however, no additional benefits shall accrue under the Plan unless and until he or she shall re-attain eligibility hereunder.

2.4. Ineligible Participant. Notwithstanding any other provision of this Plan to the contrary, if any Participant is determined not to be "in a select group of management or highly compensated employees" within the meaning of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), or the regulations thereunder, such Participant shall not be eligible to continue to accrue a benefit under this Plan on or after such date to the extent benefits hereunder are attributable to compensation in excess of the amount under Code Section 401(a)(17) and not attributable to the limitations imposed by the provisions of Code Section 415.

2.5 No Duplication of Benefits. Notwithstanding any provision of this Plan to the contrary, if a Participant ceases to accrue benefits under this Plan and becomes eligible to receive the equivalent of his/her benefit under this Plan pursuant to the Pension Benefit Make Up Plan No. 2, to the extent such benefit is paid pursuant to such other plan, no duplication of such payment shall be made pursuant to this Plan.

SECTION 3: Amount of Plan Benefits

3.1. Amount of Plan Benefits. Subject to the terms and conditions of the Plan, the Plan benefits payable to, or on account of, a Participant under the Plan as of any date shall be an amount as described in the paragraphs below. A participant's Pension Plan Program is one of the non-bargained programs that are defined and operated as part of the AT&T Pension Benefit Plan: Southeast Management Program, AT&T Legacy Management Program, Management Cash Balance Program, Nonbargained Program, and Wireless Program. The Plan benefit is equal to:

(a) the amount of the Participant's benefit under the applicable Pension Plan Program and period of employment in which he or she actively participates (i.e., accrues benefits) on the date of his or her termination of employment that would have been payable to or on account of the Participant under such Pension Plan Program as of that date, determined without regard to the limitations imposed by either Code Section 401(a)(17) or 415 and determined as if all types of compensation that are used to determine the employee's Pension Plan benefit (e.g., base salary and short-term incentive compensation that the Participant is eligible to receive) were recognized for purposes of calculating such amount;

Copyright © 2013 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document (i) if the Participant is also eligible for a separate frozen benefit under another Pension Plan Program for a prior period of employment, such amount is not included in the amount determined under this subsection (a); except in the following case:

(ii) if the Participant's service was bridged specifically due to the Sixth Amendment to the AT&T Pension Benefit Plan, where such amendment was approved in November 2010 and effective January 1, 2010, in cases where a Pension Plan participant transferred employment from the Legacy AT&T company or Legacy BellSouth company to Cingular Wireless, after the joint venture formation of Cingular and prior to AT&T's acquisition of BellSouth, then the total Pension Plan benefit (from the frozen separate Pension Plan Program and current Pension Plan Program) will be included in the amount determined under this subsection (a);

REDUCED BY

(b) the amount of the Participant's benefit actually paid under the applicable Pension Plan Program and period of employment in which he or she actively participates (i.e., accrues benefits) on the date of his or her termination of employment;

(i) if the Participant is also eligible for a separate frozen benefit under another Pension Plan Program for a prior period of employment, such amount is not included in the amount determined under this subsection (b); except in the following case:

(ii) if the Participant's service was bridged specifically due to the Sixth Amendment to the AT&T Pension Benefit Plan, where such amendment was approved in November 2010 and effective January 1, 2010, in cases where a Pension Plan participant transferred employment from a Legacy AT&T company or Legacy BellSouth company to Cingular Wireless, after the joint venture formation of Cingular and prior to AT&T's acquisition of BellSouth, then the total Pension Plan benefit (from the frozen separate Pension Plan Program and current Pension Plan Program) will be included in the amount determined under this subsection (b).

The amount determined under subsection (a), above, shall be calculated in the same manner that is used for calculating the amount under subsection (b), using the benefit calculation methodology and the factors in effect under such Pension Plan as of the date of his termination of employment; the only difference being the amount of compensation used for calculating such amount.

Notwithstanding the above descriptions, for any Participant who ceased to satisfy the eligibility conditions of Section 2.1(c) due to initial participation in the AT&T Supplemental Employee Retirement Plan on or before December 31, 2008 shall have a Plan benefit equal to the greater of (d) or (e) described below:

(d) the amount described by paragraphs 3.1(a), 3.1(b) and 3.1(c) above determined as of the Participant's actual termination-of-employment date.

(e) the amount described by paragraphs 3.1(a), 3.1(b) and 3.1(c) above determined as if the Participant had terminated employment effective December 31, 2008.

3.2. Participants in Predecessor Plans. If a Participant participated in one or more Predecessor Plans prior to becoming a Participant under this Plan, benefits under this Plan shall be no less than the benefits accrued under the Predecessor Plans, and the benefits under this Plan shall be in lieu of all benefits otherwise payable to him under the Predecessor Plans.

SECTION 4: Payment of Plan Benefits

4.1 Distribution of Plan Benefits. Benefits hereunder shall be calculated and distributed upon a Participant's termination of employment; provided, however, distribution of Plan benefits of any Participant who is also an officer of the Company shall commence on the sixth month anniversary of such Participant's termination of employment.

4.2. Form of Plan Benefits. Benefits hereunder shall be paid in the form of a lump sum; provided, however, if the amount of the Participant's lump sum benefit exceeds $50,000 as of his termination of employment, the Plan benefit shall be paid in monthly installments over a period of ten (10) years. Notwithstanding the foregoing, with respect to any Participant who, prior to termination of employment ceases to satisfy the eligibility conditions of Section 2.1, the form of such Participant's benefit (lump sum or ten (10) year monthly annuity) shall be determined as of the date such Participant ceases to satisfy the eligibility conditions of Section 2.1.

If benefits are distributed in the form of a monthly annuity for ten (10) years, the monthly payments shall be calculated in the same manner that a financial institution would calculate the monthly payments for a 10-year fixed interest loan.

Copyright © 2013 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Notwithstanding any other provision of this Plan, the benefits of any Participant who was a participant in and accrued benefits under the Cingular Wireless SBC Executive 2005 Transition Pension Make Up Plan (which is a Predecessor Plans) shall have their benefits distributed exclusively in a lump sum.

4.3 Converting Form of Benefit. For all purposes under the Plan, the lump sum benefit and ten year monthly installment form of benefit shall be the actuarially determined equivalent of one another, as determined by the Plan Administrator in the Plan Administrator's complete and sole discretion, and the amount of such benefits under the Plan shall be determined on the basis of the Participant's age and the rates, tables, and factors which would be utilized to determine such benefit under the Pension Plan as of the date required for making such determination.

SECTION 5: General and Administrative Provisions

5.1. Plan Administration. The Company shall be the Plan Administrator of the Plan. The Plan Administrator's responsibilities hereunder shall be carried out by its Senior Executive Vice President responsible for Human Resources matters. The authority to control and manage the operation and administration of the Plan shall be vested in the Plan Administrator. The Plan Administrator has the exclusive right and discretion to construe, interpret and apply the provisions of the Plan and the entitlement to benefits under the Plan in accordance with its terms. The Plan Administrator may establish, adopt or revise such rules and regulations as the Plan Administrator may deem necessary or advisable for the administration of the Plan. Any decision made by the Plan Administrator on any matter within the Plan Administrator's discretion is conclusive, final and binding on all persons, and not subject to further review. The Benefit Plan Committee of the Company shall grant or deny claims for benefits under the Plan and authorize disbursements. Adequate notice, pursuant to applicable law and prescribed Company practices, shall be provided in writing to any Participant or Beneficiary whose claim has been denied, setting forth the specific reasons for such denial. The review and appeal procedures for any Participant or Beneficiary whose claim has been denied shall be the same as those procedures set forth in the Pension Plan under which such Participant or Beneficiary is entitled to or received benefits.

5.2. Source of Benefits; Unsecured Creditor. The obligations of the Company under the Plan are solely contractual. Any amount payable under the terms of the Plan shall be paid from the general assets of the Company or a Subsidiary. Alternatively, amounts payable under the terms of the Plan may be paid from one or more trusts that the Company or a Subsidiary might elect to establish, the assets of which will be subject to the claims of the general creditors of the Company or the Subsidiary that created the trust. Participants and their beneficiaries shall have no legal or equitable rights, interest, or claims in any property or assets of the Company or any Subsidiary. Any and all of the Company's or a Subsidiary's assets shall be, and remain, the general, unpledged, unrestricted assets of the Company or any such Subsidiary. The Company's or a Subsidiary's obligation under the Plan shall be merely that of an unfunded and unsecured promise of the Company or any such Subsidiary to distribute cash under the Plan in the future. If a Participant's term of employment includes service by two Subsidiaries or by the Company and one or more Subsidiaries, the Company or Subsidiary which last employed the Participant shall be solely responsible for the entire benefit payable under the Plan.

Copyright © 2013 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document 5.3. Notices. Any notice or document required to be given to or filed with the Plan Administrator shall be considered to be given or filed if delivered to the Plan Administrator or mailed by registered mail, postage prepaid, to the Plan Administrator.

5.4. Applicable Laws. The Plan shall be construed and administered in accordance with the laws of the State of Texas, to the extent that such laws are not preempted by ERISA or any other laws of the United States of America.

5.5. Gender and Number. Where the context requires, words in any gender shall include any other gender, words in the singular shall include the plural and the plural shall include the singular.

5.6. Benefits Determined as of Termination of Employment. Except as otherwise specifically provided in the Plan, the right to benefits under the Plan and the amount of benefits of a Participant who has terminated or terminates employment with the Company or a Subsidiary shall be determined in accordance with the provisions of the Plan as in effect immediately prior to that termination of employment.

5.7. Benefits Under Predecessor Plans. Notwithstanding any provision of this Plan to the contrary, nothing shall reduce or impair the interests of individuals with respect to benefits that are being paid under a Predecessor Plan as of the effective date of this Plan without the consent of the affected Participant. Notwithstanding any provision of this Plan to the contrary, nothing shall reduce or impair the interests of individuals with respect to benefits that are accrued under a Predecessor Plan as of the effective date of this Plan without the consent of the affected Participant; provided, however, benefits accrued as of December 31, 2004 under the terms of a Predecessor Plan shall only be distributed and paid under the terms of Section 4 of this Plan.

5.8. Plan Not Contract of Employment. The Plan does not constitute a contract of employment, and nothing in the Plan or any action taken hereunder shall be construed as a contract of employment or to give any employee or Participant the right to be retained in the employ of the Company or a Subsidiary.

5.9. Benefits May Not Be Assigned or Alienated. Benefits payable to, or on account of, any individual under the Plan may not be voluntarily or involuntarily assigned, pledged, transferred, mortgaged, alienated, conveyed in advance of actual receipt or otherwise encumbered. No such amounts shall be subject to seizure or sequestration for the payment of any debts, judgments, alimony or separation maintenance owed by a Participant or any other person, nor be transferable by operation of law in the event of a Participant's or any other person's bankruptcy or insolvency. Any such attempted assignments to transfer shall be void. Prior to the death of any Participant, no other person shall have any rights under the Plan with respect to that Participant.

Copyright © 2013 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document 5.10. Beneficiary Designation. Participants shall have the right to designate a Beneficiary to receive their benefits under the Plan should such Participant die prior to commencement of or complete distribution of benefits hereunder. The AT&T Rules for Beneficiary Designations as may hereafter be amended from time to time (the "Rules"), which Rules are incorporated herein by this reference, shall apply. For purposes of this Plan, "Beneficiary" shall mean any beneficiary designated by a Participant to receive his or her benefits under this Plan in the event of the Participant's death, or as otherwise determined under the Rules to the extent the Participant fails to designate a beneficiary.

5.11. Amendments and Termination. The Plan may be amended or terminated at any time in accordance with the provisions of the AT&T Schedule of Authorizations, as amended from time-to-time, but such amendments or termination shall not adversely affect the rights of any Participant, without his or her consent, to any benefit payable under the Plan to which such Participant has previously become entitled prior to the effective date of such amendment or termination.

5.12. Tax Withholding. All applicable federal, state and local taxes required by law to be withheld shall be deducted from benefits paid under this Plan.

5.13. Offsets and Overpayments. If any overpayment is made by the Plan for any reason, the Plan shall have the right to recover such overpayment. The Participant shall cooperate fully with the Plan to recover any overpayment and provide any necessary information and required documents. If a Participant entitled to distribution of benefits hereunder owes any amount to AT&T or any Subsidiary, such amount may be withheld from benefits payable hereunder to satisfy such obligation. Any overpayment or Participant debt to AT&T or any Subsidiary may be deducted from future benefits payable to or on behalf of the Participant from this Plan.

1. The AT&T Pension Benefit Make Up Plan No. 1, which is also the successor plan, effective January 1, 2000, to the SNET Pension Benefit Plan and, effective January 1, 1999, to the Pacific Telesis Group Excess Benefit Plan.

2. Section 4.10.2 of the AT&T Pension Benefit Plan – Non-Bargained Program, which are the 415 Excess Benefit Provisions of such plan.

3. The Ameritech Corporate Resource Supplemental Pension Plan, which is a successor to the Ameritech Senior Management Retirement and Survivor Protection Plan and was established by Ameritech Corporation effective as of January 1, 1986, which, in turn was an amendment, restatement and continuation of the following predecessor plans: the Ameritech Management Supplemental Pension Plan, the Ameritech Senior Management Non-Qualified Pension Plan, the Ameritech Mid- Career Pension Plan, and the retirement and survivor benefit provisions of the Ameritech Senior Management Long Term Disability and Survivor Protection Plan.

4. The Ameritech Management Supplemental Pension Benefit Plan

5. Effective January 1, 2009, The Cingular Wireless SBC Executive Transition Pension Make Up Plan and The Cingular Wireless SBC Executive 2005 Transition Pension Make Up Plan

Copyright © 2013 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document EXHIBIT 12 AT&T INC. COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES Dollars in Millions

Year Ended December 31, 2016 2015 2014 2013 2012 Earnings: Income from continuing operations before income taxes $ 19,812 $ 20,692 $ 10,355 $ 28,050 $ 10,496 Equity in net income of affiliates included above (98) (79) (175) (642) (752) Fixed charges 7,296 6,592 5,295 5,452 4,876 Distributed income of equity affiliates 61 30 148 318 137 Interest capitalized (892) (797) (234) (284) (263)

Earnings, as adjusted $ 26,179 $ 26,438 $ 15,389 $ 32,894 $ 14,494

Fixed Charges: Interest expense $ 4,910 $ 4,120 $ 3,613 $ 3,940 $ 3,444 Interest capitalized 892 797 234 284 263 Portion of rental expense representative of interest factor 1,494 1,675 1,448 1,228 1,169

Fixed Charges $ 7,296 $ 6,592 $ 5,295 $ 5,452 $ 4,876

Ratio of Earnings to Fixed Charges 3.59 4.01 2.91 6.03 2.97

Copyright © 2013 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Selected Financial and Operating Data Dollars in millions except per share amounts

At December 31 and for the year ended: 2016 2015 2014 2013 2012 Financial Data Operating revenues $ 163,786 $ 146,801 $ 132,447 $ 128,752 $ 127,434 Operating expenses $ 139,439 $ 122,016 $ 120,235 $ 98,000 $ 114,380 Operating income $ 24,347 $ 24,785 $ 12,212 $ 30,752 $ 13,054 Interest expense $ 4,910 $ 4,120 $ 3,613 $ 3,940 $ 3,444 Equity in net income of affiliates $ 98 $ 79 $ 175 $ 642 $ 752 Other income (expense) - net $ 277 $ (52) $ 1,581 $ 596 $ 134 Income tax expense $ 6,479 $ 7,005 $ 3,619 $ 9,328 $ 2,922 Net Income $ 13,333 $ 13,687 $ 6,736 $ 18,722 $ 7,574 Less: Net Income Attributable to Noncontrolling Interest $ (357) $ (342) $ (294) $ (304) $ (275) Net Income Attributable to AT&T $ 12,976 $ 13,345 $ 6,442 $ 18,418 $ 7,299 Earnings Per Common Share: Net Income Attributable to AT&T $ 2.10 $ 2.37 $ 1.24 $ 3.42 $ 1.26 Earnings Per Common Share - Assuming Dilution: Net Income Attributable to AT&T $ 2.10 $ 2.37 $ 1.24 $ 3.42 $ 1.26 Cash and cash equivalents $ 5,788 $ 5,121 $ 8,603 $ 3,339 $ 4,868 Total assets $ 403,821 $ 402,672 $ 296,834 $ 281,423 $ 275,834 Long-term debt $ 113,681 $ 118,515 $ 75,778 $ 69,091 $ 66,152 Total debt $ 123,513 $ 126,151 $ 81,834 $ 74,589 $ 69,638 Capital expenditures $ 22,408 $ 20,015 $ 21,433 $ 21,228 $ 19,728 Dividends declared per common share $ 1.93 $ 1.89 $ 1.85 $ 1.81 $ 1.77 Book value per common share $ 20.22 $ 20.12 $ 17.40 $ 18.10 $ 17.14 Ratio of earnings to fixed charges 3.59 4.01 2.91 6.03 2.97 Debt ratio 49.9% 50.5% 47.5% 44.1% 42.1% Weighted-average common shares outstanding (000,000) 6,168 5,628 5,205 5,368 5,801 Weighted-average common shares outstanding with dilution (000,000) 6,189 5,646 5,221 5,385 5,821 End of period common shares outstanding (000,000) 6,139 6,145 5,187 5,226 5,581 Operating Data Total wireless customers (000) 146,832 137,324 120,554 110,376 106,957 Video connections (000) 37,748 37,934 5,943 5,460 4,536 In-region network access lines in service (000) 13,986 16,670 19,896 24,639 29,279 Broadband connections (000) 15,605 15,778 16,028 16,425 16,390 Number of employees 268,540 281,450 243,620 243,360 241,810

RESULTS OF OPERATIONS

For ease of reading, AT&T Inc. is referred to as “we,” “AT&T” or the “Company” throughout this document, and the names of the particular subsidiaries and affiliates providing the services generally have been omitted. AT&T is a holding company whose subsidiaries and affiliates operate in the communications and entertainment services industry. Our subsidiaries and affiliates provide services and equipment that deliver voice, video and broadband services both domestically and internationally. During 2015, we completed our acquisitions of DIRECTV and wireless properties in Mexico. The following discussion of changes in our operating revenues and expenses is affected by the timing of these acquisitions. In accordance with U.S. generally accepted accounting principles (GAAP), our 2015 results include 160 days of DIRECTV-related operations compared with a full year in 2016. You should read this discussion in conjunction with the consolidated financial statements and accompanying notes. A reference to a “Note” in this section refers to the accompanying Notes to Consolidated Financial Statements. In the tables throughout this section, percentage increases and decreases that are not considered meaningful are denoted with a dash. Certain amounts have been reclassified to conform to the current period’s presentation.

Consolidated Results Our financial results are summarized in the table below. We then discuss factors affecting our overall results for the past three years. These factors are discussed in more detail in our “Segment Results” section. We also discuss our expected revenue and expense trends for 2017 in the “Operating Environment and Trends of the Business” section.

Percent Change 2016 vs. 2015 vs. 2016 2015 2014 2015 2014 Operating Revenues Service $ 148,884 $ 131,677 $ 118,437 13.1% 11.2% Equipment 14,902 15,124 14,010 (1.5) 8.0 Total Operating Revenues 163,786 146,801 132,447 11.6 10.8 Operating expenses Cost of services and sales Equipment 18,757 19,268 18,946 (2.7) 1.7 Broadcast, programming and operations 19,851 11,996 4,075 65.5 - Other cost of services 38,276 35,782 37,124 7.0 (3.6) Selling, general and administrative 36,347 32,919 39,697 10.4 (17.1) Asset abandonments and impairments 361 35 2,120 - (98.3) Depreciation and amortization 25,847 22,016 18,273 17.4 20.5 Total Operating Expenses 139,439 122,016 120,235 14.3 1.5 Operating Income 24,347 24,785 12,212 (1.8) - Interest expense 4,910 4,120 3,613 19.2 14.0 Equity in net income of affiliates 98 79 175 24.1 (54.9) Other income (expense) – net 277 (52) 1,581 - - Income Before Income Taxes 19,812 20,692 10,355 (4.3) 99.8 Net Income 13,333 13,687 6,736 (2.6) - Net Income Attributable to AT&T $ 12,976 $ 13,345 $ 6,442 (2.8)% -%

OVERVIEW

Operating revenues increased $16,985, or 11.6%, in 2016 and $14,354, or 10.8%, in 2015.

Service revenues increased $17,207, or 13.1%, in 2016 and $13,240, or 11.2%, in 2015. The increase in 2016 was primarily due to our 2015 acquisition of DIRECTV and increases in IP broadband and fixed strategic service revenues. These were partially offset by continued declines in our legacy wireline voice and data products and lower wireless revenues from offerings that entitle customers to lower monthly service rates. The increase in 2015 was primarily due to our acquisition of DIRECTV, our new wireless operations in Mexico, and gains in fixed strategic services and our IP-based AT&T U-verse® (U- verse) services.

Equipment revenues decreased $222, or 1.5%, in 2016 and increased $1,114, or 8.0%, in 2015. The decline in 2016 reflects fewer domestic wireless handset sales and additional promotional offers, partially offset by the sale of higher-priced devices. The increase in 2015 was also due to postpaid wireless subscribers choosing to purchase devices on installment payment agreements rather than the device subsidy models.

Operating expenses increased $17,423, or 14.3%, in 2016 and $1,781, or 1.5%, in 2015.

Equipment expenses decreased $511, or 2.7%, in 2016 and increased $322, or 1.7%, in 2015. Expense decreases in 2016 were primarily driven by lower domestic wireless handset sales, partially offset by increased sales volumes to our Mexico wireless customers. The increase in 2015 was primarily due to customers choosing higher-priced wireless devices.

Broadcast, programming and operations expenses increased $7,855, or 65.5%, in 2016 and $7,921 in 2015. Cost increases in both years were due to our acquisition of DIRECTV. Higher content costs in both years were slightly offset by fewer U-verse TV subscribers.

Other cost of services expenses increased $2,494, or 7.0%, in 2016 and decreased $1,342, or 3.6%, in 2015. The expense increase in 2016 was primarily due to our acquisition of DIRECTV and an increase in noncash financing-related costs associated with our pension and postretirement benefits. The expense increase also reflects a $1,185 change in our annual pension postemployment benefit actuarial adjustment, which consisted of a loss in 2016 and a gain in 2015. These increases were partially offset by prior year network rationalization charges, lower net expenses associated with our deferral and amortization of customer fulfillment costs and a decline in network and access charges.

The expense decrease in 2015 was primarily due to a $3,078 reduction resulting from the annual remeasurement of our benefit plans, which was a gain in 2015 and a loss in 2014. Also contributing to the 2015 decrease were higher Connect America and High Cost Funds’ receipts from the Universal Service Fund and the fourth-quarter 2014 sale of our Connecticut wireline operations, offset by the addition of DIRECTV, increased network rationalization charges related to Leap Wireless International, Inc. (Leap), merger and integration charges and wireless handset insurance costs.

Selling, general and administrative expenses increased $3,428, or 10.4%, in 2016 and decreased $6,778, or 17.1%, in 2015. The increase in 2016 was primarily due to our acquisitions in 2015 and increased advertising activity. Expenses also include an increase of $1,991 as a result of recording an actuarial loss in 2016 and an actuarial gain in 2015. These increases were offset by noncash gains of $714 on wireless spectrum transactions, lower wireless commissions expenses and fewer employee separation costs.

In 2015, expenses decreased $6,943 as a result of recording an actuarial gain in 2015 and an actuarial loss in 2014. The 2015 decrease was also due to lower employee-related charges resulting from workforce reductions, declines in wireless commissions and the fourth-quarter 2014 sale of our Connecticut wireline operations, offset by costs resulting from the acquisition of DIRECTV.

Asset abandonments and impairments During the fourth quarter of 2016, we recorded a noncash charge of $361 for the impairment of wireless and other assets. These assets primarily arose from capitalized costs for wireless sites that are no longer in our construction plans. In 2015, we recorded a noncash charge of $35 for the abandonment of certain wireless sites. In 2014, we recorded a noncash charge of $2,120 for the abandonment in place of certain network assets; we completed a study of our network assets and determined that specific copper assets would not be necessary to support future network activity, due to declining customer demand for our legacy voice and data products and the transition of our networks to next generation IP- based technology. (See Note 6)

Depreciation and amortization expense increased $3,831, or 17.4%, in 2016 and $3,743, or 20.5%, in 2015. The amortization expense increased $2,495, or 92.0%, in 2016 and $2,198 in 2015. The increases were due to the amortization of intangibles from recent acquisitions.

Depreciation expense increased $1,336, or 6.9%, in 2016. The increase was primarily due to the acquisitions of DIRECTV and ongoing capital investment for network upgrades. The increases were partially offset by a $462 decrease associated with our change in the estimated useful lives and salvage values of certain assets associated with our transition to an IP-based network (see Note 1). The 2015 depreciation expense increased $1,545, or 8.7%, primarily due to the acquisitions of DIRECTV and our wireless properties in Mexico, as well as ongoing capital spending for network upgrades. The increases were partially offset by the abandonment of certain wireline network assets, which occurred in 2014, and network assets becoming fully depreciated.

Operating income decreased $438, or 1.8%, in 2016 and increased $12,573 in 2015. Our operating margin was 14.9% in 2016, compared to 16.9% in 2015 and 9.2% in 2014. Contributing $3,176 to the decrease in operating income in 2016 was a noncash actuarial loss of $1,024 and an actuarial gain of $2,152 in 2015. This decrease was partially offset by continued efforts to reduce operating costs and achieve merger synergies. Contributing $10,021 to the increase in operating income in 2015 was a noncash actuarial gain of $2,152 compared to an actuarial loss of $7,869 in 2014, partially offset by higher acquisition-related charges and expenses relating to growth areas of our business.

Interest expense increased $790, or 19.2%, in 2016 and $507, or 14.0%, in 2015. The increases were primarily due to higher average debt balances, including debt issued and debt acquired in connection with our acquisition of DIRECTV. The increase in 2016 was also driven by higher average interest rates, and in 2015 was partially offset by lower average interest rates and an increase in capitalized interest resulting from spectrum acquired in the Advanced Wireless Service (AWS)-3 Auction (see Note 5).

Equity in net income of affiliates increased $19, or 24.1%, in 2016 and decreased $96, or 54.9%, in 2015. Our results in 2016 and 2015 included income from our investments in Game Show Network and SKY Mexico, partially offset by losses from Otter Media Holdings. In 2014, results included earnings from América Móvil S.A. de C.V. (América Móvil) partially offset by our mobile wallet joint venture. (See Note 8)

Other income (expense) – net We had other income of $277 in 2016, other expense of $52 in 2015 and other income of $1,581 in 2014. Results for 2016 included net gains on the sale of non-strategic assets and investments of $184 and interest and dividend income of $118.

Other expense for 2015 included foreign exchange losses of $74, net losses on the sale of non-strategic assets and investments of $87 and interest and dividend income of $95. Results for 2014 included a combined net gain of $1,470 on the sale of América Móvil shares, our Connecticut wireline operations and other non-strategic assets and investments, and interest and dividend income of $68.

Income tax expense decreased $526, or 7.5%, in 2016 and increased $3,386 in 2015. The decrease in income tax expense in 2016 and increase in income tax expense in 2015 were primarily due to a change in income before income taxes. The decrease in 2016 also reflects a benefit resulting from our Mexico restructuring. Our effective tax rate was 32.7% in 2016, 33.9% in 2015 and 34.9% in 2014 (see Note 11).

Segment Results

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 of operating income, excluding acquisition-related costs and other significant items, and equity in net income (loss) of affiliates for investments managed within each segment. Each segment’s percentage calculation of total segment operating revenue and income is derived from our segment results table in Note 4, and may total more than 100 percent due to losses in one or more segments. We have four reportable segments: (1) Business Solutions, (2) Entertainment Group, (3) Consumer Mobility and (4) International.

We also evaluate segment performance based on EBITDA and/or EBITDA margin, which is defined as Segment 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.

The Business Solutions segment accounted for approximately 44% of our 2016 total segment operating revenues as compared to 49% in 2015 and 52% of our 2016 total Segment Contribution as compared to 59% in 2015. This segment provides services to business customers, including multinational companies; governmental and wholesale 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, collectively referred to as fixed strategic services; as well as traditional data and voice products. We utilize our wireless and wired networks (referred to as “wired” or “wireline”) to provide a complete integrated communications solution to our business customers.

The Entertainment Group segment accounted for approximately 32% of our 2016 total segment operating revenues as compared to 24% in 2015 and 19% of our 2016 total Segment Contribution as compared to 7% in 2015. This segment provides video, internet, voice communication, and interactive and targeted advertising services to customers located in the United States or in U.S. territories. We utilize our copper and IP-based wired network and/or our satellite technology.

The Consumer Mobility segment accounted for approximately 20% of our 2016 total segment operating revenues as compared to 24% in 2015 and 31% of our 2016 total Segment Contribution as compared to 35% in 2015. This segment provides nationwide wireless service to consumers and wholesale and resale wireless subscribers located in the United States or in U.S. territories. We utilize our networks to provide voice and data services, including high-speed internet, video and home monitoring services over wireless devices.

The International segment accounted for approximately 4% of our 2016 total segment operating revenues as compared to 3% in 2015. This 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 wireless 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.

Our operating assets are utilized by multiple segments and consist of our wireless and wired networks as well as an international satellite fleet. We manage our assets to provide for the most efficient, effective and integrated service to our customers, not by segment, and therefore asset information and capital expenditures by segment are not presented. Depreciation is allocated based on network usage or asset utilization by segment.

