Sprint - Nextel 2010 Annual Report Download

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2010
or
For the transition period from to
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 1-04721
SPRINT NEXTEL CORPORATION
(Exact name of registrant as specified in its charter)
KANSAS
(State or other jurisdiction of incorporation or organization)
6200 Sprint Parkway, Overland Park, Kansas
(Address of principal executive offices)
48-0457967
(I.R.S. Employer Identification No.)
66251
(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
Series 1 common stock, $2.00 par value
Guarantees of Sprint Capital Corporation 6.875% Notes due 2028
Name of each exchange on which registered
New York Stock Exchange
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
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
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 No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data
File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for
such shorter period that the registrant was required to submit and post such files). Yes No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) 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. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Non-accelerated filer (Do not check if smaller reporting company)
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
Aggregate market value of voting and non-voting common stock equity held by non-affiliates at June 30, 2010 was $12,633,223,479
COMMON SHARES OUTSTANDING AT FEBRUARY 18, 2011:
VOTING COMMON STOCK
Series 1
2,990,318,170
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, 2010, are incorporated by reference in Part III hereof.
Table of Contents

Table of contents

  • Page 1
    ... ACT OF 1934 For the fiscal year ended December 31, 2010 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...

  • Page 2
    ... 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 and Corporate Governance Executive Compensation Security Ownership...

  • Page 3
    ... all-digital global long distance network and a Tier 1 Internet backbone. We offer wireless and wireline voice and data transmission services to subscribers in all 50 states, Puerto Rico and the U.S. Virgin Islands under the Sprint corporate brand which includes our retail brands of Sprint®, Nextel...

  • Page 4
    ... minutes that Round Downâ„¢ and 7-cent text messages. Services and Products Data & Voice Services Wireless data communications services include mobile productivity applications, such as Internet access and messaging and email services; wireless photo and video offerings; location-based capabilities...

  • Page 5
    ...services and devices offered and quality of service. We compete with a number of wireless carriers, including three other national wireless companies: AT&T, Verizon Wireless and T-Mobile. Our primary competitors offer voice, high-speed data, entertainment and location-based services and push-to-talk...

  • Page 6
    ..., 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 companies, as well as cable MSOs and Internet service providers. Some competitors are targeting the high-end data market and...

  • Page 7
    ...) personal communications services (PCS) band, and license renewals; • rule on assignments and transfers of control of FCC licenses, and leases covering our use of FCC licenses held by other persons and organizations; • govern the interconnection of our CDMA and iDEN networks with other wireless...

  • Page 8
    ...rules, CMRS providers, including us, are required to provide enhanced 911 (E911) services in a two-tiered manner. Specifically, wireless carriers are required to transmit to a requesting public safety answering point (PSAP) both the 911 caller's telephone number and (a) the location of the cell site...

  • Page 9
    ... and back-office services enable the cable companies to provide competitive local and long distance telephone services primarily in a VoIP format to their end-user customers. Voice over Internet Protocol We offer a growing number of VoIP-based services to business subscribers and transport VoIP...

  • Page 10
    ... 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 11
    ... communications and Internet services for schools, libraries and rural health care facilities. The USF is funded from assessments on communications providers, including our Wireless and Wireline segments, based on FCC-prescribed contribution factors applicable to our interstate and international end...

  • Page 12
    ...at www.sprint.com. Information contained on the website is not part of this annual report. Public access is provided to our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to these reports filed with the Securities and Exchange Commission (SEC...

  • Page 13
    ... spectrum is made available for commercial wireless services and as new technologies are developed and launched. As competition among wireless communications providers has increased, we have created pricing plans that have resulted in declining average revenue per subscriber for voice and data...

  • Page 14
    ... revenue per subscriber, subscriber churn, ability to attract new subscribers, and operating costs. For example, AT&T, Verizon and T-Mobile now offer competitive wireless services packaged with local and long distance voice and high-speed Internet services, and flat rate voice and data plans. Our...

  • Page 15
    ... WiMAX are being developed, and operators of other networks based on those competing technologies may be able to deploy these alternative technologies at a lower cost and more quickly than the cost and speed with which Clearwire deploys its 4G network providing 4G MVNO services to Sprint, which may...

  • Page 16
    ... Communications Inc., other major local incumbent operating companies, and cable operators, as well as a host of smaller competitors, in the provision of wireline services. Some of these companies have high-capacity, IP-based fiber-optic networks capable of supporting large amounts of voice and data...

  • Page 17
    ... current operations may have an adverse effect on its estimated fair value based, in part, on its publicly quoted stock price. A decline in the value of Clearwire may require Sprint to evaluate the decline in relation to Sprint's carrying value of its investment in Clearwire. A conclusion by Sprint...

