AT&T Wireless 2015 Annual Report Download - page 79

AT&T INC. | 77
value. The estimated value of the device trade-ins considers
prices offered to us by independent third parties that
contemplate changes in value after the launch of a device
model. The fair value measurements used are considered
Level 3 under the Fair Value Measurement and Disclosure
framework (see Note 10).
During 2015, we repurchased installment receivables
previously sold to the Purchasers, with a fair value of $685.
These transactions reduced our current deferred purchase
price receivable by $534, resulting in a gain of $151 in
2015. This gain is included in “Selling, general and
administrative” in the consolidated statements of income.
At December 31, 2015, our deferred purchase price
receivable was $2,961, of which $1,772 is included in
“Other current assets” on our consolidated balance sheets,
with the remainder in “Other Assets.” At December 31, 2014,
our deferred purchase price receivable was $1,606, which is
included in “Other Assets.” Our maximum exposure to loss
as a result of selling these equipment installment receivables
is limited to the amount of our deferred purchase price at
any point in time.
The sales of equipment installment receivables did not have
a material impact on our consolidated statements of income
or to “Total Assets” reported on our consolidated balance
sheets. We reflect the cash flows related to the arrangement
as operating activities in our consolidated statements of
cash flows because the cash received from the Purchasers
upon both the sale of the receivables and the collection of
the deferred purchase price is not subject to significant
interest rate risk.
NOTE 16. TOWER TRANSACTION
On December 16, 2013, we closed our transaction with
Crown Castle International Corp. (Crown Castle) in which
Crown Castle gained the exclusive rights to lease and
operate 9,048 wireless towers and purchased 627 of our
wireless towers for $4,827 in cash. The leases have various
terms with an average length of approximately 28 years.
As the leases expire, Crown Castle will have fixed price
purchase options for these towers totaling approximately
$4,200, based on their estimated fair market values at the
end of the lease terms. We sublease space on the towers
from Crown Castle for an initial term of 10 years at current
market rates, subject to optional renewals in the future.
We determined our continuing involvement with the
tower assets prevented us from achieving sale-leaseback
accounting for the transaction, and we accounted for the
cash proceeds from Crown Castle as a financing obligation
on our consolidated balance sheets. We record interest on
the financing obligation using the effective interest method
at a rate of approximately 3.9%. The financing obligation
value plus any unpaid cumulative dividends, and in
installments, as specified in the contribution agreement
upon the occurrence of any of the following: (1) at any
time if the ratio of debt to total capitalization of Mobility
exceeds that of AT&T, (2) the date on which AT&T Inc. is
rated below investment grade for two consecutive calendar
quarters, (3) upon a change of control if AT&T does not
exercise its purchase option, or (4) at any time after a
seven-year period from the contribution date. In the event
AT&T elects or is required to purchase the preferred equity
interest, AT&T may elect to settle the purchase price in cash
or shares of AT&T common stock or a combination thereof.
Because the preferred equity interest was not considered
outstanding for accounting purposes at year-end, it did not
affect the calculation of earnings per share.
NOTE 15. SALES OF EQUIPMENT INSTALLMENT RECEIVABLES
We offer our customers the option to purchase certain
wireless devices in installments over a period of up to
30 months, with the right to trade in the original equipment
for a new device within a set period and have the remaining
unpaid balance satisfied. As of December 31, 2015 and
December 31, 2014, gross equipment installment receivables
of $5,719 and $4,265 were included on our consolidated
balance sheets, of which $3,239 and $2,514 are notes
receivable that are included in “Accounts receivable – net.”
In 2014, we entered into the first of a series of uncommitted
agreements pertaining to the sale of equipment installment
receivables and related security with Citibank and various
other relationship banks as purchasers (collectively, the
Purchasers). Under these agreements, we transferred
the receivables to the Purchasers for cash and additional
consideration upon settlement of the receivables, referred
to as the deferred purchase price. Under the terms of the
arrangements, we continue to bill and collect on behalf
of our customers for the receivables sold. To date, we have
collected and remitted approximately $4,520 (net of fees),
of which $580 was returned as deferred purchase price.
The following table sets forth a summary of equipment
installment receivables sold during 2015 and 2014:
2015 2014
Gross receivables sold $7,436 $4,707
Net receivables sold1 6,704 4,126
Cash proceeds received 4,439 2,528
Deferred purchase price recorded 2,266 1,629
1 Receivables net of allowance, imputed interest and trade-in right guarantees.
The deferred purchase price was initially recorded at
estimated fair value, which was based on remaining
installment payments expected to be collected, adjusted
by the expected timing and value of device trade-ins, and
is subsequently carried at the lower of cost or net realizable