Sprint - Nextel 2011 Annual Report Download - page 52

Table of Contents
the reasons for the decline when assessing whether a potential goodwill impairment exists. We believe that short-term fluctuations in share price may not necessarily
reflect underlying aggregate fair value of our segments, which are our reporting units. We also believe that the market price of our stock may not be representative of the
fair value of our overall business since it does not include a control premium that a market participant may be willing to pay for the ability to take advantage of synergies
and other benefits that could be derived from control of the Company. However, if a decline in our market capitalization below book value persists for an extended period
of time, we would likely consider the decline to be indicative of a decline in the estimated fair value at the reporting unit level.
Differences in the Company's actual future cash flows, operating results, growth rates, capital expenditures, cost of capital and discount rates as compared to
the estimates utilized for the purpose of estimating the fair value of each reporting unit, as well as a decline in the Company's stock price and related market capitalization,
could affect the results of our annual goodwill assessment and, accordingly, potentially lead to a future goodwill impairment.
The determination of the estimated fair value of the wireless reporting unit requires significant estimates and assumptions. These estimates and assumptions
primarily include, but are not limited to, transactions within the wireless industry and related control premiums, discount rate, terminal growth rates, operating income
before depreciation and amortization (OIBDA) and capital expenditures forecasts. Due to the inherent uncertainty involved in making those estimates, actual results could
differ from those estimates. The merits of each significant assumption, both individually and in the aggregate, used to estimate the fair value of a reporting unit are
evaluated for reasonableness. A decline in the estimated fair value of our wireless reporting unit of 10% would not result in an impairment of our goodwill.
FCC licenses and our Sprint and Boost Mobile trademarks have been identified as indefinite-lived intangible assets, in addition to goodwill, after considering
the expected use of the assets, the regulatory and economic environment within which they are being used, and the effects of obsolescence on their use. When required,
Sprint assesses the recoverability of other indefinite-lived intangibles, including FCC licenses which are carried as a single unit of accounting. In assessing recoverability
of FCC licenses, we estimate the fair value of such licenses using the Greenfield direct value method, which approximates value through estimating the discounted future
cash flows of a hypothetical start-up business. Assumptions key in estimating fair value under this method include, but are not limited to, capital expenditures, subscriber
activations and deactivations, market share achieved, tax rates in effect and discount rate. A one percent decline in our assumed revenue growth rate used to estimate
terminal value, a one percent decline in our assumed net cash flows or a one percent adverse change in any of the key assumptions referred to above would not result in an
impairment of our FCC licenses as of the most recent testing date. A decline in the estimated fair value of FCC licenses of approximately 10% also would not result in an
impairment of the carrying value.
NEW ACCOUNTING PRONOUNCEMENTS
In September 2009, the Financial Accounting Standards Board (FASB) modified the accounting for Multiple-Deliverable Revenue Arrangements and Certain
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evenue Arrangements that Include Software Elements. These modifications alter the methods previously required for allocating consideration received in multiple-
element arrangements to require revenue allocation based on a relative selling price method, including arrangements containing software components and non-software
components that function together to deliver the product's essential functionality. These modifications were effective beginning in the first quarter 2011 and did not have a
material effect on our consolidated financial statements.
In July 2010, the FASB amended the requirements for Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses. As
a result of these amendments, an entity is required to disaggregate by portfolio segment or class certain existing disclosures and provide certain new disclosures about its
financing receivables and related allowance for credit losses. The new disclosures as of the end of the reporting period are effective for the fiscal year ending
December 31, 2010, while the disclosures about activity that occurs during a reporting period were effective for the first quarter 2011, neither of which had a material
effect on our consolidated financial statements.
In May 2011, the FASB issued authoritative guidance regarding Fair Value Measurement: Amendments to Achieve Common Fair Value Measurement and
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isclosure Requirements in U.S. GAAP and IFRSs, which resulted in common requirements for measuring fair value and for disclosing information about fair value
measurement
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