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Microsoft Excel LibreOffice Calc


Analysis of Goodwill and Intangible Assets

Difficulty: Advanced


Goodwill and Intangible Assets Accounting Policy

AT&T has five major classes of intangible assets: goodwill; licenses, which include Federal Communications Commission (FCC) and other wireless licenses and orbital slots; other indefinite-lived intangible assets, primarily made up of the AT&T and international DIRECTV trade names including SKY; customer lists; and various other finite-lived intangible assets.

Goodwill represents the excess of consideration paid over the fair value of identifiable net assets acquired in business combinations. Wireless licenses (including FCC licenses) provide AT&T with the exclusive right to utilize certain radio frequency spectrum to provide wireless communications services. While wireless licenses are issued for a fixed period of time (generally 10 years), renewals of wireless licenses have occurred routinely and at nominal cost. Moreover, AT&T has determined that there are currently no legal, regulatory, contractual, competitive, economic or other factors that limit the useful lives of the wireless licenses. Orbital slots represent the space in which AT&T operates the broadcast satellites that support the digital video entertainment service offerings. Similar to AT&T's wireless licenses, there are no factors that limit the useful lives of the orbital slots. AT&T acquired the rights to the AT&T and other trade names in previous acquisitions. AT&T has the effective ability to retain these exclusive rights permanently at a nominal cost.

Goodwill, 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 AT&T's principal operating segments or one level below them (Business Solutions, Entertainment Group, Consumer Mobility, and Mexico Wireless, Brazil and PanAmericana in the International segment), to the fair value using both discounted cash flow as well as market multiple approaches. Wireless licenses are tested on an aggregate basis, consistent with AT&T's use of the licenses on a national scope, using a discounted cash flow approach. Orbital slots are similarly aggregated for purposes of impairment testing. Trade 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. 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 AT&T's future cash flows. The remaining finite-lived intangible assets are generally amortized using the straight-line method.

Source: 10-K (filing date: 2018-02-20).


Goodwill and Intangible Assets Disclosure

AT&T Inc., Statement of Financial Position, Goodwill and Intangible Assets

USD $ in millions

Microsoft Excel LibreOffice Calc
Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014 Dec 31, 2013
Wireless acquisitions hidden hidden hidden hidden hidden
BellSouth Corporation hidden hidden hidden hidden hidden
DIRECTV hidden hidden hidden hidden hidden
AT&T Corp. hidden hidden hidden hidden hidden
Mexican wireless hidden hidden hidden hidden hidden
Customer lists and relationships hidden hidden hidden hidden hidden
Trade name hidden hidden hidden hidden hidden
Other hidden hidden hidden hidden hidden
Amortized intangible assets, gross carrying amount hidden hidden hidden hidden hidden
Accumulated amortization hidden hidden hidden hidden hidden
Amortized intangible assets, net hidden hidden hidden hidden hidden
Wireless licenses hidden hidden hidden hidden hidden
Orbital slots hidden hidden hidden hidden hidden
Licenses hidden hidden hidden hidden hidden
Trade names hidden hidden hidden hidden hidden
Indefinite-lived intangible assets not subject to amortization hidden hidden hidden hidden hidden
Other intangible assets hidden hidden hidden hidden hidden
Goodwill hidden hidden hidden hidden hidden
Goodwill and other intangible assets hidden hidden hidden hidden hidden

Based on: 10-K (filing date: 2018-02-20), 10-K (filing date: 2017-02-17), 10-K (filing date: 2016-02-18), 10-K (filing date: 2015-02-20), 10-K (filing date: 2014-02-21).

Item Description The company
Other intangible assets Sum of the carrying amounts of all intangible assets, excluding goodwill, as of the balance sheet date, net of accumulated amortization and impairment charges. AT&T Inc.'s other intangible assets declined from 2015 to 2016 and from 2016 to 2017.
Goodwill Amount after accumulated impairment loss of an asset representing future economic benefits arising from other assets acquired in a business combination that are not individually identified and separately recognized. AT&T Inc.'s goodwill increased from 2015 to 2016 and from 2016 to 2017.
Goodwill and other intangible assets Sum of the carrying amounts of all intangible assets, including goodwill, as of the balance sheet date, net of accumulated amortization and impairment charges. AT&T Inc.'s goodwill and other intangible assets declined from 2015 to 2016 and from 2016 to 2017.

