Accounting rule change may lead Time Warner to bring billions more to AT&T deal

A dramatic change in how companies will be required to recognize revenues starting in 2018 may give the minimal promised synergies from AT&T Inc.’s and Time Warner Inc.’s proposed combination a multibillion-dollar boost.

The companies have said they are expecting to produce synergies of $1 billion within three years of the closing of the deal, which analysts are expecting will be closely scrutinized by regulators.

In its most recent 10Q filing with the Securities and Exchange Commission, AT&T T, +0.38% said that the new accounting standard for revenue recognition will likely have the most impact on how it records revenue from contracts with its customers. Ignoring the effect of the Time Warner TWX, +1.53% acquisition, the change would primarily affect its allocation of contract revenues between services and equipment like handsets, and the timing of when those revenues are recognized.

“The fact that AT&T and Time-Warner share an auditor could have a significant impact on how they decide various accounting issues such as the valuation of assets and liabilities acquired and the amount of goodwill recognized.” Lubomir P. Litov, associate professor, finance, University of Oklahoma

Time Warner, however, brings a programming licensing revenue backlog of $6.9 billion as of September 30, 2016 to the deal table. Programming licensing backlog represents an amount of future revenues not yet recorded by Time Warner, based on existing cash contracts for the worldwide licensing of theatrical and television product for premium cable, basic cable, network and syndicated television and other services such as subscription-video-on-demand.

Tom Selling, author of the blog Accounting Onion, told MarketWatch that under the new standard licenses could be treated as rights which transfer at a point in time, starting when the customer can direct the use of and obtain the benefits from the license.

Read full story at http://www.marketwatch.com/story/accounting-rule-change-may-lead-time-warner-to-bring-billions-more-to-att-deal-2016-11-07