Sprint - Nextel 2011 Annual Report Download - page 51

Table of Contents
Property, plant and equipment are generally depreciated on a straight-line basis over estimated economic useful lives. Certain network assets are depreciated
using the group life method. Depreciable life studies are performed periodically to confirm the appropriateness of depreciable lives for certain categories of property, plant
and equipment. These studies take into account actual usage, physical wear and tear, replacement history and assumptions about technology evolution. When these factors
indicate that an asset's useful life is different from the previous assessment, we depreciate the remaining book values prospectively over the adjusted remaining estimated
useful life. Depreciation rates for assets using the group life method are revised periodically as required under this method. Changes made as a result of depreciable life
studies and rate changes generally do not have a material effect on depreciation expense.
Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. Long-
lived asset groups were determined based upon certain factors including assessing the lowest level for which identifiable cash flows are largely independent of the cash
flows of other groups of assets and liabilities. If the total of the expected undiscounted future cash flows is less than the carrying amount of our assets, a loss is recognized
for the difference between the estimated fair value and carrying value of the assets. Impairment analyses, when performed, are based on our current business and
technology strategy, views of growth rates for our business, anticipated future economic and regulatory conditions and expected technological availability. Our estimate o
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undiscounted cash flows exceeded the carrying value of these assets by more than 10%. If we continue to have operational challenges, including retaining and attracting
subscribers, future cash flows of the Company may not be sufficient to recover the carrying value of our wireless asset group, and we could record asset impairments that
are material to Sprint's consolidated results of operations and financial condition.
In addition to the analysis described above, certain assets that have not yet been deployed in the business, including network equipment, cell site development
costs and software in development, are periodically assessed to determine recoverability. Network equipment and cell site development costs are expensed whenever
events or changes in circumstances cause the Company to conclude the assets are no longer needed to meet management's strategic network plans and will not be
deployed. Software development costs are expensed when it is no longer probable that the software project will be deployed. Network equipment that has been removed
from the network is also periodically assessed to determine recoverability. In connection with Network Vision, including the decommissioning of the Nextel platform,
management may conclude in future periods that certain equipment will never be either deployed or redeployed, in which case non-cash charges that could be material to
our consolidated financial statements would be recognized. Refer to Results of Operations for additional information on asset impairments.
Evaluation of Goodwill and Indefinite-Lived Intangible Assets for Impairment
Goodwill represents the excess of purchase price paid over the fair value assigned to the net tangible and identifiable intangible assets of acquired businesses.
Sprint evaluates the carrying value of goodwill annually or more frequently if events or changes in circumstances indicate that the carrying amount may exceed estimated
fair value. Our analysis includes a comparison of the estimated fair value of the reporting unit to which goodwill applies to the carrying value, including goodwill, of that
reporting unit.
We regularly assess whether any indicators of impairment exist, which requires a significant amount of judgment. 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 a significant asset group within a reporting unit; and/or slower growth rates, among others. Any
adverse change in these factors could result in an impairment up to the carrying value of our goodwill, which was $359 million as of December 31, 2011.
The Company recognizes that our market capitalization, the product of our traded stock price, and shares outstanding, is subject to volatility and, during certain
periods, has been below our shareholders' equity book value. Accordingly we monitor changes in our market capitalization between annual impairment tests to determine
whether declines, if any, should necessitate an interim review of goodwill for impairment. We consider a decline in our market capitalization that corresponds to an
overall deterioration in stock market conditions to be less of an indicator of goodwill impairment than a unilateral decline in our market capitalization, which could result
from adverse changes in our underlying operating performance, cash flows, financial condition and/or liquidity. In the event that our market capitalization does decline
below its book value, we consider the length and severity of the decline and
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