AT&T Wireless 2012 Annual Report Download - page 67

AT&T Inc. | 65
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, we recognize period-to-
period changes in the liability resulting from the passage
of time and revisions to either the timing or the amount
of the original estimate. 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.
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
brand, 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 period of 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.
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 compares 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 principal
operating segments (Wireless and Wireline), to the fair value
of those reporting units calculated under a discounted cash
flow approach as well as a market multiple approach. FCC
licenses are tested for impairment on an aggregate basis,
consistent with the management of the business on a national
scope. We perform our test of the fair values of FCC licenses
using a discounted cash flow model. Brand names are tested
by comparing the book value to a fair value calculated using
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 record an expense
to 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 $1,036
at December 31, 2012, and $1,188 at December 31, 2011.
Wireless handsets and accessories, which are valued at
the lower of cost or market (determined using current
replacement cost) were $888 as of December 31, 2012,
and $1,082 as of December 31, 2011. 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, or specific costs
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 5). 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, and no gain
or loss is recognized on the disposition of these assets.
Property, plant and equipment is reviewed for recoverability
whenever events or changes in circumstances indicate that
the carrying amount may not be recoverable. We recognize
an impairment loss when 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