Sprint - Nextel 2007 Annual Report Download

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ÈANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2007
or
‘TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 1-04721
SPRINT NEXTEL CORPORATION
(Exact name of registrant as specified in its charter)
KANSAS 48-0457967
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
6200 Sprint Parkway, Overland Park, Kansas 66251
(Address of principal executive offices) (Zip Code)
Registrant’s telephone number, including area code:
(800) 829-0965
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
Series 1 common stock, $2.00 par value New York Stock Exchange
Guarantees of Sprint Capital Corporation
6.875% Notes due 2028 New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the
Securities Act. Yes ‘No È
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d)
of the Act. Yes ‘No È
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or
15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such filing requirements for the past
90 days. Yes ÈNo ‘
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not
contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any amendments to this Form 10-K. ‘
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer, or a smaller reporting company.
Large accelerated filer ÈAccelerated filer ‘Non-accelerated filer ‘Smaller reporting company ‘
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange
Act.) Yes ‘No È
Aggregate market value of voting and non-voting common stock equity held by non-affiliates at June 30,
2007, was $59,118,357,225
COMMON SHARES OUTSTANDING AT FEBRUARY 21, 2008:
VOTING COMMON STOCK
Series 1 ....................................................... 2,774,113,035
Series 2 ....................................................... 74,831,333
Documents incorporated by reference
Portions of the registrant’s definitive proxy statement filed under Regulation 14A promulgated by the
Securities and Exchange Commission under the Securities Exchange Act of 1934, which definitive proxy
statement is to be filed within 120 days after the end of registrant’s fiscal year ended December 31, 2007, are
incorporated by reference in Part III hereof.

Table of contents

  • Page 1
    ... is a shell company (as defined in Rule 12b-2 of the Exchange Act.) Yes ' No È Aggregate market value of voting and non-voting common stock equity held by non-affiliates at June 30, 2007, was $59,118,357,225 COMMON SHARES OUTSTANDING AT FEBRUARY 21, 2008: VOTING COMMON STOCK Series 1 ...2,774...

  • Page 2
    ...of Operations ...Quantitative and Qualitative Disclosures about Market Risk ...Financial Statements and Supplementary Data ...Changes in and Disagreements with Accountants on Accounting and Financial Disclosure ...Controls and Procedures ...Other Information ...PART III Directors, Executive Officers...

  • Page 3
    ...and "our" mean Sprint Nextel Corporation and its subsidiaries. We are a global communications company offering a comprehensive range of wireless and wireline communications products and services that are designed to meet the needs of individual consumers, businesses and government customers. We have...

  • Page 4
    ... mobile voice and data transmission services on networks that utilize CDMA and iDEN technologies. Strategy Our current strategy for the Wireless segment is to utilize state-of-the-art technology to provide differentiated wireless services and applications, including our push-to-talk, walkie-talkie...

  • Page 5
    ...high performance walkie-talkie applications on our CDMA network. In addition, we are improving our product and service offerings on our iDEN network, which will include the introduction of several new handsets in 2008. Products and Services We offer a wide array of wireless mobile telephone and data...

  • Page 6
    ... iDEN network and Boost Unlimited®, a local calling prepaid service on our CDMA network. Our services are provided using a wide variety of handsets and personal computer wireless data cards manufactured by various suppliers for use with our voice and data services. We generally sell these devices...

  • Page 7
    ... licenses that allow us to provide service in all 50 states, Puerto Rico and the U.S. Virgin Islands. The CDMA network uses a single frequency band and a digital spread-spectrum wireless technology that allows a large number of users to access the band by assigning a code to all voice and data...

  • Page 8
    ... major Caribbean islands. Our digital quad band devices can utilize global system for mobile communications, or GSM, technology, the network technology utilized by many wireless providers throughout Europe and other parts of the world, which enables subscribers to roam in numerous countries outside...

  • Page 9
    ...get things done quickly and efficiently. We believe we compete based on our differentiated service offerings and products, including our Power Vision applications and push-to-talk walkie-talkie feature. Our primary competitors offer high-speed data, imaging, entertainment and location-based services...

  • Page 10
    ...and long distance voice communications service, which they offer as part of their bundled service offerings. Products and Services Through our Wireline segment, we provide a broad suite of wireline voice and data communications services, including domestic and international data communications using...

  • Page 11
    ... use of FCC licenses held by other persons and organizations; govern the interconnection of our iDEN and CDMA networks with other wireless and wireline carriers; establish access and universal service funding provisions; impose rules related to unauthorized use of and access to customer information...

  • Page 12
    ... licenses. BRS-EBS License Conditions We hold and lease FCC BRS and EBS licenses. We currently use a portion of this spectrum to provide fixed wireless Internet access services to homes and small businesses using "first generation" line-of-sight technology. This service operates across the country...

