AT&T Wireless 2006 Annual Report Download - page 78

76 : : 2006 AT&T Annual Report
Notes to Consolidated Financial Statements (continued)
Dollars in millions except per share amounts
Summarized financial information for the Illinois and
northwest Indiana directory advertising business is as follows:
Year ended December 31, 2006 2005 2004
Operating revenues $ — $ — $311
Operating income — — 132
Income taxes — — 51
Net income from operations — — 81
Gain on disposal, net of tax — — 827
The assets and liabilities of the discontinued operations were
$0 as of December 31, 2006 and 2005.
NOTE 16. CONTINGENT LIABILITIES
In addition to issues specifically discussed elsewhere, we are
party to numerous lawsuits, regulatory proceedings and other
matters arising in the ordinary course of business. In accordance
with Statement of Financial Accounting Standards No. 5,
“Accounting for Contingencies,” 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 obliga-
tions are expected to be approximately $2,564 in 2007,
$2,100 in total for 2008 and 2009, $802 in total for 2010 and
2011 and $331 in total for years thereafter.
NOTE 17. SUBSEQUENT EVENT
As part of the dissolution of AT&T Mobility’s joint venture
agreement with T-Mobile USA (T-Mobile), both parties were
required to exchange certain spectrum licenses and we
committed to purchase a minimum number of minutes on
T-Mobile’s California/Nevada and New York networks during
a specified transition period. In January 2007, we received
10 MHz of spectrum in the New York market; T-Mobile
received 5 MHz of spectrum in each of nine markets in
California, the largest of which is San Diego. T-Mobile also
notified us of its intent to exercise its option to purchase an
additional 10 MHz of spectrum in the San Diego market, with
the transaction closing expected during the second quarter
of 2007. Concurrent with T-Mobile’s notification to purchase
the San Diego spectrum, T-Mobile communicated to us that
it will not exercise its option to purchase 10 MHz of spectrum
in the Los Angeles market.
We expect to record a net gain in connection on these
transactions, estimated to be between $150 to $250 net of
tax, principally due to the value of the New York spectrum
received. The gain is net of $55 of costs previously deferred,
which related to parts of the dissolution transaction com-
pleted in prior periods. This gain is subject to valuation
revisions of the assets exchanged and the resolution of
remaining business matters governed by the dissolution
agreement.
NOTE 14. TRANSACTIONS WITH AT&T MOBILITY
Prior to our December 29, 2006 acquisition of BellSouth (see
Note 2), we and BellSouth, the two owners of AT&T Mobility,
each made a subordinated loan to AT&T Mobility (shareholder
loans). Our shareholder loan to AT&T Mobility totaled $4,108
at December 31, 2005. This loan carried an annual 6.0%
interest rate. We and BellSouth also entered into a revolving
credit agreement with AT&T Mobility to provide short-term
financing for operations. Our share of advances to AT&T
Mobility under the revolving credit agreement was $307 at
December 31, 2005, and is reflected in “Investments in and
Advances to AT&T Mobility” on our Consolidated Balance
Sheet. During 2005, AT&T Mobility repaid $1,747 to reduce the
balance of its shareholder loan in accordance with the terms
of the revolving credit agreement. Following the BellSouth
acquisition, mentioned above, both our shareholder loan and
our revolving credit agreement with AT&T Mobility were
consolidated and do not appear on our Consolidated Balance
Sheet at December 31, 2006. We earned interest income on
our shareholder loan of $246 during 2006, $311 in 2005 and
$354 in 2004.
Prior to our December 29, 2006 acquisition of BellSouth,
we generated revenues of $1,466 in 2006, $869 in 2005 and
$602 in 2004 for services sold to AT&T Mobility. These
revenues were primarily from access and long-distance
services sold to AT&T Mobility on a wholesale basis and
commissions revenue related to customers added through
AT&T sales sources. The offsetting expense amounts were
recorded by AT&T Mobility, and 60% of these expenses were
included in our “Equity in net income of affiliates” line on our
Consolidated Statements of Income when we reported our
60% proportionate share of AT&T Mobility’s results.
NOTE 15. DISCONTINUED OPERATIONS
In September 2004, we sold our interest in the directory
advertising business in Illinois and northwest Indiana to
Donnelley and received net proceeds of $1,397. As part of
this transaction we recorded a gain of $1,357 ($827 net of
tax) in our 2004 results.
In accordance with Statement of Financial Accounting
Standards No. 144, “Accounting for Impairment or Disposal of
Long-Lived Assets,” we have reclassified the results from our
directory advertising business in Illinois and northwest Indiana
as discontinued operations, restating previously reported
results to reflect the reclassification on a comparable basis.
The operational results and the gain associated with the sale
of this business are presented in the “Income From Discontin-
ued Operations, net of tax” line item on our Consolidated
Statements of Income. Prior to the reclassification, these
results were reported in our directory segment.