item 14 exhibits financial statement schedule reports form 8k 1 consolidated financial statements sprint supplementary financial information filed part report listed index financial statements financial statement schedule supplementary data 2 consolidated financial statement schedule sprint filed part report listed index financial statements financial statement schedule supplementary data 3 following exhibits filed part report exhibits 3 articles incorporation bylaws articles incorporation amended filed exhibit 4 sprint corporation current report form 8k dated march 9 1993 incorporated herein reference b bylaws amended filed exhibit 3b sprint corporation annual report form 10k year ended december 31 1991 incorporated herein reference 4 instruments defining rights sprints equity security holders rights sprints equity security holders defined fifth sixth seventh eighth articles sprints articles incorporation see exhibit 3a b rights agreement dated august 8 1989 sprint corporation formerly united telecommunications inc umb bank na formerly united missouri bank kansas city na rights agent filed exhibit 2b sprint corporation registration statement form 8 dated august 11 1989 file 14721 incorporated herein reference c amendment supplement dated june 4 1992 rights agreement dated august 8 1989 filed exhibit 2c amendment 1 form 8 dated june 8 1992 sprint corporation registration statement form 8a dated august 11 1989 file 14721 incorporated herein reference 10 material agreements joint ventures memorandum understanding sprint corporation france telecom deutsche bundespost telekom dated june 14 1994 filed exhibit 10a sprint corporation quarterly report form 10q quarter ended june 30 1994 incorporated herein reference b agreement limited partnership wirelessco l p delaware limited partnership dated october 24 1994 among sprint spectrum inc tci network inc comcast telephony services cox communications wireless inc 10 executive compensation plans arrangements c 1978 stock option plan amended 1981 stock option plan amended e 1985 stock option plan amended f 1990 stock option plan amended g 1990 restricted stock plan amended filed exhibit 99 sprint corporation registration statement 3357785 incorporated herein reference h longterm stock incentive program amended restated memorandum agreements respecting supplemental pension benefits sprint corporation formerly united telecommunications inc two current former executive officers filed exhibit 10i sprint corporation annual report form 10k year ended december 31 1992 incorporated herein reference j executive longterm incentive plan filed exhibit 10j sprint corporation annual report form 10k year ended december 31 1993 incorporated herein reference k executive management incentive plan filed exhibit 10k sprint corporation annual report form 10k year ended december 31 1993 incorporated herein reference l longterm incentive compensation plan filed exhibit 10j united telecommunications inc annual report form 10k year ended december 31 1989 incorporated herein reference shortterm incentive compensation plan filed exhibit 10k united telecommunications inc annual report form 10k year ended december 31 1989 incorporated herein reference n retirement plan directors amended filed exhibit 10b sprint corporation quarterly report form 10q quarter ended march 31 1994 incorporated herein reference key management benefit plan amended filed exhibit 10o sprint corporation annual report form 10k year ended december 31 1993 incorporated herein reference p executive deferred compensation plan amended q directors deferred fee plan amended filed exhibit 19g united telecommunications inc quarterly report form 10q quarter ended september 30 1991 incorporated herein reference r summary sprint supplemental executive retirement plan filed exhibit 10c sprint corporation quarterly report form 10q quarter ended september 30 1994 incorporated herein reference form contingency employment agreements sprint corporation certain executive officers filed exhibit 10r sprint corporation annual report form 10k year ended december 31 1992 incorporated herein reference form indemnification agreements sprint corporation formerly united telecommunications inc directors officers filed exhibit 10s sprint corporation annual report form 10k year ended december 31 1991 incorporated herein reference u summary executive benefits filed exhibit 10u sprint corporation annual report form 10k year ended december 31 1991 incorporated herein reference v agreements regarding special compensation post employment restrictive covenants sprint corporation four executive officers filed exhibit 10d sprint corporation quarterly report form 10q quarter ended september 30 1994 incorporated herein reference w amended restated centel stock option plan x agreements regarding special compensation post employment restrictive covenants sprint corporation three executive officers filed exhibit 10x sprint corporation annual report form 10k year ended december 31 1993 incorporated herein reference description agreement regarding supplemental pension benefits sprint corporation one executive officers filed exhibit 10e sprint corporation quarterly report form 10q quarter ended september 30 1994 incorporated herein reference z amended restated centel directors deferred compensation plan filed exhibit 10z sprint corporation annual report form 10k year ended december 31 1993 incorporated herein reference aa amended restated centel director stock option plan filed exhibit 10aa sprint corporation annual report form 10k year ended december 31 1993 incorporated herein reference bb management incentive stock option plan filed exhibit 99 sprint corporation registration statement 3357911 incorporated herein reference 11 computation earnings per common share 12 computation ratio earnings fixed charges 21 subsidiaries registrant 23a consent ernst young llp 23b consent arthur andersen llp 27 financial data schedule sprint furnish securities exchange commission upon request copy instruments defining rights holders longterm debt longterm debt subsidiaries total amount securities authorized said instruments exceed 10 percent total assets sprint subsidiaries consolidated basis b reports form 8k sprint filed current report form 8k dated october 25 1994 reported sprint tele communications inc comcast corporation cox communications formed joint venture provide wireless communications services local telephone services see part item 1 business new joint venture part ii item 7 managements discussion analysis financial condition results operations strategic developments discussion regarding joint venture c exhibits listed item 14a signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized sprint corporation registrant w esrey william esrey chairman president chief executive officer date march 7 1995 pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities indicated 7th day march 1995 w esrey william esrey chairman president chief executive officer arthur b krause arthur b krause executive vice president chief financial officer john p meyer john p meyer senior vice president controller principal accounting officer signatures sprint corporation registrant pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities indicated 7th day march 1995 dubose ausley dubose ausley director warren l batts warren l batts director ruth davis ruth davis director w esrey william esrey director donald j hall donald j hall director p h henson paul h henson director harold hook harold hook director robert e r huntley robert e r huntley director ronald lemay ronald lemay director linda koch lorimer linda koch lorimer director charles h price ii director frank e reed frank e reed director charles e rice charles e rice director stewart turley stewart turley director index financial statements financial statement sprint schedule supplementary data corporation selected financial data managements discussion analysis financial condition results operations consolidated financial statements schedule management report independent auditors ernst young llp report independent auditors arthur andersen llp consolidated statements income three years ended december 31 1994 consolidated balance sheets december 31 1994 1993 consolidated statements cash flows three years ended december 31 1994 consolidated statements common stock shareholders equity three years ended december 31 1994 notes consolidated financial statements financial statement schedule three years ended december 31 1994 viii consolidated valuation qualifying accounts certain financial statement schedules omitted required information present information required included consolidated financial statements notes thereto quarterly financial data selected financial data sprint corporation years ended december 31 1994 1993 1992 1991 1990 millions except per share data results operations net operating revenues 126618 113678 104203 99333 94698 operating income 1 17878 12506 12134 11856 10453 income continuing operations 1 2 3 4 8837 4806 4961 4727 3511 earnings per common share continuing operations 1 2 3 4 253 139 146 141 106 dividends per common share 100 financial position total assets 149363 141489 135996 139298 140806 property plant equipment net 108786 103148 102199 103105 102952 total debt including shortterm borrowings 49372 50944 54427 55712 60823 redeemable preferred stock 371 386 402 566 600 common stock shareholders equity 45248 39183 39716 36719 33535 cash flow data cash operating activities 24720 21124 22506 18206 13245 capital expenditures 20159 15947 14662 15232 18689 free cash flow 5 1067 1706 1843 16 8334 1 1993 nonrecurring charges 293 million recorded related transaction costs associated merger centel expenses integrating restructuring operations two companies b realignment restructuring within long distance division charges reduced consolidated 1993 income continuing operations 193 million 056 per share 1990 nonrecurring charges 72 million recorded related long distance division reduced consolidated 1990 income continuing operations 37 million 011 per share 2 1992 1991 gains recognized related sales certain local telephone cellular properties increased consolidated 1992 income continuing operations 44 million 013 per share consolidated 1991 income continuing operations 78 million 023 per share 3 1994 sprint sold investment equity securities realizing gain 35 million increased consolidated 1994 income continuing operations 22 million 006 per share 4 1993 result enactment revenue reconciliation act 1993 sprint required adjust deferred income tax assets liabilities reflect increased tax rate adjustment reduced consolidated 1993 income continuing operations 13 million 004 per share 5 free cash flow represents cash operating activities less capital expenditures dividends paid amount 1992 excludes additional proceeds sale accounts receivable 300 million managements discussion analysis sprint corporation financial condition results operations strategic developments october 25 1994 sprint corporation sprint along tele communications inc tci comcast corporation comcast cox communications cox announced formation venture provide wireless communications services local telephone services broad geographic basis within united states joint venture owned 40 percent sprint 30 percent tci 15 percent comcast cox parties signed definitive agreements created partnerships bidding personal communications services pcs licenses auctioned federal communications commission fcc parties also entered joint venture formation agreement provides basis upon developing definitive agreements local telephone activities june 14 1994 sprint announced entered memorandum understanding mou deutsche telekom france telecom form global partnership would offer telecommunications services business consumer carrier markets worldwide mou provided deutsche telekom france telecom together would purchase approximately 429 million shares new class sprint common stock price 47225 per share mou provided deutsche telekom france telecom would also purchase approximately 429 million shares new class sprint common stock price 5100 per share two years initial acquisition part transaction deutsche telekom france telecom would entitled representation sprints board representation would based actual percentage ownership interest minimum two directors serving sprints board long two companies least 10 percent outstanding common stock sprint subject approval new york stock exchange formation partnership acquisition sprint stock subject conditions including negotiation execution definitive agreements terms definitive agreements including terms relating financial investment deutsche telekom france telecom could differ material respects mou also assurance definitive agreements reached contingencies transaction include approval sprints board directors shareholders approval governing bodies deutsche telekom france telecom governmental regulatory approvals sprintcentel merger effective march 9 1993 sprint consummated merger centel corporation centel creating diversified telecommunications enterprise operations long distance local exchange cellular wireless communications services merger accounted 1993 pooling interests results operations consolidated sprints primary divisions long distance local exchange cellular wireless communications services generated record levels net operating revenues improved operating results 1994 long distance division generated solid 11 percent growth traffic volumes 1994 number access lines served local division grew 48 percent cellular wireless division benefited strong 59 percent growth cellular subscribers total net operating revenues year ended december 31 1994 1266 billion 11 percent increase net operating revenues 1137 billion 1993 total net operating revenues year ended december 31 1992 1042 billion year ended december 31 1994 income continuing operations 884 million 253 per share compared 481 million 139 per share 1993 496 million 146 per share 1992 income continuing operations year ended december 31 1994 included gain related sale investment equity securities 006 per share income continuing operations year ended december 31 1993 included charges related merger integration costs associated centel merger realignment restructuring sprints long distance division 056 per share charge associated enactment revenue reconciliation act 1993 004 per share income continuing operations year ended december 31 1992 included gain related sale certain telephone properties 013 per share segmental results operations long distance communications services years ended december 31 1994 1993 1992 millions net operating revenues 68051 61392 56582 operating expenses interconnection 29945 27107 25749 operations 9254 8577 7598 selling general administrative 17299 15464 14263 depreciation amortization 5505 5235 5866 merger integration restructuring costs 459 total operating expenses 62003 56842 53476 operating income 6048 45501 3106 operating margin 89 741 55 capital expenditures 7741 5294 4681 identifiable assets december 31 45387 41931 42320 1 excluding merger integration restructuring costs 459 million operating income margin 1993 would 5009 million 82 percent respectively sprints long distance division provides domestic international voice video data communications services rates charged division services subject different levels state federal regulation generally ratebase regulated net operating revenues increased 11 percent 1994 following 9 percent increase 1993 increases generally due traffic volume growth 11 percent 8 percent periods result changes product mix average revenue per minute received customers relatively constant 1994 1993 1992 increases net operating revenues traffic volumes 1994 1993 reflect ongoing growth international business residential markets growth international market periods reflects divisions continuing efforts target new geographic markets business market continued experience growth 800 services market growth sparked may 1993 arrival 800 portability enables customers keep advertised 800 numbers changing long distance carriers 1994 revenue growth also enhanced solid performance data services market includes sales consumer online services interconnection costs consist amounts paid local exchange carriers domestic service providers foreign telephone companies completion calls made divisions customers interconnection costs increased 1994 1993 primarily result traffic volume growth however percentage net operating revenues interconnection costs decreased 455 percent 1992 442 percent 440 percent 1993 1994 respectively decreased percentages primarily due reductions interconnection charges paid local exchange companies partially offset increased costs related settlements international revenues operations expense consists costs related operating maintaining long distance network costs providing various services operator services public payphones telecommunications services hearing impaired video teleconferencing costs data systems sales operations expense increased 68 million 1994 98 million 1993 primarily due expanded service offerings well providing services new customers 1993 increase also impacted change accounting method whereby circuit activity costs expensed incurred see note 1 notes consolidated financial statements additional information exclusive effect accounting change 1993 operations expense increased 63 million selling general administrative sga expense increased 184 million 120 million 1994 1993 respectively generally reflecting overall growth divisions operating activities percentage net operating revenues expenses remained relatively stable levels increasing slightly 254 percent 1994 252 percent 1993 1992 1994 increase generally due increased advertising expenses resulting ongoing sales marketing efforts critical intensely competitive long distance marketplace depreciation amortization 1994 increased 27 million compared 1993 generally due increase asset base depreciation amortization 1993 decreased 63 million 1992 primarily due change accounting circuit activity costs described 1994 fourth quarter division broke string nine consecutive quarters increased operating income fourth quarter 1994 operating income decreased 27 million 1994 third quarter decline operating income primarily driven lower revenue yields seasonally lower volumes business market fourth quarter net operating revenues also reflect intensified competition residential marketplace reduction net operating revenues partially offset lower expense levels included revised estimates related employee benefit operating tax expenses division implemented various actions address decline including selective pricing actions product introductions marketing initiatives process productivity improvements divisions return previous operating levels depend upon success marketing efforts ability maintain pricing strategies gain market share intensely competitive long distance marketplace continued focus cost containment technology improvements also contribute improved results local communications services years ended december 31 1994 1993 1992 millions net operating revenues local service 17523 16243 15074 network access 15984 15304 14258 toll service 5293 5053 4875 5328 4660 4415 total net operating revenues 44128 41260 38622 operating expenses plant operations 12983 12067 11656 depreciation amortization 7946 7330 7200 customer operations 5493 5324 4737 7487 7001 6633 merger integration costs 1901 total operating expenses 33909 33623 30226 operating income 10219 76371 8396 operating margin 232 1851 217 capital expenditures 9142 8453 8394 identifiable assets december 31 78213 76040 72422 1 excluding merger integration costs 1901 million operating income margin 1993 would 9538 million 231 percent respectively local division consists principally sprints rate regulated local exchange telephone operations net operating revenues increased 7 percent 1994 1993 increased local service revenues reflect continued increases number access lines served growth addon services custom calling features division experienced 48 percent growth access lines 1994 1993 network access revenues derived interexchange long distance carriers use local network complete calls increased 1994 1993 result increased traffic volumes partially offset periodic reductions network access rates charged also affecting 1993 increase additional revenues resulting recognition portion merger integration restructuring costs regulatory purposes certain jurisdictions toll service revenues related provision long distance services within specified geographical areas reselling interexchange long distance services increased 5 percent 4 percent 1994 1993 respectively revenues including revenues directory publishing fees billing collection services sales telecommunications equipment increased 1994 1993 generally due growth equipment sales plant operations expense includes network operations costs repair maintenance costs property plant equipment costs associated provision local exchange services 8 percent 4 percent increases costs 1994 1993 respectively primarily related increases costs providing services resulting access line growth additionally certain states implemented revised toll plans requiring payment access charges calls terminating service areas local exchange carriers resulting increased plant operations expense increased expenditures related switching system software associated advanced calling features also contributed higher level plant operations expense 1994 depreciation amortization expense increased 62 million 1994 following 13 million increase 1993 increases include effects depreciation rate changes special short term amortizations nonrecurring charges approved state regulatory commissions 26 million 7 million 1994 1993 respectively remaining increases generally reflect plant additions customer operations expense includes costs associated business office operations billing services marketing costs expenses related providing operator directory assistance customer services costs increased 3 percent 12 percent 1994 1993 respectively 1993 increase primarily due increased marketing costs increased systems development costs incurred enhance divisions billing processes operating expense increased 49 million 37 million 1994 1993 respectively primarily due costs associated growth equipment sales 1993 increases plant operations customer operations operating expenses also reflect impact increased postretirement benefits cost approximately 38 million recognized result adoption statement financial accounting standards sfas 106 employers accounting postretirement benefits pensions amounts benefits generally consistent 1993 1994 consistent local exchange carriers lecs division accounts economic effects regulation pursuant sfas 71 accounting effects certain types regulation application sfas 71 requires accounting recognition rate actions regulators appropriate including recognition depreciation amortization based estimated useful lives prescribed regulatory commissions rather might utilized nonregulated enterprises sprint currently believes divisions rateregulated operations meet criteria continued application provisions sfas 71 however division operates evolving environment regulatory framework changing level types competition increasing accordingly sprint constantly monitors evaluates ongoing applicability sfas 71 assessing likelihood prices provide recovery specific costs continue charged customers event sprint determines divisions rateregulated operations longer qualify application provisions sfas 71 sprint would eliminate financial statements effects actions regulators recognized assets liabilities resulting material noncash charge would recorded extraordinary item see note 8 notes consolidated financial statements information regarding primary components estimated amounts regulatory assets liabilities december 31 1994 cellular wireless communications services years ended december 31 1994 1993 1992 millions net operating revenues 7018 4640 3222 operating expenses cost services products 2332 1549 1183 selling general administrative 2906 2099 1546 depreciation amortization 924 750 521 merger integration costs 32 total operating expenses 6162 4430 3250 operating income loss 856 2101 28 operating margin 122 451 capital expenditures 2643 1649 1238 identifiable assets december 31 17280 15043 14894 1 excluding merger integration costs 32 million operating income margin 1993 would 242 million 52 percent respectively addition activities comprising operating results sprints cellular wireless division also owns minority interests certain markets equity earnings losses minority investments included expense net consolidated statements income increases net operating revenues 1994 1993 resulted principally growth number cellular subscribers increased 59 percent 1994 67 percent 1993 effect growth partially offset decline service revenue per subscriber reflecting industrywide trend occurred result increased general consumer market penetration future growth rates net operating revenues number cellular subscribers dependent price levels quality service competitive cellular marketplace well impacts emerging competition pcs excluding costs revenues related equipment sales costs services products declined 242 percent net operating revenues 1994 263 percent 1993 297 percent 1992 generally reflecting economies scale gained serving additional subscribers increases selling general administrative expense 1994 1993 resulted principally increased commissions customer service expenses well increased advertising costs related growth number cellular subscribers despite increases amount sga expense costs percentage net operating revenues excluding revenues equipment sales declined 450 percent 1994 492 percent 1993 523 percent 1992 improvements resulted primarily additional economies realized providing service support larger customer base economies contributed 3 percent decline total per unit cost acquire customers including costs equipment sales 1993 1994 depreciation amortization increased 1994 1993 additional investments property plant equipment required meet growth number cellular subscribers product distribution directory publishing years ended december 31 1994 1993 1992 millions net operating revenues 11087 9452 8629 operating expenses cost services products 9382 8010 7178 selling general administrative 881 746 717 depreciation amortization 69 54 74 merger integration costs 25 total operating expenses 10332 8835 7969 operating income 755 6171 660 operating margin 68 651 76 capital expenditures 67 90 58 identifiable assets december 31 3762 3418 3067 1 excluding merger integration costs 25 million operating income margin 1993 would 642 million 68 percent respectively north supply wholesale distributor telecommunications products 1994 net operating revenues 829 million compared 677 million 1993 594 million 1992 increases primarily reflect additional nonaffiliated contracts increased sales local division partially result sales merged centel telephone operations percentage net operating revenues operating expenses 1994 1993 1992 954 percent 965 percent 952 percent respectively sprint publishing advertising publisher marketer telephone directories net operating revenues 280 million 1994 compared 1993 1992 net operating revenues 268 million 257 million respectively percentage net operating revenues operating expenses 1994 1993 1992 866 percent 849 percent 826 percent respectively nonoperating items interest expense interest expense totaled 398 million 1994 compared 452 million 1993 511 million 1992 decreases generally reflect reductions average levels debt outstanding well lower interest rates due debt refinancings 1993 1992 sprints average debt outstanding decreased 334 million 596 million 1994 1993 respectively effective interest rate decreased 52 15 basis points respectively expense net components income expense follows millions years ended december 31 1994 1993 1992 gain sale investment 347 equity securities equity earnings cellular minority partnership interests 216 200 128 loss sales accounts 287 220 177 receivable minority interests 221 94 61 net 132 109 60 total expense net 77 223 50 income tax provision sprints income tax provisions 1994 1993 1992 resulted effective tax rates 36 percent 38 percent 36 percent respectively 1993 revenue reconciliation act 1993 enacted among changes raised federal income tax rate 35 percent 34 percent result sprint adjusted deferred income tax assets liabilities reflect revised rate see note 3 notes consolidated financial statements additional information regarding differences cause effective income tax rates vary statutory federal income tax rates december 31 1994 sprint recorded deferred income tax assets 301 million related postretirement benefits 93 million related alternative minimum tax credit carryforwards 39 million net 21 million valuation allowance related state operating loss carryforwards sprints management determined likely deferred income tax assets net valuation allowance realized based current income tax laws expectations future taxable income stemming reversal existing deferred tax liabilities ordinary operations uncertainties surrounding income tax law changes shifts operations state taxing jurisdictions future operating income levels may however affect ultimate realization portion deferred income tax assets discontinued operations extraordinary losses year ended december 31 1994 sprint recognized 7 million income associated settlement matters related discontinued operation 1993 sprint incurred loss discontinued operations 12 million net income tax benefits 1993 1992 sprint incurred extraordinary losses related early extinguishments debt 29 million 16 million respectively net related income tax benefits accounting changes effective january 1 1993 sprint changed method accounting postretirement postemployment benefits adopting sfas 106 112 effected another accounting change cumulative effect changes accounting principles reduced 1993 net income 384 million effective january 1 1992 sprint also changed method accounting income taxes adopting sfas 109 cumulative effect change accounting principle increased 1992 net income 23 million inflation effects inflation sprints operations significant 1994 1993 1992 financial condition sprints consolidated assets totaled 1494 billion december 31 1994 compared 1415 billion december 31 1993 accounts receivable increased 239 million december 31 1994 compared december 31 1993 generally due 11 percent increase consolidated net operating revenues timing sales activities cash collections increase significant impact sprints aging accounts receivable property plant equipment net accumulated depreciation increased 564 million 1993 1994 increase primarily result increased capital expenditures enhance upgrade sprints networks expand service capabilities increase productivity 130 million investment equity securities classified current asset december 31 1993 sold 1994 current maturities longterm debt december 31 1994 decreased 191 million compared december 31 1993 due scheduled debt payments december 31 1994 sprints total capitalization aggregated 950 billion consisting longterm debt including current maturities redeemable preferred stock common stock shareholders equity longterm debt including current maturities comprised 52 percent total capitalization december 31 1994 compared 56 percent yearend 1993 liquidity capital resources cash flows operating activities cash flows operating activities sprints primary source liquidity 247 billion 211 billion 225 billion 1994 1993 1992 respectively operating cash flows 1994 1993 reflect improved operating results partially offset expenditures related 1993 merger integration restructuring actions 86 million 155 million 1994 1993 respectively 1992 operating cash flows include proceeds 300 million sale accounts receivable within long distance division cash flows investing activities sprints investing activities used cash 198 billion 157 billion 158 billion 1994 1993 1992 respectively capital expenditures represent sprints significant investing activity 202 billion 159 billion 147 billion 1994 1993 1992 respectively long distance capital expenditures incurred year primarily increase network capacity enhance network reliability capabilities providing new products services capital expenditures local division made accommodate access line growth continue conversion digital technologies expand divisions capabilities providing enhanced telecommunications services increases 1994 1993 capital expenditures cellular wireless division reflect significant increases number cellular subscribers served years investing activities 1994 also include 118 million received connection sale investment equity securities additionally sprint made investments 49 million connection several joint ventures included initial funding requirements associated joint ventures participation pcs auction conducted fcc investing activities 1992 included 250 million paid connection sprints 530 million acquisition remaining 199 percent interest sprint communications company lp limited partnership proceeds 114 million sale certain local telephone properties cash flows financing activities sprints financing activities used cash 444 million 596 million 670 million 1994 1993 1992 respectively improved operating cash flows year together proceeds 1992 sale additional accounts receivable divestiture certain local telephone properties allowed sprint fund capital expenditures dividends internally reduce total debt outstanding year addition 280 million note issued seller connection acquisition remaining interest limited partnership paid 1992 1993 1992 significant level debt refinancing occurred order take advantage lower interest rates accordingly majority proceeds longterm borrowings 1993 used finance redemption prior scheduled maturities 124 billion debt 1992 sprint refinanced 720 million longterm debt borrowed 250 million finance payment related acquisition remaining 199 percent interest limited partnership sprint paid dividends common preferred shareholders 349 million 347 million 300 million 1994 1993 1992 respectively sprints indicated annual dividend rate common stock currently 100 per share liquidity capital requirements sprint anticipates cash flows operating activities sufficient fund dividends capital expenditures 1995 sprint currently expects 1995 capital expenditures approximately 21 billion excluding cash commitments associated joint ventures sprint expects external cash requirements 1995 approximately 550 million 650 million generally required repay scheduled longterm debt maturities refinance notes payable commercial paper longterm debt outstanding december 31 1994 includes 108 billion notes payable commercial paper amounts refinanced issuance longterm debt continue financed existing credit facilities may reduced free cash flows external cash requirements financed primarily debt source depend upon prevailing market conditions year discussed strategic developments october 1994 sprint entered joint venture certain cable companies provide wireless communications services consumers businesses broad geographic basis within united states joint venture bidding certain pcs licenses currently auctioned fcc results auction anticipated conclude 1995 first quarter likely cause joint venture ultimately partners incur significant cash commitments additionally 1995 sprint incur cash commitments associated continued development joint ventures infrastructure presence communications marketplace well cash commitments associated planned joint venture provide local telephone service competition nonsprint lecs aggregate cash commitments associated joint venture activities fully determined upon completion fccs auction negotiation definitive agreements related local telephone activities sprint currently negotiating interim credit facility support anticipated cash commitments associated joint venture activities portion cash proceeds anticipated investment sprint deutsche telekom france telecom would used ultimately fund commitments associated joint venture activities yearend 1994 sprint ability borrow 525 million revolving credit agreement syndicate domestic international banks bank commitments available financing sources include mediumterm note program sprint may offer sale 175 million unsecured senior debt securities additionally pursuant shelf registration statements filed securities exchange commission 12 billion debt securities could offered sale december 31 1994 january 1995 70 million debt securities shelf registration statements issued order reduce commercial paper outstanding aggregate amount additional borrowings incurred ultimately limited certain covenants contained existing debt agreements december 31 1994 sprint borrowing capacity approximately 41 billion restrictive debt covenants general hedging policies sprint limited basis utilizes certain derivative financial instruments effort manage exposure interest rate risk foreign exchange risk sprints utilization derivative financial instruments related hedging activities generally limited interest rate swap agreements forward contracts options foreign currencies sprint circumstance take speculative positions create exposure benefit market fluctuations hedging activity accordance board approved policies potential loss exposure related sprints use derivative instruments immaterial overall operations financial condition liquidity see note 10 notes consolidated financial statements information related sprints portfolio derivative instruments interest rate risk management sprints interest rate risk management program focuses minimizing vulnerability net income movements interest rates setting optimal mixture floatingrate fixedrate debt liability portfolio preventing liquidity risk sprint primarily employs gap methodology measure interest rate exposure utilizes simulation analysis manage interest rate risk sprint takes active stance modifying hedge positions benefit value timing flexibility fixed ratefloatingrate adjustments foreign exchange risk management sprints foreign exchange risk management program focuses optimizing consolidated cash flows stabilizing accounting results sprint hedge translation exposure believes optimizing consolidated cash flows time maintain shareholder value sprints primary transaction exposure foreign currencies results changes foreign exchange rates dates sprint incurs settles liabilities payable foreign currency overseas telephone companies costs terminating international calls made sprints domestic customers impact recently issued accounting pronouncements american institute certified public accountants issued statement position reporting advertising costs provides guidance financial reporting advertising costs annual financial statements statement requires reporting costs advertising expenses periods costs incurred first time advertising takes place unless certain criteria deferral met statement effective financial statements years beginning june 15 1994 management believes sprints current practice expensing advertising costs incurred meets requirements statement management report management sprint corporation responsibility integrity objectivity information contained annual report management responsible consistency reporting information ensuring generally accepted accounting principles used discharging responsibility management maintains comprehensive system internal controls supports extensive program internal audits made organizational arrangements providing appropriate divisions responsibility established communication programs aimed assuring policies procedures codes conduct understood practiced employees consolidated financial statements included annual report audited ernst young llp independent auditors audit conducted accordance generally accepted auditing standards report included herein responsibility board directors financial statements pursued primarily audit committee audit committee composed entirely directors officers employees sprint meets periodically internal auditors independent auditors without management present assure respective responsibilities fulfilled internal independent auditors full access audit committee discuss auditing financial reporting matters w esrey william esrey chairman president chief executive officer arthur b krause arthur b krause executive vice president chief financial officer report independent auditors board directors shareholders sprint corporation audited accompanying consolidated balance sheets sprint corporation sprint december 31 1994 1993 related consolidated statements income cash flows common stock shareholders equity three years period ended december 31 1994 audits also included financial statement schedule listed index financial statements financial statement schedule supplementary data financial statements schedule responsibility management sprint responsibility express opinion financial statements schedule based audits audit financial statements schedule centel corporation whollyowned subsidiary year ended december 31 1992 statements reflect net income constituting approximately 9 percent consolidated net income year ended december 31 1992 statements schedule audited auditors whose report furnished us opinion insofar relates data included centel corporation based solely report auditors conducted audits accordance generally accepted auditing standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits report auditors provide reasonable basis opinion based audits report auditors consolidated financial statements referred present fairly material respects consolidated financial position sprint december 31 1994 1993 consolidated results operations cash flows three years period ended december 31 1994 conformity generally accepted accounting principles also opinion related financial statement schedule considered relation basic financial statements taken whole presents fairly material respects information set forth therein discussed notes 1 2 3 consolidated financial statements sprint changed method accounting postretirement benefits postemployment benefits circuit activity costs 1993 income taxes 1992 ernst young llp kansas city missouri january 31 1995 report independent auditors shareowners centel corporation audited consolidated statements income common shareowners investment cash flows centel corporation kansas corporation subsidiaries year ended december 31 1992 prior pooling interests sprint corporation therefore presented herein described note 9 consolidated financial statements sprint corporation year ended december 31 1994 financial statements responsibility companys management responsibility express opinion financial statements based audit conducted audit accordance generally accepted auditing standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audit provides reasonable basis opinion financial statements referred present fairly material respects results operations cash flows centel corporation subsidiaries year ended december 31 1992 conformity generally accepted accounting principles audit made purpose forming opinion basic financial statements taken whole connection audit certain auditing procedures applied following schedule required purposes complying securities exchange commissions rules part basic financial statements schedule included herein schedule viii consolidated allowance doubtful accounts opinion information contained schedule fairly states material respects financial data required set forth therein relation basic financial statements taken whole arthur andersen llp chicago illinois february 3 1993 consolidated statements income sprint corporation years ended december 31 1994 1993 1992 millions except per share data net operating revenues 126618 113678 104203 operating expenses costs services products 63610 57361 53255 selling general administrative 30346 27299 24899 depreciation amortization 14784 13587 13915 merger integration restructuring costs 2925 total operating expenses 108740 101172 92069 operating income 17878 12506 12134 gain divestiture telephone 811 properties interest expense 3980 4524 5111 expense net 77 223 50 income continuing operations income taxes 13821 7759 7784 income tax provision 4984 2953 2823 income continuing operations 8837 4806 4961 discontinued operations net 70 123 extraordinary losses early extinguishments debt net 292 160 cumulative effect changes accounting principles net 3842 227 net income 8907 549 5028 preferred stock dividends 27 28 35 earnings applicable common stock 8880 521 4993 earnings per common share continuing operations 253 139 146 discontinued operations 002 004 extraordinary item 008 005 cumulative effect changes accounting principles 112 007 total 255 015 148 weighted average number common shares 3487 3437 3372 see accompanying notes consolidated financial statements consolidated balance sheets sprint corporation december 31 1994 1993 assets millions current assets cash equivalents 1233 768 accounts receivable net allowance doubtful accounts 1289 million 1219 million 1993 14698 12306 investment equity securities 1302 inventories 2158 1823 deferred income taxes 542 811 prepaid expenses 1445 1207 1809 1561 total current assets 21885 19778 investments equity securities 1776 1731 property plant equipment long distance communications services 60563 54927 local communications services 118274 112264 cellular wireless communications services 8185 5696 4986 4337 192008 177224 less accumulated depreciation 83222 74076 108786 103148 cellular minority partnership interests 3017 2849 excess cost net assets acquired 7067 7395 assets 6832 6588 149363 141489 consolidated balance sheets continued sprint corporation december 31 1994 1993 liabilities shareholders equity millions current liabilities current maturities longterm debt 3324 5234 accounts payable 10722 8752 accrued interconnection costs 5276 5377 accrued taxes 2685 3072 advance billings 1676 1506 6863 6745 total current liabilities 30546 30686 longterm debt 46048 45710 deferred credits liabilities deferred income taxes investment tax credits 12590 12299 post retirement benefit obligations 8503 7931 6057 5294 27150 25524 redeemable preferred stock 371 386 common stock shareholders equity common stock par value 250 per share authorized 5000 million shares issued 3486 million 3434 million 1993 outstanding 3483 million 3434 million 1993 8714 8585 capital excess par stated value 9429 8274 retained earnings 27309 21842 204 482 45248 39183 149363 141489 see accompanying notes consolidated financial statements consolidated statements cash flows sprint corporation years ended december 31 1994 1993 1992 millions operating activities net income 8907 549 5028 adjustments reconcile net income net cash provided operating activities depreciation amortization 14784 13587 13915 deferred income taxes investment tax credits 746 345 30 gain sale investment equity securities 347 gain divestiture telephone properties 811 extraordinary losses early extinguishments debt 204 142 cumulative effect changes accounting principles 3842 227 changes operating assets liabilities accounts receivable net 2392 1858 2578 inventories current assets 845 427 139 accounts payable accrued expenses current liabilities 1978 3620 1268 noncurrent assets liabilities net 1343 1351 1523 net 546 601 801 net cash provided operating activities 24720 21124 22506 investing activities capital expenditures 20159 15947 14662 proceeds sale investment equity securities 1177 equity investments 492 90 17 acquisition limited partnership minority interest 2500 proceeds divestiture telephone properties 1140 net 345 173 260 net cash used investing activities 19819 15684 15779 financing activities proceeds longterm debt 1079 8404 9512 retirements longterm debt 5970 15890 12574 net increase notes payable commercial paper 3215 3935 1470 payment note payable minority partner 2800 proceeds common stock issued 427 708 516 proceeds employees stock purchase installments 331 283 132 dividends paid 3494 3471 3001 net 24 71 47 net cash used financing activities 4436 5960 6698 increase decrease cash equivalents 465 520 29 cash equivalents beginning year 768 1288 1259 cash equivalents end year 1233 768 1288 supplemental cash flows information cash paid interest 4181 4536 5075 cash paid income taxes 4351 2924 2690 noncash financing activities common stock contributed employee savings plans market 310 390 280 see accompanying notes consolidated financial statements consolidated statements common stock sprint corporation shareholders equity years ended december 31 1994 1993 1992 capital excess par common stated retained stock value earnings total millions balance january 1 1992 3348 million shares issued outstanding 8369 6403 22481 534 36719 net income 5028 common stock dividends 2966 preferred stock dividends 35 employee stock purchase installments received net 155 common stock issued 99 737 65 771 net 03 35 09 03 44 balance december 31 1992 3389 million shares issued outstanding 8471 7175 24517 447 39716 net income 549 common stock dividends 3245 preferred stock dividends 28 employee stock purchase installments received net 308 common stock issued 110 984 24 1070 change unrealized holding gains investments equity securities net 648 net 04 115 49 03 165 balance december 31 1993 3434 million shares issued outstanding 8585 8274 21842 482 39183 net income 8907 common stock dividends 3467 preferred stock dividends 27 employee stock purchase installments received net 150 common stock issued 128 1119 534 713 change unrealized holding gains investments equity securities net 205 net 01 36 54 97 06 balance december 31 1994 3486 million shares issued 3483 million shares outstanding 8714 9429 27309 204 45248 see accompanying notes consolidated financial statements notes consolidated financial statements sprint corporation 1 summary significant accounting policies summary significant accounting policies sprint corporation presented assist understanding accompanying consolidated financial statements basis consolidation presentation accompanying consolidated financial statements include accounts sprint corporation whollyowned majority owned subsidiaries sprint investments less 50 percent owned partnerships joint ventures accounted using equity method accordance industry practice revenues related net income nonregulated operations attributable transactions sprints rateregulated telephone companies eliminated accompanying consolidated financial statements intercompany revenues entities amounted 285 million 225 million 194 million 1994 1993 1992 respectively significant intercompany transactions eliminated certain amounts previously reported prior periods reclassified conform current period presentation accompanying consolidated financial statements reclassifications effect results operations shareholders equity previously reported classification operations long distance communications services division provides domestic voice data communications services across certain specified geographical boundaries well international long distance communications services rates charged services sold public subject different levels state federal regulation generally subject ratebase regulation local communications services division consists principally operations sprints rateregulated telephone companies operations provide local exchange services access telephone customers carriers local exchange facilities long distance services within specified geographical areas cellular wireless communications services division consists whollyowned majorityowned interests partnerships corporations operating cellular wireless communications properties various metropolitan rural service area markets product distribution directory publishing businesses include wholesale distribution telecommunications products publishing marketing white yellow page telephone directories revenue recognition operating revenues long distance local cellular wireless communications services divisions recognized communications services rendered operating revenues long distance communications services division recorded net estimate uncollectible accounts operating revenues sprints product distribution business recognized upon delivery products customers regulated operations sprints rateregulated telephone companies account economic effects regulation pursuant statement financial accounting standards sfas 71 accounting effects certain types regulation requires accounting recognition rate actions regulators appropriate actions provide reasonable assurance existence asset reduce eliminate value asset impose liability regulated enterprise cash equivalents cash equivalents generally include highly liquid investments original maturities three months less stated cost approximates market value part cash management program sprint utilizes controlled disbursement banking arrangements december 31 1994 1993 outstanding checks excess cash balances 174 million 166 million respectively included accounts payable sprint sufficient funds available fund outstanding checks presented payment investments equity securities investments equity securities classified available sale reported fair value estimated based quoted market prices december 31 1994 1993 december 31 1994 1993 cost investments 109 million 202 million respectively gross unrealized holding gains 69 million 101 million respectively reflected addition shareholders equity net related income taxes 1994 sprint sold investment equity securities realizing gain 35 million inventories consisting principally related sprints product distribution business stated lower cost principally firstin firstout method market property plant equipment property plant equipment recorded cost generally ordinary asset retirements disposals charged accumulated depreciation gain loss recognized repairs maintenance costs expensed incurred effective january 1 1993 sprints long distance communications services division changed method accounting certain costs related connecting new customers network change made conform sprints accounting predominant industry practice costs new method costs previously capitalized expensed incurred resulting nonrecurring noncash charge 32 million 009 per share net related income tax benefits reflected 1993 consolidated statement income cumulative effect change accounting principle proforma impact retroactive application change would material net income earnings per share 1992 impact change sprints 1993 operating expenses significant depreciation cost property plant equipment depreciated generally straightline basis estimated useful lives related regulated property plant equipment prescribed regulatory commissions depreciation rate changes special shortterm amortizations nonrecurring charges approved regulatory commissions rateregulated telephone companies resulted additional depreciation totaling 26 million 7 million 46 million 1994 1993 1992 respectively related effects revenues income taxes items reduced income continuing operations 1994 1993 1992 approximately 14 million 4 million 24 million respectively cellular minority partnership investments cellular minority partnership investments include excess purchase price underlying book value cellular communications partnerships 195 million 201 million december 31 1994 1993 respectively excess amortized straightline basis 40 years accumulated amortization aggregated 35 million 29 million december 31 1994 1993 respectively excess cost net assets acquired excess purchase price fair value net assets acquired principally related cellular communications services properties amortized straightline basis 40 years accumulated amortization aggregated 132 million 112 million december 31 1994 1993 respectively income taxes deferred income taxes provided certain temporary differences carrying amounts assets liabilities financial reporting purposes amounts used tax purposes investment tax credits related regulated telephone property plant equipment deferred amortized estimated useful lives related assets interest charged construction regulatory commissions allow rateregulated telephone companies capitalize allowance funds expended construction amounts capitalized recovered service lives respective assets constructed resulting higher depreciation recovered increased revenues interest costs associated construction capital assets sprints operations capitalized accordance sfas 34 capitalization interest costs total amounts capitalized 1994 1993 1992 9 million 8 million 11 million respectively earnings per share earnings per common share amounts based weighted average number shares outstanding issuable assuming exercise dilutive options applicable 2 employee benefit plans defined benefit pension plan substantially sprint employees covered noncontributory defined benefit pension plan participants plan represented collective bargaining units benefits based upon schedules defined amounts negotiated respective parties participants covered collective bargaining agreements plan provides pension benefits based upon years service participants compensation sprints policy make contributions plan year equal actuarially determined amount consistent applicable federal tax regulations funding objective accumulate funds relatively stable rate participants working lives benefits fully funded retirement december 31 1994 plans assets consisted principally investments corporate equity securities us government corporate debt securities components net pension costs credits related weighted average assumptions follows millions 1994 1993 1992 service cost benefits earned period 616 582 508 interest cost projected benefit obligation 1216 1039 961 actual return plan assets 11 2412 895 net amortization deferral 1766 625 647 net pension cost credit 55 166 73 discount rate 75 80 84 expected longterm rate return plan assets 95 85 anticipated composite rate future increases compensation 45 55 62 addition sprint recognized pension curtailment losses 3 million 1993 result integration restructuring actions see notes 9 10 funded status amounts recognized consolidated balance sheets plan december 31 follows millions 1994 1993 actuarial present value benefit obligations vested benefit obligation 13381 12770 accumulated benefit obligation 14595 14627 projected benefit obligation 15473 15829 plan assets fair value 19502 20290 plan assets excess projected benefit obligation 4029 4461 unrecognized net gains 2038 1973 unrecognized prior service cost 1074 881 unamortized portion transition asset 1970 2219 prepaid pension cost 1095 1150 projected benefit obligations december 31 1994 1993 determined using discount rates 85 percent 75 percent respectively anticipated composite rates future increases compensation 50 percent 45 percent respectively defined contribution plans sprint sponsors defined contribution employee savings plans covering substantially employees participants may contribute portions compensation plans contributions participants represented collective bargaining units matched sprint based upon defined amounts negotiated respective parties contributions participants covered collective bargaining agreements also matched sprint participants sprint provides matching contributions common stock equal 50 percent participants contributions 6 percent compensation may discretion board directors provide additional matching contributions based upon performance sprints common stock comparison telecommunications companies sprints matching contributions including cash contributions former centel corporation centel savings plans aggregated 49 million 49 million 40 million 1994 1993 1992 respectively postretirement benefits sprint sponsors postretirement benefits principally health care benefits arrangements covering substantially employees retired specified dates eligible benefits cost reduced cost employees retiring specified dates eligible benefits shared cost basis sprint funds accrued costs benefits paid effective january 1 1993 sprint changed modified method accounting postretirement benefits adopting sfas 106 employers accounting postretirement benefits pensions resulting nonrecurring noncash charge 341 million 100 per share net related income tax benefits reflected 1993 consolidated statement income cumulative effect change accounting principle 1992 cost providing postretirement benefits sprints retirees expensed costs paid centels employees retirees accrual basis approach utilized recognize costs upon adoption new standard sprint elected immediately recognize previously unrecorded obligation postretirement benefits already earned current retirees employees transition obligation substantial portion related rateregulated telephone companies pursuant sfas 71 regulatory assets associated recognition transition obligation recorded jurisdictions regulators issued orders specific sprint permitting recognition net postretirement benefits costs ratemaking purposes providing recovery transition obligation period longer 20 years december 31 1994 regulatory assets aggregated 78 million jurisdictions regulatory assets associated recognition transition obligation recorded due uncertainties timing extent recovery components net postretirement benefits cost follows millions 1994 1993 service cost benefits earned period 235 221 interest accumulated benefit obligation 534 565 net amortization deferral 19 net postretirement benefits cost 750 786 measurement purposes weighted average annual health care cost trend rate 12 percent assumed 1994 gradually decreasing 6 percent 2001 remaining constant thereafter effect 1 percent increase assumed trend rates would increased 1994 net postretirement benefits cost approximately 25 million discount rates 1994 1993 75 percent 80 percent respectively addition sprint recognized postretirement benefits curtailment losses 11 million 1993 result integration restructuring actions see notes 9 10 cost providing postretirement benefits 28 million 1992 amounts recognized consolidated balance sheets december 31 follows millions 1994 1993 accumulated postretirement benefits obligation retirees 2992 3228 active plan participants fully eligible 1307 1580 active plan participants 2462 2544 6761 7352 unrecognized prior service benefit 64 68 unrecognized net gains 1553 389 accrued postretirement benefits cost 8378 7809 accumulated benefits obligations december 31 1994 1993 determined using discount rates 85 percent 75 percent respectively annual health care trend rate 12 percent assumed 1995 gradually decreasing 6 percent 2001 remaining constant thereafter effect 1 percent annual increase assumed health care cost trend rates would increased accumulated benefits obligation december 31 1994 approximately 86 million postemployment benefits effective january 1 1993 sprint adopted sfas 112 employers accounting postemployment benefits upon adoption sprint recognized certain previously unrecorded obligations benefits provided former inactive employees dependents employment retirement resulting nonrecurring noncash charge 11 million 003 per share net related income tax benefits reflected 1993 consolidated statement income cumulative effect change accounting principle postemployment benefits offered sprint include severance disability workers compensation benefits including continuation benefits health care life insurance coverage 3 income taxes components income tax provisions allocated continuing operations follows millions 1994 1993 1992 current income tax provision federal 3434 2756 2421 state 804 542 372 4238 3298 2793 deferred income tax provision benefit federal 1002 164 95 state 36 262 248 amortization deferred investment tax credits 220 247 313 746 345 30 total income tax provision 4984 2953 2823 august 10 1993 revenue reconciliation act 1993 enacted among changes raised federal income tax rate corporations 35 percent 34 percent retroactive january 1 1993 accordingly sprint adjusted deferred income tax assets liabilities reflect revised rate resulting adjustment related sprints nonregulated subsidiaries increased 1993 deferred income tax provision 13 million 004 per share adjustments net deferred income tax liabilities associated rateregulated telephone companies generally recorded reductions regulatory liabilities differences cause effective income tax rate vary statutory federal income tax rate 35 percent 1994 1993 34 percent 1992 follows millions 1994 1993 1992 income tax provision 4837 2716 2647 statutory rate less investment tax credits included income 220 247 313 expected federal income tax provision investment tax credits 4617 2469 2334 effect state income taxes net federal income tax effect 499 182 409 differences required flowed regulatory commissions 48 60 56 reversal rate differentials 97 130 163 amortization intangibles 88 86 merger related costs 180 net 171 104 101 income tax provision including investment tax credits 4984 2953 2823 effective income tax rate 36 38 36 income tax provisions benefits allocated items follows millions 1994 1993 1992 discontinued operations 90 66 extraordinary losses early extinguishments debt 203 91 cumulative effect changes accounting principles postretirement benefits 2167 postemployment benefits 67 circuit activity costs 215 unrealized holding gains investments equity securities recorded directly shareholders equity 116 365 stock ownership purchase options arrangements recorded directly shareholders equity 81 106 60 deferred income taxes provided temporary differences carrying amounts sprints assets liabilities financial statement purposes tax bases sources differences give rise deferred income tax assets liabilities december 31 1994 1993 along income tax effect follows millions 1994 deferred 1993 deferred income tax income tax assets liabilities assets liabilities property plant equipment 15923 16111 postretirement benefits 3013 2811 alternative minimum tax credit carryforwards 930 2597 operating loss carryforwards 599 647 integration restructuring costs 122 350 regulatory revenue reserves 334 102 net 29 201 4998 15952 6507 16312 less valuation allowance 211 245 total 4787 15952 6262 16312 1994 1993 valuation allowance related deferred income tax assets decreased 3 million 6 million respectively december 31 1994 sprint available income tax purposes 93 million alternative minimum tax credit carryforwards offset regular income tax payable future years tax benefits 60 million associated state operating loss carryforwards loss carryforwards expire varying amounts annually 1995 2009 effective january 1 1992 sprint changed method accounting income taxes adopting sfas 109 cumulative effect change accounting principle increased 1992 net income 23 million 007 per share 4 debt longterm debt december 31 follows millions maturing 1994 1993 corporate senior notes 860 971 1994 2250 945 1995 500 1045 1996 2000 988 1997 800 1200 919 960 1998 430 813 980 2000 2003 6323 debentures 925 2022 2000 notes payable commercial paper classified longterm debt 1996 9340 6344 1188 1999 45 long distance communications services vendor financing agreements 699 1500 1995 2001 2231 4234 local communications services first mortgage bonds 200 937 1995 1999 1566 1978 588 929 2000 2004 5930 5957 400 875 2005 2009 2492 2680 688 979 2010 2014 1100 800 877 928 2015 2019 2546 2750 713 989 2020 2024 1479 1486 debentures notes 450 961 1995 2020 4240 4244 notes payable commercial paper classified longterm debt 1996 1434 1214 200 1945 1995 2017 200 173 senior notes 988 1998 2500 2771 debentures 900 2019 1500 539 1300 1995 1999 761 65 49372 50944 less current maturities 3324 5234 longterm debt 46048 45710 longterm debt maturities next five years follows millions 1995 3324 1996 13374 1997 1109 1998 4106 1999 529 property plant equipment aggregate cost approximately 1089 billion either pledged security first mortgage bonds certain notes restricted use mortgaged property notes payable commercial paper outstanding related weighted average interest rates december 31 follows millions 1994 1993 bank notes 585 355 1993 2630 3975 master trust notes 633 371 1993 2487 2500 commercial paper 508 329 1993 5657 1083 total notes payable commercial paper 10774 7558 notes payable commercial paper outstanding december 31 1994 1993 classified longterm debt due sprints intent refinance borrowings longterm basis due demonstrated ability pursuant 11 billion revolving credit agreement described bank notes renewable various dates throughout year sprint pays fee certain commercial banks support current future credit requirements based upon loan commitments lines credit may withdrawn banks material adverse change sprints financial condition sprint master trust note agreement trust division bank borrow funds demand interest borrowings rate yields interest equivalent favorable discount rate paid 30day commercial paper december 31 1994 sprint total 13 billion credit arrangements consisting various bank commitments 11 billion revolving credit agreement syndicate domestic international banks date sprint availability totaling 525 million arrangements revolving credit agreement expires july 1996 subject approval lenders may extended additional year sprint compliance restrictive financial covenants relating debt arrangements december 31 1994 1993 1992 sprint redeemed called redemption prior scheduled maturities 134 billion 720 million respectively first mortgage bonds senior notes debentures excluding amounts deferred rateregulated telephone companies required certain regulatory commissions prepayment penalties incurred connection early extinguishments debt writeoff related debt issuance costs aggregated 29 million 1993 16 million 1992 net related income tax benefits reflected extraordinary losses consolidated statements income 5 redeemable preferred stock sprint 20 million authorized shares subsidiaries approximately 6 million authorized shares preferred stock including nonredeemable preferred stock redeemable preferred stock outstanding december 31 follows millions 1994 1993 third series stated value 100 per share shares 196000 1994 208000 1993 nonparticipating nonvoting cumulative 775 annual dividend rate 196 208 fifth series stated value 100000 per share shares 95 1994 1993 voting cumulative 6 annual dividend rate 95 subsidiaries stated value ranging 10 100 per share shares 364345 1994 380055 1993 annual dividend rates ranging 47 54 80 83 total redeemable preferred stock 371 386 sprints third series preferred stock redeemed sinking fund rate 12000 shares 12 million per year 2008 time remaining shares redeemed sprint may redeem additional third series preferred shares 10229 per share 1995 declining amounts succeeding years event default holders sprints third series redeemable preferred stock entitled elect certain number directors arrears dividend sinking fund payments paid sprints fifth series preferred stock must redeemed full 2003 less full dividends paid four consecutive dividend periods total amount dividends arrears exceeds amount equal dividend payment six dividend periods holders fifth series preferred stock entitled elect majority directors standing election arrears dividend payments paid 6 common stock common stock activity 1994 shares reserved future grants stock option plans future issuances various arrangements follows millions number shares 1994 reserved activity december 31 1994 employees stock purchase plan 27 employee savings plans 13 34 automatic dividend reinvestment plan 02 12 officer key employees directors stock options 09 47 conversion preferred stock 01 15 total 52 108 december 31 1994 elections purchase 29 million sprints common shares outstanding 1994 offering employees stock purchase plan purchase price offering cannot exceed 3235 per share price representing 85 percent average market price offering date fall 1200 per share 1994 offering terminates june 30 1996 various stock option plans shares common stock reserved issuance officers key employees outside directors options granted 100 percent market price date grant approximately 2 percent options outstanding december 31 1994 provide granting stock appreciation rights alternate method settlement upon exercise summary stock option activity plans follows millions except per share data per share number exercise aggregate price exercise shares low high amount shares option january 1 1992 51 million shares exercisable 93 944 3931 2002 granted 04 2156 2588 99 exercised options without stock 13 944 2968 226 appreciation rights options stock 05 944 2968 71 appreciation rights terminated expired 04 1403 3375 102 shares option december 31 1992 55 million shares exercisable 75 944 3931 1702 granted 16 2750 3844 503 exercised options without stock appreciation rights 21 944 3375 410 options stock appreciation rights 03 1109 2968 55 terminated expired 01 1816 3375 32 shares option december 31 1993 45 million shares exercisable 66 944 3931 1708 granted 28 3081 3950 1003 exercised options without stock appreciation rights 08 944 3375 174 options stock appreciation rights 02 1109 2968 38 terminated expired 06 2213 3669 167 shares option december 31 1994 37 million shares exercisable 78 1109 3950 2332 1990 savings plan trust employee savings plan acquired shares common stock sprint exchange 75 million promissory note payable sprint note bears interest rate 9 percent repaid common stock dividends received plan contributions made plan sprint accordance plan provisions remaining balance note receivable 58 million december 31 1994 reflected reduction shareholders equity shareholder rights plan onehalf preferred stock purchase right attached share common stock right exercisable detachable upon occurrence certain takeover events entitles shareholders buy units consisting one onehundredth newly issued share preferred stockfourth series junior participating price 235 per unit certain circumstances common stock certain circumstances rights beneficially owned acquiring person become null void sprints preferred stockfourth series without par value voting cumulative accrues dividends equal generally greater 10 per share one hundred times aggregate per share amount common stock dividends shares preferred stockfourth series issued outstanding december 31 1994 rights may redeemed sprint price one cent per right expire september 8 1999 1994 1993 1992 sprint declared paid annual dividends common stock 100 per share centel declared premerger see note 9 common stock dividends 015 090 per share 1993 1992 respectively restrictive covenant applicable dividends common stock results 11 billion revolving credit agreement among restrictions agreement requires sprint maintain specified levels consolidated net worth defined result requirement 167 billion sprints 273 billion consolidated retained earnings effectively restricted payment dividends december 31 1994 indentures financing agreements certain sprints subsidiaries contain various provisions restricting payment cash dividends subsidiary common stock held sprint connection restrictions 792 million related subsidiaries 178 billion total retained earnings restricted december 31 1994 flow cash form advances subsidiaries sprint generally restricted 7 commitments contingencies litigation claims assessments following announcement sprints merger centel see note 9 class action suits filed centel certain officers directors federal state courts state suits dismissed federal suits consolidated single action seek damages alleged violations securities laws january 1995 purported class action suit filed centels financial advisors state court new york connection sprintcentel merger sprint may indemnification obligations financial advisors connection suit various suits arising ordinary course business pending sprint management cannot predict ultimate outcome actions believes result material effect sprints consolidated financial statements accounts receivable sold recourse agreement available december 1995 sprint may sell continuous basis recourse 600 million undivided interests designated pool accounts receivable subsequent collections receivables sold investors typically reinvested pool sprint required repurchase designated pool accounts receivable upon occurrence specified events involving noncollectibility accounts december 31 1994 sprint required repurchase receivables recourse provision sprint retains credit losses associated accounts receivable exposure related retention estimated conjunction sprints calculation reserve uncollectible accounts quarterly basis subject approval investors sprint may extend agreement additional 90 days receivables sold remained uncollected december 31 1994 1993 aggregated 600 million commitments see liquidity capital resources managements discussion analysis financial condition results operations discussion cash commitments associated joint ventures operating leases minimum rental commitments december 31 1994 non cancelable operating leases consisting principally leases data processing equipment real estate follows millions 1995 3167 1996 2183 1997 1410 1998 1065 1999 856 thereafter 2609 gross rental expense aggregated 387 million 387 million 385 million 1994 1993 1992 respectively amount rental commitments applicable subleases contingent rentals executory costs significant 8 regulatory accounting consistent local exchange carriers local communications services division accounts economic effects regulation pursuant sfas 71 application sfas 71 requires accounting recognition rate actions regulators appropriate including recognition depreciation amortization based estimated useful lives prescribed regulatory commissions rather might utilized nonregulated enterprises sprint currently believes local communications services divisions rate regulated operations meet criteria continued application provisions sfas 71 however local communications services division operates evolving environment regulatory framework changing level competition increasing accordingly sprint constantly monitors evaluates ongoing applicability sfas 71 assessing likelihood prices provide recovery specific costs continue charged customers approximate amount sprints net regulatory assets december 31 1994 450 million 800 million consisting primarily property plant equipment deferred postretirement benefit obligations partially offset deferred tax liabilities estimate property plant equipment calculated based upon projection useful remaining lives affected development competition changes regulation expansion broadband services offered customers 9 sprint centel merger effective march 9 1993 sprint consummated merger centel telecommunications company local exchange cellular wireless communications services operations pursuant agreement plan merger dated may 27 1992 sprint issued 137 shares common stock exchange outstanding share centel common stock approximately 119 million shares transaction costs associated merger consisting primarily investment banking legal fees expenses integrating restructuring operations two companies consisting primarily employee severance relocation expenses costs eliminating duplicative facilities resulted nonrecurring charges 259 million reduced 1993 income continuing operations 172 million 050 per share merger accounted pooling interests accordingly accompanying consolidated financial statements retroactively restated 1993 year ended december 31 1992 include results operations financial position cash flows centel addition accompanying consolidated financial statements reflect elimination significant recurring intercompany transactions certain adjustments conform accounting policies two companies 10 additional financial information segment information related sprints operating business segments included tables segmental results operations managements discussion analysis financial condition results operations net operating revenues operating expenses shown tables include revenues expenses eliminated consolidation totaling 367 million 307 million 285 million years ended december 31 1994 1993 1992 respectively sprint incurred capital expenditures 57 million 46 million 29 million years ended december 31 1994 1993 1992 respectively identifiable assets 472 million 506 million 329 million december 31 1994 1993 1992 respectively attributable segmental operations additionally sprint incurred 51 million merger integration restructuring costs attributable segmental operations year ended december 31 1993 realignment restructuring charge 1993 sprint initiated realignment restructuring long distance communications services division including elimination approximately 1000 positions closure two facilities actions resulted nonrecurring charge 34 million reduced income continuing operations 21 million 006 per share divestiture telephone properties april 1992 sale centels local telephone operations ohio completed pursuant definitive agreement reached november 1991 proceeds sale aggregated 129 million including 114 million cash 15 million assumed debt gain 44 million 013 per share net related income taxes realized sale concentrations credit risk sprints accounts receivable subject concentration credit risk interest rate swap agreements foreign currency contracts involve risk dealing counterparties ability meet terms contracts notional principal amounts often used express volume transactions amounts subject credit risk significantly smaller event nonperformance counterparties sprints accounting loss would limited net amount would entitled receive terms applicable interest rate swap agreement foreign currency contract however sprint anticipate nonperformance counterparties agreements sprint controls amount credit risk well concentration credit risk interest rate swap agreements foreign currency contracts credit approvals dollar exposure limits internal monitoring procedures financial instruments sprint estimates fair value financial instruments using available market information appropriate valuation methodologies accordingly estimates presented herein necessarily indicative values sprint could realize current market exchange although management aware factors would affect estimated fair value amounts presented december 31 1994 amounts comprehensively revalued purposes financial statements since date therefore estimates fair value subsequent date may differ significantly amounts presented herein carrying amounts estimated fair values sprints financial instruments december 31 follows millions 1994 1993 carrying estimated carrying estimated amount fair value amount fair value financial assets cash equivalents 1233 768 investments equity securities 1776 3033 financial liabilities longterm debt corporate 21393 21705 21092 23772 long distance communications services 2231 2221 4234 4478 local communications services 20987 19664 21282 23425 4761 4882 4336 5346 offbalance sheet instruments interest rate swap agreements 26 17 foreign currency contracts 04 03 carrying values sprints cash equivalents approximate fair value december 31 1994 1993 fair value sprints investments equity securities estimated reference quoted market prices fair values sprints longterm debt estimated based quoted market prices publiclytraded issues based present value estimated future cash flows using discount rate commensurate risks involved issues fair value interest rate swap agreements estimated cost sprint would receive pay terminate swap agreements december 31 1994 1993 taking account thencurrent interest rates fair value foreign currency contracts estimated replacement cost contracts december 31 1994 1993 taking account thencurrent foreign currency exchange rates interest rate swap agreements interest rate swap agreements utilized sprint part interest rate risk management program net interest paid received related agreements recorded using accrual method recorded adjustment interest expense december 31 1994 1993 sprint outstanding 125 million notional amount interest rate swap agreements net interest expense income related interest rate swap agreements 1 million 2 million 400000 years ended december 31 1994 1993 1992 respectively deferred gains losses relating terminated interest rate swap agreements recorded december 31 1994 1993 1992 foreign currency contracts part foreign currency exchange risk management program sprint purchases sells overthecounter forward contracts options various foreign currencies sprint outstanding approximately 13 million 4 million open forward contracts buy various foreign currencies december 31 1994 1993 respectively sprint also outstanding approximately 1 million 6 million open forward contracts sell various foreign currencies december 31 1994 1993 respectively foreign currency option contracts outstanding december 31 1994 1993 forward contracts open december 31 1994 original maturity six months less net gain loss recorded reflect cash paid received upon settlement contracts recorded period incurred total net losses 2 million 1 million recorded related foreign currency transactions contracts years ended december 31 1994 1993 respectively december 31 1994 1993 sprint foreign currency translation gains 1 million 2 million respectively included net consolidated statements common stock shareholders equity sprint corporation schedule viii consolidated valuation qualifying accounts years ended december 31 1994 1993 1992 millions additions charged balance charged balance beginning end year income accounts deductions year allowance doubtful accounts 1219 3124 45 30991 1289 valuation allowance deferred income tax assets 245 22 56 211 allowance doubtful accounts 1180 2715 26 27021 1219 valuation allowance deferred income tax assets 302 07 64 245 allowance doubtful accounts 1448 2676 24 29681 1180 valuation allowance deferred income tax assets 3542 52 302 1 accounts written net recoveries 2 valuation allowance established upon adoption sfas 109 accounting income taxes quarterly financial data unaudited first second third quarter 1994 1993 1994 1993 1994 1993 millions except per share data net operating revenues 30332 27180 31504 28009 32338 28676 operating expenses costs services products 15284 13819 15744 14089 16150 14351 selling general administrative 7242 6418 7528 6759 7817 6908 depreciation amortization 3523 3372 3664 3380 3668 3385 merger integration restructuring costs 1 2 2480 445 total operating expenses 26049 26089 26936 24228 27635 25089 operating income 4283 1091 4568 3781 4703 3587 interest expense 1011 1179 1000 1130 986 1142 income expense net 3 292 07 93 81 93 114 income loss continuing operations income taxes 3564 95 3475 2570 3624 2331 income tax provision 4 1290 18 1279 919 1323 964 income loss continuing operations 2274 113 2196 1651 2301 1367 discontinued operations net 123 extraordinary losses early extinguishments debt net 52 85 145 cumulative effect changes accounting principles net 5 3842 net income loss 2274 4130 2196 1566 2301 1222 preferred stock dividends 07 06 07 09 06 earnings loss applicable common stock 2267 4136 2189 1557 2295 1216 earnings loss per common share continuing operations 065 003 063 048 066 039 discontinued operations 004 extraordinary item 002 004 cumulative effect changes accounting principles 112 total 065 121 063 046 066 035 quarterly financial data sprint corporation unaudited fourth total year quarter 1994 1993 1994 1993 net operating revenues 32444 29813 126618 113678 operating expenses costs services products 16432 15102 63610 57361 selling general administrative 7759 7214 30346 27299 depreciation amortization 3929 3450 14784 13587 merger integration restructuring costs 1 2 2925 total operating expenses 28120 25766 108740 101172 operating income 4324 4047 17878 12506 interest expense 983 1073 3980 4524 income expense net 3 183 21 77 223 income loss continuing operations income taxes 3158 2953 13821 7759 income tax provision 4 1092 1052 4984 2953 income loss continuing operations 2066 1901 8837 4806 discontinued operations net 70 123 extraordinary losses early extinguishments debt net 10 292 cumulative effect changes accounting principles net 5 3842 net income loss 2136 1891 8907 549 preferred stock dividends 07 27 28 earnings loss applicable common stock 2129 1884 8880 521 earnings loss per common share continuing operations 059 055 253 139 discontinued operations 002 004 extraordinary item 008 cumulative effect changes accounting principles 112 total 061 055 255 015 1 1993 sprint consummated merger centel transaction costs associated merger expenses integrating restructuring operations two companies resulted nonrecurring charges first third quarters 1993 charges reduced net income 165 million 048 per share 7 million 002 per share respectively see note 9 notes consolidated financial statements additional information 2 third quarter 1993 sprint realigned restructured long distance communications services division resulting nonrecurring charge reduced net income 21 million 006 per share see note 10 notes consolidated financial statements additional information 3 first quarter 1994 sprint sold investment equity securities realizing gain 35 million increased net income 22 million 006 per share 4 third quarter 1993 revenue reconciliation act 1993 enacted among changes raised federal income tax rate 35 percent 34 percent result sprint adjusted deferred income tax assets liabilities reflect revised rate resulting nonrecurring charge reduced net income 13 million 004 per share see note 3 notes consolidated financial statements additional information 5 effective january 1 1993 sprint changed method accounting postretirement postemployment benefits adopting sfas 106 112 effected another accounting change see notes 1 2 notes consolidated financial statements additional information item 14 principal accountant fees services information required item incorporated reference information set forth caption “ratification independent registered public accounting firm” proxy statement relating 2007 annual meeting shareholders filed sec part iv item 15 item 14 principal accountant fees services audit fees professional services rendered audit 2012 consolidated financial statements report effectiveness internal control financial reporting required sarbanesoxley act review consolidated financial statements included 2012 form 10qs statutory audits international subsidiaries kpmg billed us total 158 million professional services rendered audit 2011 consolidated financial statements report effectiveness internal control financial reporting required sarbanesoxley act review consolidated financial statements included 2011 form 10qs statutory audits international subsidiaries kpmg billed us total 150 million amounts also include reviews documents filed sec accounting consultations related annual audit preparation letters underwriters requesting parties auditrelated fees professional auditrelated services rendered us kpmg billed us total 13 million 2012 auditrelated services 2012 generally included audits employee benefit plans internal control reviews attestation services professional auditrelated services rendered us kpmg billed us total 06 million 2011 auditrelated services 2011 generally included audits employee benefit plans internal control reviews attestation services tax fees professional tax services rendered us kpmg billed us total approximately 08 million 2012 tax services 2012 primarily included tax consultation matters professional tax services rendered us kpmg billed us total approximately 08 million 2011 tax services 2011 primarily included tax consultation matters fees included nonaudit services 02 million rendered us financial management advisory services 2012 audit committee determined nonaudit services rendered kpmg 2012 2011 compatible maintaining independence auditors consolidated financial statements audit committee adopted policies procedures concerning independent registered public accounting firm including preapproval services provided audit committee preapproved services described audit committee responsible preapproval audit auditrelated tax nonaudit services however preapproval authority may delegated one members audit committee details services approved delegation must reported full audit committee next regular meeting independent registered public accounting firm generally prohibited providing certain nonaudit services policy restrictive sec rules related nonaudit services permissible nonaudit service engagement must specifically approved advance audit committee provide quarterly reporting audit committee regarding audit auditrelated tax nonaudit services provided independent registered public accounting firm part iv item 15 item 14 principal accountant fees services information required item incorporated reference information set forth caption “ratification independent registered public accounting firm” proxy statement relating 2010 annual meeting shareholders filed sec part iv item 15 item 14 principal accounting fees services information required item incorporated reference information set forth caption “principal accounting fees services” proxy statement relating 2015 annual meeting stockholders filed sec part iv item 15 item 14 principal accounting fees services information required item incorporated reference information set forth caption principal accounting fees services proxy statement relating 2017 annual meeting stockholders filed sec part iv item 15 item 14 principal accounting fees services pursuant instruction g3 form 10k information required item 14 incorporated reference sprint’s definitive proxy statement filed pursuant regulation 14a within 120 days end sprint’s fiscal year ended december 31 2004 part iv item 15 item 14 exhibits financial statement schedules reports form 8k 1 consolidated financial statements sprint combined financial statements fon group pcs group filed part report listed index financial statements financial statement schedules 2 consolidated financial statement schedule sprint combined financial statement schedules fon group pcs group filed part report listed index financial statements financial statement schedules 3 following exhibits filed part report exhibits 3 articles incorporation bylaws articles incorporation amended filed exhibit 4a posteffective amendment 2 sprint corporations registration statement form s3 3358488 incorporated herein reference b bylaws amended filed exhibit 4c posteffective amendment 2 sprint corporations registration statement form s3 3358488 incorporated herein reference 4 instruments defining rights sprints security holders rights sprints equity security holders defined fifth sixth seventh eighth articles sprints articles incorporation see exhibit 3a b rights agreement dated november 23 1998 sprint corporation umb bank na filed exhibit 41 amendment 1 sprint corporations registration statement form 8a relating sprints pcs group rights filed november 25 1998 incorporated herein reference c tracking stock policies sprint corporation filed exhibit 4d posteffective amendment 2 sprint corporations registration statement form s3 3358488 incorporated herein reference amended restated standstill agreement dated november 23 1998 among sprint corporation france telecom sa deutsche telekom ag filed exhibit 4e posteffective amendment no2 sprint corporations registration statement form s3 3358488 incorporated herein reference e indenture dated october 1 1998 among sprint capital corporation sprint corporation bank one na trustee filed exhibit 4b sprint corporations quarterly report form 10q quarter ended september 30 1998 incorporated herein reference f first supplemental indenture dated january 15 1999 among sprint capital corporation sprint corporation bank one na trustee filed exhibit 4b sprint corporation current report form 8k dated february 2 1999 incorporated herein reference g indenture dated october 1 1998 sprint corporation bank one na trustee filed exhibit 4a sprint corporations quarterly report form 10q quarter ended september 30 1998 incorporated herein reference h first supplemental indenture dated january 15 1999 sprint corporation bank one na trustee filed exhibit 4a sprint corporation current report form 8k dated february 2 1999 incorporated herein reference 10 material agreements joint venture agreement dated june 22 1995 among sprint corporation sprint global venture inc france telecom sa deutsche telekom ag filed exhibit 10a sprint corporation quarterly report form 10q quarter ended june 30 1995 incorporated herein reference b amendment 1 joint venture agreement dated january 31 1996 among sprint corporation sprint global venture inc france telecom deutsche telekom ag atlas telecommunications sa filed exhibit 99a sprint corporation current report form 8k dated january 31 1996 incorporated herein reference c amended restated stockholders agreement among france telecom sa deutsche telekom ag sprint corporation dated november 23 1998 restructuring merger agreement among sprint corporation telecommunications inc comcast corporation cox communications inc certain subsidiaries dated may 26 1998 filed exhibit 2 sprint corporation current report form 8k dated may 26 1998 incorporated herein reference e amended restated registration rights agreement dated november 23 1998 among sprint corporation france telecom sa deutsche telekom ag filed exhibit 101 amendment 1 sprint corporation registration statement form s3 33364241 incorporated herein reference f registration rights agreement dated november 23 1998 among sprint corporation telecommunications inc comcast corporation cox communications inc filed exhibit 102 amendment 1 sprint corporation registration statement form s3 33364241 incorporated herein reference g standstill agreements dated may 26 1996 sprint corporation telecommunications inc comcast corporation cox communications inc h 364day credit agreement dated august 7 1998 among sprint corporation sprint capital corporation borrowers initial lenders named therein initial lenders citibank na administrative agent morgan guaranty trust company new york syndication agent bank america national trust savings association chase manhattan bank documentation agents filed exhibit 1023 sprint corporation registration statement form s3 33364241 incorporated herein reference fiveyear credit agreement dated august 7 1998 among sprint corporation sprint capital corporation borrowers initial lenders named therein initial lenders citibank na administrative agent morgan guaranty trust company new york syndication agent bank america national trust savings association chase manhattan bank documentation agents filed exhibit 1024 sprint corporation registration statement form s3 33364241 incorporated herein reference 10 executive compensation plans arrangements j 1985 stock option plan amended filed exhibit 10a sprint corporation quarterly report form 10q quarter ended september 30 1997 incorporated herein reference k 1990 stock option plan amended l 1990 restricted stock plan amended executive deferred compensation plan amended filed exhibit 10k sprint corporation annual report form 10k year ended december 31 1996 incorporated herein reference summary amendments filed exhibit 10c sprint corporation quarterly report form 10q quarter ended june 30 1998 incorporated herein reference summary additional amendments n management incentive stock option plan amended 1997 longterm stock incentive program filed part annex vii proxy statementprospectus forms part sprint corporations registration statement form s4 33365173 incorporated herein reference p sprint supplemental executive retirement plan filed exhibit 10i sprint corporation quarterly report form 10q quarter ended september 30 1995 incorporated herein reference q amended restated centel directors deferred compensation plan filed exhibit 10c sprint corporation quarterly report form 10q quarter ended september 30 1997 incorporated herein reference r restated memorandum agreements respecting supplemental pension benefits sprint corporation formerly united telecommunications inc two current former executive officers filed exhibit 10i sprint corporation annual report form 10k year ended december 31 1992 incorporated herein reference executive longterm incentive plan filed exhibit 10j sprint corporation annual report form 10k year ended december 31 1993 incorporated herein reference executive management incentive plan filed exhibit 10k sprint corporation annual report form 10k year ended december 31 1993 incorporated herein reference u longterm incentive compensation plan amended filed exhibit 10i sprint corporation quarterly report form 10q quarter ended september 30 1996 incorporated herein reference v shortterm incentive compensation plan filed exhibit 10k united telecommunications inc annual report form 10k year ended december 31 1989 incorporated herein reference w retirement plan directors amended filed exhibit 10u sprint corporation annual report form 10k year ended december 31 1996 incorporated herein reference x key management benefit plan amended filed exhibit 10g sprint corporation quarterly report form 10q quarter ended september 30 1996 incorporated herein reference agreements regarding special compensation post employment restrictive covenants sprint corporation certain executive officers filed exhibit 10d sprint corporation quarterly report form 10q quarter ended september 30 1994 exhibit 10h sprint corporation quarterly report form 10q quarter ended march 31 1996 exhibit 10w sprint corporation annual report form 10k year ended december 31 1996 exhibit 10w sprint corporation annual report form 10k year ended december 31 1997 exhibit 10 b sprint corporation quarterly report form 10q quarter ended june 30 1998 incorporated herein reference z directors deferred fee plan amended filed exhibit 10x sprint corporation annual report form 10k year ended december 31 1996 incorporated herein reference summary amendments filed exhibit 10c sprint corporation quarterly report form 10q quarter ended june 30 1998 incorporated herein reference summary additional amendments see exhibit 10m aa form contingency employment agreements sprint corporation certain executive officers filed exhibit 10b sprint corporation quarterly report form 10 q quarter ended march 31 1995 incorporated herein reference bb form indemnification agreements sprint corporation formerly united telecommunications inc directors officers filed exhibit 10s sprint corporation annual report form 10k year ended december 31 1991 incorporated herein reference cc summary executive officer board directors benefits dd amended restated centel director stock option plan filed exhibit 10aa sprint corporation annual report form 10k year ended december 31 1993 incorporated herein reference ee employment agreement dated july 29 1996 sprint spectrum holding company lp andrew sukawaty filed exhibit 1020 sprint spectrum lp registration statement form s1 33306609 incorporated herein reference 12 computation ratio earnings fixed charges 21 subsidiaries registrant 23 aconsent ernst young llp b consent deloitte touche llp 27 financial data schedules december 31 1998 b september 30 1998 restated c june 30 1998 restated march 31 1998 restated e december 31 1997 restated f december 31 1996 restated sprint furnish securities exchange commission upon request copy instruments defining rights holders longterm debt total amount securities authorized said instruments listed exceed 10 total assets sprint breports form 8k sprint filed current report form 8k dated october 28 1998 reported elected delay planned public offering pcs stock would instead proceed recapitalization subject shareholder approval sprint filed current report form 8k dated november 2 1998 reiterated elected proceed recapitalization subject shareholder approval would proceed debt offering sprint included current report audited consolidated financial results sprint audited combined financial results fon group pcs group sprint spectrum holding company combined minorco phillieco well certain information contained proxy statementprospectus sent sprint shareholders connection pcs restructuring recapitalization updated reflect 1 financial results information nine months ended september 30 1998 2 delay planned public offering pcs stock 3 planned debt offering financial statements included following annex isprint corporation information selected financial data sprint corporation managements discussion analysis financial condition results operations report independent auditors independent auditors report sprint corporation consolidated financial statements notes thereto sprint corporation unaudited pro forma condensed combined financial statements notes thereto annex iipcs group information business historical pcs group selected financial data pcs group managements discussion analysis financial condition results operations report independent auditors pcs group combined financial statements notes thereto sprint spectrum holding company combined minorco phillieco selected financial data sprint spectrum holding company combined minorco phillieco managements discussion analysis financial condition results operations independent auditors report sprint spectrum holding company combined minorco phillieco financial statements notes thereto pcs group unaudited pro forma condensed combined financial statements notes thereto annex iiifon group information business fon group selected financial data fon group managements discussion analysis financial condition results operations report independent auditors fon group combined financial statements notes thereto sprint filed current report form 8k dated november 12 1998 order file computation supplemental pro forma ratios earnings fixed charges connection 50 billion debt offering sprint filed current report form 8k dated november 23 1998 reported consummation pcs restructuring cexhibits listed item 14a signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized sprint corporation registrant w esrey william esrey chairman chief executive officer date march 5 1999 pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities indicated 5th day march 1999 w esrey william esrey chairman chief executive officer arthur b krause arthur b krause executive vice president chief financial officer john p meyer john p meyer senior vice president controller principal accounting officer signatures sprint corporation registrant pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities indicated 5th day march 1999 dubose ausley ronald lemay dubose ausley director ronald lemay director warren l batts linda k lorimer warren l batts director linda k lorimer director michel bon charles e rice michel bon director charles e rice director w esrey ron sommer william esrey director ron sommer director irvine hockaday jr stewart turley irvine hockaday jr director stewart turley director harold hook harold hook director index financial statements financial statement schedules annex sprint corporation consolidated financial information selected financial data sprint corporation certain prioryear amounts reclassified conform current year presentation reclassifications effect results operations shareholders equity previously reported sprints 1998 results operations include sprint pcs operating results consolidated basis entire year cable partners share losses pcs restructuring date reflected partners loss sprint pcs consolidated statements income 1998 sprints investment sprint pcs accounted using equity method sprint pcs financial position yearend 1998 also reflected consolidated basis cash flow data reflects sprint pcs cash flows pcs restructuring date see managements discussion analysis financial condition results operationsgeneral detailed description pcs restructuring recapitalization topup 1in1998 pcs group recorded nonrecurring charge write 179 million acquired inprocess research development costs related pcs restructuring charge reduced operating income continuing operations 179 million 2thefon group recorded nonrecurring charges 20 million 1997 60 million 1996 related litigation within long distance division charges reduced income continuing operations 13 million 1997 36 million 1996 1995 fon group recorded nonrecurring charge 88 million related restructuring within local division reduced income continuing operations 55 million 3in1998 fon group recorded net nonrecurring gains 104 million mainly sale local exchanges increased income continuing operations 62 million 1997 fon group recorded nonrecurring gains 71 million mainly sales local exchanges certain investments gains increased income continuing operations 44 million 1994 fon group recognized 35 million gain sale equity securities increased income continuing operations 22 million 4proforma earnings per share fon group assumes fon shares created recapitalization existed periods presented pro forma loss per share pcs group assumes pcs restructuring recapitalization topup occurred beginning 1997 excludes pcs groups writeoff 179 million acquired inprocess research development costs pro forma amounts comparative purposes necessarily represent actual results operations would transactions occurred beginning 1997 indicate results future operations 5the1996 amount reduced 600 million cash required terminate accounts receivable sales agreement nm meaningful na applicable i1 managements discussion analysis financial condition results operations sprint corporation general november 1998 sprints shareholders approved formation fon group pcs group creation fon stock pcs stock addition sprint purchased remaining ownership interests sprint spectrum holding company lp phillieco lp together sprint pcs minority interest cox communications pcs lp cox pcs sprint acquired ownership interests telecommunications inc comcast corporation cox communications inc cable partners exchange sprint issued cable partners special lowvote pcs shares warrants acquire additional pcs shares sprint also issued cable partners shares new class preferred stock convertible pcs shares purchase cable partners interests referred pcs restructuring also november 1998 sprint reclassified publicly traded common shares one share fon stock 12 share pcs stock recapitalization taxfree shareholders class common share owned france telecom sa ft deutsche telekom ag dt reclassified represent equity interest fon group pcs group entitles ft dt one share fon stock 12 share pcs stock transactions referred recapitalization connection pcs restructuring ft dt purchased 51 million additional pcs shares maintain combined 20 voting power sprint topup pcs stock intended reflect performance sprints domestic wireless personal communication services pcs operations referred pcs group fon stock intended reflect performance sprints operations referred fon group include following core businesses long distance division local division product distribution directory publishing businesses activities develop deploy sprint ionsm integrated ondemand network ventures including sprints investment global one fon pcs shareholders subject risks related sprints businesses assets liabilities owning fon pcs shares represent direct legal interest assets liabilities groups rather shareholders remain invested sprint continue vote single voting class board member elections class directors elected ft dt company matters fon group pcs group events affecting sprints consolidated income statements balance sheets could turn affect groups financial statements stock price net losses either group dividends distributions repurchases pcs stock fon stock reduce sprint funds legally available dividends groups stock sprint expect pay dividends pcs shares foreseeable future sprints managements discussion analysis financial condition results operations mda read along fon groups mda pcs groups mda forwardlooking information sprint includes certain estimates projections forwardlooking statements reports presentations analysts others publicly available material future performance cannot ensured actual results may differ materially forwardlooking statements factors could cause actual results differ include effects vigorous competition markets sprint operates costs business risks related entering expanding new markets necessary provide seamless services new services ability pcs group establish grow significant market presence risks related sprints investments global one joint ventures impact unusual items resulting ongoing evaluations sprints business strategies requirements imposed sprint latitude allowed competitors federal communications commission fcc state regulatory commissions telecommunications act 1996 telecom act unexpected results litigation filed sprint impact year 2000 issue related noncompliance possibility one markets sprint competes impacted changes political economic factors monetary policy legal regulatory changes external factors sprint control i2 words estimate project intend expect believe similar expressions intended identify forwardlooking statements forward looking statements found throughout mda reader place undue reliance forwardlooking statements speak date report sprint obligated publicly release revisions forward looking statements reflect events date report unforeseen events general overview sprint fon group core businesses long distance division long distance division nations thirdlargest long distance phone company operates nationwide alldigital long distance communications network using stateoftheart fiberoptic electronic technology division provides domestic international voice video data communications services well integration management support services computer networks local division local division consists regulated local phone companies serving 76 million access lines 18 states provides local phone services access phone customers carriers local network sales telecommunications equipment long distance services within certain regional calling areas product distribution directory publishing businesses product distribution business provides wholesale distribution services telecommunications products directory publishing business publishes markets white yellow page phone directories sprint ionsm sprint ion extends sprints existing advanced network capabilities customer enables sprint provide network infrastructure meet customers demands data internet video also expected foundation sprint provide new competitive local service ventures segment includes fon groups investment global one joint venture ft dt sprint 13 partner global ones operating group serving europe excluding france germany 50 partner global ones operating group worldwide activities outside united states europe segment also includes fon groups investments earthlink network inc internet service provider callnet long distance provider canada operating sprint brand name certain telecommunications investments ventures investments accounted equity basis general overview sprint pcs group pcs group includes sprints domestic wireless mobile phone services operates 100 digital pcs wireless network united states licenses provide nationwide service using single frequency single technology yearend 1998 pcs group together certain affiliates operated pcs systems 45 50 largest us metropolitan areas pcs group licenses serve nearly 270 million people 50 states puerto rico us virgin islands market launches january 1999 pcs groups service reaches nearly 170 million people across nation pcs group provides nationwide service operating digital network major us metropolitan areas affiliating companies mainly around smaller us metropolitan areas roaming providers analog cellular networks using dual banddualmode handsets roaming providers digital pcs networks use code division multiple access cdma pcs group began commercial cdma operations certain markets late 1996 fourth quarter results operations consolidated total net operating revenues follows income continuing operations follows i3 sprint fon group net operating revenues net operating revenues increased 8 1998 7 1997 increases mainly reflect growth fon groups long distance local divisions long distance division major market segmentsbusiness residential wholesalecontributed increase long distance divisions revenues 1998 1997 increases mainly reflect strong data services revenue growth strong minute growth 15 1998 14 1997 partly offset competitive pricing environment change mix products sold business data market revenues increased 15 1998 10 1997 reflects growth data services well tollfree inbound outbound calls residential market revenues increased 5 1998 6 1997 increases reflect strong revenue volume growth long distance calls growth also enhanced sprint sense anytimer well increased international revenues prepaid card revenues calling card calls made customers local phone companies wholesale market revenues increased 8 1998 22 1997 reflects strong minute growth mainly increased outbound tollfree calls partly offset change international mix lower yielding higher margin countries local division beginning july 1997 sprint changed transfer pricing certain transactions fon group entities accurately reflect market pricing sprint sold approximately 139000 residential business access lines illinois 1997 remaining 81000 access lines sold november 1998 comparative purposes following discussion local division results assumes transfer pricing changes sales exchanges occurred beginning 1996 local division revenues increased 5 1998 1997 mainly reflecting customer access line growth increased sales equipment networkbased services caller id call waiting local service revenues grew 9 1998 10 1997 increased due customer access line growth continued demand networkbased services revenues 1998 also reflect increased sales private line services revenues maintaining customer wiring equipment 1997 growth also reflects expanded local calling areas network access revenues increased 4 1998 3 1997 reflecting 8 increase minutes use 1998 7 increase 1997 partly offset fccmandated access rate reductions access rate reductions took effect july 1997 january july 1998 toll service revenues decreased 26 1998 20 1997 mainly due increased competition intralata long distance market expected continue addition toll service areas decreasing size certain local calling areas expanding reduced revenues part offset increases local service revenues increases network access revenues paid carriers providing long distance services local divisions customers revenues increased 9 1998 11 1997 increased equipment sales business systems data networks growth payphone commission revenues providing billing collection services product distribution directory publishing businesses beginning july 1997 sprint changed transfer pricing certain transactions fon group entities accurately reflect market pricing following discussion assumes transfer pricing changes occurred beginning 1996 product distribution directory publishing businesses revenues increased 16 1998 19 1997 nonaffiliated revenues account roughly 60 revenues 1998 1997 increased 10 1998 remained flat 1997 due increased competition operating expenses fon groups operating expenses increased 7 1998 1997 mainly support revenue growth long distance division long distance division operating expenses increased 7 1998 8 1997 interconnection costs decreased 2 1998 increased 6 1997 reductions per minute costs domestic international access offset impact increased calling volumes 1998 versus 1997 partly offset impact increased calling volumes 1997 versus 1996 rate reductions generally due domestic fccmandated access rate reductions i4 took effect july 1997 january july 1998 operations expense increased due growth data services well increases network equipment operating leases years operations expense 1998 also includes costs related sprints efforts achieve year 2000 compliance telecommunications network operating systems operations expense 1997 also reflects increased costs related fccmandated payments public payphone providers selling general administrative sga expense increased reflecting overall growth business well increased marketing promotions support products services sga 1998 also included costs related sprints efforts achieve year 2000 compliance information systems applications supporting processes billing customer service administrative support services local division following local division discussion assumes transfer pricing changes sales exchanges occurred beginning 1996 see net operating revenueslocal division details local division operating expenses increased 3 1998 4 1997 reflecting increases sga expenses depreciation amortization sga increased mainly increased customer service costs related customer access line growth marketing costs promote new products services sga 1998 also included costs related sprints efforts achieve year 2000 compliance depreciation amortization expense increased reflecting increased capital expenditures product distribution directory publishing businesses following pddp discussion assumes transfer pricing changes occurred beginning 1996 see net operating revenuesproduct distribution directory publishing businesses details product distribution directory publishing businesses operating expenses increased reflecting increased equipment sales sga expense increased costs related divisions acquisition sales force another directory sales company sprint ionsm operating expenses sprint ion 1998 reflect initial development deployment activities include costs network research testing systems operations development product development advertising increase public awareness ventures segments operating expenses mainly reflect activities related offering internet services june 1998 fon group completed strategic alliance combine internet business earthlink part alliance earthlink obtained fon groups sprint internet passport customers took daytoday operations services exchange sprint acquired equity interest earthlink sprint pcs group pcs groups 1998 results operations included sprintcoms operating results well sprint pcs operating results consolidated basis entire year 1998 sprints investment sprint pcs accounted using equity method 1998 pcs group recorded onetime noncash charge 179 million write acquired inprocess research development costs related pcs restructuring pcs group markets products multiple distribution channels including retail stores well retail outlets equipment sales one retail outlet service revenues generated sales customers accounted 25 net operating revenues 1998 pro forma sprint pcs group provide meaningful analysis pcs groups underlying operating results following supplemental discussion assumes pcs restructuring occurred beginning 1997 excludes writeoff acquired process research development costs pcs groups net operating revenues include subscriber revenues including monthly recurring charges usage charges roaming revenues sales handsets accessory equipment pcs groups net operating revenues 12 billion 1998 versus 258 million 1997 reflecting launch 91 new markets addition 17 million customers 1998 pcs group ended 1998 nearly 26 million customers 225 markets nationwide approximately 20 1998 net operating revenues i5 nearly half 1997 revenues sales handsets accessories part pcs groups marketing plans handsets normally sold prices well pcs groups cost pcs groups costs services products mainly includes handset accessory costs interconnection costs switch cell site expenses costs increased 720 million 1998 driven significant growth customers expanded market coverage pcs groups sga expense mainly includes marketing costs promote products services well salary benefit costs sga expense increased 766 million 1998 reflecting increased marketing advertising costs promote products services well increased labor costs support increased subscriber activity depreciation amortization expense pcs group consists depreciation network assets amortization intangible assets acquired pcs restructuring intangible assets include goodwill pcs licenses customer base microwave relocation costs assembled workforce amortized three 40 years depreciation amortization expense increased 19 million 1998 nonoperating items interest expense interest costs following table reflect interest costs borrowings interest costs related deferred compensation plans customer deposits excluded distort effective interest rate borrowings 1interestexpense 1996 includes 215 million interest expense included discontinued operation net consolidated statements income 2averagedebt outstanding 1998 pro forma basis sprint pcs debt included sprints outstanding debt balance year pcs group capitalizes interest costs related network buildout pcs licenses markets yet operational capitalization interest stops amortization begins related markets launched fon group capitalizes interest costs related constructing capital assets sprint capitalized interest costs related investment sprint pcs july 1997 sprint pcs emerged development stage amortization capitalized balance began time sprints 1998 interest costs include entire year sprint pcs interest due pcs restructuring increase 1998 effective interest rate mainly due sprint pcs borrowings made pcs restructuring borrowings higher interest rates sprints borrowings increase effective interest rate partly offset increase sprints short term borrowings lower interest rates compared longterm borrowings global one sprint recorded losses related global one totaling 186 million 1998 162 million 1997 82 million 1996 effort improve profitability global one refocusing efforts place emphasis multinational customers 1998 loss includes 37 million nonrecurring charges business improvement network rationalization initiatives global one continuing implement initiatives expected result additional charges sprint pcs prior pcs restructuring sprints ownership interest sprint pcs accounted using equity method sprints share losses sprint pcs 660 million 1997 192 million 1996 increased losses 1997 reflect marketing promotional costs including losses handset sales support growing customer base service launches additional markets 1998 cable partners share losses pcs restructuring date reflected partners loss sprint pcs consolidated statements income net income consisted following dividend interest income years reflects interest earned temporary investments 1998 also reflects interest earned loans unconsolidated affiliates interest earned shortterm investments following sprints 50 billion debt offering see liquidity capital resourcesliquidity details net 1998 1997 mainly reflects net gains sales local exchanges certain investments partly offset losses certain equity method investments i6 income taxes sprints effective tax rates 465 1998 398 1997 377 1996 see note 6 notes consolidated financial statements information differences caused effective income tax rates vary statutory federal rate extraordinary items net 1998 sprint redeemed prior scheduled maturities 138 million fon group debt interest rates ranging 79 93 resulted 5 million aftertax extraordinary loss fon group also 1998 sprint redeemed prior scheduled maturities 33 billion pcs group debt weighted average interest rate 83 resulted 31 million tax extraordinary loss pcs group debt repaid portion proceeds sprints 50 billion debt offering november 1998 1996 sprint also redeemed prior scheduled maturities 190 million fon group debt interest rates ranging 60 95 resulted 5 million aftertax extraordinary loss fon group financial condition consolidated assets increased mainly due pcs restructuring net property plant equipment increased 75 billion 1998 reflecting pcs restructuring capital expenditures support pcs network buildout increase also reflects capital expenditures support core long distance local networks expanded product service offerings net intangibles increased 68 billion reflecting goodwill pcs licenses microwave relocation costs customer base resulting pcs restructuring sprints debtto capital ratio 495 yearend 1998 versus 300 yearend 1997 see liquidity capital resources information changes sprints consolidated balance sheets liquidity capital resources consolidated cash flows include sprint pcs cash flows pcs restructuring date operating activities operating cash flows increased 26 1998 41 1997 mainly reflecting improved operating results fon groups core businesses changes working capital fon group pcs group 1996 fon group terminated accounts receivable sales agreement reduced cash flows 600 million investing activities fon groups capital expenditures totaled 32 billion 1998 27 billion 1997 24 billion 1996 long distance capital expenditures incurred mainly enhance network reliability meet increased demand voice datarelated services upgrade capabilities providing new products services local division incurred capital expenditures accommodate access line growth expand capabilities providing enhanced services pcs group capital expenditures totaling 11 billion 1998 154 million 1997 incurred support pcs network buildout investing activities also include proceeds sales assets mainly sales local exchanges totaling 230 million 1998 292 million 1997 addition 1997 sprint paid 460 million toward purchase pcs licenses purchased net assets paranet inc 375 million investments loans affiliates net consisted following amounts sprint pcs 1998 reflect contributions advances prior pcs restructuring amounts well capital contributions net advances sprint pcs prior 1998 used fund capital operating requirements capital contributions net advances global one years also mainly i7 used fund capital operating requirements net includes fon groups investment earthlink additional 148 million investment callnet 1998 retain fon groups approximate 25 interest call net purchased fonorola inc financing activities financing activities 1998 reflect proceeds longterm debt 52 billion partly offset payments longterm debt net proceeds borrowings 1998 mainly used repay existing debt 1997 sprint net borrowings 532 million mainly fund investments loans affiliates 1996 ft dt acquired class common shares combined total 37 billion sprint mainly used proceeds cash cellulars repayment intercompany advances reduce outstanding debt sprint paid dividends 430 million 1998 1997 420 million 1996 capital requirements sprints 1999 investing activities mainly consisting capital expenditures investments affiliates expected require cash 64 70 billion fon group capital expenditures expected range 37 40 billion pcs group capital expenditures expected 23 26 billion additional funds required fund pcs groups expected operating losses working capital debt service requirements investments affiliates expected require cash approximately 400 million dividend payments expected approximate 445 million 1999 connection pcs restructuring sprint adopted tax sharing agreement provides allocation income taxes fon group pcs group sprint expects fon group make significant payments pcs group agreement expected pcs group operating losses near future payments reflect pcs groups incremental cumulative effect sprints consolidated federal state tax liability tax credit position 1998 pcs group accrued benefits agreement totaling 191 million received related payments fon group totaling 20 million remaining 171 million paid fon group first half 1999 see note 2 notes consolidated financial statements allocation federal state income taxes details liquidity sprint mainly uses commercial paper fund shortterm working capital needs sprint also uses longterm bond market well debt markets fund needs sprint intends continue borrowing funds us international money capital markets bank credit markets fund capital expenditures operating working capital requirements august 1998 sprint entered 50 billion new revolving credit facilities syndicates domestic international banks facilities support sprints commercial paper operations replaced previous 15 billion revolving credit facility sprint also separate fiveyear revolving credit facility bank yearend 1998 sprint total unused lines credit 48 billion facilities yearend 1998 pcs group borrowed 18 billion revolving credit facilities banks totaling 21 billion october 1998 sprint filed shelf registration statement securities exchange commission 80 billion debt securities replaced sprints existing shelf registration 10 billion november 1998 sprint issued 50 billion new shelf sprint may offer sale 30 billion new shelf sprint allocated 39 billion debt proceeds pcs group weighted average interest rate approximately 85 pcs group used funds repay existing debt borrowings sprint may incur ultimately limited certain debt covenants sprint could borrow 141 billion yearend 1998 restrictive debt covenants borrowings sprint must maintain certain levels consolidated net worth 1998 ft dt purchased 51 million pcs shares part pcs restructuring maintain combined 20 voting power proceeds exercising equity purchase rights totaled 85 million used fund working capital needs continued buildout pcs groups network february 1999 sprint completed offering series 1 pcs stock offering sprint sold 244 million shares price public 2875 per share net proceeds sprint totaled 672 million connection offering ft dt purchased 61 million shares series 3 pcs stock net proceeds sprint sale stock totaled 169 million proceeds offering purchase ft dt attributed pcs group used continued buildout pcs network working capital needs regulatory developments see regulatory developments fon groups mda pcs groups mda i8 financial strategies general hedging policies sprint selectively enters interest rate swap cap agreements manage exposure interest rate changes debt sprint also enters forward contracts options foreign currencies reduce impact changes foreign exchange rates sprint seeks minimize counterparty credit risk stringent credit approval review processes selection creditworthy counterparties continual review monitoring counterparties thorough legal review contracts sprint also controls exposure market risk regularly monitoring changes foreign exchange interest rate positions normal stress conditions ensure exceed established limits sprints derivative transactions used hedging purposes comply boardapproved policies senior management receives frequent status updates outstanding derivative positions interest rate risk management sprints interest rate risk management program focuses minimizing exposure interest rate movements setting optimal mixture floating fixed rate debt minimizing liquidity risk sprint uses simulation analysis assess interest rate exposure establish desired ratio floating fixedrate debt extent possible sprint manages interest rate exposure floatingtofixed ratio borrowings sometimes uses interest rate swaps caps adjust risk profile foreign exchange risk management sprints foreign exchange risk management program focuses hedging transaction exposure optimize consolidated cash flow sprints main transaction exposure results net payments made overseas telecommunications companies completing international calls made sprints domestic customers international operations material consolidated financial position results operations cash flows yearend 1998 addition foreign currency transaction gains losses material sprints 1998 results operations sprint entered significant foreign currency forward contracts derivative instruments hedge effects adverse fluctuations foreign exchange rates result sprint subject material foreign exchange risk year 2000 issue year 2000 issue affects sprints installed computer systems network elements software applications business systems time sensitive programs may properly reflect recognize year 2000 many computers computer applications define dates last two digits year 00 may properly identified year 2000 error could result miscalculations systems errors year 2000 issue may also affect systems applications sprints customers vendors resellers affiliates fon group started program 1996 identify address year 2000 issue completed inventory year 2000 assessment principal computer systems network elements software applications business systems fon group also completed renovation computer systems network elements business systems 90 software applications year 2000 testing began 1998 third quarter completed 1999 fon group using internal external resources identify correct reprogram test systems year 2000 compliance also contacting others conducts business receive proper warranties assurances third parties including affiliates year 2000 compliant pcs group completed inventory computer systems network elements software applications products business systems year 2000 assessment items begun pcs group expects complete assessment 1999 first quarter along plans address required renovation pcs group using internal external resources identify correct reprogram test systems year 2000 compliance expects year 2000 compliance critical systems achieved 1999 pcs group also contacting others conducts business receive proper warranties assurances third parties including affiliates year 2000 compliant pcs group relies thirdparty vendors significant portion important operating computer system functions therefore highly dependent third party vendors remediate network elements computer systems software applications business systems addition pcs group uses publicly available services acquired without contract global positioning system timing signal may affected year 2000 issue pcs group believes systems year 2000 compliant pcs group contractual right force compliance fon group incurred approximately 140 million 1998 year 2000 compliance program expects incur approximately 110 million 1999 pcs group expects incur approximately 50 million 1999 year 2000 compliance program compliance achieved timely manner sprint affiliates including global one significant i9 related third party year 2000 issue could material adverse effect sprints operations sprint focusing identifying addressing aspects operations may affected year 2000 issue sprint developing implement necessary appropriate contingency plans mitigate extent possible effects year 2000 noncompliance recently issued accounting pronouncement see note 15 notes consolidated financial statements discussion recently issued accounting pronouncement i10 management report sprint corporations management responsible integrity objectivity information contained document management responsible consistency reporting information ensuring generally accepted accounting principles used discharging responsibility management maintains comprehensive system internal controls supports extensive program internal audits made organizational arrangements providing appropriate divisions responsibility established communication programs aimed assuring policies procedures codes conduct understood practiced employees financial statements included document audited ernst young llp independent auditors audits conducted using generally accepted auditing standards reports included herein board directors responsibility financial statements pursued mainly audit committee audit committee composed entirely directors officers employees sprint meets periodically internal auditors independent auditors without management present assure respective responsibilities fulfilled internal independent auditors full access audit committee discuss auditing financial reporting matters w esrey william esrey chairman chief executive officer arthur b krause arthur b krause executive vice president chief financial officer i11 report independent auditors board directors shareholders sprint corporation audited accompanying consolidated balance sheets sprint corporation sprint december 31 1998 1997 related consolidated statements income comprehensive income cash flows shareholders equity three years period ended december 31 1998 audits also included financial statement schedule listed index financial statements financial statement schedules financial statements schedule responsibility management sprint responsibility express opinion financial statements schedule based audits audit 1998 1997 consolidated financial statements sprint spectrum holding company lp wholly owned subsidiary sprint december 31 1998 investment sprint 40 interest november 23 1998 discussed note 1 financial statements reflect assets 27 billion december 31 1998 revenues 12 billion year ended audit sprints equity sprint spectrum holding company lp stated 749 million december 31 1997 sprints equity net loss sprint spectrum holding company lp stated 625 million year ended consolidated financial statements financial statement schedule sprint spectrum holding company lp audited auditors whose report furnished us opinion insofar relates 1998 assets revenues 1997 equity investment accounts audit based solely report auditors conducted audits accordance generally accepted auditing standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits report auditors provide reasonable basis opinion based audits report auditors consolidated financial statements referred present fairly material respects consolidated financial position sprint december 31 1998 1997 consolidated results operations cash flows three years period ended december 31 1998 conformity generally accepted accounting principles also opinion related financial statement schedule considered relation basic financial statements taken whole presents fairly material respects information set forth therein ernst young llp kansas city missouri february 2 1999 report independent auditors board directors sprint corporation partners sprint spectrum holding company lp audited consolidated balance sheets sprint spectrum holding company lp subsidiaries holdings december 31 1998 1997 related consolidated statements operations cash flows three years period ended december 31 1998 audits also included financial statement schedule ii financial statements schedule ii responsibility partnership management responsibility express opinion consolidated financial statements schedule ii based audits conducted audits accordance generally accepted auditing standards require plan perform audits obtain reasonable assurance whether consolidated financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures consolidated financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion consolidated financial statements present fairly material respects financial position sprint spectrum holding company lp subsidiaries december 31 1998 1997 results operations cash flows three years ended december 311998 conformity generally accepted accounting principles also opinion schedule ii considered relation basic consolidated financial statements taken whole presents fairly material respects information set forth therein deloitte touche llp kansas city missouri february 2 1999 i12 consolidated statements income sprint corporation millions see accompanying notes consolidated financial statements i13 consolidated statements income continued sprint corporation millions except per share data 1asdiscussed note 1 notes consolidated financial statements recapitalization occurred november 1998 result earnings per share sprint common stock reflects earnings recapitalization date earnings loss per share fon common stock pcs common stock reflects results date yearend 1998 see accompanying notes consolidated financial statements i14 consolidated statements comprehensive income sprint corporation millions see accompanying notes consolidated financial statements i15 consolidated balance sheets sprint corporation millions except per share data see accompanying notes consolidated financial statements i16 consolidated statements cash flows sprint corporation millions see accompanying notes consolidated financial statements i17 consolidated statements shareholders equity millions sprint corporation see accompanying notes consolidated financial statements i18 notes consolidated financial statements sprint corporation 1 pcs restructuring recapitalization november 1998 sprints shareholders approved formation fon group pcs group creation fon stock pcs stock addition sprint purchased remaining ownership interests sprint spectrum holding company lp phillieco lp together sprint pcs minority interest cox communications pcs lp cox pcs sprint acquired ownership interests telecommunications inc comcast corporation cox communications inc cable partners exchange sprint issued cable partners special lowvote pcs shares warrants acquire additional pcs shares sprint also issued cable partners shares new class preferred stock convertible pcs shares purchase cable partners interests referred pcs restructuring also november 1998 sprint reclassified publicly traded common shares one share fon stock 12 share pcs stock recapitalization taxfree shareholders class common share owned france telecom sa ft deutsche telekom ag dt reclassified represent equity interest fon group pcs group entitles ft dt one share fon stock 12 share pcs stock transactions referred recapitalization connection pcs restructuring ft dt purchased 51 million additional pcs shares maintain combined 20 voting power sprint topup pcs stock intended reflect performance sprints domestic wireless personal communication services pcs operations fon stock intended reflect performance sprints operations 2 summary significant accounting policies basis consolidation presentation consolidated financial statements include accounts sprint wholly owned majorityowned subsidiaries sprint pcs results operations 1998 consolidated entire year cable partners share losses pcs restructuring date reflected partners loss sprint pcs consolidated statements income sprint pcs financial position reflected consolidated basis yearend 1998 sprints investment sprint pcs accounted using equity method sprints cash flows include sprint pcs cash flows pcs restructuring date investments entities sprint exercises significant influence control accounted using equity method see note 4 consolidated financial statements prepared using generally accepted accounting principles require management make estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities reported amounts revenues expenses actual results could differ estimates certain prioryear amounts reclassified conform current year presentation reclassifications effect results operations shareholders equity previously reported classification operations sprint fon group core businesses long distance division long distance division nations thirdlargest long distance phone company operates nationwide alldigital long distance communications network using stateoftheart fiberoptic electronic technology division provides domestic international voice video data communications services also provides integration management support services computer networks local division local division consists regulated local phone companies serving 76 million access lines 18 states provides local services access phone customers carriers local network sales telecommunications equipment long distance services within certain regional calling areas local access transport areas early november 1998 sprint sold remaining 81000 residential business access lines illinois product distribution directory publishing businesses product distribution business provides wholesale distribution services telecommunications products directory publishing business publishes markets white yellow page phone directories i19 sprint ionsm sprint ion extends sprints existing advanced network capabilities customer enables sprint provide network infrastructure meet customers demands data internet video also expected foundation sprint provide new competitive local service ventures segment includes fon groups investment global one sprint 13 partner global ones operating group serving europe excluding france germany 50 partner global ones operating group worldwide activities outside united states europe segment also includes fon groups investments earthlink network inc internet service provider callnet long distance provider canada operating sprint brand name certain telecommunications investments ventures investments accounted equity basis sprint pcs group pcs group includes sprints domestic wireless mobile phone services operates 100 digital pcs wireless network united states licenses provide nationwide service using single frequency single technology yearend 1998 pcs group together certain affiliates operated pcs systems 45 50 largest us metropolitan areas allocation shared services sprint directly assigns possible certain general administrative costs fon group pcs group based actual use services direct assignment costs possible practical sprint uses methods estimate assignment costs group allocation federal state income taxes sprint files consolidated federal income tax return certain state income tax returns include fon group pcs group results connection pcs restructuring sprint adopted tax sharing agreement provides allocation income taxes two groups fon groups income taxes calculated files returns exclude pcs group pcs groups income taxes reflect pcs groups incremental cumulative impact sprints consolidated income taxes intergroup tax payments satisfied date sprints related tax payment due refund received applicable tax authority 1998 pcs group accrued income tax benefits accordance tax sharing agreement totaling 191 million allocation group financing activities groups managed sprint centralized basis debt incurred sprint behalf groups specifically allocated reflected financial statements applicable group interest expense allocated pcs group based interest rate largely equal rate would able obtain third parties direct indirect wholly owned sprint subsidiary without benefit guaranty sprint member fon group interest rate higher rate sprint obtains borrowings difference sprints actual interest rate charged pcs group reflected reduction fon groups interest expense sprints centralized cash management program one group may advance funds group advances accounted shortterm borrowings groups bear interest market rate substantially equal rate group would able obtain third parties shortterm basis income taxes sprint records deferred income taxes based temporary differences carrying amounts assets liabilities financial reporting purposes tax bases revenue recognition sprint recognizes operating revenues services rendered products delivered customers sprint records operating revenues net estimate uncollectible accounts cash equivalents cash equivalents generally include highly liquid investments original maturities three months less stated cost approximates market value sprint uses controlled disbursement banking arrangements part cash management program outstanding checks excess cash balances included accounts payable totaled 336 million yearend 1998 225 million yearend 1997 sprint sufficient funds available fund outstanding checks presented payment investments equity securities investments equity securities classified available sale reported fair value estimated based quoted market prices gross unrealized holding gains losses reflected consolidated balance sheets adjustments shareholders equityaccumulated comprehensive income net related income taxes inventories fon group stated lower cost principally firstin firstout method market value i20 inventories pcs group stated lower cost principally firstin firstout replacement value property plant equipment property plant equipment recorded cost generally ordinary asset retirements disposals charged accumulated depreciation gain loss recognized cost property plant equipment generally depreciated straightline basis estimated economic useful lives repairs maintenance costs expensed incurred capitalized interest capitalized interest totaled 167 million 1998 93 million 1997 104 million 1996 1998 capitalized interest reflects capitalized costs related pcs groups network buildout pcs licenses well fon groups construction capital assets 1997 1996 capitalized interest mainly reflected interest related sprints investment sprint pcs sprint capitalized costs july 1997 sprint pcs emerged development stage goodwill represents excess purchase price fair value net assets acquired business combinations accounted purchases goodwill amortized eight 40 years using straightline method accumulated amortization totaled 63 million yearend 1998 10 million yearend 1997 pcs licenses pcs group acquired licenses federal communications commission operate pcs service provider licenses granted 10year terms renewals additional 10year terms license obligations met licenses recorded cost amortized straightline basis 40 years service begins specific geographic area accumulated amortization totaled 51 million yearend 1998 earnings per share earnings per share eps calculated consolidated basis pcs stock fon stock created part november 1998 pcs restructuring recapitalization time forward eps computed individually fon group pcs group sprints convertible preferred dividends totaled 05 million recapitalization date 1997 1996 dilutive securities options see note 9 included calculation diluted weighted average common shares totaled 78 million 1998 recapitalization 63 million 1997 53 million 1996 recapitalization date yearend 1998 fon groups convertible preferred dividends totaled 01 million dilutive securities mainly options totaled 69 million shares dilutive securities pcs group mainly include options warrants convertible preferred stock securities dilutive effect loss per share pcs group incurred net losses year result diluted loss per share equaled basic loss per share stockbased compensation sprint adopted pro forma disclosure requirements statement financial accounting standards sfas 123 stockbased compensation continues apply accounting principles board opinion 25 accounting stock issued employees stock option employee stock purchase plans 3 business combination november 1998 sprint acquired remaining interest sprint pcs except minority interest cox pcs cable partners exchange sprint issued cable partners 1951 million lowvote shares pcs stock 125 million warrants purchase additional shares pcs stock purchase price 32 billion addition sprint issued cable partners shares new class preferred stock convertible pcs shares sprint accounted transaction purchase excess purchase price fair value net liabilities acquired allocated follows respect purchase price attributed inprocess research development iprd acquired iprd limited significant new products development intended address new emerging market needs requirements rapid adoption internet rapid convergence voice data video routine research development projects minor refinements normal enhancements production activities included acquired iprd income approach primary technique utilized valuing acquired iprd approach included limited analysis i21 markets product ii completion costs projects iii expected cash flows attributable iprd projects iv risks associated achieving cash flows v stage development project issue alternative future use extensively evaluated technologies completed could economically used intended purposes pro forma results following unaudited pro forma combined results operations assume pcs restructuring recapitalization topup occurred beginning 1997 exclude writeoff acquired iprd costs pro forma amounts comparative purposes necessarily represent actual results operations would transactions occurred beginning 1997 indicate results future operations pro forma results follows 4 investments equity securities cost investments equity securities 105 million yearend 1998 1997 gross unrealized holding gains 384 million yearend 1998 198 million yearend 1997 investments loans affiliates yearend 1998 investments accounted using equity method consisted fon groups investments global one callnet earthlink strategic investments november 1998 sprint assumed 100 ownership sprint pcs result sprint consolidated sprint pcs results 1998 prior 1998 sprint accounted investment sprint pcs equity basis sprint pcs 1997 results operations reflected unaudited pro forma disclosures note 3 assets yearend 1997 totaled 71 billion yearend 1997 sprints investment sprint pcs including advances vendor financing loan totaled 11 billion combined summarized financial information 100 basis entities accounted using equity method follows sprints investment global one including advances totaled 182 million yearend 1998 93 million yearend 1997 yearend 1998 sprints share underlying equity global ones net assets exceeded carrying value related investment 100 million difference amortized straightline basis january 2001 5 employee benefit plans defined benefit pension plan fon group employees covered noncontributory defined benefit pension plan benefits plan participants belonging unions based negotiated schedules nonunion participants pension benefits based years service participants compensation effective january 1999 pcs group employees also covered plan sprints policy make annual plan contributions equal actuarially determined amount consistent federal tax regulations funding objective accumulate funds relatively stable rate participants working lives benefits fully funded retirement following table shows changes projected benefit obligation i22 following table shows changes plan assets yearend funded status amounts recognized consolidated balance sheets plan follows net pension cost credit consisted following defined contribution plans sprint sponsors defined contribution employee savings plans covering fon group employees participants may contribute portions pay plans union employees sprint matches contributions based negotiated amounts sprint also matches contributions nonunion employees fon stock pcs stock matching equal 50 participants contributions 6 pay addition sprint may discretion board directors provide additional matching contributions based performance fon stock pcs stock compared telecommunications companies stock sprints matching contributions 54 million 1998 1997 56 million 1996 yearend 1998 plans held 167 million fon shares 104 million pcs shares sprint pcs sponsored savings retirement program certain employees sprint pcs matched contributions equal 50 contribution participant first 6 employee elected contribute expense savings plan 7 million 1998 effective january 1999 pcs group employees began making contributions sprints defined contribution plan existing assets sprint pcs savings plan rolled defined contribution plan early 1999 postretirement benefits sprint provides postretirement benefits mainly medical life insurance fon group employees retiring certain dates eligible benefits cost reduced cost employees retiring certain dates eligible benefits sharedcost basis sprint funds accrued costs benefits paid january 1999 pcs group employees also covered plan following table shows changes accumulated postretirement benefit obligation amounts included consolidated balance sheets yearend follows assumed 1999 annual health care cost trend rates 76 medicare eligibility 81 medicare eligibility rates gradually decrease ultimate level 5 2005 1 increase rates would increased 1998 accumulated postretirement benefit obligation estimated 111 million 1 decrease would reduced obligation estimated 91 million i23 net postretirement benefits cost consisted following measurement purposes assumed 1998 weighted average annual health care cost trend rates 84 medicare eligibility 85 medicare eligibility rates gradually decrease ultimate level 5 2005 1 increase rates would increased 1998 postretirement benefits service interest costs estimated 13 million 1 decrease would reduced 1998 postretirement benefits service interest costs estimated 10 million 6 income taxes income tax expense allocated continuing operations consists following differences caused sprints effective income tax rates vary 35 federal statutory rate follows income tax expense benefit allocated items follows 1theseamounts recorded directly shareholders equity accumulated comprehensive income consolidated balance sheets 2theseamounts recorded directly shareholders equitycapital excess par stated value consolidated balance sheets sprint recognizes deferred income taxes temporary differences carrying amounts assets liabilities financial statement purposes tax bases sources differences give rise deferred income tax assets liabilities yearend 1998 1997 along income tax effect follows management believes likely deferred income tax assets net valuation allowance realized based current income tax laws expectations future taxable income stemming reversal existing deferred tax i24 liabilities ordinary operations uncertainties surrounding income tax law changes shifts operations state taxing jurisdictions future operating income levels may however affect ultimate realization deferred income tax assets valuation allowance related deferred income tax assets increased 200 million 1998 decreased 2 million 1997 4 million 1996 sprint acquired approximately 192 million potential tax benefits related net operating loss carryforwards pcs restructuring subject certain realization restrictions various tax laws valuation allowance provided total benefits subsequently recognized reduce goodwill noncurrent intangible assets resulting pcs restructuring connection pcs restructuring pcs group required reimburse fon group cable partners net operating loss tax credit carryforward benefits generated prior pcs restructuring realization pcs group produces cash benefit would otherwise realized reimbursement equal 60 net cash benefit received pcs group made fon group cash cable partners shares series 2 pcs stock carryforward benefits subject requirement total 246 million includes 192 million acquired pcs restructuring yearend 1998 sprint federal operating loss carryforwards approximately 265 million state operating loss carryforwards approximately 44 billion addition sprint available income tax purposes federal alternative minimum tax credit carryforwards 27 million state alternative minimum tax credit carryforwards 4 million federal alternative minimum tax net operating loss carryforwards 14 million loss carryforwards expire varying amounts 2018 7 longterm debt capital lease obligations sprints consolidated longterm debt yearend follows 1theseborrowings incurred sprint allocated applicable group yearend 1998 sprints weighted average interest rate related borrowings 64 weighted average interest rate related borrowings allocated pcs group approximately 85 see note 2 detailed description sprint allocates financing groups 2consolidateddebt equal total pcs group fon group debt due intergroup debt eliminated consolidation yearend 1998 fon group investment pcs groups senior discount notes totaling 133 million addition pcs group longterm debt payable fon group totaling 315 million including 135 million classified current yearend 1998 3includes358 million notes recorded fon group may exchanged maturity sbc communications inc sbc common shares owned fon group cash based sbcs closing price notes matured yearend 1998 could exchanged 66 million sbc shares yearend 1998 sprint held 76 million sbc shares included investments equity securities fon groups combined balance sheets i25 longterm debt maturities excluding reclassified shortterm borrowings next five years follows sprint shortterm borrowings sprint bank notes payable totaling 454 million yearend 1998 618 million yearend 1997 addition sprint commercial paper borrowings totaling 292 million yearend 1998 249 million yearend 1997 though borrowings renewable various dates throughout year classified longterm debt sprints intent ability unused credit facilities refinance borrowings longterm basis 1998 sprint replaced previous 15 billion credit facility new facilities syndicates domestic international banks new facilities totaled 50 billion expire 1999 2003 commercial paper certain bank notes payable supported sprints revolving credit facilities certain notes payable relate separate revolving credit facility yearend 1998 sprint total unused lines credit 48 billion bank notes outstanding weighted average interest rates 57 yearend 1998 61 yearend 1997 weighted average interest rate commercial paper 58 yearend 1998 68 yearend 1997 longterm debt october 1998 sprint filed shelf registration statement securities exchange commission 80 billion debt securities replaced sprints previous shelf registration 10 billion november 1998 sprint issued 50 billion new shelf sprint allocated borrowings groups related proceeds mainly used repay existing debt see note 2 detailed description sprint allocates debt groups sprint fon group 1998 sprint redeemed prior scheduled maturities 138 million fon group debt interest rates ranging 79 93 resulted 5 million aftertax extraordinary loss fon group 1996 sprint also redeemed prior scheduled maturities 190 million fon group debt interest rates ranging 60 95 resulted 5 million tax extraordinary loss fon group fon group property plant equipment totaling 139 billion either pledged security first mortgage bonds certain notes restricted use mortgaged property sprint pcs group yearend 1998 pcs group borrowed 18 billion revolving credit facilities banks totaling 21 billion facilities weighted average interest rate 58 yearend 1998 yearend 1998 pcs group 265 million outstanding debt payable fcc related purchase certain pcs licenses 1996 borrowings interest rate 78 mature 2001 1998 sprint redeemed prior scheduled maturities 33 billion pcs group debt weighted average interest rate 83 resulted 31 million aftertax extraordinary loss pcs group debt repaid portion proceeds sprints 50 billion debt offering november 1998 pcs group property plant equipment totaling 41 billion pledged security certain notes sprint including fon group pcs group complied restrictive financial covenants relating debt arrangements year end 1998 8 common stock sprint fon stock sprint pcs stock november 1998 sprint recapitalized common stock fon stock pcs stock restructured interests sprint pcs result sprint created following series common stock series 1 fon stock series 1 pcs stock existing sprint common shareholders received one share fon stock 12 share pcs stock sprint share owned authorized shares totaled 25 billion series 1 fon stock 125 billion series 1 pcs stock i26 series 2 fon stock series 2 pcs stock cable partners received pcs shares ownership interests sprint pcs shares 110 voting power series 1 series 3 pcs shares authorized shares totaled 500 million series 2 fon stock series 2 pcs stock series 3 fon stock series 3 pcs stock maintain voting power 10 ft dt purchased combined total 51 million series 3 pcs shares 85 million series 3 fon pcs stock would also used ft dt elect convert class common shares fon pcs stock authorized shares totaled 12 billion series 3 fon stock 600 million series 3 pcs stock yearend 1998 sprint 85 million treasury shares recorded cost shares consisted 58 million fon shares 27 million pcs shares pcs shares held fon group represent intergroup interest pcs group beginning november 2001 sprint option convert pcs shares fon shares class common stock ft dt class common shares 10 sprints voting power 1998 1997 sprint declared paid class common dividends 100 per share 1996 sprint declared paid class common dividends 075 per share november 1998 862 million class common shares reclassified represent equity interest fon group 862 million shares pcs group 431 million shares ft dt maintained combined 20 voting power sprint purchasing additional 51 million series 3 pcs shares 85 million ft dt class common series 3 pcs shareholders right cases pro rata representation sprints board directors may also purchase additional shares fon stock pcs stock sprint keep ownership level 10 ft dt entered standstill agreement sprint restricting ability acquire sprint voting shares intended agreements sprint standstill agreement also contains customary provisions restricting ft dt initiating participating proposal respect control sprint pcs preferred stock part pcs restructuring sprint issued cable partners new class convertible preferred stock convertible pcs shares stock issued either purchase certain debt loaned sprint pcs cable partners consideration interests sprint pcs common stock reserved future grants yearend 1998 common stock reserved future grants stock option plans future issuances various arrangements follows sprint fon group sprint pcs group shareholder rights plan shareholder rights plan one preferred stock purchase right attached common class common share 1998 sprint amended plan attach one preferred stock purchase right share fon stock pcs stock class common stock rights may redeemed sprint 001 per right expire june 2007 unless extended rights exercisable certain takeover events occur entitled following fon stock right initially entitle holder purchase 11000 share unit par preferred stocksixth series 275 per unit pcs stock right initially entitle holder purchase unit par preferred stockeighth series 150 per unit class right initially entitle holder purchase unit preferred stocksixth series 275 per unit 12 unit preferred stockeighth series 75 per 12 unit preferred stocksixth series voting cumulative accrues dividends quarterly basis generally equal greater 100 per share 1000 times total per share amount fon stock common dividends preferred stock eighth series features i27 sixth series applies pcs shares preferred stocksixth series preferred stockeighth series issued outstanding yearend 1998 indentures financing agreements certain sprints subsidiaries contain provisions limiting cash dividend payments subsidiary common stock held sprint result 576 million subsidiaries 15 billion total retained earnings restricted yearend 1998 flow cash form advances subsidiaries sprint generally restricted 9 stockbased compensation management incentive stock option plan management incentive stock option plan misop sprint granted stock options employees eligible receive annual incentive compensation eligible employees entitled receive stock options lieu portion target incentive sprints management incentive plans options generally become exercisable december 31 year granted maximum term 10 years misop options granted exercise prices equal market price underlying common stock grant date yearend 1998 authorized fon shares plan approximated 114 million authorized pcs shares approximated 57 million amounts increased approximately 31 million fon shares 33 million pcs shares january 1 1999 pcs group employees also became eligible participate plan 1999 stock option plan sprint stock option plan sop sprint granted stock options officers key employees options generally become exercisable rate 25 per year beginning one year grant date maximum term 10 years sop options granted exercise prices equal market price underlying common stock grant date authorized fon shares plan approximated 210 million authorized pcs shares approximated 186 million pcs shares include 27 million shares granted plan certain pcs group employees december 1998 1997 sprint granted performancebased stock options certain key executives 1998 fon group expensed 14 million pcs group expensed 1 million related performancebased stock options employees stock purchase plan sprints employees stock purchase plan espp employees may elect purchase fon common stock pcs common stock price equal 85 market value grant exercise date whichever less yearend 1998 authorized fon shares plan approximated 82 million authorized pcs shares approximated 41 million pcs group employees also became eligible participate plan 1999 sprint pcs longterm incentive plan pcs group employees meeting certain eligibility requirements included sprint pcs longterm incentive plan ltip plan participants received appreciation units based independent appraisals appreciation units based annual independent appraisals 1997 plan year appreciation units vest 25 per year beginning one year grant date also expire 10 years 1996 plan appreciation units vest 25 per year beginning two years grant date expire 10 years connection pcs restructuring sprint discontinued sprint pcs ltip plan appreciation units converted pcs shares options buy pcs shares based formula designed replace appreciated value units beginning july 1998 vested units yearend 1998 participants could elect receive appreciation cash shares options elected receive shares options sprint issue shares options become exercisable based vesting requirements converted units assuming participants stay employed sprint replacement options shares vested sprint would issue approximately 16 million pcs shares 19 million pcs shares option recapitalization due recapitalization number shares related exercise prices adjusted maintain total fair value common stock underlying options espp share elections relationship market value common stock exercise prices options espp share elections pro forma disclosures pro forma net income loss earnings loss per share determined sprint used fair value method accounting stock option grants espp share elections 1994 method compensation expense recognized applicable vesting periods based shares option related fair values grant date following pro forma information likely represent information reported future years options granted 1995 year sfas 123 effective continue vest next year addition compensation expense resulting recapitalization decline next several years i28 sprints pro forma net income earnings per share follows 1reflectsconsolidated pro forma net income earnings per share recapitalization date recapitalization date yearend 1998 fon groups pro forma net income 103 million pro forma diluted eps 024 fon groups pro forma net income 1998 reduced 19 million 004 per fon share due additional compensation resulting modifications terms options espp share elections related recapitalization application sfas 123 material impact pcs groups pro forma net loss recapitalization date yearend 1998 fair value disclosures misop sop following tables reflect weighted average fair value per option granted well significant weighted average assumptions used determining fair values using blackscholes pricing model sprint common stock pcs common stock employees stock purchase plan 1998 fon group employees elected purchase 21 million espp shares election weighted average fair value using black scholes pricing model 1390 per share espp shares offered 1997 1996 sprint employees elected purchase 28 million espp shares election weighted average fair value 1006 per share stock options stock option plan activity follows sprint common stock i29 options exercisable 83 million yearend 1997 84 million year end 1996 yearend 1997 weighted average exercise price exercisable options 3265 following tables summarize outstanding exercisable options yearend 1998 fon common stock pcs common stock 10 commitments contingencies litigation claims assessments december 1996 arbitration panel entered 61 million award favor network 2000 communications corporation breach contract claim sprint arbitrators directed sprint pay 50 award network 2000 remainder directed paid missouri state court proposed class action network 2000s independent marketing representatives network 2000 sprint pending june 1997 sprint recorded additional expense 20 million charge related settlement class action lawsuit sprint network 2000 related claims network 2000 sprint june 1998 court approved class action settlement however small number potential class members chose part settlement filed separate lawsuit asserting individual claims potential class members appealed approval settlement delayed final approval suits arising ordinary course business pending sprint management cannot predict final outcome actions believes material sprints consolidated financial statements commitments pcs group procurement service contracts certain vendors contracts engineering construction pcs network contracts provide initial terms three five years 2002 renewals additional oneyear terms yearend 1998 696 million total commitment satisfied leaving remaining commitment 204 million pcs group purchase supply contract vendor purchase handsets equipment totaling 600 million april 2000 yearend 1998 remaining commitments totaled 163 million june 1998 pcs group became managing partner cox pcs yearend 1998 pcs group owned 592 cox pcs cox holds minority interest partnership agreement cox right require pcs group purchase certain circumstances part coxs interest cox pcs could involve significant cash requirements cox may require pcs group acquire additional 102 interest cox pcs per year 2000 beginning 2001 2005 cox may require pcs group acquire interest cox pcs cox given pcs group notice start appraisal process related potential put portion coxs remaining partnership interest pcs group i30 operating leases sprints minimum rental commitments yearend 1998 noncancelable operating leases consisting mainly leases data processing equipment real estate cell switch sites office space follows sprints gross rental expense totaled 730 million 1998 410 million 1997 401 million 1996 rental commitments subleases contingent rentals executory costs significant table excludes renewal options related certain cell switch site leases renewal options generally fiveyear terms may exercised time 11 financial instruments fair value financial instruments sprint estimates fair value financial instruments using available market information appropriate valuation methodologies result following estimates necessarily represent values sprint could realize current market exchange although management aware factors would affect yearend 1998 estimated fair values amounts comprehensively revalued purposes financial statements since date therefore estimates fair value yearend 1998 may differ significantly amounts presented carrying amounts estimated fair values sprints financial instruments yearend follows 1atyearend 1998 sprints investment affiliate debt securities eliminated consolidation carrying values sprints cash equivalents approximate fair value yearend 1998 1997 estimated fair value investments equity securities based quoted market prices estimated fair value long term debt based quoted market prices publicly traded issues estimated fair value issues based present value estimated future cash flows using discount rate based risks involved concentrations credit risk sprints accounts receivable subject concentration credit risk sprint controls credit risk interest rate swap agreements foreign currency contracts credit approvals dollar exposure limits internal monitoring procedures event nonperformance counterparties sprints accounting loss would limited net amount would entitled receive terms applicable interest rate swap agreement foreign currency contract however sprint anticipate nonperformance counterparties agreements interest rate swap agreements sprint uses interest rate swap agreements part interest rate risk management program net interest paid received related agreements recorded using accrual method recorded adjustment interest expense sprint interest rate swap agreements notional amounts 134 million outstanding yearend 1998 150 million outstanding yearend 1997 net interest expense income related interest rate swap agreements 01 million 1998 02 million 1997 2 million 1996 1998 sprint deferred losses interest rate swap agreements used hedge portion 50 billion debt offering losses totaling 75 million amortized interest expense using effective interest method term debt deferred gains losses related terminated interest rate swap agreements yearend 1997 1996 foreign currency contracts part foreign currency exchange risk management program sprint purchases sells overthecounter forward contracts options various foreign currencies sprint outstanding open forward contracts buy various foreign currencies 18 million yearend 1998 29 million yearend 1997 sprint outstanding open purchase option contracts call various foreign currencies 10 million yearend 1998 14 million yearend 1997 premium paid option deferred amortized life option forward contracts options open yearend 1998 1997 original maturities six months less net gain loss recorded reflect fair value contracts i31 recorded period incurred total net losses including hedge costs 06 million 1998 01 million 1997 04 million 1996 recorded related foreign currency transactions contracts 12 paranet acquisition september 1997 sprint paid 375 million purchase net assets houstonbased paranet inc provider integration management support services computer networks transaction accounted using purchase method accounting result sprints financial statements reflect sprint paranets results operations beginning october 1997 excess purchase price tangible net assets acquired 357 million excess allocated noncompete agreements goodwill amortized straightline basis four 10 years 13 spinoff cellular division sprint completed taxfree spinoff cellular division cellular sprint common shareholders 1996 complete spinoff sprint distributed cellular common shares rate one share every three sprint common shares held addition cellular repaid 14 billion intercompany debt owed sprint also contributed cellulars equity capital 185 million debt owed cellular excess amount repaid cellulars 1996 net operating results spinoff date summarized following table separately classified discontinued operation consolidated statements income interest expense allocated cellular based assumed repayment intercompany debt sprint cellular operating expenses presented include cellulars share sprints general corporate overhead expenses totaling 2 million 1996 reallocated sprints operating entities 14 additional financial information segment information 1998 sprint adopted sfas 131 disclosures segments enterprise related information fon group operates five business segments based services products long distance division local division product distribution directory publishing businesses activities develop deploy sprint ionsm ventures see note 12 sprint fon group notes combined financial statements information fon groups business segments pcs group businesses operate single segment i32 industry segment financial information follows nm meaningful i33 supplemental cash flows information sprints cash paid interest income taxes follows see note 3 details assets liabilities acquired pcs restructuring related party transactions sprint provided various voice data administrative services global one totaling 277 million 1998 415 million 1997 361 million 1996 addition global one provided data administrative services sprint totaling 140 million 1998 114 million 1997 130 million 1996 sprints receivable global one 187 million yearend 1998 154 million yearend 1997 sprints payable global one 42 million yearend 1998 104 million yearend 1997 cable partners advanced phillieco 26 million 1998 24 million 1997 advances accrue interest prime mature 1999 first quarter 15 recently issued accounting pronouncement june 1998 financial accounting standards board issued sfas 133 accounting derivative instruments hedging activities standard requires derivatives recorded balance sheet either assets liabilities measured fair value gains losses changes derivative values accounted based derivative used whether qualifies hedge accounting adopted january 2000 statement expected material impact sprints consolidated financial statements i34 16 quarterly financial data unaudited 1amountsfor 1998 reflect certain reclassifications conform currentyear presentation 2inthe 1998 fourth quarter fon group recorded net nonrecurring gains 104 million mainly sale local exchanges increased income extraordinary items 62 million 3inthe 1997 second quarter fon group recorded nonrecurring charges 20 million related litigation long distance division charges reduced income extraordinary items 13 million see note 10 4inthe 1997 fourth quarter fon group recognized gains 71 million sales local exchanges certain investments gains increased income extraordinary items 44 million 5fourthquarter 1998 reflects eps sprint date november 1998 recapitalization eps fon group pcs group reflects eps date recapitalization yearend 1998 6inthe 1998 fourth quarter pcs group recorded nonrecurring charge write 179 million acquired iprd related pcs restructuring charge increased operating loss extraordinary items 179 million na applicable 17 subsequent event unaudited february 1999 sprint completed offering series 1 pcs stock offering sprint sold 244 million shares price public 2875 per share net proceeds sprint totaled 672 million connection offering ft dt purchased 61 million shares series 3 pcs stock net proceeds sprint sale stock totaled 169 million proceeds offering purchase ft dt attributed pcs group used continued buildout pcs network working capital needs i35 sprint corporation schedule iiconsolidated valuation qualifying accounts years ended december 31 1998 1997 1996 1accountswritten net recoveries 2asdiscussed note 3 pcs groups assets liabilities recorded fair values pcs restructuring date therefore data presented schedule reflects activity since pcs restructuring 3representsa valuation allowance deferred income tax assets recorded purchase price allocation related pcs restructuring i36 annex ii sprint fon group combined financial information selected financial data sprint fon group certain prioryear amounts reclassified conform current year presentation reclassifications effect results operations group equity previously reported fon group created result pcs restructuring recapitalization see sprints managements discussion analysis financial condition results operationsgeneral detailed description pcs restructuring recapitalization 1thefon group recorded nonrecurring charges 20 million 1997 60 million 1996 related litigation within long distance division charges reduced income continuing operations 13 million 1997 36 million 1996 1995 fon group recorded nonrecurring charge 88 million related restructuring within local division reduced income continuing operations 55 million 2in1998 fon group recorded net nonrecurring gains 104 million mainly sale local exchanges increased income continuing operations 62 million 1997 fon group recorded nonrecurring gains 71 million mainly sales local exchanges certain investments gains increased income continuing operations 44 million 1994 fon group recognized 35 million gain sale equity securities increased income continuing operations 22 million 3proforma earnings per share dividends fon group assume fon shares created recapitalization existed periods presented 4the1996 amount reduced 600 million cash required terminate accounts receivable sales agreement ii1 managements discussion analysis sprint fon group financial condition results operations general see sprints managements discussion analysis financial condition results operationsgeneral discussion pcs restructuring recapitalization topup forwardlooking information see sprints managements discussion analysis financial condition results operationsforwardlooking information discussion forwardlooking information sprint fon group core businesses long distance division long distance division nations thirdlargest long distance phone company operates nationwide alldigital long distance communications network using stateoftheart fiberoptic electronic technology division provides domestic international voice video data communications services well integration management support services computer networks local division local division consists regulated local phone companies serving 76 million access lines 18 states provides local phone services access phone customers carriers local network sales telecommunications equipment long distance services within certain regional calling areas product distribution directory publishing businesses product distribution business provides wholesale distribution services telecommunications products directory publishing business publishes markets white yellow page phone directories sprint ionsm sprint ion extends sprints existing advanced network capabilities customer enables sprint provide network infrastructure meet customers demands data internet video also expected foundation sprint provide new competitive local service ventures segment includes fon groups investment global one joint venture ft dt sprint 13 partner global ones operating group serving europe excluding france germany 50 partner global ones operating group worldwide activities outside united states europe segment also includes fon groups investments earthlink network inc internet service provider callnet long distance provider canada operating sprint brand name certain telecommunications investments ventures investments accounted equity basis results operations total net operating revenues 1998 160 billion 8 increase 149 billion 1997 total net operating revenues 1996 139 billion income continuing operations 15 billion 1998 compared 14 billion 1997 13 billion 1996 core businesses 1998 fon groups core businesses generated improved net operating revenues operating income 1997 long distance calling volumes increased 15 1998 14 1997 access lines served local division increased 51 1998 56 1997 excluding sales local exchanges core net income included net nonrecurring pretax gains 104 million 1998 51 million 1997 gains mainly consisted sales local exchanges certain investments partly offset litigation charges 1997 1996 core net income included pretax litigation charges within long distance division 60 million excluding nonrecurring items operating income core operations 29 billion 1998 versus 26 billion 1997 24 billion 1996 ii2 segmental results operations long distance division 1thefon group recorded nonrecurring litigation charges 20 million 1997 60 million 1996 net operating revenues major market segmentsbusiness residential wholesalecontributed increase net operating revenues 1998 1997 increases mainly reflect strong data services revenue growth strong minute growth 15 1998 14 1997 partly offset competitive pricing environment change mix products sold business data market business data market revenues increased 15 1998 10 1997 data services includes sales capacity sprints network internet service providers showed strong growth accelerated use internet expanded service offerings increases also reflect strong calling volumes inbound outbound tollfree calls made within united states residential market residential market revenues increased 5 1998 6 1997 increases reflect strong revenue volume growth residential long distance calls growth also enhanced sprint sense anytimer 10 24 productdimeaminute calls 24 hours daywhich generated increased sales 1998 growth factors included increased international prepaid card revenues well calling card calls made customers local phone companies various agreements sprint local phone companies customers use sprint network making long distance calls wholesale market wholesale market revenues increased 8 1998 22 1997 reflects strong minute growth mainly increased inbound outbound tollfree calls partly offset change international mix lower yielding higher margin countries interconnection costs interconnection costs consist amounts paid local phone companies domestic service providers foreign phone companies complete calls made divisions domestic customers costs decreased 2 1998 increased 6 1997 reductions perminute costs domestic international access offset impact increased calling volumes 1998 versus 1997 partially offset impact increased calling volumes 1997 versus 1996 rate reductions generally due domestic fccmandated access rate reductions took effect july 1997 january july 1998 interconnection costs 389 net operating revenues 1998 439 1997 448 1996 operations expense operations expense includes costs operate maintain long distance network costs equipment sales also includes costs provide operator public payphone video teleconferencing services well telecommunications services hearingimpaired operations expense increased 16 1998 20 1997 increases driven growth data services well increases network equipment operating leases years operations expense 1998 also includes costs related sprints efforts achieve year 2000 compliance telecommunications network operating systems 1997 increase also reflects increased costs related fccmandated payments public payphone providers operations expense 147 net operating revenues 1998 140 1997 127 1996 selling general administrative expense selling general administrative sga expense increased 15 1998 3 1997 increases mainly reflect overall growth business well increased marketing promotions support products services sga 1998 also includes costs related sprints efforts achieve year 2000 compliance information systems applications supporting processes billing customer service administrative support services sga expense 237 net operating revenues 1998 226 1997 239 1996 depreciation amortization expense depreciation amortization expense increased 21 1998 15 1997 increases generally due increased asset base shorter average depreciable lives capital expenditures incurred mainly enhance network reliability meet increased demand voice datarelated services upgrade ii3 capabilities providing new products services depreciation amortization expense 89 net operating revenues 1998 81 1997 76 1996 local division beginning july 1997 sprint changed transfer pricing certain transactions fon group entities accurately reflect market pricing main effect change reduction local divisions net operating revenuesother revenues sprint sold approximately 139000 residential business access lines illinois 1997 remaining 81000 access lines november 1998 comparative purposes following discussion local division results assumes transfer pricing changes sales exchanges occurred beginning 1996 adjusting transfer pricing changes sales exchanges operating margins would 260 1998 250 1997 243 1996 net operating revenues net operating revenues increased 5 1998 1997 increases mainly reflect customer access line growth increased sales equipment networkbased services caller id call waiting customer access lines increased 51 1998 56 1997 net operating revenues 53 billion 1998 51 billion 1997 49 billion 1996 local service revenues local service revenues derived local exchange services grew 9 1998 10 1997 customer access line growth continued demand networkbased services revenue growth 1998 also reflects increased sales private line services revenues maintaining customer wiring equipment 1997 growth also reflects extended area calling plans network access revenues network access revenues derived long distance phone companies using local network complete calls increased 4 1998 3 1997 revenues reflect 8 increase minutes use 1998 7 increase 1997 partly offset access rate reductions mandated fcc access rate reductions took effect july 1997 january july 1998 toll service revenues toll service revenues mainly derived providing long distance services within specified regional calling areas latas beyond local calling area revenues decreased 26 1998 20 1997 mainly reflecting increased competition intralata long distance market expected continue addition toll service areas decreasing size certain local calling areas expanding however reduced revenues part offset increases local service revenues increases network access revenues paid carriers providing long distance services local divisions customers revenues increased 9 1998 11 1997 reflecting increased equipment sales business systems data networks well growth payphone commission revenues also reflects increased revenues providing billing collection services costs services products costs services products includes costs operate maintain local network costs equipment sales expenses remained flat 1998 increased 4 1997 efficiencies realized streamlining standardizing business processes allowed division control operating costs 1998 1997 still supporting customer access line growth increased equipment sales also impacting costs services products 1998 reduction pension costs due increased returns plan assets costs services products 1998 also includes costs related sprints efforts achieve year 2000 compliance telecommunications network operating systems costs services products 345 net operating revenues 1998 361 1997 365 1996 selling general administrative expense sga expenses increased 9 1998 4 1997 increases mainly due marketing costs promote new products services increased customer service costs related customer access line growth also impacting sga 1998 reduction pension costs due increased returns plan assets sga 1998 also includes costs related sprints efforts achieve year 2000 compliance information systems applications supporting processes billing customer service administrative support services sga expense 216 net operating revenues 1998 208 1997 210 1996 ii4 depreciation amortization expense depreciation amortization expense increased 4 1998 1997 mainly increased capital expenditures partly offset lower depreciation rates resulting longer asset lives depreciation amortization expense 179 net operating revenues 1998 181 1997 182 1996 product distribution directory publishing businesses beginning july 1997 sprint changed transfer pricing certain transactions fon group entities accurately reflect market pricing following discussion assumes transfer pricing changes occurred beginning 1996 adjusting changes product distribution directory publishing businesses operating margins would 158 1997 163 1996 net operating revenues increased 16 1998 19 1997 nonaffiliated revenues accounted roughly 60 revenues 1998 1997 revenues increased 10 1998 remained flat 1997 increased competition sales affiliates increased 27 1998 64 1997 growth years reflects centralization certain local division purchasing warehousing functions north supply 1997 result affiliates purchase north supply thirdparty vendors costs services products increased 19 1998 22 1997 reflecting increased sales sga expense increased 17 1998 3 1997 costs related divisions acquisition sales force another directory sales company sprint ionsm operating expenses sprint ion 1998 reflect initial development deployment activities include costs network research testing systems operations development product development advertising increase public awareness depreciation amortization totaled 5 million 1998 2 million 1997 ventures operating expenses capital expenditures mainly relate fon groups offering internet services june 1998 fon group completed strategic alliance combine internet business earthlink part alliance earthlink obtained fon groups sprint internet passport customers took daytoday operations services exchange fon group acquired equity interest earthlink result beginning 1998 fon groups share earthlinks losses reflected equity losses affiliates equity losses affiliates mainly consists losses global one totaling 186 million 1998 162 million 1997 82 million 1996 effort improve profitability global one refocusing efforts place emphasis multinational customers 1998 loss includes 37 million nonrecurring charges business improvement network rationalization initiatives global one continuing implement initiatives expected result additional charges nonoperating items interest expense interest costs following table reflect interest costs borrowings interest costs related deferred compensation plans customer deposits excluded distort effective interest rate borrowings 1interestexpense 1996 includes 215 million interest expense included discontinued operation net combined statements income ii5 fon group capitalizes interest costs related constructing capital assets sprint capitalized interest costs related investment sprint pcs july 1997 sprint pcs emerged development stage sprint also capitalized interest costs related pcs groups network buildout pcs licenses yet operational result pcs restructuring capitalized interest contributed amortized pcs group decrease fon groups effective interest rate 1998 reflects increase shortterm borrowings lower interest rates average debt outstanding 1998 increased support sprint ionsm various fon group initiatives effective pcs restructuring interest expense borrowings incurred sprint allocated pcs group based rates pcs group would able obtain third parties interest rates higher rates sprint obtains borrowings difference sprints actual interest rates charged pcs group reflected reduction fon groups interest expense see note 2 notes combined financial statements detailed description sprints policies allocation group financing income net income consisted following dividend interest income years reflects interest earned temporary investments 1998 also reflects interest earned loans unconsolidated affiliates interest earned shortterm investments following sprints 50 billion debt offering see sprints managements discussion analysis financial condition results operations liquidity capital resourcesliquidity details net 1998 1997 mainly reflects net gains sales local exchanges certain investments partly offset losses certain equity method investments income taxes fon groups effective tax rates 378 1998 393 1997 377 1996 see note 5 notes combined financial statements information differences caused effective income tax rates vary statutory federal rate extraordinary items net 1998 sprint redeemed prior scheduled maturities 138 million fon group debt interest rates ranging 79 93 resulted 5 million aftertax extraordinary loss 1996 sprint also redeemed prior scheduled maturities 190 million fon group debt interest rates ranging 60 95 resulted 5 million aftertax extraordinary loss financial condition increase assets due increased capital expenditures support core long distance local networks well increased advances loans pcs group see liquidity capital resources information changes combined balance sheets liquidity capital resources operating activities increase 1998 operating cash flows mainly reflects improved operating results fon groups core businesses changes working capital 1996 sprint terminated accounts receivable sales agreement reduced cash flows 600 million investing activities capital expenditures fon groups largest investing activity totaled 32 billion 1998 27 billion 1997 24 billion 1996 long distance capital expenditures incurred mainly enhance network reliability meet increased demand voice datarelated services upgrade capabilities accommodate growth provide new products services local division incurred capital expenditures accommodate access line growth expand capabilities providing enhanced services fon group advances pcs group loans sprint pcs fund capital operating requirements loans sprint pcs 1998 partly offset repayment vendor financing loan equity transfers pcs group also used fund capital operating requirements offset current tax benefits used fon group ii6 investing activities also include proceeds sales assets mainly sales local exchanges totaling 230 million 1998 292 million 1997 addition 1997 fon group purchased net assets paranet inc 375 million see note 10 notes combined financial statements investments loans affiliates net consisted following capital contributions net advances global one mainly used fund capital operating requirements net includes fon groups investment earthlink additional 148 million investment callnet retain fon groups approximate 25 interest callnet purchased fonorola inc financing activities financing activities 1998 mainly reflect longterm borrowings 11 billion partly offset payments longterm debt 388 million 1997 fon group net borrowings 532 million mainly fund investments loans affiliates 1996 ft dt acquired class common shares combined total 37 billion fon group mainly used proceeds cash repayment intercompany advances cellular division reduce outstanding debt fon group paid dividends 430 million 1998 1997 420 million 1996 indicated annual dividend rate fon stock 100 per share capital requirements fon groups 1999 investing activities mainly consisting capital expenditures investments affiliates expected require cash 41 44 billion fon group capital expenditures expected range 37 40 billion 1999 long distance local divisions require majority total sprint ion expected require 600 800 million capital expenditures 1999 dividend payments expected approximate 435 million connection pcs restructuring sprint adopted tax sharing agreement provides allocation income taxes fon group pcs group sprint expects fon group make significant payments pcs group agreement expected pcs group operating losses near future payments reflect pcs groups incremental cumulative effect sprints consolidated federal state tax liability tax credit position 1998 pcs group accrued benefits agreement totaling 191 million received related payment fon group totaling 20 million remaining 171 million paid fon group first half 1999 see note 2 notes combined financial statements allocation federal state income taxes details liquidity see sprints managements discussion analysis financial condition results operationsliquidity discussion liquidity regulatory developments telecom act designed promote competition aspects telecommunications eliminated legal regulatory barriers entry local phone markets also required incumbent local phone companies among things allow local resale wholesale rates negotiate interconnection agreements provide nondiscriminatory access unbundled network elements allow collocation interconnection equipment competitors telecom act also allows regional bell operating companies rbocs provide inregion long distance service obtain state certification compliance competitive checklist facilities based competitor obtain fcc ruling provision inregion long distance service public interest telecom acts impact sprint remains unclear rules competition still decided regulators courts accordance telecom act fcc adopted detailed rules 1996 govern interconnection incumbent local networks new market entrants local phone companies state public utility commissions appealed rules us court appeals 1997 court struck fccs pricing rules ruled telecom act left jurisdiction pricing matters states us supreme court january 1999 reversed appeals court decision reinstated fccs authority establish rules prices fcc action court appeals expected 1997 fcc issued important decisions structure level access charges universal service decisions designed remove implicit subsidies access charges bring access rates closer costs decisions also called establishing explicit universal service subsidies serving high cost areas fund additional telecommunications schools libraries rural health care providers ii7 early ascertain impact matters sprint appeals regulatory proceedings pending sprint benefits lower access charges provider long distance services access single largest cost providing long distance service addition 1998 sprints long distance division established charges flow certain access universal service payments customers reductions access charges adversely affect revenues local division rbocs challenged telecom act restrictions entry long distance markets unconstitutional federal district court texas ruled restrictions unlawful constituted legislative act imposed punishment without judicial proceeding however decision overturned fifth circuit court appeals similar arguments also rejected dc circuit court appeals date us supreme court declined review decisions since telecom act passed 1996 several rbocs filed applications fcc provide inregion long distance service certain states none approved expected applications filed fcc 1999 may approved entry rbocs long distance market impact competition extent impact depend many factors include rbocs competitive ability appeal rboc brand different market segments response competitors impact sprint may offset wholesale revenues rbocs choose resell sprint services result competition number carriers combined sprint raised concerns pending mergers especially sbc communications inc ameritech corporation gte corporation bell atlantic corporation appear threaten competition federal regulators closely scrutinizing mergers financial strategies financial strategies determined sprint centralized basis see sprints managements discussion analysis financial condition results operationsfinancial strategies year 2000 issue year 2000 issue affects fon groups installed computer systems network elements software applications business systems timesensitive programs may properly reflect recognize year 2000 many computers computer applications define dates last two digits year 00 may properly identified year 2000 error could result miscalculations system failures year 2000 issue may also affect systems applications fon groups customers vendors resellers affiliates fon group started program 1996 identify address year 2000 issue completed inventory year 2000 assessment principal computer systems network elements software applications business systems fon group also completed renovation computer systems network elements business systems 90 software applications year 2000 testing began 1998 third quarter completed 1999 fon group using internal external sources identify correct reprogram test systems year 2000 compliance fon group also contacting others conducts business receive proper warranties assurances third parties year 2000 compliant fon group incurred approximately 140 million 1998 year 2000 compliance program expects incur approximately 110 million 1999 compliance achieved timely manner fon group affiliates including global one significant related third party year 2000 issue could material adverse effect fon groups operations however fon group focusing identifying addressing aspects operations may affected year 2000 issue fon group developing implement necessary appropriate contingency plans mitigate extent possible effects year 2000 noncompliance recently issued accounting pronouncement see note 13 notes combined financial statements discussion recently issued accounting pronouncement ii8 management report sprint corporations management responsible integrity objectivity information contained annex management responsible consistency reporting information ensuring generally accepted accounting principles used discharging responsibility management maintains comprehensive system internal controls supports extensive program internal audits made organizational arrangements providing appropriate divisions responsibility established communication programs aimed assuring policies procedures codes conduct understood practiced employees combined financial statements included annex audited ernst young llp independent auditors audits conducted using generally accepted auditing standards report included herein board directors responsibility combined financial statements pursued mainly audit committee audit committee composed entirely directors officers employees sprint meets periodically internal auditors independent auditors without management present assure respective responsibilities fulfilled internal independent auditors full access audit committee discuss auditing financial reporting matters w esrey william esrey chairman chief executive officer arthur b krause arthur b krause executive vice president chief financial officer report independent auditors board directors shareholders sprint corporation audited accompanying combined balance sheets sprint fon group described note 2 december 31 1998 1997 related combined statements income comprehensive income cash flows three years period ended december 31 1998 audits also included financial statement schedule listed index financial statements financial statement schedules financial statements schedule responsibility management sprint corporation sprint responsibility express opinion financial statements schedule based audits conducted audits accordance generally accepted auditing standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion combined financial statements referred present fairly material respects combined financial position sprint fon group december 31 1998 1997 combined results operations cash flows three years period ended december 31 1998 conformity generally accepted accounting principles also opinion related financial statement schedule considered relation basic financial statements taken whole presents fairly material respects information set forth therein fully discussed note 2 combined financial statements sprint fon group read together audited consolidated financial statements sprint ernst young llp kansas city missouri february 2 1999 ii9 combined statements income sprint fon group millions see accompanying notes combined financial statements ii10 combined statements comprehensive income sprint fon group millions see accompanying notes combined financial statements ii11 combined balance sheets sprint fon group millions see accompanying notes combined financial statements ii12 combined statements cash flows sprint fon group millions see accompanying notes combined financial statements ii13 notes combined financial statements sprint fon group 1 pcs restructuring recapitalization november 1998 sprints shareholders approved formation fon group pcs group creation fon stock pcs stock addition sprint purchased remaining ownership interests sprint spectrum holding company lp phillieco lp together sprint pcs minority interest cox communications pcs lp cox pcs sprint acquired ownership interests telecommunications inc comcast corporation cox communications inc cable partners exchange sprint issued cable partners special lowvote pcs shares warrants acquire additional pcs shares sprint also issued cable partners shares new class preferred stock convertible pcs shares purchase cable partners interests referred pcs restructuring also november 1998 sprint reclassified publicly traded common shares one share fon stock 12 share pcs stock recapitalization taxfree shareholders class common share owned france telecom sa ft deutsche telekom ag dt reclassified represent equity interest fon group pcs group entitles ft dt one share fon stock 12 share pcs stock transactions referred recapitalization connection pcs restructuring ft dt purchased 51 million additional pcs shares maintain combined 20 voting power sprint topup pcs stock intended reflect performance sprints domestic wireless personal communication services pcs operations fon stock intended reflect performance sprints operations 2 summary significant accounting policies basis combination presentation combined fon group financial statements together combined pcs group financial statements include accounts sprints consolidated financial statements combined financial statements group prepared basis management believes reasonable proper include combined historical balance sheets results operations cash flows groups significant intragroup amounts transactions eliminated allocation sprints debt including related effects results operations cash flows allocation corporate overhead pcs restructuring date fon group entities commonly controlled companies transactions pcs group fon group eliminated combined financial statements either group fon group combined financial statements provide fon shareholders financial information fon group operations investors fon stock pcs stock sprint shareholders subject risks related sprints businesses assets liabilities sprint retains ownership control assets operations group subject minority interest cox pcs financial effects either group affect sprints results operations financial condition could affect results operations financial position market price groups stock net losses either group dividends distributions repurchases pcs stock fon stock reduce sprint funds legally available dividends groups stock result fon group combined financial statements read along sprints consolidated financial statements pcs groups combined financial statements fon group combined financial statements prepared using generally accepted accounting principles require management make estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities reported amounts revenues expenses actual results could differ estimates certain prioryear amounts reclassified conform current year presentation reclassifications effect results operations group equity previously reported investments entities fon group exercises significant influence control accounted using equity method see note 3 classification operations core businesses long distance division long distance division nations thirdlargest long distance phone company operates nationwide alldigital long distance communications network using ii14 stateoftheart fiberoptic electronic technology division provides domestic international voice video data communications services also provides integration management support services computer networks local division local division consists regulated local phone companies serving 76 million access lines 18 states provides local services access phone customers carriers local network sales telecommunications equipment long distance services within certain regional calling areas local access transport areas early november 1998 sprint sold remaining 81000 residential business access lines illinois product distribution directory publishing businesses product distribution business provides wholesale distribution services telecommunications products directory publishing business publishes markets white yellow page phone directories sprint ionsm sprint ion extends sprints existing advanced network capabilities customer enables sprint provide network infrastructure meet customers demands data internet video also expected foundation sprint provide new competitive local service ventures segment includes fon groups investment global one sprint 13 partner global ones operating group serving europe excluding france germany 50 partner global ones operating group worldwide activities outside united states europe segment also includes fon groups investments earthlink network inc internet service provider callnet long distance provider canada operating sprint brand name certain telecommunications investments ventures investments accounted equity basis allocation shared services sprint directly assigns possible certain general administrative costs fon group pcs group based actual use services direct assignment costs possible practical sprint uses methods estimate assignment costs group allocation federal state income taxes sprint files consolidated federal income tax return certain state income tax returns include fon group pcs group results connection pcs restructuring sprint adopted tax sharing agreement provides allocation income taxes two groups fon groups income taxes calculated files returns exclude pcs group intergroup tax payments satisfied date sprints related tax payment due refund received applicable tax authority 1998 fon group accrued income taxes payable pcs group accordance tax sharing agreement totaling 191 million allocation group financing activities groups managed sprint centralized basis debt incurred sprint behalf groups specifically allocated reflected financial statements applicable group interest expense allocated pcs group based interest rate largely equal rate would able obtain third parties direct indirect wholly owned sprint subsidiary without benefit guaranty sprint member fon group interest rate higher rate sprint obtains borrowings difference sprints actual interest rate charged pcs group reflected reduction fon groups interest expense sprints centralized cash management program one group may advance funds group advances accounted shortterm borrowings groups bear interest market rate substantially equal rate group would able obtain third parties shortterm basis income taxes fon group records deferred income taxes based temporary differences carrying amounts assets liabilities financial reporting purposes tax bases revenue recognition fon group recognizes operating revenues services rendered products delivered customers fon group records operating revenues net estimate uncollectible accounts cash equivalents cash equivalents generally include highly liquid investments original maturities three months less stated cost approximates market value sprint uses controlled disbursement banking arrangements part cash management program outstanding checks excess cash balances fon group included accounts payable amounts totaled 263 million yearend 1998 214 million yearend 1997 fon group sufficient funds available fund outstanding checks presented payment ii15 investments debt equity securities investments debt equity securities classified available sale reported fair value estimated based quoted market prices gross unrealized holding gains losses reflected adjustments group equity net related income taxes inventories stated lower cost principally firstin firstout method market value property plant equipment property plant equipment recorded cost generally ordinary asset retirements disposals charged accumulated depreciation gain loss recognized cost property plant equipment generally depreciated straightline basis estimated economic useful lives repair maintenance costs expensed incurred capitalized interest fon group capitalized interest costs related constructing capital assets 42 million 1998 23 million 1997 8 million 1996 addition sprint capitalized interest costs related pcs groups network buildout capitalized interest totaled 61 million 1998 24 million 1997 contributed amortized pcs group sprint also capitalized interest costs related investment sprint pcs july 1997 sprint pcs emerged development stage capitalized interest totaling 46 million 1997 96 million 1996 contributed amortized pcs group earnings per share result recapitalization earnings per share fon group calculated based groups income november 1998 yearend 1998 calculated group basis prior years fon stock part sprints capital structure time 1998 period fon groups convertible preferred dividends totaled 01 million dilutive securities mainly options totaled 69 million shares fon groups earnings per common share recapitalization date follows stockbased compensation fon group participates incentivebased stock option plans employee stock purchase plans administered sprint executives employees sprint adopted pro forma disclosure requirements statement financial accounting standards sfas 123 stockbased compensation continues apply accounting principles board opinion 25 accounting stock issued employees stock option employee stock purchase plans fon group applied sfas 123 pro forma net income would 103 million recapitalization date yearend 1998 see note 9 sprints notes consolidated financial statements information sprints stockbased compensation fon groups pro forma net income 1997 sprint granted performancebased stock options certain key executives 1998 fon group expensed 14 million related performancebased stock options 3 investments equity securities cost investments equity securities 105 million yearend 1998 1997 gross unrealized holding gains 384 million yearend 1998 198 million yearend 1997 investments advances affiliates yearend 1998 investments accounted using equity method consisted fon groups investments global one callnet earthlink strategic investments combined summarized financial information 100 basis entities others accounted using equity method follows fon groups investment global one including advances totaled 182 million yearend 1998 93 million yearend 1997 yearend 1998 sprints share underlying equity global ones net assets exceeded carrying value related investment 100 million difference amortized straightline basis january 2001 ii16 4 employee benefit plans defined benefit pension plan fon group employees covered noncontributory defined benefit pension plan benefits plan participants belonging unions based negotiated schedules nonunion participants pension benefits based years service participants compensation sprints policy make annual plan contributions equal actuarially determined amount consistent federal tax regulations funding objective accumulate funds relatively stable rate participants working lives benefits fully funded retirement following table shows changes projected benefit obligation following table shows changes plan assets yearend funded status amounts recognized combined balance sheets plan follows net pension cost credit consisted following defined contribution plans sprint sponsors defined contribution employee savings plans covering fon group employees participants may contribute portions pay plans union employees sprint matches contributions based negotiated amounts sprint also matches contributions nonunion employees fon pcs stock matching equal 50 participants contributions 6 pay addition sprint may discretion board directors provide additional matching contributions based performance fon pcs stock compared telecommunications companies stock sprints matching contributions 54 million 1998 1997 56 million 1996 yearend 1998 plans held 167 million fon shares 104 million pcs shares postretirement benefits sprint provides postretirement benefits principally medical life insurance benefits fon group employees retiring certain dates eligible benefits cost reduced cost employees retiring certain dates eligible benefits sharedcost basis sprint funds accrued costs benefits paid following table shows changes accumulated postretirement benefit obligation ii17 amounts included combined balance sheets yearend follows assumed 1999 annual health care cost trend rates 76 medicare eligibility 81 medicare eligibility rates gradually decrease ultimate level 5 2005 1 increase rates would increased 1998 accumulated postretirement benefit obligation estimated 111 million 1 decrease would reduced obligation estimated 91 million net postretirement benefits cost consisted following measurement purposes assumed 1998 weighted average annual health care cost trend rates 84 medicare eligibility 85 medicare eligibility rates gradually decrease ultimate level 5 2005 1 increase rates would increased 1998 postretirement benefits service interest costs estimated 13 million 1 decrease would reduced 1998 postretirement benefits service interest costs estimated 10 million 5 income taxes income tax expense allocated continuing operations consisted following differences caused fon groups effective income tax rates vary 35 federal statutory rate follows income tax expense benefit allocated items follows 1these amounts recorded directly group equity ii18 fon group recognizes deferred income taxes temporary differences carrying amounts assets liabilities financial statement purposes tax bases sources differences give rise deferred income tax assets liabilities yearend 1998 1997 along income tax effect follows management believes likely deferred income tax assets net valuation allowance realized based current income tax laws expectations future taxable income stemming reversal existing deferred tax liabilities ordinary operations uncertainties surrounding income tax law changes shifts operations state taxing jurisdictions future operating income levels may however affect ultimate realization deferred income tax assets valuation allowance related deferred income tax assets decreased 8 million 1998 2 million 1997 4 million 1996 yearend 1998 fon group available income tax purposes 4 million state alternative minimum tax credit carryforwards offset state income tax payable future years addition fon group state operating loss carryforwards 426 million tax benefits related loss carryforwards 11 million expire varying amounts 2018 ii19 6 longterm debt capital lease obligations sprints consolidated longterm debt yearend follows 1theseborrowings incurred sprint allocated applicable group yearend 1998 sprints weighted average interest rate related borrowings 64 weighted average interest rate related borrowings allocated pcs group approximately 85 see note 2 detailed description sprint allocates financing groups 2consolidateddebt equal total pcs group fon group debt due intergroup debt eliminated consolidation yearend 1998 fon group investment pcs groups senior discount notes totaling 133 million addition pcs group longterm debt payable fon group totaling 315 million including 135 million classified current yearend 1998 3includes358 million notes recorded fon group may exchanged maturity sbc communications inc sbc common shares owned fon group cash based sbcs closing price notes matured yearend 1998 could exchanged 66 million sbc shares yearend 1998 sprint held 76 million sbc shares included investments equity securities fon groups combined balance sheets ii20 longterm debt maturities excluding reclassified shortterm borrowings next five years follows sprint shortterm borrowings sprint bank notes payable totaling 454 million yearend 1998 618 million yearend 1997 addition sprint commercial paper borrowings totaling 292 million yearend 1998 249 million yearend 1997 though borrowings renewable various dates throughout year classified longterm debt sprints intent ability unused credit facilities refinance borrowings longterm basis 1998 sprint replaced previous 15 billion credit facility new facilities syndicates domestic international banks new facilities totaled 50 billion expire 1999 2003 commercial paper certain bank notes payable supported sprints revolving credit facilities certain notes payable relate separate revolving credit facility yearend 1998 sprint total unused lines credit 48 billion bank notes outstanding weighted average interest rates 57 yearend 1998 61 yearend 1997 weighted average interest rate commercial paper 58 yearend 1998 68 yearend 1997 longterm debt october 1998 sprint filed shelf registration statement securities exchange commission 80 billion debt securities replaced sprints previous shelf registration 10 billion november 1998 sprint issued 50 billion new shelf sprint allocated borrowings groups related proceeds mainly used repay existing debt see note 2 detailed description sprint allocates debt groups sprint fon group 1998 sprint redeemed prior scheduled maturities 138 million fon group debt interest rates ranging 79 93 resulted 5 million aftertax extraordinary loss 1996 sprint also redeemed prior scheduled maturities 190 million fon group debt interest rates ranging 60 95 resulted 5 million aftertax extraordinary loss fon group property plant equipment totaling 139 billion either pledged security first mortgage bonds certain notes restricted use mortgaged property sprint including fon group complied restrictive financial covenants relating debt arrangements yearend 1998 7 group equity ii21 8 commitments contingencies litigation claims assessments fon shareholders subject risks related investment sprint fon group including effects legal proceedings claims pcs group december 1996 arbitration panel entered 61 million award favor network 2000 communications corporation breach contract claim sprint arbitrators directed sprint pay 50 award network 2000 remainder directed paid missouri state court proposed class action network 2000s independent marketing representatives network 2000 sprint pending june 1997 fon group recorded additional expense 20 million charge related settlement class action lawsuit sprint network 2000 related claims network 2000 sprint june 1998 court approved class action settlement however small number potential class members chose part settlement filed separate lawsuit asserting individual claims potential class members appealed approval settlement delayed final approval suits arising ordinary course business pending sprint management cannot predict final outcome actions believes material fon groups combined financial statements operating leases fon groups minimum rental commitments yearend 1998 noncancelable operating leases consisting mainly leases data processing equipment real estate follows fon groups gross rental expense totaled 474 million 1998 406 million 1997 401 million 1996 rental commitments subleases contingent rentals executory costs significant 9 financial instruments fair value financial instruments sprint estimates fair value fon groups financial instruments using available market information appropriate valuation methodologies result following estimates necessarily represent values fon group could realize current market exchange although management aware factors would affect yearend 1998 estimated fair values amounts comprehensively revalued purposes financial statements since date therefore estimates fair value yearend 1998 may differ significantly amounts presented carrying amounts estimated fair values fon groups financial instruments yearend follows carrying values fon groups cash equivalents approximate fair value yearend 1998 1997 estimated fair value investments debt equity securities based quoted market prices estimated fair value longterm debt based quoted market prices publicly traded issues estimated fair value issues based present value estimated future cash flows using discount rate based risks involved concentrations credit risk fon groups accounts receivable subject concentration credit risk interest rate swap agreements 1998 sprint deferred losses interest rate swap agreements used hedge portion 50 billion debt offering losses allocated fon group pcs group fon groups share ii22 deferred losses totaled 16 million amortized interest expense using effective interest method term debt deferred gains losses related terminated interest rate swap agreements yearend 1997 1996 10 paranet acquisition september 1997 sprint paid 375 million purchase net assets houstonbased paranet inc provider integration management support services computer networks transaction accounted using purchase method accounting result fon groups combined financial statements reflect sprint paranets results operations beginning october 1997 excess purchase price tangible net assets acquired 357 million excess allocated noncompete agreements goodwill amortized straightline basis four 10 years 11 spinoff cellular division sprint completed taxfree spinoff cellular sprint common shareholders 1996 complete spinoff sprint distributed cellular common shares rate one share every three sprint common shares held addition cellular repaid 14 billion intercompany debt owed sprint also contributed cellulars equity capital 185 million debt owed cellular excess amount repaid cellulars 1996 net operating results spinoff date summarized separately classified discontinued operation combined statements income interest expense allocated cellular based assumed repayment intercompany debt sprint cellular operating expenses presented include cellulars share sprints general corporate overhead expenses totaling 2 million 1996 reallocated fon groups operating entities 12 additional financial information segment information 1998 sprint adopted sfas 131 disclosures segments enterprise related information fon group operates five business segments based services products long distance division local division product distribution directory publishing businesses activities develop deploy sprint ionsm ventures ii23 industry segment financial information follows nm meaningful 1theother ventures segments equity losses affiliates totaled 237 million 1998 172 million 1997 87 million 1996 ii24 supplemental cash flows information fon groups cash paid interest income taxes follows noncash activities fon group consisted following intergroup investments transactions sprint fon group investments sprint pcs group following table reflects fon groups noncurrent investments pcs group eliminated sprints consolidated financial statements preferred intergroup interest fon group provided sprint pcs group interim financing date pcs restructuring agreement signed may 1998 completed november 1998 part pcs restructuring sprint converted financing totaling 279 million intergroup interest representing 03 million shares 10year pcs preferred stock convertible pcs common intergroup interest longterm loans sprint provided sprint pcs additional interim financing 180 million may 1998 november 1998 investment debt securities 1996 sprint purchased 183 million face value sprint pcs senior discount notes 100 million common intergroup interest fon group holds 1 intergroup interest pcs group interest represents 45 million notional pcs shares includes 27 million shares held treasury fon group shares carry vote fon groups 1 share pcs groups net loss since date pcs restructuring totaled 61 million included income net combined statements income intergroup interest income fon group earned intergroup interest income 92 million 1998 24 million 1997 related loans advances pcs group see note 2 detailed description sprint allocates interest expense groups related party transactions global one fon group provided various voice data administrative services global one totaling 277 million 1998 415 million 1997 361 million 1996 addition global one provided data administrative services fon group totaling 140 million 1998 114 million 1997 130 million 1996 fon groups receivable global one 187 million yearend 1998 154 million yearend 1997 fon groups payable global one 42 million yearend 1998 104 million yearend 1997 sprint pcs following discussion reflects related party transactions sprint pcs prior pcs restructuring sprint provided sprint pcs invoicing operator services switching equipment sprint pcs also using long distance division interexchange carrier charges sprint pcs services totaled 125 million 1998 61 million 1997 1 million 1996 sprint provided management printing mailing warehousing services sprint pcs charges sprint pcs services totaled 30 million 1998 11 million 1997 12 million 1996 sprint vendor financing loan sprint pcs 300 million yearend 1997 repaid 1998 sprint also advances sprint pcs 114 million 1998 21 million 1997 repaid 1999 first quarter ii25 13 recently issued accounting pronouncement june 1998 financial accounting standards board issued sfas 133 accounting derivative instruments hedging activities standard requires derivatives recorded balance sheet either assets liabilities measured fair value gains losses changes derivative values accounted based derivative used whether qualifies hedge accounting adopted january 2000 statement expected material impact fon groups combined financial statements 14 quarterly financial data unaudited 1inthe 1998 fourth quarter fon group recorded net nonrecurring gains 104 million mainly sale local exchanges increased income extraordinary items 62 million 2inthe 1997 second quarter fon group recorded nonrecurring charges 20 million related litigation long distance division charges reduced income extraordinary items 13 million see note 8 3inthe 1997 fourth quarter fon group recognized gains 71 million sales local exchanges certain investments gains increased income extraordinary items 44 million 4proforma earnings per share assumes fon shares created recapitalization existed periods presented ii26 sprint fon group schedule iicombined valuation qualifying accounts years ended december 31 1998 1997 1996 1accountswritten net recoveries ii27 annex iii sprint pcs group combined financial information selected financial data sprint pcs group results operations 1998 include sprint pcs operating results consolidated basis entire year cable partners share losses pcs restructuring date reflected partners loss sprint pcs combined statements operations 1998 pcs groups investment sprint pcs accounted using equity method sprint pcs financial position yearend 1998 also reflected consolidated basis cash flow data reflects sprint pcs cash flows pcs restructuring date see sprints managements discussion analysis financial condition results operationsgeneral detailed description pcs restructuring recapitalization topup 1in1998 pcs group recorded nonrecurring charge write 179 million acquired inprocess research development costs related pcs restructuring charge increased operating loss extraordinary item 179 million 2proforma loss per share pcs group assumes pcs restructuring recapitalization topup occurred beginning 1997 excludes pcs groups writeoff 179 million acquired inprocess research development costs pro forma amounts comparative purposes necessarily represent actual results operations would transactions occurred beginning 1997 indicate results future operations na applicable iii1 managements discussion analysis financial condition results operations sprint pcs group general see sprints managements discussion analysis financial condition results operationsgeneral discussion pcs restructuring recapitalization topup forwardlooking information see sprints managements discussion analysis financial condition results operationsforwardlooking information discussion forwardlooking information sprint pcs group pcs group includes sprints domestic wireless mobile phone services operates 100 digital pcs wireless network united states licenses provide nationwide service using single frequency single technology yearend 1998 pcs group together certain affiliates operated pcs systems 45 50 largest us metropolitan areas pcs group licenses serve nearly 270 million people 50 states puerto rico us virgin islands market launches january 1999 pcs groups service reaches nearly 170 million people pcs group provides nationwide service operating digital network major us metropolitan areas affiliating companies mainly around smaller us metropolitan areas roaming providers analog cellular networks using dual banddualmode handsets roaming providers digital pcs networks use code division multiple access cdma pcs group began commercial cdma operations certain markets late 1996 fourth quarter wireless industry typically generates significantly higher number subscriber additions handset sales fourth quarter year versus remaining quarters due use retail distribution dependent holiday shopping season timing new products service introductions aggressive marketing sales promotions results operations pcs groups 1998 results operations included sprintcoms operating results well sprint pcs operating results consolidated basis entire year 1998 sprints investment sprint pcs accounted using equity method 1998 pcs group recorded onetime noncash charge 179 million write acquired inprocess research development costs related pcs restructuring pcs group markets products multiple distribution channels including retail stores well retail outlets equipment sales one retail outlet service revenues generated sales customers accounted 25 net operating revenues 1998 pro forma sprint pcs group provide meaningful analysis pcs groups underlying operating results following supplemental discussion assumes pcs restructuring occurred beginning 1997 excludes writeoff acquired process research development costs net operating revenues include subscriber revenues including monthly recurring charges usage charges roaming revenues sales handsets accessory equipment pcs groups net operating revenues 12 billion 1998 versus 258 million 1997 reflecting launch 91 new markets addition 17 million customers 1998 pcs group ended 1998 nearly 26 million customers iii2 225 markets nationwide approximately 20 1998 net operating revenues nearly half 1997 revenues sales handsets accessories part pcs groups marketing plans handsets normally sold prices well pcs groups cost costs services products mainly includes handset accessory costs interconnection costs switch cell site expenses costs increased 720 million 1998 driven significant growth customers expanded market coverage selling general administrative sga expense mainly includes marketing costs promote products services well salary benefit costs sga expense increased 766 million 1998 reflecting increased marketing advertising costs promote products services well increased labor costs support increased subscriber activity depreciation amortization expense increased 19 million 1998 consists depreciation network assets amortization intangible assets intangible assets include goodwill pcs licenses customer base microwave relocation costs assembled workforce amortized three 40 years nonoperating items interest expense 1averagedebt outstanding 1998 pro forma basis sprint pcs debt included pcs groups outstanding debt balance year pcs group capitalizes interest costs related network buildout pcs licenses markets yet operational capitalization interest stops amortization begins related markets launched sprint pcs prior pcs restructuring pcs groups ownership interest sprint pcs accounted using equity method pcs groups share losses sprint pcs 660 million 1997 192 million 1996 increased losses 1997 reflected marketing promotional costs including losses handset sales support growing customer base service launches additional markets 1998 cable partners share losses pcs restructuring date reflected partners loss sprint pcs combined statements operations income net income 1998 consisted mainly interest income totaling 34 million reflecting interest earned partner contributions sprint pcs partners prior pcs restructuring income taxes pcs groups effective tax rates 332 1998 382 1997 378 1996 see note 5 notes combined financial statements information differences caused effective tax rates vary statutory federal rate extraordinary item net 1998 sprint redeemed prior scheduled maturities 33 billion pcs group debt weighted average interest rate 83 resulted 31 million aftertax extraordinary loss debt repaid portion proceeds sprints 50 billion debt offering november 1998 financial condition pcs restructuring sprint pcs 1998 financial position reflected consolidated basis 1998 pcs groups investment sprint pcs accounted using equity method net property plant equipment increased 63 billion 1998 reflecting pcs restructuring capital expenditures support pcs network buildout net intangibles increased 68 billion reflecting goodwill pcs licenses microwave relocation costs customer base resulting pcs restructuring iii3 liquidity capital resources pcs groups cash flows include sprint pcs cash flows date pcs restructuring operating activities operating cash flows decreased 196 million 1997 mainly reflecting increased losses pcs group losses due increased marketing promotional costs operating costs support growing customer base investing activities pcs groups main use cash fund initial operating losses sprint pcs capital expenditures pcs license acquisitions capital expenditures pcs group totaled 11 billion 1998 154 million 1997 financing activities 1998 pcs group used allocated portion proceeds sprints 50 billion debt offering mainly repay existing debt connection pcs restructuring sprint adopted tax sharing agreement provides allocation income taxes fon group pcs group sprint expects fon group make significant payments pcs group agreement expected pcs group operating losses near future payments reflect pcs groups incremental cumulative effect sprints consolidated federal state tax liability tax credit position 1998 pcs group accrued benefits agreement totaling 191 million received related payments fon group totaling 20 million remaining 171 million paid fon group first half 1999 see note 2 notes combined financial statements allocation federal state income taxes details capital requirements pcs groups 1999 investing activities mainly consisting capital expenditures expected 23 26 billion additional funds required fund expected operating losses working capital debt service requirements pcs group june 1998 pcs group became managing partner cox pcs yearend 1998 pcs group owned 592 cox pcs cox holds minority interest partnership agreement cox right require pcs group purchase certain circumstances part coxs interest cox pcs could involve significant cash requirements cox may require pcs group acquire additional 102 interest cox pcs per year 2000 beginning 2001 2005 cox may require pcs group acquire interest cox pcs cox given pcs group notice start appraisal process related potential put portion coxs remaining partnership interest pcs group pcs preferred stock dividend payments expected total 15 million including payments fon group preferred intergroup interest see note 10 notes combined financial statements detailed discussion fon groups preferred intergroup interest pcs group liquidity see sprints managements discussion analysis financial condition results operationsliquidity discussion liquidity regulatory developments fcc sets rules regulations policies among things grant licenses pcs frequencies pcs license renewals rule assignments transfers control pcs licenses govern interconnection pcs networks wireless wireline carriers establish access universal service funding provisions impose fines forfeitures violations fccs rules regulate technical standards pcs networks fcc prohibits single entity combined attributable interest 20 greater interest license broadband pcs cellular specialized mobile radio licenses totaling 45 megahertz mhz geographic area pcs license transfers assignments fcc must approve substantial changes ownership control pcs license noncontrolling iii4 interests entity holds pcs license operates pcs networks generally may bought sold without prior fcc approval addition recent fcc order requires postconsummation notification certain pro forma assignments transfers control pcs license conditions pcs licenses granted 10year terms fccs buildout requirements followed based requirements 30 mhz broadband major trading area licensees must build networks offering coverage 13 population within five years 23 within 10 years 10 mhz broadband pcs licensees must build networks offering coverage least 14 population within five years make showing substantial service within fiveyear period licenses may revoked rules violated pcs licenses may renewed additional 10year terms renewal applications subject auctions however third parties may oppose renewal applications andor file competing applications fcc requirements broadband pcs providers cannot unreasonably restrict prohibit companies reselling services also cannot unreasonably discriminate resellers resale obligations automatically expire 2002 local phone companies commercial mobile radio service cmrs carriers pcs cellular providers must program networks allow customers change service providers without changing phone numbers referred service provider number portability cmrs providers required deliver calls networks ported numbers anywhere country yearend 1998 end november 2002 cmrs providers must able offer customers number portability switches 100 largest metropolitan areas also must able support nationwide roaming broadband pcs cmrs providers may provide wireless local loop fixed services would directly compete wireline services local phone companies broadband pcs cmrs providers must implement enhanced emergency 911 capabilities completed phases october 2001 pcs group wireless carriers complied first phase october 1998 currently analyzing various technical methods complying second phase communications assistance law enforcement act communications assistance law enforcement act calea enacted 1994 preserve electronic surveillance capabilities authorized federal state law calea requires telecommunications carriers meet certain assistance capability requirements end june 2000 1997 telecommunications industry standardsetting organizations agreed joint standard implement caleas capability requirements pcs group able offer traditional electronic surveillance capabilities law enforcement currently evaluating ability satisfy calea requirements fcc also considering petitions numerous parties establish implement technical compliance standards required calea federal regulations wireless systems must comply certain fcc federal aviation administration regulations siting lighting construction transmitter towers antennas addition certain fcc environmental regulations may cause certain cell site locations come national environmental policy act nepa regulation nepa requires carriers meet certain land use radio frequency standards review universal service requirements fcc states established universal service program ensure affordable quality telecommunications services americans although pcs group challenging federal court states authority collect universal service contributions cmrs providers pcs group required contribute federal program well existing state programs pcs groups contribution federal program percentage enduser revenues although many states likely adopt similar assessment methodology states may calculate contributions manner long process consistent fcc rules currently management cannot predict extent pcs groups total federal state universal service assessments ability recover contributions universal service fund financial strategies financial strategies determined sprint centralized basis see sprints managements discussion analysis financial condition results operationsfinancial strategies iii5 year 2000 issue year 2000 issue affects pcs groups installed computer systems network elements software applications business systems timesensitive programs may properly reflect recognize year 2000 many computers computer applications define dates last two digits year 00 may properly identified year 2000 error could result miscalculations system errors year 2000 issue may also affect systems applications pcs groups customers vendors resellers affiliates pcs group completed inventory computer systems network elements software applications products business systems year 2000 assessment items begun pcs group expects complete assessment 1999 first quarter along plans address required renovation pcs group using internal external resources identify correct reprogram test systems year 2000 compliance expects year 2000 compliance critical systems achieved 1999 pcs group also contacting others conducts business receive appropriate warranties assurances third parties year 2000 compliant pcs group relies thirdparty vendors significant portion important operating computer system functions therefore highly dependent vendors remediate network elements computer systems software applications business systems addition pcs group uses publicly available services acquired without contract global positioning system timing signal may affected year 2000 issue pcs group believes systems year 2000 compliant contractual right force compliance pcs group expects incur approximately 50 million 1999 year 2000 compliance program compliance achieved timely manner pcs group affiliates significant third party year 2000 issue could material adverse effect pcs groups operations pcs group focusing identifying addressing aspects operations may affected year 2000 issue pcs group developing implement necessary appropriate contingency plans mitigate extent possible effects year 2000 noncompliance recently issued accounting pronouncement see note 11 notes combined financial statements discussion recently issued accounting pronouncement iii6 management report sprint corporations management responsible integrity objectivity information contained annex management responsible consistency reporting information ensuring generally accepted accounting principles used discharging responsibility management maintains comprehensive system internal controls supports extensive program internal audits made organizational arrangements providing appropriate divisions responsibility established communication programs aimed assuring policies procedures codes conduct understood practiced employees combined financial statements included annex audited ernst young llp independent auditors audits conducted using generally accepted auditing standards report included herein board directors responsibility combined financial statements pursued mainly audit committee audit committee composed entirely directors officers employees sprint meets periodically internal auditors independent auditors without management present assure respective responsibilities fulfilled internal independent auditors full access audit committee discuss auditing financial reporting matters w esrey william esrey chairman chief executive officer arthur b krause arthur b krause executive vice president chief financial officer iii7 report independent auditors board directors shareholders sprint corporation audited accompanying combined balance sheets sprint pcs group described note 2 december 31 1998 1997 related combined statements operations cash flows three years period ended december 31 1998 audits also included financial statement schedule listed index financial statements financial statement schedules financial statements schedule responsibility management sprint corporation sprint responsibility express opinion financial statements schedule based audits audit consolidated financial statements sprint spectrum holding company lp wholly owned subsidiary sprint december 31 1998 investment sprint 40 interest november 23 1998 discussed note 1 financial statements reflect assets 27 billion december 31 1998 revenues 12 billion year ended audit pcs groups equity sprint spectrum holding company lp stated 749 million december 31 1997 pcs groups equity net loss sprint spectrum holding company lp stated 625 million 191 million years ended december 31 1997 1996 respectively consolidated financial statements financial statement schedule sprint spectrum holding company lp audited auditors whose report furnished us opinion insofar relates 1998 assets revenues 1997 1996 equity investment accounts audit based solely report auditors conducted audits accordance generally accepted auditing standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits report auditors provide reasonable basis opinion based audits report auditors combined financial statements referred present fairly material respects combined financial position sprint pcs group december 31 1998 1997 combined results operations cash flows three years period ended december 31 1998 conformity generally accepted accounting principles also opinion related financial statement schedule considered relation basic financial statements taken whole presents fairly material respects information set forth therein fully discussed note 2 combined financial statements sprint pcs group read together audited consolidated financial statements sprint ernst young llp kansas city missouri february 2 1999 iii8 report independent auditors board directors sprint corporation partners sprint spectrum holding company lp audited consolidated balance sheets sprint spectrum holding company lp subsidiaries holdings december 31 1998 1997 related consolidated statements operations cash flows three years period ended december 31 1998 audits also included financial statement schedule ii financial statements schedule ii responsibility partnership management responsibility express opinion consolidated financial statements schedule ii based audits conducted audits accordance generally accepted auditing standards require plan perform audits obtain reasonable assurance whether consolidated financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures consolidated financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion consolidated financial statements present fairly material respects financial position sprint spectrum holding company lp subsidiaries december 31 1998 1997 results operations cash flows three years ended december 31 1998 conformity generally accepted accounting principles also opinion schedule ii considered relation basic consolidated financial statements taken whole presents fairly material respects information set forth therein deloitte touche llp kansas city missouri february 2 1999 iii9 combined statements operations sprint pcs group millions see accompanying notes combined financial statements iii10 combined balance sheets millions sprint pcs group see accompanying notes combined financial statements iii11 combined statements cash flows millions sprint pcs group see accompanying notes combined financial statements iii12 notes combined financial statements sprint pcs group 1 pcs restructuring recapitalization november 1998 sprints shareholders approved formation fon group pcs group creation fon stock pcs stock addition sprint purchased remaining ownership interests sprint spectrum holding company lp phillieco lp together sprint pcs minority interest cox communications pcs lp cox pcs sprint acquired ownership interests telecommunications inc comcast corporation cox communications inc cable partners exchange sprint issued cable partners special lowvote pcs shares warrants acquire additional pcs shares sprint also issued cable partners shares new class preferred stock convertible pcs shares purchase cable partners interests referred pcs restructuring also november 1998 sprint reclassified publicly traded common shares one share fon stock 12 share pcs stock recapitalization taxfree shareholders class common share owned france telecom sa ft deutsche telekom ag dt reclassified represent equity interest fon group pcs group entitles ft dt one share fon stock 12 share pcs stock transactions referred recapitalization connection pcs restructuring ft dt purchased 51 million additional pcs shares maintain combined 20 voting power sprint topup pcs stock intended reflect performance sprints domestic wireless personal communication services pcs operations fon stock intended reflect performance sprints operations 2 summary significant accounting policies basis combination presentation combined pcs group financial statements together combined fon group financial statements include accounts included sprints consolidated financial statements combined financial statements group prepared basis management believes reasonable proper include combined historical balance sheets results operations cash flows groups significant intragroup amounts transactions eliminated allocation sprints debt including related effects results operations cash flows allocation corporate overhead pcs restructuring date pcs group entities commonly controlled companies exception cox pcs wholly owned sprint transactions pcs group fon group eliminated combined financial statements either group pcs group combined financial statements provide pcs shareholders financial information pcs group operations investors fon stock pcs stock sprint shareholders subject risks related sprints businesses assets liabilities sprint retains ownership control assets operations group subject minority interest cox pcs financial effects either group affect sprints results operations financial condition could affect results operations financial position market price groups stock net losses either group dividends distributions repurchases pcs stock fon stock reduce sprint funds legally available dividends groups stock result pcs group combined financial statements read along sprints consolidated financial statements fon groups combined financial statements sprint pcs results operations 1998 consolidated entire year cable partners share losses pcs restructuring date reflected partners loss sprint pcs combined statements operations sprint pcs financial position reflected consolidated basis yearend 1998 sprints investment sprint pcs accounted using equity method pcs groups cash flows include sprint pcs cash flows pcs restructuring date iii13 pcs group combined financial statements prepared using generally accepted accounting principles require management make estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities reported amounts revenues expenses actual results could differ estimates certain prioryear amounts reclassified conform current year presentation reclassifications effect results operations group equity previously reported classification operations pcs group includes sprints domestic wireless mobile phone services operates 100 digital pcs wireless network united states licenses provide nationwide service using single frequency single technology yearend 1998 pcs group together certain affiliates operated pcs systems 45 50 largest us metropolitan areas allocation shared services sprint directly assigns possible certain general administrative costs fon group pcs group based actual use services direct assignment costs possible practical sprint uses methods estimate assignment costs group allocation federal state income taxes sprint files consolidated federal income tax return certain state income tax returns include fon group pcs group results connection pcs restructuring sprint adopted tax sharing agreement provides allocation income taxes two groups pcs groups income taxes reflect pcs groups incremental cumulative impact sprints consolidated income taxes intergroup tax payments satisfied date sprints related tax payment due refund received applicable tax authority 1998 pcs group accrued income tax benefits accordance tax sharing agreement totaling 191 million allocation group financing activities groups managed sprint centralized basis debt incurred sprint behalf groups specifically allocated reflected financial statements applicable group interest expense allocated pcs group based interest rate largely equal rate would able obtain third parties direct indirect wholly owned sprint subsidiary without benefit guaranty sprint member fon group interest rate higher rate sprint obtains borrowings difference sprints actual interest rate charged pcs group reflected reduction fon groups interest expense sprints centralized cash management program one group may advance funds group advances accounted shortterm borrowings groups bear interest market rate substantially equal rate group would able obtain third parties shortterm basis income taxes pcs group records deferred income taxes based temporary differences carrying amounts assets liabilities financial reporting purposes tax bases revenue recognition pcs group recognizes operating revenues services rendered products delivered customers pcs group records operating revenues net estimate uncollectible accounts cash equivalents cash equivalents generally include highly liquid investments original maturities three months less stated cost approximates market value sprint uses controlled disbursement banking arrangements part cash management program outstanding checks excess cash balances pcs group included accounts payable amounts totaled 73 million yearend 1998 11 million yearend 1997 pcs group sufficient funds available fund outstanding checks presented payment inventories stated lower cost principally firstin firstout method replacement value property plant equipment property plant equipment recorded cost generally ordinary asset retirements disposals charged accumulated depreciation gain loss recognized property plant equipment depreciated straightline basis estimated economic useful lives repair maintenance costs expensed incurred capitalized interest pcs group capitalizes interest costs related network buildout pcs licenses totaled 64 million 1998 addition sprint capitalized interest costs related pcs groups network buildout capitalized interest totaled 61 million 1998 24 million 1997 contributed amortized pcs group sprint also capitalized interest costs related investment sprint pcs july 1997 sprint pcs emerged development stage capitalized interest totaling 46 million 1997 96 million 1996 contributed amortized pcs group iii14 goodwill represents excess purchase price fair value net assets acquired business combinations accounted purchases goodwill amortized 40 years using straightline method accumulated amortization totaled 11 million yearend 1998 pcs licenses pcs group acquired licenses federal communications commission fcc operate pcs service provider licenses granted 10year terms renewals additional 10year terms license obligations met licenses recorded cost amortized straightline basis 40 years service begins specific geographic area accumulated amortization totaled 51 million yearend 1998 customer base pcs group capitalized fair value sprint pcs customer base acquired pcs restructuring customer base amortized three years using straightline method accumulated amortization totaled 23 million yearend 1998 microwave relocation costs pcs group incurred costs related microwave relocation constructing pcs network microwave relocation costs amortized remaining lives pcs licenses accumulated amortization totaled 6 million yearend 1998 loss per share result pcs restructuring recapitalization loss per share pcs group calculated based groups net loss november 1998 yearend 1998 calculated group basis prior years pcs stock part sprints capital structure time dilutive securities pcs group mainly include options warrants convertible preferred stock securities dilutive effect loss per share pcs group incurred net losses 1998 result diluted loss per share equaled basic loss per share pcs groups basic diluted loss per common share pcs restructuring recapitalization date follows stockbased compensation pcs group participates incentivebased stock option plans employee stock purchase plans administered sprint executives employees sprint adopted pro forma disclosure requirements statement financial accounting standards sfas 123 stockbased compensation continues apply accounting principles board opinion 25 accounting stock issued employees stock option employee stock purchase plans pcs group applied sfas 123 pro forma net loss would changed materially see note 9 sprints notes consolidated financial statements information sprints stockbased compensation pcs groups pro forma net loss 1997 sprint granted performancebased stock options certain key executives 1998 pcs group expensed 1 million related performancebased stock options 3 business combination november 1998 sprint acquired remaining interest sprint pcs except minority interest cox pcs cable partners exchange sprint issued cable partners 1951 million lowvote shares pcs stock 125 million warrants purchase additional shares pcs stock purchase price 32 billion addition sprint issued cable partners shares new class preferred stock convertible pcs shares sprint accounted transaction purchase excess purchase price fair value net liabilities acquired allocated follows iii15 respect purchase price attributed process research development iprd acquired iprd limited significant new products development intended address new emerging market needs requirements rapid adoption internet rapid convergence voice data video routine research development projects minor requirements normal enhancements production activities included acquired iprd income approach primary technique utilized valuing acquired iprd approach included limited analysis markets product ii completion costs projects iii expected cash flows attributable iprd projects iv risks associated achieving cash flows v stage development project issue alternative future use extensively evaluated technologies completed could economically used intended purposes sprint pcs pro forma results following unaudited pro forma combined results operations pcs group assume pcs restructuring recapitalization topup occurred beginning 1997 exclude writeoff acquired inprocess research development costs pro forma amounts comparative purposes necessarily represent actual results operations would transactions occurred beginning 1997 indicate results future operations pro forma results follows 4 employee benefit plans defined contribution plan sprint pcs sponsored savings retirement program certain employees sprint pcs matched contributions equal 50 contribution participant first 6 employee elected contribute expense savings plan 7 million 1998 effective january 1999 pcs group employees began making contributions sprints defined contribution plan existing assets sprint pcs savings plan rolled sprints defined contribution plan early 1999 defined benefit pension plan effective january 1999 pcs group employees also became eligible participate sprints pension postretirement plans 5 income taxes income tax benefit allocated continuing operations consisted following differences caused pcs groups effective income tax rates vary 35 statutory federal rate follows 1998 income tax benefit allocated pcs groups extraordinary loss totaled 20 million pcs group recognizes deferred income taxes temporary differences carrying amounts assets liabilities financial statement purposes tax bases sources differences give rise deferred income tax assets liabilities yearend 1998 1997 along income tax effect follows iii16 management believes likely deferred income tax assets net valuation allowance realized based current income tax laws expectations future taxable income stemming reversal existing deferred tax liabilities ordinary operations uncertainties surrounding income tax law changes shifts operations state taxing jurisdictions future operating income levels may however affect ultimate realization deferred income tax assets pcs group acquired approximately 192 million potential tax benefits related net operating loss carryforwards pcs restructuring subject certain realization restrictions various tax laws valuation allowance provided total benefits subsequently recognized reduce goodwill noncurrent intangible assets resulting pcs restructuring connection pcs restructuring pcs group required reimburse fon group cable partners net operating loss tax credit carryforward benefits generated prior pcs restructuring realization pcs group produces cash benefit would otherwise realized reimbursement equal 60 net cash benefit received pcs group made fon group cash cable partners shares series 2 pcs stock carryforward benefits subject requirement totaled 246 million includes 192 million acquired pcs restructuring yearend 1998 pcs group federal operating loss carryforwards approximately 265 million state operating loss carryforwards approximately 40 billion addition pcs group available income tax purposes federal alternative minimum tax credit carryforwards 27 million federal alternative minimum tax net operating loss carryforwards 14 million loss carryforwards expire varying amounts 2018 iii17 6 longterm debt capital lease obligations sprints consolidated longterm debt yearend follows 1theseborrowings incurred sprint allocated applicable group yearend 1998 sprints weighted average interest rate related borrowings 64 weighted average interest rate related borrowings allocated pcs group approximately 85 see note 2 detailed description sprint allocates financing groups 2consolidateddebt equal total pcs group fon group debt due intergroup debt eliminated consolidation yearend 1998 fon group investment pcs groups senior discount notes totaling 133 million addition pcs group longterm debt payable fon group totaling 315 million including 135 million classified current yearend 1998 3includes358 million notes recorded fon group may exchanged maturity sbc communications inc sbc common shares owned fon group cash based sbcs closing price notes matured yearend 1998 could exchanged 66 million sbc shares yearend 1998 sprint held 76 million sbc shares included investments equity securities fon groups combined balance sheets iii18 longterm debt maturities excluding reclassified shortterm borrowings next five years follows sprint shortterm borrowings sprint bank notes payable totaling 454 million yearend 1998 618 million yearend 1997 addition sprint commercial paper borrowings totaling 292 million yearend 1998 249 million yearend 1997 though borrowings renewable various dates throughout year classified longterm debt sprints intent ability unused credit facilities refinance borrowings longterm basis 1998 sprint replaced previous 15 billion credit facility new facilities syndicates domestic international banks new facilities totaled 50 billion expire 1999 2003 commercial paper certain bank notes payable supported sprints revolving credit facilities certain notes payable relate separate revolving credit facility yearend 1998 sprint total unused lines credit 48 billion bank notes outstanding weighted average interest rates 57 yearend 1998 61 yearend 1997 weighted average interest rate commercial paper 58 yearend 1998 68 yearend 1997 longterm debt october 1998 sprint filed shelf registration statement securities exchange commission 80 billion debt securities replaced sprints previous shelf registration 10 billion november 1998 sprint issued 50 billion new shelf sprint allocated borrowings groups related proceeds mainly used repay existing debt see note 2 detailed description sprint allocates debt groups sprint pcs group yearend 1998 pcs group borrowed 18 billion revolving credit facilities banks totaling 21 billion facilities weighted average interest rate 58 yearend 1998 yearend 1998 pcs group 265 million outstanding debt payable fcc related purchase certain pcs licenses 1996 borrowings interest rate 78 mature 2001 1998 sprint redeemed prior scheduled maturities 33 billion pcs group debt weighted average interest rate 83 resulted 31 million aftertax extraordinary loss debt repaid portion proceeds sprints 50 billion debt offering november 1998 pcs group property plant equipment totaling 41 billion pledged security certain notes sprint including pcs group complied restrictive financial covenants relating debt arrangements yearend 1998 7 group equity 8 commitments contingencies litigation claims assessments pcs shareholders subject risks related investment sprint pcs group including effects legal proceedings claims fon group various suits arising ordinary course business pending sprint management cannot predict final outcome actions believes material pcs group combined financial statements commitments pcs group procurement service contracts certain vendors contracts engineering construction pcs network iii19 contracts provide initial terms three five years 2002 renewals additional oneyear terms yearend 1998 696 million total commitment satisfied leaving remaining commitment 204 million pcs group purchase supply contract vendor purchase handsets equipment totaling 600 million april 2000 yearend 1998 remaining commitments totaled 163 million june 1998 pcs group became managing partner cox pcs yearend 1998 pcs group owned 592 cox pcs cox holds minority interest partnership agreement cox right require pcs group purchase certain circumstances part coxs interest cox pcs could involve significant cash requirements cox may require pcs group acquire additional 102 interest cox pcs per year 2000 beginning 2001 2005 cox may require pcs group acquire interest cox pcs cox given pcs group notice start appraisal process related potential put portion coxs remaining partnership interest pcs group operating leases pcs groups minimum rental commitments yearend 1998 noncancelable operating leases consisting mainly leases cell switch sites office space follows pcs groups gross rental expense totaled 256 million 1998 4 million 1997 table excludes renewal options related certain cell switch site leases renewal options generally fiveyear terms may exercised time 9 financial instruments fair value financial instruments sprint estimates fair value pcs groups financial instruments using available market information appropriate valuation methodologies result following estimates necessarily represent values pcs group could realize current market exchange although management aware factors would affect estimated fair values presented yearend 1998 amounts comprehensively revalued purposes financial statements since date therefore estimates fair value yearend 1998 may differ significantly amounts presented carrying amounts estimated fair values pcs groups financial instruments yearend 1998 follows pcs group financial instruments yearend 1997 carrying values pcs groups cash equivalents approximate fair value estimated fair value pcs groups longterm debt based quoted market prices publicly traded issues estimated fair value issues based present value estimated future cash flows using discount rate based risks involved concentrations credit risk pcs groups accounts receivable subject concentration credit risk interest rate swap agreements 1998 sprint deferred losses interest rate swap agreements used hedge portion 50 billion debt offering losses allocated fon group pcs group pcs groups share deferred losses totaled 59 million amortized interest expense using effective interest method term debt deferred gains losses related terminated interest rate swap agreements yearend 1997 1996 iii20 10 additional financial information supplemental cash flows information pcs group received cash fon group 20 million related income taxes 1998 noncash activities pcs group included following see note 3 details assets liabilities acquired pcs restructuring intergroup investments transactions sprint fon group investments sprint pcs group following table reflects fon groups noncurrent investments pcs group eliminated sprints consolidated financial statements preferred intergroup interest fon group provided sprint pcs group interim financing date pcs restructuring agreement signed may 1998 completed november 1998 part pcs restructuring sprint converted financing totaling 279 million intergroup interest representing 03 million shares 10year pcs preferred stock convertible pcs common intergroup interest longterm loans sprint provided sprint pcs additional interim financing 180 million may 1998 november 1998 investment debt securities 1996 sprint purchased 183 million face value sprint pcs senior discount notes 100 million bonds mature 2006 accreted cost notes 133 million yearend 1998 118 million yearend 1997 gross unrealized holding gains totaled 32 million yearend 1998 24 million yearend 1997 common intergroup interest fon group holds 1 intergroup interest pcs group interest represents 45 million notional pcs shares includes 27 million shares held treasury fon group shares carry vote fon groups 1 share pcs groups net loss since date pcs restructuring totaled 61 million included income net sprint fon group combined statements income intergroup interest expense pcs group incurred intergroup interest expense 92 million 1998 24 million 1997 related advances loans fon group see note 2 detailed description sprint allocates interest expense groups related party transactions sprint pcs group cable partners advanced phillieco 26 million 1998 24 million 1997 advances accrue interest prime mature 1999 first quarter sprint pcs following discussion reflects related party transactions sprint pcs prior pcs restructuring sprint provided sprint pcs invoicing operator services switching equipment sprint pcs also using long distance division interexchange carrier charges sprint pcs services totaled 125 million 1998 61 million 1997 1 million 1996 sprint provided management printing mailing warehousing services sprint pcs charges sprint pcs services totaled 30 million 1998 11 million 1997 12 million 1996 sprint vendor financing loan sprint pcs 300 million yearend 1997 repaid 1998 sprint also loaned sprint pcs 114 million 1998 21 million 1997 repaid 1999 first quarter iii21 major customer pcs group markets products multiple distribution channels including retail stores well retail outlets equipment sales one retail outlet service revenues generated sales customers accounted 25 net operating revenues 1998 11 recently issued accounting pronouncement june 1998 financial accounting standards board issued sfas no133 accounting derivative instruments hedging activities standard requires derivatives recorded balance sheet either assets liabilities measured fair value gains losses changes derivative values accounted based derivative used whether qualified hedge accounting adopted january 2000 statement expected material impact pcs groups combined financial statements iii22 12 quarterly financial data unaudited 1inthe 1998 fourth quarter pcs group recorded nonrecurring charge write 179 million acquired iprd costs related pcs restructuring charge increased operating loss extraordinary item 179 million 2proforma loss per share assumes pcs restructuring recapitalization topup occurred beginning 1997 excludes pcs groups writeoff 179 million acquired iprd pro forma amounts comparative purposes necessarily represent actual results operations would transactions occurred beginning 1997 indicate results future operations 13 subsequent event unaudited february 1999 sprint completed offering series 1 pcs stock offering sprint sold 244 million shares price public 2875 per share net proceeds sprint totaled 672 million connection offering ft dt purchased 61 million shares series 3 pcs stock net proceeds sprint sale stock totaled 169 million proceeds offering purchase ft dt attributed pcs group used continued buildout pcs network working capital needs iii23 sprint pcs group schedule iicombined valuation qualifying accounts year ended december 31 1998 activity valuation qualifying accounts 1997 1996 1asdiscussed note 3 pcs groups assets liabilities recorded fair values pcs restructuring date therefore data presented schedule reflects activity since pcs restructuring 2representsa valuation allowance deferred income tax assets recorded purchase price allocation related pcs restructuring 3accountswritten net recoveries iii24 item 14 exhibits financial statement schedules reports form 8k 1 consolidated financial statements sprint filed part report listed index financial statements financial statement schedule exhibits 2 consolidated financial statement schedule sprint filed part report listed index financial statements financial statement schedule exhibits 3 following exhibits filed part report exhibits 3 articles incorporation bylaws articles incorporation amended b bylaws amended filed exhibit 3b sprint corporations quarterly report form 10q quarter ended march 31 2000 incorporated herein reference 4 instruments defining rights sprints security holders rights sprints equity security holders defined fifth sixth seventh eighth articles sprints articles incorporation see exhibit 3a b rights agreement dated november 23 1998 sprint corporation umb bank na filed exhibit 41 amendment 1 sprint corporations registration statement form 8a registering sprints pcs group rights filed november 25 1998 incorporated herein reference c tracking stock policies sprint corporation amended restated standstill agreement dated november 23 1998 among sprint corporation france telecom deutsche telekom ag filed exhibit 4e posteffective amendment 2 sprint corporations registration statement form s3 3358488 incorporated herein reference amended master transfer agreement dated january 21 2000 among france telecom deutsche telekom ag nab nordamerika beteiligungs holding gmbh atlas telecommunications sa sprint corporation sprint global venture inc jv entities set forth schedule ii thereto filed exhibit 2 sprint corporations current report form 8k dated january 26 2000 incorporated herein reference e indenture dated october 1 1998 among sprint capital corporation sprint corporation bank one na trustee filed exhibit 4b sprint corporations quarterly report form 10q quarter ended september 30 1998 incorporated herein reference supplemented first supplemental indenture dated january 15 1999 among sprint capital corporation sprint corporation bank one na trustee filed exhibit 4b sprint corporations current report form 8k dated february 2 1999 incorporated herein reference supplemented second supplemental indenture dated october 15 2001 among sprint capital corporation sprint corporation bank one na trustee filed exhibit 99 sprint corporations current report form 8ka dated october 17 2001 incorporated herein reference f indenture dated october 1 1998 sprint corporation bank one na trustee filed exhibit 4a sprint corporations quarterly report form 10q quarter ended september 30 1998 incorporated herein reference supplemented first supplemental indenture dated january 15 1999 sprint corporation bank one na trustee filed exhibit 4a sprint corporations current report form 8k dated february 2 1999 incorporated herein reference g purchase contract agreement dated august 10 2001 sprint corporation bank one national association purchase contract agent filed exhibit 4e sprint corporations quarterly report form 10q quarter ended september 30 2001 incorporated herein reference h form corporate units certificates including form purchase contract included exhibit purchase contract agreement filed exhibit 4g filed exhibit 4f sprint corporations quarterly report form 10q quarter ended september 30 2001 incorporated herein reference pledge agreement dated august 10 2001 among sprint corporation bank one national association collateral agent purchase contract agent filed exhibit 4g sprint corporations quarterly report form 10q quarter ended september 30 2001 incorporated herein reference j remarketing agreement dated august 10 2001 among sprint corporation sprint capital corporation bank one national association purchase contract agent ubs warburg llc remarketing agent filed exhibit 4h sprint corporations quarterly report form 10q quarter ended september 30 2001 incorporated herein reference k terms 6 notes due 2006 including form note filed exhibit 4i sprint corporations quarterly report form 10q quarter ended september 30 2001 incorporated herein reference 10 material agreements amended restated stockholders agreement among france telecom deutsche telekom ag sprint corporation dated november 23 1998 filed exhibit 10c sprint corporation annual report form 10k year ended december 31 1998 incorporated herein reference amended master transfer agreement dated january 21 2000 among france telecom deutsche telekom ag nab nordamerika beteiligungs holding gmbh atlas telecommunications sa sprint corporation sprint global venture inc jv entities set forth schedule ii thereto filed exhibit 2 sprint corporations current report form 8k dated january 26 2000 incorporated herein reference b amended restated registration rights agreement dated november 23 1998 among sprint corporation france telecom deutsche telekom ag filed exhibit 101 amendment 1 sprint corporation registration statement form s3 33364241 incorporated herein reference amended master transfer agreement dated january 21 2000 among france telecom deutsche telekom ag nab nordamerika beteiligungs holding gmbh atlas telecommunications sa sprint corporation sprint global venture inc jv entities set forth schedule ii thereto filed exhibit 2 sprint corporations current report form 8k dated january 26 2000 incorporated herein reference amended offering process agreement dated february 20 2001 among france telecom deutsche telekom ag nab nordamerika beteiligungs holding gmbh sprint corporation filed exhibit 10b sprint corporations annual report form 10k year ended december 31 2000 incorporated herein reference c registration rights agreement dated november 23 1998 among sprint corporation telecommunications inc comcast corporation cox communications inc filed exhibit 102 amendment 1 sprint corporation registration statement form s3 33364241 incorporated herein reference standstill agreements dated may 26 1996 sprint corporation telecommunications inc comcast corporation cox communications inc filed exhibit 10g sprint corporation annual report form 10k year ended december 31 1998 incorporated herein reference e 364day credit agreement dated august 3 2001 among sprint corporation sprint capital corporation borrowers initial lenders named therein initial lenders citibank na administrative agent salomon smith barney inc jp morgan securities inc joint lead arrangers book managers chase manhattan bank syndication agent bank america na deutsche bank ag new york branch first united national bank documentation agents filed exhibit 10a sprint corporations quarterly report form 10q quarter ended september 30 2001 incorporated herein reference f fiveyear credit agreement dated august 7 1998 among sprint corporation sprint capital corporation borrowers initial lenders named therein initial lenders citibank na administrative agent morgan guaranty trust company new york syndication agent bank america national trust savings association chase manhattan bank documentation agents filed exhibit 1024 sprint corporation registration statement form s3 33364241 incorporated herein reference 10 executive compensation plans arrangements g 1990 stock option plan amended filed exhibit 99b sprint corporations registration statement form s8 33375664 incorporated herein reference h 1990 restricted stock plan amended filed exhibit 10h sprint corporation annual report form 10k year ended december 3 1999 incorporated herein reference executive deferred compensation plan amended filed exhibit 10i sprint corporation annual report form 10k year ended december 31 1999 incorporated herein reference summary amendments executive deferred compensation plan filed exhibit 10i sprint corporations annual report form 10k year ended december 31 2000 incorporated herein reference j management incentive stock option plan amended filed exhibit 99a sprint corporations registration statement form s8 33375664 incorporated herein reference k 1997 longterm stock incentive program amended l sprint supplemental executive retirement plan amended restated centel directors deferred compensation plan filed exhibit 10m sprint corporation annual report form 10k year ended december 31 1999 incorporated herein reference n executive longterm incentive plan filed exhibit 10j sprint corporation annual report form 10k year ended december 31 1993 incorporated herein reference executive management incentive plan filed exhibit 10k sprint corporation annual report form 10k year ended december 31 1993 incorporated herein reference p longterm incentive compensation plan amended filed exhibit 10i sprint corporation quarterly report form 10q quarter ended september 30 1996 incorporated herein reference q management incentive plan amended filed exhibit 10r sprint corporations annual report form 10k year ended december 31 2000 incorporated herein reference r retirement plan directors amended filed exhibit 10u sprint corporation annual report form 10k year ended december 31 1996 incorporated herein reference key management benefit plan amended filed exhibit 10g sprint corporation quarterly report form 10q quarter ended september 30 1996 incorporated herein reference agreements regarding special compensation post employment restrictive covenants sprint corporation certain executive officers filed exhibit 10d sprint corporations quarterly report form 10q quarter ended september 30 1994 exhibit 10h sprint corporations quarterly report form 10q quarter ended march 31 1996 exhibit 10w sprint corporations annual report form 10k year ended december 31 1997 incorporated herein reference u directors deferred fee plan amended filed exhibit 10v sprint corporations annual report form 10k year ended december 31 1999 incorporated herein reference v form contingency employment agreements sprint corporation certain executive officers filed exhibit 10h sprint corporations quarterly report form 10q quarter ended september 30 2000 incorporated herein reference w form indemnification agreements sprint corporation formerly united telecommunications inc directors officers filed exhibit 10s sprint corporations annual report form 10k year ended december 31 1991 incorporated herein reference x summary executive officer benefits board directors benefits fees filed exhibit 10b sprint corporations quarterly report form 10q quarter ended september 30 2001 incorporated herein reference executive agreement dated july 30 2001 among sprint corporation sprintunited management company charles e levine filed exhibit 10c sprint corporations quarterly report form 10q quarter ended september 30 2001 incorporated herein reference z special incentive plan filed exhibit 10g sprint corporations quarterly report form 10q quarter ended september 30 2000 incorporated herein reference aaemployment agreements dated february 26 2001 among sprint corporation sprintunited management company william esrey ronald lemay filed exhibit 10bb sprint corporations annual report form 10k year ended december 31 2000 incorporated herein reference bbexecutive agreement dated july 30 2001 among sprint corporation sprintunited management company len lauer 12 computation ratio earnings fixed charges 21 subsidiaries registrant 23 consent ernst young llp sprint furnish securities exchange commission upon request copy instruments defining rights holders longterm debt total amount securities authorized said instruments listed exceed 10 total assets sprint b reports form 8k sprint filed current report form 8ka dated october 17 2001 reported announced third quarter 2001 results announced terminate efforts develop provide sprint ion services along additional steps improve competitive positioning reduce operating costs fon group news release regarding third quarter 2001 results included current report included following financial information sprint corporation consolidated statements operations sprint corporation selected operating results sprint corporation consolidated balance sheets sprint corporation condensed consolidated cash flow information sprint corporation pro forma selected operating results sprint corporation pcs group net customer additions february 7 2002 sprint filed current report form 8k dated february 4 2002 reported announced fourth quarter 2001 calendar year 2001 results news release regarding fourth quarter 2001 calendar year 2001 results included current report included following financial information sprint corporation consolidated statements operations sprint corporation selected operating results sprint corporation consolidated balance sheets sprint corporation condensed consolidated cash flow information sprint fon group summary financial information sprint corporation pro forma selected operating results sprint corporation pcs group net customer additions signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized sprint corporation registrant w esrey william esrey chairman chief executive officer date march 4 2002 pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities indicated 4th day march 2002 w esrey william esrey chairman chief executive officer arthur b krause arthur b krause executive vice president chief financial officer john p meyer john p meyer senior vice president controller principal accounting officer signatures sprint corporation registrant pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities indicated 4th day march 2002 dubose ausley linda k lorimer dubose ausley director linda k lorimer director warren l batts charles e rice warren l batts director charles e rice director w esrey louis w smith william esrey director louis w smith director irvine hockaday jr stewart turley irvine hockaday jr director stewart turley director ronald lemay ronald lemay director index financial statements financial statement schedule exhibits management report sprint corporations management responsible integrity objectivity information contained document management responsible consistency reporting information ensuring accounting principles generally accepted united states used discharging responsibility management maintains comprehensive system internal controls supports extensive program internal audits made organizational arrangements providing appropriate divisions responsibility established communication programs aimed assuring policies procedures principles business conduct understood practiced employees financial statements included document audited ernst young llp independent auditors audits conducted using auditing standards generally accepted united states report included herein board directors responsibility financial statements pursued mainly audit committee audit committee composed entirely directors officers employees sprint meets periodically internal auditors independent auditors without management present assure respective responsibilities fulfilled internal independent auditors full access audit committee discuss auditing financial reporting matters w esrey william esrey chairman chief executive officer arthur b krause arthur b krause executive vice president chief financial officer report independent auditors board directors shareholders sprint corporation audited accompanying consolidated balance sheets sprint corporation sprint december 31 2001 2000 related consolidated statements operations comprehensive income loss cash flows shareholders equity three years period ended december 31 2001 audits also included financial statement schedule listed index financial statements financial statement schedule exhibits financial statements schedule responsibility management sprint responsibility express opinion financial statements schedule based audits conducted audits accordance auditing standards generally accepted united states standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion financial statements referred present fairly material respects consolidated financial position sprint december 31 2001 2000 consolidated results operations cash flows three years period ended december 31 2001 conformity accounting principles generally accepted united states also opinion related financial statement schedule considered relation basic financial statements taken whole presents fairly material respects information set forth therein ernst young llp kansas city missouri february 4 2002 consolidated statements operations millions 1 2000 first quarter sprint effected twoforone stock split pcs common stock 1999 second quarter sprint effected twoforone stock split sprint fon common stock result basic diluted earnings loss per common share weighted average common shares dividends sprint fon common stock sprint pcs common stock restated periods prior stock splits 2 effects including incremental shares associated options employees stock purchase plan shares antidilutive basic loss per share diluted loss per share reflect calculation consolidated statements operations pcs group periods presented year ended december 31 2001 fon group see accompanying notes consolidated financial statements consolidated statements comprehensive income loss millions see accompanying notes consolidated financial statements see accompanying notes consolidated financial statements consolidated balance sheets continued millions except per share data see accompanying notes consolidated financial statements consolidated statements cash flows millions see accompanying notes consolidated financial statements consolidated statements shareholders equity sprint corporation millions see accompanying notes consolidated financial statements notes consolidated financial statements sprint corporation 1 summary significant accounting policies tracking stock formation november 1998 sprints shareholders approved allocation sprints assets liabilities two groups fon group pcs group well creation fon common stock pcs common stock addition sprint purchased remaining ownership interests sprint spectrum holding company lp phillieco lp together sprint pcs minority interest cox communications pcs lp cox pcs sprint acquired ownership interests telecommunications inc comcast corporation cox communications inc cable partners exchange sprint issued cable partners special lowvote pcs shares warrants acquire additional pcs shares sprint also issued cable partners shares new class preferred stock convertible pcs shares purchase cable partners interests referred pcs restructuring 1999 second quarter sprint acquired remaining minority interest cox pcs also november 1998 sprint reclassified publicly traded common shares one share fon stock 12 share pcs stock recapitalization taxfree shareholders addition class common shares owned france telecom ft deutsche telekom ag dt reclassified shares representing fon stock pcs stock transactions referred recapitalization connection pcs restructuring ft dt purchased 51 million additional pcs shares presplit basis end 2001 ft longer held fon shares dt longer held either fon pcs shares fon common stock pcs common stock intended reflect financial results economic value fon pcs groups however classes common stock sprint group intended track accordingly fon pcs shareholders subject risks related equity investment sprint sprints businesses assets liabilities shares fon common stock pcs common stock represent direct legal interest assets liabilities allocated either group sprint owns assets liabilities groups sprints board may subject restrictions sprints articles incorporation change allocation assets liabilities comprise fon group pcs group without shareholder approval board discretion regarding tracking stocks sprints board discretion among things make operating financial decisions could favor one group subject restrictions sprints articles incorporation change allocation assets liabilities comprise fon group pcs group without shareholder approval applicable corporate law sprints board owes fiduciary duties sprints shareholders board directors owes separate duties holders either fon common stock pcs common stock tracking stock policies provide board resolving material matters holders fon common stock pcs common stock potentially divergent interests act best interests sprint common shareholders giving fair consideration potentially divergent interests holders separate classes sprint common stock policies may changed board without shareholder approval given boards discretion matters may difficult assess future prospects group based past performance basis consolidation presentation consolidated financial statements include accounts sprint wholly owned subsidiaries controls investments entities sprint exercises significant influence control accounted using equity method see note 3 consolidated financial statements prepared using accounting principles generally accepted united states principles require management make estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities reported amounts revenues expenses actual results could differ estimates certain prioryear amounts reclassified conform currentyear presentation reclassifications effect results operations shareholders equity previously reported classification operations pcs stock intended reflect performance sprints wireless pcs operations fon stock intended reflect performance sprints operations sprint operates four lines business global markets division local telecommunications division product distribution directory publishing businesses pcs wireless telephony products services business known pcs group global markets division global markets division provides broad suite communications services targeted domestic business residential customers multinational corporations communications companies services include domestic international voice data communications using various protocols internet protocol frame relay data service transfers packets data sprints network managed network services addition global markets division expanding ability provide web applications hosting consulting services colocation services division sprint also provides broadband services digital subscriber line services enable highspeed transmission data existing copper telephone lines customer service provider global markets division also includes operating results cable tv service operations broadband fixed wireless companies 1999 acquisition dates 2000 sprint converted several markets served multipoint multichannel distribution services mmds capabilities cable tv services highspeed data services global markets divisions operating results reflect development costs operating revenues expenses broadband fixed wireless services 2001 fourth quarter sprint announced would halt deployment mmds services using current direct sight access technology current customers continue receive service sprint wait development second generation technology pursue alternative strategies spectrum leases licenses included global markets division costs establishing international operations beginning 2000 division also includes fon groups investments earthlink inc earthlink internet service provider callnet long distance provider canada operating sprint brand name intelig telecommunicacoes ltda intelig long distance provider brazil certain telecommunications investments ventures local division local division consists mainly regulated local phone companies serving approximately 82 million access lines 18 states provides local voice data services access phone customers carriers local network consumer long distance services customers within franchise territories sales telecommunications equipment long distance services within certain regional calling areas latas product distribution directory publishing businesses product distribution business provides wholesale distribution services telecommunications products directory publishing business publishes markets white yellow page phone directories sprint pcs group pcs group includes sprints wireless pcs operations operates 100 digital pcs wireless network united states licenses provide service nationwide using single frequency single technology yearend 2001 pcs group together third party affiliates operated pcs systems 300 metropolitan markets including 50 largest us metropolitan areas pcs group licenses serve entire us population including puerto rico us virgin islands service offered pcs group third party affiliates covers 247 million people pcs group provides nationwide service combination operating digital network major us metropolitan areas affiliating companies mainly around smaller us metropolitan areas roaming providers analog cellular networks using multimode handsets roaming providers digital networks use code division multiple access technology cdma pcs group also provides wholesale pcs services companies resell services customers retail basis companies pay pcs group discounted price customers usage bear costs acquisition customer service pcs group also includes investments pegaso telecomunicaciones sa de cv pegaso wireless pcs operation mexico bidco joint venture acquire wireless spectrum rights virgin mobile usa joint venture market wireless services investments accounted using equity method intergroup transactions allocations intergroup transactions pcs group uses long distance operation fon group interexchange carrier purchases wholesale long distance resale customers additionally fon group provides pcs group caller id services various goods services charges pcs group items totaled 570 million 2001 392 million 2000 276 million 1999 also included amounts charges goods capitalized pcs group capitalized charges totaled 12 million 2001 15 million 2000 16 million 1999 service charges less capitalized charges included fon groups net operating revenues pcs group provides fon group access network telemarketing various services charges fon group items totaled 20 million 2001 39 million 2000 8 million 1999 amounts included pcs groups net operating revenues fon group provides printing mailing warehousing services pcs group charges pcs group services totaled 236 million 2001 150 million 2000 65 million 1999 amounts included pcs groups operating expenses related party transactions cable partners advanced phillieco lp 26 million 1998 advances repaid 1999 first quarter sprint loaned sprint pcs 114 million 1998 repaid 1999 first quarter allocation shared services sprint directly assigns possible certain general administrative costs fon group pcs group based actual use services direct assignment costs possible practical sprint uses indirect methods including time studies estimate allocation costs group cost allocation methods time studies include factors general marketing headcount derived operating units relative share predefined category referenced eg headcount sprint believes costs allocated comparable costs would incurred groups would operating standalone basis costs shared services totaled approximately 542 million 2001 605 million 2000 654 million 1999 percentage costs allocated pcs group approximately 23 2001 15 2000 8 1999 balance allocated fon group allocation shared services may change discretion sprints board require shareholder approval allocation group financing activities groups managed sprint centralized basis debt incurred sprint behalf groups specifically allocated reflected financial statements applicable group interest expense allocated pcs group based interest rate substantially equal rate would able obtain third parties direct indirect wholly owned sprint subsidiary without benefit guarantee sprint member fon group interest rate higher rate sprint obtains borrowings difference sprints actual interest rate charged pcs group reflected reduction fon groups interest expense totaled 288 million 2001 237 million 2000 168 million 1999 amounts reflected intergroup interest charge consolidated statements operations fon group earned intergroup interest income pcs group incurred intergroup interest expense 15 million 2001 19 million 2000 20 million 1999 primarily related fon groups ownership pcs group debt securities sprint redeemed securities 2001 fourth quarter result redemption fon group recognized 11 million pretax gain income expense net pcs group recorded 7 million aftertax extraordinary loss sprints centralized cash management program one group may advance funds group advances accounted shortterm borrowings groups bear interest market rate substantially equal rate group would able obtain third parties shortterm basis allocation group financing activities may change discretion sprints board require shareholder approval allocation federal state income taxes sprint files consolidated federal income tax return certain state income tax returns include fon group pcs group results connection pcs restructuring sprint adopted tax sharing agreement provided allocation income taxes two groups fon groups income taxes calculated files returns exclude pcs group pcs groups income taxes reflect pcs groups incremental cumulative impact sprints consolidated income taxes intergroup tax payments satisfied date sprints related tax payment due refund received applicable tax authority tax sharing agreement applied tax years ending december 31 2001 december 2001 sprint adopted continuation tax sharing arrangement except elimination certain provisions addressing certain types acquisitions restructurings never became operable original agreement income taxes sprint records deferred income taxes based temporary differences carrying amounts assets liabilities financial reporting purposes tax bases revenue recognition sprint recognizes operating revenues services rendered products delivered customers service activation certain installation fees deferred amortized average life service sprints directory publishing business recognizes revenues directory services life related directory amortization method advertising expense sprint recognizes advertising expense incurred expenses include production media promotional sponsorship costs total advertising expenses totaled 11 billion 2001 12 billion 2000 12 billion 1999 cash equivalents cash equivalents generally include highly liquid investments original maturities three months less stated cost approximates market value sprint uses controlled disbursement banking arrangements part cash management program outstanding checks excess cash balances included accounts payable totaled 568 million yearend 2001 636 million yearend 2000 sprint sufficient funds available fund outstanding checks presented payment investments equity securities investments marketable equity securities classified available sale reported fair value estimated based quoted market prices gross unrealized holding gains losses reflected consolidated balance sheets adjustments shareholders equityaccumulated comprehensive income net related income taxes inventories fon group stated lower cost principally firstin firstout method market value inventories pcs group stated lower cost principally firstin firstout replacement value property plant equipment property plant equipment recorded cost generally ordinary asset retirements disposals charged accumulated depreciation gain loss recognized cost property plant equipment generally depreciated straightline basis estimated economic useful lives repair maintenance costs expensed incurred capitalized interest capitalized interest totaled 174 million 2001 175 million 2000 151 million 1999 capitalized interest fon group totaled 30 million 2001 22 million 2000 43 million 1999 capitalized interest pcs group totaled 144 million 2001 153 million 2000 108 million 1999 capitalized interest incurred connection pcs groups network buildout fon groups construction capital assets intangibles sprint evaluates recoverability intangible assets events circumstances indicate assets might impaired sprint determines impairment comparing assets respective carrying value estimates fair value using best information available requires use estimates judgments projections event impairment exists loss recognized based amount carrying value exceeds fair value asset see note 18 additional information regarding treatment following implementation statement financial accounting standards sfas 142 goodwill intangible assets goodwill represents excess purchase price fair value net assets acquired business combinations accounted purchases goodwill amortized five 40 years using straightline method accumulated amortization totaled 348 million yearend 2001 233 million yearend 2000 see note 18 additional information regarding treatment following implementation sfas 142 pcs licenses microwave relocation costs pcs group acquired licenses federal communications commission operate pcs service provider additionally pcs group incurred costs related microwave relocation constructing pcs network licenses granted 10year terms renewals additional 10year terms license obligations met licenses recorded cost amortized straightline basis 40 years service begins specific geographic area accumulated amortization totaled 317 million yearend 2001 230 million yearend 2000 see note 18 additional information regarding treatment following implementation sfas 142 earnings per share earnings per share eps calculated consolidated basis pcs stock fon stock created part november 1998 pcs restructuring recapitalization time forward eps computed individually fon group pcs group part recapitalization class common share owned ft dt reclassified share represented right one share fon stock 12 share pcs stock 2001 ft dt sold fon stock underlying shares class common stock dt sold pcs stock underlying shares class common stock order give effect interest determining earnings per share number equivalent shares underlying shares class common stock included calculation weighted average fon pcs common stock outstanding 2000 first quarter sprint effected twoforone stock split pcs common stock 1999 second quarter sprint effected twoforone split fon common stock result basic diluted earnings per common share weighted average common shares sprint fon common stock sprint pcs common stock dividends sprint fon common stock restated periods prior stock splits fon groups convertible preferred dividends totaled 1 million 2000 1999 dilutive securities mainly options totaled 115 million shares 2000 192 million shares 1999 2001 dilutive securities dilutive effect loss per share fon group incurred net loss dilutive securities pcs group mainly include options warrants convertible preferred stock securities dilutive effect loss per share pcs group incurred net losses 2001 2000 1999 result diluted loss per share equaled basic loss per share stockbased compensation sprint adopted pro forma disclosure requirements statement financial accounting standards sfas 123 stockbased compensation continues apply accounting principles board opinion 25 accounting stock issued employees related interpretations stock option employee stock purchase plans 2 business combinations broadband fixed wireless companies second half 1999 sprint acquired peoples choice tv corp pctv american telecasting inc ati videotron usa operating subsidiaries wbs america llc companies broadband fixed wireless licenses midwest southwest north central western southeastern united states sprint paid 618 million companies outstanding stock assumed 575 million companies debt notes redeemed prior scheduled maturities 1999 fourth quarter see note 10 acquisitions accounted purchases results companies included sprints consolidated financial statements acquisition dates excess purchase price net liabilities acquired allocated spectrum licenses amortized straightline basis 40 years included intangibles sprints consolidated balance sheets see note 18 additional information regarding treatment intangibles following implementation sfas 142 cox pcs 1999 second quarter cox communications inc exercised put option requiring sprint purchase remaining 408 interest cox pcs sprints existing 592 interest cox pcs reflected sprints consolidated financial statements consolidated basis sprint issued 243 million shares lowvote pcs stock presplit basis exchange remaining interest shares valued 11 billion sprint accounted transaction purchase excess purchase price fair value net liabilities acquired allocated follows goodwill amortized straightline basis 40 years 2001 see note 18 additional information regarding goodwill treatment following implementation sfas 142 3 investments securities cost investments securities included assets 445 million yearend 2001 549 million yearend 2000 gross unrealized holding gains 40 million yearend 2001 53 million yearend 2000 accumulated unrealized gains investments securities net income taxes 26 million yearend 2001 33 million yearend 2000 included accumulated comprehensive income sprint consolidated balance sheets 2001 third quarter sprint sold 125 million common shares earthlink 155 million converted sold 62 million shares series b convertible preferred stock earthlink 73 million net loss sale 25 million included income expense net sprints consolidated statements operations 2001 fourth quarter sprint converted 31 million shares earthlink series convertible preferred stock 3 million shares earthlink common stock 2000 fourth quarter sprint recorded writedown securities cost basis 48 million due decline market value considered temporary 48 million charge included income expense net sprints consolidated statements operations 2000 sprint used equity securities cost basis 94 million retire debt instruments see note 10 sprint recorded 45 million gain associated transaction included income expense net sprints consolidated statements operations 1999 sprint sold availableforsale securities cost basis 14 million 104 million 90 million gain included income expense net sprints consolidated statements operations investments advances affiliates yearend 2001 investments accounted using equity method consisted fon groups various strategic investments pcs groups investment pegaso telecomunicaciones sa de cv svc bidco lp virgin mobile usa yearend 2000 investments accounted using equity method consisted fon groups investments intelig earthlink strategic investments pcs groups investment pegaso telecomunicaciones sa de cv svc bidco lp 2001 fourth quarter pcs group entered joint venture virgin mobile usa pcs group agreed contribute 50 million future services 2001 third quarter sprint completed analysis valuation investment intelig resulted 157 million writedown charge included income expense net sprints consolidated statement operations 2001 first quarter sprint modified relationship earthlink resulted investment common stock longer accounted using equity method 2000 fourth quarter sprint completed analysis valuation equity method investments response changes overall telecommunications industry analysis resulted 87 million charge writedown investment callnet included income expense net sprints consolidated statements operations combined unaudited summarized financial information 100 basis entities accounted using equity method follows 4 restructuring asset impairment 2001 fourth quarter sprint terminated efforts provide sprint ion consumer business offerings announced plans reduce operating costs business units comprise fon group efforts included consolidation streamlining marketing network operations well streamlining corporate support functions operating losses generated ion approximately 500 million 2001 2000 periods less 400 million 1999 period decisions resulted 1814 million pretax charge consisting asset writeoffs severance costs associated work force reductions termination supplier agreements real estate leases contractual obligations charge asset abandonments 1327 million severance costs totaled 231 million remaining 256 million accrued exit costs associated restructuring sprint expects pay severance exit costs next twelve months severance charge associated involuntary employee separation approximately 6000 employees yearend nearly 5000 employee separations completed activity related restructuring 2001 fourth quarter summarized follows 2000 fourth quarter sprint completed analysis valuation various fon group assets resulting reassessment fon groups business strategies response recent changes within overall telecommunications industry analysis resulted 238 million pretax charge primarily related impairment goodwill associated global markets divisions paranet operations 5 merger termination july 13 2000 sprint worldcom inc announced boards directors companies terminated merger agreement previously announced october 1999 result regulatory opposition merger 2000 second quarter sprint recognized onetime pretax charge 187 million costs associated merger fon group recognized 163 million pcs group recognized 24 million 6 discontinued operation 2000 first quarter sprint sold interest global one france telecom deutsche telekom ag sprint received 11 billion cash repaid 276 million advances entire stake global one result sprints sale interest global one sprints gain sale equity share results global one reported discontinued operation periods presented 2000 sprint recorded aftertax gain related sale interest global one 675 million sprint recorded aftertax losses related global one totaling 130 million 1999 7 cumulative effect changes accounting principles june 1998 financial accounting standards board fasb issued statement 133 sfas 133 accounting derivative instruments hedging activities statement became effective sprint january 1 2001 establishes accounting reporting standards derivative instruments including certain derivative instruments embedded contracts hedging activities requires recognition derivatives balance sheet fair value regardless hedging relationship designation accounting changes fair value derivative instruments depends whether derivatives qualify hedge relationships types relationships designated based exposures hedged changes fair value derivatives designated fair value hedges recognized earnings along fair value changes hedged item changes fair value derivatives designated cash flow hedges recorded comprehensive income recognized earnings hedged item affects earnings changes fair value derivative instruments qualify hedge relationship designation recognized earnings upon adoption sfas 133 sprint recorded cumulative adjustment net income 2 million net tax 1 million cumulative reduction comprehensive income 9 million 2 million cumulative adjustment due recognizing fair value stock warrants held pcs group designated hedging instruments recorded cumulative effect changes accounting principles net sprints consolidated statements operations total fair value stock warrants held fon group date adoption material required transition adjustment earnings reduction comprehensive income results recognizing fair value cash flow hedges held fon group recorded cumulative effect change accounting principle sprints consolidated statements comprehensive income loss net derivative losses included accumulated comprehensive income december 31 2001 expected reclassified earnings within next 12month period mature 2002 sprint implemented sec staff accounting bulletin 101 revenue recognition financial statements fourth quarter 2000 effective beginning year bulletin requires activation installation fee revenues represent separate earnings process deferred recognized estimated service period associated incremental direct costs may also deferred extent revenues subject deferral fon group recorded 2 million charge cumulative effect change accounting principle 2000 8 employee benefit plans defined benefit pension plan fon group pcs group employees covered noncontributory defined benefit pension plan benefits plan participants belonging unions based negotiated schedules nonunion participants pension benefits based years service participants compensation sprints policy make plan contributions equal actuarially determined amount consistent federal tax regulations funding objective accumulate funds relatively stable rate participants working lives benefits fully funded retirement following table shows changes projected benefit obligation following table shows changes plan assets yearend funded status amounts recognized consolidated balance sheets plan follows amounts included plan consolidated balance sheets include prepaid pension expense 474 million yearend 2001 407 million yearend 2000 fon group accrued pension expense 31 million yearend 2001 12 million yearend 2000 pcs group net pension credit consisted following net periodic pension income fon group 66 million 2001 122 million 2000 63 million 1999 net periodic pension expense pcs group 18 million 2001 7 million 2000 5 million 1999 defined contribution plans sprint sponsors defined contribution employee savings plans covering fon group pcs group employees participants may contribute portions pay plans union employees sprint matches contributions based negotiated amounts sprint also matches contributions nonunion employees fon stock pcs stock matching equal 50 participants contributions 6 pay addition sprint may discretion board directors provide additional matching contributions based performance fon stock pcs stock compared telecommunications companies stock sprints matching contributions 103 million 2001 2000 83 million 1999 fon group recorded expenses 85 million 2001 86 million 2000 73 million 1999 sprints matching contributions pcs group recorded expenses 18 million 2001 17 million 2000 10 million 1999 yearend 2001 plans held 40 million fon shares market value 806 million dividends reinvested plan 20 million yearend 2001 plans held 36 million pcs shares market value 877 million postretirement benefits sprint provides postretirement benefits mainly medical life insurance fon group pcs group employees retiring certain dates eligible benefits cost reduced cost employees retiring certain dates eligible benefits sharedcost basis sprint funds accrued costs benefits paid 2001 third quarter sprint adopted amendments two postretirement benefit plans result amendments life insurance benefit eliminated employees retiring 2003 postretirement medical insurance plan replaced sprintfunded account managed employee plan amendment sprint retiree medical insurance plan reduced accumulated postretirement benefit obligation reduced employee benefits attributed employee service already rendered sprint recognized curtailment gain amendment 120 million 75 million tax following table shows changes accumulated postretirement benefit obligation amount accrued postretirement benefit costs included consolidated balance sheets 927 million yearend 2001 1058 million yearend 2000 fon group 3 million yearend 2001 1 million yearend 2000 pcs group assumed 2002 annual health care cost trend rates 85 medicare eligibility 90 medicare eligibility rates gradually decrease ultimate level 5 2010 1 increase rates would increased 2001 accumulated postretirement benefit obligation estimated 72 million 1 decrease would reduced obligation estimated 62 million net postretirement benefits cost consisted following fon group recorded net periodic benefit expense 45 million 2001 62 million 2000 54 million 1999 pcs group recorded net periodic benefit expense 1 million 2001 02 million 2000 1 million 1999 measurement purposes assumed 2001 weighted average annual health care cost trend rates 90 medicare eligibility 95 medicare eligibility rates gradually decrease ultimate level 50 2010 10 increase rates would increased 2001 postretirement benefits service interest costs estimated 13 million 10 decrease would reduced 2001 postretirement benefits service interest costs estimated 9 million 9 income taxes income tax expense benefit allocated continuing operations consists following differences caused sprints effective income tax rates vary 35 federal statutory rate income taxes related continuing operations follows income tax expense benefit allocated items follows 1 amounts recorded directly shareholders equityaccumulated comprehensive income consolidated balance sheets 2 amounts recorded directly shareholders equitycapital excess par stated value consolidated balance sheets sprint recognizes deferred income taxes temporary differences carrying amounts assets liabilities financial statement purposes tax bases sources differences give rise deferred income tax assets liabilities yearend 2001 2000 along income tax effect follows management believes likely deferred income tax assets net valuation allowance realized based current income tax laws expectations future taxable income stemming reversal existing deferred tax liabilities ordinary operations uncertainties surrounding income tax law changes shifts operations state taxing jurisdictions future operating income levels may however affect ultimate realization deferred income tax assets valuation allowance related deferred income tax assets increased 88 million 2001 118 million 2000 foreign component income loss continuing operations totaled 234 million 236 million 73 million 2001 2000 1999 respectively 1999 sprint acquired approximately 193 million potential tax benefits related net operating loss carryforwards acquisitions broadband fixed wireless companies 1998 sprint acquired approximately 229 million potential tax benefits related net operating loss carryforwards pcs restructuring benefits acquisitions pcs restructuring subject certain realization restrictions various tax laws valuation allowance provided total benefits subsequently recognized reduce goodwill intangibles resulting application purchase method accounting transactions connection pcs restructuring pcs group required reimburse fon group cable partners net operating loss tax credit carryforward benefits generated pcs restructuring realization pcs group produces cash benefit would otherwise realized reimbursement equal 60 net cash benefit received pcs group made fon group cash cable partners shares series 2 pcs stock carryforward benefits subject requirement total 259 million includes 229 million acquired pcs restructuring yearend 2001 sprint federal operating loss carryforwards approximately 64 billion state operating loss carryforwards approximately 10 billion related loss carryforwards federal tax benefits 22 billion state tax benefits 696 million addition sprint available income tax purposes federal alternative minimum tax credit carryforwards 33 million state alternative minimum tax credit carryforwards 5 million federal alternative minimum tax net operating loss carryforwards 42 billion state alternative minimum tax net operating loss carryforwards 1 billion loss carryforwards expire varying amounts 2021 10 longterm debt capital lease obligations sprints consolidated longterm debt capital lease obligations yearend follows 1 borrowings incurred sprint allocated applicable group sprints weighted average effective interest rate related borrowings 68 yearended 2001 67 yearended 2000 weighted average effective interest rate related borrowings allocated pcs group approximately 87 yearended 2001 88 yearended 2000 see note 1 detailed description sprint allocates financing groups 2 2000 consolidated debt equal total pcs group fon group debt due intergroup debt eliminated consolidation fon group ownership pcs groups senior discount notes totaling 169 million yearend 2000 including 65 million classified current 3 notes payable weighted average interest rate 27 yearend 2001 71 yearend 2000 weighted average interest rate commercial paper 32 yearend 2001 75 yearend 2000 4 borrowings incurred financing agreement entered 1999 sell continuous basis recourse undivided percentage ownership interests designated pool fon group trade accounts receivable subsequent collections receivables sold investors typically reinvested new receivables sprints weighted average interest rate related borrowings 45 yearended 2001 69 yearended 2000 scheduled principal payments excluding reclassified shortterm borrowings next five years follows included schedule payments made japanese yen substantial amount yen needed satisfy obligations currently held deposit included assets consolidated balance sheets yen payments included schedule 1 million 2003 20 million 2004 43 million 2005 81 million 2006 shortterm borrowings sprint bank notes payable totaling 635 million yearend 2001 676 million yearend 2000 addition sprint commercial paper borrowings totaling 32 billion yearend 2001 33 billion yearend 2000 though borrowings renewable various dates year sprint reclassifies shortterm borrowings longterm debt sprints intent ability refinance borrowings longterm basis sprints ability refinance borrowings limited sprints unused credit facilities expiring 2002 accordingly amount commercial paper borrowings bank notes reclassified longterm debt limited 20 billion commercial paper borrowings remained current liabilities 18 billion december 31 2001 sprint currently revolving credit facilities syndicates domestic international banks totaling 5 billion 3 billion 364 day facility expiring august 2002 2 billion five year facility expiring august 2003 facilities unused however sprints commercial paper borrowings supported revolving credit facilities certain notes payable relate separate revolving credit facility 500 million expires december 2002 yearend 2001 sprint total unused lines credit 19 billion assuming sprints commercial paper borrowings used credit facilities addition sprint standby letters credit serving backup various obligations totaling 133 million yearend 2001 longterm debt 2001 fourth quarter sprint issued 175 billion debt securities private placement borrowings interest rate 60 mature 2007 proceeds allocated fon pcs groups used repay debt fund capital investments working capital requirements condition sale securities sprint conducted exchange offer allowed original securities exchanged substantially identical securities registered securities exchange commission sec exchange offer terminated february 21 2002 2001 fourth quarter sprint redeemed scheduled maturities 558 million senior notes senior discount notes pcs group notes interest rates ranging 110 125 resulted aftertax extraordinary loss sprint less 1 million 2001 first quarter sprint repaid scheduled maturities 18 million first mortgage bonds allocated fon group bonds interest rate 99 resulted 1 million aftertax extraordinary loss sprint 2001 first quarter sprint issued 24 billion debt securities sprint 2 billion unissued securities existing shelf registration statement sec registered additional 400 million issuance borrowings interest rates ranging 71 76 mature 2006 2011 proceeds allocated pcs group used repay debt fund capital investments working capital requirements 2000 fourth quarter sprint redeemed scheduled maturities 25 million debt allocated fon group borrowings weighted average interest rate 96 resulted 1 million aftertax extraordinary loss sprint 2000 second quarter sprint issued 125 billion debt securities 4 billion shelf registration statement sec borrowings mature 2002 interest rates ranging 69 76 proceeds allocated pcs group used repay debt fund capital investments working capital requirements 2000 first quarter sprint exchanged 66 million common shares sbc communications inc certain notes payable allocated fon group notes market value 275 million maturity date notes interest rate 83 2000 first quarter sprint repaid scheduled maturities 127 million notes payable allocated pcs group notes interest rate 78 resulted 3 million aftertax extraordinary loss sprint 1999 fourth quarter sprint redeemed scheduled maturities 575 million assumed broadband fixed wireless companies debt interest rates ranging 131 145 resulted 39 million aftertax extraordinary loss sprint 1999 sprint repaid scheduled maturities 22 billion revolving credit facilities borrowings allocated pcs group resulted 21 million aftertax extraordinary loss sprint gross property plant equipment totaling 155 billion either pledged security first mortgage bonds certain notes restricted use mortgaged property sprint complied restrictive financial covenants relating debt arrangements yearend 2001 11 equity unit offering 2001 third quarter sprint completed registered offering 69 million equity units stated amount 25 net proceeds issuance approximately 17 billion deducting underwriting discount offering expenses proceeds allocated pcs group used repay debt fund capital investments working capital requirements equity unit initially consists corporate unit corporate unit consists purchase contract 25 principal amount senior notes sprints wholly owned subsidiary sprint capital corporation corporate unit may converted holder treasury unit consisting purchase contract treasury portfolio zerocoupon us treasury securities substituting treasury securities notes holder equity unit underlying notes treasury portfolio pledge notes portfolio sprint secure obligations purchase contract purchase contract component equity unit purchase contract obligates holder purchase obligates sprint sell august 17 2004 variable number newly issued shares pcs common stock ranging approximately 58 million 70 million shares depending market price pcs common stock sprint make quarterly contract adjustment payments 1125 25 stated amount per year purchase contract settled although right defer payments august 17 2004 fair value obligation classified liability consolidated balance sheets contingently issuable shares included diluted earnings per share calculation effect currently antidilutive notes initially bear interest payable quarterly arrears rate 6 per annum sprint obligated remarket notes 2004 time interest rate reset notes mature august 17 2006 corporate units listed new york stock exchange symbol sde 12 redeemable preferred stock redeemable preferred stock outstanding yearend follows seventh series preferred stock part pcs restructuring sprint issued cable partners new class convertible preferred stock convertible pcs shares converted holder earlier redeemed sprint seventh series preferred stock become mandatorily redeemable tenth anniversary pcs restructuring fifth series preferred stock sprints fifth series preferred stock must redeemed full 2003 less full dividends paid four consecutive dividend periods dividends arrears exceed amount equal dividends six dividend periods fifth series preferred shareholders may elect majority directors standing election dividends arrears paid 13 common stock 2001 fourth quarter 04 million shares pcs common stock underlying class dt common stock converted shares series 1 pcs common stock conversion class dt shares cancelled 2001 third quarter sprint completed registered offering 235 million shares series 1 pcs common stock net proceeds issuance approximately 561 million deducting underwriting discount offering expenses proceeds used repay debt fund capital investments working capital requirements conjunction offering dt sold 57 million shares pcs common stock represented approximate 4 voting interest sprint corporation sprint receive proceeds sale shares dt upon sale 212 million shares pcs common stock underlying class dt common stock 358 million shares series 3 pcs common stock converted shares series 1 pcs common stock 2001 second quarter sprint completed registered offering behalf ft dt sold 1748 million shares fon common stock represented approximate 10 voting interest sprint receive proceeds offering upon sale 862 million shares fon common stock underlying class common stock 886 million shares series 3 fon common stock converted shares series 1 fon common stock 1999 fourth quarter sprint board directors authorized twoforone stock split sprints pcs common stock form stock dividend distributed february 2000 pcs shareholders series 3 pcs common stock issued ft dt lieu adjusting pcs common stock underlying class common stock 1999 second quarter cox communications inc exercised put option requiring sprint purchase remaining 408 interest cox pcs sprint issued 243 million shares series 2 pcs common stock presplit basis exchange remaining interest shares valued 11 billion 1999 second quarter sprint board directors authorized twoforone stock split sprints fon common stock form stock dividend distributed june 2000 fon shareholders series 3 fon common stock issued ft dt lieu adjusting fon common stock underlying class common stock 1999 first quarter sprint completed registered offering 244 million shares series 1 pcs common stock presplit basis connection offering ft dt purchased 61 million shares series 3 pcs common stock presplit basis net proceeds issuance approximately 672 million deducting underwriting discount offering expenses proceeds ft dt approximately 169 million proceeds used continued buildout pcs network working capital needs classes common stock series 1 fon common stock designated general public end 2001 authorized shares totaled 25 billion issued outstanding shares totaled 8888 million series 1 pcs common stock designated general public end 2001 authorized shares totaled 30 billion issued outstanding shares totaled 6464 million series 2 fon common stock designated cable partners end 2001 authorized shares totaled 500 million shares issued series 2 pcs common stock designated cable partners end 2001 authorized shares totaled 10 billion issued outstanding shares totaled 3059 million series 3 fon common stock designated ft dt end 2001 authorized shares totaled 12 billion outstanding shares series 3 pcs common stock designated ft dt end 2001 authorized shares totaled 600 million issued outstanding shares totaled 344 million owned ft class ft common stock end 2001 authorized shares totaled 100 million issued outstanding shares totaled 431 million share represents right 50 share series 1 pcs common stock class dt common stock end 2001 authorized shares totaled 100 million outstanding shares common stock reserved future grants yearend 2001 common stock reserved future grants stock option plans future issuances various arrangements follows sprint fon group sprint pcs group shareholder rights plan sprints shareholder rights plan one half preferred stock purchase right attached share fon stock pcs stock one preferred stock purchase right attached share class common stock rights may redeemed sprint 001 per right expire june 2007 unless extended rights exercisable certain takeover events occur entitled following fon stock right entitles holder purchase 11000 share unit par preferred stocksixth series 275 per unit pcs stock right entitles holder purchase unit par preferred stockeighth series 150 per unit class right entitles holder purchase 14 unit preferred stockeighth series 3750 per 14 unit preferred stocksixth series voting cumulative accrues dividends quarterly basis generally equal greater 100 per share 2000 times total per share amount fon common stock dividends preferred stockeighth series features sixth series applies pcs shares preferred stocksixth series preferred stockeighth series issued outstanding yearend 2001 2000 indentures financing agreements certain sprints subsidiaries contain provisions limiting cash dividend payments subsidiary common stock held sprint result 556 million subsidiaries 15 billion total retained earnings restricted yearend 2001 flow cash form advances subsidiaries sprint generally restricted 14 stockbased compensation fon pcs stock splits number shares related exercise prices outstanding options employees stock purchase plan espp share elections adjusted maintain total intrinsic value options value share elections 2001 fon group paid 160 million pcs group compensate net amount pcs stockbased compensation granted fon group employees less fon stockbased compensation granted pcs group employees fon group paid 80 million pcs group 2000 stockbased compensation value paid stockbased compensation determined time grants 2000 options restricted stock outstanding one year date shareholder approval sprints proposed merger worldcom became fully vested date 2000 sprint board directors approved exchange program give sprint employees election cancel stock options granted 2000 exchange equal number new options granted future generally extended vesting schedules members sprints board directors eligible exchange program terms exchange program 162 million fon options 131 million pcs options cancelled november 10 2000 new options granted may 11 2001 exercise price market price date total 157 million fon options 124 million pcs options granted management incentive stock option plan management incentive stock option plan misop sprint grants stock options employees eligible receive annual incentive compensation eligible employees may elect receive stock options lieu portion target incentive sprints annual incentive compensation plans options generally become exercisable december 31 year granted maximum term 10 years misop sprint also grants stock options executives lieu longterm incentive compensation ltipmisop options ltipmisop options generally become exercisable third december 31 following grant date maximum term 10 years misop options granted exercise prices equal market price underlying common stock grant date yearend 2001 plan authorized options buy approximately 344 million fon shares approximately 239 million pcs shares authorized number shares increased approximately 80 million fon shares 86 million pcs shares january 1 2002 stock option plan sprints 1990 stock option plan sop sprint grants stock options officers key employees options generally become exercisable rate 25 per year beginning one year grant date maximum term 10 years sop options granted exercise prices equal market price underlying common stock grant date yearend 2001 plan authorized options buy approximately 676 million fon shares approximately 542 million pcs shares 2001 sprint entered new employment contracts mr esrey mr lemay designed insure longterm employment sprint provide competitive compensation link compensation shareholder value employment contracts combine supercede amend several earlier agreements sprint messrs esrey lemay return agreements sprint granted stock options extended vesting schedules employment mr esrey mr lemay 2000 sprint granted special stock options retention executives agreed defer benefit accelerated vesting stock options close cancellation proposed worldcom merger agreement designed retain executives following sprints special meeting shareholders connection proposed worldcom merger addition sprint granted portion annual option grants accelerated normally expected made early 2001 officers key employees granting options accelerated help retain employees 1997 sprint granted performancebased stock options certain key executives fon group expensed 5 million 2000 9 million 1999 pcs group expensed 3 million 2000 5 million 1999 related performancebased stock options 2000 amount reflects expense date shareholder approval proposed worldcom merger time options became vested additional 29 million expense related options included merger related costs sprints 2000 consolidated statements operations employees stock purchase plan sprints espp employees may elect purchase fon common stock pcs common stock price equal 85 market value grant exercise date whichever less yearend 2001 plan authorized purchase approximately 102 million fon shares approximately 151 million pcs shares sprint pcs longterm incentive plan 1999 pcs group employees meeting certain eligibility requirements included sprint pcs longterm incentive plan ltip plan participants received units whose initial value based independent appraisals appreciation units based annual independent appraisals 1997 plan year appreciation units vested 25 per year beginning one year grant date also expire 10 years connection pcs restructuring sprint discontinued sprint pcs ltip appreciation units converted pcs shares options buy pcs shares based formula designed replace appreciated value units beginning july 1998 vested units yearend 1998 participants could elect receive appreciation cash shares options elected receive shares options 1999 sprint began issuing shares options became exercisable based vesting requirements converted units end 2000 replacement options shares fully vested pro forma disclosures pro forma net income loss earnings loss per share determined sprint used fair value method accounting stock option grants espp share elections method compensation expense recognized applicable vesting periods based shares option related fair values grant date sprints pro forma net loss 1751 million 2001 467 million 2000 1144 million 1999 fon groups pro forma net loss 291 million 2001 pro forma net income 1668 million 2000 1434 million 1999 pro forma diluted loss per share 032 2001 pro forma diluted earnings per share 188 2000 163 1999 fon groups pro forma net income reduced 10 million 001 per fon share 2000 1999 due additional compensation resulting modifications terms options espp share elections related recapitalization pcs groups pro forma net loss 1460 million 2001 2135 million 2000 2578 million 1999 pro forma diluted loss per share 149 2001 222 2000 282 1999 fair value disclosures following tables reflect weighted average fair value per option granted well significant weighted average assumptions used determining fair values using blackscholes pricing model 2001 two sop grants presented result exchange program individuals accept excluded exchange program granted 2001 sop options january accepted exchange program granted 2000 2001 sop options may accordance terms offer fon common stock pcs common stock employees stock purchase plan 2001 espp offering fon group pcs group employees elected purchase 20 million fon 55 million pcs shares using blackscholes pricing model weighted average fair value 437 per share fon election 792 per share pcs election 2000 espp offering fon group pcs group employees elected purchase 23 million fon 54 million pcs shares using blackscholes pricing model weighted average fair value 1299 per share fon election 2068 per share pcs election 1999 espp offering fon group pcs group employees elected purchase 13 million fon 65 million pcs shares using blackscholes pricing model weighted average fair value 1112 per share fon election 808 per share pcs election stock options activity sop misop follows fon common stock pcs common stock following tables summarize outstanding exercisable options yearend 2001 fon common stock pcs common stock 15 commitments contingencies litigation claims assessments number putative class action cases allege sprint failed obtain easements property owners installation fiber optic network process seeking certification nationwide classes settlement negotiations directed nationwide industrywide settlement claims resulted agreement yet approved parties involved actions court sprint recorded charge estimated settlement costs 24 million fourth quarter 2001 december 2000 amalgamated bank institutional shareholder filed derivative action purportedly behalf sprint certain current former officers directors jackson county missouri circuit court complaint alleges individual defendants breached fiduciary duties sprint unjustly enriched making undisclosed amendments sprints stock option plans failing disclose certain information concerning regulatory approval proposed merger sprint worldcom overstating sprints earnings first quarter 2000 plaintiff seeks damages paid sprint unspecified amount two additional substantially identical derivative actions shareholders filed various suits arising ordinary course business pending sprint management cannot predict final outcome actions believes material sprints consolidated financial statements commitments pcs group purchase commitments various vendors purchase handsets equipment 2007 outstanding commitments yearend 2000 approximately 800 million outstanding commitments yearend 2001 approximately 2 billion fon group purchase commitments various vendors network equipment 2004 outstanding commitments yearend 2001 approximately 489 million outstanding commitments yearend 2000 operating leases sprints minimum rental commitments yearend 2001 noncancelable operating leases consisting mainly leases data processing equipment real estate cell switch sites office space follows sprints gross rental expense totaled 12 billion 2001 10 billion 2000 890 million 1999 rental commitments subleases contingent rentals executory costs significant table excludes renewal options related certain cell switch site leases renewal options generally fiveyear terms may exercised time 16 financial instruments fair value financial instruments sprint estimates fair value financial instruments using available market information appropriate valuation methodologies result following estimates necessarily represent values sprint could realize current market exchange amounts comprehensively revalued purposes financial statements since december 31 2001 therefore estimates fair value yearend 2001 may differ significantly amounts presented carrying amounts estimated fair values sprints financial instruments yearend follows 1 yen held deposit satisfy certain capital lease obligations see note 10 additional information 2 equity units include senior notes 1725 million purchase contract adjustment payment liability 49 million see note 11 information equity units carrying amounts sprints cash equivalents approximate fair value yearend 2001 2000 estimated fair value investments securities based quoted market prices estimated fair value longterm debt based quoted market prices publicly traded issues estimated fair value issues based either blackscholes pricing model present value estimated future cash flows using discount rate based risks involved accounting derivative instruments accounting standard june 1998 financial accounting standards board fasb issued statement 133 sfas 133 accounting derivative instruments hedging activities statement became effective sprint january 1 2001 establishes accounting reporting standards derivative instruments including certain derivative instruments embedded contracts hedging activities requires recognition derivatives balance sheet fair value regardless hedging relationship designation accounting changes fair value derivative instruments depends whether derivatives qualify hedge relationships types relationships designated based exposures hedged changes fair value derivatives designated fair value hedges recognized earnings along fair value changes hedged item changes fair value derivatives designated cash flow hedges recorded comprehensive income recognized earnings hedged item affects earnings changes fair value derivative instruments qualify hedge relationship designation recognized earnings risk management policies sprint selectively enters interest rate swap cap agreements manage exposure interest rate changes debt sprint also enters forward contracts options foreign currencies reduce impact changes foreign exchange rates sprints derivative transactions used principally hedging purposes comply boardapproved policies sprint enters interest rate swap agreements minimize exposure interest rate movements achieve optimal mixture floating fixedrate debt minimizing liquidity risk interest rate swap agreements designated fair value hedges effectively convert sprints fixedrate debt floating rate receiving fixedrate amounts exchange floatingrate interest payments life agreement without exchange underlying principal amount sprint enters interest rate swap agreements designated cash flow hedges reduce impact interest rate movements future interest expense effectively converting portion floatingrate debt fixed rate certain business transactions sprint granted warrants purchase securities companies fixed rates warrants supplemental terms business transactions designated hedging instruments sprints foreign exchange risk management program focuses reducing transaction exposure optimize consolidated cash flow sprints primary transaction exposure results net payments made overseas telecommunications companies completing international calls made sprints domestic customers forward contracts function natural hedges used offset impact foreign currency fluctuations payments derivative accounting standard derivative instruments sprint holds interest rate swaps stock warrants foreign currency forward contracts interest rate swaps meet required criteria sfas 133 assumption perfect effectiveness resulting recognition changes fair value earnings upon adoption life swap stock warrants designated hedging instruments changes fair value derivative instruments recognized earnings period change forward contracts held period designated hedges accordingly affected adoption sfas 133 upon adoption sfas 133 sprint recorded cumulative adjustment net income 2 million net tax 1 million cumulative reduction comprehensive income 9 million 2 million cumulative adjustment due recognizing fair value stock warrants designated hedging instruments recorded cumulative effect changes accounting principles net sprints consolidated statements operations reduction comprehensive income results recognizing fair value interest rate swap cash flow hedges recorded cumulative effect change accounting principle sprints consolidated statements comprehensive income loss net derivative losses included accumulated comprehensive income december 31 2001 expected reclassified earnings within next 12month period mature 2002 sprint recorded net derivative gains 2 million net tax benefit 1 million year ended december 31 2001 due changes fair value stock warrants designated hedging instruments net derivative gains included income expense net consolidated statements operations sprint recorded 4 million reduction comprehensive income year ended december 31 2001 resulting losses interest rate swap cash flow hedges reduction comprehensive income included net unrealized losses qualifying cash flow hedges consolidated statements comprehensive income loss foreign currency contracts part foreign currency exchange risk management program sprint purchases sells overthecounter forward contracts options various foreign currencies sprint outstanding open forward contracts buy various foreign currencies 3 million yearend 2001 26 million yearend 2000 forward contracts options open yearend 2001 2000 original maturities six months less net gain loss recorded reflect fair value contracts recorded period incurred including hedge costs net loss 08 million recorded 2001 net gain 04 million recorded 2000 net loss 03 million recorded 1999 concentrations credit risk sprints accounts receivable subject concentration credit risk sprint controls credit risk interest rate swap agreements foreign currency contracts credit approvals dollar exposure limits internal monitoring procedures event nonperformance counterparties sprints accounting loss would limited net amount would entitled receive terms applicable interest rate swap agreement foreign currency contract however sprint anticipate nonperformance counterparties agreements 17 additional financial information segment information sprint divided four lines business global markets division local division product distribution directory publishing businesses pcs wireless telephony products services business also known pcs group sprint manages segments operating income loss level reporting items level held corporate level attributed group level reconciliation operating income net income shown face consolidated statements operations consolidation information sprint generally accounts transactions segments based fully distributed costs sprint believes approximate fair value segment financial information follows nm meaningful 1 revenues eliminated consolidation consist primarily local access charged global markets division equipment purchases product distribution business interexchange services provided local division long distance services provided pcs group resale pcs customers internal business use caller id services provided local division access pcs network corporate capital expenditures incurred mainly sprints world headquarters campus 2 fourth quarter 2001 sprint recognized onetime pretax charge 1814 million restructuring asset impairment 2000 fourth quarter sprint recognized onetime pretax charge 238 million asset impairment see note 4 notes consolidated financial statements additional information 3 2000 second quarter sprint recognized onetime pretax charge associated terminated worldcom merger 2001 94 sprints revenues equipment services provided within united states 2000 1999 equipment services provided within united states generated 95 sprints revenues 99 sprints property plant equipment united states equipment sales one retail chain subsequent service revenues generated sales customers represent approximately 24 pcs groups net operating revenues 2001 24 2000 27 1999 net operating revenues product services follows supplemental cash flows information sprints cash paid received interest income taxes follows sprints noncash activities included following see note 2 details assets liabilities acquired business combinations 18 recently issued accounting pronouncements august 2001 fasb issued statement 144 accounting impairment disposal longlived assets effective fiscal years beginning december 15 2001 new standard effect supersede sfas statement 121 accounting impairment longlived assets longlived assets disposed providing one accounting model review asset impairment statement 144 retains much recognition measurement provisions statement 121 removes goodwill scope sprint adopt standard effective january 1 2002 expect material impact sprints consolidated financial statements june 2001 fasb issued statement 143 accounting asset retirement obligations standard provides accounting guidance legal obligations associated retirement longlived assets fair value liability asset retirement obligation required recognized period incurred liability initially recognized asset retirement costs also capitalized increasing carrying amount related longlived asset sprint currently assessing obligations determine potential impact change accounting statement effective fiscal years beginning june 15 2002 sprint adopt standard effective january 1 2003 june 2001 fasb issued statement 141 business combinations statement 142 goodwill intangible assets statement 141 supercedes apb opinion 16 business combinations statement 38 accounting preacquisition contingencies purchased enterprises statement requires accounting business combinations using purchase method changes criteria recognizing intangible assets apart goodwill statement effective business combinations initiated june 30 2001 statement 142 supercedes apb opinion 17 intangible assets addresses account purchased intangibles upon acquisition standard prescribes necessary accounting identifiable intangibles goodwill initial recognition amortization goodwill indefinite lived intangibles cease upon adoption standard periodic impairment testing required amortization definite lived intangibles continue useful life sprint adopt standard effective january 1 2002 fourth quarter 2001 sprint evaluated goodwill specifically identifiable intangibles accordance standards guidance based upon results evaluation sprint expect impairment goodwill specifically identifiable intangibles sprint believes fcc spectrum licenses including microwave relocation costs qualify indefinite life intangibles new standard amortization goodwill spectrum licenses trademarks accordingly cease january 1 2002 annualized amortization goodwill indefinite life intangibles approximately 382 million 2001 december 31 2001 net book value goodwill 44 billion net book value specifically identifiable intangibles 47 billion 19 quarterly financial data unaudited 1 see notes 3 4 notes consolidated financial statements information onetime items recorded 2001 2000 fourth quarters 2 2000 first quarter sprint adopted sec staff accounting bulletin 101 revenue recognition financial statements sab 101 required sab 101 2000 net operating revenues restated amounts reported 2000 quarterly reports form 10q net operating revenues reduced 4 million 2000 first quarter 31 million 2000 second quarter 33 million 2000 third quarter sprint also restated 2000 first quarter net income recording 2 million loss cumulative effect change accounting principle effective adoption date sab 101 3 effects including incremental shares associated options espp shares antidilutive basic earnings per share diluted earnings per share reflect calculation condensed statements consolidated operations fon reported fourth quarter ended december 31 2001 pcs reported periods 2001 20 subsequent events unaudited corporate action january 2002 sprints articles incorporation amended eliminate authorized shares class dt common stock result number authorized shares class dt common stock reduced 100 million zero shares dividend declaration february 2002 sprints board directors declared dividends 125 cents fon common stock dividends paid march 29 2002 pcs restructuring february 2002 sprint announced would close five smaller sprint pcs customer service call centers reduce operating costs restructuring charge associated announcement expected pretax charge approximately 25 million industry activity january 2002 two telecom companies global crossing ltd mcleodusa incorporated filed chapter 11 bankruptcy protection sprints exposure events creditor less 20 million december 31 2001 investment callnet february 2002 callnet canadian longdistance provider announced comprehensive recapitalization proposal would alter sprints existing ownership investment currently carried zero value sprint committed invest approximately 20 million new callnet shares part proposal would continue carry equity method investment additionally sprint callnet agreed principle new ten year branding technology services agreement term loan facility march 2002 sprint signed commitment letter citibank na deutsche bank ag 1 billion term loan facility commitment fully incremental sprints existing 5 billion revolving line credit ninemonth loan secured assets sprints directory publishing business sprint corporation schedule iiconsolidated valuation qualifying accounts years ended december 31 2001 2000 1999 1 accounts written net recoveries 2 represents valuation allowance deferred income tax assets relating net operating loss carryforwards acquired purchase broadband fixed wireless companies item 14 exhibits financial statement schedules reports form 8k a1 consolidated financial statements sprint combined financial statements fon group pcs group filed part report listed index financial statements financial statement schedules 2 consolidated financial statement schedule sprint combined financial statement schedules fon group pcs group filed part report listed index financial statements financial statement schedules 3 following exhibits filed part report exhibits 3 articles incorporation bylaws articles incorporation amended filed exhibit 3a sprint corporations quarterly report form 10q quarter ended march 31 2000 incorporated herein reference b bylaws amended filed exhibit 3b sprint corporations quarterly report form 10q quarter ended march 31 2000 incorporated herein reference 4 instruments defining rights sprints security holders rights sprints equity security holders defined fifth sixth seventh eighth articles sprints articles incorporation see exhibit 3a b rights agreement dated november 23 1998 sprint corporation umb bank na filed exhibit 41 amendment 1 sprint corporations registration statement form 8a relating sprints pcs group rights filed november 25 1998 incorporated herein reference c tracking stock policies sprint corporation filed exhibit 4d posteffective amendment 2 sprint corporations registration statement form s3 3358488 incorporated herein reference amended restated standstill agreement dated november 23 1998 among sprint corporation france telecom deutsche telekom ag filed exhibit 4e posteffective amendment 2 sprint corporations registration statement form s3 3358488 incorporated herein reference amended master transfer agreement dated january 21 2000 among france telecom deutsche telekom ag nab nordamerika beteiligungs holding gmbh atlas telecommunications sa sprint corporation sprint global venture inc jv entities set forth schedule ii thereto filed exhibit 2 sprint corporations current report form 8k dated january 26 2000 incorporated herein reference e indenture dated october 1 1998 among sprint capital corporation sprint corporation bank one na trustee filed exhibit 4b sprint corporations quarterly report form 10q quarter ended september 30 1998 incorporated herein reference f first supplemental indenture dated january 15 1999 among sprint capital corporation sprint corporation bank one na trustee filed exhibit 4b sprint corporation current report form 8k dated february 2 1999 incorporated herein reference g indenture dated october 1 1998 sprint corporation bank one na trustee filed exhibit 4a sprint corporations quarterly report form 10q quarter ended september 30 1998 incorporated herein reference h first supplemental indenture dated january 15 1999 sprint corporation bank one na trustee filed exhibit 4a sprint corporation current report form 8k dated february 2 1999 incorporated herein reference 10 material agreements amended restated stockholders agreement among france telecom deutsche telekom ag sprint corporation dated november 23 1998 filed exhibit 10c sprint corporation annual report form 10k year ended december 31 1998 incorporated herein reference amended master transfer agreement dated january 21 2000 among france telecom deutsche telekom ag nab nordamerika beteiligungs holding gmbh atlas telecommunications sa sprint corporation sprint global venture inc jv entities set forth schedule ii thereto filed exhibit 2 sprint corporations current report form 8k dated january 26 2000 incorporated herein reference b amended restated registration rights agreement dated november 23 1998 among sprint corporation france telecom deutsche telekom ag filed exhibit 101 amendment 1 sprint corporation registration statement form s3 33364241 incorporated herein reference amended master transfer agreement dated january 21 2000 among france telecom deutsche telekom ag nab nordamerika beteiligungs holding gmbh atlas telecommunications sa sprint corporation sprint global venture inc jv entities set forth schedule ii thereto filed exhibit 2 sprint corporations current report form 8k dated january 26 2000 incorporated herein reference amended offering process agreement dated february 20 2001 among france telecom deutsche telekom ag nab nordamerika beteiligungs holding gmbh sprint corporation c registration rights agreement dated november 23 1998 among sprint corporation telecommunications inc comcast corporation cox communications inc filed exhibit 102 amendment 1 sprint corporation registration statement form s3 33364241 incorporated herein reference standstill agreements dated may 26 1996 sprint corporation telecommunications inc comcast corporation cox communications inc filed exhibit 10g sprint corporation annual report form 10k year ended december 31 1998 incorporated herein reference e 364day credit agreement dated august 4 2000 among sprint corporation sprint capital corporation borrowers initial lenders named therein initial lenders citibank na administrative agent salomon smith barney inc book manager arranger morgan guaranty trust company new york syndication agent bank america na chase manhattan bank documentation agents filed exhibit 10a sprint corporations quarterly report form 10q quarter ended september 30 2000 incorporated herein reference f fiveyear credit agreement dated august 7 1998 among sprint corporation sprint capital corporation borrowers initial lenders named therein initial lenders citibank na administrative agent morgan guaranty trust company new york syndication agent bank america national trust savings association chase manhattan bank documentation agents filed exhibit 1024 sprint corporation registration statement form s3 33364241 incorporated herein reference 10 executive compensation plans arrangements g 1990 stock option plan amended h 1990 restricted stock plan amended filed exhibit 10h sprint corporation annual report form 10k year ended december 3 1999 incorporated herein reference executive deferred compensation plan amended filed exhibit 10i sprint corporation annual report form 10k year ended december 31 1999 incorporated herein reference summary amendments executive deferred compensation plan j management incentive stock option plan amended k 1997 longterm stock incentive program amended filed exhibit 10d sprint corporation quarterly report form 10q quarter ended september 30 2000 incorporated herein reference l sprint supplemental executive retirement plan filed exhibit 10i sprint corporation quarterly report form 10q quarter ended september 30 1995 incorporated herein reference amended restated centel directors deferred compensation plan filed exhibit 10m sprint corporation annual report form 10k year ended december 31 1999 incorporated herein reference n restated memorandum agreements respecting supplemental pension benefits sprint corporation formerly united telecommunications inc two current former executive officers filed exhibit 10i sprint corporation annual report form 10k year ended december 31 1992 incorporated herein reference executive longterm incentive plan filed exhibit 10j sprint corporation annual report form 10k year ended december 31 1993 incorporated herein reference p executive management incentive plan filed exhibit 10k sprint corporation annual report form 10k year ended december 31 1993 incorporated herein reference q longterm incentive compensation plan amended filed exhibit 10i sprint corporation quarterly report form 10q quarter ended september 30 1996 incorporated herein reference r management incentive plan amended retirement plan directors amended filed exhibit 10u sprint corporation annual report form 10k year ended december 31 1996 incorporated herein reference key management benefit plan amended filed exhibit 10g sprint corporation quarterly report form 10q quarter ended september 30 1996 incorporated herein reference u agreements regarding special compensation post employment restrictive covenants sprint corporation certain executive officers filed exhibit 10d sprint corporation quarterly report form 10q quarter ended september 30 1994 exhibit 10h sprint corporation quarterly report form 10q quarter ended march 31 1996 exhibit 10w sprint corporation annual report form 10k year ended december 31 1997 exhibit 10b sprint corporation quarterly report form 10q quarter ended june 30 1998 exhibit 104 sprint spectrum lp quarterly report form 10q quarter ended march 31 1997 incorporated herein reference v directors deferred fee plan amended filed exhibit 10 v sprint corporation annual report form 10k year ended december 31 1999 incorporated herein reference w form contingency employment agreements sprint corporation certain executive officers filed exhibit 10h sprint corporation quarterly report form 10q quarter ended september 30 2000 incorporated herein reference x form indemnification agreements sprint corporation formerly united telecommunications inc directors officers filed exhibit 10s sprint corporation annual report form 10k year ended december 31 1991 incorporated herein reference summary executive officer benefits board directors benefits fees z amended restated centel director stock option plan filed exhibit 10aa sprint corporation annual report form 10k year ended december 31 1993 incorporated herein reference aa special incentive plan filed exhibit 10g sprint corporation quarterly report form 10q quarter ended september 30 2000 incorporated herein reference bb employment agreements dated february 26 2001 among sprint corporation sprintunited management company william esrey ronald lemay 12 computation ratio earnings fixed charges 21 subsidiaries registrant 23 consent ernst young llp b consent deloitte touche llp sprint furnish securities exchange commission upon request copy instruments defining rights holders longterm debt total amount securities authorized said instruments listed exceed 10 total assets sprint b reports form 8k october 17 2000 sprint filed current report form 8k dated october 17 2000 reported announced board directors approved proposal offer employees choice cancel certain stock options granted 2000 exchange new options granted six months one day date old options cancelled purchase equal number class shares february 20 2001 sprint filed current report form 8k dated december 13 2000 reported announced fourth quarter 2000 calendar year 2000 results also reported december 13 2000 shareholder filed derivative action purportedly behalf sprint certain current former officers directors news release regarding fourth quarter 2000 calendar year 2000 results included current report included following financial information fon group combined statements operations fon group selected operating results fon group proforma financial information fon group supplemental operating information fon group condensed combined balance sheets fon group condensed combined cash flow information pcs group combined statements operations pcs group supplemental operating information pcs group net customer additions pcs group condensed combined balance sheets pcs group condensed combined cash flow information sprint corporation condensed consolidated balance sheets sprint corporation condensed consolidated cash flow information c exhibits listed item 14a signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized sprint corporation registrant w esrey william esrey chairman chief executive officer date march 12 2001 pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities indicated 12th day march 2001 w esrey william esrey chairman chief executive officer arthur b krause arthur b krause executive vice president chief financial officer john p meyer john p meyer senior vice president controller principal accounting officer signatures sprint corporation registrant pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities indicated 12th day march 2001 dubose ausley ronald lemay dubose ausley director ronald lemay director warren l batts linda k lorimer warren l batts director linda k lorimer director w esrey charles e rice william esrey director charles e rice director irvine hockaday jr louis w smith irvine hockaday jr director louis w smith director harold hook stewart turley harold hook director stewart turley director index financial statements financial statement schedules annex sprint corporation consolidated financial information selected financial data sprint corporation certain prioryear amounts reclassified conform current year presentation reclassifications effect results operations shareholders equity previously reported 1 sprints 1998 results operations include sprint pcs operating results consolidated basis entire year cable partners share losses pcs restructuring date reflected partners loss sprint pcs consolidated statements operations 1998 sprints investment sprint pcs accounted using equity method sprint pcs financial position yearend 1998 also reflected consolidated basis cash flow data reflects sprint pcs cash flows pcs restructuring date see managements discussion analysis financial condition results operationsgeneral information 2 2000 fon group recorded nonrecurring charge 238 million principally represents writedown goodwill 163 million nonrecurring charge costs associated proposed worldcom merger terminated pcs group recorded costs associated terminated worldcom merger 24 million charges reduced operating income 425 million increased loss continuing operations 273 million 1998 pcs group recorded nonrecurring charge write 179 million acquired inprocess research development costs related pcs restructuring charge reduced operating income continuing operations 179 million fon group recorded nonrecurring charges 20 million 1997 60 million 1996 related litigation within global markets division charges reduced income continuing operations 13 million 1997 36 million 1996 3 2000 fon group recorded nonrecurring charges 122 million related writedowns certain equity investments charges increased loss continuing operations 109 million also 2000 fon group recorded net nonrecurring gains 71 million sale independent directory publishing operation investment activities reduced loss continuing operations 44 million 2000 pcs group recorded net nonrecurring gain 28 million sale customers network infrastructure pcs affiliate gain reduced loss continuing operations 18 million 1999 fon group recorded net nonrecurring gains 54 million investment activities reduced loss continuing operations 35 million 1998 fon group recorded net nonrecurring gains 104 million mainly sale local exchanges increased income continuing operations 62 million 1997 fon group recorded nonrecurring gains 71 million mainly sales local exchanges certain investments gains increased income continuing operations 44 million 4 2000 first quarter sprint effected twoforone stock split sprints pcs common stock 1999 second quarter sprint effected twoforone stock split sprint fon common stock result diluted basic earnings per common share dividends sprint fon common stock diluted basic loss per common share sprint pcs common stock restated periods stock splits i1 5 earnings per share dividends fon group periods prior 1999 pro forma basis assume fon shares created 1998 recapitalization sprints common stock existed periods loss per share pcs group periods prior 1999 pro forma basis assumes pcs restructuring recapitalization purchase 51 million pcs shares france telecom deutsche telekom occurred connection restructuring pcs groups writeoff 179 million acquired inprocess research development costs occurred beginning 1997 pro forma amounts comparative purposes necessarily represent actual results operations would transactions occurred beginning 1997 indicate results future operations 6 1996 amount reduced 600 million cash required terminate accounts receivable sales agreement nm meaningful na applicable i2 managements discussion analysis financial condition results operations sprint corporation general july 13 2000 sprint worldcom inc worldcom announced boards directors companies terminated merger agreement previously announced october 1999 result regulatory opposition merger 2000 second quarter sprint recognized onetime pretax charge 187 million costs associated terminated merger 2000 fourth quarter sprint completed analysis valuation various fon group assets investments resulting reassessment fon groups business strategies response recent changes overall telecommunications industry analysis resulted two asset impairment charges first 238 million pretax charge primarily related goodwill associated sprints paranet operations second 87 million pretax charge related writedown equity method investment january 2000 sprint reached definitive agreement france telecom ft deutsche telekom ag dt sell interest global one february 2000 sprint received 11 billion cash repaid 276 million advances entire stake global one sprints equity share results global one reported discontinued operation sprints earnings periods presented november 1998 sprints shareholders approved formation fon group pcs group creation fon stock pcs stock addition sprint purchased remaining ownership interests sprint spectrum holding company lp phillieco lp together sprint pcs minority interest cox communications pcs lp cox pcs sprint acquired ownership interests telecommunications inc comcast corporation cox communications inc cable partners exchange sprint issued cable partners special lowvote pcs shares warrants acquire additional pcs shares sprint also issued cable partners shares new class preferred stock convertible pcs shares purchase cable partners interests referred pcs restructuring 1999 second quarter cox communications inc exercised put option requiring sprint purchase remaining 408 interest cox pcs sprint issued additional low vote pcs shares exchange interest also november 1998 sprint reclassified publicly traded common shares one share fon stock 12 share pcs stock recapitalization taxfree shareholders class common share owned ft dt reclassified represent equity interest fon group pcs group entitles ft dt one share fon stock 12 share pcs stock transactions referred recapitalization connection pcs restructuring ft dt purchased 51 million additional pcs shares presplit basis maintain voting power sprint topup pcs stock intended reflect performance sprints wireless pcs operations referred pcs group fon stock intended reflect performance sprints operations 2000 sprint changed fon groups segment reporting align financial reporting changes sprint manages fon groups operations assesses performance fon group operates following segments global markets division local division product distribution directory publishing businesses fon pcs shareholders subject risks related sprints businesses assets liabilities owning fon pcs shares represent direct legal interest assets liabilities groups rather shareholders remain invested sprint continue vote single voting class board member elections company matters fon group pcs group events affecting sprints consolidated statements operations balance sheets could turn affect groups financial statements stock price net losses either group dividends distributions repurchases pcs stock fon stock reduce sprint funds legally available dividends groups stock sprint expect pay dividends pcs shares foreseeable future sprints managements discussion analysis financial condition results operations mda read along fon groups mda pcs groups mda i3 forwardlooking information sprint includes certain estimates projections forwardlooking statements reports presentations analysts others publicly available material future performance cannot ensured actual results may differ materially forwardlooking statements factors could cause actual results differ include effects vigorous competition markets sprint operates costs business risks associated providing new services entering new markets necessary provide nationwide global services ability pcs group continue grow significant market presence effects mergers consolidations within telecommunications industry uncertainties related sprints strategic investments impact unusual items resulting ongoing evaluations sprints business strategies unexpected results litigation filed sprint possibility one markets sprint competes impacted changes political economic factors monetary policy legal regulatory changes including impact telecommunications act 1996 telecom act external factors sprint control risks referenced time sprints filings securities exchange commission words estimate project intend expect believe similar expressions intended identify forwardlooking statements forward looking statements found throughout mda reader place undue reliance forwardlooking statements speak date report sprint obligated publicly release revisions forward looking statements reflect events date report unforeseen events general overview sprint fon group global markets division global markets division provides broad suite communications services targeted domestic business residential customers multinational corporations communications companies services include domestic international voice data communications internet frame relay access transport web hosting virtual private networks managed security services broadband services sprint deploying integrated communications services referred sprint ionsm sprint ion extends sprints existing network capabilities customer enables sprint provide network infrastructure meet customers demands advanced services including integrated voice data internet video also expected foundation sprint provide advanced services competitive local service market sprint uses various advanced services lastmile technologies including dedicated access digital subscriber line xdsl expects use multipoint multichannel distribution services mmds global markets division also includes operating results cable tv service operations broadband fixed wireless companies 1999 acquisition dates 2000 sprint converted several markets served mmds capabilities cable tv services highspeed data services global markets divisions operating results reflect development costs operating revenues expenses broadband fixed wireless services sprint intends provide broadband data voice services additional markets served capabilities included global markets division costs establishing international operations beginning 2000 division also includes fon groups investments earthlink inc internet service provider callnet long distance provider canada intelig long distance provider brazil certain telecommunications investments ventures local division local division consists mainly regulated local phone companies serving approximately 83 million access lines 18 states provides local phone services access phone customers carriers local network consumer long distance services customers within franchise territories sales telecommunications equipment long distance services within certain regional calling areas product distribution directory publishing businesses product distribution business provides wholesale distribution services telecommunications products directory publishing business publishes markets white yellow page phone directories i4 general overview sprint pcs group pcs group includes sprints wireless pcs operations operates 100 digital pcs wireless network united states licenses provide service nationwide using single frequency single technology year end 2000 pcs group together affiliates operated pcs systems 300 metropolitan markets including 50 largest us metropolitan areas pcs group licenses serve 280 million people 50 states puerto rico us virgin islands pcs groups service including affiliates reaches 220 million people pcs group provides nationwide service operating digital network major us metropolitan areas affiliating companies mainly around smaller us metropolitan areas roaming providers analog cellular networks using dual banddualmode handsets roaming providers digital pcs networks use code division multiple access cdma pcs group also provides wholesale pcs services companies resell services customers retail basis companies pay pcs group discounted price customers usage bear costs acquisition customer service pcs group also includes investment pegaso telecomunicaciones sa de cv pegaso wireless pcs operation mexico investment accounted using equity method wireless industry including pcs group typically generates significantly higher number subscriber additions handset sales fourth quarter year compared remaining quarters due use retail distribution dependent holiday shopping season timing new products service introductions aggressive marketing sales promotions results operations consolidated total net operating revenues follows income loss continuing operations follows income loss continuing operations presented table includes nonrecurring items 2000 items include charges 152 million primarily related writedown goodwill within fon group 121 million costs associated terminated worldcom merger 109 million writedowns certain equity investments within fon group net gains 44 million sale independent directory publishing operation investment activities fon group 18 million gain sale customers network infrastructure pcs affiliate 1999 includes gain 35 million investment activities fon group 1998 includes charge writeoff 179 million acquired inprocess research development costs related pcs restructuring gain 62 million mainly sale local exchanges fon group sprint fon group operating expenses 2000 include charges 238 million primarily related writedown goodwill within global markets division 163 million charge costs associated terminated worldcom merger items excluded following discussions beginning 2000 fon group combined long distance operation sprint ion broadband fixed wireless services certain ventures one division global markets align financial reporting changes sprint manages operations assesses performance global markets division includes four major revenue streams voice data internet connection resegmentation fon group shifted recognition consumer long distance revenues expenses associated customers local franchise territories global markets division local division prior periods restated reflect changes i5 net operating revenues net operating revenues increased 3 2000 8 1999 increases reflect growth three fon group segments global markets local product distribution directory publishing global markets division net operating revenues increased 2 2000 8 1999 increases mainly reflect strong data communications services revenue growth competitive pricing environment change mix products sold offset minute growth 18 2000 strong minute growth 22 1999 partly offset competitive pricing environment change mix products sold minute growth 2000 also offset reduction access cost passthroughs resulting implementation coalition affordable local long distance service proposal calls voice revenues decreased 5 2000 increased 5 1999 2000 decrease largely due decline consumer voice revenues result competitive pricing environment lower calling card usage due increased use wireless phones implementation calls 1999 increase mainly reflects increased wholesale voice revenues due strong minute growth mainly international calls increased inbound outbound tollfree calls data revenues reflect sales currentgeneration data services including asynchronous transfer mode frame relay services revenues increased 14 2000 21 1999 due increased sales result increased emphasis services internet revenues increased 50 2000 42 1999 due strong growth dialup internet service providerrelated revenues dedicated service revenues internet revenues showed strong growth continued demand increased use internet revenues increased 5 2000 decreased 13 1999 2000 increase due sales capacity transoceanic cable inclusion full year revenues cable tv service operations broadband fixed wireless companies purchased 1999 largely offset decline legacy data services 1999 decrease due decline legacy data services local division beginning july 2000 sprint changed transfer pricing certain transactions fon group entities accurately reflect market pricing addition sprints local division sold customer service telemarketing organization pcs group beginning 2000 second quarter november 1998 sprint sold approximately 81000 access lines illinois comparative purposes following discussion local division results assumes transfer pricing change sale customer service telemarketing organization sale exchanges occurred beginning 1998 net operating revenues increased 5 2000 7 1999 increases mainly reflect increased sales networkbased services caller id call waiting increased long distance revenues customer access line growth sales networkbased services long distance services increased due strong demand bundled services combine local service network based features long distance calling customer access lines increased 4 2000 5 1999 local service revenues derived local exchange services grew 6 2000 9 1999 continued demand networkbased services customer access line growth data products revenue growth 1999 also reflects increased revenues maintaining customer wiring equipment network access revenues derived long distance phone companies using local network complete calls increased 4 2000 2 1999 revenues reflect increased revenues special access services 2 4 increase minutes use 2000 1999 respectively increases offset fccmandated access rate reductions access rate reductions took effect january july 1998 july 1999 july 2000 toll service revenues mainly derived providing consumer long distance services customers within sprints local franchise territories long distance services within specified regional calling areas latas beyond local calling area revenues increased 17 2000 22 1999 increases reflect success bundled services include long distance calling revenues decreased 11 2000 1 1999 decrease 2000 mainly due decrease equipment sales result planned shift focus selling higher margin products product distribution directory publishing businesses net operating revenues increased 10 2000 3 1999 nonaffiliated revenues accounted 60 revenues 2000 1999 revenues increased 11 2000 12 1999 increase nonaffiliated revenues 2000 i6 mainly due consolidation directory publishing partnership second half 2000 directory publishing partnership previously accounted equity method investment fully consolidated due restructuring partnership management sales affiliates increased 8 2000 decreased 10 1999 due changes local divisions capital program operating expenses fon groups operating expenses increased 4 2000 8 1999 mainly support revenue growth global markets division global markets division total operating expenses increased 6 2000 9 1999 costs services products include interconnection costs paid local phone companies domestic service providers foreign phone companies complete calls made divisions domestic customers costs operate maintain long distance network costs equipment transmission capacity sales costs related development deployment sprint ion costs services products increased 12 2000 3 1999 interconnection costs remained flat 2000 increased 3 1999 reductions perminute international access costs well domestic access costs offset impact increased calling volumes 2000 increased calling volumes 1999 partly offset reductions perminute costs domestic international access domestic rate reductions generally due fccmandated access rate reductions took effect january july 1998 july 1999 july 2000 access rate reductions july 2000 included implementation calls costs services products increased 42 2000 5 1999 2000 increase largely due expansion sprint ion business services nationwide launch consumer services select markets well increased sales capacity transoceanic cable increased costs services products 2000 1999 driven growth data services 1999 increase also impacted increases network equipment operating leases expense selling general administrative sga expense decreased 4 2000 increased 19 1999 2000 decrease due strong emphasis cost control 1999 increase mainly reflects overall growth business well increased marketing promotions support products services including rollout airline alliance program enabled customers earn frequent flyer miles used sprints services sga expense includes costs associated continued development deployment activities sprint ion including costs systems operations development product development advertising associated market launches depreciation amortization expense increased 7 2000 13 1999 increases mainly reflect rapidly increasing asset base sprint ion well increased asset base enhance network reliability meet increased demand voice datarelated services upgrade capabilities providing new products services local division following local division discussion assumes transfer pricing changes sale customer service telemarketing organization sales exchanges occurred beginning 1998 see net operating revenueslocal division details local division operating expenses increased 1 2000 increased 5 1999 costs services products include costs operate maintain local network costs equipment sales costs decreased 1 2000 increased 6 1999 2000 decrease due decline equipment sales success cost control initiatives 1999 increase driven customer access line growth increased equipment sales increased emphasis service levels increased telemarketing expenses storm related costs sga expense decreased 1 2000 remained flat 1999 2000 decrease due strong emphasis cost control 1999 increased marketing costs promote new products services increased customer service costs related customer access line growth offset strong emphasis cost control depreciation amortization expense increased 7 2000 9 1999 mainly increased capital expenditures switching transport technologies shorter asset lives product distribution directory publishing businesses product distribution directory publishing businesses costs services products increased 9 2000 increased 1 1999 reflecting increased equipment sales 2000 increase also due consolidation directory publishing partnership sga expense increased 14 2000 1999 2000 increase due costs related transformation product distribution business webenabled business well consolidation directory publishing partnership 1999 increase result staffing demands related nonaffiliated sales growth i7 sprint pcs group pcs groups 1999 results operations reflect first full year combined results pcs restructuring pcs groups 1998 results operations included sprintcoms operating results well sprint pcs operating results consolidated basis entire year see pro forma sprint pcs group section discussion pro forma results operations 2000 operating expenses include nonrecurring charge 24 million costs associated terminated worldcom merger 1998 operating expenses include writeoff 179 million associated cost nine inprocess research development projects acquired connection pcs restructuring pcs group markets products multiple distribution channels including retail stores well retail outlets equipment sales one retail chain subsequent service revenues generated sales customers accounted 25 net operating revenues 2000 28 1999 25 1998 pro forma sprint pcs group provide meaningful analysis pcs groups underlying operating results following supplemental discussion presents 1998 pro forma basis assumes pcs restructuring writeoff acquired process research development costs occurred prior 1998 net operating revenues net operating revenues include subscriber revenues sales handsets accessory equipment subscriber revenues consist monthly recurring charges usage charges activation fees subscriber revenues increased 94 2000 mainly reflecting increase average number customers pcs group added 38 million customers 2000 end year 95 million customers 300 metropolitan markets nationwide average monthly service revenue per user arpu 59 2000 compared 58 1999 60 1998 increase arpu 2000 partly due implementation activation charges second quarter subscriber revenues also aided increase resale customers companies pcs group serves wholesale basis added 238000 customers 2000 ending year approximately 310000 customers 2000 customer churn rate improved 28 34 1999 33 1998 improvement reflects expanded network coverage success several customer retention initiatives revenues sales handsets accessories approximately 14 net operating revenues 2000 17 1999 18 1998 part pcs groups marketing plans handsets normally sold prices pcs groups cost operating expenses costs services products mainly include handset accessory costs switch cell site expenses networkrelated costs increased 25 2000 79 1999 reflecting significant growth customers expanded market coverage partly offset reduction handset unit costs sga expense mainly includes marketing costs promote products services well salary benefit costs sga expense increased 25 2000 70 1999 reflecting expanded workforce support subscriber growth increased marketing selling costs acquisition costs per gross customer addition including equipment subsidies marketing costs improved approximately 19 2000 26 1999 lower handset unit costs scale benefits greater customer additions contributed improvement cash costs per user ccpu consists costs service revenues service delivery general administrative costs ccpu 35 2000 48 1999 73 1998 improvements reflect successful expense management scale benefits resulting increased customer base depreciation amortization expense consists mainly depreciation network assets amortization intangible assets intangible assets include goodwill pcs licenses customer base microwave relocation costs assembled workforce i8 depreciation amortization expense increased 23 2000 47 1999 mainly reflecting depreciation network assets placed service 2000 1999 increases also reflect amortization intangible assets acquired cox pcs purchase 1999 second quarter nonoperating items interest expense effective interest rates following table reflect interest expense longterm debt interest costs shortterm borrowings classified longterm debt deferred compensation plans customer deposits excluded distort effective interest rates longterm debt 1 effective interest rate longterm debt 1998 pro forma basis sprint pcs longterm debt included sprints outstanding longterm debt balance year sprints effective interest rate longterm debt decreased 1999 2000 1998 fourth quarter sprint refinanced 33 billion pcs groups debt borrowings lower interest rates decreases also reflect additional borrowings lower interest rates partners loss sprint pcs sprint pcs results operations 1998 consolidated entire year cable partners share losses pcs restructuring date reflected partners loss sprint pcs consolidated statements operations income expense net income expense consisted following dividend interest income years reflects dividends earned cost method investments interest earned temporary investments 1998 also reflects interest earned loans unconsolidated affiliates interest earned partner contributions sprint pcs partners prior pcs restructuring interest earned shortterm investments following sprints 50 billion debt offering late 1998 equity net losses affiliates mainly includes losses intelig call net earthlink pegaso 2000 increase mainly due increased intelig losses pegaso pcs groups 2000 second quarter initial investment gain sales assets 2000 include sale independent publishing operation sale certain wireless customers associated network infrastructure 1999 gains include gain sale investment security gain sale network infrastructure 1998 gains mainly reflect net gains sales local exchanges net losses investments 2000 mainly include writedowns certain equity investments income taxes sprints consolidated effective tax rates 179 2000 305 1999 437 1998 see note 9 notes consolidated financial statements information differences caused effective income tax rates vary statutory federal rate income taxes related continuing operations discontinued operation net 2000 first quarter sprint sold interest global one france telecom deutsche telekom ag sprint received 11 billion cash repaid 276 million advances entire stake global one result sprints sale interest global one sprints gain sale equity share results global one reported discontinued operation periods presented 2000 sprint recorded aftertax gain related sale interest global one 675 million sprint recorded aftertax losses related global one 130 million 1999 135 million 1998 extraordinary items net 2000 sprint redeemed prior scheduled maturities 25 million fon groups debt 127 million pcs groups debt borrowings interest rates ranging 78 97 resulted 4 million tax extraordinary loss sprint 1999 sprint redeemed prior scheduled maturities 575 million broadband fixed wireless companies debt assumed fon group 22 billion pcs groups revolving credit facilities borrowings interest rates ranging 56 145 resulted 60 million aftertax extraordinary loss sprint i9 1998 sprint redeemed prior scheduled maturities 138 million fon groups debt 33 billion pcs groups debt borrowings interest rates ranging 79 93 resulted 36 million tax extraordinary loss sprint financial condition sprints consolidated assets increased 34 billion 2000 net property plant equipment increased 33 billion reflecting capital expenditures support pcs network buildout long distance local network enhancements sprint ion development hardware deployment partly offset depreciation network asset sales investments affiliates assets increased 715 million mainly reflecting capital contributions sprints equity method investees partly offset equity net losses affiliates writedown certain equity method investments offsetting decreases sprints consolidated assets primarily include exchange investments equity securities certain notes payable writedown goodwill sale net assets global one discontinued operation sprints debttocapital ratio 573 yearend 2000 versus 553 yearend 1999 see liquidity capital resources information changes sprints consolidated balance sheets liquidity capital resources consolidated cash flows 1998 include sprint pcs cash flows pcs restructuring date operating activities operating cash flows increased 24 billion 2000 decreased 22 billion 1999 2000 increase reflects decreases working capital requirements fon group pcs group improved operating results pcs group 1999 decrease mainly reflects increases working capital fon group pcs group increased operating losses pcs group partly offset fon groups improved operating results investing activities fon groups capital expenditures totaled 41 billion 2000 35 billion 1999 32 billion 1998 global markets division capital expenditures incurred mainly enhance network reliability meet increased demand voice datarelated services upgrade capabilities providing new products services continue development hardware deployment sprint ion local division incurred capital expenditures accommodate access line growth provide additional capacity increased internet traffic expand capabilities providing enhanced services fon group capital expenditures incurred mainly sprints world headquarters campus pcs group capital expenditures totaling 30 billion 2000 26 billion 1999 11 billion 1998 incurred support pcs network buildout see pcs groups mda pro forma presentation capital expenditures 2000 investing activities include 14 billion proceeds sale fon groups interest global one investing activities also include proceeds sales assets totaling 258 million 2000 243 million 1999 230 million 1998 1999 sprint purchased several broadband fixed wireless companies 618 million excluding assumed debt investments loans affiliates net 889 million 2000 135 million 1999 423 million 1998 amounts investments affiliates accounted using equity method primarily earthlink intelig pegaso amounts 1998 also include contributions advances sprint pcs prior pcs restructuring i10 financing activities financing activities reflect net proceeds longterm debt 23 billion 2000 40 billion 1999 14 billion 1998 net proceeds used mainly capital investments fund pcs groups operating losses sprint paid dividends 448 million 2000 441 million 1999 430 million 1998 also included financing activities proceeds sprints employee stock purchase plan 182 million 2000 136 million 1999 24 million 1998 capital requirements sprints 2001 investing activities mainly consisting capital expenditures investments affiliates expected require cash 98 103 billion fon group capital expenditures expected range 60 62 billion pcs group capital expenditures expected 33 35 billion investments affiliates expected 450 550 million dividend payments expected approximate 455 million 2001 connection pcs restructuring sprint adopted tax sharing agreement provides allocation income taxes fon group pcs group sprint expects fon group continue make significant payments pcs group agreement expected pcs group operating losses near future using pcs groups net operating loss carryforwards payments reflect pcs groups incremental cumulative effect sprints consolidated federal state tax liability tax credit position pcs group received payments fon group totaling 872 million 2000 764 million 1999 20 million 1998 see note 1 notes consolidated financial statements allocation federal state income taxes details liquidity sprint mainly uses commercial paper fund shortterm working capital needs sprint also uses longterm bond market well debt markets fund needs sprint intends continue borrowing funds us international money capital markets bank credit markets fund capital expenditures operating working capital requirements sprint also intends sell 3 billion pcs common stock underwritten public offering market conditions indicate course action advisable sprint currently revolving credit facilities syndicates domestic international banks totaling 5 billion 3 billion 364 day facility renewed august 2000 expiring 2001 2 billion 5 year facility expiring 2003 commercial paper certain bank notes supported sprints revolving credit facilities certain notes payable relate separate revolving credit facility expires 2002 year end 2000 sprint total unused lines credit 18 billion june 2000 sprint issued 125 billion debt securities 4 billion shelf registration statement sec borrowings mature 2002 interest rates ranging 69 76 yearend 2000 sprint issued total 2 billion debt securities shelf january 2001 sprint issued debt securities using remainder shelf see note 18 notes consolidated financial statements june 1999 sprint entered 1 billion financing agreement sell continuous basis recourse undivided percentage ownership interests designated pool accounts receivable subsequent collections receivables sold investors typically reinvested new receivables yearend 2000 sprint borrowed 900 million weighted average interest rate 69 agreement borrowings mature 2002 borrowings sprint may incur ultimately limited certain debt covenants sprint could borrow additional 96 billion yearend 2000 restrictive debt covenants regulatory developments see regulatory developments fon groups mda pcs groups mda financial strategies general hedging policies sprint selectively enters interest rate swap cap agreements manage exposure interest rate changes debt sprint also enters forward contracts options foreign currencies reduce impact changes foreign exchange rates sprint seeks minimize counterparty credit risk stringent credit approval review processes selection creditworthy counterparties continual review i11 monitoring counterparties thorough legal review contracts sprint also controls exposure market risk regularly monitoring changes foreign exchange interest rate positions normal stress conditions ensure exceed established limits sprints derivative transactions used hedging purposes comply boardapproved policies senior management receives frequent status updates outstanding derivative positions interest rate risk management sprints interest rate risk management program focuses minimizing exposure interest rate movements setting optimal mixture floating fixed rate debt minimizing liquidity risk sprint uses simulation analysis assess interest rate exposure establish desired ratio floating fixedrate debt extent possible sprint manages interest rate exposure floatingtofixed ratio borrowings sometimes uses interest rate swaps caps adjust risk profile foreign exchange risk management sprints foreign exchange risk management program focuses hedging transaction exposure optimize consolidated cash flow sprints main transaction exposure results net payments made overseas telecommunications companies completing international calls made sprints domestic customers international operations material consolidated financial position results operations cash flows yearend 2000 addition foreign currency transaction gains losses material sprints 2000 results operations sprint entered significant foreign currency forward contracts derivative instruments hedge effects adverse fluctuations foreign exchange rates result sprint subject material foreign exchange risk recently issued accounting pronouncements see note 16 notes consolidated financial statements discussion recently issued accounting pronouncements i12 management report sprint corporations management responsible integrity objectivity information contained document management responsible consistency reporting information ensuring accounting principles generally accepted united states used discharging responsibility management maintains comprehensive system internal controls supports extensive program internal audits made organizational arrangements providing appropriate divisions responsibility established communication programs aimed assuring policies procedures principles business conduct understood practiced employees financial statements included document audited ernst young llp independent auditors audits conducted using auditing standards generally accepted united states reports included herein board directors responsibility financial statements pursued mainly audit committee audit committee composed entirely directors officers employees sprint meets periodically internal auditors independent auditors without management present assure respective responsibilities fulfilled internal independent auditors full access audit committee discuss auditing financial reporting matters w esrey william esrey chairman chief executive officer arthur b krause arthur b krause executive vice president chief financial officer i13 report independent auditors board directors shareholders sprint corporation audited accompanying consolidated balance sheets sprint corporation sprint december 31 2000 1999 related consolidated statements operations comprehensive income loss cash flows shareholders equity three years period ended december 31 2000 audits also included financial statement schedule listed index financial statements financial statement schedules financial statements schedule responsibility management sprint responsibility express opinion financial statements schedule based audits audit 1998 consolidated financial statements sprint spectrum holding company lp wholly owned subsidiary sprint december 31 1998 investment sprint 40 interest november 23 1998 discussed note 1 financial statements reflect revenues 12 billion year ended december 31 1998 consolidated financial statements financial statement schedule sprint spectrum holding company lp audited auditors whose report furnished us opinion insofar relates 1998 revenues sprint spectrum holding company lp based solely report auditors conducted audits accordance auditing standards generally accepted united states standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits report auditors provide reasonable basis opinion based audits report auditors financial statements referred present fairly material respects consolidated financial position sprint december 31 2000 1999 consolidated results operations cash flows three years period ended december 31 2000 conformity accounting principles generally accepted united states also opinion related financial statement schedule considered relation basic financial statements taken whole presents fairly material respects information set forth therein discussed note 7 consolidated financial statements 2000 sprint changed accounting service activation certain installation fee revenues ernst young llp kansas city missouri february 1 2001 report independent auditors board directors sprint corporation partners sprint spectrum holding company lp audited consolidated statements operations cash flows sprint spectrum holding company lp subsidiaries year ended december 31 1998 audit also included 1998 financial statement schedule ii financial statements schedule ii responsibility partnership management responsibility express opinion consolidated financial statements schedule ii based audit conducted audit accordance generally accepted auditing standards require plan perform audit obtain reasonable assurance whether consolidated financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures consolidated financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audit provides reasonable basis opinion consolidated financial statements present fairly material respects results operations cash flows sprint spectrum holding company lp subsidiaries year ended december 311998 conformity generally accepted accounting principles also opinion schedule ii considered relation basic 1998 consolidated financial statements taken whole presents fairly material respects information set forth therein deloitte touche llp kansas city missouri february 2 1999 i14 consolidated statements operations sprint corporation millions see accompanying notes consolidated financial statements i15 consolidated statements operations continued sprint corporation millions except per share data 1 discussed note 1 notes consolidated financial statements recapitalization occurred november 1998 result earnings per share sprint common stock reflects earnings recapitalization date earnings loss per share fon common stock pcs common stock reflects results date yearend 1998 2 2000 first quarter sprint effected twoforone stock split pcs common stock 1999 second quarter sprint effected two forone stock split sprint fon common stock result basic diluted earnings per common share weighted average common shares dividends sprint fon common stock sprint pcs common stock restated periods prior stock splits see accompanying notes consolidated financial statements i16 consolidated statements comprehensive income loss sprint corporation millions see accompanying notes consolidated financial statements i17 consolidated balance sheets sprint corporation millions except per share data see accompanying notes consolidated financial statements i18 consolidated statements cash flows sprint corporation millions see accompanying notes consolidated financial statements i19 consolidated statements shareholders equity sprint corporation millions see accompanying notes consolidated financial statements i20 notes consolidated financial statements sprint corporation 1 summary significant accounting policies tracking stock formation november 1998 sprints shareholders approved formation fon group pcs group creation fon stock pcs stock addition sprint purchased remaining ownership interests sprint spectrum holding company lp phillieco lp together sprint pcs minority interest cox communications pcs lp cox pcs sprint acquired ownership interests telecommunications inc comcast corporation cox communications inc cable partners exchange sprint issued cable partners special lowvote pcs shares warrants acquire additional pcs shares sprint also issued cable partners shares new class preferred stock convertible pcs shares purchase cable partners interests referred pcs restructuring 1999 second quarter sprint acquired remaining minority interest cox pcs also november 1998 sprint reclassified publicly traded common shares one share fon stock 12 share pcs stock recapitalization taxfree shareholders class common share owned france telecom ft deutsche telekom ag dt reclassified represent equity interest fon group pcs group entitles ft dt one share fon stock 12 share pcs stock transactions referred recapitalization connection pcs restructuring ft dt purchased 51 million additional pcs shares presplit basis maintain voting power sprint topup pcs stock intended reflect performance sprints wireless pcs operations fon stock intended reflect performance sprints operations basis consolidation presentation consolidated financial statements include accounts sprint wholly owned majorityowned subsidiaries sprint pcs results operations 1998 consolidated entire year cable partners share losses pcs restructuring date reflected partners loss sprint pcs consolidated statements operations sprint pcs financial position reflected consolidated basis yearend 1998 sprints investment sprint pcs accounted using equity method sprints cash flows include sprint pcs cash flows pcs restructuring date investments entities sprint exercises significant influence control accounted using equity method see note 3 consolidated financial statements prepared using accounting principles generally accepted united states principles require management make estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities reported amounts revenues expenses actual results could differ estimates certain prioryear amounts reclassified conform current year presentation reclassifications effect results operations shareholders equity previously reported classification operations sprint fon group global markets division global markets division provides broad suite communications services targeted domestic business residential customers multinational corporations communications companies services include domestic international voice data communications internet frame relay access transport web hosting virtual private networks managed security services broadband services sprint deploying integrated communications services referred sprint ionsm sprint ion extends sprints existing network capabilities customer enables sprint provide network infrastructure meet customers demands advanced services including integrated voice data internet video also expected foundation sprint provide advanced services competitive local service market sprint uses various advanced services lastmile technologies including dedicated access digital subscriber line xdsl expects use multipoint multichannel distribution services mmds global markets division also includes operating results cable tv service operations broadband fixed wireless companies 1999 acquisition dates 2000 sprint converted several markets served mmds capabilities cable tv services highspeed i21 data services global markets divisions operating results reflect development costs operating revenues expenses broadband fixed wireless services sprint intends provide broadband data voice services additional markets served capabilities included global markets division costs establishing international operations beginning 2000 division also includes fon groups investments earthlink inc internet service provider callnet long distance provider canada operating sprint brand name intelig long distance provider brazil certain telecommunications investments ventures local division local division consists mainly regulated local phone companies serving approximately 83 million access lines 18 states provides local services access phone customers carriers local network consumer long distance services customers within franchise territories sales telecommunications equipment long distance services within certain regional calling areas latas product distribution directory publishing businesses product distribution business provides wholesale distribution services telecommunications products directory publishing business publishes markets white yellow page phone directories sprint pcs group pcs group includes sprints wireless pcs operations operates 100 digital pcs wireless network united states licenses provide service nationwide using single frequency single technology year end 2000 pcs group together affiliates operated pcs systems 300 metropolitan markets including 50 largest us metropolitan areas allocation shared services sprint directly assigns possible certain general administrative costs fon group pcs group based actual use services direct assignment costs possible practical sprint uses indirect methods including time studies estimate assignment costs group sprint believes costs allocated comparable costs would incurred groups would operating standalone basis allocation shared services may change discretion sprint require shareholder approval allocation federal state income taxes sprint files consolidated federal income tax return certain state income tax returns include fon group pcs group results connection pcs restructuring sprint adopted tax sharing agreement provides allocation income taxes two groups fon groups income taxes calculated files returns exclude pcs group pcs groups income taxes reflect pcs groups incremental cumulative impact sprints consolidated income taxes intergroup tax payments satisfied date sprints related tax payment due refund received applicable tax authority tax sharing agreement applies tax years ending december 31 2001 periods december 31 2001 sprints board directors adopt tax sharing arrangement designed allocate tax benefits burdens fairly fon group pcs group allocation group financing activities groups managed sprint centralized basis debt incurred sprint behalf groups specifically allocated reflected financial statements applicable group interest expense allocated pcs group based interest rate substantially equal rate would able obtain third parties direct indirect wholly owned sprint subsidiary without benefit guaranty sprint member fon group interest rate higher rate sprint obtains borrowings difference sprints actual interest rate charged pcs group reflected reduction fon groups interest expense sprints centralized cash management program one group may advance funds group advances accounted shortterm borrowings groups bear interest market rate substantially equal rate group would able obtain third parties shortterm basis allocation group financing activities may change discretion sprint require shareholder approval income taxes sprint records deferred income taxes based temporary differences carrying amounts assets liabilities financial reporting purposes tax bases i22 revenue recognition sprint recognizes operating revenues services rendered products delivered customers service activation certain installation fees deferred amortized average life service sprints directory publishing business recognizes revenues directory services life related directory amortization method cash equivalents cash equivalents generally include highly liquid investments original maturities three months less stated cost approximates market value sprint uses controlled disbursement banking arrangements part cash management program outstanding checks excess cash balances included accounts payable totaled 636 million yearend 2000 204 million yearend 1999 sprint sufficient funds available fund outstanding checks presented payment investments equity securities investments equity securities classified available sale reported fair value estimated based quoted market prices gross unrealized holding gains losses reflected consolidated balance sheets adjustments shareholders equityaccumulated comprehensive income net related income taxes inventories fon group stated lower cost principally firstin firstout method market value inventories pcs group stated lower cost principally firstin firstout replacement value property plant equipment property plant equipment recorded cost generally ordinary asset retirements disposals charged accumulated depreciation gain loss recognized cost property plant equipment generally depreciated straightline basis estimated economic useful lives repair maintenance costs expensed incurred capitalized interest capitalized interest totaled 175 million 2000 151 million 1999 167 million 1998 capitalized interest mainly reflects capitalized costs related pcs groups network buildout pcs licenses well fon groups construction capital assets intangible assets sprint evaluates recoverability intangible assets events circumstances indicate assets might impaired sprint determines impairment comparing undiscounted future cash flows estimated generated assets respective carrying value event impairment exists loss recognized based amount carrying value exceeds fair value asset goodwill represents excess purchase price fair value net assets acquired business combinations accounted purchases goodwill amortized five 40 years using straightline method accumulated amortization totaled 259 million yearend 2000 210 million yearend 1999 pcs licenses pcs group acquired licenses federal communications commission operate pcs service provider licenses granted 10year terms renewals additional 10year terms license obligations met licenses recorded cost amortized straightline basis 40 years service begins specific geographic area accumulated amortization totaled 206 million yearend 2000 130 million yearend 1999 earnings per share earnings per share eps calculated consolidated basis pcs stock fon stock created part november 1998 pcs restructuring recapitalization time forward eps computed individually fon group pcs group 2000 first quarter sprint effected twoforone stock split pcs common stock 1999 second quarter sprint effected twoforone split fon common stock result basic diluted earnings per common share weighted average common shares sprint fon common stock sprint pcs common stock dividends sprint fon common stock restated periods prior stock splits fon groups convertible preferred dividends totaled 1 million 2000 1999 dilutive securities mainly options totaled 115 million shares 2000 192 million shares 1999 recapitalization date year end 1998 fon groups convertible preferred dividends totaled 01 million dilutive securities mainly options totaled 138 million shares dilutive securities pcs group mainly include options warrants convertible preferred stock securities dilutive effect loss per share pcs group incurred net losses 2000 1999 1998 result diluted loss per share equaled basic loss per share sprints convertible preferred dividends totaled 05 million 1998 recapitalization date dilutive securities options included i23 calculation diluted weighted average common shares totaled 78 million 1998 recapitalization stockbased compensation sprint adopted pro forma disclosure requirements statement financial accounting standards sfas 123 stockbased compensation continues apply accounting principles board opinion 25 accounting stock issued employees related interpretations stock option employee stock purchase plans 2 business combinations broadband fixed wireless companies second half 1999 sprint acquired peoples choice tv corp pctv american telecasting inc ati videotron usa operating subsidiaries wbs america llc companies broadband fixed wireless licenses midwest southwest north central western southeastern united states sprint paid 618 million companies outstanding stock assumed 575 million companies debt notes redeemed prior scheduled maturities 1999 fourth quarter see note 10 acquisitions accounted purchases results companies included sprints consolidated financial statements acquisition dates excess purchase price net liabilities acquired totaled 835 million allocated goodwill amortized straightline basis 40 years cox pcs 1999 second quarter cox communications inc exercised put option requiring sprint purchase remaining 408 interest cox pcs sprints existing 592 interest cox pcs reflected sprints consolidated financial statements consolidated basis sprint issued 243 million shares lowvote pcs stock presplit basis exchange remaining interest shares valued 11 billion sprint accounted transaction purchase excess purchase price fair value net liabilities acquired allocated follows goodwill amortized straightline basis 40 years pcs restructuring november 1998 sprint acquired remaining interest sprint pcs except minority interest cox pcs cable partners exchange sprint issued cable partners 1951 million lowvote shares pcs stock 125 million warrants purchase additional shares pcs stock pre split basis purchase price 32 billion addition sprint issued cable partners shares new class preferred stock convertible pcs shares sprint accounted transaction purchase excess purchase price fair value net liabilities acquired allocated follows goodwill amortized straightline basis 40 years respect purchase price attributed inprocess research development iprd acquired iprd limited significant new products development intended address new emerging market needs requirements rapid adoption internet rapid convergence voice data video routine research development projects minor refinements normal enhancements production activities included acquired iprd income approach primary technique utilized valuing acquired iprd approach included limited analysis 1 markets product 2 completion costs projects 3 expected cash flows attributable iprd projects 4 risks related achieving cash flows 5 stage development project issue alternative future use extensively evaluated technologies completed could economically used intended purposes i24 pro forma results following unaudited pro forma consolidated results operations assume pcs restructuring recapitalization topup writeoff acquired iprd costs occurred prior 1998 pro forma amounts comparative purposes necessarily represent actual results operations would transactions occurred prior 1998 indicate results future operations pro forma results follows 3 investments securities cost investments securities 13 million yearend 2000 154 million yearend 1999 gross unrealized holding gains 53 million yearend 2000 310 million yearend 1999 accumulated unrealized gains investments securities net income taxes impact related debt instruments 33 million year end 2000 84 million yearend 1999 included accumulated comprehensive income sprint consolidated balance sheets 2000 fourth quarter sprint recorded writedown securities cost basis 48 million due decline market value considered temporary 48 million charge included income expense net sprints consolidated statements operations 2000 sprint used equity securities cost basis 94 million retire debt instruments see note 10 sprint recorded 45 million gain associated transaction included income expense net sprints consolidated statements operations yearend 1999 fair value equity securities classified current assets 1999 sprint sold availableforsale securities cost basis 14 million 104 million 90 million gain included income expense net sprints consolidated statements operations investments advances affiliates yearend 2000 investments accounted using equity method consisted fon groups investments intelig earthlink strategic investments pcs groups investment pegaso telecomunicaciones sa de cv wireless pcs operation mexico february 2001 sprint modified relationship earthlink resulted investment accounted cost method investment beginning month see note 18 2000 fourth quarter sprint completed analysis valuation equity method investments response changes overall telecommunications industry analysis resulted 87 million charge writedown equity method investment included income expense net sprints consolidated statements operations november 1998 sprint assumed 100 ownership sprint pcs result sprint consolidated sprint pcs results 1998 combined unaudited summarized financial information 100 basis entities accounted using equity method follows 4 asset writedown 2000 fourth quarter sprint completed analysis valuation various fon group assets resulting reassessment fon groups business strategies response recent changes within overall telecommunications industry analysis resulted 238 million pretax charge primarily related impairment goodwill associated global markets divisions paranet operations i25 5 merger termination july 13 2000 sprint worldcom inc announced boards directors companies terminated merger agreement previously announced october 1999 result regulatory opposition merger 2000 second quarter sprint recognized onetime pretax charge 187 million costs associated terminated merger 6 discontinued operation 2000 first quarter sprint sold interest global one france telecom deutsche telekom ag sprint received 11 billion cash repaid 276 million advances entire stake global one result sprints sale interest global one sprints gain sale equity share results global one reported discontinued operation periods presented 2000 sprint recorded aftertax gain related sale interest global one 675 million sprint recorded aftertax losses related global one totaling 130 million 1999 135 million 1998 7 cumulative effect change accounting principle sprint implemented sec staff accounting bulletin 101 revenue recognition financial statements fourth quarter 2000 effective beginning year bulletin requires activation installation fee revenues represent separate earnings process deferred recognized estimated service period associated incremental direct costs may also deferred extent revenues subject deferral fon group recorded 2 million charge cumulative effect change accounting principle 2000 effect change nine months ended september 30 2000 decrease revenues expenses 68 million 8 employee benefit plans defined benefit pension plan fon group pcs group employees covered noncontributory defined benefit pension plan benefits plan participants belonging unions based negotiated schedules nonunion participants pension benefits based years service participants compensation sprints policy make plan contributions equal actuarially determined amount consistent federal tax regulations funding objective accumulate funds relatively stable rate participants working lives benefits fully funded retirement following table shows changes projected benefit obligation following table shows changes plan assets yearend funded status amounts recognized consolidated balance sheets plan follows net pension credit consisted following i26 defined contribution plans sprint sponsors defined contribution employee savings plans covering fon group pcs group employees participants may contribute portions pay plans union employees sprint matches contributions based negotiated amounts sprint also matches contributions nonunion employees fon stock pcs stock matching equal 50 participants contributions 6 pay addition sprint may discretion board directors provide additional matching contributions based performance fon stock pcs stock compared telecommunications companies stock sprints matching contributions 112 million 2000 83 million 1999 54 million 1998 yearend 2000 plans held 34 million fon shares 31 million pcs shares prior january 1999 sprint pcs sponsored savings retirement program certain employees sprint pcs matched contributions equal 50 contribution participant first 6 employee elected contribute expense savings plan 7 million 1998 postretirement benefits sprint provides postretirement benefits mainly medical life insurance fon group pcs group employees retiring certain dates eligible benefits cost reduced cost employees retiring certain dates eligible benefits sharedcost basis sprint funds accrued costs benefits paid following table shows changes accumulated postretirement benefit obligation amounts included consolidated balance sheets yearend follows assumed 2001 annual health care cost trend rates 90 medicare eligibility 95 medicare eligibility rates gradually decrease ultimate level 5 2010 1 increase rates would increased 2000 accumulated postretirement benefit obligation estimated 161 million 1 decrease would reduced obligation estimated 119 million net postretirement benefits cost consisted following measurement purposes assumed 2000 weighted average annual health care cost trend rates 96 medicare eligibility 100 medicare eligibility rates gradually decrease ultimate level 5 2010 1 increase rates would increased 2000 postretirement benefits service interest costs estimated 17 million 1 decrease would reduced 2000 postretirement benefits service interest costs estimated 12 million 9 income taxes income tax expense benefit allocated continuing operations consists following i27 differences caused sprints effective income tax rates vary 35 federal statutory rate income taxes related continuing operations follows income tax expense benefit allocated items follows 1 amounts recorded directly shareholders equity accumulated comprehensive income consolidated balance sheets 2 amounts recorded directly shareholders equity capital excess par stated value consolidated balance sheets sprint recognizes deferred income taxes temporary differences carrying amounts assets liabilities financial statement purposes tax bases sources differences give rise deferred income tax assets liabilities yearend 2000 1999 along income tax effect follows management believes likely deferred income tax assets net valuation allowance realized based current income tax laws expectations future taxable income stemming reversal existing deferred tax liabilities ordinary operations uncertainties surrounding income tax law changes shifts operations state taxing jurisdictions future operating income levels may however affect ultimate realization deferred income tax assets valuation allowance related deferred income tax assets increased 118 million 2000 231 million 1999 sprint acquired approximately 193 million potential tax benefits related net operating loss carryforwards acquisitions broadband i28 fixed wireless companies 1998 sprint acquired approximately 229 million potential tax benefits related net operating loss carryforwards pcs restructuring benefits acquisitions pcs restructuring subject certain realization restrictions various tax laws valuation allowance provided total benefits subsequently recognized reduce goodwill noncurrent intangible assets resulting application purchase method accounting transactions connection pcs restructuring pcs group required reimburse fon group cable partners net operating loss tax credit carryforward benefits generated prior pcs restructuring realization pcs group produces cash benefit would otherwise realized reimbursement equal 60 net cash benefit received pcs group made fon group cash cable partners shares series 2 pcs stock carryforward benefits subject requirement total 259 million includes 229 million acquired pcs restructuring yearend 2000 sprint federal operating loss carryforwards approximately 47 billion state operating loss carryforwards approximately 81 billion related loss carryforwards federal tax benefits 16 billion state tax benefits 575 million addition sprint available income tax purposes federal alternative minimum tax credit carryforwards 33 million state alternative minimum tax credit carryforwards 5 million federal alternative minimum tax net operating loss carryforwards 22 billion state alternative minimum tax net operating loss carryforwards 682 million loss carryforwards expire varying amounts 2020 10 longterm debt capital lease obligations sprints consolidated longterm debt capital lease obligations yearend follows 1 borrowings incurred sprint allocated applicable group sprints weighted average interest rate related borrowings 67 yearend 2000 66 yearend 1999 weighted average interest rate related borrowings allocated pcs group approximately 88 yearend 2000 87 yearend 1999 see note 1 detailed description sprint allocates financing groups 2 consolidated debt equal total pcs group fon group debt due intergroup debt eliminated consolidation fon group investment pcs groups senior discount notes totaling 169 million yearend 2000 including 65 million classified current 150 million yearend 1999 i29 scheduled principal payments excluding reclassified shortterm borrowings next five years follows 1 2001 scheduled principal payments equal current maturities amounts reflect maturity value scheduled payment pcs groups senior discount notes included schedule payments pcs group debt made japanese yen needed satisfy obligations currently held deposit pcs group included assets pcs groups combined balance sheets scheduled yen payments included schedule 1 million 2003 20 million 2004 43 million 2005 sprint shortterm borrowings sprint bank notes payable totaling 676 million yearend 2000 670 million yearend 1999 addition sprint commercial paper borrowings totaling 33 billion yearend 2000 16 billion yearend 1999 though borrowings renewable various dates throughout year classified longterm debt sprints intent ability refinance borrowings longterm basis unused credit facilities unissued debt sprints shelf registration sprint currently revolving credit facilities syndicates domestic international banks totaling 5 billion 3 billion 364 day facility renewed august 2000 expiring 2001 2 billion 5 year facility expiring 2003 commercial paper certain bank notes supported sprints revolving credit facilities certain notes payable relate separate revolving credit facility expires 2002 year end 2000 sprint total unused lines credit 18 billion bank notes outstanding weighted average interest rates 71 yearend 2000 63 yearend 1999 weighted average interest rate commercial paper 75 yearend 2000 64 yearend 1999 longterm debt june 2000 sprint issued 125 billion debt securities 4 billion shelf registration statement sec borrowings mature 2002 interest rates ranging 69 76 yearend 2000 sprint issued total 2 billion debt securities shelf january 2001 sprint issued securities using remaining amount shelf see note 18 june 1999 sprint entered 1 billion financing agreement sell continuous basis recourse undivided percentage ownership interests designated pool accounts receivable subsequent collections receivables sold investors typically reinvested new receivables yearend 2000 sprint borrowed 900 million weighted average interest rate 69 agreement borrowings mature 2002 sprint fon group 2000 fon group received allocation 344 million debt sprint debt mainly used repay existing debt fund new capital investments see note 1 detailed description sprint allocates debt groups 2000 fourth quarter sprint redeemed prior scheduled maturities 25 million fon group debt weighted average interest rate 96 resulted 1 million aftertax extraordinary loss fon group 2000 first quarter sprint exchanged 66 million common shares sbc communications inc certain notes payable fon group notes market value 275 million maturity date 316 million year end 1999 notes interest rate 83 1999 fourth quarter sprint redeemed prior scheduled maturities 575 million assumed broadband fixed wireless companies debt interest rates ranging 131 145 resulted 39 million aftertax extraordinary loss fon group 1998 sprint redeemed prior scheduled maturities 138 million fon group debt interest rates ranging 79 93 resulted 5 million aftertax extraordinary loss fon group fon group gross property plant equipment totaling 161 billion either pledged security first mortgage bonds certain notes restricted use mortgaged property sprint pcs group 2000 sprint allocated 33 billion debt pcs group debt mainly used fund new capital investments repay existing debt i30 2000 first quarter sprint repaid prior scheduled maturities 127 million pcs groups notes payable fcc notes interest rate 78 resulted 3 million aftertax extraordinary loss 1999 pcs group repaid 22 billion revolving credit facilities borrowings prior scheduled maturities resulted 21 million aftertax extraordianary loss 1998 sprint redeemed prior scheduled maturities 33 billion pcs group debt weighted average interest rate 83 resulted 31 million aftertax extraordinary loss pcs group sprint including fon group pcs group complied restrictive financial covenants relating debt arrangements year end 2000 11 common stock sprint fon stock sprint pcs stock december 14 1999 sprint board directors authorized twoforone stock split sprints pcs common stock form stock dividend distributed february 4 2000 pcs shareholders april 20 1999 sprint board directors authorized twoforone stock split sprints fon common stock form stock dividend distributed june 4 1999 fon shareholders share earnings per share dividends per share amounts restated reflect stock splits november 1998 sprint recapitalized common stock fon stock pcs stock restructured interests sprint pcs result sprint created following series common stock series 1 fon stock series 1 pcs stock existing sprint common shareholders received one share fon stock 12 share pcs stock sprint share owned authorized shares totaled 25 billion series 1 fon stock 125 billion series 1 pcs stock shares issued yearend 2000 7102 million 5074 million respectively shares outstanding yearend 2000 7098 million 5074 million respectively series 2 fon stock series 2 pcs stock cable partners received pcs shares ownership interests sprint pcs shares 110 voting power series 1 series 3 pcs shares authorized shares totaled 500 million series 2 fon stock series 2 pcs stock pcs shares issued outstanding yearend 2000 3554 million fon shares issued series 3 fon stock series 3 pcs stock maintain voting power ft dt purchased combined total 51 million series 3 pcs shares presplit basis 85 million time restructuring series 3 fon pcs stock also used whenever ft dt purchase stock maintain voting power could used ft dt elect convert class common shares fon pcs stock authorized shares totaled 12 billion series 3 fon stock 600 million series 3 pcs stock shares issued outstanding yearend 2000 886 million 703 million respectively yearend 1999 sprint 22 thousand pcs treasury shares recorded cost pcs shares held fon group represented intergroup interest pcs group eliminated sprint consolidated financial statements beginning november 2001 sprint option convert pcs shares fon shares class series 3 common stock ft dt series 3 fon common shares series 3 pcs common shares class common shares represent approximately 19 sprints voting power year end 2000 sprint declared paid class common dividends 50 cents per share 2000 625 cents per share 1999 100 per share 1998 february 1999 ft dt purchased aggregate 122 million series 3 pcs shares 169 million conjunction registered public offering 488 million shares series 1 pcs stock 1999 ft dt purchased aggregate 12 million shares series 3 fon shares 16 million additional series 3 pcs shares 100 million maintain voting power additionally 1999 ft dt bought series 1 fon series 1 pcs shares open market maintain voting power shares converted series 3 fon series 3 pcs shares ft dt purchase fon pcs shares sprint open market 2000 i31 november 1998 862 million class common shares reclassified represent equity interest fon group 862 million shares pcs group 431 million shares ft dt maintained voting power sprint purchasing additional 102 million series 3 pcs shares 85 million ft dt may purchase additional shares fon stock pcs stock sprint maintain current ownership level ft dt entered standstill agreement sprint restricting ability acquire sprint voting shares intended agreements sprint standstill agreement also contains customary provisions restricting ft dt initiating participating proposal respect control sprint february 2001 registration statement covering fon shares ft dt filed sec see note 18 pcs preferred stock part pcs restructuring sprint issued cable partners new class convertible preferred stock convertible pcs shares common stock reserved future grants yearend 2000 common stock reserved future grants stock option plans future issuances various arrangements follows sprint fon group sprint pcs group shareholder rights plan sprints shareholder rights plan one half preferred stock purchase right attached share fon stock pcs stock one preferred stock purchase right attached share class common stock rights may redeemed sprint 001 per right expire june 2007 unless extended rights exercisable certain takeover events occur entitled following fon stock right entitles holder purchase 11000 share unit par preferred stocksixth series 275 per unit pcs stock right entitles holder purchase unit par preferred stockeighth series 150 per unit class right entitles holder purchase 12 unit preferred stocksixth series 13750 per 12 unit 14 unit preferred stockeighth series 3750 per 14 unit preferred stocksixth series voting cumulative accrues dividends quarterly basis generally equal greater 100 per share 2000 times total per share amount fon stock common dividends preferred stock eighth series features sixth series applies pcs shares preferred stocksixth series preferred stockeighth series issued outstanding yearend 2000 1999 indentures financing agreements certain sprints subsidiaries contain provisions limiting cash dividend payments subsidiary common stock held sprint result 545 million subsidiaries 16 billion total retained earnings restricted yearend 2000 flow cash form advances subsidiaries sprint generally restricted 12 stockbased compensation due recapitalization fon pcs stock splits number shares related exercise prices adjusted maintain total fair value common stock underlying options employee stock purchase plan espp share elections relationship market value common stock exercise prices options espp share elections 2000 fon group paid 80 million pcs group compensate net amount pcs stockbased compensation granted fon group employees fon stockbased compensation granted pcs group employees value paid stockbased compensation determined time grants i32 2000 options outstanding one year date shareholder approval sprints proposed merger worldcom became fully vested date 2000 sprint board directors approved exchange program give sprint employees choice cancel stock options granted 2000 exchange equal number new options future new options granted may 11 2001 exercise price market price date members sprints board directors eligible exchange program options cancelled november 10 2000 terms exchange program 162 million fon options 131 million pcs options management incentive stock option plan management incentive stock option plan misop sprint granted stock options employees eligible receive annual incentive compensation eligible employees entitled receive stock options lieu portion target incentive sprints management incentive plans options generally become exercisable december 31 year granted maximum term 10 years misop options granted exercise prices equal market price underlying common stock grant date yearend 2000 authorized fon shares plan approximated 274 million authorized pcs shares approximated 168 million authorized number shares increased approximately 72 million fon shares 78 million pcs shares january 1 2001 stock option plan sprint stock option plan sop sprint granted stock options officers key employees options generally become exercisable rate 25 per year beginning one year grant date maximum term 10 years sop options granted exercise prices equal market price underlying common stock grant date yearend 2000 authorized fon shares plan approximated 548 million authorized pcs shares approximated 426 million 2000 sprint granted special stock options retention executives agreed defer benefit accelerated vesting stock options close cancellation proposed worldcom merger options designed retain executives following sprints special meeting shareholders connection proposed worldcom merger addition sprint granted portion annual options grants accelerated normally expected made early 2001 officers key employees granting options accelerated help retain employees 1997 sprint granted performancebased stock options certain key executives fon group expensed 5 million 2000 9 million 1999 14 million 1998 pcs group expensed 3 million 2000 5 million 1999 1 million 1998 related performancebased stock options 2000 amount reflects expense date shareholder approval proposed worldcom merger time options became vested additional 29 million expense related options included asset writedown merger related costs sprints consolidated statements operations employees stock purchase plan sprints espp employees may elect purchase fon common stock pcs common stock price equal 85 market value grant exercise date whichever less yearend 2000 authorized fon shares plan approximated 121 million authorized pcs shares approximated 76 million sprint pcs longterm incentive plan prior 1999 pcs group employees meeting certain eligibility requirements included sprint pcs longterm incentive plan ltip plan participants received appreciation units based independent appraisals appreciation units based annual independent appraisals 1997 plan year appreciation units vested 25 per year beginning one year grant date also expire 10 years connection pcs restructuring sprint discontinued sprint pcs ltip plan appreciation units converted pcs shares options buy pcs shares based formula designed replace appreciated value units beginning july 1998 vested units yearend 1998 participants could elect receive appreciation cash shares options elected receive shares options 1999 sprint began issuing shares options became exercisable based vesting requirements converted units end 2000 replacement options shares fully vested pro forma disclosures pro forma net income loss earnings loss per share determined sprint used fair value method accounting stock option grants espp share elections method compensation expense recognized applicable vesting periods based i33 shares option related fair values grant date fon groups pro forma net income 1668 million 2000 1434 million 1999 pro forma diluted eps 188 2000 163 1999 recapitalization date yearend 1998 fon groups pro forma net income 103 million pro forma diluted eps 012 fon groups pro forma net income reduced 10 million 001 per fon share 2000 1999 19 million 002 per fon share 1998 due additional compensation resulting modifications terms options espp share elections related recapitalization pcs groups pro forma net loss 2135 million 2000 2578 million 1999 pro forma diluted loss per share 222 2000 282 1999 application sfas 123 material impact pcs groups pro forma net loss recapitalization date yearend 1998 prior recapitalization date sprints pro forma net income 785 million 1998 pro forma diluted earnings per share 179 1998 fair value disclosures following tables reflect weighted average fair value per option granted well significant weighted average assumptions used determining fair values using blackscholes pricing model fon common stock pcs common stock sprint common stock employees stock purchase plan 2000 fon group pcs group employees elected purchase 23 million fon 54 million pcs espp shares using blackscholes pricing model weighted average fair value 1299 per share fon election 2068 per share pcs election 1999 fon group pcs group employees elected purchase 13 million fon 65 million pcs espp shares using blackscholes pricing model weighted average fair value 1112 per share fon election 808 per share pcs election 1998 fon group employees elected purchase 21 million espp shares election weighted average fair value using black scholes pricing model 1390 per share i34 stock options stock option plan activity follows fon common stock pcs common stock sprint common stock following tables summarize outstanding exercisable options yearend 2000 fon common stock pcs common stock i35 13 commitments contingencies litigation claims assessments december 2000 amalgamated bank institutional shareholder filed derivative action purportedly behalf sprint certain current former officers directors jackson county missouri circuit court complaint alleges individual defendants breached fiduciary duties sprint unjustly enriched making undisclosed amendments sprints stock option plans failing disclose certain information concerning regulatory approval proposed merger sprint worldcom overstating sprints earnings first quarter 2000 plaintiff seeks damages paid sprint unspecified amount two additional substantially identical derivative actions shareholders filed various suits arising ordinary course business pending sprint management cannot predict final outcome actions believes material sprints consolidated financial statements commitments pcs group purchase commitments various vendors purchase handsets equipment 2001 outstanding commitments yearend 2000 approximately 830 million purchases commitments 2000 totaled approximately 2 million operating leases sprints minimum rental commitments yearend 2000 noncancelable operating leases consisting mainly leases data processing equipment real estate cell switch sites office space follows sprints gross rental expense totaled 10 billion 2000 890 million 1999 730 million 1998 rental commitments subleases contingent rentals executory costs significant table excludes renewal options related certain cell switch site leases renewal options generally fiveyear terms may exercised time 14 financial instruments fair value financial instruments sprint estimates fair value financial instruments using available market information appropriate valuation methodologies result following estimates necessarily represent values sprint could realize current market exchange although management aware factors would affect yearend 2000 estimated fair values amounts comprehensively revalued purposes financial statements since date therefore estimates fair value yearend 2000 may differ significantly amounts presented carrying amounts estimated fair values sprints financial instruments yearend follows carrying amounts sprints cash equivalents approximate fair value yearend 2000 1999 estimated fair value investments equity securities based quoted market prices estimated fair value long term debt based quoted market prices publicly traded issues estimated fair value issues based present value estimated future cash flows using discount rate based risks involved concentrations credit risk sprints accounts receivable subject concentration credit risk sprint controls credit risk interest rate swap agreements foreign currency contracts credit approvals dollar exposure limits internal monitoring procedures event nonperformance counterparties sprints accounting loss would limited net amount would entitled receive terms applicable interest rate swap agreement foreign currency contract i36 however sprint anticipate nonperformance counterparties agreements interest rate swap agreements sprint uses interest rate swap agreements part interest rate risk management program net interest paid received related agreements recorded using accrual method recorded adjustment interest expense sprint interest rate swap agreements notional amounts 10 billion outstanding yearend 2000 598 million outstanding yearend 1999 net interest expense related interest rate swap agreements 2 million 2000 1 million 1999 01 million 1998 sprint deferred losses termination interest rate swap agreements used hedge portion 50 billion debt offering losses totaling 75 million amortized interest expense using effective interest method term debt yearend 2000 remaining unamortized deferred loss totaled 61 million foreign currency contracts part foreign currency exchange risk management program sprint purchases sells overthecounter forward contracts options various foreign currencies sprint outstanding open forward contracts buy various foreign currencies 23 million yearend 2000 14 million yearend 1999 sprint outstanding open purchase option contracts call various foreign currencies 1 million yearend 1999 contracts open yearend 2000 premium paid option deferred amortized life option forward contracts options open yearend 2000 1999 original maturities six months less net gain loss recorded reflect fair value contracts recorded period incurred including hedge costs net gain 04 million recorded 2000 net loss 03 million recorded 1999 net loss 06 million recorded 1998 15 additional financial information segment information fon group operates three business segments based sprint manages fon groups operations assesses performance global markets division local division product distribution directory publishing businesses see note 14 sprint fon groups notes combined financial statements information fon groups business segments pcs group businesses operate single segment sprint generally accounts transactions segments based fully distributed costs sprint believes approximates fair value i37 segment financial information follows nm meaningful 1 fon group revenues eliminated consolidation consist principally longdistance services provided pcs group resale pcs customers internal business use telemarketing services provided fon group pcs sales programs 95 sprints revenues domestic customers located within united states equipment sales one retail chain subsequent service revenues generated sales customers represent approximately 25 pcs groups net operating revenues 2000 28 1999 25 1998 i38 supplemental cash flows information sprints cash paid received interest income taxes follows sprints noncash activities included following see note 2 details assets liabilities acquired business combinations related party transactions cable partners advanced phillieco 26 million 1998 advance repaid 1999 first quarter 16 recently issued accounting pronouncements june 1998 financial accounting standards board issued sfas 133 accounting derivative instruments hedging activities standard requires derivatives recorded balance sheet either assets liabilities measured fair value gains losses changes derivative values accounted based derivative used whether qualifies hedge accounting statement adopted january 2001 material impact sprints consolidated financial statements september 2000 financial accounting standards board issued sfas 140 accounting transfers servicing financial assets extinguishments liabilitiesa replacement fasb statement 125 statement revises standards accounting securitizations transfers financial assets provides consistent standards distinguishing transfers sales secured borrowings statement effective transactions occurring march 31 2001 expected material impact sprints consolidated financial statements i39 17 quarterly financial data unaudited 1 see notes 3 4 notes consolidated financial statements information nonrecurring charges recorded 2000 fourth quarter 2 certain reclassifications made net operating revenues operating expenses amounts reported 2000 reports form 10q conform industry events practices reclassifications impact operating income loss previously reported 3 2000 fourth quarter sprint adopted sec staff accounting bulletin 101 revenue recognition financial statements sab 101 required sab 101 2000 net operating revenues restated amounts reported 2000 quarterly reports form 10q net operating revenues reduced 4 million 2000 first quarter 31 million 2000 second quarter 33 million 2000 third quarter sprint also restated 2000 first quarter net income recording 2 million loss cumulative effect change accounting principle effective adoption date sab 101 4 1999 second quarter sprint effected twoforone stock split fon stock fon group earnings per share prior periods restated reflect stock split 5 2000 first quarter sprint effected twoforone stock split pcs stock pcs group loss per share prior periods restated reflect stock split 18 subsequent events unaudited january 2001 sprint issued 24 billion debt securities sprint 2 billion unissued securities existing shelf registration statement sec registered additional 400 million prior issuance borrowings interest rates ranging 71 76 scheduled maturities 2006 2011 proceeds allocated pcs group used mainly repay existing debt february 2001 sprint agreed end exclusive alliance earthlink relinquished seats earthlinks board directors result changes sprint treat investment earthlink cost method investment february 2001 sprint filed registration statement sec secondary offering 1748 million shares fon stock including 228 million shares cover overallotments owned ft dt including fon stock underlying class common stock sprint receive proceeds sale stock february 2001 sprints board directors declared dividends 125 cents per share sprint fon common stock class common stock dividends paid march 30 2001 i40 sprint corporation schedule iiconsolidated valuation qualifying accounts years ended december 31 2000 1999 1998 1 accounts written net recoveries 2 discussed note 2 pcs groups assets liabilities recorded fair values pcs restructuring date therefore data presented schedule reflects activity since pcs restructuring 3 represents valuation allowance deferred income tax assets recorded connection pcs restructuring 4 represents valuation allowance deferred income tax assets relating net operating loss carryforwards acquired purchase broadband fixed wireless companies i41 sprint logo annex ii sprint fon group combined financial information selected financial data sprint fon group certain prioryear amounts reclassified conform current year presentation reclassifications effect results operations group equity previously reported fon group created result pcs restructuring recapitalization see sprints managements discussion analysis financial condition results operationsgeneral information 1 2000 fon group recorded nonrecurring charge 238 million principally represents writedown goodwill 163 million nonrecurring charge costs associated proposed worldcom merger terminated charges reduced operating income 401 million income continuing operations 257 million fon group recorded nonrecurring charges 20 million 1997 60 million 1996 related litigation within global markets division charges reduced income continuing operations 13 million 1997 36 million 1996 2 2000 fon group recorded nonrecurring charges 122 million related writedowns certain equity investments charges reduced income continuing operations 109 million also 2000 fon group recorded net nonrecurring gains 71 million sale independent directory publishing operation investment activities increased income continuing operations 44 million 1999 fon group recorded net nonrecurring gains 54 million investment activities increased income continuing operations 35 million 1998 fon group recorded net nonrecurring gains 104 million mainly sale local exchanges increased income continuing operations 62 million 1997 fon group recorded nonrecurring gains 71 million mainly sales local exchanges certain investments gains increased income continuing operations 44 million 3 1999 second quarter sprint effected twoforone stock split fon common stock result diluted basic earnings per common share dividends restated periods stock split earnings per common share dividends fon group periods 1999 pro forma basis assume fon shares created 1998 recapitalization sprints common stock existed periods presented 4 1996 amount reduced 600 million cash required terminate accounts receivable sales agreement ii1 managements discussion analysis sprint fon group financial condition results operations general see sprints managements discussion analysis financial condition results operationsgeneral information forwardlooking information see sprints managements discussion analysis financial condition results operationsforwardlooking information discussion forwardlooking information sprint fon group 2000 fon group changed segment reporting align financial reporting changes sprint manages fon groups operations assesses performance fon group operates three business segments global markets division local division product distribution directory publishing businesses global markets division global markets division provides broad suite communications services targeted domestic business residential customers multinational corporations communications companies services include domestic international voice data communications internet frame relay access transport web hosting virtual private networks managed security services broadband services sprint deploying integrated communications services referred sprint ionsm sprint ion extends sprints existing network capabilities customer enables sprint provide network infrastructure meet customers demands advanced services including integrated voice data internet video also expected foundation sprint provide advanced services competitive local service market sprint uses various advanced services lastmile technologies including dedicated access digital subscriber line xdsl expects use multipoint multichannel distribution services mmds global markets division also includes operating results cable tv service operations broadband fixed wireless companies 1999 acquisition dates 2000 sprint converted several markets served mmds capabilities cable tv services highspeed data services global markets operating results reflect development costs operating revenues expenses broadband fixed wireless services sprint intends provide broadband data voice services additional markets served capabilities included global markets division costs establishing international operations beginning 2000 division also includes fon groups investments earthlink inc internet service provider callnet long distance provider canada operating sprint brand name intelig long distance provider brazil certain telecommunications