  • Page 13
    ...-EBS licensees, we must provide "substantial service" to the public on each of our 2.5 GHz licenses by May 1, 2011. 800 MHz Band Spectrum Reconfiguration In recent years, the operations of a number of public safety communications systems in the 800 MHz block of spectrum have experienced interference...

  • Page 14
    ... in the 700 MHz spectrum band and certain portions of our holdings in the 800 MHz spectrum band, and to fund the cost incurred by public safety systems and other incumbent licensees to reconfigure the 800 MHz spectrum band. Under the Report and Order, we received licenses for 10 MHz of nationwide...

  • Page 15
    ... to share use of the spectrum before the transition is completed. The Report and Order requires us to make a payment to the U.S. Treasury at the conclusion of the band reconfiguration process to the extent that the value of the 1.9 GHz spectrum we received exceeds the total of the value of licenses...

  • Page 16
    ... to transmit to a requesting public safety answering point, or PSAP, both (a) the 911 caller's telephone number and (b) the location of the cell site from which the call is being made using latitude and longitude. With respect to our iDEN and CDMA network services, such information can be determined...

  • Page 17
    ... requirements on the tower siting process, the time and cost to construct cell towers could be negatively impacted. State and Local Regulation While the Communications Act generally preempts state and local governments from regulating entry of, or the rates charged by, wireless carriers, certain...

  • Page 18
    ... and related economic regulation of interconnected VoIP services that require the use of broadband connections and specialized customer premises equipment and permit users to terminate calls to and receive calls from the public switched telephone network. However, the FCC's ruling did not address...

  • Page 19
    ... free services (such as conference calling and chat lines) to end users; these services (and payments to the LECs' partners) are financed through the assessment of high access charges on the end user's long distance or wireless carrier. Because of the peculiarities of the FCC's access rate rules...

  • Page 20
    ... provided a lawful request for such information. Privacy-Related Regulations We comply with FCC customer proprietary network information, or CPNI, rules, which require carriers to comply with a range of marketing and safeguard obligations. These obligations focus on carriers' access, use, storage...

  • Page 21
    ... whom we license or purchase goods or services, also could enter into licenses with unfavorable terms, including royalty payments, which could adversely affect our business. Employee Relations As of December 31, 2007, we had about 60,000 employees. Management For information concerning our executive...

  • Page 22
    ... our CDMA and iDEN wireless networks, which operate on different technology platforms and use different spectrum bands, and developing wireless devices and other products and services that operate seamlessly on both technology platforms; developing and deploying next generation wireless technologies...

  • Page 23
    ...of transactions related to the Sprint-Nextel merger and the Embarq spin-off. Under applicable tax law, transactions occurring within two years of the spin-off are presumed to be pursuant to such a plan unless we can establish the contrary. At this time, it is not possible to determine how long these...

  • Page 24
    ... wireless communications providers has increased, we have created pricing plans that have resulted in declining average revenue per minute of use for voice services, a trend which we expect will continue. Competition in pricing and service and product offerings may also adversely impact customer...

  • Page 25
    ... Nextel-branded service is the two-way walkie-talkie service available on our iDEN network. A number of wireless equipment vendors, including Motorola, which supplies equipment for our Nextel-branded service, have begun to offer wireless equipment that is capable of providing walkie-talkie services...

  • Page 26
    ... dividing lines between long distance, local, wireless, video and Internet services are increasingly becoming blurred. Through mergers, joint ventures and various service expansion strategies, major providers are striving to provide integrated services in many of the markets we serve. This trend is...

  • Page 27
    ... to provide customer service and related support to our wireless subscribers and outsourced many aspects of our customer care and billing functions to third parties. We also have entered into an agreement whereby a third party has leased or operates a significant number of our communications towers...

  • Page 28
    ... to sell or support those products that were found to infringe and we may be unable to use CDMA handsets that are the subject of these claims, including handsets that utilize QUALCOMM's QChat technology, which we intend to use to provide walkie-talkie services on our CDMA network. We are currently...

  • Page 29
    ... our business and financial condition will not be adversely affected by litigation of this nature or public perception about health risks. The actual or perceived risk of mobile communications devices could adversely affect us through a reduction in subscribers, reduced network usage per subscriber...

  • Page 30
    ... is located in Overland Park, Kansas and consists of about 3,853,000 square feet. Our gross property, plant and equipment at December 31, 2007 totaled $48.0 billion, distributed among the business segments as follows: 2007 (in billions) Wireless ...Wireline ...Corporate and other ...Total ... $41...

  • Page 31
    ...telecommunications business from June 2005 to May 2006. He served as Chairman, President and Chief Executive Officer of Terabeam Corporation, a Seattle-based communications company, from March 2000 to June 2004. He served as President and Chief Executive Officer of AT&T Wireless Services, a division...