Business Solutions Segment Results Percent Change 2016 vs. 2015 vs. 2016 2015 2014 2015 2014 Segment operating revenues Wireless service $ 31,850 $ 30,687 $ 30,182 3.8% 1.7% Fixed strategic services 11,389 10,461 9,298 8.9 12.5 Legacy voice and data services 16,364 18,468 20,225 (11.4) (8.7) Other service and equipment 3,615 3,558 3,860 1.6 (7.8) Wireless equipment 7,770 7,953 7,041 (2.3) 13.0 Total Segment Operating Revenues 70,988 71,127 70,606 (0.2) 0.7

Segment operating expenses Operations and support 44,330 44,946 45,826 (1.4) (1.9) Depreciation and amortization 9,832 9,789 9,355 0.4 4.6 Total Segment Operating Expenses 54,162 54,735 55,181 (1.0) (0.8) Segment Operating Income 16,826 16,392 15,425 2.6 6.3 Equity in Net Income of Affiliates - - - - - Segment Contribution $ 16,826 $ 16,392 $ 15,425 2.6% 6.3%

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

Percent Change 2016 vs. 2015 vs. At December 31 (in 000s) 2016 2015 2014 2015 2014 Business Wireless Subscribers Postpaid 50,688 48,290 45,160 5.0% 6.9% Reseller 65 85 11 (23.5) - Connected devices1 30,649 25,284 19,943 21.2 26.8 Total Business Wireless Subscribers 81,402 73,659 65,114 10.5 13.1

Business IP Broadband Connections 977 911 822 7.2% 10.8%

Percent Change 2016 vs. 2015 vs. (in 000s) 2016 2015 2014 2015 2014 Business Wireless Net Additions2,4 Postpaid 759 1,203 2,064 (36.9)% (41.7)% Reseller (33) 13 6 - - Connected devices1 5,330 5,315 3,439 0.3 54.6 Business Wireless Net Subscriber Additions 6,056 6,531 5,509 (7.3) 18.6

Business Wireless Postpaid Churn2,3,4 1.00% 0.99% 0.90% 1 BP 9 BP

Business IP Broadband Net Additions 66 89 191 (25.8)% (53.4)% 1 Includesdata-centric devices such as session-based tablets, monitoring devices and automobile systems. Excludes postpaid tablets. 2 Excludes migrations between AT&T segments and/or subscriber categories and 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 year is equal to the average of the churn rate for each month of that period. 4 Includes impacts of the year-end 2016 shutdown of our 2G network.

Operating revenues decreased $139, or 0.2%, in 2016 and increased $521, or 0.7%, in 2015. Revenue declines in 2016 were driven by continued declines in demand for our legacy voice and data services and lower wireless equipment revenues, partially offset by continued growth in fixed strategic and wireless services. The increase in 2015 was driven by wireless revenues and continued growth in fixed strategic services, partially offset by continued declines in demand for our legacy voice and data services and foreign exchange pressures.

Wireless service revenues increased $1,163, or 3.8%, in 2016 and $505, or 1.7%, in 2015. The revenue increases reflect smartphone and tablet gains, handset insurance sales, as well as customer migrations from our Consumer Mobility segment.

Business wireless subscribers increased 10.5%, to 81.4 million subscribers at December 31, 2016 compared to 13.1%, to 73.7 million subscribers at December 31, 2015. Postpaid subscribers increased 5.0% in 2016 compared to 6.9% in 2015 reflecting the addition of new customers as well as migrations from our Consumer Mobility segment, partially offset by continuing competitive pressures in the industry. Connected devices, which have lower average revenue per average subscriber (ARPU) and lower churn, increased 21.2% in 2016 compared to 26.8% in 2015 primarily reflecting growth in our connected car business.

The effective management of subscriber churn is critical to our ability to maximize revenue growth and to maintain and improve margins. Business wireless postpaid churn increased to 1.00% in 2016 from 0.99% in 2015 and 0.90% in 2014.

Fixed strategic services revenues increased $928, or 8.9%, in 2016 and $1,163, or 12.5%, in 2015. Our revenues increased in 2016 and 2015 due to Ethernet increases of $224 and $389, U-verse services increases of $172 and $247, Dedicated Internet services increases of $230 and $190 and VPN increases of $89 and $116, respectively.

Due to advances in technology, our most advanced business solutions are subject to change periodically. We review and evaluate our fixed strategic service offerings annually, which may result in an updated definition and the recast of our historical financial information to conform to the current period presentation. Any modifications will be reflected in the first quarter.

Legacy voice and data service revenues decreased $2,104, or 11.4%, in 2016 and $1,757, or 8.7%, in 2015. Traditional data revenues in 2016 and 2015 decreased $1,255 and $958 and long-distance and local voice revenues decreased $823 and $797. The decreases were 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 $57, or 1.6%, in 2016 and decreased $302, or 7.8%, in 2015. Other service revenues include project-based revenue, which is nonrecurring in nature, as well as revenues from other managed services, outsourcing, government professional service and customer premises equipment. The increase in 2016 was primarily due to nonrecurring customer premises equipment contracts. The decline in 2015 is primarily due to lower project-based and equipment revenues, as well as impacts from foreign exchange rates.

Wireless equipment revenues decreased $183, or 2.3%, in 2016 and increased $912, or 13.0%, in 2015. The decrease in 2016 was primarily due to a decrease in handsets sold and increased promotional offers, partially offset by an increase in sales under our equipment installment agreements, including our AT&T NextSM (AT&T Next) program. The increase in 2015 was primarily due to the increase in purchases of devices on installment agreements rather than the device subsidy model and increased sales of higher-priced smartphones. We expect wireless equipment revenues to be pressured in 2017 as customers are retaining their handsets for longer periods of time and more new subscribers are bringing their own devices.

Operations and support expenses decreased $616, or 1.4%, in 2016 and $880, or 1.9%, in 2015. 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.

Expense decreases in 2016 were primarily due to: · Lower network costs of $283 resulting from workforce reductions and other cost initiative actions. · Declines in wireless commission expenses of $225 due to lower sales volumes and lower average commission rates, including those paid under the AT&T Next program, combined with fewer handset upgrade transactions. · Lower net expenses of $219 associated with fulfillment cost deferrals (see Note 1). · Reductions of $186 in equipment costs, driven by lower wireless handset volumes partially offset by the sale of higher- priced wireless devices and higher-priced customer premises equipment.

Partially offsetting the decreases in 2016 were higher wireless handset insurance cost of $195 and the impact of Connect America and High Cost Funds’ receipts.

Expense decreases in 2015 were primarily due to: · Lower commission costs of $995 resulting from lower average commission rates and fewer upgrade transactions. · Declines in employee-related charges of $508 resulting from workforce reductions and other cost initiatives. · Reductions of $269 in access costs due to lower interconnect, roaming and traffic compensation costs. · Lower customer service costs of $146 largely resulting from our simplified offerings and increased efforts to resolve customer inquiries on their first call.

Partially offsetting the decreases in 2015 were: · Higher wireless handset insurance cost of $370. · Increased equipment expense of $304 due to the continuing trend of customers choosing higher-cost devices. · Higher bad debt expense of $173 resulting from growth in our AT&T Next subscriber base.

Depreciation expense increased $43, or 0.4%, in 2016 and $434, or 4.6%, in 2015. The increases were primarily due to ongoing capital spending for network upgrades and expansion and accelerating depreciation related to the shutdown of our U.S. 2G network, partially offset by fully depreciated assets. The increase in 2016 was largely offset by the change in estimated useful lives and salvage values of certain assets associated with our transition to an IP-based network (see Note 1).

Operating income increased $434, or 2.6%, in 2016 and $967, or 6.3%, in 2015. Our Business Solutions segment operating income margin was 23.7% in 2016, compared to 23.0% in 2015 and 21.8% in 2014. Our Business Solutions EBITDA margin was 37.6% in 2016, compared to 36.8% in 2015 and 35.1% in 2014.

Entertainment Group Segment Results Percent Change 2016 vs. 2015 vs. 2016 2015 2014 2015 2014 Segment operating revenues Video entertainment $ 36,460 $ 20,271 $ 6,826 79.9% -% High-speed internet 7,472 6,601 5,522 13.2 19.5 Legacy voice and data services 4,829 5,914 7,592 (18.3) (22.1) Other service and equipment 2,534 2,508 2,293 1.0 9.4 Total Segment Operating Revenues 51,295 35,294 22,233 45.3 58.7

Segment operating expenses Operations and support 39,338 28,345 18,992 38.8 49.2 Depreciation and amortization 5,862 4,945 4,473 18.5 10.6 Total Segment Operating Expenses 45,200 33,290 23,465 35.8 41.9 Segment Operating Income (Loss) 6,095 2,004 (1,232) - - Equity in Net Income (Loss) of Affiliates 9 (4) (2) - - Segment Contribution $ 6,104 $ 2,000 $ (1,234) -% -%

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

Percent Change 2016 vs. 2015 vs. At December 31 (in 000s) 2016 2015 2014 2015 2014 Linear Video Connections1 Satellite 21,012 19,784 - 6.2% -% U-verse 4,253 5,614 5,920 (24.2) (5.2) Total Linear Video Connections 25,265 25,398 5,920 (0.5) -

Broadband Connections IP 12,888 12,356 11,383 4.3 8.5 DSL 1,291 1,930 3,061 (33.1) (36.9) Total Broadband Connections 14,179 14,286 14,444 (0.7) (1.1)

Retail Consumer Switched Access Lines 5,853 7,286 9,243 (19.7) (21.2) U-verse Consumer VoIP Connections 5,425 5,212 4,759 4.1 9.5 Total Retail Consumer Voice Connections 11,278 12,498 14,002 (9.8)% (10.7)% 1 Includes the impact of customers that migrated to DIRECTV NOW. At December 31, 2016, we had more than 200 DIRECTV NOW subscribers.

Percent Change 2016 vs. 2015 vs. (in 000s) 2016 2015 2014 2015 2014 Linear Video Net Additions 1,2 Satellite 1,228 240 - -% -% U-verse (1,361) (306) 663 - - Linear Net Video Additions (133) (66) 663 - -

Broadband Net Additions IP 532 973 1,899 (45.3) (48.8) DSL (639) (1,130) (1,768) 43.5 36.1 Net Broadband Additions (107) (157) 131 31.8% -% 1 Excludes acquisition-related additions during the period. 2 Includes disconnections for customers that migrated to DIRECTV NOW. Net DIRECTV NOW additions were more than 200.

Operating revenues increased $16,001, or 45.3%, in 2016 and $13,061, or 58.7%, in 2015, largely due to our acquisition of DIRECTV in July 2015. Also contributing to the increases was continued growth in consumer IP broadband, which offset lower revenues from legacy voice and data products. U-verse video revenue also contributed to higher results in 2015.

As consumers continue to demand more mobile access to video, we have launched streaming access to our subscribers, including mobile access for existing satellite and U-verse subscribers. In November 2016, we launched DIRECTV NOW, our newest video streaming option that does not require either satellite or U-verse service (commonly called over-the-top video service).

Video entertainment revenues increased $16,189, or 79.9%, in 2016 and $13,445 in 2015, primarily related to our acquisition of DIRECTV. We are now focusing our sales efforts on satellite service as there are lower marginal content costs for satellite subscribers. U-verse video revenues were $900 lower in 2016, primarily due to a 24.2% decrease in U-verse video connections, when compared to 2015, and $932 higher in 2015 when compared to 2014. As of December 31, 2016, more than 80% of our linear video subscribers were on the DIRECTV platform.

High-speed internet revenues increased $871, or 13.2%, in 2016 and $1,079, or 19.5%, in 2015. When compared to 2015, IP broadband subscribers increased 4.3%, to 12.9 million subscribers at December 31, 2016. When compared to 2014, IP broadband subscribers increased 8.5%, to 12.4 million subscribers at December 31, 2015. While IP broadband subscribers increased in 2016 and 2015, net additions declined in both years due to fewer U-verse sales promotions in each year and competitive pressures. The churn of video customers also contributed to lower net additions, as a portion of these video subscribers also chose to disconnect their IP broadband service. To compete more effectively against other broadband providers, in 2016 we continued to deploy our all-fiber, high-speed wireline network, which has improved customer retention rates.

Legacy voice and data service revenues decreased $1,085, or 18.3%, in 2016 and $1,678, or 22.1%, in 2015. For 2016, legacy voice and data services represented approximately 9% of our total Entertainment Group revenue compared to 17% for 2015 and 34% for 2014 and reflect decreases of $663 and $1,083 in local voice and long-distance, and $422 and $593 in traditional data revenues. The decreases reflect the continued migration of customers to our more advanced IP-based offerings or to competitors. At December 31, 2016, approximately 9% of our broadband connections were DSL compared to 14% at December 31, 2015.

Operations and support expenses increased $10,993, or 38.8%, in 2016 and $9,353, or 49.2%, in 2015. 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, as well as personnel costs, such as compensation and benefits.

Increased expenses in both periods were primarily due to our acquisition of DIRECTV, which increased our Entertainment Group expenses by $11,748 in 2016 and $9,683 in 2015. The DIRECTV related increases were primarily due to higher content costs, customer support and service related charges, and advertising expenses. The increase in 2016 also reflects pressure from annual content cost increases, including the NFL SUNDAY TICKET®.

Partially offsetting the increased expenses in both years were lower employee charges resulting from ongoing workforce reductions and our focus on cost initiatives. Lower equipment costs also partially offset increased expenses in 2015.

Depreciation expenses increased $917, or 18.5%, in 2016 and $472, or 10.6%, in 2015. The increases were primarily due to our acquisition of DIRECTV and ongoing capital spending for network upgrades and expansion, partially offset by fully depreciated assets. The increase in 2016 was partially offset by the change in estimated useful lives and salvage value of certain assets associated with our transition to an IP-based network (see Note 1).

Operating income increased $4,091 in 2016 and $3,236 in 2015. Our Entertainment Group segment operating income margin was 11.9% in 2016, 5.7% in 2015, and (5.5)% in 2014. Our Entertainment Group EBITDA margin was 23.3% in 2016, 19.7% in 2015, and 14.6% in 2014.

Consumer Mobility Segment Results Percent Change 2016 vs. 2015 vs. 2016 2015 2014 2015 2014 Segment operating revenues Service $ 27,536 $ 29,150 $ 30,850 (5.5)% (5.5)% Equipment 5,664 5,916 5,919 (4.3) (0.1) Total Segment Operating Revenues 33,200 35,066 36,769 (5.3) (4.6)

Segment operating expenses Operations and support 19,659 21,477 23,891 (8.5) (10.1) Depreciation and amortization 3,716 3,851 3,827 (3.5) 0.6 Total Segment Operating Expenses 23,375 25,328 27,718 (7.7) (8.6) Segment Operating Income 9,825 9,738 9,051 0.9 7.6 Equity in Net Income (Loss) of Affiliates - - (1) - - Segment Contribution $ 9,825 $ 9,738 $ 9,050 0.9% 7.6%

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

Percent Change 2016 vs. 2015 vs. At December 31 (in 000s) 2016 2015 2014 2015 2014 Consumer Mobility Subscribers Postpaid 27,095 28,814 30,610 (6.0)% (5.9)% Prepaid 13,536 11,548 9,965 17.2 15.9 Branded 40,631 40,362 40,575 0.7 (0.5) Reseller 11,884 13,690 13,844 (13.2) (1.1) Connected devices1 942 929 1,021 1.4 (9.0) Total Consumer Mobility Subscribers 53,457 54,981 55,440 (2.8)% (0.8)% 1 Includes data-centric devices such as session-based tablets, monitoring devices and automobile systems. Excludes postpaid tablets.

Percent Change 2016 vs. 2015 vs. (in 000s) 2016 2015 2014 2015 2014 Consumer Mobility Net Additions1,4 Postpaid 359 463 1,226 (22.5)% (62.2)% Prepaid 1,575 1,364 (311) 15.5 - Branded Net Additions 1,934 1,827 915 5.9 99.7 Reseller (1,813) (168) (351) - 52.1 Connected devices2 19 (131) (465) - 71.8 Consumer Mobility Net Subscriber Additions 140 1,528 99 (90.8)% -%

Total Churn1,3,4 2.15% 1.94% 2.06% 21 BP (12) BP Postpaid Churn1,3,4 1.19% 1.25% 1.22% (6) BP 3 BP 1 Excludes migrations between AT&T segments and/or subscriber categories and acquisition-related additions during the period. 2 Includes data-centric devices such as session-based tablets, monitoring devices and automobile systems. Excludes postpaid tablets. 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 year is equal to the average of the churn rate for each month of that period. 4 Includes the impacts of the year-end 2016 shutdown of our U.S. 2G network.

Operating revenues decreased $1,866, or 5.3%, in 2016 and $1,703, or 4.6%, in 2015. Decreased revenues reflect declines in postpaid service revenues due to customers migrating to our Business Solutions segment and choosing Mobile Share plans, partially offset by higher prepaid service revenues. Our business wireless offerings allow for individual subscribers to purchase wireless services through employer-sponsored plans for a reduced price. The migration of these subscribers to the Business Solutions segment negatively impacted our consumer postpaid subscriber total and service revenue growth. The shutdown of our 2G network also resulted in higher overall churn as subscribers in our reseller and connected device categories upgraded their devices at lower rates than postpaid and prepaid subscribers.

Service revenue decreased $1,614, or 5.5%, in 2016 and $1,700, or 5.5%, in 2015. The decreases were largely due to the migration of of subscribers to Business Solutions and postpaid customers continuing to shift to no-device-subsidy plans that allow for discounted monthly service charges under our Mobile Share plans. Revenues from postpaid customers declined $2,285, or 10.4%, in 2016 and $2,252, or 9.3%, in 2015. Without the migration of customers to Business Solutions, postpaid wireless revenues would have decreased approximately 5.6% in 2016 and 4.0% for 2015. The decreases were partially offset by higher prepaid service revenues of $953, or 20.4%, in 2016 and $457, or 10.9%, in 2015.

Equipment revenue decreased $252, or 4.3%, in 2016 and $3, or 0.1%, in 2015. The decreases in equipment revenues resulted from lower handset sales and upgrades and increased promotional activities, partially offset by the sale of higher-priced devices and increases in devices purchased on installment payment agreements. In 2016, we had fewer customers upgrading their handsets and more new customers bringing their own devices. We expect these customer trends to continue in 2017.

Operations and support expenses decreased $1,818, or 8.5%, in 2016 and $2,414, or 10.1%, in 2015. 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.

Expense decreases in 2016 were primarily due to: · Declines in equipment costs of $554 due to lower handset volumes partially offset by higher prices. · Reduced selling and commission expenses of $302 resulting from fewer upgrade transactions and lower average commission rates. · Lower network costs of $246 driven by a decline in interconnect costs resulting from our ongoing network transition to more efficient Ethernet/IP-based technologies. · Declines of $204 associated with bad debt expense. · Lower customer service costs of $145 due to cost efficiencies including lower vendor and professional services from reduced call center volumes.

Expense decreases in 2015 were primarily due to: · Reduced selling and commission expenses of $861 from lower average commission rates and fewer upgrade transactions. · Lower network costs of $434 driven by a decline in interconnect costs resulting from our ongoing network transition to more efficient Ethernet/IP-based technologies. · Reductions of $406 for equipment costs, reflecting lower handset volumes partially offset by the sale of higher-priced devices. · Lower customer service costs of $275 primarily due to cost efficiencies including lower vendor and professional services from reduced call center volumes. · Declines of $209 primarily due to incollect roaming fee rate declines, partially offset by increased data volume.

Depreciation expense decreased $135, or 3.5%, in 2016 and increased $24, or 0.6%, in 2015. The decrease in 2016 was primarily due to fully depreciated assets, partially offset by ongoing capital spending for network upgrades and expansion and accelerating depreciation related to the shutdown of our U.S. 2G network. The increase in 2015 was primarily due to ongoing capital spending for network upgrades and expansion that was largely offset by fully depreciated assets.

Operating income increased $87, or 0.9%, in 2016 and $687, or 7.6%, in 2015. Our Consumer Mobility segment operating income margin increased to 29.6% in 2016, compared to 27.8% in 2015 and 24.6% in 2014. Our Consumer Mobility EBITDA margin increased to 40.8% in 2016, compared to 38.8% in 2015 and 35.0% in 2014.

International Segment Results Percent Change 2016 vs. 2015 vs. 2016 2015 2014 2015 2014 Segment operating revenues Video entertainment $ 4,910 $ 2,151 $ - -% -% Wireless service 1,905 1,647 - 15.7 - Equipment 468 304 - 53.9 - Total Segment Operating Revenues 7,283 4,102 - 77.5 -

Segment operating expenses Operations and support 6,830 3,930 - 73.8 - Depreciation and amortization 1,166 655 - 78.0 - Total Segment Operating Expenses 7,996 4,585 - 74.4 - Segment Operating Income (Loss) (713) (483) - (47.6) - Equity in Net Income (Loss) of Affiliates 52 (5) 153 - - Segment Contribution $ (661) $ (488) $ 153 (35.5)% -%

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

Percent Change 2016 vs. 2015 vs. At December 31 (in 000s) 2016 2015 2014 2015 2014 Mexico Wireless Subscribers Postpaid 4,965 4,289 - 15.8% -% Prepaid 6,727 3,995 - 68.4 - Branded 11,692 8,284 - 41.1 - Reseller 281 400 - (29.8) - Total Mexico Wireless Subscribers 11,973 8,684 - 37.9 -

Latin America Satellite Subscribers PanAmericana 7,206 7,066 - 2.0 - SKY Brazil1 5,249 5,444 - (3.6) - Total Latin America Satellite Subscribers 12,455 12,510 - (0.4)% -% 1 Excludes subscribers of our International segment equity investments in SKY Mexico, in which we own a 41.3% stake. SKY Mexico had 7.9 million subscribers at September 30, 2016 and 7.3 million subscribers at December 31, 2015.

Percent Change 2016 vs. 2015 vs. (in 000s) 2016 2015 2014 2015 2014 Mexico Wireless Net Additions Postpaid 677 177 - -% -% Prepaid 2,732 (169) - - - Branded Net Additions 3,409 8 - - - Reseller (120) (104) - (15.4) - Mexico Wireless Net Subscriber Additions 3,289 (96) - - -

Latin America Satellite Net Additions PanAmericana 140 76 - 84.2 - SKY Brazil1 (195) (223) - 12.6 - Latin America Satellite Net Subscriber Additions (55) (147) - 62.6% -% 1 Excludes SKY Mexico net subscriber additions of 643,000 for the nine months ended September 30, 2016 and 646,000 for the year ended December 31, 2015.

Operating Results Our International segment consists of the Latin American operations acquired in our July 2015 acquisition of DIRECTV as well as the Mexican wireless operations acquired earlier in 2015 (see Note 5). Video entertainment services are provided to primarily residential customers using satellite technology in various countries in Latin America, including Brazil, Argentina and Colombia. Our International segment is subject to foreign currency fluctuations, with most of our international subsidiaries conducting business in their local currency. Operating results are converted to U.S. dollars using official exchange rates.

Operating revenues increased $3,181, or 77.5%, in 2016. Revenue growth in 2016 includes increases of $2,759 from video services in Latin America and $422, or 21.6%, in Mexico, primarily due to an increase in our wireless subscriber base offset by lower ARPU.

Operations and support expenses increased $2,900, or 73.8%, in 2016. 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 the 2016 expenses was largely attributable to operations in Latin America reflecting our mid-2015 DIRECTV acquisition.

Depreciation expense increased $511, or 78.0%, in 2016. The increase was primarily due to the acquisition of DIRECTV operations and our wireless network upgrade in Mexico.

Operating income decreased $230, or 47.6%, in 2016. Our International segment operating income margin was (9.8)% in 2016 and (11.8)% in 2015. Our International EBITDA margin was 6.2% in 2016 and 4.2% in 2015.

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).

AT&T Mobility Results Percent Change 2016 vs. 2015 vs. 2016 2015 2014 2015 2014 Operating revenues Service $ 59,386 $ 59,837 $ 61,032 (0.8)% (2.0)% Equipment 13,435 13,868 12,960 (3.1) 7.0 Total Operating Revenues 72,821 73,705 73,992 (1.2) (0.4)

Operating expenses Operations and support 43,886 45,789 48,348 (4.2) (5.3) EBITDA 28,935 27,916 25,644 3.7 8.9 Depreciation and amortization 8,292 8,113 7,744 2.2 4.8 Total Operating Expenses 52,178 53,902 56,092 (3.2) (3.9) Operating Income 20,643 19,803 17,900 4.2 10.6 Equity in Net Income (Loss) of Affiliates - - (1) - - Operating Contribution $ 20,643 $ 19,803 $ 17,899 4.2% 10.6%

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

Percent Change 2016 vs. 2015 vs. At December 31 (in 000s) 2016 2015 2014 2015 2014 Wireless Subscribers1 Postpaid smartphones 59,096 58,073 56,644 1.8% 2.5% Postpaid feature phones and data-centric devices 18,687 19,032 19,126 (1.8) (0.5) Postpaid 77,783 77,105 75,770 0.9 1.8 Prepaid 13,536 11,548 9,965 17.2 15.9 Branded 91,319 88,653 85,735 3.0 3.4 Reseller 11,949 13,774 13,855 (13.2) (0.6) Connected devices2 31,591 26,213 20,964 20.5 25.0 Total Wireless Subscribers 134,859 128,640 120,554 4.8 6.7

Branded smartphones 70,817 67,200 62,443 5.4 7.6 Mobile Share connections 57,028 61,275 52,370 (6.9) 17.0 Smartphones under our installment programs at end of period 30,688 26,670 15,308 15.1% 74.2% 1 Represents 100% of AT&T Mobility wireless subscribers. 2 Includes data-centric devices such as session-based tablets, monitoring devices and automobile systems. Excludes postpaid tablets.

Percent Change 2016 vs. 2015 vs. (in 000s) 2016 2015 2014 2015 2014 Wireless Net Additions1,4 Postpaid 1,118 1,666 3,290 (32.9)% (49.4)% Prepaid 1,575 1,364 (311) 15.5 - Branded Net Additions 2,693 3,030 2,979 (11.1) 1.7 Reseller (1,846) (155) (346) - 55.2 Connected devices2 5,349 5,184 2,975 3.2 74.3 Wireless Net Subscriber Additions 6,196 8,059 5,608 (23.1) 43.7

Smartphones sold under our installment programs during period 17,871 17,320 15,268 3.2% 13.4%

Total Churn3,4 1.48% 1.39% 1.45% 9 BP (6) BP Branded Churn3,4 1.62% 1.63% 1.69% (1) BP (6) BP Postpaid Churn3,4 1.07% 1.09% 1.04% (2) BP 5 BP Postpaid Phone Only Churn3,4 0.92% 0.99% 0.97% (7) BP 2 BP 1 Excludes acquisition-related additions during the period. 2 Includes data-centric devices such as session-based tablets, monitoring devices and automobile systems. Excludes postpaid tablets. 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 year is equal to the average of the churn rate for each month of that period. 4 Includes the impacts of the year-end 2016 shutdown of our U.S. 2G network.

Operating income increased $840, or 4.2%, in 2016 and $1,903, or 10.6%, in 2015. The operating income margin of AT&T Mobility increased to 28.3% in 2016, compared to 26.9% in 2015 and 24.2% in 2014. AT&T Mobility’s EBITDA margin increased to 39.7% in 2016, compared to 37.9% in 2015 and 34.7% in 2014. AT&T Mobility’s EBITDA service margin increased to 48.7% in 2016, compared to 46.7% in 2015 and 42.0% in 2014. (EBITDA service margin is operating income before depreciation and amortization, divided by total service revenues.)

Subscriber Relationships As the wireless industry continues to mature, future wireless growth will become increasingly dependent on our ability to offer innovative services, plans and devices and a wireless network that has sufficient spectrum and capacity to support these innovations on as broad a geographic basis as possible. To attract and retain subscribers in a maturing market, we have launched a wide variety of plans, including Mobile Share and AT&T Next. Additionally, beginning in 2016, we introduced an integrated offer that allows for unlimited wireless data when combined with our video services, ending the year with more than 7.9 million subscribers on this offer.

The year-end 2016 shutdown of our U.S. 2G network contributed to higher disconnections and churn of subscribers, particularly in the fourth quarter 2016. Although many 2G subscribers, especially in our postpaid and prepaid categories, chose to upgrade to newer devices before the end of the year, a portion did not. We discontinued service on virtually all of our 2G cell sites in early 2017, and as of February 1, 2017, had 766,000 subscribers that remain on 2G devices. Our 2G subscribers at December 31 are as follows:

Percent (in 000s) 2016 2015 Change Postpaid (primarily phones) 89 928 (90.4) % Prepaid 77 387 (80.1) Reseller1 337 2,796 (87.9) Connected devices2 1,813 5,635 (67.8) Total 2G Subscribers 2,316 9,746 (76.2) % 1 Primarily included in our Consumer Mobility segment. 2 Primarily included in our Business Solutions segment.

ARPU Postpaid phone only ARPU was $59.45 and postpaid phone only ARPU plus AT&T Next subscriber installment billings was $69.76 in 2016, compared to $60.45 and $68.03 in 2015 and $62.99 and $65.80 in 2014, respectively.

Churn The effective management of subscriber churn is critical to our ability to maximize revenue growth and to maintain and improve margins. Total churn was higher in 2016 and was negatively impacted by the loss of 2G subscribers, which contributed more than 20 basis points of pressure to total churn throughout the year. Postpaid churn and postpaid phone only churn were lower in 2016 despite competitive pressure in the industry.

Branded Subscribers Branded subscribers increased 3.0% in 2016 and 3.4% in 2015. These increases reflect growth of 17.2% and 15.9% in prepaid subscribers and 0.9% and 1.8% in postpaid subscribers, respectively. At December 31, 2016, 91% of our postpaid phone subscriber base used smartphones, compared to 87% at December 31, 2015. 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. Device connections on our Mobile Share and unlimited wireless data integrated offer plans now represent 84% of our postpaid customer base compared to 79% at December 31, 2015. During 2016, approximately 10% of our postpaid customer base, or 7.9 million subscribers chose this new integrated offer. Such offerings are intended to encourage existing subscribers to upgrade their current services and/or add connected devices, attract subscribers from other providers and minimize subscriber churn.

During the first quarter of 2016, we discontinued offering subsidized smartphones to most of our customers. Under this no-subsidy model, subscribers must purchase a device on installments under an equipment installment program or choose to bring their own device (BYOD), with no annual service contract. At December 31, 2016, about 52% of the postpaid smartphone base is on an installment program compared to nearly 46% at December 31, 2015. Of the postpaid smartphone gross adds and upgrades during 2016, 93% were either equipment installment plans or BYOD, compared to 77% in 2015. While BYOD customers do not generate equipment revenue or expense, the service revenue helps improve our margins. During 2016, we added approximately 2.3 million BYOD customers, compared to 1.8 million in 2015. BYOD sales represented 11% of total postpaid smartphone sales in 2016 compared to 7% in 2015.

Our equipment installment purchase programs, including AT&T Next, allow for postpaid subscribers to purchase certain devices in installments over a period of up to 30 months. Additionally, after a specified period of time, AT&T Next subscribers also have the right to trade in the original device for a new device with a new installment plan and have the remaining unpaid balance satisfied. For installment programs, we recognize equipment revenue at the time of the sale for the amount of the customer receivable, net of the fair value of the trade-in right guarantee and imputed interest. A significant percentage of our customers choosing equipment installment programs pay a lower monthly service charge, which results in lower service revenue recorded for these subscribers.

