AT&T Wireless 2010 Annual Report Download - page 69

AT&T Inc. 67
Property, plant and equipment is reviewed for recoverability
whenever events or changes in circumstances indicate that
the carrying amount may not be recoverable. An impairment
loss shall be recognized only if the carrying amount of a
long-lived asset is not recoverable. The carrying amount of
a long-lived asset is not recoverable if it exceeds the sum
of the undiscounted cash flows expected to result from the
use and eventual disposition of the asset.
The fair value of a liability for an asset retirement obligation
is recorded in the period in which it is incurred if a reasonable
estimate of fair value can be made. In periods subsequent to
initial measurement, period-to-period changes in the liability
for an asset retirement obligation resulting from the passage
of time and revisions to either the timing or the amount
of the original estimate of undiscounted cash flows are
recognized. The increase in the carrying value of the associated
long-lived asset is depreciated over the corresponding estimated
economic life.
Software Costs It is our policy to capitalize certain costs
incurred in connection with developing or obtaining internal-
use software. Capitalized software costs are included in
“Property, Plant and Equipment” on our consolidated balance
sheets and are primarily amortized over a three-year period.
In addition, there is certain network software that allows the
equipment to provide the features and functions unique to
the AT&T network, which we include in the cost of the
equipment categories for financial reporting purposes.
Business Combinations We expense acquisition-related
costs and restructuring costs. Prior to 2009, we included
acquisition-related costs as part of our purchase accounting,
and we treated restructuring costs that we expected but
were not obligated to incur, including changes to benefit
plans, as if they were a liability assumed at the acquisition
date. We applied current guidance to acquisitions completed
after 2009, including the acquisitions of Centennial
Communications Corp. (Centennial) and certain properties
from Verizon Wireless (see Note 2).
Goodwill and Other Intangible Assets AT&T has four major
classes of intangible assets: goodwill, Federal Communications
Commission (FCC) licenses, other indefinite-lived intangible
assets, made up predominately of the AT&T and other brand
names, and various other finite-lived intangible assets.
Goodwill represents the excess of consideration paid over the
fair value of net assets acquired in business combinations.
FCC licenses provide us with the exclusive right to utilize
certain radio frequency spectrum to provide wireless
communications services. While FCC licenses are issued for
a fixed time (generally 10 years), renewals of FCC licenses
have occurred routinely and at nominal cost. Moreover, we
have determined that there are currently no legal, regulatory,
contractual, competitive, economic or other factors that limit
the useful lives of our FCC licenses. We acquired the rights
to the AT&T and other brand names in previous acquisitions.
We have the effective ability to retain these exclusive rights
permanently at a nominal cost.
Traffic Compensation Expense We use various estimates
and assumptions to determine the amount of traffic
compensation expenses recognized during any reporting
period. Switched traffic compensation costs are accrued
utilizing estimated rates by product, formulated from historical
data and adjusted for known rate changes and volume levels.
Such estimates are adjusted monthly to reflect newly-available
information, such as rate changes and new contractual
agreements. Bills reflecting actual incurred information are
generally not received until three to nine months subsequent
to the end of the reporting period, at which point a final
adjustment is made to the accrued switched traffic
compensation expense. Dedicated traffic compensation
costs are estimated based on the number of circuits and
the average projected circuit costs.
Allowance for Doubtful Accounts We maintain an
allowance for doubtful accounts for estimated losses that
result from the failure or inability of our customers to make
required payments. When determining the allowance, we
consider the probability of recoverability of accounts
receivable based on past experience, taking into account
current collection trends as well as general economic factors,
including bankruptcy rates. Credit risks are assessed based
on historical write-offs, net of recoveries, as well as an
analysis of the aged accounts receivable balances with
allowances generally increasing as the receivable ages.
Accounts receivable may be fully reserved for when specific
collection issues are known to exist, such as pending
bankruptcy or catastrophes.
Inventory Inventories, which are included in “Other current
assets” on our consolidated balance sheets, were $1,303 at
December 31, 2010, and $885 at December 31, 2009.
Wireless handsets and accessories, which are valued at the
lower of cost or market (determined using current replacement
cost) were $1,185 as of December 31, 2010, and $790 as of
December 31, 2009. The remainder of our inventory includes
new and reusable supplies and network equipment of our local
telephone operations, which are stated principally at average
original cost, except that specific costs are used in the case
of large individual items. Inventories of our other subsidiaries
are stated at the lower of cost or market.
Property, Plant and Equipment Property, plant and
equipment is stated at cost, except for assets acquired using
acquisition accounting, which are initially recorded at fair
value (see Note 2). The cost of additions and substantial
improvements to property, plant and equipment is capitalized.
The cost of maintenance and repairs of property, plant and
equipment is charged to operating expenses. Property,
plant and equipment costs are depreciated using straight-
line methods over their estimated economic lives.
Certain subsidiaries follow composite group depreciation
methodology; accordingly, when a portion of their
depreciable property, plant and equipment is retired in
the ordinary course of business, the gross book value
is reclassified to accumulated depreciation; no gain or
loss is recognized on the disposition of this plant.