AT&T Wireless 2015 Annual Report Download - page 14

Management’s Discussion and Analysis of Financial Condition and Results of Operations (continued)
Dollars in millions except per share amounts
12 | AT&T INC.
Operating expenses increased $1,781, or 1.5%, in 2015
and $22,235, or 22.7%, in 2014.
Equipment expenses increased $322, or 1.7%, in 2015
and $2,302, or 13.8%, in 2014. Expense increases in
2015 and 2014 are primarily due to the continuing
trend of customers choosing higher-priced wireless
devices. The expense increase in 2014 also reflects
higher upgrade equipment sales.
Broadcast, programming and operations expenses
increased $7,921 in 2015 and $767, or 23.2%, in 2014.
Broadcast costs increased in 2015 due to our
acquisition of DIRECTV. Also contributing to the
increases in 2015 and 2014 were higher content
costs for our U-verse subscribers.
Other cost of services expenses decreased $1,342,
or 3.6%, in 2015 and increased $5,885, or 18.8%,
in 2014. The expense decrease in 2015 was primarily
due to a $3,078 change in our annual pension and
postemployment benefit actuarial adjustment, which
was a gain in 2015 and a loss in 2014. Also contributing
to the 2015 decrease were higher High Cost Fund and
Connect America Fund receipts from the Universal Service
Fund and the fourth quarter 2014 sale of our Connecticut
wireline operations, offset by the addition of DIRECTV,
increased network rationalization charges related to
Leap, merger and integration charges and wireless
handset insurance costs.
The expense increase in 2014 included a $4,406 change
resulting from the annual remeasurement of our benefit
plans, which was an actuarial loss in 2014 and a gain in
2013. The increase also reflected higher wireless network
costs, U-verse content costs and subscriber growth, and
employee-related charges.
Selling, general and administrative expenses
decreased $6,743, or 17.0%, in 2015 and increased
$11,283, or 39.7%, in 2014. 2015 expenses decreased
$6,943 as a result of recording an actuarial gain in
2015 and an actuarial loss in 2014. The 2015 decrease
was also due to lower employee-related charges resulting
from workforce reductions, lower wireless commissions
and the fourth-quarter 2014 sale of our Connecticut
wireline operations, offset by costs resulting from the
acquisition of DIRECTV.
The expense increase in 2014 included an $11,047
change resulting from the annual remeasurement
of our benefit plans, which was an actuarial loss in
2014 and a gain in 2013. Expense increases in 2014
also reflect higher selling and administrative expenses
in our wireless business and gains on spectrum
transactions in 2013. These increases were partially
offset by lower employee-related costs and wireless
commissions expenses.
Abandonment of network assets In 2014, we recorded
a noncash charge of $2,120 for the abandonment in
place of certain network assets (see Note 6). During
the fourth quarter of 2014, we completed a study of
our network assets and determined that specific
copper assets would not be necessary to support future
network activity, due to declining customer demand for
our legacy voice and data products and the transition
of our networks to next generation IP-based technology.
Depreciation and amortization expense increased $3,743,
or 20.5%, in 2015 and decreased $122, or 0.7%, in 2014.
The 2015 amortization expense increased $2,198 due to
the amortization of intangibles from recent acquisitions.
The 2014 amortization expense decreased $145 due to
lower amortization of intangibles for customer lists.
Depreciation expense increased $1,545, or 8.7%,
in 2015. The increase was primarily due to the
acquisitions of DIRECTV and our wireless properties
in Mexico and ongoing capital spending for network
upgrades. The increases were partially offset by the
abandonment of certain wireline network assets,
which occurred in 2014, and certain network assets
becoming fully depreciated. The 2014 depreciation
expense increased $23 due to ongoing capital spending
for network upgrades and expansion and additional
expense associated with the assets acquired from Leap.
These increases were largely offset by extending the
estimated useful life of software and certain network
assets becoming fully depreciated assets.
Operating income increased $12,573 in 2015 and
decreased $18,540, or 60.3% in 2014. Our operating margin
was 16.9% in 2015, compared to 9.2% in 2014 and 23.9%
in 2013. Contributing $10,021 to the increase in operating
income in 2015 was a noncash actuarial gain of $2,152
and an actuarial loss of $7,869 in 2014. The increase in
operating income for 2015 also included higher acquisition-
related charges and expenses relating to growth areas of
our business in 2015. Contributing $15,453 to the decrease
in operating income in 2014 was a noncash actuarial loss
of $7,869 related to pension and postemployment benefit
plans, and an actuarial gain of $7,584 in 2013. Operating
income for 2014 also included a noncash charge of $2,120
related to an abandonment of network assets, higher
wireless equipment costs resulting from higher device sales
and customers choosing higher-priced devices, increased
expenses supporting U-verse subscriber growth, and
continued declines in our traditional voice and data services.
Interest expense increased $507, or 14.0%, in 2015
and decreased $327, or 8.3%, in 2014. The increase
in 2015 was primarily due to higher average debt balances,
including debt issued and debt acquired in connection
with our acquisition of DIRECTV and spectrum acquired
in the Advanced Wireless Service (AWS)-3 Auction.
These increases were partially offset by lower average