Acquisitions, Dispositions And Other Adjustments

3 Months Ended

Mar. 31, 2019

Acquisitions, Dispositions And Other Adjustments

Acquisitions, Dispositions And Other Adjustments [Text Block]

NOTE 8. ACQUISITIONS, DISPOSITIONS AND OTHER ADJUSTMENTS

Acquisitions

Time Warner  On June 14, 2018, we completed our acquisition of Time Warner, a leader in media and entertainment whose major businesses encompass an array of some of the most respected media brands. The deal combines Time Warner’s vast library of content and ability to create new premium content for audiences around the world with our extensive customer relationships and distribution, one of the world's largest pay-TV subscriber bases and scale in TV, mobile and broadband distribution. We expect that the transaction will advance our direct-to-consumer efforts and provide us with the ability to develop innovative new offerings.

In July 2018, the U.S. Department of Justice (DOJ) appealed the U.S. District Court’s decision permitting the merger. On February 26, 2019, the D.C. Circuit unanimously affirmed our win. AT&T’s representations to the DOJ regarding its operation of Turner expired on February 28, 2019. The DOJ did not ask the D.C. Circuit to rehear its appeal before the applicable April 12, 2019 deadline, and it stated publicly on February 26, 2018 that “[t]he department has no plans to seek further review” of the D.C. Circuit’s decision. The DOJ’s deadline to file a petition for writ of certiorari with the United States Supreme Court is May 28, 2019.

We paid Time Warner shareholders $36,599 in AT&T stock and $42,100 in cash. Total consideration, including share-based payment arrangements and other adjustments totaled $79,358, excluding Time Warner’s net debt at acquisition. The fair values of the assets acquired and liabilities assumed were preliminarily determined using the income, cost and market approaches. The fair value measurements were primarily based on significant inputs that are not observable in the market and thus represent a Level 3 measurement as defined in ASC 820, “Fair Value Measurement,” other than cash and long-term debt acquired in the acquisition. The income approach was primarily used to value the intangible assets, consisting primarily of distribution network, released TV and film content, in-place advertising network, trade names, and franchises. The income approach estimates fair value for an asset based on the present value of cash flow projected to be generated by the asset. Projected cash flow is discounted at a required rate of return that reflects the relative risk of achieving the cash flow and the time value of money. The cost approach, which estimates value by determining the current cost of replacing an asset with another of equivalent economic utility, was used, as appropriate, for plant, property and equipment. The cost to replace a given asset reflects the estimated reproduction or replacement cost for the property, less an allowance for loss in value due to depreciation.

The following table summarizes the preliminary estimated fair values of the Time Warner assets acquired and liabilities assumed and related deferred income taxes as of the acquisition date:

Assets acquired
Cash	$	1,889
Accounts receivable		9,052
All other current assets		2,913
Noncurrent inventory and theatrical film and television production costs		5,591
Property, plant and equipment		4,785
Intangible assets subject to amortization
Distribution network		18,040
Released television and film content		10,806
Trademarks and trade names		18,081
Other		10,300
Investments and other assets		9,449
Goodwill		38,569
Total assets acquired		129,475
Liabilities assumed
Current liabilities, excluding current portion of long-term debt		8,303
Debt maturing within one year		4,471
Long-term debt		18,394
Other noncurrent liabilities		18,948
Total liabilities assumed		50,116
Net assets acquired		79,359
Noncontrolling interest		(1)
Aggregate value of consideration paid	$	79,358

These estimates are preliminary in nature and subject to adjustments, which could be material. Any necessary adjustments will be finalized within one year from the date of acquisition. Substantially all the receivables acquired are expected to be collectible. We have not identified any material unrecorded pre-acquisition contingencies where the related asset or liability, or an impairment is probable and the amount can be reasonably estimated. Goodwill is calculated as the difference between the acquisition date fair value of the consideration transferred and the fair value of the net assets acquired, and represents the future economic benefits that we expect to achieve as a result of the acquisition. Prior to the finalization of the purchase price allocation, if information becomes available that would indicate it is probable that unknown events had occurred and the amounts can be reasonably estimated, such items will be included in the final purchase price allocation and may change goodwill. Purchased goodwill is not expected to be deductible for tax purposes. As we finalize the valuation of assets acquired and liabilities assumed, we will determine to which reporting units within the WarnerMedia segment any changes in goodwill should be recorded.