  • Page 18
    ... to implement national sales and marketing programs and could increase the costs of our wireless operations. Degradation in network performance caused by compliance with government regulation, loss of spectrum or additional rules associated with the use of spectrum in any market could result in...

  • Page 19
    ... and the value of our investment in Clearwire. Moreover, we currently rely on Clearwire to build, launch and operate a viable 4G network. Our intention is to integrate these 4G services with our products and services in a manner that preserves our time to market advantage. Clearwire's success could...

  • Page 20
    ... Sprint-Nextel merger, and by purportedly issuing false and misleading statements regarding the write-down of goodwill. The complaint was originally filed in March 2009 and is allegedly brought on behalf of purchasers of company stock from October 26, 2006 to February 27, 2008. On January 20, 2011...

  • Page 21
    ... in certain legal proceedings that are described in note 11 of Notes to the Consolidated Financial Statements included in this report. During the quarter ended December 31, 2010, there were no material developments in the status of these legal proceedings. Various other suits, proceedings and claims...

  • Page 22
    ...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 of AT&T, from 1997 to 2000. Chief Financial Officer. He was appointed Chief Financial Officer in May 2008. He served...

  • Page 23
    ... and long distance voice, data and internet wireline services as well as wireless and digital television services through certain partnerships. Previously, Mr. Euteneuer served as Executive Vice President and Chief Financial Officer of XM Satellite Radio Holdings Inc., a satellite radio provider...

  • Page 24
    ...Share Data The principal trading market for our Series 1 common stock is the NYSE. Our Series 2 common stock is not publicly traded. The high and low Sprint Series 1 common stock prices, as reported on the NYSE composite are as follows: 2010 Market Price High Low End of Period High 2009 Market Price...

  • Page 25
    ... share Continuing operations(1)(2) Discontinued operations Dividends per common share(3) Financial Position Total assets Property, plant and equipment, net Intangible assets, net Total debt, capital lease and financing obligations (including equity unit notes) Shareholders' equity Cash Flow Data Net...

  • Page 26
    ...who meet income requirements or are receiving government assistance, with a free wireless phone and 250 free minutes of national local and long-distance monthly service. Common CentsSM Mobile caters to budget-conscious customers with 7-cent minutes that Round Downâ„¢ and 7-cent text messages. Sprint...

  • Page 27
    ... of the remaining useful lives of long-lived assets, and the expected timing of asset retirement obligations, which could have a material impact on our consolidated financial statements. The successful testing of push-to-talk technology on the CDMA network in our test markets in 2011 would result in...

  • Page 28
    ..., customer service, device offerings, and network quality, should continue to reduce the number of net postpaid subscriber losses experienced during 2011. RESULTS OF OPERATIONS Year Ended December 31, 2010 2009 (in millions) 2008(1) Wireless segment earnings Wireline segment earnings Corporate...

  • Page 29
    ... strategic plans. In 2010 and 2009 these costs were primarily related to network asset equipment. Asset impairments in 2008 also include previously recognized cell site development costs. Gains from asset dispositions and exchanges for 2010, 2009, and 2008 are primarily related to spectrum exchange...

  • Page 30
    ... based on the trading price of Clearwire stock during the 90 days subsequent to the November 2008 closing. Clearwire owns and operates a next generation mobile broadband network that provides high-speed residential and mobile internet access services and residential voice services in communities...

  • Page 31
    ... compared to 2008. The increase in retail service revenue was primarily driven by attracting subscribers to the Company's National Boost Monthly Unlimited prepaid plan in addition to service revenue related to the subscribers acquired through our fourth quarter 2009 acquisitions of Virgin Mobile and...

  • Page 32
    ... ended December 31, 2010, 2009 and 2008. Additional information about the number of subscribers, net additions to subscribers, average monthly service revenue per subscriber and average rates of monthly postpaid and prepaid customer churn for each quarter since the first quarter 2008 may be found...

  • Page 33
    ... result of a sale and transfer of customers to an affiliate. (5) Churn is calculated by dividing net subscriber deactivations for the quarter by the sum of the average number of subscribers for each month in the quarter. For postpaid accounts comprising multiple subscribers, such as family plans and...

  • Page 34
    ...per-minute use fees charged by wireline providers for calls terminating on their networks, which fluctuate in relation to the level and duration of those terminating calls; • long distance costs paid to the Wireline segment; • costs to service and repair devices; • regulatory fees; • roaming...

  • Page 35
    ... billing, customer care and information technology operations, bad debt expense and administrative support activities, including collections, legal, finance, human resources, strategic planning and technology and product development. Sales and marketing expense increased $322 million, or 7%, in 2010...

