Segment Information

3 Months Ended

Mar. 31, 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) Consumer Mobility, (2) Business Solutions, (3) Entertainment Group 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.

To most effectively implement our strategies for 2018, we have realigned certain responsibilities and operations within our reportable segments. The most significant of these changes is to report individual wireless accounts with employer discounts in our Consumer Mobility segment, instead of our Business Solutions segment. As a result of these realignments, $19,686 of goodwill from the Business Solutions segment was reallocated to the Consumer Mobility segment. Our reported segment results include the impact for the adoption of recent accounting standards, which affects the comparability between 2018 and 2017 (see Note 5).

The Consumer Mobility segment provides nationwide wireless service to consumers, wholesale and resale wireless subscribers located in the United States or in U.S. territories. We provide voice and data services, including high-speed internet over wireless devices.

The Business Solutions segment provides services to business customers, including multinational companies and governmental and wholesale customers. We provide advanced IP-based services including Virtual Private Networks (VPN); Ethernet-related products; FlexWare, a service that relies on Software Defined Networking and Network Function Virtualization to provide application-based routing, and broadband, collectively referred to as strategic services; as well as traditional data and voice products. We 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.

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 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 (operations in countries with highly inflationary economies consider the U.S. dollar as the functional currency).

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, (2) corporate support functions and operations, (3) impacts of corporate-wide decisions for which the individual operating segments are not being evaluated, and (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.

Certain operating items are not allocated to our business segments, and those include:

Acquisition-related items which consists 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 consists of (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.

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

Our domestic communications business strategies reflect bundled product offerings that increasingly cut across product lines and utilize our shared asset base. Therefore, asset information and capital expenditures by segment are not presented. Depreciation is allocated based on asset utilization by segment.

For the three months ended March 31, 2018
		Revenues		Operations and Support Expenses		EBITDA		Depreciationand Amortization		Operating Income (Loss)		Equity in NetIncome (Loss) ofAffiliates		SegmentContribution
Consumer Mobility	$	14,986	$	8,524	$	6,462	$	1,807	$	4,655	$	-	$	4,655
Business Solutions		9,185		5,638		3,547		1,462		2,085		(1)		2,084
Entertainment Group		11,577		8,939		2,638		1,312		1,326		9		1,335
International		2,025		1,804		221		332		(111)		-		(111)
Segment Total		37,773		24,905		12,868		4,913		7,955	$	8	$	7,963
Corporate and Other		265		691		(426)		19		(445)
Acquisition-related items		-		67		(67)		1,062		(1,129)
Certain significant items		-		180		(180)		-		(180)
AT&T Inc.	$	38,038	$	25,843	$	12,195	$	5,994	$	6,201

For the three months ended March 31, 2017
		Revenues		Operations and Support Expenses		EBITDA		Depreciationand Amortization		Operating Income (Loss)		Equity in NetIncome (Loss) ofAffiliates		SegmentContribution
Consumer Mobility	$	14,806	$	8,560	$	6,246	$	1,716	$	4,530	$	-	$	4,530
Business Solutions		9,692		6,040		3,652		1,465		2,187		-		2,187
Entertainment Group		12,601		9,605		2,996		1,420		1,576		(6)		1,570
International		1,929		1,759		170		290		(120)		20		(100)
Segment Total		39,028		25,964		13,064		4,891		8,173	$	14	$	8,187
Corporate and Other		337		829		(492)		34		(526)
Acquisition-related items		-		207		(207)		1,202		(1,409)
Certain significant items		-		(118)		118		-		118
AT&T Inc.	$	39,365	$	26,882	$	12,483	$	6,127	$	6,356

The following table is a reconciliation of Segment Contribution to “Income Before Income Taxes” reported on ourconsolidated statements of income.

	First Quarter
		2018		2017
Consumer Mobility	$	4,655	$	4,530
Business Solutions		2,084		2,187
Entertainment Group		1,335		1,570
International		(111)		(100)
Segment Contribution		7,963		8,187
Reconciling Items:
Corporate and Other		(445)		(526)
Amortization of intangibles acquired		(1,062)		(1,202)
Merger and integration charges		(67)		(207)
Venezuela devaluation		(25)		-
Employee separation costs		(51)		-
Natural disaster charges		(104)		-
Gain on wireless spectrum transactions		-		118
Segment equity in net (income) loss of affiliates		(8)		(14)
AT&T Operating Income		6,201		6,356
Interest expense		1,771		1,293
Equity in net income (loss) of affiliates		9		(173)
Other income (expense) - net		1,702		488
Income Before Income Taxes	$	6,141	$	5,378