Segment Information

9 Months Ended

Sep. 30, 2018

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) Communications, (2) WarnerMedia, (3) Latin America, and (4) Xandr.

We also evaluate segment and business unit performance based on EBITDA and/or EBITDA margin, which is defined as operating contribution excluding equity in net income (loss) of affiliates and depreciation and amortization. We believe EBITDA to be a relevant and useful measurement to our investors as it is part of our internal management reporting and planning processes and it is an important metric that management uses to evaluate operating performance. EBITDA does not give effect to cash used for debt service requirements and thus does not reflect available funds for distributions, reinvestment or other discretionary uses. EBITDA margin is EBITDA divided by total revenues.

Due to organizational changes and our June 14, 2018 acquisition of Time Warner, effective for the quarter ended September 30, 2018, we revised our operating segments to align with the new management structure and organizational responsibilities, and have accordingly recast our segment disclosures for all periods presented. As a result of the realignment to combine all domestic wireless products and services into the Mobility business unit, which is now one of our reporting units, $27,568 of goodwill from our former Business Solutions segment and $16,540 from our former Consumer Mobility segment was reallocated to the Mobility business unit.

With our acquisition of Time Warner, programming released on or before the June 14, 2018 acquisition date was recorded at fair value as an intangible asset (see Note 8). For consolidated reporting, all amortization of pre-acquisition released programming is reported as amortization expense on our consolidated income statement. To best present comparable results, we report the historical content production cost amortization as operations and support expense within the WarnerMedia segment. The amount of historical content production cost amortization reported in the segment results was $1,491 for the quarter ended September 30, 2018, $772 of which was for pre-acquisition released programming. For the 108-day period included in our nine months ended September 30, 2018, historical content production cost amortization reported in the segment results was $1,677, $870 of which was for pre-acquisition released programming.

The Communications segment provides wireless and wireline telecom, video and broadband services to consumers located in the U.S. or in U.S. territories and businesses globally. This segment contains the following business units:

Mobility provides nationwide wireless service and equipment.
Entertainment Group provides video, including over-the-top (OTT) services, broadband and voice communications services primarily to residential customers. This segment also sells advertising on DIRECTV and U-verse distribution platforms.
Business Wireline provides advanced IP-based services, as well as traditional voice and data services to business customers.

The WarnerMedia segment develops, produces and distributes feature films, television, gaming and other content in various physical and digital formats globally. Historical financial results from AT&T’s Regional Sports Networks (RSN) and equity investments (predominantly Game Show Network and Otter Media Holdings), previously included in Entertainment Group, have been reclassified into the WarnerMedia segment and are combined with the Time Warner operations for the period subsequent to our acquisition on June 14, 2018. This segment contains the following business units:

Turner is comprised of the historic Turner division as well the financial results of our RSN. This business unit creates and programs branded news, entertainment, sports and kids multi-platform content that is sold to various distribution affiliates. Turner also sells advertising on its networks and digital properties.
Home Box Office consists of premium pay television and OTT services domestically and premium pay, basic tier television and OTT services internationally, as well as content licensing and home entertainment.
Warner Bros. consists of the production, distribution and licensing of television programming and feature films, the distribution of home entertainment products and the production and distribution of games.

The Latin America segment provides entertainment and wireless services outside of the U.S. This segment contains the following business units:

Vrio provides video services to customers using satellite technology in Latin America and the Caribbean.
Mexico provides wireless service and equipment to customers in Mexico.

The Xandr segment provides advertising services. These services utilize data insights to develop higher value targeted advertising. Certain revenues in this segment are also reported by the Communications segment and are eliminated upon consolidation.

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

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

Acquisition-related items which consists of items associated with the merger and integration of acquired businesses, including amortization of intangible assets.
Certain significant items includes (1) employee separation charges associated with voluntary and/or strategic offers, (2) losses resulting from abandonment or impairment of assets and (3) other items for which the segments are not being evaluated.
Eliminations and consolidations, which (1) removes transactions involving dealings between our segments, including content licensing between WarnerMedia and Communications, and (2) includes adjustments for our reporting of the advertising business.

