Sprint - Nextel 2006 Annual Report Download - page 91

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Definite Lived Intangible Assets
Definite lived intangible assets consist primarily of customer relationships that are amortized over three to five
years using the sum of the years’ digits method, which we believe best reflects the estimated pattern in which
the economic benefits of those relationships will be consumed. Other definite lived intangible assets primarily
include rights under affiliation agreements that we reacquired in connection with the acquisitions of several of
the PCS Affiliates and Nextel Partners, Inc., which are being amortized over the remaining terms of those
affiliation agreements on a straight-line basis, and the Nextel and Direct Connect trade names, which are being
amortized over ten years from the date of the Sprint-Nextel merger on a straight-line basis.
We continually assess whether any indicators of impairment exist that would trigger a test of any of these
definite lived intangible assets, including, but not limited to, a significant decrease in the market price of the
asset or cash flows, or a significant change in the extent or manner in which the asset is used. In addition, if
we ever were required to determine the implied fair value of our goodwill as part of a second step goodwill
impairment test, it would result in our evaluating the recorded value of our definite lived intangible assets for
impairment. We also evaluate the remaining useful lives of our definite lived intangible assets each reporting
period to determine whether events and circumstances warrant a revision to the remaining periods of
amortization, which would be addressed prospectively. For example, we review certain trends such as customer
churn, average revenue per user, revenue, our future plans regarding the iDEN network and changes in
marketing strategies, among others. See note 7 for additional information regarding our definite lived
intangible assets.
Derivative Instruments and Hedging Activities
We recognize derivative instruments as either assets or liabilities in our consolidated balance sheets and
measure those instruments at fair value in accordance with SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities, as amended. Changes in the fair value of derivatives are recorded each
period in current earnings or other comprehensive income (loss) depending on the use of the derivative and
whether it qualifies for hedge accounting.
We use derivative instruments only for hedging and risk management purposes. Hedging activity may be done
for purposes of mitigating the risks associated with an asset, liability, committed transaction or probable
forecasted transaction. We are primarily exposed to the market risk associated with unfavorable movements in
interest rates, equity prices and foreign currencies. We do not enter into derivative transactions for speculative
or trading purposes.
At inception and on an on-going basis, we assess whether each derivative that qualifies for hedge accounting
continues to be highly effective in offsetting changes in the cash flows or fair value of the hedged item. If and
when a derivative instrument is no longer expected to be highly effective, hedge accounting is discontinued.
Hedge ineffectiveness, if any, is included in current period earnings.
We formally document all hedging relationships between the hedging instrument and the hedged item as well
as our risk management objectives and strategies for undertaking various hedge transactions.
Treasury Shares
Shares of common stock repurchased by us are recorded at cost as treasury shares and result in a reduction of
shareholders’ equity. We reissue treasury shares as part of our shareholder approved stock-based compensation
programs, as well as upon conversion of outstanding securities that are convertible into common stock. When
shares are reissued, we determine the cost using the weighted average cost method. The difference between
the cost of the shares and the issuance price is included in paid-in capital or retained earnings.
Revenue Recognition
Operating revenues primarily consist of wireless service revenues, revenues generated from handset and
accessory sales and revenues from wholesale operators and PCS Affiliates, as well as long distance voice, data
F-14
SPRINT NEXTEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)