Sprint - Nextel 2013 Annual Report Download - page 129

Table of Contents
Index to Consolidated Financial Statements
SPRINT CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
On July 9, 2013, Sprint Communications completed the acquisition of the remaining equity interests in Clearwire that it did not already own for
approximately
$3.5 billion , net of cash acquired, or $5.00 per share (Clearwire Acquisition). The consideration paid was allocated to assets acquired and liabilities
assumed based on their estimated preliminary fair values at the time of the Clearwire Acquisition. The effects of the Clearwire Acquisition are included in the
Predecessor period financial information and are therefore included in the allocation of the consideration transferred at the closing date of the SoftBank Merger.
Consolidation Policies and Estimates
The consolidated financial statements include our accounts, those of our 100% owned subsidiaries, and subsidiaries we control or in which we have
a controlling financial interest. All intercompany transactions and balances have been eliminated in consolidation. Prior to the close of the Clearwire
Acquisition, we applied the equity method of accounting to the investment in Clearwire because we did not have a controlling vote or the ability to control
operating and financial policies.
The consolidated financial statements are prepared in conformity with accounting principles generally accepted in the United States (U.S. GAAP).
This requires management of the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities, revenues and expenses
and the disclosure of contingent assets and liabilities as of the date of the consolidated financial statements. Significant estimates and assumptions are used for,
but are not limited to, depreciable lives of assets, fair value of identified purchased tangible and intangible assets in a business combination, fair value
assessments for purposes of impairment testing, and litigation reserves.
We completed several significant transactions in 2013 (See Note 3. Significant Transactions). Assigning fair market values to the assets acquired
and liabilities assumed at the date of an acquisition or merger requires the use of significant judgments regarding estimates and assumptions. While the ultimate
responsibility resides with management, for material acquisitions or mergers, we retain the services of certified valuation specialists to assist with assigning
estimated values to certain acquired assets and assumed liabilities, including intangible assets.
Acquired intangible assets, excluding goodwill, are valued using a discounted cash flow methodology based on future cash flows specific to the
type of intangible asset purchased. The estimated fair value of FCC licenses were determined by the use of the Greenfield direct value method, which estimates
fair value through estimating discounted future cash flows of a hypothetical start
- up business. The fair value of customer relationships was estimated using an
excess earnings approach, which estimates fair value through estimating discounted future cash flows of existing subscribers as of the measurement date.
Trademarks were valued using a relief from royalty approach, which estimates the amount a market participant would pay to utilize Sprint
’ s trademarks. These
approaches incorporate various estimates and assumptions, the most significant being projected revenue growth rates, earnings margins, and forecasted cash
flows based on a discount rate and terminal growth rate. Management projects revenue growth rates, earnings margins and cash flows based on the historical
operating results of the acquired entity, expected future performance, and the general macroeconomic environment.
Net property, plant and equipment was valued using a cost approach, which estimates the fair value of property, plant and equipment needed to
replace the functionality provided by the existing property, plant and equipment.
Assumed liabilities are valued based on estimates of anticipated expenditures to be incurred to satisfy the assumed obligations, including
contractual liabilities assumed, which require the exercise of professional judgment.
Assumed contracts may have favorable or unfavorable terms that must be valued as of the acquisition or merger date. Such valuation is subject to
management judgment regarding the evaluation and interpretation of contract terms in relation to other economic circumstances, such as the market rates for
leased property.
If we assume a performance obligation to subscribers as of the acquisition or merger date, a deferred revenue obligation is recognized. Judgment is
required to evaluate whether a future performance obligation exists and to assign a value to the performance obligation.
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Note 2.
Summary of Significant Accounting Policies and Other Information