Connected Devices Connected devices includes data-centric devices such as session-based tablets, monitoring devices and automobile systems. Connected device subscribers increased 20.5% during 2016 and 25.0% in 2015. During 2016, we added approximately 4.9 million “connected” cars through agreements with various carmakers. We believe that these connected car agreements give us the opportunity to create future retail relationships with the car owners.

OPERATING ENVIRONMENT AND TRENDS OF THE BUSINESS

2017 Revenue Trends We expect our operating environment in 2017 to be highly competitive, as companies and consumers continue to demand instant connectivity, higher speeds and an integrated experience across their devices for both video and data. Our recent regulatory environment has been unfriendly to investment in broadband services but we are hopeful that the results of the 2016 Federal election will begin to create a regulatory environment that is more predictable and more conducive to long-term investment planning. We are also hopeful that U.S. corporate tax reform will be enacted which should stimulate the economy and increase business investment overall. In 2017, we expect the following: · Consolidated operating revenue growth, driven by our ability to offer integrated wireless, video and wireline services, as well as continuing growth in fixed strategic services. · Robust competition in wireless and video will continue to pressure service revenue and ARPU for those products. · Major customer categories will continue to increase their use of internet-based broadband/data services and video services. · Traditional voice and data service revenue declines. · Our 2015 acquisitions of DIRECTV and wireless properties in Mexico will increase revenues, although we expect to incur significant integration costs in the same period.

2017 Expense Trends We expect consolidated operating income margins to expand in 2017 as growth in AT&T Next is reducing subsidized handset costs over time and we lower our marginal cost of providing video services and operating our network. We intend to continue our focus on cost reductions, driving savings through automation, supply chain, benefit design, digitizing transactions and optimizing network costs. In addition, the ongoing transition of our network to a more efficient software-based technology is expected to continue driving favorable expense trends over the next several years. However, expenses related to growth areas of our business along with the integration of our newly acquired operations, will place offsetting pressure on our operating income margin.

Market Conditions During 2016, the ongoing slow recovery in the general U.S. economy continued to negatively affect our customers. Certain industries, such as energy and retail businesses, are being especially cautious. Residential customers continue to be price sensitive in selecting offerings, and continue to focus on products that give them efficient access to video and broadcast services. We expect continued pressure on pricing during 2017 as we respond to this intense competition, especially in the wireless and video services.

Included on our consolidated balance sheets are assets held by benefit plans for the payment of future benefits. Our pension plans are subject to funding requirements of the Employee Retirement Income Security Act of 1974, as amended (ERISA). In September 2013, we made a voluntary contribution of a preferred equity interest in AT&T Mobility II LLC to the trust used to pay pension benefits. We also agreed to make a cash contribution to the trust of $175 no later than the due date of our

Copyright © 2013 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued) Dollars in millions except per share and per subscriber amounts federal income tax return for 2014, 2015 and 2016. During 2016, we accelerated the final contribution and completed our obligation with a $350 cash payment. The trust is entitled to receive cumulative annual cash distributions of $560, which will result in a $560 contribution during 2017. We expect only minimal ERISA contribution requirements to our pension plans for 2017. However, a weakness in the equity, fixed income and real asset markets could require us in future years to make contributions to the pension plans in order to maintain minimum funding requirements as established by ERISA. Investment returns on these assets depend largely on trends in the U.S. securities markets and the U.S. economy. In addition, our policy of recognizing actuarial gains and losses related to our pension and other postretirement plans in the period in which they arise subjects us to earnings volatility caused by changes in market conditions. Changes in our discount rate, which are tied to changes in the bond market, and changes in the performance of equity markets, may have significant impacts on the valuation of our pension and other postretirement obligations at the end of 2017 (see “Accounting Policies and Estimates”).

OPERATING 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. However, based on their public statements and written opinions, we expect the new leadership at the FCC to chart a more predictable and balanced regulatory course that will encourage long-term investment and benefit consumers. 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 all IP-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 February 2015, the FCC released an order classifying both fixed and mobile consumer broadband internet access services as telecommunications services, subject to comprehensive regulation under the Telecom Act. The FCC’s decision significantly expands its existing authority to regulate the provision of fixed and mobile broadband internet access services. AT&T and other providers of broadband internet access services challenged the FCC’s decision before the U.S. Court of Appeals for the D.C. Circuit. On June 14, 2016, a panel of the Court of Appeals upheld the FCC’s rules by a 2-1 vote. In July 2016, AT&T and several of the other parties that challenged the rules filed petitions with the Court of Appeals asking that the case be reheard either by the panel or by the full Court of Appeals. Those petitions remain pending.

In October 2016 a sharply divided FCC adopted new rules governing the use of customer information by providers of broadband internet access service. Those rules are more restrictive in certain respects than those governing other participants in the internet economy, including so-called “edge” providers such as Google and Facebook. Several petitions for reconsideration of the new rules have been filed, as well as a request for stay. The current Chairman of the FCC opposed the new rules when they were adopted, and we expect the FCC will rule on these petitions promptly.

In January 2017, the FCC removed from its list of active proceedings proposed rules on cable set-top boxes and the bulk data connections that telecom companies provide to businesses.

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 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 provide IP-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 retail services. Regulatory reform and passage of legislation is uncertain and depends on many factors.

Copyright © 2013 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document We provide wireless services in robustly competitive markets, but are subject to substantial and increasing governmental regulation. Wireless communications providers must obtain licenses from the FCC to provide communications services at

The FCC has recognized that the explosive growth of bandwidth-intensive wireless data services requires the U.S. government to make more spectrum available. In February 2012, Congress set forth specific spectrum blocks to be auctioned and licensed by February 2015 (the “AWS-3 Auction”) and also authorized the FCC to conduct an “incentive auction,” to make available for wireless broadband use certain spectrum that is currently used by broadcast television licensees (the “600 MHz Auction”). We participated in the AWS-3 Auction. The 600 MHz Auction (Auction 1000) began on March 29, 2016, and after multiple phases, this auction is expected to conclude in the first half of 2017.

We have also submitted a bid to provide a nationwide mobile broadband network for the First Responder Network Authority (FirstNet). Should our bid be accepted, the actual reach of the network will depend on participation by the individual states.

In May 2014, in a separate proceeding, the FCC issued an order revising its policies governing mobile spectrum holdings. The FCC rejected the imposition of caps on the amount of spectrum any carrier could acquire, retaining its case-by-case review policy. Moreover, it increased the amount of spectrum that could be acquired before exceeding an aggregation “screen” that would automatically trigger closer scrutiny of a proposed transaction. On the other hand, it indicated that it will separately consider an acquisition of “low band” spectrum that exceeds one-third of the available low band spectrum as presumptively harmful to competition. In addition, the FCC imposed limits on certain bidders in the 600 MHz Auction, including AT&T, restricting them from bidding on up to 40 percent of the available spectrum in markets that cover as much as 70-80 percent of the U.S. population. On balance, the order and the spectrum screen should allow AT&T to obtain additional spectrum to meet our customers’ needs, but because AT&T uses more “low band” spectrum in its network than some other national carriers, the separate consideration of low band spectrum acquisitions might affect AT&T’s ability to expand capacity in these bands (low band spectrum has better propagation characteristics than “high band” spectrum). We seek to ensure that we have the opportunity, through the auction process and otherwise, to obtain the spectrum we need to provide our customers with high-quality service in the future.

As the wireless industry continues to mature, future wireless growth will become increasingly dependent on our ability to offer innovative video and data services and a wireless network that has sufficient spectrum and capacity to support these innovations. 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, in 2015 we submitted winning bids for 251 AWS spectrum licenses for a near-nationwide contiguous block of high-quality AWS spectrum in the AWS-3 Auction (FCC Auction 97). Our strategy also includes redeploying spectrum previously used for basic 2G services to support more advanced mobile internet services on our 3G and 4G networks. We have bid on FirstNet, which if awarded will provide access to a nationwide low band 20 MHz of spectrum, assuming all states “opt in,” and we are participating in the current FCC 600 MHz Auction (Auction 1000). We will continue to invest in our wireless network as we look to provide future service offerings and participate in technologies such as 5G and millimeter-wave bands.

Expected Growth Areas Over the next few years, we expect our growth to come from IP-based broadband services, video entertainment and wireless services from our expanded North American footprint. With our 2015 acquisitions of DIRECTV and wireless properties in Mexico, our revenue mix is much more diversified. We can now provide integrated services to diverse groups of customers in the United States on different technological platforms, including wireless, satellite and wireline. In 2017, we expect our largest revenue stream to come from business customers, followed by U.S. consumer video and broadband, U.S. consumer mobility and then international video and mobility.

Integration of Data/Broadband and Entertainment Services As the communications industry continues to move toward internet- based technologies that are capable of blending wireline, satellite and wireless services, we plan to offer services that take advantage of these new and more sophisticated technologies. In particular, we intend to continue to focus on expanding our high-speed internet and video offerings and on developing IP-based services that allow customers to integrate their home or business fixed services with their mobile service. During 2017, we will continue to develop and provide unique integrated video, mobile and broadband solutions. In late 2016, we began offering an over-the-top video service (DIRECTV NOW); data usage from streaming entertainment content will not count toward data limits for customers who also purchase our wireless service. We believe this offering will facilitate our customers’ desire to view video anywhere on demand and encourage customer retention.

Wireless We expect to deliver revenue growth in the coming years. We are in a period of rapid growth in wireless video usage and believe that there are substantial opportunities available for next-generation converged services that combine technologies and services. For example, we entered into agreements with many automobile manufacturers and began providing vehicle-embedded security and entertainment services.

As of December 31, 2016, we served 146.8 million wireless subscribers in North America, with nearly 135 million in the United States. Our LTE technology covers almost 400 million people in North America. In the United States, we cover all major metropolitan areas and almost 320 million people. We also provide 4G coverage using another technology (HSPA+), and when combined with our upgraded backhaul network, we are able to enhance our network capabilities and provide superior mobile broadband speeds for data and video services. Our wireless network also relies on other GSM digital transmission technologies for 3G data communications. We have shut down virtually all 2G cell sites, which enables us to position that spectrum to provide the more advanced services demanded by our customers.

Our acquisition of two Mexican wireless providers in 2015 brought a GSM network covering both the United States and Mexico and enabled our customers to use wireless services without roaming on other companies’ networks. We believe this seamless access will prove attractive to customers and provide a significant growth opportunity. We also announced in 2015 our plan to invest $3,000 to upgrade our network in Mexico to provide LTE coverage to 100 million people and businesses by year-end 2018. As of year-end 2016, this LTE network covered approximately 78 million people and businesses in Mexico.

REGULATORY DEVELOPMENTS

Set forth below is a summary of the most significant regulatory proceedings that directly affected our operations during 2016. Industry- wide regulatory developments are discussed above in Operating Environment Overview. While these issues may apply only to certain subsidiaries, the words “we,” “AT&T” and “our” are used to simplify the discussion. The following discussions are intended as a condensed summary of the issues rather than as a comprehensive legal analysis and description of all of these specific issues.

International Regulation Our subsidiaries operating outside the United States are subject to the jurisdiction of regulatory authorities in the market where service is provided. Our licensing, compliance and advocacy initiatives in foreign countries primarily enable the provision of enterprise (i.e., large business), wireless and satellite television services. AT&T is engaged in multiple efforts with foreign regulators to open markets to competition, foster conditions favorable to investment, and increase our scope of fully authorized services and products.

Federal Regulation In February 2015, the FCC released an order in response to the D.C. Circuit’s January 2014 decision adopting new rules, and classifying both fixed and mobile consumer broadband internet access services as telecommunications services, subject to comprehensive regulation under the Telecom Act. The FCC’s decision significantly expands the FCC’s existing authority to regulate the provision of fixed and mobile broadband internet access services. The FCC also asserted jurisdiction over internet interconnection arrangements, which until now have been unregulated. These actions could have an adverse impact on our fixed and mobile broadband services and operating results. AT&T and several other parties, including US Telecom and CTIA trade groups, have appealed the FCC’s order. On June 14, 2016, a panel of the Court of Appeals upheld the FCC’s rules by a 2-1 vote. On July 29, 2016, AT&T and several of the other parties that challenged the rules filed petitions with the Court of Appeals asking that the case be reheard either by the panel or by the full Court. Those petitions remain pending.

COMPETITION

Competition continues to increase for communications and digital entertainment services. Technological advances have expanded the types and uses of services and products available. In addition, lack of or a reduced level of regulation of comparable legacy services has lowered costs for these alternative communications service providers. As a result, we face heightened competition as well as some new opportunities in significant portions of our business.

We face substantial and increasing competition in our wireless businesses. Under current FCC rules, multiple licensees, who provide wireless services on the cellular, PCS, Advanced Wireless Services, 700 MHz and other spectrum bands, may operate in each of our U.S. service areas, which results in the potential presence of multiple competitors. Our competitors include brands such as Verizon Wireless, Sprint, T-Mobile/Metro PCS, a larger number of regional providers of cellular, PCS and other wireless communications services and resellers of those services. In addition, we face competition from providers who offer voice, text messaging and other services as applications on data networks. More than 98% of the U.S. population

Our subsidiaries providing communications and digital entertainment services will face continued competitive pressure in 2017 from multiple providers, including wireless, satellite, cable and other VoIP providers, online video providers, and interexchange carriers and resellers. In addition, the desire for high-speed data on demand, including video, are continuing to lead customers to terminate their traditional wired services and use our or competitors’ wireless, satellite and internet-based services. In most U.S. markets, we compete for customers, often on pricing of bundled services, with large cable companies, such as Comcast Corporation, Cox Communications Inc. and Charter Communications (marketed as Spectrum), for high-speed internet, video and voice services and other smaller telecommunications companies for both long-distance and local services. In addition, in Latin American countries served by our DIRECTV subsidiary, we also face competition from other video providers, including América Móvil and Telefónica.

Our Entertainment Group and Business Solutions segments generally remain subject to regulation for certain legacy wireline wholesale services by state regulatory commissions for intrastate services and by the FCC for interstate services. Under the Telecom Act, companies seeking to interconnect to our wireline subsidiaries’ networks and exchange local calls enter into interconnection agreements with us. Many unresolved issues in negotiating those agreements are subject to arbitration before the appropriate state commission. These agreements (whether fully agreed-upon or arbitrated) are often then subject to review and approval by the appropriate state commission.

Our Entertainment Group and Business Solutions segments operate portions of their business under state-specific forms of regulation for retail services that were either legislatively enacted or authorized by the appropriate state regulatory commission. Some states regulate prices of retail services, while others adopt a regulatory framework that incorporates deregulation and price restrictions on a subset of our services. Some states may impose minimum customer service standards with required payments if we fail to meet the standards.

We continue to lose legacy voice and data subscribers due to competitors (e.g., wireless, cable and VoIP providers) who can provide comparable services at lower prices because they are not subject to traditional telephone industry regulation (or the extent of regulation is in dispute), utilize different technologies, or promote a different business model (such as advertising based). In response to these competitive pressures, for a number of years we have used a bundling strategy that rewards customers who consolidate their services (e.g., telephone, high-speed internet, wireless and video) with us. We continue to focus on bundling services, including combined packages of wireless data and voice and video service through our satellite and IP-based services. We will continue to develop innovative and integrated services that capitalize on our wireless and IP-based network and satellites.

Additionally, we provide local and interstate telephone and switched services to other service providers, primarily large Internet Service Providers using the largest class of nationwide internet networks (internet backbone), wireless carriers, other telephone companies, cable companies and systems integrators. These services are subject to additional competitive pressures from the development of new technologies, the introduction of innovative offerings and increasing satellite, wireless, fiber-optic and cable transmission capacity for services. We face a number of international competitors, including Orange Business Services, BT, Singapore Telecommunications Limited and Verizon Communications Inc., as well as competition from a number of large systems integrators.

ACCOUNTING POLICIES AND STANDARDS

Critical Accounting Policies and Estimates Because of the size of the financial statement line items they relate to or the extent of judgment required by our management, some of our accounting policies and estimates have a more significant impact on our consolidated financial statements than others. The following policies are presented in the order in which the topics appear in our consolidated statements of income.

Allowance for Doubtful Accounts We record expense to maintain an allowance for doubtful accounts for estimated losses that result from the failure or inability of our customers to make required payments. When determining the allowance, we consider the probability of recoverability based on past experience, taking into account current collection trends as well as general economic factors, including bankruptcy rates. Credit risks are assessed based on historical

write-offs, net of recoveries, as well as an analysis of the aged accounts and installment receivable balances with reserves generally increasing as the receivable ages. Accounts receivable may be fully reserved for when specific collection issues are known to exist, such as pending bankruptcy or catastrophes. The analysis of receivables is performed monthly, and the allowances for doubtful accounts are adjusted through expense accordingly. A 10% change in the amounts estimated to be uncollectible would result in a change in the provision for uncollectible accounts of approximately $147.

Pension and Postretirement Benefits Our actuarial estimates of retiree benefit expense and the associated significant weighted- average assumptions are discussed in Note 12. Our assumed weighted-average discount rate for pension and postretirement benefits of 4.40% and 4.30%, respectively, at December 31, 2016, reflects the hypothetical rate at which the projected benefit obligations could be effectively settled or paid out to participants. We determined our discount rate based on a range of factors, including a yield curve composed of the rates of return on several hundred high-quality, fixed income corporate bonds available at the measurement date and corresponding to the related expected durations of future cash outflows for the obligations. These bonds were all rated at least Aa3 or AA- by one of the nationally recognized statistical rating organizations, denominated in U.S. dollars, and neither callable, convertible nor index linked. For the year ended December 31, 2016, when compared to the year ended December 31, 2015, we decreased our pension discount rate by 0.20%, resulting in an increase in our pension plan benefit obligation of $2,189 and decreased our postretirement discount rate by 0.20%, resulting in an increase in our postretirement benefit obligation of $906. For the year ended December 31, 2015, we increased our pension discount rate by 0.30%, resulting in a decrease in our pension plan benefit obligation of $1,977 and increased our postretirement discount rate by 0.30%, resulting in a decrease in our postretirement benefit obligation of $854.

Our expected long-term rate of return on pension plan assets is 7.75% for 2017 and 2016. Our expected long-term rate of return on postretirement plan assets is 5.75% for 2017 and 2016. Our expected return on plan assets is calculated using the actual fair value of plan assets. If all other factors were to remain unchanged, we expect that a 0.50% decrease in the expected long-term rate of return would cause 2017 combined pension and postretirement cost to increase $230, which under our accounting policy would be adjusted to actual returns in the current year as part of our fourth-quarter remeasurement of our retiree benefit plans. In 2016, the actual return on our combined pension and postretirement plan assets was 7.5%, resulting in an actuarial gain of $59.

We recognize gains and losses on pension and postretirement plan assets and obligations immediately in our operating results. These gains and losses are generally measured annually as of December 31 and accordingly will normally be recorded during the fourth quarter, unless an earlier remeasurement is required. Should actual experience differ from actuarial assumptions, the projected pension benefit obligation and net pension cost and accumulated postretirement benefit obligation and postretirement benefit cost would be affected in future years. Note 12 also discusses the effects of certain changes in assumptions related to medical trend rates on retiree healthcare costs.

Depreciation Our depreciation of assets, including use of composite group depreciation and estimates of useful lives, is described in Notes 1 and 6. During 2016, we aligned the estimated useful lives and salvage values for certain network assets that are impacted by our IP strategy with our updated business cases and engineering studies. During 2014, we completed studies evaluating the periods over which we were utilizing our software assets, which resulted in our extending our estimated useful lives for certain capitalized software to five years to better reflect the estimated periods during which these assets will remain in service. Prior to 2014, all capitalized software costs were primarily amortized over a three-year period.

If all other factors were to remain unchanged, we expect that a one-year increase in the useful lives of our plant in service would have resulted in a decrease of approximately $3,273 in our 2016 depreciation expense and that a one-year decrease would have resulted in an increase of approximately $4,834 in our 2016 depreciation expense.

Asset Valuations and Impairments We record assets acquired in business combinations at fair value. For impairment testing, we estimate fair values using models that predominantly rely on the expected cash flows to be derived from the use of the asset. Goodwill, wireless licenses and orbital slots are significant assets on our consolidated balance sheets, where impairment testing is performed.

Goodwill and other indefinite lived intangible assets are not amortized but tested at least annually for impairment. We test goodwill on a reporting unit basis by comparing the estimated fair value of each reporting unit to its book value. If the fair value exceeds the book value, then no impairment is measured. We estimate fair values using an income approach (also known as a discounted cash flow) and a market multiple approach. The income approach utilizes our 10-year cash flow projections with a perpetuity value discounted at an appropriate weighted average cost of capital.

The market multiple approach uses the multiples of publicly traded companies whose services are comparable to those offered by the reporting units. In 2016, the calculated fair value of the reporting units exceeded book value in all circumstances, and no additional testing was necessary. In the event of a 10% drop in the fair values of the reporting units, the fair values would have still exceeded the book values of the reporting units.

We assess fair value for wireless licenses using a discounted cash flow model (the Greenfield Approach) and a corroborative market approach based on auction prices. The Greenfield Approach assumes a company initially owns only the wireless licenses and makes investments required to build an operation comparable to current use. Inputs to the model include subscriber growth, churn, revenue per user, capital investment and acquisition costs per subscriber, ongoing operating costs, and resulting EBITDA margins. We based our assumptions on a combination of average marketplace participant data and our historical results, trends and business plans. These licenses are tested annually for impairment on an aggregated basis, consistent with their use on a national scope for the United States and Mexico. For impairment testing, we assume subscriber and revenue growth will trend up to projected levels, with a long-term growth rate reflecting expected long-term inflation trends. We assume churn rates will initially exceed our current experience, but decline to rates that are in line with industry-leading churn. For the U.S. licenses, EBITDA margins are assumed to trend toward 37% annually. We used a discount rate of 8.50% for the United States and 11.0% for Mexico, based on the optimal long-term capital structure of a market participant and its associated cost of debt and equity, to calculate the present value of the projected cash flows. If either the projected rate of long-term growth of cash flows or revenues declined by 0.5%, or if the discount rate increased by 0.5%, the fair values of the wireless licenses would still be higher than the book value of the licenses. The fair value of the wireless licenses in the United States and Mexico each exceeded the book value by more than 10%.

Orbital slots are also valued using the Greenfield Approach. The projected cash flows are based on various factors, including satellite cost, other capital investment per subscriber, acquisition costs per subscriber and usage per subscriber, as well as revenue growth, subscriber growth and churn rates. For impairment testing purposes, we assumed sustainable long-term growth assumptions consistent with the business plan and industry counterparts in the United States. We used a discount rate of 10.50% to calculate the present value of the projected cash flows. If either the projected rate of long-term growth of cash flows or revenues declined by 0.5%, or if the discount rate increased by 0.5%, the fair values of the orbital slots would still be higher than the book value of the orbital slots. The fair value of the orbital slots exceeded the book value by more than 10%.

We review customer relationships and other finite-lived intangible assets for impairment whenever events or circumstances indicate that the carrying amount may not be recoverable over their remaining life. For this analysis, we compare the expected undiscounted future cash flows attributable to the asset to its book value.

We review our investments to determine whether market declines are temporary and accordingly reflected in accumulated other comprehensive income, or other-than-temporary and recorded as an expense in “Other income (expense) – net” in the consolidated statements of income. This evaluation is based on the length of time and the severity of decline in the investment’s value.

Income Taxes Our estimates of income taxes and the significant items giving rise to the deferred assets and liabilities are shown in Note 11 and reflect our assessment of actual future taxes to be paid on items reflected in the financial statements, giving consideration to both timing and probability of these estimates. Actual income taxes could vary from these estimates due to future changes in income tax law or the final review of our tax returns by federal, state or foreign tax authorities.

We use our judgment to determine whether it is more likely than not that we will sustain positions that we have taken on tax returns and, if so, the amount of benefit to initially recognize within our financial statements. We regularly review our uncertain tax positions and adjust our unrecognized tax benefits (UTBs) in light of changes in facts and circumstances, such as changes in tax law, interactions with taxing authorities and developments in case law. These adjustments to our UTBs may affect our income tax expense. Settlement of uncertain tax positions may require use of our cash.

New Accounting Standards

See Note 1 for a discussion of recently issued or adopted accounting standards.

OTHER BUSINESS MATTERS

Time Warner Inc. Acquisition On October 22, 2016, we entered into and announced a merger agreement (Merger Agreement) to acquire Time Warner Inc. (Time Warner) in a 50% cash and 50% stock transaction for $107.50 per share of Time Warner common stock, or approximately $85,400 at the date of the announcement (Merger). Combined with Time Warner’s net debt at September 30, 2016, the total transaction value is approximately $108,700. Each share of Time Warner common stock will be exchanged for $53.75 per share in cash and a number of shares of AT&T common stock equal to the exchange ratio. If the average stock price (as defined in the Merger Agreement) at the time of closing the Merger is between (or equal to) $37.411 and $41.349 per share, the exchange ratio will be the quotient of $53.75 divided by the average stock price. If the average stock price is greater than $41.349, the exchange ratio will be 1.300. If the average stock price is less than $37.411, the exchange ratio will be 1.437. Post-transaction, Time Warner shareholders will own between 14.4% and 15.7% of AT&T shares on a fully-diluted basis based on the number of AT&T shares outstanding. The cash portion of the purchase price will be financed with new debt and cash. See “Liquidity” for a discussion of our financing arrangements.

Time Warner is a global leader in media and entertainment whose major businesses encompass an array of some of the most respected and successful 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 leading scale in TV, mobile and broadband distribution.

The Merger Agreement was approved by Time Warner shareholders on February 15, 2017 and remains subject to review by the U.S. Department of Justice. While subject to change, we expect that Time Warner will not need to transfer any of its FCC licenses to AT&T in order to conduct its business operations after the closing of the transaction. It is also a condition to closing that necessary consents from certain foreign governmental entities must be obtained. The transaction is expected to close before year-end 2017. Under certain circumstances relating to a competing transaction, Time Warner may be required to pay a $1,725 termination fee to us in connection with or following a termination of the agreement. Under certain circumstances relating to the inability to obtain the necessary regulatory approvals, we may be required to pay Time Warner $500 following a termination of the agreement.

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 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 each 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. In June 2016, the plaintiffs filed a consolidated amended complaint. 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. A hearing on both motions is currently scheduled in February 2017.

SportsNet LA Litigation On November 2, 2016, the U.S. Department of Justice filed a civil antitrust complaint in federal court (Central District of California) against DIRECTV Group Holdings, LLC and AT&T Inc., as successor in interest to DIRECTV, alleging that DIRECTV, in 2014, unlawfully exchanged strategic information with certain competitors in connection with negotiations with SportsNet LA about carrying the Los Angeles Dodgers games. The complaint alleges that DIRECTV’s conduct violated Section 1 of the Sherman Act. The complaint seeks a declaration that DIRECTV’s conduct unlawfully restrained trade and seeks an injunction (1) barring DIRECTV and AT&T from engaging in unlawful information sharing in connection with future negotiations for video programming distribution, (2) requiring DIRECTV and AT&T to monitor relevant communications between their executives and competitors and to periodically report to the Department of Justice, and (3) requiring DIRECTV and AT&T to implement training and compliance programs. The complaint asks that the government be awarded its litigation costs. We vigorously dispute these allegations. On January 10, 2017, we filed a motion to dismiss the complaint. The motion remains pending.

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 unspecified 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 are disputing these allegations vigorously. A trial on the matter is expected to begin in early 2017.

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 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 on August 29, 2016, issued its decision reversing the district court and finding that the FTC lacked jurisdiction to proceed with the action. The FTC has asked the Court of Appeals to reconsider the decision but the Court has not ruled on that request. In addition to the FTC case, several class actions have been filed also challenging our MBR program. We vigorously dispute the allegations the complaints have asserted.

In June 2015, the FCC issued a Notice of Apparent Liability and Order (NAL) to AT&T Mobility, LLC concerning our MBR policy that applies to Unlimited Data Plan customers described above. The NAL alleges that we violated the FCC’s Open Internet Transparency Rule by using the term “unlimited” in connection with the offerings subject to the MBR policy and by failing adequately to disclose the speed reductions that apply once a customer reaches a specified data threshold. The NAL proposes a forfeiture penalty of $100, and further proposes to order us to correct any misleading and inaccurate statements about our unlimited plans, inform customers of the alleged violation, revise our disclosures to address the alleged violation and inform these customers that they may cancel their plans without penalty after reviewing the revised disclosures. In July 2015, we filed our response to the NAL. We believe that the NAL is unlawful and should be withdrawn, because we have fully complied with the Open Internet Transparency Rule and the FCC has no authority to impose the proposed remedies. The matter is currently pending before the FCC.

Labor Contracts As of January 31, 2017, we employed approximately 268,000 persons. Approximately 48% of our employees are represented by the Communications Workers of America, the International Brotherhood of Electrical Workers or other unions. Contracts covering approximately 20,000 mobility employees across the country and approximately 25,000 traditional wireline employees in our Southwest and Midwest regions have expired or will expire in 2017. Additionally, negotiations continue with approximately 15,000 traditional wireline employees in our West region where the contract expired in April 2016. Approximately 11,000 former DIRECTV employees were eligible for and chose union representation. Bargaining has resulted in approximately 70% of these employees now being covered under ratified contracts that expire between 2017 and 2020. After expiration of the current agreements, work stoppages or labor disruptions may occur in the absence of new contracts or other agreements being reached.

Environmental We are subject from time to time to judicial and administrative proceedings brought by various governmental authorities under federal, state or local environmental laws. We reference in our Forms 10-Q and 10-K certain environmental proceedings that could result in monetary sanctions (exclusive of interest and costs) of one hundred thousand dollars or more. However, we do not believe that any of those currently pending will have a material adverse effect on our results of operations.

LIQUIDITY AND CAPITAL RESOURCES

We had $5,788 in cash and cash equivalents available at December 31, 2016. Cash and cash equivalents included cash of $1,803 and money market funds and other cash equivalents of $3,985. Approximately $776 of our cash and cash equivalents resided in foreign jurisdictions, some of which are subject to restrictions on repatriation. Cash and cash equivalents increased $667 since December 31, 2015. In 2016, cash inflows were primarily provided by cash receipts from operations, including cash from our sale and transfer of certain wireless equipment installment receivables to third parties, and long-term debt

Cash Provided by or Used in Operating Activities During 2016, cash provided by operating activities was $39,344 compared to $35,880 in 2015. Higher operating cash flows in 2016 were primarily due to our acquisition of DIRECTV and the timing of working capital payments.

During 2015, cash provided by operating activities was $35,880 compared to $31,338 in 2014. Higher operating cash flows in 2015 were primarily due to improved operating results, our acquisition of DIRECTV and working capital improvements.

