Sprint - Nextel 2005 Annual Report Download - page 57

Valuation and Recoverability of Intangible Assets
Intangible assets with indefinite useful lives represented $40 billion of our $103 billion in total assets as of
December 31, 2005. Goodwill and indefinite life intangibles, which primarily consist of our spectrum licenses,
are reviewed annually for impairment, or more frequently if indicators of impairment exist. We test goodwill for
impairment by comparing the net book value of assets of each of our reporting units, identified as our operating
segments, to estimates of its respective fair values. We test indefinite life intangibles for impairment by
comparing an asset’s respective carrying value to estimates of fair value. Fair value is determined using the direct
value method, which requires the use of estimates, judgments and projections. We performed our annual
impairment test of FCC spectrum licenses and goodwill in the fourth quarter 2005 and concluded that there was
no impairment, as the estimates of fair value of these intangible assets exceeded their carrying values.
The accounting estimates related to goodwill and indefinite life intangibles require us to make assumptions about
fair values. The impact of recognizing an impairment could be material to our financial position and results of
operations. Our assumptions about fair values require significant judgment because economic factors, industry
factors and technology considerations can result in variable and volatile fair values. In addition, a significant
amount of judgment is involved in determining the occurrence of a “triggering event” that requires an evaluation
of the recoverability of our goodwill or intangible assets.
In 2003, we decided to end pursuit of a residential fixed wireless strategy using certain of our BRS spectrum,
which resulted in an impairment analysis in which we determined that there had been a decline in our estimate of
the fair value of our BRS spectrum. As a result, we recorded a non-cash charge of $1.2 billion, which reduced the
carrying value to $300 million. We continue to invest in additional 2.5 GHz spectrum rights, test new technology
that could be used to provide services using this spectrum, monitor industry developments and participate in FCC
proceedings in an effort to obtain favorable regulatory rulings with respect to this spectrum.
Valuation of Acquired Assets and Liabilities
In connection with the Sprint-Nextel merger in the third quarter 2005, as required by SFAS No. 141, Business
Combinations, we allocated the purchase price to the assets acquired, including goodwill and spectrum licenses,
and liabilities assumed from Nextel based on their respective fair values at the merger date. The approach to the
estimation of the fair values of the Nextel goodwill and indefinite life intangible assets was primarily based on
the income approach valuation technique.
We are in the process of finalizing internal studies of the assets acquired in the Sprint-Nextel merger and the
acquisitions of US Unwired, Gulf Coast Wireless, and IWO Holdings, including investments, property, plant and
equipment, intangible assets, and certain liabilities relevant to the allocation of the purchase price. The fair values
recorded as of December 31, 2005, 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 and physical counts of property, plant and equipment, plans relative to the disposition of
certain assets acquired, exit from certain contractual arrangements and the involuntary termination of employees.
When finalized, we may be required to make adjustments that could impact our results of operations and
financial position, some of which could be material.
Employee Benefit Plan Assumptions
Retirement benefits are a significant cost of doing business for us, yet represent obligations that will be settled far
in the future. Retirement benefit accounting is intended to reflect the recognition of the future benefit costs over
the employee’s expected tenure with us based on the terms of the plans and the investment and funding decisions
made by us. The accounting requires that management make assumptions regarding such variables as the
discount rate, return on assets, and future health care costs. Changes in these key assumptions can have a
significant impact on the projected benefit obligation and periodic benefit cost incurred by us.
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