  • Page 36
    ... table provides an overview of the results of operations of our Wireline segment for the years ended December 31, 2010, 2009 and 2008. Year Ended December 31, Wireline Earnings 2010 2009 (in millions) 2008 Voice Data Internet Other Total net service revenue Cost of services and products Service...

  • Page 37
    ... domestic service providers and foreign phone companies to complete calls made by our domestic subscribers, costs to operate and maintain our networks and costs of equipment. Costs of services and products decreased $344 million, or 9%, in 2010 from 2009 and $529 million, or 13%, in 2009 from 2008...

  • Page 38
    ... in short-term investments, a $1.1 billion increase of Sprint's investment in Clearwire and $560 million used to acquire Virgin Mobile and iPCS in the fourth quarter 2009. Net cash used in investing activities for 2008 include expenditures of approximately $600 million related to capital assets and...

  • Page 39
    ... of new technologies in our networks, and FCC license acquisitions; anticipated payments under the Report and Order, as supplemented; any contributions we may make to our pension plan; scheduled debt service requirements; any additional investment we may choose to make in Clearwire; and • other...

  • Page 40
    ... our existing wireless subscribers in order to reverse the net loss in postpaid wireless subscribers that we have experienced. We expect to improve our subscriber trends by continuing to improve the customer experience and through offers which provide value, simplicity and productivity. Given the...

  • Page 41
    ... as of December 31, 2010. Future events, including additional purchases of our securities and refinancing of those securities, could cause actual payments to differ significantly from these amounts. See "-Forward-Looking Statements." Future Contractual Obligations Total 2011 2012 2013 (in millions...

  • Page 42
    ... the value of such investment based on Clearwire's closing stock price was $2.7 billion. Sprint's ability to recover the carrying value of its investment depends, in part, upon Clearwire's ability to obtain sufficient funding to support its operations and its ability to successfully develop, deploy...

  • Page 43
    ... business, including network equipment, cell site development costs and software in development, are periodically assessed to determine recoverability. Network equipment and cell site development costs are expensed whenever events or changes in circumstances cause the Company to conclude the assets...

  • Page 44
    ...cause actual results to differ materially from those in the forward-looking statements. With respect to these forward-looking statements, management has made assumptions regarding, among other things, subscriber and network usage, subscriber growth and retention, pricing, operating costs, the timing...

  • Page 45
    ...'s ability or willingness to provide related devices, infrastructure equipment and software applications for our iDEN network; • the costs and business risks associated with providing new services and entering new geographic markets; • the financial performance of Clearwire and its deployment of...

  • Page 46
    ... 31, 2010 in providing reasonable assurance that information required to be disclosed in reports we file or submit under the Securities Exchange Act of 1934 is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, to allow timely decisions...

  • Page 47
    ... and board of directors regarding the reliability of financial reporting and the preparation of financial statements for external purposes. Our management conducted an assessment of the effectiveness of our internal control over financial reporting as of December 31, 2010. This assessment was based...

  • Page 48
    ... 2011 annual meeting of shareholders, which will be filed with the SEC. Compensation Plan Information Currently we sponsor two active equity incentive plans, the 2007 Omnibus Incentive Plan (2007 Plan) and our Employee Stock Purchase Plan (ESPP). We also sponsor the 1997 Long-Term Incentive Program...

  • Page 49
    ... Relationships and Other Transactions" and "Election of Directors-Independence of Directors" in our proxy statement relating to our 2011 annual meeting of shareholders, which will be filed with the SEC. Principal Accountant Fees and Services The information required by this item is incorporated by...

  • Page 50
    ... among Sprint Nextel Corporation, Clearwire Corporation, Comcast Corporation, Time Warner Cable Inc., Bright House Networks, LLC, Google Inc. and Intel Corporation Agreement and Plan of Merger, dated as of July 27, 2009, by and among Sprint Nextel Corporation, Sprint Mozart, Inc. and Virgin Mobile...

  • Page 51
    ... Sprint Nextel Corporation and SK Telecom Co., Ltd. (10) Executive Compensation Plans and Arrangements: 10.5 10.6 10.7 10.8 10.9 Summary of 2010 Short-Term Incentive Plan Amended Summary of 2010 Short-Term Incentive Plan Summary of 2009 Short-Term Incentive Plan Amended Summary of 2009 Short-Term...

  • Page 52
    ... of 2010 Long-Term Incentive Plan Summary of 2009 Long-Term Incentive Plan Summary of 2008 Long-Term Incentive Plan Form of Award Agreement (awarding stock options and restricted stock units) under the 1997 LongTerm Incentive Program for 2007 for executive officers with Nextel employment agreements...

  • Page 53
    ... the 2010 Long-Term Incentive Plan for Robert H. Brust. Form of Stock Option Agreement (for certain Nextel Communication Inc. employees under the Stock Option Exchange Program) Form of Stock Option Agreement (for all other employees under the Stock Option Exchange Program) Management Incentive Stock...