Cash Used in or Provided by Investing Activities During 2016, cash used in investing activities consisted primarily of $21,516 for capital expenditures, excluding interest during construction and $2,959 for the acquisition of wireless spectrum, Quickplay Media, Inc. and other operations. These expenditures were partially offset by net cash receipts of $646 from the disposition of various assets and $506 from the sale of securities.

The majority of our capital expenditures are spent on our wireless and wireline networks, our video services and related support systems. Capital expenditures, excluding interest during construction, increased $2,298 in 2016. The increase was primarily due to DIRECTV operations, fiber buildout, and wireless network expansion in Mexico. In connection with capital improvements, we have negotiated favorable payment terms (referred to as vendor financing). In 2016, vendor financing related to capital investments was $492. We do not report capital expenditures at the segment level.

We expect our 2017 capital expenditures to be in the $22,000 range, and we expect our capital expenditures to be in the 15% range of service revenues or lower for each of the years 2017 through 2019. The amount of capital expenditures is influenced by demand for services and products, capacity needs and network enhancements. Our capital spending also takes into account existing tax law and does not reflect anticipated tax reform. We are also focused on ensuring DIRECTV merger commitments are met. To that end, as of December 31, 2016, we have built out our fiber-to-the-premises network to 3.8 million customer locations of the 12.5 million locations we committed to reach by mid-2019.

Cash Used in or Provided by Financing Activities We paid dividends of $11,797 in 2016, $10,200 in 2015, and $9,552 in 2014. The increases in 2016 and 2015 were primarily due to the increase in shares outstanding resulting from our acquisition of DIRECTV and the increase in the quarterly dividend approved by our Board of Directors in the fourth quarter of each year. In October 2016, our Board of Directors approved a 2.1% increase in the quarterly dividend from $0.48 to $0.49 per share. This follows a 2.1% dividend increase approved by our Board in December 2015. Dividends declared by our Board of Directors totaled $1.93 per share in 2016, $1.89 per share in 2015, and $1.85 per share in 2014. 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.

During 2016, we received net proceeds of $10,140 from the issuance of $10,013 in long-term debt in various markets, with an average weighted maturity of approximately 12 years and a weighted average coupon of 3.8%. Debt issued included: · February issuance of $1,250 of 2.800% global notes due 2021. · February issuance of $1,500 of 3.600% global notes due 2023. · February issuance of $1,750 of 4.125% global notes due 2026. · February issuance of $1,500 of 5.650% global notes due 2047. · May issuance of $750 of 2.300% global notes due 2019. · May issuance of $750 of 2.800% global notes due 2021. · May issuance of $1,100 of 3.600% global notes due 2023. · May issuance of $900 of 4.125% global notes due 2026. · May issuance of $500 of 4.800% global notes due 2044.

During 2016, we redeemed $10,823 in debt, primarily consisting of the following repayments: · February redemption of $1,250 of AT&T floating rate notes due 2016. · March prepayment of the remaining $1,000 outstanding under a $2,000 18-month credit agreement by and between AT&T and Mizuho. · May redemption of $1,750 of 2.950% global notes due 2016. · June prepayment of $5,000 of outstanding advances under our $9,155 Syndicated Credit Agreement (See “Credit Facilities” below). · August redemption of $1,500 of 2.400% global notes due 2016.

In March 2016, we completed a debt exchange in which $16,049 of DIRECTV notes with stated rates of 1.750% to 6.375% were tendered and accepted in exchange for $16,049 of new AT&T Inc. global notes with stated rates of 1.750% to 6.375% plus a $16 cash payment.

In September 2016, we completed a debt exchange in which $5,615 of notes of AT&T or one or more of its subsidiaries with stated rates of 5.350% to 8.250% were tendered and accepted in exchange for $4,500 of new AT&T Inc. global notes with a stated rate of 4.500% and $2,500 of new AT&T Inc. global notes with a stated rate of 4.550%.

In February 2017, aggregate bids exceeded the level required to clear Auction 1000. This auction, including the assignment phase, is expected to conclude in the first half of 2017. Our commitment to purchase 600 MHz spectrum licenses for which we submitted bids is expected to be more than satisfied by the deposits made to the FCC in the third quarter of 2016.

Our weighted average interest rate of our entire long-term debt portfolio, including the impact of derivatives, was approximately 4.2% at December 31, 2016 and 4.0% at December 31, 2015. We had $122,381 of total notes and debentures outstanding (see Note 9) at December 31, 2016, which included Euro, British pound sterling, Swiss franc, Brazilian real and Canadian dollar denominated debt of approximately $24,292.

On February 9, 2017, we completed the following long-term debt issuances: · $1,250 of 3.200% global notes due 2022. · $750 of 3.800% global notes due 2024. · $2,000 of 4.250% global notes due 2027. · $3,000 of 5.250% global notes due 2037. · $2,000 of 5.450% global notes due 2047. · $1,000 of 5.700% global notes due 2057.

At December 31, 2016, we had $9,832 of debt maturing within one year, substantially all of which was related to long-term debt issuances. Debt maturing within one year includes the following notes that may be put back to us by the holders: · $1,000 of annual put reset securities issued by BellSouth Corporation that may be put back to us each April until maturity in 2021. · An accreting zero-coupon note that may be redeemed each May until maturity in 2022. If the zero-coupon note (issued for principal of $500 in 2007) is held to maturity, the redemption amount will be $1,030.

Our Board of Directors has approved repurchase authorizations of 300 million shares each in 2013 and 2014 (see Note 14). For the year ended December 31, 2015, we repurchased approximately eight million shares totaling $269 under these authorizations and for the year ended December 31, 2016, we repurchased approximately 11 million shares totaling $444 under these authorizations. At December 31, 2016, we had approximately 396 million shares remaining from the 2013 and 2014 authorizations.

Excluding the impact of acquisitions or anticipated tax reform, the emphasis of our 2017 financing activities will be the issuance of debt and the payment of dividends, subject to approval by our Board of Directors, and the repayment of debt. We plan to fund our financing uses of cash through a combination of cash from operations, debt issuances and asset sales. We have obtained bridge loan and term loan financing to be used upon closing of our acquisition of Time Warner. The timing and mix of debt issuance will be guided by credit market conditions and interest rate trends.

Credit Facilities The following is a summary of certain terms of our various credit and loan agreements and 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 Form 10-K.

General In December 2015, we entered into a five-year, $12,000 revolving credit agreement (the “Revolving Credit Agreement”) with certain banks. As of December 31, 2016, we have no amounts outstanding under this agreement.

In January 2015, we entered into a $9,155 credit agreement (the “Syndicated Credit Agreement”) containing (i) a $6,286 term loan (“Loan A”) and (ii) a $2,869 term loan (“Loan B”), with certain banks. In March 2015, we borrowed all amounts available under the agreement. Loan A will be due on March 2, 2018. Amounts borrowed under Loan B will be subject to amortization from March 2, 2018, with 25% of the aggregate principal amount thereof being payable prior to March 2, 2020, and all remaining principal amount due on March 2, 2020. In June 2016, we repaid $4,000 of the outstanding amount under Loan A and $1,000 of the outstanding amount under Loan B. After repayment, the amortization in Loan B has been satisfied. As of December 31, 2016, we have $2,286 outstanding under Loan A and $1,869 outstanding under Loan B.

On October 22, 2016, in connection with entering into the Time Warner merger agreement, AT&T entered into a $40,000 bridge loan with JPMorgan Chase Bank and Bank of America, as lenders (the “Bridge Loan”).

On November 15, 2016, we entered into a $10,000 term loan credit agreement (the “Term Loan”) with a syndicate of 20 lenders. In connection with this Term Loan, the “Tranche B Commitments” totaling $10,000 under the Bridge Loan were reduced to zero. The “Tranche A Commitments” under the Bridge Loan totaling $30,000 remain in effect.

No amounts will be borrowed under either the Bridge Loan or the Term Loan prior to the closing of the Time Warner merger. Borrowings under either agreement will be used solely to finance a portion of the cash to be paid in the Merger, the refinancing of debt of Time Warner and its subsidiaries and the payment of related expenses. Prior to the closing date of the Merger, only a payment or bankruptcy event of default would permit the lenders to terminate their commitments under either the Bridge Loan or the Term Loan.

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 net debt-to-EBITDA (earnings before interest, taxes, depreciation and amortization, and other modifications described in each agreement) financial ratio covenant requiring AT&T to maintain, as of the last day of each fiscal quarter, a ratio of not more than 3.5-to-1. The events of default are customary for agreements of this type and such events would result in the acceleration of, or would permit the lenders to accelerate, as applicable, required payments and would increase each agreement’s relevant Applicable Margin by 2.00% per annum.

Revolving Credit Agreement The obligations of the lenders to advance funds under the Revolving Credit Agreement will end on December 11, 2020, unless prior to that date either: (i) AT&T reduces to $0 the commitments of the lenders, or (ii) certain events of default occur. We and lenders representing more than 50% of the facility amount may agree to extend their commitments for two one-year periods beyond the December 11, 2020 end date, under certain circumstances.

Advances under this agreement would bear interest, at AT&T’s option, either: · at a variable annual rate equal to (1) the highest of: (a) the base rate of the bank affiliate of Citibank, N.A., (b) 0.50% per annum above the Federal funds rate, and (c) the London Interbank Offered Rate (LIBOR) applicable to U.S. dollars for a period of one month plus 1.00% per annum, plus (2) an applicable margin (as set forth in this agreement); or · at a rate equal to: (i) LIBOR for a period of one, two, three or six months, as applicable, plus (ii) an applicable margin (as set forth in this agreement).

The Syndicated Credit Agreement Advances bear interest at a rate equal to: (i) the LIBOR for deposits in dollars (adjusted upwards to reflect any bank reserve costs) for a period of three or six months, as applicable, plus (ii) the applicable margin, as set forth in this agreement. The applicable margin under Loan A equals 1.000%, 1.125% or 1.250% per annum depending on AT&T’s credit ratings. The applicable margin under Loan B equals 1.125%, 1.250% or 1.375% per annum, depending on AT&T’s credit ratings.

Bridge Loan The obligations of the lenders under the Bridge Loan to provide advances will terminate on the earliest of (i) October 23, 2017, subject to extension in certain cases to April 23, 2018, (ii) the closing of the Time Warner merger without the borrowing of advances under the Bridge Loan and (iii) the termination of the Merger Agreement.

Advances would bear interest, at AT&T’s option, either: · at a variable annual rate equal to: (1) the highest of (a) the prime rate of JPMorgan Chase Bank, (b) 0.5% per annum above the federal funds rate, and (c) the LIBOR applicable to dollars for a period of one month plus 1.00%, plus (2) an applicable margin, as set forth in this agreement (the “Applicable Margin for Base Advances (Bridge Loan)”); or · at a rate equal to: (i) LIBOR (adjusted upwards to reflect any bank reserve costs) for a period of one, two, three or six months, as applicable, plus (ii) an applicable margin, as set forth in this agreement (the “Applicable Margin for Eurodollar Rate Advances (Bridge Loan)”).

The Applicable Margin for Eurodollar Rate Advances (Bridge Loan) will be equal to 0.750%, 1.000%, 1.125%, 1.250% or 1.500% per annum depending on AT&T’s credit ratings. The Applicable Margin for Base Advances (Bridge Loan) will be equal to the greater of (x) 0.00% and (y) the relevant Applicable Margin for Eurodollar Rate Advances (Bridge Loan) minus 1.00% per annum, depending on AT&T’s credit ratings.

The Applicable Margin for Eurodollar Rate Advances (Bridge Loan) and the Applicable Margin for Base Advances (Bridge Loan) are scheduled to increase by an additional 0.25% on the 90th day after the closing of the Merger and another 0.25% every 90 days thereafter.

AT&T pays a commitment fee of 0.070%, 0.090%, 0.100%, 0.125% or 0.175% of the commitment amount per annum, depending on AT&T’s credit ratings.

We also must pay an additional fee of 0.500%, 0.750% and 1.000% on the amount of advances outstanding as of the 90th, 180th and 270th day after advances are made.

The Bridge Loan requires that the commitments of the lenders be reduced and outstanding advances be repaid with the net cash proceeds if we incur certain additional debt, we issue certain additional stock or we have certain sales or dispositions of assets by AT&T or its subsidiaries, in each case subject to exceptions set forth in the Bridge Loan.

Advances under the Bridge Loan are conditioned on the absence of a material adverse effect on Time Warner and certain customary conditions and repayment of all advances must be made no later than 364 days after the date on which the advances are made.

Term Loan Under the Term Loan, there are two tranches of commitments, each in a total amount of $5,000.

The obligations of the lenders under the Term Loan to provide advances will terminate on the earliest of (i) October 23, 2017, subject to extension in certain cases to April 23, 2018, (ii) the closing of the Time Warner merger without the borrowing of advances under the Term Loan and (iii) the termination of the Merger Agreement.

Advances would bear interest, at AT&T’s option, either: · at a variable annual rate equal to: (1) the highest of (a) the prime rate of JPMorgan Chase Bank, N.A., (b) 0.5% per annum above the federal funds rate, and (c) the LIBOR rate applicable to dollars for a period of one month plus 1.00%, plus (2) an applicable margin, as set forth in the Term Loan (the “Applicable Margin for Base Advances (Term Loan)”); or · at a rate equal to: (i) LIBOR (adjusted upwards to reflect any bank reserve costs) for a period of one, two, three or six months, as applicable, plus (ii) an applicable margin, as set forth in the Term Loan (the “Applicable Margin for Eurodollar Rate Advances (Term Loan)”).

The Applicable Margin for Eurodollar Rate Advances (Term Loan) under Tranche A is equal to 1.000%, 1.125% or 1.250% per annum, depending on AT&T’s credit ratings. The Applicable Margin for Eurodollar Rate Advances (Term Loan) under Tranche B is equal to 1.125%, 1.250% or 1.375% per annum, depending on AT&T’s credit ratings. The Applicable Margin for Base Advances (Term Loan) is equal to the greater of (x) 0.00% and (y) the relevant Applicable Margin for Eurodollar Rate Advances (Term Loan) minus 1.00% per annum, depending on AT&T’s credit ratings.

AT&T pays a commitment fee of 0.090%, 0.100%, or 0.125% of the commitment amount per annum, depending on AT&T’s credit ratings.

Advances under the Term Loan are conditioned on the absence of a material adverse effect on Time Warner and certain customary conditions.

Repayment of all advances with respect to Tranche A must be made no later than two years and six months after the date on which such advances are made. Amounts borrowed under Tranche B will be subject to amortization commencing two years and nine months after the date on which such advances are made, with 25% of the aggregate principal amount thereof being payable prior to the date that is four years and six months after the date on which such advances are made, and all remaining principal amount due and payable on the date that is four years and six months after the date on which such advances are made.

Collateral Arrangements During 2016, we posted $1,022 of additional cash collateral, on a net basis, to banks and other participants in our derivative arrangements. Cash postings under these arrangements vary with changes in credit ratings and netting agreements. (See Note 10)

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 December 31, 2016, our debt ratio was 49.9%, compared to 50.5% at December 31, 2015, and 47.5% at December 31, 2014. The debt ratio is affected by the same factors that affect total capital, and reflects the debt issued in 2016 and our repurchases of outstanding shares of AT&T common stock, and debt redemptions during 2016. Total capital decreased $2,168 in 2016 compared to an increase of $77,687 in 2015. The 2016 capital decrease was primarily due to a decrease in debt balances, partially offset by an increase in retained earnings.

A significant amount of our cash outflows is related to tax items and benefits paid for current and former employees. Total taxes incurred, collected and remitted by AT&T during 2016, 2015, and 2014 were $25,099, $21,501 and $20,870. These taxes include income, franchise, property, sales, excise, payroll, gross receipts and various other taxes and fees. Total health and welfare benefits provided to certain active and retired employees and their dependents totaled $4,753 in 2016, with $1,156 paid from plan assets. Of those benefits, $4,407 related to medical and prescription drug benefits. In addition, in December 2016, we prefunded $400 for future benefit payments. During 2016, we paid $3,614 of pension benefits out of plan assets.

During 2016, we also received approximately $5,281 from monetization of various assets, compared to $4,534 in 2015, primarily from our sales of certain equipment installment receivables and real estate holdings. We plan to continue to explore monetization opportunities in 2017.

In September 2013, we made a voluntary contribution of a preferred equity interest in AT&T Mobility II LLC (Mobility), the holding company for our wireless business, to the trust used to pay pension benefits under our qualified pension plans. In 2014, the U.S. Department of Labor published in the Federal Register their final retroactive approval of our voluntary contribution.

The preferred equity interest had a fair value of $8,477 at December 31, 2016 and $9,104 on the contribution date 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 and accounted for as contributions. We distributed $560 to the trust during 2016. 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, 2015 and 2016. During 2016, we completed our obligation, which included an acceleration of the final contribution.

The preferred equity interest is not transferable by the trust except through its put and call features. After a period of five years from the contribution or, if earlier, the date upon which the pension plan trust is fully funded as determined under GAAP, AT&T has a right to purchase from the pension plan trust some or all the preferred equity interest at the greater of their fair market value or minimum liquidation value plus any unpaid cumulative dividends. In addition, AT&T will have the

Copyright © 2013 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued) Dollars in millions except per share and per subscriber amounts right to purchase the preferred equity interest in the event AT&T’s ownership of Mobility is less than 50% or there is a transaction that results in the transfer of 50% or more of the pension plan trust’s assets to an entity not under common control with AT&T (collectively, a change of control). The pension plan trust has the right to require AT&T to purchase the preferred equity interest at the greater of their fair market value or minimum liquidation value plus any unpaid cumulative dividends, and in installments, as specified in the contribution agreement upon the occurrence of any of the following: (1) at any time if the ratio of debt to total capitalization of Mobility exceeds that of AT&T, (2) the date on which AT&T is rated below investment grade for two consecutive calendar quarters, (3) upon a change of control if AT&T does not exercise its purchase option, or (4) at any time after a seven-year period from the contribution date. In the event AT&T elects or is required to purchase the preferred equity interest, AT&T may elect to settle the purchase price in cash or shares of AT&T common stock or a combination thereof.

CONTRACTUAL OBLIGATIONS, COMMITMENTS AND CONTINGENCIES

Our contractual obligations as of December 31, 2016 are in the following table:

Payments Due By Period Less than 1-3 3-5 More than Contractual Obligations Total 1 Year Years Years 5 Years Long-term debt obligations1 $ 130,280 $ 9,609 $ 16,953 $ 17,793 $ 85,925 Interest payments on long-term debt 82,249 5,440 10,065 8,891 57,853 Finance obligations2 3,341 239 492 512 2,098 Operating lease obligations3 29,657 3,915 7,154 6,019 12,569 Unrecognized tax benefits4 4,484 984 - - 3,500 Purchase obligations5 35,436 9,181 11,214 7,799 7,242 Total Contractual Obligations $ 285,447 $ 29,368 $ 45,878 $ 41,014 $ 169,187 1 Represents principal or payoff amounts of notes and debentures at maturity or, for putable debt, the next put opportunity (see Note 9). 2 Represents future minimum payments under the Crown Castle and other arrangements (see Note 16). 3 Represents operating lease payments (see Note 6). 4 The noncurrent portion of the UTBs is included in the “More than 5 Years” column, as we cannot reasonably estimate the timing or amounts of additional cash payments, if any, at this time (see Note 11). 5 The purchase obligations will be funded with cash provided by operations or through incremental borrowings. The minimum commitment for certain obligations is based on termination penalties that could be paid to exit the contracts. If we elect to exit these contracts, termination fees for all such contracts in the year of termination could be approximately $1,043 in 2017, $1,091 in the aggregate for 2018 and 2019, $404 in the aggregate for 2020 and 2021, and $161 in the aggregate thereafter. Certain termination fees are excluded from the above table, as the fees would not be paid every year and the timing of such payments, if any, is uncertain.

Certain items were excluded from this table, as the year of payment is unknown and could not be reliably estimated since past trends were not deemed to be an indicator of future payment, because the settlement of the obligation will not require the use of cash, or because the items are immaterial. These items include: deferred income taxes of $60,128 (see Note 11); postemployment benefit obligations of $33,578, contributions associated with our voluntary contribution of the Mobility preferred equity interest, and expected pension and postretirement payments (see Note 12); other noncurrent liabilities of $21,748; third-party debt guarantees; fair value of our interest rate swaps; capital lease obligations; and vendor financing.

MARKET RISK

We are exposed to market risks primarily from changes in interest rates and foreign currency exchange rates. These risks, along with other business risks, impact our cost of capital. It is our policy to manage our debt structure and foreign exchange exposure in order to manage capital costs, control financial risks and maintain financial flexibility over the long term. In managing market risks, we employ derivatives according to documented policies and procedures, including interest rate swaps, interest rate locks, foreign currency exchange contracts and combined interest rate foreign currency contracts (cross-currency swaps). We do not use derivatives for trading or speculative purposes. We do not foresee significant changes in the strategies we use to manage market risk in the near future.

Interest Rate Risk

Copyright © 2013 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document The majority of our financial instruments are medium- and long-term fixed-rate notes and debentures. Changes in interest rates can lead to significant fluctuations in the fair value of these instruments. The principal amounts by expected maturity,

Most of our foreign-denominated long-term debt has been swapped from fixed-rate or floating-rate foreign currencies to fixed-rate U.S. dollars at issuance through cross-currency swaps, removing interest rate risk and foreign currency exchange risk associated with the underlying interest and principal payments. Likewise, periodically we enter into interest rate locks to partially hedge the risk of increases in the benchmark interest rate during the period leading up to the probable issuance of fixed-rate debt. We expect gains or losses in our cross-currency swaps and interest rate locks to offset the losses and gains in the financial instruments they hedge.

Following are our interest rate derivatives subject to material interest rate risk as of December 31, 2016. The interest rates illustrated below refer to the average rates we expect to pay based on current and implied forward rates and the average rates we expect to receive based on derivative contracts. The notional amount is the principal amount of the debt subject to the interest rate swap contracts. The fair value asset (liability) represents the amount we would receive (pay) if we had exited the contracts as of December 31, 2016.

Maturity Fair Value 2017 2018 2019 2020 2021 Thereafter Total 12/31/16 Interest Rate Derivatives Interest Rate Swaps: Receive Fixed/Pay Variable Notional Amount Maturing $ 700 $ 4,100 $ 4,100 $ - $ 750 $ - $ 9,650 $ 65 Weighted-Average Variable Rate Payable1 3.5% 4.0% 4.6% 4.9% 5.0% - Weighted-Average Fixed Rate Receivable 4.1% 4.0% 4.3% 4.5% 4.5% - 1 Interest payable based on current and implied forward rates for One, Three, or Six Month LIBOR plus a spread ranging between approximately 14 and 425 basis points.

Foreign Exchange Risk

We are exposed to foreign currency exchange risk through our foreign affiliates and equity investments in foreign companies. We do not hedge foreign currency translation risk in the net assets and income we report from these sources. However, we do hedge a portion of the exchange risk involved in anticipation of highly probable foreign currency-denominated transactions and cash flow streams, such as those related to issuing foreign-denominated debt, receiving dividends from foreign investments, and other receipts and disbursements.

Through cross-currency swaps, most of our foreign-denominated debt has been swapped from fixed-rate or floating-rate foreign currencies to fixed-rate U.S. dollars at issuance, removing interest rate and foreign currency exchange risk associated with the underlying interest and principal payments. We expect gains or losses in our cross-currency swaps to offset the gains and losses in the financial instruments they hedge.

In anticipation of other foreign currency-denominated transactions, we often enter into foreign exchange forward contracts to provide currency at a fixed rate. Our policy is to measure the risk of adverse currency fluctuations by calculating the potential dollar losses resulting from changes in exchange rates that have a reasonable probability of occurring. We cover the exposure that results from changes that exceed acceptable amounts.

For the purpose of assessing specific risks, we use a sensitivity analysis to determine the effects that market risk exposures may have on the fair value of our financial instruments and results of operations. To perform the sensitivity analysis, we assess the risk of loss in fair values from the effect of a hypothetical 10% fluctuation of the U.S. dollar against foreign currencies from the prevailing foreign currency exchange rates, assuming no change in interest rates. We had no foreign exchange forward contracts outstanding at December 31, 2016.

STOCK PERFORMANCE GRAPH

The comparison above assumes $100 invested on December 31, 2011, in AT&T common stock, Standard & Poor’s 500 Index (S&P 500), and Standard & Poor’s 500 Integrated Telecom Index (S&P 500 Integrated Telecom). Total return equals stock price appreciation plus reinvestment of dividends.

RISK FACTORS

In addition to the other information set forth in this document, including the matters contained under the caption “Cautionary Language Concerning Forward-Looking Statements,” you should carefully read the matters described below. We believe that each of these matters could materially affect our business. We recognize that most of these factors are beyond our ability to control and therefore we cannot predict an outcome. Accordingly, we have organized them by first addressing general factors, then industry factors and, finally, items specifically applicable to us.

The current U.S. economy has changed our customers’ buying habits and a failure to adequately respond could materially adversely affect our business.

We provide services and products predominantly to consumers and large and small businesses in the United States. We also provide services to larger businesses throughout the world. The slow economic recovery in the United States continues to pressure some of our customers’ demand for and ability to pay for existing services, especially wired and video services, and their interest in purchasing new services. Customers have changed their buying habits in response to both ongoing economic conditions and technological advances. We have responded by offering more bundled offerings and we are likely to experience greater pressure on pricing and margins as we continue to compete for customers who have less discretionary income.

U.S. corporate tax reform and changes in Federal regulatory trends should lead to improvements in the U.S. economy which would benefit our business and consumer customers.

In recent years, the U.S. economy has suffered from a lack of capital investment. High Federal corporate tax rates and a restrictive regulatory environment have significantly impeded the ability of businesses to invest. Following the 2016 Federal election, the U.S. Congressional leadership has indicated that passing legislation to lower these tax rates is now a priority. Similarly, the new FCC has indicated a priority to eliminating outdated and ineffective regulatory burdens, including those that create disincentives to invest in broadband services. Both tax and regulatory reform are expected to result in higher investment and increased demand for employment with wage improvement. As a provider of advanced business services and integrated consumer entertainment and broadband offerings, we would be well positioned to take advantage of these economic improvements.

Adverse changes in medical costs and the U.S. securities markets and continued low interest rates could materially increase our benefit plan costs.

Our costs to provide current benefits and funding for future benefits are subject to increases, primarily due to continuing increases in medical and prescription drug costs, and can be affected by lower returns on funds held by our pension and other benefit plans, which are reflected in our financial statements for that year. Investment returns on these funds depend largely on trends in the U.S. securities markets and the U.S. economy. We have experienced historically low interest rates during the last several years. While annual market returns and increased volatility have pressured asset returns in the short-term, we expect long-term market returns to stabilize. During 2016, overall bond rates decreased slightly, which results in higher benefit obligations. Conversely, an increase in overall bond rates will result in lower benefit obligations. In calculating the costs included on our financial statements of providing benefits under our plans, we have made certain assumptions regarding future investment returns, medical costs and interest rates. While we have made some changes to the benefit plans to limit our risk from increasing medical costs, if actual investment returns, medical costs and interest rates are worse than those previously assumed, our costs will increase.

The Financial Accounting Standards Board requires companies to recognize the funded status of defined benefit pension and postretirement plans as an asset or liability in our statement of financial position and to recognize changes in that funded status in the year in which the changes occur. We have elected to reflect the annual adjustments to the funded status in our consolidated statement of income. Therefore, an increase in our costs or adverse market conditions will have a negative effect on our operating results.

Adverse changes in global financial markets could limit our ability and our larger customers’ ability to access capital or increase the cost of capital needed to fund business operations.

While the global financial markets were generally stable during 2016, a continuing uncertainty surrounding global growth rates has resulted in increasing volatility in the credit, currency, equity and fixed income markets. Uncertainty regarding future U.S. trade policy and political developments in Europe could significantly affect global financial markets in 2017. Volatility in other areas, such as in emerging markets, may affect companies’ access to the credit markets, leading to higher borrowing costs for companies or, in some cases, the inability of these companies to fund their ongoing operations. In addition, we contract with large financial institutions to support our own treasury operations, including contracts to hedge our exposure on interest rates and foreign exchange and the funding of credit lines and other short-term debt obligations, including commercial paper. These financial institutions also face stricter capital- related and other regulations in the United States and Europe, as well as ongoing legal and financial issues concerning their loan portfolios, which may hamper their ability to provide credit or raise the cost of providing such credit. A company’s cost of borrowing is also affected by evaluations given by various credit rating agencies and these agencies have been applying tighter credit standards when evaluating a company’s debt levels and future growth prospects. While we have been successful in continuing to access the credit and fixed income markets when needed, adverse changes in the financial markets could render us either unable to access these markets or able to access these markets only at higher interest costs and with restrictive financial or other conditions, severely affecting our business operations.

Changes in available technology could increase competition and our capital costs.

The communications and digital entertainment industry has experienced rapid changes in the past several years. The development of wireless, cable and IP technologies has significantly increased the commercial viability of alternatives to traditional wired service and enhanced the capabilities of wireless networks. In addition, our customers continue to increase demand for services that can be accessed on mobile devices, especially video services. While our customers can use their traditional video subscription to access mobile programming, an increasing number of customers are also using mobile devices as the primary means of viewing video and an increasing number of non-traditional video providers are developing content and technologies to satisfy that demand. In order to remain competitive, we now offer a mobile TV service and continue to deploy sophisticated wired and wireless networks, including satellites, as well as research other new technologies. If the new technologies we have adopted or on which we have focused our research efforts fail to be cost-effective and accepted by customers, our ability to remain competitive could be materially adversely affected.

Changes to federal, state and foreign government regulations and decisions in regulatory proceedings could further increase our operating costs and/or alter customer perceptions of our operations, which could materially adversely affect us.

Our subsidiaries providing wired services are subject to significant federal and state regulation while many of our competitors are not. In addition, our subsidiaries and affiliates operating outside the United States are also subject to the jurisdiction of national and supranational regulatory authorities in the market where service is provided. Our wireless and satellite video subsidiaries are regulated to varying degrees by the FCC and some state and local agencies. Adverse regulations and rulings by the FCC relating to broadband and satellite video issues could impede our ability to manage our networks and recover costs and lessen incentives to invest in our networks. The development of new technologies, such as IP-based services, also has created or potentially could create conflicting regulation between the FCC and various state and local authorities, which may involve lengthy litigation to resolve and may result in outcomes unfavorable to us. In addition, increased public focus on a variety of issues related to our operations, such as privacy issues, government requests or orders for customer data, and potential global climate changes, have led to proposals at state, federal and foreign government levels to change or increase regulation on our operations. Should customers decide that our competitors operate in a more customer- friendly environment, we could be materially adversely affected.

