Sprint - Nextel 2013 Annual Report Download - page 58

Table of Contents
Evaluation of Goodwill and Indefinite
- Lived Intangible Assets for Impairment
As a result of the SoftBank Merger and the remeasurement of assets acquired and liabilities assumed in connection with the transaction, Sprint
recognized goodwill at its estimate of fair value of approximately
$6.4 billion , which has been entirely allocated to the wireless segment. Since goodwill is
reflected at its estimate of fair value, there is no excess fair value over book value as of the date of the close of the SoftBank Merger. The determination of the
estimated fair value of goodwill required judgment and was based upon numerous assumptions and estimates.
Sprint evaluates the carrying value of goodwill at least annually, or if necessary, more frequently whenever 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.
Differences in the Company's actual future cash flows, operating results, growth rates, capital expenditures, cost of capital, discount rates and other
assumptions as compared to the estimates utilized for the purpose of valuing goodwill as a result of the SoftBank Merger, as well as a decline in the Company's
stock price and related market capitalization, could affect the results of our goodwill assessment and potentially lead to a future material goodwill impairment.
We regularly assess whether any indicators of impairment exist, which requires 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 significant impairments.
Our FCC licenses and our Sprint and Boost Mobile tradenames were recorded at their acquisition
- date estimated fair values of $35.7 billion and $5.9
billion, respectively, in connection with the SoftBank Merger. We have identified the FCC licenses and the Sprint and Boost Mobile tradenames as indefinite
-
lived intangible assets 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. We estimated the acquisition
- date fair value of FCC licenses using the Greenfield direct value method, which approximates
fair 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, revenues and expenses, market share achieved, tax rates in effect
and discount rate. We estimated the acquisition
- date fair value of our Sprint and Boost Mobile tradenames using the relief from royalty method, which estimates
the amount a market participant would pay to use the tradenames. Assumptions key in estimating fair value under this method include, but are not limited to,
revenues, royalty rates, tax rates in effect and discount rate.
We evaluate the carrying value of FCC licenses and Sprint and Boost Mobile tradenames at least annually, or if necessary, more frequently if events
or changes in circumstances indicate the asset may be impaired. Our analysis includes a comparison of the estimated fair value of the asset to its carrying value.
Fair value is estimated using the methods described above, which were used to value the assets in connection with the SoftBank Merger. Future business and
economic conditions, as well as significant changes in any of the assumptions used to estimate the acquisition
- date fair value, may result in future, significant
impairments.
NEW ACCOUNTING PRONOUNCEMENTS
In December 2011, the Financial Accounting Standards Board (FASB) issued authoritative guidance regarding Disclosures about Offsetting Assets
and Liabilities, which requires common disclosure requirements to allow investors to better compare and assess the effect of offsetting arrangements on
financial statements prepared under U.S. GAAP with financial statements prepared under IFRS. The standard was effective beginning in the first quarter 2013,
requires retrospective application, and only affects disclosures in the footnotes to the financial statements. In October 2012, the FASB tentatively decided to
limit the scope of this authoritative guidance to derivatives, repurchase agreements, and securities lending and securities borrowing arrangements. In January
2013, the FASB issued additional clarifying guidance which limited the scope of the disclosure requirements to derivatives, repurchase agreements and reverse
purchase agreements, and securities lending and securities borrowing transactions that are either offset in accordance with specific criteria contained in U.S.
GAAP or subject
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