Sprint - Nextel 2014 Annual Report Download - page 110

Table of Contents
Index to Consolidated Financial Statements
SPRINT CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
F-27
The following provides the activity of Indefinite-lived intangible assets within the consolidated balance sheets:
March 31,
2014 Net Additions March 31, 2015
(in millions)
FCC licenses $ 36,043 $ (91) $ 35,952
Trademarks 5,935 (1,900) (1) 4,035
Goodwill 6,383 192 (2) 6,575
$ 48,361 $ (1,799) $ 46,562
December 31,
2013 Net Additions March 31, 2014
(in millions)
FCC licenses $ 35,889 $ 154 $ 36,043
Trademarks 5,935 — 5,935
Goodwill 6,434 (51) (3) 6,383
$ 48,258 $ 103 $ 48,361
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(1) Net reduction to trademarks for the year ended March 31, 2015 of approximately $1.9 billion was related to the impairment of the Sprint trade name.
See discussion below.
(2) Net additions to goodwill for the Successor year ended March 31, 2015 of approximately $192 million were the result of purchase price allocation
adjustments, which consisted of a $232 million increase recorded during the three-month period ended March 31, 2015 to correct the amount of net
deferred tax liabilities recognized in connection with the SoftBank Merger and Clearwire Acquisition and a net $40 million decrease recorded during
the three-months ended June 30, 2014, which is also associated with the SoftBank Merger and Clearwire Acquisition.
(3) Net reduction to goodwill for the Successor three-month transition period ended March 31, 2014 of $51 million was the result of purchase price
allocation adjustments associated with the SoftBank Merger.
Assessment of Impairment
Our annual impairment testing date for goodwill and indefinite-lived intangible assets is January 1 of each year;
however, we test for impairment between our annual tests if an event occurs or circumstances change that indicate that the
asset may be impaired, or in the case of goodwill, that the fair value of the reporting unit is below its carrying amount. Since
the SoftBank Merger Date, actual results and expectations of net postpaid handset subscriber additions have been lower than
the forecasts used to allocate the purchase price to the assets acquired and liabilities assumed. During the quarter ended
December 31, 2014, the stock price and our related market capitalization decreased significantly and our credit rating was
downgraded by one of the ratings service providers. We also updated our long-term forecasted cash flows for the Company,
including for the Wireless reporting unit, during the fourth quarter. This update considered current economic conditions and
trends, estimated future operating results, our views of growth rates, anticipated future economic and regulatory conditions,
future cost savings initiatives and the availability of the necessary network infrastructure, handsets and other devices. Based
on these events and changes in circumstances, we determined that recoverability of the carrying amount of goodwill and the
Sprint trade name should be evaluated for impairment.
The impairment test for an indefinite-lived intangible asset consists of a comparison of the fair value of the asset
to its carrying amount. If the carrying amount exceeds its fair value, an impairment loss is recognized equal to that excess.
We estimated the fair value of the Sprint trade name assigned to the Wireless segment using the relief-from-royalty method,
which uses several significant assumptions, including management projections of future revenue, a royalty rate, a long-term
growth rate, and a discount rate. As these assumptions are largely unobservable, the estimate of fair value is considered to be
unobservable within the fair value hierarchy. The significant unobservable inputs included projected revenues, a royalty rate,
a growth rate of 1.5% in the terminal year and a discount rate of 16%. The carrying value of the Sprint trade name exceeded
its estimated fair value of $3.3 billion. Accordingly, during the quarter ended December 31, 2014 we recorded an impairment
loss of $1.9 billion, which is included in “Impairments” in our consolidated statements of operations.
The analysis of potential impairment of goodwill requires a two-step approach. The first step of the goodwill
impairment test, used to identify potential impairment, compares the fair value of a reporting unit with its carrying amount,
including goodwill. We estimated the fair value of the Wireless reporting unit using both discounted cash flow and market-