Sprint - Nextel 2007 Annual Report Download - page 97

SPRINT NEXTEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
or liability in the consolidated balance sheet; it also requires that the changes in the funded status be recorded
through comprehensive income in the year in which those changes occur. As of December 31, 2007 and 2006,
the fair value of our plan assets was $1.4 billion and $1.2 billion, respectively, and the fair value of our benefit
obligations was $1.6 billion and $1.5 billion, respectively. As a result, the aggregated amount of all underfunded
plans was $217 million at December 31, 2007 and $261 million at December 31, 2006, and was recorded as a
liability in our consolidated balance sheet. We intend to make future cash contributions to the pension plan in an
amount necessary to meet minimum funding requirements under ERISA.
At the time of the Sprint-Nextel merger, we did not extend plan participation in the defined benefit pension
plan or other postretirement benefits to Nextel employees and amended our postretirement medical benefit plan
to only include employees designated to work for Embarq and employees who were employed by us prior to the
Sprint-Nextel merger and born before 1956. As of December 31, 2005, the pension plan was also amended to
freeze benefit plan accruals for participants not designated to work for Embarq following the spin-off. As of
May 17, 2006, in connection with the spin-off of Embarq, accrued pension benefit obligations and postretirement
benefit obligations for participants designated to work for Embarq and related plan assets were transferred to
Embarq. The aggregate plan activity, including net expense of $18 million in 2007, $34 million in 2006, and
$237 million in 2005, and related disclosures are not material to us as of December 31, 2007 and we have not
provided the disclosures generally required by SFAS No. 158.
Under our defined contribution plan, participants may contribute a portion of their eligible pay to the plan
through payroll withholdings. In 2007 and 2006, we matched in cash 100% of participants’ contributions up to 5%
of their eligible compensation. In prior years, participants’ contributions were matched with our common stock. Our
total matching contributions were $128 million in 2007, $126 million in 2006 and $56 million in 2005.
Income Taxes
Income taxes are accounted for using the asset/liability approach in accordance with SFAS No. 109,
Accounting for Income Taxes. Deferred tax assets and liabilities are determined based on the temporary
differences between the financial reporting and tax bases of assets and liabilities, applying enacted statutory tax
rates in effect for the year in which the differences are expected to reverse. Deferred tax assets are also recorded
for net operating loss, capital loss and tax credit carryforwards. We are required to estimate the amount of taxes
payable or refundable for the current year and the deferred tax liabilities and assets for the future tax
consequences of events that have been reflected 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 that it is more likely than not that the asset will not be realized. Additionally, we establish reserves for
uncertain tax positions based upon our judgment regarding potential future challenges to those positions. We
recognize interest related to unrecognized tax benefits in interest expense or interest income. We recognize
penalties as additional income tax expense.
We adopted Financial Accounting Standards Board, or FASB, Interpretation No. 48, Accounting for
Uncertainty in Income Taxes, or FIN 48, on January 1, 2007. The accounting estimates related to the liability for
uncertain tax positions require us to make judgments regarding the sustainability of each uncertain tax position
based on its technical merits. If we determine it is more likely than not a tax position will be sustained based on
its technical merits, we record the impact of the position in our consolidated financial statements at the largest
amount that is greater than fifty percent likely of being realized upon ultimate settlement. These estimates are
updated at each reporting date based on the facts, circumstances and information available. We are also required
to assess at each reporting date whether it is reasonably possible that any significant increases or decreases to the
unrecognized tax benefits will occur during the next twelve months. See note 7 for more information.
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