investments ventures local division local division consists mainly regulated local phone companies serving approximately 83 million access lines 18 states provides local phone services access phone customers carriers local network consumer long distance services customers within franchise territories sales telecommunications equipment long distance services within certain regional calling areas latas product distribution directory publishing businesses product distribution business provides wholesale distribution services telecommunications products directory publishing business publishes markets white yellow page phone directories results operations 2000 operating expenses include nonrecurring charges 238 million primarily related writedown goodwill 163 million costs associated terminated worldcom merger charges reduced operating income 401 million income continuing operations 257 million income continuing operations ii2 2000 also includes nonrecurring charge 109 million related write downs certain equity investments net nonrecurring gains 44 million sale independent directory publishing operation investment activities 1999 income continuing operations includes net nonrecurring gains 35 million investment activities 1998 income continuing operations includes nonrecurring gain 62 million mainly sale local exchanges excluding nonrecurring items operating income 28 billion 2000 29 billion 1999 28 billion 1998 income continuing operations 16 billion 2000 17 billion 1999 16 billion 1998 segmental results operations beginning 2000 fon group combined long distance operation sprint ion broadband fixed wireless services certain ventures one division global markets align financial reporting changes sprint manages operations assesses performance global markets division includes four major revenue streams voice data internet connection resegmentation fon group shifted recognition consumer long distance revenues expenses associated customers local franchise territories global markets division local division prior periods restated reflect changes global markets division net operating revenues net operating revenues increased 2 2000 8 1999 increases mainly reflect strong data communications services revenue growth competitive pricing environment change mix products sold offset minute growth 18 2000 strong minute growth 22 1999 partly offset competitive pricing environment change mix products sold minute growth 2000 also offset reduction access cost passthroughs resulting implementation coalition affordable local long distance service proposal calls voice revenues voice revenues decreased 5 2000 increased 5 1999 2000 decrease largely due decline consumer voice revenues result competitive pricing environment lower calling card usage due increased use wireless phones implementation calls 1999 increase mainly reflects increased wholesale voice revenues due strong minute growth mainly international calls increased inbound outbound tollfree calls data revenues data revenues reflect sales currentgeneration data services including asynchronous transfer mode frame relay services revenues increased 14 2000 21 1999 due increased sales result increase emphasis services internet revenues internet revenues increased 50 2000 42 1999 due strong growth dialup internet service providerrelated revenues dedicated service revenues internet revenues showed strong growth continued demand increased use internet revenues increased 5 2000 decreased 13 1999 2000 increase due sales capacity transoceanic cable inclusion full year revenues cable tv service operations broadband fixed wireless companies purchased 1999 largely offset decline legacy data services 1999 decrease due decline legacy data services costs services products costs services products include interconnection costs paid local phone companies domestic service providers foreign phone companies complete calls made divisions domestic customers costs operate maintain long distance network costs equipment transmission capacity sales costs related ii3 development deployment sprint ion costs increased 12 2000 3 1999 interconnection costs remained flat 2000 increased 3 1999 reductions perminute international access costs well domestic access costs offset impact increased calling volumes 2000 increased calling volumes 1999 partly offset reductions perminute costs domestic international access domestic rate reductions generally due fccmandated access rate reductions took effect january july 1998 july 1999 july 2000 access rate reductions july 2000 included implementation calls costs services products increased 42 2000 5 1999 2000 increase largely due expansion sprint ion business services nationwide launch consumer services select markets well increased sales capacity transoceanic cable increased costs services products 2000 1999 driven growth data services 1999 increase also impacted increases network equipment operating leases expense total costs services products global markets 528 net operating revenues 2000 480 1999 501 1998 selling general administrative expense selling general administrative sga expense decreased 4 2000 increased 19 1999 2000 decrease due strong emphasis cost control 1999 increase mainly reflects overall growth business well increased marketing promotions support products services including rollout airline alliance program enabled customers earn frequent flyer miles used sprints services sga expense includes costs associated continued development deployment activities sprint ion including costs systems operations development product development advertising associated market launches sga expense sprint ion 281 million 2000 320 million 1999 138 million 1998 total sga expense global markets division 287 net operating revenues 2000 305 1999 277 1998 depreciation amortization expense depreciation amortization expense increased 7 2000 13 1999 increases mainly reflect rapidly increasing asset base sprint ion well increased asset base enhance network reliability meet increased demand voice datarelated services upgrade capabilities providing new products services depreciation amortization expense 106 net operating revenues 2000 101 1999 97 1998 local division beginning july 2000 sprint changed transfer pricing certain transactions fon group entities accurately reflect market pricing main effect change reduction local divisions net operating revenuesother revenues addition sprints local division sold customer service telemarketing organization pcs group beginning 2000 second quarter sold approximately 81000 access lines illinois november 1998 comparative purposes following discussion local division results assumes transfer pricing change sale customer service telemarketing organization sale exchanges occurred beginning 1998 adjusting changes operating margins would 284 2000 257 1999 244 1998 net operating revenues net operating revenues increased 5 2000 7 1999 increases mainly reflect increased sales networkbased services caller id call waiting increased long distance revenues customer access line growth sales networkbased services long distance services increased due strong demand bundled services combine local service network based features long distance calling customer access lines increased 4 2000 5 1999 net operating revenues 61 billion 2000 58 billion 1999 55 billion 1998 ii4 local service revenues local service revenues derived local exchange services grew 6 2000 9 1999 continued demand networkbased services customer access line growth data products revenue growth 1999 also reflects increased revenues maintaining customer wiring equipment network access revenues network access revenues derived long distance phone companies using local network complete calls increased 4 2000 2 1999 revenues reflect increased revenues special access services 2 4 increase minutes use 2000 1999 respectively increases offset fccmandated access rate reductions access rate reductions took effect january july 1998 july 1999 july 2000 toll service revenues toll service revenues mainly derived providing consumer long distance services customers within sprints local franchise territories long distance services within specified regional calling areas latas beyond local calling area revenues increased 17 2000 22 1999 increases reflect success bundled services include long distance calling revenues decreased 11 2000 1 1999 decrease 2000 mainly due decrease equipment sales result planned shift focus selling higher margin products costs services products costs services products include costs operate maintain local network costs equipment sales costs decreased 1 2000 increased 6 1999 2000 decrease due decline equipment sales success cost control initiatives 1999 increase driven customer access line growth increased emphasis service levels storm related costs services products 319 net operating revenues 2000 338 1999 341 1998 selling general administrative expense sga expenses decreased 1 2000 remained flat 1999 2000 decrease due strong emphasis cost control 1999 increased marketing costs promote new products services increased customer service costs related customer access line growth offset strong emphasis cost control sga expense 210 net operating revenues 2000 223 1999 236 1998 depreciation amortization expense depreciation amortization expense increased 7 2000 9 1999 mainly increased capital expenditures switching transport technologies shorter asset lives depreciation amortization expense 187 net operating revenues 2000 182 1999 179 1998 product distribution directory publishing businesses net operating revenues increased 10 2000 3 1999 nonaffiliated revenues accounted 60 revenues 2000 1999 revenues increased 11 2000 12 1999 increase nonaffiliated revenues 2000 mainly due consolidation directory publishing partnership second half 2000 directory publishing partnership previously accounted equity method investment fully consolidated due restructuring partnership management sales affiliates increased 8 2000 decreased 10 1999 due changes local divisions capital program costs services products increased 9 2000 increased 1 1999 reflecting increased equipment sales 2000 increase also due consolidation directory publishing partnership sga expense increased 14 2000 1999 2000 increase due costs related transformation product distribution business webenabled business well consolidation directory publishing partnership 1999 increase result staffing demands related nonaffiliated sales growth ii5 nonoperating items interest expense effective pcs restructuring interest expense borrowings incurred sprint allocated pcs group based rates pcs group could obtain third parties interest rates higher rates sprint obtains borrowings difference sprints actual interest rates charged pcs group reflected reduction fon groups interest expense follows see note 1 notes combined financial statements detailed description allocation group financing effective interest rates following table reflect interest costs longterm debt interest costs shortterm borrowings classified longterm debt intergroup borrowings deferred compensation plans customer deposits credit pcs group detailed excluded distort effective interest rates longterm debt decreases effective interest rates mainly reflect retirement debt higher interest rates income expense net income expense consisted following dividend interest income years reflects dividends earned cost method investments interest earned temporary investments 1998 also reflects interest earned loans unconsolidated affiliates interest earned shortterm investments following sprints 50 billion debt offering late 1998 equity net losses affiliates mainly includes losses intelig call net earthlink 2000 increase mainly due increased intelig losses gains sales assets 2000 reflect sale independent publishing operation 1999 gains mainly include gain sale investment security 1998 gains mainly reflect net gains sales local exchanges 2000 net losses investments mainly include writedowns certain equity investments income taxes fon groups effective tax rates 405 2000 379 1999 373 1998 see note 9 notes combined financial statements information differences caused effective income tax rates vary statutory federal rate income taxes related continuing operations discontinued operation net 2000 first quarter sprint sold interest global one france telecom deutsche telekom ag sprint received 11 billion cash repaid 276 million advances entire stake global one result sprints sale interest global one fon groups gain sale equity share results global one reported discontinued operation periods presented 2000 fon group recorded aftertax gain related sale interest global one 675 million fon group recorded aftertax losses related global one 130 million 1999 135 million 1998 extraordinary items net 2000 sprint redeemed prior scheduled maturities 25 million fon groups debt interest rates ranging 96 97 resulted 1 million aftertax extraordinary loss fon group 1999 sprint redeemed prior scheduled maturities 575 million broadband fixed wireless companies debt assumed fon group interest rates ranging 131 145 resulted 39 million aftertax extraordinary loss fon group 1998 sprint redeemed prior scheduled maturities 138 million fon group debt interest rates ranging 79 93 resulted 5 million aftertax extraordinary loss ii6 financial condition fon groups combined assets increased 18 billion 2000 net property plant equipment increased 18 billion reflecting capital expenditures support long distance local network enhancements sprint ion development hardware deployment partly offset depreciation investments affiliates assets increased 475 million mainly reflecting capital contributions fon groups equity method investees partly offset equity net losses affiliates writedown certain equity investments offsetting decreases fon groups combined assets primarily reflect exchange investments equity securities certain notes payable writedown goodwill related assets fon groups professional services business sale net assets global one discontinued operation see liquidity capital resources information changes combined balance sheets liquidity capital resources operating activities operating cash flows increased 610 million 2000 decreased 202 million 1999 2000 increase mainly reflects decreases working capital requirements 1999 decrease mainly reflects increases working capital partly offset improved operating results investing activities capital expenditures fon groups largest investing activity totaled 41 billion 2000 35 billion 1999 32 billion 1998 global markets division capital expenditures incurred mainly enhance network reliability meet increased demand voice datarelated services upgrade capabilities providing new products services continue development hardware deployment sprint ion local division incurred capital expenditures accommodate access line growth provide additional capacity increased internet traffic expand capabilities providing enhanced services fon group capital expenditures incurred mainly sprints world headquarters campus 2000 investing activities include 14 billion proceeds sale fon groups interest global one investing activities also include proceeds sales assets totaling 51 million 2000 90 million 1999 230 million 1998 1999 sprint purchased net assets several broadband fixed wireless companies 618 million excluding assumed debt investments loans affiliates net includes fon groups investment earthlink intelig affiliates 1999 fon group received payment 314 million pcs group outstanding loan fon group advances pcs group loans sprint pcs fund capital operating requirements loans sprint pcs 1998 partly offset repayment vendor financing loan equity transfers pcs group also used fund capital operating requirements offset current tax benefits used fon group financing activities financing activities mainly reflect net payments longterm debt 605 million 2000 net proceeds 491 million 1999 397 million 1998 fon group paid dividends 433 million 2000 426 million 1999 430 million 1998 indicated annual dividend rate fon stock 050 per share also included 2000 financing activities 80 million payment pcs group compensate net amount pcs stockbased compensation granted fon group employees fon stockbased compensation granted pcs group employees addition fon group received net proceeds sprints employee stock purchase plan 50 million 2000 136 million 1999 24 million 1998 capital requirements fon groups 2001 investing activities mainly consisting capital expenditures investments affiliates expected require cash 61 ii7 63 billion fon group capital expenditures expected range 60 62 billion 2001 global markets division local division require majority total investments affiliates expected require cash approximately 100 million dividend payments expected approximate 440 million connection pcs restructuring sprint adopted tax sharing agreement provides allocation income taxes fon group pcs group sprint expects fon group continue make significant payments pcs group agreement expected pcs group operating losses near future using pcs groups net operating loss carryforwards payments reflect pcs groups incremental cumulative effect sprints consolidated federal state tax liability tax credit position pcs group received payments fon group totaling 872 million 2000 764 million 1999 20 million 1998 see note 1 notes combined financial statements allocation federal state income taxes details liquidity see sprints managements discussion analysis financial condition results operationsliquidity discussion liquidity regulatory developments competitive local service telecommunications act 1996 telecom act designed promote competition aspects telecommunications eliminated legal regulatory barriers entry local phone markets also required incumbent local exchange carriers ilecs among things allow local resale wholesale rates negotiate interconnection agreements provide nondiscriminatory access unbundled network elements allow collocation interconnection equipment competitors sprint obtained interconnection collocation agreements number ilecs rolling sprint ion selected cities across nation using collocation unbundled network elements obtained ilecs january 1999 supreme court affirmed fccs authority establish rules prices relating interconnection unbundling ilecs networks fcc subsequently reaffirmed large part list network elements ilecs required provide unbundled basis strengthened collocation requirements also took steps speed deployment advanced technologies xdsl july 2000 us court appeals eighth circuit invalidated pricing standards fcc adopted unbundled network elements resale ilec services court also refused reconsider light supreme court decision discussed courts prior holding ilecs could required combine unbundled network elements behalf carriers january 2001 us supreme court granted certiorari three issues eighth circuit decision supreme court review whether telecom act forecloses cost methodology adopted fcc interconnection rates ilecs related issue dealing whether rejection historical costs taking also considered finally supreme court consider whether ilecs duty telecom act combine previously uncombined network elements requested fee supreme court affirms eighth circuits decision fcc state regulatory commissions would formulate new pricing standards unbundled network elements interconnection separately march 2000 decision us court appeals district columbia circuit remanded fcc issue types equipment ilecs must allow competitors collocate offices fcc received comments reply comments whether change collocation rules light dc circuits decision rboc long distance entry telecom act also allows rbocs provide inregion long distance service obtain state certification compliance competitive checklist facilitiesbased competitor obtain fcc ruling provision inregion long distance service public interest rbocs gained authorization provide inregion long distance service four states verizon obtained fcc authorization new york december 1999 sbc obtained fcc authorization provide inregion services texas june 2000 oklahoma kansas january 2001 rbocs may gain authorization near future states entry rbocs long distance market impact competition extent impact depend upon factors rbocs competitive ability appeal rboc brand different market segments response competitors impact sprint may offset wholesale revenues rbocs choose resell sprint services customer service slamming telecom act also established liability unauthorized switching consumers telephone service one carrier another slamming ii8 late 1998 fcc adopted new rules intended prevent slamming compensate victims slamming compensation rules stayed court appeals district columbia circuit may 2000 fcc modified process adjudicating alleged slams dc circuit lifted stay new rules went effect november 28 2000 mergers number mergers received final regulatory approval 2000 early 2001 qwest us west merger approved fcc march 2000 bell atlanticgte merger approved fcc june 2000 attmediaone merger approved fcc june 2000 finally aoltime warner merger received approval fcc january 2001 universal service requirements fcc continues address issues related universal service access reform may 2000 fcc adopted access reform plan substantially reduced switched access charges paid long distance carriers large ilecs created new universal service fund offsets portion reduction access charges connection advocacy plan sprint committed would flow reductions switched access costs fiveyear life plan business residential customers sprint also committed certain pricing actions including eliminating charges residential singleline business customers used pass certain access costs eliminated plan maintaining duration plan least one pricing option include minimum usage charge fcc order adopting access reform plan requires sprint adhere commitments fccs order appealed us court appeals fifth circuit fcc many states established universal service programs ensure affordable quality local telecommunications services americans fon groups assessment fund programs typically percentage interstate international enduser revenues currently management cannot predict extent fon groups future federal state universal service assessments ability recover contributions universal service fund customers communications assistance law enforcement act communications assistance law enforcement act calea enacted 1994 preserve electronic surveillance capabilities authorized federal state law calea requires telecommunications companies meet certain assistance capability requirements end june 2000 circuit switching used september 2001 packetswitching used circuitswitched technology installed 1995 reimbursement hardware software upgrades facilitate calea compliance authorized us department justice doj published guidelines concerning required support fcc petitions extension calea enforcement deadlines however fcc require carriers doj concurrence seek extension ltd uses circuitswitching bulk traffic ltd switches installed 1995 qualify reimbursement upgrades required doj sprint ion uses packet switching local operations case sprint ion calea compliance capabilities currently available equipment software vendors involved sprint ions deployment ltd obtained extension calea compliance june 30 2001 discussions doj resulted agreement deployment schedule calea within ltd expects doj provide letter support use fcc obtaining extension consistent agreed upon deployment schedule sprint ion apply extension local packetbased services allow development required hardware software financial strategies financial strategies determined sprint centralized basis see sprints managements discussion analysis financial condition results operationsfinancial strategies recently issued accounting pronouncements see note 15 notes combined financial statements discussion recently issued accounting pronouncements ii9 management report sprint corporations management responsible integrity objectivity information contained annex management responsible consistency reporting information ensuring accounting principles generally accepted united states used discharging responsibility management maintains comprehensive system internal controls supports extensive program internal audits made organizational arrangements providing appropriate divisions responsibility established communication programs aimed assuring policies procedures principles business conduct understood practiced employees combined financial statements included annex audited ernst young llp independent auditors audits conducted using auditing standards generally accepted united states report included herein board directors responsibility combined financial statements pursued mainly audit committee audit committee composed entirely directors officers employees sprint meets periodically internal auditors independent auditors without management present assure respective responsibilities fulfilled internal independent auditors full access audit committee discuss auditing financial reporting matters w esrey william esrey chairman chief executive officer arthur b krause arthur b krause executive vice president chief financial officer report independent auditors board directors shareholders sprint corporation audited accompanying combined balance sheets sprint fon group described note 1 december 31 2000 1999 related combined statements operations comprehensive income cash flows three years period ended december 31 2000 audits also included financial statement schedule listed index financial statements financial statement schedules financial statements schedule responsibility management sprint corporation sprint responsibility express opinion financial statements schedule based audits conducted audits accordance auditing standards generally accepted united states standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion financial statements referred present fairly material respects combined financial position sprint fon group december 31 2000 1999 combined results operations cash flows three years period ended december 31 2000 conformity accounting principles generally accepted united states also opinion related financial statement schedule considered relation basic financial statements taken whole presents fairly material respects information set forth therein discussed note 7 combined financial statements 2000 sprint fon group changed accounting service activation certain installation fee revenues fully discussed note 1 combined financial statements sprint fon group read together audited consolidated financial statements sprint ernst young llp kansas city missouri february 1 2001 ii10 combined statements operations sprint fon group millions except per share data 1 basic diluted earnings per common share weighted average common shares dividends per common share 1998 pro forma unaudited assume recapitalization occurred prior 1998 1999 second quarter sprint effected twoforone stock split fon common stock result 1998 basic diluted earnings per common share weighted average common shares dividends per common share restated see accompanying notes combined financial statements ii11 combined statements comprehensive income sprint fon group millions see accompanying notes combined financial statements ii12 combined balance sheets sprint fon group millions see accompanying notes combined financial statements ii13 combined statements cash flows sprint fon group millions see accompanying notes combined financial statements ii14 notes combined financial statements sprint fon group 1 summary significant accounting policies tracking stock formation november 1998 sprints shareholders approved formation fon group pcs group creation fon stock pcs stock addition sprint purchased remaining ownership interests sprint spectrum holding company lp phillieco lp together sprint pcs minority interest cox communications pcs lp cox pcs sprint acquired ownership interests telecommunications inc comcast corporation cox communications inc cable partners exchange sprint issued cable partners special lowvote pcs shares warrants acquire additional pcs shares sprint also issued cable partners shares new class preferred stock convertible pcs shares purchase cable partners interests referred pcs restructuring 1999 second quarter sprint acquired remaining minority interest cox pcs also november 1998 sprint reclassified publicly traded common shares one share fon stock 12 share pcs stock recapitalization taxfree shareholders class common share owned france telecom ft deutsche telekom ag dt reclassified represent equity interest fon group pcs group entitles ft dt one share fon stock 12 share pcs stock transactions referred recapitalization connection pcs restructuring ft dt purchased 51 million additional pcs shares presplit basis maintain voting power sprint topup pcs stock intended reflect performance sprints wireless pcs operations fon stock intended reflect performance sprints operations basis combination presentation combined fon group financial statements together combined pcs group financial statements include accounts sprints consolidated financial statements combined financial statements group prepared basis management believes reasonable proper include combined balance sheets results operations cash flows groups significant intragroup amounts transactions eliminated allocation sprints debt including related effects results operations cash flows allocation corporate overhead pcs restructuring date fon group entities commonly controlled companies transactions pcs group fon group eliminated combined financial statements either group fon group combined financial statements provide fon shareholders financial information fon group operations investors fon stock pcs stock sprint shareholders subject risks related sprints businesses assets liabilities sprint retains ownership control assets operations group financial effects either group affect sprints results operations financial condition could affect results operations financial position group market price stock tracking group net losses either group dividends distributions repurchases pcs stock fon stock reduce sprint funds legally available dividends fon stock pcs stock result fon group combined financial statements read along sprints consolidated financial statements pcs groups combined financial statements investments entities fon group exercises significant influence control accounted using equity method see note 3 fon group combined financial statements prepared using accounting principles generally accepted united states principles require management make estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities reported amounts revenues expenses actual results could differ estimates certain prioryear amounts reclassified conform current year presentation reclassifications effect results operations group equity previously reported classification operations global markets division global markets division provides broad suite communications services targeted domestic business residential customers multinational ii15 corporations communications companies services include domestic international voice data communications internet frame relay access transport web hosting virtual private networks managed security services broadband services sprint deploying integrated communications services referred sprint ionsm sprint ion extends sprints existing network capabilities customer enables sprint provide network infrastructure meet customers demands advanced services including integrated voice data internet video also expected foundation sprint provide advanced services competitive local service market sprint uses various advanced services lastmile technologies including dedicated access digital subscriber line xdsl expects use multipoint multichannel distribution services mmds global markets division also includes operating results cable tv service operations broadband fixed wireless companies 1999 acquisition dates 2000 sprint converted several markets served mmds capabilities cable tv services highspeed data services global markets divisions operating results reflect development costs operating revenues expenses broadband fixed wireless services sprint intends provide broadband data voice services additional markets served capabilities included global markets division costs establishing international operations beginning 2000 division also includes fon groups investments earthlink inc internet service provider callnet long distance provider canada operating sprint brand name intelig long distance provider brazil certain telecommunications investments ventures local division local division consists mainly regulated local phone companies serving approximately 83 million access lines 18 states provides local services access phone customers carriers local network consumer long distance services customers within franchise territories sales telecommunications equipment long distance services within certain regional calling areas latas product distribution directory publishing businesses product distribution business provides wholesale distribution services telecommunications products directory publishing business publishes markets white yellow page phone directories allocation shared services sprint directly assigns possible certain general administrative costs fon group pcs group based actual use services direct assignment costs possible practical sprint uses indirect methods including time studies estimate assignment costs group sprint believes costs allocated comparable costs would incurred groups would operating standalone basis allocation shared services may change discretion sprint require shareholder approval allocation federal state income taxes sprint files consolidated federal income tax return certain state income tax returns include fon group pcs group results connection pcs restructuring sprint adopted tax sharing agreement provides allocation income taxes two groups fon groups income taxes calculated files returns exclude pcs group intergroup tax payments satisfied date sprints related tax payment due refund received applicable tax authority fon group accrued income taxes payable pcs group accordance tax sharing agreement totaling 605 million 2000 887 million 1999 190 million 1998 tax sharing agreement applies tax years ending december 31 2001 periods december 31 2001 sprints board directors adopt tax sharing agreement designed allocate tax benefits burdens fairly fon group pcs group allocation group financing activities groups managed sprint centralized basis debt incurred sprint behalf groups specifically allocated reflected financial statements applicable group interest expense allocated pcs group based interest rate substantially equal rate would able obtain third parties direct indirect wholly owned sprint subsidiary without benefit guaranty sprint member fon group interest rate higher rate sprint obtains borrowings difference sprints actual interest rate charged pcs group reflected reduction fon groups interest expense ii16 sprints centralized cash management program one group may advance funds group advances accounted shortterm borrowings groups bear interest market rate substantially equal rate group would able obtain third parties shortterm basis allocation group financing activities may change discretion sprint require shareholder approval income taxes fon group records deferred income taxes based temporary differences carrying amounts assets liabilities financial reporting purposes tax bases revenue recognition fon group recognizes operating revenues services rendered products delivered customers service activation certain installation fees deferred amortized average life service sprints directory publishing business recognizes revenues directory services life related directory amortization method cash equivalents cash equivalents generally include highly liquid investments original maturities three months less stated cost approximates market value sprint uses controlled disbursement banking arrangements part cash management program outstanding checks excess cash balances fon group included accounts payable amounts totaled 614 million yearend 2000 174 million yearend 1999 fon group sufficient funds available fund outstanding checks presented payment investments debt equity securities investments debt equity securities classified available sale reported fair value estimated based quoted market prices gross unrealized holding gains losses reflected adjustments group equity net related income taxes inventories stated lower cost principally firstin firstout method market value property plant equipment property plant equipment recorded cost generally ordinary asset retirements disposals charged accumulated depreciation gain loss recognized cost property plant equipment generally depreciated straightline basis estimated economic useful lives repair maintenance costs expensed incurred capitalized interest fon group capitalized interest costs related constructing capital assets 22 million 2000 43 million 1999 42 million 1998 addition sprint capitalized interest costs related pcs groups network buildout capitalized interest totaled 61 million 1998 contributed amortized pcs group intangible assets fon group evaluates recoverability intangible assets events circumstances indicate assets might impaired fon group determines impairment comparing undiscounted future cash flows estimated generated assets respective carrying value event impairment exists loss recognized based amount carrying value exceeds fair value asset goodwill represents excess purchase price fair value net assets acquired business combinations accounted purchases goodwill amortized five 40 years using straightline method accumulated amortization totaled 28 million yearend 2000 94 million yearend 1999 earnings per share result recapitalization earnings per share fon group 1998 calculated based groups income november 1998 yearend 1998 calculated group basis periods prior november 1998 fon stock part sprints capital structure time 1999 second quarter sprint effected twoforone split fon common stock result basic diluted earnings per common share weighted average common shares dividends fon common stock restated periods prior stock split fon groups convertible preferred dividends totaled 1 million 2000 1999 dilutive securities mainly options totaled 115 million shares 2000 192 million shares 1999 recapitalization date year end 1998 fon groups convertible preferred dividends totaled 01 million dilutive securities mainly options totaled 138 million shares ii17 fon groups earnings per common share 1998 recapitalization date follows stockbased compensation fon group participates incentivebased stock option plans employee stock purchase plan administered sprint executives employees sprint adopted pro forma disclosure requirements statement financial accounting standards sfas 123 stockbased compensation continues apply accounting principles board opinion 25 accounting stock issued employees related interpretations stock option employee stock purchase plans fon group applied sfas 123 pro forma net income would 1668 million 2000 1434 million 1999 103 million recapitalization date yearend 1998 see note 12 sprints notes consolidated financial statements information sprints stockbased compensation fon groups pro forma net income earnings per share 1997 sprint granted performancebased stock options certain key executives fon group expensed 5 million 2000 9 million 1999 14 million 1998 related performancebased stock options 2000 amount reflects expense date shareholder approval proposed worldcom merger time options became vested additional 19 million expense related options included asset writedown merger related costs combined statements operations 2 business combinations broadband fixed wireless companies second half 1999 sprint acquired peoples choice tv corp pctv american telecasting inc ati videotron usa operating subsidiaries wbs america llc companies broadband fixed wireless licenses midwest southwest north central western southeastern united states sprint paid 618 million companies outstanding stock assumed 575 million companies debt notes redeemed prior scheduled maturities 1999 fourth quarter see note 10 acquisitions accounted purchases result financial statements companies reflected fon groups combined financial statements acquisition dates excess purchase price net liabilities acquired totaled 835 million allocated goodwill amortized straightline basis 40 years 3 investments securities cost investments securities 13 million yearend 2000 153 million yearend 1999 gross unrealized holding gains 53 million yearend 2000 302 million yearend 1999 2000 fourth quarter fon group recorded writedown securities cost basis 48 million due decline market value considered temporary 48 million charge included income expense net combined statements operations 2000 sprint used equity securities cost basis 94 million retire debt instruments see note 10 fon group recorded 45 million gain associated transaction included income expense net combined statements operations yearend 1999 equity securities classified current assets fair value 1999 fon group sold availableforsale securities cost basis 14 million 104 million 90 million gain included income expense net combined statements operations investments advances affiliates yearend 2000 investments accounted using equity method consisted fon groups investments intelig earthlink certain strategic investments february 2001 sprint modified relationship earthlink resulted fon groups investment accounted cost method investment see note 17 ii18 2000 fourth quarter sprint completed analysis valuation equity method investments response changes overall telecommunications industry analysis resulted 87 million charge writedown equity method investment included income expense net fon groups combined statements operations combined unaudited summarized financial information 100 basis entities others accounted using equity method follows 4 asset writedown 2000 fourth quarter sprint completed analysis valuation various fon group assets resulting reassessment fon groups business strategies response recent changes within overall telecommunications industry analysis resulted 238 million pretax charge primarily related impairment goodwill associated global markets divisions paranet operations 5 merger termination july 13 2000 sprint worldcom inc announced boards directors companies terminated merger agreement previously announced october 1999 result regulatory opposition merger 2000 second quarter fon group recognized onetime pretax charge 163 million costs associated terminated merger 6 discontinued operation 2000 first quarter sprint sold interest global one ft dt sprint received 11 billion cash repaid 276 million advances entire stake global one result sprints sale interest global one sprints gain sale equity share results global one reported discontinued operation periods presented 2000 fon group recorded aftertax gain related sale interest global one 675 million fon group recorded aftertax losses related global one totaling 130 million 1999 135 million 1998 7 cumulative effect change accounting principle fon group implemented sec staff accounting bulletin 101 revenue recognition financial statements fourth quarter 2000 effective beginning year bulletin requires activation installation fee revenues represent separate earnings process deferred recognized estimated service period associated incremental direct costs may also deferred extent revenues subject deferral fon group recorded 2 million charge cumulative effect change accounting principle 2000 change material impact nine months ended september 30 2000 8 employee benefit plans defined benefit pension plan fon group employees covered noncontributory defined benefit pension plan sponsored sprint benefits plan participants belonging unions based negotiated schedules nonunion participants pension benefits based years service participants compensation sprints policy make plan contributions equal actuarially determined amount consistent federal tax regulations funding objective accumulate funds relatively stable rate participants working lives benefits fully funded retirement amounts included combined balance sheets plan prepaid pension costs 407 million yearend 2000 285 million yearend 1999 net pension costs credits determined fon group based direct calculation service costs interest projected benefit obligations appropriate allocation unrecognized prior service costs amortization unrecognized transition asset actuarial gains losses expected return plan assets fon group recorded net ii19 pension credits 122 million 2000 63 million 1999 46 million 1998 defined contribution plans sprint sponsors defined contribution employee savings plans covering fon group employees participants may contribute portions pay plans union employees sprint matches contributions based negotiated amounts sprint also matches contributions nonunion employees fon pcs stock matching equal 50 participants contributions 6 pay addition sprint may discretion board directors provide additional matching contributions based performance fon pcs stock compared telecommunications companies stock fon group recorded expenses 95 million 2000 73 million 1999 54 million 1998 sprints matching contributions sprint defined contribution plans yearend 2000 sprints defined contribution plans held 34 million fon shares 31 million pcs shares postretirement benefits sprint provides postretirement benefits mainly medical life insurance benefits fon group employees retiring certain dates eligible benefits cost reduced cost employees retiring certain dates eligible benefits sharedcost basis sprint funds accrued costs benefits paid amounts included combined balance sheets yearend accrued postretirement benefits costs 11 billion 2000 10 billion 1999 net postretirement benefits costs determined fon group based direct calculation service costs interest accumulated postretirement benefit obligations appropriate allocation unrecognized prior service costs actuarial gains fon group recorded net postretirement benefits costs 62 million 2000 54 million 1999 51 million 1998 9 income taxes income tax expense allocated continuing operations consisted following differences caused fon groups effective income tax rates vary 35 federal statutory rate income taxes related continuing operations follows income tax expense benefit allocated items follows 1 amounts recorded directly group equity fon group recognizes deferred income taxes temporary differences carrying amounts assets liabilities financial statement purposes tax bases sources differences give rise deferred income tax assets liabilities yearend 2000 1999 along income tax effect follows ii20 management believes likely deferred income tax assets net valuation allowance realized based current income tax laws expectations future taxable income stemming reversal existing deferred tax liabilities ordinary operations uncertainties surrounding income tax law changes shifts operations state taxing jurisdictions future operating income levels may however affect ultimate realization deferred income tax assets valuation allowance related deferred income tax assets increased 76 million 2000 193 million 1999 fon group acquired approximately 193 million potential tax benefits related net operating loss carryforwards acquisitions broadband fixed wireless companies benefits subject certain realization restrictions various tax laws valuation allowance provided total benefits subsequently recognized reduce goodwill noncurrent intangible assets resulting application purchase method accounting transactions yearend 2000 fon group federal operating loss carryforwards 514 million state operating loss carryforwards 923 million related loss carryforwards federal tax benefits 180 million state tax benefits 56 million expire varying amounts 2020 10 longterm debt capital lease obligations sprints consolidated longterm debt capital lease obligations yearend follows 1 borrowings incurred sprint allocated applicable group sprints weighted average interest rate related borrowings 67 yearend 2000 66 yearend 1999 weighted average interest rate related borrowings allocated pcs group approximately 88 yearend 2000 87 yearend 1999 see note 1 detailed description sprint allocates financing groups 2 consolidated debt equal total pcs group fon group debt due intergroup debt eliminated consolidation fon group investment pcs groups senior discount notes totaling 169 million yearend 2000 including 65 million classified current 150 million yearend 1999 ii21 scheduled principal payments excluding reclassified shortterm borrowings next five years follows 1 2001 scheduled principal payments equal current maturities amounts reflect maturity value scheduled payment pcs groups senior discount notes included schedule payments pcs group debt made japanese yen needed satisfy obligations currently held deposit pcs group included assets pcs groups combined balance sheets scheduled yen payments included schedule 1 million 2003 20 million 2004 43 million 2005 sprint shortterm borrowings sprint bank notes payable totaling 676 million yearend 2000 670 million yearend 1999 addition sprint commercial paper borrowings totaling 33 billion yearend 2000 16 billion yearend 1999 though borrowings renewable various dates throughout year classified longterm debt sprints intent ability refinance borrowings longterm basis unused credit facilities unissued debt sprints shelf registration sprint currently revolving credit facilities syndicates domestic international banks totaling 5 billion 3 billion 364 day facility renewed august 2000 expiring 2001 2 billion 5 year facility expiring 2003 commercial paper certain bank notes supported sprints revolving credit facilities certain notes payable relate separate revolving credit facility expires 2002 year end 2000 sprint total unused lines credit 18 billion bank notes outstanding weighted average interest rates 71 yearend 2000 63 yearend 1999 weighted average interest rate commercial paper 75 yearend 2000 64 yearend 1999 longterm debt june 2000 sprint issued 125 billion debt securities 4 billion shelf registration statement sec borrowings mature 2002 interest rates ranging 69 76 yearend 2000 sprint issued total 2 billion debt securities shelf january 2001 sprint issued securities using remaining amount shelf see note 18 notes sprints consolidated financial statements june 1999 sprint entered 1 billion financing agreement sell continuous basis recourse undivided percentage ownership interests designated pool accounts receivable subsequent collections receivables sold investors typically reinvested new receivables yearend 2000 sprint borrowed 900 million weighted average interest rate 69 agreement borrowings mature 2002 sprint fon group 2000 fon group received allocation 344 million debt sprint debt mainly used repay existing debt fund new capital investments see note 1 detailed description sprint allocates debt groups 2000 fourth quarter sprint redeemed prior scheduled maturities 25 million fon group debt weighted average interest rate 96 resulted 1 million aftertax extraordinary loss fon group 2000 first quarter sprint exchanged 66 million common shares sbc communications inc certain notes payable fon group notes market value 275 million maturity date 316 million year end 1999 notes interest rate 83 1999 fourth quarter sprint redeemed prior scheduled maturities 575 million assumed broadband fixed wireless companies debt interest rates ranging 131 145 resulted 39 million aftertax extraordinary loss fon group 1998 sprint redeemed prior scheduled maturities 138 million fon group debt interest rates ranging 79 93 resulted 5 million aftertax extraordinary loss fon group fon group gross property plant equipment totaling 161 billion either pledged security first mortgage bonds certain notes restricted use mortgaged property ii22 sprint including fon group complied restrictive financial covenants relating debt arrangements yearend 2000 11 group equity 12 commitments contingencies litigation claims assessments fon shareholders subject risks related investment sprint fon group including effects legal proceedings claims pcs group december 2000 amalgamated bank institutional shareholder filed derivative action purportedly behalf sprint certain current former officers directors jackson county missouri circuit court complaint alleges individual defendants breached fiduciary duties sprint unjustly enriched making undisclosed amendments sprints stock option plans failing disclose certain information concerning regulatory approval proposed merger sprint worldcom overstating sprints earnings first quarter 2000 plaintiff seeks damages paid sprint unspecified amount two additional substantially identical derivative actions shareholders filed various suits arising ordinary course business pending sprint management cannot predict final outcome actions believes material fon groups combined financial statements operating leases fon groups minimum rental commitments yearend 2000 noncancelable operating leases consisting mainly leases data processing equipment real estate follows fon groups gross rental expense totaled 643 million 2000 575 million 1999 474 million 1998 rental commitments subleases contingent rentals executory costs significant 13 financial instruments fair value financial instruments sprint estimates fair value fon groups financial instruments using available market information appropriate valuation methodologies result following estimates necessarily represent values fon group could realize current market exchange although management aware factors would affect yearend 2000 estimated fair values amounts comprehensively revalued purposes financial statements since date therefore estimates fair value yearend 2000 may differ significantly amounts presented carrying amounts estimated fair values fon groups financial instruments yearend follows ii23 carrying amounts fon groups cash equivalents approximate fair value yearend 2000 1999 estimated fair value investments debt equity securities based quoted market prices estimated fair value fon groups longterm debt based quoted market prices publicly traded issues estimated fair value issues based present value estimated future cash flows using discount rate based risks involved concentrations credit risk fon groups accounts receivable subject concentration credit risk 14 additional financial information segment information fon group operates three business segments based sprint manages fon groups operations assesses performance global markets division local division product distribution directory publishing businesses beginning 2000 fon group combined long distance operation sprint ion broadband fixed wireless services certain ventures one division global markets along creating global markets division fon group shifted recognition consumer long distance revenues expenses associated customers local franchise territories global markets division local division prior periods restated reflect changes sprint generally accounts transactions segments based fully distributed costs sprint believes approximates fair value segment financial information follows 1 significant intercompany eliminations consist equipment purchases product distribution business local access charged global markets division interexchange services provided local division 2000 corporate operating loss includes 163 million charge costs associated terminated merger sprint worldcom inc 95 fon groups revenues domestic customers located within united states ii24 net operating revenues product services follows supplemental cash flows information fon groups cash paid interest income taxes follows noncash activities fon group included following ii25 intergroup investments transactions sprint fon group investments sprint pcs group following table reflects fon groups investments pcs group eliminated sprints consolidated financial statements 1 65 million classified current yearend 2000 included receivables pcs group fon groups combined balance sheets common intergroup interest fon group received 1 intergroup interest pcs group time pcs restructuring recapitalization subsequently pcs shares representing intergroup interest issued fon group employees exhausting fon groups interest pcs group january 2000 fon groups share pcs groups net loss totaled 13 million 1999 6 million date pcs restructuring yearend 1998 included income net sprint fon group combined statements operations intergroup interest exhausted 2000 additional pcs group losses recognized fon group 2000 preferred intergroup interest fon group provided sprint pcs group interim financing date pcs restructuring agreement signed may 1998 completed november 1998 part pcs restructuring sprint converted financing totaling 279 million intergroup interest representing 03 million shares 10year pcs preferred stock convertible pcs common intergroup interest pcs group paid fon group dividends preferred intergroup interest 8 million 2000 1999 1 million 1998 longterm loans sprint provided sprint pcs additional interim financing 180 million may 1998 november 1998 loan repaid 1999 intergroup interest income difference sprints actual interest costs interest costs charged pcs group allocated debt totaled 235 million 2000 167 million 1999 11 million 1998 amounts reflected reduction interest expense sprint fon group combined statements operations see note 1 detailed description sprint allocates interest expense groups fon group earned intergroup interest income 19 million 2000 16 million 1999 15 million 1998 related fon groups investment pcs group debt securities amounts included income net sprint fon group combined statements operations intergroup transactions pcs group uses long distance operation interexchange carrier purchases wholesale long distance resale customers additionally fon group provides pcs group caller id services various goods services charges pcs group items totaled 396 million 2000 280 million 1999 21 million pcs restructuring date yearend 1998 pcs group provides fon group access network telemarketing various services charges fon group items totaled 35 million 2000 4 million 1999 fon group provides management printing mailing warehousing services pcs group charges pcs group services totaled 150 million 2000 65 million 1999 5 million pcs restructuring date yearend 1998 related party transactions sprint pcs following discussion reflects related party transactions sprint pcs prior pcs restructuring sprint provided sprint pcs billing operator services switching equipment sprint pcs also used long distance operation interexchange carrier charges sprint pcs services totaled 104 million 1998 sprint provided management printing mailing warehousing services sprint pcs charges sprint pcs services totaled 25 million 1998 sprint vendor financing loan sprint pcs 300 million yearend 1997 repaid 1998 sprint also loaned sprint pcs 114 million 1998 repaid 1999 first quarter ii26 15 recently issued accounting pronouncements june 1998 financial accounting standards board issued sfas 133 accounting derivative instruments hedging activities standard requires derivatives recorded balance sheet either assets liabilities measured fair value gains losses changes derivative values accounted based derivative used whether qualifies hedge accounting statement adopted january 2001 material impact fon groups combined financial statements september 2000 financial accounting standards board issued sfas 140 accounting transfers servicing financial assets extinguishments liabilitiesa replacement fasb statement 125 statement revises standards accounting securitizations transfers financial assets provides consistent standards distinguishing transfers sales secured borrowings statement effective transactions occurring march 31 2001 expected material impact fon groups combined financial statements 16 quarterly financial data unaudited 1 see notes 3 4 notes combined financial statements information nonrecurring charges recorded 2000 fourth quarter 2 certain reclassifications made net operating revenues operating expenses amounts reported 2000 quarterly reports form 10q conform industry events practices reclassifications impact operating income previously reported 3 2000 fourth quarter fon group adopted sec staff accounting bulletin 101 revenue recognition financial statements sab 101 required sab 101 2000 net operating revenues restated amounts reported 2000 quarterly reports form 10 q net operating revenues reduced 4 million 2000 first quarter increased 1 million 2000 second quarter 3 million 2000 third quarter fon group also restated 2000 first quarter net income recording 2 million loss cumulative effect change accounting principle effective adoption date sab 101 4 1999 second quarter sprint effected twoforone stock split fon stock fon group earnings per share prior periods restated reflect stock split 17 subsequent events unaudited february 2001 sprint agreed end exclusive alliance earthlink relinquished seats earthlinks board directors result changes sprint treat investment earthlink cost method investment february 2001 sprint filed registration statement sec secondary offering 1748 million shares fon stock including 228 million shares cover overallotments owned ft dt including fon stock underlying class common stock sprint receive proceeds sale stock february 2001 sprints board directors declared dividends 125 cents per share sprint fon common stock class common stock dividends paid march 30 2001 ii27 sprint fon group schedule iicombined valuation qualifying accounts years ended december 31 2000 1999 1998 1 accounts written net recoveries 2 represents valuation allowance deferred income tax assets relating net operating loss carryforwards acquired purchase broadband fixed wireless companies ii28 sprint logo annex iii sprint pcs group combined financial information selected financial data sprint pcs group certain prioryear amounts reclassified conform current year presentation reclassifications effect results operations group equity previously reported 1 results operations 1998 include sprint pcs operating results consolidated basis entire year cable partners share losses pcs restructuring date reflected partners loss sprint pcs combined statements operations 1998 pcs groups investment sprint pcs accounted using equity method sprint pcs financial position yearend 1998 also reflected consolidated basis cash flow data reflects sprint pcs cash flows pcs restructuring date see sprints managements discussion analysis financial condition results operationsgeneral information 2 2000 pcs group recorded costs associated terminated worldcom merger 24 million charge increased loss extraordinary items net loss 16 million 1998 pcs group recorded nonrecurring charge write 179 million acquired process research development costs related pcs restructuring charge increased operating loss extraordinary items net loss 179 million 3 2000 pcs group recorded net nonrecurring gain 28 million sale customers network infrastructure pcs affiliate gain reduced loss extraordinary items net loss 18 million 4 2000 first quarter sprint effected twoforone stock split pcs common stock result diluted basic loss per common share restated periods stock split 5 loss per share pcs group periods prior 1999 pro forma basis assumes pcs restructuring recapitalization purchase 51 million pcs shares france telecom deutsche telekom occurred connection restructuring pcs groups writeoff 179 million acquired inprocess research development costs occurred beginning 1997 pro forma amounts comparative purposes necessarily represent actual results operations would transactions occurred beginning 1997 indicate results future operations na applicable iii1 managements discussion analysis sprint pcs group financial condition results operations general see sprints managements discussion analysis financial condition results operationsgeneral information forwardlooking information see sprints managements discussion analysis financial condition results operationsforwardlooking information discussion forwardlooking information sprint pcs group pcs group includes sprints wireless personal communication services pcs operations operates 100 digital pcs wireless network united states licenses provide service nationwide using single frequency single technology yearend 2000 pcs group together affiliates operated pcs systems 300 metropolitan markets including 50 largest us metropolitan areas pcs group licenses serve 280 million people 50 states puerto rico us virgin islands service offered pcs group affiliates reaches 220 million people pcs group provides nationwide service operating digital network major us metropolitan areas affiliating companies mainly around smaller us metropolitan areas roaming providers analog cellular networks using dual banddualmode handsets roaming providers digital pcs networks use code division multiple access cdma pcs group also provides wholesale pcs services companies resell services customers retail basis companies pay pcs group discounted price customers usage bear costs acquisition customer service pcs group also includes investment pegaso telecomunicaciones sa de cv pegaso wireless pcs operation mexico investment accounted using equity method wireless industry including pcs group typically generates significantly higher number subscriber additions handset sales fourth quarter year compared remaining quarters due use retail distribution dependent holiday shopping season timing new products service introductions aggressive marketing sales promotions results operations pcs groups 1999 results operations reflect first full year combined results pcs restructuring pcs groups 1998 results operations included sprintcoms operating results well sprint pcs operating results consolidated basis entire year see pro forma sprint pcs group section discussion pro forma results operations 2000 operating expenses include nonrecurring charge 24 million costs associated terminated worldcom merger charge increased loss continuing operations 16 million also included 2000 loss continuing operations nonrecurring gain 18 million sale customers network infrastructure pcs affiliate 1998 operating expenses loss continuing operations include writeoff 179 million associated cost nine inprocess research development projects acquired connection pcs restructuring pcs group markets products multiple distribution channels including retail stores well retail outlets equipment sales one retail chain subsequent service revenues generated sales customers accounted 25 net operating revenues 2000 28 1999 25 1998 pro forma sprint pcs group provide meaningful analysis pcs groups underlying operating results following supplemental discussion presents 1998 pro forma basis assumes pcs restructuring writeoff acquired process research development costs occurred prior 1998 iii2 net operating revenues include subscriber revenues sales handsets accessory equipment subscriber revenues consist monthly recurring charges usage charges activation fees subscriber revenues increased 94 2000 mainly reflecting increase average number customers pcs group added 38 million customers 2000 end year 95 million customers 300 metropolitan markets nationwide increase arpu 2000 partly due implementation activation charges second quarter subscriber revenues also aided increase resale customers companies pcs group serves wholesale basis added 238000 customers 2000 ending year approximately 310000 customers 2000 customer churn rate improved 28 34 1999 33 1998 improvement reflects expanded network coverage success several customer retention initiatives revenues sales handsets accessories approximately 14 net operating revenues 2000 17 1999 18 1998 part pcs groups marketing plans handsets normally sold prices pcs groups cost operating expenses costs services products mainly include handset accessory costs switch cell site expenses networkrelated costs increased 25 2000 79 1999 reflecting significant growth customers expanded market coverage partly offset reduction handset unit costs selling general administrative sga expense mainly includes marketing costs promote products services well salary benefit costs sga expense increased 25 2000 70 1999 reflecting expanded workforce support subscriber growth increased marketing selling costs acquisition costs per gross customer addition including equipment subsidies marketing costs improved approximately 19 2000 26 1999 lower handset unit costs scale benefits greater customer additions contributed improvement cash costs per user ccpu consists costs service revenues service delivery general administrative costs ccpu 35 2000 48 1999 73 1998 improvements reflect successful expense management scale benefits resulting increased customer base depreciation amortization expense consists mainly depreciation network assets amortization intangible assets intangible assets include goodwill pcs licenses customer base microwave relocation costs assembled workforce depreciation amortization expense increased 23 2000 47 1999 mainly reflecting depreciation network assets placed service 2000 1999 increases also reflects amortization intangible assets acquired cox pcs purchase 1999 second quarter nonoperating items interest expense effective interest rates following table reflect interest expense longterm debt interest costs shortterm borrowings classified longterm debt intergroup borrowings deferred compensation plans excluded distort pcs groups effective interest rates long term debt 1 effective interest rate longterm debt 1998 pro forma basis sprint pcs longterm debt included pcs groups outstanding longterm debt balance year iii3 decrease pcs groups effective interest rate 1998 mainly reflects increased borrowings lower interest rates effective pcs restructuring interest expense borrowings incurred sprint allocated pcs group based rates pcs group would able obtain third parties direct indirect wholly owned sprint subsidiary without benefit guaranty sprint member fon group pcs groups interest expense includes 235 million 2000 167 million 1999 11 million 1998 resulting difference sprints actual interest rates charged pcs group costs derived longterm shortterm allocated borrowings longterm portion costs included effective interest rates partners loss sprint pcs sprint pcs results operations 1998 consolidated entire year cable partners share losses pcs restructuring date reflected partners loss sprint pcs combined statements operations income expense net income expense consisted following expense 2000 mainly includes pcs groups share losses pegaso gains sales assets including certain customers associated network infrastructure certain investments income 1999 mainly includes gain sale network infrastructure totaling 25 million 13 million fon groups interest pcs groups loss income 1998 consisted mainly interest income totaling 34 million reflecting interest earned partner contributions sprint pcs partners prior pcs restructuring income taxes pcs groups effective tax rates 350 2000 359 1999 332 1998 see note 6 notes combined financial statements information differences caused effective income tax rates vary statutory federal rate income taxes related loss extraordinary items extraordinary items net 2000 sprint redeemed prior scheduled maturities 127 million pcs groups notes payable fcc notes interest rate 78 resulted 3 million aftertax extraordinary loss 1999 sprint redeemed prior scheduled maturities 22 billion pcs groups revolving credit facilities borrowings interest rates ranging 56 83 resulted 21 million aftertax extraordinary loss shortterm borrowings repaid proceeds longterm financing 1998 sprint redeemed prior scheduled maturities 33 billion pcs group debt weighted average interest rate 83 resulted 31 million aftertax extraordinary loss financial condition net property plant equipment increased 15 billion 2000 reflecting capital expenditures support pcs network buildout partly offset depreciation network asset sales net intangibles decreased 454 million mainly reflecting amortization customer base goodwill see liquidity capital resources information changes combined balance sheets liquidity capital resources pcs groups cash flows 1998 include sprint pcs cash flows pcs restructuring date operating activities cash flows used operating activities decreased 17 billion 2000 increased 15 billion 1999 2000 decrease mainly reflects decreased operating losses pcs group decrease working capital 1999 increase mainly reflects increased operating losses increase working capital iii4 investing activities pcs groups main use cash 2000 1999 1998 fund capital expenditures pcs network buildout capital expenditures pcs group totaled 30 billion 2000 26 billion 1999 11 billion 1998 investing activities also include sales assets 207 million 2000 153 million 1999 investments affiliates mainly reflects pcs groups investment pegaso financing activities financing activities reflect net proceeds longterm debt allocated sprint 29 billion 2000 32 billion 1999 1 billion 1998 addition pcs group received 121 million 2000 905 million 1999 stock issuances including stock option exercises proceeds primarily used fund pcs groups capital expenditures operating losses also included 2000 financing activities 80 million received fon group compensate net amount pcs stockbased compensation granted fon group employees fon stockbased compensation granted pcs group employees addition pcs group received 132 million proceeds sprints employee stock purchase plan 2000 connection pcs restructuring sprint adopted tax sharing agreement provides allocation income taxes fon group pcs group sprint expects fon group continue make significant payments pcs group agreement expected pcs group operating losses near future using pcs groups net operating loss carryforwards payments reflect pcs groups incremental cumulative effect sprints consolidated federal state tax liability tax credit position pcs group received payments fon group totaling 872 million 2000 764 million 1999 20 million 1998 see note 1 notes combined financial statements allocation federal state income taxes details capital requirements pcs groups 2001 investing activities mainly consisting capital expenditures investments affiliates expected 37 40 billion capital expenditures expected range 33 35 billion investments affiliates expected 350 450 million pcs preferred stock dividend payments expected total 15 million including payments fon group preferred intergroup interest see note 11 notes combined financial statements detailed discussion fon groups preferred intergroup interest pcs group liquidity see sprints managements discussion analysis financial condition results operationsliquidity discussion liquidity regulatory developments fcc sets rules regulations policies among things grant licenses pcs frequencies license renewals rule assignments transfers control pcs licenses govern interconnection pcs networks wireless wireline carriers establish access universal service funding provisions impose fines forfeitures violations fccs rules regulate technical standards pcs networks fcc currently prohibits single entity combined attributable interest 20 greater interest license broadband pcs cellular specialized mobile radio licenses totaling 45 megahertz mhz geographic area except rural service areas licensee may attributable interest 55 mhz commercial mobile radio service cmrs spectrum pcs license transfers assignments fcc must approve substantial changes ownership control pcs license noncontrolling interests entity holds pcs license operates pcs networks generally may bought sold without prior fcc approval addition fcc requires postconsummation notification certain pro forma assignments transfers control iii5 pcs license conditions pcs licenses granted 10year terms fccs buildout requirements followed based requirements 30 mhz broadband major trading area mta licensees must build networks offering coverage 13 population within five years 23 within 10 years june 2000 pcs group met fiveyear buildout requirement mta markets 10 mhz broadband pcs licensees must build networks offering coverage least 14 population within five years make showing substantial service within fiveyear period sprint anticipates meet 10 mhz fiveyear buildout requirement april 2002 deadline licenses may revoked rules violated pcs licenses may renewed additional 10year terms renewal applications subject auctions however third parties may oppose renewal applications fcc requirements broadband pcs providers cannot unreasonably restrict prohibit companies reselling services also cannot unreasonably discriminate resellers cmrs resale obligations expire 2002 local exchange carriers must program networks allow customers retain location existing telephone numbers switching one telecommunications carrier another referred service provider number portability cmrs providers currently required deliver calls networks ported numbers anywhere country november 24 2002 covered cmrs providers must provide database solution number portability solution must able support roaming covered cmrs providers must provide number portability 100 largest metropolitan statistical areas compliance certain fcc performance criteria request another carrier cmrs provider local exchange carrier broadband pcs cmrs providers may provide wireless local loop fixed services would directly compete wireline services local phone companies broadband pcs cmrs providers must implement enhanced emergency 911 capabilities twotiered manner first phase wireless carriers must identify base station call originated second phase wireless carriers must provide location within radius small fifty meters implementation complex phase ii location requirements must begin october 1 2001 communications assistance law enforcement act communications assistance law enforcement act calea enacted 1994 preserve electronic surveillance capabilities law enforcement officials face rapidly changing telecommunications technology act requires telecommunications carriers including sprint modify equipment facilities services allow authorized electronic surveillance based either industry fcc standards 1997 industry setting organizations developed interim standards wireline cellular broadband pcs carriers comply calea august 1999 fcc supplemented interim industry standards six additional capabilities interim industry standards deadline compliance june 30 2000 additional standards established fcc deadline september 30 2001 august 2000 appellate court vacated fccs decision relative four capabilities remanded matter fcc consideration sprint pcs believes compliance existing calea requirements however sprint pcs filed petition extension june 30 2000 deadline june 30 2001 event fcc determines sprint pcs must use specific vendor solution automatically provide mobile service assistance information section 103 calea specifically section requires cmrs carrier identify whether customerinterception subject traveling network outside customers service area b service provider subject roaming another cmrs network sprint pcs capable providing information upon specific request law enforcement cannot provide information automatically fcc ruled sprint pcs motion extension june 30 2000 deadline however sprint pcs deemed extension deadline march 31 2001 unless fcc revokes extension deadline issues final order different deadline federal regulations wireless systems must comply certain fcc federal aviation administration regulations siting lighting construction transmitter towers antennas addition fcc environmental regulations may cause certain cell site locations come national environmental policy act nepa national historic preservation act nhpa regulation fccs nepa nhpa rules require carriers meet certain land use radio frequency standards iii6 universal service requirements fcc many states established universal service programs ensure affordable quality telecommunications services americans pcs groups contribution programs typically percentage enduser revenues currently management cannot predict extent pcs groups future federal state universal service assessments ability recover contributions universal service fund financial strategies financial strategies determined sprint centralized basis see sprints managements discussion analysis financial condition results operationsfinancial strategies recently issued accounting pronouncements see note 12 notes combined financial statements discussion recently issued accounting pronouncements iii7 management report sprint corporations management responsible integrity objectivity information contained annex management responsible consistency reporting information ensuring accounting principles generally accepted united states used discharging responsibility management maintains comprehensive system internal controls supports extensive program internal audits made organizational arrangements providing appropriate divisions responsibility established communication programs aimed assuring policies procedures principles business conduct understood practiced employees combined financial statements included annex audited ernst young llp independent auditors audits conducted using auditing standards generally accepted united states report included herein board directors responsibility combined financial statements pursued mainly audit committee audit committee composed entirely directors officers employees sprint meets periodically internal auditors independent auditors without management present assure respective responsibilities fulfilled internal independent auditors full access audit committee discuss auditing financial reporting matters w esrey william esrey chairman chief executive officer arthur b krause arthur b krause executive vice president chief financial officer iii8 report independent auditors board directors shareholders sprint corporation audited accompanying combined balance sheets sprint pcs group described note 1 december 31 2000 1999 related combined statements operations comprehensive loss cash flows three years period ended december 31 2000 audits also included financial statement schedule listed index financial statements financial statement schedules financial statements schedule responsibility management sprint corporation sprint responsibility express opinion financial statements schedule based audits audit 1998 consolidated financial statements sprint spectrum holding company lp wholly owned subsidiary sprint december 31 1998 investment sprint 40 interest november 23 1998 discussed note 1 financial statements reflect revenues 12 billion year ended december 31 1998 consolidated financial statements financial statement schedule sprint spectrum holding company lp audited auditors whose report furnished us opinion insofar relates 1998 revenues based solely report auditors conducted audits accordance auditing standards generally accepted united states standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits report auditors provide reasonable basis opinion based audits report auditors financial statements referred present fairly material respects combined financial position sprint pcs group december 31 2000 1999 combined results operations cash flows three years period ended december 31 2000 conformity accounting principles generally accepted united states also opinion related financial statement schedule considered relation basic financial statements taken whole presents fairly material respects information set forth therein discussed note 1 combined financial statements 2000 sprint pcs group changed accounting activation fee revenues fully discussed note 1 combined financial statements sprint pcs group read together audited consolidated financial statements sprint ernst young llp kansas city missouri february 1 2001 iii9 report independent auditors board directors sprint corporation partners sprint spectrum holding company lp audited consolidated statements operations cash flows sprint spectrum holding company lp subsidiaries year ended december 31 1998 audit also included 1998 financial statement schedule ii financial statements schedule ii responsibility partnership management responsibility express opinion consolidated financial statements schedule ii based audit conducted audit accordance generally accepted auditing standards require plan perform audit obtain reasonable assurance whether consolidated financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures consolidated financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audit provides reasonable basis opinion consolidated financial statements present fairly material respects results operations cash flows sprint spectrum holding company lp subsidiaries year ended december 31 1998 conformity generally accepted accounting principles also opinion schedule ii considered relation basic 1998 consolidated financial statements taken whole presents fairly material respects information set forth therein deloitte touche llp kansas city missouri february 2 1999 iii10 combined statements operations sprint pcs group millions except per share data 1 basic diluted loss per common share weighted average common shares 1998 pro forma unaudited assume pcs restructuring recapitalization topup writeoff 179 million acquired inprocess research development occurred prior 1998 pro forma amounts comparative purposes necessarily represent actual results operations would transactions occurred prior 1998 indicate results future operations 2 2000 first quarter sprint effected twoforone stock split pcs common stock result basic diluted loss per common share weighted average common shares periods stock split restated see accompanying notes combined financial statements iii11 combined statements comprehensive loss sprint pcs group millions see accompanying notes combined financial statements iii12 combined balance sheets sprint pcs group millions see accompanying notes combined financial statements iii13 combined statements cash flows sprint pcs group millions see accompanying notes combined financial statements iii14 notes combined financial statements sprint pcs group 1 summary significant accounting policies tracking stock formation november 1998 sprints shareholders approved formation fon group pcs group creation fon stock pcs stock addition sprint purchased remaining ownership interests sprint spectrum holding company lp phillieco lp together sprint pcs minority interest cox communications pcs lp cox pcs sprint acquired ownership interests telecommunications inc comcast corporation cox communications inc cable partners exchange sprint issued cable partners special lowvote pcs shares warrants acquire additional pcs shares sprint also issued cable partners shares new class preferred stock convertible pcs shares purchase cable partners interests referred pcs restructuring 1999 second quarter cox communications inc exercised put option requiring sprint purchase remaining 408 interest cox pcs sprint issued additional low vote pcs shares exchange interest also november 1998 sprint reclassified publicly traded common shares one share fon stock 12 share pcs stock recapitalization taxfree shareholders class common share owned france telecom ft deutsche telekom ag dt reclassified represent equity interest fon group pcs group entitles ft dt one share fon stock 12 share pcs stock transactions referred recapitalization connection pcs restructuring ft dt purchased 51 million additional pcs shares presplit basis maintain voting power sprint topup pcs stock intended reflect performance sprints wireless pcs operations fon stock intended reflect performance sprints operations basis combination presentation combined pcs group financial statements together combined fon group financial statements include accounts included sprints consolidated financial statements combined financial statements group prepared basis management believes reasonable proper include combined balance sheets results operations cash flows groups significant intragroup amounts transactions eliminated allocation sprints debt including related effects results operations cash flows allocation corporate overhead pcs restructuring date pcs group entities commonly controlled companies wholly owned sprint transactions pcs group fon group eliminated combined financial statements either group pcs group combined financial statements provide pcs shareholders financial information pcs group operations investors fon stock pcs stock sprint shareholders subject risks related sprints businesses assets liabilities sprint retains ownership control assets operations group financial effects either group affect sprints results operations financial condition could affect results operations financial position group market price stock tracking group net losses either group dividends distributions repurchases pcs stock fon stock reduce sprint funds legally available dividends fon pcs stock result pcs group combined financial statements read along sprints consolidated financial statements fon groups combined financial statements sprint pcs results operations 1998 consolidated entire year cable partners share losses pcs restructuring date reflected partners loss sprint pcs combined statements operations sprint pcs financial position reflected consolidated basis yearend 1998 sprints investment sprint pcs accounted using equity method pcs groups cash flows include sprint pcs cash flows pcs restructuring date investments entities pcs group exercises significant influence control accounted using equity method see note 3 pcs group combined financial statements prepared using accounting principles generally accepted united states principles require management make estimates assumptions affect reported amounts iii15 assets liabilities disclosure contingent assets liabilities reported amounts revenues expenses actual results could differ estimates certain prioryear amounts reclassified conform current year presentation reclassifications effect results operations group equity previously reported classification operations pcs group includes sprints wireless pcs operations operates 100 digital pcs wireless network united states licenses provide nationwide service using single frequency single technology year end 2000 pcs group together affiliates operated pcs systems 300 metropolitan markets including 50 largest us metropolitan areas allocation shared services sprint directly assigns possible certain general administrative costs fon group pcs group based actual use services direct assignment costs possible practical sprint uses indirect methods including time studies estimate assignment costs group sprint believes costs allocated comparable costs would incurred groups would operating standalone basis allocation shared services may change discretion sprint require shareholder approval allocation federal state income taxes sprint files consolidated federal income tax return certain state income tax returns include fon group pcs group results connection pcs restructuring sprint adopted tax sharing agreement provides allocation income taxes two groups pcs groups income taxes reflect pcs groups incremental cumulative impact sprints consolidated income taxes intergroup tax payments satisfied date sprints related tax payment due refund received applicable tax authority pcs group accrued current income tax benefits accordance tax sharing agreement totaling 605 million 2000 887 million 1999 190 million 1998 tax sharing agreement applies tax years ending december 31 2001 periods december 31 2001 sprints board directors adopt tax sharing arrangement designed allocate tax benefits burdens fairly fon group pcs group allocation group financing activities groups managed sprint centralized basis debt incurred sprint behalf groups specifically allocated reflected financial statements applicable group interest expense allocated pcs group based interest rate substantially equal rate would able obtain third parties direct indirect wholly owned sprint subsidiary without benefit guaranty sprint member fon group interest rate higher rate sprint obtains borrowings difference sprints actual interest rate charged pcs group reflected reduction fon groups interest expense sprints centralized cash management program one group may advance funds group advances accounted shortterm borrowings groups bear interest market rate substantially equal rate group would able obtain third parties shortterm basis allocation group financing activities may change discretion sprint require shareholder approval income taxes pcs group records deferred income taxes based temporary differences carrying amounts assets liabilities financial reporting purposes tax bases revenue recognition pcs group recognizes operating revenues services rendered products delivered customers service activation fees deferred amortized average life service pcs group implemented sec staff accounting bulletin 101 revenue recognition financial statements fourth quarter 2000 effective beginning year bulletin requires activation installation fee revenues represent separate earnings process deferred recognized estimated service period associated incremental direct costs may also deferred extent revenues subject deferral effect change nine months ended september 30 2000 decrease revenues expenses 68 million cash equivalents cash equivalents generally include highly liquid investments original maturities three months less stated cost approximates iii16 market value sprint uses controlled disbursement banking arrangements part cash management program outstanding checks excess cash balances pcs group included accounts payable amounts totaled 22 million yearend 2000 30 million yearend 1999 pcs group sufficient funds available fund outstanding checks presented payment inventories stated lower cost principally firstin firstout method replacement value property plant equipment property plant equipment recorded cost generally ordinary asset retirements disposals charged accumulated depreciation gain loss recognized property plant equipment depreciated straightline basis estimated economic useful lives repair maintenance costs expensed incurred capitalized interest pcs group capitalizes interest costs related network buildout pcs licenses totaled 153 million 2000 108 million 1999 64 million 1998 addition sprint capitalized interest costs related pcs groups network buildout capitalized interest totaled 61 million 1998 contributed amortized pcs group intangible assets pcs group evaluates recoverability intangible assets events circumstances indicate assets might impaired pcs group determines impairment comparing undiscounted future cash flows estimated generated assets respective carrying value event impairment exists loss recognized based amount carrying value exceeds fair value asset goodwill represents excess purchase price fair value net assets acquired business combinations accounted purchases goodwill amortized 40 years using straightline method accumulated amortization totaled 231 million yearend 2000 116 million yearend 1999 pcs licenses pcs group acquired licenses federal communications commission fcc operate pcs service provider licenses granted 10year terms renewals additional 10year terms license obligations met licenses recorded cost amortized straightline basis 40 years service begins specific geographic area accumulated amortization totaled 206 million yearend 2000 130 million yearend 1999 customer base pcs group capitalized fair value sprint pcs customer base acquired pcs restructuring fair value cox pcs customer base remaining minority interest cox pcs acquired 1999 second quarter customer base amortized 30 months using straightline method accumulated amortization totaled 596 million yearend 2000 277 million yearend 1999 microwave relocation costs pcs group incurred costs related microwave relocation constructing pcs network microwave relocation costs amortized remaining lives pcs licenses accumulated amortization totaled 24 million yearend 2000 15 million yearend 1999 loss per share result pcs restructuring recapitalization loss per share pcs group 1998 calculated based groups net loss november 1998 yearend 1998 calculated group basis periods prior november 1998 pcs stock part sprints capital structure time 2000 first quarter sprint effected twoforone split pcs common stock result basic diluted loss per common share weighted average common shares pcs common stock restated periods prior stock split dilutive securities pcs group mainly include options warrants convertible preferred stock securities dilutive effect loss per share pcs group incurred net losses 2000 1999 1998 result diluted loss per share equaled basic loss per share iii17 pcs groups basic diluted loss per common share 1998 pcs restructuring recapitalization date follows stockbased compensation pcs group participates incentivebased stock option plans employee stock purchase plan administered sprint executives employees sprint adopted pro forma disclosure requirements statement financial accounting standards sfas 123 stockbased compensation continues apply accounting principles board opinion 25 accounting stock issued employees related interpretations stock option employee stock purchase plans pcs group applied sfas 123 pro forma net loss would 2135 million 2000 2578 million 1999 would changed materially recapitalization date yearend 1998 see note 12 sprints notes consolidated financial statements information sprints stockbased compensation pcs groups pro forma net loss per share 1997 sprint granted performancebased stock options certain key executives pcs group expensed 3 million 2000 5 million 1999 1 million 1998 related performancebased stock options 2000 amount reflects expense date shareholder approval proposed worldcom merger time options became vested additional 10 million expense related options included merger related costs combined statements operations 2 business combinations cox pcs 1999 second quarter cox communications inc exercised put option requiring sprint purchase remaining 408 interest cox pcs sprints existing 592 interest cox pcs reflected pcs group combined financial statements combined basis sprint issued 243 million shares lowvote pcs stock presplit basis exchange remaining interest shares valued 11 billion sprint accounted transaction purchase excess purchase price fair value net liabilities acquired allocated follows goodwill amortized straightline basis 40 years pcs restructuring november 1998 sprint acquired remaining interest sprint pcs except minority interest cox pcs cable partners exchange sprint issued cable partners 1951 million lowvote shares pcs stock 125 million warrants purchase additional shares pcs stock pre split basis purchase price 32 billion addition sprint issued cable partners shares new class preferred stock convertible pcs shares sprint accounted transaction purchase excess purchase price fair value net liabilities acquired allocated follows goodwill amortized straightline basis 40 years iii18 respect purchase price attributed inprocess research development iprd acquired iprd limited significant new products development intended address new emerging market needs requirements rapid adoption internet rapid convergence voice data video routine research development projects minor refinements normal enhancements production activities included acquired iprd income approach primary technique utilized valuing acquired iprd approach included limited analysis 1 markets product 2 completion costs projects 3 expected cash flows attributable iprd projects 4 risks related achieving cash flows 5 stage development project issue alternative future use extensively evaluated technologies completed could economically used intended purposes sprint pcs group pro forma results following unaudited pro forma combined results operations pcs group assume pcs restructuring recapitalization topup writeoff acquired iprd costs occurred prior 1998 pro forma amounts comparative purposes necessarily represent actual results operations would transactions occurred prior 1998 indicate results future operations pro forma results follows 3 investment 2000 second quarter pcs group made investment pegaso telecomunicaciones sa de cv wireless pcs operation mexico pcs group accounts investment using equity method unaudited summarized financial information 100 basis entity follows 4 merger termination july 13 2000 sprint worldcom inc announced boards directors companies terminated merger agreement previously announced october 1999 result regulatory opposition merger 2000 second quarter pcs group recognized onetime pretax charge 24 million costs associated terminated merger 5 employee benefit plans defined benefit pension plan effective january 1999 pcs group employees became eligible participate sprints pension plans pension benefits based years service participants compensation sprints policy make plan contributions equal actuarially determined amount consistent federal tax regulations funding objective accumulate funds relatively stable rate participants working lives benefits fully funded retirement amounts included combined balance sheets plan accrued pension costs 12 million yearend 2000 5 million yearend 1999 net pension costs determined pcs group based direct calculation service costs pcs group recorded net pension costs 7 million 2000 5 million 1999 iii19 defined contribution plan prior january 1999 sprint pcs sponsored savings retirement program certain employees sprint pcs matched contributions equal 50 contribution participant first 6 employee elected contribute expense savings plan 7 million 1998 effective january 1999 pcs group employees began making contributions sprints defined contribution plan existing assets sprint pcs savings plan rolled sprints defined contribution plan early 1999 pcs group recorded expense 17 million 2000 10 million 1999 sprints matching contributions sprint defined contribution plans yearend 2000 sprints defined contribution plans held 34 million fon shares 31 million pcs shares postretirement benefits effective january 1999 pcs group employees also became eligible postretirement benefits principally medical life insurance benefits retiring employees eligible benefits sharedcost basis sprint funds accrued costs benefits paid amounts included combined balance sheets yearend accrued postretirement benefits costs 1 million 2000 1999 net postretirement benefits costs determined pcs group based direct calculation service costs pcs group recorded net postretirement benefits costs 02 million 2000 1 million 1999 6 income taxes income tax benefits allocated continuing operations consisted following differences caused pcs groups effective income tax rates vary 35 federal statutory rate income taxes related continuing operations follows income tax expense benefit allocated items follows 1 amounts recorded directly group equity iii20 pcs group recognizes deferred income taxes temporary differences carrying amounts assets liabilities financial statement purposes tax bases sources differences give rise deferred income tax assets liabilities yearend 2000 1999 along income tax effect follows management believes likely deferred income tax assets net valuation allowance realized based current income tax laws expectations future taxable income stemming reversal existing deferred tax liabilities ordinary operations uncertainties surrounding income tax law changes shifts operations state taxing jurisdictions future operating income levels may however affect ultimate realization deferred income tax assets valuation allowance related deferred income tax assets increased 42 million 2000 38 million 1999 1998 pcs group acquired approximately 229 million potential tax benefits related net operating loss carryforwards pcs restructuring subject certain realization restrictions various tax laws valuation allowance provided total benefits subsequently recognized reduce goodwill noncurrent intangible assets resulting pcs restructuring connection pcs restructuring pcs group required reimburse fon group cable partners net operating loss tax credit carryforward benefits generated prior pcs restructuring realization pcs group produces cash benefit would otherwise realized reimbursement equal 60 net cash benefit received pcs group made fon group cash cable partners shares series 2 pcs stock carryforward benefits subject requirement totaled 259 million includes 229 million acquired pcs restructuring yearend 2000 pcs group federal operating loss carryforwards approximately 42 billion state operating loss carryforwards approximately 72 billion related loss carryforwards federal tax benefits 15 billion state tax benefits 519 million addition pcs group available income tax purposes federal alternative minimum tax credit carryforwards 33 million state alternative minimum tax credit carryforwards 5 million federal alternative minimum tax net operating loss carryforwards 22 billion state alternative minimum tax net operating loss carryforwards 682 million loss carryforwards expire varying amounts 2020 iii21 7 longterm debt capital lease obligations sprints consolidated longterm debt capital lease obligations yearend follows 1 borrowings incurred sprint allocated applicable group sprints weighted average interest rate related borrowings 67 yearend 2000 66 yearend 1999 weighted average interest rate related borrowings allocated pcs group approximately 88 yearend 2000 87 yearend 1999 see note 1 detailed description sprint allocates financing groups 2 consolidated debt equal total pcs group fon group debt due intergroup debt eliminated consolidation fon group investment pcs groups senior discount notes totaling 169 million yearend 2000 including 65 million classified current 150 million yearend 1999 iii22 scheduled principal payments excluding reclassified shortterm borrowings next five years follows 1 2001 scheduled principal payments equal current maturities amounts reflect maturity value scheduled payment pcs groups senior discount notes included schedule payments pcs group debt made japanese yen needed satisfy obligations currently held deposit pcs group included assets pcs groups combined balance sheets scheduled yen payments included schedule 1 million 2003 20 million 2004 43 million 2005 sprint shortterm borrowings sprint bank notes payable totaling 676 million yearend 2000 670 million yearend 1999 addition sprint commercial paper borrowings totaling 33 billion yearend 2000 16 billion yearend 1999 though borrowings renewable various dates throughout year classified longterm debt sprints intent ability refinance borrowings longterm basis unused credit facilities unissued debt sprints shelf registration sprint currently revolving credit facilities syndicates domestic international banks totaling 5 billion 3 billion 364 day facility renewed august 2000 expiring 2001 2 billion 5 year facility expiring 2003 commercial paper certain bank notes supported sprints revolving credit facilities certain notes payable relate separate revolving credit facility expires 2002 year end 2000 sprint total unused lines credit 18 billion bank notes outstanding weighted average interest rates 71 yearend 2000 63 yearend 1999 weighted average interest rate commercial paper 75 yearend 2000 64 yearend 1999 longterm debt june 2000 sprint issued 125 billion debt securities 4 billion shelf registration statement sec borrowings mature 2002 interest rates ranging 69 76 yearend 2000 sprint issued total 2 billion debt securities shelf january 2001 sprint issued securities using remaining amount shelf see note 14 june 1999 sprint entered 1 billion financing agreement sell continuous basis recourse undivided percentage ownership interests designated pool accounts receivable subsequent collections receivables sold investors typically reinvested new receivables yearend 2000 sprint borrowed 900 million weighted average interest rate 69 agreement borrowings mature 2002 sprint pcs group 2000 sprint allocated 33 billion debt pcs group debt mainly used fund new capital investments repay existing debt 2000 first quarter sprint repaid prior scheduled maturities 127 million pcs groups notes payable fcc notes interest rate 78 resulted 3 million aftertax extraordinary loss 1999 pcs group repaid 22 billion revolving credit facilities borrowings prior scheduled maturities resulted 21 million aftertax extraordinary loss 1998 sprint redeemed prior scheduled maturities 33 billion pcs group debt weighted average interest rate 83 resulted 31 million aftertax extraordinary loss pcs group sprint including pcs group complied restrictive financial covenants relating debt arrangements yearend 2000 iii23 8 group equity 9 commitments contingencies litigation claims assessments pcs shareholders subject risks related investment sprint pcs group including effects legal proceedings claims fon group december 2000 amalgamated bank institutional shareholder filed derivative action purportedly behalf sprint certain current former officers directors jackson county missouri circuit court complaint alleges individual defendants breached fiduciary duties sprint unjustly enriched making undisclosed amendments sprints stock option plans failing disclose certain information concerning regulatory approval proposed merger sprint worldcom overstating sprints earnings first quarter 2000 plaintiff seeks damages paid sprint unspecified amount two additional substantially identical derivative actions shareholders filed various suits arising ordinary course business pending sprint management cannot predict final outcome actions believes material pcs group combined financial statements commitments pcs group purchase commitments various vendors purchase handsets equipment 2001 outstanding commitments yearend 2000 approximately 830 million purchases commitments 2000 totaled approximately 2 million operating leases pcs groups minimum rental commitments yearend 2000 noncancelable operating leases consisting mainly leases cell switch sites office space follows pcs groups gross rental expense totaled 400 million 2000 315 million 1999 256 million 1998 table excludes renewal options related certain cell switch site leases renewal options generally five year terms may exercised time 10 financial instruments fair value financial instruments sprint estimates fair value pcs groups financial instruments using available market information appropriate valuation methodologies result following estimates necessarily represent values pcs group could realize current market exchange although management aware factors would affect yearend 2000 estimated fair values amounts comprehensively revalued purposes financial statements since date therefore estimates fair value yearend 2000 may differ significantly amounts presented carrying amounts estimated fair values pcs groups financial instruments yearend follows iii24 carrying amounts pcs groups cash equivalents approximate fair value yearend 2000 1999 estimated fair value investments equity securities based quoted market prices estimated fair value pcs groups longterm debt based quoted market prices publicly traded issues estimated fair value issues based present value estimated future cash flows using discount rate based risks involved concentrations credit risk pcs groups accounts receivable subject concentration credit risk interest rate swap agreements 1998 sprint deferred losses termination interest rate swap agreements used hedge portion 50 billion debt offering losses totaling 75 million allocated pcs group amortized interest expense using effective interest method term debt yearend 2000 remaining unamortized deferred loss totaled 61 million 11 additional financial information supplemental cash flows information pcs groups cash paid received interest income taxes follows noncash activities pcs group included following see note 2 details assets liabilities acquired cox pcs purchase pcs restructuring intergroup investments transactions sprint fon group investments sprint pcs group following table reflects fon groups investments pcs group eliminated sprints consolidated financial statements common intergroup interest fon group received 1 intergroup interest pcs group time pcs restructuring recapitalization subsequently pcs shares representing intergroup interest issued fon group employees exhausting fon groups interest pcs group january 2000 fon groups share pcs groups net loss totaled 13 million 1999 6 million date pcs restructuring yearend 1998 included income net sprint fon group combined statements operations intergroup interest exhausted 2000 additional pcs group losses recognized fon group 2000 iii25 preferred intergroup interest fon group provided sprint pcs group interim financing date pcs restructuring agreement signed may 1998 completed november 1998 part pcs restructuring sprint converted financing totaling 279 million intergroup interest representing 03 million shares 10year pcs preferred stock convertible pcs common intergroup interest pcs group paid fon group dividends preferred intergroup interest 8 million 2000 1999 1 million 1998 longterm loans sprint provided sprint pcs additional interim financing 180 million may 1998 november 1998 loan repaid 1999 intergroup interest expense difference sprints actual interest costs interest costs charged pcs group allocated debt totaled 235 million 2000 167 million 1999 11 million 1998 additionally pcs group incurred intergroup interest expense 19 million 2000 16 million 1999 15 million 1998 related fon groups investment pcs group debt securities amounts included interest expense sprint pcs group combined statements operations see note 1 detailed description sprint allocates interest expense groups intergroup transactions pcs group uses long distance operation interexchange carrier purchases wholesale long distance resale customers additionally fon group provides pcs group caller id services various goods services charges pcs group items totaled 396 million 2000 280 million 1999 21 million pcs restructuring date yearend 1998 pcs group provides fon group access network telemarketing various services charges fon group items totaled 35 million 2000 4 million 1999 fon group provides management printing mailing warehousing services pcs group charges pcs group services totaled 150 million 2000 65 million 1999 5 million pcs restructuring date yearend 1998 related party transactions sprint pcs group cable partners advanced phillieco 26 million 1998 advances repaid 1999 first quarter sprint pcs following discussion reflects related party transactions sprint pcs prior pcs restructuring sprint provided sprint pcs billing operator services switching equipment sprint pcs also used long distance operation interexchange carrier charges sprint pcs services totaled 104 million 1998 sprint provided management printing mailing warehousing services sprint pcs charges sprint pcs services totaled 25 million 1998 sprint vendor financing loan sprint pcs 300 million yearend 1997 repaid 1998 sprint also loaned sprint pcs 114 million 1998 repaid 1999 first quarter major customer pcs group markets products multiple distribution channels including retail stores well retail outlets equipment sales one retail chain subsequent service revenues generated sales customers accounted 25 net operating revenues 2000 28 1999 25 1998 12 recently issued accounting pronouncements june 1998 financial accounting standards board issued sfas no133 accounting derivative instruments hedging activities standard requires derivatives recorded balance sheet either assets liabilities measured fair value gains losses changes derivative values accounted based derivative used whether qualifies hedge accounting statement adopted january 2001 material impact pcs groups combined financial statements september 2000 financial accounting standards board issued sfas 140 accounting transfers servicing financial assets extinguishments liabilitiesa replacement fasb statement 125 statement revises standards accounting securitizations transfers financial assets provides consistent standards distinguishing transfers sales secured borrowings statement effective transactions occurring march 31 2001 expected material impact pcs groups combined financial statements iii26 13 quarterly financial data unaudited 1 certain reclassifications made net operating revenues operating expenses amounts reported 2000 quarterly reports form 10q conform industry events practices reclassifications impact operating loss previously reported additionally 2000 fourth quarter pcs group adopted sec staff accounting bulletin 101 revenue recognition financial statements sab 101 required sab 101 2000 net operating revenues restated amounts reported 2000 quarterly reports form 10q net operating revenues unchanged 2000 first quarter reduced 32 million 2000 second quarter 36 million 2000 third quarter 2 2000 first quarter sprint effected twoforone stock split pcs stock pcs group loss per share prior periods restated reflect stock split 14 subsequent event unaudited january 2001 sprint issued 24 billion debt securities sprint 2 billion unissued securities existing shelf registration statement sec registered additional 400 million prior issuance borrowings interest rates ranging 71 76 scheduled maturities 2006 2011 proceeds allocated pcs group used mainly repay existing debt iii27 sprint pcs group schedule iicombined valuation qualifying accounts years ended december 31 2000 1999 1998 1 discussed note 1 notes combined financial statements pcs groups assets liabilities recorded fair values pcs restructuring date therefore data presented schedule reflects activity since pcs restructuring 2 represents valuation allowance deferred income tax assets recorded connection pcs restructuring 3 accounts written net recoveries iii28 item 14 principal accountant fees services information required item incorporated reference information set forth caption “ratification independent registered public accounting firm” proxy statement relating 2008 annual meeting shareholders filed sec part iv item 15 item 14 principal accountant fees services information required item incorporated reference information set forth caption “ratification independent registered public accounting firm” proxy statement relating 2012 annual meeting shareholders filed sec part iv item 15 item 14 principal accountant fees services kpmg llp kpmg served sprint nextels independent registered public accountant predecessor period upon closing softbank merger board appointed deloitte touche llp deloitte companys independent registered public accountant successor period fees kpmg audit fees professional services rendered audit consolidated financial statements 191day period ended july 10 2013 review consolidated financial statements included form 10qs first second quarters 2013 statutory audits international subsidiaries kpmg billed us total 97 million professional services rendered audit 2012 consolidated financial statements report effectiveness internal control financial reporting required sarbanesoxley act review consolidated financial statements included 2012 form 10qs statutory audits international subsidiaries kpmg billed us total 158 million amounts also include reviews documents filed sec accounting consultations related annual audit preparation letters underwriters requesting parties auditrelated fees professional auditrelated services rendered us serving independent registered public accountant kpmg billed us total 36 million 2013 auditrelated services 2013 generally included accounting research audits employee benefit plans internal control reviews attestation services professional auditrelated services rendered us kpmg billed us total 13 million 2012 auditrelated services 2012 generally included audits employee benefit plans internal control reviews attestation services tax fees professional tax services rendered us serving independent registered public accountant kpmg billed us total approximately 08 million 2013 tax services 2013 primarily included tax consultation matters professional tax services rendered us kpmg billed us total approximately 08 million 2012 tax services 2012 primarily included tax consultation matters fees included nonaudit services 02 million rendered us financial management advisory services 2012 audit committee determined nonaudit services rendered kpmg 2013 2012 compatible maintaining independence auditors consolidated financial statements fees deloitte professional services rendered audit successor consolidated financial statements audit effectiveness internal control financial reporting review consolidated financial statements audits certain subsidiaries statutory reporting purposes deloitte billed us total 91 million auditrelated fees professional auditrelated services rendered us generally related attestation services including registration statements offering related services deloitte billed us total approximately 11 million 2013 tax fees professional tax services rendered us deloitte billed us total approximately 01 million 2013 tax services 2013 primarily related tax compliance services one subsidiaries fees included nonaudit services approximately 136 million included approximately 33 million management advisory services approximately 103 million billed us deloitte 2013 amounts billed paid sprint directly related deloitte providing subcontractor services independent thirdparty administrator oversees fcc 800 mhz band reconfiguration audit committee determined nonaudit services rendered deloitte 2013 compatible maintaining independence auditors consolidated financial statements preapproval policies procedures audit committee adopted policies procedures concerning independent registered public accounting firm including preapproval services provided audit committee preapproved services described audit committee responsible preapproval audit auditrelated tax nonaudit services however preapproval authority may delegated one members audit committee details services approved delegation must reported full audit committee next regular meeting independent registered public accounting firm generally prohibited providing certain nonaudit services policy restrictive sec rules related nonaudit services permissible nonaudit service engagement must specifically approved advance audit committee provide quarterly reporting audit committee regarding audit auditrelated tax nonaudit services provided independent registered public accounting firm part iv item 15 item 14 principal accounting fees services information required item incorporated reference information set forth caption principal accounting fees services proxy statement relating 2018 annual meeting stockholders filed sec part iv item 15 item 14 principal accounting fees services information required item incorporated reference information set forth caption principal accounting fees services proxy statement relating 2019 annual meeting stockholders held part iv item 15 item 14 principal accountant fees services information required item incorporated reference information set forth caption “ratification independent registered public accounting firm” proxy statement relating 2011 annual meeting shareholders filed sec part iv item 15 item 14 exhibits financial statement schedules reports form 8k 1 consolidated financial statements sprint supplementary financial information filed part report listed index financial statements financial statement schedules supplementary data 2 consolidated financial statement schedules sprint filed part report listed index financial statements financial statement schedules supplementary data 3 following exhibits filed part report exhibits 3 articles incorporation bylaws articles incorporation amended filed exhibit 4 sprint corporation current report form 8k dated march 9 1993 incorporated herein reference b bylaws amended filed exhibit 3b sprint corporation annual report form 10k year ended december 31 1991 incorporated herein reference 4 instruments defining rights sprints equity security holders rights sprints equity security holders defined fifth sixth seventh eighth articles sprints articles incorporation see exhibit 3a b rights agreement dated august 8 1989 sprint corporation formerly united telecommunications inc united missouri bank na formerly united missouri bank kansas city na rights agent filed exhibit 2b sprint corporation registration statement form 8 dated august 11 1989 file 14721 incorporated herein reference c amendment supplement dated june 4 1992 rights agreement dated august 8 1989 filed exhibit 2c amendment 1 form 8 dated june 8 1992 sprint corporation registration statement form 8a dated august 11 1989 file 14721 incorporated herein reference 10 material agreements merger agreement plan merger dated may 27 1992 among sprint corporation f w sub inc centel corporation filed exhibit 2 sprint corporation current report form 8k dated may 27 1992 incorporated herein reference b first amendment dated february 19 1993 agreement plan merger dated may 27 1992 among sprint corporation f w sub inc centel corporation filed exhibit 2b sprint corporation current report form 8k dated march 9 1993 incorporated herein reference 10 executive compensation plans arrangements c 1978 stock option plan amended filed exhibit 19a united telecommunications inc quarterly report form 10q quarter ended september 30 1991 incorporated herein reference 1981 stock option plan amended filed exhibit 19b united telecommunications inc quarterly report form 10q quarter ended september 30 1991 incorporated herein reference e 1985 stock option plan amended filed exhibit 19c united telecommunications inc quarterly report form 10q quarter ended september 30 1991 incorporated herein reference f 1990 stock option plan amended g 1990 restricted stock plan amended filed exhibit 99 sprint corporation registration statement 3350421 incorporated herein reference h longterm stock incentive program amended filed exhibit 19e united telecommunications inc quarterly report form 10q quarter ended september 30 1991 incorporated herein reference restated memorandum agreements respecting supplemental pension benefits sprint corporation formerly united telecommunications inc two current former executive officers filed exhibit 10i sprint corporation annual report form 10k year ended december 31 1992 incorporated herein reference j executive longterm incentive plan k executive management incentive plan l longterm incentive compensation plan filed exhibit 10j united telecommunications inc annual report form 10k year ended december 31 1989 incorporated herein reference shortterm incentive compensation plan filed exhibit 10k united telecommunications inc annual report form 10k year ended december 31 1989 incorporated herein reference n retirement plan directors amended filed exhibit 28d registration statement 3328237 incorporated herein reference key management benefit plan amended p executive deferred compensation plan amended filed exhibit 19f united telecommunications inc quarterly report form 10q quarter ended september 30 1991 incorporated herein reference q directors deferred fee plan amended filed exhibit 19g united telecommunications inc quarterly report form 10q quarter ended september 30 1991 incorporated herein reference r supplemental executive retirement plan filed exhibit 10q sprint corporation annual report form 10k year ended december 31 1992 incorporated herein reference form contingency employment agreements sprint corporation certain executive officers filed exhibit 10r sprint corporation annual report form 10k year ended december 31 1992 incorporated herein reference form indemnification agreements sprint corporation formerly united telecommunications inc directors officers filed exhibit 10s sprint corporation annual report form 10k year ended december 31 1991 incorporated herein reference u summary executive benefits filed exhibit 10u sprint corporation annual report form 10k year ended december 31 1991 incorporated herein reference v amended restated centel management incentive plan w amended restated centel stock option plan x agreements regarding special compensation post employment restrictive covenants sprint corporation three executive officers amended restated centel matched deferred salary plan z amended restated centel directors deferred compensation plan aa amended restated centel director stock option plan 11 computation earnings per common share 12 computation ratio earnings fixed charges 21 subsidiaries registrant 23a consent ernst young 23b consent arthur andersen co sprint furnish securities exchange commission upon request copy instruments defining rights holders longterm debt longterm debt subsidiaries total amount securities authorized said instruments exceed 10 percent total assets sprint subsidiaries consolidated basis b reports form 8k reports form 8k filed fourth quarter 1993 c exhibits listed item 14a signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized sprint corporation registrant w esrey william esrey chairman chief executive officer date march 14 1994 pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities indicated 14th day march 1994 w esrey william esrey chairman chief executive officer arthur b krause arthur b krause executive vice president chief financial officer john p meyer john p meyer senior vice president controller principal accounting officer signatures sprint corporation registrant pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities indicated 14th day march 1994 dubose ausley robert e r huntley dubose ausley director robert e r huntley director warren l batts george hutton jr warren l batts director george n hutton jr director ruth davis ronald lemay ruth davis director ronald lemay director joseph l dionne linda k lorimer joseph l dionne director linda koch lorimer director w esrey c price william esrey director charles h price ii director donald j hall frank e reed donald j hall director frank e reed director p h henson charles e rice paul h henson director charles e rice director harold hook stewart turley harold hook director stewart turley director index financial statements financial sprint corporation statement schedules supplementary data selected financial data managements discussion analysis financial condition results operations consolidated financial statements schedules management report independent auditors ernst young report independent auditors arthur andersen co business segment information three years ended december 31 1993 consolidated statements income three years ended december 31 1993 consolidated balance sheets december 31 1993 1992 consolidated statements cash flows three years ended december 31 1993 consolidated statements common stock shareholders equity three years ended december 31 1993 notes consolidated financial statements financial statement schedules three years ended december 31 1993 v consolidated property plant equipment vi consolidated accumulated depreciation viii consolidated valuation qualifying accounts ix consolidated shortterm borrowings x consolidated supplementary income statement information certain financial statement schedules omitted required information present information required included consolidated financial statements notes thereto quarterly financial data selected financial data sprint corporation years ended december 31 1993 1992 1991 1990 1989 millions except per share data results operations 1 net operating revenues 113678 104203 99333 94698 85576 operating income 2 12506 12134 11856 10453 10767 income continuing operations 2 3 4 4806 4961 4727 3511 3530 earnings per common share continuing operations 2 3 4 139 146 141 106 108 dividends per common share 100 097 financial position 1 total assets 141489 135996 139298 140806 130927 property plant equipment net 103148 102199 103105 102952 97009 total debt including shortterm borrowings 50944 54427 55712 60823 54713 redeemable preferred stock 386 402 566 600 635 common stock shareholders equity 39183 39716 36719 33535 31515 1effective march 9 1993 sprint corporation sprint consummated merger centel corporation centel merger accounted pooling interests accompanying data retroactively restated include results operations financial position centel dividends per common share periods prior merger represent amounts paid sprint 2during 1993 nonrecurring charges 293 million recorded related transaction costs associated merger centel expenses integrating restructuring operations two companies b realignment restructuring within long distance division charges reduced consolidated 1993 income continuing operations 193 million 056 per share 1990 nonrecurring charges 72 million recorded related long distance division reduced consolidated 1990 income continuing operations 37 million 011 per share 3during 1992 1991 gains recognized related sales certain local telephone cellular properties increased consolidated 1992 income continuing operations 44 million 013 per share consolidated 1991 income continuing operations 78 million 023 per share 4during 1993 result enactment revenue reconciliation act 1993 sprint required adjust deferred income tax assets liabilities reflect increased tax rate adjustment reduced consolidated 1993 income continuing operations 13 million 004 per share managements discussion analysis sprint corporation financial condition results operations sprintcentel merger effective march 9 1993 sprint corporation sprint consummated merger centel corporation centel creating diversified telecommunications enterprise operations long distance local exchange cellularwireless communications services merger accounted pooling interests accordingly accompanying consolidated financial statements information restated retroactively include results operations financial position cash flows centel periods prior consummation merger consolidated results operations sprints primary divisions long distance local cellularwireless communications services generated record levels net operating revenues improved operating results 1993 long distance division generated solid 8 percent growth traffic volumes 1993 number access lines served local division grew 5 percent cellularwireless division benefited strong 67 percent customer line growth rate cost controls synergies resulting merger centel also contributed improved 1993 results consolidated results operations 1993 1992 1991 however affected several nonrecurring items described next section highlights consolidated results follows excluding nonrecurring items applicable consolidated net operating revenues grew 9 percent 1993 1137 billion following 5 percent increase 1992 income continuing operations 1993 687 million compared 452 million 1992 395 million 1991 represents compounded annual growth rate 21 percent past three years earnings per common share continuing operations increased 50 percent 1993 199 per share compared 133 per share 1992 following analysis earnings per common share 1993 1992 highlights factors contributing improved results impact nonrecurring items 1993 1992 prior years earnings per common share continuing operations excluding nonrecurring items 133 118 favorable unfavorable factors contributing changes divisional operating results 063 006 interest expense 011 007 nonoperating expense 003 005 effective income tax rate 002 change weighted average common shares 003 001 current years earnings per common share continuing operations excluding nonrecurring items 199 133 nonrecurring items merger integration restructuring costs 056 divestitures 013 1993 tax law change 004 discontinued operations 004 extraordinary losses 008 005 accounting changes 112 007 total earnings per common share 015 148 nonrecurring items merger integration restructuring costs result merger centel operations merged companies continue integrated restructured achieve efficiencies begun yield operational synergies cost savings particularly latter half 1993 transaction costs associated merger consisting primarily investment banking legal fees estimated expenses integrating restructuring operations two companies consisting primarily employee severance relocation expenses costs eliminating duplicative facilities resulted nonrecurring charges aggregating 259 million reduced 1993 income continuing operations 172 million 050 per share addition 1993 sprint initiated realignment restructuring long distance division including elimination approximately 1000 positions closure two facilities actions expected improve market focus lower costs streamline operations within division resulted nonrecurring charge 34 million reduced 1993 income continuing operations 21 million 006 per share divestitures local telephone cellular operations 1992 1991 resulted gains 81 million 114 million respectively increased income continuing operations 44 million 78 million respectively 1993 tax law change august 1993 revenue reconciliation act 1993 enacted among changes raised federal income tax rate 35 percent 34 percent result sprint adjusted deferred income tax assets liabilities reflect revised rate adjustment related sprints nonregulated subsidiaries increased income tax provision 1993 13 million discontinued operations extraordinary losses 1993 sprint incurred loss discontinued operations 12 million net related income tax benefits 1993 1992 1991 sprint incurred extraordinary losses related early extinguishments debt 29 million 16 million 2 million respectively net related income tax benefits accounting changes effective january 1 1993 sprint changed method accounting postretirement postemployment benefits adopting statement financial accounting standards sfas 106 112 effected another accounting change cumulative effect changes accounting principles reduced 1993 net income 384 million effective january 1 1992 sprint also changed method accounting income taxes adopting sfas 109 cumulative effect change accounting principle increased 1992 net income 23 million nonoperating items interest expense 1993 1992 decreased 59 million 37 million respectively generally related decreases average levels debt outstanding lower interest rates components expense net follows millions 1993 1992 1991 equity earnings cellular minority partnership investments 200 128 88 minority interests 94 61 516 writedown assets held sale 160 150 net 169 33 72 total expense net 223 50 356 decline 1992 minority interests reflects sprints acquisition remaining 199 percent minority interest sprint communications company lp limited partnership effective january 1 1992 sprints income tax provisions 1993 1992 1991 resulted effective tax rates 38 percent 36 percent 34 percent respectively see note 4 notes consolidated financial statements information regarding differences cause effective income tax rates vary statutory federal income tax rates december 31 1993 sprint recorded deferred income tax assets 316 million related postretirement benefits accruals 260 million related alternative minimum tax credit carryforwards 40 million net 25 million valuation allowance related state operating loss carryforwards sprints management determined likely deferred income tax assets net valuation allowance realized based current income tax laws expectations future taxable income stemming ordinary operations reversal existing deferred tax liabilities uncertainties surrounding income tax law changes shifts operations state taxing jurisdictions future operating income levels may however affect ultimate realization portion deferred income tax assets effects inflation sprints operations significant 1993 1992 1991 segmental results operations long distance communications services sprints long distance division provides domestic international voice data communications services rates charged division services subject different levels state federal regulation generally ratebase regulated net operating revenues increased 9 percent 1993 following 5 percent increase 1992 increases generally due traffic volume growth 8 percent 6 percent respectively average revenue per minute received customers relatively constant 1993 declined 3 percent 1992 primarily due mix products among markets competitive influences increases net operating revenues traffic volumes 1993 1992 reflect ongoing growth business international markets coupled rebounding growth residential market 1993 growth business market 1993 also enhanced arrival 800 portability whereby customers wish change long distance carriers may retaining advertised 800 numbers addition lower revenue adjustments reflecting improvement collectibility customer accounts receivable resulted increased net operating revenues 1992 future rates growth net operating revenues traffic volumes may influenced domestic international economic conditions divisions ability maintain market share current price levels intensely competitive long distance marketplace interconnection costs increased 136 million 118 million 1993 1992 respectively international interconnection costs increased due increased traffic volumes partially offset price reductions conversion international traffic resale arrangements traffic transported long distance carriers less costly direct access arrangements costs connecting networks domestically also increased primarily result traffic volume growth partially offset reductions interconnection rates paid local exchange companies reduced costs related transition switched special access arrangements interconnection costs percentage net operating revenues 44 percent 1993 compared 46 percent 1992 1991 operations expense consists costs related operating maintaining long distance network costs providing various services operator services public payphones telecommunications services hearing impaired video teleconferencing costs data systems sales operations expense increased 98 million 1993 1992 partially due change accounting whereby circuit activity costs expensed incurred see note 1 notes consolidated financial statements additional information exclusive effect accounting change operations expense increased approximately 63 million 1993 43 million 1992 primarily due expanded service offerings increased traffic volumes increased salaries related benefits selling general administrative sga expense increased 120 million 92 million 1993 1992 respectively generally result intensified sales marketing efforts 1993 marketing efforts primarily directed towards 800 portability calling plan recently introduced campaign resulted increased advertising marketing expenses well increased commissions salaries related expenses 1992 introduction several new calling plans calling card features also resulted increases sales marketing expenses despite increases amount sga expense 1993 1992 expenses percentage net operating revenues remained constant compared 1991 25 percent depreciation amortization 1993 decreased 1992 primarily due change accounting circuit activity costs described depreciation amortization 1992 consistent 1991 amount increased depreciation resulting additions property plant equipment substantially offset decrease amortization expense resulting full amortization june 1991 certain intangible assets related 1986 formation limited partnership local communications services local division consists principally sprints rate regulated local exchange telephone operations following table summarizes major category net operating revenues division millions 1993 1992 1991 net operating revenues local service 16243 15074 14364 network access 15304 14258 13985 toll service 5053 4875 4872 4660 4415 4316 total 41260 38622 37537 described note 9 notes consolidated financial statements certain local telephone operations divested 1992 1991 following comparisons discussion exclude effects divested operations net operating revenues increased 7 percent 1993 following 5 percent increase 1992 increased local service revenues reflect continued increases number access lines served growth addon services custom calling features division experienced 48 percent growth access lines 1993 compared 42 percent 1992 network access revenues derived interexchange long distance carriers use local network complete calls increased 1993 1992 result increased traffic volumes additional revenues resulting recognition portion merger integration restructuring costs regulatory purposes certain jurisdictions partially offset periodic reductions network access rates charged toll service revenues related provision long distance services within specified geographical areas reselling interexchange long distance services increased 4 percent 1 percent 1993 1992 respectively increase 1993 primarily reflects election divisions indiana operations serve primary intralata toll carrier within serving area rather providing network access another carrier revenues increased 1993 1992 generally due higher equipment sales plant operations expense includes network operations costs repair maintenance costs property plant equipment expenses associated cost providing services 4 percent 2 percent increases costs 1993 1992 respectively primarily related increases costs providing services resulting access line growth depreciation amortization expense increased 14 million 1993 following 15 million increase 1992 exclusive effects depreciation rate changes special shortterm amortizations nonrecurring charges approved state regulatory commissions increases 17 million 16 million respectively generally due plant additions operating expense increased 99 million 122 million 1993 1992 respectively increases resulted primarily higher sales marketing expenses promote new products services increases systems development costs incurred enhance efficiency capabilities divisions billing processes increases cost equipment sales increases plant operations operating expenses also reflect impact increased postretirement benefits cost approximately 38 million recognized 1993 result adoption sfas 106 consistent local exchange carriers division accounts economic effects regulation pursuant sfas 71 accounting effects certain types regulation application sfas 71 requires accounting recognition rate actions regulators appropriate including recognition depreciation amortization based estimated useful lives prescribed regulatory commissions rather might utilized nonregulated enterprises sprints management believes divisions operations meet criteria continued application provisions sfas 71 increasing competition changing nature regulation telecommunications industry ongoing applicability sfas 71 must however constantly monitored evaluated division longer qualify application provisions sfas 71 future date accounting impact could result recognition material extraordinary noncash charge cellular wireless communications services sprints cellular wireless division consists wholly owned majorityowned interests 42 metropolitan service area msa markets 46 rural service area rsa markets company also owns minority interests 31 msa 33 rsa markets equity earnings losses minority investments included expense net consolidated statements income increases net operating revenues 1993 1992 resulted principally growth customer lines served increased 67 percent 1993 52 percent 1992 effects growth customer lines served partially offset decline service revenue per customer line served reflecting industrywide trend occurred result increased general consumer market penetration costs services products declined 33 percent net operating revenue 1993 37 percent 1992 39 percent 1991 generally reflecting economies gained serving additional customer lines increases selling general administrative expense 1993 1992 resulted principally increased commissions customer service expenses well increased advertising costs related growth customer lines despite increases amount sga expense costs percentage net operating revenues declined 45 percent 1993 48 percent 1992 47 percent 1991 improvement resulted primarily overall reduction unit cost acquiring new customers additional economies realized providing service support larger customer base depreciation amortization increased 1993 1992 additional investment property plant equipment required meet growth customer lines product distribution directory publishing sprints product distribution directory publishing businesses generated operating income 64 million 66 million 62 million 1993 1992 1991 respectively north supply wholesale distributor telecommunications products 1993 net operating revenues 677 million compared 594 million 1992 569 million 1991 increases primarily reflect additional nonaffiliated contracts increased sales local division partially result sales 1993 merged centel telephone operations sprint publishing advertising publisher marketer telephone directories net operating revenues 268 million 1993 compared 1992 1991 net operating revenues 257 million 245 million respectively liquidity capital resources cash flows operating activities cash flows operating activities sprints primary source liquidity 214 billion 226 billion 182 billion 1993 1992 1991 respectively 1992 operating cash flows include proceeds 300 million sale accounts receivable within long distance division excluding proceeds improvement 1993 operating cash flows reflects better operating results partially offset expenditures related merger integration restructuring actions 155 million cash flows investing activities sprints investing activities used cash 157 billion 158 billion 108 billion 1993 1992 1991 respectively capital expenditures represent sprints significant investing activity 159 billion 147 billion 152 billion 1993 1992 1991 respectively see business segment information amounts incurred division long distance capital expenditures incurred year primarily increase network capacity enhance network capabilities providing new products services capital expenditures local division made accommodate access line growth continue conversion digital technologies expand divisions capabilities providing enhanced telecommunications services increases 1993 1992 capital expenditures cellular wireless division reflect significant increases number customer lines served years investing activities 1992 also include 250 million paid connection sprints 530 million acquisition remaining 199 percent interest limited partnership proceeds 114 million sale certain local telephone properties investing activities 1991 include proceeds 468 million divestitures certain local telephone cellular properties cash flows financing activities sprints financing activities used cash 620 million 681 million 755 million 1993 1992 1991 respectively improved operating cash flows year together proceeds sale additional accounts receivable 1992 various divestitures 1992 1991 allowed sprint fund capital expenditures dividends internally reduce total debt outstanding year addition 280 million note issued seller connection acquisition remaining interest limited partnership paid 1992 1993 1992 significant level debt refinancing occurred order take advantage lower interest rates accordingly majority proceeds longterm borrowings 1993 used finance redemption prior scheduled maturities 124 billion debt 1992 sprint refinanced 720 million longterm debt borrowed 250 million finance payment related acquisition remaining 199 percent interest limited partnership sprint paid dividends common preferred shareholders 347 million 300 million 296 million 1993 1992 1991 respectively sprints indicated annual dividend rate common stock currently 100 per share financial position liquidity capital requirements december 31 1993 sprints total capitalization aggregated 905 billion consisting longterm debt including current maturities redeemable preferred stock common stock shareholders equity longterm debt including current maturities shortterm borrowings comprised 55 percent total capitalization december 31 1993 compared 58 percent yearend 1992 adjusted years proforma basis effects changes accounting principles 1994 sprint anticipates funding estimated capital expenditures 18 billion dividends cash flows operating activities notes payable commercial paper outstanding december 31 1993 classified longterm debt aggregated 756 million 1994 entire balance replaced issuance longterm debt continue refinanced existing longterm credit facilities sprint expects external cash requirements 1994 approximately 800 million 900 million generally required repay scheduled longterm debt maturities reduce notes payable commercial paper outstanding portion external cash requirements expected generated issuances common stock employee benefit plans sale certain investments method financing remaining external cash requirements depend upon prevailing market conditions year sprint may also undertake additional debt refinancings 1994 order take advantage favorable interest rates yearend 1993 sprint ability borrow 803 million revolving credit agreement syndicate domestic international banks bank commitments available financing sources include mediumterm note program sprint may offer sale 175 million unsecured senior debt securities additionally pursuant shelf registration statements filed securities exchange commission 12 billion debt securities may offered sale aggregate amount additional borrowings incurred ultimately limited certain covenants contained existing debt agreements december 31 1993 sprint borrowing capacity approximately 28 billion restrictive debt covenants management report management sprint corporation responsibility integrity objectivity information contained annual report management responsible consistency reporting information ensuring generally accepted accounting principles used discharging responsibility management maintains comprehensive system internal controls supports extensive program internal audits made organizational arrangements providing appropriate divisions responsibility established communication programs aimed assuring policies procedures codes conduct understood practiced employees consolidated financial statements included annual report audited ernst young independent auditors audit conducted accordance generally accepted auditing standards report included herein responsibility board directors financial statements pursued primarily audit committee audit committee composed entirely directors officers employees sprint meets periodically internal auditors independent auditors without management present assure respective responsibilities fulfilled internal independent auditors full access audit committee discuss auditing financial reporting matters w esrey william esrey chairman chief executive officer arthur b krause arthur b krause executive vice president chief financial officer report independent auditors board directors shareholders sprint corporation audited accompanying consolidated balance sheets sprint corporation sprint december 31 1993 1992 related consolidated statements income cash flows common stock shareholders equity three years period ended december 31 1993 audits also included financial statement schedules listed index financial statements financial statement schedules supplementary data financial statements schedules responsibility management sprint responsibility express opinion financial statements schedules based audits audit financial statements schedules centel corporation whollyowned subsidiary december 31 1992 two years period ended december 31 1992 statements reflect total assets constituting 25 1992 net income constituting approximately 9 1992 29 1991 related consolidated financial statement totals statements schedules audited auditors whose report furnished us opinion insofar relates data included centel corporation based solely report auditors conducted audits accordance generally accepted auditing standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits report auditors provide reasonable basis opinion based audits report auditors consolidated financial statements referred present fairly material respects consolidated financial position sprint corporation december 31 1993 1992 consolidated results operations cash flows three years period ended december 31 1993 conformity generally accepted accounting principles also opinion related financial statement schedules considered relation basic financial statements taken whole present fairly material respects information set forth therein discussed note 1 consolidated financial statements sprint changed method accounting postretirement benefits postemployment benefits circuit activity costs 1993 income taxes 1992 ernst young kansas city missouri february 2 1994 report independent auditors shareowners centel corporation audited consolidated balance sheet centel corporation kansas corporation subsidiaries december 31 1992 related consolidated statements income common shareowners investment cash flows two years period ended december 31 1992 prior pooling interests sprint corporation therefore presented herein described note 2 consolidated financial statements sprint corporation year ended december 31 1993 financial statements responsibility companys management responsibility express opinion financial statements based audits conducted audits accordance generally accepted auditing standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion financial statements referred present fairly material respects financial position centel corporation subsidiaries december 31 1992 results operations cash flows two years period ended december 31 1992 conformity generally accepted accounting principles audits made purpose forming opinion basic financial statements taken whole connection audits certain auditing procedures applied following schedules required purposes complying securities exchange commissions rules part basic financial statements schedules included herein schedule marketable securities schedule v consolidated plant property equipment schedule vi consolidated accumulated depreciation schedule viii consolidated allowance doubtful accounts schedule ix consolidated shortterm borrowings schedule x consolidated supplementary income statement information opinion information contained schedules fairly states material respects financial data required set forth therein relation basic financial statements taken whole arthur andersen co chicago illinois february 3 1993 business segment information sprint corporation years ended december 31 1993 1992 1991 millions long distance communications services 1 net operating revenues 61392 56582 53876 operating expenses interconnection 27107 25749 24570 operations 8577 7598 7171 selling general administrative 15464 14263 13343 depreciation amortization 5235 5866 5844 total operating expenses 2 3 56383 53476 50928 operating income 5009 3106 2948 capital expenditures 5294 4681 5802 identifiable assets december 31 41931 42320 45435 local communications services 1 net operating revenues 41260 38622 37537 operating expenses plant operations 12067 11656 11609 depreciation amortization 7330 7200 7167 12325 11370 10365 total operating expenses 2 4 31722 30226 29141 operating income 9538 8396 capital expenditures 8453 8394 8024 identifiable assets december 31 76040 72422 70996 cellular wireless communications services 1 net operating revenues 4640 3222 2421 operating expenses cost services products 1549 1183 952 selling general administrative 2099 1546 1145 depreciation amortization 750 521 432 total operating expenses 2 4398 3250 2529 operating income loss 242 28 108 capital expenditures 1649 1238 918 identifiable assets december 31 15043 14894 14181 product distribution directory publishing 1 net operating revenues 9452 8629 8260 operating income 2 642 660 620 depreciation amortization 272 328 252 capital expenditures 551 349 488 identifiable assets december 31 8475 6360 8686 1include net operating revenues operating expenses eliminated consolidation 3066 million 2852 million 2761 million years ended december 31 1993 1992 1991 respectively 2exclude nonrecurring charge 2590 million 1993 related transaction costs associated merger centel estimated expenses integrating restructuring operations two companies see note 2 notes consolidated financial statements additional information charge allocable follows long distance124 million local1901 million cellular wireless32 million product distribution directory publishing25 million other508 million 3exclude nonrecurring charge 335 million 1993 related realignment restructuring long distance division see note 9 notes consolidated financial statements additional information 4includes increased postretirement benefits cost approximately 38 million 1993 related adoption sfas 106 cost divisions significant consolidated statements income sprint corporation years ended december 31 1993 1992 1991 millions except per share data net operating revenues 113678 104203 99333 operating expenses costs services products 57361 53255 50910 selling general administrative 27299 24899 22872 depreciation amortization 13587 13915 13695 merger integration restructuring costs 2925 total operating expenses 101172 92069 87477 operating income 12506 12134 11856 gain divestiture telephone cellular properties 811 1139 interest expense 4524 5111 5483 expense net 223 50 356 income continuing operations income taxes 7759 7784 7156 income tax provision 2953 2823 2429 income continuing operations 4806 4961 4727 discontinued operations net 123 494 extraordinary losses early extinguishments debt net 292 160 19 cumulative effect changes accounting principles net 3842 227 net income 549 5028 5202 preferred stock dividends 28 35 41 earnings applicable common stock 521 4993 5161 earnings per common share continuing operations 139 146 141 discontinued operations 004 015 extraordinary item 008 005 001 cumulative effect changes accounting principles 112 007 total 015 148 155 weighted average number common shares 3437 3372 3335 see accompanying notes consolidated financial statements consolidated balance sheets sprint corporation december 31 1993 1992 assets millions current assets cash equivalents 768 1288 accounts receivable net allowance doubtful accounts 1219 million 1180 million 1992 12306 10448 investment common stock 1302 inventories 1823 1721 deferred income taxes 811 465 prepaid expenses 1207 1025 1562 1693 total current assets 19779 16640 investments common stocks 1731 2090 property plant equipment long distance communications services 54927 53559 local communications services 112264 107322 cellular wireless communications services 5696 4099 4337 4052 177224 169032 less accumulated depreciation 74076 66833 103148 102199 cellular minority partnership investments 2875 2712 excess cost net assets acquired 7368 7653 assets 6588 4702 141489 135996 liabilities shareholders equity current liabilities current maturities longterm debt 5234 3866 shortterm borrowings 3623 accounts payable 9254 7554 accrued interconnection costs 4875 4643 accrued taxes 3072 2919 8251 7168 total current liabilities 30686 29773 longterm debt 45710 46938 deferred credits liabilities deferred income taxes investment tax credits 11829 13083 postretirement benefit obligations 7931 690 5764 5394 25524 19167 redeemable preferred stock 386 402 common stock shareholders equity common stock par value 250 per share authorized5000 million shares 8585 8471 capital excess par stated value 8274 7175 retained earnings 21842 24517 482 447 39183 39716 141489 135996 see accompanying notes consolidated financial statements consolidated statements cash flows sprint corporation years ended december 31 1993 1992 1991 millions operating activities net income 549 5028 5202 adjustments reconcile net income net cash provided operating activities depreciation amortization 13587 13915 13695 gain divestiture telephone cellular properties 811 1139 discontinued operations 59 206 439 extraordinary losses early extinguishments debt 495 251 31 cumulative effect changes accounting principles 3842 227 deferred income taxes investment tax credits 345 30 347 changes operating assets liabilities accounts receivable net 1858 2578 424 inventories current assets 427 139 523 accounts payable accrued interconnection costs 1964 1658 1301 accrued expenses current liabilities 1605 390 985 noncurrent assets liabilities net 1351 1523 70 net 660 595 502 net cash provided operating activities 21364 22615 18206 investing activities capital expenditures 15947 14662 15232 acquisition limited partnership minority interest 2500 proceeds divestiture telephone cellular properties 1140 1483 proceeds sale discontinued operations 3200 net 263 243 245 net cash used investing activities 15684 15779 10794 financing activities proceeds longterm debt 8404 9512 6450 retirements longterm debt 15890 12574 7443 net increase decrease notes payable commercial paper 3935 1470 4683 payment note payable minority partner 2800 proceeds common stock issued 708 516 541 proceeds employees stock purchase installments net 283 132 139 dividends paid 3471 3001 2958 net 169 62 407 net cash used financing activities 6200 6807 7547 increase decrease cash equivalents 520 29 135 cash equivalents beginning year 1288 1259 1394 cash equivalents end year 768 1288 1259 see accompanying notes consolidated financial statements consolidated statements common stock sprint corporation shareholdersequity years ended december 31 1993 1992 1991 capital excess par common stated retained stock value earnings total millions balance january 1 1991 3306 million shares issued outstanding 8264 5540 20214 483 33535 net income 5202 common stock dividends 2917 preferred stock dividends 41 employee stock purchase installments received net 160 common stock issued 100 856 248 708 net 05 07 23 37 72 balance december 31 1991 3348 million shares issued outstanding 8369 6403 22481 534 36719 net income 5028 common stock dividends 2966 preferred stock dividends 35 employee stock purchase installments received net 155 common stock issued 99 737 65 771 net 03 35 09 03 44 balance december 31 1992 3389 million shares issued outstanding 8471 7175 24517 447 39716 net income 549 common stock dividends 3245 preferred stock dividends 28 employee stock purchase installments received net 308 common stock issued 110 984 24 1070 unrealized holding gains investments common stocks net 648 net 04 115 49 03 165 balance december 31 1993 3434 million shares issued outstanding 8585 8274 21842 482 39183 see accompanying notes consolidated financial statements notes consolidated financial statements sprint corporation 1 accounting policies basis consolidation accompanying consolidated financial statements include accounts sprint corporation whollyowned majority owned subsidiaries sprint including centel corporation centel sprint communications company lp limited partnership investments less 50 percentowned cellular communications partnerships accounted using equity method 1991 gte corporation gte owned 199 percent interest limited partnership effective january 1 1992 sprint acquired gtes interest exchange 250 million cash payment 280 million note paid june 1992 accordance industry practice revenues related net income nonregulated operations attributable transactions sprints rateregulated telephone companies eliminated accompanying consolidated financial statements intercompany revenues entities amounted 225 million 194 million 164 million 1993 1992 1991 respectively significant intercompany transactions eliminated classification operations long distance communications services division provides domestic voice data communications services across certain specified geographical boundaries well international long distance communications services rates charged services sold public subject different levels state federal regulation generally subject ratebase regulation local communications services division consists principally operations sprints rateregulated telephone companies operations provide local exchange services access telephone customers carriers local exchange facilities long distance services within specified geographical areas cellular wireless communications services division consists whollyowned majorityowned interests partnerships corporations operating cellular wireless communications properties various metropolitan rural service area markets product distribution directory publishing businesses include wholesale distribution telecommunications products publishing marketing white yellow page telephone directories revenue recognition operating revenues long distance local cellularwireless communications services divisions recognized communications services rendered operating revenues long distance communications services division recorded net estimate uncollectible accounts operating revenues sprints product distribution business recognized upon delivery products customers regulated operations sprints rateregulated telephone companies account economic effects regulation pursuant statement financial accounting standards sfas 71 accounting effects certain types regulation requires accounting recognition rate actions regulators appropriate actions provide reasonable assurance existence asset reduce eliminate value asset impose liability regulated enterprise cash equivalents cash equivalents generally include highly liquid investments original maturities three months less stated cost approximates market value december 31 1993 1992 outstanding checks excess cash balances 166 million 151 million respectively included accounts payable investments common stocks effective december 31 1993 sprint changed method accounting portfolio marketable equity securities adopting sfas 115 accounting certain investments debt equity securities accordingly investments common stocks classified available sale reported fair value estimated based quoted market prices december 31 1993 cost december 31 1992 december 31 1993 cost investments 202 million gross unrealized holding gains 101 million reflected addition shareholders equity net related income taxes december 31 1992 market value investments 278 million inventories consisting principally related sprints product distribution business stated lower cost principally firstin firstout method market property plant equipment property plant equipment recorded cost generally ordinary asset retirements disposals charged accumulated depreciation gain loss recognized repairs maintenance costs expensed incurred effective january 1 1993 sprints long distance communications services division changed method accounting certain costs related connecting new customers network change made conform sprints accounting predominant industry practice costs new method costs previously capitalized expensed incurred resulting nonrecurring noncash charge 32 million 009 per share net related income tax benefits reflected 1993 consolidated statement income cumulative effect change accounting principle proforma impact retroactive application change would material net income earnings per share 1992 1991 impact change sprints 1993 operating expenses significant depreciation cost property plant equipment depreciated generally straightline basis estimated useful lives related regulated property plant equipment prescribed regulatory commissions depreciation rate changes special shortterm amortizations nonrecurring charges approved regulatory commissions rateregulated telephone companies resulted additional depreciation totaling 7 million 46 million 49 million 1993 1992 1991 respectively related effects revenues income taxes items reduced income continuing operations 1993 1992 1991 approximately 4 million 24 million 25 million respectively cellular minority partnership investments cellular minority partnership investments include excess purchase price underlying book value cellular communications partnerships 203 million 209 million december 31 1993 1992 respectively excess amortized straightline basis 40 years accumulated amortization aggregated 29 million 23 million december 31 1993 1992 respectively excess cost net assets acquired excess purchase price fair value net assets acquired principally related cellular communications services properties amortized straightline basis 40 years accumulated amortization aggregated 112 million 88 million december 31 1993 1992 respectively postretirement benefits effective january 1 1993 sprint changed modified method accounting certain postretirement benefits adopting sfas 106 employers accounting postretirement benefits pensions sprint provides postretirement benefits principally health care benefits certain retirees sfas 106 requires accrual expected cost providing postretirement benefits employees dependents beneficiaries years employees earn benefits 1992 1991 cost providing postretirement benefits sprints retirees expensed costs paid centels employees retirees accrual basis approach utilized recognize costs upon adoption new standard sprint elected immediately recognize previously unrecorded obligation postretirement benefits already earned current retirees employees transition obligation substantial portion related rateregulated telephone companies pursuant sfas 71 regulatory assets associated recognition transition obligation recorded jurisdictions regulators issued orders specific sprint permitting recognition net postretirement benefits costs ratemaking purposes providing recovery transition obligation period longer 20 years december 31 1993 regulatory assets aggregated 83 million jurisdictions regulatory assets associated recognition transition obligation recorded due uncertainties timing extent recovery resulting nonrecurring noncash charge 341 million 100 per share net related income tax benefits reflected 1993 consolidated statement income cumulative effect change accounting principle net postretirement benefits cost 1993 increased approximately 50 million result adopting sfas 106 postemployment benefits effective january 1 1993 sprint adopted sfas 112 employers accounting postemployment benefits upon adoption sprint recognized certain previously unrecorded obligations benefits provided former inactive employees dependents employment retirement postemployment benefits offered sprint include severance disability workers compensation benefits including continuation benefits health care life insurance coverage resulting nonrecurring noncash charge 11 million 003 per share net related income tax benefits reflected 1993 consolidated statement income cumulative effect change accounting principle adoption sfas 112 significant impact operating expenses 1993 income taxes effective january 1 1992 sprint changed method accounting income taxes adopting sfas 109 accounting income taxes sfas 109 requires asset liability approach accounting income taxes establishes less restrictive criteria recognizing deferred income tax assets accordingly sprint adjusted existing deferred income tax assets liabilities reflect current statutory income tax rates previously unrecognized tax benefits related federal certain state net operating loss carryforwards extent reductions rateregulated telephone companies deferred income tax liabilities accrue benefit customers reductions recorded regulatory liabilities remaining net change sprints deferred income tax assets liabilities increased 1992 net income 23 million 007 per share reflected consolidated statement income cumulative effect change accounting principle allowed sfas 109 prior years consolidated financial statements restated 1991 accordance accounting principles board opinion apb 11 deferred income taxes provided differences timing reporting income expenses financial statement income tax purposes except rate regulated telephone companies items allowable various regulatory commissions expenses ratemaking purposes investment tax credits related regulated telephone property plant equipment deferred amortized estimated useful lives related assets interest charged construction regulatory commissions allow rateregulated telephone companies capitalize allowance funds expended construction amounts capitalized recovered service lives respective assets constructed resulting higher depreciation recovered increased revenues interest costs associated construction capital assets sprints operations capitalized accordance sfas 34 capitalization interest costs total interest amounts capitalized 1993 1992 1991 including allowance funds expended construction totaled 8 million 11 million 15 million respectively earnings per share earnings per common share amounts based weighted average number shares outstanding issuable assuming exercise dilutive options applicable reclassifications certain amounts accompanying consolidated financial statements 1992 1991 reclassified conform presentation amounts 1993 consolidated financial statements reclassifications effect results operations 2 sprint centel merger effective march 9 1993 sprint consummated merger centel telecommunications company local exchange cellularwireless communications services operations pursuant agreement plan merger dated may 27 1992 sprint issued 137 shares common stock exchange outstanding share centel common stock approximately 119 million shares transaction costs associated merger consisting primarily investment banking legal fees estimated expenses integrating restructuring operations two companies consisting primarily employee severance relocation expenses costs eliminating duplicative facilities resulted nonrecurring charges 259 million reduced 1993 income continuing operations 172 million 050 per share merger accounted pooling interests accordingly accompanying consolidated financial statements retroactively restated periods presented include results operations financial position cash flows centel addition accompanying consolidated financial statements reflect elimination significant recurring intercompany transactions certain adjustments conform accounting policies two companies operating results separate companies periods prior merger follows millions 1992 1991 net operating revenues sprint 92304 87797 centel 11914 11805 eliminations reclassifications 15 269 total 104203 99333 income continuing operations sprint 4272 3675 centel 838 1123 accounting conformity adjustments 149 71 total 4961 4727 discontinued operations net 494 extraordinary losses early extinguishments debt net 1992 sprint 65 million centel 95 million 1991 centel 19 million 160 19 cumulative effect change accounting income taxes 227 net income 1992 sprint 4571 million centel 457 million 1991 sprint 3675 million centel 1527 million 5028 5202 3 employee benefit plans defined benefit pension plan substantially sprint employees covered noncontributory defined benefit pension plan participants plan represented collective bargaining units benefits based upon schedules defined amounts negotiated respective parties participants covered collective bargaining agreements plan provides pension benefits based upon years service participants compensation sprints policy make contributions plan year equal actuarially determined amount consistent applicable federal tax regulations funding objective accumulate funds relatively stable rate participants working lives benefits fully funded retirement december 31 1993 plans assets consisted principally investments corporate equity securities us government corporate debt securities components net pension credits related weighted average assumptions follows millions 1993 1992 1991 service cost benefits earned period 582 508 478 interest cost projected benefit obligation 1039 961 872 actual return plan assets 2412 895 3817 net amortization deferral 625 647 2314 net pension credit 166 73 153 discount rate 80 84 86 expected longterm rate return plan assets 95 85 anticipated composite rate future increases compensation 55 62 73 addition sprint recognized pension curtailment losses 3 million 1993 result integration restructuring actions see notes 2 9 funded status amounts recognized consolidated balance sheets plan december 31 follows millions 1993 1992 actuarial present value benefit obligations vested benefit obligation 12770 10436 accumulated benefit obligation 14627 11832 projected benefit obligation 15829 13212 plan assets fair value 20290 18624 plan assets excess projected benefit obligation 4461 5412 unrecognized net gains 1973 2151 unrecognized prior service cost 881 230 unamortized portion transition asset 2219 2473 prepaid pension cost 1150 1018 projected benefit obligations december 31 1993 1992 determined using discount rates 75 percent 80 percent respectively anticipated composite rates future increases compensation 45 percent 55 percent respectively defined contribution plans sprint sponsors defined contribution employee savings plans covering substantially employees participants may contribute portions compensation plans contributions participants represented collective bargaining units matched sprint based upon defined amounts negotiated respective parties contributions participants covered collective bargaining agreements also matched sprint participants sprint provides matching contributions common stock equal 50 percent participants contributions 6 percent compensation may discretion board directors provide additional matching contributions based upon performance sprints common stock comparison telecommunications companies sprints matching contributions including cash contributions former centel savings plans aggregated 49 million 40 million 36 million 1993 1992 1991 respectively postretirement benefits sprint sponsors postretirement benefits principally health care benefits arrangements covering substantially employees retired specified dates eligible benefits cost reduced cost employees retiring specified dates eligible benefits shared cost basis sprint funds accrued costs benefits paid components 1993 net postretirement benefits cost follows millions service cost benefits earned period 221 interest accumulated benefit obligation 565 net postretirement benefits cost 786 measurement purposes annual health care cost trend rate 13 percent assumed 1993 gradually decreasing 6 percent 2001 remaining constant thereafter effect one percent increase assumed trend rates would increased 1993 net postretirement benefits cost approximately 14 million weighted average discount rate 1993 80 percent addition company recognized postretirement benefits curtailment losses 11 million 1993 result integration restructuring actions see notes 2 9 cost providing postretirement benefits 28 million 1992 29 million 1991 amount recognized consolidated balance sheet december 31 1993 follows millions accumulated postretirement benefits obligation retirees 3228 active plan participants fully eligible 1580 active plan participants 2544 7352 unrecognized prior service benefit 68 unrecognized net gains 389 accrued postretirement benefits cost 7809 accumulated benefits obligation december 31 1993 determined using discount rate 75 percent annual health care trend rate 12 percent assumed 1994 gradually decreasing 6 percent 2001 remaining constant thereafter effect one percent annual increase assumed health care cost trend rates would increased accumulated benefits obligation december 31 1993 approximately 98 million 4 income taxes components income tax provisions allocated continuing operations follows millions 1993 1992 1991 current income tax provision federal 2756 2421 2329 state 542 372 447 amortization deferred investment tax credits 247 313 346 3051 2480 2430 deferred income tax provision benefit federal 164 95 64 state 262 248 63 98 343 01 total income tax provision 2953 2823 2429 august 10 1993 revenue reconciliation act 1993 enacted among changes raised federal income tax rate corporations 35 percent 34 percent retroactive january 1 1993 accordingly sprint adjusted deferred income tax assets liabilities reflect revised rate resulting adjustment related sprints nonregulated subsidiaries increased 1993 deferred income tax provision 13 million 004 per share adjustments net deferred income tax liabilities associated rateregulated telephone companies generally recorded reductions regulatory liabilities accordingly immediate effect sprints net income differences cause effective income tax rate vary statutory federal income tax rate 35 percent 1993 34 percent 1992 1991 follows millions 1993 1992 1991 income tax provision statutory rate 2716 2647 2433 less investment tax credits included income 247 313 346 expected federal income tax provision investment tax credits 2469 2334 2087 effect state income taxes net federal income tax effect 182 409 337 differences required flowed regulatory commissions 60 56 57 reversal rate differentials 130 163 237 amortization intangibles 88 86 83 merger related costs 180 net 104 101 102 income tax provision including investment tax credits 2953 2823 2429 effective income tax rate 38 36 34 income tax provisions benefits allocated items follows millions 1993 1992 1991 discontinued operations 66 153 extraordinary losses early extinguishments debt 203 91 12 cumulative effect changes accounting principles postretirement benefits 2167 postemployment benefits 67 circuit activity costs 215 unrealized holding gains investments common stocks recorded directly shareholders equity 365 stock ownership purchase options arrangements recorded directly shareholders equity 106 60 27 effective adoption sfas 109 1992 deferred income taxes provided temporary differences carrying amounts sprints assets liabilities financial statement purposes tax bases sources differences give rise deferred income tax assets liabilities december 31 1993 1992 along income tax effect follows millions 1993 deferred 1992 deferred income tax income tax assets liabilities assets liabilities property plant equipment 15640 15226 postretirement benefits 2811 256 alternative minimum tax credit carryforwards 2597 3116 operating loss carryforwards 647 702 integration restructuring costs 350 net 99 102 subtotal 6405 15739 4176 15226 less valuation allowance 245 302 total 6160 15739 3874 15226 1993 1992 valuation allowance related deferred income tax assets decreased 6 million 5 million respectively 1991 accordance apb 11 deferred income tax provisions resulted differences timing recognizing certain revenues expenses financial statement income tax purposes sources differences along income tax effect follows millions property plant equipment 865 allowance doubtful accounts 89 deferred revenue 29 expense accruals 90 exchangeable debentures 70 alternative minimum tax credit carryforwards 908 investment tax credit carryforwards 59 special partnership allocations 253 sale telephone properties 322 net 12 total 01 december 31 1993 sprint available income tax purposes 260 million alternative minimum tax credit carryforwards offset regular income tax payable future years tax benefits 65 million associated state operating loss carryforwards loss carryforwards expire varying amounts annually 1994 2008 5 debt longterm debt december 31 follows millions maturing 1993 1992 corporate senior notes 975 1993 1000 860 971 1994 2250 945 1995 500 1045 1996 2000 988 1997 1200 1600 919 960 1998 430 813 980 2000 2003 6323 debentures 925 2022 2000 subordinated debentures 800 2006 2048 notes payable commercial paper classified longterm debt 1996 6344 1188 1999 45 56 long distance communications services vendor financing agreements 699 1018 1994 2001 4234 5385 note payable gte 530 1993 728 local communications services first mortgage bonds 463 900 1994 1998 1674 2603 200 937 1999 2003 5411 4871 400 875 2004 2008 3530 3443 688 979 2009 2013 800 326 877 878 2014 2018 805 2163 713 989 2019 2023 3431 2689 debentures notes 450 961 1994 2017 4244 3401 notes payable commercial paper classified longterm debt 1996 1214 200 1945 1994 2017 173 207 senior notes 988 1170 1998 2000 2771 2810 debentures 900 2019 1500 2292 859 1300 1995 1998 65 1679 subtotal 50944 50804 less current maturities 5234 3866 longterm debt 45710 46938 longterm debt maturities next five years follows millions amount 1994 5234 1995 2168 1996 11042 1997 1007 1998 3853 property plant equipment aggregate cost approximately 1036 billion either pledged security first mortgage bonds certain notes restricted use mortgaged property notes payable commercial paper outstanding related weighted average interest rates december 31 follows millions 1993 1992 bank notes 355 weighted average interest rate 3975 2063 master trust notes 371 weighted average interest rate 2500 800 commercial paper 329 weighted average interest rate 1083 760 total notes payable commercial paper 7558 3623 notes payable commercial paper outstanding december 31 1993 classified longterm debt due sprints intent refinance borrowings longterm basis due demonstrated ability pursuant 11 billion revolving credit agreement described borrowings december 31 1992 classified shortterm borrowings bank notes renewable various dates throughout year sprint pays fee certain commercial banks support current future credit requirements based upon loan commitments lines credit may withdrawn banks material adverse change sprints financial condition sprint master trust note agreement trust division bank borrow funds demand interest borrowings rate yields interest equivalent favorable discount rate paid 180day commercial paper december 31 1993 sprint total 131 billion credit arrangements consisting various bank commitments 11 billion revolving credit agreement syndicate domestic international banks date sprint availability totaling 803 million arrangements revolving credit agreement expires july 1996 subject approval lenders may extended additional two years 1993 1992 sprint redeemed called redemption prior scheduled maturities 134 billion 720 million respectively first mortgage bonds senior notes debentures excluding amounts deferred rateregulated telephone companies required certain regulatory commissions prepayment penalties incurred connection early extinguishments debt writeoff related debt issuance costs aggregated 29 million 1993 16 million 1992 net related income tax benefits reflected extraordinary losses consolidated statements income 1991 extraordinary losses 2 million net related income tax benefits recorded related early extinguishment defeasance debt 6 redeemable preferred stock sprint 20 million authorized shares subsidiaries approximately 6 million authorized shares preferred stock including nonredeemable preferred stock redeemable preferred stock outstanding december 31 follows millions 1993 1992 third series stated value 100 per share shares 208000 1993 220000 1992 nonparticipating nonvoting cumulative 775 annual dividend rate 208 220 fifth series stated value 100000 per share shares 95 1993 1992 voting cumulative 6 annual dividend rate 95 subsidiaries stated value ranging 10 100 per share shares 380055 1993 395765 1992 annual dividend rates ranging 47 54 83 87 total redeemable preferred stock 386 402 sprints third series preferred stock redeemed sinking fund rate 12000 shares 12 million per year 2008 time remaining shares redeemed sprint may redeem additional third series preferred shares 10255 per share 1994 declining amounts succeeding years event default holders sprints third series redeemable preferred stock entitled elect certain number directors arrears dividend sinking fund payments paid sprints fifth series preferred stock must redeemed full 2003 less full dividends paid four consecutive dividend periods total amount dividends arrears exceeds amount equal dividend payment six dividend periods holders fifth series preferred stock entitled elect majority directors standing election arrears dividend payments paid 7 common stock common stock activity 1993 shares reserved future grants stock option plans future issuances various arrangements follows millions number shares 1993 reserved activity december 31 1993 employees stock purchase plan 01 33 employee savings plans 14 50 automatic dividend reinvestment plan 04 13 officer key employees directors stock options 22 122 conversion preferred stock 04 21 total 45 239 december 31 1993 elections purchase 26 million sprints common shares outstanding 1992 offering employees stock purchase plan purchase price offering cannot exceed 1966 per share price representing 85 percent average market price offering date fall 1200 per share 1992 offering terminates june 30 1994 various stock option plans shares common stock reserved issuance officers key employees outside directors options granted 100 percent market price date grant approximately 6 percent options outstanding december 31 1993 provide granting stock appreciation rights alternate method settlement upon exercise stock appreciation rights feature allows optionee elect receive gain stock price underlying option directly sprint either stock cash combination two lieu exercising option payment purchase price summary stock option activity plans follows millions except per share data per share number exercise aggregate price exercise shares low high amount shares option january 1 1993 55 million shares exercisable 75 944 3931 1702 granted 16 2750 3844 503 exercised options without stock appreciation rights 21 944 3375 410 options stock appreciation rights 03 1109 2968 55 terminated expired 01 1816 3375 32 shares option december 31 1993 45 million shares exercisable 66 944 3931 1708 1990 savings plan trust employee savings plan acquired shares common stock sprint exchange 75 million promissory note payable sprint note bears interest rate 9 percent repaid common stock dividends received plan contributions made plan sprint accordance plan provisions remaining balance note receivable 60 million december 31 1993 reflected reduction shareholders equity shareholder rights plan onehalf preferred stock purchase right attached share common stock right exercisable detachable upon occurrence certain takeover events entitles shareholders buy units consisting one onehundredth newly issued share preferred stockfourth series junior participating price 235 per unit certain circumstances common stock certain circumstances rights beneficially owned acquiring person become null void sprints preferred stock fourth series without par value voting cumulative accrues dividends equal generally greater 10 per share one hundred times aggregate per share amount common stock dividends shares preferred stockfourth series issued outstanding december 31 1993 rights may redeemed sprint price one cent per right expire september 8 1999 1993 1992 1991 sprint declared paid annual dividends common stock 100 per share centel declared premerger common stock dividends 015 090 089 per share respectively restrictive covenant applicable dividends common stock results 11 billion revolving credit agreement among restrictions agreement requires sprint maintain specified levels consolidated net worth defined result requirement 145 billion sprints 218 billion consolidated retained earnings effectively restricted payment dividends december 31 1993 indentures financing agreements certain sprints subsidiaries contain various provisions restricting payment cash dividends subsidiary common stock held sprint connection restrictions 749 million related subsidiaries 179 billion total retained earnings restricted december 31 1993 flow cash form advances subsidiaries sprint generally restricted 8 commitments contingencies litigation claims assessments 1993 agreement settlement reached related class action complaint filed january 1992 sprint certain officers directors amending complaint originally filed 1990 plaintiffs class action alleged violations various federal securities laws related state laws among relief sought unspecified compensatory damages settlement subject approval court totaled 29 million approximately 60 percent recovered sprints insurance carriers net settlement significant effect sprints 1993 results operations following announcement sprints merger centel class action suits filed centel certain officers directors federal state courts state suits dismissed federal suits consolidated single action seek damages alleged violations securities laws various suits arising ordinary course business pending sprint management cannot predict ultimate outcome actions believes result material effect sprints consolidated financial statements accounts receivable sold recourse agreement available january 1995 sprint may sell continuous basis recourse 600 million undivided interests designated pool accounts receivable subsequent collections receivables sold investors typically reinvested pool quarterly basis subject approval investors sprint may extend agreement additional ninety days 1992 proceeds 300 million received arrangement receivables sold remained uncollected december 31 1993 1992 aggregated 600 million operating leases minimum rental commitments december 31 1993 non cancelable operating leases consisting principally leases data processing equipment real estate follows millions amount 1994 3041 1995 2514 1996 1711 1997 1006 1998 838 thereafter 2436 gross rental expense aggregated 387 million 385 million 397 million 1993 1992 1991 respectively amount rental commitments applicable subleases contingent rentals executory costs significant 9 additional financial information segment information see business segment information realignment restructuring charge 1993 sprint initiated realignment restructuring long distance communications services division including elimination approximately 1000 positions closure two facilities actions expected improve market focus lower costs streamline operations within division resulted nonrecurring charge 34 million reduced income continuing operations 21 million 006 per share divestiture telephone cellular properties 1992 sale centels local telephone operations ohio completed pursuant definitive agreement reached november 1991 proceeds sale aggregated 129 million including 114 million cash 15 million assumed debt gain 44 million 013 per share net related income taxes realized sale 1991 sales centels local telephone operations minnesota iowa completed pursuant definitive agreement reached november 1990 proceeds sales included 116 million cash 2885000 shares rochester telephone corporation common stock value 84 million ownership rights various cellular franchises value 28 million gains 64 million 019 per share net related income taxes realized sales also 1991 50 percent centels interest cellular limited partnership divested cash proceeds 36 million received gain 14 million 004 per share net related income taxes realized divestiture discontinued operations 1991 pursuant definitive agreement reached december 1990 sale centels electric operations completed 320 million cash 26 million assumed liabilities gain 37 million net related income taxes realized sale revenues related discontinued operations 178 million 1991 financial instruments carrying amounts estimated fair values sprints longterm debt december 31 follows millions 1993 1992 estimated carrying fair carrying fair amount value amount value longterm debt corporate 21092 23772 18207 19573 long distance communications services 4234 4478 6113 6567 local communications services 21282 23425 19703 20323 4336 5346 6781 7054 fair values sprints longterm debt estimated based quoted market prices publiclytraded issues based present value estimated future cash flows using discount rate commensurate risks involved issues carrying values sprints financial instruments principally cash equivalents temporary investments shortterm borrowings interest rate swapcap agreements foreign currency contracts approximate fair value december 31 1993 1992 supplemental cash flows information 1993 1992 1991 cash paid millions interest 4536 5075 5687 income taxes 2924 2690 2448 1993 1992 1991 sprint contributed previously unissued shares common stock market values 39 million 28 million 25 million respectively employee savings plans sprint corporation schedule v consolidated property plant equipment year ended december 31 1993 millions balance beginning additions end year cost retirements changes year long distance communications services digital fiber optic network 39769 3670 1530 10151 40894 data communications equipment 3019 545 114 6482 2802 administrative assets 8645 811 308 3122 8836 constructionin progress 2126 268 01 2395 subtotal 53559 5294 1952 1974 54927 local communications services land buildings 6365 297 62 6600 general support assets 6247 751 582 07 6409 cable wire facility assets 51508 3249 715 54042 central office assets 38557 3878 1636 33 40832 information origination termination assets 3336 511 491 02 3354 telephone plant construction 1309 233 49 1027 subtotal 107322 8453 3486 25 112264 cellular wireless communications services 4099 1649 33 19 5696 product distribution directory publishing 4052 551 248 18 4337 169032 15947 5719 2036 177224 depreciation computed straightline basis weighted average annual composite depreciation rate rateregulated local division excluding special shortterm amortizations nonrecurring charges 67 percent 1993 1adjustment primarily represents reductions plant due change method accounting certain costs related connecting new customers network see note 1 notes consolidated financial statements additional information 2adjustments primarily represent contribution plant joint venture sprint corporation schedule v consolidated property plant equipment year ended december 31 1992 millions balance beginning additions end year cost retirements changes year long distance communications services digital fiber optic network 38991 3568 2302 48812 39769 data communications equipment 2439 512 37 105 2 3019 administrative assets 9320 766 765 6762 8645 constructionin progress 2277 165 14 2126 subtotal 53027 4681 3104 1045 53559 local communications services land buildings 5987 535 153 04 6365 general support assets 5938 816 515 08 6247 cable wire facility assets 49592 2929 1012 01 51508 central office assets 36883 3772 2104 06 38557 information origination termination assets 5274 424 2370 08 3336 telephone plant construction 1402 82 11 1309 subtotal 105076 8394 61543 06 107322 cellular wireless communications services 2984 1238 82 41 4099 product distribution directory publishing 3988 349 293 08 4052 165075 14662 9633 1072 169032 depreciation computed straightline basis weighted average annual composite depreciation rate rateregulated local division excluding special shortterm amortizations nonrecurring charges 66 percent 1992 1adjustment represents adjustment pursuant accounting principles board opinion 16 related acquisition remaining 199 limited partnership partially offset reclassifications plant among categories 2adjustments represent reclassification plant among categories 3retirements include approximately 95 million related divestiture centels local telephone operations ohio sprint corporation schedule v consolidated property plant equipment year ended december 31 1991 millions balance beginning additions end year cost retirements changes year long distance communications services digital fiber optic network 36191 4516 1375 3411 38991 data communications equipment 1784 540 33 148 2 2439 administrative assets 8351 1368 392 07 9320 constructionin progress 2899 622 2277 subtotal 49225 5802 1800 200 53027 local communications services land buildings 5859 270 150 08 5987 general support assets 5648 757 494 27 5938 cable wire facility assets 48010 3081 1498 01 49592 central office assets 35802 3483 2385 17 36883 information origination termination assets 7087 331 2150 06 5274 telephone plant construction 1314 102 01 13 1402 subtotal 103720 8024 66783 10 105076 cellular wireless communications services 2225 918 145 14 2984 product distribution directory publishing 3639 488 138 01 3988 158809 15232 8761 205 165075 depreciation computed straightline basis weighted average annual composite depreciation rate rateregulated local division excluding special shortterm amortizations nonrecurring charges 63 percent 1991 1adjustment primarily represents reclassification plant categories inventories 2adjustment represents reclassification plant categories 3retirements include approximately 213 million related divestiture centels local telephone operations minnesota iowa sprint corporation schedule vi consolidated accumulated depreciation year ended december 31 1993 millions balance additions balance beginning charged end year income retirements changes year long distance communications services digital fiber optic network 12584 3574 1054 6263 14478 data communications equipment 1695 377 92 1844 1796 administrative assets 5072 1227 307 1334 5859 subtotal 19351 5178 1453 943 22133 local communications services buildings 1801 220 62 25 1934 general support assets 3180 675 580 46 3321 cable wire facility assets 21728 3011 715 122 23902 central office assets 15729 3076 1651 65 17219 information origination termination assets 2510 288 491 52 2359 subtotal 44948 7270 3499 16 48735 cellular wireless communications services 859 555 20 15 1379 product distribution directory publishing 1675 333 211 32 1829 66833 133361 51832 910 74076 1 reconciliation additions charged income amount disclosed consolidated statement income amount charged income 13336 amortization intangibles 251 depreciation amortization included consolidated statement income 13587 2 reconciliation retirements included schedule v consolidated property plant equipment amount charged reserve 5183 net book value long distance cellularwireless division retirements 536 total schedule v retirements 5719 3adjustment primarily represents reduction accumulated depreciation due change method accounting certain costs related connecting new customers network see note 1 notes consolidated financial statements additional information 4adjustments primarily represent contribution plant joint venture sprint corporation schedule vi consolidated accumulated depreciation year ended december 31 1992 millions balance additions balance beginning charged end year income retirements changes year long distance communications services digital fiber optic network 10629 3856 1906 053 12584 data communications equipment 1255 395 31 763 1695 administrative assets 4533 1369 749 813 5072 subtotal 16417 5620 2686 19351 local communications services buildings 1711 199 104 05 1801 general support assets 3009 618 493 46 3180 cable wire facility assets 19738 2894 786 118 21728 central office assets 14295 3197 1829 66 15729 information origination termination assets 4580 265 2367 32 2510 subtotal 43333 7173 5579 21 44948 cellular wireless communications services 606 328 29 46 859 product distribution directory publishing 1614 304 243 1675 61970 134251 85372 25 66833 1reconciliation additions charged income amount disclosed consolidated statement income amount charged income 13425 amortization intangibles 490 depreciation amortization included consolidated statement income 13915 2reconciliation retirements included schedule v consolidated property plant equipment amount charged reserve 8537 divestiture local telephone operations 573 net book value long distance cellularwireless divisions retirements 523 total schedule v retirements 9633 3adjustments primarily represent reclassifications plant among categories sprint corporation schedule vi consolidated accumulated depreciation year ended december 31 1991 millions balance additions balance beginning charged end year income retirements changes year long distance communications services digital fiber optic network 8109 3708 1188 10629 data communications equipment 634 241 11 391 1255 administrative assets 3636 1435 226 3123 4533 subtotal 12379 5384 1425 79 16417 local communications services buildings 1620 189 85 13 1711 general support assets 2705 675 421 50 3009 cable wire facility assets 18025 2714 892 109 19738 central office assets 12959 3200 1921 57 14295 information origination termination assets 6311 362 2132 39 4580 subtotal 41620 7140 5451 24 43333 cellular wireless communications services 420 247 48 13 606 product distribution directory publishing 1438 279 121 18 1614 55857 130501 70452 108 61970 1reconciliation additions charged income amount disclosed consolidated statement income amount charged income 13050 amortization intangibles 645 depreciation amortization included consolidated statement income 13695 2reconciliation retirements included schedule v consolidated property plant equipment amount charged reserve 7045 divestiture local telephone operations 1227 net book value long distance cellularwireless divisions retirements 489 total schedule v retirements 8761 3adjustments primarily represent reclassifications plant categories sprint corporation schedule viii consolidated valuation qualifying accounts years ended december 31 1993 1992 1991 millions additions balance charged balance beginning end year income accounts deductions year allowance doubtful accounts 1180 2715 26 27021 1219 valuation allowance deferred income tax assets 302 07 64 245 allowance doubtful accounts 1448 2676 24 29681 1180 valuation allowance deferred income tax assets 3542 52 302 allowance doubtful accounts 2126 3712 29 44191 1448 1 accounts written net recoveries 2 valuation allowance established upon adoption sfas 109 accounting income taxes see notes 1 4 notes consolidated financial statements additional information sprint corporation schedule ix consolidated shortterm borrowings years ended december 31 1993 1992 1991 millions 1993 1 1992 1991 1 bank commercial bank commercial bank commercial notes paper notes paper notes paper 2 3 2 3 2 3 balance end period 6475 1083 2863 760 1853 300 weighted average interest rate 361 329 392 410 525 531 average amount outstanding year 4568 803 3980 375 4012 525 maximum amount outstanding year 7220 1980 4864 785 7490 1302 weighted average interest rate year computed dividing annual interest expense average debt outstanding year 370 325 417 410 673 666 1as december 31 1993 1991 shortterm borrowings classified longterm debt consolidated balance sheets due sprints intent demonstrated ability refinance borrowings longterm basis 2bank notes generally issued terms ranging overnight 60 days 3commercial paper generally issued periods ranging overnight 30 days sprint corporation schedule x consolidated supplementary income statement information years ended december 31 1993 1992 1991 millions 1993 1992 1991 maintenance repairs 1 1672 1741 1622 taxes payroll income taxes property taxes 1586 1482 1570 gross receipts 779 768 607 2365 2250 2177 advertising expense 3172 2517 1926 1amount represents maintenance repairs long distance division cellular wireless division product distribution directory publishing local division maintenance repairs primary component plant operations expense totaled 121 billion 117 billion 116 billion 1993 1992 1991 respectively quarterly financial data unaudited first quarter second quarter third quarter 1993 1992 1993 1992 1993 1992 millions except per share data net operating revenues 27180 25010 28009 25682 28676 26312 operating expenses costs services products 13819 12725 14089 13072 14351 13508 selling general administrative 6418 5945 6759 6250 6908 6097 depreciation amortization 3372 3343 3380 3524 3385 3568 merger integration restructuring costs 12 2480 445 total operating expenses 26089 22013 24228 22846 25089 23173 operating income 1091 2997 3781 2836 3587 3139 gain divestiture telephone properties 3 811 interest expense 1179 1312 1130 1294 1142 1267 income expense net 07 18 81 65 114 64 income loss continuing operations income taxes 95 1667 2570 2418 2331 1936 income tax provision 4 18 604 919 942 964 683 income loss continuing operations 113 1063 1651 1476 1367 1253 discontinued operations net 123 extraordinary losses early extinguishments debt net 52 85 145 56 cumulative effect changes accounting principles net5 3842 227 net income loss 4130 1290 1566 1476 1222 1197 preferred stock dividends 06 10 09 06 09 earnings loss applicable common stock 4136 1280 1557 1467 1216 1188 earnings loss per common share continuing operations 003 031 048 044 039 037 discontinued operations 004 extraordinary item 002 004 002 cumulative effect changes accounting principles 112 007 total 121 038 046 044 035 quarterly sprint corporation financial data unaudited fourth quarter total year 1993 1992 1993 1992 net operating revenues 29813 27199 113678 104203 operating expenses costs services products 15102 13950 57361 53255 selling general administrative 7214 6607 27299 24899 depreciation amortization 3450 3480 13587 13915 merger integration restructuring costs 12 2925 total operating expenses 25766 24037 101172 92069 operating income 4047 3162 12506 12134 gain divestiture telephone properties 3 811 interest expense 1073 1238 4524 5111 income expense net 21 161 223 50 income loss continuing operations income taxes 2953 1763 7759 7784 income tax provision 4 1052 594 2953 2823 income loss continuing operations 1901 1169 4806 4961 discontinued operations net 123 extraordinary losses early extinguishments debt net 10 104 292 160 cumulative effect changes accounting principles net 5 3842 227 net income loss 1891 1065 549 5028 preferred stock dividends 07 28 35 earnings loss applicable common stock 1884 1058 521 4993 earnings loss per common share continuing operations 055 034 139 146 discontinued operations 004 extraordinary item 003 008 005 cumulative effect changes accounting principles 112 007 total 055 031 015 148 1during 1993 sprint consummated merger centel transaction costs associated merger expenses integrating restructuring operations two companies resulted nonrecurring charges first third quarters 1993 charges reduced net income 165 million 048 per share 7 million 002 per share respectively see note 2 notes consolidated financial statements additional information 2during third quarter 1993 sprint realigned restructured long distance communications services division resulting nonrecurring charge reduced net income 21 million 006 per share see note 9 notes consolidated financial statements additional information 3during second quarter 1992 gain 44 million 013 per share net related income taxes recognized related sale certain centels local telephone operations see note 9 notes consolidated financial statements additional information 4during third quarter 1993 revenue reconciliation act 1993 enacted among changes raised federal income tax rate 35 percent 34 percent result sprint adjusted deferred income tax assets liabilities reflect revised rate resulting nonrecurring charge reduced net income 13 million 004 per share see note 4 notes consolidated financial statements additional information 5effective january 1 1993 sprint changed method accounting postretirement postemployment benefits adopting sfas 106 112 effected another accounting change effective january 1 1992 sprint changed method accounting income taxes adopting sfas 109 see note 1 notes consolidated financial statements additional information exhibit index exhibit number 3 articles incorporation bylaws articles incorporation amended filed exhibit 4 sprint corporation current report form 8k dated march 9 1993 incorporated herein reference b bylaws amended filed exhibit 3b sprint corporation annual report form 10 k year ended december 31 1991 incorporated herein reference 4 instruments defining rights sprints equity security holders rights sprints equity security holders defined fifth sixth seventh eighth articles sprints articles incorporation see exhibit 3a b rights agreement dated august 8 1989 sprint corporation formerly united telecommunications inc united missouri bank na formerly united missouri bank kansas city na rights agent filed exhibit 2b sprint corporation registration statement form 8a dated august 11 1989 file 14721 incorporated herein reference c amendment supplement dated june 4 1992 rights agreement dated august 8 1989 filed exhibit 2c amendment 1 form 8 dated june 8 1992 sprint corporation registration statement form 8a dated august 11 1989 file 14721 incorporated herein reference 10 material agreements merger agreement plan merger dated may 27 1992 among sprint corporation f w sub inc centel corporation filed exhibit 2 sprint corporation current report form 8k dated may 27 1992 incorporated herein reference b first amendment dated february 19 1993 agreement plan merger dated may 27 1992 among sprint corporation f w sub inc centel corporation filed exhibit 2b sprint corporation current report form 8k dated march 9 1993 incorporated herein reference 10 executive compensation plans arrangements c 1978 stock option plan amended filed exhibit 19a united telecommunications inc quarterly report form 10q quarter ended september 30 1991 incorporated herein reference 1981 stock option plan amended filed exhibit 19b united telecommunications inc quarterly report form 10q quarter ended september 30 1991 incorporated herein reference e 1985 stock option plan amended filed exhibit 19c united telecommunications inc quarterly report form 10q quarter ended september 30 1991 incorporated herein reference f 1990 stock option plan amended g 1990 restricted stock plan amended filed exhibit 99 sprint corporation registration statement 3350421 incorporated herein reference h longterm stock incentive program amended filed exhibit 19e united telecommunications inc quarterly report form 10q quarter ended september 30 1991 incorporated herein reference restated memorandum agreements respecting supplemental pension benefits sprint corporation formerly united telecommunications inc two current former executive officers filed exhibit 10i sprint corporation annual report form 10k year ended december 31 1992 incorporated herein reference j executive longterm incentive plan k executive management incentive plan l longterm incentive compensation plan filed exhibit 10j united telecommunications inc annual report form 10k year ended december 31 1989 incorporated herein reference shortterm incentive compensation plan filed exhibit 10k united telecommunications inc annual report form 10k year ended december 31 1989 incorporated herein reference n retirement plan directors amended filed exhibit 28d registration statement 3328237 incorporated herein reference key management benefit plan amended p executive deferred compensation plan amended filed exhibit 19f united telecommunications inc quarterly report form 10q quarter ended september 30 1991 incorporated herein reference q directors deferred fee plan amended filed exhibit 19g united telecommunications inc quarterly report form 10q quarter ended september 30 1991 incorporated herein reference r supplemental executive retirement plan filed exhibit 10q sprint corporation annual report form 10k year ended december 31 1992 incorporated herein reference form contingency employment agreements sprint corporation certain executive officers filed exhibit 10r sprint corporation annual report form 10k year ended december 31 1992 incorporated herein reference form indemnification agreements sprint corporation formerly united telecommunications inc directors officers filed exhibit 10s sprint corporation annual report form 10k year ended december 31 1991 incorporated herein reference u summary executive benefits filed exhibit 10u sprint corporation annual report form 10k year ended december 31 1991 incorporated herein reference v amended restated centel management incentive plan w amended restated centel stock option plan x agreements regarding special compensation post employment restrictive covenants sprint corporation three executive officers amended restated centel matched deferred salary plan z amended restated centel directors deferred compensation plan aa amended restated centel director stock option plan 11 computation earnings per common share 12 computation ratio earnings fixed charges 21 subsidiaries registrant 23a consent ernst young 23b consent arthur andersen co item 14 exhibits financial statement schedule reports form 8k 1 consolidated financial statements sprint filed part report listed index financial statements financial statement schedule 2 consolidated financial statement schedule sprint filed part report listed index financial statements financial statement schedule 3 following exhibits filed part report exhibits 3 articles incorporation bylaws articles incorporation amended filed exhibit 3a sprint corporation quarterly report form 10q quarter ended march 31 1996 incorporated herein reference b bylaws amended filed exhibit 3a sprint corporation quarterly report form 10q quarter ended september 30 1996 incorporated herein reference 4 instruments defining rights sprints equity security holders rights sprints equity security holders defined fifth sixth seventh eighth articles sprints articles incorporation see exhibit 3a b rights agreement dated august 8 1989 sprint corporation formerly united telecommunications inc umb bank na formerly united missouri bank kansas city na rights agent filed exhibit 2b sprint corporation registration statement form 8a dated august 11 1989 file 14721 incorporated herein reference c amendment supplement dated june 4 1992 rights agreement dated august 8 1989 filed exhibit 2c amendment 1 form 8 dated june 8 1992 sprint corporation registration statement form 8a dated august 11 1989 file 14721 incorporated herein reference second amendment rights agreement dated july 31 1995 sprint corporation umb bank na filed exhibit 2d form 8aa2 dated october 20 1995 amending sprint corporation registration statement form 8a dated august 11 1989 file 14721 incorporated herein reference e standstill agreement dated july 31 1995 among sprint corporation france telecom deutsche telekom ag filed exhibit 10c sprint corporation quarterly report form 10q quarter ended june 30 1995 incorporated herein reference 10 material agreements joint ventures joint venture agreement dated june 22 1995 among sprint corporation sprint global venture inc france telecom deutsche telekom ag filed exhibit 10a sprint corporation quarterly report form 10q quarter ended june 30 1995 incorporated herein reference b amendment 1 joint venture agreement dated january 31 1996 among sprint corporation sprint global venture inc france telecom deutsche telekom ag atlas telecommunications sa filed exhibit 99a sprint corporation current report form 8k dated january 31 1996 incorporated herein reference c investment agreement dated july 31 1995 among sprint corporation france telecom deutsche telekom ag including exhibit stockholders agreement among france telecom deutsche telekom ag sprint corporation filed exhibit 10b sprint corporation quarterly report form 10q quarter ended june 30 1995 incorporated herein reference amended restated agreement limited partnership majorco lp dated january 31 1996 among sprint spectrum lp tci network services comcast telephony services cox telephony partnership filed exhibit 99c sprint corporation current report form 8k dated january 31 1996 incorporated herein reference e parents agreement dated january 31 1996 sprint corporation telecommunications inc filed exhibit 99d sprint corporation current report form 8k dated january 31 1996 incorporated herein reference f parents agreement dated january 31 1996 sprint corporation comcast corporation filed exhibit 99e sprint corporation current report form 8k dated january 31 1996 incorporated herein reference g parents agreement dated january 31 1996 sprint corporation cox communications inc filed exhibit 99f sprint corporation current report form 8k dated january 31 1996 incorporated herein reference 10 executive compensation plans arrangements h 1985 stock option plan amended appendix stock option plans filed exhibit 10h sprint corporation annual report form 10k year ended december 31 1995 incorporated herein reference 1990 stock option plan amended see exhibit 10 h appendix stock option plans j 1990 restricted stock plan amended k executive deferred compensation plan amended l management incentive stock option plan amended see exhibit 10h appendix stock option plans longterm stock incentive program amended filed exhibit 10f sprint corporation quarterly report form 10q quarter ended september 30 1996 incorporated herein reference n sprint supplemental executive retirement plan filed exhibit 10i sprint corporation quarterly report form 10q quarter ended september 30 1995 incorporated herein reference amended restated centel directors deferred compensation plan filed exhibit 10j sprint corporation quarterly report form 10q quarter ended september 30 1995 incorporated herein reference p restated memorandum agreements respecting supplemental pension benefits sprint corporation formerly united telecommunications inc two current former executive officers filed exhibit 10i sprint corporation annual report form 10k year ended december 31 1992 incorporated herein reference q executive longterm incentive plan filed exhibit 10j sprint corporation annual report form 10k year ended december 31 1993 incorporated herein reference r executive management incentive plan filed exhibit 10k sprint corporation annual report form 10k year ended december 31 1993 incorporated herein reference longterm incentive compensation plan amended filed exhibit 10i sprint corporation quarterly report form 10q quarter ended september 30 1996 incorporated herein reference shortterm incentive compensation plan filed exhibit 10k united telecommunications inc annual report form 10k year ended december 31 1989 incorporated herein reference u retirement plan directors amended v key management benefit plan amended filed exhibit 10g sprint corporation quarterly report form 10q quarter ended september 30 1996 incorporated herein reference w agreements regarding special compensation post employment restrictive covenants sprint corporation certain executive officers filed exhibit 10x sprint corporation annual report form 10k year ended december 31 1993 exhibit 10d sprint corporation quarterly report form 10q quarter ended september 30 1994 exhibit 10 h sprint corporation quarterly report form 10q quarter ended march 31 1996 incorporated herein reference agreement regarding special compensation post employment restrictive covenants sprint corporation one executive officers amended x directors deferred fee plan amended form contingency employment agreements sprint corporation certain executive officers filed exhibit 10b sprint corporation quarterly report form 10q quarter ended march 31 1995 incorporated herein reference z form indemnification agreements sprint corporation formerly united telecommunications inc directors officers filed exhibit 10s sprint corporation annual report form 10k year ended december 31 1991 incorporated herein reference aa summary executive officer board directors benefits filed exhibit 10k sprint corporation quarterly report form 10q quarter ended september 30 1996 incorporated herein reference bb description agreement regarding supplemental pension benefits sprint corporation one executive officers filed exhibit 10e sprint corporation quarterly report form 10q quarter ended september 30 1994 incorporated herein reference cc amended restated centel director stock option plan filed exhibit 10aa sprint corporation annual report form 10k year ended december 31 1993 incorporated herein reference 11 computation earnings per common share 12 computation ratio earnings fixed charges 21 subsidiaries registrant 23 consent ernst young llp 27 financial data schedules december 31 1996 financial data schedule b december 31 1995 restated financial data schedule sprint furnish securities exchange commission upon request copy instruments defining rights holders longterm debt total amount securities authorized said instruments exceed 10 total assets sprint b reports form 8k reports form 8k filed three months ended december 31 1996 c exhibits listed item 14a signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized sprint corporation registrant w esrey william esrey chairman chief executive officer date march 11 1997 pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities indicated 11th day march 1997 w esrey william esrey chairman chief executive officer arthur b krause arthur b krause executive vice president chief financial officer john p meyer john p meyer senior vice president controller principal accounting officer signatures sprint corporation registrant pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities indicated 11th day march 1997 dubose ausley dubose ausley director warren l batts warren l batts director michel bon michel bon director ruth davis ruth davis director w esrey william esrey director donald j hall donald j hall director harold hook harold hook director ronald lemay ronald lemay director linda koch lorimer linda koch lorimer director charles e rice charles e rice director ron sommer ron sommer director stewart turley stewart turley director managements discussion analysis sprint corporation financial condition results operations general sprint corporation subsidiaries sprint include certain estimates projections forwardlooking statements reports presentations analysts others material disseminated public assurances future performance actual results may differ materially forwardlooking statements factors could cause actual results differ materially estimates projections contained forwardlooking statements include effects vigorous competition markets sprint operates cost entering new markets necessary provide seamless services risks associated sprints investments sprint spectrum lp sprint pcs global one presently early stages development impacts unusual items resulting ongoing evaluations sprints business strategies requirements imposed sprint competitors federal communications commission fcc state regulatory commissions telecommunications act 1996 unexpected results litigation filed sprint possibility one markets sprint competes affected variations political economic factors monetary policy legal regulatory changes external factors sprint control sprints principal activities consist following long distance communications services long distance communications services division nations thirdlargest long distance telephone company operates nationwide alldigital long distance communications network uses stateoftheart fiberoptic electronic technology division primarily provides domestic international voice video data communications services division offers services public subject different levels state federal regulation rates subject ratebase regulation except nominally states local communications services local communications services division consists regulated local exchange carriers lecs serve seven million access lines 19 states division provides local exchange services access telephone customers carriers sprints local exchange facilities sales telecommunications equipment long distance services within specified geographical areas emerging businesses emerging businesses consists consumer internet access services competitive local exchange carrier clec services international development activities outside scope global one personal communication services pcs controlled sprint product distribution directory publishing product distribution directory publishing businesses include wholesale distribution telecommunications products publishing marketing white yellow page telephone directories strategic alliances global one sprint partner global one joint venture deutsche telekom ag dt france telecom ft provide seamless global telecommunications services business residential carrier markets worldwide sprint onethird partner global ones operating group serving europe excluding france germany 50 partner global ones operating group worldwide activities outside united states europe connection formation global one joint venture january 31 1996 long distance division contributed certain assets related operations international business unit global one january 31 1996 dt ft acquired shares new class sprint convertible preference stock total 30 billion resulted dt ft holding 75 sprints voting power april 1996 following march 1996 spinoff sprints cellular wireless communications services division cellular preference stock converted sprint class common stock dt ft acquired additional shares class common stock following total investment 37 billion dt ft shares class common stock 10 sprints voting power see note 7 notes consolidated financial statements information sprint pcs sprint 40 partner sprint pcs partnership telecommunications inc comcast corporation cox communications inc sprint pcs building nations first single technology digital stateoftheart wireless network provide pcs across united states pcs uses digital technology sound quality superior existing cellular technology less susceptible interference eavesdropping addition pcs offers additional features paging voice mail caller id data transmission 1996 four partners invested 32 billion sprint pcs fund acquisition licenses related network buildout december 1996 sprint pcs launched service first 65 metropolitan markets sprint pcs expects complete first phase 1997 service markets covering nearly 100 million people early 1998 sprint pcs affiliate american personal communications apc launched nations first pcs system washington dc baltimore maryland areas november 1995 part overall strategy increase pcs coverage sprint directly acquired rights pcs licenses fccs recent auction licenses cover 139 markets across united states reaching total population 70 million people sprint expects affiliate licenses sprint pcs affiliation licensed coverage sprintbranded pcs include nearly 260 million people across united states puerto rico us virgin islands beginning 1996 discussions taken place among partners concerning possible restructuring interests sprint pcs although discussions continued certainty discussions result change partnership structure telecommunications law telecommunications act 1996 act signed law february 1996 promotes competition aspects telecommunications particular relevance sprint act eliminates legal regulatory barriers entry local telephone markets requires incumbent lecs among things allow local resale wholesale rates negotiate interconnection agreements provide nondiscriminatory access unbundled network elements allow collocation interconnection equipment competitors act also allows bell operating companies bocs provide inregion long distance service obtain state certification compliance competitive checklist facilitiesbased competitor obtain fcc ruling provision inregion long distance service public interest part public interest inquiry fcc must solicit views department justice give views substantial weight fcc adopted detailed rules august 1996 govern interconnection incumbent local networks new market entrants lecs state public service commissions appealed rules us court appeals stayed pricing rules pending full review court decision expected mid1997 fcc also expected issue decisions 1997 two related matters critical local competition universal service reform access reform currently local rates subsidized implicit subsidies abovecost access charges imposed long distance companies connections local customers purpose universal service reform establish explicit subsidy mechanism replace current implicit subsidies access reform change structure level access charges determine degree regulatory oversight charges impact act sprint cannot determined rules local competition still decided regulators courts sprint intends provide clec service filed certification states anticipation opening local markets competition clec activity important sprint offensive defensive perspectives allow customers look sprint telecommunications needs high development costs however clec activities unlikely profitable first years areas sprint incumbent lec local competition expected eventually result loss market share however sprints lec operations geographically dispersed largely rural markets local competition expected occur gradually entry likely resale sprint lec services purchase sprint lec unbundled network elements allow sprint retain revenue customers lost clec competition impact local competition also dependent outcome universal service reform access reform dockets fcc sprint presented proposal fcc fairly balances conflicting interests industry participants sprint cannot predict fcc regulators require immediate reduction access subsidies flowing local service without offsetting universal service support giving lecs opportunity rebalance local rates sprints local division would adversely impacted hand reduction access charges would benefit sprints long distance division long distance companies access charges largest single cost providing long distance service long distance companies benefit lower access charges even lower rates flowed customers lower long distance prices likely stimulate additional demand several bocs claim meet competitive checklist seek fcc approval offer inregion long distance service 1997 given absence local competition ground rules absence meaningful local competition sprint believes applications premature however even bocs get authority offer inregion long distance services likely loss sprint customers retail level would offset since sprint underlying network provider least three seven regional bell operating companies spinoff cellular division march 1996 sprint completed taxfree spinoff cellular spinoff sprint common shareholders spinoff effected distributing shares cellular common stock sprints common shareholders rate one cellular common share every three sprint common shares held connection spinoff cellular repaid 14 billion intercompany debt owed sprint addition sprint contributed equity capital cellular 185 million debt owed cellular excess amount repaid equity contribution together sprints previous investment cellular resulted sprints net investment cellular totaling 260 million date spinoff results operations consolidated sprints two primary divisions long distance local generated record levels net operating revenues improved operating results 1996 long distance division generated 20 growth traffic volumes 1996 number access lines served local division grew 56 total net operating revenues 1996 140 billion 10 increase 128 billion 1995 total net operating revenues 1994 120 billion income continuing operations 12 billion 279 per share 1996 compared 946 million 269 per share 1995 899 million 257 per share 1994 income continuing operations 1996 includes charge related litigation long distance division 008 per share 1995 includes charge restructuring within local division 016 per share income continuing operations 1994 includes gain sale investment equity securities 006 per share segmental results operations long distance communications services january 31 1996 long distance division contributed certain international assets related operations global one contribution global one accordingly operating results contributed operations reflected divisions operating results date contribution two significant effects divisions operating results first revenue reduced customers sprints international operations became global one customers global one traffic carried division priced wholesale rather retail basis divisions revenue yield related international customers declined second operating expenses reduced extent related contributed operations contribution global one occurred january 1 1994 yearoveryear operating income growth would estimated 29 1996 excluding nonrecurring charge versus 21 1995 related operating margins would estimated 120 1996 excluding nonrecurring charge 109 1995 95 1994 net operating revenues increased 14 1996 7 1995 traffic volumes increased 20 7 periods revenue growth mainly driven strong volume growth residential business wholesale markets continued growth data services markets growth residential market reflects continuing success sprint senser flatrate calling plan smalltomedium business market experienced declining revenue 1995 produced increased revenue 1996 improvement generally reflects success fridays free calling plan experienced strong domestic international volume growth data services market includes sales capacity sprints network internet service providers reflects continued growth demand expanded service offerings wholesale market experienced strong growth international domestic markets growth wholesale international market due part global one traffic increases 1996 revenues partly offset reduced long distance rates average long distance rates declined due increased competition domestically internationally due global one traffic priced wholesale rather retail basis contribution global one occurred january 1 1994 divisions yearoveryear growth net operating revenues would estimated 17 1996 6 1995 interconnection costs consist amounts paid lecs domestic service providers foreign telephone companies complete calls made divisions domestic customers interconnection costs increased 1996 1995 mainly due strong growth international outbound domestic traffic volumes interconnection costs 448 net operating revenues 1996 versus 426 1995 440 1994 1996 increase interconnection costs percentage net operating revenues reflects changes revenue mix particularly growth international traffic factors partly offset reduced rates charged domestic international carriers connecting networks addition percentage relationship affected 1996 reduced long distance rates reduced revenue due contribution global one contribution occurred january 1 1994 interconnection costs percentage net operating revenues would estimated 450 1996 439 1995 450 1994 operations expense consists costs related operating maintaining long distance network costs providing various services operator services public payphones telecommunications services hearing impaired video teleconferencing costs data system sales operations expense increased less 1 1996 13 1995 increases mainly due overall revenue growth 1996 increase offset contribution global one contribution occurred january 1 1994 operations expense would increased estimated 17 1996 6 1995 percentage net operating revenues operations expense would estimated 125 1996 124 1995 125 1994 selling general administrative sga expense increased 7 1996 6 1995 1996 increase reflects 60 million nonrecurring charge related litigation see note 9 notes consolidated financial statements partly offset contribution global one excluding items increases reflect overall growth divisions operating activities well increased advertising marketing efforts due intensely competitive long distance marketplace contribution global one occurred january 1 1994 sga expense would increased 8 1996 excluding nonrecurring charge 6 1995 percentage net operating revenues sga expense would estimated 230 1996 excluding nonrecurring charge 248 1995 249 1994 depreciation amortization expense increased 52 million 1996 31 million 1995 generally due increased asset base increased asset base supports data services revenue growth expanded service capabilities local communications services yearend 1995 sprint adopted accounting principles competitive marketplace discontinued applying statement financial accounting standards sfas 71 accounting effects certain types regulation local division see note 11 notes consolidated financial statements resulted 1995 aftertax noncash extraordinary charge 565 million beginning 1996 local divisions business transactions recorded based economic substance regulatory assets liabilities based sfas 71 recognized primary effects sprints discontinued use sfas 71 certain accumulated depreciation balances increased plant asset lives shortened reflect economic lives switch software costs previously expensed incurred capitalized amortized estimated economic lives local service revenues derived local exchange services increased 11 1996 7 1995 reflecting increases customer access lines 56 1996 47 1995 growth access lines reflects strong economic growth divisions service areas secondline service existing business residential customers meet lifestyle data access needs local service revenues also increased due extended area calling plans increased demand advanced intelligent network services including caller id voice dialing return call network access revenues derived interexchange long distance carriers use local network complete calls increased 10 1996 7 1995 increases largely due increased traffic volumes 10 1996 9 1995 impact fccs interim interstate price cap plan traffic volumes increased due strong economic conditions many divisions service areas migration traffic related toll service revenues described harsh 1996 winter season experienced east coast impact fccs interim interstate price cap plan became effective 1995 increased network access revenues 1996 nominal effect 1995 new plan local division adopted rate formula based maximum productivity factors effectively removes earnings cap divisions interstate access revenues interstate access revenues currently comprise approximately 60 divisions network access revenues toll service revenues related provision long distance services within specified geographical areas reselling interexchange long distance services decreased 13 1996 8 1995 decreases primarily reflect increased competition intrastate long distance market since interexchange long distance carriers offering intralata long distance service certain states addition toll service revenues declined due expansion extended local area calling plans reductions toll service revenues partly offset increased local service network access revenues including revenues telecommunications equipment sales directory publishing fees billing collection services increased 21 1996 22 1995 increases mainly due business residential equipment sales growth major factor 1996 growth introduction several leadingedge telephone instruments caller id plant operations expense mainly includes network operations repair maintenance costs related property plant equipment plant operations expense increased 1 1996 5 1995 increases mainly reflect increased service costs due customer access line growth addition increases reflect repair maintenance expenses divisions florida midatlantic regions due bad weather conditions including severe storms hurricanes 1996 increase largely offset change accounting switch software costs depreciation amortization expense increased 74 million 1996 41 million 1995 mainly due plant additions 1996 increase also reflects amortization capitalized switch software costs largely offset related decrease plant operations expense discussed customer operations expense includes costs related business office operations billing services marketing customer services including operator directory assistance customer operations expense increased 13 1996 9 1995 increases mainly due increased marketing costs promote new products services increased customer service costs due access line growth operating expenses increased 70 million 1996 41 million 1995 mainly due growth equipment sales 1995 sprint initiated restructuring within local division effort streamline certain processes reduce costs increasingly competitive marketplace actions resulted planned elimination several years approximately 1600 positions mainly network finance functions result local division recorded 88 million nonrecurring charge 1995 accrued liability related charge specifically relates benefits affected employees receive upon termination 1996 approximately 400 positions eliminated resulting termination benefit payments 10 million additional 10 million paid 1997 substantially remaining positions expected eliminated 1997 related costs expected paid 1997 1998 emerging businesses 1996 sprint established new emerging businesses segment consisting consumer internet access services clec services international development activities outside scope global one pcs controlled sprint 1996 operating results largely reflect activities related sprint internet passportsm sprints consumer internet offering launched 1996 fourth quarter sprint substantially completed buildout internet access platform contains 230 points presence reached 85 nations population local call addition operating results reflect sprints efforts entering newly competitive markets sprint initiated efforts enter local markets across united states filing clec status january 1997 sprint filed 47 states district columbia gained regulatory approval provide competitive local telephone service 25 states district columbia january 1997 sprint launched initial competitive local service offering southern california part overall strategy achieve nationwide pcs coverage sprint directly acquired licenses fccs recent auction total cost 544 million licenses cover 139 markets across united states reaching total population 70 million people sprint expects spend approximately 15 billion next three years network buildout related licenses sprint plans affiliate licenses previously acquired sprint pcs affiliation sprints licenses licensed coverage sprintbranded pcs include nearly 260 million people across united states puerto rico us virgin islands product distribution directory publishing product distribution directory publishings net operating revenues increased 78 million 1996 39 million 1995 mainly due increased sales customers affiliated sprint 1995 increase also reflects overall price increases nonoperating items interest expense interest costs consist following sprints average debt outstanding decreased 19 billion 1996 generally due repayments funded portion cash received dt ft equity investments sprint cellulars repayment intercompany debt connection spinoff 1995 sprints average debt outstanding increased 605 million mainly due shortterm borrowings incurred fund investments sprint pcs sprint capitalizes interest costs borrowings related investment sprint pcs capitalized interest costs increased 1996 1995 due sprints increased investment sprint pcs sprint continue capitalize interest costs sprint pcs longer development stage sprint expect sprint pcs meet criteria development stage company beyond mid1997 beginning 1997 sprint expects capitalize interest costs related investment pcs licenses directly acquired sprint related network buildout sprints effective interest rate increased 89 1996 80 1995 mainly due decrease shortterm borrowings percentage total borrowings expense net income expense consists following income tax provision sprints income tax provisions 1996 1995 1994 resulted effective tax rates 377 361 352 respectively see note 4 notes consolidated financial statements information regarding differences cause effective income tax rates vary statutory federal income tax rate discontinued operations 1996 1995 1994 sprint recognized income losses 3 15 16 million respectively associated investment cellular spun sprint common shareholders march 1996 see note 12 notes consolidated financial statements 1994 sprint also recognized income 7 million settlement matters related another discontinued operation extraordinary items 1996 sprint redeemed prior maturity 190 million debt interest rates ranging 60 95 early redemptions resulted 5 million 001 per share aftertax loss yearend 1995 sprint adopted accounting principles competitive marketplace discontinued applying sfas 71 local division see note 11 notes consolidated financial statements sfas 71 requires accounting recognition regulators rate actions appropriate sprint determined local division longer met criteria applying sfas 71 due changes regulatory framework evolving competitive environment result sprint recorded aftertax noncash extraordinary charge 565 million 161 per share financial condition sprints financial condition yearend 1996 compared yearend 1995 mainly reflects completion strategic initiatives first half 1996 portion cash received dts fts investments sprint cellulars repayment intercompany debt used reduce short longterm debt addition sprint used portion cash terminate 600 million accounts receivable sales agreement meet commitments related sprint pcs remaining proceeds invested temporary basis sprints accounts receivable increased 940 million 1996 reflecting termination accounts receivable sales agreement well 10 increase consolidated net operating revenues allowance doubtful accounts percentage gross accounts receivable decreased 5 yearend 1996 8 yearend 1995 generally termination accounts receivable sales agreement require related increase allowance doubtful accounts property plant equipment net accumulated depreciation increased 748 million 1996 increase mainly due increased capital expenditures enhance upgrade sprints networks expand service capabilities increase productivity yearend 1996 sprints total capitalization 118 billion consisting shortterm borrowings longterm debt including current maturities redeemable preferred stock common stock shareholders equity shortterm borrowings longterm debt including current maturities declined 278 total capitalization yearend 1996 548 yearend 1995 liquidity capital resources operating activities continuing operations cash flows operating activities sprints primary source liquidity 24 26 23 billion 1996 1995 1994 respectively excluding effect terminating 600 million accounts receivable sales agreement cash flows increased 394 million 1996 increase generally reflects improved operating results divisions 1995 increase reflects improved operating results reduced working capital requirements investing activities continuing operations sprints investing activities used cash 31 29 18 billion 1996 1995 1994 respectively capital expenditures sprints significant investing activity 24 19 18 billion 1996 1995 1994 respectively long distance capital expenditures incurred year mainly meet increased demand data related services enhance network reliability upgrade capabilities providing new products services capital expenditures local division made accommodate access line growth expand divisions capabilities providing enhanced telecommunications services local division 1996 capital expenditures also include 76 million switch software costs previous years costs expensed incurred investments advances affiliates consists mainly contributions sprint pcs 1996 1995 1994 sprint contributed 298 911 52 million respectively also 1996 sprint loaned 67 million sprint pcs 1996 amounts used fund sprints portion sprint pcs capital operating requirements 1995 840 million contribution used fund sprints share payments pcs licenses remainder used fund sprints share sprint pcs acquisition limited partnership interest apc capital operating requirements 1996 sprint purchased 183 million face value sprint pcs senior discount bonds 100 million 1996 sprint made 84 million deposit directly acquire pcs licenses see segmental results operations emerging businesses discussion financing activities sprints financing activities provided cash 479 million 1996 423 million 1995 used cash 457 million 1994 1996 dt ft acquired shares new class sprint stock total 37 billion portion proceeds together proceeds cellulars repayment intercompany debt used reduce outstanding debt 1995 sprint issued 261 million longterm debt increased shortterm borrowings 11 billion fund commitments related sprint pcs repay longterm debt 1996 sprint purchased 10 million treasury shares 407 million sprints board directors authorized 1998 repurchase shares open market meet share issuance requirements employee benefit plans conversion preferred stock sprint paid dividends common preference preferred shareholders 420 352 349 million 1996 1995 1994 respectively sprints indicated annual dividend rate common stock currently 100 per share discontinued operations connection march 1996 spinoff cellular repaid 14 billion intercompany debt owed sprint prior spinoff cellulars 1996 investing activities required net cash 141 million mainly acquisition additional cellular properties capital expenditures 1995 1994 cellulars cash flows operating activities 163 180 million respectively cellulars investing activities used cash 325 272 million 1995 1994 respectively mainly capital expenditures capital requirements sprint expects 1997 investing activities consisting capital expenditures investments affiliates require cash 45 50 billion addition sprint expects pay dividends totaling 430 million sprint intends fund 1997 cash requirements cash operating activities cash hand external sources capital expenditures 41 44 billion anticipated 1997 capital expenditures long distance local divisions expected total 25 billion early 1997 sprint pay 460 million balance due pcs licenses directly acquired recent fcc auction balance anticipated capital expenditures primarily used build network new pcs markets emerging clec markets sprint expects invest 400 600 million affiliates 1997 sprint pcs require 350 500 million 1997 continue network buildout operating cash requirements sprint also expects global one require partner contributions ongoing development activities addition investing activities international development opportunities apart global one may create cash requirements 1997 sprint expects borrow 10 15 billion 1997 excluding borrowings may required take advantage new international opportunities combination long shortterm borrowings used depending capital market conditions year liquidity yearend 1996 sprint ability borrow 13 billion revolving credit agreement syndicate domestic international banks bank commitments available financing sources include mediumterm note program sprint may offer sale 175 million unsecured senior debt securities addition yearend 1996 sprint could offer sale 900 million debt securities pursuant shelf registration statements filed securities exchange commission additional borrowings may incurred ultimately limited certain covenants contained existing debt agreements yearend 1996 sprint borrowing capacity 132 billion restrictive debt covenants restrictive covenant related dividends results sprints revolving credit agreement among restrictions agreement requires sprint maintain specified levels net worth due requirement 25 billion sprints 32 billion retained earnings effectively restricted payment dividends end 1996 general hedging policies sprint uses certain derivative instruments effort manage exposure interest rate risk foreign exchange risk sprints use derivative instruments related hedging activities limited interest rate swap agreements interest rate caps forward contracts options foreign currencies customary types derivative instruments sprint require collateral security counterparties agreements however since sprint controls exposure credit risk credit approvals credit limits internal monitoring procedures sprint believes credit risk exposure limited sprint circumstance take speculative positions create exposure benefit market fluctuations hedging activity accordance boardapproved policies exposure sprints use derivative instruments immaterial overall operations financial condition liquidity see note 10 notes consolidated financial statements information related sprints portfolio derivative instruments interest rate risk management sprints interest rate risk management program focuses minimizing exposure interest rate movements setting optimal mixture floatingrate fixedrate debt liability portfolio preventing liquidity risk sprint primarily employs gap methodology measure interest rate exposure uses simulation analysis manage interest rate risk sprint takes active stance modifying hedge positions benefit value timing flexibility fixedratefloatingrate adjustments foreign exchange risk management sprints foreign exchange risk management program focuses optimizing consolidated cash flows stabilizing accounting results sprint hedge translation exposure believes optimizing consolidated cash flows time maintain shareholder value sprints primary transaction exposure foreign currencies results changes foreign exchange rates dates sprint incurs settles liabilities payable foreign currency liabilities consist charges overseas telephone companies terminating international calls made sprints domestic customers management report management sprint corporation responsibility integrity objectivity information contained annual report management responsible consistency reporting information ensuring generally accepted accounting principles used discharging responsibility management maintains comprehensive system internal controls supports extensive program internal audits made organizational arrangements providing appropriate divisions responsibility established communication programs aimed assuring policies procedures codes conduct understood practiced employees consolidated financial statements included annual report audited ernst young llp independent auditors audit conducted accordance generally accepted auditing standards report included herein responsibility board directors financial statements pursued mainly audit committee audit committee composed entirely directors officers employees sprint meets periodically internal auditors independent auditors without management present assure respective responsibilities fulfilled internal independent auditors full access audit committee discuss auditing financial reporting matters w esrey william esrey chairman chief executive officer arthur b krause arthur b krause executive vice president chief financial officer report independent auditors board directors shareholders sprint corporation audited accompanying consolidated balance sheets sprint corporation sprint december 31 1996 1995 related consolidated statements income cash flows common stock shareholders equity three years period ended december 31 1996 audits also included financial statement schedule listed index financial statements financial statement schedule financial statements schedule responsibility management sprint responsibility express opinion financial statements schedule based audits conducted audits accordance generally accepted auditing standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion consolidated financial statements referred present fairly material respects consolidated financial position sprint december 31 1996 1995 consolidated results operations cash flows three years period ended december 31 1996 conformity generally accepted accounting principles also opinion related financial statement schedule considered relation basic financial statements taken whole presents fairly material respects information set forth therein discussed note 11 consolidated financial statements sprint discontinued accounting operations local telecommunications division accordance statement financial accounting standards 71 accounting effects certain types regulation 1995 ernst young llp kansas city missouri february 4 1997 notes consolidated financial statements sprint corporation 1 summary significant accounting policies basis consolidation presentation consolidated financial statements include accounts sprint corporation whollyowned majorityowned subsidiaries sprint investments entities sprint exercises significant influence control accounted using equity method see note 2 consolidated financial statements prepared conformity generally accepted accounting principles gaap requires management make estimates assumptions affect reported amounts assets liabilities estimates assumptions also affect disclosure contingent assets liabilities date consolidated financial statements reported amounts revenues expenses reporting period actual results could differ estimates certain amounts previously reported reclassified conform current year presentation consolidated financial statements reclassifications effect results operations shareholders equity previously reported accordance statement financial accounting standards sfas 71 accounting effects certain types regulation revenues related net income resulting transactions sprints nonregulated operations regulated local exchange carriers eliminated consolidated financial statements 1996 revenues related intercompany transactions 262 285 million 1995 1994 respectively significant intercompany transactions eliminated classification operations long distance communications services division provides domestic international voice video data communications services division offers services public subject different levels state federal regulation rates generally subject ratebase regulation local communications services division consists regulated telephone companies operations provide local exchange services access telephone customers carriers local exchange facilities sales telecommunications equipment long distance services within specified geographical areas emerging businesses consists activities related consumer internet access services competitive local exchange carrier clec services personal communication services pcs controlled sprint international development activities outside scope global one joint venture product distribution directory publishing businesses include wholesale distribution telecommunications products publishing marketing white yellow page telephone directories revenue recognition sprint recognizes operating revenues services rendered products delivered customers long distance division records operating revenues net estimate uncollectible accounts 1 summary significant accounting policies continued cash equivalents cash equivalents generally include highly liquid investments original maturities three months less stated cost approximates market value part cash management program sprint uses controlled disbursement banking arrangements yearend 1996 1995 outstanding checks excess cash balances 127 131 million respectively included accounts payable sprint sufficient funds available fund outstanding checks presented payment investments debt equity securities investments debt equity securities classified available sale reported fair value estimated based quoted market prices gross unrealized holding gains losses reflected adjustments common stock shareholders equity net related income taxes inventories consisting principally related sprints product distribution business stated lower cost principally firstin firstout method market property plant equipment property plant equipment recorded cost generally ordinary asset retirements disposals charged accumulated depreciation gain loss recognized repairs maintenance costs expensed incurred depreciation cost property plant equipment generally depreciated straightline basis estimated economic useful lives prior discontinued use sfas 71 yearend 1995 cost property plant equipment sprints local division generally depreciated straightline basis lives prescribed regulatory commissions income taxes deferred income taxes provided certain temporary differences carrying amounts assets liabilities financial reporting purposes amounts used tax purposes investment tax credits related regulated telephone property plant equipment deferred amortized estimated useful lives related assets capitalized interest sprint capitalizes interest costs related construction capital assets investment sprint spectrum lp sprint pcs capitalized interest totaled 104 57 8 million 1996 1995 1994 respectively 1 summary significant accounting policies continued earnings per share eps based weighted average outstanding issuable shares assuming dilutive options exercised applicable class common stock discussed note 7 issued january 1 1996 related proceeds used repay debt invested temporary basis time sprints 1996 eps continuing operations would decreased 279 per share estimated 276 per share 2 investments investment affiliate debt securities august 1996 sprint purchased 183 million face value sprint pcs senior discount bonds 100 million bonds mature 2006 yearend 1996 accreted cost bonds 104 million gross unrealized holding gains totaled 18 million investment included current assets 1996 consolidated balance sheet investments equity securities cost equity securities 105 109 million yearend 1996 1995 respectively gross unrealized holding gains 149 million 1996 154 million 1995 investments advances affiliates investments accounted using equity method mainly consist sprints investments sprint pcs global one sprint 40 partner sprint pcs partnership telecommunications inc comcast corporation cox communications inc sprint pcs building wireless network provide pcs broad geographic basis within united states 1996 sprint became partner global one joint venture deutsche telekom ag dt france telecom ft global one formed provide seamless global telecommunications services business residential carrier markets worldwide sprint onethird partner global ones operating group serving europe excluding france germany 50 partner global ones operating group worldwide activities outside united states europe yearend 1996 sprints share underlying equity global ones net assets exceeded carrying value sprints investment global one 186 million difference amortized january 2001 2 investments continued combined summarized financial information 100 basis entities accounted using equity method follows 1996 1995 1994 sprint recorded net income losses affiliates accounted using equity method 264 23 3 million respectively amounts included expense net consolidated statements income yearend 1996 sprint loaned sprint pcs 67 million 3 employee benefit plans defined benefit pension plan substantially sprint employees covered noncontributory defined benefit pension plan benefits plan participants represented collective bargaining units based negotiated schedules defined amounts participants covered collective bargaining agreements plan provides pension benefits based years service participants compensation sprints policy make annual plan contributions equal actuarially determined amount consistent applicable federal tax regulations funding objective accumulate funds relatively stable rate participants working lives benefits fully funded retirement yearend 1996 plans assets consisted mainly investments corporate equity securities us government corporate debt securities 3 employee benefit plans continued net pension cost credit related weighted average assumptions consist following funded status amounts recognized consolidated balance sheets plan yearend follows defined contribution plans sprint sponsors defined contribution employee savings plans covering substantially employees participants may contribute portions compensation plans contributions participants represented collective bargaining units matched sprint based defined amounts negotiated respective parties contributions participants covered collective bargaining agreements also matched sprint participants sprint provides matching contributions sprint common stock equal 50 participants contributions 6 compensation addition sprint may discretion board directors provide matching contributions based performance sprint common stock compared telecommunications companies sprints matching contributions 56 51 47 million 1996 1995 1994 respectively yearend 1996 plans held 22 million shares sprint common stock 3 employee benefit plans continued postretirement benefits sprint provides postretirement benefits principally medical benefits substantially employees retiring specified dates eligible benefits cost reduced cost employees retiring specified dates eligible benefits sharedcost basis sprint funds accrued costs benefits paid net postretirement benefits cost consists following measurement purposes weighted average annual health care cost trend rate 96 assumed 1996 gradually decreasing ultimate level 5 2001 effect 1 increase assumed trend rates would increased 1996 net postretirement benefits cost estimated 12 million discount rates 1996 1995 1994 725 850 750 respectively amounts recognized consolidated balance sheets yearend follows yearend 1996 1995 accumulated benefit obligations based discount rates 775 725 respectively assumed 1997 annual health care cost trend rate 9 gradually decreasing ultimate level 5 2005 effect 1 annual increase assumed health care cost trend rates would increased yearend 1996 accumulated postretirement benefit obligation estimated 96 million 4 income taxes income tax provisions allocated continuing operations consist following differences cause effective income tax rate vary statutory federal income tax rate 35 follows income tax provisions benefits allocated items follows 4 income taxes continued deferred income taxes provided temporary differences carrying amounts sprints assets liabilities financial statement purposes tax bases sources differences give rise deferred income tax assets liabilities yearend 1996 1995 along income tax effect follows 1996 1995 1994 valuation allowance related deferred income tax assets decreased 4 1 million respectively sprints management believes likely deferred income tax assets net valuation allowance realized based current income tax laws expectations future taxable income stemming reversal existing deferred tax liabilities ordinary operations uncertainties surrounding income tax law changes shifts operations state taxing jurisdictions future operating income levels may however affect ultimate realization portion deferred income tax assets yearend 1996 sprint available income tax purposes 3 million state alternative minimum tax credit carryforwards offset state income tax payable future years tax benefits 18 million related state operating loss carryforwards loss carryforwards expire varying amounts per year 1997 2011 5 borrowings longterm debt longterm debt yearend follows 5 borrowings continued longterm debt maturities next five years follows property plant equipment total cost 124 billion either pledged security first mortgage bonds certain notes restricted use mortgaged property 1996 sprint redeemed prior scheduled maturities 190 million debt interest rates ranging 60 95 early redemptions resulted 5 million aftertax extraordinary loss shortterm borrowings notes payable commercial paper outstanding related weighted average interest rates yearend follows yearend 1995 43 million notes payable commercial paper classified longterm debt based sprints ability intent refinance borrowings longterm basis bank notes renewable various dates throughout year sprint pays fee certain commercial banks support current future credit requirements based loan commitments lines credit could withdrawn banks material adverse change sprints financial condition yearend 1996 sprints unused bank lines credit totaled 13 billion sprint compliance restrictive financial covenants relating debt arrangements yearend 1996 6 redeemable preferred stock sprint approximately 25 million authorized shares preferred stock including nonredeemable preferred stock redeemable preferred stock outstanding yearend follows 1996 24000 shares sprints third series preferred stock redeemed 10000 per share 160000 shares redeemed 10177 per share sprints fifth series preferred stock must redeemed full 2003 less full dividends paid four consecutive dividend periods total amount dividends arrears exceeds dividend payment six dividend periods holders fifth series preferred stock may elect majority directors standing election arrears dividend payments paid 7 common stock common stock yearend 1996 common stock reserved future grants stock option plans future issuances various arrangements follows shareholder rights plan onehalf preferred stock purchase right attached share sprint common stock class common stock right exercisable detachable certain takeover events occur rights entitle shareholders buy units consisting one onehundredth newly issued preferred stockfourth series junior participating share 23500 per unit certain circumstances common stock certain circumstances rights beneficially owned acquiring person become null void sprints preferred stockfourth series without par value voting cumulative accrues dividends generally equal greater 1000 per share 200 times aggregate per share amount common stock dividends shares preferred stockfourth series issued outstanding yearend 1996 rights may redeemed sprint 001 per right expire september 1999 7 common stock continued 1996 1995 1994 sprint declared paid annual common stock dividends 100 per share restrictive covenant related common stock dividends results sprints 15 billion revolving credit agreement among restrictions agreement requires sprint maintain specified levels consolidated net worth defined due requirement 25 billion sprints 32 billion consolidated retained earnings effectively restricted payment dividends yearend 1996 indentures financing agreements certain sprints subsidiaries contain various provisions restricting payment cash dividends subsidiary common stock held sprint connection restrictions 145 million related subsidiaries 12 billion total retained earnings restricted yearend 1996 flow cash form advances subsidiaries sprint generally restricted 1990 savings plan trust employee savings plan acquired common stock sprint exchange 75 million promissory note payable sprint note bears interest 9 repaid common stock dividends received plan contributions made plan sprint according plan provisions remaining 512 million note receivable balance yearend 1996 reflected reduction common stock shareholders equity class common stock january 31 1996 dt ft acquired shares new class convertible preference stock total 30 billion resulted dt ft holding 75 sprints voting power april 1996 following spinoff sprints cellular wireless communications services division cellular see note 12 preference stock converted class common stock dt ft acquired additional shares class common stock following total investment 37 billion dt ft shares class common stock 10 sprints voting power 1996 sprint declared paid dividends 016 per share preference stock 075 per share class common stock dt ft holders class common stock right circumstances proportionate representation sprints board directors purchase additional shares class common stock sprint maintain total ownership level 20 addition holders class common stock disapproval rights respect sprints undertaking certain types transactions dt ft entered standstill agreement sprint contains restrictions ability acquire voting securities sprint contemplated investment agreement sprint related agreements standstill agreement also contains customary provisions restricting dt ft initiating participating proposal respect control sprint 8 stockbased compensation sprints management incentive stock option plan misop provides granting stock options employees eligible receive annual incentive compensation eligible employees entitled receive stock options lieu portion target incentive sprints management incentive plans options generally become exercisable december 31 year granted maximum term 10 years misop options granted exercise prices equal market price sprints common stock grant date yearend 1996 authorized shares plan approximated eight million amount increased approximately three million shares january 1 1997 sprint corporation stock option plans sop provide granting stock options officers key employees options generally become exercisable rate 25 per year beginning one year grant date maximum term 10 years sop options granted exercise prices equal market price sprints common stock grant date yearend 1996 authorized shares plans approximated 18 million amount increased approximately two million shares january 1 1997 every two years espp offers employees election purchase sprint common stock price equal 85 market value grant exercise date whichever less yearend 1996 authorized shares plan approximated 18 million 1996 sprint adopted pro forma disclosure requirements sfas 123 accounting stockbased compensation continued apply accounting principles board apb opinion 25 accounting stock issued employees stock option employee stock purchase plans apb 25 sprint recognized compensation expense related plans pro forma net income eps determined sprint used fair value method accounting stock option grants espp share elections 1994 method pro forma amounts reduced compensation expense compensation expense recognized applicable vesting periods based number shares option related fair values grant date following pro forma information likely represent information reported future years options granted espp shares elected 1994 continue vest next several years addition compensation expense resulting spinoff cellular decline next several years sprints pro forma net income eps 1996 1995 follows 1996 sprint employees elected purchase 28 million espp shares weighted average fair value using blackscholes pricing model 1006 per share espp shares offered 1995 8 stockbased compensation continued following tables reflect weighted average fair value per option granted year well significant weighted average assumptions used determining fair values using blackscholes pricing model summary stock option plan activity follows 8 stockbased compensation continued adjustment spinoff cellular options exercisable yearend 1995 1994 64 45 million respectively following table summarizes outstanding exercisable options yearend 1996 9 commitments contingencies litigation claims assessments december 1996 arbitration panel entered 61 million award favor network 2000 communications corporation network 2000 breach contract claim sprint arbitrators directed sprint pay onehalf award network 2000 remaining amount missouri state court proposed class action network 2000s independent marketing representatives imrs network 2000 sprint pending arbitrators denied claims network 2000 including claims fraud deceit december 1996 sprint filed action federal district court kansas city missouri naming defendants network 2000 network 2000s attorneys representatives proposed class imrs sprint seeks arbitration panels award vacated modified corrected asked court enter order regarding distribution award among defendants proposed class action imrs seek certify class pursue breach contract tort claims network 2000 sprint believes imrs contract claims addressed arbitration panels award related federal court action filed sprint believes imrs tort claims appropriate class action treatment 1996 sprint accrued 60 million based ongoing assessment potential liability related actions network 2000 imrs charge reduced income continuing operations 36 million 008 per share 9 commitments contingencies continued following announcement 1992 sprints merger agreement centel corporation centel class action suits filed centel certain officers directors federal state courts state suits dismissed june 1996 centel defendants granted summary judgment federal action plaintiffs appealed courts order october 1995 new york trial court granted motion centels financial advisors dismiss purported class action suit filed connection representation centel merger order dismissing claims affirmed appeal intermediate appellate court new york sprint may indemnification obligations financial advisors connection suit various suits arising ordinary course business pending sprint management cannot predict ultimate outcome actions believes result material effect sprints consolidated financial statements commitments sprint expects invest 400 600 million affiliates 1997 sprint pcs require 350 500 million 1997 continue network buildout operating cash requirements sprint also expects global one require partner contributions ongoing development activities fccs recently completed pcs license auctions sprint directly acquired licenses total 544 million sprint pay 460 million balance due licenses early 1997 operating leases minimum rental commitments yearend 1996 noncancelable operating leases consisting mainly leases data processing equipment real estate follows gross rental expense totaled 401 402 379 million 1996 1995 1994 respectively rental commitments subleases contingent rentals executory costs significant 10 financial instruments fair value financial instruments sprint estimates fair value financial instruments using available market information appropriate valuation methodologies accordingly following estimates necessarily indicative values sprint could realize current market exchange although management aware factors would affect estimated fair values presented yearend 1996 amounts comprehensively revalued purposes financial statements since date therefore estimates fair value yearend 1996 may differ significantly amounts presented carrying amounts estimated fair values sprints financial instruments yearend follows carrying values sprints cash equivalents approximate fair value yearend 1996 1995 fair value sprints investments debt equity securities estimated based quoted market prices fair value sprints longterm debt estimated based quoted market prices publicly traded issues fair value issues estimated based present value estimated future cash flows using discount rate based risks involved fair value interest rate swap agreements estimated amount sprint would receive pay terminate swap agreements yearend 1996 1995 taking account thencurrent interest rates fair value foreign currency contracts estimated replacement cost contracts yearend 1996 1995 taking account thencurrent foreign currency exchange rates concentrations credit risk sprints accounts receivable subject concentration credit risk interest rate swap agreements foreign currency contracts involve risk dealing counterparties ability meet contract terms notional principal amounts often used express volume transactions amounts subject credit risk significantly smaller event nonperformance counterparties sprints accounting loss would limited net amount would entitled receive terms applicable interest rate swap agreement foreign currency contract however sprint anticipate nonperformance counterparties associated agreements sprint controls credit risk concentration credit risk interest rate swap agreements foreign currency contracts credit approvals dollar exposure limits internal monitoring procedures 10 financial instruments continued interest rate swap agreements sprint uses interest rate swap agreements part interest rate risk management program net interest paid received related agreements recorded using accrual method recorded adjustment interest expense sprint interest rate swap agreements notional amounts 350 275 million outstanding yearend 1996 1995 respectively net interest expense income related interest rate swap agreements 2 million 400000 1 million 1996 1995 1994 respectively deferred gains losses related terminated interest rate swap agreements yearend 1996 1995 1994 foreign currency contracts part foreign currency exchange risk management program sprint purchases sells overthecounter forward contracts options various foreign currencies sprint outstanding 46 13 million open forward contracts buy various foreign currencies yearend 1996 1995 respectively sprint 3 24 million outstanding open purchase option contracts call various foreign currencies yearend 1996 1995 respectively premium paid option expensed incurred fair value option recorded asset end period forward contracts open yearend 1996 1995 original maturities six months less net gain loss recorded reflect fair value contracts recorded period incurred total net losses 400000 1 million 2 million recorded related foreign currency transactions contracts 1996 1995 1994 respectively 11 adoption accounting principles competitive marketplace yearend 1995 sprint determined local division longer met criteria necessary continued use sfas 71 result 1995 results include noncash extraordinary charge 565 million net income tax benefits 437 million decision discontinue use sfas 71 based changes regulatory framework convergence competition telecommunications industry 1995 extraordinary charge recognized upon discontinued use sfas 71 consisted following 11 adoption accounting principles competitive marketplace continued adjustment accumulated depreciation based depreciation reserve impairment studies depreciation reserve study analyzed individual plant asset category impact regulatorprescribed depreciable asset lives compared sprints estimated economic lives results identified cumulative underdepreciation certain asset categories impairment study validated depreciation study results estimated impact future revenues price changes developing industry competition effects cash flows discontinued use sfas 71 also required sprint eliminate consolidated balance sheets effects actions regulators recognized assets liabilities sfas 71 would recognized assets liabilities enterprises general elimination net regulatory assets mainly related deferred postretirement benefit obligations deferred debt financing costs taxrelated adjustments required adjust deferred income taxes currently enacted statutory rates eliminate taxrelated regulatory assets liabilities sprints local division uses deferral method accounting investment tax credits amortizes credits reduction tax expense life asset gave rise tax credit since plant asset lives shortened related investment tax credits adjusted reduce unamortized balance corresponding amount 12 spinoff cellular division march 1996 sprint completed taxfree spinoff cellular spinoff holders sprint common stock spinoff effected distributing holders sprint common stock shares cellular common stock rate one share cellular common stock every three shares sprint common stock held connection spinoff cellular repaid 14 billion intercompany debt owed cellular sprint addition sprint contributed equity capital cellular 185 million debt owed cellular excess amount repaid equity contribution together sprints previous investment cellular resulted sprints net investment cellular totaling 260 million date spinoff cellulars net operating results summarized separately classified discontinued operations consolidated statements income interest expense allocated cellular based assumed repayment intercompany debt sprint cellular operating expenses presented include cellulars share sprints general corporate overhead expenses totaling 2 13 12 million 1996 1995 1994 respectively reallocated sprints operating segments 12 spinoff cellular division continued 1995 cellulars net assets liabilities summarized separately classified net investment cellular division consolidated balance sheets 13 additional financial information segment information related sprints operating business segments included managements discussion analysis financial condition results operation segmental results operations net operating revenues operating expenses shown tables include revenues expenses eliminated consolidation amounts eliminated follows capital expenditures identifiable assets related operating segments follows 13 additional financial information continued realignment restructuring charge 1995 sprint initiated restructuring within local division effort streamline certain processes reduce costs increasingly competitive marketplace actions resulted planned elimination several years approximately 1600 positions mainly network finance functions result local division recorded 88 million nonrecurring charge 1995 reduced income continuing operations 55 million 016 per share accrued liability related charge specifically relates benefits affected employees receive upon termination 1996 approximately 400 positions eliminated resulting termination benefit payments 10 million additional 10 million paid 1997 substantially remaining positions expected eliminated 1997 related costs expected paid 1997 1998 accounts receivable sold recourse agreement available yearend 1996 sprint could sell continuous basis recourse 600 million undivided interests designated pool accounts receivable sprint elected terminate agreement early 1996 repaid 600 million receivables uncollected yearend 1995 supplemental cash flows information january 31 1996 connection formation global one joint venture sprint contributed cash property plant equipment assets liabilities certain international operations global one net book value noncash assets liabilities contributed global one totaled 73 million 1996 1994 connection espp sprint issued common stock totaling 65 53 million respectively 1996 discussed note 12 sprint completed spinoff immediate effect cash flows cellulars repayment 14 billion intercompany debt owed sprint 1994 sprint contributed previously unissued common stock employee savings plans stock market value 31 million related party transactions 1996 sprint provided various voice data administrative services global one totaling 361 million addition global one provided data administrative services sprint totaling 130 million yearend 1996 sprints receivable due global one 163 million sprints payable global one 49 million 14 quarterly financial data unaudited sprint corporation schedule ii consolidated valuation qualifying accounts years ended december 31 1996 1995 1994 exhibit index exhibit number 3 articles incorporation bylaws articles incorporation amended filed exhibit 3a sprint corporation quarterly report form 10q quarter ended march 31 1996 incorporated herein reference b bylaws amended filed exhibit 3a sprint corporation quarterly report form 10q quarter ended september 30 1996 incorporated herein reference 4 instruments defining rights sprints equity security holders rights sprints equity security holders defined fifth sixth seventh eighth articles sprints articles incorporation see exhibit 3a b rights agreement dated august 8 1989 sprint corporation formerly united telecommunications inc umb bank na formerly united missouri bank kansas city na rights agent filed exhibit 2b sprint corporation registration statement form 8a dated august 11 1989 file 14721 incorporated herein reference c amendment supplement dated june 4 1992 rights agreement dated august 8 1989 filed exhibit 2c amendment 1 form 8 dated june 8 1992 sprint corporation registration statement form 8a dated august 11 1989 file 14721 incorporated herein reference second amendment rights agreement dated july 31 1995 sprint corporation umb bank na filed exhibit 2d form 8aa2 dated october 20 1995 amending sprint corporation registration statement form 8a dated august 11 1989 file 14721 incorporated herein reference e standstill agreement dated july 31 1995 among sprint corporation france telecom deutsche telekom ag filed exhibit 10c sprint corporation quarterly report form 10q quarter ended june 30 1995 incorporated herein reference 10 material agreements joint ventures joint venture agreement dated june 22 1995 among sprint corporation sprint global venture inc france telecom deutsche telekom ag filed exhibit 10a sprint corporation quarterly report form 10q quarter ended june 30 1995 incorporated herein reference b amendment 1 joint venture agreement dated january 31 1996 among sprint corporation sprint global venture inc france telecom deutsche telekom ag atlas telecommunications sa filed exhibit 99a sprint corporation current report form 8k dated january 31 1996 incorporated herein reference c investment agreement dated july 31 1995 among sprint corporation france telecom deutsche telekom ag including exhibit stockholders agreement among france telecom deutsche telekom ag sprint corporation filed exhibit 10b sprint corporation quarterly report form 10q quarter ended june 30 1995 incorporated herein reference amended restated agreement limited partnership majorco lp dated january 31 1996 among sprint spectrum lp tci network services comcast telephony services cox telephony partnership filed exhibit 99c sprint corporation current report form 8k dated january 31 1996 incorporated herein reference e parents agreement dated january 31 1996 sprint corporation telecommunications inc filed exhibit 99d sprint corporation current report form 8k dated january 31 1996 incorporated herein reference f parents agreement dated january 31 1996 sprint corporation comcast corporation filed exhibit 99e sprint corporation current report form 8k dated january 31 1996 incorporated herein reference g parents agreement dated january 31 1996 sprint corporation cox communications inc filed exhibit 99f sprint corporation current report form 8k dated january 31 1996 incorporated herein reference 10 executive compensation plans arrangements h 1985 stock option plan amended appendix stock option plans filed exhibit 10h sprint corporation annual report form 10k year ended december 31 1995 incorporated herein reference 1990 stock option plan amended see exhibit 10 h appendix stock option plans j 1990 restricted stock plan amended k executive deferred compensation plan amended l management incentive stock option plan amended see exhibit 10h appendix stock option plans longterm stock incentive program amended filed exhibit 10f sprint corporation quarterly report form 10q quarter ended september 30 1996 incorporated herein reference n sprint supplemental executive retirement plan filed exhibit 10i sprint corporation quarterly report form 10q quarter ended september 30 1995 incorporated herein reference amended restated centel directors deferred compensation plan filed exhibit 10j sprint corporation quarterly report form 10q quarter ended september 30 1995 incorporated herein reference p restated memorandum agreements respecting supplemental pension benefits sprint corporation formerly united telecommunications inc two current former executive officers filed exhibit 10i sprint corporation annual report form 10k year ended december 31 1992 incorporated herein reference q executive longterm incentive plan filed exhibit 10j sprint corporation annual report form 10k year ended december 31 1993 incorporated herein reference r executive management incentive plan filed exhibit 10k sprint corporation annual report form 10k year ended december 31 1993 incorporated herein reference longterm incentive compensation plan amended filed exhibit 10i sprint corporation quarterly report form 10q quarter ended september 30 1996 incorporated herein reference shortterm incentive compensation plan filed exhibit 10k united telecommunications inc annual report form 10k year ended december 31 1989 incorporated herein reference u retirement plan directors amended v key management benefit plan amended filed exhibit 10g sprint corporation quarterly report form 10q quarter ended september 30 1996 incorporated herein reference w agreements regarding special compensation post employment restrictive covenants sprint corporation certain executive officers filed exhibit 10x sprint corporation annual report form 10k year ended december 31 1993 exhibit 10d sprint corporation quarterly report form 10q quarter ended september 30 1994 exhibit 10 h sprint corporation quarterly report form 10q quarter ended march 31 1996 incorporated herein reference agreement regarding special compensation post employment restrictive covenants sprint corporation one executive officers amended x directors deferred fee plan amended form contingency employment agreements sprint corporation certain executive officers filed exhibit 10b sprint corporation quarterly report form 10q quarter ended march 31 1995 incorporated herein reference z form indemnification agreements sprint corporation formerly united telecommunications inc directors officers filed exhibit 10s sprint corporation annual report form 10k year ended december 31 1991 incorporated herein reference aa summary executive officer board directors benefits filed exhibit 10k sprint corporation quarterly report form 10q quarter ended september 30 1996 incorporated herein reference bb description agreement regarding supplemental pension benefits sprint corporation one executive officers filed exhibit 10e sprint corporation quarterly report form 10q quarter ended september 30 1994 incorporated herein reference cc amended restated centel director stock option plan filed exhibit 10aa sprint corporation annual report form 10k year ended december 31 1993 incorporated herein reference 11 computation earnings per common share 12 computation ratio earnings fixed charges 21 subsidiaries registrant 23 consent ernst young llp 27 financial data schedules december 31 1996 financial data schedule b december 31 1995 restated financial data schedule item 14 principal accounting fees services pursuant instruction g3 form 10k information required item 14 incorporated reference sprint’s definitive proxy statement filed pursuant regulation 14a within 120 days end sprint’s fiscal year ended december 31 2003 part iv item 15 item 14 exhibits financial statement schedules reports form 8k a1 consolidated financial statements sprint combined financial statements fon group pcs group filed part report listed index financial statements financial statement schedules 2 consolidated financial statement schedule sprint combined financial statement schedules fon group pcs group filed part report listed index financial statements financial statement schedules 3 following exhibits filed part report exhibits 2 merger agreement transfer agreement amended restated agreement plan merger dated march 8 2000 mci worldcom inc sprint corporation filed annex proxy statementprospectus forms part mci worldcoms registration statement 33390421 incorporated herein reference b master transfer agreement dated january 21 2000 among france telecom deutsche telekom ag nab nordamerika beteiligungs holding gmbh atlas telecommunications sa sprint corporation sprint global venture inc jv entities set forth schedule ii thereto filed exhibit 2 sprint corporations current report form 8k dated january 26 2000 incorporated herein reference c amendment 1 master transfer agreement dated february 22 2000 filed exhibit 2b sprint corporations current report form 8k dated february 22 2000 incorporated herein reference 3 articles incorporation bylaws articles incorporation amended filed exhibit 4a posteffective amendment 2 sprint corporations registration statement form s3 3358488 incorporated herein reference b bylaws amended filed exhibit 4c posteffective amendment 2 sprint corporations registration statement form s3 3358488 incorporated herein reference 4 instruments defining rights sprints security holders rights sprints equity security holders defined fifth sixth seventh eighth articles sprints articles incorporation see exhibit 3a b rights agreement dated november 23 1998 sprint corporation umb bank na filed exhibit 41 amendment 1 sprint corporations registration statement form 8a relating sprints pcs group rights filed november 25 1998 incorporated herein reference c tracking stock policies sprint corporation filed exhibit 4d posteffective amendment 2 sprint corporations registration statement form s3 3358488 incorporated herein reference amended restated standstill agreement dated november 23 1998 among sprint corporation france telecom sa deutsche telekom ag filed exhibit 4e posteffective amendment no2 sprint corporations registration statement form s3 3358488 incorporated herein reference e indenture dated october 1 1998 among sprint capital corporation sprint corporation bank one na trustee filed exhibit 4b sprint corporations quarterly report form 10q quarter ended september 30 1998 incorporated herein reference f first supplemental indenture dated january 15 1999 among sprint capital corporation sprint corporation bank one na trustee filed exhibit 4b sprint corporation current report form 8k dated february 2 1999 incorporated herein reference g indenture dated october 1 1998 sprint corporation bank one na trustee filed exhibit 4a sprint corporations quarterly report form 10q quarter ended september 30 1998 incorporated herein reference h first supplemental indenture dated january 15 1999 sprint corporation bank one na trustee filed exhibit 4a sprint corporation current report form 8k dated february 2 1999 incorporated herein reference 10 material agreements amended restated stockholders agreement among france telecom sa deutsche telekom ag sprint corporation dated november 23 1998 filed exhibit 10c sprint corporation annual report form 10k year ended december 31 1998 incorporated herein reference b amended restated registration rights agreement dated november 23 1998 among sprint corporation france telecom sa deutsche telekom ag filed exhibit 101 amendment 1 sprint corporation registration statement form s3 33364241 incorporated herein reference c registration rights agreement dated november 23 1998 among sprint corporation telecommunications inc comcast corporation cox communications inc filed exhibit 102 amendment 1 sprint corporation registration statement form s3 33364241 incorporated herein reference standstill agreements dated may 26 1996 sprint corporation telecommunications inc comcast corporation cox communications inc filed exhibit 10g sprint corporation annual report form 10k year ended december 31 1998 incorporated herein reference e 364day credit agreement dated august 6 1999 among sprint corporation sprint capital corporation borrowers initial lenders named therein initial lenders citibank na administrative agent salomon smith barney inc book manager arranger morgan guaranty trust company new york syndication agent bank america national trust savings association chase manhattan bank documentation agents filed exhibit 99b sprint corporations current report form 8k dated october 20 1999 incorporated herein reference f fiveyear credit agreement dated august 7 1998 among sprint corporation sprint capital corporation borrowers initial lenders named therein initial lenders citibank na administrative agent morgan guaranty trust company new york syndication agent bank america national trust savings association chase manhattan bank documentation agents filed exhibit 1024 sprint corporation registration statement form s3 33364241 incorporated herein reference 10 executive compensation plans arrangements g 1990 stock option plan amended h 1990 restricted stock plan amended executive deferred compensation plan amended j management incentive stock option plan amended k 1997 longterm stock incentive program l sprint supplemental executive retirement plan filed exhibit 10i sprint corporation quarterly report form 10q quarter ended september 30 1995 incorporated herein reference amended restated centel directors deferred compensation plan n restated memorandum agreements respecting supplemental pension benefits sprint corporation formerly united telecommunications inc two current former executive officers filed exhibit 10i sprint corporation annual report form 10k year ended december 31 1992 incorporated herein reference executive longterm incentive plan filed exhibit 10j sprint corporation annual report form 10k year ended december 31 1993 incorporated herein reference p executive management incentive plan filed exhibit 10k sprint corporation annual report form 10k year ended december 31 1993 incorporated herein reference q longterm incentive compensation plan amended filed exhibit 10i sprint corporation quarterly report form 10q quarter ended september 30 1996 incorporated herein reference r shortterm incentive compensation plan filed exhibit 10k sprint corporation formerly united telecommunications inc annual report form 10k year ended december 31 1989 incorporated herein reference retirement plan directors amended filed exhibit 10u sprint corporation annual report form 10k year ended december 31 1996 incorporated herein reference key management benefit plan amended filed exhibit 10g sprint corporation quarterly report form 10q quarter ended september 30 1996 incorporated herein reference u agreements regarding special compensation post employment restrictive covenants sprint corporation certain executive officers filed exhibit 10d sprint corporation quarterly report form 10q quarter ended september 30 1994 exhibit 10h sprint corporation quarterly report form 10q quarter ended march 31 1996 exhibit 10w sprint corporation annual report form 10k year ended december 31 1997 exhibit 10 b sprint corporation quarterly report form 10q quarter ended june 30 1998 incorporated herein reference agreements regarding special compensation post employment restrictive covenants sprint corporation certain executive officers v directors deferred fee plan amended w form contingency employment agreements sprint corporation certain executive officers filed exhibit 10a sprint corporation quarterly report form 10q quarter ended march 31 1999 incorporated herein reference x form indemnification agreements sprint corporation formerly united telecommunications inc directors officers filed exhibit 10s sprint corporation annual report form 10k year ended december 31 1991 incorporated herein reference summary executive officer board directors benefits filed exhibit 10cc sprint corporation annual report form 10k year ended december 31 1998 incorporated herein reference z amended restated centel director stock option plan filed exhibit 10aa sprint corporation annual report form 10k year ended december 31 1993 incorporated herein reference aa employment agreement dated july 29 1996 sprint spectrum holding company lp andrew sukawaty filed exhibit 1020 sprint spectrum lp registration statement form s1 33306609 incorporated herein reference 12 computation ratio earnings fixed charges 21 subsidiaries registrant 23 consent ernst young llp b consent deloitte touche llp 27 financial data schedules december 31 1999 b september 30 1999 restated c june 30 1999 restated march 31 1999 restated e december 31 1998 restated f september 30 1998 restated g june 30 1998 restated h march 31 1998 restated december 31 1997 restated sprint furnish securities exchange commission upon request copy instruments defining rights holders longterm debt total amount securities authorized said instruments listed exceed 10 total assets sprint breports form 8k sprint filed current report form 8k dated october 5 1999 reported entered definitive merger agreement mci worldcom inc sprint filed current report form 8k dated october 20 1999 reported announced third quarter 1999 results fon group pcs group sprint also reported seven purported class action lawsuits filed shareholders connection proposed merger sprint mci worldcom inc news release regarding third quarter 1999 results included exhibit current report dated october 20 1999 included following financial information sprint fon group combined statements income sprint fon group selected operating results sprint fon group condensed combined balance sheets sprint fon group condensed combined cash flow information sprint pcs group combined statements operations sprint pcs group condensed combined balance sheets sprint pcs group condensed combined cash flow information sprint corporation condensed consolidated balance sheets sprint corporation condensed consolidated cash flow information sprint filed current report form 8k dated january 26 2000 reported entered definitive agreement dt ft sell sprints interest global one sprint also reported announced fourth quarter 1999 calendar year 1999 results fon group pcs group news release regarding fourth quarter 1999 calendar year 1999 results included exhibit current report dated january 26 2000 included following financial information sprint fon group combined statements income sprint fon group selected operating results sprint fon group condensed combined balance sheets sprint fon group condensed combined cash flow information sprint pcs group combined statements operations sprint pcs group condensed combined balance sheets sprint pcs group condensed combined cash flow information sprint corporation condensed consolidated balance sheets sprint corporation condensed consolidated cash flow information sprint filed current report form 8k dated february 22 2000 reported completed sale interest global one current report included following unaudited pro forma consolidated financial statements sprint corporation pro forma consolidated balance sheets pro forma consolidated statements operations cexhibits listed item 14a signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized sprint corporation registrant w esrey william esrey chairman chief executive officer date march 23 2000 pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities indicated 23rd day march 2000 w esrey william esrey chairman chief executive officer arthur b krause arthur b krause executive vice president chief financial officer john p meyer john p meyer senior vice president controller principal accounting officer signatures sprint corporation registrant pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities indicated 23rd day march 2000 dubose ausley ronald lemay dubose ausley director ronald lemay director warren l batts linda k lorimer warren l batts director linda k lorimer director michel bon charles e rice michel bon director charles e rice director w esrey louis w smith william esrey director louis w smith director irvine hockaday jr ron sommer irvine hockaday jr director ron sommer director harold hook stewart turley harold hook director stewart turley director index financial statements financial statement schedules annex sprint corporation consolidated financial information selected financial data sprint corporation certain prioryear amounts reclassified conform current year presentation reclassifications effect results operations shareholders equity previously reported 1sprints 1998 results operations include sprint pcs operating results consolidated basis entire year cable partners share losses pcs restructuring date reflected partners loss sprint pcs consolidated statements operations 1998 sprints investment sprint pcs accounted using equity method sprint pcs financial position yearend 1998 also reflected consolidated basis cash flow data reflects sprint pcs cash flows pcs restructuring date see managements discussion analysis financial condition results operations general information 2in 1998 pcs group recorded nonrecurring charge write 179 million acquired inprocess research development costs related pcs restructuring charge reduced operating income continuing operations 179 million 3the fon group recorded nonrecurring charges 20 million 1997 60 million 1996 related litigation within long distance division charges reduced income continuing operations 13 million 1997 36 million 1996 1995 fon group recorded nonrecurring charge 88 million related restructuring within local division reduced income continuing operations 55 million 4in 1998 fon group recorded net nonrecurring gains 104 million mainly sale local exchanges increased income continuing operations 62 million 1997 fon group recorded nonrecurring gains 71 million mainly sales local exchanges certain investments gains increased income continuing operations 44 million 5in december 1999 sprint board directors authorized twoforone stock split sprints pcs common stock form stock dividend distributed february 4 2000 pcs shareholders second quarter 1999 sprint effected twoforone stock split sprint fon common stock result diluted basic earnings per common share dividends sprint fon common stock diluted basic loss per common share sprint pcs common stock restated periods stock splits 6earnings per share dividends fon group periods prior 1999 pro forma basis assume fon shares created 1998 recapitalization sprints common stock existed periods loss per share pcs group periods prior 1999 pro forma basis assumes pcs restructuring recapitalization purchase 51 million pcs shares france telecom deutsche telekom occurred connection restructuring pcs groups writeoff 179 million acquired inprocess research development costs occurred beginning 1997 pro forma amounts comparative purposes necessarily represent actual results operations would transactions occurred beginning 1997 indicate results future operations 7the 1996 amount reduced 600 million cash required terminate accounts receivable sales agreement nm meaningful na applicable i1 managements discussion analysis financial condition results operations sprint corporation general october 1999 sprint announced definitive merger agreement mci worldcom agreement share sprint fon stock exchanged 76 mci worldcom common stock subject collar addition share sprint pcs stock exchanged one share new worldcom pcs tracking stock 0116025 shares mci worldcom common stock terms worldcom pcs tracking stock equivalent sprints pcs common stock track performance companys personal communication services pcs business merger subject approvals sprint mci worldcom shareholders well approvals federal communications commission justice department various state government bodies foreign antitrust authorities companies anticipate merger close second half 2000 january 2000 sprint reached definitive agreement france telecom sa ft deutsche telekom ag dt sell interest global one february 2000 sprint received 11 billion cash repaid 276 million advances entire stake global one sprints equity share results global one reported discontinued operation sprints earnings periods presented november 1998 sprints shareholders approved formation fon group pcs group creation fon stock pcs stock addition sprint purchased remaining ownership interests sprint spectrum holding company lp phillieco lp together sprint pcs minority interest cox communications pcs lp cox pcs sprint acquired ownership interests telecommunications inc comcast corporation cox communications inc cable partners exchange sprint issued cable partners special lowvote pcs shares warrants acquire additional pcs shares sprint also issued cable partners shares new class preferred stock convertible pcs shares purchase cable partners interests referred pcs restructuring 1999 second quarter cox communications inc exercised put option requiring sprint purchase remaining 408 interest cox pcs sprint issued additional low vote pcs shares exchange interest also november 1998 sprint reclassified publicly traded common shares one share fon stock 12 share pcs stock recapitalization taxfree shareholders class common share owned ft dt reclassified represent equity interest fon group pcs group entitles ft dt one share fon stock 12 share pcs stock transactions referred recapitalization connection pcs restructuring ft dt purchased 51 million additional pcs shares presplit basis maintain combined 20 voting power sprint topup pcs stock intended reflect performance sprints domestic wireless pcs operations referred pcs group fon stock intended reflect performance sprints operations referred fon group include following core businesses long distance division local division product distribution directory publishing businesses activities develop deploy sprint ionsm integrated ondemand network strategic ventures fon pcs shareholders subject risks related sprints businesses assets liabilities owning fon pcs shares represent direct legal interest assets liabilities groups rather shareholders remain invested sprint continue vote single voting class board member elections class directors elected ft dt company matters fon group pcs group events affecting sprints consolidated statements operations balance sheets could turn affect groups financial statements stock price net losses either group dividends distributions repurchases pcs stock fon stock reduce sprint funds legally available dividends groups stock sprint expect pay dividends pcs shares foreseeable future sprints managements discussion analysis financial condition results operations mda read along fon groups mda pcs groups mda i2 forwardlooking information sprint includes certain estimates projections forwardlooking statements reports presentations analysts others publicly available material future performance cannot ensured actual results may differ materially forwardlooking statements factors could cause actual results differ include effects vigorous competition markets sprint operates costs business risks related entering expanding new markets necessary provide seamless services new services ability pcs group continue grow significant market presence risks related sprints investments joint ventures impact unusual items resulting ongoing evaluations sprints business strategies regulatory risks including impact telecommunications act 1996 telecom act unexpected results litigation filed sprint uncertainties associated pending merger sprint mci worldcom possibility one markets sprint competes impacted changes political economic factors monetary policy legal regulatory changes external factors sprint control risks referenced time sprints filings securities exchange commission words estimate project intend expect believe similar expressions intended identify forwardlooking statements forward looking statements found throughout mda reader place undue reliance forwardlooking statements speak date report sprint obligated publicly release revisions forward looking statements reflect events date report unforeseen events general overview sprint fon group core businesses long distance division long distance division nations thirdlargest long distance phone company operates nationwide alldigital long distance communications network uses fiberoptic electronic technology division primarily provides domestic international voice video data communications services local division local division consists regulated local phone companies serving 8 million access lines 18 states provides local phone services access phone customers carriers local network sales telecommunications equipment long distance services within certain regional calling areas product distribution directory publishing businesses product distribution business provides wholesale distribution services telecommunications products directory publishing business publishes markets white yellow page phone directories sprint ionsm sprint developing deploying new integrated communications services referred sprint ion sprint ion extends sprints existing network capabilities customer enables sprint provide network infrastructure meet customers demands advanced services including integrated voice data internet video also expected foundation sprint provide new competitive local service ventures segment includes cable tv service operations broadband fixed wireless companies acquired second half 1999 segment also includes fon groups investments earthlink inc internet service provider callnet long distance provider canada operating sprint brand name certain telecommunications investments ventures general overview sprint pcs group pcs group includes sprints domestic wireless pcs operations operates 100 digital pcs wireless network united states licenses provide service nationwide using single frequency single technology yearend 1999 pcs group together affiliates operated pcs systems 360 metropolitan markets including 50 largest us metropolitan areas pcs group licenses serve 270 million people 50 states puerto rico us virgin islands pcs groups service including affiliates reaches nearly 190 million people pcs group provides nationwide service operating digital network major us metropolitan areas affiliating companies mainly around smaller us metropolitan areas roaming providers analog cellular networks using dual banddualmode handsets i3 roaming providers digital pcs networks use code division multiple access cdma results operations consolidated total net operating revenues follows income loss continuing operations follows sprint fon group net operating revenues net operating revenues increased 8 1999 1998 increases mainly reflect growth fon groups long distance local divisions long distance division major market segmentsbusiness residential wholesalecontributed increase long distance divisions revenues 1999 1998 increases mainly reflect strong data services revenue growth well strong minute growth 22 1999 15 1998 partly offset competitive pricing environment change mix products sold business data market revenues increased 9 1999 15 1998 primarily reflects growth data services residential market revenues increased 7 1999 5 1998 increases reflect strong volume growth long distance calls partly offset lower rates growth 1999 also enhanced sprint nickel nightsr well increased prepaid card revenues wholesale market revenues increased 15 1999 8 1998 reflects strong minute growth mainly international calls increased inbound outbound tollfree calls local division beginning july 1997 sprint changed transfer pricing certain transactions fon group entities accurately reflect market pricing sprint sold approximately 139000 residential business access lines illinois 1997 remaining 81000 access lines illinois november 1998 comparative purposes following discussion local division results assumes transfer pricing changes sales exchanges occurred beginning 1997 local division revenues increased 6 1999 5 1998 mainly reflecting customer access line growth increased sales networkbased services caller id call waiting customer access lines increased 5 1999 1998 sales networkbased services increased 1999 due strong demand bundled services combine local service networkbased features long distance calling increase 1998 revenues also reflects increased sales equipment local service revenues grew 9 1999 10 1998 increased due customer access line growth continued demand networkbased services growth data products increased revenues maintaining customer wiring equipment revenue growth 1998 also reflects increased sales private line services network access revenues increased 4 1999 1998 reflecting 8 increase minutes use 1999 1998 1999 implementation local number portability charges increases partly offset fccmandated access rate reductions toll service revenues decreased 11 1999 26 1998 mainly due increased competition intralata long distance market expected continue addition toll service areas shrinking certain local calling areas expanding however reduced revenues part offset increases local service revenues increases network access revenues paid carriers providing intralata long distance services local divisions customers addition onethird toll customers lost local division selected sprints long distance division intralata long distance service helps mitigate erosion revenues i4 revenues increased 7 1999 1998 reflecting increased equipment sales business systems data networks well growth telemarketing commission revenues revenue growth 1999 also reflects improvements uncollectibles 1998 growth also reflects increased revenues providing billing collection services product distribution directory publishing businesses beginning july 1997 sprint changed transfer pricing certain transactions fon group entities accurately reflect market pricing following discussion assumes transfer pricing changes occurred beginning 1997 product distribution directory publishing businesses revenues increased 3 1999 16 1998 nonaffiliated revenues account roughly 60 revenues 1999 1998 increased 12 1999 10 1998 sales affiliates decreased 10 1999 increased 27 1998 change mix local divisions capital program electronics software frequently purchased directly manufacturers caused decline affiliate sales 1999 1998 growth reflects centralization certain local division purchasing warehousing functions north supply 1997 resulting affiliates purchasing north supply ventures 1999 revenues reflect cable tv service revenues broadband fixed wireless companies acquisition dates operating expenses fon groups operating expenses increased 8 1999 1998 mainly support revenue growth long distance division long distance division operating expenses increased 8 1999 1998 interconnection costs increased 5 1999 decreased 1 1998 increased calling volumes partially offset reductions perminute costs domestic international access 1999 increase also reflects costs related growth nonminute driven revenues 1998 reductions per minute costs offset impact increased calling volumes rate reductions generally due domestic fccmandated access rate reductions lower international per minute costs reflect continued competition sprint expects government deregulation competitive pressures add trend declining unit costs international interconnection operations expense increased due growth data services well increases network equipment operating leases years selling general administrative sga expense increased reflecting overall growth business well increased marketing promotions support products services local division following local division discussion assumes transfer pricing changes sales exchanges occurred beginning 1997 see net operating revenueslocal division details local division operating expenses increased 5 1999 4 1998 reflecting increases costs services products 1999 sga expenses 1998 depreciation amortization years costs services products increased 1999 mainly due customer access line growth increased equipment sales sga increased 1998 mainly increased customer service costs related customer access line growth marketing costs promote new products services depreciation amortization expense increased mainly increased capital expenditures switching transport technologies shorter asset lives product distribution directory publishing businesses following discussion assumes transfer pricing changes occurred beginning 1997 see net operating revenuesproduct distribution directory publishing businesses details product distribution directory publishing businesses cost services products increased 1 1999 19 1998 reflecting increased equipment sales sga expense increased 17 1999 1998 1999 increase result staffing demands related nonaffiliated sales growth 1998 increase result costs related divisions acquisition sales force another directory sales company 1998 sprint ionsm operating expenses sprint ion 1999 1998 reflect initial development deployment activities include costs network research testing systems operations development product development advertising increase public awareness ventures 1999 expenses reflect cable tv service operations expenses broadband fixed wireless companies acquisition dates segments operating expenses 1998 1997 mainly reflect activities related offering internet services june 1998 fon group completed strategic alliance combine internet business i5 earthlink part alliance earthlink obtained fon groups sprint internet passport customers took daytoday operations services exchange sprint acquired equity interest earthlink sprint pcs group pcs groups 1999 results operations reflect first full year combined results pcs restructuring pcs groups 1998 results operations included sprintcoms operating results well sprint pcs operating results consolidated basis entire year 1998 sprints investment sprint pcs accounted using equity method see pro forma sprint pcs group section discussion pro forma results operations operating expenses 1998 include writeoff 179 million associated cost nine inprocess research development projects acquired connection pcs restructuring management continued supporting research development projects believes pcs group reasonable chance successfully completing projects intended address new emerging markets within pcs wireless communications industry rapid adoption internet rapid convergence voice data video failure particular individual project inprocess would materially impact pcs groups financial condition results operations cash flows pcs group markets products multiple distribution channels including retail stores well retail outlets equipment sales one retail chain subsequent service revenues generated sales customers accounted 28 net operating revenues 1999 25 1998 pro forma sprint pcs group provide meaningful analysis pcs groups underlying operating results following supplemental discussion presents 1998 1997 pro forma basis assumes pcs restructuring writeoff acquired process research development costs occurred beginning 1997 net operating revenues pcs groups net operating revenues include subscriber revenues sales handsets accessory equipment subscriber revenues consist monthly recurring charges usage charges increases pcs groups net operating revenues mainly reflect launch new markets growing customer base pcs group ended 1999 57 million customers nearly 330 markets nationwide affiliates approximately 200000 customers 30 markets approximately 20 1999 1998 net operating revenues nearly half 1997 revenues sales handsets accessories part pcs groups marketing plans handsets normally sold prices pcs groups cost operating expenses pcs groups operating expenses increased 66 1999 52 1998 pcs groups costs services products mainly includes handset accessory costs switch cell site expenses networkrelated costs increased 14 billion 1999 908 million 1998 driven significant growth customers expanded market coverage pcs groups sga expense mainly includes marketing costs promote products services well salary benefit costs sga expense increased 675 million 1999 579 million 1998 reflecting expanded workforce support subscriber growth increased marketing selling costs depreciation amortization expense pcs group increased 485 million 1999 17 million 1998 consists mainly depreciation network assets amortization intangible assets intangible assets include goodwill pcs licenses customer base microwave relocation costs assembled workforce amortized 30 months 40 years increase depreciation amortization expense 1999 reflects amortization intangible assets acquired pcs restructuring cox pcs purchase well depreciation increased property base increase 1998 reflects depreciation increased property base i6 nonoperating items interest expense effective interest rates following table reflect interest expense longterm debt interest costs shortterm borrowings classified longterm debt deferred compensation plans customer deposits excluded distort effective interest rates longterm debt 1the effective interest rate longterm debt 1998 pro forma basis sprint pcs longterm debt included sprints outstanding longterm debt balance year sprints effective interest rate longterm debt decreased 1999 1998 fourth quarter sprint refinanced 33 billion pcs groups debt borrowings lower interest rates decrease also reflects additional borrowings lower interest rates sprints 1998 interest costs include entire year sprint pcs interest due pcs restructuring increase 1998 effective interest rate longterm debt mainly due sprint pcs borrowings made pcs restructuring borrowings higher interest rates sprints borrowings equity sprint pcs losses sprint pcs results operations 1998 consolidated entire year cable partners share losses pcs restructuring date reflected partners loss sprint pcs consolidated statements operations prior pcs restructuring sprints ownership interest sprint pcs accounted using equity method sprints share losses sprint pcs 660 million 1997 income net income consisted following dividend interest income years reflects interest earned temporary investments 1998 also reflects interest earned loans unconsolidated affiliates interest earned shortterm investments following sprints 50 billion debt offering late 1998 net 1999 mainly includes net gains miscellaneous investment activities partly offset losses certain equity method investments 1998 1997 mainly reflects net gains sales local exchanges certain investments partly offset losses certain equity method investments income taxes sprints consolidated effective tax rates 305 1999 437 1998 374 1997 see note 7 notes consolidated financial statements information differences caused effective income tax rates vary statutory federal rate income taxes related continuing operations discontinued operation net result sprints sale interest global one ft dt sprints equity share results global one reported discontinued operation sprints earnings periods presented sprint recorded aftertax losses related global one totaling 130 million 1999 135 million 1998 142 million 1997 1999 amount includes 50 million tax benefit recorded recognize tax assets related previous losses realization assets uncertain sale agreement reached gain sale sprints interest global one made apparent tax assets would realized extraordinary items net 1999 sprint redeemed prior scheduled maturities 575 million broadband fixed wireless companies debt assumed fon group 22 billion pcs groups revolving credit facilities borrowings interest rates ranging 56 145 resulted 60 million aftertax extraordinary loss sprint 1998 sprint redeemed prior scheduled maturities 138 million fon groups debt 33 billion pcs groups debt borrowings interest rates ranging 79 93 resulted 36 million tax extraordinary loss sprint financial condition net property plant equipment increased 30 billion 1999 reflecting capital expenditures support pcs network buildout increase also reflects capital i7 expenditures support core long distance local networks sprint ion development expanded product service offerings net intangibles increased 19 billion mainly reflecting goodwill resulting acquisition remaining interest cox pcs purchase broadband fixed wireless companies sprints debttocapital ratio 553 yearend 1999 versus 495 yearend 1998 see liquidity capital resources information changes sprints consolidated balance sheets liquidity capital resources consolidated cash flows 1998 include sprint pcs cash flows pcs restructuring date 1997 prior pcs restructuring date 1998 consolidated cash flows include sprintcoms cash flows treat investment sprint pcs equity method investment operating activities operating cash flows decreased 54 1999 increased 25 1998 1999 decrease reflects increases working capital fon group pcs group increased operating losses pcs group partly offset fon groups improved operating results 1998 increase mainly reflects improved operating results fon groups core businesses decreases working capital fon group pcs group investing activities fon groups capital expenditures totaled 35 billion 1999 32 billion 1998 27 billion 1997 long distance capital expenditures incurred mainly enhance network reliability meet increased demand voice datarelated services upgrade capabilities providing new products services local division incurred capital expenditures accommodate access line growth provide additional capacity increased internet traffic expand capabilities providing enhanced services sprint ion capital expenditures made continuing development hardware deployment pcs group capital expenditures totaling 26 billion 1999 11 billion 1998 154 million 1997 incurred support pcs network buildout see pcs groups mda pro forma presentation capital expenditures 1999 sprint purchased several broadband fixed wireless companies 618 million excluding assumed debt investing activities also include proceeds sales assets totaling 243 million 1999 230 million 1998 292 million 1997 addition 1997 sprint paid 460 million toward purchase pcs licenses purchased net assets paranet inc 375 million investments advances affiliates net consisted following amounts sprint pcs 1998 reflect contributions advances prior pcs restructuring amounts well capital contributions net advances sprint pcs prior 1998 used fund capital operating requirements net includes fon groups investments earthlink callnet miscellaneous ventures financing activities financing activities 1999 reflect proceeds longterm debt 69 billion partly offset payments longterm debt net proceeds used mainly capital investments fund pcs groups operating losses 1998 sprint borrowed 52 billion mainly used repay existing debt 1997 sprint net borrowings 532 million mainly fund investments loans affiliates sprint paid dividends 441 million 1999 430 million 1998 1997 i8 capital requirements sprints 2000 investing activities mainly consisting capital expenditures investments affiliates expected require cash 65 70 billion fon group capital expenditures expected range 39 42 billion pcs group capital expenditures expected 24 26 billion investments affiliates expected require cash approximately 200 million additional funds required fund pcs groups expected operating losses working capital debt service requirements dividend payments expected approximate 450 million 2000 connection pcs restructuring sprint adopted tax sharing agreement provides allocation income taxes fon group pcs group sprint expects fon group make significant payments pcs group agreement expected pcs group operating losses near future payments reflect pcs groups incremental cumulative effect sprints consolidated federal state tax liability tax credit position pcs group accrued current benefits agreement totaling 887 million 1999 190 million 1998 received related payments fon group totaling 764 million 1999 20 million 1998 remaining 293 million paid fon group first half 2000 see note 2 notes consolidated financial statements allocation federal state income taxes details liquidity sprint mainly uses commercial paper fund shortterm working capital needs sprint also uses longterm bond market well debt markets fund needs sprint intends continue borrowing funds us international money capital markets bank credit markets fund capital expenditures operating working capital requirements 1998 sprint replaced previous 15 billion credit facility 50 billion new revolving credit facilities syndicates domestic international banks facilities expire 2000 2003 commercial paper certain bank notes payable supported sprints revolving credit facilities sprint also separate fiveyear revolving credit facility bank expires 2002 yearend 1999 sprint total unused lines credit 35 billion facilities 1999 third quarter sprint filed shelf registration statement sec covering 40 billion senior unsecured debt securities yearend 1999 sprint issued 750 million debt securities shelf securities interest rates ranging 64 65 mature 2001 june 1999 sprint entered 10 billion financing agreement sell continuous basis recourse undivided percentage ownership interests designated pool accounts receivable subsequent collections receivables sold investors typically reinvested new receivables yearend 1999 sprint borrowed 900 million agreement borrowings weighted average interest rate 64 mature 2002 borrowings sprint may incur ultimately limited certain debt covenants sprint could borrow additional 113 billion yearend 1999 restrictive debt covenants regulatory developments see regulatory developments fon groups mda pcs groups mda financial strategies general hedging policies sprint selectively enters interest rate swap cap agreements manage exposure interest rate changes debt sprint also enters forward contracts options foreign currencies reduce impact changes foreign exchange rates sprint seeks minimize counterparty credit risk stringent credit approval review processes selection creditworthy counterparties continual review monitoring counterparties thorough legal review contracts sprint also controls exposure market risk regularly monitoring changes foreign exchange interest rate positions normal stress conditions ensure exceed established limits sprints derivative transactions used hedging purposes comply boardapproved policies senior management receives frequent status updates outstanding derivative positions interest rate risk management sprints interest rate risk management program focuses minimizing exposure interest rate movements setting optimal mixture floating fixed rate debt minimizing liquidity risk sprint uses simulation analysis assess interest rate exposure establish desired ratio floating fixedrate debt extent possible sprint manages interest rate exposure floatingtofixed ratio borrowings sometimes uses interest rate swaps caps adjust risk profile foreign exchange risk management sprints foreign exchange risk management program focuses hedging transaction exposure optimize consolidated cash flow sprints main transaction i9 exposure results net payments made overseas telecommunications companies completing international calls made sprints domestic customers international operations material consolidated financial position results operations cash flows yearend 1999 addition foreign currency transaction gains losses material sprints 1999 results operations sprint entered significant foreign currency forward contracts derivative instruments hedge effects adverse fluctuations foreign exchange rates result sprint subject material foreign exchange risk year 2000 issue sprint successfully completed year 2000 readiness work passed january 1 2000 rollover event encountering customer affecting outages business interruptions since inception sprints year 2000 readiness program 1996 december 31 1999 sprint incurred approximately 320 million costs associated year 2000 readiness program sprint expect incur significant additional expenditures related year 2000 issue recently issued accounting pronouncement see note 14 notes consolidated financial statements discussion recently issued accounting pronouncement i10 management report sprint corporations management responsible integrity objectivity information contained document management responsible consistency reporting information ensuring accounting principles generally accepted united states used discharging responsibility management maintains comprehensive system internal controls supports extensive program internal audits made organizational arrangements providing appropriate divisions responsibility established communication programs aimed assuring policies procedures principles business conduct understood practiced employees financial statements included document audited ernst young llp independent auditors audits conducted using auditing standards generally accepted united states reports included herein board directors responsibility financial statements pursued mainly audit committee audit committee composed entirely directors officers employees sprint meets periodically internal auditors independent auditors without management present assure respective responsibilities fulfilled internal independent auditors full access audit committee discuss auditing financial reporting matters w esrey william esrey chairman chief executive officer arthur b krause arthur b krause executive vice president chief financial officer i11 report independent auditors board directors shareholders sprint corporation audited accompanying consolidated balance sheets sprint corporation sprint december 31 1999 1998 related consolidated statements operations comprehensive income loss cash flows shareholders equity three years period ended december 31 1999 audits also included financial statement schedule listed index financial statements financial statement schedules financial statements schedule responsibility management sprint responsibility express opinion financial statements schedule based audits audit 1998 1997 consolidated financial statements sprint spectrum holding company lp wholly owned subsidiary sprint december 31 1998 investment sprint 40 interest november 23 1998 discussed note 1 financial statements reflect assets 27 billion december 31 1998 revenues 12 billion year ended audit sprints equity net loss sprint spectrum holding company lp stated 625 million year ended december 31 1997 consolidated financial statements sprint spectrum holding company lp audited auditors whose report furnished us opinion insofar relates 1998 assets revenues 1997 equity net loss audit based solely report auditors conducted audits accordance auditing standards generally accepted united states standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits report auditors provide reasonable basis opinion based audits report auditors consolidated financial statements referred present fairly material respects consolidated financial position sprint december 31 1999 1998 consolidated results operations cash flows three years period ended december 31 1999 conformity accounting principles generally accepted united states also opinion related financial statement schedule considered relation basic financial statements taken whole presents fairly material respects information set forth therein ernst young llp kansas city missouri february 1 2000 report independent auditors board directors sprint corporation partners sprint spectrum holding company lp audited consolidated balance sheets sprint spectrum holding company lp subsidiaries december 31 1998 1997 related consolidated statements operations cash flows two years period ended december 31 1998 audits also included financial statement schedule ii financial statements schedule ii responsibility partnership management responsibility express opinion consolidated financial statements schedule ii based audits conducted audits accordance generally accepted auditing standards require plan perform audits obtain reasonable assurance whether consolidated financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures consolidated financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion consolidated financial statements present fairly material respects financial position sprint spectrum holding company lp subsidiaries december 31 1998 1997 results operations cash flows two years ended december 311998 conformity generally accepted accounting principles also opinion schedule ii considered relation basic consolidated financial statements taken whole presents fairly material respects information set forth therein deloitte touche llp kansas city missouri february 2 1999 i12 consolidated statements operations sprint corporation millions see accompanying notes consolidated financial statements i13 consolidated statements operations continued sprint corporation millions except per share data 1as discussed note 1 notes consolidated financial statements recapitalization occurred november 1998 result earnings per share sprint common stock reflects earnings recapitalization date earnings loss per share fon common stock pcs common stock reflects results date yearend 1998 2in december 1999 sprint board directors authorized twoforone stock split sprints pcs common stock form stock dividend distributed february 4 2000 pcs shareholders second quarter 1999 sprint effected twoforone stock split sprint fon common stock form stock dividend result basic diluted earnings per common share weightedaverage common shares dividends sprint fon common stock sprint pcs common stock restated periods prior stock splits see accompanying notes consolidated financial statements i14 consolidated statements comprehensive income loss sprint corporation millions see accompanying notes consolidated financial statements i15 consolidated balance sheets sprint corporation millions except per share data see accompanying notes consolidated financial statements i16 consolidated statements cash flows sprint corporation millions see accompanying notes consolidated financial statements i17 consolidated statements shareholders equity sprint corporation millions see accompanying notes consolidated financial statements i18 notes consolidated financial statements sprint corporation 1 general october 1999 sprint announced definitive merger agreement mci worldcom agreement share sprint fon stock exchanged 76 mci worldcom common stock subject collar addition share sprint pcs stock exchanged one share new worldcom pcs tracking stock 0116025 shares mci worldcom common stock terms worldcom pcs tracking stock equivalent sprints pcs common stock track performance companys personal communication services pcs business merger subject approvals sprint mci worldcom shareholders well approvals federal communications commission justice department various state government bodies foreign antitrust authorities companies anticipate merger close second half 2000 november 1998 sprints shareholders approved formation fon group pcs group creation fon stock pcs stock addition sprint purchased remaining ownership interests sprint spectrum holding company lp phillieco lp together sprint pcs minority interest cox communications pcs lp cox pcs sprint acquired ownership interests telecommunications inc comcast corporation cox communications inc cable partners exchange sprint issued cable partners special lowvote pcs shares warrants acquire additional pcs shares sprint also issued cable partners shares new class preferred stock convertible pcs shares purchase cable partners interests referred pcs restructuring 1999 second quarter sprint acquired remaining minority interest cox pcs also november 1998 sprint reclassified publicly traded common shares one share fon stock 12 share pcs stock recapitalization taxfree shareholders class common share owned france telecom sa ft deutsche telekom ag dt reclassified represent equity interest fon group pcs group entitles ft dt one share fon stock 12 share pcs stock transactions referred recapitalization connection pcs restructuring ft dt purchased 51 million additional pcs shares presplit basis maintain combined 20 voting power sprint topup pcs stock intended reflect performance sprints domestic wireless pcs operations fon stock intended reflect performance sprints operations 2 summary significant accounting policies basis consolidation presentation consolidated financial statements include accounts sprint wholly owned majorityowned subsidiaries sprint pcs results operations 1998 consolidated entire year cable partners share losses pcs restructuring date reflected partners loss sprint pcs consolidated statements operations sprint pcs financial position reflected consolidated basis yearend 1998 sprints investment sprint pcs accounted using equity method sprints cash flows include sprint pcs cash flows pcs restructuring date investments entities sprint exercises significant influence control accounted using equity method see note 4 consolidated financial statements prepared using accounting principles generally accepted united states principles require management make estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities reported amounts revenues expenses actual results could differ estimates certain prioryear amounts reclassified conform current year presentation reclassifications effect results operations shareholders equity previously reported classification operations sprint fon group core businesses long distance division long distance division nations thirdlargest long distance phone company operates nationwide alldigital long distance communications network uses fiberoptic electronic technology division provides domestic international voice video data communications services local division local division consists regulated local phone companies serving 8 million access lines 18 states provides local services access phone customers carriers local network sales telecommunications equipment long distance services within certain regional calling areas local i19 access transport areas november 1998 sprint sold remaining 81000 residential business access lines illinois product distribution directory publishing businesses product distribution business provides wholesale distribution services telecommunications products directory publishing business publishes markets white yellow page phone directories sprint ionsm sprint ion extends sprints existing network capabilities customer enables sprint provide network infrastructure meet customers demands advanced services including integrated voice data internet video also expected foundation sprint provide new competitive local service ventures segment includes cable tv service operations broadband fixed wireless companies acquired second half 1999 segment also includes fon groups investments earthlink inc internet service provider callnet long distance provider canada operating sprint brand name certain telecommunications investments ventures investments ventures accounted equity basis sprint pcs group pcs group includes sprints domestic wireless pcs operations operates 100 digital pcs wireless network united states licenses provide service nationwide using single frequency single technology yearend 1999 pcs group together affiliates operated pcs systems 360 metropolitan markets including 50 largest us metropolitan areas allocation shared services sprint directly assigns possible certain general administrative costs fon group pcs group based actual use services direct assignment costs possible practical sprint uses indirect methods including time studies estimate assignment costs group sprint believes costs allocated comparable costs would incurred groups would operating standalone basis allocation shared services may change discretion sprint require shareholder approval allocation federal state income taxes sprint files consolidated federal income tax return certain state income tax returns include fon group pcs group results connection pcs restructuring sprint adopted tax sharing agreement provides allocation income taxes two groups fon groups income taxes calculated files returns exclude pcs group pcs groups income taxes reflect pcs groups incremental cumulative impact sprints consolidated income taxes intergroup tax payments satisfied date sprints related tax payment due refund received applicable tax authority allocation group financing activities groups managed sprint centralized basis debt incurred sprint behalf groups specifically allocated reflected financial statements applicable group interest expense allocated pcs group based interest rate substantially equal rate would able obtain third parties direct indirect wholly owned sprint subsidiary without benefit guaranty sprint member fon group interest rate higher rate sprint obtains borrowings difference sprints actual interest rate charged pcs group reflected reduction fon groups interest expense sprints centralized cash management program one group may advance funds group advances accounted shortterm borrowings groups bear interest market rate substantially equal rate group would able obtain third parties shortterm basis allocation group financing activities may change discretion sprint require shareholder approval income taxes sprint records deferred income taxes based temporary differences carrying amounts assets liabilities financial reporting purposes tax bases revenue recognition sprint recognizes operating revenues services rendered products delivered customers sprint records operating revenues net estimate uncollectible accounts sprints directory publishing business recognizes revenues directory services life related directory amortization method i20 cash equivalents cash equivalents generally include highly liquid investments original maturities three months less stated cost approximates market value sprint uses controlled disbursement banking arrangements part cash management program outstanding checks excess cash balances included accounts payable totaled 204 million yearend 1999 336 million yearend 1998 sprint sufficient funds available fund outstanding checks presented payment investments equity securities investments equity securities classified available sale reported fair value estimated based quoted market prices gross unrealized holding gains losses reflected consolidated balance sheets adjustments shareholders equityaccumulated comprehensive income net related income taxes inventories fon group stated lower cost principally firstin firstout method market value inventories pcs group stated lower cost principally firstin firstout replacement value property plant equipment property plant equipment recorded cost generally ordinary asset retirements disposals charged accumulated depreciation gain loss recognized cost property plant equipment generally depreciated straightline basis estimated economic useful lives repairs maintenance costs expensed incurred capitalized interest capitalized interest totaled 151 million 1999 167 million 1998 93 million 1997 1999 1998 capitalized interest reflects capitalized costs related pcs groups network buildout pcs licenses well fon groups construction capital assets 1997 capitalized interest mainly reflected interest related sprints investment sprint pcs sprint capitalized costs july 1997 sprint pcs emerged development stage intangible assets sprint evaluates recoverability intangible assets events circumstances indicate assets might impaired sprint determines impairment comparing undiscounted future cash flows estimated generated assets respective carrying value event impairment exists loss recognized based amount carrying value exceeds fair value asset goodwill represents excess purchase price fair value net assets acquired business combinations accounted purchases goodwill amortized five 40 years using straightline method accumulated amortization totaled 210 million yearend 1999 63 million yearend 1998 pcs licenses pcs group acquired licenses federal communications commission operate pcs service provider licenses granted 10year terms renewals additional 10year terms license obligations met licenses recorded cost amortized straightline basis 40 years service begins specific geographic area accumulated amortization totaled 130 million yearend 1999 51 million yearend 1998 earnings per share earnings per share eps calculated consolidated basis pcs stock fon stock created part november 1998 pcs restructuring recapitalization time forward eps computed individually fon group pcs group december 1999 sprint board directors authorized twoforone stock split sprints pcs common stock form stock dividend distributed february 4 2000 pcs shareholders second quarter 1999 sprint effected twoforone split sprint fon common stock result basic diluted earnings per common share weightedaverage common shares dividends sprint fon common stock sprint pcs common stock restated periods prior stock splits 1999 fon groups convertible preferred dividends totaled 1 million dilutive securities mainly options totaled 192 million shares recapitalization date yearend 1998 fon groups convertible preferred dividends totaled 01 million dilutive securities mainly options totaled 138 million shares dilutive securities pcs group mainly include options warrants convertible preferred stock securities dilutive effect pcs group incurred net losses 1999 1998 result diluted loss per share equaled basic loss per share sprints convertible preferred dividends totaled 05 million 1998 recapitalization date 1997 dilutive securities options included calculation diluted weighted average common shares totaled 78 million 1998 recapitalization 63 million 1997 i21 stockbased compensation sprint adopted pro forma disclosure requirements statement financial accounting standards sfas 123 stockbased compensation continues apply accounting principles board opinion 25 accounting stock issued employees stock option employee stock purchase plans 3 business combinations broadband fixed wireless companies second half 1999 sprint acquired peoples choice tv corp pctv american telecasting inc ati videotron usa operating subsidiaries wbs america llc companies broadband fixed wireless licenses midwest southwest north central western southeastern united states sprint paid 618 million companies outstanding stock assumed 575 million companies debt notes redeemed prior scheduled maturities 1999 fourth quarter see note 8 acquisitions accounted purchases results companies included sprints consolidated financial statements acquisition dates excess purchase price net liabilities acquired totaled 835 million preliminarily allocated goodwill amortized straightline basis 40 years cox pcs 1999 second quarter cox communications inc exercised put option requiring sprint purchase remaining 408 interest cox pcs sprints existing 592 interest cox pcs reflected sprints consolidated financial statements consolidated basis sprint issued 243 million shares lowvote pcs stock presplit basis exchange remaining interest shares valued 11 billion sprint accounted transaction purchase excess purchase price fair value net liabilities acquired allocated follows goodwill amortized straightline basis 40 years pcs restructuring november 1998 sprint acquired remaining interest sprint pcs except minority interest cox pcs cable partners exchange sprint issued cable partners 1951 million lowvote shares pcs stock 125 million warrants purchase additional shares pcs stock pre split basis purchase price 32 billion addition sprint issued cable partners shares new class preferred stock convertible pcs shares sprint accounted transaction purchase excess purchase price fair value net liabilities acquired allocated follows goodwill amortized straightline basis 40 years respect purchase price attributed inprocess research development iprd acquired iprd limited significant new products development intended address new emerging market needs requirements rapid adoption internet rapid convergence voice data video routine research development projects minor refinements normal enhancements production activities included acquired iprd income approach primary technique utilized valuing acquired iprd approach included limited analysis markets product ii completion costs projects iii expected cash flows attributable iprd projects iv risks related achieving cash flows v stage development project issue alternative future use extensively evaluated technologies completed could economically used intended purposes pro forma results following unaudited pro forma combined results operations assume pcs restructuring recapitalization topup writeoff acquired i22 iprd costs occurred beginning 1997 pro forma amounts comparative purposes necessarily represent actual results operations would transactions occurred beginning 1997 indicate results future operations pro forma results follows paranet inc september 1997 sprint paid 375 million purchase net assets houstonbased paranet inc provider integration management support services computer networks transaction accounted using purchase method accounting result sprints financial statements reflect sprint paranets results operations beginning october 1997 excess purchase price tangible net assets acquired 357 million excess allocated noncompete agreements goodwill amortized straightline basis four 10 years 4 investments equity securities cost investments equity securities 154 million yearend 1999 105 million yearend 1998 gross unrealized holding gains 310 million yearend 1999 384 million yearend 1998 yearend 1999 316 million investments equity securities classified current anticipation using investments retire debt instruments see note 8 accumulated unrealized gains investments equity securities net income taxes impact related debt instruments 84 million yearend 1999 107 million yearend 1998 included accumulated comprehensive income sprint consolidated balance sheets 1999 sprint sold availableforsale securities cost basis 14 million 104 million 90 million gain included income net sprints consolidated statements operations investments advances affiliates yearend 1999 investments accounted using equity method consisted fon groups investments earthlink callnet strategic investments november 1998 sprint assumed 100 ownership sprint pcs result sprint consolidated sprint pcs results 1998 prior 1998 sprint accounted investment sprint pcs equity basis sprint pcs 1997 results operations reflected unaudited pro forma disclosures note 3 combined unaudited summarized financial information 100 basis entities accounted using equity method follows 5 discontinued operation january 2000 sprint reached definitive agreement deutsche telekom france telecom sell interest global one february 2000 sprint received 11 billion cash repaid 276 million advances entire stake global one sprints investment net assets discontinued operation including advances totaled 394 million yearend 1999 182 million yearend 1998 sprint recorded aftertax losses related global one totaling 130 million 1999 135 million 1998 142 million 1997 1999 amount includes 50 million tax benefit recorded recognize tax assets related previous losses realization assets uncertain sale agreement reached gain sale sprints interest global one made apparent tax assets would realized sprint provided various voice data administrative services global one totaling 241 million 1999 277 million 1998 415 million 1997 addition global one provided data administrative services sprint totaling 139 million 1999 140 million 1998 114 million 1997 sprints receivable global one 107 million year i23 end 1999 187 million yearend 1998 sprints payable global one 36 million yearend 1999 42 million yearend 1998 6 employee benefit plans defined benefit pension plan fon group pcs group employees covered noncontributory defined benefit pension plan benefits plan participants belonging unions based negotiated schedules nonunion participants pension benefits based years service participants compensation sprints policy make plan contributions equal actuarially determined amount consistent federal tax regulations funding objective accumulate funds relatively stable rate participants working lives benefits fully funded retirement following table shows changes projected benefit obligation following table shows changes plan assets yearend funded status amounts recognized consolidated balance sheets plan follows net pension cost credit consisted following defined contribution plans sprint sponsors defined contribution employee savings plans covering fon group pcs group employees participants may contribute portions pay plans union employees sprint matches contributions based negotiated amounts sprint also matches contributions nonunion employees fon stock pcs stock matching equal 50 participants contributions 6 pay addition sprint may discretion board directors provide additional matching contributions based performance fon stock pcs stock compared telecommunications companies stock sprints matching contributions 83 million 1999 54 million 1998 1997 yearend 1999 plans held 33 million fon shares 27 million pcs shares postsplit basis prior january 1999 sprint pcs sponsored savings retirement program certain employees sprint pcs matched contributions equal 50 contribution participant first 6 employee elected contribute expense savings plan 7 million 1998 postretirement benefits sprint provides postretirement benefits mainly medical life insurance fon group pcs group employees retiring certain dates eligible benefits cost reduced cost employees retiring certain dates eligible benefits sharedcost basis sprint funds accrued costs benefits paid i24 following table shows changes accumulated postretirement benefit obligation amounts included consolidated balance sheets yearend follows assumed 2000 annual health care cost trend rates 96 medicare eligibility 100 medicare eligibility rates gradually decrease ultimate level 5 2010 1 increase rates would increased 1999 accumulated postretirement benefit obligation estimated 107 million 1 decrease would reduced obligation estimated 89 million net postretirement benefits cost consisted following measurement purposes assumed 1999 weighted average annual health care cost trend rates 76 medicare eligibility 81 medicare eligibility rates gradually decrease ultimate level 5 2005 1 increase rates would increased 1999 postretirement benefits service interest costs estimated 13 million 1 decrease would reduced 1999 postretirement benefits service interest costs estimated 11 million 7 income taxes income tax expense benefit allocated continuing operations consists following differences caused sprints effective income tax rates vary 35 federal statutory rate income taxes related continuing operations follows income tax expense benefit allocated items follows 1these amounts recorded directly shareholders equity accumulated comprehensive income consolidated balance sheets 2these amounts recorded directly shareholders equitycapital excess par stated value consolidated balance sheets sprint recognizes deferred income taxes temporary differences carrying amounts assets liabilities financial statement purposes tax bases sources differences i25 give rise deferred income tax assets liabilities yearend 1999 1998 along income tax effect follows management believes likely deferred income tax assets net valuation allowance realized based current income tax laws expectations future taxable income stemming reversal existing deferred tax liabilities ordinary operations uncertainties surrounding income tax law changes shifts operations state taxing jurisdictions future operating income levels may however affect ultimate realization deferred income tax assets valuation allowance related deferred income tax assets increased 217 million 1999 237 million 1998 decreased 2 million 1997 1999 sprint acquired approximately 179 million potential tax benefits related net operating loss carryforwards acquisitions broadband fixed wireless companies 1998 sprint acquired approximately 229 million potential tax benefits related net operating loss carryforwards pcs restructuring benefits acquisitions pcs restructuring subject certain realization restrictions various tax laws valuation allowance provided total benefits subsequently recognized reduce goodwill noncurrent intangible assets resulting application purchase method accounting transactions connection pcs restructuring pcs group required reimburse fon group cable partners net operating loss tax credit carryforward benefits generated prior pcs restructuring realization pcs group produces cash benefit would otherwise realized reimbursement equal 60 net cash benefit received pcs group made fon group cash cable partners shares series 2 pcs stock carryforward benefits subject requirement total 259 million includes 229 million acquired pcs restructuring yearend 1999 sprint federal operating loss carryforwards approximately 27 billion state operating loss carryforwards approximately 62 billion related loss carryforwards federal tax benefits 938 million state tax benefits 385 million addition sprint available income tax purposes federal alternative minimum tax credit carryforwards 49 million state alternative minimum tax credit carryforwards 5 million federal alternative minimum tax net operating loss carryforwards 933 million state alternative minimum tax net operating loss carryforwards 359 million loss carryforwards expire varying amounts 2019 i26 8 longterm debt capital lease obligations sprints consolidated longterm debt capital lease obligations yearend follows 1these borrowings incurred sprint allocated applicable group sprints weighted average interest rate related borrowings 66 yearend 1999 64 yearend 1998 weighted average interest rate related borrowings allocated pcs group approximately 87 yearend 1999 85 yearend 1998 see note 2 detailed description sprint allocates financing groups 2consolidated debt equal total pcs group fon group debt due intergroup debt eliminated consolidation fon group investment pcs groups senior discount notes totaling 150 million yearend 1999 134 million yearend 1998 addition pcs group longterm debt payable fon group totaling 314 million yearend 1998 including 134 million classified current 3includes notes market value 316 million yearend 1999 358 million yearend 1998 recorded fon group may exchanged maturity sbc communications inc sbc common shares owned fon group cash based sbcs closing price notes matured yearend 1999 could exchanged 65 million sbc shares yearend 1999 sprint held 75 million sbc shares included investments equity securities fon groups combined balance sheets i27 scheduled principal payments excluding reclassified shortterm borrowings next five years follows sprint shortterm borrowings sprint bank notes payable totaling 670 million yearend 1999 454 million yearend 1998 addition sprint commercial paper borrowings totaling 16 billion yearend 1999 292 million yearend 1998 though borrowings renewable various dates throughout year classified longterm debt sprints intent ability unused credit facilities refinance borrowings longterm basis 1998 sprint replaced previous 15 billion credit facility new facilities syndicates domestic international banks new facilities totaled 50 billion expire 2000 2003 commercial paper certain bank notes payable supported sprints revolving credit facilities certain notes payable relate separate revolving credit facility expires 2002 yearend 1999 sprint total unused lines credit 35 billion bank notes outstanding weighted average interest rates 63 yearend 1999 57 yearend 1998 weighted average interest rate commercial paper 64 yearend 1999 58 yearend 1998 longterm debt 1999 third quarter sprint filed shelf registration statement sec covering 40 billion senior unsecured debt securities yearend 1999 sprint issued 750 million debt securities shelf securities interest rates ranging 64 65 mature 2001 august 1999 sprint incurred borrowings totaling 250 million mature 2002 variable interest rates yearend 1999 notes interest rate 61 june 1999 sprint entered 10 billion financing agreement sell continuous basis recourse undivided percentage ownership interests designated pool accounts receivable subsequent collections receivables sold investors typically reinvested new receivables yearend 1999 sprint borrowed 900 million weighted average interest rate 64 agreement borrowings mature 2002 may 1999 sprint issued 35 billion senior notes registered sec notes maturities ranging 5 20 years interest rates ranging 59 69 1998 sprint issued 50 billion senior notes registered sec notes maturities ranging 5 30 years interest rates ranging 57 69 sprint fon group 1999 fon group received net allocation 10 billion debt sprint debt mainly used new capital investments acquisitions see note 2 detailed description sprint allocates debt groups 1999 fourth quarter sprint redeemed prior scheduled maturities 575 million assumed broadband fixed wireless companies debt interest rates ranging 131 145 resulted 39 million aftertax extraordinary loss fon group 1998 sprint redeemed prior scheduled maturities 138 million fon group debt interest rates ranging 79 93 resulted 5 million aftertax extraordinary loss fon group fon group gross property plant equipment totaling 143 billion either pledged security first mortgage bonds certain notes restricted use mortgaged property sprint pcs group 1999 sprint allocated 59 billion debt pcs group debt mainly used repay debt fund new capital investments fund operating losses working capital requirements 1999 pcs group repaid 22 billion revolving credit facilities borrowings prior scheduled maturities resulted 21 million aftertax extraordianary loss 1998 sprint redeemed prior scheduled maturities 33 billion pcs group debt weighted average interest rate 83 resulted 31 million aftertax extraordinary loss pcs group debt repaid portion proceeds sprints 50 billion debt offering november 1998 sprint including fon group pcs group complied restrictive financial covenants relating debt arrangements year end 1999 i28 9 common stock sprint fon stock sprint pcs stock december 14 1999 sprint board directors authorized twoforone stock split sprints pcs common stock form stock dividend distributed february 4 2000 pcs shareholders april 20 1999 board directors authorized twoforone stock split sprints fon common stock form stock dividend distributed june 4 1999 fon shareholders november 1998 sprint recapitalized common stock fon stock pcs stock restructured interests sprint pcs result sprint created following series common stock series 1 fon stock series 1 pcs stock existing sprint common shareholders received one share fon stock 12 share pcs stock sprint share owned authorized shares totaled 25 billion series 1 fon stock 125 billion series 1 pcs stock series 2 fon stock series 2 pcs stock cable partners received pcs shares ownership interests sprint pcs shares 110 voting power series 1 series 3 pcs shares authorized shares totaled 500 million series 2 fon stock series 2 pcs stock series 3 fon stock series 3 pcs stock maintain combined voting power 20 ft dt purchased combined total 51 million series 3 pcs shares presplit basis 85 million time restructuring series 3 fon pcs stock also used whenever ft dt purchase stock maintain voting power would used ft dt elect convert class common shares fon pcs stock authorized shares totaled 12 billion series 3 fon stock 600 million series 3 pcs stock yearend 1999 sprint 22 thousand pcs treasury shares postsplit basis recorded cost pcs shares held fon group represent intergroup interest pcs group eliminated sprint consolidated financial statements beginning november 2001 sprint option convert pcs shares fon shares class series 3 common stock ft dt series 3 fon common shares series 3 pcs common shares class common shares represent approximately 20 sprints voting power sprint declared paid class common dividends 625 cents per share 1999 100 per share 1998 1997 february 1999 ft dt purchased aggregate 61 million series 3 pcs shares presplit basis 169 million conjunction registered public offering 244 million shares series 1 pcs stock presplit basis 1999 ft dt purchased aggregate 12 million shares series 3 fon shares postsplit basis 08 million additional series 3 pcs shares presplit basis 100 million maintain combined 20 voting power additionally 1999 ft dt bought series 1 fon series 1 pcs shares open market maintain combined 20 voting power shares converted series 3 fon series 3 pcs shares november 1998 862 million class common shares reclassified represent equity interest fon group 862 million shares pcs group 431 million shares ft dt maintained combined 20 voting power sprint purchasing additional 51 million series 3 pcs shares presplit basis 85 million ft dt class common series 3 fon series 3 pcs shareholders right cases pro rata representation sprints board directors may also purchase additional shares fon stock pcs stock sprint keep ownership level combined 20 ft dt entered standstill agreement sprint restricting ability acquire sprint voting shares intended agreements sprint standstill agreement also contains customary provisions restricting ft dt initiating participating proposal respect control sprint pcs preferred stock part pcs restructuring sprint issued cable partners new class convertible preferred stock convertible pcs shares common stock reserved future grants yearend 1999 common stock reserved future grants stock option plans future issuances various arrangements follows i29 sprint fon group sprint pcs group1 1restated give effect february 2000 twoforone stock split shareholder rights plan sprints shareholder rights plan one half preferred stock purchase right attached share fon stock pcs stock one preferred stock purchase right attached share class common stock rights may redeemed sprint 001 per right expire june 2007 unless extended rights exercisable certain takeover events occur entitled following postsplit basis fon stock right entitles holder purchase 11000 share unit par preferred stocksixth series 275 per unit pcs stock right entitles holder purchase unit par preferred stockeighth series 150 per unit class right entitles holder purchase 12 unit preferred stocksixth series 13750 per 12 unit 14 unit preferred stockeighth series 3750 per 14 unit preferred stocksixth series voting cumulative accrues dividends quarterly basis generally equal greater 100 per share 2000 times total per share amount fon stock common dividends preferred stock eighth series features sixth series applies pcs shares preferred stocksixth series preferred stockeighth series issued outstanding yearend 1999 1998 indentures financing agreements certain sprints subsidiaries contain provisions limiting cash dividend payments subsidiary common stock held sprint result 552 million subsidiaries 15 billion total retained earnings restricted yearend 1999 flow cash form advances subsidiaries sprint generally restricted 10 stockbased compensation recapitalization stock splits due recapitalization fon pcs stock splits number shares related exercise prices adjusted maintain total fair value common stock underlying options espp share elections relationship market value common stock exercise prices options espp share elections management incentive stock option plan management incentive stock option plan misop sprint granted stock options employees eligible receive annual incentive compensation eligible employees entitled receive stock options lieu portion target incentive sprints management incentive plans options generally become exercisable december 31 year granted maximum term 10 years misop options granted exercise prices equal market price underlying common stock grant date yearend 1999 authorized fon shares plan approximated 241 million authorized pcs shares approximated 145 million authorized number shares increased approximately 71 million fon shares 75 million pcs shares january 1 2000 stock option plan sprint stock option plan sop sprint granted stock options officers key employees options generally become exercisable rate 25 per year beginning one year grant date maximum term 10 years sop options granted exercise prices equal market price underlying common stock grant date yearend 1999 authorized fon shares plan approximated 385 million authorized pcs shares approximated 406 million amounts increased approximately 118 million fon shares 127 million pcs shares january 1 2000 1997 sprint granted performancebased stock options certain key executives fon group expensed 9 million 1999 14 million 1998 pcs group expensed 5 million 1999 1 million 1998 related performancebased stock options employees stock purchase plan sprints employees stock purchase plan espp employees may elect purchase fon common stock pcs common stock price equal 85 i30 market value grant exercise date whichever less yearend 1999 authorized fon shares plan approximated 138 million authorized pcs shares approximated 55 million sprint pcs longterm incentive plan prior 1999 pcs group employees meeting certain eligibility requirements included sprint pcs longterm incentive plan ltip plan participants received appreciation units based independent appraisals appreciation units based annual independent appraisals 1997 plan year appreciation units vest 25 per year beginning one year grant date also expire 10 years connection pcs restructuring sprint discontinued sprint pcs ltip plan appreciation units converted pcs shares options buy pcs shares based formula designed replace appreciated value units beginning july 1998 vested units yearend 1998 participants could elect receive appreciation cash shares options elected receive shares options 1999 sprint began issuing shares options become exercisable based vesting requirements converted units assuming participants stay employed sprint replacement options shares vested sprint issue remaining 17 million pcs shares remaining 20 million pcs shares option become exercisable pro forma disclosures pro forma net income loss earnings loss per share determined sprint used fair value method accounting stock option grants espp share elections 1994 method compensation expense recognized applicable vesting periods based shares option related fair values grant date 1999 fon groups pro forma net income 1434 million pro forma diluted eps 163 recapitalization date yearend 1998 fon groups pro forma net income 103 million pro forma diluted eps 012 fon groups pro forma net income reduced 10 million 001 per fon share 1999 19 million 002 per fon share 1998 due additional compensation resulting modifications terms options espp share elections related recapitalization 1999 pcs groups pro forma net loss 2578 million pro forma diluted loss per share 282 application sfas 123 material impact pcs groups pro forma net loss recapitalization date yearend 1998 sprints pro forma net income earnings per share prior recapitalization date follows 1reflects consolidated pro forma net income earnings per share recapitalization date fair value disclosures misop sop following tables reflect weighted average fair value per option granted well significant weighted average assumptions used determining fair values using blackscholes pricing model fon common stock pcs common stock sprint common stock i31 employees stock purchase plan 1999 fon group pcs group employees elected purchase 13 million fon 65 million pcs espp shares using blackscholes pricing model weighted average fair value 1112 per share fon election 808 per share pcs election 1998 fon group employees elected purchase 21 million espp shares election weighted average fair value using black scholes pricing model 1390 per share espp shares offered 1997 stock options stock option plan activity follows fon stock option plan activity restated give effect 1999 twoforone stock split fon common stock pcs stock option plan activity restated give effect february 2000 twoforone stock split pcs common stock sprint common stock options exercisable yearend 1998 212 million fon options 115 million pcs options sprint options exercisable 83 million yearend 1997 yearend 1998 weighted average exercise prices exercisable options 1883 fon options 441 pcs options following tables summarize outstanding exercisable options yearend 1999 fon common stock i32 pcs common stock 11 commitments contingencies litigation claims assessments various suits arising ordinary course business pending sprint management cannot predict final outcome actions believes material sprints consolidated financial statements operating leases sprints minimum rental commitments yearend 1999 noncancelable operating leases consisting mainly leases data processing equipment real estate cell switch sites office space follows sprints gross rental expense totaled 890 million 1999 730 million 1998 410 million 1997 rental commitments subleases contingent rentals executory costs significant table excludes renewal options related certain cell switch site leases renewal options generally fiveyear terms may exercised time 12 financial instruments fair value financial instruments sprint estimates fair value financial instruments using available market information appropriate valuation methodologies result following estimates necessarily represent values sprint could realize current market exchange although management aware factors would affect yearend 1999 estimated fair values amounts comprehensively revalued purposes financial statements since date therefore estimates fair value yearend 1999 may differ significantly amounts presented carrying amounts estimated fair values sprints financial instruments yearend follows carrying amounts sprints cash equivalents approximate fair value yearend 1999 1998 estimated fair value investments equity securities based quoted market prices estimated fair value long term debt based quoted market prices publicly traded issues estimated fair value issues based present value estimated future cash flows using discount rate based risks involved concentrations credit risk sprints accounts receivable subject concentration credit risk sprint controls credit risk interest rate swap agreements foreign currency contracts credit approvals dollar exposure limits internal monitoring procedures event nonperformance counterparties sprints accounting loss would limited net amount would entitled receive terms applicable interest rate swap agreement foreign currency contract however sprint anticipate nonperformance counterparties agreements interest rate swap agreements sprint uses interest rate swap agreements part interest rate risk management program net interest paid i33 received related agreements recorded using accrual method recorded adjustment interest expense sprint interest rate swap agreements notional amounts 598 million outstanding yearend 1999 134 million outstanding yearend 1998 net interest expense income related interest rate swap agreements 1 million 1999 01 million 1998 02 million 1997 1998 sprint deferred losses termination interest rate swap agreements used hedge portion 50 billion debt offering losses totaling 75 million amortized interest expense using effective interest method term debt yearend 1999 remaining unamortized deferred loss totaled 67 million foreign currency contracts part foreign currency exchange risk management program sprint purchases sells overthecounter forward contracts options various foreign currencies sprint outstanding open forward contracts buy various foreign currencies 14 million yearend 1999 18 million yearend 1998 sprint outstanding open purchase option contracts call various foreign currencies 1 million yearend 1999 10 million yearend 1998 premium paid option deferred amortized life option forward contracts options open yearend 1999 1998 original maturities six months less net gain loss recorded reflect fair value contracts recorded period incurred total net losses including hedge costs 03 million 1999 06 million 1998 01 million 1997 recorded related foreign currency transactions contracts 13 additional financial information segment information fon group operates five business segments based services products long distance division local division product distribution directory publishing businesses activities develop deploy sprint ionsm ventures see note 12 sprint fon group notes combined financial statements information fon groups business segments pcs group businesses operate single segment sprint generally accounts transactions segments based fully distributed costs sprint believes approximates fair value i34 industry segment financial information follows nm meaningful 1fon group revenues eliminated consolidation consist principally long distance services provided pcs group resale pcs customers internal business use telemarketing services provided fon group pcs sales programs 95 sprints revenues domestic customers located within united states revenues one customer fon group represent approximately 4 fon groups net operating revenues 1999 5 1998 1997 equipment sales one retail chain subsequent service revenues generated sales customers represent approximately 28 pcs groups net operating revenues 1999 25 1998 i35 supplemental cash flows information sprints cash paid received interest income taxes follows see note 3 details assets liabilities acquired business combinations related party transactions cable partners advanced phillieco 26 million 1998 24 million 1997 advances repaid 1999 first quarter 14 recently issued accounting pronouncement june 1998 financial accounting standards board issued sfas 133 accounting derivative instruments hedging activities standard requires derivatives recorded balance sheet either assets liabilities measured fair value gains losses changes derivative values accounted based derivative used whether qualifies hedge accounting adopted january 2001 statement expected material impact sprints consolidated financial statements i36 15 quarterly financial data unaudited 1certain reclassifications made net operating revenues operating expenses amounts reported 1999 reports form 10q conform current year presentation reclassifications impact operating income loss previously reported 2quarterly income loss continuing operations adjusted amounts reported 1999 reports form 10q reflect presentation equity investment global one discontinued operation periods presented 3in 1999 second quarter sprint effected twoforone stock split fon stock fon group earnings per share prior periods restated reflect stock split 4on february 4 2000 sprint effected twoforone stock split pcs stock pcs group loss per share prior periods restated reflect stock split 5in 1998 fourth quarter fon group recorded net nonrecurring gains 104 million mainly sale local exchanges decreased loss continuing operations 62 million 6in 1998 fourth quarter pcs group recorded nonrecurring charge write 179 million acquired iprd related pcs restructuring charge increased operating loss continuing operations 179 million 7fourth quarter 1998 reflects eps sprint date november 1998 recapitalization eps fon group pcs group reflects eps date recapitalization yearend 1998 na applicable 16 subsequent event unaudited february 2000 sprints board directors declared dividends 125 cents per share sprint fon common stock class common stock dividends paid march 30 2000 i37 sprint corporation schedule iiconsolidated valuation qualifying accounts years ended december 31 1999 1998 1997 1accounts written net recoveries 2as discussed note 3 pcs groups assets liabilities recorded fair values pcs restructuring date therefore data presented schedule reflects activity since pcs restructuring 3represents valuation allowance deferred income tax assets recorded connection pcs restructuring 4represents valuation allowance deferred income tax assets relating net operating loss carryforwards acquired purchase broadband fixed wireless companies i38 annex ii sprint fon group combined financial information selected financial data sprint fon group certain prioryear amounts reclassified conform current year presentation reclassifications effect results operations group equity previously reported fon group created result pcs restructuring recapitalization see sprints managements discussion analysis financial condition results operationsgeneral information 1the fon group recorded nonrecurring charges 20 million 1997 60 million 1996 related litigation within long distance division charges reduced income continuing operations 13 million 1997 36 million 1996 1995 fon group recorded nonrecurring charge 88 million related restructuring within local division reduced income continuing operations 55 million 2in 1998 fon group recorded net nonrecurring gains 104 million mainly sale local exchanges increased income continuing operations 62 million 1997 fon group recorded nonrecurring gains 71 million mainly sales local exchanges certain investments gains increased income continuing operations 44 million 3in 1999 second quarter sprint effected twoforone stock split fon stock earnings per share dividends fon group periods prior 1999 pro forma basis assume fon shares created 1998 recapitalization sprints common stock existed periods presented pro forma earnings per share dividends prior periods restated reflect stock split 4the 1996 amount reduced 600 million cash required terminate accounts receivable sales agreement ii1 managements discussion analysis sprint fon group financial condition results operations general see sprints managements discussion analysis financial condition results operationsgeneral information forwardlooking information see sprints managements discussion analysis financial condition results operationsforwardlooking information discussion forwardlooking information sprint fon group core businesses long distance division long distance division nations thirdlargest long distance phone company operates nationwide alldigital long distance communications network uses fiberoptic electronic technology division primarily provides domestic international voice video data communications services local division local division consists regulated local phone companies serving 8 million access lines 18 states provides local phone services access phone customers carriers local network sales telecommunications equipment long distance services within certain regional calling areas latas product distribution directory publishing businesses product distribution business provides wholesale distribution services telecommunications products directory publishing business publishes markets white yellow page phone directories sprint ionsm sprint developing deploying new integrated communications services referred sprint ion sprint ion extends sprints existing network capabilities customer enables sprint provide network infrastructure meet customers demands advanced services including integrated voice data internet video also expected foundation sprint provide new competitive local service ventures segment includes cable tv service operations broadband fixed wireless companies acquired second half 1999 segment also includes fon groups investments earthlink inc internet service provider callnet long distance provider canada operating sprint brand name certain telecommunications investments ventures results operations total net operating revenues 1999 170 billion 8 increase 158 billion 1998 total net operating revenues 1997 146 billion income continuing operations 17 billion 1999 1998 15 billion 1997 core businesses 1999 fon groups core businesses generated improved net operating revenues operating income 1998 long distance calling volumes increased 22 1999 15 1998 access lines served local division increased 5 1999 1998 excluding sales local exchanges core net income included net nonrecurring pretax gains 104 million 1998 51 million 1997 gains mainly consisted sales local exchanges certain investments partly offset litigation charges 1997 excluding nonrecurring items operating income core operations 33 billion 1999 29 billion 1998 26 billion 1997 segmental results operations long distance division 1the fon group recorded nonrecurring litigation charges 20 million 1997 ii2 net operating revenues major market segmentsbusiness residential wholesalecontributed increase net operating revenues 1999 1998 increases mainly reflect strong data services revenue growth well strong minute growth 22 1999 15 1998 partly offset competitive pricing environment change mix products sold business data market business data market revenues increased 9 1999 15 1998 data services showed strong growth continued demand increased use internet increases also reflect strong calling volumes partly offset lower rates due increased competition residential market residential market revenues increased 7 1999 5 1998 increases reflect strong volume growth long distance calls partly offset lower domestic international rates growth also enhanced sprint nickel nightssm product generated increased sales 1999 growth factors included increased prepaid card revenues increased sales sprint solutionssmbundled local longdistance services sold sprints local telephone operations wholesale market wholesale market revenues increased 15 1999 8 1998 reflects strong minute growth mainly international calls increased inbound outbound tollfree calls interconnection costs interconnection costs consist amounts paid local phone companies domestic service providers foreign phone companies complete calls made divisions domestic customers costs increased 5 1999 decreased 1 1998 increased calling volumes partially offset reductions perminute costs domestic international access 1999 increase interconnection costs also reflects costs related growth nonminute driven revenues 1998 reductions perminute costs offset impact increased calling volumes rate reductions generally due domestic fccmandated access rate reductions took effect january july 1998 july 1999 lower international per minute costs reflect continued competition sprint expects government deregulation competitive pressures add trend declining unit costs international interconnection costs 360 net operating revenues 1999 374 1998 419 1997 operations expense operations expense includes costs operate maintain long distance network costs equipment sales also includes costs provide operator public payphone video teleconferencing services well telecommunications services hearingimpaired operations expense increased 4 1999 16 1998 increases driven growth data services well increases network equipment operating leases years 1998 increase also reflects service costs paranet purchased late 1997 operations expense 143 net operating revenues 1999 150 1998 145 1997 selling general administrative expense selling general administrative sga expense increased 14 1999 15 1998 increases mainly reflect overall growth business well increased marketing promotions support products services including rollout airline alliance program enables customers earn frequent flyer miles use sprints services sga expense 248 net operating revenues 1999 239 1998 232 1997 depreciation amortization expense depreciation amortization expense increased 8 1999 23 1998 increases generally due increased asset base enhance network reliability meet increased demand voice datarelated services upgrade capabilities providing new products services 1998 increase also driven capital additions shorter average depreciable lives depreciation amortization expense 94 net operating revenues 1999 95 1998 86 1997 local division ii3 beginning july 1997 sprint changed transfer pricing certain transactions fon group entities accurately reflect market pricing main effect change reduction local divisions net operating revenuesother revenues sprint sold approximately 139000 residential business access lines illinois 1997 remaining 81000 access lines illinois november 1998 comparative purposes following discussion local division results assumes transfer pricing changes sales exchanges occurred beginning 1997 adjusting transfer pricing changes sales exchanges operating margins would 260 1998 250 1997 net operating revenues net operating revenues increased 6 1999 5 1998 increases mainly reflect customer access line growth increased sales networkbased services caller id call waiting customer access lines increased 5 1999 1998 sales networkbased services increased 1999 due strong demand bundled services combine local service networkbased features long distance calling increase 1998 revenues also reflects increased sales equipment net operating revenues 57 billion 1999 53 billion 1998 51 billion 1997 local service revenues local service revenues derived local exchange services grew 9 1999 10 1998 customer access line growth continued demand networkbased services growth data products increased revenues maintaining customer wiring equipment revenue growth 1998 also reflects increased sales private line services network access revenues network access revenues derived long distance phone companies using local network complete calls increased 4 1999 1998 revenues reflect 8 increase minutes use 1999 1998 1999 implementation local number portability charges increases partly offset access rate reductions mandated fcc access rate reductions took effect january july 1998 july 1999 toll service revenues toll service revenues mainly derived providing long distance services within specified regional calling areas latas beyond local calling area revenues decreased 11 1999 26 1998 mainly reflecting increased competition intralata long distance market expected continue addition toll service areas shrinking certain local calling areas expanding however reduced revenues part offset increases local service revenues increases network access revenues paid carriers providing intralata long distance services local divisions customers addition one third toll customers lost local division selected sprints long distance division intralata long distance service helps mitigate erosion revenues increased 7 1999 1998 reflecting increased equipment sales business systems data networks well growth telemarketing commission revenues revenue growth 1999 also reflects improvements uncollectibles 1998 growth also reflects increased revenues providing billing collection services costs services products costs services products include costs operate maintain local network costs equipment sales expenses increased 7 1999 remained flat 1998 1999 increase driven customer access line growth increased equipment sales increased emphasis service levels increased telemarketing expenses storm related costs 1998 cost increases customer access line growth increased equipment sales offset efficiencies streamlining standardizing business processes reduction pension costs due increased returns plan assets costs services products 349 net operating revenues 1999 345 1998 361 1997 selling general administrative expense sga expenses decreased 1 1999 increased 8 1998 1999 decrease due strong emphasis cost control partly offset increased marketing costs promote new products services costs related customer access line growth 1998 increase mainly due marketing costs promote new products services increased customer service costs related customer access line growth also impacting sga 1998 reduction pension costs due increased returns plan assets sga expense 197 net operating revenues 1999 211 1998 205 1997 depreciation amortization expense depreciation amortization expense increased 9 1999 5 1998 mainly increased capital expenditures switching transport technologies shorter asset lives depreciation amortization expense 189 net operating revenues 1999 184 1998 183 1997 ii4 product distribution directory publishing businesses beginning july 1997 sprint changed transfer pricing certain transactions fon group entities accurately reflect market pricing following discussion assumes transfer pricing changes occurred beginning 1997 adjusting changes product distribution directory publishing businesses operating margins would 157 1997 net operating revenues increased 3 1999 16 1998 nonaffiliated revenues accounted roughly 60 revenues 1999 1998 revenues increased 12 1999 10 1998 sales affiliates decreased 10 1999 increased 27 1998 change mix local divisions capital program electronics software frequently purchased directly manufacturers caused decline affiliate sales 1999 1998 growth reflects centralization certain local division purchasing warehousing functions north supply 1997 resulting affiliates purchasing north supply costs services products increased 1 1999 19 1998 reflecting increased equipment sales sga expense increased 17 1999 1998 1999 increase result staffing demands related nonaffiliated sales growth 1998 increase result costs related divisions acquisition sales force another directory sales company 1998 sprint ionsm operating expenses sprint ion 1999 1998 reflect initial development deployment activities include costs network research testing systems operations development product development advertising increase public awareness depreciation amortization totaled 38 million 1999 5 million 1998 2 million 1997 ventures segment includes operating results cable tv service operations broadband fixed wireless companies 1999 acquisition dates operating expenses 1998 1997 capital expenditures 1997 mainly relate fon groups offering internet services june 1998 fon group completed strategic alliance combine internet business earthlink part alliance earthlink obtained fon groups sprint internet passport customers took daytoday operations services exchange fon group acquired equity interest earthlink result beginning 1998 fon groups share earthlinks losses reflected equity losses affiliates equity losses affiliates mainly consists losses earthlink callnet nonoperating items interest expense effective interest rates following table reflect interest expense longterm debt interest costs shortterm borrowings classified longterm debt intergroup borrowings deferred compensation plans customer deposits excluded distort effective interest rates longterm debt effective pcs restructuring interest expense borrowings incurred sprint allocated pcs group based rates pcs group would able obtain third parties interest rates higher rates sprint obtains borrowings difference sprints actual interest rates charged pcs group reflected reduction fon groups interest expense reductions totaled 157 million 1999 11 ii5 million 1998 also excluded computing effective interest rates see note 2 notes combined financial statements detailed description sprints policies allocation group financing income net income consisted following dividend interest income years reflects interest earned temporary investments 1998 also reflects interest earned loans unconsolidated affiliates interest earned shortterm investments following sprints 50 billion debt offering late 1998 net 1999 includes net gains miscellaneous investment activities partly offset losses certain equity method investments 1998 1997 mainly reflects net gains sales local exchanges certain investments partly offset losses certain equity method investments income taxes fon groups effective tax rates 379 1999 373 1998 377 1997 see note 7 notes combined financial statements information differences caused effective income tax rates vary statutory federal rate income taxes related continuing operations discontinued operation net result sprints sale interest global one deutsche telekom france telecom sprints equity share results global one reported discontinued operation periods presented sprint recorded aftertax losses related global one totaling 130 million 1999 135 million 1998 142 million 1997 1999 amount includes 50 million tax benefit recorded recognize tax assets related previous losses realization assets uncertain sale agreement reached gain sale sprints interest global one made apparent tax assets would realized extraordinary items net 1999 sprint redeemed prior scheduled maturities 575 million broadband fixed wireless companies debt assumed fon group interest rates ranging 131 145 resulted 39 million aftertax extraordinary loss fon group 1998 sprint redeemed prior scheduled maturities 138 million fon group debt interest rates ranging 79 93 resulted 5 million aftertax extraordinary loss financial condition increase assets due capital expenditures support core long distance local networks sprint ion development well purchase broadband fixed wireless companies see liquidity capital resources information changes combined balance sheets liquidity capital resources operating activities decrease 1999 operating cash flows mainly reflects increases working capital partly offset improved operating results increase 1998 operating cash flows mainly reflects improved operating results fon groups core businesses decreases working capital investing activities capital expenditures fon groups largest investing activity totaled 35 billion 1999 32 billion 1998 27 billion 1997 long distance capital expenditures incurred mainly enhance network reliability meet increased demand voice datarelated services upgrade capabilities providing new products services local division incurred capital expenditures accommodate access line growth provide additional capacity increased internet traffic expand capabilities providing enhanced services addition capital expenditures increased 388 million 1999 1998 due sprint ion development hardware deployment 1999 sprint purchased net assets several broadband fixed wireless companies 618 million excluding assumed debt 1997 sprint purchased net assets paranet 375 million see note 3 notes combined financial statements ii6 1999 fon group received payment 314 million pcs group outstanding loan fon group advances pcs group loans sprint pcs fund capital operating requirements loans sprint pcs 1998 partly offset repayment vendor financing loan equity transfers pcs group also used fund capital operating requirements offset current tax benefits used fon group investing activities also include net proceeds sales assets totaling 90 million 1999 230 million 1998 292 million 1997 investments loans affiliates net includes fon groups investment earthlink callnet miscellaneous ventures financing activities financing activities 1999 mainly reflect longterm borrowings 10 billion partly offset payments longterm debt 529 million 1998 financing activities mainly reflect longterm borrowings 785 million partly offset payments longterm debt 388 million 1997 fon group net borrowings 532 million mainly fund investments loans affiliates fon group paid dividends 426 million 1999 430 million 1998 1997 indicated annual dividend rate fon stock 050 per share capital requirements fon groups 2000 investing activities mainly consisting capital expenditures investments affiliates expected require cash 41 44 billion fon group capital expenditures expected range 39 42 billion 2000 long distance local divisions require majority total sprint ion expected require 600 700 million capital expenditures 2000 investments affiliates expected require cash approximately 200 million dividend payments expected approximate 435 million connection pcs restructuring sprint adopted tax sharing agreement provides allocation income taxes fon group pcs group sprint expects fon group make significant payments pcs group agreement expected pcs group operating losses near future payments reflect pcs groups incremental cumulative effect sprints consolidated federal state tax liability tax credit position pcs group accrued current benefits agreement totaling 887 million 1999 190 million 1998 received related payments fon group totaling 764 million 1999 20 million 1998 remaining 293 million paid fon group first half 2000 see note 2 notes combined financial statements allocation federal state income taxes details liquidity see sprints managements discussion analysis financial condition results operationsliquidity discussion liquidity regulatory developments competitive local service telecommunications act 1996 telecom act designed promote competition aspects telecommunications eliminated legal regulatory barriers entry local phone markets also required incumbent local phone companies among things allow local resale wholesale rates negotiate interconnection agreements provide nondiscriminatory access unbundled network elements allow collocation interconnection equipment competitors sprint obtained interconnection collocation agreements number incumbent local telephone carriers rolling sprint ion cities across nation sprint also rolling resold une based local services obtained local phone companies telecom act rollout local services obtained local phone companies occur major areas across nation served ltd january 1999 supreme court affirmed fccs authority establish rules prices relating interconnection unbundling incumbent local phone companies networks fcc subsequently reaffirmed large part list network elements incumbents required provide unbundled basis strengthened collocation requirements also took steps speed deployment advanced technologies xdsl rboc long distance entry telecom act also allows rbocs provide inregion long distance service obtain state certification compliance competitive checklist facilitiesbased competitor obtain fcc ruling provision inregion long distance service public interest one rboc bell atlantic obtained fcc authorization provide inregion long distance service new york december 1999 rbocs may gain ii7 authorization near future states entry rbocs long distance market impact competition extent impact depend upon factors rbocs competitive ability appeal rboc brand different market segments response competitors impact sprint may offset wholesale revenues rbocs choose resell sprint services customer service slamming telecom act also established liability unauthorized switch consumers telephone service one carrier another slamming late 1998 fcc adopted new rules intended prevent slamming compensate victims slamming rules stayed court appeals fcc currently considering industry proposal would streamline process adjudicating alleged slams mergers result increasing competitive pressures number carriers combined proposed combine sprint mci worldcom filed merger application fcc november 1999 european commission january 2000 sprint mci worldcom also continuing provide department justice information supporting proposed merger sbc completed merger ameritech 1999 bell atlanticgte proposed merger remains pending fcc 1999 att completed merger tci announced pending merger mediaone att expected use newly acquired cable facilities provide competitive local telephone services universal services requirements fcc continued address issues related universal service access charge reform increased amount money available schools libraries erate program adopted computer model designed calculate high cost universal service subsidies replace high cost subsidies implicit interstate access charges explicit contributions continued shift certain nontraffic sensitive costs usagesensitive flatrated access charges sprints long distance local divisions benefit costbased access charges addition shift costs usagesensitive flatrated access charges contributed sharp decreases long distance usage rate charges fcc many states established universal service programs ensure affordable quality local telecommunications services americans fon groups assessment fund programs typically percentage end user revenues fon groups 1999 results contained assessments 1999 currently management cannot predict extent fon groups future federal state universal service assessments ability recover contributions universal service fund communications assistance law enforcement act communications assistance law enforcement act calea enacted 1994 preserve electronic surveillance capabilities authorized federal state law calea requires local telecommunications companies meet certain assistance capability requirements end june 2000 circuit switching used september 2001 packetswitching used circuitswitched technology installed 1995 reimbursement hardware software upgrades facilitate calea compliance authorized us department justice published guidelines concerning required support fcc petitions extension calea enforcement deadlines ltd uses circuitswitching bulk traffic ltd switches installed 1995 qualify reimbursement upgrades required justice department sprint ion uses packet switching local operations case sprint ion calea compliance capabilities currently available equipment software vendors involved sprint ions deployment sprint believes compliance calea appropriate deadlines local circuitswitched equipment sprint ion apply extension local packetbased services allow development required hardware software financial strategies financial strategies determined sprint centralized basis see sprints managements discussion analysis financial condition results operationsfinancial strategies year 2000 issue fon group successfully completed year 2000 readiness work passed january 1 2000 rollover event encountering customer affecting outages business interruptions since inception fon groups year 2000 readiness program 1996 december 31 1999 fon group incurred approximately 275 million costs associated year 2000 readiness program fon group expect incur significant additional expenditures related year 2000 issue recently issued accounting pronouncement see note 13 notes combined financial statements discussion recently issued accounting pronouncement ii8 management report sprint corporations management responsible integrity objectivity information contained annex management responsible consistency reporting information ensuring accounting principles generally accepted united states used discharging responsibility management maintains comprehensive system internal controls supports extensive program internal audits made organizational arrangements providing appropriate divisions responsibility established communication programs aimed assuring policies procedures principles business conduct understood practiced employees combined financial statements included annex audited ernst young llp independent auditors audits conducted using auditing standards generally accepted united states report included herein board directors responsibility combined financial statements pursued mainly audit committee audit committee composed entirely directors officers employees sprint meets periodically internal auditors independent auditors without management present assure respective responsibilities fulfilled internal independent auditors full access audit committee discuss auditing financial reporting matters w esrey william esrey chairman chief executive officer arthur b krause arthur b krause executive vice president chief financial officer report independent auditors board directors shareholders sprint corporation audited accompanying combined balance sheets sprint fon group described note 2 december 31 1999 1998 related combined statements operations comprehensive income cash flows three years period ended december 31 1999 audits also included financial statement schedule listed index financial statements financial statement schedules financial statements schedule responsibility management sprint corporation sprint responsibility express opinion financial statements schedule based audits conducted audits accordance auditing standards generally accepted united states standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion combined financial statements referred present fairly material respects combined financial position sprint fon group december 31 1999 1998 combined results operations cash flows three years period ended december 31 1999 conformity accounting principles generally accepted united states also opinion related financial statement schedule considered relation basic financial statements taken whole presents fairly material respects information set forth therein fully discussed note 2 combined financial statements sprint fon group read together audited consolidated financial statements sprint ernst young llp kansas city missouri february 1 2000 ii9 combined statements operations sprint fon group millions except per share data 1basic diluted earnings per common share weighted average common shares dividends per common share 1998 1997 pro forma unaudited assume recapitalization occurred beginning 1997 1999 second quarter sprint effected twoforone stock split fon common stock result 1998 1997 basic diluted earnings per common share weighted average common shares dividends per common share restated see accompanying notes combined financial statements ii10 combined statements comprehensive income sprint fon group millions see accompanying notes combined financial statements ii11 combined balance sheets sprint fon group millions see accompanying notes combined financial statements ii12 combined statements cash flows sprint fon group millions see accompanying notes combined financial statements ii13 notes combined financial statements sprint fon group 1 general october 1999 sprint announced definitive merger agreement mci worldcom agreement share sprint fon stock exchanged 76 mci worldcom common stock subject collar addition share sprint pcs stock exchanged one share new worldcom pcs tracking stock 0116025 shares mci worldcom common stock terms worldcom pcs tracking stock equivalent sprints pcs common stock track performance companys personal communication services pcs business merger subject approvals sprint mci worldcom shareholders well approvals federal communications commission justice department various state government bodies foreign antitrust authorities companies anticipate merger close second half 2000 november 1998 sprints shareholders approved formation fon group pcs group creation fon stock pcs stock addition sprint purchased remaining ownership interests sprint spectrum holding company lp phillieco lp together sprint pcs minority interest cox communications pcs lp cox pcs sprint acquired ownership interests telecommunications inc comcast corporation cox communications inc cable partners exchange sprint issued cable partners special lowvote pcs shares warrants acquire additional pcs shares sprint also issued cable partners shares new class preferred stock convertible pcs shares purchase cable partners interests referred pcs restructuring 1999 second quarter sprint acquired remaining minority interest cox pcs also november 1998 sprint reclassified publicly traded common shares one share fon stock 12 share pcs stock recapitalization taxfree shareholders class common share owned france telecom sa ft deutsche telekom ag dt reclassified represent equity interest fon group pcs group entitles ft dt one share fon stock 12 share pcs stock transactions referred recapitalization connection pcs restructuring ft dt purchased 51 million additional pcs shares presplit basis maintain combined 20 voting power sprint topup pcs stock intended reflect performance sprints domestic wireless pcs operations fon stock intended reflect performance sprints operations 2 summary significant accounting policies basis combination presentation combined fon group financial statements together combined pcs group financial statements include accounts sprints consolidated financial statements combined financial statements group prepared basis management believes reasonable proper include combined historical balance sheets results operations cash flows groups significant intragroup amounts transactions eliminated allocation sprints debt including related effects results operations cash flows allocation corporate overhead pcs restructuring date fon group entities commonly controlled companies transactions pcs group fon group eliminated combined financial statements either group fon group combined financial statements provide fon shareholders financial information fon group operations investors fon stock pcs stock sprint shareholders subject risks related sprints businesses assets liabilities sprint retains ownership control assets operations group financial effects either group affect sprints results operations financial condition could affect results operations financial position group market price groups stock net losses either group dividends distributions repurchases pcs stock fon stock reduce sprint funds legally available dividends groups stock result fon group combined financial statements read along sprints consolidated financial statements pcs groups combined financial statements fon group combined financial statements prepared using accounting principles generally accepted united states principles require management make estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities reported amounts revenues expenses actual results could differ estimates certain prioryear amounts reclassified conform current year presentation reclassifications effect results operations group equity previously reported ii14 investments entities fon group exercises significant influence control accounted using equity method see note 4 classification operations core businesses long distance division long distance division nations thirdlargest long distance phone company operates nationwide alldigital long distance communications network uses fiberoptic electronic technology division provides domestic international voice video data communications services local division local division consists regulated local phone companies serving 8 million access lines 18 states provides local services access phone customers carriers local network sales telecommunications equipment long distance services within certain regional calling areas local access transport areas november 1998 sprint sold remaining 81000 residential business access lines illinois product distribution directory publishing businesses product distribution business provides wholesale distribution services telecommunications products directory publishing business publishes markets white yellow page phone directories sprint ionsm sprint ion extends sprints existing network capabilities customer enables sprint provide network infrastructure meet customers demands advanced services including integrated voice data internet video also expected foundation sprint provide new competitive local service ventures segment includes cable tv service operations broadband fixed wireless companies acquired second half 1999 segment also includes fon groups investments earthlink inc internet service provider callnet long distance provider canada operating sprint brand name certain telecommunications investments ventures investments ventures accounted equity basis allocation shared services sprint directly assigns possible certain general administrative costs fon group pcs group based actual use services direct assignment costs possible practical sprint uses indirect methods including time studies estimate assignment costs group sprint believes costs allocated comparable costs would incurred groups would operating standalone basis allocation shared services may change discretion sprint require shareholder approval allocation federal state income taxes sprint files consolidated federal income tax return certain state income tax returns include fon group pcs group results connection pcs restructuring sprint adopted tax sharing agreement provides allocation income taxes two groups fon groups income taxes calculated files returns exclude pcs group intergroup tax payments satisfied date sprints related tax payment due refund received applicable tax authority fon group accrued income taxes payable pcs group accordance tax sharing agreement totaling 887 million 1999 190 million 1998 allocation group financing activities groups managed sprint centralized basis debt incurred sprint behalf groups specifically allocated reflected financial statements applicable group interest expense allocated pcs group based interest rate substantially equal rate would able obtain third parties direct indirect wholly owned sprint subsidiary without benefit guaranty sprint member fon group interest rate higher rate sprint obtains borrowings difference sprints actual interest rate charged pcs group reflected reduction fon groups interest expense sprints centralized cash management program one group may advance funds group advances accounted shortterm borrowings groups bear interest market rate substantially equal rate group would able obtain third parties shortterm basis allocation group financing activities may change discretion sprint require shareholder approval income taxes fon group records deferred income taxes based temporary differences carrying amounts assets liabilities financial reporting purposes tax bases ii15 revenue recognition fon group recognizes operating revenues services rendered products delivered customers fon group records operating revenues net estimate uncollectible accounts sprints directory publishing business recognizes revenues directory services life related directory amortization method cash equivalents cash equivalents generally include highly liquid investments original maturities three months less stated cost approximates market value sprint uses controlled disbursement banking arrangements part cash management program outstanding checks excess cash balances fon group included accounts payable amounts totaled 174 million yearend 1999 263 million yearend 1998 fon group sufficient funds available fund outstanding checks presented payment investments debt equity securities investments debt equity securities classified available sale reported fair value estimated based quoted market prices gross unrealized holding gains losses reflected adjustments group equity net related income taxes inventories stated lower cost principally firstin firstout method market value property plant equipment property plant equipment recorded cost generally ordinary asset retirements disposals charged accumulated depreciation gain loss recognized cost property plant equipment generally depreciated straightline basis estimated economic useful lives repair maintenance costs expensed incurred capitalized interest fon group capitalized interest costs related constructing capital assets 43 million 1999 42 million 1998 23 million 1997 addition sprint capitalized interest costs related pcs groups network buildout capitalized interest totaled 61 million 1998 24 million 1997 contributed amortized pcs group sprint also capitalized interest costs related investment sprint pcs july 1997 sprint pcs emerged development stage capitalized interest totaling 142 million contributed amortized pcs group intangible assets fon group evaluates recoverability intangible assets events circumstances indicate assets might impaired fon group determines impairment comparing undiscounted future cash flows estimated generated assets respective carrying value event impairment exists loss recognized based amount carrying value exceeds fair value asset goodwill represents excess purchase price fair value net assets acquired business combinations accounted purchases goodwill amortized five 40 years using straightline method accumulated amortization totaled 94 million yearend 1999 52 million yearend 1998 earnings per share result recapitalization earnings per share fon group 1998 calculated based groups income november 1998 yearend 1998 calculated group basis periods prior november 1998 fon stock part sprints capital structure time 1999 second quarter sprint effected twoforone split fon common stock result basic diluted earnings per common share weightedaverage common shares dividends fon common stock restated periods prior stock split 1999 fon groups convertible preferred dividends totaled 1 million dilutive securities mainly options totaled 192 million shares recapitalization date yearend 1998 fon groups convertible preferred dividends totaled 01 million dilutive securities mainly options totaled 138 million shares fon groups earnings per common share recapitalization date follows ii16 stockbased compensation fon group participates incentivebased stock option plans employee stock purchase plan administered sprint executives employees sprint adopted pro forma disclosure requirements statement financial accounting standards sfas 123 stockbased compensation continues apply accounting principles board opinion 25 accounting stock issued employees stock option employee stock purchase plans fon group applied sfas 123 pro forma net income would 1434 million 1999 103 million recapitalization date yearend 1998 see note 10 sprints notes consolidated financial statements information sprints stockbased compensation fon groups pro forma net income earnings per share 1997 sprint granted performancebased stock options certain key executives fon group expensed 9 million 1999 14 million 1998 related performancebased stock options 3 business combinations broadband fixed wireless companies second half 1999 sprint acquired peoples choice tv corp pctv american telecasting inc ati videotron usa operating subsidiaries wbs america llc companies broadband fixed wireless licenses midwest southwest north central western southeastern united states sprint paid 618 million companies outstanding stock assumed 575 million companies debt notes redeemed prior scheduled maturities 1999 fourth quarter see note 8 acquisitions accounted purchases result financial statements companies reflected fon groups combined financial statements acquisition dates excess purchase price net liabilities acquired totaled 835 million preliminarily allocated goodwill amortized straight line basis 40 years paranet inc september 1997 sprint paid 375 million purchase net assets houstonbased paranet inc provider integration management support services computer networks transaction accounted using purchase method accounting result fon groups combined financial statements reflect sprint paranets results operations beginning october 1997 excess purchase price tangible net assets acquired 357 million excess allocated noncompete agreements goodwill amortized straightline basis four 10 years 4 investments equity securities cost investments equity securities 153 million yearend 1999 105 million yearend 1998 gross unrealized holding gains 302 million yearend 1999 384 million yearend 1998 yearend 1999 316 million investments equity securities classified current anticipation using investments retire debt instruments see note 8 1999 fon group sold availableforsale securities cost basis 14 million 104 million 90 million gain included income net combined statements operations investments advances affiliates yearend 1999 investments accounted using equity method consisted fon groups investments earthlink callnet strategic investments combined unaudited summarized financial information 100 basis entities others accounted using equity method follows 5 discontinued operation january 2000 sprint reached definitive agreement deutsche telekom france telecom sell interest global one february 2000 sprint received 11 billion cash repaid 276 million advances entire stake global one fon groups investment net assets discontinued operation including advances totaled 394 million yearend 1999 182 million yearend 1998 ii17 fon group recorded aftertax losses related global one totaling 130 million 1999 135 million 1998 142 million 1997 1999 amount includes 50 million tax benefit recorded recognize tax assets related previous losses realization assets uncertain sale agreement reached gain sale sprints interest global one made apparent tax assets would realized fon group provided various voice data administrative services global one totaling 241 million 1999 277 million 1998 415 million 1997 addition global one provided data administrative services fon group totaling 139 million 1999 140 million 1998 114 million 1997 fon groups receivable global one 107 million yearend 1999 187 million yearend 1998 fon groups payable global one 36 million yearend 1999 42 million yearend 1998 6 employee benefit plans defined benefit pension plan fon group employees covered noncontributory defined benefit pension plan sponsored sprint benefits plan participants belonging unions based negotiated schedules nonunion participants pension benefits based years service participants compensation sprints policy make plan contributions equal actuarially determined amount consistent federal tax regulations funding objective accumulate funds relatively stable rate participants working lives benefits fully funded retirement amounts included combined balance sheets plan prepaid pension costs 285 million yearend 1999 222 million yearend 1998 net pension costs credits determined fon group based direct calculation service costs interest projected benefit obligations appropriate allocation unrecognized prior service costs amortization unrecognized transition asset actuarial gains losses expected return plan assets fon group recorded net pension credits costs 63 million 1999 46 million 1998 2 million 1997 defined contribution plans sprint sponsors defined contribution employee savings plans covering fon group employees participants may contribute portions pay plans union employees sprint matches contributions based negotiated amounts sprint also matches contributions nonunion employees fon pcs stock matching equal 50 participants contributions 6 pay addition sprint may discretion board directors provide additional matching contributions based performance fon pcs stock compared telecommunications companies stock fon group recorded expenses 73 million 1999 54 million 1998 1997 sprints matching contributions sprint defined contribution plans yearend 1999 sprints defined contribution plans held 33 million fon shares 27 million pcs shares postsplit basis postretirement benefits sprint provides postretirement benefits principally medical life insurance benefits fon group employees retiring certain dates eligible benefits cost reduced cost employees retiring certain dates eligible benefits sharedcost basis sprint funds accrued costs benefits paid amounts included combined balance sheets yearend accrued postretirement benefits costs 10 billion 1999 1998 net postretirement benefits costs determined fon group based direct calculation service costs interest accumulated postretirement benefit obligations appropriate allocation unrecognized prior service costs actuarial gains fon group recorded net postretirement benefits costs 54 million 1999 51 million 1998 54 million 1997 7 income taxes income tax expense allocated continuing operations consisted following ii18 differences caused fon groups effective income tax rates vary 35 federal statutory rate income taxes related continuing operations follows income tax expense benefit allocated items follows 1these amounts recorded directly group equity fon group recognizes deferred income taxes temporary differences carrying amounts assets liabilities financial statement purposes tax bases sources differences give rise deferred income tax assets liabilities yearend 1999 1998 along income tax effect follows management believes likely deferred income tax assets net valuation allowance realized based current income tax laws expectations future taxable income stemming reversal existing deferred tax liabilities ordinary operations uncertainties surrounding income tax law changes shifts operations state taxing jurisdictions future operating income levels may however affect ultimate realization deferred income tax assets valuation allowance related deferred income tax assets increased 179 million 1999 decreased 8 million 1998 2 million 1997 1999 fon group acquired approximately 179 million potential tax benefits related net operating loss carryforwards acquisitions broadband fixed wireless companies benefits subject certain realization restrictions various tax laws valuation allowance provided total benefits subsequently recognized reduce goodwill noncurrent intangible assets resulting application purchase method accounting transactions yearend 1999 fon group federal operating loss carryforwards 432 million state operating loss carryforwards 741 million related loss carryforwards federal tax benefits 151 million state tax benefits 49 million expire varying amounts 2019 ii19 8 longterm debt capital lease obligations sprints consolidated longterm debt capital lease obligations yearend follows 1these borrowings incurred sprint allocated applicable group sprints weighted average interest rate related borrowings 66 yearend 1999 64 yearend 1998 weighted average interest rate related borrowings allocated pcs group approximately 87 yearend 1999 85 yearend 1998 see note 2 detailed description sprint allocates financing groups 2consolidated debt equal total pcs group fon group debt due intergroup debt eliminated consolidation fon group investment pcs groups senior discount notes totaling 150 million yearend 1999 134 million yearend 1998 addition pcs group longterm debt payable fon group totaling 314 million yearend 1998 including 134 million classified current 3includes notes market value 316 million yearend 1999 358 million yearend 1998 recorded fon group may exchanged maturity sbc communications inc sbc common shares owned fon group cash based sbcs closing price notes matured yearend 1999 could exchanged 65 million sbc shares yearend 1999 sprint held 75 million sbc shares included investments equity securities fon groups combined balance sheets ii20 scheduled principal payments excluding reclassified shortterm borrowings next five years follows sprint shortterm borrowings sprint bank notes payable totaling 670 million yearend 1999 454 million yearend 1998 addition sprint commercial paper borrowings totaling 16 billion yearend 1999 292 million yearend 1998 though borrowings renewable various dates throughout year classified longterm debt sprints intent ability unused credit facilities refinance borrowings longterm basis 1998 sprint replaced previous 15 billion credit facility new facilities syndicates domestic international banks new facilities totaled 50 billion expire 2000 2003 commercial paper certain bank notes payable supported sprints revolving credit facilities certain notes payable relate separate revolving credit facility expires 2002 yearend 1999 sprint total unused lines credit 35 billion bank notes outstanding weighted average interest rates 63 yearend 1999 57 yearend 1998 weighted average interest rate commercial paper 64 yearend 1999 58 yearend 1998 longterm debt 1999 third quarter sprint filed shelf registration statement sec covering 40 billion senior unsecured debt securities yearend 1999 sprint issued 750 million debt securities shelf securities interest rates ranging 64 65 mature 2001 august 1999 sprint incurred borrowings totaling 250 million mature 2002 variable interest rates yearend 1999 notes interest rate 61 june 1999 sprint entered 10 billion financing agreement sell continuous basis recourse undivided percentage ownership interests designated pool accounts receivable subsequent collections receivables sold investors typically reinvested new receivables yearend 1999 sprint borrowed 900 million weighted average interest rate 64 agreement borrowings mature 2002 may 1999 sprint issued 35 billion senior notes registered sec notes maturities ranging 5 20 years interest rates ranging 59 69 1998 sprint issued 50 billion senior notes registered sec notes maturities ranging 5 30 years interest rates ranging 57 69 sprint fon group 1999 fon group received net allocation 10 billion debt sprint debt mainly used new capital investments acquisitions see note 2 detailed description sprint allocates debt groups 1999 fourth quarter sprint redeemed prior scheduled maturities 575 million assumed broadband fixed wireless companies debt interest rates ranging 131 145 resulted 39 million aftertax extraordinary loss fon group 1998 sprint redeemed prior scheduled maturities 138 million fon group debt interest rates ranging 79 93 resulted 5 million aftertax extraordinary loss fon group fon group gross property plant equipment totaling 143 billion either pledged security first mortgage bonds certain notes restricted use mortgaged property sprint including fon group complied restrictive financial covenants relating debt arrangements yearend 1999 9 group equity ii21 10 commitments contingencies litigation claims assessments fon shareholders subject risks related investment sprint fon group including effects legal proceedings claims pcs group various suits arising ordinary course business pending sprint management cannot predict final outcome actions believes material fon groups combined financial statements operating leases fon groups minimum rental commitments yearend 1999 noncancelable operating leases consisting mainly leases data processing equipment real estate follows fon groups gross rental expense totaled 575 million 1999 474 million 1998 406 million 1997 rental commitments subleases contingent rentals executory costs significant 11 financial instruments fair value financial instruments sprint estimates fair value fon groups financial instruments using available market information appropriate valuation methodologies result following estimates necessarily represent values fon group could realize current market exchange although management aware factors would affect yearend 1999 estimated fair values amounts comprehensively revalued purposes financial statements since date therefore estimates fair value yearend 1999 may differ significantly amounts presented carrying amounts estimated fair values fon groups financial instruments yearend follows carrying amounts fon groups cash equivalents approximate fair value yearend 1999 1998 estimated fair value investments debt equity securities based quoted market prices estimated fair value fon groups longterm debt based quoted market prices publicly traded issues estimated fair value issues based present value estimated future cash flows using discount rate based risks involved concentrations credit risk fon groups accounts receivable subject concentration credit risk 12 additional financial information segment information fon group operates five business segments based services products long distance division local division product distribution directory publishing businesses activities develop deploy sprint ionsm ventures sprint generally accounts transactions segments based fully distributed costs sprint believes approximates fair value ii22 industry segment financial information follows nm meaningful 1the ventures segments equity losses affiliates totaled 89 million 1999 51 million 1998 10 million 1997 2significant intercompany eliminations consist local access charged long distance division equipment purchases product distribution business interexchange services provided local division 95 fon groups revenues domestic customers located within united states revenues one customer represents approximately 4 fon groups net operating revenues 1999 5 1998 1997 ii23 supplemental cash flows information fon groups cash paid interest income taxes follows noncash activities fon group included following intergroup investments transactions sprint fon group investments sprint pcs group following table reflects fon groups noncurrent investments pcs group eliminated sprints consolidated financial statements common intergroup interest fon group received 1 intergroup interest pcs group time pcs restructuring recapitalization interest represented 45 million pcs shares included 27 million shares held treasury fon group 1999 pcs shares issued fon group employees reducing fon groups interest pcs group fon groups share pcs groups net loss totaled 13 million 1999 6 million date pcs restructuring yearend 1998 included income net sprint fon group combined statements operations preferred intergroup interest fon group provided sprint pcs group interim financing date pcs restructuring agreement signed may 1998 completed november 1998 part pcs restructuring sprint converted financing totaling 279 million intergroup interest representing 03 million shares 10year pcs preferred stock convertible pcs common intergroup interest pcs group paid fon group dividends preferred intergroup interest 8 million 1999 1 million 1998 longterm loans sprint provided sprint pcs additional interim financing 180 million may 1998 november 1998 loan repaid 1999 intergroup interest income fon group earned intergroup interest income 16 million 1999 15 million 1998 24 million 1997 related fon groups investment pcs group debt securities advances pcs group amounts included income net sprint fon group combined statements operations difference sprints actual interest costs interest costs charged pcs group allocated debt totaled 157 million 1999 11 million 1998 amounts reflected reduction interest expense sprint fon group combined statements operations see note 2 detailed description sprint allocates interest expense groups intergroup transactions pcs group using long distance division interexchange carrier purchasing wholesale long distance resale customers additionally fon group provided pcs group telemarketing services various goods services charges pcs group items totaled 280 million 1999 21 million pcs restructuring date yearend 1998 fon group provided management printing mailing warehousing services pcs group charges pcs group services totaled 65 million 1999 5 million pcs restructuring date yearend 1998 related party transactions sprint pcs following discussion reflects related party transactions sprint pcs prior pcs restructuring sprint provided sprint pcs billing operator services switching equipment sprint pcs also used long distance division interexchange carrier ii24 charges sprint pcs services totaled 104 million 1998 61 million 1997 sprint provided management printing mailing warehousing services sprint pcs charges sprint pcs services totaled 25 million 1998 11 million 1997 sprint vendor financing loan sprint pcs 300 million yearend 1997 repaid 1998 sprint also loaned sprint pcs 114 million 1998 21 million 1997 repaid 1999 first quarter 13 recently issued accounting pronouncement june 1998 financial accounting standards board issued sfas 133 accounting derivative instruments hedging activities standard requires derivatives recorded balance sheet either assets liabilities measured fair value gains losses changes derivative values accounted based derivative used whether qualifies hedge accounting adopted january 2001 statement expected material impact fon groups combined financial statements 14 quarterly financial data unaudited 1certain reclassifications made net operating revenues operating expenses amounts reported 1999 reports form 10q conform current year presentation reclassifications impact operating income previously reported 2quarterly income continuing operations adjusted amounts reported 1999 reports form 10q reflect presentation equity investment global one discontinued operation periods presented 3in 1999 second quarter sprint effected twoforone stock split fon stock fon group earnings per share prior periods restated reflect stock split 4in 1998 fourth quarter fon group recorded net nonrecurring gains 104 million mainly sale local exchanges increased income continuing operations 62 million 5pro forma earnings per share assumes fon shares created recapitalization existed periods presented 15 subsequent events unaudited february 2000 sprints board directors declared dividends 125 cents per share sprint fon common stock class common stock dividends paid march 30 2000 ii25 sprint fon group schedule iicombined valuation qualifying accounts years ended december 31 1999 1998 1997 1accounts written net recoveries 2represents valuation allowance deferred income tax assets relating net operating loss carryforwards acquired purchase broadband fixed wireless companies ii26 logo sprint annex iii sprint pcs group combined financial information selected financial data sprint pcs group certain prioryear amounts reclassified conform current year presentation reclassifications effect results operations group equity previously reported 1results operations 1998 include sprint pcs operating results consolidated basis entire year cable partners share losses pcs restructuring date reflected partners loss sprint pcs combined statements operations 1998 pcs groups investment sprint pcs accounted using equity method sprint pcs financial position yearend 1998 also reflected consolidated basis cash flow data reflects sprint pcs cash flows pcs restructuring date see sprints managements discussion analysis financial condition results operations general information 2in 1998 pcs group recorded nonrecurring charge write 179 million acquired inprocess research development costs related pcs restructuring charge increased operating loss extraordinary items net loss 179 million 3in december 1999 sprint board directors authorized twoforone stock split sprints pcs common stock form stock dividend distributed february 4 2000 pcs shareholders result diluted basic loss per common share restated periods stock split 4loss per share pcs group periods prior 1999 pro forma basis assumes pcs restructuring recapitalization purchase 51 million pcs shares france telecom deutsche telekom occurred connection restructuring pcs groups writeoff 179 million acquired inprocess research development costs occurred beginning 1997 pro forma amounts comparative purposes necessarily represent actual results operations would transactions occurred beginning 1997 indicate results future operations na applicable iii1 managements discussion analysis sprint pcs group financial condition results operations general see sprints managements discussion analysis financial condition results operationsgeneral information forwardlooking information see sprints managements discussion analysis financial condition results operationsforwardlooking information discussion forwardlooking information sprint pcs group pcs group includes sprints domestic wireless personal communication services pcs operations operates 100 digital pcs wireless network united states licenses provide service nationwide using single frequency single technology yearend 1999 pcs group together affiliates operated pcs systems 360 metropolitan markets including 50 largest us metropolitan areas pcs group licenses serve 270 million people 50 states puerto rico us virgin islands service offered pcs group affiliates reaches nearly 190 million people pcs group provides nationwide service operating digital network major us metropolitan areas affiliating companies mainly around smaller us metropolitan areas roaming providers analog cellular networks using dual banddualmode handsets roaming providers digital pcs networks use code division multiple access wireless industry typically generates significantly higher number subscriber additions handset sales fourth quarter year versus remaining quarters due use retail distribution dependent holiday shopping season timing new products service introductions aggressive marketing sales promotions results operations pcs groups 1999 results operations reflect first full year combined results pcs restructuring pcs groups 1998 results operations included sprintcoms operating results well sprint pcs operating results consolidated basis entire year 1998 sprints investment sprint pcs accounted using equity method operating expenses 1998 include writeoff 179 million associated cost nine inprocess research development projects acquired connection pcs restructuring management continued supporting research development projects believes pcs group reasonable chance successfully completing projects intended address new emerging markets within pcs wireless communications industry rapid adoption internet rapid convergence voice data video failure particular individual project inprocess would materially impact pcs groups financial condition results operations cash flows pcs group markets products multiple distribution channels including retail stores well retail outlets equipment sales one retail chain subsequent service revenues generated sales customers accounted 28 net operating revenues 1999 25 1998 pro forma sprint pcs group provide meaningful analysis pcs groups underlying operating results following supplemental discussion presents 1998 1997 pro forma basis assumes pcs restructuring writeoff acquired process research development costs occurred beginning 1997 iii2 net operating revenues net operating revenues include subscriber revenues sales handsets accessory equipment subscriber revenues consist monthly recurring charges usage charges pcs groups net operating revenues 32 billion 1999 12 billion 1998 258 million 1997 1999 increase mainly reflects launch nearly 60 new markets addition 31 million customers 1998 increase reflects launch nearly 90 new markets addition 17 million customers average monthly service revenue per user arpu decreased 1998 due wider acceptance lowerpriced bundled minute rate plans approximately 20 1999 1998 net operating revenues nearly half 1997 revenues sales handsets accessories part pcs groups marketing plans handsets normally sold prices pcs groups cost average monthly customer churn rates remained consistent 1999 1998 mid 3 range operating expenses costs services products mainly include handset accessory costs switch cell site expenses networkrelated costs increased 14 billion 1999 908 million 1998 driven significant growth customers expanded market coverage selling general administrative sga expense mainly includes marketing costs promote products services well salary benefit costs sga expense increased 675 million 1999 579 million 1998 reflecting expanded workforce support subscriber growth increased marketing selling costs acquisition costs per gross customer addition including equipment subsidies marketing costs improved high500 range 1998 low 400 range 1999 lower handset unit costs scale benefits greater customer additions contributed improvement cash costs per user ccpu consists costs service revenues service delivery general administrative costs ccpu decreased 36 1999 compared 1998 improvements reflect good expense management scale benefits resulting increased customer base depreciation amortization expense increased 485 million 1999 17 million 1998 consists mainly depreciation network assets amortization intangible assets intangible assets include goodwill pcs licenses customer base microwave relocation costs assembled workforce amortized 30 months 40 years increase depreciation amortization expense 1999 reflects amortization intangible assets acquired pcs restructuring cox pcs purchase well depreciation increased property base increase 1998 reflects depreciation increased property base nonoperating items interest expense effective interest rates following table reflect interest expense longterm debt interest costs shortterm borrowings classified longterm debt intergroup borrowings excluded distort pcs groups effective interest rates longterm debt 1 effective interest rate longterm debt 1998 pro forma basis sprint pcs longterm debt included pcs groups outstanding longterm debt balance year decrease pcs groups effective interest rate mainly reflects increased borrowings lower interest rates effective pcs restructuring interest expense borrowings incurred sprint allocated pcs group based rates pcs group would able obtain third parties direct indirect wholly owned sprint subsidiary without benefit guaranty sprint member fon group pcs groups interest expense includes 157 million 1999 11 million 1998 resulting difference sprints actual interest rates charged pcs group costs included effective interest rates equity sprint pcs losses sprint pcs results operations 1998 consolidated entire year cable partners share losses pcs restructuring date reflected partners loss sprint pcs combined statements operations prior pcs restructuring pcs groups ownership interest sprint pcs accounted using equity method pcs groups share losses sprint pcs 660 million 1997 income net income 1999 mainly includes gain sale property totaling 25 million 13 million fon groups interest pcs groups loss iii3 income 1998 consisted mainly interest income totaling 34 million reflecting interest earned partner contributions sprint pcs partners prior pcs restructuring income taxes pcs groups effective tax rates 359 1999 332 1998 383 1997 see note 5 notes combined financial statements differences caused effective income tax rates vary statutory federal rate extraordinary items net 1999 sprint redeemed prior scheduled maturities 22 billion pcs groups revolving credit facilities borrowings interest rates ranging 56 83 resulted 21 million aftertax extraordinary loss shortterm borrowings repaid proceeds longterm financing 1998 sprint redeemed prior scheduled maturities 33 billion pcs group debt weighted average interest rate 83 resulted 31 million aftertax extraordinary loss financial condition net property plant equipment increased 15 billion 1999 reflecting capital expenditures support pcs network buildout partly offset 1999 depreciation net intangibles increased 850 million mainly reflecting goodwill resulting 1999 acquisition remaining interest cox pcs partly offset 1999 amortization see liquidity capital reserves information changes combined balance sheets liquidity capital resources pcs groups cash flows 1998 include sprint pcs cash flows pcs restructuring date 1997 prior pcs restructuring date 1998 pcs groups cash flows include sprintcoms cash flows treat investment sprint pcs equity method investment operating activities cash flows used operating activities increased 15 billion 1999 197 million 1998 1999 increase mainly reflects increased operating losses pcs group increase working capital 1998 increase mainly reflects increased operating losses partly offset decrease working capital investing activities pcs groups main use cash 1999 1998 fund capital expenditures pcs network buildout 1997 pcs group used cash acquire pcs licenses fund initial operating losses sprint pcs capital expenditures pcs group totaled 26 billion 1999 11 billion 1998 154 million 1997 financing activities 1999 pcs group received 59 billion proceeds longterm debt allocated sprint 905 million proceeds stock issuances proceeds mainly used repay existing debt fund pcs groups capital expenditures operating losses 1998 pcs group used allocated portion proceeds sprints 50 billion debt offering mainly repay existing debt fund capital expenditures 1997 pcs group used capital provided fon group mainly fund investing activities connection pcs restructuring sprint adopted tax sharing agreement provides allocation income taxes fon group pcs group sprint expects fon group make significant payments pcs group agreement expected pcs group operating losses near future payments reflect pcs groups incremental cumulative effect sprints consolidated federal state tax liability tax credit position pcs group accrued current benefits agreement totaling 887 million 1999 190 million 1998 received related payments fon group totaling 764 million 1999 20 million 1998 remaining 293 million paid fon group first half 2000 see note 2 notes combined financial statements allocation federal state income taxes details capital requirements pcs groups 2000 investing activities mainly consisting capital expenditures expected iii4 24 26 billion additional funds required fund expected operating losses working capital debt service requirements pcs group pcs preferred stock dividend payments expected total 15 million including payments fon group preferred intergroup interest see note 10 notes combined financial statements detailed discussion fon groups preferred intergroup interest pcs group liquidity see sprints managements discussion analysis financial condition results operationsliquidity discussion liquidity regulatory developments fcc sets rules regulations policies among things grant licenses pcs frequencies license renewals rule assignments transfers control pcs licenses govern interconnection pcs networks wireless wireline carriers establish access universal service funding provisions impose fines forfeitures violations fccs rules regulate technical standards pcs networks fcc currently prohibits single entity combined attributable interest 20 greater interest license broadband pcs cellular specialized mobile radio licenses totaling 45 megahertz mhz geographic area except rural service areas licensee may attributable interest 55 mhz commercial mobile radio service cmrs spectrum pcs license transfers assignments fcc must approve substantial changes ownership control pcs license noncontrolling interests entity holds pcs license operates pcs networks generally may bought sold without prior fcc approval addition recent fcc order requires postconsummation notification certain pro forma assignments transfers control pcs license conditions pcs licenses granted 10year terms fccs buildout requirements followed based requirements 30 mhz broadband major trading area licensees must build networks offering coverage 13 population within five years 23 within 10 years 10 mhz broadband pcs licensees must build networks offering coverage least 14 population within five years make showing substantial service within fiveyear period licenses may revoked rules violated pcs licenses may renewed additional 10year terms renewal applications subject auctions however third parties may oppose renewal applications andor file competing applications fcc requirements broadband pcs providers cannot unreasonably restrict prohibit companies reselling services also cannot unreasonably discriminate resellers cmrs resale obligations expire 2002 local phone companies must program networks allow customers change service providers without changing phone numbers referred service provider number portability cmrs providers currently required deliver calls networks ported numbers anywhere country november 24 2002 cmrs providers must able offer customers number portability switches 100 largest metropolitan areas must also able support nationwide roaming broadband pcs cmrs providers may provide wireless local loop fixed services would directly compete wireline services local phone companies broadband pcs cmrs providers must implement enhanced emergency 911 capabilities completed phases october 2001 communications assistance law enforcement act communications assistance law enforcement act calea enacted 1994 preserve electronic surveillance capabilities authorized federal state law calea requires telecommunications carriers meet certain assistance capability requirements end june 2000 1997 telecommunications industry standardsetting organizations agreed joint standard implement caleas capability requirements pcs group believes compliance calea requirements federal regulations wireless systems must comply certain fcc federal aviation administration regulations siting lighting construction transmitter towers antennas addition certain fcc environmental regulations may cause certain cell site locations come national environmental policy act nepa regulation nepa requires carriers meet certain land use radio frequency standards iii5 universal service requirements fcc many states established universal service programs ensure affordable quality telecommunications services americans pcs groups contribution programs typically percentage enduser revenues pcs groups 1999 results contained assessments 1999 currently management cannot predict extent pcs groups future federal state universal service assessments ability recover contributions universal service fund financial strategies financial strategies determined sprint centralized basis see sprints managements discussion analysis financial condition results operationsfinancial strategies year 2000 issue pcs group successfully completed year 2000 readiness work passed january 1 2000 rollover event encountering customer affecting outages business interruptions since inception pcs groups year 2000 readiness program december 31 1999 pcs group incurred approximately 45 million costs associated year 2000 readiness program pcs group expect incur significant additional expenditures related year 2000 issue recently issued accounting pronouncement see note 11 notes combined financial statements discussion recently issued accounting pronouncement iii6 management report sprint corporations management responsible integrity objectivity information contained annex management responsible consistency reporting information ensuring accounting principles generally accepted united states used discharging responsibility management maintains comprehensive system internal controls supports extensive program internal audits made organizational arrangements providing appropriate divisions responsibility established communication programs aimed assuring policies procedures principles business conduct understood practiced employees combined financial statements included annex audited ernst young llp independent auditors audits conducted using auditing standards generally accepted united states report included herein board directors responsibility combined financial statements pursued mainly audit committee audit committee composed entirely directors officers employees sprint meets periodically internal auditors independent auditors without management present assure respective responsibilities fulfilled internal independent auditors full access audit committee discuss auditing financial reporting matters w esrey william esrey chairman chief executive officer arthur b krause arthur b krause executive vice president chief financial officer iii7 report independent auditors board directors shareholders sprint corporation audited accompanying combined balance sheets sprint pcs group described note 2 december 31 1999 1998 related combined statements operations comprehensive loss cash flows three years period ended december 31 1999 audits also included financial statement schedule listed index financial statements financial statement schedules financial statements schedule responsibility management sprint corporation sprint responsibility express opinion financial statements schedule based audits audit 1998 1997 consolidated financial statements sprint spectrum holding company lp wholly owned subsidiary sprint december 31 1998 investment sprint 40 interest november 23 1998 discussed note 1 financial statements reflect assets 27 billion december 31 1998 revenues 12 billion year ended audit pcs groups equity net loss sprint spectrum holding company lp stated 625 million year ended december 31 1997 consolidated financial statements financial statement schedule sprint spectrum holding company lp audited auditors whose report furnished us opinion insofar relates 1998 assets revenues 1997 equity net loss audit based solely report auditors conducted audits accordance auditing standards generally accepted united states standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits report auditors provide reasonable basis opinion based audits report auditors combined financial statements referred present fairly material respects combined financial position sprint pcs group december 31 1999 1998 combined results operations cash flows three years period ended december 31 1999 conformity accounting principles generally accepted united states also opinion related financial statement schedule considered relation basic financial statements taken whole presents fairly material respects information set forth therein fully discussed note 2 combined financial statements sprint pcs group read together audited consolidated financial statements sprint ernst young llp kansas city missouri february 1 2000 iii8 report independent auditors board directors sprint corporation partners sprint spectrum holding company lp audited consolidated balance sheets sprint spectrum holding company lp subsidiaries december 31 1998 1997 related consolidated statements operations cash flows two years period ended december 31 1998 audits also included financial statement schedule ii financial statements schedule ii responsibility partnership management responsibility express opinion consolidated financial statements schedule ii based audits conducted audits accordance generally accepted auditing standards require plan perform audits obtain reasonable assurance whether consolidated financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures consolidated financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion consolidated financial statements present fairly material respects financial position sprint spectrum holding company lp subsidiaries december 31 1998 1997 results operations cash flows two years ended december 31 1998 conformity generally accepted accounting principles also opinion schedule ii considered relation basic consolidated financial statements taken whole presents fairly material respects information set forth therein deloitte touche llp kansas city missouri february 2 1999 iii9 combined statements operations sprint pcs group millions 1basic diluted loss per common share weighted average common shares 1998 1997 pro forma unaudited assume pcs restructuring recapitalization topup writeoff 179 million acquired inprocess research development occurred beginning 1997 pro forma amounts comparative purposes necessarily represent actual results operations would transactions occurred beginning 1997 indicate results future operations 2in february 2000 sprint effected twoforone stock split pcs common stock result basic diluted loss per common share weighted average common shares periods stock split restated see accompanying notes combined financial statements iii10 combined statements comprehensive loss sprint pcs group millions see accompanying notes combined financial statements iii11 combined balance sheets sprint pcs group millions see accompanying notes combined financial statements iii12 combined statements cash flows sprint pcs group millions see accompanying notes combined financial statements iii13 notes combined financial statements sprint pcs group 1 general october 1999 sprint announced definitive merger agreement mci worldcom agreement share sprint fon stock exchanged 76 mci worldcom common stock subject collar addition share sprint pcs stock exchanged one share new worldcom pcs tracking stock 0116025 shares mci worldcom common stock terms worldcom pcs tracking stock equivalent sprints pcs common stock track performance companys personal communication services pcs business merger subject approvals sprint mci worldcom shareholders well approvals federal communications commission justice department various state government bodies foreign antitrust authorities companies anticipate merger close second half 2000 november 1998 sprints shareholders approved formation fon group pcs group creation fon stock pcs stock addition sprint purchased remaining ownership interests sprint spectrum holding company lp phillieco lp together sprint pcs minority interest cox communications pcs lp cox pcs sprint acquired ownership interests telecommunications inc comcast corporation cox communications inc cable partners exchange sprint issued cable partners special lowvote pcs shares warrants acquire additional pcs shares sprint also issued cable partners shares new class preferred stock convertible pcs shares purchase cable partners interests referred pcs restructuring 1999 second quarter cox communications inc exercised put option requiring sprint purchase remaining 408 interest cox pcs sprint issued additional low vote pcs shares exchange interest also november 1998 sprint reclassified publicly traded common shares one share fon stock 12 share pcs stock recapitalization