  • Page 54
    ... and Sprint Nextel Corporation Employment Agreement, executed December 20, 2010, effective at a future hire date to be determined, between Joseph J. Euteneuer and Sprint Nextel Corporation Form of Award Agreement (awarding stock options) under the 2009 Long-Term Incentive Plan for executive officers...

  • Page 55
    ...*** Portions of this exhibit have been omitted and filed separately with the SEC pursuant to a request for confidential treatment. Sprint 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. 53

  • Page 56
    ... duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. SPRINT NEXTEL CORPORATION (Registrant) By /s/ DANIEL R. HESSE Daniel R. Hesse Chief Executive Officer and President Date: February 24, 2011 Pursuant to the requirements of the Securities Exchange Act...

  • Page 57
    ... of Contents 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 24th day of February, 2011. /s/ JAMES...

  • Page 58
    ...Contents SPRINT NEXTEL CORPORATION Index to Consolidated Financial Statements Page Reference Sprint Consolidated Financial Statements Report of KPMG LLP, Independent Registered Public Accounting Firm Consolidated Balance Sheets as of December 31, 2010 and 2009 Consolidated Statements of Operations...

  • Page 59
    ... REGISTERED PUBLIC ACCOUNTING FIRM The Board of Directors and Shareholders Sprint Nextel Corporation: We have audited the accompanying consolidated balance sheets of Sprint Nextel Corporation and subsidiaries as of December 31, 2010 and 2009, and the related consolidated statements of operations...

  • Page 60
    ... Contents SPRINT NEXTEL CORPORATION CONSOLIDATED BALANCE SHEETS December 31, 2010 2009 (in millions, except share and per share data) ASSETS Current assets Cash and cash equivalents Short-term investments Accounts and notes receivable, net Device and accessory inventory Deferred tax assets Prepaid...

  • Page 61
    ...of Contents SPRINT NEXTEL CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS Year Ended December 31, 2010 2009 2008 (in millions, except per share amounts) Net operating revenues Net operating expenses Cost of services and products (exclusive of depreciation and amortization included below) Selling...

  • Page 62
    ... of Contents SPRINT NEXTEL CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS Year Ended December 31, 2010 2009 2008 (in millions) Cash flows from operating activities Net loss Adjustments to reconcile net loss to net cash provided by operating activities: Goodwill and asset impairments Depreciation...

  • Page 63
    Table of Contents SPRINT NEXTEL CORPORATION CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (in millions) Common Shares Shares(1) Balance, December 31, 2007 Comprehensive loss Net loss Other comprehensive income (loss), net of tax Unrecognized net periodic pension and other postretirement benefits ...

  • Page 64
    ... Instruments Property, Plant and Equipment Intangible Assets Long-Term Debt, Financing and Capital Lease Obligations Severance, Exit Costs and Asset Impairments Supplemental Financial Information Income Taxes Commitments and Contingencies Compensation Plans Shareholders' Equity and Per Share Data...

  • Page 65
    ... international wireline voice and data communication services, including services to the cable multiple systems operators that resell our local and long distance service and use our back office systems and network assets in support of their telephone services provided over cable facilities. Sprint...

  • Page 66
    ...SPRINT NEXTEL CORPORATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Device and Accessory Inventory Inventories are stated at the lower of cost or market. Cost is determined by the first-in, first-out (FIFO) method. Costs of devices and related revenues generated from device sales (equipment net...

  • Page 67
    ... SPRINT NEXTEL CORPORATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Certain assets that have not yet been deployed in the business, including network equipment, cell site development costs and software in development, are periodically assessed to determine recoverability. Network equipment...

  • Page 68
    ...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 2010, 2009 and 2008. The accounting...

  • Page 69
    ... part of the cost of offering devices to new and existing subscribers, which may reduce our growth and profitability. Also, we must rely on Motorola to develop devices capable of supporting the features and services we offer to subscribers of services on our iDEN network and to provide maintenance...

  • Page 70
    ... in Clearwire is part of our long-term plan to participate in the 4G wireless broadband market, and to benefit from Clearwire's entry into that market. Sprint and other investors are offering 4G products utilizing Clearwire's 4G wireless broadband network in available markets. Sprint holds a 54...

  • Page 71
    ...SPRINT NEXTEL CORPORATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS In the third quarter 2010, Clearwire reported it was actively pursuing various initiatives to raise additional capital, including discussions with a number of major shareholders and other third parties about a number of options...

  • Page 72
    ... our business or prospects, may cause the estimated period of use or the value of these assets to change. Network equipment, site costs and related software includes switching equipment, cell site towers, site development costs, radio frequency equipment, network software, digital fiber optic cable...

