Sprint - Nextel 2012 Annual Report Download - page 63

Table of Contents
assumptions about technology evolution. When these factors indicate that an asset's useful life is different from the previous assessment, we
depreciate the remaining book values prospectively over the adjusted remaining estimated useful life. Depreciation rates for assets using the group life
method are revised periodically as required under this method. Changes made as a result of depreciable life studies and rate changes generally do not
have a material effect on depreciation expense.
Long
- lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be
recoverable. Long
- lived asset groups were determined based upon certain factors including assessing the lowest level for which identifiable cash
flows are largely independent of the cash flows of other groups of assets and liabilities. If the total of the expected undiscounted future cash flows is
less than the carrying amount of our assets, a loss is recognized for the difference between the estimated fair value and carrying value of the assets.
Impairment analyses, when performed, are based on our current business and technology strategy, views of growth rates for our business, anticipated
future economic and regulatory conditions and expected technological availability. Our estimate of undiscounted cash flows exceeded the carrying
value of these assets by more than 10%. If we continue to have operational challenges, including retaining and attracting subscribers, future cash
flows of the Company may not be sufficient to recover the carrying value of our wireless asset group, and we could record asset impairments that are
material to Sprint's consolidated results of operations and financial condition.
In addition to the analysis described above, certain assets that have not yet been deployed in the business, including network equipment,
cell site development costs and software in development, are periodically assessed to determine recoverability. Network equipment and cell site
development costs are expensed whenever events or changes in circumstances cause the Company to conclude the assets are no longer needed to
meet management's strategic network plans and will not be deployed. Software development costs are expensed when it is no longer probable that the
software project will be deployed. Network equipment that has been removed from the network is also periodically assessed to determine
recoverability. In connection with Network Vision, including the decommissioning of the Nextel platform, management may conclude in future periods
that certain equipment will never be either deployed or redeployed, in which case non
- cash charges that could be material to our consolidated financial
statements would be recognized. Refer to Results of Operations for additional information on asset impairments.
Evaluation of Goodwill and Indefinite
- Lived Intangible Assets for Impairment
Goodwill represents the excess of purchase price paid over the fair value assigned to the net tangible and identifiable intangible assets of
acquired businesses. Sprint evaluates the carrying value of goodwill annually or more frequently if events or changes in circumstances indicate that
the carrying amount may exceed estimated fair value. Our analysis includes a comparison of the estimated fair value of the reporting unit to which
goodwill applies to the carrying value, including goodwill, of that reporting unit.
We regularly assess whether any indicators of impairment exist, which requires a significant amount of judgment. Such indicators may
include a sustained significant decline in our share price and market capitalization; a decline in our expected future cash flows; a significant adverse
change in legal factors or in the business climate; unanticipated competition; the testing for recoverability of a significant asset group within a
reporting unit; and/or slower growth rates, among others. Any adverse change in these factors could result in an impairment up to the carrying value
of our goodwill, which was
$359 million as of December 31, 2012 .
The Company recognizes that our market capitalization, the product of our traded stock price and shares outstanding, is subject to
volatility and, during certain periods, has been below our shareholders' equity book value. Accordingly we monitor changes in our market
capitalization between annual impairment tests to determine whether declines, if any, should necessitate an interim review of goodwill for impairment.
We consider a decline in our market capitalization that corresponds to an overall deterioration in stock market conditions to be less of an indicator of
goodwill impairment than a unilateral decline in our market capitalization, which could result from adverse changes in our underlying operating
performance, cash flows, financial condition and/or liquidity. In the event that our market capitalization does decline below its book value, we consider
the length and severity of the decline and 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. If a
decline in our market capitalization below book value persists for an extended period of
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