1. Outline the steps for impairment of intangible assets, then:
2. Describe the data from the case that should be used in an impairment test of intangible assets. Explain.
3. Indicate whether there may be an impairment of intangible assets. Explain.

   THE CASE

   It is late March 2020 and you are a first-year accounting analyst in the financial reporting area at All World Airways (AWA). You have just finished your first yearend close and reporting process. Other staff have told you the yearend activities were more hectic than usual due to concerns about the COVID-19 virus and how it may impact AWA's operations. While the annual report and Form 10-K were being finalized, you and other members of the financial reporting staff was also researching GAAP on impairment and preparing for potential disclosures to be released in a Form 8-K filing and the first quarter 10-Q filing. AWA's controller, Dirk Carre, has asked you to document the process that should be used to determine whether, or which, AWA assets are impaired, to calculate an impairment estimate including support for the discount rate used in your estimates, and draft a report for presentation to executive management and the BOD that supports the analyses and conclusions resulting from your research. Background AWA is an U.S. based international air carrier. During 2019, AWA achieved profitable operations and significant improvements in its on-time departures and arrivals. AWA increased its passenger load factor approximately 3% and passenger revenue per available seat mile by approximately 2%. AWA's revenue and operating results are subject to seasonality. Historically, the 2 nd and 3 rd quarters of each year see the highest revenue and operating costs due to the vacation travel season with increased passenger flows in the May through August period. For 2019, AWA's operating income was $ 1.257 billion and net income of $ 691 million on $ 18.765 billion of revenue. AWA financial data and operating statistics are presented in Appendices A, B, C, D, E, and F. At the end of 2019, AWA's fleet consisted of 696 aircraft supported by 54,163 employees. For information on AWA's fleet and employees, see Appendices G and H

   The Board of Directors (BOD) has set AWA's priorities as efficient and profitable growth to generate significant free cash flow through customer satisfaction and operational excellence. Based on various studies, the BOD believes becoming the customer's airline of choice is based on operational excellence achieved through reliability and scheduling. In addition, the BOD and AWA management believe operational excellence is dependent on having and maintaining a fuel-efficient fleet. Over the years, AWA fleet has replaced and upgraded through a significant capital investments program which is achieving desired results. With a future capital investment profile based on maintaining rather than growing a fuel-efficient fleet through replacement of older less efficient aircraft, AWA believes it is well positioned to strategically expand its operations and fleet in high growth and revenue markets. AWA's focus is generating returns to shareholders and de-levering its balance sheet (i.e., reducing debt) through profitable operations in existing markets and growth in new markets. In recent years, AWA has paid dividends that have averaged 1.7% annually. The AWA BOD would like to increase these payouts. Like its competitors, AWA has also been dealing with Boeing 737 MAX aircraft issues. AWA's fleet includes 11 Boeing 737 MAX aircraft with an additional 34 on order for future delivery. Due to safety concerns, on March 13, 2019, the U.S. Federal Aviation Administration (FAA) grounded all U.S. registered Boeing 737 MAX aircraft. AWA cancelled roughly 12,000 flights during the last three quarters of 2019 and removed all Boeing 737 MAX aircraft from its flight schedule through the first two quarters of 2020 