AT&T Wireless 2012 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 Inc.
Interest expense decreased $91, or 2.6%, in 2012 and
increased $541, or 18.1%, in 2011. The decrease in interest
expense for 2012 was primarily due to lower average interest
rates and average debt balances, partially offset by a net
charge of $176 related to call premiums paid and swap gains
realized for early debt redemptions and debt exchange fees.
The increase in interest expense for 2011 was primarily due
to lower interest capitalized on wireless spectrum that we
used to support our Long Term Evolution (LTE) technology,
partially offset by a decrease in our average debt balances.
Equity in net income of affiliates decreased $32, or 4.1%, in
2012 and increased $22, or 2.9%, in 2011. Decreased equity
in net income of affiliates in 2012 was due to lower earnings
from América Móvil, S.A. de C.V. (América Móvil), and
increased expenses in our mobile payment joint venture with
other wireless carriers, marketed as the Isis Mobile WalletTM
(ISIS). These decreases were partially offset by earnings from
YP Holdings LLC (YP Holdings). The 2011 increase was due to
improved results at América Móvil, partially offset by lower
results from Télefonos de México, S.A. de C.V. (Telmex).
Other income (expense) – net We had other income of
$134 in 2012, $249 in 2011 and $897 in 2010. Results for
2012 included interest and dividend income of $61,
leveraged lease income of $55 and net gains on the sale
of investments of $74. This income was partially offset by
$57 of investment impairments.
Other income for 2011 included interest and dividend income
of $73, leveraged lease income of $80 and net gains on the
sale of investments of $97. Results for 2010 included a gain
on the exchange of Telmex Internacional, S.A.B. de C.V.
(Telmex Internacional) shares for América Móvil shares of
$658, interest and dividend income of $71, leveraged lease
income of $66, and net gains on the sale of investments of
$197, partially offset by $98 of investment impairments.
Income tax expense increased $368 in 2012 and $3,694 in
2011. The 2012 increase is primarily due to an increase in
income before income taxes. The 2011 increase is primarily
due to the goodwill impairment, which was not deductible,
and a settlement with the Internal Revenue Service related to
a restructuring of our wireless operations, which lowered our
2010 income taxes by $8,300. Offsetting these year-over-year
increases were decreases due to lower income before income
taxes in 2011 and a $995 charge to income tax expense
in 2010 to reflect the deferred tax impact of enacted U.S.
healthcare legislation (see Note 10). Our effective tax rate
was 27.8% in 2012, 37.7% in 2011 and (6.4)% in 2010.
Cost of services and sales expenses increased $379, or
0.7%, in 2012 and $4,579, or 9.1%, in 2011. The increase in
2012 resulted from increased wireline costs attributable to
growth in U-verse subscribers, higher wireless handset costs
related to strong smartphone sales and a higher actuarial
loss on benefit plans. These increases were partially offset
by lower traffic compensation costs and other nonemployee-
related expenses. The sale of our Advertising Solutions
segment reduced cost of services and sales expenses $787
in 2012.
Excluding the increase of $1,668 related to the actuarial loss,
expense increases in 2011 were primarily due to higher
wireless handset costs from strong smartphone sales,
partially offset by lower financing-related costs associated
with our pension and postretirement benefits (referred to
as Pension/OPEB expenses) and other employee-related
expenses.
Selling, general and administrative expenses decreased
$303, or 0.7%, in 2012 and increased $6,396, or 18.3%, in
2011. The 2012 expense decrease was primarily due to
$4,181 in 2011 expenses related to the termination of
the T-Mobile merger, offset by a larger actuarial loss of
$3,454 and higher wireless commissions and administrative
costs. The sale of our Advertising Solutions segment
reduced selling, general and administrative expenses
$705 in 2012.
The 2011 expenses increased by $2,091 related to the
actuarial loss, charges associated with the T-Mobile payment,
and higher commissions paid on smartphone sales, slightly
offset by lower severance accruals, Pension/OPEB financing
costs and other employee-related charges.
Impairment of intangible assets In 2011, we recorded
noncash charges for impairments in our Advertising Solutions
segment, which consisted of a $2,745 goodwill impairment
and a $165 impairment of a trade name. The 2010
impairment of $85 was for the impairment of a trade name.
Depreciation and amortization expense decreased $234,
or 1.3%, in 2012 and $1,002, or 5.2%, in 2011 due to lower
amortization of intangibles for customer lists related to
acquisitions, offset by increased depreciation associated
with ongoing capital spending for network upgrades and
expansion. The sale of our Advertising Solutions segment
reduced depreciation and amortization expense $280
in 2012.