Sprint - Nextel 2005 Annual Report Download - page 142

SPRINT NEXTEL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
In September 2004, the U.S. District Court for the District of Kansas denied a motion to dismiss a shareholder
lawsuit alleging that our 2001 and 2002 proxy statements were false and misleading in violation of federal
securities laws to the extent they described new employment agreements with certain senior executives without
disclosing that, according to the allegations, replacement of those executives was inevitable. These allegations,
made in an amended complaint in a lawsuit originally filed in 2003, are asserted against us and certain current
and former officers and directors, and seek to recover any decline in the value of our tracking stocks during the
class period. The parties have stipulated that the case can proceed as a class action. All defendants have denied
plaintiffs’ allegations and intend to defend this matter vigorously. Allegations in the original complaint, which
asserted claims against the same defendants and our former independent auditor, were dismissed by the court in
April 2004.
A number of putative class action cases that allege Sprint Communications Company LP failed to obtain
easements from property owners during the installation of its fiber optic network in the 1980’s have been filed in
various courts. Several of these cases sought certification of nationwide classes, and in one case, a nationwide
class has been certified. In 2002, a nationwide settlement of these claims was approved by the U.S. District Court
for the Northern District of Illinois, but objectors appealed the preliminary approval order to the Seventh Circuit
Court of Appeals, which overturned the settlement and remanded the case to the trial court for further
proceedings. The parties now are proceeding with litigation and/or settlement negotiations on a state by state
basis. In 2001, we accrued an expense reflecting the estimated settlement costs of these suits.
Various other suits, proceedings and claims, including purported class actions, typical for a business enterprise,
are pending against us or our subsidiaries. While it is not possible to determine the ultimate disposition of each of
these proceedings and whether they will be resolved consistent with our beliefs, we expect that the outcome of
such proceedings, individually or in the aggregate, will not have a material adverse effect on our financial
condition or results of operations or our business segments.
Spectrum Reconfiguration Obligations
On February 7, 2005, Nextel accepted the terms and conditions of the Report and Order of the FCC which
implemented a spectrum reconfiguration plan designed to eliminate interference with public safety operators in
the 800 MHz band. Under the terms of the Report and Order, prior to the August 12, 2005 merger date, Nextel
surrendered its spectrum rights in the 700 MHz spectrum band and certain portions of its spectrum rights in the
800 MHz band, and received spectrum rights in the 1.9 GHz band and spectrum rights in a different part of the
800 MHz band and undertook to pay the costs incurred by Nextel and third parties in connection with the
reconfiguration plan. Based on the FCC’s determination of the values of the spectrum rights received and
relinquished by Nextel, the minimum obligation incurred under the Report and Order will be $2.8 billion. The
Report and Order also provides that qualifying costs we incur as part of the reconfiguration plan, including costs
to reconfigure our own infrastructure and spectrum positions, can be used to offset the minimum obligation of
$2.8 billion; however, we are obligated to pay the full amount of the costs relating to the reconfiguration plan,
even if those costs exceed that amount. See note 7 for further information.
Operating Leases
We lease various equipment, office facilities, retail outlets and kiosks, switching facilities, transmitter and
receiver sites and spectrum under operating leases. The non-cancelable portion of these leases ranges from
monthly up to 25 years. These leases, with few exceptions, provide for automatic renewal options and escalations
that are either fixed or based on the consumer price index. Any rent abatements, along with rent escalations, are
included in the computation of rent expense calculated on a straight-line basis over the lease term. Our lease term
for most leases includes the initial non-cancelable term plus at least one renewal period, as the exercise of the
F-47