while continuing to assess the FAA and Boeing timelines for resolution of the Boeing 737 MAX aircraft issues. Issues and AWA's Planned Approaches In early 2020, the World Health Organization declared COVID-19 which surfaced in nearly all regions of the world to be a global health pandemic. Government imposed and implemented significant measures in attempts to prevent or reduce spread of COVID-19. These measures include travel restrictions, border closings, "shelter in place" orders, and business closures led to an unprecedented decline in the demand for air travel. During the first two months of 2020, AWA's business performed largely as expected; however, a severe reduction in air travel during March 2020 led to AWA's total operating revenues decreasing nearly 25% in the first quarter of 2020 compared to the first quarter of 2019. As a result, AWA expects the deterioration to increase in the second quarter of 2020 with results of operations to be severely impacted for the balance of 2020 and possibly into early 2022. Based on the lack of COVID- 19 information, there is significant uncertainty on the potential length and severity of the pandemic. AWA expects significant business volatility during the pandemic period with future demand for aircraft travel difficult to forecast accurately in the near and long term. In response to COVID-19, AWA plans on taking forceful actions to reconfigure of fleet, reduce capacity significantly, reduce costs, and improve our liquidity, and preserve cash. Planned changes to capacity are based on expectation that AWA's demand will be 80%, 70, and 60% lower for the 2 nd , 3 rd , and 4 th quarters of 2020 compared to its 2019 results. For 2021, AWA expects the 1 st quarter to be consistent with the 4 th quarter of 2020 then a recovery beginning in the 2 nd quarter growing demand by 25 to 30% quarterly until full recovery occurs on the 1 st or 2 nd quarter of 2022. After full recovery, AWA expects to future growth of 1 to 2 percent annually (excluding inflation) from its existing fleet with additional growth from planned aircraft additions (see Appendix J). AWA's estimates and forecast are subject to the conditions and government mandates in the jurisdictions in which AWA operates. Based on the estimates and the forecast, AWA is accelerating the retirement of less efficient mainline aircraft as well as certain regional aircraft. This action reduces the complexity of AWA's fleet, creates maintenance costs reductions, and brings other savings from operating fewer aircraft types forward in time. Aircraft to be retired include the Airbus A330, Boeing 757 and 767, Embraer 140 and 190, and Bombardier CRJ 200 portions of AWA's fleet. AWA will also temporarily store some AWA owned aircraft including Boeing 737-800, Bombardier CRJ 700 and 900, and Embraer 145 and 175 aircraft. See Appendix I for planned aircraft storage information. While AWA is retiring some aircraft and storing others due to the forecasted changes in capacity, AWA has decided to maintain its relationships with 3rd party carriers and presence in the various airports serving its markets. In the interim periods, however, AWA plans to consolidate its airport facility space. AWA is also deferring marketing expenses, reducing and deferring maintenance expenses, and reducing contractor, event, and training expenses. To address personnel costs, AWA has implemented a hiring freeze for non-essential positions, paused non-contractual pay raises, implemented both voluntary partially paid leave and early retirement programs, and reduced executive and BOD compensation. These actions will reduce AWA's Administration staffing by 33% and operating staff by 20% for early retirement with a similar reduction for involuntary furloughs. Finally, AWA

