Management’s Discussion and Analysis of Financial Condition and Results of Operations continued In 2015, our quantitative impairment test consisted of comparing the estimated fair value of our aggregate wireless licenses to the aggregated carrying amount as of the test date. If the estimated fair value of our aggregated wireless licenses is less than the aggregated carrying amount of the wireless licenses then an impairment charge would have been recognized. Our quantitative impairment test for 2015 indicated that the fair value exceeded the carrying value and, therefore, did not result in an impairment. In 2015, using a quantitative assessment, we estimated the fair value of our wireless licenses using the Greenfield approach. The Greenfield approach is an income based valuation approach that values the wireless licenses by calculating the cash flow generating potential of a hypothetical start-up company that goes into business with no assets except the wireless licenses to be valued. A discounted cash flow analysis is used to estimate what a marketplace participant would be willing to pay to purchase the aggregated wireless licenses as of the valuation date. As a result, we were required to make significant estimates about future cash flows specifically associated with our wireless licenses, an appropriate discount rate based on the risk associated with those estimated cash flows and assumed terminal value and growth rates. We considered current and expected future economic conditions, current and expected availability of wireless network technology and infrastructure and related equipment and the costs thereof as well as other relevant factors in estimating future cash flows. The discount rate represented our estimate of the weighted- average cost of capital (WACC), or expected return, that a marketplace participant would have required as of the valuation date. We developed the discount rate based on our consideration of the cost of debt and equity of a group of guideline companies as of the valuation date. Accordingly, our discount rate incorporated our estimate of the expected return a marketplace participant would have required as of the valuation date, including the risk premium associated with the current and expected economic conditions as of the valuation date. The terminal value growth rate represented our estimate of the marketplace’s long-term growth rate. Goodwill In 2017, Verizon combined Yahoo’s operating business with our previously existing Media business to create a newly branded organization, Oath. At December 31, 2017, the balance of our goodwill was approximately $29.2 billion, of which $18.4 billion was in our Wireless reporting unit, $4.0 billion was in our Wireline reporting unit, $4.6 billion was in our Media reporting unit and $2.2 billion was in our other reporting units. To determine if goodwill is potentially impaired, we have the option to perform a qualitative assessment to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying value. If we elect to bypass the qualitative assessment or if indications of a potential impairment exist, the determination of whether an impairment has occurred requires the determination of fair value of each respective reporting unit. In 2017 and 2016, we performed a qualitative assessment for our Wireless reporting unit to determine whether it is more likely than not that the fair value of the reporting unit was less than the carrying amount. As part of our assessment we considered several qualitative factors, including the business enterprise value of Wireless from the last quantitative test and the excess of fair value over carrying value from this test, macroeconomic conditions (including changes in interest rates and discount rates), industry and market considerations (including industry revenue and EBITDA margin projections), the projected financial performance of Wireless, as well as other factors. Based on our assessments in 2017 and 2016, we qualitatively concluded that it was more likely than not that the fair value of the Wireless reporting unit exceeded its carrying value and, therefore, did not result in an impairment. We performed a quantitative impairment assessment for our Wireless reporting unit in 2015 and for our Wireline and other reporting units in 2017, 2016 and 2015. For 2017, 2016 and 2015, our quantitative impairment tests indicated that the fair value of each of our reporting units exceeded their carrying value and therefore, did not result in an impairment. In the event of a 10% decline in the fair value of any of our reporting units, the fair value of each of our reporting units would have still exceeded their book value. However, the excess of fair value over carrying value for Wireline continues to decline such that it is reasonably possible that small changes to our valuation inputs, such as a decline in actual or projected operating results or an increase in discount rates, or a combination of such changes, could trigger a goodwill impairment loss in the future. For our Media reporting unit, some of our valuation inputs are dependent on discount rates, and the continued expansion of the digital advertising industry coupled with the effective execution of our strategic plans for Oath. These valuation inputs are inherently uncertain, and an adverse change in one or a combination of these inputs could trigger a goodwill impairment loss in the future. In conjunction with our test for goodwill impairment, our Wireline reporting unit had fair value that exceeded its carrying amount by 14% and 20% in 2017 and 2016, respectively. For our Media reporting unit, its fair value exceeded its carrying amount by more than 20% in 2017. 2017 Annual Report | Verizon Communications Inc. and Subsidiaries 39
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