  • Page 73
    ... of purchase price allocation adjustments recognized in the first quarter of 2010 associated with the 2009 acquisitions of Virgin Mobile and iPCS primarily related to deferred tax assets and liabilities. We hold FCC licenses authorizing the use of radio frequency spectrum to deploy our wireless...

  • Page 74
    ...Serial redeemable senior notes Nextel Communications, Inc. Secured notes iPCS, Inc. Credit facilities - Sprint Nextel Corporation Bank credit facility Export Development Canada(1) Financing obligation Capital lease obligations and other Net premiums Less current portion Long-term debt, financing and...

  • Page 75
    ... to be reported as part of our property, plant and equipment due to our continued involvement with the property sold and the transaction is accounted for as a financing. Our capital lease and other obligations are primarily for the use of communication switches. In the fourth quarter 2010, we...

  • Page 76
    ... and Capital Lease Obligations Scheduled annual principal payments of long-term debt, financing obligation and capital lease obligations outstanding as of December 31, 2010, are as follows: (in millions) 2011 2012 2013 2014 2015 2016 and thereafter Add: premiums, discounts and adjustments, net...

  • Page 77
    ..., primarily related to network asset equipment in our Wireless segment, no longer necessary for management's strategic plans. In 2008, we recorded asset impairments of $480 million primarily related to cell site development costs and network asset equipment in our Wireless segment, no longer...

  • Page 78
    ... SPRINT NEXTEL CORPORATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Note 9. Supplemental Financial Information December 31, 2010 2009 (in millions) Accounts and notes receivable, net Trade Unbilled trade and other Less allowance for doubtful accounts Prepaid expenses and other current assets...

  • Page 79
    ...of Contents SPRINT NEXTEL CORPORATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Note 10. Income Taxes Income tax (expense) benefit consists of the following: Year Ended December 31, 2010 2009 (in millions) 2008 Current income tax benefit (expense) Federal State Total current income tax benefit...

  • Page 80
    Table of Contents SPRINT NEXTEL CORPORATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Deferred income taxes are recognized for the temporary differences between the carrying amounts of our assets and liabilities for financial statement purposes and their tax bases. Deferred tax assets are also ...

  • Page 81
    Table of Contents SPRINT NEXTEL CORPORATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS During 2010, 2009 and 2008, we incurred $210 million, $(3) million, and $(55) million, respectively, of foreign income (loss) which is included in loss before income taxes. We have no material unremitted ...

  • Page 82
    ... Sprint-Nextel merger, and by purportedly issuing false and misleading statements regarding the write-down of goodwill. The complaint was originally filed in March 2009 and is allegedly brought on behalf of purchasers of company stock from October 26, 2006 to February 27, 2008. On January 20, 2011...

  • Page 83
    ... of Contents SPRINT NEXTEL CORPORATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS The minimum cash obligation is approximately $2.8 billion under the Report and Order. We are, however, obligated to pay the full amount of the costs relating to the reconfiguration plan, even if those costs exceed...

  • Page 84
    ... SPRINT NEXTEL CORPORATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2010, 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...

  • Page 85
    ... FINANCIAL STATEMENTS Note 12. Compensation Plans As of December 31, 2010, Sprint sponsored four incentive plans: the 2007 Omnibus Incentive Plan (2007 Plan); the 1997 Long-Term Incentive Program (1997 Program); the Nextel Incentive Equity Plan (Nextel Plan) and the Management Incentive Stock Option...

  • Page 86
    ... the second quarter 2010, the Company completed an Exchange Offer in which certain outstanding vested options could be exchanged for new options that were (i) granted under any plan prior to May 17, 2009, (ii) not scheduled to expire before the Offer closed, (iii) had an exercise price greater than...

  • Page 87
    ...-based compensation programs, as well as upon conversion of outstanding securities that are convertible into common stock. When shares are reissued, we determine the cost using the FIFO method. Dividends We did not declare any dividends on our common shares in 2010, 2009, or 2008. We are currently...

  • Page 88
    ... and international wireline voice and data communication services, including services to the cable multiple systems operators that resell our local and long distance service and use our back office systems and network assets in support of their telephone services provided over cable facilities. We...

  • Page 89
    ... of Contents SPRINT NEXTEL CORPORATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Statement of Operations Information Wireless Wireline Corporate, Other and Eliminations (in millions) Consolidated 2010 Net operating revenues Inter-segment revenues(1) Total segment operating expenses Segment...

  • Page 90
    Table of Contents SPRINT NEXTEL CORPORATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Corporate, Other and Eliminations (in millions) Statement of Operations Information Wireless Wireline Consolidated 2008 Net operating revenues Inter-segment revenues(1) Total segment operating expenses(3)...

