AT&T Wireless 2010 Annual Report Download - page 70

Notes to Consolidated Financial Statements (continued)
Dollars in millions except per share amounts
68 AT&T Inc.
areas across 18 states. The fair value of the acquired net
assets of $1,439 included $368 of property, plant and
equipment, $937 of goodwill, $765 of FCC licenses, and
$224 of customer lists and other intangible assets.
As the value of certain assets and liabilities are preliminary
in nature, they are subject to adjustment as additional
information is obtained about the facts and circumstances
that existed at the acquisition date. When the valuation is
final, any changes to the preliminary valuation of acquired
assets and liabilities could result in adjustments to goodwill.
Centennial In December 2010, we completed our acquisition
accounting for Centennial. As of December 31, 2010, the
fair value measurement of Centennial’s net assets acquired
included $1,518 of goodwill, $655 of FCC licenses, and
$449 of customer lists and other intangible assets.
Other Acquisitions In 2010, we acquired $265 of wireless
spectrum from various companies, primarily in support of
our ongoing network enhancement efforts, and a home
monitoring platform developer and other entities for $86
in cash. During 2009, we acquired a provider of mobile
application solutions and a security consulting business
for a combined $50 before closing costs.
During 2008, we acquired Easterbrooke Cellular Corporation,
Windstream Wireless, Wayport Inc., and the remaining 64%
of Edge Wireless for a combined $663, recording $449 in
goodwill. The acquisitions of these companies were designed
to expand our wireless and Wi-Fi coverage area.
Pending Acquisition In December 2010, we agreed to
purchase spectrum licenses in the Lower 700 MHz frequency
band from Qualcomm Incorporated (Qualcomm) for
approximately $1,925 in cash. The spectrum covers more
than 300 million people total nationwide, including 12 MHz
of Lower 700 MHz D and E block spectrum covering more than
70 million people in five of the top 15 metropolitan areas and
6 MHz of Lower 700 MHz D block spectrum covering more
than 230 million people across the rest of the U.S. We plan to
deploy this spectrum as supplemental downlink capacity, using
carrier aggregation technology once compatible handsets and
network equipment are developed. The transaction is subject
to regulatory approvals and other customary closing conditions.
In February 2011, the waiting period under the Hart-Scott-
Rodino Act expired without the Department of Justice (DOJ)
requesting additional information. AT&T and Qualcomm
anticipate closing the purchase in the second half of 2011.
Dispositions
Sale of Sterling Operations In August 2010, we sold our
Sterling Commerce Inc. (Sterling) subsidiary to International
Business Machines Corporation (IBM) for approximately $1,400
in cash. Sterling provides business applications and integration
solutions to approximately 18,000 customers worldwide.
In conjunction with the sale, we divested $649 of goodwill
and other intangible assets. We also entered into a transition
services agreement with IBM related to short-term support
of Sterling’s operations after the sale.
Goodwill, FCC licenses and other indefinite-lived intangible
assets are not amortized but are tested at least annually for
impairment. The testing is performed on the value as of
October 1 each year, and is generally composed of comparing
the book value of the assets to their fair value. Goodwill is
tested by comparing the book value of each reporting unit,
deemed to be our principle operating segments (Wireless,
Wireline and Advertising Solutions), to the fair value of those
reporting units calculated under a market multiple approach
as well as a discounted cash flow approach. FCC licenses
are tested for impairment on an aggregate basis, consistent
with the management of the business on a national scope.
Brand names are tested by comparing the book value to a
fair value calculated using a discounted cash flow approach
on a presumed royalty rate derived from the revenues
related to the brand name.
Intangible assets that have finite useful lives are amortized
over their useful lives, a weighted-average of 7.9 years
(7.9 years for customer lists and relationships and 10.3 years
for other). Customer lists and relationships are amortized using
primarily the sum-of-the-months-digits method of amortization
over the expected period in which those relationships are
expected to contribute to our future cash flows. The remaining
finite-lived intangible assets are generally amortized using the
straight-line method of amortization.
Advertising Costs We expense advertising costs for
advertising products and services or for promoting our
corporate image as we incur them (see Note 14).
Foreign Currency Translation We are exposed to foreign
currency exchange risk through our foreign affiliates and
equity investments in foreign companies. Our foreign
subsidiaries and foreign investments generally report their
earnings in their local currencies. We translate our share of
their foreign assets and liabilities at exchange rates in effect
at the balance sheet dates. We translate our share of their
revenues and expenses using average rates during the year.
The resulting foreign currency translation adjustments are
recorded as a separate component of accumulated OCI in
the accompanying consolidated balance sheets. We do not
hedge foreign currency translation risk in the net assets
and income we report from these sources. However, we do
hedge a large portion of the foreign currency exchange risk
involved in anticipation of highly probable foreign currency-
denominated transactions, which we explain further in our
discussion of our methods of managing our foreign currency
risk (see Note 9).
NOTE 2. ACQUISITIONS, DISPOSITIONS, AND
OTHER ADJUSTMENTS
Acquisitions
Wireless Properties Transactions In June 2010, we
acquired certain wireless properties, including FCC licenses
and network assets, from Verizon Wireless for $2,376 in cash.
The assets primarily represent former Alltel Wireless assets
and served approximately 1.6 million subscribers in 79 service