taxfree shareholders class common share owned france telecom sa ft deutsche telekom ag dt reclassified represent equity interest fon group pcs group entitles ft dt one share fon stock 12 share pcs stock transactions referred recapitalization connection pcs restructuring ft dt purchased 51 million additional pcs shares presplit basis maintain combined 20 voting power sprint topup pcs stock intended reflect performance sprints domestic wireless pcs operations fon stock intended reflect performance sprints operations 2 summary significant accounting policies basis combination presentation combined pcs group financial statements together combined fon group financial statements include accounts included sprints consolidated financial statements combined financial statements group prepared basis management believes reasonable proper include combined historical balance sheets results operations cash flows groups significant intragroup amounts transactions eliminated allocation sprints debt including related effects results operations cash flows allocation corporate overhead pcs restructuring date pcs group entities commonly controlled companies wholly owned sprint transactions pcs group fon group eliminated combined financial statements either group pcs group combined financial statements provide pcs shareholders financial information pcs group operations investors fon stock pcs stock sprint shareholders subject risks related sprints businesses assets liabilities sprint retains ownership control assets operations group financial effects either group affect sprints results operations financial condition could affect results operations financial position group market price groups stock net losses either group dividends distributions repurchases pcs stock fon stock reduce sprint funds legally available dividends groups stock result pcs group combined financial statements read along sprints consolidated financial statements fon groups combined financial statements sprint pcs results operations 1998 consolidated entire year cable partners share losses pcs restructuring date reflected partners loss sprint pcs combined statements operations sprint pcs financial position reflected consolidated basis yearend 1998 sprints investment sprint pcs accounted using equity method pcs groups cash flows include sprint pcs cash flows pcs restructuring date iii14 pcs group combined financial statements prepared using accounting principles generally accepted united states principles require management make estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities reported amounts revenues expenses actual results could differ estimates certain prioryear amounts reclassified conform current year presentation reclassifications effect results operations group equity previously reported classification operations pcs group includes sprints domestic wireless pcs operations operates 100 digital pcs wireless network united states licenses provide nationwide service using single frequency single technology yearend 1999 pcs group together affiliates operated pcs systems 360 metropolitan markets including 50 largest us metropolitan areas allocation shared services sprint directly assigns possible certain general administrative costs fon group pcs group based actual use services direct assignment costs possible practical sprint uses indirect methods including time studies estimate assignment costs group sprint believes costs allocated comparable costs would incurred groups would operating standalone basis allocation shared services may change discretion sprint require shareholder approval allocation federal state income taxes sprint files consolidated federal income tax return certain state income tax returns include fon group pcs group results connection pcs restructuring sprint adopted tax sharing agreement provides allocation income taxes two groups pcs groups income taxes reflect pcs groups incremental cumulative impact sprints consolidated income taxes intergroup tax payments satisfied date sprints related tax payment due refund received applicable tax authority pcs group accrued current income tax benefits accordance tax sharing agreement totaling 887 million 1999 190 million 1998 allocation group financing activities groups managed sprint centralized basis debt incurred sprint behalf groups specifically allocated reflected financial statements applicable group interest expense allocated pcs group based interest rate substantially equal rate would able obtain third parties direct indirect wholly owned sprint subsidiary without benefit guaranty sprint member fon group interest rate higher rate sprint obtains borrowings difference sprints actual interest rate charged pcs group reflected reduction fon groups interest expense sprints centralized cash management program one group may advance funds group advances accounted shortterm borrowings groups bear interest market rate substantially equal rate group would able obtain third parties shortterm basis allocation group financing activities may change discretion sprint require shareholder approval income taxes pcs group records deferred income taxes based temporary differences carrying amounts assets liabilities financial reporting purposes tax bases revenue recognition pcs group recognizes operating revenues services rendered products delivered customers pcs group records operating revenues net estimate uncollectible accounts cash equivalents cash equivalents generally include highly liquid investments original maturities three months less stated cost approximates market value sprint uses controlled disbursement banking arrangements part cash management program outstanding checks excess cash balances pcs group included accounts payable amounts totaled 30 million yearend 1999 73 million yearend 1998 pcs group sufficient funds available fund outstanding checks presented payment inventories stated lower cost principally firstin firstout method replacement value property plant equipment property plant equipment recorded cost generally ordinary asset retirements disposals charged accumulated depreciation gain iii15 loss recognized property plant equipment depreciated straight line basis estimated economic useful lives repair maintenance costs expensed incurred capitalized interest pcs group capitalizes interest costs related network buildout pcs licenses totaled 108 million 1999 64 million 1998 addition sprint capitalized interest costs related pcs groups network buildout capitalized interest totaled 61 million 1998 24 million 1997 contributed amortized pcs group sprint also capitalized interest costs related investment sprint pcs july 1997 sprint pcs emerged development stage capitalized interest totaling 142 million contributed amortized pcs group intangible assets pcs group evaluates recoverability intangible assets events circumstances indicate assets might impaired pcs group determines impairment comparing undiscounted future cash flows estimated generated assets respective carrying value event impairment exists loss recognized based amount carrying value exceeds fair value asset goodwill represents excess purchase price fair value net assets acquired business combinations accounted purchases goodwill amortized 40 years using straightline method accumulated amortization totaled 116 million yearend 1999 11 million yearend 1998 pcs licenses pcs group acquired licenses federal communications commission fcc operate pcs service provider licenses granted 10year terms renewals additional 10year terms license obligations met licenses recorded cost amortized straightline basis 40 years service begins specific geographic area accumulated amortization totaled 130 million yearend 1999 51 million yearend 1998 customer base pcs group capitalized fair value sprint pcs customer base acquired pcs restructuring fair value cox pcs customer base remaining minority interest cox pcs acquired 1999 second quarter customer base amortized 30 months using straightline method accumulated amortization totaled 277 million yearend 1999 23 million yearend 1998 microwave relocation costs pcs group incurred costs related microwave relocation constructing pcs network microwave relocation costs amortized remaining lives pcs licenses accumulated amortization totaled 15 million yearend 1999 6 million yearend 1998 loss per share result pcs restructuring recapitalization loss per share pcs group 1998 calculated based groups net loss november 1998 yearend 1998 calculated group basis periods prior november 1998 pcs stock part sprints capital structure time december 14 1999 sprint board directors authorized twoforone stock split sprints pcs common stock form stock dividend distributed february 4 2000 pcs shareholders result basic diluted loss per common share weightedaverage common shares pcs common stock restated periods prior stock split dilutive securities pcs group mainly include options warrants convertible preferred stock securities dilutive effect loss per share pcs group incurred net losses 1999 1998 result diluted loss per share equaled basic loss per share pcs groups basic diluted loss per common share pcs restructuring recapitalization date follows stockbased compensation pcs group participates incentivebased stock option plans employee stock purchase plan administered sprint executives employees sprint adopted pro forma disclosure requirements statement financial accounting standards sfas 123 stockbased compensation continues apply accounting principles board opinion 25 accounting stock issued employees stock option employee stock purchase plans pcs group applied sfas 123 pro forma net loss would 2578 million iii16 1999 would changed materially recapitalization date yearend 1998 see note 10 sprints notes consolidated financial statements information sprints stockbased compensation pcs groups pro forma net loss per share 1997 sprint granted performancebased stock options certain key executives pcs group expensed 5 million 1999 1 million 1998 related performancebased stock options 3 business combinations cox pcs 1999 second quarter cox communications inc exercised put option requiring sprint purchase remaining 408 interest cox pcs sprints existing 592 interest cox pcs reflected pcs group combined financial statements combined basis sprint issued 243 million shares lowvote pcs stock presplit basis exchange remaining interest shares valued 11 billion sprint accounted transaction purchase excess purchase price fair value net liabilities acquired allocated follows goodwill amortized straightline basis 40 years pcs restructuring november 1998 sprint acquired remaining interest sprint pcs except minority interest cox pcs cable partners exchange sprint issued cable partners 1951 million lowvote shares pcs stock 125 million warrants purchase additional shares pcs stock pre split basis purchase price 32 billion addition sprint issued cable partners shares new class preferred stock convertible pcs shares sprint accounted transaction purchase excess purchase price fair value net liabilities acquired allocated follows goodwill amortized straightline basis 40 years respect purchase price attributed inprocess research development iprd acquired iprd limited significant new products development intended address new emerging market needs requirements rapid adoption internet rapid convergence voice data video routine research development projects minor refinements normal enhancements production activities included acquired iprd income approach primary technique utilized valuing acquired iprd approach included limited analysis markets product ii completion costs projects iii expected cash flows attributable iprd projects iv risks related achieving cash flows v stage development project issue alternative future use extensively evaluated technologies completed could economically used intended purposes iii17 sprint pcs group pro forma results following unaudited pro forma combined results operations pcs group assume pcs restructuring recapitalization topup writeoff acquired iprd costs occurred beginning 1997 pro forma amounts comparative purposes necessarily represent actual results operations would transactions occurred beginning 1997 indicate results future operations pro forma results follows 4 employee benefit plans defined benefit pension plan effective january 1999 pcs group employees became eligible participate sprints pension plans pension benefits based years service participants compensation sprints policy make plan contributions equal actuarially determined amount consistent federal tax regulations funding objective accumulate funds relatively stable rate participants working lives benefits fully funded retirement amounts included combined balance sheets plan accrued pension costs 5 million yearend 1999 net pension costs determined pcs group based direct calculation service costs pcs group recorded net pension costs 5 million 1999 defined contribution plan prior january 1999 sprint pcs sponsored savings retirement program certain employees sprint pcs matched contributions equal 50 contribution participant first 6 employee elected contribute expense savings plan 7 million 1998 effective january 1999 pcs group employees began making contributions sprints defined contribution plan existing assets sprint pcs savings plan rolled sprints defined contribution plan early 1999 pcs group recorded 10 million expense 1999 sprints matching contributions sprint defined contribution plans yearend 1999 sprints defined contribution plans held 33 million fon shares 27 million pcs shares postsplit basis postretirement benefits effective january 1999 pcs group employees also became eligible postretirement benefits principally medical life insurance benefits retiring employees eligible benefits sharedcost basis sprint funds accrued costs benefits paid amounts included combined balance sheets yearend accrued postretirement benefits costs 1 million 1999 net postretirement benefits costs determined pcs group based direct calculation service costs pcs group recorded net postretirement benefits costs 1 million 1999 5 income taxes income tax benefits allocated continuing operations consisted following differences caused pcs groups effective income tax rates vary 35 federal statutory rate income taxes related continuing operations follows iii18 income tax expense benefit allocated items follows 1these amounts recorded directly group equity pcs group recognizes deferred income taxes temporary differences carrying amounts assets liabilities financial statement purposes tax bases sources differences give rise deferred income tax assets liabilities yearend 1999 1998 along income tax effect follows management believes likely deferred income tax assets net valuation allowance realized based current income tax laws expectations future taxable income stemming reversal existing deferred tax liabilities ordinary operations uncertainties surrounding income tax law changes shifts operations state taxing jurisdictions future operating income levels may however affect ultimate realization deferred income tax assets valuation allowance related deferred income tax assets increased 38 million 1999 pcs group acquired approximately 229 million potential tax benefits related net operating loss carryforwards pcs restructuring subject certain realization restrictions various tax laws valuation allowance provided total benefits subsequently recognized reduce goodwill noncurrent intangible assets resulting pcs restructuring connection pcs restructuring pcs group required reimburse fon group cable partners net operating loss tax credit carryforward benefits generated prior pcs restructuring realization pcs group produces cash benefit would otherwise realized reimbursement equal 60 net cash benefit received pcs group made fon group cash cable partners shares series 2 pcs stock carryforward benefits subject requirement totaled 259 million includes 229 million acquired pcs restructuring yearend 1999 pcs group federal operating loss carryforwards approximately 23 billion state operating loss carryforwards approximately 55 billion related loss carryforwards federal tax benefits 787 million state tax benefits 336 million addition pcs group available income tax purposes federal alternative minimum tax credit carryforwards 49 million state alternative minimum tax credit carryforwards 5 million federal alternative minimum tax net operating loss carryforwards 933 million state alternative minimum tax net operating loss carryforwards 359 million loss carryforwards expire varying amounts 2019 iii19 6 longterm debt capital lease obligations sprints consolidated longterm debt capital lease obligations yearend follows 1these borrowings incurred sprint allocated applicable group sprints weighted average interest rate related borrowings 66 yearend 1999 64 yearend 1998 weighted average interest rate related borrowings allocated pcs group approximately 87 yearend 1999 85 yearend 1998 see note 2 detailed description sprint allocates financing groups 2consolidated debt equal total pcs group fon group debt due intergroup debt eliminated consolidation fon group investment pcs groups senior discount notes totaling 150 million yearend 1999 134 million yearend 1998 addition pcs group longterm debt payable fon group totaling 314 million yearend 1998 including 134 million classified current 3includes notes market value 316 million yearend 1999 358 million yearend 1998 recorded fon group may exchanged maturity sbc communications inc sbc common shares owned fon group cash based sbcs closing price notes matured yearend 1999 could exchanged 65 million sbc shares yearend 1999 sprint held 75 million sbc shares included investments equity securities fon groups combined balance sheets iii20 scheduled principal payments excluding reclassified shortterm borrowings next five years follows sprint shortterm borrowings sprint bank notes payable totaling 670 million yearend 1999 454 million yearend 1998 addition sprint commercial paper borrowings totaling 16 billion yearend 1999 292 million yearend 1998 though borrowings renewable various dates throughout year classified longterm debt sprints intent ability unused credit facilities refinance borrowings longterm basis 1998 sprint replaced previous 15 billion credit facility new facilities syndicates domestic international banks new facilities totaled 50 billion expire 2000 2003 commercial paper certain bank notes payable supported sprints revolving credit facilities certain notes payable relate separate revolving credit facility expires 2002 yearend 1999 sprint total unused lines credit 35 billion bank notes outstanding weighted average interest rates 63 yearend 1999 57 yearend 1998 weighted average interest rate commercial paper 64 yearend 1999 58 yearend 1998 longterm debt 1999 third quarter sprint filed shelf registration statement sec covering 40 billion senior unsecured debt securities yearend 1999 sprint issued 750 million debt securities shelf securities interest rates ranging 64 65 mature 2001 august 1999 sprint incurred borrowings totaling 250 million mature 2002 variable interest rates yearend 1999 notes interest rate 61 june 1999 sprint entered 10 billion financing agreement sell continuous basis recourse undivided percentage ownership interests designated pool accounts receivable subsequent collections receivables sold investors typically reinvested new receivables yearend 1999 sprint borrowed 900 million weighted average interest rate 64 agreement borrowings mature 2002 may 1999 sprint issued 35 billion senior notes registered sec notes maturities ranging 5 20 years interest rates ranging 59 69 1998 sprint issued 50 billion senior notes registered sec notes maturities ranging 5 30 years interest rates ranging 57 69 sprint pcs group 1999 sprint allocated 59 billion debt pcs group debt mainly used repay debt fund new capital investments fund operating losses working capital requirements see note 2 detailed description sprint allocates debt groups 1999 pcs group repaid 22 billion revolving credit facilities borrowings prior scheduled maturities resulted 21 million aftertax extraordinary loss 1998 sprint redeemed prior scheduled maturities 33 billion pcs group debt weighted average interest rate 83 resulted 31 million aftertax extraordinary loss pcs group debt repaid portion proceeds sprints 50 billion debt offering november 1998 sprint including pcs group complied restrictive financial covenants relating debt arrangements yearend 1999 7 group equity iii21 8 commitments contingencies litigation claims assessments pcs shareholders subject risks related investment sprint pcs group including effects legal proceedings claims fon group various suits arising ordinary course business pending sprint management cannot predict final outcome actions believes material pcs group combined financial statements operating leases pcs groups minimum rental commitments yearend 1999 noncancelable operating leases consisting mainly leases cell switch sites office space follows pcs groups gross rental expense totaled 315 million 1999 256 million 1998 4 million 1997 table excludes renewal options related certain cell switch site leases renewal options generally five year terms may exercised time 9 financial instruments fair value financial instruments sprint estimates fair value pcs groups financial instruments using available market information appropriate valuation methodologies result following estimates necessarily represent values pcs group could realize current market exchange although management aware factors would affect yearend 1999 estimated fair values amounts comprehensively revalued purposes financial statements since date therefore estimates fair value yearend 1999 may differ significantly amounts presented carrying amounts estimated fair values pcs groups financial instruments yearend follows carrying amounts pcs groups cash equivalents approximate fair value yearend 1999 1998 estimated fair value investments equity securities based quoted market prices estimated fair value pcs groups longterm debt based quoted market prices publicly traded issues estimated fair value issues based present value estimated future cash flows using discount rate based risks involved concentrations credit risk pcs groups accounts receivable subject concentration credit risk interest rate swap agreements 1998 sprint deferred losses termination interest rate swap agreements used hedge portion 50 billion debt offering losses totaling 75 million allocated pcs group amortized interest expense using effective interest method term debt yearend 1999 remaining unamortized deferred loss totaled 67 million 10 additional financial information supplemental cash flows information pcs group received cash fon group 764 million 1999 20 million 1998 related income taxes pcs group paid 632 million interest net capitalized interest 1999 noncash activities pcs group included following iii22 see note 3 details assets liabilities acquired cox pcs purchase pcs restructuring intergroup investments transactions sprint fon group investments sprint pcs group following table reflects fon groups noncurrent investments pcs group eliminated sprints consolidated financial statements common intergroup interest fon group received 1 intergroup interest pcs group time pcs restructuring recapitalization interest represented 45 million pcs shares included 27 million shares held treasury fon group 1999 pcs shares issued fon group employees reducing fon groups interest pcs group fon groups share pcs groups net loss totaled 13 million 1999 6 million date pcs restructuring yearend 1998 included income net sprint pcs group combined statements operations preferred intergroup interest fon group provided sprint pcs group interim financing date pcs restructuring agreement signed may 1998 completed november 1998 part pcs restructuring sprint converted financing totaling 279 million intergroup interest representing 03 million shares 10year pcs preferred stock convertible pcs common intergroup interest pcs group paid fon group dividends preferred intergroup interest 8 million 1999 1 million 1998 longterm loans sprint provided sprint pcs additional interim financing 180 million may 1998 november 1998 loan repaid 1999 intergroup interest expense pcs group incurred intergroup interest expense 16 million 1999 15 million 1998 24 million 1997 related fon groups investment pcs group debt securities advances fon group difference sprints actual interest costs interest costs charged pcs group allocated debt totaled 157 million 1999 11 million 1998 amounts included interest expense sprint pcs group combined statements operations see note 2 detailed description sprint allocates interest expense groups intergroup transactions pcs group using long distance division interexchange carrier purchasing wholesale long distance resale customers additionally fon group provided pcs group telemarketing services various goods services charges pcs group items totaled 280 million 1999 21 million pcs restructuring date yearend 1998 fon group provided management printing mailing warehousing services pcs group charges pcs group services totaled 65 million 1999 5 million pcs restructuring date yearend 1998 related party transactions sprint pcs group cable partners advanced phillieco 26 million 1998 24 million 1997 advances repaid 1999 first quarter sprint pcs following discussion reflects related party transactions sprint pcs prior pcs restructuring sprint provided sprint pcs billing operator services switching equipment sprint pcs also used long distance division interexchange carrier charges sprint pcs services totaled 104 million 1998 61 million 1997 sprint provided management printing mailing warehousing services sprint pcs charges sprint pcs services totaled 25 million 1998 11 million 1997 sprint vendor financing loan sprint pcs 300 million yearend 1997 repaid 1998 sprint also loaned sprint pcs 114 million 1998 21 million 1997 repaid 1999 first quarter major customer pcs group markets products multiple distribution channels including retail stores well retail outlets equipment sales one retail chain subsequent service revenues generated sales customers accounted 28 net operating revenues 1999 25 1998 iii23 11 recently issued accounting pronouncement june 1998 financial accounting standards board issued sfas no133 accounting derivative instruments hedging activities standard requires derivatives recorded balance sheet either assets liabilities measured fair value gains losses changes derivative values accounted based derivative used whether qualified hedge accounting adopted january 2001 statement expected material impact pcs groups combined financial statements iii24 12 quarterly financial data unaudited 1in 1998 fourth quarter pcs group recorded nonrecurring charge write 179 million acquired iprd costs related pcs restructuring charge increased operating loss extraordinary items 179 million 2pro forma loss per share assumes pcs restructuring recapitalization topup pcs groups writeoff 179 million acquired iprd occurred beginning 1997 pro forma amounts comparative purposes necessarily represent actual results operations would transactions occurred beginning 1997 indicate results future operations 3on february 4 2000 sprint effected twoforone stock split pcs stock pcs group loss per share prior periods restated reflect stock split iii25 sprint pcs group schedule iicombined valuation qualifying accounts years ended december 31 1999 1998 activity valuation qualifying accounts 1997 1as discussed note 3 notes combined financial statements pcs groups assets liabilities recorded fair values pcs restructuring date therefore data presented schedule reflects activity since pcs restructuring 2represents valuation allowance deferred income tax assets recorded connection pcs restructuring 3accounts written net recoveries iii26 item 14 principal accounting fees services information required item incorporated reference information set forth caption principal accounting fees services proxy statement relating 2016 annual meeting stockholders filed sec part iv item 15 item 14 controls procedures disclosure controls procedures designed objective ensuring information required disclosed sprints reports securities exchange act 1934 form 10k reported accordance securities exchange commissions rules disclosure controls also designed objective ensuring information accumulated communicated management including chief executive officer chief financial officer appropriate allow timely decisions regarding required disclosure connection preparation form 10k within 90 days filing report sprints chief executive officer chief financial officer directed sprints internal auditors conduct review effectiveness sprints disclosure controls procedures report conclusions chief executive officer chief financial officer also met members management members financial accounting legal departments sprints independent auditors discuss evaluate sprints disclosures effectiveness disclosure controls procedures based discussions report internal auditors chief executive officer chief financial officer concluded design operation disclosure controls procedures effective enabled sprint disclose material financial nonfinancial information affecting businesses significant changes made sprints internal controls factors could significantly affect controls date evaluation certifications chief executive officer chief financial officer regarding among items disclosure controls procedures included immediately signatures section form 10k part iv item 15 item 14 exhibits financial statement schedules reports form 8k 1 consolidated financial statements sprint filed part report listed index financial statements financial statement schedules 2 consolidated financial statement schedule sprint filed part report listed index financial statements financial statement schedules 3 following exhibits filed part report exhibits 3 articles incorporation bylaws articles incorporation amended filed exhibit 3a sprint corporation quarterly report form 10q quarter ended june 30 1997 incorporated herein reference b bylaws amended filed exhibit 3a sprint corporation quarterly report form 10q quarter ended september 30 1996 incorporated herein reference 4 instruments defining rights sprints equity security holders rights sprints equity security holders defined fifth sixth seventh eighth articles sprints articles incorporation see exhibit 3a b rights agreement dated june 9 1997 sprint corporation umb bank na rights agent filed exhibit 1 sprint corporation registration statement form 8a dated june 12 1997 file 14721 incorporated herein reference c standstill agreement dated july 31 1995 among sprint corporation france telecom deutsche telekom ag filed exhibit 10c sprint corporation quarterly report form 10q quarter ended june 30 1995 incorporated herein reference amendments certain agreements interpretation dated june 24 1997 among sprint corporation france telecom deutsche telekom ag filed exhibit 4d sprint corporation quarterly report form 10q quarter ended june 30 1997 incorporated herein reference e indenture dated march 1 1983 sprint corporation formerly united telecommunications inc bank new york formerly irving trust company trustee filed exhibit 4a united telecommunications inc registration statement 334563 incorporated herein reference f first supplemental indenture dated april 1 1986 sprint corporation formerly united telecommunications inc bank new york formerly irving trust company trustee filed exhibit 4d sprint corporation annual report form 10k year ended december 31 1991 incorporated herein reference g second supplemental indenture dated may 1 1990 sprint corporation formerly united telecommunications inc bank new york trustee filed exhibit 4e united telecommunications inc annual report form 10k year ended december 31 1990 incorporated herein reference h form indenture dated july 1 1992 sprint corporation first national bank chicago trustee filed exhibit 4a sprint corporation registration statement 3348689 incorporated herein reference form indenture dated june 15 1993 among sprint capital corporation sprint corporation bank new york trustee filed exhibit 4a sprint corporation registration statement 3364564 incorporated herein reference 10 material agreements joint ventures joint venture agreement dated june 22 1995 among sprint corporation sprint global venture inc france telecom deutsche telekom ag filed exhibit 10a sprint corporation quarterly report form 10q quarter ended june 30 1995 incorporated herein reference b amendment 1 joint venture agreement dated january 31 1996 among sprint corporation sprint global venture inc france telecom deutsche telekom ag atlas telecommunications sa filed exhibit 99a sprint corporation current report form 8k dated january 31 1996 incorporated herein reference c investment agreement dated july 31 1995 among sprint corporation france telecom deutsche telekom ag including exhibit stockholders agreement among france telecom deutsche telekom ag sprint corporation filed exhibit 10b sprint corporation quarterly report form 10q quarter ended june 30 1995 incorporated herein reference amended restated agreement limited partnership majorco lp dated january 31 1996 among sprint spectrum lp tci network services comcast telephony services cox telephony partnership filed exhibit 99c sprint corporation current report form 8k dated january 31 1996 incorporated herein reference e parents agreement dated january 31 1996 sprint corporation telecommunications inc filed exhibit 99d sprint corporation current report form 8k dated january 31 1996 incorporated herein reference f parents agreement dated january 31 1996 sprint corporation comcast corporation filed exhibit 99e sprint corporation current report form 8k dated january 31 1996 incorporated herein reference g parents agreement dated january 31 1996 sprint corporation cox communications inc filed exhibit 99f sprint corporation current report form 8k dated january 31 1996 incorporated herein reference 10 executive compensation plans arrangements h 1985 stock option plan amended filed exhibit 10a sprint corporation quarterly report form 10q quarter ended september 30 1997 incorporated herein reference 1990 stock option plan amended filed exhibit 99 sprint corporation registration statement 33346491 incorporated herein reference j 1990 restricted stock plan amended filed exhibit 99 sprint corporation registration statement 33346487 incorporated herein reference k executive deferred compensation plan amended filed exhibit 10k sprint corporation annual report form 10k year ended december 31 1996 incorporated herein reference l management incentive stock option plan amended filed exhibit 10c sprint corporation quarterly report form 10q quarter ended june 30 1997 incorporated herein reference 1997 longterm stock incentive program filed exhibit 99 sprint corporation registration statement 3325449 incorporated herein reference n sprint supplemental executive retirement plan filed exhibit 10i sprint corporation quarterly report form 10q quarter ended september 30 1995 incorporated herein reference amended restated centel directors deferred compensation plan filed exhibit 10c sprint corporation quarterly report form 10q quarter ended september 30 1997 incorporated herein reference p restated memorandum agreements respecting supplemental pension benefits sprint corporation formerly united telecommunications inc two current former executive officers filed exhibit 10i sprint corporation annual report form 10k year ended december 31 1992 incorporated herein reference q executive longterm incentive plan filed exhibit 10j sprint corporation annual report form 10k year ended december 31 1993 incorporated herein reference r executive management incentive plan filed exhibit 10k sprint corporation annual report form 10k year ended december 31 1993 incorporated herein reference longterm incentive compensation plan amended filed exhibit 10i sprint corporation quarterly report form 10q quarter ended september 30 1996 incorporated herein reference shortterm incentive compensation plan filed exhibit 10k united telecommunications inc annual report form 10k year ended december 31 1989 incorporated herein reference u retirement plan directors amended filed exhibit 10u sprint corporation annual report form 10k year ended december 31 1996 incorporated herein reference v key management benefit plan amended filed exhibit 10g sprint corporation quarterly report form 10q quarter ended september 30 1996 incorporated herein reference w agreements regarding special compensation post employment restrictive covenants sprint corporation certain executive officers filed exhibit 10x sprint corporation annual report form 10k year ended december 31 1993 exhibit 10d sprint corporation quarterly report form 10q quarter ended september 30 1994 exhibit 10 h sprint corporation quarterly report form 10q quarter ended march 31 1996 exhibit 10w sprint corporation annual report form 10k year ended december 31 1996 incorporated herein reference agreements regarding special compensation post employment restrictive covenants sprint corporation four executive officers x directors deferred fee plan amended filed exhibit 10x sprint corporation annual report form 10k year ended december 31 1996 incorporated herein reference form contingency employment agreements sprint corporation certain executive officers filed exhibit 10b sprint corporation quarterly report form 10q quarter ended march 31 1995 incorporated herein reference z form indemnification agreements sprint corporation formerly united telecommunications inc directors officers filed exhibit 10s sprint corporation annual report form 10k year ended december 31 1991 incorporated herein reference aa summary executive officer board directors benefits filed exhibit 10k sprint corporation quarterly report form 10q quarter ended september 30 1996 incorporated herein reference bb description retirement agreement sprint corporation one executive officers cc amended restated centel director stock option plan filed exhibit 10aa sprint corporation annual report form 10k year ended december 31 1993 incorporated herein reference 12 computation ratio earnings fixed charges 21 subsidiaries registrant 23 consent ernst young llp b consent deloitte touche llp 27 financial data schedules december 31 1997 b september 30 1997 restated c june 30 1997 restated march 31 1997 restated e december 31 1996 restated f september 30 1996 restated g june 30 1996 restated h march 31 1996 restated december 31 1995 restated sprint furnish securities exchange commission upon request copy instruments defining rights holders longterm debt total amount securities authorized said instruments listed exceed 10 total assets sprint b reports form 8k reports form 8k filed three months ended december 31 1997 c exhibits listed item 14a consolidated financial statements consolidated financial statement schedule sprint spectrum holding company lp filed part report listed index financial statements financial statement schedules signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized sprint corporation registrant w esrey william esrey chairman chief executive officer date march 5 1998 pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities indicated 5th day march 1998 w esrey william esrey chairman chief executive officer arthur b krause arthur b krause executive vice president chief financial officer john p meyer john p meyer senior vice president controller principal accounting officer signatures sprint corporation registrant pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities indicated 5th day march 1998 dubose ausley dubose ausley director warren l batts warren l batts director michel bon michel bon director ruth davis ruth davis director w esrey william esrey director irvine hockaday jr irvine hockaday jr director harold hook harold hook director ronald lemay ronald lemay director linda k lorimer linda k lorimer director charles e rice charles e rice director ron sommer ron sommer director stewart turley stewart turley director sprint adopted statement financial accounting standards no128 earnings per share eps yearend 1997 see note 11 notes consolidated financial statements eps amounts restated comply new standard eps amounts discussed report represent basic eps defined new standard certain prioryear amounts reclassified conform currentyear presentation reclassifications effect results operations shareholders equity previously reported 1 1997 1996 sprint recorded nonrecurring charges 20 60 million respectively related litigation within long distance division charges reduced income continuing operations 13 million 003 per share 1997 36 million 009 per share 1996 1995 sprint recorded nonrecurring charge 88 million related restructuring within local division reduced income continuing operations 55 million 016 per share 1993 sprint recorded nonrecurring charges 293 million related transaction costs merger centel corporation expenses integrating restructuring operations two companies b realignment restructuring within long distance division charges reduced income continuing operations 193 million 057 per share 2 1997 sprint recognized gains 45 million sales local exchanges 26 million gain sale equity investment equipment provider gains increased income continuing operations 27 million 006 per share 17 million 004 per share respectively 1994 sprint recognized 35 million gain sale equity securities increased income continuing operations 22 million 006 per share 1993 due enactment revenue reconciliation act 1993 sprint adjusted deferred income tax assets liabilities reflect increased tax rate adjustment reduced income continuing operations 11 million 003 per share 1992 sprint recognized gains 81 million sales local exchanges increased income continuing operations 44 million 013 per share 3 1996 amount reduced 600 million cash required terminate accounts receivable sales agreement 1992 amount includes 300 million cash proceeds sale accounts receivable managements discussion analysis sprint corporation financial condition results operations general sprint corporation subsidiaries sprint includes certain estimates projections forwardlooking statements reports presentations analysts others publicly available material future performance cannot ensured actual results may differ materially forwardlooking statements factors could cause actual results differ materially estimates projections contained forwardlooking statements include effects vigorous competition markets sprint operates cost entering new markets necessary provide seamless services risks related sprints investments global one sprint spectrum holding company lp sprint pcs joint ventures impact unusual items resulting ongoing evaluations sprints business strategies requirements imposed sprint latitude allowed competitors federal communications commission fcc state regulatory commissions telecommunications act 1996 telecom act unexpected results litigation filed sprint possibility one markets sprint competes impacted changes political economic factors monetary policy legal regulatory changes external factors sprint control core businesses long distance division long distance division nations thirdlargest long distance telephone company operates nationwide alldigital long distance communications network using stateoftheart fiberoptic electronic technology division mainly provides domestic international voice video data communications services offers services public subject varying levels state federal regulation local division local division consists regulated local exchange carriers lecs serving 7 million access lines 19 states provides local exchange services access telephone customers carriers sprints local exchange facilities sales telecommunications equipment long distance services within specified geographical areas product distribution directory publishing division product distribution directory publishing businesses provide wholesale distribution services telecommunications products publish market white yellow page telephone directories emerging businesses emerging businesses consists consumer internet access services mainly sprint internet passport sm competitive local exchange carrier clec services international development activities outside scope global one personal communication services pcs controlled sprint integration management support services computer networks sprint paranet strategic alliances global one sprint partner global one joint venture deutsche telekom ag dt france telecom ft provide seamless global telecommunications services business residential carrier markets worldwide sprint onethird partner global ones operating group serving europe excluding france germany 50 partner global ones operating group worldwide activities outside united states europe dt ft 10 sprints voting equity sprints class common stock class common shareholders right cases proportionate representation sprints board directors may also purchase additional class common shares sprint keep ownership level 10 see note 7 notes consolidated financial statements information sprints long distance division contributed certain assets related operations international business unit global one venture formed january 1996 sprint pcs sprint 40 partner sprint pcs partnership telecommunications inc comcast corporation cox communications inc sprint pcs building nations first singletechnology digital stateoftheart wireless network provide pcs across united states pcs uses digital technology sound quality superior existing cellular technology less susceptible interference eavesdropping pcs also offers features voice mail caller id sprint pcs offers service 130 metropolitan markets include 600 cities part overall strategy increase pcs coverage sprint directly acquired rights pcs licenses covering 139 markets across united states licenses reach total population 70 million people sprint expects affiliate licenses sprint pcs affiliation licensed coverage sprintbranded pcs include nearly 260 million people across united states puerto rico us virgin islands january 1 1998 deadlock event occurred due failure partnership board approve proposed sprint pcs budget business plan partnership agreement partner refers issue resolution pursuant specified procedures remains unresolved buysell provisions triggered could result sprint either increasing selling partnership interest discussions among partners restructuring interests sprint pcs ongoing however certainty discussions result change partnership structure spinoff cellular division march 1996 sprint completed taxfree spinoff sprints cellular division cellular sprint common shareholders spinoff see liquidity capital resources discontinued operation information regulatory developments telecom act signed law february 1996 designed promote competition aspects telecommunications eliminated legal regulatory barriers entry local telephone markets also required incumbent lecs among things allow local resale wholesale rates negotiate interconnection agreements provide nondiscriminatory access unbundled network elements allow collocation interconnection equipment competitors telecom act also allows bell operating companies bocs provide inregion long distance service obtain state certification compliance competitive checklist facilitiesbased competitor obtain fcc ruling provision inregion long distance service public interest telecom acts impact sprint remains unclear rules competition still decided regulators courts sprint filed clec status states anticipation local markets opening competition however sprint currently actively marketing clec services see segmental results operations emerging businesses information areas sprint incumbent lec local competition expected eventually result loss market share sprints lec operations geographically dispersed largely rural markets local competition expected occur gradually accordance telecom act fcc adopted detailed rules 1996 govern interconnection incumbent local networks new market entrants lecs state public utility commissions appealed rules us court appeals prevented pricing rules taking effect pending full review court 1997 court struck fccs pricing rules ruled telecom act left jurisdiction pricing matters states court also struck certain fcc rules jurisdictional substantive grounds us supreme court agreed review appeals court decision 1997 fcc issued important decisions structure level access charges universal service decisions impact industry several ways including following additional subsidy created support telecommunications services schools libraries rural health care providers carriers providing telecommunications services required fund program capped 27 billion per year however lecs pass portion costs long distance carriers perminute interstate access rates charged lecs decline time become costbased beginning july 1997 certain monthly flatrate charges paid local telephone customers increase beginning 1998 certain perminute access charges paid long distance companies converted flat monthly charges based presubscribed lines basis established replacing implicit access subsidies explicit interstate universal service fund beginning 1999 number lecs long distance companies others appealed fccs orders effective date orders delayed appeals expected take year conclude impact fcc decisions sprint difficult determine expected material bocs also challenged telecom act restrictions entry long distance markets unconstitutional federal district court wichita falls texas ruled restrictions unlawful constituted legislative act imposed punishment without judicial proceeding united states government along sprint others filed appeals decision federal district court delayed implementing decision pending resolution appeals 1997 several bocs claimed met competitive checklist sought fcc approval offer inregion long distance service applications denied fcc even bocs get authority offer inregion long distance services likely loss revenues retail level would offset whole part sprint underlying network provider regional bocs results operations sprint adopted statement financial accounting standards sfas no128 earnings per share eps yearend 1997 see note 11 notes consolidated financial statements eps amounts restated comply new standard eps amounts following discussions represent basic eps defined sfas 128 consolidated total net operating revenues 1997 149 billion 7 increase 139 billion 1996 total net operating revenues 1995 127 billion income continuing operations 953 million 221 per share 1997 compared 12 billion 282 per share 1996 946 million 271 per share 1995 core businesses sprints core businesses generated record levels net operating revenues improved operating results 1997 core results exclude impact joint ventures emerging businesses long distance calling volumes increased 14 1997 access lines served local division grew 56 excluding sales local exchanges 1997 excluding nonrecurring items income core operations 16 billion 373 per share 1997 versus 14 billion 342 per share 1996 10 billion 297 per share 1995 nonrecurring items consolidated core income continuing operations 1997 include gains sales local exchanges 006 per share gain sale equity investment equipment provider 004 per share addition 1997 1996 include litigation charges within long distance division 003 per share 009 per share respectively 1995 amounts include charge restructuring local division 016 per share segmental results operations long distance division 1997 1996 sprint recorded nonrecurring litigation charges 20 60 million respectively see note 9 notes consolidated financial statements january 1996 division contributed certain international assets related operations global one comparative purposes following discussion long distance division operating results excludes nonrecurring charges assumes contribution occurred beginning 1995 operating margins would 125 1997 120 1996 109 1995 net operating revenues net operating revenues increased 8 1997 17 1996 major market segments residential business wholesale contributed increases general increases reflect strong calling volume growth 14 1997 20 1996 continued growth data services market revenue growth 1997 affected competitive pricing environment change mix products sold increase bad debt provision management continues monitor sprints credit extension policies ensure remain effective addition 1996 includes revenues carrying internal revenue service 800 help line traffic service sprint longer provides 1997 reflects lower yields government contracts residential market residential market revenues reflect continuing success sprint senser flatrate calling plan well growth 1997 international calls prepaid phone cards casual callers accessing sprint network business market business market revenues reflect increased calling volumes tollfree directdistancedialing toll wats calls made within united states growth small medium business market due continuing success divisions small business product fridays free data services includes sales capacity sprints network internet service providers showed strong growth continued demand expanded service offerings wholesale market wholesale market showed strong growth domestic international markets domestic increases mainly reflect increased wats calling volumes partly offset decline rates due increased competition interconnection costs interconnection costs consist amounts paid lecs domestic service providers foreign telephone companies complete calls made divisions domestic customers costs increased 6 1997 20 1996 reflecting strong growth calling volumes partly offset lower unit costs domestic international access lower domestic rates generally due fccmandated access rate reductions took effect july 1997 see regulatory developments information interconnection costs 440 net operating revenues 1997 450 1996 439 1995 operations expense operations expense mainly consists costs related operating maintaining long distance network costs equipment sales also includes costs providing operator public payphone video teleconferencing services well telecommunications services hearingimpaired operations expense increased 20 1997 17 1996 percentage net operating revenues operations expense 138 1997 125 1996 124 1995 1997 increases mainly due increased costs related fccmandated payments public payphone providers network equipment leasing costs related data services growth equipment sales 1996 increase expense reflects overall revenue growth selling general administrative expense selling general administrative sga expense increased 2 1997 8 1996 increases reflect overall growth divisions operating activities well increases marketing promotions support products services 1997 increase also reflects increased information technology costs support network quality customer acquisition customer management sga expense 217 net operating revenues 1997 229 1996 248 1995 improvements reflect continued cost control business process improvement efforts depreciation amortization expense depreciation amortization expense increased 13 1997 12 1996 generally increased asset base capital expenditures incurred mainly enhance network reliability meet increased demand datarelated services upgrade capabilities providing new products services depreciation amortization expense 80 net operating revenues 1997 76 1996 80 1995 local division beginning july 1997 sprint changed transfer pricing certain transactions affiliates accurately reflect market pricing main effect pricing change reduce revenues comparative purposes following discussion local division operating results assumes pricing changes occurred beginning 1995 operating margins would 256 1997 245 1996 223 1995 excluding restructuring charge net operating revenues net operating revenues increased 4 1997 9 1996 mainly customer access line growth excluding sales local exchanges 1997 access line growth 56 1997 1996 net operating revenues 52317 million 1997 50133 million 1996 45812 million 1995 local service revenues local service revenues derived local exchange services increased 10 1997 11 1996 increases reflect strong economic growth divisions service areas increases secondline service existing business residential customers meet lifestyle data access needs local service revenues also increased extended area calling plans increased demand advanced intelligent network services caller id call waiting network access revenues network access revenues derived interexchange long distance carriers use local network complete calls increased 2 1997 10 1996 increases largely due increased calling volumes 6 1997 10 1996 1997 revenue growth partly offset fccmandated access rate reductions effective july 1997 see regulatory developments information addition fccs 1995 interim interstate price cap plan increased network access revenues 1996 nominal effect 1995 toll service revenues toll service revenues mainly derived providing long distance services within specified geographical areas local access transport areas latas revenues decreased 19 1997 13 1996 1995 division resold interexchange long distance services service areas reseller service phased early 1997 accounting large portion 1997 decline customers however became customers sprints long distance division reduced overall impact sprint decreases toll service revenues also reflect extended local area calling plans increased competition intrastate long distance market since interexchange long distance carriers provide intralata long distance services many states declines toll service revenues partly offset related increases divisions local network access revenues mainly derived telecommunications equipment sales directory sales listing services billing collection services revenues increased 10 1997 24 1996 mainly increased equipment sales major factor 1996 growth introduction enhanced telephone instruments caller id units costs services products costs services products consists costs related operating maintaining local network costs equipment sales expenses increased 3 1997 4 1996 customer access line growth increased equipment sales years also reflect savings divisions restructuring network function costs services products 360 net operating revenues 1997 367 1996 385 1995 improvement 1996 compared 1995 reflects capitalization switch software costs beginning 1996 discussed depreciation amortization expense selling general administrative expense sga expense increased 3 1997 9 1996 increases mainly due increased customer service costs related access line growth marketing costs promote new products services increases partly offset savings divisions restructuring finance function general cost control measures sga expense 206 net operating revenues 1997 207 1996 210 1995 depreciation amortization expense depreciation amortization expense increased 3 1997 9 1996 mainly plant additions 1996 increase also reflects initial year amortizing capitalized switch software costs yearend 1995 sprint adopted accounting principles competitive marketplace discontinued applying sfas 71 accounting effects certain types regulation local division see note 13 notes consolidated financial statements result certain accumulated depreciation balances increased plant asset lives shortened reflect economic lives switch software costs previously expensed incurred capitalized amortized estimated economic lives depreciation amortization expense 178 net operating revenues 1997 181 1996 182 1995 restructuring costs 1995 sprint recorded 88 million charge restructure division see note 15 notes consolidated financial statements product distribution directory publishing division beginning july 1997 sprint changed transfer pricing certain transactions affiliates accurately reflect market pricing changes occurred beginning 1995 net operating revenues would increased 19 14451 million 1997 12143 million 1996 revenues would 11389 million 1995 sales nonaffiliates 1997 compared 1996 remained relatively flat increased competition cost services products would increased 22 11159 million 1997 9182 million 1996 costs services products would 8634 million 1995 growth revenues costs services products reflects increased sales telecommunications equipment distribution services local division operating margins would 158 1997 163 1996 158 1995 emerging businesses revenues 1997 increased mainly sprint paranet sprint internet access services operating losses years largely reflect activities develop enter newly competitive domestic international markets internet access competitive local services 1996 sprint began offering internet services consumers sprint internet passport sm 1997 sprint launched sprint internet private passport sm provides customized private internet access services businesses february 1998 sprint announced forming broad business relationship earthlink network inc earthlink internet service provider part relationship earthlink obtain sprints internet passport customers take daytoday operations services create combined base 600000 internet access customers enable sprint build brand equity market share relationship requires regulatory approval expected close 1998 second quarter 1997 third quarter sprint stopped actively marketing clec services rules local competition become clearer economics improve effective working arrangements electronic interfaces incumbent lecs developed sprints measured course entering clec market enabled avoid significant losses sprint continues devote significant resources toward developing distinct approach part overall strategy achieve nationwide pcs coverage sprint directly acquired pcs licenses 544 million licenses cover 139 markets across united states reaching total population 70 million sprint plans affiliate licenses previously acquired sprint pcs affiliation licensed coverage sprintbranded pcs include nearly 260 million people across united states puerto rico us virgin islands sprint began construction markets 1997 zoning issues dictate rate buildout progress sprint hopes achieve coverage areas could reach 25 30 million people end 1998 excluding pcs license costs sprint expects capital expenditures total 18 billion 1998 network buildout september 1997 sprint acquired houstonbased paranet inc allow sprint capitalize accelerating demand network management services sprint paranets design implementation consultation expertise also enable sprint maintain add traditional long distance revenues see note 12 notes consolidated financial statements information paranet acquisition nonoperating items interest expense interest costs borrowings consist following 1 interest expense related cellular included discontinued operation net consolidated statements income average debt outstanding decreased 19 billion 1996 generally repayments funded portion cash received dt ft equity investments sprint cellulars repayment intercompany debt connection spinoff sprints effective interest rate increased 80 1996 75 1995 mainly decline shortterm borrowings percentage total borrowings sprint capitalizes interest costs investment directly acquired pcs licenses related network buildout june 1997 sprint also capitalized interest costs borrowings related investment sprint pcs sprint stopped capitalizing costs july 1997 sprint pcs longer qualified developmentstage company global one losses related venture costs global one totaled 162 million 1997 82 million 1996 23 million 1995 increased losses 1997 due higher operating costs within global ones existing global markets due slowerthanexpected integration parent companies networks startup related costs global one begun thorough review operations including network deployment management support systems effort improve efficiencies reduce operating costs sprint pcs sprint pcs revenues totaled 249 million 1997 4 million 1996 sprints share operating losses sprint pcs affiliates 660 million 1997 192 million 1996 31 million 1995 1997 losses reflect marketing promotional costs support growing customer base early 1998 sprint pcs customer base exceeded 1 million customers venture plans continue aggressively obtain new customers likely result higher losses 1998 compared 1997 average monthly revenue per customer 1997 approximated 64 higher wireless industry averages higher average driven marketing plans target encourage higher usage sprint pcs customer churn rates customer marketing costs expected stage development pcs markets mature sprint pcs gains additional scale measures expected trend toward cellular industry levels income expense net income expense consists following dividend interest income 1997 1996 reflects income earned cash received dt ft equity investment sprint well cellulars repayment intercompany debt connection spinoff sprint since invested funds strategic initiatives decreased certain borrowings reducing balance held temporary investments 1997 sprint recognized pretax gains 45 million sales local exchanges also 1997 sprint sold equity interest equipment provider resulting 26 million pretax gain income taxes sprints effective tax rates 398 1997 377 1996 361 1995 see note 4 notes consolidated financial statements information differences cause effective income tax rate vary statutory federal rate discontinued operation net sprint recognized aftertax loss 3 million 001 per share 1996 aftertax income 15 million 004 per share 1995 related investment cellular spun sprint common shareholders march 1996 see note 14 notes consolidated financial statements extraordinary items net 1996 sprint redeemed prior maturity 190 million debt interest rates ranging 60 95 resulted 5 million 001 per share aftertax loss yearend 1995 sprint adopted accounting principles competitive marketplace discontinued applying sfas 71 local division see note 13 notes consolidated financial statements resulted aftertax noncash extraordinary charge 565 million 162 per share 1995 financial condition sprints consolidated assets totaled 182 billion yearend 1997 versus 168 billion yearend 1996 net property plant equipment increased 10 billion 1997 mainly increased capital expenditures support core long distance local networks yearend 1997 sprints total capitalization 129 billion total capitalization consists shortterm borrowings longterm debt including current maturities redeemable preferred stock common stock shareholders equity shortterm borrowings longterm debt including current maturities increased 300 total capitalization yearend 1997 277 yearend 1996 see liquidity capital resources additional discussions changes sprints consolidated balance sheets liquidity capital resources operating activities continuing operations cash flows operating activities sprints main source liquidity 34 billion 1997 24 billion 1996 26 billion 1995 growth 1997 operating cash flows reflects improved operating results sprints core businesses partly offset increased losses emerging businesses 1996 sprint terminated accounts receivable sales agreement reduced cash flows 600 million excluding termination 1996 cash flows increased 394 million mainly improved operating results divisions investing activities continuing operations sprints investing activities used cash 45 billion 1997 31 billion 1996 29 billion 1995 capital expenditures sprints largest investing activity 29 billion 1997 24 billion 1996 19 billion 1995 long distance capital expenditures incurred mainly enhance network reliability meet increased demand datarelated services upgrade capabilities providing new products services local division incurred capital expenditures accommodate access line growth expand capabilities providing enhanced services 1997 sprint paid remaining 460 million directly owned pcs licenses bringing total payments 544 million also 1997 sprint purchased net assets paranet inc 375 million see note 12 notes consolidated financial statements investments loans affiliates net consists following 1 includes sprint pcs affiliates capital contributions loans advances sprint pcs 1997 1996 used fund capital operating requirements 1995 contributions mainly used fund payments pcs licenses 1997 sprint pcs borrowed 300 million sprint vendor financing facility july 1997 sprint began amortizing capitalized interest costs lives related assets 1996 sprint purchased 183 million face value sprint pcs senior discount notes 100 million financing activities sprints financing activities provided cash 72 million 1997 479 million 1996 423 million 1995 1997 sprint borrowed 867 million mainly fund investments loans affiliates 1996 dt ft acquired class common shares combined total 37 billion sprint mainly used proceeds cash cellular repaying intercompany debt reduce outstanding debt 1995 sprint increased shortterm borrowings 11 billion fund commitments related sprint pcs repay longterm debt sprint paid common preferred dividends totaling 430 million 1997 420 million 1996 352 million 1995 sprints indicated annual dividend rate common stock currently 100 per share sprint purchased 3 10 million treasury shares 1997 1996 respectively sprint may repurchase common shares open market 1998 meet share issuance requirements employee benefit plans conversion preferred stock discontinued operation connection march 1996 spinoff cellular repaid 14 billion intercompany debt owed sprint prior spinoff cellulars investing activities required net cash 141 325 million 1996 1995 respectively mainly fund capital expenditures acquire cellular properties capital requirements sprints 1998 investing activities consisting capital expenditures investments affiliates expected require cash 54 61 billion dividend payments expected total 430 million 1998 requirements funded cash operating activities external sources external borrowings expected total 20 25 billion 1998 sprint expects spend 50 55 billion capital expenditures 1998 total long distance local divisions require estimated 27 30 billion remainder mainly used build network new pcs markets directly owned sprint pcs require 200 300 million fund operating cash requirements continue network buildout global one also require 200 300 million fund operations ongoing development activities liquidity yearend 1997 sprint could borrow 10 billion revolving credit agreement syndicate domestic international banks addition 1997 sprint negotiated separate fiveyear revolving credit facility bank yearend 1997 sprints unused capacity committed portion facility 100 million sprint may also offer sale 11 billion debt securities shelf registration statements filed securities exchange commission borrowings sprint may incur ultimately limited certain debt covenants yearend 1997 sprint could borrow 135 billion restrictive debt covenants restrictive covenant related dividends results sprints revolving credit agreement among restrictions sprint must maintain specified levels consolidated net worth result 27 billion sprints 37 billion retained earnings restricted payment dividends yearend 1997 financial strategies general hedging policies sprint selectively enters interest rate swap cap agreements manage exposure interest rate changes debt sprint also enters forward contracts options foreign currencies reduce impact changes foreign exchange rates sprint seeks minimize counterparty credit risk stringent credit approval review processes selection creditworthy counterparties continual review monitoring counterparties thorough legal review contracts sprint also controls exposure market risk regularly monitoring changes foreign exchange interest rate positions normal stress conditions ensure exceed established limits sprints derivative transactions used hedging purposes comply boardapproved policies senior management receives monthly status updates outstanding derivative positions interest rate risk management sprints interest rate risk management program focuses minimizing exposure interest rate movements setting optimal mixture floating fixedrate debt minimizing liquidity risk sprint uses simulation analysis assess interest rate exposure establish desired ratio floating fixedrate debt extent possible sprint manages interest rate exposure floatingtofixed ratio borrowings sometimes uses interest rate swaps caps adjust risk profile foreign exchange risk management sprints foreign exchange risk management program focuses hedging transaction exposure optimize consolidated cash flow sprints main transaction exposure results net payments made overseas telecommunications companies completing international calls made sprints domestic customers year 2000 issue year 2000 issue affects sprints installed computer systems network elements software applications business systems timesensitive programs may properly reflect recognize year 2000 many computers computer applications define dates last two digits year 00 may properly identified year 2000 error could result miscalculations system failures sprint started program 1996 identify address year 2000 issue taking inventory network computer systems creating implementing plans make year 2000 compliant sprint using internal external sources identify correct reprogram test systems year 2000 compliance total cost modifications conversions known time however expected material sprints financial position results operations cash flows expensed incurred year 2000 issue may also affect systems applications sprints customers vendors resellers sprint also contacting others conducts business receive appropriate warranties assurances third parties year 2000 compliant compliance achieved timely manner year 2000 issue could material effect sprints operations however sprint focusing identifying addressing aspects operations may affected year 2000 issue addressing critical applications first result sprint management believe operations materially adversely affected impact recently issued accounting pronouncements see note 16 notes consolidated financial statements discussion recently issued accounting pronouncements management report management sprint corporation responsibility integrity objectivity information contained annual report management responsible consistency reporting information ensuring generally accepted accounting principles used discharging responsibility management maintains comprehensive system internal controls supports extensive program internal audits made organizational arrangements providing appropriate divisions responsibility established communication programs aimed assuring policies procedures codes conduct understood practiced employees consolidated financial statements included annual report audited ernst young llp independent auditors audit conducted accordance generally accepted auditing standards report included herein responsibility board directors financial statements pursued mainly audit committee audit committee composed entirely directors officers employees sprint meets periodically internal auditors independent auditors without management present assure respective responsibilities fulfilled internal independent auditors full access audit committee discuss auditing financial reporting matters w esrey william esrey chairman chief executive officer arthur b krause arthur b krause executive vice president chief financial officer report independent auditors board directors shareholders sprint corporation audited accompanying consolidated balance sheets sprint corporation sprint december 31 1997 1996 related consolidated statements income cash flows common stock shareholders equity three years period ended december 31 1997 audits also included financial statement schedule ii listed index financial statements financial statement schedules financial statements schedule ii responsibility management sprint responsibility express opinion financial statements schedule ii based audits 1997 financial statements financial statement schedule sprint spectrum holding company lp partnership sprint 40 interest audited auditors whose report furnished us insofar opinion 1997 consolidated financial statements relates data included sprint spectrum holding company lp based solely report consolidated financial statements sprints equity sprint spectrum holding company lp stated 749 million december 31 1997 sprints equity net loss sprint spectrum holding company lp stated 625 million year ended conducted audits accordance generally accepted auditing standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits report auditors provide reasonable basis opinion based audits report auditors consolidated financial statements referred present fairly material respects consolidated financial position sprint december 31 1997 1996 consolidated results operations cash flows three years period ended december 31 1997 conformity generally accepted accounting principles also opinion related financial statement schedule ii considered relation basic financial statements taken whole presents fairly material respects information set forth therein discussed note 13 consolidated financial statements sprint discontinued accounting operations local telecommunications division accordance statement financial accounting standards 71 accounting effects certain types regulation 1995 ernst young llp kansas city missouri february 3 1998 notes consolidated financial statements sprint corporation 1 summary significant accounting policies basis consolidation presentation consolidated financial statements include accounts sprint corporation wholly owned majorityowned subsidiaries sprint investments entities sprint exercises significant influence control accounted using equity method see note 2 consolidated financial statements prepared according generally accepted accounting principles require management make estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities reported amounts revenues expenses actual results could differ estimates certain prioryear amounts reclassified conform currentyear presentation reclassifications effect results operations shareholders equity previously reported sprint applied statement financial accounting standards sfas 71 accounting effects certain types regulation financial statements december 1995 sfas 71 revenues related net income resulting transactions sprints nonregulated operations regulated local exchange carriers eliminated consolidated financial statements revenues intercompany transactions 262 million 1995 significant intercompany transactions eliminated classification operations long distance division provides domestic international voice video data communications services division offers services public subject varying levels state federal regulation rates generally subject ratebase regulation local division consists regulated telephone companies operations provide local exchange services access telephone customers carriers local exchange facilities sales telecommunications equipment long distance services within specified geographical areas product distribution directory publishing division provides wholesale distribution services telecommunications products publishes markets white yellow page telephone directories emerging businesses consists activities related consumer internet access services mainly sprint internet passport sm competitive local exchange carrier services personal communication services pcs controlled sprint international development activities outside scope global one joint venture integration management support services computer networks sprint paranet revenue recognition sprint recognizes operating revenues services rendered products delivered customers sprint records operating revenues net estimate uncollectible accounts 1 summary significant accounting policies continued cash equivalents cash equivalents generally include highly liquid investments original maturities three months less stated cost approximates market value sprint uses controlled disbursement banking arrangements part cash management program outstanding checks excess cash balances included accounts payable totaled 225 million yearend 1997 127 million yearend 1996 sprint sufficient funds available fund outstanding checks presented payment investments debt equity securities investments debt equity securities classified available sale reported fair value estimated based quoted market prices gross unrealized holding gains losses reflected adjustments common stock shareholders equity net related income taxes inventories stated lower cost principally firstin firstout method market property plant equipment property plant equipment recorded cost generally ordinary asset retirements disposals charged accumulated depreciation gain loss recognized repairs maintenance costs expensed incurred depreciation cost property plant equipment generally depreciated straightline basis estimated economic useful lives prior sprints discontinued use sfas 71 yearend 1995 cost property plant equipment local division generally depreciated straightline basis lives prescribed regulatory commissions income taxes sprint records deferred income taxes based certain temporary differences carrying amounts assets liabilities financial reporting purposes amounts used tax purposes investment tax credits related regulated telephone property plant equipment deferred amortized estimated useful lives related assets capitalized interest sprint capitalizes interest costs related constructing capital assets investments sprint spectrum holding company lp sprint pcs directly owned pcs licenses sprint stopped capitalizing interest sprint pcs investment july 1997 sprint pcs longer qualified developmentstage company capitalized interest totaled 93 million 1997 104 million 1996 57 million 1995 2 investments equity securities cost investments equity securities 105 million yearend 1997 1996 gross unrealized holding gains 198 million yearend 1997 149 million yearend 1996 investments loans affiliates investments accounted using equity method mainly consist sprints investments sprint pcs global one sprint 40 partner sprint pcs partnership telecommunications inc comcast corporation cox communications inc sprint pcs building nations first singletechnology stateoftheart wireless network provide pcs across united states sprint also partner global one joint venture deutsche telekom ag dt france telecom ft formed provide seamless global telecommunications services business residential carrier markets worldwide sprint onethird partner global ones operating group serving europe excluding france germany 50 partner global ones operating group worldwide activities outside united states europe yearend 1997 sprints share underlying equity global ones net assets exceeded carrying value sprints investment global one 158 million difference amortized january 2001 combined summarized financial information 100 basis entities accounted using equity method follows yearend 1997 1996 sprints investment sprint pcs including advances vendor financing loan totaled 12 billion sprints investment global one including advances totaled 93 38 million respectively 1996 sprint purchased 183 million face value sprint pcs senior discount notes 100 million bonds mature 2006 yearend 1997 1996 accreted cost notes 118 104 million gross unrealized holding gains totaled 24 18 million respectively investment included current assets consolidated balance sheets 3 employee benefit plans defined benefit pension plan substantially sprint employees covered noncontributory defined benefit pension plan benefits plan participants represented collective bargaining units based negotiated schedules defined amounts participants covered collective bargaining agreements plan provides pension benefits based years service participants compensation sprints policy make annual plan contributions equal actuarially determined amount consistent applicable federal tax regulations funding objective accumulate funds relatively stable rate participants working lives benefits fully funded retirement yearend 1997 plans assets consisted mainly investments corporate equity securities us government corporate debt securities net pension cost credit consists following 3 employee benefit plans continued defined contribution plans sprint sponsors defined contribution employee savings plans covering substantially employees participants may contribute portions pay plans employees represented collective bargaining units sprint matches contributions based negotiated amounts sprint also matches contributions employees covered collective bargaining agreements participants sprint matches contributions sprint common stock matching equal 50 participants contributions 6 pay addition sprint may discretion board directors provide matching contributions based performance sprint common stock compared telecommunications companies stock sprints matching contributions 54 million 1997 56 million 1996 51 million 1995 yearend 1997 plans held 20 million sprint common shares postretirement benefits sprint provides postretirement benefits principally medical benefits substantially employees retiring certain dates eligible benefits cost reduced cost employees retiring certain dates eligible benefits sharedcost basis sprint funds accrued costs benefits paid net postretirement benefits cost consists following measurement purposes assumed 1997 weighted average annual health care cost trend rate 9 gradually decreasing ultimate level 5 2005 1 increase rate would increased 1997 net postretirement benefits cost estimated 12 million amounts included consolidated balance sheets yearend follows assumed 1998 annual health care cost trend rate 85 gradually decreasing ultimate level 5 2005 1 increase rate would increased 1997 accumulated postretirement benefit obligation estimated 61 million 4 income taxes income tax expense allocated continuing operations consists following differences cause effective income tax rate vary statutory federal rate 35 follows income tax expense benefit allocated items follows 1 amounts recorded directly common stock shareholders equity 4 income taxes continued sprint recognizes deferred income taxes temporary differences carrying amounts assets liabilities financial statement purposes tax bases sources differences give rise deferred income tax assets liabilities yearend 1997 1996 along income tax effect follows valuation allowance related deferred income tax assets decreased 2 million 1997 4 million 1996 1995 management believes likely deferred income tax assets net allowance realized based current income tax laws expectations future taxable income stemming reversal existing deferred tax liabilities ordinary operations uncertainties surrounding income tax law changes shifts operations state taxing jurisdictions future operating income levels may however affect ultimate realization deferred income tax assets yearend 1997 sprint available income tax purposes 4 million state alternative minimum tax credit carryforwards offset state income tax payable future years addition sprint tax benefits 49 million related state operating loss carryforwards loss carryforwards expire varying amounts per year 1998 2012 5 borrowings longterm debt longterm debt yearend follows 1 notes may exchanged maturity southern new england telecommunications corporation snet common shares owned sprint cash based snets closing market price notes matured yearend 1997 could exchanged 38 million snet shares yearend 1997 sprint held 42 million snet shares included investments equity securities consolidated balance sheets 5 borrowings continued longterm debt maturities excluding reclassified shortterm borrowings next five years follows property plant equipment total cost 129 billion either pledged security first mortgage bonds certain notes restricted use mortgaged property 1996 sprint redeemed prior scheduled maturities 190 million debt interest rates ranging 60 95 resulted 5 million aftertax extraordinary loss shortterm borrowings yearend 1997 sprint borrowed 618 million bank notes payable 249 million commercial paper though borrowings renewable various dates throughout year classified longterm debt sprints intent ability unused credit facilities refinance borrowings commercial paper certain bank notes payable supported sprints revolving credit facility syndicate domestic international banks notes payable relate separate revolving credit facility sprint executed bank 1997 yearend 1997 sprints unused lines credit totaled 11 billion bank notes outstanding yearend 1997 1996 weighted average interest rates 61 59 respectively yearend 1997 weighted average interest rate commercial paper 68 sprint compliance restrictive financial covenants relating debt arrangements yearend 1997 6 redeemable preferred stock sprint approximately 22 million authorized preferred shares including nonredeemable preferred stock redeemable preferred stock outstanding yearend follows sprints fifth series preferred stock must redeemed full 2003 less full dividends paid four consecutive dividend periods dividends arrears exceed amount equal dividends six dividend periods fifth series preferred shareholders may elect majority directors standing election dividends arrears paid 7 common stock common stock yearend 1997 common stock reserved future grants stock option plans future issuances various arrangements follows shareholder rights plan one preferred stock purchase right attached common class common share right exercisable certain takeover events occur right initially entitle holder purchase 11000 share unit par preferred stocksixth series junior participating preferred stock 225 per unit certain cases common stock preferred stock voting cumulative accrues dividends quarterly basis generally equal greater 100 per share 1000 times total per share amount common dividends preferred stock shares issued outstanding yearend 1997 rights may redeemed sprint 001 per right expire june 2007 unless extended 1997 1996 1995 sprint declared paid annual common stock dividends 100 per share restrictive covenant related common dividends results sprints 15 billion revolving credit agreement among restrictions agreement requires sprint maintain specified levels consolidated net worth due requirement 27 billion sprints 37 billion consolidated retained earnings effectively restricted payment dividends yearend 1997 indentures financing agreements certain sprints subsidiaries contain provisions limiting cash dividend payments subsidiary common stock held sprint result 567 million subsidiaries 13 billion total retained earnings restricted yearend 1997 flow cash form advances subsidiaries sprint generally restricted 7 common stock continued 1990 savings plan trust employee savings plan acquired common stock sprint exchange 75 million promissory note payable sprint note bears interest 9 repaid common stock dividends received plan contributions made plan sprint according plan provisions remaining 34 million note receivable balance yearend 1997 reflected reduction common stock shareholders equity class common stock january 1996 dt ft acquired shares new class convertible preference stock combined total 30 billion resulted dt ft holding 75 sprints voting power april 1996 following spinoff sprints cellular division cellular see note 14 preference stock converted class common stock dt ft acquired additional class common shares following combined investment 37 billion dt ft class common shares 10 sprints voting power 1997 sprint declared paid class common dividends 100 per share 1996 preference dividends totaled 016 per share class common dividends totaled 075 per share dt ft class common shareholders right circumstances proportionate representation sprints board directors may also purchase additional class common shares sprint keep ownership level 10 dt ft entered standstill agreement sprint restricting ability acquire sprint voting shares intended investment agreement sprint related agreements standstill agreement also contains customary provisions restricting dt ft initiating participating proposal respect control sprint 8 stockbased compensation sprints management incentive stock option plan misop provides granting stock options employees eligible receive annual incentive compensation eligible employees entitled receive stock options lieu portion target incentive sprints management incentive plans options generally become exercisable december 31 year granted maximum term 10 years misop options granted exercise prices equal market price sprints common stock grant date yearend 1997 authorized shares plan approximated 11 million amount increased approximately 3 million shares january 1 1998 sprint corporation stock option plan sop provides granting stock options officers key employees options generally become exercisable rate 25 per year beginning one year grant date maximum term 10 years sop options granted exercise prices equal market price sprints common stock grant date yearend 1997 authorized shares plan approximated 20 million every two years employees stock purchase plan espp offers employees election purchase sprint common stock price equal 85 market value grant exercise date whichever less yearend 1997 authorized shares plan approximated 18 million 1996 sprint adopted pro forma disclosure requirements sfas 123 accounting stockbased compensation continued apply accounting principles board apb opinion 25 accounting stock issued employees stock option employee stock purchase plans apb 25 sprint recognized compensation expense related plans pro forma net income earnings per share eps determined sprint used fair value method accounting stock option grants espp share elections 1994 method compensation expense recognized applicable vesting periods based shares option related fair values grant date 8 stockbased compensation continued following pro forma information likely represent information reported future years options granted espp shares elected 1994 continue vest next several years addition compensation expense resulting spinoff cellular spinoff see note 14 decline next several years sprints pro forma net income eps follows 1996 sprint employees elected purchase 28 million espp shares weighted average fair value using blackscholes pricing model 1006 per share espp shares offered 1997 1995 following tables reflect weighted average fair value per option granted year well significant weighted average assumptions used determining fair values using blackscholes pricing model 8 stockbased compensation continued stock option plan activity follows 1 due spinoff shares related exercise prices adjusted maintain total fair market value common stock underlying options relationship market value sprints common stock options exercise price outstanding options held cellular employees converted options grants purchase cellular common stock included table adjustment spinoff options exercisable yearend 1996 1995 84 64 million respectively yearend 1996 weighted average exercise price exercisable options 2777 following table summarizes outstanding exercisable options yearend 1997 9 commitments contingencies litigation claims assessments december 1996 arbitration panel entered 61 million award favor network 2000 communications corporation network 2000 breach contract claim sprint arbitrators directed sprint pay onehalf award network 2000 remainder directed paid missouri state court proposed class action network 2000s independent marketing representatives network 2000 sprint pending sprint filed action federal district court seeking arbitration panels award struck modified corrected asking court enter order regarding distribution award april 1997 court denied sprints request arbitration award struck granted network 2000s request award confirmed june 1997 sprint recorded additional 20 million charge connection settlement class action lawsuit sprint network 2000 related claims network 2000 sprint court preliminarily approved class action settlement final approval expected sprint believes complete network 2000 litigation various suits arising ordinary course business pending sprint management cannot predict final outcome actions believes result material effect sprints consolidated financial statements commitments sprint expects invest 200 300 million sprint pcs 1998 continue network buildout operating cash requirements sprint also expects global one require 200 300 million ongoing operating capital requirements contingencies january 1 1998 deadlock event occurred due failure sprint pcs partnership board approve proposed sprint pcs budget business plan partnership agreement partner refers issue resolution pursuant specified procedures remains unresolved buysell provisions triggered could result sprint either increasing selling partnership interest discussions among partners restructuring interests sprint pcs ongoing however certainty discussions result change partnership structure operating leases minimum rental commitments yearend 1997 noncancelable operating leases consisting mainly leases data processing equipment real estate follows gross rental expense totaled 410 million 1997 401 million 1996 402 million 1995 rental commitments subleases contingent rentals executory costs significant 10 financial instruments fair value financial instruments sprint estimates fair value financial instruments using available market information appropriate valuation methodologies result following estimates necessarily represent values sprint could realize current market exchange although management aware factors would affect estimated fair values presented yearend 1997 amounts comprehensively revalued purposes financial statements since date therefore estimates fair value yearend 1997 may differ significantly amounts presented carrying amounts estimated fair values sprints financial instruments yearend follows carrying values sprints cash equivalents approximate fair value yearend 1997 1996 estimated fair value sprints investments debt equity securities based quoted market prices estimated fair value sprints longterm debt based quoted market prices publicly traded issues estimated fair value issues based present value estimated future cash flows using discount rate based risks involved estimated fair value interest rate swap agreements amount sprint would receive terminate swap agreements yearend 1997 1996 taking account thencurrent interest rates estimated fair value foreign currency contracts replacement cost contracts yearend 1997 1996 taking account thencurrent foreign currency exchange rates concentrations credit risk sprints accounts receivable subject concentration credit risk sprint controls credit risk interest rate swap agreements foreign currency contracts credit approvals dollar exposure limits internal monitoring procedures event nonperformance counterparties sprints accounting loss would limited net amount would entitled receive terms applicable interest rate swap agreement foreign currency contract however sprint anticipate nonperformance counterparties related agreements interest rate swap agreements sprint uses interest rate swap agreements part interest rate risk management program net interest paid received related agreements recorded using accrual method recorded adjustment interest expense sprint interest rate swap agreements notional amounts 150 350 million outstanding yearend 1997 1996 respectively net interest expense income related interest rate swap agreements 200000 1997 2 million 1996 10 financial instruments continued 400000 1995 deferred gains losses related terminated interest rate swap agreements yearend 1997 1996 1995 foreign currency contracts part foreign currency exchange risk management program sprint purchases sells overthecounter forward contracts options various foreign currencies sprint outstanding 29 46 million open forward contracts buy various foreign currencies yearend 1997 1996 respectively sprint 14 3 million outstanding open purchase option contracts call various foreign currencies yearend 1997 1996 respectively premium paid option expensed incurred fair value option recorded asset end period forward contracts options open yearend 1997 1996 original maturities six months less net gain loss recorded reflect fair value contracts recorded period incurred total net losses 40000 1997 400000 1996 1 million 1995 recorded related foreign currency transactions contracts 11 earnings per share february 1997 financial accounting standards board issued fasb sfas 128 earnings per share new standard simplifies eps calculation makes us standard computing eps consistent international accounting standards sprint adopted sfas 128 yearend 1997 eps prior years restated comply sfas 128 sfas 128 primary eps replaced simpler calculation called basic eps basic eps calculated dividing income available common shareholders weighted average common shares outstanding previously primary eps based weighted average outstanding issuable shares assuming dilutive options exercised sfas 128 fully diluted eps changed significantly renamed diluted eps diluted eps includes effect potentially dilutive securities options convertible preferred stock sprints convertible preferred stock dividends 05 million 1997 1996 1995 dilutive securities options see note 8 included calculation diluted weighted average common shares 63 million shares 1997 53 million shares 1996 26 million shares 1995 12 paranet acquisition september 30 1997 sprint paid 375 million purchase net assets houstonbased paranet inc provider integration management support services computer networks sprint could pay additional 70 million sprint paranet meets certain financial targets 1998 transaction accounted using purchase method accounting result sprints financial statements reflect sprint paranets results operations beginning october 1997 excess purchase price tangible net assets acquired 357 million excess allocated noncompete agreements goodwill amortized straightline basis four 10 years 13 adoption accounting principles competitive marketplace yearend 1995 sprint determined local division longer met criteria necessary continued use sfas 71 result 1995 operating results included noncash extraordinary charge 565 million net income tax benefits 437 million decision discontinue using sfas 71 based changes regulatory framework convergence competition telecommunications industry 1995 extraordinary charge recognized sprint discontinued using sfas 71 consisted following 14 spinoff cellular division march 1996 sprint completed taxfree spinoff cellular sprint common shareholders complete spinoff sprint distributed cellular common shares rate one share every three sprint common shares held addition cellular repaid 14 billion intercompany debt owed sprint also contributed cellulars equity capital 185 million debt owed cellular excess amount repaid cellulars net operating results summarized separately classified discontinued operation consolidated statements income interest expense allocated cellular based assumed repayment intercompany debt sprint cellular operating expenses presented include cellulars share sprints general corporate overhead expenses totaling 2 million 1996 13 million 1995 reallocated sprints operating segments 15 additional financial information segment information related sprints operating business segments included managements discussion analysis financial condition results operations segmental results operations net operating revenues operating expenses shown tables include revenues expenses eliminated consolidation amounts eliminated follows capital expenditures identifiable assets related operating segments follows sprints identifiable assets related operating segments mainly include investments loans affiliates well corporate property plant equipment 1995 amounts include net assets discontinued cellular division supplemental cash flows information 1996 sprint completed spinoff see note 14 immediate effect cash flows cellulars repayment 14 billion intercompany debt owed sprint 15 additional financial information continued supplemental related party transactions sprint provided various voice data administrative services global one totaling 415 million 1997 361 million 1996 addition global one provided data administrative services sprint totaling 114 million 1997 130 million 1996 yearend 1997 1996 sprints receivable global one 154 163 million respectively sprints payable global one 104 49 million respectively restructuring charge 1995 sprints local division recorded 88 million restructuring charge reduced income continuing operations 55 million 016 per share restructuring plan included planned elimination several years approximately 1600 positions mainly network finance functions 1997 positions eliminated resulting termination benefit payments 42 million remainder paid 1998 1999 16 recently issued accounting pronouncements june 1997 fasb issued sfas 130 reporting comprehensive income sfas 130 establishes standards reporting display comprehensive income components comprehensive income includes changes equity period except due owner investments distributions includes items foreign currency translation adjustments unrealized gains losses availableforsale securities standard change display components presentday net income sprint present required disclosures financial statements beginning 1998 first quarter sfas 130 expected material impact sprint also june 1997 fasb issued sfas 131 disclosures segments enterprise related information new standard requires companies disclose segment data based management makes decisions allocating resources segments measures segment performance sfas 131 requires companies disclose measure segment profit loss operating income example segment assets reconciliations consolidated totals also requires entitywide disclosures companys products services major customers material countries holds assets reports revenues sprint adopt sfas 131 1998 yearend financial statements statement expected significant effect sprints reported segments february 1998 fasb issued sfas 132 employers disclosures pensions postretirement benefits sfas 132 standardizes disclosure requirements pensions postretirement benefits practical also eliminates certain disclosures requires additional information changes benefit obligations fair values plan assets sprint adopt sfas 132 1998 yearend financial statements sfas 132 expected significant effect sprints pension postretirement benefit plan disclosures 17 quarterly financial data unaudited 1 consolidated net operating revenues operating expenses reflect certain reclassifications conform current presentation reclassifications effect operating income net income 2 1997 second quarter 1996 fourth quarter sprint recorded nonrecurring charges 20 60 million respectively related litigation within long distance division charges reduced income continuing operations 13 million 003 per share 36 million 009 per share respectively see note 9 3 1997 fourth quarter sprint recognized gains 45 million sales local exchanges 26 million gain sale equity investment equipment provider gains increased income continuing operations 27 million 006 per share 17 million 004 per share respectively 4 sprint adopted sfas 128 yearend 1997 see note 11 eps amounts comply new standard sprint spectrum holding company lp subsidiaries consolidated financial statements years ended december 31 1997 1996 1995 independent auditors report independent auditors report partners sprint spectrum holding company lp kansas city missouri audited accompanying consolidated balance sheets sprint spectrum holding company lp subsidiaries partnership december 31 1997 1996 related consolidated statements operations changes partners capital cash flows three years period ended december 31 1997 audits also included financial statement schedule ii listed page financial statements financial statement schedule responsibility partnerships management responsibility express opinion consolidated financial statements financial statement schedule based audits conducted audits accordance generally accepted auditing standards require plan perform audits obtain reasonable assurance whether consolidated financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures consolidated financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion consolidated financial statements present fairly material respects consolidated financial position sprint spectrum holding company lp subsidiaries december 31 1997 1996 results operations cash flows three years ended conformity generally accepted accounting principles also opinion financial statement schedule considered relation basic consolidated financial statements taken whole presents fairly material respects information set forth therein partnership development stage december 31 1996 year ended december 31 1997 partnership completed development activities commenced planned principal operations deloitte touche llp february 3 1998 see notes consolidated financial statements see notes consolidated financial statements see notes consolidated financial statements see notes consolidated financial statements sprint spectrum holding company lp subsidiaries notes consolidated financial statements 1 organization sprint spectrum holding company lp holdings company limited partnership formed delaware march 28 1995 sprint enterprises lp tci spectrum holdings inc cox telephony partnership comcast telephony services together partners holdings formed pursuant reorganization operations existing partnership wirelessco lp wirelessco transferred certain operating functions holdings partners subsidiaries sprint corporation sprint telecommunications inc tci cox communications inc cox comcast corporation comcast together sprint tci cox parents respectively company certain affiliated partnerships offer services sprint pcs partners company following ownership interests december 31 1997 1996 sprint enterprises lp 40 tci spectrum holdings inc 30 cox telephony partnership 15 comcast telephony services 15 partners ownership interest consists 99 general partner interest 1 limited partnership interest company consolidated subsidiaries including newtelco lp newtelco sprint spectrum lp turn several subsidiaries sprint spectrum lps subsidiaries sprint spectrum equipment company lp equipmentco sprint spectrum realty company lp realtyco sprint spectrum finance corporation finco wirelessco realtyco equipmentco organized may 15 1996 purpose holding personal communications service pcs networkrelated real estate interests assets finco formed may 20 1996 coobligor debt obligations discussed note 5 additionally results american pcs lp apc consolidated november 1997 date federal communications commission fcc approved holdings new managing partner note 4 apc subsidiaries owns pcs license operates broadband gsm global system mobile communications washington dcbaltimore major trading area mta process building code division multiple access cdma overlay existing gsm pcs system apc includes american pcs communications llc apc pcs llc apc realty equipment company llc american personal communications holdings inc minorco lp minorco holds minority ownership interests newtelco sprint spectrum lp equipmentco realtyco wirelessco december 31 1997 1996 apc december 31 1997 venture formation affiliated partnerships joint venture formation agreement formation agreement dated october 24 1994 subsequently amended march 28 1995 january 31 1996 entered parents pursuant parents agreed form certain entities provide national wireless telecommunications services including acquisition development pcs licenses ii develop pcs wireless system los angelessan diego mta iii take certain actions october 24 1994 wirelessco formed march 28 1995 additional partnerships formed consisting holdings minorco newtelco sprint spectrum lp partners ownership interests wirelessco initially held directly partners october 24 1994 formation date wirelessco subsequently contributed holdings sprint spectrum lp march 28 1995 sprint spectrum holding company lp partnership agreement amended restated agreement limited partnership majorco lp holdings agreement dated january 31 1996 among sprint enterprises lp tci spectrum holdings inc comcast telephony services cox telephony partnership provides purpose company engage wireless communications services holdings agreement generally provides allocation profits losses according partners proportionate percentage interest giving effect special allocations special allocations profits allocated partners extent proportion cumulative net losses previously allocated losses allocated considering special allocations according partners allocation net profits previously allocated holdings agreement provides planned capital contributions partners total mandatory contributions 42 billion includes agreed upon values attributable contributions certain additional pcs licenses partner total mandatory contributions amount required contributed accordance capital contribution schedules set forth approved annual budgets partnership board holdings may request capital contributions made absence approved budget quickly provided approved budget always subject total mandatory contributions limit proposed budget fiscal 1998 yet approved partnership board resulted occurrence deadlock event defined holdings agreement january 1 1998 proposed budget approved resolution procedures set forth holdings agreement certain specified buysell procedures may triggered may result restructuring partners interest company limited circumstances liquidation company december 31 1997 approximately 40 billion total mandatory contributions contributed partners holdings affiliated partnerships approximately 33 billion contributed sprint spectrum lp emergence development stage company prior third quarter 1997 company reported operations development stage enterprise company commenced service mtas owns license result company longer considered development stage enterprise balance sheets statements operations cash flows longer presented development stage format management believes company incur additional losses 1998 require additional financial resources support current level operations remaining network buildout year ended december 31 1998 management believes company ability obtain required levels financing additional financing arrangements additional equity funding partners 2 summary significant accounting policies basis presentation assets liabilities results operations cash flows entities company controlling interest consolidated significant intercompany accounts transactions eliminated minority interests minorco limited partner newtelco allocated approximately 03 million 02 million income years ended december 31 1997 1996 respectively losses 18 million year ended december 31 1995 incurred newtelco losses excess general partners capital accounts consisted 1000 allocated limited partner extent capital account november 1997 concurrent acquisition discussed note 4 american personal communications ii lp apc ii became minority owner apc ii allocated approximately 65 million losses apc since date acquisition prior november 1997 apc ii majority owner allocated approximately 50 million losses excess investment december 31 1997 consolidation apc total losses approximately 567 million recorded minority interest companys consolidated balance sheet treatment reflects apc ii continued responsible funding share losses january 1 1998 company acquired remaining interest apc trademark agreement sprintr registered trademark sprint communications company lp sprintr sprint pcsr licensed company royaltyfree basis pursuant trademark license agreement company sprint communications company lp revenue recognition operating revenues pcs services recognized service rendered operating revenues equipment sales recognized time equipment delivered customer unaffiliated agent cost equipment company uses multiple distribution channels inventory including thirdparty retailers companyowned retail stores direct sales force telemarketing cost equipment varies distribution channel includes cost multiple models handsets related accessory equipment warehousing shipping expenses cash equivalents company considers highly liquid instruments original maturities three months less cash equivalents company maintains cash equivalents financial institutions highest credit ratings accounts receivable accounts receivable net allowance doubtful accounts approximately 90 million 02 million december 31 1997 1996 respectively inventory consists wireless communication equipment primarily handsets inventory stated lower cost firstin firstout basis replacement value losses sales handsets recognized time sale property plant equipment property plant equipment stated cost fair value date acquisition construction work progress represents costs incurred design construct pcs network repair maintenance costs charged expense incurred network equipment retired otherwise disposed book value net salvage charged accumulated depreciation nonnetwork equipment sold retired abandoned cost accumulated depreciation relieved gain loss recognized property plant equipment depreciated using straightline method based estimated useful lives assets depreciable lives range 3 20 years equipment capital leases apc leases certain office equipment capital lease agreements assets liabilities capital leases recorded lesser present value aggregate future minimum lease payments including estimated bargain purchase options fair value assets lease assets capital leases depreciated estimated useful lives 5 7 years depreciation related capital leases included within depreciation expense investment pcs licenses 1994 1995 federal communications commission fcc auctioned pcs licenses specific geographic service areas fcc grants licenses terms ten years generally grants renewals licensee complied license obligations company believes able secure renewal pcs licenses held subsidiaries pcs licenses amortized estimated useful lives 40 years placed service accumulated amortization pcs licenses totaled approximately 452 million 17 million december 31 1997 1996 respectively amortization 1995 microwave relocation costs company also incurred costs associated microwave relocation construction pcs network microwave relocation costs amortized estimated useful lives 40 years placed service accumulated amortization microwave relocation costs totaled approximately 52 million december 31 1997 amortization 1996 1995 intangible assets ongoing value remaining useful life intangible assets subject periodic evaluation company currently expects carrying amounts fully recoverable impairments intangibles longlived assets assessed based undiscounted cash flow methodology capitalized interest costs associated construction capital assets including pcs licenses incurred period construction capitalized total interest costs capitalized 1997 1996 approximately 986 million 305 million respectively amounts capitalized 1995 debt issuance costs included assets costs associated obtaining financing costs capitalized amortized interest expense term related debt instruments using effective interest method accumulated amortization years ended december 31 1997 1996 approximately 134 million 19 million respectively amortization 1995 operating leases rent expense recognized straightline basis life lease agreement including renewal periods lease expense recognized excess cash expended included noncurrent liabilities consolidated balance sheet major customer company markets products multiple distribution channels including companyowned retail stores thirdparty retail outlets companys subscribers disbursed throughout united states sales one thirdparty retail customer represented approximately 21 88 operating revenue consolidated statements operations years ended december 31 1997 1996 respectively company reviews credit history retailers prior extending credit maintains allowances potential credit losses company believes risk concentration credit limited income taxes company provided federal state income taxes since taxes responsibility individual partners financial instruments carrying value companys shortterm financial instruments including cash equivalents receivables customers affiliates accounts payable approximates fair value fair value companys longterm debt based quoted market prices issues current rates offered company similar debt summary fair value companys longterm debt december 31 1997 1996 included note 5 fair value interest rate contracts estimated net amount apc would pay terminate contracts balance sheet date fair value fixed rate loans estimated using discounted cash flow analysis based apcs current incremental borrowing rate similar borrowing agreements would made current conditions derivative financial instruments derivative financial instruments interest rate contracts utilized apc reduce interest rate risk apc established control environment includes risk assessment management approval reporting monitoring derivative financial instrument activities apc hold issue derivative financial instruments trading purposes differentials received paid interest rate contracts matched underlying debt instruments qualify settlement accounting recognized income life contracts adjustments interest expense gains losses terminations interest rate contracts recognized income expense terminated conjunction retirement associated debt gains losses terminations interest rate contracts associated retirement debt deferred amortized interest expense remaining life associated debt extent debt remains outstanding use estimates preparation financial statements conformity generally accepted accounting principles requires management make estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities date financial statements reported amounts revenues expenses reporting period actual results could differ estimates reclassifications certain reclassifications made 1996 1995 consolidated financial statements conform 1997 consolidated financial statement presentation 3 property plant equipment property plant equipment consists following december 31 1997 1996 thousands depreciation expense property plant equipment approximately 2449 million 96 million 02 million years ended december 31 1997 1996 1995 respectively 4 investments partnerships apc january 9 1995 wirelessco acquired 49 limited partnership interest apc september 1997 holdings increased ownership apc 583 additional capital contributions 30 million became managing partner upon fcc approval november 1997 january 1 1998 holdings minorco increased ownership percentages 9975 025 respectively partnership interests approximately 30 million acquisition increasing ownership 583 accounted purchase accordingly operating results apc included companys consolidated financial statements since date fccs approval acquisition purchase price allocated assets acquired liabilities assumed based preliminary estimate fair value following table reflects total apcs assets liabilities date acquisition assets acquired 503 cash paid 30 minority interest 50 liabilities assumed 523 ultimate allocation purchase price may differ initial estimate following unaudited pro forma financial information assumes acquisition occurred january 1 year company owned 100 apc consolidated results financial statements proforma sprint spectrum holding company lp 1997 1996 net sales 355038 76013 net loss minority interest 1646551 553274 pro forma data purport indicative results would obtained events actually occurred beginning periods presented intended projection future results prior acquisition controlling interest companys investment apc accounted equity method partnership agreement company apc ii specified losses allocated based percentage ownership interests certain factors january 1997 company apc ii amended apc partnership agreement respect allocation profits losses financial reporting purposes profits losses allocated proportion holdings apc iis respective partnership interests except costs related stock appreciation rights interest expense attributable fcc interest payments allocated entirely apc ii losses approximately 60 million 97 million 46 million years ended december 31 1997 1996 1995 respectively included equity losses unconsolidated subsidiaries period prior acquisition controlling interest cox communications pcs lp december 31 1996 company acquired 49 limited partner interest cox communications pcs lp cox pcs cox pioneer partnership cpp holds 505 general 05 limited partner interest general managing partner investment cox pcs accounted equity method terms partnership agreement cpp company obligated among things upon fcc consent assumption recognition license payment obligations cox pcs cpp obligated make capital contributions amount equal liability related interest pcs license covering los angelessan diego mta contributed cox pcs march 1997 b company obligated make capital contributions approximately 3689 million cox pcs c company obligated make cash capital contributions upon assumption cox pcs fcc payment obligations cpp contributed cash amount equal aggregate principal interest obligations cpp company obligated make additional capital contributions amount equal partners percentage interest times amount additional capital contributions requested december 31 1997 approximately 3482 million equity including 245 million pcs leasing co lp leasingco subsidiary cox pcs contributed cox pcs company december 31 1996 168 million contributed cox pcs losses allocated partners based ownership percentages subsequent december 31 1997 company completed funding obligation cox pcs partnership agreement concurrent funding company paid approximately 332 million interest accrued unfunded capital obligation additionally company acquired 49 limited partner interest leasingco formed acquire construct otherwise develop equipment personal property leased cox pcs company obligated make additional capital contributions leasingco beyond initial funding approximately 245 million partnership agreement cpp right require holdings acquire part cpps interest cox pcs based fair market value time transaction subsequent december 31 1997 cpp elected exercise right result company intends acquire 102 cox pcs subject fcc approval give company controlling interest purchase price currently estimated 80 million based fair market value cox pcs determined independent appraisals december 2008 cpp may put remaining interest cox pcs company 5 longterm debt borrowing arrangements longterm debt consists following december 31 1997 1996 thousands senior notes senior discount notes august 1996 sprint spectrum lp sprint spectrum finance corporation together issuers issued 250 million aggregate principal amount 11 senior notes due 2006 senior notes 500 million aggregate principal amount maturity 12 senior discount notes due 2006 senior discount notes together senior notes senior discount notes issued discount aggregate principal amount maturity generated proceeds approximately 273 million cash interest senior notes accrue rate 11 per annum payable semiannually arrears february 15 august 15 commencing february 15 1997 cash interest accrue payable senior discount notes prior august 15 2001 thereafter cash interest senior discount notes accrue rate 12 per annum payable semiannually arrears february 15 august 15 commencing february 15 2002 august 15 2001 issuers required redeem amount equal 384772 per 1000 principal amount maturity senior discount note outstanding 192 million aggregate principal amount maturity assuming senior discount notes remain outstanding date notes redeemable option issuers whole part time august 15 2001 redemption prices set forth respectively plus accrued unpaid interest redemption date redeemed 12 month period beginning august 15 years indicated senior discount senior notes redemption price redemption price year 2001 105500 110000 2002 103667 106500 2003 101833 103250 2004 thereafter 100000 addition prior august 15 1999 issuers may redeem 35 originally issued principal amount notes net proceeds one public equity offerings provided least 65 originally issued principal amount maturity senior notes senior discount notes would remain outstanding immediately giving effect redemption price senior notes equal 1110 principal amount senior notes redeemed plus accrued unpaid interest redemption date redemption price senior discount notes equal 1125 accreted value redemption date senior discount notes redeemed notes contain certain restrictive covenants including among requirements limitations additional indebtedness limitations restricted payments limitations liens limitations dividends payment restrictions affecting certain restricted subsidiaries bank credit facility sprint spectrum lp borrower entered agreement chase manhattan bank chase agent group lenders 2 billion bank credit facility dated october 2 1996 proceeds facility used finance working capital needs subscriber acquisition costs capital expenditures general borrower purposes facility consists revolving credit commitment 17 billion 300 million term loan commitment november 1997 certain terms relating financial operating conditions amended december 31 1997 605 million drawn weighted average interest rate 842 11 billion remaining available borrowings revolving credit commitment december 31 1996 commitment fees revolving portion agreement payable quarterly based average unused revolving commitments february 15 1998 company borrowed additional 225 million revolving credit facility revolving credit commitment expires july 13 2005 availability reduced quarterly installments ranging 75 million 175 million commencing january 2002 reductions may required january 1 2002 extent borrower meets certain financial conditions term loans due sixteen consecutive quarterly installments beginning january 2002 aggregate principal amounts 125000 first fifteen payments remaining aggregate outstanding principal amount term loans due last installment interest term loans andor revolving credit loans applicable libor rate plus 25 eurodollar loans greater prime rate 05 plus federal funds effective rate plus 15 abr loans borrowers option interest rate may adjusted downward improvements bond rating andor leverage ratios interest abr loans eurodollar loans interest period terms excess 3 months payable quarterly interest eurodollar loans interest period terms less 3 months payable last day interest period december 31 1997 1996 weighted average interest rate term loans 839 819 respectively borrowings bank credit facility secured borrowers interests wirelessco realtyco equipmentco certain personal real property shared lien shared lien equally ratably secures bank credit facility vendor financing agreements discussed certain indebtedness borrower credit facility jointly severally guaranteed wirelessco realtyco equipmentco nonrecourse parents partners bank credit facility agreement vendor financing agreements contain certain restrictive financial operating covenants including among requirements maximum debt ratios including debt total capitalization limitations capital expenditures limitations additional indebtedness limitations dividends payment restrictions affecting certain restricted subsidiaries loss right use sprintr trademark termination nonrenewal fcc license reduces population coverage specified limits certain changes controlling interest borrower defined among provisions constitute events default vendor financing october 2 1996 company entered financing agreements northern telecom inc nortel lucent technologies inc lucent together nortel vendors multiple drawdown term loan facilities totaling 13 billion 18 billion respectively proceeds facilities used finance purchase goods services provided vendors additionally commitments allow conversion accrued interest additional principal conversions reduce availability commitments interest accruing debt outstanding december 31 1997 converted additional principal february 8 1999 march 30 1999 lucent nortel respectively april 30 1997 november 20 1997 company amended terms financing agreement nortel amendments provide syndication financing commitment nortel several banks vendors nortel lenders modification certain operating financial covenants commitment provides financing two phases first phase nortel lenders finance 800 million second phase nortel lenders finance additional 500 million upon achievement certain operating financial conditions amended december 31 1997 630 million including converted accrued interest 186 million borrowed weighted average interest rate 898 189 million remaining available first phase addition company paid 20 million origination fees upon initial drawdown first phase obligated pay additional origination fees date initial drawdown loan second phase february 15 1998 company borrowed additional 470 million nortel facility borrowings nortel facility december 31 1996 may 29 1997 november 20 1997 company amended terms financing agreement lucent amendments provide syndication financing commitment lucent sprint banks vendors lucent lenders modification certain operating financial covenants lucent lenders committed financing 15 billion december 31 1997 aggregate 18 billion thereafter company pays facility fee daily amount certain loans outstanding agreement payable quarterly lucent agreement terminates june 30 2001 december 31 1997 company borrowed approximately 983 million including converted accrued interest 331 million lucent facility weighted average interest rate 894 850 million remaining available february 15 1998 company borrowed additional 1041 million lucent facility borrowings lucent facility december 31 1996 principal amounts loans drawn nortel lucent agreements due twenty consecutive quarterly installments commencing date thirtynine months last day borrowing year defined agreements one five consecutive 12month periods following date initial drawdown loan aggregate amount due year equal percentages ranging 10 30 multiplied total principal amount loans borrowing year agreements provide two borrowing rate options first phase nortel agreement throughout term lucent agreement abr loans bear interest greater prime rate 05 plus federal funds effective rate plus 2 eurodollar loans bear interest london interbank libor rate one 30 60 90day rates discretion company plus 3 second phase nortel agreement abr loans bear interest greater prime rate 05 plus federal funds effective rate plus 15 eurodollar loans bear interest libor rate plus 25 interest date loan one year last day borrowing year added principal amount loan thereafter interest payable quarterly borrowings vendor financing secured shared lien vendor financing jointly severally guaranteed wirelessco realtyco equipmentco nonrecourse parents partners certain amounts included construction obligations consolidated balance sheets may financed vendor financing agreements due fcc apc became obligated fcc 102 million upon receipt commercial pcs license covering washington dcbaltimore mta march 1996 fcc determined interest amount due would begin accrue march 8 1996 interest rate 775 beginning first payment due april 1996 fcc granted two years interestonly payments followed three years principal interest payments based interest payment provisions determined fcc apcs incremental borrowing rate similar debt time debt issued apc accrued interest beginning upon receipt license effective rate 13 connection acquisition discussed note 4 holdings became responsible making principal interest payments apcs obligation fcc apc senior secured credit facilities february 7 1997 american pcs communications llc entered credit facilities 420 million consisting term loan facility 220 million reducing revolving credit facility 200 million together credit agreement credit agreement secured first priority liens equity interests held american pcs communications llc direct subsidiaries including equity interests subsidiaries hold apcs pcs license certain real property interest equipment first priority security interest mortgages substantially intangible tangible assets apc subsidiaries credit agreement matures february 7 2005 interest rate libor plus 225 interest rate may stepped term credit agreement based ratio outstanding debt earnings interest tax depreciation amortization proceeds credit agreement used repay outstanding financing holdings closing date credit agreement capital expenditures communications systems general working capital requirements net operating losses credit agreement contains covenants require apc maintain certain levels wireless subscribers well financial nonfinancial requirements january 1998 apc completed negotiations lenders amend credit agreement amended credit agreement contains certain covenants among things contain certain restrictive financial operating covenants including maximum debt ratios including debt total capitalization limitations capital expenditures covenants require american pcs communications llc enter interest rate contracts quarterly basis protect limit interest rate 40 aggregate debt outstanding debt december 31 1997 debt included note payable lucent financing debt issuance costs note payable certain leasehold improvements capital leases acquired purchase apc maturities debt range 3 10 years interest rates 832 21 interest rate contracts december 31 1997 apc entered nine interest rate contracts swaps collar aggregate notional amount 122 million agreements apc pays fixed rate receives variable rate protect apc interest rate fluctuations portion variable rate debt fixed rates paid apc interest rate swap contracts range approximately 597 68 option features contained certain swaps operate manner interest rate protection cases effective rates outside certain range collar arrangement apc receive 619 libor falls 619 pay 8 libor exceeds 8 contracts expire 2001 fair value interest rate contracts december 31 1997 unrealized loss approximately 13 million notional amounts represent reference balances upon payments receipts based consequently indicative level risk cash requirements contracts apc exposure credit risk counterparty extent would replace interest rate swap contract market counterparty fail meet obligations counterparties contracts primary dealers meet apcs criteria managing credit exposures fair value estimated fair value companys longterm debt december 31 1997 1996 follows thousands december 31 1997 scheduled maturities longterm debt capital leases next five years follows thousands 6 commitments contingencies operating leases minimum rental commitments december 31 1997 noncancelable operating leases consisting principally leases cell switch sites office space next five years follows thousands 1998 135124 1999 131279 2000 104658 2001 63379 2002 21254 gross rental expense cell switch sites aggregated approximately 921 million 131 million years ended december 31 1997 1996 respectively gross rental expense office space approximated 332 million 114 million 07 million years ended december 31 1997 1996 1995 respectively certain cell switch site leases contain renewal options generally terms 5 years may exercised time excluded amounts procurement contracts january 31 1996 company entered procurement services contracts att corp subsequently assigned lucent nortel engineering construction pcs network contract provides initial term ten years renewals additional oneyear periods vendors must achieve substantial completion pcs network within established time frame accordance criteria specified procurement contracts pricing initial equipment software engineering services established procurement contracts procurement contracts provide payment terms based delivery dates substantial completion dates final acceptance dates event delay completion pcs network procurement contracts provide certain amounts paid company vendors minimum commitments initial term 08 billion 10 billion lucent nortel respectively include limited equipment required establishment installation pcs network handset purchase agreements june 1996 company entered threeyear purchase supply agreement vendor purchase handsets equipment totaling approximately 500 million 1997 1996 company purchased 3327 million 85 million agreement respectively total purchase commitment must satisfied april 30 1998 september 1996 company entered another threeyear purchase supply agreement second vendor purchase handsets equipment totaling 600 million purchases commenced april 1997 company purchased 1476 million agreement total purchase commitment must satisfied april 2000 service agreements company entered agreement vendor provide pcs call record retention services monthly rates per subscriber variable based overall subscriber volume subscriber fees less specified annual minimum charges company obligated pay difference amounts paid processing fees annual minimum annual minimums range 20 million 60 million 2001 agreement extends december 31 2001 two automatic twoyear renewal periods unless terminated company may terminate agreement prior expiration date would subject specified termination penalties company also entered agreement vendor provide prepaid calling services monthly rates per minute use based overall call volume average minutes use less monthly specified minimums company obligated pay difference average minutes used applicable rates monthly minimum monthly minimums range 40000 50000 initial term certain installation setup fees processing database centers also included agreement dependent upon need centers agreement extends july 1999 successive oneyear term renewals unless terminated company may terminate agreement prior expiration date would subject specified termination penalties january 1997 company entered four onehalf year contract consulting services terms agreement consulting services provided specified hourly rates minimum number hours total commitment approximately 125 million term agreement litigation company involved various legal proceedings incidental conduct business possible determine ultimate disposition proceedings company believes outcome proceedings individually aggregate material adverse effect companys financial condition results operations 7 employee benefits employees performing services company employed sprint december 31 1995 amounts paid sprint relating pension expense employer contributions sprint corporation 401k plan employees approximated 03 million 1995 company maintains shortterm longterm incentive plans salaried employees sprint spectrum lp eligible shortterm incentive plan commencing date hire employees apc covered apc plans shortterm incentive compensation based incentive targets established position based companys overall compensation strategy targets contain objective company component personal objective component charges operations shortterm plan approximated 200 million 123 million 35 million years ended december 31 1997 1996 1995 respectively longterm compensation obligation company two longterm incentive plans 1996 plan 1997 plan employees meeting certain eligibility requirements considered participants plan participants 1996 plan receive 100 preestablished targets period july 1 1995 june 30 1996 introductory term participants 1996 plan elected either payout amount due converted 50 100 award appreciation units unless converted appreciation units payment introductory term 1996 plan made third quarter 1998 1996 plan appreciation units vest 25 per year commencing second anniversary date grant expire term ten years 1997 plan appreciation units vest 25 per year commencing first anniversary date grant also expire ten years ended december 31 1997 1996 1995 181 million 95 million 19 million respectively expensed plans december 31 1997 total approximately 103 million units authorized grant plans company applied apb opinion 25 accounting stock issued employees 1997 1996 significant difference would resulted sfas 123 accounting stockbased compensation applied savings plan effective january 1996 company established savings retirement program savings plan certain employees qualifies section 401k internal revenue code permanent fulltime certain parttime employees eligible become participants plan one year service upon reaching age 35 whichever occurs first participants make contributions basic tax account supplemental tax account maximum contribution participant year 16 participants compensation eligible employee elects participate savings plan makes contribution basic tax account company makes matching contribution matching contributions equal 50 amount basic tax contribution participant first 6 employee elects contribute contributions savings plan invested participants discretion several designated investment funds distributions savings plan generally made upon retirement termination employment unless deferred participant expense savings plan approximated 49 million 11 million 1997 1996 respectively apc also employee savings plan qualifies section 401k internal revenue code apc employees completing one year service eligible may contribute 15 pretax earnings apc matches 100 first 3 employees contribution employees immediately fully vested apcs contributions addition apc makes discretionary contributions behalf eligible participants amount 2 employees compensation expenses relating employee savings plan significant since date acquisition profit sharing retirement plan effective january 1996 company established profit sharing plan employees eligible participate plan completing one year service profit sharing contributions based compensation age years service employee profit sharing contributions deposited individual accounts companys retirement plan vesting occurs participant completes five years service years ended december 31 1997 1996 expense profit sharing plan approximated 25 million 07 million respectively deferred compensation plan executives effective january 1997 company established nonqualified deferred compensation plan permits certain eligible executives defer portion compensation plan allows participants defer 80 base salary 100 annual shortterm incentive compensation deferred amounts earn interest prime rate payments made participants upon retirement disability death expiration deferral election payment method selected participant 8 related party transactions business services company reimburses sprint certain accounting data processing services participation certain advertising contracts certain cash payments made sprint behalf company management services company allocated costs services based direct usage allocated expenses approximately 105 million 119 million 26 million included selling general administrative expense consolidated statements operations 1997 1996 1995 respectively addition miscellaneous services agreement described company entered agreements sprint invoicing services operator services switching equipment company also using sprint interexchange carrier agreement services covered holdings partnership agreement charges based volume services provided similar would incurred unrelated thirdparty vendor apc company entered affiliation agreement apc january 1995 provides reimbursement certain allocable costs payment affiliation fees year ended december 31 1997 reimbursement allocable costs approximately 140 million included selling general administrative expenses reimbursements recognized 1996 1995 additionally affiliation fees recognized based percentage apcs net revenues year ended december 31 1997 affiliation fees 42 million included income cox pcs concurrent execution partnership agreement company entered affiliation agreement cox pcs provides reimbursement certain allocable costs payment affiliate fees years ended december 31 1997 1996 allocable costs approximately 200 million 73 million respectively netted selling general administrative expenses accompanying consolidated statements operations total allocated costs approximately 16 million 73 million included receivables affiliates consolidated balance sheets addition company purchases certain equipment handsets behalf cox pcs receivables affiliates handsets related equipment approximately 312 million 6 million december 31 1997 1996 respectively phillieco lp company provides various services phillieco lp phillieco limited partnership organized among subsidiaries sprint tci cox phillieco owns pcs license philadelphia mta year ended december 31 1997 costs services incurred 1996 1997 363 million allocated phillieco included reduction selling general administrative expenses accompanying consolidated statements operations additionally affiliation fees recognized based percentage philliecos net revenues year ended december 31 1997 affiliation fees 03 million included income accompanying consolidated statements operations allocated costs affiliate fees 366 million included receivable affiliates december 31 1997 paid january 1998 costs december 31 1996 sprintcom inc company provides services sprintcom inc sprintcom affiliate sprint company currently building network infrastructure certain bta markets sprintcom awarded licenses services include engineering management purchasing accounting related services year ended december 31 1997 costs services provided 291 million allocated sprintcom included reduction selling general administrative expenses accompanying consolidated statements operations total allocated costs approximately 140 million included receivables affiliates december 31 1997 costs incurred 1996 paging services 1996 company commenced paging services pursuant agreements paging network equipment company sprint communications company lp sprint communications years ended december 31 1997 1996 sprint communications received agency fees approximately 106 million 49 million respectively advances partners december 1996 partners advanced approximately 168 million company contributed cox pcs note 4 advances repaid february 1997 9 quarterly financial data unaudited summarized quarterly financial data 1997 1996 follows thousands 10 subsequent events subsequent december 31 1997 company reorganized operations certain field offices consolidated costs associated reorganization expected recorded first quarter 1998 consist primarily severance pay writeoff certain leasehold improvements termination payments lease agreements exhibit index exhibit number 3 articles incorporation bylaws articles incorporation amended filed exhibit 3a sprint corporation quarterly report form 10q quarter ended june 30 1997 incorporated herein reference b bylaws amended filed exhibit 3a sprint corporation quarterly report form 10q quarter ended september 30 1996 incorporated herein reference 4 instruments defining rights sprints equity security holders rights sprints equity security holders defined fifth sixth seventh eighth articles sprints articles incorporation see exhibit 3a b rights agreement dated june 9 1997 sprint corporation umb bank na rights agent filed exhibit 1 sprint corporation registration statement form 8a dated june 12 1997 file 14721 incorporated herein reference c standstill agreement dated july 31 1995 among sprint corporation france telecom deutsche telekom ag filed exhibit 10c sprint corporation quarterly report form 10q quarter ended june 30 1995 incorporated herein reference amendments certain agreements interpretation dated june 24 1997 among sprint corporation france telecom deutsche telekom ag filed exhibit 4d sprint corporation quarterly report form 10q quarter ended june 30 1997 incorporated herein reference e indenture dated march 1 1983 sprint corporation formerly united telecommunications inc bank new york formerly irving trust company trustee filed exhibit 4a united telecommunications inc registration statement 334563 incorporated herein reference f first supplemental indenture dated april 1 1986 sprint corporation formerly united telecommunications inc bank new york formerly irving trust company trustee filed exhibit 4d sprint corporation annual report form 10k year ended december 31 1991 incorporated herein reference g second supplemental indenture dated may 1 1990 sprint corporation formerly united telecommunications inc bank new york trustee filed exhibit 4e united telecommunications inc annual report form 10k year ended december 31 1990 incorporated herein reference h form indenture dated july 1 1992 sprint corporation first national bank chicago trustee filed exhibit 4a sprint corporation registration statement 3348689 incorporated herein reference form indenture dated june 15 1993 among sprint capital corporation sprint corporation bank new york trustee filed exhibit 4a sprint corporation registration statement 3364564 incorporated herein reference 10 material agreements joint ventures joint venture agreement dated june 22 1995 among sprint corporation sprint global venture inc france telecom deutsche telekom ag filed exhibit 10a sprint corporation quarterly report form 10q quarter ended june 30 1995 incorporated herein reference b amendment 1 joint venture agreement dated january 31 1996 among sprint corporation sprint global venture inc france telecom deutsche telekom ag atlas telecommunications sa filed exhibit 99a sprint corporation current report form 8k dated january 31 1996 incorporated herein reference c investment agreement dated july 31 1995 among sprint corporation france telecom deutsche telekom ag including exhibit stockholders agreement among france telecom deutsche telekom ag sprint corporation filed exhibit 10b sprint corporation quarterly report form 10q quarter ended june 30 1995 incorporated herein reference amended restated agreement limited partnership majorco lp dated january 31 1996 among sprint spectrum lp tci network services comcast telephony services cox telephony partnership filed exhibit 99c sprint corporation current report form 8k dated january 31 1996 incorporated herein reference e parents agreement dated january 31 1996 sprint corporation telecommunications inc filed exhibit 99d sprint corporation current report form 8k dated january 31 1996 incorporated herein reference f parents agreement dated january 31 1996 sprint corporation comcast corporation filed exhibit 99e sprint corporation current report form 8k dated january 31 1996 incorporated herein reference g parents agreement dated january 31 1996 sprint corporation cox communications inc filed exhibit 99f sprint corporation current report form 8k dated january 31 1996 incorporated herein reference 10 executive compensation plans arrangements h 1985 stock option plan amended filed exhibit 10a sprint corporation quarterly report form 10q quarter ended september 30 1997 incorporated herein reference 1990 stock option plan amended filed exhibit 99 sprint corporation registration statement 33346491 incorporated herein reference j 1990 restricted stock plan amended filed exhibit 99 sprint corporation registration statement 33346487 incorporated herein reference k executive deferred compensation plan amended filed exhibit 10k sprint corporation annual report form 10k year ended december 31 1996 incorporated herein reference l management incentive stock option plan amended filed exhibit 10c sprint corporation quarterly report form 10q quarter ended june 30 1997 incorporated herein reference 1997 longterm stock incentive program filed exhibit 99 sprint corporation registration statement 3325449 incorporated herein reference n sprint supplemental executive retirement plan filed exhibit 10i sprint corporation quarterly report form 10q quarter ended september 30 1995 incorporated herein reference amended restated centel directors deferred compensation plan filed exhibit 10c sprint corporation quarterly report form 10q quarter ended september 30 1997 incorporated herein reference p restated memorandum agreements respecting supplemental pension benefits sprint corporation formerly united telecommunications inc two current former executive officers filed exhibit 10i sprint corporation annual report form 10k year ended december 31 1992 incorporated herein reference q executive longterm incentive plan filed exhibit 10j sprint corporation annual report form 10k year ended december 31 1993 incorporated herein reference r executive management incentive plan filed exhibit 10k sprint corporation annual report form 10k year ended december 31 1993 incorporated herein reference longterm incentive compensation plan amended filed exhibit 10i sprint corporation quarterly report form 10q quarter ended september 30 1996 incorporated herein reference shortterm incentive compensation plan filed exhibit 10k united telecommunications inc annual report form 10k year ended december 31 1989 incorporated herein reference u retirement plan directors amended filed exhibit 10u sprint corporation annual report form 10k year ended december 31 1996 incorporated herein reference v key management benefit plan amended filed exhibit 10g sprint corporation quarterly report form 10q quarter ended september 30 1996 incorporated herein reference w agreements regarding special compensation post employment restrictive covenants sprint corporation certain executive officers filed exhibit 10x sprint corporation annual report form 10k year ended december 31 1993 exhibit 10d sprint corporation quarterly report form 10q quarter ended september 30 1994 exhibit 10 h sprint corporation quarterly report form 10q quarter ended march 31 1996 exhibit 10w sprint corporation annual report form 10k year ended december 31 1996 incorporated herein reference agreements regarding special compensation post employment restrictive covenants sprint corporation four executive officers x directors deferred fee plan amended filed exhibit 10x sprint corporation annual report form 10k year ended december 31 1996 incorporated herein reference form contingency employment agreements sprint corporation certain executive officers filed exhibit 10b sprint corporation quarterly report form 10q quarter ended march 31 1995 incorporated herein reference z form indemnification agreements sprint corporation formerly united telecommunications inc directors officers filed exhibit 10s sprint corporation annual report form 10k year ended december 31 1991 incorporated herein reference aa summary executive officer board directors benefits filed exhibit 10k sprint corporation quarterly report form 10q quarter ended september 30 1996 incorporated herein reference bb description retirement agreement sprint corporation one executive officers cc amended restated centel director stock option plan filed exhibit 10aa sprint corporation annual report form 10k year ended december 31 1993 incorporated herein reference 12 computation ratio earnings fixed charges 21 subsidiaries registrant 23 consent ernst young llp b consent deloitte touche llp 27 financial data schedules december 31 1997 b september 30 1997 restated c june 30 1997 restated march 31 1997 restated e december 31 1996 restated f september 30 1996 restated g june 30 1996 restated h march 31 1996 restated december 31 1995 restated item 14 principal accountant fees services information required item incorporated reference information set forth caption “ratification independent registered public accounting firm” proxy statement relating 2009 annual meeting shareholders filed sec part iv item 15 item 14 principal accountant fees services information required item incorporated reference information set forth caption “ratification independent registered public accounting firm 2006” proxy statement relating 2006 annual meeting shareholders filed sec part iv item 15 item 14 exhibits financial statement schedule reports form 8k 1 consolidated financial statements sprint supplementary financial information filed part report listed index financial statements financial statement schedule supplementary data page 18 2 consolidated financial statement schedule sprint filed part report listed index financial statements financial statement schedule supplementary data page 18 3 following exhibits filed part report exhibits 3 articles incorporation bylaws articles incorporation amended filed exhibit 4a sprint corporation current report form 8k dated january 31 1996 incorporated herein reference b bylaws amended filed exhibit 4b sprint corporation current report form 8k year ended january 31 1996 incorporated herein reference 4 instruments defining rights sprints equity security holders rights sprints equity security holders defined fifth sixth seventh eighth articles sprints articles incorporation see exhibit 3a b rights agreement dated august 8 1989 sprint corporation formerly united telecommunications inc umb bank na formerly united missouri bank kansas city na rights agent filed exhibit 2b sprint corporation registration statement form 8a dated august 11 1989 file 14721 incorporated herein reference c amendment supplement dated june 4 1992 rights agreement dated august 8 1989 filed exhibit 2c amendment 1 form 8 dated june 8 1992 sprint corporation registration statement form 8a dated august 11 1989 file 14721 incorporated herein reference second amendment rights agreement dated july 31 1995 sprint corporation umb bank na filed exhibit 2d form 8aa2 dated october 20 1995 amending sprint corporation registration statement form 8a dated august 11 1989 file 14721 incorporated herein reference e standstill agreement dated july 31 1995 among sprint corporation france telecom deutsche telekom ag filed exhibit 10c sprint corporation quarterly report form 10q quarter ended june 30 1995 incorporated herein reference 10 material agreements joint ventures joint venture agreement dated june 22 1995 among sprint corporation sprint global venture inc france telecom deutsche telekom ag filed exhibit 10a sprint corporation quarterly report form 10q quarter ended june 30 1995 incorporated herein reference b amendment 1 joint venture agreement dated january 31 1996 among sprint corporation sprint global venture inc france telecom deutsche telekom ag atlas telecommunications sa filed exhibit 99a sprint corporation current report form 8k dated january 31 1996 incorporated herein reference c investment agreement dated july 31 1995 among sprint corporation france telecom deutsche telekom ag including exhibit stockholders agreement among france telecom deutsche telekom ag sprint corporation filed exhibit 10b sprint corporation quarterly report form 10q quarter ended june 30 1995 incorporated herein reference amended restated agreement limited partnership majorco lp dated january 31 1996 among sprint spectrum lp tci network services comcast telephony services cox telephony partnership filed exhibit 99c sprint corporation current report form 8k dated january 31 1996 incorporated herein reference e parents agreement dated january 31 1996 sprint corporation telecommunications inc filed exhibit 99d sprint corporation current report form 8k dated january 31 1996 incorporated herein reference f parents agreement dated january 31 1996 sprint corporation comcast corporation filed exhibit 99e sprint corporation current report form 8k dated january 31 1996 incorporated herein reference g parents agreement dated january 31 1996 sprint corporation cox communications inc filed exhibit 99f sprint corporation current report form 8k dated january 31 1996 incorporated herein reference 10 executive compensation plans arrangements h 1985 stock option plan amended filed exhibit 10c sprint corporation quarterly report form 10q quarter ended september 30 1995 incorporated herein reference appendix stock option plans 1990 stock option plan amended filed exhibit 10d sprint corporation quarterly report form 10q quarter ended september 30 1995 incorporated herein reference appendix stock option plans see exhibit 10h j 1990 restricted stock plan amended filed exhibit 99 sprint corporation registration statement 3365147 incorporated herein reference k executive deferred compensation plan amended l management incentive stock option plan amended filed exhibit 10g sprint corporation quarterly report form 10q quarter ended september 30 1995 incorporated herein reference appendix stock option plans see exhibit 10h longterm stock incentive program amended filed exhibit 10h sprint corporation quarterly report form 10q quarter ended september 30 1995 incorporated herein reference n sprint supplemental executive retirement plan filed exhibit 10i sprint corporation quarterly report form 10q quarter ended september 30 1995 incorporated herein reference amended restated centel directors deferred compensation plan filed exhibit 10j sprint corporation quarterly report form 10q quarter ended september 30 1995 incorporated herein reference p restated memorandum agreements respecting supplemental pension benefits sprint corporation formerly united telecommunications inc two current former executive officers filed exhibit 10i sprint corporation annual report form 10k year ended december 31 1992 incorporated herein reference q executive longterm incentive plan filed exhibit 10j sprint corporation annual report form 10k year ended december 31 1993 incorporated herein reference r executive management incentive plan filed exhibit 10k sprint corporation annual report form 10k year ended december 31 1993 incorporated herein reference longterm incentive compensation plan filed exhibit 10j united telecommunications inc annual report form 10k year ended december 31 1989 incorporated herein reference shortterm incentive compensation plan filed exhibit 10k united telecommunications inc annual report form 10k year ended december 31 1989 incorporated herein reference u retirement plan directors amended filed exhibit 10b sprint corporation quarterly report form 10q quarter ended march 31 1994 incorporated herein reference v key management benefit plan amended filed exhibit 10o sprint corporation annual report form 10k year ended december 31 1993 incorporated herein reference w agreement regarding special compensation post employment restrictive covenants sprint corporation one executive officers x directors deferred fee plan amended form contingency employment agreements sprint corporation certain executive officers filed exhibit 10b sprint corporation quarterly report form 10q year ended march 31 1995 incorporated herein reference z form indemnification agreements sprint corporation formerly united telecommunications inc directors officers filed exhibit 10s sprint corporation annual report form 10k year ended december 31 1991 incorporated herein reference aa summary executive officer board directors benefits bb agreements regarding special compensation post employment restrictive covenants sprint corporation four executive officers filed exhibit 10d sprint corporation quarterly report form 10q quarter ended september 30 1994 incorporated herein reference cc amended restated centel stock option plan filed exhibit 10w sprint corporation annual report form 10k year ended december 31 1994 incorporated herein reference appendix stock option plans see exhibit 10h dd agreements regarding special compensation post employment restrictive covenants sprint corporation three executive officers filed exhibit 10x sprint corporation annual report form 10k year ended december 31 1993 incorporated herein reference ee description agreement regarding supplemental pension benefits sprint corporation one executive officers filed exhibit 10e sprint corporation quarterly report form 10q quarter ended september 30 1994 incorporated herein reference ff amended restated centel director stock option plan filed exhibit 10aa sprint corporation annual report form 10k year ended december 31 1993 incorporated herein reference 11 computation earnings per common share 12 computation ratio earnings fixed charges 21 subsidiaries registrant 23 consent ernst young llp 27 financial data schedules 1995 financial data schedule b restated 1994 financial data schedule sprint furnish securities exchange commission upon request copy instruments defining rights holders longterm debt longterm debt subsidiaries total amount securities authorized said instruments exceed 10 percent total assets sprint subsidiaries consolidated basis b reports form 8k sprint filed current report form 8k dated january 31 1996 reported investment 30 billion sprint ft dt consummation global venture ft dt see managements discussion analysis financial condition results operations strategic developments global one pages 20 21 discussion also reported sprint tci comcast cox entered series agreements amending certain respects previously announced joint venture engage communications business see managements discussion analysis financial condition results operations strategic developments sprint spectrum lp page 21 discussion c exhibits listed item 14a signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized sprint corporation registrant w esrey william esrey chairman chief executive officer date march 11 1996 pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities indicated 11th day march 1996 w esrey william esrey chairman chief executive officer arthur b krause arthur b krause executive vice president chief financial officer john p meyer john p meyer senior vice president controller principal accounting officer signatures sprint corporation registrant pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities indicated 11th day march 1996 dubose ausley dubose ausley director warren l batts warren l batts director michel bon michel bon director ruth davis ruth davis director w esrey william esrey director donald j hall donald j hall director harold hook harold hook director ronald lemay ronald lemay director linda k lorimer linda koch lorimer director charles e rice charles e rice director ron sommer ron sommer director stewart turley stewart turley director 1 accompanying selected financial data restated reflect spinoff sprints cellular wireless division cellular sprint shareholders accordingly cellulars operating results excluded income continuing operations reported discontinued operations 2 1995 nonrecurring charges 88 million recorded related restructuring within local division charges reduced consolidated 1995 income continuing operations 55 million 016 per share 1993 nonrecurring charges 293 million recorded related transaction costs associated merger centel expenses integrating restructuring operations two companies b realignment restructuring within long distance division charges reduced consolidated 1993 income continuing operations 193 million 056 per share 3 1994 sprint sold investment equity securities realizing gain 35 million increased consolidated 1994 income continuing operations 22 million 006 per share 1993 result enactment revenue reconciliation act 1993 sprint required adjust deferred income tax assets liabilities reflect increased tax rate adjustment reduced consolidated 1993 income continuing operations 11 million 003 per share 1992 1991 gains recognized related sales certain local telephone properties increased consolidated 1992 income continuing operations 44 million 013 per share consolidated 1991 income continuing operations 64 million 019 per share 4 free cash flow internal measurement utilized sprint assess coverage capital expenditures dividends paid cash provided operating activities continuing operations measurement alternative operating income determined accordance generally accepted accounting principles indicator operating performance amount 1992 excludes additional proceeds sale accounts receivable 300 million managements discussion analysis sprint corporation financial condition results operations strategic developments telecommunications law february 1996 telecommunications act 1996 act signed law purpose act promote competition aspects telecommunications act requires telecommunications carriers interconnect carriers provide resale number portability dialing parity access rightsofway compensation reciprocal traffic additionally incumbent local telephone companies required provide nondiscriminatory unbundled access resale wholesale rates notice changes would affect interoperability facilities networks federal communications commission fcc adopt mechanisms ensure essential telecommunications services affordable act also provides regional bell operating companies rbocs may provide long distance service upon enactment outofregion incidental 1 audiovideo programming 2 internet schools 3 mobile services 4 information alarm services 5 telecommunications signaling order rboc provide inregion long distance service act requires rboc comply comprehensive competitive checklist expands role us department justice fccs determination whether entry rboc competitive long distance market public interest additionally must real facilitiesbased competitor residential business local telephone service failure potential providers request access prior rboc providing inregion long distance service rbocs must provide long distance services separate subsidiary least three years rbocs allowed long distance three years passed long distance carriers 5 percent nations access lines may jointly market rboc resold local telephone service states may require rbocs provide intralata dialing parity telecommunications companies may also provide video programming cable operators may provide telephone service area act prohibits telecommunications carriers cable operators acquiring 10 percent except rural specified areas impact act sprint unknown number important implementation issues nature extent continued subsidies local rates still need decided state federal regulators however act offers opportunities well risks sprint benefit opportunity enter local telephone markets new competitive environment lead reduction local access fees largest single cost providing long distance service today risk aspect local competition historical prices market shares sprints local telephone companies approximately 4 percent nations local telephone access lines likely decline removal long distance restrictions rbocs anticipated immediate significant adverse impact sprint substantial preconditions must met rbocs provide inregion long distance services addition sprint could potentially offset losses long distance customers retail level successful becoming underlying carrier resellers including rbocs entering long distance market global one january 31 1996 sprint along deutsche telekom dt france telecom ft consummated joint venture operating global one provide seamless global telecommunications services business consumer carrier markets worldwide interests dt ft venture held joint venture referred atlas operating group serving europe excluding germany france owned onethird sprint twothirds atlas operating group worldwide activities outside united states europe owned 50 percent sprint 50 percent atlas home country markets served dt germany ft france sprint united states upon closing agreement dt ft acquired shares new class preference stock total 30 billion resulted dt ft holding approximately 75 percent sprint voting power dt ft make remainder investment sprint following spinoff sprints cellular wireless division cellular shareholders sprint common stock following full investment dt ft shares class common stock approximately 10 percent sprints voting power depending price cellular shares time spinoff total amount investment expected 35 billion 37 billion dt ft holders class stock right circumstances proportionate representation sprints board directors purchase additional shares class stock sprint enable maintain ownership level 20 percent addition holders class stock disapproval rights respect sprints undertaking certain types transactions dt ft also entered standstill agreement sprint contains restrictions ability acquire voting securities sprint contemplated investment agreement related agreements well customary provisions restricting dt ft initiating participating proposal respect control sprint connection closing global one joint venture long distance division contributed certain assets related operations international business unit global one sprint spectrum sprint along telecommunications inc tci comcast corporation comcast cox communications inc cox formed joint venture sprint spectrum lp formerly known sprint telecommunications venture provide wireless communications services broad geographic basis within united states march 1995 sprint spectrum took critical first step national wireless capabilities first round broadband personal communications services pcs license auctions fcc sprint spectrum affiliates rights pcs licenses 30 major trading areas mtas cost 22 billion sprint spectrums wireless presence including sprint spectrum wireless affiliates covers population 182 million united states march 1995 sprint tci comcast cox signed definitive joint venture agreement provide competitive local telecommunications services national basis using facilities cable partners february 1996 four partners announced change approach providing services previous agreement called conversion cable systems passing 10 million homes end 1997 fixed compensation formula sprint spectrum cable companies revised agreements competitive local telephone services subject individual joint ventures negotiated sprint cable partner rather sprint spectrum approach allow greater flexibility decide specific terms timing entry local telephone markets however assurance joint ventures formed conjunction approval business plan sprint spectrum build national wireless network four partners committed make cash capital contributions sprint spectrum approximately 42 billion end 1997 sprints portion estimated approximately 17 billion approximately 960 million commitment already contributed sprint spectrum primarily fund amounts paid fcc connection licenses pcs auction november 1995 american personal communications apc affiliate sprint spectrum launched sprint spectrum nations first broadband pcs system sprint spectrum serve large geographic area encompassing washington dc maryland half virginia sprint spectrums objective begin offering personal communications service many 20 25 major metropolitan areas december 1996 covering 100 million people substantially complete construction remainder system december 1998 sprint spectrum executed contracts two vendors code division multiple access cdma deploy new developing technology across ventures nationwide wireless communications network spinoff cellular division due part divestiture requirements imposed fcc respect pcs licenses awarded sprint spectrum sprint board directors approved spinoff cellular holders sprint common stock sprint received favorable ruling internal revenue service regarding taxfree nature spinoff cellular market wireless service 360 communications company brand name longer included umbrella sprint brand name spinoff effected distributing holders sprint common stock shares cellular common stock rate 1 share cellular common stock every 3 shares sprint common stock held connection closing cellular repay approximately 14 billion intercompany debt owed cellular sprint subsidiaries sprint contribute equity capital cellular debt owed cellular excess intercompany debt repaid prior years consolidated financial statements restated reflect spinoff cellular accordingly operating results net assets cash flows cellular separately classified discontinued operations results operations consolidated sprints two primary divisions long distance local exchange generated record levels net operating revenues improved operating results 1995 long distance division generated 7 percent growth traffic volumes 1995 number access lines served local division grew 47 percent total net operating revenues year ended december 31 1995 128 billion 6 percent increase net operating revenues 120 billion 1994 total net operating revenues year ended december 31 1993 109 billion year ended december 31 1995 income continuing operations 946 million 269 per share compared 899 million 257 per share 1994 517 million 150 per share 1993 income continuing operations year ended december 31 1995 included charge related restructuring sprints local division 016 per share income continuing operations year ended december 31 1994 included gain related sale investment equity securities 006 per share income continuing operations year ended december 31 1993 included charges related merger integration costs associated centel merger realignment restructuring sprints long distance division 056 per share charge associated enactment revenue reconciliation act 1993 003 per share segmental results operations long distance communications services 1 excluding merger integration restructuring costs 459 million operating income margin 1993 would 4992 million 81 percent respectively sprints long distance division provides domestic international voice video data communications services terms division offers services public subject different levels state federal regulation rates subject ratebase regulation except nominally states net operating revenues increased 7 percent 1995 following 11 percent increase 1994 traffic volume increased 7 percent 11 percent periods revenue growth primarily driven strong performance data services market includes sales consumer online services internet connectivity transaction processing credit card authorizations check guarantees data communication multinational corporations dataintensive applications image transfer clientserver exchange also contributing growth business market continued experience growth 800 services private line services international market reflects divisions continuing efforts target new geographic markets residential market reflects success sprint sense sm calling plan interconnection costs consist amounts paid local exchange carriers domestic service providers foreign telephone companies completion calls made divisions customers interconnection costs increased 1995 1994 primarily result traffic volume growth also contributing increases access costs associated growth data products international interconnection costs increases partially offset reduced costs connecting networks domestically result lower interstate access rates percentage net operating revenues interconnection costs 426 percent 1995 compared 440 percent 442 percent 1994 1993 respectively operations expense consists costs related operating maintaining long distance network costs providing various services operator services public payphones telecommunications services hearing impaired video teleconferencing costs data systems sales operations expense increased 121 million 1995 68 million 1994 1995 increase primarily due increased costs associated growth within data products market increased international network operations costs reflecting growth overseas products foreign operations 1994 increase primarily due expanded product offerings well providing services new customers selling general administrative sga expense increased 103 million 189 million 1995 1994 respectively generally reflecting overall growth divisions operating activities increases generally due increased advertising expenses resulting ongoing sales marketing efforts important intensely competitive long distance marketplace division continued focus cost containment sga expenses effort enhance divisions profitability result sga expense percentage net operating revenues decreased 255 percent 1994 253 percent 1995 depreciation amortization increased 31 million 1995 27 million 1994 generally due increase asset base increase 1995 generally due increase asset base support data revenue growth synchronous optical network sonet deployment sonet provides significantly improved transport capacity local communications services local division consists principally sprints regulated telephone companies provide local exchange services access telephone customers carriers local exchange facilities long distance services within specified geographic areas net operating revenues increased 7 percent 1995 1994 increased local service revenues reflect 47 percent 48 percent increase number access lines served 1995 1994 respectively well growth addon services custom calling features network access revenues derived interexchange long distance carriers use local network complete calls increased 1995 1994 result increased traffic volumes portion due migration traffic related toll service revenues described increase partially offset periodic reductions network access rates charged fcc announced new interim interstate price caps plan first quarter 1995 new plan became effective august 1 1995 local division adopted rate formula based maximum productivity factors effectively removed earnings cap divisions interstate access revenues interstate access revenues comprise approximately 60 percent divisions network access revenues toll service revenues related provision long distance services within specified geographical areas reselling interexchange long distance services decreased 8 percent 1995 following increase 5 percent 1994 1995 decrease primarily reflects increased competition intrastate long distance markets interexchange long distance carriers offering intralata long distance service certain states toll service revenues declined result increased competition reduction partially recovered increase network access revenues resulting additional use local network interexchange long distance carriers revenues including revenues directory publishing fees billing collection services sales telecommunications equipment increased 22 percent 1995 14 percent 1994 generally due growth equipment sales increases nonregulated revenues plant operations expense includes network operations costs repair maintenance costs property plant equipment costs associated provision local exchange services 5 percent 8 percent increases costs 1995 1994 respectively primarily related increases costs providing services resulting access line growth additionally certain states implemented revised toll plans requiring payment access charges calls terminating service areas local exchange carriers resulting increased plant operations expense 1995 increase also reflects increases repair maintenance costs divisions florida midatlantic regions related bad weather conditions including flooding rains hurricanes occurred 1995 increased expenditures related switching system software associated advanced calling features contributed higher level plant operations expense 1994 depreciation amortization expense increased 41 million 1995 following 62 million increase 1994 increases generally reflect systemwide plant additions also include effects depreciation rate changes special shortterm amortizations nonrecurring charges approved state regulatory commissions customer operations expense includes costs associated business office operations billing services marketing costs expenses related providing operator directory assistance customer services costs increased 9 percent 3 percent 1995 1994 respectively increases 1995 1994 related increased costs associated overall growth access lines expense levels 1995 also affected marketing costs promote new products services increased business office operations costs resulting longer office hours greater customer accessibility customer costs related increased nonregulated activities operating expenses increased 41 million 42 million 1995 1994 respectively primarily due costs associated growth equipment sales november 1995 sprint initiated realignment restructuring local communications division including elimination approximately 1600 positions primarily network finance functions restructuring intended streamline current processes order reduce costs increasingly competitive marketplace actions resulted nonrecurring charge 88 million accrued liability associated charge specifically relates benefits affected employees receive upon termination sprint adopted accounting principles competitive marketplace effective december 31 1995 discontinued applying statement financial accounting standards sfas 71 accounting effects certain types regulation local division accounting impact sprint noncash extraordinary charge 565 million net related income tax benefits see note 2 notes consolidated financial statements additional discussion sprint expect discontinued application sfas 71 significant impact 1996 depreciation expense additionally future business transactions local division recorded following economic substance regulatory assets liabilities pursuant sfas 71 longer recognized furthermore revenues related net income nonregulated operations attributable transactions sprints regulated local exchange carriers previously eliminated accompanying consolidated financial statements accordance sfas 71 eliminated intercompany revenues entities amounted 262 million 285 million 225 million 1995 1994 1993 respectively product distribution directory publishing north supply wholesale distributor telecommunications products 1995 net operating revenues 854 million compared 829 million 1994 677 million 1993 increase 1995 primarily reflects growth sales nonaffiliates well overall price increases increase 1994 primarily reflects increased sales local division partially result sales merged centel telephone operations percentage net operating revenues operating expenses 1995 1994 1993 944 percent 955 percent 965 percent respectively sprint publishing advertising publisher marketer telephone directories net operating revenues 294 million 1995 compared 280 million 1994 268 million 1993 percentage net operating revenues operating expenses 1995 1994 1993 869 percent 867 percent 849 percent respectively nonoperating items interest expense interest expense related continuing operations totaled 261 million 1995 compared 301 million 1994 367 million 1993 interest expense related operations cellular totaled 124 million 97 million 85 million 1995 1994 1993 respectively included discontinued operations consolidated statements income sprints average debt outstanding including debt incurred fund intercompany advances cellular increased 668 million 1995 compared prior year increase average debt outstanding 1995 primarily shortterm borrowings incurred fund investments sprint spectrum interest costs borrowings associated sprints investment venture capitalized sprint spectrum commences operations interest expense increase proportionately increase average debt outstanding sprints effective interest rate decreased 44 basis points 1994 1995 primarily due increase shortterm borrowings percent total borrowings sprints average debt outstanding decreased 334 million 596 million 1994 1993 respectively effective interest rate decreased 52 15 basis points respectively due debt refinancings occurred 1993 1992 expense net components income expense follows millions income tax provision sprints income tax provisions 1995 1994 1993 resulted effective tax rates 361 percent 352 percent 364 percent respectively 1993 revenue reconciliation act 1993 enacted among changes raised federal income tax rate 35 percent 34 percent result sprint adjusted deferred income tax assets liabilities reflect revised rate see note 5 notes consolidated financial statements information regarding differences cause effective income tax rates vary statutory federal income tax rate december 31 1995 sprint recorded deferred income tax assets 501 million net 17 million valuation allowance see note 5 notes consolidated financial statements information regarding sources gave rise assets sprints management determined likely deferred income tax assets net valuation allowance realized based current income tax laws expectations future taxable income stemming reversal existing deferred tax liabilities ordinary operations uncertainties surrounding income tax law changes shifts operations state taxing jurisdictions future operating income levels may however affect ultimate realization portion deferred income tax assets discontinued operations cellular division result taxfree spinoff cellular shareholders sprint common stock operating results net assets cash flows cellular separately classified discontinued operations excluded amounts continuing operations sprint cellulars operating results exclude share sprints corporate overhead expenses reallocated sprints continuing operations accompanying consolidated statements income well accompanying segmental results operations accordingly cellulars results operations reflected may indicative futures operating results spinoff completed expenses 13 million 12 million 12 million years ended december 31 1995 1994 1993 respectively see note 3 notes consolidated financial statements discussion cellulars results operations summarized follows net operating revenues increased 208 million 1995 216 million 1994 increases resulted principally growth number cellular customers increased 44 percent 1995 59 percent 1994 effect growth partially offset decline service revenue per customer operating expenses increased 146 million 1995 155 million 1994 increases resulted principally growth number cellular customers increased advertising costs discontinued operations year ended december 31 1994 sprint recognized 7 million income associated settlement matters related discontinued operation also 1993 sprint incurred loss discontinued operations 12 million net income tax benefits extraordinary items described note 2 notes consolidated financial statements sprint adopted accounting principles competitive marketplace discontinued applying sfas 71 local division effective december 31 1995 application sfas 71 requires accounting recognition rate actions regulators appropriate sprint determined local division longer met criteria application sfas 71 due changes regulatory framework continues evolve ratebase regulation price regulation latter provide recovery specific costs addition division operates evolving competitive environment level types competition increasing may longer allow service product pricing provides recovery specific costs result sprint recorded noncash extraordinary charge 565 million 161 per share net related income tax benefits 1993 sprint incurred extraordinary losses related early extinguishment debt 29 million net related income tax benefits accounting changes effective january 1 1993 sprint changed method accounting postretirement postemployment benefits adopting sfas 106 112 effected another accounting change cumulative effect changes accounting principles reduced 1993 net income 383 million 112 per share financial condition sprints consolidated assets totaled 152 billion december 31 1995 compared 145 billion december 31 1994 accounts receivable increased 136 million 1994 1995 generally due 6 percent increase consolidated net operating revenues sprints allowance doubtful accounts percentage gross accounts receivable increased 8 percent december 31 1994 13 percent december 31 1995 increased percentage generally reflects timing sales customer payments well reserves established 1995 relative certain long distance divisions reseller customers reseller market experienced significant competition negative impact customers repayment patterns increase significant impact revenue growth long distance division property plant equipment net accumulated depreciation decreased 543 million 1994 1995 decrease primarily due discontinued application sfas 71 resulted 979 million increase accumulated depreciation exclusive writeoff net property plant equipment increased 436 million due increased capital expenditures enhance upgrade sprints networks expand service capabilities increase productivity current maturities longterm debt decreased 52 million 1994 1995 due scheduled debt payments december 31 1995 sprints total capitalization aggregated 104 billion consisting shortterm borrowings longterm debt including current maturities redeemable preferred stock common stock shareholders equity shortterm borrowings longterm debt including current maturities comprised 548 percent total capitalization december 31 1995 compared 520 percent yearend 1994 increase debttocapital ratio attributable increased shortterm borrowings fund investments sprint spectrum liquidity capital resources cash flows operating activities cash flows operating activities sprints primary source liquidity 26 billion 23 billion 20 billion 1995 1994 1993 respectively continuing operations increased cash flows 1995 reflect improved operating results reduced working capital requirements operating cash flows 1994 1993 reflect improved operating results partially offset expenditures 86 million 155 million 1994 1993 respectively related 1993 merger integration restructuring actions cash flows investing activities investing activities sprints continuing operations used cash 28 billion 18 billion 15 billion 1995 1994 1993 respectively capital expenditures represent sprints significant investing activity 19 billion 18 billion 14 billion 1995 1994 1993 respectively long distance capital expenditures incurred year primarily meet increased demand data related services enhance network reliability upgrade capabilities providing new products services capital expenditures local division made accommodate access line growth continue conversion digital technologies expand divisions capabilities providing enhanced telecommunications services 1995 1994 sprint contributed 911 million 52 million respectively sprint spectrum 1995 840 million contribution used fund sprints share payments fcc licenses acquired pcs auction remainder used fund sprints share ventures acquisition limited partnership interest apc well related capital operating requirements 1994 contribution funded sprints share initial payment fcc pcs auction investing activities 1994 also included 118 million received connection sale investment equity securities cash flows financing activities sprints financing activities provided cash 423 million 1995 used cash 457 million 615 million 1994 1993 respectively 1995 sprint issued 261 million longterm debt increased shortterm borrowings 11 billion proceeds borrowings primarily used fund commitments associated sprint spectrum proceeds also used repay scheduled longterm debt maturities repay 282 million 9875 percent notes prior maturity redemption premiums associated early retirement significant longterm debt retirements 1994 included redemption 102 million debt called prior scheduled maturity 1993 significant level debt refinancing occurred order take advantage lower interest rates accordingly majority proceeds longterm borrowings 1993 used finance redemption prior scheduled maturities 12 billion debt 1995 sprint renewed revolving credit agreement syndicate domestic international banks five years october 2000 addition extension revolving credit agreement increased 15 billion 11 billion sprint paid dividends common preferred shareholders 352 million 349 million 347 million 1995 1994 1993 respectively sprints indicated annual dividend rate common stock currently 100 per share cash flows discontinued operations cellulars cash flows operating activities 163 million 173 million 198 million 1995 1994 1993 respectively cellulars investing activities used cash 325 million 272 million 170 million 1995 1994 1993 respectively primarily consisting capital expenditures increases capital expenditures reflect significant increases number cellular customers served capital requirements january 31 1996 dt ft invested 30 billion sprint upon spinoff cellular make additional aggregate investment approximately 500 million 700 million also conjunction spinoff cellular repay approximately 14 billion intercompany debt payable sprint subsidiaries sprint expect require additional external financing 1996 cash proceeds received dt ft cellular expected used repay approximately 21 billion shortterm borrowings approximately 500 million longterm borrowings approximately 600 million proceeds also required fund termination accounts receivable sales agreement additional 600 million used fund commitments associated sprint spectrum affiliates remaining cash proceeds invested temporary basis 1996 sprint anticipates funding capital expenditures approximately 20 billion dividends approximately 426 million cash flows operating activities liquidity yearend 1995 sprint ability borrow 880 million revolving credit agreements syndicate domestic international banks bank commitments available financing sources include mediumterm note program sprint may offer sale 175 million unsecured senior debt securities additionally pursuant shelf registration statements filed securities exchange commission 10 billion debt securities could offered sale december 31 1995 aggregate amount additional borrowings incurred ultimately limited certain covenants contained existing debt agreements december 31 1995 sprint borrowing capacity approximately 36 billion restrictive debt covenants general hedging policies sprint limited basis utilizes certain derivative financial instruments effort manage exposure interest rate risk foreign exchange risk sprints utilization derivative financial instruments related hedging activities generally limited interest rate swap agreements forward contracts options foreign currencies sprint circumstance take speculative positions create exposure benefit market fluctuations hedging activity accordance boardapproved policies potential loss exposure related sprints use derivative instruments immaterial overall operations financial condition liquidity see note 11 notes consolidated financial statements information related sprints portfolio derivative instruments interest rate risk management sprints interest rate risk management program focuses minimizing vulnerability net income movements interest rates setting optimal mixture floatingrate fixedrate debt liability portfolio preventing liquidity risk sprint primarily employs gap methodology measure interest rate exposure utilizes simulation analysis manage interest rate risk sprint takes active stance modifying hedge positions benefit value timing flexibility fixedratefloatingrate adjustments foreign exchange risk management sprints foreign exchange risk management program focuses optimizing consolidated cash flows stabilizing accounting results sprint hedge translation exposure believes optimizing consolidated cash flows time maintain shareholder value sprints primary transaction exposure foreign currencies results changes foreign exchange rates dates sprint incurs settles liabilities payable foreign currency overseas telephone companies costs terminating international calls made sprints domestic customers impact recently issued accounting pronouncements march 1995 financial accounting standards board fasb issued sfas 121 accounting impairment longlived assets longlived assets disposed effective fiscal years beginning december 15 1995 sfas 121 requires assets held used reviewed impairment whenever events changes circumstances indicate carrying amount asset may recoverable sprint anticipate requirements sfas 121 material effect 1996 operating results october 1995 fasb issued sfas 123 accounting stockbased compensation effective fiscal years beginning december 15 1995 sfas 123 encourages companies account stock compensation awards fair value based method whereby compensation cost measured grant date based value award recognized service period companies may choose apply new accounting method may continue apply current accounting requirements generally result recognition compensation cost fixed stock option plans choose however required disclose notes financial statements net income earnings per share would followed fasbs new accounting method sprint elected continue apply current accounting requirements stockbased compensation comply disclosure requirements notes 1996 consolidated financial statements management report management sprint corporation responsibility integrity objectivity information contained annual report management responsible consistency reporting information ensuring generally accepted accounting principles used discharging responsibility management maintains comprehensive system internal controls supports extensive program internal audits made organizational arrangements providing appropriate divisions responsibility established communication programs aimed assuring policies procedures codes conduct understood practiced employees consolidated financial statements included annual report audited ernst young llp independent auditors audit conducted accordance generally accepted auditing standards report included herein responsibility board directors financial statements pursued primarily audit committee audit committee composed entirely directors officers employees sprint meets periodically internal auditors independent auditors without management present assure respective responsibilities fulfilled internal independent auditors full access audit committee discuss auditing financial reporting matters w esrey william esrey chairman chief executive officer arthur b krause arthur b krause executive vice president chief financial officer report independent auditors board directors shareholders sprint corporation audited accompanying consolidated balance sheets sprint corporation sprint december 31 1995 1994 related consolidated statements income cash flows common stock shareholders equity three years period ended december 31 1995 audits also included financial statement schedule listed index financial statements financial statement schedule supplementary data financial statements schedule responsibility management sprint responsibility express opinion financial statements schedule based audits conducted audits accordance generally accepted auditing standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion consolidated financial statements referred present fairly material respects consolidated financial position sprint december 31 1995 1994 consolidated results operations cash flows three years period ended december 31 1995 conformity generally accepted accounting principles also opinion related financial statement schedule considered relation basic financial statements taken whole presents fairly material respects information set forth therein discussed notes 1 2 consolidated financial statements sprint discontinued accounting operations local telecommunications division accordance statement financial accounting standards 71 accounting effects certain types regulation 1995 discussed notes 1 4 consolidated financial statements sprint changed method accounting postretirement benefits postemployment benefits circuit activity costs 1993 ernst young llp kansas city missouri february 14 1996 see accompanying notes consolidated financial statements notes consolidated financial statements sprint corporation 1 summary significant accounting policies summary significant accounting policies sprint corporation presented assist understanding accompanying consolidated financial statements basis consolidation presentation accompanying consolidated financial statements include accounts sprint corporation whollyowned majorityowned subsidiaries sprint investments entities sprint controlling interest accounted using equity method preparation financial statements conformity generally accepted accounting principles requires management make estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities date financial statements reported amounts revenues expenses reporting period actual results could differ estimates prior years financial statements restated reflect sprints spinoff cellular wireless communications services division cellular see note 3 operating results net assets cash flows cellular separately classified discontinued operations excluded amounts reported continuing operations sprint intercompany transactions cellular subsidiaries previously eliminated consolidation reflected sprints consolidated financial statements certain amounts previously reported prior periods reclassified conform current period presentation accompanying consolidated financial statements reclassifications effect results operations shareholders equity previously reported accordance statement financial accounting standards sfas 71 accounting effects certain types regulation revenues related net income nonregulated operations attributable intercompany transactions sprints regulated telephone companies eliminated accompanying consolidated financial statements intercompany revenues entities amounted 262 million 285 million 225 million 1995 1994 1993 respectively conjunction adoption accounting principles competitive marketplace see note 2 intercompany amounts eliminated beginning 1996 significant intercompany transactions eliminated classification operations long distance communications services division provides domestic international voice video data communications services terms division offers services public subject different levels state federal regulation rates generally subject ratebase regulation local communications services division consists principally operations sprints regulated telephone companies operations provide local exchange services access telephone customers carriers local exchange facilities long distance services within specified geographical areas product distribution directory publishing businesses include wholesale distribution telecommunications products publishing marketing white yellow page telephone directories 1 summary significant accounting policies continued revenue recognition operating revenues long distance local communications services divisions recognized communications services rendered operating revenues long distance communications services division recorded net estimate uncollectible accounts operating revenues sprints product distribution business recognized upon delivery products customers cash equivalents cash equivalents generally include highly liquid investments original maturities three months less stated cost approximates market value part cash management program sprint utilizes controlled disbursement banking arrangements december 31 1995 1994 outstanding checks excess cash balances 131 million 126 million respectively included accounts payable sprint sufficient funds available fund outstanding checks presented payment investments equity securities investments equity securities classified available sale reported fair value estimated based quoted market prices december 31 1995 1994 december 31 1995 1994 cost investments 109 million year investments gross unrealized holding gains 154 million 69 million 1995 1994 respectively reflected addition shareholders equity net related income taxes 1994 sprint sold investment equity securities realizing gain 35 million inventories consisting principally related sprints product distribution business stated lower cost principally firstin firstout method market property plant equipment property plant equipment recorded cost generally ordinary asset retirements disposals charged accumulated depreciation gain loss recognized repairs maintenance costs expensed incurred effective january 1 1993 sprints long distance communications services division changed method accounting certain costs related connecting new customers network change made conform sprints accounting predominant industry practice costs new method costs previously capitalized expensed incurred resulting nonrecurring noncash charge 32 million 009 per share net related income tax benefits reflected 1993 consolidated statement income cumulative effect change accounting principle 1 summary significant accounting policies continued depreciation cost property plant equipment sprints local communications division generally depreciated straightline composite basis lives prescribed regulatory commissions connection discontinuation sfas 71 sprint begin recording depreciation expense based estimated economic useful lives rather prescribed regulatory commissions see note 2 cost property plant equipment sprints divisions depreciated generally straightline basis estimated economic useful lives income taxes deferred income taxes provided certain temporary differences carrying amounts assets liabilities financial reporting purposes amounts used tax purposes investment tax credits related regulated telephone property plant equipment deferred amortized estimated useful lives related assets capitalized interest costs associated construction capital assets including interest costs borrowings incurred fund sprints investment sprint spectrum capitalized total amounts capitalized 1995 1994 1993 57 million 8 million 7 million respectively earnings per share earnings per common share amounts based weighted average number shares outstanding issuable assuming exercise dilutive options applicable see note 12 discussion consummation global one joint venture pro forma impact related issuance shares earnings per share 2 adoption accounting principles competitive marketplace effective december 31 1995 sprint determined local communications services division longer met criteria necessary continued application provisions sfas 71 result decision discontinue application sfas 71 sprint recorded noncash extraordinary charge 565 million net income tax benefits 437 million sprints determination longer eligible continued application accounting required sfas 71 based changes regulatory framework continues evolve ratebase regulation price regulation convergence competition telecommunications industry based occurrences sprint longer believes assured prices maintained levels provide recovery specific costs adjustment accumulated depreciation balance determined completion depreciation reserve impairment studies depreciation reserve study analyzed individual plant asset categories impacts regulatorprescribed depreciable asset lives compared sprints estimated economic lives results identified cumulative depreciation certain asset categories impairment study validated results depreciation study estimated impact future revenues caused price changes developing industry competition resulting effects cash flows following summary telecommunications plant service asset balances corresponding reserve adjustment millions 2 adoption accounting principles competitive marketplace continued discontinued application sfas 71 also required sprint eliminate consolidated balance sheet effects actions regulators recognized assets liabilities pursuant sfas 71 would recognized assets liabilities enterprises general elimination net regulatory assets primarily related deferred postretirement benefit obligations deferred debt financing costs additionally revenues related net income nonregulated operations attributable transactions sprints regulated local exchange carriers previously eliminated accompanying consolidated financial statements accordance sfas 71 eliminated beginning 1996 intercompany revenues entities amounted 262 million 285 million 225 million 1995 1994 1993 respectively taxrelated adjustments required adjust deferred income tax amounts currently enacted statutory rates eliminate taxrelated regulatory assets liabilities sprints local division uses deferral method accounting investment tax credits amortizes credits reduction tax expense life asset gave rise tax credit since plant asset lives shortened related investment tax credits adjusted reduce unamortized balance corresponding amount 3 spinoff cellular division due part divestiture requirements imposed federal communications commission fcc respect personal communications services pcs licenses awarded sprint spectrum sprint board directors approved spinoff cellular holders sprint common stock sprint received favorable ruling internal revenue service regarding taxfree nature spinoff effected distributing holders sprint common stock shares cellular common stock rate 1 share cellular common stock every 3 shares sprint common stock held connection closing cellular repay approximately 14 billion intercompany debt owed cellular sprint subsidiaries sprint contribute equity capital cellular debt owed cellular excess intercompany debt repaid net operating results cellular separately classified discontinued operations consolidated statements income summarized interest expense allocated cellular based assumed repayment intercompany debt sprint cellular operating expenses presented include cellulars share general corporate overhead expenses reallocated sprints operating segments accordingly cellulars results operations reflected may indicative future operating results spinoff completed expenses 13 million 12 million 12 million years ended december 31 1995 1994 1993 respectively 3 spinoff cellular division continued net assets liabilities cellular separately classified net investment cellular division consolidated balance sheets summarized millions 4 employee benefit plans defined benefit pension plan substantially sprint employees covered noncontributory defined benefit pension plan participants plan represented collective bargaining units benefits based upon schedules defined amounts negotiated respective parties participants covered collective bargaining agreements plan provides pension benefits based upon years service participants compensation sprints policy make contributions plan year equal actuarially determined amount consistent applicable federal tax regulations funding objective accumulate funds relatively stable rate participants working lives benefits fully funded retirement december 31 1995 plans assets consisted principally investments corporate equity securities us government corporate debt securities components net pension costs credits related weighted average assumptions follows millions 4 employee benefit plans continued funded status amounts recognized consolidated balance sheets plan december 31 follows millions projected benefit obligations december 31 1995 1994 determined using discount rates 725 percent 85 percent respectively anticipated composite rates future increases compensation 425 percent 50 percent respectively defined contribution plans sprint sponsors defined contribution employee savings plans covering substantially employees participants may contribute portions compensation plans contributions participants represented collective bargaining units matched sprint based upon defined amounts negotiated respective parties contributions participants covered collective bargaining agreements also matched sprint participants sprint provides matching contributions common stock equal 50 percent participants contributions 6 percent compensation may discretion board directors provide additional matching contributions based upon performance sprints common stock comparison telecommunications companies sprints matching contributions aggregated 51 million 47 million 49 million 1995 1994 1993 respectively postretirement benefits sprint sponsors postretirement benefit principally health care benefits arrangements covering substantially employees retired specified dates eligible benefits cost reduced cost employees retiring specified dates eligible benefits shared cost basis sprint funds accrued costs benefits paid effective january 1 1993 sprint changed modified method accounting postretirement benefits adopting sfas 106 employers accounting postretirement benefits pensions resulting nonrecurring noncash charge 339 million 100 per share net related income tax benefits reflected 1993 consolidated statement income cumulative effect change accounting principle 4 employee benefit plans continued components net postretirement benefits cost follows millions measurement purposes weighted average annual health care cost trend rate 12 percent assumed 1995 gradually decreasing 6 percent 2001 remaining constant thereafter effect 1 percent increase assumed trend rates would increased 1995 net postretirement benefits cost approximately 14 million discount rates 1995 1994 1993 85 percent 75 percent 80 percent respectively amounts recognized consolidated balance sheets december 31 follows millions accumulated benefits obligations december 31 1995 1994 determined using discount rates 725 percent 85 percent respectively weighted average annual health care trend rate 96 percent assumed 1996 gradually decreasing 5 percent 2001 remaining constant thereafter effect 1 percent annual increase assumed health care cost trend rates would increased accumulated benefits obligation december 31 1995 approximately 100 million postemployment benefits effective january 1 1993 sprint adopted sfas 112 employers accounting postemployment benefits upon adoption sprint recognized certain previously unrecorded obligations benefits provided former inactive employees dependents employment retirement resulting nonrecurring noncash charge 11 million 003 per share net related income tax benefits reflected 1993 consolidated statement income cumulative effect change accounting principle postemployment benefits offered sprint include severance disability workers compensation benefits including continuation benefits health care life insurance coverage 5 income taxes components income tax provisions allocated continuing operations follows millions august 10 1993 revenue reconciliation act 1993 enacted among changes raised federal income tax rate corporations 35 percent 34 percent retroactive january 1 1993 accordingly sprint adjusted deferred income tax assets liabilities reflect revised rate resulting adjustment related sprints nonregulated subsidiaries increased 1993 deferred income tax provision 11 million 003 per share adjustments net deferred income tax liabilities associated regulated telephone companies generally recorded reductions regulatory liabilities subsequently eliminated connection sprints discontinued application sfas 71 see note 2 differences cause effective income tax rate vary statutory federal income tax rate 35 percent 1995 1994 1993 follows millions 5 income taxes continued income tax provisions benefits allocated items follows millions deferred income taxes provided temporary differences carrying amounts sprints assets liabilities financial statement purposes tax bases sources differences give rise deferred income tax assets liabilities december 31 1995 1994 along income tax effect follows millions 1995 1994 1993 valuation allowance related deferred income tax assets decreased 4 million 1 million 7 million respectively december 31 1995 sprint available income tax purposes 9 million alternative minimum tax credit carryforwards offset regular income tax payable future years tax benefits 27 million associated state operating loss carryforwards loss carryforwards expire varying amounts annually 1996 2010 6 borrowings longterm debt december 31 follows millions 1 notes exchangeable 44 million shares southern new england telecommunications corporation common stock owned sprint included investments equity securities december 31 1995 6 borrowings continued longterm debt maturities next five years follows millions property plant equipment aggregate cost approximately 112 billion either pledged security first mortgage bonds certain notes restricted use mortgaged property notes payable commercial paper outstanding related weighted average interest rates december 31 follows millions december 31 1995 21 billion notes payable commercial paper classified shortterm borrowings december 31 1995 1994 43 million 11 billion respectively notes payable commercial paper classified longterm debt classifications based sprints ability intent refinance borrowings longterm basis bank notes renewable various dates throughout year sprint pays fee certain commercial banks support current future credit requirements based upon loan commitments lines credit may withdrawn banks material adverse change sprints financial condition december 31 1995 sprint aggregate credit arrangements provided 28 billion 22 billion notes payable commercial paper outstanding december 31 1995 20 billion specifically borrowed credit arrangements resulting 790 million availability sprint compliance restrictive financial covenants relating debt arrangements december 31 1995 1993 sprint redeemed called redemption prior scheduled maturities 13 billion first mortgage bonds senior notes debentures excluding amounts deferred rateregulated telephone companies required certain regulatory commissions prepayment penalties incurred connection early extinguishments debt writeoff related debt issuance costs aggregated 29 million net related income tax benefits reflected extraordinary loss consolidated statements income 7 redeemable preferred stock sprint 20 million authorized shares subsidiaries approximately 5 million authorized shares preferred stock including nonredeemable preferred stock redeemable preferred stock outstanding december 31 follows millions sprints third series preferred stock called january 1996 march 1996 24000 shares redeemed price 10000 per share remaining shares redeemed price 10177 per share sprints fifth series preferred stock must redeemed full 2003 less full dividends paid four consecutive dividend periods total amount dividends arrears exceeds amount equal dividend payment six dividend periods holders fifth series preferred stock entitled elect majority directors standing election arrears dividend payments paid 8 common stock common stock activity 1995 shares reserved future grants stock option plans future issuances various arrangements follows millions december 31 1995 elections purchase 2 million sprints common shares outstanding 1994 offering employees stock purchase plan espp purchase price offering cannot exceed 3235 per share price representing 85 percent average market price offering date fall 1200 per share 1994 offering terminates june 30 1996 upon spinoff cellular number shares underlying elections noncellular employees related per share purchase price adjusted maintain aggregate fair market value stock underlying elections relationship per share purchase 8 common stock continued price related per share market value option cellular employees elections made cellular employees expected terminated terms conditions sprints espp replaced elections purchase shares common stock cellular december 31 1995 cellular employees held elections purchase approximately 58000 shares sprint common stock espp various stock option plans shares common stock reserved issuance officers outside directors certain employees options granted 100 percent market price date grant approximately 1 percent options outstanding december 31 1995 provide granting stock appreciation rights alternate method settlement upon exercise summary stock option activity plans follows millions except per share data upon spinoff cellular number shares underlying options held noncellular employees related per share purchase price adjusted maintain aggregate fair market value stock underlying options relationship per share purchase price related per share market value options held cellular employees expected converted options purchase shares cellular common stock december 31 1995 cellular employees held options purchase approximately 320000 shares sprint common stock 8 common stock continued 1990 savings plan trust employee savings plan acquired shares common stock sprint exchange 75 million promissory note payable sprint note bears interest rate 9 percent repaid common stock dividends received plan contributions made plan sprint accordance plan provisions remaining balance note receivable 55 million december 31 1995 reflected reduction shareholders equity december 31 1995 savings plan trust held approximately 18 million shares sprint common stock shareholder rights plan onehalf preferred stock purchase right attached share common stock right exercisable detachable upon occurrence certain takeover events entitles shareholders buy units consisting one onehundredth newly issued share preferred stockfourth series junior participating price 23500 per unit certain circumstances common stock certain circumstances rights beneficially owned acquiring person become null void sprints preferred stockfourth series without par value voting cumulative accrues dividends equal generally greater 1000 per share 200 times aggregate per share amount common stock dividends shares preferred stockfourth series issued outstanding december 31 1995 rights may redeemed sprint price 001 per right expire september 8 1999 1995 1994 1993 sprint declared paid annual dividends common stock 100 per share centel declared premerger see note 10 common stock dividends 015 per share 1993 restrictive covenant applicable dividends common stock results 15 billion revolving credit agreement among restrictions agreement requires sprint maintain specified levels consolidated net worth defined result requirement 19 billion sprints 28 billion consolidated retained earnings effectively restricted payment dividends december 31 1995 indentures financing agreements certain sprints subsidiaries contain various provisions restricting payment cash dividends subsidiary common stock held sprint connection restrictions 192 million related subsidiaries 653 million total retained earnings restricted december 31 1995 flow cash form advances subsidiaries sprint generally restricted 9 commitments contingencies litigation claims assessments following announcement 1992 sprints merger agreement centel see note 10 class action suits filed centel certain officers directors federal state courts state suits dismissed federal suits consolidated single action seeks damages alleged violations securities laws october 12 1995 new york trial court granted motion centels financial advisors dismiss purported class action suit filed connection representation centel merger plaintiffs appealed order dismissing claims sprint may indemnification obligations financial advisors connection suit various suits arising ordinary course business pending sprint management cannot predict ultimate outcome actions believes result material effect sprints consolidated financial statements accounts receivable sold recourse agreement available december 1996 sprint could sell continuous basis recourse 600 million undivided interests designated pool accounts receivable subsequent collections receivables sold investors typically reinvested pool sprint required repurchase designated pool accounts receivable upon occurrence specified events involving noncollectibility accounts december 31 1995 sprint required repurchase receivables 9 commitments contingencies continued recourse provision sprint retained credit losses associated accounts receivable exposure related retention estimated conjunction sprints calculation reserve uncollectible accounts receivables sold remained uncollected december 31 1995 1994 aggregated 600 million january 1996 sprint elected terminate agreement commitments see liquidity capital resources managements discussion analysis financial condition results operations discussion cash commitments associated sprint spectrum operating leases minimum rental commitments december 31 1995 noncancelable operating leases consisting principally leases data processing equipment real estate follows millions gross rental expense aggregated 402 million 1995 379 million 1994 382 million 1993 amount rental commitments applicable subleases contingent rentals executory costs significant 10 sprint centel merger effective march 9 1993 sprint consummated merger centel telecommunications company local exchange cellular wireless communications services operations pursuant merger agreement dated may 27 1992 sprint issued 137 shares common stock exchange outstanding share centel common stock approximately 119 million shares transaction costs associated merger consisting primarily investment banking legal fees expenses integrating restructuring operations two companies consisting primarily employee severance relocation expenses costs eliminating duplicative facilities resulted nonrecurring charges 259 million reduced 1993 income continuing operations 172 million 050 per share merger accounted pooling interests 11 additional financial information segment information related sprints operating business segments included tables segmental results operations managements discussion analysis financial condition results operations net operating revenues operating expenses shown tables include revenues expenses eliminated consolidation totaling 380 million 340 million 296 million years ended december 31 1995 1994 1993 respectively sprint incurred capital expenditures 37 million 57 million 46 million years ended december 31 1995 1994 1993 respectively assets including net assets discontinued cellular division 29 billion 18 billion 18 billion december 31 1995 1994 1993 respectively attributable operating segments additionally sprint incurred 54 million merger integration restructuring costs attributable segmental operations year ended december 31 1993 realignment restructuring charge 1995 sprint initiated realignment restructuring local communications services division including elimination approximately 1600 positions primarily network finance functions actions resulted nonrecurring charge 88 million reduced income continuing operations 55 million 016 per share accrued liability associated charge specifically relates benefits affected employees receive upon termination 1993 sprint initiated realignment restructuring long distance communications services division including elimination approximately 1000 positions closure two facilities actions resulted nonrecurring charge 34 million reduced income continuing operations 21 million 006 per share concentrations credit risk sprints accounts receivable subject concentration credit risk interest rate swap agreements foreign currency contracts involve risk dealing counterparties ability meet terms contracts notional principal amounts often used express volume transactions amounts subject credit risk significantly smaller event nonperformance counterparties sprints accounting loss would limited net amount would entitled receive terms applicable interest rate swap agreement foreign currency contract however sprint anticipate nonperformance counterparties agreements sprint controls amount credit risk well concentration credit risk interest rate swap agreements foreign currency contracts credit approvals dollar exposure limits internal monitoring procedures 11 additional financial information continued financial instruments sprint estimates fair value financial instruments using available market information appropriate valuation methodologies accordingly estimates presented herein necessarily indicative values sprint could realize current market exchange although management aware factors would affect estimated fair value amounts presented december 31 1995 amounts comprehensively revalued purposes financial statements since date therefore estimates fair value subsequent date may differ significantly amounts presented herein carrying amounts estimated fair values sprints financial instruments december 31 follows millions carrying values sprints cash equivalents approximate fair value december 31 1995 1994 fair value sprints investments equity securities estimated reference quoted market prices fair values sprints longterm debt estimated based quoted market prices publicly traded issues present value estimated future cash flows using discount rate commensurate risks involved issues fair value interest rate swap agreements estimated cost sprint would receive pay terminate swap agreements december 31 1995 1994 taking account thencurrent interest rates fair value foreign currency contracts estimated replacement cost contracts december 31 1995 1994 taking account thencurrent foreign currency exchange rates interest rate swap agreements interest rate swap agreements utilized sprint part interest rate risk management program net interest paid received related agreements recorded using accrual method recorded adjustment interest expense sprint interest rate swap agreements notional amounts 275 million 125 million outstanding december 31 1995 1994 respectively net interest income expense related interest rate swap agreements 400000 1 million 2 million years ended december 31 1995 1994 1993 respectively deferred gains losses relating terminated interest rate swap agreements december 31 1995 1994 1993 11 additional financial information continued foreign currency contracts part foreign currency exchange risk management program sprint purchases sells overthecounter forward contracts options various foreign currencies sprint outstanding approximately 13 million open forward contracts buy various foreign currencies december 31 1995 1994 sprint outstanding open forward contracts sell various foreign currencies december 31 1995 1 million outstanding december 31 1994 sprint approximately 24 million outstanding open purchase option contracts call various foreign currencies december 31 1995 premium paid option amortized life option unamortized premiums paid options outstanding december 31 1995 300000 foreign currency option contracts outstanding december 31 1994 forward contracts open december 31 1995 original maturity six months less net gain loss recorded reflect fair value contracts recorded period incurred total net losses 1 million 2 million 1 million recorded related foreign currency transactions contracts years ended december 31 1995 1994 1993 respectively december 31 1995 1994 1993 sprint foreign currency translation gains losses 10 million 1 million 2 million respectively included net consolidated statements common stock shareholders equity 12 subsequent event january 31 1996 sprint along deutsche telekom dt france telecom ft consummated joint venture operating global one provide seamless global telecommunications services business consumer carrier markets worldwide upon closing agreement dt ft acquired shares new class preference stock total 30 billion resulted dt ft holding approximately 75 percent sprint voting power dt ft make remainder investment sprint following spinoff cellular following full investment dt ft shares class common stock approximately 10 percent sprints voting power depending price cellular shares time spinoff total amount investment expected 35 billion 37 billion assuming 30 billion proceeds issuance class preference stock initially used extent possible repay debt outstanding december 31 1995 issuance repayment assumed taken place january 1 1995 sprints earnings per share continuing operations would decreased 269 per share 252 per share year ended december 31 1995 sprint corporation schedule ii consolidated valuation qualifying accounts years ended december 31 1995 1994 1993 millions quarterly financial data unaudited 1 accompanying quarterly financial data restated previously reported amounts reflect spinoff sprints cellular wireless division cellular shareholders sprint common stock accordingly cellulars operating results excluded income continuing operations reported discontinued operations 2 fourth quarter 1995 nonrecurring charges 88 million recorded related restructuring within local communications division charges reduced net income 55 million 016 per share see note 11 notes consolidated financial statements additional information 3 first quarter 1994 sprint sold investment equity securities realizing gain 35 million increased net income 22 million 006 per share 4 fourth quarter 1995 sprint adopted accounting principles competitive marketplace local communications division discontinued application sfas 71 result sprint recorded noncash aftertax extraordinary charge 565 million 161 per share see note 2 notes consolidated financial statements additional information exhibit index exhibit number 3 articles incorporation bylaws articles incorporation amended filed exhibit 4a sprint corporation current report form 8k dated january 31 1996 incorporated herein reference b bylaws amended filed exhibit 4b sprint corporation current report form 8k year ended january 31 1996 incorporated herein reference 4 instruments defining rights sprints equity security holders rights sprints equity security holders defined fifth sixth seventh eighth articles sprints articles incorporation see exhibit 3a b rights agreement dated august 8 1989 sprint corporation formerly united telecommunications inc umb bank na formerly united missouri bank kansas city na rights agent filed exhibit 2b sprint corporation registration statement form 8a dated august 11 1989 file 14721 incorporated herein reference c amendment supplement dated june 4 1992 rights agreement dated august 8 1989 filed exhibit 2c amendment 1 form 8 dated june 8 1992 sprint corporation registration statement form 8a dated august 11 1989 file 14721 incorporated herein reference second amendment rights agreement dated july 31 1995 sprint corporation umb bank na filed exhibit 2d form 8aa2 dated october 20 1995 amending sprint corporation registration statement form 8a dated august 11 1989 file 14721 incorporated herein reference e standstill agreement dated july 31 1995 among sprint corporation france telecom deutsche telekom ag filed exhibit 10c sprint corporation quarterly report form 10q quarter ended june 30 1995 incorporated herein reference 10 material agreements joint ventures joint venture agreement dated june 22 1995 among sprint corporation sprint global venture inc france telecom deutsche telekom ag filed exhibit 10a sprint corporation quarterly report form 10q quarter ended june 30 1995 incorporated herein reference b amendment 1 joint venture agreement dated january 31 1996 among sprint corporation sprint global venture inc france telecom deutsche telekom ag atlas telecommunications sa filed exhibit 99a sprint corporation current report form 8k dated january 31 1996 incorporated herein reference c investment agreement dated july 31 1995 among sprint corporation france telecom deutsche telekom ag including exhibit stockholders agreement among france telecom deutsche telekom ag sprint corporation filed exhibit 10b sprint corporation quarterly report form 10q quarter ended june 30 1995 incorporated herein reference amended restated agreement limited partnership majorco lp dated january 31 1996 among sprint spectrum lp tci network services comcast telephony services cox telephony partnership filed exhibit 99c sprint corporation current report form 8k dated january 31 1996 incorporated herein reference e parents agreement dated january 31 1996 sprint corporation telecommunications inc filed exhibit 99d sprint corporation current report form 8k dated january 31 1996 incorporated herein reference f parents agreement dated january 31 1996 sprint corporation comcast corporation filed exhibit 99e sprint corporation current report form 8k dated january 31 1996 incorporated herein reference g parents agreement dated january 31 1996 sprint corporation cox communications inc filed exhibit 99f sprint corporation current report form 8k dated january 31 1996 incorporated herein reference 10 executive compensation plans arrangements h 1985 stock option plan amended filed exhibit 10c sprint corporation quarterly report form 10q quarter ended september 30 1995 incorporated herein reference appendix stock option plans 1990 stock option plan amended filed exhibit 10d sprint corporation quarterly report form 10q quarter ended september 30 1995 incorporated herein reference appendix stock option plans see exhibit 10h j 1990 restricted stock plan amended filed exhibit 99 sprint corporation registration statement 3365147 incorporated herein reference k executive deferred compensation plan amended l management incentive stock option plan amended filed exhibit 10g sprint corporation quarterly report form 10q quarter ended september 30 1995 incorporated herein reference appendix stock option plans see exhibit 10h longterm stock incentive program amended filed exhibit 10h sprint corporation quarterly report form 10q quarter ended september 30 1995 incorporated herein reference n sprint supplemental executive retirement plan filed exhibit 10i sprint corporation quarterly report form 10q quarter ended september 30 1995 incorporated herein reference amended restated centel directors deferred compensation plan filed exhibit 10j sprint corporation quarterly report form 10q quarter ended september 30 1995 incorporated herein reference p restated memorandum agreements respecting supplemental pension benefits sprint corporation formerly united telecommunications inc two current former executive officers filed exhibit 10i sprint corporation annual report form 10k year ended december 31 1992 incorporated herein reference q executive longterm incentive plan filed exhibit 10j sprint corporation annual report form 10k year ended december 31 1993 incorporated herein reference r executive management incentive plan filed exhibit 10k sprint corporation annual report form 10k year ended december 31 1993 incorporated herein reference longterm incentive compensation plan filed exhibit 10j united telecommunications inc annual report form 10k year ended december 31 1989 incorporated herein reference shortterm incentive compensation plan filed exhibit 10k united telecommunications inc annual report form 10k year ended december 31 1989 incorporated herein reference u retirement plan directors amended filed exhibit 10b sprint corporation quarterly report form 10q quarter ended march 31 1994 incorporated herein reference v key management benefit plan amended filed exhibit 10o sprint corporation annual report form 10k year ended december 31 1993 incorporated herein reference w agreements regarding special compensation post employment restrictive covenants sprint corporation one executive officers x directors deferred fee plan amended form contingency employment agreements sprint corporation certain executive officers filed exhibit 10b sprint corporation quarterly report form 10q year ended march 31 1995 incorporated herein reference z form indemnification agreements sprint corporation formerly united telecommunications inc directors officers filed exhibit 10s sprint corporation annual report form 10k year ended december 31 1991 incorporated herein reference aa summary executive officer board directors benefits bb agreements regarding special compensation post employment restrictive covenants sprint corporation four executive officers filed exhibit 10d sprint corporation quarterly report form 10q quarter ended september 30 1994 incorporated herein reference cc amended restated centel stock option plan filed exhibit 10w sprint corporation annual report form 10k year ended december 31 1994 incorporated herein reference appendix stock option plans see exhibit 10h dd agreements regarding special compensation post employment restrictive covenants sprint corporation three executive officers filed exhibit 10x sprint corporation annual report form 10k year ended december 31 1993 incorporated herein reference ee description agreement regarding supplemental pension benefits sprint corporation one executive officers filed exhibit 10e sprint corporation quarterly report form 10q quarter ended september 30 1994 incorporated herein reference ff amended restated centel director stock option plan filed exhibit 10aa sprint corporation annual report form 10k year ended december 31 1993 incorporated herein reference 11 computation earnings per common share 12 computation ratio earnings fixed charges 21 subsidiaries registrant 23 consent ernst young llp 27 financial data schedules 1995 financial data schedule b restated 1994 financial data schedule item 7 managements discussion analysis financial condition results operations information required item 7 refer managements discussion analysis financial condition results operations section financial statements financial statement schedule supplementary data filed part report item 8 item 7 management’s discussion analysis financial condition results operations forwardlooking statements include certain estimates projections forwardlooking statements annual quarterly current reports publicly available material statements regarding expectations including performance assumptions estimates relating capital requirements well statements historical facts forwardlooking statements reflect management’s judgments based currently available information involve number risks uncertainties could cause actual results differ materially forwardlooking statements respect forwardlooking statements management made assumptions regarding among things customer network usage customer growth retention pricing operating costs timing various events economic environment future performance cannot assured actual results may differ materially forwardlooking statements factors could cause actual results differ include • effects vigorous competition including impact competition price able charge customers services provide ability attract new customers retain existing customers overall demand service offerings including impact decisions new subscribers postpaid prepaid services offerings two network platforms impact new emerging competing technologies business • impact overall wireless market penetration ability attract retain customers good credit standing intensified competition among wireless carriers customers • potential impact difficulties may encounter connection integration premerger sprint nextel businesses integration businesses assets certain third party affiliates pcs affiliates provide wireless personal communications services pcs sprint® brand acquired nextel partners inc including risk difficulties could prevent delay realization cost savings benefits expect achieve result integration efforts risk unable continue retain key employees • uncertainties related implementation business strategies investments networks systems businesses including investments required connection planned deployment next generation broadband wireless network • costs business risks associated providing new services entering new geographic markets including respect development new services expected provided using next generation broadband wireless network plan deploy • impact potential adverse changes ratings afforded debt securities ratings agencies • effects mergers consolidations new entrants communications industry unexpected announcements developments others communications industry • unexpected results litigation filed us • inability third parties perform requirements agreements related business operations including significant adverse change motorola inc’s ability willingness provide handsets related equipment software applications develop new technologies features integrated digital enhanced network iden® network • impact adverse network performance • costs compliance regulatory mandates particularly requirements related federal communications commission’s fcc’s report order • equipment failure natural disasters terrorist acts breaches network information technology security • one markets compete impacted changes political factors monetary policy legal regulatory changes external factors control • risks referenced time report filings securities exchange commission sec including part item 1a “risk factors” words “may” “could” “estimate” “project” “forecast” “intend” “expect” “believe” “target” “providing guidance” similar expressions intended identify forwardlooking statements forwardlooking statements found throughout management’s discussion analysis financial condition results operations elsewhere report reader place undue reliance forwardlooking statements speak date report obligated publicly release revisions forwardlooking statements reflect events date report including unforeseen events overview global communications company offering comprehensive range wireless wireline communications products services designed meet needs individual consumers businesses government customers organized operations meet needs targeted customer groups focused communications solutions incorporate capabilities wireless wireline services meet specific needs one three largest wireless companies united states based number wireless subscribers extensive wireless networks global long distance tier 1 internet backbone nextel merger local communications business spinoff august 12 2005 subsidiary company merged nextel communications inc result acquired nextel merged nextel secure number potential strategic financial benefits including arising combination networks spectrum assets diverse customer bases services size scale combined company opportunity focus fastest growing areas communications industry also believe merger provides significant opportunities achieve operating efficiencies realizing revenue operating cost capital spending synergies begun realize cost savings synergies result merger number years expect continue realize significant cost savings synergies associated merger however believe operating results least next several quarters impacted negatively costs incurred achieve benefits synergies costs generally expected recurring nature include costs associated integrating back office systems severance costs associated termination employment certain employees lease contract termination costs merger integration costs incur dependent number business strategic decisions whose timing cannot predicted certainty could cause merger integration costs realization benefits merger integration efforts vary period ability achieve cost savings synergies timing benefits realized depend large part ability integrate networks business operations backoffice functions support systems infrastructure time announced merger also announced plans spinoff shareholders local communications business known embarq corporation comprised primarily local segment prior spinoff completed spinoff may 17 2006 spinoff distributed pro rata shareholders one embarq common share every 20 shares voting nonvoting common stock 149 million shares embarq common stock received net cash consideration net proceeds sale embarq senior notes totaling 63 billion cash paid fractional shares result spinoff longer shares embarq results embarq periods prior spinoff presented discontinued operations received ruling internal revenue service based certain facts assumptions representations undertakings set forth ruling us federal income tax purposes distribution embarq common shares taxable us holders common shares except cash payments made lieu fractional shares generally taxable business offer comprehensive range wireless wireline communications products services designed meet needs individual consumers businesses government customers conduct operations two segments referred wireless long distance together pcs affiliates offer digital wireless services 50 states puerto rico us virgin islands sprint brand name utilizing wireless code division multiple access cdma technology pcs affiliates commercial arrangements us provide wireless services mainly around smaller us metropolitan areas wireless networks built operated expense instances using spectrum licensed controlled us 2005 acquired three pcs affiliates 2006 acquired three additional pcs affiliates also offer digital wireless services nextel boost brand names using iden technology 2006 acquired nextel partners provides digital wireless communications services nextel brand name certain midsized tertiary us markets acquisitions pcs affiliates nextel partners gave us control distribution services sprint nextel brands provide us strategic financial benefits associated larger customer base expanded network coverage also one largest providers long distance services one largest carriers internet traffic nation believe communications industry continue highly competitive basis price types services offered quality service although believe many targeted customers base purchase decisions quality service availability differentiated features services competitive pricing terms monthly recurring charges number minutes features available particular rate plan handset offerings often important factors potential customers’ purchase decisions industry continues subject consolidation dynamic change well intense competition maintain operating margins pricecompetitive environment continually seek ways create improve capital operating efficiencies business consequently routinely reassess business strategies implications operations assessments may continue impact future valuation longlived assets part overall business strategy regularly evaluate opportunities expand complement business may time discussing negotiating transaction consummated could material effect business financial condition liquidity results operations fcc regulates licensing operation acquisition sale licensed radio spectrum essential business fcc state public utilities commissions pucs also regulate provision communications services future changes regulations legislation related spectrum licensing matters related business could impose significant additional costs us either form direct outofpocket costs additional compliance obligations management overview wireless offer wide array wireless mobile telephone wireless data transmission services networks utilize cdma iden technologies meet needs individual consumers businesses government customers wireless segment together four remaining pcs affiliates offer digital wireless service 50 states puerto rico us virgin islands provide wireless coverage 300 metropolitan markets including 297 300 largest us metropolitan areas 280 million people live work offer wireless international voice roaming subscribers cdma idenbased services numerous countries together pcs affiliates resellers wholesale wireless services served 531 million wireless subscribers end 2006 offer wireless mobile telephone data transmission services features variety pricing plans including prepaid service plans offer services offered prepaid service plans typically contract basis one two year periods services billed monthly basis according applicable pricing plan market prepaid services boost mobile brand means directly target youth prepaid wireless service markets also offer wholesale wireless services resellers commonly known mobile virtual network operators mvnos embarq modiva communications inc helio inc qwest communications international inc walt disney company virgin mobile usa purchase wireless services us wholesale rates resell services customers brand names mvno arrangements operators bear costs acquisition billing customer service also provide wireless services marketed sold several cable multiple systems operators msos four markets also entered agreement several cable msos jointly develop converged services designed combine many cable’s core products interactive features wireless technology deliver broad range services including video wireless voice data services high speed internet cable phone service participating cable mso’s customers 2007 expect develop new products services introduce service additional markets strategy utilize stateoftheart technology provide differentiated wireless services applications order acquire retain highquality wireless subscribers offer numerous sophisticated data messaging imaging entertainment locationbased applications marketed power visionsm across cdma network utilize highspeed evolution data optimized evdo technology currently evdo technology covers nearly 209 million people serves customers 219 communities populations least 100000 evdo data roaming available selected markets canada mexico also begun incorporate evdo rev next version evdo technology network plans coverage across majority footprint cdma network end 2007 evdo rev designed support variety internet protocol ip video high performance walkietalkie applications cdma network iden network continue support features services designed meet needs customers nextel boost mobile brands feature industryleading walkietalkie services give subscribers ability communicate instantly across continental united states hawaii agreements iden providers selected markets canada latin america mexico well variety digital wireless mobile telephone wireless data transmission services recent periods experienced declines number new subscribers wireless services increases rate subscriber churn customer satisfaction churn adversely impacted capacity constraints iden network result number factors including addition network recent years many highcallvolume subscribers limited effectiveness 61 voice coder upgrade iden technology designed increase network capacity impact reconfiguration process report order certain capacity constrained markets take actions limit acquisition new subscribers nextel boost mobile branded services also churn subscribers cdma services remains high relative competitors large part due creditrelated deactivations 2006 reorganized sales distribution customer management operations improve customer satisfaction adopted regional sales service distribution structure streamline operations increase productivity move decisionmaking closer customer tightened credit policies new subscribers cdma iden services 2007 • adding cell sites improve network performance expand coverage capacity networks • increasing media expenditures improve brand awareness • enhanced incentives improve thirdparty sales distribution accelerate growth implementing customer retention programs focus highvalue customers • adjusting credit policies marketbymarket basis effort optimize balance new subscribers prime subprime quality • improving handset portfolio across cdma iden network platforms • helping relieve capacity constraints iden network offer subscribers iden services benefits applications cdma network walkietalkie applications offering new line combined cdmaiden devices marketed powersourcetm feature voice data applications cdma network walkietalkie applications iden network expecting introduce powersource devices also feature power vision data applications cdma network • expect substantially complete integration number systems including human resources general ledger sales commissions billing believe integration systems onto single platforms create efficiencies way business case billing system increase functionality customer care representatives produce reliable information enhance customer experience completed various phases systems processes consolidation plan fourth quarter 2006 discussed part ii item 9a “controls procedures” future also plan utilize qualcomm incorporated’s qchat® technology designed provide high performance walkietalkie services cdma network designing interfaces provide interoperability walkietalkie services cdma iden networks also plan deploy next generation broadband wireless network designed provide significantly higher data transport speeds using spectrum holdings 25 gigahertz ghz band technology based worldwide interoperability microwave access wimax standard designing network support wide range highspeed ipbased wireless services initial plans contemplate deploying new network larger metropolitan areas goal launching related service offerings markets beginning 2008 wireless segment generates revenues provision wireless services sale wireless equipment provision wholesale services ability wireless segment generate service revenues primarily function • number subscribers serve turn function ability acquire new retain existing subscribers • revenue generated subscriber turn function types amount services utilized subscriber rates charge services believe wireless carriers increasingly must attract greater proportion new customers existing customer bases competitors rather first time purchasers wireless services example experiencing increased competition prepaid youth markets new entrants targeting subscribers certain competitors continue increase focus customer retention efforts reported improvements customer retention rates may make harder us acquire new customers competitors addition higher market penetration wireless services markets may suggest customers purchasing wireless services first time may average lower credit rating existing wireless users generally results higher churn rate due involuntary churn higher bad debt expense intensified competition among wireless carriers attract higher quality customers stronger credit standing resulting aggressive pricing strategies voice services features designed attract customers also experienced declines average voice revenue per subscriber due offering competitive service pricing plans including lower priced plans “business essentials” plans allow users add additional units plans attractive rates developing implementing service plans designed offset declines voice revenue expanding enhancing valueadded array imaging highspeed data messaging entertainment locationbased applications recently growth revenue per subscriber generated data services significant kept pace decline voice revenue resulting decline overall monthly average revenue per subscriber ability wireless segment generate equipment revenues primarily function number new existing subscribers purchase handsets accessories ability wireless segment generate wholesale revenues primarily function number type mvnos resell wireless service rates charge mvnos utilization network although many costs relating operation wireless networks fixed shortterm costs interconnection fees fluctuate based utilization networks sales marketing expenses dependent number subscriber additions nature extent marketing promotional activities customer care costs dependent number subscribers serve nature programs designed serve retain subscribers general administrative expenses consist fees paid billing customer care information technology operations bad debt expense customer retention back office support activities including collections legal finance human resources strategic planning technology product development along related payroll facilities costs although goal improve operating margins cost savings initiatives benefits scale costs fluctuate based network utilization number subscribers serve costs associated enhancing expanding coverage network generally increase absolute terms time also seek realize operating efficiencies business mergerrelated cost savings synergies february 2005 nextel accepted terms conditions report order implemented spectrum reconfiguration plan designed eliminate interference public safety operators 800 mhz band terms report order nextel surrendered certain spectrum rights received certain spectrum rights undertook pay costs incurred nextel third parties connection reconfiguration plan required completed within 36month period subject certain exceptions particularly respect markets border mexico canada assumed obligations merged nextel august 2005 result events within control fail complete reconfiguration plan within 36month period fcc could take actions us enforce report order actions could adverse operating financial impacts us could material believe based experiences date complete reconfiguration process within 36month period due events largely outside control believe time impact delay material results operation financial condition although assurance recognizing current limitations reconfiguration process sprint nextel public safety community jointly filed letter fcc february 15 2007 requesting fcc direct transition administrator working closely affected parties develop schedule benchmarks completing second phase 800 mhz reconfiguration see “ forwardlooking statements” part reconfiguration process markets must cease using portions surrendered 800 mhz spectrum able commence use replacement 800 mhz spectrum contributed capacity constraints experienced iden network particularly capacity constrained markets impacted performance iden network affected markets based fcc’s determination values spectrum rights received surrendered nextel minimum obligation incurred report order 28 billion report order also provides qualifying costs incur part reconfiguration plan including costs reconfigure infrastructure spectrum positions used offset minimum obligation 28 billion however obligated pay full amount costs relating reconfiguration plan even costs exceed amount addition financial reconciliation required completed end reconfiguration implementation time required make payment us treasury extent value spectrum rights received exceeds total value spectrum rights surrendered ii qualifying costs referred result uncertainty regard calculation credit internal network costs well significant number variables outside control particularly regard 800 mhz reconfiguration licensee costs believe reasonably estimate amount paid us treasury required terms report order delivered 25 billion letter credit provide assurance funds available pay relocation costs incumbent users 800 mhz spectrum although report order provides possibility periodic reductions amount letter credit reductions made december 31 2006 long distance long distance segment provide broad suite wireline voice data communications services targeted domestic business customers multinational corporations communications companies services include domestic international data communications using various protocols multiprotocol label switching mpls technologies internet protocol ip asynchronous transfer mode atm frame relay managed network services voice services also provide services cable msos resell long distance service andor use back office systems network assets support telephone service provided cable facilities primarily residential enduser customers one nation’s largest providers long distance services operate alldigital long distance tier 1 ip networks several years long distance voice services experienced industrywide trend lower revenue lower prices competition wireline wireless communications companies well cable msos internet service providers growth voice services provided cable msos accelerating consumers use cable msos alternatives local long distance voice communications providers continue assess portfolio services provided long distance segment focusing efforts ipbased services deemphasizing standalone voice services nonipbased data services example addition increased emphasis selling ip services converting many existing customers atm frame relay advanced ip technologies part support effort move one platform reduce cost structure time conversion expected result decreases revenue frame relay atm service offset increases ip mpls services also taking advantage growth voice services provided cable msos providing large cable msos long distance voice communications service offer part bundled service offerings critical accounting policies estimates consider following accounting policies estimates important financial position results operations either significance financial statement item require exercise significant judgment andor use significant estimates management believes estimates used reasonable actual results could differ estimates revenue recognition allowance doubtful accounts policies operating revenues primarily consist wireless service revenues generated handset accessory sales revenues wholesale operators pcs affiliates well long distance voice data internet revenues service revenues consist fixed monthly recurring charges variable usage charges miscellaneous fees activation fees directory assistance operatorassisted calling equipment protection late payment charges certain regulatory related fees recognize service revenues services rendered equipment revenue title passes dealer enduser customer accordance sec staff accounting bulletin sab 104 revenue recognition emerging issues task force eitf issue 0021 revenue arrangements multiple deliverables recognize revenue access charges services charged fixed amounts ratably service period net credits adjustments service discounts billing disputes fraud unauthorized usage recognize excess wireless usage long distance revenue contractual rates per minute minutes used additionally recognize excess wireless data usage based kilobytes onetime use charges use premium services incurred result cutoff times multiple billing cycles month required estimate amount subscriber revenues earned billed end billing cycle end reporting period estimates based primarily rate plans effect historical usage billing patterns represented 13 accounts receivable balance december 31 2006 certain bundled products services primarily wireless segment considered revenue arrangements multiple deliverables total consideration received arrangements allocated measured using units accounting within arrangement ie service handset contracts based relative fair values activation fee revenue associated arrangements direct sales channels recognized equipment sales time related handset sold indirect sales channels activation fee solely linked service contract subscriber accordingly activation fee revenue deferred amortized estimated average service life end user customer classified service revenue establish allowance doubtful accounts receivable sufficient cover probable reasonably estimable losses number accounts practical review collectibility accounts individually determine amount allowance doubtful accounts period although perform account level analysis respect long distance customers estimate allowance doubtful accounts considers number factors including collection experience current economic trends estimates forecasted writeoffs aging accounts receivable portfolios industry norms regulatory decisions factors allowance doubtful accounts estimate december 31 2006 change 10 would represent change bad debt expense 39 million wireless segment 3 million long distance segment accounting estimates related recognition revenue results operations require us make assumptions future billing adjustments disputes customers unauthorized usage future returns handset sales allowance amounts recorded instance represent best estimate future outcomes actual outcomes could differ estimate selected impact changes actual performance versus amounts recorded would accounts receivable reported balance sheet results operations could material financial condition inventories handsets accessories wireless segment inventories long distance segment stated lower cost market determine cost firstin firstout fifo method handset costs excess revenues generated handset sales handset subsidies expensed time sale recognize expected handset subsidies prior time sale promotional discount decision made point sale andor expect recover handset subsidies service revenues december 31 2006 held 12 billion inventory analyze realizable value handset inventory quarterly basis analysis includes assessing obsolescence sales forecasts product life cycle marketplace considerations assessments regarding factors change may required sell handsets higher subsidy potentially record expense future periods prior point sale extent expect unable sell handsets service contract valuation recoverability longlived assets including definite lived intangible assets significant portion total assets longlived assets consisting primarily property plant equipment definite lived intangible assets changes technology intended use assets well changes economic industry factors business prospects may cause estimated period use value assets change longlived assets consisting property plant equipment represented 259 billion 972 billion total assets december 31 2006 generally calculate depreciation assets using straightline method based estimated economic useful lives follows since changes technology intended use assets well changes broad economic industry factors may cause estimated period use assets change perform annual internal studies confirm appropriateness depreciable lives categories property plant equipment studies utilize models take account actual usage physical wear tear replacement history assumptions technology evolution calculate remaining life asset base factors indicate asset’s useful life different original assessment depreciate remaining book values prospectively adjusted estimated useful life studies resulted depreciable rate 5 higher lower used preparation consolidated financial statements year ended december 31 2006 recorded depreciation expense would impacted 300 million addition performing annual studies also continue assess estimated useful life iden network assets net carrying value 74 billion december 31 2006 future strategic plans network larger portion subscriber base served cdma network reduction estimate useful life iden network assets would cause increased depreciation charges future periods could material review longlived assets impairment whenever events changes circumstances indicate carrying amount may recoverable significant amount judgment involved determining occurrence indicator impairment requires evaluation recoverability longlived assets total expected undiscounted future cash flows less carrying amount assets loss recognized difference fair value carrying value assets impairment analyses performed based current business technology strategy views growth rates business anticipated future economic regulatory conditions expected technological availability software projects development periodically assess probability deployment business determine impairment charge required year ended december 31 2006 recorded 69 million asset impairment charges primarily related software asset impairments abandonments various assets including certain cell sites construction year ended december 31 2005 recorded 44 million asset impairment charges primarily related writedown various software applications 2004 determined business conditions events impacting long distance operations constituted indicator possible impairment requiring evaluation recoverability long distance longlived assets resulted noncash asset impairment charge 35 billion reducing net carrying value long distance property plant equipment 60 23 billion september 30 2004 additionally recognized noncash charge 21 million 2004 adjust carrying value wholesale dial ip assets fair value impairments represented 54 long distance’s property plant equipment net 13 consolidated property plant equipment net december 31 2003 intangible assets definite useful lives represented 92 billion 972 billion total assets december 31 2006 definite lived intangible assets consist primarily customer relationships amortized three five years using sum years’ digits method believe best reflects estimated pattern economic benefits consumed definite lived intangible assets primarily include certain rights affiliation agreements reacquired connection acquisitions pcs affiliates nextel partners amortized remaining terms affiliation agreements straightline basis nextel direct connectsm trade names amortized 10 years date sprintnextel merger straightline basis continually assess whether indicators impairment exist would trigger test definite lived intangible assets including limited significant decrease market price asset cash flows significant change extent manner asset used addition ever required determine implied fair value goodwill part second step goodwill impairment test would result evaluating recorded value definite lived intangible assets impairment also evaluate remaining useful lives definite lived intangible assets reporting period determine whether events circumstances warrant revision remaining periods amortization would addressed prospectively example review certain trends customer churn average revenue per user revenue future plans regarding iden network changes marketing strategies among others significant changes certain trends may cause us adjust prospective basis remaining estimated life certain definite lived intangible assets valuation recoverability goodwill indefinite lived intangible assets intangible assets indefinite useful lives represented 508 billion 972 billion total assets december 31 2006 identified fcc licenses sprint boost mobile trademarks indefinite lived intangible assets addition goodwill considering expected use assets regulatory economic environment within used effects obsolescence use review goodwill relates solely wireless reporting unit indefinite lived intangibles annually october 1 impairment frequently indicators impairment exist continually assess whether indicators impairment exist significant amount judgment involved determining indicator impairment occurred indicators may include sustained significant decline share price market capitalization changes expected future cash flows significant adverse change legal factors business climate unanticipated competition testing recoverability significant asset group within reporting unit andor slower growth rates among others required first test goodwill impairment comparing fair value wireless reporting unit carrying amount fair value wireless reporting unit exceeds carrying amount goodwill deemed impaired testing would necessary carrying amount wireless reporting unit exceed fair value would perform second test measure amount impairment loss measure amount impairment loss would determine implied fair value goodwill manner wireless reporting unit acquired business combination specifically would allocate fair value wireless reporting unit assets liabilities unit including unrecognized intangible assets hypothetical calculation would yield implied fair value goodwill implied fair value goodwill less recorded goodwill would record impairment charge difference required test indefinite lived intangibles impairment comparing asset’s respective carrying value estimates fair value determined using direct value method fcc licenses combined single unit accounting following unit accounting guidance prescribed eitf issue 027 unit accounting testing impairment indefinitelived intangible assets except fcc licenses 25 ghz band tested separately accounting estimates related goodwill indefinite lived intangible assets require us make significant assumptions fair values assumptions regarding fair values require significant judgment economic factors industry factors technology considerations well views regarding prospects business changes judgments may significant effect estimated fair values fourth quarter 2006 performed annual goodwill indefinite lived intangible asset analyses described result analyses indefinite lived intangible assets impaired permitted financial accounting standards board fasb guidance goodwill analysis included estimate control premium respect minority interest traded value common shares estimate value long distance business well assumptions december 31 2006 identified indicators impairment respect goodwill indefinite lived intangible assets however share price experience sustained significant decline compared share price december 31 2006 indicator impairment exists decline expected cash flows may required perform second step goodwill impairment test could cause us recognize noncash impairment charge could material consolidated financial statements tax valuation allowances required estimate amount taxes payable refundable current year deferred income tax liabilities assets future tax consequences events reflected consolidated financial statements tax returns taxing jurisdiction operate process requires management make assessments regarding timing probability ultimate tax impact record valuation allowances deferred tax assets determine likely asset realized additionally establish reserves uncertain tax positions based upon judgment regarding potential future challenges positions actual income taxes could vary estimates due future changes income tax law significant changes jurisdictions operate inability generate sufficient future taxable income unpredicted results final determination year’s liability taxing authorities changes could significant impact financial position accounting estimate related tax valuation allowance requires us make assumptions regarding timing future events including probability expected future taxable income available tax planning opportunities assumptions require significant judgment actual performance fluctuated past may future impact changes actual performance versus estimates could realization tax benefits reported results operations could material carried income tax valuation allowance 953 million december 31 2006 amount includes valuation allowance 743 million total tax benefits related net operating loss carryforwards subject utilization restrictions acquired connection certain acquisitions remainder valuation allowance relates capital loss state net operating loss tax credit carryforwards within total valuation allowance 54 million related separate company state net operating losses incurred pcs entities owned us valuation allowance provided separate company state net operating loss benefits since entities history taxable income current trends indicate valuation allowance continues appropriate anticipate adjusting amount near term continue monitor trends future possible cumulative historical test ultimately yield sufficient positive evidence likely realize tax benefit separate company state net operating losses valuation allowance provided occur subject review qualitative factors uncertainties time would expect start reversing valuation allowance valuation allowance related acquired tax benefits described would first reduce goodwill intangible assets resulting acquisitions reduce income tax expense intangible assets reduced zero remainder valuation allowance would reduce income tax expense assumption changes result change expected benefits realization capital loss state net operating loss tax credit carryforwards 10 would result decrease increase valuation allowance 38 million would reflected statement operations significant new accounting pronouncements september 2006 fasb issued sfas 157 fair value measurements statement defines fair value establishes framework measuring fair value additionally statement expands disclosure requirements fair value particular focus measurement inputs sfas 157 effective quarterly reporting period ending march 31 2008 process evaluating impact statement consolidated financial statements september 2006 eitf reached consensus issue 061 accounting consideration given service provider manufacturers resellers equipment necessary endcustomer receive service provider eitf issue 061 provides guidance regarding whether consideration given service provider manufacturer reseller specialized equipment characterized reduction revenue expense issue effective quarterly reporting period ending march 31 2008 entities required recognize effects applying issue change accounting principle retrospective application prior periods unless impracticable process evaluating impact issue consolidated financial statements june 2006 eitf reached consensus issue 063 taxes collected customers remitted governmental authorities presented income statement gross versus net presentation eitf issue 063 requires companies disclose accounting policy regarding gross net presentation certain taxes within scope eitf issue 063 tax assessed governmental authority directly imposed revenueproducing transaction seller customer may include limited sales use value added excise taxes eitf issue 063 effective quarterly reporting period ending march 31 2007 process evaluating impact issue consolidated financial statements june 2006 fasb issued interpretation 48 accounting uncertainty income taxes fin 48 interpretation sfas 109 accounting income taxes fin 48 clarifies accounting uncertainty income taxes recognized enterprise’s financial statements accordance sfas 109 prescribes recognition threshold measurement attribute financial statement recognition measurement tax position taken expected taken tax return fin 48 also provides guidance derecognition classification interest penalties accounting interim periods disclosure transition fin 48 effective quarterly reporting period ending march 31 2007 cumulative effect adopting fin 48 generally recorded directly retained earnings however extent adoption fin 48 results revaluation uncertain tax positions acquired purchase business combinations cumulative effect recorded adjustment goodwill remaining corresponding business combination believe adoption fin 48 material impact consolidated financial statements results operations present consolidated information well separate supplemental financial information two reportable segments wireless long distance disaggregated financial results two segments prepared manner consistent basis manner executives evaluate segment performance make resource allocation decisions consequently define segment earnings operating income depreciation amortization severance lease exit costs asset impairments expenses see note 14 notes consolidated financial statements appearing end annual report form 10k additional information segments reconciliations segment earnings closest generally accepted accounting principles measure operating income see tables set forth “ wireless” “ long distance” generally account transactions segments based fully distributed costs believe approximate fair value certain transactions pricing set using market rates consolidated operating results 2006 include results nextel partners july 1 end year pcs affiliates acquired 2006 either date acquisition start month closest acquisition date end year operating results 2005 include results nextel august 12 end year pcs affiliates acquired 2005 date acquisition end year information business combinations see note 3 notes consolidated financial statements appearing end annual report form 10k transactions affect comparability reported operating results periods net operating revenues increased 43 2006 compared 2005 33 2005 compared 2004 reflecting growth revenues wireless segment resulting primarily business combinations discussed partially offset declining revenues long distance segment additional information see “ segment results operations” income loss continuing operations increased 21 2006 compared 2005 improved loss income 2005 compared 2004 primarily due decrease impairment charges 2004 recorded 35 billion asset impairment charge related long distance network addition income loss continuing operations increased due revenue growth result business combinations discussed partially offset increases cost service primarily due higher volume roaming interconnection expenses additional information see “ segment results operations” “ consolidated information” net income loss decreased 26 2006 compared 2005 primarily result embarq spinoff net income improved 2005 net loss 2004 primarily result 35 billion asset impairment charge 2004 related long distance network additional information see “ segment results operations” “ consolidated information” presented results operations wireless long distance segments followed discussion results operations consolidated basis segment results operations wireless segment results operations year ended december 31 2006 include results acquired companies either date acquisition start month closest acquisition date results acquired companies included following dates enterprise communications partnership alamosa holdings inc february 1 2006 velocita wireless holding corporation march 1 2006 nextel partners ubiquitel inc july 1 2006 year ended december 31 2005 results include results operations nextel us unwired inc august 12 2005 gulf coast wireless october 1 2005 iwo holdings november 1 2005 nm meaningful 1 severance lease exit costs asset impairments depreciation amortization discussed consolidated information section selected financial operating data following summary subscriber activity related subscriber metrics number subscribers impacts service revenues cost service bad debt expense well support costs customer care recorded general administrative expenses na applicable 1 quarter ended december 31 2006 changed subscriber deactivation process postpaid subscribers effect change customer subscriber base october 1 2006 increased 436000 subscribers adjustment impact direct net subscriber additions monthly customer churn rates quarter ended december 31 2006 addition additional customer subscriber base adjustments 101000 first three quarters 2006 2 direct net subscriber additions include subscribers acquired connection sprintnextel merger pcs affiliate nextel partners acquisitions 3 direct prepaid monthly customer churn rate average monthly service revenue per user metrics 2005 calculated based results subsequent sprintnextel merger service revenue service revenues consist fixed monthly recurring charges variable usage charges miscellaneous fees activation fees directory assistance operatorassisted calling equipment protection late payment charges certain regulatory related fees service revenues increased 61 2006 compared 2005 primarily due sprintnextel merger acquisitions increase number direct subscribers partially offset decrease weighted average monthly service revenue per user 59 2006 compared 62 2005 service revenues increased 54 2005 compared 2004 primarily due merger nextel increase number direct subscribers weighted average monthly service revenue per user remained flat year 2006 ended year 458 million direct subscribers year 17 million net direct subscriber additions excluding nextel partners pcs affiliate subscribers 41 million acquired companies comparison ended 2005 397 million direct subscribers year 30 million net direct subscriber additions excluding nextel pcs affiliate subscribers 189 million acquired merger acquisition companies 2004 ended year 178 million direct subscribers 19 million net direct subscriber additions believe growth direct subscribers separate growth attributable subscribers gained part sprintnextel merger pcs affiliate nextel partners acquisitions primarily due following factors • growth number subscribers purchasing wireless prepaid service offering 49 2006 compared 53 2005 2006 end period wireless prepaid subscriber total 40 million • differentiating products services particularly datarelated services including available sprint power vision service plans nonvoice services instant messaging emails sending receiving pictures playing online games browsing internet wirelessly • selected handset pricing promotions improved handset choices weighted average monthly service revenue per user decreased 59 2006 62 2005 2004 primarily due following factors • continued offer competitive service pricing plans including lower priced plans “business essentials” iden cdma networks plans allow users add additional units plan attractive rates “add phone” “family plans” • prepaid wireless subscribers generally lower average revenue per user illustrated table increased percentage total subscriber base 8 2006 compared 6 2005 • integrated pcs affiliate subscribers lower average monthly service revenue longer source roaming revenue us partially offset • increase data service revenues resulting higher usage subscribers took advantage wide array data offerings short message service sms connection cards sprint vision power vision service plans limited distribution prepaid services may adversely impact ability add users prepaid services affected markets also adjusting credit policies certain markets may adversely impact ability add lower credit quality subscribers markets relatively tight credit policies expect weighted average monthly service revenue per user continue decline result decreases pricing due competitive market pricing incremental customer acquisitions lower average revenues existing customer migrations lower priced plans partially offset expected growth demand data services see “ forwardlooking statements” wholesale affiliate revenue wholesale affiliate revenues consist primarily net revenues retained wireless subscribers residing pcs affiliate territories revenues sale wireless services companies resell services subscribers wholesale affiliate revenues decreased 4 2006 primarily due pcs affiliate acquisitions partially offset wholesale operator additions 12 million subscribers 2006 wholesale affiliate revenues increased 47 2005 reflecting growth wholesale operator subscriber base 15 million additions well 450000 374000 net subscriber additions 2005 2004 pcs affiliate base cost services cost services consists primarily • costs operate maintain cdma iden networks including direct switch cell site costs rent utilities maintenance payroll costs associated network engineering employees frequency leasing costs • fixed variable interconnection costs fixed component consists monthly flatrate fees facilities leased local exchange carriers based number cell sites switches service particular period related equipment installed site variable component generally consists perminute use fees charged wireline wireless providers calls terminating networks fluctuates relation level duration terminating calls • costs service repair handsets activate service new subscribers roaming fees paid carriers cost services increased 47 2006 compared 2005 45 2005 compared 2004 primarily due increased costs relating expansion network increased minutes use networks due acquisitions specifically experienced • increase cell site switch related operational costs including increases fixed variable interconnection costs due increase usage cell sites related equipment service • increase backhaul costs driven increased capacity required support evdo service well pcs affiliate nextel partners acquisitions • increase costs premium data services resulting increased subscriber data usage partially offset • decrease roaming expenses due acquisition nextel partners pcs affiliates expect aggregate amount cost service increase customer usage networks increases add sites equipment expand coverage capacity cdma iden networks see “ forwardlooking statements” “ liquidity capital resources” “ capital requirements” service gross margin increased 62 2006 compared 57 increase 2005 total service revenues grew faster rate cost services percentage total service revenue service gross margin increased slightly 75 2006 73 2005 72 2004 equipment revenue recognize equipment revenues title handset accessory passes dealer enduser customer revenues sales handsets accessories increased 49 2006 compared 2005 increased 42 2005 compared 2004 number handset units sold increased 39 2006 compared 2005 53 2005 compared 2004 increases primarily due sprintnextel merger pcs affiliate nextel partners acquisitions average sales price per handset increased 7 2006 compared 2005 primarily due higher priced handsets sold including power vision enabled average sales price per unit decreased 7 2005 compared 2004 lowered handset retail prices cost handsets declined changed thirdparty compensation plan 2005 continued offer rebates existing handsets new promotional programs rolled cost products recognize cost handsets accessories including handset costs excess revenues generated handset sales subsidy title handset accessory passes dealer enduser customer cost handset accessories also includes order fulfillment related expenses writedowns handset related accessory inventory shrinkage obsolescence cost handsets reduced rebates earned supplier handset accessory costs increased 50 2006 compared 2005 increased 37 2005 compared 2004 primarily due sprintnextel merger pcs affiliate nextel partners acquisitions also 8 increase average cost per handset sold 2006 compared 2005 opposed 10 decrease 2005 compared 2004 equipment net subsidy percentage equipment revenues increased 54 2006 52 2005 declined 2005 58 2004 marketing plans assume handsets typically sold prices cost consistent industry practice subscriber retention efforts often include providing incentives customers offering new handsets discounted prices expect increase handset subsidies acquire new subscribers retain existing subscribers example introduced new line hybrid cdmaiden devices marketed powersource may offer devices discount effort retain iden subscribers may result increase handset subsidies future periods see “ forwardlooking statements” selling general administrative expense sales marketing costs primarily consist customer acquisition costs including commissions paid indirect dealers thirdparty distributors direct sales force new handset activations upgrades residual payments indirect dealers payroll facilities costs associated direct sales force retail stores marketing employees advertising media programs sponsorships including costs related branding general administrative costs primarily consist fees paid billing customer care information technology operations bad debt expense back office support activities including collections legal finance human resources strategic planning technology product development along related payroll facilities costs sales marketing expense increased 52 2006 2005 compared increase 55 2005 2004 primarily due launch new branding initiatives advertising campaigns connection sprintnextel merger increased sales distribution costs support larger subscriber base primarily due sprintnextel merger pcs affiliate nextel partners acquisitions additionally increased compensation postpaid thirdparty dealers fourth quarter 2006 new subscriber additions upgrades general administrative costs increased 62 2006 2005 compared increase 49 2005 2004 primarily due sprintnextel merger pcs affiliate nextel partners acquisitions well • increase bad debt expense reflecting increase number subscribers increase involuntary churn bad debt expense 2006 increased 88 2005 increased 112 2004 2005 allowance doubtful accounts percentage outstanding accounts receivable 9 2006 7 2005 • increase customer care expenses related call volume increases due larger subscriber base increases customer retention efforts • increase information technology billing expenses support larger subscriber base addition increase credit card fees subscribers submit invoice payments credit cards expect certain selling general administrative expenses continue increase primarily result increased costs associated customer acquisition retention including increased costs related strengthening third party distribution channels additional marketing advertising brand awareness initiatives customer care information technology billing activities see “ forwardlooking statements” wireless segment earnings wireless segment earnings increased 68 2006 2005 compared increase 69 2005 2004 primarily due increased revenue resulting additional subscribers result sprintnextel merger pcs affiliate nextel partners acquisitions long distance 1 severance lease exit costs asset impairments depreciation discussed consolidated information section total net services revenues total net services revenues decreased 4 2006 compared 2005 decreased 7 2005 compared 2004 result lower priced product mix exiting unbundled network element platform unep business first quarter 2006 conferencing business third quarter 2005 migration legacy data products partially offset higher volume minutes wholesale affiliate business increases ip revenues additionally termination large dial ip contract 2004 sale wholesale dial ip business 2004 contributed decreased revenues 2004 2005 decreases partially offset reduced billing adjustments achieved improved billing processes dispute resolution 2007 expect see continued revenue growth ip services offset declines voice revenues due lower pricing commercial contracts continued pressures long distance market increased competition excess capacity resulting new technologies networks may drive already low prices see “ forwardlooking statements” voice revenues voice revenues decreased 6 2006 compared 2005 decreased 8 2005 compared 2004 primarily result competition major local exchange carriers cable msos consumer small business customers well wireless email instant messaging substitution additionally 2006 decrease reflects sale unep customers first quarter 2006 retail business experienced 23 decrease voice revenues 2005 2006 competition resulted lower prices per minute notwithstanding increased minute volumes market trends indicate shift away retail business towards wholesale business voice revenues related wholesale business increased 25 2005 2006 minute volume increases drove 86 increase primarily result relationship embarq several large cable msos provide local long distance communications services offer customers part bundled service offerings voice revenues generated provision services wireless subscribers represented 17 total voice revenues 2006 compared 14 2005 data revenues data revenues reflect sales legacy data services including atm frame relay managed network services data revenues decreased 12 2006 compared 2005 decreased 5 2005 compared 2004 primarily related declines frame relay atm services customers migrated ipbased technologies declines partially offset growth managed network services internet revenues internet revenues reflect sales ipbased data services including mpls internet revenues increased 27 2006 compared 2005 decreased 7 2005 compared 2004 2006 increase due higher dedicated ip revenues business customers increasingly migrate mpls services 2005 decline primarily due loss dial ip revenues due sale dial ip business october 2004 revenues decreased 13 2006 compared 2005 2004 result fewer customer premises equipment cpe projects 2006 compared prior years costs services products costs services products include access costs paid local phone companies domestic service providers foreign phone companies complete calls made domestic customers costs operate maintain networks costs equipment costs services products increased 1 2006 3 2005 increases relate primarily network costs support growth cable initiatives addition increased domestic access volume partially offset fewer cpe projects 2006 loss unep customers first quarter 2006 renegotiated access rate agreements initiatives reduce access circuit costs 2005 increase driven access volume international access costs somewhat offset renegotiated access rate agreements initiatives reduce access circuit costs service gross margin decreased 42 2004 36 2005 33 2006 primarily result declining net services revenues lower margin product mix selling general administrative expense selling general administrative expense decreased 18 2006 compared 2005 decreased 27 2005 compared 2004 2006 decline due primarily decreased marketing advertising result change mix marketing strategies cost savings resulted lower general administrative information technology expenses 2005 decline due primarily continued restructuring efforts headcount reductions aggressive cost savings initiatives reduced rent costs lower bad debt expense selling general administrative expense includes charges estimated bad debt expense every quarter reassess allowance doubtful accounts based customerspecific indicators well historical trends industry data ensure adequately reserved bad debt expense 2006 decreased 11 million 30 million 2005 decrease 142 million 2004 improvement bad debt expense reflects improved trends collections agings allowance doubtful accounts percentage outstanding accounts receivable 4 2006 8 2005 total selling general administrative expense percentage net services revenues 18 2006 21 2005 27 2004 long distance segment earnings long distance segment earnings decreased 5 2006 2005 compared decrease 8 2005 2004 primarily due voice revenue declines related customer migrations alternate sources cable wireless consolidated information nm meaningful selling general administrative expense selling general administrative expenses primarily allocated segment level discussed segment earnings discussions selling general administrative expenses related wireless 106 billion 2006 67 billion 2005 44 billion 2004 selling general administrative expenses related long distance 12 billion 2006 14 billion 2005 20 billion 2004 addition selling general administrative expenses discussed segment earnings discussions incurred corporate selling general administrative expenses including merger integration costs 413 million 2006 580 million 2005 merger integration costs generally nonrecurring nature primarily include charges costs adopt launch new branding strategy logos including costs rebrand companyowned stores facilities costs train customerfacing employees prepare systems launch common customer interfacing systems processes integration planning execution costs related employee retention merger integration costs primarily relate sprintnextel merger included unallocated corporate selling general administrative expenses thus excluded segment results severance lease exit costs asset impairments recorded 128 million 2006 related separation employees lease exit costs part sprintnextel merger integration initiatives 2004 recorded 151 million severance lease exit costs related organizational realignment activities recorded asset impairment charges 69 million 2006 44 million 2005 primarily related writeoff various software applications 35 billion 2004 related impairment long distance property plant equipment incurred 10 million facility lease termination costs due subtenant lease terminations 2006 9 million 2005 65 million 2004 depreciation amortization expense depreciation expense increased 48 2006 2005 increased 6 2005 2004 primarily due sprintnextel merger pcs affiliate nextel partners acquisitions excluding impact business combinations depreciation expense increased 10 result increase cell sites service capitalized costs incurred modify existing switches cell sites enhance capacity networks partially offset reduction value assets associated impairment property plant equipment 2004 amortization expense increased 25 billion 2006 2005 increased 13 billion 2005 2004 primarily due amortization value customer relationships definite lived intangible assets acquired connection sprintnextel merger pcs affiliate nextel partners acquisitions see note 7 notes consolidated financial statements appearing end annual report form 10k additional information regarding definite lived intangible assets interest expense interest expense 2006 increased 239 million compared 2005 due additional indebtedness assumed connection sprintnextel merger pcs affiliate nextel partners acquisitions effective interest rate average longterm debt balance 233 billion 2006 69 effective interest rate average longterm debt balance 197 billion 2005 67 increase primarily related debt assumed part acquisitions 2006 average higher interest rates relative existing debt effective interest rate average longterm debt balance 174 billion 2004 71 decrease effective interest rate 2005 2004 primarily relates lower effective interest rates assumed nextel longterm debt effective interest rate includes effect interest rate swap agreements discussed note 10 notes consolidated financial statements appearing end annual report form 10k december 31 2006 average floating rate interest rate swaps 83 weighted average coupon underlying debt 72 see “ liquidity capital resources” information financing activities interest income interest income includes dividends received certain investments equity securities interest earned marketable debt securities cash equivalents 2006 interest income increased 28 compared 2005 primarily due higher interest rates cash equivalents balances well interest income recognized relation favorable tax audit settlement years 1995 2002 increase partially offset decrease cash investment balances due debt retirements purchases common stock acquisitions 2005 interest income increased compared 2004 primarily due increase average cash equivalents balances due sprintnextel merger interest income also benefited 200 basis point increase federal funds rates 2005 equity losses earnings unconsolidated investees net equity method accounting record proportional share earnings losses companies invested ability exercise significant influence amount investment case losses recorded 6 million equity method losses 2006 primarily due ownership interests ewireless recorded 107 million equity method earnings 2005 primarily related nextel partners 41 million equity method losses 2004 primarily related investment virgin mobile usa realized gain sale exchange investments 2006 recognized gain sale investments 205 million primarily due 433 million gains sales investment nii holdings inc partially offset loss 274 million change fair value option contract associated investment nii holdings described note 10 notes consolidated financial statements appearing end annual report form 10k recognized gain 62 million sale equity method investments 2005 primarily consisted gains related investments callnet enterprises inc nii holdings earthlink inc 2004 recognized gain 15 million sale investments primarily attributable investment earthlink income tax expense benefit consolidated effective tax rates 329 2006 364 2005 382 2004 2006 effective tax rate impacted 42 million benefit related tax audit settlements years 1995 2002 27 million benefit related state income tax law changes information regarding items caused effective income tax rates vary statutory federal rate income taxes related continuing operations found note 12 notes consolidated financial statements appearing end annual report form 10k discontinued operations net discontinued operations reflect results local segment full years 2004 2005 yeartodate period may 17 2006 date embarq spinoff additional information regarding discontinued operations found note 2 notes consolidated financial statements appearing end annual report form 10k income discontinued operations related spinoff embarq remained relatively stable 2005 2004 financial condition consolidated assets 972 billion december 31 2006 included 601 billion intangible assets 1028 billion december 31 2005 included 493 billion intangible assets decrease consolidated assets due primarily spinoff embarq payments retirements debt purchases shares common stock retirement seventh series redeemable preferred shares partially offset increase due assets acquired connection several business combinations net cash used purchase acquired entities additional information regarding impact spinoff business combinations consolidated assets found notes 2 3 notes consolidated financial statements end annual report form 10k see “liquidity capital resources” additional information change cash equivalents liquidity capital resources management exercises discretion regarding liquidity capital resource needs business segments responsibility includes ability prioritize use capital debt capacity determine cash management policies make decisions regarding timing amount capital expenditures discontinued operations may 17 2006 completed spinoff embarq separation embarq us resulted two separate companies focus maximizing opportunities distinct business believe separation presents opportunity enhanced performance two companies including allowing company separately pursue business regulatory strategies best suit longterm interests addressing growing strategic divergence embarq’s local wirelinecentric focus increasingly national wirelesscentric focus creating separate companies different financial characteristics may appeal different investor bases creating opportunities efficiently develop finance expansion plans creating effective management incentives tied relevant company’s performance spinoff distributed pro rata shareholders one embarq common share every 20 shares voting nonvoting common stock 149 million embarq common shares cash paid fractional shares distribution embarq common shares considered taxfree transaction us shareholders except cash payments made lieu fractional shares generally taxable connection spinoff embarq transferred parent company 21 billion cash 45 billion embarq senior notes partial consideration condition transfer embarq local communications business embarq also retained 665 million debt obligations subsidiaries cash senior notes transferred parent company finance subsidiary sprint capital corporation satisfaction indebtedness owed parent company sprint capital may 19 2006 sprint capital sold embarq senior notes public received 44 billion net proceeds connection spinoff entered separation distribution agreement related agreements embarq provide generally party responsible respective assets liabilities businesses following spinoff embarq provide certain transition services relating respective businesses specified periods costbased prices also entered agreements pursuant embarq provide specified services commercial rates agreements provide settlement process surrounding transfer certain assets liabilities possible adjustments occur future periods matters settled time spinoff outstanding options purchase common stock held employees embarq cancelled replaced options purchase embarq common stock outstanding options purchase common stock held directors employees remained us adjusted multiplying number shares subject options 10955 dividing exercise price number order account impact spinoff value shares time spinoff completed generally restricted stock units awarded pursuant equity incentive plans held employees time spinoff including held employees became employees embarq treated manner similar treatment outstanding shares common stock spinoff holders restricted stock units received one embarq restricted stock unit every twenty restricted stock units held outstanding deferred shares granted nextel incentive equity plan represent right receive shares common stock adjusted multiplying number deferred shares 10955 cash paid holders deferred shares lieu fractional shares spinoff embarq qualify taxfree transaction tax could imposed shareholders us believe cash liquidity requirements met without net cash provided embarq cash flows nm meaningful operating activities net cash provided operating activities 110 billion 2006 increased 279 million 2005 primarily due 120 billion increase cash received customers result sprintnextel merger third quarter 2005 pcs affiliate acquisitions 2005 2006 nextel partners acquisition second quarter 2006 well continued growth wireless customer base increase partially offset 85 billion increase cash paid suppliers employees 12 billion proceeds received 2005 communications towers lease transaction decrease cash provided discontinued operations 11 billion investing activities net cash used investing activities 2006 increased 67 billion 2005 due primarily • 103 billion increase cash paid 2006 acquisitions including 32 billion net cash paid acquire alamosa holdings 66 million net cash paid acquire enterprise communications 150 million net cash paid acquire velocita wireless 847 million net cash paid acquire ubiquitel 62 billion net cash paid acquire nextel partners compared 14 billion net cash paid acquire three pcs affiliates 2005 offset net cash received 2005 12 billion related sprintnextel merger • 25 billion net increase cash paid capital expenditures including 481 million decrease related discontinued operations • 866 million cash used collateralize securities loan agreements partially offset • 63 billion proceeds connection spin local segment including 18 billion received embarq time spunoff net cash contributed proceeds sale embarq notes 44 billion capital expenditures increased due higher spending wireless segment part related spending iden network acquired sprintnextel merger invested wireless segment primarily enhance network reliability meet capacity demands upgrade capabilities providing new products services including deployment evdo technology well improve iden network reliability meet capacity demands fulfill obligations report order invested long distance segment maintain network reliability upgrade capabilities providing new products services meet capacity demands financing activities net cash used financing activities 64 billion 2006 consisted primarily • 16 billion purchase outstanding common shares pursuant share repurchase program commenced third quarter 2006 • 37 billion paid retirement term loan nextel partners bank credit facility • 43 billion payments retirements related capital lease obligations senior notes partially offset • net proceeds sale 20 billion principal amount 60 senior serial redeemable notes due 2016 • proceeds 866 million securities loan agreement • net proceeds 514 million issuance commercial paper • 405 million proceeds common share issuances primarily resulting exercises stock options employees paid cash dividends 296 million 2006 compared 525 million 2005 decrease cash dividends paid due decrease dividend rate 0125 per common share per quarter first two quarters 2005 0025 per common share per quarter beginning third quarter 2005 dividend rate decrease partially offset increase average number common shares outstanding year ended december 31 2006 compared year ended december 31 2005 primarily result sprintnextel merger capital requirements currently anticipate future funding needs near term principally relate • operating expenses relating networks • capital expenditures particularly respect expansion coverage capacity wireless networks deployment new technologies networks including plans build new broadband wireless network • scheduled interest principal payments related debt purchases redemptions debt securities • dividend payments declared board directors purchases common shares pursuant share repurchase program • amounts required expended connection report order • potential costs compliance regulatory mandates • general corporate expenditures liquidity december 31 2006 cash equivalents marketable securities totaled 21 billion 60 billion revolving credit facility represents total committed financing capacity facility credit facility expires december 2010 provides interest rates equal london interbank offered rate libor prime rate plus spread varies depending parent company’s credit ratings rating trigger would allow lenders involved terminate facility event credit rating downgrade april 2006 commenced commercial paper program reduced borrowing costs allowing us issue shortterm debt lower rates available 60 billion revolving credit facility 20 billion program backed revolving credit facility reduces amount borrow facility extent commercial paper outstanding december 31 2006 514 million commercial paper outstanding net discounts although credit rating remains investment grade recent downgrades credit rating major credit rating agencies impacted may continue impact ability place paper investors well duration interest rates commercial paper issued since ratings downgrade december 31 2006 26 billion letters credit including 25 billion letter credit required report order outstanding 60 billion revolving credit facility letters credit reduce availability revolving credit facility equivalent amount result letters credit outstanding commercial paper 29 billion borrowing capacity available revolving credit facility addition 16 million general letters credit outstanding december 31 2006 compliance debt covenants including financial ratio tests associated borrowings ability fund capital needs outside sources ultimately impacted overall capacity terms banking securities markets given volatility markets continue monitor closely take steps maintain financial flexibility reasonable capital cost structure december 31 2006 working capital 506 million compared working capital 50 billion december 31 2005 decrease working capital primarily due utilization cash fund 2006 acquisitions impact spinoff embarq debt payments retirements purchase common shares retirement seventh series redeemable preferred shares addition cash equivalents marketable securities working capital consists accounts receivable handset accessory inventory prepaid expenses deferred tax assets current assets net accounts payable accrued expenses current portion longterm debt capital lease obligations future contractual obligations following table sets forth best estimates amounts timing contractual payments significant contractual obligations december 31 2006 information table reflects future unconditional payments based upon among things terms relevant agreements appropriate classification items gaap currently effect certain assumptions future interest rates future events including additional purchases securities refinancing securities could cause actual payments differ significantly amounts see “ forwardlooking statements” 1 includes principal estimated interest payments interest payments based management’s expectations future interest rates 2 represents capital lease payments including interest 3 includes future lease costs related sites switches offices retail stores circuits towers spectrum 4 excludes 36 billion blanket purchase orders see discussion table include remaining costs paid connection fulfillment obligation report order total minimum cash obligation report order 28 billion costs incurred report order associated reconfiguration 800 mhz band may applied 28 billion obligation subject approval transition administrator report order addition costs associated reconfiguration 19 ghz spectrum fully approved credit completion entire reconfiguration process final reconciliation audit entire reconfiguration obligation outlined report order take place completion aspects reconfiguration process assurance given full credit expenditures incurred report order additionally since transition administrator fcc yet reached agreement methodology calculating certain amounts property plant equipment submitted credit associated reconfiguration activity network cannot provide assurance granted full credit certain network costs result uncertainty regard calculation credit internal network costs well significant number variables outside control particularly regard 800 mhz reconfiguration licensee costs believe reasonably estimate amount paid us treasury since inception program december 31 2006 estimate incurred 721 million costs directly attributable reconfiguration program amount include indirect network costs preliminarily allocated reconfiguration program “purchase orders commitments” include minimum purchases commit purchase suppliers time andor unconditional purchase obligations guarantee make minimum payment suppliers goods services regardless whether suppliers fully deliver include agreements communications customer billing services advertising services contracts related information technology customer care outsourcing arrangements amounts actually paid “other” agreements likely higher due variable components agreements significant variable components determine ultimate obligation owed include hours contracted subscribers factors addition party various arrangements conditional nature create obligation make payments upon occurrence certain events delivery functioning software products possible predict timing amounts may due conditional arrangements amounts included table also excludes 36 billion blanket purchase order amounts since agreement terms specified time frame set purchase orders legally binding result firm commitments offbalance sheet financing participate secure financings unconsolidated special purpose entities future outlook expect able meet currently identified funding needs least next 12 months using • anticipated cash flows operating activities well cash equivalents marketable securities hand andor • cash available existing credit facility commercial paper program making assessment considered • anticipated levels capital expenditures including funding required connection deployment next generation technologies next generation broadband wireless network • anticipated payments report order • declared anticipated dividend payments scheduled debt service requirements purchases common shares pursuant share repurchase program • merger integration costs associated sprintnextel merger acquisitions pcs affiliates nextel partners • future contractual obligations material changes business plans currently prevailing anticipated economic conditions markets competitive practices mobile wireless communications industry presently unexpected circumstances arise material effect cash flow profitability anticipated cash needs could change significantly conclusion expect meet funding needs least next 12 months described take account • significant acquisition transactions pursuit significant new business opportunities spectrum acquisition strategies • potential material purchases redemptions outstanding debt securities cash • potential material increases cost compliance regulatory mandates events circumstances could involve significant additional funding needs excess anticipated cash flows operating activities identified currently available funding sources including existing cash hand borrowings available existing credit facility commercial paper program existing capital resources sufficient meet funding needs would necessary raise additional capital meet needs ability raise additional capital necessary subject variety additional factors cannot currently predicted certainty including • commercial success operations • volatility demand capital markets • market prices securities • tax law restrictions related spinoff embarq may limit ability raise capital sale equity securities past may future discussions third parties regarding potential sources new capital satisfy actual anticipated financing needs present existing arrangements described report legally binding commitments understandings third parties obtain material amount additional capital discussion subject risks cautionary qualifying factors set forth “ forwardlooking statements” part item 1a “risk factors” financial strategies general risk management policies primarily use derivative instruments hedging risk management purposes hedging activities may done various purposes including limited mitigating risks associated asset liability committed transaction probable forecasted transaction seek minimize counterparty credit risk stringent credit approval review processes credit support agreements continual review monitoring counterparties thorough legal review contracts also control exposure market risk regularly monitoring changes hedge positions normal stress conditions ensure exceed established limits board directors adopted financial risk management policy authorizes us enter derivative transactions comply policy purchase hold derivative financial instruments speculative purposes exception equity rights obtained connection commercial agreements strategic investments usually form warrants purchase common shares item 7a item 7 managements discussion analysis financial condition results operations overview business strategies key priorities sprint communications company offering comprehensive range wireless wireline communications products services designed meet needs individual consumers businesses government subscribers resellers communications industry continue highly competitive basis quality types services devices offered well price currently undergoing significant multiyear program network vision upgrade existing wireless communication network including decommissioning nextel platform expect repurpose valuable spectrum resources currently support network see “overview network vision” support business strategy expected capital requirements associated network vision well take advantage favorable interest rate environment refinance portion existing debt raised debt financing approximately 89 billion 2012 addition executing 10 billion secured equipment credit facility remaining availability 704 million december 31 2012 see “liquidity capital resources” wireless segment earnings represented approximately 86 total consolidated segment earnings december 31 2012 within wireless segment postpaid wireless voice data services represent significant contributors earnings driven number postpaid subscribers services well average revenue per user arpu following table shows trend end period postpaid subscribers platform past five years first quarter 2012 formalized plans decommission nextel platform ceased using approximately onethird 9600 nextel platform cell sites middle 2012 part network vision expect remainder nextel platform approximately 20000 sites shutdown june 30 2013 network vision modernization program execute planned shutdown nextel platform expect continued losses nextel platform however intend achieve subscriber growth sprint platform focusing addition profitable subscribers well recapture subscribers nextel platform despite overall reduction postpaid subscribers primarily result action shutdown nextel platform experienced growth net operating revenue twelve month period ended 2012 compared 2011 related primarily continued adoption smartphones premium data addon charge 2012 achieved approximately 15 million net postpaid subscriber additions sprint platform substantially represented postpaid subscribers deactivated service nextel platform nextel postpaid platform incurred approximately 27 million net postpaid subscriber losses year ended december 31 2012 achieved annual recapture rate approximately 55 nextel platform postpaid subscribers based net postpaid subscribers terminated service nextel platform period activated service sprint platform addition recaptured nextel platform subscribers average carry slightly higher average revenue per subscriber sprint platform compared nextel platform result smartphone adoption subscribers december 31 2012 approximately 21 million nextel platform subscribers approximately 16 million 454000 represent postpaid prepaid respectively 80 remaining 16 million nextel platform postpaid subscribers represent business accounts although continue pursue recapture subscribers expect level competition subscribers well timing business customer decisions cause rate recapture decline 3040 sixmonth period ended june 30 2013 despite continued reduction nextel platform subscribers shutdown nextel platform 2013 expect consolidated net operating revenue benefit sprint platform growth 2013 prospectively efforts expected continue focus profitable growth service provided enhanced wireless network sprint platform continuing achieve key priorities business strategy responsive changing customer mobility demands innovative differentiated marketplace future growth plans strategy revolve around achieving following three key priorities • improve customer experience • strengthen brands • generate operating cash flow simplify improve customer experience continue offer ready trains customers leave store use mobile devices business customers aim increase productivity providing differentiated services utilize advantages combining ip networks wireless technology differentiation enables us retain acquire wireline wireless combined wirelinewireless subscribers networks also continued focus improving customer care implemented initiatives designed improve call center processes procedures standardized performance measures various metrics including customer satisfaction ratings respect customer care first call resolution calls per subscriber distinguish wireless providers truly unlimited offerings data text calling mobile time rated one highest satisfaction purchase experience fullservice wireless providers named one nations greenest companies addition improvements customer experience continue strengthen brand offering broad selection desired iconic devices focusing continued enhancements network upgrade lte addition brand customeroriented goals continue focus generating increased operating cash flow competitive rate plans postpaid prepaid subscribers multibranded strategies effectively managing cost structure certain strategic decisions network vision introduction iphone® average carries higher equipment net subsidy result reduction cash flows operations near term however believe actions generate longterm benefits including growth valuable postpaid subscribers reduction variable cost service per unit longterm accretion cash flows operations see “liquidity capital resources” information proposed business transactions october 15 2012 entered agreement plan merger agreement softbank corp kabushiki kaisha organized existing laws japan certain whollyowned subsidiaries together softbank upon consummation merger softbank merger sprint become whollyowned subsidiary softbank new sprint ii new sprint publicly traded company iii softbank indirectly approximately 70 new sprint fully diluted basis iv former stockholders equityholders sprint approximately 30 fully diluted equity new sprint softbank merger subject various conditions including receipt required regulatory approvals approval sprints stockholders expected close mid2013 addition october 15 2012 sprint softbank entered bond purchase agreement bond agreement october 22 2012 sprint issued convertible bond agreement new sprint face amount 31 billion stated interest rate 1 maturity date october 15 2019 bond convertible approximately 590 million shares sprint common stock subject adjustment bond convert shares sprint common stock immediately prior consummation softbank merger may otherwise converted prior termination merger agreement november 6 2012 sprint entered definitive agreement united states cellular corporation us cellular acquire personal communications services pcs spectrum approximately 585000 customers parts illinois indiana michigan missouri ohio including chicago st louis markets 480 million cash sprint agreed connection acquisition reimburse us cellular certain network shutdown costs markets costs expected range 130 million 150 million net present value basis event sprints reimbursement obligation exceed 200 million undiscounted basis additional spectrum used supplement sprints coverage areas december 11 2012 sprint purchased equity holdings one clearwires equityholders eagle river holdings llc eagle river comprised 309 million shares class common stock 27 million shares class b interests total purchase price 100 million cash addition december 17 2012 sprint entered merger agreement clearwire corporation acquire remaining equity interests clearwire corporation currently approximately 22 billion cash 297 per share clearwire acquisition connection clearwire acquisition clearwire corporation sprint entered agreements provide 800 million additional financing clearwire form exchangeable notes exchangeable clearwire common stock 150 per share subject certain conditions subject adjustment financing agreements sprint agreed purchase 80 million exchangeable notes per month ten months beginning january 2013 monthly purchases subject certain funding conditions including conditions relating approval clearwire acquisition clearwires shareholders parties agreeing network build plan january 31 2013 sprint clearwire entered amendment financing agreement extended date parties agree network build plan january 31 2013 february 28 2013 february 26 2013 sprint clearwire amended exchangeable notes agreement remove network build condition sprints obligation provide financing last three draws august september october 2013 accordingly clearwire option eligible last three draws totaling 240 million addition clearwire provided first notification sprint election draw 80 million terms financing agreements march 2013 network vision network vision encompass approximately 38000 cell sites approximately 6000 sites air launched lte 49 markets december 31 2012 deployments network vision technology including lte market launches enhancements 3g technology expected continue middle 2014 expect network vision bring financial benefit company migration one common network expected reduce network maintenance operating costs capital efficiencies reduced energy costs lower roaming expenses backhaul savings reduction total cell sites expectation financial savings affected multiple variables including expectation timeliness deployment across existing network footprint revised plan bring 12000 multimode base stations onair end 2012 first quarter 2013 deployment multimode technology managed sprint dependent upon three primary oems responsibility geographical territory across united states second half 2012 experienced delays vendor execution backhaul connectivity delays shortages equipment fiber cable antennas well regulatory environmental issues however expect recover delays still forecasting majority sites onair end 2013 expected completion network vision deployment middle 2014 deployment related changes technology resulted incremental charges period implementation multimode technology nextel platform decommissioning including limited increase depreciation associated existing assets related nextel sprint platforms due changes estimates remaining useful lives longlived assets changes expected timing amount asset retirement obligations lease exit contract termination costs first quarter 2012 formalized plans take offair roughly onethird 9600 cell sites total nextel platform middle 2012 remaining sites taken offair june 30 2013 result first quarter 2012 revised estimates shorten expected useful lives nextel platform assets expected benefit period underlying assets 2013 also revised expected timing amount asset retirement obligations second quarter 2012 result progress taking nextel platform sites offair progress toward notifying transitioning customers nextel platform reduced estimated benefit period remaining nextel platform assets middle 2013 resulting incremental depreciation expense amounts reflected depreciation expense dependent upon expected useful lives assets includes expectation timing assets phased service could result revision decommissioning period remaining net book value nextel platform assets december 31 2012 approximately 10 billion expect recognize depreciation expense approximately ratable basis june 30 2013 took approximately 9600 cell sites offair 2012 resulted lease exit costs totaling approximately 196 million december 31 2012 expect complete shutdown nextel platform june 30 2013 result expect incur significant additional charges future tower lease agreements continue take offair nextel platform sites well transition existing backhaul architecture replacement technology remaining network sites also experiencing increased data usage driven subscribers sprint platform continuing shift subscriber base smartphones required additional capital expenditures legacy 3g sprint platform equipment legacy equipment deploy network vision intend maximize use previously deployed legacy equipment possible however based capacity needs implementation period network vision expect additional legacy equipment expenditures utilized beyond final deployment network visions multimode technology expected continue middle 2014 result estimated useful lives equipment shortened compared similar prior capital expenditures also expect contribute increase depreciation expense approximately 13 billion net book value legacy equipment currently inservice shortened estimated useful lives resulting accelerated depreciation december 31 2012 addition capital expenditures approximately 205 million related legacy equipment included construction progress december 31 2012 also expect shortened estimated useful life placed inservice furthermore based current estimates increased data usage expect additional capital expenditures legacy equipment network vision substantially complete results operations consolidated segment earnings decreased 269 million 5 2012 compared 2011 561 million 10 2011 compared 2010 consolidated segment earnings consist wireless wireline segments discussed corporate eliminations depreciation amortization expense depreciation expense increased 18 billion 40 2012 compared 2011 network vision deployment resulting incremental charges period implementation including limited increase depreciation associated existing assets related nextel sprint platforms due changes estimates remaining useful lives longlived assets expected timing amount asset retirement obligations expect continue material impact results operations 2013 2012 incremental effect accelerated depreciation due implementation network vision approximately 21 billion majority related nextel platform increase related accelerated depreciation slightly offset net decrease depreciation result assets became fully depreciated retired expect amount accelerated depreciation 2013 lower 2012 primarily result initial phase taking nextel platform sites offair occurred within first two quarters 2012 although expect amount accelerated depreciation related nextel platform decline 2013 expect increase capital expenditures period implementation network vision expected result increase depreciation expense next several years assets placed service depreciation expense decreased 619 million 12 2011 compared 2010 primarily due estimated useful life study depreciable assets reflected reduction replacement rate capital additions decline partially offset increase due assets placed service result capital expenditures related capacity support increased data usage subscribers amortization expense declined 100 million 25 2012 compared 2011 primarily due absence amortization customer relationship intangible assets related 2006 acquisition nextel partners inc 2009 acquisition virgin mobile usa inc virgin mobile became fully amortized second quarter 2011 amortization expense declined 771 million 66 2011 compared 2010 primarily due absence amortization customer relationship intangible assets related 2005 acquisition nextel became fully amortized second quarter 2010 nextel partners inc virgin mobile impacting 2011 discussed remaining customer relationships amortized using sumofthemonthsdigits method resulting higher amortization rates early periods decline time net following table provides additional information items included “other net” years ended december 31 2012 2011 2010 net changed 26 million 25 2012 compared 2011 126 million 630 2011 compared 2010 2012 recognized severance exit costs 196 million result lease exit costs associated taking certain nextel platform sites offair second third quarter 2012 accrue lease exit costs certain sites taken offair second third quarter 2012 sites subject agreements expect continue receive economic benefit remaining term result factor well variability factors used estimate lease exit costs relationship costs recognized current quarter number sites taken offair necessarily indicative future persite charges complete transition nextel customers continue take sites offair 2011 recognized severance exit costs 28 million associated actions fourth quarter 2011 2010 recognized 8 million severance exit costs primarily related exit costs incurred second fourth quarter 2010 associated vacating certain office space longer utilized asset impairments increased 24 million 31 2012 compared 2011 decreased 47 million 38 2011 compared 2010 asset impairments first quarter 2012 consisted 18 million assets associated decision utilize fiber backhaul expect cost effective rather microwave backhaul 66 million capitalized assets longer intend deploy result termination spectrum hosting arrangement first quarter 2012 asset impairments 18 million fourth quarter 2012 asset impairments 2011 2010 primarily relate assets longer necessary managements strategic plans primarily related network asset equipment spectrum hosting contract termination due recognition 236 million total 310 million paid lightsquared 2011 operating income net due termination spectrum hosting arrangement lightsquared additional information related items found notes consolidated financial statements gains asset dispositions exchanges 2012 2010 primarily related spectrum exchange transactions amounts reflected 2012 consist 45 million hurricanerelated costs 19 million expenses associated business combinations offset 17 million benefits resulting favorable developments relating access cost disputes certain exchange carriers amounts reflected 2010 primarily related benefits resulting favorable developments relating access cost disputes certain exchange carriers interest expense interest expense increased 417 million 41 2012 compared 2011 primarily due increased weighted average longterm debt balances result 2011 2012 debt issuances partially offset 2011 2012 debt repayments see notes consolidated financial statements details debt issuances repayments addition increased effective interest rates combined reductions amount interest capitalized primarily related spectrum licenses expect interest capitalization related spectrum licenses previously utilized continue decline substantial portion value spectrum licenses used network vision ready use interest expense decreased 453 million 31 2011 compared 2010 primarily due 400 million increase amount interest capitalized increase capitalized interest related plan deploy certain spectrum licenses part network vision previously utilized reduction interest expense also includes decrease 115 million result repayment 165 billion sprint capital corporation 7625 senior notes january 2011 decrease partially offset increases interest expense 54 million result november 2011 sprint nextel corporation issuance 1 billion principal 1150 senior notes due 2021 3 billion principal 900 guaranteed notes due 2018 effective interest rate includes capitalized interest weighted average longterm debt balance 220 billion 191 billion 206 billion 78 74 72 2012 2011 2010 respectively see “liquidity capital resources” information companys financing activities equity losses unconsolidated investments net clearwire owns operates next generation mobile broadband network provides highspeed residential mobile internet access services residential voice services communities throughout country december 17 2012 sprint entered definitive agreement clearwire corporation acquire remaining interest sprint currently 297 per share total payment approximately 22 billion clearwire corporation shareholders equity losses unconsolidated investments primarily consists proportionate share losses equity method investments equity losses associated investment clearwire consists sprints share clearwires net loss adjustments gains losses associated dilution sprints ownership interest resulting clearwires equity issuances sprints impairment investment clearwire items recognized clearwire corporation effect sprints economic interest equity losses clearwire 11 billion 17 billion 13 billion 2012 2011 2010 respectively equity losses clearwire 2012 2011 2010 include charges approximately 41 million 361 million 97 million respectively associated clearwires writeoff certain network assets longer meet strategic plans years ended december 31 2012 2011 also include 204 million 135 million respectively pretax impairment reflecting sprints reduction carrying value investment clearwire estimated fair value addition year ended december 31 2011 also includes dilution loss approximately 27 million associated fourth quarter reduction noncontrolling economic interest related clearwires equity issuance income expense net income expense net changed 193 million 2012 compared 2011 primarily result increase interest income additional promissory note received clearwire january 2012 well gains early retirement remaining nextel communications inc notes change 49 million 2011 compared 2010 primarily result losses early retirement debt 2011 due redemption remaining sprint capital corporation 8375 senior notes income tax expense consolidated effective tax rate expense approximately 4 10 5 2012 2011 2010 respectively income tax expense 2012 2011 2010 primarily attributable taxable temporary differences amortization fcc licenses includes 18 billion 12 billion 14 billion net increase valuation allowance federal state deferred tax assets primarily related net operating loss carryforwards generated respective periods income tax expense 2012 also includes 69 million tax benefit resulting resolution various federal state income tax uncertainties income tax expense 2011 also includes 59 million expense resulting changes corporate state income tax laws expect record significant tax benefits future net operating losses circumstances justify recognition benefits additional information related items impacting effective tax rates found notes consolidated financial statements segment earnings wireless segment earnings primarily function wireless service revenue costs acquire subscribers network interconnection costs serve subscribers wireless segment operating expenses costs acquire subscribers include net cost sell devices referred equipment net subsidies well marketing sales costs incurred attract subscribers network costs primarily represent switch cell site costs interconnection costs generally consist perminute usage fees roaming fees paid carriers remaining costs associated operating wireless segment include costs operate customer care organization administrative support wireless service revenue costs acquire subscribers variable network interconnection costs fluctuate changes subscriber base related usage cost elements fluctuate short term changes shown table “results operations” wireless segment earnings represented approximately 86 total consolidated segment earnings december 31 2012 wireless industry subject competition retain acquire subscribers wireless services markets operate high rates penetration wireless services wireless carriers accordingly must attract greater proportion new subscribers competitors rather first time subscribers within wireless segment postpaid wireless services represent significant contributors earnings driven number postpaid subscribers services well average revenue per subscriber user arpu wireless segment earnings declined last several years primarily resulting subscriber losses associated nextel platform postpaid offerings recently decision shutdown nextel platform accelerated loss subscribers platform however focused efforts recapturing subscribers sprint platform addition taken initiatives strengthen sprint brand continue increase market awareness improvements achieved customer experience also introduced new devices including iphone® fourth quarter 2011 ipad® fourth quarter 2012 improving overall lineup providing competitive portfolio customer selection well competitive rate plans providing simplicity value contributed increase net equipment subsidy costs company significantly improved net postpaid subscriber results sprint platform subsequent first quarter 2009 result actions taken including recapture nextel platform subscribers conjunction network vision company continues focus growth sprint platform including targeted retention nextel platform subscribers competitive offerings sprint platform includes sprint direct connect result plans increased competition subscribers expect subscriber churn nextel platform postpaid prepaid increase shutdown period nextel platform although company continues experience net losses nextel platform postpaid subscribers beginning 2010 wireless service revenue increased primarily result growth subscribers prepaid business well increased postpaid arpu subscribers sprint platform following table provides overview results operations wireless segment three years ended december 31 2012 service revenue wireless segment generates revenues sale wireless services sale wireless devices accessories sale wholesale services service revenue consists fixed monthly recurring charges variable usage charges miscellaneous fees activation fees directory assistance roaming equipment protection late payment early termination charges certain regulatory related fees net service credits ability wireless segment generate service revenues primarily function • revenue generated subscriber turn function types amount services utilized subscriber rates charged services • number subscribers serve turn function ability retain existing acquire new subscribers retail comprises subscribers sprint directly provides wireless services whether services provided postpaid prepaid basis retail service revenue increased 15 billion 6 2012 compared 2011 increased 15 billion 6 2011 compared 2010 increase retail service revenue 2012 compared 2011 reflects increase sprint platform postpaid service revenue related 10 premium data addon charge required smartphones continued popularity unlimited bundled plans combined increases roaming fees increase also driven continued subscriber growth assurance wireless brand well growing number subscribers remaining prepaid brands choosing higher rate plans result increased availability smartphones majority increase 2011 compared 2010 primarily driven increase postpaid service revenue related 10 premium data addon charge smartphones greater popularity unlimited bundled plans combined fee increases including increase handset protection plan increase also driven attracting subscribers boost virgin mobile prepaid brands chose higher rate plans take advantage international offerings well increased availability smartphones increased subscribers new market launches assurance wireless brand wholesale affiliates subscribers served mvno affiliate relationships arrangements wireless services sold sprint companies resell services subscribers wholesale affiliate revenues increased 222 million 85 2012 compared 2011 increased 44 million 20 2011 compared 2010 majority increase 2012 compared 2011 compared 2010 result growth mvnos reselling prepaid services specifically growth subscribers lifeline program offered mvnos reselling prepaid services similar assurance wireless offering contributed revenue growth approximately 33 wholesale affiliate subscribers represent growing number connected devices generate revenue usage varies depending solution utilized average revenue per connected device generally significantly lower revenue wholesale affiliate subscribers however cost service customers also lower resulting higher profit margin percent revenue average monthly service revenue per subscriber trends table summarizes average number retail subscribers arpu years ended december 31 2012 2011 2010 additional information number subscribers net additions subscribers arpu average rates monthly postpaid prepaid subscriber churn quarter since first quarter 2010 may found tables following pages 1 arpu calculated dividing service revenue sum average number subscribers applicable service category changes average monthly service revenue reflect subscribers either postpaid prepaid service category change rate plans level voice data usage amount service credits offered subscribers plus net effect average monthly revenue generated new subscribers deactivating subscribers postpaid arpu 2012 increased compared 2011 primarily due increased revenues 10 premium data addon charges smartphones increases roaming fees postpaid arpu 2011 increased compared 2010 due increased revenues 10 premium data addon charges smartphones fee increases handset protection plan prepaid arpu declined 2012 compared 2011 compared 2010 primarily result net additions assurance wireless brand whose subscribers carry lower arpu partially offset increase arpu remaining prepaid brands subscribers choosing higher priced plans take advantage international offerings increased availability smartphones average retail arpu increased 2012 compared 2011 primarily result increased postpaid arpu partially offset increased weighting average prepaid subscribers average retail subscribers carry lower arpu average retail arpu increased 2011 compared 2010 primarily result increased postpaid arpu partially offset increased weighting average prepaid subscribers total subscribers carry lower arpu following table shows net additions losses wireless subscribers b total subscribers end quarterly period past twelve quarters c end period connected device subscribers 1 subscribers transfer original service category classification another platform another service line within platform reflected net loss original service category net addition new service category net effect subscriber changes total wireless net additions losses end period subscribers 2 reflects third quarter 2010 transfer 49000 wholesale affiliates subscribers prepaid result sale transfer customers affiliate 3 subscribers mvno relationships inactivity either voice usage primarily result nature device activity occurs data retrieval initiated enduser may occur infrequently although continue provide customers access network mvno relationships approximately 822000 subscribers december 31 2012 mvno relationships inactive least six months associated revenue sixmonth period ended december 31 2012 4 end period connected devices included total retail postpaid wholesale affiliates end period subscriber totals periods presented following table shows average rates monthly postpaid prepaid subscriber churn end quarterly period past twelve quarters b recapture nextel platform subscribers deactivated remained customers sprint platform c postpaid prepaid arpu end quarter 1 churn calculated dividing net subscriber deactivations quarter sum average number subscribers month quarter postpaid accounts comprising multiple subscribers family plans enterprise accounts net deactivations defined deactivations excess customer activations particular account within 30 days postpaid prepaid churn consist voluntary churn subscriber makes determination cease customer involuntary churn customers service terminated due lack payment reasons 2 represents recapture rate defined nextel platform postpaid prepaid subscribers applicable switched nextel platform period activated service sprint platform total nextel platform subscriber deactivations period postpaid prepaid respectively 3 represents nextel platform postpaid prepaid subscribers applicable switched nextel platform period remained company subscribers sprint platform subscribers deactivate service nextel platform activate service sprint platform included sprint platform net additions applicable period subscriber results first quarter 2012 formalized plan decommission nextel platform part network vision expect shutdown nextel platform june 30 2013 2012 focused efforts recapturing nextel platform subscribers ongoing sprint platform result efforts successfully recaptured 55 33 postpaid prepaid subscribers respectively deactivated service nextel platform 2012 december 31 2012 approximately 21 million subscribers remaining nextel platform expect recapture approximately 3040 remaining nextel platform subscribers sprint platform accordingly execute planned shutdown nextel platform continue experience subscriber losses nextel platform june 30 2013 end life nextel platform addition focused effort nextel platform recaptures continue focus retention existing sprint platform subscribers well acquisition profitable subscribers achieve growth sprint platform following sections sprint platform subscribers nextel platform subscribers discuss subscriber results platform annual period threeyear period ended december 31 2012 information read conjunction prior section titled average monthly service revenue per subscriber trends sprint platform subscribers retail postpaid 2012 added approximately 15 million net postpaid subscribers compared adding 13 million 734000 net postpaid subscribers 2011 2010 respectively 15 million additions 2012 substantially represented postpaid subscribers deactivated service nextel platform primarily associated planned shutdown network increase net postpaid subscribers 2011 compared 2010 primarily related increased subscriber gross additions net postpaid subscriber additions 2011 2010 include approximately 508000 424000 postpaid subscribers previously nextel platform respectively retail prepaid 2012 added 23 million net prepaid subscribers compared adding 43 million 36 million net prepaid subscribers 2011 2010 respectively decrease net prepaid additions 2012 compared 2011 primarily due decline gross subscriber additions assurance wireless due lower response rates lower customer application approval rate resulting complexities associated new federal regulations well increase churn primarily related fcc mandated efforts remove duplicate lifeline accounts carriers increase net prepaid additions 2011 compared 2010 primarily attributable net additions assurance wireless brand primarily result new market launches increased advertising promotions net prepaid subscriber additions 2012 2011 2010 include approximately 620000 724000 907000 prepaid subscribers previously nextel platform respectively federal lifeline program assurance wireless operates requires applicants meet certain eligibility requirements existing subscribers must recertify requirements annually new regulations 2012 impact lifeline carriers impose stricter rules subscriber eligibility requirements recertification new regulations also required onetime recertification entire june 1 2012 subscriber base december 31 2012 subscribers failed respond december 31 2012 subject prepaid churn rules described 365 days limited number states however subscribers reapply prior deactivated also ability receive bytheminute service expense result expect deactivations approximately 13 14 million subscribers representing approximately 30 ending period assurance subscribers december 31 2012 expected primarily impact prepaid churn second quarter 2013 although expect significant reduction assurance subscribers result onetime recertification process rate recertification existing subscribers consistent historical recertification rates prepaid subscribers generally deactivated 60 150 days later date initial activation replenishment however prior account deactivation targeted retention programs offered qualifying subscribers maintain ongoing service providing additional 150 days make replenishment subscribers targeted retention offers included calculation churn retention offer expires without replenishment account result end period prepaid subscribers include subscribers engaged retention programs however number subscribers percentage total prepaid subscriber base remained consistent past four quarters wholesale affiliate wholesale affiliate subscribers represent customers served networks companies resell wireless services subscribers customers residing affiliate territories connected devices utilize network 82 million total subscribers included wholesale affiliates approximately 33 represent connected devices wholesale affiliate subscriber net additions 944000 2012 compared 27 million 994000 2011 2010 respectively inclusive net additions connected devices totaling 593000 217000 152000 2012 2011 2010 respectively wholesale affiliate subscriber net additions declined 18 million 2012 compared 2011 increased 17 million 2011 compared 2010 decline wholesale affiliate subscriber net additions 2012 compared 2011 primarily attributable reduced subscriber net additions lifeline programs offered mvnos selling prepaid services well targeted efforts wholesale customers eliminate inactive accounts decrease net additions lifeline programs offered mvnos primarily affected new federal regulations similar impact assurance wireless brand retail prepaid expect new federal regulations related lifeline programs result additional deactivations 2013 increase wholesale affiliate subscriber net additions 2011 compared 2010 primarily driven net additions lifeline program offered mvnos reselling prepaid services nextel platform subscribers 2012 postpaid subscriber base reduced approximately 27 million approximately 15 million recaptured sprint platform plan retain nextel platform pushtotalk subscribers providing competitive offerings sprint platform includes offerings multimode network sprint direct connect 2012 prepaid subscriber base reduced 15 million approximately 620000 recaptured sprint platform continued trend prepaid subscriber losses expect continue trend net postpaid prepaid subscriber losses nextel platform june 30 2013 shutdown period cost services cost services consists primarily • costs operate maintain networks including direct switch cell site costs rent utilities maintenance labor costs associated network employees spectrum frequency leasing costs • fixed variable interconnection costs fixed component consists monthly flatrate fees facilities leased local exchange carriers based number cell sites switches service particular period related equipment installed site variable component generally consists perminute use fees charged wireline providers calls terminating networks fluctuate relation level duration terminating calls • long distance costs paid wireline segment • costs service repair devices • regulatory fees • roaming fees paid carriers • fixed variable costs relating payments third parties use proprietary data applications messaging music tv navigation services subscribers cost services increased 110 million 1 2012 compared 2011 reflecting increase rent expense primarily due cell site leases renegotiated 2011 connection network vision higher backhaul costs primarily due increased capacity increases partially offset decrease payments thirdparty vendors use proprietary data applications premium services result favorable rates provided contract renegotiations decline long distance network costs result lower market rates addition service repair costs decreased due decline volume frequency repairs slightly offset increase cost per unit devices utilized service repair due growth smartphone popularity achieved 2012 plan take 9600 nextel platform cell sites offair utility backhaul rent expense related sites began decline last half 2012 reductions expected second half 2013 expect recognize full amount lease exit costs associated shutdown remaining nextel platform cell sites june 30 2013 cost services increased 619 million 7 2011 compared 2010 primarily reflecting increased roaming due higher clearwire mvno data usage addition higher service repair costs incurred driven increase cost per unit new used devices due growth smartphone popularity increases partially offset decrease long distance network costs result lower market rates decline payments thirdparty vendors use proprietary data applications premium services result contract renegotiations providing favorable rates equipment net subsidy recognize equipment revenue corresponding costs devices title risk loss passes indirect dealer enduse customer assuming revenue recognition criteria met marketing plans assume devices typically sold prices cost consistent industry practice offer certain incentives retain acquire subscribers new devices discounted prices cost incentives recorded reduction equipment revenue upon activation device service contract cost products includes equipment costs primarily devices accessories order fulfillment related expenses writedowns device accessory inventory related shrinkage obsolescence additionally cost products reduced rebates earned equipment manufacturers cost products excess net revenue generated equipment sales referred industry equipment net subsidy also make incentive payments certain indirect dealers purchase iphone® directly apple payments recognized selling general administrative expenses device activated sprint service plan sprint recognize equipment revenue cost products transactions see selling general administrative expense equipment revenue increased 337 million 12 2012 compared 2011 cost products increased 18 billion 23 2012 compared 2011 increase equipment revenue cost products primarily due higher average sales price cost per device sold postpaid prepaid devices particularly driven introduction expensive iphone postpaid prepaid subscribers partially offset decline number postpaid prepaid devices sold equipment revenue increased 208 million 8 2011 compared 2010 cost products increased 11 billion 16 2011 compared 2010 primarily due higher average sales price cost per device sold postpaid prepaid devices addition overall increase number prepaid devices sold partially offset decline number postpaid devices sold result growing number postpaid prepaid subscribers moving smartphone devices expect trend increased equipment net subsidy continue selling general administrative expense sales marketing costs primarily consist customer acquisition costs including commissions paid indirect dealers thirdparty distributors retail sales force new device activations upgrades residual payments indirect dealers payments made oems direct source equipment payroll facilities costs associated retail sales force marketing employees advertising media programs sponsorships including costs related branding general administrative expenses primarily consist costs billing customer care information technology operations bad debt expense administrative support activities including collections legal finance human resources corporate communications strategic planning technology product development sales marketing expense 53 billion increase 165 million 3 2012 2011 51 billion increase 246 million 5 2011 2010 increase sales marketing expenses year ended december 31 2012 compared prior period primarily due increased reimbursements pointofsale discounts iphones 238 million directly sourced distributors apple accounted sales expense partially offset reduction commissions expense resulting shift channel mix combined decrease subscriber gross additions pointofsale discounts included determination equipment net subsidy purchase resell devices increase sales marketing expenses year ended december 31 2011 compared prior period also due reimbursements pointofsale discounts iphones introduced fourth quarter 2011 well additional costs associated increase subscriber gross additions slightly offset decrease media spend general administrative costs approximately 40 billion 2012 2011 increase 51 million 2012 2011 11 million 2011 2010 majority increase general administrative costs year ended december 31 2012 reflects higher employeerelated costs offset decrease customer care costs primarily due lower call volumes increase year ended december 31 2011 reflects increase bad debt expense partially offset reduction customer care costs well reductions prepaid integration costs incurred 2010 associated business acquisitions continued improvement customer care costs largely attributable customer care quality initiatives price plan simplification resulted reduction calls per subscriber allowed optimization call center resources bad debt expense 541 million year ended december 31 2012 representing 11 million decrease compared bad debt expense 552 million 2011 year ended december 31 2011 bad debt expense increased 129 million compared bad debt expense 423 million 2010 reflecting increase aging accounts receivable outstanding greater 60 days combined increase average writeoff per account reassess allowance doubtful accounts quarterly changes allowance doubtful accounts largely attributable analysis historical collection experience changes credit policies established subscribers mix prime postpaid subscribers total postpaid subscribers 82 december 31 2012 2011 segment earnings wireline segment earnings primarily function wireline service revenue network interconnection costs wireline segment operating expenses network costs primarily represent special access costs interconnection costs generally consist domestic international perminute usage fees paid carriers remaining costs associated operating wireline segment include costs operate customer care billing organizations addition administrative support wireline service revenue variable network interconnection costs fluctuate changes customer base related usage cost elements fluctuate short term changes customer usage wireline services provided wireless segment generally accounted based market rates believe approximate fair value company generally reestablishes rates beginning fiscal year past several years industry wide trend lower rates due increased competition wireline wireless communications companies well cable internet service providers 2013 expect wireline segment earnings decline approximately 80 120 million reflect changes market prices services provided wireline segment wireless segment decline wireline segment earnings related intercompany pricing affect consolidated results operations wireless segment benefit equivalent reduction cost service following table provides overview results operations wireline segment years ended december 31 2012 2011 2010 wireline revenue voice revenues voice revenues decreased 288 million 15 2012 compared 2011 334 million 15 2011 compared 2010 2012 decrease primarily driven overall price declines 174 million related decline prices sale services wireless segment well volume declines due customer churn 2011 decrease also primarily driven volume declines due customer churn well overall price declines voice revenues generated sale services wireless segment represented 32 total voice revenues 2012 compared 34 2011 33 2010 data revenues data revenues reflect sales data services primarily private line also includes atm frame relay managed network services bundled nonip data access data revenues decreased 62 million 13 2012 compared 2011 59 million 11 2011 compared 2010 result customer churn driven focus longer provide frame relay atm services periods data revenues generated provision services wireless segment represented 44 total data revenue 2012 compared 35 2011 27 2010 internet revenues internet revenues reflect sales ipbased data services including mpls voip sip managed services bundled ipbased data access internet revenues decreased 97 million 5 2012 2011 297 million 14 2011 2010 certain cable msos decided insource digital voice products resulting 98 million decrease 2012 compared 2011 decrease primarily due insourcing digital voice products certain cable msos combined decline prices related sale services wireless segment internet revenues generated provision services wireless segment represented 11 total internet revenues 2012 compared 8 2011 10 2010 revenues primarily consist sales customer premises equipment increased 2 million 3 2012 compared 2011 decreased 24 million 25 2011 compared 2010 result fewer projects 2011 costs services products costs services products include access costs paid local phone companies domestic service providers foreign phone companies complete calls made domestic subscribers costs operate maintain networks costs equipment costs services products decreased 224 million 7 2012 2011 314 million 9 2011 2010 decrease 2012 2011 primarily due lower access expense result savings initiatives declining voice data internet volumes service gross margin percentage decreased 34 2010 31 2011 decreased 28 2012 result decrease net service revenue partially offset decrease costs services products selling general administrative expense selling general administrative expense decreased 70 million 13 2012 compared 2011 110 million 17 2011 compared 2010 decrease 2012 2011 primarily due reduction shared administrative employee related costs required support wireline segment result decline revenue total selling general administrative expense percentage net services revenue 12 2012 2011 13 2010 liquidity capital resources cash flow operating activities net cash provided operating activities 30 billion 2012 decreased 692 million period 2011 decrease resulted increases vendor laborrelated payments 15 billion primarily related increase average cost postpaid prepaid devices sold increased cash paid interest 339 million primarily due increase weighted average longterm debt balance effective interest rate partially offset increased cash received customers 11 billion primarily due increases postpaid arpu total net subscribers included vendor labor related payments 108 million pension contribution payments made 2012 net cash provided operating activities 37 billion 2011 decreased 11 billion period 2010 decrease resulted increase vendor laborrelated payments 26 billion primarily related increase average cost postpaid prepaid devices sold related increases inventory increased roaming due higher 3g 4g data usage well 136 million pension contribution payments offset 12 billion increased cash received customers primarily due increases total subscriber net additions 310 million received spectrum hosting addition cash paid interest decreased 430 million 395 million associated interest capitalization result network vision reflected investing activity investing activities net cash used investing activities 2012 increased 29 billion 2011 primarily due increases 24 billion purchases shortterm investments 11 billion capital expenditures partially offset increase 533 million proceeds sales maturities shortterm investments increases capital expenditures primarily related network vision spend partially offset reductions legacy equipment spend also recognized 128 million form note receivable clearwire 2012 result additional investment provided amended agreement fourth quarter 2011 addition purchased clearwire corporation class common stock clearwire communications llc class b interests eagle river 100 million december 2012 net cash used investing activities 2011 increased 887 million 2010 due increases 480 million purchases shortterm investments 12 billion capital expenditures increases capital expenditures related addition data capacity wireless networks network vision also include 395 million due recognition capitalized interest qualifying activities associated network vision primarily related carrying value spectrum licenses yet placed service increases use cash offset increases 825 million proceeds sales maturities shortterm investments decrease 201 million expenditures associated obligations fcc report order 2012 also received 135 million reimbursements mobile satellite service mss entrants pro rata portion costs clearing portion 19 ghz spectrum addition fourth quarter 2011 sprint invested additional 331 million clearwire result amendment agreements clearwires successful offering additional class shares market financing activities net cash provided financing activities 43 billion 2012 company issued debt senior notes guaranteed notes convertible bonds drawdowns secured equipment credit facility totaling aggregate approximately 92 billion redeemed remaining nextel communications inc senior notes approximately 48 billion see liquidity capital resources liquidity addition incurred 134 million debt financing costs 2012 net cash provided financing activities 26 million 2011 company repaid certain debt obligations including 165 billion sprint capital corporation 7625 senior notes early redemption 20 billion sprint capital corporation 8375 senior notes repayment 250 million 750 million export development canada edc facility reductions debt obligations offset proceeds issuances 10 billion 115 senior notes due 2021 30 billion 9 guaranteed notes due 2018 private placement november 2011 also paid 86 million debt financing costs associated november 2011 debt issuances fourth quarter credit facility amendments net cash used financing activities 905 million 2010 activities 2010 included 750 million debt payment june 2010 51 million payment debt financing costs associated revolving credit facility addition fourth quarter 2010 exercised option terminate relationship variable interest entity resulted repayment financing capital lease obligations 105 million received 29 million 18 million 8 million 2012 2011 2010 respectively proceeds common share issuances primarily resulting exercises employee options working capital december 31 2012 working capital 49 billion compared 38 billion december 31 2011 increase working capital primarily due net debt proceeds 44 billion consisting approximately 92 billion debt issuances offset debt repayments approximately 48 billion increase partially offset increases accounts payable increases accrued expenses current liabilities increases current portion longterm debt remaining change primarily related activity current assets 2012 available liquidity december 31 2012 liquidity including cash equivalents shortterm investments available borrowing capacity revolving credit facility 95 billion cash equivalents shortterm investments totaled 82 billion december 31 2012 compared 56 billion december 31 2011 december 31 2012 approximately 925 million letters credit outstanding 22 billion revolving bank credit facility including letter credit required report order reconfigure 800 mhz band result outstanding letters credit directly reduce availability revolving bank credit facility 13 billion borrowing capacity available revolving bank credit facility december 31 2012 addition december 31 2012 204 million available may 31 2013 first tranche secured equipment credit facility described although use funds limited equipmentrelated purchases ericsson february 28 2013 entered new 28 billion unsecured revolving credit facility expires february 2018 new credit facility replaced 22 billion revolving credit facility due expire october 2013 new facility includes approximately 925 million letters credit outstanding resulting approximately 19 billion available borrowing capacity facility strategic initiatives apple contract commitment apple purchase minimum number smartphones average carry higher subsidy per unit smartphones sell continue expected increase cash outflow reduction operating income earlier years contract time may recover acquisition costs subscriber revenue consistent initial forecast launched iphone continue believe effect iphone given significance expected positive effect gross additions upgrades reduce contribution margin near term estimates subject significant judgment include assumptions product mix expected improvements customer churn smartphone sales volume difficult predict actual results may differ significantly compared estimates network capital expenditures october 2011 announced intention accelerate timeline associated network vision addition network vision currently experiencing rapid growth data usage driven subscribers sprint platform continuing shift subscriber base smartphones requires additional capital legacy equipment meet customers needs maintain customer satisfaction accelerated timeline coupled capital needs maintain operate existing infrastructure expected require substantial amounts additional capital expenditures period deployment addition expectation increased capital expenditures also expect network operating expenditures increase network vision deployment period well expected cash requirements meet existing obligations associated decommissioning nextel platform softbank transaction october 15 2012 entered merger agreement softbank merger addition october 15 2012 sprint softbank entered bond agreement bond agreement pursuant bond agreement october 22 2012 sprint issued convertible bond new sprint face amount 31 billion stated interest rate 1 maturity date october 15 2019 convertible 590476190 shares sprint common stock 525 per share approximately 164 upon conversion bond based sprint common shares outstanding december 31 2012 subject adjustment accordance terms bond agreement interest bond due payable cash semiannually arrears april 15 october 15 year commencing april 15 2013 upon receipt regulatory approval bond converted sprint shares immediately prior consummation softbank merger may otherwise converted prior termination merger agreement conversion bond subject case receipt required approvals subject certain exceptions receipt waivers companys existing credit facilities subject certain exceptions softbank may transfer bond without sprints consent merger agreement upon consummation softbank merger subject various conditions including sprint stockholder regulatory approval softbank fund new sprint additional capital approximately 170 billion approximately 121 billion distributed sprint stockholders merger consideration remaining 49 billion held cash balance new sprint general corporate purposes including limited clearwire acquisition pursuant terms subject conditions described merger agreement upon consummation softbank merger outstanding shares sprint common stock except otherwise provided merger agreement converted election sprint stockholders cash amount equal 730 share sprint common stock ii one share new sprint common stock share sprint common stock subject case proration stockholder may receive combination cash new sprint common stock upon consummation softbank merger softbank receive fiveyear warrant purchase 54579924 shares new sprint 525 per share would yield approximately 300 million proceeds upon exercise upon consummation softbank merger sprint become whollyowned subsidiary new sprint ii new sprint publicly traded company iii softbank indirectly approximately 70 new sprint fully diluted basis iv former stockholders equityholders sprint approximately 30 fully diluted equity new sprint softbank merger subject various conditions including receipt required regulatory approvals approval sprints stockholders expected close mid2013 terms edc facility secured equipment credit facility consummation softbank merger would constitute change control would require repayment outstanding balances thereunder amounts outstanding edc facility secured equipment credit facility approximately 796 million aggregate december 31 2012 would become due payable time closing sprint currently discussions existing lenders edc secured equipment credit facility intends amend facilities among things exclude softbank merger change control provisions date merger agreement entered approximately 88 billion senior notes guaranteed notes provided holders right require us repurchase notes change control triggering event defined indentures supplemental indentures governing applicable notes occurred included change control ratings decline applicable notes moodys investor services standard poors rating services november 20 2012 sprint announced obtained necessary consents amend applicable provisions outstanding indentures softbank merger would constitute change control result indebtedness outstanding sprints applicable indentures become payable reason completion softbank merger acquisition assets us cellular november 6 2012 sprint entered definitive agreement us cellular acquire pcs spectrum approximately 585000 customers parts illinois indiana michigan missouri ohio including chicago st louis markets 480 million cash sprint agreed connection acquisition reimburse us cellular certain network shutdown costs markets costs expected range 130 million 150 million net present value basis event sprints reimbursement obligation exceed 200 million undiscounted basis additional spectrum used supplement sprints coverage areas sprint us cellular enter transition services agreements condition closing acquisition outline terms services provided us cellular period closing prior transfer acquired customers sprints network transaction subject customary regulatory approvals expected close mid2013 clearwire january 2012 clearwire issued 150 million note receivable us stated interest rate 115 result additional investment provided clearwire amended agreement fourth quarter 2011 note receivable matures two installments 75 million plus accrued interest january 2013 january 2014 sprint sole discretion choose offset amounts payable clearwire promissory note amounts owed sprint mvno agreement action taken installment due january 2013 december 17 2012 sprint entered merger agreement clearwire corporation acquire remaining equity interests clearwire corporation sprint currently approximately 22 billion cash 297 per share clearwire acquisition connection clearwire acquisition clearwire corporation sprint entered agreements provide 800 million additional financing clearwire form exchangeable notes exchangeable clearwire common stock 150 per share subject certain conditions subject adjustment financing agreements sprint agreed purchase 80 million exchangeable notes per month ten months beginning january 2013 monthly purchases subject certain funding conditions including conditions relating approval clearwire acquisition clearwires shareholders parties agreeing network build plan january 31 2013 sprint clearwire entered amendment financing agreement extended date parties agree network build plan january 31 2013 february 28 2013 clearwire acquisition subject customary regulatory approvals contingent consummation softbank merger expected close mid2013 february 26 2013 sprint clearwire amended exchangeable notes agreement remove network build condition sprints obligation provide financing last three draws august september october 2013 accordingly clearwire option eligible last three draws totaling 240 million addition clearwire provided first notification sprint election draw 80 million terms financing agreements march 2013 clearwire acquisition accelerate stated maturity dates clearwires debt however holders clearwires exchangeable notes right require clearwire repurchase exchangeable notes amount equal 100 principal amount plus unpaid accrued interest repurchase date holders required clearwire repurchase exchangeable notes total principal payment would approximately 629 million longterm debt scheduled maturities following debt issuances redemptions occurred 2012 1 may 2012 certain subsidiaries entered 10 billion secured equipment credit facility expires march 2017 finance equipmentrelated purchases ericsson network vision facility secured lien equipment purchased fully unconditionally guaranteed sprint nextel corporation parent corporation facility equally divided two consecutive tranches 500 million drawdown availability contingent upon equipmentrelated purchases ericsson maximum tranche ending may 31 2013 may 31 2014 first second tranche respectively repayments outstanding amounts secured equipment credit facility cannot redrawn cost funds facility includes fixed interest rate 203 export credit agency premiums fees total equate expected effective interest rate approximately 6 based assumptions timing amounts drawdowns december 31 2012 company borrowing capacity 204 million first tranche secured equipment credit facility following graph depicts future principal maturities debt december 31 2012 table includes 31 billion 1 convertible bond convertible sprint common stock upon consummation softbank merger otherwise mature 2019 excludes prior revolving bank credit facility due expire october 2013 outstanding balance ii new revolving credit facility expire 2018 iii 925 million letters credit outstanding prior revolving bank credit facility iv undrawn available credit secured equipment credit facility mature 2017 v capital leases financing obligations liquidity capital resource requirements meet short longterm liquidity requirements look variety funding sources existing liquidity balance cash generated operating activities primary source funding addition cash flows operating activities rely ability issue debt equity securities ability issue forms financing borrowing capacity available credit facilities support short longterm liquidity requirements however currently precluded issuing equity securities softbank merger believe existing available liquidity cash flows operations sufficient meet funding requirements next 12 months including debt service requirements significant future contractual obligations maintain adequate amount available liquidity execute according timeline current business plan includes network vision subscriber growth expected usage profiles smartphone customers expected achievement cost structure intended achieve competitive margins may need raise additional funds external resources unable fund remaining capital needs external resources terms acceptable us would need modify existing business plan could adversely affect expectation longterm benefits results operations cash flows operations terms conditions new revolving bank credit facility expires february 2018 require ratio leverage ratio total indebtedness trailing four quarters earnings interest taxes depreciation amortization nonrecurring items defined credit facility adjusted ebitda exceed 625 10 june 30 2014 subsequent june 30 2014 leverage ratio declines scheduled basis determined credit agreement ratio becomes fixed 40 10 fiscal quarter ended december 31 2016 fiscal quarter ending thereafter company currently engaged discussions existing lenders edc secured equipment credit facility intends modify terms among things provide covenant compliance ratio requirements similar required new revolving bank credit facility exclude softbank merger change control provisions unsuccessful efforts would required pay amounts outstanding facilities upon consummation softbank merger additionally although expect remain compliance covenants new revolving credit secured equipment credit facilities next twelve months leverage ratio edc facility restrictive extent unsuccessful efforts amend edc facility ability intent pay amounts outstanding totaling 500 million december 31 2012 december 31 2012 2011 leverage ratio defined edc agreement prior revolving credit facility 37 10 determining expectation future funding needs next 12 months beyond made several assumptions regarding • projected revenues expenses relating operations • continued availability revolving bank credit facility amount 28 billion expires february 2018 • anticipated levels timing capital expenditures including capacity upgrading networks deployment new technologies networks fcc license acquisitions • anticipated payments report order supplemented • additional contributions may make pension plan • scheduled principal payments 366 million • payment 480 million acquire certain assets us cellular • additional financing form exchangeable notes clearwire exceed sprints minimum contractual commitment • future contractual obligations including decommissioning obligations associated network vision general corporate expenditures due significance uncertainty timing related softbank merger clearwire acquisition cashflows proposed transactions yet fully taken consideration future funding needs outlined consummation transactions expected occur close proximity pending shareholder regulatory approval transactions however company cannot predict whether either transactions consummated timing consummation upon consummation expect receive 49 billion softbanks purchase new sprint common stock portion funds may used following items would expect occur conjunction proposed transactions • acquisition remaining equity interests clearwire corporation sprint currently approximately 22 billion • payment outstanding balances edc facility secured equipment facility become due upon change control totaled 796 million december 31 2012 andor • optional repurchase requirement holders clearwire exchangeable notes could result principal repayment 629 million although additional cash outflows currently expected occur upon consummation proposed transactions approximately 19 billion available new revolving credit facility february 28 2013 addition 49 billion capital contribution received softbank expect renegotiate existing edc secured equipment credit facilities prior consummation ability fund capital needs external sources ultimately affected overall capacity terms banking securities markets well performance credit ratings given recent financial performance well volatility markets continue monitor closely take steps maintain financial flexibility reasonable cost capital december 31 2012 moodys investor service standard poors ratings services fitch ratings assigned following credit ratings certain outstanding obligations rating agency issuer rating unsecured notes guaranteed notes bank credit facility outlook moodys b1 b3 ba3 ba1 review upgrade standard poors b bb review upgrade fitch b bb review upgrade downgrades current ratings alone accelerate scheduled principal payments existing debt however downgrades may cause us incur higher interest costs credit facilities future borrowings could negatively impact access capital markets default borrowings could trigger defaults debt obligations turn could result maturities accelerated certain indentures govern outstanding notes also require compliance various covenants including covenants limit companys ability sell substantially assets covenants limit ability company subsidiaries incur indebtedness covenants limit ability company subsidiaries incur liens defined terms indentures december 31 2012 504 economic interest clearwire result clearwire could considered subsidiary certain agreements relating indebtedness whether clearwire could considered subsidiary debt agreements subject interpretation however sprint maintain right unilaterally surrender voting securities reduce voting security percentage 50 could eliminate potential clearwire considered subsidiary sprint certain actions defaults clearwire would viewed subsidiary result breach covenants including potential crossdefault provisions certain agreements relating indebtedness believe unilateral rights significantly mitigate possibility event would crossdefault sprints debt obligations however upon consummation clearwire acquisition clearwire considered subsidiary sprint new revolving bank credit facility currently restricted paying cash dividends ratio total indebtedness adjusted ebitda exceeds 25 10 current business outlook company expects 2013 consolidated segment earnings 52 billion 55 billion discussion subject risks cautionary qualifying factors set forth “forwardlooking statements” part item 1a “risk factors” report future contractual obligations following table sets forth current estimates amounts timing contractual payments december 31 2012 future events including additional purchases securities refinancing securities could cause actual payments differ significantly amounts see “forwardlooking statements” item 1a “risk factors 1 includes outstanding principal estimated interest payments interest payments based managements expectations future interest rates 2 represents capital lease payments including interest financing obligation related sale subsequent leaseback multiple tower sites 3 includes future lease payments related cell switch sites real estate network equipment office space 4 includes service spectrum network capacity executory contracts including contract apple excludes blanket purchase orders amount 24 million see discussion 5 includes 800 million additional financing clearwire 2013 see liquidity capital resources “purchase orders commitments” include minimum purchases commit purchase suppliers time andor unconditional purchase obligations guarantee make minimum payment suppliers goods services regardless whether take delivery amounts represent entire anticipated purchases future generally represent estimate items committed estimates based assumptions variable components contracts hours contracted number subscribers pricing factors addition party various arrangements conditional nature create obligation make payments upon occurrence certain events delivery functioning software products possible predict timing amounts may due conditional arrangements amounts included table also excludes approximately 24 million blanket purchase order amounts since agreement terms specified time frame set purchase orders legally binding result firm commitments liability uncertain tax positions 171 million december 31 2012 due inherent uncertainty timing resolution underlying tax positions practicable assign liability particular years table include remaining costs paid connection fulfillment obligations report order report order requires us make payment us treasury conclusion band reconfiguration process extent value 19 ghz spectrum received exceeds total value licenses spectrum 700 mhz 800 mhz bands surrendered decision plus actual costs qualifying costs incur retune incumbents facilities inception program december 31 2012 incurred approximately 32 billion costs directly attributable spectrum reconfiguration program amount include internal network costs preliminarily allocated reconfiguration program capacity sites modifications may request credit reconfiguration program estimate based experience date reconfiguration program information currently available total direct costs attributable complete spectrum reconfigurations range 36 37 billion accordingly believe unlikely required make payment us treasury offbalance sheet financing participate secure financings unconsolidated special purpose entities critical accounting policies estimates sprint applies accounting policies management believes best reflect underlying business economic events consistent accounting principles generally accepted united states sprints critical accounting policies include related basis presentation allowance doubtful accounts valuation recoverability equity method investment clearwire valuation recoverability longlived assets evaluation goodwill indefinitelived assets impairment inherent policies certain key assumptions estimates made management regularly updates estimates used preparation financial statements based latest assessment current projected business general economic environment critical accounting policies discussed sprints board directors sprints significant accounting policies summarized notes consolidated financial statements basis presentation consolidated financial statements include accounts sprint consolidated subsidiaries investments sprint maintains majority ownership lacks full decision making ability major issues accounted using equity method governance sprints major unconsolidated investment clearwire based clearwire board representation sprint ability control actions clearwire allowance doubtful accounts maintain allowance doubtful accounts estimated losses result failure subscribers make required payments estimate allowance doubtful accounts considers number factors including collection experience aging accounts receivable portfolios credit quality subscriber base qualitative considerations extent actual loss experience differs significantly historical trends required allowance amounts could differ estimate 10 change amount estimated uncollectible would result corresponding change bad debt expense approximately 18 million wireless segment 1 million wireline segment valuation recoverability equity method investment clearwire assess equity method investment otherthantemporary impairment indicators decline quoted prices active markets indicate value carrying value investment evaluation requires significant judgment regarding limited severity duration decline market prices ability intent hold securities recovery financial condition liquidity nearterm prospects clearwire specific events factors financial reporting measurement date evaluate excess sprints carrying value estimated fair value investment clearwire determine excess implied unrealized loss otherthantemporary evaluation considers among things clearwires market capitalization volatility associated clearwires common stock duration decline clearwires average trading stock price sprints carrying value evaluation also considers tax benefits associated class b nonvoting common interests clearwire communications llc governance rights expectation duration ongoing relationship well factors carrying value equity method investment clearwire december 31 2012 totaled approximately 674 million 010 per share change value clearwires traded stock price results 739 million change estimated fair value equity investment based sprints equity interest december 31 2012 valuation recoverability longlived assets longlived assets consist primarily property plant equipment intangible assets subject amortization changes technology intended use assets well changes economic industry factors business prospects may cause estimated period use value assets change property plant equipment generally depreciated straightline basis estimated economic useful lives certain network assets depreciated using group life method depreciable life studies performed periodically confirm appropriateness depreciable lives certain categories property plant equipment studies take account actual usage physical wear tear replacement history assumptions technology evolution factors indicate assets useful life different previous assessment depreciate remaining book values prospectively adjusted remaining estimated useful life depreciation rates assets using group life method revised periodically required method changes made result depreciable life studies rate changes generally material effect depreciation expense longlived assets reviewed impairment whenever events changes circumstances indicate carrying amount may recoverable longlived asset groups determined based upon certain factors including assessing lowest level identifiable cash flows largely independent cash flows groups assets liabilities total expected undiscounted future cash flows less carrying amount assets loss recognized difference estimated fair value carrying value assets impairment analyses performed based current business technology strategy views growth rates business anticipated future economic regulatory conditions expected technological availability estimate undiscounted cash flows exceeded carrying value assets 10 continue operational challenges including retaining attracting subscribers future cash flows company may sufficient recover carrying value wireless asset group could record asset impairments material sprints consolidated results operations financial condition addition analysis described certain assets yet deployed business including network equipment cell site development costs software development periodically assessed determine recoverability network equipment cell site development costs expensed whenever events changes circumstances cause company conclude assets longer needed meet managements strategic network plans deployed software development costs expensed longer probable software project deployed network equipment removed network also periodically assessed determine recoverability connection network vision including decommissioning nextel platform management may conclude future periods certain equipment never either deployed redeployed case noncash charges could material consolidated financial statements would recognized refer results operations additional information asset impairments evaluation goodwill indefinitelived intangible assets impairment goodwill represents excess purchase price paid fair value assigned net tangible identifiable intangible assets acquired businesses sprint evaluates carrying value goodwill annually frequently events changes circumstances indicate carrying amount may exceed estimated fair value analysis includes comparison estimated fair value reporting unit goodwill applies carrying value including goodwill reporting unit regularly assess whether indicators impairment exist requires significant amount judgment indicators may include sustained significant decline share price market capitalization decline expected future cash flows significant adverse change legal factors business climate unanticipated competition testing recoverability significant asset group within reporting unit andor slower growth rates among others adverse change factors could result impairment carrying value goodwill 359 million december 31 2012 company recognizes market capitalization product traded stock price shares outstanding subject volatility certain periods shareholders equity book value accordingly monitor changes market capitalization annual impairment tests determine whether declines necessitate interim review goodwill impairment consider decline market capitalization corresponds overall deterioration stock market conditions less indicator goodwill impairment unilateral decline market capitalization could result adverse changes underlying operating performance cash flows financial condition andor liquidity event market capitalization decline book value consider length severity decline reasons decline assessing whether potential goodwill impairment exists believe shortterm fluctuations share price may necessarily reflect underlying aggregate fair value segments reporting units decline market capitalization book value persists extended period time would likely consider decline indicative decline estimated fair value reporting unit level differences companys actual future cash flows operating results growth rates capital expenditures cost capital discount rates compared estimates utilized purpose estimating fair value reporting unit well decline companys stock price related market capitalization could affect results annual goodwill assessment accordingly potentially lead future goodwill impairment determination estimated fair value wireless reporting unit requires significant estimates assumptions estimates assumptions primarily include limited transactions within wireless industry related control premiums discount rate terminal growth rates operating income depreciation amortization oibda capital expenditures forecasts due inherent uncertainty involved making estimates actual results could differ estimates merits significant assumption individually aggregate used estimate fair value reporting unit evaluated reasonableness decline estimated fair value wireless reporting unit 10 would result impairment goodwill fcc licenses sprint boost mobile trademarks identified indefinitelived intangible assets addition goodwill considering expected use assets regulatory economic environment within used effects obsolescence use least annually sprint assesses recoverability indefinitelived intangibles including fcc licenses carried single unit accounting assessing recoverability fcc licenses estimate fair value licenses using greenfield direct value method approximates value estimating discounted future cash flows hypothetical startup business assumptions key estimating fair value method include limited capital expenditures subscriber activations deactivations market share achieved tax rates effect discount rate one percent decline assumed revenue growth rate used estimate terminal value one percent decline assumed net cash flows one percent adverse change key assumptions referred would result impairment fcc licenses recent testing date decline estimated fair value fcc licenses approximately 10 also would result impairment carrying value new accounting pronouncements may 2011 financial accounting standards board fasb issued authoritative guidance regarding fair value measurement amendments achieve common fair value measurement disclosure requirements us gaap ifrss resulted common requirements measuring fair value disclosing information fair value measurement us gaap international financial reporting standards ifrs including consistent definition term fair value amendments effective beginning first quarter 2012 material effect consolidated financial statements december 2011 fasb issued authoritative guidance regarding disclosures offsetting assets liabilities requires common disclosure requirements allow investors better compare assess effect offsetting arrangements financial statements prepared us gaap financial statements prepared ifrs standard effective beginning first quarter 2013 requires retrospective application affect disclosures footnotes financial statements october 2012 fasb tentatively decided limit scope authoritative guidance derivatives repurchase agreements securities lending securities borrowing arrangements january 2013 fasb issued additional clarifying guidance limited scope disclosure requirements derivatives repurchase agreements reverse purchase agreements securities borrowing securities lending transactions either offset accordance specific criteria contained us gaap subject master netting arrangement similar agreement based proposed scope revision expect authoritative guidance impact existing disclosures july 2012 fasb issued authoritative guidance regarding testing indefinitelived intangible assets impairment intended reduce cost complexity annual impairment test indefinitelived intangible assets providing entities option performing elective qualitative assessment determine whether impairment testing necessary standard effective annual interim indefinitelived intangible asset impairment tests performed beginning first quarter 2013 early adoption permitted certain circumstances early adopted provisions standard part annual assessment indefinitelived intangible assets effect financial statements financial strategies general risk management policies board directors adopted financial risk management policy authorizes us enter derivative transactions comply policy purchase hold derivative financial instruments speculative purposes exception equity rights obtained connection commercial agreements strategic investments usually form warrants purchase common shares derivative instruments primarily used hedging risk management purposes hedging activities may done various purposes including limited mitigating risks associated asset liability committed transaction probable forecasted transaction seek minimize counterparty credit risk stringent credit approval review processes credit support agreements continual review monitoring counterparties thorough legal review contracts exposure market risk controlled regularly monitoring changes hedge positions normal stress conditions ensure exceed established limits forwardlooking statements include certain estimates projections forwardlooking statements annual quarterly current reports publicly available material statements regarding expectations including performance assumptions estimates relating capital requirements well statements historical facts forwardlooking statements reflect managements judgments based currently available information involve number risks uncertainties could cause actual results differ materially forwardlooking statements respect forwardlooking statements management made assumptions regarding among things subscriber network usage subscriber growth retention pricing operating costs timing various events economic regulatory environment future performance cannot assured actual results may differ materially forwardlooking statements factors could cause actual results differ include • ability retain attract subscribers manage credit risks associated subscribers • ability competitors offer products services lower prices due lower cost structures • uncertainties related proposed transactions softbank clearwire • uncertainties related certain restrictions placed sprint merger agreement softbank • effects vigorous competition highly penetrated market including impact competition price able charge subscribers services equipment provide geographic areas served sprints wireless networks impact equipment net subsidy costs impact increased purchase commitments overall demand service offerings including impact decisions new existing subscribers postpaid prepaid service offerings two network platforms impact new emerging competing technologies business • ability provide desired mix integrated services subscribers • ability generate sufficient cash flow fully implement network modernization plan network vision improve enhance networks service offerings improve operating margins implement business strategies provide competitive new technologies • effective implementation network vision including timing execution technologies costs performance network • ability retain nextel platform subscribers sprint platform mitigate related increases churn • ability access additional spectrum capacity including clearwire • changes available technology effects changes including product substitutions deployment costs • ability obtain additional financing terms acceptable us • volatility trading price common stock expected volatility trading price new sprint common stock consummation softbank merger current economic conditions ability access capital • impact unrelated parties meeting business requirements including significant adverse change ability willingness parties provide devices infrastructure equipment networks • costs business risks associated providing new services entering new geographic markets • financial performance clearwire ability fund build operate maintain 4g network including lte network • compatibility sprints lte network clearwires lte network • effects mergers consolidations new entrants communications industry unexpected announcements developments others communications industry • unexpected results litigation filed us suppliers vendors • impact adverse network performance • costs potential customer impacts compliance regulatory mandates including limited compliance fccs report order reconfigure 800 mhz band government regulation regarding net neutrality conflict minerals • equipment failure natural disasters terrorist acts breaches network information technology security • one markets compete impacted changes political economic factors monetary policy legal regulatory changes external factors control • risks referenced time report filings securities exchange commission sec words “may” “could” “estimate” “project” “forecast” “intend” “expect” anticipate “believe” “target” “plan” “providing guidance” similar expressions intended identify forwardlooking statements forwardlooking statements found throughout managements discussion analysis financial condition results operations elsewhere report readers cautioned factors although listed could also materially affect future performance operating results reader place undue reliance forwardlooking statements speak date report obligated publicly release revisions forwardlooking statements reflect events date report including unforeseen events item 7a item 7 management’s discussion analysis financial condition results operations overview business strategies key priorities sprint communications company offering comprehensive range wireless wireline communications products services designed meet needs individual consumers businesses government subscribers resellers communications industry continue highly competitive basis price types services devices offered quality service discussed “effects wireless business postpaid subscriber losses” company experienced significant losses subscribers critical postpaid wireless market currently focused specific steps reduce losses business strategy responsive changing consumer mobility demands innovative differentiated marketplace significant steps positioning 2010 include fourth quarter 2009 investment agreement clearwire contribute additional 1176 billion increasing ownership percentage 56 december 31 2009 enhancing clearwire’s ability 4g network buildout fourth quarter 2009 acquisitions virgin mobile usa inc vmu allowing us broaden product offerings prepaid wireless market ipcs inc ipcs expand direct subscriber base grow direct coverage area simplify business operations future growth plans strategy revolve around following key priorities  improve customer experience  strengthen sprint brand  generate operating cash flow sprint brand stands simplicity productivity value making affordable talk reduced confusion pricing plans complex bills simply everything data plans mobile anytimesm feature offer savings compared competition addition savings offered consumers new business advantage pricing plans available business subscribers also take advantage mobile anytimesm certain plans simplify improve customer experience introduced tools sprint® one click allows subscribers access various software applications single click mobile devices ready trains subscribers leave store use mobile devices business subscribers aim increase productivity helping upgrade older less flexible network technologies ip providing differentiated services utilize advantages combining ip networks wireless technology differentiation enables us acquire retain wirelineonly combined wirelinewireless subscribers networks consistent changing economic environment prepaid plans primarily national boost monthly unlimited virgin mobile assurance wireless offerings experiencing strong demand simple longterm contract solutions provide good service value plan continue grow position prepaid market tailoring products services target markets leveraging boost mobile virgin mobile assurance wireless brands new existing distribution channels sprint refocused wholesale business reseller new converged services leverage sprint network sold customer’s brand adopted new pricing models made easier customers acquire access resell services bundling wireless wireline services focused attention partners existing distribution channels addition strengthened sales efforts expanded new markets rapidly growing machine space addition customeroriented goals also taken steps generate operating cash flow reduce cost structure align reduced revenues fewer postpaid subscribers actions include workforce reductions 2009 expected reduce labor costs approximately 15 billion annually believe actions well continued efforts reduce operating expenses nonessential capital spending allow us maintain strong cash position although expect measures fully offset decline cash provided operating activities expected lower number postpaid subscribers discussed “effects wireless business postpaid subscriber losses” effects wireless business postpaid subscriber losses following table shows annual net additions losses postpaid subscribers past five years excluding subscribers obtained business combinations shown table “results operations” wireless segment earnings represent 80 sprint’s total consolidated segment earnings within wireless segment postpaid wireless voice data services represent significant contributors earnings driven number postpaid subscribers services well average revenue per subscriber user arpu beginning mid2006 sprint began experience net losses postpaid subscribers iden wireless network acquired 2005 sprintnextel merger net losses year ended december 31 2007 exceeded net additions postpaid subscribers cdma wireless network beginning 2008 continuing 2009 experiencing net losses postpaid subscribers iden cdma wireless networks excluding migration subscribers networks believe significant net postpaid subscriber losses resulted number historical factors addition competitive nature industry including 1 uncertainty marketplace commitment iden network 2 high level involuntary churn 2007 early 2008 due relatively high mix subprime credit subscribers 3 adverse perceptions among subscribers customer care services 4 adverse perceptions among subscribers quality commitment development networks 5 successful competitor devices 6 perception marketplace portfolio sprint device offerings desirable competitors 7 uncertainty financial strength future reliability sprint 8 perceptions marketplace part result subscriber losses well factors reduced sprint brand’s effectiveness attracting retaining subscribers beginning 2008 conjunction changes senior management sprint undertook steps address factors directly addressing brand perception steps taken improve quality sprint’s customer care services sprint networks confirmed recent independent comparisons competitors steps also taken improve credit quality mix subscriber base improve financial stability including vigorous cost control actions resulted continuing strong cash flow operations also improved financial flexibility renegotiation 2008 revolving bank credit facility addition beginning 2008 continuing 2009 undertaken increased marketing initiatives increase market awareness improvements achieved customer experience including speed dependability network also introduced new devices improving overall lineup providing competitive mix customer selection well competitive new rate plans providing simplicity value expect actions favorable impact net subscriber losses net postpaid subscriber losses improved sustainably first quarter 2009 part due circumstances general economy including higher deactivations business customer accounts companies reduced wireless service lines resulting workforce reductions however 2009 company began see improvement net loss postpaid subscribers net postpaid subscriber losses decreased approximately 20 sequentially quarters ended june 30 2009 september 30 2009 approximately 35 sequentially quarter ended december 31 2009 net postpaid subscriber losses sixmonths ended december 31 2009 decreased 40 compared period prior year discussed “wireless businessservice revenue” net loss postpaid subscribers 2009 expected cause wireless service revenue 2010 approximately 21 billion lower continue experience similar losses postpaid subscribers 2010 would significant negative impact sprint’s financial condition results operations liquidity 2010 beyond 2009 wireless industry trends included significant industrywide shift new accounts postpaid wireless accounts prepaid accounts sprint’s successful prepaid wireless offerings well cost controls implemented partially offset effects net postpaid subscriber losses unlikely sufficient sustain company’s level profitability cash flows unless successful reducing decline postpaid subscribers company believes actions taken described continue taken marketing customer service device offerings network quality reduce number net postpaid total subscriber losses 2010 compared 2009 results operations 1 consolidated results operations include results nextgeneration wireless broadband network contributed clearwire transaction closed november 28 2008 consolidated segment earnings decreased 126 billion 16 2009 compared 2008 314 billion 29 2008 compared 2007 consolidated segment earnings consist wireless wireline segments discussed corporate eliminations corporate eliminations improved 275 million 2009 compared 2008 declined 99 million 2008 compared 2007 primarily result costs incurred related buildup wimax 2007 2008 longer incurred 2009 due close transaction clearwire late 2008 depreciation amortization expense depreciation expense decreased 137 million 2 2009 compared 2008 primarily due reduced capital expenditures 2009 compared 2008 increased 343 million 6 2008 compared 2007 primarily due increases inservice network assets amortization expense declined 854 million 35 2009 compared 2008 869 million 26 2008 compared 2007 primarily due amortization customer relationships acquired part sprintnextel merger amortized using sum years’ digits method resulting higher amortization rates early periods decline time goodwill impairment company recognized noncash goodwill impairments 963 million 29649 billion 2008 2007 respectively impaired goodwill primarily attributable company’s acquisition nextel 2005 reflects reduction estimated fair value sprint’s wireless reporting unit subsequent acquisition resulting among factors net losses postpaid subscribers merger integration expenses merger integration expenses related business combinations prior 2008 generally classified selling general administrative cost products appropriate consolidated statement operations solely directly attributable wireless segment included corporate eliminations classified selling general administrative expenses merger integration expenses decreased 130 million 100 2009 compared 2008 386 million 75 2008 compared 2007 incur costs second half 2008 net following table provides additional information items included “other net” years ended december 31 2009 2008 2007 net expenses decreased 417 million 52 2009 compared 2008 increased 364 million 82 2008 compared 2007 severance exit costs increased 45 million 13 2009 compared 2008 78 million 28 2008 compared 2007 due separation employees continued organizational realignment initiatives aimed reducing cost structure align reduced revenues net subscriber losses asset impairments decreased 433 million 90 2009 compared 2008 increased 317 million 194 2008 compared 2007 asset impairments 2009 primarily related network asset equipment longer necessary management’s strategic plans addition 2008 also related cell site development costs longer necessary management’s strategic plans 2007 asset impairments related writeoff network assets including site development costs loss sale velocita wireless closing retail stores due integration activities gains asset dispositions exchanges increased 39 million 134 2009 compared 2008 primarily due spectrum exchange transactions interest expense interest expense increased 88 million 7 2009 compared 2008 fewer capital projects led decrease 111 million capitalized interest partially offset decrease 56 million related 15 billion decline weighted average longterm debt balance comparative periods addition 35 million interest credits 2008 related reversal accrued interest due completion income tax audits interest expense decreased 71 million 2008 compared 2007 due reduction average effective interest rates partially offset increase weighted average longterm debt balance effective interest rate weighted average longterm debt balance 214 billion 229 billion 218 billion 68 66 69 2009 2008 2007 respectively see “liquidity capital resources” information company’s financing activities equity losses unconsolidated investments net item consists mainly proportionate share earnings losses equity method investments equity losses 649 million associated investment clearwire represent company’s proportionate share clearwire’s net loss 2009 plus pretax loss 154 million 96 million tax related dilution investment clearwire 53 51 first quarter 2009 fourth quarter 2009 invested approximately 11 billion clearwire increased economic ownership 56 prospectively date subsequent investment equity income loss clearwire represent proportionate share clearwire’s results operations based increased economic interest expect clearwire continue generate net loss continues build 4g network income net following table provides additional information items included “other income net” years ended december 31 2009 2008 2007 interest income decreased 63 million 65 2009 compared 2008 primarily due lower interest rates interest income decreased 54 million 36 2008 compared 2007 primarily due lower interest rates recognition interest income tax settlements 31 million 2007 realized gain 253 million recognized 2007 primarily related sale portion equity interest vmu dilution ownership percentage 141 conjunction initial public offering stock result fourth quarter 2009 acquisition vmu noncash gain 151 million 92 million tax recognized related estimated fair value net carrying value previously held noncontrolling interest vmu income tax benefit result pretax losses consolidated effective tax rate benefit approximately 30 31 1 2009 2008 2007 respectively 2009 effective tax rate reduced 281 million net increase valuation allowance federal state deferred tax assets related net operating capital loss carryforwards 2008 2007 effective tax rates reduced 794 million 963 million noncash goodwill impairment 2008 293 billion 296 billion noncash goodwill impairment 2007 substantially charges separately deductible tax purposes additional information related items impacting effective tax rates found note 11 notes consolidated financial statements segment earnings wireless business wireless segment earnings primarily function wireless service revenue costs acquire subscribers network interconnection costs serve subscribers wireless segment operating expenses costs acquire subscribers include equipment cost excess price sell devices referred equipment net subsidies well marketing sales costs incurred attract subscribers network costs primarily represent switch cell site costs interconnection costs generally consist perminute usage fees roaming fees paid carriers remaining costs associated operating wireless segment include costs operate customer care organization administrative support wireless service revenue costs acquire subscribers variable network interconnection costs fluctuate changes subscriber base related usage cost elements fluctuate short term changes subscriber usage following table provides overview results operations wireless segment years ended december 31 2009 2008 2007 service revenue wireless segment generates revenues sale wireless services sale wireless devices accessories sale wholesale services service revenue consists fixed monthly recurring charges variable usage charges miscellaneous fees activation fees directory assistance roaming equipment protection late payment early termination charges certain regulatory related fees net service credits ability wireless segment generate service revenues primarily function  revenue generated subscriber turn function types amount services utilized subscriber rates charged services  number subscribers serve turn function ability acquire new retain existing subscribers table summarizes average number retail subscribers average revenue per subscriber years ended december 31 2009 2008 2007 retail comprises subscribers sprint directly provides wireless services networks whether services provided prepaid postpaid basis wholesale affiliates subscribers served mvno affiliate relationships arrangements wireless services sold sprint companies resell services subscribers information number subscribers net additions subscribers average rates monthly postpaid prepaid customer churn quarter since first quarter 2007 may found table page 37 1 average subscribers include subscribers acquired business combinations prospectively date acquisition average subscribers year ended december 31 2009 inclusive 4539000 prepaid subscribers 835000 postpaid subscribers acquired 2009 business combinations previously included wholesale affiliate subscribers average subscribers year ended december 31 2007 inclusive 170000 subscribers acquired 2007 business combination retail service revenue decreased 22 billion 8 2009 compared 2008 36 billion 11 2008 compared 2007 majority decline due 28 billion 35 billion decrease postpaid service revenue driven reduction company’s average number postpaid subscribers approximately 41 million 27 million years ended december 31 2009 2008 respectively decline postpaid service revenue partially offset increase 583 million prepaid revenue 2009 compared 2008 primarily driven attracting subscribers company’s national boost monthly unlimited plan launched first quarter 2009 prepaid revenue 2008 decreased 92 million compared 2007 primarily driven reduction 256000 average number retail prepaid subscribers primarily iden network wholesale affiliate revenues total decreased 397 million 42 2009 compared 2008 118 million 11 2008 compared 2007 decrease 2009 primarily due decrease number subscribers two large mvno operators wholesale revenues include growing number devices opendevice initiative including machinetomachine services devices utilize network average revenue per subscriber opendevice machinetomachine services significantly lower revenue wholesale affiliate subscribers however cost service customers also lower resulting higher profit margin percent revenue decrease 2008 primarily due decline average monthly service revenue per wholesale subscriber average monthly service revenue per subscriber table showing average revenue per retail postpaid prepaid subscriber past twelve quarters 1 average monthly service revenue per subscriber quarter calculated dividing quarterly service revenue sum average number subscribers month quarter changes average monthly service revenue reflect subscribers change rate plans level voice data usage quarter amount service credits offered subscribers plus net effect average monthly revenue generated new subscribers deactivating subscribers average monthly postpaid service revenue per subscriber stable throughout 2008 2009 result improved retention higher revenue subscribers bundled rate plans offset lower overage roaming revenues fourth quarter 2009 company experienced decline average monthly postpaid service revenue per subscriber due declines overage revenues resulting increased popularity fixedrate bundled plans including mobile anytime feature decline average monthly retail postpaid service revenue per subscriber 2007 due loss iden subscribers higher priced service plans migration iden subscribers lower priced plans average monthly service revenue per subscriber 2007 also declined due reasons significant number service credits accepted subscribers networks increased due retention efforts average monthly prepaid service revenue per subscriber increased 2009 compared 2008 due higher revenue national boost monthly unlimited users combined stable average revenue per subscriber traditional prepaid users fourth quarter 2009 average monthly prepaid service revenue per subscriber reduced addition virgin mobile subscribers carry lower average revenue per subscriber compared sprint’s prepaid subscribers net additions losses subscribers wireless industry subject intense competition acquire retain subscribers wireless services markets operate high rates penetration wireless services wireless carriers accordingly must attract greater proportion new subscribers competitors rather first time subscribers result wireless carriers focused retaining valued subscribers various means including considerable efforts customer care retention efforts focused improving customer experience including limited simply everything bundled plans provide unlimited voice data text nextel direct connect® services improved service levels customer care centers ready program discussed “overview” endeavored retain attract subscribers taking actions improve customer care sales distribution functions brand awareness addition taken actions effort improve subscribers’ experience including improving network performance adding capacity networks broadening device portfolio providing subscribers excellent value proposition simply everything® pricing plans everything data plans include new mobile anytimesm feature certain indicators suggest making progress respect actions continued lose valuable postpaid wireless subscribers following table shows net additions losses wireless subscribers past twelve quarters excluding subscribers obtained business combinations existing subscribers migrated networks b total subscribers end quarterly period c average rates monthly postpaid prepaid customer churn past twelve quarters 1 includes subscribers powersource devices operate seamlessly cdma iden networks 2 churn calculated dividing net subscriber deactivations quarter sum average number subscribers month quarter postpaid accounts comprising multiple subscribers family plans enterprise accounts net deactivations defined deactivations excess customer activations particular account within 30 days postpaid prepaid churn consists voluntary churn subscriber makes determination cease customer involuntary churn customer’s service terminated due lack payment reasons 3 reflects transfer 170000 subscribers wholesale affiliates postpaid due business combination quarter ended september 30 2007 well transfer 4539000 prepaid 835000 postpaid subscribers wholesale affiliates result business combinations completed fourth quarter 2009 retail postpaid subscriberswe lost 35 million net postpaid subscribers 2009 compared losing 41 million 12 million net postpaid subscribers 2008 2007 respectively following table provides reconciliation reported net additions losses retail postpaid subscribers transfers subscribers network technologies years ended december 31 2009 2008 2007 company expects postpaid total subscriber fullyear net losses improve year 2010 compared 2009 however actual loss postpaid subscribers 2009 expected cause wireless service revenue 2010 approximately 21 billion lower would subscribers lost continue experience significant loss postpaid subscribers 2010 would significant negative impact sprint’s financial condition results operations liquidity 2010 beyond prepaid subscriberswe added approximately 26 million net prepaid subscribers 2009 compared losing 981000 adding 566000 net prepaid subscribers 2008 2007 respectively net prepaid subscriber additions 2009 principally driven company’s national boost monthly unlimited offering iden network launched first quarter 2009 success achieved national boost monthly unlimited offering driven significant prepaid market share gain conjunction changing economic environment company’s national boost monthly unlimited offering continues experience strong demand prepaid decisions becoming larger portion overall decisions marketplace net prepaid subscriber losses 2008 compared net additions 2007 principally caused attracting fewer new subscribers iden network total deactivations increasing year end period prepaid subscribers include subscribers engaged certain retention programs target qualifying subscribers maintain ongoing service providing additional time make replenishment prior account deactivation subscribers targeted retention programs included calculation churn offer expires without replenishment account wholesale affiliate subscriberswholesale affiliate subscribers represent customers served networks companies resell services subscribers customers residing pcs affiliate territories growing portion subscribers opendevice initiative primarily representing machinetomachine devices utilize network 2009 wholesale affiliate subscriber losses 138000 compared net subscriber additions 472000 14 million 2008 2007 respectively subscriber losses 2009 primarily due decrease number subscribers two large mvno operators cost services cost services consists primarily  costs operate maintain cdma iden networks including direct switch cell site costs rent utilities maintenance payroll costs associated network employees spectrum frequency leasing costs  fixed variable interconnection costs fixed component consists monthly flatrate fees facilities leased local exchange carriers based number cell sites switches service particular period related equipment installed site variable component generally consists perminute use fees charged wireline providers calls terminating networks fluctuate relation level duration terminating calls  long distance costs paid wireline segment  costs service repair devices  regulatory fees  roaming fees paid carriers  fixed variable costs relating payments third parties use proprietary data applications messaging music tv navigation services subscribers cost services decreased 361 million 4 2009 compared 2008 primarily reflecting decline labor outside services maintenance costs consistent company’s cost cutting efforts well decline network costs associated fewer subscribers cost services increased 133 million 2 2008 compared 2007 primarily reflecting increased costs relating data voice roaming outside networks increased service repair costs related devices increased functionality addition backhaul costs including usage wireline network increased primarily due increased data usage subscribers expansion evdo rev network costs slightly offset lower employee related outside services costs equipment net subsidy recognize equipment revenue corresponding costs devices title device passes dealer enduser customer marketing plans assume devices typically sold prices cost consistent industry practice subscriber retention efforts often include providing incentives subscribers offering new devices discounted prices reduce equipment revenue discounts offered directly customer certain payments thirdparty dealers reimburse dealer point sale discounts offered enduser subscriber additionally cost devices reduced rebates earned supplier cost devices accessories also includes order fulfillment related expenses writedowns device related accessory inventory shrinkage obsolescence equipment costs excess revenues generated equipment sales referred industry equipment net subsidy equipment revenue decreased 38 million 2 2009 compared 2008 primarily due declining average sales prices devices result competitive economic pressures partially offset increase number devices sold 2009 compared 2008 equipment revenue decreased 603 million 23 2008 compared 2007 primarily due decrease number devices sold 2008 compared 2007 partially offset increase average sales prices devices customers began purchase smartphones cost devices increased 699 million 15 2009 compared 2008 primarily due mix devices sold reflecting greater mix postpaid devices sold higher functionality increase number devices sold cost devices decreased 165 million 3 2008 compared 2007 primarily due decrease number devices sold partially offset increase average cost per device mix devices sold consisted higher percentage smartphones higherend devices selling general administrative expense sales marketing costs primarily consist customer acquisition costs including commissions paid indirect dealers thirdparty distributors retail sales force new device activations upgrades residual payments indirect dealers payroll facilities costs associated retail sales force stores marketing employees advertising media programs sponsorships including costs related branding general administrative expenses primarily consist costs billing customer care information technology operations bad debt expense administrative support activities including collections legal finance human resources strategic planning technology product development sales marketing expense decreased 273 million 6 2009 2008 compared 722 million 13 2008 2007 decline sales marketing expenses year ended december 31 2009 2008 primarily due decline gross subscriber additions decline labor related costs due workforce cost reduction activities general administrative costs decreased 11 billion 22 2009 2008 382 million 7 2008 2007 decline general administrative costs year ended december 31 2009 primarily due decrease employee related costs part cost cutting initiatives reduction customer care costs lower bad debt expense employee related costs decreased approximately 536 million 2009 compared 2008 due workforce reductions announced january november 2009 customer care costs decreased 363 million 2009 compared 2008 bad debt expense 392 million year ended december 31 2009 representing 240 million decline compared bad debt expense 632 million 2008 improvement bad debt expense resulted lower rates uncollectibility period well lower estimated uncollectible accounts outstanding accounts receivable improvement customer care expense largely attributable customer care quality initiatives launched 2008 initiatives resulted fewer calls per subscriber customer care reduced 39 2007 peak levels reduction calls per subscriber allowed reduction 19 call centers 2009 11 call centers 2008 also several customer care collection activities designed proactively contact subscribers ensure appropriate service plans based usage negotiate payment arrangements designed help customers difficult financial times result experienced decrease involuntary churn well decrease number accounts average balances written 2009 compared 2008 decline general administrative costs year ended december 31 2008 principally due decrease bad debt expense lower employee related costs offset increase customer care related costs bad debt expense 632 million year ended december 31 2008 compared 896 million 2007 representing 264 million decline improvement bad debt expense largely attributable credit policies new customers customer care quality initiatives launched 2008 specifically ratio subscribers prime credit score subprime credit score improved 2008 compared 2007 segment earnings wireline segment earnings primarily function wireline service revenue network interconnection costs wireline segment operating expenses network costs primarily represent special access costs interconnection costs generally consist domestic international perminute usage fees paid carriers remaining costs associated operating wireline segment include costs operate customer care billing organizations addition administrative support wireline service revenue variable network interconnection costs fluctuate changes customer base related usage cost elements fluctuate short term changes customer usage wireline segment provides services wireless segment generally accounted based market rates believe approximate fair value following table provides overview results operations wireline segment years ended december 31 2009 2008 2007 wireline revenue voice revenues voice revenues decreased 516 million 17 2009 compared 2008 decreased 430 million 12 2008 compared 2007 2009 2008 decreases primarily driven volume declines due customer churn well overall price declines voice revenues generated sale services wireless segment represented 31 total voice revenues 2009 compared 26 2008 23 2007 data revenues data revenues reflect sales data services including atm frame relay managed network services data revenues decreased 297 million 31 2009 compared 2008 decreased 251 million 21 2008 compared 2007 due declines frame relay atm services subscribers migrated ipbased technologies declines partially offset growth ip revenues data revenues generated provision services wireless segment represented 19 total data revenue 2009 compared 13 2008 8 2007 internet revenues internet revenues reflect sales ipbased data services including mpls internet revenues increased 145 million 7 2009 compared 2008 increased 573 million 36 2008 compared 2007 increases due higher ip revenues business subscribers increasing requirements support wireless customer’s data traffic well revenue growth cable voip experienced 15 increase subscribers 2009 compared 2008 32 increase 2008 compared 2007 internet revenues generated provision services wireless segment represented 11 total internet revenues 2009 compared 9 2008 5 2007 revenues primarily consist sales customer premises equipment decreased 35 million 24 2009 compared 2008 decreased 23 million 14 2008 compared 2007 result fewer projects 2009 2008 costs services products costs services products include access costs paid local phone companies domestic service providers foreign phone companies complete calls made domestic subscribers costs operate maintain networks costs equipment costs services products decreased 529 million 13 2009 2008 decreased 254 million 6 2008 2007 decrease 2009 primarily due declining voice volumes shift mix lower cost products result migration data ipbased technologies decrease 2008 mainly due improved access cost rates declining volumes service gross margin percentage increased 31 2007 34 2008 35 2009 primarily result revenue growth cable voip business decrease costs services offset decrease voice revenue selling general administrative expense selling general administrative expense decreased 220 million 23 compared 2008 increased 22 million 2 2008 compared 2007 2009 decrease primarily due reduction employee headcount decline use outside services maintenance part cost cutting initiatives 2008 increase primarily driven absence favorable settlement vonage recognized 2007 related use certain patents within patent portfolio total selling general administrative expense percentage net services revenue 13 2009 15 2008 2007 liquidity capital resources cash flow operating activities net cash provided operating activities 49 billion 2009 decreased 13 billion 2008 primarily due 36 billion decrease cash received subscribers result declining service revenues loss postpaid subscribers 200 million contribution company pension plan 2009 declines offset decrease 21 billion cash paid suppliers employees primarily due reductions variable cost services products selling general administrative expenses due various cost cutting initiatives implemented past year net cash provided operating activities 62 billion 2008 decreased 31 billion 2007 primarily due 38 billion decrease cash received subscribers result declining service revenues loss postpaid subscribers offset decrease 12 billion cash paid suppliers employees net cash provided operating activities 2008 2007 net cash used operating activities approximately 300 million related operations contributed clearwire november 2008 investing activities net cash used investing activities 2009 decreased 406 million 2008 primarily due increase 369 million proceeds shortterm investments decrease capital expenditures 23 billion 2009 compared 2008 mainly due fewer cell sites built 2009 fewer network development projects costs incurred related buildup wimax 2008 longer incurred 2009 due close transaction clearwire november 2008 decreases offset increased purchases 599 million shortterm investments 11 billion increase sprint’s investment clearwire 560 million used acquire vmu ipcs fourth quarter 2009 net cash used investing activities 2008 decreased 21 billion 2007 primarily due decrease capital expenditures 24 billion 2008 compared 2007 mainly due lower number cell sites built 2008 reduced capacity needs fewer projects well substantial completion 2007 various initiatives undertaken wireless business increase proceeds sales maturities shortterm investments 189 million decrease purchase shortterm investments 143 million 2008 compared 2007 addition used 287 million 2007 acquire northern pcs affiliate decreases partially offset 866 million cash collateral received securities loan agreements initiated 2007 net cash used investing activities 2008 2007 include expenditures approximately 600 million 700 million respectively related capital assets fcc licenses contributed clearwire november 2008 financing activities net cash used financing activities 919 million 2009 compared net cash used financing activities 484 million 2008 activities 2009 include debt repayments 600 million senior notes may 2009 early redemption 607 million convertible senior notes september 2009 1 billion payment revolving bank credit facility november 2009 offset issuance 13 billion senior notes august 2009 net cash used financing activities 484 million 2008 compared net cash used financing activities 27 billion 2007 activities 2008 include drawdown 25 billion revolving bank credit facility february 2008 net proceeds financing obligation towerco acquisition llc related sale subsequent leaseback multiple tower locations september 2008 645 million proceeds issuance commercial paper 681 million offset early redemption 125 billion senior notes june 2008 extinguishment september 2008 235 million us unwired inc’s 10 second priority senior secured notes due 2012 extinguishment september 2008 250 million alamosa delaware inc’s 85 senior notes due 2012 repayment 15 billion revolving bank credit facility third fourth quarters 2008 maturities commercial paper 11 billion repurchased 87 million common shares 18 billion 2007 pursuant share repurchase program repurchase shares program 2008 year program expired received 4 million 57 million 344 million 2009 2008 2007 respectively proceeds common share issuances primarily resulting exercises employee options pay cash dividends 2009 2008 paid cash dividends 286 million 2007 capital requirements currently anticipate future funding needs near term include  operating expenses relating operations  capital expenditures including capacity upgrading networks deployment new technologies networks  scheduled debt service requirements  amounts required expended connection report order  additional investment may choose make clearwire  certain costs compliance regulatory mandates  general corporate expenditures liquidity december 31 2009 cash equivalents shortterm investments totaled 39 billion addition 27 billion available existing revolving bank credit facility expires december 2010 terms conditions revolving bank credit facility require ratio total indebtedness trailing four quarters earnings interest taxes depreciation amortization certain nonrecurring items defined credit facility adjusted ebitda 425 10 december 31 2009 ratio 35 10 compared 30 10 december 31 2008 resulting decline adjusted ebitda revolving bank credit facility currently restricted paying cash dividends ratio total indebtedness adjusted ebitda exceeds 25 10 terms revolving bank credit facility provide interest rate equal libor plus margin 250 300 depending debt ratings certain domestic subsidiaries guaranteed revolving bank credit facility december 31 2009 18 billion letters credit outstanding including 17 billion letter credit required report order reconfigure 800 mhz band outstanding balance 45 billion revolving bank credit facility result outstanding letters credit directly impacts availability revolving bank credit facility 27 billion borrowing capacity available revolving bank credit facility december 31 2009 default credit facilities could trigger defaults debt obligations including senior notes turn could result maturities certain debt obligations accelerated indentures govern outstanding senior notes also require comply various covenants including limitations incurrence indebtedness liens us subsidiaries expect remain compliance covenants least end 2011 although assurance although expect improve postpaid subscriber results meet plan depending severity actual subscriber results versus currently anticipate possible would remain compliance covenants able meet debt service obligations could result acceleration indebtedness unforeseen events occur may engage lenders obtain appropriate waivers amendments credit facilities refinance borrowings although assurance would successful actions sprint’s current liquidity position makes likely able meet debt service requirements funding needs least 2011 specifically expect able meet currently identified funding needs least end 2011 using anticipated cash flows operating activities well cash equivalents shortterm investments hand addition also available remaining borrowing capacity revolving bank credit facility 27 billion december 19 2010 nevertheless unable reduce rate losses postpaid subscribers 2010 would significant negative impact cash provided operating activities liquidity future years determining expect meet funding needs least 2011 considered  anticipated levels capital expenditures fcc license acquisitions  anticipated payments report order supplemented  contributions may make pension plan negatively impacted high degree volatility global financial markets  scheduled debt service requirements  additional investment may choose make clearwire  future contractual obligations assessment take account among things  significant additional acquisition transactions pursuit significant new business opportunities spectrum acquisition strategies  material increases cost compliance regulatory mandates events circumstances could involve significant additional funding needs excess anticipated cash flows operating activities identified currently available funding sources including existing cash equivalents shortterm investments borrowings available existing revolving credit facility existing capital resources sufficient meet funding needs would necessary raise additional capital meet needs ability fund capital needs outside sources ultimately affected overall capacity terms banking securities markets given recent financial performance well volatility markets continue monitor closely take steps maintain financial flexibility reasonable cost capital december 31 2009 moody’s investor service standard poor’s ratings services sp fitch ratings assigned following credit ratings certain outstanding obligations rating agency senior unsecured bank credit facility senior unsecured debt outlook moody’s baa2 ba3 negative standard poor’s rated bb watch negative fitch bb negative downgrades current ratings accelerate scheduled principal payments existing debt however downgrades may cause us incur higher interest costs credit facilities future borrowings could negatively impact access public capital markets december 31 2009 working capital 18 billion compared 24 billion december 31 2008 current business outlook endeavor add new retain existing wireless subscribers order reverse net loss postpaid wireless subscribers experiencing expect improve subscriber trends continuing improve customer experience offers provide value simplicity productivity given current economic environment difficulties economic uncertainties create forecasting well inherent uncertainties predicting future customer behavior unable say assurance amount net retail postpaid subscriber losses experience 2010 thereafter however company expects postpaid total subscriber losses improve 2010 compared 2009 net subscriber losses significantly reduced revenue operating cash flow effects continue attract new subscribers andor reduce rate churn see “wireless segment earnings” discussion subscriber trends impact segment earnings trends also subscriber losses decreased decrease adjusted ebitda defined revolving bank credit facility management implemented cost reduction programs designed decrease cost structure reducing labor costs however expect reduction costs fully offset revenue declines described discussion subject risks cautionary qualifying factors set forth “forwardlooking statements” part item 1a “risk factors” report future contractual obligations following table sets forth best estimates amounts timing contractual payments december 31 2009 future events including additional purchases securities refinancing securities could cause actual payments differ significantly amounts see “forwardlooking statements” 1 includes principal estimated interest payments interest payments based management’s expectations future interest rates 2 represents capital lease payments including interest financing obligation related sale subsequent leaseback multiple tower sites 3 includes future lease costs related cell switch sites real estate network equipment office space 4 includes service spectrum network capacity executory contracts excludes blanket purchase orders amount 50 million see discussion “purchase orders commitments” include minimum purchases commit purchase suppliers time andor unconditional purchase obligations guarantee make minimum payment suppliers goods services regardless whether suppliers fully deliver amounts actually paid “other” agreements likely higher due variable components agreements significant variable components determine ultimate obligation owed include hours contracted subscribers factors addition party various arrangements conditional nature create obligation make payments upon occurrence certain events delivery functioning software products possible predict timing amounts may due conditional arrangements amounts included table also excludes 50 million blanket purchase order amounts since agreement terms specified time frame set purchase orders legally binding result firm commitments liability uncertain tax positions 284 million december 31 2009 due inherent uncertainty timing resolution underlying tax positions practicable assign liability particular years table include remaining costs paid connection fulfillment obligations report order report order requires us make payment us treasury conclusion band reconfiguration process extent value 19 ghz spectrum received exceeds total value licenses spectrum 700 mhz 800 mhz bands surrendered decision plus actual costs qualifying costs incur retune incumbents facilities total minimum cash obligation report order 28 billion inception program december 31 2009 incurred approximately 24 billion costs directly attributable spectrum reconfiguration program amount include internal network costs preliminarily allocated reconfiguration program capacity sites modifications may request credit reconfiguration program estimate based experience date reconfiguration program information currently available total direct costs attributable complete spectrum reconfigurations range 34 37 billion accordingly believe unlikely required make payment us treasury offbalance sheet financing participate secure financings unconsolidated special purpose entities critical accounting policies estimates sprint applies accounting policies management believes best reflect underlying business economic events consistent accounting principles generally accepted united states sprint’s critical accounting policies include related basis presentation allowance doubtful accounts valuation recoverability equity method investment clearwire valuation recoverability longlived assets evaluation goodwill indefinitelived assets impairment accruals taxes based income inherent policies certain key assumptions estimates made management periodically updates estimates used preparation financial statements based latest assessment current projected business general economic environment critical accounting policies discussed sprint’s board directors sprint’s significant accounting policies summarized note 2 consolidated financial statements basis presentation consolidated financial statements include accounts sprint consolidated subsidiaries investments sprint maintains majority ownership lacks full decision making ability major issues accounted using equity method governance sprint’s major unconsolidated investment clearwire based clearwire board representation sprint majority vote allowance doubtful accounts maintain allowance doubtful accounts estimated losses result failure subscribers make required payments estimate allowance doubtful accounts considers number factors including collection experience aging accounts receivable portfolios credit quality subscriber base estimated proceeds future bad debt sales qualitative considerations extent actual loss experience differs significantly historical trends required allowance amounts could differ estimate 10 change amount estimated uncollectible would result corresponding change bad debt expense 20 million wireless segment 1 million wireline segment valuation recoverability equity method investment clearwire assess equity method investment otherthantemporary impairment indicators decline quoted prices active markets indicate value carrying value investment evaluation requires significant judgment regarding limited severity duration decline market prices ability intent hold securities recovery financial condition liquidity nearterm prospects issuer specific events factors sprint’s assessment investment otherthantemporarily impaired could change future due changes facts circumstances sprint owns 56 ownership interest clearwire carrying value december 31 2009 43 billion value investment based clearwire’s closing stock price 35 billion sprint continues believe fully recover carrying value investment valuation recoverability longlived assets longlived assets consist primarily property plant equipment intangible assets subject amortization changes technology intended use assets well changes economic industry factors business prospects may cause estimated period use value assets change property plant equipment generally depreciated straightline basis estimated economic useful lives certain network assets depreciated using group life method depreciable life studies performed periodically confirm appropriateness depreciable lives certain categories property plant equipment studies take account actual usage physical wear tear replacement history assumptions technology evolution factors indicate asset’s useful life different previous assessment depreciate remaining book values prospectively adjusted remaining estimated useful life depreciation rates assets using group life method revised periodically required method changes made result depreciable life studies rate changes generally material effect depreciation expense longlived assets reviewed impairment whenever events changes circumstances indicate carrying amount may recoverable longlived asset groups determined based upon certain factors including assessing lowest level identifiable cash flows largely independent cash flows groups assets liabilities total expected undiscounted future cash flows less carrying amount assets loss recognized difference estimated fair value carrying value assets impairment analyses performed based current business technology strategy views growth rates business anticipated future economic regulatory conditions expected technological availability 2009 tested longlived assets wireless segment recoverability based estimate undiscounted cash flows determined carrying value recoverable estimate undiscounted cash flows exceeded carrying value assets 10 continue operational challenges including obtaining retaining subscribers future cash flows company may sufficient recover carrying value wireless asset group could record asset impairments material sprint’s consolidated results operations financial condition addition analyses described certain assets yet deployed business including network equipment cell site development costs software development periodically assessed determine recoverability network equipment cell site development costs expensed whenever events changes circumstances cause company conclude assets longer needed meet management’s strategic network plans deployed software development costs expensed longer probable software project deployed network equipment removed network also periodically assessed determine recoverability continue challenges retaining subscribers continue assess impact rebanding iden network management may conclude future periods certain cdma iden assets never either deployed redeployed case noncash charges could material consolidated financial statements would recognized evaluation goodwill indefinitelived intangible assets impairment goodwill represents excess purchase price paid fair value assigned net tangible identifiable intangible assets acquired businesses sprint evaluates carrying value goodwill annually frequently events changes circumstances indicate carrying amount may exceed estimated fair value analysis includes comparison estimated fair value reporting unit goodwill applies carrying value including goodwill reporting unit regularly assess whether indicators impairment exist requires significant amount judgment indicators may include sustained significant decline share price market capitalization decline expected future cash flows significant adverse change legal factors business climate unanticipated competition testing recoverability significant asset group within reporting unit andor slower growth rates among others adverse change factors could result impairment could material consolidated financial statements determination estimated fair value wireless reporting unit assets liabilities within wireless reporting unit requires significant estimates assumptions estimates assumptions primarily include limited discount rate terminal growth rates operating income depreciation amortization oibda capital expenditures forecasts due inherent uncertainty involved making estimates actual results could differ estimates merits significant assumption individually aggregate used estimate fair value reporting unit well fair values corresponding assets liabilities reporting unit evaluated reasonableness fcc licenses sprint boost mobile trademarks identified indefinitelived intangible assets addition goodwill considering expected use assets regulatory economic environment within used effects obsolescence use required sprint assesses recoverability indefinitelived intangibles including fcc licenses carried single unit accounting assessing recoverability fcc licenses estimate fair value licenses using greenfield direct value method approximates value estimating discounted future cash flows hypothetical startup business assumptions key estimating fair value method include limited capital expenditures subscriber activations deactivations market share achieved tax rates effect discount rate 1 percent decline assumed revenue growth rate used estimate terminal value 1 percent decline assumed net cash flows 1 percent adverse change key assumptions referred would result impairment fcc licenses recent testing date decline estimated fair value fcc licenses 20 also would result impairment carrying value accruals taxes based income uncertainties exist respect interpretation complex us federal state tax regulations management expects sprint’s interpretations prevail also sprint recognized deferred tax benefits relating future utilization past operating losses sprint believes likely amounts deferred tax assets excess related valuation allowances realized accounting estimates related tax valuation allowance require us make assumptions regarding timing future events including probability expected future taxable income available tax planning opportunities assumptions require significant judgment actual performance fluctuated past may future impact changes actual performance versus estimates could realization tax benefits reported results operations could material accounting estimates related liability uncertain tax positions require us make judgments regarding sustainability uncertain tax position based technical merits estimates updated based facts circumstances information available also required assess annual reporting date whether reasonably possible significant increases decreases unrecognized tax benefits occur next twelve months new accounting pronouncements june 2009 financial accounting standards board fasb issued statement financial accounting standards sfas 168 fasb accounting standards codification hierarchy generally accepted accounting principles establishes fasb accounting standards codification source authoritative generally accepted accounting principles gaap united states except rules interpretive releases issued securities exchange commission sec also sources authoritative gaap sec registrants subsequent issuance sfas 168 fasb longer issue statements staff positions emerging issues task force abstracts issue accounting standards updates asu amend codification result codification supersedes authoritative literature effective prior june 2009 fasb issued authoritative literature connection accounting business combinations noncontrolling interests consolidated financial statements disclosures derivative instruments hedging activities effective quarter ended march 31 2009 business combinations guidance adopted january 1 2009 result adoption fourth quarter acquisitions outlined notes consolidated financial statements recognized gain 151 million 92 million tax related increase estimated fair value noncontrolling interest vmu addition new guidance transaction costs associated exit activities expensed incurred remaining guidance material effect consolidated financial statements november 2008 fasb issued authoritative literature regarding equity method investment accounting considerations clarify application equity method accounting among things literature requires equity method investors account equity investee share issuances investor sold proportionate share investment recognition resulting gain loss earnings company adopted requirements effective january 1 2009 result recognized pretax loss 154 million 96 million tax related dilution investment clearwire resulting first quarter 2009 share issuance april 2009 fasb issued authoritative literature regarding interim disclosures fair value financial instruments require disclosures fair value financial instruments interim reporting periods publicly traded companies ii recognition presentation otherthantemporary impairments amends otherthantemporary impairment guidance debt securities make guidance operational improve presentation disclosure otherthantemporary impairments debt equity securities financial statements iii determining fair value volume level activity asset liability significantly decreased identifying transactions orderly provides additional guidance determining fair value volume level trading activity asset liability significantly decreased compared normal market activity pronouncements effective beginning second quarter 2009 material effect consolidated financial statements addition fasb issued guidance related accounting assets acquired liabilities assumed business combination arise contingencies address application issues relevant initial recognition measurement subsequent measurement accounting disclosure assets liabilities arising contingencies business combination guidance material effect consolidated financial statements effective business combinations january 1 2009 utilized accounting acquisitions outlined notes consolidated financial statements june 2009 fasb issued authoritative literature regarding amendments fasb interpretation 46r changes various aspects accounting disclosures interests variable interest entities accounting transfers financial assets issued order improve relevance representational faithfulness comparability information reporting entity provides financial statements transfer financial assets effects transfer financial position financial performance cash flows transferor’s continuing involvement transferred financial assets guidance effective beginning january 2010 expected material effect