Continuing growth in and the converging nature of wireless and broadband services will require us to deploy increasing amounts of capital and require ongoing access to spectrum in order to provide attractive services to customers.

Wireless and broadband services are undergoing rapid and significant technological changes and a dramatic increase in usage, in particular, the demand for faster and seamless usage of video and data across mobile and fixed devices. We must continually invest in our wireless and wireline networks in order to improve our wireless and broadband services to meet this increasing demand and remain competitive. Improvements in these services depend on many factors, including continued access to and deployment of adequate spectrum and the capital needed to expand our wireline network to support transport of these services. In order to stem broadband subscriber losses to cable competitors in our non-fiber wireline areas, we have been expanding our all-fiber wireline network. We must maintain and expand our network capacity and coverage for transport of video, data and voice between cell and fixed landline sites. To this end, we have participated in spectrum auctions, at increasing financial cost, and continue to deploy technology advancements in order to further improve our network.

Network service enhancements and product launches may not occur as scheduled or at the cost expected due to many factors, including delays in determining equipment and wireless handset operating standards, supplier delays, increases in network equipment and handset component costs, regulatory permitting delays for tower sites or enhancements, or labor-related delays. Deployment of new technology also may adversely affect the performance of the network for existing services. If we cannot acquire needed spectrum or deploy the services customers desire on a timely basis and at adequate cost, then our ability to attract and retain customers, and therefore maintain and improve our operating margins, could be materially adversely affected.

Increasing competition for wireless customers could materially adversely affect our operating results.

We have multiple wireless competitors in each of our service areas and compete for customers based principally on service/device offerings, price, network quality, coverage area and customer service. In addition, we are facing growing competition from providers offering services using advanced wireless technologies and IP-based networks as well as traditional wireline networks. We expect market saturation to continue to cause the wireless industry’s customer growth rate to moderate in comparison with historical growth rates, leading to increased competition for customers. We also expect that our customers’ growing demand for high-speed video and data services will place constraints on our network capacity. This competition and our capacity issues will continue to put pressure on pricing and margins as companies compete for potential customers. Our ability to respond will depend, among other things, on continued improvement in network quality and customer service as well as effective marketing of attractive products and services. These efforts will involve significant expenses and require strategic management decisions on, and timely implementation of, equipment choices, network deployment, and service offerings.

Increasing costs to provide services could adversely affect operating margins.

Our operating costs, including customer acquisition and retention costs, could continue to put pressure on margins and customer retention levels. In addition, virtually all our video programming is provided by other companies and historically the rates they charge us for programming have often increased more than the rate of inflation. As an offsetting factor, we have announced an agreement to acquire Time Warner Inc., a global leader in media and entertainment content. We also are attempting to use our increased scale and access to wireless customers to change this trend but such negotiations are difficult and also may result in programming disruption. If we are unable to restrain these costs or provide programming desired by our customers, it could impact margins and our ability to attract and retain customers.

A number of our competitors offering comparable legacy services that rely on alternative technologies and business models are typically subject to less (or no) regulation, and therefore are able to operate with lower costs. In addition, these competitors generally can focus on discrete customer segments since they do not have regulatory obligations to provide universal service. These competitors also have cost advantages compared to us, due in part to operating on newer, more technically advanced and lower-cost networks and a nonunionized workforce, lower employee benefits and fewer retirees. To this end, we have begun initiatives at both the state and federal levels to obtain regulatory approvals, where needed, to transition services from our older copper-based network to an advanced IP-based network. If we do not obtain regulatory approvals for our network transition or obtain approvals with onerous conditions, we could experience significant cost and competitive disadvantages.

Unfavorable litigation or governmental investigation results could require us to pay significant amounts or lead to onerous operating procedures.

We are subject to a number of lawsuits both in the United States and in foreign countries, including, at any particular time, claims relating to antitrust; patent infringement; wage and hour; personal injury; customer privacy violations; regulatory proceedings; and selling and collection practices. We also spend substantial resources complying with various government standards, which may entail related investigations and litigation. In the wireless area, we also face current and potential litigation relating to alleged adverse health effects on customers or employees who use such technologies including, for example, wireless devices. We may incur significant expenses defending such suits or government charges and may be required to pay amounts or otherwise change our operations in ways that could materially adversely affect our operations or financial results.

Cyber attacks, equipment failures, natural disasters and terrorist acts may materially adversely affect our operations.

Cyber attacks, major equipment failures or natural disasters, including severe weather, terrorist acts or other breaches of network or IT security that affect our wireline and wireless networks, including telephone switching offices, microwave links, third-party-owned local and long-distance networks on which we rely, our cell sites or other equipment, our video satellites, our customer account support and information systems, or employee and business records could have a material adverse effect on our operations. While we have been subject to security breaches or cyber attacks, these did not result in a material adverse effect on our operations. However, as such attacks continue to increase in scope and frequency, we may be unable to prevent a significant attack in the future. Our ability to maintain and upgrade our video programming also depends on our ability to successfully deploy and operate video satellites. Our inability to deploy or operate our networks or customer support systems could result in significant expenses, potential legal liability, a loss of current or future customers and reputation damage, any of which could have a material adverse effect on our operations and financial condition.

The impact of our pending acquisition of Time Warner, including our ability to obtain governmental approvals on favorable terms including any required divestitures; the risk that the businesses will not be integrated successfully; the risk that the cost savings and any other 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.

As discussed in “Other Business Matters,” on October 22, 2016, we agreed to acquire Time Warner for a total transaction value of approximately $108,700 (including Time Warner’s net debt). 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; and produce cost savings and other potential synergies.

Achieving these results will depend upon obtaining governmental approvals on favorable terms within the time limits contemplated by the parties. Delays in closing, including as a result of delays in obtaining regulatory approval, could divert attention from ongoing operations on the part of management and employees, adversely affecting customers and suppliers and therefore revenues. If such approvals are obtained and the transaction is consummated, then 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. While we have successfully merged large companies into our operations in the past, delays in the process could have a material adverse effect on our revenues, expenses, operating results and financial condition. This acquisition also will increase the amount of debt on our balance sheet (both Time Warner’s debt and the indebtedness needed to pay a portion of the purchase price) leading to additional interest expense and, due to additional shares being 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 of 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.

Our failure to successfully integrate our July 2015 acquisition of DIRECTV, including our failure to achieve the cost savings and any other synergies from the acquisition either on schedule or in the amounts expected; the potential adverse effects on our dividend amount due to the issuance of additional shares and the addition of acquisition-related 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, all may materially adversely affect our operating results.

We completed our acquisition of DIRECTV in July 2015. We believe that the acquisition gives us the scale, resources and ability to deploy video services to more customers than otherwise possible and to provide an integrated bundle of broadband, video and wireless services enabling us to compete more effectively against cable operators as well as other technology, media and communications companies. In addition, we believe the acquisition has resulted in cost savings, especially in the area of video content costs, and other potential synergies, enabling us to expand and enhance our broadband deployment and provide more video options across multiple fixed and mobile devices. We must comply with various regulatory conditions and integrate a large number of video network and other operational systems and administrative systems. The integration process may also result in significant expenses and charges against earnings, both cash and noncash. While we have successfully merged large companies into our operations in the past, delays in the process could have a material adverse effect on our revenues, expenses, operating results and financial condition. This acquisition has increased the amount of debt on our balance sheet (both from DIRECTV’s debt and the indebtedness needed to pay a portion of the purchase price) leading to additional interest expense and, due to additional shares being 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 of 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.

The acquisitions of DIRECTV, GSF Telecom and Nextel Mexico have increased our exposure to both changes in the international economy and to the level of regulation on our business, and these risks could offset our expected growth opportunities from these acquisitions.

These three acquisitions have increased the magnitude of our international operations, particularly in Mexico and the rest of Latin America. We need to comply with a wide variety of new and complex local laws, regulations and treaties and government involvement in private business activity. We are now exposed to restrictions on cash repatriation, foreign exchange controls, fluctuations in currency values, changes in relationships between U.S. and foreign governments, trade restrictions including potential border taxes, and other regulations that may affect materially our earnings. While the countries involved represent significant opportunities to sell our advanced services, a number of these same countries have experienced unstable growth patterns and at times have experienced high inflation, currency devaluation, foreign exchange controls, instability in the banking sector and high unemployment. Should these conditions persist, customers in these countries may be unable to purchase the services we offer or pay for services already provided.

In addition, operating in foreign countries also typically involves participating with local businesses, either to comply with local laws or, for example, to enhance product marketing. Involvement with foreign firms exposes us to the risk of being unable to control the actions of those firms and therefore exposes us to violating the Foreign Corrupt Practices Act (FCPA). Violations of the FCPA could have a material adverse effect on our operating results.

Increases in our debt levels to fund acquisitions, additional spectrum purchases, or other strategic decisions could adversely affect our ability to finance future debt at attractive rates and reduce our ability to respond to competition and adverse economic trends.

We increased the amount of our debt during 2015 and 2016 to fund acquisitions, as well as spectrum purchases needed to compete in our industry. While we believe such decisions were prudent and necessary to take advantage of both growth opportunities and respond to industry developments, we have experienced a credit-rating downgrade. Banks and potential purchasers of our publicly-traded debt may decide that these strategic decisions and similar actions we may take in the future, as well as expected trends in the industry, will continue to increase the risk of investing in our debt and may demand a higher rate of interest, impose restrictive covenants or otherwise limit the amount of potential borrowing.

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) 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 to IP-based infrastructure including the withdrawal of legacy TDM-based services; universal service; broadband deployment; E911 services; competition policy; privacy; net neutrality including the FCC’s order classifying broadband as Title II services subject to much more comprehensive regulation; unbundled network elements and other wholesale obligations; multi- channel video programming distributor services and equipment; 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 of IP-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. · Our ability to absorb revenue losses caused by increasing competition, including offerings that use alternative technologies or delivery methods (e.g., cable, wireless, VoIP and over-the-top video service) and our ability to maintain capital expenditures. · The extent of competition including from governmental networks and other providers and the resulting pressure on customer and access line totals and segment operating margins. · Our ability to develop attractive and profitable product/service offerings to offset increasing competition. · 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, including state regulatory proceedings relating to unbundled network elements and non-regulation of comparable alternative technologies (e.g., VoIP). · The continued development and delivery of attractive and profitable video offerings through satellite and IP-based networks; the extent to which regulatory and build-out requirements apply to our offerings; 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 wireless service and devices and device financing plans. · The availability and cost of additional wireless spectrum 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 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, natural disasters, 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. · Our ability to integrate our acquisition of DIRECTV. · Our ability to close our pending acquisition of Time Warner Inc. and successfully integrate its operations.

Copyright © 2013 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document · Our ability to adequately fund our wireless operations, including payment for additional spectrum, network upgrades and technological advancements. · Our increased exposure to video competition and foreign economies due to our recent acquisitions of DIRECTV and Mexican wireless properties, 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. · The uncertainty and impact of anticipated regulatory and corporate tax reform, which may impact the overall economy and incentives for business investments.

Readers are cautioned that other factors discussed in this report, although not enumerated here, also could materially affect our future earnings.

Copyright © 2013 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document AT&T Inc. Consolidated Statements of Income Dollars in millions except per share amounts 2016 2015 2014 Operating Revenues Service $ 148,884 $ 131,677 $ 118,437 Equipment 14,902 15,124 14,010 Total operating revenues 163,786 146,801 132,447

Operating Expenses Cost of services and sales Equipment 18,757 19,268 18,946 Broadcast, programming and operations 19,851 11,996 4,075 Other cost of services (exclusive of depreciation and amortization shown separately below) 38,276 35,782 37,124 Selling, general and administrative 36,347 32,919 39,697 Asset abandonments and impairments 361 35 2,120 Depreciation and amortization 25,847 22,016 18,273 Total operating expenses 139,439 122,016 120,235 Operating Income 24,347 24,785 12,212

Other Income (Expense) Interest expense (4,910) (4,120) (3,613) Equity in net income of affiliates 98 79 175 Other income (expense) – net 277 (52) 1,581 Total other income (expense) (4,535) (4,093) (1,857) Income Before Income Taxes 19,812 20,692 10,355 Income tax expense 6,479 7,005 3,619 Net Income 13,333 13,687 6,736 Less: Net Income Attributable to Noncontrolling Interest (357) (342) (294) Net Income Attributable to AT&T $ 12,976 $ 13,345 $ 6,442

Basic Earnings Per Share Attributable to AT&T $ 2.10 $ 2.37 $ 1.24 Diluted Earnings Per Share Attributable to AT&T $ 2.10 $ 2.37 $ 1.24 The accompanying notes are an integral part of the consolidated financial statements.

Copyright © 2013 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document AT&T Inc. Consolidated Statements of Comprehensive Income Dollars in millions 2016 2015 2014

Net income $ 13,333 $ 13,687 $ 6,736 Other comprehensive income, net of tax: Foreign Currency: Translation adjustments (includes $20, $(16) and $0 attributable to noncontrolling interest), net of taxes of $357, $(595) and $(45) (777) (1,188) (75) Reclassification adjustment included in net income, net of taxes of $0, $0 and $224 - - 416 Available-for-sale securities: Net unrealized gains, net of taxes of $36, $0, and $40 58 - 65 Reclassification adjustment included in net income, net of taxes of $(1), $(9) and $(10) (1) (15) (16) Cash flow hedges: Net unrealized gains (losses), net of taxes of $371, $(411) and $140 690 (763) 260 Reclassification adjustment included in net income, net of taxes of $21, $20 and $18 38 38 36 Defined benefit postretirement plans: Net prior service credit arising during period, net of taxes of $305, $27 and $262 497 45 428 Amortization of net prior service credit included in net income, net of taxes of $(525), $(523) and $(588) (858) (860) (959) Reclassification adjustment included in net income, net of taxes of $0, $0 and $11 - - 26 Other comprehensive income (loss) (353) (2,743) 181 Total comprehensive income 12,980 10,944 6,917 Less: Total comprehensive income attributable to noncontrolling interest (377) (326) (294) Total Comprehensive Income Attributable to AT&T $ 12,603 $ 10,618 $ 6,623 The accompanying notes are an integral part of the consolidated financial statements.

Copyright © 2013 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document AT&T Inc. Consolidated Balance Sheets Dollars in millions except per share amounts December 31, 2016 2015 Assets Current Assets Cash and cash equivalents $ 5,788 $ 5,121 Accounts receivable - net of allowances for doubtful accounts of $661 and $704 16,794 16,532 Prepaid expenses 1,555 1,072 Other current assets 14,232 13,267 Total current assets 38,369 35,992 Property, Plant and Equipment – Net 124,899 124,450 Goodwill 105,207 104,568 Licenses 94,176 93,093 Customer Lists and Relationships – Net 14,243 18,208 Other Intangible Assets – Net 8,441 9,409 Investments in Equity Affiliates 1,674 1,606 Other Assets 16,812 15,346 Total Assets $ 403,821 $ 402,672

Liabilities and Stockholders’ Equity Current Liabilities Debt maturing within one year $ 9,832 $ 7,636 Accounts payable and accrued liabilities 31,138 30,372 Advanced billings and customer deposits 4,519 4,682 Accrued taxes 2,079 2,176 Dividends payable 3,008 2,950 Total current liabilities 50,576 47,816 Long-Term Debt 113,681 118,515 Deferred Credits and Other Noncurrent Liabilities Deferred income taxes 60,128 56,181 Postemployment benefit obligation 33,578 34,262 Other noncurrent liabilities 21,748 22,258 Total deferred credits and other noncurrent liabilities 115,454 112,701 Stockholders’ Equity Common stock ($1 par value, 14,000,000,000 authorized at December 31, 2016 and 2015: issued 6,495,231,088 at December 31, 2016 and 2015) 6,495 6,495 Additional paid-in capital 89,604 89,763 Retained earnings 34,734 33,671 Treasury stock (356,237,141 at December 31, 2016 and 350,291,239 at December 31, 2015, at cost) (12,659) (12,592) Accumulated other comprehensive income 4,961 5,334 Noncontrolling interest 975 969 Total stockholders’ equity 124,110 123,640 Total Liabilities and Stockholders’ Equity $ 403,821 $ 402,672 The accompanying notes are an integral part of the consolidated financial statements.

Copyright © 2013 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document AT&T Inc. Consolidated Statements of Cash Flows Dollars in millions 2016 2015 2014 Operating Activities Net income $ 13,333 $ 13,687 $ 6,736 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 25,847 22,016 18,273 Undistributed earnings from investments in equity affiliates (37) (49) (27) Provision for uncollectible accounts 1,474 1,416 1,032 Deferred income tax expense 2,947 4,117 1,948 Net (gain) loss from sale of investments, net of impairments (169) 91 (1,461) Actuarial loss (gain) on pension and postretirement benefits 1,024 (2,152) 7,869 Asset abandonments and impairments 361 35 2,120 Changes in operating assets and liabilities: Accounts receivable (1,003) 30 (693) Other current assets 1,708 (1,182) (1,018) Accounts payable and accrued liabilities 118 1,354 2,310 Equipment installment receivables and related sales (576) (3,023) (5,043) Deferred fulfillment costs (2,359) (1,437) (347) Retirement benefit funding (910) (735) (560) Other - net (2,414) 1,712 199 Total adjustments 26,011 22,193 24,602 Net Cash Provided by Operating Activities 39,344 35,880 31,338

Investing Activities Capital expenditures: Purchase of property and equipment (21,516) (19,218) (21,199) Interest during construction (892) (797) (234) Acquisitions, net of cash acquired (2,959) (30,759) (3,141) Dispositions 646 83 8,123 Sales (purchases) of securities, net 506 1,545 (1,890) Other - 2 4 Net Cash Used in Investing Activities (24,215) (49,144) (18,337)

Financing Activities Net change in short-term borrowings with original maturities of three months or less - (1) (16) Issuance of long-term debt 10,140 33,969 15,926 Repayment of long-term debt (10,823) (10,042) (10,400) Issuance of other long-term financing obligations - - 107 Purchase of treasury stock (512) (269) (1,617) Issuance of treasury stock 146 143 39 Dividends paid (11,797) (10,200) (9,552) Other (1,616) (3,818) (2,224) Net Cash (Used in) Provided by Financing Activities (14,462) 9,782 (7,737) Net increase (decrease) in cash and cash equivalents 667 (3,482) 5,264 Cash and cash equivalents beginning of year 5,121 8,603 3,339 Cash and Cash Equivalents End of Year $ 5,788 $ 5,121 $ 8,603 The accompanying notes are an integral part of the consolidated financial statements.

Copyright © 2013 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document AT&T Inc. Consolidated Statements of Changes in Stockholders' Equity Dollars and shares in millions except per share amounts 2016 2015 2014 Shares Amount Shares Amount Shares Amount Common Stock Balance at beginning of year 6,495 $ 6,495 6,495 $ 6,495 6,495 $ 6,495 Issuance of stock ------Balance at end of year 6,495 $ 6,495 6,495 $ 6,495 6,495 $ 6,495 Additional Paid-In Capital Balance at beginning of year $ 89,763 $ 91,108 $ 91,091 Issuance of treasury stock (43) (1,597) 4 Share-based payments (140) 252 47 Change related to acquisition of interests held by noncontrolling owners 24 - (34) Balance at end of year $ 89,604 $ 89,763 $ 91,108 Retained Earnings Balance at beginning of year $ 33,671 $ 31,081 $ 34,269 Net income attributable to AT&T ($2.10, $2.37 and $1.24 per diluted share) 12,976 13,345 6,442 Dividends to stockholders ($1.93, $1.89 and $1.85 per share) (11,913) (10,755) (9,630) Balance at end of year $ 34,734 $ 33,671 $ 31,081 Treasury Stock Balance at beginning of year (350) $ (12,592) (1,308) $ (47,029) (1,269) $ (45,619) Repurchase of common stock (17) (655) (8) (278) (48) (1,617) Issuance of treasury stock 11 588 966 34,715 9 207 Balance at end of year (356) $ (12,659) (350) $ (12,592) (1,308) $ (47,029)

Accumulated Other Comprehensive Income Attributable to AT&T, net of tax: Balance at beginning of year $ 5,334 $ 8,061 $ 7,880 Other comprehensive income (loss) attributable to AT&T (373) (2,727) 181 Balance at end of year $ 4,961 $ 5,334 $ 8,061 Noncontrolling Interest: Balance at beginning of year $ 969 $ 554 $ 494 Net income attributable to noncontrolling interest 357 342 294 Distributions (346) (294) (233) Acquisitions of noncontrolling interests - 383 69 Acquisition of interests held by noncontrolling owners (25) - (70) Translation adjustments attributable to noncontrolling interest, net of taxes 20 (16) - Balance at end of year $ 975 $ 969 $ 554

Total Stockholders' Equity at beginning of year $ 123,640 $ 90,270 $ 94,610

Copyright © 2013 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Total Stockholders' Equity at end of year $ 124,110 $ 123,640 $ 90,270 The accompanying notes are an integral part of the consolidated financial statements.

Copyright © 2013 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Notes to Consolidated Financial Statements Dollars in millions except per share amounts

NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation Throughout this document, AT&T Inc. is referred to as “AT&T,” “we” or the “Company.” The consolidated financial statements include the accounts of the Company and our majority-owned subsidiaries and affiliates, including the results of DIRECTV and wireless properties in Mexico for the period from acquisition to the reporting date. 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 quarter of our period end. We also record 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 prior period amounts have been conformed to the current period’s presentation.

Network Asset Lives and Salvage Values During the fourth quarter of 2016, we aligned the estimated useful lives and salvage values for certain network assets that are impacted by our IP strategy with our updated business cases and engineering studies. This change in accounting estimate decreased depreciation expense and impacted net income $286, or $0.05 per diluted share, for 2016.

Customer Fulfillment Costs During the second quarter of 2016, we updated our analysis of the economic lives of customer relationships, which included a review of satellite customer data following the DIRECTV acquisition. As of April 1, 2016, we extended the amortization period to better reflect the estimated economic lives of satellite and certain business customer relationships. This change in accounting estimate decreased other cost of services and impacted net income $236, or $0.04 per diluted share, for 2016.

Income Taxes We provide deferred income taxes for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the computed tax basis of those assets and liabilities. We provide valuation allowances against the deferred tax assets (included, together with our deferred income tax assets, as part of our reportable net deferred income tax liabilities on our consolidated balance sheets), for which the realization is uncertain. We review these items regularly in light of changes in federal and state tax laws and changes in our business.

Cash and Cash Equivalents Cash and cash equivalents include all highly liquid investments with original maturities of three months or less. The carrying amounts approximate fair value. At December 31, 2016, we held $1,803 in cash and $3,985 in money market funds and other cash equivalents. Of our total cash and cash equivalents, $776 resided in foreign jurisdictions, some of which is subject to restrictions on repatriation.

Revenue Recognition Revenues derived from wireless, fixed telephone, data and video services are recognized when services are provided. This is based upon either usage (e.g., minutes of traffic/bytes of data processed), period of time (e.g., monthly service fees) or other established fee schedules. Our service revenues are billed either in advance, arrears or are prepaid.

We record revenue reductions for estimated future adjustments to customer accounts at the time revenue is recognized based on historical experience. We report revenues from transactions between us and our customers net of taxes. Cash incentives given to customers are recorded as a reduction of revenue. Revenues related to nonrefundable, upfront service activation and setup fees are deferred and recognized over the associated service contract period or customer life. Revenue recognized from contracts that bundle services and equipment is limited to the lesser of the amount allocated based on the relative selling price of the equipment and service already delivered or the amount paid and owed by the customer for the equipment and service already delivered. Service revenues also include billings to our customers for various regulatory fees imposed on us by governmental authorities. We record the sale of equipment to customers when we no longer have any requirements to perform, title has passed, and the products are accepted by customers. 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 are not considered the principal.

We offer to our customers the option to purchase certain wireless devices in installments over a period of up to 30 months, and, in many cases, they have the right to trade in the original equipment within a set period and have the remaining unpaid balance satisfied upon the purchase of a new device under a new installment plan. For customers that elect these equipment installment payment programs, we recognize revenue for the entire amount of the customer receivable, net of fair value of the trade-in right guarantee and imputed interest.

Allowance for Doubtful Accounts We record expense to maintain an allowance for doubtful accounts for estimated losses that result from the failure or inability of our customers to make required payments deemed collectable from the customer when the service was provided or product was delivered. When determining the allowance, we consider the probability of recoverability of accounts receivable based on past experience, taking into account current collection trends as well as general economic factors, including bankruptcy rates. Credit risks are assessed based on historical write-offs, net of recoveries, as well as an analysis of the aged accounts receivable balances with allowances generally increasing as the receivable ages. Accounts receivable may be fully reserved for when specific collection issues are known to exist, such as catastrophes or pending bankruptcies.

Inventory Inventories, which are included in “Other current assets” on our consolidated balance sheets, were $2,039 at December 31, 2016, and $4,033 at December 31, 2015. Wireless devices and accessories, which are valued at the lower of cost or net realizable value, were $1,951 at December 31, 2016, and $3,998 at December 31, 2015.

Property, Plant and Equipment Property, plant and equipment is stated at cost, except for assets acquired using acquisition accounting, which are initially recorded at fair value (see Note 6). The cost of additions and substantial improvements to property, plant and equipment is capitalized, and includes internal compensation costs for these projects; however, noncash actuarial gains or losses included in compensation costs are excluded from amounts reported as “capital expenditures.” The cost of maintenance and repairs of property, plant and equipment is charged to operating expenses. Property, plant and equipment costs are depreciated using straight-line methods over their estimated economic lives. Certain subsidiaries follow composite group depreciation methodology. Accordingly, when a portion of their depreciable property, plant and equipment is retired in the ordinary course of business, the gross book value is reclassified to accumulated depreciation, and no gain or loss is recognized on the disposition of these assets.

Property, plant and equipment is reviewed for recoverability whenever events or changes in circumstances indicate that the carrying amount of an asset group may not be recoverable. We recognize an impairment loss when the carrying amount of a long-lived asset is not recoverable. The carrying amount of a long-lived asset is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset.

During the fourth quarter of 2016, we identified certain assets for impairment. These assets primarily related to capitalized costs for wireless sites that are no longer in our construction plans. (See Note 6)

The liability for the fair value of an asset retirement obligation is recorded in the period in which it is incurred if a reasonable estimate of fair value can be made. In periods subsequent to initial measurement, we recognize period-to-period changes in the liability resulting from the passage of time and revisions to either the timing or the amount of the original estimate. The increase in the carrying value of the associated long-lived asset is depreciated over the corresponding estimated economic life.

Software Costs We capitalize certain costs incurred in connection with developing or obtaining internal-use software. Capitalized software costs are included in “Property, Plant and Equipment” on our consolidated balance sheets. In addition, there is certain network software that allows the equipment to provide the features and functions unique to the AT&T network, which we include in the cost of the equipment categories for financial reporting purposes.

We amortize our capitalized software costs over a three-year to five-year period, reflecting the estimated period during which these assets will remain in service, which also aligns with the estimated useful lives used in the industry.

Goodwill and Other Intangible Assets AT&T has five major classes of intangible assets: goodwill; licenses, which include Federal Communications Commission (FCC) and other wireless licenses and orbital slots; other indefinite-lived intangible assets, primarily made up of the AT&T and international DIRECTV trade names including SKY; customer lists and various other finite-lived intangible assets (see Note 7).

Goodwill represents the excess of consideration paid over the fair value of identifiable net assets acquired in business combinations. Wireless licenses (including FCC licenses) provide us with the exclusive right to utilize certain radio

Copyright © 2013 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Notes to Consolidated Financial Statements (continued) Dollars in millions except per share amounts frequency spectrum to provide wireless communications services. While wireless licenses are issued for a fixed period of time (generally 10 years), renewals of wireless licenses have occurred routinely and at nominal cost. Moreover, we have determined that there are currently no legal, regulatory, contractual, competitive, economic or other factors that limit the useful lives of our wireless licenses. Orbital slots represent the space in which we operate the broadcast satellites that support our digital video entertainment service offerings. Similar to our wireless licenses, there are no factors that limit the useful lives of our orbital slots. We acquired the rights to the AT&T and other trade names in previous acquisitions. We have the effective ability to retain these exclusive rights permanently at a nominal cost.

Goodwill, licenses and other indefinite-lived intangible assets are not amortized but are tested at least annually for impairment. The testing is performed on the value as of October 1 each year, and compares the book value of the assets to their fair value. Goodwill is tested by comparing the book value of each reporting unit, deemed to be our principal operating segments or one level below them (Business Solutions, Entertainment Group, Consumer Mobility, and Mexico Wireless, Brazil and PanAmericana in the International segment), to the fair value using both discounted cash flow as well as market multiple approaches. Wireless licenses are tested on an aggregate basis, consistent with our use of the licenses on a national scope, using a discounted cash flow approach. Orbital slots are similarly aggregated for purposes of impairment testing. We also corroborate the value of wireless licenses with a market approach as the AWS-3 auction provided market price information for national wireless licenses. Trade names are tested by comparing the book value to a fair value calculated using a discounted cash flow approach on a presumed royalty rate derived from the revenues related to the brand name.

Intangible assets that have finite useful lives are amortized over their useful lives (see Note 7). Customer lists and relationships are amortized using primarily the sum-of-the-months-digits method of amortization over the period in which those relationships are expected to contribute to our future cash flows. The remaining finite-lived intangible assets are generally amortized using the straight- line method.

Broadcast Programming and Other Costs We recognize the costs of television programming distribution rights when we distribute the related programming. We expense the costs of television programming rights to distribute live sporting events using the straight-line method over the course of the season or tournament, which approximates the pattern of usage.

Advertising Costs We expense advertising costs for products and services or for promoting our corporate image as we incur them (see Note 18).

Traffic Compensation Expense We use various estimates and assumptions to determine the amount of traffic compensation expense recognized during any reporting period. Switched traffic compensation costs are accrued utilizing estimated rates and volumes by product, formulated from historical data and adjusted for known rate changes. Such estimates are adjusted monthly to reflect newly available information, such as rate changes and new contractual agreements. Bills reflecting actual incurred information are generally not received within three months subsequent to the end of the reporting period, at which point a final adjustment is made to the accrued traffic compensation expense. Dedicated traffic compensation costs are estimated based on the number of circuits and the average projected circuit costs.

