AT&T Wireless 2009 Annual Report Download - page 69

AT&T 09 AR 67
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. The analysis of receivables is performed
monthly, and the allowances are adjusted accordingly.
Inventory Inventories, which are included in “Other
current assets” on our consolidated balance sheets, were
$885 at December 31, 2009, and $862 at December 31, 2008.
Wireless handsets and accessories, which are valued at the
lower of cost or market value (determined using current
replacement cost) were $790 as of December 31, 2009,
and $749 as of December 31, 2008. 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 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
is 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.
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 and exceeds its fair value.
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
Our wireless service revenues are billed either in advance,
arrears or are prepaid. Our wireless Rollover® rate plans
include a feature whereby unused anytime minutes do not
expire each month but rather are available, under certain
conditions, for future use for a period not to exceed one year
from the date of purchase. Using historical subscriber usage
patterns, we defer these revenues based on an estimate of
the portion of unused minutes expected to be utilized prior
to expiration.
We record an estimated revenue reduction for future
adjustments to customer accounts, other than a provision for
doubtful accounts, at the time revenue is recognized based on
historical experience. Service revenues also include billings to
our customers for various regulatory fees imposed on us by
governmental authorities. Cash incentives given to customers
are recorded as a reduction of revenue. When required as part
of providing service, revenues and associated expenses related
to nonrefundable, upfront service activation and setup fees
are deferred and recognized over the associated service
contract period or customer life (for wireless). If no service
contract exists, those fees are recognized over the average
customer relationship period. Associated expenses are
deferred only to the extent of such deferred revenue.
For contracts that involve the bundling of services, revenue
is allocated to the services based on their relative fair value.
We record the sale of equipment to customers as gross
revenue when we are the primary obligor in the arrangement,
when title is passed and when the products are accepted by
customers. For agreements involving the resale of third-party
services in which we are not considered the primary obligor
of the arrangement, we record the revenue net of the
associated costs incurred. For contracts in which we provide
customers with an indefeasible right to use network
capacity, we recognize revenue ratably over the stated life
of the agreement.
We recognize revenues and expenses related to publishing
directories on the amortization method, which recognizes
revenues and expenses ratably over the life of the directory
title, typically 12 months.
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. These costs are adjusted
to reflect actual expenses over the three months following
the end of the reporting period as bills are received.