consolidated financial statements september 2009 fasb modified accounting multipledeliverable revenue arrangements certain revenue arrangements include software elements modifications alter methods previously required allocating consideration received multipleelement arrangements require revenue allocation elements containing software components nonsoftware components function together deliver product’s essential functionality modifications effective prospectively fiscal year ended december 31 2011 currently evaluated determine effect consolidated financial statements january 2010 fasb issued authoritative guidance regarding improving disclosures fair value measurements requires new amended disclosure requirements classes assets liabilities inputs valuation techniques transfers levels fair value measurements accounting distributions shareholders components stock cash clarifies accounting distributions shareholders offer ability elect receive entire distribution cash shares equivalent value guidance effective beginning january 2010 expected material effect consolidated financial statements forwardlooking statements include certain estimates projections forwardlooking statements annual quarterly current reports publicly available material statements regarding expectations including performance assumptions estimates relating capital requirements well statements historical facts forwardlooking statements reflect management’s judgments based currently available information involve number risks uncertainties could cause actual results differ materially forwardlooking statements respect forwardlooking statements management made assumptions regarding among things subscriber network usage subscriber growth retention pricing operating costs timing various events economic regulatory environment future performance cannot assured actual results may differ materially forwardlooking statements factors could cause actual results differ include  ability attract retain subscribers  effects vigorous competition highly penetrated market including impact competition price able charge subscribers services equipment provide ability attract new subscribers retain existing subscribers overall demand service offerings including impact decisions new existing subscribers postpaid prepaid services offerings two network platforms impact new emerging competing technologies business  effect limiting reducing capital operating expenditures ability improve enhance networks service offerings implement business strategies provide competitive new technologies  ability obtain additional financing terms acceptable us including expiration current credit facility expires december 19 2010  volatility trading price common stock current economic conditions ability access capital  impact unrelated parties meeting business requirements including significant adverse change ability willingness parties provide devices infrastructure equipment cdma network motorola inc’s ability willingness provide related devices infrastructure equipment software applications develop new technologies devices features iden network  costs business risks associated providing new services entering new geographic markets  financial performance clearwire deployment 4g network  impact difficulties may encounter connection integration businesses assets virgin mobile usa inc ipcs inc including risk difficulties may limit ability fully integrate operations businesses risk may unable continue retain key employees  effects mergers consolidations new entrants communications industry unexpected announcements developments others communications industry  unexpected results litigation filed us suppliers vendors  impact adverse network performance  costs potential customer impacts compliance regulatory mandates  equipment failure natural disasters terrorist acts breaches network information technology security  one markets compete impacted changes political economic factors monetary policy legal regulatory changes external factors control  risks referenced time report including part item 1a “risk factors” filings sec words “may” “could” “estimate” “project” “forecast” “intend” “expect” “believe” “target” “plan” “providing guidance” similar expressions intended identify forwardlooking statements forwardlooking statements found throughout management’s discussion analysis financial condition results operations elsewhere report reader place undue reliance forwardlooking statements speak date report obligated publicly release revisions forwardlooking statements reflect events date report including unforeseen events financial strategies general risk management policies board directors adopted financial risk management policy authorizes us enter derivative transactions comply policy purchase hold derivative financial instruments speculative purposes exception equity rights obtained connection commercial agreements strategic investments usually form warrants purchase common shares derivative instruments used hedging risk management purposes even designated purposes accounting hedging activities may done various purposes including limited mitigating risks associated asset liability committed transaction probable forecasted transaction seek minimize counterparty credit risk stringent credit approval review processes credit support agreements continual review monitoring counterparties thorough legal review contracts exposure market risk controlled regularly monitoring changes hedge positions normal stress conditions ensure exceed established limits item 7a item 7 managements discussion analysis financial condition results operations overview business overview sprint communications company offering comprehensive range wireless wireline communications products services designed meet needs individual consumers businesses government subscribers resellers unless context otherwise requires references sprint us company mean sprint corporation consolidated subsidiaries periods presented inclusive successor predecessor periods references sprint communications sprint communications inc consolidated subsidiaries wireless segment earnings represented almost total consolidated segment earnings year ended march 31 2015 within wireless segment postpaid wireless service revenue represents significant contributors earnings driven number postpaid subscribers services also average revenue per user arpu strategies key priorities business strategy responsive changing consumer mobility demands existing potential customers expand business new areas customer value economic opportunity innovation differentiation help lay foundation future growth opportunities strategy revolves around targeted investment today future following key priority areas • provide network delivers consistent reliability capacity speed customers demand • achieve competitive cost position industry simplification • increase subscriber acquisition • reduce churn increase subscriber retention • attract retain best talent industry • deliver simplified improved customer experience achieve key priorities focusing following initiatives provide network delivers consistent reliability capacity speed customers demand expect continue optimize 3g data network invest lte deployment across spectrum bands also expect define deploy new technologies help strengthen competitive position including expected use voice lte extensive use wifi achieve competitive cost position established office cost management responsibility identifying operationalizing monitoring sustained improvements operating costs efficiencies also deployed new cost management planning tools across entire organization effectively monitor expenditures focused attracting retaining subscribers improving sales marketing initiatives expanded direct retail store presence relationship radioshack well new direct service brings sprint store experience customers demonstrated value proposition new price plans promotions payment programs deployed new local marketing civic engagement initiatives key markets seek build stronger management team striking balance bringing new outside talent world class experience credentials fully leveraging experience within existing leadership team deliver simplified improved customer experience focusing key subscriber touch points pursuing process improvements deploying platforms simplify enhance interactions us customers addition established customer experience office support focus net promoter score key measure customer satisfaction significant transactions july 9 2013 sprint nextel corporation sprint nextel completed acquisition remaining equity interests clearwire corporation consolidated subsidiary clearwire communications llc together clearwire previously clearwire acquisition cash transaction approximately 35 billion net cash acquired 198 million provides us control 25 gigahertz ghz spectrum tower resources use improving quality network allocation consideration paid assets acquired liabilities assumed based managements judgment estimated fair values evaluating several factors including valuation assessment july 10 2013 softbank corp certain whollyowned subsidiaries together softbank completed merger softbank merger sprint nextel contemplated agreement plan merger dated october 15 2012 amended merger agreement bond purchase agreement dated october 15 2012 amended bond agreement result softbank merger starburst ii became parent company sprint nextel immediately thereafter starburst ii changed name sprint corporation sprint nextel changed name sprint communications inc pursuant bond agreement sprint communications inc issued bond starburst ii principal amount 31 billion converted 590476190 shares sprint communications inc common stock 525 per share immediately prior close softbank merger result completion softbank merger softbank acquired approximate 78 interest sprint corporation subsequent open market stock purchases softbank owned approximately 79 outstanding voting common stock sprint corporation march 31 2015 softbank merger consideration totaled approximately 222 billion consisting primarily cash consideration 141 billion net cash acquired 25 billion estimated fair value 22 interest sprint corporation issued existing stockholders sprint communications inc allocation consideration paid assets acquired liabilities assumed based managements judgment estimated fair values evaluating several factors including valuation assessment close transaction provided additional equity funding 50 billion consisting 31 billion received sprint communications inc october 2012 related bond automatically converted equity immediately prior closing softbank merger 19 billion cash consideration closing softbank merger connection close softbank merger sprint corporation became successor registrant sprint nextel rule 12g3 securities exchange act 1934 exchange act entity subject reporting requirements exchange act filings securities exchange commission sec subsequent close softbank merger addition order align softbank’s reporting schedule changed fiscal year end december 31 march 31 effective march 31 2014 references herein fiscal year refer twelvemonth periods ending march 31 unless otherwise specifically noted network continuously improving network including optimizing use 19 ghz 800 megahertz mhz 25 ghz spectrum current improvement efforts include deployment optimization 4g lte 800 mhz 25 ghz spectrum expect efforts enhance quality network subscribers experienced network service disruptions particularly voice service recent network modernization program substantially complete calendar year 2014 believe program among factors contributed elevated postpaid churn rates experienced recent quarters see churn results table within results operations seeing improvements voluntary churn network modernization program benefits realized improved network quality service disruptions associated program decreased significantly part recently completed modernization program modified existing backhaul architecture enable increased capacity network lower cost utilizing ethernet opposed time division multiplexing tdm technology termination costs associated tdm contractual commitments thirdparty vendors ranging approximately 25 million 50 million expected incurred september 30 2016 expected network modernization program allowed us realize financial benefit company reduced network maintenance operating costs capital efficiencies reduced energy costs lower roaming expenses backhaul savings importantly customers benefiting significant improvements quality service receive along recently completed network modernization plan ongoing network improvement efforts expected provide consistent reliability capacity speed customers demand longerterm expect densify network move alllte platform wimax technology deployed clearwire time clearwire acquisition plan cease using wimax technology end calendar year 2015 device financing programs 2013 wireless carriers introduced new plans allow subscribers forgo traditional service contracts handset subsidies exchange lower monthly service fees early upgrade options 2013 att verizon wireless tmobile launched programs included option purchase handset using installment billing program sprint offers device handset tablet installment billing program called sprint easy pay sprint easy pay installment billing program recognize majority revenue associated future expected installment payments time sale device compared traditional subsidized program results better alignment equipment revenue cost device reduces amount equipment net subsidy recognized operating results september 2014 sprint introduced leasing program whereby qualified subscribers lease device contractual period time end lease term subscriber option turn device continue leasing device purchase device march 31 2015 device leases classified operating leases result lease inception devices reclassified inventory property plant equipment leased sprints direct channels leases indirect channel sprint purchases device lease inception dealer capitalized property plant equipment devices depreciated estimated residual value term lease majority revenue associated installment sales recognized time sale along related cost products lease revenue depreciation leased devices recorded term lease substantial portion cost device leased direct channel recorded cost products rather depreciation expense positive impact wireless segment earnings mix leased devices continues increase expect positive impact financial results wireless segment earnings continue depreciation expense increase additionally sprint offering lower monthly service fees without traditional service contract incentive attract subscribers certain service plans lower rates service available whether subscriber brings handset pays full near full retail price handset purchases handset installment billing program leases handset leasing program adoption rates plans increase throughout base subscribers expect sprint platform postpaid average revenue per user arpu continue decline result lower pricing associated new service plans compared traditional plans reflect higher service revenue lower equipment revenue however also expect reduced equipment net subsidy expense due installment billing leasing programs partially offset declines since inception combination lower priced plans installment billing leasing programs accretive wireless segment earnings expect trend continue magnitude impact dependent upon rate subscriber adoption also expect installment billing leasing require greater use operating cash flows earlier part contracts subscriber generally pay less upfront traditional plans financing leasing device results operations discussed clearwire acquisition softbank merger completed july 2013 result transactions assets liabilities sprint communications clearwire adjusted estimated fair value respective closing dates companys financial statement presentations distinguish predecessor period predecessor relating sprint communications periods prior softbank merger successor period successor relating sprint corporation formerly known starburst ii periods subsequent incorporation starburst ii october 5 2012 successor financial information includes activity accounts sprint corporation includes activity accounts starburst ii prior close softbank merger july 10 2013 sprint communications inclusive consolidation clearwire corporation prospectively following completion softbank merger beginning july 11 2013 postmerger period accounts operating activity starburst ii prior close softbank merger primarily related merger expenses incurred connection softbank merger recognized selling general administrative expense interest related 31 billion bond sprint communications inc issued starburst ii predecessor financial information represents historical basis presentation sprint communications periods prior softbank merger result softbank merger order present managements discussion analysis way offers investors meaningful period comparison addition presenting discussing historical results operations reported consolidated financial statements accordance accounting principles generally accepted united states us gaap combined 2013 predecessor financial information 2013 successor financial information unaudited combined basis combined unaudited combined data consists predecessor information 191day period ended july 10 2013 successor information year ended december 31 2013 combined information year ended december 31 2013 comply us gaap intended represent consolidated results operations would successor actually formed january 1 2013 acquired predecessor date made attempt either include exclude expenses income would resulted softbank merger actually occurred january 1 2013 us gaap discussion analysis following discussion covers results successor year ended march 31 2015 compared successor year ended december 31 2013 successor threemonth transition period ended march 31 2014 compared unaudited threemonth predecessor period ended march 31 2013 successor year ended december 31 2013 compared predecessor year ended december 31 2012 results successor 87day period ended december 31 2012 threemonth period ended march 31 2013 considered insignificant comparable successor year ended december 31 2013 threemonth transition period ended march 31 2014 successor entity established october 5 2012 sole purpose completing softbank merger results successor 87day period ended december 31 2012 threemonth period ended march 31 2013 primarily reflected merger expenses incurred recognized selling general administrative expense interest income related 31 billion bond issued connection softbank merger provided information regarding certain elements acquisition method accounting affecting successor period ended december 31 2013 transition period ended march 31 2014 results enable comparability supplemental discussion analysis results successor year ended march 31 2015 compared unaudited combined year ended december 31 2013 addition unaudited combined year ended december 31 2013 compared predecessor year ended december 31 2012 also discussed extent necessary provide analysis results comparable periods although basis presentation may comparable due application acquisition method accounting additionally certain sections discuss activity predecessor 191day period ended july 10 2013 extent provides useful information activity period acquisition method accounting effects successor periods ending march 31 2014 transition period december 31 2013 allocation consideration transferred assets acquired liabilities assumed based estimated fair values date softbank merger described notes consolidated financial statements result following estimated impacts purchase price accounting included results operations successor threemonth transition period ended march 31 2014 year ended december 31 2013 • reduced postpaid wireless revenue wireless cost service approximately 29 million 59 million successor threemonth transition period ended march 31 2014 year ended december 31 2013 respectively result purchase accounting adjustments deferred revenue deferred costs • reduced prepaid wireless revenue approximately 96 million successor year ended december 31 2013 result purchase accounting adjustments eliminate deferred revenue • increased rent expense 29 million 55 million successor threemonth transition period ended march 31 2014 year ended december 31 2013 respectively included cost service primarily attributable writeoff deferred rents associated operating leases offset amortization net unfavorable leases recorded purchase accounting • increased cost products sold approximately 31 million successor year ended december 31 2013 result purchase accounting adjustments accessory inventory • reduced depreciation expense approximately 60 million 400 million successor threemonth transition period ended march 31 2014 year ended december 31 2013 respectively result purchase accounting adjustments reflecting net decrease property plant equipment • incremental amortization expense approximately 359 million 772 million successor threemonth transition period ended march 31 2014 year ended december 31 2013 respectively primarily attributable recognition customer relationships approximately 69 billion • decrease pension expense approximately 22 million 46 million successor threemonth transition period ended march 31 2014 year ended december 31 2013 respectively primarily reflected selling general administrative expense due purchase accounting adjustment unrecognized net periodic pension postretirement benefits predecessor 191day period ended july 10 2013 significant changes underlying trends affecting companys consolidated results operations net loss 191 days ended july 10 2013 follows • recorded gain previouslyheld clearwire equity interests approximately 29 billion difference estimated fair value equity interests owned prior acquisition 500 per share offer price less estimated control premium approximately 060 carrying value approximately 325 million previouslyheld equity interests • increased income tax expense primarily attributable taxable temporary differences result 29 billion gain previouslyheld equity interests clearwire principally attributable increase fair value federal communications commission fcc licenses held clearwire amortization fcc licenses fcc licenses amortized 15 years income tax purposes licenses indefinite life amortized financial statement reporting purposes consolidated results operations following table provides overview consolidated results operations predecessor information represents historical basis presentation sprint communications periods prior softbank merger successor period includes operating activity sprint corporation includes activity accounts starburst ii prior close softbank merger july 10 2013 sprint communications inclusive clearwire prospectively date softbank merger july 10 2013 march 31 2015 depreciation expense successor year ended march 31 2015 successor year ended december 31 2013 depreciation expense increased 18 billion 87 year ended march 31 2015 compared year ended december 31 2013 primarily due comparing full twelvemonth period shortened postmerger period successor threemonth transition period ended march 31 2014 predecessor threemonth period ended march 31 2013 depreciation expense decreased 554 million 39 successor threemonth transition period ended march 31 2014 compared predecessor period 2013 primarily due absence accelerated depreciation associated equipment related legacy nextel sprint platforms reduction partially offset increased depreciation asset additions primarily associated improving quality network assets acquired result clearwire acquisition deployment network modernization program resulted incremental charges earlier stages implementation including limited increase depreciation associated existing assets related nextel sprint platforms due changes estimates remaining useful lives longlived assets expected timing amount asset retirement obligations continued impact results operations 2013 incremental effect accelerated depreciation due implementation network modernization program approximately 360 million predecessor threemonth period ended march 31 2013 majority related nextel platform compared accelerated depreciation threemonth transition period ended march 31 2014 successor year ended december 31 2013 predecessor year ended december 31 2012 depreciation expense decreased 42 billion 68 successor year ended december 31 2013 compared predecessor year ended december 31 2012 primarily due comparing results shortened postmerger period consisting full calendar year addition decrease depreciation expense driven accelerated depreciation expense recognized 2012 modernization network accelerated depreciation successor year ended december 31 2013 asset revaluations result softbank merger decreases partially offset increased depreciation expense assets acquired result clearwire acquisition asset additions primarily related network initiatives successor year ended march 31 2015 combined year ended december 31 2013 specific efforts improve quality network began 2011 well shut nextel platform june 30 2013 resulted incremental charges earlier stages efforts including limited increase depreciation associated existing assets related nextel sprint platforms due changes estimates remaining useful lives longlived assets expected timing amount asset retirement obligations continued impact results operations 2013 incremental effect accelerated depreciation approximately 800 million predecessor 191day period ended july 10 2013 majority related nextel platform shut june 30 2013 compared accelerated depreciation successor year ended march 31 2015 addition explanations effect accelerated depreciation predecessor period depreciation expense also decreased approximately 160 million successor year ended march 31 2015 due asset revaluations result softbank merger 2013 combined year ended december 31 2013 predecessor year ended december 31 2012 addition explanations decrease depreciation expense combined year ended december 31 2013 compared predecessor year ended december 31 2012 primarily due reduction accelerated depreciation partially offset increased depreciation expense primarily due network asset additions predecessor 191day period incremental effect accelerated depreciation expense totaled approximately 21 billion predecessor year ended december 31 2012 primarily related shutdown nextel platform june 30 2013 amortization expense successor year ended march 31 2015 successor year ended december 31 2013 amortization expense increased 644 million 71 year ended march 31 2015 compared year ended december 31 2013 primarily due comparing results full twelvemonth period shortened postmerger period primarily consisted amortization customer relationships approximately 69 billion recognized result softbank merger customer relationship intangible assets amortized using sumofthemonthsdigits method results higher amortization rates early periods decline time successor threemonth transition period ended march 31 2014 predecessor threemonth period ended march 31 2013 amortization expense increased 359 million 513 successor threemonth transition period ended march 31 2014 compared predecessor period 2013 primarily due recognition definitelived intangible assets related customer relationships approximately 69 billion result softbank merger customer relationship intangible assets amortized using sumofthemonthsdigits method results higher amortization rates early periods decline time successor year ended december 31 2013 predecessor year ended december 31 2012 amortization expense increased 605 million 200 successor year ended december 31 2013 compared predecessor year ended december 31 2012 primarily due recognition definitelived intangible assets related customer relationships approximately 69 billion result softbank merger customer relationship intangible assets amortized using sumofthemonthsdigits method results higher amortization rates early periods decline time impairments quarter ended december 31 2014 determined recoverability carrying amount sprint trade name evaluated impairment due changes circumstances surrounding wireless reporting unit result recorded impairment loss 19 billion included “impairments” consolidated statements operations quarter ended december 31 2014 also tested recoverability wireline asset group consists primarily property plant equipment due continued declines wireline segment earnings forecast projected continued losses future periods result recorded impairment loss 233 million reduce carrying value wireline’s property plant equipment estimated fair value included “impairments” consolidated statements operations threemonth transition period ended march 31 2014 recorded 75 million asset impairments primarily related network equipment assets longer necessary managements strategic plans predecessor year ended december 31 2012 recorded asset impairments consisting 18 million assets associated decision utilize fiber backhaul rather microwave backhaul 66 million capitalized assets longer intend deploy result termination spectrum hosting arrangement lightsquared additional 18 million asset impairments primarily related assets longer necessary managements strategic plans primarily related network asset equipment net following table provides additional information regarding items included net reflected expense 413 million year ended march 31 2015 severance exit costs included 253 million severance primarily associated reductions force 13 million lease exit costs primarily associated tower cell sites well facility closures addition recognized 38 million costs period related payments continue made backhaul access contracts longer receiving economic benefit litigation 91 million represented legal reserves various pending legal suits proceedings partial pension settlement result company’s board directors approving plan amendment sprint retirement pension plan offer certain terminated participants begun receive plan benefits opportunity voluntarily elect receive benefits immediate lump sum distribution lump sum distribution created settlement event resulted 59 million charge result may 2013 us cellular asset acquisition recorded liability related network shutdown costs agreed reimburse us cellular quarter ended december 31 2014 identified favorable trends actual costs result released reserve resulting gain approximately 41 million net reflected expense 52 million successor threemonth transition period ended march 31 2014 severance exit costs 52 million threemonth transition period ended march 31 2014 included 14 million severance primarily associated reductions force 11 million lease exit costs primarily associated retail store closures addition recognized 31 million costs period related payments continue made backhaul access contracts longer receiving economic benefit 4 million recognized cost services net reflected expense 402 million successor year ended december 31 2013 severance exit costs 309 million successor year ended december 31 2013 included 219 million severance primarily associated reductions force 56 million lease exit costs primarily associated decommissioning nextel platform addition recognized 53 million payments continue made backhaul access contracts longer receiving economic benefit 19 million recognized cost services 93 million reflected included 100 million business combination fees paid unrelated parties connection transactions softbank clearwire classified within selling general administrative expense consolidated statements operations partially offset 7 million reimbursements related 2012 hurricanerelated charges recorded contra expense cost services consolidated statements operations net reflected expense 683 million predecessor 191day period ended july 10 2013 exit costs included lease exit costs 478 million primarily associated taking certain nextel platform sites offair june 30 2013 151 million related payments continue made backhaul access contracts longer receiving economic benefit 151 million future payments 35 million recognized cost services 116 million recognized severance exit costs also recognized 58 million severance related reductions force included 53 million business combination fees paid unrelated parties described partially offset favorable ruling texas supreme court connection taxation e911 services resulted noncash benefit 22 million net reflected expense 3 million predecessor threemonth period ended march 31 2013 severance exit costs 17 million severance primarily associated selective reductions force 8 million lease exit costs associated taking certain nextel platform sites offair favorable ruling texas supreme court connection taxation e911 services resulted noncash benefit 22 million quarter ended march 31 2013 net reflected income 22 million predecessor year ended december 31 2012 severance exit costs 2012 included lease exit costs 196 million associated taking certain nextel platform sites offair quarters ending june 30 2012 september 30 2012 gains asset dispositions exchanges primarily related spectrum exchange transactions spectrum hosting contract termination result recognition 236 million total 310 million paid lightsquared 2011 operating income net due termination spectrum hosting arrangement liqhtsquared amount reflected consisted 45 million hurricanerelated costs 19 million expenses associated business combinations partially offset 17 million benefits resulting favorable developments relating access cost disputes certain exchange carriers interest expense successor year ended march 31 2015 successor year ended december 31 2013 interest expense increased 11 billion 123 year ended march 31 2015 compared year ended december 31 2013 primarily due interest associated debt 90 billion issued september december 2013 well comparing full calendar year shortened postmerger period effective interest rate includes capitalized interest weighted average longterm debt balance 327 billion 64 year ended march 31 2015 compared 77 combined year ended december 31 2013 decrease effective interest rate primarily due interest expense 247 million recognized combined year ended december 31 2013 related beneficial conversion feature 31 billion bond see “liquidity capital resources” information companys financing activities successor threemonth transition period ended march 31 2014 predecessor threemonth period ended march 31 2013 interest expense increased 84 million 19 successor threemonth transition period ended march 31 2014 compared predecessor period 2013 primarily due interest associated debt 90 billion issued september december 2013 debt assumed result clearwire acquisition partially offset premium amortization result debt revalued connection softbank merger effective interest rate includes capitalized interest weighted average longterm debt balance 329 billion 245 billion 64 73 successor threemonth transition period ended march 31 2014 predecessor threemonth period ended march 31 2013 respectively see “liquidity capital resources” information companys financing activities successor year ended december 31 2013 predecessor year ended december 31 2012 interest expense decreased 510 million 36 successor year ended december 31 2013 compared predecessor year ended december 31 2012 decrease primarily due comparing shortened postmerger period predecessor period representing full calendar year decrease partially offset interest expense increases result debt assumed clearwire acquisition new debt issuances 90 billion september december 2013 see liquidity capital resources information companys financing activities taking account clearwire softbank transactions companys consolidated debt balance approximately 330 billion december 31 2013 effective interest rate includes capitalized interest combined year ended december 31 2013 77 based weighted average longterm debt balance 275 billion effective interest rate includes capitalized interest weighted average longterm debt balances 220 billion 78 predecessor year ended december 31 2012 see liquidity capital resources information companys financing activities combined year ended december 31 2013 predecessor year ended december 31 2012 addition explanations interest expense increase combined year ended december 31 2013 compared predecessor year ended december 31 2012 partially due reductions amount interest capitalized related spectrum licenses equity losses unconsolidated investments net result clearwire acquisition july 9 2013 resulting consolidation clearwire results operations accounts company successor period results operations reflect equity losses unconsolidated investments equity losses clearwire 482 million 202 million 11 billion predecessor 190day period ended july 9 2013 predecessor unaudited threemonth period ended march 31 2013 predecessor year ended december 31 2012 respectively equity losses investment clearwire consisted share clearwires net loss adjustments noncash impairment investment gains losses associated dilution ownership interest resulting clearwires equity issuances derivative losses associated change fair value embedded derivative included exchangeable notes clearwire sprint items recognized clearwire corporation affect economic interest sprints equity losses predecessor 190day period ended july 9 2013 include 65 million derivative loss associated change fair value embedded derivative equity losses clearwire year ended december 31 2012 included 204 million pretax impairment reflecting sprints reduction carrying value investment clearwire estimated fair value well charges approximately 41 million associated clearwires writeoff certain network assets longer met strategic plans income expense net following table provides additional information items included income expense net successor year ended december 31 2013 predecessor year ended december 31 2012 income expense net represented income 73 million successor year ended december 31 2013 compared income 190 million predecessor year ended december 31 2012 net successor year ended december 31 2013 primarily consisted 159 million income related recognition remaining unaccreted convertible bond discount addition successor year ended december 31 2013 included 175 million loss related embedded derivative associated bond gain early retirement debt successor year ended december 31 2013 result early retirement clearwire communications llc clearwire finance inc 12 secured notes due 2015 12 secured notes due 2017 predecessor year ended december 31 2012 attributable early redemption nextel communications inc debt income tax expense successor period income tax benefit year ended march 31 2015 574 million represented consolidated effective tax rate approximately 15 successor period income tax expense threemonth transition period ended march 31 2014 year ended december 31 2013 56 million 45 million respectively represented consolidated effective tax rate approximately 59 3 respectively predecessor period income tax expense threemonth period ended march 31 2013 year ended december 31 2012 38 million 154 million respectively represented consolidated effective tax rate approximately 6 4 respectively income tax benefit year ended march 31 2015 primarily attributable recognition tax benefit 19 billion sprint trade name impairment loss partially offset tax expense taxable temporary differences amortization fcc licenses income tax purposes expense 191 days ended july 10 2013 approximately 16 billion primarily attributable recognition tax expense 29 billion gain previouslyheld equity interests clearwire income tax expense remaining successor predecessor periods presented primarily attributable taxable temporary differences amortization fcc licenses included net increases valuation allowance federal state deferred tax assets primarily related net operating loss carryforwards generated respective periods 82 million 708 million successor threemonth transition period ended march 31 2014 year ended december 31 2013 respectively 265 million 18 billion predecessor threemonth period ended march 31 2013 year ended december 31 2012 respectively income tax expense year ended december 31 2012 also included 69 million tax benefit resulting resolution various federal state income tax uncertainties additional information related items impacting effective tax rates found notes consolidated financial statements segment earnings wireless segment earnings function wireless service revenue sale wireless devices handsets tablets broadband devices connected devices accessories addition costs acquire subscribers network interconnection costs serve subscribers well wireless segment operating expenses costs acquire subscribers include net cost sell devices referred equipment net subsidies well marketing sales costs incurred attract subscribers network costs primarily represent switch cell site costs backhaul costs interconnection costs generally consist perminute usage fees roaming fees paid carriers remaining costs associated operating wireless segment include costs operate customer care organization administrative support wireless service revenue costs acquire subscribers variable network interconnection costs fluctuate changes subscriber base related usage cost elements fluctuate short term changes shown table consolidated results operations wireless segment earnings represented almost total consolidated segment earnings loss year ended march 31 2015 wireless industry subject competition retain acquire subscribers wireless services markets operate high rates penetration wireless services late 2013 introduced new service plans include device payment installment billing allow subscribers forgo traditional service contracts handset subsidies exchange lower monthly service fees early upgrade options adoption rates plans increase throughout base subscribers expect sprint platform postpaid arpu continue decline result lower pricing associated new service plans compared traditional plans reflect higher service revenue lower equipment revenue however also expect reduced equipment net subsidy expense due sprint easy pay leasing programs partially offset declines within wireless segment postpaid wireless services represent significant contributor earnings driven number postpaid subscribers services well arpu began experience net losses postpaid handset subscribers mid2013 since release new price plans results shown improvement trends handset losses however assurance trend continue net loss postpaid handset subscribers period beginning april 1 2014 year ended march 31 2015 expected cause wireless service revenue approximately 12 billion lower fiscal year 2015 would subscribers lost expected negative impact service revenue wireless segment earnings result subscriber losses expected partially mitigated net additions tablets connected devices experienced period increases equipment revenue due subscribers electing use installment billing leasing programs addition leased devices sprint direct channels totaling approximately 12 billion year ended march 31 2015 would increased cost goods sold purchased installment billing traditional subsidized programs trend handset subscriber net losses continues expect see continued pressure segment earnings taken initiatives provide best value wireless service continuing enhance network performance coverage capacity order attract retain valuable handset subscribers addition evaluating cost model operationalize effective cost structure better matches new service plans believe may help relieve pressure expect earnings following table provides overview results operations wireless segment 1 represents service revenue primarily related acquisition clearwire july 9 2013 service revenue wireless segment generates service revenue sale wireless services sale wholesale services service revenue consists fixed monthly recurring charges variable usage charges miscellaneous fees activation fees directory assistance roaming equipment protection late payment early termination charges certain regulatory related fees net service credits ability wireless segment generate service revenue primarily function • revenue generated subscriber turn function types amount services utilized subscriber rates charged services • number subscribers serve turn function ability retain existing subscribers acquire new subscribers retail comprises subscribers sprint directly provides wireless services whether services provided postpaid prepaid basis also categorize retail subscribers prime subprime based upon subscriber credit profiles use proprietary scoring systems measure credit quality subscribers using several factors credit bureau information subscriber credit risk scores service plan characteristics payment history subsequently monitored evaluate subscriber credit profiles wholesale affiliates subscribers served mvno affiliate relationships arrangements wireless services sold sprint companies resell services subscribers successor year ended march 31 2015 successor year ended december 31 2013 retail service revenue increased 130 billion 95 successor year ended march 31 2015 compared year ended december 31 2013 primarily due comparing full twelvemonth period shortened postmerger period well growth prepaid boost brand carries higher average revenue per subscriber increases offset growth tablet sales postpaid subscribers new plans tend carry lower average revenue per subscriber well decline average postpaid prepaid subscribers resulted overall decrease retail service revenue comparing successor year ended march 31 2015 combined year ended december 31 2013 wholesale affiliate revenues increased 527 million 198 successor year ended march 31 2015 compared year ended december 31 2013 primarily due comparing full twelvemonth period shortened postmerger period addition wholesale affiliate revenues increased result interest revenue associated installment billing handsets increase revenues resulting acquisitions 2013 approximately 53 total wholesale affiliate subscribers represent connected devices generate revenue usage varies depending solution utilized average revenue per connected device generally significantly lower revenue wholesale affiliate subscribers however cost service subscribers also lower resulting higher gross margin percent revenue successor threemonth transition period ended march 31 2014 predecessor threemonth period ended march 31 2013 retail service revenue slightly decreased 47 million 1 successor threemonth transition period ended march 31 2014 compared predecessor period 2013 decrease driven loss postpaid prepaid subscribers due shutdown nextel platform june 30 2013 partially offset postpaid prepaid revenues resulting acquisitions 2013 wholesale affiliate revenues increased 26 million 20 successor threemonth transition period ended march 31 2014 compared predecessor period 2013 primarily due increase revenues resulting acquisitions 2013 approximately 45 wholesale affiliate subscribers represent connected devices generate revenue usage varies depending solution utilized average revenue per connected device generally significantly lower revenue wholesale affiliate subscribers however cost service subscribers also lower resulting higher gross margin percent revenue successor year ended december 31 2013 predecessor year ended december 31 2012 retail service revenue decreased 150 billion 53 year ended december 31 2013 compared predecessor year ended december 31 2012 primarily due comparing operating results shortened postmerger period 2012 predecessor period consisting full calendar year addition decline 16 average retail subscribers 2013 successor period compared 2012 predecessor period primarily resulting shutdown nextel platform june 30 2013 decrease partially offset higher average revenue per retail subscriber 2013 compared 2012 primarily due 10 premium data addon charge smartphones combined increased postpaid prepaid revenues resulting acquisitions 2013 wholesale affiliate revenues decreased 217 million 45 year ended december 31 2013 compared predecessor year ended december 31 2012 primarily due comparing operating results shortened postmerger period 2012 predecessor period consisting full calendar year decrease partially offset increase revenues resulting acquisitions 2013 combined growth mvnos reselling postpaid services connected devices december 31 2013 approximately 43 wholesale affiliate subscribers represented connected devices generate revenue usage varies depending solution utilized average revenue per connected device generally significantly lower revenue wholesale affiliate subscribers however cost service subscribers also lower resulting higher gross margin percent revenue combined year ended december 31 2013 predecessor year ended december 31 2012 addition explanations retail service revenue combined year ended december 31 2013 compared predecessor year ended december 31 2012 increased 94 million primarily consolidation clearwire subscriber growth mainly virgin prepaid brand prepaid subscribers choosing higher rate plans result increased availability smartphones addition sprint platform postpaid service revenue increased due 10 premium data addon charge required smartphones combined reduction number subscribers eligible certain plan discounts due policy changes fewer customer care credits addition explanations wholesale affiliate revenue combined year ended december 31 2013 compared predecessor year ended december 31 2012 increased due slight growth reselling prepaid services mvnos affiliates average monthly service revenue per subscriber trends table summarizes average number retail subscribers additional information number subscribers net additions losses subscribers average rates monthly postpaid prepaid subscriber churn quarter since quarter ended march 31 2012 may found tables following pages table summarizes arpu additional information arpu quarter since quarter ended march 31 2012 may found tables following pages 1 arpu calculated dividing service revenue sum monthly average number subscribers applicable service category changes average monthly service revenue reflect subscribers either postpaid prepaid service category change rate plans level voice data usage amount service credits offered subscribers plus net effect average monthly revenue generated new subscribers deactivating subscribers combined arpu 2013 aggregates service revenue predecessor191day period ended july 10 2013 successor year ended december 31 2013 divided sum monthly average subscribers year ended december 31 2013 successor year ended march 31 2015 successor year ended december 31 2013 postpaid arpu successor year ended march 31 2015 decreased compared year ended december 31 2013 primarily due growth sales tablets carry lower revenue per subscriber combined impact subscriber migration many new service plans resulting lower service fees expect sprint platform postpaid arpu continue decline fiscal year 2015 result lower service fees associated many new price plans continued increase tablet mix carry lower arpu however result installment billing leasing programs expect reduced equipment net subsidy expense partially offset declines prepaid arpu successor year ended march 31 2015 increased compared year ended december 31 2013 primarily due increase higher average boost subscribers carry higher arpu compared prepaid brands partially offset decreases total average subscribers primarily virgin mobile assurance brands successor threemonth transition period ended march 31 2014 predecessor threemonth period ended march 31 2013 postpaid arpu successor threemonth transition period ended march 31 2014 increased compared predecessor period 2013 primarily due shutdown nextel platform june 30 2013 impact losing subscribers carried lower average revenue per subscriber increase partially offset lower revenue per subscriber carried subscribers acquired clearwire us cellular acquisitions growth sales tablets also carry lower revenue per subscriber prepaid arpu successor threemonth transition period ended march 31 2014 increased compared predecessor period 2013 primarily due impact higher revenue per subscriber carried subscribers acquired clearwire acquisition combined increase arpu primarily virgin mobile prepaid brands subscribers chose higher priced plans successor year ended december 31 2013 predecessor year ended december 31 2012 postpaid arpu year ended december 31 2013 compared predecessor period 2012 increased primarily due higher monthly recurring revenues including 10 premium data addon charges smartphones device protection fees combined fee increases reduction number subscribers eligible certain plan discounts due policy changes fewer customer care credits increase postpaid arpu partially offset lower variable usagebased revenues due popularity unlimited plan options combined lower revenue per subscriber carried subscribers acquired clearwire us cellular acquisitions growth sales tablets also carry lower revenue per subscriber prepaid arpu successor year ended december 31 2013 compared predecessor year ended december 31 2012 declined primarily result impact purchase price accounting eliminate deferred revenues partially offset impact higher revenue per subscriber carried subscribers acquired clearwire acquisition combined year ended december 31 2013 predecessor year ended december 31 2012 addition explanations prepaid arpu combined year ended december 31 2013 compared predecessor year ended december 31 2012 declined primarily result decrease arpu assurance wireless brand due lower number active assurance subscribers percentage average number assurance subscribers primarily result recertification process decrease partially offset increase arpu primarily virgin prepaid brands subscribers choosing higher priced plans due increased availability smartphones arpu relates assurance wireless brand also impacted result recertification process subscribers longer revenue impact december 31 2012 continued included prepaid subscriber based deactivation quarter ended june 30 2013 following table shows net additions losses wireless subscribers b total subscribers c end period connected device subscribers end quarterly period beginning quarter ended march 31 2012 1 subscriber defined individual line service associated device activated customer subscribers transfer original service category classification another platform another service line within platform reflected net loss original service category net addition new service category net effect subscriber changes total wireless net additions losses end period subscribers 2 acquired approximately 352000 postpaid subscribers 59000 prepaid subscribers acquisition assets us cellular transaction closed may 17 2013 acquired approximately 788000 postpaid subscribers excluding 29000 sprint wholesale subscribers transferred transactions postpaid subscribers originally recognized part clearwire mvno arrangement 721000 prepaid subscribers 93000 wholesale subscribers result clearwire acquisition transaction closed july 9 2013 3 subscribers mvno relationships inactivity either voice usage primarily result nature device activity occurs data retrieval initiated enduser may occur infrequently although continue provide subscribers access network mvno relationships approximately 1788000 subscribers march 31 2015 mvno relationships inactive least six months associated revenue sixmonth period ended march 31 2015 4 end period connected devices included total retail postpaid wholesale affiliates end period subscriber totals periods presented following table shows average rates monthly postpaid prepaid subscriber churn b recapture nextel platform subscribers deactivated remained subscribers sprint platform end quarterly period beginning quarter ended march 31 2012 1 churn calculated dividing net subscriber deactivations quarter sum average number subscribers month quarter postpaid accounts comprising multiple subscribers family plans enterprise accounts net deactivations defined deactivations excess subscriber activations particular account within 30 days postpaid prepaid churn consist voluntary churn subscriber makes determination cease subscriber involuntary churn subscribers service terminated due lack payment reasons 2 subscriber churn related acquisition assets us cellular clearwire acquisition 3 represents recapture rate defined nextel platform postpaid prepaid subscribers applicable switched nextel platform activated service sprint platform period total nextel platform subscriber deactivations period postpaid prepaid respectively 4 represents nextel platform postpaid prepaid subscribers applicable switched nextel platform period remained company subscribers sprint platform subscribers deactivated service nextel platform activated service sprint platform included sprint platform net additions applicable period following table shows postpaid prepaid arpu end quarterly period beginning quarter ended march 31 2012 1 subscriber arpu related acquisition assets us cellular clearwire acquisition 2 combined arpu quarterly period ending september 30 2013 aggregates service revenue predecessor 10day period ended july 10 2013 successor threemonth period ended september 30 2013 divided sum monthly average subscribers three months ended september 30 2013 subscriber results sprint platform subscribers retail postpaid successor year ended march 31 2015 net postpaid subscriber losses 212000 compared net losses 96000 combined year ended december 31 2013 net additions 1516000 predecessor year ended december 31 2012 inclusive 1334000 564000 76000 net additions tablets respectively generally significantly lower arpu compared wireless subscribers successor threemonth transition period ended march 31 2014 net postpaid subscriber losses 231000 compared net additions 12000 predecessor threemonth period ended march 31 2013 inclusive 516000 16000 net additions tablet devices respectively primary driver net losses successor year ended march 31 2015 successor threemonth transition period ended march 31 2014 combined year ended december 31 2013 increase churn primarily due increased competition networkrelated churn impacted network modernization program wireless carriers continue various aggressive marketing efforts including price reductions incent subscribers switch carriers result believe efforts also negatively impacting churn negative effect earnings change net losses combined year ended december 31 2013 net additions predecessor year ended december 31 2012 also impacted absence nextel platform recaptures second half 2013 shutdown network completed june 30 2013 nextel platform u cellular recaptures combined year ended december 31 2013 totaled 734000 retail prepaid successor year ended march 31 2015 added 449000 net prepaid subscribers compared adding 488000 2305000 net prepaid subscribers years ended december 31 2013 combined december 31 2012 predecessor respectively net additions successor year ended march 31 2015 primarily due subscriber growth boost brand result new promotions indirect channels partially offset subscriber losses virgin mobile prepaid brands primarily due continued competition successor threemonth transition period ended march 31 2014 lost 364000 net prepaid subscribers compared adding 568000 predecessor threemonth period ended march 31 2013 primarily due timing impact churn related annual recertification assurance wireless subscribers occurring earlier calendar year 2014 compared calendar year 2013 combined decline gross subscriber additions across prepaid brands combination significant impact reduced subscriber additions due assurance wireless recertification decline net additions combined year ended december 31 2013 compared predecessor year ended december 31 2012 also due continued competitive pressures 2012 resulting promotional offerings drove increased net additions also contributing decline net additions combined year ended december 31 2013 absence nextel platform recaptures second half calendar year 2013 shutdown network completed approximately 168000 prepaid subscriber additions deactivated service nextel platform successor year ended december 31 2013 compared 620000 predecessor year ended december 31 2012 federal lifeline program assurance wireless operates requires applicants meet certain eligibility requirements existing subscribers must recertify requirements annually new regulations calendar year 2012 impact lifeline carriers impose stricter rules subscriber eligibility requirements recertification new regulations also required onetime recertification entire june 1 2012 subscriber base december 31 2012 accounts subscribers failed respond december 31 2012 suspended made subject prepaid churn rules described 365 days limited number states however subscribers could reapply prior deactivated also ability receive bytheminute service expense deactivated accounts approximately 12 million subscribers quarter ended june 30 2013 primarily related recertification process prepaid subscribers generally deactivated 60 150 days later date initial activation replenishment however prior account deactivation targeted retention programs offered qualifying subscribers maintain ongoing service providing additional 150 days make replenishment subscribers targeted retention offers included calculation churn retention offer expires without replenishment account result end period prepaid subscribers include subscribers engaged retention programs however number subscribers percentage total prepaid subscriber base remained consistent past four quarters assurance wireless clearwire subscribers excluded targeted retention programs wholesale affiliate subscribers wholesale affiliate subscribers represent customers served networks companies resell wireless services subscribers customers residing affiliate territories connected devices utilize network 107 million sprint platform subscribers included wholesale affiliates approximately 54 represent connected devices wholesale affiliate subscriber net additions 2349000 successor year ended march 31 2015 compared 31000 944000 years ended december 31 2013 combined december 31 2012 predecessor inclusive net additions connected devices totaling 1950000 908000 593000 respectively increase net additions successor year ended march 31 2015 compared combined year ended december 31 2013 primarily attributable growth connected devices net additions 212000 successor threemonth transition period ended march 31 2014 compared net losses 224000 predecessor threemonth period ended march 31 2013 inclusive net additions connected devices totaling 304000 133000 respectively net additions primarily attributable growth connected device subscribers compared net losses predecessor threemonth period 2013 lifeline programs offered mvnos selling prepaid services affected new federal regulations similar impact assurance wireless brand retail prepaid decline net additions combined year ended december 31 2013 compared period 2012 predecessor primarily due targeted efforts calendar year 2013 2012 reduce inactive subscriber accounts wholesale mvno customers well net losses attributable new lifeline program recertification regulations discussed retail prepaid partially offset increases connected devices growth wholesale postpaid resellers transactions subscribers part acquisition assets us cellular closed may 2013 acquired 352000 postpaid subscribers 59000 prepaid subscribers part clearwire acquisition july 2013 acquired 788000 postpaid subscribers exclusive sprint platform wholesale subscribers acquired mvno relationship clearwire transferred postpaid subscribers within transactions 721000 prepaid subscribers 93000 wholesale subscribers successor year ended march 31 2015 net postpaid subscriber losses 218000 net prepaid subscriber losses 189000 net wholesale subscriber additions 75000 successor threemonth transition period ended march 31 2014 net postpaid subscriber losses 102000 net prepaid subscriber losses 51000 net wholesale subscriber additions 69000 approximately 3000 postpaid subscribers recaptured sprint platform remainder combined year ended december 31 2013 net postpaid subscriber losses 481000 net prepaid subscriber losses 179000 net wholesale subscriber additions 38000 approximately 106000 8000 postpaid prepaid subscribers respectively recaptured sprint platform cost services cost services consists primarily • costs operate maintain networks including direct switch cell site costs rent utilities maintenance labor costs associated network employees spectrum frequency leasing costs • fixed variable interconnection costs fixed component consists monthly flatrate fees facilities leased local exchange carriers based number cell sites switches service particular period related equipment installed site variable component generally consists perminute use fees charged wireline providers calls terminating networks fluctuate relation level duration terminating calls • long distance costs paid wireline segment • costs service repair devices • regulatory fees • roaming fees paid carriers • fixed variable costs relating payments third parties use proprietary data applications messaging music tv navigation services subscribers successor year ended march 31 2015 successor year ended december 31 2013 cost services increased 36 billion 83 successor year ended march 31 2015 compared year ended december 31 2013 increase primarily due comparing results full twelvemonth period ending march 31 2015 shortened postmerger period increases result clearwire acquisition increases offset decreases roaming network costs rent utilities backhaul labor result declining costs associated improvements quality network shutdown nextel platform june 2013 resulted overall decrease cost services comparing successor year ended march 31 2015 combined year ended december 31 2013 successor threemonth transition period ended march 31 2014 predecessor threemonth period ended march 31 2013 cost services decreased 65 million 3 successor threemonth transition period ended march 31 2014 compared predecessor period 2013 primarily reflecting reduced network costs rent utilities backhaul costs related shutdown nextel platform june 2013 combined decrease service repair costs due decline volume frequency repairs decrease roaming fees due lower volume rates partially offset net increases result clearwire acquisition successor year ended december 31 2013 predecessor year ended december 31 2012 cost services decreased 47 billion 52 successor year ended december 31 2013 compared predecessor year ended december 31 2012 primarily due comparing operating results shortened postmerger period 2012 predecessor period consisting full calendar year addition reduced network costs rent utilities 2013 result shutdown nextel platform june 2013 combined decrease service repair costs due decline volume frequency repairs decreases partially offset additional network costs due modernization network well net impact clearwire acquisition combined year ended december 31 2013 predecessor year ended december 31 2012 addition explanations cost services combined year ended december 31 2013 compared predecessor year ended december 31 2012 decreased result reduction payments thirdparty vendors use proprietary data applications premium services result favorable contract rates decreases partially offset higher backhaul costs primarily due increased capacity equipment net subsidy recognize equipment revenue corresponding costs devices title risk loss passes indirect dealer enduse subscriber assuming revenue recognition criteria met marketing plans assume devices sold traditional subsidy program installment billing program leased leasing program traditional subsidy program offer certain incentives retain acquire subscribers new devices discounted prices cost incentives recorded reduction equipment revenue upon activation device service contract installment billing program device sold near full retail price recognize future expected installment payments time sale device results recognition significantly less equipment net subsidy leasing program lease revenue recorded term lease cost products includes equipment costs primarily devices accessories order fulfillment related expenses writedowns device accessory inventory related shrinkage obsolescence additionally cost products reduced rebates earned equipment manufacturers cost products excess net revenue generated equipment sales referred industry equipment net subsidy also make incentive payments certain indirect dealers purchase iphone® directly apple payments recognized selling general administrative expenses device activated sprint service plan sprint recognize equipment revenue cost products transactions see selling general administrative expense successor year ended march 31 2015 successor year ended december 31 2013 equipment revenue increased 32 billion 178 cost products increased 47 billion 102 successor year ended march 31 2015 compared year ended december 31 2013 primarily due comparing results full twelvemonth period shortened postmerger period addition equipment revenue increased due higher revenue installment billing leasing programs higher average sales price per postpaid handset sold partially offset decrease postpaid handsets sold result customers choosing lease devices instead purchasing cost products also increased due higher average cost per handset sold postpaid handsets combined increase prepaid handsets sold increases partially offset decrease postpaid handsets sold result customers choosing lease devices instead purchasing lower average cost per handset sold prepaid handsets resulted overall decrease cost products comparing successor year ended march 31 2015 combined year ended december 31 2013 successor threemonth transition period ended march 31 2014 predecessor threemonth period ended march 31 2013 equipment revenue increased 186 million 23 successor threemonth transition period ended march 31 2014 compared predecessor period 2013 increase equipment revenue primarily due higher average sales prices per postpaid prepaid device sold combined impact different revenue recognition model related installment billing program device purchases increase partially offset fewer postpaid prepaid handsets sold cost products declined 255 million 11 successor threemonth transition period ended march 31 2014 compared predecessor period 2013 primarily due fewer postpaid prepaid handsets sold slightly offset higher average cost per device sold postpaid prepaid devices successor year ended december 31 2013 predecessor year ended december 31 2012 equipment revenue decreased 15 billion 45 cost products declined 53 billion 54 successor year ended december 31 2013 compared predecessor year ended december 31 2012 primarily due comparing operating results shortened postmerger period 2012 predecessor period consisting full calendar year addition decrease equipment revenue cost products due fewer postpaid handsets sold partially offset higher average sales prices per postpaid prepaid device sold well increases prepaid handsets sold combined year ended december 31 2013 predecessor year ended december 31 2012 equipment revenues combined year ended december 31 2013 compared predecessor year ended december 31 2012 increased primarily due higher average sales prices per postpaid prepaid device sold well increases prepaid volumes partially offset fewer postpaid handsets sold cost products decreased primarily fewer postpaid handsets sold although higher average cost per handset partially offset increase average cost per prepaid handset due increased sales expensive 4g lte devices combined fewer sales low cost assurance wireless handsets selling general administrative expense sales marketing costs primarily consist subscriber acquisition costs including commissions paid indirect dealers thirdparty distributors retail sales force new device activations upgrades residual payments indirect dealers payments made oems direct source equipment payroll facilities costs associated retail sales force marketing employees advertising media programs sponsorships including costs related branding general administrative expenses primarily consist costs billing customer care information technology operations bad debt expense administrative support activities including collections legal finance human resources corporate communications strategic planning technology product development successor year ended march 31 2015 year ended december 31 2013 sales marketing expense 53 billion year ended march 31 2015 representing increase 27 billion 102 compared year ended december 31 2013 increase primarily due comparing results full twelvemonth period ending march 31 2015 shortened postmerger period ending december 31 2013 combined higher advertising costs related new promotional campaigns increases offset reduction laborrelated costs due reduction force retail store closures addition lower commission expense sales shifted costeffective channels resulted overall decrease sales marketing expense comparing successor year ended march 31 2015 combined year ended december 31 2013 general administrative costs 39 billion year ended march 31 2015 representing increase 20 billion 104 compared year ended december 31 2013 primarily due comparing results full twelvemonth period ending march 31 2015 shortened postmerger period ending december 31 2013 combined increase bad debt expense primarily associated increase installment receivables increases offset decrease customer care costs primarily due lower call volumes laborrelated initiatives resulted overall decrease general administrative costs comparing successor year ended march 31 2015 combined year ended december 31 2013 reassess allowance doubtful accounts quarterly changes allowance doubtful accounts largely attributable analysis historical collection experience changes credit policies established subscribers successor threemonth transition period ended march 31 2014 predecessor threemonth period ended march 31 2013 sales marketing expense 14 billion representing increase 70 million 5 successor threemonth transition period ended march 31 2014 compared predecessor period 2013 increase primarily due higher media spend commission expense partially offset reduction labor related costs due reduction force retail store closures general administrative costs 897 million representing decrease 27 million 3 successor threemonth transition period ended march 31 2014 compared predecessor period 2013 primarily reflecting decrease customer care costs primarily due lower call volumes labor related initiatives partially offset increase bad debt expense bad debt expense 155 million threemonth transition period ended march 31 2014 representing 72 million 87 increase compared bad debt expense 83 million predecessor period 2013 increase bad debt expense primarily reflects impact increased receivables related installment billing program successor year ended december 31 2013 predecessor year ended december 31 2012 sales marketing expense 26 billion successor year ended december 31 2013 representing decrease 26 billion 50 compared predecessor year ended december 31 2012 primarily due comparing operating results shortened postmerger period 2012 predecessor period consisting full calendar year addition reduction commissions expense resulting decrease postpaid subscriber gross additions partially offset increased costs resulting clearwire acquisition higher media spend general administrative costs 19 billion successor year ended december 31 2013 representing decrease 21 billion 53 compared predecessor year ended december 31 2012 primarily due comparing operating results shortened postmerger period 2012 predecessor period consisting full calendar year partially offset additional overhead costs result clearwire acquisition bad debt expense 260 million decrease 281 million successor period 2013 predecessor year ended december 31 2012 decrease primarily related comparing shortened postmerger period 2012 predecessor period consisting full calendar year combined year ended december 31 2013 predecessor year ended december 31 2012 addition increases explanations increase sales marketing expense combined year ended december 31 2013 compared predecessor year ended december 31 2012 also due increased commissions expense resulting growth prepaid sales addition explanations general administrative costs decreased combined year ended december 31 2013 compared predecessor year ended december 31 2012 also result lower customer care costs primarily due lower call volumes fewer calls per subscriber addition decrease bad debt expense reflects decrease accounts written lower average writeoff per account decline involuntary churn segment earnings wireline provide broad suite wireline voice data communications services communications companies targeted business consumer subscribers addition provide voice data ip communication services wireless segment provide long distance services operate alldigital global long distance tier 1 ip networks services products include domestic international data communications using various protocols multiprotocol label switching technologies mpls ip managed network services voice internet protocol voip session initiated protocol sip traditional voice services ip services also combined wireless services include sprint mobile integration service enables wireless handset operate part subscribers wireline voice network datalinksm service uses wireless networks connect subscriber location primarily wireline widearea ipmpls data network making easy businesses adapt network changing business requirements addition providing services business customers wireline network carrying increasing amounts voice data traffic wireless segment result growing usage wireless subscribers continue assess portfolio services provided wireline business focusing efforts ipbased data services deemphasizing standalone voice services nonipbased data services also continue provide voice services primarily business consumers wireline segment markets sells services primarily direct sales representatives wireline segment earnings primarily function wireline service revenue network interconnection costs wireline segment operating expenses network costs primarily represent special access costs interconnection costs generally consist domestic international perminute usage fees paid carriers remaining costs associated operating wireline segment include costs operate customer care billing organizations addition administrative support wireline service revenue variable network interconnection costs fluctuate changes customer base related usage cost elements fluctuate short term changes customer usage wireline services provided wireless segment generally accounted based market rates believe approximate fair value company generally reestablishes rates beginning fiscal year past several years industry wide trend lower rates due increased competition wireline wireless communications companies well cable internet service providers fiscal year 2015 expect wireline segment earnings decline approximately 50 75 million compared fiscal year 2014 reflect changes market prices services provided wireline segment wireless segment declines wireline segment earnings related intercompany pricing rates affect consolidated results operations wireless segment benefits equivalent reduction cost service following table provides overview results operations wireline segment wireline revenue successor year ended march 31 2015 successor year ended december 31 2013 voice revenues voice revenues successor year ended march 31 2015 increased 455 million 63 compared year ended december 31 2013 increase primarily due comparing results full twelvemonth period shortened postmerger period offsetting increase decreases driven lower volume overall rate declines primarily due decline prices sale services wireless segment combined decreases international hubbing volumes resulted overall decrease voice revenues comparing successor year ended march 31 2015 combined year ended december 31 2013 voice revenues generated sale services wireless segment represented 31 total voice revenues successor year ended march 31 2015 compared 33 year ended december 31 2013 data revenues data revenues reflect sales data services primarily private line managed network services bundled nonipbased data access data revenues increased 75 million 54 successor year ended march 31 2015 compared year ended december 31 2013 primarily due comparing results full twelvemonth period shortened postmerger period offsetting increase decrease result customer churn primarily related private line resulted overall decrease data revenues comparing successor year ended march 31 2015 combined year ended december 31 2013 data revenues generated provision services wireless segment represented 41 total data revenue successor year ended march 31 2015 compared 50 year ended december 31 2013 internet revenue ipbased data services revenue reflects sales internet services including mpls voip sip managed services bundled ipbased data access ipbased data services increased 606 million 81 successor year ended march 31 2015 compared year ended december 31 2013 primarily due comparing results full twelvemonth period shortened postmerger period offsetting increase decrease primarily due fewer ip customers particular final transition insourcing one larger cable multiple system operators msos resulted overall decrease internet revenues comparing successor year ended march 31 2015 combined year ended december 31 2013 addition revenue also impacted decline price services sold wireless segment elimination backhaul associated decommissioning nextel platform june 30 2013 sale services wireless segment represented 12 total internet revenues successor year ended march 31 2015 compared 11 year ended december 31 2013 revenues primarily consist sales customer premises equipment increased 42 million 131 primarily due comparing results full twelvemonth period shortened postmerger period successor threemonth transition period ended march 31 2014 predecessor threemonth period ended march 31 2013 voice revenues voice revenues remained flat successor threemonth transition period ended march 31 2014 compared predecessor period 2013 overall rate declines primarily due decline prices sale services wireless segment offset increases international hubbing volumes threemonth transition period ended march 31 2014 voice revenues generated sale services wireless segment represented 25 total voice revenues successor threemonth transition period ended march 31 2014 compared 28 predecessor threemonth period ended march 31 2013 data revenues data revenues reflect sales data services primarily private line managed network services bundled nonipbased data access data revenues decreased 32 million 34 successor threemonth transition period ended march 31 2014 compared predecessor period 2013 result customer churn primarily related private line data revenues generated provision services wireless segment represented 42 total data revenue successor threemonth transition period ended march 31 2014 compared 49 predecessor threemonth period ended march 31 2013 internet revenue ipbased data services revenue reflects sales internet services including mpls voip sip managed services bundled ipbased data access ipbased data services decreased 89 million 21 successor threemonth transition period ended march 31 2014 compared predecessor period 2013 primarily due fewer ip customers particular final transition insourcing one larger cable msos sale services wireless segment represented 11 total internet revenues successor threemonth transition period ended march 31 2014 predecessor threemonth period ended march 31 2013 revenues primarily consist sales customer premises equipment decreased 2 million 15 successor threemonth transition period ended march 31 2014 compared predecessor period 2013 successor year ended december 31 2013 predecessor year ended december 31 2012 voice revenues voice revenues decreased 908 million 56 successor year ended december 31 2013 compared predecessor year ended december 31 2012 primarily due comparing operating results shortened postmerger period consisting full calendar year voice revenues generated sale services wireless segment represented 33 total voice revenues year ended december 31 2013 compared 32 year ended 2012 data revenues data revenues reflect sales data services primarily private line managed network services bundled nonipbased data access data revenues decreased 260 million 65 successor year ended december 31 2013 compared predecessor year ended december 31 2012 primarily due comparing operating results shortened postmerger period consisting full calendar year data revenues generated provision services wireless segment represented 50 total data revenue year ended december 31 2013 compared 44 year ended 2012 internet revenue ipbased data services revenue reflects sales internet services including mpls voip sip managed services bundled ipbased data access ipbased data services decreased 10 billion 58 successor year ended december 31 2013 compared predecessor year ended december 31 2012 primarily due comparing operating results shortened postmerger period consisting full calendar year sale services wireless segment represented 11 total internet revenues years ended december 31 2013 2012 revenues primarily consist sales customer premises equipment decreased 43 million 57 successor year ended december 31 2013 compared predecessor year ended december 31 2012 primarily due comparing operating results shortened postmerger period consisting full calendar year combined year ended december 31 2013 predecessor year ended december 31 2012 voice revenues addition explanations voice revenues combined year ended december 31 2013 compared predecessor year ended december 31 2012 decreased result overall volume price declines 53 million related decline prices sale services wireless segment well volume declines due customer churn data revenues addition explanations data revenues combined year ended december 31 2013 compared predecessor year ended december 31 2012 decreased result customer churn driven focus longer provide frame relay atm services internet revenue addition explanations internet revenues combined year ended december 31 2013 compared predecessor year ended december 31 2012 decreased primarily due fewer ip customers costs services costs services include access costs paid local phone companies domestic service providers foreign phone companies complete calls made domestic subscribers costs operate maintain networks costs equipment successor year ended march 31 2015 successor year ended december 31 2013 costs services increased 11 billion 89 successor year ended march 31 2015 compared year ended december 31 2013 primarily due comparing results full twelvemonth period shortened postmerger period offsetting increase decrease primarily due lower access expense result savings initiatives declining volumes resulted overall decrease cost services comparing successor year ended march 31 2015 combined year ended december 31 2013 service gross margin percentage decreased 25 successor year ended december 31 2013 17 successor year ended march 31 2015 primarily result decrease net service revenue partially offset decrease cost services successor threemonth transition period ended march 31 2014 predecessor threemonth period ended march 31 2013 costs services increased 7 million 1 successor threemonth transition period ended march 31 2014 compared predecessor period 2013 primarily due higher contractual rates impacting facility costs service gross margin percentage decreased 26 predecessor threemonth period ended march 31 2013 13 successor threemonth transition period ended march 31 2014 primarily result decrease net service revenue combined slight increase cost services successor year ended december 31 2013 predecessor year ended december 31 2012 costs services decreased 15 billion 56 successor year ended december 31 2013 compared predecessor year ended december 31 2012 primarily due comparing operating results shortened postmerger period consisting full calendar year service gross margin percentage decreased 28 2012 25 2013 primarily result decrease net service revenue partially offset decrease cost services combined year ended december 31 2013 predecessor year ended december 31 2012 addition explanations costs services combined year ended december 31 2013 compared predecessor year ended december 31 2012 decreased primarily due lower access expense result declining voice data internet volumes selling general administrative expense successor year ended march 31 2015 successor year ended december 31 2013 selling general administrative expense increased 184 million 103 successor year ended march 31 2015 compared year ended december 31 2013 primarily due comparing results full twelvemonth period shortened postmerger period partially offset decrease due reduction shared administrative employeerelated costs required support wireline segment result decline revenue resulted overall decrease selling general administrative expense comparing successor year ended march 31 2015 combined year ended december 31 2013 total selling general administrative expense percentage net services revenue 13 successor year ended march 31 2015 compared 11 year ended december 31 2013 successor threemonth transition period ended march 31 2014 predecessor threemonth period ended march 31 2013 selling general administrative expense decreased 14 million 13 successor threemonth transition period ended march 31 2014 compared predecessor period 2013 decrease primarily due reduction shared administrative employee related costs required support wireline segment result decline revenue total selling general administrative expense percentage net services revenue 12 threemonth periods ended march 31 2014 successor 2013 predecessor successor year ended december 31 2013 predecessor year ended december 31 2012 selling general administrative expense decreased 272 million 60 successor year ended december 31 2013 compared predecessor year ended december 31 2012 primarily due comparing operating results shortened postmerger period consisting full calendar year total selling general administrative expense percentage net services revenue 11 year ended december 31 2013 12 year ended 2012 combined year ended december 31 2013 predecessor year ended december 31 2012 addition explanations selling general administrative expense combined year ended december 31 2013 compared predecessor year ended december 31 2012 decreased primarily due reduction shared administrative employee related costs required support wireline segment result decline revenue liquidity capital resources cash flow operating activities net cash provided operating activities approximately 25 billion successor year ended march 31 2015 increased 25 billion successor year ended december 31 2013 increase primarily due comparing full twelvemonth period shortened postmerger period successor year ended december 31 2013 included 180 million call redemption premiums paid retire clearwire debt approximately 225 million interest payments related clearwire debt net cash provided operating activities approximately 25 billion successor year ended march 31 2015 decreased 160 million compared net cash provided operating activities approximately 26 billion year ended december 31 2013 combined basis decrease due decreased cash received customers 11 billion primarily result increases installment billing receivables offset declines due sales receivables facility see receivables facility well declines net operating revenues increased interest payments 505 million primarily related debt issued september 2013 december 2013 decrease partially offset lower vendor laborrelated payments 14 billion primarily due decreased backhaul payments related shutdown nextel platform june 2013 ii declines roaming payments due lower volumes rates iii fewer laborrelated payments primarily result reductions force call center savings due lower call volumes laborrelated initiatives lower payments partially offset increased cash paid inventory net cash provided operating activities approximately 522 million successor threemonth transition period ended march 31 2014 decreased 418 million predecessor period 2013 decrease due decreased cash received customers 365 million primarily result increases installment billing receivables increased interest payments 254 million related debt issued september 2013 decreases partially offset decreases vendor laborrelated payments 219 million net cash used operating activities approximately 61 million successor year ended december 31 2013 decreased 31 billion predecessor period 2012 decrease primarily due comparing shortened postmerger period consisting full calendar year also included 180 million call redemption premiums paid retire clearwire debt approximately 225 million interest payments related clearwire debt net cash provided operating activities 2013 combined basis approximately 26 billion decreased 389 million compared predecessor 2012 addition explanations decrease primarily due increased vendor laborrelated payments 475 million increased cash paid interest approximately 213 million primarily result less interest capitalized related spectrum licenses used improving quality network partially offset increased cash received customers 699 million investing activities net cash used investing activities successor year ended march 31 2015 decreased approximately 134 billion compared successor year ended december 31 2013 primarily due increases approximately 14 billion proceeds sales maturities shortterm investments 2013 increases related softbank merger 141 billion net cash acquired decreases partially offset increased capital expenditures 22 billion included 582 million leased devices purchased indirect channels increased purchases shortterm investments 358 million addition successor year ended march 31 2015 received 95 million reimbursements costs clearing h block spectrum part report order obligations 315 million proceeds sales assets fcc licenses 290 million related sale certain fcc licenses net cash used investing activities successor threemonth transition period ended march 31 2014 increased approximately 598 million compared predecessor period 2013 primarily due increased purchases shortterm investments approximately 100 million decreased proceeds approximately 360 million sales maturities shortterm investments increases capital expenditures relating fcc licenses 100 million addition part amended exchangeable notes agreement clearwire elected draw 80 million march 2013 result clearwire acquisition exchangeable notes agreement terminated notes remain outstanding net cash used investing activities successor year ended december 31 2013 increased approximately 117 billion compared related predecessor period 2012 primarily due increased cash paid related softbank merger 141 billion net cash acquired increase partially offset decreased purchases shortterm investments approximately 15 billion increased proceeds approximately 200 million sales maturities shortterm investments reduction capital expenditures approximately 400 million result comparing shortened postmerger period consisting full calendar year financing activities net cash provided financing activities 13 billion successor year ended march 31 2015 primarily due february 24 2015 issuance 15 billion aggregate principal amount 7625 notes due 2025 addition amended unsecured export development canada edc agreement among things add additional tranche totaling 300 million due 2019 fully drawn march 31 2015 partially offset principal payments ipcs inc second lien secured floating rate notes due 2014 approximately 181 million scheduled principal payments secured equipment credit facilities approximately 282 million net cash used financing activities 160 million successor threemonth transition period ended march 31 2014 primarily due principal payments secured equipment credit facility approximately 127 million net cash provided financing activities 142 million predecessor threemonth period ended march 31 2013 included net borrowings approximately 149 million secured equipment credit facility net cash provided financing activities 245 billion successor year ended december 31 2013 included proceeds issuance common stock warrants approximately 186 billion related softbank merger addition company issued 90 billion debt consisting september 11 2013 issuance 225 billion aggregate principal amount 7250 notes due 2021 425 billion aggregate principal amount 7875 notes due 2023 december 12 2013 issuance 25 billion aggregate principal amount 7125 notes due 2024 guaranteed sprint communications also incurred approximately 147 million debt issuance costs increases along net borrowings secured equipment credit facility approximately 444 million offset retirement approximately 33 billion principal amount clearwire debt net cash provided financing activities 43 billion 2012 company issued senior notes guaranteed notes convertible bond well drawdowns secured equipment credit facility totaling aggregate approximately 92 billion redeemed remaining 48 billion nextel communications inc senior notes addition incurred 134 million debt financing costs 2012 working capital march 31 2015 2014 negative working capital 12 billion working capital 19 billion respectively working capital march 31 2015 2014 included accrued capital expenditures unbilled services totaling approximately 705 million 12 billion respectively related improving quality network decline working capital primarily due increased accounts payable approximately 12 billion primarily result extended payment terms certain network equipment suppliers timing purchases payments associated device launches decreased shortterm investments 11 billion 500 million edc agreement due december 2015 reclassified current longterm debt financing capital lease obligations addition contributing decline decreased cash 960 million primarily due cash paid capital expenditures partially offset net cash provided operating activities debt issuances taking account sale receivables facility see receivables facility accounts receivable net increased 381 million primarily due increased installment billing receivables addition device accessory inventory increased 377 million remaining balance due changes working capital items receivables facility may 16 2014 certain whollyowned subsidiaries sprint entered twoyear committed facility receivables facility sell certain accounts receivable revolving basis subject maximum funding limit 13 billion available funding varies based amount eligible receivables defined receivables facility connection receivables facility sprint formed whollyowned subsidiaries bankruptcyremote special purpose entities spes pursuant receivables facility certain sprint subsidiaries originators transfer receivables spes receivables contributed originators spes available sold conduits primarily consisted installment receivables wireless service charges due subscribers spes may sell receivables bank agent behalf unaffiliated multiseller assetbacked commercial paper conduits sponsoring banks subsidiary sprint services receivables exchange monthly servicing fee sprint guarantees performance servicers originators obligations receivables facility sales eligible receivables spes initiated generally occur daily settled monthly basis sprint pays fee drawn undrawn portions receivables facility net fees associated receivables facility recognized selling general administrative expenses consolidated statements operations april 24 2015 receivables facility amended include 20 billion additional funding result including installment receivables definition eligible receivables facility effect increasing maximum funding limit 33 billion 14 billion available drawn cash april 30 2015 additionally expiration date extended march 31 2017 receivables sold conduits treated sale financial assets upon sale sprint derecognizes receivables well related allowances recognizes net proceeds received cash provided operating activities difference receivables sold cash received represents financial asset due sprint conduits realizable sprint contingent upon collections sold receivables march 31 2015 35 billion receivables contributed originators spes sold approximately 18 billion service receivables conduits exchange 500 million cash 13 billion receivable conduits receivable due sprint conduits classified trading security recorded estimated fair value 12 billion prepaid expenses current assets consolidated balance sheet fair value receivable due sprint estimated using discounted cash flow model relied principally unobservable inputs nature sold receivables subscriber payment history changes fair value receivable due sprint included operating loss income consolidated statements operations march 31 2015 approximately 460 million available funding receivables facility april 2015 sprint elected remit payments received conduits reduce funded amount zero spe’s sole business consists purchase acceptance capital contributions receivables originators subsequent retransfer granting security interest receivables bank agent receivables facility addition spe separate legal entity separate creditors entitled prior upon liquidation spe satisfied spe’s assets prior assets value spe becoming available originators sprint accordingly assets spe including 17 billion installment receivables contributed originators held spes 13 billion receivable due sprint conduits march 31 2015 available pay creditors sprint affiliates spe although collections receivables excess amounts required pay investment yield fees conduits creditors spes may remitted originators sprint term receivables facility longterm debt scheduled maturities retired remaining 181 million aggregate principal amount ipcs inc second lien secured floating rate notes may 2014 addition made principal payments 282 million secured equipment credit facilities year ended march 31 2015 part amendment edc agreement december 2014 borrowed additional tranche totaling 300 million described february 24 2015 issued 15 billion aggregate principal amount 7625 notes due 2025 credit facilities october 2014 amended revolving bank credit facility expires february 2018 among things modify required ratio leverage ratio total indebtedness trailing four quarters earnings interest taxes depreciation amortization nonrecurring items defined revolving bank credit facility adjusted ebitda provide may exceed 65 10 quarter ending december 31 2015 625 10 quarter ending december 31 2016 60 10 fiscal quarter ending thereafter expiration facility amended facility allows us reduce total indebtedness purposes calculating leverage ratio subtracting total indebtedness amount cash contributed segregated reserve account provided cash contribution cash remaining hand operations exceeds 20 billion upon transfer cash contribution remain restricted extent longer required leverage ratio remain compliance amendment also added sprint corporation guarantor revolving bank credit facility december 2014 amended unsecured edc agreement eksportkreditnamnden ekn secured equipment credit facility modify leverage ratio provide terms similar revolving bank credit facility amended october 2014 add sprint corporation guarantor respective agreements part amendment edc agreement increased borrowing capacity additional 300 million march 31 2015 edc agreement fully drawn terms edc agreement ekn secured equipment credit facility repayments outstanding amounts cannot redrawn finnvera secured equipment credit facility december 2014 certain subsidiaries entered secured equipment credit facility insured finnvera plc finnvera finnish export credit agency ability borrow 800 million finance network equipmentrelated purchases nokia solutions networks us llc usa facility divided three consecutive tranches varying size borrowings available october 2017 contingent upon amount equipmentrelated purchases made sprint interest fullyamortizing principal payments due semiannually tranche beginning march 2015 june 2021 march 31 2015 drawn 72 million facility made principal repayments totaling 28 million year ended march 31 2015 balance outstanding march 31 2015 44 million april 2015 drew additional 154 million credit facility ksure secured equipment credit facility december 2014 certain subsidiaries entered secured equipment credit facility insured ksure korean export credit agency ability borrow 750 million finance network equipmentrelated purchases samsung telecommunications america llc facility divided three consecutive tranches varying size draws became available january 2015 available may 2018 fully drawn contingent upon amount equipmentrelated purchases sprint interest fullyamortizing principal payments due semiannually tranche beginning june 2015 december 2022 march 31 2015 drawn 58 million facility april 2015 drew additional 102 million credit facility delcredere ducroire secured equipment credit facility december 2014 certain subsidiaries entered secured equipment credit facility insured delcredere ducroire dd belgian export credit agency ability borrow 250 million finance network equipmentrelated purchases alcatellucent usa inc facility became available draw early 2015 available december 2016 interest fullyamortizing principal payments due semiannually beginning june 2015 december 2021 march 31 2015 drawn facility borrowings ekn finnvera ksure dd secured equipment credit facilities secured liens respective equipment purchased pursuant facilities fully unconditionally guaranteed sprint communications inc sprint corporation covenants secured equipment credit facilities similar one another covenants revolving bank credit facility edc agreement march 31 2015 leverage ratio defined revolving bank credit facility edc agreement equipment credit facilities 55 10 leverage ratio exceeded 25 10 period end restricted paying cash dividends following graph depicts future fiscal year principal maturities debt march 31 2015 table excludes unsecured revolving bank credit facility expire 2018 outstanding balance ii 470 million letters credit outstanding unsecured revolving bank credit facility iii capital leases financing obligations liquidity capital resources march 31 2015 liquidity including cash equivalents shortterm investments available borrowing capacity revolving bank credit facility availability receivables facility 75 billion cash equivalents shortterm investments totaled 42 billion march 31 2015 compared 62 billion march 31 2014 march 31 2015 approximately 470 million letters credit outstanding 33 billion revolving bank credit facility year ended march 31 2015 amount letter credit required pursuant report order reduced total 444 million 850 million 406 million result outstanding letters credit directly reduce availability revolving bank credit facility approximately 28 billion borrowing capacity available revolving bank credit facility march 31 2015 march 31 2015 approximately 460 million available funding receivables facility addition including draws made april 2015 available borrowing capacity 574 million finnvera secured equipment credit facility aggregate 840 million ksure dd secured equipment credit facilities however utilization new facilities depends amount timing networkrelated equipment purchases applicable suppliers well timing fund availability per tranche meet short longterm liquidity requirements look variety funding sources existing liquidity balance cash generated operating activities primary source funding addition cash flows operating activities rely ability issue debt equity securities ability issue forms financing proceeds sale certain accounts receivable receivables facility borrowing capacity available credit facilities support short longterm liquidity requirements believe existing available liquidity cash flows operations sufficient meet funding requirements next twelve months including debt service requirements significant future contractual obligations maintain adequate amount available liquidity execute according timeline current business plan includes network deployment maintenance subscriber growth data usage capacity needs expected achievement cost structure intended achieve competitive margins may need raise additional funds external resources unable fund remaining capital needs external resources terms acceptable us would need modify existing business plan could adversely affect expectation longterm benefits results operations cash flows operations determining expectation future funding needs next twelve months beyond made several assumptions regarding • projected revenues expenses relating operations • cash needs related installment billing leasing programs • current availability 14 billion funding amended receivables facility terminates march 2017 unless extended • continued availability revolving bank credit facility expires february 2018 amount 33 billion less letters credit • availability 14 billion new secured equipment credit facilities available 2018 eligible capital expenditures corresponding principal interest fee payments • use cash equivalents nearterm • anticipated levels timing capital expenditures including capacity upgrading networks deployment new technologies networks fcc license acquisitions purchases leased devices indirect dealers • additional contributions may make pension plan • scheduled principal payments debt including approximately 125 billion coming due next five fiscal years plus interest due outstanding debt • future contractual obligations general corporate expenditures ability fund capital needs external sources ultimately affected overall capacity terms banking securities markets availability financing alternatives well performance credit ratings given recent financial performance well volatility markets continue monitor closely take steps maintain financial flexibility reasonable cost capital outlooks credit ratings moodys investor service standard poors ratings services fitch ratings certain sprint corporations outstanding obligations expect execute number initiatives increase subscriber base including continuing improve quality network however initiatives successful attracting valuable subscribers postpaid handset versus tablet subscribers particular depending severity difference actual results versus currently anticipate may make difficult us generate sufficient ebitda remain compliance covenants able meet debt service obligations could result acceleration indebtedness unforeseen events occur may engage lenders obtain appropriate waivers amendments credit facilities refinance borrowings although assurance would successful actions default certain borrowings could trigger defaults certain debt obligations turn could result maturities accelerated certain indentures agreements also require compliance various covenants including covenants limit companys ability sell substantially assets limit company subsidiaries ability incur indebtedness liens require maintain certain financial ratios defined terms indentures related supplemental indentures agreements future contractual obligations following table sets forth current estimates amounts timing contractual payments march 31 2015 future events including additional issuances debt securities refinancing debt securities could cause actual payments differ significantly amounts see item 1a risk factors 1 includes outstanding principal estimated interest payments interest payments based managements expectations future interest rates case variable rate debt 2 represents capital lease payments including interest financing obligation related sale subsequent leaseback multiple tower sites 3 includes future lease payments related cell switch sites real estate network equipment office space 4 includes future spectrum lease payments well service credits related commitments provide services certain lessors reimburse lessors certain capital equipment thirdparty service expenditures term lease 5 includes service spectrum network equipment devices asset retirement obligations executory contracts including contract apple excludes blanket purchase orders amount 27 million see discussion purchase orders commitments include minimum purchases commit purchase suppliers time andor unconditional purchase obligations guarantee make minimum payment suppliers goods services regardless whether take delivery amounts represent entire anticipated purchases future generally represent estimate items committed estimates based assumptions variable components contracts hours contracted number subscribers pricing factors addition party various arrangements conditional nature create obligation make payments upon occurrence certain events delivery functioning software products possible predict timing amounts may due conditional arrangements amounts included table also excludes approximately 27 million blanket purchase order amounts since agreement terms specified time frame set purchase orders legally binding result firm commitments liability uncertain tax positions 163 million march 31 2015 due inherent uncertainty timing resolution underlying tax positions practicable assign liability particular years table include 500 million funding received march 2015 sale receivables facility payments subsequently remitted april 2015 reduce funded amount 0 addition table include remaining costs paid connection fulfillment obligations report order report order requires us make payment us treasury conclusion band reconfiguration process extent value 19 ghz spectrum received exceeds total value licenses spectrum 700 mhz 800 mhz bands surrendered decision plus actual costs qualifying costs incur retune incumbents facilities inception program march 31 2015 incurred approximately 34 billion costs directly attributable spectrum reconfiguration program amount include internal network costs preliminarily allocated reconfiguration program capacity sites modifications may request credit reconfiguration program estimate based experience date reconfiguration program information currently available total direct costs attributable complete spectrum reconfigurations range 36 37 billion accordingly believe unlikely required make payment us treasury offbalance sheet financing may 16 2014 certain whollyowned subsidiaries sprint entered receivables facility twoyear committed facility sell certain accounts receivable receivables revolving basis subject maximum funding limit 13 billion sales eligible receivables initiated generally occur daily settled monthly basis sprint pays fee drawn undrawn portions receivables facility receivables primarily consisted installment receivables wireless service charges due subscribers march 31 2015 35 billion receivables contributed approximately 18 billion sold exchange 500 million cash 13 billion receivable due sprint classified trading security recorded estimated fair value 12 billion prepaid expenses current assets consolidated balance sheet march 31 2015 approximately 460 million available funding receivables facility april 2015 sprint elected remit payments received reduce funded amount zero addition april 24 2015 receivables facility amended include 20 billion additional funding result including installment receivables definition eligible receivables receivable facility effect increasing maximum funding limit 33 billion extending expiration date march 31 2017 april 30 2015 available funding amended receivables facility 14 billion sprints offbalance sheet arrangements consist guarantee liabilities arise option provided subscribers purchase monthly basis access unlimited data coupled annual tradein right discussed guarantee liabilities critical accounting policies estimates critical accounting policies estimates sprint applies accounting policies management believes best reflect underlying business economic events consistent us gaap sprints critical accounting policies include allowance doubtful accounts estimated economic lives residual values property plant equipment valuation recoverability longlived assets evaluation goodwill indefinitelived assets impairment valuation guarantee liabilities inherent policies certain key assumptions estimates made management regularly updates estimates used preparation financial statements based latest assessment current projected business general economic environment sprints significant accounting policies estimates summarized notes consolidated financial statements allowance doubtful accounts maintain allowance doubtful accounts estimated losses result failure subscribers make required payments estimate allowance doubtful accounts considers number factors type receivable including installment receivables collection experience installment billing arrangements aging accounts receivable portfolios credit quality subscriber base qualitative considerations extent actual loss experience differs significantly historical trends required allowance amounts could differ estimate 10 change amount estimated uncollectible would result corresponding change bad debt expense approximately 20 million wireless segment material change wireline segment depreciation property plant equipment balance represents significant component consolidated assets record property plant equipment cost depreciate generally straightline basis estimated useful life assets expect oneyear increase estimated useful lives property plant equipment exclusive leased devices would resulted decrease fiscal year 2014 depreciation expense 700 million oneyear decrease would resulted increase approximately 11 billion fiscal year 2014 depreciation expense leased devices accounting device leases involves specific determinations applicable lease accounting standards determinations affect timing revenue recognition timing classification related cost device lease classified operating lease revenue recognized ratably lease term leased asset included property plant equipment depreciated term lease classified salestype lease equipment revenue recognized inception lease corresponding charge cost product lease classified directfinancing lease related revenue cost products recorded net investment leased asset reported critical elements consider determining classification leased devices economic life fair value device including residual value purposes assessing economic life device consider internal external datasets including limited length time subscribers use handsets sales trends post launch transactions secondary market currently significant aftermarket used telecommunication devices march 31 2015 substantially device leases classified operating leases lease inception devices leased sprints direct channels reclassified inventory property plant equipment devices leased indirect channels sprint purchase device leased retailer lease inception devices depreciated estimated residual value residual values associated devices operating leases represent recorded estimated fair value end lease term review residual values regularly appropriate adjust based among things estimates expected market conditions end lease including impacts future product launches adjustments residual values leased devices recognized revision depreciation estimates estimate 10 increase decrease estimated residual values devices currently operating leases march 31 2015 would material effect depreciation expense next twelve months valuation recoverability longlived assets longlived assets reviewed impairment whenever events changes circumstances indicate carrying amount may recoverable impairment loss recognized carrying amount longlived asset group recoverable exceeds fair value longlived asset groups determined based upon certain factors including assessing lowest level identifiable cash flows largely independent cash flows groups assets liabilities impairment analyses performed based current business technology strategy views growth rates business anticipated future economic regulatory conditions expected technological availability quarter ended december 31 2014 tested recoverability wireline longlived assets due continued declines wireline segment earnings forecast projected continued losses future periods result test recorded impairment loss 233 million included “impairments” consolidated statements operations reduce carrying value wireline asset group includes wireline longlived assets estimated fair value 918 million testing date fair value wireline longlived assets estimated using market approach included significant unobservable inputs including liquidation curves useful life assumptions scrap values assumptions largely unobservable estimate fair value considered unobservable within fair value hierarchy determination fair value requires judgment sensitive changes underlying assumptions believe judgments assumptions reasonable changes future periods may impact assumptions lead additional future impairments evaluation goodwill indefinitelived intangible assets impairment result softbank merger july 2013 recognized indefinitelived assets acquisitiondate estimates fair value including fcc licenses goodwill trade names 358 billion 63 billion 59 billion respectively estimated fair values determined based numerous assumptions estimates company forecasts discount rates growth rates among others well thencurrent stock price indefinitelived assets including goodwill entirely allocated wireless segment sprint evaluates carrying value indefinitelived assets including goodwill least annually frequently whenever events changes circumstances indicate asset may impaired case goodwill fair value reporting unit carrying amount since softbank merger date actual results expectations net postpaid handset subscriber additions lower forecasts used allocate purchase price assets acquired liabilities assumed quarter ended december 31 2014 stock price related market capitalization decreased significantly credit rating downgraded one ratings service providers also updated longterm forecasted cash flows company wireless reporting unit fourth quarter update considered current economic conditions trends estimated future operating results views growth rates anticipated future economic regulatory conditions future cost savings initiatives availability necessary network infrastructure handsets devices based events changes circumstances determined recoverability carrying amount goodwill sprint trade name evaluated impairment quarter ended december 31 2014 impairment test indefinitelived intangible asset consists comparison fair value asset carrying amount carrying amount exceeds fair value impairment loss recognized equal excess estimated fair value sprint trade name assigned wireless segment using relieffromroyalty method uses several significant assumptions including management projections future revenue royalty rate longterm growth rate discount rate assumptions largely unobservable estimate fair value considered unobservable within fair value hierarchy significant unobservable inputs included projected revenues royalty rate growth rate 15 terminal year discount rate 16 testing date carrying value sprint trade name exceeded estimated fair value 33 billion accordingly quarter ended december 31 2014 recorded impairment loss 19 billion included impairments consolidated statements operations changes certain assumptions significant effect estimated fair value specifically royalty rate discount rate 50 basis point decrease royalty rate would resulted additional impairment approximately 600 million increase discount rate 50 basis points would resulted additional impairment approximately 100 million analysis potential impairment goodwill requires twostep approach first step goodwill impairment test used identify potential impairment compares fair value reporting unit carrying amount including goodwill estimated fair value wireless reporting unit using discounted cash flow market based valuation models determination fair value reporting unit requires significant estimates assumptions including significant unobservable inputs key inputs included limited discount rate 8 terminal growth rate 15 control premium market multiple data selected guideline public companies management’s internal forecasts include numerous assumptions share industry gross additions churn mix plans rate changes expenses ebitda margins capital expenditures among others compared estimated fair value testing date carrying amount wireless reporting unit concluded second step goodwill impairment test required estimated fair value exceeded carrying amount changes certain assumptions could significant impact estimated fair value wireless reporting unit instance 20 basis point increase discount rate would resulted fair value wireless reporting unit carrying value would resulted company performing second step goodwill impairment test could resulted goodwill impairment quarter ended december 31 2014 determination fair value requires considerable judgment highly sensitive changes underlying assumptions consequently assurance estimates assumptions made purposes goodwill sprint trade name impairment tests prove accurate prediction future continued sustained declines company’s operating results future forecasted cash flows growth rates assumptions well significant sustained declines company’s stock price related market capitalization could impact underlying key assumptions estimated fair values potentially leading future material impairment goodwill indefinitelived intangible assets guarantee liabilities certain wireless service plans offer option subscribers purchase monthly basis annual tradein right option tradein date subscriber elected purchase device installment billing arrangement receive credit amount outstanding balance installment contract provided subscriber tradesin eligible used device good working condition purchases new device sprint additionally subscriber must purchased option twelve consecutive months preceding tradein subscriber elects option total estimated arrangement proceeds associated subscriber reduced estimated fair value fixedprice tradein credit guarantee liability remaining proceeds allocated amongst deliverables arrangement guarantee liability estimated based assumptions including limited expected fair value used device tradein subscribers’ estimated remaining balance remaining installment payments probability timing tradein subscriber elects exercise tradein right difference outstanding balance installment receivable estimated fair value returned device recorded reduction guarantee liability subscriber elects stop purchasing option prior becoming eligible exercise tradein right recognize amount associated guarantee liability operating revenue reporting date reevaluate estimate guarantee liability subscribers elected option claim benefit earliest contractual time eligible tradein maximum amount guarantee liability ie estimated unpaid balance subscribers installment contracts would approximately 248 million march 31 2015 amount indication companys expected loss exposure consider expected fair value used handset required returned us good working condition tradein consider probability timing tradein total guarantee liabilities associated option recorded accrued expenses current liabilities consolidated balance sheets immaterial new accounting pronouncements april 2014 financial accounting standards board fasb issued authoritative guidance regarding reporting discontinued operations disclosures disposals components entity changes criteria determining disposals presented discontinued operations modifies related disclosure requirements updated guidance defines discontinued operations disposal component group components disposed classified held sale represents strategic shift major effect entity’s operations financial results additionally disclosure requirements discontinued operations expanded new disclosures individually significant dispositions qualify discontinued operations required guidance effective prospectively fiscal years interim reporting periods within years beginning december 15 2014 early adoption permitted transactions reported financial statements previously issued available issuance standard effective companys fiscal year beginning april 1 2015 applied relevant future transactions may 2014 fasb issued new authoritative literature revenue contracts customers issuance part joint effort fasb international accounting standards board iasb enhance financial reporting creating common revenue recognition guidance us gaap international financial reporting standards thereby improving consistency requirements comparability practices usefulness disclosures new standard supersede much existing authoritative literature revenue recognition currently written standard related amendments effective company annual reporting period beginning april 1 2017 including interim periods within reporting period early application permitted april 2015 fasb issued proposal defer effective date new literature one year allow companies early adopt according original effective date entities allowed transition new standard either retrospective application recognizing cumulative effect company currently evaluating newly issued guidance including transition approach applied estimated impact consolidated financial statements june 2014 fasb issued authoritative guidance regarding compensation stock compensation provides guidance treat performance targets achieved requisite service period updated guidance requires performance target affects vesting could achieved requisite service period treated performance condition accounted current guidance opposed nonvesting condition would impact grantdate fair value award guidance effective annual periods interim periods within annual periods beginning december 15 2015 early adoption permitted entities may apply amendments either prospectively awards granted modified effective date ii retrospectively awards performance targets outstanding beginning earliest annual period presented financial statements new modified awards thereafter cumulative effect adjustment opening retained earnings balance beginning earliest annual period presented company expect adoption guidance material effect consolidated financial statements august 2014 fasb issued authoritative guidance regarding disclosure uncertainties entity’s ability continue going concern requires management assess entity’s ability continue going concern provide related footnote disclosures certain circumstances updated guidance requires management perform interim annual assessments whether conditions events considered aggregate raise substantial doubt entity’s ability continue going concern within one year date financial statements issued provide related disclosures required standard effective company’s fiscal year ending march 31 2017 although early adoption permitted company expect adoption guidance material effect consolidated financial statements january 2015 fasb issued authoritative guidance extraordinary unusual items eliminating concept extraordinary items issuance part fasb’s initiative reduce complexity accounting standards current guidance entity required separately classify present disclose events transactions meet criteria extraordinary classification new guidance reporting entities longer required consider whether underlying event transaction extraordinary however presentation disclosure guidance items unusual nature occur infrequently retained expanded include items unusual nature infrequently occurring amendments effective company’s fiscal year beginning april 1 2016 although early adoption permitted applied beginning fiscal year company expect adoption guidance material effect consolidated financial statements february 2015 fasb issued authoritative guidance regarding consolidation provides guidance management evaluating whether consolidate certain legal entities updated guidance modifies evaluation criteria limited partnerships similar legal entities eliminates presumption general partner consolidate limited partnership affects consolidation analysis reporting entities involved variable interest entities particularly fee arrangements related party relationships legal entities subject reevaluation revised consolidation model standard effective company’s annual reporting period beginning april 1 2016 including interim periods within reporting period although early adoption permitted company currently evaluating newly issued guidance assessing impact consolidated financial statements april 2015 fasb issued authoritative guidance regarding interest imputation interest requires debt issuance costs related recognized debt liability presented balance sheet direct deduction carrying amount debt liability consistent debt discounts guidance effective fiscal years interim reporting periods within years beginning december 31 2015 early adoption permitted standard effective company’s fiscal year beginning april 1 2016 company expect adoption guidance material effect consolidated financial statements financial strategies general risk management policies board directors adopted financial risk management policy authorizes us enter derivative transactions comply policy purchase hold derivative financial instruments speculative purposes exception equity rights obtained connection commercial agreements strategic investments usually form warrants purchase common shares derivative instruments primarily used hedging risk management purposes hedging activities may done various purposes including limited mitigating risks associated asset liability committed transaction probable forecasted transaction seek minimize counterparty credit risk credit approval review processes credit support agreements continual review monitoring counterparties thorough legal review contracts exposure market risk controlled regularly monitoring changes hedge positions normal stress conditions ensure exceed established limits information routinely post important information website wwwsprintcominvestors information contained accessible website part annual report forwardlooking statements include certain estimates projections forwardlooking statements annual quarterly current reports publicly available material statements regarding expectations including performance assumptions estimates relating capital requirements well statements historical facts forwardlooking statements reflect managements judgments based currently available information involve number risks uncertainties could cause actual results differ materially forwardlooking statements respect forwardlooking statements management made assumptions regarding among things subscriber network usage subscriber growth retention technologies products services pricing operating costs timing various events economic regulatory environment future performance cannot assured actual results may differ materially forwardlooking statements factors could cause actual results differ include • ability retain attract subscribers manage credit risks associated subscribers • ability competitors offer products services lower prices due lower cost structures • effective implementation plans improve quality network including timing execution technologies costs performance network • potential increases subscriber churn bad debt expense increased costs writeoffs related service plans including installment billing leasing programs • ability generate sufficient cash flow fully implement plans improve enhance quality network service plans improve operating margins implement business strategies provide competitive new technologies • effects vigorous competition highly penetrated market including impact competition prices able charge subscribers services devices provide geographic areas served network • impact equipment net subsidy costs leasing handsets impact increased purchase commitments overall demand service plans including impact decisions new existing subscribers service offerings impact new emerging competing technologies business • ability provide desired mix integrated services subscribers • ability continue access spectrum acquire additional spectrum capacity • changes available technology effects changes including product substitutions deployment costs performance • ability obtain additional financing modify terms existing financing terms acceptable us • volatility trading price common stock current economic conditions ability access capital including debt equity • impact various parties meeting business requirements including significant adverse change ability willingness parties provide products including distribution infrastructure equipment network • costs business risks associated providing new services entering new geographic markets • effects future merger acquisition involving us well effect mergers acquisitions consolidations new entrants communications industry unexpected announcements developments others industry • ability comply restrictions imposed us government condition merger softbank • effects material impairment goodwill indefinitelived intangible assets • unexpected results litigation filed us suppliers vendors • costs potential customer impact compliance regulatory mandates including limited compliance fccs report order reconfigure 800 mhz band government regulation regarding net neutrality • equipment failure natural disasters terrorist acts breaches network information technology security • one markets compete impacted changes political economic factors monetary policy legal regulatory changes external factors control • impact controlled company exempt many corporate governance requirements nyse • risks referenced time report filings sec words may could estimate project forecast intend expect anticipate believe target plan providing guidance similar expressions intended identify forwardlooking statements forwardlooking statements found throughout managements discussion analysis financial condition results operations elsewhere report readers cautioned factors although listed could also materially affect future performance operating results reader place undue reliance forwardlooking statements speak date report obligated publicly release revisions forwardlooking statements reflect events date report including unforeseen events item 7a item 7 managements discussion analysis financial condition results operations overview business overview sprint communications company offering comprehensive range wireless wireline communications products services designed meet needs individual consumers businesses government subscribers resellers unless context otherwise requires references sprint us company mean sprint corporation consolidated subsidiaries periods presented references sprint communications sprint communications inc consolidated subsidiaries wireless segment earnings represented almost total consolidated segment earnings year ended march 31 2017 within wireless segment postpaid wireless service revenue represents significant contributor earnings driven number postpaid subscribers services well average revenue per user arpu strategies key priorities business strategy responsive changing customer mobility demands existing potential customers expand business new areas customer value economic opportunity innovation differentiation help lay foundation future growth opportunities strategy revolves around targeted investment following key priority areas • unlock value substantial spectrum holdings densifying optimizing network provide customers best experience • achieve cost reduction goals significantly transforming business • deliver attractive value proposition substantially enhance distribution use innovative models • create alternative financial structure leverages assets fuel growth maximize stockholder value • attract retain worldclass talent establish strategic partnerships create optimal engaged winning team • deliver exceptional wireless experience customers stay longer buy tell friends provide network delivers consistent reliability capacity speed customers demand expect continue optimize 3g data network invest lte deployment across spectrum bands also expect deploy new technologies help strengthen competitive position including expected use high performance user equipment magic box lte booster voice lte extensive use wifi use small cells densify network achieve competitive cost position established office cost management responsibility identifying operationalizing monitoring sustained improvements operating costs efficiencies also deployed new cost management planning tools across entire organization effectively monitor expenditures focused attracting retaining subscribers improving sales marketing initiatives demonstrated value proposition evolving price plans promotions payment programs deployed new local marketing civic engagement initiatives key markets current strategy also includes transactions continue leverage assets accounts receivable facility handset saleleaseback transactions network equipment saleleaseback spectrum financing transaction transactions described detail liquidity capital resources recruited leaders industry around globe employ organizational focus ensure sprint work environment employees recommend deliver simplified improved customer experience focusing key subscriber touch points pursuing process improvements deploying platforms simplify enhance interactions us customers addition established customer experience team support focus net promoter score important key measure customer satisfaction network continue increase coverage capacity densifying optimizing existing network densification includes increasing number small cells antennas intended enhance coverage capacity across network expect densification efforts cost significantly less historical macro cell site builds ie adding traditional cell towers also deploying new technologies carrier aggregation allows us move data faster speeds spectrum additionally introduction triband devices support spectrum bands allows us manage operate network efficiently lower cost continued see positive results infrastructure upgrades key us markets 25 ghz spectrum band carries highest percentage sprints lte data traffic significant additional capacity grow use 25 ghz spectrum holdings future sprint believes wellpositioned spectrum holdings 160 mhz 25 ghz spectrum top 100 markets us overall densification optimization efforts expected continue enhance customer experience adding data capacity increasing wireless data speeds available customers improving network performance voice data services circumstances may change future believe substantial spectrum holdings sufficient allow us continue provide consistent network reliability capacity speed well provide current future customers highly competitive wireless experience continue refine network strategy evaluate potential network initiatives may incur future material charges associated lease access exit costs loss asset dispositions accelerated depreciation among others shentel transaction august 10 2015 shenandoah telecommunications company shentel entered definitive agreement acquire one wholesale partners ntelos holdings corp ntelos connection definitive agreement entered series agreements shentel among things acquire certain assets spectrum terminate existing wholesale arrangement ntelos amend existing affiliate agreement shentel primarily include subscribers formerly wholesale arrangement ntelos agreements also expanded area shentel provides wireless service sprint customers provided favorable economic terms april 2016 received regulatory approval transaction closed may 2016 total consideration transaction included 181 million net present value basis notes payable shentel sprint satisfy obligations notes payable expected term five six years fcc licenses acquired shentel total value 85 million 96 million total purchase recorded “other net” consolidated statements operations contract termination quarter ended june 30 2016 related termination preexisting wholesale arrangement ntelos results operations consolidated results operations following table provides overview consolidated results operations 1 net years ended march 31 2017 2016 excludes 481 million 321 million losses respectively related losses disposal property plant equipment included wireless segment earnings depreciation expense depreciation expense increased 13 billion 23 year ended march 31 2017 compared period 2016 increased 20 billion 53 year ended march 31 2016 compared period 2015 primarily due increased depreciation leased devices result continued growth device leasing program introduced september 2014 addition depreciation expense increased year ended march 31 2016 compared period 2015 due network asset additions partially offset decrease due assets retired fully depreciated depreciation expense incurred leased devices years ended march 31 2017 2016 2015 31 billion 18 billion 206 million respectively amortization expense amortization expense decreased 242 million 19 year ended march 31 2017 compared period 2016 decreased 258 million 17 year ended march 31 2016 compared period 2015 primarily due customer relationship intangible assets amortized using sumofthemonthsdigits method results higher amortization rates early periods decline time impairments year ended march 31 2015 determined recoverability carrying amount sprint trade name evaluated impairment due changes circumstances surrounding wireless reporting unit result recorded impairment loss 19 billion included impairments consolidated statements operations year ended march 31 2015 also tested recoverability wireline asset group consists primarily property plant equipment due continued declines wireline segment earnings forecast projected continued losses future periods result recorded impairment loss 233 million reduce carrying value wireline’s property plant equipment estimated fair value included impairments consolidated statements operations net following table provides additional information regarding items included net represented expense 20 million year ended march 31 2017 recognized severance exit costs 66 million addition recognized 140 million charge state tax matter combined legal reserves related pending legal suits proceedings 354 million noncash gain result spectrum license exchanges carriers 28 million loss disposal property plant equipment primarily related cell site construction costs longer recoverable result changes network plans also recognized 140 million contract terminations primarily related termination preexisting wholesale arrangement ntelos result shentel transaction combined costs related termination relationship general wireless operations inc radio shack net reflected expense 748 million year ended march 31 2016 recognized litigation expense 193 million ongoing legal matters addition recognized severance exit costs included 216 million severance primarily associated reductions work force 195 million lease access exit costs primarily associated tower cell site leases backhaul access contracts longer receiving economic benefit 2 million recognized cost services consolidated statements operations also recorded 166 million loss disposal property plant equipment primarily related cell site construction costs network costs longer recoverable result changes companys network plans addition revised estimate previously recorded reserve resulting approximately 20 million income net reflected expense 413 million year ended march 31 2015 severance exit costs included 253 million severance primarily associated reductions work force 13 million lease exit costs primarily associated tower cell sites well facility closures addition recognized 38 million costs period related payments continue made backhaul access contracts longer receiving economic benefit litigation 91 million represented legal reserves various pending legal suits proceedings partial pension settlement result company’s board directors approving plan amendment sprint retirement pension plan offer certain terminated participants begun receive plan benefits opportunity voluntarily elect receive benefits immediate lump sum distribution lump sum distribution created settlement event resulted 59 million charge addition revised estimate previously recorded reserve resulting income approximately 41 million interest expense interest expense increased 313 million 14 year ended march 31 2017 compared period 2016 primarily due interest associated network equipment saleleaseback handset saleleaseback tranche 2 unsecured financing facility spectrum financing transaction interest expense increased 131 million 6 year ended march 31 2016 compared period 2015 primarily due interest associated 15 billion aggregate principal amount notes issued february 2015 effective interest rate includes capitalized interest weighted average longterm debt balance 379 billion 338 billion 325 billion 67 year ended march 31 2017 65 years ended march 31 2016 2015 respectively see “liquidity capital resources” information companys financing activities expense income net expense income net represented expense 40 million year ended march 31 2017 income 18 million 27 million years ended march 31 2016 2015 respectively expense year ended march 31 2017 primarily due recognizing remaining debt finance costs 74 million associated terminated unsecured financing facility partially offset interest income 59 million primarily related increased shortterm investments income tax expense income tax expense 435 million 141 million benefit 574 million years ended march 31 2017 2016 2015 respectively represented consolidated effective tax rates approximately 56 8 15 respectively income tax expense year ended march 31 2017 primarily attributable taxable temporary differences tax amortization fcc licenses tax expense 136 million pretax gains spectrum license exchanges increased deferred tax liability fcc licenses temporary differences addition income tax expense included expense 89 million increase state income tax valuation allowance result shift operations among whollyowned subsidiaries organizational restructuring occurred year income tax expense year ended march 31 2016 primarily attributable tax expense resulting taxable temporary differences tax amortization fcc licenses partially offset tax benefits reversal state income tax valuation allowance deferred tax assets changes state income tax laws enacted year income tax benefit year ended march 31 2015 primarily attributable recognition tax benefit 19 billion sprint trade name impairment loss partially offset tax expense taxable temporary differences tax amortization fcc licenses income tax purposes segment earnings wireless segment earnings function wireless service revenue sale wireless devices handsets tablets broadband devices connected devices accessories leasing wireless devices addition costs acquire subscribers network interconnection costs serve subscribers well wireless segment operating expenses costs acquire subscribers include cost sell devices well marketing sales costs incurred attract subscribers network costs primarily represent switch cell site costs backhaul costs interconnection costs generally consist perminute usage fees roaming fees paid carriers remaining costs associated operating wireless segment include costs operate customer care organization administrative support wireless service revenue costs acquire subscribers variable network interconnection costs fluctuate changes subscriber base related usage cost elements fluctuate shortterm changes shown table consolidated results operations wireless segment earnings represented almost total consolidated segment earnings years ended march 31 2017 2016 2015 within wireless segment postpaid wireless services represent significant contributors earnings driven number postpaid subscribers services well arpu wireless industry subject competition retain acquire subscribers wireless services almost markets operate high rates penetration wireless services device financing programs september 2013 introduced installment billing program allows subscribers purchase device paying monthly installments generally 24 months september 2014 introduced leasing program whereby qualified subscribers lease device contractual period time installment billing program recognize majority revenue associated future expected installment payments time sale device compared traditional subsidy program results better alignment equipment revenue cost device impact wireless earnings sale devices installment billing program neutral except impact promotional offers time value money element related imputed interest installment receivable leasing program qualified subscribers lease device contractual period time end lease term subscriber option turn device continue leasing device purchase device march 31 2017 substantially device leases classified operating leases result lease inception devices reclassified inventory property plant equipment leased sprints direct channels leases indirect channel purchase devices lease inception dealer capitalized property plant equipment majority revenue associated installment sales recognized time sale along related cost products lease revenue recorded monthly term lease cost device depreciated estimated residual value generally lease term years ended march 31 2017 2016 2015 leased devices sprint direct channels totaling 29 billion 32 billion 12 billion respectively devices reclassified inventory property plant equipment cost device recorded cost products compared purchased installment billing traditional subsidy program resulted significant positive impact wireless segment earnings depreciation expense incurred leased devices years ended march 31 2017 2016 2015 31 billion 18 billion 206 million respectively mix leased devices continues increase expect positive impact financial results wireless segment earnings continue depreciation expense increase however benefit wireless segment earnings partially offset handset saleleaseback tranche 1 tranche 1 transaction consummated november 2015 whereby sold subsequently leased back certain devices leased customers see handset saleleaseback tranche 1 liquidity capital resources details result cost us devices sold mobile leasing solutions llc mls longer recorded depreciation expense rather recognized rent expense within “cost products” consolidated statements operations leaseback periods tranche 1 terminated conjunction repurchase devices december 2016 device leasing installment billing programs require greater use operating cash flows earlier part device contracts subscribers generally pay less upfront traditional subsidy program accounts receivable facility handset saleleaseback transactions discussed liquidity capital resources designed mitigate significant use cash purchasing devices original equipment manufacturers oems fulfill installment billing leasing programs wireless segment earnings trends sprint offers lower monthly service fees without traditional contract incentive attract subscribers certain service plans lower rates service available whether subscriber brings handset pays full near full retail price handset purchases handset installment billing program leases handset leasing program base subscribers shifts away traditional subsidy program lowerpriced service plans associated device financing options expect postpaid arpu continue decline due lower service revenue however expect higher equipment revenue associated installment billing leasing programs substantially offset declines since inception combination lower priced plans installment billing leasing programs accretive wireless segment earnings expect trend continue magnitude impact depending subscriber adoption rates began experience net losses postpaid handset subscribers mid2013 since release new price plans results shown improvement trends handset subscribers however assurance trend continue taken initiatives provide best value wireless service continuing enhance network performance coverage capacity order attract retain valuable handset subscribers addition evaluating cost model operationalize effective cost structure following table provides overview results operations wireless segment 1 represents service revenue primarily related acquisition clearwire july 9 2013 service revenue wireless segment generates service revenue sale wireless services sale wholesale services service revenue consists fixed monthly recurring charges variable usage charges miscellaneous fees activation fees directory assistance roaming equipment protection late payment early termination charges certain regulatory related fees net service credits ability wireless segment generate service revenue primarily function • revenue generated subscriber turn function types amount services utilized subscriber rates charged services • number subscribers serve turn function ability retain existing subscribers acquire new subscribers retail comprises subscribers sprint directly provides wireless services whether services provided postpaid prepaid basis also categorize retail subscribers prime subprime based upon subscriber credit profiles use proprietary scoring systems measure credit quality subscribers using several factors credit bureau information subscriber credit risk scores service plan characteristics payment history subsequently monitored evaluate subscriber credit profiles wholesale affiliates subscribers served mvno affiliate relationships arrangements mvno relationships wireless services sold sprint companies resell services subscribers effective january 1 2017 entered new master services agreement vendor provide postsale device support services including device insurance subscribers new agreement vendor bears risk loss regards claims related costs sprint longer incur sprint remit premiums vendor pay sprint monthly recurring commission per subscriber duration agreement additionally terms new agreement vendor primary obligor agreement subscriber revenue accounted presented net basis whereas historically amounts presented gross basis change expected result reductions service revenue approximately 700 million fiscal year 2017 vendor sprint fulfilling services expect reductions service revenue offset greater reductions cost services expense year ended march 31 2017 compared year ended march 31 2016 retail service revenue decreased 15 billion 6 year ended march 31 2017 compared year ended march 31 2016 primarily due lower average revenue per postpaid subscriber driven increase subscribers lower price plans combined decrease average prepaid subscribers driven higher churn impact shutdown clearwire wimax network march 31 2016 decrease partially offset increase average postpaid subscribers wholesale affiliate revenues decreased 51 million 7 year ended march 31 2017 compared year ended march 31 2016 primarily due decline lifeline postpaid prepaid resellers due competitive pressures combined impact shutdown clearwire wimax network partially offset growth connected devices increase imputed interest associated installment billing handsets approximately 67 total wholesale affiliate subscribers represent connected devices generate revenue usage varies depending solution utilized year ended march 31 2016 compared year ended march 31 2015 retail service revenue decreased 19 billion 7 year ended march 31 2016 compared year ended march 31 2015 primarily due lower average revenue per subscriber driven growth postpaid subscribers new plans tablet sales decrease partially offset increase average postpaid subscribers mostly due improved churn wholesale affiliate revenues decreased 49 million 6 year ended march 31 2016 compared year ended march 31 2015 primarily due decline prepaid resellers impact shutdown clearwire wimax network partially offset growth postpaid resellers connected devices approximately 64 total wholesale affiliate subscribers represent connected devices generate revenue usage varies depending solution utilized average monthly service revenue per subscriber trends table summarizes average number retail subscribers additional information number subscribers net additions losses subscribers average rates monthly postpaid prepaid subscriber churn quarter since quarter ended march 31 2014 may found tables following pages table summarizes arpu additional information arpu quarter since quarter ended march 31 2014 may found tables following pages 1 arpu calculated dividing service revenue sum monthly average number subscribers applicable service category changes average monthly service revenue reflect subscribers either postpaid prepaid service category change rate plans level voice data usage amount service credits offered subscribers plus net effect average monthly revenue generated new subscribers deactivating subscribers year ended march 31 2017 compared year ended march 31 2016 postpaid arpu year ended march 31 2017 decreased compared year ended march 31 2016 primarily due impact subscriber migration service plans associated device financing options resulting lower service fees expect sprint platform postpaid arpu continue decline fiscal year 2017 result lower service fees associated price plans offered conjunction device financing options well lower device insurance program revenues resulting entering new master services agreement vendor provide postsale device support services subscribers however result installment billing leasing programs expect increasing equipment revenues offset declines prepaid arpu year ended march 31 2017 increased compared year ended march 31 2016 primarily due removal approximately 12 million lowengagement prepaid customers base result aligning churn retention rules across prepaid brands excluding assurance wireless late threemonth period ended december 31 2016 see subscriber results details action average prepaid subscribers decreased however prepaid revenue proportionally impacted year ended march 31 2016 compared year ended march 31 2015 postpaid arpu year ended march 31 2016 decreased compared year ended march 31 2015 primarily due impact subscriber migration many new service plans resulting lower service fees combined ongoing growth sales tablets carry lower revenue per subscriber prepaid arpu year ended march 31 2016 increased compared year ended march 31 2015 primarily due increase average boost mobile subscribers carry higher arpu compared prepaid brands partially offset revenue impact subscribers choosing lower priced plans boost mobile virgin mobile brands due increased competition combined decrease average virgin mobile subscribers following table shows net additions losses wireless subscribers b total subscribers c end period connected device subscribers end quarterly period beginning quarter ended march 31 2014 1 subscriber defined individual line service associated device activated customer subscribers transfer original service category classification another platform another service line within platform reflected net loss original service category net addition new service category net effect subscriber changes total wireless net additions losses end period subscribers 2 sprint platform refers sprint network supports wireless service provide multiple brands 3 part shentel transaction 186000 92000 subscribers transferred postpaid prepaid respectively affiliates additional 270000 ntelos subscribers part affiliate relationship shentel reported wholesale affiliate subscribers quarter ended june 30 2016 4 end period connected devices included retail postpaid wholesale affiliates end period subscriber totals periods presented 5 threemonth period ended december 31 2016 company aligned prepaid brands excluding assurance wireless including prepaid affiliate subscribers one churn retention program result change end period prepaid affiliate subscribers december 31 2016 reduced 1234000 21000 respectively see subscriber results information 6 subscribers mvno relationships inactivity either voice usage primarily result nature device activity occurs data retrieval initiated enduser may occur infrequently although continue provide subscribers access network mvno relationships approximately 2054000 subscribers march 31 2017 mvno relationships inactive least six months associated revenue sixmonth period ended march 31 2017 7 end period transactions subscribers reflected postpaid prepaid wholesale subscribers acquired result acquisition clearwire remaining transaction subscribers primarily due shutdown wimax network march 31 2016 following table shows average rates monthly postpaid prepaid subscriber churn end quarterly period beginning quarter ended march 31 2014 1 churn calculated dividing net subscriber deactivations quarter sum average number subscribers month quarter postpaid accounts comprising multiple subscribers family plans enterprise accounts net deactivations defined deactivations excess subscriber activations particular account within 30 days postpaid prepaid churn consist voluntary churn subscriber makes determination cease subscriber involuntary churn subscribers service terminated due lack payment reasons 2 quarter ended june 30 2015 company revised prepaid subscriber reporting remove one rules matches customers disconnect reengage within specified period time enhancement believe represents precise churn calculation impact net additions result reporting higher deactivations higher gross additions quarter without revision sprint platform prepaid churn quarter would 433 relatively flat compared period 2014 end period prepaid subscribers net prepaid subscriber additions periods presented impacted change 3 subscriber churn related acquisition clearwire following table shows postpaid prepaid arpu end quarterly period beginning quarter ended march 31 2014 1 subscriber arpu related acquisition clearwire subscriber results sprint platform subscribers retail postpaid year ended march 31 2017 net postpaid subscriber additions 811000 compared net additions 1245000 net losses 212000 years ended march 31 2016 2015 respectively inclusive tablet net losses 281000 net additions 545000 1334000 respectively generally significantly lower arpu compared wireless subscribers primary driver net additions years ended march 31 2017 2016 pricing plan promotions launched year combined improvement churn subscribers benefit improved network quality primary driver net losses year ended march 31 2015 increase churn primarily due increased competition networkrelated churn impacted network modernization program aggressive marketing efforts wireless carriers including price reductions incent subscribers switch carriers also negatively impact churn negative effect earnings retail prepaid year ended march 31 2017 lost 1079000 net prepaid subscribers compared losing 1309000 adding 449000 net prepaid subscribers years ended march 31 2016 2015 respectively net losses year ended march 31 2017 primarily due subscriber losses across prepaid brands due continued competition market net losses year ended march 31 2016 primarily due subscriber losses virgin mobile prepaid brand primarily due increasing competition net additions year ended march 31 2015 primarily due subscriber growth boost mobile brand result new promotions indirect channels partially offset subscriber losses virgin mobile prepaid brands primarily due continued competition historically prepaid subscribers generally deactivated 60 150 days later date initial activation replenishment however prior account deactivation targeted retention programs offered qualifying subscribers maintain ongoing service providing additional 150 days make replenishment september 30 2016 prepaid brands different churn rules retention programs part ongoing efforts simplify drive consistency across prepaid business well tighten customer engagement criteria aligned prepaid brands excluding assurance wireless one churn retention program december 31 2016 therefore prepaid affiliate subscribers excluding assurance wireless deactivated 60 days later date initial activation recent replenishment date result changes approximately 12 million fewer prepaid subscribers 21000 fewer prepaid affiliate subscribers base december 31 2016 however deactivated customers engagement expect material impact future prepaid revenue changes implemented prepaid subscriber base beginning december 31 2016 quarter rather end thus effect entire threemonth period estimate churn would 584 versus 580 arpu would 3011 versus 2761 wholesale affiliate subscribers wholesale affiliate subscribers represent customers served networks companies resell wireless services subscribers customers residing affiliate territories connected devices utilize network 161 million sprint platform subscribers included wholesale affiliates approximately 67 represent connected devices wholesale affiliate subscriber net additions 2149000 year ended march 31 2017 compared 2733000 2349000 years ended march 31 2016 2015 respectively inclusive net additions connected devices totaling 2305000 2743000 1950000 respectively driver net additions years ended march 31 2017 2016 2015 primarily attributable growth connected devices transactions subscribers part acquisition clearwire july 2013 acquired 788000 postpaid subscribers exclusive sprint platform wholesale subscribers acquired mvno relationship clearwire transferred postpaid subscribers within transactions 721000 prepaid subscribers 93000 wholesale subscribers remaining transaction subscribers primarily due shutdown wimax network march 31 2016 cost services cost services consists primarily • costs operate maintain networks including direct switch cell site costs rent utilities maintenance labor costs associated network employees spectrum frequency leasing costs • fixed variable interconnection costs fixed component consists monthly flatrate fees facilities leased local exchange carriers providers based number cell sites switches service particular period related equipment installed site variable component generally consists perminute use fees charged wireline providers calls terminating networks fluctuate relation level duration terminating calls • long distance costs paid wireline segment • costs service repair devices • regulatory fees • roaming fees paid carriers • fixed variable costs relating payments third parties subscriber use proprietary data applications messaging music cloud services connected vehicle fees year ended march 31 2017 compared year ended march 31 2016 cost services decreased 14 billion 17 year ended march 31 2017 compared year ended march 31 2016 primarily due decreases network costs rent utilities backhaul labor associated network improvements shutdown wimax network march 31 2016 combined decreases roaming interconnection costs primarily due lower rates year ended march 31 2016 compared year ended march 31 2015 cost services increased 124 million 2 year ended march 31 2016 compared year ended march 31 2015 primarily due increased service repair costs result higher costs per unit new used devices increases partially offset decreases roaming costs primarily due lower rates equipment revenue cost products recognize equipment revenue corresponding costs devices title risk loss passes indirect dealer enduse subscriber assuming revenue recognition criteria met devices sold subsidy program installment billing program subsidy program offer certain incentives retain acquire subscribers new devices discounted prices cost incentives recorded reduction equipment revenue upon activation device service contract installment billing program device generally sold near full retail price recognize future expected installment payments time sale device cost products includes equipment costs primarily devices accessories order fulfillment related expenses writedowns device accessory inventory related shrinkage obsolescence additionally cost products reduced rebates earned equipment manufacturers cost products excess net revenue generated equipment sales referred industry equipment net subsidy subscribers migrate acquiring devices subsidy program installment billing choose lease leasing program equipment net subsidy continues decline also make incentive payments certain indirect dealers purchase devices directly oems device distributors payments recognized selling general administrative expenses device activated sprint service plan sprint recognize equipment revenue cost products transactions see selling general administrative expense net impact equipment revenue cost products sale devices installment billing program relatively neutral except impact promotional offers time value money element related imputed interest installment receivables leasing program lease revenue recorded term lease cost leased device depreciated estimated residual value generally lease term years ended march 31 2017 2016 2015 leased devices sprint direct channels totaling 29 billion 32 billion 12 billion respectively reclassified inventory property plant equipment cost device recorded cost products compared purchased installment billing traditional subsidy programs year ended march 31 2017 compared year ended march 31 2016 equipment revenue increased 30 billion 59 year ended march 31 2017 compared year ended march 31 2016 primarily due higher revenue leasing program subscribers choosing lease device combined increase installment billing mix sales increase volume used postpaid devices sold third parties cost products increased 13 billion 22 year ended march 31 2017 compared year ended march 31 2016 primarily due increase volume used devices sold third parties combined increase installment billing mix sales partially offset decrease prepaid devices sold year ended march 31 2016 compared year ended march 31 2015 equipment revenue increased 16 million remained relatively flat cost products decreased 35 billion 38 year ended march 31 2016 compared year ended march 31 2015 primarily due higher average sales price per postpaid handset sold partially offset decrease postpaid handsets sold result brightstar corp brightstar purchasing inventory oems sell directly indirect dealers subscribers choosing lease devices instead purchasing combined lower average sales price per prepaid handset sold cost products also decreased due decrease postpaid handsets sold result brightstar purchasing inventory oems sell directly indirect dealers subscribers choosing lease devices instead purchasing selling general administrative expense sales marketing costs primarily consist subscriber acquisition costs including commissions paid indirect dealers thirdparty distributors retail sales force new device activations upgrades residual payments indirect dealers commission payments made oems device distributors direct source handsets payroll facilities costs associated retail sales force marketing employees advertising media programs sponsorships including costs related branding general administrative expenses primarily consist costs billing customer care information technology operations bad debt expense administrative support activities including collections legal finance human resources corporate communications strategic planning year ended march 31 2017 year ended march 31 2016 sales marketing expense decreased 110 million 2 year ended march 31 2017 compared year ended march 31 2016 primarily due lower overall marketing spend result cost reduction initiatives general administrative costs decreased 290 million 9 year ended march 31 2017 compared year ended march 31 2016 primarily due lower customer care billing costs result cost reduction initiatives partially offset higher bad debt expense bad debt expense increased 109 million 24 year ended march 31 2017 compared year ended march 31 2016 primarily related increased installment billing accounts higher reserve rates partially offset lower service revenue bad debt resulting improved aging lower reserve rates reassess allowance doubtful accounts quarterly year ended march 31 2016 year ended march 31 2015 sales marketing expense decreased 272 million 5 year ended march 31 2016 compared year ended march 31 2015 primarily due lower media spend decrease payments oems direct source handsets result lower volume device sales partially offset higher retail labor costs general administrative costs year ended march 31 2016 decreased 766 million 20 compared year ended march 31 2015 primarily due decrease bad debt expense combined declines general administrative expenses due reduced headcount costsavings initiatives bad debt expense decreased 446 million 50 year ended march 31 2016 compared year ended march 31 2015 primarily related improved aging result customer credit profile improvement fewer accounts written due improvements churn partially offset higher average balance accounts written loss disposal property plant equipment years ended march 31 2017 2016 loss disposal property plant equipment net recoveries 481 million 256 million respectively resulted writeoff leased devices associated lease cancellations prior scheduled customer lease terms customers return devices us customers continue return devices may material losses future periods similar charges incurred devices sold subsidy program equipment net subsidy addition year ended march 31 2016 65 million net losses recognized upon sale devices mls tranche 1 transaction represented difference fair value net book value devices sold segment earnings wireline provide broad suite wireline voice data communications services communications companies targeted business subscribers addition provide voice data ip communication services wireless segment provide long distance services operate alldigital global long distance tier 1 ip networks services products include domestic international data communications using various protocols multiprotocol label switching technologies mpls ip managed network services voice internet protocol voip session initiated protocol sip traditional voice services ip services also combined wireless services include sprint mobile integration service enables wireless handset operate part subscribers wireline voice network datalinksm service uses wireless networks connect subscriber location primarily wireline widearea ipmpls data network making easy businesses adapt network changing business requirements addition providing services business customers wireline network carrying increasing amounts voice data traffic wireless segment result growing usage wireless subscribers continue assess portfolio services provided wireline business focusing efforts ipbased data services deemphasizing standalone voice services nonipbased data services however continue provide standalone voice services primarily business customers wireline segment markets sells services primarily direct sales representatives wireline segment earnings primarily function wireline service revenue network interconnection costs wireline segment operating expenses network costs primarily represent special access costs interconnection costs generally consist domestic international perminute usage fees paid carriers remaining costs associated operating wireline segment include costs operate customer care billing organizations addition administrative support wireline service revenue variable network interconnection costs fluctuate changes customer base related usage cost elements fluctuate short term changes customer usage wireline services provided wireless segment generally accounted based market rates believe approximate fair value company generally reestablishes rates beginning fiscal year past several years industry wide trend lower rates due increased competition wireline wireless communications companies well cable internet service providers declines wireline segment earnings related intercompany pricing rates affect consolidated results operations wireless segment benefits equivalent reduction cost service following table provides overview results operations wireline segment wireline revenue year ended march 31 2017 compared year ended march 31 2016 voice revenues voice revenues year ended march 31 2017 decreased 191 million 23 compared year ended march 31 2016 decrease primarily driven lower volume overall rate declines due lower international hubbing volumes company continues deemphasize voice services combined decline prices sale services wireless segment voice revenues generated sale services wireless segment represented 38 total voice revenues year ended march 31 2017 compared 39 year ended march 31 2016 data revenues data revenues reflect sales data services primarily private line managed network services bundled nonipbased data access data revenues decreased 5 million 3 year ended march 31 2017 compared year ended march 31 2016 result customer churn primarily related private line data revenues generated provision services wireless segment represented 54 total data revenue year ended march 31 2017 compared 40 year ended march 31 2016 internet revenue ipbased data services revenue reflects sales internet services including mpls voip sip managed services bundled ipbased data access ipbased data services decreased 137 million 11 year ended march 31 2017 compared year ended march 31 2016 primarily due fewer ip customers addition revenue also impacted decline prices sale services wireless segment sale services wireless segment represented 14 total internet revenues year ended march 31 2017 compared 15 year ended march 31 2016 revenues primarily consist sales customer premises equipment decreased 6 million 7 year ended march 31 2017 compared year ended march 31 2016 year ended march 31 2016 compared year ended march 31 2015 voice revenues voice revenues year ended march 31 2016 decreased 334 million 28 compared year ended march 31 2015 decrease primarily driven lower volume overall rate declines due lower international hubbing volumes combined decline prices sale services wireless segment voice revenues generated sale services wireless segment represented 39 total voice revenues year ended march 31 2016 compared 31 year ended march 31 2015 data revenues data revenues reflect sales data services primarily private line managed network services bundled nonipbased data access data revenues decreased 42 million 20 year ended march 31 2016 compared year ended march 31 2015 result customer churn primarily related private line data revenues generated provision services wireless segment represented 40 total data revenue year ended march 31 2016 compared 41 year ended march 31 2015 internet revenue ipbased data services revenue reflects sales internet services including mpls voip sip managed services bundled ipbased data access ipbased data services decreased 69 million 5 year ended march 31 2016 compared year ended march 31 2015 primarily due fewer ip customers addition revenue also impacted decline price services sold wireless segment sale services wireless segment represented 15 total internet revenues year ended march 31 2016 compared 12 year ended march 31 2015 revenues primarily consist sales customer premises equipment increased 13 million 18 year ended march 31 2016 compared year ended march 31 2015 costs services costs services include access costs paid local phone companies domestic service providers foreign phone companies complete calls made domestic subscribers costs operate maintain networks costs customer premise equipment year ended march 31 2017 compared year ended march 31 2016 costs services decreased 276 million 14 year ended march 31 2017 compared year ended march 31 2016 primarily due lower international voice volume rates combined lower access expense result savings initiatives declining voice ip rate volumes service gross margin percentage decreased 18 year ended march 31 2016 17 year ended march 31 2017 year ended march 31 2016 compared year ended march 31 2015 costs services increased 376 million 16 year ended march 31 2016 compared year ended march 31 2015 primarily due international voice volume rates combined lower access expense result savings initiatives declining voice ip rate volumes service gross margin percentage increased 17 year ended march 31 2015 18 year ended march 31 2016 selling general administrative expense year ended march 31 2017 compared year ended march 31 2016 selling general administrative expense decreased 90 million 27 year ended march 31 2017 compared year ended march 31 2016 primarily due decrease shared administrative employeerelated costs required support wireline segment result decline revenue total selling general administrative expense percentage net services revenue 12 year ended march 31 2017 compared 14 year ended march 31 2016 year ended march 31 2016 compared year ended march 31 2015 selling general administrative expense decreased 35 million 10 year ended march 31 2016 compared year ended march 31 2015 primarily due decrease shared administrative employeerelated costs required support wireline segment result decline revenue total selling general administrative expense percentage net services revenue 14 year ended march 31 2016 compared 13 year ended march 31 2015 liquidity capital resources cash flow operating activities net cash provided operating activities 42 billion year ended march 31 2017 increased 271 million period 2016 increase primarily due lower vendor laborrelated payments 16 billion primarily due reduced operating costs resulting companys ongoing cost reduction initiatives partially offset 11 billion decreased cash received customers primarily due lower net advances accounts receivable facility receivables facility prior february 2017 amendment described accounts receivable facility also year ended march 31 2017 increased interest payments 254 million primarily due network equipment saleleaseback unsecured financing facility spectrum financing transaction receivables facility net cash provided operating activities 39 billion year ended march 31 2016 increased 14 billion period 2015 increase due lower vendor laborrelated payments 22 billion primarily due reduced operating costs partially offset reduced cash received customers 669 million reduction cash received customers driven 24 billion decrease net operating revenues primarily due lower average revenue per subscriber offset 15 billion increase operating cash flows resulting net changes accounts notes receivables dpp year ended march 31 2016 compared period 2015 addition increased interest payments 125 million primarily associated 15 billion aggregate principal amount notes issued february 2015 investing activities net cash used investing activities year ended march 31 2017 increased 35 billion compared period 2016 primarily due increased net purchases shortterm investments 56 billion increase offset decreased network capital expenditures approximately 27 billion decreased purchases 844 million leased devices indirect dealers decreased purchases leased devices indirect dealers partially offset 477 million repurchased devices due termination handset saleleaseback tranche 1 net cash used investing activities year ended march 31 2016 increased approximately 10 billion compared period 2015 primarily due increased purchases 17 billion leased devices indirect dealers decreased net proceeds sales maturities shortterm investments 27 billion increases partially offset 11 billion proceeds mls handset saleleaseback tranche 1 transaction 18 billion decreased purchases shortterm investments decreased network capital expenditures 742 million financing activities net cash provided financing activities 53 billion year ended march 31 2017 primarily due cash receipts 22 billion 11 billion 35 billion 40 billion network equipment saleleaseback handset saleleaseback tranche 2 spectrum financing secured term loan respectively receipts partially offset repayments 654 million 375 million 300 million 416 million handset saleleaseback tranche 2 secured equipment credit facilities network equipment saleleaseback receivables facility respectively also retired 20 billion principal amount sprint communications inc 6 senior notes due 2016 10 billion principal amount sprint communications inc 9125 senior notes due 2017 300 million principal amount clearwire communications llc 1475 secured notes due 2016 repaid 250 million edc credit facility addition paid total 358 million debt finance costs unsecured financing facility network equipment saleleaseback spectrum financing transaction secured term loan secured revolving bank credit facility net cash provided financing activities 469 million year ended march 31 2016 primarily due sales future lease receivables accounts receivables facility 600 million draws 208 million 266 million 32 million finnvera plc finnvera ksure delcredere ducroire dd secured equipment credit facilities respectively 250 million draw export development canada edc credit facility draws partially offset repayments related secured equipment credit facilities 315 million capital lease repayments 84 million 500 million repayment edc credit facility net cash provided financing activities 13 billion year ended march 31 2015 primarily due february 24 2015 issuance 15 billion aggregate principal amount 7625 notes due 2025 addition amended unsecured export development canada edc agreement among things add additional tranche totaling 300 million due 2019 fully drawn march 31 2015 partially offset principal payments ipcs inc second lien secured floating rate notes due 2014 approximately 181 million scheduled principal payments secured equipment credit facilities approximately 282 million working capital working capital 17 billion march 31 2017 negative working capital 51 billion march 31 2016 change working capital primarily result 53 billion net cash provided financing activities described addition february 2017 amendment receivables facility described accounts receivable facility resulted derecognition dpp caused 12 billion net increase working capital remaining balance due changes working capital items longterm debt funding sources scheduled maturities device leasing installment billing programs require greater use operating cash flows earlier part device contracts subscribers generally pay less upfront traditional subsidy program accounts receivable facility handset saleleaseback transactions described designed large part mitigate significant use cash purchasing devices oems fulfill installment billing leasing programs accounts receivable facility transaction overview receivables facility provides us opportunity sell certain wireless service receivables installment receivables future amounts due customers lease certain devices us unaffiliated third parties purchasers maximum funding limit receivables facility 43 billion right decide much cash receive sale maximum amount cash available us varies based number factors currently represents approximately 50 total amount eligible receivables sold purchasers march 31 2017 total amount available drawn 826 million receivables facility amended november 2016 among things reallocate purchasers commitments wireless service installment future lease receivables 33 39 28 respectively amendment response changing trends financing methods selected customers february 2017 receivables facility amended extend maturity date november 2018 additionally sprint gained effective control receivables transferred purchasers obtaining right certain circumstances repurchase subsequent february 2017 amendment proceeds received purchasers exchange transfer wireless service installment receivables recorded borrowings cash inflows outflows receivables facility reported financing activities consolidated statements cash flows result amendment noncash derecognition dpp asset totaling 15 billion along corresponding increases accounts notes receivable net 26 billion assets 563 million longterm debt financing capital lease obligations 17 billion year ended march 31 2017 subsequent february 2017 amendment elected receive 100 million cash also remitted 161 million funds purchasers amount cash proceeds received us facility exceeded maximum funding limit reported financing activities consolidated statements cash flows prior february 2017 amendment wireless service installment receivables sold purchasers treated sale financial assets derecognized receivables well related allowances recognized net proceeds received cash provided operating activities consolidated statements cash flows total proceeds sale receivables comprised combination cash dpp realized us upon either ultimate collection underlying receivables sold purchasers upon sprints election receive additional advances cash purchasers subject total availability receivables facility fees associated sales recognized selling general administrative consolidated statements operations date february 2017 amendment subsequent february 2017 amendment sale wireless service installment receivables reported financings consistent historical treatment sale future lease receivables associated fees recognized interest expense consolidated statements operations transaction structure sprint contributes certain wireless service installment future lease receivables well associated leased devices sprints whollyowned consolidated bankruptcyremote special purpose entities spes sprints direction spes sold continue sell wireless service installment future lease receivables purchasers bank agent behalf purchasers leased devices remain spes sales initiated continue depreciated estimated useful life march 31 2017 wireless service installment receivables contributed spes included accounts notes receivable net consolidated balance sheets 29 billion longterm portion installment receivables included assets consolidated balance sheets 569 million march 31 2017 net book value devices contributed spes approximately 31 billion spe separate legal entity separate creditors entitled prior upon liquidation spe satisfied spe’s assets prior assets spe becoming available sprint accordingly assets spe available pay creditors sprint affiliates spe although collections receivables excess amounts required repay advances yield fees purchasers creditors spes may remitted sprint term receivables facility sales eligible receivables spes generally occur daily settled monthly basis sprint pays fee drawn undrawn portions receivables facility subsidiary sprint services receivables exchange monthly servicing fee sprint guarantees performance servicing obligations receivables facility dpp prior february 2017 amendment dpp classified trading security within prepaid expenses current assets consolidated balance sheets recorded estimated fair value subsequent february 2017 amendment receivables facility accounted financing therefore dpp longer recorded separate asset dpp related wireless service installment receivables 12 billion march 31 2016 fair value dpp estimated using discounted cash flow model relies principally unobservable inputs nature credit class sold receivables subscriber payment history installment receivables sold estimated timing upgrades upgrade payment amounts upgrade options changes fair value dpp material impact consolidated statements operations years ended march 31 2017 2016 year ended march 31 2017 prior february 2017 amendment remitted 270 million funds purchasers amount cash proceeds received us facility exceeded maximum funding limit increased total amount dpp due sprint also elected receive 625 million cash decreased total amount dpp due sprint addition year ended march 31 2017 prior february 2017 amendment sales new receivables exceeded cash collections previously sold receivables dpp increased 644 million handset saleleasebacks december 2015 may 2016 sold certain iphone® devices leased customers mls company formed group equity investors including softbank group corp softbank subsequently leased devices back agreements sprint generally maintains customer leases continues collect record lease revenue customer remits monthly rental payments mls leaseback periods agreements sprint contributed devices associated customer leases whollyowned consolidated bankruptcyremote special purpose entities sprint spe lessees spe lessees sold devices transferred certain specified customer lease end rights obligations right receive proceeds customers elect purchase device end customer lease term mls exchange combination cash dpp settlement dpp occurs near end agreement reduced extent mls experiences loss device either returned sold amount less expected residual value device extent devices dpp balance event mls sells devices returned customers price greater expected device residual value sprint potential share excess proceeds spe lessees retain rights underlying customer leases right receive rental payments device leaseback period aforementioned certain specified customer lease end rights spe lessee separate legal entity separate creditors entitled prior upon liquidation spe lessee satisfied spe lessee’s assets prior assets spe lessee becoming available sprint accordingly assets spe lessee available pay creditors sprint affiliates spe lessees obligated pay full monthly rental payments device lease mls regardless whether customers make lease payments devices leased whether customer lease canceled sprint guaranteed mls performance agreements undertakings spe lessees transaction documents handset saleleaseback tranche 1 tranche 1 december 2015 sprint transferred devices net book value approximately 13 billion mls exchange proceeds totaling 11 billion dpp 126 million recorded sale removed device balance sheet classified leasebacks operating leases difference fair value net book value devices sold recognized loss disposal property plant equipment amount 65 million included net consolidated statements operations year ended march 31 2016 cash proceeds received transaction reflected cash provided investing activities consolidated statements cash flows payments made mls leaseback reflected cost products consolidated statements operations rent expense related mls totaled 494 million 277 million years ended march 31 2017 2016 respectively reflected within cash flows operations december 2016 sprint terminated tranche 1 repurchasing devices related customer lease end rights obligations mls consideration 375 million net cash payments dpp 126 million result transaction sprint recorded 477 million property plant equipment 16 million assets released certain liabilities additionally leaseback canceled future rental payments owed mls related tranche 1 impact consolidated statements operations result termination immaterial handset saleleaseback tranche 2 tranche 2 may 2016 sprint transferred devices net book value approximately 13 billion mls exchange cash proceeds totaling 11 billion dpp 186 million unlike tranche 1 tranche 2 accounted financing accordingly devices remain property plant equipment net consolidated balance sheets continue depreciate assets estimated residual values respective customer lease terms march 31 2017 net book value devices transferred mls approximately 575 million proceeds received reflected cash provided financing activities consolidated statements cash flows payments made mls reflected principal repayments interest expense elected account financing obligation fair value accordingly changes fair value financing obligation recognized expense income net consolidated statements operations course arrangement tranche 2 primarily includes devices iphone forever program whereas devices specifically excluded tranche 1 iphone forever program provides leasing customers ability upgrade devices enter new lease agreement subject certain conditions upon apples release next generation device upon customer exercising iphone forever upgrade right sprint option terminate existing leaseback immediately remitting unpaid device leaseback payments returning device mls alternatively sprint option transfer title new device mls exchange title original device exchange option sprint elects exchange option required continue pay existing device leaseback rental related original device among requirements address introduction upgrade feature saleleaseback structure among factors numerous contractual terms tranche 1 modified shifted certain risks ownership devices away mls sprint resulted tranche 2 accounted financing instance device leaseback periods generally longer tranche 2 compared tranche 1 resulting amounts committed paid company represent initial proceeds received mls plus interest mitigates mlss exposure certain risks nonreturned damaged devices well declines device residual values network equipment saleleaseback april 2016 sprint sold leased back certain network equipment unrelated bankruptcyremote special purpose entities collectively network leaseco network equipment used collateral raise approximately 22 billion borrowings external investors including softbank sprints payments network leaseco leaseback period used network leaseco service debt network leaseco variable interest entity sprint primary beneficiary result sprint required consolidate network leaseco consolidated financial statements include network leasecos debt related financing cash inflows network assets included transaction net book value approximately 30 billion consisted primarily equipment located cell towers remain sprints consolidated financial statements continue depreciated respective estimated useful lives march 31 2017 network assets net book value approximately 24 billion proceeds received reflected cash provided financing activities consolidated statements cash flows payments made network leaseco reflected principal repayments interest expense respective terms sprint option purchase equipment end leaseback term nominal amount intercompany transactions network leaseco sprint eliminated consolidated financial statements principal interest payments borrowings external investors repaid staggered unequal payments january 2018 first principal payment 300 million made march 2017 remaining 19 billion principal payments due fiscal year 2017 spectrum financing october 2016 sprint transferred certain directly held thirdparty leased spectrum licenses collectively spectrum portfolio whollyowned bankruptcyremote special purpose entities collectively spectrum financing spes spectrum portfolio represents approximately 14 sprints total spectrum holdings mhzpops basis used collateral raise initial 35 billion senior secured notes 336 per annum external investors 70 billion program sprint utilize financing structure potentially raise additional 35 billion subject certain conditions notes repaid fiveyear term interestonly payments first four quarters amortizing quarterly principal payments thereafter commencing december 2017 september 2021 sprint communications inc simultaneously entered longterm lease spectrum financing spes ongoing use spectrum portfolio sprint communications inc required make monthly lease payments spectrum financing spes market rate lease payments sufficient service senior secured notes spectrum financing spes whollyowned sprint subsidiaries entities consolidated intercompany activity eliminated credit facilities secured term loan revolving bank credit facility february 3 2017 entered new credit agreement 60 billion consisting 40 billion sevenyear secured term loan matures february 2024 20 billion secured revolving bank credit facility expires february 2021 bank credit facility requires ratio leverage ratio total indebtedness trailing four quarters earnings interest taxes depreciation amortization nonrecurring items defined bank credit facility adjusted ebitda exceed 60 10 quarter ending december 31 2017 december 31 2017 leverage ratio declines scheduled basis ratio becomes fixed 35 10 fiscal quarter ended march 31 2020 fiscal quarter ending thereafter expiration facility term loan interest rate equal libor plus 250 basis points secured revolving bank credit facility interest rate equal libor plus spread varies depending leverage ratio secured revolving bank credit facility replaced 33 billion unsecured revolving bank credit facility due expire february 2018 export development canada edc agreement february 3 2017 amended edc agreement provide security covenant terms similar secured term loan revolving bank credit facility however terms edc agreement repayments outstanding amounts cannot redrawn march 2017 company repaid 250 million aggregate principal outstanding tranche 4 secured loan due december 15 2017 march 31 2017 total principal amount borrowings edc facility 300 million secured equipment credit facilities eksportkreditnamnden ekn year ended march 31 2017 made principal repayments totaling 254 million facility resulting total repayment principal amount march 31 2017 facility expired accordance terms finnvera plc finnvera secured equipment credit facility provides ability borrow 800 million finance networkrelated purchases nokia solutions networks us llc usa facility one tranche remaining available borrowing october 2017 borrowings contingent upon amount timing sprints networkrelated purchases year ended march 31 2017 made principal repayments totaling 56 million resulting total principal amount 140 million outstanding march 31 2017 ksure secured equipment credit facility provides ability borrow 750 million finance networkrelated purchases samsung telecommunications america llc facility divided three consecutive tranches varying size borrowings available may 2018 contingent upon amount networkrelated purchases made sprint year ended march 31 2017 made principal repayments totaling 65 million facility resulting total principal amount 259 million outstanding march 31 2017 delcredere ducroire dd secured equipment credit facility provides ability borrow 250 million finance network equipmentrelated purchases alcatellucent usa inc principal balance outstanding march 31 2017 32 million borrowings finnvera ksure dd secured equipment credit facilities secured liens respective equipment purchased pursuant facilitys credit agreement addition repayments outstanding amounts borrowed secured equipment credit facilities cannot redrawn facilities fully unconditionally guaranteed sprint communications inc sprint corporation march 31 2017 leverage ratio defined secured revolving bank credit facility 39 10 leverage ratio exceeded 25 10 period end restricted paying cash dividends following graph depicts future fiscal year principal maturities debt march 31 2017 table excludes 20 billion secured revolving bank credit facility expire 2021 outstanding balance ii 215 million letters credit outstanding secured revolving bank credit facility iii 540 million capital leases obligations iv net premiums debt financing costs liquidity capital resources march 31 2017 liquidity including cash equivalents shortterm investments available borrowing capacity secured revolving bank credit facility availability receivables facility 109 billion cash equivalents shortterm investments totaled 83 billion march 31 2017 compared 26 billion march 31 2016 march 31 2017 approximately 18 billion borrowing capacity available secured revolving bank credit facility amounts available receivables facility march 31 2017 totaled 826 million addition combined available borrowing capacity 12 billion finnvera ksure dd secured equipment credit facilities march 31 2017 however utilization facilities dependent upon amount timing networkrelated purchases applicable suppliers well period time remaining complete borrowings available facility offer two device financing programs allow subscribers forgo traditional service contracts pay less upfront devices exchange lower monthly service fees early upgrade options majority revenue associated installment sales program recognized time sale along related cost products lease revenue associated leasing program recorded monthly term lease cost device depreciated estimated residual value generally lease term creates positive impact wireless segment earnings mix leased devices continues increase expect positive impact financial results wireless segment earnings continue depreciation expense increase installment billing leasing programs continue require greater use operating cash flows earlier part contracts subscriber generally pay less upfront traditional subsidy program financing device receivables facility relationship mls established mechanisms mitigate use cash purchasing devices oems fulfill installment billing leasing programs meet liquidity requirements look variety sources addition existing cash equivalents shortterm investments cash generated operating activities raise funds necessary external sources rely ability issue debt equity securities ability access forms financing including debt financing secured assets proceeds sale certain accounts receivable future lease receivables proceeds future saleleaseback transactions spectrum equipment borrowing capacity available credit facilities support short longterm liquidity requirements believe existing available liquidity cash flows operations sufficient meet funding requirements next twelve months including debt service requirements significant future contractual obligations maintain adequate amount available liquidity execute current business plan includes among things network deployment maintenance subscriber growth data usage capacity needs expected achievement cost structure intended improve profitability meet longterm debt service requirements significant future contractual obligations need continue raise additional funds external sources possible future financing sources include among others additional receivables financing transactions raising additional funds spectrumbacked notes addition pursuing extended payment terms increased facilities certain vendors unable obtain external funding execute cost reduction initiatives successful attracting valuable subscribers postpaid handset subscribers operations would adversely affected may lead defaults certain borrowings depending amount difference actual results versus currently expect may make difficult us generate sufficient earnings interest taxes depreciation amortization nonrecurring items adjusted ebitda remain compliance financial covenants able meet debt service obligations could result acceleration indebtedness adversely impact ability raise additional funding sources described events occur may engage lenders obtain appropriate waivers amendments credit facilities refinance borrowings seek funding external sources although assurance would successful actions default certain borrowings could trigger defaults certain financing obligations turn could result maturities accelerated certain indentures agreements governing financing obligations require compliance various covenants including covenants limit companys ability sell certain assets limit company subsidiaries ability incur indebtedness liens require maintain certain financial ratios defined terms indentures related supplemental indentures agreements determining expectation future funding needs next twelve months beyond made several assumptions regarding • projected revenues expenses relating operations including related installment billing leasing programs along success initiatives expectations achieving competitive cost structure cost reduction initiatives increasing postpaid handset subscriber base • cash needs related installment billing leasing programs • availability receivables facility terminates november 2018 • availability secured revolving bank credit facility expires february 2021 less outstanding letters credit • remaining availability approximately 12 billion secured equipment credit facilities eligible capital expenditures corresponding principal interest fee payments • scheduled principal payments debt credit facilities financing obligations including approximately 213 billion coming due next five fiscal years • raising additional funds external sources • expected use cash equivalents nearterm • anticipated levels timing capital expenditures including assumptions regarding lower unit costs network capacity additions upgrades deployment new technologies networks fcc license acquisitions purchases leased devices indirect dealers • additional contributions may make pension plan • estimated residual values devices related device lease program • finalization tender offers expect close june 2017 purchase cash aggregate principal amount 17 billion 9000 guaranteed notes due 2018 8375 notes due 2017 • future contractual obligations general corporate expenditures ability fund needs external sources ultimately affected overall capacity financing terms available banking securities markets availability financing alternatives well performance credit ratings given recent financial performance well volatility markets continue monitor closely take steps maintain financial flexibility reasonable cost capital outlooks credit ratings moodys investor service standard poors ratings services fitch ratings certain sprint corporations outstanding obligations future contractual obligations following table sets forth current estimates amounts timing contractual payments march 31 2017 future events including additional issuances debt securities refinancing debt securities could cause actual payments differ significantly amounts see item 1a risk factors 1 includes outstanding principal estimated interest payments interest payments based managements expectations future interest rates case variable rate debt 2 represents payments including estimated interest financing obligations related network equipment saleleaseback handset saleleaseback tranche 2 saleleaseback multiple tower sites capital leases debt obligations 3 includes future lease payments related cell switch sites real estate network equipment office space 4 includes future spectrum lease payments well service credits related commitments provide services certain lessors reimburse lessors certain capital equipment thirdparty service expenditures term lease 5 includes service spectrum network equipment devices asset retirement obligations executory contracts excludes blanket purchase orders amount 68 million see discussion purchase orders commitments include minimum purchases commit purchase suppliers time andor unconditional purchase obligations guarantee make minimum payment suppliers goods services regardless whether take delivery amounts represent entire anticipated purchases future generally represent estimate items committed estimates based assumptions variable components contracts hours contracted number subscribers pricing factors addition party various arrangements conditional nature create obligation make payments upon occurrence certain events delivery functioning software products possible predict timing amounts may due conditional arrangements amounts included table also excludes approximately 68 million blanket purchase order amounts since agreement terms specified time frame set purchase orders legally binding result firm commitments liability uncertain tax positions 190 million march 31 2017 due inherent uncertainty timing resolution underlying tax positions practicable assign liability particular years table also excludes amounts due derivative agreements offbalance sheet financing march 31 2017 participate secure financings unconsolidated special purpose entities critical accounting policies estimates sprint applies accounting policies management believes best reflect underlying business economic events consistent us gaap sprints critical accounting policies include estimated economic lives residual values property plant equipment valuation recoverability longlived assets evaluation goodwill indefinitelived assets impairment inherent policies certain key assumptions estimates made management regularly updates estimates used preparation financial statements based latest assessment current projected business general economic environment sprints significant accounting policies estimates summarized notes consolidated financial statements depreciation property plant equipment balance represents significant component consolidated assets record property plant equipment cost generally depreciate straightline basis estimated useful life assets expect oneyear increase estimated useful lives property plant equipment exclusive leased devices would result decrease fiscal year 2017 depreciation expense 850 million oneyear decrease would result increase 14 billion fiscal year 2017 depreciation expense leased devices accounting device leases involves specific determinations applicable lease accounting standards determinations affect timing revenue recognition timing classification related cost device lease classified operating lease revenue recognized ratably lease term leased asset included property plant equipment depreciated estimated residual value generally lease term lease classified salestype lease equipment revenue recognized inception lease corresponding charge cost product lease classified directfinancing lease related revenue cost products recorded net investment leased asset reported critical elements consider determining classification leased devices economic life fair value device including estimated residual value purposes assessing economic life device consider internal external datasets including limited length time subscribers use devices sales trends post launch transactions secondary market currently significant aftermarket used telecommunication devices lease inception devices classified operating leases reclassified inventory property plant equipment leased sprints direct channels devices leased indirect channels classified operating leases purchase devices lease inception dealer capitalized property plant equipment residual values associated devices operating leases represent estimated fair value end lease term review residual values regularly appropriate adjust based among things estimates expected market conditions end lease including impacts future product launches adjustments residual values leased devices recognized revision depreciation estimates estimate 10 increase decrease estimated residual values devices operating leases march 31 2017 would material effect depreciation expense next twelve months march 31 2017 effects changes estimated residual value devices currently operating leases immaterial valuation recoverability longlived assets longlived assets reviewed impairment whenever events changes circumstances indicate carrying amount may recoverable impairment loss recognized carrying amount longlived asset group recoverable exceeds fair value longlived asset groups determined based upon certain factors including assessing lowest level identifiable cash flows largely independent cash flows groups assets liabilities impairment analyses performed based current business technology strategy views growth rates business anticipated future economic regulatory conditions expected technological availability years ended march 31 2017 2016 impairments recorded year ended march 31 2015 recorded impairment loss 233 million included impairments consolidated statements operations reduce carrying value wireline asset group includes wireline longlived assets estimated fair value testing date fair value wireline longlived assets estimated using market approach included significant unobservable inputs including liquidation curves useful life assumptions scrap values assumptions largely unobservable estimate fair value considered unobservable within fair value hierarchy determination fair value requires considerable judgment highly sensitive changes underlying assumptions believe judgments assumptions reasonable changes future periods may impact assumptions lead additional future impairments evaluation goodwill indefinitelived intangible assets impairment result softbank merger july 2013 recognized indefinitelived assets acquisitiondate estimates fair value including fcc licenses goodwill trade names indefinitelived assets including goodwill allocated wireless segment march 31 2017 carrying values assets 366 billion 66 billion 40 billion respectively sprint evaluates carrying value indefinitelived assets including goodwill least annually frequently whenever events changes circumstances indicate asset may impaired case goodwill fair value reporting unit carrying amount quarterended march 31 2017 company completed annual impairment testing goodwill sprint boost mobile trade names spectrum licenses using qualitative evaluation results qualitative evaluation determine whether necessary perform quantitative test likely asset may impaired case goodwill fair value reporting unit less carrying amount would required perform quantitative test result testing current period determined likely fair value indefinitelived intangible assets less carrying values performing annual goodwill impairment test year ended march 31 2016 estimated fair value wireless reporting unit using incomebased marketbased assetbased valuation models determination fair value reporting unit requires significant estimates assumptions including significant unobservable inputs key inputs included limited discount rates terminal growth rates control premiums market multiple data selected guideline public companies management’s internal forecasts include numerous assumptions share industry gross additions churn mix plans rate changes operating capital expenditures ebitda margins among others changes certain assumptions management’s failure execute current plan could significant impact estimated fair value wireless reporting unit incomebased approach note fair value cushion excess 10 carrying value regards annual impairment test year ended march 31 2016 estimated fair value sprint boost mobile trade names assigned wireless segment using relieffromroyalty method uses several significant assumptions including management projections future revenue royalty rate longterm growth rate discount rate assumptions largely unobservable estimate fair value considered unobservable within fair value hierarchy changes certain assumptions significant effect estimated fair value sprint boost mobile trade names note 5 decrease revenue across longterm plans would resulted impairment regards annual impairment test year ended march 31 2016 additionally company seen significant market pressures recent periods contributed loss boost mobile subscribers fiscal year ended march 31 2017 boost mobile trade name may subject future impairments company continues incur boost mobile subscriber losses unable meet future revenue projections future revenue projections markedly lower prospective periods assurance future revenue projections sufficient avoid future impairments year ended march 31 2015 determined recoverability carrying amount goodwill sprint trade name evaluated impairment determined carrying value sprint trade name exceeded estimated fair value 33 billion accordingly year ended march 31 2015 recorded impairment loss 19 billion included impairments consolidated statements operations determination fair value requires considerable judgment highly sensitive changes underlying assumptions execution management’s plan consequently assurance estimates assumptions made purposes goodwill spectrum trade name impairment tests prove accurate prediction future sustained declines company’s operating results number wireless subscribers future forecasted cash flows growth rates assumptions well significant sustained declines company’s stock price related market capitalization could impact underlying key assumptions estimated fair values potentially leading future material impairment goodwill indefinitelived intangible assets new accounting pronouncements see note 2 summary significant accounting policies information notes consolidated financial statements item 8 part ii annual report form 10k full description new accounting pronouncements including expected dates adoption estimated effects financial condition results operations hereby incorporated reference financial strategies general risk management policies board directors adopted financial risk management policy authorizes us enter derivative transactions comply policy purchase hold derivative financial instruments speculative purposes exception equity rights obtained connection commercial agreements strategic investments usually form warrants purchase common shares derivative instruments primarily used hedging risk management purposes hedging activities may done various purposes including limited mitigating risks associated asset liability committed transaction probable forecasted transaction seek minimize counterparty credit risk credit approval review processes credit support agreements continual review monitoring counterparties thorough legal review contracts exposure market risk controlled regularly monitoring changes hedge positions normal stress conditions ensure exceed established limits information routinely post important information website wwwsprintcominvestors information contained accessible website part annual report forwardlooking statements include certain estimates projections forwardlooking statements annual quarterly current reports publicly available material statements regarding expectations including performance assumptions estimates relating capital requirements well statements historical facts forwardlooking statements reflect managements judgments based currently available information involve number risks uncertainties could cause actual results differ materially forwardlooking statements respect forwardlooking statements management made assumptions regarding among things subscriber network usage subscriber growth retention technologies products services pricing operating costs timing various events economic regulatory environment future performance cannot assured actual results may differ materially forwardlooking statements factors could cause actual results differ include • ability obtain additional financing including monetizing certain assets including existing future programs monetize portion network spectrum holdings modify terms existing financing terms acceptable us • ability continue receive expected benefits existing financings receivable financings • ability retain attract subscribers manage credit risks associated subscribers • ability competitors offer products services lower prices due lower cost structures otherwise • effective implementation plans improve quality network including timing execution technologies costs performance network • failure improve subscriber churn bad debt expense accelerated cash use costs writeoffs including respect changes expected residual values related service plans including installment billing leasing programs • ability generate sufficient cash flow fully implement plans improve enhance quality network service plans improve operating margins implement business strategies provide competitive new technologies • effects vigorous competition highly penetrated market including impact competition prices able charge subscribers services devices provide geographic areas served network • impact installment sales leasing handsets impact increased purchase commitments overall demand service plans including impact decisions new existing subscribers service offerings impact new emerging competing technologies business • ability provide desired mix integrated services subscribers • ability continue access spectrum acquire additional spectrum capacity • changes available technology effects changes including product substitutions deployment costs performance • volatility trading price common stock current economic conditions ability access capital including debt equity • impact various parties meeting business requirements including significant adverse change ability willingness parties provide service products including distribution infrastructure equipment network • costs business risks associated providing new services entering new geographic markets • effects future merger acquisition involving us well effect mergers acquisitions consolidations new entrants communications industry unexpected announcements developments others industry • ability comply restrictions imposed us government condition merger softbank • effects material impairment goodwill indefinitelived intangible assets • impacts new accounting standards changes existing standards fasb regulatory agencies issue including sec • unexpected results litigation filed us suppliers vendors • costs potential customer impact compliance regulatory mandates including limited compliance fccs report order reconfigure 800 mhz band government regulation regarding net neutrality • equipment failure natural disasters terrorist acts breaches network information technology security • one markets compete impacted changes political economic factors monetary policy legal regulatory changes external factors control • impact controlled company exempt many corporate governance requirements nyse • risks referenced time report filings sec words may could estimate project forecast intend expect anticipate believe target plan similar expressions intended identify forwardlooking statements forwardlooking statements found throughout managements discussion analysis financial condition results operations elsewhere report readers cautioned factors although listed could also materially affect future performance operating results reader place undue reliance forwardlooking statements speak date report obligated publicly release revisions forwardlooking statements reflect events date report including unforeseen events item 7a item 7 management’s discussion analysis financial condition results operations forwardlooking information sprint includes certain estimates projections forwardlooking statements reports publicly available material statements regarding expectations including performance assumptions estimates relating capital requirements well statements historical facts forwardlooking statements reflect management’s judgements based currently available information involve number risks uncertainties could cause actual results differ materially forwardlooking statements respect forwardlooking statements management made assumptions regarding among things customer network usage customer growth retention pricing operating costs economic environment future performance cannot ensured actual results may differ materially forwardlooking statements factors could cause actual results differ include • uncertainties related impact proposed merger nextel contemplated spinoff local telecommunications business • effects vigorous competition overall demand sprint’s service offerings markets sprint operates • costs business risks associated providing new services entering new markets • adverse change ratings afforded debt securities ratings agencies • ability wireless continue grow improve profitability • ability local long distance achieve expected revenues • effects mergers consolidations telecommunications industry unexpected announcements developments others telecommunications industry • uncertainties related bankruptcies affecting telecommunications industry • uncertainties related sprint’s investments networks systems businesses • uncertainties related implementation sprint’s business strategies including initiative realign services enhance focus business individual consumers • impact new emerging competing technologies sprint’s business • unexpected results litigation filed sprint • risk equipment failure natural disasters terrorist acts breaches network information technology security • risk third parties unable perform requirements agreements related business operations • possibility one markets sprint competes impacted changes political factors monetary policy legal regulatory changes external factors sprint control • risks referenced time sprint’s filings securities exchange commission sec words “estimate” “project” “forecast” “intend” “expect” “believe” “target” “providing guidance” similar expressions intended identify forwardlooking statements forwardlooking statements found throughout management’s discussion analysis reader place undue reliance forwardlooking statements speak date report sprint obligated publicly release revisions forwardlooking statements reflect events date report unforeseen events sprint provides detailed discussion risk factors various sec filings encouraged review filings overview business sprint global communications company offering extensive range innovative communication products solutions including wireless long distance voice data transport global internet protocol ip local multiproduct bundles sprint fortune 100 company widely recognized developing engineering deploying stateoftheart technologies sprint operates 100 digital personal communications service pcs wireless network licenses provide service entire united states population including puerto rico us virgin islands using single frequency band single technology sprint together third party affiliates operates pcs wireless systems 350 metropolitan markets including 100 largest us metropolitan areas sprint’s wireless service including third party affiliates reaches quarter billion people combined wholesale partners sprint pcs affiliates served total 247 million wireless subscribers end 2004 sprint currently serves approximately 77 million access lines franchise territories 18 states sprint selling cable telephony market arrangements cable companies resell sprint long distance service andor use sprint back office systems network assets support local telephone service provided cable facilities sprint one largest carriers internet traffic provides connectivity point internet either network via direct connections backbone providers 2003 sprint sold directory publishing business rh donnelley 223 billion cash elimination tracking stocks april 23 2004 sprint recombined two tracking stocks share pcs common stock automatically converted 05 shares fon common stock april 23 2004 fon group pcs group longer exist fon common stock represents operations assets sprint including wireless local long distance proposed merger contemplated spinoff december 2004 boards directors sprint corporation nextel communications inc nextel unanimously approved strategic merger combining sprint nextel intend “merger equals” proposed merger completed sprint change name sprint nextel corporation sprint nextel common stock quoted new york stock exchange existing shares sprint common stock remain outstanding sprint nextel common stock sprint acquiring entity legal accounting purposes terms merger agreement closing share nextel class common stock nextel class b common stock converted shares sprint nextel common stock sprint nextel nonvoting common stock respectively well small per share amount cash total value expected equal 13 shares sprint nextel common stock nextel zerocoupon convertible redeemable preferred stock converted sprint nextel zerocoupon convertible redeemable preferred stock proposed merger subject shareholder approval well various regulatory approvals subject customary closing conditions expected completed second half 2005 sprint nextel intend spinoff sprint’s local telecommunications business proposed merger completed order facilitate spinoff taxfree basis exact allocation cash shares sprint nextel common stock nextel common stockholders receive proposed merger adjusted time merger completed aggregate cash portion merger consideration capped 28 billion statements contained annual report relating business strategies operating plans planned expenditures expected capital requirements future dividend payments forwardlooking statements regarding business take account potential future impacts proposed merger nextel contemplated spinoff local telecommunications business environment sprint’s operations divided three lines business wireless local long distance operations 2003 fourth quarter sprint undertook initiative realign internal resources organizational realignment effort implemented enhance focus needs preferences two distinct consumer types businesses individuals effort enabling sprint effectively efficiently use portfolio assets create customerfocused communications solutions sprint continues measure results using current business segmentation taking consideration realigned customerfocused approach 2004 organizational realignment resulted could continue result decisions requiring restructuring charges asset impairments see note 7 notes consolidated financial statements information relating activities sprint operates industry continues subject consolidation dynamic change therefore sprint routinely reassesses business strategies due changes telecommunications including bankruptcies overcapacity highly competitive pricing environment telecommunications sectors sprint taken actions appropriately allocate capital resources enable sustaining cash contribution sprint routinely assesses implications actions operations assessments may continue impact future valuation longlived assets part overall business strategy sprint regularly evaluates opportunities expand complement business may time discussing negotiating transaction consummated could material effect business financial condition liquidity results operations february 2005 sprint reached definitive agreement global signal inc global signal global signal exclusive rights lease operate 6600 communication towers owned sprint negotiated lease term greater remaining terms underlying ground leases 32 years assuming successful renegotiation underlying ground leases end current lease terms sprint committed sublease space approximately 6400 towers global signal minimum ten years sprint maintain ownership towers continue reflect towers consolidated balance sheet results operations management overview 2004 sprint executed plan created positive momentum moving 2005 period continuing dynamic change telecommunications industry highlights key successes themes shaped year include • beginning year reorganized marketing sales support teams focus specific needs two types consumersbusinesses individuals • recombined tracking stocks 2004 second quarter aligned capital structure integrated asset portfolio reflects transition product focused organization structure driven customer needs • increased revenues 5 compared 2003 primarily growth wireless revenues steady performance local offset decline long distance yearend 2004 approximately 65 percent revenue came wireless internet data services dsl underscores importance balanced mix assets even long distance local continued feel pressure technology substitution usage trends competition results growth sectors like wireless data dsl helped offset impacts bottom line • improved customer experience wireless instituted “sprint pcs fair flexiblesm” pricing better wireless guarantee subscribers enjoying advanced features options shown growth data local successful bundled offerings yearend 70 percent households subscribed least one strategic product • exceeded debt reduction targets 2004 reduced debt 20 billion ended year 21 billion additional cash equivalents • december announced proposed “merger equals” nextel contemplated spinoff local telecommunications business year faced challenges well situations made difficult decisions took action sustain momentum • spent significant resources restoring service normalcy areas impacted hurricanes southeast region united states • industrywide business conditions long distance industry including highlycompetitive market pricing negative regulatory climate triggered reevaluation strategy financial forecasts determined writedown long distance network 352 billion required recorded impairment value 2004 third quarter phrase believe describes sprint 2004 “focused execution” consolidated net operating revenues increased 47 2004 reflecting growth wireless revenues partially offset declining long distance local revenues sprint’s income loss continuing operations 2004 2003 2002 includes aftertax impacts items discussed 2004 sprint recorded net restructuring asset impairment charges 23 billion related impairment sprint’s long distance property plant equipment severance costs associated sprint’s organizational realignment web hosting winddown activities also included 2004 44 million charge related early retirement senior notes equity unit notes charges consist premiums paid recognition deferred debt costs charges partially offset benefit 9 million resulting receipt final payments bankruptcy settlement mci 2003 sprint recorded net restructuring charges asset impairments 12 billion charges associated writedown due decline fair value multipoint multichannel distribution services spectrum called broadband radio services brs asset impairment charges facilities severance charges associated termination web hosting business impairment charges associated termination development new billing platform impairment charges associated termination software development projects severance costs associated sprint’s transformation customerfocused organizational design offset finalization 2001 2002 restructuring liabilities also included 2003 22 million charge connection separation agreements three former executive officers 13 million charge mainly reflecting premiums paid debt tender offer early retirement local debt 9 million charge settle securities class action derivative lawsuit relating failed merger worldcom mci charges partially offset 49 million tax benefit recognition certain income tax credits relating various taxing jurisdictions adjustments state tax apportionments 31 million settlement accounts receivable claims mci previously fully reserved 2002 sprint recorded restructuring charges asset impairments 154 million representing consolidations sprint’s network information technology billing accounts receivable organizations impairment network asset abandoned network project costs additional steps reduce overall operating costs also included 2002 expected loss receivables due bankruptcy declaration worldcom mci 23 million net restructuring asset impairment charge 76 million gain sale wireless’ investment pegaso telecomunicaciones sa de cv pegaso 67 million gain sale customer contracts 25 million writedown investment due declining market value 241 million tax benefit related capital losses previously recognizable 292 million critical accounting policies fundamental objective financial reporting provide useful information allows reader comprehend business activities sprint aid understanding management identified sprint’s “critical accounting policies” policies considered “critical” potential material impact sprint’s financial statements require judgements estimation due uncertainty involved measuring specific point time events continuous nature • longlived asset recoverya significant portion sprint’s total assets longlived assets consisting primarily property plant equipment “ppe” definite life intangibles well goodwill indefinite life intangibles changes technology sprint’s intended use assets well changes broad economic industry factors may cause estimated period use value assets change depreciable lives assets sprint performs annual internal studies confirm appropriateness depreciable lives category ppe studies utilize models take account actual usage physical wear tear replacement history assumptions technology evolution use certain instances actuariallydetermined probabilities calculate remaining life asset base sprint believes accounting estimate related establishment asset depreciable lives “critical accounting estimate” 1 requires sprint management make assumptions technology evolution competitive uses assets 2 impact changes assumptions could material financial position well results operations management’s assumptions technology future development require significant judgement timing impacts technology advances difficult predict actual experience varied previous assumptions could continue sprint’s studies resulted depreciable rate 5 higher lower used preparation sprint’s consolidated financial statements recorded depreciation expense would impacted approximately 249 million property plant equipment definite life intangibles impairment ppe definite life intangibles evaluated impairment whenever indicators impairment exist accounting standards require impairment indicator present sprint must assess whether carrying amount asset unrecoverable estimating sum future cash flows expected result asset undiscounted without interest charges carrying amount recoverable amount impairment charge must recognized based fair value asset sprint believes accounting estimate related asset impairment “critical accounting estimate” 1 requires sprint management make assumptions future revenues costs sales life asset 2 judgement involved determining occurrence “triggering event” 3 impact recognizing impairment would financial position well results operations could material management’s assumptions future revenues require significant judgement actual revenues fluctuated past may continue estimating future revenues use internal business forecasts develop forecasts based recent revenue data existing products services planned timing new products services industry economic factors indicators present sprint tests impairment resulted total ppe impairments 354 billion 652 million 198 million 2004 2003 2002 respectively 2004 sprint recorded 352 billion related impairment long distance network assets 21 million related writedown wholesale dial ip assets prior sale business october 2004 impairments represent 54 long distance’s net ppe 13 consolidated net ppe december 31 2003 sprint recorded 303 million associated termination web hosting business 349 million associated terminated development new billing platform software development project impairments represent two percent december 31 2002 consolidated net ppe 2002 sprint recorded 156 million network asset impairments 42 million abandoned network projects impairments represent less one percent december 31 2001 consolidated net ppe goodwill indefinite life intangibles goodwill indefinite life intangibles reviewed least annually impairment frequently indicators impairment exist goodwill tested comparing net book value reporting unit identified sprint’s operating segments fair value reporting unit indefinite life intangibles tested comparing book value estimated fair value asset sprint believes accounting estimate related goodwill indefinite life intangibles “critical accounting estimate” 1 requires sprint management make assumptions fair values 2 judgement involved determining occurrence “triggering event” 3 impact recognizing impairment could material financial position well results operations management’s assumptions fair values require significant judgement broad economic factors industry factors technology considerations result variable volatile fair values management completed impairment analyses goodwill indefinite life intangibles 2004 fourth quarter tests performed internally december 31 2004 impairments existed 2003 third quarter sprint decided end pursuit residential fixed wireless strategy using brs spectrum decision required impairment analysis asset decline fair value brs drove long distance record pretax noncash charge 12 billion reduced carrying value 300 million sprint continues focus efforts broad range alternative strategies sprint continuing invest spectrum monitoring technology industry developments involved efforts achieve favorable regulatory rulings respect spectrum • employee benefit plan assumptionsretirement benefits significant cost business sprint yet represent obligations settled far future retirement benefit accounting intended reflect recognition future benefit costs employee’s expected tenure sprint based terms plans investment funding decisions made sprint accounting requires management make assumptions regarding variables return assets discount rate future health care costs changes key assumptions significant impact projected benefit obligation periodic benefit cost incurred sprint believes accounting estimate related retirement benefit accounting “critical accounting estimate” 1 requires sprint management make assumptions discount rates future health care costs future return assets funding obligation 2 impact changes actual performance versus estimates would projected benefit obligation reported balance sheet benefit cost could material determining pension obligations assumptions required concerning market performance market performance fluctuated recent past could continued volatility future selecting assumptions sprint uses historical experience well objective indices benchmarks tests benchmarks historical industry data assumptions provided independent actuary increase discount rate would reduce reported projected benefit obligation contrast discount rate 2004 used determining projected benefit obligation 25 basis points lower would generate 176 million increase projected benefit obligation reported balance sheet 39 million increase benefit costs similarly expected return assets assumption 25 basis points lower would generate 9 million increase current year benefit costs assumption used calculation pension projected benefit obligation determining postretirement medical life insurance benefit obligations assumptions made concerning cost health care onepercentage point increase assumed medical inflation rate would generate 84 million increase accumulated postretirement benefit obligation reported balance sheet 5 million increase benefit costs increase discount rate would reduce reported accumulated postretirement benefit obligation contrast discount rate 2004 used determining accumulated postretirement benefit obligation 25 basis points lower would generate 13 million increase reported yearend 2004 obligation immaterial impact benefit costs • tax valuation allowancessprint required estimate amount tax payable refundable current year deferred income tax liabilities assets future tax consequences events reflected financial statements tax returns taxing jurisdiction operates process requires sprint’s management make assessments regarding timing probability ultimate tax impact sprint records valuation allowances deferred tax assets reflect expected realizable future tax benefits actual income taxes could vary estimates due future changes income tax law proposed spinoff local significant changes jurisdictions sprint operates sprint’s inability generate sufficient future taxable income unpredicted results final determination year’s liability taxing authorities changes significant impact financial position sprint believes accounting estimate related establishing tax valuation allowances “critical accounting estimate” 1 requires sprint management make assessments timing future events including probability expected future taxable income available tax planning opportunities 2 impact changes actual performance versus estimates could realization tax benefit reported results operations could material management’s assumptions require significant judgement actual performance fluctuated past may continue sprint currently carries income tax valuation allowance 670 million books amount includes valuation allowance total tax benefits related net operating loss carryforwards subject utilization restrictions acquired connection certain acquisitions remainder valuation allowance relates primarily state net operating loss tax credit carryforwards assumption changes result reduction expected benefits realization state net operating loss tax credit carryforwards 10 would increase valuation allowance 36 million • revenue recognition policiessprint recognizes operating revenues services rendered products delivered customers accordance sec staff accounting bulletin 104 revenue recognition connection recording revenue estimates assumptions required determining expected conversion revenue streams cash collected revenue estimation process requires management make assumptions based historical results future expectations economic competitive environment changes credit worthiness customers relevant factors changes key assumptions significant impact projection cash collected periodic revenue stream recognized sprint believes accounting estimates related establishment revenue receivable reserves associated provisions results operations “critical accounting estimate” 1 requires sprint management make assumptions future billing adjustments disputes customers unauthorized usage future returns asset sales future access adjustments disputes competitive local exchange carriers interexchange carriers well future economic viability customer base 2 impact changes actual performance versus estimates would accounts receivable reported balance sheet results reported statements operations could material selecting assumptions sprint uses historical trending writeoffs industry norms regulatory decisions recognition current market indicators general economic conditions might impact collectibility accounts 2004 revenue reserve estimates increased 100 basis points bps would represent reduction net operating revenues approximately 11 million wireless less 1 million local approximately 10 million long distance 2004 accounts receivable reserve estimates increased 100 bps would represent increase bad debt expense approximately 15 million wireless 4 million local 10 million long distance management believes reserve estimate selected instance represents best estimate future outcomes actual outcomes could differ estimate selected segmental results operations wireless operates 100 digital pcs wireless network licenses provide service entire united states population including puerto rico us virgin islands using single frequency band single technology wireless together third party affiliates operates pcs systems 350 metropolitan markets including 100 largest us metropolitan areas reaches quarter billion people combined wholesale partners sprint pcs affiliates wireless served 247 million subscribers end 2004 wireless provides nationwide service combination • operating digital network major us metropolitan areas using code division multiple access cdma digital spreadspectrum wireless technology allows large number users access single frequency band assigning code voice data bits sending scrambled transmission encoded bits air reassembling voice data original format • affiliating commercial arrangements companies use cdma mainly around smaller us metropolitan areas • roaming providers’ analog cellular networks using multimode multiband handsets • roaming providers’ digital networks use cdma wireless subscribers use phones roaming agreements countries united states including areas • asia pacific including china guam hong kong taiwan thailand new zealand • canada mexico • central south america including argentina bolivia chile ecuador guatemala paraguay peru uruguay venezuela • major caribbean islands sprint’s third generation 3g capability allows efficient utilization network voice calls made using 3genabled handsets also provides enhanced data services service marketed “sprint pcs visionsm” allows consumer business customers use visionenabled pcs devices exchange instant messages exchange personal corporate email send receive pictures play games fullcolor graphics polyphonic sounds browse internet wirelessly speeds 144 kbps average speeds 50 70 kbps sprint continuing execute plans faster wireless data speeds deploying evolution data optimized evdo technology across sprint nationwide pcs network average users speed 300500 kilobits per second peak rates 24 megabits per second downloads evdo provide mobiledevice data speeds 10 times faster current network addition technology expected deliver superior application service performance evdocapable handsets laptops equipped evdoenabled sprint pcs connection cards™ sprint targeting first commercial rollout evdo 2005 second quarter subsequent rollouts throughout 2006 additional traffic volumes related evdo may require future capital expenditures wireless supplements network commercial affiliation arrangements companies use cdma arrangements companies offer wireless services sprint’s brand cdma networks built operated expense call companies sprint pcs affiliates generally sprint pcs affiliates use spectrum owned controlled sprint amended existing agreements majority sprint pcs affiliates provide simplified pricing mechanism well refining changing various business processes amended agreements cover approximately 80 subscribers served sprint pcs affiliates agreements provide simplified predictable longterm pricing fees charged sprint pcs affiliates interarea service addition agreements settled significant outstanding disputes affiliates one sprint pcs affiliate agreed amend existing agreement us filed suit us affiliate sprint pcs affiliates disputing refusing pay amounts owed sprint reserves established expected provide ultimate resolution disputes wireless may incur additional expenses ensure service available subscribers areas served sprint pcs affiliates sprint pcs affiliates cease operations wireless may incur roaming charges areas service previously provided sprint pcs affiliates costs meet fcc buildout renewal requirements well experience lower revenues sprint subject exclusivity provisions restrictions arrangements sprint pcs affiliates proposed merger completed continued compliance restrictions may limit ability fully integrate operations sprint nextel areas managed sprint pcs affiliates sprint nextel could incur significant costs resolve issues related proposed merger arrangements currently working sprint pcs affiliates modify arrangements proposed merger sprint nextel mutually beneficial wireless also provides wireless services companies resell wireless services customers retail basis brand using sprint nationwide pcs network companies bear costs acquisition billing customer service 2002 virgin mobile usa llc joint venture sprint virgin group launched services targeting youth prepay segments sprint also multiyear exclusive wholesale agreement qwest communications qwest whereby qwest wireless subscribers use sprint’s national pcs network access sprint pcs vision data services qwest began adding new subscribers agreement 2004 first quarter 2004 second quarter existing qwest subscribers began transitioning sprint’s nationwide pcs network transition expected substantively complete 2005 first quarter wireless industry typically generates higher number subscriber additions handset sales fourth quarter year compared quarters due use retail distribution impacted holiday shopping season timing new products service introductions aggressive marketing sales promotions 2004 wireless reported 15 increase net operating revenues 918 million improvement operating income 12 increase direct subscribers 2005 sprint expects continue grow wireless subscriber base enhancing subscriber experience simplified offerings improved accessibility enhanced network clarity quality subscriber care competitive pressure price expected continue expected partially offset increased revenues services subscribers elect add base plan including sprint pcs vision services sprint leader wireless data 40 direct wireless base subscribing data services continue evaluate next generation wireless high speed data network options ensure maintain leadership position well support integration strategies net operating revenues wireless 19 million direct net subscriber additions 2004 including 91000 subscribers acquired sprint pcs affiliate wireless ended year 178 million direct subscribers wholesale partners added 21 million subscribers 2004 increasing subscriber base 37 million 16 million 2003 principally driven virgin mobile usa qwest sprint pcs affiliates added 374000 subscribers 2004 ending period 32 million subscribers brings total number subscribers served wireless sprint pcs affiliate networks including direct sprint pcs affiliates wholesale subscribers 247 million 2004 yearend total number subscribers yearend 2004 reflects approximate 90 thousand reduction previously disclosed number due 67 thousand overstatement direct subscribers 23 thousand overstatement sprint pcs affiliate subscribers subscriber counts reflect activated wireless handsets devices excluding activated demonstration testing purposes result internal analysis sprint recently concluded previouslyreported subscriber counts inadvertently included limited number devices used demonstration testing purposes error occurred several years additional process controls established prevent reoccurrence situation amount error material previouslydisclosed information error corrected adjusting number yearend 2004 subscribers wireless 11 million direct net additions 2003 wholesale partners added 12 million subscribers 2003 increased subscriber base 16 million 415000 end 2002 principally driven virgin mobile usa sprint pcs affiliates added 297000 subscribers 2003 ending period 29 million subscribers bringing total number subscribers served wireless sprint pcs affiliate networks including direct affiliate wholesale subscribers 204 million end 2003 subscriber churn calculated direct subscriber base computed dividing direct subscribers discontinued pcs service weighted average direct subscribers period operational measure used wireless companies method estimating life direct subscriber analysts investors primarily use churn compare relative value across wireless industry 2004 subscriber churn rate decreased 26 27 2003 slight decrease 2004 primarily due improved involuntary churn resulting improved subscriber payments collection activity subscriber churn rate decreased 33 27 2003 improvement primarily due reduction involuntary churn rate wireless benefited credit management policies initiated 2002 fourth quarter improvement partially offset slight increase voluntary churn due part institution wlnp fourth quarter 2003 average monthly service revenue per user arpu calculated direct subscriber base computed dividing direct wireless service revenues weighted average monthly direct wireless subscribers measure revenue per user basis measure uses gaap basis calculation arpu used wireless companies method valuing recurring subscriber revenue used analysts investors compare relative value across wireless industry net operating revenues include direct wireless service revenues direct subscriber base revenues sales handsets accessory equipment revenues wholesale partners sprint pcs affiliates service revenues consist monthly recurring charges usage charges miscellaneous fees directory assistance operatorassisted calling handset insurance late payment charges 2004 sprint saw increased pricing pressures lower overage charges usagebased plans offset increase number subscribers increased revenues data services subscriber elections add services base plans average monthly usage 2004 16 hours compared 13 hours 2003 end 2004 43 direct wireless base subscribing data services compared 35 end 2003 service revenues increased 12 2004 mainly reflecting increase number direct subscribers increased revenue data services subscriber elections add services base plans increases partially offset lower overage charges usagebased plans service revenues increased 5 2003 mainly reflecting increase number subscribers increased revenues data services increased fees increases partially offset lower overage charges higher usage service plans revenues sales handsets accessories including new subscribers upgrades approximately 103 net operating revenues 2004 90 2003 100 2002 2004 increase mainly due higher subscriber additions higher retail prices partially offset higher rebates 2003 declines mainly due higher rebates lower gross additions part wireless marketing plans handsets net rebates usually sold prices cost wholesale affiliate service revenues consist primarily net revenues retained wireless subscribers residing sprint pcs affiliate territories revenues sale wireless services companies resell services subscribers retail basis revenues represented 42 net operating revenues 2004 26 2003 18 2002 2004 2003 increases mainly reflect net additions wholesale sprint pcs affiliate bases cost services products costs services products mainly include handset accessory costs switch cell site expenses customer service costs networkrelated costs increased 15 2004 6 2003 increases primarily due network support larger subscriber base higher minutes use expanded market coverage increased handset costs increases somewhat offset decreases information technology expense handset equipment costs 39 total costs services products 2004 2003 2002 costs services products 484 net operating revenue 2004 485 2003 479 2002 selling general administrative expense selling general administrative sga expense mainly includes sales distribution marketing costs promote products services well salary benefit administrative costs sga expense increased 10 2004 compared decrease 9 2003 2004 increase reflects increase sales distribution costs primarily driven higher gross additions increase number direct retail stores marketing costs also contributed increase significant campaign launched reposition sprint pcs brand 2003 decrease primarily due decline bad debt expense due improved credit class mix leading lower writeoffs higher recovery decrease partially offset increases sales marketing costs due competitive market conditions expanded direct sales presence executive separation agreements sga expense 233 net operating revenues 2004 243 2003 280 2002 reserve bad debt requires management’s judgement based historical trending industry norms recognition current market indicators general economic conditions bad debt expense percentage net operating revenues 14 2004 23 2003 51 2002 reserve bad debt percent outstanding accounts receivable 68 2004 73 2003 94 2002 2004 improvements mainly reflect sales previously writtenoff subscriber receivables reductions reserves number portability churn occur anticipated 2003 improvements mainly driven credit management policies initiated 2002 fourth quarter resulting lower involuntary churn improved receivables aging depreciation amortization expense estimates assumptions used setting depreciable lives testing recoverability assumptions based internal studies use industry data lives recognition technological advancements understanding business strategy depreciation expense consists mainly depreciation network assets depreciation amortization expense increased 4 2004 9 2003 mainly reflecting depreciation network assets placed service 2003 2004 depreciation amortization expense 175 net operating revenues 2004 193 2003 186 2002 restructuring asset impairment 2004 wireless recorded 30 million restructuring charge related severance costs associated sprint’s organizational realignment 2003 wireless recorded asset impairments 349 million primarily related termination development new billing platform wireless also recorded restructuring charges 13 million severance costs associated sprint’s organizational realignment contractual obligations related termination development billing platform partially offset finalization 2001 2002 restructuring activities 2002 wireless recorded restructuring charges 96 million related consolidations sprint’s network information technology billing accounts receivable organizations well reductions create competitive cost structure reducing operating expenses additionally wireless recorded asset impairment 42 million representing abandoned network projects additional information see note 7 notes consolidated financial statements local consists mainly regulated incumbent local phone companies serving approximately 77 million access lines 18 states local provides local voice data services including digital subscriber line dsl customers within franchise territories access phone customers carriers local network nationwide long distance services customers located franchise territories sales telecommunications equipment services within specified calling areas residential business customers local provides wireless video services customers franchise territories agency relationships 2004 local produced strong growth broadband data customers dsl offerings turn drove strong growth data revenues 2004 local continued impacted developing competition product substitution resulting decline access lines switched access minutes use 2004 local recorded 40 million restructuring charge representing severance costs associated sprint’s organizational realignment local expects small revenue decline 2005 increases data revenue driven dsl growth expected offset revenue decreases driven continuing declines access lines net operating revenues net operating revenues decreased 2 2004 2003 decrease years due lower voice revenue declines equipment sales somewhat offset growth data revenue local ended 2004 77 million switched access lines decrease 29 prior year access lines decreased 22 2003 decreases 2004 2003 principally driven wireless substitution losses competitive local providers reduction access lines expected continue although sprint expects ongoing rate line loss less loss rates experienced major urban carriers voice revenues voice revenues consisting revenue local exchange services long distance revenue switched access revenue decreased 3 2004 2003 due decrease access lines additionally fccallowable cost recoveries associated local number portability recoveries cost pooling telephone numbers among carriers ceased 2004 declines partially offset wireless number portability recovery began 2004 2003 decline also impacted lower long distance minutes use partially offset demand network based services driven increases bundled offerings data revenues data revenues mainly derived dsl local data transport services special access data revenues increased 14 2004 2003 mainly result strong growth dsl services local ended 2004 492000 dsl lines service increase 62 compared yearend 2003 dsl lines service doubled 2003 revenues decreased 8 2004 7 2003 decreases driven decline equipment sales 34 2004 10 2003 decreases equipment sales result planned shift focus selling higher margin products reduction customer demand equipment costs services products costs services products include costs operate maintain local network costs equipment sales costs decreased 3 2004 flat 2003 2004 general expense controls lower costs associated equipment sales partially offset higher pension costs 30 million hurricanerelated expenses 2003 general expense controls lower costs associated long distance revenues offset higher pension costs services products 312 net operating revenues 2004 317 2003 311 2002 selling general administrative expense sga expense increased 3 2004 decreased 5 2003 2004 increase primarily driven higher pension costs stockbased compensation somewhat offset general cost controls 2003 decrease driven general cost controls lower bad debt expense partially offset executive separation agreements higher pension costs reserve bad debt requires management’s judgement based historical trending industry norms recognition current market indicators general economic conditions bad debt expense percentage net revenues 14 2004 09 2003 26 2002 reserve bad debt expense percent outstanding accounts receivable 94 2004 85 2003 139 2002 2003 local experienced continued improvement bad debt experience end user customers well recoveries previously written accounts principally mci sga expense 208 net operating revenues 2004 199 2003 205 2002 depreciation amortization expense estimates assumptions used setting depreciable lives testing recoverability assumptions based internal studies use industry data lives recognition technological advancements understanding business strategy depreciation amortization expense flat 2004 decreased 6 2003 decrease driven implementation sfas 143 accounting asset retirement obligations eliminated accrual removal cost depreciable rate well declines circuit switching depreciation rates due revised schedule converting digital packet network information implementation sfas 143 see note 6 notes consolidated financial statements depreciation amortization expense 180 net operating revenues 2004 176 2003 185 2002 restructuring asset impairment 2004 local recorded 40 million restructuring charge related severance costs associated sprint’s organizational realignment 2003 local recorded restructuring charges 24 million related severance costs associated sprint’s organizational realignment offset finalization 2001 2002 restructuring liabilities 2002 local recorded restructuring charges 56 million primarily related consolidations sprint’s network information technology billing accounts receivable organizations well additional steps reduce overall operating costs additional information see note 7 notes consolidated financial statements long distance long distance provides broad suite communications services targeted domestic business residential customers multinational corporations communications companies services include domestic international voice data communications using various protocols ip frame relay managed network services long distance selling cable telephony market arrangements cable companies resell sprint long distance service andor use sprint back office systems network assets support local telephone service provided cable facilities sprint determined business conditions events occurring 2004 impacting long distance operations constituted “triggering event” requiring evaluation recoverability long distance longlived assets pursuant sfas 144 accounting impairment disposal longlived assets sprint reevaluated strategy financial forecasts 2004 third quarter resulting 352 billion pretax noncash impairment charge long distance longlived assets additional information see note 7 notes consolidated financial statements long distance continued face significant challenges 2004 8 decline net operating revenues primarily driven decline voice revenues along pretax noncash long distance network asset impairment charge 352 billion resulted operating loss year throughout 2004 long distance focused providing solutions driving network convergence targeting growth opportunities 2004 long distance achieved doubledigit reduction selling general administrative expenses minimal increase costs services products 2004 sprint undertook initiatives expand offering cable network operators sprint expects revenues decline 2005 long distance continues impacted intense competitive pressures declines expected partially offset growing contributions wholesale business addition sprint expects transformation customercentric organization allow us realize competitive differentiation increase customers’ loyalty net operating revenues net operating revenues decreased 8 2004 11 2003 continuing pricing pressure termination large dial ip contract sale dial ip business primary reasons revenue decrease 2004 loss major wholesale customer large prepaid customer drove minute volume decline 3 2003 voice revenues voice revenues decreased 9 2004 13 2003 decreases result decline consumer voice revenue resulting wireless email instant messaging substitution aggressive competition rbocs consumer small business customers lower business voice pricing results 2003 also impacted loss single major wholesale customer voice revenues generated provision services wireless local represented 13 total voice revenues 2004 compared 12 2003 data revenues data revenues reflect sales currentgeneration data services including asynchronous transfer mode atm managed network services private line frame relay services data revenues decreased 7 2004 flat 2003 2004 decrease frame relay private line services partially offset increase atm managed network services 2003 increases frame relay offset decline atm private line internet revenues internet revenues decreased 19 2004 4 2003 decline 2004 result decrease dial ip web hosting services partially offset increase dedicated ip 2004 third quarter large dial ip contract expired october 2004 sprint completed sale wholesale dial ip business 34 million assets classified held sale september 30 2004 associated pretax noncash charge 21 million included 2004 third quarter impairment charge 2003 decrease primarily result decline dial ip due final contractuallyscheduled repricing america online inc dial ip agreement partially offset revenues fourth quarter partial buyout portion dial ip contract sprint made decision exit web hosting business 2003 period reflects web hosting revenue 2003 first second quarters revenues increased 40 2004 decreasing 44 2003 2004 increase primarily due higher equipment sales 2003 decrease primarily due sale consulting services business paranet third quarter 2002 declines miscellaneous equipment sales costs services products costs services products include interconnection costs paid local phone companies domestic service providers foreign phone companies complete calls made long distance’s domestic customers costs operate maintain long distance networks costs equipment costs services products increased 2 2004 decreased 15 2003 2004 increase primarily attributable higher call volumes somewhat offset renegotiated access rate agreements initiatives reduce access unit costs 2003 decrease due volume declines improving product mix initiatives reduce access unit costs favorable carrier access settlements fccmandated access rate reductions total costs services products long distance 590 net operating revenues 2004 531 2003 560 2002 selling general administrative expense sga expense decreased 15 2004 11 2003 2004 decline due restructuring efforts general cost controls 2003 decline due reduced bad debt expense including mci accounts receivable settlement restructuring efforts general cost controls partially offset costs executive separation agreements recorded second quarter 2003 sga includes charges estimated bad debt expense reserve bad debts requires management’s judgement based customer specific indicators well historical trending industry norms recognition current market indicators general economic conditions bad debt expense percentage net revenues 20 2004 14 2003 35 2002 reserve bad debt percentage outstanding accounts receivable 123 2004 111 2003 149 2002 total sga expense long distance 254 net operating revenues 2004 275 2003 276 2002 depreciation amortization expense estimates assumptions used setting depreciable lives testing recoverability assumptions based internal studies use industry data lives recognition technological advancements understanding business strategy depreciation amortization expense decreased 25 2004 3 2003 2004 decrease primarily driven impairment long distance’s property plant equipment well decreased asset base due winddown web hosting business 2003 additionally 2004 sprint extended depreciable life certain highcapacity transmission equipment eight years twelve years due slower anticipated evolution technology extension life decreased 2004 yeartodate depreciation expense long distance approximately 74 million 2003 decrease due asset impairments associated winddown web hosting business lower capital spending depreciation amortization expense 146 net operating revenues 2004 179 2003 166 2002 2005 long distance expects depreciation amortization expense decline approximately 600 million due 2004 impairment asset base restructuring asset impairments 2004 long distance recorded asset impairments 354 billion related property plant equipment long distance also recorded charges 121 million related severance costs termination facility leases associated sprint’s transformation initiatives web hosting winddown 2003 long distance recorded asset impairments 12 billion related decline fair value brs spectrum decision wind web hosting business resulted 316 million asset impairment charge associated restructuring charges 60 million related severance facility lease terminations long distance also recorded restructuring charges related sprint’s organizational realignment offset finalization 2002 2001 restructuring liabilities 2002 long distance recorded asset impairments 156 million primarily related termination high speed data services long distance also recorded restructuring charges 117 million related termination high speed data services consolidations sprint’s network information technology billing accounts receivable organizations additional steps reduce operating costs charges partially offset 79 million adjustment finalize certain 2001 restructuring liabilities additional information see note 7 notes financial statements businesses consist primarily wholesale sales telecommunications equipment net operating revenues 850 million 2004 840 million 2003 863 million 2002 nonaffiliated revenues accounted 40 revenues 2004 increased 18 due increases capital spending telecommunications industry operating expenses flat 2004 decreased 2 2003 operating loss 21 million 31 million 24 million 2004 2003 2002 respectively 2005 sprint plans continue leverage webenabled capabilities improve revenues expand valueadded services nonoperating items interest expense effective interest rates following table reflect interest expense longterm debt interest costs shortterm borrowings interest costs deferred compensation plans excluded distort effective interest rates longterm debt see “liquidity capital resources” information sprint’s financing activities effective interest rate includes effect interest rate swap agreements see note 5 notes consolidated financial statements details regarding interest rate swaps sprint’s effective interest rate longterm debt decreased 2004 primarily due fair value interest rate swaps 1 billion longterm debt entered third quarter 2003 december 31 2004 average floating rate interest swapped debt 50 weighted average coupon underlying debt 72 effective interest rate increased 2003 due retirement fixedrate debt lower interest rates discount premium early retirement debt sprint recorded premiums 60 million 21 million due early retirement debt 2004 2003 sprint recorded discount 4 million due early retirement debt 2002 see note 9 notes consolidated financial statements information income expense net income expense net consisted following dividend interest income years reflects dividends received sprint’s investments equity securities interest earned marketable debt securities equity net losses affiliates 2004 2003 primarily driven sprint’s investment virgin mobile usa lower equity losses affiliates 2004 mainly sprint reduced requirement recognize virgin mobile usa losses using equity method accounting 2002 equity net losses affiliates driven sprint’s investments virgin mobile usa pegaso callnet sprint made additional investment 16 million callnet 2002 second quarter immediately recognized equal amount losses associated investment sprint’s investment pegaso sold 2002 see note 4 notes consolidated financial statements information sprint’s investments royalties reflect payments made sprint callnet equaling 25 callnet gross revenues telecommunication services 2003 first quarter sprint recorded 50 million net charge settle shareholder litigation charge offset 35 million insurance settlements related action 2004 first quarter sprint recorded 15 million advisory fees relating tracking stock recombination gains sales assets 2002 driven sale sprint’s investment pegaso certain customer contracts stock received company’s demutualization income taxes sprint’s consolidated effective tax rates 369 2004 421 2003 125 2002 see note 15 notes consolidated financial statements information differences caused effective income tax rates vary statutory federal rate income taxes related continuing operations discontinued operations net 2002 sprint reached definitive agreement sell directory publishing business rh donnelley 223 billion cash sale closed january 3 2003 pretax gain recognized 2003 214 billion 132 billion tax financial condition sprint’s consolidated assets 413 billion reflect decrease 14 billion 2004 cash equivalents increased 21 billion cash provided operations proceeds equity unit forward purchase contracts exceeded capital expenditures debt payments dividend payments accounts receivable net increased 231 million due higher wireless subscriber base current deferred tax asset increased 10 billion reflect expected utilization nol carryforwards 2005 net property plant equipment decreased 45 billion due 35 billion long distance network asset impairment well depreciation expense exceeded capital expenditures 733 million noncurrent assets decreased 266 million primarily due decreases investments debt equity securities sprint’s investment virgin mobile usa sprint debttototalcapital ratio 555 yearend 2004 versus 589 yearend 2003 improvement yearend 2004 primarily reflects conversion equity unit notes additional debt reductions partially offset 2004 net loss increased dividends liquidity capital resources sprint exercises discretion regarding liquidity capital resource needs business segments includes ability prioritize use capital debt capacity determine cash management policies make decisions regarding timing amount capital expenditures operating activities sprint’s operating cash flows increased 110 million 2004 337 million 2003 2004 growth driven higher wireless revenues various companywide cost containment initiatives lower interest costs somewhat offset declining wireline revenues higher consolidated working capital requirements 2003 increase mainly due growth wireless partially offset higher working capital requirements investing activities sprint’s cash flows used investing activities totaled 38 billion 2004 compared 40 billion 2003 46 billion 2002 capital expenditures account majority sprint’s investing activities wireless capital expenditures incurred mainly maintain enhance network reliability upgrade capabilities providing new products services including evdo local incurred capital expenditures accommodate voicegrade equivalent growth expand capabilities providing enhanced services convert network circuit packet switching continue buildout highspeed dsl services meet regulatory requirements replace network support assets long distance capital expenditures incurred mainly maintain network reliability upgrade capabilities providing new products services overall increase capital expenditures 2004 driven higher wireless spending somewhat offset local long distance spending reductions overall decline capital expenditures 2003 driven spending reductions across divisions investing activities also include contributions 20 million 32 million virgin mobile usa 2004 2003 respectively proceeds 116 million due sales dissolutions investments 2002 see note 4 notes consolidated financial statements information investments investing activities include proceeds sales assets totaling 77 million 2004 101 million 2003 138 million 2002 2004 proceeds sale dial ip assets earthlink shares certain network administrative assets 2003 proceeds sale earthlink shares certain network administrative assets 2002 proceeds sale certain customer contracts investment securities administrative assets 2004 sprint acquired portion horizon cellular’s subscriber base 35 million majority purchase classified intangible asset amortized threeyear period reflected “other net” investing activities consolidated statement cash flows financing activities sprint’s cash flows used financing activities totaled 680 million 2004 33 billion 2003 10 billion 2002 2004 financing activities included 19 billion proceeds issuance common stock mainly settlement equity unit forward purchase contracts financing activities also included 19 billion reduction debt 2004 compared net reduction 29 billion 2003 642 million 2002 debt reduction 2004 due prepayment senior notes portion equity unit notes well payment scheduled maturities senior notes debt reduction 2003 due tender 2003 2004 senior notes prepayment borrowings long distance accounts receivable securitization facility payment scheduled maturities senior notes sprint paid cash dividends 670 million 2004 457 million 2003 454 million 2002 2004 dividend increase compared 2003 2002 due primarily additional shares fon common stock resulting conversion pcs common stock april tracking stock recombination capital requirements sprint’s 2005 investing activities mainly consisting capital expenditures expected total approximately 40 42 billion expenditures targeted primarily towards increased network capacity coverage expected also include investments growth demand enterprise services broadband initiatives wireless local phased transition circuit packet switching local sprint continues review capital expenditure requirements closely adjust spending capital investment concert customer demand dividend payments expected approximate 750 million 2005 liquidity past sprint used longterm bond market well financial markets fund needs result improved liquidity position sprint recently accessed capital markets currently expect 2005 fund either capital expenditures operating requirements june 2004 sprint entered new revolving credit facility syndicate banks 10 billion facility unsecured springing liens structured 364day credit line subsequent oneyear 10 billion termout option sprint intend draw facility sprint letters credit serving backup various obligations approximately 123 million yearend 2004 sprint wireless accounts receivable asset securitization facility provides sprint 500 million additional liquidity facility expires june 2005 include ratings triggers would allow lenders involved terminate facility event credit rating downgrade maximum amount funding available based numerous factors fluctuates month sprint drawn facility slightly 332 million available yearend 2004 sprint also long distance accounts receivable asset securitization facility provides sprint 700 million additional liquidity facility expires august 2005 include ratings triggers would allow lenders involved terminate facility event credit rating downgrade maximum amount funding available based numerous factors fluctuates month february 2003 sprint prepaid outstanding borrowings facility december 31 2004 sprint 380 million total funding available facility undrawn loan facilities described interest rates equal libor prime rate plus spread varies depending sprint’s credit ratings debt maturities including capital lease obligations 2005 total 13 billion sprint’s 46 billion cash balance december 31 2004 expected 2005 cash flow operations adequate fund requirements borrowings sprint may incur ultimately limited certain debt covenants december 31 2004 sprint’s restrictive debt covenant would allow additional 107 billion debt sprint currently compliance debt covenants associated borrowings may 2004 sprint repurchased 750 million senior notes related equity units sprint repurchased 516 million senior notes august 2004 another 95 million senior notes november 2004 sprint completed tender offers repurchase senior notes march 2003 amount 11 billion repaid scheduled maturities 118 million debt primarily consisting local’s first mortgage bonds 2003 third quarter september 2003 sprint repaid 300 million export development canada loan sprint continually evaluates various factors result may repurchase additional debt future january 2003 sprint closed 223 billion cash sale directory publishing business rh donnelley fitch ratings fitch currently rates sprint’s longterm senior unsecured debt bbb december 15 2004 fitch placed sprint’s rating watch positive standard poor’s corporate ratings currently rates sprint’s longterm senior unsecured debt bbb october 8 2004 standard poor’s placed sprint’s rating creditwatch positive implications moody’s investors service currently rates sprint’s longterm senior unsecured debt baa3 december 15 2004 changed outlook developing sprint’s ability fund capital needs ultimately impacted overall capacity terms bank termdebt equity markets given volatility markets sprint continues monitor markets closely take steps maintain financial flexibility reasonable capital structure cost sprint currently plans access markets extension replacement renewal current credit arrangements december 31 2004 sprint’s contractual obligations summarized fully disclosed notes 1 8 9 10 11 17 notes consolidated financial statements unconditional purchase obligations sprint minimum purchase commitments various vendors 2009 outstanding commitments yearend 2004 approximately 14 billion outstanding commitments represent noncancelable commitments purchase goods services consist primarily network equipment maintenance access commitments advertising marketing information technology services customer support provided third parties handset purchases expenses related normal business operations expected pension contributions disclosed note 14 notes consolidated financial statements included unconditional purchase obligations offbalance sheet financing sprint participate secure financings unconsolidated special purpose entities sprint bankruptcyremote entities included sprint’s consolidated financial statements regulatory developments see legislative regulatory developments part filing financial strategies general risk management policies sprint selectively enters interest rate swap agreements manage exposure interest rate changes debt sprint also enters forward contracts options foreign currencies reduce impact changes foreign exchange rates sprint seeks minimize counterparty credit risk stringent credit approval review processes selection creditworthy counterparties continual review monitoring counterparties thorough legal review contracts sprint also controls exposure market risk regularly monitoring changes foreign exchange interest rate positions normal stress conditions ensure exceed established limits sprint’s derivative transactions used principally hedging purposes board authorized sprint enter derivative transactions comply sprint’s risk management policies interest rate risk management fair value hedges sprint enters interest rate swap agreements manage exposure interest rate movements achieve optimal mixture floating fixedrate debt minimizing liquidity risk interest rate swap agreements designated fair value hedges effectively convert sprint’s fixedrate debt floating rate receiving fixed rate amounts exchange floating rate interest payments life agreement without exchange underlying principal amount 2003 sprint entered interest rate swap agreements designated fair value hedges cash flow hedges sprint enters interest rate swap agreements designated cash flow hedges reduce impact interest rate movements future interest expense effectively converting portion floatingrate debt fixedrate december 31 2004 sprint outstanding interest rate cash flow hedges derivatives certain commercial transactions sprint granted warrants purchase securities companies fixed rates warrants supplemental terms commercial transaction designated hedging instruments 2002 2003 sprint entered variable prepaid forward contracts monetize equity securities held available sale derivatives designated cash flow hedges reduce variability expected cash flows related forecasted sale underlying equity securities 2004 fourth quarter certain prepaid forward contracts settled remaining contracts settle 2005 foreign exchange risk management sprint’s foreign exchange risk management program focuses reducing transaction exposure optimize consolidated cash flow sprint’s primary transaction exposure results payments made received overseas telecommunications companies completing international calls made sprint’s domestic customers operation international subsidiaries international operations material consolidated financial position results operations cash flows yearend 2004 sprint entered significant foreign currency forward contracts derivative instruments reduce effects adverse fluctuations foreign exchange rates result sprint subject material foreign exchange risk recently issued accounting pronouncements march 2004 eitf financial accounting standards board reached consensus eitf 036 participating securities twoclass method sfas 128 earnings per share eitf 036 guidance requires rights securities participate earnings enterprise must reflected reporting earnings per share sprint’s equity unit purchase contracts met “participating security” qualifications outlined guidance purchase contracts included provision permitting equity unit holders benefit “participate” dividends declared common stock contract period sprint adopted eitf 036 2004 second quarter prior april 23 2004 equity unit forward purchase contracts tied pcs common stock earnings upon declare dividends upon recombination settlement august 2004 equity unit purchase contracts participated earnings fon common stock proportionate share earnings attributable securities 9 million yeartodate period attribution reflected “earnings allocated participating securities” face consolidated statements operations sprint outstanding participating securities december 31 2004 december 2004 fasb issued sfas 123r sharebased payment statement requires entity recognize cost employee services received sharebased payment transactions use fairvaluebased methods recognizing cost statement effective sprint july 1 2005 sprint voluntarily adopted fair value accounting sharebased payments effective january 1 2003 sfas 123 amended sfas 148 using prospective method upon adoption sprint began expensing fair value stockbased compensation grants modifications settlements made january 1 2003 connection tracking stock recombination required sfas 123 sprint accounted conversion pcs stock options fon stock options modification accordingly applied stock option expensing fon stock options resulting conversion pcs stock options granted january 1 2003 revised standard require sprint begin recognize compensation cost unvested fon stock options granted january 1 2003 outstanding july 1 2005 requirement recognize expense additional unvested grants expected significant sprint item 7a item 7 managements discussion analysis financial condition results operations information required item 7 refer managements discussion analysis financial condition results operations sections financial statements financial statement schedules filed part document item 7a item 7 managements discussion analysis financial condition results operations forwardlooking information sprint includes certain estimates projections forwardlooking statements reports presentations analysts others publicly available material future performance cannot ensured actual results may differ materially forwardlooking statements factors could cause actual results differ include effects vigorous competition markets sprint operates costs business risks associated providing new services entering new markets necessary provide nationwide global services ability pcs group continue grow significant market presence effects mergers consolidations within telecommunications industry uncertainties related sprints strategic investments impact unusual items resulting ongoing evaluations sprints business strategies impact new technologies sprints business unexpected results litigation filed sprint possibility one markets sprint competes impacted changes political economic factors monetary policy legal regulatory changes including impact telecommunications act 1996 telecom act external factors sprint control risks referenced time sprints filings securities exchange commission sec words estimate project intend expect believe similar expressions intended identify forwardlooking statements forwardlooking statements found throughout managements discussion analysis reader place undue reliance forwardlooking statements speak date report sprint obligated publicly release revisions forwardlooking statements reflect events date report unforeseen events general sprint global communications company leader integrating longdistance local service wireless communications sprint also one largest carriers internet traffic using tier one internet protocol network provides connectivity point internet either network via direct connections backbone providers sprint nations thirdlargest provider long distance services operates nationwide alldigital long distance tier one internet protocol networks using fiberoptic electronic technology addition local division currently serves approximately 82 million access lines 18 states sprint also operates 100 digital pcs wireless network united states licenses provide service nationwide using single frequency band single technology sprint owns pcs licenses provide service entire united states population including puerto rico us virgin islands november 1998 sprints shareholders approved allocation sprints assets liabilities two groups fon group pcs group well creation fon stock pcs stock addition sprint purchased remaining ownership interests sprint spectrum holding company lp phillieco lp together sprint pcs minority interest cox communications pcs lp cox pcs sprint acquired ownership interests telecommunications inc comcast corporation cox communications inc cable partners exchange sprint issued cable partners special lowvote pcs shares warrants acquire additional pcs shares sprint also issued cable partners shares new class preferred stock convertible pcs shares purchase cable partners interests referred pcs restructuring 1999 second quarter cox communications inc exercised put option requiring sprint purchase remaining 408 interest cox pcs sprint issued additional low vote pcs shares exchange interest also november 1998 sprint reclassified publicly traded common shares one share fon stock 12 share pcs stock recapitalization taxfree shareholders addition class common shares owned ft dt reclassified shares representing fon stock pcs stock transactions referred recapitalization connection pcs restructuring ft dt purchased 51 million additional pcs shares presplit basis end 2001 ft longer held fon shares dt longer held either fon pcs shares operating segments sprints business divided four lines business global markets division local division product distribution directory publishing businesses pcs wireless telephony products services business fon group includes global markets division local division product distribution directory publishing businesses pcs group includes pcs wireless telephony products services business fon common stock intended reflect financial results economic value global markets division local division product distribution directory publishing businesses pcs common stock intended reflect financial results economic value pcs wireless telephony products services business board discretion regarding tracking stocks fon common stock pcs common stock intended reflect financial results economic value fon pcs groups however classes common stock sprint group intended track accordingly fon pcs shareholders subject risks related equity investment sprint sprints businesses assets liabilities shares fon common stock pcs common stock represent direct legal interest assets liabilities allocated either group sprint owns assets liabilities groups sprints board discretion among things make operating financial decisions could favor one group subject restrictions sprints articles incorporation change allocation assets liabilities comprise fon group pcs group without stockholder approval applicable corporate law sprints board owes fiduciary duties sprints shareholders board directors owes separate duties holders either fon common stock pcs common stock tracking stock policies provide board resolving material matters holders fon common stock pcs common stock potentially divergent interests act best interests sprint common shareholders giving fair consideration potentially divergent interests holders separate classes sprint common stock policies may changed board without shareholder approval given boards discretion matters may difficult assess future prospects group based past performance critical accounting policies fundamental objective financial reporting provide useful information allows reader comprehend business activities sprint aid understanding management identified sprints critical accounting policies potential significant impact sprints financial statements either significance financial statement item relate require judgment estimation due uncertainty involved measuring specific point time events continuous nature allocation policies tracking stocksas discussed previously fon common stock intended reflect financial results economic value fon group pcs common stock intended reflect financial results economic value pcs group fon common stock pcs common stock classes common stock sprint together groups reflect 100 sprints business activities allocation policies regarding shared activities critical understanding sprints business well business results fon group pcs group allocation assets financial resources certain costs requires judgment management allocation methods used subject discretion board directors fulfillment fiduciary duties sprints shareholders policies discussed part 1 item 1 business risk factors relating tracking stocks part ii item 7 managements discussion analysis financial condition results operations mda nonoperating items allocation group financing well note 1 notes consolidated financial statements revenue recognition policiesas discussed note 1 notes consolidated financial statements sprint recognizes operating revenues services rendered products delivered customers connection recording revenue estimates assumptions required determining expected conversion revenue streams cash collected reserve estimation process requires management make assumptions based historical results future expectations economic competitive environment changes credit worthiness customers relevant factors detailed discussion policies sprint recognizes reserves adjustments revenue streams related reserves provisions uncollectible customer accounts included discussion segmental results operations within mda employee benefit plan assumptions retirement benefits significant cost business yet represent obligations settled far future retirement benefit accounting intended reflect recognition future benefit costs employees approximate service period based terms plans investment funding decisions made company accounting requires management make assumptions regarding variables return assets discount rate future health care costs changes key assumptions significant impact projected benefit obligations funding requirements periodic benefit cost incurred company sprints policies key assumptions included discussion income expense net within mda well note 8 notes consolidated financial statements longlived asset recoverylonglived assets consisting primarily property plant equipment intangibles comprise significant portion sprints total assets changes technology changes sprints intended use assets may cause estimated period use value assets change sprint performs annual internal studies confirm appropriateness estimated economic useful lives category current property plant equipment additionally longlived assets including goodwill intangibles reviewed impairment whenever events changes circumstances indicated carrying amounts may recoverable estimates assumptions used setting depreciable lives testing recoverability require judgment estimation sprints policies regarding accounting assets assessing recoverability included discussion segmental results operations within mda well notes 1 18 notes consolidated financial statements general overview sprint fon group global markets division global markets division provides broad suite communications services targeted domestic business residential customers multinational corporations communications companies services include domestic international voice data communications using various protocols internet protocol ip frame relay data service transfers packets data sprints network managed network services addition global markets division expanding ability provide web applications hosting consulting services colocation services division sprint also provides broadband services digital subscriber line dsl services enable highspeed transmission data existing copper telephone lines global markets division also includes operating results cable tv service operations broadband fixed wireless companies 1999 acquisition dates 2000 sprint converted several markets served multipoint multichannel distribution services mmds capabilities cable tv services highspeed data services mmds fixed wireless network built either using system interconnected smaller cells single tower distributes signals microwave single transmission point multiple receiving points global markets divisions operating results reflect development costs operating revenues expenses broadband fixed wireless services 2001 fourth quarter sprint announced would halt deployment mmds services using current direct sight access technology current customers continue receive service sprint wait development second generation technology sprint also pursue alternative strategies spectrum leases licenses global markets division also reflects costs establishing international ip operations beginning 2000 division also includes fon groups investments earthlink inc internet service provider callnet long distance provider canada intelig telecommunicacoes ltda intelig long distance provider brazil certain telecommunications investments ventures local division local division ltd consists mainly regulated local phone companies serving approximately 82 million access lines 18 states ltd provides local voice data services including dsl customers within franchise territories access phone customers carriers ltds local network consumer long distance services customers within franchise territories sales telecommunications equipment long distance services within certain regional calling areas latas product distribution directory publishing businesses product distribution business provides wholesale distribution services telecommunications products directory publishing business publishes markets white yellow page phone directories general overview sprint pcs group pcs group includes sprints wireless pcs operations operates 100 digital pcs wireless network united states licenses provide service nationwide using single frequency single technology yearend 2001 pcs group together third party affiliates operated pcs systems 300 metropolitan markets including 50 largest us metropolitan areas pcs group licenses serve entire us population including puerto rico us virgin islands pcs groups service including third party affiliates reaches 247 million people pcs group provides nationwide service operating digital network major us metropolitan areas affiliating companies mainly around smaller us metropolitan areas roaming providers analog cellular networks using multimode handsets roaming providers digital networks use code division multiple access cdma pcs group also provides wholesale pcs services companies resell services customers retail basis companies pay pcs group discounted price customers usage bear costs acquisition customer service pcs group also includes investment pegaso telecomunicaciones sa de cv pegaso wireless pcs operation mexico svc bidco lp joint venture acquire wireless spectrum rights virgin mobile usa joint venture market wireless services investments accounted using equity method wireless industry including pcs group typically generates significantly higher number subscriber additions handset sales fourth quarter year compared remaining quarters due use retail distribution dependent holiday shopping season timing new products service introductions aggressive marketing sales promotions consolidated results operations total net operating revenues follows income loss continuing operations follows income loss continuing operations presented table includes aftertax impacts onetime items discussed following paragraphs 2001 fourth quarter sprint recorded onetime restructuring charge asset impairment 1136 million representing termination sprint ion well additional steps reduce overall operating costs additionally 2001 fourth quarter sprint recorded onetime litigation charge 15 million 2001 onetime items also include writedown fon groups equity method investment intelig 157 million temporary decline market value loss sale portion fon groups investment earthlink 8 million benefit plan curtailment gain 75 million net gains investment activities 9 million excluding onetime items loss continuing operations would 170 million 2000 fourth quarter sprint completed analyses valuation various fon group assets equity method investments resulting reassessment fon groups business strategies response changes overall telecommunications industry analyses resulted onetime charges 152 million primarily related writedown goodwill associated fon groups paranet operations 87 million writedown fon groups equity method investment callnet temporary decline market value 22 million writedown certain fon group investment securities temporary decline market value 2000 onetime items also include charges 121 million costs associated terminated worldcom merger net gains 44 million sale independent directory publishing operation investment activities fon group 18 million gain sale customers network infrastructure pcs third party affiliate excluding onetime items loss continuing operations would 256 million 1999 onetime items include gain 35 million investment activities fon group excluding onetime item loss continuing operations would 780 million segmental results operations sprints business divided four lines business global markets division local division product distribution directory publishing businesses pcs wireless telephony products services business fon group includes global markets division local division product distribution directory publishing businesses pcs group includes pcs wireless telephony products services business fon common stock intended reflect financial results economic value global markets division local division product distribution directory publishing businesses pcs common stock intended reflect financial results economic value pcs wireless telephony products services business global markets division global markets division faced significant challenges 2001 economic downturn coupled industrywide pricing pressures excess capacity contributed 6 decline net operating revenues operating loss year 2001 fourth quarter decision made abandon ion initiative restructure operations resulting 17 billion charge actions taken respond unprecedented changes industry effort better focus enterprise data internet services aggressively manage costs sprint expects continued downward pressure revenues 2002 due economy price competition year improvement operating results expected elimination ion related costs cost reduction efforts improvements operations largely dependent timing extent economic recovery degree growth achieved enterprise data internet services markets net operating revenues net operating revenues decreased 6 2001 increased 2 2000 minute growth 20 2001 18 2000 driven part increase business minutes sold pcs group offset highly competitive pricing environment well current economic downturn decrease net operating revenues also reflects yearoveryear declines dialup internet service providerrelated revenues cable capacity sales professional services legacy data services voice revenues voice revenues decreased 6 2001 5 2000 2001 decrease includes decline business consumer voice revenues result competitive pricing environment continued wireless substitution business voice revenues also declined 2001 revenue mix shifted toward lower yield customers including affiliate sales generally lower market pricing 2000 decrease largely due decline consumer voice revenues result competitive pricing environment lower calling card usage due increased use wireless phones reductions access cost passthroughs resulting implementation coalition affordable local long distance service proposal calls data revenues data revenues reflect sales currentgeneration data services including asynchronous transfer mode atm frame relay services revenues flat 2001 increased 14 2000 results 2001 flat due increased sales atm offset decline frame relay data revenues 2001 generally impacted aggressive pricing marketplace current economic downturn 2000 increase largely due increased sales result increased emphasis services internet revenues internet revenues increased 9 2001 50 2000 2001 increase result growth dedicated ip web hosting security gains partially offset decline dialup internet service providerrelated revenues driven pricing declines sprints largest customer services increase 2000 due strong growth dialup internet service providerrelated revenues dedicated service revenues decreased 46 2001 increased 5 2000 2001 decrease reflects lack cable capacity sales well declines professional services legacy data services 2000 increase due sales ownership rights transoceanic cable capacity inclusion full year revenues cable tv service operations broadband fixed wireless companies purchased 1999 largely offset decline legacy data services 2001 2000 1999 periods cable capacity sales ownership rights transoceanic cable represented less 02 1 003 net operating revenues respectively transactions executed primarily global one accordance transition services agreement equipment sales completed periods discussed routine nature completed support customers purchase related telecommunications services represented less 3 6 4 net operating revenues 2001 2000 1999 periods respectively revenue reserves revenues recognized earnings process complete accordance sec staff accounting bulletin 101 revenue recognition financial statements sab101 significant estimates assumptions required however determine expected conversion revenues cash collected global markets division recognizes several types reserves adjustments revenue reserves include billing adjustment reserves pricing changes usage disputes customers principally related business wholesale customer base discount reserves special pricing agreements volume based incentives fraud reserves unauthorized usage reserves requires managements judgment based historical trending industry norms regulatory decisions recognition current market indicators regarding general economic conditions costs services products costs services products include interconnection costs paid local phone companies domestic service providers foreign phone companies complete calls made divisions domestic customers costs operate maintain long distance network costs equipment costs related development deployment sprint ion costs services products increased 8 2001 12 2000 interconnection costs increased 16 2001 remained flat 2000 2001 increase primarily due corresponding increase call volumes reductions perminute international access costs well domestic access costs offset impact increased calling volumes 2000 domestic rate reductions generally due fccmandated access rate reductions took effect july 1999 july 2000 july 2001 access rate reductions july 2000 included implementation calls costs services products decreased 5 2001 increased 42 2000 2001 decrease related lower sales ownership rights capacity transoceanic cable offset increased network costs long distance operation costs associated sprint ion 2000 increase largely due expansion sprint ion business services nationwide launch consumer services select markets well increased sales ownership rights capacity transoceanic cable growth data services total costs services products global markets division 605 net operating revenues 2001 528 2000 480 1999 excluding sprint ion related costs total costs services products global markets division 582 net operating revenues 2001 505 2000 476 1999 selling general administrative expense selling general administrative sga expense decreased 2 2001 4 2000 2001 decrease due reduction advertising promotion costs consumer business markets strong emphasis cost control partly offset increased marketing promotions internet services increase bad debt expense primarily related wholesale customers addition sga 2001 impacted onetime litigation charge 24 million reserve bad debts requires managements judgment based customer specific indicators well historical trending industry norms recognition current market indicators general economic conditions bad debt expense percentage net revenues 38 2001 26 2000 29 1999 reserve bad debt percent outstanding accounts receivable 127 2001 105 2000 83 1999 2000 decrease total sga expense due strong emphasis cost control total sga expense global markets division 298 net operating revenues 2001 287 2000 305 1999 excluding sprint ion related costs sga expense global markets division 280 net operating revenues 2001 267 2000 281 1999 depreciation amortization expense estimates assumptions used setting depreciable lives testing recoverability assumptions based internal studies use industry data lives recognition technological advancements understanding business strategy depreciation amortization expense increased 18 2001 7 2000 increases mainly reflect increased asset base enhance network reliability meet increased demand voice datarelated services well increased asset base growth ip services growth initiatives depreciation amortization expense 133 net operating revenues 2001 106 2000 101 1999 excluding sprint ion related costs depreciation amortization expense global markets division 121 net operating revenues 2001 99 2000 95 1999 restructuring asset impairment 2001 fourth quarter sprint terminated efforts provide sprint ion consumer business offerings announced restructuring remaining global markets division business decision resulted onetime charge 17 billion associated asset writeoffs termination supplier agreements real estate leases contractual obligations well work force reduction severance costs local division 2001 local division impacted economic slow growing competition resulting decline access lines minutes use despite pressures revenue growth local division achieved steadily improving operating results effectively managing costs 2001 fourth quarter local division realigned operations reduce costs increase effectiveness actions resulted 109 million charge operations sprint expects economy competition continue adversely impact access lines minutes use 2002 however revenues expected improve slightly operating income expected level consistent 2001 results dependent timing extent economic recovery beginning july 2000 sprint changed transfer pricing certain transactions fon group entities accurately reflect market pricing main effect change reduction local divisions net operating revenuesother revenues addition sprints local division transferred customer service telemarketing organization pcs group beginning 2000 second quarter comparative purposes following discussion local division results assumes transfer pricing change transfer customer service telemarketing organization occurred beginning 1999 adjusting changes operating margins would 285 2001 284 2000 257 1999 net operating revenues net operating revenues increased 2 2001 5 2000 increases mainly reflect increased special access revenue increased sales networkbased services caller id call waiting sales networkbased services long distance services increased due strong demand bundled services combine local service networkbased features long distance calling local division ended 2001 82 million switched access lines decrease 1 2001 access lines increased 4 2000 decrease 2001 driven economic slowdown wireless cable substitution losses competitive local providers net operating revenues 62 billion 2001 61 billion 2000 58 billion 1999 local service revenues local service revenues derived local exchange services grew 3 2001 6 2000 due continued demand networkbased services well increased equipment maintenance revenue growth 2000 also reflects increased revenues access line growth network access revenues network access revenues derived long distance phone companies using local network complete calls increased 2 2001 4 2000 increases mainly reflect strong growth special access services volume growth periods offset fccmandated access rate reductions revenue growth 2000 also reflects 2 increase minutes use however revenue growth 2001 offset 3 reduction minutes use long distance revenues long distance revenues mainly derived providing consumer long distance services customers within sprints local franchise territories long distance services within specified regional calling areas latas beyond local calling area revenues increased 2 2001 17 2000 increases reflect success bundled services however 2001 growth offset decline intralata long distance services revenues decreased 2 2001 11 2000 decreases driven decline equipment sales 9 2001 20 2000 offset increase colocation data base revenues decreases equipment sales result planned shift focus selling higher margin products economic slowdown causing reduction customer demand equipment revenue reserves revenues recognized earnings process complete accordance sab101 significant estimates assumptions required however determine expected conversion revenues cash collected local division recognizes several types reserves adjustments revenues reserves include billing adjustment reserves pricing changes volume discounts usage disputes customers principally related business wholesale customer base fraud reserves unauthorized usage return rebate reserves equipment sales reserves requires managements judgment based historical trending industry norms regulatory decisions recognition current market indicators general economic conditions costs services products costs services products include costs operate maintain local network costs equipment sales costs flat 2001 decreased 1 2000 2001 declines equipment sales success cost control initiatives offset increases access expense 2000 decrease due decline equipment sales costs services products 313 net operating revenues 2001 319 2000 338 1999 selling general administrative expense despite increases bad debt expense sga expense remained flat 2001 declined 1 2000 due strong emphasis cost control 2001 continuing emphasis cost control partly offset increase bad debt expense accounted expenses flat reserve bad debts requires managements judgment based historical trending industry norms recognition current market indicators general economic conditions bad debt expense percentage net revenues 25 2001 15 2000 11 1999 reserve bad debt expense percent outstanding accounts receivable 69 2001 48 2000 64 1999 sga expense 204 net operating revenues 2001 210 2000 223 1999 depreciation amortization expense estimates assumptions used setting depreciable lives testing recoverability assumptions based internal studies use industry data lives recognition technological advancements understanding business strategy depreciation amortization expense decreased 2 2001 increased 7 2000 2001 decrease primarily due decrease metallic cable depreciation rates decrease due metallic cable proving adequate carrying higher bandwidth services dsl thus extending life 2000 increase mainly due increased capital expenditures switching transport technologies shorter asset lives depreciation amortization expense 180 net operating revenues 2001 185 2000 182 1999 restructuring asset impairment fourth quarter 2001 sprint announced plans take steps improve competitive position reduce operating costs business units comprise fon group efforts included consolidation streamlining marketing network operations well streamlining corporate support functions decision resulted onetime charge 109 million associated severance costs work force reductions contractual obligations product distribution directory publishing businesses 2001 product distribution business impacted economic slow cut back capital spending telecommunications industry caused significant reduction nonaffiliated sales sprint expects demand equipment continue soft 2002 net operating revenues net operating revenues decreased 9 2001 increased 10 2000 nonaffiliated revenues accounted 60 revenues 2001 2000 1999 revenues decreased 14 2001 increased 11 2000 decrease 2001 nonaffiliated revenues mainly due significant decreases equipment sales resulting economic slowdown causing reduced customer demand equipment increase nonaffiliated revenues 2000 mainly due consolidation directory publishing partnership second half 2000 directory publishing partnership previously accounted equity method investment fully consolidated due restructuring partnership management sales affiliates flat 2001 increased 8 2000 due changes local divisions capital program operating expenses costs services products decreased 13 2001 increased 9 2000 2001 decrease reflects decrease equipment sales 2000 increase due consolidation directory publishing partnership sga expense decreased 1 2001 increased 14 2000 increase due costs related transformation product distribution business webenabled business well consolidation directory publishing partnership fourth quarter 2001 sprint announced plans take steps improve competitive position reduce operating costs business units comprise fon group efforts included consolidation streamlining marketing network operations well streamlining corporate support functions decision resulted charge 7 million associated severance costs work force reductions contractual obligations pcs group 2001 pcs group led industry customer growth third year row resulting 53 increase net operating revenues 128 billion improvement operating results much 2001 impact economic downturn extended wireless industry however fourth quarter signs weakening customer growth wireless industry pcs group based industryconsensus view 17 million new wireless subscribers added 2002 sprint would expect add 3 million net customers 2002 continuing focus profitability pcs group markets products multiple distribution channels including retail stores well retail outlets equipment sales one retail chain subsequent service revenues generated sales customers accounted 24 net operating revenues 2001 2000 27 1999 net operating revenues net operating revenues include service revenues sales handsets accessory equipment service revenues consist monthly recurring charges usage charges activation fees service revenues increased 58 2001 mainly reflecting increase average number customers increase arpu improvement arpu 2001 mainly due customers subscribing higher usage service plans increase billed minutes plan implementation activation charges second quarter 2000 pcs group assesses access charges long distance carriers termination landline originated calls though regulations generally entitle carrier terminates call behalf another compensated providing service regulations developed period services nature provided exclusively local exchange carriers certain long distance carriers disputed pcs groups assessment charges well corresponding rate charges determined issue currently pending fcc management cannot predict certainty final outcome action believes adequate provisions recorded pcs groups results operations pcs group added 40 million customers 2001 end year 136 million customers 300 metropolitan markets nationwide service revenues resale customers declined 2001 mainly due discontinuation one reseller program reduced reseller customer base 91000 219000 2001 310000 2000 pcs group third party affiliates added 12 million customers 2001 bringing total number customers served pcs network including resale customers 158 million service revenues increased 94 2000 mainly reflecting increase average number customers pcs group added 38 million customers 2000 end year 95 million customers 300 metropolitan markets nationwide increase arpu 2000 partly due implementation activation charges second quarter subscriber revenues also aided increase resale customers companies pcs group serves wholesale basis added 238000 customers 2000 ending year approximately 310000 customers 2001 customer churn rate improved 26 28 2000 34 1999 churn rate improved 1999 first half 2001 reaching low 22 quarter ended june 30 2001 improvement reflected expanded network coverage increased percentage customers contract success several customer retention initiatives increase churn rate last half 2001 resulted customer fulfillment contract terms softness economy impact new program targeting subprime customers pcs group expects customer churn rate continue increase beginning 2002 decline annual average approximately 3 revenues sales handsets accessories approximately 12 net operating revenues 2001 14 2000 17 1999 part pcs groups marketing plans handsets normally sold prices pcs groups cost revenue reserves revenues recognized earnings process complete accordance sab101 significant estimates assumptions required however determine expected conversion revenues cash collected pcs group recognizes several types reserves adjustments revenue reserves include billing adjustment reserves disputes customers fraud reserves unauthorized usage access reserves disputed charges local exchange carriers interexchange carriers return rebate reserves equipment sales reserves requires managements judgment based historical trending industry norms regulatory decisions recognition current market indicators general economic conditions operating expenses costs services products mainly include handset accessory costs switch cell site expenses networkrelated costs increased 34 2001 25 2000 reflecting significant growth customers expanded market coverage partly offset reduction handset unit costs sga expense mainly includes customer care marketing costs promote products services well salary benefit costs sga expense increased 20 2001 25 2000 reflecting expanded workforce support subscriber growth increased marketing selling costs cpga measure sales marketing efforts computed costs acquiring new subscriber including equipment subsidies marketing costs divided handset activations cpga improved approximately 7 2001 19 2000 lower handset unit costs scale benefits greater customer additions contributed improvement ccpu measure cash costs operate business per user basis consisting costs service revenues service delivery general administrative costs divided average subscribers ccpu improved approximately 6 2001 27 2000 improvements realized 2001 driven lower network information technology administrative costs partially offset higher cost service improvements 2000 reflect successful expense management scale benefits resulting increased customer base economic conditions 2001 required greater scrutiny bad debt expense reserve bad debts requires judgment based historical trending industry norms recognition current market indicators bad debt expense percentage net revenues constant 39 2000 2001 57 1999 reserve bad debt percent outstanding accounts receivable 130 2001 111 2000 85 1999 estimates assumptions used setting depreciable lives testing recoverability assumptions based internal studies use industry data lives recognition technological advancements understanding business strategy depreciation amortization expense consists mainly depreciation network assets amortization intangible assets intangible assets include goodwill pcs licenses customer base microwave relocation costs assembled workforce depreciation amortization expense increased 15 2001 23 2000 mainly reflecting depreciation network assets placed service 2001 2000 additionally pcs group increased depreciation certain network assets 2001 first quarter reflect accelerated replacement assets accommodate network technology upgrades may 2001 significant portion value assigned acquired customer base became fully amortized caused 168 million decrease 2001 compared 2000 period 2000 increase also reflects amortization intangible assets acquired cox pcs purchase 1999 second quarter fourth quarter 2001 sprint announced plans take steps improve competitive position reduce operating costs business units comprise fon group efforts included consolidation streamlining marketing network operations well streamlining corporate support functions decision streamline corporate functions resulted onetime charge 10 million pcs group associated severance costs work force reductions contractual obligations 2000 operating expenses include onetime charge 24 million costs associated terminated worldcom merger charge increased loss continuing operations 16 million 2000 loss continuing operations includes onetime gain 18 million sale customers network infrastructure pcs group third party affiliate employee benefit plan assumptions significant estimates assumptions required determining liabilities costs associated sprints pension post retirement benefit plans results vary significantly changes key assumptions sprint works closely independent actuary determine appropriateness various assumptions sprint consistently used benchmark rates tied high quality investment funds lives closely matching pension liability assessing assumptions applicable discount rate expected rate return plan assets based mix assets held plan historical longterm rates return reasonable anticipation future medical care cost trends also provided sprints independent actuary detailed discussion sprints policies status plans included note 8 notes consolidated financial statements nonoperating items interest expense effective interest rates following table reflect interest expense longterm debt interest costs shortterm borrowings classified longterm debt deferred compensation plans customer deposits excluded distort effective interest rates longterm debt sprints effective interest rate longterm debt decreased 2000 2001 due additional fixedrate debt lower interest rates lower interest rates variablerate debt allocation group financing activities groups managed sprint centralized basis debt incurred sprint behalf groups specifically allocated reflected financial statements applicable group interest expense allocated pcs group based interest rate substantially equal rate would able obtain third parties direct indirect wholly owned sprint subsidiary without benefit guarantee sprint member fon group interest rate higher rate sprint obtains borrowings difference sprints actual interest rate charged pcs group reflected reduction fon groups interest expense totaled 288 million 2001 237 million 2000 168 million 1999 amounts reflected intergroup interest charge consolidated statements operations fon group earned intergroup interest income pcs group incurred intergroup interest expense 15 million 2001 19 million 2000 20 million 1999 primarily related fon groups ownership pcs group debt securities sprint redeemed securities 2001 fourth quarter result redemption fon group recognized 11 million pretax gain nonoperating income pcs group recorded 7 million aftertax extraordinary loss related early redemption premium payment made pcs group fon group sprints centralized cash management program one group may advance funds group advances accounted shortterm borrowings groups bear interest market rate substantially equal rate group would able obtain third parties shortterm basis allocation group financing activities may change discretion sprint board require shareholder approval income expense net income expense consisted following dividend interest income years reflects dividends earned cost method investments interest earned temporary investments 2001 investments accounted using equity method mainly consisted fon groups investment intelig long distance operation brazil pcs groups investment pegaso wireless pcs operation mexico pegaso currently experiencing financial difficulties evaluating various restructuring alternatives 1999 2000 investments accounted using equity method also included fon groups investments earthlink inc internet service provider callnet long distance provider canada first quarter 2001 sprint modified relationship earthlink resulted investment common stock longer accounted using equity method fourth quarter 2000 sprint wrote investment callnet longer required recognize related equity losses 2001 equity net losses affiliates decreased due fewer equity losses following writedown investments callnet intelig decreases partially offset increased pegaso losses 2000 increase mainly due increased intelig losses pegaso pcs groups 2000 second quarter initial investment net losses investments 2001 mainly include 162 million writedown equity investment intelig 25 million loss partial sale earthlink shares 2000 loss includes 87 million writedown equity investment callnet 35 million writedown warrants held purchase procom 1999 loss includes 102 million writedown investment iridium partially offset 90 million gain sale aol time warner stock gains sales assets 2001 resulted sale pcs customers pcs third party affiliate 2000 gains include sale independent publishing operation sale certain wireless customers associated network infrastructure 1999 gains include gain sale investment security gain sale network infrastructure benefit plan curtailment gain 2001 resulted amendment certain medical retirement plan benefits income taxes sprints consolidated effective tax rates 308 2001 179 2000 305 1999 see note 9 notes consolidated financial statements information differences caused effective income tax rates vary statutory federal rate income taxes related continuing operations discontinued operation net 2000 first quarter sprint sold interest global one france telecom deutsche telekom ag sprint received 11 billion cash repaid 276 million advances entire stake global one result sprints sale interest global one sprints gain sale equity share results global one reported discontinued operation periods presented 2000 sprint recorded aftertax gain related sale interest global one 675 million sprint recorded aftertax losses related global one 130 million 1999 extraordinary items net 2001 sprint redeemed scheduled maturities 18 million debt allocated fon group 558 million debt allocated pcs group borrowings interest rates ranging 99 125 resulted 1 million aftertax extraordinary loss sprint 2000 sprint redeemed scheduled maturities 25 million debt allocated fon group 127 million debt allocated pcs group borrowings interest rates ranging 78 97 resulted 4 million aftertax extraordinary loss sprint 1999 sprint redeemed scheduled maturities 575 million broadband fixed wireless companies debt assumed fon group 22 billion revolving credit facilities borrowings allocated pcs group borrowings interest rates ranging 56 145 resulted 60 million aftertax extraordinary loss sprint financial condition sprints consolidated assets increased 27 billion 2001 net property plant equipment increased 37 billion reflecting capital expenditures support pcs network expansion fillin buildout ip network long distance local network enhancements partly offset depreciation network asset sales investments affiliates decreased 319 million mainly reflecting equity net losses affiliates writedown certain equity method investments rating agencies generally give form equity treatment equity unit notes determining debttototalcapital ratios sprint debttototalcapital ratio 599 yearend 2001 versus 573 yearend 2000 assuming sprint equity unit notes treated 80 equity 20 debt accordingly debttototalcapital ratio sprint calculated defining debt shortterm borrowings longterm debt capital lease obligations 20 equity unit notes value total capital defined debt plus remaining 80 equity unit notes value redeemable preferred stock total shareholders equity see liquidity capital resources information changes sprints consolidated balance sheets liquidity capital resources sprints board exercises discretion regarding liquidity capital resource needs group includes ability prioritize use capital debt capacity determine cash management policies make decisions regarding timing amount capital expenditures actions board directors subject fiduciary duties shareholders sprint holders particular class common stock given boards discretion matters may difficult assess groups liquidity capital resource needs future prospects based past performance operating activities operating cash flows increased 394 million 2001 24 billion 2000 2001 increase reflects improved operating results pcs group partly offset decline fon group operating results 2001 increase also reflects decreases working capital requirements fon group partly offset increases working capital requirements pcs group decrease fon group working capital requirements caused primarily reduction accounts receivable resulted global markets division revenue decline increased billing adjustments bad debt cash collections also causing decrease accrued restructuring costs paid yearend 2001 increase pcs group working capital requirements caused primarily increase accounts receivable resulted mainly larger revenues associated subscriber growth 2000 increase operating cash flows reflects decreases working capital requirements fon group pcs group improved operating results pcs group 2000 decrease working capital requirements caused primarily increases accounts payable current liabilities associated purchases equipment support subscriber growth adoption sab101 increases offset increases accounts receivable inventories associated subscriber growth investing activities fon groups capital expenditures totaled 53 billion 2001 41 billion 2000 35 billion 1999 global markets division capital expenditures incurred mainly enhance network reliability meet increased demand voice datarelated services upgrade capabilities providing new products services continue development hardware deployment sprint ion termination initiative local division incurred capital expenditures accommodate voicegrade equivalent growth expand capabilities providing enhanced services continue buildout highspeed dsl services fon group capital expenditures incurred mainly sprints world headquarters campus pcs group capital expenditures totaling 38 billion 2001 30 billion 2000 26 billion 1999 incurred support continued pcs network expansion fillin 2001 amount also includes approximately 600 million expenditures related deployment 3g technology expected operational middle 2002 investing activities also include proceeds sales assets totaling 301 million 2001 258 million 2000 243 million 1999 2000 investing activities also include 14 billion proceeds sale fon groups interest global one 1999 sprint purchased several broadband fixed wireless companies 618 million excluding assumed debt investments loans affiliates net 66 million 2001 889 million 2000 135 million 1999 amounts mainly investments earthlink intelig pegaso see note 3 notes consolidated financial statements information investments financing activities financing activities reflect net borrowings 40 billion 2001 23 billion 2000 40 billion 1999 financing activities also reflect net proceeds issuance common stock 608 million 2001 269 million 2000 957 million 1999 proceeds borrowings common stock issuances used mainly fund capital investments working capital requirements sprint paid dividends 451 million 2001 448 million 2000 441 million 1999 also included financing activities proceeds sprints employee stock purchase plan 108 million 2001 182 million 2000 136 million 1999 capital requirements sprints 2002 investing activities mainly consisting capital expenditures investments affiliates expected total 64 billion excludes funding nextwave spectrum company believes auction either significantly delayed terminated fon group capital expenditures expected 30 billion pcs group capital expenditures expected 34 billion sprint continues review capital expenditure requirements closely adjust spending capital investment concert growth investments affiliates expected less 50 million dividend payments expected approximate 459 million 2002 considering cash generated operations incremental cash needs 2002 expected 10 billion connection pcs restructuring sprint adopted tax sharing agreement providing allocation income taxes fon group pcs group agreement expired 2001 tax year sprint adopted continuation tax sharing arrangement except elimination provisions addressing certain types acquisitions restructurings never became operable original arrangement sprint expects fon group continue make significant payments pcs group arrangement expected pcs group operating losses near future using pcs groups net operating loss carryforwards payments reflect pcs groups incremental cumulative effect sprints consolidated federal state tax liability tax credit position pcs group received payments fon group totaling 292 million 2001 872 million 2000 764 million 1999 see note 1 notes consolidated financial statements allocation federal state income taxes details liquidity sprint currently uses commercial paper fund shortterm working capital needs sprint also uses longterm bond market well debt markets fund needs sprint intends continue borrowing funds us international money capital markets bank credit markets fund capital expenditures operating working capital requirements sprint currently revolving credit facilities syndicates domestic international banks totaling 5 billion 3 billion 364day facility expiring august 2002 2 billion five year facility expiring august 2003 facilities unused however sprints commercial paper borrowings supported revolving credit facilities certain notes payable relate separate revolving credit facility 500 million expires december 2002 yearend 2001 sprint total unused lines credit 19 billion assuming sprints commercial paper borrowings outstanding credit facilities addition sprint standby letters credit serving backup various obligations totaling 133 million yearend 2001 borrowings sprint may incur ultimately limited certain debt covenants sprint could borrow additional 31 billion yearend 2001 restrictive debt covenants sprint currently compliance debt covenants associated borrowings march 2002 sprint signed commitment letter 1 billion term loan facility commitment fully incremental 5 billion revolving credit facilities nine month loan secured assets sprints directory publishing business term loan facility expected fully fund sprints 2002 incremental cash needs 2001 fourth quarter sprint issued 175 billion debt securities private debt placement borrowings interest rate 60 mature 2007 proceeds allocated fon pcs groups used repay debt fund capital investments working capital requirements condition sale securities sprint agreed conduct exchange offer allowed original securities exchanged substantially identical securities registered sec exchange offer terminated february 21 2002 2001 third quarter sprint completed registered offering 235 million shares series 1 pcs common stock net proceeds issuance approximately 561 million deducting underwriting discount offering expenses proceeds used repay debt fund capital investments working capital requirements 2001 third quarter sprint completed registered offering 69 million equity units stated amount 25 net proceeds issuance approximately 17 billion deducting underwriting discount offering expenses proceeds allocated pcs group used repay debt fund capital investments working capital requirements see note 11 notes consolidated financial statements equity unit offering detailed description equity units 2001 first quarter sprint issued 24 billion debt securities sprint 2 billion unissued securities existing shelf registration statement sec registered additional 400 million issuance borrowings interest rates ranging 71 76 mature 2006 2011 proceeds allocated pcs group used repay debt fund capital investments working capital requirements 2000 second quarter sprint issued 125 billion debt securities 4 billion shelf registration statement sec borrowings mature 2002 interest rates ranging 69 76 proceeds allocated pcs group used repay debt fund capital investments working capital requirements sprint believes access sources liquidity capital markets monetization noncore assets directory publishing business moodys investors service standard poors corporate ratings currently rate sprints longterm senior unsecured debt baa1 bbb respectively downgrade either rating may increase cost future borrowings downgrade longterm senior unsecured debt triggered commercial paper rating downgrade access commercial paper market may become limited ratings downgrade baa3 bbb would result acceleration least 250 million debt potentially much 11 billion management maintains frequent communication rating agencies considers downgrade baa3 bbb unlikely january 2002 moodys investors service placed baa1 longterm ratings sprint capital corporation review possible downgrade february 2002 fitch ratings downgraded sprints senior unsecured debt equity unit security bbb downgrade rating outlook senior debt sprint capital corporation changed stable negative sprints ability fund capital needs ultimately impacted overall capacity terms commercial paper bank termdebt equity markets significant volatility markets time caused economic downturn recent business failures reduced confidence financial accounting process sprint monitoring markets closely taking steps maintain much financial flexibility possible maintaining reasonable capital structure cost sprints contractual obligations including commitments future payments noncancelable lease arrangements short long term debt arrangements summarized fully disclosed notes 10 11 15 sprints consolidated financial statements sprint participate secure financings unconsolidated limited purpose entities spe regulatory developments see regulatory developments part filing financial strategies general hedging policies sprint selectively enters interest rate swap cap agreements manage exposure interest rate changes debt sprint also enters forward contracts options foreign currencies reduce impact changes foreign exchange rates sprint seeks minimize counterparty credit risk stringent credit approval review processes selection creditworthy counterparties continual review monitoring counterparties thorough legal review contracts sprint also controls exposure market risk regularly monitoring changes foreign exchange interest rate positions normal stress conditions ensure exceed established limits sprints derivative transactions used hedging purposes comply boardapproved policies senior management receives frequent status updates outstanding derivative positions interest rate risk management sprints interest rate risk management program focuses minimizing exposure interest rate movements setting optimal mixture floating fixedrate debt minimizing liquidity risk sprint uses simulation analysis assess interest rate exposure establish desired ratio floating fixedrate debt extent possible sprint manages interest rate exposure floatingtofixed ratio borrowings sometimes uses interest rate swaps caps adjust risk profile sprint significant interest rate swap cap activity hedge effects adverse fluctuations interest rates december 31 2001 foreign exchange risk management sprints foreign exchange risk management program focuses hedging transaction exposure optimize consolidated cash flow sprints main transaction exposure results net payments made overseas telecommunications companies completing international calls made sprints domestic customers international operations material consolidated financial position results operations cash flows yearend 2001 addition foreign currency transaction gains losses material sprints 2001 results operations sprint entered significant foreign currency forward contracts derivative instruments hedge effects adverse fluctuations foreign exchange rates result sprint subject material foreign exchange risk recently issued accounting pronouncements see note 18 notes consolidated financial statements discussion recently issued accounting pronouncements item 7a item 7 managements discussion analysis financial condition results operations information required item 7 incorporated reference annex ii annex iii included herein item 7a item 7 management’s discussion analysis financial condition results operations forwardlooking statements include certain estimates projections forwardlooking statements annual quarterly current reports publicly available material statements regarding expectations including performance assumptions estimates relating capital requirements well statements historical facts forwardlooking statements reflect management’s judgments based currently available information involve number risks uncertainties could cause actual results differ materially forwardlooking statements respect forwardlooking statements management made assumptions regarding among things customer network usage customer growth retention pricing operating costs timing various events economic regulatory environment future performance cannot assured actual results may differ materially forwardlooking statements factors could cause actual results differ include • effects vigorous competition including impact competition price able charge customers services equipment provide ability attract new customers retain existing customers overall demand service offerings including impact decisions new subscribers postpaid prepaid services offerings two network platforms impact new emerging competing technologies business • impact overall wireless market penetration ability attract retain customers good credit standing intensified competition among wireless carriers customers • impact difficulties may continue encounter connection integration premerger sprint nextel businesses integration businesses assets nextel partners pcs affiliates provide wireless pcs sprint® brand name acquired including risk difficulties may limit ability fully integrate operations businesses risk unable continue retain key employees • uncertainties related implementation business strategies investments networks systems businesses including investments required connection planned deployment next generation broadband wireless network • costs business risks associated providing new services entering new geographic markets including respect development new services expected provided using next generation broadband wireless network plan deploy • impact potential adverse changes ratings afforded debt securities ratings agencies • effects mergers consolidations new entrants communications industry unexpected announcements developments others communications industry • unexpected results litigation filed us • inability third parties perform requirements agreements related business operations including significant adverse change ability handset suppliers provide devices motorola’s ability willingness provide related equipment software applications develop new technologies features iden® network • impact adverse network performance • costs andor potential customer impacts compliance regulatory mandates particularly requirements related reconfiguration 800 mhz band used operate iden network contemplated fcc’s report order released august 2004 supplemented subsequent memoranda • equipment failure natural disasters terrorist acts breaches network information technology security • one markets compete impacted changes political economic factors monetary policy legal regulatory changes external factors control • risks referenced time report including part item 1a “risk factors” filings sec words “may” “could” “estimate” “project” “forecast” “intend” “expect” “believe” “target” “providing guidance” similar expressions intended identify forwardlooking statements forwardlooking statements found throughout management’s discussion analysis financial condition results operations elsewhere report reader place undue reliance forwardlooking statements speak date report obligated publicly release revisions forwardlooking statements reflect events date report including unforeseen events overview global communications company offering comprehensive range wireless wireline communications products services designed meet needs individual consumers businesses government customers organized operations meet needs targeted customer groups focused communications solutions incorporate capabilities wireless wireline services meet specific needs one three largest wireless companies united states based number wireless subscribers also one largest providers wireline long distance services one largest carriers internet traffic nation extensive wireless networks global long distance tier 1 internet backbone december 17 2007 daniel r hesse joined company president chief executive officer senior management currently reviewing operations assessing strategies future business plans process still ongoing depending outcome operations future capital requirements future valuation longlived assets could affected part overall business strategy regularly evaluate opportunities strengthen business may time discussing negotiating transaction consummated could material effect business financial condition liquidity results operations result forwardlooking information provided document based information currently available senior management believe communications industry continue highly competitive basis price types services devices offered quality service although believe many targeted customers base purchase decisions quality service availability differentiated features services competitive pricing terms monthly recurring charges number minutes features available particular rate plan handset offerings pricing often important factors potential customers’ purchase decisions fcc regulates licensing operation acquisition sale licensed radio spectrum essential business fcc state public utilities commissions pucs also regulate provision communications services future changes regulations legislation related spectrum licensing matters related business could impose significant additional costs us either form direct outofpocket costs additional compliance obligations business segments two reportable segments wireless wireline see note 12 notes consolidated financial statements additional information segments wireless products services strategy utilize stateoftheart technology provide differentiated wireless services applications order acquire retain highquality wireless subscribers offer wide array wireless mobile telephone wireless data transmission services networks utilize cdma iden technologies meet needs individual consumers businesses government customers wireless segment together pcs affiliates resellers wholesale wireless services offer digital wireless service 50 states puerto rico us virgin islands provide wireless coverage 360 metropolitan markets including 341 349 largest us metropolitan areas serving 54 million wireless subscribers december 31 2007 offer wireless international voice roaming subscribers cdma idenbased services numerous countries cdma network utilizes highspeed evolution data optimized evdo technology provide highspeed data applications incorporated evdo rev recent version evdo technology designed support variety ip video high performance walkietalkie applications 82 cdma network offer wide array wireless mobile telephone data transmission services features variety pricing plans typically contract basis one two year periods services billed monthly basis according applicable pricing plan typically includes fixed charge certain services variable charges services also offer wireless services focus youth market including boost mobile prepaid wireless service iden network boost unlimitedsm local calling wireless service cdma network also offer wholesale cdmabased wireless services resellers commonly known mvnos qwest communications international inc virgin mobile usa helio inc movida communications inc embarq purchase wireless services us wholesale rates resell services customers brand names mvno arrangements operators bear costs subscriber acquisition billing customer service offer broad portfolio data services across cdma network including data messaging photo video offerings entertainment locationbased applications marketed power visionsm mobile broadband applications laptops devices iden network continue support features services designed meet needs customers nextel prepaid boost mobile brands feature industryleading walkietalkie services give subscribers ability communicate instantly across continental united states hawaii agreements iden providers select markets canada latin america mexico well variety digital wireless mobile telephone wireless data transmission services offer data services iden network support full complement data services many services available limited capabilities offer devices operate seamlessly cdma iden networksmarketed powersourcetmthat enable us offer wireless service combines cdmabased voice data applications idenbased walkietalkie applications focusing sales efforts powersource devices existing subscribers certain iden services offer benefit higher data speeds cdma addition also improving product service offerings iden network include introduction several new handsets 2008 plan utilize qualcomm incorporated’s qchat® technology designed provide high performance walkietalkie services cdma network designing interfaces provide interoperability walkietalkie services cdma iden networks upon successful launch qchat devices expect succeed powersource devices currently testing qchat application cdma network goal launch commercial service offerings 2008 information regarding dispute involving intellectual property rights qualcomm relate qchat see item 1a “risk factorsthe intellectual property rights utilized us suppliers service providers may infringe intellectual property rights owned others” service revenue wireless segment generates revenues provision wireless services sale wireless equipment provision wholesale services ability wireless segment generate service revenues primarily function • number subscribers serve turn function ability acquire new retain existing subscribers • revenue generated subscriber turn function types amount services utilized subscriber rates charge services declines subscriber base revenue generated subscriber group discussed resulted decline service revenue postpaid prepaid subscribers wireless industry subject intense competition impacts ability attract retain subscribers wireless services markets operate high rates penetration wireless services limit growth subscribers wireless services consequently believe wireless carriers must attract greater proportion new subscribers existing customer bases competitors rather first time purchasers wireless services high penetration rates first time purchasers wireless services tend lower credit ratings credit history result wireless carriers focused considerable efforts care service existing subscribers retention valued customers competitors reported significant improvements postpaid customer retention rates ie rates customer churn combination decreased rates churn competitors together slowing rate subscriber growth reduced pool potential subscribers making wireless service provider decisions table showing net additions losses past twelve quarters direct subscribers iden cdma networks excluding subscribers obtained business combinations existing subscribers migrated networks indirect subscribers mvnos pcs affiliates b total iden cdma postpaid subscribers quarters 2005 2006 2007 c average rates monthly postpaid prepaid customer churn past twelve quarters 1 fourth quarter 2006 changed subscriber deactivation policy postpaid subscribers provide us additional time retain subscribers subject deactivation due late payment effect change subscriber base october 1 2006 increased 436000 subscribers adjusted subscriber beginning balance increase direct net subscriber additions decrease customer churn rates fourth quarter 2006 due policy change 2 includes subscribers powersource devices introduced fourth quarter 2006 3 third quarter 2007 implemented additional churn rule remove impact activations deactivations occurring within 30 days account new rule believe presents precise churn calculation reduced churn 10 basis points 23 third quarter 2007 additional churn rule impact reported net additions results operations prior period churn figures adjusted additional churn rule 2007 endeavored retain subscribers attract new subscribers improving customer care sales distribution functions addition took actions effort improve customers’ experience including improving network performance adding cell sites expand coverage capacity networks enhancing brand awareness increased media spending broadening handset portfolio primarily introduction new cdma powersource handsets added 16 million net postpaid subscribers cdma network 2007 however experienced continued decline number new postpaid cdma subscribers fourth quarter 2007 competitive marketing conditions including increased advertising promotions competitors contributed decline number new customers earlier year adjusted credit policy certain markets effort attract new subscribers late 2007 adjusted credit policies returned policy standards similar mid 2006 also contributed decline subscriber additions cdma platform fourth quarter 2007 continually monitor adjust credit policies effort attract desirable profitable customers including lower credit quality customers ratio subscribers subprime credit rating prime credit rating decreased slightly fourth quarter 2006 refer “results operationssegment results operationswirelesswireless segment earnings” discussion subscriber trends experienced declines number new iden postpaid subscribers recent quarters lost 28 million net postpaid subscribers network 2007 consumer sentiment regarding iden network reduced marketing programs limited new handset offerings higher market prices contributed decline new iden customers calculate churn dividing net subscriber deactivations quarter sum average number subscribers month quarter net subscriber deactivations used numerator churn calculation accounts comprised multiple subscribers family plans enterprise accounts net deactivations defined deactivations excess customer activations particular account within 30 days postpaid churn consists voluntary churn subscriber makes determination cease customer involuntary churn terminate customer’s service due lack payment reasons involuntary deactivations represent slightly half deactivations cdma network 2007 although overall postpaid churn relatively flat 2007 compared 2006 postpaid churn iden platform increased offset reduced postpaid churn cdma platform voluntary churn iden network adversely impacted customer sentiment related network limited handset offerings higher market prices customer care experience overall 2007 postpaid churn remains high relative competitors reasons prepaid subscriber churn increased compared 2006 primarily due competition prepaid youth markets new entrants refer “results operationssegment results operationswirelesswireless segment earnings” discussion churn trends average revenue per subscriber table showing average revenue per postpaid prepaid subscriber past twelve quarters average monthly service revenue per subscriber quarter calculated dividing quarterly service revenue sum average number subscribers month quarter changes average monthly postpaid service revenue due changes rate plans offer usage service applications subscribers decline average monthly voice revenue primarily due loss subscribers higher priced service plans new subscribers acquired pcs affiliates lower priced service plans addition decline partly attributable migration existing customers family addon plans include roaming service plan well increased sales businesses government receive favorable volumebased pricing addition standard voice plans offer data plans add plans provide customers offerings short message service sms connection cards sprint vision power vision service plan products services becoming increasingly popular customers decline average voice revenue per subscriber partially offset increase average data revenue per postpaid subscriber assurance data service revenue per subscriber continue grow current rates eventually offset declines voice revenue segment earnings wireless segment earnings primarily function wireless service revenue costs acquire subscribers network interconnection costs serve subscribers wireless segment operating expenses costs acquire customers includes net cost sell handsets referred handset subsidies well marketing sales costs incurred attract customers network costs primarily represent switch cell site costs interconnection costs generally consist perminute use fees roaming fees paid carriers remaining costs associated operating wireless segment include costs operate customer care organization back office support bad debt expense wireless service revenue costs acquire subscribers network interconnection costs generally variable nature fluctuate growth subscriber base certain elements fixed 800 megahertz spectrum reconfiguration fcc’s report order required complete reconfiguration plan designed eliminate interference public safety operators 800 mhz spectrum band spectrum reallocation result efficient use 800 mhz spectrum detailed discussion report order impact us see item 1 businesslegislative regulatory developmentsregulations wireless operations800 mhz band spectrum reconfiguration report order implemented rules reconfigure spectrum 800 mhz band 36month phased transition process surrendered certain portions holdings 800 mhz spectrum band obligated fund cost incurred public safety systems incumbent licensees reconfigure 800 mhz spectrum band part process markets must cease using portions 800 mhz spectrum reconfiguration able commence use replacement 800 mhz spectrum based terms report order subsequent fcc 800 mhz transition administrator ta actions planning implementing spectrum exchanges affected public safety agency based upon agency’s ability complete reconfiguration process thereby limiting time cease using surrendered spectrum replacement spectrum available use september 2007 fcc issued order third moo among things requires june 2008 vacate many 800 mhz channels currently use even applicable public safety licensee ready relocate vacated spectrum could result sudden significant decrease network capacity turn would adversely affect performance iden network appealed order us court appeals dc circuit order overturned modified could attempt construct additional sites acquire additional spectrum extent possible markets network investments possible may required curtail subscriber additions incent certain existing subscribers iden services use powersource devices move cdma network capacity limitation alleviated particularly replacement 800 mhz spectrum available extended length time degradation network performance market could result higher subscriber churn market loss significant number subscribers could adversely affect results operations based fcc’s determination values spectrum rights received surrendered minimum obligation incurred report order 28 billion report order also provides qualifying costs incur part reconfiguration plan including costs reconfigure infrastructure spectrum positions used offset minimum obligation 28 billion however obligated pay full amount costs relating reconfiguration plan even costs exceed amount addition financial reconciliation required completed end reconfiguration implementation determine whether value spectrum rights received exceeds total value spectrum rights surrendered ii qualifying costs referred required pay difference us treasury described based fcc’s determination values spectrum rights received surrendered nextel minimum obligation incurred report order 28 billion report order also provides qualifying costs incur part reconfiguration plan including costs reconfigure infrastructure spectrum positions used offset minimum obligation 28 billion however obligated pay full amount costs relating reconfiguration plan even costs exceed amount inception program december 31 2007 incurred approximately 11 billion costs directly attributable spectrum reconfiguration program amount include internal network costs preliminarily allocated reconfiguration program capacity sites modifications may request credit reconfiguration program successful appeal third moo estimate based experience date reconfiguration program information currently available total direct costs attributable complete spectrum reconfiguration range 27 billion 34 billion estimate dependent significant assumptions including final licensee costs associated relocating licensees canadian mexican border regions currently approved border plans addition range include apportioned internal network costs actual results could differ estimates addition entitled receive reimbursement mobilesatellite service licensees pro rata portion costs clearing portion 19 ghz spectrum licensees may unable unwilling reimburse us share costs estimate approximately 200 million unsuccessful appeal third moo anticipate costs could exceed 34 billion amount would likely material however believe unlikely required make payment us treasury required terms report order delivered 25 billion letter credit provide assurance funds available pay relocation costs incumbent users 800 mhz spectrum although report order provides possibility periodic reductions amount letter credit reductions requested made december 31 2007 wireline segment provide broad suite wireline voice data communications services targeted domestic business customers multinational corporations communications companies services include domestic international data communications using various protocols mpls technologies ip asynchronous transfer mode atm frame relay managed network services voice services also provide services cable msos resell local long distance service use back office systems network assets support telephone service provided cable facilities primarily residential enduser customers one nation’s largest providers long distance services operate alldigital long distance tier 1 ip networks several years long distance voice services experienced industrywide trend lower revenue lower prices competition wireline wireless communications companies well cable msos internet service providers growth voice services provided cable msos accelerating consumers use cable msos alternatives local long distance voice communications providers continue assess portfolio services provided wireline segment focusing efforts ipbased services deemphasizing standalone voice services nonipbased data services example addition increased emphasis selling ip managed services converting existing customers atm frame relay advanced ip technologies conversion continue result decreases revenue frame relay atm service offset increases ip mpls services also taking advantage growth voice services provided cable msos providing large cable msos wholesale voice local long distance offer part bundled service offerings well traditional voice data services enterprise use wimax initiative plan deploy next generation broadband wireless network designed provide significantly higher data transport speeds using spectrum holdings 25 gigahertz ghz band technology based worldwide interoperability microwave access wimax standard designing network support wide range highspeed ipbased wireless services mobile environment initial plans contemplate deploying new network introducing commercial service offerings chicago baltimore washington dc mid2008 exploring strategic initiatives third party financing alternatives related initiative 2007 operating expenses related initiative totaled 193 million capital expenditures totaled 384 million deployment network continue require capital resources without meaningful revenues foreseeable future results operations present consolidated information well separate supplemental financial information two reportable segments wireless wireline disaggregated financial results two reportable segments prepared manner consistent basis manner executives evaluate segment performance make resource allocation decisions consequently segment earnings defined wireless wireline operating income segment expenses depreciation amortization severance exit costs asset impairments goodwill impairment merger integration expenses solely directly attributable segment expenses income items excluded segment earnings managed corporate level merger integration expenses generally nonrecurring nature primarily include costs launch common customer interfacing systems processes integration planning activities certain costs provide wireless devices operate seamlessly cdma iden networks certain customer care costs retain employees costs related rebranding integration costs see note 12 notes consolidated financial statements additional information segments reconciliations segment earnings closest generally accepted accounting principles measure operating income see tables set forth “wireless” “wireline” generally account transactions segments based fully distributed costs believe approximate fair value certain transactions pricing set using market rates consolidated wireless results operations include results merged acquired companies either date mergeracquisition start month closest acquisition date results merged acquired companies included following dates nextel communications us unwired august 12 2005 gulf coast wireless limited partnership october 1 2005 iwo holdings inc november 7 2005 enterprise communications partnership alamosa holdings inc february 1 2006 nextel partners ubiquitel inc july 1 2006 northern pcs services llc august 1 2007 results velocita wireless holding corporation included date acquisition march 1 2006 date sale june 27 2007 information business combinations see note 2 notes consolidated financial statements transactions affect comparability reported operating results periods may 17 2006 spunoff shareholders local communications business known embarq corporation comprised primarily local wireline communications segment prior spinoff result spinoff longer interest embarq results embarq periods prior spinoff presented discontinued operations following table summarizes consolidated results operations net operating revenues decreased 2 2007 compared 2006 reflecting decrease revenues wireless segment principally due decrease wireless equipment revenue increased 43 2006 compared 2005 primarily result business combinations partially offset declining revenues wireline segment additional information see “segment results operations” income continuing operations decreased loss 296 billion 2007 compared income 995 million 2006 primarily due goodwill impairment charge 297 billion income continuing operations increased 995 million 2006 compared income 821 million 2005 primarily due revenue growth result business combinations described partially offset increases cost service primarily due higher volume roaming interconnection expenses additional information see “segment results operations” “consolidated information” 2007 incurred net loss 296 billion compared net income 13 billion 2006 due reasons stated absence income discontinued operations 2007 net income decreased 13 billion 2006 compared net income 18 billion 2005 primarily result embarq spinoff additional information see “segment results operations” “consolidated information” presented results operations wireless wireline segments followed discussion consolidated information segment results operations wireless nmnot meaningful 1 merger integration expenses discussed consolidated information section amounts include 63 million year ended december 31 2006 reclassified corporate segment expenses solely directly attributable wireless segment 2 severance exit costs asset impairments depreciation amortization discussed consolidated information section expense net includes net costs associated exit noncore line business year ended december 31 2007 includes charges associated legal contingencies insurance recoveries 3 2007 recognized 297 billion noncash impairment charge goodwill related wireless segment recorded component operating income goodwill impairment discussed consolidated information section service revenue service revenues consist fixed monthly recurring charges variable usage charges miscellaneous fees activation fees directory assistance operatorassisted calling equipment protection late payment early termination charges certain regulatory related fees service revenue totaled 310 billion 2007 311 billion 2006 193 billion 2005 following summary average subscribers average revenue per subscriber years ended december 31 2007 2006 2005 number subscribers impacts service revenues cost service bad debt expense well support costs customer care billing included general administrative expenses summary changes net additions subscribers average monthly revenue per subscriber last three years may found pages 38 39 1 average subscribers represent weighted average number direct subscribers included customer base period including subscribers added acquisitions net deactivated subscribers 2 average subscribers year ended december 31 2007 inclusive 170000 subscribers acquired 2007 acquisition northern pcs compared 4156000 subscribers acquired 2006 acquisitions certain pcs affiliates nextel partners 17989000 860000 subscribers acquired 2005 sprintnextel merger acquisitions certain pcs affiliates service revenues decreased 15 million less 1 2007 compared 2006 due • decrease approximately 220 million service revenue direct postpaid subscribers decrease due primarily decline average monthly service revenue per postpaid user attributable decrease average monthly voice revenue per postpaid user partially offset increase average monthly data revenue per postpaid user decline partially offset increase revenue attributable increase weighted average number direct postpaid subscribers offset • net increase approximately 205 million service revenue prepaid subscribers increase due primarily increase average number direct prepaid subscribers partially offset decline average monthly service revenue per prepaid subscriber service revenues increased 118 billion 61 2006 compared 2005 due • net increase approximately 108 billion service revenue direct postpaid subscribers due primarily increase average number direct postpaid subscribers acquired sprintnextel merger • net increase approximately 10 billion service revenue prepaid subscribers due primarily increase average number direct prepaid subscribers acquired sprintnextel merger net increase postpaid subscribers function several factors believe subscribers acquired business combinations new subscribers attracted differentiated products services particularly cdmabased datarelated services including available sprint power vision service plans nonvoice services within existing customer base 2007 16 million subscribers including 400000 subscribers fourth quarter transferred iden subscriber base take advantage products services include data cards downloading music global positioning satellite gps enabled navigation services instant messaging emails sending receiving pictures playing online games browsing internet wirelessly powersource handsets using cdmabased voice data applications idenbased walkietalkie applications offsetting increase cdma subscribers also experienced continued decline iden subscribers addition transferred iden subscriber base cdma subscriber base believe decline due part customer sentiment related network limited handset offerings higher market prices customer care experience see subscriber trends discussed “wireless segment earnings” average monthly service revenue per postpaid subscriber generally decreased year due primarily declines voice revenue per subscriber decline primarily due loss subscribers higher priced service plans new subscribers acquired pcs affiliates lower priced service plans addition decline partly attributable migration existing customers family addon plans include roaming service plan well increased sales businesses government receive favorable volumebased pricing decline average voice revenue per subscriber partially offset increase average data revenue per postpaid subscriber attributable cdmabased data offerings short message service sms connection cards sprint vision power vision service plans decrease average monthly service revenue per prepaid subscriber year ended december 31 2007 due part decrease usage wireless services existing customers see average monthly service revenue per postpaid subscriber trends discussed “wireless segment earnings” wholesale affiliate revenue wholesale affiliate revenues consist primarily revenues sale wireless services companies resell services subscribers net revenues retained wireless subscribers residing pcs affiliate territories wholesale affiliate revenues increased 22 2007 compared 2006 primarily due increases wholesale operators’ subscribers wholesale affiliate revenues decreased 4 2006 compared 2005 primarily due pcs affiliate acquisitions 2007 wholesale subscriber additions 13 million resulting 77 million wholesale subscribers december 31 2007 compared 64 million wholesale subscribers december 31 2006 52 million wholesale subscribers december 31 2005 cost services cost services consists primarily • costs operate maintain cdma iden networks including direct switch cell site costs rent utilities maintenance payroll costs associated network engineering employees frequency leasing costs • fixed variable interconnection costs fixed component consists monthly flatrate fees facilities leased local exchange carriers based number cell sites switches service particular period related equipment installed site variable component generally consists perminute use fees charged wireline wireless providers calls terminating networks fluctuates relation level duration terminating calls • long distance costs paid wireline business • costs service repair handsets activate service new subscribers • roaming fees paid carriers • variable costs relating payments third parties use proprietary data applications ringers games music tv navigation customers cost services increased 7 2007 compared 2006 primarily due increased costs relating expansion network increased minutes use networks specifically experienced • increase roaming expenses primarily respect subscribers cdma services due increased data voice usage outside cdma network • increase cell site switchrelated operational costs including increases rent fixed variable interconnection costs due increase usage number cell sites related equipment service cost services increased 49 2006 compared 2005 primarily due increased costs resulting sprintnextel merger service gross margin declined 2 2007 compared 2006 increased 62 2006 compared 2005 due reasons described percentage total service revenue service gross margin decreased slightly 73 2007 75 2006 73 2005 equipment revenue recognize equipment revenue title handset accessory passes dealer enduser customer reduce equipment revenue certain payments thirdparty dealers reimburse dealer point sale discounts offered enduser subscriber revenues sales handsets accessories decreased 18 2007 compared 2006 primarily due decrease average sales price handsets due aggressive acquisition retention handset pricing slightly offset increase number handsets sold revenues sales handsets accessories increased 49 2006 compared 2005 primarily due additional handsets sold due sprintnextel merger pcs affiliate nextel partners acquisitions cost products recognize cost handsets accessories title handset accessory passes dealer enduser customer cost handsets accessories also includes order fulfillment related expenses writedowns handset related accessory inventory shrinkage obsolescence cost handsets reduced rebates earn supplier handset accessory costs increased 2 2007 compared 2006 due increase number handsets sold increase average cost units sold continue sell higher priced units functionality handset accessory costs increased 51 2006 compared 2005 primarily due additional handsets sold due sprintnextel merger pcs affiliate nextel partners acquisitions subsidy marketing plans assume handsets typically sold prices cost consistent industry practice subscriber retention efforts often include providing incentives customers offering new handsets discounted prices handset costs excess revenues generated handset sales referred industry subsidy percentage equipment revenues increased 94 2007 55 2006 54 2005 result efforts promote acquisition new retention existing subscribers selling general administrative expense sales marketing costs primarily consist customer acquisition costs including commissions paid indirect dealers thirdparty distributors direct sales force new handset activations upgrades residual payments indirect dealers payroll facilities costs associated direct sales force retail stores marketing employees advertising media programs sponsorships including costs related branding general administrative expenses primarily consist costs billing customer care information technology operations bad debt expense back office support activities including collections legal finance human resources strategic planning technology product development sales marketing expense increased 9 2007 2006 compared increase 47 2006 2005 year ended december 31 2007 experienced increased advertising expense reflecting renewed focus promoting brand effort gain market share attracting new subscribers continuing build loyalty among existing subscribers increased compensation postpaid thirdparty dealers new subscriber additions upgrades general administrative costs increased 5 2007 2006 compared increase 67 2006 2005 primarily due increases bad debt expense resulting higher average writeoffs per account increases customer care costs due higher call volumes additional customer care representatives costs partially offset decreases billing costs due application rationalization including financial reporting billing system consolidations bad debt expense increased 262 million 2007 896 million compared 168 million increase 2006 634 million 2007 increase primarily result higher average writeoffs per account accounted 77 increase bad debt increases average writeoffs per account attributed higher number subscribers per account increased addaphone activity increased incidence overages increased fees related data services increased credit extended early 2007 2006 increase primarily attributable increase number subscribers including subscribers acquired acquisitions increase involuntary churn wireless segment earnings wireless segment earnings decreased 18 billion 15 2007 2006 primarily due increases costs acquire subscribers due lower equipment revenue increases network interconnection costs wireless segment earnings increased 47 billion 68 2006 2005 primarily due increased revenue resulting additional subscribers acquired connection sprintnextel merger pcs affiliate nextel partners acquisitions based information currently available management expect experience continued downward pressure wireless segment earnings near term including significant reduction first quarter 2008 compared wireless segment earnings 22 billion fourth quarter 2007 specifically expect service revenue continue decline near term due expected declines number new subscribers increases churn including churn cdma network reasons discussed page 39 well decline average monthly service revenue per user growth data services expected partially offset declines voice services addition plan lower prices certain handset devices equipment net subsidy may increase could increase overall cost acquire subscribers although management implemented program designed rationalize cost structure reducing workforce decreasing number external contractors eliminating poor performing distribution points expect cost reductions offset expected service revenue declines increases net equipment subsidy described see “forwardlooking statements” wireline 1 2006 figures include reclassification voip revenues voice internet 209 million cable product supported ip platform 2 severance exit costs asset impairments depreciation amortization discussed consolidated information section expense includes charges associated legal contingencies year ended december 31 2007 total net services revenues total net services revenues decreased 1 2007 compared 2006 decreased 4 2006 compared 2005 primarily result lower priced product mix well volume decreases associated reduction customer base result exit several businesses described decrease partially offset higher volume minutes affiliate business growth voip business voice revenues voice revenues decreased 7 2007 compared 2006 decreased 9 2006 compared 2005 2007 decrease primarily result certain business customers transferred embarq part spinoff second quarter 2006 well decrease customer base continued price declines also contributing decrease loss conference line customers due final transition activities third quarter 2006 part sale business 2006 decrease also reflects sale unbundled network element platform unep customers first quarter 2006 retail business experienced decrease voice revenues 22 2007 compared 2006 decrease 25 2006 compared 2005 2007 decrease primarily due loss accounts related embarq spinoff sale conference line business lower prices 2006 decrease primarily due increased competition resulted lower prices per minute notwithstanding increased minute volumes business trends continue shift away retail business toward wholesale business voice revenues related wholesale business increased 1 2007 compared 2006 increased 19 2006 compared 2005 minute volume increases accounted 2007 2006 increases primarily result relationship embarq began providing wholesale long distance services embarq following spinoff rate declines slightly offset minute volume increase voice revenues generated provision services wireless segment represented 23 total voice revenues 2007 compared 17 2006 14 2005 data revenues data revenues reflect sales legacy data services including atm frame relay managed network services data revenues decreased 16 2007 compared 2006 decreased 12 2006 compared 2005 due declines frame relay atm services customers migrated ipbased technologies declines partially offset growth managed network services internet revenues internet revenues reflect sales ipbased data services including mpls internet revenues increased 38 2007 compared 2006 increased 38 2006 compared 2005 increases due higher ip revenues business customers increasingly migrate mpls services well revenue growth cable voip business experienced 80 increase 2007 compared 2006 127 increase 2006 compared 2005 revenues primarily consists sales customer premises equipment cpe decreased 22 2007 compared 2006 decreased 13 2006 compared 2005 result fewer projects 2007 2006 costs services products costs services products include access costs paid local phone companies domestic service providers foreign phone companies complete calls made domestic customers costs operate maintain networks costs equipment costs services products decreased 1 2007 2006 increased 2 2006 2005 decrease 2007 relates decreased costs due declining volumes improved access cost rates retail business partially offset increased activity wholesale cable voip businesses increase 2006 relates primarily network costs support growth cable initiatives addition increased domestic access volume partially offset fewer cpe projects 2006 loss unep customers renegotiated access rate agreements initiatives reduce access circuit costs service gross margin percentage decreased 36 2005 32 2006 31 2007 primarily result declining net services revenue lower margin product mix selling general administrative expense selling general administrative expense decreased 13 2007 compared 2006 decreased 23 2006 compared 2005 2007 decline due primarily recognition prepaid license vonage covering use certain patents within patent portfolio well reduction employee headcount reduced commissions result spinoff embarq decreased customer care billing expenses due smaller customer base declines partially offset increases costs associated cable voip support 2006 decline due primarily decreased marketing advertising result change mix marketing strategies lower general administrative information technology expenses selling general administrative expense includes charges estimated bad debt expense quarter reassess allowance doubtful accounts based customerspecific indicators well historical trends industry data ensure adequately reserved 2007 bad debt expense increased slightly primarily due customer specific reserves improvement 2006 2005 reflects improved trends collections agings total selling general administrative expense percentage net services revenues 15 2007 16 2006 21 2005 wireline segment earnings wireline segment earnings increased 83 million 8 2007 2006 primarily due increase internet revenue decrease selling general administrative expenses due recognition vonage prepaid license partially offset decreases voice data revenue wireline segment earnings decreased 43 million 4 2006 2005 primarily due voice revenue declines related customer migrations alternate sources cable wireless 2008 expect see continued revenue growth ip services offset declines voice revenues due lower pricing commercial contracts continued pressure long distance market addition increased competition excess capacity resulting new technologies networks may result price reductions see “forwardlooking statements” consolidated information nmnot meaningful selling general administrative expenses selling general administrative expenses primarily allocated segment level discussed segment earnings discussions selling general administrative expenses related wireless segment 112 billion 2007 104 billion 2006 67 billion 2005 selling general administrative expenses related wireline segment 943 million 2007 11 billion 2006 14 billion 2005 addition selling general administrative expenses discussed segment earnings discussions incurred corporate general administrative expenses 359 million 2007 246 million 2006 649 million 2005 including certain merger integration expenses 172 million 2007 222 million 2006 580 million 2005 discussed “merger integration expenses” also included corporate general administrative expenses related planned deployment next generation broadband wireless network expenses expected increase future quarters merger integration expenses incurred 516 million merger integration expenses 2007 413 million 2006 580 million 2005 344 million 191 million included wireless segment 2007 2006 respectively expenses solely directly attributable segment expenses generally classified selling general administrative cost products appropriate consolidated statement operations merger integration expenses solely directly attributable wireless segment included corporate segment classified selling general administrative expenses merger integration expenses increased 2007 compared 2006 primarily due costs provide wireless devices operate seamlessly cdma iden networks merger integration expenses decreased 2006 compared 2005 primarily due reduced rebranding internal labor retention costs offset increased system rationalization costs severance exit costs asset impairments 2007 asset impairments 163 million related writeoff network assets including site development costs determined would used based management’s strategic network plans loss sale velocita wireless closing retail stores due integration activities wrote 69 million assets 2006 44 million assets 2005 primarily related software asset impairments recorded severance exit costs 277 million 2007 related separation employees exit costs primarily associated sale velocita wireless continued organizational realignment initiatives associated sprintnextel merger pcs affiliate nextel partners acquisitions 2006 recorded 138 million severance exit costs primarily related realignment initiatives associated sprintnextel merger integration initiatives goodwill impairment fourth quarter 2007 performed annual assessment impairment goodwill result assessment described note 3 notes consolidated financial statements recorded noncash goodwill impairment charge 297 billion depreciation amortization expense depreciation expense 2007 remained flat compared 2006 2007 depreciation expense includes 400 million decrease related depreciation rate changes respect cdma wireline networks assets resulting annual depreciable lives study rate changes primarily related certain assets becoming fully depreciated net changes service lives certain assets decreases resulting depreciation rate changes fully offset normal additions network asset base depreciation expense increased 48 2006 2005 primarily due sprintnextel merger pcs affiliate nextel partners acquisitions amortization expense decreased 14 2007 2006 primarily due decreases amortization customer relationships acquired part sprintnextel merger amortized using sum years’ digits method resulting higher amortization rates early periods decline time amortization expense increased 25 billion 2006 2005 primarily due amortization value customer relationships definite lived intangible assets acquired connection sprintnextel merger pcs affiliate nextel partners acquisitions see note 3 notes consolidated financial statements additional information regarding definite lived intangible assets interest expense interest expense 2007 decreased 7 compared 2006 primarily reflecting reduction average debt balance effective interest rate average longterm debt balance 218 billion 2007 69 unchanged 2006 based average longterm debt balance 232 billion effective interest rate includes effect interest rate swap agreements december 31 2007 average floating rate interest rate swaps 80 weighted average coupon underlying debt 72 see “liquidity capital resources” information financing activities interest income interest income includes dividends received certain investments equity securities interest earned marketable debt securities cash equivalents 2007 interest income decreased 50 compared 2006 primarily due decrease average commercial paper held well decrease average temporary cash investments balance 2006 interest income increased 28 compared 2005 primarily due higher interest rates cash equivalents balances well interest income recognized relation favorable tax audit settlement years 1995 2002 2006 increase partially offset decrease cash investment balances due debt retirements purchases common stock acquisitions equity earnings losses unconsolidated investees net equity method accounting record proportional share earnings losses companies invested ability exercise significant influence amount investment case losses recorded 3 million equity method losses 2007 recorded 6 million equity method losses 2006 primarily due ownership interests ewireless recorded 107 million equity method earnings 2005 primarily related nextel partners realized gain sale exchange investments 2007 recognized gain sale investments 253 million primarily due pretax gain 240 million related sale portion equity interest virgin mobile usa llc vmu see note 1 notes consolidated financial statements information 2006 recognized gain sale investments 205 million primarily due 433 million gains sales investment nii holdings inc partially offset loss 274 million change fair value option contract associated investment nii holdings described note 9 notes consolidated financial statements recognized gain 62 million sale investments 2005 primarily consisted gains related investments callnet enterprises inc nii holdings earthlink inc net consists mainly gainloss early retirement debt miscellaneous incomeexpense income tax benefit expense consolidated effective tax rates 12 2007 329 2006 364 2005 2007 effective tax rate impacted 293 billion 297 billion noncash impairment charge related goodwill substantially charge separately deductible tax purposes 105 million benefit related state income tax law changes information regarding items caused effective income tax rates vary statutory federal rate income taxes related continuing operations found note 7 notes consolidated financial statements discontinued operations net discontinued operations reflect results local segment 2005 yeartodate period may 17 2006 date embarq spinoff additional information regarding discontinued operations found note 15 notes consolidated financial statements net income loss recorded net loss 2007 compared net income 2006 principally due one time noncash goodwill impairment charge wireless segment decline performance wireless segment net income decreased 2006 compared 2005 primarily due discontinued operations embarq 2006 expect downward pressure consolidated results operations near term caused principally expected decline wireless segment earnings discussed together increased severance exit costs see “forwardlooking statements” critical accounting policies estimates consider following accounting policies estimates important financial position results operations either significance financial statement item require exercise significant judgment andor use significant estimates management believes estimates used reasonable actual results could differ estimates revenue recognition allowance doubtful accounts policies operating revenues primarily consist wireless service revenues generated handset accessory sales revenues wholesale operators pcs affiliates well long distance voice data internet revenues service revenues consist fixed monthly recurring charges variable usage charges roaming directory assistance operatorassisted calling miscellaneous fees activation upgrade late payment reconnection early termination fees certain regulatory related fees recognize service revenues services rendered equipment revenue title passes dealer enduser customer accordance sec staff accounting bulletin sab 104 revenue recognition emerging issues task force eitf issue 0021 revenue arrangements multiple deliverables recognize revenue access charges services charged fixed amounts ratably service period net credits adjustments service discounts billing disputes fraud unauthorized usage recognize excess wireless usage long distance revenue contractual rates per minute minutes used additionally recognize excess wireless data usage based kilobytes onetime use charges use premium services rendered result cutoff times multiple billing cycles month required estimate amount subscriber revenues earned billed end bill cycle end reporting period estimates based primarily rate plans effect historical usage billing patterns subscriber revenue earned billed represented 114 accounts receivable balance december 31 2007 establish allowance doubtful accounts receivable sufficient cover probable reasonably estimable losses number accounts practical review collectibility accounts individually determine amount allowance doubtful accounts period although perform account level analysis respect large wireless wireline customers estimate allowance doubtful accounts considers number factors including collection experience aging accounts receivable portfolios credit quality subscriber base estimated proceeds future bad debt sales qualitative considerations including macroeconomic factors accounting estimates related recognition revenue results operations require us make assumptions future billing adjustments disputes customers unauthorized usage future returns mailin rebates handset sales allowance amounts recorded represent best estimate future outcomes extent actual experience differs significantly historical trends required allowance amounts could differ estimate resulting adjustments would change net accounts receivable reported balance sheet bad debt expense case estimates related doubtful accounts revenue case estimates related allowances reported results operations future periods example allowance doubtful accounts estimate change 10 would result corresponding change bad debt expense 37 million wireless segment 2 million wireline segment device accessory inventory inventories handsets accessories wireless segment stated lower cost market determine cost firstin firstout fifo method handset costs related revenues recognized time sale recognize expected handset subsidies prior time sale promotional discount decision made point sale expect recover handset subsidies service revenues december 31 2007 held 938 million inventory analyze realizable value handset inventory quarterly basis analysis includes assessing obsolescence sales forecasts product life cycle marketplace considerations assessments regarding factors change may required sell handsets higher subsidy potentially record expense future periods prior point sale extent expect unable sell handsets use service repair channel valuation recoverability certain longlived assets including definite lived intangible assets significant portion total assets longlived assets including property plant equipment definite lived intangible assets changes technology intended use assets well changes economic industry factors business prospects may cause estimated period use value assets change property plant equipment represented 265 billion 641 billion total assets december 31 2007 generally calculate depreciation assets using straightline method based estimated economic useful lives follows calculate depreciation certain assets using group life method accordingly ordinary asset retirements disposals charged accumulated depreciation gain loss recognized since changes technology intended use assets well changes broad economic industry factors may cause estimated period use assets change perform annual internal studies confirm appropriateness depreciable lives certain categories property plant equipment studies take account actual usage physical wear tear replacement history assumptions technology evolution calculate remaining life asset base factors indicate asset’s useful life different original assessment depreciate remaining book values prospectively adjusted estimated useful life first quarter 2007 implemented depreciation rate changes respect assets comprise cdma wireline networks resulting annual depreciable lives study revised rates reflected changes useful life estimates certain asset groups adjustments accumulated depreciation accounts reduced expense associated depreciation rate changes resulted approximately 400 million reduction depreciation expense 009 per share reduction net loss year ended december 31 2007 addition performing annual study also continue assess estimated useful life iden network assets net carrying value 79 billion december 31 2007 future strategic plans network increasingly larger portion subscriber base served cdma network reduction estimate useful life iden network assets would cause increased depreciation charges future periods could material example 10 reduction remaining weighted average useful life iden network assets would increase annual depreciation expense 170 million conjunction fourth quarter goodwill impairment review reassessed remaining useful lives longlived assets concluded appropriate process completing annual depreciation study expect results study concluded initially recorded first quarter 2008 intangible assets definite useful lives represented 60 billion 641 billion total assets december 31 2007 definite lived intangible assets consist primarily customer relationships amortized two five years using sum years’ digits method believe best reflects estimated pattern economic benefits consumed definite lived intangible assets primarily include certain rights affiliation agreements reacquired connection acquisitions certain pcs affiliates nextel partners amortized remaining terms affiliation agreements straightline basis nextel direct connect® trade names amortized ten years date sprintnextel merger straightline basis also evaluate remaining useful lives definite lived intangible assets reporting period determine whether events circumstances warrant revision remaining periods amortization would addressed prospectively example review certain trends customer churn average revenue per user revenue future plans regarding iden network changes marketing strategies among others significant changes certain trends may cause us adjust prospective basis remaining estimated life certain definite lived intangible assets additional information please refer note 3 notes consolidated financial statements review longlived assets impairment whenever events changes circumstances indicate carrying amount may recoverable group longlived assets lowest level identifiable cash flows largely independent cash flows groups assets liabilities asset groups consist wireless wireline wireless asset group includes intangible assets wireless property plant equipment goodwill indicators impairment asset groups include limited sustained significant decrease market price cash flows expected derived asset groups significant change extent manner assets group utilized significant amount judgment involved determining occurrence indicator impairment requires evaluation recoverability longlived assets total expected undiscounted future cash flows less carrying amount assets loss recognized difference fair value carrying value assets impairment analyses performed based current business technology strategy views growth rates business anticipated future economic regulatory conditions expected technological availability conjunction annual assessment goodwill impairment performed recoverability test wireless longlived assets accordance sfas 144 accounting impairment disposal longlived assets included cash flow projections wireless operations along cash flows associated eventual disposition longlived assets included estimated proceeds sale fcc licenses trade names customer relationships undiscounted future cash flows wireless longlived assets exceeded net book value result impairment charge recorded addition analyses described periodically assess certain assets yet deployed business including network equipment cell site development costs software development determine impairment charge required network equipment cell site development costs impaired whenever events changes circumstances cause us abandon assets longer needed meet management’s strategic network plans software development costs impaired longer probable software project deployed year ended december 31 2007 recorded aftertax impairment charge 103 million primarily related abandonment certain iden cell sites construction year ended december 31 2006 recorded aftertax impairment charge 43 million primarily related software asset impairments abandonments various assets including certain cell sites construction year ended december 31 2005 recorded aftertax impairment charge 27 million primarily related writeoff various software applications also periodically assess network equipment removed network determine impairment charge required continue challenges retaining iden subscribers continue assess impact rebanding iden network management may abandon certain iden assets future periods conclude assets either never deployed redeployed case would recognize noncash impairment charge could material consolidated financial statements valuation recoverability goodwill indefinite lived intangible assets intangible assets indefinite useful lives represented 221 billion 641 billion total assets december 31 2007 identified fcc licenses sprint boost mobile trademarks indefinite lived intangible assets addition goodwill considering expected use assets regulatory economic environment within used effects obsolescence use review goodwill relates solely wireless reporting unit indefinite lived intangibles annually fourth quarter impairment frequently indicators impairment exist continually assess whether indicators impairment exist requires significant amount judgment indicators may include sustained significant decline share price market capitalization decline expected future cash flows significant adverse change legal factors business climate unanticipated competition testing recoverability significant asset group within reporting unit andor slower growth rates among others adverse change factors could significant impact recoverability assets could material impact consolidated financial statements required first test goodwill impairment comparing fair value wireless reporting unit net book value fair value wireless reporting unit exceeds net book value goodwill deemed impaired testing would necessary net book value wireless reporting unit exceeds fair value perform second test measure amount impairment loss measure amount impairment loss determine implied fair value goodwill manner wireless reporting unit acquired business combination specifically allocate fair value wireless reporting unit assets liabilities unit including unrecognized intangible assets hypothetical calculation would yield implied fair value goodwill implied fair value goodwill less recorded goodwill record impairment charge difference period annual 2006 goodwill impairment assessment third quarter 2007 periodically analyzed whether indicators impairment occurred part periodic analyses derived estimated equity value wireless reporting unit compared net book value specifically reduced stock price estimated value per share wireline reporting unit added control premium permitted fasb guidance determine estimate equity value wireless reporting unit estimated fair value wireless reporting unit higher net book value periods additional testing necessary fourth quarter 2007 conducted annual assessment goodwill impairment quarter experienced sustained significant decline stock price reduced market capitalization reflected wireless segment’s lower expected performance due large part fewer expected net subscriber additions previous periods expected would able produce net postpaid subscriber additions 2007 fourth quarter reported loss 683000 postpaid subscribers postpaid subscribers ever lost quarter also updated forecasted cash flows wireless reporting unit fourth quarter update considered current economic conditions trends estimated future operating results views growth rates anticipated future economic regulatory conditions availability necessary technology network infrastructure handsets devices several factors led reduction forecasted cash flows including among others ability attract retain subscribers particularly subscribers idenbased services highly competitive environment expected reductions voice revenue per subscriber costs acquiring subscribers costs operating wireless networks based results annual assessment goodwill impairment net book value wireless reporting unit exceeded fair value therefore performed second step impairment test determine implied fair value goodwill specifically hypothetically allocated fair value wireless reporting unit determined first step recognized unrecognized net assets including allocations intangible assets customer relationships fcc licenses trade names items fair values substantially excess current book values resulting implied goodwill 935 million accordingly reduced goodwill recorded prior assessment 297 billion write goodwill implied goodwill amount december 31 2007 297 billion goodwill impairment charge best estimate goodwill charge december 31 2007 adjustment estimated charge resulting completion measurement impairment loss recognized first quarter 2008 allocation discussed performed purposes assessing goodwill impairment accordingly adjust net book value assets liabilities consolidated balance sheet goodwill result process performed extensive valuation analyses utilizing income market approaches goodwill assessment process following describes valuation methodologies used derive fair value wireless reporting unit • income approach determine fair value discounted expected cash flows wireless reporting unit discount rate used represents estimated weighted average cost capital reflects overall level inherent risk involved wireless operations rate return outside investor would expect earn estimate cash flows beyond final year model used terminal value approach used estimated operating income interest taxes depreciation amortization final year model adjusted estimate normalized cash flow applied perpetuity growth assumption discounted perpetuity discount factor determine terminal value incorporated present value resulting terminal value estimate fair value • marketbased approach corroborate results income approach described estimated fair value wireless reporting unit using several marketbased approaches including value derive based consolidated stock price described also used guideline company method focuses comparing risk profile growth prospects select reasonably similarguideline publicly traded companies determination fair value wireless reporting unit assets liabilities within wireless reporting unit requires us make significant estimates assumptions estimates assumptions primarily include limited discount rate terminal growth rates operating income depreciation amortization oibda capital expenditures forecasts due inherent uncertainty involved making estimates actual results could differ estimates evaluated merits significant assumption individually aggregate used determine fair value wireless reporting unit well fair values corresponding assets liabilities within wireless reporting unit concluded reasonable changes certain assumptions could significant impact goodwill impairment charge example decrease oibda 5 increase capital expenditures 5 would result additional goodwill impairment charge equal remaining goodwill 935 million conversely increase oibda 5 decrease capital expenditures 5 would result reduction goodwill impairment charge 29 billion 20 billion respectively 50 basis point increase decrease discount rate would result approximate 350 million increase decrease goodwill impairment charge respectively 50 basis point increase decrease terminal growth rate would result approximate 400 million decrease increase charge respectively sensitivity amounts calculated based impact change fair value wireless reporting unit well impact changes fair values assets liabilities wireless reporting unit allocation fair value wireless reporting unit individual assets liabilities within wireless reporting unit also requires us make significant estimates assumptions allocation requires several analyses determine fair value assets liabilities including among others customer relationships fcc licenses trademarks current replacement costs certain property plant equipment required test indefinite lived intangibles impairment comparing asset’s respective carrying value estimates fair value determined using direct value method fcc licenses combined single unit accounting following unit accounting guidance prescribed eitf issue 027 unit accounting testing impairment indefinitelived intangible assets except fcc licenses 25 ghz band tested separately single unit accounting estimates related indefinite lived intangible assets require us make significant assumptions fair values assumptions regarding fair values require significant judgment economic factors industry factors technology considerations well views regarding prospects business changes judgments may significant effect estimated fair values tax valuation allowances uncertain tax positions required estimate amount taxes payable refundable current year deferred tax liabilities assets future tax consequences events reflected consolidated financial statements tax returns taxing jurisdiction operate process requires management make assessments regarding timing probability ultimate tax impact record valuation allowances deferred tax assets determine likely asset realized accounting estimates related tax valuation allowance require us make assumptions regarding timing future events including probability expected future taxable income available tax planning opportunities assumptions require significant judgment actual performance fluctuated past may future impact changes actual performance versus estimates could realization tax benefits reported results operations could material carried income tax valuation allowance 723 million december 31 2007 amount includes valuation allowance 477 million total tax benefits related net operating loss carryforwards subject utilization restrictions acquired connection certain acquisitions remainder valuation allowance relates capital loss state net operating loss tax credit carryforwards within total valuation allowance 100 million related separate company state net operating losses incurred subsidiaries acquired valuation allowance provided separate company state net operating loss benefits since subsidiaries sufficient history taxable income current analyses cumulative historical income qualitative factors indicate valuation allowance continues appropriate meaning currently believe likely realize tax benefits future continue monitor analyses factors future periods may adjust valuation allowance based facts circumstances existing future periods valuation allowance relating acquired tax benefits described reverse allowance 2008 would first reduce goodwill intangible assets resulting acquisitions adjustment valuation allowance 2008 would recorded statement operations following guidance recently issued sfas 141r business combinations described detail significant new accounting pronouncements adopted fasb interpretation 48 fin 48 accounting uncertainty income taxes interpretation sfas 109 accounting income taxes january 1 2007 adoption fin 48 material impact consolidated financial statements accounting estimates related liability uncertain tax positions require us make judgments regarding sustainability uncertain tax position based technical merits determine likely tax position sustained based technical merits record impact position consolidated financial statements largest amount greater fifty percent likely realized upon ultimate settlement estimates updated reporting date based facts circumstances information available also required assess reporting date whether reasonably possible significant increases decreases unrecognized tax benefits occur next twelve months see note 7 notes consolidated financial statements additional information regarding fin 48 liability uncertain tax positions 654 million december 31 2007 actual income taxes could vary estimates due future changes income tax law significant changes jurisdictions operate inability generate sufficient future taxable income unpredicted results final determination year’s liability taxing authorities changes could significant impact financial position significant new accounting pronouncements fair value accounting pronouncements september 2006 fasb issued sfas 157 fair value measurements statement changes definition fair value defined previous statements “the price would received sell asset paid transfer liability orderly transaction market participants measurement date” additionally statement establishes hierarchy classifies inputs used measure fair value february 2007 fasb issued sfas 159 fair value option financial assets financial liabilities statement allows entities choice measure certain financial instruments items fair value specified measurement dates report unrecognized gains losses earnings serves minimize volatility earnings occurs assets liabilities measured differently without apply complex hedge accounting provisions sfas 157 sfas 159 effective quarterly reporting period ending march 31 2008 however february 2008 fasb issued fasb staff position partially delay effective date sfas 157 nonfinancial assets nonfinancial liabilities except recognized disclosed fair value financial statements recurring basis fiscal years beginning november 15 2008 based fasb staff position noted partial adoption sfas 157 material impact financial position results operations 2008 still assessing impact sfas 157 nonrecurring measurements nonfinancial assets liabilities 2009 upon partial adoption sfas 157 quarterly period ending march 31 2008 expect additional disclosures notes consolidated financial statements certain recurring fair value measurements continuing evaluate impact fasb staff position noted relates disclosure nonrecurring fair value measurements annual impairment review goodwill fcc licenses require significant disclosures related key assumptions variables used analyses plan elect fair value option provisions sfas 159 eligible financial assets liabilities held january 1 2008 however apply fair value provisions statement eligible assets liabilities subsequently acquired modified january 1 2008 new accounting pronouncements september 2006 eitf reached consensus issue 061 accounting consideration given service provider manufacturer reseller equipment necessary endcustomer receive service provider eitf issue 061 provides guidance regarding whether consideration given service provider manufacturer reseller specialized equipment characterized reduction revenue expense issue effective quarterly reporting period ending march 31 2008 entities required recognize effects applying issue change accounting principle retrospective application prior periods unless impracticable expect consensus material impact consolidated financial statements june 2007 eitf reached consensus issue 0611 accounting income tax benefits dividends sharebased payment awards eitf issue 0611 provides guidance regarding entity recognize tax benefit received result dividends paid holders sharebased compensation awards charged retained earnings accumulated deficit according sfas 123r sharebased payment issue effective quarterly reporting period ending march 31 2008 expect consensus material impact consolidated financial statements december 2007 fasb issued sfas 141r business combinations revises sfas 141 business combinations originally issued june 2001 sfas 141r apply business combinations acquisition date january 1 2009 statement could material impact us respect business combinations completed effective date significant changes include limited “acquirer” recording 100 assets liabilities including goodwill acquired business generally fair values acquisitionrelated transaction restructuring costs expensed rather treated part cost acquisition included amount recorded assets acquired addition effective date reversals valuation allowances related acquired deferred tax assets changes acquired income tax uncertainties related business combinations even completed prior statement’s effective date recognized earnings except qualified measurement period adjustments december 2007 fasb issued sfas 160 noncontrolling interests consolidated financial statements statement amends accounting research bulletin 51 consolidated financial statements establish accounting reporting standards noncontrolling interest subsidiary deconsolidation subsidiary sfas 160 effective quarterly reporting period ending march 31 2009 statement could material impact us extent enter arrangement effective date standard required consolidate noncontrolling interest event occurred report noncontrolling interest’s equity component equity consolidated balance sheet report component net income loss comprehensive income loss attributable noncontrolling interest separately changes ownership interests treated equity transactions upon loss control gain loss interest sold recognized earnings financial condition consolidated assets 641 billion december 31 2007 included 281 billion intangible assets 972 billion december 31 2006 included 601 billion intangible assets decrease consolidated assets primarily result 297 billion goodwill impairment charge recorded 2007 amortization 33 billion related definite lived intangible assets cash used stock repurchase program settlement securities loan agreement see “liquidity capital resources” additional information change cash equivalents liquidity capital resources management exercises discretion regarding liquidity capital resource needs business segments responsibility includes ability prioritize use capital debt capacity determine cash management policies make decisions regarding timing amount capital expenditures discontinued operations may 17 2006 completed spinoff embarq connection spinoff embarq transferred parent company 21 billion cash 45 billion embarq senior notes partial consideration condition transfer embarq local communications business embarq also retained 665 million debt obligations subsidiaries cash senior notes transferred parent company finance subsidiary sprint capital corporation satisfaction indebtedness owed parent company sprint capital may 19 2006 sprint capital sold embarq senior notes public received 44 billion net proceeds embarq provided 903 million net cash us 2006 excluding cash received embarq connection spinoff cash flow december 31 2007 cash equivalents 22 billion compared 20 billion december 31 2006 operating activities net cash provided operating activities 92 billion 2007 decreased 17 billion 2006 reflecting decline earnings primarily due • decrease cash flows discontinued operations 903 million • decrease cash received customers 779 million primarily due decrease service revenues result increased customer churn • increase cash paid suppliers employees 285 million • decrease interest received 151 million due decrease average commercial paper temporary cash balances held year offset • decrease 311 million cash paid interest debt due retirement debt cash paid taxes net cash provided operating activities increased 279 million 2006 2005 primarily due 120 billion increase cash received customers result sprintnextel merger third quarter 2005 pcs affiliate acquisitions 2005 2006 nextel partners acquisition second quarter 2006 well continued growth wireless customer base increase partially offset 85 billion increase cash paid suppliers employees 12 billion proceeds received 2005 communications towers lease transaction decrease cash provided discontinued operations 11 billion investing activities net cash used investing activities 64 billion decreased 50 billion 2006 primarily due • 102 billion decrease cash paid acquisitions 2007 compared 2006 acquired alamosa holdings ubiquitel velocita wireless enterprise communications nextel partners 105 billion compared 287 million paid acquisition northern pcs 2007 • 12 billion decrease capital expenditures 2006 due fewer cell sites capacity modifications inventory reductions wireless segment decreased investment transport switching equipment related voice cable customers • collateral 866 million cash received back securities loan agreements 2007 compared 866 million used collaterize securities loan agreements 2006 offset • net decrease proceeds sale maturities marketable securities investments assets net purchases 18 billion • 63 billion proceeds received 2006 connection spinoff local segment including 18 billion received embarq time spinoff proceeds sale embarq notes 44 billion net cash used investing activities increased 2006 67 billion 2005 due primarily • 103 billion increase cash paid acquisitions • 25 billion increase cash paid capital expenditures due higher spending wireless segment part related spending iden network acquired sprintnextel merger • 866 million cash used collateralize securities loan agreements partially offset • 63 billion proceeds received 2006 connection spin local segment including 18 billion received embarq time spunoff proceeds sale embarq notes 44 billion financing activities net cash used financing activities 27 billion 2007 decreased 38 billion compared 2006 primarily due • decrease cash used debt credit facility payments 67 billion 2007 made principal debt repayments 14 billion compared payments 2006 43 billion payments retirements related senior notes capital lease obligations 32 billion related retirement term loan 500 million retire nextel partners credit facility offset • 135 million net maturities commercial paper 2007 compared net issuances 514 million 2006 • payment 866 million 2007 settle collaterized borrowings compared proceeds 866 million received securities loan agreements 2006 • proceeds 15 billion 2007 including 750 million unsecured loan agreement export development canada 750 million principal sale floating rate notes due 2010 compared proceeds 20 billion principal amount 60 senior serial redeemable notes received 2006 due 2016 pursuant share repurchase program repurchased 87 million common shares 18 billion 2007 compared 98 million common shares repurchased 2006 16 billion received 344 million 2007 405 million 2006 proceeds common share issuances primarily resulting exercises employee options paid cash dividends 286 million 2007 compared 296 million 2006 used 247 million retire seventh series redeemable preferred shares net cash used financing activities 64 billion 2006 increased 52 billion 2005 primarily due • 16 billion purchase outstanding common shares pursuant share repurchase program commenced third quarter 2006 • 37 billion paid retirement term loan nextel partners bank credit facility compared 2005 retired 22 billion term loan 10 billion revolving credit loan new 32 billion loan • 43 billion payments retirements related capital lease obligations senior notes compared 12 billion 2005 partially offset • net proceeds sale 20 billion principal amount 60 senior serial redeemable notes due 2016 • proceeds 866 million securities loan agreements • net proceeds 514 million issuance commercial paper • 405 million proceeds common share issuances 2006 compared 432 million 2005 paid cash dividends 296 million 2006 compared 525 million 2005 decrease cash dividends paid due decrease dividend rate 0125 per common share per quarter first two quarters 2005 0025 per common share per quarter beginning third quarter 2005 dividend rate decrease partially offset increase average number common shares outstanding year ended december 31 2006 compared year ended december 31 2005 primarily result sprintnextel merger capital requirements currently anticipate future funding needs near term principally relate • operating expenses relating segment operations • capital expenditures particularly respect expansion coverage capacity wireless networks deployment new technologies networks including plans build next generation broadband wireless network • scheduled interest principal payments related debt purchases redemptions debt securities • amounts required expended connection report order • increasing expenditures income taxes utilization available tax net operating loss tax credit carryforwards • potential costs compliance regulatory mandates • general corporate expenditures liquidity december 31 2007 cash equivalents marketable securities totaled 24 billion 60 billion revolving credit facility expires december 2010 provides interest rates equal london interbank offered rate libor prime rate plus spread varies depending parent company’s credit ratings rating trigger would allow lenders terminate facility event credit rating downgrade april 2006 commenced commercial paper program reduced borrowing costs allowing us issue shortterm debt lower rates available 60 billion revolving credit facility 20 billion program backed revolving credit facility reduces amount borrow facility extent commercial paper outstanding december 31 2007 379 million commercial paper outstanding december 31 2007 26 billion letters credit including 25 billion letter credit required report order outstanding 60 billion revolving credit facility letters credit reduce availability revolving credit facility equivalent amount result letters credit outstanding commercial paper december 31 2007 30 billion borrowing capacity available revolving credit facility light conditions business financial markets taken actions designed enhance financial flexibility first early 2008 decided pay dividends foreseeable future second late february 2008 drew 25 billion revolving credit facility mitigate potential refinancing risk related 125 billion bonds mature november 2008 commercial paper program well enhance financial flexibility general 500 million borrowing capacity available revolving credit facility credit facilities require maintain ratio total indebtedness trailing four quarter earnings interest taxes depreciation amortization 35 10 december 31 2007 ratio 25 10 default credit facilities could trigger defaults debt obligations turn could result maturities certain debt obligations accelerated credit facilities indentures govern outstanding senior notes also require comply various covenants including limitations incurrence indebtedness liens us subsidiaries credit facility covenants limit subsidiaries nextel communications sprint capital corp incurring indebtedness liens excess 15 consolidated shareholders’ equity december 31 2007 indebtedness subsidiaries totaled 05 billion accordingly fourth quarter 2007 charge related impairment goodwill caused reduction amount debt liens incurred credit facilities certain subsidiaries december 31 2007 compliance covenants associated borrowings ability fund capital needs outside sources ultimately impacted overall capacity terms available banking securities markets given volatility markets continue monitor closely take steps maintain financial flexibility reasonable cost capital february 28 2008 one debt rating agency downgraded rating investment grade downgrades current short longterm ratings investment grade would accelerate scheduled principal payments existing debt downgrade rating may cause us incur higher interest costs borrowings access public capital markets could negatively impacted access commercial paper market may available terms attractive us december 31 2007 working capital deficit 443 million compared working capital 562 million december 31 2006 future contractual obligations following table sets forth best estimates amounts timing contractual payments significant contractual obligations december 31 2007 information table reflects future unconditional payments based upon among things terms relevant agreements appropriate classification items generally accepted accounting principles gaap currently effect certain assumptions future interest rates future events including additional purchases securities refinancing securities could cause actual payments differ significantly amounts see “forwardlooking statements” 1 includes principal estimated interest payments interest payments based management’s expectations future interest rates 2 represents capital lease payments including interest 3 includes future lease costs related cell switch sites real estate network equipment office space 4 includes service spectrum network capacity executory contracts excludes blanket purchase orders amount 24 billion see discussion table include remaining costs paid connection fulfillment obligation report order total minimum cash obligation report order 28 billion costs incurred report order associated reconfiguration 800 mhz band may applied 28 billion obligation subject approval ta report order final reconciliation audit entire reconfiguration obligation outlined report order take place completion aspects reconfiguration process assurance given full credit expenditures incurred report order additionally since ta fcc yet reached agreement methodology calculating certain amounts property plant equipment submitted credit associated reconfiguration activity related network cannot provide assurance granted full credit certain network costs however believe successful appeal third moo estimate based experience date reconfiguration program information currently available total direct costs attributable complete spectrum reconfiguration range 27 billion 34 billion estimate dependent significant assumptions including final licensee costs associated relocating licensees canadian mexican border regions currently approved border plans addition depending outcome discussions ta regarding calculation credit internal network costs total approved costs would increase actual results could differ estimates addition entitled receive reimbursement mobilesatellite service licensees pro rata portion costs clearing portion 19 ghz spectrum licensees may unable unwilling reimburse us share costs estimate approximately 200 million unsuccessful appeal third moo anticipate costs could exceed 34 billion amount would likely material however believe unlikely required make payment us treasury inception program december 31 2007 incurred approximately 11 billion costs directly attributable spectrum reconfiguration program amount include apportioned internal network costs preliminarily allocated reconfiguration program capacity sites modifications may request credit reconfiguration program “purchase orders commitments” include minimum purchases commit purchase suppliers time andor unconditional purchase obligations guarantee make minimum payment suppliers goods services regardless whether suppliers fully deliver include agreements access backhaul customer billing services advertising services contracts related information technology customer care outsourcing arrangements amounts actually paid “other” agreements likely higher due variable components agreements significant variable components determine ultimate obligation owed include hours contracted subscribers factors addition party various arrangements conditional nature create obligation make payments upon occurrence certain events delivery functioning software products possible predict timing amounts may due conditional arrangements amounts included table also excludes 24 billion blanket purchase order amounts since agreement terms specified time frame set purchase orders legally binding result firm commitments liability uncertain tax positions 654 million december 31 2007 due inherent uncertainty timing resolution underlying tax positions practicable assign liability particular years table offbalance sheet financing participate secure financings unconsolidated special purpose entities future outlook expect able meet currently identified funding needs least next 12 months using • anticipated cash flows operating activities well cash equivalents marketable securities hand andor • 25 billion cash drew revolving credit facility february 27 2008 well remaining cash available facility making assessment considered • anticipated levels capital expenditures fcc license acquisitions including funding required connection deployment next generation technologies next generation broadband wireless network • anticipated payments report order supplemented • scheduled debt service requirements • future contractual obligations material changes business plans currently prevailing anticipated economic conditions markets competitive practices mobile wireless communications industry presently unexpected circumstances arise material effect cash flow profitability anticipated cash needs could change significantly conclusion expect meet funding needs least next 12 months described take account • significant acquisition transactions pursuit significant new business opportunities spectrum acquisition strategies • potential material purchases redemptions outstanding debt securities cash • potential material increases cost compliance regulatory mandates events circumstances could involve significant additional funding needs excess anticipated cash flows operating activities identified currently available funding sources including existing cash hand borrowings available existing revolving credit facility existing capital resources sufficient meet funding needs would necessary raise additional capital meet needs ability raise additional capital necessary subject variety additional factors cannot currently predicted certainty including • commercial success operations • volatility demand capital markets • market prices securities • tax law restrictions related spinoff embarq may limit ability raise capital sale equity securities past may future discussions third parties regarding potential sources new capital satisfy actual anticipated financing needs present existing arrangements described report legally binding commitments understandings third parties obtain material amount additional capital discussion subject risks cautionary qualifying factors set forth “ forwardlooking statements” part item 1a “risk factors” report financial strategies general risk management policies primarily use derivative instruments hedging risk management purposes hedging activities may done various purposes including limited mitigating risks associated asset liability committed transaction probable forecasted transaction seek minimize counterparty credit risk stringent credit approval review processes credit support agreements continual review monitoring counterparties thorough legal review contracts also control exposure market risk regularly monitoring changes hedge positions normal stress conditions ensure exceed established limits board directors adopted financial risk management policy authorizes us enter derivative transactions comply policy purchase hold derivative financial instruments speculative purposes exception equity rights obtained connection commercial agreements strategic investments usually form warrants purchase common shares item 7a item 7 managements discussion analysis financial condition results operations overview business strategies key priorities sprint communications company offering comprehensive range wireless wireline communications products services designed meet needs individual consumers businesses government subscribers resellers communications industry continue highly competitive basis quality service types services devices offered price discussed “effects wireless business postpaid subscriber losses” company experienced significant losses subscribers critical postpaid wireless market since third quarter 2006 result steps taken retain attract subscribers reduced annual postpaid net subscriber losses beginning 2009 business strategy responsive changing customer mobility demands innovative differentiated marketplace future growth plans strategy revolve around achieving following three key priorities • improve customer experience • strengthen brands • generate operating cash flow reduced confusion pricing plans complex bills simply everything® everything data plans mobile anytime feature also offer price plans tailored business subscribers business advantage allows flexibility mix match plans include voice messaging voice messaging data meet individual business needs also allows mobile anytime feature certain plans simplify improve customer experience continue offer ready trains customers leave store use mobile devices business customers aim increase productivity providing differentiated services utilize advantages combining ip networks wireless technology differentiation enables us retain acquire wireline wireless combined wirelinewireless subscribers networks also continued focus improving customer care implemented initiatives designed improve call center processes procedures standardized performance measures various metrics including customer satisfaction ratings respect customer care first call resolution calls per subscriber product strategy provide customers broad array device selections applications services run devices meet growing needs customer mobility multifunctional device portfolio includes many cutting edge devices various original equipment manufacturers oems mobile broadband portfolio consists devices hotspots allow connection multiple wifi enabled devices networks also accessed portfolio embedded tablets laptop devices support open development applications content devices network platforms products services google voice™ well google wallet™ application using near field communication technology enable smartphones make purchases select merchants also launched multiple sprint id packs download applications widgets content related persons interests push button addition enable variety business consumer thirdparty relationships portfolio machinetomachine solutions offer retail postpaid wholesale basis machinetomachine solutions portfolio provides secure realtime reliable wireless twoway data connection across broad range connected devices including oem devices aftermarket invehicle connectivity electric vehicle charging stations pointofsale systems kiosks vending machines asset tracking digital signage security smartgrid utilities medical equipment variety consumer electronics appliances prepaid portfolio includes multiple brands designed appeal specific customer segments boost mobile serves subscribers voice text messagingcentric popular monthly unlimited plan shrinkage service bills reduced six ontime payments virgin mobile serves subscribers device dataoriented beyond talk™ plans broadband plan broadband2go offer consumers control flexibility connectivity various communication vehicles assurance wireless provides eligible subscribers meet income requirements receiving government assistance free wireless phone 250 free minutes national local longdistance monthly service focused wholesale business enable diverse network customers successfully grow business providing array network product device solutions allows customers customize full suite valueadded solutions meet growing demands business addition brand customeroriented goals continue focus generating increased operating cash flow competitive rate plans postpaid prepaid subscribers multibranded strategies effectively managing cost structure align reduced revenues fewer postpaid subscribers certain strategic decisions network vision introduction iphone® average carries higher equipment net subsidy result reduction cash flows operations near term however believe actions generate longterm benefits including growth valuable postpaid subscribers reduction variable cost service per unit longterm accretion cash flows operations see “liquidity capital resources” information network vision december 2010 announced network vision multiyear network infrastructure initiative intended provide subscribers enhanced network experience improving voice quality coverage data speeds enhancing network flexibility reducing operating costs improving environmental sustainability utilization multiple spectrum bands onto single multimode base station addition implementing multimode base stations plan encompasses nextgeneration pushtotalk technology broadband capabilities integration multimode chipsets smartphones tablets broadband devices including machinetomachine products successful deployment network vision expect migrate single nationwide network allowing consolidation optimization 800 megahertz mhz 19 gigahertz ghz spectrum well spectrum owned thirdparties multimode stations allowing us repurpose spectrum enhance coverage particularly around inbuilding experience multimode technology also utilizes softwarebased solutions interchangeable hardware provide greater network flexibility also allows deployment lte first stages equipment testing began first quarter 2011 achieved initial technical milestones deployment begun approximately 38000 cell sites powered first multimode base station december 6 2011 expect commercially launch new technology certain markets midyear 2012 october 2 2011 launched sprint direct connect® next generation pushtotalk technology deployments network vision technology including enhancements sprint direct connect® expected continue early 2014 expect plan bring financial benefit company migration one common network expected reduce network maintenance operating costs capital efficiencies reduced energy costs lower roaming expenses backhaul savings eventual reduction total cell sites successful deployment related changes technology result incremental charges period implementation including limited increase depreciation amortization associated existing assets nextel sprint platform related due changes estimates remaining useful lives longlived assets expected timing asset retirement obligations expect material impact results operations recorded charge 78 million related network equipment placed service longer necessary managements strategic plans first quarter 2012 formalized plans decommission roughly onethird total nextel platform 9600 towers end 2012 also expect completed transition customers nextel platform sprint platform end 2013 allow us decommission remainder nextel platform sites result first quarter 2012 revised estimates expected useful lives certain nextel platform assets asset retirement obligations end 2013 accordingly approximately 2 billion remaining 36 billion net book value nextel platform assets expected accelerated depreciation expense disproportionate amount expected recognized 2012 exact timing acceleration dependent upon assets expected phased service estimates derived internal decommissioning plan still evolving estimate incremental effect accelerated depreciation related nextel platform assets 2012 results range approximately 12 billion 15 billion addition experiencing increased data usage subscribers required additional capital expenditures data capacity equipment current sprint platform deploy network vision intend maximize use previously deployed data capacity equipment possible however based capacity needs implementation period network vision expect additional data capacity expenditures compatible deployment network visions multimode technology result estimated useful lives equipment shortened compared similar prior capital expenditures date network vision equipment deployed inservice spectrum hosting network vision multimode network technology designed utilize single base station capable handling various spectrum bands including 800 mhz 19 ghz spectrum well spectrum bands owned accessed parties june 2011 entered 15year arrangement lightsquared lp lightsquared inc collectively “lightsquared” terms arrangement conjunction network vision deployment agreed deploy operate lte network capable utilizing 16 ghz spectrum licensed available lightsquared term arrangement service refer “spectrum hosting” arrangement contains contingencies related possible interference issues lightsquareds spectrum including right sprint terminate arrangement certain conditions met lightsquared december 31 2011 company received 310 million advanced payments lightsquared future services performed spectrum hosting agreement beginning december 2011 series amendments arrangement modified among things extend date sprint right terminate arrangement suspend sprints obligation incur cost expense related performance original agreement amended arrangement sprint reason including limited fcc action inaction reason may terminate agreement march 15 2012 april 30 2012 lightsquared secures lenders consent modifications agreement sprints right terminate deferred june 25 2012 continue december 31 2012 addition parties definitively agreed approximately 236 million total 310 million advanced payments made lightsquared represent payment incremental costs obligations incurred sprint original agreement support lightsquared parties agreed amount irrevocably unconditionally paid subject dispute claim lightsquared accordingly sprint refund approximately 74 million lightsquareds initial prepayments 65 million paid earlier lightsquareds lenders consent march 15 2012 remaining 9 million remain subject termination unwind provisions original agreement returned lightsquared upon termination less additional incremental cost obligations incurred sprint support lightsquared event arrangement terminated lightsquareds material breach nonpayment insolvency sprint maintains second lien certain lightsquareds assets including spectrum assets 236 million recorded current liability recognized operating income net associated costs event termination assuming uncertainties resolved alternatively sprint lightsquared agree proceed hosting arrangement 236 million recognized revenue hosting services performed effects wireless business postpaid subscriber losses following table shows annual net additionslosses postpaid subscribers platform past five years excluding subscribers obtained business combinations shown table “results operations” wireless segment earnings represented approximately 84 total consolidated segment earnings 2011 wireless industry subject competition retain acquire subscribers wireless services markets operate high rates penetration wireless services wireless carriers accordingly must attract greater proportion new subscribers competitors rather first time subscribers within wireless segment postpaid wireless services represent significant contributors earnings driven number postpaid subscribers services well average revenue per subscriber user arpu address reduce net postpaid subscriber losses taken initiatives strengthen sprint brand continue increase market awareness improvements achieved customer experience including speed dependability networks also introduced new devices including iphone fourth quarter 2011 improving overall lineup providing competitive portfolio customer selection well competitive rate plans providing simplicity value company significantly improved net postpaid subscriber results subsequent first quarter 2009 result actions taken improve customer service device selection valueoriented service offerings conjunction network vision company continues focus growth sprint platform simultaneously targeting retention nextel platform customers competitive offerings sprint platform includes sprint direct connect result plans expect customer churn nextel platform postpaid prepaid increase progress toward decommissioning nextel platform well increased competition subscribers although company continues experience net losses nextel platform postpaid subscribers generally lower arpu partially offset net additions sprint platform postpaid subscribers average carry higher arpu year ended december 31 2011 net postpaid subscriber losses 98000 represent improvement 757000 89 compared period one year ago net prepaid subscriber additions 25 million represent improvement 874000 53 compared period one year ago wireless retail service revenue begun grow primarily due increased service revenue associated prepaid wireless offerings increased postpaid arpu due primarily 10 premium data addon charge associated smartphones trend improved postpaid subscriber results continue could material negative impact financial condition results operations liquidity 2012 beyond company believes actions taken described continue taken marketing customer service device offerings network quality continue improve net postpaid subscriber results operations consolidated segment earnings decreased 561 million 10 2011 compared 2010 774 million 12 2010 compared 2009 consolidated segment earnings consist wireless wireline segments discussed corporate eliminations depreciation amortization expense 2011 sprint completed studies estimated useful lives depreciable assets reflects reduction replacement rate capital additions primary factor decrease depreciation expense 619 million 12 2011 compared 2010 decline partially offset increase due assets placed service result capital expenditures related capacity support increased data usage subscribers result expected increased capital expenditures related network vision expect depreciation expense increase next several years assets placed service addition successful deployment related changes technology result network vision expected result incremental charges period implementation including limited increase depreciation amortization associated existing assets nextel sprint platform related due changes estimates remaining useful lives longlived assets expected timing asset retirement obligations expect material impact results operations depreciation expense decreased 753 million 13 2010 compared 2009 primarily due reduction replacement rate capital additions resulting reduced capital spending associated cost control actions beginning 2008 average annual capital expenditures three years ended 2007 approximately 63 billion compared average annual capital expenditures 25 billion three years ended 2010 amortization expense declined 771 million 66 2011 compared 2010 primarily due absence amortization customer relationship intangible assets related 2005 acquisition nextel became fully amortized second quarter 2010 addition customer relationship intangible assets related acquisition nextel partners inc 2006 virgin mobile usa inc virgin mobile fourth quarter 2009 became fully amortized second quarter 2011 amortization expense declined 415 million 26 2010 compared 2009 primarily due absence amortization customer relationship intangible assets related 2005 acquisition nextel became fully amortized second quarter 2010 reductions partially offset increase amortization related customer relationship intangible assets acquired connection ipcs inc ipcs virgin mobile acquisitions fourth quarter 2009 customer relationships amortized using sumoftheyearsdigits method resulting higher amortization rates early periods decline time net following table provides additional information items included “other net” years ended december 31 2011 2010 2009 net changed 126 million 630 2011 compared 2010 409 million 105 2010 compared 2009 2011 recognized severance exit costs 28 million associated actions fourth quarter 2011 2010 recognized 8 million severance exit costs primarily related exit costs incurred second fourth quarter 2010 associated vacating certain office space longer utilized recognized 400 million 2009 severance exit costs related separation employees organizational realignment initiatives asset impairments decreased 47 million 38 2011 compared 2010 increased 78 million 166 2010 compared 2009 asset impairments primarily relate assets longer necessary managements strategic plans 2011 2010 2009 impairments primarily related network asset equipment gains asset dispositions exchanges 2010 2009 primarily related spectrum exchange transactions changed 94 million 2010 compared 2009 primarily due increase benefits resulting favorable developments relating access cost disputes certain exchange carriers interest expense interest expense decreased 453 million 31 2011 compared 2010 primarily due 400 million increase amount interest capitalized increase capitalized interest related plan deploy certain spectrum licenses part network vision previously utilized reduction interest expense also includes decrease 115 million result repayment 165 billion sprint capital corporation 7625 senior notes january 2011 decrease partially offset increases interest expense 54 million result november 2011 sprint nextel corporation issuance 1 billion principal 1150 senior notes due 2021 3 billion principal 900 guaranteed notes due 2018 interest expense increased 14 million 1 2010 compared 2009 increase primarily due higher effective interest rates average longterm debt balances increased costs revolving credit facilities include accelerated amortization previously unamortized debt issuance costs retirement former credit facility may 2010 partially offset reductions interest expense previously recorded result favorable tax outcomes effective interest rate includes capitalized interest weighted average longterm debt balance 191 billion 206 billion 214 billion 74 72 68 2011 2010 2009 respectively see “liquidity capital resources” information companys financing activities equity losses unconsolidated investments net clearwire owns operates next generation mobile broadband network provides highspeed residential mobile internet access services residential voice services communities throughout country clearwire early stage company heavily invested building network acquiring assets necessary expand wimax business 2009 2010 resulted increased operating losses reduced liquidity august 2011 clearwire announced intention deploy lte network subject availability additional funding december 2011 clearwire issued additional equity raised net proceeds approximately 716 million additionally january 2012 clearwire issued additional indebtedness raised net proceeds approximately 295 million expect clearwire continue generate net losses near term executes business plan including deployment lte network intent hold investment clearwire based part growing subscriber base 4g wimax subscribers utilize clearwires network intent sell 4g wimax devices 2012 equity losses unconsolidated investments primarily consists proportionate share losses equity method investments equity losses associated investment clearwire consists sprints share clearwires net loss adjustments gains losses associated dilution sprints ownership interest resulting clearwires equity issuances items recognized clearwire corporation effect sprints economic interest equity losses clearwire 17 billion 13 billion 803 million 2011 2010 2009 respectively equity losses clearwire 2011 2010 include charges approximately 361 million 97 million respectively associated clearwires writeoff certain network assets longer meet strategic plans year ended december 31 2011 also includes 135 million pretax impairment reflecting reduction investment clearwire estimated fair value dilution loss approximately 27 million associated fourth quarter reduction noncontrolling economic interest related clearwires equity issuance 2009 equity losses clearwire include pretax dilution loss 154 million recognized first quarter 2009 representing finalization ownership percentages associated formation clearwire subject change based trading price clearwire stock 90 days subsequent november 2008 closing additional declines value clearwire may require us evaluate decline relation carrying value investment clearwire conclusion us additional declines value clearwire temporary could result additional impairment could material november 30 2011 sprint entered new agreements clearwire established longterm pricing terms 4g services wimax lte terms agreements sprint required pay clearwire 926 million total course 2012 2013 exchange unlimited wimax services years agreements also establish longterm usagebased pricing lte services 2012 beyond wimax services 2014 beyond terms sprint may also make series refundable prepayments 350 million lte services clearwire achieves certain buildout targets network specifications june 2013 obtains purchase commitments lte services customers payments beginning 2013 applied towards lte usage remaining term contract addition agreements provided improved terms competitive pricing rewholesaling wimax services sprint beginning 2012 lastly part agreements january 2 2012 sprint provided 150 million clearwire exchange promissory note stated interest rate 115 matures two installments 75 million plus accrued interest january 2013 january 2014 sprint sole discretion choose offset amounts payable clearwire promissory note amounts owed sprint mvno agreement expense income net following table provides additional information items included “other expense income net” three years ended december 31 2011 interest income remained relatively stable periods presented realized loss investments consistent 2011 compared 2010 decreased 26 million 90 2010 compared 2009 primarily due fewer sales marketable securities result acquisition virgin mobile noncash gain 151 million 92 million tax recognized fourth quarter 2009 related estimated fair value net carrying value previously held noncontrolling interest virgin mobile loss early retirement debt 2011 due redemption outstanding 20 billion sprint capital corporation 8375 senior notes due march 2012 income tax expense benefit consolidated effective tax rate expense approximately 10 5 2011 2010 respectively benefit approximately 30 2009 income tax expense 2011 2010 benefit 2009 include 12 billion 14 billion 281 million net increase valuation allowance federal state deferred tax assets primarily related net operating loss carryforwards generated respective periods 2011 increase valuation allowance also inclusive 21 million associated federal income tax effects recently enacted changes corporate state income tax laws resulted total charge income tax expense 59 million expect record significant tax benefits future net operating losses circumstances justify recognition benefits additional information related items impacting effective tax rates found notes consolidated financial statements segment earnings wireless segment earnings primarily function wireless service revenue costs acquire subscribers network interconnection costs serve subscribers wireless segment operating expenses costs acquire subscribers include net cost sell devices referred equipment net subsidies well marketing sales costs incurred attract subscribers network costs primarily represent switch cell site costs interconnection costs generally consist perminute usage fees roaming fees paid carriers remaining costs associated operating wireless segment include costs operate customer care organization administrative support wireless service revenue costs acquire subscribers variable network interconnection costs fluctuate changes subscriber base related usage cost elements fluctuate short term changes wireless segment earnings declined consecutively annual periods ending december 31 2009 2010 2011 wireless segment earnings approximately 43 billion 45 billion 52 billion twelvemonth periods ended december 31 2011 2010 2009 respectively discussed section “effects wireless business postpaid subscriber losses” company significantly reduced net postpaid subscriber losses occurring since 2009 increased subscriber net additions within prepaid wholesale affiliates 2011 company entered purchase commitment apple inc purchase minimum number smartphones average expected carry higher subsidy per unit smartphones sell addition 2012 expect make progress network vision including certain costs associated ongoing decommissioning efforts nextel platform result expect wireless segment earnings decline 2012 compared 2011 benefit network vision reduced network operating costs begin see increases retail service revenue improved total retail postpaid net additions sufficient recover increased equipment net subsidy acquisition costs following table provides overview results operations wireless segment three years ended december 31 2011 service revenue wireless segment generates revenues sale wireless services sale wireless devices accessories sale wholesale services service revenue consists fixed monthly recurring charges variable usage charges miscellaneous fees activation fees directory assistance roaming equipment protection late payment early termination charges certain regulatory related fees net service credits ability wireless segment generate service revenues primarily function • revenue generated subscriber turn function types amount services utilized subscriber rates charged services • number subscribers serve turn function ability retain existing acquire new subscribers retail comprises subscribers sprint directly provides wireless services whether services provided postpaid prepaid basis retail service revenue increased 15 billion 6 2011 compared 2010 increased 391 million 2 2010 compared 2009 increase retail service revenue 2011 compared 2010 reflects increase postpaid service revenue related 10 premium data addon charge required smartphones greater popularity unlimited bundled plans combined fee increases including increase handset protection plan increase also driven attracting subscribers boost virgin mobile prepaid brands choosing higher rate plans take advantage international offerings well increased availability smartphones increased subscribers new market launches assurance wireless brand majority increase 2010 compared 2009 primarily driven attracting subscribers companys national boost monthly unlimited prepaid plan addition service revenue related subscribers acquired fourth quarter 2009 acquisitions virgin mobile ipcs increase retail service revenue partially offset decrease postpaid service revenue driven reduction companys