  • Page 91
    ... Contents SPRINT NEXTEL CORPORATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Corporate, Other and Eliminations(1) (in millions) Operating Revenues by Service and Products Wireless Wireline Consolidated 2010 Wireless services Wireless equipment Voice Data Internet Other Total net operating...

  • Page 92
    ... of Contents SPRINT NEXTEL CORPORATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Note 15. Quarterly Financial Data (Unaudited) Quarter 1st 2nd 3rd 4th (in millions, except per share amounts) 2010 Net operating revenues Operating loss Net loss Basic and diluted loss per common share(1) $ 8,085...

  • Page 93
    ... basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2010 and 2009, and the results of their operations and their cash flows for each of the three years in the period ended...

  • Page 94
    ...Current assets: Cash and cash equivalents Short-term investments Restricted cash Accounts receivable, net of allowance of $4,313 and $1,956 Notes receivable Inventory, net Prepaids and other assets Total current assets Property, plant and equipment, net Restricted cash Long-term investments Spectrum...

  • Page 95
    ... Contents CLEARWIRE CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS Year Ended December 31, 2010 2009 2008 (In thousands, except per share data) Revenues Operating expenses: Cost of goods and services and network costs (exclusive of items shown separately below) Selling, general...

  • Page 96
    ... long-term debt Spectrum purchases in accounts payable Common stock of Sprint Nextel Corporation issued for spectrum licenses Non-cash financing activities: Conversion of Old Clearwire Class A shares into New Clearwire Class A shares Vendor financing obligations Capital lease obligations Year Ended...

  • Page 97
    ... Common Stock Shares Amounts Additional Paid In Capital Business Equity of Sprint WiMAX Business (In thousands) Accumulated Other Comprehensive Income Accumulated Deficit Non-controlling Interests Total Stockholders' Equity Balances at January 1, 2008 Net advances from Sprint Nextel Corporation Net...

  • Page 98
    ... FINANCIAL STATEMENTS Description of Business We are a leading provider of 4G wireless broadband services. We build and operate next generation mobile broadband networks that provide high-speed mobile Internet and residential access services, as well as residential voice services, in communities...

  • Page 99
    ... basis. Further, the net cash used in operating activities and the net cash used in investing activities for capital expenditures and acquisitions of FCC licenses and patents represent transfers of expenses or assets paid for by other Sprint subsidiaries. No cash payments were made by us for income...

  • Page 100
    .... We classify marketable debt securities as available-for-sale investments and these securities are stated at their estimated fair value. Our investments that are available for current operations are recorded as short-term investments when the original maturities are greater than three months but...

  • Page 101
    ... basis is zero. Fair Value Measurements - Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. In determining fair value, we use various methods including market, cost and income...

  • Page 102
    ... operations. There were no PP&E impairment losses recorded in the years ended December 31, 2009 and 2008. In addition to the analyses described above, we periodically assess certain assets that have not yet been deployed in our networks, including equipment and cell site development costs...

  • Page 103
    ...straight-line basis over their estimated useful lives or lease term, including expected renewal periods, as applicable. There were no impairment losses for spectrum licenses with definite useful lives and favorable spectrum leases in the years ended December 31, 2010, 2009 and 2008. Other Intangible...

  • Page 104
    ... earn revenue by providing access to our high-speed wireless networks. Also included in revenue are leases of CPE and additional add-on services, including personal and business email and static Internet Protocol. Revenue from retail subscribers is billed one month in advance and recognized ratably...

  • Page 105
    ... 15, Net Loss Per Share, for further information. Operating Leases - We have operating leases for spectrum licenses, towers and certain facilities, and equipment for use in our operations. Certain of our spectrum licenses are leased from third-party holders of Educational Broadband Service, which...

  • Page 106
    ...(in thousands): December 31, 2010 Gross Unrealized Cost Gains Losses Fair Value Cost December 31, 2009 Gross Unrealized Gains Losses Fair Value Short-term U.S. Government and Agency Issues Long-term U.S. Government and Agency Issues Other debt securities Total long-term Total investments $ 502,121...

  • Page 107
    ...we intend to lease and $97.9 million of costs related to information technology, which we refer to as IT, and other corporate projects. We periodically assess certain assets that have not yet been deployed in our networks, including equipment and cell site development costs. This assessment includes...

  • Page 108
    ... on both a site-specific and a wide-area basis, authorize wireless carriers to use radio frequency spectrum to provide service to certain geographical areas in the United States and internationally. These licenses are generally acquired as an asset purchase or through a business combination. In some...

  • Page 109
    Table of Contents CLEARWIRE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -(CONTINUED) Year Ended December 31, 2010 2009 2008 Supplemental Information (in thousands): Amortization of prepaid spectrum licenses Amortization of definite-lived owned spectrum $ 57,433 $ 4,171...