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

For the three months ended September 30, 2018
		Revenues		Operations and Support Expenses		EBITDA		Depreciation and Amortization		Operating Income (Loss)		Equity in Net Income (Loss) of Affiliates		Segment Contribution
Communications
Mobility	$	17,938	$	10,255	$	7,683	$	2,079	$	5,604	$	(1)	$	5,603
Entertainment Group		11,589		9,155		2,434		1,331		1,103		1		1,104
Business Wireline		6,703		4,030		2,673		1,197		1,476		(1)		1,475
Total Communications		36,230		23,440		12,790		4,607		8,183		(1)		8,182
WarnerMedia
Turner		2,988		1,487		1,501		59		1,442		7		1,449
Home Box Office		1,644		991		653		25		628		2		630
Warner Bros.		3,720		3,104		616		40		576		(23)		553
Other		(148)		(79)		(69)		10		(79)		(25)		(104)
Total WarnerMedia		8,204		5,503		2,701		134		2,567		(39)		2,528
Latin America
Vrio		1,102		877		225		168		57		9		66
Mexico		731		869		(138)		129		(267)		-		(267)
Total Latin America		1,833		1,746		87		297		(210)		9		(201)
Xandr		445		109		336		3		333		-		333
Segment Total	$	46,712	$	30,798	$	15,914	$	5,041	$	10,873	$	(31)	$	10,842
Corporate and Other
Corporate		308		(18)		326		797		(471)
Acquisition-related items		-		362		(362)		2,329		(2,691)
Certain significant items		-		75		(75)		-		(75)
Eliminations and consolidations		(1,281)		(913)		(368)		(1)		(367)
AT&T Inc.	$	45,739	$	30,304	$	15,435	$	8,166	$	7,269

For the nine months ended September 30, 2018
		Revenues		Operations and Support Expenses		EBITDA		Depreciation and Amortization		Operating Income (Loss)		Equity in Net Income (Loss) of Affiliates		Segment Contribution
Communications
Mobility	$	52,575	$	30,020	$	22,555	$	6,287	$	16,268	$	(1)	$	16,267
Entertainment Group		34,498		26,623		7,875		3,986		3,889		(1)		3,888
Business Wireline		20,100		12,084		8,016		3,547		4,469		(1)		4,468
Total Communications		107,173		68,727		38,446		13,820		24,626		(3)		24,623
WarnerMedia
Turner		3,767		1,933		1,834		71		1,763		39		1,802
Home Box Office		1,925		1,162		763		30		733		1		734
Warner Bros.		4,227		3,507		720		54		666		(24)		642
Other		(210)		(106)		(104)		11		(115)		(71)		(186)
Total WarnerMedia		9,709		6,496		3,213		166		3,047		(55)		2,992
Latin America
Vrio		3,710		2,894		816		559		257		24		281
Mexico		2,099		2,459		(360)		383		(743)		-		(743)
Total Latin America		5,809		5,353		456		942		(486)		24		(462)
Xandr		1,174		218		956		4		952		-		952
Segment Total	$	123,865	$	80,794	$	43,071	$	14,932	$	28,139	$	(34)	$	28,105
Corporate and Other
Corporate		961		1,378		(417)		938		(1,355)
Acquisition-related items		-		750		(750)		4,669		(5,419)
Certain significant items		-		407		(407)		-		(407)
Eliminations and consolidations		(2,063)		(1,040)		(1,023)		(1)		(1,022)
AT&T Inc.	$	122,763	$	82,289	$	40,474	$	20,538	$	19,936

For the three months ended September 30, 2017
		Revenues		Operations and Support Expenses		EBITDA		Depreciation and Amortization		Operating Income (Loss)		Equity in Net Income (Loss) of Affiliates		Segment Contribution
Communications
Mobility	$	17,370	$	10,029	$	7,341	$	2,008	$	5,333	$	-	$	5,333
Entertainment Group		12,467		9,804		2,663		1,379		1,284		(1)		1,283
Business Wireline		7,278		4,635		2,643		1,189		1,454		1		1,455
Total Communications		37,115		24,468		12,647		4,576		8,071		-		8,071
WarnerMedia
Turner		107		97		10		1		9		13		22
Home Box Office		-		-		-		-		-		-		-
Warner Bros.		-		-		-		-		-		-		-
Other		-		1		(1)		-		(1)		(19)		(20)
Total WarnerMedia		107		98		9		1		8		(6)		2
Latin America
Vrio		1,363		1,075		288		206		82		17		99
Mexico		736		862		(126)		98		(224)		-		(224)
Total Latin America		2,099		1,937		162		304		(142)		17		(125)
Xandr		333		39		294		-		294		-		294
Segment Total	$	39,654	$	26,542	$	13,112	$	4,881	$	8,231	$	11	$	8,242
Corporate and Other
Corporate		382		801		(419)		24		(443)
Acquisition-related items		-		134		(134)		1,136		(1,270)
Certain significant items		(89)		325		(414)		1		(415)
Eliminations and consolidations		(279)		17		(296)		-		(296)
AT&T Inc.	$	39,668	$	27,819	$	11,849	$	6,042	$	5,807