  • Page 32
    ... at Nextel, including Assistant Treasurer and Director-Financial Planning & Analysis, from August 1997 until May 2002. Chief Network Officer. She was appointed Chief Network Officer at the time of the Sprint-Nextel merger in August 2005. She served as our Executive Vice President-Network Services...

  • Page 33
    ... Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. Common Share Data The principal trading market for our Series 1 common stock is the New York Stock Exchange, or NYSE. Our Series 2 common stock is not publicly traded. 2007 Market Price End of High Low Period Series...

  • Page 34
    ... International Inc., RCN Corp., Sprint Nextel Corporation, Telephone & Data Systems Inc., Time Warner Telecom, Inc., U.S. Cellular Corp., Verizon Communications Inc., Virgin Media Inc. and Windstream Corp. 5-Year Total Return Sprint Nextel 250 200 Dollars 150 100 50 0 2002 2003 2004 2005 2006 2007...

  • Page 35
    ... ...Discontinued operations ...Cumulative effect of change in accounting principle(3) ...Dividends per common share(5) ...Financial Position Total assets(1) ...Property, plant and equipment, net ...Intangible assets, net(1) ...Total debt and capital lease obligations (including equity unit notes...

  • Page 36
    ... dividends of $0.125 per share. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Forward-Looking Statements We include certain estimates, projections and other forward-looking statements in our annual, quarterly and current reports, and in other publicly...

  • Page 37
    ... own extensive wireless networks and a global long distance, Tier 1 Internet backbone. On December 17, 2007, Daniel R. Hesse joined our company as President and Chief Executive Officer. Senior management is currently reviewing our operations and assessing our strategies and future business plans. 35

  • Page 38
    ...applications in order to acquire and retain high-quality wireless subscribers. We offer a wide array of wireless mobile telephone and wireless data transmission services on networks that utilize CDMA and iDEN technologies to meet the needs of individual consumers, businesses and government customers...

  • Page 39
    ... capabilities. We offer devices that operate seamlessly between our CDMA and iDEN networks-marketed as PowerSourceTM-that enable us to offer wireless service that combines our CDMA-based voice and data applications and our iDEN-based walkie-talkie applications. We are focusing our sales efforts of...

  • Page 40
    ... 31, 2005 2005 2005 2005 2006 2006 2006 2006 2007 2007 2007 2007 Net additions (losses) (in thousands) Post-paid: iDEN ...CDMA(2) ...Total ...Boost Mobile-branded service: iDEN-based prepaid ...CDMA-based unlimited local calling plan ...Total ...End of period subscribers (in thousands) iDEN post...

  • Page 41
    ... to changes in the rate plans we offer and usage of our service and applications by subscribers. The decline in our average monthly voice revenue is primarily due to the loss of subscribers with higher priced service plans, while new subscribers and the subscribers acquired from the PCS Affiliates...

  • Page 42
    ... data plans or add on plans that provide our customers offerings such as short message service, or SMS, connection cards and our Sprint Vision and Power Vision service plan. As these products and services are becoming increasingly popular with our customers, the decline in the average voice revenue...

  • Page 43
    ...'s largest providers of long distance services and operate all-digital long distance and Tier 1 IP networks. For several years, our long distance voice services have experienced an industry-wide trend of lower revenue from lower prices and competition from other wireline and wireless communications...

  • Page 44
    ... using our spectrum holdings in the 2.5 gigahertz, or GHz, band and technology based on the Worldwide Inter-Operability for Microwave Access, or WiMAX, standard. We are designing this network to support a wide range of high-speed IP-based wireless services in a mobile environment. Our initial plans...

  • Page 45
    ... to 2005, primarily as a result of the business combinations, partially offset by declining revenues of our Wireline segment. For additional information, see "-Segment Results of Operations" below. Income from continuing operations decreased to a loss of $29.6 billion in 2007, compared to income of...

  • Page 46
    ... and miscellaneous fees such as activation fees, directory assistance, operator-assisted calling, equipment protection, late payment and early termination charges and certain regulatory related fees. Service revenue totaled $31.0 billion in 2007, $31.1 billion in 2006 and $19.3 billion in 2005. 44

  • Page 47
    ... Sprint-Nextel merger. • The net increase in post-paid subscribers is a function of several factors. We believe that other than the subscribers acquired through business combinations, new subscribers are attracted to our differentiated products and services, particularly CDMA-based data-related...

  • Page 48
    ... data cards, downloading music, global positioning satellite, or GPS, enabled navigation services, instant messaging and emails, sending and receiving pictures, playing on-line games, browsing the Internet wirelessly, and with our PowerSource handsets, using CDMA-based voice and data applications...

  • Page 49
    ... increased minutes of use on our networks. Specifically, we experienced: • • an increase in roaming expenses, primarily with respect to subscribers of our CDMA services, due to increased data and voice usage outside of our CDMA network; and an increase in cell site and switch-related operational...