Appendix A Income Statement (S in millions) 1Q 2018 2Q 2018 3Q 2018 4Q 2018 FY 2018 1Q 2019 2Q 2019 3Q 2019 4Q 2019 FY 2019 S 3,887 $ 93 285 4,265 4,376 $ 107 290 4,773 4,330 $ 107 303 4,740 4,084 $ 16,677 109 416 292 1,170 4,485 18.263 $ 3,960 $ 4,515 $ 4,508 $ 89 91 85 290 298 290 4,339 4,904 4,883 4.242 $ 17.225 89 354 308 1,186 4,639 18,765 Operating revenues: Passenger Cargo Other Total operating revenues Operating expenses: Aircraft fuel and related taxes Salaries, wages and benefits 3rd Party Carrier Capacity Charges Maintenance, materials and repairs Other rent and landing fees Aircraft rent Selling expenses Depreciation and amortization Special items, net Other expense Total operating expenses Operating income Nonoperating income (expense): Interest income Interest expense, net Other income, net Total nonoperating expense, net Income before income taxes Income tax provision Net income 886 1,394 145 225 252 130 181 214 92 583 4,102 163 1.053 1,428 149 244 266 131 197 221 75 599 4.363 410 1,123 1,449 149 250 269 134 200 223 86 575 4.458 282 995 1,404 144 262 242 137 196 226 73 573 4,252 233 4,057 5,675 587 981 1,029 532 774 884 326 2,330 17,175 1,088 881 1,435 139 268 275 137 189 229 57 576 4,186 153 1,018 1,492 144 277 286 140 208 235 50 582 4,432 472 1,014 1,509 145 294 286 141 216 239 96 613 4,553 330 939 1,463 144 301 263 138 209 248 61 572 4,338 301 3,852 5,899 572 1,140 1,110 556 822 951 264 2.343 17.509 1.256 12 (108) 12 (107) 14 (113) 14 (116) 10 (107) 32 (65) 98 32 66 S (96) 314 82 232 $ (95) 187 51 136 $ 14 (110) 36 (60) 173 28 145 $ 48 (432) 68 (316) 772 193 579 14 (111) 44 (53) 100 25 75 $ (99) 373 90 (102) 228 54 174 S 10 (109) 21 (78) 223 65 158 $ 52 (449) 65 (332) 924 234 690 $ S 283 $ Appendix B Balance Sheet (S in millions) Year Ended December 31 2018 2019 S 132 $ 2,153 74 819 731 495 4,403 134 1,702 76 840 888 621 4,262 ASSETS Current assets Cash Short-term investments Restricted cash and short-term investments Accounts receivable, net Aircraft fuel, spare parts and supplies, net Prepaid expenses and other Total current assets Operating property and equipment Flight equipment Ground property and equipment Equipment purchase deposits Total property and equipment, at cost Less accumulated depreciation and amortization Total property and equipment, net Operating lease right-of-use assets Other assets Goodwill Intangibles, net of accum amortization of $704 and $663, respectively Deferred tax asset Other assets Total other assets Total assets 19.920 4,207 613 24,740 (8,373) 16,367 20,418 4.533 804 25,754 (8,956) 16,798 4,392 4,194 1,964 1,026 550 634 4,173 29,336 1,964 1,000 310 594 3.867 29,121 LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) Current liabilities Current maturities of long-term debt and finance leases Accounts payable Accrued salaries and wages Air traffic liability Loyalty program liability Operating lease liabilities Other accrued liabilities Total current liabilities Noncurrent liabilities Long-term debt and finance leases, net of cument maturities Pension and postretirement benefits Loyalty program liability Operating lease liabilities Other liabilities Total noncurrent liabilities 1,581 851 685 2,083 1,568 794 1,124 8,686 1.373 990 740 2.308 1,533 820 1,026 8,789 10,166 3,315 2,531 3,793 669 20,473 10,298 2,905 2,603 3,562 697 20.065 Commitments and contingencies (Note 12) Stockholders' equity (deficit) Common stock, 30.01 par value; 1,000,000,000 shares authorized, 244,687,156 and 263,193,051shares issued and outstanding at December 31, 2019 and December 31, 2018 Additional paid-in capital Accumulated other comprehensive loss Retained camings Total stockholders' deficit Total liabilities and stockholders' equity (deficit) 3 2,836 (3.369) 706 176 $ 29,336 $ 2 2.254 (3.618) 1.628 267 29,121 Appendix C Summary of Accounting Policies Depreciation and Amortization: AWA uses straight-line depreciation for book purposes. PP&E Classification Estimated Useful Life Mainline aircraft 25 years Regional aircraft 20 years Buildings 5 to 30 years Furniture, fixtures, and