Goodwill and Intangible Assets

The Company has goodwill of $315 million and definite-lived intangible assets of $608 million at June 30, 2015. The Company has four reporting units, which represent the lowest level of identifiable cash flows; R.H. Donnelley Inc. ("RHD"), Dex Media East, Inc. ("DME"), Dex Media West, Inc. ("DMW"), and SuperMedia. All four reporting units have intangible assets; however, only the SuperMedia reporting unit has goodwill.

The Company performs its annual impairment test of goodwill as of October 1, unless events and circumstances in interim periods indicate that impairment may exist. Additionally, the Company reviews its definite-lived intangible assets whenever events or circumstances indicate that their carrying value may not be recoverable. As a result of declining security prices associated with the Company’s equity, its senior secured credit facilities and senior subordinated notes, and a revised forecast, during the second quarter of 2015, the Company determined there were events and circumstances indicating the possibility of impairment of its goodwill and/or its intangible assets, and therefore performed an interim goodwill and intangible assets impairment analysis.

The fair value estimates used in the goodwill and intangible assets impairment analysis require numerous assumptions and significant judgment. Accordingly, the Company’s fair value estimates for purposes of assessing goodwill and intangible assets for impairment are considered Level 3 fair value measurements. The fair value estimates are based on current assumptions of future revenue, operating margins, business plans and the competitive environment of our business, among other things. Our current estimates assume revenue will continue to decline into the foreseeable future.

Due to the number and sensitivities of our estimates and assumptions, there can be no assurances that our estimates and assumptions will prove to be accurate predictions of the future. If our estimates and assumptions are not correct, we may be required to record goodwill and intangible assets impairment charges in the future.

Goodwill

In performing step one of the impairment test, the Company estimated the fair value of the SuperMedia reporting unit using a combination of the income and market approaches with greater emphasis placed on the income approach, for purposes of estimating the total enterprise value of the SuperMedia reporting unit. The Company determined the fair value of the SuperMedia reporting unit exceeded the carrying value of the reporting unit; therefore there was no impairment of goodwill as of June 30, 2015.

The income approach was based on a discounted cash flow analysis and calculated the fair value of the reporting unit by estimating the after-tax cash flows attributable to the reporting unit and then discounting the after-tax cash flows to a present value, using the weighted average cost of capital (“WACC”). The WACC utilized in the Company’s analysis using the income approach was 14.8%. The WACC is an estimate of the overall after-tax rate of return required for equity and debt holders of a business enterprise. The reporting unit’s cost of equity and debt was developed based on data and factors relevant to the economy, the industry and the reporting unit. The cost of equity was estimated using the capital asset pricing model (“CAPM”). The CAPM uses a risk-free rate of return and an appropriate market risk premium for equity investments and the specific risks of the investment. The analysis also included comparisons to a group of guideline companies engaged in the same or similar businesses. The cost of debt was estimated using the current after-tax average borrowing cost that a market participant would expect to pay to obtain its debt financing assuming the target capital structure.

To determine the fair value of the SuperMedia reporting unit based on the market approach, the Company utilized the guideline publicly traded company method. Under the guideline publicly traded company method, various market multiples ratios were considered based on the Company’s size, product offerings, growth and other relevant factors compared to those guideline companies. The guideline companies selected were engaged in the same or similar line of business as the Company. A market multiple was then selected based on consideration of risk, growth and profitability differences between the Company and the guideline companies. The selected market multiple was then multiplied by the Company’s 2015 forecasted earnings to arrive at an estimate of fair value for the Company.

Intangible Assets

The Company has definite-lived intangible assets of $608 million as of June 30, 2015. Intangible assets are recorded separately from goodwill if they meet certain criteria. The Company reviews its definite-lived intangible assets whenever events or circumstances indicate that their carrying value may not be recoverable. During the second quarter of 2015, the Company evaluated its definite-lived assets for potential impairment and determined they were not impaired as of June 30, 2015.

For the impairment test, the Company’s definite-lived intangible assets were evaluated for each reporting unit, which is the lowest level of identifiable cash flows. The impairment test was performed by comparing the carrying value of each reporting unit, including goodwill, with the undiscounted expected future cash flows associated with each respective reporting unit over the remaining useful life of the primary asset of the asset group. The undiscounted expected future cash flows were computed utilizing the income approach. For reporting units where the carrying value of the reporting unit exceeded the undiscounted expected future cash flows of the respective reporting unit, the Company then compared the carrying value of each of the reporting units to the fair value of each impacted reporting unit. The Company estimated the fair value of the impacted reporting units using a combination of the income and market approaches with greater emphasis placed on the income approach, for purposes of estimating the total enterprise value of the reporting unit. The Company’s fair value estimates for purposes of assessing intangible assets for impairment are considered Level 3 fair value measurements. The Company determined that its intangible assets were not impaired as of June 30, 2015.

The following table sets forth the details of the Company's intangible assets at June 30, 2015 and December 31, 2014.



	At June 30, 2015						At December 31, 2014
	Gross		Accumulated Amortization		Net		Gross		Accumulated Amortization		Net
	(in millions)
Directory services agreements	$	666	$	377	$	289	$	666	$	307	$	359
Client relationships	924		736		188		924		649		275
Trademarks and domain names	222		114		108		222		91		131
Patented technologies	42		21		21		42		16		26
Advertising commitment	11		9		2		11		8		3
Total intangible assets	$	1,865	$	1,257	$	608	$	1,865	$	1,071	$	794

Amortization expense for intangible assets was $93 million and $186 million for the three and six months ended June 30, 2015, respectively, compared to $146 million and $293 million for the three and six months ended June 30, 2014, respectively.

The annual amortization expense for intangible assets is estimated to be $373 million in 2015, $237 million in 2016, $103 million in 2017 and $81 million in 2018.