Sprint - Nextel 2006 Annual Report Download - page 58

Sprint Capital Corporation, in satisfaction of indebtedness owed by our parent company to Sprint Capital. On
May 19, 2006, Sprint Capital sold the Embarq senior notes to the public, and received about $4.4 billion in
net proceeds.
In connection with the spin-off, we entered into a separation and distribution agreement and related agreements
with Embarq, which provide that generally each party will be responsible for its respective assets, liabilities
and businesses following the spin-off and that we and Embarq will provide each other with certain transition
services relating to our respective businesses for specified periods at cost-based prices. We also entered into
agreements pursuant to which we and Embarq will provide each other with specified services at commercial
rates. Further, the agreements provide for a settlement process surrounding the transfer of certain assets and
liabilities. It is possible that adjustments will occur in future periods as these matters are settled.
At the time of the spin-off, all outstanding options to purchase our common stock held by employees of
Embarq were cancelled and replaced with options to purchase Embarq common stock. Outstanding options to
purchase our common stock held by our directors and employees who remained with us were adjusted by
multiplying the number of shares subject to the options by 1.0955 and dividing the exercise price by the same
number in order to account for the impact of the spin-off on the value of our shares at the time the spin-off
was completed.
Generally, restricted stock units awarded pursuant to our equity incentive plans and held by our employees at
the time of the spin-off (including those held by those of our employees who became employees of Embarq)
were treated in a manner similar to the treatment of outstanding shares of our common stock in the spin-off.
Holders of these restricted stock units received one Embarq restricted stock unit for every twenty restricted
stock units held. Outstanding deferred shares granted under the Nextel Incentive Equity Plan, which represent
the right to receive shares of our common stock, were adjusted by multiplying the number of deferred shares
by 1.0955. Cash was paid to the holders of deferred shares in lieu of fractional shares. If the spin-off of
Embarq does not qualify as a tax-free transaction, tax could be imposed on both our shareholders and us.
We believe that our cash and liquidity requirements will be met without the net cash provided by Embarq.
Cash Flows
2006 2005 Dollars Percent
Year Ended
December 31, Change
(dollars in millions)
Cash provided by operating activities ...................... $10,958 $10,679 $ 279 3%
Cash used in investing activities .......................... (11,392) (4,724) (6,668) 141%
Cash used in financing activities .......................... (6,423) (1,228) (5,195) NM
NM — Not Meaningful
Operating Activities
Net cash provided by operating activities of $11.0 billion in 2006 increased $279 million from 2005 primarily
due to a $12.0 billion increase in cash received from our customers as a result of the Sprint-Nextel merger in
the third quarter 2005, the PCS Affiliate acquisitions in 2005 and 2006 and the Nextel Partners acquisition in
the second quarter 2006, as well as continued growth in the Wireless customer base. This increase was
partially offset by an $8.5 billion increase in cash paid to suppliers and employees, $1.2 billion of proceeds
received in 2005 from the communications towers lease transaction and a decrease in cash provided from
discontinued operations of $1.1 billion.
Investing Activities
Net cash used in investing activities for 2006 increased by $6.7 billion from 2005 due primarily to:
ka $10.3 billion increase in cash paid in 2006 for acquisitions, including $3.2 billion of net cash paid
to acquire Alamosa Holdings, $66 million of net cash paid to acquire Enterprise Communications,
$150 million of net cash paid to acquire Velocita Wireless, $847 million of net cash paid to acquire
UbiquiTel, and $6.2 billion of net cash paid to acquire Nextel Partners compared to $1.4 billion of net
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