Foreign Currency Translation We are exposed to foreign currency exchange risk through our foreign affiliates and equity investments in foreign companies. Our foreign subsidiaries and foreign investments generally report their earnings in their local currencies. We translate their foreign assets and liabilities at exchange rates in effect at the balance sheet dates. We translate their revenues and expenses using average rates during the year. The resulting foreign currency translation adjustments are recorded as a separate component of accumulated other comprehensive income (accumulated OCI) in the accompanying consolidated balance sheets (see Note 3). Operations in countries with highly inflationary economies consider the U.S. dollar as the functional currency.

We do not hedge foreign currency translation risk in the net assets and income we report from these sources. However, we do hedge a portion of the foreign currency exchange risk involved in anticipation of highly probable foreign currency-denominated transactions, which we explain further in our discussion of our methods of managing our foreign currency risk (see Note 10).

Pension and Other Postretirement Benefits See Note 12 for a comprehensive discussion of our pension and postretirement benefit expense, including a discussion of the actuarial assumptions, our policy for recognizing the associated gains and losses and our method used to estimate service and interest cost components.

New Accounting Standards

Cash Flows In August 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2016-15, “Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments” (ASU 2016-15), which provides guidance related to cash flows presentation and is effective for annual reporting periods beginning after December 15, 2017, subject to early adoption. The majority of the guidance in ASU 2016-15 is consistent with our current cash flow classifications. However, cash receipts on the deferred purchase price described in Note 15 will be classified as cash flows from investing activities instead of our current presentation as cash flows from operations. Under ASU 2016-15, we will continue to recognize cash receipts on owned equipment installment receivables as cash flows from operations. AT&T’s cash flows from operating activities included cash receipts on the deferred purchase price of $731 for the year ended December 31, 2016, and $536 for the year ended December 31, 2015.

Leases In February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842)” (ASU 2016-02), which replaces existing leasing rules with a comprehensive lease measurement and recognition standard and expanded disclosure requirements. ASU 2016-02 will require lessees to recognize most leases on their balance sheets as liabilities, with corresponding “right-of-use” assets and is effective for annual reporting periods beginning after December 15, 2018, subject to early adoption. For income statement recognition purposes, leases will be classified as either a finance or an operating lease without relying upon the bright-line tests under current GAAP.

Upon initial evaluation, we believe the key change upon adoption will be the balance sheet recognition. At adoption, we will recognize a right-to-use asset and corresponding lease liability on our consolidated balance sheets. The income statement recognition of lease expense appears similar to our current methodology. We are continuing to evaluate the magnitude and other potential impacts to our financial statements.

Revenue Recognition In May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers (Topic 606)” (ASC 606) and has modified the standard thereafter. This standard replaces existing revenue recognition rules with a comprehensive revenue measurement and recognition standard and expanded disclosure requirements. ASC 606, as amended, becomes effective for annual reporting periods beginning after December 15, 2017, at which point we plan to adopt the standard.

The FASB allows two adoption methods under ASC 606. We currently plan to adopt the standard using the “modified retrospective method.” Under that method, we will apply the rules to all contracts existing as of January 1, 2018, recognizing in beginning retained earnings an adjustment for the cumulative effect of the change and providing additional disclosures comparing results to previous accounting standards.

Upon initial evaluation, we believe the key changes in the standard that impact our revenue recognition relate to the allocation of contract revenues between various services and equipment, and the timing of when those revenues are recognized. We are still in the process of determining the impacts due to the ongoing changes in how the industry sells devices and services to customers. As a result of our accounting policy change for customer set-up and installation costs made in 2015, we believe that the requirement to defer such costs under the new standard will not result in a significant change to our results. However, the requirement to defer incremental contract acquisition costs and recognize them over the contract period or expected customer life will result in the recognition of a deferred charge on our balance sheets.

Financial Instruments In January 2016, the FASB issued ASU No. 2016-01, “Financial Instruments – Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities” (ASU 2016-01), which will require us to 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. ASU 2016-01 will become effective for fiscal years and interim periods beginning after December 15, 2017, and, with the exception of certain disclosure requirements, is not subject to early adoption.

NOTE 2. EARNINGS PER SHARE

A reconciliation of the numerators and denominators of basic and diluted earnings per share is shown in the table below:

Year Ended December 31, 2016 2015 2014 Numerators Numerator for basic earnings per share: Net income $ 13,333 $ 13,687 $ 6,736 Less: Net income attributable to noncontrolling interest (357) (342) (294) Net income attributable to AT&T 12,976 13,345 6,442 Dilutive potential common shares: Share-based payment 13 13 13 Numerator for diluted earnings per share $ 12,989 $ 13,358 $ 6,455 Denominators (000,000) Denominator for basic earnings per share: Weighted-average number of common shares outstanding 6,168 5,628 5,205 Dilutive potential common shares: Share-based payment (in shares) 21 18 16 Denominator for diluted earnings per share 6,189 5,646 5,221 Basic earnings per share attributable to AT&T $ 2.10 $ 2.37 $ 1.24 Diluted earnings per share attributable to AT&T $ 2.10 $ 2.37 $ 1.24

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.

Following our 2015 acquisitions of DIRECTV and wireless businesses in Mexico, we have additional foreign operations that are exposed to fluctuations in the exchange rates used to convert operations, assets and liabilities into U.S. dollars. Since the dates of acquisition, when compared to the U.S. dollar, the Brazilian real exchange rate has appreciated 17.9%, the Argentine peso exchange rate has depreciated 22.8% and Mexican peso exchange rate has depreciated 20.5%.

Net Unrealized Foreign Gains (Losses) Net Unrealized Accumulated Currency on Available- Gains (Losses) Defined Benefit Other Translation for-Sale on Cash Flow Postretirement Comprehensive Adjustment Securities Hedges Plans Income Balance as of December 31, 2013 $ (367) $ 450 $ 445 $ 7,352 $ 7,880 Other comprehensive income (loss) before reclassifications (75) 65 260 428 678 Amounts reclassified 1 1 2 3 from accumulated OCI 416 (16) 36 (933) (497) Net other comprehensive income (loss) 341 49 296 (505) 181 Balance as of December 31, 2014 (26) 499 741 6,847 8,061 Other comprehensive income (loss) before reclassifications (1,172) - (763) 45 (1,890) Amounts reclassified 1 1 2 3 from accumulated OCI - (15) 38 (860) (837) Net other comprehensive income (loss) (1,172) (15) (725) (815) (2,727) Balance as of December 31, 2015 (1,198) 484 16 6,032 5,334 Other comprehensive income (loss) before reclassifications (797) 58 690 497 448 Amounts reclassified 1 1 2 3 from accumulated OCI - (1) 38 (858) (821) Net other comprehensive income (loss) (797) 57 728 (361) (373) Balance as of December 31, 2016 $ (1,995) $ 541 $ 744 $ 5,671 $ 4,961 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 10 for additional information. 3 The amortization of prior service credits associated with postretirement benefits, net of amounts capitalized as part of construction labor, are included in Cost of services and sales and Selling, general and administrative in the consolidated statements of income (see Note 12).

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, 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 four reportable segments: (1) Business Solutions, (2) Entertainment Group, (3) Consumer Mobility and (4) International.

We also evaluate segment performance based on EBITDA and/or EBITDA margin, which is defined as Segment 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.

The Business Solutions segment provides services to business customers, including multinational companies; governmental and wholesale 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, collectively referred to as fixed strategic services; as well as traditional data and voice products. We utilize our wireless and wired networks (referred to as “wired” or “wireline”) to 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. We utilize our copper and IP-based wired network and/or our satellite technology.

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

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 wireless 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.

In reconciling items to consolidated operating income and income before income taxes, 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 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, and those include: · Acquisition-related items which consist of (1) items associated with the merger and integration of acquired businesses and (2) the noncash amortization of intangible assets acquired in acquisitions. · Certain significant items which consist of (1) noncash actuarial gains and losses from pension and other postretirement benefits, (2) employee separation charges associated with voluntary and/or strategic offers, (3) losses resulting from abandonment or impairment 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.

Our operating assets are utilized by multiple segments and consist of our wireless and wired networks as well as our satellite fleet. We manage our assets to provide for the most efficient, effective and integrated service to our customers, not by segment, and, therefore, asset information and capital expenditures by segment are not presented. Depreciation is allocated based on network usage or asset utilization by segment.

For the year ended December 31, 2016 Equity in Net Operations Depreciation Operating Income and Support and Income (Loss) of Segment Revenues Expenses EBITDA Amortization (Loss) Affiliates Contribution Business Solutions $ 70,988 $ 44,330 $ 26,658 $ 9,832 $ 16,826 $ - $ 16,826 Entertainment Group 51,295 39,338 11,957 5,862 6,095 9 6,104 Consumer Mobility 33,200 19,659 13,541 3,716 9,825 - 9,825 International 7,283 6,830 453 1,166 (713) 52 (661) Segment Total 162,766 110,157 52,609 20,576 32,033 $ 61 $ 32,094 Corporate and Other 1,043 1,173 (130) 65 (195) Acquisition-related items - 1,203 (1,203) 5,177 (6,380) Certain significant items (23) 1,059 (1,082) 29 (1,111) AT&T Inc. $ 163,786 $ 113,592 $ 50,194 $ 25,847 $ 24,347

For the year ended December 31, 2015 Equity in Net Operations Depreciation Operating Income and Support and Income (Loss) of Segment Revenues Expenses EBITDA Amortization (Loss) Affiliates Contribution Business Solutions $ 71,127 $ 44,946 $ 26,181 $ 9,789 $ 16,392 $ - $ 16,392 Entertainment Group 35,294 28,345 6,949 4,945 2,004 (4) 2,000 Consumer Mobility 35,066 21,477 13,589 3,851 9,738 - 9,738 International 4,102 3,930 172 655 (483) (5) (488) Segment Total 145,589 98,698 46,891 19,240 27,651 $ (9) $ 27,642 Corporate and Other 1,297 1,057 240 64 176 Acquisition-related items (85) 1,987 (2,072) 2,712 (4,784) Certain significant items - (1,742) 1,742 - 1,742 AT&T Inc. $ 146,801 $ 100,000 $ 46,801 $ 22,016 $ 24,785

For the year ended December 31, 2014 Equity in Net Income Operations Depreciation Operating (Loss) and Support and Income of Segment Revenues Expenses EBITDA Amortization (Loss) Affiliates Contribution Business Solutions $ 70,606 $ 45,826 $ 24,780 $ 9,355 $ 15,425 $ - $ 15,425 Entertainment Group 22,233 18,992 3,241 4,473 (1,232) (2) (1,234) Consumer Mobility 36,769 23,891 12,878 3,827 9,051 (1) 9,050 International - - - - - 153 153 Segment Total 129,608 88,709 40,899 17,655 23,244 $ 150 $ 23,394 Corporate and Other 2,839 2,471 368 105 263 Acquisition-related items - 785 (785) 487 (1,272) Certain significant items - 9,997 (9,997) 26 (10,023) AT&T Inc. $ 132,447 $ 101,962 $ 30,485 $ 18,273 $ 12,212

The following table is a reconciliation of operating income (loss) to “Income Before Income Taxes” reported in our consolidated statements of income:

2016 2015 2014 Business Solutions $ 16,826 $ 16,392 $ 15,425 Entertainment Group 6,104 2,000 (1,234) Consumer Mobility 9,825 9,738 9,050 International (661) (488) 153 Segment Contribution 32,094 27,642 23,394 Reconciling Items: Corporate and Other (195) 176 263 Merger and integration charges (1,203) (2,072) (785) Amortization of intangibles acquired (5,177) (2,712) (487) Actuarial gain (loss) (1,024) 2,152 (7,869) Employee separation costs (344) (375) - Gain on wireless spectrum transactions 714 - - Storm related and other items (67) - - Asset abandonments and impairments (390) (35) (2,154) Segment equity in net income (loss) of affiliates (61) 9 (150) AT&T Operating Income 24,347 24,785 12,212 Interest expense 4,910 4,120 3,613 Equity in net income of affiliates 98 79 175 Other income (expense) - net 277 (52) 1,581 Income Before Income Taxes $ 19,812 $ 20,692 $ 10,355

The following table sets forth revenues earned from subscribers, and property, plant and equipment located in different geographic areas.

2016 2015 2014 Net Property, Net Property, Net Property, Plant & Plant & Plant & Revenues Equipment Revenues Equipment Revenues Equipment United States $ 154,039 $ 118,664 $ 140,234 $ 118,515 $ 129,772 $ 112,092 Latin America Brazil 2,797 1,265 1,224 1,384 142 33 Other 2,348 1,828 1,157 1,530 99 67 Mexico 2,472 2,520 2,046 2,369 94 20 Other 2,130 622 2,140 652 2,340 686 Total $ 163,786 $ 124,899 $ 146,801 $ 124,450 $ 132,447 $ 112,898

NOTE 5. ACQUISITIONS, DISPOSITIONS AND OTHER ADJUSTMENTS

Acquisitions

DIRECTV In July 2015, we completed our acquisition of DIRECTV, a leading provider of digital television entertainment services in both the United States and Latin America. For accounting purposes, the transaction was valued at $47,409. Our consolidated balance sheets include the assets and liabilities of DIRECTV, which have been measured at fair value.

The fair values of the assets acquired and liabilities assumed were determined using income, cost and market approaches. The fair value measurements were primarily based on significant inputs that are not observable in the market and are considered Level 3 under the Fair Value Measurement and Disclosure framework, other than long-term debt assumed in the acquisition (see Note 10). The income approach was primarily used to value the intangible assets, consisting primarily of acquired customer relationships, orbital slots and trade names. The income approach estimates fair value for an asset based on the

Copyright © 2013 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Notes to Consolidated Financial Statements (continued) Dollars in millions except per share amounts present value of cash flows projected to be generated by the asset. Projected cash flows are discounted at a required rate of return that reflects the relative risk of achieving the cash flows 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 primarily 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.

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 acquisition. Purchased goodwill is not expected to be deductible for tax purposes. The goodwill was allocated to our Entertainment Group and International segments.

The following table summarizes the fair values of the DIRECTV assets acquired and liabilities assumed and related deferred income taxes as of the acquisition date.

Assets acquired Cash $ 4,797 Accounts receivable 2,038 All other current assets 1,534 Property, plant and equipment (including satellites) 9,320 Intangible assets not subject to amortization Orbital slots 11,946 Trade name 1,371 Intangible assets subject to amortization Customer lists and relationships 19,508 Trade name 2,915 Other 445 Investments and other assets 2,375 Goodwill 34,619 Total assets acquired 90,868

For the 160-day period ended December 31, 2015, our consolidated statement of income included $14,561 of revenues and $(46) of operating income, which included $2,254 of intangible amortization, from DIRECTV and its affiliates. The following unaudited pro forma consolidated results of operations assume that the acquisition of DIRECTV was completed as of January 1, 2014.

(Unaudited) Year Ended December 31, 2015 2014 Total operating revenues $ 165,694 $ 165,595 Net Income Attributable to AT&T 12,683 6,412

Basic Earnings Per Share Attributable to AT&T $ 2.06 $ 1.04 Diluted Earnings Per Share Attributable to AT&T $ 2.06 $ 1.04

Nextel Mexico In April 2015, we completed our acquisition of the subsidiaries of NII Holdings Inc., operating its wireless business in Mexico, for $1,875, including approximately $427 of net debt and other adjustments. The subsidiaries offered service under the name Nextel Mexico.

The purchase price allocation of assets acquired was: $376 in licenses, $1,167 in property, plant and equipment, $128 in customer lists and $193 of goodwill. The goodwill was allocated to our International segment.

GSF Telecom In January 2015, we acquired Mexican wireless company GSF Telecom Holdings, S.A.P.I. de C.V. (GSF Telecom) for $2,500, including net debt of approximately $700. GSF Telecom offered service under both the Iusacell and Unefon brand names in Mexico.

The purchase price allocation of assets acquired was: $735 in licenses, $658 in property, plant and equipment, $378 in customer lists, $26 in trade names and $956 of goodwill. The goodwill was allocated to our International segment.

AWS-3 Auction In January 2015, we submitted winning bids of $18,189 in the Advanced Wireless Service (AWS)-3 Auction (FCC Auction 97), a portion of which represented spectrum clearing and First Responder Network Authority funding. We provided the Federal Communications Commission (FCC) an initial down payment of $921 in October 2014 and paid the remaining $17,268 in the first quarter of 2015.

Spectrum Acquisitions and Swaps On occasion, we swap spectrum with other wireless providers to ensure we have efficient and contiguous coverage across our markets and service areas. During 2016, we swapped FCC licenses with a fair value of approximately $2,122 with other carriers and recorded a net gain of $714.

During 2015, we acquired $489 of wireless spectrum, not including the AWS auction. During 2014, we acquired $1,263 of wireless spectrum, not including Leap Wireless International, Inc. (Leap) discussed below.

Leap In March 2014, we acquired Leap, a provider of prepaid wireless service, for $15.00 per outstanding share of Leap’s common stock, or $1,248 (excluding Leap’s cash on hand), plus one nontransferable contingent value right (CVR) per share. The CVR entitled each Leap stockholder to a pro rata share of the net proceeds of the sale of the Chicago 700 MHz A-band FCC license held by Leap. In November 2016, we completed the sale of the Chicago 700 MHz A-band FCC license and proceeds will be distributed to the former Leap stockholders during the first quarter of 2017, as required by the agreement.

Pending Acquisition

Time Warner Inc. On October 22, 2016, we entered into and announced a merger agreement (Merger Agreement) to acquire Time Warner Inc. (Time Warner) in a 50% cash and 50% stock transaction for $107.50 per share of Time Warner common stock, or approximately $85,400 at the date of the announcement (Merger). Combined with Time Warner’s net debt at September 30, 2016, the total transaction value is approximately $108,700. Each share of Time Warner common stock will be exchanged for $53.75 per share in cash and a number of shares of AT&T common stock equal to the exchange ratio. If the average stock price (as defined in the Merger Agreement) at the time of closing the Merger is between (or equal to) $37.411 and $41.349 per share, the exchange ratio will be the

Copyright © 2013 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document quotient of $53.75 divided by the average stock price. If the average stock price is greater than $41.349, the exchange ratio will be 1.300. If the average stock price is less

Copyright © 2013 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Notes to Consolidated Financial Statements (continued) Dollars in millions except per share amounts than $37.411, the exchange ratio will be 1.437. Post-transaction, Time Warner shareholders will own between 14.4% and 15.7% of AT&T shares on a fully-diluted basis based on the number of AT&T shares outstanding. The cash portion of the purchase price will be financed with new debt and cash (see Note 9).

The Merger Agreement was approved by Time Warner shareholders on February 15, 2017 and remains subject to review by the U.S. Department of Justice. While subject to change, we expect that Time Warner will not need to transfer any of its FCC licenses to AT&T in order to conduct its business operations after the closing of the transaction. It is also a condition to closing that necessary consents from certain public utility commissions and foreign governmental entities must be obtained. The transaction is expected to close before year-end 2017. If the Merger is terminated as a result of reaching the termination date (and at that time one or more of the conditions relating to certain regulatory approvals have not been satisfied) or there is a final, non-appealable order preventing the transaction relating to antitrust laws, communications laws, utilities laws or foreign regulatory laws, then under certain circumstances we would be obligated to pay Time Warner $500.

Dispositions

Connecticut Wireline In October 2014, we sold our incumbent local exchange operations in Connecticut for $2,018 and recorded a pre-tax gain of $76, which is included in “Other income (expense) – net,” in our consolidated statements of income. In conjunction with the sale, we allocated $743 of goodwill from our former Wireline reporting unit. Because the book value of the goodwill did not have a corresponding tax basis, the resulting net income impact of the sale was a loss of $360.

América Móvil In 2014, we sold our remaining equity method investment in América Móvil S.A. de C.V. (América Móvil) for approximately $5,885 and recorded a pre-tax gain of $1,330, which is included in “Other income (expense) – net,” in our consolidated statements of income.

NOTE 6. PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment is summarized as follows at December 31:

Lives (years) 2016 2015 Land - $ 1,643 $ 1,638 Buildings and improvements 2-44 35,036 33,784 Central office equipment1 3-10 92,954 93,643 Cable, wiring and conduit 15-50 79,279 75,784 Satellites 12-15 2,710 2,088 Other equipment 2-23 88,436 81,972 Software 3-5 14,472 11,347 Under construction - 5,118 5,971 319,648 306,227 Accumulated depreciation and amortization 194,749 181,777 Property, plant and equipment - net $ 124,899 $ 124,450 1 Includes certain network software.

Our depreciation expense was $20,661 in 2016, $19,289 in 2015 and $17,773 in 2014. Depreciation expense included amortization of software totaling $2,362 in 2016, $1,660 in 2015 and $1,504 in 2014.

We periodically assess our network assets for impairment and during the fourth quarter of 2016 we recorded a noncash pretax charge of $278 for the impairment of certain wireless assets that were under construction. These assets primarily related to capitalized costs for wireless sites that are no longer in our construction plans. During 2014, due to declining customer demand for our legacy voice and data products and the migration of our networks to next generation technologies, we decided to abandon in place specific copper network assets classified as cable, wiring and conduit. These abandoned assets had a gross book value of approximately $7,141, with accumulated depreciation of $5,021. In 2014, we recorded a $2,120 noncash pretax charge for this abandonment. These charges are included in “Asset abandonments and impairments” in our consolidated statements of income.

Certain facilities and equipment used in operations are leased under operating or capital leases. Rental expenses under operating leases were $4,482 for 2016, $5,025 for 2015 and $4,345 for 2014. At December 31, 2016, the future minimum rental payments under noncancelable operating leases for the years 2017 through 2021 were $3,915, $3,706, $3,448, $3,208 and $2,811, with $12,569 due thereafter. Certain real estate operating leases contain renewal options that may be exercised. Capital leases are not significant.

NOTE 7. GOODWILL AND OTHER INTANGIBLE ASSETS

The following table sets forth the changes in the carrying amounts of goodwill by segment, which is the same as reporting unit for Business Solutions, Entertainment Group and Consumer Mobility. The International segment has three reporting units: Mexico Wireless, Brazil and PanAmericana.

Business Entertainment Consumer Solutions Group Mobility International Wireless Wireline Total Balance as of December 31, 2014 $ - $ - $ - $ - $ 36,469 $ 33,223 $ 69,692 Goodwill acquired - 30,839 - 4,672 6 - 35,517 Foreign currency translation adjustments - - - (638) - - (638) Allocation of goodwill 45,351 7,834 16,512 - (36,471) (33,226) - Other - - - (2) (4) 3 (3) Balance as of December 31, 2015 45,351 38,673 16,512 4,032 - - 104,568 Goodwill acquired 22 380 14 65 - - 481 Foreign currency translation adjustments - - - 167 - - 167 Other (9) - - - - - (9) Balance as of December 31, 2016 $ 45,364 $ 39,053 $ 16,526 $ 4,264 $ - $ - $ 105,207

The majority of our goodwill acquired during 2016 related to the final valuation of DIRECTV, Nextel Mexico and GSF Telecom, as well as our acquisition of Quickplay Media. Other changes to our goodwill in 2016 include foreign currency translation adjustments. The majority of our goodwill acquired during 2015 related to our acquisitions of DIRECTV, Nextel Mexico and GSF Telecom. Other changes to our goodwill in 2015 include foreign currency translation adjustments and the final valuation of Leap. The allocation of goodwill represents goodwill previously assigned to our Wireless and Wireline segments. As part of our organizational realignment in 2015, the goodwill from the previous Wireless segment was allocated to the Business Solutions and Consumer Mobility segments and the goodwill from the previous Wireline segment was allocated to the Business Solutions and Entertainment Group segments. The allocations were based on the relative fair value of the portions of the previous Wireless and Wireline segments which were moved into the new Business Solutions, Entertainment Group and Consumer Mobility segments.

Our other intangible assets are summarized as follows:

December 31, 2016 December 31, 2015 Gross Currency Gross Currency Carrying Translation Accumulated Carrying Translation Accumulated Other Intangible Assets Amount Adjustment Amortization Amount Adjustment Amortization Amortized intangible assets: Customer lists and relationships: Wireless acquisitions $ 942 $ - $ 715 $ 1,055 $ - $ 679 BellSouth Corporation 4,450 - 4,429 4,450 - 4,347 DIRECTV 19,547 (125) 5,618 19,505 (294) 1,807 AT&T Corp. 33 - 26 33 - 23 Mexican wireless 506 (108) 214 485 (60) 110 Subtotal 25,478 (233) 11,002 25,528 (354) 6,966 Trade name 2,942 (7) 1,394 2,905 - 424 Other 707 (3) 283 686 - 195 Total $ 29,127 $ (243) $ 12,679 $ 29,119 $ (354) $ 7,585

Indefinite-lived intangible assets not subject to amortization: Licenses: Wireless licenses $ 82,474 $ 81,147 Orbital slots 11,702 11,946 Trade name 6,479 6,437 Total $ 100,655 $ 99,530

We review indefinite-lived intangible assets for impairment annually (see Note 1). Wireless licenses provide us with the exclusive right to utilize certain radio frequency spectrum to provide mobile communications services in the United States and Mexico. Orbital slots represent the space in which we operate the broadcast satellites that support our digital video entertainment service offerings.

Amortized intangible assets are definite-life assets, and, as such, we record amortization expense based on a method that most appropriately reflects our expected cash flows from these assets, over a weighted-average life of 8.5 years (9.2 years for customer lists and relationships and 4.2 years for trade names and other). Amortization expense for definite-life intangible assets was $5,186 for the year ended December 31, 2016, $2,728 for the year ended December 31, 2015 and $500 for the year ended December 31, 2014. Amortization expense is estimated to be $4,612 in 2017, $3,573 in 2018, $2,516 in 2019, $2,038 in 2020, and $1,563 in 2021.

In 2016, we wrote off approximately $117 of fully amortized intangible assets (primarily customer lists). In 2015, we wrote off approximately $1,483 of fully amortized intangible assets (primarily customer lists). We review amortized intangible assets for impairment whenever events or circumstances indicate that the carrying amount may not be recoverable over the remaining life of the asset or asset group.

NOTE 8. EQUITY METHOD INVESTMENTS

Investments in partnerships, joint ventures and less than majority-owned subsidiaries in which we have significant influence are accounted for under the equity method.

Our investments in equity affiliates at December 31, 2016 primarily include our interests in SKY Mexico, Game Show Network and Otter Media Holdings.

SKY Mexico We hold a 41.3% interest in SKY Mexico, which is a leading pay-TV provider in Mexico.

Game Show Network (GSN) We hold a 42.0% interest in GSN, a television network dedicated to game-related programming and internet interactive game playing.

Otter Media Holdings We hold a 48.3% interest in Otter Media Holdings, a venture between The Chernin Group and AT&T that is focused on acquiring, investing and launching over-the-top subscription video services.

The following table is a reconciliation of our investments in equity affiliates as presented on our consolidated balance sheets:

2016 2015 Beginning of year $ 1,606 $ 250 Additional investments 208 77 DIRECTV investments acquired - 1,232 Equity in net income of affiliates 98 79 Dividends and distributions received (61) (30) Currency translation adjustments (156) - Other adjustments (21) (2) End of year $ 1,674 $ 1,606

Undistributed earnings from equity affiliates were $196 and $162 at December 31, 2016 and 2015.

NOTE 9. DEBT

Long-term debt of AT&T and its subsidiaries, including interest rates and maturities, is summarized as follows at December 31:

2016 2015 Notes and debentures1 Interest Rates Maturities2 0.49% – 2016 – 2.99% 2022 $ 26,396 $ 34,265 3.00% – 2016 – 4.99% 2049 66,520 54,678 5.00% – 2016 – 6.99% 2095 26,883 31,140 7.00% – 2016 – 9.50% 2097 5,050 5,805 Other 4 15 Fair value of interest rate swaps recorded in debt 48 109 124,901 126,012 Unamortized (discount) premium - net (2,201) (842) Unamortized issuance costs (319) (323) Total notes and debentures 122,381 124,847 Capitalized leases 869 884 Other 259 416 Total long-term debt, including current maturities 123,509 126,147 Current maturities of long-term debt (9,828) (7,632) Total long-term debt $ 113,681 $ 118,515 1 Includes credit agreement borrowings. 2 Maturities assume putable debt is redeemed by the holders at the next opportunity.

We had outstanding Euro, British pound sterling, Canadian dollar, Swiss franc and Brazilian real denominated debt of approximately $24,292 and $26,221 at December 31, 2016 and 2015. The weighted-average interest rate of our entire long-term debt portfolio, including the impact of derivatives, increased from 4.0% at December 31, 2015 to 4.2% at December 31, 2016.

Current maturities of long-term debt include debt that may be put back to us by the holders in 2017. We have $1,000 of annual put reset securities that may be put each April until maturity in 2021. If the holders do not require us to repurchase the securities, the interest rate will be reset based on current market conditions. Likewise, we have an accreting zero-coupon note that may be redeemed each May, until maturity in 2022. If the zero-coupon note (issued for principal of $500 in 2007) is held to maturity, the redemption amount will be $1,030.

Debt maturing within one year consisted of the following at December 31:

2016 2015 Current maturities of long-term debt $ 9,828 $ 7,632 Bank borrowings1 4 4 Total $ 9,832 $ 7,636 1 Outstanding balance of short-term credit facility of a foreign subsidiary.

Financing Activities During 2016, we issued $10,140 in long-term debt in various markets, with an average weighted maturity of approximately 12 years and a weighted average coupon of 3.8%. We redeemed $10,823 in borrowings of various notes with stated rates of 1.00% to 9.10%.

During 2016 we completed the following long-term debt issuances: · February issuance of $1,250 of 2.800% global notes due 2021. · February issuance of $1,500 of 3.600% global notes due 2023. · February issuance of $1,750 of 4.125% global notes due 2026. · February issuance of $1,500 of 5.650% global notes due 2047. · May issuance of $750 of 2.300% global notes due 2019. · May issuance of $750 of 2.800% global notes due 2021. · May issuance of $1,100 of 3.600% global notes due 2023. · May issuance of $900 of 4.125% global notes due 2026. · May issuance of $500 of 4.800% global notes due 2044.

As of December 31, 2016 and 2015, we were in compliance with all covenants and conditions of instruments governing our debt. Substantially all of our outstanding long-term debt is unsecured. Maturities of outstanding long-term notes and debentures, as of December 31, 2016, and the corresponding weighted-average interest rate scheduled for repayment are as follows:

2017 2018 2019 2020 2021 Thereafter Debt repayments1 $ 9,609 $ 8,840 $ 8,113 $ 9,179 $ 8,614 $ 85,926 Weighted-average interest rate 2.7% 3.6% 3.7% 2.8% 4.0% 4.7% 1 Debt repayments assume putable debt is redeemed by the holders at the next opportunity.

