Sprint - Nextel 2007 Annual Report Download - page 98

SPRINT NEXTEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Property, Plant and Equipment
We record property, plant and equipment, or PP&E, including improvements that extend useful lives, at
cost. PP&E primarily includes network equipment, site costs, buildings and improvements, software, office
equipment and non-network internal use software, all of which are being depreciated as they have been placed
into service, as well as network asset inventory and construction in progress, which are not depreciated until they
are placed in service. Network equipment, site costs and software includes switching equipment and cell site
towers, base transceiver stations, site development costs, other radio frequency equipment, internal use software,
digital fiber-optic cable, conduit, transport facilities, and transmission-related equipment. Buildings and
improvements principally consists of owned general office facilities, retail stores and leasehold improvements.
Non-network internal use software, office equipment and other primarily consists of furniture, information
technology systems and equipment and vehicles. Network asset inventory and construction in progress primarily
includes materials, transmission and related equipment, labor, engineering, site development costs, interest and
other costs relating to the construction and development of our network. Capitalized interest incurred in
connection with the construction of capital assets totaled $127 million in 2007, $113 million in 2006 and
$53 million in 2005. Repair and maintenance costs and research and development costs are expensed as incurred.
We capitalize costs for network and non-network software developed or obtained for internal use during the
application development stage. These costs are included in PP&E and, when the software is placed in service, are
depreciated over estimated useful lives of up to 8.5 years. Costs incurred during the preliminary project and post-
implementation stage, as well as maintenance and training costs, are expensed as incurred.
The cost of PP&E generally is depreciated on a straight-line basis over estimated economic useful lives.
Amortization of assets recorded under capital leases is recorded in depreciation expense. We depreciate leasehold
improvements over the shorter of the lease term or the estimated useful life of the respective assets. We
depreciate buildings, network equipment, site costs and software over estimated useful lives of up to 31 years,
with about 89% of those assets being depreciated over lives of five to 15 years, and non-network internal use
software, office equipment and other depreciable property, plant and equipment over estimated useful lives of up
to 12 years, with about 83% of those assets being depreciated over lives of three to five years. We calculate
depreciation on certain of our assets using the group life method; accordingly, ordinary asset retirements and
disposals are charged against accumulated depreciation with no gain or loss recognized.
We perform annual internal studies to confirm the appropriateness of depreciable lives of most categories of
PP&E since changes in technology, changes in our intended use of these assets, as well as changes in broad
economic or industry factors, may cause the estimated period of use of these assets to change. These studies take
into account actual usage, physical wear and tear, replacement history, and assumptions about technology
evolution, to calculate the remaining life of our asset base. When these factors indicate the useful lives of PP&E
are different from the previous assessment, we depreciate the remaining book values prospectively over the
adjusted estimated useful lives. In addition to performing our annual studies, we also continue to assess the
estimated useful life of the iDEN network assets, and our future strategic plans for this network, as an
increasingly larger portion of our subscriber base is served by our CDMA network. A reduction in our estimate
of the useful life of the iDEN network assets would cause increased depreciation charges in future periods that
could be material.
We review our long-lived assets for impairment whenever events or changes in circumstances indicate that
the carrying amount may not be recoverable. We group our long-lived assets at the lowest level for which
identifiable cash flows are largely independent of the cash flows of other groups of assets and liabilities. Our
asset groups consist of wireless and wireline, and the wireless asset group includes our intangible assets and
goodwill. Indicators of impairment for both asset groups include, but are not limited to, a sustained significant
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