Sprint - Nextel 2006 Annual Report Download - page 112

Download and view the complete annual report

Please find page 112 of the 2006 Sprint - Nextel annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 140

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114
  • 115
  • 116
  • 117
  • 118
  • 119
  • 120
  • 121
  • 122
  • 123
  • 124
  • 125
  • 126
  • 127
  • 128
  • 129
  • 130
  • 131
  • 132
  • 133
  • 134
  • 135
  • 136
  • 137
  • 138
  • 139
  • 140

Exit Costs Associated with Business Combinations
We continue to finalize our plans for rationalizing certain redundant assets and activities, such as facilities,
software and infrastructure assets related to certain business combinations, and to integrate the combined
companies. We expect to execute these plans over the next several quarters. These plans affect many areas of
our company, including sales and marketing, network, information technology, customer care and general and
administrative functions. In addition, we expect that the finalization of our integration plans may result in the
need to adjust the useful lives of certain definite lived intangibles, network assets and/or other property, plant
and equipment. See note 3 for more information regarding business combinations.
In connection with activities related to business combinations, we recorded certain costs associated with
dispositions and integration activities in accordance with the requirements of EITF Issue No. 95-3, Recognition
of Liabilities in Connection with a Purchase Business Combination. The exit costs are primarily related to
termination fees associated with leases and contractual arrangements, as well as severance and related costs
associated with work force reductions. For the year ended December 31, 2006, we recorded $232 million of
such exit costs. These costs have resulted in adjustments to accrued liabilities, which consequently have
resulted in an adjustment to goodwill related to the 2005 and 2006 acquisitions. The activity is presented in
the table below:
December 31, 2005
Liability Balance
Purchase
Price
Accruals Payments
December 31, 2006
Liability Balance
2006 Activity
(in millions)
Lease terminations ....................... $42 $ 61 $ (26) $ 77
Severance .............................. 6 159 (137) 28
Other ................................. — 12 (9) 3
Total costs ............................. $48 $232 $(172) $108
Purchase
Price
Accruals Payments
December 31, 2005
Liability Balance
2005 Activity
(in millions)
Lease terminations ...................................... $ 42 $ — $42
Severance ............................................ 141 (135) 6
Other ................................................ 20 (20) —
Total costs ............................................ $203 $(155) $48
Asset Impairments
In 2006, we wrote off $69 million of assets primarily related to software asset impairments and abandonments
of various assets, including certain cell sites under construction. In 2005, we wrote off $44 million of assets
related to various software applications. In 2004, we determined that business conditions and events occurring
in 2004 and impacting our Long Distance operations constituted a triggering event requiring an evaluation of
the recoverability of the Long Distance long-lived assets pursuant to SFAS No. 144. The fair value of the asset
group was determined by discounting the cash flow projections at a 10% discount rate, reflecting a risk-
adjusted weighted average cost of capital. The resulting fair value of the asset group required a $3.5 billion
non-cash impairment charge, reducing the net carrying value of Long Distance property, plant and equipment
by about 60%, to $2.3 billion at September 30, 2004. Also in 2004, we completed the sale of our wholesale
Dial IP business for $34 million, resulting in a non-cash charge of $21 million.
F-35
SPRINT NEXTEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)