Segment Information

3 Months Ended

Mar. 31, 2019

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 operating contribution, which consists of operating income, excluding acquisition-related costs and other significant items (as discussed below), and equity in net income (loss) of affiliates for investments managed within each segment. We have 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.

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 (RSNs) and equity investments (predominantly Game Show Network and Otter Media), 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 as the financial results of our RSNs. This business unit primarily operates multichannel basic television networks and digital properties. Turner also sells advertising on its networks and digital properties.
Home Box Office consists of premium pay television and OTT services domestically and premium pay, basic tier television and OTT services internationally, as well as content licensing and home entertainment.
Warner Bros. consists of the production, distribution and licensing of television programming and feature films, the distribution of home entertainment products and the production and distribution of games.

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

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

The Xandr segment provides advertising services and includes AppNexus, an advertising technology company we acquired in August 2018. Xander services utilize data insights to develop and deliver targeted advertising across video and digital platforms. Certain revenues in this segment are also reported by the Communications segment and are eliminated upon consolidation.

Corporate and Other 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 $150 of programming intangible asset amortization, for released programming acquired in the Time Warner acquisition, which we continue to report within WarnerMedia segment operating expense, to consolidated amortization expense.

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

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

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

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

The following table presents intersegment revenues by segment.

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