average number postpaid subscribers approximately 14 million 4 2010 compared 2009 wholesale affiliates subscribers served 3g mvno affiliate relationships arrangements wireless services sold sprint companies resell services subscribers wholesale affiliate revenues increased 44 million 20 2011 compared 2010 decreased 329 million 60 2010 compared 2009 majority increase 2011 compared 2010 primarily result growth 3g mvno relationships specifically growth subscribers lifeline program offered mvnos reselling prepaid services similar assurance wireless offering contributed revenue growth majority decrease 2010 compared 2009 due transfer 54 million subscribers wholesale affiliates postpaid prepaid classifications result fourth quarter 2009 acquisitions virgin mobile ipcs remaining decline 2010 compared 2009 primarily due losses two large mvnos throughout 2009 addition lower revenues received services provided machinetomachine initiative approximately 29 wholesale affiliate subscribers represent growing number connected devices generate revenue usage varies depending solution utilized average revenue per connected device generally significantly lower revenue wholesale affiliate subscribers however cost service customers also lower resulting higher profit margin percent revenue average monthly service revenue per subscriber trends table summarizes average number retail subscribers arpu years ended december 31 2011 2010 2009 additional information number subscribers net additions subscribers arpu average rates monthly postpaid prepaid subscriber churn quarter since first quarter 2009 may found tables following pages 1 arpu calculated dividing service revenue sum average number subscribers applicable service category changes average monthly service revenue reflect subscribers either postpaid prepaid service category change rate plans level voice data usage amount service credits offered subscribers plus net effect average monthly revenue generated new subscribers deactivating subscribers postpaid arpu 2011 increased compared 2010 primarily due increased revenues 10 premium data addon charges smartphones fee increases handset protection plan postpaid arpu 2010 declined slightly compared 2009 due declines overage revenues resulting increased popularity fixedrate bundled plans including mobile anytimesm feature prepaid arpu 2011 declined slightly compared 2010 primarily result net additions assurance wireless brand whose subscribers carry lower arpu partially offset increase arpu remaining prepaid brands subscribers choosing higher priced plans take advantage international offerings increased availability smartphones prepaid arpu decreased 2010 compared 2009 due prepaid subscribers acquired fourth quarter 2009 business combination virgin mobile well net subscriber additions assurance wireless brand launched early 2010 carry lower average revenue per subscriber compared sprints prepaid subscribers average retail arpu increased slightly 2011 compared 2010 primarily result increased postpaid arpu partially offset increased weighting average prepaid subscribers total subscribers carry lower arpu lower prepaid arpu increased weighting average prepaid subscribers total subscribers resulted decline average retail arpu 2010 compared 2009 following table shows net additions losses wireless subscribers b total subscribers end quarterly period past twelve quarters 1 subscribers transfer original service category classification another platform another service line within platform reflected net loss original service category net addition new service category net effect subscriber changes total wireless net additions losses end period subscribers 2 includes subscribers powersource devices operate seamlessly networks 3 first quarter 2009 boost monthly unlimited launched nextel platform first quarter 2010 boost monthly unlimited launched sprint platform 4 reflects transfer 4539000 prepaid 835000 postpaid subscribers wholesale affiliates result business combinations completed fourth quarter 2009 well third quarter 2010 transfer 49000 wholesale affiliates subscribers prepaid result sale transfer customers affiliate 5 subscribers mvno relationships inactivity either voice usage primarily result nature device activity occurs data retrieval initiated enduser may occur infrequently although continue provide customers access network mvno relationships approximately 17 million subscribers mvno relationships inactive least six months associated revenue december 31 2011 6 end period connected devices included total retail postpaid wholesale affiliates end period subscriber totals periods presented following table shows postpaid prepaid arpu b average rates monthly postpaid prepaid subscriber churn end quarterly period past twelve quarters 1 churn calculated dividing net subscriber deactivations quarter sum average number subscribers month quarter postpaid accounts comprising multiple subscribers family plans enterprise accounts net deactivations defined deactivations excess customer activations particular account within 30 days postpaid prepaid churn consist voluntary churn subscriber makes determination cease customer involuntary churn customers service terminated due lack payment reasons retail postpaid subscriberswe lost 98000 net postpaid subscribers 2011 compared losing 855000 35 million net postpaid subscribers 2010 2009 respectively net postpaid subscriber losses improved 757000 89 2011 compared 2010 27 million 76 2010 compared 2009 33 million total subscribers included postpaid approximately 2 represent connected devices net additions connected devices 82000 2011 compared net additions 24000 43000 periods 2010 2009 respectively improvement net postpaid subscriber losses attributed improvements retail postpaid gross additions lower postpaid churn resulting simplified valuedriven bundled offers competitive device lineup well improvements overall customer experience customer care satisfaction plan migrate nextel platform pushtotalk subscribers providing competitive offerings sprint platform includes future offerings multimode network sprint direct connect retail prepaid subscriberswe added approximately 25 million net prepaid subscribers 2011 compared adding 16 million 26 million net prepaid subscribers 2010 2009 respectively net prepaid subscriber additions improved 874000 53 2011 compared 2010 declined 914000 36 2010 compared 2009 improvement net prepaid subscriber additions 2011 compared 2010 driven net additions assurance wireless brand primarily result new market launches increased advertising promotions net prepaid subscriber additions 2010 principally driven net additions assurance wireless boost mobile brands partially offset net losses associated virgin mobile brand including transfer 49000 subscribers prepaid wholesale affiliates result sale transfer customers affiliate company expects continue trend prepaid subscriber losses nextel platform focus efforts retain attract subscribers offerings sprint platform prepaid subscribers generally deactivated 60 days 150 days date activation replenishment however prior account deactivation targeted retention programs offered qualifying subscribers maintain ongoing service providing additional 150 days make replenishment subscribers targeted retention offers included calculation churn retention offer expires without replenishment account result end period prepaid subscribers include subscribers engaged retention programs retention offers targeted subscribers declined percentage total prepaid subscriber base 2011 compared 2010 wholesale affiliate subscriberswholesale affiliate subscribers represent customers served networks companies resell wireless services subscribers customers residing affiliate territories connected devices utilize network 2011 wholesale affiliate subscriber net additions 27 million resulting approximately 72 million wholesale affiliate subscribers december 31 2011 compared approximately 45 million 35 million wholesale affiliate subscribers december 31 2010 2009 respectively wholesale affiliate subscriber net additions improved 17 million 171 2011 compared 2010 11 million 820 2010 compared 2009 increase wholesale subscriber base 2011 compared 2010 primarily driven net additions lifeline program offered mvnos reselling prepaid services increase wholesale subscriber base 2010 compared 2009 primarily due subscriber additions mvno relationships 72 million total subscribers included wholesale affiliates approximately 29 represent connected devices net additions connected devices 217000 2011 compared net additions 152000 846000 2010 2009 respectively cost services cost services consists primarily • costs operate maintain networks including direct switch cell site costs rent utilities maintenance labor costs associated network employees spectrum frequency leasing costs • fixed variable interconnection costs fixed component consists monthly flatrate fees facilities leased local exchange carriers based number cell sites switches service particular period related equipment installed site variable component generally consists perminute use fees charged wireline providers calls terminating networks fluctuate relation level duration terminating calls • long distance costs paid wireline segment • costs service repair devices • regulatory fees • roaming fees paid carriers • fixed variable costs relating payments third parties use proprietary data applications messaging music tv navigation services subscribers cost services increased 619 million 7 2011 compared 2010 primarily reflecting increased roaming due higher 4g mvno data usage addition higher service repair costs incurred driven increase cost per unit new used devices due growth smartphone popularity also process renegotiating cell site leases enable flexibility connection network vision including spectrum hosting services resulted net increase rent expense expected continue time successfully deploy network vision benefit overall reduction total portfolio tower leases increases partially offset decrease long distance network costs result lower market rates decline payments thirdparty vendors use proprietary data applications premium services result contract renegotiations providing favorable rates cost services decreased 96 million 1 2010 compared 2009 primarily reflecting decline service repair costs focusing device repairs refurbishment rather utilizing new devices decline long distance network costs result lower market rates well decline payments thirdparty vendors providing premium services result changing usagebased payments flat rates decline partially offset increased roaming due higher data usage increase license fees result continued growth smartphone devices carry higher fees equipment net subsidy recognize equipment revenue corresponding costs devices title device passes dealer enduser subscriber marketing plans assume devices typically sold prices cost consistent industry practice subscriber retention efforts often include providing incentives subscribers offering new devices discounted prices reduce equipment revenue discounts offered directly subscriber certain payments thirdparty dealers reimburse dealer point sale discounts offered enduser subscriber primarily associated obtaining service plan additionally cost devices reduced rebates earned supplier cost products primarily devices accessories also include order fulfillment related expenses writedowns device related accessory inventory shrinkage obsolescence equipment cost excess revenue generated equipment sales referred industry equipment net subsidy equipment revenue increased 208 million 8 2011 compared 2010 cost products increased 11 billion 16 2011 compared 2010 increase equipment revenue cost products primarily due higher average sales price cost per device sold postpaid prepaid devices addition overall increase number prepaid devices sold partially offset decline number postpaid devices sold equipment revenue increased 749 million 38 2010 compared 2009 cost products increased 14 billion 26 2010 compared 2009 primarily due increase number postpaid devices sold greater mix devices higher average sales price cost well increase number prepaid devices sold selling general administrative expense sales marketing costs primarily consist customer acquisition costs including commissions paid indirect dealers thirdparty distributors retail sales force new device activations upgrades residual payments indirect dealers payments made oems direct source equipment payroll facilities costs associated retail sales force marketing employees advertising media programs sponsorships including costs related branding general administrative expenses primarily consist costs billing customer care information technology operations bad debt expense administrative support activities including collections legal finance human resources corporate communications strategic planning technology product development sales marketing expense 51 billion increase 246 million 5 2011 2010 48 billion increase 322 million 7 2010 2009 increase sales marketing expenses year ended december 31 2011 compared prior period primarily due reimbursements pointofsale discounts iphones directly sourced distributors apple accounted sales expense well additional costs associated increase subscriber gross additions slightly offset decrease media spend pointofsale discounts included determination equipment net subsidy purchase resell devices increase sales marketing expenses year ended december 31 2010 compared prior period primarily due additional costs associated increase subscriber gross additions combined incremental costs associated business combinations fourth quarter 2009 offset decline marketing expenditures related cost cutting initiatives general administrative costs 40 billion insignificant increase 11 million 2011 2010 40 billion decrease 203 million 5 2010 2009 slight increase general administrative costs year ended december 31 2011 reflects increase bad debt expense partially offset reduction customer care costs well reductions prepaid integration costs incurred 2010 associated business acquisitions decline general administrative costs year ended december 31 2010 reflects reduction customer care costs minor continued effects workforce reductions cost cutting initiatives announced 2009 offset increases result fourth quarter 2009 business acquisitions virgin mobile ipcs addition increase bad debt expense customer care costs decreased 120 million 2011 compared 2010 87 million 2010 compared 2009 improvement customer care costs largely attributable customer care quality initiatives price plan simplification resulted reduction calls per subscriber allowed optimization call center resources bad debt expense 552 million year ended december 31 2011 representing 129 million increase compared bad debt expense 423 million 2010 increase bad debt expense primarily reflects increase aging accounts receivable outstanding greater 60 days combined increase average writeoff per account year ended december 31 2010 bad debt expense increased 31 million compared bad debt expense 392 million 2009 increase bad debt expense primarily reflects 2009 reductions allowances bad debt due increased rates recovery reassess allowance doubtful accounts quarterly changes allowance doubtful accounts largely attributable analysis historical collection experience changes credit policies established subscribers mix prime postpaid subscribers total postpaid subscribers 82 december 31 2011 compared 84 december 31 2010 segment earnings wireline segment earnings primarily function wireline service revenue network interconnection costs wireline segment operating expenses network costs primarily represent special access costs interconnection costs generally consist domestic international perminute usage fees paid carriers remaining costs associated operating wireline segment include costs operate customer care billing organizations addition administrative support wireline service revenue variable network interconnection costs fluctuate changes customer base related usage cost elements fluctuate short term changes customer usage wireline services provided wireless segment generally accounted based market rates believe approximate fair value company generally reestablishes rates beginning fiscal year past several years industry wide trend lower rates due increased competition wireline wireless communications companies well cable internet service providers 2012 expect wireline segment earnings decline approximately 180 220 million reflect changes market prices services provided wireline segment wireless segment decline wireline segment earnings related intercompany pricing affect consolidated results operations wireless segment benefit equivalent reduction cost service following table provides overview results operations wireline segment years ended december 31 2011 2010 2009 wireline revenue voice revenues voice revenues decreased 334 million 15 2011 compared 2010 314 million 12 2010 compared 2009 2011 decrease primarily driven overall price declines 115 million related decline prices sale services wireless segment well volume declines due customer churn 2010 decrease primarily driven volume declines due customer churn well overall price declines voice revenues generated sale services wireless segment represented 34 total voice revenues 2011 compared 33 2010 31 2009 data revenues data revenues reflect sales data services including atm frame relay managed network services data revenues decreased 59 million 11 2011 compared 2010 143 million 22 2010 compared 2009 result customer churn driven focus longer provide frame relay atm services periods data revenues generated provision services wireless segment represented 35 total data revenue 2011 compared 27 2010 19 2009 internet revenues internet revenues reflect sales ipbased data services including mpls voip sip internet revenues decreased 297 million 14 2011 2010 118 million 5 2010 2009 certain msos decided insource digital voice products resulting 181 million decrease 2011 compared 2010 addition internet revenues generated sale services wireless segment declined 94 million due decline prices 2010 decrease due decline new ip customers lower market rates result increased competition internet revenues generated provision services wireless segment represented 8 total internet revenues 2011 compared 10 2010 11 2009 revenues primarily consist sales customer premises equipment decreased 24 million 25 2011 compared 2010 14 million 13 2010 compared 2009 result fewer projects 2011 2010 costs services products costs services products include access costs paid local phone companies domestic service providers foreign phone companies complete calls made domestic subscribers costs operate maintain networks costs equipment costs services products decreased 314 million 9 2011 2010 344 million 9 2010 2009 decrease 2011 2010 primarily due lower access expense result savings initiatives migration data ipbased technologies addition declining voice volumes service gross margin percentage decreased 35 2009 34 2010 decreased 31 2011 result decrease net service revenue partially offset decrease costs services products selling general administrative expense selling general administrative expense decreased 110 million 17 2011 compared 2010 114 million 15 2010 compared 2009 decrease 2011 primarily due reduction shared administrative employee related costs required support wireline segment result decline revenue decrease 2010 primarily due reduction employee headcount decline use outside services maintenance part cost cutting initiatives total selling general administrative expense percentage net services revenue 12 2011 13 2010 2009 liquidity capital resources cash flow operating activities net cash provided operating activities 37 billion 2011 decreased 11 billion period 2010 decrease resulted increase vendor laborrelated payments 26 billion primarily related increase average cost postpaid prepaid devices sold related increases inventory increased roaming due higher 3g 4g data usage well 136 million pension contribution payments offset 12 billion increased cash received customers primarily due increases total subscriber net additions 310 million received spectrum hosting addition cash paid interest decreased 430 million 395 million associated interest capitalization result network vision reflected investing activity net cash provided operating activities 48 billion 2010 decreased 76 million 2009 primarily due 196 million decrease cash received subscribers resulting decline postpaid subscriber customer base increase 217 million cash paid suppliers employees increase 36 million cash paid interest partially offset increase 170 million cash received income tax refunds net cash provided operating activities 2009 also includes cash payment 200 million resulting contribution company pension plan investing activities net cash used investing activities 2011 increased 887 million 2010 due increases 480 million purchases shortterm investments 12 billion capital expenditures increases capital expenditures related addition data capacity wireless networks network vision also include 395 million due recognition capitalized interest qualifying activities associated network vision primarily related carrying value spectrum licenses yet placed service increases use cash offset increases 825 million proceeds sales maturities shortterm investments decrease 201 million expenditures related fcc licenses determined specific operations requirements report order also received 135 million reimbursements mobile satellite service mss entrants pro rata portion costs clearing portion 19 ghz spectrum addition fourth quarter 2011 sprint invested additional 331 million clearwire result amendment agreements clearwires successful offering additional class shares market net cash used investing activities 2010 decreased 13 billion 2009 due decrease 300 million purchases shortterm investments decrease 132 million expenditures related fcc licenses determined specific operation requirements report order decreases partially offset reduced proceeds sales maturities shortterm investments 418 million increased capital expenditures 332 million add coverage capacity wireless networks sprint also increased investment clearwire 11 billion acquired ipcs virgin mobile 560 million 2009 resulted remaining decline 2010 compared 2009 financing activities net cash provided financing activities 26 million 2011 company repaid certain debt obligations including 165 billion sprint capital corporation 7625 senior notes early redemption 20 billion sprint capital corporation 8375 senior notes repayment 250 million 750 million export development canada edc facility reductions debt obligations offset proceeds issuance 10 billion 115 senior notes due 2021 30 billion 9 guaranteed notes due 2018 private placement november 2011 also paid 86 million debt financing costs associated november 2011 debt issuances fourth quarter credit facility amendments net cash used financing activities 905 million 2010 activities 2010 included 750 million debt payment june 2010 51 million payment debt financing costs associated new revolving credit facility addition fourth quarter 2010 exercised option terminate relationship variable interest entity resulted repayment financing capital lease obligations 105 million net cash used financing activities 919 million 2009 activities 2009 include debt repayments 600 million senior notes may 2009 early redemption 607 million convertible senior notes september 2009 10 billion payment revolving bank credit facility november 2009 offset issuance 13 billion senior notes august 2009 received 18 million 8 million 4 million 2011 2010 2009 respectively proceeds common share issuances primarily resulting exercises employee options liquidity december 31 2011 liquidity including cash equivalents shortterm investments available borrowing capacity revolving credit facility 67 billion cash equivalents shortterm investments totaled 56 billion december 31 2011 compared 55 billion december 31 2010 december 31 2011 11 billion letters credit outstanding 22 billion revolving bank credit facility including letter credit required report order reconfigure 800 mhz band result outstanding letters credit directly reduce availability revolving bank credit facility 11 billion borrowing capacity available revolving bank credit facility december 31 2011 january 31 2011 165 billion sprint capital corporation 7625 senior notes repaid upon maturity also january 2011 amended 500 million 750 million edc loan extend maturity date 2012 2015 october 2011 amended terms revolving credit facility modify certain financial covenants increase capacity 150 million 22 billion november 23 2011 paid 250 million plus accrued unpaid interest edc loan due 2012 addition edc loan agreement amended december 2011 provide similar covenant terms amended revolving bank credit facility december 29 2011 redeemed outstanding 20 billion sprint capital corporation 8375 senior notes due march 2012 principal plus accrued unpaid interest addition 33 million loss recognized result early retirement january 2012 received 150 million note receivable stated interest rate 115 clearwire result additional investment provided clearwire amended agreement fourth quarter 2011 matures two installments 75 million plus accrued interest january 2013 january 2014 september 2011 entered four year commitment apple inc purchase minimum number smartphones average expected carry higher subsidy per unit smartphones sell minimum commitment arrangement approximately 155 billion however expect actual purchases exceed amount result expected increase cash outflow reduction operating income earlier years contract time may recover acquisition costs subscriber revenue additionally october 2011 announced intention accelerate timeline associated network vision network modernization plan addition network vision currently experiencing rapid growth data usage requires additional capital data capacity meet customers needs maintain customer satisfaction accelerated timeline coupled capital needs maintain operate existing infrastructure expected require approximately 10 billion total capital expenditures two year period ending december 31 2013 addition expectation increased capital expenditures also expect network operating expenditures increase deployment period meet short longterm liquidity requirements look variety funding sources existing liquidity balance cash generated operating activities primary source funding addition cash flows operating activities rely borrowing capacity available credit facility ability issue debt equity securities forms financing support short longterm liquidity requirements november 2011 sprint nextel corporation issued 10 billion 115 senior notes due 2021 30 billion 9 guaranteed notes due 2018 believe issuances addition existing available liquidity cash flows operations sufficient meet funding requirements least 2012 including debt service requirements significant future contractual obligations maintain adequate amount available liquidity execute according timeline current business plan includes network vision subscriber growth expected achievement cost structure intended achieve competitive margins expect need raise additional funds external resources approximately 10 billion 30 billion 2013 dependent part ability maintain adequate cash balances ongoing availability existing unutilized borrowing capacity existing credit facilities unable fund remaining capital needs external resources terms acceptable us would need modify existing business plan could adversely affect expectation longterm benefits results operations cash flows operations determining expectation future funding needs next 12 months beyond considered • projected revenues expenses relating operations • anticipated levels timing capital expenditures including capacity upgrading networks deployment new technologies networks fcc license acquisitions • anticipated payments report order supplemented • additional contributions may make pension plan • scheduled debt service requirements • additional investments may choose make clearwire • future contractual obligations general corporate expenditures december 31 2011 working capital 38 billion compared 20 billion december 31 2010 increase working capital primarily due net cash proceeds approximately 39 billion issuance notes increases device accessory inventory decreases current portion longterm debt related repayment 165 billion sprint capital corporation 7625 senior notes due january 2011 remaining change primarily related activity current assets 2011 capital resources ability fund capital needs external sources ultimately affected overall capacity terms banking securities markets well performance credit ratings given recent financial performance well volatility markets continue monitor closely take steps maintain financial flexibility reasonable cost capital december 31 2011 moodys investor service standard poors ratings services fitch ratings assigned following credit ratings certain outstanding obligations rating agency issuer rating unsecured notes guaranteed notes credit facility outlook moodys b1 b3 ba3 ba1 review downgrade standard poors b bb negative fitch b bb negative downgrades current ratings accelerate scheduled principal payments existing debt however downgrades may cause us incur higher interest costs credit facilities future borrowings could negatively impact access public capital markets terms conditions revolving bank credit facility require ratio total indebtedness trailing four quarters earnings interest taxes depreciation amortization certain nonrecurring items defined credit facility adjusted ebitda 45 10 october 2011 credit facility amended prospectively redefine adjusted ebitda exclude costs comprising equipment net subsidy defined amended agreement extent costs exceed 11 billion six consecutive fiscal quarters ending march 31 2013 amount added back related exclusion cannot exceed 175 billion four consecutive fiscal quarters limited 27 billion aggregate six consecutive fiscal quarters ending march 31 2013 march 31 2012 ratio reduced 425 10 reduced 40 10 december 31 2012 december 31 2011 2010 ratio 37 10 revolving bank credit facility currently restricted paying cash dividends ratio total indebtedness adjusted ebitda exceeds 25 10 terms amended revolving bank credit facility provide interest rate equal london interbank offered rate libor plus margin 275 40 beginning october 2011 certain domestic subsidiaries guaranteed revolving bank credit facility default borrowings could trigger defaults debt obligations turn could result maturities accelerated certain indentures govern outstanding notes also require compliance various covenants including limitations incurrence indebtedness liens company subsidiaries defined terms indentures certain indentures also contain covenants limit companys ability sell substantially assets merge consolidate companies expect remain compliance covenants least end 2012 although assurance although expect improve subscriber results execute network vision plans including decommissioning nextel platform meet plan depending severity difference actual results versus currently anticipate possible would remain compliance covenants able meet debt service obligations could result acceleration indebtedness unforeseen events occur may engage lenders obtain appropriate waivers amendments credit facilities refinance borrowings although assurance would successful actions current business outlook endeavor retain existing add new wireless subscribers order reverse net loss postpaid wireless subscribers experienced expect improve subscriber trends continuing improve customer experience enhancing network providing diversity devices offers provide value simplicity productivity given current economic environment difficulties economic uncertainties create forecasting well inherent uncertainties predicting future customer behavior unable forecast assurance net retail postpaid subscriber results experience 2012 thereafter however company expects 2012 consolidated segment earnings 37 billion 39 billion including estimated impact iphone effects network vision expect total net service revenue growth approximately 4 6 company also expects full year capital expenditures 2012 excluding capitalized interest approximately 6 billion discussion subject risks cautionary qualifying factors set forth “forwardlooking statements” part item 1a “risk factors” report future contractual obligations following table sets forth best estimates amounts timing contractual payments december 31 2011 future events including additional purchases securities refinancing securities could cause actual payments differ significantly amounts see “forwardlooking statements” 1 includes principal estimated interest payments interest payments based managements expectations future interest rates 2 represents capital lease payments including interest financing obligation related sale subsequent leaseback multiple tower sites 3 includes future lease costs related cell switch sites real estate network equipment office space 4 includes service spectrum network capacity executory contracts excludes blanket purchase orders amount 24 million see discussion “purchase orders commitments” include minimum purchases commit purchase suppliers time andor unconditional purchase obligations guarantee make minimum payment suppliers goods services regardless whether take delivery amounts represent entire anticipated purchases future generally represent estimate items committed estimates based assumptions variable components contracts hours contracted number subscribers pricing factors addition party various arrangements conditional nature create obligation make payments upon occurrence certain events delivery functioning software products possible predict timing amounts may due conditional arrangements amounts included table also excludes approximately 24 million blanket purchase order amounts since agreement terms specified time frame set purchase orders legally binding result firm commitments liability uncertain tax positions 225 million december 31 2011 due inherent uncertainty timing resolution underlying tax positions practicable assign liability particular years table include remaining costs paid connection fulfillment obligations report order report order requires us make payment us treasury conclusion band reconfiguration process extent value 19 ghz spectrum received exceeds total value licenses spectrum 700 mhz 800 mhz bands surrendered decision plus actual costs qualifying costs incur retune incumbents facilities inception program december 31 2011 incurred approximately 31 billion costs directly attributable spectrum reconfiguration program amount include internal network costs preliminarily allocated reconfiguration program capacity sites modifications may request credit reconfiguration program estimate based experience date reconfiguration program information currently available total direct costs attributable complete spectrum reconfigurations range 36 37 billion accordingly believe unlikely required make payment us treasury offbalance sheet financing participate secure financings unconsolidated special purpose entities critical accounting policies estimates sprint applies accounting policies management believes best reflect underlying business economic events consistent accounting principles generally accepted united states sprints critical accounting policies include related basis presentation allowance doubtful accounts valuation recoverability equity method investment clearwire valuation recoverability longlived assets evaluation goodwill indefinitelived assets impairment inherent policies certain key assumptions estimates made management regularly updates estimates used preparation financial statements based latest assessment current projected business general economic environment critical accounting policies discussed sprints board directors sprints significant accounting policies summarized notes consolidated financial statements basis presentation consolidated financial statements include accounts sprint consolidated subsidiaries investments sprint maintains majority ownership lacks full decision making ability major issues accounted using equity method governance sprints major unconsolidated investment clearwire based clearwire board representation sprint majority vote allowance doubtful accounts maintain allowance doubtful accounts estimated losses result failure subscribers make required payments estimate allowance doubtful accounts considers number factors including collection experience aging accounts receivable portfolios credit quality subscriber base qualitative considerations extent actual loss experience differs significantly historical trends required allowance amounts could differ estimate 10 change amount estimated uncollectible would result corresponding change bad debt expense approximately 21 million wireless segment 1 million wireline segment valuation recoverability equity method investment clearwire assess equity method investment otherthantemporary impairment indicators decline quoted prices active markets indicate value carrying value investment evaluation requires significant judgment regarding limited severity duration decline market prices ability intent hold securities recovery financial condition liquidity nearterm prospects investee specific events factors financial reporting measurement date evaluate excess sprints carrying value estimated fair value investment clearwire determine excess implied unrealized loss otherthantemporary evaluation considers among things clearwires market capitalization volatility associated clearwires common stock duration decline clearwires average trading stock price sprints carrying value evaluation also considers tax benefits associated class b nonvoting common interests clearwire communications llc governance rights expectation duration ongoing relationship well factors based evaluation december 31 2011 recognized noncash impairment investment clearwire 135 million fourth quarter 2011 carrying value equity method investment clearwire december 31 2011 totaled approximately 17 billion valuation recoverability longlived assets longlived assets consist primarily property plant equipment intangible assets subject amortization changes technology intended use assets well changes economic industry factors business prospects may cause estimated period use value assets change property plant equipment generally depreciated straightline basis estimated economic useful lives certain network assets depreciated using group life method depreciable life studies performed periodically confirm appropriateness depreciable lives certain categories property plant equipment studies take account actual usage physical wear tear replacement history assumptions technology evolution factors indicate assets useful life different previous assessment depreciate remaining book values prospectively adjusted remaining estimated useful life depreciation rates assets using group life method revised periodically required method changes made result depreciable life studies rate changes generally material effect depreciation expense longlived assets reviewed impairment whenever events changes circumstances indicate carrying amount may recoverable longlived asset groups determined based upon certain factors including assessing lowest level identifiable cash flows largely independent cash flows groups assets liabilities total expected undiscounted future cash flows less carrying amount assets loss recognized difference estimated fair value carrying value assets impairment analyses performed based current business technology strategy views growth rates business anticipated future economic regulatory conditions expected technological availability estimate undiscounted cash flows exceeded carrying value assets 10 continue operational challenges including retaining attracting subscribers future cash flows company may sufficient recover carrying value wireless asset group could record asset impairments material sprints consolidated results operations financial condition addition analysis described certain assets yet deployed business including network equipment cell site development costs software development periodically assessed determine recoverability network equipment cell site development costs expensed whenever events changes circumstances cause company conclude assets longer needed meet managements strategic network plans deployed software development costs expensed longer probable software project deployed network equipment removed network also periodically assessed determine recoverability connection network vision including decommissioning nextel platform management may conclude future periods certain equipment never either deployed redeployed case noncash charges could material consolidated financial statements would recognized refer results operations additional information asset impairments evaluation goodwill indefinitelived intangible assets impairment goodwill represents excess purchase price paid fair value assigned net tangible identifiable intangible assets acquired businesses sprint evaluates carrying value goodwill annually frequently events changes circumstances indicate carrying amount may exceed estimated fair value analysis includes comparison estimated fair value reporting unit goodwill applies carrying value including goodwill reporting unit regularly assess whether indicators impairment exist requires significant amount judgment indicators may include sustained significant decline share price market capitalization decline expected future cash flows significant adverse change legal factors business climate unanticipated competition testing recoverability significant asset group within reporting unit andor slower growth rates among others adverse change factors could result impairment carrying value goodwill 359 million december 31 2011 company recognizes market capitalization product traded stock price shares outstanding subject volatility certain periods shareholders equity book value accordingly monitor changes market capitalization annual impairment tests determine whether declines necessitate interim review goodwill impairment consider decline market capitalization corresponds overall deterioration stock market conditions less indicator goodwill impairment unilateral decline market capitalization could result adverse changes underlying operating performance cash flows financial condition andor liquidity event market capitalization decline book value consider length severity decline reasons decline assessing whether potential goodwill impairment exists believe shortterm fluctuations share price may necessarily reflect underlying aggregate fair value segments reporting units also believe market price stock may representative fair value overall business since include control premium market participant may willing pay ability take advantage synergies benefits could derived control company however decline market capitalization book value persists extended period time would likely consider decline indicative decline estimated fair value reporting unit level differences companys actual future cash flows operating results growth rates capital expenditures cost capital discount rates compared estimates utilized purpose estimating fair value reporting unit well decline companys stock price related market capitalization could affect results annual goodwill assessment accordingly potentially lead future goodwill impairment determination estimated fair value wireless reporting unit requires significant estimates assumptions estimates assumptions primarily include limited transactions within wireless industry related control premiums discount rate terminal growth rates operating income depreciation amortization oibda capital expenditures forecasts due inherent uncertainty involved making estimates actual results could differ estimates merits significant assumption individually aggregate used estimate fair value reporting unit evaluated reasonableness decline estimated fair value wireless reporting unit 10 would result impairment goodwill fcc licenses sprint boost mobile trademarks identified indefinitelived intangible assets addition goodwill considering expected use assets regulatory economic environment within used effects obsolescence use required sprint assesses recoverability indefinitelived intangibles including fcc licenses carried single unit accounting assessing recoverability fcc licenses estimate fair value licenses using greenfield direct value method approximates value estimating discounted future cash flows hypothetical startup business assumptions key estimating fair value method include limited capital expenditures subscriber activations deactivations market share achieved tax rates effect discount rate one percent decline assumed revenue growth rate used estimate terminal value one percent decline assumed net cash flows one percent adverse change key assumptions referred would result impairment fcc licenses recent testing date decline estimated fair value fcc licenses approximately 10 also would result impairment carrying value new accounting pronouncements september 2009 financial accounting standards board fasb modified accounting multipledeliverable revenue arrangements certain revenue arrangements include software elements modifications alter methods previously required allocating consideration received multipleelement arrangements require revenue allocation based relative selling price method including arrangements containing software components nonsoftware components function together deliver products essential functionality modifications effective beginning first quarter 2011 material effect consolidated financial statements july 2010 fasb amended requirements disclosures credit quality financing receivables allowance credit losses result amendments entity required disaggregate portfolio segment class certain existing disclosures provide certain new disclosures financing receivables related allowance credit losses new disclosures end reporting period effective fiscal year ending december 31 2010 disclosures activity occurs reporting period effective first quarter 2011 neither material effect consolidated financial statements may 2011 fasb issued authoritative guidance regarding fair value measurement amendments achieve common fair value measurement disclosure requirements us gaap ifrss resulted common requirements measuring fair value disclosing information fair value measurement us gaap international financial reporting standards ifrs including consistent definition term fair value amendments effective beginning first quarter 2012 however expect effects material fasb issued authoritative guidance regarding comprehensive income presentation comprehensive income june 2011 subsequently revised december 2011 amends existing guidance present total comprehensive income components net income components comprehensive income either one continuous statement comprehensive income two consecutive financial statements guidance eliminates option present components comprehensive income statement changes shareholders equity amendments effective beginning first quarter 2012 early adoption permitted require retrospective application effect presentation information primary financial statements early adopted new presentation requirements resulted reporting components comprehensive income loss consolidated statements comprehensive loss rather consolidated statements shareholders equity previously reported september 2011 fasb issued authoritative guidance regarding testing goodwill impairment intended reduce cost complexity annual goodwill impairment test providing entities option performing qualitative assessment determine whether impairment testing necessary revised standard effective annual interim goodwill impairment tests performed beginning first quarter 2012 early adoption permitted certain circumstances early adopted provisions standard part annual assessment goodwill effect financial statements forwardlooking statements include certain estimates projections forwardlooking statements within meaning section 27a securities act 1933 section 21e securities exchange act 1934 annual quarterly current reports publicly available material statements regarding expectations including performance assumptions estimates relating capital requirements well statements historical facts forwardlooking statements reflect managements judgments based currently available information involve number risks uncertainties could cause actual results differ materially forwardlooking statements respect forwardlooking statements management made assumptions regarding among things subscriber network usage subscriber growth retention pricing operating costs timing various events economic regulatory environment future performance cannot assured actual results may differ materially forwardlooking statements factors could cause actual results differ include • ability retain attract subscribers • ability competitors offer products services lower prices due lower cost structures • effects vigorous competition highly penetrated market including impact competition price able charge subscribers services equipment provide ability retain existing subscribers attract new subscribers impact equipment net subsidy costs impact increased purchase commitments overall demand service offerings including impact decisions new existing subscribers postpaid prepaid services offerings two network platforms impact new emerging competing technologies business • ability generate sufficient cash flow fully implement network modernization plan network vision improve enhance networks service offerings improve operating margins implement business strategies provide competitive new technologies • effective implementation network vision including timing execution technologies costs • ability migrate subscribers nextel platform mitigate related increases churn • ability access additional spectrum including spectrum hosting arrangements • changes available technology effects changes including product substitutions deployment costs • ability obtain additional financing terms acceptable us • volatility trading price common stock current economic conditions ability access capital • impact unrelated parties meeting business requirements including significant adverse change ability willingness parties provide devices infrastructure equipment networks • costs business risks associated providing new services entering new geographic markets • financial performance clearwire ability build operate maintain 4g network including lte network • ability access clearwires spectrum • compatibility sprints lte network clearwires lte network • effects mergers consolidations new entrants communications industry unexpected announcements developments others communications industry • unexpected results litigation filed us suppliers vendors • impact adverse network performance • costs potential customer impacts compliance regulatory mandates including limited compliance fccs report order reconfigure 800 mhz band • equipment failure natural disasters terrorist acts breaches network information technology security • one markets compete impacted changes political economic factors monetary policy legal regulatory changes external factors control • risks referenced time report including part item 1a “risk factors” filings sec words “may” “could” “estimate” “project” “forecast” “intend” “expect” anticipate “believe” “target” “plan” “providing guidance” similar expressions intended identify forwardlooking statements forwardlooking statements found throughout managements discussion analysis financial condition results operations elsewhere report readers cautioned factors although listed could also materially affect future performance operating results reader place undue reliance forwardlooking statements speak date report obligated publicly release revisions forwardlooking statements reflect events date report including unforeseen events financial strategies general risk management policies board directors adopted financial risk management policy authorizes us enter derivative transactions comply policy purchase hold derivative financial instruments speculative purposes exception equity rights obtained connection commercial agreements strategic investments usually form warrants purchase common shares derivative instruments primarily used hedging risk management purposes hedging activities may done various purposes including limited mitigating risks associated asset liability committed transaction probable forecasted transaction seek minimize counterparty credit risk stringent credit approval review processes credit support agreements continual review monitoring counterparties thorough legal review contracts exposure market risk controlled regularly monitoring changes hedge positions normal stress conditions ensure exceed established limits item 7a item 7 managements discussion analysis financial condition results operations overview business strategies key priorities sprint communications company offering comprehensive range wireless wireline communications products services designed meet needs individual consumers businesses government subscribers resellers unless context otherwise requires references sprint us company mean sprint corporation consolidated subsidiaries periods presented inclusive successor predecessor periods references sprint communications sprint communications inc consolidated subsidiaries communications industry continue compete basis network quality types services devices offered price currently undergoing significant multiyear program upgrade existing wireless communication network including decommissioning nextel platform successfully shutdown june 30 2013 see overview network modernization support business strategy expected capital requirements entered 30 billion unsecured revolving bank credit facility raised debt financing approximately 90 billion 2013 additionally raised equity funding approximately 50 billion 2013 including conversion 31 billion convertible bond sprint communications inc issued starburst ii inc starburst ii whollyowned subsidiary softbank 2012 additional 19 billion equity contribution provided softbank connection softbank merger defined see significant transactions 2012 raised debt financing approximately 89 billion addition entering 10 billion secured equipment credit facility fully drawn december 31 2013 see liquidity capital resources wireless segment earnings represented 90 total consolidated segment earnings december 31 2013 within wireless segment postpaid wireless service revenue represents significant contributors earnings driven number postpaid subscribers services also average revenue per user arpu following table shows trend end period postpaid subscribers platform past five years june 30 2013 completed successful shutdown nextel platform despite overall reduction postpaid subscribers primarily result action shutdown nextel platform experienced growth net operating revenue twelve month periods ended 2013 2012 compared 2011 primarily result continued adoption smartphones premium data addon charge prospectively expect continue focus profitable growth service provided enhanced wireless network continuing achieve key priorities business strategy responsive changing customer mobility demands innovative differentiated marketplace future growth plans strategy revolve around continuing achieve following three key priorities • improve customer experience • strengthen brands • generate operating cash flow simplify improve customer experience continue offer ready nowsm educates subscribers use mobile devices leave store business customers aim increase productivity providing differentiated services utilize advantages combining wireline ip networks wireless technology differentiation enables us retain acquire wireline wireless combined wirelinewireless subscribers networks also continued focus improving customer care implemented initiatives designed improve call center processes procedures standardized performance measures various metrics including customer satisfaction ratings respect customer care first call resolution calls per subscriber continue strengthen brand offering broad selection desired iconic devices focusing continued enhancements network upgrade lte distinguish sprint brand wireless providers offerings unlimited talk text data guaranteed life recently launched sprint framilysm plan allows subscribers forgo traditional subsidized devices exchange lower monthly service fees early upgrade options addition brand customeroriented goals continue focus generating increased operating cash flow competitive rate plans postpaid prepaid subscribers multibranded strategies effectively managing cost structure certain strategic decisions network modernization plan availability iphone® average carries higher equipment net subsidy resulted reduction cash flows operations also expect framily plan require greater use operating cash flows compared traditional subsidized plans subscriber financing device 24 months however believe actions generate longterm benefits including growth valuable postpaid subscribers reduction variable cost service per unit longterm accretion cash flows operations see liquidity capital resources information significant transactions may 17 2013 sprint communications closed transaction united states cellular corporation us cellular acquire personal communications services pcs spectrum subscribers parts illinois indiana michigan missouri ohio including chicago st louis markets 480 million cash sprint communications agreed connection acquisition reimburse us cellular certain network shutdown costs markets majority expected paid end 2016 costs expected approximately 160 million net present value basis event sprint communications reimbursement obligation exceed 200 million undiscounted basis additional spectrum used supplement sprints coverage areas july 9 2013 sprint communications completed acquisition remaining equity interests clearwire corporation consolidated subsidiary clearwire communications llc together clearwire previously clearwire acquisition cash transaction approximately 35 billion net cash acquired 198 million provides us control 25 gigahertz ghz spectrum tower resources use conjunction network modernization plan consideration paid preliminarily allocated assets acquired liabilities assumed based estimated fair values time clearwire acquisition allocation consideration paid based managements judgment evaluating several factors including preliminary valuation assessment july 10 2013 softbank corp certain whollyowned subsidiaries together softbank completed merger softbank merger sprint nextel corporation sprint nextel contemplated agreement plan merger dated october 15 2012 amended merger agreement bond purchase agreement dated october 15 2012 amended bond agreement pursuant bond agreement sprint communications inc issued convertible bond starburst ii principal amount 31 billion interest rate 1 maturity date october 15 2019 converted 590476190 shares sprint communications inc common stock 525 per share immediately prior close softbank merger result softbank merger starburst ii became parent company sprint nextel immediately thereafter starburst ii changed name sprint corporation sprint nextel changed name sprint communications inc result completion softbank merger subsequent open market stock purchases softbank owns approximately 80 outstanding voting common stock sprint corporation softbank merger consideration totaled approximately 222 billion consisting primarily cash consideration 141 billion net cash acquired 25 billion estimated fair value 22 interest sprint corporation issued existing stockholders sprint communications inc preliminary allocation consideration paid based managements judgment evaluating several factors including preliminary valuation assessment close transaction provided additional equity funding 50 billion consisting 31 billion received sprint communications inc october 2012 related bond automatically converted equity immediately prior closing softbank merger 19 billion cash consideration closing softbank merger connection close softbank merger sprint corporation became successor registrant sprint nextel rule 12g3 securities exchange act 1934 exchange act entity subject reporting requirements exchange act filings securities exchange commission sec subsequent close softbank merger network modernization process modernizing network allow consolidation optimization 800 megahertz mhz 19 ghz 25 ghz spectrum base stations prior closing clearwire acquisition initiative modernize network vision encompassed approximately 38000 cdma cell sites network vision project commenced late 2011 includes deployment enhanced 3g 4g lte technology using 19 ghz spectrum deployment voice technology 800 mhz spectrum majority 38000 sites expect substantially complete network vision middle 2014 addition network vision recently commenced deployment 4g lte technology 800 mhz spectrum continue expand 4g lte 25 ghz spectrum expect enhance quality network also modifying existing backhaul architecture enable increased capacity network lower cost utilizing ethernet opposed existing time division multiplexing tdm technology expect incur termination costs associated tdm contractual commitments thirdparty vendors ranging approximately 175 million 225 million majority expect record first quarter 2016 subscribers experiencing network service disruptions construction phase network vision contributed elevated postpaid churn rates third fourth quarters 2013 refer churn results table within results operations based experience several large markets reached near completion network vision construction observed churn elevates construction phase gradually improves preconstruction levels period several months following achievement substantial completion market expectation voice 3g modernization effort believe major driver recently elevated churn rates substantially complete mid2014 based observed performance trends several larger markets complete expect churn results continue negatively impacted network vision project gradual improvement beginning latter part 2014 date clearwire acquisition clearwire deployed wimax technology approximately 17000 cell towers process deploying 4g lte technology using 25ghz spectrum approximately 5000 sites completed plan expand 25 ghz 4g lte deployment approximately 5000 legacy clearwire sites addition plan cease using wimax technology end 2015 also evaluated consolidated cell tower portfolio including 17000 cell towers obtained clearwire acquisition identified approximately 6000 redundant sites expect decommission terminate underlying leases expect lease exit costs recorded future periods associated sites range approximately 50 million 100 million net present value basis timing lease exit charges dependent upon date cease utilizing sites without future economic benefit expect majority efforts roll 4g lte 800 mhz 25 ghz spectrum bands completed end 2015 october 2013 announced sprint sparksm enhanced lte network capability analyzes three spectrum bands lte connects device optimal band available area expect deployment period technology correspond roll 4g lte 800 mhz 25 ghz spectrum bands cost complete initiatives modernize network significant expect capital expenditures approximately 8 billion 2014 ultimately expect initiatives bring financial benefit company migration one common network expected reduce network maintenance operating costs capital efficiencies reduced energy costs lower roaming expenses backhaul savings reduction total cell sites well improvements quality service subscribers expectation financial savings affected multiple variables including expectation timeliness modernization across existing network footprint managed sprint partly dependent upon three primary original equipment manufacturers oems responsibility geographical territory across us network vision project related shutdown nextel platform resulted incremental charges beginning 2012 including limited increase depreciation associated existing assets related nextel sprint platforms due changes estimates remaining useful lives longlived assets changes expected timing amount asset retirement obligations lease exit contract termination costs nextel platform successfully shutdown june 30 2013 remaining infrastructure expected completely decommissioned end 2016 installment billing programs 2013 wireless carriers introduced new plans allow subscribers forgo traditional device subsidies exchange lower monthly service fees early upgrade options later part 2013 big 4 carriers launched early upgrade programs include device installment payment model objective plans attract subscribers away device subsidies exchange greater upgrade flexibility data usage options january 10 2014 sprint replaced recently launched sprint one upsm plan device installment payment plan framily plan introduced sprint easy pay installment billing framily plan sprint easy pay installment billing program expect recognize future expected installment payments device upfront basis accounting treatment allows sprint better align equipment revenue cost device minimizes amount subsidy recognized operating results additionally sprint offering lower monthly service fees without contract incentive attract subscribers framily plan rollout sprint framily plan sprint easy pay installment billing program expect declines sprint platform postpaid arpu continue throughout 2014 also expect reduced subsidy expenses offset declines therefore combination two items expected net positive contribution earnings interest taxes depreciation amortization ebitda 2013 impact installment billing plans consolidated financial statements material 2014 expect framily plan sprint easy pay accretive earnings compared traditional plans magnitude impact dependent upon rate subscriber adoption also expect framily plan sprint easy pay require greater use operating cash flows earlier part installment contract subscriber pays less upfront traditional plans subscriber financing device 24 months results operations discussed clearwire acquisition softbank merger completed july 2013 result transactions assets liabilities sprint communications clearwire preliminarily adjusted estimated fair value respective closing dates companys financial statement presentations distinguish predecessor period predecessor relating sprint communications periods prior softbank merger successor period successor relating sprint corporation formerly known starburst ii periods subsequent incorporation starburst ii october 5 2012 successor financial information includes activity accounts sprint corporation year ended december 31 2013 includes activity accounts sprint communications inclusive consolidation clearwire corporation prospectively 174day period following completion softbank merger postmerger period beginning july 11 2013 accounts operating activity successor periods october 5 2012 date inception december 31 2012 january 1 2013 july 10 2013 consist solely activity starburst ii prior close softbank merger predecessor financial information represents historical basis presentation sprint communications periods prior softbank merger result softbank merger order present managements discussion analysis way offers investors meaningful period comparison addition presenting discussing historical results operations reported consolidated financial statements accordance accounting principles generally accepted united states us gaap combined 2013 predecessor financial information 2013 successor financial information unaudited combined basis unaudited combined data consists predecessor information 191day period ended july 10 2013 successor information year ended december 31 2013 combined information year ended december 31 2013 comply us gaap intended represent consolidated results operations would successor actually formed january 1 2013 acquired predecessor date made attempt either include exclude expenses income would resulted softbank merger actually occurred january 1 2013 following discussion covers results successor year ended december 31 2013 predecessor years ended december 31 2012 2011 results unaudited combined year ended december 31 2013 versus predecessor year ended december 31 2012 also discussed extent necessary provide analysis results comparable periods although basis presentation may comparable due application acquisition method accounting additionally certain sections discuss activity predecessor 191day period ended july 10 2013 extent provides useful information activity period results successor 87day period ended december 31 2012 considered insignificant comparable successor year ended december 31 2013 successor entity established october 5 2012 sole purpose completing softbank merger results 87day period primarily reflected merger expenses incurred recognized selling general administrative expense interest income related 31 billion bond issued connection softbank merger provided information regarding certain elements acquisition method accounting affecting 2013 successor period results enable comparability acquisition method accounting effects successor period ending december 31 2013 allocation consideration transferred assets acquired liabilities assumed based preliminary estimated fair values date softbank merger described notes consolidated financial statements result following reflected results operations successor period ended december 31 2013 compared predecessor periods ended december 31 2012 2011 • reduced postpaid wireless revenue wireless cost service approximately 59 million result preliminary purchase accounting adjustments deferred revenue deferred costs respectively • reduced prepaid wireless revenue approximately 96 million result preliminary purchase accounting adjustments eliminate deferred revenue • increased rent expense 55 million included cost service primarily attributable writeoff deferred rents associated operating leases offset amortization net unfavorable leases recorded purchase accounting • increased cost products sold approximately 31 million result preliminary purchase price account adjustments accessory inventory • reduced depreciation expense approximately 400 million result preliminary purchase accounting adjustments reflecting net decrease property plant equipment • incremental amortization expense approximately 772 million primarily attributable recognition customer relationships approximately 69 billion • purchase accounting adjustment unrecognized net periodic pension postretirement benefits resulting decrease pension expense approximately 46 million primarily reflected selling general administrative expense predecessor 191day period ended july 10 2013 significant changes underlying trends affecting companys consolidated results operations net loss 191 days ended july 10 2013 follows • recorded gain previouslyheld clearwire equity interests approximately 29 billion difference estimated fair value equity interests owned prior acquisition 500 per share offer price less estimated control premium approximately 060 carrying value approximately 325 million previouslyheld equity interests • increased income tax expense primarily attributable taxable temporary differences result 29 billion gain previouslyheld equity interests clearwire principally attributable increase fair value federal communications commission fcc licenses held clearwire amortization fcc licenses fcc licenses amortized 15 years income tax purposes licenses indefinite life amortized financial statement reporting purposes consolidated results operations following table provides combined consolidated results operations year ended december 31 2013 successor year ended december 31 2013 87 days ended december 31 2012 predecessor 191day period ended july 10 2013 predecessor years ended december 31 2012 2011 predecessor information represents historical basis presentation sprint communications periods prior softbank merger successor period includes operating activity sprint corporation years ended december 31 2013 2012 well sprint communications inclusive clearwire prospectively date softbank merger july 10 2013 december 31 2013 depreciation expense successor year ended december 31 2013 predecessor years ended december 31 2012 2011 depreciation expense decreased 42 billion 68 successor year ended december 31 2013 compared predecessor year ended december 31 2012 primarily due comparing results shortened postmerger period consisting full calendar year addition decrease depreciation expense driven accelerated depreciation expense recognized 2012 network modernization described accelerated depreciation successor year ended december 31 2013 asset revaluations result softbank merger decreases partially offset increased depreciation expense assets acquired result clearwire acquisition asset additions primarily related network initiatives depreciation expense increased 18 billion 40 2012 compared 2011 network modernization resulted incremental charges period implementation including limited increase depreciation associated existing assets related nextel sprint platforms due changes estimates remaining useful lives longlived assets expected timing amount asset retirement obligations 2012 incremental effect accelerated depreciation due network initiatives approximately 21 billion majority related shutdown nextel platform increase related accelerated depreciation slightly offset net decrease depreciation result assets became fully depreciated retired combined year ended december 31 2013 predecessor year ended december 31 2012 addition explanations decrease depreciation expense combined year ended december 31 2013 compared predecessor year ended december 31 2012 partially offset increased depreciation expense primarily due network asset additions predecessor 191day period incremental effect accelerated depreciation expense totaled approximately 800 million 191 days ended july 10 2013 primarily related shutdown nextel platform june 30 2013 amortization expense successor year ended december 31 2013 predecessor years ended december 31 2012 2011 amortization expense increased 605 million 200 successor year ended december 31 2013 compared predecessor year ended december 31 2012 primarily due recognition definitelived intangible assets related customer relationships approximately 69 billion result softbank merger customer relationship intangible assets amortized using sumofthemonthsdigits method results higher amortization rates early periods decline time amortization expense declined 100 million 25 2012 compared 2011 primarily due absence amortization customer relationship intangible assets related 2006 acquisition nextel partners inc 2009 acquisition virgin mobile usa inc became fully amortized second quarter 2011 net following table provides additional information items included net combined consolidated results operations year ended december 31 2013 successor year ended december 31 2013 predecessor 191day period ended july 10 2013 predecessor years ended december 31 2012 2011 successor year ended december 31 2013 predecessor years ended december 31 2012 2011 net represented expense 402 million successor year ended december 31 2013 expense 80 million 106 million predecessor years ended december 31 2012 2011 respectively severance exit costs asset impairments 309 million successor year ended december 31 2013 included 219 million severance primarily associated reductions force 56 million lease exit costs primarily associated decommissioning nextel platform addition recognized 53 million payments continue made backhaul access contracts longer receiving economic benefit 19 million recognized cost services products severance exit costs asset impairments 2012 included lease exit costs 196 million associated taking certain nextel platform sites offair second third quarter 2012 asset impairments consisting 18 million assets associated decision utilize fiber backhaul rather microwave backhaul 66 million capitalized assets longer intend deploy result termination spectrum hosting arrangement lightsquared addition asset impairments 18 million 2012 primarily related assets longer necessary managements strategic plans primarily related network asset equipment severance exit costs asset impairments 2011 included 28 million severance exit costs associated actions taken fourth quarter 2011 78 million asset impairments primarily related assets longer necessary managements strategic plans primarily related network asset equipment gains asset dispositions exchanges 2012 primarily related spectrum exchange transactions spectrum hosting contract termination 2012 due recognition 236 million total 310 million paid lightsquared 2011 operating income net due termination spectrum hosting arrangement liqhtsquared 93 million reflected successor year ended december 31 2013 included 100 million business combination fees paid unrelated parties connection transactions softbank clearwire classified within selling general administrative expense consolidated statement comprehensive income loss partially offset 7 million reimbursements related 2012 hurricanerelated charges recorded contra expense cost services consolidated statement comprehensive income loss amount reflected 2012 consisted 45 million hurricanerelated costs 19 million expenses associated business combinations partially offset 17 million benefits resulting favorable developments relating access cost disputes certain exchange carriers predecessor period 191 days ended july 10 2013 exit costs predecessor 191day period ended july 10 2013 included lease exit costs 478 million primarily associated taking certain nextel platform sites offair june 30 2013 151 million related payments continue made backhaul access contracts longer receiving economic benefit 151 million future payments 35 million recognized cost services products 116 million solely attributable wireless recognized severance exit costs asset impairments also recognized 58 million severance related reductions force predecessor 191day period ended july 10 2013 predecessor 191day period ended july 10 2013 included 53 million business combination fees paid unrelated parties described partially offset favorable ruling texas supreme court connection taxation e911 services resulted noncash benefit 22 million interest expense successor year ended december 31 2013 predecessor years ended december 31 2012 2011 interest expense decreased 510 million 36 successor year ended december 31 2013 compared predecessor year ended december 31 2012 decrease primarily due comparing shortened postmerger period predecessor period representing full calendar year decrease partially offset interest expense increases result debt assumed clearwire acquisition new debt issuances september december 2013 see liquidity capital resources information companys financing activities taking account clearwire softbank transactions companys consolidated debt balance approximately 330 billion december 31 2013 effective interest rate includes capitalized interest combined year ended december 31 2013 77 based weighted average longterm debt balance 275 billion effective interest rate includes capitalized interest weighted average longterm debt balances 220 billion 191 billion 78 74 predecessor years ended 2012 2011 respectively see liquidity capital resources information companys financing activities interest expense increased 417 million 41 2012 compared 2011 primarily due increased weighted average longterm debt balances result 2011 2012 debt issuances partially offset 2011 2012 debt repayments addition increased effective interest rates combined reductions amount interest capitalized primarily related spectrum licenses combined year ended december 31 2013 predecessor year ended december 31 2012 addition explanations interest expense increase combined year ended december 31 2013 compared predecessor year ended december 31 2012 partially due reductions amount interest capitalized related spectrum licenses equity losses unconsolidated investments net successor year ended december 31 2013 predecessor years ended december 31 2012 2011 result clearwire acquisition july 9 2013 resulting consolidation clearwire results operations accounts company successor period results operations reflect equity losses unconsolidated investments equity losses unconsolidated investments net predecessor periods primarily consists proportionate share losses equity method investment clearwire sprints equity losses clearwire years ended december 31 2012 2011 included 204 million 135 million respectively pretax impairment reflecting sprints reduction carrying value investment clearwire estimated fair value equity losses clearwire 2012 2011 also included charges approximately 41 million 361 million respectively associated clearwires writeoff certain network assets longer met strategic plans addition year ended december 31 2011 also included dilution loss approximately 27 million primarily associated reduction noncontrolling economic interest related clearwires equity issuance income expense net following table provides additional information items included income expense net combined consolidated results operations year ended december 31 2013 successor year ended december 31 2013 87 days ended december 31 2012 predecessor 191day period ended july 10 2013 predecessor years ended december 31 2012 2011 successor year ended december 31 2013 predecessor years ended december 31 2012 2011 income expense net represented income 73 million 10 million successor year ended december 31 2013 87 days ended december 31 2012 compared income 190 million expense 3 million predecessor years ended december 31 2012 2011 respectively net successor year ended december 31 2013 primarily consisted 159 million income related recognition remaining unaccreted convertible bond discount addition successor year ended december 31 2013 included 175 million loss related embedded derivative associated convertible bond gain early retirement debt successor year ended december 31 2013 result early retirement clearwire communications llc clearwire finance inc 12 secured notes due 2015 12 secured notes due 2017 predecessor year ended december 31 2012 attributable early redemption nextel communications inc debt loss early retirement debt 2011 due redemption outstanding sprint capital corporation 8375 senior notes income tax expense successor period income tax expense year ended december 31 2013 45 million represented consolidated effective tax rate approximately 3 predecessor period income tax expense years ended december 31 2012 2011 154 million 254 million respectively represented consolidated effective tax rate approximately 4 10 respectively income tax expense successor predecessor periods presented primarily attributable taxable temporary differences amortization fcc licenses included 708 million 18 billion 12 billion net increase valuation allowance federal state deferred tax assets primarily related net operating loss carryforwards generated respective periods expense 191 days ended july 10 2013 approximately 16 billion primarily attributable recognition tax expense 29 billion gain previouslyheld equity interests clearwire addition predecessor period items noted income tax expense 2012 also included 69 million tax benefit resulting resolution various federal state income tax uncertainties income tax expense 2011 also includes 59 million expense resulting changes corporate state income tax laws expect record significant tax benefits future net operating losses circumstances justify recognition benefits additional information related items impacting effective tax rates found notes consolidated financial statements segment earnings wireless segment earnings function wireless service revenue sale wireless devices accessories costs acquire subscribers network interconnection costs serve subscribers wireless segment operating expenses costs acquire subscribers include net cost sell devices referred equipment net subsidies well marketing sales costs incurred attract subscribers network costs primarily represent switch cell site costs interconnection costs generally consist perminute usage fees roaming fees paid carriers remaining costs associated operating wireless segment include costs operate customer care organization administrative support wireless service revenue costs acquire subscribers variable network interconnection costs fluctuate changes subscriber base related usage cost elements fluctuate short term changes shown table results operations wireless segment earnings represented approximately 90 total consolidated segment earnings loss successor 2013 period wireless industry subject competition retain acquire subscribers wireless services markets operate high rates penetration wireless services wireless carriers accordingly must attract greater proportion new subscribers competitors rather firsttime subscribers within wireless segment postpaid wireless services represent significant contributors earnings driven number postpaid subscribers services well arpu wireless segment earnings declined last several years primarily resulting subscriber losses associated nextel platform offerings well increased equipment net subsidy smartphones recently decision shutdown nextel platform accelerated loss subscribers platform however focused efforts recapturing subscribers sprint platform resulting recapture approximately 26 million nextel platform postpaid subscribers beginning first quarter 2011 june 30 2013 nextel platform shutdown addition taken initiatives strengthen sprint brand continue increase market awareness improvements achieved customer experience provide competitive portfolio devices service plans subscriber selection late 2013 introduced new service plans include device payment installment billing allow subscribers forgo traditional device subsidies exchange lower monthly service fees early upgrade options adoption rates plans increase expect throughout base subscribers expect see decline arpu 2014 due lower service pricing associated framily plan compared traditional plans however expect reduced subsidy expense associated framily plan offset declines also expect number tablet connected device subscribers percentage total postpaid subscriber base increase 2014 would dilutive effect arpu following table provides overview results operations wireless segment combined consolidated results operations year ended december 31 2013 successor year ended december 31 2013 predecessor 191day period ended july 10 2013 predecessor years ended december 31 2012 2011 1 represents service revenue related acquisition certain assets us cellular 2nd quarter 2013 acquisition clearwire 3rd quarter 2013 service revenue wireless segment generates service revenue sale wireless services sale wholesale services service revenue consists fixed monthly recurring charges variable usage charges miscellaneous fees activation fees directory assistance roaming equipment protection late payment early termination charges certain regulatory related fees net service credits ability wireless segment generate service revenue primarily function • revenue generated subscriber turn function types amount services utilized subscriber rates charged services • number subscribers serve turn function ability retain existing subscribers acquire new subscribers retail comprises subscribers sprint directly provides wireless services whether services provided postpaid prepaid basis wholesale affiliates subscribers served mvno affiliate relationships arrangements wireless services sold sprint companies resell services subscribers successor year ended december 31 2013 predecessor years ended december 31 2012 2011 retail service revenue decreased 150 billion 53 year ended december 31 2013 compared predecessor year ended december 31 2012 primarily due comparing operating results shortened postmerger period 2012 predecessor period consisting full calendar year addition decline 16 average retail subscribers 2013 successor period compared 2012 predecessor period primarily resulting shutdown nextel platform june 30 2013 decrease partially offset higher average revenue per retail subscriber 2013 compared 2012 primarily due 10 premium data addon charge smartphones combined increased postpaid prepaid revenues resulting acquisitions 2013 retail service revenue increased 15 billion 6 2012 compared 2011 primarily reflects increase sprint platform postpaid service revenue related 10 premium data addon charge required smartphones continued popularity unlimited bundled plans combined increases roaming fees increase also driven continued subscriber growth assurance wireless brand well growing number subscribers remaining prepaid brands choosing higher rate plans result increased availability smartphones wholesale affiliate revenues decreased 217 million 45 year ended december 31 2013 compared predecessor year ended december 31 2012 primarily due comparing operating results shortened postmerger period 2012 predecessor period consisting full calendar year decrease partially offset increase revenues resulting acquisitions 2013 combined growth mvnos reselling postpaid services connected devices approximately 43 wholesale affiliate subscribers represent connected devices generate revenue usage varies depending solution utilized average revenue per connected device generally significantly lower revenue wholesale affiliate subscribers however cost service subscribers also lower resulting higher gross margin percent revenue wholesale affiliate revenues increased 222 million 85 2012 compared 2011 primarily result growth mvnos reselling prepaid services specifically growth subscribers lifeline program offered mvnos reselling prepaid services similar assurance wireless offering contributed revenue growth approximately 33 wholesale affiliate subscribers 2012 represented growing number connected devices combined year ended december 31 2013 predecessor year ended december 31 2012 addition explanations retail service revenue combined year ended december 31 2013 compared predecessor year ended december 31 2012 increased 94 million primarily consolidation clearwire subscriber growth mainly virgin prepaid brand prepaid subscribers choosing higher rate plans result increased availability smartphones addition sprint platform postpaid service revenue increased due 10 premium data addon charge required smartphones combined reduction number subscribers eligible certain plan discounts due policy changes fewer customer care credits addition explanations wholesale affiliate revenue combined year ended december 31 2013 compared predecessor year ended december 31 2012 increased due slight growth reselling prepaid services mvnos affiliates average monthly service revenue per subscriber trends table summarizes average number retail subscribers combined consolidated results operations year ended december 31 2013 successor year ended december 31 2013 predecessor 191day period ended july 10 2013 predecessor years ended december 31 2012 2011 additional information number subscribers net additions losses subscribers average rates monthly postpaid prepaid subscriber churn quarter since first quarter 2011 may found tables following pages table summarizes arpu combined consolidated results operations year ended december 31 2013 successor year ended december 31 2013 predecessor 191day period ended july 10 2013 predecessor years ended december 31 2012 2011 additional information arpu quarter since first quarter 2011 may found tables following pages 1 arpu calculated dividing service revenue sum monthly average number subscribers applicable service category changes average monthly service revenue reflect subscribers either postpaid prepaid service category change rate plans level voice data usage amount service credits offered subscribers plus net effect average monthly revenue generated new subscribers deactivating subscribers combined arpu 2013 aggregates service revenue predecessor191day period ended july 10 2013 successor year ended december 31 2013 divided sum monthly average subscribers year ended december 31 2013 successor year ended december 31 2013 predecessor years ended december 31 2012 2011 postpaid arpu year ended december 31 2013 compared predecessor period 2012 increased primarily due higher monthly recurring revenues including 10 premium data addon charges smartphones device protection fees combined fee increases reduction number subscribers eligible certain plan discounts due policy changes fewer customer care credits increase postpaid arpu partially offset lower variable usagebased revenues due popularity unlimited plan options combined lower revenue per subscriber carried subscribers acquired clearwire us cellular acquisitions growth sales tablets also carry lower revenue per subscriber expect sprint platform postpaid arpu decline 2014 result launch framily plan launched january 2014 sprint easy pay however also expect reduced equipment net subsidy expense offset declines prepaid arpu successor year ended december 31 2013 compared predecessor year ended december 31 2012 declined primarily result impact purchase price accounting eliminate deferred revenues partially offset impact higher revenue per subscriber carried subscribers acquired clearwire acquisition postpaid arpu 2012 increased compared 2011 primarily due increased revenues 10 premium data addon charges smartphones increases roaming fees prepaid arpu declined 2012 compared 2011 primarily result net additions assurance wireless brand whose subscribers carry lower arpu partially offset increase arpu remaining prepaid brands subscribers choosing higher priced plans take advantage international offerings increased availability smartphones average retail arpu increased 2012 compared 2011 primarily result increased postpaid arpu partially offset increased weighting average prepaid subscribers average retail subscribers carry lower arpu combined year ended december 31 2013 predecessor year ended december 31 2012 addition explanations prepaid arpu combined year ended december 31 2013 compared predecessor year ended december 31 2012 declined primarily result decrease arpu assurance wireless brand due lower number active assurance subscribers percentage average number assurance subscribers primarily result recertification process decrease partially offset increase arpu primarily virgin prepaid brands subscribers choosing higher priced plans due increased availability smartphones arpu relates assurance wireless brand also impacted result recertification process subscribers longer revenue impact december 31 2012 continued included prepaid subscriber based deactivation second quarter 2013 following table shows net additions losses wireless subscribers b total subscribers c end period connected device subscribers end quarterly period beginning first quarter 2011 1 subscriber defined individual line service associated device activated customer subscribers transfer original service category classification another platform another service line within platform reflected net loss original service category net addition new service category net effect subscriber changes total wireless net additions losses end period subscribers 2 acquired approximately 352000 postpaid subscribers 59000 prepaid subscribers acquisition assets us cellular transaction closed may 17 2013 acquired approximately 788000 postpaid subscribers excluding 29000 sprint wholesale subscribers transferred transactions postpaid subscribers originally recognized part clearwire mvno arrangement 721000 prepaid subscribers 93000 wholesale subscribers result clearwire acquisition closed july 9 2013 3 subscribers mvno relationships inactivity either voice usage primarily result nature device activity occurs data retrieval initiated enduser may occur infrequently although continue provide subscribers access network mvno relationships approximately 1218000 subscribers december 31 2013 mvno relationships inactive least six months associated revenue sixmonth period ended december 31 2013 4 end period connected devices included total retail postpaid wholesale affiliates end period subscriber totals periods presented following table shows average rates monthly postpaid prepaid subscriber churn b recapture nextel platform subscribers deactivated remained subscribers sprint platform end quarterly period beginning first quarter 2011 1 churn calculated dividing net subscriber deactivations quarter sum average number subscribers month quarter postpaid accounts comprising multiple subscribers family plans enterprise accounts net deactivations defined deactivations excess subscriber activations particular account within 30 days postpaid prepaid churn consist voluntary churn subscriber makes determination cease subscriber involuntary churn subscribers service terminated due lack payment reasons 2 subscriber churn related acquisition assets us cellular clearwire acquisition 3 represents recapture rate defined nextel platform postpaid prepaid subscribers applicable switched nextel platform activated service sprint platform period total nextel platform subscriber deactivations period postpaid prepaid respectively 4 represents nextel platform postpaid prepaid subscribers applicable switched nextel platform period remained company subscribers sprint platform subscribers deactivated service nextel platform activated service sprint platform included sprint platform net additions applicable period following table shows postpaid prepaid arpu end quarterly period beginning first quarter 2011 1 subscriber arpu related acquisition assets us cellular clearwire acquisition 2 combined arpu quarterly period ending september 30 2013 aggregates service revenue predecessor 10day period ended july 10 2013 successor threemonth period ended september 30 2013 divided sum monthly average subscribers three months ended september 30 2013 subscriber results sprint platform subscribers retail postpaid 2013 net postpaid subscriber losses 96000 compared net additions 15 million 13 million 2012 2011 respectively change net losses 2013 net additions 2012 2011 primarily related absence nextel platform recaptures second half 2013 shutdown network completed june 30 2013 nextel platform u cellular recaptures 2013 totaled 734000 addition approximately 564000 net additions tablet devices approximately 190000 net additions connected devices 2013 offset net losses approximately 1584000 sprint platform substantially sprint platform net additions 2012 approximately 508000 2011 represented postpaid subscribers deactivated service nextel platform addition churn increased comparing 2013 2012 postpaid gross subscriber additions declined comparing 2013 2012 expect churn results continue negatively impacted network vision gradual improvement beginning latter part 2014 addition wireless carriers recently undertaken various aggressive marketing efforts incent subscribers switch carriers result efforts could negative impact churn would negative effect ebitda retail prepaid 2013 added 488000 net prepaid subscribers compared adding 23 million 43 million 2012 2011 respectively decline net additions 2013 compared 2012 primarily due assurance wireless new recertification regulations discussed detail combined continued competitive pressures 2012 resulting promotional offerings drove increased net additions also contributing decline net additions 2013 absence nextel platform recaptures second half 2013 shutdown network completed approximately 168000 prepaid subscriber additions deactivated service nextel platform 2013 compared 620000 2012 724000 2011 decrease net prepaid additions 2012 compared 2011 primarily due decline gross subscriber additions assurance wireless due lower response rates lower subscriber application approval rate resulting complexities associated new federal regulations well increase churn primarily related fcc mandated efforts remove duplicate lifeline accounts carriers federal lifeline program assurance wireless operates requires applicants meet certain eligibility requirements existing subscribers must recertify requirements annually new regulations 2012 impact lifeline carriers impose stricter rules subscriber eligibility requirements recertification new regulations also required onetime recertification entire june 1 2012 subscriber base december 31 2012 accounts subscribers failed respond december 31 2012 suspended made subject prepaid churn rules described 365 days limited number states however subscribers could reapply prior deactivated also ability receive bytheminute service expense deactivated accounts approximately 12 million subscribers second quarter 2013 primarily related recertification process prepaid subscribers generally deactivated 60 150 days later date initial activation replenishment however prior account deactivation targeted retention programs offered qualifying subscribers maintain ongoing service providing additional 150 days make replenishment subscribers targeted retention offers included calculation churn retention offer expires without replenishment account result end period prepaid subscribers include subscribers engaged retention programs however number subscribers percentage total prepaid subscriber base remained consistent past four quarters assurance wireless clearwire subscribers excluded targeted retention programs wholesale affiliate subscribers wholesale affiliate subscribers represent customers served networks companies resell wireless services subscribers customers residing affiliate territories connected devices utilize network 82 million sprint platform subscribers included wholesale affiliates approximately 44 represent connected devices wholesale affiliate subscriber net additions 31000 2013 compared 944000 27 million 2012 2011 respectively inclusive net additions connected devices totaling 908000 593000 217000 2013 2012 2011 respectively decline net additions 2013 compared 2012 well 2012 compared 2011 primarily due targeted efforts 2013 2012 reduce inactive subscriber accounts wholesale mvno customers well net losses attributable new lifeline program recertification regulations discussed retail prepaid partially offset increases connected devices growth wholesale postpaid resellers transactions subscribers part acquisition assets us cellular closed may 2013 acquired 352000 postpaid subscribers 59000 prepaid subscribers part clearwire acquisition july 2013 acquired 788000 postpaid subscribers exclusive sprint platform wholesale subscribers acquired mvno relationship clearwire transferred postpaid subscribers within transactions 721000 prepaid subscribers 93000 wholesale subscribers remainder year ended december 31 2013 net postpaid subscriber losses 481000 net prepaid subscriber losses 179000 net wholesale subscriber additions 38000 approximately 106000 8000 postpaid prepaid subscribers respectively recaptured sprint platform cost services cost services consists primarily • costs operate maintain networks including direct switch cell site costs rent utilities maintenance labor costs associated network employees spectrum frequency leasing costs • fixed variable interconnection costs fixed component consists monthly flatrate fees facilities leased local exchange carriers based number cell sites switches service particular period related equipment installed site variable component generally consists perminute use fees charged wireline providers calls terminating networks fluctuate relation level duration terminating calls • long distance costs paid wireline segment • costs service repair devices • regulatory fees • roaming fees paid carriers • fixed variable costs relating payments third parties use proprietary data applications messaging music tv navigation services subscribers successor year ended december 31 2013 predecessor years ended december 31 2012 2011 cost services decreased 47 billion 52 successor year ended december 31 2013 compared predecessor year ended december 31 2012 primarily due comparing operating results shortened postmerger period 2012 predecessor period consisting full calendar year addition reduced network costs rent utilities 2013 result shutdown nextel platform june 2013 combined decrease service repair costs due decline volume frequency repairs decreases partially offset additional network costs due modernization network well net impact clearwire acquisition cost services increased 110 million 1 2012 compared 2011 reflecting increase rent expense primarily due cell site leases renegotiated 2011 connection network modernization shutdown nextel platform higher backhaul costs primarily due increased capacity increases partially offset decrease payments thirdparty vendors use proprietary data applications premium services result favorable rates provided contract renegotiations decline long distance network costs result lower market rates addition service repair costs decreased due decline volume frequency repairs slightly offset increase cost per unit devices utilized service repair due growth smartphone popularity combined year ended december 31 2013 predecessor year ended december 31 2012 addition explanations cost services combined year ended december 31 2013 compared predecessor year ended december 31 2012 decreased result reduction payments thirdparty vendors use proprietary data applications premium services result favorable contract rates decreases partially offset higher backhaul costs primarily due increased capacity equipment net subsidy recognize equipment revenue corresponding costs devices title risk loss passes indirect dealer enduse subscriber assuming revenue recognition criteria met marketing plans assume devices typically sold prices cost consistent industry practice offer certain incentives retain acquire subscribers new devices discounted prices cost incentives recorded reduction equipment revenue upon activation device service contract cost products includes equipment costs primarily devices accessories order fulfillment related expenses writedowns device accessory inventory related shrinkage obsolescence additionally cost products reduced rebates earned equipment manufacturers cost products excess net revenue generated equipment sales referred industry equipment net subsidy also make incentive payments certain indirect dealers purchase iphone® directly apple payments recognized selling general administrative expenses device activated sprint service plan sprint recognize equipment revenue cost products transactions see selling general administrative expense successor year ended december 31 2013 predecessor years ended december 31 2012 2011 equipment revenue decreased 15 billion 45 cost products declined 53 billion 54 successor year ended december 31 2013 compared predecessor year ended december 31 2012 primarily due comparing operating results shortened postmerger period 2012 predecessor period consisting full calendar year addition decrease equipment revenue cost products due fewer postpaid handsets sold partially offset higher average sales prices per postpaid prepaid device sold well increases prepaid handsets sold equipment revenue increased 337 million 12 2012 compared 2011 cost products increased 18 billion 23 2012 compared 2011 increase equipment revenue cost products primarily due higher average sales price cost per device sold postpaid prepaid devices particularly driven introduction expensive iphone postpaid prepaid subscribers partially offset decline number postpaid prepaid devices sold combined year ended december 31 2013 predecessor year ended december 31 2012 equipment revenues combined year ended december 31 2013 compared predecessor year ended december 31 2012 increased primarily due higher average sales prices per postpaid prepaid device sold well increases prepaid volumes partially offset fewer postpaid handsets sold cost products decreased primarily fewer postpaid handsets sold although higher average cost per handset partially offset increase average cost per prepaid handset due increased sales expensive 4g lte devices combined fewer sales low cost assurance wireless handsets selling general administrative expense sales marketing costs primarily consist subscriber acquisition costs including commissions paid indirect dealers thirdparty distributors retail sales force new device activations upgrades residual payments indirect dealers payments made oems direct source equipment payroll facilities costs associated retail sales force marketing employees advertising media programs sponsorships including costs related branding general administrative expenses primarily consist costs billing customer care information technology operations bad debt expense administrative support activities including collections legal finance human resources corporate communications strategic planning technology product development successor year ended december 31 2013 predecessor years ended december 31 2012 2011 sales marketing expense 26 billion successor year ended december 31 2013 representing decrease 26 billion 50 compared predecessor year ended december 31 2012 primarily due comparing operating results shortened postmerger period 2012 predecessor period consisting full calendar year addition reduction commissions expense resulting decrease postpaid subscriber gross additions partially offset increased costs resulting clearwire acquisition higher media spend sales marketing expense 53 billion increase 165 million 3 2012 2011 primarily due increased reimbursements pointofsale discounts iphones 238 million directly sourced distributors apple accounted sales expense partially offset reduction commissions expense resulting shift channel mix combined decrease subscriber gross additions pointofsale discounts included determination equipment net subsidy purchase resell devices general administrative costs 19 billion successor year ended december 31 2013 representing decrease 21 billion 53 compared predecessor year ended december 31 2012 primarily due comparing operating results shortened postmerger period 2012 predecessor period consisting full calendar year partially offset additional overhead costs result clearwire acquisition bad debt expense 260 million decrease 281 million successor period 2013 predecessor year ended december 31 2012 541 million decrease 11 million 2012 2011 decrease primarily related comparing shortened postmerger period 2012 predecessor period consisting full calendar year reassess allowance doubtful accounts quarterly changes allowance doubtful accounts largely attributable analysis historical collection experience changes credit policies established subscribers sprint platform mix prime postpaid subscribers total postpaid subscribers 82 81 80 december 31 2013 2012 2011 respectively combined year ended december 31 2013 predecessor year ended december 31 2012 addition increases explanations increase sales marketing expense combined year ended december 31 2013 compared predecessor year ended december 31 2012 also due increased commissions expense resulting growth prepaid sales addition explanations general administrative costs decreased combined year ended december 31 2013 compared predecessor year ended december 31 2012 also result lower customer care costs primarily due lower call volumes fewer calls per subscriber addition decrease bad debt expense reflects decrease accounts written lower average writeoff per account decline involuntary churn segment earnings wireline provide broad suite wireline voice data communications services communications companies targeted business consumer subscribers addition provide voice data ip communication services wireless segment ip services cable msos cable msos resell local long distance services use back office systems network assets support telephone service provided cable facilities primarily residential enduse subscribers one nations largest providers long distance services operate alldigital global long distance tier 1 ip networks services products include domestic international data communications using various protocols multiprotocol label switching technologies mpls ip managed network services voice internet protocol voip session initiated protocol sip traditional voice services ip services also combined wireless services include sprint mobile integration service enables wireless handset operate part subscribers wireline voice network datalinksm service uses wireless networks connect subscriber location primarily wireline widearea ipmpls data network making easy businesses adapt network changing business requirements addition providing services business customers wireline network carrying increasing amounts voice data traffic wireless segment result growing usage wireless subscribers continue assess portfolio services provided wireline business focusing efforts ipbased data services deemphasizing standalone voice services nonipbased data services also provide wholesale voice local long distance services cable msos offer part bundled service offerings well traditional voice data services enterprise use however digital voice services provide cable msos become large enough scale decided insource services result expect business continue decline time also continue provide voice services residential consumers wireline segment markets sells services primarily direct sales representatives wireline segment earnings primarily function wireline service revenue network interconnection costs wireline segment operating expenses network costs primarily represent special access costs interconnection costs generally consist domestic international perminute usage fees paid carriers remaining costs associated operating wireline segment include costs operate customer care billing organizations addition administrative support wireline service revenue variable network interconnection costs fluctuate changes customer base related usage cost elements fluctuate short term changes customer usage wireline services provided wireless segment generally accounted based market rates believe approximate fair value company generally reestablishes rates beginning fiscal year past several years industry wide trend lower rates due increased competition wireline wireless communications companies well cable internet service providers declines wireline segment earnings related intercompany pricing rates affect consolidated results operations wireless segment benefits equivalent reduction cost service following table provides overview results operations wireline segment combined consolidated results operations year ended december 31 2013 successor year ended december 31 2013 predecessor 191day period ended july 10 2013 predecessor years ended december 31 2012 2011 wireline revenue successor year ended december 31 2013 predecessor years ended december 31 2012 2011 voice revenues voice revenues decreased 908 million 56 successor year ended december 31 2013 compared predecessor year ended december 31 2012 primarily due comparing operating results shortened postmerger period consisting full calendar year voice revenues decreased 288 million 15 2012 compared 2011 primarily driven overall price declines 174 million related decline prices sale services wireless segment well volume declines due customer churn voice revenues generated sale services wireless segment represented 33 total voice revenues year ended december 31 2013 compared 32 34 years ended 2012 2011 respectively data revenues data revenues reflect sales data services primarily private line managed network services bundled nonipbased data access data revenues decreased 260 million 65 successor year ended december 31 2013 compared predecessor year ended december 31 2012 primarily due comparing operating results shortened postmerger period consisting full calendar year data revenues decreased 62 million 13 2012 compared 2011 result customer churn driven focus longer provide frame relay asynchronous transfer mode atm services phased early 2013 data revenues generated provision services wireless segment represented 50 total data revenue year ended december 31 2013 compared 44 35 years ended 2012 2011 respectively internet revenue ipbased data services revenue reflects sales internet services including mpls voip sip managed services bundled ipbased data access ipbased data services decreased 10 billion 58 successor year ended december 31 2013 compared predecessor year ended december 31 2012 primarily due comparing operating results shortened postmerger period consisting full calendar year ipbased data services decreased 97 million 5 2012 compared 2011 primarily due insourcing digital voice products certain cable msos sale services wireless segment represented 11 total internet revenues years ended december 31 2013 2012 8 year ended december 31 2011 revenues primarily consist sales customer premises equipment decreased 43 million 57 successor year ended december 31 2013 compared predecessor year ended december 31 2012 primarily due comparing operating results shortened postmerger period consisting full calendar year revenues increased 2 million 3 2012 compared 2011 combined year ended december 31 2013 predecessor year ended december 31 2012 voice revenues addition explanations voice revenues combined year ended december 31 2013 compared predecessor year ended december 31 2012 decreased result overall volume price declines 53 million related decline prices sale services wireless segment well volume declines due customer churn data revenues addition explanations data revenues combined year ended december 31 2013 compared predecessor year ended december 31 2012 decreased result customer churn driven focus longer provide frame relay atm services internet revenue addition explanations internet revenues combined year ended december 31 2013 compared predecessor year ended december 31 2012 decreased primarily due fewer ip customers costs services products successor year ended december 31 2013 predecessor years ended december 31 2012 2011 costs services products include access costs paid local phone companies domestic service providers foreign phone companies complete calls made domestic subscribers costs operate maintain networks costs equipment costs services products decreased 15 billion 56 successor year ended december 31 2013 compared predecessor year ended december 31 2012 primarily due comparing operating results shortened postmerger period consisting full calendar year costs services products decreased 224 million 7 2012 2011 primarily due lower access expense result savings initiatives declining voice data internet volumes service gross margin percentage decreased 31 2011 28 2012 25 2013 primarily result decrease net service revenue partially offset decrease cost services products combined year ended december 31 2013 predecessor year ended december 31 2012 addition explanations costs services products combined year ended december 31 2013 compared predecessor year ended december 31 2012 decreased primarily due lower access expense result declining voice data internet volumes selling general administrative expense successor year ended december 31 2013 predecessor years ended december 31 2012 2011 selling general administrative expense decreased 272 million 60 successor year ended december 31 2013 compared predecessor year ended december 31 2012 primarily due comparing operating results shortened postmerger period consisting full calendar year selling general administrative expense decreased 70 million 13 2012 compared 2011 primarily due reduction shared administrative employee related costs required support wireline segment result decline revenue total selling general administrative expense percentage net services revenue 11 year ended december 31 2013 12 years ended 2012 2011 combined year ended december 31 2013 predecessor year ended december 31 2012 addition explanations selling general administrative expense combined year ended december 31 2013 compared predecessor period 2012 decreased primarily due reduction shared administrative employee related costs required support wireline segment result decline revenue liquidity capital resources cash flow operating activities net cash used operating activities approximately 61 million 2013 successor period decreased 31 billion period 2012 predecessor decrease primarily due comparing shortened postmerger period consisting full calendar year also included 180 million call redemption premiums paid retire clearwire debt approximately 225 million interest payments related clearwire debt net cash provided operating activities 2013 combined basis approximately 26 billion decreased 389 million compared predecessor 2012 addition explanations decrease primarily due increased vendor laborrelated payments 475 million increased cash paid interest approximately 213 million primarily result less interest capitalized related spectrum licenses used network modernization partially offset increased cash received customers 699 million net cash provided operating activities 30 billion 2012 decreased 692 million period 2011 decrease resulted increases vendor laborrelated payments 15 billion primarily related increase average cost postpaid prepaid devices sold increased cash paid interest 339 million primarily due increase weighted average longterm debt balance effective interest rate partially offset increased cash received customers 11 billion primarily due increases postpaid arpu total net subscribers included vendor labor related payments 108 million pension contribution payments made 2012 investing activities net cash used investing activities successor period increased approximately 117 billion compared related predecessor period primarily due increased cash paid related softbank merger 141 billion net cash acquired increase partially offset decreased purchases shortterm investments approximately 15 billion increased proceeds approximately 200 million sales maturities shortterm investments reduction capital expenditures approximately 400 million result comparing shortened postmerger period consisting full calendar year net cash used investing activities 2012 increased 29 billion 2011 primarily due increases 24 billion purchases shortterm investments 11 billion capital expenditures partially offset increase 533 million proceeds sales maturities shortterm investments increases capital expenditures primarily related spend network modernization partially offset reductions legacy equipment spend also recognized 128 million form note receivable clearwire 2012 result additional investment provided fourth quarter 2011 addition purchased clearwire corporation class common stock clearwire communications llc class b interests eagle river 100 million december 2012 financing activities net cash provided financing activities 245 billion successor period included proceeds issuance common stock warrants approximately 186 billion related softbank merger addition company issued 90 billion unregistered debt registration rights consisting september 11 2013 issuance 225 billion aggregate principal amount 7250 notes due 2021 425 billion aggregate principal amount 7875 notes due 2023 december 12 2013 issuance 25 billion aggregate principal amount 7125 notes due 2024 guaranteed sprint communications also incurred approximately 147 million debt issuance costs increases along net borrowings secured equipment credit facility approximately 444 million offset retirement approximately 33 billion principal amount clearwire debt net cash provided financing activities 43 billion 2012 company issued senior notes guaranteed notes convertible bond well drawdowns secured equipment credit facility totaling aggregate approximately 92 billion redeemed remaining 48 billion nextel communications inc senior notes addition incurred 134 million debt financing costs 2012 net cash provided financing activities 26 million 2011 company repaid certain debt obligations including 165 billion sprint capital corporation 7625 senior notes early redemption 20 billion sprint capital corporation 8375 senior notes repayment 250 million 750 million loan agreement export development canada edc agreement reductions debt obligations offset proceeds issuances 10 billion aggregate principal amount 115 senior notes due 2021 30 billion aggregate principal amount 9 guaranteed notes due 2018 private placement november 2011 also paid 86 million debt financing costs associated november 2011 debt issuances fourth quarter credit facility amendments working capital successor year ended december 31 2013 working capital 24 billion compared 49 billion predecessor year ended december 31 2012 working capital december 31 2013 december 31 2012 includes accrued capital expenditures unbilled services totaling approximately 14 billion 900 million respectively related network modernization addition increase accrued capital expenditures decline working capital also result increases approximately 500 million accrued severance exit costs primarily associated severance actions taken fourth quarter 2013 accrued exit costs related shutdown nextel platform decreases approximately 700 million shortterm investments also contributing decline working capital increase current portion longterm debt approximately 600 million primarily due clearwire communications llc clearwire finance inc 825 exchangeable notes due 2040 becoming exchangeable time holder’s option result close clearwire acquisition fixed amount cash balance due changes current assets liabilities available liquidity december 31 2013 liquidity including cash equivalents shortterm investments available borrowing capacity revolving bank credit facility 96 billion cash equivalents shortterm investments totaled 75 billion successor year ended december 31 2013 compared 82 billion predecessor year ended december 31 2012 december 31 2013 approximately 914 million letters credit outstanding 30 billion revolving bank credit facility including letter credit required 2004 fcc report order reconfigure 800 mhz band report order certain indentures govern outstanding notes also require compliance various covenants including covenants limit ability company subsidiaries sell substantially assets limit ability company subsidiaries incur indebtedness liens defined terms indentures supplemental indentures result outstanding letters credit directly reduce availability revolving bank credit facility approximately 21 billion borrowing capacity available revolving bank credit facility december 31 2013 revolving bank credit facility expires february 2018 strategic initiatives apple contract commitment apple requires us purchase minimum number smartphones since launch iphone sold excess 15 million iphones continue project meet minimum obligation contract term network capital expenditures currently process modernizing network deploying new technology allow consolidation optimization existing 800 mhz 19 ghz spectrum along 25 ghz spectrum base stations expected timeline capital needs maintain operate existing infrastructure integration recently acquired clearwire 25 ghz spectrum expected require substantial amounts capital expenditures increased operating expenditures period integration deployment longterm debt scheduled maturities following debt issuances retirements occurred 2013 1 may 2012 certain subsidiaries entered 10 billion secured equipment credit facility expires march 2017 finance equipmentrelated purchases ericsson network modernization facility secured lien equipment purchased fully unconditionally guaranteed sprint communications inc facility equally divided two consecutive tranches 500 million fully drawn december 31 2013 repayments outstanding amounts secured equipment credit facility cannot redrawn cost funds facility includes fixed interest rate 203 export credit agency premiums fees total equate expected effective interest rate approximately 6 based assumptions timing amounts drawdowns 2 notes clearwire communications llc also direct obligations clearwire finance inc guaranteed certain clearwire subsidiaries following graph depicts future principal maturities debt december 31 2013 table excludes unsecured revolving bank credit facility expire 2018 outstanding balance 914 million letters credit outstanding ii vendor financing notes assumed clearwire acquisition iii capital leases financing obligations liquidity capital resource requirements meet short longterm liquidity requirements look variety funding sources existing liquidity balance cash generated operating activities primary source funding addition cash flows operating activities rely ability issue debt equity securities ability issue forms financing borrowing capacity available credit facilities support short longterm liquidity requirements believe existing available liquidity cash flows operations sufficient meet funding requirements next twelve months including debt service requirements significant future contractual obligations maintain adequate amount available liquidity execute according timeline current business plan includes network deployment maintenance subscriber growth data usage capacity needs expected achievement cost structure intended achieve competitive margins may need raise additional funds external resources unable fund remaining capital needs external resources terms acceptable us would need modify existing business plan could adversely affect expectation longterm benefits results operations cash flows operations terms conditions revolving bank credit facility expires february 2018 require end fiscal quarter ratio leverage ratio total indebtedness trailing four quarters earnings interest taxes depreciation amortization nonrecurring items adjusted ebitda defined applicable agreement exceed 625 10 quarter end june 30 2014 june 30 2014 leverage ratio declines scheduled basis determined credit agreement ratio becomes fixed 40 10 fiscal quarter ending december 31 2016 fiscal quarter ending thereafter unsecured edc agreement secured equipment credit facility amended march 12 2013 june 24 2013 respectively provide terms similar amended revolving bank credit facility except terms edc agreement secured equipment credit facility repayments outstanding amounts cannot redrawn december 31 2013 leverage ratio defined amended revolving bank credit facility edc agreement secured equipment credit facility 59 10 addition since leverage ratio exceeds 25 10 quarter end also restricted paying cash dividends determining expectation future funding needs next twelve months beyond considered • projected revenues expenses relating operations • continued availability revolving bank credit facility amount 30 billion expires february 2018 amended february 2014 provide additional capacity 300 million bringing total capacity 33 billion • scheduled payments anticipated redemptions related capital lease debt obligations assumed clearwire acquisition • anticipated levels timing capital expenditures including capacity upgrading networks deployment new technologies networks fcc license acquisitions taking consideration 25 ghz spectrum acquired clearwire acquisition • anticipated payments report order supplemented • additional contributions may make pension plan • scheduled principal payments • future contractual obligations including network modernization plan general corporate expenditures ability fund capital needs external sources ultimately affected overall capacity terms banking securities markets well performance credit ratings given recent financial performance well volatility markets continue monitor closely take steps maintain financial flexibility reasonable cost capital following outlooks credit ratings moodys investor service standard poors ratings services fitch ratings certain sprint corporations outstanding obligations expect remain compliance covenants next twelve months although assurance although expect improve sprint platform postpaid subscriber results execute network modernization integration plans meet expectations depending severity difference actual results versus currently anticipate possible would remain compliance covenants able meet debt service obligations could result acceleration indebtedness unforeseen events occur may engage lenders obtain appropriate waivers amendments credit facilities refinance borrowings although assurance would successful actions default borrowings could trigger defaults certain debt obligations turn could result maturities accelerated certain indentures govern outstanding notes also require compliance various covenants including covenants limit companys ability sell substantially assets limit company subsidiaries ability incur indebtedness liens defined terms indentures current business outlook company expects 2014 consolidated segment earnings 65 billion 67 billion 2014 capital expenditures approximately 8 billion discussion subject risks cautionary qualifying factors set forth forwardlooking statements part item 1a risk factors report future contractual obligations following table sets forth current estimates amounts timing contractual payments december 31 2013 future events including additional purchases securities refinancing securities could cause actual payments differ significantly amounts see item 1a risk factors 1 includes outstanding principal estimated interest payments interest payments based managements expectations future interest rates case variable rate debt 2 represents capital lease payments including interest financing obligation related sale subsequent leaseback multiple tower sites 3 includes future lease payments related cell switch sites real estate network equipment office space 4 includes future spectrum lease payments well service credits related commitments provide services certain lessors reimburse lessors certain capital equipment thirdparty service expenditures term lease 5 includes service spectrum network equipment devices executory contracts including contract apple excludes blanket purchase orders amount 31 million see discussion purchase orders commitments include minimum purchases commit purchase suppliers time andor unconditional purchase obligations guarantee make minimum payment suppliers goods services regardless whether take delivery amounts represent entire anticipated purchases future generally represent estimate items committed estimates based assumptions variable components contracts hours contracted number subscribers pricing factors addition party various arrangements conditional nature create obligation make payments upon occurrence certain events delivery functioning software products possible predict timing amounts may due conditional arrangements amounts included table also excludes approximately 31 million blanket purchase order amounts since agreement terms specified time frame set purchase orders legally binding result firm commitments liability uncertain tax positions 166 million december 31 2013 due inherent uncertainty timing resolution underlying tax positions practicable assign liability particular years table include remaining costs paid connection fulfillment obligations report order report order requires us make payment us treasury conclusion band reconfiguration process extent value 19 ghz spectrum received exceeds total value licenses spectrum 700 mhz 800 mhz bands surrendered decision plus actual costs qualifying costs incur retune incumbents facilities inception program december 31 2013 incurred approximately 33 billion costs directly attributable spectrum reconfiguration program amount include internal network costs preliminarily allocated reconfiguration program capacity sites modifications may request credit reconfiguration program estimate based experience date reconfiguration program information currently available total direct costs attributable complete spectrum reconfigurations range 37 38 billion accordingly believe unlikely required make payment us treasury offbalance sheet financing participate secure financings unconsolidated special purpose entities critical accounting policies estimates sprint applies accounting policies management believes best reflect underlying business economic events consistent us gaap sprints critical accounting policies include related basis presentation allowance doubtful accounts valuation recoverability equity method investment clearwire prior acquisition remaining equity interests july 9 2013 valuation recoverability longlived assets evaluation goodwill indefinitelived assets impairment inherent policies certain key assumptions estimates made management regularly updates estimates used preparation financial statements based latest assessment current projected business general economic environment critical accounting policies discussed sprints board directors sprints significant accounting policies estimates summarized notes consolidated financial statements allowance doubtful accounts maintain allowance doubtful accounts estimated losses result failure subscribers make required payments estimate allowance doubtful accounts considers number factors including collection experience aging accounts receivable portfolios credit quality subscriber base qualitative considerations extent actual loss experience differs significantly historical trends required allowance amounts could differ estimate 10 change amount estimated uncollectible would result corresponding change bad debt expense approximately 16 million wireless segment immaterial wireline segment valuation recoverability longlived assets longlived assets consist primarily property plant equipment intangible assets subject amortization changes technology intended use assets well changes economic industry factors business prospects may cause estimated period use value assets change property plant equipment generally depreciated straightline basis estimated economic useful lives certain network assets depreciated using group life method depreciable life studies performed periodically confirm appropriateness depreciable lives certain categories property plant equipment studies take account actual usage physical wear tear replacement history assumptions technology evolution factors indicate assets useful life different previous assessment depreciate remaining book values prospectively adjusted remaining estimated useful life depreciation rates assets using group life method revised periodically required method changes made result depreciable life studies rate changes generally material effect depreciation expense longlived assets reviewed impairment whenever events changes circumstances indicate carrying amount may recoverable longlived asset groups determined based upon certain factors including assessing lowest level identifiable cash flows largely independent cash flows groups assets liabilities total expected undiscounted future cash flows less carrying amount assets loss recognized difference estimated fair value carrying value assets impairment analyses performed based current business technology strategy views growth rates business anticipated future economic regulatory conditions expected technological availability estimate undiscounted cash flows exceeded carrying value assets approximately 10 experience significant operational challenges including retaining attracting subscribers future cash flows company may sufficient recover carrying value wireless asset group could record asset impairments material sprints consolidated results operations financial condition addition analysis described certain assets yet deployed business including network equipment cell site development costs software development expensed events changes circumstances cause company conclude assets longer needed meet managements strategic plans longer probable deployed refer results operations additional information asset impairments evaluation goodwill indefinitelived intangible assets impairment result softbank merger remeasurement assets acquired liabilities assumed connection transaction sprint recognized goodwill estimate fair value approximately 64 billion entirely allocated wireless segment since goodwill reflected estimate fair value excess fair value book value date close softbank merger determination estimated fair value goodwill required judgment based upon numerous assumptions estimates sprint evaluates carrying value goodwill least annually necessary frequently whenever events changes circumstances indicate carrying amount may exceed estimated fair value analysis includes comparison estimated fair value reporting unit goodwill applies carrying value including goodwill reporting unit differences companys actual future cash flows operating results growth rates capital expenditures cost capital discount rates assumptions compared estimates utilized purpose valuing goodwill result softbank merger well decline companys stock price related market capitalization could affect results goodwill assessment potentially lead future material goodwill impairment regularly assess whether indicators impairment exist requires judgment indicators may include sustained significant decline share price market capitalization decline expected future cash flows significant adverse change legal factors business climate unanticipated competition testing recoverability significant asset group within reporting unit andor slower growth rates among others adverse change factors could result significant impairments fcc licenses sprint boost mobile tradenames recorded acquisitiondate estimated fair values 357 billion 59 billion respectively connection softbank merger identified fcc licenses sprint boost mobile tradenames indefinitelived intangible assets considering expected use assets regulatory economic environment within used effects obsolescence use estimated acquisitiondate fair value fcc licenses using greenfield direct value method approximates fair value estimating discounted future cash flows hypothetical startup business assumptions key estimating fair value method include limited capital expenditures subscriber activations deactivations revenues expenses market share achieved tax rates effect discount rate estimated acquisitiondate fair value sprint boost mobile tradenames using relief royalty method estimates amount market participant would pay use tradenames assumptions key estimating fair value method include limited revenues royalty rates tax rates effect discount rate evaluate carrying value fcc licenses sprint boost mobile tradenames least annually necessary frequently events changes circumstances indicate asset may impaired analysis includes comparison estimated fair value asset carrying value fair value estimated using methods described used value assets connection softbank merger future business economic conditions well significant changes assumptions used estimate acquisitiondate fair value may result future significant impairments new accounting pronouncements december 2011 financial accounting standards board fasb issued authoritative guidance regarding disclosures offsetting assets liabilities requires common disclosure requirements allow investors better compare assess effect offsetting arrangements financial statements prepared us gaap financial statements prepared ifrs standard effective beginning first quarter 2013 requires retrospective application affects disclosures footnotes financial statements october 2012 fasb tentatively decided limit scope authoritative guidance derivatives repurchase agreements securities lending securities borrowing arrangements january 2013 fasb issued additional clarifying guidance limited scope disclosure requirements derivatives repurchase agreements reverse purchase agreements securities lending securities borrowing transactions either offset accordance specific criteria contained us gaap subject master netting arrangement similar agreement based scope revision authoritative guidance impact existing disclosures february 2013 fasb issued authoritative guidance regarding comprehensive income reporting amounts reclassified accumulated comprehensive income amends existing guidance requires single location presentation effects certain significant amounts reclassified component accumulated comprehensive income based source statement comprehensive loss income line items affected reclassification guidance effective beginning first quarter 2013 material effect consolidated financial statements amounts reclassified comprehensive income consisting primarily recognition periodic pension costs realized holding gains losses immaterial periods presented july 2013 fasb issued authoritative guidance regarding income taxes topic 740 presentation unrecognized tax benefit net operating loss carryforward similar tax loss tax credit carryforward exists consensus fasb emerging issues task force amends existing guidance related financial presentation unrecognized tax benefits requiring entity net unrecognized tax benefits deferred tax assets available samejurisdiction loss tax carryforwards would apply settlement uncertain tax positions amendments effective beginning first quarter 2014 early adoption permitted applied prospectively unrecognized tax benefits exist effective date expected material effect consolidated financial statements financial strategies general risk management policies board directors adopted financial risk management policy authorizes us enter derivative transactions comply policy purchase hold derivative financial instruments speculative purposes exception equity rights obtained connection commercial agreements strategic investments usually form warrants purchase common shares derivative instruments primarily used hedging risk management purposes hedging activities may done various purposes including limited mitigating risks associated asset liability committed transaction probable forecasted transaction seek minimize counterparty credit risk stringent credit approval review processes credit support agreements continual review monitoring counterparties thorough legal review contracts exposure market risk controlled regularly monitoring changes hedge positions normal stress conditions ensure exceed established limits information routinely post important information website wwwsprintcominvestors information contained accessible website part annual report forwardlooking statements include certain estimates projections forwardlooking statements annual quarterly current reports publicly available material statements regarding expectations including performance assumptions estimates relating capital requirements well statements historical facts forwardlooking statements reflect managements judgments based currently available information involve number risks uncertainties could cause actual results differ materially forwardlooking statements respect forwardlooking statements management made assumptions regarding among things subscriber network usage subscriber growth retention pricing operating costs timing various events economic regulatory environment future performance cannot assured actual results may differ materially forwardlooking statements factors could cause actual results differ include • ability retain attract subscribers manage credit risks associated subscribers • ability competitors offer products services lower prices due lower cost structures • ability operationalize anticipated benefits softbank clearwire us cellular transactions • ability comply requirements national security agreement • ability fully integrate operations clearwire access utilize spectrum • effects vigorous competition highly penetrated market including impact competition price able charge subscribers services equipment provide geographic areas served sprints wireless networks • impact equipment net subsidy costs impact increased purchase commitments overall demand service offerings including impact decisions new existing subscribers postpaid prepaid service offerings impact new emerging competing technologies business • ability provide desired mix integrated services subscribers • ability generate sufficient cash flow fully implement network modernization integration plans improve enhance networks service offerings improve operating margins implement business strategies provide competitive new technologies • effective implementation network modernization plans including timing execution technologies costs performance network • ability retain subscribers acquired transactions mitigate related increases churn • ability continue access spectrum additional spectrum capacity • changes available technology effects changes including product substitutions deployment costs • ability obtain additional financing terms acceptable us • volatility trading price common stock current economic conditions ability access capital • impact unrelated parties meeting business requirements including significant adverse change ability willingness parties provide devices infrastructure equipment networks • costs business risks associated providing new services entering new geographic markets • effects future merger acquisition involving us well effect mergers acquisitions consolidations new entrants communications industry unexpected announcements developments others communications industry • unexpected results litigation filed us suppliers vendors • costs potential customer impact compliance regulatory mandates including limited compliance fccs report order reconfigure 800 mhz band government regulation regarding net neutrality • equipment failure natural disasters terrorist acts breaches network information technology security • one markets compete impacted changes political economic factors monetary policy legal regulatory changes external factors control • impact controlled company exempt many corporate governance requirements nyse • risks referenced time report filings sec words may could estimate project forecast intend expect anticipate believe target plan providing guidance similar expressions intended identify forwardlooking statements forwardlooking statements found throughout managements discussion analysis financial condition results operations elsewhere report readers cautioned factors although listed could also materially affect future performance operating results reader place undue reliance forwardlooking statements speak date report obligated publicly release revisions forwardlooking statements reflect events date report including unforeseen events item 7a item 7 managements discussion analysis financial condition results operations overview business overview sprint communications company offering comprehensive range wireless wireline communications products services designed meet needs individual consumers businesses government subscribers resellers unless context otherwise requires references sprint us company mean sprint corporation consolidated subsidiaries periods presented references sprint communications sprint communications inc consolidated subsidiaries wireless segment earnings represented almost total consolidated segment earnings year ended march 31 2018 within wireless segment postpaid wireless service revenue represents significant contributor earnings driven number postpaid subscribers services well average revenue per user arpu business combination agreement april 29 2018 announced entered business combination agreement tmobile us merge allstock transaction fixed exchange ratio 010256 tmobile shares sprint share combined company named tmobile transaction subject customary closing conditions including regulatory approvals expected close first half 2019 information regarding business combination agreement see note 17 subsequent events notes consolidated financial statements business strategies key priorities business strategy responsive changing customer mobility demands existing potential customers expand business new areas customer value economic opportunity innovation differentiation help lay foundation future growth opportunities strategy revolves around targeted investment following key priority areas • unlock value substantial spectrum holdings densifying optimizing network provide customers best experience • achieve cost reduction goals significantly transforming business • deliver attractive value proposition substantially enhance distribution use innovative models • attract retain worldclass talent establish strategic partnerships create optimal engaged winning team • deliver exceptional wireless experience customers stay longer buy tell friends provide network delivers consistent reliability capacity speed customers demand expect continue optimize network invest 5g lte deployment across spectrum bands also expect deploy new technologies help strengthen competitive position including use high performance user equipment sprint magic box femtocell voice lte massive multipleinput multipleoutput mimo use small cells densify network achieve competitive cost position established transformation office responsibility identifying operationalizing monitoring sustained improvements operating costs efficiencies also deployed cost management planning tools across entire organization effectively monitor expenditures focused attracting retaining subscribers improving sales marketing initiatives demonstrated value proposition evolving price plans promotions payment programs deployed local marketing civic engagement initiatives key markets recruited leaders industry around globe employ organizational focus ensure sprint work environment employees recommend deliver simplified improved customer experience focusing key subscriber touch points pursuing process improvements deploying platforms simplify enhance interactions us customers addition established customer experience team support focus net promoter score key measure customer satisfaction network continue increase coverage capacity densifying evolving existing network toward 5g densification includes increasing number small cells antennas intended enhance coverage capacity across network also deploying new technologies massive mimo carrier aggregation allows us move data faster speeds spectrum migrate customers data service additionally introduction triband devices including 5g capabilities allows us manage operate network efficiently lower cost continued see positive results infrastructure upgrades key us markets 25 ghz spectrum band carries highest percentage sprints lte data traffic significant additional capacity grow use 25 ghz spectrum holdings future sprint believes wellpositioned spectrum holdings 160 mhz 25 ghz spectrum top 100 markets us sprints broad spectrum holdings allow us introduce 5g parallel 4g service 25 ghz spectrum band supporting early introduction 5g devices without disrupting capacity needed support 4g users overall densification introduction 5g technologies expected continue enhance customer experience adding data capacity increasing wireless data speeds available customers improving network performance voice data services circumstances may change future believe substantial spectrum holdings sufficient allow us continue provide consistent network reliability capacity speed well provide current future customers highly competitive wireless experience part evolution existing network toward 5g modifying existing backhaul architecture enable increased capacity network lower cost either negotiating lower vendor pricing existing ethernet technology replacing ethernet fiber expect incur termination costs associated ethernet contractual commitments third party vendors ranging approximately 225 million 275 million majority expected incurred march 31 2020 prwireless holdco llc transaction quarter ended december 31 2017 sprint prwireless pr inc completed transaction combine operations puerto rico us virgin islands new entity companies contributed employees subscribers network assets spectrum transaction expect new entity create stronger competitor puerto rico us virgin islands offering postpaid prepaid lifeline business services increased scale expanded distribution improved network capacity faster speed deeper spectrum position sprint prwireless pr inc approximate 68 32 preferred economic interest well 55 45 common voting interest new entity respectively shentel transaction august 10 2015 shenandoah telecommunications company shentel entered definitive agreement acquire one wholesale partners ntelos holdings corp ntelos connection definitive agreement entered series agreements shentel among things acquire certain assets spectrum terminate existing wholesale arrangement ntelos amend existing affiliate agreement shentel primarily include subscribers formerly wholesale arrangement ntelos agreements also expanded area shentel provides wireless service sprint customers provided favorable economic terms april 2016 received regulatory approval transaction closed may 2016 total consideration transaction included 181 million net present value basis notes payable shentel sprint satisfy obligations notes payable expected term five six years fcc licenses acquired shentel total value 85 million 96 million total purchase recorded “other net” consolidated statements operations contract termination quarter ended june 30 2016 related termination preexisting wholesale arrangement ntelos results operations consolidated results operations following table provides overview consolidated results operations depreciation expense network depreciation expense network remained relatively flat decreasing 6 million year ended march 31 2018 compared period 2017 decreased 31 million 1 year ended march 31 2017 compared period 2016 depreciation expense equipment rentals depreciation expense equipment rentals increased 676 million 22 year ended march 31 2018 compared period 2017 increased 13 billion 75 year ended march 31 2017 compared period 2016 primarily due increased depreciation leased devices result continued growth device leasing program cost leased device depreciated estimated residual value generally lease term amortization expense amortization expense decreased 240 million 23 year ended march 31 2018 compared period 2017 decreased 242 million 19 year ended march 31 2017 compared period 2016 primarily due customer relationship intangible assets amortized using sumofthemonthsdigits method results higher amortization rates early periods decline time net following table provides additional information regarding items included net represented benefit 238 million year ended march 31 2018 recognized severance exit costs 80 million primarily due reductions work force incurred hurricanerelated charges 107 million recorded contrarevenue cost services selling general administrative expenses loss disposal property plant equipment consolidated statements operations net benefit litigation contingencies 305 million associated legal settlements patent infringement lawsuits well contingencies associated regulatory fee matter recorded 479 million noncash gain result spectrum license exchanges carriers 5 million benefit contract terminations additionally recognized 364 million net loss disposal property plant equipment consisted 370 million loss related cell site construction costs longer recoverable result changes network plans offset 6 million gain net reflected expense 20 million year ended march 31 2017 recognized severance exit costs 66 million addition recognized 140 million charge state tax matter combined legal reserves related pending legal suits proceedings 354 million noncash gain result spectrum license exchanges carriers 28 million loss disposal property plant equipment primarily related cell site construction costs longer recoverable result changes network plans also recognized 140 million contract terminations primarily related termination preexisting wholesale arrangement ntelos result shentel transaction combined costs related termination relationship general wireless operations inc radioshack net reflected expense 748 million year ended march 31 2016 recognized litigation expense 193 million ongoing legal matters addition recognized severance exit costs included 216 million severance primarily associated reductions work force 195 million lease access exit costs primarily associated tower cell site leases backhaul access contracts longer receiving economic benefit 2 million recognized cost services consolidated statements operations also recorded 166 million loss disposal property plant equipment primarily related cell site construction costs network costs longer recoverable result changes companys network plans addition revised estimate previously recorded reserve resulting 20 million income interest expense interest expense decreased 130 million 5 year ended march 31 2018 compared period 2017 primarily due replacement higher interest debt lower interest financings interest expense increased 313 million 14 year ended march 31 2017 compared period 2016 primarily due interest associated network equipment saleleaseback handset saleleaseback tranche 2 unsecured financing facility spectrum financing transaction 2016 effective interest rate includes capitalized interest weighted average longterm debt balance 385 billion 379 billion 338 billion 63 67 65 years ended march 31 2018 2017 2016 respectively see “liquidity capital resources” information companys financing activities expense income net expense income net represented expense 59 million 40 million years ended march 31 2018 2017 respectively compared income 18 million year ended march 31 2016 expense year ended march 31 2018 primarily due 73 million equity losses unconsolidated investments net 50 million relates impairment equity method investment additionally 65 million loss early extinguishment debt related retirement portions sprint communications 8375 notes due 2017 9000 guaranteed notes due 2018 expenses partially offset 85 million interest income expense year ended march 31 2017 primarily due recognizing remaining debt finance costs 74 million associated terminated unsecured financing facility partially offset interest income 59 million primarily related increased shortterm investments income tax expense december 22 2017 us government enacted comprehensive tax legislation commonly referred tax cuts jobs act tax act tax act included changes tax laws material impact financial statements impact driven remeasurement deferred tax assets liabilities remeasurement included impact corporate tax rate reduction 35 21 evaluation ability realize deferred tax assets due complexities involved accounting enactment tax act sec issued staff accounting bulletin 118 sab 118 addresses accounting implications sab 118 allowed us record provisional estimate impacts tax act earnings year ended march 31 2018 based currently available information recorded provisional estimate 71 billion noncash tax benefit income continuing operations remeasure carrying values deferred tax assets liabilities remeasurement deferred taxes impact cash flows information see note 10 income taxes notes consolidated financial statements income tax benefit 71 billion year ended march 31 2018 primarily attributable impact tax act discussed income tax expense 435 million year ended march 31 2017 primarily attributable taxable temporary differences tax amortization fcc licenses tax expense 136 million pretax gains spectrum license exchanges increased deferred tax liability fcc licenses temporary differences addition income tax expense included expense 89 million increase state income tax valuation allowance result shift operations among whollyowned subsidiaries organizational restructuring occurred year income tax expense 141 million year ended march 31 2016 primarily attributable tax expense resulting taxable temporary differences tax amortization fcc licenses partially offset tax benefits reversal state income tax valuation allowance deferred tax assets changes state income tax laws enacted year segment earnings wireless segment earnings function wireless net operating revenues inclusive wireless service revenue sale wireless devices handsets tablets broadband devices connected devices leasing wireless devices commissions device insurance accessory programs combined wireless net operating revenues wireless segment earnings also function costs equipment sales rentals costs acquire subscribers network interconnection costs serve subscribers well wireless segment operating expenses cost equipment sales equipment rentals primarily include equipment costs associated installment billing subsidy programs loss disposal property plant equipment net recoveries resulting writeoff leased devices customers return devices us costs acquire subscribers also includes marketing sales costs incurred attract subscribers network costs primarily represent switch cell site costs backhaul costs interconnection costs generally consist perminute usage fees roaming fees paid carriers remaining costs associated operating wireless segment include costs operate customer care organization administrative support wireless service revenue costs acquire subscribers variable network interconnection costs fluctuate changes subscriber base related usage cost elements fluctuate shortterm changes shown table consolidated results operations wireless segment earnings represented almost total consolidated segment earnings years ended march 31 2018 2017 2016 within wireless segment postpaid wireless services represent significant contributor earnings driven number postpaid subscribers utilizing services well average revenue per user arpu wireless industry subject competition retain acquire subscribers wireless services markets operate high rates penetration wireless services device financing programs offer leasing program whereby qualified subscribers lease device contractual period time installment billing program allows subscribers purchase device paying monthly installments generally 24 months july 2017 introduced sprint flex program gives customers opportunity lease phone option upgrade purchase later program allows customers enjoy phone deciding option upgrade continue leasing return buy works best lifestyle depending device type certain leases carry option upgrade new device annually prior expiration lease additional 5 per month end lease term subscriber option turn device continue leasing device purchase device march 31 2018 substantially device leases classified operating leases predominantly subscribers choose leasing option sprint flex program result leased devices classified property plant equipment made available subscribers sprints direct channels leases indirect channel purchase devices lease inception dealer capitalized property plant equipment lease revenue recorded monthly term lease cost device depreciated estimated residual value generally lease term devices classified property plant equipment cost device recorded cost equipment sales compared sold installment billing traditional subsidy program resuls significant positive impact wireless segment earnings depreciation expense incurred leased devices years ended march 31 2018 2017 2016 38 billion 31 billion 18 billion respectively mix leased devices within subscriber base continues increase expect positive impact financial results wireless segment earnings continue depreciation expense increase however prior termination benefit wireless segment earnings partially offset handset saleleaseback tranche 1 tranche 1 transaction consummated november 2015 whereby sold subsequently leased back certain devices leased customers see handset saleleaseback tranche 1 liquidity capital resources details result cost us devices sold mobile leasing solutions llc mls tranche 1 longer recorded depreciation expense rather recognized rent expense within “cost equipment rentals” consolidated statements operations leaseback periods tranche 1 terminated conjunction repurchase devices december 2016 installment billing program recognize majority revenue associated future expected installment payments time sale device sprint branded customers compared traditional subsidy program results alignment revenue cost device impact wireless earnings sale devices installment billing program neutral except impact promotional offers time value money element related imputed interest installment receivable device leasing installment billing programs require greater use cash flow early part device contracts subscribers generally pay less upfront traditional subsidy program accounts receivable facility handset saleleaseback transactions discussed liquidity capital resources designed mitigate significant use cash purchasing devices original equipment manufacturers oems fulfill leasing installment billing programs wireless segment earnings trends sprint offers lower monthly service fees without traditional contract incentive attract subscribers certain service plans lower rates service available whether subscriber brings device pays full discounted retail price device leases device sprint flex leasing program purchases device installment billing program expect postpaid arpu stabilize fiscal year 2018 due less dilution promotional activities subscribers exit existing promotional offers increase monthly spending us combined increase acquisition arpu due less promotional discounts multilines continue expect higher equipment rentals equipment sales associated leasing installment billing programs since inception combination lowerpriced plans leasing installment billing programs accretive wireless segment earnings expect trend continue magnitude impact dependent upon subscriber adoption rates began experience net losses postpaid handset subscribers mid2013 since release price plans associated device financing options results shown improvement trends handset subscribers starting quarter ended september 30 2015 however assurance trend continue taken initiatives provide best value wireless service continuing enhance network performance coverage capacity order attract retain valuable handset subscribers addition evaluating cost model operationalize effective cost structure following table provides overview results operations wireless segment 1 sprint longer reporting lifeline subscribers due regulatory changes resulting tighter program restrictions excluded subscribers subscriber base periods presented including assurance wireless prepaid brand subscribers wholesale lifeline mobile virtual network operators mvno table reflects reclassification related assurance wireless prepaid revenue prepaid service revenue wholesale affiliate revenue 360 million 323 million years ended march 31 2017 2016 respectively revenue associated subscribers wholesale lifeline mvnos remains wholesale affiliate revenue following change 2 represents service revenue primarily related acquisition clearwire july 9 2013 service revenue wireless segment generates service revenue sale wireless services sale wholesale services service revenue consists fixed monthly recurring charges variable usage charges miscellaneous fees activation fees international long distance roaming commissions device insurance program late payment administrative fees certain regulatoryrelated fees net service credits ability wireless segment generate service revenue primarily function • revenue generated subscriber turn function types amount services utilized subscriber rates charged services • number subscribers serve turn function ability retain existing subscribers acquire new subscribers retail comprises subscribers sprint directly provides wireless services whether services provided postpaid prepaid basis also categorize retail subscribers prime subprime based upon subscriber credit profiles use proprietary scoring systems measure credit quality subscribers using several factors credit bureau information subscriber credit risk scores service plan characteristics payment history subsequently monitored evaluate subscriber credit profiles wholesale affiliates subscribers served mvno affiliate relationships arrangements mvno relationships wireless services sold sprint companies resell services subscribers effective january 1 2017 entered master services agreement vendor provide postsale device support services including device insurance subscribers agreement vendor bears risk loss regards claims related costs sprint longer incurs sprint remits premiums vendor pays sprint monthly recurring commission per subscriber duration agreement additionally terms agreement vendor primary obligor agreement subscriber revenue accounted presented net basis whereas historically amounts presented gross basis vendor sprint fulfilling services decline service revenue offset greater reductions cost services expense quarter ended september 30 2017 entered arrangement brightstar us inc brightstar whereby accessories previously procured us sold customers direct channels procured consigned us brightstar accessory arrangement amounts billed sale accessory inventory remitted brightstar exchange efforts sell accessory inventory owned brightstar receive fixed fee brightstar device activated direct channels year ended march 31 2018 compared year ended march 31 2017 retail service revenue decreased 14 billion 6 year ended march 31 2018 compared year ended march 31 2017 primarily due lower average revenue per postpaid subscriber driven increase subscribers lower price plans lower insurance revenues resulting changes device insurance program master services agreement combined decrease average prepaid subscribers due competitive pressures decrease partially offset increase average postpaid subscribers wholesale affiliate revenues increased 145 million 14 year ended march 31 2018 compared year ended march 31 2017 primarily due fees earned brightstar accessory arrangement commenced quarter ending september 30 2017 combined increase imputed interest associated installment billing devices increases partially offset reduced revenue associated postpaid prepaid resellers due competitive pressures approximately 83 total wholesale affiliate subscribers represent connected devices generate revenue usage varies depending solution utilized year ended march 31 2017 compared year ended march 31 2016 retail service revenue decreased 15 billion 6 year ended march 31 2017 compared year ended march 31 2016 primarily due lower average revenue per postpaid subscriber driven increase subscribers lower price plans combined decrease average prepaid subscribers driven higher churn impact shutdown clearwire wimax network march 31 2016 decrease partially offset increase average postpaid subscribers wholesale affiliate revenues decreased 14 million 1 year ended march 31 2017 compared year ended march 31 2016 primarily due decline postpaid prepaid resellers due competitive pressures combined impact shutdown clearwire wimax network partially offset growth connected devices increase imputed interest associated installment billing devices approximately 81 total wholesale affiliate subscribers represent connected devices generate revenue usage varies depending solution utilized average monthly service revenue per subscriber trends table summarizes average number retail subscribers additional information number subscribers net additions losses subscribers average rates monthly postpaid prepaid subscriber churn quarter since quarter ended march 31 2015 may found tables following pages table summarizes arpu additional information arpu quarter since quarter ended march 31 2015 may found tables following pages 1 arpu calculated dividing service revenue sum monthly average number subscribers applicable service category changes average monthly service revenue reflect subscribers either postpaid prepaid service category change rate plans level voice data usage amount service credits offered subscribers plus net effect average monthly revenue generated new subscribers deactivating subscribers year ended march 31 2018 compared year ended march 31 2017 postpaid arpu year ended march 31 2018 decreased compared year ended march 31 2017 primarily due lower service fees resulting promotional activities subscriber migrations service plans associated device financing options lower device insurance program revenues result entering master services agreement vendor provide postsale device support services subscribers prepaid arpu year ended march 31 2018 increased compared year ended march 31 2017 primarily due removal approximately 12 million lowengagement prepaid customers base result aligning churn retention rules across prepaid brands excluding assurance wireless threemonth period ended december 31 2016 see subscriber results information year ended march 31 2017 compared year ended march 31 2016 postpaid arpu year ended march 31 2017 decreased compared year ended march 31 2016 primarily due impact subscriber migrations service plans associated device financing options resulting lower service fees prepaid arpu year ended march 31 2017 increased compared year ended march 31 2016 primarily due removal approximately 12 million lowengagement prepaid customers base result aligning churn retention rules across prepaid brands excluding assurance wireless late threemonth period ended december 31 2016 see subscriber results information action average prepaid subscribers decreased however prepaid revenue proportionally impacted following table shows net additions losses wireless subscribers b total subscribers c end period connected device subscribers end quarterly period beginning quarter ended june 30 2015 1 subscriber defined individual line service associated device activated customer subscribers transfer original service category classification another platform another service line within platform reflected net loss original service category net addition new service category net effect subscriber changes total wireless net additions losses end period subscribers 2 sprint platform refers sprint network supports wireless service provide multiple brands 3 sprint longer reporting lifeline subscribers due regulatory changes resulting tighter program restrictions excluded subscribers subscriber base periods presented including assurance wireless prepaid brand subscribers wholesale lifeline mvnos 4 part shentel transaction 186000 92000 subscribers transferred postpaid prepaid respectively affiliates 18000 prepaid subscribers subsequently excluded subscriber base result regulatory changes lifeline program noted 3 additional 270000 ntelos subscribers part affiliate relationship shentel reported wholesale affiliate subscribers threemonth period ended june 30 2016 addition threemonth period ended june 30 2017 17000 4000 subscribers transferred postpaid prepaid respectively affiliates threemonth period ended march 31 2018 29000 11000 subscribers transferred postpaid prepaid respectively affiliates result transfer subscribers shentel 5 end period connected devices included retail postpaid wholesale affiliates end period subscriber totals periods presented 6 threemonth period ended june 30 2017 2000 wifi connections adjusted postpaid subscriber base 7 threemonth period ended march 31 2018 167000 nonsprint branded prepaid subscribers installment billing transferred prepaid postpaid end period subscriber totals see subscriber results information 8 threemonth period ended december 31 2016 company aligned prepaid brands excluding assurance wireless including prepaid affiliate subscribers one churn retention program result change end period prepaid affiliate subscribers december 31 2016 reduced 1234000 21000 respectively see subscriber results information 9 threemonth period ended september 30 2017 prepaid data share platform decommissioned company continues focus higher value contribution offerings resulting 49000 reduction prepaid end period subscribers 10 threemonth period ended december 31 2017 prepaid end period subscribers increased 169000 conjunction prwireless transaction 11 subscribers mvno relationships inactivity either voice usage primarily result nature device activity occurs data retrieval initiated enduser may occur infrequently although continue provide subscribers access network mvno relationships approximately 2198000 subscribers march 31 2018 mvno relationships inactive least six months associated revenue sixmonth period ended march 31 2018 12 end period transactions subscribers reflected postpaid prepaid wholesale subscribers acquired result acquisition clearwire remaining transaction subscribers primarily due shutdown wimax network march 31 2016 following table shows average rates monthly postpaid prepaid subscriber churn end quarterly period beginning quarter ended june 30 2015 1 churn calculated dividing net subscriber deactivations quarter sum average number subscribers month quarter postpaid accounts comprising multiple subscribers family plans enterprise accounts net deactivations defined deactivations excess subscriber activations particular account within 30 days postpaid prepaid churn consist voluntary churn subscriber makes determination cease subscriber involuntary churn subscribers service terminated due lack payment reasons 2 quarter ended june 30 2015 company revised prepaid subscriber reporting remove one rules matches customers disconnect reengage within specified period time enhancement believe represents precise churn calculation impact net additions result reporting higher deactivations higher gross additions quarter without revision sprint platform prepaid churn quarter would 433 end period prepaid subscribers net prepaid subscriber additions periods presented impacted change 3 quarter ended june 30 2017 company enhanced subscriber reporting better align certain earlylife gross activations deactivations associated customers paid us initial subscriber transaction enhancement impact net additions result reporting lower gross additions lower deactivations quarter without enhancement total postpaid churn quarter would 173 versus 165 4 subscriber churn related acquisition clearwire following table shows postpaid prepaid arpu end quarterly period beginning quarter ended june 30 2015 1 subscriber arpu related acquisition clearwire subscriber results sprint platform subscribers retail postpaid year ended march 31 2018 net postpaid subscriber additions 424000 compared 811000 1245000 years ended march 31 2017 2016 respectively inclusive tablet net losses 515000 281000 net additions 545000 respectively generally significantly lower arpu compared wireless subscribers primary driver net additions years ended march 31 2018 2017 2016 promotional plan offerings launched year decline net postpaid subscriber additions fiscal year ended march 31 2018 compared march 31 2017 primarily due increase churn driven competitive pressures networkrelated churn aggressive marketing efforts wireless carriers including price reductions incent subscribers switch carriers also negatively impact churn negative effect earnings fiscal year 2017 introduced nonsprint branded postpaid offering allowing prepaid customers purchase device installment billing program provides prepaid customers access offer respective brands qualified customers nonsprint branded postpaid offering receive extension credit purchase device subscriber remain classified postpaid conclusion installment billing payments result extension credit approximately 167000 prepaid subscribers reclassified prepaid subscriber base postpaid subscriber base respective prepaid brand january 1 2018 subscriber base adjustment subsequently quarter ended march 31 2018 net subscriber additions nonsprint branded postpaid plan offering 44000 represents associated net retail postpaid additions quarter included total retail postpaid subscribers retail prepaid year ended march 31 2018 added 363000 net prepaid subscribers compared losing 1020000 1349000 net prepaid subscribers years ended march 31 2017 2016 respectively net additions year ended march 31 2018 primarily due growth subscribers boost mobile prepaid brand partially offset subscriber losses virgin mobile prepaid brand due continued competitive pressures market net losses year ended march 31 2017 include subscriber losses across prepaid brands due continued competitive pressures market net losses year ended march 31 2016 primarily due subscriber losses virgin mobile prepaid brand result increasing competition historically prepaid subscribers generally deactivated 60 150 days later date initial activation replenishment however prior account deactivation targeted retention programs offered qualifying subscribers maintain ongoing service providing additional 150 days make replenishment september 30 2016 prepaid brands different churn rules retention programs part ongoing efforts simplify drive consistency across prepaid business well tighten customer engagement criteria aligned prepaid brands excluding assurance wireless one churn retention program december 31 2016 therefore prepaid affiliate subscribers excluding assurance wireless deactivated 60 days later date initial activation recent replenishment date result changes approximately 12 million fewer prepaid subscribers 21000 fewer prepaid affiliate subscribers base december 31 2016 however deactivated customers engagement expect material impact future prepaid revenue changes implemented prepaid subscriber base beginning december 31 2016 quarter rather end thus effect entire threemonth period estimate churn would 584 versus 580 arpu would 3011 versus 2761 wholesale affiliate subscribers wholesale affiliate subscribers represent customers served networks companies resell wireless services subscribers customers residing affiliate territories connected devices utilize network 135 million sprint platform subscribers included wholesale affiliates approximately 83 represent connected devices wholesale affiliate net subscriber additions 81000 year ended march 31 2018 compared 2342000 2939000 years ended march 31 2017 2016 respectively inclusive net additions connected devices totaling 282000 2305000 2743000 respectively driver net additions years ended march 31 2018 2017 2016 primarily attributable growth connected devices decline wholesale affiliate net subscriber additions fiscal year ended march 31 2018 compared march 31 2017 primarily due mvno arrangement activate medical tracking devices network concluded towards end fiscal year 2016 transactions subscribers part acquisition clearwire july 2013 acquired 788000 postpaid subscribers exclusive sprint platform wholesale subscribers acquired mvno relationship clearwire transferred postpaid subscribers within transactions 721000 prepaid subscribers 93000 wholesale subscribers remaining transaction subscribers primarily due shutdown wimax network march 31 2016 cost services cost services consists primarily • costs operate maintain networks including direct switch cell site costs rent utilities maintenance labor costs associated network employees spectrum frequency leasing costs • fixed variable interconnection costs fixed component consists monthly flatrate fees facilities leased local exchange carriers providers based number cell sites switches service particular period related equipment installed site variable component generally consists perminute use fees charged wireline providers calls terminating networks fluctuate relation level duration terminating calls • long distance costs paid wireline segment • costs service repair devices • regulatory fees • roaming fees paid carriers • fixed variable costs relating payments third parties subscriber use proprietary data applications messaging music cloud services connected vehicle fees year ended march 31 2018 compared year ended march 31 2017 cost services decreased 11 billion 16 year ended march 31 2018 compared year ended march 31 2017 primarily due impact changes device insurance program administered vendor provides postsale device support subscribers bears risk loss claims related costs exchange monthly recurring commission per subscriber company records service revenue addition network costs labor backhaul lower result transformation initiatives network improvements combined decrease long distance primarily due lower volume rates year ended march 31 2017 compared year ended march 31 2016 cost services decreased 14 billion 17 year ended march 31 2017 compared year ended march 31 2016 primarily due decreases network costs rent utilities backhaul labor associated network improvements shutdown wimax network march 31 2016 combined decreases roaming interconnection costs primarily due lower rates equipment sales cost equipment sales devices sold customers installment billing subsidy programs recognize equipment sales corresponding costs equipment sales title risk loss passes indirect dealer enduse subscriber assuming revenue recognition criteria met installment billing program device generally sold full discounted retail price recognize future expected installment payments time sale device subsidy program deemphasized offer certain incentives new devices heavily discounted prices retain acquire subscribers cost incentives recorded reduction equipment sales upon activation device service contract cost equipment sales includes equipment costs primarily devices accessories order fulfillment related expenses writedowns device accessory inventory related shrinkage obsolescence additionally cost equipment sales reduced rebates earned equipment manufacturers cost equipment sales excess net revenue generated equipment sales referred industry equipment net subsidy subscribers migrate acquiring devices subsidy program leasing installment billing programs equipment net subsidy continues decline also make incentive payments certain indirect dealers purchase devices directly oems device distributors payments recognized selling general administrative expenses device activated sprint service plan sprint recognize equipment sales cost equipment sales transactions see selling general administrative expense net impact equipment sales revenue cost equipment sales sale devices installment billing program relatively neutral except impact promotional offers time value money element related imputed interest installment receivables year ended march 31 2018 compared year ended march 31 2017 equipment sales decreased 160 million 3 year ended march 31 2018 compared year ended march 31 2017 primarily due decrease number postpaid devices sold result higher mix subscribers choosing lease device opposed purchasing device lower accessory revenue due brightstar accessory arrangement fees earned arrangement recorded revenue included wholesale affiliate revenues decreases partially offset increase volume used postpaid devices sold third parties higher average sales price per postpaid prepaid devices sold cost equipment sales decreased 474 million 7 year ended march 31 2018 compared year ended march 31 2017 primarily due decrease devices sold result higher mix postpaid subscribers choosing lease devices lower accessory costs due brightstar accessory arrangement partially offset increase volume used devices sold third parties higher average cost per postpaid prepaid devices sold year ended march 31 2017 compared year ended march 31 2016 equipment sales increased 15 billion 48 year ended march 31 2017 compared year ended march 31 2016 primarily due increase installment billing mix sales increase volume used postpaid devices sold third parties cost equipment sales increased 11 billion 19 year ended march 31 2017 compared year ended march 31 2016 primarily due increase volume used devices sold third parties combined increase installment billing mix sales partially offset decrease prepaid devices sold equipment rentals cost equipment rentals leasing program recognize revenue equipment rentals term operating lease cost equipment rentals includes losses disposal property plant equipment net recoveries resulting writeoff leased devices rent expense associated tranche 1 salesleaseback transaction tranche 1 terminated conjunction repurchase devices december 2016 losses disposal property plant equipment net recoveries result writeoff leased devices associated lease cancellations prior scheduled customer lease terms customers return devices us expect incur losses future periods result customers return devices leasing program similar charges incurred devices sold subsidy installment billing programs equipment net subsidy bad debt expense respectively expect revenues derived leasing devices customers less costs devices life device exceeds contractual lease period offer sprint flex program customers incentive attract retain subscribers purchase wireless services utilize wireless network revenue derived providing devices customers contributes consolidated earnings wireless service major contributor therefore believe evaluation companys central operations provide wireless service customers best viewed consolidated level accordingly believe consolidated level metrics operating income cash flows operations best indicators overall ability generate cash year ended march 31 2018 compared year ended march 31 2017 equipment rentals increased 753 million 23 year ended march 31 2018 compared year ended march 31 2017 primarily due higher revenue leasing program subscribers choosing lease device cost equipment rentals decreased 482 million 49 year ended march 31 2018 compared year ended march 31 2017 primarily due decrease rental payments remitted mls tranche 1 transaction prior termination december 2016 year ended march 31 2017 compared year ended march 31 2016 equipment rentals increased 15 billion 79 year ended march 31 2017 compared year ended march 31 2016 primarily due higher revenue leasing program subscribers choosing lease device cost equipment rentals increased 377 million 63 year ended march 31 2017 compared year ended march 31 2016 primarily due increase rental payments remitted mls tranche 1 transaction terminated december 2016 combined increase loss disposal property plant equipment net recoveries addition year ended march 31 2016 65 million net losses recognized upon sale devices mls tranche 1 transaction represented difference fair value net book value devices sold selling general administrative expense sales marketing costs primarily consist subscriber acquisition costs including commissions paid indirect dealers thirdparty distributors retail sales force new device activations upgrades residual payments indirect dealers commission payments made oems device distributors direct source handsets payroll facilities costs associated retail sales force marketing employees advertising media programs sponsorships including costs related branding general administrative expenses primarily consist costs billing customer care information technology operations bad debt expense administrative support activities including collections legal finance human resources corporate communications strategic planning year ended march 31 2018 year ended march 31 2017 sales marketing expense increased 161 million 3 year ended march 31 2018 compared year ended march 31 2017 primarily due increase marketing costs result higher media spending due prepaid brand investment boost mobile virgin mobile brands combined higher postpaid national media spending general administrative costs decreased 141 million 5 year ended march 31 2018 compared year ended march 31 2017 primarily due lower bad debt expense partially offset increase general administrative costs bad debt expense decreased 210 million 38 year ended march 31 2018 compared year ended march 31 2017 primarily related decrease installment billing accounts partially offset increase service revenue bad debt resulting higher reserve rates increase accounts written due higher churn reassess allowance doubtful accounts quarterly year ended march 31 2017 year ended march 31 2016 sales marketing expense decreased 110 million 2 year ended march 31 2017 compared year ended march 31 2016 primarily due lower overall marketing spend result cost reduction initiatives general administrative costs year ended march 31 2017 decreased 290 million 9 compared year ended march 31 2016 primarily due lower customer care billing costs result cost reduction initiatives partially offset higher bad debt expense bad debt expense increased 109 million 24 year ended march 31 2017 compared year ended march 31 2016 primarily related increased installment billing accounts higher reserve rates partially offset lower service revenue bad debt resulting improved aging lower reserve rates segment earnings wireline provide broad suite wireline voice data communications services communications companies targeted business subscribers addition provide voice data ip communication services wireless segment provide long distance services operate alldigital global long distance tier 1 ip networks services products include domestic international data communications using various protocols multiprotocol label switching technologies mpls ip managed network services voice internet protocol voip session initiated protocol sip traditional voice services ip services also combined wireless services include sprint mobile integration service enables wireless handset operate part subscribers wireline voice network datalinksm service uses wireless networks connect subscriber location primarily wireline widearea ipmpls data network making easy businesses adapt network changing business requirements addition providing services business customers also provide services wireless segment continue assess portfolio services provided wireline business focusing efforts ipbased data services deemphasizing standalone voice services nonipbased data services also continue provide voice services primarily business customers wireline segment markets sells services primarily direct sales representatives wireline segment earnings primarily function wireline service revenue network interconnection costs wireline segment operating expenses network costs primarily represent special access costs interconnection costs generally consist domestic international perminute usage fees paid carriers remaining costs associated operating wireline segment include costs operate customer care billing organizations addition administrative support wireline service revenue variable network interconnection costs fluctuate changes customer base related usage cost elements fluctuate short term changes customer usage wireline services provided wireless segment generally accounted based market rates believe approximate fair value company generally reestablishes rates beginning fiscal year past several years industry wide trend lower rates due increased competition wireline wireless communications companies well cable internet service providers declines wireline segment earnings related intercompany pricing rates affect consolidated results operations wireless segment benefits equivalent reduction cost service following table provides overview results operations wireline segment service revenues year ended march 31 2018 compared year ended march 31 2017 service revenues year ended march 31 2018 decreased 464 million 23 compared year ended march 31 2017 decrease primarily driven lower voice volumes rate declines company continues deemphasize voice services combined fewer customers using ipbased data services decline prices sale services wireless segment year ended march 31 2017 compared year ended march 31 2016 service revenues year ended march 31 2017 decreased 339 million 14 compared year ended march 31 2016 decrease primarily driven overall decline international voice volume rates fewer customers using ipbased data services combined decline prices sale services wireless segment costs services costs services include access costs paid local phone companies domestic service providers foreign phone companies complete calls made domestic subscribers costs operate maintain networks costs customer premise equipment year ended march 31 2018 compared year ended march 31 2017 costs services decreased 259 million 15 year ended march 31 2018 compared year ended march 31 2017 primarily due lower access expense result savings initiatives continued deemphasis voice services lower network labor costs combined lower international voice rates volume service gross margin percentage decreased 17 year ended march 31 2017 10 year ended march 31 2018 year ended march 31 2017 compared year ended march 31 2016 costs services decreased 276 million 14 year ended march 31 2017 compared year ended march 31 2016 primarily due lower international voice volume rates combined lower access expense result savings initiatives declining voice ip rate volumes service gross margin percentage decreased 18 year ended march 31 2016 17 year ended march 31 2017 selling general administrative expense year ended march 31 2018 compared year ended march 31 2017 selling general administrative expense increased 32 million 13 year ended march 31 2018 compared year ended march 31 2017 primarily due higher sales marketing expense combined increase shared administrative employeerelated costs total selling general administrative expense percentage net service revenues 17 year ended march 31 2018 compared 12 year ended march 31 2017 year ended march 31 2017 compared year ended march 31 2016 selling general administrative expense decreased 90 million 27 year ended march 31 2017 compared year ended march 31 2016 primarily due decrease shared administrative employeerelated costs required support wireline segment result decline revenue total selling general administrative expense percentage net service revenues 12 year ended march 31 2017 compared 14 year ended march 31 2016 liquidity capital resources cash flow january 1 2018 company adopted authoritative guidance regarding statement cash flows classification certain cash receipts cash payments company adopted standard retrospective application consolidated statements cash flows standard impacted presentation cash flows related beneficial interests securitization transactions deferred purchase price associated accounts receivable facility receivables facility resulting material reclassifications cash inflows operating activities investing activities 11 billion 105 billion 79 billion years ended march 31 2018 2017 2016 respectively consolidated statements cash flows year ended march 31 2019 expect record additional 223 million cash inflows investing activities related installment billing receivables associated historical deferred purchase price installment notes entered prior amendment receivables facility february 2017 standard also impacted presentation cash flows related separately identifiable cash flows application predominance principal related direct channel leased devices resulted material reclassifications cash outflows operating activities investing activities 50 billion 31 billion 36 billion years ended march 31 2018 2017 2016 respectively consolidated statements cash flows see note 2 summary significant accounting policies information additional information related adoption standard operating activities net cash provided operating activities 101 billion year ended march 31 2018 improved 134 billion period 2017 primarily due increase 94 billion due amendment receivables facility february 2017 cash collected underlying receivables generated amendment reflected operating activities described accounts receivable facility addition vendor laborrelated payments decreased 32 billion due decline cost equipment sales primarily due lower device sales installment billing subsidy programs result higher mix postpaid subscribers choosing lease devices lower accessory costs due brightstar accessory arrangement lower cost equipment rentals primarily due reduction rental payments remitted mls tranche 1 prior termination december 2016 favorable changes working capital decline vendor laborrelated payments partially offset higher average cost per postpaid prepaid devices sold also year ended march 31 2018 interest payments decreased 193 million primarily due repayment higher interest debt offset issuance lower interest debt net cash used operating activities 33 billion year ended march 31 2017 increased 29 billion period 2016 change primarily due increase receivables sold receivables facility year ended march 31 2017 resulting increase 26 billion cash collected deferred purchase price dpp sale underlying receivables reflected investing activities new authoritative guidance adopted january 1 2018 also year ended march 31 2017 increased interest payments 254 million primarily due network equipment saleleaseback unsecured financing facility receivables facility first spectrum financing transaction 2016 spectrum transaction october 2016 partially offset lower vendor laborrelated payments 526 million primarily due reduced operating costs resulting companys ongoing cost reduction initiatives investing activities net cash used investing activities year ended march 31 2018 increased 44 billion compared period 2017 primarily due decrease 94 billion due amendment receivables facility february 2017 cash collected underlying receivables generated amendment reflected operating activities described accounts receivable facility addition increased purchases 25 billion leased devices increased network capital expenditures 14 billion changes partially offset increased net proceeds shortterm investments 85 billion net cash used investing activities year ended march 31 2017 increased 280 million compared period 2016 primarily due increased net purchases shortterm investments 56 billion increase offset decreased network capital expenditures 27 billion decreased purchases leased devices 922 million decreased purchases leased devices partially offset 477 million repurchased devices due termination tranche 1 addition due increase receivables sold receivables facility year ended march 31 2017 increase 26 billion cash collected dpp sale underlying receivables reflected investing activities new authoritative guidance adopted january 1 2018 also 11 billion proceeds mls tranche 1 transaction year ended march 31 2016 financing activities net cash used financing activities 210 million year ended march 31 2018 consisted retirement 13 billion principal amount outstanding sprint communications 8375 notes due 2017 12 billion principal amount outstanding sprint communications 9000 guaranteed notes due 2018 addition principal repayments 342 million 214 million 22 billion 19 billion 629 million 438 million handset saleleaseback tranche 2 tranche 2 secured equipment credit facilities receivables facility network equipment saleleaseback transaction clearwire communications llc 825 exchangeable notes 2016 spectrum transaction respectively retirements principal repayments offset debt issuances 39 billion senior secured notes second spectrum financing transaction 2018 spectrum transaction 15 billion sprint corporation 7625 senior notes also receivables facility secured equipment credit facilities draws 27 billion 310 million respectively also year ended march 31 2018 paid 131 million consisted call redemption premiums tender expenses due early retirement sprint communications 8375 notes due 2017 9000 guaranteed notes due 2018 net cash provided financing activities 53 billion year ended march 31 2017 primarily due cash receipts 22 billion 11 billion 35 billion 40 billion network equipment saleleaseback tranche 2 transaction 2016 spectrum transaction secured term loan respectively receipts partially offset repayments 654 million 375 million 300 million 416 million tranche 2 transaction secured equipment credit facilities network equipment saleleaseback receivables facility respectively also retired 20 billion principal amount sprint communications 6 senior notes due 2016 10 billion principal amount sprint communications 9125 senior notes due 2017 300 million principal amount clearwire communications llc 1475 secured notes due 2016 repaid 250 million edc credit facility addition paid total 358 million debt finance costs unsecured financing facility network equipment saleleaseback 2016 spectrum transaction secured term loan secured revolving bank credit facility net cash provided financing activities 469 million year ended march 31 2016 primarily due sales future lease receivables facility 600 million draws 208 million 266 million 32 million finnvera plc finnvera ksure delcredere ducroire dd secured equipment credit facilities respectively 250 million draw export development canada edc credit facility draws partially offset repayments related secured equipment credit facilities 315 million capital lease repayments 84 million 500 million repayment edc credit facility working capital working capital 35 billion 17 billion march 31 2018 2017 respectively change working capital primarily due decreases current portion longterm debt financing capital lease obligations 16 billion primarily due principal repayments 19 billion network equipment saleleaseback transaction retirement 13 billion principal amount outstanding sprint communications 8375 notes due 2017 partially offset increases 18 billion related remaining portion sprint communications 9000 guaranteed notes due 2018 remaining balance due changes working capital items longterm debt funding sources device leasing installment billing programs require greater use cash flows early part device contracts subscribers generally pay less upfront traditional subsidy program receivables facility handset saleleaseback transactions described designed large part mitigate significant use cash purchasing devices oems fulfill leasing installment billing programs accounts receivable facility transaction overview receivables facility provides us opportunity sell certain wireless service receivables installment receivables future amounts due customers lease certain devices us unaffiliated third parties purchasers maximum funding limit receivables facility 43 billion february 2017 receivables facility amended sprint regained effective control receivables transferred purchasers obtaining right certain circumstances repurchase subsequent february 2017 amendment proceeds received purchasers exchange transfer wireless service installment receivables recorded borrowings draws repayments receivables facility reported financing activities consolidated statements cash flows cash collected repurchased receivables continues recognized investing activities consolidated statements cash flows october 2017 receivables facility amended among things extend maturity date november 2019 right decide much cash receive sale maximum amount cash available us varies based number factors march 31 2018 represents approximately 50 total amount eligible receivables sold purchasers march 31 2018 total amount borrowings receivables facility 24 billion total amount available drawn 12 billion however subsequent march 31 2018 sprint repaid approximately 11 billion borrowings receivables facility reducing outstanding borrowings approximately 13 billion year ended march 31 2018 drew 27 billion repaid 22 billion purchasers reflected financing activities consolidated statements cash flows sprint contributes certain wireless service installment future lease receivables well associated leased devices sprints whollyowned consolidated bankruptcyremote special purpose entities spes sprints direction spes sold continue sell wireless service installment future lease receivables purchasers bank agent behalf purchasers leased devices remain spes sales initiated continue depreciated estimated useful life march 31 2018 wireless service installment lease receivables contributed spes included accounts notes receivable net consolidated balance sheets 28 billion longterm portion installment receivables included assets consolidated balance sheets 147 million march 31 2018 net book value devices contributed spes approximately 60 billion network equipment saleleaseback april 2016 sprint sold leased back certain network equipment unrelated bankruptcyremote special purpose entities collectively network leaseco network equipment acquired network leaseco consisted primarily equipment located cell towers used collateral raise approximately 22 billion borrowings external investors including softbank group corp softbank principal interest payments borrowings external investors repaid staggered unequal payments january 2018 year ended march 31 2018 made principal repayments totaling 19 billion resulting total principal amount fully repaid network leaseco variable interest entity sprint primary beneficiary result sprint required consolidate network leaseco consolidated financial statements included network leasecos debt related financing cash inflows proceeds received reflected cash provided financing activities consolidated statements cash flows payments made network leaseco reflected principal repayments interest expense respective terms sprint exercised option purchase equipment end leaseback term nominal amount intercompany transactions network leaseco sprint eliminated consolidated financial statements handset saleleasebacks transaction structure sprint sold certain iphone® devices leased customers mls company formed group equity investors including softbank subsequently leased devices back agreements sprint generally maintained customer leases continued collect record lease revenue customer remitted monthly rental payments mls leaseback periods agreements sprint contributed devices associated customer leases whollyowned consolidated bankruptcyremote special purpose entities sprint spe lessees spe lessees sold devices transferred certain specified customer leaseend rights obligations right receive proceeds customers elected purchase device end customer lease term mls exchange combination cash dpp settled repayment mlss senior loan obligations senior subordinated loan obligations return mlss equity holders reduced extent mls experienced loss device either returned sold amount less expected residual value device extent devices dpp balance event mls sold devices returned customers price greater expected device residual value sprint potential share excess proceeds spe lessees retained rights underlying customer leases right receive rental payments device leaseback period aforementioned certain specified customer leaseend rights spe lessee separate legal entity separate creditors entitled prior upon liquidation spe lessee satisfied spe lessee’s assets prior assets spe lessee becoming available sprint accordingly assets spe lessee available pay creditors sprint affiliates spe lessees obligated pay full monthly rental payments device lease mls regardless whether customers make lease payments devices leased whether customer lease canceled sprint guaranteed mls subject cap 20 aggregate cash purchase price performance agreements undertakings spe lessees transaction documents handset saleleaseback tranche 2 may 2016 sprint entered tranche 2 transferred devices net book value approximately 13 billion mls exchange cash proceeds totaling 11 billion dpp 186 million proceeds accounted financing accordingly devices remain property plant equipment net consolidated balance sheets continue depreciate assets estimated residual values generally respective customer lease terms year ended march 31 2018 made principal repayments noncash adjustments totaling 385 million mls october 2017 sprint terminated tranche 2 pursuant terms repaid outstanding amounts proceeds received reflected cash provided financing activities consolidated statements cash flows payments made mls reflected principal repayments interest expense elected account financing obligation fair value accordingly changes fair value financing obligation recognized expense income net consolidated statements operations course arrangement handset saleleaseback tranche 1 december 2015 sprint entered tranche 1 recorded sale removed devices balance sheet classified leasebacks operating leases cash proceeds received transaction reflected cash provided investing activities consolidated statements cash flows payments made mls leaseback reflected cost equipment rentals consolidated statements operations rent expense related mls totaled 494 million 277 million years ended march 31 2017 2016 respectively reflected cash flows operations december 2016 sprint terminated tranche 1 repurchasing devices related customer leaseend rights obligations mls additionally leaseback canceled rental payments owed mls related tranche 1 spectrum financings october 2016 certain subsidiaries sprint communications restricted subsidiaries sprint communications sprint capital corporations indentures transferred certain directly held thirdparty leased spectrum licenses collectively spectrum portfolio whollyowned bankruptcyremote special purpose entities collectively spectrum financing spes spectrum portfolio represented approximately 14 sprints total spectrum holdings mhzpops basis used collateral raise initial 35 billion senior secured notes 2016 spectrumbacked notes bearing interest 336 per annum 70 billion securitization program 2016 spectrumbacked notes repayable fiveyear term interestonly payments first four quarters amortizing quarterly principal payments thereafter commencing december 2017 september 2021 year ended march 31 2018 made scheduled principal repayments 438 million resulting total principal amount outstanding related 2016 spectrumbacked notes 31 billion outstanding march 31 2018 875 million classified current portion longterm debt financing capital lease obligations consolidated balance sheets march 2018 issued additional 39 billion aggregate principal amount senior secured notes existing 70 billion securitization program consisting two series senior secured notes first series notes totaled 21 billion aggregate principal amount bears interest 4738 per annum quarterly interestonly payments june 2021 amortizing quarterly principal amounts thereafter commencing june 2021 march 2025 second series notes totaled approximately 18 billion aggregate principal amount bears interest 5152 per annum quarterly interestonly payments june 2023 amortizing quarterly principal amounts thereafter commencing june 2023 march 2028 spectrum portfolio also serves collateral first spectrum notes issuance remains substantially identical original portfolio october 2016 simultaneously 2016 spectrum transaction sprint communications entered longterm lease spectrum financing spes ongoing use spectrum portfolio spectrum lease executory contract accounting purposes treated similar manner operating lease sprint communications required make monthly lease payments spectrum financing spes market rate lease payments guaranteed sprint corporation certain subsidiaries none restricted subsidiaries sprints indentures sprint communications secured together obligations another transaction document substantially assets entities pari passu basis aggregate cap 35 billion grant security secured term loan revolving bank credit facility edc defined agreement sufficient service senior secured notes lease also constitutes collateral senior secured notes spectrum financing spes whollyowned sprint subsidiaries entities consolidated intercompany activity eliminated spectrum financing spe separate legal entity separate creditors entitled prior upon liquidation spectrum financing spe satisfied spectrum financing spes assets prior assets spectrum financing spe becoming available sprint accordingly assets spectrum financing spes available satisfy debts obligations owed creditors sprint obligations spectrum financing spes notes paid full longterm debt threemonth period ended june 30 2017 pursuant cash tender offer sprint communications retired 388 million principal amount outstanding 8375 notes due 2017 12 billion principal amount outstanding 9000 guaranteed notes due 2018 threemonth period ended march 31 2018 sprint communications retired additional 47 million principal amount outstanding 9000 guaranteed notes due 2018 threemonth period ended september 30 2017 sprint communications retired remaining 912 million principal amount outstanding 8375 notes due 2017 threemonth period ended december 31 2017 retired 629 million principal amount outstanding 825 clearwire communications llc exchangeable notes february 2018 sprint corporation issued 15 billion aggregate principal amount 7625 senior notes due 2026 guaranteed sprint communications credit facilities secured term loan revolving bank credit facility february 3 2017 entered credit agreement 60 billion consisting 40 billion sevenyear secured term loan matures february 2024 20 billion secured revolving bank credit facility expires february 2021 bank credit facility requires ratio leverage ratio total indebtedness trailing four quarters earnings interest taxes depreciation amortization nonrecurring items defined bank credit facility adjusted ebitda exceed 475 10 fiscal quarter ending december 31 2018 fiscal quarter ending march 31 2019 december 31 2019 leverage ratio must exceed 375 10 leverage ratio must exceed 35 10 fiscal quarter ended march 31 2020 fiscal quarter ending thereafter expiration facility term loan interest rate equal libor plus 250 basis points secured revolving bank credit facility interest rate equal libor plus spread varies depending leverage ratio year ended march 31 2018 made principal repayments totaling 40 million secured term loan resulting total principal amount 40 billion outstanding march 31 2018 prwireless term loan threemonth period ended december 31 2017 sprint prwireless pr inc completed transaction combine operations puerto rico us virgin islands new entity prior formation new entity prwireless pr inc incurred 178 million principal amount debt secured term loan became debt new entity upon transaction close term loan bears interest 525 plus libor expires june 2020 amounts repaid early may drawn effective date march 31 2018 prwireless pr llc borrowed additional 5 million made principal repayments totaling 1 million secured term loan resulting 182 million total principal amount outstanding additional 20 million remaining available march 31 2018 sprint provided unsecured guarantee repayment secured term loan obligations secured portion facility limited assets new entity borrower export development canada edc agreement march 31 2018 edc agreement provided security covenant terms similar secured term loan revolving bank credit facility however terms edc agreement repayments outstanding amounts cannot redrawn march 31 2018 total principal amount borrowings edc facility 300 million secured equipment credit facilities finnvera plc finnvera secured equipment credit facility provided ability borrow 800 million finance network equipmentrelated purchases nokia solutions networks us llc usa facilitys availability borrowing expired october 2017 borrowings contingent upon amount timing network equipmentrelated purchases made sprint year ended march 31 2018 drew 160 million made principal repayments totaling 126 million facility resulting total principal amount 174 million outstanding march 31 2018 ksure secured equipment credit facility provides ability borrow 750 million finance network equipmentrelated purchases samsung telecommunications america llc facility divided three consecutive tranches varying size september 2017 amended secured equipment credit facility extend borrowing availability december 2018 borrowings contingent upon amount timing network equipmentrelated purchases made sprint year ended march 31 2018 made principal repayments totaling 65 million facility resulting total principal amount 194 million outstanding march 31 2018 delcredere ducroire dd secured equipment credit facility provided ability borrow 250 million finance network equipmentrelated purchases alcatellucent usa inc september 2017 amended secured equipment credit facility restore previously expired commitments 150 million year ended march 31 2018 drew 150 million made principal repayments totaling 23 million facility resulting total principal amount 159 million outstanding march 31 2018 availability facility fully drawn borrowings finnvera ksure dd secured equipment credit facilities secured liens respective network equipment purchased pursuant facilitys credit agreement addition repayments outstanding amounts borrowed secured equipment credit facilities cannot redrawn facilities fully unconditionally guaranteed sprint communications sprint corporation march 31 2018 leverage ratio defined secured revolving bank credit facility 35 10 leverage ratio exceeded 25 10 period end restricted paying cash dividends following graph depicts future fiscal year principal maturities debt march 31 2018 graph excludes 20 billion secured revolving bank credit facility expire 2021 outstanding balance ii 151 million letters credit outstanding secured revolving bank credit facility iii 536 million capital leases obligations iv net premiums debt financing costs liquidity capital resources march 31 2018 liquidity including cash equivalents shortterm investments available borrowing capacity secured revolving bank credit facility availability receivables facility 120 billion cash equivalents shortterm investments totaled 90 billion march 31 2018 compared 83 billion march 31 2017 march 31 2018 availability 18 billion secured revolving bank credit facility amounts available receivables facility march 31 2018 totaled 12 billion addition march 31 2018 available borrowing capacity 427 million ksure secured equipment credit facility however utilization facility dependent upon amount timing network equipmentrelated purchases applicable supplier well period time remaining complete borrowings available facility march 31 2018 offered two device financing programs allow subscribers forgo traditional service contracts pay less upfront devices exchange lower monthly service fees early upgrade options majority revenue associated installment sales program recognized time sale along related cost equipment sales lease revenue associated leasing program recorded monthly term lease cost device depreciated estimated residual value generally lease term creates positive impact wireless segment earnings mix leased devices continues increase expect positive impact financial results wireless segment earnings continue depreciation expense increase leasing installment billing programs continue require greater use cash flows earlier part contracts subscriber generally pay less upfront traditional subsidy program financing device receivables facility relationship mls established mechanisms mitigate use cash purchasing devices oems fulfill leasing installment billing programs meet liquidity requirements look variety sources addition existing cash equivalents shortterm investments cash generated operating activities raise funds necessary external sources rely ability issue debt equity securities ability access forms financing including debt financing secured assets proceeds sale certain accounts receivable future lease receivables proceeds future financing transactions spectrum borrowing capacity available credit facilities support short longterm liquidity requirements believe existing available liquidity cash flows operations sufficient meet funding requirements next twelve months including debt service requirements significant future contractual obligations maintain adequate amount available liquidity execute current business plan includes among things network deployment maintenance subscriber growth data usage capacity needs expected achievement cost structure intended improve profitability meet longterm debt service requirements significant future contractual obligations need continue raise additional funds external sources addition pursuing extended payment terms increased facilities certain vendors unable obtain external funding execute cost reduction initiatives successful attracting valuable subscribers postpaid handset subscribers operations would adversely affected may lead defaults certain borrowings depending amount difference actual results versus currently expect may make difficult us generate sufficient earnings interest taxes depreciation amortization nonrecurring items adjusted ebitda remain compliance financial covenants able meet debt service obligations could result acceleration indebtedness adversely impact ability raise additional funding sources described events occur may engage lenders obtain appropriate waivers amendments credit facilities refinance borrowings seek funding external sources although assurance would successful actions default certain borrowings could trigger defaults certain financing obligations turn could result maturities accelerated certain indentures agreements governing financing obligations require compliance various covenants including covenants limit companys ability sell certain assets limit company subsidiaries ability incur indebtedness liens require maintain certain financial ratios defined terms indentures related supplemental indentures agreements determining expectation future funding needs next twelve months beyond made several assumptions regarding • projected revenues expenses relating operations including related installment billing leasing programs along success initiatives expectations achieving competitive cost structure cost reduction initiatives increasing postpaid handset subscriber base • cash needs related installment billing device leasing programs • availability receivables facility terminates november 2019 • availability 20 billion secured revolving bank credit facility expires february 2021 less outstanding letters credit • remaining availability approximately 427 million secured equipment credit facility eligible capital expenditures corresponding principal interest fee payments • scheduled principal payments debt credit facilities financing obligations including approximately 196 billion coming due next five fiscal years • raising additional funds external sources • expected use cash equivalents nearterm • anticipated levels timing capital expenditures including assumptions regarding lower unit costs network capacity additions upgrades deployment new technologies networks fcc license acquisitions purchases leased devices indirect dealers • additional contributions may make pension plan • estimated residual values devices related device lease program • future contractual obligations general corporate expenditures ability fund needs external sources ultimately affected overall capacity financing terms available banking securities markets availability financing alternatives well performance credit ratings given recent financial performance well volatility markets continue monitor closely take steps maintain financial flexibility reasonable cost capital outlooks credit ratings moodys investor service standard poors ratings services fitch ratings certain sprint corporations outstanding obligations future contractual obligations following table sets forth current estimates amounts timing contractual payments march 31 2018 future events including additional issuances debt securities refinancing debt securities could cause actual payments differ significantly amounts see item 1a risk factors 1 includes outstanding principal estimated interest payments interest payments based managements expectations future interest rates case variable rate debt 2 represents payments including estimated interest financing obligations related saleleaseback multiple tower sites capital leases debt obligations 3 includes future lease payments related cell switch sites real estate network equipment office space 4 includes future spectrum lease payments well service credits related commitments provide services certain lessors reimburse lessors certain capital equipment thirdparty service expenditures term lease 5 includes service spectrum network equipment devices asset retirement obligations executory contracts excludes blanket purchase orders amount 21 million see discussion purchase orders commitments include minimum purchases commit purchase suppliers time andor unconditional purchase obligations guarantee make minimum payment suppliers goods services regardless whether take delivery amounts represent entire anticipated purchases future generally represent estimate items committed estimates based assumptions variable components contracts hours contracted number subscribers pricing factors addition party various arrangements conditional nature create obligation make payments upon occurrence certain events delivery functioning software products possible predict timing amounts may due conditional arrangements amounts included table also excludes approximately 21 million blanket purchase order amounts since agreement terms specified time frame set purchase orders legally binding result firm commitments liability uncertain tax positions 239 million march 31 2018 due inherent uncertainty timing resolution underlying tax positions practicable assign liability particular years table also excludes amounts due derivative agreements offbalance sheet financing march 31 2018 participate secure financings unconsolidated special purpose entities critical accounting policies estimates sprint applies accounting policies management believes best reflect underlying business economic events consistent us gaap sprints critical accounting policies include estimated economic lives residual values property plant equipment valuation recoverability longlived assets evaluation goodwill indefinitelived assets impairment inherent policies certain key assumptions estimates made management regularly updates estimates used preparation financial statements based latest assessment current projected business general economic environment sprints significant accounting policies estimates summarized notes consolidated financial statements depreciation property plant equipment balance represents significant component consolidated assets record property plant equipment cost generally depreciate straightline basis estimated useful life assets expect oneyear increase estimated useful lives property plant equipment exclusive leased devices would result decrease fiscal year 2018 depreciation expense 10 billion oneyear decrease would result increase 17 billion fiscal year 2018 depreciation expense leased devices accounting device leases involves specific determinations applicable lease accounting standards determinations affect timing revenue recognition timing classification related cost device lease classified operating lease revenue recognized ratably lease term leased asset included property plant equipment depreciated estimated residual value generally lease term lease classified salestype lease revenue recognized inception lease corresponding charge cost equipment sales lease classified directfinancing lease related revenue cost equipment sales recorded net investment leased asset reported critical elements consider determining classification leased devices economic life fair value device including estimated residual value purposes assessing economic life device consider internal external datasets including limited length time subscribers use devices sales trends post launch transactions secondary market currently significant aftermarket used telecommunication devices lease inception devices classified operating leases reclassified inventory property plant equipment leased sprints direct channels devices leased indirect channels classified operating leases purchase devices lease inception dealer capitalized property plant equipment time purchase devices estimate expected amount devices result customers selecting leasing option purchases reflected cash used investing activities residual values associated devices operating leases represent estimated fair value end lease term review residual values regularly appropriate adjust based among things estimates expected market conditions end lease including impacts future product launches adjustments residual values leased devices recognized revision depreciation estimates estimate 10 increase decrease estimated residual values devices operating leases march 31 2018 would material effect depreciation expense next twelve months march 31 2018 effects changes estimated residual value devices currently operating leases immaterial valuation recoverability longlived assets longlived assets reviewed impairment whenever events changes circumstances indicate carrying amount may recoverable impairment loss recognized carrying amount longlived asset group recoverable exceeds fair value longlived asset groups determined based upon certain factors including assessing lowest level identifiable cash flows largely independent cash flows groups assets liabilities impairment analyses performed based current business technology strategy views growth rates business anticipated future economic regulatory conditions expected technological availability years ended march 31 2018 2017 2016 impairments longlived assets recorded determination fair value requires considerable judgment highly sensitive changes underlying assumptions believe judgments assumptions reasonable changes future periods may impact assumptions lead additional future impairments evaluation goodwill indefinitelived intangible assets impairment result softbank merger july 2013 recognized indefinitelived assets acquisitiondate estimates fair value including fcc licenses goodwill trade names indefinitelived assets including goodwill allocated wireless segment march 31 2018 carrying values assets 373 billion 66 billion 40 billion respectively sprint evaluates carrying value indefinitelived assets including goodwill least annually frequently whenever events changes circumstances indicate asset may impaired case goodwill fair value reporting unit carrying amount years ended march 31 2018 company completed annual impairment testing goodwill trade names using quantitative approach performing annual goodwill impairment test estimated fair value wireless reporting unit using incomebased marketbased valuation models determination fair value reporting unit requires significant estimates assumptions including significant unobservable inputs key inputs included limited discount rates terminal growth rates control premiums market multiple data selected guideline public companies management’s internal forecasts include numerous assumptions share industry gross additions churn mix plans rate changes operating capital expenditures ebitda margins among others changes certain assumptions management’s failure execute current plan negative developments associated proposed merger tmobile us could significant impact estimated fair value wireless reporting unit dual model approach note fair value cushion excess 10 carrying value regards annual impairment test year ended march 31 2018 estimated fair value sprint boost mobile trade names assigned wireless segment using relieffromroyalty method uses several significant assumptions including management projections future revenue royalty rate longterm growth rate discount rate assumptions largely unobservable estimate fair value considered unobservable within fair value hierarchy changes certain assumptions significant effect estimated fair value sprint boost mobile trade names note 5 decrease revenue across longterm plans would resulted impairment regards annual impairment test year ended march 31 2018 additionally company completed annual impairment testing year ended march 31 2018 spectrum licenses using qualitative evaluation results qualitative evaluation determine whether necessary perform quantitative test likely asset may impaired case goodwill fair value reporting unit less carrying amount would required perform quantitative test result testing determined likely fair value spectrum licenses less carrying values performing annual goodwill impairment test year ended march 31 2017 company completed testing goodwill sprint boost mobile trade names spectrum licenses using qualitative evaluation result testing determined likely fair value indefinitelived intangible assets less carrying values year ended march 31 2016 company completed annual impairment testing goodwill sprint boost mobile trade names spectrum licenses using quantitative qualitative evaluations similar current year testing resulted impairments year ended march 31 2016 determination fair value requires considerable judgment highly sensitive changes underlying assumptions execution management’s plan consequently assurance estimates assumptions made purposes goodwill spectrum trade name impairment tests prove accurate prediction future sustained declines company’s operating results number wireless subscribers future forecasted cash flows growth rates assumptions well significant sustained declines company’s stock price related market capitalization could impact underlying key assumptions estimated fair values potentially leading future material impairment goodwill indefinitelived intangible assets new accounting pronouncements see note 2 summary significant accounting policies information notes consolidated financial statements part ii item 8 annual report form 10k full description new accounting pronouncements including expected dates adoption estimated effects financial condition results operations hereby incorporated reference financial strategies general risk management policies board directors adopted financial risk management policy authorizes us enter derivative transactions comply policy purchase hold derivative financial instruments speculative purposes exception equity rights obtained connection commercial agreements strategic investments usually form warrants purchase common shares derivative instruments primarily used hedging risk management purposes hedging activities may done various purposes including limited mitigating risks associated asset liability committed transaction probable forecasted transaction seek minimize counterparty credit risk credit approval review processes credit support agreements continual review monitoring counterparties thorough legal review contracts exposure market risk controlled regularly monitoring changes hedge positions normal stress conditions ensure exceed established limits information routinely post important information website wwwsprintcominvestors information contained accessible website part annual report forwardlooking statements include certain estimates projections forwardlooking statements annual quarterly current reports publicly available material statements regarding expectations including performance assumptions estimates relating capital requirements well statements historical facts forwardlooking statements reflect managements judgments based currently available information involve number risks uncertainties could cause actual results differ materially forwardlooking statements respect forwardlooking statements management made assumptions regarding among things subscriber network usage subscriber growth retention technologies products services pricing operating costs timing various events economic regulatory environment future performance cannot assured actual results may differ materially forwardlooking statements factors could cause actual results differ include • failure obtain delays obtaining required regulatory approvals merger transactions risk approvals may result imposition conditions could adversely affect combined company expected benefits merger transactions failure satisfy conditions merger transactions timely basis • occurrence events may give rise right one parties terminate business combination agreement • diversion management financial resources toward completion merger transactions • adverse effects market price common stock tmobile’s operating results failure complete merger transactions anticipated timeframe • inability obtain financing contemplated obtained connection merger transactions expected terms timing • ability us tmobile combined company make payments debt repay existing future indebtedness due comply covenants contained therein retain sufficient business flexibility • adverse changes ratings tmobile’s debt securities adverse conditions credit markets • negative effects announcement pendency consummation merger transactions market price common stock tmobile’s operating results including result changes key customer supplier employee business relationships • potential conflicts interests directors executive officers stockholders • significant costs related merger transactions including financing costs unknown liabilities • failure realize expected benefits synergies merger transactions expected timeframes • costs difficulties related integration tmobile’s networks operations • risk litigation regulatory actions related merger transactions • inability us tmobile combined company retain hire key personnel • risk certain contractual restrictions contained business combination agreement pendency merger transactions could adversely affect tmobile’s ability pursue business opportunities strategic transactions • ability obtain additional financing including monetizing certain assets including existing future programs monetize portion network spectrum holdings modify terms existing financing terms acceptable us obtain tmobile’s consent contractual restrictions contained business combination agreement • ability continue receive expected benefits existing financings receivable financings • ability retain attract subscribers manage credit risks associated subscribers • ability competitors offer products services lower prices due lower cost structures otherwise • effective implementation plans improve quality network including timing execution technologies costs performance network • failure improve subscriber churn bad debt expense accelerated cash use costs writeoffs including respect changes expected residual values related service plans including installment billing leasing programs • ability generate sufficient cash flow fully implement plans improve enhance quality network service plans improve operating margins implement business strategies provide competitive new technologies • effects vigorous competition highly penetrated market including impact competition prices able charge subscribers services devices provide geographic areas served network • impact installment sales leasing handsets • impact increased purchase commitments • overall demand service plans including impact decisions new existing subscribers service offerings impact new emerging competing technologies business • ability provide desired mix integrated services subscribers • ability continue access spectrum acquire additional spectrum capacity • changes available technology effects changes including product substitutions deployment costs performance • volatility trading price common stock including result merger transactions current economic conditions ability access capital including debt equity • impact various parties meeting business requirements including significant adverse change ability willingness parties provide service products including distribution infrastructure equipment network • costs business risks associated providing new services entering new geographic markets • effects merger transactions future merger acquisition involving us well effect mergers acquisitions consolidations new entrants communications industry unexpected announcements developments others industry • ability comply restrictions imposed us government condition merger softbank • effects material impairment goodwill indefinitelived intangible assets • impacts new accounting standards changes existing standards fasb regulatory agencies issue including sec • unexpected results litigation filed us suppliers vendors • costs potential customer impact compliance regulatory mandates including limited compliance fccs report order reconfigure 800 mhz band government regulation regarding net neutrality • equipment failure natural disasters terrorist acts breaches network information technology security • one markets compete impacted changes political economic factors monetary policy legal regulatory changes external factors control • impact controlled company exempt many corporate governance requirements nyse • risks referenced time report filings sec words may could estimate project forecast intend expect anticipate believe target plan similar expressions intended identify forwardlooking statements forwardlooking statements found throughout managements discussion analysis financial condition results operations elsewhere report readers cautioned factors although listed could also materially affect future performance operating results reader place undue reliance forwardlooking statements speak date report obligated publicly release revisions forwardlooking statements reflect events date report including unforeseen events item 7a item 7 managements discussion analysis financial condition results operations overview business overview sprint communications company offering comprehensive range wireless wireline communications products services designed meet needs individual consumers businesses government subscribers resellers unless context otherwise requires references sprint us company mean sprint corporation consolidated subsidiaries periods presented references sprint communications sprint communications inc consolidated subsidiaries wireless segment earnings represented almost total consolidated segment earnings year ended march 31 2019 within wireless segment postpaid wireless service revenue represents significant contributor earnings driven number postpaid subscribers services well average revenue per user arpu business combination agreement april 29 2018 announced entered business combination agreement tmobile us inc merge allstock transaction fixed exchange ratio 010256 tmobile shares sprint share equivalent 975 sprint shares tmobile share merger transactions immediately following merger transactions deutsche telekom ag softbank group corp expected hold approximately 42 27 fullydiluted shares combined company respectively remaining 31 fullydiluted shares combined company held public stockholders board directors consist 14 directors nine nominated deutsche telekom ag four nominated softbank group corp final director ceo combined company combined company named tmobile result merger transactions expected able rapidly launch nationwide 5g network accelerate innovation increase competition us wireless video broadband industries merger transactions subject customary closing conditions including certain state federal regulatory approvals regulatory approval federal communications commission fcc department justice doj expected first half calendar year 2019 sprint tmobile completed hartscottrodino filing doj may 24 2018 june 18 2018 parties filed fcc merger applications including public interest statement july 18 2018 fcc accepted applications filing established public comment period merger transactions formal comment period concluded october 31 2018 merger transactions received clearance committee foreign investment united states december 17 2018 awaiting regulatory approvals april 27 2019 parties business combination agreement extended outside date defined business combination agreement july 29 2019 revenue recognition company adopted revenue contracts customers topic 606 beginning april 1 2018 using modified retrospective method see note 8 revenues contracts customers notes consolidated financial statements part ii item 8 financial statements supplementary data annual report form 10k additional information related revenues contract costs including qualitative quantitative disclosures required topic 606 impact consolidated financial statements adopting topic 606 presented note 2 summary significant accounting policies information notes consolidated financial statements part ii item 8 financial statements supplementary data annual report form 10k business strategies key priorities business strategy responsive changing customer mobility demands existing potential customers expand business new areas customer value economic opportunity innovation differentiation help lay foundation future growth opportunities strategy revolves around targeted investment following key priority areas • sprints nextgen network plan deliver competitive coverage faster speeds capacity • create compelling unlimited value proposition • provide best digital customer experience • engage partners making sprint great place work plan continue invest network next years target launch 5g select cities first half 2019 many underlying service quality scale financial challenges remain aim use spectrum build 5g network 25 ghz spectrum see network information regarding network plans potential challenges rollout 5g aim create compelling unlimited value proposition leveraging spectrum holdings remaining price leader unlimited plan offerings taking brand next level plan continue invest digital capabilities artificial intelligence improve customer experience focused finding right balance physical digital retail serve customers wherever whenever want recruited leaders industry around globe employ organizational focus ensure sprint work environment employees recommend network continue increase coverage capacity densifying evolving existing network toward 5g densification includes increasing number small cells antennas intended enhance coverage capacity across network also deploying new technologies massive mimo carrier aggregation allows us move data faster speeds spectrum eventually migrate customers ip network supporting voice lte data additionally introduction triband devices including 5g capabilities allows us manage operate network efficiently lower cost continued see positive results infrastructure upgrades key us markets sprint build 5g number cities throughout country current 5g build plans result coverage limited major cities surrounding areas rather coverage blankets entire geography united states sprint’s ability expand 5g network build plan may limited financial resources lack scale access lowband spectrum moreover sprint plans focus creating 5g ecosystem smartphones mobile devices rather stationary devices 25 ghz spectrum band carries highest percentage sprints lte data traffic significant additional capacity grow use 25 ghz spectrum holdings future sprint believes wellpositioned spectrum holdings 160 mhz 25 ghz spectrum top 100 markets us sprints spectrum holdings allow us introduce 5g parallel 4g service 25 ghz spectrum band supporting early introduction 5g devices without disrupting capacity needed support 4g users overall densification introduction 5g technologies expected continue enhance customer experience adding data capacity increasing wireless data speeds available customers improving network performance voice data services especially geographic areas 5g provided event merger transactions completed ability provide nationwide network capable competing effectively competitors wireless industry depend access deployment adequate lowband spectrum part evolution existing network toward 5g plan modify existing backhaul architecture enable increased capacity network lower cost either negotiating lower vendor pricing existing ethernet technology replacing ethernet fiber expect incur termination costs associated ethernet contractual commitments thirdparty vendors ranging approximately 130 million 150 million majority expected incurred december 31 2020 sprint plans launch 5g service beginning 2019 nine major cities 5gcompatible equipment place activated customers cities access sprints 5g network range cell site equipped 5g radio supported available 25 ghz spectrum 5gcapable device sites 5genabled customers areas able increasing percentage mobile experiences 5g rather lte 3g merger transactions tmobile completed expected sprint able deploy nationwide 5g network scale timeline combined company example sprint’s standalone 5g network would geographically limited due sprint’s limited current network footprint build 5g sites cost utilizing 25 ghz spectrum 5g see “item 1a risk factors success network improvements 5g deployment depend timing extent cost implementation availability financial resources access additional spectrum including lowband frequencies performance thirdparties upgrade requirements availability reliability various technologies required provide modernization” prwireless holdco llc transaction quarter ended december 31 2017 sprint prwireless pr inc completed transaction combine operations puerto rico us virgin islands new entity companies contributed employees subscribers network assets spectrum transaction sprint prwireless pr inc approximate 68 32 preferred economic interest well 55 45 common voting interest new entity respectively shentel transaction august 10 2015 shenandoah telecommunications company shentel entered definitive agreement acquire one wholesale partners ntelos holdings corp ntelos connection definitive agreement entered series agreements shentel among things acquire certain assets spectrum terminate existing wholesale arrangement ntelos amend existing affiliate agreement shentel primarily include subscribers formerly wholesale arrangement ntelos agreements also expanded area shentel provides wireless service sprint customers provided favorable economic terms april 2016 received regulatory approval transaction closed may 2016 total consideration transaction included 181 million net present value basis notes payable shentel sprint satisfies obligations notes payable expected term five six years fcc licenses acquired shentel total value 85 million 96 million total purchase recorded “other net” consolidated statements operations contract termination quarter ended june 30 2016 related termination preexisting wholesale arrangement ntelos results operations consolidated results operations following table provides overview consolidated results operations depreciation expense network depreciation expense network increased 269 million 7 year ended march 31 2019 compared period 2018 primarily due increased depreciation new asset additions partially offset decreases associated fully depreciated retired assets depreciation expense network remained relatively flat decreasing 6 million year ended march 31 2018 compared period 2017 depreciation expense equipment rentals depreciation expense equipment rentals increased 746 million 20 year ended march 31 2019 compared period 2018 increased 676 million 22 year ended march 31 2018 compared period 2017 primarily due increased depreciation new leased devices result continued growth device leasing program increase partially offset decreased depreciation fully depreciated retired leased devices combined favorable changes leased device residual values amortization expense amortization expense decreased 204 million 25 year ended march 31 2019 compared period 2018 decreased 240 million 23 year ended march 31 2018 compared period 2017 primarily due customer relationship intangible assets amortized using sumofthemonthsdigits method results higher amortization rates early periods decline time goodwill impairment year ended march 31 2019 company completed annual impairment testing goodwill assigned wireless reporting unit result recorded noncash impairment charge 20 billion see critical accounting policies estimates note 6 intangible assets notes consolidated financial statements part ii item 8 financial statements supplementary data annual report form 10k net following table provides additional information regarding items included net expense 984 million year ended march 31 2019 recognized severance exit costs 85 million primarily due access termination charges lease exit costs reductions work force recognized 74 million litigation expense 15 million gain sale certain assets recorded 492 million loss disposal property plant equipment primarily related cell site construction costs network equipment longer recoverable result changes network plans recognized 34 million associated purchase certain leased spectrum assets upon termination related spectrum leases resulted accelerated recognition unamortized favorable lease balances also incurred mergerrelated costs 346 million recorded selling general administrative expenses consolidated statements operations expect recognize mergerrelated costs merger transactions completed also recorded 32 million reimbursements related hurricanes occurring prior fiscal year recorded revenue net operating revenues cost services selling general administrative expenses net consolidated statements operations net benefit 238 million year ended march 31 2018 recognized severance exit costs 80 million primarily due reductions work force incurred hurricanerelated costs 107 million recorded contrarevenue cost services selling general administrative expenses loss disposal property plant equipment consolidated statements operations net benefit litigation contingencies 305 million recorded 479 million noncash gain result spectrum license exchanges carriers 5 million benefit contract terminations additionally recognized 364 million net loss disposal property plant equipment consisted 370 million loss related cell site construction costs longer recoverable result changes network plans slightly offset 6 million gain net expense 20 million year ended march 31 2017 recognized severance exit costs 66 million addition recognized 140 million charge state tax matter combined legal reserves related pending legal suits proceedings 354 million noncash gain result spectrum license exchanges carriers 28 million loss disposal property plant equipment primarily related cell site construction costs longer recoverable result changes network plans also recognized 140 million contract terminations primarily related termination preexisting wholesale arrangement ntelos result shentel transaction combined costs related termination relationship general wireless operations inc radioshack interest expense interest expense increased 198 million 8 year ended march 31 2019 compared period 2018 primarily due higher interest rates interest expense decreased 130 million 5 year ended march 31 2018 compared period 2017 primarily due replacement higher interest debt lower interest financings effective interest rate includes capitalized interest weighted average longterm debt balance 397 billion 385 billion 379 billion 65 63 67 years ended march 31 2019 2018 2017 respectively see “liquidity capital resources” information companys financing activities income expense net income expense net income 187 million year ended march 31 2019 expense 59 million 40 million years ended march 31 2018 2017 respectively income year ended march 31 2019 primarily due 169 million interest income addition recognized income 24 million result legal settlement expense year ended march 31 2018 primarily due 73 million equity losses unconsolidated investments net 50 million relates impairment equity method investment additionally 65 million loss early extinguishment debt related retirement portions sprint communications 8375 notes due 2017 sprint communications 9000 guaranteed notes due 2018 expenses partially offset 85 million interest income expense year ended march 31 2017 primarily due recognizing remaining debt finance costs 74 million associated terminated unsecured financing facility partially offset interest income 59 million primarily related increased shortterm investments income tax expense us federal statutory tax rates years ended march 31 2019 2018 2017 21 315 35 respectively tax cuts jobs act tax act enacted december 2017 reduced corporate income tax rate effective january 1 2018 income tax benefit 35 million year ended march 31 2019 primarily attributable impact state law changes enacted period partially offset expense attributable organizational restructuring adjustments primarily driven change carrying value deferred tax assets liabilities temporary differences addition effective tax rate impacted nondeductible penalties related litigation state new york settled period 19 billion 20 billion noncash impairment charge related goodwill substantially charge separately deductible tax purposes income tax benefit 71 billion year ended march 31 2018 primarily attributable impact tax act income tax expense 435 million year ended march 31 2017 primarily attributable taxable temporary differences tax amortization fcc licenses tax expense 136 million pretax gains spectrum license exchanges increased deferred tax liability fcc licenses temporary differences addition income tax expense included expense 89 million increase state income tax valuation allowance result shift operations among whollyowned subsidiaries organizational restructuring occurred year march 31 2019 2018 maintained valuation allowance deferred tax assets primarily related net operating loss carryforwards reporting date consider new evidence positive negative could affect view future realization deferred tax assets provisions included federal state tax laws particular alternative cost recovery methods fixed assets applicable future periods significantly impact timing deductions tax purposes may result projected taxable income net operating loss carryforward periods projected taxable income would positive source evidence believe reasonable possibility within next 12 months sufficient positive evidence may become available allow us reach conclusion portion valuation allowance deferred tax assets related certain net operating losses longer needed release valuation allowance would result recognition deferred tax assets noncash tax benefit period release recorded exact timing amount valuation allowance release subject change depending results operations timing future taxable income segment earnings wireless segment earnings function wireless net operating revenues inclusive wireless service revenue sale wireless devices handsets tablets wearables broadband devices connected devices leasing wireless devices commissions device insurance accessory programs combined wireless net operating revenues wireless segment earnings also function costs equipment sales rentals costs acquire subscribers network interconnection costs serve subscribers well wireless segment operating expenses cost equipment sales equipment rentals primarily includes equipment costs associated installment billing subsidy programs loss disposal property plant equipment net recoveries resulting writeoff leased devices customers return devices us costs acquire subscribers also includes marketing sales costs incurred attract subscribers network costs primarily represent switch cell site costs backhaul costs interconnection costs generally consist perminute usage fees roaming fees paid carriers remaining costs associated operating wireless segment include costs operate customer care organization administrative support wireless service revenue costs acquire subscribers variable network interconnection costs fluctuate changes subscriber base related usage cost elements fluctuate shortterm changes shown table consolidated results operations wireless segment earnings represented almost total consolidated segment earnings years ended march 31 2019 2018 2017 within wireless segment postpaid wireless services represent significant contributor earnings driven number postpaid subscribers utilizing services well arpu wireless industry subject competition retain acquire subscribers wireless services markets operate high rates penetration wireless services expect competition market penetration continue pressure share gross additions rates churn device financing programs offer leasing program whereby qualified subscribers lease device contractual period time installment billing program allows subscribers purchase device paying monthly installments generally 24 months july 2017 introduced sprint flex program gives customers opportunity enjoy phone deciding option upgrade continue leasing return buy works best lifestyle depending device type certain leases carry option upgrade new device annually prior expiration lease end lease term subscriber option return device continue leasing device purchase device march 31 2019 substantially device leases classified operating leases predominantly subscribers choose lease devices us sprint flex program result leased devices classified property plant equipment leased subscribers sprints direct channels leases indirect channel purchase devices lease inception dealer capitalized property plant equipment lease revenue recorded monthly term lease cost device depreciated estimated residual value generally lease term devices classified property plant equipment cost device recorded cost equipment sales compared sold installment billing traditional subsidy program rather recorded depreciation expense results significant positive impact wireless segment earnings depreciation expense incurred leased devices years ended march 31 2019 2018 2017 45 billion 38 billion 31 billion respectively mix leased devices within subscriber base continues increase expect positive impact financial results wireless segment earnings continue depreciation expense increase installment billing program recognize majority revenue associated future expected installment payments time sale device sprint branded customers compared traditional subsidy program results better alignment revenue cost device impact wireless earnings sale devices installment billing program neutral except impact promotional offers device leasing installment billing programs require greater use cash flow early part device contracts subscribers generally pay less upfront traditional subsidy program accounts receivable facility discussed liquidity capital resources partially mitigates significant use cash purchasing devices original equipment manufacturers oems fulfill leasing installment billing programs wireless segment earnings trends sprint offers lower monthly service fees without traditional contract incentive attract subscribers certain service plans lower rates service available whether subscriber brings device pays full discounted retail price device leases device sprint flex leasing program purchases device installment billing program expect postpaid arpu decline fiscal year 2019 due mix devices resulting higher data device sales generally lower arpu handsets continued promotional activities since inception combination lowerpriced plans leasing installment billing programs accretive wireless segment earnings expect trend continue long able attract subscribers particularly postpaid handset subscribers additionally expect prepaid service revenue decline fiscal year 2019 due continued amortization contract balances result adoption topic 606 began experience net losses postpaid handset subscribers mid2013 since release price plans associated device financing options results shown improvement trends handset subscribers starting quarter ended september 30 2015 postpaid handset subscribers generally stabilized experienced decline subscribers fiscal year 2017 fiscal year 2018 continue take initiatives provide best value wireless service continuing enhance network performance coverage capacity order attract retain valuable handset subscribers addition continue evaluate cost model operationalize effective cost structure expect improvements 2019 fully offset incremental costs associated network customer experience initiatives following table provides overview results operations wireless segment 1 year ended march 31 2019 excludes hurricanerelated reimbursements 3 million postpaid service revenue 6 million cost services 1 million selling general administrative expenses year ended march 31 2018 excludes 25 million hurricanerelated postpaid service contrarevenue 8 million hurricanerelated prepaid service contrarevenue 48 million cost services 21 million selling general administrative expenses addition year ended march 31 2018 excludes 51 million charge costs services related regulatory fee matter 2 sprint longer reporting lifeline subscribers due regulatory changes resulting tighter program restrictions excluded subscribers subscriber base periods presented including assurance wireless prepaid brand subscribers wholesale lifeline mobile virtual network operators mvno table reflects reclassification related assurance wireless prepaid revenue prepaid service revenue wholesale affiliate revenue 360 million year ended march 31 2017 revenue associated subscribers wholesale lifeline mvnos remains wholesale affiliate revenue following change service revenue wireless segment generates service revenue sale wireless services sale wholesale services service revenue consists fixed monthly recurring charges variable usage charges miscellaneous fees activation fees international long distance roaming commissions device insurance program late payment administrative fees certain regulatoryrelated fees net service credits ability wireless segment generate service revenue primarily function • revenue generated subscriber turn function types amount services utilized subscriber rates charged services • number subscribers serve turn function ability retain existing subscribers acquire new subscribers retail comprises subscribers sprint directly provides wireless services whether services provided postpaid prepaid basis also categorize retail subscribers prime subprime based subscriber credit profiles use proprietary scoring systems measure credit quality subscribers using several factors credit bureau information subscriber credit risk scores service plan characteristics payment history subsequently monitored evaluate subscriber credit profiles wholesale affiliates subscribers served mvno affiliate relationships arrangements mvno relationships wireless services sold sprint companies resell services subscribers effective january 1 2017 entered master services agreement vendor provide postsale device support services including device insurance subscribers agreement vendor bears risk loss regards claims related costs sprint longer incurs sprint remits premiums vendor pays sprint monthly recurring commission per subscriber duration agreement additionally terms agreement vendor primary obligor agreement subscriber revenue accounted presented net basis whereas historically amounts presented gross basis quarter ended september 30 2017 entered arrangement brightstar us inc brightstar whereby accessories previously procured us sold customers direct channels procured consigned us brightstar accessory arrangement amounts billed sale accessory inventory remitted brightstar exchange efforts sell accessory inventory owned brightstar received fixed fee brightstar device activated direct channels august 2018 arrangement amended receive share profits associated sale accessory inventory owned brightstar year ended march 31 2019 compared year ended march 31 2018 retail service revenue decreased 747 million 3 year ended march 31 2019 compared year ended march 31 2018 primarily due lower amount revenue allocated service revenue following adoption topic 606 combined lower average revenue per postpaid prepaid subscribers driven increase subscribers lower price plans promotional activities decreases partially offset increase average postpaid prepaid subscribers see note 2 summary significant accounting policies information notes consolidated financial statements part ii item 8 financial statements supplementary data annual report form 10k impact consolidated financial statements adopting topic 606 wholesale affiliate revenues decreased 38 million 3 year ended march 31 2019 compared year ended march 31 2018 primarily due lower imputed interest associated installment billing devices due growth leasing program impacts following adoption topic 606 decreases partially offset increase lifeline subscribers fees earned accessories arrangement brightstar commenced quarter ending september 30 2017 approximately 81 total wholesale affiliate subscribers represent connected devices generate revenue varies based usage year ended march 31 2018 compared year ended march 31 2017 retail service revenue decreased 14 billion 6 year ended march 31 2018 compared year ended march 31 2017 primarily due lower average revenue per postpaid subscriber driven increase subscribers lower price plans lower insurance revenues resulting changes device insurance program master services agreement combined decrease average prepaid subscribers due competitive pressures decrease partially offset increase average postpaid subscribers wholesale affiliate revenues increased 145 million 14 year ended march 31 2018 compared year ended march 31 2017 primarily due fees earned brightstar accessory arrangement commenced quarter ending september 30 2017 combined increase imputed interest associated installment billing devices increases partially offset reduced revenue associated postpaid prepaid resellers due competitive pressures approximately 83 total wholesale affiliate subscribers represent connected devices generate revenue varies based usage average monthly service revenue per subscriber trends table summarizes average number retail subscribers additional information number subscribers net additions losses subscribers average rates monthly postpaid prepaid subscriber churn quarter since quarter ended march 31 2016 may found tables following pages table summarizes arpu additional information arpu quarter since quarter ended march 31 2016 may found tables following pages 1 arpu calculated dividing service revenue sum monthly average number subscribers applicable service category changes average monthly service revenue reflect subscribers either postpaid prepaid service category change rate plans level voice data usage amount service credits offered subscribers plus net effect average monthly revenue generated new subscribers deactivating subscribers year ended march 31 2019 compared year ended march 31 2018 postpaid arpu year ended march 31 2019 decreased compared year ended march 31 2018 primarily due lower revenue allocated service revenue following adoption topic 606 lower service revenue resulting subscriber migrations lower price plans increased promotional activities higher data device sales generally lower arpu handsets prepaid arpu year ended march 31 2019 decreased compared year ended march 31 2018 primarily due lower revenue allocated service revenue following adoption topic 606 lower service revenue resulting promotional activities see subscriber results information see note 2 summary significant accounting policies information notes consolidated financial statements part ii item 8 financial statements supplementary data annual report form 10k impact consolidated financial statements adopting topic 606 year ended march 31 2018 compared year ended march 31 2017 postpaid arpu year ended march 31 2018 decreased compared year ended march 31 2017 primarily due lower service fees resulting promotional activities subscriber migrations service plans associated device financing options lower device insurance program revenues result entering master services agreement vendor provide postsale device support services subscribers prepaid arpu year ended march 31 2018 increased compared year ended march 31 2017 primarily due removal approximately 12 million lowengagement prepaid customers base result aligning churn retention rules across prepaid brands excluding assurance wireless threemonth period ended december 31 2016 see subscriber results information following table shows net additions losses wireless subscribers b total subscribers c end period connected device subscribers end quarterly period beginning quarter ended june 30 2016 1 subscriber defined individual line service associated device activated customer subscribers transfer original service category classification another service category reflected net loss original service category net addition new service category net effect subscriber changes total wireless net additions losses end period subscribers 2 end period connected devices included retail postpaid wholesale affiliates end period subscriber totals periods presented 3 threemonth period ended march 31 2018 167000 nonsprint branded prepaid subscribers installment billing transferred prepaid postpaid end period subscriber totals threemonth period ended june 30 2018 ceased selling devices installment billing program one brands result45000 subscribers migrated back prepaid see subscriber results information 4 sprint longer reporting lifeline subscribers due regulatory changes resulting tighter program restrictions excluded subscribers subscriber base periods presented including assurance wireless prepaid brand subscribers wholesale lifeline mvnos 5 part shentel transaction 186000 92000 subscribers transferred postpaid prepaid respectively affiliates 18000 prepaid subscribers subsequently excluded subscriber base result regulatory changes lifeline program noted 4 additional 270000 ntelos subscribers part affiliate relationship shentel reported wholesale affiliate subscribers threemonth period ended june 30 2016 addition threemonth period ended june 30 2017 17000 4000 subscribers transferred postpaid prepaid respectively affiliates threemonth period ended march 31 2018 29000 11000 subscribers transferred postpaid prepaid respectively affiliates threemonth period ended june 30 2018 10000 4000 subscribers transferred postpaid prepaid respectively affiliates 6 threemonth period ended june 30 2017 2000 wifi connections adjusted postpaid subscriber base 7 threemonth period ended december 31 2016 company aligned prepaid brands excluding assurance wireless including prepaid affiliate subscribers one churn retention program result change end period prepaid affiliate subscribers december 31 2016 reduced 1234000 21000 respectively see subscriber results information 8 threemonth period ended september 30 2017 prepaid data share platform decommissioned company continues focus higher value contribution offerings resulting 49000 reduction prepaid end period subscribers 9 threemonth period ended december 31 2017 prepaid end period subscribers increased 169000 conjunction prwireless transaction 10 subscribers mvno relationships inactivity either voice usage primarily result nature device activity occurs data retrieval initiated enduser may occur infrequently although continue provide subscribers access network mvno relationships approximately 3009000 subscribers march 31 2019 mvno relationships inactive least six months associated revenue sixmonth period ended march 31 2019 11 april 1 2018 115000 wholesale subscribers removed subscriber base impact revenue threemonth period ended december 31 2018 additional 100000 wholesale subscribers removed subscriber base impact revenue following table shows average rates monthly postpaid prepaid subscriber churn end quarterly period beginning quarter ended june 30 2016 1 churn calculated dividing net subscriber deactivations quarter sum average number subscribers month quarter postpaid accounts comprising multiple subscribers family plans enterprise accounts net deactivations defined deactivations excess subscriber activations particular account within 30 days postpaid prepaid churn consist voluntary churn subscriber makes determination cease subscriber involuntary churn subscribers service terminated due lack payment reasons 2 quarter ended june 30 2017 company enhanced subscriber reporting better align certain earlylife gross activations deactivations associated customers paid us initial subscriber transaction enhancement impact net additions result reporting lower gross additions lower deactivations quarter without enhancement total postpaid churn quarter would 173 versus 165 following table shows postpaid prepaid arpu end quarterly period beginning quarter ended june 30 2016 subscriber results sprint platform subscribers retail postpaid year ended march 31 2019 net postpaid subscriber additions 710000 compared 424000 811000 years ended march 31 2018 2017 respectively net subscriber results include tablet net losses 46000 515000 281000 years ended march 31 2019 2018 2017 respectively offset additions data devices 918000 333000 162000 respectively generally significantly lower arpu compared handset subscribers net postpaid subscriber additions year ended march 31 2019 primarily driven net subscriber additions data devices nonsprint branded retail postpaid phones year ended march 31 2019 net postpaid subscriber additions nonsprint branded postpaid plan offering 388000 included total retail postpaid subscribers increase net postpaid subscriber additions fiscal year ended march 31 2019 compared march 31 2018 primarily due increase additions data devices nonsprint branded retail postpaid phones partially offset increase postpaid phone churn driven subscribers exiting multiline introductory promotional offers competitive pressures networkrelated churn marketing efforts wireless carriers including price reductions incent subscribers switch carriers also negatively impact churn negative effect earnings primary driver net postpaid subscriber additions years ended march 31 2018 2017 promotional plan offerings launched year fiscal year 2017 introduced nonsprint branded postpaid offering allowing prepaid customers purchase device installment billing program provides prepaid customers access offer respective brands qualified customers nonsprint branded postpaid offering receive extension credit purchase device subscriber remain classified postpaid conclusion installment billing payments result extension credit approximately 167000 prepaid subscribers reclassified prepaid subscriber base postpaid subscriber base respective prepaid brand january 1 2018 subscriber base adjustment subsequently quarter ended march 31 2018 net subscriber additions nonsprint branded postpaid plan offering 44000 represents associated net retail postpaid additions quarter included total retail postpaid subscribers retail prepaid year ended march 31 2019 net prepaid subscriber losses 214000 compared net additions 363000 net losses 1020000 years ended march 31 2018 2017 respectively net prepaid subscriber losses year ended march 31 2019 primarily due loss prepaid customers qualifying nonsprint branded postpaid offering discussed combined subscriber losses virgin mobile prepaid brand due continued competitive pressures market net prepaid subscriber additions year ended march 31 2018 primarily due growth subscribers boost mobile prepaid brand partially offset subscriber losses virgin mobile prepaid brand due continued competitive pressures market net prepaid subscriber losses year ended march 31 2017 include subscriber losses across prepaid brands due continued competitive pressures market historically prepaid subscribers generally deactivated 60 150 days later date initial activation replenishment however prior account deactivation targeted retention programs offered qualifying subscribers maintain ongoing service providing additional 150 days make replenishment september 30 2016 prepaid brands different churn rules retention programs part ongoing efforts simplify drive consistency across prepaid business well tighten customer engagement criteria aligned prepaid brands excluding assurance wireless one churn retention program december 31 2016 therefore prepaid affiliate subscribers excluding assurance wireless deactivated 60 days later date initial activation recent replenishment date result changes approximately 12 million fewer prepaid subscribers 21000 fewer prepaid affiliate subscribers base december 31 2016 however deactivated customers engagement expect material impact future prepaid revenue changes implemented prepaid subscriber base beginning december 31 2016 quarter rather end thus effect entire threemonth period estimate churn would 584 versus 580 arpu would 3011 versus 2761 wholesale affiliate subscribers wholesale affiliate subscribers represent customers served networks companies resell wireless services subscribers customers residing affiliate territories connected devices utilize network 129 million subscribers included wholesale affiliates approximately 81 represent connected devices wholesale affiliate net subscriber losses 419000 year ended march 31 2019 compared net subscriber additions 81000 2342000 years ended march 31 2018 2017 respectively net subscriber results include connected device net losses 565000 year ended march 31 2019 compared net additions 282000 2305000 years ended march 31 2018 2017 respectively driver net losses year ended march 31 2019 primarily due net losses connected devices partially offset increase subscribers prepaid postpaid resellers decline wholesale affiliate net subscriber additions fiscal year ended march 31 2018 compared march 31 2017 primarily due mvno arrangement activate medical tracking devices network concluded towards end fiscal year 2016 driver net additions years ended march 31 2018 2017 primarily attributable growth connected devices cost services cost services consists primarily • costs operate maintain networks including direct switch cell site costs rent utilities maintenance labor costs associated network employees spectrum frequency leasing costs • fixed variable interconnection costs fixed component consists monthly flatrate fees facilities leased local exchange carriers providers based number cell sites switches service particular period related equipment installed site variable component generally consists perminute use fees charged wireline providers calls terminating networks fluctuates relation level duration terminating calls • long distance costs paid carriers wireline segment fiscal year 2017 • regulatory fees • roaming fees paid carriers • fixed variable costs relating payments third parties subscriber use proprietary data applications messaging music cloud services connected vehicle fees year ended march 31 2019 compared year ended march 31 2018 cost services increased 200 million 4 year ended march 31 2019 compared year ended march 31 2018 primarily due higher network costs including rent backhaul increases partially offset decrease long distance due migration wireline network lower service repair costs year ended march 31 2018 compared year ended march 31 2017 cost services decreased 11 billion 16 year ended march 31 2018 compared year ended march 31 2017 primarily due impact changes device insurance program administered vendor provides postsale device support subscribers bears risk loss claims related costs exchange monthly recurring commission per subscriber company records service revenue addition network costs labor backhaul lower result transformation initiatives network improvements combined decrease long distance primarily due lower volume rates equipment sales cost equipment sales devices sold customers installment billing subsidy programs recognize equipment sales corresponding costs equipment sales title risk loss passes indirect dealer enduse subscriber assuming revenue recognition criteria met installment billing program device generally sold full discounted retail price recognize future expected installment payments time sale device subsidy program deemphasized offer certain incentives new devices heavily discounted prices retain acquire subscribers cost incentives recorded reduction total transaction price allocated performance obligations cost equipment sales includes equipment costs primarily devices accessories order fulfillment related expenses writedowns inventory related shrinkage obsolescence additionally cost equipment sales reduced rebates earned equipment manufacturers cost equipment sales excess net revenue generated equipment sales referred industry equipment net subsidy postpaid subscribers migrate acquiring devices subsidy program leasing installment billing programs equipment net subsidy continues decline also make incentive payments certain indirect dealers purchase devices directly oems device distributors topic 606 incentive payments included reduction total transaction price customer contracts resulting contract asset amortized service revenue term contract net impact equipment sales revenue cost equipment sales sale devices installment billing program relatively neutral except impact promotional offers year ended march 31 2019 compared year ended march 31 2018 equipment sales increased 11 billion 24 year ended march 31 2019 compared year ended march 31 2018 primarily due higher amount revenue allocated equipment sales following adoption topic 606 higher average sales price per postpaid prepaid devices sold increases partially offset decrease volume used postpaid devices sold third parties lower accessory revenue due accessory arrangement brightstar decline number postpaid prepaid devices sold fees earned arrangement brightstar recorded revenue included wholesale affiliate revenues see note 2 summary significant accounting policies information notes consolidated financial statements part ii item 8 financial statements supplementary data annual report form 10k impact consolidated financial statements adopting topic 606 cost equipment sales remained relatively flat decreasing 27 million year ended march 31 2019 compared year ended march 31 2018 primarily due decrease volume used postpaid devices sold third parties decline postpaid prepaid devices sold result higher mix postpaid subscribers choosing lease devices lower accessory costs due brightstar accessories arrangement decreases partially offset higher average cost per postpaid prepaid devices sold year ended march 31 2018 compared year ended march 31 2017 equipment sales decreased 160 million 3 year ended march 31 2018 compared year ended march 31 2017 primarily due decrease number postpaid devices sold result higher mix subscribers choosing lease device opposed purchasing device lower accessory revenue due brightstar accessory arrangement fees earned arrangement recorded revenue included wholesale affiliate revenues decreases partially offset increase volume used postpaid devices sold third parties higher average sales price per postpaid prepaid devices sold cost equipment sales decreased 474 million 7 year ended march 31 2018 compared year ended march 31 2017 primarily due decrease devices sold result higher mix postpaid subscribers choosing lease devices lower accessory costs due brightstar accessory arrangement partially offset increase volume used devices sold third parties higher average cost per postpaid prepaid devices sold equipment rentals cost equipment rentals leasing program recognize revenue equipment rentals term operating lease cost equipment rentals includes losses disposal property plant equipment net recoveries resulting writeoff leased devices rent expense associated handset saleleaseback tranche 1 transaction tranche 1 terminated conjunction repurchase devices december 2016 losses disposal property plant equipment net recoveries result writeoff leased devices associated lease cancellations prior scheduled customer lease terms customers return devices us expect incur losses future periods result customers return devices leasing program expect revenues derived leasing devices customers less costs devices life device exceeds contractual lease period offer sprint flex program customers additional option purchase services utilizing wireless network revenue derived providing devices customers contributes consolidated earnings wireless service major contributor therefore believe evaluation companys central operations provide wireless service customers best viewed consolidated level accordingly believe consolidated level metrics operating income cash flows operations best indicators overall ability generate cash year ended march 31 2019 compared year ended march 31 2018 equipment rentals increased 11 billion 27 year ended march 31 2019 compared year ended march 31 2018 primarily due higher revenue leasing program subscribers choosing lease device mix devices leased cost equipment rentals increased 150 million 30 year ended march 31 2019 compared year ended march 31 2018 primarily due increase loss disposal property plant equipment net recoveries associated nonreturned leased devices year ended march 31 2018 compared year ended march 31 2017 equipment rentals increased 753 million 23 year ended march 31 2018 compared year ended march 31 2017 primarily due higher revenue leasing program subscribers chose lease device cost equipment rentals decreased 482 million 49 year ended march 31 2018 compared year ended march 31 2017 primarily due decrease rental payments tranche 1 transaction prior termination december 2016 selling general administrative expense sales marketing costs primarily consist subscriber acquisition costs including commissions paid indirect dealers thirdparty distributors retail sales force new device activations upgrades residual payments indirect dealers commission payments made oems device distributors direct source handsets payroll facilities costs associated retail sales force marketing employees advertising media programs sponsorships including costs related branding upon adoption topic 606 commission costs determined incremental recoverable directly associated subscriber contracts deferred amortized sales marketing expense general administrative expenses primarily consist costs billing customer care information technology operations bad debt expense administrative support activities including collections legal finance human resources corporate communications strategic planning year ended march 31 2019 year ended march 31 2018 sales marketing expense decreased 625 million 12 year ended march 31 2019 compared year ended march 31 2018 primarily due lower commission costs result adoption topic 606 combined lower marketing costs see note 2 summary significant accounting policies information notes consolidated financial statements part ii item 8 financial statements supplementary data annual report form 10k impact consolidated financial statements adopting topic 606 general administrative costs increased 57 million 2 year ended march 31 2019 compared year ended march 31 2018 primarily due higher customer care costs bad debt expense partially offset decline general administrative costs bad debt expense increased 50 million 15 year ended march 31 2019 compared year ended march 31 2018 primarily related higher reserves associated recently launched iconic devices partially offset lower installment billing reserves due fewer subscribers entering installment billing contracts decline service revenue bad debt reassess allowance doubtful accounts quarterly year ended march 31 2018 year ended march 31 2017 sales marketing expense increased 161 million 3 year ended march 31 2018 compared year ended march 31 2017 primarily due increase marketing costs result higher media spending due prepaid brand investment boost mobile virgin mobile brands combined higher postpaid national media spending general administrative costs decreased 141 million 5 year ended march 31 2018 compared year ended march 31 2017 primarily due lower bad debt expense partially offset increase general administrative costs bad debt expense decreased 210 million 38 year ended march 31 2018 compared year ended march 31 2017 primarily related decrease installment billing accounts partially offset increase service revenue bad debt resulting higher reserve rates increase accounts written due higher churn reassess allowance doubtful accounts quarterly segment earnings wireline provide suite wireline communications services communications companies targeted business customers addition provide data ip communication services wireless segment provide long distance services operate alldigital global long distance tier 1 ip networks services products include domestic international data communications using various protocols multiprotocol label switching technologies mpls ip managed network services voice internet protocol voip session initiated protocol sip ip services also combined wireless services include sprint mobile integration service enables wireless handset operate part subscribers wireline voice network datalinksm service uses wireless networks connect subscriber location primarily wireline widearea ipmpls data network making easy businesses adapt network changing business requirements continue assess portfolio services provided wireline business focusing efforts ipbased data services standalone voice services discontinued continue deemphasize shutdown nonipbased data services wireline segment markets sells services primarily direct sales representatives wireline segment earnings primarily function wireline service revenue network interconnection costs wireline segment operating expenses network costs primarily represent special access costs interconnection costs generally consist domestic international perminute usage fees paid carriers remaining costs associated operating wireline segment include costs operate customer care billing organizations addition administrative support wireline service revenue variable network interconnection costs fluctuate changes customer base related usage cost elements fluctuate short term changes customer usage wireline services provided wireless segment generally accounted based market rates believe approximate fair value company generally reestablishes rates beginning fiscal year impact intercompany pricing rate changes wireline segment earnings affect consolidated results operations wireless segment equivalent offsetting impact cost services following table provides overview results operations wireline segment service revenues year ended march 31 2019 compared year ended march 31 2018 service revenues year ended march 31 2019 decreased 283 million 18 compared year ended march 31 2018 decrease driven lower voice volumes company discontinued standalone voice services combined fewer customers using ipbased data services year ended march 31 2018 compared year ended march 31 2017 service revenues year ended march 31 2018 decreased 464 million 23 compared year ended march 31 2017 decrease primarily driven lower voice volumes rate declines company deemphasized voice services combined fewer customers using ipbased data services decline prices sale services wireless segment costs services costs services include access costs paid local phone companies domestic service providers foreign phone companies complete calls made domestic subscribers costs operate maintain networks costs customer premise equipment year ended march 31 2019 compared year ended march 31 2018 costs services decreased 286 million 20 year ended march 31 2019 compared year ended march 31 2018 primarily due lower access expense result savings initiatives discontinuing standalone voice services service gross margin percentage increased 10 year ended march 31 2018 12 year ended march 31 2019 year ended march 31 2018 compared year ended march 31 2017 costs services decreased 259 million 15 year ended march 31 2018 compared year ended march 31 2017 primarily due lower access expense result savings initiatives deemphasis voice services lower network labor costs combined lower international voice rates volume service gross margin percentage decreased 17 year ended march 31 2017 10 year ended march 31 2018 selling general administrative expense year ended march 31 2019 compared year ended march 31 2018 selling general administrative expense decreased 46 million 17 year ended march 31 2019 compared year ended march 31 2018 primarily due lower shared administrative employeerelated costs required support wireline segment result decline revenue total selling general administrative expense percentage net service revenues 17 years ended march 31 2019 2018 respectively year ended march 31 2018 compared year ended march 31 2017 selling general administrative expense increased 32 million 13 year ended march 31 2018 compared year ended march 31 2017 primarily due higher sales marketing expense combined increase shared administrative employeerelated costs total selling general administrative expense percentage net service revenues 17 year ended march 31 2018 compared 12 year ended march 31 2017 liquidity capital resources cash flow operating activities net cash provided operating activities 104 billion year ended march 31 2019 increased 367 million compared period 2018 change primarily due increased cash received customers 14 billion 917 million related increase installment billing receivables collected due amendment accounts receivable facility receivables facility february 2017 cash collected underlying receivables generated amendment reflected investing activities including repurchased receivables cash collected receivables generated amendment reflected operating activities described accounts receivable facility increased cash received customers partially offset higher vendor laborrelated payments 978 million primarily due unfavorable changes working capital net cash provided operating activities 101 billion year ended march 31 2018 improved 134 billion period 2017 primarily due increase 94 billion due amendment receivables facility february 2017 cash collected underlying receivables generated amendment reflected investing activities including repurchased receivables cash collected receivables generated amendment reflected operating activities described accounts receivable facility addition vendor laborrelated payments decreased 32 billion due decline cost equipment sales primarily due lower device sales installment billing subsidy programs result higher mix postpaid subscribers choosing lease devices lower accessory costs due brightstar accessory arrangement lower cost equipment rentals primarily due reduction rental payments tranche 1 transaction prior termination december 2016 favorable changes working capital decline vendor laborrelated payments partially offset higher average cost per postpaid prepaid devices sold also year ended march 31 2018 interest payments decreased 193 million primarily due repayment higher interest debt offset issuance lower interest debt net cash used operating activities 33 billion year ended march 31 2017 increased 29 billion period 2016 change primarily due increase receivables sold receivables facility year ended march 31 2017 resulting increase 26 billion cash collected deferred purchase price dpp sale underlying receivables reflected investing activities new authoritative guidance adopted january 1 2018 also year ended march 31 2017 increased interest payments 254 million primarily due network equipment saleleaseback unsecured financing facility receivables facility first spectrum financing transaction 2016 spectrum transaction october 2016 partially offset lower vendor laborrelated payments 526 million primarily due reduced operating costs resulting companys ongoing cost reduction initiatives investing activities net cash used investing activities year ended march 31 2019 increased 34 billion compared period 2018 primarily due increased network capital expenditures 16 billion enhance coverage capacity across network support 5g network build also decreased net proceeds shortterm investments 11 billion addition decrease 917 million due amendment receivables facility february 2017 cash collected underlying receivables generated amendment reflected operating activities described accounts receivable facility activities partially offset 110 million borrowed cash surrender value corporate owned life insurance policies net cash used investing activities year ended march 31 2018 increased 44 billion compared period 2017 primarily due decrease 94 billion due amendment receivables facility february 2017 cash collected underlying receivables generated amendment reflected operating activities described accounts receivable facility addition increased purchases 25 billion leased devices increased network capital expenditures 14 billion changes partially offset increased net proceeds shortterm investments 85 billion net cash used investing activities year ended march 31 2017 increased 280 million compared period 2016 primarily due increased net purchases shortterm investments 56 billion increase offset decreased network capital expenditures 27 billion decreased purchases leased devices 922 million decreased purchases leased devices partially offset 477 million repurchased devices due termination tranche 1 addition due increase receivables sold receivables facility year ended march 31 2017 increase 26 billion cash collected dpp sale underlying receivables reflected investing activities new authoritative guidance adopted january 1 2018 also 11 billion proceeds tranche 1 transaction year ended march 31 2016 financing activities net cash used financing activities 483 million year ended march 31 2019 total principal repayments include 67 billion 18 billion 875 million 197 million receivables facility sprint communications 9000 guaranteed notes due 2018 2016 spectrum financing transaction secured equipment credit facilities respectively additionally paid 321 million debt financing costs primarily due fees related consent solicitations result business combination agreement tmobile payments partially offset receivables facility proceeds 69 billion proceeds incremental secured term loans incremental term loan 20 billion proceeds secured equipment credit facilities 331 million proceeds issuance common stock net 291 million primarily related softbank exercising warrant full purchase 55 million shares sprint common stock july 2018 net cash used financing activities 210 million year ended march 31 2018 consisted retirement 13 billion principal amount outstanding sprint communications 8375 notes due 2017 12 billion principal amount outstanding sprint communications 9000 guaranteed notes due 2018 addition principal repayments 342 million 214 million 22 billion 19 billion 629 million 438 million handset saleleaseback tranche 2 transaction tranche 2 secured equipment credit facilities receivables facility network equipment saleleaseback transaction clearwire communications llc 825 exchangeable notes 2016 spectrum transaction respectively retirements principal repayments offset debt issuances 39 billion senior secured notes second spectrum financing transaction 2018 spectrum transaction 15 billion sprint corporation 7625 senior notes also receivables facility secured equipment credit facilities draws 27 billion 310 million respectively also year ended march 31 2018 paid 131 million due early retirement sprint communications 8375 notes due 2017 9000 guaranteed notes due 2018 net cash provided financing activities 53 billion year ended march 31 2017 primarily due cash receipts 22 billion 11 billion 35 billion 40 billion network equipment saleleaseback tranche 2 transaction 2016 spectrum transaction secured term loan respectively receipts partially offset repayments 654 million 375 million 300 million 416 million tranche 2 transaction secured equipment credit facilities network equipment saleleaseback receivables facility respectively also retired 20 billion principal amount sprint communications 6 senior notes due 2016 10 billion principal amount sprint communications 9125 senior notes due 2017 300 million principal amount clearwire communications llc 1475 secured notes due 2016 repaid 250 million edc credit facility addition paid total 358 million debt finance costs unsecured financing facility network equipment saleleaseback 2016 spectrum transaction secured term loan secured revolving bank credit facility working capital working capital 776 million 35 billion march 31 2019 2018 respectively change working capital primarily due decline shortterm investments driven increase network expenditures described increases current portion longterm debt financing capital lease obligations increases current portion longterm debt financing capital lease obligations primarily consisted 17 billion sprint capital corporation 6900 notes due 2019 10 billion sprint communications guaranteed notes due 2020 partially offset principal repayments 18 billion sprint communications 9000 guaranteed notes due 2018 remaining balance due changes working capital items longterm debt funding sources device leasing installment billing programs require greater use operating cash flow early part device contracts subscribers generally pay less upfront traditional subsidy program receivables facility described designed help mitigate significant use cash purchasing devices oems fulfill installment billing leasing programs accounts receivable facility receivables facility provides us opportunity sell certain wireless service receivables installment receivables future amounts due customers lease certain devices us unaffiliated third parties purchasers maximum funding limit receivables facility 45 billion february 2017 receivables facility amended sprint regained effective control receivables transferred purchasers obtaining right certain circumstances repurchase subsequent february 2017 amendment proceeds received purchasers exchange transfer wireless service installment receivables recorded borrowings repayments borrowings receivables facility reported financing activities consolidated statements cash flows cash collected repurchased receivables subsequent february 2017 amendment recognized investing activities consolidated statements cash flows june 2018 receivables facility amended among things extend maturity date june 2020 increase maximum funding limit 200 million reduce financing costs add monthtomonth lease receivables eligible receivables leases extend past original lease term right decide much cash receive sale maximum amount cash available us varies based number factors march 31 2019 represents approximately 50 total amount eligible receivables sold purchasers march 31 2019 total amount outstanding receivables facility 26 billion total amount available drawn 867 million however subsequent march 31 2019 sprint repaid 800 million receivables facility reducing amounts outstanding 18 billion year ended march 31 2019 drew 69 billion repaid 67 billion purchasers reflected financing activities consolidated statements cash flows sprint contributes certain wireless service installment future lease receivables well associated leased devices sprints whollyowned consolidated bankruptcyremote special purpose entities spes sprints direction spes sold continue sell wireless service installment future lease receivables purchasers bank agent behalf purchasers leased devices remain spes sales initiated continue depreciated estimated useful life march 31 2019 wireless service installment lease receivables contributed spes included accounts notes receivable net consolidated balance sheets 25 billion longterm portion installment receivables included assets consolidated balance sheets 231 million march 31 2019 net book value devices contributed spes 66 billion spectrum financings october 2016 certain subsidiaries sprint communications restricted subsidiaries sprint capital corporations indentures transferred certain directly held thirdparty leased spectrum licenses collectively spectrum portfolio whollyowned bankruptcyremote special purpose entities collectively spectrum financing spes spectrum portfolio represented approximately 14 sprints total spectrum holdings mhzpops basis used collateral raise initial 35 billion senior secured notes 2016 spectrumbacked notes bearing interest 336 per annum 70 billion securitization program 2016 spectrumbacked notes repayable fiveyear term interestonly payments first four quarters amortizing quarterly principal payments thereafter commencing december 2017 september 2021 year ended march 31 2019 made scheduled principal repayments 875 million resulting total principal amount outstanding related 2016 spectrumbacked notes 22 billion march 31 2019 875 million classified current portion longterm debt financing capital lease obligations consolidated balance sheets march 2018 amended transaction documents governing securitization program allow issuance 70 billion notes outstanding pursuant securitization program subject certain conditions among things may require contribution additional spectrum also march 2018 issued approximately 39 billion aggregate principal amount senior secured notes existing 70 billion securitization program consisting two series senior secured notes first series notes totaled 21 billion aggregate principal amount bears interest 4738 per annum quarterly interestonly payments june 2021 amortizing quarterly principal amounts thereafter commencing june 2021 march 2025 second series notes totaled approximately 18 billion aggregate principal amount bears interest 5152 per annum quarterly interestonly payments june 2023 amortizing quarterly principal amounts thereafter commencing june 2023 march 2028 spectrum portfolio also serves collateral 2016 spectrumbacked notes remains substantially identical original portfolio october 2016 simultaneously october 2016 offering sprint communications entered longterm lease spectrum financing spes ongoing use spectrum portfolio spectrum lease executory contract accounting purposes treated similar manner operating lease sprint communications required make monthly lease payments spectrum financing spes market rate lease payments guaranteed sprint corporation certain subsidiaries none restricted subsidiaries sprint capital corporations indentures sprint communications secured together obligations another transaction document substantially assets entities pari passu basis aggregate cap 35 billion grant security secured term loan revolving bank credit facility edc defined agreement sufficient service outstanding series senior secured notes lease also constitutes collateral senior secured notes spectrum financing spes whollyowned sprint subsidiaries entities consolidated intercompany activity eliminated spectrum financing spe separate legal entity separate creditors entitled prior upon liquidation spectrum financing spes satisfied spectrum financing spes assets prior assets spectrum financing spes becoming available sprint accordingly assets spectrum financing spes available satisfy debts obligations owed creditors sprint obligations spectrum financing spes spectrumbacked senior secured notes paid full june 2018 obtained consent control party spectrumbacked senior secured notes indenture amend indenture proposed merger transaction tmobile consummated constitute change control defined indenture longterm debt november 2018 sprint communications retired 18 billion aggregate principal amount upon maturity outstanding 9000 guaranteed notes credit facilities secured term loan revolving bank credit facility february 3 2017 entered 60 billion credit agreement consisting 40 billion sevenyear secured term loan initial term loan matures february 2024 20 billion secured revolving bank credit facility expires february 2021 bank credit facility requires ratio leverage ratio total indebtedness trailing four quarters earnings interest taxes depreciation amortization nonrecurring items defined bank credit facility adjusted ebitda exceed 375 10 fiscal quarter ending december 31 2019 leverage ratio must exceed 35 10 fiscal quarter ended march 31 2020 fiscal quarter ending thereafter expiration facility initial term loan interest rate equal libor plus 250 basis points secured revolving bank credit facility interest rate equal libor plus spread varies depending leverage ratio year ended march 31 2019 made principal repayments initial term loan totaling 40 million resulting total principal amount outstanding initial term loan 39 billion march 31 2019 november 26 2018 credit agreement amended among things authorize incremental term loans totaling 20 billion 11 billion borrowed february 26 2019 remaining 900 million borrowed incremental term loans mature february 2024 interest rates equal libor plus 300 basis points increased total credit facility 80 billion prwireless term loan threemonth period ended december 31 2017 sprint prwireless pr inc completed transaction combine operations puerto rico us virgin islands new entity prior formation new entity prwireless pr inc incurred debt secured term loan became debt new entity upon transaction close secured term loan bears interest 525 plus libor expires june 2020 amounts repaid early may drawn year ended march 31 2019 joint venture borrowed 18 million made principal repayments totaling 2 million resulting total principal amount outstanding 198 million march 31 2019 additional 2 million remaining available sprint provided unsecured guarantee repayment secured term loan obligations secured portion facility limited assets joint venture borrower export development canada edc agreement march 31 2019 edc agreement provided security covenant terms similar secured term loan revolving bank credit facility however terms edc agreement repayments outstanding amounts cannot redrawn march 31 2019 total principal amount outstanding edc facility 300 million secured equipment credit facilities finnvera plc finnvera secured equipment credit facility provided ability finance network equipmentrelated purchases nokia solutions networks us llc usa year ended march 31 2019 made principal repayments totaling 82 million facility resulting total principal amount 92 million outstanding march 31 2019 ksure secured equipment credit facility provides ability finance network equipmentrelated purchases samsung telecommunications america llc october 2018 amended secured equipment credit facility extend borrowing availability september 2019 borrowings contingent upon amount timing network equipmentrelated purchases made sprint year ended march 31 2019 drew 331 million made principal repayments totaling 75 million facility resulting total principal amount 450 million outstanding march 31 2019 delcredere ducroire dd secured equipment credit facility provided ability finance network equipmentrelated purchases alcatellucent usa inc september 2017 amended secured equipment credit facility restore previously expired commitments 150 million year ended march 31 2019 made principal repayments totaling 40 million facility resulting total principal amount 119 million outstanding march 31 2019 borrowings finnvera ksure dd secured equipment credit facilities secured liens respective network equipment purchased addition repayments outstanding amounts borrowed secured equipment credit facilities cannot redrawn facilities fully unconditionally guaranteed sprint communications sprint corporation march 31 2019 ksure facility 96 million available borrowing capacity finnvera dd facilities available borrowing capacity march 31 2019 leverage ratio defined secured revolving bank credit facility 30 10 leverage ratio exceeded 25 10 period end restricted paying cash dividends following graph depicts future fiscal year principal maturities debt march 31 2019 excludes 20 billion secured revolving bank credit facility expire 2021 outstanding balance ii 118 million letters credit outstanding secured revolving bank credit facility iii 429 million capital leases obligations iv net premiums debt financing costs liquidity capital resources march 31 2019 liquidity including cash equivalents shortterm investments available borrowing capacity secured revolving bank credit facility availability receivables facility 98 billion cash equivalents shortterm investments totaled 70 billion march 31 2019 compared 90 billion march 31 2018 march 31 2019 availability 19 billion secured revolving bank credit facility amounts available receivables facility march 31 2019 totaled 867 million addition march 31 2019 available borrowing capacity 96 million ksure secured equipment credit facility however utilization facility dependent upon amount timing network equipmentrelated purchases applicable supplier associated availability facility march 31 2019 offered two device financing programs allow subscribers forgo traditional service contracts pay less upfront devices exchange lower monthly service fees early upgrade options majority revenue associated installment billing program recognized time sale along related cost equipment sales lease revenue associated leasing program recorded monthly term lease cost device depreciated estimated residual value generally lease term creates positive impact wireless segment earnings mix leased devices continues increase expect positive impact financial results wireless segment earnings continue depreciation expense increase leasing installment billing programs continue require greater use cash flows earlier part contracts subscriber generally pay less upfront traditional subsidy program financing device receivables facility established help mitigate use cash purchasing devices oems fulfill leasing installment billing programs meet liquidity requirements look variety sources addition existing cash equivalents shortterm investments cash generated operating activities raise funds necessary external sources rely ability issue debt equity securities ability access forms financing including debt financing secured assets proceeds sale certain accounts receivable future lease receivables proceeds future financing transactions spectrum borrowing capacity available credit facilities support short longterm liquidity requirements believe existing available liquidity cash flows operations sufficient meet funding requirements next twelve months including debt service requirements significant future contractual obligations maintain adequate amount available liquidity execute current business plan includes among things network deployment maintenance subscriber growth data usage capacity needs expected achievement cost structure intended improve profitability meet longterm debt service requirements significant future contractual obligations need continue raise additional funds external sources unable obtain external funding continue operationalize effective cost structure successful attracting valuable subscribers postpaid handset subscribers operations could adversely affected may lead defaults certain borrowings depending amount difference actual results versus currently expect may make difficult us generate sufficient earnings interest taxes depreciation amortization nonrecurring items adjusted ebitda remain compliance financial covenants able meet debt service obligations could result acceleration indebtedness adversely impact ability raise additional funding sources described events occur may engage lenders obtain appropriate waivers amendments credit facilities refinance borrowings seek funding external sources although assurance would successful actions default certain borrowings could trigger defaults certain financing obligations turn could result maturities accelerated certain indentures agreements governing financing obligations require compliance various covenants including covenants limit companys ability sell certain assets limit company subsidiaries ability incur indebtedness liens require maintain certain financial ratios defined terms indentures related supplemental indentures agreements ability obtain additional financing including monetizing certain assets modify terms existing financing terms acceptable us may require tmobile’s consent contractual restrictions contained business combination agreement determining expectation future funding needs next twelve months beyond made several assumptions regarding • projected revenues expenses relating operations including related installment billing leasing programs • anticipated levels timing capital expenditures including assumptions regarding lower unit costs network capacity additions upgrades deployment new technologies networks fcc license acquisitions purchases leased devices • scheduled principal payments debt credit facilities financing obligations including 279 billion coming due next five fiscal years • cash needs related installment billing device leasing programs • availability receivables facility terminates june 2020 • availability 20 billion secured revolving bank credit facility expires february 2021 less outstanding letters credit • remaining availability 96 million secured equipment credit facility eligible capital expenditures corresponding principal interest fee payments • raising additional funds external sources • expected use cash equivalents nearterm • additional contributions may make pension plan • estimated residual values devices related device leasing program • future contractual obligations general corporate expenditures ability fund needs external sources ultimately affected overall capacity availability banking securities markets availability financing alternatives well performance credit ratings given recent financial performance well volatility markets continue monitor closely may limited ability maintain financial flexibility reasonable cost capital outlooks credit ratings moodys investor service standard poors ratings services fitch ratings certain sprint corporations outstanding obligations future contractual obligations following table sets forth current estimates amounts timing contractual payments march 31 2019 future events including additional issuances debt securities refinancing debt securities could cause actual payments differ significantly amounts see item 1a risk factors 1 includes outstanding principal estimated interest payments interest payments based managements expectations future interest rates case variable rate debt 2 represents payments including estimated interest financing obligations related saleleaseback multiple tower sites capital leases debt obligations 3 includes future lease payments related cell switch sites real estate network equipment office space 4 includes future spectrum lease payments well service credits related commitments provide services certain lessors reimburse lessors certain capital equipment thirdparty service expenditures term lease 5 includes service spectrum network equipment devices asset retirement obligations executory contracts excludes blanket purchase orders amount 54 million see discussion purchase orders commitments include minimum purchases commit purchase suppliers time andor unconditional purchase obligations guarantee make minimum payment suppliers goods services regardless whether take delivery amounts represent entire anticipated purchases future generally represent estimate items committed estimates based assumptions variable components contracts hours contracted number subscribers pricing factors addition party various arrangements conditional nature create obligation make payments upon occurrence certain events delivery functioning software products possible predict timing amounts may due conditional arrangements amounts included table also excludes approximately 54 million blanket purchase order amounts since agreement terms specified time frame set purchase orders legally binding result firm commitments liability uncertain tax positions 242 million march 31 2019 due inherent uncertainty timing resolution underlying tax positions practicable assign liability particular years table also excludes amounts due derivative agreements offbalance sheet financing march 31 2019 participate secure financings unconsolidated special purpose entities critical accounting policies estimates sprint applies accounting policies management believes best reflect underlying business economic events consistent us gaap sprints critical accounting policies include estimated economic lives residual values property plant equipment valuation recoverability longlived assets evaluation goodwill indefinitelived assets impairment inherent policies certain key assumptions estimates made management regularly updates estimates used preparation consolidated financial statements based latest assessment current projected business general economic environment sprints significant accounting policies estimates summarized note 2 summary significant accounting policies information notes consolidated financial statements part ii item 8 financial statements supplementary data annual report form 10k revenue recognition accounting estimates judgments related recognition revenue require us make assumptions numerous factors future billing adjustments future returns total contract consideration eg contracts include customer incentives consideration payable customer use output methods recognize revenue performance obligations satisfied time ie service performance obligations output methods measure progress toward satisfying performance obligation basis direct measurements goods services transferred date relative remaining goods services promised contract management asserts method reasonably represents transfer goods services customer prepaid contracts provide customer ability redeem fixed prepayments future goods services utilize proportional amount redemptions customer comparison total expected amount redemptions estimate progress toward satisfaction performance obligations postpaid contracts unlimited amounts monthly service wireline contracts utilize time elapsed relation total contract duration estimate progress toward satisfaction performance obligations determining amounts revenue recognize use following methods inputs assumptions • determination transaction price include fixed determinable charges per contracts part total transaction price extent variable consideration constrained include probabilityweighted estimate variable amount within total transaction price update assumptions duration contract accept noncash consideration customers direct payment purchase equipment contract inception purchase ongoing services subject certain restrictions may purchase used equipment customers entering new subscriber contract payment purchase used equipment may equal market value circumstances expected difference purchase price market value used equipment treated adjustment total transaction price customers contract inception • assessment estimates variable consideration wireless contracts generally involve variable consideration must allocated amongst performance obligations contract inception expected adjustments total transaction price related customer equipment rebates b customer retention credits c product returns service refunds able reasonably estimate contract inception based upon historical experience similar identical contracts similar identical customers wireline contracts generally subject significant amounts variable consideration consider variable consideration constrained purpose estimating total transaction price allocated performance obligations • allocation transaction price allocate total transaction price contracts amongst performance obligations based upon relative standalone selling prices performance obligations use observable external pricing performance obligations sold standalone basis evidence standalone selling prices discounts premiums built transaction prices typically allocated proportionately performance obligations within contracts exclusive performance obligations delivery accessories consistently sold standalone selling price regardless bundling exception estimated wireless customer retention credits treated reduction portion total transaction price allocated service revenue • measurement returns refunds similar obligations estimated separately separate product service types based upon historical experience similar contracts similar types customers total transaction price reduced amount estimated return refund similar obligation relation sale amount recorded current liability unless estimates changed relevant obligation satisfied depreciation property plant equipment balance represents significant component consolidated assets record property plant equipment cost generally depreciate straightline basis estimated useful life assets expect oneyear increase estimated useful lives property plant equipment exclusive leased devices would result decrease fiscal year 2019 depreciation expense 10 billion oneyear decrease estimated useful lives would result increase 15 billion fiscal year 2019 depreciation expense leased devices accounting device leases involves specific determinations applicable lease accounting standards determinations affect timing revenue recognition timing classification related cost device lease classified operating lease revenue recognized ratably lease term leased asset included property plant equipment depreciated estimated residual value generally lease term lease classified salestype lease revenue recognized inception lease corresponding charge cost equipment sales lease classified directfinancing lease related revenue cost equipment sales recorded net investment leased asset reported critical elements consider determining classification leased devices economic life fair value device including estimated residual value purposes assessing economic life device consider internal external datasets including limited length time subscribers use devices sales trends post launch transactions secondary market currently significant aftermarket used telecommunication devices lease inception devices classified operating leases reclassified inventory property plant equipment leased sprints direct channels devices leased indirect channels classified operating leases purchase devices lease inception dealer capitalized property plant equipment time purchase devices estimate expected amount devices result customers selecting leasing option purchases reflected cash used investing activities residual values associated devices operating leases represent estimated fair value end lease term review residual values regularly appropriate adjust based among things estimates expected market conditions end lease including impacts future product launches adjustments residual values leased devices recognized revision depreciation estimates estimate 10 increase decrease estimated residual values devices operating leases march 31 2019 would material effect depreciation expense next twelve months however year ended march 31 2019 several changes made estimated residual value devices currently operating leases better align market values resulted approximately 650 million decreased depreciation expense see note 5 property plant equipment notes consolidated financial statements part ii item 8 financial statements supplementary data annual report form 10k additional information valuation recoverability longlived assets longlived assets reviewed impairment whenever events changes circumstances indicate carrying amount may recoverable impairment loss recognized carrying amount longlived asset group recoverable exceeds fair value longlived asset groups determined based upon certain factors including assessing lowest level identifiable cash flows largely independent cash flows groups assets liabilities impairment analyses performed based current business technology strategy views growth rates business anticipated future economic regulatory conditions expected technological availability years ended march 31 2019 2018 2017 impairments longlived assets recorded determination fair value requires considerable judgment highly sensitive changes underlying assumptions execution managements plan believe judgments assumptions reasonable changes future periods may impact assumptions lead additional future impairments evaluation goodwill indefinitelived intangible assets impairment result softbank merger july 2013 recognized indefinitelived assets acquisitiondate estimates fair value including fcc licenses goodwill trade names indefinitelived assets including goodwill allocated wireless segment march 31 2019 carrying values assets 374 billion 46 billion 40 billion respectively sprint evaluates carrying value indefinitelived assets including goodwill least annually frequently whenever events changes circumstances indicate asset may impaired case goodwill fair value reporting unit carrying amount year ended march 31 2019 company completed annual impairment testing goodwill trade names using quantitative approaches performing annual goodwill impairment test estimated fair value wireless reporting unit weighting results income approach market approach determination fair value reporting unit requires significant estimates assumptions including significant unobservable inputs key inputs valuation approaches include limited managements prospective financial information discount rates growth rates terminal value control premiums comparable multiples publicly traded companies industry require us make assumptions estimates regarding industry economic factors future profitability business performing income approach wireless reporting unit incorporate use projected financial information discount rate developed using market participantbased assumptions cash flow projections based tenyear financial forecast developed management includes projections share gross additions churn mix plan offerings rate changes capital spending trends investments working capital support future revenue ebitda margins among others selected discount rate considers risk nature wireless reporting unit’s cash flows rates return market participants would require invest capital reporting unit performing market approach wireless reporting unit relied guideline public company guideline merged acquired company methods incorporate revenue adjusted ebitda multiples companies operations characteristics similar wireless reporting unit selected multiples consider reporting units growth profitability size risk relative companies well adjustment reporting units ebitda handset depreciation result lower net customer additions sustained negative free cash flow necessary maintain competitive network failures meet certain prior forecasts updated projected cash flows wireless reporting unit updated projections reflected declines longterm revenue adjusted ebitda compared prior projections result impairment testing concluded carrying value wireless reporting unit excess estimated fair value 20 billion january 1 2019 result goodwill impairment charge amount recorded consolidated statements operations year ended march 31 2019 although believe assumptions reasonable supportable changes certain assumptions management’s failure execute current plan negative developments associated proposed merger transactions tmobile could significant impact estimated fair value wireless reporting unit could expose us additional material impairment charges future estimated fair value sprint boost mobile trade names assigned wireless segment using relieffromroyalty method uses several significant assumptions including management projections future revenue royalty rate longterm growth rate discount rate assumptions largely unobservable estimate fair value considered unobservable within fair value hierarchy changes certain assumptions significant effect estimated fair value sprint boost mobile trade names note 5 decrease revenue across longterm plans would resulted impairment regard annual impairment test year ended march 31 2019 additionally company completed annual impairment testing year ended march 31 2019 spectrum licenses using qualitative evaluation results qualitative evaluation determine whether necessary perform quantitative test likely asset may impaired case goodwill fair value reporting unit less carrying amount would required perform quantitative test result evaluation determined quantitative test value spectrum licenses required quarter ended june 30 2018 company evaluated wireless reporting unit recoverability concluded estimated fair value reporting unit excess carrying value impairment recorded year ended march 31 2018 company completed annual impairment testing goodwill sprint boost mobile trade names spectrum licenses using quantitative qualitative evaluations consistent current year testing resulted impairments year ended march 31 2018 performing annual goodwill impairment test year ended march 31 2017 company completed testing goodwill sprint boost mobile trade names spectrum licenses using qualitative evaluation result evaluation determined quantitative test value indefinitelived intangible assets required determination fair value requires considerable judgment highly sensitive changes underlying assumptions execution management’s plan consequently assurance estimates assumptions made purposes goodwill spectrum trade name impairment tests prove accurate prediction future sustained declines company’s operating results number wireless subscribers future forecasted cash flows growth rates assumptions well significant sustained declines company’s stock price related market capitalization could impact underlying key assumptions estimated fair values potentially leading additional future material impairment goodwill indefinitelived intangible assets new accounting pronouncements see note 2 summary significant accounting policies information notes consolidated financial statements part ii item 8 financial statements supplementary data annual report form 10k full description new accounting pronouncements including expected dates adoption estimated effects financial condition results operations hereby incorporated reference financial strategies general risk management policies board directors adopted financial risk management policy authorizes us enter derivative transactions comply policy purchase hold derivative financial instruments speculative purposes exception equity rights obtained connection commercial agreements strategic investments usually form warrants purchase common shares derivative instruments primarily used hedging risk management purposes hedging activities may done various purposes including limited mitigating risks associated asset liability committed transaction probable forecasted transaction seek minimize counterparty credit risk credit approval review processes credit support agreements continual review monitoring counterparties thorough legal review contracts exposure market risk controlled regularly monitoring changes hedge positions normal stress conditions ensure exceed established limits information routinely post important information website wwwsprintcominvestors information contained accessible website part annual report form 10k forwardlooking statements include certain estimates projections forwardlooking statements annual quarterly current reports publicly available material statements regarding expectations including performance assumptions estimates relating capital requirements well statements historical facts forwardlooking statements reflect managements judgments based currently available information involve number risks uncertainties could cause actual results differ materially forwardlooking statements respect forwardlooking statements management made assumptions regarding among things subscriber network usage subscriber growth retention technologies products services pricing operating costs timing various events economic regulatory environment future performance cannot assured actual results may differ materially forwardlooking statements factors could cause actual results differ include merger transactions • failure obtain delays obtaining required regulatory approvals merger transactions risk approvals may result imposition conditions could adversely affect combined company expected benefits merger failure satisfy conditions merger transactions timely basis • occurrence events may give rise right one parties terminate business combination agreement • diversion management financial resources toward completion merger transactions • adverse effects market price common stock tmobile’s operating results failure complete merger transactions anticipated timeframe • inability obtain financing contemplated obtained connection merger transactions expected terms timing • ability us tmobile combined company make payments debt repay existing future indebtedness due comply covenants contained therein retain sufficient business flexibility • adverse changes ratings tmobile’s debt securities adverse conditions credit markets • negative effects announcement pendency consummation merger transactions market price common stock tmobile’s operating results including result changes key customer supplier employee business relationships • potential conflicts interests directors executive officers stockholders • significant costs related merger transactions including financing costs unknown liabilities • failure realize expected benefits synergies merger transactions expected timeframes • costs difficulties related integration tmobile’s networks operations • risk litigation regulatory actions related merger transactions • inability us tmobile combined company retain hire key personnel • risk certain contractual restrictions contained business combination agreement pendency merger transactions could adversely affect tmobile’s ability pursue business opportunities strategic transactions business • ability obtain additional financing terms acceptable us obtain tmobile’s consent contractual restrictions contained business combination agreement • ability continue receive expected benefits existing financings • failure improve ability retain attract subscribers manage credit risks associated subscribers • effective implementation 5g network including timing scale execution technologies costs spectrum availability performance network • ability continue access spectrum acquire additional spectrum including certain lowband frequencies • failure improve subscriber churn bad debt expense accelerated cash use costs writeoffs including respect changes expected residual values related devices • ability generate sufficient cash flow fully implement 5g network service plans improve operating margins implement business strategies provide competitive new technologies • ability deploy nationwide 5g network scale timeline necessary us compete effectively competitors merger transactions consummated • ability scale necessary successfully compete • ability maintain sufficiently large subscriber base necessary support needs competitive nationwide wireless network associated high costs • effects vigorous competition highly penetrated market including impact competition prices able charge subscribers services devices provide geographic areas served network • impact installment sales leasing handsets • overall demand service plans including impact decisions new existing subscribers service offerings impact new emerging competing technologies business • ability provide desired mix integrated services subscribers • changes available technology effects changes including product substitutions deployment costs performance • volatility trading price common stock including result merger transactions current economic conditions ability access capital • impact various parties meeting business requirements including significant adverse change ability willingness parties provide service products including distribution infrastructure equipment network • costs business risks associated providing new services entering new geographic markets • effects merger transactions future merger acquisition involving us well effect mergers acquisitions consolidations new entrants communications industry unexpected announcements developments others industry • ability comply restrictions imposed us government condition merger softbank • effects material impairment goodwill indefinitelived intangible assets • impacts new accounting standards changes existing standards financial accounting standards board regulatory agencies issue including sec • unexpected results litigation filed us suppliers vendors • costs potential customer impact compliance regulatory mandates including government regulation regarding net neutrality data privacy • equipment failure natural disasters terrorist acts breaches network information technology security • one markets compete impacted changes political economic factors monetary policy legal regulatory changes external factors control • impact controlled company exempt many corporate governance requirements nyse • risks referenced time report filings sec words may could estimate project forecast intend expect anticipate believe target plan similar expressions intended identify forwardlooking statements forwardlooking statements found throughout managements discussion analysis financial condition results operations elsewhere report readers cautioned factors although listed could also materially affect future performance operating results reader place undue reliance forwardlooking statements speak date report obligated publicly release revisions forwardlooking statements reflect events date report including unforeseen events item 7a item 7 managements discussion analysis financial condition results operations overview business strategies key priorities sprint communications company offering comprehensive range wireless wireline communications products services designed meet needs individual consumers businesses government subscribers resellers communications industry continue highly competitive basis price types services devices offered quality service discussed “effects wireless business postpaid subscriber losses” company experienced significant losses subscribers critical postpaid wireless market since third quarter 2006 result steps taken attract retain subscribers reduced net subscriber losses beginning 2009 business strategy responsive changing customer mobility demands innovative differentiated marketplace future growth plans strategy revolve around achieving following three key priorities • improve customer experience • strengthen brands • generate operating cash flow reduced confusion pricing plans complex bills simply everything® everything data plans mobile anytimesm feature offer savings compared competition addition savings offered consumers business advantage pricing plans available business subscribers also take advantage mobile anytimesm certain plans simplify improve customer experience introduced sprint free guarantee gives customer opening new line service chance try sprint 30 days free excluding overages premium services included price plans addition continued offer ready trains customers leave store use mobile devices business customers aim increase productivity providing differentiated services utilize advantages combining ip networks wireless technology differentiation enables us acquire retain wireline wireless combined wirelinewireless subscribers networks also continued focus improving customer care implemented initiatives designed improve call center processes procedures standardized performance measures various metrics including customer satisfaction ratings respect customer care first call resolution calls per subscriber product strategy provide customers broad array device selections applications services run devices meet growing needs customer mobility multifunctional device portfolio includes devices samsung epic 4g android™ device also act mobile hotspot five wireless fidelity wifi enabled devices worlds first 3g4g android™ device htc evo™ 4g also act mobile hotspot eight wifi enabled devices portfolio also includes motorola i1 worlds first direct connect® androidpowered smartphone devices portfolio htc hero™ samsung moment™ google™ blackberry 8530 blackberry® bold™ samsung seek™ rumor touch lg touch pro 2 htc mobile broadband device portfolio consists devices overdrive™ 3g4g mobile hotspot allows connection five wifi enabled devices sprint 4g usb u1901 ovation™ u760 novatel wireless support open development applications content network platforms also enable variety thirdparty providers locationbased services business consumer product providers machinetomachine initiative machinetomachine initiative incorporates selling marketing product development operations resources address growing nontraditional data needs covers wide variety products services including remote monitoring telematics invehicle devices ereaders specialized medical devices original equipment manufacturer devices prepaid portfolio launched additional brands second quarter 2010 sprints prepaid portfolio currently includes four brands designed appeal specific customer segments boost mobile serves customers voice text messagingcentric popular 50 monthly unlimited plan shrinkage service bills reduced six ontime payments virgin mobile serves customers device dataoriented beyond talk™ plans broadband plan broadband2go offer consumers control flexibility connectivity various communication vehicles assurance wireless provides eligible customers meet income requirements receiving government assistance free wireless phone 250 free minutes national local longdistance monthly service common centssm mobile caters budgetconscious customers 7cent minutes round down™ 7cent text messages sprint focused wholesale business reseller new converged services leverage sprint network sold wholesalers brand providing suite integrated customizeable valueadded solutions focused assisting customers improve business adopted new pricing models made easier wholesalers acquire access resell services bundling wireless wireline services focused attention partners existing distribution channels addition strengthened sales efforts expanded new markets rapidly growing machinetomachine space addition brand customeroriented goals also taken steps beginning 2008 generate increased operating cash flow competitive new rate plans postpaid prepaid subscribers multibranded strategies reductions cost structure align reduced revenues fewer postpaid subscribers cost reductions primarily attributable reductions capital spending workforce reductions call center closures result fewer calls per subscriber limiting marketing spend focused initiatives believe actions well continued efforts reduce operating expenses allow us continue maintain adequate cash position network vision december 2010 sprint announced network vision multiyear network infrastructure initiative intended provide customers enhanced network experience improving voice quality providing faster data speeds creating network flexibility reducing operating costs improving environmental sustainability enabling aggregation multiple spectrum bands onto single multimode base station addition implementing multimode base stations plan encompasses nextgeneration pushtotalk technology broadband capabilities integration multimode chipsets smartphones tablets broadband devices including machinetomachine capabilities consolidating optimizing use sprints 800 mhz 19ghz potentially spectrum 25ghz owned clearwire multimode stations allow sprint repurpose spectrum enhance coverage particularly around inbuilding experience multimode technology also utilizes softwarebased solutions interchangeable hardware provide greater network flexibility allows opportunities evaluate new 4g technologies better utilize sprints available spectrum first stages equipment testing expected begin early 2011 successful broad scale deployment expected latter half 2011 expected completion time anywhere three five years network vision implemented size power required operate cell sites used sprint expected reduced sprint expects plan bring financial benefit company convergence one common network expected reduce network maintenance operating costs capital efficiencies reduced energy costs lower roaming expenses backhaul savings eventual reduction total cell sites also reducing cost handling expanded data traffic sprint entered agreements relating network vision deploy costeffective innovative network enhance voice quality data speeds consolidating multiple technologies one network successful testing deployment related changes technology result incremental charges period implementation including limited increase depreciation amortization associated existing iden assets due changes estimates remaining useful lives longlived assets expected timing asset retirement obligations could material impact consolidated financial statements successful testing pushtotalk technology cdma network test markets 2011 would result increased depreciation amortization expense expected range 10 billion 15 billion implementation completed end 2014 successful completion network vision earlier later end 2014 would result acceleration delay respectively depreciation amortization costs effects wireless business postpaid subscriber losses following table shows annual net additions losses postpaid subscribers past five years excluding subscribers obtained business combinations shown table “results operations” wireless segment earnings represents approximately 80 sprints total consolidated segment earnings wireless industry subject intense competition acquire retain subscribers wireless services markets operate high rates penetration wireless services wireless carriers accordingly must attract greater proportion new subscribers competitors rather first time subscribers within wireless segment postpaid wireless voice data services represent significant contributors earnings driven number postpaid subscribers services well average revenue per subscriber user arpu beginning 2008 conjunction changes senior management sprint undertook steps address reduce postpaid subscriber losses perceptions marketplace part result subscriber losses well factors reduced sprint brands effectiveness attracting retaining customers steps taken improve sprint networks well improve quality sprints customer care experience confirmed independent comparisons competitors steps also taken improve credit quality mix subscriber base improve financial stability including cost control actions resulted continuing strong cash flow operations addition beginning 2008 continuing 2010 undertaken initiatives strengthen sprint brand continue increase market awareness improvements achieved customer experience including speed dependability networks also introduced new devices improving overall lineup providing competitive portfolio customer selection well competitive new rate plans providing simplicity value believe actions favorable impact net postpaid subscriber losses 2009 2010 expect improve subscriber results beginning second quarter 2009 continuing 2010 company begun see reduction net loss postpaid subscribers year ended december 31 2010 net postpaid subscriber losses 855000 improved 27 million 76 compared losses 35 million 2009 net loss postpaid subscribers 2009 2010 expected cause wireless service revenue 2011 approximately 24 billion lower would subscribers lost notwithstanding historical postpaid subscriber losses consolidated service revenue begun stabilize primarily result increased service revenue associated prepaid wireless offerings including acquisition virgin mobile fourth quarter 2009 result sprints prepaid wireless offerings well cost controls implemented continue partially offset effects net postpaid subscriber losses unlikely sufficient sustain companys level results operations cash flows unless successful improving postpaid subscriber results trend improved postpaid subscriber results continue could material negative impact financial condition results operations liquidity 2011 beyond company believes actions taken described continue taken marketing customer service device offerings network quality continue reduce number net postpaid subscriber losses experienced 2011 results operations 1 consolidated results operations include results nextgeneration wireless broadband network contributed clearwire transaction closed november 28 2008 consolidated segment earnings decreased 774 million 12 2010 compared 2009 126 billion 16 2009 compared 2008 consolidated segment earnings consist wireless wireline segments discussed corporate eliminations corporate eliminations improved 275 million 2009 compared 2008 primarily result costs incurred related buildup nextgeneration wireless broadband network 2008 longer incurred 2009 due close transaction clearwire late 2008 depreciation amortization expense depreciation expense decreased 753 million 13 2010 compared 2009 137 million 2 2009 compared 2008 primarily due reduction replacement rate capital additions resulting reduced capital spending associated cost control actions beginning 2008 average annual capital expenditures three years ended 2007 approximately 63 billion compared average annual capital expenditures 25 billion three years ended 2010 amortization expense declined 415 million 26 2010 compared 2009 854 million 35 2009 compared 2008 primarily due reductions amortization customer relationship intangible assets result related 2005 acquisition nextel becoming fully amortized reductions partially offset increase amortization related customer relationship intangible assets acquired connection ipcs inc ipcs virgin mobile acquisitions fourth quarter 2009 customer relationships amortized using sumoftheyearsdigits method resulting higher amortization rates early periods decline time goodwill impairment merger integration expenses company recognized noncash goodwill impairment 963 million 2008 impaired goodwill primarily attributable companys acquisition nextel 2005 reflects reduction estimated fair value sprints wireless reporting unit subsequent acquisition resulting among factors net losses postpaid subscribers merger integration expenses decreased 130 million 100 2009 compared 2008 integration activities completed 2008 net following table provides additional information items included “other net” years ended december 31 2010 2009 2008 net improved 409 million 105 2010 compared 2009 417 million 52 2009 compared 2008 2010 recognized 8 million severance exit costs primarily related exit costs incurred second fourth quarter 2010 associated vacating certain office space longer utilized recognized 400 million 355 million 2009 2008 respectively severance exit costs related separation employees organizational realignment initiatives asset impairments increased 78 million 166 2010 compared 2009 decreased 433 million 90 2009 compared 2008 asset impairments primarily relate assets longer necessary managements strategic plans 2010 2009 costs primarily related network asset equipment asset impairments 2008 also include previously recognized cell site development costs gains asset dispositions exchanges 2010 2009 2008 primarily related spectrum exchange transactions increased 94 million primarily due increase benefits resulting favorable developments relating access cost disputes certain exchange carriers 2010 compared 2009 interest expense interest expense increased 14 million 1 2010 compared 2009 increase primarily due higher effective interest rates average longterm debt balances increased costs revolving credit facilities include accelerated amortization previously unamortized debt issuance costs retirement former credit facility may 2010 partially offset reductions interest expense previously recorded result favorable tax outcomes interest expense increased 88 million 7 2009 compared 2008 fewer capital projects led decrease 111 million capitalized interest partially offset decrease 56 million related 15 billion decline weighted average longterm debt balance comparative periods effective interest rate weighted average longterm debt balance 206 billion 214 billion 229 billion 72 68 66 2010 2009 2008 respectively see “liquidity capital resources” information companys financing activities equity losses unconsolidated investments net item consists mainly proportionate share losses equity method investments equity losses associated investment clearwire consists sprints share clearwires net loss adjustments gains losses associated dilution sprints ownership interest resulting clearwires equity issuances equity losses clearwire 13 billion 803 million 142 million 2010 2009 2008 respectively 2009 equity losses clearwire include pretax dilution loss 154 million 96 million tax recognized first quarter 2009 representing finalization ownership percentages associated formation clearwire subject change based trading price clearwire stock 90 days subsequent november 2008 closing clearwire owns operates next generation mobile broadband network provides highspeed residential mobile internet access services residential voice services communities throughout country clearwire early stage company heavily invested building network acquiring assets necessary expand business 2009 2010 resulted increased operating losses reduced liquidity expect clearwire continue generate significant net losses near term executes business plan income net following table provides additional information items included “other income net” three years ended december 31 2010 interest income remained relatively stable 2010 compared 2009 interest income decreased 63 million 65 2009 compared 2008 primarily due lower interest rates realized loss investments decreased 26 million 90 2010 compared 2009 primarily due fewer sales marketable securities result acquisition virgin mobile noncash gain 151 million 92 million tax recognized fourth quarter 2009 related estimated fair value net carrying value previously held noncontrolling interest virgin mobile income tax expense benefit consolidated effective tax rate expense approximately 5 2010 benefit approximately 30 31 2009 2008 respectively income tax expense 2010 benefit 2009 include 14 billion 281 million net increase valuation allowance federal state deferred tax assets related net operating loss carryforwards generated periods expect record significant tax benefits future net operating losses circumstances justify recognition benefits 2008 income tax benefit includes 278 million related noncash goodwill impairment substantially charges separately deductible tax purposes additional information related items impacting effective tax rates found note 10 notes consolidated financial statements segment earnings wireless segment earnings primarily function wireless service revenue costs acquire subscribers network interconnection costs serve subscribers wireless segment operating expenses costs acquire subscribers include net cost sell devices referred subsidies well marketing sales costs incurred attract subscribers network costs primarily represent switch cell site costs interconnection costs generally consist perminute usage fees roaming fees paid carriers remaining costs associated operating wireless segment include costs operate customer care organization administrative support wireless service revenue costs acquire subscribers variable network interconnection costs fluctuate changes subscriber base related usage cost elements fluctuate short term changes following table provides overview results operations wireless segment three years ended december 31 2010 service revenue wireless segment generates revenues sale wireless services sale wireless devices accessories sale wholesale services service revenue consists fixed monthly recurring charges variable usage charges miscellaneous fees activation fees directory assistance roaming equipment protection late payment early termination charges certain regulatory related fees net service credits ability wireless segment generate service revenues primarily function • revenue generated subscriber turn function types amount services utilized subscriber rates charged services • number subscribers serve turn function ability acquire new retain existing subscribers retail comprises subscribers sprint directly provides wireless services networks utilize mvno relationships relationship clearwire whether services provided postpaid prepaid basis retail service revenue increased 391 million 2 2010 compared 2009 decreased 22 billion 8 2009 compared 2008 increase retail service revenue primarily driven attracting subscribers companys national boost monthly unlimited prepaid plan addition service revenue related subscribers acquired fourth quarter 2009 acquisitions virgin mobile ipcs increase retail service revenue partially offset decrease postpaid service revenue driven reduction companys average number postpaid subscribers approximately 14 million 4 2010 compared 2009 majority decline 2009 compared 2008 primarily due decrease postpaid service revenue driven reduction companys average number postpaid subscribers approximately 41 million 11 year ended december 31 2009 partially offset increase prepaid revenue primarily driven attracting subscribers companys national boost monthly unlimited prepaid plan wholesale affiliates subscribers served mvno affiliate relationships relationship clearwire arrangements wireless services sold sprint companies resell services subscribers wholesale affiliate revenues total decreased 329 million 60 2010 compared 2009 397 million 42 2009 compared 2008 majority decrease 2010 compared 2009 due transfer 54 million subscribers wholesale affiliates postpaid prepaid classifications result fourth quarter 2009 acquisitions virgin mobile ipcs remaining decline 2010 compared 2009 primarily due losses two large mvnos throughout 2009 addition lower revenues received services provided machinetomachine initiative decrease 2009 compared 2008 primarily due losses two large mvnos 2009 approximately 41 wholesale affiliate subscribers represent growing number devices utilize network machinetomachine initiative devices generate revenue noncontract usage varies depending machinetomachine service utilized average revenue per subscriber opendevice machinetomachine services generally significantly lower revenue wholesale affiliate subscribers however cost service customers also lower resulting higher profit margin percent revenue average monthly service revenue per subscriber trends table summarizes average number retail subscribers average revenue per subscriber years ended december 31 2010 2009 2008 additional information number subscribers net additions subscribers average monthly service revenue per subscriber average rates monthly postpaid prepaid customer churn quarter since first quarter 2008 may found table following page 1 average subscribers include subscribers acquired business combinations prospectively date acquisition average subscribers years ended december 31 2010 2009 inclusive prepaid postpaid subscribers acquired 2009 business combinations virgin mobile ipcs previously included within wholesale affiliate subscribers addition average prepaid subscribers periods exclusive 49000 subscribers transferred wholesale affiliates result sale transfer customers affiliate 2010 2 average monthly service revenue per subscriber calculated dividing service revenue sum average number subscribers changes average monthly service revenue reflect subscribers change rate plans level voice data usage amount service credits offered subscribers plus net effect average monthly revenue generated new subscribers deactivating subscribers average monthly postpaid service revenue per subscriber 2010 declined slightly compared 2009 due declines overage revenues resulting increased popularity fixedrate bundled plans including mobile anytimesm feature average monthly retail postpaid service revenue per subscriber stable 2009 compared 2008 result improved retention higher revenue subscribers bundled rate plans offset lower overage roaming revenues average monthly prepaid service revenue per subscriber 2010 decreased compared 2009 due prepaid subscribers acquired fourth quarter 2009 business combination virgin mobile well net subscriber additions assurance wireless brand launched early 2010 carry lower average revenue per subscriber compared sprints prepaid subscribers average monthly prepaid service revenue per subscriber increased 2009 compared 2008 due higher revenue national boost monthly unlimited users combined stable average revenue per subscriber traditional prepaid users lower prepaid average revenue per subscriber increased weighting average prepaid subscribers total subscribers resulted decline average retail service revenue per subscriber 2010 compared 2009 following table shows net additions losses wireless subscribers past twelve quarters excluding subscribers obtained business combinations b total subscribers end quarterly period c average monthly post paid prepaid service revenue per subscriber average rates monthly postpaid prepaid customer churn past twelve quarters 1 postpaid subscriber net additions platform iden cdma modified periods presented include subscribers migrated network technologies previously excluded change presentation previously reported amounts effect total retail postpaid net additions subscriber related performance metrics prior periods better reflects sprints trend subscriber activity network technology 2 includes subscribers powersource devices operate seamlessly cdma iden networks 3 first quarter 2009 boost monthly unlimited launched iden first quarter 2010 boost monthly unlimited launched cdma 4 reflects transfer 4539000 prepaid 835000 postpaid subscribers wholesale affiliates result business combinations completed fourth quarter 2009 well third quarter 2010 transfer 49000 wholesale affiliates subscribers prepaid result sale transfer customers affiliate 5 churn calculated dividing net subscriber deactivations quarter sum average number subscribers month quarter postpaid accounts comprising multiple subscribers family plans enterprise accounts net deactivations defined deactivations excess customer activations particular account within 30 days postpaid prepaid churn consist voluntary churn subscriber makes determination cease customer involuntary churn customers service terminated due lack payment reasons retail postpaid subscriberswe lost 855000 net postpaid subscribers 2010 compared losing 35 million 41 million net postpaid subscribers 2009 2008 respectively improvement net postpaid subscriber losses year attributed improvements retail postpaid gross adds lower postpaid churn resulting simplified valuedriven bundled offers competitive device lineup well continued improvements overall customer experience customer care satisfaction retail prepaid subscriberswe added approximately 16 million net prepaid subscribers 2010 compared adding 26 million losing 981000 net prepaid subscribers 2009 2008 respectively net prepaid subscriber additions 2010 principally driven net additions assurance wireless boost mobile brands partially offset net losses associated virgin mobile brand including transfer 49000 subscribers prepaid wholesale affiliates result sale transfer customers affiliate net prepaid subscriber additions 2009 compared losses 2008 principally driven boost monthly unlimited plan prepaid subscribers generally deactivated 60 days 150 days date activation replenishment however prior account deactivation targeted retention programs offered qualifying subscribers maintain ongoing service providing additional 150 days make replenishment subscribers targeted retention offers included calculation churn retention offer expires without replenishment account result end period prepaid subscribers include subscribers engaged retention programs retention offers targeted subscribers remained consistent percentage total prepaid subscriber base 2010 wholesale affiliate subscriberswholesale affiliate subscribers represent customers served networks companies resell services subscribers customers residing affiliate territories growing portion subscribers machinetomachine initiative primarily representing devices utilize network 2010 wholesale affiliate subscriber additions 994000 resulting approximately 45 million wholesale affiliate subscribers december 31 2010 compared approximately 35 million 90 million wholesale affiliate subscribers december 31 2009 2008 respectively increase wholesale subscriber base primarily due subscriber additions mvno relationships 2010 decrease 2008 2009 primarily due subscribers transferred postpaid prepaid result fourth quarter 2009 business combinations virgin mobile ipcs remaining 45 million subscribers included wholesale affiliate approximately 41 represent machinetomachine activities ereaders invehicle devices telematics subscribers mvno relationships inactivity either voice usage primarily result nature device activity occurs data retrieval initiated enduser may occur infrequently although continue provide customers access network mvno relationships approximately 959000 subscribers mvno relationships inactive least six months associated revenue cost services cost services consists primarily • costs operate maintain cdma iden networks including direct switch cell site costs rent utilities maintenance labor costs associated network employees spectrum frequency leasing costs • fixed variable interconnection costs fixed component consists monthly flatrate fees facilities leased local exchange carriers based number cell sites switches service particular period related equipment installed site variable component generally consists perminute use fees charged wireline providers calls terminating networks fluctuate relation level duration terminating calls • long distance costs paid wireline segment • costs service repair devices • regulatory fees • roaming fees paid carriers • fixed variable costs relating payments third parties use proprietary data applications messaging music tv navigation services subscribers cost services decreased 96 million 1 2010 compared 2009 primarily reflecting decline service repair costs focusing device repairs refurbishment rather utilizing new devices decline long distance network costs result lower market rates well decline payments third party vendors providing premium services result changing usage based payments flat rates decline partially offset increased roaming due higher data usage increase license fees result continued growth smartphone devices carry higher fees cost services decreased 361 million 4 2009 compared 2008 primarily reflecting decline labor outside services maintenance costs consistent companys cost cutting efforts well decline network costs associated fewer subscribers equipment net subsidy recognize equipment revenue corresponding costs devices title device passes dealer enduser customer marketing plans assume devices typically sold prices cost consistent industry practice subscriber retention efforts often include providing incentives subscribers offering new devices discounted prices reduce equipment revenue discounts offered directly customer certain payments thirdparty dealers reimburse dealer point sale discounts offered enduser subscriber additionally cost devices reduced rebates earned supplier cost devices accessories also includes order fulfillment related expenses writedowns device related accessory inventory shrinkage obsolescence equipment cost excess revenue generated equipment sales referred industry equipment net subsidy equipment revenue increased 749 million 38 2010 compared 2009 cost devices increased 14 billion 26 2010 compared 2009 increase equipment revenue cost devices primarily due increase number postpaid devices sold greater mix devices higher average sales price cost well increase number prepaid devices sold equipment revenue decreased 38 million 2 2009 compared 2008 primarily due declining average sales prices devices higher functionality result competitive economic pressures partially offset increase number lower priced prepaid devices sold 2009 compared 2008 cost devices increased 699 million 15 2009 compared 2008 primarily due mix devices sold reflecting greater mix postpaid devices sold higher functionality increase number devices sold selling general administrative expense sales marketing costs primarily consist customer acquisition costs including commissions paid indirect dealers thirdparty distributors retail sales force new device activations upgrades residual payments indirect dealers payroll facilities costs associated retail sales force marketing employees advertising media programs sponsorships including costs related branding general administrative expenses primarily consist costs billing customer care information technology operations bad debt expense administrative support activities including collections legal finance human resources strategic planning technology product development sales marketing expense increased 322 million 7 2010 2009 compared decrease 273 million 6 2009 2008 increase sales marketing expenses year ended december 31 2010 primarily due additional costs associated increase subscriber gross additions combined incremental costs associated business combinations fourth quarter 2009 offset decline marketing expenditures related cost cutting initiatives decline sales marketing expenses year ended december 31 2009 primarily due decline gross subscriber additions compared 2008 decline labor related costs due workforce cost reduction activities general administrative costs decreased 203 million 5 2010 2009 11 billion 22 2009 2008 decline general administrative costs year ended december 31 2010 reflects reduction customer care costs minor continued effects workforce reductions cost cutting initiatives announced 2009 offset increases result fourth quarter 2009 business combinations virgin mobile ipcs addition increase bad debt expense decline general administrative costs year ended december 31 2009 primarily due reductions customer care costs decrease employee related costs part cost cutting initiatives lower bad debt expense customer care costs decreased 87 million 2010 compared 2009 363 million 2009 compared 2008 improvement customer care costs largely attributable customer care quality initiatives launched 2008 resulted reduction calls per subscriber 39 2007 peak levels allowed reduction 19 call centers 2009 11 call centers 2008 employee related costs 2010 consistent 2009 costs decreased approximately 536 million 2009 compared 2008 due workforce reductions announced january november 2009 bad debt expense 423 million year ended december 31 2010 representing 31 million increase compared bad debt expense 392 million 2009 increase bad debt expense primarily reflects 2009 reductions allowances bad debt due increased rates recovery year ended december 31 2009 bad debt expense decreased 240 million compared bad debt expense 632 million 2008 improvement bad debt expense resulted lower rates uncollectibility period well lower estimated uncollectible accounts outstanding accounts receivable reassess allowance doubtful accounts quarterly changes allowance doubtful accounts largely attributable credit policies established subscribers analysis historical collection experience mix prime postpaid subscribers total postpaid subscribers remained flat 84 december 31 2010 2009 respectively segment earnings wireline segment earnings primarily function wireline service revenue network interconnection costs wireline segment operating expenses network costs primarily represent special access costs interconnection costs generally consist domestic international perminute usage fees paid carriers remaining costs associated operating wireline segment include costs operate customer care billing organizations addition administrative support wireline service revenue variable network interconnection costs fluctuate changes customer base related usage cost elements fluctuate short term changes customer usage wireline services provided wireless segment generally accounted based market rates believe approximate fair value company generally reestablishes rates beginning fiscal year past several years industry wide trend lower rates due increased competition wireline wireless communications companies well cable internet service providers 2011 expect wireline service gross margin decline approximately 200 250 million reflect changes market prices services provided wireline segment wireless segment decline wireline service gross margin related intercompany pricing affect sprints consolidated results operations wireless segment benefit equivalent reduction cost service following table provides overview results operations wireline segment years ended december 31 2010 2009 2008 wireline revenue voice revenues voice revenues decreased 314 million 12 2010 compared 2009 decreased 516 million 17 2009 compared 2008 2010 2009 decreases primarily driven volume declines due customer churn well overall price declines voice revenues generated sale services wireless segment represented 33 total voice revenues 2010 compared 31 2009 26 2008 data revenues data revenues reflect sales data services including atm frame relay managed network services data revenues decreased 143 million 22 2010 compared 2009 decreased 297 million 31 2009 compared 2008 due declines frame relay asynchronous transfer mode atm services subscribers migrated ipbased technologies data revenues generated provision services wireless segment represented 27 total data revenue 2010 compared 19 2009 13 2008 internet revenues internet revenues reflect sales ipbased data services including mpls voip sip internet revenues decreased 118 million 5 2010 2009 compared increase 145 million 7 2009 2008 2010 decrease due decline new ip customers lower market rates result increased competition 2009 increase due higher ip revenues business subscribers increasing requirements support wireless customers data traffic addition revenue growth cable voip experienced 15 increase subscribers 2009 compared 2008 internet revenues generated provision services wireless segment represented 10 total internet revenues 2010 compared 11 2009 9 2008 msos process insourcing digital voice products transition associated revenue reductions occur next several years decrease approximately 200 million occur 2011 revenues primarily consist sales customer premises equipment cpe decreased 14 million 13 2010 compared 2009 35 million 24 2009 compared 2008 result fewer projects 2010 2009 costs services products costs services products include access costs paid local phone companies domestic service providers foreign phone companies complete calls made domestic subscribers costs operate maintain networks costs equipment costs services products decreased 344 million 9 2010 2009 529 million 13 2009 2008 decrease 2010 2009 primarily due declining voice volumes shift mix lower cost products result migration data ipbased technologies service gross margin percentage increased 34 2008 35 2009 decreased back 34 2010 increase 2008 2009 primarily due revenue growth cable voip business decrease costs services products offset decrease voice revenue decrease 2009 2010 result decrease net service revenue offset decrease costs services products selling general administrative expense selling general administrative expense decreased 114 million 15 2010 compared 2009 220 million 23 2009 compared 2008 decreases primarily due reduction employee headcount decline use outside services maintenance part cost cutting initiatives total selling general administrative expense percentage net services revenue 13 2010 2009 15 2008 liquidity capital resources cash flow operating activities net cash provided operating activities 48 billion 2010 decreased 76 million period 2009 primarily due 196 million decrease cash received subscribers resulting decline postpaid subscriber customer base increase 217 million cash paid suppliers employees increase 36 million cash paid interest partially offset increase 170 million cash received income tax refunds net cash provided operating activities 2009 also includes cash payment 200 million resulting contribution company pension plan net cash provided operating activities 49 billion 2009 decreased 13 billion 2008 primarily due 36 billion decrease cash received subscribers result declining service revenues loss postpaid subscribers 200 million contribution company pension plan 2009 declines offset decrease 21 billion cash paid suppliers employees primarily due reductions variable cost services products selling general administrative expenses due various cost cutting initiatives implemented past year net cash provided operating activities 2008 net cash used operating activities approximately 300 million related operations contributed clearwire november 2008 investing activities net cash used investing activities 2010 decreased 13 billion 2009 due decrease 300 million purchases shortterm investments decrease 132 million expenditures related fcc licenses determined specific operations requirements report order decreases partially offset reduced proceeds sales maturities shortterm investments 418 million increased capital expenditures 332 million add coverage capacity wireless networks sprint also increased investment clearwire 11 billion acquired ipcs virgin mobile 560 million 2009 resulted remaining decline 2010 compared 2009 net cash used investing activities 2009 decreased 406 million 2008 primarily due increase 369 million proceeds shortterm investments decrease capital expenditures 23 billion 2009 compared 2008 mainly due fewer cell sites built 2009 fewer network development projects costs incurred related buildup wimax 2008 longer incurred 2009 due close transaction clearwire november 2008 decreases offset increased purchases 599 million shortterm investments 11 billion increase sprints investment clearwire 560 million used acquire virgin mobile ipcs fourth quarter 2009 net cash used investing activities 2008 include expenditures approximately 600 million related capital assets fcc licenses contributed clearwire november 2008 financing activities net cash used financing activities 905 million 2010 compared net cash used financing activities 919 million 2009 activities 2010 included 750 million debt payment june 2010 51 million payment debt financing costs associated new revolving credit facility addition fourth quarter 2010 exercised option terminate relationship variable interest entity resulted repayment financing capital lease obligations 105 million net cash used financing activities 919 million 2009 compared net cash used financing activities 484 million 2008 activities 2009 include debt repayments 600 million senior notes may 2009 early redemption 607 million convertible senior notes september 2009 10 billion payment revolving bank credit facility november 2009 offset issuance 13 billion senior notes august 2009 net cash used financing activities 484 million 2008 activities 2008 include drawdown 25 billion revolving bank credit facility february 2008 net proceeds financing obligation towerco acquisition llc related sale subsequent leaseback multiple tower locations september 2008 645 million proceeds issuance commercial paper 681 million offset early redemption 125 billion senior notes june 2008 extinguishment september 2008 235 million us unwired incs 10 second priority senior secured notes due 2012 extinguishment september 2008 250 million alamosa delaware incs 85 senior notes due 2012 repayment 15 billion revolving bank credit facility third fourth quarters 2008 maturities commercial paper 11 billion received 8 million 4 million 57 million 2010 2009 2008 respectively proceeds common share issuances primarily resulting exercises employee options liquidity december 31 2010 cash equivalents shortterm investments totaled 55 billion may 21 2010 entered new 21 billion unsecured revolving credit facility expires october 2013 new credit facility replaced 45 billion credit facility due expire december 2010 december 31 2010 14 billion letters credit including 13 billion letter credit required report order reconfigure 800 mhz band outstanding 21 billion revolving bank credit facility result outstanding letters credit directly reduce availability revolving bank credit facility 700 million borrowing capacity available revolving bank credit facility december 31 2010 accordingly sprints liquidity december 31 2010 including cash equivalents shortterm investments available borrowing capacity revolving credit facility 62 billion addition january 2011 165 billion sprint capital corporation 7625 senior notes repaid upon maturity amended 500 million 750 million export development canada loan extend maturity date 2012 2015 terms conditions revolving bank credit facility require ratio total indebtedness trailing four quarters earnings interest taxes depreciation amortization certain nonrecurring items defined credit facility adjusted ebitda 45 10 beginning april 2012 ratio reduced 425 10 reduced 40 10 january 2013 december 31 2010 ratio 37 10 compared 35 10 december 31 2009 resulting decline adjusted ebitda revolving bank credit facility currently restricted paying cash dividends ratio total indebtedness adjusted ebitda exceeds 25 10 terms revolving bank credit facility provide interest rate equal london interbank offered rate libor plus margin 275 350 depending debt ratings certain domestic subsidiaries guaranteed revolving bank credit facility default borrowings could trigger defaults debt obligations turn could result maturities accelerated certain indentures govern outstanding notes also require compliance various covenants including limitations incurrence indebtedness liens company subsidiaries defined terms indentures december 31 2010 54 economic interest clearwire result clearwire could considered subsidiary certain agreements relating indebtedness whether clearwire could considered subsidiary debt agreements subject interpretation december 2010 result amendment clearwire equityholders agreement sprint obtained right unilaterally surrender voting securities reduce voting security percentage 50 could eliminate potential clearwire considered subsidiary sprint certain actions defaults clearwire would viewed subsidiary result breach covenants including potential crossdefault provisions certain agreements relating indebtedness however believe unilateral rights obtained december significantly mitigate possibility event would crossdefault sprints debt obligations expect remain compliance covenants least end 2012 although assurance although expect improve postpaid subscriber results meet plan depending severity actual subscriber results versus currently anticipate possible would remain compliance covenants able meet debt service obligations could result acceleration indebtedness unforeseen events occur may engage lenders obtain appropriate waivers amendments credit facilities refinance borrowings although assurance would successful actions sprints current liquidity position makes likely able meet debt service requirements funding needs currently identified least end 2012 using anticipated cash flows operating activities well cash equivalents hand addition also available remaining borrowing capacity revolving bank credit facility nevertheless unable continue reduce rate losses postpaid subscribers could significant negative impact cash provided operating activities liquidity future years determining expect meet funding needs least 2012 considered • expenses relating operations • anticipated levels capital expenditures including capacity upgrading networks deployment new technologies networks fcc license acquisitions • anticipated payments report order supplemented • contributions may make pension plan • scheduled debt service requirements • additional investment may choose make clearwire • future contractual obligations general corporate expenditures events circumstances could involve significant additional funding needs excess anticipated cash flows operating activities identified currently available funding sources including existing cash equivalents borrowings available existing revolving credit facility existing capital resources sufficient meet funding needs would necessary raise additional capital meet needs ability fund capital needs outside sources ultimately affected overall capacity terms banking securities markets well performance credit ratings given recent financial performance well volatility markets continue monitor closely take steps maintain financial flexibility reasonable cost capital december 31 2010 moodys investor service standard poors ratings services fitch ratings assigned following credit ratings certain outstanding obligations rating agency senior unsecured bank credit facility senior unsecured debt outlook moodys baa2 ba3 review standard poors rated bb negative fitch bb negative downgrades current ratings accelerate scheduled principal payments existing debt however downgrades may cause us incur higher interest costs credit facilities future borrowings could negatively impact access public capital markets december 31 2010 working capital 20 billion compared 18 billion december 31 2009 current business outlook endeavor add new retain existing wireless subscribers order reverse net loss postpaid wireless subscribers experienced expect improve subscriber trends continuing improve customer experience offers provide value simplicity productivity given current economic environment difficulties economic uncertainties create forecasting well inherent uncertainties predicting future customer behavior unable forecast assurance net retail postpaid subscriber results experience 2011 thereafter however company expects postpaid subscriber net additions full year 2011 improve total wireless subscriber net additions 2011 compared 2010 net subscriber losses significantly reduced revenue operating cash flow effects continue attract new subscribers andor reduce rate churn see “effects wireless business postpaid subscriber losses” discussion subscriber trends impact segment earnings trends also subscriber losses decrease adjusted ebitda defined revolving bank credit facility management implemented cost reduction programs designed decrease cost structure reducing labor costs however expect reduction costs fully offset revenue declines described discussion subject risks cautionary qualifying factors set forth “forwardlooking statements” part item 1a “risk factors” report future contractual obligations following table sets forth best estimates amounts timing contractual payments december 31 2010 future events including additional purchases securities refinancing securities could cause actual payments differ significantly amounts see “forwardlooking statements” 1 includes principal estimated interest payments interest payments based managements expectations future interest rates january 2011 500 million 750 million export development canada loan amended extend maturity date 2012 2015 reflected table 2 represents capital lease payments including interest financing obligation related sale subsequent leaseback multiple tower sites 3 includes future lease costs related cell switch sites real estate network equipment office space 4 includes service spectrum network capacity executory contracts excludes blanket purchase orders amount 44 million see discussion “purchase orders commitments” include minimum purchases commit purchase suppliers time andor unconditional purchase obligations guarantee make minimum payment suppliers goods services regardless whether suppliers fully deliver amounts actually paid “other” agreements likely higher due variable components agreements significant variable components determine ultimate obligation owed include hours contracted subscribers factors addition party various arrangements conditional nature create obligation make payments upon occurrence certain events delivery functioning software products possible predict timing amounts may due conditional arrangements amounts included table also excludes 44 million blanket purchase order amounts since agreement terms specified time frame set purchase orders legally binding result firm commitments liability uncertain tax positions 228 million december 31 2010 due inherent uncertainty timing resolution underlying tax positions practicable assign liability particular years table include remaining costs paid connection fulfillment obligations report order report order requires us make payment us treasury conclusion band reconfiguration process extent value 19 ghz spectrum received exceeds total value licenses spectrum 700 mhz 800 mhz bands surrendered decision plus actual costs qualifying costs incur retune incumbents facilities total minimum cash obligation report order 28 billion inception program december 31 2010 incurred approximately 28 billion costs directly attributable spectrum reconfiguration program amount include internal network costs preliminarily allocated reconfiguration program capacity sites modifications may request credit reconfiguration program estimate based experience date reconfiguration program information currently available total direct costs attributable complete spectrum reconfigurations range 34 37 billion accordingly believe unlikely required make payment us treasury offbalance sheet financing participate secure financings unconsolidated special purpose entities critical accounting policies estimates sprint applies accounting policies management believes best reflect underlying business economic events consistent accounting principles generally accepted united states sprints critical accounting policies include related basis presentation allowance doubtful accounts valuation recoverability equity method investment clearwire valuation recoverability longlived assets evaluation goodwill indefinitelived assets impairment accruals taxes based income inherent policies certain key assumptions estimates made management periodically updates estimates used preparation financial statements based latest assessment current projected business general economic environment critical accounting policies discussed sprints board directors sprints significant accounting policies summarized notes consolidated financial statements basis presentation consolidated financial statements include accounts sprint consolidated subsidiaries investments sprint maintains majority ownership lacks full decision making ability major issues accounted using equity method governance sprints major unconsolidated investment clearwire based clearwire board representation sprint majority vote allowance doubtful accounts maintain allowance doubtful accounts estimated losses result failure subscribers make required payments estimate allowance doubtful accounts considers number factors including collection experience aging accounts receivable portfolios credit quality subscriber base estimated proceeds future bad debt sales qualitative considerations extent actual loss experience differs significantly historical trends required allowance amounts could differ estimate 10 change amount estimated uncollectible would result corresponding change bad debt expense 19 million wireless segment 1 million wireline segment valuation recoverability equity method investment clearwire assess equity method investment otherthantemporary impairment indicators decline quoted prices active markets indicate value carrying value investment evaluation requires significant judgment regarding limited severity duration decline market prices ability intent hold securities recovery financial condition liquidity nearterm prospects issuer specific events factors sprints assessment investment otherthantemporarily impaired could change future due changes facts circumstances sprint owns 54 ownership interest clearwire carrying value december 31 2010 31 billion value investment based clearwires closing stock price 27 billion sprints ability recover carrying value investment depends part upon clearwires ability obtain sufficient funding support operations ability successfully develop deploy maintain 4g network decline estimated fair value clearwire would deemed otherthantemporary could result material impairment carrying value investment intend sell 54 economic interest foreseeable future recoverability equity investment affected shortterm fluctuations clearwires stock price accordingly expect fully recover carrying value investment clearwire valuation recoverability longlived assets longlived assets consist primarily property plant equipment intangible assets subject amortization changes technology intended use assets well changes economic industry factors business prospects may cause estimated period use value assets change property plant equipment generally depreciated straightline basis estimated economic useful lives certain network assets depreciated using group life method depreciable life studies performed periodically confirm appropriateness depreciable lives certain categories property plant equipment studies take account actual usage physical wear tear replacement history assumptions technology evolution factors indicate assets useful life different previous assessment depreciate remaining book values prospectively adjusted remaining estimated useful life depreciation rates assets using group life method revised periodically required method changes made result depreciable life studies rate changes generally material effect depreciation expense longlived assets reviewed impairment whenever events changes circumstances indicate carrying amount may recoverable longlived asset groups determined based upon certain factors including assessing lowest level identifiable cash flows largely independent cash flows groups assets liabilities total expected undiscounted future cash flows less carrying amount assets loss recognized difference estimated fair value carrying value assets impairment analyses performed based current business technology strategy views growth rates business anticipated future economic regulatory conditions expected technological availability 2010 analyzed longlived assets wireless segment recoverability based estimate undiscounted cash flows determined carrying value recoverable estimate undiscounted cash flows exceeded carrying value assets 10 continue operational challenges including obtaining retaining subscribers future cash flows company may sufficient recover carrying value wireless asset group could record asset impairments material sprints consolidated results operations financial condition addition analyses described certain assets yet deployed business including network equipment cell site development costs software development periodically assessed determine recoverability network equipment cell site development costs expensed whenever events changes circumstances cause company conclude assets longer needed meet managements strategic network plans deployed software development costs expensed longer probable software project deployed network equipment removed network also periodically assessed determine recoverability continue challenges retaining subscribers continue assess impact rebanding iden network management may conclude future periods certain cdma iden assets never either deployed redeployed case noncash charges could material consolidated financial statements would recognized evaluation goodwill indefinitelived intangible assets impairment goodwill represents excess purchase price paid fair value assigned net tangible identifiable intangible assets acquired businesses sprint evaluates carrying value goodwill annually frequently events changes circumstances indicate carrying amount may exceed estimated fair value analysis includes comparison estimated fair value reporting unit goodwill applies carrying value including goodwill reporting unit regularly assess whether indicators impairment exist requires significant amount judgment indicators may include sustained significant decline share price market capitalization decline expected future cash flows significant adverse change legal factors business climate unanticipated competition testing recoverability significant asset group within reporting unit andor slower growth rates among others adverse change factors could result impairment could material consolidated financial statements determination estimated fair value wireless reporting unit requires significant estimates assumptions estimates assumptions primarily include limited transactions within wireless industry related control premiums discount rate terminal growth rates operating income depreciation amortization oibda capital expenditures forecasts due inherent uncertainty involved making estimates actual results could differ estimates merits significant assumption individually aggregate used estimate fair value reporting unit evaluated reasonableness fcc licenses sprint boost mobile trademarks identified indefinitelived intangible assets addition goodwill considering expected use assets regulatory economic environment within used effects obsolescence use required sprint assesses recoverability indefinitelived intangibles including fcc licenses carried single unit accounting assessing recoverability fcc licenses estimate fair value licenses using greenfield direct value method approximates value estimating discounted future cash flows hypothetical startup business assumptions key estimating fair value method include limited capital expenditures subscriber activations deactivations market share achieved tax rates effect discount rate one percent decline assumed revenue growth rate used estimate terminal value one percent decline assumed net cash flows one percent adverse change key assumptions referred would result impairment fcc licenses recent testing date decline estimated fair value fcc licenses approximately 20 also would result impairment carrying value accruals taxes based income uncertainties exist respect interpretation complex us federal state tax regulations management expects sprints interpretations prevail also sprint recognized deferred tax benefits relating future utilization past operating losses sprint believes likely amounts deferred tax assets excess related valuation allowances realized accounting estimates related tax valuation allowance require us make assumptions regarding timing future events including probability expected future taxable income available tax planning opportunities assumptions require significant judgment actual performance fluctuated past may future impact changes actual performance versus estimates could realization tax benefits reported results operations could material accounting estimates related liability unrecognized tax benefits require us make judgments regarding sustainability uncertain tax position based technical merits estimates updated based facts circumstances information available also required assess annual reporting date whether reasonably possible significant increases decreases unrecognized tax benefits occur next twelve months new accounting pronouncements june 2009 financial accounting standards board fasb issued authoritative literature regarding amendments fasb interpretation 46r changes various aspects accounting disclosures interests variable interest entities accounting transfers financial assets issued order improve relevance representational faithfulness comparability information reporting entity provides financial statements transfer financial assets effects transfer financial position financial performance cash flows transferors continuing involvement transferred financial assets guidance effective beginning january 2010 material effect consolidated financial statements september 2009 fasb modified accounting multipledeliverable revenue arrangements certain revenue arrangements include software elements modifications alter methods previously required allocating consideration received multipleelement arrangements require revenue allocation based relative selling price method including arrangements containing software components nonsoftware components function together deliver products essential functionality modifications effective prospectively fiscal year ending december 31 2011 expected material effect consolidated financial statements january 2010 fasb issued authoritative guidance regarding improving disclosures fair value measurements requires new amended disclosure requirements classes assets liabilities inputs valuation techniques transfers levels fair value measurements accounting distributions shareholders components stock cash clarifies accounting distributions shareholders offer ability elect receive entire distribution cash shares equivalent value guidance effective beginning january 2010 material effect consolidated financial statements july 2010 fasb amended requirements disclosures credit quality financing receivables allowance credit losses result amendments entity required disaggregate portfolio segment class certain existing disclosures provide certain new disclosures financing receivables related allowance credit losses new disclosures end reporting period effective fiscal year ending december 31 2010 disclosures activity occurs reporting period effective first fiscal quarter 2011 disclosure requirements effective fiscal year ending december 31 2010 material effect consolidated financial statements requirements effective first fiscal quarter 2011 expected material effect consolidated financial statements forwardlooking statements include certain estimates projections forwardlooking statements annual quarterly current reports publicly available material statements regarding expectations including performance assumptions estimates relating capital requirements well statements historical facts forwardlooking statements reflect managements judgments based currently available information involve number risks uncertainties could cause actual results differ materially forwardlooking statements respect forwardlooking statements management made assumptions regarding among things subscriber network usage subscriber growth retention pricing operating costs timing various events economic regulatory environment future performance cannot assured actual results may differ materially forwardlooking statements factors could cause actual results differ include • ability attract retain subscribers • ability competitors offer products services lower prices due lower cost structures • effects vigorous competition highly penetrated market including impact competition price able charge subscribers services equipment provide ability attract new subscribers retain existing subscribers overall demand service offerings including impact decisions new existing subscribers postpaid prepaid services offerings two network platforms impact new emerging competing technologies business • ability generate sufficient cash flow fully implement network modernization plan improve enhance networks service offerings implement business strategies provide competitive new technologies • effective implementation network modernization plan network vision including timing technologies costs • changes available technology effects changes including product substitutions deployment costs • ability obtain additional financing terms acceptable us • volatility trading price common stock current economic conditions ability access capital • impact unrelated parties meeting business requirements including significant adverse change ability willingness parties provide devices infrastructure equipment cdma network motorolas ability willingness provide related devices infrastructure equipment software applications iden network • costs business risks associated providing new services entering new geographic markets • financial performance clearwire deployment 4g network • impact difficulties may encounter connection continued integration business assets virgin mobile including risk difficulties may limit ability fully integrate operations business • effects mergers consolidations new entrants communications industry unexpected announcements developments others communications industry • unexpected results litigation filed us suppliers vendors • impact adverse network performance • costs potential customer impacts compliance regulatory mandates including limited compliance fccs report order reconfigure 800 mhz band • equipment failure natural disasters terrorist acts breaches network information technology security • one markets compete impacted changes political economic factors monetary policy legal regulatory changes external factors control • risks referenced time report including part item 1a “risk factors” filings sec words “may” “could” “estimate” “project” “forecast” “intend” “expect” “believe” “target” “plan” “providing guidance” similar expressions intended identify forwardlooking statements forwardlooking statements found throughout managements discussion analysis financial condition results operations elsewhere report readers cautioned factors although listed could also materially affect future performance operating results reader place undue reliance forwardlooking statements speak date report obligated publicly release revisions forwardlooking statements reflect events date report including unforeseen events financial strategies general risk management policies board directors adopted financial risk management policy authorizes us enter derivative transactions comply policy purchase hold derivative financial instruments speculative purposes exception equity rights obtained connection commercial agreements strategic investments usually form warrants purchase common shares derivative instruments primarily used hedging risk management purposes hedging activities may done various purposes including limited mitigating risks associated asset liability committed transaction probable forecasted transaction seek minimize counterparty credit risk stringent credit approval review processes credit support agreements continual review monitoring counterparties thorough legal review contracts exposure market risk controlled regularly monitoring changes hedge positions normal stress conditions ensure exceed established limits item 7a item 7 managements discussion analysis financial condition results operations information required item 7 refer managements discussion analysis financial condition results operations section financial statements financial statement schedules supplementary data filed part report item 8 item 7 managements discussion analysis financial condition results operations information required item 7 refer managements discussion analysis financial condition results operations section financial statements financial statement schedule filed part report item 8 item 7 management’s discussion analysis financial condition results operations forwardlooking information sprint includes certain estimates projections forwardlooking statements reports publicly available material statements regarding expectations including performance assumptions estimates relating capital requirements well statements historical facts forwardlooking statements reflect management’s judgments based currently available information involve number risks uncertainties could cause actual results differ materially forwardlooking statements respect forwardlooking statements management made assumptions regarding among things customer network usage customer growth retention pricing operating costs economic environment future performance cannot ensured actual results may differ materially forwardlooking statements factors could cause actual results differ include • extent duration economic downturn • effects vigorous competition markets sprint operates • costs business risks associated providing new services entering new markets • adverse change ratings afforded debt securities ratings agencies • ability wireless operations global markets division continue grow significant market presence • ability sprint’s wireless operations continue improve profitability • ability global markets division local division improve cash flow generation • effects mergers consolidations telecommunications industry unexpected announcements developments others telecommunications industry • uncertainties related outcome bankruptcies affecting telecommunications industry • impact financial difficulties thirdparty affiliates sprint’s wireless network coverage • uncertainties related sprint’s investments networks systems businesses • uncertainties related implementation sprint’s business strategies including initiative realign services enhance focus business consumer customers • impact new emerging competing technologies sprint’s business • unexpected results litigation filed sprint • impact wireless local number portability wlnp sprint’s wireless operation’s growth churn rates revenues expenses • possibility one markets sprint competes impacted changes political factors monetary policy legal regulatory changes including impact telecommunications act 1996 telecom act external factors sprint control • risks referenced time sprint’s filings securities exchange commission sec words “estimate” “project” “intend” “expect” “believe” “target” similar expressions intended identify forwardlooking statements forwardlooking statements found throughout management’s discussion analysis reader place undue reliance forwardlooking statements speak date report sprint obligated publicly release revisions forwardlooking statements reflect events date report unforeseen events sprint provides detailed discussion risk factors various sec filings encouraged review filings overview business sprint global communications company leader integrating longdistance local service wireless communications sprint also one largest carriers internet traffic using tier one internet protocol network provides connectivity point internet either network via direct connections backbone providers sprint nation’s thirdlargest provider long distance services based revenues operates nationwide alldigital long distance tier one internet protocol networks sprint currently serves approximately 79 million access lines franchise territories 18 states additionally sprint provides local service using facilities leased facilities unbundled network elements provided carriers total 36 states district columbia sprint selling cable telephony market arrangements cable companies resell sprint long distance service use sprint back office systems network assets support local telephone service provided cable facilities sprint also operates 100 digital pcs wireless network licenses provide service entire united states population including puerto rico us virgin islands using single frequency band single technology pcs group together third party affiliates operates pcs systems 300 metropolitan markets including 100 largest us metropolitan areas pcs group’s service including third party affiliates reaches quarter billion people pcs group combined wholesale affiliate partners served 20 million customers end 2003 industry environment sprint operates industries continue subject consolidation dynamic change therefore sprint routinely reassesses business strategies due changes telecommunications industry including bankruptcies overcapacity current economic environment sprint continually assesses implications operations assessment may impact valuation longlived assets part overall business strategy sprint regularly evaluates opportunities expand complement business may time discussing negotiating transaction consummated could material effect business financial condition liquidity results operations 2003 sprint sold directory publishing business rh donnelley 223 billion cash business transformation currently sprint’s operations divided three segments global markets division local division pcs wireless telephony products services business effort enhance focus needs preferences two distinct customer typesbusinesses consumers sprint’s marketfacing business units aligned sprint business solutions sbs unit sprint consumer solutions scs unit sprint local consumer solutions slcs unit effort expected enable sprint effectively efficiently use portfolio assets create customerfocused communications solutions 2004 sprint intends continue measure activities using current business segments begin measure certain activities customerfocused approach throughout 2004 management anticipates continuing make decisions using current segmentation however part decisionmaking process include viewing opportunities customercentric perspective sprint intends develop deliver integrated products services help customers function effectively workplace daily life conjunction marketfacing business unit realignments sprint undertaking initiatives improve productivity • consolidating systems eliminating redundancies • application rationalization • automation • process reengineering • eenablement • organizational redesign streamlining efforts resulted restructuring charges asset impairments fourth quarter 2003 continue impact subsequent quarters ongoing efforts areas may additional impacts subsequent periods see note 5 notes consolidated financial statements information relating activities tracking stock structure november 1998 sprint’s shareholders approved allocation sprint’s assets liabilities two groups fon group pcs group well creation fon stock pcs stock fon common stock pcs common stock intended reflect financial results economic value fon pcs groups however classes common stock sprint group intended track fon group comprised global markets division local division businesses consisting primarily wholesale distribution telecommunications products global markets division nation’s thirdlargest provider long distance services based revenues activities local division include local exchange communications consumer long distance services used customers within sprint’s local franchise territories fon group also includes investments earthlink inc earthlink internet service provider callnet enterprises inc callnet long distance provider canada pcs group includes sprint’s wireless pcs operations pcs group also includes investment virgin mobile usa joint venture market wireless services principally youth prepay segments considerations relating tracking stocks february 28 2004 sprint’s board directors decided recombine tracking stocks return single common stock result share pcs common stock convert automatically 050 shares fon common stock april 23 2004 fon stock represent outstanding common stock sprint recombination sprint continue present consolidated financial information include group level information recombination impact sprint’s current presentation required segment information recombination fon common stock pcs common stock intended track performance fon group pcs group respectively fon common stock pcs common stock classes common stock sprint common stock group intended track holders fon common stock pcs common stock subject risks related equity investment sprint’s businesses assets liabilities therefore market prices fon common stock pcs common stock may accurately reflect performance group intended track announcement completion recombination price tracking stocks may reflect expectation single common stock result recombination rather reflecting performance groups sprint single board directors consequently board directors owes separate duties holders either fon common stock pcs common stock conflicts interest holders fon common stock pcs common stock transactions fon group pcs group dealings third parties could resolved board directors detriment holders one class common stock recombination tracking stocks events would benefited holders one tracking stocks benefit sprint shareholders consolidated results operations total net operating revenues follows income loss continuing operations follows income loss continuing operations presented table includes aftertax impacts items discussed following paragraphs 2003 sprint recorded net restructuring charges asset impairments 12 billion charges associated writedown fair value fon group’s multipoint multichannel distribution services mmds spectrum asset impairment charges facilities severance charges associated termination web hosting business impairment charges associated termination development new billing platform impairment charges associated termination software development projects severance costs associated sprint’s transformation customerfocused organizational design offset finalization 2001 2002 restructuring liabilities also included 2003 charge related sprint’s longterm disability plan 72 million 22 million charge connection separation agreements agreed sprint three former executive officers 13 million charge mainly reflecting premiums paid debt tender offer early retirement local division debt 9 million charge settle securities class action derivative lawsuit relating failed merger worldcom mci charges partially offset 49 million tax benefit recognition certain income tax credits relating various taxing jurisdictions adjustments state tax apportionments 31 million settlement accounts receivable claims mci formerly worldcom previously fully reserved 2002 fourth quarter sprint recorded restructuring charges asset impairments 154 million representing consolidations sprint’s network information technology billing accounts receivable organizations impairment network asset abandoned network project costs additional steps reduce overall operating costs also included 2002 expected loss receivables due bankruptcy declaration worldcom mci 23 million net restructuring asset impairment charge 76 million gain sale pcs group’s investment pegaso telecomunicaciones sa de cv pegaso 67 million gain sale customer contracts 25 million writedown investment due declining market value 241 million tax benefit related capital losses previously recognizable 292 million 2001 fourth quarter sprint recorded restructuring charge asset impairment 1136 million representing termination sprint ion well additional steps reduce overall operating costs additionally 2001 sprint recorded litigation charge 15 million writedown fon group’s equity method investment intelig telecommunicacoes ltda intelig 157 million temporary decline market value loss sale portion fon group’s investment earthlink 8 million benefit plan curtailment gain 75 million net gains investment activities 9 million critical accounting policies fundamental objective financial reporting provide useful information allows reader comprehend business activities sprint aid understanding management identified sprint’s “critical accounting policies” policies considered “critical” potential material impact sprint’s financial statements require judgements estimation due uncertainty involved measuring specific point time events continuous nature • longlived asset recoverya significant portion sprint’s total assets consist longlived assets consisting primarily property plant equipment “ppe” definite life intangibles well goodwill indefinite life intangibles changes technology sprint’s intended use assets well changes broad economic industry factors may cause estimated period use value assets change depreciable lives assets sprint performs annual internal studies confirm appropriateness depreciable lives category ppe studies utilize models take account actual usage physical wear tear replacement history assumptions technology evolution use certain instances actuariallydetermined probabilities calculate remaining life asset base sprint believes accounting estimate related establishment asset depreciable lives “critical accounting estimate” 1 requires sprint management make assumptions technology evolution competitive uses assets 2 impact changes assumptions could material financial position well results operations management’s assumptions technology future development require significant judgement timing impacts technology advances difficult predict actual experience varied previous assumptions could continue sprint’s studies resulted depreciable rate 5 higher lower used preparation sprint’s consolidated financial statements recorded depreciation expense would impacted approximately 265 million impact fon group depreciation expense would approximately 135 million impact pcs group depreciation expense would approximately 130 million property plant equipment definite life intangibles impairment ppe definite life intangibles evaluated impairment whenever indicators impairment exist accounting standards require impairment indicator present sprint must assess whether carrying amount asset unrecoverable estimating sum future cash flows expected result asset undiscounted without interest charges carrying amount recoverable amount impairment charge must recognized based fair value asset sprint believes accounting estimate related asset impairment “critical accounting estimate” 1 requires sprint management make assumptions future revenues costs sales life asset 2 impact recognizing impairment would financial position well results operations could material management’s assumptions future revenues require significant judgement actual revenues fluctuated past may continue estimating future revenues use internal business forecasts develop forecasts based recent revenue data existing products services planned timing new products services industry economic factors indicators present sprint tests impairment resulted total ppe impairments 652 million 198 million 1327 million 2003 2002 2001 respectively 2003 fon group recorded 303 million associated termination web hosting business software development projects pcs group recorded 349 million associated terminated development new billing platform software development project impairments represent 2 percent december 31 2003 consolidated net ppe 2002 fon group recorded 156 million network asset impairments pcs group recorded 42 million abandoned network projects impairments represent less 1 percent december 31 2002 consolidated net ppe 2001 fon group recorded 1327 million termination efforts provide sprint ion consumer business offerings impairment represents 46 percent december 31 2001 consolidated net ppe goodwill indefinite life intangibles goodwill indefinite life intangibles reviewed least annually impairment frequently indicators impairment exist goodwill tested comparing net book value reporting unit identified sprint’s operating segments fair value indefinite life intangibles tested comparing book value estimated fair value sprint believes accounting estimate related goodwill indefinite life intangibles “critical accounting estimate” 1 requires sprint management make assumptions fair values 2 impact recognizing impairment could material financial position well results operations management’s assumptions fair values require significant judgement broad economic factors industry factors technology considerations result variable volatile fair values management completed impairment analyses goodwill indefinite life intangibles 2003 fourth quarter tests performed internally december 31 2003 goodwill impairment existed similarly wireless spectrum trademark value impaired however 2003 third quarter fon group’s global markets division decided end pursuit residential fixed wireless strategy using mmds spectrum decision required impairment analysis asset sprint fon group recorded pretax noncash charge 12 billion related writedown fair value mmds spectrum sprint focusing efforts broad range alternative strategies sprint continuing invest spectrum monitoring technology industry developments involved efforts achieve favorable regulatory rulings respect spectrum • employee benefit plan assumptionsretirement benefits significant cost business sprint yet represent obligations settled far future retirement benefit accounting intended reflect recognition future benefit costs employee’s approximate service period based terms plans investment funding decisions made sprint accounting requires management make assumptions regarding variables return assets discount rate future health care costs changes key assumptions significant impact projected benefit obligation periodic benefit cost incurred sprint believes accounting estimate related retirement benefit accounting “critical accounting estimate” 1 requires sprint management make assumptions discount rates future health care costs future return assets funding obligation 2 impact changes actual performance versus estimates would projected benefit obligation reported balance sheet benefit cost could material determining pension obligations assumptions required concerning market performance market performance fluctuated recent past could continued volatility future selecting assumptions sprint uses historical experience well objective indices benchmarks tests benchmarks historical industry data assumptions provided independent actuary increase discount rate would reduce reported projected benefit obligation contrast discount rate 2003 used determining projected benefit obligation 25 basis points lower would generate 137 million increase projected benefit obligation reported balance sheet 18 million increase benefit costs similarly expected return assets assumption 25 basis points lower would generate 8 million increase current year benefit costs assumption used calculation pension projected benefit obligation determining postretirement medical life insurance benefit obligations assumptions made concerning cost health care onepercentage point increase assumed medical inflation rate would generate 107 million increase accumulated postretirement benefit obligation reported balance sheet 6 million increase benefit expense increase discount rate would reduce reported accumulated postretirement benefit obligation contrast discount rate 2003 used determining accumulated postretirement benefit obligation 25 basis points lower would generate 25 million increase reported yearend 2003 obligation 2 million increase benefit expense • allocation policies tracking stocksas discussed previously fon common stock intended reflect financial results economic value fon group pcs common stock intended reflect financial results economic value pcs group fon common stock pcs common stock classes common stock sprint together groups reflect 100 sprint’s business activities sprint believes accounting estimate related allocation policies “critical accounting estimate” 1 requires sprint management make assumptions market interest rates group use shared costs 2 impact recognizing change allocation would net assets use resources operating results either group could material allocation policies regarding shared activities impact business results fon group pcs group sprint performs internal studies confirm appropriateness assignment costs direct assignment possible practical methods used indirect assignment include time studies factors related marketing headcount studies sprint manages financing activities groups centralized basis debt incurred sprint behalf groups specifically allocated reflected financial statements applicable group interest expense assigned pcs group based estimated rate substantially equal rate would able obtain third parties direct indirect wholly owned sprint subsidiary without benefit guarantee sprint member fon group additionally sprint’s centralized cash management program allows one group advance funds group advances accounted shortterm borrowings groups bear interest rate substantially equal rate group would able obtain third parties shortterm basis management utilizes credit rating agencies investment banks provide objective basis determining appropriate assumptions concerning market interest rates sprint uses information arriving assumptions used determine allocations allocation assets financial resources certain expenses require judgement management allocation methods used subject discretion board directors fulfillment fiduciary duties sprint’s shareholders holders fon stock pcs stock may interests differ conflict interests holders stock tracking stock policies provide board directors resolving material matters holders fon stock pcs stock potentially divergent interests act best interest sprint common stockholders giving fair consideration potentially divergent interests holders separate classes common stock • tax valuation allowancessprint required estimate amount tax payable refundable current year deferred income tax liabilities assets future tax consequences events reflected financial statements tax returns taxing jurisdiction operates process requires sprint’s management make assessments regarding timing probability ultimate tax impact sprint records valuation allowances deferred tax assets reflect expected realizable future tax benefits actual income taxes could vary estimates due future changes income tax law significant changes jurisdictions sprint operates sprint’s inability generate sufficient future taxable income unpredicted results final determination year’s liability taxing authorities changes significant impact financial position sprint believes accounting estimate related establishing tax valuation allowances “critical accounting estimate” 1 requires sprint management make assessments timing future events including probability expected future taxable income available tax planning opportunities 2 impact changes actual performance versus estimates could realization tax benefit reported results operations could material management’s assumptions require significant judgement actual performance fluctuated past may continue sprint currently carries income tax valuation allowance 620 million books amount includes valuation allowance total tax benefits related net operating loss carryforwards acquired connection certain acquisitions remainder valuation allowance relates state net operating loss tax credit carryforwards assumption changes result reduction expected benefits realization state net operating loss tax credit carryforwards 10 would increase valuation allowance 30 million pcs group 5 million fon group • revenue recognition policiessprint recognizes operating revenues services rendered products delivered customers accordance sec staff accounting bulletin 104 revenue recognition connection recording revenue estimates assumptions required determining expected conversion revenue streams cash collected revenue estimation process requires management make assumptions based historical results future expectations economic competitive environment changes credit worthiness customers relevant factors changes key assumptions significant impact projection cash collected periodic revenue stream recognized sprint believes accounting estimate related establishment revenue receivable reserves associated provisions results operations “critical accounting estimate” 1 requires sprint management make assumptions future billing adjustments disputes customers unauthorized usage future returns asset sales future access adjustments disputes competitive local exchange carriers interexchange carriers well future economic viability customer base 2 impact changes actual performance versus estimates would accounts receivable reported balance sheet results reported statements operations could material selecting assumptions sprint uses historical trending writeoffs industry norms regulatory decisions recognition current market indicators general economic conditions might impact collectibility accounts segmental results operations sprint’s business divided three segments global markets division local division pcs wireless telephony products services business global markets division global markets division provides broad suite communications services targeted domestic business residential customers multinational corporations communications companies services include domestic international voice data communications using various protocols internet protocol ip frame relay data service transfers packets data sprint’s network managed network services additionally global markets division provides local service using sprint’s facilities leased facilities unbundled network elements provided carriers total 36 states district columbia global markets division selling cable telephony market arrangements cable companies resell sprint long distance service use sprint back office systems network assets support local telephone service provided cable facilities addition global markets division provides consulting services international data communications global markets division also includes operating results wireless high speed data cable tv service operations broadband fixed wireless companies 2001 sprint announced would halt deployment mmds using current line sight technology 2003 sprint’s ongoing evaluation business use mmds spectrum resulted decision end pursuit residential fixed wireless strategy decision required impairment analysis asset resulting pretax noncash charge 12 billion sprint focusing efforts broad range alternative strategies sprint continuing invest spectrum monitoring technology industry developments involved efforts achieve favorable regulatory rulings respect spectrum 2003 sprint announced winddown web hosting business global markets division continued face significant challenges 2003 decline voice revenues loss revenues lowmargin wholesale customer contributed 11 decline net operating revenues along writedown mmds spectrum resulted operating loss year throughout 2003 global markets division focused cost management 2003 global markets division achieved doubledigit reduction costs services products 9 reduction selling general administrative expenses 2003 sprint undertook initiatives improve operational efficiency reduce costs actions along pretax noncash charge 12 billion related writedown fair value mmds spectrum resulted 1564 million net charge global markets division’s operations sprint expects revenues decline 2004 division continues impacted intense competitive pressures declines expected somewhat offset growing contributions sales strategic products addition sprint expects transformation customercentric organization allow us offer competitive differentiation effort increase customers’ loyalty net operating revenues net operating revenues decreased 11 2003 10 2002 loss major wholesale customer large prepaid customer drove minute volume decline 3 2003 minute growth 5 2002 driven part increase business minutes sold pcs group partially offset highly competitive pricing pressures voice services decrease 2002 net operating revenues also reflects loss revenues major wholesale customer voice revenues voice revenues decreased 13 2003 2002 2003 2002 decreases result decline consumer voice revenue due wireless email substitution aggressive competition regional bell operating companies consumer small business customers lower business voice pricing results 2003 2002 also impacted loss single major wholesale customer data revenues data revenues reflect sales currentgeneration data services including asynchronous transfer mode atm frame relay services data revenues flat 2003 2002 2003 increases frame relay offset decline atm private line 2002 increases frame relay atm offset decline private line internet revenues internet revenues decreased 4 2003 increased 5 2002 2003 decrease primarily result decline dial ip due final contractuallyscheduled repricing america online inc dial ip agreement partially offset revenues fourth quarter partial buyout portion dial ip contract 2002 increase due growth dedicated ip revenues partially offset decrease dial ip due repricing contracts growth web hosting sprint made decision exit web hosting business 2003 period still reflects increased web hosting revenue 2003 first second quarters revenues decreased 44 2003 34 2002 decreases primarily due sale consulting services business paranet third quarter 2002 declines miscellaneous equipment sales 2002 2001 periods cable capacity sales ownership rights transoceanic cable represented less 002 02 global market division’s net operating revenues respectively transactions executed primarily global one accordance transition services agreement 2003 global markets division cable capacity sales equipment sales completed periods discussed routine nature completed support customer purchases related telecommunications services represented less 15 2 3 global market division’s net operating revenues 2003 2002 2001 periods respectively costs services products costs services products include interconnection costs paid local phone companies domestic service providers foreign phone companies complete calls made division’s domestic customers costs operate maintain long distance networks costs equipment costs services products decreased 15 2003 16 2002 2003 decrease due volume declines improving product mix initiatives reduce access unit costs favorable carrier access settlements fccmandated access rate reductions 2002 decrease result fccmandated access rate reductions decreased network operating costs derived sprint’s 2001 fourth quarter restructuring actions favorable carrier access settlements well cost containment efforts partially offset volume growth fccmandated access rate reductions took effect july 2001 july 2002 july 2003 total costs services products global markets division 531 net operating revenues 2003 561 2002 605 2001 selling general administrative expense selling general administrative sga expense decreased 9 2003 17 2002 2003 decline due reduced bad debt expense including mci formerly worldcom accounts receivable settlement restructuring efforts general cost controls partially offset costs executive separation agreements recorded second quarter 2003 longterm disability charge recorded fourth quarter 2003 2002 decrease related restructuring efforts tight management discretionary expenses reserve bad debts requires management’s judgment based customer specific indicators well historical trending industry norms recognition current market indicators general economic conditions bad debt expense percentage net revenues 14 2003 35 2002 38 2001 reductions reflect improvement collections aging recoveries previously writtenoff accounts reserve bad debt percentage outstanding accounts receivable 111 2003 149 2002 127 2001 total sga expense global markets division 279 net operating revenues 2003 275 2002 298 2001 depreciation amortization expense estimates assumptions used setting depreciable lives assumptions based internal studies use industry data lives recognition technological advancements understanding business strategy depreciation amortization expense decreased 3 2003 increased 12 2002 2003 decrease due asset impairments associated winddown web hosting business lower capital spending 2002 increase attributable increased asset base meet anticipated increases demand voice datarelated services growth initiatives increase partially offset discontinuation amortization goodwill indefinite life intangibles due adoption statement financial accounting standards sfas 142 goodwill intangible assets depreciation amortization expense 179 net operating revenues 2003 165 2002 133 2001 restructuring asset impairments 2003 fourth quarter sprint recorded restructuring charges representing severance costs associated sprint’s transformation customerfocused organization offset finalization 2001 2002 restructuring liabilities resulted expense reduction 33 million allocated global markets division 2003 third quarter fon group recorded pretax noncash charge 12 billion related writedown fair value mmds spectrum sprint’s ongoing evaluation business use asset resulted decision end pursuit residential fixed wireless strategy decision required impairment analysis asset sprint focusing efforts broad range alternative strategies sprint continuing invest spectrum monitoring technology industry developments involved efforts achieve favorable regulatory rulings respect spectrum 2003 second quarter sprint announced winddown web hosting business restructurings global markets division operations also occurred continuing effort create efficient cost structure decisions resulted pretax charges 348 million 2003 second quarter 2 million 2003 third quarter 26 million 2003 fourth quarter charge asset impairments 316 million charge employee terminations 15 million remaining 45 million accrued facility lease terminations sprint record additional winddown related charges facility lease terminations customer migration employee termination winddown costs subsequent periods sprint expects aggregate pretax charge associated winddown web hosting business approximately 440 million 2002 fourth quarter sprint recorded net restructuring charge 57 million global markets division related consolidations sprint’s network information technology billing accounts receivable organizations well additional steps reduce overall operating costs additionally recorded network asset impairment related global markets division 14 million sprint recorded net restructuring charge asset impairment 123 million related global markets division 2002 third quarter consisted 202 million charge termination highspeed data services well additional steps reduce operating costs charge partially offset 79 million adjustment finalize restructuring charge taken 2001 fourth quarter abandon ion initiative restructure operations global markets division 2001 fourth quarter actions resulted 17 billion charge global markets division taken effort better focus enterprise data internet services aggressively manage costs additional information see note 5 notes consolidated financial statements local division local division consists mainly regulated local phone companies serving approximately 79 million access lines 18 states local division provides local voice data services including digital subscriber line dsl customers within franchise territories access phone customers carriers local division’s local network nationwide long distance services residential customers located within franchise territories sales telecommunications equipment services within specified calling areas residential business customers local division provides wireless services customers franchise territories agency relationships dsl enables high speed transmission data existing copper telephone lines 2003 local division continued impacted economic environment broadband competition highspeed data consumer market competition product substitution business customers wireless substitution resulting decline access lines minutes use 2003 sprint recorded restructuring charges associated sprint’s transformation customerfocused organization offset finalization 2001 2002 restructuring liabilities actions resulted 20 million charge local division’s operations additionally 4 million asset impairment recorded related termination partnership provide video ondemand hotels local division expects small revenue decline 2004 increases revenue associated bundled services broadband sales expected offset modest decline access lines net operating revenues net operating revenues decreased 2 2003 less 1 2002 slight decrease years due declines long distance fewer access lines declines equipment sales partially offset increase networkbased services dsl services local division ended 2003 79 million switched access lines decrease 22 prior year access lines decreased 17 2002 decreases 2003 2002 driven wireless broadband substitution losses competitive local providers economic environment reduction access lines expected continue although sprint expects ongoing rate line loss less loss rates experienced major carriers voice revenues voice revenues derived local exchange services long distance revenue switched access revenue decreased 3 2003 1 2002 due lower long distance minutes use decrease access lines partially offset demand networkbased services driven success bundled offerings data revenues data revenues mainly derived dsl local data transport services special access data revenues increased 14 2003 2002 mainly result strong growth dsl services revenues decreased 7 2003 6 2002 decreases driven decline equipment sales 10 2003 14 2002 decreases equipment sales result planned shift focus selling higher margin products reduction customer demand equipment costs services products costs services products include costs operate maintain local network costs equipment sales costs flat 2003 decreased 3 2002 2003 general expense controls lower costs associated long distance revenues offset higher pension costs 2002 decrease driven mainly reduction reciprocal compensation expense lower costs associated long distance revenues reduced volume equipment sales decline taxes due changes certain state tax laws costs services products 317 net operating revenues 2003 311 2002 318 2001 selling general administrative expense sga expense increased 2 2003 2002 sga decreased 1 despite increases bad debt expense 2003 increase driven longterm disability charge recorded fourth quarter executive separation agreements higher pension costs somewhat offset general cost controls lower bad debt expense reserve bad debt requires management’s judgment based historical trending industry norms recognition current market indicators general economic conditions bad debt expense percentage net revenues 09 2003 26 2002 25 2001 reserve bad debt expense percent outstanding accounts receivable 86 2003 139 2002 69 2001 2003 local division experienced continued improvement bad debt experience end user customers well recoveries previously written accounts principally mci formerly worldcom 2002 improved bad debt experience end user customers offset need establish reserves certain competitive local exchange carriers long distance companies including worldcom mci financial difficulties sga expense 211 net operating revenues 2003 203 2002 203 2001 depreciation amortization expense estimates assumptions used setting depreciable lives assumptions based internal studies use industry data lives recognition technological advancements understanding business strategy depreciation amortization expense decreased 6 2003 increased 3 2002 2003 decrease driven implementation sfas 143 accounting asset retirement obligations eliminated accrual removal cost depreciable rate well declines circuit switching depreciation rates due revised schedule converting digital packet network information implementation sfas 143 see note 4 notes consolidated financial statements 2002 increase reflects capital spending support voicegrade equivalent growth service improvements ongoing build dsl services depreciation amortization expense 177 net operating revenues 2003 185 2002 178 2001 restructuring asset impairment 2003 fourth quarter sprint recorded restructuring charges representing severance costs associated sprint’s transformation customerfocused organization offset finalization 2001 2002 restructuring liabilities net charges local division related items 20 million 4 million asset impairment also recorded local division related termination partnership provide video ondemand hotels 2002 fourth quarter sprint recorded restructuring charge representing consolidations sprint’s network information technology billing accounts receivable organizations well additional steps reduce overall operating costs decision resulted charge 53 million local division fourth quarter 2001 sprint announced plans take steps improve competitive position reduce operating costs business units comprise fon group efforts included consolidation streamlining marketing network operations well streamlining corporate support functions decision resulted charge 109 million associated severance costs work force reductions contractual obligations 2002 third quarter sprint performed analysis finalize restructuring estimates recorded 2001 fourth quarter analysis resulted recognition additional charge 3 million recorded 2002 third quarter additional information see note 5 notes consolidated financial statements businesses consist primarily wholesale sales telecommunications equipment net operating revenues 840 million 2003 863 million 2002 1206 million 2001 nonaffiliated revenues accounted 35 revenues 2003 declined 5 capital spending continued decline telecommunications industry operating expenses decreased 2 2003 24 2002 driven reduced cost services products operating loss 2003 2002 32 million 23 million respectively operating income 34 million 2001 2004 sprint plans continue leverage webenabled capabilities improve revenues expand value added services pcs group pcs group operates 100 digital pcs wireless network licenses provide service entire united states population including puerto rico us virgin islands using single frequency band single technology pcs group together third party affiliates operates pcs systems 300 metropolitan markets including 100 largest us metropolitan areas pcs group’s service including third party affiliates reaches quarter billion people pcs group combined wholesale affiliate partners served 20 million customers end 2003 pcs group provides nationwide service combination • operating digital network major us metropolitan areas using code division multiple access cdma digital spreadspectrum wireless technology allows large number users access single frequency band assigning code speech bits sending scrambled transmission encoded speech air reassembling speech original format • affiliating companies use cdma mainly around smaller us metropolitan areas • roaming providers’ analog cellular networks using multimode multiband handsets • roaming providers’ digital networks use cdma sprint pcs customers use phones roaming agreements countries united states including areas • asia pacific including china guam hong kong new zealand • canada mexico • central south america including argentina bolivia chile colombia ecuador guatemala paraguay uruguay • major caribbean islands sprint launched nationwide third generation 3g capability 2002 third quarter capability allows efficient utilization network voice calls made using 3genabled handsets also provides enhanced data services service marketed “pcs vision” allows consumer business customers use visionenabled pcs devices exchange instant messages exchange personal corporate email take send receive pictures play games fullcolor graphics polyphonic sounds browse internet wirelessly speeds 144 kbps average speeds 50 70 kbps pcs group supplements network affiliation arrangements companies use cdma arrangements companies offer pcs services using sprint’s spectrum sprint brand name cdma networks built operated expense several affiliates experiencing financial difficulties evaluating completed restructuring activities two affiliates filed bankruptcy protection made claims us bankruptcy courts one affiliate filed suit us several affiliates disputing refusing pay amounts owed sprint reserves established expected provide ultimate resolution disputes sprint negotiations affiliates regarding restructuring relationship sprint reached agreements several affiliates including two largest completed restructuring activities sprint amended existing agreements provide simplified pricing mechanism well refining changing various business processes amended agreements cover approximately 40 customers served affiliates agreements provide simplified predictable longterm pricing service bureau fees stability rates charged interarea service fees addition sprint companies settled significant outstanding disputes revised terms agreements expected immaterial impact future pcs group results pcs group may incur additional expenses ensure service available customers areas served affiliates pcs group affiliates cease operations pcs group may incur roaming charges areas service previously provided affiliates costs meet fcc buildout renewal requirements well experience lower revenues pcs group also provides wireless services companies resell wireless services customers retail basis brand companies bear costs acquisition billing customer service 2003 third quarter sprint executed five year wholesale agreement qwest communications qwest whereby qwest wireless subscribers use sprint’s national pcs network access sprint branded vision data services qwest continue provide sales service support wireless customers including promotion sale handsets price plans well provide customer service including billing account information sprint serve exclusive provider qwest wireless services resale markets served pcs group transition customers pcs network begin early 2004 wireless industry including pcs group typically generates higher number subscriber additions handset sales fourth quarter year compared quarters due use retail distribution dependent holiday shopping season timing new products service introductions aggressive marketing sales promotions pcs group made progress improving operating service measures 2003 pcs group exited year 5 increase net operating revenues 76 million improvement operating income 2004 sprint expects pcs group grow customer base continuing make strides towards customercentric organization competitive pressure price expected continue expected partially offset increased usage revenues pcs vision services including data email instant messaging taking sending receiving photographs games internet browsing ready link twoway walkietalkiestyle communication sprint leader wireless data onethird pcs customer base subscribing 3g network continue evaluate next generation wireless high speed data network options ensure maintain leadership position well support integration strategies pcs group markets products multiple distribution channels including retail stores well retail outlets equipment sales one retail chain subsequent service revenues generated sales customers accounted 21 net operating revenues 2003 22 2002 24 2001 net operating revenues average monthly service revenue per user arpu calculated dividing wireless service revenues weighted average monthly wireless subscribers measure uses gaap basis calculation arpu used wireless companies method valuing recurring activity measuring revenue per user basis analysts investors primarily use arpu compare relative value across wireless industry net operating revenues include service revenues sales handsets accessory equipment service revenues consist monthly recurring charges usage charges pro rata portion activation fees miscellaneous fees directory assistance operatorassisted calling handset insurance late payment charges 2003 sprint saw increased pricing pressures lower overage charges usagebased plans offset customers subscribing higher usage service plans increased revenues data services increased fees average monthly usage 2003 13 hours compared 10 hours 2002 end period onethird customer base using data services compared approximately 20 end 2002 pcs group 11 million postpaid retail customer additions 2003 end year 159 million customers resellers added 12 million customers 2003 increasing customer base 16 million 415000 2002 principally due virgin mobile usa pcs group third party affiliates added 297000 customers 2003 brings total number customers served pcs network including postpaid retail affiliate resale customers approximately 204 million 300 metropolitan markets nationwide 2003 yearend 2003 nearly 37 percent new postpaid retail customers chose include pcs vision service package service revenues increased 6 2003 mainly reflecting increase number direct customers increased revenue wholesale affiliate partners stable arpu service revenues increased 27 2002 mainly reflecting increase number customers stable arpu 2002 increased pricing pressures offset customers subscribing higher usage service plans increased miscellaneous fees 2001 late payment fees 2002 pcs group 12 million postpaid retail customer additions 2002 end year 148 million customers resellers added 196000 customers 2002 increased customer base 415000 219000 2001 principally due virgin mobile usa pcs group third party affiliates added 544000 customers 2002 bringing total number customers served pcs network including postpaid retail affiliates resale customers 177 million customer churn calculated dividing customers discontinued pcs service weighted average subscribers period operational measure used wireless companies method estimating life customer analysts investors primarily use churn compare relative value across wireless industry 2003 customer churn rate decreased 27 33 2002 slight increase 26 2001 2003 improvement primarily due reduction involuntary churn rate pcs group benefited effective customer retention programs credit management policies initiated 2002 fourth quarter improvement partially offset slight increase voluntary churn due part institution wlnp fourth quarter 2003 2002 increase resulted primarily companyinitiated churn largely associated deactivation clear pay customers well slight increase voluntary churn rate november 2003 wlnp instituted 100 largest markets across united states pcs group experienced increase churn december following wlnp implementation fourth quarter impact net additions immaterial intend implement wlnp beyond 100 largest markets may 2004 vast majority pcs customers resident 100 largest markets wlnp already available revenues sales handsets accessories including new customers upgrades approximately 90 net operating revenues 2003 100 2002 118 2001 declines mainly due higher rebates lower gross additions part pcs group’s marketing plans handsets net rebates usually sold prices cost service revenues consist net fees collected affiliates network operation customer maintenance also include revenues wholesale pcs services companies resell customers retail basis revenues represented 26 net operating revenues 2003 18 2002 29 2001 2003 increase mainly reflects net additions affiliate base wholesale customer base virgin mobile usa 2002 decrease primarily due discontinuation specific reseller program pcs group assesses access charges long distance carriers termination landline originated calls though regulations generally entitle carrier terminates call behalf another compensated providing service regulations developed period services nature provided exclusively local exchange carriers many long distance carriers disputed pcs group’s assessment charges well corresponding rate charges determined july 2002 fcc released ruling affirming nothing prohibited wireless carriers imposing access charges use networks however fcc also stated interexchange carriers could unilaterally required pay charges without contractual obligation fcc referred dispute back federal district court western district missouri determination whether pcs group stated claim missouri state law case still pending fcc ruling affirmed dc circuit court appeals light ruling 2002 second quarter pcs group recorded additional provision outstanding receivables related amounts previously billed cost services products pcs group’s costs services products mainly include handset accessory costs switch cell site expenses customer service costs networkrelated costs increased 6 2003 9 2002 increases primarily due network support larger customer base higher minutes use expanded market coverage increased handset unit costs increases somewhat offset decreases customer service expense handset equipment costs 39 total costs services products 2003 2002 37 2001 costs services products 485 net operating revenue 2003 479 2002 544 2001 selling general administrative expense sga expense mainly includes marketing costs promote products services well salary benefit costs sga expense decreased 8 2003 compared increase 17 2002 2003 decrease primarily due decline bad debt expense due better credit class mix leading lower writeoffs higher recovery decrease partially offset increases sales marketing costs due competitive market conditions expanded direct sales presence executive separation agreements 2002 increase reflects increased marketing selling costs associated pcs vision launch increased bad debt expense sga expense 247 net operating revenues 2003 283 2002 300 2001 bad debt expense percentage net operating revenues 23 2003 51 2002 39 2001 reserve bad debt percent outstanding accounts receivable 73 2003 94 2002 91 2001 2003 improvements mainly driven credit management policies initiated 2002 fourth quarter resulting lower involuntary churn improved receivables aging depreciation amortization expense estimates assumptions used setting depreciable lives assumptions based internal studies use industry data lives recognition technological advancements understanding business strategy depreciation amortization expense consists mainly depreciation network assets amortization intangible assets definite life intangible assets include various customer bases became fully amortized august 2002 depreciation amortization expense increased 10 2003 5 2002 mainly reflecting depreciation network assets placed service 2002 2003 amortization goodwill indefinite life intangibles ceased upon adoption sfas 142 january 1 2002 depreciation amortization expense 196 net operating revenues 2003 188 2002 221 2001 restructuring asset impairment 2003 pcs group recorded asset impairments 349 million primarily related termination development new billing platform pcs group also recorded restructuring charge 13 million severance costs associated sprint’s transformation customerfocused organization contractual obligations related terminated development new billing platform offset finalization 2001 2002 restructuring activities 2002 pcs group recorded restructuring charge 78 million representing consolidations sprint’s network information technology billing accounts receivable organizations well reductions create competitive cost structure reducing operating expenses additionally pcs group recorded asset impairment 42 million representing abandoned network projects 2002 pcs group incurred 18 million charge associated closing five pcs customer solution centers well additional steps reduce operating costs pcs business units 2001 sprint consolidated streamlined marketing network operations well streamlined corporate support functions resulted charge 10 million pcs group associated severance costs termination contractual obligations additional information see note 5 notes consolidated financial statements nonoperating items interest expense effective interest rates following table reflect interest expense longterm debt interest costs shortterm borrowings interest costs deferred compensation plans excluded distort effective interest rates longterm debt see “liquidity capital resources” information sprint’s financing activities effective interest rate includes effect interest rate swap agreements see note 3 notes consolidated financial statements details regarding interest rate swaps sprint’s effective interest rate longterm debt increased 2003 due retirement fixedrate debt lower interest rates effective interest rate increased 2002 due additional fixedrate debt higher interest rates allocation group financing activities groups managed sprint centralized basis debt incurred sprint behalf groups specifically allocated reflected financial statements applicable group interest expense allocated pcs group based interest rate substantially equal rate would able obtain third parties direct indirect wholly owned sprint subsidiary without benefit guarantee sprint member fon group interest rate higher rate sprint obtains borrowings difference sprint’s actual interest rate charged pcs group reflected reduction fon group’s interest expense totaled 374 million 2003 336 million 2002 288 million 2001 amounts reflected “intergroup interest charge” consolidated statements operations fon group earned intergroup interest income pcs group incurred intergroup interest expense 15 million 2001 primarily related fon group’s ownership pcs group debt securities sprint redeemed securities 2001 fourth quarter result redemption fon group recognized 11 million pretax gain nonoperating income pcs group recorded 11 million pretax loss premium early retirement debt sprint’s centralized cash management program one group may advance funds group advances accounted shortterm borrowings groups bear interest market rate substantially equal rate group would able obtain third parties shortterm basis allocation group financing activities may change discretion sprint board require shareholder approval discount premium early retirement debt third quarter 2003 sprint recorded net premium 2 million due early retirement 118 million debt primarily consisting local division’s first mortgage bonds debt interest rates ranging 57 93 maturity dates ranging 2003 2021 march 2003 sprint completed tender offer purchase 442 million principal amount current senior notes scheduled maturity