Sprint - Nextel 2015 Annual Report Download - page 62

Table of Contents
Valuation and Recoverability of Long-lived Assets
Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable.
An impairment loss is recognized if the carrying amount of a long-lived asset or asset group is not recoverable and exceeds its fair value. Long-lived asset groups
have been 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. 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.
During the year ended March 31, 2016 , no impairments were recorded. During the three-month period ended December 31, 2014, we recorded an
impairment loss of $233 million, which is included in "Impairments" in our consolidated statements of operations, to reduce the carrying value of the Wireline
asset group, which includes the Wireline long-lived assets, to its estimated fair value as of our testing date of $918 million. The fair value of the Wireline long-
lived assets was estimated using a market approach, which included significant unobservable inputs including liquidation curves, useful life assumptions, and scrap
values. As the assumptions are largely unobservable, the estimate of fair value is considered to be unobservable within the fair value hierarchy.
The determination of fair value requires judgment and is sensitive to changes in underlying assumptions. While we believe our judgments and
assumptions are reasonable, changes in future periods may impact our assumptions and lead to additional, future impairments.
Evaluation of Goodwill and Indefinite-Lived Intangible Assets for Impairment
As a result of the SoftBank Merger in July 2013, we recognized indefinite-lived assets at their acquisition-date estimates of fair value, including FCC
licenses, goodwill, and trade names. All of the indefinite-lived assets, including goodwill, were allocated to our Wireless segment. As of March 31, 2015 and 2016,
the carrying values of these assets were $36.0 billion, $6.6 billion and $4.0 billion, respectively.
Sprint evaluates the carrying value of our indefinite-lived assets, including goodwill, at least annually or more frequently whenever events or changes in
circumstances 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. During the
quarter-ended March 31, 2016 , the Company completed its annual impairment testing for Goodwill, the Sprint and Boost trade names, and spectrum licenses. As a
result of our testing, we determined that the fair value of each of our indefinite-lived intangible assets exceeded their carrying values.
In performing the goodwill impairment test, we estimated the fair value of the Wireless reporting unit using income-based, market-based and asset-
based valuation models. The determination of the fair value of the reporting unit requires significant estimates and assumptions, including significant unobservable
inputs. The key inputs included, but were not limited to, discount rates, terminal growth rates, control premiums, market multiple data from selected guideline
public companies, management’s internal forecasts which include numerous assumptions such as share of industry gross additions, churn, mix of plans, rate
changes, operating and capital expenditures and EBITDA margins, among others. Changes in certain assumptions or management’s failure to execute on the
current plan could have a significant impact to the estimated fair value of the Wireless reporting unit. Under the income-based approach, we note that our fair value
cushion is in excess of 10% of the carrying value.
We estimated the fair value of the Sprint and Boost trade names 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. Changes in certain assumptions
can have a significant effect on the estimated fair value. For both the Sprint and Boost trade names, we note that a 5% decrease in revenue across the long-term
plans would not result in an impairment as of March 31, 2016 .
During the quarter ended December 31, 2014, we determined that recoverability of the carrying amount of goodwill and the Sprint trade name should
be evaluated for impairment and it was determined that 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
comprehensive loss.
The determination of fair value requires considerable judgment and is highly sensitive to changes in underlying assumptions and execution of
management’s plan. Consequently, there can be no assurance that the estimates and assumptions made for the purposes of the goodwill, spectrum and trade name
impairment tests will prove to be an accurate
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