Indefinite-Lived Intangible Assets
At December 31, 2013, we hold 1.9 GHz, 800 MHz, 900 MHz and 2.5 GHz FCC licenses authorizing the use of radio frequency spectrum to deploy our wireless services. As long as the Company acts within the requirements and constraints of the regulatory authorities, the renewal and extension of these licenses is reasonably certain at minimal cost. Accordingly, we have concluded that FCC licenses are indefinite-lived intangible assets.
|
| | | | | | | | | | | |
| Predecessor |
| December 31,
2012 | | Net Additions | | July 10,
2013 |
| (in millions) |
FCC licenses | $ | 20,268 |
| | $ | 12,580 |
| | $ | 32,848 |
|
Trademarks | 409 |
| | — |
| | 409 |
|
Goodwill | 359 |
| | 715 |
| | 1,074 |
|
| $ | 21,036 |
| | $ | 13,295 |
| | $ | 34,331 |
|
|
| | | | | | | | | | | | |
| Successor |
| July 11,
2013 | | Net Additions | | December 31,
2013 |
| (in millions) |
FCC licenses | $ | 35,723 |
| | $ | 166 |
| (1 | ) | $ | 35,889 |
|
Trademarks | 5,935 |
| | — |
| | 5,935 |
|
Goodwill | 6,434 |
| | — |
| | 6,434 |
|
| $ | 48,092 |
| | $ | 166 |
| | $ | 48,258 |
|
_________________
| |
(1) | Net additions for the Successor period ended December 31, 2013 consist of approximately $62 million in deposits made to acquire additional FCC licenses that is pending FCC approval. |
During the Predecessor period from January 1, 2013 through July 10, 2013 Sprint acquired approximately $605 million of 1.9 GHz spectrum and $11.9 billion of 2.5 GHz spectrum from U.S. Cellular and Clearwire, respectively (see Note 3. Significant Transactions). The net additions during this Predecessor period also included approximately $91 million of costs related to our 2004 FCC Report and Order to reconfigure the 800 MHz band (Report and Order) (see Note 12. Commitments and Contingencies).
The amounts reflected in the July 11, 2013 column represents the preliminary estimated fair value of each class of indefinite-lived intangible assets resulting from the SoftBank Merger (see Note 3. Significant Transactions). Trademarks, which include our Sprint and Boost Mobile tradenames, have also been identified as indefinite-lived intangible assets. The net additions for FCC licenses during the period from July 11, 2013 through December 31, 2013 were primarily as a result of work related to our Report and Order (see Note 12. Commitments and Contingencies).
Goodwill
Goodwill represents the excess of consideration paid over the estimated fair value of net tangible and identifiable intangible assets acquired in business combinations. We recognized $6.4 billion of goodwill associated with the SoftBank Merger in the Successor period (see Note 3. Significant Transactions).
Goodwill Recoverability Assessment
The carrying value of Sprint's goodwill is included in the Wireless segment, which represents our wireless reporting unit. We estimate the fair value of the wireless reporting unit using both discounted cash flow and market-based valuation models. If the fair value of the wireless reporting unit exceeds its net book value, goodwill is not impaired, and no further testing is necessary. If the net book value of our wireless reporting unit exceeds its estimated fair value, we estimate the fair value of goodwill to determine the amount of impairment loss, if any. As a result of the preliminary remeasurement of assets acquired and liabilities assumed in connection with the SoftBank Merger, Sprint recognized goodwill at its estimate of fair value as of the SoftBank Merger Date. Since goodwill is reflected at its estimate of fair value, there is no cushion, or fair value in excess of carrying value as of the SoftBank Merger Date, and the risk associated with potential goodwill impairment in future reporting periods is heightened. The Company has not finalized the valuation associated with the SoftBank Merger. Any additional changes to the valuation and associated impact to our purchase price allocation could result in a change in the amount of goodwill reflected in these financial statements in future reporting periods.
The determination of the estimated fair value of the wireless reporting unit requires significant estimates and assumptions. These estimates and assumptions primarily include, but are not limited to, transactions within the wireless industry and related control premiums, discount rate, terminal growth rate, earnings before interest, taxes, depreciation and amortization (EBITDA) and capital expenditure forecasts. Due to the inherent uncertainty involved in making those estimates, actual results could differ from those estimates. We evaluate the merits of each significant assumption, both individually and in the aggregate, used to determine the fair value of the wireless reporting unit for reasonableness.
Intangible Assets Subject to Amortization
Customer relationships are amortized using the sum-of-the-months' digits method, while all other definite-lived intangible assets are amortized using the straight line method over the estimated useful lives of the respective assets. We reduce the gross carrying value and associated accumulated amortization when specified intangible assets become fully amortized. Amortization expense related to favorable spectrum and tower leases are recognized in cost of services. During the third quarter 2013, we recorded $6.9 billion of customer relationships, $884 million of favorable spectrum leases, $589 million of favorable tower leases, $520 million for trademarks and $52 million of other intangible assets as a result of the preliminary allocation of the SoftBank Merger and Clearwire Acquisition (see Note 3. Significant Transactions).
|
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Successor | | | Predecessor |
| | | December 31, 2013 | | | December 31, 2012 |
| Useful Lives | | Gross Carrying Value | | Accumulated Amortization | | Net Carrying Value | | | Gross Carrying Value | | Accumulated Amortization | | Net Carrying Value |
| | | | | | | (in millions) | | | | |
Customer relationships | 4 to 8 years | | $ | 6,923 |
| | $ | (875 | ) | | $ | 6,048 |
| | | $ | 234 |
| | $ | (230 | ) | | $ | 4 |
|
Other intangible assets |
| | | | | | | | | | | | | |
Favorable spectrum leases | 23 years | | 884 |
| | (20 | ) | | 864 |
| | | — |
| | — |
| | — |
|
Favorable tower leases | 3 to 7 years | | 589 |
| | (52 | ) | | 537 |
| | | — |
| | — |
| | — |
|
Trademarks | 34 years | | 520 |
| | (8 | ) | | 512 |
| | | 1,168 |
| | (681 | ) | | 487 |
|
Reacquired rights | 9 to 14 years | | — |
| | — |
| | — |
| | | 1,571 |
| | (785 | ) | | 786 |
|
Other | 4 to 10 years | | 58 |
| | (5 | ) | | 53 |
| | | 138 |
| | (80 | ) | | 58 |
|
Total other intangible assets | | | 2,051 |
| | (85 | ) | | 1,966 |
| | | 2,877 |
| | (1,546 | ) | | 1,331 |
|
Total definite-lived intangible assets | | | $ | 8,974 |
| | $ | (960 | ) | | $ | 8,014 |
| | | $ | 3,111 |
| | $ | (1,776 | ) | | $ | 1,335 |
|
|
| | | | | | | | | | | | | | | | | | | |
| 2014 | | 2015 | | 2016 | | 2017 | | 2018 |
| (in millions) |
Estimated amortization expense | $ | 1,737 |
| | $ | 1,488 |
| | $ | 1,231 |
| | $ | 946 |
| | $ | 715 |
|
