Verizon Wireless 2014 Annual Report Download - page 47

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS continued
We test our wireless licenses for potential impairment annually. In 2014
and 2013, we performed a qualitative assessment to determine whether
it is more likely than not that the fair value of our wireless licenses was
less than the carrying amount. As part of our assessment, we consid-
ered several qualitative factors including the business enterprise value
of Wireless, macroeconomic conditions (including changes in interest
rates and discount rates), industry and market considerations (including
industry revenue and EBITDA (Earnings before interest, taxes, depreciation
and amortization) margin projections), the projected nancial perfor-
mance of Wireless, as well as other factors. The most recent quantitative
assessment of our wireless licenses occurred in 2012. Our quantitative
assessment consisted of comparing the estimated fair value of our wire-
less licenses to the aggregated carrying amount as of the test date. Using
the quantitative assessment, we evaluated our licenses on an aggregate
basis using a direct value approach. The direct value approach estimates
fair value using a discounted cash ow analysis to estimate what a mar-
ketplace participant would be willing to pay to purchase the aggregated
wireless licenses as of the valuation date. If the fair value of the aggre-
gated wireless licenses is less than the aggregated carrying amount of
the licenses, an impairment is recognized.
Interest expense incurred while qualifying activities are performed to
ready wireless licenses for their intended use is capitalized as part of wire-
less licenses. The capitalization period ends when the development is
discontinued or substantially complete and the license is ready for its
intended use.
Intangible Assets Subject to Amortization and Long-Lived Assets
Our intangible assets that do not have indenite lives (primarily customer
lists and non-network internal-use software) are amortized over their esti-
mated useful lives. All of our intangible assets subject to amortization
and long-lived assets are reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of the asset
may not be recoverable. If any indications were present, we would test
for recoverability by comparing the carrying amount of the asset group
to the net undiscounted cash ows expected to be generated from the
asset group. If those net undiscounted cash ows do not exceed the
carrying amount, we would perform the next step, which is to determine
the fair value of the asset and record an impairment, if any. We reeval-
uate the useful life determinations for these intangible assets each year to
determine whether events and circumstances warrant a revision in their
remaining useful lives.
For information related to the carrying amount of goodwill by segment,
wireless licenses and other intangible assets, as well as the major com-
ponents and average useful lives of our other acquired intangible assets,
see Note 3.
Fair Value Measurements
Fair value of nancial and non-nancial assets and liabilities is dened
as an exit price, representing the amount that would be received to sell
an asset or paid to transfer a liability in an orderly transaction between
market participants. The three-tier hierarchy for inputs used in mea-
suring fair value, which prioritizes the inputs used in the methodologies
of measuring fair value for assets and liabilities, is as follows:
Level 1 – Quoted prices in active markets for identical assets or liabilities
Level 2 – Observable inputs other than quoted prices in active markets
for identical assets and liabilities
Level 3 – No observable pricing inputs in the market
Financial assets and nancial liabilities are classied in their entirety based
on the lowest level of input that is signicant to the fair value measure-
ments. Our assessment of the signicance of a particular input to the fair
value measurements requires judgment, and may aect the valuation of
the assets and liabilities being measured and their placement within the
fair value hierarchy.
Computer Software Costs
We capitalize the cost of internal-use network and non-network software
that has a useful life in excess of one year. Subsequent additions, modi-
cations or upgrades to internal-use network and non-network software
are capitalized only to the extent that they allow the software to perform
a task it previously did not perform. Planning, software maintenance and
training costs are expensed in the period in which they are incurred. Also,
we capitalize interest associated with the development of internal-use
network and non-network software. Capitalized non-network internal-
use software costs are amortized using the straight-line method over a
period of 3 to 7 years and are included in Other intangible assets, net
in our consolidated balance sheets. For a discussion of our impairment
policy for capitalized software costs, see “Goodwill and Other Intangible
Assets” below. Also, see Note 3 for additional detail of internal-use non-
network software reected in our consolidated balance sheets.
Goodwill and Other Intangible Assets
Goodwill
Goodwill is the excess of the acquisition cost of businesses over the
fair value of the identiable net assets acquired. Impairment testing
for goodwill is performed annually in the fourth scal quarter or more
frequently if impairment indicators are present. The Company has the
option to perform a qualitative assessment to determine if the fair value
of the entity is less than its carrying value. However, the Company may
elect to perform an impairment test even if no indications of a poten-
tial impairment exist. The impairment test for goodwill uses a two-step
approach, which is performed at the reporting unit level. We have deter-
mined that in our case, the reporting units are our operating segments
since that is the lowest level at which discrete, reliable nancial and cash
ow information is available. Step one compares the fair value of the
reporting unit (calculated using a market approach and/or a discounted
cash ow method) to its carrying value. If the carrying value exceeds
the fair value, there is a potential impairment and step two must be per-
formed. Step two compares the carrying value of the reporting unit’s
goodwill to its implied fair value (i.e., fair value of reporting unit less the
fair value of the unit’s assets and liabilities, including identiable intan-
gible assets). If the implied fair value of goodwill is less than the carrying
amount of goodwill, an impairment is recognized.
Intangible Assets Not Subject to Amortization
A signicant portion of our intangible assets are wireless licenses that
provide our wireless operations with the exclusive right to utilize des-
ignated radio frequency spectrum to provide wireless communication
services. While licenses are issued for only a xed time, generally ten years,
such licenses are subject to renewal by the Federal Communications
Commission (FCC). License renewals have occurred routinely and at
nominal cost. Moreover, we have determined that there are currently
no legal, regulatory, contractual, competitive, economic or other factors
that limit the useful life of our wireless licenses. As a result, we treat the
wireless licenses as an indenite-lived intangible asset. We reevaluate
the useful life determination for wireless licenses each year to determine
whether events and circumstances continue to support an indenite
useful life.