Sprint - Nextel 2008 Annual Report Download - page 78

SPRINT NEXTEL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
assets in active or inactive markets, or other observable inputs; and 15% was valued using unobservable inputs
that are supported by little or no market activity. As of December 31, 2009 and 2008, the fair value of our plan
assets in aggregate was $1.2 billion and $896 million, respectively, and the fair value of our projected benefit
obligations in aggregate was $1.6 billion and $1.7 billion, respectively. As a result, the plans are underfunded by
$403 million at December 31, 2009 and $805 million at December 31, 2008, and are recorded as a net liability in
our consolidated balance sheets. The offset to the liability is recorded in equity as a component of accumulated
other comprehensive loss, net of tax, including the 2009 and 2008 adjustments of $140 million and $379 million,
respectively. The funded status of the plan was affected primarily by the improvement in the fair value of the
plan assets resulting in recovery of some of the losses caused by the poor performance in the financial markets
during 2008. This improvement was combined with an increase in the discount rate, from 6.20% to 6.75%, used
to estimate the projected benefit obligation and by the cash contribution of $200 million in 2009. We intend to
make future cash contributions to the pension plan in an amount necessary to meet minimum funding
requirements according to applicable benefit plan regulations. As of December 31, 2005, the pension plan was
amended to freeze benefit plan accruals for participants.
Under our defined contribution plan, participants may contribute a portion of their eligible pay to the
plan through payroll withholdings. Effective for compensation paid after March 6, 2009, the amount of matching
contribution is discretionary as determined by the Board of Directors of the Company, based upon a formula
related to the profitability of the Company. If such profitability level is attained, the Company could match 100%
of the participant’s contributions up to a maximum of 4% of their eligible compensation. From January 1, 2009
to March 6, 2009, we matched in cash 100% of participants’ contributions up to 4% of their eligible
compensation. In 2008 and 2007, we matched 100% of participants’ contributions up to 5% of their eligible
compensation in cash. Fixed matching contributions totaled $32 million, $119 million and $128 million in 2009,
2008 and 2007, respectively.
Revenue Recognition
Operating revenues primarily consist of wireless service revenues, revenues generated from device and
accessory sales, revenues from wholesale operators and third party affiliates (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 payment, reconnection and early termination fees and certain regulatory related fees.
We recognize service revenues as services are rendered and equipment revenue when title passes to the dealer or
end-user subscriber. We recognize revenue for access charges and other services charged at fixed amounts
ratably over the service period, net of credits and adjustments for service discounts, billing disputes and fraud or
unauthorized usage. We recognize excess wireless usage and long distance revenue at contractual rates per
minute as minutes are used. Additionally, we recognize excess wireless data usage based on kilobytes and
one-time use charges, such as for the use of premium services, when rendered. As a result of the cutoff times of
our multiple billing cycles each month, we are required to estimate the amount of subscriber revenues earned but
not billed from the end of each billing cycle to the end of each reporting period. These estimates are based
primarily on rate plans in effect and our historical usage and billing patterns. Regulatory fees and costs are
recorded gross. The largest component of the regulatory fees is universal service fund, which represented about
2% of net operating revenues in 2009, 2008 and 2007.
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 subscribers, unauthorized usage, future
returns and mail-in rebates on device sales.
Dealer Commissions
Cash consideration given by us to a dealer or end-user subscriber is presumed to be a reduction of
revenue unless we receive, or will receive, an identifiable benefit in exchange for the consideration, and the fair
value of such benefit can be reasonably estimated, in which case the consideration will be recorded as a selling
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