For the nine months ended September 30, 2017
		Revenues		Operations and Support Expenses		EBITDA		Depreciation and Amortization		Operating Income (Loss)		Equity in Net Income (Loss) of Affiliates		Segment Contribution
Communications
Mobility	$	51,922	$	30,005	$	21,917	$	5,988	$	15,929	$	-	$	15,929
Entertainment Group		37,435		28,711		8,724		4,254		4,470		-		4,470
Business Wireline		21,911		13,906		8,005		3,583		4,422		-		4,422
Total Communications		111,268		72,622		38,646		13,825		24,821		-		24,821
WarnerMedia
Turner		323		273		50		3		47		32		79
Home Box Office		-		-		-		-		-		-		-
Warner Bros.		-		-		-		-		-		-		-
Other		-		3		(3)		-		(3)		(55)		(58)
Total WarnerMedia		323		276		47		3		44		(23)		21
Latin America
Vrio		4,065		3,123		942		642		300		62		362
Mexico		1,989		2,345		(356)		263		(619)		-		(619)
Total Latin America		6,054		5,468		586		905		(319)		62		(257)
Xandr		992		118		874		1		873		-		873
Segment Total	$	118,637	$	78,484	$	40,153	$	14,734	$	25,419	$	39	$	25,458
Corporate and Other
Corporate		1,182		2,440		(1,258)		73		(1,331)
Acquisition-related items		-		622		(622)		3,508		(4,130)
Certain significant items		(89)		302		(391)		1		(392)
Eliminations and consolidations		(860)		17		(877)		-		(877)
AT&T Inc.	$	118,870	$	81,865	$	37,005	$	18,316	$	18,689

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



		Third Quarter				Nine-month period
		2018		2017		2018		2017
Communications	$	8,182	$	8,071	$	24,623	$	24,821
WarnerMedia		2,528		2		2,992		21
Latin America		(201)		(125)		(462)		(257)
Xandr		333		294		952		873
Segment Contribution		10,842		8,242		28,105		25,458
Reconciling Items:
Corporate and Other		(471)		(443)		(1,355)		(1,331)
Merger and integration items		(362)		(134)		(750)		(622)
Amortization of intangibles acquired		(2,329)		(1,136)		(4,669)		(3,508)
Employee separation charges		(75)		(208)		(259)		(268)
Gain on wireless spectrum transactions		-		-		-		181
Natural disaster items		-		(207)		(104)		(207)
Foreign currency devaluation		-		-		(44)		(98)
Segment equity in net income of affiliates		31		(11)		34		(39)
Eliminations and consolidations		(367)		(296)		(1,022)		(877)
AT&T Operating Income		7,269		5,807		19,936		18,689
Interest Expense		(2,051)		(1,686)		(5,845)		(4,374)
Equity in net income (loss) of affiliates		(64)		11		(71)		(148)
Other income (expense) - Net		1,053		842		5,108		2,255
Income Before Income Taxes	$	6,207	$	4,974	$	19,128	$	16,422

The following tables present intersegment revenues, assets, investments in equity affiliates and capital expenditures by segment.

Intersegment Reconciliation
	Third Quarter				Nine-Month Period
	2018		2017		2018		2017
Intersegment revenues
Communications	$	6	$	-	$	8	$	-
WarnerMedia		844		33		1,053		99
Latin America		-		-		-		-
Xandr		-		-		-		-
Total Intersegment Revenues		850		33		1,061		99
Consolidations		431		246		1,002		761
Eliminations and consolidations	$	1,281	$	279	$	2,063	$	860

			Investment in Equity Method Investees		Capital Expenditures

At September 30, 2018	Assets

Communications	$	487,833	$	1	$	16,024
WarnerMedia		132,689		5,395		298
Latin America		18,420		713		524
Xandr		2,647		-		66
Corporate and eliminations		(106,719)		19		187
Total	$	534,870	$	6,128	$	17,099