  • Page 50
    ...with our direct sales force, retail stores and marketing employees, advertising, media programs and sponsorships, including costs related to branding. General and administrative expenses primarily consist of costs for billing, customer care and information technology operations, bad debt expense and...

  • Page 51
    ... 2007 vs 2006 2006 vs 2005 Voice(1) ...Data ...Internet(1) ...Other ...Total net services revenue ...Costs of services and products ...Service gross margin ...Service gross margin percentage ...Selling, general and administrative expense ...Wireline segment earnings ...Severance, exit costs, asset...

  • Page 52
    ...provision of services to the Wireless segment represented 23% of total voice revenues in 2007 as compared to 17% in 2006 and 14% in 2005. Data Revenues Data revenues reflect sales of legacy data services, including ATM, frame relay and managed network services. Data revenues decreased 16% in 2007 as...

  • Page 53
    ... the Vonage prepaid license, partially offset by decreases in voice and data revenue. Wireline segment earnings decreased $43 million or 4% in 2006 from 2005 primarily due to voice revenue declines related to customer migrations to alternate sources such as cable and wireless. In 2008, we expect to...

  • Page 54
    ... of the value of customer relationships and other definite lived intangible assets acquired in connection with the Sprint-Nextel merger and the PCS Affiliate and Nextel Partners acquisitions. See note 3 of the Notes to Consolidated Financial Statements for additional information regarding our...

  • Page 55
    ... to our ownership interests in E-wireless. We recorded $107 million of equity method earnings in 2005 primarily related to Nextel Partners. Realized Gain on Sale or Exchange of Investments During 2007, we recognized a gain from the sale of investments of $253 million, primarily due to a pre-tax gain...

  • Page 56
    ...operators and PCS Affiliates, as well as long distance voice, data and Internet revenues. Service revenues consist of fixed monthly recurring charges, variable usage charges such as roaming, directory assistance, and operator-assisted calling and miscellaneous fees, such as activation, upgrade, late...

  • Page 57
    ..., we depreciate the remaining book values prospectively over the adjusted estimated useful life. During the first quarter 2007, we implemented depreciation rate changes with respect to assets that comprise the CDMA and Wireline networks resulting from our annual depreciable lives study. These...

  • Page 58
    ... periods of amortization, which would be addressed prospectively. For example, we review certain trends such as customer churn, average revenue per user, revenue, our future plans regarding the iDEN network and changes in marketing strategies, among others. Significant changes in certain trends...

  • Page 59
    ...financial statements. Valuation and Recoverability of Goodwill and Indefinite Lived Intangible Assets Intangible assets with indefinite useful lives represented $22.1 billion of our $64.1 billion in total assets as of December 31, 2007. We have identified FCC licenses and our Sprint and Boost Mobile...

  • Page 60
    ... stock price as described above. We also used the guideline company method, which focuses on comparing our risk profile and growth prospects to select reasonably similar/guideline publicly traded companies. • The determination of fair value of the wireless reporting unit and other assets...

  • Page 61
    ...of Indefinite-Lived Intangible Assets, except for our FCC licenses in the 2.5 GHz band, which are tested separately as a single unit of accounting. The accounting estimates related to our indefinite lived intangible assets require us to make significant assumptions about fair values. Our assumptions...

  • Page 62
    ...such as our annual impairment review of our goodwill and FCC licenses, and it will require significant disclosures related to our key assumptions and variables used in these analyses. We do not plan to elect the fair value option under the provisions of SFAS No. 159 for eligible financial assets and...

  • Page 63
    ... financial statements. In June 2007, the EITF reached a consensus on Issue No. 06-11, Accounting for Income Tax Benefits of Dividends on Share-Based Payment Awards. EITF Issue No. 06-11 provides guidance regarding how an entity should recognize the tax benefit received as a result of dividends...

  • Page 64
    ... 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...

  • Page 65
    ...billion decrease in capital expenditures from 2006 due to fewer cell sites, capacity modifications and inventory reductions in our Wireless segment and decreased investment in transport and switching equipment related to voice and cable customers; and collateral of $866 million in cash received back...

  • Page 66
    ... 2005. This dividend rate decrease was partially offset by an increase in the average number of common shares outstanding in the year ended December 31, 2006 compared to the year ended December 31, 2005, primarily as a result of the SprintNextel merger. Capital Requirements We currently anticipate...

  • Page 67
    ... (other than Nextel Communications and Sprint Capital Corp.) from incurring indebtedness or liens in excess of 15% of our consolidated shareholders' equity. As of December 31, 2007, indebtedness from such subsidiaries totaled $0.5 billion. Accordingly, the fourth quarter 2007 charge related to the...

  • Page 68
    ... rates. (2) Represents capital lease payments including interest. (3) Includes future lease costs related to cell and switch sites, real estate, network equipment and office space. (4) Includes service, spectrum, network capacity and other executory contracts. Excludes blanket purchase orders...

