AT&T Uverse 2007 Annual Report Download - page 31

2007 AT&T Annual Report
| 29
Directory results were lower in 2007 due to the purchase
accounting treatment of directories delivered by BellSouth’s
advertising and publishing businesses in the 12 months prior
to the merger (see Note 4). In accordance with GAAP, the
deferred revenues from these books were not included in the
opening balance sheet and are therefore not included in the
2007 consolidated directory revenues. Had those deferred
revenues been included in 2007, directory revenues would
have increased by $964. The pro forma revenues for 2005
and 2006 do not reflect this purchase accounting treatment
of deferred directory revenues.
Pro forma other revenues decreased in 2007 and 2006
due to our decision to de-emphasize sales of lower-margin,
stand-alone customer premises equipment.
Segment Results
Our segments are strategic business units that offer different
products and services and are managed accordingly. As a
result of our acquisitions of BellSouth and ATTC, we revised
our segment reporting to represent how we now manage
our business, restating prior periods to conform to the
current segments. Our operating segment results presented
in Note 4 and discussed below for each segment follow
our internal management reporting. We analyze our various
operating segments based on segment income before
income taxes (see Note 4). Each segment’s percentage of
total segment operating revenue and income calculations
is derived from our segment results table in Note 4
and reflects amounts before eliminations. We have four
reportable segments: (1) wireless, (2) wireline,
(3) advertising & publishing and (4) other.
The wireless segment accounted for approximately 35%
of our 2007 total segment operating revenues as compared
to 37% in 2006 and 32% of our 2007 total segment income
as compared to 27% in 2006. This segment offers wireless
voice and data communications services across the United
States, providing cellular and PCS services. This segment
reflects 100% of the results reported by AT&T Mobility, which
was our wireless joint venture with BellSouth prior to the
December 29, 2006 acquisition and is now a wholly-owned
subsidiary of AT&T. Prior to the acquisition, although we
analyzed AT&T Mobility’s revenues and expenses under the
wireless segment, we eliminated the wireless segment in
our consolidated financial statements. In our 2006 and prior
consolidated financial statements we reported our 60%
proportionate share of AT&T Mobility’s results as equity in
net income of affiliates.
The wireline segment accounted for approximately 59%
of our 2007 total segment operating revenues as compared
to 57% in 2006 and 55% of our 2007 total segment income
as compared to 47% in 2006. This segment provides both
retail and wholesale landline communications services,
including local and long-distance voice, switched access,
IP and Internet access data, messaging services, managed
networking to business customers, AT&T U-verseSM TV service
(U-verse) and satellite television services through our
agency agreements with EchoStar Communications Corp.
(EchoStar) and the DIRECTV Group, Inc. (DIRECTV).
With the BellSouth acquisition, we now provide local
service in 22 states (“in-region”).
The advertising & publishing segment accounted for
approximately 5% of our 2007 total segment operating
revenues as compared to 4% in 2006 and 9% of our 2007
total segment income as compared to 12% in 2006. This
segment includes our directory operations, which publish
Yellow and White Pages directories and sell directory and
Internet-based advertising. This segment also includes
the results of our Internet-based advertising business,
YELLOWPAGES.COM (YPC), which was a joint venture with
BellSouth prior to the December 29, 2006 acquisition and
is now a wholly-owned subsidiary of AT&T. For segment
reporting disclosure, we have carried forward the deferred
revenue and deferred cost balances for BellSouth at the
acquisition date in order to reflect how the segment is
managed. This is different from consolidated reporting
purposes as under Statement of Financial Accounting
Standards No. 141, “Business Combinations” (FAS 141),
BellSouth deferred revenue and expenses from directories
published during the 12-month period ending with the
December 29, 2006 acquisition date are not recognized
and therefore were not included in the opening balance
sheet. For management reporting purposes, we continue
to amortize these balances over the life of the directory
(typically 12 months). Thus, our advertising & publishing
segment results for 2007 include revenues of $964 and
expenses of $308, related to directories published in the
Southeast region during 2006, prior to our acquisition
of BellSouth. These amounts are eliminated in our
consolidated results (see Note 4).
The other segment accounted for approximately 1% of
our 2007 total segment operating revenues as compared
to 2% in 2006 and 4% of our 2007 total segment income
as compared to 14% in 2006. This segment includes results
from Sterling Commerce, Inc. (Sterling), customer information
services, payphone, and all corporate and other operations.
Additionally, this segment includes our portion of the
results from our international equity investments. Prior to
December 29, 2006, this segment also included our results
from AT&T Mobility as equity in net income of affiliates, as
discussed above.
The following tables show components of results of
operations by segment. We discuss significant segment
results following each table. We discuss capital expenditures
for each segment in “Liquidity and Capital Resources.”