Sprint - Nextel 2011 Annual Report Download - page 78

Table of Contents
SPRINT NEXTEL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
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. The objective for the investment portfolio of the
pension plan is to achieve a long-term nominal rate of return, net of fees, which exceeds the plan's long-term expected rate of return on investments for funding purposes
which was 8.25% for 2011. To meet this objective, our investment strategy is governed by an asset allocation policy, whereby a targeted allocation percentage is assigned
to each asset class as follows: 50% to U.S. equities; 15% to international equities; 15% to fixed income investments; 10% to real estate investments; and 10% to other
investments including hedge funds. Actual allocations are allowed to deviate from target allocation percentages by plus or minus 5%.
Investments of the pension plan are measured at fair value on a recurring basis which is determined using quoted market prices or estimated fair values. As of
December 31, 2011, 57% of the investment portfolio was valued at quoted prices in active markets for identical assets; 26% was valued using quoted prices for similar
assets in active or inactive markets, or other observable inputs; and 17% was valued using unobservable inputs that are supported by little or no market activity.
Under our defined contribution plan, participants may contribute a portion of their eligible pay to the plan through payroll withholdings. The Company
matched 100% of participants' contributions up to 4% of their eligible compensation from January 1, 2009 to March 6, 2009. These fixed matching contributions totaled
$32 million in 2009. Effective for compensation paid after March 6, 2009 through 2010, the amount of matching contribution was 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 levels were attained, the Company matched a
percentage of the participant's contributions up to a maximum percentage of their eligible compensation as determined by the Board. For the remainder of 2009, we
matched 100% of the participants' contributions up to 1.13% of their eligible compensation in cash, totaling $20 million and for 2010, the amount of the discretionary
match was 0.7%, or $9 million. For 2011, the Company reinstated the fixed matching contribution, matching 100% of participants' contributions up to 2% of their eligible
compensation for a total amount of $31 million and also made a discretionary match of 1.2% or $20 million, based upon the attainment of certain profitability levels.
R
evenue Reco
g
nition
Operating revenues primarily consist of wireless service revenues, revenues generated from device and accessory sales, revenues from wholesale operators and
third party affiliates (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, data, text messaging, and premium service usage 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 2011, 2010 and 2009.
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.
D
ealer Commissions
Cash consideration given by us to a dealer or end-user subscriber is presumed to be a reduction of
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