  • Page 69
    ...generation technologies and our next generation broadband wireless network; anticipated payments under the Report and Order, as supplemented; scheduled debt service requirements; and other future contractual obligations. • • • If there are material changes in our business plans, or currently...

  • Page 70
    ... amount of additional capital. The above discussion is subject to the risks and other cautionary and qualifying factors set forth under "- Forward-Looking Statements" and Part I, Item 1A "Risk Factors" in this report. Financial Strategies General Risk Management Policies We primarily use derivative...

  • Page 71
    ...point change in interest rates would have an annual pre-tax impact of $39 million on our consolidated statements of operations and cash flows as of December 31, 2007. While our variable-rate debt may impact earnings and cash flows as interest rates change, it is not subject to changes in fair values...

  • Page 72
    ...and in providing reasonable assurance that the information is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms. We continue to update our internal control over financial reporting as necessary to accommodate any modifications to our business...

  • Page 73
    ... and maintaining adequate internal control over financial reporting. Our internal control system was designed to provide reasonable assurance to our management and board of directors regarding the reliability of financial reporting and the preparation of financial statements for external purposes...

  • Page 74
    ... information set forth under the captions "Security Ownership of Certain Beneficial Owners" and "Security Ownership of Directors and Executive Officers" in our proxy statement relating to our 2008 annual meeting of shareholders, which will be filed with the SEC. Equity Compensation Plan Information...

  • Page 75
    ... intervals at a purchase price per share equal to 90% of the market value on the last business day of the offering period. (2) Included in the total of 116,033,416 shares are 8,508 shares issued to directors under the 2007 Plan and 1,157,250 restricted stock units under the 2007 Plan, which will be...

  • Page 76
    ... of Directors-Independence of Directors" in our proxy statement relating to our 2008 annual meeting of shareholders, which will be filed with the SEC. Item 14. Principal Accountant Fees and Services The information required by this item is incorporated by reference to the information set forth...

  • Page 77
    ...and Financial Statement Schedules 1. 2. 3. The consolidated financial statements of Sprint Nextel filed as part of this report are listed in the Index to Consolidated Financial Statements and Financial Statement Schedule. The financial statement schedule of Sprint Nextel filed as part of this report...

  • Page 78
    ... 10.1 12/21/2005 (10) Executive Compensation Plans and Arrangements: 10.4 10.5 10.6 10.7 10.8 Sprint Nextel Short-Term Incentive Plan Summary of 2007 Short-Term Incentive Plan Sprint Nextel 2006-2007 Integration Overachievement Plan Sprint Nextel 1997 Long-Term Stock Incentive Program, as amended...

  • Page 79
    ... the 1997 LongTerm Stock Incentive Program for retention awards made to certain executive officers Summary of 2007 Long-Term Incentive Plan 10-Q 001-04721 10(b) 11/09/2004 10.10 10.11 10.12 10-Q 8-K 10-K 001-04721 001-04721 001-04721 10(c) 11/09/2004 10.2 02/14/2005 10(dd) 03/11/2005 10.13...

  • Page 80
    ... stock options and restricted stock units) under the 1997 Long-Term Stock Incentive Program for 2007 for other executive officers Management Incentive Stock Option Plan, as amended Employment Agreement, dated as of March 19, 2003, by and among Sprint Corporation, Sprint/United Management Company...

  • Page 81
    ... amendments to the Executive Deferred Compensation Plan Amended and Restated Centel Directors Deferred Compensation Plan Director's Deferred Fee Plan, as amended Sprint Nextel Corporation Change in Control Severance Plan dated January 1, 2007, in which all of our executive officers, except Gary...

  • Page 82
    ...and Sprint Nextel Corporation Summary of Benefits and Fees for Directors Computation of Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividends Subsidiaries of the Registrant Consent of KPMG LLP, Independent Registered Public Accounting Firm Certification of Chief Executive officer...

  • Page 83
    ... this exhibit have been omitted and filed separately with the SEC pursuant to a request for confidential treatment. Sprint Nextel will furnish to the SEC, upon request, copies of instruments defining the rights of holders of long-term debt not exceeding 10% of the total assets of Sprint Nextel. 81

  • Page 84
    .... SPRINT NEXTEL CORPORATION (Registrant) By /s/ DANIEL R. HESSE Daniel R. Hesse Chief Executive Officer and President /s/ WILLIAM G. ARENDT William G. Arendt Acting Chief Financial Officer and Senior Vice President & Controller Principal Accounting Officer Date: February 29, 2008 Pursuant...

  • Page 85
    SIGNATURES SPRINT NEXTEL CORPORATION (Registrant) Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated on the 29th day of February, 2008. /S/ JAMES H. HANCE, JR. /S/...

