Sprint - Nextel 2005 Annual Report Download - page 115

SPRINT NEXTEL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Note 2. Business Combinations
In 2005, we acquired Nextel Communications, US Unwired, Gulf Coast Wireless and IWO Holdings in
transactions accounted for under the purchase method as required by SFAS No. 141, Business Combinations.
SFAS No. 141 requires that the total purchase price of each of the acquired entities be allocated to the assets
acquired and liabilities assumed based on their fair values at the respective merger dates. The allocation process
requires an analysis of customer relationships, acquired contractual rights and assumed contractual commitments
and legal contingencies to identify and record the fair value of all assets acquired and liabilities assumed. In
valuing acquired assets and assumed liabilities, fair values are based on, but are not limited to: quoted market
prices, where available; our intent with respect to whether the assets purchased are to be held, sold or abandoned;
expected future cash flows; current replacement cost for similar capacity for certain fixed assets; market rate
assumptions for contractual obligations; and appropriate discount rates and growth rates.
Nextel Communications, Inc.
On August 12, 2005, a subsidiary of Sprint Corporation merged with Nextel and, as a result, Sprint acquired
100% of the outstanding common shares of Nextel. Nextel, now a wholly owned subsidiary of Sprint Nextel,
provides wireless voice and data services in the United States. This transaction was consummated as part of our
overall strategy to offer the most comprehensive selection of voice, data and multimedia products and services.
The results of Nextel’s operations have been included in the consolidated financial statements since the merger
date.
The aggregate consideration paid for the merger is as follows:
Aggregate
Consideration
(in millions)
Payment to Nextel shareholders in cash ............................................... $ 969
Payment to Nextel shareholders in stock ............................................... 35,645
Conversion of Nextel stock-based awards
Vested stock-based awards ....................................................... 639
Unvested stock-based awards ..................................................... 485
Direct acquisition costs ............................................................ 78
Total ......................................................................... $ 37,816
We expect to spin off our local telecommunications business to our shareholders on a tax-free basis. To mitigate
the risk that the Sprint Nextel stock that was issued in the merger would preclude this tax-free treatment and to
ensure that Sprint Corporation would be treated as the acquiring entity for accounting purposes, the merger
agreement provided for an allocation of cash and shares of Sprint Nextel common stock, determined as of the
date of the merger, to ensure that former Nextel shareholders would own slightly less than 50% of the equity
interests of Sprint Nextel. Pursuant to this allocation, Nextel common shareholders received $969 million in cash
and 1.452 billion shares of Sprint Nextel voting and non-voting common stock in the aggregate, or $0.84629198
and 1.26750218 shares of our stock in exchange for each share of Nextel stock. In connection with the merger,
we amended our articles of incorporation to increase to 6.5 billion the number of shares of common stock
authorized for issuance.
The value of the newly issued shares was calculated using the average of the per share closing sales prices of
Sprint Corporation Series 1 common stock on the NYSE for the period two business days before and through the
two business days after the December 15, 2004 announcement of the merger.
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