Sprint - Nextel 2008 Annual Report Download - page 81

SPRINT NEXTEL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
have a material adverse effect on us. In addition, iDEN technology is not as widely adopted and has fewer
subscribers than other wireless technologies and we expect that over time it is less likely that manufacturers other
than Motorola will be willing to make the significant financial commitment required to license, develop and
manufacture iDEN infrastructure equipment and devices. Further our ability to complete the spectrum
reconfiguration plan in connection with the FCC’s Report and Order, described in note 12, is dependent, in part,
on Motorola.
Note 3. Acquisitions
During the fourth quarter 2009, we completed the acquisitions of Virgin Mobile USA, Inc. and iPCS,
Inc. (together, Acquisitions) within our Wireless segment. The consideration paid for each of the acquired
entities has been allocated to the assets acquired and liabilities assumed based on their estimated fair values at the
respective acquisition dates. The excess of consideration paid over net tangible and identifiable intangible assets
is recognized as goodwill. As a result of these Acquisitions, Sprint recognized $373 million of goodwill
representing our balance as of December 31, 2009. The purchase price allocation used in the preparation of these
financial statements is preliminary due to the continuing analyses relating to the determination of the estimated
fair values of the assets acquired and liabilities assumed. Any changes to the valuation of net assets acquired,
based on information as of the acquisition date, will result in an adjustment to the estimated fair value of the
assets acquired and liabilities assumed and a corresponding adjustment to goodwill. Management does not expect
the finalization of these matters to have a material effect on the allocation. Goodwill recognized in connection
with the Acquisitions is not deductible for tax purposes. The results of operations for each acquired entity are
included in Sprint’s consolidated results of operations prospectively from the respective date of each acquisition.
The estimated fair values of the assets acquired and liabilities assumed were preliminarily determined
using the income, cost or market approaches. The fair value measurements were primarily based on significant
inputs that are not observable in the market, other than long-term debt assumed in the acquisition of iPCS.
Discounted cash flows, an income approach, were primarily used to value the identifiable intangible assets,
consisting primarily of customer relationships, reacquired rights and the Virgin Mobile trademark, as well as the
effective settlement of litigation. Depreciated replacement cost, a cost approach, was used to estimate the fair
value of property, plant and equipment. In accordance with the recently adopted guidance on accounting for
business combinations, Sprint measured 100% of the acquiree’s assets and liabilities at fair value, including the
non-controlling interest in VMU held by Sprint prior to the acquisition. Sprint’s previously held non-controlling
interest in VMU was valued based on a market approach considering the amounts paid to acquire the remaining
85.9% ownership in VMU.
VMU and iPCS Acquisitions
On November 24, 2009 we completed the acquisition of the remaining 85.9% of VMU, a national
provider of predominantly prepaid wireless communications services, in a cash and stock business combination,
to, among other things, broaden the Company’s position in the prepaid wireless market. The aggregate
consideration, including the fair value of Sprint’s non-controlling interest in VMU, was $701 million consisting
of 96.2 million shares of Sprint common stock valued at $361 million, share-based consideration of $18 million
and $265 million in net cash. The value of the 96.2 million shares of Sprint common stock issued was determined
based on Sprint’s common stock share price of $3.75, the closing price on the date of acquisition. As a result of
the acquisition, we recognized a gain of $151 million resulting from the excess of the estimated fair value of $57
million for our previously held 14.1% interest over our carrying value. Sprint’s historical carrying value of its
previously held interest in VMU was reflected as a $94 million liability resulting from a return of capital in
excess of our investment in VMU.
On December 4, 2009, we completed the acquisition of 100% of the common stock of iPCS, a Sprint
PCS affiliate, in an all-cash business combination for aggregate consideration of $295 million to, among other
things, expand our direct subscriber base, grow our direct coverage area and simplify our business operations.
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