  • Page 86
    SPRINT NEXTEL CORPORATION Index to Consolidated Financial Statements and Financial Statement Schedule Page Reference Consolidated Financial Statements Report of KPMG LLP, Independent Registered Public Accounting Firm ...Consolidated Balance Sheets as of December 31, 2007 and 2006 ...Consolidated ...

  • Page 87
    ... statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein. Also in our opinion, Sprint Nextel Corporation maintained, in all material respects, effective internal...

  • Page 88
    SPRINT NEXTEL CORPORATION CONSOLIDATED BALANCE SHEETS December 31, 2007 2006 (in millions) ASSETS Current assets Cash and cash equivalents ...$ 2,246 $ 2,046 Marketable securities ...194 15 Accounts and notes receivable, net ...4,196 4,690 Device and accessory inventory ...938 1,176 Deferred tax ...

  • Page 89
    SPRINT NEXTEL CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS Year Ended December 31, 2007 2006 2005 (in millions, except per share amounts) Net operating revenues ...Operating expenses Cost of services and products (exclusive of depreciation included below) ...Selling, general and administrative...

  • Page 90
    ... for losses on accounts receivable ...920 656 Share-based compensation expense ...265 338 Losses on impairment of long-lived assets ...163 69 Gain on sale or exchange of investments, net ...(253) (205) Deferred income taxes ...(360) 468 Other, net ...(194) (70) Changes in assets and liabilities, net...

  • Page 91
    SPRINT NEXTEL CORPORATION CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (in millions) (Accumulated Accumulated Treasury Deficit)/ Other Common Shares Paid-in Shares Comprehensive Retained Comprehensive (1) Shares Amount Capital Shares Amount Income (Loss) Earnings (Loss) Total Balance, January 1, ...

  • Page 92
    SPRINT NEXTEL CORPORATION CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY-(Continued) (in millions) (Accumulated Accumulated Treasury Deficit)/ Other Shares Common Shares Paid-in Comprehensive Retained Comprehensive (1) Shares Amount Capital Shares Amount Income (Loss) Earnings (Loss) Total Balance,...

  • Page 93
    ... markets in Canada, Latin America and Mexico, as well as a variety of digital wireless mobile telephone and wireless data transmission services. In order to offer subscribers of our iDEN services all of the benefits of applications on our CDMA network and our walkie-talkie features, we have a line...

  • Page 94
    ... tax positions and the fair value of assets acquired and liabilities assumed in business combinations. Effective January 1, 2006, we adopted Staff Accounting Bulletin, or SAB, No. 108, Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial...

  • Page 95
    ... data, the length of time and the extent to which the market value has been less than cost, the financial condition and near-term prospects of the individual company and our intent and ability to hold the investment. We account for our investment in Virgin Mobile USA, LLC, or VMU, using the equity...

  • Page 96
    SPRINT NEXTEL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) exercise significant influence as VMU continues to use our network under the mobile virtual network operator, or MVNO, agreement. On October 16, 2007, VMU made an initial public offering of its stock. In conjunction ...

  • Page 97
    ... in our consolidated financial statements or tax returns for each taxing jurisdiction in which we operate. This process requires management to make assessments regarding the timing and probability of the ultimate tax impact. We record valuation allowances on deferred tax assets if we determine...

  • Page 98
    ... 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...

  • Page 99
    ... also acquired several kinds of Federal Communications Commission, or FCC, licenses, primarily through FCC auctions and business combinations, to deploy our wireless services. We have identified our FCC licenses and our Sprint and Boost Mobile® trademarks as indefinite lived intangible assets, in...

  • Page 100
    SPRINT NEXTEL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) from the date of the Sprint-Nextel merger on a straight-line basis. We also evaluate the remaining useful lives of our definite lived intangible assets each reporting period to determine whether events or circumstances ...

  • Page 101
    ... operating revenue in 2007, 2006 and 2005. The accounting estimates related to the recognition of revenue in the results of operations require us to make assumptions about future billing adjustments for disputes with customers, unauthorized usage, future returns and mail-in rebates on handset sales...

  • Page 102
    ...31, 2007, there were about 124 million average shares issuable under the equity plans that could also potentially dilute earnings per common share in the future that had exercise prices that exceeded the average market price during this period. Dilutive shares issuable under our equity plans used in...

  • Page 103
    ... financial statements. In June 2007, the EITF reached a consensus on Issue No. 06-11, Accounting for Income Tax Benefits of Dividends on Share-Based Payment Awards. EITF Issue No. 06-11 provides guidance regarding how an entity should recognize the tax benefit received as a result of dividends...

  • Page 104
    SPRINT NEXTEL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) awards and charged to retained earnings (accumulated deficit) according to SFAS No. 123R, Share-Based Payment. This issue is effective for our quarterly reporting period ending March 31, 2008. We do not expect this ...