other equipment 3 to 10 years Software 10 years Goodwill Goodwill is not amortized but us assessed on September 30 annually of more frequently if circumstances indicate a potential impairment. Initial assessment is qualitative, and then a comparison to fair value of the company including goodwill. If the company's fair value is less than carrying value, then a separate assessment is performed to determine the implied value of goodwill. Other Intangibles AWA intangible assets consist primarily of domestic airport slots, customer relationships, marketing agreements, international slots and route authorities, airport gate leasehold rights and tradenames. Definite-lived intangibles are amortized over estimated useful life and when events or circumstances indicate carrying values may not be recoverable are reviewed for impairment. Indefinite-lived intangibles are not amortized but us assessed on September 30 annually of more frequently if circumstances indicate a potential impairment. Appendix E Financial Overview (s in millions) Passenger revenue Cargo revenue Other operating revenue Total operating revenues Mainline and regional aircraft fuel and related taxes Salaries, wages and benefits Total operating expenses Operating income Pre-tax income Income tax provision Net income Pre-tax income Adjusted for: Pre-tax net special items Pre-tax income excluding net special items 1Q 2018 20 2018 30 2018 4Q 2018 2018 S 3,887 $ 4,376 $ 4,330 S 4,084 $ 16,677 93 107 107 109 416 285 290 303 292 1,170 4.265 4,773 4,740 4,485 18,263 886 1,053 1,123 995 4,057 1,394 1,428 1,449 1.404 5,675 4,102 4,363 4,458 4.252 17,175 163 410 282 233 1,088 98 314 187 173 772 32 82 51 28 193 66 232 136 145 579 98 314 187 173 772 92 75 86 73 326 190 389 273 246 1,098 1Q 2019 20 2019 3Q 2019 4Q 2019 2019 S 3,960 $ 4,515 S 4.508 S 4,242 $ 17,225 89 91 85 89 354 290 298 290 308 1,186 4,339 4,904 4,883 4,639 18,765 881 1,018 1,014 939 3,852 1,435 1,492 1.509 1,463 5,899 4,186 4,432 4.553 4,338 17,509 153 472 330 301 1,256 100 373 228 223 924 25 90 54 65 234 75 283 174 158 690 373 228 924 57 50 96 61 264 157 423 324 284 1,188 100 223 Operating Expenses (S in millions) Aircraft fuel and related taxes Salaries, wages and benefits 3rd Party Carrier Capacity Charges Maintenance, materials and repairs Other rent and landing fees Aircraft rent Selling expenses Depreciation and amortization Mainline operating special items, net Other Total operating expenses 1Q 2018 2Q 2018 3Q 2018 4Q 2018 2018 S 886 $ 1,053 $ 1,123 $ 995 $ 4,057 1,394 1,428 1,449 1,404 5,675 145 149 149 144 587 225 244 250 262 981 252 266 269 242 1,029 130 131 134 137 532 181 197 200 196 774 214 221 223 226 884 92 75 86 73 326 599 575 573 2,330 s 4.102 S 4,363 $ 4,458 $ 4.252 $ 17,175 1Q 2019 20 2019 3Q 2019 40 2019 2019 S 881 $ 1,018 S 1,014 $ 939 $ 3,852 1,435 1,492 1,509 1,463 5,899 139 144 145 144 572 268 277 294 301 1,140 275 286 286 263 1,110 137 140 141 138 556 189 208 216 209 822 229 235 239 248 951 57 SO 96 61 264 S76 582 613 572 2,343 S 4,186 $ 4,432 S 4.553 $ 4,338 $ 17,509 583 Appendix F Operating Statistics Revenue passenger miles (millions) Available seat miles (millions) Passenger load factor (percent) Yield per passenger revenue mile (in cents) Passenger revenue per available seat mile (in cents) Total revenue per available seat mile (in cents) Aircraft at end of period Fuel consumption (gallons in millions) Average aircraft fuel price including related taxes ($/gal) Full-time equivalent employees at end of period Operating cost per available seat mile (in cents) Operating income per available seat mile (in cents) 1Q 2018 21,707 26,987 80.44 17.906 14.403 15.804 693 422 2.100 52,726 15.200 0.604 2Q 2018 24,919 29,886 83.38 17.561 14.642 15.971 702 470 2.240 53,956 14.599 1.372 3Q 2018 25,365 30,766 82.44 17.071 14.074 15.407 693 488 2.300 53,505 14.490 0.917 4Q 2018 22,784 28,003 81.36 17.925 14.584 16.016 698 443 2.270 52,849 