Sprint - Nextel 2007 Annual Report Download - page 54

Merger and Integration Expenses
We incurred $516 million of merger and integration expenses in 2007, $413 million in 2006 and
$580 million in 2005, of which $344 million and $191 million are included in our Wireless segment for 2007 and
2006, respectively, as the expenses are solely and directly attributable to that segment. These expenses are
generally classified as selling, general and administrative and cost of products as appropriate on our consolidated
statement of operations. Merger and integration expenses that are not solely and directly attributable to the
Wireless segment are included in our Corporate segment and are classified as selling, general and administrative
expenses. Merger and integration expenses increased in 2007 as compared to 2006, primarily due to costs to
provide wireless devices that operate seamlessly between the CDMA and iDEN networks. Merger and
integration expenses decreased in 2006 as compared to 2005 primarily due to reduced rebranding, internal labor
and retention costs offset by increased system rationalization costs.
Severance, Exit Costs and Asset Impairments
During 2007, we had asset impairments of $163 million, which related to the write-off of network assets,
including site development costs, that we determined would not be used based on management’s strategic
network plans, the loss on the sale of Velocita Wireless, and the closing of retail stores due to integration
activities. We wrote off $69 million of assets in 2006 and $44 million of assets in 2005 primarily related to
software asset impairments.
We recorded severance and exit costs of $277 million in 2007 related to the separation of employees, exit
costs primarily associated with the sale of Velocita Wireless and continued organizational realignment initiatives
associated with the Sprint-Nextel merger and the PCS Affiliate and Nextel Partners acquisitions. In 2006, we
recorded $138 million in severance and exit costs primarily related to our realignment initiatives associated with
the Sprint-Nextel merger and integration initiatives.
Goodwill Impairment
In the fourth quarter 2007, we performed our annual assessment of impairment for goodwill. As a result of
this assessment, which is described in note 3 of the Notes to Consolidated Financial Statements, we recorded a
non-cash goodwill impairment charge of $29.7 billion.
Depreciation and Amortization Expense
Depreciation expense in 2007 remained flat as compared to 2006. The 2007 depreciation expense includes
about a $400 million decrease related to depreciation rate changes with respect to our CDMA and Wireline
networks assets, resulting from our annual depreciable lives study. These rate changes are primarily related to
certain assets becoming fully depreciated and net changes in service lives of certain assets. The decreases
resulting from the depreciation rate changes were fully offset by normal additions to our network asset base.
Depreciation expense increased 48% in 2006 from 2005, primarily due to the Sprint-Nextel merger and the PCS
Affiliate and Nextel Partners acquisitions.
Amortization expense decreased 14% in 2007 from 2006, primarily due to decreases in the amortization of
the customer relationships acquired as part of the Sprint-Nextel merger, which are amortized using the sum of the
years’ digits method, resulting in higher amortization rates in early periods that decline over time. Amortization
expense increased $2.5 billion in 2006 from 2005, primarily due to the amortization of the value of customer
relationships and other definite lived intangible assets acquired in connection with the Sprint-Nextel merger and
the PCS Affiliate and Nextel Partners acquisitions. See note 3 of the Notes to Consolidated Financial Statements
for additional information regarding our definite lived intangible assets.
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