  • Page 105
    ...of Nextel's strength in business and government wireless services with our position in consumer wireless and data services, including services supported by our global Internet Protocol network that would enable us to serve a broader customer base; (3) the size and scale of the combined company which...

  • Page 106
    ... of the distribution services under Sprint and Nextel brands, and would provide us with strategic and financial benefits associated with a larger customer base and expanded network coverage. On August 1, 2007, we acquired Northern PCS Services, LLC, a PCS Affiliate, for a net purchase price of $287...

  • Page 107
    ... during 2006 are related to the Sprint-Nextel merger and acquisitions of Nextel Partners, Velocita Wireless and the PCS Affiliates in 2005 and 2006. Goodwill Goodwill represents the premium paid over the fair value of the net tangible and intangible assets we have acquired in business combinations...

  • Page 108
    ... in a highly competitive environment; expected reductions in voice revenue per subscriber; the costs of acquiring subscribers; and the costs of operating our wireless networks. Based on the results of our annual assessment of goodwill for impairment, the net book value of the wireless reporting unit...

  • Page 109
    ... our consolidated stock price as described above. We also used the guideline company method which focuses on comparing our risk profile and growth prospects to select reasonably similar/guideline publicly traded companies. The determination of the fair value of the wireless reporting unit requires...

  • Page 110
    SPRINT NEXTEL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) network and 2.5 GHz licenses that we use for first generation wireless Internet access services. We also hold 2.5 GHz, 1.9 GHz and other FCC licenses that we currently do not utilize in our networks or operations. As ...

  • Page 111
    SPRINT NEXTEL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) FCC licenses intangible asset, consistent with our accounting policies. The following table represents payments directly attributable to our performance under the Report and Order from the inception of the program: ...

  • Page 112
    SPRINT NEXTEL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) As of December 31, 2007, about $463 million of our outstanding debt, comprised of certain secured notes, capital lease obligations and mortgages, is secured by $1.7 billion of gross property, plant and equipment and ...

  • Page 113
    ... accounted for as fair value hedges. See note 9 for additional information regarding interest rate swaps. Credit Facilities Our revolving bank credit facility provides for total unsecured financing capacity of $6.0 billion. As of December 31, 2007, we had $2.6 billion of outstanding letters...

  • Page 114
    ... 31, 2007, scheduled annual principal payments of long-term debt, including our bank credit facility and capital lease obligations outstanding as of December 31, 2007, are as follows: (in millions) 2008 ...2009 ...2010 ...2011 ...2012 ...Thereafter ...Add deferred premiums/discounts and fair value...

  • Page 115
    SPRINT NEXTEL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) Note 5. Supplemental Balance Sheet Information December 31, 2007 2006 (in millions) Accounts and notes receivable, net Trade ...Unbilled trade and other ...Less allowance for doubtful accounts ...Prepaid expenses and ...

  • Page 116
    ... Velocita Wireless. Asset Impairment In 2007, we had asset impairments of $163 million, primarily attributable to our Wireless segment, which included the write-off of cell site development costs that we abandoned as the sites would not be used based on management's strategic network plans, the sale...

  • Page 117
    SPRINT NEXTEL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) 2005 Activity Cash Payments Expense(1) and Other (in millions) Balance December 31, 2004 Balance December 31, 2005 Lease terminations ...Severance ...Other ...Total costs ... $ 93 55 7 $155 $9 (8) (2) $(1) $(24) (...

  • Page 118
    SPRINT NEXTEL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) Note 7. Income Taxes Income tax benefit (expense) allocated to continuing operations consists of the following: Year Ended December 31, 2007 2006 2005 (in millions) Current income tax benefit (expense) Federal ......

  • Page 119
    ..., of potential income tax benefits related to net operating loss carryforwards, capital loss carryforwards and tax credit carryforwards in the SprintNextel merger, and the PCS Affiliate and Nextel Partners acquisitions. In 1999, we acquired $193 million of potential tax benefits related to net...

  • Page 120
    SPRINT NEXTEL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) In connection with the PCS Restructuring, we are required to reimburse the former cable company partners of the joint venture for net operating loss and tax credit carryforward benefits generated before the PCS ...

  • Page 121
    SPRINT NEXTEL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) earnings as of January 1, 2007. The total unrecognized tax benefits attributable to uncertain tax positions as of January 1, 2007 were $606 million. Upon adoption of FIN 48, we reclassified the majority of our liability...

  • Page 122
    ... in the market place. We also use letters of credit to provide credit support for various financial obligations. Note 9. Derivative Instruments and Hedging Activities Risk Management Policies Our derivative instruments typically include interest rate swaps, stock warrants, option contracts, and...

  • Page 123
    SPRINT NEXTEL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) Exposure to strategic investments in other companies includes the risk that unfavorable changes in market prices could adversely affect earnings and cash flows. We may also obtain equity rights in other companies, ...