Credit Facilities General In December 2015, we entered into a five-year, $12,000 revolving credit agreement (the “Revolving Credit Agreement”) with certain banks. As of December 31, 2016, we have no amounts outstanding under this agreement.

Copyright © 2013 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Notes to Consolidated Financial Statements (continued) Dollars in millions except per share amounts modifications described in each agreement) financial ratio covenant requiring AT&T to maintain, as of the last day of each fiscal quarter, a ratio of not more than 3.5-to-1. The events of default are customary for agreements of this type and such events would result in the acceleration of, or would permit the lenders to accelerate, as applicable, required payments and would increase each agreement’s relevant Applicable Margin by 2.00% per annum.

We will pay a facility fee of 0.070%, 0.090%, 0.100% or 0.125% per annum, depending on AT&T’s credit rating, of the amount of lender commitments.

AT&T pays a commitment fee of 0.070%, 0.090%, 0.100%, 0.125% or 0.175% of the commitment amount per annum, depending on AT&T’s credit ratings.

We also must pay an additional fee of 0.500%, 0.750% and 1.000% on the amount of advances outstanding as of the 90th, 180th and 270th day after advances are made.

Term Loan Under the Term Loan, there are two tranches of commitments, each in a total amount of $5,000.

AT&T pays a commitment fee of 0.090%, 0.100%, or 0.125% of the commitment amount per annum, depending on AT&T’s credit ratings.

Advances under the Term Loan are conditioned on the absence of a material adverse effect on Time Warner and certain customary conditions.

NOTE 10. FAIR VALUE MEASUREMENTS AND DISCLOSURE

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. 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, 2015.

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:

December 31, 2016 December 31, 2015 Carrying Fair Carrying Fair Amount Value Amount Value Notes and debentures1 $ 122,381 $ 128,726 $ 124,847 $ 128,993 Bank borrowings 4 4 4 4 Investment securities 2,587 2,587 2,704 2,704 1 Includes credit agreement borrowings.

The carrying amount of debt with an original maturity of less than one year approximates fair 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.

Following is the fair value leveling for available-for-sale securities and derivatives as of December 31, 2016, and December 31, 2015:

December 31, 2016 Level 1 Level 2 Level 3 Total Available-for-Sale Securities Domestic equities $ 1,215 $ - $ - $ 1,215 International equities 594 - - 594 Fixed income bonds - 508 - 508 Asset Derivatives1 Interest rate swaps - 79 - 79 Cross-currency swaps - 89 - 89 Liability Derivatives1 Interest rate swaps - (14) - (14) Cross-currency swaps - (3,867) - (3,867) 1 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.

Investment Securities Our investment securities include equities, fixed income bonds and other securities. A substantial portion of the fair values of our available-for-sale securities was estimated based on quoted market prices. Investments in securities not traded on a national securities exchange are valued using pricing models, quoted prices of securities with similar characteristics or discounted cash flows. Realized gains and losses on securities are included in “Other income (expense) – net” in the consolidated statements of income using the specific identification method. Unrealized gains and losses, net of tax, on available-for-sale securities are recorded in accumulated OCI. Unrealized losses that are considered other than temporary are recorded in “Other income (expense) – net” with the corresponding reduction to the carrying basis of the investment. Fixed income investments of $245 have maturities of less than one year, $58 within one to three years, $46 within three to five years, and $159 for five or more years.

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

Copyright © 2013 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Notes to Consolidated Financial Statements (continued) Dollars in millions except per share amounts 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 Hedging We designate our fixed-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. Accrued and realized gains or losses from interest rate swaps impact interest expense in the consolidated statements of income. Unrealized gains on interest rate swaps 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 of the interest rate swaps are exactly offset by changes in the fair value of the underlying debt. Gains or losses realized upon early termination of our fair value hedges are recognized in interest expense. In the years ended December 31, 2016, and December 31, 2015, no ineffectiveness was measured on interest rate swaps designated as fair value 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 debt. These agreements include initial and final exchanges of principal from fixed foreign currency denominations 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-denominated rate to a fixed U.S. dollar denominated interest rate.

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 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 each quarter. In the years ended December 31, 2016, and December 31, 2015, no ineffectiveness was measured on cross-currency swaps designated as cash flow hedges.

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 $59 from accumulated OCI to interest expense due to the amortization of net losses on historical interest rate locks.

We hedge a portion of the exchange risk involved in anticipation of highly probable foreign currency-denominated transactions. In anticipation of these transactions, we often enter into foreign exchange contracts to provide currency at a fixed rate. Gains and losses at the time we settle or take delivery 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 years ended December 31, 2016, and December 31, 2015, no ineffectiveness was measured on foreign exchange contracts designated as cash flow hedges.

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 December 31, 2016, we had posted collateral of $3,242 (a deposit asset) and held no collateral. Under the agreements, if AT&T’s credit rating had been downgraded one rating level by Fitch Ratings, before the final collateral exchange in December, we would have been required to post additional collateral of $150. If DIRECTV Holdings LLC’s credit rating had been downgraded below BBB- (S&P), we would owe an additional $274. At December 31, 2015, we had posted collateral of $2,343 (a deposit asset) and held collateral of $124 (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:

2016 2015 Interest rate swaps $ 9,650 $ 7,050 Cross-currency swaps 29,642 29,642 Foreign exchange contracts - 100 Total $ 39,292 $ 36,792

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

In addition, the net swap settlements that accrued and settled in the periods above were included in interest expense.

Cash Flow Hedging Relationships For the years ended December 31, 2016 2015 2014 Cross-currency swaps: Gain (Loss) recognized in accumulated OCI $ 1,061 $ (813) $ 528

Interest rate locks: Gain (Loss) recognized in accumulated OCI - (361) (128) Interest income (expense) reclassified from accumulated OCI into income (59) (58) (44)

NOTE 11. INCOME TAXES

Significant components of our deferred tax liabilities (assets) are as follows at December 31:

2016 2015 Depreciation and amortization $ 44,903 $ 46,067 Licenses and nonamortizable intangibles 22,892 20,732 Employee benefits (10,045) (10,517) Deferred fulfillment costs 3,204 2,172 Net operating loss and other carryforwards (4,304) (4,029) Other – net (216) (1,478) Subtotal 56,434 52,947 Deferred tax assets valuation allowance 2,283 2,141 Net deferred tax liabilities $ 58,717 $ 55,088

Noncurrent deferred tax liabilities $ 60,128 $ 56,181 Less: Noncurrent deferred tax assets (1,411) (1,093) Net deferred tax liabilities $ 58,717 $ 55,088

At December 31, 2016, we had combined net operating loss carryforwards (tax effected) for federal income tax purposes of $144, state of $830 and foreign of $1,981, expiring through 2032. Additionally, we had federal credit carryforwards of $0 and state credit carryforwards of $1,348, expiring primarily through 2036.

We recognize a valuation allowance if, based on the weight of available evidence, it is more likely than not that some portion, or all, of a deferred tax asset will not be realized. Our valuation allowances at December 31, 2016 and 2015 related primarily to state and foreign net operating losses and state credit carryforwards.

We recognize the financial statement effects of a tax return position when it is more likely than not, based on the technical merits, that the position will ultimately be sustained. For tax positions that meet this recognition threshold, we apply our judgment, taking into account applicable tax laws, our experience in managing tax audits and relevant GAAP, to determine the amount of tax benefits to recognize in our financial statements. For each position, the difference between the benefit realized on our tax return and the benefit reflected in our financial statements is recorded on our consolidated balance sheets as an unrecognized tax benefit (UTB). We update our UTBs at each financial statement date to reflect the impacts of audit settlements and other resolutions of audit issues, the expiration of statutes of limitation, developments in tax law and ongoing discussions with taxing authorities. A reconciliation of the change in our UTB balance from January 1 to December 31 for 2016 and 2015 is as follows:

Federal, State and Foreign Tax 2016 2015 Balance at beginning of year $ 6,898 $ 4,465 Increases for tax positions related to the current year 318 1,333 Increases for tax positions related to prior years 473 660 Decreases for tax positions related to prior years (1,168) (396) Lapse of statute of limitations (25) (16) Settlements 50 10 Current year acquisitions - 864 Foreign currency effects (30) (22) Balance at end of year 6,516 6,898 Accrued interest and penalties 1,140 1,138 Gross unrecognized income tax benefits 7,656 8,036 Less: Deferred federal and state income tax benefits (557) (582) Less: Tax attributable to timing items included above (3,398) (3,460) Less: UTBs included above that relate to acquisitions that would impact goodwill if recognized during the measurement period - (842) Total UTB that, if recognized, would impact the effective income tax rate as of the end of the year $ 3,701 $ 3,152

Periodically we make deposits to taxing jurisdictions which reduce our UTB balance but are not included in the reconciliation above. The amount of deposits that reduced our UTB balance was $3,084 at December 31, 2016, and $3,027 at December 31, 2015.

Accrued interest and penalties included in UTBs were $1,140 as of December 31, 2016, and $1,138 as of December 31, 2015. We record interest and penalties related to federal, state and foreign UTBs in income tax expense. The net interest and penalty expense (benefit) included in income tax expense was $24 for 2016, $83 for 2015, and $(64) for 2014.

We file income tax returns in the U.S. federal jurisdiction and various state, local and foreign jurisdictions. As a large taxpayer, our income tax returns are regularly audited by the Internal Revenue Service (IRS) and other taxing authorities. The IRS has completed field examinations of our tax returns through 2010. All audit periods prior to 2003 are closed for federal examination purposes. Contested issues from our 2003 through 2010 returns are at various stages of resolution with the IRS Appeals Division; we are unable to estimate the impact the resolution of these issues may have on our UTBs.

The components of income tax (benefit) expense are as follows:

2016 2015 2014 Federal: Current $ 2,915 $ 2,496 $ 1,610 Deferred 3,127 3,828 2,060 6,042 6,324 3,670 State and local: Current 282 72 (102) Deferred 339 671 (73) 621 743 (175) Foreign: Current 335 320 163 Deferred (519) (382) (39) (184) (62) 124 Total $ 6,479 $ 7,005 $ 3,619

“Income Before Income Taxes” in the Consolidated Statements of Income included the following components for the years ended December 31:

2016 2015 2014 U.S. income before income taxes $ 20,911 $ 21,519 $ 10,244 Foreign income (loss) before income taxes (1,099) (827) 111 Total $ 19,812 $ 20,692 $ 10,355

A reconciliation of income tax expense (benefit) and the amount computed by applying the statutory federal income tax rate (35%) to income from continuing operations before income taxes is as follows:

2016 2015 2014 Taxes computed at federal statutory rate $ 6,934 $ 7,242 $ 3,624 Increases (decreases) in income taxes resulting from: State and local income taxes – net of federal income tax benefit 416 483 (113) Connecticut wireline sale - - 350 Loss of foreign tax credits in connection with América Móvil sale - - 386 Mexico restructuring (471) - - Other – net (400) (720) (628) Total $ 6,479 $ 7,005 $ 3,619 Effective Tax Rate 32.7% 33.9% 34.9%

NOTE 12. PENSION AND POSTRETIREMENT BENEFITS

Pension Benefits and Postretirement Benefits Substantially all of our U.S. management employees hired before January 1, 2015 are covered by one of our noncontributory pension programs. The vast majority of domestic nonmanagement employees, including those hired after 2015, also participate in our noncontributory pension programs. Management participants generally receive benefits under either cash balance pension programs that include annual or monthly credits based on salary as well as an interest credit, or a traditional pension formula (i.e., a stated percentage of employees’ adjusted career income). Nonmanagement employees’ pension benefits are generally calculated using one of two formulas: a flat dollar amount applied to years of service according to job classification or a cash balance plan with negotiated annual pension band credits as well as interest credits. Most nonmanagement employees can elect to receive their pension benefits in either a lump sum payment or an annuity.

We also provide a variety of medical, dental and life insurance benefits to certain retired employees under various plans and accrue actuarially determined postretirement benefit costs as active employees earn these benefits.

We acquired DIRECTV on July 24, 2015. DIRECTV sponsored a noncontributory defined benefit pension plan, which provided benefits to most employees based on either years of service and final average salary, or eligible compensation while employed by DIRECTV. DIRECTV also maintained (1) a postretirement benefit plan for those retirees eligible to participate in health care and life insurance benefits, generally until they reach age 65 and (2) an unfunded nonqualified pension plan for certain eligible employees. At December 31, 2015, we recorded the fair value of the DIRECTV plans using assumptions and accounting policies consistent with those disclosed by AT&T.

In December 2014, we announced 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 $149 as a result of the offer.

In the fourth quarter of 2014, we changed the method we use to estimate the service and interest components of net periodic benefit cost for pension (as of October 1, 2014) and other postretirement benefits (as of December 31, 2014). This change did not affect the measurement of our total benefit obligations or our annual net periodic benefit cost as the change in service and interest costs was completely offset in the actuarial (gain) loss reported. This change compared to the previous method resulted in a decrease of $150 in the service and interest components for pension cost in the fourth quarter of 2014. For the year ended December 31, 2015, the change resulted in an incremental decrease of $740 in service and interest components for pension and postretirement costs. Prior to the fourth quarter of 2014, we estimated these service and interest cost components utilizing a single weighted-average discount rate derived from the yield curve used to measure the benefit obligation at the beginning of the period. We have elected to utilize a full yield curve approach in the estimation of these components by applying the specific spot rates along the yield curve used in the determination of the benefit obligation to the relevant projected cash flows. We have made this change to provide a more precise measurement of service and interest costs by improving the correlation between projected benefit cash flows to the corresponding spot yield curve rates. We have accounted for this change as a change in accounting estimate that is inseparable from a change in accounting principle and accordingly have accounted for it prospectively.

Obligations and Funded Status For defined benefit pension plans, the benefit obligation is the “projected benefit obligation,” the actuarial present value, as of our December 31 measurement date, of all benefits attributed by the pension benefit formula to employee service rendered to that date. The amount of benefit to be paid depends on a number of future events incorporated into the pension benefit formula, including estimates of the average life of employees and their beneficiaries and average years of service rendered. It is measured based on assumptions concerning future interest rates and future employee compensation levels.

For postretirement benefit plans, the benefit obligation is the “accumulated postretirement benefit obligation,” the actuarial present value as of measurement date of all future benefits attributed under the terms of the postretirement benefit plan to employee service.

The following table presents the change in the projected benefit obligation for the years ended December 31:

Pension Benefits Postretirement Benefits 2016 2015 2016 2015 Benefit obligation at beginning of year $ 55,464 $ 59,543 $ 27,898 $ 30,709 Service cost - benefits earned during the period 1,112 1,212 192 222 Interest cost on projected benefit obligation 1,980 1,902 972 967 Amendments (206) (8) (600) (74) Actuarial (gain) loss 1,485 (3,079) (529) (1,988) Special termination benefits - 149 - - Benefits paid (3,614) (4,681) (1,941) (1,958) DIRECTV acquisition - 470 - 20 Transfer for sale of Connecticut wireline operations - (42) - - Plan transfers (38) (2) 35 - Benefit obligation at end of year $ 56,183 $ 55,464 $ 26,027 $ 27,898

The following table presents the change in the fair value of plan assets for the years ended December 31 and the plans’ funded status at December 31:

Pension Benefits Postretirement Benefits 2016 2015 2016 2015 Fair value of plan assets at beginning of year $ 42,195 $ 45,163 $ 6,671 $ 7,846 Actual return on plan assets 3,123 604 407 64 Benefits paid1 (3,614) (4,681) (1,156) (1,239) Contributions 910 735 - - DIRECTV acquisition - 418 - - Transfer for sale of Connecticut wireline operations - (42) - - Plan transfers and other (4) (2) (1) - Fair value of plan assets at end of year3 42,610 42,195 5,921 6,671 Unfunded status at end of year2 $ (13,573) $ (13,269) $ (20,106) $ (21,227) 1 At our discretion, certain postretirement benefits may be paid from AT&T cash accounts, which does not reduce Voluntary Employee Benefit Association (VEBA) assets. Future benefit payments may be made from VEBA trusts and thus reduce those asset balances. 2 Funded status is not indicative of our ability to pay ongoing pension benefits or of our obligation to fund retirement trusts. Required pension funding is determined in accordance with the Employee Retirement Income Security Act of 1974, as amended (ERISA) regulations. 3 Net assets available for benefits were $51,087 at December 31, 2016 and $50,909 at December 31, 2015 and include the preferred equity interest in AT&T Mobility II LLC discussed below, which was valued at $8,477 and $8,714, respectively.

In July 2014, the U.S. Department of Labor published in the Federal Register their final retroactive approval of our September 9, 2013 voluntary contribution of a preferred equity interest in AT&T Mobility II LLC, the primary holding company for our wireless business, to the trust used to pay pension benefits under our qualified pension plans. The preferred equity interest had a value of $9,104 on the contribution date and was valued at $8,477 at December 31, 2016. The trust is entitled to receive cumulative cash distributions of $560 per annum, which will be distributed quarterly in equal amounts and will be accounted for as contributions. We distributed $560 to the trust during 2016. 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 (see Note 14), it is not reflected in plan assets in our consolidated financial statements and instead has been eliminated in consolidation. At the time of the contribution of the preferred equity interest, we made an additional cash contribution of $175 and agreed to annual cash contributions of $175 no later than the due date for our federal income tax return for each of 2014, 2015 and 2016. During 2016, we accelerated the final contribution and completed our obligation with a $350 cash payment to the trust. These contributions combined with our existing pension assets are in excess of 90% of the pension obligation at December 31, 2016.

As noted above, this preferred equity interest represents a plan asset of our pension trust, which is recognized in the separate financial statements of our pension plan as a qualified plan asset for funding purposes. The following table presents a reconciliation of our pension plan assets recognized in the consolidated financial statements of the Company with the net assets available for benefits included in the separate financial statements of the pension plan at December 31:

2016 2015 Plan assets recognized in the consolidated financial statements $ 42,610 $ 42,195 Preferred equity interest in Mobility 8,477 8,714 Net assets available for benefits $ 51,087 $ 50,909

Amounts recognized on our consolidated balance sheets at December 31 are listed below:

Pension Benefits Postretirement Benefits 2016 2015 2016 2015 Current portion of employee benefit obligation1 $ - $ - $ (1,644) $ (1,766) Employee benefit obligation2 (13,573) (13,269) (18,462) (19,461) Net amount recognized $ (13,573) $ (13,269) $ (20,106) $ (21,227) 1 Included in “Accounts payable and accrued liabilities.” 2 Included in “Postemployment benefit obligation.”

The accumulated benefit obligation for our pension plans represents the actuarial present value of benefits based on employee service and compensation as of a certain date and does not include an assumption about future compensation levels. The accumulated benefit obligation for our pension plans was $54,538 at December 31, 2016, and $54,007 at December 31, 2015.

Net Periodic Benefit Cost and Other Amounts Recognized in Other Comprehensive Income

Periodic Benefit Costs Our combined net pension and postretirement cost (credit) recognized in our consolidated statements of income was $303, $(2,821) and $7,232 for the years ended December 31, 2016, 2015 and 2014. A portion of pension and postretirement benefit costs is capitalized as part of the benefit load on internal construction and capital expenditures, providing a small reduction in the net expense recorded. The following table presents the components of net periodic benefit cost:

Pension Benefits Postretirement Benefits 2016 2015 2014 2016 2015 2014 Service cost – benefits earned during the period $ 1,112 $ 1,212 $ 1,134 $ 192 $ 222 $ 233 Interest cost on projected benefit obligation 1,980 1,902 2,470 972 967 1,458 Expected return on assets (3,115) (3,317) (3,380) (355) (421) (653) Amortization of prior service credit (103) (103) (94) (1,277) (1,278) (1,448) Actuarial (gain) loss 1,478 (373) 5,419 (581) (1,632) 2,093 Net pension and postretirement cost (credit) $ 1,352 $ (679) $ 5,549 $ (1,049) $ (2,142) $ 1,683

The estimated prior service credits that will be amortized from accumulated OCI into net periodic benefit cost over the next fiscal year are $123 ($76 net of tax) for pension and $1,342 ($832 net of tax) for postretirement benefits.

Assumptions In determining the projected benefit obligation and the net pension and postretirement benefit cost, we used the following significant weighted-average assumptions:

Pension Benefits Postretirement Benefits 2016 2015 2014 2016 2015 2014 Weighted-average discount rate for determining projected benefit obligation at December 31 4.40% 4.60% 4.30% 4.30% 4.50% 4.20% Discount rate in effect for determining service cost 4.90% 4.60% 5.00% 5.00% 4.60% 5.00% Discount rate in effect for determining interest cost1 3.70% 3.30% 4.60% 3.60% 3.30% 5.00% Long-term rate of return on plan assets 7.75% 7.75% 7.75% 5.75% 5.75% 7.75% Composite rate of compensation increase for determining projected benefit obligation 3.00% 3.10% 3.00% 3.00% 3.10% 3.00% Composite rate of compensation increase for determining net pension cost (benefit) 3.10% 3.00% 3.00% 3.10% 3.00% 3.00% 1 Weighted-average discount rate of 5.00% in effect for pension costs from January 1, 2014 through September 30, 2014. Discount rates in effect of 4.90% for service cost and 3.50% for interest cost from October 1, 2014 through December 31, 2014. A discount rate of 5.00% was used for postretirement costs for the year ended December 31, 2014.

We recognize gains and losses on pension and postretirement plan assets and obligations immediately in our operating results. These gains and losses are measured annually as of December 31 and accordingly will be recorded during the fourth quarter, unless earlier remeasurements are required.

Discount Rate Our assumed weighted-average discount rate for pension and postretirement benefits of 4.40% and 4.30% respectively, at December 31, 2016, reflects the hypothetical rate at which the projected benefit obligation could be effectively settled or paid out to participants. We determined our discount rate based on a range of factors, including a yield curve composed of the rates of return on several hundred high-quality, fixed income corporate bonds available at the measurement date and corresponding to the related expected durations of future cash outflows. These bonds were all rated at least Aa3 or AA- by one of the nationally recognized statistical rating organizations, denominated in U.S. dollars, and neither callable, convertible nor index linked. For the year ended December 31, 2016, when compared to the year ended December 31, 2015, we decreased our pension discount rate by 0.20%, resulting in an increase in our pension plan benefit obligation of $2,189 and decreased our postretirement discount rate 0.20%, resulting in an increase in our postretirement benefit obligation of $906. For the year ended December 31, 2015, we increased our pension discount rate by 0.30%, resulting in a decrease in our pension plan benefit obligation of $1,977 and increased our postretirement discount rates by 0.30%, resulting in a decrease in our postretirement benefit obligation of $854.

We utilize a full yield curve approach in the estimation of the service and interest components of net periodic benefit costs for pension and other postretirement benefits. Under this approach, we apply discounting using individual spot rates from a yield curve composed of the rates of return on several hundred high-quality, fixed income corporate bonds available at the measurement date. These spot rates align to each of the projected benefit obligations and service cost cash flows. The service cost component relates to the active participants in the plan, so the relevant cash flows on which to apply the yield curve are considerably longer in duration on average than the total projected benefit obligation cash flows, which also include benefit payments to retirees. Interest cost is computed by multiplying each spot rate by the corresponding discounted projected benefit obligation cash flows. The full yield curve approach reduces any actuarial gains and losses based upon interest rate expectations (e.g., built-in gains in interest cost in an upward sloping yield curve scenario), or gains and losses merely resulting from the timing and magnitude of cash outflows associated with our benefit obligations. Neither the annual measurement of our total benefit obligations nor annual net benefit cost is affected by the full yield curve approach.

Expected Long-Term Rate of Return In 2017, our expected long-term rate of return is 7.75% on pension plan assets and 5.75% on postretirement plan assets. Our long-term rates of return reflect the average rate of earnings expected on the funds invested, or to be invested, to provide for the benefits included in the projected benefit obligations. In setting the long-term assumed rate of return, management considers capital markets future expectations, the asset mix of the plans’ investments and average historical asset return. Actual long-term returns can, in relatively stable markets, also serve as a factor in determining future expectations. We consider many factors that include, but are not limited to, historical returns on plan assets, current market information on long-term returns (e.g., long- term bond rates) and current and target asset allocations between asset categories. The target asset allocation is determined based on consultations with external investment advisers. If all other factors were to remain unchanged, we expect that a 0.50% decrease in the expected long-term rate of return would cause 2017 combined pension and postretirement cost to increase $230. However, any differences in the rate and actual returns will be included with the actuarial gain or loss recorded in the fourth quarter when our plans are remeasured.

Composite Rate of Compensation Increase Our expected composite rate of compensation increase cost of 3.00% in 2016 and 3.10% in 2015 reflects the long-term average rate of salary increases.

Mortality Tables At December 31, 2016, we updated our assumed mortality rates to reflect our best estimate of future mortality, which decreased our pension obligation by $793 and decreased our postretirement obligations by $227. At December 31, 2015, we updated our assumed mortality rates, which decreased our pension obligation by $859 and decreased our postretirement obligations by $274.

Healthcare Cost Trend Our healthcare cost trend assumptions are developed based on historical cost data, the near-term outlook and an assessment of likely long-term trends. Based on historical experience, updated expectations of healthcare industry inflation and recent prescription drug cost experience, our 2017 assumed annual healthcare prescription drug cost trend for non-Medicare eligible participants will increase to 6.50%, grading down to our ultimate trend rate of 4.50% in 2025 and for Medicare-eligible participants will remain at an assumed annual and ultimate trend rate of 4.50%. This change in assumption increased our obligation by $21. In 2016, our assumed annual healthcare prescription drug cost trend rate for non-Medicare eligible participants was 6.25%, trending to our ultimate trend rate of 4.50% in 2023. Medicare-eligible retirees who receive access to retiree health insurance coverage through a private insurance marketplace are not subject to assumed healthcare trend. In addition to the healthcare cost trend in 2016, we assumed an annual 2.50% growth in administrative expenses and an annual 3.00% growth in dental claims.

A one percentage-point change in the assumed combined medical and dental cost trend rate would have the following effects:

One One Percentage- Percentage- Point Point Increase Decrease Increase (decrease) in total of service and interest cost components $ 50 $ (44) Increase (decrease) in accumulated postretirement benefit obligation 511 (458)

Plan Assets Plan assets consist primarily of private and public equity, government and corporate bonds, and real assets (real estate and natural resources). The asset allocations of the pension plans are maintained to meet ERISA requirements. Any plan contributions, as determined by ERISA regulations, are made to a pension trust for the benefit of plan participants. As part of our voluntary contribution of the Mobility preferred equity interest, we will contribute $560 of cash distributions during 2017. We do not have significant ERISA required contributions to our pension plans for 2017.

We maintain VEBA trusts to partially fund postretirement benefits; however, there are no ERISA or regulatory requirements that these postretirement benefit plans be funded annually.

The principal investment objectives are to ensure the availability of funds to pay pension and postretirement benefits as they become due under a broad range of future economic scenarios, maximize long-term investment return with an acceptable level of risk based on our pension and postretirement obligations, and diversify broadly across and within the capital markets to insulate asset values against adverse experience in any one market. Each asset class has broadly diversified characteristics. Substantial biases toward any particular investing style or type of security are sought to be avoided by managing the aggregation of all accounts with portfolio benchmarks. Asset and benefit obligation forecasting studies are conducted periodically, generally every two to three years, or when significant

Copyright © 2013 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document changes have occurred in market conditions, benefits, participant demographics or funded status. Decisions regarding investment policy are made with an understanding of the effect of asset allocation on funded status, future contributions and projected expenses.

The plans’ weighted-average asset targets and actual allocations as a percentage of plan assets, including the notional exposure of future contracts by asset categories at December 31, are as follows:

Pension Assets Postretirement (VEBA) Assets Target 2016 2015 Target 2016 2015 Equity securities: Domestic 20% - 30% 24% 22% 17% - 27% 22% 26% International 10% - 20% 15 15 14% - 24% 19 14 Fixed income securities 35% - 45% 39 40 33% - 43% 38 34 Real assets 6% - 16% 11 10 0% - 6% 1 1 Private equity 4% - 14% 11 12 0% - 7% 2 2 Other 0% - 5% - 1 13% - 23% 18 23 Total 100% 100% 100% 100%

At December 31, 2016, AT&T securities represented less than 0.5% of assets held by our pension trust and 6% of assets (primarily common stock) held by our VEBA trusts included in these financial statements.

Investment Valuation Investments are stated at fair value. Fair value is the price that would be received to sell an asset or paid to transfer a liability at the measurement date.

Investments in securities traded on a national securities exchange are valued at the last reported sales price on the final business day of the year. If no sale was reported on that date, they are valued at the last reported bid price. Investments in securities not traded on a national securities exchange are valued using pricing models, quoted prices of securities with similar characteristics or discounted cash flows. Shares of registered investment companies are valued based on quoted market prices, which represent the net asset value of shares held at year-end.

Other commingled investment entities are valued at quoted redemption values that represent the net asset values of units held at year- end which management has determined approximates fair value.

Real estate and natural resource direct investments are valued at amounts based upon appraisal reports. Fixed income securities valuation is based upon observable prices for comparable assets, broker/dealer quotes (spreads or prices), or a pricing matrix that derives spreads for each bond based on external market data, including the current credit rating for the bonds, credit spreads to Treasuries for each credit rating, sector add-ons or credits, issue-specific add-ons or credits as well as call or other options.

Purchases and sales of securities are recorded as of the trade date. Realized gains and losses on sales of securities are determined on the basis of average cost. Interest income is recognized on the accrual basis. Dividend income is recognized on the ex-dividend date.

Non-interest bearing cash and overdrafts are valued at cost, which approximates fair value.

Fair Value Measurements See Note 10 for a discussion of fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value.

The following tables set forth by level, within the fair value hierarchy, the pension and postretirement assets and liabilities at fair value as of December 31, 2016:

Pension Assets and Liabilities at Fair Value as of December 31, 2016 Level 1 Level 2 Level 3 Total Non-interest bearing cash $ 94 $ - $ - $ 94 Interest bearing cash - 77 - 77 Foreign currency contracts - 7 - 7 Equity securities: Domestic equities 8,299 - - 8,299 International equities 4,389 - 5 4,394 Fixed income securities: Asset-backed securities - 399 - 399 Mortgage-backed securities - 838 - 838 Collateralized mortgage-backed securities - 208 - 208 Collateralized mortgage obligations/REMICS - 269 - 269 Corporate and other fixed income instruments and funds 75 8,442 40 8,557 Government and municipal bonds 80 4,889 - 4,969 Real estate and real assets - - 2,273 2,273 Securities lending collateral 207 1,977 - 2,184 Receivable for variation margin 8 - - 8 Purchased options - 1 - 1 Assets at fair value 13,152 17,107 2,318 32,577 Investments sold short and other liabilities at fair value (643) (7) (4) (654) Total plan net assets at fair value $ 12,509 $ 17,100 $ 2,314 $ 31,923 Assets held at net asset value practical expedient Private equity funds 4,648 Real estate funds 2,392 Commingled funds 5,721 Total assets held at net asset value practical expedient 12,761 Other assets (liabilities)1 (2,074) Total Plan Net Assets $ 42,610 1 Other assets (liabilities) include amounts receivable, accounts payable and net adjustment for securities lending payable.