Analyst Adjustments: Removal of Goodwill

AT&T Inc., adjustments to financial data

USD $ in millions

Microsoft Excel LibreOffice Calc
Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014 Dec 31, 2013
Adjustment to Total Assets
Total assets (as reported) hidden hidden hidden hidden hidden
Less: Goodwill hidden hidden hidden hidden hidden
Total assets (adjusted) hidden hidden hidden hidden hidden
Adjustment to Stockholders' Equity Attributable To AT&T
Stockholders' equity attributable to AT&T (as reported) hidden hidden hidden hidden hidden
Less: Goodwill hidden hidden hidden hidden hidden
Stockholders' equity attributable to AT&T (adjusted) hidden hidden hidden hidden hidden

Based on: 10-K (filing date: 2018-02-20), 10-K (filing date: 2017-02-17), 10-K (filing date: 2016-02-18), 10-K (filing date: 2015-02-20), 10-K (filing date: 2014-02-21).


AT&T Inc., Financial Data: Reported vs. Adjusted


Adjusted Ratios: Removal of Goodwill (Summary)

AT&T Inc., adjusted ratios

Microsoft Excel LibreOffice Calc
Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014 Dec 31, 2013
Total Asset Turnover
Reported total asset turnover hidden hidden hidden hidden hidden
Adjusted total asset turnover hidden hidden hidden hidden hidden
Financial Leverage
Reported financial leverage hidden hidden hidden hidden hidden
Adjusted financial leverage hidden hidden hidden hidden hidden
Return on Equity (ROE)
Reported ROE hidden hidden hidden hidden hidden
Adjusted ROE hidden hidden hidden hidden hidden
Return on Assets (ROA)
Reported ROA hidden hidden hidden hidden hidden
Adjusted ROA hidden hidden hidden hidden hidden

Based on: 10-K (filing date: 2018-02-20), 10-K (filing date: 2017-02-17), 10-K (filing date: 2016-02-18), 10-K (filing date: 2015-02-20), 10-K (filing date: 2014-02-21).

Ratio Description The company
Adjusted total asset turnover An activity ratio calculated as total revenue divided by adjusted total assets. AT&T Inc.'s adjusted total asset turnover improved from 2015 to 2016 but then deteriorated significantly from 2016 to 2017.
Adjusted financial leverage A measure of financial leverage calculated as adjusted total assets divided by adjusted total equity.
Financial leverage is the extent to which a company can effect, through the use of debt, a proportional change in the return on common equity that is greater than a given proportional change in operating income.
AT&T Inc.'s adjusted financial leverage increased from 2015 to 2016 but then declined significantly from 2016 to 2017.
Adjusted ROE A profitability ratio calculated as net income divided by adjusted shareholders' equity. AT&T Inc.'s adjusted ROE deteriorated from 2015 to 2016 but then improved from 2016 to 2017 exceeding 2015 level.
Adjusted ROA A profitability ratio calculated as net income divided by adjusted total assets. AT&T Inc.'s adjusted ROA deteriorated from 2015 to 2016 but then improved from 2016 to 2017 exceeding 2015 level.

AT&T Inc., Ratios: Reported vs. Adjusted


Adjusted Total Asset Turnover

Microsoft Excel LibreOffice Calc
Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014 Dec 31, 2013
As Reported
Selected Financial Data (USD $ in millions)
Operating revenues hidden hidden hidden hidden hidden
Total assets hidden hidden hidden hidden hidden
Ratio
Total asset turnover1 hidden hidden hidden hidden hidden
Adjusted for Goodwill
Selected Financial Data (USD $ in millions)
Operating revenues hidden hidden hidden hidden hidden
Adjusted total assets hidden hidden hidden hidden hidden
Ratio
Adjusted total asset turnover2 hidden hidden hidden hidden hidden

Based on: 10-K (filing date: 2018-02-20), 10-K (filing date: 2017-02-17), 10-K (filing date: 2016-02-18), 10-K (filing date: 2015-02-20), 10-K (filing date: 2014-02-21).

2017 Calculations

1 Total asset turnover = Operating revenues ÷ Total assets
= hidden ÷ hidden = hidden

2 Adjusted total asset turnover = Operating revenues ÷ Adjusted total assets
= hidden ÷ hidden = hidden

Ratio Description The company
Adjusted total asset turnover An activity ratio calculated as total revenue divided by adjusted total assets. AT&T Inc.'s adjusted total asset turnover improved from 2015 to 2016 but then deteriorated significantly from 2016 to 2017.