notes interest rate 57 maturity date november 15 2003 premium 6 million paid part tender offer also march 2003 sprint completed tender offer purchase 635 million principal amount longterm senior notes scheduled maturity notes interest rate 59 maturity date may 1 2004 premium 13 million paid part tender offer 2002 sprint repurchased scheduled maturities 67 million debt allocated fon group borrowings interest rates ranging 60 71 resulted discount sprint 4 million 2001 sprint redeemed scheduled maturities 18 million debt allocated fon group 558 million debt allocated pcs group borrowings interest rates ranging 99 125 resulted discount 6 million sprint income expense net income expense net consisted following dividend interest income years reflects dividends earned cost method investments interest earned temporary investments beginning january 2002 callnet began making royalty payment 25 revenues sprint currently approximately 3 million per quarter equity net losses affiliates 2003 primarily driven pcs group’s investment virgin mobile usa sprint made additional investment 20 million virgin mobile usa 2003 immediately recognized equal amount losses associated additional investment 2003 decrease primarily lower equity loss pickups related pegaso due 2002 sale investment offset equity losses virgin mobile usa 2002 equity net losses affiliates driven pcs group’s investment virgin mobile usa pegaso fon group’s investment callnet sprint made additional investment 16 million callnet 2002 second quarter immediately recognized equal amount losses associated investment 2002 decrease due reduction equity losses following writedown investment intelig sale pegaso partially offset virgin mobile usa callnet losses 2001 equity net losses affiliates driven pcs group’s investment pegaso fon group’s investment intelig first quarter 2001 sprint modified relationship earthlink resulted investment common stock longer accounted using equity method net losses investments 2003 driven loss sale earthlink shares 2002 losses mainly consist writedown earthlink preferred shares market value net losses investments 2001 mainly include 162 million writedown equity investment intelig 25 million loss partial sale earthlink shares gains sales assets 2002 driven sale sprint’s investment pegaso certain customer contracts stock received company’s demutualization gains sales assets 2001 resulted sale pcs customers pcs third party affiliate benefit plan curtailment gain 2001 resulted amendment certain medical retirement plan benefits 2003 first quarter sprint recorded 50 million net charge settle shareholder litigation 2003 third fourth quarters sprint recorded 17 million 18 million credit respectively insurance settlements related action see note 16 notes consolidated financial statements additional information income taxes sprint’s consolidated effective tax rates 411 2003 88 2002 318 2001 see note 14 notes consolidated financial statements information differences caused effective income tax rates vary statutory federal rate income taxes related continuing operations discontinued operations net 2002 third quarter sprint reached definitive agreement sell directory publishing business rh donnelley 223 billion cash sale closed january 3 2003 pretax gain recognized 2003 214 billion 132 billion tax financial condition sprint’s consolidated assets decreased 24 billion 2003 cash equivalents increased 14 billion due improved operating cash flows reduced capital expenditures sale sprint’s directory publishing business rh donnelley 2003 first quarter connection gain recognized sale sprint utilized nearly 800 million deferred tax assets net property plant equipment decreased 15 billion capital expenditures offset depreciation expense asset impairments spectrum licenses declined due impairment charge 12 billion related writedown fair value sprint’s mmds spectrum sprint debttototalcapital ratio 587 yearend 2003 versus 637 yearend 2002 rating agencies generally give form equity treatment equity unit notes determining debttototalcapital ratios assuming sprint equity unit notes treated 80 equity 20 debt ratio would 545 yearend 2003 versus 597 yearend 2002 accordingly debttototalcapital ratio sprint calculated defining “debt” shortterm borrowings longterm debt capital lease obligations 20 equity unit notes carrying amount total capital defined “debt” plus remaining 80 equity unit notes value redeemable preferred stock total shareholders’ equity see “liquidity capital resources” information changes sprint’s consolidated balance sheets liquidity capital resources sprint’s board directors exercises discretion regarding liquidity capital resource needs business segments includes ability prioritize use capital debt capacity determine cash management policies make decisions regarding timing amount capital expenditures operating activities operating cash flows increased 336 million 2003 16 billion 2002 2003 increase mainly due growth pcs group partially offset higher working capital requirements fon pcs groups 2002 increase driven mainly growth pcs group cost controls reductions work force fon group mitigated revenue erosion seen global market division receipt 480 million tax refunds generated economic stimulus bill passed 2002 first quarter also contributed increase 2002 increase partially offset higher working capital requirements investing activities fon group’s capital expenditures totaled 17 billion 2003 22 billion 2002 53 billion 2001 global markets division capital expenditures incurred mainly enhance network reliability upgrade capabilities providing new products services local division incurred capital expenditures accommodate voicegrade equivalent growth maintain improve service delivery capabilities expand capabilities providing enhanced services convert network circuit next generation packet switching continue buildout highspeed dsl services decline fon group capital expenditures driven mainly termination sprint ion 2001 reduced spending datarelated services pcs group capital expenditures totaling 22 billion 2003 27 billion 2002 38 billion 2001 incurred increase capacity expand coverage 2002 2001 amounts also include approximately 100 million 600 million respectively expenditures related deployment 3g technology launched nationwide 2002 network efficiencies gained 3g technology contributed lower capital requirements 2003 investing activities also include contributions 32 million virgin mobile usa 2003 proceeds 116 million due sales dissolutions investments 2002 contributions 66 million earthlink virgin mobile usa intelig svc bidco lp pegaso 2001 see note 2 notes consolidated financial statements information investments additionally investing activities include proceeds sales assets totaling 101 million 2003 138 million 2002 301 million 2001 2003 investing activities mainly include proceeds partial sale fon group’s investment earthlink stock proceeds sale certain network administrative assets 2002 investing activities mainly include proceeds sale pcs group’s investment pegaso fon group’s sale certain customer contracts investment securities administrative assets 2001 activities mainly include proceeds sale pcs customers affiliate certain network administrative assets financing activities financing activities mainly reflect 29 billion reduction debt 2003 642 million reduction 2002 compared net borrowing 40 billion 2001 reduction debt requirements 2003 2002 due sprint’s continuing operating cash flow improvement reduced capital expenditures proceeds sale sprint’s directory publishing business 2003 first quarter 2001 cash provided financing activities used mainly fund capital investments working capital requirements financing activities also reflect net proceeds issuance common stock 12 million 2003 3 million 2002 608 million 2001 sprint paid dividends 457 million 2003 454 million 2002 451 million 2001 also included financing activities proceeds options exercised sprint’s employee stock benefit plans debt issuance costs financing activities 24 million 2003 50 million 2002 16 million 2001 capital requirements sprint’s 2004 investing activities mainly consisting capital expenditures expected total approximately 40 billion fon group capital expenditures expected 16 billion expenditures primarily support growth demand enterprise services also include investments broadband initiatives phased transition circuit packet switching pcs group capital expenditures expected 24 billion investments targeted largely network capacity coverage sprint continues review capital expenditure requirements closely adjust spending capital investment concert growth dividend payments expected approximately 670 million 2004 including impact recombination tracking stocks april 2004 sprint expects overall cash operations 65 billion 2004 36 billion fon group 29 billion pcs group 1998 sprint adopted tax sharing agreement providing allocation income taxes fon group pcs group agreement expired 2001 tax year sprint adopted continuation tax sharing arrangement except elimination provisions addressing certain types acquisitions restructurings never became operable original arrangement sprint expects fon group continue make significant payments pcs group arrangement expected pcs group tax losses near future using pcs group’s tax loss carryforwards payments reflect pcs group’s incremental cumulative effect sprint’s consolidated federal state tax liability tax credit position pcs group received payments fon group totaling 11 billion 2003 includes 700 million connection gain sale sprint’s directory publishing business 360 million 2002 292 million 2001 see note 1 notes consolidated financial statements “intergroup transactions allocationsallocation federal state income taxes” details liquidity recent years sprint used longterm bond market well financial markets fund needs result improved liquidity position sprint currently expect borrow funds capital markets 2004 fund capital expenditures operating working capital requirements january 2003 sprint closed 223 billion cash sale directory publishing business rh donnelley june 2003 sprint entered new revolving credit facility syndicate banks 10 billion facility unsecured springing liens structured 364day credit line subsequent oneyear 10 billion termout option sprint intend draw facility sprint standby letters credit serving backup various obligations approximately 134 million yearend 2003 sprint pcs group accounts receivable asset securitization facility provides sprint 500 million additional liquidity facility expires 2005 subject annual renewals include ratings triggers would allow lenders involved terminate facility event credit rating downgrade maximum amount funding available based numerous factors fluctuates month sprint drawn facility slightly 223 million available yearend 2003 sprint also global markets division accounts receivable asset securitization facility provides sprint 700 million additional liquidity facility expires 2005 subject annual renewals include ratings triggers would allow lenders involved terminate facility event credit rating downgrade maximum amount funding available based numerous factors fluctuates month february 2003 sprint prepaid outstanding borrowings facility december 31 2003 sprint 468 million total funding available facility undrawn loan facilities described interest rates equal libor prime rate plus spread varies depending sprint’s credit ratings debt maturities including capital lease obligations 2004 total 594 million sprint’s 24 billion cash balance december 31 2003 expected net cash provided operating activities continuing operations excess capital requirements 20 billion 2004 fund requirements borrowings sprint may incur ultimately limited certain debt covenants sprint could borrow additional 67 billion yearend 2003 restrictive debt covenants restrictive covenant contained new revolving credit facility referenced exhibit 10c annual report form 10k limits debt defined agreement multiple income adjusted various items set forth agreement restrictive covenant contained pcs group global markets division accounts receivable asset securitization facilities sprint currently compliance debt covenants associated borrowings sprint completed tender offers repurchase senior notes march 2003 amount 11 billion repaid scheduled maturities 118 million debt primarily consisting local division’s first mortgage bonds 2003 third quarter september 2003 sprint repaid 300 million export development canada loan sprint continually evaluates various factors result may repurchase additional debt future december 2002 sprint repurchased longterm debt amount 67 million march 2002 sprint issued 5 billion debt securities borrowings interest rates ranging 79 88 maturities ranging 2005 2032 proceeds allocated 5 fon group 95 pcs group used extinguish outstanding commercial paper general corporate purposes fitch ratings fitch currently rates sprint’s longterm senior unsecured debt bbb stable outlook standard poor’s corporate ratings standard poor’s currently rates sprint’s longterm senior unsecured debt bbb stable outlook june 2003 moody’s investors service moody’s raised sprint’s outlook stable moody’s currently rates sprint’s longterm senior unsecured debt baa3 sprint’s ability fund capital needs ultimately impacted overall capacity terms bank termdebt equity markets given volatility markets sprint continues monitor markets closely take steps maintain financial flexibility reasonable capital structure cost remarketing equity unit notes discussed note 9 notes consolidated financial statements sprint currently plans access markets extension replacement renewal current credit arrangements december 31 2003 sprint’s contractual obligations summarized fully disclosed notes 2 7 8 9 10 16 sprint’s consolidated financial statements unconditional purchase obligations fon group minimum purchase commitments various vendors 2009 outstanding commitments yearend 2003 approximately 12 billion outstanding commitments consist primarily network equipment maintenance access commitments information technology services advertising marketing expenses related normal business operations pcs group minimum purchase commitments various vendors 2008 outstanding commitments yearend 2003 approximately 18 billion outstanding commitments consist primarily network equipment maintenance handset purchases access commitments information technology services customer support provided third parties advertising marketing expenses related normal business operations offbalance sheet financing sprint participate secure financings unconsolidated special purpose entities regulatory developments see legislative regulatory developments part filing financial strategies general risk management policies sprint selectively enters interest rate swap agreements manage exposure interest rate changes debt sprint also enters forward contracts options foreign currencies reduce impact changes foreign exchange rates sprint seeks minimize counterparty credit risk stringent credit approval review processes selection creditworthy counterparties continual review monitoring counterparties thorough legal review contracts sprint also controls exposure market risk regularly monitoring changes foreign exchange interest rate positions normal stress conditions ensure exceed established limits sprint’s derivative transactions used principally hedging purposes comply boardapproved policies senior management receives frequent status updates outstanding derivative positions interest rate risk management fair value hedges sprint enters interest rate swap agreements manage exposure interest rate movements achieve optimal mixture floating fixedrate debt minimizing liquidity risk interest rate swap agreements designated fair value hedges effectively convert sprint’s fixedrate debt floating rate receiving fixed rate amounts exchange floating rate interest payments life agreement without exchange underlying principal amount 2003 sprint entered interest rate swap agreements designated fair value hedges cash flow hedges sprint enters interest rate swap agreements designated cash flow hedges reduce impact interest rate movements future interest expense effectively converting portion floatingrate debt fixedrate december 31 2003 sprint outstanding interest rate cash flow hedges derivatives certain business transactions sprint granted warrants purchase securities companies fixed rates warrants supplemental terms business transaction designated hedging instruments 2002 2003 sprint entered variable prepaid forward contracts monetize equity securities held available sale derivatives designated cash flow hedges reduce variability expected cash flows related forecasted sale underlying equity securities foreign exchange risk management sprint’s foreign exchange risk management program focuses reducing transaction exposure optimize consolidated cash flow sprint’s primary transaction exposure results payments made received overseas telecommunications companies completing international calls made sprint’s domestic customers operation international subsidiaries international operations material consolidated financial position results operations cash flows yearend 2003 sprint entered significant foreign currency forward contracts derivative instruments reduce effects adverse fluctuations foreign exchange rates result sprint subject material foreign exchange risk recently issued accounting pronouncements december 2003 financial accounting standards board revised sfas 132 employers’ disclosures pensions postretirement benefits statement adds disclosures required sfas 132 effective 2003 yearend financial statements additional disclosures required types assets plan investment policies plan obligations plan contributions defined benefit pension plans defined benefit postretirement plans interim periods beginning december 15 2003 additional disclosures required net periodic benefit cost plan contributions guidance change requirements measurement recognition pension postretirement benefit plans prescribed sfas 87 employers’ accounting pensions sfas 88 employers’ accounting settlements curtailments defined benefit pension plans termination benefits sfas 106 employers’ accounting postretirement benefits pensions sprint adopted statement effective december 31 2003 see note 13 notes consolidated financial statements sprint’s discussion pension postretirement benefits item 7a item 7 managements discussion analysis financial condition results operations information required item 7 incorporated reference annex ii annex iii included herein item 7a item 7 managements discussion analysis financial condition results operations overview business overview sprint communications company offering comprehensive range wireless wireline communications products services designed meet needs individual consumers businesses government subscribers resellers unless context otherwise requires references sprint us company mean sprint corporation consolidated subsidiaries periods presented inclusive successor predecessor periods references sprint communications sprint communications inc consolidated subsidiaries wireless segment earnings represented almost total consolidated segment earnings year ended march 31 2016 within wireless segment postpaid wireless service revenue represents significant contributor earnings driven number postpaid subscribers services well average revenue per user arpu strategies key priorities business strategy responsive changing customer mobility demands existing potential customers expand business new areas customer value economic opportunity innovation differentiation help lay foundation future growth opportunities strategy revolves around targeted investment following key priority areas • provide network delivers consistent reliability capacity speed customers demand • achieve competitive cost position industry simplification • increase subscriber acquisition retention reduce churn • create alternative financial structure fuel growth maximize shareholder value • attract retain best talent industry • deliver simplified improved customer experience achieve key priorities focusing following initiatives provide network delivers consistent reliability capacity speed customers demand expect continue optimize 3g data network invest lte deployment across spectrum bands also expect deploy new technologies help strengthen competitive position including expected use voice lte extensive use wifi use small cells densify network achieve competitive cost position established office cost management responsibility identifying operationalizing monitoring sustained improvements operating costs efficiencies also deployed new cost management planning tools across entire organization effectively monitor expenditures focused attracting retaining subscribers improving sales marketing initiatives expanded direct retail store presence relationship radioshack well direct service brings sprint store experience customers demonstrated value proposition new price plans promotions payment programs deployed new local marketing civic engagement initiatives key markets alternative financial structure consists transactions leverage assets handset saleleaseback tranche 1 entered november 2015 network equipment saleleaseback handset saleleaseback tranche 2 new unsecured financing facility recently executed described detail liquidity capital resources addition continue identify funding sources potential monetization certain spectrum holdings certain real estate addition office cost management commenced major cost cutting initiatives reduce operating expenses improve operating cash flows seek build stronger management team attracting new outside talent world class experience credentials retaining selected members incumbent management team recently began operating regional model put key leadership closer customers allow us better serve four geographic areas comprised seventeen regions deliver simplified improved customer experience focusing key subscriber touch points pursuing process improvements deploying platforms simplify enhance interactions us customers addition established customer experience office support focus net promoter score key measure customer satisfaction network continue take advantage deep spectrum position deploy 4g lte plus network lte plus currently available 200 markets leveraging carrier aggregation beamforming better data performance deep 25ghz holdings allow us dedicate spectrum deploy 60mhz wide channels even faster data speeds plan densify network use small cell technology femto cells inbuilding solutions repeaters well continuing use traditional macro sites approach builds foundation deployment 5g wireless technology future continuing enhance customer experience adding data capacity increasing wireless data speeds available customers improving network coverage voice data services continue refine network strategy evaluate potential network initiatives may incur future material charges associated lease access exit costs loss asset dispositions accelerated depreciation among others shentel transaction august 10 2015 shenandoah telecommunications company shentel entered definitive agreement acquire one wholesale partners ntelos holdings corp ntelos connection definitive agreement entered series agreements shentel subject regulatory approval among things acquire certain assets spectrum terminate existing wholesale arrangement ntelos amend existing affiliate agreement shentel include among things subscribers formerly wholesale arrangement ntelos agreements also expand area shentel provides wireless service sprint customers provide favorable economic terms april 2016 received regulatory approval transaction closed may 2016 total consideration transaction included approximately 195 million net present value basis notes payable shentel sprint satisfy obligations notes payable expected term five six years approximately 110 million total purchase price recorded loss quarter ended june 30 2016 related termination preexisting wholesale arrangement ntelos results operations july 9 2013 sprint nextel corporation sprint nextel completed acquisition remaining equity interests clearwire corporation consolidated subsidiary clearwire communications llc together clearwire previously clearwire acquisition cash transaction july 10 2013 softbank corp subsequently changed name softbank group corp certain whollyowned subsidiaries together softbank completed merger softbank merger sprint nextel contemplated agreement plan merger dated october 15 2012 amended merger agreement bond purchase agreement dated october 15 2012 amended bond agreement result softbank merger starburst ii became parent company sprint nextel immediately thereafter starburst ii changed name sprint corporation sprint nextel changed name sprint communications inc result transactions assets liabilities sprint communications clearwire adjusted estimated fair value respective closing dates companys financial statement presentations distinguish predecessor period predecessor relating sprint communications periods prior softbank merger successor period successor relating sprint corporation formerly known starburst ii periods subsequent incorporation starburst ii october 5 2012 successor financial information includes activity accounts sprint corporation includes activity accounts starburst ii prior close softbank merger july 10 2013 sprint communications inclusive consolidation clearwire corporation prospectively following completion softbank merger beginning july 11 2013 postmerger period accounts operating activity starburst ii prior close softbank merger primarily related merger expenses incurred connection softbank merger recognized selling general administrative expense interest related 31 billion bond sprint communications inc issued starburst ii predecessor financial information represents historical basis presentation sprint communications periods prior softbank merger result softbank merger order present managements discussion analysis way offers investors meaningful period comparison addition presenting discussing historical results operations reported consolidated financial statements accordance accounting principles generally accepted united states us gaap combined 2013 predecessor financial information 2013 successor financial information unaudited combined basis combined unaudited combined data consists predecessor information 191day period ended july 10 2013 successor information year ended december 31 2013 combined information year ended december 31 2013 comply us gaap intended represent consolidated results operations would successor actually formed january 1 2013 acquired predecessor date made attempt either include exclude expenses income would resulted softbank merger actually occurred january 1 2013 us gaap discussion analysis following discussion covers results successor years ended march 31 2016 compared march 31 2015 successor years ended march 31 2015 compared december 31 2013 successor threemonth transition period ended march 31 2014 compared unaudited threemonth predecessor period ended march 31 2013 results successor threemonth period ended march 31 2013 considered insignificant comparable successor year ended december 31 2013 threemonth transition period ended march 31 2014 successor entity established october 5 2012 sole purpose completing softbank merger results threemonth period ended march 31 2013 primarily reflected merger expenses incurred recognized selling general administrative expense interest income related 31 billion bond issued connection softbank merger provided information regarding certain elements acquisition method accounting affecting successor period ended december 31 2013 transition period ended march 31 2014 results enable comparability supplemental discussion analysis results successor year ended march 31 2015 compared unaudited combined year ended december 31 2013 also discussed extent necessary provide analysis results comparable periods although basis presentation may comparable due application acquisition method accounting additionally certain sections discuss activity predecessor 191day period ended july 10 2013 extent provides useful information activity period acquisition method accounting effects successor periods ending march 31 2014 transition period december 31 2013 allocation consideration transferred assets acquired liabilities assumed based estimated fair values date softbank merger described notes consolidated financial statements result following estimated impacts purchase price accounting included results operations successor threemonth transition period ended march 31 2014 year ended december 31 2013 • reduced postpaid wireless revenue wireless cost service approximately 29 million 59 million successor threemonth transition period ended march 31 2014 year ended december 31 2013 respectively result purchase accounting adjustments deferred revenue deferred costs • reduced prepaid wireless revenue approximately 96 million successor year ended december 31 2013 result purchase accounting adjustments eliminate deferred revenue • increased rent expense 29 million 55 million successor threemonth transition period ended march 31 2014 year ended december 31 2013 respectively included cost service primarily attributable writeoff deferred rents associated operating leases offset amortization net unfavorable leases recorded purchase accounting • increased cost products sold approximately 31 million successor year ended december 31 2013 result purchase accounting adjustments accessory inventory • reduced depreciation expense approximately 60 million 400 million successor threemonth transition period ended march 31 2014 year ended december 31 2013 respectively result purchase accounting adjustments reflecting net decrease property plant equipment • incremental amortization expense approximately 359 million 772 million successor threemonth transition period ended march 31 2014 year ended december 31 2013 respectively primarily attributable recognition customer relationships approximately 69 billion • decrease pension expense approximately 22 million 46 million successor threemonth transition period ended march 31 2014 year ended december 31 2013 respectively primarily reflected selling general administrative expense due purchase accounting adjustment unrecognized net periodic pension postretirement benefits predecessor 191day period ended july 10 2013 significant changes underlying trends affecting companys consolidated results operations net loss 191 days ended july 10 2013 follows • recorded gain previouslyheld clearwire equity interests approximately 29 billion difference estimated fair value equity interests owned prior acquisition 500 per share offer price less estimated control premium approximately 060 carrying value approximately 325 million previouslyheld equity interests • increased income tax expense primarily attributable taxable temporary differences result 29 billion gain previouslyheld equity interests clearwire principally attributable increase fair value federal communications commission fcc licenses held clearwire amortization fcc licenses fcc licenses amortized 15 years income tax purposes licenses indefinite life amortized financial statement reporting purposes consolidated results operations following table provides overview consolidated results operations 1 net year ended march 31 2016 excludes 321 million related losses disposal property plant equipment included wireless segment earnings depreciation expense successor year ended march 31 2016 successor year ended march 31 2015 depreciation expense increased 20 billion 53 year ended march 31 2016 compared period 2015 primarily due depreciation leased devices 18 billion year ended march 31 2016 result device leasing program introduced september 2014 depreciation expense incurred leased devices year ended march 31 2015 206 million depreciation also increased due network asset additions partially offset decrease due assets retired fully depreciated successor year ended march 31 2015 successor year ended december 31 2013 depreciation expense increased 18 billion 87 year ended march 31 2015 compared year ended december 31 2013 primarily due comparing full twelvemonth period shortened postmerger period successor threemonth transition period ended march 31 2014 predecessor threemonth period ended march 31 2013 depreciation expense decreased 554 million 39 successor threemonth transition period ended march 31 2014 compared predecessor period 2013 primarily due absence accelerated depreciation associated equipment related legacy nextel sprint platforms reduction partially offset increased depreciation asset additions primarily associated improving quality network assets acquired result clearwire acquisition deployment network modernization program resulted incremental charges earlier stages implementation including limited increase depreciation associated existing assets related nextel sprint platforms due changes estimates remaining useful lives longlived assets expected timing amount asset retirement obligations continued impact results operations 2013 incremental effect accelerated depreciation due implementation network modernization program approximately 360 million predecessor threemonth period ended march 31 2013 majority related nextel platform compared accelerated depreciation threemonth transition period ended march 31 2014 successor year ended march 31 2015 combined year ended december 31 2013 specific efforts improve quality network began 2011 well shut nextel platform june 30 2013 resulted incremental charges earlier stages efforts including limited increase depreciation associated existing assets related nextel sprint platforms due changes estimates remaining useful lives longlived assets expected timing amount asset retirement obligations continued impact results operations 2013 incremental effect accelerated depreciation approximately 800 million predecessor 191day period ended july 10 2013 majority related nextel platform shut june 30 2013 compared accelerated depreciation successor year ended march 31 2015 addition explanations effect accelerated depreciation predecessor period depreciation expense also decreased approximately 160 million successor year ended march 31 2015 due asset revaluations result softbank merger 2013 amortization expense successor year ended march 31 2016 successor year ended march 31 2015 amortization expense decreased 258 million 17 year ended march 31 2016 compared period 2015 primarily due customer relationship intangible assets amortized using sumofthemonthsdigits method results higher amortization rates early periods decline time successor year ended march 31 2015 successor year ended december 31 2013 amortization expense increased 644 million 71 year ended march 31 2015 compared year ended december 31 2013 primarily due comparing results full twelvemonth period shortened postmerger period primarily consisted amortization customer relationships approximately 69 billion recognized result softbank merger customer relationship intangible assets amortized using sumofthemonthsdigits method results higher amortization rates early periods decline time successor threemonth transition period ended march 31 2014 predecessor threemonth period ended march 31 2013 amortization expense increased 359 million 513 successor threemonth transition period ended march 31 2014 compared predecessor period 2013 primarily due recognition definitelived intangible assets related customer relationships approximately 69 billion result softbank merger customer relationship intangible assets amortized using sumofthemonthsdigits method results higher amortization rates early periods decline time impairments threemonth period ended december 31 2014 determined recoverability carrying amount sprint trade name evaluated impairment due changes circumstances surrounding wireless reporting unit result recorded impairment loss 19 billion included impairments consolidated statements operations threemonth period ended december 31 2014 also tested recoverability wireline asset group consists primarily property plant equipment due continued declines wireline segment earnings forecast projected continued losses future periods result recorded impairment loss 233 million reduce carrying value wireline’s property plant equipment estimated fair value included impairments consolidated statements operations net following table provides additional information regarding items included net successor year ended march 31 2016 net represented expense 748 million year ended march 31 2016 recognized litigation expense 193 million ongoing legal matters addition recognized severance exit costs included 216 million severance primarily associated reductions work force 195 million lease access exit costs primarily associated tower cell site leases backhaul access contracts longer receiving economic benefit 2 million recognized cost services consolidated statements operations also recorded 166 million loss disposal property plant equipment primarily related cell site construction costs network costs longer recoverable result changes companys network plans addition revised estimate previously recorded reserve resulting approximately 20 million income successor year ended march 31 2015 net reflected expense 413 million year ended march 31 2015 severance exit costs included 253 million severance primarily associated reductions force 13 million lease exit costs primarily associated tower cell sites well facility closures addition recognized 38 million costs period related payments continue made backhaul access contracts longer receiving economic benefit litigation 91 million represented legal reserves various pending legal suits proceedings partial pension settlement result company’s board directors approving plan amendment sprint retirement pension plan offer certain terminated participants begun receive plan benefits opportunity voluntarily elect receive benefits immediate lump sum distribution lump sum distribution created settlement event resulted 59 million charge addition revised estimate previously recorded reserve resulting income approximately 41 million successor threemonth transition period ended march 31 2014 net reflected expense 127 million successor threemonth transition period ended march 31 2014 severance exit costs 52 million threemonth transition period ended march 31 2014 included 14 million severance primarily associated reductions force 11 million lease exit costs primarily associated retail store closures addition recognized 31 million costs period related payments continue made backhaul access contracts longer receiving economic benefit 4 million recognized cost services threemonth transition period ended march 31 2014 recorded 75 million loss disposal property plant equipment primarily related network equipment assets longer necessary managements strategic plans successor year ended december 31 2013 net reflected expense 402 million successor year ended december 31 2013 severance exit costs 309 million successor year ended december 31 2013 included 219 million severance primarily associated reductions force 56 million lease exit costs primarily associated decommissioning nextel platform addition recognized 53 million payments continue made backhaul access contracts longer receiving economic benefit 19 million recognized cost services 93 million reflected included 100 million business combination fees paid unrelated parties connection transactions softbank clearwire classified within selling general administrative expense consolidated statements operations partially offset 7 million reimbursements related 2012 hurricanerelated charges recorded contra expense cost services consolidated statements operations predecessor 191day period ended july 10 2013 net reflected expense 683 million predecessor 191day period ended july 10 2013 exit costs included lease exit costs 478 million primarily associated taking certain nextel platform sites offair june 30 2013 151 million related payments continue made backhaul access contracts longer receiving economic benefit 151 million future payments 35 million recognized cost services 116 million recognized severance exit costs also recognized 58 million severance related reductions force included 53 million business combination fees paid unrelated parties described partially offset favorable ruling texas supreme court connection taxation e911 services resulted noncash benefit 22 million predecessor threemonth period ended march 31 2013 net reflected expense 3 million predecessor threemonth period ended march 31 2013 severance exit costs 17 million severance primarily associated selective reductions force 8 million lease exit costs associated taking certain nextel platform sites offair favorable ruling texas supreme court connection taxation e911 services resulted noncash benefit 22 million quarter ended march 31 2013 interest expense successor year ended march 31 2016 successor year ended march 31 2015 interest expense increased 131 million 6 year ended march 31 2016 compared period 2015 primarily due interest associated 15 billion aggregate principal amount notes issued february 2015 effective interest rate includes capitalized interest weighted average longterm debt balance 338 billion 65 year ended march 31 2016 see “liquidity capital resources” information companys financing activities successor year ended march 31 2015 successor year ended december 31 2013 interest expense increased 11 billion 123 year ended march 31 2015 compared year ended december 31 2013 primarily due interest associated debt 90 billion issued september december 2013 well comparing full calendar year shortened postmerger period effective interest rate includes capitalized interest weighted average longterm debt balance 325 billion 65 year ended march 31 2015 compared 77 combined year ended december 31 2013 decrease effective interest rate primarily due interest expense 247 million recognized combined year ended december 31 2013 related beneficial conversion feature 31 billion bond see liquidity capital resources information companys financing activities successor threemonth transition period ended march 31 2014 predecessor threemonth period ended march 31 2013 interest expense increased 84 million 19 successor threemonth transition period ended march 31 2014 compared predecessor period 2013 primarily due interest associated debt 90 billion issued september december 2013 debt assumed result clearwire acquisition partially offset premium amortization result debt revalued connection softbank merger effective interest rate includes capitalized interest weighted average longterm debt balance 329 billion 245 billion 64 73 successor threemonth transition period ended march 31 2014 predecessor threemonth period ended march 31 2013 respectively see liquidity capital resources information companys financing activities equity losses unconsolidated investments net result clearwire acquisition july 9 2013 resulting consolidation clearwire results operations accounts company successor period results operations reflect equity losses unconsolidated investments equity losses clearwire 482 million 202 million predecessor 190day period ended july 9 2013 predecessor unaudited threemonth period ended march 31 2013 respectively equity losses investment clearwire consisted share clearwires net loss adjustments noncash impairment investment gains losses associated dilution ownership interest resulting clearwires equity issuances derivative losses associated change fair value embedded derivative included exchangeable notes clearwire sprint items recognized clearwire corporation affect economic interest sprints equity losses predecessor 190day period ended july 9 2013 include 65 million derivative loss associated change fair value embedded derivative income expense net following table provides additional information items included income expense net successor year ended december 31 2013 income expense net represented income 73 million successor year ended december 31 2013 net successor year ended december 31 2013 primarily consisted 159 million income related recognition remaining unaccreted convertible bond discount addition successor year ended december 31 2013 included 175 million loss related embedded derivative associated bond gain early retirement debt successor year ended december 31 2013 result early retirement clearwire communications llc clearwire finance inc 12 secured notes due 2015 12 secured notes due 2017 income tax expense successor period income tax expense year ended march 31 2016 141 million represented consolidated effective tax rate approximately 8 successor period income tax benefit year ended march 31 2015 574 million represented consolidated effective tax rate approximately 15 successor period income tax expense threemonth transition period ended march 31 2014 year ended december 31 2013 56 million 45 million respectively represented consolidated effective tax rate approximately 59 3 respectively predecessor period income tax expense threemonth period ended march 31 2013 38 million represented consolidated effective tax rate approximately 6 income tax expense year ended march 31 2016 primarily attributable tax expense resulting taxable temporary differences amortization fcc licenses partially offset tax benefits reversal state income tax valuation allowance deferred tax assets changes state income tax laws enacted year income tax benefit year ended march 31 2015 primarily attributable recognition tax benefit 19 billion sprint trade name impairment loss partially offset tax expense taxable temporary differences amortization fcc licenses income tax purposes expense 191 days ended july 10 2013 approximately 16 billion primarily attributable recognition tax expense 29 billion gain previouslyheld equity interests clearwire income tax expense remaining successor predecessor periods presented primarily attributable taxable temporary differences amortization fcc licenses included net increases valuation allowance federal state deferred tax assets primarily related net operating loss carryforwards generated respective periods 82 million 708 million successor threemonth transition period ended march 31 2014 year ended december 31 2013 respectively 265 million predecessor threemonth period ended march 31 2013 additional information related items impacting effective tax rates found notes consolidated financial statements segment earnings wireless segment earnings function wireless service revenue sale wireless devices handsets tablets broadband devices connected devices accessories leasing wireless devices addition costs acquire subscribers network interconnection costs serve subscribers well wireless segment operating expenses costs acquire subscribers include cost sell devices well marketing sales costs incurred attract subscribers network costs primarily represent switch cell site costs backhaul costs interconnection costs generally consist perminute usage fees roaming fees paid carriers remaining costs associated operating wireless segment include costs operate customer care organization administrative support wireless service revenue costs acquire subscribers variable network interconnection costs fluctuate changes subscriber base related usage cost elements fluctuate short term changes shown table consolidated results operations wireless segment earnings represented almost total consolidated segment earnings year ended march 31 2016 within wireless segment postpaid wireless services represent significant contributors earnings driven number postpaid subscribers services well arpu wireless industry subject competition retain acquire subscribers wireless services markets operate high rates penetration wireless services device financing programs september 2013 introduced installment billing program allows subscribers purchase device paying monthly installments generally 24 months september 2014 introduced leasing program whereby qualified subscribers lease device contractual period time installment billing program recognize majority revenue associated future expected installment payments time sale device compared traditional subsidized programs results better alignment equipment revenue cost device impact wireless earnings sale devices installment billing program neutral except impact time value money element related imputed interest installment receivable leasing program qualified subscribers lease device contractual period time end lease term subscriber option turn device continue leasing device purchase device march 31 2016 substantially device leases classified operating leases result lease inception devices reclassified inventory property plant equipment leased sprints direct channels leases indirect channel purchase devices lease inception dealer capitalized property plant equipment majority revenue associated installment sales recognized time sale along related cost products lease revenue recorded monthly term lease cost device depreciated estimated residual value generally lease term years ended march 31 2016 2015 leased devices sprint direct channels totaling approximately 32 billion 12 billion respectively devices reclassified inventory property plant equipment cost device recorded cost products compared purchased installment billing traditional subsidized programs resulted significant positive impact wireless segment earnings depreciation expense incurred leased devices years ended march 31 2016 2015 18 billion 206 million respectively mix leased devices continues increase expect positive impact financial results wireless segment earnings continue depreciation expense increase however benefit wireless segment earnings partially offset handset saleleaseback tranche 1 transaction consummated november 2015 sold subsequently leased back certain devices leased customers see handset saleleaseback liquidity capital resources details result cost devices sold mobile leasing solutions llc mls longer recorded depreciation expense rather recognized rent expense within “cost products” leaseback periods device leasing installment billing programs require greater use operating cash flows earlier part device contracts subscribers generally pay less upfront traditional subsidized programs accounts receivable facility handset saleleaseback transactions see accounts receivable facility handset saleleaseback liquidity capital resources details designed mitigate significant use cash purchasing devices original equipment manufacturers oems fulfill installment billing leasing programs wireless segment earnings trends sprint offering lower monthly service fees without traditional contract incentive attract subscribers certain service plans lower rates service available whether subscriber brings handset pays full near full retail price handset purchases handset installment billing program leases handset leasing program adoption rates plans increase throughout base subscribers expect postpaid arpu continue decline result lower pricing associated new service plans compared traditional subsidized programs reflect higher service revenue lower equipment revenue however also expect higher equipment revenue due installment billing leasing programs substantially offset declines since inception combination lower priced plans installment billing leasing programs accretive wireless segment earnings expect trend continue magnitude impact dependent upon rate subscriber adoption began experience net losses postpaid handset subscribers mid2013 since release new price plans results shown improvement trends handset subscribers however assurance trend continue taken initiatives provide best value wireless service continuing enhance network performance coverage capacity order attract retain valuable handset subscribers addition evaluating cost model operationalize effective cost structure following table provides overview results operations wireless segment 1 represents service revenue primarily related acquisition clearwire july 9 2013 service revenue wireless segment generates service revenue sale wireless services sale wholesale services service revenue consists fixed monthly recurring charges variable usage charges miscellaneous fees activation fees directory assistance roaming equipment protection late payment early termination charges certain regulatory related fees net service credits ability wireless segment generate service revenue primarily function • revenue generated subscriber turn function types amount services utilized subscriber rates charged services • number subscribers serve turn function ability retain existing subscribers acquire new subscribers retail comprises subscribers sprint directly provides wireless services whether services provided postpaid prepaid basis also categorize retail subscribers prime subprime based upon subscriber credit profiles use proprietary scoring systems measure credit quality subscribers using several factors credit bureau information subscriber credit risk scores service plan characteristics payment history subsequently monitored evaluate subscriber credit profiles wholesale affiliates subscribers served mvno affiliate relationships arrangements mvno relationships wireless services sold sprint companies resell services subscribers successor year ended march 31 2016 successor year ended march 31 2015 retail service revenue decreased 19 billion 7 successor year ended march 31 2016 compared year ended march 31 2015 primarily due lower average revenue per subscriber driven growth postpaid subscribers new plans tablet sales decrease partially offset increase average postpaid subscribers mostly due improved churn wholesale affiliate revenues decreased 49 million 6 successor year ended march 31 2016 compared year ended march 31 2015 primarily due decline prepaid resellers impact shutdown clearwire wimax network partially offset growth postpaid resellers connected devices approximately 64 total wholesale affiliate subscribers represent connected devices generate revenue usage varies depending solution utilized successor year ended march 31 2015 successor year ended december 31 2013 retail service revenue increased 130 billion 95 successor year ended march 31 2015 compared year ended december 31 2013 primarily due comparing full twelvemonth period shortened postmerger period well growth prepaid boost brand carries higher average revenue per subscriber increases offset growth tablet sales postpaid subscribers new plans tend carry lower average revenue per subscriber well decline average postpaid prepaid subscribers resulted overall decrease retail service revenue comparing successor year ended march 31 2015 combined year ended december 31 2013 wholesale affiliate revenues increased 527 million 198 successor year ended march 31 2015 compared year ended december 31 2013 primarily due comparing full twelvemonth period shortened postmerger period addition wholesale affiliate revenues increased result interest revenue associated installment billing handsets increase revenues resulting acquisitions 2013 approximately 53 total wholesale affiliate subscribers represent connected devices successor threemonth transition period ended march 31 2014 predecessor threemonth period ended march 31 2013 retail service revenue slightly decreased 47 million 1 successor threemonth transition period ended march 31 2014 compared predecessor period 2013 decrease driven loss postpaid prepaid subscribers due shutdown nextel platform june 30 2013 partially offset postpaid prepaid revenues resulting acquisitions 2013 wholesale affiliate revenues increased 26 million 20 successor threemonth transition period ended march 31 2014 compared predecessor period 2013 primarily due increase revenues resulting acquisitions 2013 approximately 45 wholesale affiliate subscribers represent connected devices average monthly service revenue per subscriber trends table summarizes average number retail subscribers additional information number subscribers net additions losses subscribers average rates monthly postpaid prepaid subscriber churn quarter since quarter ended march 31 2013 may found tables following pages table summarizes arpu additional information arpu quarter since quarter ended march 31 2013 may found tables following pages 1 arpu calculated dividing service revenue sum monthly average number subscribers applicable service category changes average monthly service revenue reflect subscribers either postpaid prepaid service category change rate plans level voice data usage amount service credits offered subscribers plus net effect average monthly revenue generated new subscribers deactivating subscribers combined arpu 2013 aggregates service revenue predecessor191day period ended july 10 2013 successor year ended december 31 2013 divided sum monthly average subscribers year ended december 31 2013 successor year ended march 31 2016 successor year ended march 31 2015 postpaid arpu successor year ended march 31 2016 decreased compared year ended march 31 2015 primarily due impact subscriber migration many new service plans resulting lower service fees combined ongoing growth sales tablets carry lower revenue per subscriber prepaid arpu successor year ended march 31 2016 increased compared year ended march 31 2015 primarily due increase average prepaid boost subscribers carry higher arpu compared prepaid brands partially offset revenue impact subscribers choosing lower priced plans boost virgin mobile brands due increased competition combined decrease average virgin mobile subscribers successor year ended march 31 2015 successor year ended december 31 2013 postpaid arpu successor year ended march 31 2015 decreased compared year ended december 31 2013 primarily due growth sales tablets carry lower revenue per subscriber combined impact subscriber migration many new service plans resulting lower service fees prepaid arpu successor year ended march 31 2015 increased compared year ended december 31 2013 primarily due increase higher average boost subscribers carry higher arpu compared prepaid brands partially offset decreases total average subscribers primarily virgin mobile assurance brands successor threemonth transition period ended march 31 2014 predecessor threemonth period ended march 31 2013 postpaid arpu successor threemonth transition period ended march 31 2014 increased compared predecessor period 2013 primarily due shutdown nextel platform june 30 2013 impact losing subscribers carried lower average revenue per subscriber increase partially offset lower revenue per subscriber carried subscribers acquired clearwire us cellular acquisitions growth sales tablets also carry lower revenue per subscriber prepaid arpu successor threemonth transition period ended march 31 2014 increased compared predecessor period 2013 primarily due impact higher revenue per subscriber carried subscribers acquired clearwire acquisition combined increase arpu primarily virgin mobile prepaid brands subscribers chose higher priced plans following table shows net additions losses wireless subscribers b total subscribers c end period connected device subscribers end quarterly period beginning quarter ended march 31 2013 1 subscriber defined individual line service associated device activated customer subscribers transfer original service category classification another platform another service line within platform reflected net loss original service category net addition new service category net effect subscriber changes total wireless net additions losses end period subscribers 2 sprint platform refers sprint network supports wireless service provide multiple brands 3 acquired approximately 352000 postpaid subscribers 59000 prepaid subscribers acquisition assets us cellular transaction closed may 17 2013 acquired approximately 788000 postpaid subscribers excluding 29000 sprint wholesale subscribers transferred transactions postpaid subscribers originally recognized part clearwire mvno arrangement 721000 prepaid subscribers 93000 wholesale subscribers result clearwire acquisition transaction closed july 9 2013 throughout periods presented subscribers either migrated sprint offerings service canceled march 31 2016 remaining transaction subscribers primarily due shut wimax network 4 subscribers mvno relationships inactivity either voice usage primarily result nature device activity occurs data retrieval initiated enduser may occur infrequently although continue provide subscribers access network mvno relationships approximately 1110000 subscribers march 31 2016 mvno relationships inactive least six months associated revenue sixmonth period ended march 31 2016 5 end period connected devices included total retail postpaid wholesale affiliates end period subscriber totals periods presented following table shows average rates monthly postpaid prepaid subscriber churn b recapture nextel platform subscribers deactivated remained subscribers sprint platform end quarterly period beginning quarter ended march 31 2013 1 churn calculated dividing net subscriber deactivations quarter sum average number subscribers month quarter postpaid accounts comprising multiple subscribers family plans enterprise accounts net deactivations defined deactivations excess subscriber activations particular account within 30 days postpaid prepaid churn consist voluntary churn subscriber makes determination cease subscriber involuntary churn subscribers service terminated due lack payment reasons 2 quarter ended june 30 2015 company revised prepaid subscriber reporting remove one rules matches customers disconnect reengage within specified period time enhancement believe represents precise churn calculation impact net additions result reporting higher deactivations higher gross additions quarter without revision sprint platform prepaid churn quarter would 433 relatively flat compared period 2014 end period prepaid subscribers net prepaid subscriber additions periods presented impacted change 3 subscriber churn related acquisition assets us cellular clearwire acquisition 4 represents recapture rate defined nextel platform postpaid prepaid subscribers applicable switched nextel platform activated service sprint platform period total nextel platform subscriber deactivations period postpaid prepaid respectively 5 represents nextel platform postpaid prepaid subscribers applicable switched nextel platform period remained company subscribers sprint platform subscribers deactivated service nextel platform activated service sprint platform included sprint platform net additions applicable period following table shows postpaid prepaid arpu end quarterly period beginning quarter ended march 31 2013 1 subscriber arpu related acquisition assets us cellular clearwire acquisition 2 combined arpu quarterly period ending september 30 2013 aggregates service revenue predecessor 10day period ended july 10 2013 successor threemonth period ended september 30 2013 divided sum monthly average subscribers three months ended september 30 2013 subscriber results sprint platform subscribers retail postpaid successor year ended march 31 2016 net postpaid subscriber additions 1245000 compared net losses 212000 96000 successor year ended march 31 2015 combined year ended december 31 2013 respectively inclusive 545000 1334000 564000 net additions tablets respectively generally significantly lower arpu compared wireless subscribers successor threemonth transition period ended march 31 2014 net postpaid subscriber losses 231000 compared net additions 12000 predecessor threemonth period ended march 31 2013 inclusive 516000 16000 net additions tablet devices respectively primary driver net additions successor year ended march 31 2016 pricing plan promotions launched year combined improvement churn subscribers benefit improved network quality primary driver net losses successor year ended march 31 2015 successor threemonth transition period ended march 31 2014 combined year ended december 31 2013 increase churn primarily due increased competition networkrelated churn impacted network modernization program aggressive marketing efforts wireless carriers including price reductions incent subscribers switch carriers also negatively impact churn negative effect earnings nextel platform us cellular recaptures combined year ended december 31 2013 totaled 734000 retail prepaid successor year ended march 31 2016 lost 1309000 net prepaid subscribers compared adding 449000 488000 net prepaid subscribers successor year ended march 31 2015 combined year ended december 31 2013 respectively net losses successor year ended march 31 2016 primarily due subscriber losses virgin mobile prepaid brand primarily due increasing competition net additions successor year ended march 31 2015 primarily due subscriber growth boost brand result new promotions indirect channels partially offset subscriber losses virgin mobile prepaid brands primarily due continued competition successor threemonth transition period ended march 31 2014 lost 364000 net prepaid subscribers compared adding 568000 predecessor threemonth period ended march 31 2013 primarily due timing impact churn related annual recertification assurance wireless subscribers occurring earlier calendar year 2014 compared calendar year 2013 combined decline gross subscriber additions across prepaid brands net additions combined year ended december 31 2013 primarily due subscriber growth boost prepaid brand partially offset deactivation subscribers related new federal regulations onetime recertification assurance wireless subscribers 2012 federal lifeline program assurance wireless operates requires applicants meet certain eligibility requirements existing subscribers must recertify requirements annually regulations adopted 2012 impact lifeline carriers imposed stricter rules subscriber eligibility requirements recertification new regulations also required onetime recertification entire june 1 2012 subscriber base december 31 2012 accounts subscribers failed respond december 31 2012 suspended made subject prepaid churn rules described 365 days limited number states however subscribers could reapply prior deactivated also ability receive bytheminute service expense deactivated accounts approximately 12 million subscribers quarter ended june 30 2013 primarily related recertification process prepaid subscribers generally deactivated 60 150 days later date initial activation replenishment however prior account deactivation targeted retention programs offered qualifying subscribers maintain ongoing service providing additional 150 days make replenishment subscribers targeted retention offers included calculation churn retention offer expires without replenishment account wholesale affiliate subscribers wholesale affiliate subscribers represent customers served networks companies resell wireless services subscribers customers residing affiliate territories connected devices utilize network 135 million sprint platform subscribers included wholesale affiliates approximately 64 represent connected devices wholesale affiliate subscriber net additions 2733000 successor year ended march 31 2016 compared 2349000 31000 successor year ended march 31 2015 combined year ended december 31 2013 respectively inclusive net additions connected devices totaling 2743000 1950000 908000 respectively primary driver net additions successor years ended march 31 2016 march 31 2015 combined year ended december 31 2013 primarily attributable growth connected devices net additions 212000 successor threemonth transition period ended march 31 2014 compared net losses 224000 predecessor threemonth period ended march 31 2013 inclusive net additions connected devices totaling 304000 133000 respectively net additions primarily attributable growth connected device subscribers compared net losses predecessor threemonth period 2013 lifeline programs offered mvnos selling prepaid services affected new federal regulations similar impact assurance wireless brand retail prepaid transactions subscribers part acquisition assets us cellular closed may 2013 acquired 352000 postpaid subscribers 59000 prepaid subscribers part clearwire acquisition july 2013 acquired 788000 postpaid subscribers exclusive sprint platform wholesale subscribers acquired mvno relationship clearwire transferred postpaid subscribers within transactions 721000 prepaid subscribers 93000 wholesale subscribers march 31 2016 remaining transaction subscribers primarily due shutdown wimax network successor year ended march 31 2016 net postpaid subscriber losses 368000 net prepaid subscriber losses 361000 net wholesale subscriber losses 275000 successor year ended march 31 2015 net postpaid subscriber losses 218000 net prepaid subscriber losses 189000 net wholesale subscriber additions 75000 successor threemonth transition period ended march 31 2014 net postpaid subscriber losses 102000 net prepaid subscriber losses 51000 net wholesale subscriber additions 69000 approximately 3000 postpaid subscribers recaptured sprint platform remainder combined year ended december 31 2013 net postpaid subscriber losses 481000 net prepaid subscriber losses 179000 net wholesale subscriber additions 38000 approximately 106000 8000 postpaid prepaid subscribers respectively recaptured sprint platform cost services cost services consists primarily • costs operate maintain networks including direct switch cell site costs rent utilities maintenance labor costs associated network employees spectrum frequency leasing costs • fixed variable interconnection costs fixed component consists monthly flatrate fees facilities leased local exchange carriers providers based number cell sites switches service particular period related equipment installed site variable component generally consists perminute use fees charged wireline providers calls terminating networks fluctuate relation level duration terminating calls • long distance costs paid wireline segment • costs service repair devices • regulatory fees • roaming fees paid carriers • fixed variable costs relating payments third parties subscriber use proprietary data applications messaging music cloud services connected vehicle fees successor year ended march 31 2016 successor year ended march 31 2015 cost services increased 124 million 2 successor year ended march 31 2016 compared successor year ended march 31 2015 primarily due increased service repair costs result higher costs per unit new used devices increases partially offset decreases roaming costs primarily due lower rates successor year ended march 31 2015 successor year ended december 31 2013 cost services increased 36 billion 83 successor year ended march 31 2015 compared year ended december 31 2013 increase primarily due comparing results full twelvemonth period ending march 31 2015 shortened postmerger period increases result clearwire acquisition increases offset decreases roaming network costs rent utilities backhaul labor result declining costs associated improvements quality network shutdown nextel platform june 2013 resulted overall decrease cost services comparing successor year ended march 31 2015 combined year ended december 31 2013 successor threemonth transition period ended march 31 2014 predecessor threemonth period ended march 31 2013 cost services decreased 65 million 3 successor threemonth transition period ended march 31 2014 compared predecessor period 2013 primarily reflecting reduced network costs rent utilities backhaul costs related shutdown nextel platform june 2013 combined decrease service repair costs due decline volume frequency repairs decrease roaming fees due lower volume rates partially offset net increases result clearwire acquisition equipment revenue cost products recognize equipment revenue corresponding costs devices title risk loss passes indirect dealer enduse subscriber assuming revenue recognition criteria met devices sold subsidy program installment billing program leased leasing program subsidy program offer certain incentives retain acquire subscribers new devices discounted prices cost incentives recorded reduction equipment revenue upon activation device service contract installment billing program device sold near full retail price recognize future expected installment payments time sale device cost products includes equipment costs primarily devices accessories order fulfillment related expenses writedowns device accessory inventory related shrinkage obsolescence additionally cost products reduced rebates earned equipment manufacturers cost products excess net revenue generated equipment sales referred industry equipment net subsidy subscribers migrate acquiring devices subsidy program installment billing choose lease leasing program equipment net subsidy continues decline also make incentive payments certain indirect dealers purchase devices directly oems device distributors payments recognized selling general administrative expenses device activated sprint service plan sprint recognize equipment revenue cost products transactions see selling general administrative expense net impact equipment revenue cost products sale devices installment billing program relatively neutral except impact time value money element related imputed interest installment receivables leasing program lease revenue recorded term lease cost leased device depreciated estimated residual value generally lease term years ended march 31 2016 2015 leased devices sprint direct channels totaling approximately 32 billion 12 billion respectively reclassified inventory property plant equipment cost device recorded cost products compared purchased installment billing traditional subsidized programs successor year ended march 31 2016 successor year ended march 31 2015 equipment revenue increased 16 million remained relatively flat successor year ended march 31 2016 compared successor year ended march 31 2015 primarily due higher revenue leasing program approximately 17 billion higher average sales price per postpaid handset sold primarily offset decrease postpaid handsets sold result brightstar corp brightstar purchasing inventory oems sell directly indirect dealers subscribers choosing lease device combined lower average sales price per prepaid handset sold cost products decreased 35 billion 38 successor year ended march 31 2016 compared successor year ended march 31 2015 primarily due decrease postpaid handsets sold result brightstar purchasing inventory oems sell directly indirect dealers subscribers choosing lease devices instead purchasing successor year ended march 31 2015 successor year ended december 31 2013 equipment revenue increased 32 billion 178 cost products increased 47 billion 102 successor year ended march 31 2015 compared successor year ended december 31 2013 primarily due comparing results full twelvemonth period shortened postmerger period addition equipment revenue increased due higher revenue installment billing leasing programs higher average sales price per postpaid handset sold partially offset decrease postpaid handsets sold result customers choosing lease devices instead purchasing cost products also increased due higher average cost per handset sold postpaid handsets combined increase prepaid handsets sold increases partially offset decrease postpaid handsets sold result customers choosing lease devices instead purchasing lower average cost per handset sold prepaid handsets resulted overall decrease cost products comparing successor year ended march 31 2015 combined year ended december 31 2013 successor threemonth transition period ended march 31 2014 predecessor threemonth period ended march 31 2013 equipment revenue increased 186 million 23 successor threemonth transition period ended march 31 2014 compared predecessor period 2013 increase equipment revenue primarily due higher average sales prices per postpaid prepaid device sold combined impact different revenue recognition model related installment billing program device purchases increase partially offset fewer postpaid prepaid handsets sold cost products declined 255 million 11 successor threemonth transition period ended march 31 2014 compared predecessor period 2013 primarily due fewer postpaid prepaid handsets sold slightly offset higher average cost per device sold postpaid prepaid devices selling general administrative expense sales marketing costs primarily consist subscriber acquisition costs including commissions paid indirect dealers thirdparty distributors retail sales force new device activations upgrades residual payments indirect dealers commission payments made oems device distributors direct source handsets payroll facilities costs associated retail sales force marketing employees advertising media programs sponsorships including costs related branding general administrative expenses primarily consist costs billing customer care information technology operations bad debt expense administrative support activities including collections legal finance human resources corporate communications strategic planning technology product development successor year ended march 31 2016 successor year ended march 31 2015 sales marketing expense decreased 272 million 5 successor year ended march 31 2016 compared successor year ended march 31 2015 primarily due lower media spend decrease payments oems direct source handsets result lower volume device sales partially offset higher retail labor costs general administrative costs decreased 766 million 20 successor year ended march 31 2016 compared successor year ended march 31 2015 primarily due decrease bad debt expense combined declines general administrative expenses due reduced headcount costsavings initiatives bad debt expense decreased 446 million 50 successor year ended march 31 2016 compared successor year ended march 31 2015 primarily related improved aging result customer credit profile improvement fewer accounts written due improvements churn partially offset higher average balance accounts written successor year ended march 31 2015 successor year ended december 31 2013 sales marketing expense 53 billion successor year ended march 31 2015 representing increase 27 billion 102 compared successor year ended december 31 2013 increase primarily due comparing results full twelvemonth period ending march 31 2015 shortened postmerger period ending december 31 2013 combined higher advertising costs related new promotional campaigns increases offset reduction laborrelated costs due reduction force retail store closures addition lower commission expense sales shifted costeffective channels resulted overall decrease sales marketing expense comparing successor year ended march 31 2015 combined year ended december 31 2013 general administrative costs 39 billion successor year ended march 31 2015 representing increase 20 billion 104 compared successor year ended december 31 2013 primarily due comparing results full twelvemonth period ending march 31 2015 shortened postmerger period ending december 31 2013 combined increase bad debt expense primarily associated increase installment receivables increases offset decrease customer care costs primarily due lower call volumes laborrelated initiatives resulted overall decrease general administrative costs comparing successor year ended march 31 2015 combined year ended december 31 2013 successor threemonth transition period ended march 31 2014 predecessor threemonth period ended march 31 2013 sales marketing expense 14 billion representing increase 70 million 5 successor threemonth transition period ended march 31 2014 compared predecessor period 2013 increase primarily due higher media spend commission expense partially offset reduction labor related costs due reduction force retail store closures general administrative costs 897 million representing decrease 27 million 3 successor threemonth transition period ended march 31 2014 compared predecessor period 2013 primarily reflecting decrease customer care costs primarily due lower call volumes labor related initiatives partially offset increase bad debt expense bad debt expense 155 million threemonth transition period ended march 31 2014 representing 72 million 87 increase compared bad debt expense 83 million predecessor period 2013 increase bad debt expense primarily reflects impact increased receivables related installment billing program loss disposal property plant equipment successor year ended march 31 2016 loss disposal property plant equipment result approximately 65 million net losses recognized upon sale devices mls handset saleleaseback tranche 1 transaction represented difference fair value net book value devices sold addition approximately 256 million losses resulted writeoff leased devices associated lease cancellations prior scheduled customer lease terms customers return devices us customers continue return devices may material losses future periods similar charges incurred devices sold subsidy program equipment net subsidy segment earnings wireline provide broad suite wireline voice data communications services communications companies targeted business subscribers addition provide voice data ip communication services wireless segment provide long distance services operate alldigital global long distance tier 1 ip networks services products include domestic international data communications using various protocols multiprotocol label switching technologies mpls ip managed network services voice internet protocol voip session initiated protocol sip traditional voice services ip services also combined wireless services include sprint mobile integration service enables wireless handset operate part subscribers wireline voice network datalinksm service uses wireless networks connect subscriber location primarily wireline widearea ipmpls data network making easy businesses adapt network changing business requirements addition providing services business customers wireline network carrying increasing amounts voice data traffic wireless segment result growing usage wireless subscribers continue assess portfolio services provided wireline business focusing efforts ipbased data services deemphasizing standalone voice services nonipbased data services also continue provide voice services primarily business consumers wireline segment markets sells services primarily direct sales representatives wireline segment earnings primarily function wireline service revenue network interconnection costs wireline segment operating expenses network costs primarily represent special access costs interconnection costs generally consist domestic international perminute usage fees paid carriers remaining costs associated operating wireline segment include costs operate customer care billing organizations addition administrative support wireline service revenue variable network interconnection costs fluctuate changes customer base related usage cost elements fluctuate short term changes customer usage wireline services provided wireless segment generally accounted based market rates believe approximate fair value company generally reestablishes rates beginning fiscal year past several years industry wide trend lower rates due increased competition wireline wireless communications companies well cable internet service providers declines wireline segment earnings related intercompany pricing rates affect consolidated results operations wireless segment benefits equivalent reduction cost service following table provides overview results operations wireline segment wireline revenue successor year ended march 31 2016 successor year ended march 31 2015 voice revenues voice revenues successor year ended march 31 2016 decreased 334 million 28 compared successor year ended march 31 2015 decrease primarily driven lower volume overall rate declines primarily due decreases international hubbing volumes combined decline prices sale services wireless segment voice revenues generated sale services wireless segment represented 39 total voice revenues successor year ended march 31 2016 compared 31 year ended march 31 2015 data revenues data revenues reflect sales data services primarily private line managed network services bundled nonipbased data access data revenues decreased 42 million 20 successor year ended march 31 2016 compared successor year ended march 31 2015 result customer churn primarily related private line data revenues generated provision services wireless segment represented 40 total data revenue successor year ended march 31 2016 compared 41 year ended march 31 2015 internet revenue ipbased data services revenue reflects sales internet services including mpls voip sip managed services bundled ipbased data access ipbased data services decreased 69 million 5 successor year ended march 31 2016 compared successor year ended march 31 2015 primarily due fewer ip customers addition revenue also impacted decline prices sale services wireless segment sale services wireless segment represented 15 total internet revenues successor year ended march 31 2016 compared 12 year ended march 31 2015 revenues primarily consist sales customer premises equipment increased 13 million 18 successor year ended march 31 2016 compared successor year ended march 31 2015 successor year ended march 31 2015 successor year ended december 31 2013 voice revenues voice revenues successor year ended march 31 2015 increased 455 million 63 compared successor year ended december 31 2013 increase primarily due comparing results full twelvemonth period shortened postmerger period offsetting increase decreases driven lower volume overall rate declines primarily due decline prices sale services wireless segment combined decreases international hubbing volumes resulted overall decrease voice revenues comparing successor year ended march 31 2015 combined year ended december 31 2013 voice revenues generated sale services wireless segment represented 31 total voice revenues successor year ended march 31 2015 compared 33 successor year ended december 31 2013 data revenues data revenues reflect sales data services primarily private line managed network services bundled nonipbased data access data revenues increased 75 million 54 successor year ended march 31 2015 compared successor year ended december 31 2013 primarily due comparing results full twelvemonth period shortened postmerger period offsetting increase decrease result customer churn primarily related private line resulted overall decrease data revenues comparing successor year ended march 31 2015 combined year ended december 31 2013 data revenues generated provision services wireless segment represented 41 total data revenue successor year ended march 31 2015 compared 50 successor year ended december 31 2013 internet revenue ipbased data services revenue reflects sales internet services including mpls voip sip managed services bundled ipbased data access ipbased data services increased 606 million 81 successor year ended march 31 2015 compared year ended december 31 2013 primarily due comparing results full twelvemonth period shortened postmerger period offsetting increase decrease primarily due fewer ip customers particular final transition insourcing one larger cable multiple system operators msos resulted overall decrease internet revenues comparing successor year ended march 31 2015 combined year ended december 31 2013 addition revenue also impacted decline price services sold wireless segment elimination backhaul associated decommissioning nextel platform june 30 2013 sale services wireless segment represented 12 total internet revenues successor year ended march 31 2015 compared 11 year ended december 31 2013 revenues primarily consist sales customer premises equipment increased 42 million 131 successor year ended march 31 2015 compared year ended december 31 2013 primarily due comparing results full twelvemonth period shortened postmerger period successor threemonth transition period ended march 31 2014 predecessor threemonth period ended march 31 2013 voice revenues voice revenues remained flat successor threemonth transition period ended march 31 2014 compared predecessor period 2013 overall rate declines primarily due decline prices sale services wireless segment offset increases international hubbing volumes threemonth transition period ended march 31 2014 voice revenues generated sale services wireless segment represented 25 total voice revenues successor threemonth transition period ended march 31 2014 compared 28 predecessor threemonth period ended march 31 2013 data revenues data revenues reflect sales data services primarily private line managed network services bundled nonipbased data access data revenues decreased 32 million 34 successor threemonth transition period ended march 31 2014 compared predecessor period 2013 result customer churn primarily related private line data revenues generated provision services wireless segment represented 42 total data revenue successor threemonth transition period ended march 31 2014 compared 49 predecessor threemonth period ended march 31 2013 internet revenue ipbased data services revenue reflects sales internet services including mpls voip sip managed services bundled ipbased data access ipbased data services decreased 89 million 21 successor threemonth transition period ended march 31 2014 compared predecessor period 2013 primarily due fewer ip customers particular final transition insourcing one larger cable msos sale services wireless segment represented 11 total internet revenues successor threemonth transition period ended march 31 2014 predecessor threemonth period ended march 31 2013 revenues primarily consist sales customer premises equipment decreased 2 million 15 successor threemonth transition period ended march 31 2014 compared predecessor period 2013 costs services costs services include access costs paid local phone companies domestic service providers foreign phone companies complete calls made domestic subscribers costs operate maintain networks costs equipment successor year ended march 31 2016 successor year ended march 31 2015 costs services decreased 376 million 16 successor year ended march 31 2016 compared successor year ended march 31 2015 primarily due lower international voice volume rates combined lower access expense result savings initiatives declining voice ip rate volumes service gross margin percentage increased 17 successor year ended march 31 2015 18 successor year ended march 31 2016 successor year ended march 31 2015 successor year ended december 31 2013 costs services increased 11 billion 89 successor year ended march 31 2015 compared successor year ended december 31 2013 primarily due comparing results full twelvemonth period shortened postmerger period offsetting increase decrease primarily due lower access expense result savings initiatives declining volumes resulted overall decrease cost services comparing successor year ended march 31 2015 combined year ended december 31 2013 service gross margin percentage decreased 25 successor year ended december 31 2013 17 successor year ended march 31 2015 primarily result decrease net service revenue partially offset decrease cost services successor threemonth transition period ended march 31 2014 predecessor threemonth period ended march 31 2013 costs services increased 7 million 1 successor threemonth transition period ended march 31 2014 compared predecessor period 2013 primarily due higher contractual rates impacting facility costs service gross margin percentage decreased 26 predecessor threemonth period ended march 31 2013 13 successor threemonth transition period ended march 31 2014 primarily result decrease net service revenue combined slight increase cost services selling general administrative expense successor year ended march 31 2016 successor year ended march 31 2015 selling general administrative expense decreased 35 million 10 successor year ended march 31 2016 compared successor year ended march 31 2015 primarily due decrease shared administrative employeerelated costs required support wireline segment result decline revenue total selling general administrative expense percentage net services revenue 14 successor year ended march 31 2016 compared 13 successor year ended march 31 2015 successor year ended march 31 2015 successor year ended december 31 2013 selling general administrative expense increased 184 million 103 successor year ended march 31 2015 compared successor year ended december 31 2013 primarily due comparing results full twelvemonth period shortened postmerger period partially offset decrease due reduction shared administrative employeerelated costs required support wireline segment result decline revenue resulted overall decrease selling general administrative expense comparing successor year ended march 31 2015 combined year ended december 31 2013 total selling general administrative expense percentage net services revenue 13 successor year ended march 31 2015 compared 11 successor year ended december 31 2013 successor threemonth transition period ended march 31 2014 predecessor threemonth period ended march 31 2013 selling general administrative expense decreased 14 million 13 successor threemonth transition period ended march 31 2014 compared predecessor period 2013 decrease primarily due reduction shared administrative employee related costs required support wireline segment result decline revenue total selling general administrative expense percentage net services revenue 12 threemonth periods ended march 31 2014 successor 2013 predecessor liquidity capital resources cash flow operating activities net cash provided operating activities approximately 39 billion successor year ended march 31 2016 increased 14 billion period 2015 increase due lower vendor laborrelated payments 22 billion primarily due reduced operating costs partially offset reduced cash received customers 669 million reduction cash received customers driven 24 billion decrease net operating revenues primarily due lower average revenue per subscriber offset 15 billion increase operating cash flows resulting net changes accounts notes receivables deferred purchase price dpp successor year ended march 31 2016 compared period 2015 addition increased interest payments 125 million primarily associated 15 billion aggregate principal amount notes issued february 2015 activities receivables facility impact cash flows accounts notes receivables dpp successor year ended march 31 2016 total cash inflows dpp 25 billion approximately 12 billion cash inflows represented settlement dpp associated sale service receivables march 31 2015 occurred temporarily suspended sale new receivables april 2016 september october 2016 began selling service installment receivables respectively dpp associated initial noncash transactions amounted 24 billion approximately 825 million cash inflows represented cash advances elected draw dpp year receivables facility cash collections previously sold receivables exceed sales new receivables retain amounts apply dpp successor year ended march 31 2016 dpp reduced cash collections totaling approximately 400 million net cash provided operating activities approximately 25 billion successor year ended march 31 2015 increased 25 billion successor year ended december 31 2013 increase primarily due comparing full twelvemonth period shortened postmerger period successor year ended december 31 2013 included 180 million call redemption premiums paid retire clearwire debt approximately 225 million interest payments related clearwire debt net cash provided operating activities approximately 25 billion successor year ended march 31 2015 decreased 160 million compared net cash provided operating activities approximately 26 billion year ended december 31 2013 combined basis decrease due decreased cash received customers 11 billion primarily result increases installment billing receivables offset declines due sales receivables facility see accounts receivables facility well declines net operating revenues increased interest payments 505 million primarily related debt issued september 2013 december 2013 decrease partially offset lower vendor laborrelated payments 14 billion primarily due decreased backhaul payments related shutdown nextel platform june 2013 ii declines roaming payments due lower volumes rates iii fewer laborrelated payments primarily result reductions force call center savings due lower call volumes laborrelated initiatives lower payments partially offset increased cash paid inventory net cash provided operating activities approximately 522 million successor threemonth transition period ended march 31 2014 decreased 418 million predecessor period 2013 decrease due decreased cash received customers 365 million primarily result increases installment billing receivables increased interest payments 254 million related debt issued september 2013 decreases partially offset decreases vendor laborrelated payments 219 million investing activities net cash used investing activities successor year ended march 31 2016 increased approximately 10 billion compared period 2015 primarily due increased purchases 17 billion leased devices indirect dealers decreased net proceeds sales maturities shortterm investments 27 billion increases partially offset 11 billion proceeds mls handset saleleaseback tranche 1 transaction 18 billion decreased purchases shortterm investments decreased network capital expenditures 742 million net cash used investing activities successor year ended march 31 2015 decreased approximately 134 billion compared successor year ended december 31 2013 primarily due increases approximately 14 billion proceeds sales maturities shortterm investments 2013 increases related softbank merger 141 billion net cash acquired decreases partially offset increased capital expenditures 22 billion included 582 million leased devices purchased indirect channels increased purchases shortterm investments 358 million addition successor year ended march 31 2015 received 95 million reimbursements costs clearing h block spectrum part report order obligations 315 million proceeds sales assets fcc licenses 290 million related sale certain fcc licenses net cash used investing activities successor threemonth transition period ended march 31 2014 increased approximately 598 million compared predecessor period 2013 primarily due increased purchases shortterm investments approximately 100 million decreased proceeds approximately 360 million sales maturities shortterm investments increases capital expenditures relating fcc licenses 100 million addition part amended exchangeable notes agreement clearwire elected draw 80 million march 2013 result clearwire acquisition exchangeable notes agreement terminated notes remain outstanding financing activities net cash provided financing activities 469 million successor year ended march 31 2016 primarily due sales future lease receivables facility see receivables facility 600 million draws 208 million 266 million 32 million finnvera plc finnvera ksure delcredere ducroire dd secured equipment credit facilities respectively 250 million draw export development canada edc credit facility draws partially offset repayments related secured equipment credit facilities 315 million capital lease repayments 84 million 500 million repayment edc credit facility net cash provided financing activities 13 billion successor year ended march 31 2015 primarily due february 24 2015 issuance 15 billion aggregate principal amount 7625 notes due 2025 addition amended unsecured export development canada edc agreement among things add additional tranche totaling 300 million due 2019 fully drawn march 31 2015 partially offset principal payments ipcs inc second lien secured floating rate notes due 2014 approximately 181 million scheduled principal payments secured equipment credit facilities approximately 282 million net cash used financing activities 160 million successor threemonth transition period ended march 31 2014 primarily due principal payments secured equipment credit facility approximately 127 million net cash provided financing activities 142 million predecessor threemonth period ended march 31 2013 included net borrowings approximately 149 million secured equipment credit facility net cash provided financing activities 245 billion successor year ended december 31 2013 included proceeds issuance common stock warrants approximately 186 billion related softbank merger addition company issued 90 billion debt consisting september 11 2013 issuance 225 billion aggregate principal amount 7250 notes due 2021 425 billion aggregate principal amount 7875 notes due 2023 december 12 2013 issuance 25 billion aggregate principal amount 7125 notes due 2024 guaranteed sprint communications also incurred approximately 147 million debt issuance costs increases along net borrowings secured equipment credit facility approximately 444 million offset retirement approximately 33 billion principal amount clearwire debt working capital negative working capital 51 billion 12 billion march 31 2016 2015 respectively decline working capital due decreased cash 14 billion primarily due cash paid total capital expenditures partially offset net cash provided operating activities proceeds mls handset saleleaseback tranche 1 transaction proceeds sale future lease receivables part receivables facility described addition accounts notes receivable net decreased 12 billion primarily due sale installment receivables part receivables facility described device accessory inventory decreased 186 million also contributing decline increase 34 billion current portion longterm debt financing capital lease obligations primarily due 20 billion sprint communications inc 6 senior notes 10 billion sprint communications inc 9125 senior notes 330 million proceeds sale future lease receivables coming due within next twelve months decreases offset decreases accounts payable 14 billion primarily result invoices extended payment terms certain network equipment suppliers coming due timing purchases payments associated device launches additionally accrued expenses current liabilities decreased 919 million primarily due decreased employee accruals decreased accrued capital expenditures unbilled services remaining balance due changes working capital items longterm debt funding sources scheduled maturities accounts receivables facility transaction overview accounts receivable facility receivables facility provides us opportunity sell certain wireless service installment receivables defined agreements unaffiliated third parties purchasers amended november 2015 include future amounts due customers lease certain devices us amendment increased maximum funding limit receivables facility 43 billion extended expiration november 2017 amount available receivables facility fluctuates time based total amount eligible receivables generated normal course business march 31 2016 total availability facility approximately 20 billion however result sales completed date total amount available drawn march 31 2016 94 million proceeds sale receivables comprised combination cash dpp sprints election decide much cash chooses receive sale maximum amount proceeds varies based number factors currently represents approximately 50 total amount receivables sold purchasers dpp realized us upon either ultimate collection underlying receivables sold purchasers upon sprints election receive additional advances cash purchasers subject total availability receivables facility wireless service installment receivables sold treated sale financial assets sprint derecognizes receivables well related allowances recognizes net proceeds received cash provided operating activities consolidated statements cash flows fees associated sales recognized selling general administrative consolidated statements operations sale future lease receivables treated financing transactions accordingly proceeds received reflected cash provided financing activities consolidated statements cash flows fees recognized interest expense consolidated statements operations transaction structure sprint contributes certain wireless service installment future lease receivables well associated leased devices sprints whollyowned consolidated bankruptcyremote special purpose entities spes sprints direction spes sold continue sell wireless service future lease installment receivables purchasers bank agent behalf purchasers leased devices remain spes sales initiated continue depreciated estimated useful life spe separate legal entity separate creditors entitled prior upon liquidation spe satisfied spe’s assets prior assets spe becoming available sprint accordingly assets spe available pay creditors sprint affiliates spe although collections receivables excess amounts required repay advances yield fees purchasers creditors spes may remitted sprint term receivables facility sprint retained interest receivables sold collection administrative responsibilities right dpp sales eligible receivables spes generally occur daily settled monthly basis sprint pays fee drawn undrawn portions receivables facility subsidiary sprint services receivables exchange monthly servicing fee sprint guarantees performance servicing obligations receivables facility dpp related wireless service installment receivables classified trading security within prepaid expenses current assets consolidated balance sheets recorded estimated fair value fair value dpp estimated using discounted cash flow model relies principally unobservable inputs nature credit class sold receivables subscriber payment history installment receivables sold estimated timing upgrades upgrade payment amounts upgrade options accretable yield dpp recognized interest revenue within net operating service revenue consolidated statements operations changes fair value dpp recognized selling general administrative consolidated statements operations changes fair value dpp material impact statements comprehensive loss year ended march 31 2016 changes unobservable inputs used determine fair value expected result material change fair value dpp wireless service receivable sales march 31 2015 sold approximately 18 billion wireless service receivables exchange 500 million cash reflected within change accounts notes receivable consolidated statement cash flows dpp 13 billion estimated fair value 12 billion accordance rights receivables facility april 2015 sprint elected temporarily suspend sales receivables spes remitted payments received purchasers reduce funded amount 500 million zero september 2015 sold wireless service receivables approximately 19 billion exchange 400 million cash 15 billion dpp estimated fair value 14 billion october 2015 january 2016 elected receive 300 million 125 million respectively cash reduced total amount dpp due sprint period sale september march 31 2016 cash collections previously sold wireless service receivables exceeded sales new receivables dpp decreased approximately 207 million march 31 2016 total amount available receivables facility associated wireless service receivables 43 million total fair value associated dpp 760 million installment receivable sales october 2015 sold installment receivables approximately 12 billion receivables facility exchange 100 million cash 11 billion dpp estimated fair value 10 billion november 2015 elected receive 400 million cash reduced amount dpp due sprint period initial sale october march 31 2016 cash collections previously sold installment receivables exceeded sales new receivables dpp decreased approximately 227 million march 31 2016 remaining availability receivables facility associated installment receivables total fair value associated dpp 395 million future lease receivable sales february march 2016 sold approximately 12 billion total future lease receivables exchange cash proceeds 600 million difference amount sold cash received represents additional collateral lender sale accounted financing 600 million cash proceeds accordingly reflected debt consolidated balance sheets march 31 2016 amount available receivables facility associated future lease receivables 51 million handset saleleaseback tranche 1 november 2015 sprint entered agreements handset saleleaseback tranche 1 sell leaseback certain leased devices excluded receivables facility allowed us monetize devices including device residual values agreements mobile leasing solutions llc mls company formed group equity investors including softbank group corp softbank sprint maintains customer lease continue collect record lease revenue customer remit monthly rental payments mls recognized cost products consolidated statements operations respective leaseback periods december 2015 sprint contributed 13 billion certain leased devices associated customer leases whollyowned consolidated bankruptcyremote special purpose entities sprint spe lessees spe lessees sold devices transferred certain specified customer lease end rights obligations right receive proceeds customers elect purchase device end customer lease term mls exchange proceeds totaling 11 billion cash purchase price dpp 126 million difference fair value net book value devices sold recognized loss disposal property plant equipment amount 65 million included net consolidated statements operations simultaneously sale devices mls leased back device spe lessees pursuant master lease agreement device lease exchange monthly rental payments made spe lessees mls monthly rental payments devices leased back us approximate amount cash received associated customer leases weighted average 17 month leaseback period see future contractual obligations expected future rent payments rent expense related mls totaled 277 million year ended march 31 2016 reflected within cash flows operations spe lessees retain rights underlying customer leases right receive rental payments device leaseback period aforementioned certain specified customer lease end rights spe lessee separate legal entity separate creditors entitled prior upon liquidation spe lessee satisfied spe lessee’s assets prior assets spe lessee becoming available sprint accordingly assets spe lessee available pay creditors sprint affiliates settlement dpp occurs end agreement reduced extent mls experiences loss device extent devices dpp balance dpp associated handset saleleaseback tranche 1 recorded assets consolidated balance sheets estimated net realizable value changes dpp prior settlement mls recorded adjustment rent expense cost products consolidated statements operations brightstar subsidiary softbank provides reverse logistics remarketing services mls respect devices unless device lease terminated early spe lessees obligated pay full monthly rental payments device lease regardless whether customers make lease payments devices leased whether customer lease still effect sprint guaranteed mls performance agreements undertakings spe lessees transaction documents devices must returned mls subject purchase rights customers sprint act servicer mls extent needed end device leaseback period secure obligations spe lessees device lease spe lessees provide security interest mls among things customer leases event mls able sell returned devices price greater expected device residual value sprint potential share excess proceeds network equipment saleleaseback april 2016 certain whollyowned subsidiaries sprint entered agreements network equipment saleleaseback sell leaseback certain network equipment unrelated bankruptcyremote special purpose entities collectively network leaseco spes sprint sold certain network equipment book value approximately 30 billion network leaseco spes used collateral raise approximately 22 billion borrowings external investors including softbank network leaseco spes variable interest entities sprint identified primary beneficiary result sprint required consolidate network leaseco spes intercompany transactions balances network leaseco whollyowned sprint subsidiaries eliminated consolidation network assets involved transaction consisted primarily equipment located cell towers remain sprints consolidated financial statements continue depreciated principal interest payments borrowings external investors paid back staggered unequal payments january 2018 handset saleleaseback tranche 2 april 2016 sprint entered second transaction mls handset saleleaseback tranche 2 sell leaseback certain iphone®devices leased customers iphone forever iphone life programs contrast first mls transaction saleleaseback arrangement accounted financing transaction accordingly devices remain property plant equipment net consolidated balance sheets continue depreciated estimated residual values generally lease term proceeds received reflected cash provided financing activities consolidated statements cash flows payments made mls reflected principal repayments interest expense respective terms future changes fair value financing obligation recognized earnings course arrangement upon closing transaction may 2016 sprint sold leasedback approximately 13 billion book value leased devices proceeds totaling 11 billion cash purchase price dpp 186 million settled end arrangement subject certain device losses incurred mls credit facilities bank credit facility revolving bank credit facility expires february 2018 requires ratio leverage ratio total indebtedness trailing four quarters earnings interest taxes depreciation amortization nonrecurring items defined revolving bank credit facility adjusted ebitda exceed 625 10 quarter ending december 31 2016 60 10 fiscal quarter ending thereafter expiration facility allows us reduce total indebtedness purposes calculating leverage ratio subtracting total indebtedness amount cash contributed segregated reserve account provided cash contribution cash remaining hand operations exceeds 20 billion upon transfer cash contribution remain restricted extent longer required leverage ratio remain compliance export development canada edc agreement unsecured edc agreement provides covenant terms similar revolving bank credit facility however terms edc agreement repayments outstanding amounts cannot redrawn quarter ended december 2015 made scheduled principal repayment 500 million leaving principal balance 300 million matures december 2019 time repayment edc agreement also amended increase facility 250 million addition new tranche due december 2017 fully drawn accordingly march 31 2016 total principal amount borrowings edc facility 550 million new unsecured financing facility april 2016 sprint communications entered unsecured financing facility 20 billion terms facility provide covenant terms similar revolving bank credit facility however repayments outstanding amounts cannot redrawn loan bears interest rate equal libor plus percentage varies depending time draw matures october 2017 amounts borrowed required repaid certain debt equity securities issued certain asset sales occur set forth specifically agreement may 17 2016 amounts drawn facility secured equipment credit facilities eksportkreditnamnden ekn secured equipment credit facility provides covenant terms similar revolving bank credit facility 2013 fully drawn began repay ekn secured equipment credit facility totaling 10 billion used finance certain networkrelated purchases ericsson made regularly scheduled principal repayments totaling 254 million year ended march 31 2016 balance outstanding march 31 2016 254 million finnvera plc finnvera secured equipment credit facility provides ability borrow 800 million finance networkrelated purchases nokia facility initially could drawn upon many three consecutive tranches one tranche remaining available borrowing october 2017 borrowings contingent upon amount timing sprints networkrelated purchases year ended march 31 2016 drawn 208 million facility made principal repayments totaling 56 million resulting total principal amount 196 million outstanding march 31 2016 ksure secured equipment credit facility provides ability borrow 750 million finance networkrelated purchases samsung facility divided three consecutive tranches varying size borrowings available may 2018 contingent upon amount networkrelated purchases made sprint year ended march 31 2016 drawn 266 million facility resulting total principal amount 323 million outstanding march 31 2016 delcredere ducroire dd secured equipment credit facility provides ability borrow 250 million finance network equipmentrelated purchases alcatellucent year ended march 31 2016 drawn 32 million facility resulting total principal amount 32 million outstanding march 31 2016 borrowings ekn finnvera ksure dd secured equipment credit facilities secured liens respective equipment purchased pursuant facilitys credit agreement addition repayments outstanding amounts borrowed secured equipment credit facilities cannot redrawn facilities fully unconditionally guaranteed sprint communications inc sprint corporation covenants four secured equipment credit facilities similar one another covenants revolving bank credit facility edc agreement march 31 2016 leverage ratio defined revolving bank credit facility edc agreement equipment credit facilities 41 10 leverage ratio exceeded 25 10 period end restricted paying cash dividends following graph depicts future fiscal year repayments due notes credit facilities march 31 2016 table excludes 320 million letters credit outstanding unsecured revolving bank credit facility expire 2018 outstanding balance ii capital leases financing obligations iii net premiums debt financing costs liquidity capital resources march 31 2016 liquidity including cash equivalents shortterm investments available borrowing capacity revolving bank credit facility availability receivables facility 57 billion cash equivalents shortterm investments totaled 26 billion march 31 2016 compared 42 billion march 31 2015 march 31 2016 approximately 30 billion borrowing capacity available revolving bank credit facility amounts available receivables facility march 31 2016 totaled 94 million addition combined available borrowing capacity 645 million ksure dd secured equipment credit facilities march 31 2016 april 1 2016 520 million third tranche finnvera secured equipment credit facility became available however utilization facilities dependent upon amount timing networkrelated purchases applicable suppliers well period time remaining complete borrowings available facility offer device financing plans including installment billing program leasing program allow subscribers forgo traditional service contracts pay less upfront devices exchange lower monthly service fees early upgrade options majority revenue associated installment sales recognized time sale along related cost products lease revenue recorded monthly term lease cost device depreciated estimated residual value generally lease term creates positive impact wireless segment earnings mix leased devices continues increase expect positive impact financial results wireless segment earnings continue depreciation expense increase however benefit wireless segment earnings partially offset handset saleleaseback tranche 1 transaction consummated november 2015 sold subsequently leased back certain devices leased customers result cost devices sold mls longer recorded depreciation expense rather recognized rent expense within cost products leaseback periods installment billing leasing programs continue require greater use operating cash flows earlier part contracts subscriber generally pay less upfront traditional subsidized programs financing device receivables facility relationship mls established mechanisms mitigate use cash purchasing devices oems fulfill installment billing leasing programs meet liquidity requirements look variety sources addition existing cash equivalents shortterm investments cash generated operating activities raise funds necessary external sources rely ability issue debt equity securities ability access forms financing including debt financing proceeds sale certain accounts receivable future lease receivables facility proceeds future saleleaseback transactions spectrum devices equipment borrowing capacity available credit facilities support short longterm liquidity requirements april 2016 entered network equipment saleleaseback sell leaseback certain network equipment total cash proceeds approximately 22 billion handset saleleaseback tranche 2 total cash proceeds approximately 11 billion executed new unsecured financing facility 20 billion believe existing available liquidity cash flows operations sufficient meet funding requirements next twelve months including debt service requirements significant future contractual obligations maintain adequate amount available liquidity execute current business plan includes among things network deployment maintenance subscriber growth data usage capacity needs expected achievement cost structure intended improve profitability meet longterm debt service requirements significant future contractual obligations need continue raise additional funds external sources possible future financing sources include among others additional tranches handset saleleaseback include additional devices transaction monetize certain spectrum holdings refinancing debt saleleasebacks certain real estate addition pursuing extended payment terms certain vendors unable obtain external funding execute cost reduction initiatives successful attracting valuable subscribers postpaid handset versus tablet subscribers expectation longerterm benefits operations would adversely affected may lead defaults certain borrowings depending amount difference actual results versus currently expect may make difficult us generate sufficient ebitda remain compliance financial covenants able meet debt service obligations could result acceleration indebtedness adversely impact ability raise additional funding sources described events occur may engage lenders obtain appropriate waivers amendments credit facilities refinance borrowings seek funding external sources although assurance would successful actions default certain borrowings could trigger defaults certain debt obligations turn could result maturities accelerated certain indentures agreements also require compliance various covenants including covenants limit companys ability sell substantially assets limit company subsidiaries ability incur indebtedness liens require maintain certain financial ratios defined terms indentures related supplemental indentures agreements determining expectation future funding needs next twelve months beyond made several assumptions regarding • projected revenues expenses relating operations including related installment billing leasing programs along success initiatives expectations achieving competitive cost structure cost reduction initiatives increasing postpaid handset subscriber base • cash needs related installment billing leasing programs • availability march 31 2016 94 million funding receivables facility terminates november 2017 • continued availability revolving bank credit facility expires february 2018 amount 33 billion less outstanding letters credit • remaining availability approximately 12 billion secured equipment credit facilities inclusive availability eligible draw upon beginning april 1 2016 eligible capital expenditures corresponding principal interest fee payments • raising additional funds external sources • expected use cash equivalents nearterm • anticipated levels timing capital expenditures including assumptions regarding lower unit costs capacity additions upgrading networks deployment new technologies networks fcc license acquisitions purchases leased devices indirect dealers • additional contributions may make pension plan • scheduled principal payments debt secured equipment credit facilities edc including approximately 132 billion coming due next five fiscal years • estimated residual values devices related device lease program • future contractual obligations general corporate expenditures ability fund needs external sources ultimately affected overall capacity financing terms available banking securities markets availability financing alternatives well performance credit ratings given recent financial performance well volatility markets continue monitor closely take steps maintain financial flexibility reasonable cost capital outlooks credit ratings moodys investor service standard poors ratings services fitch ratings certain sprint corporations outstanding obligations future contractual obligations following table sets forth current estimates amounts timing contractual payments march 31 2016 future events including additional issuances debt securities refinancing debt securities could cause actual payments differ significantly amounts see item 1a risk factors 1 includes outstanding principal estimated interest payments interest payments based managements expectations future interest rates case variable rate debt 2 represents capital lease payments including interest financing obligation related sale subsequent leaseback multiple tower sites 3 includes future lease payments related cell switch sites real estate network equipment office space 4 includes future spectrum lease payments well service credits related commitments provide services certain lessors reimburse lessors certain capital equipment thirdparty service expenditures term lease 5 includes service spectrum network equipment devices asset retirement obligations executory contracts including contract apple excludes blanket purchase orders amount 24 million see discussion purchase orders commitments include minimum purchases commit purchase suppliers time andor unconditional purchase obligations guarantee make minimum payment suppliers goods services regardless whether take delivery amounts represent entire anticipated purchases future generally represent estimate items committed estimates based assumptions variable components contracts hours contracted number subscribers pricing factors addition party various arrangements conditional nature create obligation make payments upon occurrence certain events delivery functioning software products possible predict timing amounts may due conditional arrangements amounts included table also excludes approximately 24 million blanket purchase order amounts since agreement terms specified time frame set purchase orders legally binding result firm commitments liability uncertain tax positions 166 million march 31 2016 due inherent uncertainty timing resolution underlying tax positions practicable assign liability particular years table include remaining costs paid connection fulfillment obligations report order report order requires us make payment us treasury conclusion band reconfiguration process extent value 19 ghz spectrum received exceeds total value licenses spectrum 700 mhz 800 mhz bands surrendered decision plus actual costs qualifying costs incur retune incumbents facilities inception program march 31 2016 incurred approximately 35 billion costs directly attributable spectrum reconfiguration program amount include internal network costs preliminarily allocated reconfiguration program capacity sites modifications may request credit reconfiguration program estimate based experience date reconfiguration program information currently available total direct costs attributable complete spectrum reconfigurations range 36 37 billion accordingly believe unlikely required make payment us treasury offbalance sheet financing sprint accounts receivable facility providing sale eligible wireless service installment certain future lease receivables maximum funding limit 43 billion expiration date november 2017 period ended march 31 2016 received 13 billion cash proceeds connection receivables facility sprint formed certain whollyowned consolidated bankruptcyremote spes sprints direction spes sell wireless service installment future lease receivables unaffiliated third parties bank agent sales eligible receivables generally occur daily settled monthly basis sprint pays fee drawn undrawn portions receivables facility november 2015 sprint also entered handset saleleaseback tranche 1 agreement sell leaseback certain leased devices mls connection handset saleleaseback tranche 1 sprint formed certain whollyowned consolidated bankruptcyremote spe lessees spe lessees sold devices transferred certain specified customer lease end rights obligations mls exchange proceeds totaling 11 billion dpp 126 million december 2015 see detailed accounts receivables facility handset saleleaseback tranche 1 discussions within liquidity capital resources critical accounting policies estimates sprint applies accounting policies management believes best reflect underlying business economic events consistent us gaap sprints critical accounting policies include allowance doubtful accounts estimated economic lives residual values property plant equipment valuation recoverability longlived assets evaluation goodwill indefinitelived assets impairment valuation guarantee liabilities inherent policies certain key assumptions estimates made management regularly updates estimates used preparation financial statements based latest assessment current projected business general economic environment sprints significant accounting policies estimates summarized notes consolidated financial statements depreciation property plant equipment balance represents significant component consolidated assets record property plant equipment cost generally depreciate straightline basis estimated useful life assets expect oneyear increase estimated useful lives property plant equipment exclusive leased devices would result decrease fiscal year 2016 depreciation expense 800 million oneyear decrease would result increase approximately 12 billion fiscal year 2016 depreciation expense leased devices accounting device leases involves specific determinations applicable lease accounting standards determinations affect timing revenue recognition timing classification related cost device lease classified operating lease revenue recognized ratably lease term leased asset included property plant equipment depreciated estimated residual value generally lease term lease classified salestype lease equipment revenue recognized inception lease corresponding charge cost product lease classified directfinancing lease related revenue cost products recorded net investment leased asset reported critical elements consider determining classification leased devices economic life fair value device including estimated residual value purposes assessing economic life device consider internal external datasets including limited length time subscribers use devices sales trends post launch transactions secondary market currently significant aftermarket used telecommunication devices lease inception devices classified operating leases reclassified inventory property plant equipment leased sprints direct channels devices leased indirect channels purchase devices lease inception dealer capitalized property plant equipment residual values associated devices operating leases represent estimated fair value end lease term review residual values regularly appropriate adjust based among things estimates expected market conditions end lease including impacts future product launches adjustments residual values leased devices recognized revision depreciation estimates estimate 10 increase decrease estimated residual values devices currently operating leases march 31 2016 would material effect depreciation expense next twelve months valuation recoverability longlived assets longlived assets reviewed impairment whenever events changes circumstances indicate carrying amount may recoverable impairment loss recognized carrying amount longlived asset group recoverable exceeds fair value longlived asset groups determined based upon certain factors including assessing lowest level identifiable cash flows largely independent cash flows groups assets liabilities impairment analyses performed based current business technology strategy views growth rates business anticipated future economic regulatory conditions expected technological availability year ended march 31 2016 impairments recorded threemonth period ended december 31 2014 recorded impairment loss 233 million included impairments consolidated statements operations reduce carrying value wireline asset group includes wireline longlived assets estimated fair value testing date 918 million fair value wireline longlived assets estimated using market approach included significant unobservable inputs including liquidation curves useful life assumptions scrap values assumptions largely unobservable estimate fair value considered unobservable within fair value hierarchy determination fair value requires judgment sensitive changes underlying assumptions believe judgments assumptions reasonable changes future periods may impact assumptions lead additional future impairments evaluation goodwill indefinitelived intangible assets impairment result softbank merger july 2013 recognized indefinitelived assets acquisitiondate estimates fair value including fcc licenses goodwill trade names indefinitelived assets including goodwill allocated wireless segment march 31 2015 2016 carrying values assets 360 billion 66 billion 40 billion respectively sprint evaluates carrying value indefinitelived assets including goodwill least annually frequently whenever events changes circumstances indicate asset may impaired case goodwill fair value reporting unit carrying amount quarterended march 31 2016 company completed annual impairment testing goodwill sprint boost trade names spectrum licenses result testing determined fair value indefinitelived intangible assets exceeded carrying values performing goodwill impairment test estimated fair value wireless reporting unit using incomebased marketbased assetbased valuation models determination fair value reporting unit requires significant estimates assumptions including significant unobservable inputs key inputs included limited discount rates terminal growth rates control premiums market multiple data selected guideline public companies management’s internal forecasts include numerous assumptions share industry gross additions churn mix plans rate changes operating capital expenditures ebitda margins among others changes certain assumptions management’s failure execute current plan could significant impact estimated fair value wireless reporting unit incomebased approach note fair value cushion excess 10 carrying value estimated fair value sprint boost trade names assigned wireless segment using relieffromroyalty method uses several significant assumptions including management projections future revenue royalty rate longterm growth rate discount rate assumptions largely unobservable estimate fair value considered unobservable within fair value hierarchy changes certain assumptions significant effect estimated fair value sprint boost trade names note 5 decrease revenue across longterm plans would result impairment march 31 2016 quarter ended december 31 2014 determined recoverability carrying amount goodwill sprint trade name evaluated impairment determined carrying value sprint trade name exceeded estimated fair value 33 billion accordingly quarter ended december 31 2014 recorded impairment loss 19 billion included impairments consolidated statements comprehensive loss determination fair value requires considerable judgment highly sensitive changes underlying assumptions execution management’s plan consequently assurance estimates assumptions made purposes goodwill spectrum trade name impairment tests prove accurate prediction future continued sustained declines company’s operating results future forecasted cash flows growth rates assumptions well significant sustained declines company’s stock price related market capitalization could impact underlying key assumptions estimated fair values potentially leading future material impairment goodwill indefinitelived intangible assets new accounting pronouncements may 2014 financial accounting standards board fasb issued new authoritative literature revenue contracts customers issuance part joint effort fasb international accounting standards board iasb enhance financial reporting creating common revenue recognition guidance us gaap international financial reporting standards thereby improving consistency requirements comparability practices usefulness disclosures new standard supersede much existing authoritative literature revenue recognition july 2015 fasb deferred effective date standard result standard related amendments effective company fiscal year beginning april 1 2018 including interim periods within fiscal year early application permitted original effective date april 1 2017 fasb subsequently issued additional guidance several areas including implementation principal versus agent considerations recognition breakage certain prepaid storedvalue products requiring breakage liabilities accounted consistent breakage guidance revenue standard also clarified entity evaluate nature promise granting intellectual property license promised good service distinct within context contract allowed entities disregard goods services immaterial context contract entities allowed transition new standard either retrospective application recognizing cumulative effect company currently evaluating newly issued guidance including transition approach applied expect guidance material impact consolidated financial statements august 2014 fasb issued authoritative guidance regarding disclosure uncertainties entity’s ability continue going concern requires management assess entity’s ability continue going concern provide related footnote disclosures certain circumstances updated guidance requires management perform interim annual assessments whether conditions events considered aggregate raise substantial doubt entity’s ability continue going concern within one year date financial statements issued provide related disclosures required standard would effective company’s fiscal year beginning april 1 2016 including interim reporting periods within fiscal year although early adoption permitted company elected early adopt guidance effective january 1 2016 early adoption guidance material effect consolidated financial statements january 2015 fasb issued authoritative guidance extraordinary unusual items eliminating concept extraordinary items issuance part fasb’s initiative reduce complexity accounting standards current guidance entity required separately classify present disclose events transactions meet criteria extraordinary classification new guidance reporting entities longer required consider whether underlying event transaction extraordinary however presentation disclosure guidance items unusual nature occur infrequently retained expanded include items unusual nature infrequently occurring amendments effective company’s fiscal year beginning april 1 2016 although early adoption permitted applied beginning fiscal year company expect adoption guidance material effect consolidated financial statements february 2015 fasb issued authoritative guidance regarding consolidation provides guidance management evaluating whether consolidate certain legal entities updated guidance modifies evaluation criteria limited partnerships similar legal entities eliminates presumption general partner consolidate limited partnership affects consolidation analysis reporting entities involved variable interest entities particularly fee arrangements related party relationships legal entities subject reevaluation revised consolidation model standard effective company’s fiscal year beginning april 1 2016 including interim periods within fiscal year although early adoption permitted company currently evaluating newly issued guidance expect guidance material effect consolidated financial statements july 2015 fasb issued authoritative guidance regarding inventory simplifies subsequent measurement certain inventories replacing today’s lower cost market test lower cost net realizable value test net realizable value estimated selling prices ordinary course business less reasonably predictable costs completion disposal transportation standard effective company’s fiscal year beginning april 1 2017 including interim periods within fiscal year company expect adoption guidance material effect consolidated financial statements september 2015 fasb issued authoritative guidance amending business combinations requires acquirer recognize adjustments provisional amounts identified measurement period reporting period adjustment amounts determined including cumulative effect change provisional amount accounting completed acquisition date adjustments related previous reporting periods since acquisition date must disclosed income statement line item either face income statement notes amendments applied prospectively adjustments occur effective date amendments effective company fiscal year beginning april 1 2016 including interim periods within fiscal year although early adoption permitted financial statements issued applied necessary future business combinations january 2016 fasb issued authoritative guidance regarding financial instruments amended guidance classification measurement financial instruments new guidance entities required measure equity investments consolidated accounted equity method fair value changes fair value recorded net income unless entity elected new practicability exception financial liabilities measured using fair value option entities required separately present comprehensive income portion changes fair value attributable instrumentspecific credit risk additionally guidance amends certain disclosure requirements associated fair value financial instruments standard effective company’s fiscal year beginning april 1 2018 including interim reporting periods within fiscal year company currently evaluating guidance assessing impact consolidated financial statements february 2016 fasb issued authoritative guidance regarding leases new standard supersede much existing authoritative literature leases guidance requires lessees among things recognize rightofuse assets liabilities balance sheet leases lease terms longer twelve months standard effective company fiscal year beginning april 1 2019 including interim periods within fiscal year early application permitted entities required use modified retrospective application leases exist entered beginning earliest comparative period financial statements option elect certain transition reliefs company currently evaluating guidance expect material impact consolidated financial statements however still assessing overall impact financial strategies general risk management policies board directors adopted financial risk management policy authorizes us enter derivative transactions comply policy purchase hold derivative financial instruments speculative purposes exception equity rights obtained connection commercial agreements strategic investments usually form warrants purchase common shares derivative instruments primarily used hedging risk management purposes hedging activities may done various purposes including limited mitigating risks associated asset liability committed transaction probable forecasted transaction seek minimize counterparty credit risk credit approval review processes credit support agreements continual review monitoring counterparties thorough legal review contracts exposure market risk controlled regularly monitoring changes hedge positions normal stress conditions ensure exceed established limits information routinely post important information website wwwsprintcominvestors information contained accessible website part annual report forwardlooking statements include certain estimates projections forwardlooking statements annual quarterly current reports publicly available material statements regarding expectations including performance assumptions estimates relating capital requirements well statements historical facts forwardlooking statements reflect managements judgments based currently available information involve number risks uncertainties could cause actual results differ materially forwardlooking statements respect forwardlooking statements management made assumptions regarding among things subscriber network usage subscriber growth retention technologies products services pricing operating costs timing various events economic regulatory environment future performance cannot assured actual results may differ materially forwardlooking statements factors could cause actual results differ include • ability obtain additional financing including monetizing certain assets including portion network spectrum holdings modify terms existing financing terms acceptable us • ability continue receive expected benefits handset saleleasebacks including additional future tranches • ability retain attract subscribers manage credit risks associated subscribers • ability competitors offer products services lower prices due lower cost structures otherwise • effective implementation plans improve quality network including timing execution technologies costs performance network • failure improve subscriber churn bad debt expense accelerated cash use costs writeoffs including respect changes expected residual values related service plans including installment billing leasing programs • ability generate sufficient cash flow fully implement plans improve enhance quality network service plans improve operating margins implement business strategies provide competitive new technologies • effects vigorous competition highly penetrated market including impact competition prices able charge subscribers services devices provide geographic areas served network • impact installment billing leasing handsets impact increased purchase commitments overall demand service plans including impact decisions new existing subscribers service offerings impact new emerging competing technologies business • ability provide desired mix integrated services subscribers • ability continue access spectrum acquire additional spectrum capacity • changes available technology effects changes including product substitutions deployment costs performance • volatility trading price common stock current economic conditions ability access capital including debt equity • impact various parties meeting business requirements including significant adverse change ability willingness parties provide service products including distribution infrastructure equipment network • costs business risks associated providing new services entering new geographic markets • effects future merger acquisition involving us well effect mergers acquisitions consolidations new entrants communications industry unexpected announcements developments others industry • ability comply restrictions imposed us government condition merger softbank • effects material impairment goodwill indefinitelived intangible assets • impacts new accounting standards changes existing standards fasb regulatory agencies issue including securities exchange commission • unexpected results litigation filed us suppliers vendors • costs potential customer impact compliance regulatory mandates including limited compliance fccs report order reconfigure 800 mhz band government regulation regarding net neutrality • equipment failure natural disasters terrorist acts breaches network information technology security • one markets compete impacted changes political economic factors monetary policy legal regulatory changes external factors control • impact controlled company exempt many corporate governance requirements nyse • risks referenced time report filings sec words may could estimate project forecast intend expect anticipate believe target plan similar expressions intended identify forwardlooking statements forwardlooking statements found throughout managements discussion analysis financial condition results operations elsewhere report readers cautioned factors although listed could also materially affect future performance operating results reader place undue reliance forwardlooking statements speak date report obligated publicly release revisions forwardlooking statements reflect events date report including unforeseen events item 7a item 7 managements discussion analysis financial condition results operations forwardlooking information sprint includes certain estimates projections forwardlooking statements reports publicly available material statements regarding expectations including performance assumptions estimates relating capital requirements well statements historical facts forwardlooking statements reflect managements judgments based currently available information involve number risks uncertainties could cause actual results differ materially forwardlooking statements respect forwardlooking statements management made assumptions regarding among things demand products services pricing costs acquire customers provide service timing cost planned capital expenditures general economic conditions future performance cannot ensured actual results may differ materially forwardlooking statements factors could cause actual results differ include extent duration current economic downturn effects vigorous competition markets sprint operates costs business risks associated providing new services entering new markets necessary provide nationwide global services adverse change ratings afforded debt securities ratings agencies ability pcs group continue grow significant market presence ability pcs group improve profitability reduce cash requirements effects mergers consolidations within telecommunications industry unexpected announcements developments others telecommunications industry uncertainties related outcome bankruptcies affecting telecommunications industry impact pcs groups network coverage due financial difficulties thirdparty affiliates uncertainties related sprints investments impact unusual items resulting ongoing evaluations sprints business strategies impact new emerging technologies sprints business unexpected results litigation filed sprint delays associated hiring qualified individual replace sprints chief executive officer possibility one markets sprint competes impacted changes political factors monetary policy legal regulatory changes including impact telecommunications act 1996 telecom act external factors sprint control risks referenced time sprints filings securities exchange commission sec words estimate project intend expect believe similar expressions intended identify forwardlooking statements forwardlooking statements found throughout managements discussion analysis reader place undue reliance forwardlooking statements speak date report sprint obligated publicly release revisions forwardlooking statements reflect events date report unforeseen events definitions operating nongaap financial measures sprint provides readers financial measures generated using generally accepted accounting principles gaap using adjustments gaap nongaap financial measures reflect industry conventions standard measures liquidity profitability performance commonly used investment community comparability purposes nongaap financial measures operating measures used document include following free cash flow defined cash generated operations less net cash requirements capital expenditures investment activities dividends currently sprint also includes cash generated discontinued operations ebitda measured operating income loss plus depreciation amortization customer churn used pcs group define ratio customers discontinuing pcs service total average subscribers period arpu average monthly revenue per user used pcs group define measure average monthly service revenue per user ccpu cash cost per user used pcs group define measure cash costs operate business per user basis consisting costs service revenues service delivery general administrative costs divided average subscribers cpga cost per gross addition used pcs group define measure sales marketing efforts computed costs acquiring new subscriber including equipment subsidies marketing costs divided handset activations general sprint global communications company leader integrating longdistance local service wireless communications sprint also one largest carriers internet traffic using tier one internet protocol network provides connectivity point internet either network via direct connections backbone providers sprint nations thirdlargest provider long distance services based revenues operates nationwide alldigital long distance tier one internet protocol networks using fiberoptic electronic technology addition local division currently serves approximately 81 million access lines 18 states sprint also operates 100 digital pcs wireless network licenses provide service entire united states population using single frequency band single technology november 1998 sprints shareholders approved allocation sprints assets liabilities two groups fon group pcs group well creation fon stock pcs stock addition sprint purchased remaining ownership interests sprint spectrum holding company lp phillieco lp together sprint pcs minority interest cox communications pcs lp cox pcs called sprint telephony pcs lp sprint acquired ownership interests telecommunications inc comcast corporation cox communications inc cable partners exchange sprint issued cable partners special lowvote pcs shares warrants acquire additional pcs shares sprint also issued cable partners shares new series preferred stock convertible pcs shares purchase cable partners interests referred pcs restructuring 1999 second quarter cox communications inc exercised put option requiring sprint purchase remaining 408 interest cox pcs sprint issued additional low vote pcs shares exchange interest also november 1998 sprint reclassified publicly traded common shares one share fon stock 12 share pcs stock recapitalization taxfree shareholders addition class common shares owned ft dt reclassified shares representing fon stock pcs stock transactions referred recapitalization connection pcs restructuring ft dt purchased 51 million additional pcs shares presplit basis ft longer holds fon shares dt longer holds either fon pcs shares operating segments sprints business divided three lines business global markets division local division pcs wireless telephony products services business board discretion regarding tracking stocks fon common stock pcs common stock intended reflect financial results economic value fon pcs groups however classes common stock sprint group intended track accordingly fon pcs shareholders subject risks related equity investment sprint sprints businesses assets liabilities shares fon common stock pcs common stock represent direct legal interest assets liabilities allocated either group rather represent direct equity interest assets liabilities whole sprints board directors discretion among things make operating financial decisions could favor one group subject restrictions sprints articles incorporation change allocation assets liabilities comprise fon group pcs group without stockholder approval applicable corporate law sprints board owes fiduciary duties sprints shareholders board directors owes separate duties holders either fon common stock pcs common stock tracking stock policies provide board resolving material matters holders fon common stock pcs common stock potentially divergent interests act best interests sprint common shareholders giving fair consideration potentially divergent interests holders separate classes sprint common stock policies may changed board without shareholder approval given boards discretion matters may difficult assess future prospects group based past performance critical accounting policies fundamental objective financial reporting provide useful information allows reader comprehend business activities sprint aid understanding management identified sprints critical accounting policies considered critical potential material impact sprints financial statements require judgements estimation due uncertainty involved measuring specific point time events continuous nature longlived asset recoverya significant portion sprints total assets consist longlived assets consisting primarily property plant equipment ppe definite life intangibles well goodwill indefinite life intangibles changes technology sprints intended use assets well changes broad economic industry factors may cause estimated period use value assets change depreciable lives assets sprint performs annual internal studies confirm appropriateness depreciable lives category ppe studies utilize models take account actual usage physical wear tear replacement history assumptions technology evolution use certain instances actuariallydetermined probabilities calculate remaining life asset base sprint believes accounting estimate related establishment asset depreciable lives critical accounting estimate 1 requires company management make assumptions technology evolution competitive uses assets 2 impact changes assumptions could material financial position well results operations managements assumptions technology future development require significant judgement timing impacts technology advances difficult predict actual experience varied previous assumptions could continue sprints studies resulted depreciable rate 5 higher lower used preparation sprints consolidated financial statements recorded depreciation expense would impacted approximately 260 million impact fon group depreciation expense would approximately 140 million impact pcs group depreciation expense would approximately 120 million property plant equipment definite life intangibles impairment ppe definite life intangibles evaluated impairment whenever indicators impairment exist accounting standards require impairment indicator present company must assess whether carrying amount asset unrecoverable estimating sum future cash flows expected result asset undiscounted without interest charges carrying amount less recoverable amount impairment charge must recognized based fair value asset sprint believes accounting estimate related asset impairment critical accounting estimate 1 requires company management make assumptions future revenues costs sales life asset 2 impact recognizing impairment could material financial position well results operations managements assumptions future revenues require significant judgement actual revenues fluctuated past may continue estimating future revenues use internal business forecasts develop forecasts based recent revenue data existing products services planned timing new products services industry economic factors indicators present sprint tests impairment 2002 resulted total 198 million ppe impaired fon group recorded 156 million network asset impairments pcs group recorded 42 million abandoned network projects impairments represent less one percent december 31 2002 consolidated net ppe sprint goodwill indefinite life intangibles goodwill indefinite life intangibles reviewed least annually impairment frequently indicators impairment exist goodwill tested comparing net book value reporting unit identified sprints operating segments fair value indefinite life intangibles tested comparing book value estimated fair value sprint believes accounting estimate related goodwill indefinite life intangibles critical accounting estimate 1 requires company management make assumptions fair values 2 impact recognizing impairment could material financial position well results operations managements assumptions fair values require significant judgement broad economic factors industry factors technology considerations result variable volatile fair values management completed impairment analyses goodwill indefinite life intangibles fourth quarter 2002 tests performed internally case certain intangibles third party valuation appraisal company instance december 31 2002 impairment existed employee benefit plan assumptionsretirement benefits significant cost business sprint yet represent obligations settled far future retirement benefit accounting intended reflect recognition future benefit costs employees approximate service period based terms plans investment funding decisions made company accounting requires management make assumptions regarding variables return assets discount rate future health care costs changes key assumptions significant impact projected benefit obligation periodic benefit cost incurred company sprint believes accounting estimate related retirement benefit accounting critical accounting estimate 1 requires company management make assumptions discount rates future health care costs future return assets funding obligation 2 impact changes actual performance versus estimates would projected benefit obligation reported balance sheet benefit cost could material method determining pension obligations requires assumptions concerning market performance market performance fluctuated recent past could continued volatility future selecting assumptions sprint uses historical experience well objective indices benchmarks tests benchmarks historical industry data assumptions provided independent actuary increase discount rate expected return assets would reduce reported obligation contrast discount rate 2002 used determining obligation 25 basis points lower would generate 162 million increase obligation reported balance sheet 19 million increase benefit costs similarly expected return assets assumption 25 basis points lower would generate 8 million increase obligation reported balance sheet similar increase benefit costs reasonable changes estimate health care cost assumptions would materially affect obligation related benefit costs single year allocation policies tracking stocksas discussed previously fon common stock intended reflect financial results economic value fon group pcs common stock intended reflect financial results economic value pcs group fon common stock pcs common stock classes common stock sprint together groups reflect 100 sprints business activities sprint believes accounting estimate related allocation policies critical accounting estimate 1 requires company management make assumptions market interest rates group use shared costs 2 impact recognizing change allocation would net assets use resources operating results either group could material allocation policies regarding shared activities impact business results fon group pcs group sprint performs internal studies confirm appropriateness assignment costs direct assignment possible practical methods used indirect assignment include time studies factors related marketing headcount studies sprint manages financing activities groups centralized basis debt incurred sprint behalf groups specifically allocated reflected financial statements applicable group interest expense assigned pcs group based estimated rate substantially equal rate would able obtain third parties direct indirect wholly owned sprint subsidiary without benefit guarantee sprint member fon group additionally sprints centralized cash management program allows one group advance funds group advances accounted shortterm borrowings groups bear interest rate substantially equal rate group would able obtain third parties shortterm basis management utilizes credit rating agencies investment banks provide objective basis determining appropriate assumptions concerning market interest rates sprint uses information arriving assumptions used determine allocations allocation assets financial resources certain expenses require judgement management allocation methods used subject discretion board directors fulfillment fiduciary duties sprints shareholders holders fon stock pcs stock may interests differ conflict interests holders stock tracking stock policies provide board directors resolving material matters holders fon stock pcs stock potentially divergent interests act best interest sprint common stockholders giving fair consideration potentially divergent interests holders separate classes common stock tax valuation allowancessprint required estimate amount tax payable refundable current year deferred income tax liabilities assets future tax consequences events reflected financial statements tax returns taxing jurisdiction operates process requires sprints management make assessments regarding timing probability ultimate tax impact sprint records valuation allowances deferred tax assets reflect expected realizable future tax benefits actual income taxes could vary estimates due future changes income tax law significant changes jurisdictions sprint operates sprints inability generate sufficient future taxable income unpredicted results final determination years liability taxing authorities changes significant impact financial position company sprint believes accounting estimate related establishing tax valuation allowances critical accounting estimate 1 requires company management make assessments timing future events including probability expected future taxable income available tax planning opportunities 2 impact changes actual performance versus estimates could realization tax benefit reported results operations could material managements assumptions require significant judgement actual performance fluctuated past may continue sprint currently carries income tax valuation allowance 573 million books amount includes valuation allowance total tax benefits related net operating loss carryforwards acquired connection certain acquisitions remainder valuation allowance relates state net operating loss carryforwards assumption changes result reduction expected benefits realization state net operating loss carryforwards 10 would increase valuation allowance 27 million pcs group 4 million fon group revenue recognition policiessprint recognizes operating revenues services rendered products delivered customers accordance sec staff accounting bulletin 101 connection recording revenue estimates assumptions required determining expected conversion revenue streams cash collected revenue estimation process requires management make assumptions based historical results future expectations economic competitive environment changes credit worthiness customers relevant factors changes key assumptions significant impact projection cash collected periodic revenue stream recognized company sprint believes accounting estimate related establishment revenue receivable reserves associated provisions results operations critical accounting estimate 1 requires company management make assumptions future billing adjustments disputes customers unauthorized usage future returns asset sales future access adjustments disputes competitive local exchange carriers interexchange carriers well future economic viability customer base 2 impact changes actual performance versus estimates would accounts receivable reported balance sheet results reported statements operations could material selecting assumptions sprint uses historical trending writeoffs industry norms regulatory decisions recognition current market indicators general economic conditions might impact collectibility accounts general overview sprint fon group fon group comprised global markets division local division businesses consisting primarily wholesale distribution telecommunications products global markets division nations thirdlargest provider long distance services based revenues activities local division include local exchange communications consumer long distance services used customers within sprints local franchise territories global markets division global markets division provides broad suite communications services targeted domestic business residential customers multinational corporations communications companies services include domestic international voice data communications using various protocols internet protocol ip frame relay data service transfers packets data sprints network managed network services addition global markets division provides web applications hosting consulting services colocation services international data communications global markets division also includes operating results wireless high speed data cable tv service operations broadband fixed wireless companies 2001 sprint announced would halt deployment multipoint multichannel distribution services mmds services using current line sight technology current video high speed data customers continue receive service sprint pursuing alternative strategies respect spectrum leases licenses division also includes fon groups investments earthlink inc internet service provider callnet long distance provider canada intelig telecommunicacoes ltda long distance provider brazil certain telecommunications investments ventures local division local division consists mainly regulated local phone companies serving approximately 81 million access lines 18 states local division provides local voice data services including digital subscriber line dsl customers within franchise territories access phone customers carriers local divisions local network nationwide long distance services residential customers located within franchise territories sales telecommunications equipment services within specified calling areas residential business customers dsl enables high speed transmission data existing copper telephone lines general overview sprint pcs group pcs group includes sprints wireless pcs operations operates 100 digital pcs wireless network licenses provide service entire united states population using single frequency single technology yearend 2002 pcs group together third party affiliates operated pcs systems 300 metropolitan markets including 100 largest us metropolitan areas pcs groups service including third party affiliates reaches quarter billion people pcs group provides nationwide service combination operating digital network major us metropolitan areas using code division multiple access cdma digital spreadspectrum wireless technology allows large number users access single frequency band assigning code speech bits sending scrambled transmission encoded speech air reassembling speech original format affiliating companies use cdma mainly around smaller us metropolitan areas roaming providers analog cellular networks using multimode multiband handsets roaming providers digital networks use cdma sprint launched nationwide third generation 3g capability 2002 third quarter capability allows efficient utilization network voice calls made using 3genabled handsets also provides enhanced data services service marketed pcs vision allows consumer business customers use visionenabled pcs devices check personal corporate email take receive pictures play games fullcolor graphics polyphonic sounds browse internet wirelessly speeds 144 kbps average speeds 50 70 kbps pcs group supplements network affiliation arrangements companies use cdma arrangements companies offer pcs services sprint brand name cdma networks built operated expense several affiliates experiencing financial difficulties evaluating restructuring activities could face bankruptcy february 2003 one affiliate filed bankruptcy protection pcs group also includes investment virgin mobile usa joint venture market wireless services investment accounted using equity method pcs group also provides pcs services companies resell pcs services customers retail basis brand companies bear costs acquisition billing customer service wireless industry including pcs group typically generates higher number subscriber additions handset sales fourth quarter year compared remaining quarters due use retail distribution dependent holiday shopping season timing new products service introductions aggressive marketing sales promotions consolidated results operations total net operating revenues follows income loss continuing operations follows income loss continuing operations presented table includes aftertax impacts charges discussed following paragraphs 2002 fourth quarter sprint recorded restructuring charges asset impairments 154 million representing consolidations sprints network information technology billing accounts receivable organizations impairment network asset abandoned network project costs additional steps reduce overall operating costs also included 2002 expected loss receivables due bankruptcy declaration worldcom 23 million third quarter net restructuring asset impairment charge 76 million gain sale pcs groups investment pegaso 67 million gain sale customer contracts 25 million writedown investment due declining market value 241 million tax benefit related capital losses previously recognizable 292 million excluding charges income continuing operations 2002 would 578 million result july 2002 worldcom chapter 11 bankruptcy filing sprint continues evaluate risks regarding worldcom receivables ongoing business relationship worldcom addition sprint customer worldcom various longterm lease services agreements provides sprint access network facilities compose approximately 20 sprints long distance fiber network larger percentage network traffic network facilities also shared utilized worldcom failed meet commitments agreements sprint would pursue alternative strategies provide capacity could result delays interruptions additional expenses associated offering services sprint anticipate indications worldcom intend meet commitments 2001 fourth quarter sprint recorded restructuring charge asset impairment 1136 million representing termination sprint ion well additional steps reduce overall operating costs additionally 2001 fourth quarter sprint recorded litigation charge 15 million also included 2001 writedown fon groups equity method investment intelig 157 million temporary decline market value loss sale portion fon groups investment earthlink 8 million benefit plan curtailment gain 75 million net gains investment activities 9 million excluding charges loss continuing operations 2001 would 320 million 2000 fourth quarter sprint completed analyses valuation various fon group assets equity method investments resulting reassessment fon groups business strategies response changes overall telecommunications industry analyses resulted charges 152 million primarily related writedown goodwill associated fon groups paranet operations 87 million writedown fon groups equity method investment callnet temporary decline market value 22 million writedown certain fon group investment securities temporary decline market value also included 2000 charges 121 million costs associated terminated worldcom merger net gains 17 million investment activities fon group 18 million gain sale customers network infrastructure pcs third party affiliate excluding charges loss continuing operations 2000 would 385 million segmental results operations sprints business divided three lines business global markets division local division pcs wireless telephony products services business global markets division global markets division faced significant challenges 2002 economic downturn coupled industrywide pricing pressures decline professional services legacy data services revenues contributed 10 decline net operating revenues operating loss year throughout 2002 global markets division focused cost management 2002 global markets division experienced doubledigit reductions cost services products selling general administrative expenses 2002 sprint undertook initiatives improve operational efficiency reduce costs actions along adjustment finalize 2001 restructuring resulted 194 million net charge global markets divisions operations sprint expects revenues mid singledigit rate 2003 division continues impacted lower wholesale results rboc entry repricing expiring contracts declines expected somewhat offset business distressed carriers net operating revenues net operating revenues decreased 10 2002 6 2001 minute growth 5 2002 20 2001 driven part increase business minutes sold pcs group offset highly competitive pricing pressures voice services decrease net operating revenues also reflects yearoveryear declines legacy data services voice revenues voice revenues decreased 13 2002 6 2001 2002 decrease result wireless email substitution rboc entry business voice contract renewals occurring lower prices results also impacted loss single large low margin wholesale customer termination airline partnership 2001 decrease largely due competitive pricing wireless substitution data revenues data revenues reflect sales currentgeneration data services including asynchronous transfer mode atm frame relay services revenues flat 2002 increased 7 2001 results 2002 flat due increases frame relay atm offset decline private line data revenues increased 2001 due increased sales atm internet revenues internet revenues increased 5 2002 19 2001 2002 increase result growth dedicated ip revenues partially offset decrease dial ip revenues due repricing contracts combined strong annual growth web hosting 2001 increase due growth dedicated ip web hosting security revenues decreased 34 2002 47 2001 2002 decrease primarily due sale consulting services business paranet declines equipment sales 2001 decrease reflects lower cable capacity sales well declines legacy data services 2002 2001 2000 periods cable capacity sales ownership rights transoceanic cable represented less 02 1 global market divisions net operating revenues respectively transactions executed primarily global one accordance transition services agreement equipment sales completed periods discussed routine nature completed support customer purchases related telecommunications services represented less 2 3 6 global market divisions net operating revenues 2002 2001 2000 periods respectively costs services products costs services products include interconnection costs paid local phone companies domestic service providers foreign phone companies complete calls made divisions domestic customers costs operate maintain long distance network ip network costs equipment costs services products decreased 16 2002 increased 8 2001 2002 decrease result regulatory rate reductions decreased network operating costs derived sprints 2001 fourth quarter restructuring actions favorable carrier access settlements well cost containment efforts partially offset volume growth 2001 increase primarily due corresponding increase call volumes network costs long distance operation costs associated sprint ion partially offset lower sales ownership rights capacity transoceanic cable domestic rate reductions generally due fccmandated access rate reductions took effect july 2000 july 2001 july 2002 total costs services products global markets division 561 net operating revenues 2002 605 2001 528 2000 excluding sprint ion related costs total costs services products global markets division 56 net operating revenue 2002 582 2001 505 2000 selling general administrative expense selling general administrative sga expense decreased 17 2002 2 2001 2002 decrease related restructuring efforts tight management discretionary expenses 2001 decrease due reduction advertising promotion costs consumer business markets strong emphasis cost control partly offset increased marketing promotions internet services increase bad debt expense primarily related wholesale customers reserve bad debts requires managements judgment based customer specific indicators well historical trending industry norms recognition current market indicators general economic conditions bad debt expense percentage net revenues 35 2002 38 2001 26 2000 reserve bad debt percentage outstanding accounts receivable 149 2002 127 2001 105 2000 total sga expense global markets division 275 net operating revenues 2002 298 2001 287 2000 excluding ion related costs sga expense global markets division 274 net operating revenues 2002 279 2001 267 2000 depreciation amortization expense estimates assumptions used setting depreciable lives assumptions based internal studies use industry data lives recognition technological advancements understanding business strategy depreciation amortization expense increased 12 2002 18 2001 increases attributable increased asset base meet anticipated increases demand voice datarelated services growth initiatives depreciation amortization expense 165 net operating revenues 2002 133 2001 106 2000 excluding sprint ion related costs depreciation amortization expense global markets division 165 net operating revenues 2002 121 2001 99 2000 restructuring asset impairment 2002 fourth quarter sprint recorded net restructuring charge 57 million global markets division related consolidations sprints network information technology billing accounts receivable organizations well additional steps reduce overall operating costs additionally recorded network asset impairment related global markets division 14 million sprint recorded net restructuring charge asset impairment 123 million related global markets division 2002 third quarter consisted 202 million charge termination highspeed data services well additional steps reduce operating costs charge partially offset 79 million adjustment finalize restructuring charge taken 2001 fourth quarter abandon ion initiative restructure operations global markets division 2001 fourth quarter actions resulted 17 billion charge global markets division taken effort better focus enterprise data internet services aggressively manage costs additional information see note 3 notes consolidated financial statements local division 2002 local division impacted continued economic slow continued cable modem competition highspeed data consumer market business customer data product competition major geographic markets wireless substitution resulting decline access lines minutes use despite pressures revenue growth local division achieved improving operating results effectively managing costs 2002 fourth quarter sprint realigned operations reduce costs increase effectiveness actions resulted 53 million charge local divisions operations sprint expects wireless substitution broadband competition continue adversely impact access lines minutes use 2003 however revenues operating income expected levels consistent 2002 beginning july 2000 sprint changed transfer pricing certain transactions fon group entities accurately reflect market pricing main effect change reduction local divisions net operating revenuesother revenues addition sprints local division transferred customer service telemarketing organization pcs group beginning 2000 second quarter comparative purposes following discussion local division results assumes transfer pricing change transfer customer service telemarketing organization occurred beginning 2000 adjusting changes net operating revenues would 61 billion operating margin would 284 2000 net operating revenues net operating revenues decreased less 1 2002 increased 2 2001 slight decrease 2002 due declines long distance equipment sales partially offset increase networkbased services increase 2001 mainly reflects increased special access revenue increased sales networkbased local services caller id call waiting sales networkbased services long distance services increased due strong demand bundled services combine local service networkbased features long distance calling local service revenues local service revenues derived local exchange services grew 4 2002 3 2001 due continued demand networkbased services driven success bundled offerings local division ended 2002 81 million switched access lines decrease 17 prior year access lines also decreased 11 2001 decreases 2002 2001 driven economic slowdown wireless cable substitution losses competitive local providers network access revenues network access revenues derived long distance phone companies using local network complete calls decreased less 1 2002 increased 2 2001 special access services demonstrated strong growth 2001 2002 however gains offset 2002 declines switched access minutes use regulator mandated access rate reductions long distance revenues long distance revenues mainly derived providing nationwide long distance services residential customers within sprints local franchise territories services within specified regional calling areas latas residential business customers revenues decreased 14 2002 increased 2 2001 2002 decrease reflects decline minutes use customers shifted communications wireless email instant messaging 2001 increase reflects success bundled services offset decline intralata long distance services revenues decreased 7 2002 2 2001 decreases driven decline equipment sales 14 2002 9 2001 decreases equipment sales result planned shift focus selling higher margin products economic slowdown causing reduction customer demand equipment costs services products costs services products include costs operate maintain local network costs equipment sales costs decreased 3 2002 flat 2001 2002 decrease driven mainly reduction reciprocal compensation expense lower access expense reduced volume equipment sales decline taxes due changes certain state tax laws 2001 declines equipment sales success cost control initiatives offset increases access expense costs services products 306 net operating revenues 2002 313 2001 319 2000 selling general administrative expense despite increases bad debt expense sga expense decreased 1 2002 2001 sga remained flat continuing emphasis cost control offset increase bad debt expense reserve bad debt requires managements judgment based historical trending industry norms recognition current market indicators general economic conditions bad debt expense percentage net revenues 26 2002 25 2001 15 2000 reserve bad debt expense percent outstanding accounts receivable 139 2002 69 2001 48 2000 2002 improved bad debt experience end user customers offset need establish reserves certain competitive local exchange carriers long distance companies including worldcom financial difficulties sga expense 204 net operating revenues 2002 205 2001 210 2000 depreciation amortization expense estimates assumptions used setting depreciable lives assumptions based internal studies use industry data lives recognition technological advancements understanding business strategy depreciation amortization expense increased 3 2002 decreased 2 2001 2002 increase reflects capital spending support voicegrade equivalent growth service improvements ongoing build dsl services 2001 decrease primarily due decrease metallic cable depreciation rates decrease due metallic cable proving adequate carrying higher bandwidth services dsl thus extending life depreciation amortization expense 186 net operating revenues 2002 179 2001 185 2000 restructuring asset impairment 2002 fourth quarter sprint recorded restructuring charge representing consolidations sprints network information technology billing accounts receivable organizations well additional steps reduce overall operating costs decision resulted charge 53 million local division fourth quarter 2001 sprint announced plans take steps improve competitive position reduce operating costs business units comprise fon group efforts included consolidation streamlining marketing network operations well streamlining corporate support functions decision resulted charge 109 million associated severance costs work force reductions contractual obligations 2002 third quarter sprint performed analysis finalize restructuring estimates recorded 2001 fourth quarter analysis resulted recognition additional charge 3 million recorded 2002 third quarter additional information see note 3 notes consolidated financial statements businesses consist primarily wholesale sales telecommunications equipment net operating revenues 863 million 2002 1206 million 2001 1468 million 2000 nonaffiliated revenues accounted 35 revenues 2002 declined 41 capital spending continues suffer telecommunications industry operating expenses decreased 24 2002 16 2001 driven reduced cost services products operating loss 2002 23 million operating income 34 million 2001 75 million 2000 2003 sprint plans continue leverage webenabled capabilities improve revenues expand value added services pcs group wireless industry faced increasingly challenging operating environment 2002 continued economic slowdown accompanying decline customer growth business recovery weaker hoped pcs group exited year 24 increase net operating revenues 112 billion improvement operating income second half 2001 pcs group introduced clear pay program targeted subprime customer segment eliminating deposit requirement clear pay led substantial customer growth increased pcs groups share industry gross additions within markets low twenty percent level fourth quarter 2001 2002 increased percentage newlyadded customers failed pay services engaged fraudulent payments led deactivation accounts resulted increase bad debt customer churn address situation pcs group took several actions year first half 2002 pcs group tightened credit screening requirements limited use automated payment vehicles second half 2002 pcs group initiated deposit requirement clear pay customers actions led decline customer growth decline pcs groups share industry gross additions within markets high teen percent level however credit mix customers began improve fourth quarter 2002 2003 sprint expects pcs group sustain level industry gross additions within markets continuing improve credit mix customers competitive pressure price expected continue expected partially offset increased usage revenues pcs vision services including data email instant messaging taking sending receiving photographs games internet browsing services pcs group markets products multiple distribution channels including retail stores well retail outlets equipment sales one retail chain subsequent service revenues generated sales customers accounted 22 net operating revenues 2002 24 2001 2000 net operating revenues net operating revenues include service revenues sales handsets accessory equipment service revenues consist monthly recurring charges usage charges pro rata portion activation fees miscellaneous fees directory assistance operatorassisted calling handset insurance late payment charges associated pcs groups subscriber base service revenues increased 27 2002 mainly reflecting increase average number customers stable arpu 2002 sprint saw increased pricing pressures offset customers subscribing higher usage service plans increased miscellaneous fees 2001 late payment fees 2002 pcs group added 12 million customers 2002 end year 148 million customers 300 metropolitan markets nationwide resellers added 196000 customers 2002 increased customer base 415000 principally due virgin mobile usa pcs group third party affiliates added 544000 customers 2002 bringing total number customers served pcs network including resale customers third party affiliates 177 million service revenues increased 58 2001 mainly reflecting increase average number customers increase arpu increase arpu 2001 mainly due customers subscribing higher usage service plans implementation activation charges second quarter 2000 pcs group added 40 million customers 2001 end year 136 million customers service revenues resale customers declined 2001 mainly due discontinuation one reseller program reduced reseller customer base 219000 2001 310000 2000 pcs group third party affiliates added 12 million customers 2001 bringing total number customers served pcs network including resale customers 158 million pcs group assesses access charges long distance carriers termination landline originated calls though regulations generally entitle carrier terminates call behalf another compensated providing service regulations developed period services nature provided exclusively local exchange carriers certain long distance carriers disputed pcs groups assessment charges well corresponding rate charges determined july 2002 fcc released ruling affirming nothing prohibited wireless carriers imposing access charges use networks however fcc also stated interexchange carriers could unilaterally required pay charges without contractual obligation fcc referred dispute back federal district court western district missouri determination whether pcs group stated claim missouri state law att filed notice appeal dc circuit court appeals challenging ruling light ruling pcs group recorded additional provision outstanding receivables related amounts previously billed fully reserved 2002 customer churn rate increased 33 26 2001 28 2000 increase resulted primarily companyinitiated churn largely associated deactivations clear pay customers well slight increase voluntary churn rate recognizing impact increased churn clear pay program pcs group initiated stringent credit checks potential customers well deposit requirements many categories result improvements noted involuntary component churn rate end fourth quarter 2002 2001 churn rate improved first half year reaching low 22 improvement reflected increased percentage customers contract success several customer retention initiatives expanded network coverage improvements offset increase churn rate last half 2001 resulting customer fulfillment contract terms softness economy clear pay program pcs group expects customer churn rate steadily improve throughout 2003 revenues sales handsets accessories approximately 10 net operating revenues 2002 12 2001 14 2000 part pcs groups marketing plans handsets usually sold prices pcs groups cost services products pcs groups costs services products mainly include handset accessory costs switch cell site expenses customer care costs networkrelated costs increased 9 2002 34 2001 2002 increase primarily due network support larger customer base expanded market coverage increased handset unit costs increases somewhat offset scale benefits resulting increased customer base decreases customer solutions expense 2001 increase reflects significant growth customers expanded market coverage partly offset reduction handset unit costs services products 479 net operating revenue 2002 compared 544 2001 622 2000 selling general administrative expense sga expense mainly includes marketing costs promote products services well salary benefit costs sga expense increased 17 2002 20 2001 2002 increase reflects increased marketing selling costs associated pcs vision launch increased bad debt expense 2001 increases reflect expanded workforce support subscriber growth increased marketing selling costs cost per gross customer addition cpga measure costs acquiring new subscriber consisting equipment subsidies sales marketing costs divided handset activations new pcs customers cpga increased approximately 15 2002 compared reduction approximately 10 2001 cpga increase primarily attributable marketing costs equipment subsidies associated launch pcs vision well costs spread across lower gross customer additions 2001 lower handset unit costs scale benefits greater customer additions contributed improvement cash costs per user ccpu measure cash costs operate business per user basis consisting costs service revenues service delivery general administrative costs divided average subscribers ccpu decreased approximately 6 2002 5 2001 improvements realized 2002 driven lower customer solutions costs network information technology costs per user partially offset higher bad debt expense per user improvements realized 2001 driven lower network information technology administrative costs partially offset higher cost service delivery reserve bad debt requires managements judgment based customer specific indicators well historical trending industry norms regulatory decisions recognition current market indicators general economic conditions bad debt expense percentage net revenues 48 2002 39 2001 2000 reserve bad debt percent outstanding accounts receivable 94 2002 91 2001 81 2000 2002 third quarter pcs group removed cancellation fee late fee reserves allowance doubtful accounts income impact amounts considered revenue adjustments prior periods restated conform current presentation 2002 bad debt expenses well reserve increased due provisions writeoffs associated clear pay customers depreciation amortization expense estimates assumptions used setting depreciable lives assumptions based internal studies use industry data lives recognition technological advancements understanding business strategy depreciation amortization expense consists mainly depreciation network assets amortization intangible assets definite life intangible assets include various customer bases became fully amortized august 2002 depreciation expense increased 27 2002 33 2001 mainly reflecting depreciation network assets placed service 2001 first half 2002 additionally pcs group increased depreciation certain network assets 2001 first quarter reflect accelerated replacement assets accommodate network technology upgrades amortization expense decreased 4 million 2002 364 million 2001 amortization goodwill indefinite life intangibles ceased upon adoption sfas 142 january 1 2002 periodic impairment testing indefinite life intangibles required implementation discussed note 4 notes consolidated financial statements intangibles becoming fully amortized 2001 accounted 145 million decline 2002 sfas 142 implementation accounted remaining decline 2002 215 million restructuring asset impairment 2002 pcs group recorded restructuring charge 78 million representing consolidations sprints network information technology billing accounts receivable organizations well reductions create competitive cost structure reducing operating expenses additionally pcs group recorded asset impairment 42 million representing abandoned network projects 2002 pcs group incurred 18 million charge associated closing five pcs customer solution centers well additional steps reduce operating costs pcs business units 2001 sprint consolidated streamlined marketing network operations well streamlined corporate support functions resulted charge 10 million pcs group associated severance costs work force reductions termination contractual obligations additional information see note 3 notes consolidated financial statements nonoperating items interest expense effective interest rates following table reflect interest expense longterm debt interest costs shortterm borrowings classified longterm debt deferred compensation plans customer deposits excluded distort effective interest rates longterm debt sprints effective interest rate longterm debt increased 2002 due additional fixedrate debt higher interest rates conversely effective interest rate decreased 2001 due additional fixedrate debt lower interest rates lower interest rates variablerate debt allocation group financing activities groups managed sprint centralized basis debt incurred sprint behalf groups specifically allocated reflected financial statements applicable group interest expense allocated pcs group based interest rate substantially equal rate would able obtain third parties direct indirect wholly owned sprint subsidiary without benefit guarantee sprint member fon group interest rate higher rate sprint obtains borrowings difference sprints actual interest rate charged pcs group reflected reduction fon groups interest expense totaled 336 million 2002 288 million 2001 237 million 2000 amounts reflected intergroup interest charge consolidated statements operations fon group earned intergroup interest income pcs group incurred intergroup interest expense 15 million 2001 19 million 2000 primarily related fon groups ownership pcs group debt securities sprint redeemed securities 2001 fourth quarter result redemption fon group recognized 11 million pretax gain nonoperating income pcs group recorded 7 million aftertax extraordinary loss related early redemption premium payment made pcs group fon group sprints centralized cash management program one group may advance funds group advances accounted shortterm borrowings groups bear interest market rate substantially equal rate group would able obtain third parties shortterm basis allocation group financing activities may change discretion sprint board require shareholder approval expense net expense net consisted following dividend interest income years reflects dividends earned cost method investments interest earned temporary investments equity net losses affiliates 2002 driven pcs groups investments virgin mobile usa virgin mobile pegaso fon groups investment callnet 2001 equity net losses affiliates driven pcs groups investment pegaso fon groups investment intelig 2000 investments accounted using equity method also included fon groups investments earthlink inc callnet first quarter 2001 sprint modified relationship earthlink resulted investment common stock longer accounted using equity method fourth quarter 2000 sprint wrote investment callnet required recognize related equity losses 2001 however sprint made additional investment callnet 2002 second quarter recognized equal amount losses associated investment 2002 equity net losses affiliates decreased due reduction equity losses following writedown investment intelig sale pegaso partially offset virgin mobile callnet losses 2001 decrease due reduction equity losses following writedown investments callnet intelig partially offset pegaso losses net losses investments 2002 mainly include writedown earthlink preferred shares market value writedown investment intelig net losses investments 2001 mainly include 162 million writedown equity investment intelig 25 million loss partial sale earthlink shares 2000 loss includes 87 million writedown equity investment callnet 35 million writedown warrants held purchase procom gains sales assets 2002 driven sale sprints investment pegaso certain customer contracts stock received companys demutualization gains sales assets 2001 resulted sale pcs customers pcs third party affiliate 2000 gains include sale certain wireless customers associated network infrastructure sale investment security benefit plan curtailment gain 2001 resulted amendment certain medical retirement plan benefits income taxes sprints consolidated effective tax rates 91 2002 318 2001 240 2000 see note 9 notes consolidated financial statements information differences caused effective income tax rates vary statutory federal rate income taxes related continuing operations discontinued operations net 2002 third quarter sprint reached definitive agreement sell directory publishing business rh donnelley 223 billion cash sale closed january 3 2003 sprint recognize pretax gain 214 billion 13 billion aftertax 2003 first quarter 2000 first quarter sprint sold interest global one france telecom deutsche telekom ag sprint received 11 billion cash repaid 276 million advances entire stake global one sprint recorded aftertax gain related sale interest global one 675 million extraordinary items net 2002 sprint repurchased scheduled maturities 67 million debt allocated fon group borrowings interest rates ranging 60 7125 resulted 3 million aftertax extraordinary gain sprint 2001 sprint redeemed scheduled maturities 18 million debt allocated fon group 558 million debt allocated pcs group borrowings interest rates ranging 99 125 resulted 1 million aftertax extraordinary loss sprint 2000 sprint redeemed scheduled maturities 25 million debt allocated fon group 127 million debt allocated pcs group borrowings interest rates ranging 78 97 resulted 4 million aftertax extraordinary loss sprint financial condition sprints consolidated assets decreased 500 million 2002 accounts receivable decreased 596 million due improved cash collections cash equivalents increased 722 million due improved operating cash flows reduced capital expenditures net property plant equipment decreased 215 million capital expenditures offset depreciation expense 2002 asset impairments investments advances affiliates decreased 215 million due sales dissolutions investments remaining significant change within consolidated assets 241 million writedown investment earthlink rating agencies generally give form equity treatment equity unit notes determining debttototalcapital ratios sprint debttototalcapital ratio 597 yearend 2002 versus 599 yearend 2001 assuming sprint equity unit notes treated 80 equity 20 debt accordingly debttototalcapital ratio sprint calculated defining debt shortterm borrowings longterm debt capital lease obligations 20 equity unit notes value total capital defined debt plus remaining 80 equity unit notes value redeemable preferred stock total shareholders equity see liquidity capital resources information changes sprints consolidated balance sheets liquidity capital resources sprints board directors exercises discretion regarding liquidity capital resource needs fon group pcs group includes ability prioritize use capital debt capacity determine cash management policies make decisions regarding timing amount capital expenditures actions board subject fiduciary duties shareholders sprint holders particular class common stock given boards discretion matters may difficult assess groups liquidity capital resource needs future prospects based past performance operating activities operating cash flows increased 16 billion 2002 467 million 2001 2002 increase driven mainly pcs groups ebitda excluding restructuring asset impairments improving 137 billion fon group also contributed improvement 509 million ebitda growth excluding restructuring asset impairments cost controls reductions work force mitigated revenue erosion seen global market division receipt 480 million tax refunds generated economic stimulus bill passed 2002 first quarter also contributed increase increases cash flows partially offset higher working capital requirements 2001 increase reflects improved operating results pcs group partly offset decline fon group operating results 2001 increase also reflects decreases working capital requirements fon group partly offset increases working capital requirements pcs group decrease fon group working capital requirements caused primarily reduction accounts receivable resulted global markets division revenue decline increased billing adjustments bad debt cash collections also causing decrease accrued restructuring costs paid yearend 2001 increase pcs group working capital requirements caused primarily increase accounts receivable resulted mainly larger revenues associated subscriber growth investing activities fon groups capital expenditures totaled 22 billion 2002 53 billion 2001 41 billion 2000 global markets division capital expenditures incurred mainly enhance network reliability upgrade capabilities providing new products services local division incurred capital expenditures accommodate voicegrade equivalent growth expand capabilities providing enhanced services convert network circuit packet switching continue buildout highspeed dsl services fon group capital expenditures incurred mainly sprints world headquarters campus decline fon group capital expenditures 2002 driven mainly termination sprint ion reduced spending datarelated services pcs group capital expenditures totaling 27 billion 2002 38 billion 2001 30 billion 2000 incurred increase capacity expand coverage 2002 2001 amounts also include approximately 100 million 600 million respectively expenditures related deployment 3g technology launched nationwide 2002 third quarter 2002 investments loans affiliates net represent proceeds 116 million due sales dissolutions investments 2001 2000 net investments loans 66 million 889 million respectively amounts mainly investments earthlink virgin mobile intelig svp bidco lp pegaso see note 2 notes consolidated financial statements information investments investing activities also include proceeds sales assets totaling 138 million 2002 301 million 2001 258 million 2000 2002 investing activities mainly include proceeds sale pcs groups investment pegaso fon groups sale certain customer contracts investment securities administrative assets 2001 activities mainly include proceeds sale pcs customers affiliate certain network administrative assets 2000 investing activities also include 14 billion proceeds sale fon groups interest global one financing activities financing activities reflect net debt reduction 642 million 2002 compared net borrowing 40 billion 2001 23 billion 2000 reduction debt requirements 2002 due sprints continuing operating cash flow improvement reduced capital expenditures financing activities also reflect net proceeds issuance common stock 3 million 2002 608 million 2001 269 million 2000 proceeds borrowings common stock issuances used mainly fund capital investments working capital requirements sprint paid dividends 454 million 2002 451 million 2001 448 million 2000 also included financing activities debt discounts proceeds sprints employee stock purchase plan 50 million 2002 13 million 2001 182 million 2000 capital requirements sprints 2003 investing activities mainly consisting capital expenditures expected total approximately 47 billion fon group capital expenditures expected 23 billion expenditures primarily support growth demand enterprise services also include investments broadband initiatives phased transition circuit packet switching pcs group capital expenditures expected 23 24 billion investments targeted largely network capacity coverage sprint continues review capital expenditure requirements closely adjust spending capital investment concert growth dividend payments expected approximate 463 million 2003 sprint expects overall free cash flow 2003 approximately 12 billion including breakeven performance pcs group connection pcs restructuring sprint adopted tax sharing agreement providing allocation income taxes fon group pcs group agreement expired 2001 tax year sprint adopted continuation tax sharing arrangement except elimination provisions addressing certain types acquisitions restructurings never became operable original arrangement sprint expects fon group continue make significant payments pcs group arrangement expected pcs group tax losses near future using pcs groups tax loss carryforwards payments reflect pcs groups incremental cumulative effect sprints consolidated federal state tax liability tax credit position pcs group received payments fon group totaling 360 million 2002 292 million 2001 872 million 2000 see note 1 notes consolidated financial statements intergroup transactions allocations allocation federal state income taxes details liquidity recent years sprint used longterm bond market well financial markets fund needs result improved liquidity position sprint currently expect borrow funds capital markets 2003 fund capital expenditures operating working capital requirements september 2002 sprint announced reached definitive agreement sell directory publishing business rh donnelley sale completed january 3 2003 sprint received aftertax cash proceeds 21 billion sprint revolving credit facility syndicate banks totaling 15 billion expires august 2003 15 billion facility unsecured springing liens structured 364day credit line subsequent oneyear 10 billion termout option sprint plans draw facility sprint standby letters credit serving backup various obligations approximately 125 million yearend 2002 sprint commercial paper outstanding since may 2002 june 2002 sprint closed new pcs group accounts receivable asset securitization facility provides sprint 500 million additional liquidity new facility threeyear program subject annual renewals include ratings triggers would allow lenders involved terminate facility event credit rating downgrade maximum amount funding available based numerous factors fluctuate month sprint drawn facility 250 million available yearend 2002 august 2002 sprint closed new 700 million global markets division accounts receivable asset securitization facility replaced previous 1 billion facility reduction size due primarily smaller gross receivable pool global markets division time versus 1999 original facility established new facility threeyear program subject annual renewals include ratings triggers would allow lenders involved terminate facility event credit rating downgrade maximum amount funding available based numerous factors fluctuate month december 31 2002 sprint 455 million outstanding facility approximately total funding available february 2003 sprint prepaid outstanding borrowings facility 700 million facility remains place funds available redrawn time undrawn loan facilities described interest rates equal libor prime rate plus spread varies depending credit ratings debt maturities 2003 total approximately 14 billion closing sale directory publishing business execution new financing agreements sprints 10 billion cash balance december 31 2002 expected free cash flow 12 billion 2003 fund requirements borrowings sprint may incur ultimately limited certain debt covenants sprint could borrow additional 47 billion yearend 2002 restrictive debt covenants sprint currently compliance debt covenants associated borrowings sprint also repurchased longterm debt december 2002 amount 67 million sprint continually evaluates various factors result may repurchase additional debt future march 2002 sprint issued 5 billion debt securities private placement borrowings interest rates ranging 79 88 maturities ranging 2005 2032 proceeds allocated 5 fon group 95 pcs group used extinguish outstanding commercial paper general corporate purposes condition sale securities sprint agreed conduct exchange offer allowed original securities exchanged substantially identical securities registered sec exchange offer completed june 2002 2001 fourth quarter sprint issued 175 billion debt securities private placement borrowings interest rate 60 mature 2007 proceeds allocated approximately 60 fon group 40 pcs group used repay debt fund capital investments working capital requirements condition sale securities sprint agreed conduct exchange offer allowed original securities exchanged substantially identical securities registered sec exchange offer completed february 2002 2001 third quarter sprint completed registered offering 235 million shares series 1 pcs common stock net proceeds issuance approximately 561 million deducting underwriting discount offering expenses proceeds used repay debt fund capital investments working capital requirements 2001 third quarter sprint completed registered offering 69 million equity units stated amount 25 net proceeds issuance approximately 17 billion deducting underwriting discount offering expenses proceeds allocated pcs group used repay debt fund capital investments working capital requirements see note 12 notes consolidated financial statements equity unit offering detailed description equity units 2001 first quarter sprint issued 24 billion debt securities sprint 2 billion unissued securities existing shelf registration statement sec registered additional 400 million issuance borrowings interest rates ranging 71 76 mature 2006 2011 proceeds allocated pcs group used repay debt fund capital investments working capital requirements fitch ratings fitch currently rates sprints longterm senior unsecured debt bbb stable outlook fitch rates sprints shortterm debt standard poors corporate ratings standard poors currently rates sprints longterm senior unsecured debt bbb stable outlook standard poors rates sprints shortterm debt a3 moodys investors service moodys currently rates sprints longterm senior unsecured debt baa3 negative outlook moodys rates sprints shortterm debt p3 sprints ability fund capital needs ultimately impacted overall capacity terms bank termdebt equity markets significant volatility markets time caused economic downturn recent business failures reduced confidence financial accounting process sprint continues monitor markets closely take steps maintain much financial flexibility possible maintaining reasonable capital structure cost sprint currently plan access markets sprints contractual obligations including commitments future payments noncancelable lease arrangements short long term debt arrangements summarized fully disclosed notes 10 11 12 13 16 sprints consolidated financial statements offbalance sheet financing sprint participate secure financings unconsolidated special purpose entities regulatory developments see regulatory developments part filing financial strategies general hedging policies sprint selectively enters interest rate swap cap agreements manage exposure interest rate changes debt sprint also enters forward contracts options foreign currencies reduce impact changes foreign exchange rates sprint seeks minimize counterparty credit risk stringent credit approval review processes selection creditworthy counterparties continual review monitoring counterparties thorough legal review contracts sprint also controls exposure market risk regularly monitoring changes foreign exchange interest rate positions normal stress conditions ensure exceed established limits sprints derivative transactions used hedging purposes comply boardapproved policies senior management receives frequent status updates outstanding derivative positions interest rate risk management fair value hedges sprint may enter interest rate swap agreements minimize exposure interest rate movements achieve optimal mixture floating fixedrate debt minimizing liquidity risk interest rate swap agreements designated fair value hedges effectively convert sprints fixedrate debt floating rate receiving fixed rate amounts exchange floating rate interest payments life agreement without exchange underlying principal amount december 31 2002 sprint outstanding fair value hedges cash flow hedges sprint may enter interest rate swap agreements designated cash flow hedges reduce impact interest rate movements future interest expense effectively converting portion floatingrate debt fixedrate december 31 2002 sprint outstanding interest rate cash flow hedges derivatives certain business transactions sprint granted warrants purchase securities companies fixed rates warrants supplemental terms business transaction designated hedging instruments 2002 sprint entered forward sale contracts net purchased equity option derivatives monetize equity securities held available sale derivatives designated cash flow hedges reduce variability expected cash flows related forecasted sale underlying equity securities foreign exchange risk management sprints foreign exchange risk management program focuses hedging transaction exposure optimize consolidated cash flow sprints main transaction exposure results payments made received overseas telecommunications companies completing international calls made sprints domestic customers international operations material consolidated financial position results operations cash flows yearend 2002 addition foreign currency transaction gains losses material sprints 2002 results operations sprint entered significant foreign currency forward contracts derivative instruments reduce effects adverse fluctuations foreign exchange rates result sprint subject material foreign exchange risk recently issued accounting pronouncements december 2002 fasb issued sfas 148 accounting stockbased compensationtransition disclosure statement amends sfas 123 accounting stockbased compensation provisions statement effective interim annual financial statements fiscal years ending december 15 2002 statement provides alternative methods transition voluntary change fair value based method accounting stockbased employee compensation also statement amends disclosure requirements sfas 123 require prominent disclosures annual interim financial statements method accounting stockbased employee compensation effect method used reported results sprint continues apply apb 25 recognition measurement principles complied new disclosure requirements statement see note 1 disclosures sprint begin expense fair value stockbased employee compensation beginning 2003 first quarter sprint apply method prescribed sfas 123 amended sfas 148 new separate grants options made january 1 2003 company estimates accounting rules expensing stock options prospective basis result charge earnings two cents per diluted share fon one cent per diluted share pcs 2003 see note 19 notes consolidated financial statements discussion recently issued accounting pronouncements item 7a item 7 managements discussion analysis financial condition results operations information required item 7 refer managements discussion analysis financial condition results operations section financial statements financial statement schedules filed part report item 7a item 7 management’s discussion analysis financial condition results operations forwardlooking statements include certain estimates projections forwardlooking statements annual quarterly current reports publicly available material statements regarding expectations including performance assumptions estimates relating capital requirements well statements historical facts forwardlooking statements reflect management’s judgments based currently available information involve number risks uncertainties could cause actual results differ materially forwardlooking statements respect forwardlooking statements management made assumptions regarding among things customer network usage customer growth retention pricing operating costs timing various events economic regulatory environment future performance cannot assured actual results may differ materially forwardlooking statements factors could cause actual results differ include • ability attract retain subscribers • effects vigorous competition highly penetrated market including impact competition price able charge subscribers services equipment provide ability attract new subscribers retain existing subscribers overall demand service offerings including impact decisions new subscribers postpaid prepaid services offerings two network platforms impact new emerging competing technologies business • effect limiting capital operating expenditures ability improve enhance networks service offerings implement business strategies provide competitive new technologies • volatility trading price common stock current economic conditions ability access capital • impact third parties meeting business requirements including significant adverse change ability willingness parties provide handset devices infrastructure equipment cdma network motorola inc’s ability willingness provide related handset devices infrastructure equipment software applications develop new technologies features iden network • costs business risks associated providing new services entering new geographic markets • financial performance clearwire deployment wimax network • effects mergers consolidations new entrants communications industry unexpected announcements developments others communications industry • unexpected results litigation filed us suppliers vendors • impact adverse network performance • costs andor potential customer impacts compliance regulatory mandates • equipment failure natural disasters terrorist acts breaches network information technology security • one markets compete impacted changes political economic factors monetary policy legal regulatory changes external factors control • risks referenced time report including part item 1a “risk factors” filings sec words “may” “could” “estimate” “project” “forecast” “intend” “expect” “believe” “target” “plan” “providing guidance” similar expressions intended identify forwardlooking statements forwardlooking statements found throughout management’s discussion analysis financial condition results operations elsewhere report reader place undue reliance forwardlooking statements speak date report obligated publicly release revisions forwardlooking statements reflect events date report including unforeseen events overview communications company offering comprehensive range wireless wireline communications products services designed meet needs individual consumers businesses government subscribers communications industry continue highly competitive basis price types services devices offered quality service accordingly organized operations meet needs targeted customer groups focused communications solutions incorporate capabilities wireless wireline services one three largest wireless companies united states based number wireless subscribers also one largest providers wireline long distance services one largest carriers internet traffic nation extensive wireless networks global long distance tier 1 internet backbone business includes two reportable segments wireless wireline see information discussed item 1 note 13 notes consolidated financial statements additional information segments addition also routinely post important information website wwwsprintcom information contained website part annual report offer wireless services wireline voice data transmission services stateoftheart networks utilize cdma iden ip technologies utilize networks offer wireless wireline customers differentiated products services whether use single network combination networks addition established key priorities wireless business include improving customer experience rebuilding brand increasing profitability plan achieve priorities providing customers value simplicity helping productive believe valuedriven price plans attractive family “simply everything” postpaid price plans bundle together popular data applications traditional mobile voice calling price points save customers hundreds dollars annually compared largest competitors boost mobile brand prepaid price plans include unique nationwide monthly unlimited pay go 1 per day chat plan options simplify customer experience introduced tools one click allows customers access various software applications single click mobile devices ready program trains subscribers leave store use mobile devices ensure subscribers well informed comfortable features functions new devices provide certain wireless services nation’s dependable 3g network baltimore subscribers may access clearwire’s highspeed 4g network addition support open development applications content network platforms offer multifunctional devices samsung instinct iden blackberry curve wholesale relationships support traditional wireless services well wireless delivery books datacentric content substitute traditional deliveries products services addition customer oriented goals also taken measures reduce cost structure align reduced revenues expected fewer subscribers actions include january 2009 workforce reduction announcement plan reduce labor related costs approximately 12 billion actions include workforce reduction 8000 positions believe actions well continued efforts reduce operating expenses allow us maintain strong cash position although expect measures offset reduced cash expected service revenue declines near term cost reduction initiatives may also include delevering disposing assets future believe given recent deterioration us economy coupled shortterm illiquidity consumer business spending negatively impacted continue monitor impact market conditions ability collect subscribers areas business subject substantial regulation including fcc regulates licensing operation acquisition sale licensed radio spectrum essential business fcc state public utility commissions pucs also regulate whole part provision communications services future changes regulations legislation related spectrum licensing matters related business could impose significant additional costs either form direct outofpocket costs additional compliance obligations refer item 1 “businesslegislative regulatory developmentregulation wireless operations” additional information wireless service revenue wireless segment generates revenues provision wireless services sale wireless equipment provision wholesale services ability wireless segment generate service revenues primarily function • number subscribers serve turn function ability acquire new retain existing subscribers • revenue generated subscriber turn function types amount services utilized subscriber rates charge services declines subscriber base revenue generated subscriber group discussed resulted decline service revenue wireless subscribers wireless industry subject intense competition acquire retain subscribers wireless services markets operate high rates penetration wireless services wireless carriers accordingly must attract greater proportion new subscribers competitors rather first time subscribers result wireless carriers focused retaining valued subscribers various means including considerable efforts regarding customer care endeavored retain attract subscribers taking actions improve customer care sales distribution functions brand awareness addition took actions effort improve subscribers’ experience including improving network performance adding cell sites expand coverage capacity networks broadening handset portfolio providing subscribers excellent value proposition simply everything pricing plans certain indicators suggest making progress respect actions continued lose wireless subscribers postpaid subscribers lost approximately 41 million net postpaid subscribers 2008 compared losing 12 million net postpaid subscribers 2007 2008 considering subscribers transferring iden network cdma network approximately 36 million net postpaid subscriber losses came subscribers iden network compared 435000 net subscriber losses cdma network 2007 approximately 44 million net postpaid subscriber losses came subscribers iden network compared 31 million net postpaid subscriber additions cdma network net subscriber losses principally caused attracting fewer new subscribers networks recent periods compared number subscriber deactivations experienced believe reduction new subscribers primarily due market penetration rates described compounded relative success certain competitors enjoying respect retaining subscribers believe reduction new subscribers due measures taken us increase credit quality subscribers well lingering consumer perceptions regarding networks particularly iden network customer care reduced iden oriented marketing programs limited new handset offerings higher market prices also contributed decline new iden subscribers postpaid subscriber retention rates customer churn remain high relative larger competitors however postpaid subscriber churn rates remained relatively flat 2008 compared 2007 2006 experienced improvement involuntary deactivations due improving credit quality subscriber base offset relatively high voluntary subscriber deactivations prepaid subscribers lost approximately 981000 net prepaid subscribers 2008 compared adding 566000 net prepaid subscribers 2007 2008 subscriber losses included approximately 14 million net subscribers iden network partially offset 381000 net subscriber additions cdma network 2007 83000 483000 net prepaid subscriber additions iden cdma networks respectively net prepaid subscriber losses 2008 principally caused attracting fewer new subscribers iden network total deactivations increasing year believe net losses sustained primarily due decision focus resources postpaid business increased competition prepaid competitors refer “results operationssegment results operationswirelesswireless segment earnings” discussion churn trends wholesale affiliate subscribers wholesale affiliate subscribers represent customers serve networks companies resell services subscribers 2008 wholesale subscriber additions 389000 resulting 81 million wholesale subscribers december 31 2008 compared 77 million wholesale subscribers december 31 2007 64 million wholesale subscribers december 31 2006 certain wholesale devices activated network wholesale partners prior selling device end user customer december 31 2008 subscribers devices hands end user customer represented approximately 2 total wholesale subscriber base table showing net additions losses past twelve quarters direct subscribers iden cdma networks excluding subscribers obtained business combinations existing subscribers migrated networks indirect subscribers mvnos pcs affiliates b total iden cdma postpaid subscribers quarters 2006 2007 2008 c average rates monthly postpaid prepaid customer churn past twelve quarters 1 fourth quarter 2006 changed subscriber deactivation policy postpaid subscribers provide us additional time retain subscribers subject deactivation due late payment effect change subscriber base october 1 2006 increased 436000 subscribers adjusted subscriber beginning balance increase direct net subscriber additions decrease customer churn rates fourth quarter 2006 due policy change 2 includes subscribers powersource devices operate seamlessly cdma iden networks introduced fourth quarter 2006 3 calculate churn dividing net subscriber deactivations quarter sum average number subscribers month quarter accounts comprised multiple subscribers family plans enterprise accounts net deactivations defined deactivations excess customer activations particular account within 30 days postpaid churn consists voluntary churn subscriber makes determination cease customer involuntary churn terminate customer’s service due lack payment reasons 4 third quarter 2007 implemented additional churn rule remove impact activations deactivations occurring within 30 days account new rule believe presents precise churn calculation reduced churn 10 basis points 23 third quarter 2007 additional churn rule impact reported net additions results operations prior period churn figures adjusted additional churn rule wireless subscriber expectations committed adding new subscribers retaining existing subscribers order reverse negative subscriber trends experienced recent years expect improve subscriber results consistently improving customer experience focusing value simplicity productivity expect postpaid total subscriber losses improve 2009 compared 2008 believe improvement principally driven strengthening brand improving customer experience well launch monthly prepaid nationwide unlimited plan iden network net subscriber losses past two years significantly reduced revenue operating margin cash flow effects continue attract new subscribers andor reduce rate churn see “forwardlooking statements” “results operationssegment results operationswirelesswireless segment earnings” discussion subscriber trends impact segment earnings trends average revenue per subscriber table showing average revenue per postpaid prepaid subscriber past twelve quarters 1 average monthly service revenue per subscriber quarter calculated dividing quarterly service revenue sum average number subscribers month quarter changes average monthly postpaid service revenue reflect subscribers change rate plans level voice data usage quarter amount service credits offer subscribers plus net effect average monthly revenue generated new subscribers deactivating subscribers average monthly postpaid service revenue per subscriber flat throughout 2008 improved retention higher revenue subscribers lessened impact rate plan migrations improvements offset decline average monthly postpaid service revenue per iden subscriber retention efforts focused improving customer experience including limited new simply everything bundled plans provide unlimited voice data text direct connect services improved service levels customer care centers new ready program decline average monthly postpaid service revenue per subscriber 2007 2006 primarily due loss iden subscribers higher priced service plans migration iden subscribers lower priced plans average monthly service revenue periods also declined due reasons significant number service credits accepted subscribers networks increased due retention efforts average monthly prepaid service revenue per subscriber increased first second third quarters 2008 due higher access charges received boost unlimited users combined stable average revenue per subscriber traditional prepaid users average monthly prepaid service revenue per subscriber declined fourth quarter 2008 due decline average revenue per subscriber traditional prepaid users assurance average monthly service revenue per postpaid prepaid subscribers continue rates future segment earnings wireless segment earnings primarily function wireless service revenue costs acquire subscribers network interconnection costs serve subscribers wireless segment operating expenses costs acquire subscribers include net cost sell handsets referred handset subsidies well marketing sales costs incurred attract subscribers network costs primarily represent switch cell site costs interconnection costs generally consist perminute usage fees roaming fees paid carriers remaining costs associated operating wireless segment include costs operate customer care organization back office support bad debt expense wireless service revenue costs acquire subscribers variable network interconnection costs fluctuate growth subscriber base certain elements fixed wireline segment provide broad suite wireline voice data communications services wireless segment communications companies targeted business customers services include domestic international data communications using various protocols mpls technologies ip asynchronous transfer mode atm frame relay managed network services voice services ip services also combined wireless services addition provide ip services cable msos resell local long distance service andor use back office systems network assets support telephone service provided cable facilities primarily residential enduser customers one nation’s largest providers long distance services operate alldigital long distance tier 1 ip networks several years long distance voice services experienced industrywide trend lower revenue lower prices competition wireline wireless communications companies well cable msos internet service providers growth voice services provided cable msos accelerating consumers use cable msos alternatives local long distance voice communications providers continue assess portfolio services provided wireline segment focusing efforts ipbased services deemphasizing standalone voice services nonipbased data services example addition increased emphasis selling ip managed services converting existing subscribers atm frame relay advanced ip technologies mpls sprintlink frame relay sprintlink atm reduce cost structure moving toward one consolidated data platform provide converged services time conversion expected result decreases revenue frame relay atm service offset increases ip mpls services also taking advantage growth voice services provided cable msos providing large cable msos wholesale voice local long distance services offer part bundled service offerings well traditional voice data services enterprise use results operations present consolidated information well separate supplemental financial information two reportable segments wireless wireline disaggregated financial results two reportable segments prepared manner consistent basis manner chief executive officer evaluates segment performance makes resource allocation decisions consequently segment earnings defined wireless wireline operating income loss segment expenses depreciation amortization severance exit costs goodwill asset impairments merger integration expenses solely directly attributable segment expenses income items excluded segment earnings managed corporate level see note 13 notes consolidated financial statements additional information segments reconciliations segment earnings operating income closest generally accepted accounting principles measure see tables set forth “wireless” “wireline” generally account transactions segments based fully distributed costs believe approximate fair value certain transactions pricing set using market rates consolidated following table summarizes consolidated results operations 1 consolidated results operations include results nextgeneration wireless broadband network contributed clearwire transaction closed november 28 2008 information clearwire transaction see note 3 notes consolidated financial statements 2 consolidated wireless results include merged acquired companies either date mergeracquisition start month closest acquisition date results merged acquired companies included following dates enterprise communications partnership alamosa holdings inc february 1 2006 nextel partners ubiquitel inc july 1 2006 northern pcs services llc august 1 2007 results velocita wireless holding corporation included date acquisition march 1 2006 date sale june 27 2007 3 may 17 2006 spunoff shareholders local communications business known embarq corporation comprised primarily local wireline communications segment prior spinoff result spinoff longer interest embarq results embarq periods prior spinoff presented discontinued operations net operating revenues decreased 11 2008 compared 2007 reflecting decrease revenues wireless segment principally due decrease wireless service revenue decreased 2 2007 compared 2006 reflecting decrease revenues wireless segment principally due decrease wireless equipment revenue additional information see “segment results operations” loss continuing operations decreased loss 28 billion 2008 compared loss 294 billion 2007 primarily due 2007 goodwill impairment charge 296 billion loss continuing operations increased loss 294 billion 2007 compared income 995 million 2006 primarily due goodwill impairment charge 296 billion additional information see “segment results operations” “consolidated information” 2008 incurred net loss 28 billion compared net loss 294 billion 2007 due reasons stated 2007 incurred net loss 294 billion compared net income 13 billion 2006 primarily due goodwill impairment charge 296 billion absence income discontinued operations 2007 additional information see “segment results operations” “consolidated information” presented results operations wireless wireline segments followed discussion consolidated information segment results operations wireless nmnot meaningful 1 merger integration expenses severance exit costs goodwill asset impairments depreciation amortization discussed consolidated information section 2 2008 2007 recorded 963 million 296 billion noncash goodwill impairment charges related wireless segment recorded component operating income goodwill impairment discussed consolidated information section service revenue service revenue consists fixed monthly recurring charges variable usage charges miscellaneous fees activation fees directory assistance operatorassisted calling equipment protection late payment early termination charges certain regulatory related fees net service credits service revenue totaled 275 billion 2008 310 billion 2007 311 billion 2006 following summary average subscribers average revenue per subscriber years ended december 31 2008 2007 2006 number subscribers impacts service revenues cost service bad debt expense well support costs customer care billing included general administrative expenses 1 average subscribers represent average number direct subscribers included customer base period including subscribers added acquisitions net deactivated subscribers 2 average subscribers year ended december 31 2007 inclusive 170000 subscribers acquired 2007 acquisition northern pcs compared 4156000 subscribers acquired 2006 acquisitions certain pcs affiliates nextel partners 3 summary changes net additions subscribers average monthly service revenue per subscriber since first quarter 2006 may found pages 35 36 service revenues decreased 36 billion 11 2008 compared 2007 half decline due decrease average number direct postpaid subscribers remaining amount due decline average monthly service revenue per postpaid user previously discussed “overviewwireless service revenuewireless subscribers” net postpaid subscriber losses principally caused attracting fewer new subscribers iden cdma networks recent periods see subscriber trends discussed “wireless segment earnings” expected impact future periods half decline average monthly service revenue per postpaid subscriber 2008 compared 2007 due loss iden subscribers higher priced service plans migration iden subscribers lower priced plans average monthly service revenue also declined due reasons significant number service credits accepted subscribers networks increased due retention efforts see discussion service revenue “wireless segment earnings” service revenues decreased 15 million less 1 2007 compared 2006 due decrease approximately 220 million service revenue direct postpaid subscribers offset net increase approximately 205 million service revenue prepaid subscribers decrease postpaid service revenue due primarily decline average monthly service revenue per postpaid user partially offset increase revenue attributable increase average number direct postpaid subscribers increase prepaid service revenue primarily due increase average number direct prepaid subscribers partially offset decline average monthly service revenue per prepaid subscriber wholesale affiliate revenue wholesale affiliate revenues consist primarily revenues sale wireless services companies resell services subscribers net revenues retained wireless subscribers residing pcs affiliate territories wholesale affiliate revenues decreased 11 2008 compared 2007 due decline average monthly service revenue per wholesale subscriber wholesale affiliate revenues increased 22 2007 compared 2006 primarily due increases wholesale operators’ subscribers cost services cost services consists primarily • costs operate maintain cdma iden networks including direct switch cell site costs rent utilities maintenance payroll costs associated network employees spectrum frequency leasing costs • fixed variable interconnection costs fixed component consists monthly flatrate fees facilities leased local exchange carriers based number cell sites switches service particular period related equipment installed site variable component generally consists perminute use fees charged wireline providers calls terminating networks fluctuates relation level duration terminating calls • long distance costs paid wireline segment • costs service repair handsets • roaming fees paid carriers • variable costs relating payments third parties use proprietary data applications ringers games music tv navigation services subscribers cost services increased 2 2008 compared 2007 primarily reflecting increased costs relating data voice roaming outside networks increased service repair costs related devices increased functionality addition backhaul costs including usage wireline network increased primarily due increased data usage subscribers expansion evdo rev network costs slightly offset lower employee related outside services costs cost services increased 7 2007 compared 2006 primarily due increased network costs specifically experienced increased roaming expenses mainly subscribers cdma services due increased data voice usage outside cdma network also experienced increase operational costs cell sites switches including increases rent fixed variable interconnection costs due increase usage number cell sites related equipment service subsidy recognize equipment revenue corresponding costs handsets accessories title handset accessory passes dealer enduser customer marketing plans assume handsets typically sold prices cost consistent industry practice subscriber retention efforts often include providing incentives subscribers offering new handsets discounted prices reduce equipment revenue discounts offered directly customer certain payments thirdparty dealers reimburse dealer point sale discounts offered enduser subscriber additionally reduce cost handsets rebates earn supplier cost handsets accessories also includes order fulfillment related expenses writedowns handset related accessory inventory shrinkage obsolescence equipment costs excess revenues generated equipment sales referred industry subsidy percentage equipment revenues increased 144 2008 94 2007 55 2006 increase subsidy 2008 compared 2007 primarily due • 23 decline equipment revenue primarily due decrease number handsets sold slightly offset • 3 decrease cost handsets accessories primarily due decrease number handsets sold mostly offset increase average cost per handset sold continue sell greater number higher priced units including several new devices increased functionality introduced 2008 increase subsidy 2007 compared 2006 primarily due • 18 decline equipment revenue primarily due decrease average sales price handsets due aggressive acquisition retention handset pricing slightly offset increase number handsets sold • 2 increase cost handsets accessories due increase number handsets sold increase average cost units sold selling general administrative expense sales marketing costs primarily consist customer acquisition costs including commissions paid indirect dealers thirdparty distributors direct sales force new handset activations upgrades residual payments indirect dealers payroll facilities costs associated direct sales force retail stores marketing employees advertising media programs sponsorships including costs related branding general administrative expenses primarily consist costs billing customer care information technology operations bad debt expense back office support activities including collections legal finance human resources strategic planning technology product development sales marketing expense decreased 13 2008 2007 compared increase 9 2007 2006 decline sales marketing expenses year ended december 31 2008 primarily attributable decline gross subscriber additions decline advertising expenses labor related costs due cost reduction activities year ended december 31 2007 advertising expenses increased promoted brand effort gain market share build loyalty among existing subscribers also increased compensation postpaid thirdparty dealers new subscriber additions upgrades general administrative costs decreased 9 2008 2007 compared increase 5 2007 2006 decline general administrative costs year ended december 31 2008 principally due decrease bad debt expense lower employee related costs offset increase customer care related costs bad debt expense 632 million year ended december 31 2008 representing 264 million decline compared 262 million increase 2007 896 million improvement bad debt expense largely attributable credit policies new customers customer care initiatives launched late 2007 specifically ratio subscribers prime credit rating subprime credit rating continued improve since december 31 2007 also several customer care collection activities designed proactively contact subscribers ensure appropriate service plans based usage negotiate payment arrangements designed help customers difficult financial times result noted decrease involuntary churn number accounts written increase bad debt expense 2007 due higher average writeoffs per account due higher number subscribers per account increased addaphone activity increased incidence overages increased fees related data services increased credit extended early 2007 2006 wireless segment earnings wireless segment earnings decreased 31 billion 32 2008 2007 primarily due decline wireless service revenue principally driven net direct subscriber losses wireless segment earnings decreased 18 billion 15 2007 2006 primarily due increases costs acquire subscribers lower equipment revenue increases network interconnection costs wireless segment earnings 15 billion fourth quarter 2008 expect experience continued downward pressure wireless segment earnings cash flow operations reverse net direct subscriber losses described “wireless service revenue” given current economic environment difficulties economic uncertainties create forecasting unable say assurance expected effects 2009 direct subscriber declines 2009 wireless service revenue however actual 2008 direct subscriber losses 51 million expected cause 2009 service revenue approximately 6 lower service revenues would lost subscribers experience level direct subscriber losses 2009 2008 direct subscriber losses would reduce 2009 service revenue approximately 5 also recently lowered prices certain handset devices continue make targeted investments improve subscriber results may cause increase equipment net subsidy could increase overall cost acquire retain subscribers management implementing cost reduction program designed decrease cost structure reducing labor costs however expect reduction cash costs offset reduced cash expected service revenue declines near term see “forwardlooking statements” wireline 1 severance exit costs asset impairments depreciation amortization discussed consolidated information section expense includes charges associated legal contingencies year ended december 31 2007 voice revenues voice revenues decreased 12 2008 compared 2007 decreased 7 2007 compared 2006 2008 decrease primarily driven volume declines due customer churn well overall price declines 2007 decrease primarily result certain business subscribers transferred embarq part spinoff second quarter 2006 well decrease customer base continued price declines also contributing decrease loss conference line subscribers due final transition activities third quarter 2006 part sale business retail business experienced decrease voice revenues 17 2008 compared 2007 decrease 22 2007 compared 2006 2008 decrease driven combination volume declines rate declines given customer mix 2007 decrease primarily due loss accounts related embarq spinoff sale conference line business lower prices voice revenues related wholesale business decreased 14 2008 compared 2007 increased 1 2007 compared 2006 2008 decrease reflected volume declines due customer churn well overall price declines minute volume increases accounted 2007 increase primarily result relationship embarq began providing wholesale long distance services embarq following spinoff rate declines slightly offset minute volume increase voice revenues generated provision services wireless segment represented 26 total voice revenues 2008 compared 23 2007 17 2006 data revenues data revenues reflect sales legacy data services including atm frame relay managed network services data revenues decreased 21 2008 compared 2007 decreased 16 2007 compared 2006 due declines frame relay atm services subscribers migrated ipbased technologies declines partially offset growth ip revenues data revenues generated provision services wireless segment represented 13 total data revenue 2008 compared 8 2007 5 2006 internet revenues internet revenues reflect sales ipbased data services including mpls internet revenues increased 36 2008 compared 2007 increased 38 2007 compared 2006 increases due higher ip revenues business subscribers increasingly migrate mpls services well revenue growth cable voip business experienced 52 increase 2008 compared 2007 80 increase 2007 compared 2006 internet revenues generated provision services wireless segment represented 9 total internet revenues 2008 compared 5 2007 2 2006 revenues primarily consist sales customer premises equipment cpe decreased 14 2008 compared 2007 decreased 22 2007 compared 2006 result fewer projects 2008 2007 costs services products costs services products include access costs paid local phone companies domestic service providers foreign phone companies complete calls made domestic subscribers costs operate maintain networks costs equipment costs services products decreased 6 2008 2007 decreased 1 2007 2006 decrease 2008 mainly due improved access cost rates declining volumes decrease 2007 relates decreased costs due declining volumes improved access cost rates retail business partially offset increased activity wholesale cable voip businesses service gross margin percentage decreased 32 2006 31 2007 increased 34 2008 primarily result revenue growth cable voip business improved access cost rates selling general administrative expense selling general administrative expense increased 2 2008 compared 2007 decreased 13 2007 compared 2006 2008 increase reflected vonage settlement 2007 present 2008 2007 decline due primarily recognition license vonage covering use certain patents within patent portfolio well reduction employee headcount reduced commissions result spinoff embarq decreased customer care billing expenses due smaller customer base declines partially offset increases costs associated cable voip support selling general administrative expense includes charges estimated bad debt expense quarter reassess allowance doubtful accounts based customerspecific indicators well historical trends industry data ensure adequately reserved 2008 bad debt expense decreased 13 due less customer specific reserves total selling general administrative expense percentage net services revenues 15 2008 15 2007 16 2006 wireline segment earnings wireline segment earnings increased 101 million 9 2008 2007 primarily due increase internet revenue decrease cost services products partially offset decreases voice data revenue wireline segment earnings increased 83 million 8 2007 2006 primarily due increase internet revenue decrease selling general administrative expenses due recognition vonage license partially offset decreases voice data revenue consolidated information nmnot meaningful selling general administrative expenses selling general administrative expenses primarily allocated segment level discussed segment earnings discussions selling general administrative expenses related wireless segment 100 billion 2008 112 billion 2007 104 billion 2006 selling general administrative expenses related wireline segment 965 million 2008 943 million 2007 11 billion 2006 addition selling general administrative expenses discussed segment earnings incurred corporate general administrative expenses 278 million 2008 359 million 2007 246 million 2006 including certain merger integration expenses 29 million 2008 172 million 2007 222 million 2006 discussed “merger integration expenses” also included corporate general administrative expenses 249 million 2008 189 million 2007 related development nextgeneration broadband wireless network contributed assets related effort clearwire november 28 2008 incur similar expenses future periods merger integration expenses incurred 130 million merger integration expenses 2008 516 million 2007 413 million 2006 101 million 344 million 191 million included wireless segment 2008 2007 2006 respectively expenses solely directly attributable segment expenses generally classified selling general administrative cost products appropriate consolidated statement operations merger integration expenses solely directly attributable wireless segment included corporate segment classified selling general administrative expenses merger integration expenses decreased 2008 compared 2007 incur costs second half year merger integration expenses increased 2007 compared 2006 primarily due costs provide wireless devices operate seamlessly cdma iden networks severance exit costs asset impairments severance exit costs asset impairments 817 million 2008 compared 440 million 2007 207 million 2006 recorded severance exit costs 355 million 2008 related separation employees continued organizational realignment initiatives recorded severance exit costs 277 million 2007 related separation employees exit costs primarily associated sale velocita wireless continued organizational realignment initiatives associated sprintnextel merger pcs affiliate nextel partners acquisitions 2006 recorded 138 million severance exit costs primarily related realignment initiatives associated sprintnextel merger integration initiatives 2008 recorded asset impairments 435 million primarily related cell site development costs network asset equipment longer necessary management’s strategic plans addition also recorded losses disposition assets 27 million 2008 2007 asset impairments 163 million related writeoff network assets including site development costs loss sale velocita wireless closing retail stores due integration activities wrote 69 million assets 2006 primarily related software asset impairments goodwill impairment fourth quarters 2008 2007 performed annual goodwill analyses recorded noncash goodwill impairment charges 963 million 29649 billion respectively refer note 4 notes consolidated financial statements depreciation amortization expense depreciation expense increased 6 2008 2007 primarily due increases service network assets increases partially offset certain assets becoming fully depreciated impact annual review depreciation rates lives completed first quarter 2008 rate changes primarily related net changes remaining service lives assets primarily cdma network impact changes reduced annual depreciation expense 135 million including 105 million wireless segment 30 million wireline segment depreciation expense 2007 declined 2 compared 2006 2007 depreciation expense includes 400 million decrease related depreciation rate changes respect cdma wireline networks assets resulting 2007 depreciable lives study rate changes primarily related net changes remaining service lives certain assets decreases resulting depreciation rate changes fully offset normal additions network asset base amortization expense declined 26 2008 2007 declined 14 2007 2006 primarily due amortization customer relationships acquired part sprintnextel merger amortized using sum years’ digits method resulting higher amortization rates early periods decline time see note 4 notes consolidated financial statements additional information regarding definite lived intangible assets interest expense interest expense decreased 71 million 2008 compared 2007 due reduction average effective interest rates partially offset increase average longterm debt balance effective interest rate average longterm debt balance 229 billion 2008 66 effective interest rate average longterm debt balance 218 billion 2007 69 interest expense 2007 decreased 7 compared 2006 primarily reflecting reduction average debt balance effective interest rate average longterm debt balance 218 billion 2007 69 unchanged 2006 average longterm debt balance 232 billion interest income interest income includes interest earned marketable debt securities cash equivalents interest income decreased 54 million 2008 compared 2007 primarily due lower interest rates onetime interest income taxes recorded 2007 31 million 2007 interest income decreased 50 compared 2006 primarily due decrease average temporary cash investments balance equity losses unconsolidated affiliates net item consists mainly losses equity method investments gainloss early retirement debt miscellaneous incomeexpense realized loss gain sale exchange investments 2008 recognized loss investments 24 million primarily due impairment investment nextwave 2007 recognized gain sale investments 253 million primarily due pretax gain 240 million related sale portion equity interest virgin mobile usa llc vmu see note 3 notes consolidated financial statements information 2006 recognized gain sale investments 205 million primarily due 433 million gains sales investment nii holdings inc partially offset loss 274 million change fair value option contract associated investment nii holdings described note 10 notes consolidated financial statements income tax benefit expense consolidated effective tax rates 311 2008 11 2007 329 2006 2008 2007 effective tax rates impacted 794 million 963 million noncash impairment charge 2008 293 billion 296 billion noncash impairment charge 2007 related goodwill substantially charges separately deductible tax purposes information regarding items caused effective income tax rates vary statutory federal rate income taxes related continuing operations found note 9 notes consolidated financial statements discontinued operations net discontinued operations reflect results previously held local segment january 1 may 17 2006 date embarq spinoff additional information regarding discontinued operations found note 16 notes consolidated financial statements net loss income recorded net loss 28 billion 2008 compared net loss 294 billion 2007 2008 net loss primarily due decreases wireless segment revenue goodwill impairment charge 963 million asset impairment charge 435 million recorded 2008 2007 net loss principally due one time noncash goodwill impairment charge wireless segment decline performance wireless segment recorded net income 13 billion 2006 primarily due increased revenue wireless segment resulting sprintnextel merger pcs affiliate nextel partners acquisitions expect downward pressure consolidated results operations near term caused principally expected decline wireless segment earnings severance costs associated work force reduction announced january 2009 see “forwardlooking statements” critical accounting policies estimates consider following accounting policies estimates important financial position results operations either significance financial statement item require exercise significant judgment andor use significant estimates management believes estimates used reasonable actual results could differ estimates revenue recognition allowance doubtful accounts policies operating revenues primarily consist wireless service revenues generated handset accessory sales revenues wholesale operators pcs affiliates well local long distance voice data internet revenues service revenues consist fixed monthly recurring charges variable usage charges roaming directory assistance operatorassisted calling miscellaneous fees activation upgrade late payment reconnection early termination fees certain regulatory related fees recognize service revenues services rendered equipment revenue title passes dealer enduser customer recognize revenue access charges services charged fixed amounts ratably service period net credits adjustments service discounts billing disputes fraud unauthorized usage recognize excess wireless usage long distance revenue contractual rates per minute minutes used additionally recognize excess wireless data usage based kilobytes onetime use charges use premium services rendered result cutoff times multiple billing cycles month required estimate amount subscriber revenues earned billed end bill cycle end reporting period estimates based primarily rate plans effect historical usage billing patterns subscriber revenue earned billed represented 12 accounts receivable balance december 31 2008 establish allowance doubtful accounts receivable sufficient cover probable reasonably estimable losses number accounts practical review collectibility accounts individually determine amount allowance doubtful accounts period although perform account level analysis respect large wireless wireline subscribers estimate allowance doubtful accounts considers number factors including collection experience aging accounts receivable portfolios credit quality subscriber base estimated proceeds future bad debt sales qualitative considerations including macroeconomic factors accounting estimates related recognition revenue require us make assumptions future billing adjustments disputes subscribers unauthorized usage future returns mailin rebates handset sales allowance amounts recorded represent best estimate future outcomes extent actual experience differs significantly historical trends required allowance amounts could differ estimate resulting adjustments would change net accounts receivable reported consolidated balance sheet bad debt expense case estimates related doubtful accounts revenue case estimates related allowances reported results operations future periods example allowance doubtful accounts estimate change 10 would result corresponding change bad debt expense 26 million wireless segment 1 million wireline segment device accessory inventory inventories handsets accessories wireless segment stated lower cost market determine cost firstin firstout method handset costs related revenues generated handset sales handset subsidies recognized time sale recognize expected handset subsidies prior time sale promotional discount decision made point sale andor expect recover handset subsidies service revenues december 31 2008 held 528 million inventory analyze realizable value handset inventory quarterly basis analysis includes assessing obsolescence sales forecasts product life cycle marketplace considerations assessments regarding factors change may required sell handsets higher subsidy potentially record expense future periods prior point sale extent expect unable sell handsets service contract otherthantemporary impairment investments marketable securities hold portfolio investments include marketable nonmarketable debt equity securities evaluate investments otherthantemporary impairment quarterly basis otherthantemporary impairment occurs fair value investment carrying value determine difference recoverable near future evaluation requires significant judgment regarding limited severity duration impairment ability intent hold securities recovery financial condition liquidity nearterm prospects issuer specific events factors assessment investment otherthantemporarily impaired could change future due changes facts circumstances material investment 39 billion investment clearwire held since closed transaction clearwire november 28 2008 book value per share clearwire 1065 per share yearend compared yearend clearwire stock price 493 stock price continued decline subsequent balance sheet date discussed note 3 notes consolidated financial statements concluded december 31 2008 decline temporary stock price expected recover near future continue evaluate investment clearwire every quarter update conclusions based upon facts circumstances place time facts circumstance change example clearwire’s stock price continues remain depressed level longer duration time possible may record impairment future periods investment could material results operations financial condition valuation recoverability longlived assets including definite lived intangible assets significant portion total assets longlived assets consisting primarily property plant equipment definite lived intangible assets changes technology intended use assets well changes economic industry factors business prospects may cause estimated period use value assets change property plant equipment represented 224 billion 583 billion total assets december 31 2008 generally calculate depreciation assets using straightline method based estimated economic useful lives follows calculate depreciation certain assets using group life method accordingly ordinary asset retirements disposals assets charged accumulated depreciation gain loss recognized gains losses associated nonmonetary exchanges asset retirements disposals nonnetwork equipment recorded within asset impairments consolidated statements operations since changes technology intended use assets well changes broad economic industry factors may cause estimated period use assets change perform annual studies confirm appropriateness depreciable lives certain categories property plant equipment studies take account actual usage physical wear tear replacement history assumptions technology evolution calculate remaining life asset base factors indicate asset’s useful life different previous assessment depreciate remaining book values prospectively adjusted remaining estimated useful life first quarter 2008 implemented depreciation rate life changes respect certain assets comprise wireless wireline networks resulting annual depreciable lives study revised rates reflected changes useful life estimates certain asset groups adjustments accumulated depreciation accounts group life depreciation method reduced expense associated depreciation rate life changes resulted approximately 135 million reduction 003 per share savings net tax net loss year ended december 31 2008 addition performing annual study also continue assess estimated useful life future strategic plans wireless wireline network assets net carrying value 145 billion 23 billion respectively december 31 2008 reduction estimate useful lives network assets would cause increased depreciation charges future periods could material example 10 reduction remaining weighted average useful lives network assets would increase annual wireless wireline depreciation expense 500 million 50 million respectively conjunction fourth quarter 2008 annual goodwill impairment review reassessed remaining useful lives longlived assets concluded appropriate intangible assets definite useful lives represented 36 billion 583 billion total assets december 31 2008 definite lived intangible assets consist primarily customer relationships amortized two five years using sum years’ digits method believe best reflects estimated pattern economic benefits consumed definite lived intangible assets primarily include certain rights affiliation agreements reacquired connection acquisitions certain pcs affiliates nextel partners amortized remaining terms affiliation agreements straightline basis nextel direct connect trade names amortized ten years straightline basis also evaluate remaining useful lives definite lived intangible assets reporting period determine whether events circumstances warrant revision remaining periods amortization would addressed prospectively example review certain trends subscriber churn average revenue per subscriber revenue future plans regarding networks changes marketing strategies among others significant changes certain trends may cause us adjust prospective basis remaining estimated life certain definite lived intangible assets additional information refer note 4 notes consolidated financial statements review longlived assets impairment whenever events changes circumstances indicate carrying amount may recoverable determine longlived asset groups based upon certain factors including assessing lowest level identifiable cash flows largely independent cash flows groups assets liabilities asset groups consist wireless wireline wireless asset group currently includes intangible assets wireless property plant equipment indicators impairment asset groups include limited sustained significant decrease market price cash flows expected derived asset groups significant change extent manner assets group utilized significant amount judgment involved determining occurrence indicator impairment requires evaluation recoverability longlived assets total expected undiscounted future cash flows less carrying amount assets loss recognized difference estimated fair value carrying value assets impairment analyses performed based current business technology strategy views growth rates business anticipated future economic regulatory conditions expected technological availability conjunction 2008 2007 annual assessments goodwill impairment performed recoverability test wireless longlived assets future cash flows used recoverability test included cash flow projections wireless operations along cash flows associated eventual disposition longlived assets included estimated proceeds sale fcc licenses trade names customer relationships 2008 2007 assessments longlived assets estimated undiscounted future cash flows wireless asset group exceeded book value result impairment charge recorded estimated difference 2008 significant less difference calculated 2007 due expected lower future cash flows wireless operations continue operational challenges including obtaining retaining subscribers future cash flows may sufficient recover carrying value wireless asset group could record asset impairments material consolidated results operations financial condition addition analyses described periodically assess certain assets yet deployed business including network equipment cell site development costs software development determine impairment charge required network equipment cell site development costs impaired whenever events changes circumstances cause us conclude assets longer needed meet management’s strategic network plans deployed software development costs impaired longer probable software project deployed also periodically assess network equipment removed network determine impairment required substantial majority 435 million asset impairments 2008 related assessments continue challenges retaining subscribers continue assess impact rebanding iden network management may conclude future periods certain cdma iden assets never either deployed redeployed case would recognize noncash impairment could material consolidated financial statements valuation recoverability goodwill indefinite lived intangible assets intangible assets indefinite useful lives represented 193 billion 583 billion total assets december 31 2008 identified fcc licenses sprint boost mobile trademarks indefinite lived intangible assets addition previously recorded goodwill considering expected use assets regulatory economic environment within used effects obsolescence use review goodwill solely related wireless reporting unit indefinite lived intangibles annually fourth quarter impairment frequently indicators impairment exist continually assess whether indicators impairment exist requires significant amount judgment indicators may include sustained significant decline share price market capitalization decline expected future cash flows significant adverse change legal factors business climate unanticipated competition testing recoverability significant asset group within reporting unit andor slower growth rates among others adverse change factors could significant impact recoverability assets could material impact consolidated financial statements required first test goodwill impairment comparing estimated fair value wireless reporting unit net book value fair value wireless reporting unit exceeds net book value goodwill deemed impaired testing would necessary net book value wireless reporting unit exceeds fair value perform second test measure amount impairment loss measure amount impairment loss determine implied fair value goodwill manner wireless reporting unit acquired business combination specifically allocate estimated fair value wireless reporting unit assets liabilities reporting unit including unrecognized intangible assets hypothetical calculation would yield implied fair value goodwill implied fair value goodwill less recorded goodwill consolidated balance sheet record impairment charge difference valuation analyses used estimate fair value utilize income market approaches described • income approach determine estimated fair value discount expected cash flows wireless reporting unit estimate future cash flows considering current economic conditions trends estimated future operating results views growth rates anticipated future economic regulatory conditions availability necessary technology network infrastructure handsets devices discount rate used represents estimated weighted average cost capital reflects overall level inherent risk involved wireless operations rate return outside investor would expect earn estimate cash flows beyond final year model use terminal value approach use estimated operating income depreciation amortization final year model adjust estimate normalized cash flow apply perpetuity growth assumption discount perpetuity discount factor determine terminal value incorporate present value resulting terminal value estimate fair value • marketbased approach corroborate results income approach described estimate fair value wireless reporting unit using several marketbased approaches including guideline company method focuses comparing risk profile growth prospects select reasonably similarguideline publicly traded companies determination estimated fair value wireless reporting unit assets liabilities within wireless reporting unit requires significant estimates assumptions estimates assumptions primarily include limited discount rate terminal growth rates operating income depreciation amortization oibda capital expenditures forecasts due inherent uncertainty involved making estimates actual results could differ estimates evaluate merits significant assumption individually aggregate used determine fair value wireless reporting unit well fair values corresponding assets liabilities within wireless reporting unit reasonableness allocation estimated fair value wireless reporting unit individual assets liabilities within wireless reporting unit also requires us make significant estimates assumptions allocation requires several analyses determine fair value assets liabilities including among others customer relationships fcc licenses trademarks current replacement costs certain property plant equipment fourth quarter 2008 impaired remaining 963 million goodwill refer note 4 notes consolidated financial statements required test indefinite lived intangibles impairment comparing asset’s respective carrying value estimates fair value determined using direct value method fcc licenses combined two units accounting consisted 800 mhz 900 mhz 19 ghz bands one unit accounting 25 ghz band another unit accounting licenses 25 ghz band subsequently contributed clearwire november 28 2008 accordingly one unit accounting future analyses accounting estimates related indefinite lived intangible assets require us make significant assumptions fair values assumptions regarding fair values require significant judgment economic factors industry factors technology considerations well views regarding prospects business changes judgments may significant effect estimated fair values tax valuation allowances uncertain tax positions required estimate amount taxes payable refundable current year deferred income tax liabilities assets future tax consequences events reflected consolidated financial statements tax returns taxing jurisdiction operate process requires management make assessments regarding timing probability ultimate tax impact record valuation allowances deferred tax assets determine likely asset realized accounting estimates related tax valuation allowance require us make assumptions regarding timing future events including probability expected future taxable income available tax planning opportunities assumptions require significant judgment actual performance fluctuated past may future impact changes actual performance versus estimates could realization tax benefits reported results operations could material carried income tax valuation allowance 711 million december 31 2008 amount includes valuation allowance 473 million total tax benefits related loss carryforwards subject utilization restrictions acquired connection certain acquisitions remainder valuation allowance relates tax credits state net operating loss carryforwards within total valuation allowance 95 million related separate company state net operating losses incurred subsidiaries acquired valuation allowance provided separate company state net operating loss benefits since subsidiaries sufficient history taxable income current analyses cumulative historical income qualitative factors indicate valuation allowance continues appropriate meaning currently believe likely realize tax benefits future continue monitor analyses factors future periods may adjust valuation allowance based facts circumstances existing future periods adopted financial accounting standards board fasb interpretation 48 fin 48 accounting uncertainty income taxes interpretation statement financial accounting standards sfas 109 accounting income taxes january 1 2007 adoption fin 48 material impact consolidated financial statements accounting estimates related liability uncertain tax positions require us make judgments regarding sustainability uncertain tax position based technical merits determine likely tax position sustained based technical merits record impact position consolidated financial statements largest amount greater fifty percent likely realized upon ultimate settlement estimates updated based facts circumstances information available also required assess annual reporting date whether reasonably possible significant increases decreases unrecognized tax benefits occur next twelve months see note 9 notes consolidated financial statements additional information regarding fin 48 total unrecognized tax benefits decreased 205 million 2008 reduction principally attributable income tax settlements lapses statute limitations various tax jurisdictions uncertain tax benefits originally acquired purchase business combinations noncurrent intangible assets reduced various irs state income tax reviews disclosed note 9 notes consolidated financial statements continue progress expect certain may completed next twelve months based current knowledge examinations administrative reviews appellate processes believe reasonably possible many uncertain tax positions could resolved next twelve months could result reduction approximately 200 million unrecognized tax benefits changes unrecognized tax benefits made december 31 2008 impact tax expense including changes related acquired income tax uncertainties prior business combinations except qualified measurement period adjustments actual income tax assets liabilities could vary estimates due future changes income tax law significant changes jurisdictions operate inability generate sufficient future taxable income unpredicted results final determination year’s liability taxing authorities changes could significant impact financial position significant new accounting pronouncements december 2007 fasb issued sfas 141r business combinations replaces sfas 141 business combinations originally issued june 2001 sfas 141r apply business combinations acquisition date january 1 2009 statement could material impact us respect business combinations completed effective date significant changes include limited acquirer recording 100 assets liabilities including goodwill acquired business generally fair values acquisitionrelated transaction restructuring costs expensed rather included part purchase price allocation process addition effective date reversals valuation allowances related acquired deferred tax assets changes acquired income tax uncertainties related business combinations even completed prior statement’s effective date generally recognized earnings december 2007 fasb issued sfas 160 noncontrolling interests consolidated financial statements statement amends accounting research bulletin 51 consolidated financial statements establish accounting reporting standards noncontrolling interest subsidiary deconsolidation subsidiary sfas 160 effective quarterly reporting period ending march 31 2009 enter arrangement effective date standard required consolidate noncontrolling interest would report noncontrolling interest’s equity component shareholders’ equity consolidated balance sheet report component net income loss comprehensive income loss attributable noncontrolling interest separately certain changes ownership interests treated equity transactions new standard gain loss recognized upon loss control subsidiary recognized consolidated statement operations practice differs current policy recognizing gains losses component equity addition amount gain loss measured using fair value noncontrolling interest date control ceases march 2008 fasb issued sfas 161 disclosures derivative instruments hedging activities statement amends sfas 133 accounting derivative instruments hedging activities requiring expanded disclosures entity’s derivative instruments hedging activities sfas 161 effective quarterly reporting period ending march 31 2009 process evaluating impact statement disclosures included notes consolidated financial statements financial condition consolidated assets 583 billion december 31 2008 included 229 billion intangible assets 643 billion december 31 2007 included 281 billion intangible assets decrease consolidated assets primarily result amortization 24 billion related definite lived intangible assets goodwill impairment 963 million decrease accounts receivable balances 835 million mainly due declining revenues decrease device access inventory 410 million reflecting management’s decision lower inventory levels decrease deferred tax assets 354 million consolidated liabilities 386 billion december 31 2008 422 billion december 31 2007 decrease consolidated liabilities primarily result 18 billion decrease accounts payable accrued expenses current liabilities result reduction obligations relating capital expenditures inventory items reflecting lower levels purchasing activity business decrease deferred tax liabilities 15 billion net decrease debt financing capital lease obligations 520 million see “liquidity capital resources” additional information change cash equivalents liquidity capital resources management exercises discretion regarding liquidity capital resource needs business segments responsibility includes ability prioritize use capital debt capacity determine cash management policies make decisions regarding timing amount capital expenditures cash flow december 31 2008 cash equivalents 37 billion compared 22 billion december 31 2007 operating activities net cash provided operating activities 62 billion 2008 decreased 31 billion 2007 primarily due 38 billion decrease cash received subscribers result declining service revenues postpaid subscribers offset decrease 12 billion cash paid suppliers employees net cash provided operating activities 92 billion 2007 decreased 17 billion 2006 reflecting decline earnings primarily due decrease cash flows discontinued operations 903 million decrease cash received subscribers 779 million primarily due decrease service revenues experienced lower average monthly service revenue per subscriber 2007 increase cash paid suppliers employees 285 million decrease interest received 151 million due decrease average commercial paper temporary cash balances held year offset decrease 311 million cash paid interest debt due retirement debt cash paid taxes net cash provided operating activities 2008 2007 net cash used operating activities approximately 300 million related operations contributed clearwire investing activities net cash used investing activities 2008 decreased 21 billion 2007 primarily due decrease capital expenditures 24 billion 2008 compared 2007 mainly due lower number cell sites built 2008 reduced capacity needs fewer projects well substantial completion 2007 various initiatives undertaken wireless segment increase proceeds sales maturities marketable securities 189 million decrease purchase marketable securities 143 million 2008 compared 2007 net cash used investing activities 2008 also impacted proceeds 213 million received clearwire partial reimbursement financing provided 2008 4g wireless broadband business addition used 287 million 2007 acquire northern pcs affiliate decreases partially offset 866 million cash collateral received securities loan agreements 2007 decrease net sales investments 317 million 866 million cash received securities loan agreements fully offset 2007 cash used pay securities loan agreement described “financing activities” section net cash used investing activities 64 billion decreased 50 billion 2006 primarily due 102 billion decrease cash paid acquisitions 2007 compared 2006 acquired alamosa holdings ubiquitel velocita wireless enterprise communications nextel partners 105 billion compared 287 million paid acquisition northern pcs 2007 net cash used investing activities 2007 also decreased due 12 billion decrease capital expenditures 2006 due fewer cell sites capacity modifications inventory reductions wireless segment decreased investment transport switching equipment related voice cable subscribers collateral 866 million cash received back securities loan agreements 2007 compared 866 million used collaterize securities loan agreements 2006 offset net decrease proceeds sale maturities marketable securities investments assets net purchases 18 billion 63 billion proceeds received 2006 connection spinoff local segment including 18 billion received embarq time spinoff proceeds sale embarq notes 44 billion net cash used investing activities 2008 2007 include expenditures approximately 600 million 700 million respectively related capital assets fcc licenses contributed clearwire financing activities net cash used financing activities 484 million 2008 compared net cash used financing activities 27 billion 2007 yeartodate activities december 31 2008 include draw 25 billion revolving bank credit facility february 2008 net proceeds financing obligation towerco acquisition llc september 2008 645 million offset early redemption 125 billion senior notes june 2008 extinguishment september 2008 235 million us unwired inc’s 10 second priority senior secured notes due 2012 extinguishment september 2008 250 million alamosa delaware inc’s 85 senior notes due 2012 repayment 15 billion revolving bank credit facility third fourth quarters 2008 net maturities commercial paper 379 million net cash used financing activities 27 billion 2007 decreased 38 billion compared 2006 primarily due decrease cash used debt credit facility payments 67 billion 2007 made principal debt repayments 14 billion compared payments 2006 43 billion payments retirements related senior notes capital lease obligations 32 billion related retirement term loan 500 million retire nextel partners credit facility offset 135 million net maturities commercial paper 2007 compared net issuances 514 million 2006 payment 866 million 2007 settle collaterized borrowings compared proceeds 866 million received securities loan agreements 2006 proceeds 15 billion 2007 including 750 million unsecured loan agreement export development canada 750 million principal sale floating rate notes due 2010 compared proceeds 20 billion principal amount 60 senior serial redeemable notes received 2006 due 2016 pursuant share repurchase program repurchased 87 million common shares 18 billion 2007 compared 98 million common shares repurchased 2006 16 billion received 57 million 344 million 405 million 2008 2007 2006 respectively proceeds common share issuances primarily resulting exercises employee options paid cash dividends 286 million 2007 compared 296 million 2006 used 247 million retire seventh series redeemable preferred shares discontinued operations may 17 2006 completed spinoff embarq connection spinoff embarq transferred parent company 21 billion cash 45 billion embarq senior notes partial consideration condition transfer embarq local communications business embarq also retained 665 million debt obligations subsidiaries cash senior notes transferred parent company finance subsidiary sprint capital corporation satisfaction indebtedness owed parent company sprint capital may 19 2006 sprint capital sold embarq senior notes public received 44 billion net proceeds embarq provided 903 million net cash us 2006 excluding cash received embarq connection spinoff capital requirements currently anticipate future funding needs near term principally relate • operating expenses relating segment operations • capital expenditures particularly respect capacity upgrading wireless networks deployment new technologies networks • scheduled debt service requirements • amounts required expended connection report order • certain costs compliance regulatory mandates • general corporate expenditures liquidity december 31 2008 cash equivalents marketable securities totaled 37 billion depend funds well cash provided operating activities cash available revolving bank credit facility satisfy liquidity needs revolving bank credit facility expires december 2010 february 2008 drew 25 billion revolving bank credit facility proceeds used repay 17 billion senior notes second third quarters 2008 15 billion revolving bank credit facility third fourth quarters 2008 april 2008 repaid full outstanding amounts commercial paper program subsequently terminated november 3 2008 entered agreement amend terms conditions revolving bank credit facility giving us greater flexibility regarding financial covenants pursuant amendment ratio total indebtedness trailing four quarters earnings interest taxes depreciation amortization certain nonrecurring charges increased 35 10 425 10 december 31 2008 ratio 30 10 new terms revolving bank credit facility provide interest rate equal london interbank offered rate libor plus margin 250 300 depending debt ratings interest rate prior amendment libor plus margin 075 certain domestic subsidiaries guaranteed revolving bank credit facility revolving bank credit facility may pay cash dividends unless ratio total indebtedness less 25 10 addition amendment reduced revolving bank credit facility 60 billion 45 billion also reduced outstanding loan balance 20 billion 10 billion december 31 2008 21 billion letters credit including 20 billion letter credit required report order reconfigure 800 mhz band outstanding 45 billion revolving bank credit facility result outstanding borrowings revolving bank credit facility outstanding letters credit directly impacts availability revolving bank credit facility 14 billion borrowing capacity available revolving bank credit facility december 31 2008 default credit facilities could trigger defaults debt obligations including senior notes turn could result maturities certain debt obligations accelerated indentures govern outstanding senior notes also require comply various covenants including limitations incurrence indebtedness liens us subsidiaries three agencies rate senior unsecured debt investment grade may 1 2008 standard poor’s lowered rating bb rate outlook stable december 10 2008 moody’s investors service lowered rating ba2 time raised amended bank credit facility rating baa2 rate outlook negative february 19 2009 fitch ratings lowered rating bb rate outlook negative downgrades current ratings investment grade accelerate scheduled principal payments existing debt however downgrades may cause us incur higher interest costs borrowings could negatively impact access public capital markets december 31 2008 working capital 21 billion compared working capital deficit 441 million december 31 2007 change primarily due reduction current liabilities addition 2008 reclassified approximately 350 million deferred tax assets working capital due anticipated timing realization deferred tax benefits reclassification reduced longterm deferred tax liabilities current deferred tax assets light conditions business financial markets decided early 2008 pay dividends foreseeable future addition amended bank credit facility currently restricted paying cash dividends result ratio total indebtedness described future outlook committed adding new retaining wireless subscribers order reverse negative subscriber trends experienced recent periods subscriber losses decrease earnings interest taxes depreciation amortization adjusted ebitda defined revolving bank credit facility management implementing cost reduction program designed decrease cost structure reducing labor costs however expect reduction cash costs offset reduced cash expected service revenue declines described see “forwardlooking statements” decline adjusted ebitda also caused ratio total indebtedness trailing four quarters earnings interest taxes depreciation amortization certain nonrecurring charges increase currently expect remain compliance covenants expect able meet debt service requirements least end 2010 although assurance although expect improve subscriber results execute planned depending severity actual subscriber results versus currently anticipate possible would remain compliance covenants able meet debt service obligations could result acceleration indebtedness unforeseen events occur may engage lenders obtain appropriate waivers amendments credit facilities refinance borrowings although assurance would successful actions specifically expect able meet currently identified funding needs least next 12 months using • anticipated cash flows operating activities well cash equivalents marketable securities hand andor • remaining borrowing capacity available revolving bank credit facility making assessment considered • anticipated levels capital expenditures fcc license acquisitions • anticipated payments report order supplemented • contributions may make pension plan negatively impacted high degree volatility global financial markets experienced year ended december 31 2008 • scheduled debt service requirements • future contractual obligations material changes business plans currently prevailing anticipated economic conditions markets competitive practices mobile wireless communications industry presently unexpected circumstances arise material effect cash flow profitability anticipated cash needs could change significantly conclusion expect meet funding needs least next 12 months described take account • significant acquisition transactions pursuit significant new business opportunities spectrum acquisition strategies • potential material purchases redemptions outstanding debt securities cash • potential material increases cost compliance regulatory mandates events circumstances could involve significant additional funding needs excess anticipated cash flows operating activities identified currently available funding sources including existing cash equivalents hand borrowings available existing revolving credit facility existing capital resources sufficient meet funding needs would necessary raise additional capital meet needs ability fund capital needs outside sources ultimately affected overall capacity terms banking securities markets given recent financial performance well volatility markets continue monitor closely take steps maintain financial flexibility reasonable cost capital past may future discussions third parties regarding potential sources new capital satisfy actual anticipated financing needs present legally binding commitments understandings third parties obtain material amount additional capital discussion subject risks cautionary qualifying factors set forth “forwardlooking statements” part item 1a “risk factors” report future contractual obligations following table sets forth best estimates amounts timing contractual payments significant contractual obligations december 31 2008 information table reflects future unconditional payments based upon among things terms relevant agreements appropriate classification items generally accepted accounting principles gaap currently effect certain assumptions future interest rates future events including additional purchases securities refinancing securities could cause actual payments differ significantly amounts see “forwardlooking statements” 1 includes principal estimated interest payments interest payments based management’s expectations future interest rates 2 represents capital lease payments including interest towerco financing obligation 3 includes future lease costs related cell switch sites real estate network equipment office space 4 includes service spectrum network capacity executory contracts excludes blanket purchase orders amount 536 million see discussion “purchase orders commitments” include minimum purchases commit purchase suppliers time andor unconditional purchase obligations guarantee make minimum payment suppliers goods services regardless whether suppliers fully deliver include agreements access backhaul customer billing services advertising services contracts related information technology customer care outsourcing arrangements amounts actually paid “other” agreements likely higher due variable components agreements significant variable components determine ultimate obligation owed include hours contracted subscribers factors addition party various arrangements conditional nature create obligation make payments upon occurrence certain events delivery functioning software products possible predict timing amounts may due conditional arrangements amounts included table also excludes 536 million blanket purchase order amounts since agreement terms specified time frame set purchase orders legally binding result firm commitments table include remaining costs paid connection fulfillment obligation report order report order requires us make payment us treasury conclusion band reconfiguration process extent value 19 ghz spectrum received exceeds total value licenses spectrum 700 mhz 800 mhz bands surrendered decision plus actual costs qualifying costs incur retune incumbents facilities total minimum cash obligation report order 28 billion inception program december 31 2008 incurred approximately 18 billion costs directly attributable spectrum reconfiguration program amount include internal network costs preliminarily allocated reconfiguration program capacity sites modifications may request credit reconfiguration program estimate based experience date reconfiguration program information currently available total direct costs attributable complete spectrum reconfigurations range 32 36 billion accordingly believe unlikely required make payment us treasury liability uncertain tax positions 449 million december 31 2008 due inherent uncertainty timing resolution underlying tax positions practicable assign liability particular years table offbalance sheet financing participate secure financings unconsolidated special purpose entities financial strategies general risk management policies primarily use derivative instruments hedging risk management purposes hedging activities may done various purposes including limited mitigating risks associated asset liability committed transaction probable forecasted transaction seek minimize counterparty credit risk stringent credit approval review processes credit support agreements continual review monitoring counterparties thorough legal review contracts also control exposure market risk regularly monitoring changes hedge positions normal stress conditions ensure exceed established limits board directors adopted financial risk management policy authorizes us enter derivative transactions comply policy purchase hold derivative financial instruments speculative purposes exception equity rights obtained connection commercial agreements strategic investments usually form warrants purchase common shares item 7a item 7 management’s discussion analysis financial condition results operations forwardlooking statements include certain estimates projections forwardlooking statements annual report quarterly current reports publicly available material statements regarding expectations including performance assumptions estimates relating capital requirements well statements historical facts forwardlooking statements reflect management’s judgments based currently available information involve number risks uncertainties could cause actual results differ materially forwardlooking statements respect forwardlooking statements management made assumptions regarding among things customer network usage customer growth retention pricing operating costs timing various events economic environment future performance cannot assured actual results may differ materially forwardlooking statements factors could cause actual results differ include • uncertainties related benefits sprintnextel merger including anticipated synergies cost savings timing thereof • uncertainties related impact contemplated spinoff embarq • effects vigorous competition overall demand service offerings markets operate impact new emerging competing technologies business • costs business risks associated providing new services entering new markets • impact potential adverse change ratings afforded debt securities ratings agencies • ability wireless segment continue grow improve profitability • ability local long distance segments achieve expected revenues • effects mergers consolidations telecommunications industry unexpected announcements developments others telecommunications industry • uncertainties related investments networks systems businesses • uncertainties related implementation business strategies • unexpected results litigation filed us • significant adverse change motorola’s ability willingness provide handsets related equipment software applications develop new technologies features iden network • impact adverse network performance including performance issues resulting reconfiguration 800 mhz band iden network contemplated report order • costs compliance regulatory mandates particularly requirements related fcc’s report order deployment e911 services iden network • equipment failure natural disasters terrorist acts breaches network information technology security • inability third parties perform requirements agreements related business operations • one markets compete impacted changes political factors monetary policy legal regulatory changes external factors control • risks referenced annual report form 10k time filings sec including part item 1a “risk factors” words “estimate” “project” “forecast” “intend” “expect” “believe” “target” “providing guidance” similar expressions intended identify forwardlooking statements forwardlooking statements found throughout management’s discussion analysis financial condition results operations elsewhere report reader place undue reliance forwardlooking statements speak date report obligated publicly release revisions forwardlooking statements reflect events date report including unforeseen events overview global communications company offering comprehensive suite wireless wireline communications products services designed meet needs targeted customer groups individuals business government customers although operations divided three lines business wireless long distance local organized sales distribution efforts focus needs two distinct customer types individuals businesses government agencies enable us create customerfocused communications solutions incorporate wireless wireline services one three largest wireless companies united states based number wireless subscribers extensive wireless networks global long distance tier 1 internet backbone also provide regulated local exchange telephone services approximately 74 million access lines local service territories 18 states nextel merger contemplated local spinoff august 12 2005 subsidiary company merged nextel connection nextel merger changed name sprint nextel corporation aggregate consideration paid merger approximately 378 billion time announced merger nextel also announced intend spinoff local communications business shareholders taxfree basis business spunoff business reported local segment financial statements known embarq corporation refer business embarq mitigate risk stock issued sprintnextel merger would preclude taxfree treatment spinoff embarq ensure sprint treated acquiring entity accounting purposes merger agreement provided allocation cash shares common stock determined date merger would result original sprint shareholders maintaining least 501 outstanding voting power upon closing merger pursuant allocation nextel common shareholders received 969 million cash 1452 billion shares voting nonvoting common stock aggregate 084629198 126750218 shares stock exchange outstanding share nextel stock anticipated common stock embarq trade nyse spinoff completed second quarter 2006 merged nextel secure number potential strategic financial benefits including limited following • combination extensive network spectrum assets enables us offer consumers businesses government agencies wide array broadband wireless integrated communications services • combination nextel’s strength business government wireless services position consumer wireless data services including services supported global ip network enables us serve broader customer base • size scale combined company comparable two largest competitors expected enable operating efficiencies either company could achieve • ability position us strategically fastest growing areas communications industry expect recognize significant synergies associated merger include • revenue subscriber synergies primarily arising crossselling opportunities accelerated deployment new features services • reduced capital spending due elimination need build data overlay network planned nextel reduced construction costs expected volume discounts benefits increased purchasing capacity reduced consolidated facilities backoffice functions • reduced network operating costs primarily arising colocation cell sites process efficiencies migration nextel backhaul telecommunications traffic long distance network • reduced selling general administrative expenses primarily arising consolidation customer care billing functions increased scale volume discounts reduced combined sales marketing costs general administrative expenses • marketing sales fulfillment savings result headcount savings rationalization distribution channels greater volume discounts devices scale benefits began realize synergies 2005 expect realize additional synergies number years however believe operating results least next several quarters negatively impacted costs incurred achieve synergies costs generally expected recurring nature include costs associated spinoff embarq costs associated integrating back office systems severance costs associated termination employment certain employees lease contract termination costs addition results negatively impacted significant additional noncash amortization charges associated primarily value customer relationships acquired merger well additional noncash charges stockbased compensation associated nextel employees ability achieve synergies timing benefits realized depend large part ability integrate networks business operations backoffice functions support systems infrastructure business offer comprehensive suite wireless wireline communications products services designed meet needs two targeted customer groups individuals businesses government agencies conduct operations three segments referred wireless long distance local together pcs affiliates nextel partners offer digital wireless services 50 states puerto rico us virgin islands provide wireless coverage total domestic population 277 million pcs affiliates commercial arrangements us provide wireless services sprint brand name certain midsized tertiary us markets wireless networks built operated expense instances using spectrum licensed controlled us nextel partners provides digital wireless communications services nextel brand name certain midsized tertiary us markets wireless networks built operated expense 2005 first quarter 2006 acquired five pcs affiliates expect acquire nextel partners second quarter 2006 also one nation’s largest providers long distance services one largest carriers internet traffic addition provide regulated local exchange telephone services approximately 74 million access lines local service territories 18 states believe communications industry continue highly competitive basis price types services offered quality service although competitive pricing often important factor potential customers’ purchase decisions believe targeted customer base individuals businesses government agencies also base purchase decisions quality service availability differentiated features services operate industry continues subject consolidation dynamic change maintain operating margins environment intense competition could put pressure customer pricing continually seek ways create improve capital operating efficiencies business consequently routinely reassess business strategies implications operations assessments may continue impact future valuation longlived assets part overall business strategy regularly evaluate opportunities expand complement business may time discussing negotiating transaction consummated could material effect business financial condition liquidity andor results operations fcc regulates licensing operation acquisition sale licensed spectrum essential business fcc state pucs also regulate provision telecommunications services future changes regulations legislation related spectrum licensing matters related business could impose significant additional costs us either form direct outofpocket costs additional compliance obligations statements contained annual report relating business strategies operating plans planned expenditures expected capital requirements forwardlooking statements regarding business generally take account contemplated spinoff embarq management overview wireless segment together remaining pcs affiliates nextel partners offer digital wireless service 50 states puerto rico us virgin islands provide wireless coverage 300 metropolitan markets including 125 largest us metropolitan areas 277 million people including subscribers purchase services pcs affiliates nextel partners mvnos served 496 million subscribers end 2005 offer wide array wireless mobile telephone wireless data transmission services networks utilize cdma iden technology strategy utilize stateoftheart technology provide differentiated wireless services applications order acquire retain highquality wireless subscribers enable us offer innovative applications services deploying highspeed evdo technology across cdma network services supported technology marketed powervision give consumer business subscribers evdoenabled devices access numerous sophisticated data messaging imaging entertainment locationbased applications iden network continue develop features services designed meet needs business government customers particular focus services build upon unique walkietalkie features also seek realize operating efficiencies business largely mergerrelated synergies optimize performance network minimizing costs offer wireless mobile telephone data transmission services features variety pricing plans including prepaid service plans excluding prepaid service plans offer services contract basis typically one two year periods services billed monthly basis according applicable pricing plan market prepaid services boost mobile brand means directly target youth prepaid wireless service markets also offer wholesale services mvnos purchase wireless services us wholesale rates resell services customers brand names companies bear costs acquisition billing customer service also recently entered joint venture several cable companies develop converged next generation products consumers designed combine many cable’s core products interactive features wireless technology deliver broad range services including video wireless voice data services high speed internet cable phone service wireless segment generates revenues provision wireless services sale wireless equipment provision wholesale services ability wireless segment generate service revenues primarily function • number subscribers serve turn function ability acquire new retain existing subscribers • revenue generated subscriber turn function types amount services utilized subscriber ability wireless segment generate equipment revenues primarily function number new existing subscribers purchase handsets accessories ability wireless segment generate wholesale revenues primarily function number type mvnos resell wireless service number subscribers provide service increasingly must attract greater proportion new customers competitors’ existing customer bases rather first time purchasers wireless services higher market penetration also means customers purchasing wireless services first time average lower credit rating existing wireless users generally results higher churn rate due involuntary churn higher bad debt expense although many costs relating operation wireless networks fixed shortterm costs interconnection fees fluctuate based utilization networks sales marketing expenses largely dependent number subscriber additions nature extent marketing promotional activities general administrative expenses consist corporate overhead costs operate wireless segment february 2005 nextel accepted terms conditions report order fcc implemented spectrum reconfiguration plan designed eliminate interference public safety operators 800 mhz band terms report order prior august 12 2005 merger date nextel surrendered certain spectrum rights received certain spectrum rights undertook pay costs incurred nextel third parties connection reconfiguration plan required completed within 36month period subject certain exceptions particularly respect markets border mexico canada result events within control fail complete reconfiguration plan within 36month period could subject actions could material based fcc’s determination values spectrum rights received surrendered nextel minimum obligation incurred report order 28 billion report order also provides qualifying costs incur part reconfiguration plan including costs reconfigure infrastructure spectrum positions used offset minimum obligation 28 billion however obligated pay full amount costs relating reconfiguration plan even costs exceed amount addition financial reconciliation required completed 2008 end reconfiguration implementation time required make payment us department treasury extent value spectrum rights received exceeds total value spectrum rights surrendered ii qualifying costs referred required terms report order delivered 25 billion letter credit provide assurance funds available pay relocation costs incumbent users 800 mhz spectrum although report order provides periodic reductions amount letter credit reductions made december 31 2005 long distance long distance segment provide broad suite wireline voice data communications services targeted domestic business residential customers multinational corporations communications companies services include domestic international voice data communications using various protocols next generation mpls technologies well ip atm frame relay managed network services also provide services cable companies resell long distance service andor use back office systems network assets support telephone service provided cable facilities one nation’s largest providers long distance services operate alldigital long distance tier 1 ip networks several years long distance voice services experienced industrywide trend lower revenue lower prices competition wireline wireless communications companies well cable companies internet service providers addition increased emphasis selling ip services converting existing customers atm frame relay advanced ip technologies data simplification initiative time result decreasing revenue frame relay atm service offset increases ip data revenues local segment consists mainly regulated incumbent local phone companies serving approximately 74 million access lines local service territories 18 states provide local long distance voice data services including dsl services customers service areas also operate wholesale telecommunications product distribution business several years experienced declines number access lines serve local service territories result competition cable operators provide highspeed internet services used platform support voip wireless providers customers completely forego use traditional wireline phone service instead rely solely wireless service strategy local segment offset decline access lines sell bundled package products services meet needs consumers business wholesale customers within local service territories critical accounting policies estimates consider following accounting policies estimates important financial position results operations either significance financial statement item require exercise significant judgment andor use significant estimates management believes estimates used reasonable actual results could differ estimates revenue recognition allowance doubtful accounts policies operating revenues primarily consist wireless service revenues generated handset accessory sales revenues arrangements wholesale operators pcs affiliates well long distance local voice data internet revenues consist fixed monthly recurring charges variable usage charges equipment charges miscellaneous fees activation fees directory assistance operatorassisted calling equipment protection late payment charges certain regulatory fees recognize operating revenues services rendered products delivered customers accordance staff accounting bulletin 104 revenue recognition emerging issues task force eitf issue 0021 revenue arrangements multiple deliverables recognize revenue access charges services charged fixed amounts ratably service period net credits adjustments service discounts billing disputes fraud unauthorized usage recognize excess usage long distance revenue contractual rates per minute minutes used result cutoff times multiple billing cycles month required estimate amount subscriber revenues earned billed end billing cycle end reporting period estimates based primarily rate plans effect historical usage billing patterns represented less 10 accounts receivable balance december 31 2005 certain bundledproducts services primarily plans wireless segment considered revenue arrangements multiple deliverables total consideration received arrangements allocated measured using units accounting within arrangement based relative fair values classify revenue sales handsets equipment revenue recognize revenue handset sales title handset passes dealer enduser customer wireless offerings include wireless phones service contracts sold together companyoperated stores activation fee revenue associated direct sales channels recognized time related wireless phone sold classified equipment sales wireless activation fees earned prior 2003 adoption eitf issue 0021 deferred amortized estimated average life end user customer certain activation fees associated unbundled sales wireless segment deferred amortized estimated average life enduser customer defer recognition certain installation fees related services provided local segment recognize revenue estimated average life customer establish allowance doubtful accounts receivable sufficient cover probable reasonably estimable losses number accounts practical review collectibility account individually determine amount allowance doubtful accounts period estimate allowance doubtful accounts considers number factors including collection experience current economic trends estimates forecasted writeoffs aging accounts receivable portfolios industry norms regulatory decisions factors allowance doubtful accounts estimate december 31 2005 change ten percent would represent change bad debt expense 20 million wireless segment 6 million long distance local segments accounting estimates related recognition revenue allowance doubtful accounts results operations require us make assumptions future billing adjustments disputes customers unauthorized usage future returns asset sales future access adjustments disputes clecs interexchange carriers well future economic viability customer base management believes allowance amounts recorded instance represents best estimate future outcomes actual outcomes could differ estimate selected impact changes actual performance versus amounts recorded would accounts receivable reported balance sheet results reported statements operations could material financial condition valuation recoverability longlived assets significant portion total assets longlived assets consisting primarily property plant equipment definite life intangibles changes technology intended use assets well changes economic industry factors may cause estimated period use value assets change longlived assets consisting property plant equipment represented 31 billion 103 billion total assets december 31 2005 generally calculate depreciation assets using straightline method based estimated economic useful lives follows accounting estimate related establishment depreciable lives requires us make assumptions technology evolution competitive uses assets assumptions technology future development require significant judgment timing impacts technology advances difficult predict actual experience varied previous assumptions could future impact changes assumptions could material financial position well results operations continue assess estimated useful life iden network assets following merger nextel future plans network changes estimate useful life iden network assets could cause depreciation charges future periods change amounts could material perform annual internal studies confirm appropriateness depreciable lives categories property plant equipment studies utilize models take account actual usage physical wear tear replacement history assumptions technology evolution certain instances use actuarially determined probabilities calculate remaining life asset base studies resulted depreciable rate 5 higher lower used preparation consolidated financial statements year ended december 31 2005 recorded depreciation expense would impacted approximately 260 million review longlived assets impairment whenever events changes circumstances indicate carrying amount may recoverable significant amount judgment involved determining occurrence “triggering event” requires evaluation recoverability longlived assets total expected undiscounted future cash flows less carrying amount assets loss recognized difference fair value carrying value assets impairment analyses performed based current business technology strategy views growth rates business anticipated future economic regulatory conditions expected technological availability 2005 recorded 127 million asset impairment charges primarily related writedowns various software applications 2004 determined business conditions events impacting long distance operations constituted indicator possible impairment requiring evaluation recoverability long distance longlived assets resulted noncash asset impairment charge 35 billion reducing net carrying value long distance property plant equipment 60 23 billion september 30 2004 additionally recognized noncash charge 21 million 2004 adjust carrying value wholesale dial ip assets fair value impairments represented 54 long distance’s property plant equipment net 13 consolidated property plant equipment net december 31 2003 recorded 303 million associated termination web hosting service 349 million associated terminated development new billing platform software development project valuation recoverability intangible assets intangible assets indefinite useful lives represented 40 billion 103 billion total assets december 31 2005 goodwill indefinite life intangibles primarily consist spectrum licenses reviewed annually impairment frequently indicators impairment exist test goodwill impairment comparing net book value assets reporting units identified operating segments estimates respective fair values test indefinite life intangibles impairment comparing asset’s respective carrying value estimates fair value fair value determined using direct value method requires use estimates judgments projections performed annual impairment test fcc spectrum licenses goodwill fourth quarter 2005 concluded impairment estimates fair value intangible assets exceeded carrying values accounting estimates related goodwill indefinite life intangibles require us make assumptions fair values impact recognizing impairment could material financial position results operations assumptions fair values require significant judgment economic factors industry factors technology considerations result variable volatile fair values addition significant amount judgment involved determining occurrence “triggering event” requires evaluation recoverability goodwill intangible assets 2003 decided end pursuit residential fixed wireless strategy using certain brs spectrum resulted impairment analysis determined decline estimate fair value brs spectrum result recorded noncash charge 12 billion reduced carrying value 300 million continue invest additional 25 ghz spectrum rights test new technology could used provide services using spectrum monitor industry developments participate fcc proceedings effort obtain favorable regulatory rulings respect spectrum valuation acquired assets liabilities connection sprintnextel merger third quarter 2005 required sfas 141 business combinations allocated purchase price assets acquired including goodwill spectrum licenses liabilities assumed nextel based respective fair values merger date approach estimation fair values nextel goodwill indefinite life intangible assets primarily based income approach valuation technique process finalizing internal studies assets acquired sprintnextel merger acquisitions us unwired gulf coast wireless iwo holdings including investments property plant equipment intangible assets certain liabilities relevant allocation purchase price fair values recorded december 31 2005 based preliminary valuations subject adjustment additional information obtained additional information includes may limited following valuations physical counts property plant equipment plans relative disposition certain assets acquired exit certain contractual arrangements involuntary termination employees finalized may required make adjustments could impact results operations financial position could material employee benefit plan assumptions retirement benefits significant cost business us yet represent obligations settled far future retirement benefit accounting intended reflect recognition future benefit costs employee’s expected tenure us based terms plans investment funding decisions made us accounting requires management make assumptions regarding variables discount rate return assets future health care costs changes key assumptions significant impact projected benefit obligation periodic benefit cost incurred us determining pension obligations required develop assumptions discount rate return plan assets assumptions subject market performance fluctuated recent past could continued volatility future selecting discount rate third party actuaries construct hypothetical portfolio bonds rated aa better produces cash flow matching projected benefit payments plan december 31 2005 measurement date exercise produced range 567 587 discount rate set 575 25 basis point decrease december 31 2004 increase discount rate would reduce reported projected benefit obligation contrast discount rate used 2005 determining projected benefit obligation 25 basis points lower would generate 179 million increase projected benefit obligation reported balance sheet 27 million increase benefit costs return asset assumption 875 changed since late 2003 determine assumption return assets consider forwardlooking estimates expected longterm returns portfolio invested according target investment policy assumption initially developed estimates provided two investment consulting firms late 2003 revised target asset allocation policy validated year estimates provided third party actuaries expected return assets assumption 25 basis points lower would generate 9 million increase current year benefit costs assumption used calculation pension projected benefit obligation determining postretirement medical life insurance benefit obligations assumptions made concerning cost health care including medical inflation discount rates onepercentage point increase assumed medical inflation rate would generate 37 million increase accumulated postretirement benefit obligation reported balance sheet 2 million increase benefit costs increase discount rate would reduce reported accumulated postretirement benefit obligation contrast discount rate used 2005 determining accumulated postretirement benefit obligation 25 basis points lower would generate 16 million increase obligation december 31 2005 immaterial impact benefit costs tax valuation allowances required estimate amount tax payable refundable current year deferred income tax liabilities assets future tax consequences events reflected financial statements tax returns taxing jurisdiction operate process requires management make assessments regarding timing probability ultimate tax impact record valuation allowances deferred tax assets determine likely asset realized additionally establish reserves despite belief tax return positions fully supportable certain positions could challenged positions may fully sustained actual income taxes could vary estimates due future changes income tax law expected spinoff embarq significant changes jurisdictions operate inability generate sufficient future taxable income unpredicted results final determination year’s liability taxing authorities changes could significant impact financial position accounting estimate related tax valuation allowance requires us make assumptions regarding timing future events including probability expected future taxable income available tax planning opportunities assumptions require significant judgment actual performance fluctuated past may future impact changes actual performance versus estimates could realization tax benefits reported results operations could material carried income tax valuation allowance 11 billion december 31 2005 amount includes valuation allowance total tax benefits related net operating loss carryforwards subject utilization restrictions acquired connection certain acquisitions remainder valuation allowance relates capital loss state net operating loss tax credit carryforwards assumption changes result reduction expected benefits realization capital loss state net operating loss tax credit carryforwards 10 would increase valuation allowance 55 million significant new accounting pronouncements sfas 123r december 2004 financial accounting standards board fasb issued sfas 123r sharebased payment statement requires entity recognize cost employee services received sharebased payment transactions use fairvaluebased methods recognizing cost statement effective us january 1 2006 voluntarily adopted fair value accounting sharebased payments effective january 1 2003 sfas 123 amended sfas 148 accounting stockbased compensationtransition disclosure using prospective method upon adoption began expensing fair value stockbased compensation grants modifications settlements made january 1 2003 connection conversion pcs common stock common stock tracking stock recombination required sfas 123 accounted conversion options purchase pcs stock options purchase common stock modification accordingly applied stock option expensing options acquire common stock resulting conversion pcs stock options granted january 1 2003 connection nextel merger accounted conversion nextel stock options stock options modification accordingly applied stock option expensing unvested stock options beginning merger date revised standard require us begin recognize compensation cost unvested common stock options granted employees january 1 2003 outstanding january 1 2006 requirement recognize expense unvested grants expected immaterial us sfas 151 november 2004 fasb issued sfas 151 inventory costsan amendment accounting research bulletin arb 43 chapter 4 statement requires items idle facility expense excessive spoilage double freight rehandling costs recognized currentperiod charges regardless whether meet definition “abnormal” provided arb 43 chapter 4 inventory pricing statement effective inventory costs incurred fiscal years beginning june 15 2005 expect adoption standard material impact financial statements results operations consolidated discussion results operations year ended december 31 2005 includes financial results nextel last 141 days year consistent generally accepted accounting principles gaap inclusion results renders direct comparisons results prior periods less meaningful accordingly discussion addresses appropriate trends believe significant separate apart impact merger nextel net operating revenues increased 26 2005 reflecting growth revenues wireless local segments partially offset declining revenues long distance segment operating expenses increased 11 2005 primarily due increases operating expenses wireless segment partially offset decrease operating expenses long distance segment 2005 recorded merger integration costs 608 million merger integration costs generally nonrecurring nature primarily include charges costs adopt launch new branding strategy logos including costs rebrand companyowned stores facilities costs train customerfacing employees prepare systems launch common customer interfacing systems processes integration planning execution costs related employee retention involuntary separations employees merger integration costs primarily related merger nextel planned spinoff embarq merger integration costs primarily reflected unallocated corporate selling general administrative expenses therefore excluded segment results 2005 recorded net restructuring asset impairment charges 125 million asset impairment charges primarily related writedown various software applications including 77 million impairment charge related writeoff removal service certain internaluse software systems longer utilized local segment also incurred asset impairments arising hurricanes gulf coast region asset impairments substantially offset insurance recoveries 2005 also recorded hurricanerelated charges 111 million exclusive asset impairment charges approximately 85 million 15 million 11 million charges reflected wireless long distance local segments respectively 2005 recorded income 154 million related activities associated various equity method investments marketable securities transactions income primarily result recording 137 million equity earnings associated ownership interest nextel partners majority related release nextel partners significant portion deferred tax valuation allowance third quarter 2005 2004 recorded net restructuring asset impairment charges 37 billion primarily related impairment long distance property plant equipment severance costs associated organizational realignment initiatives termination web hosting service 2003 recorded net restructuring charges asset impairments 20 billion consisted impairment charges associated decline estimates fair value certain brs spectrum asset impairments facilities severance charges associated termination web hosting service impairment charges associated termination development new billing platform impairment charges associated termination software development projects severance costs associated transformation customerfocused organizational design partially offset finalization 2001 2002 restructuring liabilities segmental results operations certain priorperiod amounts reclassified conform current period presentation 2005 determined recategorization certain costs services products selling general administrative would consistent current industry practices accordingly reclassified 11 billion expenses years ended december 31 2004 2003 costs primarily consist certain customer care information technology costs wireless long distance segments wireless segment together remaining pcs affiliates nextel partners offer digital wireless service 50 states puerto rico us virgin islands provide wireless coverage 300 metropolitan markets including 125 largest us metropolitan areas 277 million people combined pcs affiliates nextel partners mvno wholesale resellers served 496 million subscribers end 2005 provide comprehensive suite advanced wireless services including digital wireless mobile telephone service instant national international walkietalkie capabilities wireless data transmission services provided using two networks cdma technologybased network operated us prior nextel merger iden technologybased network operated nextel prior merger plan develop handsets capable operating networks expected enhance services available customers expect take actions capture capital operating efficiencies network operations combined offer wireless international voice roaming around globe international roaming available pcs trimode cdmaanalog phone areas 40 countries including countries asiapacific south american caribbean regions well canada mexico international roaming also available gsmcapable phone 140 countries europe middle east africa south pacific rim also roaming interoperability agreements idenbased wireless service providers operate latin america canada continuing execute plans enable us offer faster wireless data speeds deploying evdo technology across cdma network peak rates 24 megabits per second downloads evdo accelerate average mobiledevice data speeds 10 times compared prior generation technology expected deliver superior application service performance evdocapable handsets laptops equipped evdoenabled sprint pcs connection cards™ first commercial rollout evdo second quarter 2005 subsequent rollouts continue expand footprint provide coverage people markets nm meaningful nm meaningful following results included results wireless segment december 31 2005 results nextel august 12 2005 date completion merger results us unwired august 12 2005 date acquisition results gulf coast wireless october 3 2005 date acquisition results iwo holdings october 20 2005 date acquisition net operating revenues net operating revenues primarily consist direct wireless service revenues handset accessory sales revenues arrangements wholesale operators pcs affiliates service revenues consist fixed monthly recurring charges variable usage charges related use specified features miscellaneous fees directory assistance operatorassisted calling equipment protection late payment charges certain regulatory fees wholesale affiliate revenues consist primarily net revenues retained wireless subscribers residing pcs affiliate territories revenues sale wireless services companies resell services subscribers service revenues increased 6760 million 54 2004 2005 primarily due merger nextel increase number direct subscribers average monthly service revenue per user remained flat 30 million direct net subscriber additions 2005 excluding nextel pcs affiliate subscriber additions occurred prior sprintnextel merger acquisitions us unwired gulf coast wireless iwo holdings ended year 397 million direct subscribers believe growth direct subscribers separate growth attributable subscribers gained part sprintnextel merger pcs affiliate acquisitions result number factors principally • differentiating products services particularly datarelated services nationwide walkietalkie services sprint powervision instant messaging emails sending receiving pictures playing games fullcolor graphics polyphonic sounds browsing internet wirelessly • introduction competitive service pricing plans targeted meeting customers’ needs • selected handset pricing promotions improved handset choices • increased brand name recognition result increased advertising marketing campaigns including advertising marketing related sponsorship nascar agreement nfl began 2005 • increased market penetration result opening additional retail stores selling efforts targeted specific vertical markets • improvement subscriber retention believe attributable impact competitive rate plans well focus delivering high quality differentiated service average monthly service revenue per user remained stable 62 2004 2005 • integrated nextel subscribers higher average monthly service revenue third quarter 2005 • saw increase revenues data services subscribers used short message service sms text messaging took advantage wider array premium services • experienced full year increased equipment protection plan rates restructured 2004 increases offset • continued offer competitive service pricing plans including lower priced plans higher number bundled minutes included fixed monthly charge plan plans offer ability share minutes among group related customers combination features expect service revenues increase absolute terms future result increasing subscriber base competition among wireless communications providers increased competitors decreased prices average per subscriber utilization wireless voice services increased resulting declining average monthly revenue per subscriber wireless industry overall declining average revenue per minute use voice services expect trends continue see “forward looking statements” revenues sales handsets accessories generated new subscribers upgrades approximately 10 net operating revenues 2005 2004 revenues increased 637 million 42 2004 2005 primarily due merger nextel remainder increase due 6 increase number cdma handsets sold 2005 largely offset 4 decrease average sales price cdma handsets continued lower handset retail prices 2005 costs handsets declined also changed third party compensation plan 2005 one based discounted handsets one commissionsbased additionally continued offering rebates handsets new promotional programs rolled consistent industry practice marketing plans assume handsets net rebates continue sold prices cost instances retention efforts often include providing incentives form new handsets may cause handset subsidies increase customer base continues grow addition may increase handset subsidies response competitive environment see “forward looking statements” wholesale affiliate revenues increased 284 million 47 2004 2005 reflecting net subscriber additions wholesale pcs affiliate bases wholesale operators added 15 million subscribers 2005 ending year 52 million subscribers pcs affiliates ended 2005 28 million subscribers adjusted subscriber transfers resulting acquisition three pcs affiliates year expect revenue remaining pcs affiliates 2006 significantly lower 2005 five pcs affiliates purchased 2005 first quarter 2006 wholesale revenues expected increase year due continued subscriber growth existing resellers well addition new resellers 2006 see “forward looking statements” service revenues increased 13 billion 12 2004 compared 2003 mainly reflecting increase number direct subscribers increased revenue data services subscriber elections add services base plans increases partially offset lower overage charges usagebased plans 19 million direct net subscriber additions 2004 including 91000 subscribers acquired pcs affiliate ended 2004 178 million direct subscribers revenues sales handsets accessories increased 367 million 32 2004 compared 2003 mainly due higher subscriber additions higher retail prices partially offset higher rebates wholesale affiliate service revenues represented 4 net operating revenues 2004 3 2003 278 million increase 2004 mainly reflects net additions wholesale pcs affiliate bases wholesale operators added 21 million subscribers 2004 increasing subscriber base 37 million 16 million 2003 principally driven virgin mobile usa qwest communications pcs affiliates added 374000 subscribers 2004 ending year 32 million subscribers costs services products costs services products consist cost providing wireless service cost handset accessory revenues cost providing wireless service consists primarily • costs operate maintain cdma iden networks primarily including direct switch transmitter receiver site costs rent utilities property taxes maintenance payroll facilities costs associated network engineering employees frequency leasing costs roaming fees paid carriers • fixed variable interconnection costs fixed component consists monthly flatrate fees facilities leased local exchange carriers based number transmitter receiver sites switches service particular period related equipment installed site variable component generally consists perminute use fees charged wireline wireless providers calls terminating networks fluctuates relation level duration terminating calls • costs activate service new subscribers cost handset accessory revenues consists primarily cost handsets accessories sold order fulfillment related expenses writedowns handset related accessory inventory shrinkage recognize cost handset revenues including handset costs excess revenues generated handset sales accessory revenues title handset accessory passes dealer enduser customer cost service 58 total costs services products 2005 compared 54 2004 costs increased 1688 million 52 2004 2005 primarily due merger nextel well increased costs relating expansion network increased minutes use networks specifically experienced • increase transmitter receiver switch related operational costs due increase transmitter receiver sites capacity enhancements placed service 2005 • increased long distance roaming costs due increase direct subscriber base • higher pcs affiliate wholesale costs related subscriber bases increased throughout 2005 • increase premium service fees resulting increased subscriber data usage • increase evdo backhaul costs driven increased capacity required support launch service 2005 expect aggregate amount cost service increase customer usage networks increases add sites equipment expand coverage capacity cdma iden networks see “forward looking statements” “liquidity capital resources” “future capital needs resources capital needs capital expenditures” handset accessory costs 42 total costs services products 2005 compared 46 2004 costs increased 825 million 29 2004 2005 due merger nextel excluding impact handset accessory costs actually decreased 2004 2005 6 increase volume cdma handsets sold 2005 offset 8 decrease average cost per handset additionally equipment refurbishment costs declined since 2004 due operational improvements handset exchange insurance programs well increased insurance deductibles implemented early 2005 offset portion costs services products increased 18 2003 2004 primarily due network support larger subscriber base higher minutes use expanded market coverage increased handset costs handset accessory costs 46 total costs services products 2004 2003 costs services products 42 net operating revenues 2004 41 2003 selling general administrative expense selling marketing costs primarily consist customer acquisition costs including commissions earned indirect dealers distributors direct sales force new handset activations residual payments indirect dealers payroll facilities costs associated direct sales force retail stores marketing employees telemarketing advertising media programs sponsorships including costs related branding general administrative costs primarily consist fees paid billing customer care information technology operations bad debt expense back office support activities including customer retention collections legal finance human resources strategic planning technology product development along related payroll facilities costs selling general administrative expense 30 net operating revenues 2005 2004 sales marketing expense increased 1266 million 56 2004 2005 primarily due merger nextel including launch new branding initiatives advertising campaigns connection merger remaining increase selling marketing expense reflects • increased sales distribution costs support larger direct subscriber base well shift compensation third party dealers discounted handsetbased plan commissionsbased plan implemented 2005 • increased advertising marketing costs focusing customer experience corporate sponsorships including nfl media advertising associated merger launch new “yes can” brand campaign general administrative costs increased 1161 million 54 2004 2005 primarily due merger nextel well • increase bad debt expense reserve bad debt requires judgment based historical trending industry norms recognition current market indicators general economic conditions bad debt expense percentage net operating revenues 15 2005 14 2004 reserve bad debt percent outstanding accounts receivable 6 2005 7 2004 • increase information technology billing expenses support larger subscriber base addition increase credit card fees subscribers submit invoice payments credit cards partially offset • decrease customer care costs outsourced customer care calls less expensive service centers offset increase volume expect aggregate amount selling general administrative expenses continue increasing absolute terms future primarily result increased costs support growing customer base including costs associated billing collection customer retention customer care activities see “forward looking statements” selling general administrative expense increased 8 2003 2004 reflecting increase sales distribution costs primarily driven higher gross additions increase number direct retail stores selling marketing costs also contributed increase significant campaign launched reposition sprint pcs brand 2004 selling general administrative expense 30 net operating revenues 2004 32 2003 bad debt expense percentage net operating revenues 14 2004 23 2003 reserve bad debt percent outstanding accounts receivable 7 2004 2003 stability 2004 percentage mainly reflects sales previously writtenoff subscriber receivables reductions reserves number portability churn occur anticipated restructuring asset impairment 2005 asset impairment charges 27 million recorded primarily related writedown various software applications restructuring credits 7 million result analysis finalization original estimates related organizational realignment initiated 2003 completed substantially activities related realignment 2004 recorded 30 million restructuring charge related severance costs associated organizational realignment 2003 recorded asset impairments 349 million primarily related termination development new billing platform also recorded restructuring charges 13 million severance costs associated organizational realignment contractual obligations related termination development billing platform partially offset finalization 2001 2002 restructuring activities additional information regarding asset impairments found note 8 notes consolidated financial statements appearing end annual report form 10k depreciation amortization expense estimates assumptions used setting depreciable lives testing recoverability assumptions based internal studies use industry data lives recognition technological advancements understanding business strategy depreciation expense consists mainly depreciation network assets amortization expense consists mainly amortization customer relationship intangible assets depreciation expense increased 801 million 31 2004 2005 primarily due merger nextel excluding impact depreciation expense increased result increase transmitter receiver sites service costs modify existing switches transmitter receiver sites existing markets primarily enhance capacity networks amortization expense increased 1329 million 2004 2005 due primarily amortization expense related customer contracts acquired sprintnextel merger acquisition five pcs affiliates depreciation expense increased 4 2004 mainly reflecting depreciation network assets placed service year long distance long distance segment provide broad suite wireline voice data communications services targeted domestic business residential customers multinational corporations communications companies services include domestic international voice data communications using various protocols mpls ip atm frame relay managed network services one nation’s largest providers long distance services operate alldigital long distance tier 1 ip networks also provide services cable telephony market arrangements cable companies resell long distance service local services 911 directory basic local features andor use back office systems network assets support local telephone service provided cable facilities determined business conditions events occurred 2004 impacted operations constituted “triggering event” requiring evaluation recoverability longlived assets pursuant sfas 144 accounting impairment disposal longlived assets reevaluated strategy financial forecasts 2004 resulting 35 billion pretax noncash impairment charge long distance longlived assets additional information regarding asset impairments found note 8 notes consolidated financial statements appearing end annual report form 10k nm meaningful nm meaningful net operating revenues net operating revenues decreased 7 2005 8 2004 lower pricing associated voice services decline unbundled network element platform exited market migration legacy data products played large role declines years additionally termination large dial ip contract 2004 sale wholesale dial ip business 2004 contributed decreasing revenues partially offsetting declines revenue incremental revenues selling services cable companies october 2004 completed sale wholesale dial ip business 34 million assets classified held sale september 30 2004 associated pretax noncash charge 21 million included 2004 impairment charge 2006 expect see continued revenue declines long distance due lower pricing commercial contracts continued pressures consumer long distance market increased competition significant increase capacity resulting new technologies networks may drive already low prices see “forward looking statements” voice revenues voice revenues decreased 8 2005 9 2004 intense competition cable industry major local exchange carriers consumer small business customers well wireless email instant messaging substitution continue erode retail base drive lower prices per minute despite 11 increase call volume 2005 13 increase 2004 declines partially offset increase loweryielding affiliate wholesale revenue primarily relationships certain cable providers voice revenues generated provision services wireless local represented 15 total voice revenues 2005 compared 13 2004 data revenues data revenues reflect sales currentgeneration data services including atm managed network services private line frame relay services data revenues decreased 5 2005 7 2004 2005 frame relay atm declined due customers migrating ipbased technologies declines partially offset growth managed network services 2004 decrease frame relay private line services partially offset increase atm managed network services internet revenues internet revenues decreased 7 2005 18 2004 2005 decline primarily due loss dial ip revenues due sale dial ip business october 2004 revenues partially replaced increase dedicated ip revenue customers migrated atm frame relay technologies next generation mpls technologies decline 2004 result decrease dial ip revenues discontinuation web hosting service partially offset increase dedicated ip revenue revenues remained flat 2005 increasing 40 2004 increase primarily due higher equipment sales costs services products costs services products include access costs paid local phone companies including local segment domestic service providers foreign phone companies complete calls made domestic customers costs operate maintain networks costs equipment costs services products increased 3 2005 2 2004 2005 increase driven access volume international access costs somewhat offset renegotiated access rate agreements initiatives reduce access unit costs partially offset recognition portion deferred gain sale conferencing business sold june 2005 2004 increase primarily attributable higher access volume somewhat offset renegotiated access rate agreements initiatives reduce access unit costs services products 64 net operating revenues 2005 58 2004 52 2003 increases occurred result overall reductions net operating revenues selling general administrative expense selling general administrative expense decreased 26 2005 15 2004 2005 decline due primarily continued restructuring efforts headcount reductions aggressive cost savings initiatives reduced rent costs lower bad debt expense wholesale markets 2004 decline due restructuring efforts general cost controls selling general administrative expense includes charges estimated bad debt expense reserve bad debt requires management’s judgment based customerspecific indicators well historical trending industry norms recognition current market indicators general economic conditions bad debt expense percentage net operating revenues less 1 2005 2 2004 1 2003 reserve bad debt percentage outstanding accounts receivable 8 2005 12 2004 11 2003 total selling general administrative expense 21 net operating revenues 2005 26 2004 28 2003 restructuring asset impairments 2005 recorded restructuring asset impairment charges 15 million 9 million related writeoff certain internaluse software systems longer utilized remaining charges costs associated wind web hosting service activities related wind substantially complete however continue obligated facility leases expire 2007 2014 2004 recorded asset impairments 35 billion related property plant equipment also recorded charges 121 million related severance costs termination facility leases associated transformation initiatives ongoing wind web hosting service 2003 recorded asset impairments 12 billion related decline fair value brs spectrum decision wind web hosting service resulted 316 million asset impairment charge associated restructuring charges 60 million related severance facility lease terminations additional information regarding asset impairments found note 8 notes consolidated financial statements appearing end annual report form 10k depreciation expense depreciation expense decreased 54 2005 25 2004 decrease years primarily driven reduction value assets associated impairment property plant equipment 2004 well decreased asset base due winddown web hosting service 2003 additionally 2004 extended depreciable life certain highcapacity transmission equipment eight years twelve years due slower anticipated evolution technology extension life decreased 2004 depreciation expense approximately 74 million depreciation expense 7 net operating revenues 2005 15 2004 18 2003 local segment consists mainly regulated incumbent local phone companies serving approximately 74 million access lines 18 states provide local long distance voice data services including dsl access customers carriers local network sales telecommunications equipment telecommunications related services provide wireless video services agency relationships wholesale telecommunications product distribution business known north supply also part local segment nm meaningful nm meaningful net operating revenues net operating revenues increased 2 2005 compared decrease 1 2004 2005 increase driven growth north supply product sales data revenue partially offset lower voice revenue 2004 increase data revenue north supply product sales offset declines voice revenue telecom equipment sales ended 2005 74 million switched access lines decrease 4 prior year access lines decreased 3 2004 decreases 2005 2004 driven principally losses wireless cable providers along broadband substitution voice revenues voice revenues consisting revenue local exchange services long distance revenue switched access revenue decreased 4 2005 3 2004 due decreases access lines access minutes use declines years also impacted ending fccallowable cost recoveries associated local number portability recoveries cost pooling telephone numbers 2004 data revenues data revenues mainly derived dsl local data transport services special access data revenues increased 18 2005 14 2004 mainly result strong growth dsl lines special access sales primarily wireless companies ended 2005 693000 dsl lines service increase 41 compared 2004 revenues increased 11 2005 decreasing 1 2004 2005 increase principally driven higher product sales due significant contract entered north supply 2004 decrease driven decline telecom equipment sales resulting planned shift focus selling higher margin products reduction customer demand equipment somewhat offset increase north supply product sales costs services products costs services products include costs operate maintain local network costs equipment sales costs increased 10 2005 decreased 1 2004 2005 increase primarily driven increase north supply product sales higher costs associated increase dsl somewhat offset decline hurricanerelated expenses 2004 general expense controls lower costs associated telecom equipment sales partially offset increase north supply product costs higher pension costs approximately 30 million hurricanerelated expenses costs services products 37 net operating revenues 2005 34 2004 2003 selling general administrative expense selling general administrative expense decreased 12 2005 increased 2 2004 2005 decrease primarily driven reduced business selling information technology costs 2004 increase primarily driven higher pension costs stockbased compensation somewhat offset general cost controls selling general administrative expense includes charges estimated bad debt expense reserve bad debt requires management’s judgment based historical trending industry norms recognition current market indicators general economic conditions bad debt expense percentage net revenues 1 2005 2004 2003 reserve bad debt expense percentage outstanding accounts receivable 8 2005 9 2004 2003 selling general administrative expense 18 net operating revenues 2005 21 2004 20 2003 restructuring asset impairment 2005 recorded restructuring asset impairment charges 82 million 77 million related writeoff certain internaluse software systems longer utilized 2004 recorded 40 million restructuring charge related severance costs associated organizational realignment 2003 recorded restructuring charges 25 million related severance costs associated organizational realignment offset finalization 2001 2002 restructuring liabilities additional information regarding restructuring asset impairments found note 8 notes consolidated financial statements appearing end annual report form 10k depreciation expense depreciation expense flat 2005 well 2004 depreciation expense 17 net operating revenues 2005 2004 2003 nonoperating items nm meaningful nm meaningful interest expense effective interest rates following table reflect interest expense longterm debt interest costs shortterm borrowings deferred compensation plans amortization debt costs excluded distort effective interest rates longterm debt see “liquidity capital resources” information financing activities effective interest rate includes effect interest rate swap agreements additional information regarding interest rate swaps found note 12 notes consolidated financial statements appearing end annual report form 10k although interest expense increased 69 million 2005 compared 2004 due additional indebtedness assumed connection nextel merger pcs affiliate acquisitions effective interest rate longterm debt decreased 2005 69 68 decrease primarily due lower effective interest rates assumed nextel longterm debt december 31 2005 average floating rate interest swapped debt 70 weighted average coupon underlying debt 72 effective interest rate longterm debt decreased 2004 compared 2003 primarily due fair value interest rate swaps 1 billion longterm debt entered 2003 interest income interest income 2005 2004 2003 includes dividends received investments equity securities interest earned marketable debt securities 177 million increase interest income 2004 2005 primarily due increase average cash equivalents balances due sprintnextel merger interest income also benefited 200 basis point increase federal funds rates 2005 equity earnings losses unconsolidated subsidiaries equity method accounting record proportional share losses company invested amount investment recorded 110 million net equity earnings unconsolidated subsidiaries 2005 primarily result recording 137 million equity earnings associated ownership interest nextel partners majority related release nextel partners significant portion deferred tax valuation allowance third quarter 2005 recorded 39 million 77 million equity losses unconsolidated subsidiaries 2004 2003 respectively primarily driven investments virgin mobile equity losses unconsolidated subsidiaries decreased 2003 2004 recorded losses virgin mobile reached amount investment suspended recognition equity virgin mobile’s losses time additional information regarding equity method investments found note 5 notes consolidated financial statements appearing end annual report form 10k loss retirement debt recorded charges 60 million 21 million 2004 2003 respectively expense carrying value debt premiums due early retirement debt incur charges due early retirement debt 2005 additional information regarding longterm debt found note 9 notes consolidated financial statements appearing end annual report form 10k net recognized 71 million gains sale investments 2005 year realized gain 15 million sale 5 million shares investment nii holdings inc also used 105 million shares investment earthlink inc settle certain variable prepaid forward contracts gain 9 million additionally 2005 rogers communications inc acquired callnet enterprises inc held equity method investment acquisition resulted gain 18 million december 2005 sold remaining investment barak itc 1995 international telecommunications services corp ltd nominal amount reversed previouslyrecognized losses 28 million recognized 15 million gains sale investments 2004 gains primarily attributable transactions involving investment earthlink used 56 million shares settle certain variable prepaid forward contracts sold additional 1 million shares investment gains totaling 11 million 2003 sold 108 million shares investment earthlink loss 3 million derivative transactions used principally hedging purposes however entered several derivative instruments 2005 qualify hedge accounting treatment result changes fair values instruments reflected results operations period change occurred 2005 recognized approximately 27 million losses due change fair values instruments additional information regarding derivative instruments hedging activities found note 12 notes consolidated financial statements appearing end annual report form 10k increases nonoperating income 2005 included favorable foreign exchange rates used foreign currency transactions favorable terms certain customer contracts 2004 realized losses due unfavorable foreign exchange transactions charges 15 million advisory fees related recombination tracking stocks 2003 recorded 50 million charge net insurance settlements settle shareholder litigation also incurred losses related foreign exchange transactions income tax provision benefit consolidated effective tax rates 380 2005 369 2004 421 2003 information regarding differences caused effective income tax rates vary statutory federal rate income taxes related continuing operations found note 13 notes consolidated financial statements appearing end annual report form 10k discontinued operations net 2003 completed sale directory publishing business rh donnelley 22 billion cash pretax gain 21 billion financial condition consolidated assets 1026 billion december 31 2005 reflect increase 613 billion 2004 increase primarily due business combination activity 564 billion reflects fair value nextel’s assets net cash paid 555 million reflects fair value us unwired’s assets net cash paid acquired third quarter 2005 93 million reflects fair value gulf coast wireless’ assets net cash paid 239 million reflects fair value iwo holding’s assets net cash paid acquired fourth quarter 2005 additional information regarding impact business combinations consolidated assets found note 2 notes consolidated financial statements appearing end annual report form 10k remainder increase consolidated assets primarily driven cash equivalents excluding net cash paid 188 million sprintnextel merger acquisitions us unwired gulf coast wireless iwo holdings cash equivalents increased 49 billion see “liquidity capital resources” additional information increase cash august 2005 three major credit rating agencies upgraded debt ratings standard poor’s corporate ratings upgraded longterm senior unsecured debt bbb changed credit rating outlook stable positive moody’s investor service upgraded longterm senior unsecured debt rating baa2 baa3 changed credit rating outlook stable positive fitch ratings upgraded senior unsecured debt rating bbb changed credit rating outlook stable positive liquidity capital resources december 2005 entered new unsecured bank credit facility consisting five year 60 billion revolving credit facility 364day 32 billion term loan total financing capacity 92 billion facility replaced existing nextel credit agreement included 40 billion revolving credit facility 10 billion drawn 22 billion term loan outstanding new 32 billion term loan used refinance outstanding revolving credit term loans existing nextel credit agreement 25 billion letter credit required fcc report order outstanding nextel credit agreement remains outstanding new 60 billion revolving credit facility reduces available revolving loan commitments equivalent amount leaving 35 billion borrowing capacity available new credit facility december 31 2005 full revolving loan commitment existing 10 billion bank credit facility also available december 31 2005 credit agreements described provide interest rates equal london interbank offered rate libor prime rate plus spread varies depending applicable borrower’s guarantor’s credit ratings none facilities includes rating triggers would allow lenders involved terminate facilities event credit rating downgrade letters credit 125 million december 31 2005 addition 25 billion letter credit related report order december 31 2005 compliance debt covenants including financial ratio tests associated borrowings ability fund capital needs ultimately impacted overall capacity terms bank securities markets given volatility markets continue monitor closely take steps maintain financial flexibility reasonable capital structure cost december 31 2005 working capital 50 billion compared 31 billion december 31 2004 addition cash equivalents current marketable securities significant portion working capital consists accounts receivable handset inventory prepaid expenses deferred tax assets current assets net accounts payable accrued expenses current portion longterm debt capital lease obligations increase working capital primarily due approximately 26 billion working capital acquired result nextel merger cash flows operating activities net cash provided operating activities 107 billion increased 41 billion 2005 2004 cash received customers increased approximately 74 billion partially offset 46 billion increase cash paid suppliers employees increases primarily result operations nextel included operations beginning august 12 2005 well continued growth wireless customer base partially offset mergerrelated costs additionally cash flows provided operating activities 2005 include receipt 12 billion prepaid tower rentals global signal exchange granting global signal exclusive rights lease operate 6600 communications towers owned us investing activities net cash used investing activities totaled 47 billion 2005 compared 41 billion 2004 capital expenditures accounted 51 billion investing activities 2005 increased 40 billion 2004 due primarily higher spending related wireless segment partially offset spending reductions related local segment invested wireless segment primarily maintain enhance network reliability upgrade capabilities providing new products services including deployment evdo technology well maintain iden network reliability fulfill obligations report order invested local segment primarily accommodate voice grade equivalent growth convert network circuit packet switching continue buildout highspeed dsl services meet regulatory requirements invested long distance segment maintain network reliability upgrade capabilities providing new products services meet capacity demands investing activities also reflect 12 billion net cash acquired merger nextel offset 968 million net cash paid acquire us unwired 211 million net cash paid acquire gulf coast wireless 192 million net cash paid acquire iwo holdings additionally investing activities include proceeds sale assets including receipt 376 million sale shares nii holdings common stock third quarter 2005 receipt 200 million sale long distance conferencing business second quarter 2005 200 million received virgin mobile third quarter 2005 reflected distribution affiliates activity financing activities net cash used financing activities totaled 12 billion 2005 compared 680 million 2004 debtrelated financing activities consisted retirement almost 12 billion senior notes capital lease obligations retirement 22 billion term loan 10 billion revolving credit loan new 32 billion term loan financing activities 2005 also include 432 million proceeds common stock issuances primarily resulting exercises employee stock options proceeds common stock issuances 19 billion 2004 mainly settlement equity unit forward contracts paid cash dividends 525 million 2005 compared 670 million 2004 decrease cash dividends paid due decrease dividend rate third quarter 2005 25 cents per share 125 cents per share prior quarters partially offset increase number shares common stock outstanding 2005 primarily result nextel merger compared 2004 capital requirements contractual obligations funding sources capital requirements currently anticipate future funding needs near term principally relate • operating expenses relating networks • capital expenditures particularly respect expansion coverage capacity wireless networks deployment new technologies networks • interest scheduled principal payments related debt purchases redemptions debt securities • dividend payments declared board directors plan continue following spinoff embarq • amounts required fund pending acquisition transactions including purchase outstanding shares common stock nextel partners 65 billion • amounts required expended connection fcc’s report order potential investments new business opportunities spectrum purchases • potential costs compliance regulatory mandates including e911 • general corporate expenditures future contractual obligations following table sets forth best estimates amounts timing contractual payments significant contractual obligations december 31 2005 information table reflects future unconditional payments based upon among things terms relevant agreements appropriate classification items gaap currently effect certain assumptions future interest rates future events including additional purchases securities refinancing securities could cause actual payments differ significantly amounts see “ forwardlooking statements” 1 includes principal maturities estimated interest payments bank credit facility based management’s expectation future interest rates assume current payment schedule exclude additional drawdown revolving loan commitment 2 includes effect fourth quarter 2005 decision defease redeem entire outstanding aggregate principal amount 95 senior notes 3 amounts reflect impact february 28 2006 notice redeem seventh series preferred stock expect take place march 31 2006 4 includes amounts required pay purchase remaining equity interest nextel partners currently including amounts payable upon conversion debt securities upon settlement options december 31 2005 held approximately 30 common stock equity interest nextel partners amounts include debt assumed part transaction 5 includes obligations related 2006 acquisitions alamosa enterprise communications velocita announced fourth quarter 2005 amounts associated alamosa acquisition include debt assumed part transaction table include costs paid connection report order next approximately two one half years total minimum cash obligation approximately 28 billion costs incurred report order associated reconfiguration 800 mhz band may applied 28 billion obligation subject approval transition administrator report order addition costs associated reconfiguration 19 ghz spectrum fully approved credit completion entire reconfiguration process final reconciliation audit entire reconfiguration obligation outlined report order take place completion aspects reconfiguration process assurance given full credit expenditures incurred report order additionally since transition administrator fcc yet reached agreement methodology calculating certain amounts property plant equipment submitted credit cannot provide assurance granted full credit certain network costs december 31 2005 incurred cash basis approximately 338 million costs report order table excludes amounts may paid connection spectrum acquisitions committed subject certain conditions may met pay 393 million pending spectrum acquisitions addition 5 billion open purchase orders goods services december 31 2005 enforceable legally binding specify significant terms recorded liabilities december 31 2005 included table expect substantially commitments become due next twelve months included “purchase obligations other” caption minimum amounts due service contracts including agreements telecommunications customer billing services advertising services contracts related information technology customer care outsourcing arrangements amounts actually paid “other” agreements likely higher due variable components agreements significant variable components determine ultimate obligation owed include items hours contracted subscribers factors addition party various arrangements conditional nature create obligation make payments upon occurrence certain events delivery functioning software products possible predict timing amounts may due conditional arrangements amounts included table expected pension contributions disclosed note 18 notes consolidated financial statements appearing end annual report form 10k included unconditional purchase obligations funding sources december 31 2005 cash equivalents marketable securities totaled 107 billion two credit agreements syndicate banks first 92 billion unsecured credit agreement entered december 2005 comprised 5year 60 billion revolving credit facility 364day 32 billion term loan full 32 billion term loan borrowed closing used refinance existing nextel credit facility december 31 2005 25 billion letters credit outstanding new 60 billion revolving credit facility result approximately 35 billion available new facility second credit agreement 10 billion unsecured facility structured 364day revolving credit facility expiring june 2006 subsequent oneyear 10 billion termout option none drawn credit agreements described provide interest rates equal libor prime rate plus spread varies depending applicable borrower’s guarantor’s credit ratings none facilities includes rating triggers would allow lenders involved terminate facilities event credit rating downgrade letters credit 125 million december 31 2005 addition 25 billion letter credit related report order december 31 2005 compliance debt covenants including financial ratio tests associated borrowings ability fund capital needs ultimately impacted overall capacity terms bank securities markets given volatility markets continue monitor closely take steps maintain financial flexibility reasonable capital structure cost offbalance sheet financing participate secure financings unconsolidated special purpose entities bankruptcyremote entities included accompanying consolidated financial statements future outlook expect able meet currently identified funding needs least next 12 months using • anticipated cash flows operating activities well cash equivalents marketable debt securities hand • cash expected received us connection spinoff embarq andor • cash available existing credit facilities making assessment considered • anticipated levels capital expenditures • obligations related pending acquisition transactions including outstanding shares common stock nextel partners 65 billion • anticipated payments fcc’s report order • declared anticipated dividend payments scheduled debt service requirements • costs associated sprintnextel merger spinoff embarq • future contractual obligations material changes business plans currently prevailing anticipated economic conditions markets competitive practices mobile wireless telecommunications industry presently unexpected circumstances arise material effect cash flow profitability anticipated cash needs could change significantly conclusion expect meet funding needs least next 12 months described take account • significant acquisition transactions pursuit significant new business opportunities spectrum currently pursued us • potential material purchases redemptions outstanding debt equity securities cash • potential material increases cost compliance regulatory mandates including regulations related e911 service events circumstances could involve significant additional funding needs excess anticipated cash flows operating activities identified currently available funding sources including existing cash hand borrowings available existing credit facilities funding anticipated received connection spinoff local telecommunications business existing capital resources sufficient meet funding needs would necessary raise additional capital meet needs ability raise additional capital necessary subject variety additional factors cannot currently predicted certainty including • commercial success operations • volatility demand capital markets • market prices securities • tax law restrictions related spinoff embarq may limit ability raise capital sale equity securities past may future discussions third parties regarding potential sources new capital satisfy actual anticipated financing needs present existing arrangements consummated described report legally binding commitments understandings third parties obtain material amount additional capital entirety discussion subject risks cautionary qualifying factors set forth “forwardlooking statements” part item 1a “risk factors” financial strategies general risk management policies use derivative instruments hedging risk management purposes hedging activity may done purposes mitigating risks associated asset liability committed transaction probable forecasted transaction seek minimize counterparty credit risk stringent credit approval review processes selection creditworthy counterparties continual review monitoring counterparties thorough legal review contracts also control exposure market risk regularly monitoring changes hedge positions normal stress conditions ensure exceed established limits board directors authorized us enter derivative transactions comply risk management policies purchase hold derivative financial instrument speculative purposes item 7a item 7 managements discussion analysis financial condition results operations information required item 7 refer managements discussion analysis financial condition results operations section financial statements financial statement schedule supplementary data filed part report pages 20 32 item 8 item 7a quantitative qualitative disclosures market risk primarily exposed market risk associated unfavorable movements interest rates foreign currencies equity prices risk inherent market risk sensitive instruments positions potential loss arising adverse changes factors interest rate risk communications industry capital intensive technology driven business subject interest rate risk primarily associated borrowings interest rate risk changes interest rates could adversely affect earnings cash flows specific interest rate risk include risk increasing interest rates shortterm debt risk increasing interest rates planned new fixed rate longterm financings risk increasing interest rates planned refinancing using longterm fixed rate debt cash flow hedges enter interest rate swap agreements designated cash flow hedges reduce impact interest rate movements future interest expense effectively converting portion floatingrate debt fixedrate december 31 2006 outstanding interest rate cash flow hedges fair value hedges enter interest rate swap agreements manage exposure interest rate movements achieve optimal mixture floating fixedrate debt minimizing liquidity risk interest rate swap agreements designated fair value hedges effectively convert fixedrate debt floatingrate receiving fixed rate amounts exchange floating rate interest payments life agreement without exchange underlying principal amount december 31 2006 outstanding interest rate swap agreements designated fair value hedges 95 debt december 31 2006 fixedrate debt excluding interest rate swaps changes interest rates impact fair value debt impact earnings cash flows intend hold obligations maturity unless market conditions favorable december 31 2006 held fair value interest rate swaps notional value 10 billion swaps entered hedges fair value portion senior notes interest rate swaps maturities ranging 2008 2012 semiannual basis pay floating rate interest equal sixmonth libor plus fixed spread receive average interest rate equal coupon rates stated underlying senior notes december 31 2006 rate would pay averaged 83 rate would receive 72 assuming one percentage point increase prevailing forward yield curve fair value interest rate swaps underlying senior notes would change 28 million interest rate swaps met requirements perfect effectiveness derivative accounting rules critical terms swaps perfectly matched corresponding terms hedged debt therefore net effect earnings cash flows fair value fluctuations perform interest rate sensitivity analyses variable rate debt including interest rate swaps analyses indicate one percentage point change interest rates would annual pretax impact 20 million statements operations cash flows december 31 2006 variablerate debt may impact earnings cash flows interest rates change subject changes fair values also perform sensitivity analysis fair market value outstanding debt 10 decline market interest rates would cause 976 million increase fair market value debt 243 billion analysis includes hedged debt 2005 entered series interest rate collars associated issuance debt embarq time spinoff may 17 2006 collars designated cash flow hedges embarq’s consolidated financial statements variability interest payments would result change interest rates debt issued time spinoff however forecasted interest payments debt started spinoff derivative instruments qualify hedge accounting treatment consolidated financial statements included discontinued operations 2006 43 million gains tax realized change fair value interest rate collars foreign currency risk also enter forward contracts options foreign currencies reduce impact changes foreign exchange rates foreign exchange risk management program focuses reducing transaction exposure optimize consolidated cash flow use foreign currency derivatives hedge foreign currency exposure related settlement international telecommunications access charges operation international subsidiaries dollar equivalent net foreign currency payables international settlements 20 million net foreign currency receivables international operations 20 million december 31 2006 potential immediate pretax loss us would result hypothetical 10 change foreign currency exchange rates based positions would insignificant equity risk exposed market risk relates changes market value investments invest equity instruments public private companies operational strategic business purposes securities subject significant fluctuations fair market value due volatility stock market industries companies operate securities classified investments marketable securities consolidated balance sheets include equity method investments private securities availableforsale securities equity derivative instruments entered series option contracts associated investment nii holdings order hedge price risk associated security first contracts qualify hedge accounting changes fair value contract recognized earnings period change remainder equity derivative instruments settled december 2006 additional information regarding derivative instruments found note 10 notes consolidated financial statements appearing end annual report form 10k certain business transactions granted warrants purchase securities companies fixed rates warrants supplemental terms business transaction designated hedging instruments 2002 2003 entered variable prepaid forward contracts monetize equity securities held available sale derivatives designated cash flow hedges reduce variability expected cash flows related forecasted sale underlying equity securities prepaid contracts settled fourth quarter 2004 fourth quarter 2005 item 8 item 7a quantitative qualitative disclosures market risk primarily exposed market risk associated unfavorable movements interest rates foreign currencies equity prices risk inherent market risk sensitive instruments positions potential loss arising adverse changes factors interest rate risk communications industry capital intensive technology driven business subject interest rate risk primarily associated borrowings interest rate risk changes interest rates could adversely affect earnings cash flows specific interest rate risk includes risk increasing interest rates floatingrate debt risk increasing interest rates planned new fixed rate longterm financings refinancings 96 debt december 31 2012 fixedrate debt changes interest rates impact fair value debt impact earnings cash flows intend hold obligations maturity unless market conditions favorable perform interest rate sensitivity analyses variable rate debt analyses indicate one percentage point change interest rates would annual pretax impact 10 million consolidated statements operations cash flows year ended december 31 2012 also perform sensitivity analysis fair market value outstanding debt 10 decline market interest rates would cause 844 million increase fair market value debt 293 billion foreign currency risk may enter forward contracts options foreign currencies reduce impact changes foreign exchange rates foreign exchange risk management program focuses reducing transaction exposure optimize consolidated cash flow use foreign currency derivatives hedge foreign currency exposure related settlement international telecommunications access charges operation international subsidiaries dollar equivalent net foreign currency receivables international settlements 26 million net foreign currency receivables international operations less 1 million december 31 2012 potential immediate pretax loss us would result hypothetical 10 change foreign currency exchange rates based positions would less 3 million equity risk exposed market risk relates changes market value investments invest equity instruments public companies operational strategic business purposes securities subject significant fluctuations fair market value due volatility stock market industries companies operate securities classified investments consolidated balance sheets primarily include equity method investments investment clearwire availableforsale securities certain business transactions granted warrants purchase securities companies fixed rates warrants supplemental terms business transaction designated hedging instruments item 8 item 7a quantitative qualitative disclosures market risk primarily exposed market risk associated unfavorable movements interest rates foreign currencies equity prices risk inherent market risk sensitive instruments positions potential loss arising adverse changes factors interest rate risk communications industry capital intensive technology driven business subject interest rate risk primarily associated borrowings interest rate risk changes interest rates could adversely affect earnings cash flows specific interest rate risk includes risk increasing interest rates floatingrate debt risk increasing interest rates planned new fixed rate longterm financings refinancings 90 debt december 31 2009 fixedrate debt changes interest rates impact fair value debt impact earnings cash flows intend hold obligations maturity unless market conditions favorable perform interest rate sensitivity analyses variable rate debt analyses indicate one percentage point change interest rates would annual pretax impact 18 million consolidated statements operations cash flows year ended december 31 2009 also perform sensitivity analysis fair market value outstanding debt 10 decline market interest rates would cause 872 million increase fair market value debt 209 billion foreign currency risk also enter forward contracts options foreign currencies reduce impact changes foreign exchange rates foreign exchange risk management program focuses reducing transaction exposure optimize consolidated cash flow use foreign currency derivatives hedge foreign currency exposure related settlement international telecommunications access charges operation international subsidiaries dollar equivalent net foreign currency payables international settlements 4 million net foreign currency receivables international operations 5 million december 31 2009 potential immediate pretax loss us would result hypothetical 10 change foreign currency exchange rates based positions would insignificant equity risk exposed market risk relates changes market value investments invest equity instruments public private companies operational strategic business purposes securities subject significant fluctuations fair market value due volatility stock market industries companies operate securities classified investments shortterm investments consolidated balance sheets include equity method investments investment clearwire investments private securities availableforsale securities certain business transactions granted warrants purchase securities companies fixed rates warrants supplemental terms business transaction designated hedging instruments item 8 item 7a quantitative qualitative disclosures market risk primarily exposed market risk associated unfavorable movements interest rates foreign currencies equity prices risk inherent market risk sensitive instruments positions potential loss arising adverse changes factors interest rate risk communications industry capitalintensive technologydriven business subject interest rate risk primarily associated borrowings interest rate risk changes interest rates could adversely affect earnings cash flows specific interest rate risk includes risk increasing interest rates variable rate debt risk increasing interest rates planned new fixed rate longterm financings refinancings approximately 95 debt march 31 2015 fixedrate debt changes interest rates impact fair value debt impact earnings cash flows intend hold obligations maturity unless market conditions favorable perform interest rate sensitivity analyses variable rate debt analyses indicate one percentage point change interest rates would annual pretax impact 13 million consolidated statements operations cash flows successor year ended march 31 2015 also perform sensitivity analysis fair market value outstanding debt 10 decline market interest rates estimated result 12 billion increase fair market value debt 351 billion foreign currency risk may enter forward contracts options foreign currencies reduce impact changes foreign exchange rates foreign exchange risk management program focuses reducing transaction exposure optimize consolidated cash flow use foreign currency derivatives hedge foreign currency exposure related settlement international telecommunications access charges operation international subsidiaries dollar equivalent net foreign currency receivables international settlements approximately 1 million net foreign currency payables international operations less 1 million march 31 2015 potential immediate pretax loss us would result hypothetical 10 change foreign currency exchange rates based positions would less 1 million item 8 item 7a quantitative qualitative disclosures market risk primarily exposed market risk associated unfavorable movements interest rates foreign currencies equity prices risk inherent market risk sensitive instruments positions potential loss arising adverse changes factors interest rate risk communications industry capitalintensive technologydriven business subject interest rate risk primarily associated borrowings interest rate risk changes interest rates could adversely affect earnings cash flows specific interest rate risk includes risk increasing interest rates variable rate debt risk increasing interest rates planned new fixed rate longterm financings refinancings occasionally may enter derivative agreements interest rate caps swaps manage variable interest rate exposure march 31 2017 entered fiveyear fixedforfloating interest rate swap 20 billion notional amount designated cash flow hedge intended reduce exposure rising interest rates hedging variable interest costs related 50 40 billion secured term loan approximately 83 debt march 31 2017 fixedrate debt changes interest rates impact fair value debt impact earnings cash flows intend hold obligations maturity unless market conditions favorable perform interest rate sensitivity analyses variablerate debt analyses indicate one percentage point change interest rates would annual pretax impact 62 million consolidated statements operations cash flows year ended march 31 2017 also perform sensitivity analysis fair market value outstanding debt 10 decline market interest rates estimated result 941 million increase fair market value debt 442 billion foreign currency risk may enter forward contracts options foreign currencies reduce impact changes foreign exchange rates foreign exchange risk management program focuses reducing transaction exposure optimize consolidated cash flow use foreign currency derivatives hedge foreign currency exposure related settlement international telecommunications access charges operation international subsidiaries dollar equivalent net foreign currency payables international settlements insignificant net foreign currency receivables international operations insignificant march 31 2017 potential immediate pretax loss us would result hypothetical 10 change foreign currency exchange rates based positions would insignificant item 8 item 7a quantitative qualitative disclosures market risk sprint susceptible certain risks related changes interest rates foreign currency exchange rate fluctuations risk inherent sprint’s market risk sensitive instruments positions potential loss arising adverse changes factors sprint purchase hold derivative financial instruments trading purposes interest rate risk communications industry capital intensive technology driven business sprint subject interest rate risk primarily associated borrowings sprint selectively enters interest rate swap cap agreements manage exposure interest rate changes debt approximately 93 sprint’s debt december 31 2004 fixedrate debt excluding interest rate swaps changes interest rates impact fair value debt impact earnings cash flows sprint intends hold obligations maturity unless market conditions favorable december 31 2004 sprint held fair value interest rate swaps notional value 1 billion swaps entered hedges fair value portion senior notes interest rate swaps maturities ranging 2008 2012 semiannual basis sprint pays floating rate interest equal sixmonth libor plus fixed spread receives average interest rate equal coupon rates stated underlying senior notes december 31 2004 rate sprint would pay averaged 50 rate sprint would receive 72 assuming one percentage point increase prevailing forward yield curve fair value interest rate swaps underlying senior notes would change 46 million interest rate swaps met requirements perfect effectiveness derivative accounting rules critical terms swaps perfectly matched corresponding terms hedged debt therefore impact earnings cash flows fair value fluctuations sprint performs interest rate sensitivity analyses variable rate debt including interest rate swaps analyses indicate one percentage point change interest rates would annual pretax impact 18 million statements operations cash flows december 31 2004 sprint’s variablerate debt may impact earnings cash flows interest rates change subject changes fair values sprint also performs sensitivity analysis fair market value outstanding debt 10 decline market interest rates would cause 579 million increase fair market value debt 201 billion analysis includes hedged debt foreign currency risk sprint also enters forward contracts options foreign currencies reduce impact changes foreign exchange rates sprint uses foreign currency derivatives hedge foreign currency exposure related settlement international telecommunications access charges operation international subsidiaries dollar equivalent sprint’s net foreign currency payables international settlements 55 million net foreign currency receivables international operations 26 million december 31 2004 potential immediate pretax loss sprint would result hypothetical 10 change foreign currency exchange rates based positions would approximately 3 million item 8 item 7a quantitative qualitative disclosures market risk sprints exposure market riskthrough derivative financial instruments financial instruments investments marketable securities longterm debtis material item 8 item 7a quantitative qualitative disclosures market risk inherent sprints market risk sensitive instruments positions potential loss arising adverse changes factors sprint susceptible certain risks related changes interest rates foreign currency exchange rate fluctuations sprint purchase hold derivative financial instruments trading purposes interest rate risk communications industry capital intensive technology driven business sprint subject interest rate risk primarily associated borrowings sprint selectively enters interest rate swap cap agreements manage exposure interest rate changes debt approximately 71 sprints debt december 31 2001 fixedrate debt changes interest rates impact fair value debt impact earnings cash flows sprint intends hold obligations maturity unless refinancing conditions favorable sprint performs interest rate sensitivity analyses variable rate debt analyses indicate 1 change interest rates would 57 million pretax impact consolidated statements operations cash flows december 31 2001 sprints variablerate debt subject earnings cash flows impacts interest rates change subject changes fair values sprint also prepared valueatrisk analysis assess worstcase impact past market movements sprints 2002 longterm debt portfolio based analysis used average interest rates 1980 present sprint 95 confident fair value outstanding debt would increase sprints book value next six months foreign currency risk sprint also enters forward contracts options foreign currencies reduce impact changes foreign exchange rates sprint uses foreign currency derivatives hedge net foreign currency payable related settlement international telecommunications access charges dollar equivalent sprints net foreign currency payables 3 million december 31 2001 potential immediate pretax loss sprint would result hypothetical 10 change foreign currency exchange rates based positions would approximately 635 thousand item 8 item 7a quantitative qualitative disclosures market risk sprints exposure market riskthrough derivative financial instruments financial instruments investments marketable securities longterm debt changes interest rates changes foreign currency exchange ratesis material item 8 item 7a quantitative qualitative disclosures market risk primarily exposed market risk associated unfavorable movements interest rates foreign currencies equity prices risk inherent market risk sensitive instruments positions potential loss arising adverse changes factors interest rate risk communications industry capital intensive technology driven business subject interest rate risk primarily associated borrowings interest rate risk changes interest rates could adversely affect earnings cash flows specific interest rate risk include risk increasing interest rates shortterm debt risk increasing interest rates planned new fixed rate longterm financings risk increasing interest rates planned refinancings using longterm fixed rate debt cash flow hedges enter interest rate swap agreements designated cash flow hedges reduce impact interest rate movements future interest expense effectively converting portion floatingrate debt fixedrate december 31 2007 outstanding interest rate cash flow hedges fair value hedges enter interest rate swap agreements manage exposure interest rate movements achieve optimal mixture floating fixedrate debt minimizing liquidity risk interest rate swap agreements designated fair value hedges effectively convert fixedrate debt floatingrate receiving fixed rate amounts exchange floating rate interest payments life agreement without exchange underlying principal amount december 31 2007 outstanding interest rate swap agreements designated fair value hedges 86 debt december 31 2007 fixedrate debt excluding interest rate swaps changes interest rates impact fair value debt impact earnings cash flows intend hold obligations maturity unless market conditions favorable december 31 2007 held fair value interest rate swaps notional value 1 billion swaps entered hedges fair value portion senior notes interest rate swaps maturities ranging 2008 2012 semiannual basis pay floating rate interest equal sixmonth libor plus fixed spread receive average interest rate equal coupon rates stated underlying senior notes december 31 2007 rate would pay averaged 80 rate would receive 72 assuming one percentage point increase prevailing forward yield curve fair value interest rate swaps underlying senior notes would change 21 million interest rate swaps met requirements perfect effectiveness derivative accounting rules critical terms swaps perfectly matched corresponding terms hedged debt therefore net effect earnings cash flows fair value fluctuations perform interest rate sensitivity analyses variable rate debt including interest rate swaps analyses indicate one percentage point change interest rates would annual pretax impact 39 million consolidated statements operations cash flows december 31 2007 variablerate debt may impact earnings cash flows interest rates change subject changes fair values also perform sensitivity analysis fair market value outstanding debt 10 decline market interest rates would cause 900 million increase fair market value debt 229 billion analysis includes hedged debt foreign currency risk also enter forward contracts options foreign currencies reduce impact changes foreign exchange rates foreign exchange risk management program focuses reducing transaction exposure optimize consolidated cash flow use foreign currency derivatives hedge foreign currency exposure related settlement international telecommunications access charges operation international subsidiaries dollar equivalent net foreign currency payables international settlements 16 million net foreign currency receivables international operations 12 million december 31 2007 potential immediate pretax loss us would result hypothetical 10 change foreign currency exchange rates based positions would insignificant equity risk exposed market risk relates changes market value investments invest equity instruments public private companies operational strategic business purposes securities subject significant fluctuations fair market value due volatility stock market industries companies operate securities classified investments marketable securities consolidated balance sheets include equity method investments private securities availableforsale securities equity derivative instruments additional information regarding derivative instruments found note 9 notes consolidated financial statements certain business transactions granted warrants purchase securities companies fixed rates warrants supplemental terms business transaction designated hedging instruments item 8 item 7a quantitative qualitative disclosures market risk primarily exposed market risk associated unfavorable movements interest rates foreign currencies equity prices risk inherent market risk sensitive instruments positions potential loss arising adverse changes factors interest rate risk communications industry capital intensive technology driven business subject interest rate risk primarily associated borrowings interest rate risk changes interest rates could adversely affect earnings cash flows specific interest rate risk includes risk increasing interest rates floatingrate debt risk increasing interest rates planned new fixed rate longterm financings refinancings 95 debt december 31 2011 fixedrate debt changes interest rates impact fair value debt impact earnings cash flows intend hold obligations maturity unless market conditions favorable perform interest rate sensitivity analyses variable rate debt analyses indicate one percentage point change interest rates would annual pretax impact 10 million consolidated statements operations cash flows year ended december 31 2011 also perform sensitivity analysis fair market value outstanding debt 10 decline market interest rates would cause 927 million increase fair market value debt 192 billion foreign currency risk also enter forward contracts options foreign currencies reduce impact changes foreign exchange rates foreign exchange risk management program focuses reducing transaction exposure optimize consolidated cash flow use foreign currency derivatives hedge foreign currency exposure related settlement international telecommunications access charges operation international subsidiaries dollar equivalent net foreign currency payables international settlements 8 million net foreign currency receivables international operations less 1 million december 31 2011 potential immediate pretax loss us would result hypothetical 10 change foreign currency exchange rates based positions would insignificant equity risk exposed market risk relates changes market value investments invest equity instruments public companies operational strategic business purposes securities subject significant fluctuations fair market value due volatility stock market industries companies operate securities classified investments consolidated balance sheets primarily include equity method investments investment clearwire availableforsale securities certain business transactions granted warrants purchase securities companies fixed rates warrants supplemental terms business transaction designated hedging instruments item 8 item 7a quantitative qualitative disclosures market risk primarily exposed market risk associated unfavorable movements interest rates foreign currencies equity prices risk inherent market risk sensitive instruments positions potential loss arising adverse changes factors interest rate risk communications industry capitalintensive technologydriven business subject interest rate risk primarily associated borrowings interest rate risk changes interest rates could adversely affect earnings cash flows specific interest rate risk includes risk increasing interest rates variable rate debt risk increasing interest rates planned new fixed rate longterm financings refinancings approximately 95 debt december 31 2013 fixedrate debt changes interest rates impact fair value debt impact earnings cash flows intend hold obligations maturity unless market conditions favorable perform interest rate sensitivity analyses variable rate debt analyses indicate one percentage point change interest rates would annual pretax impact 9 million consolidated statements operations cash flows year ended december 31 2013 also perform sensitivity analysis fair market value outstanding debt 10 decline market interest rates estimated result 12 billion increase fair market value debt 356 billion foreign currency risk may enter forward contracts options foreign currencies reduce impact changes foreign exchange rates foreign exchange risk management program focuses reducing transaction exposure optimize consolidated cash flow use foreign currency derivatives hedge foreign currency exposure related settlement international telecommunications access charges operation international subsidiaries dollar equivalent net foreign currency receivables international settlements less 1 million net foreign currency receivables international operations approximately 3 million december 31 2013 potential immediate pretax loss us would result hypothetical 10 change foreign currency exchange rates based positions would less 1 million equity risk exposed market risk relates changes market value investments invest equity instruments public companies operational strategic business purposes securities subject significant fluctuations fair market value due volatility stock market industries companies operate securities classified investments consolidated balance sheets primarily include equity method investments availableforsale securities certain business transactions granted warrants purchase securities companies fixed rates warrants supplemental terms business transaction designated hedging instruments item 8 item 7a quantitative qualitative disclosures market risk primarily exposed market risk associated unfavorable movements interest rates foreign currencies equity prices risk inherent market risk sensitive instruments positions potential loss arising adverse changes factors interest rate risk communications industry capitalintensive technologydriven business subject interest rate risk primarily associated borrowings interest rate risk changes interest rates could adversely affect earnings cash flows specific interest rate risk includes risk increasing interest rates variable rate debt risk increasing interest rates planned new fixed rate longterm financings refinancings occasionally may enter derivative agreements interest rate caps swaps manage variable interest rate exposure march 31 2018 party fiveyear fixedforfloating interest rate swap 20 billion notional amount designated cash flow hedge intended reduce exposure rising interest rates hedging variable interest costs related 40 billion secured term loan approximately 82 debt march 31 2018 fixedrate debt changes interest rates impact fair value debt impact earnings cash flows intend hold obligations maturity unless market conditions favorable perform interest rate sensitivity analyses variablerate debt analyses indicate one percentage point change interest rates would annual pretax impact 54 million consolidated statements operations cash flows year ended march 31 2018 also perform sensitivity analysis fair market value outstanding debt 10 decline market interest rates estimated result 11 billion increase fair market value debt 426 billion foreign currency risk may enter forward contracts options foreign currencies reduce impact changes foreign exchange rates foreign exchange risk management program focuses reducing transaction exposure optimize consolidated cash flow use foreign currency derivatives hedge foreign currency exposure related settlement international telecommunications access charges operation international subsidiaries dollar equivalent net foreign currency payables international settlements insignificant net foreign currency receivables international operations insignificant march 31 2018 potential immediate pretax loss us would result hypothetical 10 change foreign currency exchange rates based positions would insignificant item 8 item 7a quantitative qualitative disclosures market risk primarily exposed market risk associated unfavorable movements interest rates foreign currencies equity prices risk inherent market risk sensitive instruments positions potential loss arising adverse changes factors interest rate risk communications industry capitalintensive technologydriven business subject interest rate risk primarily associated borrowings interest rate risk changes interest rates could adversely affect earnings cash flows specific interest rate risk includes risk increasing interest rates variable rate debt risk increasing interest rates planned new fixed rate longterm financings refinancings occasionally may enter derivative agreements interest rate caps swaps manage variable interest rate exposure march 31 2019 party fiveyear fixedforfloating interest rate swap 20 billion notional amount designated cash flow hedge intended reduce exposure rising interest rates hedging variable interest costs related 40 billion term loan issued february 2017 approximately 71 debt march 31 2019 fixedrate debt changes interest rates impact fair value debt impact earnings cash flows intend hold obligations maturity unless market conditions favorable perform interest rate sensitivity analyses variablerate debt analyses indicate one percentage point change interest rates would annual pretax impact 88 million consolidated statements operations cash flows year ended march 31 2019 also perform sensitivity analysis fair market value outstanding debt 10 decline market interest rates estimated result 968 million increase fair market value debt 419 billion foreign currency risk may enter forward contracts options foreign currencies reduce impact changes foreign exchange rates foreign exchange risk management program focuses reducing transaction exposure optimize consolidated cash flow use foreign currency derivatives hedge foreign currency exposure related settlement international telecommunications access charges operation international subsidiaries dollar equivalent net foreign currency payables international settlements insignificant net foreign currency receivables international operations insignificant march 31 2019 potential immediate pretax loss us would result hypothetical 10 change foreign currency exchange rates based positions would insignificant item 8 item 7a quantitative qualitative disclosures market risk primarily exposed market risk associated unfavorable movements interest rates foreign currencies equity prices risk inherent market risk sensitive instruments positions potential loss arising adverse changes factors interest rate risk communications industry capital intensive technology driven business subject interest rate risk primarily associated borrowings interest rate risk changes interest rates could adversely affect earnings cash flows specific interest rate risk includes risk increasing interest rates floatingrate debt risk increasing interest rates planned new fixed rate longterm financings refinancings 86 debt december 31 2010 fixedrate debt changes interest rates impact fair value debt impact earnings cash flows intend hold obligations maturity unless market conditions favorable perform interest rate sensitivity analyses variable rate debt analyses indicate one percentage point change interest rates would annual pretax impact 27 million consolidated statements operations cash flows year ended december 31 2010 also perform sensitivity analysis fair market value outstanding debt 10 decline market interest rates would cause 751 million increase fair market value debt 208 billion foreign currency risk also enter forward contracts options foreign currencies reduce impact changes foreign exchange rates foreign exchange risk management program focuses reducing transaction exposure optimize consolidated cash flow use foreign currency derivatives hedge foreign currency exposure related settlement international telecommunications access charges operation international subsidiaries dollar equivalent net foreign currency payables international settlements 7 million net foreign currency receivables international operations 4 million december 31 2010 potential immediate pretax loss us would result hypothetical 10 change foreign currency exchange rates based positions would insignificant equity risk exposed market risk relates changes market value investments invest equity instruments public companies operational strategic business purposes securities subject significant fluctuations fair market value due volatility stock market industries companies operate securities classified investments consolidated balance sheets primarily include equity method investments investment clearwire availableforsale securities certain business transactions granted warrants purchase securities companies fixed rates warrants supplemental terms business transaction designated hedging instruments item 8 item 7a quantitative qualitative disclosures market risk inherent sprint’s market risk sensitive instruments positions potential loss arising adverse changes factors sprint susceptible certain risks related changes interest rates foreign currency exchange rate fluctuations sprint purchase hold derivative financial instruments trading purposes interest rate risk communications industry capital intensive technology driven business sprint subject interest rate risk primarily associated borrowings sprint selectively enters interest rate swap cap agreements manage exposure interest rate changes debt approximately 97 sprint’s debt december 31 2003 fixedrate debt excluding interest rate swaps changes interest rates impact fair value debt impact earnings cash flows sprint intends hold obligations maturity unless market conditions favorable december 31 2003 sprint held fair value interest rate swaps notional value 1 billion swaps entered hedges fair value portion senior notes interest rate swaps maturities ranging 2008 2012 semiannual basis sprint pays floating rate interest equal sixmonth libor plus fixed spread averaged 40 december 31 2003 received average interest rate equal coupon rates stated underlying senior notes 72 assuming one percentage point increase prevailing forward yield curve fair value interest rate swaps underlying senior notes would change 55 million interest rate swaps met requirements perfect effectiveness derivative accounting rules therefore impact earnings cash flows fair value fluctuations sprint performs interest rate sensitivity analyses variable rate debt including interest rate swaps analyses indicate one percentage point change interest rates would annual pretax impact 13 million statements operations cash flows december 31 2003 sprint’s variablerate debt subject earnings cash flows impacts interest rates change subject changes fair values sprint also performs sensitivity analysis fair market value outstanding debt 10 decline market interest rates would cause 568 million increase fair market value debt 197 billion analysis includes hedged debt excludes sprint’s equity unit notes foreign currency risk sprint also enters forward contracts options foreign currencies reduce impact changes foreign exchange rates sprint uses foreign currency derivatives hedge foreign currency exposure related settlement international telecommunications access charges operation international subsidiaries dollar equivalent sprint’s net foreign currency payables international settlements 28 million net foreign currency receivables international operations 32 million december 31 2003 potential immediate pretax loss sprint would result hypothetical 10 change foreign currency exchange rates based positions would approximately 3 million item 8 item 7a quantitative qualitative disclosures market risk sprints exposure market riskthrough derivative financial instruments financial instruments investments marketable securities longterm debt changes interest rates changes foreign currency exchange ratesis material item 8 item 7a quantitative qualitative disclosures market risk primarily exposed market risk associated unfavorable movements interest rates foreign currencies equity prices risk inherent market risk sensitive instruments positions potential loss arising adverse changes factors interest rate risk communications industry capitalintensive technologydriven business subject interest rate risk primarily associated borrowings interest rate risk changes interest rates could adversely affect earnings cash flows specific interest rate risk includes risk increasing interest rates variable rate debt risk increasing interest rates planned new fixed rate longterm financings refinancings approximately 83 debt march 31 2016 fixedrate debt changes interest rates impact fair value debt impact earnings cash flows intend hold obligations maturity unless market conditions favorable perform interest rate sensitivity analyses variable rate debt analyses indicate one percentage point change interest rates would annual pretax impact 26 million consolidated statements operations cash flows successor year ended march 31 2016 also perform sensitivity analysis fair market value outstanding debt 10 decline market interest rates estimated result 12 billion increase fair market value debt 299 billion foreign currency risk may enter forward contracts options foreign currencies reduce impact changes foreign exchange rates foreign exchange risk management program focuses reducing transaction exposure optimize consolidated cash flow use foreign currency derivatives hedge foreign currency exposure related settlement international telecommunications access charges operation international subsidiaries dollar equivalent net foreign currency receivables international settlements approximately 3 million net foreign currency receivables international operations approximately 2 million march 31 2016 potential immediate pretax loss us would result hypothetical 10 change foreign currency exchange rates based positions would less 1 million item 8 item 7a quantitative qualitative disclosures market risk inherent sprints market risk sensitive instruments positions potential loss arising adverse changes factors sprint susceptible certain risks related changes interest rates foreign currency exchange rate fluctuations sprint purchase hold derivative financial instruments trading purposes interest rate risk communications industry capital intensive technology driven business sprint subject interest rate risk primarily associated borrowings sprint selectively enters interest rate swap cap agreements manage exposure interest rate changes debt approximately 90 sprints debt december 31 2002 fixedrate debt changes interest rates impact fair value debt impact earnings cash flows sprint intends hold obligations maturity unless market conditions favorable sprint performs interest rate sensitivity analyses variable rate debt analyses indicate 1 change interest rates would 13 million pretax impact consolidated statements operations cash flows december 31 2002 sprints variablerate debt subject earnings cash flows impacts interest rates change subject changes fair values sprint also prepared valueatrisk analysis assess worstcase impact past market movements sprints 2002 debt portfolio based analysis used average interest rates 1980 present sprint 95 confident fair value outstanding debt would increase sprints book value next six months foreign currency risk sprint also enters forward contracts options foreign currencies reduce impact changes foreign exchange rates sprint uses foreign currency derivatives hedge net foreign currency payable related settlement international telecommunications access charges dollar equivalent sprints net foreign currency payables 2 million december 31 2002 potential immediate pretax loss sprint would result hypothetical 10 change foreign currency exchange rates based positions would approximately 185000 item 8 item 7a quantitative qualitative disclosures market risk sprints exposure market risk derivative financial instruments financial instruments investments marketable securities longterm debt material item 8 item 7a quantitative qualitative disclosures market risk primarily exposed market risk associated unfavorable movements interest rates foreign currencies equity prices risk inherent market risk sensitive instruments positions potential loss arising adverse changes factors interest rate risk communications industry capital intensive technology driven business subject interest rate risk primarily associated borrowings interest rate risk changes interest rates could adversely affect earnings cash flows specific interest rate risk includes risk increasing interest rates floatingrate debt risk increasing interest rates planned new fixed rate longterm financings refinancings cash flow hedges periodically enter interest rate swap agreements designated cash flow hedges reduce impact interest rate movements future interest expense effectively converting portion floatingrate debt fixedrate december 31 2008 outstanding interest rate cash flow hedges fair value hedges periodically enter interest rate swap agreements manage exposure interest rate movements achieve optimal mixture floating fixedrate debt minimizing liquidity risk interest rate swap agreements designated fair value hedges effectively convert fixedrate debt floatingrate receiving fixed rate amounts exchange floating rate interest payments life agreement without exchange underlying principal amount december 31 2008 outstanding interest rate fair value hedges 85 debt december 31 2008 fixedrate debt changes interest rates impact fair value debt impact earnings cash flows intend hold obligations maturity unless market conditions favorable perform interest rate sensitivity analyses variable rate debt analyses indicate one percentage point change interest rates would annual pretax impact 291 million consolidated statements operations cash flows year ended december 31 2008 also perform sensitivity analysis fair market value outstanding debt 10 decline market interest rates would cause 979 million increase fair market value debt 154 billion foreign currency risk also enter forward contracts options foreign currencies reduce impact changes foreign exchange rates foreign exchange risk management program focuses reducing transaction exposure optimize consolidated cash flow use foreign currency derivatives hedge foreign currency exposure related settlement international telecommunications access charges operation international subsidiaries dollar equivalent net foreign currency payables international settlements 4 million net foreign currency receivables international operations 6 million december 31 2008 potential immediate pretax loss us would result hypothetical 10 change foreign currency exchange rates based positions would insignificant equity risk exposed market risk relates changes market value investments invest equity instruments public private companies operational strategic business purposes securities subject significant fluctuations fair market value due volatility stock market industries companies operate securities classified investments marketable securities consolidated balance sheets include equity method investments investment clearwire investments private securities availableforsale securities equity derivative instruments additional information regarding derivative instruments found note 10 notes consolidated financial statements certain business transactions granted warrants purchase securities companies fixed rates warrants supplemental terms business transaction designated hedging instruments item 8 item 7a quantitative qualitative disclosures market risk primarily exposed market risk associated unfavorable movements interest rates foreign currencies equity prices risk inherent market risk sensitive instruments positions potential loss arising adverse changes factors interest rate risk communications industry capital intensive technology driven business subject interest rate risk primarily associated borrowings interest rate risk changes interest rates could adversely affect earnings cash flows specific interest rate risk include risk increasing interest rates shortterm debt risk increasing interest rates planned new fixed rate longterm financings risk increasing interest rates planned refinancing using longterm fixed rate debt cash flow hedges enter interest rate swap agreements designated cash flow hedges reduce impact interest rate movements future interest expense effectively converting portion floatingrate debt fixedrate december 31 2005 outstanding interest rate cash flow hedges fair value hedges enter interest rate swap agreements manage exposure interest rate movements achieve optimal mixture floating fixedrate debt minimizing liquidity risk interest rate swap agreements designated fair value hedges effectively convert fixedrate debt floatingrate receiving fixed rate amounts exchange floating rate interest payments life agreement without exchange underlying principal amount december 31 2005 outstanding interest rate swap agreements designated fair value hedges approximately 80 debt december 31 2005 fixedrate debt excluding interest rate swaps changes interest rates impact fair value debt impact earnings cash flows intend hold obligations maturity unless market conditions favorable december 31 2005 held fair value interest rate swaps notional value 1 billion swaps entered hedges fair value portion senior notes interest rate swaps maturities ranging 2008 2012 semiannual basis pay floating rate interest equal sixmonth libor plus fixed spread receive average interest rate equal coupon rates stated underlying senior notes december 31 2005 rate would pay averaged 70 rate would receive 72 assuming one percentage point increase prevailing forward yield curve fair value interest rate swaps underlying senior notes would change 36 million interest rate swaps met requirements perfect effectiveness derivative accounting rules critical terms swaps perfectly matched corresponding terms hedged debt therefore impact earnings cash flows fair value fluctuations perform interest rate sensitivity analyses variable rate debt including interest rate swaps analyses indicate one percentage point change interest rates would annual pretax impact 45 million statements operations cash flows december 31 2005 variablerate debt may impact earnings cash flows interest rates change subject changes fair values also perform sensitivity analysis fair market value outstanding debt 10 decline market interest rates would cause 987 million increase fair market value debt 29 billion analysis includes hedged debt entered series interest rate collars associated anticipated issuance debt embarq time expected spinoff 2006 collars designated cash flow hedges embarq’s financial statements variability interest payments would result change interest rates debt issued time spinoff however forecasted interest payments debt occur subsidiary spunoff derivative instruments qualify hedge accounting treatment consolidated financial statements changes fair value instruments recognized earnings period change based market prices december 31 2005 one percentage point change interest rates would result decrease fair value instruments approximately 179 million foreign currency risk also enter forward contracts options foreign currencies reduce impact changes foreign exchange rates foreign exchange risk management program focuses reducing transaction exposure optimize consolidated cash flow use foreign currency derivatives hedge foreign currency exposure related settlement international telecommunications access charges operation international subsidiaries dollar equivalent net foreign currency payables international settlements 20 million net foreign currency receivables international operations 24 million december 31 2005 potential immediate pretax loss us would result hypothetical 10 change foreign currency exchange rates based positions would less 1 million equity risk exposed market risk relates changes market value investments invest equity instruments public private companies operational strategic business purposes securities subject significant fluctuations fair market value due volatility stock market industries companies operate securities classified investments marketable securities accompanying consolidated balance sheets include equity method investments private securities availableforsale securities equity derivative instruments entered series option contracts associated investment nii holdings order hedge price risk associated security first contracts qualify hedge accounting changes fair value derivative instrument recognized earnings period change based contracts market prices december 31 2005 10 increase decrease nii holdings’ market price would result decrease increase approximately 7 million changes market price also affect fair value holdings nii holdings however recognize gains losses unless investment sold see note 12 notes consolidated financial statements appearing end annual report form 10k detail derivative instruments certain business transactions granted warrants purchase securities companies fixed rates warrants supplemental terms business transaction designated hedging instruments 2002 2003 entered variable prepaid forward contracts monetize equity securities held available sale derivatives designated cash flow hedges reduce variability expected cash flows related forecasted sale underlying equity securities prepaid contracts settled fourth quarter 2004 fourth quarter 2005 item 8 item 8 financial statements supplementary data information required item 8 refer consolidated financial statements schedule quarterly financial data sections financial statements financial statement schedule supplementary data filed part report item 9 item 8 financial statements supplementary data consolidated financial statements required item begin page annual report form 10k incorporated herein reference financial statement schedule required regulation sx filed pursuant item 15 annual report form 10k incorporated herein reference item 9 item 8 financial statements supplementary data consolidated financial statements required item begin page annual report form 10k incorporated herein reference financial statements clearwire required regulation sx included item 15 annual report form 10k incorporated herein reference item 9 item 8 financial statements supplementary data consolidated financial statements required item begin page annual report form 10k incorporated herein reference financial statements clearwire required regulation sx filed pursuant item 15 annual report form 10k incorporated herein reference item 9 item 8 financial statements supplementary data consolidated financial statements required item begin page annual report form 10k incorporated herein reference financial statements clearwire date acquisition required regulation sx included item 15 annual report form 10k incorporated herein reference item 9 item 8 financial statements supplementary data consolidated financial statements required item begin page annual report form 10k incorporated herein reference item 9 item 8 financial statements supplementary data information required item 8 incorporated reference section beginning page item 9 item 8 financial statements supplementary data information required item 8 refer consolidated financial statements combined financial statements sections financial statements financial statement schedules filed part document item 9 item 8 financial statements supplementary data information required item 8 incorporated reference section beginning page item 9 item 8 financial statements supplementary data information required item 8 incorporated reference annex ii annex iii included herein item 9 item 8 financial statements supplementary data consolidated financial statements required item begin page annual report form 10k incorporated herein reference financial statement schedule required regulation sx filed pursuant item 15 annual report form 10k incorporated herein reference item 9 item 8 financial statements supplementary data consolidated financial statements required item begin page annual report form 10k incorporated herein reference financial statements clearwire required regulation sx filed pursuant item 15 annual report form 10k incorporated herein reference item 9 item 8 financial statements supplementary data consolidated financial statements required item begin page annual report form 10k incorporated herein reference financial statements clearwire date acquisition required regulation sx included item 15 annual report form 10k incorporated herein reference item 9 item 8 financial statements supplementary data consolidated financial statements required item begin page annual report form 10k incorporated herein reference item 9 item 8 financial statements supplementary data consolidated financial statements required item begin page annual report form 10k incorporated herein reference item 9 item 8 financial statements supplementary data consolidated financial statements required item begin page annual report form 10k incorporated herein reference financial statements clearwire required regulation sx filed pursuant item 15 annual report form 10k incorporated herein reference item 9 item 8 financial statements supplementary data information required item 8 refer consolidated financial statements schedules quarterly financial data sections financial statements financial statement schedules supplementary data filed part report item 9 item 8 financial statements supplementary data information required item 8 refer consolidated financial statements schedule section financial statements financial statement schedule filed part report item 9 item 8 financial statements supplementary data information required item 8 incorporated reference section beginning page item 9 item 8 financial statements supplementary data information required item 8 incorporated reference annex ii annex iii included herein item 9 item 8 financial statements supplementary data consolidated financial statements required item begin page annual report form 10k incorporated herein reference financial statements clearwire date acquisition required regulation sx included item 15 annual report form 10k incorporated herein reference item 9 item 8 financial statements supplementary data information required item 8 incorporated reference section beginning page item 9 item 8 financial statements supplementary data information required item 8 refer consolidated financial statements financial statement schedule sections financial statements financial statement schedules filed part report item 9 item 8 financial statements supplementary data consolidated financial statements required item begin page annual report form 10k incorporated herein reference financial statement schedule required regulation sx filed pursuant item 15 annual report form 10k incorporated herein reference item 9 item 8 financial statements supplementary data consolidated financial statements required item begin page annual report form 10k incorporated herein reference financial statement schedule required regulation sx filed pursuant item 15 annual report form 10k incorporated herein reference item 9 item 8 financial statements supplementary data information required item 8 refer consolidated financial statements schedule quarterly financial data sections financial statements financial statement schedule supplementary data filed part report pages 35 61 item 9 item 15 exhibits financial statement schedules 1 consolidated financial statements sprint nextel filed part report listed index consolidated financial statements financial statement schedule 2 financial statement schedule sprint nextel filed part report listed index consolidated financial statements financial statement schedule financial statement schedules required related instructions inapplicable therefore omitted 3 following exhibits filed part report 2 plan acquisition reorganization arrangement liquidation succession 21 separation distribution agreement sprint nextel corporation embarq corporation dated may 1 2006 filed exhibit 21 amendment 4 form 10 embarq corporation file 00132732 filed may 2 2006 incorporated herein reference 3 articles incorporation bylaws 31 amended restated articles incorporation filed exhibit 31 sprint nextel’s current report form 8k filed august 18 2005 incorporated herein reference 32 amended restated bylaws filed exhibit 3 sprint nextel’s current report form 8k filed february 28 2007 incorporated herein reference 4 instruments defining rights sprint nextel security holders 41 rights sprint nextel’s equity security holders defined fifth sixth seventh eighth articles sprint nextel’s articles incorporation see exhibit 31 42 provision regarding kansas control share acquisition act article 2 section 25 bylaws provisions regarding stockholders’ meetings set forth article 3 bylaws see exhibit 32 431 second amended restated rights agreement sprint corporation umb bank na rights agent dated march 16 2004 effective april 23 2004 filed exhibit 1 amendment 5 sprint nextel’s registration statement form 8a relating sprint nextel’s rights filed april 12 2004 incorporated herein reference 432 amendment dated june 17 2005 second amended restated rights agreement sprint corporation umb bank na rights agent effective august 12 2005 filed exhibit 4d sprint nextel’s quarterly report form 10q quarter ended june 30 2005 incorporated herein reference 44 indenture dated october 1 1998 among sprint capital corporation sprint corporation bank one na trustee filed exhibit 4b sprint nextel’s quarterly report form 10q quarter ended september 30 1998 incorporated herein reference supplemented first supplemental indenture dated january 15 1999 among sprint capital corporation sprint corporation bank one na trustee filed exhibit 4b sprint nextel’s current report form 8k filed february 3 1999 incorporated herein reference supplemented second supplemental indenture dated october 15 2001 among sprint capital corporation sprint corporation bank one na trustee filed exhibit 99 sprint nextel’s current report form 8ka filed october 29 2001 incorporated herein reference 10 material agreements 101 registration rights agreement dated november 23 1998 among sprint corporation tci telephony services inc cox communications inc comcast corporation filed exhibit 102 amendment 1 sprint nextel’s registration statement 33364241 form s3 incorporated herein reference 1021 letter agreement motorola inc nextel dated november 4 1991 filed november 15 1991 exhibit 1047 nextel’s registration statement 3343415 form s1 incorporated herein reference 1022 iden infrastructure supply agreement motorola nextel dated april 13 1999 filed exhibit 102 nextel’s quarterly report form 10q quarter ended june 30 1999 incorporated herein reference 1023 term sheet subscriber units services agreement dated december 31 2003 nextel motorola filed exhibit 1012 nextel’s quarterly report form 10q quarter ended march 31 2004 incorporated herein reference 1024 second extension amendment iden infrastructure 5year supply agreement dated december 14 2004 motorola inc nextel communications inc filed exhibit 10120 nextel’s annual report form 10k year ended december 31 2004 incorporated herein reference 1025 amendment seven term sheet subscriber units services agreement dated december 14 2004 motorola inc nextel communications inc filed exhibit 10121 nextel’s annual report form 10k year ended december 31 2004 incorporated herein reference 103 credit agreement dated december 19 2005 among sprint nextel corporation sprint capital corporation nextel communications inc lenders named therein jpmorgan chase bank na administrative agent filed exhibit 101 sprint nextel’s current report form 8k filed december 21 2005 incorporated herein reference 10 executive compensation plans arrangements 104 sprint nextel shortterm incentive plan filed exhibit 104 sprint nextel’s annual report form 10k year ended december 31 2005 incorporated herein reference 105 summary 2007 shortterm incentive plan 106 sprint nextel 20062007 integration overachievement plan filed exhibit 101 sprint nextel’s current report form 8k filed february 22 2006 incorporated herein reference 107 sprint nextel 1997 longterm stock incentive program amended filed exhibit 10aa sprint nextel’s quarterly report form 10q quarter ended september 30 2005 incorporated herein reference 108 form 2004 award agreement awarding stock options restricted stock units messrs forsee lauer filed exhibit 10a sprint nextel’s quarterly report form 10q quarter ended september 30 2004 incorporated herein reference 109 form 2004 award agreement awarding stock options restricted stock units executive officers filed exhibit 10b sprint nextel’s quarterly report form 10q quarter ended september 30 2004 incorporated herein reference 1010 form 2004 award agreement awarding restricted stock units directors filed exhibit 10c sprint nextel’s quarterly report form 10q quarter ended september 30 2004 incorporated herein reference 1011 form 2005 award agreement awarding restricted stock units directors filed exhibit 102 sprint nextel’s current report form 8k filed february 14 2005 incorporated herein reference 1012 form 2005 award agreement awarding stock options restricted stock units messrs forsee lauer filed exhibit 10dd sprint nextel’s annual report form 10k year ended december 31 2004 incorporated herein reference 1013 form 2005 award agreement awarding stock options restricted stock units executive officers filed exhibit 10ff sprint nextel’s annual report form 10k year ended december 31 2004 incorporated herein reference 1014 form award agreement awarding stock options restricted stock units messrs forsee lauer filed exhibit 102 sprint nextel’s current report form 8k filed march 15 2005 incorporated herein reference 1015 form 2006 award agreement awarding stock options mr donahue filed exhibit 101 sprint nextel’s current report form 8k filed february 10 2006 incorporated herein reference 1016 form 2006 award agreement awarding stock options messrs forsee lauer filed exhibit 102 sprint nextel’s current report form 8k filed february 10 2006 incorporated herein reference 1017 form award agreement restricted stock unit awards 1997 longterm stock incentive program 2006 nonemployee directors sprint nextel filed exhibit 101 sprint nextel’s current report form 8k filed june 16 2006 incorporated herein reference 1018 form award agreement restricted stock unit awards 1997 longterm stock incentive program 2006 timothy donahue filed exhibit 102 sprint nextel’s current report form 8k filed june 16 2006 incorporated herein reference 1019 form award agreement restricted stock unit awards 1997 longterm stock incentive program 2006 gary forsee len j lauer filed exhibit 103 sprint nextel’s current report form 8k filed june 16 2006 incorporated herein reference 1020 form award agreement restricted stock unit awards 1997 longterm stock incentive program 2006 executive officers nextel employment agreements filed exhibit 104 sprint nextel’s current report form 8k filed june 16 2006 incorporated herein reference 1021 form award agreement restricted stock unit awards 1997 longterm stock incentive program 2006 executive officers filed exhibit 105 sprint nextel’s current report form 8k filed june 16 2006 incorporated herein reference 1022 form award agreement restricted stock units award 1997 longterm stock incentive program retention awards made certain executive officers filed exhibit 102 sprint nextel’s current report form 8k filed july 27 2006 incorporated herein reference 1023 summary 2007 longterm incentive plan 1024 form award agreement awarding stock options restricted stock units 1997 longterm stock incentive program 2007 gary forsee 1025 form award agreement awarding stock options restricted stock units 1997 longterm stock incentive program 2007 executive officers nextel employment agreements 1026 form award agreement awarding stock options restricted stock units 1997 longterm stock incentive program 2007 executive officers 1027 nextel amended restated incentive equity plan filed annex j joint proxy statementprospectus included part sprint nextel’s registration statement 333123333 form s4 filed june 10 2005 incorporated herein reference 1028 form deferred share agreement recognition award nextel amended restated incentive equity plan filed exhibit 101 nextel’s current report form 8k filed march 2 2005 incorporated herein reference 1029 form nonqualified stock option agreement employee form nextel amended restated incentive equity plan filed exhibit 103 nextel’s quarterly report form 10q quarter ended september 30 2004 incorporated herein reference 1030 form nonqualified stock option agreement nonaffiliate director form nextel amended restated incentive equity plan filed exhibit 104 nextel’s quarterly report form 10q quarter ended september 30 2004 incorporated herein reference 1031 management incentive stock option plan amended filed exhibit 10d sprint nextel’s quarterly report form 10q quarter ended march 31 2004 incorporated herein reference 10321 employment agreement dated march 19 2003 among sprint corporation sprintunited management company gary forsee filed exhibit 10c sprint nextel’s quarterly report form 10q quarter ended march 31 2003 incorporated herein reference 10322 amendment 1 dated december 15 2004 employment agreement dated march 19 2003 among sprint corporation sprintunited management company gary forsee filed exhibit 10 sprint nextel’s current report form 8k filed december 17 2004 incorporated herein reference 10323 amendment 2 dated march 15 2005 employment agreement dated march 19 2003 amended amendment 1 among sprint corporation sprintunited management company gary forsee filed exhibit 10c sprint nextel’s quarterly report form 10q quarter ended march 31 2005 incorporated herein reference 10331 employment agreement effective july 1 2003 nextel communications inc timothy donahue filed exhibit 101 nextel’s quarterly report form 10q quarter ended june 30 2003 incorporated herein reference 10332 letter dated december 15 2004 timothy donahue nextel communications inc filed exhibit 101 nextel’s current report form 8k filed december 17 2004 incorporated herein reference 10333 amendment 1 dated march 15 2005 employment agreement dated july 1 2003 among nextel communications inc timothy donahue filed exhibit 101 nextel’s current report form 8k filed march 15 2005 incorporated herein reference 10341 executive agreement dated july 30 2001 among sprint nextel sprintunited management company len lauer filed exhibit 10bb sprint nextel annual report form 10ka year ended december 31 2001 incorporated herein reference 10342 first amendment employment agreement len lauer dated october 26 2006 filed exhibit 101 sprint nextel’s current report form 8k filed november 1 2006 incorporated herein reference 1035 employment agreement dated april 1 2004 paul n saleh nextel communications inc filed exhibit 1022 nextel’s quarterly report form 10q quarter ended march 31 2004 incorporated herein reference 1036 employment agreement sprint corporation timothy e kelly filed exhibit 10h sprint nextel’s quarterly report form 10q quarter ended september 30 2004 incorporated herein reference 1037 employment agreement kathryn walker filed exhibit 10x sprint nextel’s annual report form 10k year ended december 31 2003 incorporated herein reference 10381 employment agreement dated april 1 2004 barry j west nextel communications inc filed exhibit 1023 nextel’s quarterly report form 10q quarter ended march 31 2004 incorporated herein reference 10382 first amendment employment agreement barry j west dated july 25 2006 filed exhibit 103 sprint nextel’s current report form 8k filed july 27 2006 incorporated herein reference 1039 employment agreement dated march 15 2005 among nextel communications inc richard lefave filed exhibit 1032 sprint nextel’s annual report form 10k year ended december 31 2005 incorporated herein reference 1040 employment agreement dated april 1 2004 leonard j kennedy nextel communications inc filed exhibit 1024 nextel’s quarterly report form 10q quarter ended march 31 2004 incorporated herein reference 1041 employment agreement dated march 15 2005 among nextel communications inc william g arendt filed exhibit 102 nextel’s current report form 8k filed march 15 2005 incorporated herein reference 1042 employment agreement dated february 12 2007 sprint nextel corporation mark angelino 1043 employment agreement dated february 6 2007 sprint nextel corporation richard lindahl 1044 sprint nextel deferred compensation plan amended restated effective may 17 2006 filed exhibit 107 sprint nextel’s quarterly report form 10q quarter ended june 30 2006 incorporated herein reference 1045 sprint executive deferred compensation plan amended including summary certain amendments executive deferred compensation plan filed exhibit 102 sprint nextel’s current report form 8k filed october 12 2004 incorporated herein reference 1046 amended restated centel directors deferred compensation plan filed exhibit 10c sprint nextel’s quarterly report form 10q quarter ended march 31 2004 incorporated herein reference 1047 director’s deferred fee plan amended filed exhibit 101 sprint nextel’s current report form 8k filed february 14 2005 incorporated herein reference 1048 nextel amended restated cash compensation deferral plan filed exhibit 101 nextel’s current report form 8k filed december 13 2004 incorporated herein reference 1049 sprint nextel corporation change control severance plan dated january 1 2007 executive officers except gary forsee participate 10501 nextel change control retention bonus severance pay plan dated july 14 1999 filed exhibit 1012 nextel’s annual report form 10k year ended december 31 2000 incorporated herein reference 10502 first amendment dated september 19 2002 nextel’s change control retention bonus severance pay plan filed exhibit 101 nextel’s quarterly report form 10q quarter ended september 30 2002 incorporated herein reference 10503 second amendment dated august 12 2005 nextel’s change control retention bonus severance pay plan filed exhibit 996 sprint nextel’s current report form 8k filed august 18 2005 incorporated herein reference 1051 sprint supplemental executive retirement plan amended filed exhibit 10l sprint nextel’s annual report form 10ka year ended december 31 2001 incorporated herein reference summary amendments sprint supplemental executive retirement plan filed exhibit 10ee sprint nextel’s quarterly report form 10q quarter ended september 30 2005 incorporated herein reference 1052 retirement plan directors amended filed exhibit 10u sprint nextel’s annual report form 10k year ended december 31 1996 incorporated herein reference 1053 certain benefits fees named executive officers directors 1054 summary director communications benefit filed exhibit 101 sprint nextel’s current report form 8k filed july 27 2006 incorporated herein reference 1055 form indemnification agreement sprint nextel directors officers 1056 embarq corporation 2006 equity incentive plan filed exhibit 1013 amendment 4 form 10 embarq corporation file 00132732 filed may 2 2006 incorporated herein reference computation ratio earnings combined fixed charges preferred stock dividends subsidiaries registrant consent kpmg llp independent registered public accounting firm 311 certification chief executive officer pursuant securities exchange act 1934 rule 13a14a 312 certification chief financial officer pursuant securities exchange act 1934 rule 13a14a 321 certification chief executive officer pursuant 18 usc section 1350 adopted pursuant section 906 sarbanesoxley act 2002 322 certification chief financial officer pursuant 18 usc section 1350 adopted pursuant section 906 sarbanesoxley act 2002 schedules andor exhibits filed furnished sec upon request portions exhibit omitted filed separately sec pursuant request confidential treatment sprint nextel furnish sec upon request copy instruments defining rights holders longterm debt exceed 10 total assets sprint nextel signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized sprint nextel corporation registrant gary forsee gary forsee chairman chief executive officer president date march 1 2007 pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities indicated 1st day march 2007 gary forsee gary forsee chairman chief executive officer president paul n saleh paul n saleh chief financial officer william g arendt william g arendt senior vice president controller principal accounting officer signatures sprint nextel corporation registrant pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities indicated 1st day march 2007 sprint nextel corporation index consolidated financial statements financial statement schedule management report management responsible integrity objectivity information contained document management responsible consistency reporting information ensuring accounting principles generally accepted united states used discharging responsibility management maintains comprehensive system internal controls supports extensive program internal audits made organizational arrangements providing appropriate divisions responsibility established communication programs aimed assuring policies procedures principles business conduct understood practiced employees consolidated financial statements included document audited kpmg llp independent registered public accounting firm audits conducted using standards public company accounting oversight board united states kpmg’s reports consents included herein board directors’ responsibility consolidated financial statements pursued mainly audit committee audit committee composed entirely directors officers employees sprint nextel meets periodically sprint nextel’s internal auditors independent registered public accounting firm without management present assure respective responsibilities fulfilled internal auditors independent registered public accounting firm full access audit committee discuss auditing financial reporting matters gary forsee gary forsee chairman chief executive officer president paul n saleh paul n saleh chief financial officer report independent registered public accounting firm board directors shareholders sprint nextel corporation audited accompanying consolidated balance sheets sprint nextel corporation subsidiaries december 31 2006 2005 related consolidated statements operations cash flows shareholders’ equity years threeyear period ended december 31 2006 connection audits consolidated financial statements also audited financial statement schedule ii valuation qualifying accounts consolidated financial statements financial statement schedule responsibility company’s management responsibility express opinion consolidated financial statements financial statement schedule based audits conducted audits accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion consolidated financial statements referred present fairly material respects financial position sprint nextel corporation subsidiaries december 31 2006 2005 results operations cash flows years threeyear period ended december 31 2006 conformity us generally accepted accounting principles also opinion related financial statement schedule considered relation basic consolidated financial statements taken whole presents fairly material respects information set forth therein discussed note 17 consolidated financial statements company changed method quantifying errors 2006 discussed note 1 consolidated financial statements company adopted provisions fasb interpretation 47 accounting conditional asset retirement obligations fourth quarter 2005 also audited accordance standards public company accounting oversight board united states effectiveness sprint nextel corporation’s internal control financial reporting december 31 2006 based criteria established internal control integrated framework issued committee sponsoring organizations treadway commission coso report dated march 1 2007 expressed unqualified opinion management’s assessment effective operation internal control financial reporting kpmg llp mclean virginia march 1 2007 report independent registered public accounting firm board directors shareholders sprint nextel corporation audited management’s assessment included management’s report internal control financial reporting appearing item 9a controls procedures sprint nextel corporation maintained effective internal control financial reporting december 31 2006 based criteria established internal control integrated framework issued committee sponsoring organizations treadway commission coso sprint nextel corporation’s management responsible maintaining effective internal control financial reporting assessment effectiveness internal control financial reporting responsibility express opinion management’s assessment opinion effectiveness company’s internal control financial reporting based audit conducted audit accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether effective internal control financial reporting maintained material respects audit included obtaining understanding internal control financial reporting evaluating management’s assessment testing evaluating design operating effectiveness internal control performing procedures considered necessary circumstances believe audit provides reasonable basis opinion company’s internal control financial reporting process designed provide reasonable assurance regarding reliability financial reporting preparation financial statements external purposes accordance generally accepted accounting principles company’s internal control financial reporting includes policies procedures 1 pertain maintenance records reasonable detail accurately fairly reflect transactions dispositions assets company 2 provide reasonable assurance transactions recorded necessary permit preparation financial statements accordance generally accepted accounting principles receipts expenditures company made accordance authorizations management directors company 3 provide reasonable assurance regarding prevention timely detection unauthorized acquisition use disposition company’s assets could material effect financial statements inherent limitations internal control financial reporting may prevent detect misstatements also projections evaluation effectiveness future periods subject risk controls may become inadequate changes conditions degree compliance policies procedures may deteriorate opinion management’s assessment sprint nextel corporation maintained effective internal control financial reporting december 31 2006 fairly stated material respects based criteria established internal control integrated framework issued committee sponsoring organizations treadway commission coso also opinion sprint nextel corporation maintained material respects effective internal control financial reporting december 31 2006 based criteria established internal control integrated framework issued committee sponsoring organizations treadway commission coso sprint nextel corporation acquired nextel partners inc june 2006 management excluded assessment effectiveness sprint nextel corporation’s internal control financial reporting december 31 2006 nextel partners inc’s internal control financial reporting accounts nextel partners inc represent 2 total assets net operating revenues included consolidated financial statements sprint nextel corporation subsidiaries year ended december 31 2006 audit internal control financial reporting sprint nextel corporation also excluded evaluation internal control financial reporting nextel partners inc also audited accordance standards public company accounting oversight board united states consolidated balance sheets sprint nextel corporation subsidiaries december 31 2006 2005 related consolidated statements operations cash flows shareholders’ equity years threeyear period ended december 31 2006 report dated march 1 2007 expressed unqualified opinion consolidated financial statements kpmg llp mclean virginia march 1 2007 sprint nextel corporation consolidated balance sheets see notes consolidated financial statements sprint nextel corporation consolidated statements operations see notes consolidated financial statements sprint nextel corporation consolidated statements cash flows see notes consolidated financial statements sprint nextel corporation consolidated statements shareholders’ equity millions 1 see note 16 information regarding common shares including information relating 2006 conversion nonvoting common shares 2004 conversion pcs common shares voting common shares 2 2004 voting common shares dividends charged paidin capital quarterly period retained earnings deficit position 3 see note 17 details adoption sab 108 see notes consolidated financial statements sprint nextel corporation notes consolidated financial statements note 1 summary operations significant accounting policies information summary operations global communications company offering comprehensive range wireless wireline communications products services designed meet needs individual consumers businesses government customers organized operations meet needs targeted customer groups focused communications solutions incorporate capabilities wireless wireline services one three largest wireless companies united states based number wireless subscribers extensive wireless networks global long distance tier 1 internet backbone series 1 voting common stock trades new york stock exchange nyse symbol “s” offer digital wireless service 50 states puerto rico us virgin islands part commercial affiliation arrangements us third party affiliates referred pcs affiliate together four remaining pcs affiliates provide code division multiple access cdma based personal communications services pcs sprint® brand name pcs affiliates offer digital wireless service mainly around smaller us metropolitan areas wireless networks built operated expense instances using spectrum licensed controlled us also offer numerous sophisticated data messaging imaging entertainment locationbased applications marketed power visionsm across cdma network utilize highspeed evolution data optimized evdo technology also offer digital wireless services nextel® boost mobile® brands using integrated digital enhanced network iden® technology brands feature industryleading walkietalkie services direct connect® give subscribers ability communicate instantly across continental united states hawaii agreements idenbased providers selected markets canada latin america mexico well variety digital wireless mobile telephone wireless data transmission services order offer subscribers iden services benefits applications cdma network walkietalkie features introduced new line combined cdmaiden devices marketed powersourcetm feature voice applications cdma network walkietalkie applications iden network operations include results several companies acquired 2006 2005 including nextel communications inc beginning either date respective company acquired start month closest acquisition accordingly transactions affect comparability reported results reported prior periods see note 3 additional information regarding transactions may 17 2006 spunoff shareholders local communications business known embarq corporation comprised primarily local segment reported consolidated financial statements prior periods results operations balance sheets operating cash flows business presented discontinued operations periods presented footnotes accompanying consolidated financial statements reflect continuing operations unless otherwise noted exclude information related embarq see note 2 additional information regarding transaction consolidation policies estimates reclassifications consolidated financial statements include accounts wholly owned subsidiaries control well variable interest entities primary beneficiary significant intercompany transactions balances eliminated consolidation use equity method account equity investments unconsolidated entities ability exercise significant influence operating financial policies recognize changes proportionate share equity entities resulting equity transactions adjustments investment shareholders’ equity balances sprint nextel corporation notes consolidated financial statements continued prepare consolidated financial statements conformity accounting principles generally accepted united states require management make estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities date consolidated financial statements reported amounts revenues expenses reporting period due inherent uncertainty involved making estimates actual results could differ estimates areas significant estimates made include limited allowance doubtful accounts receivable inventory obsolescence tax valuation allowances useful lives property plant equipment definite lived intangible assets intangible asset impairment analyses tax accruals certain prior period amounts reclassified conform current period presentation significant