Postretirement Assets and Liabilities at Fair Value as of December 31, 2016 Level 1 Level 2 Level 3 Total Interest bearing cash $ 175 $ 593 $ - $ 768 Foreign currencies 6 - - 6 Equity securities: Domestic equities 1,178 7 - 1,185 International equities 896 2 - 898 Fixed income securities: Asset-backed securities - 33 4 37 Collateralized mortgage-backed securities - 108 13 121 Collateralized mortgage obligations - 32 2 34 Corporate and other fixed income instruments and funds - 422 7 429 Government and municipal bonds 20 659 - 679 Securities lending collateral - 128 - 128 Total plan net assets at fair value $ 2,275 $ 1,984 $ 26 $ 4,285 Assets held at net asset value practical expedient Private equity funds 118 Real estate funds 61 Commingled funds 1,667 Total assets held at net asset value practical expedient 1,846 Other assets (liabilities)1 (210) Total Plan Net Assets $ 5,921 1 Other assets (liabilities) include amounts receivable, accounts payable and net adjustment for securities lending payable.

The tables below set forth a summary of changes in the fair value of the Level 3 pension and postretirement assets for the year ended December 31, 2016:

Fixed Real Estate Income and Real Pension Assets Equities Funds Assets Total Balance at beginning of year $ - $ 44 $ 2,062 $ 2,106 Realized gains (losses) - (17) (103) (120) Unrealized gains (losses) 3 19 377 399 Transfers in (4) - 77 73 Transfers out - (2) - (2) Purchases 3 - 65 68 Sales (1) (4) (205) (210) Balance at end of year $ 1 $ 40 $ 2,273 $ 2,314

Fixed Income Postretirement Assets Funds Total Balance at beginning of year $ 15 $ 15 Realized gains (losses) (2) (2) Unrealized gains (losses) 2 2 Transfers in 16 16 Sales (5) (5) Balance at end of year $ 26 $ 26

The following tables set forth by level, within the fair value hierarchy, the pension and postretirement assets and liabilities at fair value as of December 31, 2015:

Pension Assets and Liabilities at Fair Value as of December 31, 2015 Level 1 Level 2 Level 3 Total Non-interest bearing cash $ 160 $ - $ - $ 160 Interest bearing cash - 25 - 25 Foreign currency contracts - 25 - 25 Equity securities: Domestic equities 8,315 4 - 8,319 International equities 4,287 - - 4,287 Fixed income securities: Asset-backed securities - 403 1 404 Mortgage-backed securities - 792 - 792 Collateralized mortgage-backed securities - 278 - 278 Collateralized mortgage obligations/REMICS - 345 - 345 Corporate and other fixed income instruments and funds 65 8,274 43 8,382 Government and municipal bonds 75 4,495 - 4,570 Real estate and real assets - - 2,062 2,062 Securities lending collateral 512 3,538 - 4,050 Receivable for variation margin 13 - - 13 Assets at fair value 13,427 18,179 2,106 33,712 Investments sold short and other liabilities at fair value (824) (12) - (836) Total plan net assets at fair value $ 12,603 $ 18,167 $ 2,106 $ 32,876 Assets held at net asset value practical expedient Private equity funds 4,926 Real estate funds 2,295 Commingled funds 5,854 Total assets held at net asset value practical expedient 13,075 Other assets (liabilities)1 (3,756) Total Plan Net Assets $ 42,195 1 Other assets (liabilities) include amounts receivable, accounts payable and net adjustment for securities lending payable.

Postretirement Assets and Liabilities at Fair Value as of December 31, 2015 Level 1 Level 2 Level 3 Total Interest bearing cash $ 220 $ 1,292 $ - $ 1,512 Foreign currencies 4 - - 4 Equity securities: Domestic equities 1,187 9 - 1,196 International equities 869 2 - 871 Fixed income securities: Asset-backed securities - 35 2 37 Collateralized mortgage-backed securities - 120 13 133 Collateralized mortgage obligations - 45 - 45 Corporate and other fixed income instruments and funds - 378 - 378 Government and municipal bonds - 617 - 617 Securities lending collateral 6 189 - 195 Futures Contracts 1 - - 1 Total plan net assets at fair value $ 2,287 $ 2,687 $ 15 $ 4,989 Assets held at net asset value practical expedient Private equity funds 155 Real estate funds 81 Commingled funds 1,682 Total assets held at net asset value practical expedient 1,918 Other assets (liabilities)1 (236) Total Plan Net Assets $ 6,671 1 Other assets (liabilities) include amounts receivable, accounts payable and net adjustment for securities lending payable.

The tables below set forth a summary of changes in the fair value of the Level 3 pension and postretirement assets for the year ended December 31, 2015:

Fixed Real Estate Income and Real Pension Assets Equities Funds Assets Total Balance at beginning of year $ - $ 51 $ 2,140 $ 2,191 Realized gains (losses) (1) (19) 247 227 Unrealized gains (losses) 1 16 192 209 Purchases - 1 195 196 Sales - (5) (712) (717) Balance at end of year $ - $ 44 $ 2,062 $ 2,106

Fixed Income Postretirement Assets Funds Total Balance at beginning of year $ 2 $ 2 Transfers in 15 15 Transfers out (1) (1) Sales (1) (1) Balance at end of year $ 15 $ 15

Estimated Future Benefit Payments Expected benefit payments are estimated using the same assumptions used in determining our benefit obligation at December 31, 2016. Because benefit payments will depend on future employment and compensation levels, average years employed, average life spans, and payment elections, among other factors, changes in any of these assumptions could significantly affect these expected amounts. The following table provides expected benefit payments under our pension and postretirement plans:

Pension Postretirement Benefits Benefits 2017 $ 4,938 $ 1,809 2018 4,437 1,797 2019 4,312 1,788 2020 4,264 1,783 2021 4,200 1,776 Years 2022 - 2026 19,764 8,225

Supplemental Retirement Plans We also provide certain senior- and middle-management employees with nonqualified, unfunded supplemental retirement and savings plans. While these plans are unfunded, we have assets in a designated nonbankruptcy remote trust that are independently managed and used to provide for these benefits. These plans include supplemental pension benefits as well as compensation-deferral plans, some of which include a corresponding match by us based on a percentage of the compensation deferral.

We use the same significant assumptions for the composite rate of compensation increase in determining our projected benefit obligation and the net pension and postemployment benefit cost. Our discount rates of 4.20% at December 31, 2016 and 4.40% at December 31, 2015 were calculated using the same methodologies used in calculating the discount rate for our qualified pension and postretirement benefit plans. The following tables provide the plans’ benefit obligations and fair value of assets at December 31 and the components of the supplemental retirement pension benefit cost. The net amounts are recorded as “Other noncurrent liabilities” on our consolidated balance sheets.

The following table provides information for our supplemental retirement plans with accumulated benefit obligations in excess of plan assets at December 31:

2016 2015 Projected benefit obligation $ (2,378) $ (2,444) Accumulated benefit obligation (2,314) (2,372) Fair value of plan assets - -

The following tables present the components of net periodic benefit cost and other changes in plan assets and benefit obligations recognized in OCI:

Net Periodic Benefit Cost 2016 2015 2014 Service cost – benefits earned during the period $ 12 $ 9 $ 7 Interest cost on projected benefit obligation 83 77 109 Amortization of prior service cost (credit) (1) 1 (1) Actuarial (gain) loss 72 (36) 243 Net supplemental retirement pension cost $ 166 $ 51 $ 358

The estimated prior service credit for our supplemental retirement plan benefits that will be amortized from accumulated OCI into net periodic benefit cost over the next fiscal year is $(1).

Deferred compensation expense was $148 in 2016, $122 in 2015 and $121 in 2014. Our deferred compensation liability, included in “Other noncurrent liabilities,” was $1,273 at December 31, 2016, and $1,221 at December 31, 2015.

Contributory Savings Plans We maintain contributory savings plans that cover substantially all employees. Under the savings plans, we match in cash or company stock a stated percentage of eligible employee contributions, subject to a specified ceiling. There are no debt-financed shares held by the Employee Stock Ownership Plans, allocated or unallocated.

Our match of employee contributions to the savings plans is fulfilled with purchases of our stock on the open market or company cash. Benefit cost is based on the cost of shares or units allocated to participating employees’ accounts and was $631, $653 and $654 for the years ended December 31, 2016, 2015 and 2014.

NOTE 13. SHARE-BASED PAYMENTS

Under our various plans, senior and other management employees and nonemployee directors have received nonvested stock and stock units. In conjunction with the acquisition of DIRECTV, restricted stock units issued under DIRECTV plans were converted to AT&T shares. The remaining shares will vest over a period of one to two years in accordance with the terms of those plans. We do not intend to issue any additional grants under the DIRECTV plans. Any future grants will be made under the AT&T plans.

We grant performance stock units, which are nonvested stock units, based upon our stock price at the date of grant and award them in the form of AT&T common stock and cash at the end of a three-year period, subject to the achievement of certain performance goals. We treat the cash settled portion of these awards as a liability. We grant forfeitable restricted stock and stock units, which are valued at the market price of our common stock at the date of grant and predominantly vest over a four- or five-year period. We also grant other nonvested stock units and award them in cash at the end of a three-year period, subject to the achievement of certain market based conditions. As of December 31, 2016, we were authorized to issue up to approximately 130 million shares of common stock (in addition to shares that may be issued upon exercise of outstanding options or upon vesting of performance stock units or other nonvested stock units) to officers, employees and directors pursuant to these various plans.

We account for our share-based payment arrangements based on the fair value of the awards on their respective grant date, which may affect our ability to fully realize the value shown on our consolidated balance sheets of deferred tax assets associated with compensation expense. We record a valuation allowance when our future taxable income is not expected to be sufficient to recover the asset. Accordingly, there can be no assurance that the current stock price of our common shares will rise to levels sufficient to realize the entire tax benefit currently reflected on our consolidated balance sheets. However, to the extent we generate excess tax benefits (i.e., that additional tax benefits in excess of the deferred taxes associated with compensation expense previously recognized) the potential future impact on income would be reduced.

Our consolidated statements of income include the compensation cost recognized for those plans as operating expenses, as well as the associated tax benefits, which are reflected in the table below:

2016 2015 2014 Performance stock units $ 480 $ 299 $ 226 Restricted stock and stock units 152 147 93 Other nonvested stock units 21 5 (1) Total $ 653 $ 451 $ 318 Income tax benefit $ 250 $ 172 $ 122

A summary of the status of our nonvested stock units as of December 31, 2016, and changes during the year then ended is presented as follows (shares in millions):

Weighted- Average Grant-Date Fair Nonvested Stock Units Shares Value Nonvested at January 1, 2016 36 $ 33.78 Granted 16 36.65 Vested (19) 33.12 Forfeited (2) 35.16 Nonvested at December 31, 2016 31 $ 35.57

As of December 31, 2016, there was $587 of total unrecognized compensation cost related to nonvested share-based payment arrangements granted. That cost is expected to be recognized over a weighted-average period of 2.24 years. The total fair value of shares vested during the year was $614 for 2016, compared to $450 for 2015 and $327 for 2014.

It is our intent to satisfy share option exercises using our treasury stock. Cash received from stock option exercises was $179 for 2016, $46 for 2015 and $43 for 2014.

NOTE 14. STOCKHOLDERS’ EQUITY

Stock Repurchase Program From time to time, we repurchase shares of common stock for distribution through our employee benefit plans or in connection with certain acquisitions. In March 2013, our Board of Directors approved an authorization to repurchase 300 million shares, under which we repurchased shares during 2014. In March 2014, our Board of Directors approved an additional authorization to repurchase up to 300 million shares of our common stock. For the year ended December 31, 2016, we had repurchased approximately 11 million shares for distribution through our employee benefit plans totaling $444 under these authorizations. For the year ended December 31, 2015, we had repurchased approximately eight million shares totaling $269 under these authorizations.

To implement these authorizations, we used open market repurchase programs, relying on Rule 10b5-1 of the Securities Exchange Act of 1934 where feasible.

Authorized Shares There are 14 billion authorized common shares of AT&T stock and 10 million authorized preferred shares of AT&T stock. As of December 31, 2016 and 2015, no preferred shares were outstanding.

Dividend Declarations In October 2016, the Company declared an increase in its quarterly dividend to $0.49 per share of common stock. In December 2015, the Company declared an increase in its quarterly dividend to $0.48 per share of common stock.

Preferred Equity Interest The preferred equity interest discussed in Note 12 is not transferable by the trust except through its put and call features, and therefore has been eliminated in consolidation. After a period of five years from the contribution or, if earlier, the date upon which the pension plan trust is fully funded as determined under GAAP, AT&T has a right to purchase from the pension plan trust some or all of the preferred equity interest at the greater of the fair market value or minimum liquidation value plus any unpaid cumulative dividends. In addition, AT&T will have the right to purchase the preferred equity interest in the event AT&T’s ownership of Mobility is less than 50% or there is a transaction that results in the transfer of 50% or more of the pension plan trust’s assets to an entity not under common control with AT&T (collectively, a change of control). The pension plan trust has the right to require AT&T to purchase the preferred equity interest at the greater of their fair market value or minimum liquidation value plus any unpaid cumulative dividends, and in installments, as specified in the contribution agreement upon the occurrence of any of the following: (1) at any time if the ratio of debt to total capitalization of Mobility exceeds that of AT&T, (2) the date on which AT&T Inc. is rated below investment grade for two consecutive calendar quarters, (3) upon a change of control if AT&T does not exercise its purchase option, or (4) at any time after a seven-year period from the contribution date. In the event AT&T elects or is required to purchase the preferred equity interest, AT&T may elect to settle the purchase price in cash or shares of AT&T common stock or a combination thereof. Because the preferred equity interest was not considered outstanding for accounting purposes at year-end, it did not affect the calculation of earnings per share for any of the periods presented.

NOTE 15. SALES OF EQUIPMENT INSTALLMENT RECEIVABLES

We offer our customers the option to purchase certain wireless devices in installments over a period of up to 30 months and, in many cases, they have the right to trade in the original equipment for a new device within a set period and have the remaining unpaid balance satisfied. As of December 31, 2016 and December 31, 2015, gross equipment installment receivables of $5,665 and $5,719 were included on our consolidated balance sheets, of which $3,425 and $3,239 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 transferred certain receivables to the Purchasers for cash and additional consideration upon settlement of the receivables, referred to as the deferred purchase price. Under the terms of the agreement, we continue to bill and collect the payments from our customers on behalf of the Purchasers. Since inception, cash proceeds received, net of remittances (excluding amounts returned as deferred purchase price), were $3,436.

The following table sets forth a summary of equipment installment receivables sold:

2016 2015 2014 Gross receivables sold $ 7,629 $ 7,436 $ 4,707 Net receivables sold1 6,913 6,704 4,126 Cash proceeds received 4,574 4,439 2,528 Deferred purchase price recorded 2,368 2,266 1,629 1 Receivables net of allowance, imputed interest and trade-in right guarantees.

The deferred purchase price is initially recorded at estimated fair value, which is based on remaining installment payments expected to be collected, adjusted by the expected timing and value of device trade-ins, and subsequently carried at the lower of cost or net realizable value. The estimated value of the device trade-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 are considered Level 3 under the Fair Value Measurement and Disclosure framework (see Note 10).

The following table shows the equipment installment receivables, previously sold to the Purchasers, that we repurchased in exchange for the associated deferred purchase price:

2016 2015 2014 Fair value of repurchased receivables $ 1,675 $ 685 $ - Carrying value of deferred purchase price 1,638 534 - Gain on repurchases1 $ 37 $ 151 $ - 1 These gains are included in “Selling, general and administrative” in the consolidated statements of income.

At December 31, 2016 and December 31, 2015, our deferred purchase price receivable was $3,090 and $2,961, respectively, of which $1,606 and $1,772 are included in “Other current assets” on our consolidated balance sheets, with the remainder in “Other Assets.” Our maximum exposure to loss as a result of selling these equipment installment receivables is limited to the amount of our deferred purchase price at any point in time.

The sales of equipment installment 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 the cash flows related to the arrangement as operating activities in our consolidated statements of cash flows because the cash received from the Purchasers upon both the sale of the receivables and the collection of the deferred purchase price is not subject to significant interest rate risk.

NOTE 16. TOWER TRANSACTION

In December 2013, we closed our transaction with Crown Castle International Corp. (Crown Castle) in which Crown Castle gained the exclusive rights to lease and operate 9,048 wireless towers and purchased 627 of our wireless towers for $4,827 in cash. The leases have various terms with an average length of approximately 28 years. As the leases expire, Crown Castle will have fixed price purchase options for these towers totaling approximately $4,200, based on their estimated fair market

Copyright © 2013 www.secdatabase.com. All Rights Reserved. Please Consider the Environment Before Printing This Document Notes to Consolidated Financial Statements (continued) Dollars in millions except per share amounts values at the end of the lease terms. We sublease space on the towers from Crown Castle for an initial term of 10 years at current market rates, subject to optional renewals in the future.

We determined our continuing involvement with the tower assets prevented us from achieving sale-leaseback accounting for the transaction, and we accounted for the cash proceeds from Crown Castle as a financing obligation on our consolidated balance sheets. We record interest on the financing obligation using the effective interest method at a rate of approximately 3.9%. The financing obligation is increased by interest expense and estimated future net cash flows generated and retained by Crown Castle from operation of the tower sites, and reduced by our contractual payments. We continue to include the tower assets in “Property, plant and equipment” on our consolidated balance sheets and depreciate them accordingly. At December 31, 2016 and 2015, the tower assets had a balance of $921 and $960, respectively. Our depreciation expense for these assets was $39 for each of 2016, 2015 and 2014.

Payments made to Crown Castle under this arrangement were $230 for 2016. At December 31, 2016, the future minimum payments under the sublease arrangement are $234 for 2017, $239 for 2018, $244 for 2019, $248 for 2020, $253 for 2021, and $2,052 thereafter.

NOTE 17. CONTINGENT LIABILITIES

We are party to numerous lawsuits, regulatory proceedings and other matters arising in the ordinary course of business. In evaluating these matters on an ongoing basis, we take into account amounts already accrued on the balance sheet. In our opinion, although the outcomes of these proceedings are uncertain, they should not have a material adverse effect on our financial position, results of operations or cash flows.

We have contractual obligations to purchase certain goods or services from various other parties. Our purchase obligations are expected to be approximately $9,181 in 2017, $11,214 in total for 2018 and 2019, $7,799 in total for 2020 and 2021 and $7,242 in total for years thereafter.

See Note 10 for a discussion of collateral and credit-risk contingencies.

NOTE 18. ADDITIONAL FINANCIAL INFORMATION

December 31, Consolidated Balance Sheets 2016 2015 Current customer fulfillment costs (included in Other current assets) $ 3,398 $ 2,923 Accounts payable and accrued liabilities: Accounts payable $ 22,027 $ 21,047 Accrued payroll and commissions 2,450 2,629 Current portion of employee benefit obligation 1,644 1,766 Accrued interest 2,023 1,974 Other 2,994 2,956 Total accounts payable and accrued liabilities $ 31,138 $ 30,372

Consolidated Statements of Income 2016 2015 2014 Advertising expense $ 3,768 $ 3,632 $ 3,272 Interest expense incurred $ 5,802 $ 4,917 $ 3,847 Capitalized interest (892) (797) (234) Total interest expense $ 4,910 $ 4,120 $ 3,613

Consolidated Statements of Cash Flows 2016 2015 2014 Cash paid during the year for: Interest $ 5,696 $ 4,822 $ 4,099 Income taxes, net of refunds 3,721 1,851 1,532

No customer accounted for more than 10% of consolidated revenues in 2016, 2015 or 2014.

NOTE 19. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)

The following tables represent our quarterly financial results:

2016 Calendar Quarter First Second Third Fourth1 Annual Total Operating Revenues $ 40,535 $ 40,520 $ 40,890 $ 41,841 $ 163,786 Operating Income 7,131 6,560 6,408 4,248 24,347 Net Income 3,885 3,515 3,418 2,515 13,333 Net Income Attributable to AT&T 3,803 3,408 3,328 2,437 12,976 Basic Earnings Per Share Attributable to AT&T2 $ 0.62 $ 0.55 $ 0.54 $ 0.39 $ 2.10 Diluted Earnings Per Share Attributable to AT&T2 $ 0.61 $ 0.55 $ 0.54 $ 0.39 $ 2.10 Stock Price High $ 39.45 $ 43.21 $ 43.47 $ 42.73 Low 33.51 37.86 39.71 36.13 Close 39.17 43.21 40.61 42.53 1 Includes an actuarial loss on pension and postretirement benefit plans (Note 12), asset impairment charge (Note 1) and change in accounting estimate (Note 1). 2 Quarterly earnings per share impacts may not add to full-year earnings per share impacts due to the difference in weighted-average common shares for the quarters versus the weighted-average common shares for the year.

2015 Calendar Quarter First Second Third Fourth1 Annual Total Operating Revenues $ 32,576 $ 33,015 $ 39,091 $ 42,119 $ 146,801 Operating Income 5,557 5,773 5,923 7,532 24,785 Net Income 3,339 3,184 3,078 4,086 13,687 Net Income Attributable to AT&T 3,263 3,082 2,994 4,006 13,345 Basic Earnings Per Share Attributable to AT&T2 $ 0.63 $ 0.59 $ 0.50 $ 0.65 $ 2.37 Diluted Earnings Per Share Attributable to AT&T2 $ 0.63 $ 0.59 $ 0.50 $ 0.65 $ 2.37 Stock Price High $ 35.07 $ 36.45 $ 35.93 $ 34.99 Low 32.41 32.37 30.97 32.17 Close 32.65 35.52 32.58 34.41 1 Includes an actuarial gain on pension and postretirement benefit plans (Note 12) and asset abandonment charges (Note 6). 2 Quarterly earnings per share impacts may not add to full-year earnings per share impacts due to the difference in weighted-average common shares for the quarters versus the weighted-average common shares for the year.

The consolidated financial statements have been prepared in conformity with U.S. generally accepted accounting principles. The integrity and objectivity of the data in these financial statements, including estimates and judgments relating to matters not concluded by year end, are the responsibility of management, as is all other information included in the Annual Report, unless otherwise indicated.

The financial statements of AT&T Inc. (AT&T) have been audited by Ernst & Young LLP, Independent Registered Public Accounting Firm. Management has made available to Ernst & Young LLP all of AT&T’s financial records and related data, as well as the minutes of stockholders’ and directors’ meetings. Furthermore, management believes that all representations made to Ernst & Young LLP during its audit were valid and appropriate.

Management maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed by AT&T 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 by the Securities and Exchange Commission’s rules and forms.

Management also seeks to ensure the objectivity and integrity of its financial data by the careful selection of its managers, by organizational arrangements that provide an appropriate division of responsibility and by communication programs aimed at ensuring that its policies, standards and managerial authorities are understood throughout the organization.

The Audit Committee of the Board of Directors meets periodically with management, the internal auditors and the independent auditors to review the manner in which they are performing their respective responsibilities and to discuss auditing, internal accounting controls and financial reporting matters. Both the internal auditors and the independent auditors periodically meet alone with the Audit Committee and have access to the Audit Committee at any time.

Assessment of Internal Control The management of AT&T is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rule 13a-15(f) or 15d-15(f) under the Securities Exchange Act of 1934. AT&T’s internal control system was designed to provide reasonable assurance to the company’s management and Board of Directors regarding the preparation and fair presentation of published financial statements.

AT&T management assessed the effectiveness of the company’s internal control over financial reporting as of December 31, 2016. In making this assessment, it used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control – Integrated Framework (2013 framework). Based on its assessment, AT&T management believes that, as of December 31, 2016, the company’s internal control over financial reporting is effective based on those criteria.

Ernst & Young LLP, the independent registered public accounting firm that audited the financial statements included in this Annual Report, has issued an attestation report on the company’s internal control over financial reporting.

/s/ Randall Stephenson /s/ John J. Stephens Randall Stephenson John J. Stephens Chairman of the Board, Senior Executive Vice President and Chief Executive Officer and President Chief Financial Officer

The Board of Directors and Stockholders of AT&T Inc.

We have audited the accompanying consolidated balance sheets of AT&T Inc. (the Company) as of December 31, 2016 and 2015, and the related consolidated statements of income, comprehensive income, changes in stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2016. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of the Company at December 31, 2016 and 2015, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2016, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company’s internal control over financial reporting as of December 31, 2016, based on criteria established in Internal Control- Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated February 17, 2017 expressed an unqualified opinion thereon.

/s/ Ernst and Young LLP Dallas, Texas February 17, 2017

The Board of Directors and Stockholders of AT&T Inc.

We have audited AT&T Inc.’s (the Company) internal control over financial reporting as of December 31, 2016, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). The Company’s management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Report of Management. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2016, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of the Company as of December 31, 2016 and 2015, and the related consolidated statements of income, comprehensive income, changes in stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2016 and our report dated February 17, 2017 expressed an unqualified opinion thereon.

/s/ Ernst and Young LLP Dallas, Texas February 17, 2017

PRINCIPAL SUBSIDIARIES OF

AT&T INC., AS OF DECEMBER 31, 2016

2016 AT&T INC. REPORT TO STOCKHOLDERS

SECURITIES AND EXCHANGE COMMISSION ("SEC")

FORM 10-K filed February 17, 2017

State of Legal Name Incorporation/Formation Conducts Business Under Illinois Bell Telephone Illinois AT&T Illinois; Company AT&T Wholesale

Indiana Bell Telephone Indiana AT&T Indiana; Company, Incorporated AT&T Wholesale

Michigan Bell Michigan AT&T Michigan; Telephone Company AT&T Wholesale

Nevada Bell Nevada AT&T Nevada; Telephone Company AT&T Wholesale

Pacific Bell California AT&T California; Telephone Company AT&T Wholesale; AT&T DataComm

SBC Long Distance, LLC Delaware AT&T Long Distance

AT&T Teleholdings, Inc. Delaware AT&T Midwest; AT&T West; AT&T East

Southwestern Bell Delaware AT&T Arkansas; AT&T Kansas; Telephone Company AT&T Missouri; AT&T Oklahoma; AT&T Texas; AT&T Southwest; AT&T DataComm; AT&T Wholesale

The Ohio Bell Ohio AT&T Ohio; Telephone Company AT&T Wholesale

Wisconsin Bell, Inc. Wisconsin AT&T Wisconsin; AT&T Wholesale

AT&T Corp. New York AT&T Corp.; ACC Business; AT&T Wholesale; AT&T Business Solutions; AT&T Advanced Solutions; AT&T Diversified Group; AT&T Mobile and Business Solutions Teleport Communications America, LLC Delaware same

BellSouth Telecommunications, Georgia AT&T Alabama LLC AT&T Florida AT&T Georgia AT&T Kentucky AT&T Louisiana AT&T Mississippi AT&T North Carolina AT&T South Carolina AT&T Tennessee AT&T Southeast

AT&T Mobility LLC Delaware same

AT&T Mobility II LLC Delaware same

New Cingular Wireless PCS, LLC Delaware AT&T Mobility

Cricket Wireless LLC Delaware same

AT&T Comunicaciones Digitales, S. de R.L. de C.V. Mexico City same

DIRECTV, LLC California same

DIRECTV Enterprises, LLC Delaware same

DIRECTV Latin America, LLC Delaware same

SKY Brasil Serviços Ltda. Brazil same

DIRECTV Colombia Ltda. Colombia same

DIRECTV Argentina S.A. Argentina same

We consent to the incorporation by reference in this Annual Report (Form 10-K) of AT&T Inc. (AT&T) of our reports dated February 17, 2017, with respect to the consolidated financial statements of AT&T, and the effectiveness of internal control over financial reporting of AT&T, included in the 2016 Annual Report to Stockholders of AT&T.

Our audits also included the financial statement schedule of AT&T listed in Item 15(a). This schedule is the responsibility of AT&T's management. Our responsibility is to express an opinion based on our audits. In our opinion, as to which the date is February 17, 2017, the financial statement schedule referred to above, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.

We consent to the incorporation by reference of our reports dated February 17, 2017, with respect to the consolidated financial statements of AT&T, and the effectiveness of internal control over financial reporting of AT&T, incorporated by reference in this Annual Report (Form 10-K) of AT&T for the year ended December 31, 2016 and the financial statement schedule of AT&T included herein, in the following Registration Statements:

(1) Registration Statement (Form S-8 No. 333-34062) pertaining to the Stock Savings Plan, (2) Registration Statement (Form S-8 No. 333-120894) pertaining to the AT&T Stock Purchase and Deferral Plan and Cash Deferral Plan, (3) Registration Statement (Form S-8 No. 333-129814) pertaining to the AT&T Savings Plan and certain other plans, (4) Registration Statement (Form S-3 No. 333-209718) of AT&T and the related Prospectuses, (5) Registration Statement (Form S-8 No. 333-139749) pertaining to the BellSouth Retirement Savings Plan and certain other BellSouth plans, (6) Registration Statement (Form S-8 No. 333-152822) pertaining to the AT&T Non-Employee Director Stock Purchase Plan, (7) Registration Statement (Form S-8 No. 333-173079) pertaining to the AT&T 2011 Incentive Plan, (8) Registration Statement (Form S-8 No. 333-188384) pertaining to the AT&T Stock Purchase and Deferral Plan and Cash Deferral Plan, (9) Registration Statement (Form S-8 No. 333-189789) pertaining to the AT&T Savings and Security Plan, the AT&T Puerto Rico Retirement Savings Plan, the AT&T Retirement Savings Plan, and the BellSouth Savings and Security Plan, (10) Registration Statement (Form S-8 No 333-205868) pertaining to the DIRECTV 2010 Stock Plan, the DIRECTV 401(k) Savings Plan, and the Liberty Entertainment, Inc. Transitional Stock Adjustment Plan, (11) Registration Statement (Form S-8 No. 333-211303) pertaining to the 2016 Incentive Plan, and (12) Registration Statement (Form S-4 No 333-214712) pertaining to the Time Warner Inc. merger.

/s/ Ernst and Young Dallas, Texas February 17, 2017

POWER OF ATTORNEY