Sprint - Nextel 2005 Annual Report Download - page 116

SPRINT NEXTEL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
In addition, Nextel stock-based awards were converted into Sprint Nextel stock-based awards with the shares
issuable under the employee stock option plan and exercise prices of the awards adjusted based on an exchange ratio
of 1.3 shares of Sprint Nextel common stock for each share of Nextel common stock, which represents
approximately 104 million shares of Sprint Nextel common stock in the aggregate. The value of these awards was
calculated by applying the fair value method under SFAS No. 123, as amended by SFAS No. 148, and resulted in
$1.1 billion in stock-based awards. The fair value was calculated on the stock-based awards outstanding on the date
of completion of the merger, which include options to purchase our shares and deferred shares.
We incurred approximately $78 million of direct acquisition costs associated with financial advisory, legal and
other services, which were included in the total purchase price.
We paid a premium (i.e., goodwill) over the fair value of the net tangible and identified intangible assets of
Nextel for a number of potential strategic and financial benefits that are expected to be realized as a result of the
merger, including, but not limited to, the following:
• the combination of extensive network and spectrum assets, which enables us to offer consumers,
businesses and government agencies a wide array of broadband wireless and integrated communications
services;
• the combination of Nextel’s strength in business and government wireless services with our position in
consumer wireless and data services, including services supported by our global IP network, which
enables us to serve a broader customer base;
• the size and scale of the combined company, which is comparable to that of our two largest competitors, is
expected to enable more operating efficiencies than either company could achieve on its own; and,
• the ability to position us strategically in the fastest growing areas of the communications industry.
Allocation of Purchase Price
The approach to the estimation of the fair values of the Nextel intangible assets was primarily based on the
income approach valuation technique and involved the following:
• preparation of discounted cash flow analyses;
• determination of the fair value of identified significant intangible assets;
• reconciliation of the individual assets’ returns with the weighted average cost of capital; and
• allocation of the excess purchase price over the fair values of the identifiable assets and liabilities acquired
to goodwill.
Under the purchase method of accounting, the assets and liabilities of Nextel were recorded at their respective
fair values as of the date of the merger. We are in the process of finalizing valuations of assets, including
investments, property, plant and equipment, intangible assets, and certain liabilities. Given the size of the merger,
the fair values set forth below are based on preliminary valuations and are subject to adjustment as additional
information is obtained. Such additional information includes, but may not be limited to, the following:
valuations of property, plant and equipment, plans relative to the disposition of certain assets acquired, exit from
certain contractual arrangements and the expected involuntary termination of employees in connection with our
integration activities and rationalization of the combined work force. When finalized, adjustments to goodwill
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