  • Page 110
    ... case basis, based on renewal costs. 7. Other Liabilities Current liabilities Current liabilities consisted of the following (in thousands): December 31, 2010 2009 Accounts payable and accrued expenses: Accounts payable Accrued interest Salaries and benefits Business and income taxes payable Other...

  • Page 111
    ... CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -(CONTINUED) 8. Income Taxes The income tax provision consists of the following for the years ended December 31, 2010, 2009 and 2008 (in thousands): Year Ended December 31, 2010 2009 2008 Current taxes: International Federal...

  • Page 112
    ... the financial statement and tax bases of assets and liabilities using the tax rates expected to be in effect when any temporary differences reverse or when the net operating loss, capital loss or tax credit carryforwards are utilized. Pursuant to the Transactions, the assets of Old Clearwire and...

  • Page 113
    ... rate based on 3-month LIBOR plus a spread of 5.50%. (3) Included in Other current liabilities on the consolidated balance sheet. 2009 Interest Rates Effective Rate(1) Maturities Par Amount Net Discount Carrying Value Notes: Senior Secured Notes and Rollover Notes Total long-term debt, net _____...

  • Page 114
    ... Notes. We used $1.16 billion of the proceeds to retire indebtedness under the senior term loan facility that we assumed from Old Clearwire and recognized a gain on extinguishment of debt of $8.3 million, net of transaction costs. The Senior Secured Notes provide for biannual payments of interest in...

  • Page 115
    ... 12 year lease terms. As of December 31, 2010, approximately $132.4 million of our outstanding debt, comprised of Vendor Financing Notes and capital lease obligations, is secured by assets classified as network and base station equipment. Future Payments - For future payments on our long-term debt...

  • Page 116
    ... Agency Issues and money market mutual funds for which there are quoted prices in active markets. For other debt securities which are classified in Level 3, we use discounted cash flow models to estimate the fair value using various methods including the market and income approaches. In developing...

  • Page 117
    ...' assumptions in pricing the instruments. We use a trinomial option pricing model to estimate the fair value of the Exchange Options. The inputs include the contractual terms of the instrument and market-based parameters such as interest rate forward curves, stock price and dividend yield. A level...

  • Page 118
    ... Notes, the Second-Priority Secured Notes and the Exchangeable Notes, we used the average indicative price from several market makers. To estimate the fair value of the Vendor Financing Notes, we used an income approach based on the contractual terms of the notes and market-based parameters such as...

  • Page 119
    ... Total 2011 2012 2013 2014 2015 Long-term debt obligations Interest payments Operating lease obligations (1) Spectrum lease obligations Spectrum service credits Capital lease obligations(2) Signed spectrum agreements Network equipment purchase obligations Other purchase obligations Total...

  • Page 120
    ... CLEARWIRE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -(CONTINUED) Expense recorded related to spectrum and operating leases was as follows (in thousands): 2010 Year Ended December 31, 2009 2008 Spectrum lease expense Amortization of prepaid spectrum licenses Total...

  • Page 121
    ... usage by Sprint and Sprint's subscribers over our 4G network. In particular, the parties are disputing the proper interpretation and enforceability of the 4G MVNO Agreement with respect to the options for such smartphone pricing. We filed our Statement of Claim against Sprint on December 14, 2010...

  • Page 122
    ... stock options will be granted under the 2007 Plan or the 2003 Plan. Share-based compensation expense is based on the estimated grant-date fair value of the award and is recognized net of estimated forfeitures on those shares expected to vest over a graded vesting schedule on a straight-line basis...

  • Page 123
    ... years ended December 31, 2010, 2009 and 2008, we used a forfeiture rate of 7.15%, 7.75% and 7.50%, respectively, in determining compensation expense for RSUs. Stock Options In connection with the Transactions, all Old Clearwire stock options issued and outstanding at the Closing were exchanged on...

  • Page 124
    ... Contractual Term (Years) Aggregate Intrinsic Value As of 12/31/2010 (In millions) Number of Options WeightedAverage Exercise Price Options outstanding - January 1, 2008 Options acquired in purchase accounting - November 28, 2008 Granted Forfeited Exercised Options outstanding - December 31, 2008...

  • Page 125
    ...-Scholes option pricing model using the following assumptions for the years ended December 31, 2010, 2009 and 2008: Year Ended December 31, 2010 2009 2008 Expected volatility Expected dividend yield Expected life (in years) Risk-free interest rate Weighted average fair value per option at grant...

  • Page 126
    ... CLEARWIRE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -(CONTINUED) Share-based compensation expense recognized for all plans for the years ended December 31, 2010, 2009 and 2008 is as follows (in thousands): Year Ended December 31. 2010 2009 2009 Options RSUs Sprint...

