Sprint - Nextel 2005 Annual Report Download - page 129

SPRINT NEXTEL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The Report and Order requires us to complete the reconfiguration plan within a 36-month period, subject to
certain exceptions particularly with respect to markets that border Mexico and Canada. If, as a result of events
within our control we fail to complete the reconfiguration plan within the 36-month period, we could be subject
to actions, which could be material. In addition, a financial reconciliation is required to be completed in 2008 at
the end of the reconfiguration implementation, at which time we are required to make a payment to the U.S.
Department of the Treasury to the extent that the value of the spectrum rights received exceeds the total of (i) the
value of spectrum rights that are surrendered and (ii) the qualifying costs referred to above.
At August 12, 2005, we had recorded a liability of $403 million associated with the then-estimated portion of the
reconfiguration costs that represented our best estimate of amounts to be paid under the Report and Order that
would not benefit our infrastructure or spectrum positions. As of December 31, 2005, we reduced that estimate
by $137 million, through a reduction in goodwill, to reflect updated estimates of these costs. All other costs
incurred pursuant to the Report and Order that relate to the spectrum and infrastructure, when expended, are
accounted for either as property, plant and equipment or as additions to the spectrum license intangible asset,
consistent with our accounting and capitalization policy.
Certain of our reconfiguration costs which we will submit to an FCC appointed Transition Administrator seeking
credit against our $2.8 billion obligation are based on estimated allocations between reconfiguration activity and
our normal network growth. These estimated allocations may vary depending on key assumptions including
subscribers, call volumes and other factors over the life of the reconfiguration program. As a result, the amount
allocated to reconfiguration activity is subject to change based on final assessments made at the conclusion of the
reconfiguration program process. Since we, the Transition Administrator and the FCC have not yet reached an
agreement on our methodology for calculating the amount to be submitted for credit, we cannot provide
assurance that we will be granted full credit for certain of these network costs.
Note 8. Restructuring and Asset Impairments
Organizational Realignment
In late 2003, we initiated a company-wide effort to create a more efficient cost structure by realigning internal
resources to enhance our focus on the needs and preferences of two distinct consumer types–businesses and
individuals. In conjunction with the market-facing realignment, we also undertook initiatives to improve productivity.
We recognized related pre-tax charges of $59 million in 2003 and $130 million in 2004 primarily associated with
severance benefits associated with the involuntary employee separation of approximately 5,400 employees. We
have completed substantially all activities related to this realignment, and in the fourth quarter 2005, we
completed an analysis to finalize original estimates. This analysis resulted in an $11 million reduction in
liabilities. The remaining $6 million commitment has been reclassified as other current liabilities.
Web Hosting Wind-down
In 2003, we announced the wind-down of web hosting services offered by Long Distance. This decision resulted
in a $316 million pre-tax charge for asset impairments. This wind-down, along with related restructurings in
other Long Distance operations, also resulted in pre-tax charges of $60 million in 2003, $63 million in 2004 and
$9 million in 2005, primarily related to facility lease terminations. As of December 31, 2005, substantially all
activities associated with this wind-down have been completed; however, we continue to be obligated under
facility leases that expire from 2007 through 2014.
Wireless Billing Platform Termination
In 2003, we announced the termination of the development of a new billing platform in Wireless. This decision
resulted in pre-tax charges of $351 million, consisting of $339 million for asset impairments and $12 million for
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