accounting policies cash equivalents cash equivalents generally include highly liquid investments original maturities purchase three months less investments include money market funds us government governmentsponsored debt securities corporate debt securities municipal securities bankrelated securities meet investment policy guidelines stated cost supplemental cash flow information continuing operations noncash activities included following investments record investments marketable equity securities fair value consider availableforsale securities accordingly record unrealized holding gains losses securities accumulated comprehensive income loss net related income tax realized gains losses reclassified accumulated comprehensive income loss earnings based specific identification 2006 2005 recognized gross unrealized holding gains 6 million 143 million gross unrealized losses 8 million 2006 equity securities see note 10 information regarding sale nii holdings inc availableforsale securities 2006 certain equity securities accounted cost record investments debt securities including auction rate securities amortized cost classify securities current assets consolidated balance sheets original maturities purchase greater 90 days less one year interest investments debt securities reinvested sprint nextel corporation notes consolidated financial statements continued included interest income consolidated statements operations 2006 2005 2004 recognized 122 million 96 million 11 million interest income respectively securities assess declines value individual investments determine whether decline otherthantemporary thus investment impaired make assessment considering available evidence including changes general market conditions specific industry individual company data length time extent market value less cost financial condition nearterm prospects individual company intent ability hold investment account 47 interest virgin mobile usa using equity method carrying value investment reflected 180 million longterm liability negative carrying value investment results recognizing equity method losses reduced investment balance zero followed return capital 180 million virgin mobile usa 2005 accounted return capital liability virgin mobile usa funded distribution proceeds loan result repayment terms joint venture agreement longer hold right guaranteed distribution liquidation 2006 extended virgin mobile usa credit via 50 million participation lender 100 million revolving credit facility 29 million loan receivable included assets reflecting virgin mobile usa’s net outstanding draws facility december 31 2006 allowance doubtful accounts establish allowance doubtful accounts receivable sufficient cover probable reasonably estimable losses number accounts practical review collectibility accounts individually determine amount allowance doubtful accounts period although perform account level analysis respect certain long distance customers estimate allowance doubtful accounts considers number factors including collection experience current economic trends estimates forecasted writeoffs aging accounts receivable portfolios industry norms regulatory decisions factors inventories handsets accessories wireless segment inventories long distance segment stated lower cost market determine cost firstin firstout fifo method handset costs excess revenues generated handset sales handset subsidies expensed time sale recognize expected handset subsidies prior time sale promotional discount decision made point sale andor expect recover handset subsidies service revenues benefit plans provide defined benefit pension plan certain postretirement benefits certain employees also sponsor defined contribution plan employees effective december 31 2006 adopted sfas 158 employers’ accounting defined benefit pension postretirement plans statement requires recognition overfunded underfunded status benefit plan measured difference fair value plan assets benefit obligations asset liability consolidated balance sheet also requires changes funded status recorded comprehensive income year changes occur accordingly recognized aggregate amounts underfunded plans consolidated balance sheet see note 11 comprehensive discussion benefit plans including discussion adoption sfas 158 income taxes deferred tax assets liabilities determined based temporary differences financial reporting tax bases assets liabilities applying enacted statutory tax rates effect year differences expected reverse deferred tax assets also recorded net operating loss sprint nextel corporation notes consolidated financial statements continued capital loss tax credit carryforwards required estimate amount taxes payable refundable current year deferred income tax liabilities assets future tax consequences events reflected consolidated financial statements tax returns taxing jurisdiction operate process requires management make assessments regarding timing probability ultimate tax impact record valuation allowances deferred tax assets determine likely asset realized additionally establish reserves uncertain tax positions based upon judgment regarding potential future challenges positions see note 12 information property plant equipment record property plant equipment ppe including improvements extend useful lives cost ppe primarily includes network equipment software buildings improvements nonnetwork internal use software network asset inventory construction progress office equipment network equipment software includes switching equipment cell site towers base transceiver stations radio frequency equipment internal use software digital fiberoptic cable conduit transport facilities transmissionrelated equipment buildings improvements principally consists owned general office facilities leasehold improvements retail stores nonnetwork internal use software office equipment primarily consists furniture information technology equipment vehicles network asset inventory construction progress primarily includes materials transmission related equipment labor engineering site development interest costs relating construction development network assets construction depreciated placed service capitalized interest incurred connection construction capital assets totaled 113 million 2006 53 million 2005 56 million 2004 repair maintenance costs expensed incurred capitalize costs network nonnetwork software developed obtained internal use application development stage costs included property plant equipment software placed service depreciated estimated useful lives ten years costs incurred preliminary project stage well maintenance training costs expensed incurred cost ppe generally depreciated straightline basis estimated economic useful lives amortization assets recorded capital leases recorded depreciation expense depreciate leasehold improvements shorter lease term estimated useful life respective assets depreciate buildings network equipment software estimated useful lives 31 years 66 assets depreciated five 15 years office equipment depreciable property plant equipment estimated useful lives 12 years 85 assets depreciated three five years calculate depreciation certain assets using group life method accordingly ordinary asset retirements disposals charged accumulated depreciation gain loss recognized since changes technology intended use assets well changes broad economic industry factors may cause estimated period use assets change perform annual internal studies confirm appropriateness depreciable lives categories ppe studies utilize models take account actual usage physical wear tear replacement history assumptions technology evolution calculate remaining life asset base factors indicate useful lives ppe different original assessment depreciate remaining book values prospectively adjusted estimated useful lives addition performing annual studies also continue assess estimated useful life iden network assets net carrying value 74 billion december 31 2006 future strategic plans network larger portion subscriber base served cdma network reduction estimate useful life iden network assets would cause increased depreciation charges future periods could material sprint nextel corporation notes consolidated financial statements continued review longlived assets impairment whenever events changes circumstances indicate carrying amount may recoverable significant amount judgment involved determining occurrence indicator impairment requires evaluation recoverability longlived assets total expected undiscounted future cash flows less carrying amount assets loss recognized difference fair value carrying value assets impairment analyses performed based current business technology strategy views growth rates business anticipated future economic regulatory conditions expected technological availability software projects development periodically assess probability deployment business determine impairment charge required adopted financial accounting standards board fasb interpretation 47 fin 47 accounting conditional asset retirement obligations interpretation statement financial accounting standards sfas 143 accounting asset retirement obligations fourth quarter 2005 resulting cumulative adjustment due change accounting principle tax 16 million adjustment due recognition asset retirement obligations primarily related discontinued operations environmental remediation requirements contractual obligations estimated settlement dates determined intangible assets goodwill indefinite lived intangibles identified licenses use wireless spectrum issued federal communications commission fcc sprint boost mobile trademarks indefinite lived intangible assets addition goodwill considering expected use assets regulatory economic environment within used effects obsolescence use review goodwill relates solely wireless reporting unit indefinite lived intangibles impairment annually october 1 frequently indicators impairment exist continually assess whether indicators impairment exist significant amount judgment involved determining indicator impairment occurred indicators may include sustained significant decline share price market capitalization decline expected future cash flows significant adverse change legal factors business climate unanticipated competition testing recoverability significant asset group within reporting unit andor slower growth rates among others required first test goodwill impairment comparing fair value wireless reporting unit carrying amount fair value wireless reporting unit exceeds carrying amount goodwill deemed impaired testing would necessary carrying amount wireless reporting unit exceed fair value would perform second test measure amount impairment loss measure amount impairment loss would determine implied fair value goodwill manner wireless reporting unit acquired business combination specifically would allocate fair value wireless reporting unit assets liabilities unit including unrecognized intangible assets hypothetical calculation would yield implied fair value goodwill implied fair value goodwill less recorded goodwill would record impairment charge difference required test indefinite lived intangibles impairment comparing asset’s respective carrying value estimates fair value determined using direct value method fcc licenses combined single unit accounting following unit accounting guidance prescribed emerging issues task force eitf issue 027 unit accounting testing impairment indefinitelived intangible assets except fcc licenses 25 gigahertz ghz band tested separately see note 7 additional information goodwill indefinite lived intangible assets sprint nextel corporation notes consolidated financial statements continued definite lived intangible assets definite lived intangible assets consist primarily customer relationships amortized three five years using sum years’ digits method believe best reflects estimated pattern economic benefits relationships consumed definite lived intangible assets primarily include rights affiliation agreements reacquired connection acquisitions several pcs affiliates nextel partners inc amortized remaining terms affiliation agreements straightline basis nextel direct connect trade names amortized ten years date sprintnextel merger straightline basis continually assess whether indicators impairment exist would trigger test definite lived intangible assets including limited significant decrease market price asset cash flows significant change extent manner asset used addition ever required determine implied fair value goodwill part second step goodwill impairment test would result evaluating recorded value definite lived intangible assets impairment also evaluate remaining useful lives definite lived intangible assets reporting period determine whether events circumstances warrant revision remaining periods amortization would addressed prospectively example review certain trends customer churn average revenue per user revenue future plans regarding iden network changes marketing strategies among others see note 7 additional information regarding definite lived intangible assets derivative instruments hedging activities recognize derivative instruments either assets liabilities consolidated balance sheets measure instruments fair value accordance sfas 133 accounting derivative instruments hedging activities amended changes fair value derivatives recorded period current earnings comprehensive income loss depending use derivative whether qualifies hedge accounting use derivative instruments hedging risk management purposes hedging activity may done purposes mitigating risks associated asset liability committed transaction probable forecasted transaction primarily exposed market risk associated unfavorable movements interest rates equity prices foreign currencies enter derivative transactions speculative trading purposes inception ongoing basis assess whether derivative qualifies hedge accounting continues highly effective offsetting changes cash flows fair value hedged item derivative instrument longer expected highly effective hedge accounting discontinued hedge ineffectiveness included current period earnings formally document hedging relationships hedging instrument hedged item well risk management objectives strategies undertaking various hedge transactions treasury shares common stock repurchased us recorded cost treasury shares result reduction shareholders’ equity reissue treasury shares part shareholder approved stockbased compensation programs well upon conversion outstanding securities convertible common stock shares reissued determine cost using weighted average cost method difference cost shares issuance price included paidin capital retained earnings revenue recognition operating revenues primarily consist wireless service revenues generated handset accessory sales revenues wholesale operators pcs affiliates well long distance voice data sprint nextel corporation notes consolidated financial statements continued internet revenues service revenues consist fixed monthly recurring charges variable usage charges miscellaneous fees activation fees directory assistance operatorassisted calling equipment protection late payment charges certain regulatory related fees recognize service revenues services rendered equipment revenue title passes dealer enduser customer accordance securities exchange commission sec staff accounting bulletin sab 104 revenue recognition eitf issue 0021 revenue arrangements multiple deliverables recognize revenue access charges services charged fixed amounts ratably service period net credits adjustments service discounts billing disputes fraud unauthorized usage recognize excess wireless usage long distance revenue contractual rates per minute minutes used additionally recognize excess wireless data usage based kilobytes onetime use charges use premium services incurred result cutoff times multiple billing cycles month required estimate amount subscriber revenues earned billed end billing cycle end reporting period estimates based primarily rate plans effect historical usage billing patterns certain bundled products services primarily wireless segment considered revenue arrangements multiple deliverables total consideration received arrangements allocated measured using units accounting within arrangement ie service handset contracts based relative fair values activation fee revenue associated arrangements direct sales channels classified equipment sales time related handset sold transactions indirect sales channels activation fee solely linked service contract subscriber accordingly activation fee revenue deferred amortized estimated average service life enduser customer severance lease exit costs recognize liabilities severance lease exit costs based upon nature cost incurred involuntary separation plans completed within guidelines written involuntary separation plan record liability probable reasonably estimable accordance sfas 112 employers’ accounting postemployment benefits voluntary separation plans vsp liability recorded accordance sfas 88 employers’ accounting settlements curtailments defined benefit pension plans termination benefits vsp accepted employee onetime termination benefits additional severance pay benefit payouts exit costs lease termination costs liability measured recognized initially fair value period liability incurred subsequent changes liability recognized adjustments period change accordance sfas 146 accounting costs associated exit disposal activities business combination occurred record severance lease exit costs part purchase price allocation accordance eitf issue 953 recognition liabilities connection purchase business combination see note 8 information advertising costs recognize advertising expense incurred expenses include production media promotional sponsorship costs advertising expenses totaled 16 billion 2006 14 billion 2005 923 million 2004 sharebased compensation measure cost employee services received exchange award equitybased securities using fair value award date grant recognize cost period award recipient required provide service us exchange award awards liability instruments employees would measured fair value reporting date settlement see note 4 additional information sprint nextel corporation notes consolidated financial statements continued earnings loss per common share basic earnings loss per common share calculated dividing income loss available common shareholders weighted average number common shares outstanding period diluted earnings loss per common share adjusts basic earnings loss per common share effects potentially dilutive common shares potentially dilutive common shares include dilutive effects shares issuable equity plans computed using treasury stock method dilutive effects shares issuable upon conversion convertible senior notes computed using ifconverted method dilutive shares issuable equity plans used calculating earnings per common share 22 million shares 2006 11 million shares issuable upon assumed conversion convertible senior notes could potentially dilute earnings per common share future however excluded calculation diluted earnings per common share 2006 due antidilutive effects additionally 115 million average shares issuable equity plans could also potentially dilute earnings per common share future excluded calculation diluted earnings per common share 2006 exercise prices exceeded average market price period dilutive shares issuable equity plans used calculating earnings per common share 21 million shares 2005 december 31 2005 11 million shares issuable upon assumed conversion convertible senior notes could potentially diluted earnings per common share future excluded calculation diluted earnings per common share 2005 due antidilutive effects additionally december 31 2005 66 million average shares issuable equity plans could also potentially diluted earnings per common share future however excluded calculation diluted earnings per common share 2005 exercise prices exceeded average market price period shares issuable equity plans antidilutive 2004 incurred net losses continuing operations although used determination earnings loss per common share 2004 12 million shares issuable equity plans whose exercise prices average market price period december 31 2004 88 million average shares issuable equity plans could potentially diluted earnings per common share future however excluded calculation diluted earnings per common share 2004 exercise prices exceeded average market price period significant new accounting pronouncements september 2006 fasb issued sfas 157 fair value measurements statement defines fair value establishes framework measuring fair value additionally statement expands disclosure requirements fair value particular focus measurement inputs sfas 157 effective quarterly reporting period ending march 31 2008 september 2006 eitf reached consensus issue 061 accounting consideration given service provider manufacturers resellers equipment necessary endcustomer receive service provider eitf issue 061 provides guidance regarding whether consideration given service provider manufacturer reseller specialized equipment characterized reduction revenue expense issue effective quarterly reporting period ending march 31 2008 entities required recognize effects applying issue change accounting principle retrospective application prior periods unless impracticable june 2006 eitf reached consensus issue 063 taxes collected customers remitted governmental authorities presented income statement gross versus net presentation eitf issue 063 requires companies disclose accounting policy regarding gross net presentation certain taxes within scope eitf issue 063 tax assessed governmental authority directly imposed revenueproducing transaction seller sprint nextel corporation notes consolidated financial statements continued customer may include limited sales use value added excise taxes eitf issue 063 effective quarterly reporting period ending march 31 2007 june 2006 fasb issued interpretation 48 accounting uncertainty income taxes fin 48 interpretation sfas 109 accounting income taxes fin 48 clarifies accounting uncertainty income taxes recognized enterprise’s financial statements accordance sfas 109 prescribes recognition threshold measurement attribute financial statement recognition measurement tax position taken expected taken tax return fin 48 also provides guidance derecognition classification interest penalties accounting interim periods disclosure transition fin 48 effective quarterly reporting period ending march 31 2007 cumulative effect adopting fin 48 generally recorded directly retained earnings however extent adoption fin 48 results revaluation uncertain tax positions acquired purchase business combinations cumulative effect recorded adjustment goodwill remaining corresponding purchase business combination believe adoption fin 48 material impact consolidated financial statements concentrations risk accounts receivable subject concentration credit risk exposed risk loss would occur counterparty defaults derivative transaction used hedging risk management purposes exposure controlled credit approvals continual review monitoring counterparties legal review contracts event nonperformance counterparties accounting loss would limited net amount would entitled receive terms applicable interest rate swap agreement foreign currency contract however anticipate nonperformance counterparties contracts rely motorola inc provide us technology improvements designed maintain expand iden®based wireless services including improvements designed increase voice capacity improve idenbased services motorola sole source iden infrastructure equipment supports iden network substantially iden handsets motorola expected continue sole source supplier iden infrastructure iden handsets except primarily blackberry® devices manufactured research motion ability timely efficiently implement spectrum reconfiguration plan connection report order described note 7 dependent part motorola note 2 discontinued operations may 17 2006 completed spinoff embarq offers regulated local communications services incumbent local exchange carrier embarq provides suite communications services consisting local long distance voice data services including highspeed internet access required sfas 144 accounting impairment disposal longlived assets permitted sfas 95 statement cash flows results operations balance sheets cash flows operating activities business presented discontinued operations periods presented spinoff distributed pro rata shareholders one share embarq common stock every 20 shares voting nonvoting common stock 149 million shares embarq common stock cash paid fractional shares distribution embarq common stock considered tax free transaction us shareholders except cash payments made lieu fractional shares generally taxable connection spinoff embarq transferred parent company 21 billion cash 45 billion embarq senior notes partial consideration condition transfer embarq local communications business embarq also retained 665 million debt obligations subsidiaries parent company transferred cash senior notes finance subsidiary sprint capital sprint nextel corporation notes consolidated financial statements continued corporation satisfaction indebtedness owed parent company sprint capital may 19 2006 sprint capital sold embarq senior notes public received 44 billion net proceeds incurred 123 million net costs 2006 connection spinoff embarq classified discontinued operations costs include broker fees transition costs also included discontinued operations 43 million gains tax realized change fair value certain derivatives entered anticipation issuance embarq senior notes connection spinoff entered separation distribution agreement related agreements embarq provide generally party responsible respective assets liabilities businesses following spinoff embarq provide certain transition services relating respective businesses specified periods costbased prices transition services primarily include billing field support information technology real estate services also entered agreements pursuant embarq provide specified services commercial rates agreements provide settlement process surrounding transfer certain assets liabilities possible adjustments occur future periods matters settled time spinoff outstanding options purchase common stock held employees embarq cancelled replaced options purchase embarq common stock outstanding options purchase common stock held directors employees remained us adjusted multiplying number shares subject options 10955 dividing exercise price number order account impact spinoff value shares time spinoff completed generally restricted stock units awarded pursuant equity incentive plans held employees time spinoff including held employees became employees embarq treated manner similar treatment outstanding shares common stock spinoff holders restricted stock units received one embarq restricted stock unit every 20 restricted stock units held outstanding deferred shares granted nextel incentive equity plan represent right receive shares common stock adjusted multiplying number deferred shares 10955 cash paid holders deferred shares lieu fractional shares results operations local communications business follows 1 includes results may 17 2006 sprint nextel corporation notes consolidated financial statements continued discontinued operations’ assets liabilities reported december 31 2005 follows note 3 business combinations made various acquisitions companies accounted acquisitions wireless segment purchase method required sfas 141 business combinations sfas 141 requires total purchase price acquired entities allocated assets acquired liabilities assumed based fair values respective acquisition dates allocation process requires analysis intangible assets fcc licenses customer relationships trade names rights affiliation agreements reacquired connection acquisitions pcs affiliates nextel partners acquired contractual rights assumed contractual commitments legal contingencies identify record assets acquired liabilities assumed fair value valuing acquired assets assumed liabilities fair values based limited quoted market prices available intent respect whether assets purchased held sold abandoned expected future cash flows current replacement cost similar capacity certain property plant equipment market rate assumptions contractual obligations appropriate discount rates growth rates results operations acquired companies included consolidated financial statements either date acquisition start month closest acquisition date 2006 acquired several pcs affiliates well nextel partners paid premium ie goodwill fair value net tangible identified intangible assets entities believed acquisition pcs affiliates nextel partners would give us control distribution services sprint nextel brands would provide us strategic financial benefits associated larger customer base expanded network coverage period also acquired velocita wireless holdings corporation primarily increase licenses use spectrum 900 megahertz mhz spectrum band acquisitions enterprise communications partnership january 31 2006 acquired enterprise communications purchase price 77 million cash december 31 2006 preliminary allocation purchase price included following 48 million sprint nextel corporation notes consolidated financial statements continued goodwill 21 million customer relationships 19 million reacquired rights part acquisition also assumed 31 million longterm debt retired date acquisition alamosa holdings inc february 1 2006 acquired alamosa holdings purchase price 34 billion cash december 31 2006 preliminary allocation purchase price included following 28 billion goodwill 821 million customer relationships 572 million reacquired rights part acquisition also assumed 12 billion senior notes longterm debt ubiquitel inc july 1 2006 acquired ubiquitel purchase price 985 million cash december 31 2006 preliminary allocation purchase price included following 889 million goodwill 224 million customer relationships 158 million reacquired rights part acquisition also assumed 460 million senior notes longterm debt nextel partners inc prior june 26 2006 held 28 common equity interests nextel partners carrying value 24 billion june 26 2006 acquired remaining 72 nextel partners pursuant put rights held nextel partners’ shareholders us triggered sprintnextel merger purchase price 64 billion cash december 31 2006 preliminary allocation purchase price investment already held included following 60 billion goodwill 13 billion customer relationships 903 million fcc licenses 100 million reacquired rights part acquisition also assumed 12 billion longterm debt capital lease obligations result acquisition investments reduced 24 billion velocita wireless holding corporation february 21 2006 acquired 94 voting shares velocita wireless 157 million cash may 2006 acquired remaining 6 additional 7 million cash resulting purchase price 164 million velocita wireless owns operates nationwide digital packetswitched wireless data network 900 mhz frequency band december 31 2006 purchase price allocation included following 59 million goodwill 128 million fcc licenses preliminarily allocated purchase prices 2006 acquisitions follows process completing valuation certain assets liabilities well internal studies certain assets property plant equipment intangible assets certain liabilities commercial sprint nextel corporation notes consolidated financial statements continued contracts finalized may result additional adjustments purchase price allocation acquired assets assumed liabilities pcs affiliates nextel partners velocita wireless see note 7 information regarding useful lives acquired definite lived intangible assets well information regarding intangible assets sprintnextel merger august 12 2005 subsidiary merged nextel result acquired 100 outstanding common shares nextel wholly owned subsidiary sprint nextel provides wireless voice data services united states transaction consummated part overall strategy offer comprehensive selection voice data multimedia products services aggregate consideration paid merger approximately 378 billion included 969 million cash 1452 billion shares voting nonvoting common stock worth 356 billion 11 billion converted nextel stockbased awards costs value newly issued shares calculated using average per share closing sales prices series 1 common stock nyse period two business days two business days december 15 2004 announcement merger fair value converted awards calculated merger date applying fair value methods prescribed sfas 123 accounting stockbased compensation paid premium ie goodwill fair value net tangible identified intangible assets nextel number potential strategic financial benefits believe realized result merger including limited following • combination extensive network spectrum assets believe enable us offer consumers businesses government agencies wide array broadband wireless integrated communications services • combination nextel’s strength business government wireless services position consumer wireless data services including services supported global ip network believe enable us serve broader customer base • size scale combined company comparable two largest competitors believe enable us achieve operating efficiencies either company could achieve • ability position us strategically fastest growing areas communications industry purchase method accounting assets liabilities nextel recorded respective fair values date merger changes initial purchase price allocations nextel occurred based analysis valuations certain assets liabilities summarized table along respective total fair value amounts sprint nextel corporation notes consolidated financial statements continued 2006 net increase made goodwill amount 41 million primarily due adjustments liabilities connection merger includes recognition involuntary termination benefits costs associated termination contracts exit activities rationalization property plant equipment identification loss contingencies existence prior consummation merger purchase accounting adjustments related acquisition except required certain accounting rules see note 7 information regarding useful lives acquired definite lived intangible assets well information regarding intangible assets 2005 pcs affiliate acquisitions second half 2005 acquired three pcs affiliates 15 billion cash us unwired inc gulf coast wireless limited partnership iwo holdings inc changes initial purchase price allocations pcs affiliates occurred based analysis valuations certain assets liabilities summarized table along respective total fair value amounts sprint nextel corporation notes consolidated financial statements continued 2006 net decrease made goodwill amount 214 million primarily due adjustments fair value reacquired rights customer relationships property plant equipment well adjustments liabilities connection pcs affiliate acquisitions include costs associated termination contracts exit activities purchase accounting adjustments related acquisitions except required certain accounting rules pro forma financial information following pro forma consolidated results operations assume sprintnextel merger completed january 1 2005 2004 years ended december 31 2005 2004 respectively pro forma amounts represent historical operating results sprint nextel adjustments purchase accounting conform accounting policies affect net operating revenues costs services products selling general administrative expenses depreciation amortization interest expense income expense income taxes elimination intercompany activity pro forma information provided acquired pcs affiliates nextel partners velocita wireless impact immaterial individually aggregate note 4 sharebased compensation sharebased payment plans 1997 longterm stock incentive program 1997 program grant options restricted shares restricted stock units equitybased awards directors employees 180 million common shares 97 million common shares remained available december 31 2006 1997 program number shares available grant increases year 2007 january 1 2007 number shares authorized 1997 program increased 43 million shares awards may granted 1997 program april 2007 1997 program options generally granted exercise price equal market value underlying shares grant date however 2005 option awards certain senior level executives exercise price equal 110 market value underlying shares grant date options granted 2006 generally vest annual basis three years contractual term ten years options granted 2006 generally vest annual basis four years also contractual term ten years employees directors granted restricted stock units required pay shares must remain employed us continue serve member board directors restrictions shares lapse typically three years employees one year directors addition restricted stock units awarded certain senior level executives 2005 many restricted stock units granted 2006 contain performance provisions achievement defined levels wireless subscriber additions adjusted operating income depreciation amortization postpaid wireless subscriber retention andor qualitative quantitative factors performance provision achievement typically evaluated one year grant point may increase decrease number awards employee eligible receive extent performance provisions achieved vesting awards remain outstanding subject remaining term employment service discussed prior 2005 restricted shares nonvested shares granted officers key sprint nextel corporation notes consolidated financial statements continued employees 1997 program employees granted restricted shares required pay shares however must remain employed us restrictions shares lapse shares vest annual basis three years nextel incentive equity plan outstanding nextel deferred shares nonvested shares constitute agreement deliver shares upon performance service defined period time grants options purchase nextel common shares converted time sprintnextel merger nonvested shares options purchase number common shares december 31 2006 plan authorized equitybased awards 113 million common shares 49 million common shares remained available options granted prior sprintnextel merger exercise price equal market value underlying shares grant date options vest monthly basis periods four years contractual term ten years employees required pay nonvested shares however must remain employed us restrictions shares lapse nonvested shares generally vest service period ranging several months four years accelerated vesting schedule may triggered event change control accelerated vesting triggered respect certain deferred shares options granted prior sprintnextel merger result sprintnextel merger intend grant awards plan management incentive stock option plan misop 2003 granted stock options employees eligible receive annual incentive compensation eligible employees could elect receive stock options lieu portion target incentive annual incentive compensation plans options generally became exercisable december 31 year granted maximum term ten years misop also granted stock options executives lieu longterm incentive compensation ltipmisop options ltipmisop options generally became exercisable third december 31 following grant date maximum term ten years misop options granted exercise prices equal market price underlying common stock grant date new options may granted plan april 2005 december 31 2006 options buy 33 million common shares outstanding connection sprintnextel merger vesting certain equitybased awards issued 1997 program misop nextel incentive equity plan accelerated following termination employment certain award recipients january 2005 adopted retention program designed retain senior executives key personnel completion sprintnextel merger oneyear period following merger program terminated employment program participant cause within one year sprintnextel merger certain unvested equitybased awards held participant vested automatically nextel incentive equity plan within one year sprintnextel merger terminated cause employment holder equitybased award granted plan case specified executives holder terminated employment good reason defined plan holder’s unvested equitybased awards vested automatically employees stock purchase plan espp eligible employees may subscribe quarterly purchase shares series 1 common stock payroll deductions 20 eligible compensation purchase price equal 90 market value last trading day quarterly offering period aggregate number shares purchased employee may exceed 9000 shares 25000 fair market value calendar year subject limitations imposed section 423 internal revenue code december 31 2006 plan authorized purchase 22 million shares net elections made 2006 employees participating fourth quarter 2006 offering period espp purchase 757000 common shares issued first quarter 2007 employees purchased shares 1714 per share currently use treasury shares satisfy sharebased awards new shares treasury shares available sprint nextel corporation notes consolidated financial statements continued adoption statement financial accounting standards 123r effective january 1 2006 adopted sfas 123r sharebased payment revises sfas 123 sfas 123r requires us measure cost employee services received exchange award equitybased securities using fair value award date grant recognize cost period award recipient required provide service us exchange award awards liability instruments employees would remeasured fair value reporting date settlement adopted sfas 123r using modified prospective transition method accordingly results prior periods restated method requires provisions sfas 123r generally applied sharebased awards granted modified repurchased cancelled january 1 2006 voluntarily adopted fair value accounting sharebased awards effective january 1 2003 sfas 123 amended sfas 148 accounting stockbased compensation transition disclosure using prospective method measured cost sharebased awards granted modified january 1 2003 using fair value award began recognizing cost consolidated statements operations service period recognize remaining cost awards remaining service period following provisions sfas 123r grants issued prior january 1 2003 unvested outstanding january 1 2006 started recognizing remaining cost awards remaining service period required new standard adoption sfas 123r material effect consolidated financial statements following table illustrates effect net income loss earnings loss per common share sharebased awards included net income loss effect net income loss earnings loss per common share grants issued prior january 1 2003 applied fair value recognition provisions sfas 123 grants 2005 2004 sharebased compensation cost charged net income loss charged income loss continuing operations sharebased award plans 361 million 338 million 2006 303 million 254 million 2005 129 million 85 million 2004 respectively total sharebased compensation amounts 234 million 81 million 2005 2004 respectively related stockbased grants issued december 31 2002 37 million 48 million 2005 2004 respectively related recombination two tracking stocks note 16 32 million 2005 related separation certain employees employed us prior sprintnextel merger sprint nextel corporation notes consolidated financial statements continued total income tax benefit recognized consolidated statements operations sharebased award compensation 138 million 2006 111 million 2005 47 million 2004 income tax benefit recognized consolidated statements operations related continuing operations 129 million 2006 93 million 2005 31 million 2004 december 31 2006 306 million total unrecognized compensation cost related sharebased award plans expected recognized weighted average period 168 years cash received exercise sharebased payment arrangements 405 million 2006 432 million 2005 19 billion 2004 actual tax benefit realized tax deductions exercise sharebased payment arrangements totaled 6 million 2006 6 million 2005 1 million 2004 awards graded vesting recognized using straightline method forfeitures estimated 2006 2005 2004 sharebased awards using 3 annual rate options fair value option award estimated grant date using blackscholes option valuation model assumptions noted following table riskfree rate used 2006 2005 2004 based zerocoupon us treasury bond term equal expected term options volatility used 2006 2005 2004 implied volatility traded options common shares historical volatility common shares period approximates expected term options expected dividend yield used 2006 2005 2004 estimated based historical dividend yields factors expected term options granted 2006 2005 2004 estimated using average vesting date contractual term options include options granted 1997 program misop nextel incentive equity plan discussed 1 values expected term risk free interest rate adjusted spinoff embarq based 10955 conversion rate 2 see note 16 information regarding recombination tracking stocks 3 2006 based estimate expected volatility implied volatility exchange traded options consistent guidance sab 107 sharebased payment previously expected volatility based historical volatility sprint nextel corporation notes consolidated financial statements continued summary status options option plans december 31 2006 changes year ended december 31 2006 presented 1 adjustment result embarq spinoff described note 2 net cancellations increased number shares subject options decreased exercise price shares additional compensation expense related options resulted modification december 31 2006 257 million total unrecognized compensation cost related unvested options cost expected recognized weightedaverage period 172 years total intrinsic value options exercised 264 million 2006 267 million 2005 64 million 2004 restricted stock units fair value restricted stock unit award calculated using share price date grant summary status restricted stock units december 31 2006 changes year ended december 31 2006 presented restricted stock units consist units granted 1997 program discussed 1 evaluate performance conditions restricted stock units end performance period restricted stock units granted 2006 met performance condition categorized performance sprint nextel corporation notes consolidated financial statements continued met adjustments original grants categorized either performance met forfeiture evaluated restricted stock units december 31 2006 units remaining required service period units outstanding december 31 2006 included future service required column december 31 2006 45 million total unrecognized compensation cost related restricted stock units expected recognized weightedaverage period 153 years total fair value restricted stock units vested 49 million 2006 4 million 2005 2 million 2004 weightedaverage grant date fair value restricted stock units granted 2006 2404 per unit compared 2461 per unit 2005 1807 per unit 2004 pay cash dividend equivalents outstanding restricted stock units dividend equivalents paid restricted stock units principally charged retained earnings paid nonvested shares nonvested shares consist restricted shares granted 1997 program deferred shares granted nextel incentive equity plan discussed fair value nonvested share award calculated using share price date grant summary status nonvested share awards december 31 2006 changes year ended december 31 2006 presented 1 adjustment result embarq spinoff described note 2 increased number deferred shares incremental expense resulting modification deferred shares material december 31 2006 4 million total unrecognized compensation cost related nonvested shares expected recognized weightedaverage period 117 years total fair value shares vested 29 million 2006 59 million 2005 14 million 2004 note 5 supplemental balance sheet information sprint nextel corporation notes consolidated financial statements continued sprint nextel corporation notes consolidated financial statements continued note 6 fair value financial instruments determined estimated fair values financial instruments using available market information appropriate valuation methodologies however considerable judgment required interpreting market data develop fair value estimates result estimates presented necessarily indicative amounts could realize required pay current market exchange use different market assumptions well estimation methodologies may material effect estimated fair value amounts carrying amounts estimated fair values financial instruments yearend follows 1 cash equivalents accounts receivable deposits accounts payable accrued expenses items excluded table carrying amount consolidated balance sheets approximate carrying amounts due short term nature letters credit outstanding letters credit totaled 26 billion december 31 2006 2005 pursuant terms report order described note 7 required establish letter credit amount 25 billion provide assurance funds available pay relocation costs incumbent users 800 mhz spectrum connection band reconfiguration process letter credit outstanding 60 billion revolving credit facility letter credit subject fees competitively determined market place also use letters credit provide credit support various financial obligations sprint nextel corporation notes consolidated financial statements continued note 7 intangible assets indefinite lived intangibles identified fcc licenses sprint boost mobile trademarks indefinite lived intangible assets addition goodwill considering expected use assets regulatory economic environment within used effects obsolescence use sprint boost mobile trademarks highly respected brands positive connotations legal regulatory contractual limitations associated trademarks cultivate protect use brands hold several kinds fcc licenses deploy services 19 ghz pcs licenses utilized cdma network 800 mhz 900 mhz licenses utilized iden network 25 ghz licenses use first generation wireless internet access services also hold 25 ghz 19 ghz fcc licenses currently utilize networks operations long act within requirements constraints regulatory authorities renewal extension licenses reasonably certain minimal cost spectrum licenses authorize wireless carriers use radio frequency spectrum renewable reusable resource deplete exhaust time aware technology developed would render spectrum obsolete currently changes competitive legislative environments would put question future need spectrum licenses fourth quarter 2006 performed annual goodwill indefinite lived intangible asset analyses described note 1 result analyses indefinite lived intangible assets impaired permitted fasb guidance goodwill analysis included estimate control premium respect minority interest traded value common shares estimate value long distance business well assumptions december 31 2006 identified indicators impairment respect goodwill indefinite lived intangible assets however share price experience sustained significant decline compared share price december 31 2006 indicator impairment exists decline expected cash flows may required perform second step goodwill impairment test could cause us recognize noncash impairment charge could material consolidated financial statements sprint nextel corporation notes consolidated financial statements continued definite lived intangibles definite lived intangible assets consist primarily customer relationships amortized three five years using sum years’ digits method believe best reflects estimated pattern economic benefits consumed definite lived intangible assets primarily include certain rights affiliation agreements reacquired connection acquisitions pcs affiliates nextel partners amortized remaining terms affiliation agreements straightline basis nextel direct connect trade names amortized ten years date sprintnextel merger straightline basis weighted average amortization period acquired definite lived intangibles seven years 2006 six years 2005 see note 3 information regarding increases gross carrying value definite lived intangible assets spectrum reconfiguration obligations february 7 2005 nextel accepted terms conditions report order fcc implemented spectrum reconfiguration plan designed eliminate interference public safety operators 800 mhz band terms report order nextel surrendered certain spectrum rights received certain spectrum rights undertook pay costs incurred nextel third parties connection reconfiguration plan required completed within 36month period subject certain exceptions particularly respect markets border mexico canada assumed obligations merged nextel august 2005 result events within control fail complete reconfiguration plan within 36month period fcc could take actions us enforce report order actions could adverse operating financial impacts us could material believe based experiences date complete reconfiguration process within applicable fcc designated time period due primarily circumstances largely outside control believe time impact delay material results operations financial condition although assurances recognizing current limitations reconfiguration process sprint nextel public safety community jointly filed letter fcc february 15 2007 requesting fcc direct independent transition administrator ta working closely affected parties develop schedule benchmarks completing second phase 800 mhz reconfiguration based fcc’s determination values spectrum rights received surrendered nextel minimum obligation incurred report order 28 billion report order provides qualifying costs incur part reconfiguration plan including costs reconfigure infrastructure spectrum positions used offset minimum obligation 28 billion however obligated pay full amount costs relating reconfiguration plan even costs exceed amount addition financial reconciliation required completed end sprint nextel corporation notes consolidated financial statements continued reconfiguration implementation time required make payment us treasury extent value spectrum rights received exceeds total value spectrum rights surrendered ii qualifying costs referred result uncertainty regard calculation credit internal network costs well significant number variables outside control particularly regard 800 mhz reconfiguration licensee costs believe reasonably estimate amount paid us treasury december 31 2006 remaining liability 138 million associated estimated portion reconfiguration costs represents best estimate amounts paid report order would benefit infrastructure spectrum positions costs incurred pursuant report order relate spectrum infrastructure expended accounted either property plant equipment additions fcc licenses intangible asset consistent accounting policies following table represents expenditures incurred directly attributable performance report order inception program addition included table estimated reconfiguration costs incurred date included property plant equipment consolidated balance sheet based allocations reconfiguration activities normal network growth estimated allocations may vary depending key assumptions including subscribers call volumes factors life reconfiguration program result amount allocated reconfiguration activity subject change based additional assessments made course reconfiguration program since ta fcc yet reached agreement methodology calculating amount submitted credit cannot provide assurance granted full credit certain allocated network costs note 8 severance lease exit costs asset impairments 2006 total severance lease exit costs asset impairment costs expensed consolidated statement operations aggregated 207 million compared 43 million 2005 37 billion 2004 sprint nextel corporation notes consolidated financial statements continued severance lease exit costs activity connection ongoing merger integration cost rationalization projects began second half 2005 continue align internal resources achieve synergies sprintnextel merger pcs affiliates nextel partners acquisitions projects affect many areas business operations including network information technology customer care general administrative functions expect continue incur costs next several quarters associated realignment activities including costs associated separations employees activities resulted 128 million severance lease exit costs associated work force reductions across segments reported consolidated statement operations year ended december 31 2006 2003 announced winddown web hosting services offered long distance segment resulted asset impairment charges severance expense facility lease termination costs december 31 2005 substantially activities associated winddown completed however continue obligated facility leases expire 2007 2014 incurred 10 million facility lease termination costs due subtenant lease terminations 2006 9 million 2005 65 million 2004 following tables provide analysis severance lease exit costs liability exclusive exit costs associated business combinations accordance sfas nos 112 146 1 excluded tables severance lease exit costs 27 million 2006 credit 1 million 2005 expense 23 million 2004 allocated local segment prior spinoff embarq included discontinued operations consolidated statements operations sprint nextel corporation notes consolidated financial statements continued exit costs associated business combinations continue finalize plans rationalizing certain redundant assets activities facilities software infrastructure assets related certain business combinations integrate combined companies expect execute plans next several quarters plans affect many areas company including sales marketing network information technology customer care general administrative functions addition expect finalization integration plans may result need adjust useful lives certain definite lived intangibles network assets andor property plant equipment see note 3 information regarding business combinations connection activities related business combinations recorded certain costs associated dispositions integration activities accordance requirements eitf issue 953 recognition liabilities connection purchase business combination exit costs primarily related termination fees associated leases contractual arrangements well severance related costs associated work force reductions year ended december 31 2006 recorded 232 million exit costs resulted adjustments accrued liabilities consequently resulted adjustment goodwill related 2005 2006 acquisitions activity presented table asset impairments 2006 wrote 69 million assets primarily related software asset impairments abandonments various assets including certain cell sites construction 2005 wrote 44 million assets related various software applications 2004 determined business conditions events occurring 2004 impacting long distance operations constituted triggering event requiring evaluation recoverability long distance longlived assets pursuant sfas 144 fair value asset group determined discounting cash flow projections 10 discount rate reflecting riskadjusted weighted average cost capital resulting fair value asset group required 35 billion noncash impairment charge reducing net carrying value long distance property plant equipment 60 23 billion september 30 2004 also 2004 completed sale wholesale dial ip business 34 million resulting noncash charge 21 million sprint nextel corporation notes consolidated financial statements continued note 9 longterm debt capital lease obligations seventh series redeemable preferred shares 1 includes debt acquired connection pcs affiliate nextel partners acquisitions discussed note 3 sprint nextel parent corporation 27 billion debt outstanding including commercial paper addition 192 billion longterm debt issued whollyowned subsidiaries fully unconditionally guaranteed sprint nextel indentures financing arrangements certain subsidiaries contain provisions limit cash dividend payments subsidiary common stock held parent corporation transfer cash form advances subsidiaries parent corporation generally restricted december 31 2006 621 million outstanding debt comprised certain secured notes capital lease obligations mortgages secured 19 billion gross property plant equipment assets senior notes december 31 2006 215 billion convertible senior serial redeemable notes cash interest notes payable semiannually arrears notes redeemable discretion may choose redeem notes applicable redemption price plus accrued unpaid interest 607 million aggregate principal amount 525 notes due 2010 convertible time prior redemption repurchase maturity option holders shares series 1 common stock effective conversion price 5365 per share plus 1137 cash 1000 principal amount december 31 2006 senior notes also included 124 million debt associated consolidated variable interest entity november 2006 completed sale 20 billion principal amount 60 senior serial redeemable notes due 2016 cash interest payable semiannually arrears june 1 december 1 commencing june 1 2007 annual rate 60 may choose redeem notes time sprint nextel corporation notes consolidated financial statements continued time redemption price equal greater 100 principal amount sum present values remaining scheduled payments principal interest discounted redemption date semiannual basis us treasury note interest rate remaining term plus 30 basis points plus case accrued interest notes senior unsecured obligations rank equal right payment unsecured senior indebtedness 2006 7125 478 senior notes matured aggregate principal balance 16 billion paid cash paid total 27 billion cash 2006 early redemptions • redeemed outstanding 95 senior notes due 2011 outstanding principal balance 85 million 60 senior notes due 2007 outstanding principal balance 16 billion • redeemed nextel partners’ 15 convertible senior notes due 2008 outstanding principal balance 140 million • redeemed alamosa’s 13625 senior notes due 2011 120 senior notes due 2009 125 notes due 2011 aggregate outstanding principal balance 247 million • redeemed us unwired’s first priority senior secured floating rate notes due 2010 outstanding principal balance 125 million iwo holdings inc’s 1075 senior discount notes due 2015 outstanding principal balance 140 million • redeemed 9375 senior subordinated secured notes due 2009 floating rate senior secured notes due 2011 alamosa subsidiary aggregate outstanding principal balance 334 million 2005 79 senior notes outstanding principal balance 10 billion matured retired weighted average effective interest rate related senior notes 71 2006 2005 effective interest rate includes effect interest rate swap agreements accounted fair value hedges see note 10 details regarding interest rate swaps equity unit notes 2001 completed registered offering 69 million equity units stated amount 25 equity unit initially consisted corporate unit corporate unit consisted forward purchase contract 25 principal amount senior notes whollyowned subsidiary sprint capital corporate unit could converted holder treasury unit consisting forward purchase contract treasury portfolio zerocoupon us treasury securities substituting treasury securities notes underlying notes treasury portfolio pledged us secure holder’s obligations forward purchase contract august 17 2004 forward purchase contracts settled issuance 35 million shares fon common stock exchange 17 billion cash notes originally issued part equity units interest rate 60 notional amount 17 billion may 2004 purchased 750 million principal amount notes scheduled maturity result recognized 29 million loss income due premium paid writeoff unamortized debt issuance costs interest rate notes reset 48 may 24 2004 successful remarketing notes longer pledged secure obligations original forward purchase contracts december 31 2005 880 million remarketed notes matured august 2006 included current portion longterm debt capital lease obligations sprint nextel corporation notes consolidated financial statements continued bank credit facilities bank credit facility provides total unsecured financing capacity 60 billion december 31 2006 26 billion outstanding letters credit including 25 billion letter credit required fcc’s report order 514 million commercial paper net discounts backed facility resulting 29 billion available revolving credit also additional 16 million outstanding letters credit december 31 2006 used various financial obligations backed bank credit facility december 19 2005 entered bank credit facility consisted five year 60 billion revolving credit facility also 364 day 32 billion term loan terms loan provide interest rate equal london interbank offered rate libor prime rate plus spread varies depending credit ratings bank credit facility include rating trigger would allow lenders involved terminate facility event credit rating downgrade 60 billion revolving credit facility also subject facility fee total facility payable quarterly facility fees vary 4 15 basis points based upon credit ratings facility replaced existing credit agreement included 40 billion revolving credit facility 22 billion term loan credit facility requires compliance financial ratio test defined credit agreement maturity dates loans may accelerate comply financial ratio test december 31 2006 compliance financial ratio test credit facility also obligated repay loans certain change control events occur borrowings facility unsecured credit facility also contains covenants limit ability subsidiaries incur additional indebtedness including guaranteeing obligations entities creating liens consolidate merge sell substantially assets enter transactions affiliates ability borrow additional amounts credit facility may restricted provisions included public notes limit incurrence additional indebtedness certain circumstances availability borrowings facility also subject satisfaction waiver specified borrowing conditions december 31 2006 satisfied conditions facility second quarter 2006 retired 32 billion term loan portion proceeds received connection spinoff embarq see note 2 details spinoff embarq august 1 2006 repaid terminated credit facility assumed part nextel partners acquisition 500 million outstanding term loan provided 100 million revolving credit facility outstanding borrowings 2005 entered revolving credit facility 10 billion facility unsecured structured 364day credit line subsequent oneyear 10 billion termout option borrowings drawn permitted expire second quarter 2006 commercial paper april 2006 commenced commercial paper program reduced borrowing costs allowing us issue shortterm debt lower rates available 60 billion revolving credit facility 20 billion program backed revolving credit facility reduces amount borrow facility extent commercial paper outstanding december 31 2006 514 million commercial paper outstanding net discounts included current maturities longterm debt weighted average interest rate 5515 weighted average maturity 47 days sprint nextel corporation notes consolidated financial statements continued capital lease obligations december 31 2006 106 million capital lease obligations primarily use communication switches december 2005 terminated two accounts receivable asset securitization facilities provided us 12 billion liquidity neither facility outstanding balance terminated scheduled expire 2006 currently compliance restrictive financial covenants associated borrowings discussed provision indebtedness requires repayment event downgrade ratings service future maturities longterm debt capital lease obligations years subsequent december 31 2006 scheduled annual principal payments longterm debt including bank credit facility capital lease obligations outstanding december 31 2006 follows seventh series redeemable preferred shares march 31 2006 redeemed cash outstanding seventh series preferred shares stated value 1000 per share aggregate face amount 247 million approximated carrying value time redemption dividends 673 per share paid quarterly march 31 2006 note 10 derivative instruments hedging activities risk management policies derivative instruments typically include interest rate swaps stock warrants option contracts foreign currency forward option contracts primarily use derivative instruments hedge exposure market risks associated unfavorable movements interest rates equity prices foreign currencies board directors authorized us enter derivative transactions comply risk management policies interest rate risk changes interest rates could adversely affect earnings cash flows specific interest rate risks include risk increasing interest rates shortterm debt risk increasing interest rates planned new fixed rate longterm financing risk increasing interest rates planned refinancings using longterm fixed rate debt exposure strategic investments companies includes risk unfavorable changes market prices could adversely affect earnings cash flows may also obtain equity rights companies usually form warrants purchase common stock companies equity rights typically obtained connection commercial agreements strategic investments sprint nextel corporation notes consolidated financial statements continued foreign exchange risk management program focuses reducing transaction exposure optimize consolidated cash flow enter forward option contracts foreign currencies reduce impact changes foreign exchange rates primary transaction exposure results net payments made received overseas communications companies completing international calls made domestic customers operations international subsidiaries interest rate derivatives december 31 2006 held fair value interest rate swaps notional value 10 billion swaps entered hedges fair value portion senior notes maturities ranging 2008 2012 semiannual basis pay floating rate interest equal sixmonth libor plus fixed spread receive average interest rate equal coupon rates stated underlying senior notes interest rate swaps meet required criteria sfas 133 amended order apply shortcut method accounting instruments critical terms swaps perfectly match corresponding terms hedged debt shortcut method assume interest rate swaps perfectly effective hedging interest rate risk recognize changes fair values interest rate swaps currently gain loss within income expense consolidated statements operations accordance sfas 133 amended shortcut method changes fair value hedging instrument offset equal change fair value underlying debt impact earnings interest rate swap activity generated net liability 25 million december 31 2006 compared net liability 17 million december 31 2005 resulting changes fair value interest rate swaps offset recorded underlying longterm debt fourth quarter 2005 entered series interest rate collars associated issuance debt embarq time spinoff may 17 2006 see note 2 additional information derivative instruments qualify hedge accounting treatment consolidated financial statements changes fair value instruments recognized earnings discontinued operations period change 2005 fair value derivatives decreased resulting loss 12 million tax december 31 2005 2006 fair value derivatives increased resulting 43 million gain tax derivatives settled upon completion spinoff equity derivatives 2005 entered series option contracts associated investment nii holdings designed hedge exposure risk unfavorable changes price nii holdings’ common shares first contract written 17 million common shares nii holdings designated effective hedging instrument therefore changes fair value derivative instrument recognized earnings period change prior settlement settled first option contract march 31 2006 conjunction sale 17 million common shares nii holdings recognized gain 37 million sale underlying shares partially offset loss 23 million change fair value option contract 2006 resulting net gain 14 million recorded income remaining option contracts written total 13 million common shares nii holdings related forecasted sale shares fourth quarter 2006 designated effective cash flow hedges forecasted transaction pursuant sfas 133 amended derivative implementation group issue g20 assessing measuring effectiveness purchased option used cash flow hedge fourth quarter 2006 sold remaining investment 13 million common shares nii holdings settled remaining option contracts using common shares nii holdings borrowed stock loan agreements recognized gain 396 million sale underlying shares sprint nextel corporation notes consolidated financial statements continued partially offset realized loss 251 million change fair value option contracts resulting net gain 145 million recorded income also recorded 53 million income tax expense fourth quarter 2006 relating transaction result sale nii holdings shares settlement option contracts well reversal deferred tax liability relating nii holdings shares use borrowed shares settle option contracts accounted collateralized borrowing resulting increase 866 million prepaid expenses current assets current liabilities fair value underlying shares recognized financing cash inflow 866 million related borrowing equal investing cash outflow related collateral posted borrowed shares collateralized borrowing terminated january 2007 foreign currency forward option contracts foreign currency forward option contracts held 2006 2005 designated hedges defined sfas 133 amended changes fair value derivative instruments recognized earnings period change activity associated contracts immaterial periods presented note 11 employee benefit information adopted sfas 158 employers’ accounting defined benefit pension postretirement plans december 31 2006 statement requires us recognize funded status defined benefit pension postretirement plans consolidated balance sheet recognize changes funded status arise period comprehensive income loss defined benefit pension plan employees employed us prior sprintnextel merger participants noncontributory defined benefit pension plan time sprintnextel merger extend plan participation nextel employees additionally december 31 2005 pension plan amended freeze benefit accruals plan participants designated work embarq following spinoff amendment treated curtailment sfas 88 resulted 233 million reduction projected benefit obligation december 31 2005 offset existing unrecognized losses benefits employees participating plan based years service participants’ compensation december 31 2005 may 17 2006 connection spinoff embarq accrued pension benefit obligations participants designated work embarq related plan assets transferred embarq event required remeasurement benefit obligations associated remaining sprint nextel employees accordance sfas 87 employers’ accounting pensions value pension assets transferred embarq determined using valuation methodology consistent section 4044 employee retirement income security act postretirement benefits provide postretirement medical benefits certain employees retired certain dates eligible medical benefits cost reduced cost employees retire certain dates eligible medical benefits sharedcost basis also provide postretirement life insurance employees retired certain dates fund accrued costs benefits paid time sprintnextel merger extend plan participation retiree medical plan nextel employees amended plan include employees designated work embarq employees employed us prior sprintnextel merger born 1956 attribution period used accrue retiree medical benefits begins age 50 amendment immediate impact accumulated postretirement benefit obligation benefit expense sprint nextel corporation notes consolidated financial statements continued may 17 2006 connection spinoff embarq accrued postretirement benefit obligation participants designated work embarq related plan assets transferred embarq event required remeasurement benefit obligations associated remaining sprint nextel employees accordance sfas 106 employers’ accounting postretirement benefits pensions related plan assets funded embarq subsidiaries accordingly transferred embarq prescription drug coverage available medicare beginning 2006 amended retiree medical plans third quarter 2005 largely eliminate prescription drug coverage medicareeligible retirees amendment precipitated remeasurement retiree medical expense using 525 discount rate july 1 2005 remeasurement date amendment decreased accumulated postretirement benefit obligation 250 million decreased 2005 benefit expense 13 million benefit expense use december 31 measurement date pension postretirement benefit plans actuarial assumptions used compute net pension expense postretirement benefit expense based upon information available beginning year presented following table na applicable sprint nextel corporation notes consolidated financial statements continued components pension expense postretirement benefit expense years ended december 31 2006 2005 2004 detailed net benefit expense includes 21 million 63 million 57 million years ended december 31 2006 2005 2004 respectively allocated local segment prior spinoff embarq believe amounts approximate expense related participants designated work embarq accordingly amounts included discontinued operations accompanying consolidated statements operations 2006 pension service costs attributable local segment pension benefits continuing sprint nextel employees frozen december 31 2005 benefit obligations actuarial assumptions used compute funded status plans based upon information determined december 31 2006 2005 follows na applicable addition rates discount rate used determine benefit obligations remeasurement date may 17 2006 associated spinoff embarq 650 sfas nos 87 106 require calculation benefit obligation include discount rate reflects rate benefits could effectively settled suggest rate reflect rates return currently available high quality fixed income securities whose cash flows via coupon maturities match timing amount future benefit payments plan accordingly actuaries completed cash flow bond matching analysis consistent methodology sprint nextel corporation notes consolidated financial statements continued following table summarizes change projected benefit obligation pension plan change accumulated benefit obligation postretirement benefit plan years ended december 31 2006 2005 na applicable pension plan’s projected benefit obligation equals accumulated benefit obligation december 31 2006 due spinoff embarq pension plan amendments made december 31 2005 plan assets plan assets pension plan currently used payment pension benefits plan assets exceed actuarial present value pension benefits paid next fiscal year therefore entire liability pension benefits classified longterm liability assumed 875 expected rate return plan assets since december 31 2003 estimate return assets reflects average rate earnings expected funds invested provide benefits included projected benefit obligation generally consistent target investment policy assess ongoing appropriateness rate requested actuaries prepare investment return estimate using actual asset allocation november 30 2006 analysis resulted estimated expected rate return plan assets 85 use rate return plan assets determine pension expense year ending december 31 2007 sprint nextel corporation notes consolidated financial statements continued following table summarizes change fair value plan assets pension postretirement benefit plans years ended december 31 2006 2005 weightedaverage asset allocations pension plan december 31 2006 2005 asset category follows employee benefits committee comprised certain employees established investment policy specifies asset allocation targets ranges trust pension trust invested welldiversified portfolio securities hold sprint nextel securities funded status following table illustrates funded status pension postretirement benefit plans na applicable sprint nextel corporation notes consolidated financial statements continued following table illustrates effect applying sfas 158 individual line items consolidated balance sheet december 31 2006 1 pension postretirement benefit obligations coupled postemployment obligation 50 million included table totals 244 million reflected 2006 consolidated balance sheet 2 264 million accumulated comprehensive loss taxes amount includes 265 million unrecognized net actuarial loss offset 1 million unamortized prior service benefit 6 million accumulated comprehensive income taxes amount includes 16 million unrecognized net actuarial loss offset 22 million unamortized prior service benefit 3 accumulated comprehensive loss coupled nonqualified benefit plan obligation 13 million included table totals 173 million reflected note 16 amortization expense expected recognized 2007 sprint nextel corporation notes consolidated financial statements continued year ended december 31 2005 funded status amounts recognized accompanying consolidated balance sheet plans follows na applicable amounts recognized accompanying consolidated balance sheet consist accordance sfas 87 recorded additional minimum pension liability december 31 2005 2004 representing excess unfunded accumulated benefit obligation plan assets accrued pension costs recognition additional minimum pension liability also resulted intangible asset equal unrecognized prior service costs charge equity accumulated comprehensive loss related charge comprehensive loss 96 million 2005 18 million 2004 related tax effect 38 million 2005 10 million 2004 resulting net charge comprehensive loss 58 million 2005 8 million 2004 charge comprehensive loss nonqualified benefit plan 2 million 2005 20 million 2004 related tax effect 1 million 2005 7 million 2004 resulting net charge comprehensive loss 1 million 2005 13 million 2004 december 31 2005 accumulated comprehensive loss included net charges 818 million related additional minimum pension liability pension plan nonqualified benefit plan sprint nextel corporation notes consolidated financial statements continued expected cash flows following pension postretirement benefit payments reflect expected future service appropriate expected paid millions currently expect discretionary 150 million contribution made pension plan 2007 defined contribution plans sponsor defined contribution plan covering employees participants may contribute portion eligible pay plan payroll withholdings 2006 matched cash 100 participants’ contributions 5 eligible compensation prior years participants’ contributions matched common stock total matching contributions 132 million 2006 56 million 2005 29 million 2004 2005 three defined contribution plans one nonunion plan premerger sprint employees two union plans employees designated work embarq matching contribution equal 30 participants’ contributions 6 eligible compensation 2005 25 participants’ contributions 6 eligible compensation 2004 nonunion plan nonunion premerger sprint employees matched contributions shares common stock union employees matched contributions based negotiated amounts january 1 2006 terminated nextel plan participants covered plan eligible enroll amended sprint nextel plan january 1 2006 also offered new defined contribution plan nonunion employees designated work embarq addition two existing union plans may 17 2006 connection spinoff three defined contribution plans designated embarq employees transferred embarq sprint nextel corporation notes consolidated financial statements continued note 12 income taxes income tax expense benefit allocated continuing operations consists following differences caused effective income tax rates vary 35 federal statutory rate income taxes related continuing operations follows sprint nextel corporation notes consolidated financial statements continued income tax expense benefit allocated items follows 1 amounts recorded directly shareholders’ equity accumulated comprehensive loss consolidated balance sheets 2 amounts recorded directly shareholders’ equity paidin capital consolidated balance sheets 3 amount recorded directly shareholders’ equity retained earnings consolidated balance sheet recognize deferred income taxes temporary differences carrying amounts assets liabilities financial statement purposes tax bases deferred tax assets also recorded operating loss capital loss tax credit carryforwards sources differences give rise sprint nextel corporation notes consolidated financial statements continued deferred income tax assets liabilities december 31 2006 2005 along income tax effect follows foreign income loss included income loss continuing operations totaled 52 million 2006 27 million 2005 203 million 2004 material unremitted earnings foreign subsidiaries 2006 2005 acquired 756 million 28 billion potential income tax benefits related net operating loss carryforwards capital loss carryforwards tax credit carryforwards sprintnextel merger pcs affiliate nextel partners acquisitions 1999 acquired 193 million potential tax benefits related net operating loss carryforwards acquisitions broadband fixed wireless companies 1998 acquired 229 million potential tax benefits related net operating loss carryforwards controlling interest acquisition wireless joint venture call pcs restructuring benefits acquisitions subject certain realization restrictions various tax laws december 31 2006 valuation allowance 743 million remains deferred tax benefits valuation allowance provided time acquisition subsequently recognized first reduce goodwill intangibles resulting application purchase method accounting transactions goodwill intangibles related acquisition reduced zero additional tax benefits recognized would reduce income tax expense connection pcs restructuring required reimburse former cable company partners joint venture net operating loss tax credit carryforward benefits generated pcs restructuring realization us produces cash benefit would otherwise realized reimbursement equal 60 net cash benefit received us made former cable company partners shares stock unexpired carryforward benefits subject requirement total 193 million sprint nextel corporation notes consolidated financial statements continued december 31 2006 federal operating loss carryforwards 40 billion state operating loss carryforwards 112 billion related loss carryforwards federal tax benefits 14 billion state tax benefits 801 million addition available income tax purposes federal alternative minimum tax net operating loss carryforwards 34 billion state alternative minimum tax net operating loss carryforwards 668 million loss carryforwards expire varying amounts 2026 also available capital loss carryforwards 130 million related capital loss carryforwards tax benefits 45 million expire 2009 also available 633 million federal state income tax credit carryforwards december 31 2006 included amount 387 million income tax credits expire varying amounts 2026 remaining 246 million expire valuation allowance related deferred income tax assets decreased 117 million 2006 increased 401 million 2005 2006 decrease primarily related use capital loss carryforward valuation allowance previously provided expiration state net operating losses valuation allowance provided 2005 increase primarily related sprintnextel merger 2005 pcs affiliate acquisitions believe likely deferred income tax assets net valuation allowance realized based current income tax laws expectations future taxable income stemming reversal existing deferred tax liabilities ordinary operations uncertainties surrounding income tax law changes shifts operations state taxing jurisdictions future operating income levels may however affect ultimate realization deferred income tax assets evaluated qualitative factors uncertainties concerning company industry found provide continuing evidence requiring valuation allowance currently recognize related realization tax benefit net operating loss tax credit carryforwards december 31 2006 note 13 commitments contingencies litigation claims assessments march 2004 eight purported class action lawsuits relating recombination tracking stocks filed us directors holders pcs common stock seven lawsuits consolidated district court johnson county kansas eighth pending new york voluntarily stayed consolidated lawsuit alleges breach fiduciary duty connection allocations wireline operations wireless operations recombination tracking stocks breach fiduciary duty recombination lawsuit seeks rescind recombination monetary damages december 2006 court denied defendants’ motion dismiss complaint summary judgment granted motion certify class february 2007 court upon reconsideration dismissed count complaint related intracompany allocations requires dismissal complaint three former directors reconsideration class definition court asked parties briefing class certification issue plaintiffs’ request jury trial scheduled september 2007 defendants denied plaintiffs’ allegations intend defend matter vigorously september 2004 us district court district kansas denied motion dismiss shareholder lawsuit alleging 2001 2002 proxy statements false misleading violation federal securities laws extent described new employment agreements certain senior executives without disclosing according allegations replacement executives inevitable allegations made amended complaint lawsuit originally filed 2003 asserted us certain current former officers directors seek recover decline value tracking stocks class period parties stipulated case proceed class action defendants denied plaintiffs’ allegations intend defend matter vigorously allegations original complaint asserted claims defendants former independent auditor dismissed court april 2004 sprint nextel corporation notes consolidated financial statements continued number putative class action cases allege sprint communications company lp failed obtain easements property owners installation fiber optic network 1980’s filed various courts several cases sought certification nationwide classes one case nationwide class certified 2002 nationwide settlement claims approved us district court northern district illinois objectors appealed preliminary approval order seventh circuit court appeals overturned settlement remanded case trial court proceedings parties proceeding litigation andor settlement negotiations state basis 2001 accrued expense reflecting estimated settlement costs suits various suits proceedings claims including purported class actions typical large business enterprise pending us subsidiaries possible determine ultimate disposition proceedings whether resolved consistent beliefs expect outcome proceedings individually aggregate material adverse effect financial condition results operations spectrum reconfiguration obligations february 7 2005 nextel accepted terms conditions report order fcc implemented spectrum reconfiguration plan designed eliminate interference public safety operators 800 mhz band terms report order nextel surrendered spectrum rights 700 mhz spectrum band certain portions spectrum rights 800 mhz band received spectrum rights 19 ghz band spectrum rights different part 800 mhz band undertook pay costs incurred nextel third parties connection reconfiguration plan based fcc’s determination values spectrum rights received relinquished nextel minimum obligation incurred report order 28 billion assumed obligations merged nextel august 2005 report order also provides qualifying costs incur part reconfiguration plan including costs reconfigure infrastructure spectrum positions used offset minimum obligation 28 billion however obligated pay full amount costs relating reconfiguration plan even costs exceed amount result uncertainty regard calculation credit internal network costs well significant number variables outside control particularly regard 800 mhz reconfiguration licensee costs believe reasonably estimate amount paid us treasury see note 7 information operating leases lease various equipment office facilities retail outlets kiosks switching facilities transmitter receiver sites spectrum operating leases noncancelable portion leases ranges monthly 25 years leases exceptions provide automatic renewal options escalations either fixed based consumer price index rent abatements along rent escalations included computation rent expense calculated straightline basis lease term lease term leases includes initial noncancelable term plus least one renewal period exercise related renewal option options reasonably assured cell site leases generally provide initial noncancelable term five seven years five renewal options five years sprint nextel corporation notes consolidated financial statements continued december 31 2006 rental commitments operating leases including lease renewals reasonably assured consisted mainly leases cell switch sites real estate data processing equipment office space commitments future years follows millions total rental expense 18 billion 2006 14 billion 2005 10 billion 2004 communication towers lease transaction may 2005 closed transaction global signal inc global signal acquired exclusive rights lease operate 6500 communications towers owned us negotiated lease term greater remaining terms underlying ground leases 16 years present 32 years assuming successful renegotiation underlying ground leases end current lease terms subleased space 6400 towers global signal sublease arrangement accounted operating lease since maintain ownership towers continue reflect towers consolidated balance sheet closing received proceeds 12 billion recorded liabilities consolidated balance sheet deferred rental income recognized reduction lease expense related subleasing arrangement straightline basis remaining terms underlying ground leases commitments party service contracts connection conducting business december 31 2006 minimum amounts due agreements follows millions amounts actually paid agreements likely higher due variable components agreements significant variable components determine ultimate obligation owed include items hours contracted subscribers factors addition party various arrangements conditional nature obligate us make payments upon occurrence certain events delivery functioning software product environmental compliance environmental compliance remediation expenditures result mainly operation standby power generators telecommunications equipment expenditures arise connection standards compliance permits occasional remediation usually related generators batteries fuel storage although cannot assess certainty impact future compliance remediation sprint nextel corporation notes consolidated financial statements continued obligations believe future environmental compliance remediation expenditures material adverse effect financial condition results operations identified seven former manufactured gas plant sites nebraska currently owned operated us may owned operated entities acquired centel corporation formerly subsidiary embarq agreed share environmental liabilities arising former manufactured gas plant sites three sites part ongoing settlement negotiations administrative consent orders environmental protection agency epa two sites initial site assessments conducted nebraska department environmental quality ndeq regulatory actions followed two remaining sites regulatory action epa ndeq centel entered agreements potentially responsible parties share costs connection five seven sites working assess scope nature sites potential responsibility expected material note 14 segments operate managed two strategic segments wireless long distance segments organized products services may 2006 operated third segment local communications business provided local long distance voice data services classified discontinued operations see note 2 information executives use segment earnings primary measure evaluate segment performance make resource allocation decisions segment earnings defined operating income depreciation amortization severance lease exit costs asset impairments expenses adjusted segment information 2005 2004 include information related segment earnings rather operating income loss primary measure used manage segments years expenses along items operating income loss consolidated statements operations including interest expense income tax expense benefit managed total company basis reflected consolidated results wireless segment includes revenue wide array wireless mobile telephone wireless data transmission services sale wireless equipment wireless segment together remaining pcs affiliates offer digital wireless service 50 states puerto rico us virgin islands long distance segment includes revenue domestic international wireline voice data communication services cable multiple systems operators msos resell long distance service andor use back office systems network assets support telephone services provided cable facilities sprint nextel corporation notes consolidated financial statements continued generally account transactions segments based fully distributed costs believe approximate fair value certain transactions pricing set using market rates segment financial information follows statement operations information sprint nextel corporation notes consolidated financial statements continued balance sheet information 1 revenues eliminated consolidation consist primarily long distance services provided wireless segment resale wireless customers included corporate results historical net revenues related operating costs certain consumer long distance customers transferred embarq connection spinoff operating results previously reported local segment reflect activity date spinoff operating results reflected discontinued operations due continuing involvement consumer long distance customers wholesale long distance agreement embarq agreement became effective date spinoff corporate assets allocated operating segments consist primarily cash equivalents operational headquarters campus assets managed corporate level corporate capital expenditures incurred mainly various administrative assets improvements operational headquarters campus operating expenses related corporate assets allocated segment 2 see note 8 additional information severance lease exit costs asset impairments sprint nextel corporation notes consolidated financial statements continued 3 income expense includes 100 million hurricane costs 2005 13 million recovery fully reserved mci verizon receivables 2004 4 includes assets discontinued operations related embarq 2006 2005 2004 95 service revenue equipment revenue generated within united states 99 property plant equipment united states net operating revenues service products follows 1 revenues eliminated consolidation consist primarily long distance services provided wireless segment resale wireless customers handset purchases wireless segment access wireless network note 15 quarterly financial data unaudited third quarter 2005 third quarter 2006 made acquisitions various companies financial results acquired companies included quarterly financial data either date respective acquisition start month closest acquisitions see note 3 information regarding business combinations sprint nextel corporation notes consolidated financial statements continued 1 third quarter 2006 results presented table include adjustment 52 million 32 million net tax relating reversal excess amortization nextel customer relationship intangible asset previously recognized form 10q period ended september 30 2006 2 sum quarterly earnings per share amounts may equal annual amounts changes weighted average number shares outstanding year note 16 shareholders’ equity articles incorporation authorize 6620000000 shares capital stock follows • 6000000000 shares series 1 voting common stock par value 200 per share • 500000000 shares series 2 voting common stock par value 200 per share • 100000000 shares nonvoting common stock par value 001 per share • 20000000 shares preferred stock par value per share classes common stock series 1 common stock holders series 1 common stock entitled one vote per share matters submitted action shareholders series 2 common stock holders series 2 common stock entitled 10 one vote per share otherwise rights substantially identical series 1 common stock 80 million shares series 2 common stock outstanding december 31 2006 sprint nextel corporation notes consolidated financial statements continued nonvoting common stock 38 million shares nonvoting common stock issued sprintnextel merger august 2005 motorola subsidiary holders nonvoting common shares december 2006 motorola subsidiary exercised right convert nonvoting common shares equal number series 1 common shares resulting 623 million decrease paidin capital reduction treasury shares shown consolidated statements shareholders’ equity dividends paid dividend 0025 per share common stock series 1 common stock series 2 nonvoting common stock quarters 2006 third fourth quarters 2005 paid dividend 0125 per share common stock series 1 first two quarters 2005 quarters 2004 dividend 0125 per share common stock series 2 first two quarters 2005 last three quarters 2004 common stock series 2 issued time recombination pcs common stock fon common stock april 2004 share repurchase program july 25 2006 board directors authorized purchase 60 billion series 1 common stock open market purchases authorization expire upon earlier full repurchase authorized shares first quarter 2008 number shares purchased timing purchases vary throughout purchase period december 31 2006 repurchased 98 million shares series 1 common stock 16 billion average price 1676 per share common stock reserved future grants december 31 2006 series 1 common stock reserved future grants plans providing grant stock options equitybased awards future grants employees stock purchase plan future issuances various arrangements included recombination tracking stock april 23 2004 recombined two tracking stocks share pcs common stock automatically converted 050 shares fon common stock conversion pcs common stock fon common stock resulted increase fon common stock outstanding 5185 million shares april 23 2004 april 23 2004 fon group pcs group ceased exist common stock represents operations assets including wireless long distance segments consolidated financial statements reflect recombination occurred earliest period presented rights plan march 16 2004 entered amended rights agreement rights plan designed provide board directors sufficient time flexibility negotiating leverage adequately evaluate strategic alternatives orderly manner well ensure equal fair treatment shareholders one half right attached share common stock outstanding becomes exercisable upon earlier ten business days person group acquired obtained right acquire transaction approved board directors 15 voting power us ten business days person sprint nextel corporation notes consolidated financial statements continued group announces tender exchange offer 15 voting power rights expire june 25 2007 unless extended earlier redeemed accumulated comprehensive loss components accumulated comprehensive loss follows note 17 adoption staff accounting bulletin 108 effective january 1 2006 adopted sab 108 considering effects prior year misstatements quantifying misstatements current year financial statements sab 108 requires dual approach quantifying misstatements using method quantifies misstatement based amount misstatement originating current year statement operations well method quantifies misstatement based effects correcting misstatement existing balance sheet prior adoption sab 108 quantified misstatements consolidated financial statements using statement operations method addition evaluating qualitative characteristics method focuses solely statement operations lead accumulation misstatements balance sheet may become material recorded particular period fourth quarter 2006 discovered lease accounting misstatements process migrating 30000 leases single lease accounting system process identified previously accurately calculating straightline impact operating lease expense accurately following definition lease term minor number leases specifically certain rent escalation clauses included minimum lease payment streams certain leases lease term certain leases include reasonably assured renewal periods misstatements accumulated several years immaterial quantifying misstatements using statement operations method upon adoption sab 108 january 1 2006 recorded 81 million increase deferred rent liability cumulative misstatements december 31 2005 accordingly reduced retained earnings 50 million recorded 31 million deferred tax asset related 2006 misstatement 17 million 10 million net tax recorded fourth quarter 2006 note 18 subsequent events dividend declaration february 27 2007 board directors declared dividend 0025 per share common shares payable march 30 2007 shareholders record close business march 9 2007 debt retirement january 2007 completed redemption iwo senior secured floating rate notes due 2012 150 million aggregate principal amount outstanding december 31 2006 153 million cash committed redeem march 1 2007 420 million 9875 notes due 2011 sprint nextel corporation notes consolidated financial statements continued 451 million cash notes issued ubiquitel operating company whollyowned subsidiary accordingly reclassified 570 million longterm debt current december 31 2006 severance 2007 expect substantially complete transition unified customer care financial systems device activation billing service platforms step completing integration initiatives associated sprintnextel merger pcs affiliate nextel partners acquisitions resulting efficiencies along business simplification process improvement initiatives expected enable us streamline cost structure result intend reduce fulltime headcount primarily first quarter 2007 remainder yearend reduction work force completed using combination involuntary voluntary separation plans currently expect record majority severance liability corresponding charge severance expense currently cannot estimated first quarter 2007 sprint nextel corporation schedule ii valuation qualifying accounts years ended december 31 2006 2005 2004 schedule reflects continuing operations 1 amounts charged accounts consist receivable reserves billing collection services provide certain pcs affiliates uncollectible accounts recovered affiliates 2005 2006 amounts include allowance recorded merger nextel pcs affiliate nextel partners acquisitions 2 accounts written net recoveries 3 amount represents increases valuation allowance deferred tax assets related primarily purchase price allocations sprintnextel merger pcs affiliate nextel partners acquisitions 4 amount represents valuation allowances longer required due utilization expiration income tax carryforwards item 15 exhibits financial statement schedules 1 consolidated financial statements sprint nextel corporation filed part report listed index consolidated financial statements 2 consolidated financial statements clearwire corporation filed part report listed index consolidated financial statements 3 exhibits filed part report listed exhibit index signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized sprint nextel corporation registrant daniel r hesse daniel r hesse chief executive officer president date february 28 2013 pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities indicated 28th day february 2013 daniel r hesse daniel r hesse chief executive officer president principal executive officer joseph j euteneuer joseph j euteneuer chief financial officer principal financial officer ryan h siurek ryan h siurek vice president controller principal accounting officer signatures sprint nextel corporation registrant pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities indicated 28th day february 2013 james h hance jr v janet hill james h hance jr chairman v janet hill director robert r bennett frank ianna robert r bennett director frank ianna director gordon bethune svenchrister nilsson gordon bethune director svenchrister nilsson director larry c glasscock william r nuti larry c glasscock director william r nuti director daniel r hesse rodney oneal daniel r hesse director rodney oneal director exhibit index filed furnished required schedules andor exhibits filed furnished sec upon request sprint furnish sec upon request copies instruments defining rights holders longterm debt exceeding 10 total assets sprint nextel corporation index consolidated financial statements report independent registered public accounting firm board directors shareholders sprint nextel corporation audited accompanying consolidated balance sheets sprint nextel corporation subsidiaries december 31 2012 2011 related consolidated statements comprehensive loss cash flows shareholders equity years threeyear period ended december 31 2012 also audited sprint nextel corporations internal control financial reporting december 31 2012 based criteria established internal control integrated framework issued committee sponsoring organizations treadway commission coso sprint nextel corporations management responsible consolidated financial statements maintaining effective internal control financial reporting assessment effectiveness internal control financial reporting included managements report internal control financial reporting responsibility express opinion consolidated financial statements opinion companys internal control financial reporting based audits audit financial statements clearwire corporation consolidated subsidiary clearwire communications llc collectively clearwire 504 owned investee company sprint nextel corporations investment clearwire included 674 million 17 billion december 31 2012 december 31 2011 respectively equity losses clearwire included 11 billion 17 billion 13 billion years 2012 2011 2010 respectively financial statements clearwire audited auditors whose report furnished us opinion insofar relates amounts included clearwire based solely report auditors conducted audits accordance standards public company accounting oversight board united states standards require plan perform audits obtain reasonable assurance whether financial statements free material misstatement whether effective internal control financial reporting maintained material respects audits consolidated financial statements included examining test basis evidence supporting amounts disclosures financial statements assessing accounting principles used significant estimates made management evaluating overall financial statement presentation audit internal control financial reporting included obtaining understanding internal control financial reporting assessing risk material weakness exists testing evaluating design operating effectiveness internal control based assessed risk audits also included performing procedures considered necessary circumstances believe audits provide reasonable basis opinions companys internal control financial reporting process designed provide reasonable assurance regarding reliability financial reporting preparation financial statements external purposes accordance generally accepted accounting principles companys internal control financial reporting includes policies procedures 1 pertain maintenance records reasonable detail accurately fairly reflect transactions dispositions assets company 2 provide reasonable assurance transactions recorded necessary permit preparation financial statements accordance generally accepted accounting principles receipts expenditures company made accordance authorizations management directors company 3 provide reasonable assurance regarding prevention timely detection unauthorized acquisition use disposition companys assets could material effect financial statements inherent limitations internal control financial reporting may prevent detect misstatements also projections evaluation effectiveness future periods subject risk controls may become inadequate changes conditions degree compliance policies procedures may deteriorate opinion based audits report auditors consolidated financial statements referred present fairly material respects financial position sprint nextel corporation subsidiaries december 31 2012 2011 results operations cash flows years threeyear period ended december 31 2012 conformity us generally accepted accounting principles also opinion sprint nextel corporation maintained material respects effective internal control financial reporting december 31 2012 based criteria established internal control integrated framework issued committee sponsoring organizations treadway commission sprint nextel corporation adopted accounting guidance regarding presentation consolidated statement comprehensive loss 2011 testing indefinitelived intangible assets impairment 2012 kpmg llp kansas city missouri february 28 2013 sprint nextel corporation consolidated balance sheets see notes consolidated financial statements sprint nextel corporation consolidated statements comprehensive loss see notes consolidated financial statements sprint nextel corporation consolidated statements cash flows see notes consolidated financial statements sprint nextel corporation consolidated statements shareholders equity millions 1 see note 14 information regarding common shares see notes consolidated financial statements sprint nextel corporation notes consolidated financial statements index sprint nextel corporation notes consolidated financial statements note 1 description operations sprint nextel corporation including consolidated subsidiaries “sprint” “we” “us” “our” “company” communications company offering comprehensive range wireless wireline communications products services designed meet needs individual consumers businesses government subscribers resellers organized operations meet needs targeted subscriber groups focused communications solutions incorporate capabilities wireless wireline services wireless segment includes retail wholesale affiliate service revenue wide array wireless voice data transmission services equipment revenue sale wireless devices accessories us puerto rico us virgin islands wireline segment includes revenue domestic international wireline voice data communication services including services cable multiple systems operators resell local long distance services use back office systems network assets support telephone service provided cable facilities primarily residential enduse subscribers note 2 summary significant accounting policies information consolidation policies estimates consolidated financial statements include accounts wholly owned subsidiaries control controlling financial interest significant intercompany transactions balances eliminated consolidation investments sprint maintains majority ownership lacks full decision making ability major issues accounted using equity method sprints significant equity investment clearwire sprint controlling vote ability control operating financial policies consolidated financial statements prepared conformity accounting principles generally accepted united states gaap requires management company make estimates assumptions affect reported amounts assets liabilities revenues expenses disclosure contingent assets liabilities date consolidated financial statements estimates inherently subject judgment actual results could differ certain prior period amounts reclassified conform current period presentation subsequent events evaluated disclosure date financial statements filed securities exchange commission sec summary significant accounting policies cash equivalents cash equivalents generally include highly liquid investments maturities time purchase three months less investments may include money market funds certificates deposit us government governmentsponsored debt securities corporate debt securities municipal securities bankrelated securities credit debit card transactions process allowance doubtful accounts allowance doubtful accounts established cover probable reasonably estimable losses number subscriber accounts practical review collectibility accounts individually determine amount allowance doubtful accounts period although account level analysis performed respect large wireless wireline subscribers estimate allowance doubtful accounts considers number factors including collection experience aging accounts receivable portfolios credit quality subscriber base qualitative considerations including macroeconomic factors amounts written allowance doubtful accounts net recoveries adjustments 549 million 519 million 437 million 2012 2011 2010 respectively sprint nextel corporation notes consolidated financial statements device accessory inventory inventories stated lower cost market cost determined firstin firstout fifo method costs devices related revenues generated device sales equipment net subsidy recognized time sale expected equipment net subsidy recognized prior time sale promotional discount decision generally made point sale equipment net subsidies expected recovered service revenues net realizable value devices inventory analyzed regular basis analysis includes assessing obsolescence sales forecasts product life cycle marketplace considerations assessments regarding factors adversely change may required sell devices higher subsidy potentially record expense future periods prior point sale property plant equipment property plant equipment ppe including improvements extend useful lives recognized cost depreciation property plant equipment generally calculated using straightline method based estimated economic useful lives 3 30 years buildings improvements network equipment site costs related software 3 12 years nonnetwork internal use software office equipment leasehold improvements depreciated shorter lease term estimated useful life respective assets calculate depreciation certain network assets using group life method accordingly ordinary asset retirements disposals assets charged accumulated depreciation gain loss recognized gains losses associated asset retirements disposals recognized consolidated statements comprehensive loss depreciation rates assets revised periodically account changes related managements strategic objectives technological changes obsolescence repair maintenance costs research development costs expensed incurred capitalize costs network nonnetwork software developed obtained internal use application development stage costs included ppe software placed service depreciated estimated useful lives 3 5 years costs incurred preliminary project postimplementation stage well maintenance training costs expensed incurred investments shortterm investments recognized amortized cost classified current assets consolidated balance sheets original maturities purchase greater three months less one year certain investments accounted using equity method based companys ownership interest ability exercise significant influence accordingly initial investment recognized cost subsequently adjusted recognize companys share earnings losses investee reporting period subsequent investment date equity method investments evaluated otherthantemporary impairment regular basis otherthantemporary impairment occurs estimated fair value investment carrying value difference determined recoverable evaluation requires significant judgment regarding among things severity duration decline value ability intent hold securities recovery financial condition liquidity nearterm prospects issuer specific events factors longlived asset impairment sprint evaluates longlived assets including intangible assets subject amortization impairment whenever events changes circumstances indicate carrying amount asset group may recoverable asset groups determined lowest level identifiable cash flows largely independent cash flows groups assets liabilities probable undiscounted future cash flows sufficient recover asset groups carrying amount impairment determined excess asset groups net carrying value estimated fair value refer note 9 additional information asset impairments sprint nextel corporation notes consolidated financial statements certain assets yet deployed business including network equipment cell site development costs software development periodically assessed determine recoverability network equipment cell site development costs expensed whenever events changes circumstances cause company conclude assets longer needed meet managements strategic network plans deployed software development costs expensed longer probable software project deployed network equipment removed network also periodically assessed determine recoverability continue operational challenges including retaining attracting subscribers future cash flows company may sufficient recover carrying value wireless asset group could record asset impairments material sprints consolidated results operations financial condition 2012 assessed recoverability wireless asset group includes tangible intangible longlived assets subject amortization well indefinitelived intangible assets included cash flow projections wireless operations along cash flows associated eventual disposition longlived assets included estimated proceeds assumed sale federal communications commission fcc licenses intangible assets indefinitelived intangible assets indefinitelived intangible assets primarily consist goodwill fcc licenses acquired primarily fcc auctions business combinations deploy wireless services certain trademarks goodwill represents excess consideration paid estimated fair value net tangible identifiable intangible assets acquired business combinations determining whether intangible asset goodwill indefinitelived consider expected use assets regulatory economic environment within used effects obsolescence use assess indefinitelived intangible assets impairment least annually necessary frequently whenever events changes circumstances indicate asset may impaired indicators may include sustained significant decline market capitalization since previous impairment assessment significant decline expected future cash flows significant adverse change legal factors business climate unanticipated competition andor slower growth rates among others benefit plans provide defined benefit pension plan certain postretirement benefits certain employees sponsor defined contribution plan employees december 31 2012 2011 fair value pension plan assets certain postretirement benefits aggregate 16 billion 14 billion respectively fair value projected benefit obligations aggregate 27 billion 22 billion respectively result plans underfunded approximately 11 billion 800 million december 31 2012 2011 respectively recorded net liability consolidated balance sheets estimated contributions totaling approximately 3 million expected paid 2013 offset pension liability recorded equity component accumulated comprehensive loss net tax including 2012 2011 net actuarial loss 404 million 349 million respectively amortized selling general administrative sprints consolidated statement comprehensive loss change net liability plan 2012 affected primarily decrease discount rate 54 43 used estimate projected benefit obligation intend make future cash contributions pension plan amount necessary meet minimum funding requirements according applicable benefit plan regulations december 31 2005 pension plan amended freeze benefit plan accruals participants objective investment portfolio pension plan achieve longterm nominal rate return net fees exceeds plans longterm expected rate return investments funding purposes 80 2012 meet objective investment strategy 2012 governed asset allocation policy whereby targeted allocation percentage assigned asset class follows 50 us equities 15 sprint nextel corporation notes consolidated financial statements international equities 15 fixed income investments 10 real estate investments 10 investments including hedge funds actual allocations allowed deviate target allocation percentages plus minus 5 january 1 2013 target allocation percentage assigned asset class revised follows 41 us equities 18 international equities 21 fixed income investments 10 real estate investments 10 investments including hedge funds longterm expected rate return investments funding purposes 2013 775 investments pension plan measured fair value recurring basis determined using quoted market prices estimated fair values december 31 2012 54 investment portfolio valued quoted prices active markets identical assets 28 valued using quoted prices similar assets active inactive markets observable inputs 18 valued using unobservable inputs supported little market activity defined contribution plan participants may contribute portion eligible pay plan payroll withholdings 2012 2011 company matched 50 participants contributions 2 eligible compensation total 30 million 31 million respectively fixed matching contributions company also made discretionary matching contributions determined board directors company equal 100 participants contributions 395 eligible compensation 60 million 12 eligible compensation 20 million 2012 2011 respectively based upon attainment certain profitability levels 2010 amount matching contribution discretionary determined board directors company based upon formula related profitability company resulting match equal 100 participants contributions 07 eligible compensation totaling 9 million revenue recognition operating revenues primarily consist wireless service revenues generated device accessory sales revenues wholesale operators third party affiliates well long distance voice data internet revenues service revenues consist fixed monthly recurring charges variable usage charges miscellaneous fees activation fees directory assistance roaming equipment protection late payment early termination charges certain regulatory related fees net service credits recognize service revenues services rendered equipment revenue title risk loss passes indirect dealer enduse customer assuming revenue recognition criteria met incentives retain acquire subscribers new devices discounted prices recorded reduction equipment revenue upon activation device service contract recognize revenue access charges services charged fixed amounts ratably service period net credits adjustments service discounts billing disputes fraud unauthorized usage recognize excess wireless voice usage long distance revenue contractual rates per minute minutes used additionally recognize excess wireless data usage based kilobytes onetime use charges use premium services rendered result cutoff times multiple billing cycles month required estimate amount subscriber revenues earned billed end billing cycle end reporting period estimates based primarily rate plans effect historical usage billing patterns regulatory fees costs recorded gross largest component regulatory fees universal service fund represented 2 net operating revenues 2012 2011 2010 accounting estimates related recognition revenue results operations require us make assumptions future billing adjustments disputes subscribers unauthorized usage future returns mailin rebates device sales dealer commissions cash consideration given us dealer enduse customer presumed reduction revenue unless receive identifiable benefit exchange consideration fair value benefit reasonably estimated case consideration recorded selling expense compensate dealers using specific compensation programs related sale devices subscriber sprint nextel corporation notes consolidated financial statements service contracts commission earned dealer solely due selling activity relating wireless service cost recorded selling expense commission earned dealer due dealer selling one devices cost recorded reduction equipment revenue commissions generally earned upon sale device service enduse subscriber incentive payments dealers sales associated devices service contracts classified contrarevenue extent incentive payment reimbursement loss device selling expense amount associated selling effort incentive payments certain indirect dealers purchase iphone® directly apple recognized selling expense device activated sprint service plan sprint recognize equipment revenue cost products transactions severance exit costs liabilities severance exit costs recognized based upon nature cost incurred involuntary separation plans completed within guidelines written involuntary separation plan liability recognized probable reasonably estimable voluntary separation plans vsp liability recognized vsp irrevocably accepted employee onetime termination benefits additional severance pay benefit payouts exit costs lease termination costs liability measured recognized initially fair value period liability incurred subsequent changes liability recognized adjustments period change severance exit costs associated business combinations recorded results operations incurred compensation plans december 31 2012 sprint sponsored three incentive plans 2007 omnibus incentive plan 2007 plan 1997 longterm incentive program 1997 program nextel incentive equity plan nextel plan together compensation plans first quarter 2012 management incentive stock option plan misop became deregistered outstanding options expired sprint also sponsors employee stock purchase plan espp 2007 plan may grant share nonshare based awards including stock options stock appreciation rights restricted stock restricted stock units performance shares performance units equitybased cash awards employees outside directors eligible individuals defined plan compensation committee board directors one executive officers compensation committee authorize provided 2007 plan determine terms share nonshare based award new grants made 1997 program nextel plan use new shares satisfy sharebased awards treasury shares available fair value option award estimated grant date using blackscholes option valuation model based several assumptions including riskfree interest rate volatility expected dividend yield expected term 2012 company granted 12 million stock options weighted average grant date fair value 122 per share based upon assumptions risk free interest rate 115 weighted average expected volatility 594 expected dividend yield 0 expected term 6 years general options granted exercise price equal market value underlying shares grant date vest annual basis three four years contractual term ten years december 31 2012 63 million options outstanding 39 million options exercisable fair value restricted stock unit award calculated using share price date grant restricted stock units generally performance service requirements service requirements vesting periods ranging one three years employees directors granted restricted stock units required pay shares generally must remain employed us continue serve member board directors restrictions lapse typically three years employees one year directors certain restricted stock units outstanding december 31 2012 entitled dividend equivalents paid cash dividends declared paid common shares performancebased restricted stock units entitled dividend equivalent payments applicable performance service criteria met 2012 company granted 13 million performancebased restricted stock units weighted average grant date fair value 223 per share 15 million awards outstanding december 31 2012 sprint nextel corporation notes consolidated financial statements compensation costs cost employee services received exchange sharebased awards classified equity measured using estimated fair value award date grant cost recognized period award recipient required provide service exchange award awards instruments classified liabilities measured estimated fair value reporting date settlement sharebased compensation cost related awards graded vesting recognized using straightline method pretax share nonshare based compensation charges incentive plans included net loss 82 million 2012 73 million 2011 70 million 2010 net income tax benefit expense recognized consolidated financial statements sharebased compensation awards 14 million 2012 13 million 2011 18 million 2010 december 31 2012 39 million total unrecognized compensation cost related nonvested incentive awards expected recognized weighted average period 171 years advertising costs recognize advertising expense incurred selling general administrative expense advertising expenses totaled 14 billion years ended december 31 2012 2011 2010 new accounting pronouncements may 2011 financial accounting standards board fasb issued authoritative guidance regarding fair value measurement amendments achieve common fair value measurement disclosure requirements us gaap ifrss resulted common requirements measuring fair value disclosing information fair value measurement us gaap international financial reporting standards ifrs including consistent definition term fair value amendments effective beginning first quarter 2012 material effect consolidated financial statements december 2011 fasb issued authoritative guidance regarding disclosures offsetting assets liabilities requires common disclosure requirements allow investors better compare assess effect offsetting arrangements financial statements prepared us gaap financial statements prepared ifrs standard effective beginning first quarter 2013 requires retrospective application affect disclosures footnotes financial statements october 2012 fasb tentatively decided limit scope authoritative guidance derivatives repurchase agreements securities lending securities borrowing arrangements january 2013 fasb issued additional clarifying guidance limited scope disclosure requirements derivatives repurchase agreements reverse purchase agreements securities borrowing securities lending transactions either offset accordance specific criteria contained us gaap subject master netting arrangement similar agreement based scope revision expect authoritative guidance impact existing disclosures july 2012 fasb issued authoritative guidance regarding testing indefinitelived intangible assets impairment intended reduce cost complexity annual impairment test indefinitelived intangible assets providing entities option performing elective qualitative assessment determine whether impairment testing necessary standard effective annual interim indefinitelived intangible asset impairment tests performed beginning first quarter 2013 early adoption permitted certain circumstances early adopted provisions standard part annual assessment indefinitelived intangible assets effect financial statements note 3 proposed business transactions acquisitions softbank transaction october 15 2012 sprint entered agreement plan merger agreement softbank corp kabushiki kaisha organized existing laws japan certain whollyowned subsidiaries together softbank addition october 15 2012 sprint softbank entered bond purchase agreement bond agreement sprint nextel corporation notes consolidated financial statements bond agreement pursuant bond agreement october 22 2012 sprint issued convertible bond new sprint face amount 31 billion stated interest rate 1 maturity date october 15 2019 convertible 590476190 shares sprint common stock 525 per share approximately 164 upon conversion bond based sprint common shares outstanding december 31 2012 subject adjustment accordance terms bond agreement conversion feature remains effect event merger close interest bond due payable cash semiannually arrears april 15 october 15 year commencing april 15 2013 upon receipt regulatory approval bond converted sprint shares immediately prior consummation softbank merger may otherwise converted prior termination merger agreement conversion bond subject case receipt required approvals subject certain exceptions receipt waivers companys existing credit facilities subject certain exceptions softbank may transfer bond without sprints consent merger agreement upon consummation softbank merger subject various conditions including sprint shareholder regulatory approval softbank fund new sprint additional capital approximately 170 billion approximately 121 billion distributed sprint shareholders merger consideration remaining 49 billion held cash balance new sprint general corporate purposes including limited clearwire acquisition pursuant terms subject conditions described merger agreement upon consummation softbank merger outstanding shares sprint common stock except otherwise provided merger agreement converted election sprint shareholders cash amount equal 730 share sprint common stock ii one share new sprint common stock share sprint common stock subject case proration stockholder may receive combination cash new sprint common stock upon consummation softbank merger softbank receive fiveyear warrant purchase 54579924 shares new sprint 525 per share would yield approximately 300 million proceeds upon exercise upon consummation softbank merger sprint become whollyowned subsidiary new sprint ii new sprint publicly traded company iii softbank indirectly approximately 70 new sprint fully diluted basis iv former shareholders equityholders sprint approximately 30 fully diluted equity new sprint softbank merger subject various conditions including receipt required regulatory approvals approval sprints shareholders expected close mid2013 terms export development canada edc facility secured equipment credit facility revolving credit facility consummation softbank merger would constitute change control would require repayment outstanding balances thereunder amounts outstanding edc facility secured equipment credit facility approximately 796 million aggregate december 31 2012 would become due payable time closing addition 22 billion revolving bank credit facility would expire upon change control approximately 925 million outstanding december 31 2012 letters credit including letter credit required report order see note 13 sprint currently discussions existing lenders intends amend facilities among things exclude softbank merger change control provisions date merger agreement entered approximately 88 billion senior notes guaranteed notes provided holders right require us repurchase notes change control triggering event defined indentures supplemental indentures governing applicable notes occurred included change control ratings decline applicable notes moodys investor services standard poors rating services november 20 2012 sprint announced obtained necessary consents amend applicable provisions outstanding indentures softbank merger would constitute change control result indebtedness outstanding sprints applicable indentures become payable reason completion softbank merger sprint nextel corporation notes consolidated financial statements acquisition assets us cellular november 6 2012 sprint entered definitive agreement united states cellular corporation us cellular acquire pcs spectrum approximately 585000 customers parts illinois indiana michigan missouri ohio including chicago st louis markets 480 million cash sprint agreed connection acquisition reimburse us cellular certain network shutdown costs markets costs expected range 130 million 150 million net present value basis event sprints reimbursement obligation exceed 200 million undiscounted basis additional spectrum used supplement sprints coverage areas sprint us cellular enter transition services agreements condition closing acquisition outline terms services provided us cellular period closing prior transfer acquired customers sprints network transaction subject customary regulatory approvals expected close mid2013 acquisition remaining stake clearwire december 17 2012 sprint entered merger agreement clearwire corporation acquire remaining equity interests clearwire corporation sprint currently approximately 22 billion cash 297 per share clearwire acquisition connection clearwire acquisition clearwire corporation sprint entered agreements provide 800 million additional financing clearwire form exchangeable notes exchangeable clearwire common stock 150 per share subject certain conditions subject adjustment financing agreements sprint agreed purchase 80 million exchangeable notes per month ten months beginning january 2013 monthly purchases subject certain funding conditions including conditions relating approval clearwire acquisition clearwires shareholders parties agreeing network build plan january 31 2013 sprint clearwire entered amendment financing agreement extended date parties agree network build plan january 31 2013 february 28 2013 clearwire acquisition subject customary regulatory approvals contingent consummation softbank merger expected close mid2013 february 26 2013 sprint clearwire amended exchangeable notes agreement remove network build condition sprints obligation provide financing last three draws august september october 2013 accordingly clearwire option eligible last three draws totaling 240 million addition clearwire provided first notification sprint election draw 80 million terms financing agreements march 2013 note 4 investments components investments follows marketable equity securities investments marketable equity securities recognized fair value considered availableforsale securities accordingly unrealized holding gains losses securities recognized accumulated comprehensive loss net related income tax realized gains losses measured reclassified accumulated comprehensive loss income expense net sprints consolidated statement comprehensive loss based identifying specific investments sold otherthantemporary impairment exists sprint nextel corporation notes consolidated financial statements equity method investment clearwire sprints ownership interest sprints investment clearwire corporation consolidated subsidiary clearwire communications llc together clearwire one ways participate fourth generation 4g wireless broadband market sprint offers certain 4g products utilizing clearwires 4g wireless worldwide interoperability microwave access wimax broadband network available markets december 11 2012 sprint purchased equity holdings one clearwires equityholders eagle river holdings llc eagle river 100 million cash holdings represented 309 million shares clearwire corporation class common stock 27 million shares clearwire communications llc class b interests together “interests” purchase sprint held 504 noncontrolling voting interest 21 noncontrolling economic interest clearwire corporation well 483 noncontrolling economic interest clearwire communications llc together “equity interests” clearwire equityholders agreement sprint nominate seven thirteen directors clearwire board upon closing eagle river purchase sprint longer subject requirement one seven designees independent sprint addition upon closing composition remaining board seats modified number independent directors nominating governance committee clearwire board nominate clearwire board increased two three number directors remaining investors right nominate clearwire board clearwire equityholders agreement reduced four three directors sprint continue account ownership interests clearwire equity method accounting given substantive participative governance rights provided minority holders clearwire restrict sprint exerting control clearwires operations carrying value equity interests totaled 674 million december 31 2012 addition equity interests sprint held two notes receivable clearwire december 31 2012 january 2 2012 conjunction new longterm pricing agreements within mobile virtual network operator mvno agreement reached two companies fourth quarter 2011 sprint provided 150 million clearwire exchange promissory note stated interest rate 115 matures two installments 75 million plus accrued interest january 2013 january 2014 difference fair value note face value date issuance recorded prepaid expense amortized service period cost service sprint sole discretion choose offset amounts payable clearwire promissory note amounts owed sprint mvno agreement action taken installment due january 2013 additionally sprint holds note receivable clearwire issued 2008 fixed interest rate 12 maturity date december 2015 total carrying value notes receivable includes accretion related premiums notes fees associated 2009 replacement 2008 note 320 million 178 million december 31 2012 2011 respectively carrying value sprints equity interests together longterm portion carrying value notes receivable included line item investments sprints consolidated balance sheets current portion carrying value notes receivable included line item prepaid expenses current assets sprints consolidated balance sheets equity losses summarized financial information equity losses clearwire 11 billion 17 billion 13 billion years ended december 31 2012 2011 2010 respectively sprints losses investment clearwire consist sprints share clearwires net loss adjustments noncash impairment sprints investment gains losses associated dilution sprints ownership interest resulting clearwires equity issuances items recognized clearwire corporation affect sprints economic interest sprints equity losses clearwire 2012 2011 2010 include charges approximately 41 million 361 million 97 million respectively associated clearwires writeoff certain network assets longer meet strategic plans years ended december 31 2012 2011 also include pretax impairment 204 million 135 million respectively reflecting sprints reduction carrying value investment sprint nextel corporation notes consolidated financial statements clearwire estimate fair value pretax dilution loss 27 million year ended december 31 2011 december 31 2012 proportionate share underlying net assets clearwire exceeds carrying value equity investment approximately 275 million primarily related noncash impairments recognized current prior periods summarized financial information clearwire follows sprints recoverability financial reporting measurement date evaluate excess sprints carrying value estimated fair value investment clearwire determine excess implied unrealized loss otherthantemporary evaluation considers among things observable unobservable inputs including clearwires market capitalization historical volatility associated clearwires common stock duration decline clearwires average trading stock price sprints carrying value potential tax benefits governance rights associated noncontrolling voting interest expectation duration ongoing relationship well factors determination estimate fair value nonpublic security noncontrolling economic interest subject significant judgment uncertainty clearwire relatedparty transactions sprints equity method investment clearwire includes agreements resell wireless data services utilizing clearwires 4g network addition clearwire utilizes third generation 3g sprint network provide dualmode service customers areas access 4g wimax network available amounts included consolidated balance sheets related agreement purchase 4g wimax services clearwire december 31 2012 2011 totaled 78 million 5 million respectively prepaid expenses current assets 79 million 77 million respectively accounts payable accrued expense current liabilities cost services products included consolidated statements comprehensive loss related agreement purchase 4g wimax services clearwire totaled 417 million 405 million year ended december 31 2012 2011 respectively immaterial year ended december 31 2010 sprint nextel corporation notes consolidated financial statements note 5 financial instruments cash equivalents accounts notes receivable accounts payable carried cost approximates fair value shortterm investments consisting primarily time deposits commercial paper treasury securities totaling 18 billion 150 million december 31 2012 2011 respectively recorded amortized cost respective carrying amounts approximate fair value fair value marketable equity securities totaling 45 million 43 million december 31 2012 2011 respectively measured recurring basis using quoted prices active markets estimated fair value current longterm debt excluding convertible bond determined based quoted prices active markets using observable inputs derived principally corroborated observable market data estimate fair value convertible bond used convertible bond pricing model based relevant interest rates conversion feature significant inputs observable market significant unobservable inputs used fair value measurement companys convertible bond credit condition company probability timing conversion discount lack marketability significant increases decreases inputs isolation would result significantly lower higher fair value measurement bond 2012 20 billion longterm senior notes transferred estimated fair value using observable inputs estimated fair value using quoted prices active markets result publicly registering private placement senior note offerings following table presents carrying amounts estimated fair values current longterm debt note 6 property plant equipment property plant equipment consists primarily network equipment longlived assets used provide service subscribers first quarter 2012 formalized plans take offair roughly onethird 9600 cell sites total nextel platform middle 2012 remaining sites taken offair june 30 2013 result first quarter 2012 revised estimates shorten expected useful lives nextel platform assets 2013 expected benefit period underlying assets also revised expected timing amount asset retirement obligations second quarter 2012 result progress taking nextel platform sites offair progress toward notifying transitioning customers nextel platform reduced estimated benefit period remaining nextel platform assets middle 2013 resulting incremental depreciation expense period amounts reflected depreciation expense dependent upon expected useful lives assets includes expectation timing assets phased service could result revision decommissioning period addition increasing data usage driven subscribers sprint platform continuing shift subscriber base smartphones expected require additional legacy 3g sprint platform equipment utilized beyond final deployment network visions multimode technology began 2011 expected continue middle 2014 result estimated useful lives equipment shortened compared similar prior capital expenditures date network vision equipment deployed inservice incremental effect accelerated depreciation expense totaled approximately 21 billion year ended december 31 2012 majority related shortened useful lives nextel platform assets connection network vision substantial portion value certain spectrum licenses previously placed service ready intended use qualifying activities performed related network vision interest expense primarily related carrying value spectrum licenses sprint nextel corporation notes consolidated financial statements capitalized construction progress within property plant equipment ceases spectrum ready intended use interest expense capitalized connection construction longlived assets totaled 278 million 413 million 13 million years ended december 31 2012 2011 2010 respectively construction progress including capitalized interest associated network vision expected depreciated using straightline method weighted average useful life approximately eight years assets placed service components property plant equipment related accumulated depreciation follows network equipment site costs related software includes switching equipment cell site towers site development costs radio frequency equipment network software digital fiber optic cable transport facilities transmissionrelated equipment buildings improvements principally consists owned general office facilities retail stores leasehold improvements nonnetwork internal use software office equipment primarily consists furniture information technology systems equipment vehicles construction progress depreciated placed service primarily includes materials transmission related equipment labor engineering site development costs interest costs relating construction development network note 7 intangible assets indefinitelived intangible assets hold 19 gigahertz ghz 800 megahertz mhz 900 mhz fcc licenses authorizing use radio frequency spectrum deploy wireless services long company acts within requirements constraints regulatory authorities renewal extension licenses reasonably certain minimal cost aware technology developed would render spectrum obsolete concluded licenses indefinitelived intangible assets sprint boost mobile trademarks also identified indefinitelived intangible assets 2012 conducted annual assessment estimated fair value indefinitelived intangible assets goodwill determined adjustment necessary sprint nextel corporation notes consolidated financial statements goodwill represents excess consideration paid estimated fair value net tangible identifiable intangible assets acquired business combinations goodwill recoverability assessment carrying value sprints goodwill included wireless segment represents wireless reporting unit estimate fair value wireless reporting unit using discounted cash flow marketbased valuation models fair value wireless reporting unit exceeds net book value goodwill impaired testing necessary net book value wireless reporting unit exceeds estimated fair value estimate fair value goodwill determine amount impairment loss determination estimated fair value wireless reporting unit requires significant estimates assumptions estimates assumptions primarily include limited transactions within wireless industry related control premiums discount rate terminal growth rate operating income depreciation amortization oibda capital expenditure forecasts due inherent uncertainty involved making estimates actual results could differ estimates evaluate merits significant assumption individually aggregate used determine fair value wireless reporting unit reasonableness 2012 conducted annual assessment goodwill determined adjustment necessary intangible assets subject amortization sprints remaining customer relationships amortized using sumofthemonths digits method reduce gross carrying value associated accumulated amortization specified intangible assets become fully amortized 2012 reduced gross carrying value accumulated amortization approximately 107 million associated fully amortized intangible assets primarily related customer relationships connection 2007 acquisition northern pcs intangible assets primarily include certain rights affiliation agreements reacquired connection acquisitions affiliates nextel partners inc amortized remaining terms affiliation agreements straightline basis nextel direct connect virgin mobile trade names amortized straightline basis 2012 conducted assessment recoverability intangible assets subject amortization determined adjustment necessary sprint nextel corporation notes consolidated financial statements note 8 longterm debt financing capital lease obligations december 31 2012 sprint nextel corporation parent corporation 169 billion principal amount debt outstanding including amounts drawn credit facilities addition december 31 2012 70 billion principal amount longterm debt issued 100 owned subsidiaries fully unconditionally guaranteed parent indentures financing arrangements governing certain subsidiaries debt contain provisions limit cash dividend payments subsidiary common stock transfer cash form advances subsidiaries parent corporation generally restricted december 31 2012 15 billion outstanding debt comprised certain notes financing capital lease obligations mortgages secured 995 million property plant equipment assets net gross book value 14 billion cash interest payments net amounts capitalized 278 million 413 million 13 million totaled 14 billion 10 billion 15 billion years ended december 31 2012 2011 2010 respectively weighted average effective interest rate related notes credit facilities 75 2012 70 2011 notes consist senior notes serial redeemable senior notes guaranteed notes convertible bonds unsecured well secured notes ipcs inc ipcs secured solely underlying assets ipcs cash interest notes generally payable semiannually arrears december 31 sprint nextel corporation notes consolidated financial statements 2012 approximately 198 billion notes redeemable companys discretion thenapplicable redemption prices plus accrued interest december 31 2012 approximately 111 billion senior notes guaranteed notes provide holders right require us repurchase notes change control triggering event defined indentures supplemental indentures governing applicable notes occurs includes change control ratings decline applicable notes moodys investor services standard poors rating services required make change control offer cash payment equal 101 aggregate principal amount notes repurchased plus accrued unpaid interest change control resulting softbank merger excluded triggering event 111 billion senior guaranteed notes subject change control ratings decline debt issuances november 9 2011 company issued 10 billion principal 1150 senior notes due 2021 30 billion principal 900 guaranteed notes due 2018 interest payable semiannually may 15 november 15 company option may redeem either issue notes time prior maturity 2018 guaranteed notes guaranteed companys subsidiaries guarantee revolving bank credit facility edc march 1 2012 company issued 10 billion aggregate principal amount 9125 senior notes due 2017 10 billion aggregate principal amount 700 guaranteed notes due 2020 interest payable semiannually march 1 september 1 company option may redeem either series notes time prior maturity 2020 guaranteed notes guaranteed companys subsidiaries guarantee revolving bank credit facility edc august 14 2012 company issued 15 billion aggregate principal amount 700 senior notes due 2020 interest payable semiannually february 15 august 15 company option may redeem notes time prior maturity october 22 2012 company issued convertible bond starburst ii inc delaware corporation whollyowned subsidiary softbank face amount 31 billion stated interest rate 1 maturity date october 15 2019 convertible 590476190 shares sprint common stock 525 per share approximately 164 upon conversion bond based sprint common shares outstanding december 31 2012 subject adjustment accordance terms bond agreement closing price sprints common stock date bond issuance 568 greater conversion price resulted initial beneficial conversion feature intrinsic value 254 million recognized discount debt additional paidin capital discount accreted stated redemption date debt bonds converted prior bond redemption date unamortized discount recorded interest expense immediately upon conversion interest bond due payable cash semiannually arrears april 15 october 15 year commencing april 15 2013 upon receipt regulatory approval bond converted sprint shares immediately prior consummation merger may otherwise converted prior termination merger agreement conversion bond subject case receipt required approvals subject certain exceptions receipt waivers companys existing credit facilities subject certain exceptions softbank may transfer bond without sprints consent november 14 2012 company issued 228 billion aggregate principal amount 600 senior notes due 2022 interest payable semiannually may 15 november 15 company option may redeem notes time prior maturity debt redemptions january 31 2011 company paid 165 billion principal plus accrued unpaid interest outstanding sprint capital corporation 7625 senior notes scheduled addition december 29 2011 redeemed outstanding 20 billion sprint capital corporation 8375 senior notes due march 2012 sprint nextel corporation notes consolidated financial statements principal plus accrued unpaid interest addition 33 million loss recognized result early retirement june 8 2012 company redeemed 10 billion 1473 billion outstanding nextel communications inc 6875 notes due 2013 plus accrued unpaid interest august 24 2012 company redeemed 473 million outstanding nextel communications inc 6875 notes due 2013 10 billion approximately 21 billion outstanding nextel communications inc 7375 notes due 2015 plus accrued unpaid interest series notes november 19 2012 company redeemed 11 billion outstanding nextel communications inc 7375 notes due 2015 remaining 12 billion principal outstanding nextel communications inc 595 notes due 2014 plus accrued unpaid interest series notes credit facilities may 2012 certain subsidiaries entered 10 billion secured equipment credit facility finance equipmentrelated purchases ericsson network vision cost funds facility includes fixed interest rate 203 export credit agency premiums fees total equate expected effective interest rate approximately 6 based assumptions timing amounts drawdowns facility secured lien equipment purchased fully unconditionally guaranteed parent facility equally divided two consecutive tranches 500 million drawdown availability contingent upon sprints equipmentrelated purchases ericsson maximum tranche first tranche 500 million may drawn upon may 31 2013 second tranche 500 million may drawn upon beginning april 1 2013 may 31 2014 interest fullyamortizing principal payments payable semiannually march 30 september 30 final maturity date march 2017 tranches december 31 2012 drawn approximately 296 million first tranche facility covenants secured equipment credit facility similar revolving bank credit facility edc facility guaranteed notes due 2018 2020 december 31 2012 approximately 925 million letters credit outstanding 22 billion revolving bank credit facility including letter credit required 2004 fcc report order reconfigure 800 mhz band report order result company 13 billion borrowing capacity available revolving bank credit facility december 31 2012 revolving bank credit facility expires october 2013 although expect enter new facility prior expiration terms revolving bank credit facility provide interest rate equal london interbank offered rate libor plus spread varies depending companys credit ratings certain domestic subsidiaries guaranteed revolving bank credit facility companys unsecured loan agreement edc terms similar revolving bank credit facility except terms edc loan repayments outstanding amounts cannot redrawn december 31 2012 edc loan fully drawn addition december 31 2012 204 million available may 31 2013 first tranche secured equipment credit facility although use funds limited equipmentrelated purchases ericsson terms sprints consolidated subsidiaries existing credit facilities change control occurs including softbank merger required repay outstanding balances amount 796 million december 31 2012 edc facility secured equipment credit facility revolving bank credit facility well letters credit issued approximately 925 million revolving bank credit facility sprint intends amend facilities among things exclude softbank merger change control provisions financing capital lease obligations approximately 3000 cell sites sold subsequently leased back terms extend 2021 renewal options additional 20 years cell sites continue reported part property plant equipment due continued involvement property sold transaction accounted financing capital lease obligations primarily use wireless network equipment sprint nextel corporation notes consolidated financial statements covenants december 31 2012 company compliance restrictive financial covenants associated borrowings default borrowings could trigger defaults debt obligations turn could result maturities accelerated certain indentures govern outstanding notes require compliance various covenants including covenants limit companys ability sell substantially assets covenants limit ability company subsidiaries incur indebtedness covenants limit ability company subsidiaries incur liens defined terms indentures currently restricted paying cash dividends ratio total indebtedness trailing four quarters earnings interest taxes depreciation amortization certain nonrecurring items defined credit facilities adjusted ebitda exceeds 25 10 future maturities longterm debt financing obligation capital lease obligations aggregate amount maturities longterm debt financing obligation capital lease obligations outstanding december 31 2012 follows note 9 severance exit costs asset impairments severance exit costs activity 2012 recognized costs 196 million solely attributable wireless segment primarily related lease exit costs associated taking certain nextel platform sites offair 2012 longer expect receive economic benefit also recognized costs 44 million 21 million wireless 23 million wireline cost services products related payments continue made backhaul access contracts longer receiving economic benefit based managements network modernization plan subject change based upon completion proposed business transactions acquisitions see note 3 expect incur significant additional exit costs future continue take nextel platform sites offair transition existing backhaul architecture replacement technology remaining network sites estimate amount lease exit costs recognized future periods sites estimated taken offair 2013 approximately 300 400 million depending upon timing remaining expected contractual payments amount exit costs expected recognized backhaul access contracts cannot estimated time 2011 recognized 28 million 25 million wireless 3 million wireline severance costs associated actions fourth quarter 2011 2010 recognized costs 8 million 11 million wireless offset benefit 3 million wireline primarily related increase exit costs incurred second fourth quarter 2010 associated vacating certain office space longer utilized partially offset reduction estimate total severance costs associated workforce reduction announced november 2009 sprint nextel corporation notes consolidated financial statements following provides activity severance exit costs liability included “accounts payable” “accrued expenses current liabilities” “other liabilities” within consolidated balance sheets asset impairments 2012 2011 2010 recorded asset impairments 102 million 78 million 125 million respectively asset impairments 2012 consisted 18 million assets associated decision utilize fiber backhaul expect cost effective rather microwave backhaul 66 million capitalized assets longer intend deploy result termination spectrum hosting arrangement lightsquared first quarter 2012 18 million related network asset equipment 13 million wireless 5 million wireline longer necessary managements strategic plans asset impairments 2011 2010 primarily related network asset equipment wireless segment longer necessary managements strategic plans sprint nextel corporation notes consolidated financial statements note 10 supplemental financial information 1 includes liabilities amounts 117 million 121 million december 31 2012 2011 respectively checks issued excess associated bank balances yet presented collection sprint nextel corporation notes consolidated financial statements note 11 income taxes income tax expense consists following differences caused effective income tax rates vary 35 federal statutory rate income taxes follows income tax expense benefit allocated items follows 1 amounts recognized accumulated comprehensive loss sprint nextel corporation notes consolidated financial statements deferred income taxes recognized temporary differences carrying amounts assets liabilities financial statement purposes tax bases deferred tax assets also recorded operating loss capital loss tax credit carryforwards sources differences give rise deferred income tax assets liabilities december 31 2012 2011 along income tax effect follows realization deferred tax assets including net operating loss carryforwards dependent generation future taxable income sufficient realize tax deductions carryforwards credits however history consecutive annual losses reduces ability rely expectations future income evaluating ability realize deferred tax assets valuation allowances deferred tax assets recognized determined likely asset realized result company recognized increase valuation allowance 18 billion 13 billion years ended december 31 2012 2011 respectively deferred tax assets primarily related federal state net operating loss carryforwards generated period increase carrying amount sprints valuation allowance years ended december 31 2012 2011 excess amounts recognized change valuation allowance current period income tax expense primarily associated tax effect items reflected comprehensive income accounts expiration net operating loss tax credit carryforwards expect record significant tax benefits future net operating losses circumstances justify recognition benefits believe likely remaining deferred income tax assets net valuation allowance realized based current income tax laws expectations future taxable income stemming reversal existing deferred tax liabilities uncertainties surrounding income tax law changes shifts operations state taxing jurisdictions future operating income levels may however affect ultimate realization deferred income tax assets income tax expense 154 million 254 million 166 million years ended december 31 2012 2011 2010 respectively primarily attributable taxable temporary differences amortization fcc licenses fcc licenses amortized 15 years income tax purposes licenses indefinite life amortized financial statement reporting purposes difference results net deferred income tax expense since taxable temporary difference cannot scheduled reverse loss carryforward period addition 2012 69 million tax benefit recorded result successful sprint nextel corporation notes consolidated financial statements resolution various federal state income tax uncertainties 2011 59 million expense recorded result effect changes corporate state income tax laws 2012 2011 2010 generated 319 million 194 million 210 million respectively foreign income included loss income taxes material unremitted earnings foreign subsidiaries cash paid income taxes net 28 million 35 million 2012 2011 respectively cash refunds income taxes received net 139 million 2010 december 31 2012 federal operating loss carryforwards 108 billion state operating loss carryforwards 149 billion related loss carryforwards recorded federal tax benefits 37 billion net state tax benefits 709 million consideration valuation allowances approximately 971 million federal net operating loss carryforwards expire 2016 2020 remaining 98 billion expire varying amounts 2021 2032 state operating loss carryforwards expire varying amounts 2032 addition available income tax purposes federal alternative minimum tax net operating loss carryforwards 112 billion state alternative minimum tax net operating loss carryforwards 30 billion loss carryforwards expire varying amounts 2032 also available capital loss carryforwards 342 million related capital loss carryforwards tax benefits 126 million capital loss carryforwards 112 million expire 2013 remaining 230 million expires 2014 2017 also available 431 million federal state income tax credit carryforwards december 31 2012 included amount 7 million income tax credits expire prior 2016 294 million expire varying amounts 2016 2032 remaining 130 million expire unrecognized tax benefits established uncertain tax positions based upon estimates regarding potential future challenges positions largest amount greater fifty percent likely realized upon ultimate settlement estimates updated reporting date based facts circumstances information available interest related unrecognized tax benefits recognized interest expense penalties recognized additional income tax expense total unrecognized tax benefits attributable uncertain tax positions december 31 2012 2011 171 million 225 million respectively december 31 2012 total unrecognized tax benefits included items would favorably affect income tax provision 151 million recognized without offsetting valuation allowance adjustment december 31 2012 2011 accrued liability income tax related interest penalties 5 million 26 million respectively reconciliation beginning ending amount unrecognized tax benefits follows file income tax returns us federal jurisdiction state jurisdiction imposes income tax also file income tax returns number foreign jurisdictions however foreign income tax activity immaterial internal revenue service irs completed examination 2007 2008 2009 consolidated income tax returns settlement agreements reached appeals exam division irs examination issues dispute years prior 2010 issues immaterial consolidated financial statements sprint nextel corporation notes consolidated financial statements involved multiple state income tax examinations related various years beginning 1996 various stages examination administrative review appellate process based current knowledge examinations administrative reviews appellate processes believe reasonably possible number uncertain tax positions may resolved next twelve months could result reduction 25 million unrecognized tax benefits note 12 spectrum hosting network vision multimode network technology designed utilize single base station capable handling various spectrum bands including sprints 800 mhz 19 ghz spectrum well spectrum bands owned accessed parties june 2011 entered 15year arrangement lightsquared lp lightsquared inc collectively “lightsquared” terms arrangement conjunction network vision deployment agreed deploy operate lte network capable utilizing 16 ghz spectrum licensed available lightsquared term arrangement service refer “spectrum hosting” arrangement contained contingencies related possible interference issues lightsquareds spectrum including right sprint terminate arrangement certain conditions met lightsquared december 31 2011 received 310 million advanced payments lightsquared future services performed spectrum hosting arrangement march 16 2012 certain conditions met lightsquared elected terminate arrangement future performance obligations respect arrangement recognized 236 million advanced payments operating income within net 2012 also refunded 67 million prepayments lightsquared made cover costs ultimately incurred sprint recognized remaining 7 million within operating income finalization remaining outstanding items subject termination unwind provisions original arrangement addition 2012 impaired approximately 66 million capitalized assets company longer intends deploy result termination spectrum hosting arrangement lightsquared net gain 170 million recorded 2012 substantially offset future periods operating expenses related noncancellable executory contracts vendors company entered contemplation providing spectrum hosting services note 13 commitments contingencies litigation claims assessments march 2009 shareholder brought suit bennett v sprint nextel corp us district court district kansas alleging company three former officers violated section 10b securities exchange act 1934 rule 10b5 failing adequately disclose certain alleged operational difficulties subsequent sprintnextel merger purportedly issuing false misleading statements regarding writedown goodwill plaintiff seeks class action status purchasers common stock october 26 2006 february 27 2008 january 6 2011 court denied motion dismiss subsequently motion certify january 6 2011 order interlocutory appeal denied discovery begun plaintiff moved certify class bondholders well owners common stock opposed motion believe complaint without merit intend defend matter vigorously expect resolution matter material adverse effect financial position results operations addition five related shareholder derivative suits filed company certain present andor former officers directors first murphy v forsee filed state court kansas april 8 2009 removed federal court stayed court pending resolution motion dismiss bennett case second randolph v forsee filed july 15 2010 state court kansas removed federal court remanded back state court third rosswilliams v bennett et al filed state court kansas february 1 2011 fourth price v forsee et al filed state court kansas april 15 2011 fifth hartleib v forsee et al filed federal court kansas july 14 2011 cases sprint nextel corporation notes consolidated financial statements essentially stayed proceed discovery bennett case expect resolution matters material adverse effect financial position results operations april 19 2012 new york attorney general filed complaint alleging sprint fraudulently failed collect pay 100 million new york sales taxes receipts sale wireless telephone services since july 2005 complaint seeks recovery triple damages well penalties interest moved dismiss complaint june 14 2012 motion fully briefed awaiting decision court believe complaint without merit intend defend matter vigorously july 23 2012 sec issued formal order investigation relating companys sales tax collection company cooperating staff sec connection investigation company cannot predict outcome timeframe conclusion sec investigation expect resolution matters material adverse effect financial position results operations addition seven related shareholder derivative suits filed company certain current former officers directors suit alleges generally individual defendants breached fiduciary duties company shareholders allegedly permitting failing disclose actions alleged suit filed new york attorney general one suit filed louisiana municipal police employees retirement system pending federal court new york one suit pending state court johnson county kansas five suits pending federal court kansas six kansas suits stayed agreement among parties defendants filed motion dismiss new york suit september 19 2012 motion fully briefed awaiting ruling court expect resolution matters material adverse effect financial position results operations addition company received several complaints purporting assert claims behalf sprint shareholders alleging members board directors breached fiduciary duties agreeing softbank merger otherwise challenging transaction five cases pending state court johnson county kansas ufcw local 23 employers pension fund et al v bennett et al filed october 25 2012 iron workers midsouth pension fund et al v hesse et al filed october 25 2012 city dearborn heights act 345 police fire retirement system v sprint nextel corp et al filed october 12 2012 testani et al v sprint nextel corp et al filed november 1 2012 patten et al v sprint nextel corp et al filed november 1 2012 one case filed federal court district kansas entitled gerbino et al v sprint nextel corp et al filed november 15 2012 company intends defend cases vigorously cases still preliminary stages yet determined effect lawsuits financial position results operations cash flows company also defendant several complaints filed shareholders clearwire corporation asserting claims breach fiduciary duty sprint related claims otherwise challenging clearwire acquisition four suits pending chancery court delaware crest financial limited v sprint nextel corp et al filed december 12 2012 katsman v prusch et al filed december 20 2012 feigeles et al v clearwire corp et al filed december 28 2012 litwin et al v sprint nextel corp et al filed january 2 2013 one case filed state court king county washington sprint party case two cases sprint party stayed favor delaware proceedings rowe et al v clearwire corp et al filed december 31 2012 company intends defend cases vigorously cases still preliminary stages yet determined effect lawsuits financial position results operations cash flows sprint currently involved numerous court actions alleging sprint infringing various patents cases effectively seek monetary damages small number cases brought companies sell products seek injunctive relief well cases progressed various degrees small number may go trial otherwise resolved adverse resolution cases could require us pay significant damages cease certain activities cease selling relevant products services many circumstances would indemnified monetary losses incur respect actions suppliers service providers expect resolution cases material adverse effect financial position results operations sprint nextel corporation notes consolidated financial statements various suits inquiries proceedings claims either asserted unasserted including purported class actions typical large business enterprise intellectual property matters possible pending us subsidiaries interpretation certain laws regulations including related various federal state matters sales use property taxes charges found mistaken could result payments us possible determine ultimate disposition proceedings whether resolved consistent beliefs expect outcome proceedings individually aggregate material adverse effect financial position results operations spectrum reconfiguration obligations 2004 fcc adopted report order included new rules regarding interference 800 mhz band comprehensive plan reconfigure 800 mhz band “report order” report order provides exchange portion 800 mhz fcc spectrum licenses requires us fund cost incurred public safety systems incumbent licensees reconfigure 800 mhz spectrum band also exchange received licenses 10 mhz nationwide spectrum 19 ghz band however required relocate reimburse incumbent licensees band costs relocation another band designated fcc completed 19 ghz incumbent relocation reimbursement obligations second half 2010 minimum cash obligation 28 billion report order however obligated pay full amount costs relating reconfiguration plan even costs exceed 28 billion required terms report order letter credit secured provide assurance funds available pay relocation costs incumbent users 800 mhz spectrum submit qualified 800 mhz relocation costs fcc review potential letter credit reductions periodic basis result reviews letter credit reduced 25 billion start project 859 million december 31 2012 approved fcc total payments directly attributable performance report order inception program approximately 32 billion 196 million incurred related fcc licenses 2012 incurred costs generally accounted either property plant equipment additions fcc licenses although costs incurred date exceeded 28 billion costs reviewed accepted eligible transition administrator regardless continue estimate total eligible direct costs attributable spectrum reconfigurations exceed minimum cash obligation 28 billion estimate dependent significant assumptions including final licensee costs associated relocating licensees mexican border region currently approved border plan required report order letter credit minimum 850 million largely intended protect relocating licensees well united states treasury antiwindfall payment necessary given significant progress made total amounts spent date remaining forecasted amounts spent licensees sprint believes reasonable allow letter credit reduced 850 million accordingly january 2013 submitted request declaratory ruling fcc requesting two items declare sprint owe antiwindfall payment us treasury exceeded 28 billion required expenditures ii fcc remove 850 million minimum letter credit allow reductions based quarterly estimates remaining obligations request declaratory ruling pending fcc completion 800 mhz band reconfiguration initially required june 26 2008 fcc continues grant 800 mhz public safety licensees additional time complete band reconfigurations turn delays sprints access 800 mhz replacement channels accordingly continue transition 800 mhz replacement channels consistent public safety licensees reconfiguration progress may 24 2012 fcc revised rules authorize sprint deploy wireless broadband services cdma lte 800 mhz spectrum including channels become available sprint upon completion 800 mhz band reconfiguration program anticipate continuing reconfiguration progress sufficient support 800 mhz portion sprint’s network vision rollout sprint nextel corporation notes consolidated financial statements operating leases lease various equipment office facilities retail outlets kiosks switching facilities cell sites operating leases noncancelable portion leases generally ranges monthly 15 years leases exceptions provide automatic renewal options escalations either fixed based consumer price index rent abatements along rent escalations included computation rent expense calculated straightline basis lease term lease term leases includes initial noncancelable term plus least one renewal period noncancelable term less ten years exercise related renewal option options reasonably assured cell site leases generally provide initial noncancelable term five twelve years five renewal options five years 2011 2012 renegotiated cell site leases connection network vision result future operating lease payments related cell sites disclosed 2011 decreased slightly 2012 decrease primarily due fewer sites result shutdown certain nextel network cell sites conjunction network vision rental commitments operating leases including lease renewals reasonably assured consisted mainly leases cell switch sites real estate information technology network equipment office space december 31 2012 operating lease commitments future years follows total rental expense 20 billion 2012 19 billion 2011 18 billion 2010 total rent expense increased 2012 compared 2011 primarily result rent leveling charges associated renegotiated cell site leases 2011 2012 commitments party commitments includes among things service spectrum network capacity executory contracts connection conducting business december 31 2012 minimum estimated amounts due commitments follows amounts actually paid agreements likely higher due variable components agreements significant variable components determine ultimate obligation owed include items hours contracted subscribers factors addition party various arrangements conditional nature obligate us make payments upon occurrence certain events delivery functioning software product sprint nextel corporation notes consolidated financial statements note 14 shareholders equity per share data articles incorporation authorize 6620000000 shares capital stock follows • 6000000000 shares series 1 voting common stock par value 200 per share • 500000000 shares series 2 voting common stock par value 200 per share • 100000000 shares nonvoting common stock par value 001 per share • 20000000 shares preferred stock par value per share classes common stock series 1 common stock holders series 1 common stock entitled one vote per share matters submitted action shareholders 30 billion shares series 1 common stock outstanding december 31 2012 series 2 common stock holders series 2 common stock entitled 10 one vote per share otherwise rights substantially identical series 1 common stock 2011 remaining 35 million series 2 shares converted 35 million series 1 shares resulting 38 million 168 million reduction common shares paidin capital respectively corresponding 206 million reduction treasury shares result shares series 2 common stock outstanding december 31 2012 treasury shares common stock repurchased us recorded cost treasury shares result reduction shareholders equity reissue treasury shares part shareholder approved stockbased compensation programs well upon conversion outstanding securities convertible common stock shares reissued determine cost using fifo method dividends declare dividends common shares 2012 2011 2010 currently restricted paying cash dividends terms revolving bank credit facility described note 8 accumulated comprehensive loss components accumulated comprehensive loss net tax follows sprint nextel corporation notes consolidated financial statements per share data basic loss per common share calculated dividing net loss weighted average number common shares outstanding period diluted earnings loss per common share adjusts basic earnings loss per common share computed using treasury stock method effects potentially dilutive common shares effect antidilutive potentially dilutive common shares issuable equitybased compensation plans average market price exceeded exercise price 44 million 27 million 30 million shares december 31 2012 2011 2010 respectively addition approximately 590 million shares issuable upon conversion convertible bond would also dilutive earnings per common share however potentially dilutive shares antidilutive 2012 2011 2010 therefore effect determination dilutive weighted average number shares outstanding note 15 segments sprint operates two reportable segments wireless wireline • wireless primarily includes retail wholesale affiliate revenue wide array wireless voice data transmission services equipment revenue sale wireless devices accessories us puerto rico us virgin islands • wireline primarily includes revenue domestic international wireline voice data communication services including services cable multiple systems operators resell local long distance services use back office systems network assets support telephone service provided cable facilities primarily residential enduse subscribers define segment earnings wireless wireline operating loss income segment expenses depreciation amortization severance exit costs goodwill impairments asset impairments items solely directly attributable segment representing items nonrecurring unusual nature expense income items excluded segment earnings managed corporate level transactions segments generally accounted based market rates believe approximate fair value company generally reestablishes rates beginning fiscal year past several years industrywide trend lower rates due increased competition wireline wireless communications companies well cable internet service providers sprint nextel corporation notes consolidated financial statements segment financial information follows sprint nextel corporation notes consolidated financial statements 1 intersegment revenues consist primarily wireline services provided wireless segment resale use wireless subscribers 2 2012 net consists 196 million lease exit costs 102 million asset impairment charges partially offset net operating income 236 million associated termination spectrum hosting arrangement lightsquared see note 12 gain 29 million spectrum swap transactions benefit 17 million resulting favorable developments relating access cost disputes associated prior periods 2011 2010 net consists primarily severance exit costs asset impairments offset gains asset dispositions exchanges see note 9 3 includes 45 million hurricanerelated charges 2012 classified consolidated statements comprehensive loss follows 21 million contrarevenue net operating revenues wireless 20 million cost services products 17 million wireless 3 million wireline 4 million selling general administrative expenses wireless also includes 19 million business combination charges fees paid unrelated parties necessary proposed transactions softbank clearwire included corporate segment classified consolidated statements comprehensive loss selling general administrative expenses 4 corporate assets allocated operating segments consist primarily cash equivalents corporate headquarters campus equity method investment clearwire assets managed corporate level corporate capital expenditures include various administrative assets sprint nextel corporation notes consolidated financial statements 1 revenues eliminated consolidation consist primarily wireline services provided wireless segment resale use wireless subscribers 2 wireless services related wireless segment 2012 excludes 21 million hurricanerelated contrarevenue charges reflected net operating revenues consolidated statement comprehensive loss sprint nextel corporation notes consolidated financial statements note 16 quarterly financial data unaudited 1 sum quarterly earnings per share amounts may equal annual amounts changes weighted average number shares outstanding year note 17 subsequent events february 28 2013 entered new 28 billion unsecured revolving credit facility expires february 2018 interest rate equal libor plus spread varies depending company’s credit ratings new credit facility replaced 22 billion revolving credit facility due expire october 2013 report independent registered public accounting firm board directors stockholders clearwire corporation bellevue washington audited accompanying consolidated balance sheets clearwire corporation subsidiaries “company” december 31 2012 2011 related consolidated statements operations cash flows stockholders equity comprehensive loss three years period ended december 31 2012 financial statements responsibility companys management responsibility express opinion financial statements based audits conducted audits accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion consolidated financial statements present fairly material respects financial position clearwire corporation subsidiaries december 31 2012 2011 results operations cash flows three years period ended december 31 2012 conformity accounting principles generally accepted united states america discussed note 1 consolidated financial statements december 17 2012 company entered merger agreement sprint nextel corporation “sprint” pursuant sprint agreed acquire outstanding shares companys common stock currently owned sprint connection merger agreement december 17 2012 company entered financing arrangement sprint see note 1 consolidated financial statements summary terms conditions merger agreement financing arrangement sprint uncertainties associated funding available financing arrangement related potential impact uncertainties companys need liquidity next twelve months deloitte touche llp seattle washington february 13 2013 clearwire corporation subsidiaries consolidated balance sheets see notes consolidated financial statements clearwire corporation subsidiaries consolidated statements operations see notes consolidated financial statements clearwire corporation subsidiaries consolidated statements comprehensive loss see notes consolidated financial statements clearwire corporation subsidiaries consolidated statements cash flows see notes consolidated financial statements clearwire corporation subsidiaries consolidated statements stockholders’ equity years ended december 31 2012 2011 2010 see notes consolidated financial statements clearwire corporation subsidiaries notes consolidated financial statements 1 description business leading provider fourth generation 4g wireless broadband services build operate next generation mobile broadband networks provide highspeed mobile internet residential internet access services communities throughout country current 4g mobile broadband network operates worldwide interoperability microwave access technology 80216e standard refer mobile wimax current 4g mobile broadband markets united states offer services retail channels wholesale partners sprint nextel corporation refer sprint accounts substantially wholesale sales date offers services 4g markets december 31 2012 offered services 88 markets united states internationally december 31 2012 completed sale operations belgium germany spain results operations international entities prior sale separately disclosed discontinued operations need greatly expand revenue base increasing sales existing wholesale partners primarily sprint bring additional wholesale partners substantial requirements additional data capacity supplement services successful either believe necessary deploy long term evolution lte technology currently adopted wireless operators globally including sprint next generation wireless technology network begun deployment lte network 1000 sites air december 31 2012 expect approximately 2000 lte sites air end june 2013 satisfy initial lte prepayment milestone terms recently amended wholesale agreements sprint subject availability funding including proceeds interim financing arrangement provided sprint see plan approximately 5000 sites air end year amended wholesale agreements sprint required expand lte network 5000 sites later june 30 2014 8000 end 2014 proposed sprint merger agreement december 17 2012 entered agreement plan merger sprint refer merger agreement pursuant sprint agreed acquire outstanding shares clearwire corporation class b common stock refer class common stock class b common stock respectively currently owned sprint softbank corp refer softbank affiliates closing outstanding shares common stock canceled converted automatically right receive 297 per share cash without interest stockholders asked vote adoption merger agreement special meeting held date announced consummation transactions merger agreement refer proposed merger subject number conditions precedent including among others adoption merger agreement holders least 75 outstanding shares common stock entitled vote proposed merger voting single class least majority outstanding shares common stock held sprint softbank respective affiliates voting single class duly called stockholders meeting refer clearwire stockholder approval ii receipt federal communications commission refer fcc approvals required consummate proposed merger iii absence order enjoining consummation prohibiting proposed merger iv nonoccurrence event material adverse effect date merger agreement closing proposed merger v consummation sprint pending merger sprint softbank certain affiliates thereof refer softbank transaction alternate transaction thereto merger agreement contains termination rights benefit sprint clearwire provides sprint required pay us termination fee 1200 million certain specified circumstances termination merger agreement obligation pay termination fee satisfied cancellation 1200 million notes refer sprint termination fee described event entitled receive termination fee certain instances may also entitled receive sprint supplemental prepayment lte services january 15 2014 amount 1000 million conditioned upon completion site buildout targets clearwire corporation subsidiaries notes consolidated financial statements pursuant commercial agreement currently effect sprint clearwire prepayment credited certain sprints obligations agreement note purchase agreement connection merger agreement december 17 2012 entered note purchase agreement refer note purchase agreement clearwire communications llc refer clearwire communications clearwire finance inc refer clearwire finance together clearwire communications refer issuers sprint agreed purchase us election aggregate principal amount 8000 million 100 exchangeable notes due 2018 refer notes ten monthly installments 800 million first business day month refer draw date beginning january 2013 pendency proposed merger notes accrue interest 100 per annum exchangeable shares class common stock exchange rate 66667 shares per 1000 aggregate principal amount notes equivalent price 150 per share subject antidilution protections additionally last three draw dates august september october 2013 request sprint purchase notes agreement reached parties accelerated build wireless broadband network refer buildout agreement february 28 2013 ii buildout agreement full force effect iii breached obligations buildout agreement terms note purchase agreement terms notes governed indenture issuers expect enter first draw date refer new indenture terms new indenture substantially similar indenture dated december 8 2010 among issuers guarantors named therein trustee named therein governing issuers existing 825 exchangeable notes due 2040 refer existing indenture issued december 2010 however new indenture notes exchangeable sprint certain equityholders either class common stock class b common stock class b units clearwire communications llc class b units together corresponding class b common stock refer class b interests election notes become exchangeable merger agreement terminated reason except circumstances would receive reject sprint termination fee b proposed merger consummated exchange rate 66667 shares per 1000 aggregate principal amount notes equivalent price 150 per share subject antidilution protections refer exchange rateif merger agreement terminated circumstances would receive reject sprint termination fee 1200 million principal amount notes automatically canceled addition merger agreement terminated softbank transaction consummated option exchange notes remain outstanding exchange rate 15 business days following termination softbank transaction unlike terms existing indenture terms new indenture include option call redeem notes sprint right put notes specified dates note purchase agreement terminated among things mutual consent automatically required vote approve proposed merger obtained stockholders meeting merger agreement terminated due failure softbank transaction breach sprints representations warranties covenants agreements thereunder subject certain conditions provided note purchase agreement terminated due merger agreement terminated reason failure softbank transaction breach representation warranty covenant agreement sprint note purchase agreement terminate upon earlier exercising option exchange notes upon termination ii july 2 2013 however note purchase agreement terminate july 2 2013 buildout agreement reached february 28 2013 buildout agreement full force effect breached obligations buildout agreement december 26 2012 notified sprint intention take first draw january 2013 note purchase agreement following receipt proposal dish network corporation refer dish elected december 28 2012 revoke draw notice prior receiving proceeds draw allow us evaluate dishs proposal sprint subsequently asserted believes draw notice irrevocable reserved rights respect thereto also decided forego second draw february 2013 special committee continues evaluate dishs proposal election forego first two draws note purchase agreement reduced aggregate principal amount available 640 million special committee made determination respect future draws note purchase agreement clearwire corporation subsidiaries notes consolidated financial statements dish proposal signing merger agreement clearwire received unsolicited nonbinding proposal refer dish proposal dish proposal provides dish purchase certain spectrum assets clearwire enter commercial agreement clearwire acquire clearwires common stock 330 per share subject minimum ownership least 25 granting certain governance rights provide clearwire financing specified terms dish proposal preliminary indication interest subject numerous material uncertainties conditions including negotiation multiple contractual arrangements requested dish well regulatory approvals dish proposal provides would withdrawn draw funds available note purchase agreement terms dish proposal currently proposed may permitted terms clearwires current legal contractual obligations additionally ability enter strategic transactions significantly limited current contractual arrangements including agreements sprint executed december 17 2012 refer sprint agreement existing equityholders agreement dated november 28 2008 amended december 8 2010 refer equityholders’ agreement special committee currently evaluating dish proposal engaging discussions dish sprint appropriate special committee made determination change recommendation current sprint transaction consistent obligations sprint agreement provided sprint notice material terms dish proposal received response sprint stated among things sprint reviewed dish proposal believes illusory inferior sprint transaction viable cannot implemented light current legal contractual obligations sprint stated sprint agreement would prohibit us entering agreements much dish proposal liquidity date invested heavily building maintaining networks history operating losses expect significant losses future expect operations generate cumulative positive cash flows next twelve months december 31 2012 available cash shortterm investments approximately 8686 million current lte build plan approximately 2000 lte sites air end june 2013 satisfy initial lte prepayment milestone terms recently amended agreements sprint amended wholesale agreements sprint required expand lte network 5000 sites june 30 2014 subject availability funding note purchase agreement current lte build plans expand lte network 5000 sites end 2013 current lte build plan currently expect satisfy operating financing capital spending needs next twelve months using available cash shortterm investments hand together portion remaining borrowing capacity available note purchase agreement proceeds additional vendor financing discussed previously election forego first two draws note purchase agreement reduced aggregate principal amount available 640 million ability draw portion funds note purchase agreement subject certain conditions additionally last three draw dates august september october 2013 request sprint purchase notes buildout agreement reached february 28 2013 ii buildout agreement full force effect iii breached obligations buildout agreement electing draw least three months borrowing capacity note purchase agreement would sufficient cash borrowing capacity satisfy initial lte prepayment milestone meet operating financing needs next twelve months merger agreement terminate funding beyond three draws note purchase agreement would longer available company without alternative sources additional capital would significantly curtail lte network build plan currently contemplated conserve cash meet operating financing obligations 2013 draw least three months borrowing capacity note purchase agreement obtain similar amount additional financing alternative sources forecast cash shortterm investments would depleted sometime fourth quarter 2013 clearwire corporation subsidiaries notes consolidated financial statements proposed merger fails close reason closing takes longer expect need raise substantial additional capital secure commitments additional wholesale partners significant data capacity needs generate substantial revenues us timely manner fully implement business plans able meet financial obligations continue operate beyond next twelve months amount additional capital needed us proposed merger fails close depend number factors many outside control subject number uncertainties whether would able successfully fulfill additional capital needs timely manner uncertain merger agreement terminates likely pursue various alternatives securing additional capital alternatives include among things obtaining additional equity debt financing number possible sources new existing strategic investors private public offerings vendors however face number challenges recent equity financings dilutive shareholders current trading price class common stock additional equity financings could result significant additional dilution stockholders may generate proceeds need unless able secure required shareholder approvals increase number authorized shares certificate incorporation may enough authorized unissued shares available raise sufficient additional capital equity financing existing level indebtedness including amount financing drawn us note purchase agreement inability issue additional secured indebtedness existing indentures additional debt financings may available acceptable terms even additional debt financings available could increase future financial commitments including aggregate interest payments existing new indebtedness levels find difficult support sources additional capital could include among things sale certain assets believe essential business excess spectrum however ability consummate sale assets would generate sufficient proceeds meet capital needs acceptable terms timely manner uncertain merger agreement terminates unable raise sufficient additional capital fulfill funding needs timely manner fail generate sufficient additional revenue wholesale retail businesses meet obligations beyond next twelve months business prospects financial condition results operations likely materially adversely affected substantial doubt may arise ability continue going concern forced consider available alternatives including financial restructuring could include seeking protection provisions united states bankruptcy code 2 summary significant accounting policies accompanying financial statements prepared accordance accounting principles generally accepted united states america refer us gaap pursuant rules regulations securities exchange commission refer sec following summary significant accounting policies principles consolidation consolidated financial statements include assets liabilities results operations whollyowned subsidiaries control controlling financial interest investments entities control primary beneficiary ability exercise significant influence operating financial policies accounted equity method intercompany transactions eliminated consolidation noncontrolling interests consolidated balance sheets include thirdparty investments entities consolidate wholly classify noncontrolling interests part equity allocate net loss comprehensive income loss equity transactions noncontrolling interests accordance applicable ownership percentages also continue attribute noncontrolling interests share losses even attribution results deficit noncontrolling interest balance see note 15 stockholders equity information financial statement presentation reclassified certain prior period amounts conform current period presentation information operating segments based internal organization reporting revenue operating loss based upon internal accounting methods operating segments defined components enterprise separate financial information available evaluated regularly chief operating decision maker decision making group clearwire corporation subsidiaries notes consolidated financial statements continued deciding allocate resources assessing performance chief operating decision maker chief executive officer operate single reportable segment provider 4g wireless broadband services united states december 31 2012 dispositions assets liabilities related discontinued operations completed see note 18 discontinued operations discussion unless otherwise indicated information notes consolidated financial statements relates continuing operations use estimates preparing financial statements conformity us gaap requires management make complex subjective judgments nature judgments subject inherent degree uncertainty judgments based historical experience terms existing contracts observance trends industry information provided subscribers information available outside sources appropriate additionally changes accounting estimates reasonably likely occur period factors could material impact financial statements presentation financial condition changes financial condition results operations significant estimates inherent preparation accompanying financial statements include impairment analysis spectrum licenses indefinite lives including judgments impairment indicator may occurred estimates fair value spectrum licenses recoverability determination useful lives longlived assets include property plant equipment intangible assets tax valuation allowances valuation derivatives cash equivalents cash equivalents consist money market mutual funds highly liquid shortterm investments original maturities three months less cash equivalents stated cost approximates market value cash equivalents exclude cash contractually restricted operational purposes maintain cash equivalent balances financial institutions exceed federally insured limits experienced losses related balances management believes credit risk related balances minimal restricted cash restricted cash consists primarily amounts set aside satisfy certain contractual obligations classified current noncurrent asset based designated purpose majority restricted cash designated satisfy certain lease obligations investments investment portfolio comprised primarily us government agency marketable debt securities classify marketable debt securities availableforsale investments securities stated estimated fair value investments recorded shortterm investments original maturities greater three months remaining maturities less one year investments maturities one year recorded longterm investments unrealized gains losses recorded within accumulated comprehensive income loss realized gains losses measured reclassified accumulated comprehensive income loss basis specific identification method account certain investments using equity method based ownership interest ability exercise significant influence accordingly record investment initially cost adjust carrying amount investment recognize share earnings losses investee reporting period cease recognize investee losses investment basis zero december 31 2012 2011 balance equity method investees 0 83 million respectively recorded assets consolidated balance sheets recognize realized losses declines fair value investments cost basis judged otherthantemporary determining whether decline fair value otherthantemporary consider various factors including market price investment ratings financial condition nearterm prospects issuer length time extent fair value less cost basis intent ability hold investment maturity period time sufficient allow anticipated recovery market value judged decline fair value otherthantemporary realized loss equal decline reflected consolidated statement operations new cost basis investment established fair value measurements fair value price would received sell asset paid transfer liability orderly transaction market participants measurement date determining fair value consider principal advantageous market asset liability would transact necessary consider assumptions market participants would use pricing asset liability clearwire corporation subsidiaries notes consolidated financial statements continued accounting guidance fair value measurement requires entity maximize use observable inputs minimize use unobservable inputs measuring fair value standard establishes fair value hierarchy based level independent objective evidence surrounding inputs used measure fair value financial assets financial liabilities classified hierarchy based lowest level input significant fair value measurement assessment significance particular input fair value measurement requires judgment may affect valuation assets liabilities measured placement within fair value hierarchy threetier hierarchy inputs used measuring fair value prioritizes inputs used methodologies measuring fair value assets liabilities follows level 1 quoted market prices active markets identical assets liabilities level 2 inputs quoted prices observable asset liability quoted prices similar assets liabilities active markets quoted prices identical assets liabilities less active markets modelderived valuations significant inputs observable derived principally corroborated observable market data level 3 unobservable inputs significant fair value measurement cannot corroborated market data listed prices quotes available fair value based upon internally developed available models primarily use inputs marketbased independently sourced market parameters including limited interest rate curves volatilities equity prices credit curves use judgment determining certain assumptions market participants would use pricing financial instrument including assumptions discount rates credit spreads degree management judgment involved determining fair value dependent upon availability observable market parameters assets liabilities trade actively quoted market prices observable market parameters minimal judgment involved measuring fair value observable market prices parameters fully available management judgment necessary estimate fair value addition changes market conditions may reduce availability reliability quoted prices observable data see note 12 fair value information accounts receivable accounts receivables stated amounts due subscribers wholesale partners net allowance doubtful accounts see note 17 related party transactions information regarding accounts receivable balances related parties inventory primarily consists customer premise equipment refer cpe accessories sold retail subscribers stated lower cost net realizable value cost determined average cost method record inventory writedowns obsolete slowmoving items based inventory turnover trends historical experience property plant equipment property plant equipment excluding construction progress stated cost net accumulated depreciation calculated straightline basis estimated useful lives assets placed service network construction expenditures recorded construction progress network asset placed service time asset transferred appropriate property plant equipment refer ppe category capitalize costs additions improvements including salaries benefits related overhead costs associated constructing ppe interest costs related construction estimated useful life ppe determined based historical usage identical similar equipment consideration given technological changes industry trends could impact network architecture asset utilization leasehold improvements recorded cost amortized lesser estimated useful lives related lease term including renewals reasonably assured included within network base station equipment recorded capital leases generally amortized lease term maintenance repairs expensed incurred ppe assessed impairment whenever events changes circumstances indicate carrying amount asset may recoverable events circumstances exist determine recoverability assets carrying value estimating expected undiscounted future cash flows directly associated expected arise direct result use disposal asset expected undiscounted future cash flows less carrying amount asset loss recognized difference fair value asset carrying value purposes testing impairment longlived assets including ppe intangible assets definite useful lives spectrum license assets combined single asset group represents lowest level identifiable clearwire corporation subsidiaries notes consolidated financial statements continued cash flows largely independent assets liabilities management believes utilizing assets group represents highest best use assets consistent managements strategy utilizing spectrum licenses integrated basis part nationwide network ppe impairment losses recorded years ended december 31 2012 2011 2010 addition analyses described periodically assess certain assets yet deployed networks including equipment cell site development costs classified construction progress assessment includes provision differences recorded amounts results physical counts provision excessive obsolete equipment see note 5 property plant equipment information internally developed software capitalize costs related computer software developed obtained internal use interest costs incurred period development software obtained internal use generally enterpriselevel business finance software customized meet specific operational needs costs incurred application development phase capitalized amortized useful life software placed service generally three years periodically assess capitalized software costs placed service determine whether projects longer expected completed capitalized cost associated projects expected completed written costs recognized preliminary project phase postimplementation phase well maintenance training costs expensed incurred spectrum licenses spectrum licenses primarily include owned spectrum licenses indefinite lives favorable spectrum leases indefinite lived spectrum licenses acquired stated cost amortized owned spectrum licenses united states issued fixed time renewals licenses occurred routinely nominal cost moreover determined currently legal regulatory contractual competitive economic factors limit useful lives owned spectrum licenses therefore licenses accounted intangible assets indefinite lives impairment test intangible assets indefinite useful lives consists comparison fair value intangible asset carrying amount carrying amount intangible asset exceeds fair value impairment loss recognized amount equal excess fair value determined estimating discounted future cash flows directly associated expected arise direct result use eventual disposition asset spectrum licenses indefinite useful lives assessed impairment annually frequently event indicates asset might impaired impairments periods presented indefinite lived intangible assets favorable spectrum leases stated cost net accumulated amortization assessed impairment whenever events changes circumstances indicate carrying amount asset may recoverable carrying value spectrum leases amortized straightline basis estimated useful lives lease term including expected renewal periods applicable impairment losses favorable spectrum leases years ended december 31 2012 2011 2010 intangible assets intangible assets consist subscriber relationships trademarks patents stated cost net accumulated amortization calculated using either straightline method accelerated method assets estimated remaining useful lives intangible assets assessed impairment whenever events changes circumstances indicate carrying amount asset may recoverable impairment losses intangible assets years ended december 31 2012 2011 2010 derivative instruments hedging activities policy hedging activities executed manage exposures arising normal course business purpose creating speculative positions trading record derivatives balance sheet fair value either assets liabilities accounting changes fair value derivatives depends intended use derivative whether qualifies hedge accounting 2010 issued exchangeable notes included embedded exchange options refer exchange options qualified derivative instruments required accounted separately host debt instruments recorded derivative financial instruments fair value embedded exchange options qualify hedge accounting future changes fair value derivative instruments recognized currently earnings time exchange options exercised expire see note 11 derivative instruments information clearwire corporation subsidiaries notes consolidated financial statements continued addition event issuance new equity securities exchangeable convertible capital stock refer new securities certain existing equityholders entitled preemptive rights allow purchase prorata share new securities issuance price less underwriting discounts right considered derivative required recorded fair value see note 11 derivative instruments information debt issuance costs debt issuance costs initially capitalized deferred cost amortized interest expense effective interest method expected term related debt unamortized debt issuance costs related extinguishment debt expensed time debt extinguished recorded income expenses net consolidated statements operations unamortized debt issuance costs considered longterm recorded assets consolidated balance sheets interest capitalization capitalize interest related construction network infrastructure assets well development software internal use capitalization interest commences preconstruction period administrative technical activities includes obtaining leases zoning approvals building permits ceases construction substantially complete available use suspend substantially construction activity interest capitalized construction progress software development interest capitalization based rates applicable borrowings outstanding period balance qualified assets construction period capitalized interest reported cost network assets software assets depreciated useful lives assets see note 5 property plant equipment income taxes record deferred income taxes based estimated future tax effects differences financial statement tax basis assets liabilities using tax rates expected effect temporary differences reverse deferred tax assets also recorded net operating loss capital loss tax credit carryforwards valuation allowances recorded reduce deferred tax assets amount considered likely realized also apply recognition threshold tax position required meet recognized financial statements policy recognize interest related unrecognized tax benefits interest expense interest income recognize penalties additional income tax expense revenue recognition primarily earn revenue providing access highspeed wireless networks also included revenue sales cpe additional addon services 4g mobile broadband markets offer services retail channels wholesale partners believe geographic diversity retail subscriber base minimizes risk incurring material losses due concentration credit risk sprint major wholesale customer accounts substantially wholesale revenues date comprise approximately 36 total revenues year ended december 31 2012 revenue consisted following thousands revenue retail subscribers billed one month advance recognized ratably service period revenues associated sale cpe equipment recognized title risk loss transferred billed shipping handling costs classified revenue arrangements multiple deliverables divided separate units available revenue allocated using vendorspecific objective evidence thirdparty evidence selling prices otherwise estimated selling prices utilized revenue attributable delivered elements recognized currently revenue attributable undelivered elements deferred recognized undelivered elements expected delivered remaining term agreements exception universal service fee refer usf regulatory surcharge taxes fees collected customers excluded revenues usf recorded gross basis included revenues billed clearwire corporation subsidiaries notes consolidated financial statements continued customers usf recorded revenue years ended december 31 2012 2011 2010 28 million 39 million 27 million respectively 2012 substantially wholesale revenues derived agreements sprint november 2011 entered november 2011 4g mvno amendment result minimum payments previous amendment 4g mvno agreement entered sprint april 2011 replaced provisions november 2011 4g mvno amendment november 2011 4g mvno amendment sprint paying us 9259 million unlimited 4g mobile wimax services resale retail subscribers 2012 2013 approximately twothirds paid service provided 2012 remainder paid service provided 2013 9259 million 1759 million paid offset principal interest due 1500 million promissory note see note 17 related party transactions issued us sprint amount due 9000 million recognized straightline basis 2012 2013 remaining 259 million recorded offset interest cost associated promissory note part november 2011 4g mvno amendment also agreed elimination device minimum fees 2011 usage based pricing wimax services 2013 lte service beginning 2012 2011 revenues wholesale subscribers billed one month arrears generally recognized earned based terms defined commercial agreements wholesale partners 2011 substantially wholesale revenues derived agreement sprint agreement revenues earned sprint utilized network usagebased pricing included volume discounts advertising costs advertising costs expensed incurred first time advertising occurs advertising expense 697 million 764 million 2139 million years ended december 31 2012 2011 2010 respectively net loss per share basic net loss per class common share computed dividing net loss attributable clearwire corporation weightedaverage number class common stock outstanding period diluted net loss per class common share computed dividing net loss attributable clearwire corporation weightedaverage number class common stock dilutive class common stock equivalents outstanding period class common stock equivalents generally consist class common stock issuable upon exercise outstanding stock options warrants restricted stock using treasury stock method effects potentially dilutive class common stock equivalents excluded calculation diluted net loss per class common share effect antidilutive two classes common stock class b potential exchange clearwire communications llc class b common interests refer class b common interests together class b common stock class common stock may dilutive effect due certain tax effects “if converted” basis shares issuable upon conversion exchangeable notes may also dilutive effect see note 16 net loss per share information operating leases operating leases spectrum licenses towers certain facilities equipment use operations certain spectrum licenses leased thirdparty holders educational broadband service refer ebs spectrum licenses granted fcc ebs licenses authorize provision certain communications services ebs channels certain markets throughout united states account spectrum leases executory contracts similar operating leases signed leases unmet conditions required become effective amortized conditions met included spectrum licenses accompanying consolidated balance sheets leases require upfront payments leases containing scheduled rent escalation clauses record minimum rental payments straightline basis term lease including expected renewal periods appropriate leases containing tenant improvement allowances rent incentives record deferred rent liability deferred rent amortized term lease including expected renewal periods appropriate reduction rent expense periodically terminate unutilized tower leases early termination available terms lease advise landlords intention renew time notify landlords intention renew recognize ceasetouse tower lease liability based remaining lease rentals adjusted prepaid deferred rent recognized lease reduced estimated sublease rentals could reasonably obtained property see note 3 charges related cost savings initiatives discussion clearwire corporation subsidiaries notes consolidated financial statements continued recent accounting pronouncements following accounting pronouncements adopted year ended december 31 2012 may 2011 financial accounting standards board refer fasb issued new accounting guidance amending fair value measurement achieve common fair value measurement disclosure requirements us gaap international financial reporting standards adopted new accounting guidance january 1 2012 new accounting guidance primarily amended disclosure requirements related fair value measurement adoption impact financial condition results operations june 2011 fasb issued new accounting guidance presentation comprehensive income subsequently revised december 2011 new guidance eliminates current option present components comprehensive income part statement changes stockholders equity instead entity option present total comprehensive income components net income components comprehensive income either single continuous statement comprehensive income two separate consecutive statements adopted new accounting guidance january 1 2012 resulted reporting components comprehensive loss consolidated statements comprehensive loss rather consolidated statements stockholders equity previously reported including retrospective presentation periods presented july 2012 fasb issued new accounting guidance amending impairment testing indefinitelived intangible assets objective amendments reduce cost complexity performing impairment tests indefinitelived intangible assets simplifying entity tests assets impairment improve consistency impairment testing guidance among longlived asset categories amendments permit entity first assess qualitative factors determine whether likely indefinitelived intangible asset impaired basis determining whether necessary perform quantitative impairment test new accounting guidance effective annual interim impairment tests performed fiscal years beginning september 15 2012 elected early adoption new accounting guidance permitted impact financial condition results operations following accounting pronouncements issued fasb year ended december 31 2012 october 2012 fasb issued accounting guidance containing technical corrections improvements accounting standards codification refer codification technical corrections relatively minor corrections clarifications corrections affect various codification topics apply reporting entities within scope topics divided three main categories 1 source literature amendments carry forward original intent certain precodification authoritative literature inadvertently altered codification process 2 guidance clarification reference corrections resulted changes wording references avoid misapplication misinterpretation guidance 3 relocated guidance moved guidance one part codification another correct instances scope precodification guidance may unintentionally narrowed broadened codification process guidance also made conforming changes use term fair value certain precodification standards fasb provide transition guidance codification amendments expected change current practice however amendments substantive effective fiscal periods beginning december 15 2012 still evaluating impact technical corrections financial condition results operations 3 charges resulting cost savings initiatives connection cost savings initiatives since beginning 2011 total approximately 5800 unutilized tower leases either terminated early termination available terms lease advised landlords intention renew connection lease termination initiative incurred lease termination costs recognized ceasetouse tower lease liability based remaining lease rentals including contractual rent escalations leases subject termination actions reduced estimated sublease rentals charge lease termination activities net previously recorded deferred rent liabilities associated leases includes cancellation fees addition current contract requires us continue payments certain executory costs remaining terms leases accrued liability costs see note 5 property plant equipment description write costs projects classified construction progress related leases clearwire corporation subsidiaries notes consolidated financial statements charges type cost reconciliation associated accrued liability follows thousands 1 lease contract termination costs year ended december 31 2011 include noncash credits 432 million representing reversal deferred rent balances ceaseuse date 378 million accrued executory costs relating unused tower sites current contract requires us continue payments remaining term costs year ended december 31 2012 include accrued executory costs 55 million costs year ended december 31 2012 also included 250 million elimination remaining estimated sublease rental income liability computation fully incorporated contractual rent escalations 2 total costs activities expected significantly different incurred date 3 17 million recorded within accounts payable accrued expenses 484 million recorded current liabilities 1143 million recorded longterm liabilities consolidated balance sheets exception elimination remaining estimated sublease rental income liability computation fully incorporating contractual rent escalations significant adjustments liability year ended december 31 2012 552 million recorded cost goods services network costs 52 million recorded selling general administrative expenses year ended december 31 2011 1459 million recorded cost goods services network costs 196 million recorded selling general administrative expenses year ended december 31 2010 entire expense 117 million recorded selling general administrative expenses clearwire corporation subsidiaries notes consolidated financial statements continued 4 investments december 31 2012 2011 consisted following thousands owned auction market preferred securities issued monoline insurance company perpetual final stated maturity auction market preferred securities fully written carrying value december 31 2011 first quarter 2012 sold auction market preferred securities recorded gain 33 million income expense net consolidated statements operations representing total proceeds received longer collateralized debt obligations auction market preferred securities otherthantemporary impairment losses recorded years ended december 31 2012 2011 2010 5 property plant equipment property plant equipment december 31 2012 2011 consisted following thousands entered lease arrangements related network construction equipment meet criteria capital leases december 31 2012 2011 recorded capital lease assets original cost 1128 million 812 million respectively within network base station equipment construction progress primarily composed costs incurred process completing network projects yet placed service balance december 31 2012 included 933 million costs related completing network projects yet place service 608 million network base station equipment yet assigned project 25 million costs related information technology refer corporate projects clearwire corporation subsidiaries notes consolidated financial statements continued charges associated property plant equipment periodically assess assets yet deployed networks including equipment cell site development costs classified construction progress evaluate losses related 1 shortage loss incurred deploying equipment 2 reserve excessive obsolete equipment yet deployed network 3 abandonment network corporate projects longer expected deployed addition charges incurred normal course business assessment includes evaluating impact changes business plans strategic network plans assets year ended december 31 2012 solidified lte network architecture including identifying sites expect overlay lte technology first phase deployment projects required deploy lte technology sites longer viable due development lte network architecture abandoned related costs written addition network equipment required support network deployment plans sparing requirements written estimated salvage value year ended december 31 2011 connection plan deploy lte alongside existing wimax network shift managements strategic network deployment plans focus areas high usage concentration projects longer fit within deployment plans abandoned related costs written salvage value additionally connection savings initiatives continually review tower leases evaluate whether towers fit within managements deployment plans connection therewith certain tower leases terminated early termination available terms lease advised landlords intention renew costs projects included construction progress related leases initiated terminations written see note 3 charges resulting cost savings initiatives discussion costs associated lease terminations incurred following charges associated ppe years ended december 31 2012 2011 2010 thousands 1 included cost goods services network costs consolidated statements operations 2 year ended december 31 2012 140 million related retail operations included selling general administrative expense consolidated statements operations third quarter 2012 based lte equipment vendor selection process compatibility existing network equipment identified portion wimax network equipment planning change upgrade deployment lte technology concluded useful lives certain wimax equipment accelerated beginning third quarter 2012 resulted weightedaverage remaining useful life wimax network assets decrease approximately four years approximately three years based expected date equipment removal continue monitor estimated useful lives network assets plans evolve 6 spectrum licenses owned leased spectrum licenses december 31 2012 2011 consisted following thousands indefinitelived owned spectrum licenses spectrum licenses issued sitespecific widearea basis authorize wireless carriers use radio frequency spectrum provide service certain geographical areas united states licenses generally acquired asset purchase business combination cases acquire licenses directly governmental authority spectrum leases prepaid spectrum also lease spectrum third parties hold spectrum licenses leases accounted executory contracts treated like operating leases upfront consideration paid thirdparty holders leased licenses inception lease agreement capitalized prepaid spectrum lease costs expensed term lease agreement including expected renewal terms applicable favorable spectrum leases 10 billion recorded asset result purchase accounting november 2008 amortized lease term december 31 2012 future amortization spectrum licenses spectrum leases prepaid lease costs excluding pending spectrum transition costs expected follows thousands clearwire corporation subsidiaries notes consolidated financial statements continued 7 intangible assets intangible assets december 31 2012 2011 consisted following thousands december 31 2012 future amortization intangible assets expected follows thousands evaluate patent renewals case basis based renewal costs clearwire corporation subsidiaries notes consolidated financial statements continued 8 supplemental information liabilities current liabilities current liabilities consisted following thousands longterm liabilities longterm liabilities consisted following thousands 1 see note 17 related party transactions detail regarding balances related parties 2 see note 3 charges resulting cost savings initiatives information clearwire corporation subsidiaries notes consolidated financial statements continued 9 income taxes income tax provision consists following years ended december 31 2012 2011 2010 thousands income tax rate computed using federal statutory rates reconciled reported effective income tax rate follows clearwire corporation subsidiaries notes consolidated financial statements continued components deferred tax assets liabilities december 31 2012 2011 follows thousands determine deferred income taxes based estimated future tax effects differences financial statement tax bases assets liabilities using tax rates expected effect temporary differences reverse net operating loss refer nol capital loss tax credit carryforwards utilized december 31 2012 excluding nol carryforwards permanently unable use discussed united states federal tax nol carryforwards approximately 126 billion 112 billion subject certain annual limitations imposed section 382 internal revenue code nol carryforwards begin expire 2021 2552 million tax nol carryforwards foreign jurisdictions 2439 million statutory expiration date 113 million begins expire 2015 also federal capital loss carryforwards 5835 million also subject certain annual limitations imposed section 382 internal revenue code capital loss carryforwards begin expire 2015 2017 us federal nol carryforwards capital loss carryforwards total subject annual limitations imposed section 382 internal revenue code currently project company generate capital gain income utilize capital loss carryforwards however company generates sufficient capital gain income enable utilization capital loss carryforwards excess 3824 million nol carryforwards 2011 million may longer available offset future taxable income recorded valuation allowance deferred tax assets extent determined likely items either expire able realize benefits future deductibility uncertain relates united states tax jurisdiction determined temporary taxable difference associated investment clearwire communications llc refer clearwire communications fully reverse within carryforward period nols accordingly represent relevant future taxable income time warner cable inc refer time warner cable exchanged 464 million class b common interests corresponding number shares class b common stock equal number shares class common stock refer time warner exchange september 13 2012 comcast corporation refer comcast exchanged 885 million class b common interests corresponding number shares class b common stock equal number shares class common stock refer comcast exchange september 27 2012 bhn spectrum investments llc refer bright house exchanged 85 million class b common interests corresponding number shares class b common stock equal number shares class common stock refer bright house exchange october 17 2012 time warner exchange comcast exchange bright house exchange resulted significant changes financial statement tax basis respectively clearwire interest clearwire communications well increase amount temporary differences reverse within nol carryforward period see discussion clearwire corporation subsidiaries notes consolidated financial statements continued deferred tax assets primarily represent nol carryforwards associated clearwires operations prior formation company november 28 2008 portion partnership losses allocated clearwire formation company subject change control test section 382 internal revenue code met would limit annual utilization prechange control nol carryforward well ability use certain unrealized built losses future tax deductions believe comcast exchange occurred september 27 2012 combined issuances class common stock certain third party investor transactions involving class common stock since december 13 2011 resulted change control section 382 internal revenue code result change control change control occurred december 13 2011 believe permanently unable use significant portion nol carryforwards credit carryforwards collectively referred tax attributes arose change control offset future taxable income result annual limitations sections 382 383 internal revenue code utilization tax attributes following ownership change determined approximately 211 billion united states nol carryforwards expire unutilized united states tax attributes presented net limitations addition subsequent changes ownership purposes sections 382 383 internal revenue code could diminish use remaining united states tax attributes recognized deferred tax liability difference financial statement carrying value tax basis partnership interest relates united states tax jurisdiction determined temporary taxable difference associated investment partnership completely reverse within carryforward period nols portion temporary difference reverse within carryforward period nols represents relevant future taxable income management reviewed facts circumstances including history nols projected future tax losses determined appropriate record valuation allowance portion deferred tax assets deemed realizable result time warner exchange comcast exchange bright house exchange increase amount temporary difference reverse within nol carryforward period therefore management determined appropriate reduce valuation allowance recorded deferred tax assets along recording corresponding deferred tax benefit continuing operations income tax benefit reflected condensed consolidated statements operations continuing operations primarily reflects united states deferred taxes net certain state taxes file income tax returns clearwire subsidiaries united states federal jurisdiction various state foreign jurisdictions december 31 2012 tax returns clearwire years 2003 2011 remain open examination internal revenue service various state tax authorities 2012 completed sale operations spain germany belgium see note 18 discontinued operations information result certain intercompany loans related international operations considered uncollectible united states federal income tax purposes result increase deferred tax liability approximately 1672 million along corresponding deferred tax expense discontinued operations increase deferred tax assets result additional tax losses fully offset corresponding increase valuation allowance recorded deferred tax assets policy recognize interest related unrecognized tax benefits interest expense interest income recognize penalties additional income tax expense december 31 2012 material uncertain tax positions therefore accrued interest penalties related uncertain tax positions 10 longterm debt net longterm debt december 31 2012 2011 consisted following thousands 1 represents weighted average effective interest rate based yearend balances 2 coupon rate based 3month libor plus spread 550 secured 700 unsecured included balance unsecured notes par amount 46 million december 31 2012 3 december 31 2012 par amount approximately 1188 million secured assets classified network base station equipment remaining par amount unsecured 4 included current liabilities consolidated balance sheet 1 represents weighted average effective interest rate based yearend balances 2 coupon rate based 3month libor plus spread 550 3 december 31 2011 par amount approximately 1140 million secured assets classified network base station equipment 4 included current liabilities consolidated balance sheet notes 2015 senior secured notes fourth quarter 2009 clearwire communications completed offerings 252 billion 12 senior secured notes due 2015 refer 2015 senior secured notes 2015 senior secured notes provide biannual payments interest june december connection issuance 2015 senior secured notes also issued 2525 million notes sprint comcast identical terms 2015 senior secured notes replacement equal amounts indebtedness senior term loan facility december 2010 clearwire communications issued additional 1750 million 2015 senior secured notes substantially terms holders 2015 senior secured notes right require us repurchase notes upon occurrence certain change control events sale certain assets price 101 principal amount 100 principal amount respectively plus unpaid accrued interest repurchase date change control excludes change control permitted holders including limited sprint successors respective affiliates december 1 2012 may redeem part 2015 senior secured notes paying makewhole premium stated terms plus unpaid accrued interest repurchase date payment obligations 2015 senior secured notes guaranteed certain domestic subsidiaries senior basis secured certain assets subsidiaries firstpriority lien basis 2015 senior secured notes contain limitations activities among things include incurring additional indebtedness guarantee indebtedness making distributions payment dividends certain restricted payments investments making certain payments indebtedness entering agreements restrict distributions restricted subsidiaries selling otherwise disposing assets merger consolidation sales substantially assets entering transactions affiliates creating liens issuing certain preferred stock similar equity securities making investments acquiring assets 2016 senior secured notes january 2012 clearwire communications completed offering senior secured notes par value 3000 million due 2016 bearing interest 1475 refer 2016 senior secured notes clearwire communications received proceeds 2938 million net debt issuance costs offering 2016 senior secured notes provide biannual payments interest june december holders 2016 senior secured notes right require us repurchase notes upon occurrence specific kinds changes control price 101 principal plus unpaid accrued interest repurchase date change control excludes change control permitted holders including limited sprint successors respective affiliates certain circumstances clearwire communications required use net proceeds sale assets make offer purchase 2016 senior secured notes offer price equal 100 principal amount plus unpaid accrued interest payment obligations 2016 senior secured notes guaranteed certain domestic subsidiaries senior basis secured certain assets subsidiaries firstpriority lien basis 2016 senior secured notes contain limitations activities 2015 senior secured notes secondpriority secured notes december 2010 clearwire communications completed offering 5000 million 12 secondpriority secured notes due 2017 refer secondpriority secured notes secondpriority secured notes provide biannual payments interest june december holders secondpriority secured notes right require us repurchase notes upon occurrence certain change control events sale certain assets price 101 principal amount 100 principal amount respectively plus unpaid accrued interest repurchase date change control excludes change control permitted holders including limited sprint successors respective affiliates prior december 1 2013 may redeem 35 aggregate principal amount secondpriority secured notes redemption price 112 aggregate principal amount plus unpaid accrued interest repurchase date december 1 2014 may redeem part secondpriority secured notes paying makewhole premium stated terms plus unpaid accrued interest repurchase date payment obligations secondpriority secured notes guaranteed certain domestic subsidiaries senior basis secured certain assets subsidiaries secondpriority lien basis secondpriority secured notes contain limitations activities 2015 senior secured notes exchangeable notes december 2010 clearwire communications completed offerings 7292 million 825 exchangeable notes due 2040 refer exchangeable notes exchangeable notes provide biannual payments interest june december exchangeable notes subordinated 2015 senior secured notes 2016 senior secured notes rank equally right payment secondpriority secured notes holders exchangeable notes right exchange notes class common stock time prior maturity date right settle exchange delivering cash shares class common stock subject certain conditions initial exchange rate note 1412429 shares per 1000 note equivalent initial exchange price approximately 708 per share subject adjustments upon occurrence certain corporate events refer exchangeable notes exchange rate upon exchange make additional cash payment provide additional shares accrued unpaid interest makewhole premium additional interest holders exchangeable notes right require us repurchase notes upon occurrence fundamental change including change control event price 100 principal amount plus unpaid accrued interest repurchase date holders elect exchange exchangeable notes connection occurrence fundamental change entitled additional shares specified based date event occurs price paid per share class common stock fundamental change maximum number shares issuable per note exceed 1694915 shares per 1000 note stock price less 590 per share subject certain adjustments additional shares shall added exchange rate event proposed merger consummated accordance merger agreement right exchange 1000 note shall changed right exchange principal amount exchangeable notes cash equal product 297 per share refer merger consideration multiplied exchangeable notes exchange rate holders exchangeable notes option require us repurchase cash exchangeable notes december 1 2017 2025 2030 2035 price equal 100 principal amount notes plus unpaid accrued interest repurchase date december 1 2017 may option redeem part exchangeable notes price equal 100 principal amount notes plus unpaid accrued interest redemption date payment obligations exchangeable notes guaranteed certain domestic subsidiaries priority secondpriority secured notes upon issuance exchangeable notes recognized derivative liability representing embedded exchange feature estimated fair value 2315 million associated debt discount exchangeable notes discount accreted expected life approximately 7 years exchangeable notes using effective interest rate method see note 11 derivative instruments additional discussion derivative liability first quarter 2012 clearwire communications entered securities purchase agreements certain institutional investors refer exchange transaction pursuant clearwire issued 380 million shares class common stock aggregate price 835 million refer purchase price clearwire communications repurchased 1000 million aggregate principal amount plus accrued unpaid interest exchangeable notes total price equal purchase price due significant discount resulting recognition exchange options separate derivative liability upon issuance exchange notes extinguishment exchangeable notes exchange transaction resulted loss 101 million recorded income expense net consolidated statements operations december 31 2012 compliance debt covenants vendor financing notes vendor financing facility refer vendor financing facility allows us obtain financing entering notes refer vendor financing notes vendor financing notes mature 2014 2015 coupon rates based 3month libor plus spread 550 700 secured unsecured notes respectively capital lease obligations certain network equipment acquired capital lease facilities inception capital lease lower either present value minimum lease payments required lease fair value equipment recorded capital lease obligation initial noncancelable term capital leases three twelve years may include one renewal options end initial lease term may exercised discretion lease payments initial lease term fixed renewal periods established inception lease interest expense recognized using effective interest rate method based rate imputed using contractual terms lease agreements may contain change control provisions certain agreements change control may exclude change control permitted holders including limited sprint successors respective affiliates agreements may reference circumstances involving change control resulting clearwires credit rating falling “caa1” rated moodys investors service upon occurrence change control lessor may require payment predetermined casualty value leased equipment future payments future payments longterm debt see note 13 commitments contingencies interest expense interest expense included consolidated statements operations years ended december 31 2012 2011 2010 consisted following thousands 1 year ended december 31 2012 included 25 million coupon interest relating exchangeable notes settled noncash exchange transaction 2 includes noncash amortization deferred financing fees classified assets consolidated balance sheets 11 derivative instruments holders’ exchange rights contained exchangeable notes constitute embedded derivative instruments required accounted separately debt host instrument fair value result upon issuance exchangeable notes recognized exchange options estimated fair value 2315 million derivative liability result exchange transaction 1000 million par value exchangeable notes retired related exchange options notional amount 141 million shares settled fair value exchange options indexed class common stock notional amount 889 million 1030 million shares december 31 2012 2011 respectively mature 2040 apply hedge accounting exchange options therefore gains losses due changes fair value reported consolidated statements operations december 31 2012 2011 exchange options’ estimated fair value 53 million 82 million respectively reported current liabilities consolidated balance sheets years ended december 31 2012 2011 2010 recognized gains 14 million 1597 million 636 million respectively changes estimated fair value gains derivative instruments consolidated statements operations see note 12 fair value information regarding valuation exchange options addition event issuance new securities certain existing equityholders entitled preemptive rights allow purchase prorata share new securities issuance price less underwriting discounts right considered derivative required recorded fair value payment provision based existing equityholders prorata ownership interest clearwire apply hedge accounting derivative portion derivative settled december 13 2011 issuance class b common stock class b common interests sprint recorded charge 159 million year ended december 31 2011 gains derivative instruments consolidated statements operations representing value derivative fair value derivative determined among things probability new securities issuance probability existing equityholders participate new issuance extent participation clearwire corporation subsidiaries notes consolidated financial statements continued 12 fair value following description valuation methodologies pricing assumptions used financial instruments measured recorded fair value recurring basis financial statements classification instruments pursuant valuation hierarchy cash equivalents investments quoted prices identical securities available active market use quoted market prices determine fair value investment securities cash equivalents classified level 1 valuation hierarchy level 1 securities include us government treasury bills actively traded us government treasury notes money market mutual funds quoted prices active markets quoted net asset values published money market mutual fund supported active market investments classified level 2 valuation hierarchy securities quoted prices available similar investments active markets identical similar investments markets active use consensus pricing independent external valuation sources level 2 securities include us government agency discount notes us government agency notes derivatives exchange options classified level 3 valuation hierarchy estimate fair value exchange options use income approach based valuation models including option pricing models discounted cash flow models maximize use marketbased observable inputs models develop assumptions unobservable inputs based management estimates market participants’ assumptions pricing instruments use trinomial option pricing model estimate fair value exchange options inputs include contractual terms instrument marketbased parameters interest rate forward curves stock price dividend yield level subjectivity applied estimate stock price volatility input stock price volatility used computing fair value exchange options december 31 2012 25 based historical stock price volatility giving consideration estimates market participant adjustments general market conditions well companyspecific factors market trading volume expected future performance holding pricing assumption constant increase decrease 10 estimated stock volatility december 31 2012 could result loss 133 million gain 53 million respectively following table summarizes financial assets liabilities level within valuation hierarchy december 31 2012 thousands clearwire corporation subsidiaries notes consolidated financial statements continued following table summarizes financial assets liabilities level within valuation hierarchy december 31 2011 thousands following table presents change level 3 financial assets liabilities measured recurring basis year ended december 31 2012 thousands 1 included gain derivative instruments consolidated statements operations following table presents change level 3 financial assets liabilities measured recurring basis year ended december 31 2011 thousands 1 included income expense net consolidated statements operations 2 included gain derivative instruments consolidated statements operations clearwire corporation subsidiaries notes consolidated financial statements continued following description fair value financial instruments hold subject fair value recognition debt instruments 2015 senior secured notes 2016 senior secured notes secondpriority secured notes exchangeable notes classified level 2 valuation hierarchy estimate fair value 2015 senior secured notes 2016 senior secured notes secondpriority secured notes exchangeable notes used average indicative price several market makers estimate fair value vendor financing notes used income approach based contractual terms notes marketbased parameters interest rates result classified level 3 valuation hierarchy level subjectivity applied estimate discount rate used calculate present value estimated cash flows following table presents carrying value approximate fair value outstanding debt instruments december 31 2012 2011 thousands 1 carrying value december 31 2012 2011 net 1651 million 2093 million discount respectively arising separation exchange options debt host instrument fair value exchangeable notes incorporates value exchange feature recognized separately derivative consolidated balance sheets 13 commitments contingencies future minimum cash payments obligations continuing operations listed including optional expected renewal periods operating leases december 31 2012 follows thousands clearwire corporation subsidiaries notes consolidated financial statements continued 1 principal interest payments beyond 2017 represent potential principal interest payments exchangeable notes beyond expected repayment 2017 2 includes executory costs 515 million 3 payments include 442 million representing interest expense recorded related spectrum operating leases follows thousands operating lease obligations commitments noncancelable operating leases consist mainly leased sites including towers rooftop locations office space certain leases provide minimum lease payments additional charges escalation clauses operating leases generally initial terms five seven years multiple renewal options additional fiveyear terms totaling 20 25 years operating lease obligations table include lease payments contractual lease term including remaining future lease payments leases notice intent renew sent result lease termination initiatives describe note 3 charges resulting cost savings initiatives operating lease payments assumed renewal periods include expected renewal periods leases renewal likely effect change estimate reflected cost goods services network costs prospectively remaining expected term commitment certain tower leases specify minimum number new leases commence master agreement charges incurred minimum commitment included table spectrum lease obligations certain leases provide minimum lease payments additional charges escalation clauses leased spectrum agreements terms 30 years weighted average remaining lease term december 31 2012 approximately 23 years including renewal terms expect renewal periods spectrum leases renewed us spectrum service credits commitments provide clearwire services certain lessors launched markets reimburse lessors certain capital equipment thirdparty service expenditures term lease accrue monthly obligation services equipment based total estimated available service credits divided term lease obligation reduced actual invoices presented paid lessors years ended december 31 2012 2011 2010 satisfied 33 million 45 million 10 million respectively related commitments maximum remaining commitment december 31 2012 1018 million expected incurred term related lease agreements generally range 1530 years purchase agreements included table purchase commitments takeorpay obligations andor volume commitments equipment noncancelable table also includes obligations include minimum purchase commitments certain suppliers time goods services regardless whether suppliers fully deliver include among things agreements backhaul subscriber devices related services addition party various arrangements conditional nature create obligation make payments upon occurrence certain events actual delivery acceptance products services possible predict timing amounts may due conditional arrangements amounts included table also excludes blanket purchase order amounts orders subject cancellation termination discretion quantity goods services purchased payment terms unknown purchase orders firm commitments clearwire corporation subsidiaries notes consolidated financial statements continued legal proceedings fully described involved variety lawsuits claims investigations proceedings concerning intellectual property business practices commercial matters determine whether accrue estimated loss contingency particular legal proceeding assessing whether loss deemed probable reasonably estimated reassess views estimated losses quarterly basis reflect impact developments matters involved legal proceedings inherently unpredictable matters involved often present complex legal factual issues vigorously pursue defenses legal proceedings engage discussions possible resolve matters terms favorable us including pursuing settlements believe may cost effective result company possible however business financial condition results operations future periods could materially adversely affected increased litigation expense significant settlement costs andor unfavorable damage awards consumer purported class actions investigations april 2009 purported class action lawsuit filed clearwire us llc superior court king county washington group five plaintiffs chad minnick et al lawsuit generally alleges disseminated false advertising quality reliability services imposed unlawful early termination fee refer etf invoked allegedly unconscionable provisions terms service detriment subscribers among things lawsuit seeks determination alleged claims may asserted classwide basis order declaring certain provisions terms service including etf provision void unenforceable injunction prohibiting us collecting etfs false advertising restitution etfs paid subscribers equitable relief award unspecified damages attorneys fees plaintiffs subsequently amended complaint adding seven additional plaintiffs removed case united states district court western district washington july 23 2009 filed motion dismiss amended complaint court stayed discovery pending ruling motion february 2 2010 granted motion dismiss entirety plaintiffs appealed ninth circuit court appeals march 29 2011 court appeals entered order certifying question supreme court washington requesting guidance question washington state law may 23 2012 washington supreme court issued decision holding etf permissible alternative performance provision court appeals stayed matter parties agreed settle lawsuit december 19 2012 court granted final approval settlement entered final judgment january 18 2013 objectors appealed courts final judgment settlement order ninth circuit court appeals accrued estimated amount anticipate pay settlement current liabilities amount accrued considered immaterial financial statements september 2009 purported class action lawsuit filed clearwire king county superior court brought representative plaintiff rosa kwan complaint alleges placed unlawful telephone calls using automatic dialing announcing devices engaged unlawful collection practices seeks declaratory injunctive andor equitable relief actual statutory damages federal state law october 1 2009 removed case united states district court western district washington parties stipulated allow second amended complaint plaintiffs filed december 23 2009 filed motion dismiss amended complaint february 22 2010 court granted motion dismiss part dismissing certain claims prejudice granting plaintiff leave amend complaint plaintiff filed third amended complaint adding additional state law claims joining bureau recovery purported collection agency codefendant january 27 2011 court granted parties stipulation allowing plaintiff file fourth amended complaint adding two new class representatives filed motions compel newlyadded customer plaintiffs arbitrate individual claims january 3 2012 court denied without prejudice motions compel arbitration factual issues resolved evidentiary hearing parties stipulated allow fifth amended complaint parties agreed settle lawsuit december 27 2012 court granted preliminary approval settlement accrued estimated amount anticipate pay settlement current liabilities amount accrued considered immaterial financial statements court grant final approval settlement case remain early stages litigation outcome unknown november 2010 purported class action lawsuit filed clearwire angelo dennings us district court western district washington complaint generally alleges slow network speeds network demand highest network management violates agreements subscribers contrary companys advertising marketing claims plaintiffs also allege subscribers review terms service prior subscribing subscribers cancel service due network management charge etf restocking fee claim unconscionable circumstances claims asserted include breach contract breach covenant good faith clearwire corporation subsidiaries notes consolidated financial statements continued fair dealing unjust enrichment plaintiffs seek class certification unspecified damages restitution declaratory judgment clearwires etf restocking fee unconscionable alleged circumstances injunction prohibiting clearwire engaging alleged deceptive marketing charging etfs interest attorneys fees costs january 13 2011 filed concurrent motions compel arbitration alternative dismiss complaint failure state claim upon relief may granted response clearwires motions plaintiff abandoned fraud claim amended complaint fourteen additional plaintiffs eight separate jurisdictions plaintiff added new claims violation consumer protection statutes various state laws march 31 2011 clearwire filed concurrent motions 1 compel newlyadded plaintiffs arbitrate individual claims 2 alternatively stay case pending united states supreme courts decision att mobility llc v concepcion 09893 refer concepcion 3 dismiss complaint failure state claim upon relief may granted plaintiffs oppose clearwires motion stay litigation pending concepcion parties stipulated stay litigation parties agreed settle lawsuit december 19 2012 court granted final approval settlement entered final judgment january 18 2013 objectors appealed courts final judgment settlement order ninth circuit court appeals accrued estimated amount anticipate pay settlement current liabilities amount accrued considered immaterial financial statements march 2011 purported class action filed clearwire us district court eastern district california case newton v clearwire inc sic alleges clearwires network management advertising practices constitute breach contract unjust enrichment unfair competition californias business professions code sections 17200 et seq violation californias consumers legal remedies act plaintiff contends clearwires advertisements “no speed cap” “unlimited data” false misleading plaintiff alleges clearwire breached contracts customers delivering internet service advertised plaintiff also claims slow data speeds due clearwires network management practices plaintiff seeks class certification declaratory injunctive relief unspecified restitution andor disgorgement fees paid clearwire service unspecified damages interest fees costs june 9 2011 clearwire filed motion compel arbitration parties agreed settle lawsuit december 19 2012 court granted final approval settlement entered final judgment january 18 2013 objectors appealed courts final judgment settlement order ninth circuit court appeals accrued estimated amount anticipate pay settlement current liabilities amount accrued considered immaterial financial statements august 2012 richard wuest filed purported class action clearwire california superior court san francisco county plaintiff alleges clearwire violated californias invasion privacy act penal code 630 notably §6327 prohibits recording communications made cellular cordless telephone without consent parties communication plaintiff seeks statutory damages injunctive relief costs attorney fees pre post judgment interest clearwire removed matter federal court november 2 2012 clearwire filed answer complaint litigation early stages outcome unknown estimate potential loss cannot made time september 6 2012 washington state attorney generals office served clearwire corporation civil investigative demand pursuant rcw 1986110 demand seeks information documents furtherance attorney general offices investigation possible unfair trade practices failure properly disclose contractual terms misleading advertising october 22 2012 clearwire responded demand purported shareholder class actions delaware actions december 12 2012 stockholder crest financial limited refer crest filed putative class action lawsuit delaware court chancery company directors sprint holdco llc eagle river purportedly brought behalf public stockholders company december 14 2012 plaintiff filed amended complaint january 2 2013 plaintiff filed second amended complaint also december 12 2012 plaintiff filed motion seeking expedited trial following hearing january 10 2013 court denied motion expedite without prejudice court also directed parties consolidate lawsuit delaware actions described lawsuit alleges directors company breached fiduciary duties connection proposed transaction sprint company sprint eagle river breached duties owed companys public stockholders virtue alleged status controlling stockholders including respect softbank transaction company aided abetted alleged breaches fiduciary duty sprint eagle river lawsuit also alleges merger consideration undervalues company controlling stockholders acted enrich expense minority stockholders lawsuit seeks permanently enjoin softbank transaction permanently enjoin proposed merger permanently enjoin sprint allegedly interfering companys plans raise capital sell clearwire corporation subsidiaries notes consolidated financial statements continued spectrum recover compensatory damages litigation early stages outcome unknown estimate potential losses cannot made time december 20 2012 stockholder abraham katsman filed putative class action lawsuit delaware court chancery company directors sprint softbank purportedly bought behalf public stockholders company lawsuit alleges directors company breached fiduciary duties connection proposed merger sprint breached duties owed companys public stockholders virtue alleged status controlling stockholder softbank aided abetted alleged breaches fiduciary duty sprint directors company lawsuit also alleges merger consideration undervalues company proposed merger negotiated pursuant unfair process lawsuit seeks enjoin proposed merger proposed merger consummated rescission proposed merger recover unspecified rescissory compensatory damages litigation early stages outcome unknown estimate potential losses cannot made time december 28 2012 stockholder kenneth l feigeles filed putative class action lawsuit delaware court chancery company directors sprint merger sub eagle river purportedly brought behalf public stockholders company lawsuit alleges directors company breached fiduciary duties connection proposed merger sprint breached duties owed companys public stockholders virtue alleged status controlling stockholder company sprint merger sub eagle river aided abetted alleged breaches fiduciary duty sprint directors company lawsuit also alleges merger consideration undervalues company proposed merger negotiated pursuant unfair process lawsuit seeks enjoin proposed merger proposed merger consummated rescind proposed merger seeks unspecified rescissory compensatory damages litigation early stages outcome unknown estimate potential losses cannot made time december 28 2012 stockholder joan litwin filed putative class action lawsuit delaware court chancery company directors sprint holdco eagle river purportedly brought behalf public stockholders company lawsuit alleges directors company breached fiduciary duties connection proposed merger sprint eagle river breached duties owed companys public stockholders virtue alleged status controlling stockholders company aided abetted alleged breaches fiduciary duty sprint eagle river directors company lawsuit also alleges merger consideration undervalues company sprint using position controlling stockholder obtain companys spectrum detriment public stockholders directors company allowed company stagnate benefit sprint eagle river lawsuit seeks enjoin proposed merger proposed merger consummated rescind proposed merger lawsuit also seeks enjoin sprint interfering companys buildout plans future sale spectrum seeks unspecified compensatory damages litigation early stages outcome unknown estimate potential losses cannot made time january 3 2013 stockholder david deleo filed putative class action lawsuit delaware court chancery company directors sprint merger sub purportedly brought behalf public stockholders company lawsuit alleges directors company breached fiduciary duties connection proposed merger sprint breached duties owed companys public stockholders virtue alleged status controlling stockholder company merger sub aided abetted alleged breaches fiduciary duty sprint directors company lawsuit also alleges merger consideration undervalues company sprint directors company misappropriated nonpublic information disclosed plaintiffs proposed merger negotiated pursuant unfair process lawsuit seeks declaratory judgment proposed transaction sprint company entered breach sprints fiduciary duties injunction preventing proposed transaction sprint company proposed merger consummated rescind proposed merger seeks unspecified rescissory compensatory damages litigation early stages outcome unknown estimate potential losses cannot made time purported shareholder class actions washington actions december 20 2012 stockholder joe kuhnle filed putative class action lawsuit superior court washington king county company directors purportedly brought behalf public stockholders company action refer kuhnle action kuhnle action alleges directors company breached clearwire corporation subsidiaries notes consolidated financial statements continued fiduciary duties connection proposed merger company aided abetted alleged breaches fiduciary duty directors company kuhnle action also alleges merger consideration undervalues company proposed merger negotiated pursuant unfair process deal protection devices favor sprint detriment public stockholders directors company failed make necessary disclosures public filings kuhnle action seeks declaratory judgment proposed merger entered breach defendants fiduciary duties preliminary injunction preventing proposed merger proposed merger consummated rescission proposed merger recover unspecified rescissory compensatory damages january 18 2013 defendants collectively filed motion dismiss stay kuhnle action favor priorfiled delaware actions january 18 2013 defendants opposed plaintiffs motion expedite discovery february 11 2013 court granted motion stay january 22 2013 parties stipulated consolidate three king county lawsuitsthe kuhnle action along millen action rowe action discussed belowinto one matter clearwire corporation shareholder litigation early stages outcome unknown estimate potential losses cannot made time december 20 2012 stockholder doug millen filed putative class action lawsuit superior court washington king county company directors purportedly brought behalf public stockholders company action refer millen action lawsuit alleges directors company breached fiduciary duties owed companys public stockholders connection proposed merger company aided abetted alleged breaches fiduciary duty directors company lawsuit also alleges merger consideration undervalues company proposed merger negotiated pursuant unfair process deal protection devices favor sprint detriment public stockholders directors company failed make necessary disclosures connection announcement transaction lawsuit seeks declaratory judgment proposed merger entered breach defendants fiduciary duties injunction preventing proposed merger rescission proposed merger extent already consummated see related discussion kuhnle action regarding proposed consolidation millen action litigation early stages outcome unknown estimate potential losses cannot made time december 31 2012 stockholder clinton rowe filed putative class action lawsuit superior court washington king county company directors sprint merger sub purportedly brought behalf public stockholders company action refer rowe action lawsuit alleges sprint directors company breached fiduciary duties connection proposed merger company sprint merger sub aided abetted alleged breaches fiduciary duty directors company lawsuit also alleges merger consideration undervalues company proposed merger negotiated pursuant unfair process directors company protect company numerous conflicts interest lawsuit seeks declaratory judgment proposed merger entered breach defendants fiduciary duties injunction preventing proposed merger rescission transaction extent already implemented imposition constructive trust favor plaintiff class upon benefits improperly received defendants see related discussion kuhnle action regarding proposed consolidation rowe action litigation early stages outcome unknown estimate potential losses cannot made time addition matters described often involved certain proceedings seek monetary damages relief based upon information currently available us none claims expected material effect business financial condition results operations indemnification agreements currently party indemnification agreements certain officers members board directors liabilities recorded condensed consolidated balance sheets indemnification agreements neither probable estimable 14 sharebased payments december 31 2012 34661769 shares available grant clearwire corporation 2008 stock compensation plan refer 2008 plan authorizes us grant incentive stock options nonqualified stock options stock appreciation rights restricted stock restricted stock units refer rsus performance based rsus stock awards employees directors consultants grants awarded 2008 plan made available discretion compensation committee board directors authorized unissued shares authorized issued shares reacquired combination thereof adoption 2008 plan additional share clearwire corporation subsidiaries notes consolidated financial statements continued grants granted clearwire corporation 2007 stock compensation plan clearwire corporation 2003 stock option plan restricted stock units grant rsus performance based rsus certain officers employees 2008 plan rsus generally performance service requirements service requirements vesting periods ranging two four years fair value rsus based grantdate fair market value common stock equals grant date market price performance rsus awarded 2012 one two years performance periods granted performance objectives established first quarter 2012 summary rsu activity years ended december 31 2012 2011 2010 presented december 31 2012 21963607 rsus outstanding total unrecognized compensation cost approximately 278 million expected recognized weightedaverage period approximately 11 years stock options granted options certain officers employees 2008 plan options generally vest fouryear period expire later ten years date grant fair value option grants estimated date grant using blackscholes option pricing model clearwire corporation subsidiaries notes consolidated financial statements continued summary option activity january 1 2010 december 31 2012 presented intrinsic value options exercised years ended december 31 2011 2010 23 million 105 million respectively option exercises period ended december 31 2012 december 31 2012 aggregate intrinsic value options outstanding price class common stock less option exercise prices information regarding stock options outstanding exercisable december 31 2012 follows clearwire corporation subsidiaries notes consolidated financial statements continued fair value option grant estimated date grant using blackscholes option pricing model using following assumptions years ended december 31 2010 fair value option grants 2010 43 million options granted 2012 2011 total fair value options vested years ended december 31 2012 2011 2010 07 million 66 million 98 million respectively total unrecognized sharebased compensation costs related nonvested stock options outstanding december 31 2012 approximately 01 million expected recognized weighted average period approximately four months sharebased compensation expense based estimated grantdate fair value award recognized net estimated forfeitures shares expected vest graded vesting schedule straightline basis requisite service period separately vesting portion award insubstance multiple awards sharebased compensation expense recognized plans years ended december 31 2012 2011 2010 follows thousands years ended december 31 2012 2011 2010 reversed 34 million 239 million 98 million respectively sharebased compensation expense related forfeiture rsus options recognized yet earned year ended december 31 2012 additional sharebased compensation expense related acceleration vesting extension exercise period certain rsus options years ended december 31 2011 2010 recorded 37 million 109 million respectively additional sharebased compensation expense related acceleration vesting extension exercise period certain rsus options 15 stockholders’ equity class common stock class common stock represents common equity clearwire holders class common stock entitled one vote per share class entitled 100 dividends distributions made clearwire exception certain minimal liquidation rights provided class b common stockholders described share class common stock participates ratably proportion total number shares class common stock issued clearwire holders class common stock 100 economic interest clearwire considered controlling interest purposes financial reporting upon liquidation dissolution winding class common stock entitled assets remaining payment debts liabilities clearwire exception certain minimal liquidation rights provided class b common stockholders described clearwire corporation subsidiaries notes consolidated financial statements continued fourth quarter 2012 eagle river delivered right first offer notice pursuant equityholders’ agreement equityholders intent sell 309 million shares class common stock 27 million shares class b common stock corresponding number class b common interests refer collectively interests october 17 2012 sprint delivered response notice notifying eagle river intend purchase 100 interests december 7 2012 conditions closing met december 11 2012 transaction completed result eagle river longer owns shares class common stock class b common stock class b common interests longer party equityholders agreement second quarter 2012 also entered sales agreement refer sales agreement cantor fitzgerald co refer cfco pursuant offered sold shares class common stock aggregate offering price 3000 million time cfco sales agent subject terms conditions sales agreement cfco used commercially reasonable efforts sell shares class common stock behalf daily basis otherwise agreed us cfco designated parameters cfco would sell shares class common stock behalf including total number shares class common stock issued time period sales requested made limitation number shares class common stock could sold one trading day minimum price sales would made cfco right giving written notice specified sales agreement terminate sales agreement partys sole discretion time paid cfco commission equal 20 gross sales price per share class common stock sold sales agreement also agreed reimburse cfco certain expenses set forth sales agreement indemnify cfco certain liabilities sold 484 million shares class common stock sales agreement net proceeds 585 million july 26 2012 announced elected cease sales agreement first quarter 2012 clearwire communications entered securities purchase agreements certain institutional investors pursuant clearwire issued shares class common stock aggregate price 835 million proceeds used repurchase 1000 million aggregate principal amount exchangeable notes plus accrued unpaid interest held institutional investors price per share determined based upon daily volume weighted average price class common stock nasdaq global select market five trading days commencing march 15 2012 subject minimum price maximum price per share total number shares issued equal quotient obtained dividing purchase price per share 380 million shares first quarter 2012 google inc refer google sold 294 million shares class common stock class b common stock class b common stock represents noneconomic voting interests clearwire identical class common stock holders class b common stock entitled one vote per share however rights receive distributions stock dividends paid proportionally outstanding class b common stockholder upon liquidation clearwire amount equal par value per share 00001 per share holders include intel corporation refer intel along sprint collectively refer participating equityholders class b common stock hold entitled hold equivalent number class b common interests substance reflects economic stake clearwire accomplished exchange feature provides holder right time exchange one share class b common stock plus one class b common interest one share class common stock october 11 2012 bright house provided us notice intent exchange 85 million shares class b common stock together class b common interests held bright house equal number shares class common stock exchange completed october 18 2012 september 4 2012 time warner cable provided us notice intent exchange 464 million class b common interests corresponding number shares class b common stock equal number shares class common stock pursuant amended restated operating agreement dated november 28 2008 governing clearwire communications refer operating agreement exchange completed september 13 2012 clearwire corporation subsidiaries notes consolidated financial statements continued september 27 2012 entered underwriting agreement refer underwriting agreement credit suisse securities usa llc refer underwriter time warner cable october 3 2012 terms subject conditions contained underwriting agreement time warner cable sold underwriter 464 million shares class common stock receive proceeds sale class common stock time warner cable september 24 2012 comcast provided us notice intent exchange 885 million class b common interests corresponding number shares class b common stock equal number shares class common stock pursuant operating agreement exchange completed september 27 2012 second quarter 2011 sprint surrendered 774 million shares class b common stock reduce voting interest clearwire subsequently second quarter 2012 sprint exercised right revoke surrender 774 million shares class b common stock relinquished june 2011 class b common stock reissued sprint june 8 2012 transaction impact sprints economic interest company holds ownership class b common interests december 31 2012 sprints economic interest clearwire subsidiaries equal voting interest approximately 504 following table lists voting interests clearwire december 31 2012 1 holders class b common stock hold equivalent number class b common interests clearwire communications interests clearwire sole holder voting interests clearwire communications clearwire controls 100 decision making clearwire communications consolidates 100 operations clearwire also holds outstanding clearwire communications class common interests representing 472 economics clearwire communications december 31 2012 holders class b common interests remaining 528 economic interests intended times number clearwire communications class common interests held clearwire equal number shares class common stock issued clearwire nonvoting clearwire communication units designated either clearwire communications class common interests held clearwire class b common interests held sprint intel classes nonvoting clearwire communication units participate distributions clearwire communications equal proportionate basis clearwire corporation subsidiaries notes consolidated financial statements continued following shows effects changes clearwire’s ownership interests clearwire communications thousands dividend policy declared paid cash dividends class b common stock currently expect retain future earnings use operations expansion business anticipate paying cash dividends foreseeable future addition covenants indentures governing senior secured notes impose significant restrictions ability pay cash dividends stockholders noncontrolling interests clearwire communications clearwire communications consolidated clearwire hold 100 voting interest clearwire communications therefore holders class b common interests represent noncontrolling interests consolidated subsidiary result income loss consolidated clearwire decreased proportion outstanding noncontrolling interests conversion class b common interests corresponding number class b common stock class common stock recorded issuance common stock net issuance costs capital transactions consolidated statement stockholders equity warrants december 31 2012 375000 warrants outstanding expiration date november 13 2013 holders may exercise warrants time exercise price 300 clearwire corporation subsidiaries notes consolidated financial statements continued 16 net loss per share basic net loss per share net loss per share attributable holders class common stock calculated based following information thousands except per share amounts diluted net loss per share potential exchange class b common interests together class b common stock class common stock dilutive effect diluted net loss per share due certain tax effects exchange would result increase number class common stock outstanding corresponding increase net loss attributable class common stockholders elimination noncontrolling interests’ allocation extent class b common interests class b common stock converted class common stock clearwire communications partnership structure would longer exist clearwire would required recognize tax provision related indefinite lived intangible assets shares issuable upon conversion exchangeable notes included computation diluted net loss per share year ended december 31 2010 “if converted” basis since result dilutive purpose computation change fair value exchange options interest expense exchangeable notes reversed period years ended december 31 2012 2011 shares issuable upon conversion exchangeable notes excluded computation diluted net loss per share inclusion would antidilutive clearwire corporation subsidiaries notes consolidated financial statements continued net loss per share attributable holders class common stock diluted basis assuming conversion class b common interests class b common stock applicable conversion exchangeable notes calculated based following information thousands except per share amounts diluted weighted average shares include effects following potential common shares inclusion would antidilutive thousands calculated presented basic diluted net loss per share class common stock class b common stock net loss per share calculated since contractually participate distributions clearwire corporation subsidiaries notes consolidated financial statements continued 17 related party transactions number strategic commercial relationships third parties significant impact business operations financial results relationships sprint intel comcast time warner cable bright house google eagle river ericsson related parties relationships include agreements pursuant sell wireless broadband services certain related parties wholesale basis related parties resell respective end user subscribers sell services terms defined contractual agreements following amounts related party transactions included consolidated financial statements thousands 1 amounts presented year ended december 31 2011 adjusted reflect inclusion 200 million noncash rents related leases sprint proposed sprint merger agreement december 17 2012 entered merger agreement pursuant sprint agreed acquire outstanding shares class b common stock currently owned sprint see note 1 description business information note purchase agreement connection merger agreement december 17 2012 certain subsidiaries also entered note purchase agreement sprint agreed purchase us election aggregate principal amount 8000 million 100 exchangeable notes due 2018 ten monthly installments 800 million see note 1 description business information rollover notes connection issuance 2015 senior secured notes november 24 2009 issued notes sprint comcast identical terms 2015 senior secured notes time related parties may hold portions longterm debts debtholders would entitled receive interest payments us clearwire corporation subsidiaries notes consolidated financial statements continued relationships among certain stockholders directors officers clearwire sprint two whollyowned subsidiaries sprint holdco sn uhc 1 inc owns largest interest clearwire effective voting economic interest approximately 5044 intel owns voting economic interest clearwire 64 conversion class b common interests corresponding number class b common stock class common stock comcast bright house together voting interest clearwire approximately 66 december 31 2012 december 31 2012 eagle river held warrants purchase 375000 shares class common stock exercise price 300 per share expiration date november 13 2013 clearwire sprint intel comcast bright house party equityholders’ agreement sets forth certain rights obligations equityholders respect governance clearwire transfer restrictions common stock rights first refusal preemptive rights among things addition also entered number commercial agreements sprint google intel outlined 4g mvno agreement nonexclusive 4g mvno agreement refer 4g mvno agreement comcast mvno ii llc twc wireless llc bright house sprint spectrum lpwhich refer sprint spectrum sell wireless broadband services parties 4g mvno agreement purposes purchasers marketing reselling wireless broadband services respective end user subscribers wireless broadband services provided 4g mvno agreement include standard network services request parties certain nonstandard network services sell services prices defined 4g mvno agreement sprint wholesale relationship november 2011 entered november 2011 4g mvno amendment result minimum payments amendment 4g mvno agreement entered sprint april 2011 replaced provisions november 2011 4g mvno amendment november 2011 4g mvno amendment sprint spectrum paying us 9259 million unlimited 4g mobile wimax services resale retail subscribers 2012 2013 approximately twothirds paid service provided 2012 remainder paid service provided 2013 9259 million 1759 million paid offset principal interest due 1500 million promissory note described sprint commitment agreement section issued us sprint part november 2011 4g mvno amendment also agreed elimination device minimum fees 2011 usage based pricing wimax services 2013 lte service beginning 2012 also agreed sprint spectrum may rewholesale wireless broadband services subject certain conditions agreed operate wimax network calendar year 2015 subject satisfaction certain network buildout conditions sprint agreed prepay us another 3500 million installments certain milestones achieved future services provided sprint lte network amount nature prepayment subject reduction certain circumstances including event fail meet initial lte deployment build targets june 30 2013 fail meet certain network specifications also agreed collaborate sprint lte network design architecture deployment including site selection sprint committed use commercially reasonable efforts support certain specified chipset ecosystems launch devices roam lte network including laptop cards smartphones 2013 november 2011 4g mvno amendment also provides additional conditions sale core spectrum assets necessary operate wimax lte networks including agreeing allow sprint spectrum opportunity make offers purchase excess spectrum event propose sell spectrum addition 1500 million received sprint relating sprint promissory note january 2012 twelve months ended december 31 2012 2011 received 5373 million 4343 million respectively sprint 4g broadband wireless services amounts received sprint 4g broadband wireless services year ended december 31 2012 includes 766 million services provided 2011 108 million representing final portion prepayment future services beyond minimum commitment provided amendment 4g mvno agreement entered april 2011 twelve months ended december 31 2012 wholesale revenue recorded attributable sprint comprised approximately 36 total revenues substantially wholesale revenues clearwire corporation subsidiaries notes consolidated financial statements continued sprint commitment agreement november 2011 entered commitment agreement sprint holdco refer commitment agreement part agreement consummate equity offering generates gross proceeds least 4000 million sprint holdco agreed exercise preemptive rights equityholders agreement purchase securities representing sprint holdcos pro rata share securities issued offering to7000 million december 13 2011 closed offering 201250000 shares class common stock 4025 million underwritten public offering pursuant commitment agreement december 13 2011 sprint holdco exercised preemptive rights purchased 173635000 shares class b common stock corresponding number class b common interests proceeds approximately 3314 million terms commitment agreement sprint provided us aggregate principal amount 1500 million january 3 2012 pursuant promissory note issued clearwire communications refer sprint promissory note sprint promissory note bears interest 115 per annum aggregate principal amount 750 million maturing january 2 2013 remaining 750 million principal amount maturing january 2 2014 previously paid sprint may offset amounts payable us sprint promissory note including interest payments due sprint clearwire communications november 2011 4g mvno amendment sprint promissory note entered conjunction november 2011 4g mvno amendment amounts due may offset payments due november 2011 4g mvno amendment treated deferred revenue accounting purposes associated interest costs recorded reduction 9259 million payable sprint unlimited wimax service calendar years 2012 2013 january 2 2013 offset 836 million principal related accrued interest reduce principal amount owe sprint promissory note 750 million sprint promissory note provides certain events default including among things default payment principal interest material breach clearwire communications respect obligations sprint spectrum november 2011 4g mvno amendment termination cancellation november 2011 4g mvno amendment time prior january 2 2014 certain customary bankruptcyrelated events upon occurrence event default sprint may offset apply sprint promissory note deposits credits indebtedness payment obligations property claims owing clearwire communications affiliates sprint addition terms commitment agreement successfully consummated equity offering agreed use commercially reasonable best efforts consummate offering firstpriority senior secured debt amount equal approximately 50 net cash proceeds equity offering earliest practicable time thereafter january 2012 clearwire communications completed offering 2016 senior secured notes par value 3000 million see note 10 longterm debt net discussion issuance debt 3g mvno agreement entered nonexclusive 3g mvno agreement sprint spectrum refer 3g mvno agreement whereby sprint agrees sell code division multiple access mobile voice data communications service purpose resale retail customers data communications service includes sprint’s existing core network services network elements information enable third party provide services network core network enablers subject certain limitations exceptions new core network services core network enablers certain customized services years ended december 31 2012 2011 2010 paid 44 million 178 million 97 million respectively sprint 3g wireless services provided sprint us sprint master site agreement november 2008 entered master site agreement sprint refer master site agreement pursuant sprint established contractual framework procedures leasing tower antenna collocation sites leases specific sites negotiated sprint us request lessee leased premises may used lessee activity connection provision wireless communications services including attachment antennas towers sites term master site agreement ten years date agreement signed term lease specific site five years lessee right extend term additional 20 years monthly fee increase 3 per year lessee also responsible utility costs certain additional fees years ended december 31 2012 2011 2010 made rent payments agreement 596 million 558 million 531 million respectively master agreement network services november 2008 entered master agreement network services refer master agreement network services various sprint affiliated entities refer sprint entities pursuant sprint entities established contractual framework procedures us purchase network services sprint entities may order various services sprint entities including ip network transport services data center colocation tollfree services access following business platforms voicemail instant clearwire corporation subsidiaries notes consolidated financial statements continued messaging services locationbased systems media server services sprint entities provide service level agreement consistent service levels provided similarly situated subscribers pricing specified separate product attachments type service general pricing based midpoint fair market value service sprint entities’ fully allocated cost providing service term master agreement network services five years right extend term additional five years additionally accordance master agreement network services sprint entities assumed certain agreements backhaul services contain commitments extend five years ericsson inc ericsson provides network deployment services us including site acquisition construction management services addition second quarter 2011 entered managed services agreement ericsson operate maintain support network dr hossein eslambolchi currently sits board directors consulting agreement ericsson part consulting agreement dr eslambolchi received payments services ericsson received compensation directly us related relationship ericsson years ended december 31 2012 2011 paid 769 million 411 million respectively ericsson network management services master services agreement november 2008 entered master services agreement sprint entities pursuant sprint entities established contractual framework procedures us purchase application services sprint entities term master services agreement five years right extend term additional five years intel market development agreement entered market development agreement intel refer intel market development agreement pursuant committed deploy mobile wimax networks promote use certain notebook computers mobile internet devices networks intel would develop market sell support wimax embedded chipsets use certain notebook computers mobile internet devices may used networks intel market development agreement last term seven years date agreement intel option renew agreement successive one year terms maximum 13 additional years provided intel meets certain requirements 18 discontinued operations result strategic decision focus investment united states market second quarter 2011 committed sell operations belgium germany spain businesses comprised substantially remaining operations previously reported international segment associated results operations financial position separately reported discontinued operations periods presented results operations financial position presented periods prior second quarter 2011 include businesses reported international segment sale businesses ireland poland romania individually immaterial separate disclosure prior periods year ended december 31 2012 completed sale operations germany belgium spain total expected proceeds approximately 189 million received approximately half expected proceeds expect receive remainder march 2013 connection belgium sale transaction also extended loan approximately 09 million purchaser obtained option utilize proceeds repayment loan obtain 10 equity interest purchaser maturity loan april 2019 recognized gain sale operations approximately 223 million net tax benefits 51 million reclassification cumulative translation adjustments 87 million net loss discontinued operations third quarter 2012 made insolvency filing respect operations spain followed disposition sale result certain intercompany loans related international operations considered uncollectible federal income tax purposes result increase deferred tax liability discontinued operations approximately 1672 million along corresponding deferred tax expense discontinued operations see note 9 income taxes discussion clearwire corporation subsidiaries notes consolidated financial statements continued summarized financial information discontinued operations shown thousands clearwire corporation subsidiaries notes consolidated financial statements continued 19 quarterly financial information unaudited summarized quarterly financial information years ended december 31 2012 2011 follows thousands except per share data 20 parent company condensed financial statements terms agreements governing indebtedness clearwire communications subsidiary clearwire comprises substantially net assets company subsidiary restricted making dividend payments loans advances mandatory tax payments reimbursement costs clearwire restrictions resulted restricted net assets defined securities exchange commission rule 408e3 regulation sx clearwire’s subsidiary exceeding 25 consolidated net assets clearwire subsidiaries clearwire corporation subsidiaries notes consolidated financial statements continued following condensed parentonly financial statements clearwire account investment clearwire communications equity method accounting financial statements read conjunction consolidated financial statements clearwire subsidiaries notes thereto clearwire corporation condensed balance sheets clearwire corporation condensed statements operations clearwire corporation subsidiaries notes consolidated financial statements continued clearwire corporation condensed statements cash flows item 15 exhibits financial statement schedules 1 consolidated financial statements sprint nextel corporation filed part report listed index consolidated financial statements 2 consolidated financial statements clearwire corporation filed part report listed index consolidated financial statements 3 following exhibits filed part report filed herewith schedules andor exhibits filed furnished sec upon request portions exhibit omitted filed separately sec pursuant request confidential treatment sprint furnish sec upon request copies instruments defining rights holders longterm debt exceeding 10 total assets sprint signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized sprint nextel corporation registrant daniel r hesse daniel r hesse chief executive officer president date february 26 2010 pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities indicated 26th day february 2010 daniel r hesse daniel r hesse chief executive officer president robert h brust robert h brust chief financial officer ryan h siurek ryan h siurek vice president principal accounting officer signatures sprint nextel corporation registrant pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities indicated 26th day february 2010 sprint nextel corporation index consolidated financial statements report independent registered public accounting firm board directors shareholders sprint nextel corporation audited accompanying consolidated balance sheets sprint nextel corporation subsidiaries december 31 2009 2008 related consolidated statements operations cash flows shareholders’ equity years threeyear period ended december 31 2009 also audited sprint nextel corporation’s internal control financial reporting december 31 2009 based criteria established internal controlintegrated framework issued committee sponsoring organizations treadway commission coso sprint nextel corporation’s management responsible consolidated financial statements maintaining effective internal control financial reporting assessment effectiveness internal control financial reporting included management’s report internal control financial reporting responsibility express opinion consolidated financial statements opinion company’s internal control financial reporting based audits conducted audits accordance standards public company accounting oversight board united states standards require plan perform audits obtain reasonable assurance whether financial statements free material misstatement whether effective internal control financial reporting maintained material respects audits consolidated financial statements included examining test basis evidence supporting amounts disclosures financial statements assessing accounting principles used significant estimates made management evaluating overall financial statement presentation audit internal control financial reporting included obtaining understanding internal control financial reporting assessing risk material weakness exists testing evaluating design operating effectiveness internal control based assessed risk audits also included performing procedures considered necessary circumstances believe audits provide reasonable basis opinions company’s internal control financial reporting process designed provide reasonable assurance regarding reliability financial reporting preparation financial statements external purposes accordance generally accepted accounting principles company’s internal control financial reporting includes policies procedures 1 pertain maintenance records reasonable detail accurately fairly reflect transactions dispositions assets company 2 provide reasonable assurance transactions recorded necessary permit preparation financial statements accordance generally accepted accounting principles receipts expenditures company made accordance authorizations management directors company 3 provide reasonable assurance regarding prevention timely detection unauthorized acquisition use disposition company’s assets could material effect financial statements inherent limitations internal control financial reporting may prevent detect misstatements also projections evaluation effectiveness future periods subject risk controls may become inadequate changes conditions degree compliance policies procedures may deteriorate opinion consolidated financial statements referred present fairly material respects financial position sprint nextel corporation subsidiaries december 31 2009 2008 results operations cash flows years threeyear period ended december 31 2009 conformity us generally accepted accounting principles also opinion sprint nextel corporation maintained material respects effective internal control financial reporting december 31 2009 based criteria established internal controlintegrated framework issued committee sponsoring organizations treadway commission discussed note 2 consolidated financial statements company adopted recently issued accounting guidance regarding accounting business combinations equity method investments 2009 kpmg llp kansas city missouri february 26 2010 sprint nextel corporation consolidated balance sheets see notes consolidated financial statements sprint nextel corporation consolidated statements operations see notes consolidated financial statements sprint nextel corporation consolidated statements cash flows see notes consolidated financial statements sprint nextel corporation consolidated statements shareholders’ equity millions sprint nextel corporation consolidated statements shareholders’ equitycontinued millions 1 see note 14 information regarding common shares 2 november 28 2008 recorded 424 million gain deconsolidation net assets contributed clearwire net 260 million related taxes see note 4 details transaction 3 made immaterial correction previously reported shareholders’ equity paidin capital accumulated deficitretained earnings december 31 2006 adjusted 18 million 292 million respectively related reduction deferred tax liabilities completing detailed reconciliation net deferred tax liabilities 2009 determined net deferred tax liabilities overstated 310 million see notes consolidated financial statements sprint nextel corporation notes consolidated financial statements index sprint nextel corporation notes consolidated financial statements note 1 description operations sprint nextel corporation subsidiaries “sprint” “we” “us” “our” “company” communications company offering comprehensive range wireless wireline communications products services designed meet needs individual consumers businesses government subscribers resellers organized operations meet needs targeted subscriber groups focused communications solutions incorporate capabilities wireless wireline services result acquisition virgin mobile usa inc vmu november 24 2009 ipcs inc ipcs december 4 2009 see note 3 operations vmu ipcs consolidated prospectively respective acquisition dates wireless segment includes retail wholesale revenue wide array wireless mobile telephone wireless data transmission services sale wireless devices accessories us puerto rico us virgin islands wireline segment includes revenue domestic international wireline voice data communication services including services cable multiple systems operators resell local long distance service use back office systems network assets support telephone services provided cable facilities sprint’s fourth generation 4g technology capabilities exist mobile virtual network operator mvno relationship 56 ownership interests clearwire corporation consolidated subsidiary clearwire communications llc together clearwire deploying worldwide interoperability microwave access wimax technology new network markets serve services supported technology gives subscribers compatible devices highspeed access internet variety increasingly sophisticated data services see note 4 note 2 summary significant accounting policies information consolidation policies estimates consolidated financial statements include accounts wholly owned subsidiaries control controlling financial interest significant intercompany transactions balances eliminated consolidation investments sprint maintains majority ownership lacks full decision making ability major issues accounted using equity method governance sprint’s major unconsolidated investment clearwire based board representation sprint maintain majority vote ability control operating financial policies consolidated financial statements prepared conformity accounting principles generally accepted united states gaap requires management company make estimates assumptions affect reported amounts assets liabilities revenues expenses disclosure contingent assets liabilities date consolidated financial statements estimates inherently subject judgment actual results could differ certain prior period amounts reclassified conform current period presentation subsequent events evaluated disclosure date financial statements filed securities exchange commission summary significant accounting policies cash equivalents cash equivalents generally include highly liquid investments maturities time purchase three months less investments include money market funds certificates deposit us government governmentsponsored debt securities corporate debt securities municipal securities bankrelated securities credit debit card transactions process sprint nextel corporation notes consolidated financial statements allowance doubtful accounts allowance doubtful accounts established sufficient cover probable reasonably estimable losses number subscriber accounts practical review collectibility accounts individually determine amount allowance doubtful accounts period although account level analysis performed respect large wireless wireline subscribers estimate allowance doubtful accounts considers number factors including collection experience aging accounts receivable portfolios credit quality subscriber base estimated proceeds future bad debt sales qualitative considerations including macroeconomic factors amounts written allowance doubtful accounts net recoveries 487 million 826 million 952 million 2009 2008 2007 respectively device accessory inventory inventories stated lower cost market cost determined firstin firstout fifo method costs devices related revenues generated device sales equipment net subsidy recognized time sale expected equipment net subsidy recognized prior time sale promotional discount decision generally made point sale equipment net subsidies expected recovered service revenues net realizable value devices inventory analyzed regular basis analysis includes assessing obsolescence sales forecasts product life cycle marketplace considerations assessments regarding factors adversely change may required sell devices higher subsidy potentially record expense future periods prior point sale property plant equipment property plant equipment ppe including improvements extend useful lives recognized cost depreciation property plant equipment generally calculated using straightline method based estimated economic useful lives 3 30 years buildings improvements network equipment site costs related software 3 12 years nonnetwork internal use software office equipment leasehold improvements depreciated shorter lease term estimated useful life respective assets calculate depreciation certain network assets using group life method accordingly ordinary asset retirements disposals assets charged accumulated depreciation gain loss recognized gains losses associated asset retirements disposals recognized consolidated statements operations depreciation rates assets using group life method revised periodically required depreciation method repair maintenance costs research development costs expensed incurred capitalize costs network nonnetwork software developed obtained internal use application development stage costs included ppe software placed service depreciated estimated useful lives 3 5 years costs incurred preliminary project postimplementation stage well maintenance training costs expensed incurred investments shortterm investments recognized amortized cost classified current assets consolidated balance sheets original maturities purchase greater three months less one year certain investments accounted using equity method based company’s ownership interest ability exercise significant influence accordingly initial investment recognized cost subsequently adjusted recognize company’s share earnings losses investee reporting period subsequent investment date sprint nextel corporation notes consolidated financial statements investments evaluated otherthantemporary impairment regular basis otherthantemporary impairment occurs estimated fair value investment carrying value difference determined recoverable evaluation requires significant judgment regarding limited severity duration impairment ability intent hold securities recovery financial condition liquidity nearterm prospects issuer specific events factors longlived asset impairment sprint evaluates longlived assets including intangible assets subject amortization impairment whenever events changes circumstances indicate carrying amount asset group may recoverable probable undiscounted future cash flows sufficient recover asset group’s carrying amount impairment determined excess asset group’s net carrying value estimated fair value refer note 9 additional information asset impairments certain assets yet deployed business including network equipment cell site development costs software development periodically assessed determine recoverability network equipment cell site development costs expensed whenever events changes circumstances cause company conclude assets longer needed meet management’s strategic network plans deployed software development costs expensed longer probable software project deployed network equipment removed network also periodically assessed determine recoverability continue operational challenges including obtaining retaining subscribers future cash flows company may sufficient recover carrying value wireless asset group could record asset impairments material sprint’s consolidated results operations financial condition indefinitelived intangible assets goodwill represents excess consideration paid estimated fair value net tangible identifiable intangible assets acquired business combinations fourth quarter 2009 connection acquisitions vmu ipcs recognized goodwill 373 million representing entire balance goodwill december 31 2009 indefinitelived intangible assets include federal communications commission fcc licenses acquired primarily fcc auctions business combinations deploy wireless services certain trademarks determining whether intangible asset goodwill indefinitelived consider expected use assets regulatory economic environment within used effects obsolescence use assess indefinitelived intangible assets impairment least annually necessary frequently whenever events changes circumstances indicate asset may impaired indicators may include sustained significant decline market capitalization since previous impairment assessment significant decline expected future cash flows significant adverse change legal factors business climate unanticipated competition andor slower growth rates among others benefit plans provide defined benefit pension plan certain postretirement benefits certain employees sponsor defined contribution plan employees objective investment portfolio pension plan achieve longterm nominal rate return net fees exceeds plans longterm expected rate return investments funding purposes meet objective investment strategy governed asset allocation policy whereby targeted allocation percentage assigned asset class follows 50 us equities 15 international equities 15 fixed income investments 10 real estate investments 10 investments including hedge funds actual allocations allowed deviate target allocation percentages plus minus 5 investments pension plan measured fair value recurring basis determined using quoted market prices estimated fair values december 31 2009 59 investment portfolio valued quoted prices active markets identical assets 26 valued using quoted prices similar sprint nextel corporation notes consolidated financial statements assets active inactive markets observable inputs 15 valued using unobservable inputs supported little market activity december 31 2009 2008 fair value plan assets aggregate 12 billion 896 million respectively fair value projected benefit obligations aggregate 16 billion 17 billion respectively result plans underfunded 403 million december 31 2009 805 million december 31 2008 recorded net liability consolidated balance sheets offset liability recorded equity component accumulated comprehensive loss net tax including 2009 2008 adjustments 140 million 379 million respectively funded status plan affected primarily improvement fair value plan assets resulting recovery losses caused poor performance financial markets 2008 improvement combined increase discount rate 620 675 used estimate projected benefit obligation cash contribution 200 million 2009 intend make future cash contributions pension plan amount necessary meet minimum funding requirements according applicable benefit plan regulations december 31 2005 pension plan amended freeze benefit plan accruals participants defined contribution plan participants may contribute portion eligible pay plan payroll withholdings effective compensation paid march 6 2009 amount matching contribution discretionary determined board directors company based upon formula related profitability company profitability level attained company could match 100 participant’s contributions maximum 4 eligible compensation january 1 2009 march 6 2009 matched cash 100 participants’ contributions 4 eligible compensation 2008 2007 matched 100 participants’ contributions 5 eligible compensation cash fixed matching contributions totaled 32 million 119 million 128 million 2009 2008 2007 respectively revenue recognition operating revenues primarily consist wireless service revenues generated device accessory sales revenues wholesale operators third party affiliates pcs affiliates well long distance voice data internet revenues service revenues consist fixed monthly recurring charges variable usage charges roaming directory assistance operatorassisted calling miscellaneous fees activation upgrade late payment reconnection early termination fees certain regulatory related fees recognize service revenues services rendered equipment revenue title passes dealer enduser subscriber recognize revenue access charges services charged fixed amounts ratably service period net credits adjustments service discounts billing disputes fraud unauthorized usage recognize excess wireless usage long distance revenue contractual rates per minute minutes used additionally recognize excess wireless data usage based kilobytes onetime use charges use premium services rendered result cutoff times multiple billing cycles month required estimate amount subscriber revenues earned billed end billing cycle end reporting period estimates based primarily rate plans effect historical usage billing patterns regulatory fees costs recorded gross largest component regulatory fees universal service fund represented 2 net operating revenues 2009 2008 2007 accounting estimates related recognition revenue results operations require us make assumptions future billing adjustments disputes subscribers unauthorized usage future returns mailin rebates device sales dealer commissions cash consideration given us dealer enduser subscriber presumed reduction revenue unless receive identifiable benefit exchange consideration fair value benefit reasonably estimated case consideration recorded selling sprint nextel corporation notes consolidated financial statements expense compensate dealers using specific compensation programs related sale devices subscriber service contracts commission earned dealer solely due selling activity relating wireless service cost recorded selling expense commission earned dealer due dealer selling one devices cost recorded reduction equipment revenue advertising costs recognize advertising expense incurred selling general administrative expense advertising expenses totaled 15 billion 15 billion 18 billion years ended december 31 2009 2008 2007 respectively new accounting pronouncements june 2009 financial accounting standards board fasb issued statement financial accounting standards sfas 168 fasb accounting standards codification hierarchy generally accepted accounting principles establishes fasb accounting standards codification source authoritative gaap united states except rules interpretive releases issued securities exchange commission sec also sources authoritative gaap sec registrants subsequent issuance sfas 168 fasb longer issue statements staff positions emerging issues task force abstracts issue accounting standards updates asu amend codification result codification supersedes authoritative literature effective prior june 2009 fasb issued authoritative literature regarding accounting business combinations noncontrolling interests consolidated financial statements disclosures derivative instruments hedging activities effective quarter ended march 31 2009 business combinations guidance adopted january 1 2009 result adoption fourth quarter acquisitions see note 3 recognized gain 151 million 92 million tax related increase estimated fair value noncontrolling interest vmu addition new guidance transaction costs associated exit activities expensed incurred remaining guidance material effect consolidated financial statements june 2008 fasb issued authoritative literature regarding determining whether instruments granted sharebased payment transactions participating securities effective beginning january 1 2009 based pronouncement outstanding nonvested restricted stock units contain nonforfeitable right receive dividends whether paid unpaid participating securities therefore included computation basic diluted earnings per share required pronouncement prior period basic diluted earnings per share weighted average common shares outstanding adjusted impact basic diluted earnings per share weighted average common shares outstanding material effect consolidated financial statements november 2008 fasb issued authoritative literature regarding equity method investment accounting considerations clarify application equity method accounting among things literature requires equity method investors account equity investee share issuances investor sold proportionate share investment recognition resulting gain loss earnings company adopted requirements effective january 1 2009 result recognized pretax loss 154 million 96 million tax related dilution investment clearwire resulting first quarter 2009 share issuance april 2009 fasb issued authoritative literature regarding interim disclosures fair value financial instruments require disclosures fair value financial instruments interim reporting periods publicly traded companies ii recognition presentation otherthantemporary impairments amends otherthantemporary impairment guidance debt securities make guidance operational improve presentation disclosure otherthantemporary impairments sprint nextel corporation notes consolidated financial statements debt equity securities financial statements iii determining fair value volume level activity asset liability significantly decreased identifying transactions orderly provides additional guidance determining fair value volume level trading activity asset liability significantly decreased compared normal market activity pronouncements effective beginning second quarter 2009 material effect consolidated financial statements addition fasb issued guidance related accounting assets acquired liabilities assumed business combination arise contingencies address application issues relevant initial recognition measurement subsequent measurement accounting disclosure assets liabilities arising contingencies business combination guidance material effect consolidated financial statements effective business combinations january 1 2009 utilized accounting acquisitions disclosed note 3 june 2009 fasb issued authoritative literature regarding amendments fasb interpretation 46r changes various aspects accounting disclosures interests variable interest entities accounting transfers financial assets issued order improve relevance representational faithfulness comparability information reporting entity provides financial statements transfer financial assets effects transfer financial position financial performance cash flows transferor’s continuing involvement transferred financial assets guidance effective beginning january 2010 expected material effect consolidated financial statements september 2009 fasb modified accounting multipledeliverable revenue arrangements certain revenue arrangements include software elements modifications alter methods previously required allocating consideration received multipleelement arrangements require revenue allocation elements containing software components nonsoftware components function together deliver product’s essential functionality modifications effective prospectively fiscal year ended december 31 2011 currently evaluated determine effect consolidated financial statements january 2010 fasb issued authoritative guidance regarding improving disclosures fair value measurements requires new amended disclosure requirements classes assets liabilities inputs valuation techniques transfers levels fair value measurements accounting distributions shareholders components stock cash clarifies accounting distributions shareholders offer ability elect receive entire distribution cash shares equivalent value guidance effective beginning january 2010 expected material effect consolidated financial statements concentrations risk accounts notes receivable subject substantial concentration credit risk motorola inc sole source equipment supports iden network devices offer nextel brand except primarily blackberry® devices although handset supply agreement motorola structured provide competitivelypriced devices cost iden devices generally higher devices incorporate similar multifunction capability difference may make difficult costly us offer devices prices attractive potential subscribers addition higher cost iden devices requires us absorb larger part cost offering devices new existing subscribers increased costs equipment subsidy expenses may reduce growth profitability also must rely motorola develop devices equipment capable supporting features services offer subscribers services iden network including dualmode devices operate iden cdma networks decision motorola discontinue inability motorola continue manufacturing supporting enhancing idenbased infrastructure devices would sprint nextel corporation notes consolidated financial statements material adverse effect us addition iden technology widely adopted fewer subscribers wireless technologies expect time less likely manufacturers motorola willing make significant financial commitment required license develop manufacture iden infrastructure equipment devices ability complete spectrum reconfiguration plan connection fcc’s report order described note 12 dependent part motorola note 3 acquisitions fourth quarter 2009 completed acquisitions virgin mobile usa inc ipcs inc together acquisitions within wireless segment consideration paid acquired entities allocated assets acquired liabilities assumed based estimated fair values respective acquisition dates excess consideration paid net tangible identifiable intangible assets recognized goodwill result acquisitions sprint recognized 373 million goodwill representing balance december 31 2009 purchase price allocation used preparation financial statements preliminary due continuing analyses relating determination estimated fair values assets acquired liabilities assumed changes valuation net assets acquired based information acquisition date result adjustment estimated fair value assets acquired liabilities assumed corresponding adjustment goodwill management expect finalization matters material effect allocation goodwill recognized connection acquisitions deductible tax purposes results operations acquired entity included sprint’s consolidated results operations prospectively respective date acquisition estimated fair values assets acquired liabilities assumed preliminarily determined using income cost market approaches fair value measurements primarily based significant inputs observable market longterm debt assumed acquisition ipcs discounted cash flows income approach primarily used value identifiable intangible assets consisting primarily customer relationships reacquired rights virgin mobile trademark well effective settlement litigation depreciated replacement cost approach used estimate fair value property plant equipment accordance recently adopted guidance accounting business combinations sprint measured 100 acquiree’s assets liabilities fair value including noncontrolling interest vmu held sprint prior acquisition sprint’s previously held noncontrolling interest vmu valued based market approach considering amounts paid acquire remaining 859 ownership vmu ipcs acquisitions november 24 2009 completed acquisition remaining 859 vmu national provider predominantly prepaid wireless communications services cash stock business combination among things broaden company’s position prepaid wireless market aggregate consideration including fair value sprint’s noncontrolling interest vmu 701 million consisting 962 million shares sprint common stock valued 361 million sharebased consideration 18 million 265 million net cash value 962 million shares sprint common stock issued determined based sprint’s common stock share price 375 closing price date acquisition result acquisition recognized gain 151 million resulting excess estimated fair value 57 million previously held 141 interest carrying value sprint’s historical carrying value previously held interest vmu reflected 94 million liability resulting return capital excess investment vmu december 4 2009 completed acquisition 100 common stock ipcs sprint pcs affiliate allcash business combination aggregate consideration 295 million among things expand direct subscriber base grow direct coverage area simplify business operations sprint nextel corporation notes consolidated financial statements acquisition ipcs resulted effective settlement preexisting litigation september 24 2008 illinois supreme court denied company’s petition appeal contract dispute ipcs decision resulted previous ruling upheld required sprint cease owning operating managing iden network parts certain midwestern states including illinois iowa michigan missouri nebraska wisconsin small portion indiana result acquisition disputes resolved company recorded 23 million charge increase operating expenses representing estimated fair value settled litigation following table summarizes consideration paid acquisitions amounts recognized assets acquired liabilities assumed acquisition date identifiable intangible assets acquired acquisitions include following sprint nextel corporation notes consolidated financial statements unaudited pro forma combined historical results vmu ipcs giving effect acquisitions assuming transactions consummated beginning years ended december 31 2009 2008 would material sprint’s results operations note 4 investments marketable equity securities investments marketable equity securities recognized fair value considered availableforsale securities accordingly unrealized holding gains losses securities recognized accumulated comprehensive income loss net related income tax realized gains losses measured reclassified accumulated comprehensive income loss earnings based identifying specific investments sold otherthantemporary impairment exists gross unrealized holding gains losses insignificant 2009 2008 equity method investment clearwire november 2008 closed transaction clearwire combine nextgeneration wireless broadband businesses closing sprint contributed assets carrying value 33 billion including 25 gigahertz ghz spectrum wimax related assets together clearwire’s existing business cash contributions investors used build operate nextgeneration wireless broadband network provide entire communities highspeed residential mobile internet access services residential voice services part arrangement entered various agreements clearwire including mvno agreements clearwire purchase 3g cdma mobile voice data communication services sprint resale end users sprint purchase 4g wireless broadband services resale end users amounts agreements yet material 2009 clearwire continues buildout 4g network conjunction transaction clearwire agreed reimburse sprint certain cash expenditures incurred prior closing transaction amount 388 million approximately 213 million paid clearwire 2008 remaining 175 million provided variable interest bearing note maturing may 2011 included equity method investments reimbursement accounted reduction initial investment clearwire also quarter ended december 31 2008 recognized pretax gain within shareholders’ equity 684 million 424 million tax related difference share clearwire’s net assets upon close carrying value net assets contributed clearwire equity losses clearwire 803 million year ended december 31 2009 represents proportionate share clearwire’s net loss 649 million pretax loss 154 million 96 million tax representing finalization ownership percentages subject change based trading price clearwire stock 90 days subsequent close november 9 2009 sprint addition investors entered agreement clearwire invest total approximately 156 billion exchange class b voting common stock clearwire corporation class b nonvoting common interests clearwire communications llc together “class b sprint nextel corporation notes consolidated financial statements common interests” sprint agreed contribute 1176 billion three installments exchange approximately 1604 million class b common interests fourth quarter 2009 sprint’s net investment increased approximately 11 billion exchange 155 million shares class b common interests sprint’s final installment 50 million expected contributed first quarter 2010 upon clearwire’s satisfaction certain closing conditions conjunction sprint’s additional contribution refinanced note receivable clearwire extended maturity date december 2015 fixed interest rate 12 increased face amount 184 million result transactions sprint owns 56 noncontrolling interest clearwire form 525 million shares class b common stock clearwire corporation 525 million class b common interests clearwire communications llc december 31 2009 carrying value totaled 43 billion share clearwire corporation class b common stock together one clearwire communications llc class b common interest exchangeable one share clearwire corporation’s class common stock publicly traded security sprint’s investment clearwire represents 825 per share based assumed exchange class b common interests class common shares market price clearwire’s publicly traded stock 676 per share december 31 2009 sprint’s investment clearwire part longterm plan participate 4g wireless broadband market benefit clearwire’s advantaged position market clearwire continuing execute business plan including building 4g wireless broadband network clearwire sprint investors beginning offer 4g products utilizing network sprint intend sell investment foreseeable future recoverability investment affected shortterm fluctuations clearwire’s stock price sprint continues believe decline clearwire’s stock price temporary expects recover fully carrying value investment summarized financial information clearwire follows sprint nextel corporation notes consolidated financial statements note 5 financial instruments cash equivalents accounts notes receivable accounts payable carried cost approximates fair value included table shortterm investments consisting primarily time deposits treasury securities marketable equity securities measured recurring basis amounts approximate fair value changes fair value assets liabilities carried fair value recognized comprehensive income loss period following table presents information regarding method valuation bases assets liabilities measured fair value recurring basis december 31 2009 estimated fair value longterm debt financing capital lease obligations including current maturities based current market prices interest rates following table presents carrying amounts estimated fair values financial instruments note 6 property plant equipment network equipment site costs related software includes switching equipment cell site towers site development costs radio frequency equipment network software digital fiber optic cable transport facilities transmissionrelated equipment buildings improvements principally consists owned general office facilities retail stores leasehold improvements nonnetwork internal use software office equipment primarily consists furniture information technology systems equipment vehicles construction progress depreciated placed service primarily includes materials transmission related equipment labor engineering site development costs interest costs relating construction development network interest incurred connection construction longlived assets totaled 12 million 123 million 127 million years ended december 31 2009 2008 2007 respectively components property plant equipment related accumulated depreciation follows sprint nextel corporation notes consolidated financial statements note 7 intangible assets indefinitelived intangibles 1 2008 contributed 25 billion fcc licenses clearwire acquired 10 billion fcc licenses normal course business including requirements report order addition reduced fcc licenses 265 million due reversal unrecognized tax benefits see note 11 additional information 2 2009 recognized goodwill 373 million associated acquisitions vmu ipcs see note 3 hold fcc licenses authorizing use radio frequency spectrum deploy wireless services 19 ghz licenses utilized cdma network 800 megahertz mhz 900 mhz licenses utilized iden network also hold 19 ghz fcc licenses currently utilized long company acts within requirements constraints regulatory authorities renewal extension licenses reasonably certain minimal cost aware technology developed would render spectrum obsolete concluded licenses indefinitelived intangible assets sprint boost mobile trademarks identified indefinitelived intangible assets goodwill represents excess consideration paid estimated fair value net tangible identifiable intangible assets acquired business combinations fourth quarter 2009 acquired vmu ipcs see note 3 based preliminary purchase price allocation recorded 373 million goodwill recoverability assessment carrying value sprint’s goodwill included wireless segment represents wireless reporting unit estimate fair value wireless reporting unit using discounted expected future cash flows supported results market approach valuation models fair value wireless reporting unit exceeds net book value goodwill impaired testing necessary net book value wireless reporting unit exceeds estimated fair value estimate fair value goodwill determine amount impairment loss determination estimated fair value wireless reporting unit assets liabilities within wireless reporting unit requires significant estimates assumptions estimates assumptions primarily include limited discount rate terminal growth rate operating income depreciation amortization oibda capital expenditure forecasts due inherent uncertainty involved making estimates actual results could differ estimates evaluate merits significant assumption individually aggregate used determine fair value wireless reporting unit well fair values corresponding assets liabilities within wireless reporting unit reasonableness sprint nextel corporation notes consolidated financial statements goodwill assessments 2007 conducted annual impairment assessment 307 billion goodwill majority goodwill recorded connection prior business combinations including nextel communications inc nextel partners inc acquisitions certain pcs affiliates provide services cdma network fourth quarter 2007 economic conditions began decline experienced sustained significant decline stock price reduced market capitalization reflected wireless segment’s lower expected performance due large part net subscriber losses based results 2007 assessment estimated fair value goodwill 978 million resulting goodwill impairment 296 billion fourth quarter 2007 2008 economic conditions continued significantly deteriorate due part ongoing credit crisis financial markets updated forecasted cash flows wireless reporting unit resulted reduction estimated fair value wireless reporting unit compared 2007 estimate fair value primarily reflecting several factors including among others discount rate ability attract retain subscribers particularly postpaid subscribers expected reductions average voice revenue per postpaid subscriber costs operating wireless networks based results 2008 assessment estimated fair value goodwill zero resulting goodwill impairment 963 million fourth quarter 2008 intangible assets subject amortization sprint’s customer relationships amortized period two five years using sum years’ digits method intangible assets primarily include certain rights affiliation agreements reacquired connection acquisitions pcs affiliates nextel partners inc amortized remaining terms affiliation agreements straightline basis nextel direct connect virgin mobile trade names amortized straightline basis conjunction annual assessments indefinitelived intangibles impairment performed recoverability test wireless longlived assets included cash flow projections wireless operations along cash flows associated eventual disposition longlived assets included estimated proceeds assumed sale fcc licenses trademarks customer relationships estimated undiscounted future cash flows wireless longlived assets exceeded carrying amount result impairment charge recorded addition reassessed remaining useful lives longlived assets concluded appropriate sprint nextel corporation notes consolidated financial statements note 8 longterm debt financing capital lease obligations 1 includes 105 million outstanding principal related consolidated variable interest entity december 31 2009 sprint nextel corporation parent corporation 50 billion principal debt outstanding including credit facilities addition 146 billion principal longterm debt issued whollyowned subsidiaries guaranteed parent approximately 99 billion issued finance subsidiary sprint capital corporation fully unconditionally guaranteed indentures financing arrangements certain subsidiaries’ debt contain provisions limit cash dividend payments subsidiary common stock transfer cash form advances subsidiaries parent corporation generally restricted december 31 2009 14 billion outstanding debt comprised certain secured notes financing capital lease obligations mortgages secured 12 billion gross property plant equipment assets cash interest payments 14 billion 14 billion 15 billion years ended december 31 2009 2008 2007 notes consist senior serial redeemable senior notes unsecured secured notes ipcs secured solely underlying assets ipcs cash interest notes generally payable semiannually arrears approximately 184 billion notes redeemable company’s discretion including accrued interest weighted average effective interest rate related senior notes 65 2009 2008 december 2009 company assumed 417 million net 62 million discount secured floating rate notes due 2013 2014 part acquisition ipcs company may redeem notes time prior maturity change control event defined ipcs indenture occurs ipcs required make offer repurchase outstanding principal cash price equal 101 principal amount sprint nextel corporation notes consolidated financial statements august 11 2009 company issued 13 billion principal senior notes due 2017 interest payable semiannually february 15 august 15 fixed rate 8375 company may redeem notes time prior maturity notes unsecured senior obligations rank equally existing unsecured senior indebtedness change control event defined related indenture occurs sprint required make offer repurchase notes cash price equal 101 principal amount may 2009 outstanding 638 senior notes due 2009 repaid totaling 600 million plus accrued unpaid interest september 16 2009 outstanding 525 convertible senior notes due 2010 redeemed 100 principal amount totaling 607 million plus accrued unpaid interest 2008 company made payments 13 billion 235 million 250 million toward early redemption 6125 senior notes due november 2008 extinguishment us unwired inc’s 10 second priority senior secured notes due 2012 extinguishment alamosa delaware inc’s 85 senior notes due 2012 respectively credit facilities december 31 2009 18 billion letters credit including 17 billion letter credit required fcc’s report order reconfigure 800 mhz band outstanding 45 billion revolving bank credit facility expires december 19 2010 result company 27 billion borrowing capacity available revolving bank credit facility december 31 2009 terms loan provide interest rate equal london interbank offered rate libor plus spread varies depending company’s credit ratings unsecured loan agreement export development canada mature march 2012 terms similar revolving bank credit facility february 2008 drew 25 billion revolving bank credit facility proceeds used repay 17 billion senior notes second third quarters 2008 second half 2008 repaid 15 billion revolving bank credit facility fourth quarter 2009 repaid remaining outstanding balance 10 billion commercial paper 2008 repaid full commercial paper outstanding commercial paper program commenced 2006 20 billion program backed revolving credit facility reduced amount could borrow facility extent commercial paper outstanding financing capital lease obligations 2008 closed transaction towerco acquisition llc sold approximately 3000 cell sites subsequently leased space cell sites period ten years renewal options additional 20 years due continued involvement property sold accounted transaction financing cell sites continue included property plant equipment capital lease obligations primarily use communication switches covenants december 31 2009 company compliance restrictive financial covenants associated borrowings maturity dates borrowings may accelerate comply covenants default borrowings could trigger defaults debt obligations turn could result maturities accelerated indentures govern outstanding senior notes also require compliance various covenants including limitations incurrence indebtedness liens company subsidiaries sprint nextel corporation notes consolidated financial statements currently restricted paying cash dividends ratio total indebtedness trailing four quarters earnings interest taxes depreciation amortization certain nonrecurring items defined credit facility adjusted ebitda exceeds 25 10 company also obligated repay credit facilities certain changeofcontrol events occur future maturities longterm debt financing obligation capital lease obligations years subsequent december 31 2009 scheduled annual principal payments longterm debt financing obligation capital lease obligations outstanding december 31 2009 follows note 9 severance exit costs asset impairments liabilities severance exit costs recognized based upon nature cost incurred involuntary separation plans completed within guidelines written involuntary separation plan liability recognized probable reasonably estimable voluntary separation plans vsp liability recognized vsp irrevocably accepted employee onetime termination benefits additional severance pay benefit payouts exit costs lease termination costs liability measured recognized initially fair value period liability incurred subsequent changes liability recognized adjustments period change severance exit costs associated business combinations recorded component purchase price allocation periods prior 2009 generally resulting additional goodwill beginning 2009 conjunction recently adopted guidance accounting business combinations company records severance exit costs associated business combinations results operations incurred severance exit costs activity 2009 recognized 400 million severance exit costs related primarily reduction workforce announcements 2009 amounts 307 million related wireless segment 93 million related wireline segment 2008 recognized 355 million severance exit costs related separation employees continued organizational realignment initiatives amounts 270 million related wireless segment 62 million related wireline segment remaining 23 million related corporate 2007 recognized 230 million 47 million expenses severance exit costs related wireless wireline segments respectively sprint nextel corporation notes consolidated financial statements following provide activity severance exit costs liability included “accrued expenses current liabilities” asset impairment 2009 recorded asset impairments 47 million primarily related network asset equipment wireless segment longer necessary management’s strategic plans 2008 recorded asset impairments 480 million primarily related cell site development costs network asset equipment wireless segment longer necessary management’s strategic plans 2007 asset impairments 163 million primarily attributable wireless segment included writeoff cell site development costs abandoned sites would used based management’s strategic network plans sale velocita wireless closing retail stores due integration efforts sprint nextel corporation notes consolidated financial statements note 10 supplemental financial information 1 includes liabilities amounts 150 million 153 million december 31 2009 2008 respectively checks issued excess associated bank balances yet presented collection sprint nextel corporation notes consolidated financial statements note 11 income taxes income tax benefit expense consists following differences caused effective income tax rates vary 35 federal statutory rate income taxes follows income tax benefit expense allocated items follows sprint nextel corporation notes consolidated financial statements 1 amounts recorded directly shareholders’ equityaccumulated comprehensive loss consolidated balance sheets 2 amounts recorded directly shareholders’ equitypaidin capital consolidated balance sheets recognize deferred income taxes temporary differences carrying amounts assets liabilities financial statement purposes tax bases deferred tax assets also recorded operating loss capital loss tax credit carryforwards sources differences give rise deferred income tax assets liabilities december 31 2009 2008 along income tax effect follows 2009 2008 incurred 3 million 55 million respectively foreign loss included loss income taxes 2007 132 million foreign income included loss income taxes material unremitted earnings foreign subsidiaries cash paid income taxes net 31 million 51 million 2009 2007 respectively cash refunds income taxes received net totaling 30 million 2008 1998 acquired 229 million potential tax benefits related net operating loss carryforwards controlling interest acquisition wireless joint venture call pcs restructuring benefits acquired pcs restructuring subject certain realization restrictions various tax laws required reimburse former cable company partners joint venture net operating loss tax credit carryforward benefits generated pcs restructuring realization us produces cash benefit would otherwise realized reimbursement equal 60 net cash benefit received us made former cable company partners shares stock december 31 2009 unexpired carryforward benefits subject requirement total 177 million maintained valuation allowance entire amount tax benefits sprint nextel corporation notes consolidated financial statements december 31 2009 federal operating loss carryforwards 64 billion state operating loss carryforwards 12 billion related loss carryforwards federal tax benefits 22 billion net state tax benefits 554 million approximately 324 million federal operating loss carryforwards expire prior 2014 remaining 61 billion expire varying amounts 2018 2029 state operating loss carryforwards expire varying amounts 2029 addition available income tax purposes federal alternative minimum tax net operating loss carryforwards 53 billion state alternative minimum tax net operating loss carryforwards 12 billion loss carryforwards expire varying amounts 2029 also available capital loss carryforwards 108 million related capital loss carryforwards tax benefits 38 million capital loss carryforwards 104 million expire 2013 remaining 4 million expire 2014 also available 479 million federal state income tax credit carryforwards december 31 2009 included amount 124 million income tax credits expire prior 2014 219 million expire varying amounts 2014 2029 remaining 136 million expire valuation allowances deferred tax assets recognized determined likely asset realized valuation allowance related deferred income tax assets increased 301 million 2009 decreased 12 million 2008 2009 increase primarily results 306 million fourth quarter noncash charge establish additional valuation allowance deferred tax assets related federal state net operating capital loss carryforwards 2008 decrease primarily related utilization expiration income tax carryforwards reclassification deferred tax liabilities fourth quarter 2009 valuation allowance increase necessary recent history consecutive annual losses prevents us continuing rely expected future income evaluating realizability deferred tax assets therefore expect record significant tax benefits additional operating losses incurred 2010 believe likely deferred income tax assets net valuation allowance realized based current income tax laws expectations future taxable income stemming reversal existing deferred tax liabilities uncertainties surrounding income tax law changes shifts operations state taxing jurisdictions future operating income levels may however affect ultimate realization deferred income tax assets unrecognized tax benefits established uncertain tax positions based upon estimates regarding potential future challenges positions largest amount greater fifty percent likely realized upon ultimate settlement estimates updated reporting date based facts circumstances information available interest related unrecognized tax benefits recognized interest expense penalties recognized additional income tax expense total unrecognized tax benefits attributable uncertain tax positions december 31 2009 december 31 2008 284 million 449 million respectively december 31 2009 total unrecognized tax benefits included items would favorably affect income tax provision 208 million recognized december 31 2009 2008 accrued liability income tax related interest 42 million 40 million respectively accrued liability penalties 7 million 13 million december 31 2009 2008 respectively sprint nextel corporation notes consolidated financial statements reconciliation beginning ending amount unrecognized tax benefits follows 2009 reduction unrecognized tax benefits principally attributable income tax settlements us federal jurisdiction file income tax returns us federal jurisdiction state jurisdiction imposes income tax also file income tax returns number foreign jurisdictions however foreign income tax activity immaterial internal revenue service irs currently conducting examination 2007 2008 consolidated income tax returns completed examination consolidated returns years prior 2007 reached settlement agreements appeals division irs examination issues dispute years prior 2005 exception one issue immaterial consolidated financial position results operations resolution 2005 2006 disputed issues appeals division irs may reached next 12 months however immaterial consolidated financial position results operations disputed issues 2001 premerger 2005 consolidated income tax returns subsidiary nextel communications inc resolved appeals division immaterial consolidated financial position results operations addition involved multiple state income tax examinations related various years beginning 1996 various stages examination administrative review appellate process based current knowledge examinations administrative reviews appellate processes believe reasonably possible many uncertain tax positions may resolved next twelve months could result reduction approximately 100 million unrecognized tax benefits note 12 commitments contingencies litigation claims assessments number cases allege sprint communications company lp failed obtain easements property owners installation fiber optic network 1980’s filed various courts several cases sought certification nationwide classes one case nationwide class certified 2003 nationwide settlement claims approved us district court northern district illinois objectors appealed preliminary approval order seventh circuit court appeals overturned settlement remanded case trial court proceedings parties proceeded litigation andor settlement negotiations state basis settlement negotiations coordinated cases pending louisiana tennessee louisiana claims separately settled amount material consolidated financial position results operations settlement given final approval court time appeal approval expired reached agreement principle settle claims states excluding tennessee amount material consolidated financial position results operations court issued preliminary approval settlement july 17 2008 september 10 2009 court announced would approve settlement court decide whether settlement fair best interest class members denied jurisdictional grounds result agreement terminated company sprint nextel corporation notes consolidated financial statements continues defend matters vigorously expect resolution matter material effect consolidated financial position results operations september 2004 us district court district kansas denied motion dismiss shareholder lawsuit alleging 2001 2002 proxy statements false misleading violation federal securities laws extent described new employment agreements certain senior executives without disclosing according allegations replacement executives inevitable allegations made amended complaint lawsuit originally filed 2003 asserted us certain former officers directors seek recover decline value tracking stocks class period parties stipulated case proceed class action defendants denied plaintiffs’ allegations intend defend matter vigorously allegations original complaint asserted claims defendants former independent auditor dismissed court april 2004 motion dismiss amended complaint denied parties engaged discovery expect resolution matter material effect consolidated financial position results operations various suits proceedings claims including purported class actions typical large business enterprise pending us subsidiaries possible determine ultimate disposition proceedings whether resolved consistent beliefs expect outcome proceedings individually aggregate material adverse effect consolidated financial position results operations spectrum reconfiguration obligations 2004 fcc adopted report order included new rules regarding interference 800 mhz band comprehensive plan reconfigure 800 mhz band report order provides exchange portion 800 mhz fcc spectrum licenses requires us fund cost incurred public safety systems incumbent licensees reconfigure 800 mhz spectrum band addition received licenses 10 mhz nationwide spectrum 19 ghz band however required relocate reimburse incumbent licensees band costs relocation another band designated fcc minimum cash obligation approximately 28 billion report order however obligated pay full amount costs relating reconfiguration plan even costs exceed 28 billion required terms report order letter credit secured provide assurance funds available pay relocation costs incumbent users 800 mhz spectrum relocation costs reviewed periodically based actual costs incurred result review letter credit reduced 20 billion 19 billion june 2009 reduced 18 billion september 2009 reduced 17 billion november 2009 approved fcc sprint nextel corporation notes consolidated financial statements following table represents payments directly attributable performance report order inception program 1 excluded table reconfiguration costs incurred date based allocations reconfiguration activities normal network improvements methodology calculated costs approved independent transition administrator designated fcc review expenditures result amount allocated reconfiguration activity subject change based additional assessments made course reconfiguration program expended costs generally accounted either property plant equipment additions fcc licenses intangible asset total direct costs attributable spectrum reconfigurations estimated exceed minimum cash obligation 28 billion estimate dependent significant assumptions including final licensee costs associated relocating licensees canadian border region border plan adopted fcc mexican border region currently approved border plan addition entitled receive reimbursement mobile satellite service licensees pro rata portion costs clearing portion 19 ghz spectrum licensees may unable unwilling reimburse us share costs estimated approximately 200 million completion 800 mhz band reconfiguration initially required june 26 2008 however fcc issued significant number waivers 800 mhz licensees giving additional time complete band reconfigurations may delay access 800 mhz replacement spectrum based progress date significant number additional extension requests filed expected october 2008 fcc order may required march 31 2010 relinquish 800 mhz spectrum regionbyregion basis prior receiving 800 mhz replacement spectrum january 27 2010 asked fcc waive requirement certain regions public safety agencies yet vacated replacement channels request pending fcc report order also contained exception respect markets border mexico canada exception respect markets border canada clarified may 9 2008 fcc issued canadian border plans include 30month deadline completion operating leases lease various equipment office facilities retail outlets kiosks switching facilities transmitter receiver sites operating leases noncancelable portion leases ranges monthly 25 years leases exceptions provide automatic renewal options escalations either fixed based consumer price index rent abatements along rent escalations included computation rent expense calculated straightline basis lease term lease term leases includes initial noncancelable term plus least one renewal period exercise related renewal option options reasonably assured cell site leases generally provide initial noncancelable term five seven years five renewal options five years sprint nextel corporation notes consolidated financial statements december 31 2009 rental commitments operating leases including lease renewals reasonably assured consisted mainly leases cell switch sites real estate information technology network equipment office space commitments future years follows millions total rental expense 18 billion 2009 2008 20 billion 2007 commitments july 7 2009 sprint entered sevenyear agreement unaffiliated party assume daytoday execution services provisioning maintenance company’s wireless wireline networks agreement contains option renew result payments services estimated 45 billion 50 billion initial term contract also party commitments includes service spectrum network capacity executory contracts connection conducting business december 31 2009 minimum amounts due commitments follows millions amounts actually paid agreements likely higher due variable components agreements significant variable components determine ultimate obligation owed include items hours contracted subscribers factors addition party various arrangements conditional nature obligate us make payments upon occurrence certain events delivery functioning software product note 13 compensation plans december 31 2009 sprint sponsored four incentive plans 2007 omnibus incentive plan 2007 plan 1997 longterm incentive program 1997 program nextel incentive equity plan nextel plan management incentive stock option plan misop sprint also sponsors employee stock purchase plan espp 2007 plan may grant share nonshare based awards including stock options stock appreciation rights restricted stock restricted stock units performance shares performance units equitybased cash awards employees outside directors certain service providers options generally granted exercise price equal market value underlying shares grant date generally vest annual basis three four years generally contractual term ten years employees directors granted restricted stock units required pay shares sprint nextel corporation notes consolidated financial statements generally must remain employed us continue serve member board directors restrictions lapse typically three years employees one year directors compensation committee board directors one executive officers compensation committee authorize provided 2007 plan determine terms equitybased award new grants made 1997 program nextel plan misop 2009 number shares available 2007 plan increased 51 million approximately 174 million common shares number shares available 2007 plan increased shares originally granted 1997 program nextel plan misop forfeited expired otherwise terminated december 31 2009 restricted stock units options acquire 50 million shares outstanding 2007 plan restricted stock units options acquire 39 million shares outstanding 1997 program options acquire 18 million shares outstanding nextel plan options acquire 18 million common shares outstanding misop restricted stock units granted 2008 2007 generally performance service requirements vesting periods ranging one three years furthermore restricted stock units awarded second quarter 2008 first quarter 2009 included quarterly performance targets awards however granted performance targets met therefore grant date awards remaining service requirement vested six months following last day applicable quarter fourth quarter 2009 approximately 1 million restricted stock units granted service requirements graded vesting period two three years nextel plan outstanding nextel deferred shares nonvested shares constitute agreement deliver shares upon performance service defined period time grants options purchase nextel common shares converted time sprintnextel merger nonvested shares options purchase number common shares options vested monthly basis periods four years contractual term ten years employees required pay nonvested shares however required remain employed us restrictions shares lapsed nonvested shares generally vested service period ranging several months four years accelerated vesting triggered respect certain deferred shares options granted prior sprintnextel merger result sprintnextel merger time vmu acquisition outstanding vmu restricted stock restricted stock units nonvested shares grants options purchase vmu common shares awarded legacy vmu plan converted nonvested shares options purchase number common shares using ratio 13668 corresponding adjustment option strike price options vest monthly basis period ten fifteen months contractual term ten years employees required pay nonvested shares however must remain employed us defined period time restrictions shares lapse nonvested shares generally vest service period ranging ten months four years vmu plan longer active result acquisition however terms awards remain consistent terms time award received granted misop granted stock options employees eligible receive annual incentive compensation eligible employees could elect receive stock options lieu portion target incentive annual incentive compensation plans options generally became exercisable december 31 year granted maximum contractual term ten years misop also granted stock options executives lieu longterm incentive compensation ltipmisop options ltipmisop options generally became exercisable third december 31 following grant date maximum term ten years misop options granted exercise prices equal market price underlying common stock grant date espp eligible employees may subscribe quarterly purchase shares series 1 common stock payroll deductions 20 eligible compensation effective april 1 2009 sprint nextel corporation notes consolidated financial statements purchase price equal 95 market value last trading day quarterly offering period modified 90 market value previous periods aggregate number shares purchased employee may exceed 9000 shares 25000 fair market value calendar year subject limitations imposed internal revenue code december 31 2009 espp approximately 85 million shares authorized future purchases includes 80 million shares authorized second quarter 2009 net elections made 2009 employees participating fourth quarter 2009 offering period espp purchase 1 million common shares issued first quarter 2010 employees purchased shares 353 per share currently use treasury shares satisfy sharebased awards new shares treasury shares available compensation costs cost employee services received exchange award equitybased securities measured using fair value award date grant cost recognized period award recipient required provide service exchange award awards liability instruments employees measured fair value reporting date settlement sharebased compensation cost related awards graded vesting recognized using straightline method pretax sharebased compensation charges included net loss sharebased award plans 81 million 2009 272 million 2008 265 million 2007 net income tax benefit expense recognized consolidated financial statements sharebased compensation awards 3 million 2009 101 million 2008 96 million 2007 december 31 2009 97 million total unrecognized compensation cost related nonvested sharebased awards expected recognized weighted average period 212 years cash received exercise sharebased payment arrangements net shares surrendered employee tax obligations insignificant 2009 57 million 2008 344 million 2007 sharebased payment plans options restricted stock units outstanding december 31 2009 forfeitures estimated sharebased awards using 102 weighted average annual rate options fair value option award estimated grant date using blackscholes option valuation model based several assumptions including riskfree interest rate volatility expected dividend yield expected term riskfree interest rate used based zerocoupon us treasury bond term equal expected term options volatility used implied volatility traded options common shares expected dividend yield used estimated based historical dividend yield factors expected term options granted estimated using simplified method defined average vesting term contractual term historical data expected represent future expected term equity awards due severance activities last several years options outstanding december 31 2009 include options granted 2007 plan including options exchanged business combinations 1997 program nextel plan misop discussed sprint nextel corporation notes consolidated financial statements following table provides estimated fair value assumptions used determining fair value option awards granted 2009 2008 2007 summary status options option plans december 31 2009 changes year ended december 31 2009 presented december 31 2009 69 million total unrecognized compensation cost related unvested options cost expected recognized weightedaverage period 251 years total intrinsic value options exercised insignificant 2009 9 million 2008 150 million 2007 sprint nextel corporation notes consolidated financial statements restricted stock units fair value restricted stock unit award calculated using share price date grant restricted stock units outstanding consist units granted 2007 plan including units exchanged business combinations 1997 program discussed summary status restricted stock units december 31 2009 changes year ended december 31 2009 presented december 31 2009 28 million total unrecognized compensation cost related restricted stock units expected recognized weightedaverage period 114 years total fair value restricted stock units vested years ended december 31 2009 2008 2007 53 million 41 million 78 million respectively weightedaverage grant date fair value restricted stock units granted 2009 296 per unit compared 603 per unit 2008 1843 per unit 2007 restricted stock units outstanding december 31 2009 entitled dividend equivalents paid cash performancebased restricted stock units entitled dividend equivalent payments applicable performance criteria met note 14 shareholders’ equity per share data articles incorporation authorize 6620000000 shares capital stock follows  6000000000 shares series 1 voting common stock par value 200 per share  500000000 shares series 2 voting common stock par value 200 per share  100000000 shares nonvoting common stock par value 001 per share  20000000 shares preferred stock par value per share classes common stock series 1 common stock holders series 1 common stock entitled one vote per share matters submitted action shareholders 30 billion shares series 1 common stock outstanding december 31 2009 series 2 common stock holders series 2 common stock entitled 10 one vote per share otherwise rights substantially identical series 1 common stock 35 million shares sprint nextel corporation notes consolidated financial statements series 2 common stock outstanding december 31 2009 certain holders series 2 common stock exercised rights convert 398 million series 2 shares 398 million series 1 shares resulting 80 million 785 million reduction common shares paid capital respectively corresponding 865 million reduction treasury shares treasury shares common stock repurchased us recorded cost treasury shares result reduction shareholders’ equity reissue treasury shares part shareholder approved stockbased compensation programs well upon conversion outstanding securities convertible common stock shares reissued determine cost using fifo method dividends declare dividends common shares 2009 2008 declared paid dividend 0025 per share series 1 common stock series 2 common stock quarters 2007 currently restricted paying cash dividends terms revolving bank credit facility described note 8 share repurchase program july 25 2006 board directors authorized program purchase 60 billion series 1 common stock open market purchases repurchased 185 million shares series 1 common stock 35 billion average price 1877 per share 2007 program expired january 2008 additional repurchases made common stock reserved future grants december 31 2009 series 1 common stock reserved future grants plans providing grant stock options equitybased awards future grants employees stock purchase plan future issuances various arrangements included accumulated comprehensive loss components accumulated comprehensive loss follows sprint nextel corporation notes consolidated financial statements per share data basic loss per common share calculated dividing net loss weighted average number common shares outstanding period diluted earnings loss per common share adjusts basic earnings loss per common share effects potentially dilutive common shares effect antidilutive potentially dilutive common shares consist 28 million 130 million 124 million average shares issuable equitybased compensation plans december 31 2009 2008 2007 respectively computed using treasury stock method potentially dilutive shares antidilutive 2009 2008 2007 therefore effect determination dilutive weighted average number shares outstanding note 15 segments sprint operates two reportable segments wireless wireline  wireless primarily includes retail wholesale revenue wide array wireless mobile telephone wireless data transmission services sale wireless devices accessories us puerto rico us virgin islands  wireline primarily includes revenue domestic international wireline voice data communication services including services cable multiple systems operators resell local long distance service use back office systems network assets support telephone services provided cable facilities sprint nextel corporation notes consolidated financial statements define segment earnings wireless wireline operating loss income segment expenses depreciation amortization severance exit costs goodwill asset impairments merger integration expenses solely directly attributable segment expenses income items excluded segment earnings managed corporate level transactions segments generally accounted based market rates believe approximate fair value segment financial information follows sprint nextel corporation notes consolidated financial statements 1 intersegment revenues consist primarily wireline services provided wireless segment resale wireless subscribers 2 net consists primarily severance exit costs asset impairments offset gains asset dispositions exchanges merger integration expenses 130 million 516 million also included net 2008 2007 respectively representing costs primarily incurred integrate systems processes networks related sprint merger nextel see note 9 additional information severance exit costs asset impairments 3 included corporate eliminations results 2008 2007 operating expenses 354 million 194 million respectively related nextgeneration broadband wireless network contributed clearwire transaction closed november 28 2008 refer note 4 information 4 corporate assets allocated operating segments consist primarily cash equivalents corporate headquarters campus equity method investment clearwire assets managed corporate level assets related 4g wireless broadband business subsequently contributed clearwire refer note 4 information corporate capital expenditures include various administrative assets contributed clearwire operating expenses related corporate assets allocated segment sprint nextel corporation notes consolidated financial statements net operating revenues service products follows 1 revenues eliminated consolidation consist primarily wireline services provided wireless segment resale wireless subscribers note 16 quarterly financial data unaudited 1 first quarter 2009 recorded 154 million noncash loss representing finalization ownership percentages clearwire fourth quarter 2009 recorded noncash gain 151 million related noncontrolling interest vmu well increase tax valuation allowance 306 million 2 sum quarterly earnings per share amounts may equal annual amounts changes weighted average number shares outstanding year 3 fourth quarter 2008 performed annual goodwill analysis recorded noncash goodwill impairment charge 963 million addition recorded asset impairments gains dispositions assets lease exit costs 493 million report independent registered public accounting firm board directors stockholders clearwire corporation kirkland washington audited accompanying consolidated balance sheets clearwire corporation subsidiaries formerly wimax operations sprint nextel corporation “company” december 31 2009 2008 related consolidated statements operations cash flows stockholders’ equity comprehensive loss two years period ended december 31 2009 financial statements responsibility company’s management responsibility express opinion financial statements based audits conducted audits accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion consolidated financial statements present fairly material respects financial position company december 31 2009 2008 results operations cash flows two years period ended december 31 2009 conformity accounting principles generally accepted united states america discussed note 1 consolidated financial statements november 28 2008 clearwire corporation wimax operations sprint nextel corporation “sprint wimax business” completed business combination accounts sprint wimax business period january 1 2008 november 28 2008 prepared separate records maintained sprint nextel corporation reflect allocations expenses sprint nextel corporation therefore may necessarily indicative financial position results operations cash flows would resulted sprint wimax business functioned standalone operation also audited accordance standards public company accounting oversight board united states company’s internal control financial reporting december 31 2009 based criteria established internal controlintegrated framework issued committee sponsoring organizations treadway commission report dated february 24 2010 presented herein expressed adverse opinion company’s internal control financial reporting material weakness deloitte touche llp seattle washington february 24 2010 report independent registered public accounting firm board directors clearwire corporation formerly wimax operations sprint nextel corporation audited statements operations cash flows business equity included within statement stockholders’ equity comprehensive loss wimax operations sprint nextel corporation year ended december 31 2007 financial statements responsibility sprint nextel corporation’s management responsibility express opinion financial statements based audit conducted audit accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audit provides reasonable basis opinion financial statements referred present fairly material respects results operations cash flows wimax operations sprint nextel corporation year ended december 31 2007 conformity us generally accepted accounting principles kpmg llp kansas city missouri august 4 2008 clearwire corporation subsidiaries consolidated balance sheets see notes consolidated financial statements clearwire corporation subsidiaries consolidated statements operations see notes consolidated financial statements clearwire corporation subsidiaries consolidated statements cash flows see notes consolidated financial statements clearwire corporation subsidiaries consolidated statements stockholders’ equity comprehensive loss years ended december 31 2009 2008 2007 net loss year ended december 31 2008 592347 comprehensive loss 580663 see notes consolidated financial statements clearwire corporation subsidiaries notes consolidated financial statements 1 description business started operations january 1 2007 developmental stage company representing collection assets related liabilities activities accounted various legal entities whollyowned subsidiaries sprint nextel corporation refer sprint parent nature assets held sprint legal entities primarily 25 ghz federal communications commission refer fcc licenses certain property plant equipment related worldwide interoperability microwave access refer wimax network acquisition assets funded parent sprint acquired significant amounts fcc licenses behalf past purchases presented part opening business equity principal operations commence january 1 2007 time operations qualified business pursuant rule 1101d regulation sx january 1 2007 november 28 2008 conducted business wimax operations sprint refer sprint wimax business objective developing next generation wireless broadband network may 7 2008 sprint announced entered definitive agreement legacy clearwire corporation refer old clearwire combine next generation wireless broadband businesses form new independent company called clearwire corporation refer clearwire addition five independent partners including intel corporation google inc comcast corporation time warner cable inc bright house networks llc collectively refer investors agreed invest 32 billion clearwire subsidiary clearwire communications llc refer clearwire communications november 28 2008 refer closing old clearwire sprint wimax business completed combination form clearwire investors contributed total 32 billion new equity clearwire communications prior closing activities certain assets sprint wimax business transferred single legal entity contributed clearwire close exchange equity interest clearwire transactions described collectively referred transactions immediately transactions owned 100 voting interests 27 economic interests clearwire communications consolidate controlled subsidiary clearwire holds assets interests clearwire communications closing old clearwire sprint wimax business combined form new independent company clearwire consolidated financial statements clearwire subsidiaries results sprint wimax business january 1 2007 november 28 2008 include results combined entities thereafter period november 29 2008 december 31 2009 financial reporting purposes sprint wimax business determined accounting acquirer accounting predecessor assets acquired liabilities assumed old clearwire accounted fair value accordance purchase method accounting results operations included consolidated financial results beginning november 29 2008 accounts financial statements clearwire period january 1 2007 november 28 2008 prepared separate records maintained sprint accounts financial statements include allocations expenses sprint therefore may necessarily indicative financial position results operations cash flows would resulted functioned standalone operation sprint directly assigned possible certain costs us based actual use shared services costs include network related expenses office facilities treasury services human resources supply chain management shared services cash management performed consolidated basis sprint processed payables payroll transactions behalf assets liabilities specifically identifiable us included • cash equivalents investments activity cash balances recorded business equity clearwire corporation subsidiaries notes consolidated financial statements continued • accounts payable processed centrally sprint passed us intercompany accounts included business equity • certain accrued liabilities passed us intercompany accounts included business equity statement cash flows prior closing presents activities paid sprint behalf financing activities include funding advances sprint presented business equity since sprint managed financing activities centralized basis net cash used operating activities net cash used investing activities capital expenditures acquisitions fcc licenses patents represent transfers expenses assets paid sprint subsidiaries cash payments made us income taxes interest prior closing focused expediting deployment first nationwide 4g mobile broadband network provide true mobile broadband experience consumers small businesses medium large enterprises public safety organizations educational institutions expect deploy mobile wimax technology based ieee 80216e standard planned markets using 25 ghz fcc licenses 2 summary significant accounting policies accompanying financial statements prepared accordance accounting principles generally accepted united states america pursuant rules regulations securities exchange commission refer sec following summary significant accounting policies principles consolidation consolidated financial statements include assets liabilities results operations whollyowned subsidiaries control controlling financial interest investments entities control primary beneficiary ability exercise significant influence operating financial policies accounted equity method intercompany transactions eliminated consolidation noncontrolling interests consolidated balance sheets include thirdparty investments entities consolidate wholly classify noncontrolling interests part equity include net income loss attributable noncontrolling interests net income loss allocate net income loss comprehensive income loss equity transactions noncontrolling interests accordance applicable ownership percentages also continue attribute noncontrolling interests share losses even attribution results deficit noncontrolling interest balance reclassifications certain reclassifications made prior period amounts conform current period presentation use estimates accounting policies require management make complex subjective judgments nature judgments subject inherent degree uncertainty judgments based historical experience terms existing contracts observance trends industry information provided customers information available outside sources appropriate additionally changes accounting estimates reasonably likely occur period factors could material impact financial statements presentation financial condition changes financial condition results operations significant estimates inherent preparation accompanying financial statements include impairment analysis spectrum licenses indefinite lives recoverability determination useful lives longlived assets include property plant equipment intangible assets tax valuation allowances sharebased compensation related equitybased awards granted clearwire corporation subsidiaries notes consolidated financial statements continued subsequent events evaluated subsequent events occurring date financial statements issued cash equivalents cash equivalents consist money market mutual funds highly liquid shortterm investments original maturities three months less cash equivalents stated cost approximates market value cash equivalents exclude cash contractually restricted operational purposes maintain cash equivalent balances financial institutions exceed federally insured limits experienced losses related balances management believes credit risk related balances minimal restricted cash restricted cash consists primarily amounts set aside satisfy certain contractual obligations classified current noncurrent asset based designated purpose majority restricted cash relates outstanding letters credit investments investment portfolio comprised us treasuries debt securities value securities subject market credit volatility period investments held sale maturity classify marketable debt securities availableforsale investments securities stated estimated fair value investments available current operations recorded shortterm investments original maturities greater three months remaining maturities less one year investments maturities one year recorded longterm investments unrealized gains losses recorded within accumulated comprehensive income loss realized gains losses measured reclassified accumulated comprehensive income loss basis specific identification method recognize realized losses declines fair value investments cost basis judged otherthantemporary determining whether decline fair value otherthantemporary consider various factors including market price available investment ratings financial condition nearterm prospects issuer length time extent fair value less cost basis intent ability hold investment maturity period time sufficient allow anticipated recovery market value make significant judgments considering factors judged decline fair value otherthantemporary realized loss equal decline reflected consolidated statement operations new cost basis investment established account certain investments using equity method based ownership interest ability exercise significant influence accordingly record investment initially cost adjust carrying amount investment recognize share earnings losses investee reporting period cease recognize investee losses investment basis zero fair value measurements fair value price would received sell asset paid transfer liability orderly transaction market participants measurement date determining fair value use various methods including market cost income approaches based approaches utilize certain assumptions market participants would use pricing asset liability including assumptions risk based observability inputs used valuation techniques required provide following information according fair value hierarchy fair value hierarchy ranks quality reliability information used determine fair values financial assets financial liabilities carried fair value classified disclosed one following three categories level 1 quoted market prices active markets identical assets liabilities level 2 observable market based inputs unobservable inputs corroborated market data level 3 unobservable inputs corroborated market data clearwire corporation subsidiaries notes consolidated financial statements continued maximize use observable inputs minimize use unobservable inputs developing fair value measurements listed prices quotes available fair value based upon internally developed models primarily use inputs marketbased independently sourced market parameters including limited interest rate yield curves volatilities equity debt prices credit curves utilize certain assumptions market participants would use pricing financial instrument including assumptions risk credit inherent default risk degree management judgment involved determining fair value financial instrument dependent upon availability quoted market prices observable market parameters financial instruments trade actively quoted market prices observable market parameters minimal judgment involved measuring fair value observable market prices parameters fully available management judgment necessary estimate fair value addition changes market conditions may reduce availability reliability quoted prices observable data instances use certain unobservable inputs cannot validated reference readily observable market exchange data rely certain extent assumptions market participant would use pricing security internally derived values compared nonbinding values received brokers independent sources available see note 12 fair value information accounts receivable accounts receivables stated amounts due customers net allowance doubtful accounts inventory primarily consists customer premise equipment refer cpe accessories sold customers stated lower cost net realizable value cost determined average cost method record inventory writedowns obsolete slowmoving items based inventory turnover trends historical experience property plant equipment property plant equipment refer ppe stated cost net accumulated depreciation calculated straightline basis estimated useful lives assets placed service network construction expenditures recorded construction progress network asset placed service time asset transferred appropriate ppe category capitalize costs additions improvements including direct costs constructing ppe interest costs related construction estimated useful life equipment determined based historical usage identical similar equipment consideration given technological changes industry trends could impact network architecture asset utilization leasehold improvements recorded cost amortized lesser estimated useful lives related lease term including renewals reasonably assured maintenance repairs expensed incurred ppe assessed impairment whenever events changes circumstances indicate carrying amount asset may recoverable events circumstances exist would determine recoverability asset’s carrying value estimating expected undiscounted future cash flows directly associated expected arise direct result use asset expected undiscounted future cash flows less carrying amount asset loss recognized difference purposes recognition measurement group longlived assets including ppe intangible assets definite useful lives lowest level identifiable cash flows largely independent assets liabilities test impairment aggregated basis assets united states consistent management business national scope ppe impairment losses recorded years ended december 31 2009 2008 2007 addition analyses described periodically assess certain assets yet deployed network including equipment cell site development costs assessment includes writeoff network equipment estimated shrinkage experienced deployment process writeoff network equipment cell site development costs whenever events changes circumstances cause us conclude assets longer needed meet management’s strategic network plans deployed clearwire corporation subsidiaries notes consolidated financial statements continued internally developed software capitalize costs related computer software developed obtained internal use software obtained internal use generally enterpriselevel business finance software customized meet specific operational needs costs incurred application development phase capitalized amortized useful life software generally three years costs recognized preliminary project phase postimplementation phase well maintenance training costs expensed incurred spectrum licenses spectrum licenses primarily include owned spectrum licenses indefinite lives owned spectrum licenses definite lives favorable spectrum leases indefinite lived spectrum licenses acquired stated cost amortized owned spectrum licenses united states issued fixed time renewals licenses occurred routinely nominal cost moreover determined currently legal regulatory contractual competitive economic factors limit useful lives owned spectrum licenses therefore licenses accounted intangible assets indefinite lives impairment test intangible assets indefinite useful lives consists comparison fair value intangible asset carrying amount carrying amount intangible asset exceeds fair value impairment loss recognized amount equal excess fair value determined estimating discounted future cash flows directly associated expected arise direct result use eventual disposition asset spectrum licenses indefinite useful lives assessed impairment annually frequently event indicates asset might impaired impairment indefinite lived intangible assets periods presented spectrum licenses definite useful lives favorable spectrum leases stated cost net accumulated amortization assessed impairment whenever events changes circumstances indicate carrying amount asset may recoverable carrying value definite lived licenses spectrum leases amortized straightline basis estimated useful lives lease term including expected renewal periods applicable impairment losses spectrum licenses definite useful lives favorable spectrum leases years ended december 31 2009 2008 2007 intangible assets intangible assets consist subscriber relationships trademarks patents stated cost net accumulated amortization intangible assets definite lives amortization calculated using either straightline method accelerated method assets’ estimated remaining useful lives intangible assets assessed impairment whenever events changes circumstances indicate carrying amount asset may recoverable impairment losses intangible assets years ended december 31 2009 2008 2007 derivative instruments hedging activities normal course business may exposed effects interest rate changes limited exposure adopting established risk management policies procedures including use derivative instruments policy derivative transactions executed manage exposures arising normal course business purpose creating speculative positions trading record derivatives balance sheet fair value either assets liabilities accounting changes fair value derivatives depends intended use derivative whether qualifies hedge accounting derivative instruments undesignated changes fair value recognized currently consolidated statement operations see note 11 derivative instruments information debt issuance costs debt issuance costs initially capitalized deferred cost amortized interest expense effective interest method expected term related debt unamortized debt issuance costs related extinguishment debt expensed time debt extinguished recorded income expenses net consolidated statements operations unamortized debt issuance costs recorded assets consolidated balance sheets clearwire corporation subsidiaries notes consolidated financial statements continued interest capitalization capitalize interest related owned spectrum licenses related construction network infrastructure assets capitalization interest commences preconstruction period administrative technical activities includes obtaining leases zoning approvals building permits ceases construction substantially complete available use generally market launched interest capitalized construction progress spectrum licenses accounted intangible assets indefinite useful lives interest capitalization based rates applicable borrowings outstanding period balance qualified assets construction period capitalized interest reported cost network assets depreciated useful life assets income taxes record deferred income taxes based estimated future tax effects differences financial statement tax basis assets liabilities using tax rates expected effect temporary differences reverse deferred tax assets also recorded net operating loss capital loss tax credit carryforwards valuation allowances recorded reduce deferred tax assets amount considered likely realized also apply recognition threshold tax position required meet recognized financial statements revenue recognition primarily earn revenue providing access highspeed wireless network also included revenue leases cpe additional addon services including personal business email static internet protocol revenue customers billed one month advance recognized ratably contracted service period revenues associated sale cpe equipment customers recognized title risk loss transferred customer shipping handling costs billed customers classified revenue activation fees charged customer deferred recognized revenues straightline basis average estimated life customer relationship 3 years revenue arrangements multiple deliverables divided separate units accounting based deliverables’ relative fair values objective reliable evidence fair value deliverables arrangement primary obligor transaction subject inventory risk latitude establishing prices selecting suppliers several indicators gross revenue recorded primary obligor amounts earned determined using fixed percentage fixedpayment schedule combination two record net amounts commissions earned promotional discounts treated cash consideration recorded reduction revenue advertising costs advertising costs expensed incurred first time advertising occurs advertising expense 991 million 75 million 0 years ended december 31 2009 2008 2007 respectively research development research development costs expensed incurred research development expense 64 million 350000 0 years ended december 31 2009 2008 2007 respectively net loss per share basic net loss per common share computed dividing loss attributable common stockholders weightedaverage number common shares outstanding period diluted net loss per common share computed dividing loss attributable common stockholders weightedaverage number common shares dilutive common stock equivalents outstanding period common stock equivalents typically consist common stock issuable upon exercise outstanding stock options warrants restricted stock using treasury stock method effects potentially dilutive common stock equivalents excluded calculation diluted loss per share effect antidilutive two classes common stock class b see note 16 net loss per share information clearwire corporation subsidiaries notes consolidated financial statements continued sharebased compensation estimate sharebased compensation expense requires complex subjective assumptions including stock price volatility employee exercise patterns expected life options future forfeitures related tax effects sharebased compensation expense new awards modified repurchased cancelled based estimated grantdate fair value using blackscholes option pricing model recognized net forfeiture rate shares expected vest graded vesting schedule straightline basis requisite service period separately vesting portion award substance multiple awards operating leases operating leases spectrum licenses towers certain facilities equipment use operations certain spectrum licenses leased thirdparty holders educational broadband service refer ebs spectrum licenses granted fcc ebs licenses authorize provision certain communications services ebs channels certain markets throughout united states account spectrum leases executory contracts similar operating leases signed leases unmet conditions required become effective amortized conditions met included spectrum licenses accompanying consolidated balance sheets leases require upfront payments leases containing scheduled rent escalation clauses record minimum rental payments straightline basis term lease including expected renewal periods appropriate leases containing tenant improvement allowances rent incentives record deferred rent liability deferred rent amortized term lease including expected renewal periods appropriate reduction rent expense foreign currency international subsidiaries generally use local currency functional currency assets liabilities translated exchange rates effect balance sheet date resulting translation adjustments recorded within accumulated comprehensive income loss income expense accounts translated average monthly exchange rates effects changes exchange rates designated functional currency transaction denominated recorded foreign currency transaction gains losses recorded consolidated statement operations concentration risk believe geographic diversity customer base retail nature product minimizes risk incurring material losses due concentrations credit risk recent accounting pronouncements june december 2009 financial accounting standards board refer fasb issued new accounting guidance amends consolidation guidance applicable variable interest entities amendments affect overall consolidation analysis current accounting guidance new accounting guidance effective fiscal years interim periods beginning november 15 2009 currently evaluating impact new guidance financial condition results operations august 2009 fasb issued new accounting guidance fair value measurement liabilities quoted price active market available adopted new accounting guidance october 1 2009 adoption impact financial condition results operations october 2009 fasb issued new accounting guidance amends revenue recognition multipleelement arrangements expands disclosure requirements related arrangements new guidance amends criteria separating consideration multipledeliverable arrangements establishes selling price hierarchy determining selling price deliverable eliminates residual method allocation requires application relative selling price method allocating arrangement consideration deliverables new accounting guidance effective fiscal years beginning june 15 2010 currently evaluating impact new guidance financial condition results operations clearwire corporation subsidiaries notes consolidated financial statements continued january 2010 fasb issued new accounting guidance requires new disclosures related fair value measurements new guidance requires separate disclosure transfers level 1 2 activities level 3 reconciliation gross basis new accounting guidance effective fiscal years interim periods beginning december 15 2009 except new disclosures related level 3 activities effective fiscal years interim periods beginning december 15 2010 new accounting guidance amended disclosure requirements related fair value measurements therefore expect adoption impact financial condition results operations 3 strategic transactions private placement november 9 2009 entered investment agreement refer investment agreement sprint comcast corporation refer comcast intel corporation refer intel time warner cable inc refer time warner cable bright house networks llc refer bright house eagle river holdings llc refer eagle river collectively refer participating equityholders providing additional equity investments participating equityholders new debt investments certain investors investment agreement sets forth terms transactions pursuant participating equityholders invest clearwire communications aggregate approximately 1564 billion exchange 213369711 shares clearwire communications nonvoting class b equity interests clearwire communications voting interests refer private placement investment certain participating equityholders senior secured notes discussed refer rollover notes replacement equal amounts indebtedness senior term loan facility assumed old clearwire refer senior term loan facility additionally november 24 2009 clearwire communications completed offering 185 billion 12 senior secured notes due 2015 including rollover notes followed second offering 920 million 12 senior secured notes due 2015 closed december 9 2009 refer collectively senior secured notes see note 10 longterm debt private placement consummated three closings november 9 2009 participating equityholders contributed aggregate approximately 1057 billion cash exchange 144231268 clearwire communications nonvoting class b equity interests refer clearwire communications class b common interests clearwire communications voting interests refer clearwire communications voting interests pro rata based respective investment amounts refer closing first investment closing december 21 2009 participating equityholders contributed aggregate approximately 4403 million cash exchange 60066822 clearwire communications class b common interests clearwire communications voting interests refer closing second investment closing remaining approximately 665 million contributed investment agreement close certain financial information provided sprint use financial reporting respect fiscal year ending december 31 2009 refer consummation purchase third investment closing clearwire corporation subsidiaries notes consolidated financial statements continued private placement participating equityholders agreed invest clearwire communications total 1564 billion exchange clearwire communications class b common interests clearwire communications voting interests following amounts millions except interests immediately following receipt participating equityholders clearwire communications class b common interests clearwire communications voting interests participating equityholders agreed contribute clearwire communications voting interests exchange equal number shares clearwire’s class b common stock par value 00001 per share refer class b common stock investment agreement exchange purchase sprint comcast time warner cable bright house clearwire communications class b common interests clearwire communications voting interests amounts exceeding certain amounts stipulated investment agreement clearwire communications agreed pay fee refer allotment fee equal following amounts fee payable cash clearwire communications class b common interests clearwire communications voting interests option participating equityholder second investment closing clearwire communications delivered portion allotment fee 69 million cash 95 million clearwire communications class b common interests valued 733 per interest equal number clearwire communications voting interests sprint 27 million cash comcast 14 million cash time warner cable 275000 cash bright house remaining allotment fee 32 million paid cash clearwire communications class b common interests clearwire communications voting interests third investment closing immediately third investment closing sprint 715 class b common stock comcast 119 class b common stock time warner cable 62 class b common stock bright house 11 class b common stock intel 89 class b common stock eagle river 04 class b common stock percentages include 1287785 clearwire communications class b common interests clearwire communications voting interests issued sprint agreed accept half allotment fee clearwire communications class b common interests clearwire holds outstanding clearwire communications nonvoting class equity interests refer clearwire communications class common interests outstanding clearwire communications voting interests representing 211 economics 100 voting rights clearwire communications december 31 2009 clearwire corporation subsidiaries notes consolidated financial statements continued following table lists interests clearwire december 31 2009 1 holders class b common stock hold equivalent number clearwire communications class b common interests sprint investors google inc refer google shares class b common stock equal voting rights clearwire’s class 00001 par value common stock refer class common stock limited economic rights unlike holders class common stock holders class b common stock right dividends right proceeds liquidation par value class b common stock sprint investors google hold economic rights ownership clearwire communications class b common interests google owns shares class common stock investment agreement clearwire committed rights offering pursuant rights purchase shares class common stock granted holder class common stock along certain participating securities december 17 2009 refer rights offering distributed subscription rights exercisable 93903300 shares class common stock subscription right entitled shareholder purchase 04336 shares class common stock subscription price 733 per share subscription rights expire exercised june 21 2010 participating equityholders google waived respective rights participate rights offering respect shares class common stock hold applicable record date business combinations closing old clearwire sprint wimax business combined form new independent company clearwire investors contributed total 32 billion new equity clearwire communications exchange contribution sprint wimax business 32 billion sprint investors received aggregate 25 million shares class common stock par value 00001 per share 505 million shares class b common stock par value 00001 per share equivalent number clearwire communications class b common interests initial share price 20 per share number shares issued investors subject postclosing adjustment based trading prices class common stock nasdaq global select market 15 randomlyselected trading days 30day period ending 90th day closing refer adjustment date floor 1700 per share cap 2300 per share adjustment resulted additional 28235294 shares issued investors february 26 2009 adjustment affect purchase clearwire corporation subsidiaries notes consolidated financial statements continued consideration however result equity reallocation 336 million noncontrolling interests february 27 2009 cw investment holdings llc refer cw investment holdings affiliate john stanton director clearwire contributed 100 million cash exchange 588235 shares class common stock concurrent closing entered commercial agreements investors establish framework development combined wimax businesses combination accounted purchase reverse acquisition sprint wimax business considered accounting acquirer result historical financial statements sprint wimax business become financial statements clearwire effective closing purchase consideration result transactions acquired old clearwire’s net assets share old clearwire class common stock exchanged one share class common stock option warrant purchase shares old clearwire class common stock share restricted stock exchanged option warrant purchase number shares class common stock restricted share class common stock applicable purchase consideration based fair value old clearwire class common stock closing price 662 november 28 2008 total purchase consideration acquire old clearwire approximately 112 billion calculated follows thousands except per share amount purchase price allocation total purchase consideration allocated respective assets liabilities based upon estimated fair values date acquisition date acquisition estimated fair value net assets acquired exceeded purchase price therefore goodwill reflected purchase price allocation excess estimated fair value net assets acquired purchase price allocated eligible noncurrent assets specifically property plant equipment noncurrent assets intangible assets based upon relative fair values 2009 finalized allocation purchase consideration identifiable tangible intangible assets acquired liabilities assumed old clearwire connection therewith reduction amount allocated consolidated property plant equipment approximately 113 million corresponding increase amount allocated spectrum primarily based receipt additional information final appraisal valuations following table sets forth final allocation purchase clearwire corporation subsidiaries notes consolidated financial statements continued consideration identifiable tangible intangible assets acquired liabilities assumed old clearwire including allocation excess estimated fair value net assets acquired purchase price thousands following table includes amounts assigned estimated remaining useful lives class property plant equipment thousands following table includes amounts assigned estimated weighted average remaining useful lives owned leased spectrum licenses thousands following table includes amounts assigned estimated weighted average remaining useful lives class intangible assets thousands clearwire corporation subsidiaries notes consolidated financial statements continued net loss settlement preexisting relationships closing sprint leased spectrum old clearwire various spectrum lease agreements part transactions sprint contributed spectrum lease agreements spectrum assets underlying agreements business result transactions spectrum lease agreements effectively terminated settlement agreements accounted separate element apart business combination settlement gain loss recognized termination valued based amount agreements favorable unfavorable business relative current market rates spectrum lease agreements considered unfavorable business approximately 806 million net basis reduced purchase consideration paid recorded nonrecurring expense approximately 806 million included transaction related expenses related settlement unfavorable spectrum lease agreements connection transactions 4 investments december 31 2009 2008 consist following thousands years ended december 31 2009 2008 recorded otherthantemporary impairment loss 100 million 170 million respectively related debt securities december 31 2009 us government agency issues securities amortized cost basis 9299 million unrealized losses approximately 308000 securities unrealized loss position less two months unrealized losses resulted changes interest rates debt securities include investments collateralized debt obligations refer cdos supported preferred equity securities insurance companies financial institutions stated final maturity dates 2033 2034 variable rate debt instruments whose interest rates normally reset approximately every 30 90 days auction process december 31 2009 total fair value cost security interests cdos 132 million 90 million respectively total fair value cost security interests cdos december 31 2008 129 million also auction market preferred securities issued monoline insurance company securities perpetual final stated maturity july 2009 issuer’s credit rating downgraded cc caa2 standard poor’s moody’s rating services respectively total fair value cost auction market preferred securities written 0 total fair value cost auction market preferred securities december 31 2008 61 million current market conditions allow us estimate auctions debt securities resume ever secondary market develop securities result debt securities classified longterm investments clearwire corporation subsidiaries notes consolidated financial statements continued cost fair value investments december 31 2009 contractual yearstomaturity presented thousands 5 property plant equipment property plant equipment december 31 2009 2008 consisted following thousands 6 spectrum licenses owned leased spectrum licenses december 31 2009 2008 consisted following thousands clearwire corporation subsidiaries notes consolidated financial statements continued indefinite definitelived owned spectrum licenses spectrum licenses issued sitespecific widearea basis authorize wireless carriers use radio frequency spectrum provide service certain geographical areas united states internationally licenses generally acquired asset purchase business combination cases acquire licenses directly governmental authority applicable country licenses considered indefinitelived intangible assets except licenses acquired poland spain germany romania considered definitelived intangible assets due limited license renewal history countries spectrum leases prepaid spectrum also lease spectrum third parties hold spectrum licenses leases accounted executory contracts treated like operating leases upfront consideration paid thirdparty holders leased licenses inception lease agreement capitalized prepaid spectrum lease costs expensed term lease agreement including expected renewal terms applicable part purchase accounting transactions favorable spectrum leases 10 billion recorded closing favorable component acquired spectrum leases capitalized asset amortized lease term based definitelived spectrum licenses favorable spectrum leases december 31 2009 future amortization spectrum licenses spectrum leases prepaid spectrum lease costs excluding pending spectrum transition costs expected follows thousands expect renewal periods leases renewed us costs renew immaterial clearwire corporation subsidiaries notes consolidated financial statements continued 7 intangible assets intangible assets december 31 2009 2008 consisted following thousands based intangible assets recorded december 31 2009 future amortization expected follows thousands evaluate patent renewals case basis based renewal costs 8 accounts payable current liabilities accounts payable current liabilities consisted following thousands 9 income taxes determine deferred income taxes based estimated future tax effects differences financial statement tax bases assets liabilities using tax rates expected effect clearwire corporation subsidiaries notes consolidated financial statements continued temporary differences reverse net operating loss capital loss tax credit carryforwards utilized prior transactions legal entities representing sprint wimax business included filing sprint’s consolidated federal certain state income tax returns income tax expense related income tax balances accounted presented financial statements filing standalone separate returns using estimated combined federal state marginal tax rate 39 including date transactions recorded deferred tax assets related preclosing net operating loss tax credit carryforwards recorded valuation allowance deferred tax assets net certain schedulable deferred tax liabilities net deferred tax liabilities reported financial statements prior closing related fcc licenses recorded indefinitelived spectrum intangibles amortized book purposes change deferred tax position result closing reflected part accounting acquisition old clearwire recorded equity net operating loss tax credit carryforwards associated sprint wimax business prior closing transferred either clearwire communications clearwire instead retained sprint income tax provision consists following years ended december 31 2009 2008 2007 thousands sprint wimax business incurred significant deferred tax liabilities related indefinitelived spectrum licenses since certain spectrum licenses acquired recorded indefinitelived intangible assets book purposes subject amortization therefore could estimate amount future period reversals deferred tax liabilities related spectrum licenses result valuation allowance increased accordingly continued amortize acquired spectrum licenses federal income tax purpose difference book tax amortization resulted deferred income tax provision prior closing clearwire corporation subsidiaries notes consolidated financial statements continued components deferred tax assets liabilities december 31 2009 2008 follows thousands pursuant transactions assets old clearwire subsidiaries combined spectrum certain assets sprint wimax business conjunction acquisition old clearwire sprint wimax business assets along 32 billion capital investors contributed clearwire communications clearwire sole holder voting interests clearwire communications clearwire controls 100 decision making clearwire communications consolidates 100 operations clearwire communications treated partnership united states federal income tax purposes therefore pay income tax united states current deferred tax consequences arise partner level including clearwire balances associated nonunited states operations temporary difference clearwire closing basis difference associated investment partnership consequently recorded deferred tax liability difference financial statement carrying value tax basis hold interest clearwire communications date transactions december 31 2009 united states federal tax net operating loss carryforwards approximately 16 billion portion net operating loss carryforward subject certain annual limitations imposed section 382 internal revenue code 1986 net operating loss carryforwards begin expire 2021 3864 million tax net operating loss carryforwards foreign jurisdictions 2342 million statutory expiration date 1305 million begins expire 2015 remainder 217 million begins expire 2010 recorded valuation allowance deferred tax assets extent determined likely items either expire able realize benefits future deductibility uncertain relates united states tax jurisdiction determined temporary taxable difference associated investment clearwire communications reverse within carryforward period net operating losses accordingly represents relevant future taxable income clearwire corporation subsidiaries notes consolidated financial statements continued income tax rate computed using federal statutory rates reconciled reported effective income tax rate follows file income tax returns clearwire subsidiaries united states federal jurisdiction various state foreign jurisdictions december 31 2009 tax returns old clearwire years 2003 2008 remain open examination internal revenue service various state tax authorities addition old clearwire acquired united states foreign entities operated prior 2003 acquired entities generated losses income tax purposes certain tax returns remain open examination united states foreign tax authorities tax years far back 1998 policy recognize interest related unrecognized tax benefits interest expense interest income recognize penalties additional income tax expense december 31 2009 uncertain tax positions therefore accrued interest penalties related uncertain tax positions 10 longterm debt longterm debt december 31 2009 2008 consisted following thousands senior secured notes rollover notes november 24 2009 issued 160 billion 12 senior secured notes due 2015 cash proceeds 157 billion net debt discount used 116 billion proceeds retire senior term loan facility recognized gain extinguishment debt 83 million net transaction costs senior secured notes provide biannual payments interest june december beginning june 2010 bear interest rate 12 per annum connection issuance senior secured notes november 24 2009 also issued 2525 million rollover notes sprint comcast identical terms senior secured notes proceeds rollover notes used 2009 retire principal amounts owed sprint comcast senior term loan facility december 9 2009 issued additional 920 million senior secured notes terms senior secured notes issued november 24 2009 resulted cash proceeds 9011 million net debt discount clearwire corporation subsidiaries notes consolidated financial statements continued december 31 2009 271 billion aggregate principal amount outstanding senior secured notes rollover notes weighted effective interest rate senior secured notes rollover notes 1302 december 31 2009 holders senior secured notes rollover notes right require us repurchase notes upon occurrence change control event sale certain assets price 101 principal amount 100 principal amount respectively plus unpaid accrued interest repurchase date prior december 1 2012 may redeem 35 aggregate principal amount senior secured notes redemption price 112 aggregate principal amount plus unpaid accrued interest repurchase date december 1 2012 may redeem part senior secured notes paying makewhole premium stated terms plus unpaid accrued interest repurchase date payment obligations senior secured notes rollover notes guaranteed certain domestic subsidiaries senior basis secured certain assets subsidiaries firstpriority lien senior secured notes rollover notes contain limitations activities among things include incurring additional indebtedness guarantee indebtedness making distributions payment dividends certain restricted payments investments making certain payments indebtedness entering agreements restrict distributions restricted subsidiaries selling otherwise disposing assets merger consolidation sales substantially assets entering transactions affiliates creating liens issuing certain preferred stock similar equity securities making investments acquiring assets future payments interest principal senior secured notes rollover notes remaining years follows thousands senior term loan facility conjunction transactions assumed old clearwire senior term loan facility balance closing 119 billion net discount senior term loan facility set due 2011 repaid proceeds senior secured notes rollover notes december 31 2008 141 billion aggregate principal amount outstanding senior term loan facility interest expense interest expense included consolidated statements operations years ended december 31 2009 2008 2007 consisted following thousands clearwire corporation subsidiaries notes consolidated financial statements continued 11 derivative instruments 2009 2008 held two interest rate swap contracts based 3month libor combined notional value 600 million used swaps economic hedges interest rate risk related portion senior term loan facility interest rate swaps used reduce variability future interest payments libor based debt holding interest rate swap contracts trading speculative purposes apply hedge accounting swaps therefore gains losses due changes fair value reported income expense net consolidated statements operations following table sets forth information regarding interest rate swap contracts thousands 1 included income expense net consolidated statements operations computed fair value swaps using income approach whereby estimate net cash flows discount cash flows riskbased rate see note 12 fair value information monitor risk nonperformance well counterparties ongoing basis december 31 2008 swap fair value 216 million reported longterm liabilities consolidated balance sheet fourth quarter 2009 terminated swap contracts paid swap counterparties 184 million consisted 147 million mark market losses 37 million accrued interest 12 fair value following table description pricing assumptions used instruments measured recorded fair value recurring basis including general classification instruments pursuant valuation hierarchy financial instrument’s categorization within valuation hierarchy based upon lowest level input significant fair value measurement financial instrument hierarchy pricing assumptions cash equivalents money market mutual funds level 1 market quotes shortterm investment us government agency issues level 1 market quotes longterm investment us government agency issues level 1 market quotes longterm investment debt securities level 3 discount forecasted cash flows adjusted defaultloss probabilities estimate final maturity derivative interest rate swaps level 3 discount forecasted cash flows adjusted risk nonperformance clearwire corporation subsidiaries notes consolidated financial statements continued cash equivalents investments quoted prices identical securities available active market use quoted market prices determine fair value investment securities cash equivalents classified level 1 valuation hierarchy level 1 securities include us treasuries money market mutual funds quoted prices active markets debt securities classified level 3 use discounted cash flow models estimate fair value using various methods including market income approaches developing models utilize certain assumptions market participants would use pricing investment including assumptions risk risks inherent inputs valuation technique maximize use observable inputs pricing models quoted market prices securities derivatives exchanges available reliable also use certain unobservable inputs cannot validated reference readily observable market exchange data rely certain extent management’s assumptions market participants would use pricing security use many factors necessary estimate market values including interest rates market risks market spreads timing contractual cash flows market liquidity review underlying collateral principal interest dividend payments derivatives classified level 3 valuation hierarchy estimate fair value use income approach whereby estimate net cash flows discount cash flows riskadjusted rate inputs include contractual terms derivatives including period maturity payment frequency daycount conventions marketbased parameters interest rate forward curves interest rate volatility level subjectivity used estimate risk nonperformance counterparties following table summarizes financial assets liabilities level within valuation hierarchy december 31 2009 thousands following table summarizes financial assets liabilities level within valuation hierarchy december 31 2008 thousands clearwire corporation subsidiaries notes consolidated financial statements continued following table provides reconciliation beginning ending balances major classes assets liabilities measured fair value using significant unobservable inputs level 3 thousands 1 included income expense net consolidated statements operations following description fair value financial instruments hold subject fair value recognition notes receivable notes receivable carrying value 54 million fair value 17 million outstanding december 31 2009 notes receivable carrying value 48 million fair value 12 million outstanding december 31 2008 notes receivable publicly traded fair value notes estimated based fair value underlying collateral debt instruments senior secured notes rollover notes carrying value 271 billion approximate fair value 281 billion outstanding december 31 2009 estimate fair value notes used average indicative price several market makers senior term loan facility carrying value approximate fair value 136 billion outstanding december 31 2008 senior term loan facility publicly traded estimate fair value senior term loan facility used income approach whereby estimated contractual cash flows discounted cash flows riskadjusted rate inputs included contractual terms senior term loan facility marketbased parameters interest rate forward curves level subjectivity judgment used estimate credit spread senior term loan facility retired fourth quarter 2009 clearwire corporation subsidiaries notes consolidated financial statements continued 13 commitments contingencies future minimum payments obligations listed including optional expected renewal periods operating leases december 31 2009 follows thousands spectrum operating lease obligations commitments noncancelable operating leases consist mainly leased spectrum license fees office space equipment leased sites including towers rooftop locations certain leases provide minimum lease payments additional charges escalation clauses certain tower leases specify minimum number new leases commence december 31 2011 charges apply commitments satisfied leased spectrum agreements terms 30 years operating leases generally initial terms five years multiple renewal options additional fiveyear terms totaling 20 25 years expense recorded related spectrum operating leases follows thousands spectrum commitments provide clearwire services certain lessors launched markets reimbursement capital equipment thirdparty service expenditures lessors term lease accrue monthly obligation services equipment based total estimated available service credits divided term lease obligation reduced actual invoices presented paid lessors years ended december 31 2009 2008 satisfied 779000 76000 respectively related commitments maximum remaining commitment december 31 2009 957 million expected incurred term related lease agreements generally range 1530 years clearwire corporation subsidiaries notes consolidated financial statements continued december 31 2009 signed agreements acquire approximately 300 million new spectrum subject closing conditions transactions expected completed within next twelve months network equipment purchase obligations purchase commitments takeorpay obligations andor volume commitments equipment noncancelable outstanding purchase orders network equipment believe delivery likely occur purchase obligations purchase obligations include minimum purchases committed purchase suppliers time andor unconditional purchase obligations guarantee make minimum payment suppliers goods services regardless whether suppliers fully deliver include among things agreements backhaul customer devices related services addition party various arrangements conditional nature create obligation make payments upon occurrence certain events actual delivery acceptance products services possible predict timing amounts may due conditional arrangements amounts included table also excludes blanket purchase order amounts orders subject cancellation termination discretion quantity goods services purchased payment terms unknown purchase orders firm commitments amdocs agreement march 31 2009 entered customer care billing services agreement refer amdocs agreement amdocs software systems limited refer amdocs provide customized customer care billing platform refer platform us connection provision services establishment platform amdocs also license certain software us initial term amdocs agreement commences march 31 2009 ends earliest occur seven years date amdocs agreement extended certain circumstances relating conversion subscribers new system termination amdocs agreement pursuant terms defined terms amdocs agreement required pay amdocs licensing fees implementation fees monthly subscriber fees reimbursable expenses addition amdocs agreement contains detailed terms governing implementation maintenance platform performance specifications acceptance testing charges credits payments warranties capitalized 529 million costs incurred application development stage associated platform year ended december 31 2009 legal proceedings fully described involved variety lawsuits claims investigations proceedings concerning intellectual property business practices commercial matters determine whether accrue estimated loss contingency particular legal proceeding assessing whether loss deemed probable reasonably estimated reassess views estimated losses quarterly basis reflect impact developments matters involved legal proceedings inherently unpredictable matters involved often present complex legal factual issues vigorously pursue defenses legal proceedings engage discussions possible resolve matters terms favorable us possible however business financial condition results operations future periods could materially affected increased litigation expense significant settlement costs andor unfavorable damage awards december 1 2008 adaptix inc refer adaptix filed suit patent infringement us sprint united states district court eastern district texas alleging sprint infringed six patents purportedly owned adaptix february 10 2009 adaptix filed amended complaint alleging infringement seventh patent adaptix alleges offering 4g mobile wimax services subscribers compliance 80216e wimax standard making using andor selling clearwire corporation subsidiaries notes consolidated financial statements continued supporting wimax network used provide wimax services sprint infringe seven patents adaptix seeking monetary damages attorneys’ fees permanent injunction enjoining us acts alleged infringement february 25 2009 filed answer amended complaint denying infringement asserting several affirmative defenses including asserted patents invalid filed amended answer june 25 2009 adding counterclaim declaratory judgment noninfringement invalidity subject patents trial scheduled december 2010 parties commenced discovery early 2009 december 21 2009 adaptix filed serve additional suit patent infringement united states district court eastern district texas suit alleges infringement one patent related asserted previously filed suit served therefore appeared newlyfiled suit february 23 2010 reached resolution adaptix sprint regarding adaptix’s patent infringement litigations pending united states district court eastern district texas whereby pending litigations dismissed without prejudice april 22 2009 purported class action lawsuit filed us superior court king county washington group five plaintiffs hawaii minnesota north carolina washington lawsuit generally alleges disseminated false advertising quality reliability services imposed unlawful early termination fee invoked unconscionable provisions terms service detriment customers among things lawsuit seeks determination alleged claims may asserted classwide basis order declaring certain provisions terms service including early termination fee provision void unenforceable injunction prohibiting us collecting early termination fees false advertising restitution early termination fees paid subscribers equitable relief award unspecified damages attorneys’ fees may 27 2009 amended complaint filed served adding seven additional plaintiffs including individuals new mexico virginia wisconsin june 2 2009 plaintiffs served amended complaint removed action united states district court western district washington july 23 2009 filed motion dismiss amended complaint court stayed discovery pending ruling motion court granted motion dismiss entirety february 2 2010 plaintiffs 30 days move court leave amend complaint whether plaintiffs seek leave unknown september 1 2009 served purported class action lawsuit filed king county superior court complaint alleges placed unlawful telephone calls using automatic dialing announcing devices seeks declaratory injunctive andor equitable relief statutory damages federal state law october 1 2009 removed case united states district court western district washington october 22 2009 court issued stipulated order granting plaintiff october 29 2009 file amended complaint parties stipulated allow second amended complaint plaintiffs filed december 23 2009 filed motion dismiss fully briefed january 15 2010 prior court ruling motion dismiss plaintiff moved court leave file amended complaint february 22 2010 court granted motion dismiss part dismissing certain claims prejudice granting plaintiff 20 days amend complaint court dismissed plaintiff’s motion leave amend moot case early stages litigation outcome unknown addition matters described often involved certain proceedings arise ordinary course business seek monetary damages relief based upon information currently available us none claims expected material adverse effect business financial condition results operations indemnification agreements currently party indemnification agreements certain officers members board directors liabilities recorded consolidated balance sheets indemnification agreements probable estimable clearwire corporation subsidiaries notes consolidated financial statements continued 14 sharebased payments connection closing assumed old clearwire 2008 stock compensation plan refer 2008 plan old clearwire 2007 stock compensation plan refer 2007 plan old clearwire 2003 stock option plan refer 2003 plan share grants generally vest ratably four years expire later ten years date grant grants awarded 2008 plan made available discretion compensation committee board directors authorized unissued shares authorized issued shares reacquired held treasury shares combination thereof december 31 2009 62229805 shares available grant 2008 plan authorizes us grant incentive stock options nonqualified stock options stock appreciation rights restricted stock restricted stock units stock awards employees directors consultants adoption 2008 plan additional stock options granted 2007 plan 2003 plan sharebased compensation expense based estimated grantdate fair value award recognized net estimated forfeitures shares expected vest graded vesting schedule straightline basis requisite service period separately vesting portion award insubstance multiple awards stock options connection transactions old clearwire stock options issued outstanding closing exchanged oneforone basis stock options equivalent terms following closing granted options certain officers employees 2008 plan options vest fouryear period fair value option grants estimated date grant using blackscholes option pricing model summary option activity january 1 2007 december 31 2009 presented clearwire corporation subsidiaries notes consolidated financial statements continued intrinsic value options exercised years ended december 31 2009 2008 23 million 15000 respectively information regarding stock options outstanding exercisable december 31 2009 follows fair value option grant estimated date grant using blackscholes option pricing model using following assumptions years ended december 31 2009 2008 fair value option grants 2009 186 million addition options issued exchange part transactions fair value option grants 2008 954000 total fair value options vested years ended december 31 2009 2008 58 million 815000 respectively total unrecognized sharebased compensation costs related nonvested stock options outstanding december 31 2009 approximately 115 million expected recognized weighted average period approximately 17 years ended december 31 2009 2008 forfeiture rate used calculation stock option expense 1266 restricted stock units connection transactions old clearwire restricted stock units refer rsus issued outstanding closing exchanged oneforone basis rsus equivalent terms following closing granted rsus certain officers employees 2008 plan rsus vest fouryear period fair value rsus based grantdate fair market value common stock equals grant date market price clearwire corporation subsidiaries notes consolidated financial statements continued summary rsu activity years ended december 31 2009 2008 presented total fair value grants 2009 2008 480 million 29 million respectively intrinsic value rsus released years ended december 31 2009 2008 79 million 32 million respectively december 31 2009 11853194 units outstanding total unrecognized compensation cost approximately 309 million expected recognized weightedaverage period approximately 18 years ended december 31 2009 2008 used forfeiture rate 775 750 respectively determining compensation expense rsus sprint equity compensation plans connection transactions certain sprint wimax business employees became employees clearwire currently hold unvested sprint stock options rsus sprint’s equity compensation plans refer collectively sprint plans underlying share awards issued sprint plans sprint common stock sprint plans allow continued plan participation long employee remains employed sprint subsidiary affiliate sprint plans options generally granted exercise price equal market value underlying shares grant date generally vest period four years contractual term ten years rsus generally performance service requirements vesting periods ranging one three years rsus granted second quarter 2008 included quarterly performance targets granted performance targets met therefore grant date awards remaining service requirement vesting period six months following last day applicable quarter employees granted rsus required pay shares generally must remain employed sprint subsidiary restrictions lapse typically three years less december 31 2009 722954 unvested options 213127 unvested rsus outstanding sharebased compensation associated employees incurred sprint behalf sprint provided us fair value options rsus reporting period must remeasured based fair value equity instruments reporting period instruments vested total unrecognized sharebased compensation costs related unvested stock options rsus outstanding december 31 2009 70250 186100 respectively expected recognized approximately one year clearwire corporation subsidiaries notes consolidated financial statements continued sharebased compensation expense recognized plans years ended december 31 2009 2008 2007 follows thousands 15 stockholders’ equity class common stock class common stock represents common equity clearwire holders class common stock entitled one vote per share class entitled 100 dividends distributions made clearwire exception certain minimal liquidation rights provided class b common stockholders described share class common stock participates ratably proportion total number shares class common stock issued clearwire holders class common stock 100 economic interest clearwire considered controlling interest purposes financial reporting upon liquidation dissolution winding class common stock entitled assets remaining payment debts liabilities clearwire exception certain minimal liquidation rights provided class b common stockholders described class b common stock class b common stock represents noneconomic voting interests clearwire holders stock considered noncontrolling interests purposes financial reporting identical class common stock holders class b common stock entitled one vote per share however rights receive distributions stock dividends paid proportionally outstanding class b common stockholder upon liquidation clearwire amount equal par value per share 00001 per share holder class b common stock holds equivalent number clearwire communications class b common interests substance reflects economic stake clearwire accomplished exchange feature provides holder right time exchange one share class b common stock plus one clearwire communications class b common interest one share class common stock clearwire corporation subsidiaries notes consolidated financial statements continued clearwire communications interests clearwire sole holder voting interests clearwire communications clearwire controls 100 decision making clearwire communications consolidates 100 operations clearwire also holds outstanding clearwire communications class common interests representing 211 economics clearwire communications december 31 2009 holders class b common interests remaining 789 economic interests following shows effects changes clearwire’s ownership interests clearwire communications thousands nonvoting clearwire communication units designated either clearwire communications class common interests 100 held clearwire communications class b common interests held sprint investors exception google classes nonvoting clearwire communication units participate distributions clearwire communications equal proportionate basis holder clearwire communications class b common interests holds equivalent number class b common stock entitled time exchange one share class b common stock plus one clearwire communications class b common interest one share class common stock intended times number clearwire communications class common interests held clearwire equal number shares class common stock issued clearwire similarly intended times sprint investor except google hold equal number class b common stock clearwire communications class b common interests dividend policy declared paid cash dividends class b common stock since closing currently expect retain future earnings use operations expansion business anticipate paying cash dividends foreseeable future addition covenants indenture governing senior secured notes impose significant restrictions ability pay cash dividends stockholders distribution subscription rights part rights offering represents dividend distribution noncontrolling interests clearwire communications clearwire communications consolidated clearwire therefore holders clearwire communications class b common interests represent noncontrolling interests consolidated subsidiary clearwire corporation subsidiaries notes consolidated financial statements continued result income loss consolidated clearwire decreased proportion outstanding noncontrolling interests currently clearwire level noncontrolling interests represent approximately 79 noneconomic voting interests warrants old clearwire warrants issued outstanding closing exchanged oneforone basis warrants purchase class common stock equivalent terms fair value warrants exchanged 185 million included calculation purchase consideration using blackscholes option pricing model using share price 662 holders may exercise warrants time exercise prices ranging 300 4800 old clearwire granted holders warrants registration rights covering shares subject issuance warrants number warrants outstanding december 31 2009 17806220 warrants expire august 5 2010 term subject extension certain circumstances 16 net loss per share basic net loss per share net loss per share attributable holders class common stock calculated based following information thousands except per share amounts subscription rights distributed december 21 2009 purchase shares class common stock class common stockholders record december 17 2009 warrant holders certain holders rsus represent dividend distribution certain participating equityholders google class common stockholders record holding approximately 102 million shares entitled subscription rights agreed exercise transfer rights fair value rights distributed 575 million 051 per share class common stock certain outstanding warrants meet definition participating securities terms provide participation distributions class common stock prior exercise therefore twoclass method used compute loss per share result fair value rights distributed warrant rsu holders 95 million increased net loss attributable class common stockholders diluted loss per share potential exchange clearwire communications class b common interests together class b common stock class common stock dilutive effect diluted loss per share due certain tax effects exchange would result increase number class common stock outstanding corresponding increase net loss attributable class common stockholders elimination noncontrolling interests’ allocation extent clearwire communications clearwire corporation subsidiaries notes consolidated financial statements continued class b common interests class b common stock converted class common stock clearwire communications partnership structure would longer exist clearwire would required recognize tax provision related indefinite lived intangible assets net loss per share attributable holders class common stock diluted basis assuming conversion clearwire communications class b common interests class b common stock calculated based following information thousands except per share amounts higher loss per share diluted basis due hypothetical loss partnership status clearwire communications upon conversion clearwire communications class b common interests class b common stock conversion noncontrolling interests discussed diluted weighted average shares include effects following potential common shares inclusion would antidilutive thousands contingent shares year ended december 31 2009 primarily relate clearwire communications class b common interests clearwire communications voting interests issued participating equityholders upon second third investment closings interests combined basis exchanged class common stock second investment closing december 21 2009 expect third investment closing occur first quarter 2010 contingent shares year ended december 31 2008 relate purchase price share adjustment 28235294 million shares equity issuance cw investment holdings 588235 shares issued february 2009 clearwire corporation subsidiaries notes consolidated financial statements continued subscription rights purchase aggregate approximately 114 million shares class common stock included computation diluted loss per share rights’ subscription price 733 per share greater average market price class common stock period rights outstanding 2009 outofthemoney calculated presented basic diluted net loss per share class common stock class b common stock loss per share calculated since contractually participate distributions clearwire prior closing equity whollyowned division sprint calculate present net loss per share period january 1 2008 november 28 2008 year ended december 31 2007 17 business segments information operating segments based internal organization reporting revenue operating income loss based upon internal accounting methods operating segments defined components enterprise separate financial information available evaluated regularly chief operating decision maker decision making group deciding allocate resources assessing performance chief operating decision maker chief executive officer december 31 2009 2008 identified two reportable segments united states international businesses 2007 one reportable business segment united states international operations prior closing report business segment information follows thousands clearwire corporation subsidiaries notes consolidated financial statements continued 18 related party transactions number strategic commercial relationships third parties significant impact business operations financial results relationships sprint investors eagle river motorola inc bell canada related parties clearwire corporation subsidiaries notes consolidated financial statements continued following amounts related party transactions included consolidated financial statements thousands 1 amounts presented 2008 reflect correction classification error cogs sga amount 774 million previously presented sga reclassified cogs correct presentation rollover notes connection issuance senior secured notes november 24 2009 also issued 2525 million notes sprint comcast identical terms senior secured notes proceeds rollover notes used retire principal amounts owed sprint comcast senior term loan facility time related parties may hold debt senior secured notes debtholders would entitled receive interest payments us sprint preclosing financing amount amended credit agreement result transactions assumed liability reimburse sprint preclosing financing amount required pay 2130 million plus related interest 45 million sprint cash first business day closing remainder added sprint tranche amended credit agreement senior term loan facility amount 1792 million time related parties may held debt senior term loan facility debtholders would entitled receive interest payments us amended credit agreement 2009 repaid senior term loan facility proceeds senior secured notes rollover notes sprint assigned possible certain costs us based actual use shared services included office facilities management services including treasury services human resources supply chain management shared services closing direct assignment costs possible practical sprint used indirect methods including time studies estimate assignment costs us allocated us management fee allocations costs reevaluated periodically sprint charged us management fees services 1711 million year ended december 31 2008 1150 million year ended december 31 2007 additionally entered lease agreements sprint various switching facilities transmitter receiver sites recorded rent expense 282 million 364 million 20 million years ended december 31 2009 2008 2007 respectively relationships among certain stockholders directors officers clearwire following completion transactions postclosing adjustments sprint whollyowned subsidiary sprint holdco llc owned largest interest clearwire effective voting economic interest clearwire approximately 56 investors collectively owned 29 interest clearwire see note 3 stategic transactions discussion regarding postclosing adjustment clearwire corporation subsidiaries notes consolidated financial statements continued eagle river holder 35922958 shares outstanding class common stock 2612516 shares class b common stock represents approximate 4 ownership interest clearwire eagle river inc refer eri manager eagle river entity controlled craig mccaw director clearwire mr mccaw affiliates significant investments telecommunications businesses may compete us currently future likely mr mccaw affiliates continue make additional investments telecommunications businesses december 31 2009 eagle river held warrants entitling purchase 613333 shares class common stock exercise price 1500 per share warrants purchase 375000 shares class common stock exercise price 300 per share december 31 2009 remaining life warrants 39 years certain officers directors provide additional services eagle river eri affiliates separately compensated entities compensation paid individuals eagle river eri andor affiliates services addition compensation paid us following closing clearwire sprint eagle river investors agreed enter equityholders’ agreement set forth certain rights obligations equityholders respect governance clearwire transfer restrictions common stock rights first refusal preemptive rights among things addition also entered number commercial agreements sprint investors outlined additionally wife mr salemme executive vice president strategy policy external affairs group vice president time warner cable directly involved transactions time warner cable davis wright tremaine llp law firm davis wright tremaine llp serves primary outside counsel handles variety corporate transactional tax litigation matters mr wolff former chief executive officer married partner davis wright tremaine partner mr wolff’s spouse entitled share portion firm’s total profits although received compensation directly us years ended december 31 2009 2008 paid 41 million 907000 davis wright tremaine legal services include fees paid old clearwire master site agreement entered master site agreement sprint refer master site agreement pursuant sprint establish contractual framework procedures leasing tower antenna collocation sites leases specific sites negotiated sprint us request lessee leased premises may used lessee activity connection provision wireless communications services including attachment antennas towers sites term master site agreement ten years closing term lease specific site five years lessee right extend term additional 20 years basic fee 600 per month per site monthly fee increase 3 per year lessee also responsible utility costs certain additional fees application fee 1000 per site master agreement network services entered master agreement network services refer master agreement network services various sprint affiliated entities refer sprint entities pursuant sprint entities establish contractual framework procedures us purchase network services sprint entities may order various services sprint entities including ip network transport services data center colocation tollfree services access following business platforms voicemail instant messaging services locationbased systems media server services sprint entities provide service level agreement consistent service levels provided similarly situated customers pricing specified separate product attachments type service general pricing based midpoint fair market value service sprint entities’ fully allocated cost providing service term master clearwire corporation subsidiaries notes consolidated financial statements continued agreement network services five years lessee right extend term additional five years additionally accordance master agreement network services sprint entities assumed certain agreements backhaul services certain investors contain commitments extend five years master services agreement entered master services agreement sprint entities refer master services agreement pursuant sprint entities us establish contractual framework procedures us purchase information technology refer application services sprint entities may order various information technology application services sprint entities including human resources applications supply chain finance applications device management services data warehouse services creditaddress check help desk services repair services applications customer trouble management coverage map applications network operations support applications services specific services requested us identified statements work completed sprint entities us sprint entities provide service levels consistent service levels sprint entities provide affiliates services pricing specified separate statement work type service term master services agreement five years right extend term additional five years 4g mvno agreement entered nonexclusive 4g mvno agreement closing comcast mvno ii llc twc wireless llc bhn spectrum investments llc sprint spectrum lp refer 4g mvno agreement sell wireless broadband services parties 4g mvno agreement purposes purchasers marketing reselling wireless broadband services respective end user customers wireless broadband services provided 4g mvno agreement include standard network services request parties certain nonstandard network services sell services retail prices less agreed upon discounts intel market development agreement entered market development agreement intel refer intel market development agreement pursuant committed deploy mobile wimax network promote use certain notebook computers mobile internet devices network intel would develop market sell support wimax embedded chipsets use certain notebook computers mobile internet devices may used network intel market development agreement last term seven years date agreement intel option renew agreement successive one year terms maximum 13 additional years provided intel meets certain requirements intel elects renew agreement maximum 20year term agreement thereafter automatically renew successive one year renewal periods either party terminates agreement intel market development agreement clearwire communications pay intel portion revenues received certain retail customers using certain intelbased notebook computers mutually agreed devices network certain period time subject certain qualifications clearwire communications also pay intel activation fees qualifying intelbased device activated network initial term google products services agreement entered products services agreement google refer google products services agreement pursuant google collaborate variety products services google provide advertising services us use certain websites devices utilize google advertising services exclusive basis retail customers google pay us percentage revenue google generates advertising services google also provide suite hosted communications services including email instant messaging calendar functionality us integration desktop portal offering furthermore support opensource android platform work google offer certain google applications explore working google variety potential products services google products services agreement term three years clearwire corporation subsidiaries notes consolidated financial statements continued google spectrum agreement entered spectrum agreement google refer google spectrum agreement pursuant make available google certain excess 25 ghz spectrum various markets experimental usage google development alternative applications thirdparties operating direction approval google us thirdparty use spectrum beyond used wimax technology cannot utilized manner interfere use spectrum wimax technology subject availability revenue generated spectrum usage wimax technology shared google us addition parties agree form joint technology team manage activities outlined google spectrum agreement google spectrum agreement provides initial term five years date agreement google spectrum agreement terminable either party default