  • Page 127
    ... Stock holds an equivalent number of Clearwire Communications Class B Common Interests, which, in substance, reflects their economic stake in Clearwire. This is accomplished through an exchange feature that provides the holder the right, at any time, to exchange one share of Class B Common Stock...

  • Page 128
    ... to contribute to Clearwire its Clearwire Communications voting interests in exchange for an equal number of shares of Clearwire's Class B Common Stock, par value $0.0001 per share. Under the Investment Agreement, in exchange for the purchase by Sprint, Comcast, Time Warner Cable and Bright House...

  • Page 129
    ... to shares of Class A Common Stock they each hold as of the applicable record date. In connection with the Rights Offering, rights to purchase 39.6 million shares of Class A Common Stock were exercised for an aggregate purchase price of $290.3 million. Clearwire Communications Interests Clearwire is...

  • Page 130
    ... All Old Clearwire warrants issued and outstanding at the Closing were exchanged on a one-for-one basis for warrants to purchase our Class A Common Stock with equivalent terms. The fair value of the warrants exchanged of $18.5 million was included in the calculation of purchase consideration using...

  • Page 131
    ..., agreed not to exercise or transfer their rights. The fair value of the rights distributed was $57.5 million or $0.51 per share of Class A Common Stock. Certain outstanding warrants meet the definition of participating securities as their terms provide for participation in distributions with Class...

  • Page 132
    ...CONSOLIDATED FINANCIAL STATEMENTS -(CONTINUED) Net loss per share attributable to holders of Class A Common Stock on a diluted basis, assuming conversion of the Clearwire Communications Class B Common Interests and Class B Common Stock and conversion of the Exchangeable Notes, is calculated based on...

  • Page 133
    ... 2, 2010. The contingent shares for the year ended December 31, 2008, relate to purchase price share adjustment of 28,235,294 million shares of Class A Common Stock and equity issuance to CW Investment Holdings of 588,235 shares of Class A Common Stock, all of which were issued in February of 2009...

  • Page 134
    ... of Contents CLEARWIRE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -(CONTINUED) Year Ended December 31, 2009 United States International Total Revenues: Retail revenue Wholesale revenue Other revenue Total revenues Cost of goods and services and network costs (exclusive...

  • Page 135
    ... financial statements (in thousands): December 31, 2010 2009 Accounts receivable Accounts payable and accrued expenses $ 22,297 $ 11,161 $ 3,221 $ 22,521 Year Ended December 31, 2010 2009 2008 Revenue Cost of goods and services and network costs (inclusive of capitalized costs) (COGS) Selling...

  • Page 136
    ... into a number of commercial agreements with Sprint and the Investors which are outlined below. Additionally, the wife of Mr. Salemme, our former Executive Vice President, Strategy, Policy and External Affairs, who is now serving as a consultant, is a Group Vice President at Time Warner Cable. She...

  • Page 137
    ..., data warehouse services, credit/address check, IT help desk services, repair services applications, customer trouble management, coverage map applications, network operations support applications, and other services. The specific services requested by us will be identified in Statements of Work to...

  • Page 138
    ... Sprint Spectrum L.P., which we refer to as the 3G MVNO Agreement, whereby Sprint agrees to sell its code division multiple access, which we refer to as CDMA and mobile voice and data communications service, which we refer to as PCS Service, for the purpose of resale to our retail customers. The PCS...

  • Page 139
    ... quarterly financial information for the years ended December 31, 2010 and 2009 is as follows (in thousands, except per share data): First Second Third Fourth Total 2010 quarter: Total revenues Operating loss Net loss Net loss attributable to Clearwire Corporation Net loss to Clearwire Corporation...

  • Page 140
    ... Contents CLEARWIRE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -(CONTINUED) CLEARWIRE CORPORATION CONDENSED BALANCE SHEETS December 31, December 31, 2010 2009 (In thousands) ASSETS Cash and cash equivalent Other assets Investments in equity method investees Total assets...

  • Page 141
    ... TO CONSOLIDATED FINANCIAL STATEMENTS -(CONTINUED) CLEARWIRE CORPORATION CONDENSED STATEMENTS OF OPERATIONS Period From November 29, 2008 to December 31, 2008 Year Ended December 31, 2010 Year Ended December 31, 2009 (In thousands) Revenues Operating expenses Operating loss Other income (expense...

  • Page 142
    ...) CLEARWIRE CORPORATION CONDENSED STATEMENTS OF CASH FLOWS Period From November 29, 2008 to December 31, 2008 Year Ended December 31, 2010 Year Ended December 31, 2009 (In thousands) CASH FLOWS FROM OPERATING ACTIVITIES: Net loss Adjustments to reconcile net loss to net cash used in operating...