AT&T Wireless 2014 Annual Report Download - page 51

AT&T INC. | 49
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 other comprehensive income (accumulated
OCI) in the accompanying consolidated balance sheets
(see Note 3). We do not hedge foreign currency translation
risk in the net assets and income we report from these
sources. However, we do hedge a 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 10).
Pension and Other Postretirement Benefits See Note 12
for a comprehensive discussion of our pension and
postretirement benefit expense, including a discussion of
the actuarial assumptions, our policy for recognizing the
associated gains and losses and our method used to
estimate service and interest cost components.
NOTE 2. EARNINGS PER SHARE
A reconciliation of the numerators and denominators of
basic earnings per share and diluted earnings per share
is shown in the table below:
Year Ended December 31, 2014 2013 2012
Numerators
Numerator for basic earnings
per share:
Net income $6,518 $18,553 $7,539
Less: Net income attributable
to noncontrolling interest (294) (304) (275)
Net income attributable to AT&T 6,224 18,249 7,264
Dilutive potential common shares:
Share-based payment 13 12 12
Numerator for diluted earnings
per share $6,237 $18,261 $7,276
Denominators (000,000)
Denominator for basic earnings
per share:
Weighted-average number of
common shares outstanding 5,205 5,368 5,801
Dilutive potential common
shares:
Share-based payment
(in shares) 16 17 20
Denominator for diluted
earnings per share 5,221 5,385 5,821
Basic earnings per share
attributable to AT&T $ 1.19 $ 3.39 $ 1.25
Diluted earnings per share
attributable to AT&T $ 1.19 $ 3.39 $ 1.25
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 using 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
approach. 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 (see Note 7). Customer lists and
relationships are amortized using primarily the sum-of-the-
months-digits method of amortization over the 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.
Advertising Costs We expense advertising costs for
advertising products and services or for promoting our
corporate image as we incur them (see Note 15).
Traffic Compensation Expense We use various estimates
and assumptions to determine the amount of traffic
compensation expense recognized during any reporting
period. Switched traffic compensation costs are accrued
utilizing estimated rates and volumes by product,
formulated from historical data and adjusted for known
rate changes. 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 within three
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.
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