AT&T Wireless 2009 Annual Report Download - page 34

Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)
Dollars in millions except per share amounts
32 AT&T 09 AR
Interest expense decreased $11, or 0.3%, in 2009 and
$117, or 3.3%, in 2008. Interest expense decreased slightly
during 2009 due to an increase in interest charged during
construction, which is capitalized instead of expensed. In
2008, interest expense declined primarily due to a decrease
in our weighted-average interest rate and an increase in
interest charged during construction, partially offset by an
increase in our average debt balances.
Equity in net income of affiliates decreased $85, or
10.4%, in 2009, primarily due to foreign currency translation
losses at América Móvil S.A. de C.V. (América Móvil), Télefonos
de México, S.A. de C.V. (Telmex) and Telmex Internacional,
S.A.B. de C.V. (Telmex Internacional), partially offset by
improved results at América Móvil. Equity in net income of
affiliates increased $127, or 18.4%, in 2008, primarily due to
improved results from our investments in América Móvil,
Telmex and Telmex Internacional, partially offset by foreign
currency translation losses.
Other income (expense) – net We had other income
of $152 in 2009, other expense of $328 in 2008 and other
income of $810 in 2007. Results for 2009 included a $112
gain on the sale of investments, $100 of interest and
leveraged lease income, and $42 of gains on the sale of a
professional services business, partially offset by $102 of
asset impairments.
Other expense for 2008 included losses of $467 related
to asset impairments, partially offset by $156 of interest and
leveraged lease income. Other income for 2007 included
$810 related to a $409 gain on a spectrum license exchange,
$215 of interest and leveraged lease income and a $161 gain
on the sale of non-strategic assets and investments.
Income taxes decreased $880, or 12.5%, in 2009 and
increased $784, or 12.5%, in 2008. The decrease in 2009 was
due to lower income before taxes and the recognition of
benefits related to audit issues and judicial developments,
while the increase in 2008 was primarily due to higher income
before taxes. Our effective tax rate in 2009 was 32.4%,
compared to 34.9% in 2008 and 34.0% in 2007. The decrease
in our effective tax rate in 2009 was primarily due to the
recognition of benefits related to audit issues and judicial
developments. The increase in our effective tax rate in 2008
was primarily due to higher income before taxes, which
resulted in a greater percentage of our income being taxed
at marginal rates.
Cost of services and sales expenses increased $849, or
1.7%, in 2009 and $2,755, or 5.9%, in 2008. The increase in
2009 was primarily due to higher upgrade costs and higher
equipment costs related to advanced integrated devices, along
with an increase in pension/OPEB expenses. Pension/OPEB
expense increased due to lower-than-expected return on
assets and an increase in amortization of actuarial losses,
both primarily from investment losses in 2008. Partially
offsetting these increases were decreases in employee-related
costs primarily driven by workforce reductions. The increase
in 2008 was primarily due to higher equipment costs related
to increased sales of advanced integrated devices. Also
increasing 2008 expenses was severance associated with
announced workforce reductions and hurricane-related
expenses affecting both the Wireless and Wireline segments.
Selling, general and administrative expenses decreased
$119, or 0.4%, in 2009 and increased $1,380, or 4.6%, in
2008. The decrease in 2009 was primarily due to declines in
employee-related costs (excluding pension/OPEB) due to
workforce reductions, decreases in materials and supplies
expense along with decreases in wireless advertising and
promotions expense. These decreases were partially offset
by an increase in pension/OPEB expense, and higher
commissions, customer service costs and IT/Interconnect
costs resulting from wireless subscriber growth along with
increased support for data services and integrated devices.
The increase in 2008 was primarily due to higher commissions
and residuals due to the growth in wireless subscribers, and
higher severance associated with announced workforce
reductions. Partially offsetting these increases in 2008 were
merger-integration costs recognized in 2007 and not in 2008.
Depreciation and amortization expenses decreased $169,
or 0.8%, in 2009 and $1,694, or 7.9%, in 2008. The decrease
in 2009 was primarily due to the declining amortization of
identifiable intangible assets, primarily customer relationships,
partially offset by increased depreciation resulting from capital
additions. The decrease in 2008 was primarily due to lower
amortization expense on intangible assets.