  • Page 124
    SPRINT NEXTEL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) In the fourth quarter 2006, we sold our remaining investment of about 13 million common shares of NII Holdings and settled the remaining option contracts using common shares of NII Holdings borrowed under stock loan ...

  • Page 125
    SPRINT NEXTEL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) Share Repurchase Program On July 25, 2006, our board of directors authorized the purchase of up to $6.0 billion of our Series 1 common stock through open market purchases. This authorization expired in January 2008. As ...

  • Page 126
    ... time of the Sprint-Nextel merger into our nonvested shares or options to purchase a number of our common shares. As of December 31, 2007, awards to acquire 48 million common shares were outstanding under the Nextel Plan. Options were granted prior to the SprintNextel merger with an exercise price...

  • Page 127
    ... the Sprint-Nextel merger. The total income tax benefit recognized in the consolidated financial statements for share-based award compensation was $96 million for 2007, $138 million for 2006 and $111 million for 2005. The total income tax benefit recognized in the statement of operations related to...

  • Page 128
    SPRINT NEXTEL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) Under our share-based payment plans, we had options, restricted stock units and nonvested shares outstanding as of December 31, 2007. Awards with graded vesting are recognized using the straight-line method. Forfeitures...

  • Page 129
    ... over a weighted-average period of 1.45 years. The total intrinsic value of options exercised was $150 million during 2007, $264 million during 2006 and $267 million during 2005. Restricted Stock Units The fair value of each restricted stock unit award is calculated using the share price at the date...

  • Page 130
    ...the U.S. Virgin Islands. Our Wireline segment includes revenue from domestic and international wireline voice and data communication services and services to the cable multiple systems operators that resell our long distance service and/or use our back office systems and network assets in support of...

  • Page 131
    SPRINT NEXTEL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) Corporate, Other and Wireline Eliminations (in millions) Statement of Operations Information Wireless Consolidated 2006 Net operating revenues(5) ...Inter-segment revenues(1) ...Total segment operating expenses(5) ...

  • Page 132
    SPRINT NEXTEL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) Other Information Wireless Corporate, Other and Wireline Eliminations (in millions) Consolidated 2007 Capital expenditures(6) ...Total assets(6)(8) ...2006 Capital expenditures(6) ...Total assets(6) ...2005 Capital...

  • Page 133
    SPRINT NEXTEL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) Net operating revenues by service and products were as follows: Corporate and Wireline Eliminations(1)(2) (in millions) Wireless Consolidated 2007 Wireless services ...$31,044 $ - Wireless equipment ...2,595 - Voice ...

  • Page 134
    ... number of public safety communications systems in the 800 MHz block of spectrum have experienced interference that is believed to be a result of the operations of commercial mobile radio service, or CMRS, providers operating on adjacent frequencies in the same geographic area. In 2001, Nextel filed...

  • Page 135
    ... by June 2008 we vacate many 800 MHz channels that we currently use, even if the applicable public safety licensee is not ready to relocate to the vacated spectrum. Based upon reports filed by the 800 MHz TA and discussions with public safety licensees, we believe that a significant number of large...

  • Page 136
    ... to share use of the spectrum before the transition is completed. The Report and Order requires us to make a payment to the U.S. Treasury at the conclusion of the band reconfiguration process to the extent that the value of the 1.9 GHz spectrum we received exceeds the total of the value of licenses...

  • Page 137
    ... five years each. As of December 31, 2007, our rental commitments for operating leases, including lease renewals that are reasonably assured, consisted mainly of leases for cell and switch sites, real estate, information technology and network equipment and office space. These commitments in future...

  • Page 138
    SPRINT NEXTEL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) Commitments We are a party to other commitments, which includes service, spectrum, network capacity and other executory contracts in connection with conducting our business. As of December 31, 2007, the minimum amounts ...

  • Page 139
    ... Corporation. Embarq offers regulated local communications services as an incumbent local exchange carrier and provides a suite of communications services, consisting of local and long distance voice and data services, including high-speed Internet access. As required by SFAS No. 144, Accounting...

  • Page 140
    ...include billing, field support, information technology and real estate services. We also entered into agreements pursuant to which we and Embarq will provide each other with specified services at commercial rates. At the time of the spin-off, all outstanding options to purchase our common stock held...

  • Page 141
    SPRINT NEXTEL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) Note 16. Subsequent Events Severance and Exit Costs Management announced in January 2008 that we intend to further streamline our cost structure through a work force reduction, reduced utilization of outsourced ...

  • Page 142
    ... income tax assets ...2005 Allowance for doubtful accounts ...Valuation allowance-deferred income tax assets ...The schedule above only reflects continuing operations. (1) Amounts charged to other accounts consist of receivable reserves for billing and collection services we provide for certain PCS...