Adjusted Financial Leverage

Microsoft Excel LibreOffice Calc
Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014 Dec 31, 2013
As Reported
Selected Financial Data (USD $ in millions)
Total assets hidden hidden hidden hidden hidden
Stockholders' equity attributable to AT&T hidden hidden hidden hidden hidden
Ratio
Financial leverage1 hidden hidden hidden hidden hidden
Adjusted for Goodwill
Selected Financial Data (USD $ in millions)
Adjusted total assets hidden hidden hidden hidden hidden
Adjusted stockholders' equity attributable to AT&T hidden hidden hidden hidden hidden
Ratio
Adjusted financial leverage2 hidden hidden hidden hidden hidden

Based on: 10-K (filing date: 2018-02-20), 10-K (filing date: 2017-02-17), 10-K (filing date: 2016-02-18), 10-K (filing date: 2015-02-20), 10-K (filing date: 2014-02-21).

2017 Calculations

1 Financial leverage = Total assets ÷ Stockholders' equity attributable to AT&T
= hidden ÷ hidden = hidden

2 Adjusted financial leverage = Adjusted total assets ÷ Adjusted stockholders' equity attributable to AT&T
= hidden ÷ hidden = hidden

Ratio Description The company
Adjusted financial leverage A measure of financial leverage calculated as adjusted total assets divided by adjusted total equity.
Financial leverage is the extent to which a company can effect, through the use of debt, a proportional change in the return on common equity that is greater than a given proportional change in operating income.
AT&T Inc.'s adjusted financial leverage increased from 2015 to 2016 but then declined significantly from 2016 to 2017.

Adjusted Return on Equity (ROE)

Microsoft Excel LibreOffice Calc
Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014 Dec 31, 2013
As Reported
Selected Financial Data (USD $ in millions)
Net income attributable to AT&T hidden hidden hidden hidden hidden
Stockholders' equity attributable to AT&T hidden hidden hidden hidden hidden
Ratio
ROE1 hidden hidden hidden hidden hidden
Adjusted for Goodwill
Selected Financial Data (USD $ in millions)
Net income attributable to AT&T hidden hidden hidden hidden hidden
Adjusted stockholders' equity attributable to AT&T hidden hidden hidden hidden hidden
Ratio
Adjusted ROE2 hidden hidden hidden hidden hidden

Based on: 10-K (filing date: 2018-02-20), 10-K (filing date: 2017-02-17), 10-K (filing date: 2016-02-18), 10-K (filing date: 2015-02-20), 10-K (filing date: 2014-02-21).

2017 Calculations

1 ROE = 100 × Net income attributable to AT&T ÷ Stockholders' equity attributable to AT&T
= 100 × hidden ÷ hidden = hidden

2 Adjusted ROE = 100 × Net income attributable to AT&T ÷ Adjusted stockholders' equity attributable to AT&T
= 100 × hidden ÷ hidden = hidden

Ratio Description The company
Adjusted ROE A profitability ratio calculated as net income divided by adjusted shareholders' equity. AT&T Inc.'s adjusted ROE deteriorated from 2015 to 2016 but then improved from 2016 to 2017 exceeding 2015 level.

Adjusted Return on Assets (ROA)

Microsoft Excel LibreOffice Calc
Dec 31, 2017 Dec 31, 2016 Dec 31, 2015 Dec 31, 2014 Dec 31, 2013
As Reported
Selected Financial Data (USD $ in millions)
Net income attributable to AT&T hidden hidden hidden hidden hidden
Total assets hidden hidden hidden hidden hidden
Ratio
ROA1 hidden hidden hidden hidden hidden
Adjusted for Goodwill
Selected Financial Data (USD $ in millions)
Net income attributable to AT&T hidden hidden hidden hidden hidden
Adjusted total assets hidden hidden hidden hidden hidden
Ratio
Adjusted ROA2 hidden hidden hidden hidden hidden

Based on: 10-K (filing date: 2018-02-20), 10-K (filing date: 2017-02-17), 10-K (filing date: 2016-02-18), 10-K (filing date: 2015-02-20), 10-K (filing date: 2014-02-21).

2017 Calculations

1 ROA = 100 × Net income attributable to AT&T ÷ Total assets
= 100 × hidden ÷ hidden = hidden

2 Adjusted ROA = 100 × Net income attributable to AT&T ÷ Adjusted total assets
= 100 × hidden ÷ hidden = hidden

Ratio Description The company
Adjusted ROA A profitability ratio calculated as net income divided by adjusted total assets. AT&T Inc.'s adjusted ROA deteriorated from 2015 to 2016 but then improved from 2016 to 2017 exceeding 2015 level.