15.184 0.832 2018 94,776 115,642 81.96 17.596 14.421 15.793 698 1,823 2.230 52,849 14.852 0.941 1Q 2019 22,469 27.336 82.19 17.624 14.486 15.873 704 432 2.040 53,218 15.313 0.560 20 2019 25,690 29,652 86.64 17.575 15.227 16.539 711 475 2.140 54,858 14.947 1.592 3Q 2019 26,598 31,086 85.56 16.948 14.502 15.708 698 496 2.050 54,079 14.646 1.062 4Q 2019 24,156 28,812 83.84 17.561 14.723 16.101 696 458 2.040 54,163 15.056 1.045 2019 98,913 116,886 84.62 17.414 14.737 16.054 696 1,860 2.070 54,163 14.980 1.075 Cost per Available Seat Mile (CASM in cents) Aircraft fuel and related taxes Salaries, wages and benefits 3rd Party Carrier Capacity Charges Maintenance, materials and repairs Other rent and landing fees Aircraft rent Selling expenses Depreciation and amortization Mainline operating special items, net Other 3.283 5.165 0.537 0.834 0.934 0.482 0.671 0.793 0.341 13.039 3.523 4.778 0.499 0.816 0.890 0.438 0.659 0.739 0.251 12.594 3.650 4.710 0.484 0.813 0.874 0.436 0.650 0.725 0.280 12.621 3.553 5.014 0.514 0.936 0.864 0.489 0.700 0.807 0.261 13.138 3.508 4.907 0.508 0.848 0.890 0.460 0.669 0.764 0.282 12.837 3.223 5.249 0.508 0.980 1.006 0.501 0.691 0.838 0.209 13.206 3.433 5.032 0.486 0.934 0.965 0.472 0.701 0.793 0.169 12.984 3.262 4.854 0.466 0.946 0.920 0.454 0.695 0.769 0.309 12.674 3.259 5.078 0.500 1.045 0.913 0.479 0.725 0.861 0.212 13.071 3.296 5.047 0.489 0.975 0.950 0.476 0.703 0.814 0.226 12.975 Mainline operating special items, net Aircraft fuel and related taxes Total CASM, excluding net special items and fuel (0.793) (3.283) 8.963 (0.739) (3.523) 8.332 (0.725) (3.650) 8.246 (0.807) (3.553) 8.778 (0.764) (3.508) 8.564 (0.838) (3.223) 9.145 (0.793) (3.433) 8.758 (0.769) (3.262) 8.644 (0.861) (3.259) 8.951 (0.814) (3.296) 8.866 Appendix G Aircraft at December 31, 2019 3rd Party Carrier uc Mainline Airbus A319 Airbus A320 Airbus A321 Airbus A321neo Airbus A330-200 Airbus A330-300 Boeing 737-800 Boeing 737-8 MAX Boeing 757-200 Boeing 767-300ER Boeing 777-200ER Boeing 777-300ER Boeing 787-8 Boeing 787-9 Embraer 190 Total Mainline Average Average Seating Age Capacity (Years) 128 15.7 150 18.7 179 7.4 196 0.4 247 8.0 291 19.4 163 10.1 172 1.4 180 20.1 209 19.9 273 19.0 304 5.8 234 4.1 285 22 99 12.1 11.0 Company Owned Leased 9 50 5 17 74 24 1 5 7 2 2 59 77 4 7 14 1 8 20 8 9 8 2 9 236 188 Total 59 22 98 5 7 4 137 11 15 8 21 9 9 10 9 424 Cost Gross DD&A S 3.237 S 2,033 S 1,305 976 6,802 2,013 348 6 660 211 438 340 7.240 2,925 789 44 500 402 687 547 3.913 2,974 2.000 464 1,102 181 1,666 146 188 91 30,875 13,353 Net 1,204 329 4,789 342 449 98 4,315 745 98 140 939 1,536 921 1,520 97 17,522 3 3 27 27 Regional Bombardier CRJ 200 Bombardier CRJ 700 Bombardier CRJ 900 Embraer ERJ 140 Embraer ERJ 145 Embraer E175 Total Regional 50 66 77 44 50 76 18.8 14.8 9.3 18.4 17.7 8.3 5 24 30 21 53 41 174 8 54 57 21 53 79 272 99 835 1,327 211 479 1,487 4.440 93 618 617 194 424 617 2,565 6 217 710 17 55 870 1,875 38 92 6 410 194 92 696 Total Aircraft Spare parts inventory $ 35,315 S 15,918 $ 19,397 1,021 $ 20,418 Appendix H Pilots Flight Attendants Customer Agents Mechanics/Service Dispatchers Trainers Stock Clerks Union Administration Total Salaries, wages and FTE benefits 7,606 $ 1,521 11,788 707 11,029 496 13,592 1,087 271 13 238 17 2,505 95 47,029 3,936 7,134 1,962 54,163 $ 5,898 Appendix I Planned Aircraft to be stored Mainline Airbus A319 27 Airbus A320 10 Airbus A321 44 Airbus A321neo 2 Boeing 737-800 62 Boeing 737-8 MAX 5 Boeing 777-200ER 10 Boeing 777-300ER Boeing 787-8 4 Boeing 787-9 Total Mainline 172 4 4 Regional Bombardier CRJ 700 Bombardier CRJ 900 Embraer ERJ 140 Embraer ERJ 145 Embraer E 175 Total Regional | Appendix J 2026 10 Total 64 Planned Future Aircraft Airbus A320neo Line Boeing 737 MAX Line Boeing 787 Line Embraer E175 2022 8 10 5 6 29 2023 7 6 5 0 18 2024 11 0 0 0 11 2025 4 0 3 0 7 Annually 2027 2028 - 2032 9 3 18 2 6 1 0 0 33 6 = =| mot 0 13 27 6 141