Sprint - Nextel 2007 Annual Report Download - page 107

SPRINT NEXTEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Note 3. Intangible Assets
Indefinite Lived Intangibles
Balance
December 31,
2005
Adjustments &
Additions Related to
Acquisitions &
Other
Balance
December 31,
2006
Adjustments &
Additions Related to
Acquisitions & Other
Goodwill
Impairment
Balance
December 31,
2007
(in millions)
Goodwill(1)(2) . . . $21,288 $ 9,616 $30,904 $ (240) $(29,729) $ 935
FCC licenses . . . 18,023 1,496 19,519 1,188 — 20,707
Trademarks .... 416 — 416 — — 416
$39,727 $11,112 $50,839 $ 948 $(29,729) $22,058
(1) During 2007, we recorded additional goodwill of $113 million associated with the premium paid for
Northern PCS. Offsetting this increase were net adjustments of $353 million, principally due to an
adjustment in the fair value of our FCC licenses and to an adjustment to the net assets of Nextel Partners
relating to the dilution of our ownership interest in Nextel Partners prior to our acquisition.
(2) Adjustments and additions to goodwill during 2006 are related to the Sprint-Nextel merger and acquisitions
of Nextel Partners, Velocita Wireless and the PCS Affiliates in 2005 and 2006.
Goodwill
Goodwill represents the premium paid over the fair value of the net tangible and intangible assets we have
acquired in business combinations. Approximately $26.3 billion of our goodwill was recorded in connection with
the recent business combinations described in note 2 and approximately $4.4 billion of our goodwill was
recorded from acquisitions in previous years. All goodwill has been allocated to the Wireless segment. In fourth
quarter 2007, we performed our annual assessment of impairment of goodwill. As a result of this assessment,
which is described below, we recorded a non-cash goodwill impairment charge of $29.7 billion. This charge is
presented separately in the 2007 statement of operations. The substantial majority of the charge is not deductible
for tax purposes. This charge does not result in a violation of any covenants of any of our debt instruments.
Goodwill Impairment Testing Policy
SFAS No. 142, Goodwill and Other Intangible Assets, requires that goodwill be tested for impairment at a
reporting unit level, which is equivalent to our reported wireless operating segment as determined in accordance
with SFAS No. 131, Disclosures about Segments of an Enterprise and Related Information. We review our
goodwill for impairment annually in the fourth quarter, or more frequently if indicators of impairment exist. We
periodically analyze whether any such indicators of impairment exist. A significant amount of judgment is
involved in determining if an indicator of impairment has occurred. Such indicators may include a sustained,
significant decline in our share price and market capitalization, a decline in our expected future cash flows, a
significant adverse change in legal factors or in the business climate, unanticipated competition, the testing for
recoverability of our long-lived wireless assets, and/or slower growth rates, among others.
To assess goodwill for impairment, we first compare the fair value of our wireless reporting unit with its net
book value. We estimate the fair value of the wireless reporting unit using discounted expected future cash flows,
supported by the results of various market approach valuation models. If the fair value of the wireless reporting
unit exceeds its net book value, goodwill is not impaired, and no further testing is necessary. If the net book
value of our wireless reporting unit exceeds its fair value, we perform a second test to measure the amount of
impairment loss, if any. To measure the amount of any impairment loss, we determine the implied fair value of
goodwill in the same manner as if our wireless reporting unit were being acquired in a business combination.
Specifically, we allocate the fair value of the wireless reporting unit to all of the assets and liabilities of that unit,
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