party 19 quarterly financial information unaudited summarized quarterly financial information years ended december 31 2009 2008 follows thousands except per share data 1 fourth quarter operating loss includes nonrecurring charge approximately 806 million related settlement spectrum lease contracts 2 clearwire corporation formed november 28 2008 therefore net loss attributable clearwire corporation applicable first three quarters 2008 clearwire corporation subsidiaries notes consolidated financial statements continued 20 parent company condensed financial statements terms agreements governing indebtedness clearwire communications subsidiary clearwire subsidiary significantly restricted making dividend payments loans advances clearwire restrictions resulted restricted net assets defined securities exchange commission rule 408e3 regulation sx clearwire’s subsidiary exceeding 25 consolidated net assets clearwire subsidiaries following condensed parentonly financial statements clearwire account investment clearwire communications equity method accounting financial statements read conjunction consolidated financial statements clearwire subsidiaries notes thereto described note 1 description business clearwire formed november 28 2008 therefore condensed statement operation condensed statement cash flow 2008 included activity november 29 2008 december 31 2008 clearwire corporation subsidiaries notes consolidated financial statements continued clearwire corporation condensed balance sheets clearwire corporation subsidiaries notes consolidated financial statements continued clearwire corporation condensed statements operations clearwire corporation subsidiaries notes consolidated financial statements continued clearwire corporation condensed statements cash flows item 15 exhibits financial statement schedules 1 consolidated financial statements sprint corporation filed part annual report listed index consolidated financial statements 2 consolidated financial statements clearwire corporation date acquisition filed part annual report listed index consolidated financial statements 3 exhibits filed part annual report listed exhibit index signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized sprint corporation registrant marcelo claure marcelo claure chief executive officer president date may 26 2015 pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities indicated 26th day may 2015 marcelo claure marcelo claure chief executive officer president principal executive officer joseph j euteneuer joseph j euteneuer chief financial officer principal financial officer paul w schieber jr paul w schieber jr vice president controller principal accounting officer signatures sprint corporation registrant pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities indicated 26th day may 2015 masayoshi son marcelo claure masayoshi son chairman marcelo claure director ronald fisher frank ianna ronald fisher vice chairman frank ianna director nikesh arora michael g mullen nikesh arora director michael g mullen director robert r bennett sara martinez tucker robert r bennett director sara martinez tucker director gordon bethune gordon bethune director exhibit index exhibit references updated filed furnished required schedules andor exhibits filed furnished sec upon request pursuant item 601b2 regulation sk sprint corporation index consolidated financial statements index consolidated financial statements report independent registered public accounting firm board directors stockholders sprint corporation overland park kansas audited accompanying successor consolidated balance sheets sprint corporation subsidiaries company march 31 2015 2014 related successor consolidated statements operations comprehensive loss cash flows stockholders equity year ended march 31 2015 threemonth period ended march 31 2014 year ended december 31 2013 period october 5 2012 date incorporation december 31 2012 also audited companys internal control financial reporting march 31 2015 based criteria established internal control integrated framework 2013 issued committee sponsoring organizations treadway commission companys management responsible consolidated financial statements maintaining effective internal control financial reporting assessment effectiveness internal control financial reporting included accompanying managements report internal control financial reporting responsibility express opinion consolidated financial statements opinion companys internal control financial reporting based audits conducted audits accordance standards public company accounting oversight board united states standards require plan perform audits obtain reasonable assurance whether consolidated financial statements free material misstatement whether effective internal control financial reporting maintained material respects audits consolidated financial statements included examining test basis evidence supporting amounts disclosures financial statements assessing accounting principles used significant estimates made management evaluating overall financial statement presentation audit internal control financial reporting included obtaining understanding internal control financial reporting assessing risk material weakness exists testing evaluating design operating effectiveness internal control based assessed risk audits also included performing procedures considered necessary circumstances believe audits provide reasonable basis opinions companys internal control financial reporting process designed supervision companys principal executive principal financial officers persons performing similar functions effected companys board directors management personnel provide reasonable assurance regarding reliability financial reporting preparation financial statements external purposes accordance generally accepted accounting principles companys internal control financial reporting includes policies procedures 1 pertain maintenance records reasonable detail accurately fairly reflect transactions dispositions assets company 2 provide reasonable assurance transactions recorded necessary permit preparation financial statements accordance generally accepted accounting principles receipts expenditures company made accordance authorizations management directors company 3 provide reasonable assurance regarding prevention timely detection unauthorized acquisition use disposition companys assets could material effect financial statements inherent limitations internal control financial reporting including possibility collusion improper management override controls material misstatements due error fraud may prevented detected timely basis also projections evaluation effectiveness internal control financial reporting future periods subject risk controls may become inadequate changes conditions degree compliance policies procedures may deteriorate opinion successor consolidated financial statements referred present fairly material respects financial position sprint corporation subsidiaries march 31 2015 2014 related results operations cash flows year ended march 31 2015 threemonth period ended march 31 2014 year ended december 31 2013 period october 5 2012 date incorporation december 31 2012 conformity accounting principles generally accepted united states america also opinion company maintained material respects effective internal control financial reporting march 31 2015 based criteria established internal control integrated framework 2013 issued committee sponsoring organizations treadway commission discussed notes 1 3 consolidated financial statements july 10 2013 softbank corp completed merger sprint communications inc formerly sprint nextel corporation sprint corporation acquiring company sprint communications inc applied acquisition method accounting merger date deloitte touche llp kansas city missouri may 26 2015 index consolidated financial statements report independent registered public accounting firm board directors stockholders sprint corporation audited accompanying consolidated statements operations comprehensive loss cash flows stockholders’ equity sprint communications inc formerly sprint nextel corporation subsidiaries predecessor company 191 day period ended july 10 2013 year ended december 31 2012 consolidated financial statements responsibility predecessor company’s management responsibility express opinion consolidated financial statements based audits audit financial statements clearwire corporation consolidated subsidiary clearwire communications llc collectively clearwire year ended december 31 2012 predecessor company’s equity losses clearwire included 11 billion year ended december 31 2012 financial statements clearwire year ended december 31 2012 audited auditors whose report furnished us opinion insofar relates amounts included clearwire based solely report auditors conducted audits accordance standards public company accounting oversight board united states standards require plan perform audits obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion based audits report auditors consolidated financial statements referred present fairly material respects results predecessor companys operations cash flows 191 day period ended july 10 2013 year ended december 31 2012 conformity us generally accepted accounting principles sprint communications inc adopted accounting guidance regarding testing indefinitelived intangible assets impairment 2012 kpmg llp kansas city missouri october 21 2013 except note 17 date june 18 2014 index consolidated financial statements sprint corporation consolidated balance sheets see notes consolidated financial statements index consolidated financial statements sprint corporation consolidated statements operations see notes consolidated financial statements index consolidated financial statements sprint corporation consolidated statements comprehensive loss see notes consolidated financial statements index consolidated financial statements sprint corporation consolidated statements cash flows index consolidated financial statements sprint corporation consolidated statements cash flows continued see notes consolidated financial statements index consolidated financial statements sprint corporation consolidated statements stockholders equity millions 1 successor period beginning october 5 2012 ending december 31 2012 approximately 3 million shares class b common stock starburst ii inc issued outstanding immaterial value shares exchanged connection issuance common stock softbank upon completion merger see notes consolidated financial statements index consolidated financial statements sprint corporation notes consolidated financial statements index consolidated financial statements sprint corporation notes consolidated financial statements note 1 description operations sprint corporation including consolidated subsidiaries communications company offering comprehensive range wireless wireline communications products services designed meet needs individual consumers businesses government subscribers resellers wireless segment includes retail wholesale affiliate service revenue wide array wireless voice data transmission services equipment revenue sale lease wireless devices sale accessories us puerto rico us virgin islands wireline segment includes revenue domestic international wireline voice data communication services july 9 2013 clearwire acquisition date sprint communications completed acquisition remaining equity interests clearwire defined already approximately 35 billion net cash acquired 500 per share clearwire acquisition consideration paid allocated assets acquired liabilities assumed based estimated fair values clearwire acquisition date effects clearwire acquisition included predecessor period financial information therefore included allocation consideration transferred softbank merger date defined july 10 2013 softbank merger date softbank corp certain whollyowned subsidiaries together softbank completed merger softbank merger sprint nextel corporation sprint nextel contemplated agreement plan merger dated october 15 2012 amended merger agreement bond purchase agreement dated october 15 2012 amended bond agreement result softbank merger starburst ii inc starburst ii whollyowned subsidiary softbank became parent company sprint nextel immediately thereafter starburst ii changed name sprint corporation sprint nextel changed name sprint communications inc addition connection closing softbank merger sprint corporation became successor registrant sprint nextel rule 12g3 securities exchange act 1934 exchange act entity subject reporting requirements exchange act filings securities exchange commission sec subsequent close softbank merger addition order align softbank’s reporting schedule changed fiscal year end march 31 effective march 31 2014 result annual report also includes threemonth transition period january 1 2014 march 31 2014 well comparable threemonth unaudited period january 1 2013 march 31 2013 references herein fiscal year 2014 2015 refer twelvemonth periods ending march 31 2015 2016 respectively see note 3 significant transactions additional information regarding softbank merger related transactions unless context otherwise requires references sprint us company mean sprint corporation consolidated subsidiaries periods presented inclusive successor predecessor periods described references sprint communications sprint communications inc consolidated subsidiaries connection change control result softbank merger sprint communications assets liabilities adjusted fair value closing date softbank merger consolidated financial statements distinguish predecessor period predecessor relating sprint communications periods prior softbank merger successor period successor relating sprint corporation formerly known starburst ii periods subsequent incorporation starburst ii october 5 2012 successor financial information represents activity accounts sprint corporation includes activity accounts starburst ii prior softbank merger date sprint communications inclusive consolidation clearwire corporation whollyowned subsidiary clearwire communications llc together clearwire prospectively following softbank merger date beginning july 11 2013 postmerger period accounts operating activity starburst ii prior softbank merger date primarily related merger expenses incurred connection softbank merger recognized selling general administrative expense interest related 31 billion convertible bond sprint communications inc issued starburst ii predecessor financial information represents historical basis presentation sprint communications periods prior softbank merger date result valuation assets acquired liabilities assumed fair value softbank merger date financial statements successor period presented measurement basis different predecessor period sprint communications historical cost therefore comparable index consolidated financial statements sprint corporation notes consolidated financial statements note 2 summary significant accounting policies information basis consolidation estimates consolidated financial statements include accounts 100 owned subsidiaries control controlling financial interest intercompany transactions balances eliminated consolidation prior clearwire acquisition date applied equity method accounting investment clearwire controlling vote ability control operating financial policies consolidated financial statements prepared conformity accounting principles generally accepted united states us gaap requires management company make estimates assumptions affect reported amounts assets liabilities revenues expenses disclosure contingent assets liabilities date consolidated financial statements significant estimates assumptions used limited allowance doubtful accounts estimated economic lives residual values property plant equipment fair value identified purchased tangible intangible assets business combination fair value assessments purposes impairment testing valuation guarantee liabilities litigation reserves certain prior period amounts reclassified conform current period presentation including separately presenting service revenue equipment revenue net operating revenues separately presenting cost services cost products net operating expenses change estimate estimating value returned inventory evaluate many factors obtain information support estimated value used devices useful lives recently observed sustained value extended useful lives handsets leading increase estimated value returned inventory result revised methodology assumptions used estimating value returned handsets year ended march 31 2015 change estimate accounted prospective basis effect change estimate included cost products consolidated statements operations reduced operating loss approximately 80 million 002 per basic diluted share year ended march 31 2015 addition change resulted increase device accessory inventory consolidated balance sheet approximately 80 million summary significant accounting policies cash equivalents cash equivalents generally include highly liquid investments maturities time purchase three months less investments may include money market funds certificates deposit us government governmentsponsored debt securities corporate debt securities municipal securities bankrelated securities credit debit card transactions process carrying amounts approximate fair value installment receivables carrying value installment receivables approximates fair value receivables recorded present value net deferred interest allowance credit losses time sale impute interest installment receivable record reduction revenue reduction face amount related receivable interest income recognized term installment contract service revenue categorize installment receivables prime subprime based upon subscriber credit profiles unbilled billedcurrent billedpast due based upon age receivable use proprietary scoring systems measure credit quality receivables using several factors credit bureau information subscriber credit risk scores service plan characteristics payment history subsequently monitored evaluate credit profiles prime subscriber receivables lower delinquency risk subprime subscriber receivables higher delinquency risk subscribers within subprime category may required pay payment device accessory purchases installment receivables invoices yet generated customer considered unbilled installment receivables invoices generated past contractual due date considered billed current installment receivables invoices generated payment approximately index consolidated financial statements sprint corporation notes consolidated financial statements ten days past contractual due date considered billed past due account balances writtenoff collection efforts unsuccessful future collection unlikely based length time day accounts become past due allowance doubtful accounts allowance doubtful accounts established cover probable reasonably estimable losses number subscriber accounts practical review collectability accounts individually determine amount allowance doubtful accounts period although account level analysis performed respect large wireless wireline subscribers estimate allowance doubtful accounts considers number factors including collection experience installment billing arrangements aging accounts receivable portfolios credit quality subscriber base qualitative considerations including macroeconomic factors account balances writtenoff collection efforts unsuccessful future collection unlikely based length time day accounts become past due amounts written allowance doubtful accounts net recoveries adjustments 752 million 106 million 98 million successor year ended march 31 2015 threemonth transition period ended march 31 2014 year ended december 31 2013 374 million 105 million 549 million predecessor 191day period ended july 10 2013 unaudited threemonth period ended march 31 2013 year ended december 31 2012 respectively see note 4 installment receivables additional information relates allowance doubtful accounts specifically attributable installment receivables device accessory inventory inventories stated lower cost market cost determined firstin firstout fifo method company sells wireless devices separately conjunction service contract device sold cost related revenues generated device sales equipment net subsidy recognized time sale expected equipment net subsidy recognized prior time sale promotional discount decision generally made point sale equipment net subsidies expected recovered service revenues net realizable value devices inventory analyzed regular basis analysis includes assessing obsolescence sales forecasts product life cycle marketplace considerations assessments regarding factors adversely change may sell devices higher subsidy record writedown inventory obsolete slowmoving items prior point sale property plant equipment property plant equipment ppe including improvements extend useful lives recognized cost depreciation property plant equipment generally calculated using straightline method based estimated economic useful lives 3 30 years buildings improvements network equipment site costs related software 3 12 years nonnetwork internal use software office equipment leasehold improvements depreciated shorter lease term estimated useful life respective assets leased devices depreciated using straightline method estimated residual value end term lease ranges 12 30 months calculate depreciation certain network assets using group life method accordingly ordinary asset retirements disposals assets charged accumulated depreciation gain loss recognized gains losses associated asset retirements disposals recognized consolidated statements operations depreciation rates assets revised periodically account changes related managements strategic objectives technological changes estimated residual values obsolescence changes estimates result adjustment depreciation prospectively estimated useful lives nonleased assets remaining lease term devices leased customers repair maintenance costs research development costs expensed incurred capitalize costs network nonnetwork software developed obtained internal use application development stage costs included ppe software placed service depreciated estimated useful lives three five years costs incurred preliminary project postimplementation stage well maintenance training costs expensed incurred index consolidated financial statements sprint corporation notes consolidated financial statements longlived asset impairment sprint evaluates longlived assets including intangible assets subject amortization impairment whenever events changes circumstances indicate carrying amount asset group may recoverable asset groups determined lowest level identifiable cash flows largely independent cash flows groups assets liabilities carrying amount longlived asset group recoverable exceeds fair value impairment loss recognized equal excess asset group’s carrying value estimated fair value see note 6 property plant equipment additional information longlived asset impairments certain assets yet deployed business including network equipment cell site development costs software development periodically assessed determine recoverability network equipment cell site development costs expensed whenever events changes circumstances cause company conclude assets longer needed meet managements strategic network plans deployed software development costs expensed longer probable software project deployed network equipment removed network also periodically assessed determine recoverability experience significant operational challenges including retaining attracting subscribers future cash flows company may sufficient recover carrying value wireless asset group could record asset impairments material sprints consolidated results operations financial condition indefinitelived intangible assets indefinitelived intangible assets primarily consist goodwill certain trademarks fcc licenses goodwill represents excess consideration paid estimated fair value net tangible identifiable intangible assets acquired business combinations determining whether intangible asset goodwill indefinitelived consider expected use assets regulatory economic environment within used effects obsolescence use assess indefinitelived intangible assets including goodwill impairment least annually necessary frequently whenever events changes circumstances indicate asset may impaired analyses include determination fair value require considerable judgment highly sensitive changes underlying assumptions consequently assurance estimates assumptions made purposes estimating fair values indefinitelived assets including goodwill prove accurate prediction future continued sustained declines company’s operating results future forecasted cash flows growth rates assumptions well significant sustained declines company’s stock price related market capitalization could impact underlying key assumptions estimated fair values potentially leading future material impairment goodwill indefinitelived intangible assets see note 7 intangible assets additional information indefinitelived intangible asset impairments guarantee liabilities certain wireless service plans offer option subscribers purchase monthly basis annual tradein right option tradein date subscriber elected purchase device installment billing arrangement receive credit amount outstanding balance remaining installment payments provided subscriber tradesin eligible used device good working condition purchases new device sprint additionally subscriber must purchased option twelve consecutive months preceding tradein subscriber elects option total estimated arrangement proceeds associated subscriber reduced estimated fair value fixedprice tradein credit guarantee liability remaining proceeds allocated amongst deliverables arrangement guarantee liability estimated based assumptions including limited expected fair value used device tradein subscribers’ estimated remaining balance installment receivable probability timing tradein subscriber elects exercise tradein right difference outstanding balance installment receivable estimated fair value returned device recorded reduction guarantee liability subscriber elects stop purchasing option prior becoming eligible exercise tradein right recognize amount associated guarantee liability operating revenue reporting date reevaluate estimate guarantee liability subscribers elected option claim benefit earliest contractual time eligible tradein maximum amount guarantee index consolidated financial statements sprint corporation notes consolidated financial statements liability ie estimated unpaid balance subscribers installment contracts would approximately 248 million march 31 2015 amount indication companys expected loss exposure consider expected fair value used handset required returned us good working condition tradein consider probability timing tradein total guarantee liabilities associated option recorded accrued expenses current liabilities consolidated balance sheets immaterial benefit plans provide defined benefit pension plan certain postretirement benefits certain employees sponsor defined contribution plan employees june 2014 company’s board directors approved plan amendment sprint retirement pension plan offer certain terminated participants begun receive plan benefits opportunity voluntarily elect receive benefits immediate lump sum distribution upon expiration election period completion cash payments november 28 2014 lump sum distribution totaling approximately 560 million created settlement event resulted 59 million charge reflected net consolidated statements operations reduction projected benefit obligation approximately 300 million impacted settlement well change mortality tables change discount rate used estimate projected benefit obligation march 31 2015 2014 fair value pension plan assets certain postretirement benefit plan assets aggregate 13 billion 18 billion respectively fair value projected benefit obligations aggregate 22 billion 24 billion respectively result plans underfunded approximately 900 million 600 million march 31 2015 2014 respectively recorded net liability consolidated balance sheets estimated contributions totaling approximately 8 million expected paid fiscal year 2015 offset pension liability recorded equity component accumulated comprehensive loss net tax including 393 million 147 million 93 million successor year ended march 31 2015 threemonth transition period ended march 31 2014 year ended december 31 2013 respectively amortized selling general administrative sprints consolidated statements operations change net liability plan successor year ended march 31 2015 affected impact settlement event projected benefit obligation combined change discount rate used estimate projected benefit obligation decreasing 49 successor threemonth transition period ended march 31 2014 42 successor year ended march 31 2015 change net liability plan successor threemonth transition period ended march 31 2014 year ended december 31 2013 affected primarily change discount rate used estimate projected benefit obligation decreasing 53 49 successor threemonth transition period ended march 31 2014 intend make future cash contributions plan amount necessary meet minimum funding requirements according applicable benefit plan regulations december 31 2005 plan amended freeze benefit plan accruals participants objective investment portfolio pension plan achieve longterm nominal rate return net fees exceeds plans longterm expected rate return investments funding purposes 775 march 31 2015 2014 meet objective investment strategy year ended march 31 2015 governed asset allocation policy whereby targeted allocation percentage assigned asset class follows 38 us equities 16 international equities 28 fixed income investments 9 real estate investments 9 investments including hedge funds actual allocations allowed deviate target allocation percentages within range asset class defined investment policy investments plan measured fair value recurring basis determined using quoted market prices estimated fair values march 31 2015 47 investment portfolio valued quoted prices active markets identical assets 35 valued using quoted prices similar assets active inactive markets observable inputs 18 valued using unobservable inputs supported little market activity defined contribution plan participants may contribute portion eligible pay plan payroll withholdings successor year ended march 31 2015 threemonth transition period ended march 31 2014 year ended december 31 2013 company matched 100 participants pretax roth contribution aggregate first 3 eligible compensation 50 participants pretax roth contribution aggregate index consolidated financial statements sprint corporation notes consolidated financial statements next 2 eligible compensation maximum matching contribution 4 predecessor year ended december 31 2012 company matched 50 participants contributions 2 eligible compensation fixed matching contributions totaled approximately 71 million 15 million 35 million successor year ended march 31 2015 threemonth transition period ended march 31 2014 year ended december 31 2013 respectively 32 million 15 million 30 million predecessor 191day period ended july 10 2013 unaudited threemonth period ended march 31 2013 year ended december 31 2012 respectively prior 2013 company also made discretionary matching contribution determined board directors company equal 100 participants contributions 395 eligible compensation 60 million predecessor year ended december 31 2012 based upon attainment certain profitability levels revenue recognition operating revenues primarily consist wireless service revenues generated device accessory sales revenues leasing device revenues wholesale operators thirdparty affiliates well long distance voice data internet revenues service revenues consist fixed monthly recurring charges variable usage charges miscellaneous fees activation fees directory assistance roaming equipment protection late payment early termination charges interest certain regulatory related fees net service credits adjustments generally recognize service revenues services rendered assuming revenue recognition criteria met recognize revenue access charges services charged fixed amounts ratably service period net credits adjustments service discounts billing disputes fraud unauthorized usage result cutoff times multiple billing cycles month required estimate amount subscriber revenues earned billed end billing cycle end reporting period estimates based primarily rate plans effect historical usage billing patterns regulatory fees costs recorded gross largest component regulatory fees universal service fund represented 2 net operating revenues periods presented consolidated statements operations recognize equipment revenue corresponding costs devices title risk loss passes indirect dealer enduse subscriber arrangements involving multiple deliverables equipment service revenue allocated deliverables based relative selling prices equipment revenue limited amount noncontingent consideration received device sold subscriber equipment revenue also reduced estimated amount imputed interest associated installment receivables subscribers elect finance purchase device 24month period often subsidize cost device incentive retain acquire subscribers cost incentives recorded reduction revenue upon activation device service contract qualified subscribers lease device contractual period time end lease term subscribers option turn devices continue leasing device purchase device accounting device leases involves specific determinations applicable lease accounting standards involve complex prescriptive provisions impact timing amount revenue recognized leased devices critical elements considered respect lease accounting economic life device fair value device including residual value lease devices qualifying subscribers also purchase service plan date substantially device leases classified operating leases revenues arrangements allocated considering relative fair values lease nonlease elements included multipleelement arrangement amount arrangement consideration allocated operating lease element recognized ratably lease term typically two years multipleelement arrangement includes option purchase monthly basis annual tradein right amount total arrangement consideration reduced estimated fair value tradein right guarantee remaining proceeds allocated amongst deliverables arrangement accounting estimates related recognition revenue require us make assumptions numerous factors future billing adjustments disputes subscribers unauthorized usage future returns mailin rebates device sales fair value tradein right total arrangement consideration index consolidated financial statements sprint corporation notes consolidated financial statements dealer commissions cash consideration given us dealer enduse subscriber presumed reduction revenue unless receive identifiable benefit exchange consideration fair value benefit reasonably estimated case consideration generally recorded selling expense purchase inventory compensate dealers using specific compensation programs related sale devices subscriber service contracts commission earned dealer solely due selling activity relating wireless service cost recorded selling expense commission earned dealer due dealer selling devices purchased us cost recorded reduction equipment revenue commissions generally earned upon sale device service enduse subscriber incentive payments dealers sales associated devices service contracts classified contrarevenue extent incentive payment reimbursement loss device selling expense amount associated selling effort incentive payments certain indirect dealers purchase devices sources original equipment manufacturer oem recognized selling expense device activated sprint service plan sprint recognize equipment revenue cost products transactions severance exit costs liabilities severance exit costs recognized based upon nature cost incurred involuntary separation plans completed within guidelines written involuntary separation plan liability recognized probable reasonably estimable voluntary separation plans vsp liability recognized vsp irrevocably accepted employee onetime termination benefits additional severance pay benefit payouts exit costs lease termination costs liability measured recognized initially fair value period liability incurred subsequent changes liability recognized adjustments period change severance exit costs associated business combinations recorded results operations incurred compensation plans march 31 2015 sprint sponsored three incentive plans 2007 omnibus incentive plan 2007 plan 1997 longterm incentive program 1997 program nextel incentive equity plan nextel plan together compensation plans sprint also sponsors employee stock purchase plan espp 2007 plan may grant share nonshare based awards including stock options stock appreciation rights restricted stock restricted stock units performance shares performance units equitybased cash awards employees outside directors eligible individuals defined plan march 31 2015 number shares available reserved future grants 2007 plan espp totaled approximately 172 million common shares compensation committee board directors one executive officers compensation committee authorize provided 2007 plan determine terms share nonshare based award new grants made 1997 program nextel plan use new shares satisfy sharebased awards treasury shares available fair value option award estimated grant date using blackscholes option valuation model based several assumptions including riskfree interest rate volatility expected dividend yield expected term successor year ended march 31 2015 company granted approximately 23 million stock options weighted average grant date fair value 309 per share based upon assumptions risk free interest rate 180 206 weighted average expected volatility 470 591 expected dividend yield 0 expected term 55 years 65 years general options granted exercise price equal market value underlying shares grant date vest annual basis three years contractual term ten years march 31 2015 40 million options outstanding 19 million options exercisable fair value restricted stock unit award calculated using share price date grant restricted stock units generally performance service requirements service requirements vesting periods ranging one three years employees directors granted restricted stock units required pay shares generally must remain employed us continue serve member board directors restrictions lapse typically three years employees one year directors certain restricted stock units outstanding march 31 2015 entitled dividend equivalents paid cash dividends declared paid common shares index consolidated financial statements sprint corporation notes consolidated financial statements performancebased restricted stock units entitled dividend equivalent payments applicable performance service criteria met successor year ended march 31 2015 company granted approximately 6 million service performancebased restricted stock units weighted average grant date fair value 739 per share march 31 2015 approximately 17 million restricted stock unit awards outstanding compensation costs cost employee services received exchange sharebased awards classified equity measured using estimated fair value award date grant cost recognized period award recipient required provide service exchange award awards instruments classified liabilities measured estimated fair value reporting date settlement pretax share nonshare based compensation charges incentive plans included net loss 86 million 35 million 98 million successor year ended march 31 2015 threemonth transition period ended march 31 2014 year ended december 31 2013 respectively 37 million 17 million 82 million predecessor 191day period ended july 10 2013 unaudited three monthperiod ended march 31 2013 year ended december 31 2012 respectively net income tax benefit expense recognized consolidated financial statements sharebased compensation awards 34 million 12 million 34 million successor year ended march 31 2015 threemonth transition period ended march 31 2014 year ended december 31 2013 respectively 2 million 1 million 14 million predecessor 191day period ended july 10 2013 unaudited threemonth period march 31 2013 year ended december 31 2012 respectively march 31 2015 76 million total unrecognized compensation cost related nonvested incentive awards expected recognized weighted average period 175 years advertising costs recognize advertising expense incurred selling general administrative expense advertising expenses totaled 15 billion 408 million 697 million successor year ended march 31 2015 threemonth transition period ended march 31 2014 year ended december 31 2013 respectively 858 million 409 million 14 billion predecessor 191day period ended july 10 2013 unaudited threemonth period march 31 2013 year ended december 31 2012 respectively new accounting pronouncements april 2014 financial accounting standards board fasb issued authoritative guidance regarding reporting discontinued operations disclosures disposals components entity changes criteria determining disposals presented discontinued operations modifies related disclosure requirements updated guidance defines discontinued operations disposal component group components disposed classified held sale represents strategic shift major effect entity’s operations financial results additionally disclosure requirements discontinued operations expanded new disclosures individually significant dispositions qualify discontinued operations required guidance effective prospectively fiscal years interim reporting periods within years beginning december 15 2014 early adoption permitted transactions reported financial statements previously issued available issuance standard effective companys fiscal year beginning april 1 2015 applied relevant future transactions may 2014 fasb issued new authoritative literature revenue contracts customers issuance part joint effort fasb international accounting standards board iasb enhance financial reporting creating common revenue recognition guidance us gaap international financial reporting standards thereby improving consistency requirements comparability practices usefulness disclosures new standard supersede much existing authoritative literature revenue recognition currently written standard related amendments effective company annual reporting period beginning april 1 2017 including interim periods within reporting period early application permitted april 2015 fasb issued proposal defer effective date new literature one year allow companies early adopt according original effective date entities allowed transition new standard either retrospective application recognizing index consolidated financial statements sprint corporation notes consolidated financial statements cumulative effect company currently evaluating guidance including transition approach applied estimated impact consolidated financial statements june 2014 fasb issued authoritative guidance regarding compensation stock compensation provides guidance treat performance targets achieved requisite service period updated guidance requires performance target affects vesting could achieved requisite service period treated performance condition accounted current guidance opposed nonvesting condition would impact grantdate fair value award guidance effective annual periods interim periods within annual periods beginning december 15 2015 early adoption permitted entities may apply amendments either prospectively awards granted modified effective date ii retrospectively awards performance targets outstanding beginning earliest annual period presented financial statements new modified awards thereafter cumulative effect adjustment opening retained earnings balance beginning earliest annual period presented company expect adoption guidance material effect consolidated financial statements august 2014 fasb issued authoritative guidance regarding disclosure uncertainties entity’s ability continue going concern requires management assess entity’s ability continue going concern provide related footnote disclosures certain circumstances updated guidance requires management perform interim annual assessments whether conditions events considered aggregate raise substantial doubt entity’s ability continue going concern within one year date financial statements issued provide related disclosures required standard effective company’s fiscal year ending march 31 2017 although early adoption permitted company expect adoption guidance material effect consolidated financial statements january 2015 fasb issued authoritative guidance extraordinary unusual items eliminating concept extraordinary items issuance part fasb’s initiative reduce complexity accounting standards current guidance entity required separately classify present disclose events transactions meet criteria extraordinary classification new guidance reporting entities longer required consider whether underlying event transaction extraordinary however presentation disclosure guidance items unusual nature occur infrequently retained expanded include items unusual nature infrequently occurring amendments effective company’s fiscal year beginning april 1 2016 although early adoption permitted applied beginning fiscal year company expect adoption guidance material effect consolidated financial statements february 2015 fasb issued authoritative guidance regarding consolidation provides guidance management evaluating whether consolidate certain legal entities updated guidance modifies evaluation criteria limited partnerships similar legal entities eliminates presumption general partner consolidate limited partnership affects consolidation analysis reporting entities involved variable interest entities particularly fee arrangements related party relationships legal entities subject reevaluation revised consolidation model standard effective company’s annual reporting period beginning april 1 2016 including interim periods within reporting period although early adoption permitted company currently evaluating newly issued guidance assessing impact consolidated financial statements april 2015 fasb issued authoritative guidance regarding interest imputation interest requires debt issuance costs related recognized debt liability presented balance sheet direct deduction carrying amount debt liability consistent debt discounts guidance effective fiscal years interim reporting periods within years beginning december 31 2015 early adoption permitted standard effective company’s fiscal year beginning april 1 2016 company expect adoption guidance material effect consolidated financial statements index consolidated financial statements sprint corporation notes consolidated financial statements note 3 significant transactions acquisition remaining interest clearwire july 9 2013 sprint communications completed clearwire acquisition cash consideration paid totaled approximately 35 billion net cash acquired 198 million approximately 125 million cash consideration accrued within accrued expenses current liabilities consolidated balance sheet dissenting shares relating stockholders exercised appraisal rights fair value consideration measured estimated fair value element consideration transferred clearwire acquisition date determined sum approximately 37 billion cash transferred clearwire stockholders included 125 million cash relating dissenting shares b approximately 33 billion representing estimated fair value clearwire shares held sprint communications immediately preceding acquisition c approximately 59 million sharebased payment awards replacement awards exchanged awards held clearwire employees purchase price allocation consideration transferred allocated assets acquired liabilities assumed based estimated fair values clearwire acquisition date allocation consideration transferred based managements judgment evaluating several factors including valuation assessment management finalized purchase price allocation quarter ended june 30 2014 adjustments made since initial purchase price allocation decreased recorded goodwill approximately 269 million primarily attributable reduction approximately 270 million made deferred tax liabilities result additional analysis remaining adjustments insignificant following table summarizes purchase price allocation consideration clearwire acquisition softbank transaction discussed softbank merger completed july 10 2013 sprint communications inc stockholders received consideration combination cash stock subject proration cash consideration paid softbank merger 141 billion net cash acquired 25 billion estimated fair value 22 interest sprint corporation issued existing stockholders sprint communications inc addition pursuant bond agreement october 15 2012 sprint communications inc issued bond starburst ii principal amount 31 billion interest rate 1 maturity date october 15 2019 converted 590476190 shares sprint communications inc common stock 525 per share immediately prior softbank merger date result completion softbank merger subsequent open market stock purchases softbank owned approximately 79 outstanding voting common stock sprint corporation sprint stockholders remaining approximately 21 march 31 2015 consideration transferred investments softbank fair value consideration transferred measured estimated fair value element consideration transferred softbank merger date determined sum approximately 166 billion cash transferred sprint communications inc stockholders b approximately 53 billion representing shares sprint index consolidated financial statements sprint corporation notes consolidated financial statements issued sprint communications inc stockholders c approximately 193 million sharebased payment awards replacement awards exchanged awards held sprint employees additionally softbank invested approximately 50 billion form capital contributions sprint fair value investments softbank determined based cash transferred including 31 billion purchase bond 19 billion softbank merger date purchase price allocation consideration transferred allocated assets acquired liabilities assumed based estimated fair values softbank merger date inclusive clearwire acquisition described excess consideration transferred estimated fair values assets acquired liabilities assumed recorded goodwill resulting softbank merger allocated wireless segment allocation consideration transferred based managements judgment evaluating several factors including valuation assessment management finalized purchase price allocation quarter ended june 30 2014 adjustments made since initial purchase price allocation decreased recorded goodwill approximately 476 million indefinitelived intangible assets increased approximately 300 million due additional analysis performed management quarter ended december 31 2013 quarter ended june 30 2014 related value assigned certain fcc licenses remainder decrease due insignificant changes various accounts following table summarizes purchase price allocation consideration transferred pro forma financial information following unaudited pro forma consolidated results operations assume softbank merger clearwire acquisition completed january 1 2012 unaudited pro forma financial information prepared illustrate pro forma effect combination sprint communications clearwire using consideration transferred acquisition date though acquisition date transaction occurred january 1 2012 preparation pro forma financial information also assumed purchase price allocation consideration transferred among assets acquired liabilities assumed acquiree pro forma financial information adjusts actual combined results items recurring nature directly attributable clearwire acquisition softbank merger pro forma net loss provided excludes certain nonrecurring items sprints gain previously held interest clearwire transaction costs associated index consolidated financial statements sprint corporation notes consolidated financial statements clearwire acquisition softbank merger result pro forma financial information presented excludes net gain 14 billion acquisition related costs approximately 169 million pro forma financial information prepared based estimates assumptions management believes reasonable necessarily indicative consolidated financial position results operations sprint would achieved clearwire acquisition andor softbank merger actually occurred january 1 2012 historical date reflective expected actual financial positions results operations future period accounts receivable facility transaction overview may 16 2014 certain whollyowned subsidiaries sprint entered twoyear committed facility receivables facility sell certain accounts receivable receivables revolving basis subject maximum funding limit 13 billion available funding varies based amount eligible receivables defined receivables facility connection receivables facility sprint formed whollyowned subsidiaries bankruptcyremote special purpose entities spes pursuant receivables facility certain sprint subsidiaries originators transfer receivables spes receivables contributed originators spes available sold conduits primarily consisted installment receivables wireless service charges due subscribers spes may sell receivables bank agent behalf unaffiliated multiseller assetbacked commercial paper conduits sponsoring banks sales eligible receivables spes initiated generally occur daily settled monthly basis sprint pays fee drawn undrawn portions receivables facility subsidiary sprint services receivables exchange monthly servicing fee sprint guarantees performance servicers originators obligations receivables facility net fees associated receivables facility recognized selling general administrative expenses consolidated statements operations april 24 2015 receivables facility amended include 20 billion additional funding result including installment receivables definition eligible receivables facility effect increasing maximum funding limit 33 billion 14 billion available drawn cash april 30 2015 additionally expiration date extended march 31 2017 receivables sold conduits treated sale financial assets upon sale sprint derecognizes receivables well related allowances recognizes net proceeds received cash provided operating activities difference receivables sold cash received represents financial asset due sprint conduits realizable sprint contingent upon collections sold receivables march 31 2015 35 billion receivables contributed originators spes sold approximately 18 billion service receivables conduits exchange 500 million cash reflected within change accounts notes receivable consolidated statement cash flows 13 billion receivable conduits receivable due sprint conduits classified trading security recorded estimated fair value 12 billion prepaid expenses current assets consolidated balance sheet fair value receivable due sprint estimated using discounted cash flow model relied principally unobservable inputs nature sold receivables subscriber payment history changes fair value receivable due sprint recognized operating loss income consolidated statements operations march 31 2015 approximately 460 million available funding receivables facility april 2015 sprint elected remit payments received conduits reduce funded amount zero spe’s sole business consists purchase acceptance capital contributions receivables originators subsequent retransfer granting security interest receivables bank agent receivables facility addition spe separate legal entity separate creditors entitled prior upon liquidation spe satisfied spe’s assets prior assets value spe becoming available originators sprint accordingly assets spe including 17 billion installment receivables contributed originators held spes 13 billion receivable due sprint conduits march 31 2015 available pay creditors sprint affiliates spe although collections receivables excess amounts required pay investment yield fees index consolidated financial statements sprint corporation notes consolidated financial statements conduits creditors spes may remitted originators sprint term receivables facility continuing involvement sprint continuing involvement receivables sold spes conduits subsidiary sprint services receivables additionally accordance receivables facility sprint required repurchase aged receivables written accordance sprints credit collection policies result subscriber nonpayment sprint recognizes assets liabilities applicable respect continuing involvement fair value sprints continuing involvement material impact financial statements mach 31 2015 variable interest entity sprint determined conduits considered variable interest entities lack sufficient equity finance activities sprints interests receivables purchased conduits comprised net receivable due sprint considered variable interest assets represent less 50 total activity conduits note 4 installment receivables certain subscribers option purchase devices installments 24month period shortterm installment receivables recorded accounts notes receivable net longterm installment receivables recorded assets consolidated balance sheets following table summarizes installment receivables balance aging installment receivables gross basis credit category follows index consolidated financial statements sprint corporation notes consolidated financial statements activity deferred interest allowance credit losses installment receivables year ended march 31 2015 three months ended march 31 2014 since inception program september 2013 december 31 2013 follows note 5 financial instruments carrying amount cash equivalents accounts notes receivable accounts payable approximates fair value shortterm investments consisting primarily time deposits commercial paper treasury securities totaling approximately 166 million 12 billion march 31 2015 2014 respectively recorded amortized cost respective carrying amounts approximate fair value primarily using quoted prices active markets fair value marketable equity securities totaling 40 million 50 million periods ended march 31 2015 2014 respectively measured recurring basis using quoted prices active markets estimated fair value majority current longterm debt excluding credit facilities determined based quoted prices active markets using observable inputs derived principally corroborated observable market data following table presents carrying amounts estimated fair values current longterm debt index consolidated financial statements sprint corporation notes consolidated financial statements note 6 property plant equipment property plant equipment consists primarily network equipment longlived assets used provide service subscribers result modernization network shutdown nextel platform estimated useful lives related equipment shortened causing incremental depreciation charges period implementation incremental effect accelerated depreciation expense totaled approximately 800 million 360 million predecessor 191day period ended july 10 2013 unaudited three monthperiod march 31 2013 respectively 21 billion predecessor year ended december 31 2012 majority related shortened useful lives nextel platform assets periods following table presents components property plant equipment related accumulated depreciation network equipment site costs related software includes switching equipment cell site towers site development costs radio frequency equipment network software digital fiber optic cable transport facilities transmissionrelated equipment buildings improvements principally consists owned general office facilities retail stores leasehold improvements nonnetwork internal use software office equipment leased devices primarily consists furniture information technology systems equipment vehicles leased devices construction progress depreciated placed service primarily includes materials transmission related equipment labor engineering site development costs interest costs relating construction development network noncash accruals included property plant equipment totaled 15 billion 20 billion 24 billion successor year ended march 31 2015 threemonths ended march 31 2014 year ended december 31 2013 september 2014 sprint introduced leasing program whereby qualified subscribers lease device contractual period time end lease term subscriber option turn device continue leasing device purchase device march 31 2015 substantially device leases classified operating leases lease inception devices leased sprints direct channels reclassified inventory property plant equipment devices leased indirect channels sprint purchase device leased retailer lease inception devices depreciated using straightline method estimated residual value end lease term following table presents leased devices related accumulated depreciation year ended march 31 2015 noncash additions leased devices approximately 14 billion along corresponding decrease device accessory inventory approximately 12 billion corresponding increase accounts payable approximately 182 million devices purchased indirect dealers leased subscribers index consolidated financial statements sprint corporation notes consolidated financial statements march 31 2015 minimum estimated payments received leased devices follows millions assessment impairment quarter ended december 31 2014 tested recoverability wireline longlived assets due continued declines wireline segment earnings forecast projected continued losses future periods result test recorded impairment loss 233 million included “impairments” consolidated statements operations reduce carrying value wireline asset group includes wireline longlived assets estimated fair value 918 million testing date fair value wireline longlived assets estimated using market approach included significant unobservable inputs including liquidation curves useful life assumptions scrap values assumptions largely unobservable estimate fair value considered unobservable within fair value hierarchy recorded asset impairments 75 million successor threemonth transition period ended march 31 2014 102 million predecessor year ended december 31 2012 respectively successor threemonth transition period ended march 31 2014 asset impairments recorded primarily due network equipment assets longer necessary result changes managements strategic plans asset impairments year ended december 31 2012 consisted 18 million assets associated decision utilize fiber backhaul expect cost effective rather microwave backhaul 66 million capitalized assets longer intend deploy result termination spectrum hosting arrangement lightsquared 18 million related network asset equipment 13 million wireless 5 million wireline longer necessary managements strategic plans note 7 intangible assets indefinitelived intangible assets indefinitelived intangible assets consists fcc licenses acquired primarily fcc auctions business combinations certain trademarks goodwill march 31 2015 held 19 ghz 800 mhz 25 ghz fcc licenses authorizing use radio frequency spectrum deploy wireless services long company acts within requirements constraints regulatory authorities renewal extension licenses reasonably certain minimal cost accordingly concluded fcc licenses indefinitelived intangible assets goodwill represents excess consideration paid estimated fair value net tangible identifiable intangible assets acquired business combinations see note 3 significant transactions quarter ended june 30 2014 company entered definitive agreements various counterparties sell certain fcc licenses held wireless segment quarters ended september 30 2014 march 31 2015 agreements totaling 100 million 200 million respectively received regulatory approval settled transactions material impact companys consolidated results operations index consolidated financial statements sprint corporation notes consolidated financial statements following provides activity indefinitelived intangible assets within consolidated balance sheets 1 net reduction trademarks year ended march 31 2015 approximately 19 billion related impairment sprint trade name see discussion 2 net additions goodwill successor year ended march 31 2015 approximately 192 million result purchase price allocation adjustments consisted 232 million increase recorded threemonth period ended march 31 2015 correct amount net deferred tax liabilities recognized connection softbank merger clearwire acquisition net 40 million decrease recorded threemonths ended june 30 2014 also associated softbank merger clearwire acquisition 3 net reduction goodwill successor threemonth transition period ended march 31 2014 51 million result purchase price allocation adjustments associated softbank merger assessment impairment annual impairment testing date goodwill indefinitelived intangible assets january 1 year however test impairment annual tests event occurs circumstances change indicate asset may impaired case goodwill fair value reporting unit carrying amount since softbank merger date actual results expectations net postpaid handset subscriber additions lower forecasts used allocate purchase price assets acquired liabilities assumed quarter ended december 31 2014 stock price related market capitalization decreased significantly credit rating downgraded one ratings service providers also updated longterm forecasted cash flows company including wireless reporting unit fourth quarter update considered current economic conditions trends estimated future operating results views growth rates anticipated future economic regulatory conditions future cost savings initiatives availability necessary network infrastructure handsets devices based events changes circumstances determined recoverability carrying amount goodwill sprint trade name evaluated impairment test indefinitelived intangible asset consists comparison fair value asset carrying amount carrying amount exceeds fair value impairment loss recognized equal excess estimated fair value sprint trade name assigned wireless segment using relieffromroyalty method uses several significant assumptions including management projections future revenue royalty rate longterm growth rate discount rate assumptions largely unobservable estimate fair value considered unobservable within fair value hierarchy significant unobservable inputs included projected revenues royalty rate growth rate 15 terminal year discount rate 16 carrying value sprint trade name exceeded estimated fair value 33 billion accordingly quarter ended december 31 2014 recorded impairment loss 19 billion included “impairments” consolidated statements operations analysis potential impairment goodwill requires twostep approach first step goodwill impairment test used identify potential impairment compares fair value reporting unit carrying amount including goodwill estimated fair value wireless reporting unit using discounted cash flow market index consolidated financial statements sprint corporation notes consolidated financial statements based valuation models determination fair value reporting unit requires significant estimates assumptions including significant unobservable inputs key inputs include limited discount rate 8 terminal growth rate 15 control premium market multiple data selected guideline public companies management’s internal forecasts include numerous assumptions share industry gross additions churn mix plans rate changes expenses ebitda margins capital expenditures among others compared estimated fair value carrying amount wireless reporting unit concluded second step goodwill impairment test required estimated fair value exceeded carrying amount determination fair value requires considerable judgment highly sensitive changes underlying assumptions consequently assurance estimates assumptions made purposes goodwill sprint trade name impairment tests prove accurate prediction future continued sustained declines company’s operating results future forecasted cash flows growth rates assumptions well significant sustained declines company’s stock price related market capitalization could impact underlying key assumptions estimated fair values potentially leading future material impairment goodwill indefinitelived intangible assets intangible assets subject amortization customer relationships amortized using sumofthemonths digits method definitelived intangible assets amortized using straight line method estimated useful lives respective assets reduce gross carrying value associated accumulated amortization specified intangible assets become fully amortized amortization expense related favorable spectrum tower leases recognized cost services index consolidated financial statements sprint corporation notes consolidated financial statements note 8 longterm debt financing capital lease obligations 1 notes clearwire communications llc also direct obligations clearwire finance inc guaranteed certain clearwire subsidiaries march 31 2015 sprint corporation parent corporation 105 billion aggregate principal amount senior notes outstanding addition march 31 2015 outstanding principal amount senior notes issued sprint communications inc sprint capital corporation guaranteed notes issued sprint communications inc exchangeable notes issued clearwire communications llc edc agreement secured equipment credit facilities totaling 215 billion principal amount longterm debt issued 100 owned subsidiaries fully unconditionally guaranteed sprint corporation indentures financing arrangements governing certain subsidiaries debt contain provisions limit cash dividend payments subsidiary common stock except case notes issued secured assets clearwire communications llc transfer cash subsidiaries parent corporation generally restricted march 31 2015 approximately 13 billion aggregate principal amount outstanding debt comprised certain notes financing capital lease obligations mortgages secured 146 billion property plant equipment assets net cash interest payments net amounts capitalized 56 million 13 million 30 million totaled 23 billion 559 million 10 billion successor year ended march 31 2015 threemonth transition period ended march 31 2014 year ended december 31 2013 respectively cash interest payments net amounts capitalized 29 million 15 million 278 million totaled 814 million 305 million 14 billion predecessor 191day period ended july 10 2013 unaudited threemonth period ended march 31 2013 year ended december 31 2012 respectively weighted average effective interest rate related notes credit facilities 61 62 64 successor year ended march 31 2015 threemonth transition period ended march 31 2014 index consolidated financial statements sprint corporation notes consolidated financial statements year ended december 31 2013 respectively 89 71 75 predecessor 191day period ended july 10 2013 unaudited threemonth period ended march 31 2013 year ended december 31 2012 respectively notes march 31 2015 outstanding notes consisted senior notes guaranteed notes exchangeable notes unsecured well secured notes clearwire communications llc secured solely assets clearwire communications llc certain subsidiaries cash interest notes generally payable semiannually arrears march 31 2015 301 billion aggregate principal amount notes redeemable companys discretion thenapplicable redemption prices plus accrued interest march 31 2015 216 billion aggregate principal amount senior notes guaranteed notes provide holders right require us repurchase notes change control triggering event defined applicable indentures supplemental indentures occurs march 31 2015 300 million aggregate principal amount clearwire communications llc notes provide holders right require us repurchase notes change control occurs defined applicable indentures supplemental indentures required make change control offer cash payment equal 101 aggregate principal amount notes repurchased plus accrued unpaid interest upon close clearwire acquisition clearwire communications llc 825 exchangeable notes due 2040 became exchangeable time holder’s option fixed amount cash equal 70621 1000 principal amount notes surrendered result 444 million total cash consideration payable upon exchange 629 million principal amount notes outstanding classified current debt obligation remaining carrying value notes classified longterm debt obligation debt issuances february 24 2015 sprint corporation issued 15 billion aggregate principal amount 7625 notes due 2025 interest notes payable semiannually february 15 august 15 notes guaranteed sprint communications inc debt retirements may 1 2014 company retired remaining 181 million aggregate principal amount upon maturity outstanding ipcs inc second lien secured floating rate notes due 2014 plus accrued unpaid interest credit facilities bank credit facility company 33 billion unsecured revolving bank credit facility expires february 2018 borrowings revolving bank credit facility bear interest rate equal london interbank offered rate libor plus spread varies depending company’s credit ratings march 31 2015 approximately 470 million letters credit outstanding credit facility including letter credit required report order see note 12 commitments contingencies result outstanding letters credit directly reduce availability borrowings company 28 billion borrowing capacity available revolving bank credit facility march 31 2015 october 2014 amended revolving bank credit facility among things modify required ratio leverage ratio total indebtedness trailing four quarters earnings interest taxes depreciation amortization nonrecurring items defined credit facility adjusted ebitda provide may exceed 65 10 quarter ending december 31 2015 625 10 quarter ending december 31 2016 60 10 fiscal quarter ending thereafter expiration facility amended revolving bank credit facility allows us reduce total indebtedness purposes calculating leverage ratio subtracting total indebtedness amount cash contributed segregated reserve account provided cash contribution cash remaining hand operations exceeds 20 billion upon transfer cash contribution remain restricted extent longer required leverage ratio remain compliance amendment also added sprint corporation guarantor revolving bank credit facility index consolidated financial statements sprint corporation notes consolidated financial statements edc agreement unsecured edc agreement amended december 2014 modify leverage ratio provide terms similar revolving bank credit facility amended october 2014 mentioned well add sprint corporation guarantor part amendment edc agreement increased borrowing capacity additional 300 million due 2019 march 31 2015 edc agreement fully drawn totaling 800 million terms edc agreement repayments outstanding amounts cannot redrawn secured equipment credit facilities eksportkreditnamnden ekn secured equipment credit facility amended december 2014 modify terms conditions relates leverage ratio provide terms similar revolving bank credit facility amended october 2014 mentioned well add sprint corporation guarantor march 31 2015 tranches ekn secured equipment credit facility totaling 10 billion fully drawn made regularly scheduled principal repayments totaling 254 million year ended march 31 2015 balance outstanding march 31 2015 508 million terms ekn secured equipment credit facility repayments outstanding amounts cannot redrawn finnvera plc finnvera december 2014 certain subsidiaries entered secured equipment credit facility insured finnvera finnish export credit agency ability borrow 800 million finance network equipmentrelated purchases nokia solutions networks us llc usa facility divided three consecutive tranches varying size borrowings available october 2017 contingent upon amount equipmentrelated purchases made sprint interest fullyamortizing principal payments due semiannually tranche beginning march 2015 june 2021 march 31 2015 drawn 72 million facility made principal repayments totaling 28 million year ended march 31 2015 balance outstanding march 31 2015 44 million ksure december 2014 certain subsidiaries entered secured equipment credit facility insured ksure korean export credit agency ability borrow 750 million finance network equipmentrelated purchases samsung telecommunications america llc facility divided three consecutive tranches varying size draws became available january 2015 available may 2018 fully drawn contingent upon amount equipmentrelated purchases sprint interest fullyamortizing principal payments due semiannually tranche beginning june 2015 december 2022 march 31 2015 drawn 58 million facility delcredere ducroire dd december 2014 certain subsidiaries entered secured equipment credit facility insured dd belgian export credit agency ability borrow 250 million finance network equipmentrelated purchases alcatellucent usa inc facility became available draw early 2015 available december 2016 interest fullyamortizing principal payments due semiannually beginning june 2015 december 2021 march 31 2015 made draws facility borrowings ekn finnvera ksure dd secured equipment credit facilities secured liens respective equipment purchased pursuant facilities fully unconditionally guaranteed sprint communications inc sprint corporation covenants four secured equipment credit facilities similar one another covenants revolving bank credit facility edc agreement financing capital lease obligations approximately 3000 cell sites sold subsequently leased back terms extend 2021 renewal options additional 20 years cell sites continue reported part property plant equipment due continued involvement property sold transaction accounted financing capital lease obligations primarily use wireless network equipment index consolidated financial statements sprint corporation notes consolidated financial statements covenants certain indentures agreements also require compliance various covenants including covenants limit ability company subsidiaries sell substantially assets limit ability company subsidiaries incur indebtedness liens require maintain certain financial ratios defined terms indentures supplemental indentures financing arrangements march 31 2015 company compliance restrictive financial covenants associated borrowings default borrowings could trigger defaults certain debt obligations turn could result maturities accelerated revolving bank credit facility finance agreements currently restricted paying cash dividends ratio total indebtedness adjusted ebitda defined applicable agreements exceeds 25 10 future maturities longterm debt financing obligation capital lease obligations aggregate amount maturities longterm debt financing obligation capital lease obligations outstanding march 31 2015 follows millions note 9 severance exit costs year ended march 31 2015 recognized lease exit costs primarily associated tower cell sites well facility closures successor threemonth transition period ended march 31 2014 recognized lease exit costs primarily associated retail store closures successor year ended december 31 2013 well predecessor 191day period ended july 10 2013 unaudited threemonth period ended march 31 2013 recognized lease exit costs associated decommissioning nextel platform access exit costs related payments continue made backhaul access contracts longer receiving economic benefit result united states cellular us cellular asset acquisition closed may 2013 recorded liability related network shutdown costs agreed reimburse us cellular quarter ended december 31 2014 identified favorable trends actual costs result released reserve resulting gain approximately 41 million included net consolidated statements operations successor year ended march 31 2015 threemonth transition period ended march 31 2014 year ended december 31 2013 well predecessor 191day period ended july 10 2013 unaudited threemonth period ended march 31 2013 also recognized severance costs associated reductions work force result modernization network completion significant transactions see note 3 significant transactions expect incur additional exit costs future related transition existing backhaul architecture replacement technology network efforts associated integration significant transactions evaluation future use clearwire 4g broadband network among initiatives additional exit costs expected range approximately 75 million 150 million majority expected incurred march 31 2016 index consolidated financial statements sprint corporation notes consolidated financial statements following provides activity severance exit costs liability included accounts payable accrued expenses current liabilities within consolidated balance sheets 1 addition 41 million gain wireless related us cellular recognized costs 13 million 12 million wireless 1 million wireline year ended march 31 2015 2 successor year ended march 31 2015 recognized costs 253 million 218 million wireless 35 million wireline 3 successor year ended march 31 2015 recognized costs 38 million 33 million wireless 5 million wireline 4 threemonth transition period ended march 31 2014 recognized costs 11 million solely attributable wireless 5 threemonth transition period ended march 31 2014 recognized costs 14 million 12 million wireless 2 million wireline 6 threemonth transition period ended march 31 2014 4 million solely attributable wireline recognized cost services 27 million solely attributable wireless recognized severance exit costs 7 july 11 2013 opening balance takes account purchase price adjustments relates softbank merger 8 year ended december 31 2013 recognized costs 56 million 54 million wireless 2 million wireline 9 year ended december 31 2013 recognized costs 219 million 191 million wireless 28 million wireline 10 year ended december 31 2013 19 million solely attributable wireline recognized cost services 34 million solely attributable wireless recognized severance exit costs 11 191day period ended july 10 2013 recognized net costs 478 million solely attributable wireless segment unaudited threemonth period ended march 31 2013 recognized net costs 8 million solely attributable wireless segment 12 191day period ended july 10 2013 recognized costs 58 million 55 million wireless 3 million wireline unaudited threemonth period ended march 31 2013 recognized net costs 17 million 14 million wireless 3 million wireline 13 151 million 133 million wireless 18 million wireline recognized 191day period ended july 10 2013 35 million recognized cost services 116 million recognized severance exit costs unaudited threemonth period ended march 31 2013 recognized 7 million 4 million wireless 3 million wireline cost services index consolidated financial statements sprint corporation notes consolidated financial statements note 10 supplemental financial information 1 includes liabilities amounts 90 million 91 million march 31 2015 2014 respectively checks issued excess associated bank balances yet presented collection index consolidated financial statements sprint corporation notes consolidated financial statements note 11 income taxes sprint corporation parent corporation affiliated group corporations join filing us federal consolidated income tax return additionally file income tax returns state jurisdiction imposes income tax also file income tax returns number foreign jurisdictions however foreign income tax activity immaterial cash paid received income tax purposes insignificant successor predecessor periods presented income tax expense consists following differences caused effective income tax rates vary 35 us federal statutory rate income taxes follows index consolidated financial statements sprint corporation notes consolidated financial statements income tax expense benefit allocated items follows 1 amounts recognized accumulated comprehensive loss deferred income taxes recognized temporary differences carrying amounts assets liabilities financial statement purposes tax bases deferred tax assets also recorded operating loss capital loss tax credit carryforwards sources differences give rise deferred income tax assets liabilities march 31 2015 2014 along income tax effect follows realization deferred tax assets including net operating loss carryforwards dependent generation future taxable income sufficient realize tax deductions carryforwards credits however history annual losses reduces ability rely expectations future income evaluating ability realize deferred tax assets valuation allowances deferred tax assets recognized determined likely asset realized result company recognized income tax expense increase valuation allowance 911 million 82 million 708 million successor year ended march 31 2015 threemonth transition period ended march 31 2014 year ended december 31 2013 respectively 14 billion 265 million 18 billion predecessor 191day period ended july 10 2013 unaudited threemonth period ended march 31 2013 year ended december 31 2012 respectively deferred tax assets primarily related losses incurred period currently index consolidated financial statements sprint corporation notes consolidated financial statements realizable expenses recorded period currently deductible income tax purposes remaining increase 272 million carrying amount valuation allowance successor year ended march 31 2015 primarily related amounts recorded comprehensive loss income related pension net actuarial loss net impacts acquisition accounting softbank merger clearwire acquisition remaining decrease carrying amount valuation allowance successor year ended december 31 2013 primarily related net impact acquisition accounting softbank merger clearwire acquisition predecessor year ended december 31 2012 remaining increase carrying amount valuation allowance primarily associated tax effect items reflected comprehensive loss accounts expect record significant tax benefits future net operating losses circumstances justify recognition benefits believe likely remaining deferred income tax assets net valuation allowance realized based current income tax laws expectations future taxable income stemming reversal existing deferred tax liabilities uncertainties surrounding income tax law changes shifts operations state taxing jurisdictions future operating income levels may however affect ultimate realization deferred income tax assets income tax benefit 574 million successor year ended march 31 2015 primarily attributable recognition tax benefit 19 billion sprint trade name impairment loss partially offset tax expense taxable temporary differences amortization fcc licenses period income tax expense 56 million 45 million successor threemonth transition period ended march 31 2014 year ended december 31 2013 respectively 38 million 154 million predecessor unaudited threemonth period ended march 31 2013 year ended december 31 2012 respectively primarily attributable taxable temporary differences amortization fcc licenses income tax expense 16 billion predecessor 191day period ended july 10 2013 primarily attributable taxable temporary differences 29 billion gain previouslyheld equity interests clearwire gain previouslyheld equity interests clearwire principally attributable increase fair value fcc licenses held clearwire fcc licenses amortized 15 years income tax purposes licenses indefinite life amortized financial statement reporting purposes temporary differences result net deferred income tax expense since cannot scheduled reverse loss carryforward period addition year ended december 31 2012 69 million tax benefit recorded result successful resolution various state income tax uncertainties successor year ended march 31 2015 threemonth transition period ended march 31 2014 year ended december 31 2013 predecessor 191day period ended july 10 2013 unaudited threemonth period ended march 31 2013 year ended december 31 2012 generated 398 million 110 million 263 million 238 million 96 million 319 million respectively foreign income included loss income taxes consolidated statements operations material unremitted earnings foreign subsidiaries march 31 2015 federal operating loss carryforwards 199 billion state operating loss carryforwards 206 billion foreign net operating loss carryforwards 797 million related loss carryforwards recorded federal tax benefits 70 billion net state tax benefits 951 million foreign tax benefits 266 million consideration valuation allowances approximately 14 billion federal net operating loss carryforwards expire 2017 2021 remaining 185 billion expire varying amounts 2022 2035 state operating loss carryforwards expire varying amounts 2035 foreign operating loss carryforwards 426 million expire remaining foreign operating loss carryforwards expire varying amounts starting 2016 addition available income tax purposes federal alternative minimum tax net operating loss carryforwards 209 billion state alternative minimum tax net operating loss carryforwards 49 billion loss carryforwards expire varying amounts 2035 also available capital loss carryforwards 220 million related capital loss carryforwards tax benefits 84 million capital loss carryforwards expire 2016 2019 also available 451 million federal state income tax credit carryforwards march 31 2015 included amount 3 million income tax credits expire prior 2017 320 million expire varying amounts 2017 2035 remaining 128 million expire index consolidated financial statements sprint corporation notes consolidated financial statements unrecognized tax benefits established uncertain tax positions based upon estimates regarding potential future challenges positions largest amount greater fifty percent likely realized upon ultimate settlement estimates updated reporting date based facts circumstances information available interest related unrecognized tax benefits recognized interest expense penalties recognized additional income tax expense total unrecognized tax benefits attributable uncertain tax positions 163 million 160 million march 31 2015 2014 respectively march 31 2015 total unrecognized tax benefits included items would favorably affect income tax provision 152 million recognized without offsetting valuation allowance adjustment accrued liability income tax related interest penalties insignificant periods presented reconciliation beginning ending amount unrecognized tax benefits follows settlement agreements reached appeals exam division internal revenue service irs examination issues dispute years prior 2010 issues immaterial consolidated financial statements march 31 2015 federal income tax examinations handled irs exam division issues handled irs appeals division involved multiple state income tax examinations related various years beginning 1996 various stages examination administrative review appellate process based current knowledge examinations administrative reviews appellate processes believe reasonably possible number uncertain tax positions may resolved next twelve months could result reduction 20 million unrecognized tax benefits federal state statutes limitations assessment tax liability generally lapse three four years respectively date tax returns filed however income tax attributes carried forward net operating loss carryforwards may challenged adjusted taxing authorities time prior expiration statute limitations tax year utilized index consolidated financial statements sprint corporation notes consolidated financial statements note 12 commitments contingencies litigation claims assessments march 2009 stockholder brought suit bennett v sprint nextel corp us district court district kansas alleging sprint communications three former officers violated section 10b exchange act rule 10b5 failing adequately disclose certain alleged operational difficulties subsequent sprintnextel merger purportedly issuing false misleading statements regarding writedown goodwill plaintiff sought class action status purchasers sprint communications common stock october 26 2006 february 27 2008 january 6 2011 court denied motion dismiss subsequently motion certify january 6 2011 order interlocutory appeal denied march 27 2014 court certified class including bondholders well stockholders april 11 2014 filed petition appeal certification order tenth circuit court appeals petition denied may 23 2014 mediation parties reached agreement principle settle matter settlement amount expected substantially paid companys insurers district court granted preliminary approval proposed settlement april 10 2015 final approval hearing scheduled august 5 2015 expect resolution matter material adverse effect financial position results operations addition five related stockholder derivative suits filed sprint communications certain present andor former officers directors first murphy v forsee filed state court kansas april 8 2009 removed federal court stayed court pending resolution motion dismiss bennett case second randolph v forsee filed july 15 2010 state court kansas removed federal court remanded back state court third rosswilliams v bennett et al filed state court kansas february 1 2011 fourth price v forsee et al filed state court kansas april 15 2011 fifth hartleib v forsee et al filed federal court kansas july 14 2011 cases essentially stayed bennett case resolved expect resolution matters material adverse effect financial position results operations april 19 2012 new york attorney general filed complaint alleging sprint communications fraudulently failed collect pay 100 million new york sales taxes receipts sale wireless telephone services since july 2005 complaint seeks recovery triple damages well penalties interest sprint communications moved dismiss complaint june 14 2012 july 1 2013 court entered order denying motion dismiss large part although dismiss certain counts parts certain counts sprint communications appealed order intermediate appellate court affirmed order trial court petition leave bring interlocutory appeal highest court new york granted briefing appeal completed january 2015 believe complaint without merit intend continue defend matter vigorously expect resolution matter material adverse effect financial position results operations eight related stockholder derivative suits filed sprint communications certain current former officers directors suit alleges generally individual defendants breached fiduciary duties sprint communications stockholders allegedly permitting failing disclose actions alleged suit filed new york attorney general one suit filed louisiana municipal police employees retirement system dismissed federal court two suits filed state court johnson county kansas one suits dismissed premature five suits pending federal court kansas remaining kansas suits stayed expect resolution matters material adverse effect financial position results operations sprint communications inc also defendant complaint filed stockholders clearwire corporation asserting claims breach fiduciary duty sprint communications related claims otherwise challenging clearwire acquisition acp master ltd et al v sprint nextel corp et al filed april 26 2013 chancery court delaware motion dismiss suit denied discover begun plaintiffs acp master ltd suit also filed suit requesting appraisal fair value clearwire stock discovery proceeding case sprint communications intends defend acp master ltd case vigorously expect resolution matters material adverse effect financial position results operations index consolidated financial statements sprint corporation notes consolidated financial statements sprint currently involved numerous court actions alleging sprint infringing various patents cases effectively seek monetary damages small number cases brought companies sell products seek injunctive relief well cases progressed various degrees small number may go trial otherwise resolved adverse resolution cases could require us pay significant damages cease certain activities cease selling relevant products services many circumstances would indemnified monetary losses incur respect actions suppliers service providers expect resolution cases material adverse effect financial position results operations october 2013 fcc enforcement bureau began issue notices apparent liability nals lifeline providers imposing fines intracarrier duplicate accounts identified government audit function audits also identified small percentage potentially duplicative intracarrier accounts related assurance wireless business nal yet issued respect sprint know one issued able reasonably estimate amount claim penalties might asserted however based information currently available claim asserted fcc sprint believe amount ultimately paid would material company’s results operations financial position beginning early 2012 group state attorneys general began investigation practice wireless carriers including bills charges certain content thirdparty providers particularly premium short message services measures taken carriers ensure charges appropriately authorized late 2013 consumer financial protection bureau cfpb also began separate investigation issue fcc began investigation mid2014 july 2014 federal trade commission ftc brought suit tmobile alleging included unauthorized charges bills december 2014 tmobile entered settlement agreement ftc fcc state attorneys general october 2014 ftc fcc states announced settlement att regarding thirdparty billing issues december 2014 cfpb brought suit sprint regarding thirdparty billing issues may 6 2015 entered agreements fcc cfpb various states settle issues involved investigation amount material companys results operations financial position various suits inquiries proceedings claims either asserted unasserted including purported class actions typical large business enterprise intellectual property matters possible pending us subsidiaries interpretation certain laws regulations including related various federal state matters sales use property taxes charges found mistaken could result payments us possible determine ultimate disposition proceedings whether resolved consistent beliefs expect outcome proceedings individually aggregate material adverse effect financial position results operations spectrum reconfiguration obligations 2004 fcc adopted report order included new rules regarding interference 800 mhz band comprehensive plan reconfigure 800 mhz band report order provides exchange portion 800 mhz fcc spectrum licenses requires us fund cost incurred public safety systems incumbent licensees reconfigure 800 mhz spectrum band also exchange received licenses 10 mhz nationwide spectrum 19 ghz band minimum cash obligation report order 28 billion however obligated pay full amount costs relating reconfiguration plan even costs exceed 28 billion required terms report order letter credit secured provide assurance funds available pay relocation costs incumbent users 800 mhz spectrum letter credit initially 25 billion reduced course proceeding 406 million march 31 2015 since inception program incurred payments approximately 34 billion directly attributable performance report order including approximately 157 million year ended march 31 2015 incurred substantially costs accounted additions fcc licenses remainder property plant equipment although costs incurred march 31 2015 exceeded 28 billion costs reviewed accepted eligible transition administrator year ended march 31 2015 received cash payment approximately 95 million represented reimbursement prior reconfiguration costs incurred us also benefited spectrum recently auctioned fcc expect reimbursements index consolidated financial statements sprint corporation notes consolidated financial statements completion 800 mhz band reconfiguration initially required june 26 2008 public safety reconfiguration nearly complete across country exception washington state four states share common border mexico fcc continues grant remaining 800 mhz public safety licensees additional time complete band reconfigurations turn delays access 800 mhz replacement channels areas band reconfiguration complete sprint received replacement spectrum 800 mhz band sprint deploying 3g cdma 4g lte spectrum combination spectrum 19 ghz 25 ghz bands future minimum commitments march 31 2015 minimum estimated amounts due operating leases spectrum leases service credits purchase orders commitments follows operating leases lease various equipment office facilities retail outlets kiosks switching facilities cell sites operating leases noncancelable portion leases generally ranges monthly 15 years leases exceptions provide automatic renewal options escalations either fixed based consumer price index rent abatements along rent escalations included computation rent expense calculated straightline basis lease term lease term leases includes initial noncancelable term plus least one renewal period noncancelable term less ten years exercise related renewal option options reasonably assured cell site leases generally provide initial noncancelable term five twelve years 5 renewal options five years 2011 2012 renegotiated cell site leases connection modernization network shutdown nextel platform rental commitments operating leases including lease renewals reasonably assured consisted mainly leases cell switch sites real estate information technology network equipment office space total rental expense 26 billion 653 million 13 billion successor year ended march 31 2015 threemonth transition period ended march 31 2014 year ended december 31 2013 respectively 10 billion 483 million 20 billion predecessor 191day period ended july 10 2013 unaudited threemonth period ended march 31 2013 year ended december 31 2012 respectively spectrum leases service credits certain spectrum leases provide minimum lease payments additional charges renewal options escalation clauses leased spectrum agreements generally terms 30 years expect renewal periods spectrum leases renewed us also commitments provide services certain lessors reimburse lessors certain capital equipment thirdparty service expenditures term lease accrue monthly obligation services equipment based total estimated available service credits divided term lease obligation reduced services provided actual invoices presented paid lessors period ended march 31 2015 satisfied 9 million related commitments maximum remaining commitment march 31 2015 90 million expected incurred term related lease agreements generally range 15 30 years index consolidated financial statements sprint corporation notes consolidated financial statements purchase orders commitments party commitments includes among things service spectrum network equipment devices asset retirement obligations executory contracts connection conducting business amounts actually paid agreements likely higher due variable components agreements significant variable components determine ultimate obligation owed include items hours contracted subscribers factors addition party various arrangements conditional nature obligate us make payments upon occurrence certain events delivery functioning software product possible predict timing amounts may due conditional arrangements amounts included table note 13 stockholders equity per share data certificate incorporation authorizes 10020000000 shares capital stock follows • 9000000000 shares common stock par value 001 per share • 1000000000 shares nonvoting common stock par value 001 per share • 20000000 shares preferred stock par value 00001 per share classes common stock voting common stock holders common stock entitled one vote per share matters submitted action stockholders approximately 40 billion shares common stock outstanding march 31 2015 treasury shares common stock repurchased us recorded cost treasury shares result reduction stockholders equity reissue treasury shares part stockholder approved stockbased compensation programs well upon conversion outstanding securities convertible common stock shares reissued determine cost using fifo method dividends declare dividends common shares periods presented consolidated financial statements currently restricted paying cash dividends terms revolving bank credit facility edc agreement equipment credit facilities see note 8 longterm debt financing capital lease obligations accumulated comprehensive loss components accumulated comprehensive loss net tax follows index consolidated financial statements sprint corporation notes consolidated financial statements per share data basic net loss per common share calculated dividing net loss weighted average number common shares outstanding period diluted net loss per common share adjusts basic net loss per common share computed using treasury stock method effects potentially dilutive common shares effect antidilutive outstanding options restricted stock units exclusive participating securities effect computation dilutive weighted average number shares outstanding effect would antidilutive approximately 56 million 60 million 70 million successor periods ended march 31 2015 march 31 2014 december 31 2013 respectively 61 million 74 million 78 million shares predecessor 191day period ended july 10 2013 unaudited threemonth period ended march 31 2013 year ended december 31 2012 respectively addition periods subsequent softbank merger 55 million shares issuable warrant issued softbank close softbank merger treated potentially dilutive securities impact computation dilutive weighted average number shares outstanding effect would antidilutive warrant exercisable 525 per share option softbank whole part time within fiveyear term note 14 segments sprint operates two reportable segments wireless wireline • wireless primarily includes retail wholesale affiliate revenue wide array wireless voice data transmission services equipment revenue sale wireless devices accessories us puerto rico us virgin islands • wireline primarily includes revenue domestic international wireline voice data communication services including services cable multiple systems operators resell local long distance services use back office systems network assets support telephone services provided cable facilities primarily residential enduse subscribers define segment earnings wireless wireline operating loss income segment expenses depreciation amortization severance exit costs goodwill impairments asset impairments items solely directly attributable segment representing items nonrecurring unusual nature expense income items excluded segment earnings managed corporate level transactions segments generally accounted based market rates believe approximate fair value company generally reestablishes rates beginning calendar year past several years industrywide trend lower rates due increased competition wireline wireless communications companies well cable internet service providers index consolidated financial statements sprint corporation notes consolidated financial statements segment financial information follows index consolidated financial statements sprint corporation notes consolidated financial statements index consolidated financial statements sprint corporation notes consolidated financial statements index consolidated financial statements sprint corporation notes consolidated financial statements 1 intersegment revenues consist primarily wireline services provided wireless segment resale use wireless subscribers 2 impairments successor year ended march 31 2015 consist 19 billion trade name impairment related wireless segment 233 million impairment related wireline longlived assets impairments successor threemonth transition period ended march 31 2014 consist network equipment assets longer necessary managements strategic plans impairments predecessor year ended december 31 2012 primarily consist capitalized assets associated termination spectrum hosting arrangement lightsquared 3 net successor year ended march 31 2015 consists 304 million severance exit costs combined 91 million legal reserves related various pending legal suits proceedings 59 million partial pension settlement partially offset 41 million release liability reserves associated may 2013 us cellular asset acquisition net successor threemonth transition period ended march 31 2014 consists 52 million severance exit costs net successor year ended december 31 2013 consists 309 million severance exit costs 100 million business combination fees paid unrelated parties connection transactions softbank clearwire 75 million included corporate segment 25 million included wireless segment classified selling general administrative expenses partially offset 7 million insurance reimbursement towards 2012 hurricanerelated charges included wireless segment classified contraexpense cost services expense net predecessor 191day period ended july 10 2013 unaudited threemonth period ended march 31 2013 consists 652 million 25 million respectively severance exit costs partially offset 22 million favorable developments connection e911 regulatory taxrelated contingency net predecessor 191day period ended july 10 2013 also includes 53 million business combination fees paid unrelated parties connection transactions softbank clearwire included corporate segment classified selling general administrative expenses net predecessor year ended december 31 2012 consists net operating income 236 million associated termination spectrum hosting arrangement lightsquared gain 29 million spectrum swap transactions benefit 17 million resulting favorable developments relating access cost disputes associated prior periods partially offset 196 million lease exit costs 4 includes 45 million hurricanerelated charges predecessor year ended december 31 2012 classified consolidated statements operations follows 21 million contrarevenue net operating revenues wireless 20 million cost services 17 million wireless 3 million wireline 4 million selling general administrative expenses wireless segment also includes 19 million business combination charges fees paid unrelated parties necessary proposed transactions softbank clearwire included corporate segment classified selling general administrative expenses index consolidated financial statements sprint corporation notes consolidated financial statements index consolidated financial statements sprint corporation notes consolidated financial statements 1 revenues eliminated consolidation consist primarily wireline services provided wireless segment resale use wireless subscribers 2 wireless services related wireless segment predecessor year ended december 31 2012 excludes 21 million hurricanerelated contrarevenue charges reflected net operating revenues consolidated statements operations index consolidated financial statements sprint corporation notes consolidated financial statements note 15 quarterly financial data unaudited 1 sum quarterly earnings per share amounts may equal annual amounts changes weighted average number shares outstanding year note 16 relatedparty transactions clearwire relatedparty transactions sprints relationship clearwire whollyowned subsidiary sprint includes agreements resell wireless data services utilizing clearwires 4g network addition clearwire subscribers utilize third generation 3g sprint network provides dualmode service subscribers areas access clearwires 4g network available immediately prior clearwire acquisition sprint communications held approximately 501 noncontrolling voting interest 60 noncontrolling economic interest clearwire corporation well 441 noncontrolling economic interest clearwire communications llc carrying value totaled 325 million prior close clearwire acquisition applied equity method accounting investment clearwire equity losses clearwire 482 million 202 million 11 billion predecessor 190day period ended july 9 2013 predecessor unaudited threemonth period ended march 31 2013 predecessor year ended december 31 2012 respectively equity losses investment clearwire consisted share clearwires net loss adjustments noncash impairment investment gains losses associated dilution ownership interest resulting clearwires equity issuances derivative losses associated change fair value embedded derivative included exchangeable notes clearwire sprint items recognized clearwire corporation affect economic interest sprints equity losses predecessor 190day period ended july 9 2013 include 65 million derivative loss associated change fair value index consolidated financial statements sprint corporation notes consolidated financial statements embedded derivative equity losses clearwire predecessor year ended december 31 2012 included 204 million pretax impairment reflecting reduction carrying value investment clearwire estimated fair value well 41 million charge associated clearwires writeoff certain network assets longer met strategic plans subsequent clearwire acquisition clearwire consolidated whollyowned subsidiary sprint connection acquisition sprint recorded pretax gain approximately 29 billion gain previouslyheld equity interests predecessor consolidated statements operations immediately preceding clearwire acquisition resulting difference estimated fair value interests owned prior acquisition 500 per share offer price less estimated control premium approximately 060 carrying value approximately 325 million previouslyheld equity interests cost services included consolidated statements operations related agreement purchase 4g services clearwire totaled 207 million 101 million 417 million predecessor 190day period ended july 9 2013 predecessor unaudited threemonth period ended march 31 2013 predecessor year ended december 31 2012 respectively summarized financial information clearwire 190day period ended july 9 2013 preceded clearwire acquisition follows softbank relatedparty transactions addition agreements arising relating softbank merger sprint entered various arrangements softbank controlled affiliates softbank parties third parties softbank parties also parties including international wireless roaming wireless wireline call termination real estate device accessory purchasing distribution services specifically arrangements brightstar us inc brightstar whollyowned subsidiary softbank whereby brightstar provides supply chain inventory management services us indirect channels whereby sprint may sell new used devices new accessories brightstar purposes supply chain inventory management arrangement contemplates brightstar purchase inventory oems sell directly indirect dealers compensation services remit per unit fees brightstar device sold dealers retailers indirect channels year ended march 31 2015 incurred fees arrangement totaling 66 million brightstar successfully negotiates contracts procures credit existing oems brightstar purchase device inventory us order fulfill orders within indirect channel year ended march 31 2015 brightstar primarily fulfilled indirect channel orders inventory acquired us october 2014 provided 10 billion credit line brightstar facilitate certain arrangements result shifted concentration credit risk away indirect channel partners brightstar whollyowned subsidiary softbank expect softbank provide necessary support ensure brightstar fulfill obligations us agreements however assurance softbank provide support index consolidated financial statements sprint corporation notes consolidated financial statements amounts included consolidated financial statements associated arrangements brightstar follows 1 amounts reported periods immaterial additionally arrangements whollyowned subsidiary brightstar subsidiary procure devices accessories behalf certain thirdparty vendors existing purchase arrangements sprint vendors well new vendor purchase arrangements entered brightstar subsidiary procurement services include placing orders processing invoices receiving payments us making payments suppliers behalf compensation device arrangement paid portion certain costs brightstar subsidiary incurs plus profit percentage accessory arrangement pay percentage markup cost accessory purchases year ended march 31 2015 threemonth transition period ended march 31 2014 year ended december 31 2013 procured brightstar subsidiary approximately 53 billion 411 million 86 million respectively device accessory inventory sold direct indirect channels paid immaterial fees brightstar subsidiary middecember 2014 determined brightstar subsidiary discontinue procurement devices behalf result purchasing activities transitioning back us amounts included consolidated balance sheets associated arrangements brightstar subsidiary follows transactions agreements softbank parties aggregate immaterial period ended march 31 2015 index consolidated financial statements sprint corporation notes consolidated financial statements note 17 guarantor financial information september 11 2013 sprint corporation issued 225 billion aggregate principal amount 7250 notes due 2021 425 billion aggregate principal amount 7875 notes due 2023 private placement transaction registration rights december 12 2013 sprint corporation issued 25 billion aggregate principal amount 7125 notes due 2024 private placement transaction registration rights issuances fully unconditionally guaranteed sprint communications inc subsidiary guarantor 100 percent owned subsidiary sprint corporation parentissuer connection foregoing registration rights agreements respect notes required company sprint communications inc use reasonable best efforts cause offer exchange notes new issue substantially identical exchange notes registered securities act 1933 accordingly november 2014 completed exchange offer notes compliance registration obligations receive proceeds exchange offer addition february 24 2015 sprint corporation issued 15 billion aggregate principal amount 7625 notes due 2025 fully unconditionally guaranteed sprint communications inc subsidiary guarantors revolving bank credit facility finance agreements subsidiary guarantor currently restricted paying cash dividends parentissuer nonguarantor subsidiary ratio total indebtedness adjusted ebitda defined applicable agreement exceeds 25 10 may 2014 certain whollyowned subsidiaries sprint entered receivables facility arrangement sell certain accounts receivable revolving basis subject maximum funding limit 13 billion connection arrangement sprint formed certain whollyowned subsidiaries bankruptcy remote spes included nonguarantor subsidiaries condensed consolidated financial information see note 3 significant transactions guarantor financial information distinguishes predecessor period relating sprint communications periods prior softbank merger successor period relating sprint corporation formerly starburst ii periods subsequent incorporation starburst ii october 5 2012 additionally parentissuer column represents activities sprint corporation formerly starburst ii parentissuer financial information exists predecessor periods prior softbank merger accounted investments subsidiaries using equity method presented condensed consolidating financial information periods presented consolidated financial statements index consolidated financial statements sprint corporation notes consolidated financial statements condensed consolidating balance sheet index consolidated financial statements sprint corporation notes consolidated financial statements condensed consolidating balance sheet index consolidated financial statements sprint corporation notes consolidated financial statements condensed consolidating statement comprehensive loss index consolidated financial statements sprint corporation notes consolidated financial statements condensed consolidating statement comprehensive loss index consolidated financial statements sprint corporation notes consolidated financial statements condensed consolidating statement comprehensive loss index consolidated financial statements sprint corporation notes consolidated financial statements condensed consolidating statement comprehensive loss index consolidated financial statements sprint corporation notes consolidated financial statements condensed consolidating statement comprehensive loss index consolidated financial statements sprint corporation notes consolidated financial statements condensed consolidating statement comprehensive loss index consolidated financial statements sprint corporation notes consolidated financial statements condensed consolidating statement cash flows index consolidated financial statements sprint corporation notes consolidated financial statements condensed consolidating statement cash flows index consolidated financial statements sprint corporation notes consolidated financial statements condensed consolidating statement cash flows index consolidated financial statements sprint corporation notes consolidated financial statements condensed consolidating statement cash flows index consolidated financial statements sprint corporation notes consolidated financial statements condensed consolidating statement cash flows index consolidated financial statements sprint corporation notes consolidated financial statements condensed consolidating statement cash flows index consolidated financial statements independent auditors report board directors stockholders clearwire corporation bellevue washington audited accompanying consolidated financial statements clearwire corporation subsidiaries company comprise consolidated balance sheet july 9 2013 related consolidated statements operations comprehensive loss cash flows stockholders equity 190 days ended july 9 2013 related notes consolidated financial statements managements responsibility consolidated financial statements management responsible preparation fair presentation consolidated financial statements accordance accounting principles generally accepted united states america includes design implementation maintenance internal control relevant preparation fair presentation consolidated financial statements free material misstatement whether due fraud error auditors responsibility express opinion consolidated financial statements based audit conducted audit accordance auditing standards generally accepted united states america standards require plan perform audit obtain reasonable assurance whether consolidated financial statements free material misstatement audit involves performing procedures obtain audit evidence amounts disclosures consolidated financial statements procedures selected depend auditor’s judgment including assessment risks material misstatement consolidated financial statements whether due fraud error making risk assessments auditor considers internal control relevant companys preparation fair presentation consolidated financial statements order design audit procedures appropriate circumstances purpose expressing opinion effectiveness companys internal control accordingly express opinion audit also includes evaluating appropriateness accounting policies used reasonableness significant accounting estimates made management well evaluating overall presentation consolidated financial statements believe audit evidence obtained sufficient appropriate provide basis audit opinion consolidated financial statements referred present fairly material respects financial position clearwire corporation subsidiaries july 9 2013 results operations cash flows 190 days ended july 9 2013 accordance accounting principles generally accepted united states america emphasis matter discussed note 1 consolidated financial statements effective july 9 2013 sprint communications inc acquired outstanding stock clearwire corporation business combination accounted purchase result acquisition clearwire corporation became consolidated subsidiary sprint corporation date opinion modified respect matter deloitte touche llp seattle washington february 21 2014 index consolidated financial statements report independent registered public accounting firm board directors stockholders clearwire corporation bellevue washington audited accompanying consolidated balance sheet clearwire corporation subsidiaries “company” december 31 2012 related consolidated statements operations comprehensive loss cash flows stockholders’ equity two years period ended december 31 2012 consolidated financial statements responsibility company’s management responsibility express opinion consolidated financial statements based audits conducted audits accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether consolidated financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion consolidated financial statements present fairly material respects financial position clearwire corporation subsidiaries december 31 2012 results operations cash flows two years period ended december 31 2012 conformity accounting principles generally accepted united states america deloitte touche llp seattle washington february 21 2014 index consolidated financial statements clearwire corporation subsidiaries consolidated balance sheets see notes consolidated financial statements index consolidated financial statements clearwire corporation subsidiaries consolidated statements operations see notes consolidated financial statements index consolidated financial statements clearwire corporation subsidiaries consolidated statements comprehensive loss see notes consolidated financial statements index consolidated financial statements clearwire corporation subsidiaries consolidated statements cash flows see notes consolidated financial statements index consolidated financial statements clearwire corporation subsidiaries consolidated statements stockholders’ equity 190 days ended july 9 2013 years ended december 31 2012 2011 see notes consolidated financial statements index consolidated financial statements clearwire corporation subsidiaries notes consolidated financial statements 1 description business clearwire corporation including consolidated subsidiaries clearwire us company provider fourth generation 4g wireless broadband services build operate next generation mobile broadband networks provide highspeed mobile internet residential internet access services communities throughout country current 4g mobile broadband network operates worldwide interoperability microwave access technology 80216e standard refer mobile wimax current 4g mobile broadband markets united states offer services retail channels wholesale partners sprint acquisition december 17 2012 entered agreement plan merger sprint nextel corporation refer merger agreement pursuant sprint nextel corporation agreed acquire outstanding shares clearwire corporation class b common stock refer class common stock class b common stock respectively currently owned sprint nextel corporation softbank corp refer softbank affiliates merger refer sprint acquisition closed july 9 2013 refer acquisition date became whollyowned subsidiary sprint communications inc formerly known sprint nextel corporation refer sprint indirect whollyowned subsidiary sprint corporation closing sprint acquisition outstanding shares common stock converted automatically right receive 500 per share cash without interest refer merger consideration result sprint acquisition resulting change ownership control acquisition method accounting applied sprint pusheddown us included consolidated financial statements periods presented subsequent acquisition date result new basis presentation based estimated fair values assets liabilities successor period beginning day following consummation merger estimated fair values based managements judgment evaluating several factors including preliminary valuation assessment accompanying consolidated financial statements notes represent period time prior sprint acquisition reflect adjustments made result sprint acquisition including acquisition method accounting prior sprint acquisition sprint applied equity method accounting investment clearwire’s accompanying consolidated financial statements included exhibit sprint’s form 10k required regulation sx rule 309 note purchase agreement connection merger agreement december 17 2012 entered note purchase agreement refer note purchase agreement clearwire communications llc refer clearwire communications clearwire finance inc together clearwire communications refer issuers sprint agreed purchase us election aggregate principal amount 8000 million 100 exchangeable notes due 2018 refer sprint notes ten monthly installments 800 million first business day month refer draw date beginning january 2013 pendency merger notes accrue interest 100 per annum exchangeable shares class common stock exchange rate 66667 shares per 1000 aggregate principal amount notes equivalent price 150 per share subject antidilution protections see note 9 longterm debt net information index consolidated financial statements clearwire corporation subsidiaries notes consolidated financial statements continued liquidity date invested heavily building maintaining networks history operating losses expect significant losses future expect operations generate cumulative positive cash flows next twelve months expect meet funding needs near future cash investments held july 9 2013 cash receipts mobile wimax services retail wholesale business sprint 2011 november 4g mvno amendment additionally anticipate receiving funds sprint deployment time division duplex refer tdd long term evolution refer lte network use additional spectrum specified 2011 november 4g mvno amendment whollyowned subsidiary sprint extent able fund business retail wholesale revenue streams expect receive funding shortfall sprint continue going concern least next twelve months 2 summary significant accounting policies accompanying financial statements prepared accordance accounting principles generally accepted united states america refer us gaap following summary significant accounting policies principles consolidation consolidated financial statements include assets liabilities results operations whollyowned subsidiaries control controlling financial interest investments entities control primary beneficiary ability exercise significant influence operating financial policies accounted equity method intercompany transactions eliminated consolidation noncontrolling interests consolidated balance sheets include thirdparty investments entities consolidate wholly classify noncontrolling interests part equity allocate net loss comprehensive income loss equity transactions noncontrolling interests accordance applicable ownership percentages also continue attribute noncontrolling interests share losses even attribution results deficit noncontrolling interest balance see note 14 stockholders equity information financial statement presentation reclassified certain prior period amounts conform current period presentation use estimates preparing financial statements conformity us gaap requires management make complex subjective judgments nature judgments subject inherent degree uncertainty judgments based historical experience terms existing contracts observance trends industry information provided subscribers information available outside sources appropriate additionally changes accounting estimates reasonably likely occur period factors could material impact financial statements presentation financial condition changes financial condition results operations significant estimates inherent preparation accompanying financial statements include impairment analysis spectrum licenses indefinite lives including judgments impairment indicator may occurred estimates fair value spectrum licenses recoverability determination useful lives longlived assets include property plant equipment intangible assets tax valuation allowances valuation derivatives cash equivalents cash equivalents consist money market mutual funds highly liquid shortterm investments original maturities three months less cash equivalents stated cost index consolidated financial statements clearwire corporation subsidiaries notes consolidated financial statements continued approximates market value cash equivalents exclude cash contractually restricted operational purposes maintain cash equivalent balances financial institutions exceed federally insured limits experienced losses related balances management believes credit risk related balances minimal restricted cash restricted cash consists primarily amounts satisfy certain contractual obligations classified current noncurrent asset based designated purpose majority restricted cash designated satisfy certain lease obligations investments investment portfolio comprised primarily us government agency marketable debt securities classify marketable debt securities availableforsale investments securities stated estimated fair value investments recorded shortterm investments original maturities greater three months remaining maturities less one year investments maturities one year recorded longterm investments unrealized gains losses recorded within accumulated comprehensive income loss realized gains losses measured reclassified accumulated comprehensive income loss basis specific identification method account certain investments using equity method based ownership interest ability exercise significant influence accordingly record investment initially cost adjust carrying amount investment recognize share earnings losses investee reporting period cease recognize investee losses investment basis zero july 9 2013 december 31 2012 balance equity method investees 0 recognize realized losses declines fair value investments cost basis judged otherthantemporary determining whether decline fair value otherthantemporary consider various factors including market price investment ratings financial condition nearterm prospects issuer length time extent fair value less cost basis intent ability hold investment maturity period time sufficient allow anticipated recovery market value judged decline fair value otherthantemporary realized loss equal excess cost basis fair value recorded consolidated statements operations new cost basis investment established fair value measurements fair value price would received sell asset paid transfer liability orderly transaction market participants measurement date determining fair value consider principal advantageous market asset liability would transact necessary consider assumptions market participants would use pricing asset liability accounting guidance fair value measurement requires entity maximize use observable inputs minimize use unobservable inputs measuring fair value standard establishes fair value hierarchy based level independent objective evidence surrounding inputs used measure fair value financial assets financial liabilities classified hierarchy based lowest level input significant fair value measurement assessment significance particular input fair value measurement requires judgment may affect valuation assets liabilities measured placement within fair value hierarchy index consolidated financial statements clearwire corporation subsidiaries notes consolidated financial statements continued threetier hierarchy inputs used measuring fair value prioritizes inputs used methodologies measuring fair value assets liabilities follows level 1 quoted market prices active markets identical assets liabilities level 2 inputs quoted prices observable asset liability quoted prices similar assets liabilities active markets quoted prices identical assets liabilities less active markets modelderived valuations significant inputs observable derived principally corroborated observable market data level 3 unobservable inputs significant fair value measurement cannot corroborated market data listed prices quotes available fair value based upon internally developed available models primarily use inputs marketbased independently sourced market parameters including limited interest rate curves volatilities equity prices credit curves use judgment determining certain assumptions market participants would use pricing financial instrument including assumptions discount rates credit spreads degree management judgment involved determining fair value dependent upon availability observable market parameters assets liabilities trade actively quoted market prices observable market parameters minimal judgment involved measuring fair value observable market prices parameters fully available management judgment necessary estimate fair value addition changes market conditions may reduce availability reliability quoted prices observable data see note 11 fair value information accounts receivable accounts receivables stated amounts due subscribers wholesale partners net allowance doubtful accounts see note 15 related party transactions information regarding accounts receivable balances related parties inventory primarily consists customer premise equipment refer cpe accessories sold retail subscribers stated lower cost net realizable value cost determined average cost method record inventory writedowns obsolete slowmoving items based inventory turnover trends historical experience property plant equipment property plant equipment excluding construction progress stated cost net accumulated depreciation calculated straightline basis estimated useful lives assets placed service network construction expenditures recorded construction progress network asset placed service time asset transferred appropriate property plant equipment refer ppe category capitalize costs additions improvements including salaries benefits related overhead costs associated constructing ppe interest costs related construction estimated useful life ppe determined based historical usage identical similar equipment consideration given technological changes industry trends could impact network architecture asset utilization leasehold improvements recorded cost amortized lesser estimated useful lives related lease term including renewals reasonably assured included within network base station equipment recorded capital leases generally amortized lease term maintenance repairs expensed incurred ppe assessed impairment whenever events changes circumstances indicate carrying amount asset may recoverable events circumstances exist determine recoverability assets carrying value estimating expected undiscounted future cash flows directly associated expected arise direct result use disposal asset expected undiscounted future cash flows less carrying amount asset loss recognized difference fair value asset carrying value purposes testing impairment longlived assets including ppe intangible assets definite useful lives spectrum license assets combined single asset group represents lowest level identifiable cash flows index consolidated financial statements clearwire corporation subsidiaries notes consolidated financial statements continued largely independent assets liabilities management believes utilizing assets group represents highest best use assets consistent managements strategy utilizing spectrum licenses integrated basis part nationwide network ppe impairment losses recorded 190 days ended july 9 2013 years ended december 31 2012 2011 addition analyses described periodically assess certain assets yet deployed networks including equipment cell site development costs classified construction progress assessment includes provision differences recorded amounts results physical counts provision excessive obsolete equipment see note 4 property plant equipment information internally developed software capitalize costs related computer software developed obtained internal use interest costs incurred period development software obtained internal use generally enterpriselevel business finance software customized meet specific operational needs costs incurred application development phase capitalized amortized useful life software placed service generally three years periodically assess capitalized software costs placed service determine whether projects longer expected completed capitalized cost associated projects expected completed written costs recognized preliminary project phase postimplementation phase well maintenance training costs expensed incurred spectrum licenses spectrum licenses primarily include owned spectrum licenses indefinite lives favorable spectrum leases indefinite lived spectrum licenses acquired stated cost amortized owned spectrum licenses united states issued fixed time renewals licenses occurred routinely nominal cost moreover determined currently legal regulatory contractual competitive economic factors limit useful lives owned spectrum licenses therefore licenses accounted intangible assets indefinite lives impairment test intangible assets indefinite useful lives consists comparison fair value intangible asset carrying amount carrying amount intangible asset exceeds fair value impairment loss recognized amount equal excess estimated fair value spectrum licenses determined use greenfield direct value method estimates value estimating discounted future cash flows hypothetical startup business spectrum licenses indefinite useful lives assessed impairment annually frequently event indicates asset might impaired impairments periods presented indefinite lived intangible assets favorable spectrum leases stated cost net accumulated amortization assessed impairment whenever events changes circumstances indicate carrying amount asset may recoverable carrying value spectrum leases amortized straightline basis estimated useful lives lease term including expected renewal periods applicable impairment losses favorable spectrum leases 190 days ended july 9 2013 years ended december 31 2012 2011 intangible assets intangible assets consist subscriber relationships trademarks patents stated cost net accumulated amortization calculated using either straightline method accelerated method assets estimated remaining useful lives intangible assets assessed impairment whenever events changes circumstances indicate carrying amount asset may recoverable impairment losses intangible assets 190 days ended july 9 2013 years ended december 31 2012 2011 derivative instruments hedging activities policy hedging activities executed manage exposures arising normal course business purpose creating speculative positions trading record derivatives balance sheet fair value either assets liabilities accounting changes fair value derivatives depends intended use derivative whether qualifies hedge accounting index consolidated financial statements clearwire corporation subsidiaries notes consolidated financial statements continued 2010 issued exchangeable notes included embedded exchange options refer exchange options qualified derivative instruments required accounted separately host debt instruments recorded derivative financial instruments fair value embedded exchange options qualify hedge accounting future changes fair value derivative instruments recognized currently earnings time exchange options exercised expire see note 10 derivative instruments information debt issuance costs debt issuance costs initially capitalized deferred cost amortized interest expense effective interest method expected term related debt unamortized debt issuance costs related extinguishment debt expensed time debt extinguished recorded income expenses net consolidated statements operations unamortized debt issuance costs considered longterm recorded assets consolidated balance sheets interest capitalization capitalize interest related construction network infrastructure assets well development software internal use capitalization interest commences preconstruction period administrative technical activities includes obtaining leases zoning approvals building permits ceases construction substantially complete available use suspend substantially construction activity interest capitalized construction progress software development interest capitalization based rates applicable borrowings outstanding period balance qualified assets construction period capitalized interest reported cost network assets software assets depreciated useful lives assets see note 4 property plant equipment income taxes record deferred income taxes based estimated future tax effects differences financial statement tax basis assets liabilities using tax rates expected effect temporary differences reverse deferred tax assets also recorded net operating loss capital loss tax credit carryforwards valuation allowances recorded reduce deferred tax assets amount considered likely realized also apply recognition threshold tax position required meet recognized financial statements policy recognize interest related unrecognized tax benefits interest expense interest income recognize penalties additional income tax expense revenue recognition primarily earn revenue providing access highspeed wireless networks also included revenue sales cpe additional addon services 4g mobile broadband markets offer services retail channels wholesale partners believe geographic diversity retail subscriber base minimizes risk incurring material losses due concentration credit risk sprint major wholesale customer accounts substantially wholesale revenues date comprises approximately 36 total revenues 190 days ended july 9 2013 years ended december 31 2012 2011 revenue consisted following thousands revenue retail subscribers billed one month advance recognized ratably service period revenues associated sale cpe equipment recognized title risk loss transferred billed shipping handling costs classified revenue index consolidated financial statements clearwire corporation subsidiaries notes consolidated financial statements continued revenue arrangements multiple deliverables divided separate units available revenue allocated using vendorspecific objective evidence thirdparty evidence selling prices otherwise estimated selling prices utilized revenue attributable delivered elements recognized currently revenue attributable undelivered elements deferred recognized undelivered elements expected delivered remaining term agreements exception universal service fee refer usf regulatory surcharge taxes fees collected customers excluded revenues usf recorded gross basis included revenues billed customers usf included revenue 190 days ended july 9 2013 years ended december 31 2012 2011 09 million 28 million 39 million respectively 190 days ended july 9 2013 years ended december 31 2012 2011 substantially wholesale revenues derived agreements sprint november 2011 entered november 2011 4g mvno amendment result minimum payments previous amendment 4g mvno agreement entered sprint april 2011 replaced provisions november 2011 4g mvno amendment november 2011 4g mvno amendment sprint paying us 9259 million unlimited 4g mobile wimax services resale retail subscribers 2012 2013 approximately twothirds paid service provided 2012 remainder paid service provided 2013 part november 2011 4g mvno amendment also agreed usage based pricing wimax services 2013 lte service beginning 2012 2011 revenues wholesale subscribers billed one month arrears generally recognized earned based terms defined commercial agreements wholesale partners 2011 substantially wholesale revenues derived agreement sprint agreement revenues earned sprint utilized network usagebased pricing included volume discounts advertising costs advertising costs expensed incurred first time advertising occurs advertising expense 226 million 697 million 764 million 190 days ended july 9 2013 years ended december 31 2012 2011 respectively operating leases operating leases spectrum licenses towers certain facilities equipment use operations certain spectrum licenses leased thirdparty holders educational broadband service refer ebs spectrum licenses granted fcc ebs licenses authorize provision certain communications services ebs channels certain markets throughout united states account spectrum leases executory contracts similar operating leases signed leases unmet conditions required become effective amortized conditions met included spectrum licenses accompanying consolidated balance sheets leases require upfront payments leases containing scheduled rent escalation clauses record minimum rental payments straightline basis term lease including expected renewal periods appropriate leases containing tenant improvement allowances rent incentives record deferred rent classified liability deferred rent amortized term lease including expected renewal periods appropriate reduction rent expense periodically terminate unutilized tower leases early termination available terms lease advise landlords intention renew time notify landlords intention renew recognize ceasetouse tower lease liability based remaining lease rentals adjusted prepaid deferred rent recognized lease reduced estimated sublease rentals could reasonably obtained property discontinued operations result strategic decision focus investment united states market second quarter 2011 committed sell operations belgium germany spain businesses comprised substantially remaining operations previously reported international segment year ended december 31 2012 completed sale operations germany belgium index consolidated financial statements clearwire corporation subsidiaries notes consolidated financial statements continued spain associated results operations years ended december 31 2012 2011 separately reported discontinued operations summarized financial information discontinued operations show thousands new accounting pronouncements december 2011 financial accounting standards board fasb issued authoritative guidance regarding disclosures offsetting assets liabilities requires common disclosure requirements allow investors better compare assess effect offsetting arrangements financial statements prepared us gaap financial statements prepared ifrs standard effective beginning first quarter 2013 requires retrospective application affects disclosures footnotes financial statements october 2012 fasb tentatively decided limit scope authoritative guidance derivatives repurchase agreements securities lending securities borrowing arrangements january 2013 fasb issued additional clarifying guidance limited scope disclosure requirements derivatives repurchase agreements reverse purchase agreements securities lending securities borrowing transactions either offset accordance specific criteria contained us gaap subject master netting arrangement similar agreement based scope revision authoritative guidance impact existing disclosures february 2013 fasb issued authoritative guidance regarding comprehensive income reporting amounts reclassified accumulated comprehensive income amends existing guidance requires single location presentation effects certain significant amounts reclassified component accumulated comprehensive income based source statement comprehensive loss income line items affected reclassification guidance effective beginning first quarter 2013 material effect consolidated financial statements amounts reclassified comprehensive income consisting primarily recognition foreign currency gains immaterial periods presented july 2013 fasb issued authoritative guidance regarding income taxes topic 740 presentation unrecognized tax benefit net operating loss carryforward similar tax loss tax credit carryforward exists consensus fasb emerging issues task force amends existing guidance related financial presentation unrecognized tax benefits requiring entity net unrecognized tax benefits deferred tax assets available samejurisdiction loss tax carryforwards would apply settlement uncertain tax positions amendments effective beginning first quarter 2014 early adoption permitted applied prospectively unrecognized tax benefits exist effective date expected material effect consolidated financial statements index consolidated financial statements clearwire corporation subsidiaries notes consolidated financial statements continued 3 investments july 9 2013 december 31 2012 consisted following thousands first quarter 2012 sold auction market preferred securities recorded gain 33 million income expense net consolidated statements operations representing total proceeds received longer collateralized debt obligations auction market preferred securities otherthantemporary impairment losses recorded 190 days ended july 9 2013 years ended december 31 2012 2011 4 property plant equipment property plant equipment july 9 2013 december 31 2012 consisted following thousands entered lease arrangements related network construction equipment meet criteria capital leases july 9 2013 december 31 2012 recorded capital lease assets original cost 1518 million 1128 million respectively within network base station equipment construction progress primarily composed costs incurred process completing network projects yet placed service balance july 9 2013 included 1455 million costs related completing network projects yet placed service 381 million network base station equipment yet assigned project 04 million costs related information technology refer corporate projects index consolidated financial statements clearwire corporation subsidiaries notes consolidated financial statements continued charges associated property plant equipment periodically assess assets yet deployed networks including equipment cell site development costs classified construction progress evaluate losses related 1 shortage loss incurred deploying equipment 2 reserve excessive obsolete equipment yet deployed network 3 abandonment network corporate projects longer expected deployed addition charges incurred normal course business assessment includes evaluating impact changes business plans strategic network plans assets 2012 solidified tddlte network architecture including identifying sites expect overlay tddlte technology first phase deployment projects required deploy tddlte technology sites longer viable due development tddlte network architecture abandoned related costs written addition network equipment required support network deployment plans sparing requirements written estimated salvage value incurred following charges associated ppe 190 days ended july 9 2013 years ended december 31 2012 2011 thousands 1 included cost goods services network costs consolidated statements operations 2 year ended december 31 2012 140 million related retail operations included selling general administrative expense consolidated statements operations 5 spectrum licenses owned leased spectrum licenses july 9 2013 december 31 2012 consisted following thousands indefinitelived owned spectrum licenses spectrum licenses issued sitespecific widearea basis authorize wireless carriers use radio frequency spectrum provide service certain index consolidated financial statements clearwire corporation subsidiaries notes consolidated financial statements continued geographical areas united states licenses generally acquired asset purchase business combination cases acquire licenses directly governmental authority spectrum leases prepaid spectrum also lease spectrum third parties hold spectrum licenses leases accounted executory contracts treated like operating leases upfront consideration paid thirdparty holders leased licenses inception lease agreement capitalized prepaid spectrum lease costs expensed term lease agreement including expected renewal terms applicable favorable spectrum leases 10 billion recorded asset result purchase accounting november 2008 amortized lease term july 9 2013 future amortization spectrum licenses spectrum leases prepaid lease costs excluding pending spectrum transition costs expected follows thousands 6 intangible assets intangible assets july 9 2013 december 31 2012 consisted following thousands july 9 2013 future amortization intangible assets expected follows thousands index consolidated financial statements clearwire corporation subsidiaries notes consolidated financial statements continued evaluate patent renewals case basis based renewal costs 7 supplemental information liabilities current liabilities current liabilities consisted following thousands index consolidated financial statements clearwire corporation subsidiaries notes consolidated financial statements continued longterm liabilities longterm liabilities consisted following thousands 1 see note 15 related party transactions detail regarding balances related parties 8 income taxes income tax provision benefit consists following 190 days ended july 9 2013 years ended december 31 2012 2011 thousands income tax rate computed using federal statutory rates reconciled reported effective income tax rate follows index consolidated financial statements clearwire corporation subsidiaries notes consolidated financial statements continued components deferred tax assets liabilities july 9 2013 december 31 2012 follows thousands determine deferred income taxes based estimated future tax effects differences financial statement tax bases assets liabilities using tax rates expected effect temporary differences reverse net operating loss refer nol capital loss tax credit carryforwards utilized july 9 2013 excluding nol carryforwards permanently unable use discussed united states federal tax nol carryforwards approximately 201 billion 135 billion subject certain annual limitations imposed section 382 internal revenue code nol carryforwards begin expire 2021 4354 million tax nol carryforwards foreign jurisdictions 4261 million statutory expiration date 93 million begins expire 2015 also federal capital loss carryforwards 2275 million also subject certain annual limitations imposed section 382 internal revenue code capital loss carryforwards begin expire 2015 2017 us federal nol carryforwards capital loss carryforwards total subject annual limitations imposed section 382 internal revenue code currently project company generate capital gain income utilize capital loss carryforwards however company generates sufficient capital gain income enable utilization capital loss carryforwards excess 2275 million nol carryforwards 2275 million may longer available offset future taxable income recorded valuation allowance deferred tax assets extent determined likely items either expire able realize benefits future deductibility uncertain relates united states tax jurisdiction determined temporary taxable difference associated investment clearwire communications llc refer clearwire communications fully reverse within carryforward period nols accordingly represent relevant future taxable income sprint holdco llc refer sprint exchanged 575 million clearwire communications class b common interests refer class b common interests corresponding number shares class b common stock equal number shares class common stock refer sprint exchange july 5 2013 intel capital wireless investment corporation 2008a refer intel index consolidated financial statements clearwire corporation subsidiaries notes consolidated financial statements continued exchanged 656 million class b common interests corresponding number shares class b common stock equal number shares class common stock refer intel exchange july 9 2013 sprint exchange intel exchange resulted significant changes financial statement tax basis respectively clearwire interest clearwire communications well decrease amount temporary differences reverse within nol carryforward period see discussion deferred tax assets primarily represent nol carryforwards associated clearwires operations prior formation company november 28 2008 portion partnership losses allocated clearwire formation company subject change control test section 382 internal revenue code met would limit annual utilization prechange control nol carryforward well ability use certain unrealized built losses future tax deductions believe sprint acquisition occurred july 9 2013 combined issuances class common stock certain third party investor transactions involving class common stock since september 27 2012 resulted change control section 382 internal revenue code result change control changes control occurred september 27 2012 december 13 2011 respectively believe permanently unable use significant portion nol carryforwards credit carryforwards collectively referred tax attributes arose change control offset future taxable income result annual limitations sections 382 383 internal revenue code utilization tax attributes following ownership change determined approximately 203 billion united states nol carryforwards expire unutilized united states tax attributes presented net limitations addition subsequent changes ownership purposes sections 382 383 internal revenue code could diminish use remaining united states tax attributes recognized deferred tax liability difference financial statement carrying value tax basis partnership interest relates united states tax jurisdiction determined temporary taxable difference associated investment partnership completely reverse within carryforward period nols portion temporary difference reverse within carryforward period nols represents relevant future taxable income management reviewed facts circumstances including history nols projected future tax losses determined appropriate record valuation allowance portion deferred tax assets deemed realizable result sprint exchange intel exchange net decrease amount temporary difference reverse within nol carryforward period therefore management determined appropriate increase valuation allowance recorded deferred tax assets along recording corresponding deferred tax expense continuing operations income tax expense reflected condensed consolidated statements operations continuing operations primarily reflects united states deferred taxes certain state taxes file income tax returns clearwire subsidiaries united states federal jurisdiction various state foreign jurisdictions july 9 2013 tax returns clearwire years 2003 2012 remain open examination internal revenue service various state tax authorities policy recognize interest related unrecognized tax benefits interest expense interest income recognize penalties additional income tax expense july 9 2013 material uncertain tax positions therefore accrued interest penalties related uncertain tax positions index consolidated financial statements clearwire corporation subsidiaries notes consolidated financial statements continued 9 longterm debt net longterm debt july 9 2013 december 31 2012 consisted following thousands 1 represents weighted average effective interest rate based yearend balances 2 coupon rate based 3month libor plus spread 550 secured 700 unsecured included balance unsecured notes par amount 152 million july 9 2013 3 july 9 2013 par amount approximately 1380 million secured assets classified network base station equipment remaining par amount unsecured 4 included current liabilities consolidated balance sheet 5 discount sprint notes accreted interest expense straightline basis life notes due magnitude initial discount discussion see sprint notes index consolidated financial statements clearwire corporation subsidiaries notes consolidated financial statements continued 1 represents weighted average effective interest rate based yearend balances 2 coupon rate based 3month libor plus spread 550 secured 700 unsecured included balance unsecured notes par amount 46 million december 31 2012 3 december 31 2012 par amount approximately 1188 million secured assets classified network base station equipment 4 included current liabilities consolidated balance sheet notes 2015 senior secured notes fourth quarter 2009 clearwire communications completed offerings 252 billion 12 senior secured notes due 2015 refer 2015 senior secured notes 2015 senior secured notes provide biannual payments interest june december connection issuance 2015 senior secured notes also issued 2525 million notes sprint comcast identical terms 2015 senior secured notes replacement equal amounts indebtedness senior term loan facility december 2010 clearwire communications issued additional 1750 million 2015 senior secured notes substantially terms holders 2015 senior secured notes right require us repurchase notes upon occurrence certain change control events sale certain assets price 101 principal amount 100 principal amount respectively plus unpaid accrued interest repurchase date change control excludes change control permitted holders including limited sprint successors respective affiliates december 1 2012 may redeem part 2015 senior secured notes paying makewhole premium stated terms plus unpaid accrued interest repurchase date payment obligations 2015 senior secured notes guaranteed certain domestic subsidiaries senior basis secured certain assets subsidiaries firstpriority lien basis 2015 senior secured notes contain limitations activities among things include incurring additional indebtedness guarantee indebtedness making distributions payment dividends certain restricted payments investments making certain payments indebtedness entering agreements restrict distributions restricted subsidiaries selling otherwise disposing assets merger consolidation sales index consolidated financial statements clearwire corporation subsidiaries notes consolidated financial statements continued substantially assets entering transactions affiliates creating liens issuing certain preferred stock similar equity securities making investments acquiring assets see note 16 subsequent events 2016 senior secured notes january 2012 clearwire communications completed offering senior secured notes par value 3000 million due 2016 bearing interest 1475 refer 2016 senior secured notes 2016 senior secured notes provide biannual payments interest june december holders 2016 senior secured notes right require us repurchase notes upon occurrence specific kinds changes control price 101 principal plus unpaid accrued interest repurchase date change control excludes change control permitted holders including limited sprint successors respective affiliates certain circumstances clearwire communications required use net proceeds sale assets make offer purchase 2016 senior secured notes offer price equal 100 principal amount plus unpaid accrued interest payment obligations 2016 senior secured notes guaranteed certain domestic subsidiaries senior basis secured certain assets subsidiaries firstpriority lien basis 2016 senior secured notes contain limitations activities 2015 senior secured notes secondpriority secured notes december 2010 clearwire communications completed offering 5000 million 12 secondpriority secured notes due 2017 refer secondpriority secured notes secondpriority secured notes provide biannual payments interest june december holders secondpriority secured notes right require us repurchase notes upon occurrence certain change control events sale certain assets price 101 principal amount 100 principal amount respectively plus unpaid accrued interest repurchase date change control excludes change control permitted holders including limited sprint successors respective affiliates prior december 1 2013 may redeem 35 aggregate principal amount secondpriority secured notes redemption price 112 aggregate principal amount plus unpaid accrued interest repurchase date december 1 2014 may redeem part secondpriority secured notes paying makewhole premium stated terms plus unpaid accrued interest repurchase date payment obligations secondpriority secured notes guaranteed certain domestic subsidiaries senior basis secured certain assets subsidiaries secondpriority lien basis secondpriority secured notes contain limitations activities 2015 senior secured notes see note 16 subsequent events exchangeable notes december 2010 clearwire communications completed offerings 7292 million 825 exchangeable notes due 2040 refer exchangeable notes exchangeable notes provide biannual payments interest june december exchangeable notes subordinated 2015 senior secured notes 2016 senior secured notes rank equally right payment secondpriority secured notes holders exchangeable notes right exchange notes class common stock time prior maturity date right settle exchange delivering cash shares class common stock subject certain conditions initial exchange rate note 1412429 shares per 1000 note equivalent initial exchange price approximately 708 per share subject adjustments upon occurrence certain corporate events refer exchangeable notes exchange rate upon exchange make additional cash payment provide additional shares accrued unpaid interest makewhole premium additional interest index consolidated financial statements clearwire corporation subsidiaries notes consolidated financial statements continued holders exchangeable notes right require us repurchase notes upon occurrence fundamental change including change control event price 100 principal amount plus unpaid accrued interest repurchase date holders elect exchange exchangeable notes connection occurrence fundamental change entitled additional shares specified based date event occurs price paid per share class common stock fundamental change maximum number shares issuable per note exceed 1694915 shares per 1000 note stock price less 590 per share subject certain adjustments additional shares shall added exchange rate upon consummation sprint acquisition 1000 principal amount exchangeable notes changed right exchange principal amount exchange notes cash equal product merger consideration multiplied exchangeable notes exchange rate holders exchangeable notes option require us repurchase cash exchangeable notes december 1 2017 2025 2030 2035 price equal 100 principal amount notes plus unpaid accrued interest repurchase date december 1 2017 may option redeem part exchangeable notes price equal 100 principal amount notes plus unpaid accrued interest redemption date payment obligations exchangeable notes guaranteed certain domestic subsidiaries priority secondpriority secured notes upon issuance exchangeable notes recognized derivative liability representing embedded exchange feature estimated fair value 2315 million associated debt discount exchangeable notes discount accreted expected life approximately 7 years exchangeable notes using effective interest rate method see note 10 derivative instruments additional discussion derivative liability first quarter 2012 clearwire communications entered securities purchase agreements certain institutional investors refer exchange transaction pursuant clearwire issued 380 million shares class common stock aggregate price 835 million refer purchase price clearwire communications repurchased 1000 million aggregate principal amount plus accrued unpaid interest exchangeable notes total price equal purchase price see note 16 subsequent events sprint notes connection merger agreement entered note purchase agreement issuers sprint agreed purchase us election aggregate principal amount 800 million notes maturing june 1 2018 ten monthly installments 80 million interest notes 1 payable semiannually june december elected forego january february june 2013 draws elected take march april may 2013 draws received 240 million sprint right exchange notes held connection note purchase agreement clearwire class common stock clearwire class b common stock clearwire communications class b common units applicable exchange rate time prior maturity date july 9 2013 applicable exchange rate 66667 shares clearwire class common stock clearwire class b common stock clearwire communications class b common units per 1000 principal equivalent exchange price approximately 150 per share sprint notes guaranteed issuers existing whollyowned domestic subsidiaries sprint notes expressly subordinated 2015 2016 senior secured notes rank equally right payments issuers guarantors existing future senior indebtedness senior existing future subordinated indebtedness sprint notes contain financial operating covenants sprint notes contain beneficial conversion feature refer bcf recorded companys stock price greater exchange price commitment date therefore settlement index consolidated financial statements clearwire corporation subsidiaries notes consolidated financial statements continued date draw sprint notes bcf calculated based closing price settlement date less exchange price 150 per share multiplied number shares clearwire class common stock issued amount bcf draw limited proceeds received draw bcf recognized discount debt increase additional paidin capital consolidated balance sheets debt discount accreted date issuance stated maturity interest expense consolidated statements operations straightline basis see note 16 subsequent events july 9 2013 compliance debt covenants vendor financing notes vendor financing facility refer vendor financing facility allows us obtain financing entering notes refer vendor financing notes vendor financing notes mature 2014 2015 coupon rates based 3month libor plus spread 550 700 secured unsecured notes respectively capital lease obligations certain network equipment acquired capital lease facilities inception capital lease lower either present value minimum lease payments required lease fair value equipment recorded capital lease obligation initial noncancelable term capital leases three twelve years may include one renewal options end initial lease term may exercised discretion lease payments initial lease term fixed renewal periods established inception lease interest expense recognized using effective interest rate method based rate imputed using contractual terms lease agreements may contain change control provisions certain agreements change control may exclude change control permitted holders including limited sprint successors respective affiliates agreements may reference circumstances involving change control resulting clearwires credit rating falling “caa1” rated moodys investors service upon occurrence change control lessor may require payment predetermined casualty value leased equipment future payments future payments longterm debt see note 12 commitments contingencies interest expense interest expense included consolidated statements operations 190 days ended july 9 2013 years ended december 31 2012 2011 consisted following thousands 1 year ended december 31 2012 included 25 million coupon interest relating exchangeable notes settled noncash exchange transaction 2 includes noncash amortization deferred financing fees classified assets consolidated balance sheets index consolidated financial statements clearwire corporation subsidiaries notes consolidated financial statements continued 10 derivative instruments holders’ exchange rights contained exchangeable notes constitute embedded derivative instruments required accounted separately debt host instrument fair value result upon issuance exchangeable notes recognized exchange options estimated fair value 2315 million derivative liability result exchange transaction 1000 million par value exchangeable notes retired related exchange options notional amount 141 million shares settled fair value exchange options indexed class common stock notional amount 889 million shares july 9 2013 december 31 2012 mature 2040 apply hedge accounting exchange options therefore gains losses due changes fair value reported consolidated statements operations july 9 2013 exchange options estimated fair value 0 december 31 2012 exchange options’ estimated fair value 53 million reported current liabilities consolidated balance sheets 190 days ended july 9 2013 years ended december 31 2012 2011 recognized gains 53 million 14 million 1597 million respectively changes estimated fair value gains derivative instruments consolidated statements operations see note 11 fair value information regarding valuation exchange options 11 fair value following description valuation methodologies pricing assumptions used financial instruments measured recorded fair value recurring basis financial statements classification instruments pursuant valuation hierarchy cash equivalents investments quoted prices identical securities available active market use quoted market prices determine fair value investment securities cash equivalents classified level 1 valuation hierarchy level 1 securities include us government treasury bills actively traded us government treasury notes money market mutual funds quoted prices active markets quoted net asset values published money market mutual fund supported active market investments classified level 2 valuation hierarchy securities quoted prices available similar investments active markets identical similar investments markets active use consensus pricing independent external valuation sources level 2 securities include us government agency discount notes us government agency notes derivatives exchange options classified level 3 valuation hierarchy estimate fair value exchange options used income approach based valuation models including option pricing models discounted cash flow models maximized use marketbased observable inputs models developed assumptions unobservable inputs based management estimates market participants’ assumptions pricing instruments upon consummation sprint acquisition 1000 principal amount exchangeable notes changed right exchange principal amount exchange notes amount cash equal product 500 multiplied ii exchange rate 1412429 therefore holders option 1000 exchangeable notes tendered exchange 70621 redemption price 0706 given equity underlying exchange options longer exists closing sprint acquisition value redemption less par alternatively spot price 500 less strike price option 708 fair value exchange option immediately prior closing merger 0 index consolidated financial statements clearwire corporation subsidiaries notes consolidated financial statements continued following table summarizes financial assets level within valuation hierarchy july 9 2013 thousands following table summarizes financial assets liabilities level within valuation hierarchy december 31 2012 thousands following table presents change level 3 financial assets liabilities measured recurring basis 190 days ended july 9 2013 thousands 1 included gain derivative instruments consolidated statements operations index consolidated financial statements clearwire corporation subsidiaries notes consolidated financial statements continued following table presents change level 3 financial assets liabilities measured recurring basis year ended december 31 2012 thousands 1 included gain derivative instruments consolidated statements operations following description fair value financial instruments hold subject fair value recognition debt instruments estimate fair value 2015 senior secured notes 2016 senior secured notes secondpriority secured notes exchangeable notes used average indicative price several market makers level subjectivity applied estimate fair value sprint notes use market approach benchmarking price sprint notes exchangeable notes adjusting differences critical terms tenor strike price options well liquidity estimate fair value vendor financing notes used income approach based contractual terms notes marketbased parameters interest rates level subjectivity applied estimate discount rate used calculate present value estimated cash flows following table presents carrying value approximate fair value outstanding debt instruments july 9 2013 2012 thousands 1 carrying value july 9 2013 december 31 2012 net 1530 million 1651 million discount respectively arising separation exchange options debt host instrument fair value exchangeable index consolidated financial statements clearwire corporation subsidiaries notes consolidated financial statements continued notes incorporates value exchange feature recognized separately derivative consolidated balance sheets see note 9 longterm debt net additional discussion 2 carrying value july 9 2013 net 2273 million discount arising bcf see note 9 longterm debt net additional discussion 12 commitments contingencies future minimum cash payments obligations continuing operations listed including optional expected renewal periods operating leases july 9 2013 follows thousands 1 principal interest payments beyond 2017 represent potential principal interest payments exchangeable notes beyond expected repayment 2017 2 payments include 413 million representing interest expense recorded related spectrum operating leases follows thousands operating lease obligations commitments noncancelable operating leases consist mainly leased sites including towers rooftop locations office space certain leases provide minimum lease payments additional charges escalation clauses operating leases generally initial terms five seven years multiple renewal options additional fiveyear terms totaling 20 25 years operating lease obligations table include lease payments contractual lease term plus one renewal period include remaining future lease payments leases notice intent renew sent result lease termination initiatives estimated lease term utilized lease expense recognition purposes leases includes initial noncancelable term plus one renewal period index consolidated financial statements clearwire corporation subsidiaries notes consolidated financial statements continued spectrum lease obligations certain leases provide minimum lease payments additional charges escalation clauses leased spectrum agreements terms 30 years weighted average remaining lease term july 9 2013 approximately 23 years including renewal terms expect renewal periods spectrum leases renewed us spectrum service credits commitments provide clearwire services certain lessors launched markets reimburse lessors certain capital equipment thirdparty service expenditures term lease accrue monthly obligation services equipment based total estimated available service credits divided term lease obligation reduced actual invoices presented paid lessors 190 days ended july 9 2013 years ended december 31 2012 2011 satisfied 12 million 33 million 45 million respectively related commitments maximum remaining commitment july 9 2013 1017 million expected incurred term related lease agreements generally range 1530 years purchase agreements included table purchase commitments takeorpay obligations andor volume commitments equipment noncancelable table also includes obligations include minimum purchase commitments certain suppliers time goods services regardless whether suppliers fully deliver include among things agreements backhaul subscriber devices related services addition party various arrangements conditional nature create obligation make payments upon occurrence certain events actual delivery acceptance products services possible predict timing amounts may due conditional arrangements amounts included table also excludes blanket purchase order amounts orders subject cancellation termination discretion quantity goods services purchased payment terms unknown purchase orders firm commitments legal proceedings fully described involved variety lawsuits claims investigations proceedings concerning intellectual property business practices commercial matters determine whether accrue estimated loss contingency particular legal proceeding assessing whether loss deemed probable reasonably estimated reassess views estimated losses quarterly basis reflect impact developments matters involved legal proceedings inherently unpredictable matters involved often present complex legal factual issues vigorously pursue defenses legal proceedings engage discussions possible resolve matters terms favorable us including pursuing settlements believe may cost effective result company possible however business financial condition results operations future periods could materially adversely affected increased litigation expense significant settlement costs andor unfavorable damage awards throughout legal proceedings disclosure use terms clearwire company refer clearwire corporation clearwire communications llc clear wireless llc subsidiaries consumer employment purported class actions investigations april 2009 purported class action lawsuit filed clearwire us llc superior court king county washington group five plaintiffs chad minnick et al lawsuit generally alleges disseminated false advertising quality reliability services imposed unlawful early termination fee refer etf invoked allegedly unconscionable provisions terms service detriment subscribers november 2010 purported class action lawsuit filed clearwire angelo dennings us district court western district washington complaint generally alleges slow network speeds network demand highest network management violates index consolidated financial statements clearwire corporation subsidiaries notes consolidated financial statements continued agreements subscribers contrary companys advertising marketing claims plaintiffs also allege subscribers review terms service prior subscribing subscribers cancel service due network management charge etf restocking fee claim unconscionable circumstances march 2011 purported class action filed clearwire us district court eastern district california case newton v clearwire inc sic alleges clearwires network management advertising practices constitute breach contract unjust enrichment unfair competition californias business professions code sections 17200 et seq violation californias consumers legal remedies act plaintiff contends clearwires advertisements “no speed cap” “unlimited data” false misleading plaintiff alleges clearwire breached contracts customers delivering internet service advertised plaintiff also claims slow data speeds due clearwires network management practices parties collectively settled three lawsuits settlement process administration accrued estimated amount anticipate pay settlement current liabilities amount accrued considered immaterial financial statements august 2012 richard wuest filed purported class action clearwire california superior court san francisco county plaintiff alleges clearwire violated californias invasion privacy act penal code 630 notably §6327 prohibits recording communications made cellular cordless telephone without consent parties communication plaintiff seeks class certification statutory damages injunctive relief costs attorney fees pre post judgment interest removed matter federal court november 2 2012 filed answer complaint may 31 2013 plaintiff filed first amended complaint adding two clearwire call vendors lawsuit filed answer july 15 2013 discovery begun class certification briefing scheduled spring 2014 litigation early stages outcome unknown estimate potential loss cannot made time september 6 2012 washington state attorney generals office served clearwire corporation civil investigative demand pursuant rcw 1986110 demand seeks information documents furtherance attorney general offices investigation possible unfair trade practices failure properly disclose contractual terms misleading advertising october 22 2012 responded demand outcome investigation unknown estimate potential loss cannot made time april 2013 kenneth lindsay former employee others filed purported collective class action lawsuit us district court district minnesota clear wireless llc workforce logic llc plaintiffs allege claims individually behalf purported nationwide collective class fair labor standards act refer fsla april 9 2010 present lawsuit alleges defendants violated flsa notably sections 201 207 relevant regulations regarding failure pay minimum wage failure pay hours worked breaks work performed clock scheduled work shifts overtime improper deductions improper withholding wages commissions bonuses plaintiffs seek back wages unpaid wages overtime liquidated damages attorney fees costs filed answer complaint april 30 2013 january 2014 magistrate judge granted plaintiffs’ motion conditional class certification filed objections ruling district judge litigation early stages outcome unknown estimate potential loss cannot made time shareholder actions april 26 2013 stockholders acp master ltd aurelius capital master ltd aurelius opportunities fund ii llc filed suit delaware court chancery company directors sprint holdco refer acp action december 20 2013 entities filed amended complaint naming defendants sprint corporation sprint communications inc former directors company starburst inc softbank corp amended acp action alleges directors company breached fiduciary duties connection sprintclearwire transaction “merger” sprint breached duties owed plaintiff stockholders virtue status “controlling” stockholder entities index consolidated financial statements clearwire corporation subsidiaries notes consolidated financial statements continued aided abetted alleged breaches duties acp action seeks declaration sprint director defendants breached fiduciary duties entities aided abetted breach declaration special committee majorityofminority conditions insufficient safeguards defendants bear burden proving “entire fairness” transaction declaration note purchase agreement product defendants’ breach fiduciary duties finding merger unfair plaintiffs rescission merger unspecified damages fees expenses defendants moved dismiss acp action january 2014 october 23 2013 plaintiffs acp action filed new lawsuit delaware court chancery company complaint asks court appraisal “fair value” plaintiffs’ stock clearwire order clearwire pay plaintiffs “fair value” plus interest costs company filed answer november 2013 discovery begun case acp action early stages outcome unknown estimate potential losses cannot made time addition matters described often involved certain proceedings seek monetary damages relief based upon information currently available us none claims expected material effect business financial condition results operations 13 sharebased payments july 9 2013 25226048 shares available grant clearwire corporation 2008 stock compensation plan refer 2008 plan authorizes us grant incentive stock options nonqualified stock options stock appreciation rights restricted stock restricted stock units refer rsus performance based rsus stock awards employees directors consultants grants awarded 2008 plan made available discretion compensation committee board directors authorized unissued shares authorized issued shares reacquired combination thereof restricted stock units grant rsus performance based rsus certain officers employees 2008 plan rsus generally performance service requirements service requirements vesting periods ranging two four years fair value rsus based grantdate fair market value common stock equals grant date market price performance rsus awarded 2012 one two years performance periods granted performance objectives established first quarter 2012 index consolidated financial statements clearwire corporation subsidiaries notes consolidated financial statements continued summary rsu activity 190 day period ended july 9 2013 years ended 2012 2011 presented july 9 2013 29902490 rsus outstanding total unrecognized compensation cost approximately 384 million expected recognized weightedaverage period approximately 11 years stock options granted options certain officers employees 2008 plan options generally vest fouryear period expire later ten years date grant fair value option grants estimated date grant using blackscholes option pricing model index consolidated financial statements clearwire corporation subsidiaries notes consolidated financial statements continued summary option activity january 1 2011 july 9 2013 presented intrinsic value options exercised 190 days ended july 9 2013 year ended december 31 2011 01 million 23 million respectively option exercises period ended december 31 2012 july 9 2013 aggregate intrinsic value options outstanding 13 million index consolidated financial statements clearwire corporation subsidiaries notes consolidated financial statements continued information regarding stock options outstanding exercisable july 9 2013 follows options granted 2013 2012 2011 total fair value options vested 190 days ended july 9 2013 years ended december 31 2012 2011 05 million 07 million 66 million respectively total unrecognized share based compensation costs related nonvested stock options outstanding july 9 2013 approximately 01 million expected recognized weighted average period approximately four months sharebased compensation expense based estimated grantdate fair value award recognized net estimated forfeitures shares expected vest graded vesting schedule straightline basis requisite service period separately vesting portion award insubstance multiple awards sharebased compensation expense recognized plans 190 days ended july 9 2013 years 2012 2011 follows thousands see note 16 subsequent events 14 stockholders’ equity class common stock class common stock represents common equity clearwire holders class common stock entitled one vote per share class entitled 100 dividends distributions made clearwire exception certain minimal liquidation rights provided class b common index consolidated financial statements clearwire corporation subsidiaries notes consolidated financial statements continued stockholders described share class common stock participates ratably proportion total number shares class common stock issued clearwire holders class common stock 100 economic interest clearwire considered controlling interest purposes financial reporting upon liquidation dissolution winding class common stock entitled assets remaining payment debts liabilities clearwire exception certain minimal liquidation rights provided class b common stockholders described class b common stock class b common stock represents noneconomic voting interests clearwire identical class common stock holders class b common stock entitled one vote per share however rights receive distributions stock dividends paid proportionally outstanding class b common stockholder upon liquidation clearwire amount equal par value per share 00001 per share sole holder sprint entitled hold equivalent number class b common interests substance reflects economic stake clearwire accomplished exchange feature provides holder right time exchange one share class b common stock plus one class b common interest one share class common stock july 5 2013 sprint completed exchange 575 million shares class b common interests corresponding number shares class b common stock equal number shares class common stock pursuant amended restated operating agreement dated november 28 2008 governing clearwire communications july 9 2013 intel completed exchange 656 million shares class b common interests corresponding number shares class b common stock equal number shares class common stock pursuant amended restated operating agreement dated november 28 2008 governing clearwire communications july 9 2013 prior consideration sprint acquisition sprints economic interest clearwire subsidiaries equal voting interest approximately 501 following table lists voting interests clearwire july 9 2013 1 holders class b common stock hold equivalent number class b common interests result sprint acquisition share clearwire corporation common stock par value 00001 per share shares owned sprint softbank corp affiliates converted right receive 500 per share cash index consolidated financial statements clearwire corporation subsidiaries notes consolidated financial statements continued clearwire communications interests clearwire sole holder voting interests clearwire communications clearwire controls 100 decision making clearwire communications consolidates 100 operations clearwire also holds outstanding clearwire communications class common interests representing 559 economics clearwire communications july 9 2013 holders class b common interests remaining 441 economic interests intended times number clearwire communications class common interests held clearwire equal number shares class common stock issued clearwire nonvoting clearwire communication units designated either clearwire communications class common interests held clearwire class b common interests held sprint intel classes nonvoting clearwire communication units participate distributions clearwire communications equal proportionate basis following shows effects changes clearwire’s ownership interests clearwire communications thousands dividend policy declared paid cash dividends class b common stock currently expect retain future earnings use operations anticipate paying cash dividends foreseeable future addition covenants indentures governing senior secured notes impose significant restrictions ability pay cash dividends stockholders noncontrolling interests clearwire communications clearwire communications consolidated clearwire hold 100 voting interest clearwire communications therefore holders class b common interests represent noncontrolling interests consolidated subsidiary result income loss consolidated clearwire decreased proportion outstanding noncontrolling interests conversion class b common interests corresponding number class b common stock class common stock recorded issuance common stock net issuance costs capital transactions consolidated statement stockholders equity index consolidated financial statements clearwire corporation subsidiaries notes consolidated financial statements continued warrants first quarter 2013 issued warrant purchase 20 million shares class common stock exercise price 175 per share related spectrum lease agreement warrants expire january 29 2019 connection sprint acquisition warrants settled lump sum cash amount equal amount merger consideration exceeded exercise price warrants addition prior closing merger sprint 375000 warrants outstanding exercise price 300 warrants settled lump sum cash amount equal amount merger consideration exceeded exercise price warrants 15 related party transactions number strategic commercial relationships third parties significant impact business operations financial results relationships sprint intel comcast time warner cable bright house google eagle river ericsson related parties relationships include agreements pursuant sell wireless broadband services certain related parties wholesale basis related parties resell respective end user subscribers sell services terms defined contractual agreements following amounts related party transactions included consolidated financial statements thousands sprint merger agreement december 17 2012 entered merger agreement pursuant sprint agreed acquire outstanding shares class b common stock currently owned index consolidated financial statements clearwire corporation subsidiaries notes consolidated financial statements continued sprint july 9 2013 sprint completed acquisition clearwire corporation subsidiaries see note 1 description business see note 16 subsequent events note purchase agreement connection merger agreement december 17 2012 certain subsidiaries also entered note purchase agreement sprint agreed purchase us election aggregate principal amount 800 million 100 exchangeable notes due 2018 ten monthly installments 800 million elected forego first two draws january 2013 february 2013 note purchase agreement reduced aggregate principal amount available 640 million elected take march april may draws received 2400 million sprint addition elected forego june draw see note 9 longterm debt net information rollover notes connection issuance 2015 senior secured notes november 24 2009 issued notes sprint comcast identical terms 2015 senior secured notes time related parties may hold portions longterm debts debtholders would entitled receive interest payments us relationships among certain stockholders directors officers clearwire prior completion sprint acquisition sprint two whollyowned subsidiaries sprint holdco sn uhc 1 inc owns largest interest clearwire effective voting economic interest approximately 501 conversion class b common interests corresponding number class b common stock class common stock comcast intel bright house together voting interest clearwire approximately 130 july 9 2013 prior consummation merger sprint clearwire sprint intel comcast bright house party equityholders’ agreement sets forth certain rights obligations equityholders respect governance clearwire transfer restrictions common stock rights first refusal preemptive rights among things 4g mvno agreement nonexclusive 4g mvno agreement refer 4g mvno agreement comcast mvno ii llc twc wireless llc bright house sprint spectrum lpwhich refer sprint spectrum sell wireless broadband services parties 4g mvno agreement purposes purchasers marketing reselling wireless broadband services respective end user subscribers wireless broadband services provided 4g mvno agreement include standard network services request parties certain nonstandard network services sell services prices defined 4g mvno agreement sprint wholesale relationship november 2011 4g mvno amendment sprint paying us fixed amount unlimited 4g mobile wimax services resale retail subscribers 2013 portion paid offset principal interest due 1500 million promissory note issued us sprint january 3 2012 refer sprint promissory note sprint promissory note aggregate principal amount 1500 million bears interest 115 per annum january 2 2013 offset 836 million principal related accrued interest reduce principal amount owe sprint promissory note 750 million maturing january 2 2014 previously paid sprint may offset amounts payable us sprint promissory note including interest payments due sprint clearwire communications 4g mvno agreement amended sprint promissory note entered conjunction november 2011 4g mvno amendment amounts due may offset payments due november 2011 4g mvno amendment treated deferred revenue accounting purposes associated interest costs recorded reduction payable sprint unlimited wimax service calendar year 2013 index consolidated financial statements clearwire corporation subsidiaries notes consolidated financial statements continued part 4g mvno agreement also agreed usage based pricing wimax services 2013 lte service beginning 2012 also agreed sprint may rewholesale wireless broadband services subject certain conditions agreed operate wimax network calendar year 2015 190 days ended july 9 2013 years ended december 31 2012 2011 received 2312 million 5373 million 4343 million respectively sprint 4g broadband wireless services 190 days ended july 9 2013 years ended december 31 2012 2011 wholesale revenue recorded attributable sprint comprised approximately 36 total revenues substantially wholesale revenues 3g mvno agreement entered nonexclusive 3g mvno agreement sprint spectrum refer 3g mvno agreement whereby sprint agrees sell code division multiple access mobile voice data communications service purpose resale retail customers data communications service includes sprint’s existing core network services network elements information enable third party provide services network core network enablers subject certain limitations exceptions new core network services core network enablers certain customized services 190 days ended july 9 2013 years ended december 31 2012 2011 paid 10 million 44 million 178 million respectively sprint 3g wireless services provided sprint us sprint master site agreement november 2008 entered master site agreement sprint refer master site agreement pursuant sprint established contractual framework procedures leasing tower antenna collocation sites leases specific sites negotiated sprint us request lessee leased premises may used lessee activity connection provision wireless communications services including attachment antennas towers sites term master site agreement ten years date agreement signed term lease specific site five years lessee right extend term additional 20 years monthly fee increase 3 per year lessee also responsible utility costs certain additional fees 190 days ended july 9 2013 years ended december 31 2012 2011 made rent payments agreement 355 million 596 million 558 million respectively master agreement network services november 2008 entered master agreement network services refer master agreement network services various sprint affiliated entities refer sprint entities pursuant sprint entities established contractual framework procedures us purchase network services sprint entities may order various services sprint entities including ip network transport services data center colocation tollfree services access following business platforms voicemail instant messaging services locationbased systems media server services sprint entities provide service level agreement consistent service levels provided similarly situated subscribers pricing specified separate product attachments type service general pricing based midpoint fair market value service sprint entities’ fully allocated cost providing service term master agreement network services five years right extend term additional five years additionally accordance master agreement network services sprint entities assumed certain agreements backhaul services contain commitments extend five years ericsson inc ericsson provides network deployment services us including site acquisition construction management services addition second quarter 2011 entered managed services agreement ericsson operate maintain support network dr hossein eslambolchi member board directors prior sprint acquistion consulting agreement ericsson part consulting agreement dr eslambolchi received payments services ericsson received compensation directly us related relationship ericsson 190 days ended july 9 index consolidated financial statements clearwire corporation subsidiaries notes consolidated financial statements continued 2013 years ended december 31 2012 2011 paid 439 million 769 million 411 million respectively ericsson network management services 16 subsequent events evaluated subsequent events february 24 2014 date consolidated financial statements issued following events occurred subsequent july 9 2013 sprint acquisition july 9 2013 sprint completed acquisition clearwire corporation subsidiaries result sprint acquisition resulting change ownership control acquisition method accounting applied sprint pusheddown us included consolidated financial statements periods presented subsequent acquisition date resulted new basis presentation based estimated fair values assets liabilities successor period beginning day following consummation merger longterm debt net using equity contributions sprint available cash retired 2015 senior secured notes secondpriority secured notes december 2013 september 2013 sprint exchanged outstanding sprint notes 160000800 shares class b common stock amount class b common interests october 17 2013 issuers entered supplemental indenture related exchangeable notes 1 permitted periodic reports filed sprint rather clearwire corporation sec satisfy issuers reporting related obligations event sprint communications unconditionally guarantee exchangeable notes 2 agreed use commercially reasonable efforts obtain credit ratings exchangeable notes two national rating agencies july 19 2013 clearwire communications clearwire finance inc entered 30 billion credit agreement refer sprint credit agreement sprint communications inc sprint agrees make revolving credit loans us subject terms conditions set forth agreement interest rate outstanding loans libor rate preceding interest payment date plus applicable margin 400 475 based moodys sp ratings interest payment date last business day fiscal quarter maturity date sprint credit agreement july 1 2017 sprint credit agreement permitted incur indebtedness unless agreed sprint written consent december 31 2013 sprint credit agreement outstanding balance 3155 million sharebased payments connection sprint acquisition outstanding unexercised option purchase shares common stock whether vested canceled exchange lump sum cash amount equal amount merger consideration exceeded exercise price option less applicable withholding taxes connection sprint acquisition rsu granted nonemployee member board directors refer director rsu canceled exchange lump sum cash payment equal product merger consideration without interest number shares class common stock subject director rsu addition outstanding rsu granted prior december 17 2012 converted right receive cash payment equal product merger consideration number shares class common stock subject unvested rsu refer restricted cash account july 19 2013 holder restricted cash account received lump sum cash payment equal 50 restricted cash account balance less applicable tax withholdings remaining balance restricted cash index consolidated financial statements clearwire corporation subsidiaries notes consolidated financial statements account vest paid upon earlier original vesting schedule unvested rsus ii one year anniversary merger provided however holder restricted cash account also paid remaining balance upon involuntary termination holders employment addition rsu granted december 17 2012 refer unvested 2013 rsu converted right receive cash payment equal product merger consideration without interest number shares class common stock subject unvested 2013 rsu refer 2013 restricted cash account 2013 restricted cash account unvested vest paid accordance original vesting conditions award provided however holder 2013 restricted cash account also paid prorata portion 2013 restricted cash account upon involuntary termination holders employment related party transactions july 19 2013 clearwire corporation entered services agreement sprintunited management company whollyowned subsidiary sprint corporation refer management company whereas management company provide certain services clearwire corporation parent company clearwire communications subsidiaries stated management fee based schedule set forth agreement fees due 2013 july 19 2013 clearwire communications including direct indirect subsidiaries defined agreement refer licensees entered spectrum usage agreement sprint spectrum lp whollyowned subsidiary sprint corporation affiliated entities defined agreement refer users licensees allow users use spectrum holdings licensees equipment deployed users using spectrum subject terms defined agreement users shall pay licensees annual spectrum use fee set forth agreement beginning 2014 january 2 2014 offset payments due november 2011 4g mvno amendment treated deferred revenue 836 million principal related accrued interest repay amount owed us sprint promissory note item 15 exhibits financial statement schedules 1 consolidated financial statements sprint corporation filed part annual report listed index consolidated financial statements 2 exhibits filed part annual report listed exhibit index item 16 form 10k summary none signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized sprint corporation registrant marcelo claure marcelo claure chief executive officer president date may 26 2017 pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities indicated 26th day may 2017 marcelo claure marcelo claure chief executive officer president principal executive officer tarek robbiati tarek robbiati chief financial officer principal financial officer paul w schieber jr paul w schieber jr vice president controller principal accounting officer signatures sprint corporation registrant pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities indicated 26th day may 2017 masayoshi son marcelo claure masayoshi son chairman marcelo claure director ronald fisher patrick doyle ronald fisher vice chairman patrick doyle director gordon bethune julius genachowski gordon bethune director julius genachowski director admiral michael g mullen sara martinez tucker admiral michael g mullen director sara martinez tucker director exhibit index filed furnished required schedules andor exhibits filed furnished sec upon request pursuant item 601b2 regulation sk sprint corporation index consolidated financial statements index consolidated financial statements report independent registered public accounting firm board directors stockholders sprint corporation overland park kansas audited accompanying consolidated balance sheets sprint corporation subsidiaries company march 31 2017 2016 related consolidated statements operations comprehensive loss cash flows stockholders equity three years period ended march 31 2017 also audited companys internal control financial reporting march 31 2017 based criteria established internal control integrated framework 2013 issued committee sponsoring organizations treadway commission companys management responsible consolidated financial statements maintaining effective internal control financial reporting assessment effectiveness internal control financial reporting included accompanying managements report internal control financial reporting responsibility express opinion consolidated financial statements opinion companys internal control financial reporting based audits conducted audits accordance standards public company accounting oversight board united states standards require plan perform audits obtain reasonable assurance whether consolidated financial statements free material misstatement whether effective internal control financial reporting maintained material respects audits consolidated financial statements included examining test basis evidence supporting amounts disclosures financial statements assessing accounting principles used significant estimates made management evaluating overall financial statement presentation audit internal control financial reporting included obtaining understanding internal control financial reporting assessing risk material weakness exists testing evaluating design operating effectiveness internal control based assessed risk audits also included performing procedures considered necessary circumstances believe audits provide reasonable basis opinions companys internal control financial reporting process designed supervision companys principal executive principal financial officers persons performing similar functions effected companys board directors management personnel provide reasonable assurance regarding reliability financial reporting preparation financial statements external purposes accordance generally accepted accounting principles companys internal control financial reporting includes policies procedures 1 pertain maintenance records reasonable detail accurately fairly reflect transactions dispositions assets company 2 provide reasonable assurance transactions recorded necessary permit preparation financial statements accordance generally accepted accounting principles receipts expenditures company made accordance authorizations management directors company 3 provide reasonable assurance regarding prevention timely detection unauthorized acquisition use disposition companys assets could material effect financial statements inherent limitations internal control financial reporting including possibility collusion improper management override controls material misstatements due error fraud may prevented detected timely basis also projections evaluation effectiveness internal control financial reporting future periods subject risk controls may become inadequate changes conditions degree compliance policies procedures may deteriorate opinion consolidated financial statements referred present fairly material respects financial position sprint corporation subsidiaries march 31 2017 2016 related results operations cash flows three years period ended march 31 2017 conformity accounting principles generally accepted united states america also opinion company maintained material respects effective internal control financial reporting march 31 2017 based criteria established internal control integrated framework 2013 issued committee sponsoring organizations treadway commission deloitte touche llp kansas city missouri may 26 2017 index consolidated financial statements sprint corporation consolidated balance sheets see notes consolidated financial statements index consolidated financial statements sprint corporation consolidated statements operations see notes consolidated financial statements index consolidated financial statements sprint corporation consolidated statements comprehensive loss see notes consolidated financial statements index consolidated financial statements sprint corporation consolidated statements cash flows see notes consolidated financial statements index consolidated financial statements sprint corporation consolidated statements stockholders equity millions see notes consolidated financial statements index consolidated financial statements sprint corporation notes consolidated financial statements index consolidated financial statements sprint corporation notes consolidated financial statements note 1 description operations sprint corporation including consolidated subsidiaries communications company offering comprehensive range wireless wireline communications products services designed meet needs individual consumers businesses government subscribers resellers wireless segment includes retail wholesale affiliate service revenue wide array wireless voice data transmission services equipment revenue sale lease wireless devices sale accessories us puerto rico us virgin islands wireline segment includes revenue domestic international wireline data communication services addition voice data ip communication services provided wireless segment july 10 2013 softbank corp subsequently changed name softbank group corp certain whollyowned subsidiaries together softbank completed merger softbank merger sprint nextel contemplated agreement plan merger dated october 15 2012 amended merger agreement bond purchase agreement dated october 15 2012 amended bond agreement result softbank merger starburst ii inc starburst ii became parent company sprint nextel immediately thereafter starburst ii changed name sprint corporation sprint nextel changed name sprint communications inc sprint communications result completion softbank merger softbank acquired approximate 78 interest sprint corporation subsequent open market stock purchases softbank owned approximately 83 outstanding common stock sprint corporation march 31 2017 note 2 summary significant accounting policies information basis consolidation estimates consolidated financial statements include accounts 100 owned subsidiaries control controlling financial interest intercompany transactions balances eliminated consolidation consolidated financial statements prepared conformity accounting principles generally accepted united states us gaap requires management company make estimates assumptions affect reported amounts assets liabilities revenues expenses disclosure contingent assets liabilities date consolidated financial statements significant estimates assumptions used limited allowance doubtful accounts estimated economic lives residual values property plant equipment fair value identified purchased tangible intangible assets business combination fair value assessments purposes impairment testing certain prior period amounts reclassified conform current period presentation change estimate estimating value returned inventory evaluate many factors obtain information support estimated value used devices useful lives year ended march 31 2015 observed sustained value extended useful lives handsets leading increase estimated value returned inventory result revised methodology assumptions used estimating value returned handsets year ended march 31 2015 change estimate accounted prospective basis effect change estimate included cost products consolidated statements operations reduced operating loss approximately 80 million 002 per basic diluted share year ended march 31 2015 summary significant accounting policies cash equivalents cash equivalents generally include highly liquid investments maturities time purchase three months less investments may include money market funds certificates deposit us government governmentsponsored debt securities corporate debt securities municipal securities bankrelated securities credit debit card transactions process carrying amounts approximate fair value index consolidated financial statements sprint corporation notes consolidated financial statements shortterm investments shortterm investments generally include time deposits commercial paper terms greater three months less one year date purchase carrying amounts recorded amortized cost approximate fair value interest earned recognized consolidated statements operations contractual term shortterm investments installment receivables carrying value installment receivables approximates fair value receivables recorded present value net deferred interest allowance credit losses time installment sale impute interest installment receivable record reduction revenue reduction face amount related receivable interest income recognized term installment contract service revenue categorize installment receivables prime subprime based upon subscriber credit profiles unbilled billedcurrent billedpast due based upon age receivable use proprietary scoring systems measure credit quality receivables using several factors credit bureau information subscriber credit risk scores service plan characteristics payment history subsequently monitored evaluate credit profiles prime subscriber receivables lower delinquency risk subprime subscriber receivables higher delinquency risk subscribers within subprime category may required make payment device accessory purchases installment receivables invoices yet generated customer considered unbilled installment receivables invoices generated past contractual due date considered billedcurrent installment receivables invoices generated payment approximately ten days past contractual due date considered billedpast due account balances writtenoff collection efforts unsuccessful future collection unlikely based length time day accounts become past due allowance doubtful accounts allowance doubtful accounts established cover probable reasonably estimable losses number subscriber accounts practical review collectability accounts individually determine amount allowance doubtful accounts period although account level analysis performed respect large wireless wireline subscribers estimate allowance doubtful accounts considers number factors including collection experience aging remaining accounts receivable portfolios credit quality subscriber base qualitative considerations including macroeconomic factors account balances written collection efforts unsuccessful future collection unlikely based length time day accounts become past due amounts written allowance doubtful accounts net recoveries adjustments 371 million 612 million 752 million years ended march 31 2017 2016 2015 respectively see note 4 installment receivables additional information relates allowance doubtful accounts specifically attributable installment receivables device accessory inventory inventories stated lower cost market cost determined firstin firstout fifo method company sells wireless devices separately conjunction service contract device sold service contract may sold cost promotional discounts device expected recovered service contract net realizable value devices inventory analyzed regular basis analysis includes assessing obsolescence sales forecasts product life cycle marketplace considerations assessments regarding factors adversely change may sell devices higher prices record writedown inventory obsolete slowmoving items prior point sale property plant equipment property plant equipment ppe including improvements extend useful lives recognized cost depreciation ppe generally calculated using straightline method based estimated economic useful lives 3 30 years buildings improvements network equipment site costs related software 3 12 years nonnetwork internal use software office equipment leasehold improvements depreciated shorter index consolidated financial statements sprint corporation notes consolidated financial statements lease term estimated useful life respective assets leased devices depreciated using straightline method estimated residual value generally term lease calculate depreciation certain network assets using group life method accordingly ordinary asset retirements disposals assets charged accumulated depreciation gain loss recognized gains losses associated asset retirements disposals recognized net consolidated statements operations depreciation rates assets revised periodically account changes related managements strategic objectives technological changes estimated residual values obsolescence changes estimates result adjustment depreciation prospectively estimated useful lives nonleased assets remaining period benefit devices leased customers repair maintenance costs research development costs expensed incurred capitalize costs network nonnetwork software developed obtained internal use application development stage costs included ppe software placed service depreciated estimated useful lives three five years costs incurred preliminary project postimplementation stage well maintenance training costs expensed incurred longlived asset impairment sprint evaluates longlived assets including intangible assets subject amortization impairment whenever events changes circumstances indicate carrying amount asset group may recoverable asset groups determined lowest level identifiable cash flows largely independent cash flows groups assets liabilities carrying amount longlived asset group recoverable exceeds fair value impairment loss recognized equal excess asset group’s carrying value estimated fair value see note 6 property plant equipment additional information longlived asset impairments certain assets yet deployed business including network equipment cell site development costs software development periodically assessed determine recoverability network equipment cell site development costs expensed whenever events changes circumstances cause company conclude assets longer needed meet managements strategic network plans deployed software development costs expensed longer probable software project deployed network equipment removed network also periodically assessed determine recoverability experience significant operational challenges including retaining attracting subscribers future cash flows company may sufficient recover carrying value wireless asset group could record asset impairments material sprints consolidated results operations financial condition indefinitelived intangible assets indefinitelived intangible assets primarily consist goodwill certain trademarks fcc licenses goodwill represents excess consideration paid estimated fair value net tangible identifiable intangible assets acquired business combinations determining whether intangible asset goodwill indefinitelived consider expected use assets regulatory economic environment within used effects obsolescence use assess indefinitelived intangible assets including goodwill impairment least annually necessary frequently whenever events changes circumstances indicate asset may impaired analyses include determination fair value require considerable judgment highly sensitive changes underlying assumptions consequently assurance estimates assumptions made purposes estimating fair values indefinitelived assets including goodwill prove accurate prediction future sustained declines company’s operating results number wireless subscribers forecasted future cash flows growth rates assumptions well significant sustained declines company’s stock price related market capitalization could impact underlying key assumptions estimated fair values potentially leading future material impairment goodwill indefinitelived intangible assets see note 7 intangible assets additional information indefinitelived intangible asset impairments index consolidated financial statements sprint corporation notes consolidated financial statements derivatives hedging company uses derivative instruments hedge exposure interest rate risks arising operating financing activities accordance risk management policies company hold issue derivative instruments trading speculative purposes derivatives recognized consolidated balance sheets fair values company becomes party derivative instrument intends apply hedge accounting formally documents hedge relationship risk management objective undertaking hedge includes designating instrument financial reporting purposes fair value hedge cash flow hedge net investment hedge accounting changes fair value derivative instrument depends whether company designated qualifying hedging relationship type hedging relationship march 31 2017 company held applied hedge accounting derivatives designated cash flow hedges changes fair value derivative designated hedging relationship recognized consolidated statements operations along ineffective portions changes fair value derivatives designated hedging relationships effective portion changes fair value derivative designated cash flow hedge recorded comprehensive income loss consolidated statements comprehensive loss reclassified earnings period periods hedged item affects earnings derivative instruments designated hedges company assesses hedge’s inception ongoing basis whether derivatives used hedging transactions highly effective offsetting changes fair values cash flows hedged items highly effective means cumulative changes fair value derivative 80 125 cumulative changes fair value hedged item addition company determines derivative highly effective hedge accounting discontinued probable hedged forecasted transaction occur company discontinues hedge accounting affected portion forecasted transaction reclassifies gains losses accumulated comprehensive loss earnings consolidated statements operations derivative hedge relationship terminated hedged item sold extinguished terminated hedge accounting discontinued prospectively benefit plans provide defined benefit pension plan postretirement benefits certain employees sponsor defined contribution plan employees june 2014 company’s board directors approved plan amendment sprint retirement pension plan offer certain terminated participants begun receive plan benefits opportunity voluntarily elect receive benefits immediate lump sum distribution upon expiration election period completion cash payments november 28 2014 lump sum distribution totaling approximately 560 million created settlement event resulted 59 million charge reflected net consolidated statements operations reduction projected benefit obligation approximately 300 million impacted settlement well change mortality tables change discount rate used estimate projected benefit obligation march 31 2017 2016 fair value pension plan assets certain postretirement benefit plan assets aggregate 14 billion 13 billion respectively fair value projected benefit obligations aggregate 22 billion period result plans underfunded approximately 800 million 900 million march 31 2017 2016 respectively recorded net liability consolidated balance sheets estimated contributions totaling approximately 50 million expected paid fiscal year 2017 offset pension liability recorded equity component accumulated comprehensive loss net tax including 35 million 29 million 393 million years ended march 31 2017 2016 2015 respectively amortized selling general administrative consolidated statements operations change net liability plan year ended march 31 2017 affected higher expected actual rate return plan assets experienced year change discount rate used estimate projected benefit obligation year ended march 31 2017 change net liability plan year ended march 31 2016 affected change discount rate used estimate projected benefit obligation increasing 42 index consolidated financial statements sprint corporation notes consolidated financial statements year ended march 31 2015 43 year ended march 31 2016 combined 9 million prior service credit resulting amendment one postretirement benefit plans 2015 change net liability plan year ended march 31 2015 affected impact settlement event projected benefit obligation combined change discount rate used estimate projected benefit obligation decreasing 49 threemonth transition period ended march 31 2014 42 year ended march 31 2015 intend make future cash contributions plan amount necessary meet minimum funding requirements according applicable benefit plan regulations december 31 2005 plan amended freeze benefit plan accruals participants objective investment portfolio pension plan achieve longterm nominal rate return net fees exceeds plans longterm expected rate return investments funding purposes 775 years ended march 31 2017 2016 meet objective investment strategy year ended march 31 2017 governed asset allocation policy whereby targeted allocation percentage assigned asset class follows 38 us equities 16 international equities 28 fixed income investments 9 real estate investments 9 investments including hedge funds actual allocations allowed deviate target allocation percentages within range asset class defined investment policy longterm expected rate return investments funding purposes 75 year ended march 31 2018 investments plan measured fair value recurring basis determined using quoted market prices estimated fair values march 31 2017 34 investment portfolio valued quoted prices active markets identical assets 48 valued using quoted prices similar assets active inactive markets observable inputs 18 valued using unobservable inputs supported little market activity majority used net asset value per share equivalent practical expedient measure fair value defined contribution plan participants may contribute portion eligible pay plan payroll withholdings year ended march 31 2017 threemonth period ended march 31 2016 company matched 50 participants pretax roth contribution aggregate first 4 eligible compensation ninemonth period ended december 31 2015 year ended march 31 2015 company matched 100 participants pretax roth contribution aggregate first 3 eligible compensation 50 participants pretax roth contribution aggregate next 2 eligible compensation maximum matching contribution 4 fixed matching contributions totaled approximately 28 million 54 million 71 million years ended march 31 2017 2016 2015 respectively revenue recognition operating revenues primarily consist wireless service revenues generated device accessory sales revenues leasing device revenues wholesale operators thirdparty affiliates well long distance voice data internet revenues service revenues consist fixed monthly recurring charges variable usage charges miscellaneous fees directory assistance roaming equipment protection late payment early termination charges interest certain regulatory related fees net service credits adjustments generally recognize service revenues services rendered assuming revenue recognition criteria met recognize revenue access charges services charged fixed amounts ratably service period net credits adjustments service discounts billing disputes fraud unauthorized usage result cutoff times multiple billing cycles month required estimate amount subscriber revenues earned billed end billing cycle end reporting period estimates based primarily rate plans effect historical usage billing patterns regulatory fees costs recorded gross largest component regulatory fees universal service fund represented 2 net operating revenues periods presented consolidated statements operations recognize equipment revenue corresponding costs equipment title risk loss passes indirect dealer enduse subscriber assuming revenue recognition criteria met arrangements involving multiple deliverables equipment service revenue allocated deliverables based relative selling prices equipment revenue limited amount noncontingent consideration received device sold subscriber equipment revenue also reduced estimated amount imputed interest associated installment receivables subscribers elect finance purchase device 24month period subsidize index consolidated financial statements sprint corporation notes consolidated financial statements cost device incentive retain acquire subscribers cost incentives recorded reduction revenue upon activation device service contract multipleelement arrangement includes option purchase monthly basis annual tradein right amount total arrangement consideration reduced estimated fair value tradein right guarantee remaining proceeds allocated amongst deliverables arrangement qualified subscribers lease device contractual period time end lease term subscribers option turn device continue leasing device purchase device accounting device leases involves specific determinations applicable lease accounting standards involve complex prescriptive provisions impact timing amount revenue recognized leased devices critical elements considered respect lease accounting economic life device fair value device including residual value lease devices qualifying subscribers also purchase service plan date substantially device leases classified operating leases revenues arrangements allocated amongst deliverables multipleelement arrangement considering relative fair values lease nonlease elements amount allocable operating lease element included within equipment revenue consolidated results operations recognized ratably lease term typically two years less accounting estimates related recognition revenue require us make assumptions numerous factors future billing adjustments disputes subscribers unauthorized usage future returns mailin rebates device sales fair value tradein right total arrangement consideration dealer commissions cash consideration given us dealer enduse subscriber presumed reduction equipment revenue unless receive identifiable benefit exchange consideration fair value benefit reasonably estimated case consideration generally recorded selling expense purchase inventory compensate dealers using specific compensation programs related sale devices subscriber service contracts commission earned dealer solely due selling activity relating wireless service cost recorded selling expense commissions generally earned upon sale device service enduse subscriber incentive payments dealers sales associated devices service contracts classified contrarevenue extent incentive payment reimbursement loss device selling expense amount associated selling effort incentive payments certain indirect dealers purchase devices sources original equipment manufacturer oem recognized selling expense device activated sprint service plan sprint recognize equipment revenue cost products transactions severance exit costs liabilities severance exit costs recognized based upon nature cost incurred involuntary separation plans completed within guidelines written involuntary separation plan liability recognized probable reasonably estimable voluntary separation plans vsp liability recognized vsp irrevocably accepted employee onetime termination benefits additional severance pay benefit payouts exit costs lease termination costs liability measured recognized initially fair value period liability incurred subsequent changes liability recognized adjustments period change severance exit costs associated business combinations recorded results operations incurred compensation plans march 31 2017 sprint sponsored three incentive plans 2015 omnibus incentive plan 2015 plan 2007 omnibus incentive plan 2007 plan 1997 longterm incentive program 1997 programtogether compensation plans sprint also sponsors employee stock purchase plan espp 2015 plan may grant share nonshare based awards including stock options stock appreciation rights restricted stock restricted stock units performance shares performance units equitybased cash awards employees outside directors eligible individuals defined plan march 31 2017 number shares available reserved future index consolidated financial statements sprint corporation notes consolidated financial statements grants 2015 plan espp totaled approximately 211 million common shares compensation committee board directors one executive officers compensation committee authorize provided 2015 plan determine terms share nonshare based award new grants made 2007 plan 1997 program use new shares satisfy sharebased awards treasury shares available fair value option award estimated grant date using blackscholes option valuation model based several assumptions including riskfree interest rate volatility expected dividend yield expected term year ended march 31 2017 company granted approximately 12 million stock options weighted average grant date fair value 223 per share based upon assumptions risk free interest rate 123 227 expected volatility 536 652 expected dividend yield 0 expected term 55 years 65 years general options granted exercise price equal market value underlying shares grant date vest annual basis three years contractual term ten years march 31 2017 37 million options outstanding 17 million options exercisable generally determine fair value restricted stock unit award based closing price companys common stock date grant restricted stock units generally performance service requirements service requirements vesting periods ranging one three years ended march 31 2017 2016 also granted performancebased restricted stock units executive nonexecutive employees earned shares based upon achievement certain market conditions equal specified volumeweighted average prices companys common stock regular trading new york stock exchange 150day calendar period ending may 31 2019 performance period earned shares generally vest 50 four years grant date 50 five years grant date continuous service required vesting date march 31 2017 specified market criteria achieved threshold price target qualifying 100 payout however earned shares remain subject vesting requirements fair value marketbased restricted stock units estimated date grant using monte carlo valuation methodology incorporates valuation possibility market condition may satisfied year ended march 31 2017 assumptions used monte carlo valuation model consistent use value stock options include risk free interest rate 120 192 expected volatility 536 708 expected dividend yield 0 number restricted stock units ultimately vest increase depending upon future performance companys common stock achievement higher threshold price target performance period maximum payout 120 compensation cost related sharebased awards market conditions recognized regardless level threshold price target achievement employees directors granted restricted stock units required pay shares generally must remain employed us continue serve member board directors restrictions lapse typically three years employees one year directors certain restricted stock units outstanding march 31 2017 entitled dividend equivalents paid cash dividends declared paid common shares performancebased restricted stock units entitled dividend equivalent payments applicable performance service criteria met year ended march 31 2017 company granted approximately 55 million service performancebased restricted stock units including market conditions weighted average grant date fair value 564 per share march 31 2017 approximately 77 million restricted stock unit awards outstanding compensation costs cost employee services received exchange sharebased awards classified equity measured using estimated fair value award date grant cost recognized period award recipient required provide service exchange award awards instruments classified liabilities measured estimated fair value reporting date settlement pretax share nonshare based compensation charges incentive plans included net loss 93 million 75 million 86 million years ended march 31 2017 2016 2015 respectively net income tax benefit recognized consolidated financial statements sharebased compensation awards 33 million 20 million 34 million years ended march 31 2017 2016 2015 respectively march 31 2017 251 million total unrecognized compensation cost related nonvested incentive awards expected recognized weighted average period 335 years index consolidated financial statements sprint corporation notes consolidated financial statements advertising costs recognize advertising expense incurred selling general administrative expense advertising expenses totaled 11 billion 13 billion 15 billion years ended march 31 2017 2016 2015 respectively variable interest entities vie vies entities lack sufficient equity permit entity finance activities without additional subordinated financial support parties equity investors ability make significant decisions relating entitys operations voting rights obligation absorb expected losses right receive residual returns entity common type vie special purposes entity spe spes commonly used securitization transactions order isolate certain assets distribute cash flows assets investors spes generally structured insulate investors claims spes assets creditors entities including creditors seller assets required consolidate assets liabilities vies deemed primary beneficiary primary beneficiary party power make decisions significantly affect economic performance vie obligation absorb losses right receive benefits could potentially significant vie new accounting pronouncements may 2014 fasb issued new authoritative literature revenue contracts customers subsequently modified several areas standard order provide additional clarity improvements issuance part joint effort fasb international accounting standards board iasb enhance financial reporting creating common revenue recognition guidance us gaap international financial reporting standards thereby improving consistency requirements comparability practices usefulness disclosures new standard supersede much existing authoritative literature revenue recognition july 2015 fasb deferred effective date standard result standard related amendments effective company fiscal year beginning april 1 2018 including interim periods within fiscal year early application permitted original effective date april 1 2017 two adoption methods available implementation standard update related recognition revenue contracts customers one method guidance applied retrospectively contracts reporting period presented subject allowable practical expedients method guidance applied current period presented recognizing cumulative effect change adjustment beginning balance retained earnings also requires additional disclosures comparing results previous guidance company currently evaluating guidance including implementation approach applied ultimate impact revenue resulting application new standard subject assessments dependent many variables including limited terms mix contractual arrangements customers upon adoption expect allocation revenue equipment service wireless fixedterm service plans result revenue allocated equipment recognized earlier compared current gaap expect timing recognition sales commission expenses also impacted substantial portion costs currently expensed capitalized amortized consistent transfer related good service continue evaluate available transition methods considerations include limited comparability financial statements comparability within industry application new standard contractual arrangements established crossfunctional team implement standard update related recognition revenue contracts customers identified process implementing changes systems processes internal controls meet updated standard’s reporting disclosure requirements expect guidance material impact consolidated financial statements july 2015 fasb issued authoritative guidance regarding inventory simplifies subsequent measurement certain inventories replacing today’s lower cost market test lower cost net realizable value test net realizable value estimated selling prices ordinary course business less reasonably predictable index consolidated financial statements sprint corporation notes consolidated financial statements costs completion disposal transportation standard effective company’s fiscal year beginning april 1 2017 including interim periods within fiscal year company expect adoption guidance material impact consolidated financial statements january 2016 fasb issued authoritative guidance regarding financial instruments amended guidance classification measurement financial instruments new guidance entities required measure equity investments consolidated accounted equity method fair value changes fair value recorded net income unless entity elected new practicability exception financial liabilities measured using fair value option entities required separately present comprehensive income portion changes fair value attributable instrumentspecific credit risk additionally guidance amends certain disclosure requirements associated fair value financial instruments standard effective company’s fiscal year beginning april 1 2018 including interim reporting periods within fiscal year company expect adoption guidance material impact consolidated financial statements february 2016 fasb issued authoritative guidance regarding leases new standard supersede much existing authoritative literature leases guidance requires lessees among things recognize rightofuse assets liabilities balance sheet leases lease terms longer twelve months standard effective company fiscal year beginning april 1 2019 including interim periods within fiscal year early application permitted entities required use modified retrospective application leases exist entered beginning earliest comparative period financial statements option elect certain transition reliefs company currently evaluating guidance still assessing overall impact however expect material impact consolidated financial statements june 2016 fasb issued authoritative guidance regarding financial instruments credit losses requires entities use current expected credit loss impairment model based expected losses rather incurred losses model entity would recognize impairment allowance equal current estimate contractual cash flows entity expect collect financial assets measured amortized cost entitys estimate would consider relevant information past events current conditions reasonable supportable forecasts result recognition lifetime expected credit losses standard effective companys fiscal year beginning april 1 2020 including interim reporting periods within fiscal year although early adoption permitted company expect adoption guidance material impact consolidated financial statements october 2016 fasb issued authoritative guidance regarding income taxes amended guidance income tax consequences intraentity transfers assets inventory new guidance entities required recognize income tax consequences intraentity transfer asset inventory transfer occurs thereby eliminating recognition exception within current guidance standard effective company’s fiscal year beginning april 1 2018 including interim reporting periods within fiscal year company currently evaluating guidance assessing impact consolidated financial statements november 2016 fasb issued authoritative guidance regarding statement cash flows restricted cash requiring amounts generally described restricted cash restricted cash equivalents included cash equivalents reconciling beginningofperiod endofperiod total amounts shown statement cash flows standard effective company’s fiscal year beginning april 1 2018 including interim reporting periods within fiscal year early adoption permitted company expect adoption guidance material impact consolidated financial statements january 2017 fasb issued authoritative guidance amending business combinations clarifying definition business clarify definition business objective providing robust framework assist management evaluating whether transactions accounted acquisitions disposals assets businesses standard effective company fiscal year beginning april 1 2018 including interim periods within fiscal year early application permitted amendments applied prospectively business combinations occur effective date january 2017 fasb issued authoritative guidance regarding intangibles goodwill simplifying test goodwill impairment simplifies goodwill impairment test eliminating requirement calculate implied fair value goodwill measure goodwill impairment charge step 2 test rather record index consolidated financial statements sprint corporation notes consolidated financial statements impairment charge based excess carrying value fair value standard effective company’s annual goodwill impairment test fiscal year beginning april 1 2020 early adoption permitted company expect adoption guidance material impact consolidated financial statements note 3 funding sources device leasing installment billing programs require greater use operating cash flows earlier part device contracts subscribers generally pay less upfront traditional subsidy program accounts receivable facility handset saleleaseback transactions described designed large part mitigate significant use cash purchasing devices oems fulfill installment billing leasing programs entered network equipment saleleaseback transaction april 2016 sell leaseback certain network equipment unrelated bankruptcyremote spes provided 22 billion cash proceeds october 2016 entered spectrum financing transaction whereby portion spectrum holdings used collateral issue 35 billion senior secured notes february 2017 entered new credit agreement 60 billion consisting 40 billion sevenyear secured term loan matures february 2024 20 billion secured revolving bank credit facility expires february 2021 accounts receivable facility transaction overview accounts receivable facility receivables facility provides us opportunity sell certain wireless service receivables installment receivables future amounts due customers lease certain devices us unaffiliated third parties purchasers maximum funding limit receivables facility 43 billion right decide much cash receive sale maximum amount cash available us varies based number factors currently represents approximately 50 total amount eligible receivables sold purchasers march 31 2017 total amount available drawn 826 million receivables facility amended november 2016 among things reallocate purchasers commitments wireless service installment future lease receivables 33 39 28 respectively amendment response changing trends financing methods selected customers february 2017 receivables facility amended extend maturity date november 2018 additionally sprint gained effective control receivables transferred purchasers obtaining right certain circumstances repurchase subsequent february 2017 amendment proceeds received purchasers exchange transfer wireless service installment receivables recorded borrowings cash inflows outflows receivables facility reported financing activities consolidated statements cash flows result amendment noncash derecognition deferred purchase price receivable dpp asset totaling 15 billion along corresponding increases accounts notes receivable net 26 billion assets 563 million longterm debt financing capital lease obligations 17 billion year ended march 31 2017 subsequent february 2017 amendment elected receive 100 million cash also remitted 161 million funds purchasers amount cash proceeds received us facility exceeded maximum funding limit reported financing activities consolidated statements cash flows prior february 2017 amendment wireless service installment receivables sold purchasers treated sale financial assets derecognized receivables well related allowances recognized net proceeds received cash provided operating activities consolidated statements cash flows total proceeds sale receivables comprised combination cash dpp realized us upon either ultimate collection underlying receivables sold purchasers upon sprints election receive additional advances cash purchasers subject total availability receivables facility fees associated sales recognized selling general administrative consolidated statements operations date february 2017 amendment subsequent february 2017 amendment sale wireless service installment receivables reported financings consistent historical treatment sale future lease receivables associated fees recognized interest expense consolidated statements operations index consolidated financial statements sprint corporation notes consolidated financial statements transaction structure sprint contributes certain wireless service installment future lease receivables well associated leased devices sprints whollyowned consolidated bankruptcyremote spes sprints direction spes sold continue sell wireless service installment future lease receivables purchasers bank agent behalf purchasers leased devices remain spes sales initiated continue depreciated estimated useful life march 31 2017 wireless service installment receivables contributed spes included accounts notes receivable net consolidated balance sheets 29 billion longterm portion installment receivables included assets consolidated balance sheets 569 million march 31 2017 net book value devices contributed spes approximately 31 billion spe separate legal entity separate creditors entitled prior upon liquidation spe satisfied spe’s assets prior assets spe becoming available sprint accordingly assets spe available pay creditors sprint affiliates spe although collections receivables excess amounts required repay advances yield fees purchasers creditors spes may remitted sprint term receivables facility sales eligible receivables spes generally occur daily settled monthly basis sprint pays fee drawn undrawn portions receivables facility subsidiary sprint services receivables exchange monthly servicing fee sprint guarantees performance servicing obligations receivables facility dpp prior february 2017 amendment dpp classified trading security within prepaid expenses current assets consolidated balance sheets recorded estimated fair value subsequent february 2017 amendment receivables facility accounted financing therefore dpp longer recorded separate asset dpp related wireless service installment receivables 12 billion march 31 2016 fair value dpp estimated using discounted cash flow model relies principally unobservable inputs nature credit class sold receivables subscriber payment history installment receivables sold estimated timing upgrades upgrade payment amounts upgrade options changes fair value dpp material impact consolidated statements operations years ended march 31 2017 2016 year ended march 31 2017 prior february 2017 amendment remitted 270 million funds purchasers amount cash proceeds received us facility exceeded maximum funding limit increased total amount dpp due sprint also elected receive 625 million cash decreased total amount dpp due sprint addition year ended march 31 2017 prior february 2017 amendment sales new receivables exceeded cash collections previously sold receivables dpp increased 644 million variable interest entity sprint determined certain purchasers multiseller assetbacked commercial paper conduits considered variable interest entities lack sufficient equity finance activities sprints interest receivables purchased conduits considered variable interest assets represent less 50 total activity conduits handset saleleasebacks december 2015 may 2016 sold certain iphone® devices leased customers mobile leasing solutions llc mls company formed group equity investors including softbank group corp softbank subsequently leased devices back agreements sprint generally maintains customer leases continues collect record lease revenue customer remits monthly rental payments mls leaseback periods agreements sprint contributed devices associated customer leases whollyowned consolidated bankruptcyremote special purpose entities sprint spe lessees spe lessees sold devices index consolidated financial statements sprint corporation notes consolidated financial statements transferred certain specified customer lease end rights obligations right receive proceeds customers elect purchase device end customer lease term mls exchange combination cash dpp settlement dpp occurs near end agreement reduced extent mls experiences loss device either returned sold amount less expected residual value device extent devices dpp balance event mls sells devices returned customers price greater expected device residual value sprint potential share excess proceeds spe lessees retain rights underlying customer leases right receive rental payments device leaseback period aforementioned certain specified customer lease end rights spe lessee separate legal entity separate creditors entitled prior upon liquidation spe lessee satisfied spe lessee’s assets prior assets spe lessee becoming available sprint accordingly assets spe lessee available pay creditors sprint affiliates spe lessees obligated pay full monthly rental payments device lease mls regardless whether customers make lease payments devices leased whether customer lease canceled sprint guaranteed mls performance agreements undertakings spe lessees transaction documents handset saleleaseback tranche 1 tranche 1 december 2015 sprint transferred devices net book value approximately 13 billion mls exchange proceeds totaling 11 billion dpp 126 million recorded sale removed device balance sheet classified leasebacks operating leases difference fair value net book value devices sold recognized loss disposal property plant equipment amount 65 million included net consolidated statements operations year ended march 31 2016 cash proceeds received transaction reflected cash provided investing activities consolidated statements cash flows payments made mls leaseback reflected cost products consolidated statements operations rent expense related mls totaled 494 million 277 million years ended march 31 2017 2016 respectively reflected within cash flows operations december 2016 sprint terminated tranche 1 repurchasing devices related customer lease end rights obligations mls consideration 375 million net cash payments dpp 126 million result transaction sprint recorded 477 million property plant equipment 16 million assets released certain liabilities additionally leaseback canceled future rental payments owed mls related tranche 1 impact consolidated statements operations result termination immaterial handset saleleaseback tranche 2 tranche 2 may 2016 sprint transferred devices net book value approximately 13 billion mls exchange cash proceeds totaling 11 billion dpp 186 million unlike tranche 1 tranche 2 accounted financing accordingly devices remain property plant equipment net consolidated balance sheets continue depreciate assets estimated residual values respective customer lease terms march 31 2017 net book value devices transferred mls approximately 575 million proceeds received reflected cash provided financing activities consolidated statements cash flows payments made mls reflected principal repayments interest expense elected account financing obligation fair value accordingly changes fair value financing obligation recognized expense income net consolidated statements operations course arrangement tranche 2 primarily includes devices iphone forever program whereas devices specifically excluded tranche 1 iphone forever program provides leasing customers ability upgrade devices enter new lease agreement subject certain conditions upon apples release next generation device upon customer exercising iphone forever upgrade right sprint option terminate existing leaseback immediately remitting unpaid device leaseback payments returning device mls alternatively sprint option transfer title new device mls exchange title original device exchange option sprint elects exchange option required continue pay existing device leaseback rental related original device among requirements address introduction upgrade feature saleleaseback structure among factors numerous contractual terms tranche 1 modified shifted certain risks ownership devices away index consolidated financial statements sprint corporation notes consolidated financial statements mls sprint resulted tranche 2 accounted financing instance device leaseback periods generally longer tranche 2 compared tranche 1 resulting amounts committed paid company represent initial proceeds received mls plus interest mitigates mlss exposure certain risks nonreturned damaged devices well declines device residual values network equipment saleleaseback april 2016 sprint sold leased back certain network equipment unrelated bankruptcyremote special purpose entities collectively network leaseco network equipment used collateral raise approximately 22 billion borrowings external investors including softbank sprints payments network leaseco leaseback period used network leaseco service debt network leaseco variable interest entity sprint primary beneficiary result sprint required consolidate network leaseco consolidated financial statements include network leasecos debt related financing cash inflows network assets included transaction net book value approximately 30 billion consisted primarily equipment located cell towers remain sprints consolidated financial statements continue depreciated respective estimated useful lives march 31 2017 network assets net book value approximately 24 billion proceeds received reflected cash provided financing activities consolidated statements cash flows payments made network leaseco reflected principal repayments interest expense respective terms sprint option purchase equipment end leaseback term nominal amount intercompany transactions network leaseco sprint eliminated consolidated financial statements principal interest payments borrowings external investors repaid staggered unequal payments january 2018 first principal payment 300 million made march 2017 remaining 19 billion principal payments due fiscal year 2017 spectrum financing october 2016 sprint transferred certain directly held thirdparty leased spectrum licenses collectively spectrum portfolio whollyowned bankruptcyremote special purpose entities collectively spectrum financing spes spectrum portfolio represents approximately 14 sprints total spectrum holdings mhzpops basis used collateral raise initial 35 billion senior secured notes 336 per annum external investors 70 billion program sprint utilize financing structure potentially raise additional 35 billion subject certain conditions notes repaid fiveyear term interestonly payments first four quarters amortizing quarterly principal payments thereafter commencing december 2017 september 2021 sprint communications inc simultaneously entered longterm lease spectrum financing spes ongoing use spectrum portfolio sprint communications inc required make monthly lease payments spectrum financing spes market rate lease payments sufficient service senior secured notes spectrum financing spes whollyowned sprint subsidiaries entities consolidated intercompany activity eliminated note 4 installment receivables certain subscribers option pay devices installments generally 24month period beginning october 2015 sprint sold derecognized eligible installment receivables accounted sales result amendment receivable facility february 2017 sprint gained effective control sold receivables subsequent sales treated financings accordingly installment receivables recognized consolidated balance sheets see note 3 funding sources shortterm installment receivables recorded accounts notes receivable net longterm installment receivables recorded assets consolidated balance sheets index consolidated financial statements sprint corporation notes consolidated financial statements following table summarizes installment receivables balance aging installment receivables gross basis credit category follows activity deferred interest allowance credit losses installment receivables follows total bad debt expense years ended march 31 2017 2016 2015 includes amounts shown table well bad debt expense sold installment receivables 322 million 147 million 398 million respectively note 5 financial instruments company carries certain assets liabilities fair value fair value defined exit price representing amount would received sell asset paid transfer liability orderly transaction market participants measurement date threetier hierarchy inputs used measuring fair value prioritizes inputs based observability measurement date follows quoted prices active markets identical assets liabilities observable inputs quoted prices active markets identical assets liabilities unobservable inputs little market data require company develop assumptions market participants would use pricing asset liability carrying amount cash equivalents accounts notes receivable accounts payable approximates fair value shortterm investments recorded amortized cost respective carrying amounts approximate fair value primarily using quoted prices active markets march 31 2017 shortterm investments totaled 54 billion consisted approximately 30 billion time deposits 24 billion commercial paper sprint hold short index consolidated financial statements sprint corporation notes consolidated financial statements term investments march 31 2016 fair value marketable equity securities totaling 46 million periods ended march 31 2017 2016 respectively measured recurring basis using quoted prices active markets except financing transaction mls current longterm debt financings carried amortized cost company elected measure financing obligation mls fair value means better reflect economic substance arrangement tranche 2 financing obligation amounted 385 million march 31 2017 reported current portion longterm debt financing capital lease obligations consolidated balance sheets eligible financial instrument elected fair value option fair value financing obligation determined outset arrangement using discounted cash flow model derived unobservable inputs customer churn rates customer upgrade probabilities likelihood sprint elect exchange option versus termination option upon customer upgrade gains losses resulting changes fair value financing obligation included “other expense income net” consolidated statements operations year ended march 31 2017 change fair value financing obligation resulted loss approximately 24 million year ended march 31 2017 payments made mls totaled 654 million addition tranche 2 financing obligation remaining debt estimated fair value determined based unobservable inputs primarily represents borrowings network equipment saleleaseback sales receivables facility carrying amounts associated borrowings approximates fair value estimated fair value majority current longterm debt excluding credit facilities sold wireless service installment billing future receivables borrowings network equipment saleleaseback tranche 2 transactions determined based quoted prices active markets using observable inputs derived principally corroborated observable market data following table presents carrying amounts estimated fair values current longterm debt note 6 property plant equipment property plant equipment consists primarily network equipment longlived assets used provide service subscribers noncash accruals included ppe totaled 962 million 468 million 15 billion years ended march 31 2017 2016 2015 respectively following table presents components ppe related accumulated depreciation index consolidated financial statements sprint corporation notes consolidated financial statements network equipment site costs related software includes switching equipment cell site towers site development costs radio frequency equipment network software digital fiber optic cable transport facilities transmissionrelated equipment buildings improvements principally consists owned general office facilities retail stores leasehold improvements nonnetwork internal use software office equipment leased devices primarily consists furniture information technology systems equipment vehicles leased devices construction progress depreciated placed service primarily includes materials transmission related equipment labor engineering site development costs interest costs relating construction development network september 2014 sprint introduced leasing program whereby qualified subscribers lease device contractual period time end lease term subscriber option turn device continue leasing device purchase device march 31 2017 2016 substantially device leases classified operating leases lease inception devices leased sprints direct channels reclassified inventory property plant equipment devices leased indirect channels sprint purchases device leased retailer lease inception devices depreciated using straightline method estimated residual value generally term lease following table presents leased devices related accumulated depreciation years ended march 31 2017 2016 noncash transfers leased devices 29 billion 32 billion respectively along corresponding decrease device accessory inventory addition year ended march 31 2017 repurchased mls tranche 1 devices totaling 477 million sold 13 billion year ended march 31 2016 see note 3 funding sources noncash accruals included leased devices totaled approximately 158 million 159 million 182 million march 31 2017 2016 2015 respectively devices purchased indirect dealers leased subscribers depreciation expense incurred leased devices years ended march 31 2017 2016 2015 31 billion 18 billion 206 million respectively march 31 2017 minimum estimated payments received leased devices follows millions year ended march 31 2017 recorded 509 million loss disposal property plant equipment net recoveries included net consolidated statements operations losses totaling 481 million resulted writeoff leased devices associated lease cancellations prior scheduled customer lease terms customers return devices us customers continue return devices may material losses future periods addition recorded 28 million losses related cell site construction costs longer recoverable result changes companys network plans year ended march 31 2016 recorded 487 million loss disposal property plant equipment net recoveries included net consolidated statements operations losses result 65 million net losses recognized upon sale devices mls handset saleleaseback tranche 1 transaction represented difference fair value net book value devices sold 256 million losses writeoff leased devices associated lease cancellations prior scheduled customer lease terms customers return devices us addition recorded 166 million losses due cell site construction costs network costs longer recoverable result changes companys network index consolidated financial statements sprint corporation notes consolidated financial statements plans year ended march 31 2015 losses disposal property plant equipment recorded consolidated statements operations impairments year ended march 31 2015 recorded impairment loss 233 million included impairments consolidated statements operations reduce carrying value wireline asset group includes wireline longlived assets estimated fair value 918 million note 7 intangible assets indefinitelived intangible assets indefinitelived intangible assets consists fcc licenses acquired primarily fcc auctions business combinations certain trademarks goodwill march 31 2017 held 800 mhz 19 ghz 25 ghz fcc licenses authorizing use radio frequency spectrum deploy wireless services long company acts within requirements constraints regulatory authorities renewal extension licenses reasonably certain minimal cost accordingly concluded fcc licenses indefinitelived intangible assets sprint boost mobile trademarks also identified indefinitelived intangible assets goodwill represents excess consideration paid estimated fair value net tangible identifiable intangible assets acquired business combinations following provides activity indefinitelived intangible assets within consolidated balance sheets 1 net additions within fcc licenses includes 85 million spectrum acquired shentel transaction see note 8 longterm debt financing capital lease obligations increase spectrum license exchanges described year ended march 31 2017 2 march 31 2017 accumulated impairment losses goodwill spectrum license exchanges second quarter fiscal year 2016 exchanged certain spectrum licenses carriers noncash transactions result recorded noncash gain 354 million represented difference fair value net book value spectrum transferred carriers gain presented net consolidated statements operations year ended march 31 2017 assessment impairment annual impairment testing date goodwill indefinitelived intangible assets january 1 year however test impairment annual tests event occurs circumstances change indicate asset may impaired case goodwill fair value reporting unit carrying amount record impairment years ended march 31 2017 2016 since softbank merger july 2013 actual index consolidated financial statements sprint corporation notes consolidated financial statements results expectations net postpaid handset subscriber additions lower forecasts used allocate purchase price assets acquired liabilities assumed year ended march 31 2015 determined recoverability carrying amount goodwill sprint trade name evaluated impairment determined carrying value sprint trade name exceeded estimated fair value 33 billion accordingly year ended march 31 2015 recorded impairment loss 19 billion included impairments consolidated statements operations determination fair value requires considerable judgment highly sensitive changes underlying assumptions consequently assurance estimates assumptions made purposes goodwill spectrum licenses sprint boost mobile trade names impairment tests prove accurate prediction future sustained declines company’s operating results number wireless subscribers future forecasted cash flows growth rates assumptions well significant sustained declines company’s stock price related market capitalization could impact underlying key assumptions estimated fair values potentially leading future material impairment goodwill indefinitelived intangible assets intangible assets subject amortization customer relationships amortized using sumofthemonths digits method definitelived intangible assets amortized using straightline method estimated useful lives respective assets reduce gross carrying value associated accumulated amortization specified intangible assets become fully amortized amortization expense related favorable spectrum tower leases recognized cost services consolidated statements operations index consolidated financial statements sprint corporation notes consolidated financial statements note 8 longterm debt financing capital lease obligations 1 notes clearwire communications llc also direct obligations clearwire finance inc guaranteed certain clearwire subsidiaries 2 629 million clearwire 825 exchangeable notes par call put december 1 2017 resulting balance classified current debt obligation march 31 2017 sprint corporation parent corporation 105 billion aggregate principal amount senior notes outstanding addition march 31 2017 outstanding principal amount senior notes issued sprint communications inc sprint capital corporation guaranteed notes issued sprint communications inc exchangeable notes issued clearwire communications llc secured term loan secured revolving bank credit facility issued sprint communications inc edc agreement secured equipment credit facilities installment payment obligations network equipment saleleaseback handset saleleaseback tranche 2 financing obligations collectively totaled 261 billion principal amount longterm debt issued 100 owned subsidiaries fully unconditionally guaranteed sprint corporation although certain financing agreements restrict ability sprint communications inc subsidiaries distribute cash sprint corporation ability subsidiaries distribute cash respective parents including sprint communications inc generally restricted march 31 2017 approximately 131 billion aggregate principal amount outstanding debt comprised certain notes financing capital lease obligations secured substantially assets company cash interest payments net amounts capitalized 44 million 51 million 56 million totaled 27 billion 24 billion 23 billion years ended march 31 2017 2016 2015 respectively weighted average index consolidated financial statements sprint corporation notes consolidated financial statements effective interest rate related notes credit facilities 64 years ended march 31 2017 2016 61 year ended march 31 2015 notes march 31 2017 outstanding notes consisted senior notes guaranteed notes exchangeable notes unsecured well senior secured notes associated spectrum financing transaction cash interest notes generally payable semiannually arrears exception spectrum financing senior secured notes payable quarterly march 31 2017 302 billion aggregate principal amount notes redeemable companys discretion thenapplicable redemption prices plus accrued interest march 31 2017 241 billion aggregate principal amount senior notes guaranteed notes provided holders right require us repurchase notes change control triggering event defined applicable indentures supplemental indentures occurs upon close clearwire corporation acquisition july 9 2013 clearwire communications llc 825 exchangeable notes due 2040 became exchangeable time holder’s option fixed amount cash equal 70621 1000 principal amount notes surrendered december 1 2017 exchangeable notes tendered holder’s option 100 par value plus accrued interest resulting entire balance classified current debt obligation october 2016 company repaid 300 million aggregate principal clearwire communications llc 1475 secured notes december 2016 company repaid 20 billion aggregate principal upon maturity outstanding sprint communications inc 6 senior notes march 2017 company repaid 10 billion aggregate principal upon maturity outstanding sprint communications inc 9125 senior notes october 2016 sprint transferred spectrum portfolio spectrum financing spes spectrum portfolio represents approximately 14 sprints total spectrum holdings mhzpops basis used collateral raise initial 35 billion senior secured notes 336 per annum external investors 70 billion program sprint utilize financing structure potentially raise additional 35 billion subject certain conditions notes repaid fiveyear term interestonly payments first four quarters amortizing quarterly principal payments thereafter commencing december 2017 september 2021 march 31 2017 approximately 438 million total principal outstanding classified current portion longterm debt financing capital lease obligations consolidated balance sheets total debt finance costs incurred capitalized connection issuance notes approximately 95 million credit facilities secured term loan revolving bank credit facility february 3 2017 entered new credit agreement 60 billion consisting 40 billion sevenyear secured term loan matures february 2024 20 billion secured revolving bank credit facility expires february 2021 march 31 2017 approximately 215 million letters credit outstanding credit facility including letter credit required report order see note 12 commitments contingencies result outstanding letters credit directly reduce availability borrowings company approximately 18 billion borrowing capacity available secured revolving bank credit facility march 31 2017 bank credit facility requires ratio leverage ratio total indebtedness trailing four quarters earnings interest taxes depreciation amortization nonrecurring items defined bank credit facility adjusted ebitda exceed 60 10 quarter ending december 31 2017 december 31 2017 leverage ratio declines scheduled basis ratio becomes fixed 35 10 fiscal quarter ended march 31 2020 fiscal quarter ending thereafter expiration facility term loan interest rate equal libor plus 250 basis points secured revolving bank credit facility interest rate equal libor plus spread varies depending leverage ratio secured revolving bank credit facility replaced 33 billion unsecured revolving bank credit facility due expire february 2018 consideration sevenyear secured term loan entered fiveyear fixedforfloating interest rate swap 20 billion notional amount designated cash flow hedge effective portion changes fair value recorded comprehensive income loss consolidated statements comprehensive loss index consolidated financial statements sprint corporation notes consolidated financial statements ineffective portion recorded current period earnings consolidated statements operations interest expense fair value interest rate swap approximately 2 million recorded liability consolidated balance sheets march 31 2017 accounts receivable facility march 31 2017 total amount borrowings 43 billion receivable facility 20 billion total amount available drawn 826 million prior february 2017 amendment wireless service installment receivables sold purchasers treated sale financial assets sprint derecognized receivables recognized net proceeds received cash provided operating activities consolidated statements cash flows subsequent february 2017 amendment sale wireless service installment receivables reported financings consistent historical treatment sale future lease receivables year ended march 31 2017 repaid 416 million purchasers drew 100 million edc agreement february 3 2017 amended edc agreement provide security covenant terms similar secured term loan revolving bank credit facility however terms edc agreement repayments outstanding amounts cannot redrawn march 2017 company repaid 250 million aggregate principal outstanding tranche 4 secured loan due december 15 2017 march 31 2017 total principal amount borrowings edc facility 300 million secured equipment credit facilities eksportkreditnamnden ekn year ended march 31 2017 made principal repayments totaling 254 million facility resulting total repayment principal amount march 31 2017 facility expired accordance terms finnvera plc finnvera secured equipment credit facility provides ability borrow 800 million finance networkrelated purchases nokia solutions networks us llc usa facility one tranche remaining available borrowing october 2017 borrowings contingent upon amount timing sprints networkrelated purchases year ended march 31 2017 made principal repayments totaling 56 million resulting total principal amount 140 million outstanding march 31 2017 ksure secured equipment credit facility provides ability borrow 750 million finance networkrelated purchases samsung telecommunications america llc facility divided three consecutive tranches varying size borrowings available may 2018 contingent upon amount networkrelated purchases made sprint year ended march 31 2017 made principal repayments totaling 65 million resulting total principal amount 259 million outstanding march 31 2017 delcredere ducroire dd secured equipment credit facility provides ability borrow 250 million finance network equipmentrelated purchases alcatellucent usa inc principal balance outstanding march 31 2017 32 million borrowings finnvera ksure dd secured equipment credit facilities secured liens respective equipment purchased pursuant facilitys credit agreement addition repayments outstanding amounts borrowed secured equipment credit facilities cannot redrawn facilities fully unconditionally guaranteed sprint communications inc sprint corporation secured equipment credit facilities certain key covenants similar secured term loan revolving bank credit facility index consolidated financial statements sprint corporation notes consolidated financial statements financing obligations network equipment saleleaseback april 2016 sprint sold leased back certain network equipment network leaseco network equipment acquired network leaseco consolidated us used collateral raise approximately 22 billion borrowings external investors including softbank principal interest payments borrowings external investors repaid staggered unequal payments january 2018 first principal payment 300 million made march 2017 remaining 19 billion principal payments due fiscal year 2017 see note 3 funding sources handset saleleaseback tranche 2 may 2016 sprint entered second transaction mls sell leaseback certain iphone® devices leased customers upon transfer devices net book value approximately 13 billion mls sprint received cash proceeds 11 billion unlike tranche 1 proceeds tranche 2 accounted financing see note 3 funding sources year ended march 31 2017 repaid 654 million mls reduced principal amount financing obligation 385 million march 31 2017 tower financing approximately 3000 cell sites sold subsequently leased back 2008 terms extend 2021 renewal options additional 20 years cell sites continue reported part property plant equipment net consolidated balance sheets due continued involvement property sold transaction accounted financing obligation march 31 2017 191 million capital lease obligations august 10 2015 shenandoah telecommunications company shentel entered definitive agreement acquire one wholesale partners ntelos holdings corp ntelos connection definitive agreement entered series agreements shentel among things acquire certain assets spectrum terminate existing wholesale arrangement ntelos amend existing affiliate agreement shentel primarily include subscribers formerly wholesale arrangement ntelos agreements also expanded area shentel provides wireless service sprint customers provided favorable economic terms april 2016 received regulatory approval transaction closed may 2016 total consideration transaction included 181 million net present value basis notes payable shentel sprint satisfy obligations notes payable expected term five six years remaining obligation 225 million march 31 2017 fcc licenses acquired shentel total value 85 million 96 million total purchase recorded “other net” consolidated statements operations contract termination quarter ended june 30 2016 related termination preexisting wholesale arrangement ntelos remainder capital lease obligations 315 million march 31 2017 primarily use wireless network equipment covenants certain indentures agreements also require compliance various covenants including covenants limit ability company subsidiaries sell substantially assets limit ability company subsidiaries incur indebtedness liens require maintain certain financial ratios defined terms indentures supplemental indentures financing arrangements march 31 2017 company compliance restrictive financial covenants associated borrowings default borrowings could trigger defaults certain debt obligations turn could result maturities accelerated secured revolving bank credit facility currently restricted paying cash dividends ratio total indebtedness adjusted ebitda defined applicable agreements exceeds 25 10 index consolidated financial statements sprint corporation notes consolidated financial statements future maturities longterm debt financing capital lease obligations aggregate amount maturities longterm debt financing capital lease obligations outstanding march 31 2017 follows millions note 9 severance exit costs severance exit costs consist lease exit costs primarily associated tower cell sites access exit costs related payments continue made backhaul access contracts longer receiving economic benefit severance costs associated reductions work force following provides activity severance exit costs liability included accounts payable accrued expenses current liabilities within consolidated balance sheets 1 year ended march 31 2017 recognized costs 17 million 14 million wireless 3 million wireline 2 year ended march 31 2017 recognized costs 20 million 19 million wireless 1 million wireline 3 year ended march 31 2017 recognized 2 million solely attributable wireline cost services 29 million 12 million wireless 17 million wireline severance exit costs 4 recognized costs 176 million wireless year ended march 31 2016 offset 20 million income wireless resulting revision estimate previously recorded reserve 5 year ended march 31 2016 recognized costs 216 million 191 million wireless 25 million wireline 6 year ended march 31 2016 recognized 2 million solely attributable wireline cost services 17 million solely attributable wireless severance exit costs continually refine network strategy evaluate potential network initiatives improve overall performance network additionally major cost cutting initiatives expected continue may include headcount reductions among actions reduce operating expenses improve operating cash flows result ongoing activities may incur future material charges associated lease access exit costs severance asset impairments accelerated depreciation among others index consolidated financial statements sprint corporation notes consolidated financial statements note 10 supplemental financial information 1 includes liabilities amounts 69 million 66 million march 31 2017 2016 respectively payments issued excess associated bank balances yet presented collection index consolidated financial statements sprint corporation notes consolidated financial statements note 11 income taxes sprint corporation parent corporation affiliated group corporations join filing us federal consolidated income tax return additionally file income tax returns state jurisdiction imposes income tax certain state jurisdictions sprint subsidiaries filed combined state tax returns certain softbank affiliates beginning year ended march 31 2016 state tax expense benefit determined utilizing separate return approach sprint subsidiaries file standalone basis also file income tax returns number foreign jurisdictions however foreign income tax activity immaterial cash paid received income tax purposes insignificant periods presented income tax expense consists following differences caused effective income tax rates differ 35 us federal statutory rate income taxes follows income tax expense allocated items follows 1 amounts recognized accumulated comprehensive loss index consolidated financial statements sprint corporation notes consolidated financial statements deferred income taxes recognized temporary differences carrying amounts assets liabilities financial statement purposes tax bases deferred tax assets also recorded operating loss capital loss tax credit carryforwards sources differences give rise deferred income tax assets liabilities march 31 2017 2016 along income tax effect follows realization deferred tax assets including net operating loss carryforwards dependent generation future taxable income sufficient realize tax deductions carryforwards credits however history annual losses reduces ability rely expectations future income evaluating ability realize deferred tax assets valuation allowances deferred tax assets recognized determined likely asset realized result company recognized income tax expense increase valuation allowance 615 million 939 million 911 million years ended march 31 2017 2016 2015 respectively expect record significant tax benefits future net operating losses circumstances justify recognition benefits believe likely remaining deferred income tax assets net valuation allowance realized based current income tax laws expectations future taxable income stemming reversal existing deferred tax liabilities uncertainties surrounding income tax law changes shifts operations state taxing jurisdictions future operating income levels may however affect ultimate realization deferred income tax assets income tax expense 435 million year ended march 31 2017 primarily attributable taxable temporary differences tax amortization fcc licenses tax expense 136 million pretax gains spectrum license exchanges increased deferred tax liability fcc license temporary differences addition increased state income tax valuation allowance 89 million result shift operations among whollyowned subsidiaries organizational restructuring occurred year income tax expense 141 million year ended march 31 2016 primarily attributable tax expense resulting taxable temporary differences tax amortization fcc licenses partially offset tax benefits index consolidated financial statements sprint corporation notes consolidated financial statements reversal state income tax valuation allowance deferred tax assets changes state income tax laws enacted year result organizational restructuring drove sustained increase profitability specific legal entities revised estimate regarding realizability involved entities deferred state tax assets recorded state tax benefit 90 million income tax benefit 574 million year ended march 31 2015 primarily attributable recognition tax benefit 19 billion sprint trade name impairment loss partially offset tax expense taxable temporary differences tax amortization fcc licenses period years ended march 31 2017 2016 2015 generated 204 million 343 million 398 million respectively foreign income included loss income taxes consolidated statements operations material unremitted earnings foreign subsidiaries march 31 2017 federal operating loss carryforwards 164 billion state operating loss carryforwards 175 billion foreign net operating loss carryforwards 805 million related loss carryforwards recorded federal tax benefits 57 billion net state tax benefits 863 million foreign tax benefits 265 million consideration valuation allowances approximately 620 million federal net operating loss carryforwards expire fiscal years 2017 2021 remaining 158 billion expire varying amounts fiscal years 2022 2034 state operating loss carryforwards expire varying amounts fiscal year 2035 foreign operating loss carryforwards 446 million expire remaining foreign operating loss carryforwards expire varying amounts fiscal years 2017 2035 also available 429 million federal state income tax credit carryforwards march 31 2017 included amount 74 million income tax credits expire prior fiscal year 2018 301 million expire varying amounts fiscal years 2018 2036 remaining 54 million expire unrecognized tax benefits established uncertain tax positions based upon estimates regarding potential future challenges positions largest amount greater fifty percent likely realized upon ultimate settlement estimates updated reporting date based facts circumstances information available interest related unrecognized tax benefits recognized interest expense penalties recognized additional income tax expense unrecognized tax benefits attributable uncertain tax positions 190 million 166 million march 31 2017 2016 respectively march 31 2017 unrecognized tax benefits included items would favorably affect income tax provision 175 million recognized without offsetting valuation allowance adjustment accrued liability income tax related interest penalties insignificant periods presented reconciliation beginning ending amount unrecognized tax benefits follows march 31 2017 limited scope federal income tax examination tax year ended march 31 2015 handled irs exam division issues handled irs appeals division involved multiple state income tax examinations related various years beginning 1996 various stages examination administrativejudicial review appellate process based current knowledge examinations administrativejudicial reviews appellate processes believe reasonably possible number uncertain tax positions may resolved next twelve months could result reduction 42 million unrecognized tax benefits federal state statutes limitations assessment tax liability generally lapse three four years respectively date tax returns filed however income tax attributes carried forward net index consolidated financial statements sprint corporation notes consolidated financial statements operating loss carryforwards may challenged adjusted taxing authorities time prior expiration statute limitations tax year utilized march 2016 fasb issued authoritative guidance compensation stock compensation improvements employee sharebased payment accounting part eliminates additional paidin capital pools requires excess tax benefits tax deficiencies recorded income statement awards vest settled company elected early adopt guidance effective april 1 2016 early adoption guidance material effect consolidated financial statements note 12 commitments contingencies litigation claims assessments march 2009 stockholder brought suit bennett v sprint nextel corp us district court district kansas alleging sprint communications three former officers violated section 10b exchange act rule 10b5 failing adequately disclose certain alleged operational difficulties subsequent sprintnextel merger purportedly issuing false misleading statements regarding writedown goodwill district court granted final approval settlement august 2015 material impact financial statements five stockholder derivative suits related 2009 stockholder suit filed sprint communications certain present andor former officers directors first murphy v forsee filed state court kansas april 8 2009 removed federal court stayed court pending resolution motion dismiss bennett case second randolph v forsee filed july 15 2010 state court kansas removed federal court remanded back state court third rosswilliams v bennett et al filed state court kansas february 1 2011 fourth price v forsee et al filed state court kansas april 15 2011 fifth hartleib v forsee et al filed federal court kansas july 14 2011 cases essentially stayed bennett case pending reached agreement principle settle matters agreeing governance provisions paying plaintiffs attorneys fees immaterial amount court approved settlement reduced plaintiffs attorneys fees attorneys fees issue appeal april 19 2012 new york attorney general filed complaint alleging sprint communications fraudulently failed collect pay 100 million new york sales taxes receipts sale wireless telephone services since july 2005 complaint also seeks recovery triple damages state false claims act well penalties interest sprint communications moved dismiss complaint june 14 2012 july 1 2013 court entered order denying motion dismiss large part although dismiss certain counts parts certain counts sprint communications appealed order intermediate appellate court affirmed order trial court october 20 2015 court appeals new york affirmed decision appellate court tax statute requires us collect remit disputed taxes petition certiorari us supreme court grounds federal preemption denied year ended march 31 2017 accrued approximately 200 million associated matter parties engaged discovery trial court continue defend matter vigorously expect resolution matter material adverse effect financial position results operations eight related stockholder derivative suits filed sprint communications certain current former officers directors suit alleges generally individual defendants breached fiduciary duties sprint communications stockholders allegedly permitting failing disclose actions alleged suit filed new york attorney general one suit filed louisiana municipal police employees retirement system dismissed federal court two suits filed state court johnson county kansas one suits dismissed premature five suits pending federal court kansas remaining kansas suits stayed pending resolution attorney generals suit expect resolution matters material adverse effect financial position results operations sprint communications also defendant complaint filed several stockholders clearwire corporation clearwire asserting claims breach fiduciary duty sprint communications related claims otherwise challenging clearwire acquisition acp master ltd et al v sprint nextel corp et al filed april 26 2013 chancery court delaware plaintiffs acp master ltd suit also filed suit requesting appraisal fair index consolidated financial statements sprint corporation notes consolidated financial statements value clearwire stock trial cases took place october november 2016 parties submitted posttrial briefing oral argument held april 25 2017 awaiting decision expect resolution matters material adverse effect financial position results operations sprint currently involved numerous court actions alleging sprint infringing various patents cases effectively seek monetary damages small number cases brought companies sell products seek injunctive relief well cases progressed various degrees small number may go trial otherwise resolved adverse resolution cases could require us pay significant damages cease certain activities cease selling relevant products services many circumstances would indemnified monetary losses incur respect actions suppliers service providers expect resolution cases material adverse effect financial position results operations october 2013 fcc enforcement bureau began issue notices apparent liability nals lifeline providers imposing fines intracarrier duplicate accounts identified government audit function audits also identified small percentage potentially duplicative intracarrier accounts related assurance wireless business nal yet issued respect sprint know one issued able reasonably estimate amount claim penalties might asserted however based information currently available claim asserted fcc sprint believe amount ultimately paid would material company’s results operations financial position various suits inquiries proceedings claims either asserted unasserted including purported class actions typical large business enterprise intellectual property matters possible pending us subsidiaries year ended march 31 2017 recorded 103 million charge associated state tax matter presented consolidated statements operations within net interpretation certain laws regulations including related various federal state matters sales use property taxes charges found mistaken could result payments us possible determine ultimate disposition proceedings whether resolved consistent beliefs expect outcome proceedings individually aggregate material adverse effect financial position results operations spectrum reconfiguration obligations 2004 fcc adopted report order included new rules regarding interference 800 mhz band comprehensive plan reconfigure 800 mhz band report order provides exchange portion 800 mhz fcc spectrum licenses requires us fund cost incurred public safety systems incumbent licensees reconfigure 800 mhz spectrum band also exchange received licenses 10 mhz nationwide spectrum 19 ghz band minimum cash obligation 28 billion report order however obligated pay full amount costs relating reconfiguration plan even costs exceed 28 billion required terms report order letter credit secured provide assurance funds available pay relocation costs incumbent users 800 mhz spectrum letter credit initially 25 billion reduced course proceeding 165 million march 31 2017 since inception program incurred payments approximately 35 billion directly attributable performance report order including approximately 45 million year ended march 31 2017 incurred substantially costs accounted additions fcc licenses remainder property plant equipment although costs incurred march 31 2017 exceeded 28 billion costs reviewed accepted eligible transition administrator completion 800 mhz band reconfiguration initially required june 26 2008 public safety reconfiguration nearly complete across country exception states washington arizona california texas new mexico fcc continues grant remaining 800 mhz public safety licensees additional time complete band reconfigurations turn delays access 800 mhz replacement channels areas band reconfiguration complete sprint received replacement spectrum 800 mhz band sprint deploying 3g cdma 4g lte spectrum combination spectrum 19 ghz 25 ghz bands index consolidated financial statements sprint corporation notes consolidated financial statements future minimum commitments march 31 2017 minimum estimated amounts due operating leases spectrum leases service credits purchase orders commitments follows operating leases lease various equipment office facilities retail outlets kiosks switching facilities cell sites operating leases noncancelable portion leases generally ranges monthly 15 years leases exceptions provide automatic renewal options escalations either fixed based consumer price index rent abatements along rent escalations included computation rent expense calculated straightline basis lease term lease term leases includes initial noncancelable term plus least one renewal period noncancelable term less ten years exercise related renewal option options reasonably assured cell site leases generally provide initial noncancelable term five twelve years 5 renewal options five years rental commitments operating leases including lease renewals reasonably assured consisted mainly leases cell switch sites real estate information technology network equipment office space total rental expense 31 billion 29 billion 26 billion years ended march 31 2017 2016 2015 respectively spectrum leases service credits certain spectrum leases provide minimum lease payments additional charges renewal options escalation clauses leased spectrum agreements generally terms 30 years expect renewal periods spectrum leases renewed us also commitments provide services certain lessors reimburse lessors certain capital equipment thirdparty service expenditures term lease accrue monthly obligation services equipment based total estimated available service credits divided term lease obligation reduced services provided actual invoices presented paid lessors period ended march 31 2017 satisfied 3 million related commitments maximum remaining commitment march 31 2017 83 million expected incurred term related lease agreements generally range 15 30 years purchase orders commitments party commitments includes among things service spectrum network equipment devices asset retirement obligations executory contracts connection conducting business amounts actually paid agreements likely higher due variable components agreements significant variable components determine ultimate obligation owed include items hours contracted subscribers factors addition party various arrangements conditional nature obligate us make payments upon occurrence certain events delivery functioning software product possible predict timing amounts may due conditional arrangements amounts included table index consolidated financial statements sprint corporation notes consolidated financial statements note 13 stockholders equity per share data certificate incorporation authorizes 10020000000 shares capital stock follows • 9000000000 shares common stock par value 001 per share • 1000000000 shares nonvoting common stock par value 001 per share • 20000000 shares preferred stock par value 00001 per share classes common stock voting common stock holders common stock entitled one vote per share matters submitted action stockholders approximately 40 billion shares common stock outstanding march 31 2017 treasury shares common stock repurchased us recorded cost treasury shares result reduction stockholders equity reissue treasury shares part stockholder approved stockbased compensation programs well upon conversion outstanding securities convertible common stock shares reissued determine cost using fifo method dividends declare dividends common shares periods presented consolidated financial statements currently restricted paying cash dividends terms secured revolving bank credit facility see note 8 longterm debt financing capital lease obligations accumulated comprehensive loss components accumulated comprehensive loss net tax follows per share data basic net loss per common share calculated dividing net loss weighted average number common shares outstanding period diluted net loss per common share adjusts basic net loss per common share computed using treasury stock method effects potentially dilutive common shares effect antidilutive outstanding options restricted stock units exclusive participating securities effect computation dilutive weighted average number shares outstanding effect would antidilutive approximately 114 million 73 million 56 million years ended march 31 2017 2016 2015 respectively addition 62 million total shares issuable warrants 55 million relate shares issuable warrant held softbank warrant issued softbank close merger softbank exercisable 525 per share option softbank whole part time prior july 10 2018 note 14 segments sprint operates two reportable segments wireless wireline • wireless primarily includes retail wholesale affiliate revenue wide array wireless voice data transmission services equipment revenue sale wireless devices handset tablets accessories us puerto rico us virgin islands index consolidated financial statements sprint corporation notes consolidated financial statements • wireline primarily includes revenue domestic international wireline voice data communication services provided communications companies targeted business subscribers addition wireless segment define segment earnings wireless wireline operating loss income segment expenses depreciation amortization severance exit costs goodwill impairments asset impairments items solely directly attributable segment representing items nonrecurring unusual nature expense income items excluded segment earnings managed corporate level transactions segments generally accounted based market rates believe approximate fair value company generally reestablishes rates beginning fiscal year past several years industrywide trend lower rates due increased competition wireline wireless communications companies well cable internet service providers segment financial information follows index consolidated financial statements sprint corporation notes consolidated financial statements 1 intersegment revenues consist primarily wireline services provided wireless segment resale use wireless subscribers 2 impairments year ended march 31 2015 consist 19 billion trade name impairment related wireless segment 233 million impairment related wireline longlived assets 3 net year ended march 31 2017 consists 66 million severance exit costs 140 million charge state tax matter combined legal reserves related pending legal suits proceedings 28 million loss disposal property plant equipment related cell site construction costs longer recoverable result changes network plans addition year ended march 31 2017 included 354 million noncash gain related spectrum license exchanges carriers 140 million contract termination costs primarily related termination preexisting wholesale arrangement ntelos result shentel transaction combined costs related termination relationship general wireless operations inc radio shack losses totaling 481 million related writeoff leased devices associated lease cancellations excluded net included within wireless segment earnings net year ended march 31 2016 consists 409 million severance exit costs combined 193 million legal reserves related various pending legal suits proceedings 166 million loss disposal property plant equipment related cell site construction costs network costs longer recoverable result changes companys network plans partially offset 20 million income resulting revision estimate previously recorded reserve losses totaling 321 million relating writeoff leased devices associated lease cancellations 256 million loss sale devices mls handset saleleaseback tranche 1 transaction 65 million excluded net included within wireless segment earnings net year ended march 31 2015 consists 304 million severance exit costs combined 91 million legal reserves related various pending legal suits proceedings 59 million partial pension settlement partially offset 41 million income resulting revision estimate previously recorded reserve index consolidated financial statements sprint corporation notes consolidated financial statements 1 revenues eliminated consolidation consist primarily wireline services provided wireless segment resale use wireless subscribers index consolidated financial statements sprint corporation notes consolidated financial statements note 15 quarterly financial data unaudited 1 sum quarterly earnings per share amounts may equal annual amounts changes weighted average number shares outstanding year note 16 relatedparty transactions softbank relatedparty transactions addition agreements arising relating softbank merger sprint entered various arrangements softbank controlled affiliates softbank parties third parties softbank parties also parties including international wireless roaming wireless wireline call termination real estate logistical management services brightstar arrangements brightstar us inc brightstar whereby brightstar provides supply chain inventory management services us indirect channels whereby sprint may sell new used devices new accessories brightstar purposes facilitate certain arrangements extended 700 million credit line brightstar assist purchasing distribution devices accessories result shifted concentration credit risk away indirect channel partners brightstar subsidiary softbank expect softbank provide necessary support ensure brightstar fulfill obligations us agreements however assurance softbank provide support supply chain inventory management arrangement included among things brightstar may purchase inventory oems sell directly indirect dealers compensation services remit per unit fees brightstar device sold dealers retailers indirect channels years ended march 31 2017 2016 2015 incurred fees arrangements totaling 64 million 102 million 66 million respectively additionally arrangement brightstar whereby perform certain reverse logistics including device buyback tradein technology related services may also purchase new used devices accessories brightstar sold direct channels index consolidated financial statements sprint corporation notes consolidated financial statements amounts included consolidated financial statements associated arrangements brightstar follows addition sprint earned fees approximately 100 million 103 million 13 million brightstar subsidiary years ended march 31 2017 2016 2015 respectively billing collecting payments subscribers certain insurance programs softbank november 2015 april 2016 sprint entered handset saleleaseback transactions mls company formed group equity investors including softbank sell leaseback certain devices currently leased customers total cash proceeds approximately 22 billion softbanks initial equity investment mls totaled 79 million brightstar provides reverse logistics remarketing services mls respect devices december 2016 handset saleleaseback tranche 1 terminated associated devices repurchased sprint mls cash proceeds mls repurchased equity units investors including softbank result softbanks remaining equity investment mls totaled 39 million march 31 2017 april 2016 sprint sold leased back certain network equipment network leaseco network equipment acquired network leaseco consolidated us used collateral raise approximately 22 billion borrowings external investors including 250 million softbank principal interest payments borrowings external investors repaid staggered unequal payments january 2018 see note 3 funding sources first principal payment approximately 300 million paid march 2017 followed remaining 19 billion principal payments due fiscal year 2017 transactions agreements softbank parties aggregate immaterial period ended march 31 2017 index consolidated financial statements sprint corporation notes consolidated financial statements note 17 guarantor financial information september 11 2013 sprint corporation issued 225 billion aggregate principal amount 7250 notes due 2021 425 billion aggregate principal amount 7875 notes due 2023 private placement transaction registration rights december 12 2013 sprint corporation issued 25 billion aggregate principal amount 7125 notes due 2024 private placement transaction registration rights issuances fully unconditionally guaranteed sprint communications inc subsidiary guarantor 100 owned subsidiary sprint corporation parentissuer connection foregoing registration rights agreements respect notes required company sprint communications inc use reasonable best efforts cause offer exchange notes new issue substantially identical exchange notes registered securities act 1933 accordingly november 2014 completed exchange offer notes compliance registration obligations receive proceeds exchange offer addition february 24 2015 sprint corporation issued 15 billion aggregate principal amount 7625 notes due 2025 fully unconditionally guaranteed sprint communications inc years ended march 31 2017 2016 noncash equity contributions subsidiary guarantor nonguarantor subsidiaries result organizational restructuring tax purposes approximately 450 million 15 billion respectively subsidiary guarantors secured revolving bank credit facility subsidiary guarantor currently restricted paying cash dividends parentissuer nonguarantor subsidiary ratio total indebtedness adjusted ebitda defined applicable agreement exceeds 25 10 sprint receivables facility providing sale eligible wireless service installment certain future lease receivables november 2015 sprint also entered tranche 1 transaction sell leaseback certain leased devices subsequently terminated december 2016 april 2016 sprint entered tranche 2 transaction sell leaseback certain leased devices network equipment saleleaseback sell leaseback certain network equipment connection receivables facility tranches 1 2 network equipment saleleaseback sprint formed certain whollyowned consolidated bankruptcyremote spes spe lessees included nonguarantor subsidiaries condensed consolidated financial information spe lessee separate legal entity separate creditors entitled prior upon liquidation spe lessee satisfied spe lessee’s assets prior assets spe lessee becoming available sprint see note 3 funding sources accounted investments subsidiaries using equity method presented condensed consolidating financial information index consolidated financial statements sprint corporation notes consolidated financial statements condensed consolidating balance sheet index consolidated financial statements sprint corporation notes consolidated financial statements condensed consolidating balance sheet index consolidated financial statements sprint corporation notes consolidated financial statements condensed consolidating statement comprehensive loss index consolidated financial statements sprint corporation notes consolidated financial statements condensed consolidating statement comprehensive loss index consolidated financial statements sprint corporation notes consolidated financial statements condensed consolidating statement comprehensive loss index consolidated financial statements sprint corporation notes consolidated financial statements condensed consolidating statement cash flows index consolidated financial statements sprint corporation notes consolidated financial statements condensed consolidating statement cash flows index consolidated financial statements sprint corporation notes consolidated financial statements condensed consolidating statement cash flows index consolidated financial statements sprint corporation notes consolidated financial statements note 18 subsequent events cash tender offers certain outstanding debt may 9 2017 company’s whollyowned subsidiary sprint communications inc commenced tender offers purchase cash aggregate principal amount 10 billion 9000 guaranteed notes due 2018 8375 notes due 2017 tender offer respect guaranteed notes due 2018 also subject maximum principal amount sublimit 500 million may 23 2017 company subsequently amended terms tender offers increase aggregate principal amount notes subject tender offers 17 billion increase maximum principal amount sublimit applicable guaranteed notes due 2018 12 billion tender offers intended lower company’s current overall interest expense decrease current debt levels funded available cash hand tender offers expire june 6 2017 unless extended earlier terminated company accordance terms offers may 23 2017 company accepted early tenders approximately 12 billion principal amount 9000 guaranteed notes due 2018 approximately 388 million principal amount 8375 notes due 2017 result early tenders approximately 16 billion aggregate principal amount debt retired tender offer 9000 guaranteed notes due 2018 concluded tender offer 8375 notes due 2017 still effect june 6 2017 although limited approximately 112 million principal amount notes item 15 exhibits financial statement schedules 1 consolidated financial statements sprint filed part report listed index financial statements financial statement schedule exhibits 2 consolidated financial statement schedule sprint filed part report listed index financial statements financial statement schedule exhibits financial statement schedules required related instructions inapplicable therefore omitted 3 following exhibits filed part report exhibits 2 plan acquisition reorganization arrangement liquidation succession agreement plan merger dated december 15 2004 among sprint corporation nextel communications inc sn merger corp filed exhibit 2 sprint corporation current report form 8k filed december 17 2004 incorporated herein reference 3 articles incorporation bylaws restated articles incorporation dated december 9 2003 filed exhibit 3a sprint corporation quarterly report form 10q quarter ended march 31 2004 incorporated herein reference b certificate designation preferences rights preferred stocksixth series dated april 23 2004 filed exhibit 3b sprint corporation quarterly report form 10q quarter ended march 31 2004 incorporated herein reference c certificate elimination designations preferred stockeighth series dated april 23 2004 filed exhibit 3c sprint corporation quarterly report form 10q quarter ended march 31 2004 incorporated herein reference bylaws amended filed exhibit 3d sprint corporation quarterly report form 10q quarter ended march 31 2004 incorporated herein reference 4 instruments defining rights sprint’s security holders rights sprint’s equity security holders defined fifth sixth seventh eighth articles sprint’s articles incorporation see exhibits 3a 3b 3c b provision regarding kansas control share acquisition act article ii section 5 bylaws provisions regarding stockholders’ meetings set forth article iii bylaws see exhibit 3d c second amended restated rights agreement sprint corporation umb bank na rights agent dated march 16 2004 effective april 23 2004 filed exhibit 1 amendment 5 sprint corporation registration statement form 8a relating sprint’s rights filed april 12 2004 incorporated herein reference indenture dated october 1 1998 among sprint capital corporation sprint corporation bank one na trustee filed exhibit 4b sprint corporation quarterly report form 10q quarter ended september 30 1998 incorporated herein reference supplemented first supplemental indenture dated january 15 1999 among sprint capital corporation sprint corporation bank one na trustee filed exhibit 4b sprint corporation current report form 8k dated february 2 1999 incorporated herein reference supplemented second supplemental indenture dated october 15 2001 among sprint capital corporation sprint corporation bank one na trustee filed exhibit 99 sprint corporation current report form 8ka dated october 17 2001 incorporated herein reference e indenture dated october 1 1998 sprint corporation bank one na trustee filed exhibit 4a sprint corporation quarterly report form 10q quarter ended september 30 1998 incorporated herein reference supplemented first supplemental indenture dated january 15 1999 sprint corporation bank one na trustee filed exhibit 4a sprint corporation current report form 8k dated february 2 1999 incorporated herein reference 10 material agreements registration rights agreement dated november 23 1998 among sprint corporation tci telephony services inc cox communications inc comcast corporation filed exhibit 102 amendment 1 sprint corporation registration statement form s3 33364241 incorporated herein reference b 364day credit agreement dated june 22 2004 among sprint corporation sprint capital corporation borrowers initial lenders named therein initial lenders citibank na administrative agent citigroup global markets inc jp morgan securities inc joint lead arrangers book managers jp morgan chase bank syndication agent bank america na deutsche bank ag new york branch ubs loan finance llc documentation agents filed exhibit 10a sprint corporation quarterly report form 10q quarter ended june 30 2004 incorporated herein reference c agreement contribute lease sublease dated february 14 2005 among sprint corporation certain subsidiaries sprint corporation global signal inc including exhibit form lease sublease agreement filed exhibit 10 sprint corporation current report form 8k dated february 14 2005 incorporated herein reference 10 executive compensation plans arrangements executive deferred compensation plan amended including summary certain amendments executive deferred compensation plan filed exhibit 102 sprint corporation current report form 8k dated october 11 2004 incorporated herein reference e management incentive stock option plan amended filed exhibit 10d sprint corporation quarterly report form 10q quarter ended march 31 2004 incorporated herein reference f 1997 longterm stock incentive program amended filed exhibit 104 sprint corporation current report form 8k dated october 11 2004 incorporated herein reference g sprint supplemental executive retirement plan amended filed exhibit 10l sprint corporation annual report form 10ka year ended december 31 2001 incorporated herein reference h amended restated centel directors deferred compensation plan filed exhibit 10c sprint corporation quarterly report form 10q quarter ended march 31 2004 incorporated herein reference management incentive plan amended filed exhibit 101 sprint corporation current report form 8k dated october 11 2004 incorporated herein reference j summary 2005 salaries shortterm incentive compensation named executive officers k retirement plan directors amended filed exhibit 10u sprint corporation annual report form 10k year ended december 31 1996 incorporated herein reference l key management benefit plan amended filed exhibit 10g sprint corporation quarterly report form 10q quarter ended september 30 1996 incorporated herein reference agreement regarding special compensation post employment restrictive covenants sprint corporation one executive officers mr betts filed exhibit 10h sprint corporation quarterly report form 10q quarter ended march 31 1996 incorporated herein reference n director’s deferred fee plan amended filed exhibit 101 sprint corporation current report form 8k dated february 8 2005 incorporated herein reference form indemnification agreements sprint corporation directors officers filed exhibit 10e sprint corporation quarterly report form 10q quarter ended june 30 2003 incorporated herein reference p summary executive officer benefits board directors benefits fees filed exhibit 106 sprint corporation current report form 8k dated february 8 2005 incorporated herein reference q executive agreement dated july 30 2001 among sprint corporation sprintunited management company len lauer filed exhibit 10bb sprint corporation annual report form 10ka year ended december 31 2001 incorporated herein reference r employment agreement dated march 19 2003 among sprint corporation sprintunited management company gary forsee filed exhibit 10c sprint corporation quarterly report form 10q quarter ended march 31 2003 incorporated herein reference amendment 1 dated december 15 2004 employment agreement dated march 19 2003 among sprint corporation sprintunited management company gary forsee filed exhibit 10 sprint corporation current report form 8k dated december 15 2004 incorporated herein reference employment agreements compensation arrangements certain executive officers messrs blessing dellinger fuller gerke janzen kissinger stout ms walker filed exhibit 10x sprint corporation annual report form 10k year ended december 31 2003 incorporated herein reference u employment agreement sprint corporation one executive officers mr kelly filed exhibit 10h sprint corporation quarterly report form 10q quarter ended september 30 2004 incorporated herein reference v summary sprint retention program w form 2003 award agreement awarding restricted stock units directors filed exhibit 10g sprint corporation quarterly report form 10q quarter ended june 30 2003 incorporated herein reference x form 2003 award agreement awarding restricted stock units stock options executive officers filed exhibit 10h sprint corporation quarterly report form 10q quarter ended june 30 2003 incorporated herein reference form election relating 2003 executive restricted stock unit awards filed exhibit 10f sprint corporation quarterly report form 10q quarter ended march 31 2004 incorporated herein reference z form 2004 award agreement awarding stock options restricted stock units messrs forsee fuller lauer filed exhibit 10a sprint corporation quarterly report form 10q quarter ended september 30 2004 incorporated herein reference aa form 2004 award agreement awarding stock options restricted stock units executive officers filed exhibit 10b sprint corporation quarterly report form 10q quarter ended september 30 2004 incorporated herein reference bb form 2004 award agreement awarding restricted stock units directors filed exhibit 10c sprint corporation quarterly report form 10q quarter ended september 30 2004 incorporated herein reference cc form 2005 award agreement awarding restricted stock units directors filed exhibit 102 sprint corporation current report form 8k dated february 8 2005 incorporated herein reference dd form 2005 award agreement awarding stock options restricted stock units messrs forsee lauer ee form 2005 award agreement awarding stock options restricted stock units mr fuller ff form 2005 award agreement awarding stock options restricted stock units executive officers 12 computation ratio earnings fixed charges 21 subsidiaries registrant 23 consent kpmg llp independent registered public accounting firm 23 b consent ernst young llp independent registered public accounting firm 31 certification chief executive officer pursuant securities exchange act 1934 rule 13a14a b certification chief financial officer pursuant securities exchange act 1934 rule 13a14a 32 certification chief executive officer pursuant 18 usc section 1350 adopted pursuant section 906 sarbanesoxley act 2002 b certification chief financial officer pursuant 18 usc section 1350 adopted pursuant section 906 sarbanesoxley act 2002 sprint furnish sec upon request copy instruments defining rights holders longterm debt total amount securities authorized said instruments listed exceed 10 total assets sprint signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized date march 10 2005 pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities indicated 10th day march 2005 gary forsee gary forsee chairman chief executive officer robert j dellinger robert j dellinger executive vice president chief financial officer john p meyer john p meyer senior vice president controller principal accounting officer signatures sprint corporation registrant pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities indicated 10th day march 2005 dubose ausley irvine hockaday jr dubose ausley director irvine hockaday jr director gordon bethune linda k lorimer gordon bethune director linda k lorimer director e linn draper jr charles e rice e linn draper jr director charles e rice director gary forsee louis w smith gary forsee director louis w smith director james h hance jr gerald l storch james h hance jr director gerald l storch director deborah henretta william h swanson deborah henretta director william h swanson director index financial statements financial statement schedule exhibits management report sprint corporation’s management responsible integrity objectivity information contained document management responsible consistency reporting information ensuring accounting principles generally accepted united states used discharging responsibility management maintains comprehensive system internal controls supports extensive program internal audits made organizational arrangements providing appropriate divisions responsibility established communication programs aimed assuring policies procedures principles business conduct understood practiced employees 2004 financial statements included document audited kpmg llp independent registered public accounting firm previous periods’ financial statements included document audited ernst young llp independent registered public accounting firm audits conducted using standards public company accounting oversight board united states kpmg’s ernst young’s reports consents included herein board directors’ responsibility financial statements pursued mainly audit committee audit committee composed entirely directors officers employees sprint meets periodically internal auditors independent registered public accounting firm without management present assure respective responsibilities fulfilled internal auditors independent registered public accounting firm full access audit committee discuss auditing financial reporting matters gary forsee gary forsee chairman chief executive officer robert j dellinger robert j dellinger executive vice president chief financial officer report independent registered public accounting firm board directors shareholders sprint corporation audited accompanying consolidated balance sheet sprint corporation subsidiaries december 31 2004 related consolidated statements operations comprehensive income loss cash flows shareholders’ equity year ended december 31 2004 connection audit consolidated financial statements also audited financial statement schedule ii consolidated valuation qualifying accounts consolidated financial statements financial statement schedule responsibility company’s management responsibility express opinion consolidated financial statements financial statement schedule based audit conducted audit accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audit provides reasonable basis opinion consolidated financial statements referred present fairly material respects financial position sprint corporation subsidiaries december 31 2004 results operations cash flows year ended december 31 2004 conformity us generally accepted accounting principles also opinion related financial schedule considered relation basic consolidated financial statements taken whole presents fairly material respects information set forth therein also audited accordance standards public company accounting oversight board united states effectiveness sprint corporation’s internal control financial reporting december 31 2004 based criteria established internal controlintegrated framework issued committee sponsoring organizations treadway commission coso report dated march 10 2005 expressed unqualified opinion management’s assessment effective operation internal control financial reporting kpmg llp kansas city missouri march 10 2005 report independent registered public accounting firm board directors shareholders sprint corporation audited management’s assessment included management’s report internal control financial reporting appearing item 9a controls procedures sprint corporation maintained effective internal control financial reporting december 31 2004 based criteria established internal controlintegrated framework issued committee sponsoring organizations treadway commission coso sprint corporation’s management responsible maintaining effective internal control financial reporting assessment effectiveness internal control financial reporting responsibility express opinion management’s assessment opinion effectiveness company’s internal control financial reporting based audit conducted audit accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether effective internal control financial reporting maintained material respects audit included obtaining understanding internal control financial reporting evaluating management’s assessment testing evaluating design operating effectiveness internal control performing procedures considered necessary circumstances believe audit provides reasonable basis opinion company’s internal control financial reporting process designed provide reasonable assurance regarding reliability financial reporting preparation financial statements external purposes accordance generally accepted accounting principles company’s internal control financial reporting includes policies procedures 1 pertain maintenance records reasonable detail accurately fairly reflect transactions dispositions assets company 2 provide reasonable assurance transactions recorded necessary permit preparation financial statements accordance generally accepted accounting principles receipts expenditures company made accordance authorizations management directors company 3 provide reasonable assurance regarding prevention timely detection unauthorized acquisition use disposition company’s assets could material effect financial statements inherent limitations internal control financial reporting may prevent detect misstatements also projections evaluation effectiveness future periods subject risk controls may become inadequate changes conditions degree compliance policies procedures may deteriorate opinion management’s assessment sprint corporation maintained effective internal control financial reporting december 31 2004 fairly stated material respects based criteria established internal controlintegrated framework issued committee sponsoring organizations treadway commission coso also opinion sprint corporation maintained material respects effective internal control financial reporting december 31 2004 based criteria established internal controlintegrated framework issued committee sponsoring organizations treadway commission coso also audited accordance standards public company accounting oversight board united states consolidated balance sheet sprint corporation subsidiaries december 31 2004 related consolidated statements operations comprehensive income loss cash flows shareholders’ equity year ended december 31 2004 report dated march 10 2005 expressed unqualified opinion consolidated financial statements kpmg llp kansas city missouri march 10 2005 report independent registered public accounting firm board directors shareholders sprint corporation audited accompanying consolidated balance sheet sprint corporation sprint december 31 2003 related consolidated statements operations comprehensive income loss cash flows shareholders’ equity two years period ended december 31 2003 audits also included financial statement schedule two years period ended december 31 2003 listed index financial statements financial statement schedule exhibits financial statements schedule responsibility management sprint responsibility express opinion financial statements schedule based audits conducted audits accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes consideration internal control financial reporting basis designing audit procedures appropriate circumstances purpose expressing opinion effectiveness company’s internal control financial reporting accordingly express opinion audit also includes examining test basis evidence supporting amounts disclosures financial statements assessing accounting principles used significant estimates made management evaluating overall financial statement presentation believe audits provide reasonable basis opinion financial statements referred present fairly material respects consolidated financial position sprint december 31 2003 consolidated results operations cash flows two years period ended december 31 2003 conformity us generally accepted accounting principles also opinion related financial statement schedule two years period ended december 31 2003 considered relation basic financial statements taken whole presents fairly material respects information set forth therein discussed note 1 sprint adopted sfas 123 accounting stockbased compensation amended sfas 148 accounting stockbased compensationtransition disclosure amendment fasb statement 123 effective january 1 2003 discussed note 6 notes consolidated financial statements sprint adopted sfas 143 accounting asset retirement obligations effective january 1 2003 ernst young llp kansas city missouri february 3 2004 except note 2 date april 23 2004 note 21 date november 2 2004 consolidated statements operations millions see accompanying notes consolidated financial statements consolidated statements comprehensive income loss millions see accompanying notes consolidated financial statements consolidated balance sheets millions see accompanying notes consolidated financial statements consolidated balance sheets continued millions except per share data see accompanying notes consolidated financial statements consolidated statements cash flows millions see accompanying notes consolidated financial statements consolidated statements shareholders’ equity millions sprint corporation 1 december 31 2004 accumulated comprehensive loss consists 759 million additional minimum pension liability 22 million unrealized net gains related investments derivatives 21 million foreign currency translation adjustment 2 2004 2002 fon common stock dividends paid capital excess par stated value quarterly period retained earnings deficit position see accompanying notes consolidated financial statements notes consolidated financial statements sprint corporation 1 summary significant accounting policies basis consolidation presentation consolidated financial statements include accounts sprint wholly owned subsidiaries controls investments entities sprint exercises significant influence control accounted using equity method see note 4 consolidated financial statements prepared using accounting principles generally accepted united states principles require management make estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities reported amounts revenues expenses actual results could differ estimates certain prioryear amounts reclassified conform currentyear presentation reclassifications effect results operations shareholders’ equity previously reported classification operations sprint offers extensive range innovative communication products solutions including wireless long distance voice data transport global internet protocol ip local multiproduct bundles sprint’s business divided three segments wireless local long distance operations yearend 2004 sprint approximately 59900 active employees approximately 7300 employees represented unions wireless licenses serve entire us population including puerto rico us virgin islands wireless uses single frequency band single technology wireless provides nationwide service combination operating digital network major us metropolitan areas affiliating commercial arrangements companies use cdma roaming providers’ networks local consists mainly regulated incumbent local phone companies local provides local voice data services including digital subscriber line dsl customers within franchise territories access phone customers carriers local network nationwide long distance services customers located within franchise territories sales telecommunications equipment services within specified calling areas residential business customers long distance long distance provides broad suite communications services targeted domestic business residential customers multinational corporations communications companies services include domestic international voice data communications using various protocols internet protocol ip frame relay managed network services sprint determined business conditions events occurring 2004 third quarter impacting long distance operations constituted “triggering event” requiring evaluation recoverability long distance longlived assets pursuant sfas 144 accounting impairment disposal longlived assets sprint reevaluated strategy financial forecasts 2004 third quarter resulting 352 billion pretax noncash impairment charge carrying value long distance longlived assets see note 7 additional information income taxes sprint records deferred income taxes based temporary differences carrying amounts assets liabilities financial reporting purposes tax bases revenue recognition sprint recognizes operating revenues accordance staff accounting bulletin 104 revenue recognition emerging issues task force consensus 0021 revenue arrangements multiple deliverables eitf 0021 operating revenues recognized services rendered products delivered customers certain sprint’s bundled products services primarily wireless determined revenue arrangements multiple deliverables total consideration received arrangements allocated measured using units accounting within arrangement based relative fair values wireless offerings include wireless phones service contracts sold together companyowned stores activation fee revenue associated direct channel sales recognized time related wireless phone sold classified equipment sales wireless activation fees earned prior 2003 third quarter adoption eitf 0021 deferred amortized average life subscriber certain wireless activation fees associated unbundled sales continue deferred amortized average life subscriber certain local installation fees deferred amortized average life customer advertising expense sprint recognizes advertising expense incurred expenses include production media promotional sponsorship costs advertising expenses totaled 989 million 2004 946 million 2003 10 billion 2002 cash equivalents cash equivalents generally include highly liquid investments original maturities three months less investments include money market funds us government governmentsponsored debt securities corporate debt securities municipal securities repurchase agreements bankrelated securities meet sprint’s investment policy guidelines stated cost approximates market value sprint uses controlled disbursement banking arrangements part cash management program outstanding checks included accounts payable totaled 175 million yearend 2004 208 million yearend 2003 sprint sufficient funds available fund outstanding checks presented payment allowance doubtful accounts reserve reflects estimate accounts receivable collectibility requires management’s judgement based historical trending industry norms recognition current market indicators general economic conditions predictive future economic viability customer base investments debt securities investments marketable debt securities classified available sale reported fair value based quoted market prices interest investments debt securities reinvested recorded “other income expense net” consolidated statements operations gross unrealized holding gains losses reflected consolidated balance sheets adjustments “shareholders’ equityaccumulated comprehensive income loss” net related income taxes investments equity securities investments marketable equity securities classified available sale reported fair value based quoted market prices gains losses recognized using average cost method gross unrealized holding gains losses reflected consolidated balance sheets adjustments “shareholders’ equityaccumulated comprehensive income loss” net related income taxes impairment losses investments equity securities recorded “other income expense net” consolidated statements operations investment’s market value declines sprint’s cost basis temporary basis inventories local long distance stated lower cost market inventories handsets wireless stated lower cost replacement value cost principally determined firstin firstout method property plant equipment property plant equipment recorded cost generally ordinary asset retirements disposals charged accumulated depreciation gain loss recognized cost property plant equipment generally depreciated straightline basis estimated economic useful lives repair maintenance costs expensed incurred 2004 sprint extended depreciable life certain highcapacity transmission equipment eight years twelve years due slower anticipated evolution technology extension life decreased 2004 depreciation expense long distance approximately 74 million network assets principally consisted switching equipment cell site towers base transceiver stations radio frequency equipment metallic cable wire facilities digital fiberoptic cable conduit poles central office transport facilities transmissionrelated equipment asset lives generally ranged three 30 years 67 balance lives six 15 years building improvements principally consisted owned general office facilities leasehold improvements retail stores asset lives ranged five 30 years 51 balance lives five ten years administrative assets principally consisted furniture information technology equipment vehicles asset lives ranged three 30 years 49 balance lives three five years assets principally consisted projects construction land assets generally depreciable sprint’s gross property plant equipment aggregated asset type follows sprint’s gross property plant equipment aggregated business function follows capitalized interest capitalized interest totaled 57 million 2004 59 million 2003 90 million 2002 capitalized interest incurred connection construction capital assets sfas 34 capitalization interest costs requires assets construction incurring interest cost payment cash incurrence interestbearing liability order qualify interest capitalization goodwill intangibles effective january 1 2002 sprint adopted statement financial accounting standards sfas 142 goodwill intangible assets upon adoption statement amortization goodwill indefinite life intangibles ceased accumulated amortization december 31 2001 reduced carrying value assets goodwill represents excess purchase price fair value net assets acquired business combinations accounted purchases book value goodwill 44 billion december 31 2004 2003 virtually attributed wireless sprint evaluates goodwill impairment annual basis whenever events circumstances indicate assets may impaired sprint determines impairment comparing net assets reporting unit identified sprint’s operating segments respective fair value event unit’s net assets exceed fair value implied fair value goodwill must determined assigning unit’s fair value asset liability unit excess fair value reporting unit amounts assigned assets liabilities implied fair value goodwill impairment loss measured difference goodwill carrying value implied fair value indefinite life intangibles sprint identified spectrum licenses sprint’s trademark indefinite life intangibles considering expected use assets regulatory economic environment within used effects obsolescence use wireless acquired spectrum licenses fcc operate pcs service provider additionally wireless incurred costs related microwave relocation facilitate use spectrum licenses long distance acquired spectrum licenses broadband fixed wireless companies acquired 1999 spectrum licenses integral operation business fact cannot operate major portions business without long sprint acts within requirements constraints regulatory authorities renewal extension licenses reasonably certain minimal cost spectrum licenses authorize wireless carriers use radio frequency spectrum renewable reusable resource deplete exhaust time present competing technology horizon would render spectrum obsolete currently changes competitive legislative environments would put question future need spectrum licenses sprint trademark highly respected brand positive connotations current market assessments rank one recognizable brands united states sprint legal regulatory contractual limitations associated trademark sprint cultivates protects use brand sprint evaluates recoverability indefinite lived intangible assets annual basis whenever events circumstances indicate assets might impaired sprint determines impairment comparing asset’s respective carrying value estimates fair value using best information available requires use estimates judgements projections event impairment exists loss recognized based amount carrying value exceeds fair value asset december 31 2004 impairments existed 2003 third quarter long distance recorded pretax noncash charge 12 billion related writedown carrying value broadband radio services brs spectrum book value indefinite life intangibles 34 billion december 31 2004 2003 definite life intangibles definite life intangibles include value sprint’s patents value associated acquired wireless subscriber bases 2002 intangible associated wireless subscriber base approximately 746 million became fully amortized time accumulated amortization reduced carrying value asset 2004 sprint acquired subscriber base value 35 million sprint evaluates recoverability definite life intangible assets events circumstances indicate assets might impaired sprint determines impairment comparing asset’s respective carrying value estimates sum future cash flows expected result sprint’s asset undiscounted without interest charges carrying amount recoverable amount loss recognized based amount carrying value exceeds fair value asset definite life intangibles amortized useful lives yearend 2004 averaged little 5 years amortization assets totaled 8 million 2004 1 million 2003 4 million 2002 restructuring activity june 2002 financial accounting standards board fasb issued sfas 146 accounting costs associated exit disposal activities standard provides accounting guidance costs associated exit disposal activities nullifies emerging issues task force eitf issue 943 liability recognition certain employee termination benefits costs exit activity including certain costs incurred restructuring standard revised guidance liability cost associated exit disposal activity incurred sprint adopted standard effective january 1 2003 restructuring activities occurring date earnings per share sprint’s dilutive securities consist options restricted stock units employee stock purchase plan espp 2004 2003 dilutive securities antidilutive calculating loss per share sprint incurred losses continuing operations although used determination earnings per share 2004 2003 sprint’s dilutive securities totaled 123 million shares 2004 30 million shares 2003 sprint’s dilutive securities totaled 38 million shares 2002 certain options granted exercise prices currently higher market options considered antidilutive included dilutive calculation sprint’s antidilutive securities totaled 88 million shares 2004 103 million shares 2003 119 million shares 2002 stockbased compensation effective january 1 2003 sprint adopted sfas 123 accounting stockbased compensation amended sfas 148 accounting stockbased compensationtransition disclosure amendment fasb statement 123 using prospective method upon adoption sprint began expensing fair value stockbased compensation grants modifications settlements made january 1 2003 following table illustrates effect net income earnings per share stockbased compensation included net income effect net income earnings per share grants issued december 31 2002 sprint applied fair value recognition provisions sfas 123 compensation costs expensed vesting period award using straightline method amount compensation cost recognized date least equal vested portion award sprint recognized pretax charges 81 million 37 million 2004 2003 related stockbased grants issued december 31 2002 pretax charges 7 million recognized grants restricted stock made 2002 previous years 2004 sprint recognized pretax charges 48 million noncash expense related recombination fon common stock pcs common stock required sfas 123 sprint accounted conversion pcs stock options fon stock options modification accordingly applied stock option expensing fon stock options resulting conversion pcs stock options granted january 1 2003 sprint recognized pretax charges 15 million noncash expense connection separation agreements sprint william esrey former chairman chief executive officer ronald lemay former president chief operating officer j richard devlin former executive vice president general counsel external affairs corporate secretary charges associated accounting modifications accelerated vesting extended vesting exercise periods stock options granted prior periods required sfas 123 fon stock options exercise prices approximately two times market price modification date pcs stock options exercise prices five times market price modification date 2 recombination tracking stock april 23 2004 sprint recombined two tracking stocks share pcs common stock automatically converted 05 shares fon common stock april 23 2004 fon group pcs group longer exist fon common stock represents operations assets sprint including wireless local long distance operations event generally reflected presentation financial statements recombination occurred earliest period presented shareholders’ equity conversion pcs common stock fon common stock resulted increase fon common stock outstanding 5185 million shares april 23 2004 although sprint’s articles incorporation continue authorize pcs common stock following conversion pcs common stock sprint’s board directors adopted resolution prohibiting issuance shares sprint intends submit vote stockholders 2005 annual meeting stockholders amended restated articles incorporation would delete references pcs common stock earnings per share per share amounts restated periods presented reflect recombination fon common stock pcs common stock earliest period presented identical conversion ratio 050 conversion ratio also applied dilutive pcs securities mainly stock options employee stock purchase plan shares convertible preferred stock restricted stock units determine diluted weighted average shares consolidated basis following previously reported earnings per share information fon group pcs group 1 effects including potentially dilutive pcs securities antidilutive included diluted weighted average common shares outstanding pcs group included calculation diluted earnings per share 2 earnings per share amounts may add due rounding 3 proposed merger contemplated spinoff december 2004 boards directors sprint corporation nextel communications inc unanimously approved strategic merger combining sprint nextel intend “merger equals” proposed merger completed sprint change name sprint nextel corporation sprint nextel common stock quoted new york stock exchange existing shares sprint common stock remain outstanding sprint nextel common stock sprint acquiring entity terms merger agreement closing share nextel class common stock nextel class b common stock converted shares sprint nextel common stock sprint nextel nonvoting common stock respectively well small per share amount cash total value expected equal 13 shares sprint nextel common stock nextel zerocoupon convertible redeemable preferred stock converted sprint nextel zerocoupon convertible redeemable preferred stock proposed merger subject shareholder approval well various regulatory approvals also subject customary closing conditions expected completed second half 2005 sprint nextel intend spin sprint’s local telecommunications business proposed merger completed order facilitate spinoff taxfree basis exact allocation cash shares sprint nextel common stock nextel common stockholders receive proposed merger adjusted time merger completed aggregate cash portion merger consideration capped 28 billion 4 investments december 31 2004 sprint carried 341 million investment asset value 65 million included “current assetsother” 276 million “other assets” consolidated balance sheets december 31 2003 sprint carried 548 million investment asset value 125 million included “current assetsother” 423 million included “other assets” consolidated balance sheets specific investment types related carrying amounts include investments debt securities 2004 2003 sprint invested marketable debt securities december 31 2004 65 million sprint’s investments debt securities classified “current assetsother” 91 million reflected “other assets” consolidated balance sheets december 31 2003 125 million debt securities classified “current assetsother” 177 million reflected “other assets” december 31 2004 debt securities carried “other assets” maturities prior december 31 2006 sprint also invested debt securities original remaining maturities purchase 90 days less securities included “cash equivalents” interest investments reinvested recognized “other income expense net” consolidated statements operations sprint recognized approximately 11 million interest income investments 2004 compared 3 million 2003 accumulated unrealized holding gains losses immaterial 2004 2003 investments equity securities cost investments marketable equity securities primarily consisting earthlink common stock 90 million 134 million yearend 2004 2003 respectively accumulated unrealized holding gains 42 million net 25 million tax yearend 2004 comparatively yearend 2003 accumulated unrealized holding gains 38 million net 23 million tax accumulated unrealized holding gains included “accumulated comprehensive income loss” consolidated balance sheets yearend 2004 sprint held 123 million shares earthlink common stock 189 million shares yearend 2003 securities reflected “other assets” consolidated balance sheets forecasted sale shares hedged variable prepaid forward contracts began maturing 2004 fourth quarter continue mature 2005 fourth quarter 2004 fourth quarter connection maturity certain earthlink variable prepaid forward contracts 56 million shares used settle approximately 48 million forward contracts recorded outstanding longterm debt sprint sold additional 10 million shares open market upon settlement contracts sprint recognized 108 million gain transactions 2003 second quarter sprint sold 108 million earthlink common shares 66 million shares sold earthlink inc open market sprint recognized 3 million loss sales cost method investments sprint longer carries cost method investment related earthlink preferred shares 2003 second quarter sprint converted remaining cost method investment earthlink preferred shares 18 million shares earthlink common stock marketable equity security 2002 second quarter sprint completed analysis valuation investment resulted writedown 241 million market value charge included “other income expense net” sprint’s consolidated statements operations equity method investments yearend 2004 2003 investments accounted using equity method consisted primarily sprint’s investment virgin mobile usa investments reflected “other assets” consolidated balance sheets certain equity method investments carried zero value virgin mobile usa sprint’s investment virgin mobile usa 20 million yearend 2004 41 million yearend 2003 sprint determined virgin mobile usa variable interest entity therefore carries equity method investment joint venture virgin group originally entered 2001 fourth quarter virgin mobile usa launched services june 2002 since inception sprint contributed approximately 180 million venture forms cash discounted network services thereby satisfying 100 original commitments 2004 sprint advanced 10 million virgin mobile usa form loan repaid 2005 additional 10 million advanced form loan january 2005 sprint’s board directors approved 35 million loans virgin mobile usa terms joint venture agreement sprint guaranteed 20 million return capital event liquidation bidco 2002 wireless’ investment bidco dissolved 2002 fourth quarter sprint received 5 million final share fcc’s return deposit licenses nextwave spectrum auction receiving 38 million 2002 second quarter representing 85 share deposit licenses dissolution 5 million loss recognized pegaso 2002 third quarter wireless sold investment pegaso telefonica moviles sprint also reached agreement pegaso shareholders pegaso payment connection cancellation sprint’s services contract sprint’s book investment pegaso zero due previous recognition share losses sprint received 28 million telefonica moviles 2002 third quarter october 2002 received additional final payment net foreign withholding tax 35 million investment pegaso investments 2002 fourth quarter sprint liquidated partnership received cash proceeds 148 million associated transaction sprint extinguished 150 million borrowing partnership sprint recorded 1 million loss investment 2002 second quarter callnet canadian longdistance provider finalized comprehensive recapitalization proposal altered long distance’s existing ownership investment carried zero value since 2000 fourth quarter sprint invested approximately 16 million new callnet shares part recapitalization since equity method investment sprint recognized previously unrecognized losses amount additional investment additionally sprint callnet agreed new ten year branding technology services agreement sprint receives royalties combined unaudited summarized financial information 100 basis entities accounted using equity method follows 5 financial instruments fair value financial instruments sprint estimates fair value financial instruments using available market information appropriate valuation methodologies result following estimates necessarily represent values sprint could realize current market exchange amounts comprehensively revalued purposes financial statements since december 31 2004 therefore estimates fair value yearend 2004 may differ significantly amounts presented carrying amounts estimated fair values sprint’s financial instruments yearend follows 1 yen held deposit satisfy certain capital lease obligations see note 9 additional information 2 equity units included senior notes 1725 billion purchase contract adjustment payment liability 13 million 2003 see note 10 information equity units carrying amounts sprint’s cash equivalents approximate fair value yearend 2004 2003 estimated fair value investments securities based quoted market prices estimated fair value longterm debt based quoted market prices publicly traded issues estimated fair value equity units based quoted market prices estimated fair value issues based either blackscholes pricing model present value estimated future cash flows using discount rate based risks involved quoted market prices available accounting derivative instruments risk management policies sprint’s derivative instruments include interest rate swaps stock warrants variable prepaid forward contracts credit forward contracts foreign currency forward contracts sprint’s derivative transactions used principally hedging purposes board authorized sprint enter derivative transactions comply sprint’s risk management policies sprint enters interest rate swap agreements manage exposure interest rate movements achieve optimal mixture floating fixedrate debt minimizing liquidity risk interest rate swap agreements designated fair value hedges effectively convert sprint’s fixedrate debt floating rate receipt fixedrate amounts exchange floatingrate interest payments life agreement without exchange underlying principal amount sprint enters interest rate swap agreements designated cash flow hedges reduce impact interest rate movements future interest expense effectively converting portion floatingrate debt fixed rate certain business transactions sprint granted warrants purchase securities companies fixed rates warrants supplemental terms business transactions designated hedging instruments sprint enters variable prepaid forward contracts reduce variability expected cash flows related forecasted sale underlying equity securities held available sale sprint enters fair value hedges credit forward contracts hedge changes fair value certain debt issues sprint’s foreign exchange risk management program focuses reducing transaction exposure optimize consolidated cash flow sprint enters forward contracts options foreign currencies reduce impact changes foreign exchange rates sprint’s primary transaction exposure results payments made received overseas telecommunications companies completing international calls made sprint’s domestic customers operation international subsidiaries interest rate swaps interest rate swaps met required criteria derivative accounting rules assumption perfect effectiveness resulting recognition changes fair value earnings life swap sprint held cash flow hedges fair value hedges interest rate swaps 2002 sprint held fair value hedges 2003 2004 sprint recorded 19 million asset 2004 compared 26 million asset 2003 resulting changes fair value interest rate swaps increase value swaps recorded “other assets” consolidated balance sheets swaps deemed perfectly effective offset recorded underlying “longterm debt” sprint recorded 12 million pretax increase comprehensive income loss year ended december 31 2002 resulting gains cash flow hedges change comprehensive income loss included “net unrealized gains losses qualifying cash flow hedges” consolidated statements comprehensive income loss stock warrants stock warrants designated hedging instruments changes fair value derivative instruments recognized earnings period change sprint’s net derivative gains losses stock warrants immaterial years ended december 31 2004 2003 2002 net purchased equity options net purchased equity options embedded variable prepaid forward contracts designated cash flow hedges 2004 fourth quarter approximately 56 million shares earthlink common stock used settle portion prepaid forward contracts resulted 10 million tax loss related cash flow hedges prepaid forward contracts associated forecasted sale approximately 123 million shares earthlink common stock remain outstanding december 31 2004 settle 2005 accumulated unrealized losses related hedges 20 million net 12 million tax yearend 2004 unrealized losses included “accumulated comprehensive loss” consolidated balance sheets sprint recorded 7 million tax decrease year ended december 31 2004 comprehensive income loss 37 million tax decrease year ended december 31 2003 17 million tax increase year ended december 31 2002 resulting gains losses cash flow hedges changes comprehensive income loss included “net unrealized gains losses qualifying cash flow hedges” consolidated statements comprehensive income loss credit forward contracts sprint held fair value hedges credit forward contracts 2003 2002 hedge changes fair value certain debt issues high correlation credit forward contracts debt issues hedged fluctuations value credit forward contracts generally offset changes fair value debt issues nominal amount recorded 2003 2002 hedges consolidated statements operations 2003 credit forward contracts settled foreign currency contracts foreign currency forward contracts options held period designated hedges defined sfas 133 changes fair value derivative instruments recognized earnings period change sprint outstanding foreign currency forward contracts yearend 2004 yearend 2003 2002 sprint outstanding forward contracts buy various foreign currencies 2 million forward contracts open yearend 2003 2002 original maturities six months less yearend 2004 sprint 19 million equivalent notional amount zerocost option collars various foreign currencies outstanding foreign currency zerocost option collars yearend 2003 2002 including hedge costs net losses immaterial 2004 2003 2002 concentrations credit risk sprint’s accounts receivable subject concentration credit risk sprint controls credit risk interest rate swap agreements foreign currency contracts credit approvals dollar exposure limits internal monitoring procedures event nonperformance counterparties sprint’s accounting loss would limited net amount would entitled receive terms applicable interest rate swap agreement foreign currency contract however sprint anticipate nonperformance counterparties agreements 6 asset retirement obligations sprint adopted statement financial accounting standard sfas 143 accounting asset retirement obligations january 1 2003 standard provides accounting guidance legal obligations associated retirement longlived assets result acquisition construction development normal operation assets according standard fair value asset retirement obligation aro liability recognized period 1 legal obligation retire longlived asset exists 2 fair value obligation based retirement cost settlement date reasonably estimable upon initial recognition aro liability related asset retirement cost capitalized increasing carrying amount related longlived asset sprint’s network primarily located owned leased property utility easements long distance local majority leased property requirement remediation retirement leased property wireless potential remediation requirements sprint expects maintain property necessary component infrastructure required maintain operations fcc licensing sprint recorded liability related accretion expense presently required ultimate satisfaction requirements amounts immaterial adoption sfas 143 affected cost removal historically recorded local consistent regulatory requirements industry practice local historically accrued costs removal depreciation reserves costs removal meet sfas 143 definition aro liability upon adoption sfas 143 sprint recorded reduction historical depreciation reserves approximately 420 million remove accumulated excess cost removal resulting cumulative effect change accounting principle credit net tax consolidated statements operations 258 million impact accounting change income loss continuing operations decrease local’s 2003 depreciation expense approximately 40 million increase 2003 expenses incurred removal costs approximately 20 million recognized incurred year following table illustrates effect sprint’s net income loss sprint applied sfas 143 2002 7 restructuring asset impairments organizational realignment 2003 fourth quarter sprint undertook initiative realign internal resources enhance focus needs preferences two distinct consumer typesbusiness individuals business transformation initiative enabling enterprise effectively efficiently use asset portfolio create customerfocused communication solutions one goals initiative create efficient cost structure decisions made meet specific goal organizational realignment charges recognized severance costs associated work force reductions decisions made 2003 fourth quarter 2004 first quarter expected result involuntary separation approximately 2550 employees decisions made 2004 second quarter consolidate call center activity respond continued competitive pressures longdistance market expected result involuntary separation approximately 2350 additional employees october 2004 sprint announced strategic plans result additional work force reductions 1000 employees achieved attrition voluntary involuntary separations december 31 2004 approximately 5000 separations completed sprint recognized pretax charges 130 million 59 million 2004 2003 organizational realignment primarily associated severance benefits sprint currently expects aggregate pretax charges exceed 215 million actions associated decisions completed first half 2005 restructuring activity 2003 fourth quarter sprint announced termination development new billing platform wireless billing platform termination decisions resulted pretax charges 351 million 2003 fourth quarter charge asset impairments 339 million remaining 12 million accrued contractual obligations 2004 third quarter sprint recorded expense reduction 2 million result finalizing contractual obligations associated action 2003 second quarter sprint announced winddown web hosting business restructurings long distance operations also occurred continuing effort create efficient cost structure web hosting winddown decisions resulted pretax charges 376 million 2003 63 million 2004 aggregate charge asset impairments 316 million aggregate charge employee terminations 13 million remaining 110 million facility lease terminations severance charges associated involuntary employee separation approximately 600 employees december 31 2004 substantially activities associated winddown completed sprint recognized 439 million pretax charges 2002 fourth quarter sprint announced consolidation network information technology billing accounts receivable organizations well areas sprint ongoing effort streamline operations maintain competitive cost structure one sprint consolidation decisions resulted 146 million pretax charge consisting severance costs associated work force reductions totaling 58 million remaining 88 million accrued exit costs primarily associated termination real estate leases severance charge associated involuntary employee separation approximately 2100 employees 2003 fourth quarter sprint completed analysis true original estimates analysis resulted 12 million reduction liabilities remaining commitment reclassified current noncurrent liabilities 2002 fourth quarter sprint announced would reduce wireless operating expenses work force reduction wireless consolidation action undertaken create competitive cost structure business resulted 43 million pretax charge severance costs totaled 25 million remaining 18 million accrued exit costs primarily associated termination real estate leases severance charge associated involuntary employee separation approximately 1600 employees 2003 fourth quarter sprint completed analysis true original estimates analysis resulted 5 million reduction liabilities remaining commitment reclassified current noncurrent liabilities 2002 third quarter sprint announced restructuring integrating esolutions’ web hosting sales mobile computing consulting marketing product sales support capabilities sprint business integrating esolutions’ customer service operations network services additionally sprint announced long distance would discontinue offering internally supporting facilitiesbased digital subscriber line dsl services customers collectively long distance consolidation decisions resulted 202 million pretax charge asset impairments 142 million severance costs totaled 22 million remaining 38 million accrued exit costs associated termination real estate leases contractual obligations severance charge associated involuntary separation approximately 1100 employees 2003 fourth quarter sprint completed analysis true original estimates analysis resulted 18 million reduction associated asset impairment charge 15 million reduction liabilities remaining commitment reclassified current liabilities 2002 first quarter sprint announced plans close five wireless customer solution centers well additional steps reduce operating costs network sales distribution customer solutions business units wireless customer service center closures decisions resulted 23 million pretax charge severance costs 13 million remaining 10 million exit costs primarily termination real estate leases severance charge associated involuntary separation approximately 2600 employees 2002 third quarter sprint performed analysis finalize restructuring estimates recorded 2002 first quarter analysis resulted 6 million reduction liabilities remaining commitment reclassified current liabilities 2004 2003 activity summarized follows asset impairments sprint determined business conditions events occurring 2004 third quarter impacting long distance operations constituted “triggering event” requiring evaluation recoverability long distance longlived assets pursuant sfas 144 accounting impairment disposal longlived assets industrywide business conditions events included continuing impacts highlycompetitive long distance market related aggressive pricing recent changes regulatory climate negatively impacting longterm ability long distance bridge last mile consumer small business market segments product substitution customers’ accelerated demands costeffective advanced ipdriven telecommunications solutions requiring transparent wireline wireless connectivity light industrywide business conditions events sprint reevaluated strategy financial forecasts 2004 third quarter sprint intends focus sales efforts resources leader telecommunications solutions emphasizing 1 integrated telecommunications solutions 2 markets sprint leverage unique portfolio wireless wireline assets evaluations asset recoverability performed lowest asset group level identifiable cash flows largely independent cash flows assets asset groups due integrated nature long distance network sprint conducted testing asset group long distance entity level excluding assets held sale lowest level identifiable cash flows available concluded fiberoptic backbone constituted primary asset long distance asset group accordingly cash flows projected remaining useful life fiberoptic backbone cash flow projections reflect estimated future operating results considering relevant circumstances events estimated capital expenditures required maintain increase service potential asset group resulting undiscounted future cash flows less carrying value long distance asset group requiring asset group reduced fair value fair value asset group determined discounting cash flow projections 10 discount rate reflecting riskadjusted weighted average cost capital resulting fair value asset group required 352 billion pretax noncash impairment charge reducing net carrying value long distance property plant equipment 60 229 billion september 30 2004 october 2004 sprint completed sale wholesale dial ip business 34 million assets classified held sale september 30 2004 associated pretax noncash charge 21 million recorded 2004 third quarter adjust carrying value assets fair value 2003 third quarter sprint recorded pretax noncash charge 12 billion related writedown carrying value brs spectrum sprint’s ongoing evaluation business use asset resulted decision end pursuit residential fixed wireless strategy decision required impairment analysis asset sprint focusing efforts broad range alternative strategies sprint continuing invest spectrum monitoring technology industry developments involved efforts achieve favorable regulatory rulings respect spectrum 2003 first quarter sprint recorded 10 million asset impairment associated termination software development project 2002 fourth quarter sprint recorded charges asset impairments 56 million long distance recorded network asset impairment 14 million wireless recorded asset impairment 42 million related abandoned network projects 8 shortterm borrowings yearend 2004 2003 sprint shortterm notes payable commercial paper outstanding june 2004 sprint entered new revolving credit facility syndicate banks 10 billion facility unsecured springing liens structured 364day credit line subsequent oneyear 10 billion termout option sprint intend draw facility outstanding borrowings december 31 2004 sprint wireless accounts receivable asset securitization facility provides sprint 500 million additional liquidity facility expires june 2005 include ratings triggers would allow lenders involved terminate facility event credit rating downgrade maximum amount funding available based numerous factors fluctuate month sprint drawn facility outstanding borrowings december 31 2004 2003 respectively sprint long distance accounts receivable asset securitization facility provides sprint 700 million additional liquidity facility expires august 2005 include ratings triggers would allow lenders involved terminate facility event credit rating downgrade maximum amount funding available based numerous factors fluctuate month december 31 2004 2003 respectively sprint outstanding borrowings facility addition sprint standby letters credit serving backup various obligations approximately 123 million yearend 2004 borrowings sprint may incur ultimately limited certain debt covenants restrictive debt covenant interest coverage ratio sprint additional borrowing capacity 107 billion yearend 2004 covenant contained new revolving credit facility referenced exhibit 10b annual report form 10k limits debt defined agreement limitation interest additional debt restrictive covenant contained wireless long distance accounts receivable asset securitization facilities sprint currently compliance debt covenants associated borrowings see note 9 information current maturities longterm debt 9 longterm debt capital lease obligations sprint’s longterm debt capital lease obligations yearend follows 1 sprint’s weighted average effective interest rate related borrowings 71 yearended 2004 72 yearended 2003 effective interest rate includes effect interest rate swap agreements see note 5 details regarding interest rate swaps scheduled principal payments next five years follows included schedule payments made connection various capital lease obligations substantial portion capital lease payments japanese yen sprint already satisfied obligation depositing present value future yen payment obligations various banks amounts included consolidated balance sheet “other assets” based december 31 2004 outstanding balances total japanese capital lease payments included schedule 79 million 2005 110 million 2006 2004 fourth quarter sprint purchased 95 million senior notes schedule maturities notes interest rate 48 maturity date august 2006 sprint recorded premium 2 million 1 million unamortized debt costs associated repayment 2004 third quarter sprint paid 13 million capital lease obligations scheduled maturities sprint also purchased 516 million senior notes scheduled maturities notes interest rates ranging 60 69 maturity dates ranging 2007 2028 sprint recorded premium 38 million 2 million unamortized debt costs associated repayment 2004 second quarter sprint purchased 750 million senior notes related equity units scheduled maturities notes interest rate 60 maturity date august 2006 sprint recorded premium 20 million 9 million unamortized debt costs associated repayment 2003 third quarter sprint repaid scheduled maturities 418 million longterm debt prepayments consisted current maturities 300 million export development canada loan interest rate 28 34 million senior notes interest rates ranging 57 59 prepayments also included 84 million local’s first mortgage bonds interest rates ranging 91 93 maturity dates ranging 2019 2021 sprint recorded net premium 2 million associated prepayments 2003 first quarter sprint completed tender offer purchase 11 billion principal amount senior notes scheduled maturities notes interest rates ranging 57 59 maturity dates ranging 2003 2004 premium 19 million paid associated prepayments 2002 fourth quarter sprint repaid 150 million notes payable relating revolving credit facility sprint made 150 million investment entity provided credit time formed 1997 sprint liquidated investment received cash distribution approximating original investment sprint also repaid scheduled maturities 67 million senior notes borrowings interest rates ranging 60 71 maturities ranging 2006 2008 sprint recorded discount 4 million associated prepayment 2002 first quarter sprint issued 5 billion debt securities private placement borrowings interest rates ranging 79 88 maturities ranging 2005 2032 condition sale securities sprint conducted exchange offer allowed original securities exchanged substantially identical securities registered securities exchange commission exchange offer completed june 2002 substantially sprint’s senior notes including senior notes issued connection sprint’s equity units issued sprint capital corporation whollyowned finance subsidiary fully unconditionally guaranteed sprint parent corporation indentures financing agreements certain subsidiaries contain provisions limiting cash dividend payments subsidiary common stock held sprint result 489 million subsidiaries’ 30 billion total retained earnings restricted yearend 2004 flow cash form advances subsidiaries sprint generally restricted december 2004 796 million debt outstanding represents first mortgage debt capital lease obligations secured 153 billion gross property plant equipment sprint complied restrictive financial covenants relating debt arrangements yearend 2004 10 equity unit notes 2001 third quarter sprint completed registered offering 69 million equity units stated amount 25 net proceeds issuance approximately 17 billion deducting underwriting discount offering expenses included “equity unit notes” consolidated balance sheets december 31 2003 equity unit initially consisted corporate unit corporate unit consisted forward purchase contract 25 principal amount senior notes sprint’s wholly owned subsidiary sprint capital corporation corporate unit could converted holder treasury unit consisting forward purchase contract treasury portfolio zerocoupon us treasury securities substituting treasury securities notes underlying notes treasury portfolio pledged sprint secure holder’s obligations forward purchase contract forward purchase contract component equity units forward purchase contracts originally obligated holders purchase obligated sprint sell august 17 2004 variable number newly issued shares pcs common stock ranging approximately 58 million 70 million shares depending market price pcs common stock result recombination pcs common stock fon common stock april 23 2004 forward purchase contracts obligated holders purchase sprint sell variable number shares newly issued fon common stock ranging approximately 29 million 35 million shares forward purchase contracts included provision permitting equity unit holders benefit “participate” dividends declared common stock contract period august 17 2004 forward purchase contracts settled issuance approximately 35 million shares fon common stock exchange 17 billion cash notes originally interest rate 6 per annum payable quarterly arrears may 2004 sprint purchased 750 million principal amount notes scheduled maturity sprint recorded costs 29 million consisting 20 million premium 9 million unamortized debt costs associated prepayment may 2004 sprint successfully remarketed approximately 940 million principal amount notes interest rate notes reset 48 effective may 24 2004 remarketed notes mature august 17 2006 remaining 35 million principal amount outstanding notes retained holders notes also reset new interest rate following remarketing notes longer pledged secure obligations purchase contracts proceeds received previous note holders remarketing used collateral agent purchase securities pledged security december 2004 880 million remarketed notes included “longterm debt capital lease obligations” consolidated balance sheets 11 redeemable preferred stock redeemable preferred stock outstanding yearend follows seventh series preferred stock sprint issued series convertible preferred stock 1998 currently convertible approximately 325 shares fon common stock seventh series share converted holder earlier redeemed sprint seventh series preferred stock mandatorily redeemable november 2008 stated value plus accrued unpaid dividends 12 common stock april 23 2004 sprint recombined two tracking stocks share pcs common stock automatically converted 05 shares fon common stock april 23 2004 fon group pcs group longer exist fon common stock represents operations assets sprint including wireless local long distance first quarter 2003 france telecom ft converted 344 million shares series 3 pcs common stock shares series 1 pcs common stock time ft converted 216 million shares pcs common stock underlying class ft common stock series 1 pcs common stock upon issuance pcs shares underlying class ft common stock underlying shares pcs fon stock par value class ft common stock automatically reduced 000 per share 050 per share fourth quarter 2003 class ft shares cancelled classes common stock series 1 fon common stockdesignated general publicat end 2004 authorized shares totaled 25 billion issued outstanding shares totaled 13890 million series 1 pcs common stockdesignated general publicat end 2004 authorized shares totaled 30 billion shares outstanding series 2 fon common stockdesignated cable partnersat end 2004 authorized shares totaled 500 million issued outstanding shares totaled 858 million share series 2 fon common stock economic interest equal one share series 1 fon common stock 110 vote share series 1 fon common stock matters holders series 2 fon common stock right transfer shares upon transfer shares convert series 1 fon common stock full vote per share series 2 pcs common stockdesignated cable partnersat end 2004 authorized shares totaled 10 billion shares outstanding common stock reserved future grants yearend 2004 common stock reserved future grants plans providing grant stock options equitybased awards future grants employees stock purchase plan future issuances various arrangements included shareholder rights plan sprint’s shareholder rights plan one half preferred stock purchase right attached share fon stock rights may redeemed sprint 001 per right expire june 2007 unless extended rights exercisable certain takeover events occur right entitles holder purchase 11000 share unit par preferred stocksixth series 275 per unit terms plan least every three years nominating corporate governance committee sprint’s board directors required consider whether maintenance plan continues best interests sprint stockholders preferred stocksixth series voting cumulative accrues dividends quarterly basis generally equal greater 100 per share 2000 times total per share amount fon stock dividends shares preferred stocksixth series issued outstanding yearend 2004 2003 13 stockbased compensation effective january 1 2003 sprint adopted sfas 123 amended sfas 148 using prospective method upon adoption sprint began expensing fair value stockbased compensation grants modifications settlements made january 1 2003 result recombination tracking stocks see note 2 outstanding options purchase pcs common stock converted options purchase fon common stock multiplying number pcs shares option 05 conversion ratio rounding nearest whole share dividing exercise price pcs option 05 conversion ratio unless otherwise stated number shares option related exercise prices reflected following discussion adjusted reflect recombination tracking stocks recombination occurred earliest period presented required sfas 123 sprint accounted conversion pcs stock options fon stock options modification accordingly applied stock option expensing fon stock options resulting conversion pcs stock options granted january 1 2003 management incentive stock option plan management incentive stock option plan misop 2003 sprint granted stock options employees eligible receive annual incentive compensation eligible employees could elect receive stock options lieu portion target incentive sprint’s annual incentive compensation plans options generally became exercisable december 31 year granted maximum term 10 years misop sprint also granted stock options executives lieu longterm incentive compensation ltipmisop options ltipmisop options generally became exercisable third december 31 following grant date maximum term 10 years misop options granted exercise prices equal market price underlying common stock grant date yearend 2004 plan authorized options buy approximately 665 million common shares 209 million common shares remained available december 2003 board directors passed resolution capping shares authorized misop plan current level additional shares authorized amended terms plan 2004 2005 new options may granted plan april 2005 longterm stock incentive program 1997 longterm stock incentive program 1997 program sprint grant stock options restricted stock restricted stock units equity based awards directors employees board directors adopted stock option plan sop restricted stock plan pursuant 1997 program predecessor plan 2004 awards stock options generally made sop awards restricted stock made restricted stock plan certain awards made directly 1997 program february 2004 board directors combined sop restricted stock plan 1997 program since stock options restricted stock restricted stock units equity awards made directly 1997 program 1997 program number shares available grant increase year 2007 awards may granted plan april 2007 yearend 2004 plan authorized equitybased awards approximately 1332 million common shares 454 million shares remained available january 1 2005 number shares authorized 1997 program increased approximately 221 million shares employees directors granted restricted stock units required pay shares must remain employed sprint member board directors restrictions shares lapse restricted stock units granted 2004 officers generally vest onefourth second anniversary grant date threefourths third anniversary grant date restricted stock units granted 2004 directors vest three years stock options granted directors employees 1997 program generally become exercisable rate 25 per year beginning one year grant date maximum term 10 years 2004 options granted exercise prices equal market price underlying common stock grant date options granted directors 2004 first quarter 2003 sprint entered employment contract gary forsee serve sprint’s chief executive officer chairman board employment contract sprint granted stock options restricted stock units mr forsee vest subject continued employment sprint early 2001 sprint entered new employment contracts mr esrey mr lemay second quarter 2003 contracts terminated connection separation agreements agreed sprint mr esrey mr lemay separation agreements included option modifications accelerated vesting extended exercise periods stock options granted prior years sprint’s restricted stock plan sprint granted restricted stock officers key employees granted restricted stock required pay shares must remain employed sprint restrictions shares lapse restricted stock generally vests rate 333 per year first three anniversaries grant date restricted stock granted 2004 employees stock purchase plan sprint’s espp employees may elect purchase common stock price equal 85 market value grant exercise date whichever less yearend 2004 plan authorized purchase approximately 298 million shares elections made employees participating 2004 offering espp purchase 2005 approximately 36 million common shares 2003 amendment sprint’s espp established annual purchase date end yearly offering period lieu quarterly purchases fair value disclosures following tables reflect weighted average fair value per option granted well significant weighted average assumptions used determining fair values using blackscholes pricing model following information related pcs common stock adjusted reflect recombination tracking stocks recombination occurred earliest period presented fon common stock pcs common stock employees stock purchase plan 2004 espp offering employees elected purchase approximately 36 million common shares using blackscholes pricing model weighted average fair value 319 per share 2003 espp offering employees elected purchase approximately 18 million fon 72 million pcs shares using blackscholes pricing model weighted average fair value 411 per share fon election 252 per share pcs election recombination tracking stocks elections purchase pcs shares converted elections purchase fon shares 2002 espp offering employees purchased approximately 42 million fon 87 million pcs shares using blackscholes pricing model weighted average fair value 189 per share fon election 145 per share pcs election stock options activity 1997 program misop follows following tables summarize outstanding exercisable shares option yearend 2004 number shares exercisable weighted average prices 1014 million shares 2904 2004 1033 million shares 2936 2003 945 million shares 2955 2002 14 employee benefit plans defined benefit pension plan sprint employees covered noncontributory defined benefit pension plan benefits plan participants belonging unions based negotiated schedules nonunion participants pension benefits based years service participants’ compensation sprint uses december 31 measurement date defined benefit pension plan following table shows changes projected benefit obligation plan’s accumulated benefit obligation 4129 million december 31 2004 3730 million december 31 2003 following table shows changes plan assets yearend funded status amounts recognized consolidated balance sheets plan follows amounts recognized consolidated balance sheets consist accordance sfas 87 employers’ accounting pensions yearend 2004 2003 sprint recorded additional minimum pension liability representing excess unfunded accumulated benefit obligation plan assets accrued pension costs recognition additional pension liability also resulted intangible asset equal unrecognized prior service costs charge equity comprehensive income loss following table sets forth amounts yearended 2004 2003 2002 tax effect charge “accumulated comprehensive income loss” 10 million 2004 12 million 2003 444 million 2002 resulted net charge “accumulated comprehensive income loss” 8 million yearended 2004 25 million yearended 2003 713 million yearended 2002 sprint also maintains nonqualified defined benefit plan provide supplemental retirement benefits certain executives addition benefits provided qualified pension plan yearended 2004 additional minimum pension liability 20 million recognized nonqualified defined benefit plan charge “accumulated comprehensive income loss” 13 million net taxes net pension expense credit consisted following weightedaverage assumptions used determine net periodic pension costs weighted average assumptions used determine benefit obligations december 31 2004 assumption regarding expected longterm return plan assets 875 revising target asset allocation policy second half 2003 reduce pension trust’s exposure equities sprint obtained two investment consulting firms forwardlooking estimates expected longterm returns portfolio invested according revised target policy average two firms’ estimates 877 guiding reduction assumed longterm return prior year’s 90 875 plan’s asset allocations december 31 2004 2003 asset category follows pension trust invested welldiversified portfolio securities employee benefits committee established investment policy specifies asset allocation targets ranges trust equities 65 10 debt 15 5 real estate 10 5 alternatives 10 5 revision investment policy 2003 increased allocation real estate introduced new category defined alternatives asset category diversified portfolio investments consisting equity fixedincome instruments contribution 400 million temporarily invested debt securities suitable real estate alternatives investments identified funding real estate alternatives categories completed 2004 pension trust holds sprint securities yearended 2004 sprint contributed 300 million pension plan january 2004 sprint contributed 300 million pension plan january 2005 contribution expected made 2005 following benefit payments reflect expected future service appropriate expected paid defined contribution plans sprint sponsors defined contribution savings plans covering employees participants may contribute portions pay plans union employees sprint matches contributions based negotiated amounts sprint matches contributions nonunion employees fon stock matching contribution equal 25 participants’ contributions 6 pay 2004 second half 2003 matching contribution first half 2003 75 2002 matching contribution equal 50 participants’ contributions 6 pay addition sprint may discretion employee benefits committee provide additional matching contributions based performance fon stock compared dow jones total market telecom index sprint’s total matching contributions 29 million 2004 72 million 2003 84 million 2002 postretirement benefits sprint provides postretirement medical benefits employees sprint also provides postretirement life insurance employees retired certain dates employees retired certain dates eligible medical benefits cost reduced cost employees retire certain dates eligible medical benefits sharedcost basis sprint funds accrued costs benefits paid sprint uses december 31 measurement date postretirement benefit plans 2004 first quarter sprint amended certain retiree medical plans standardize plan design effective january 1 2005 eliminating differences benefit levels amendments decreased accumulated postretirement benefit obligation apbo related postretirement benefits approximately 35 million decreased 2004 net benefit expense 5 million result amendments sprint also recognized effects 2003 medicare prescription drug improvement modernization act contains subsidy employers provide prescription drug coverage retirees actuarially equivalent medicare part analysis sprint’s retiree prescription drug claims data determined sprint’s retiree prescription drug benefit actuarially equivalent estimating effects act estimates participation rates per capita claims costs changed effect recognizing federal subsidy related act 2004 first quarter 67 million reduction apbo 11 million reduction 2004 net benefit cost sprint accounted retiree medical benefit plan accordance financial accounting standards board staff position 1062 following table shows changes accumulated postretirement benefit obligation amounts included consolidated balance sheets yearend follows net postretirement benefits cost consisted following weightedaverage assumptions used determine net periodic postretirement benefit costs assumed health care cost trend rates december 31 assumed health care cost trend rates significant effect amounts reported health care plans onepercentagepoint change assumed health care cost trend rates would following effects plan assets totaled 43 million 40 million december 31 2004 2003 respectively sprint targets 60 allocation equities 40 allocation debt plans hold sprint securities sprint plans contribute postretirement benefit plan amount equal value benefits premiums paid expected benefit payments reflect expected future service appropriate expected subsidy receipts follows 15 income taxes income tax expense benefit allocated continuing operations consists following differences caused sprint’s effective income tax rates vary 35 federal statutory rate income taxes related continuing operations follows income tax expense benefit allocated items follows 1 amounts recorded directly “shareholders’ equityaccumulated comprehensive income loss” consolidated balance sheets 2 amounts recorded directly “shareholders’ equity capital excess par stated value” consolidated balance sheets sprint recognizes deferred income taxes temporary differences carrying amounts assets liabilities financial statement purposes tax bases sources differences give rise deferred income tax assets liabilities yearend 2004 2003 along income tax effect follows foreign loss included income loss continuing operations totaled 203 million 141 million 273 million 2004 2003 2002 respectively sprint material unremitted earnings foreign subsidiaries 1999 sprint acquired approximately 193 million potential tax benefits related net operating loss carryforwards acquisitions broadband fixed wireless companies 1998 sprint acquired approximately 229 million potential tax benefits related net operating loss carryforwards controlling interest acquisition wireless call pcs restructuring benefits acquisitions subject certain realization restrictions various tax laws valuation allowance provided total deferred tax benefits subsequently recognized first reduce goodwill intangibles resulting application purchase method accounting transactions goodwill intangibles related acquisition reduced zero additional tax benefits recognized would reduce tax expense connection pcs restructuring sprint required reimburse former cable company partners pcs net operating loss tax credit carryforward benefits generated pcs restructuring realization sprint produces cash benefit would otherwise realized reimbursement equal 60 net cash benefit received sprint made former cable company partners pcs shares sprint stock unexpired carryforward benefits subject requirement total 214 million yearend 2004 sprint federal operating loss carryforwards approximately 51 billion state operating loss carryforwards approximately 119 billion related loss carryforwards federal tax benefits 18 billion state tax benefits 822 million addition sprint available income tax purposes federal alternative minimum tax net operating loss carryforwards 49 billion state alternative minimum tax net operating loss carryforwards 13 billion loss carryforwards expire varying amounts 2024 sprint also available 397 million federal state income tax credit carryforwards yearend 2004 included amount 291 million income tax credits expire varying amounts 2024 remaining 106 million expire valuation allowance related deferred income tax assets increased 50 million 2004 increased 47 million 2003 management believes likely deferred income tax assets net valuation allowance realized based current income tax laws expectations future taxable income stemming reversal existing deferred tax liabilities ordinary operations uncertainties surrounding income tax law changes shifts operations state taxing jurisdictions future operating income levels may however affect ultimate realization deferred income tax assets evaluated qualitative factors uncertainties concerning industry found provide continuing evidence requiring valuation allowance currently recognize regarding ultimate realizability tax benefit net operating loss tax credit carryforwards december 31 2004 2002 sprint reached definitive agreement sell directory publishing business rh donnelley due anticipated gain sale sprint recognized 292 million tax benefits third quarter 2002 previously recorded investment losses 16 discontinued operations 2002 third quarter sprint reached definitive agreement sell directory publishing business rh donnelley 223 billion cash sale closed january 3 2003 pretax gain recognized 2003 214 billion 132 billion tax accordance sfas 144 accounting impairment disposal longlived assets sprint presented results operations directory publishing business discontinued operation consolidated financial statements summary financial information follows 17 commitments contingencies litigation claims assessments march 2004 eight purported class action lawsuits relating recombination tracking stocks filed sprint directors holders pcs common stock seven lawsuits consolidated district court johnson county kansas eighth pending new york voluntarily stayed consolidated lawsuit alleges breach fiduciary duty connection allocations fon group pcs group recombination tracking stocks breach fiduciary duty recombination lawsuit seeks rescind recombination monetary damages february 2005 court denied defendants’ motion dismiss compliant defendants denied plaintiffs’ allegations intend vigorously defend matter number putative class action cases allege sprint failed obtain easements property owners installation fiber optic network 1980’s filed various courts several cases sought certification nationwide classes one case nationwide class certified 2002 nationwide settlement claims approved us district court northern district illinois objectors appealed preliminary approval order seventh circuit court appeals october 2004 seventh circuit court appeals overturned settlement approval remanded case trial court proceedings settling parties filed petition certiorari us supreme court 2001 sprint accrued estimated settlement costs suits 2003 participants sprint retirement savings plan sprint retirement savings plan bargaining unit employees centel retirement savings plan bargaining unit employees filed suit us district court district kansas sprint committees administer plans plan trustee various current former directors officers consolidated lawsuit alleges defendants breached fiduciary duties plans violated erisa statutes making company contribution fon common stock pcs common stock including fon common stock pcs common stock among thirty investment options offered plan participants lawsuit seeks recover decline value fon common stock pcs common stock class period defendants denied plaintiffs’ allegations intend vigorously defend matter september 2004 us district court district kansas denied motion dismiss shareholder lawsuit alleging sprint’s 2001 2002 proxy statements false misleading violation federal securities laws extent described new employment agreements senior executives without disclosing according allegations replacement executives inevitable allegations made amended complaint lawsuit originally filed 2003 asserted sprint certain current former officers directors lawsuit seeks recover decline value fon common stock pcs common stock class period following denial dismissal motion parties stipulated case proceed class action defendants denied plaintiffs’ allegations intend vigorously defend matter allegations original complaint asserted claims sprint certain current former officers directors sprint’s former independent auditor dismissed court april 2004 various suits proceedings claims including purported class actions typical business enterprise pending sprint possible determine ultimate disposition proceedings whether resolved consistent sprint’s beliefs sprint expects outcome proceedings individually aggregate material adverse effect financial condition results operations sprint business segments commitments sprint minimum purchase commitments various vendors 2009 outstanding commitments yearend 2004 approximately 14 billion 30 billion yearend 2003 outstanding commitments consist primarily network equipment maintenance access commitments advertising marketing information technology services customer support provided third parties handset purchases expenses related normal business operations approximately 85 purchase commitments outstanding yearend 2004 incurred within next twelve months operating leases yearend 2004 sprint’s rental commitments operating leases consisting mainly leases cell switch sites real estate data processing equipment office space follows table includes sprint’s expected optional renewal periods related certain cell site switch site real estate leases subject escalation clauses generally initial fiveyear terms renewal options additional fiveyear terms totaling 20 25 years sprint’s gross rental expense totaled 11 billion 2004 12 billion 2003 13 billion 2002 rental expense includes lease expense calculated using straightline method including renewal option periods reasonably assured rental commitments subleases contingent rentals executory costs significant leasehold improvements depreciated lesser estimated useful life asset lease term including renewal option periods reasonably assured 18 additional financial information segment information sprint divided three segments wireless local long distance consists primarily wholesale distribution telecommunications products sprint manages segments operating income loss level reporting items operating income loss held corporate level sprint generally accounts transactions segments based fully distributed costs sprint believes approximate fair value certain transactions pricing set using market rates segment financial information follows nm meaningful 1 revenues eliminated consolidation consist primarily local access charged long distance local equipment purchases product distribution business interexchange services provided local long distance services provided wireless resale wireless customers internal business use caller id services provided local wireless handset purchases wireless access wireless network corporate assets allocated operating segments consist primarily cash equivalents corporate campus assets managed corporate level corporate capital expenditures incurred mainly various administrative assets improvements sprint’s corporate campus operating expenses related corporate assets allocated segment 2 see note 7 notes consolidated financial statements additional information 2004 2003 2002 94 sprint’s revenues services equipment provided within united states 99 sprint’s property plant equipment united states net operating revenues services products follows 1 revenues eliminated consolidation consist primarily local access charged long distance local equipment purchases product distribution business interexchange services provided local long distance services provided wireless resale wireless customers internal business use caller id services provided local wireless handset purchases wireless access wireless network 2 prior 2003 elimination information long distance tracked specific products services level eliminations considered voice revenues supplemental cash flows information sprint’s cash paid received interest income taxes follows sprint’s noncash activities included following 19 recently issued accounting pronouncements march 2004 emerging issues task force eitf financial accounting standards board fasb reached consensus eitf 036 participating securities twoclass method sfas 128 earnings per share eitf 036 guidance requires rights securities participate earnings enterprise must reflected reporting earnings per share sprint’s equity unit purchase contracts met “participating security” qualifications outlined guidance purchase contracts included provision permitting equity unit holders benefit “participate” dividends declared common stock contract period sprint adopted eitf 036 2004 second quarter prior april 23 2004 equity unit forward purchase contracts tied pcs common stock earnings upon declare dividends upon recombination settlement august 2004 equity unit purchase contracts participated earnings fon common stock proportionate share earnings attributable securities 9 million yeartodate period attribution reflected “earnings allocated participating securities” face consolidated statements operations sprint outstanding participating securities december 31 2004 december 2004 fasb issued sfas 123r sharebased payment statement requires entity recognize cost employee services received sharebased payment transactions use fairvaluebased methods recognizing cost statement effective sprint july 1 2005 sprint voluntarily adopted fair value accounting sharebased payments effective january 1 2003 sfas 123 amended sfas 148 using prospective method upon adoption sprint began expensing fair value stockbased compensation grants modifications settlements made january 1 2003 connection tracking stock recombination required sfas 123 sprint accounted conversion pcs stock options fon stock options modification accordingly applied stock option expensing fon stock options resulting conversion pcs stock options granted january 1 2003 revised standard require sprint begin recognize compensation cost unvested fon stock options granted january 1 2003 outstanding july 1 2005 requirement recognize expense additional unvested grants expected significant sprint 20 quarterly financial data unaudited 1 effects including incremental shares associated options restricted stock units espp shares antidilutive basic earnings per share diluted earnings per share reflect calculation 2004 third quarter 2003 second third quarters 2 april 23 2004 sprint recombined two tracking stocks share pcs common stock automatically converted 05 shares fon common stock per share amounts restated reflect recombination fon common stock pcs common stock earliest period presented identical conversion ratio 05 conversion ratio also applied dilutive pcs securities mainly stock options employee stock purchase plan shares convertible preferred stock restricted stock units determine diluted weighted average shares consolidated basis 21 restatements previously issued financial statements november 2004 sprint restated previouslyissued financial statements correct error related calculation interest capitalized construction financial statements also restated apply adjustment previously recorded disclosed 2003 fourth quarter related liability medical coverage participants sprint’s longterm disability plan appropriate pre2003 periods 22 subsequent events unaudited dividend declaration february 2005 sprint’s board directors declared dividends 125 cents fon common stock shareholders record close business march 10 2005 dividends paid march 31 2005 new director february 2005 new independent director james h hance jr retired vice chairman bank america corporation appointed sprint board directors wireless towers lease february 2005 sprint reached definitive agreement global signal inc global signal global signal exclusive rights lease operate 6600 communication towers sprint negotiated lease term greater remaining terms underlying ground leases 32 years assuming successful renegotiation underlying ground leases end current lease terms sprint committed sublease space approximately 6400 towers global signal minimum ten years sprint maintain ownership towers continue reflect towers consolidated balance sheet sprint expects receive approximately 12 billion cash time closing transaction expected close second quarter 2005 spectrum auction february 15 2005 fcc concluded auction 242 personal communications services licenses wirefree partners iii llc wirefree licenses 16 markets subject fcc approval sprint agreements wirefree lease certain spectrum 16 markets sprint corporation schedule iiconsolidated valuation qualifying accounts years ended december 31 2004 2003 2002 1 amounts charged accounts consist receivable reserves billing collection services sprint provides certain sprint pcs affiliates uncollectible accounts recovered affiliates 2 accounts written net recoveries item 15 exhibits financial statement schedules 1 consolidated financial statements sprint nextel filed part report listed index consolidated financial statements financial statement schedule 2 financial statement schedule sprint nextel filed part report listed index consolidated financial statements financial statement schedule 3 following exhibits filed part report filed herewith schedules andor exhibits filed furnished sec upon request portions exhibit omitted filed separately sec pursuant request confidential treatment sprint nextel furnish sec upon request copies instruments defining rights holders longterm debt exceeding 10 total assets sprint nextel signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized sprint nextel corporation registrant daniel r hesse daniel r hesse chief executive officer president william g arendt william g arendt acting chief financial officer senior vice president controller principal accounting officer date february 29 2008 pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities indicated 29th day february 2008 daniel r hesse daniel r hesse chief executive officer president william g arendt william g arendt acting chief financial officer senior vice president controller principal accounting officer signatures sprint nextel corporation registrant pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities indicated 29th day february 2008 sprint nextel corporation index consolidated financial statements financial statement schedule report independent registered public accounting firm board directors shareholders sprint nextel corporation audited accompanying consolidated balance sheets sprint nextel corporation subsidiaries december 31 2007 2006 related consolidated statements operations cash flows shareholders’ equity years threeyear period ended december 31 2007 connection audits consolidated financial statements also audited financial statement schedule iivaluation qualifying accounts also audited sprint nextel corporation’s internal control financial reporting december 31 2007 based criteria established internal controlintegrated framework issued committee sponsoring organizations treadway commission coso sprint nextel corporation’s management responsible consolidated financial statements financial statement schedule maintaining effective internal control financial reporting assessment effectiveness internal control financial reporting included management’s report internal control financial reporting responsibility express opinion consolidated financial statements financial statement schedule opinion company’s internal control financial reporting based audits conducted audits accordance standards public company accounting oversight board united states standards require plan perform audits obtain reasonable assurance whether financial statements free material misstatement whether effective internal control financial reporting maintained material respects audits consolidated financial statements included examining test basis evidence supporting amounts disclosures financial statements assessing accounting principles used significant estimates made management evaluating overall financial statement presentation audit internal control financial reporting included obtaining understanding internal control financial reporting assessing risk material weakness exists testing evaluating design operating effectiveness internal control based assessed risk audits also included performing procedures considered necessary circumstances believe audits provide reasonable basis opinions company’s internal control financial reporting process designed provide reasonable assurance regarding reliability financial reporting preparation financial statements external purposes accordance generally accepted accounting principles company’s internal control financial reporting includes policies procedures 1 pertain maintenance records reasonable detail accurately fairly reflect transactions dispositions assets company 2 provide reasonable assurance transactions recorded necessary permit preparation financial statements accordance generally accepted accounting principles receipts expenditures company made accordance authorizations management directors company 3 provide reasonable assurance regarding prevention timely detection unauthorized acquisition use disposition company’s assets could material effect financial statements inherent limitations internal control financial reporting may prevent detect misstatements also projections evaluation effectiveness future periods subject risk controls may become inadequate changes conditions degree compliance policies procedures may deteriorate opinion consolidated financial statements referred present fairly material respects financial position sprint nextel corporation subsidiaries december 31 2007 2006 results operations cash flows years threeyear period ended december 31 2007 conformity accounting principles generally accepted united states america also opinion related financial statement schedule considered relation basic consolidated financial statements taken whole presents fairly material respects information set forth therein also opinion sprint nextel corporation maintained material respects effective internal control financial reporting december 31 2007 based criteria established internal controlintegrated framework issued committee sponsoring organizations treadway commission discussed note 1 consolidated financial statements company changed method quantifying errors 2006 adopted provisions fasb interpretation 47 accounting conditional asset retirement obligations fourth quarter 2005 kpmg llp mclean virginia february 29 2008 sprint nextel corporation consolidated balance sheets see notes consolidated financial statements sprint nextel corporation consolidated statements operations see notes consolidated financial statements sprint nextel corporation consolidated statements cash flows see notes consolidated financial statements sprint nextel corporation co nsolidated statements shareholders’ equity millions sprint nextel corporation co nsolidated statements shareholders’ equitycontinued millions 1 see note 10 information regarding common shares 2 see note 1 details adoption sab 108 3 see note 7 details adoption fin 48 see notes consolidated financial statements sprint nextel corporation notes consolidated financial statements note 1 summary operations significant accounting policies information summary operations global communications company offering comprehensive range wireless wireline communications products services designed meet needs individual consumers businesses government customers organized operations meet needs targeted customer groups focused communications solutions incorporate capabilities wireless wireline services one three largest wireless companies united states based number wireless subscribers extensive wireless networks global long distance tier 1 internet backbone series 1 voting common stock trades new york stock exchange symbol “s” offer digital wireless service 50 states puerto rico us virgin islands part commercial affiliation arrangements us third party affiliates referred pcs affiliate together three remaining pcs affiliates provide code division multiple access cdma based personal communications services pcs sprint® brand name pcs affiliates offer digital wireless service mainly around smaller us metropolitan areas wireless networks built operated expense instances using spectrum licensed controlled us also offer numerous sophisticated data messaging photo video offerings entertainment locationbased applications marketed power visionsm across cdma network utilize highspeed evolution data optimized evdo technology also offer digital wireless services nextel® brand name using integrated digital enhanced network iden® technology brand features industryleading walkietalkie services direct connect® give subscribers ability communicate instantly across continental united states hawaii agreements idenbased providers selected markets canada latin america mexico well variety digital wireless mobile telephone wireless data transmission services order offer subscribers iden services benefits applications cdma network walkietalkie features line combined cdmaiden devices marketed powersourcetm feature voice applications cdma network walkietalkie applications iden network also offer wireless services focus youth market including boost mobile® prepaid wireless service iden network boost unlimited local calling prepaid service cdma network operations include results several companies acquired principally 2006 2005 beginning either date respective company acquired start month closest acquisition accordingly transactions affect comparability reported results reported prior periods see note 2 additional information regarding transactions may 17 2006 spunoff shareholders local communications business known embarq corporation comprised primarily local segment reported consolidated financial statements prior periods results operations balance sheets operating cash flows business presented discontinued operations periods presented footnotes accompanying consolidated financial statements reflect continuing operations unless otherwise noted exclude information related embarq see note 15 additional information regarding transaction consolidation policies estimates adoption sab 108 reclassifications consolidation policies consolidated financial statements include accounts wholly owned subsidiaries control well variable interest entities primary beneficiary significant sprint nextel corporation notes consolidated financial statementscontinued intercompany transactions balances eliminated consolidation use equity method account equity investments unconsolidated entities ability exercise significant influence operating financial policies recognize changes proportionate share equity entities resulting equity transactions adjustments investment shareholders’ equity balances estimates adoption sab 108 reclassifications prepare consolidated financial statements conformity accounting principles generally accepted united states require management make estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities date balance sheet well reported amounts revenues expenses reporting periods due inherent uncertainty involved making estimates actual results could differ estimates areas significant estimates made include limited revenue recognition allowance doubtful accounts receivable inventory obsolescence tax valuation allowances useful lives property plant equipment definite lived intangible assets goodwill indefinite lived intangible asset impairment analyses evaluation uncertain tax positions fair value assets acquired liabilities assumed business combinations effective january 1 2006 adopted staff accounting bulletin sab 108 considering effects prior year misstatements quantifying misstatements current year financial statements sab 108 requires dual approach quantifying misstatements using method quantifies misstatement based amount misstatement originating current year statement operations well method quantifies misstatement based effects correcting misstatement existing balance sheet prior adoption sab 108 quantified misstatements consolidated financial statements using statement operations method addition evaluating qualitative characteristics fourth quarter 2006 discovered lease accounting misstatements process migrating 30000 leases single lease accounting system process identified previously accurately calculating straightline impact operating lease expense accurately following definition lease term number leases misstatements accumulated several years immaterial quantifying misstatements using statement operations method upon adoption sab 108 january 1 2006 recorded 81 million increase deferred rent liability cumulative misstatements december 31 2005 addition reduced retained earnings 50 million recorded 31 million deferred tax asset related 2006 misstatement 17 million 10 million net tax recorded fourth quarter 2006 certain prior period amounts reclassified conform current period presentation significant accounting policies cash equivalents cash equivalents generally include highly liquid investments original maturities purchase three months less investments include money market funds us government governmentsponsored debt securities corporate debt securities municipal securities bankrelated securities credit debit card transactions process sprint nextel corporation notes consolidated financial statementscontinued supplemental cash flow information continuing operations noncash activities included following investments record investments marketable equity securities fair value consider availableforsale securities accordingly record unrealized holding gains losses securities accumulated comprehensive income loss net related income tax realized gains losses measured reclassified accumulated comprehensive income loss earnings based identifying specific investments sold 2007 2006 2005 recorded gross unrealized holding gains 8 million 6 million 143 million gross unrealized holding losses 1 million 2007 8 million 2006 equity securities see note 9 information regarding sale nii holdings inc availableforsale securities 2006 certain equity securities accounted cost record investments debt securities amortized cost classify securities current assets consolidated balance sheets original maturities purchase greater 90 days less one year interest investments debt securities reinvested included interest income consolidated statements operations 2007 2006 2005 recognized 31 million 122 million 96 million interest income respectively securities assess declines value individual investments determine whether decline otherthantemporary thus investment impaired make assessment considering available evidence including changes general market conditions specific industry individual company data length time extent market value less cost financial condition nearterm prospects individual company intent ability hold investment account investment virgin mobile usa llc vmu using equity method december 31 2007 held approximate 185 ownership interest continued ability sprint nextel corporation notes consolidated financial statementscontinued exercise significant influence vmu continues use network mobile virtual network operator mvno agreement october 16 2007 vmu made initial public offering stock conjunction initial public offering sold approximately 48 ownership interest cash proceeds approximately 155 million ownership percentage vmu reduced also recognized 85 million previously deferred gain 180 million related capital previously returned vmu us consequently recognized total gain 240 million 2007 remaining 95 million return capital recorded deferred credit consolidated balance sheet due fact vmu originally obtained financing order return capital time initial public offering vmu also repaid outstanding debt us amount 45 million related credit extended vmu 2006 participation revolving credit facility allowance doubtful accounts establish allowance doubtful accounts receivable sufficient cover probable reasonably estimable losses number wireless accounts practical review collectibility accounts individually determine amount allowance doubtful accounts period perform account level analysis respect large wireless wireline customers estimate allowance doubtful accounts considers number factors including collection experience aging accounts receivable portfolios credit quality subscriber base estimated proceeds future bad debt sales qualitative considerations including macroeconomic factors allowance doubtful accounts represents best estimate future outcomes extent actual experience differs significantly historical trends required allowance amount could differ estimate resulting adjustments would change net accounts receivable reported consolidated balance sheet bad debt expense case estimates related doubtful accounts revenue case estimates related allowances reported results operations future periods device accessory inventory inventories handsets accessories wireless segment stated lower cost market determine cost firstin firstout fifo method handset costs related revenues recognized time sale recognize expected handset subsidies prior time sale promotional discount decision made point sale expect recover handset subsidies service revenues analyze realizable value handset inventory quarterly basis analysis includes assessing obsolescence sales forecasts product life cycle marketplace considerations assessments regarding factors change may required sell handsets higher subsidy potentially record expense future periods prior point sale extent expect unable sell handsets use service repair channel benefit plans provide defined benefit pension plan certain postretirement benefits certain employees sponsor defined contribution plan employees effective december 31 2006 adopted statement financial accounting standards sfas 158 employers’ accounting defined benefit pension postretirement plans statement requires recognition funded status benefit plan measured difference fair value plan assets benefit obligations asset sprint nextel corporation notes consolidated financial statementscontinued liability consolidated balance sheet also requires changes funded status recorded comprehensive income year changes occur december 31 2007 2006 fair value plan assets 14 billion 12 billion respectively fair value benefit obligations 16 billion 15 billion respectively result aggregated amount underfunded plans 217 million december 31 2007 261 million december 31 2006 recorded liability consolidated balance sheet intend make future cash contributions pension plan amount necessary meet minimum funding requirements erisa time sprintnextel merger extend plan participation defined benefit pension plan postretirement benefits nextel employees amended postretirement medical benefit plan include employees designated work embarq employees employed us prior sprintnextel merger born 1956 december 31 2005 pension plan also amended freeze benefit plan accruals participants designated work embarq following spinoff may 17 2006 connection spinoff embarq accrued pension benefit obligations postretirement benefit obligations participants designated work embarq related plan assets transferred embarq aggregate plan activity including net expense 18 million 2007 34 million 2006 237 million 2005 related disclosures material us december 31 2007 provided disclosures generally required sfas 158 defined contribution plan participants may contribute portion eligible pay plan payroll withholdings 2007 2006 matched cash 100 participants’ contributions 5 eligible compensation prior years participants’ contributions matched common stock total matching contributions 128 million 2007 126 million 2006 56 million 2005 income taxes income taxes accounted using assetliability approach accordance sfas 109 accounting income taxes deferred tax assets liabilities determined based temporary differences financial reporting tax bases assets liabilities applying enacted statutory tax rates effect year differences expected reverse deferred tax assets also recorded net operating loss capital loss tax credit carryforwards required estimate amount taxes payable refundable current year deferred tax liabilities assets future tax consequences events reflected consolidated financial statements tax returns taxing jurisdiction operate process requires management make assessments regarding timing probability ultimate tax impact record valuation allowances deferred tax assets determine likely asset realized additionally establish reserves uncertain tax positions based upon judgment regarding potential future challenges positions recognize interest related unrecognized tax benefits interest expense interest income recognize penalties additional income tax expense adopted financial accounting standards board fasb interpretation 48 accounting uncertainty income taxes fin 48 january 1 2007 accounting estimates related liability uncertain tax positions require us make judgments regarding sustainability uncertain tax position based technical merits determine likely tax position sustained based technical merits record impact position consolidated financial statements largest amount greater fifty percent likely realized upon ultimate settlement estimates updated reporting date based facts circumstances information available also required assess reporting date whether reasonably possible significant increases decreases unrecognized tax benefits occur next twelve months see note 7 information sprint nextel corporation notes consolidated financial statementscontinued property plant equipment record property plant equipment ppe including improvements extend useful lives cost ppe primarily includes network equipment site costs buildings improvements software office equipment nonnetwork internal use software depreciated placed service well network asset inventory construction progress depreciated placed service network equipment site costs software includes switching equipment cell site towers base transceiver stations site development costs radio frequency equipment internal use software digital fiberoptic cable conduit transport facilities transmissionrelated equipment buildings improvements principally consists owned general office facilities retail stores leasehold improvements nonnetwork internal use software office equipment primarily consists furniture information technology systems equipment vehicles network asset inventory construction progress primarily includes materials transmission related equipment labor engineering site development costs interest costs relating construction development network capitalized interest incurred connection construction capital assets totaled 127 million 2007 113 million 2006 53 million 2005 repair maintenance costs research development costs expensed incurred capitalize costs network nonnetwork software developed obtained internal use application development stage costs included ppe software placed service depreciated estimated useful lives 85 years costs incurred preliminary project postimplementation stage well maintenance training costs expensed incurred cost ppe generally depreciated straightline basis estimated economic useful lives amortization assets recorded capital leases recorded depreciation expense depreciate leasehold improvements shorter lease term estimated useful life respective assets depreciate buildings network equipment site costs software estimated useful lives 31 years 89 assets depreciated lives five 15 years nonnetwork internal use software office equipment depreciable property plant equipment estimated useful lives 12 years 83 assets depreciated lives three five years calculate depreciation certain assets using group life method accordingly ordinary asset retirements disposals charged accumulated depreciation gain loss recognized perform annual internal studies confirm appropriateness depreciable lives categories ppe since changes technology changes intended use assets well changes broad economic industry factors may cause estimated period use assets change studies take account actual usage physical wear tear replacement history assumptions technology evolution calculate remaining life asset base factors indicate useful lives ppe different previous assessment depreciate remaining book values prospectively adjusted estimated useful lives addition performing annual studies also continue assess estimated useful life iden network assets future strategic plans network increasingly larger portion subscriber base served cdma network reduction estimate useful life iden network assets would cause increased depreciation charges future periods could material review longlived assets impairment whenever events changes circumstances indicate carrying amount may recoverable group longlived assets lowest level identifiable cash flows largely independent cash flows groups assets liabilities asset groups consist wireless wireline wireless asset group includes intangible assets goodwill indicators impairment asset groups include limited sustained significant sprint nextel corporation notes consolidated financial statementscontinued decrease fair value cash flows expected derived asset groups significant change extent manner assets group utilized significant amount judgment involved determining occurrence indicator impairment requires evaluation recoverability longlived assets total expected undiscounted future cash flows less carrying amount longlived assets loss recognized difference fair value carrying value assets impairment analyses performed based current business technology strategy views growth rates business anticipated future economic regulatory conditions expected technological availability see note 3 additional information addition analyses described periodically assess certain assets yet deployed business including network equipment cell site development costs software development determine impairment charge required network equipment cell site development costs impaired whenever events changes circumstances cause us abandon assets longer needed meet management’s strategic network plans software development costs impaired longer probable software project deployed also periodically assess network equipment removed network determine impairment charge required continue challenges retaining current iden subscribers continue assess impact rebanding iden network management may abandon certain iden assets future periods conclude assets either never deployed redeployed case would recognize noncash impairment charge could material consolidated financial statements adopted fasb interpretation 47 fin 47 accounting conditional asset retirement obligations interpretation sfas 143 accounting asset retirement obligations fourth quarter 2005 resulting cumulative adjustment due change accounting principle tax 16 million adjustment due recognition asset retirement obligations primarily related discontinued operations environmental remediation requirements contractual obligations estimated settlement dates determined intangible assets goodwill indefinite lived intangibles goodwill represents premium paid fair value net tangible intangible assets acquired business combinations also acquired several kinds federal communications commission fcc licenses primarily fcc auctions business combinations deploy wireless services identified fcc licenses sprint boost mobile® trademarks indefinite lived intangible assets addition goodwill considering expected use assets regulatory economic environment within used effects obsolescence use refer note 3 additional description impairment testing policies assets definite lived intangible assets definite lived intangible assets consist primarily customer relationships amortized two five years using sum years’ digits method believe best reflects estimated pattern economic benefits consumed definite lived intangible assets primarily include certain rights affiliation agreements reacquired connection acquisitions pcs affiliates nextel partners amortized remaining terms affiliation agreements straightline basis nextel direct connect® trade names amortized ten years sprint nextel corporation notes consolidated financial statementscontinued date sprintnextel merger straightline basis also evaluate remaining useful lives definite lived intangible assets reporting period determine whether events circumstances warrant revision remaining periods amortization would addressed prospectively review longlived intangible asset groups impairment policy described property plant equipment whenever events changes circumstances indicate carrying amount may recoverable impairment analyses performed based current business technology strategy views growth rates business anticipated future economic regulatory conditions expected technological availability addition annual goodwill test requires us determine implied fair value goodwill also evaluate recorded value longlived assets impairment derivative instruments hedging activities recognize derivative instruments either assets liabilities consolidated balance sheets measure instruments fair value accordance sfas 133 accounting derivative instruments hedging activities amended changes fair value derivatives recorded period current earnings comprehensive income loss depending use derivative whether qualifies hedge accounting use derivative instruments hedging risk management purposes hedging activity may done purposes mitigating risks associated asset liability committed transaction probable forecasted transaction primarily exposed market risk associated unfavorable movements interest rates equity prices foreign currencies enter derivative transactions speculative trading purposes inception ongoing basis assess whether derivative qualifies hedge accounting continues highly effective offsetting changes cash flows fair value hedged item derivative instrument longer expected highly effective hedge accounting discontinued hedge ineffectiveness included current period earnings formally document hedging relationships hedging instrument hedged item well risk management objectives strategies undertaking various hedge transactions treasury shares common stock repurchased us recorded cost treasury shares result reduction shareholders’ equity reissue treasury shares part shareholder approved stockbased compensation programs well upon conversion outstanding securities convertible common stock shares reissued determine cost using weighted average cost method reissuance shares amount greater original cost treasury shares record increase paidin capital excess reissuance less original cost treasury shares record decrease paidin capital retained earnings accumulated deficit shortage revenue recognition operating revenues primarily consist wireless service revenues generated handset accessory sales revenues wholesale operators pcs affiliates well long distance voice data internet revenues service revenues consist fixed monthly recurring charges variable usage charges sprint nextel corporation notes consolidated financial statementscontinued roaming directory assistance operatorassisted calling miscellaneous fees activation upgrade late payment reconnection early termination fees certain regulatory related fees recognize service revenues services rendered equipment revenue title passes dealer enduser customer accordance emerging issues task force eitf issue 0021 revenue arrangements multiple deliverables sab 104 revenue recognition recognize revenue access charges services charged fixed amounts ratably service period net credits adjustments service discounts billing disputes fraud unauthorized usage recognize excess wireless usage long distance revenue contractual rates per minute minutes used additionally recognize excess wireless data usage based kilobytes onetime use charges use premium services rendered result cutoff times multiple billing cycles month required estimate amount subscriber revenues earned billed end billing cycle end reporting period estimates based primarily rate plans effect historical usage billing patterns regulatory fees costs recorded gross accordance eitf issue 063 taxes collected customers remitted governmental authorities presented income statement gross versus net presentation largest component regulatory fees universal service fund represented 2 net operating revenue 2007 2006 2005 accounting estimates related recognition revenue results operations require us make assumptions future billing adjustments disputes customers unauthorized usage future returns mailin rebates handset sales dealer commissions account compensation programs dealers accordance eitf issue 019 accounting consideration given vendor customer including reseller vendor’s products cash consideration given us dealer enduser customer presumed reduction revenue unless receive identifiable benefit exchange consideration fair value benefit reasonably estimated case consideration presented selling expense compensate dealers using specific compensation programs related sale handsets subscriber service contracts commission earned dealer solely due selling activity relating wireless service cost recorded selling expense commission earned dealer due dealer selling one handsets cost recorded reduction equipment revenue advertising costs recognize advertising expense incurred expenses include production media promotional sponsorship costs advertising expenses totaled 18 billion 2007 16 billion 2006 14 billion 2005 sharebased compensation measure cost employee services received exchange award equitybased securities using fair value award date grant recognize cost period award recipient required provide service us exchange award awards liability instruments employees would measured fair value reporting date settlement see note 11 additional information sprint nextel corporation notes consolidated financial statementscontinued severance exit costs recognize liabilities severance exit costs based upon nature cost incurred involuntary separation plans completed within guidelines written involuntary separation plan record liability probable reasonably estimable accordance sfas 112 employers’ accounting postemployment benefits voluntary separation plans vsp liability recorded accordance sfas 88 employers’ accounting settlements curtailments defined benefit pension plans termination benefits vsp accepted employee onetime termination benefits additional severance pay benefit payouts exit costs lease termination costs liability measured recognized initially fair value period liability incurred subsequent changes liability recognized adjustments period change accordance sfas 146 accounting costs associated exit disposal activities business combination occurred record severance lease exit costs part purchase price allocation accordance eitf issue 953 recognition liabilities connection purchase business combination see note 6 additional information earnings loss per common share basic earnings loss per common share calculated dividing income loss available common shareholders weighted average number common shares outstanding period diluted earnings loss per common share adjusts basic earnings loss per common share effects potentially dilutive common shares potentially dilutive common shares include dilutive effects shares issuable equity plans computed using treasury stock method dilutive effects shares issuable upon conversion convertible senior notes computed using ifconverted method shares issuable equity plans antidilutive 2007 incurred net loss continuing operations although used determination earnings loss per common share 2007 39 million dilutive shares issuable equity plans 11 million shares issuable upon assumed conversion convertible senior notes could potentially dilute earnings per common share future however excluded calculation diluted earnings per common share 2007 due antidilutive effects december 31 2007 124 million average shares issuable equity plans could also potentially dilute earnings per common share future exercise prices exceeded average market price period dilutive shares issuable equity plans used calculating earnings per common share 22 million shares 2006 11 million shares issuable upon assumed conversion convertible senior notes could potentially dilute earnings per common share future however excluded calculation diluted earnings per common share 2006 due antidilutive effects additionally 115 million average shares issuable equity plans could also potentially dilute earnings per common share future excluded calculation diluted earnings per common share 2006 exercise prices exceeded average market price period dilutive shares issuable equity plans used calculating earnings per common share 21 million shares 2005 december 31 2005 11 million shares issuable upon assumed conversion convertible senior notes could potentially diluted earnings per common share future excluded calculation diluted earnings per common share 2005 due antidilutive effects additionally december 31 2005 66 million average shares issuable sprint nextel corporation notes consolidated financial statementscontinued equity plans could also potentially diluted earnings per common share future however excluded calculation diluted earnings per common share 2005 exercise prices exceeded average market price period significant new accounting pronouncements new fair value accounting pronouncements september 2006 fasb issued sfas 157 fair value measurements statement changes definition fair value defined previous statements “the price would received sell asset paid transfer liability orderly transaction market participants measurement date” additionally statement establishes hierarchy classifies inputs used measure fair value february 2007 fasb issued sfas 159 fair value option financial assets financial liabilities statement allows entities choice measure certain financial instruments items fair value specified measurement dates report unrecognized gains losses earnings serves minimize volatility earnings occurs assets liabilities measured differently without apply complex hedge accounting provisions sfas 157 sfas 159 effective quarterly reporting period ending march 31 2008 however february 2008 fasb issued fasb staff position partially delay effective date sfas 157 nonfinancial assets nonfinancial liabilities except recognized disclosed fair value financial statements recurring basis fiscal years beginning november 15 2008 based fasb staff position noted partial adoption sfas 157 material impact financial position results operations 2008 still assessing impact sfas 157 nonrecurring measurements nonfinancial assets liabilities 2009 upon partial adoption sfas 157 quarterly period ending march 31 2008 expect additional disclosures notes consolidated financial statements certain recurring fair value measurements continuing evaluate impact fasb staff position noted relates disclosure nonrecurring fair value measurements annual impairment review goodwill fcc licenses require significant disclosures related key assumptions variables used analyses plan elect fair value option provisions sfas 159 eligible financial assets liabilities held january 1 2008 however apply fair value provisions statement eligible assets liabilities subsequently acquired modified january 1 2008 new accounting pronouncements september 2006 eitf reached consensus issue 061 accounting consideration given service provider manufacturer reseller equipment necessary endcustomer receive service provider eitf issue 061 provides guidance regarding whether consideration given service provider manufacturer reseller specialized equipment characterized reduction revenue expense issue effective quarterly reporting period ending march 31 2008 entities required recognize effects applying issue change accounting principle retrospective application prior periods unless impracticable expect consensus material impact consolidated financial statements june 2007 eitf reached consensus issue 0611 accounting income tax benefits dividends sharebased payment awards eitf issue 0611 provides guidance regarding entity recognize tax benefit received result dividends paid holders sharebased compensation sprint nextel corporation notes consolidated financial statementscontinued awards charged retained earnings accumulated deficit according sfas 123r sharebased payment issue effective quarterly reporting period ending march 31 2008 expect consensus material impact consolidated financial statements december 2007 fasb issued sfas 141r business combinations revises sfas 141 business combinations originally issued june 2001 sfas 141r apply business combinations acquisition date january 1 2009 statement could material impact us respect business combinations completed effective date significant changes include limited “acquirer” recording 100 assets liabilities including goodwill acquired business generally fair values acquisitionrelated transaction restructuring costs expensed rather treated part cost acquisition included amount recorded assets acquired addition effective date reversals valuation allowances related acquired deferred tax assets changes acquired income tax uncertainties related business combinations even completed prior statement’s effective date recognized earnings except qualified measurement period adjustments december 2007 fasb issued sfas 160 noncontrolling interests consolidated financial statements statement amends accounting research bulletin 51 consolidated financial statements establish accounting reporting standards noncontrolling interest subsidiary deconsolidation subsidiary sfas 160 effective quarterly reporting period ending march 31 2009 statement could material impact us extent enter arrangement effective date standard required consolidate noncontrolling interest event occurred report noncontrolling interest’s equity component equity consolidated balance sheet would report component net income loss comprehensive income loss attributable noncontrolling interest separately changes ownership interests treated equity transactions upon loss control gain loss interest sold recognized earnings concentrations risk accounts notes receivable subject concentration credit risk exposed risk loss would occur counterparty defaults derivative transaction used hedging risk management purposes exposure controlled credit approvals continual review monitoring counterparties legal review contracts event nonperformance counterparties accounting loss would limited net amount would entitled receive terms applicable interest rate swap agreement foreign currency contract however anticipate nonperformance counterparties contracts rely motorola inc provide us technology improvements designed maintain expand iden®based wireless services motorola provides substantially iden infrastructure equipment used iden network substantially iden handsets agreements motorola set prices must pay purchase license equipment well structure develop new features make longterm improvements network motorola also provides integration services connection deployment iden network elements also agreed warranty maintenance programs specified indemnity arrangements motorola expected continue sole source supplier iden infrastructure iden handsets except primarily blackberry® devices manufactured research motion ability timely efficiently implement spectrum reconfiguration plan connection report order described note 13 dependent part motorola sprint nextel corporation notes consolidated financial statementscontinued suppliers cdma handsets license intellectual property qualcomm incorporated qualcomm intellectual property found infringe certain patents owned broadcom corporation district court recently enjoined qualcomm infringement patents issue certain activities injunction effective immediately however ruling contains sunset provision expires january 31 2009 provides time qualcomm modify infringing products avoid infringement qualcomm modify products avoid infringement broadcom’s patents issue january 31 2009 qualcomm unable sell support products found infringe may unable use cdma handsets subject claims including handsets utilize qualcomm’s qchat® technology intend use provide walkietalkie services cdma network note 2 business combinations accounted acquisitions wireless segment purchase method required sfas 141 sfas 141 requires total purchase price acquired entities allocated assets acquired liabilities assumed based fair values respective acquisition dates allocation process requires analysis intangible assets fcc licenses customer relationships trade names rights affiliation agreements acquired contractual rights assumed contractual commitments legal contingencies identify record assets acquired liabilities assumed fair value valuing acquired assets assumed liabilities fair values based limited quoted market prices available intent respect whether assets purchased held sold abandoned expected future cash flows current replacement cost similar capacity certain property plant equipment market rate assumptions contractual obligations appropriate discount rates growth rates results operations acquired companies included consolidated financial statements either date acquisition start month closest acquisition date sprintnextel merger pcs affiliate nextel partners acquisitions august 12 2005 subsidiary merged nextel result acquired 100 outstanding common shares nextel transaction consummated part overall strategy offer comprehensive selection voice data multimedia products services aggregate consideration paid merger approximately 378 billion included 969 million cash 1452 billion shares voting nonvoting common stock worth 356 billion 11 billion converted nextel stockbased awards costs result nextel merger paid premium 156 billion fair value assets acquired liabilities assumed number potential strategic financial benefits believed would result merger including 1 combination extensive network spectrum assets would enable us offer consumers businesses government agencies wide array broadband wireless integrated communications services 2 combination nextel’s strength business government wireless services position consumer wireless data services including services supported global internet protocol network would enable us serve broader customer base 3 size scale combined company would comparable two largest competitors would enable us achieve operating efficiencies either company could achieve 4 ability position us strategically fastest growing areas communications industry second half 2005 acquired us unwired inc gulf coast wireless limited partnership iwo holdings inc 14 billion cash net cash acquired 2006 acquired enterprise communications partnership alamosa holdings inc velocita wireless holding corp ubiquitel inc remaining 72 nextel partners inc 105 billion cash net cash acquired acquisitions sprint nextel corporation notes consolidated financial statementscontinued made part overall strategy enhance network coverage expand distribution services paid premium 107 billion fair value assets acquired liabilities assumed pcs affiliates velocita wireless nextel partners believed acquisitions would result better control distribution services sprint nextel brands would provide us strategic financial benefits associated larger customer base expanded network coverage august 1 2007 acquired northern pcs services llc pcs affiliate net purchase price 287 million december 31 2007 preliminary allocation purchase price included following 113 million goodwill 107 million customer relationships 56 million reacquired rights results northern pcs’s operations included consolidated financial statements since acquisition date pro forma information provided impact prior periods immaterial purchase price allocation transactions 2005 2007 summarized table along respective total fair value assets acquired liabilities assumed 1 represents preliminary purchase price allocation northern pcs process completing valuation certain assets liabilities well internal studies certain assets property plant equipment intangible assets certain liabilities commercial contracts finalized may result additional adjustments purchase price allocation 2 fourth quarter 2007 performed annual goodwill indefinite lived intangible asset impairment analyses result recorded noncash impairment charge goodwill 297 billion 3 includes 24 billion related 28 ownership interest common stock nextel partners prior june 2006 time acquired remaining 72 sprint nextel corporation notes consolidated financial statementscontinued note 3 intangible assets indefinite lived intangibles 1 2007 recorded additional goodwill 113 million associated premium paid northern pcs offsetting increase net adjustments 353 million principally due adjustment fair value fcc licenses adjustment net assets nextel partners relating dilution ownership interest nextel partners prior acquisition 2 adjustments additions goodwill 2006 related sprintnextel merger acquisitions nextel partners velocita wireless pcs affiliates 2005 2006 goodwill represents premium paid fair value net tangible intangible assets acquired business combinations approximately 263 billion goodwill recorded connection recent business combinations described note 2 approximately 44 billion goodwill recorded acquisitions previous years goodwill allocated wireless segment fourth quarter 2007 performed annual assessment impairment goodwill result assessment described recorded noncash goodwill impairment charge 297 billion charge presented separately 2007 statement operations substantial majority charge deductible tax purposes charge result violation covenants debt instruments goodwill impairment testing policy sfas 142 goodwill intangible assets requires goodwill tested impairment reporting unit level equivalent reported wireless operating segment determined accordance sfas 131 disclosures segments enterprise related information review goodwill impairment annually fourth quarter frequently indicators impairment exist periodically analyze whether indicators impairment exist significant amount judgment involved determining indicator impairment occurred indicators may include sustained significant decline share price market capitalization decline expected future cash flows significant adverse change legal factors business climate unanticipated competition testing recoverability longlived wireless assets andor slower growth rates among others assess goodwill impairment first compare fair value wireless reporting unit net book value estimate fair value wireless reporting unit using discounted expected future cash flows supported results various market approach valuation models fair value wireless reporting unit exceeds net book value goodwill impaired testing necessary net book value wireless reporting unit exceeds fair value perform second test measure amount impairment loss measure amount impairment loss determine implied fair value goodwill manner wireless reporting unit acquired business combination specifically allocate fair value wireless reporting unit assets liabilities unit sprint nextel corporation notes consolidated financial statementscontinued including unrecognized intangible assets hypothetical calculation would yield implied fair value goodwill implied fair value goodwill less goodwill recorded balance sheet record impairment charge difference 2007 goodwill assessment period annual 2006 goodwill impairment assessment third quarter 2007 periodically analyzed whether indicators impairment occurred part periodic analyses derived estimated equity value wireless reporting unit compared net book value specifically reduced stock price estimated value per share wireline reporting unit added control premium permitted fasb guidance determine estimate equity value wireless reporting unit estimated fair value wireless reporting unit higher net book value periods additional testing necessary fourth quarter 2007 conducted annual assessment goodwill impairment quarter experienced sustained significant decline stock price reduced market capitalization reflected wireless segment’s lower expected performance due large part fewer expected net subscriber additions previous periods expected would able produce net postpaid subscriber additions 2007 fourth quarter reported loss 683000 postpaid subscribers postpaid subscribers ever lost quarter also updated forecasted cash flows wireless reporting unit fourth quarter update considered current economic conditions trends estimated future operating results views growth rates anticipated future economic regulatory conditions availability necessary technology network infrastructure handsets devices several factors led reduction forecasted cash flows including among others ability attract retain subscribers particularly subscribers iden based services highly competitive environment expected reductions voice revenue per subscriber costs acquiring subscribers costs operating wireless networks based results annual assessment goodwill impairment net book value wireless reporting unit exceeded fair value therefore performed second step impairment test determine implied fair value goodwill specifically hypothetically allocated fair value wireless reporting unit determined first step recognized unrecognized net assets including allocations intangible assets customer relationships fcc licenses trade names items fair values substantially excess current book values resulting implied goodwill 935 million accordingly reduced goodwill recorded prior assessment 297 billion write goodwill implied goodwill amount december 31 2007 297 billion goodwill impairment charge best estimate goodwill charge december 31 2007 adjustment estimated charge resulting completion measurement impairment loss recognized first quarter 2008 allocation discussed performed purposes assessing goodwill impairment accordingly adjust net book value assets liabilities consolidated balance sheet goodwill result process methodologies estimates assumptions performed extensive valuation analyses utilizing income market approaches goodwill assessment process following describes valuation methodologies used derive fair value wireless reporting unit • income approach determine fair value discounted expected cash flows wireless reporting unit discount rate used represents estimated weighted average cost capital sprint nextel corporation notes consolidated financial statementscontinued reflects overall level inherent risk involved wireless operations rate return outside investor would expect earn estimate cash flows beyond final year model used terminal value approach used estimated operating income interest taxes depreciation amortization final year model adjusted estimate normalized cash flow applied perpetuity growth assumption discounted perpetuity discount factor determine terminal value incorporated present value resulting terminal value estimate fair value • marketbased approach corroborate results income approach described estimated fair value wireless reporting unit using several marketbased approaches including value derive based consolidated stock price described also used guideline company method focuses comparing risk profile growth prospects select reasonably similarguideline publicly traded companies determination fair value wireless reporting unit requires us make significant estimates assumptions affect reporting unit’s expected future cash flows estimates assumptions primarily include limited discount rate terminal growth rates operating income depreciation amortization oibda capital expenditures forecasts due inherent uncertainty involved making estimates actual results could differ estimates addition changes underlying assumptions would significant impact either fair value wireless reporting unit goodwill impairment charge allocation fair value wireless reporting unit individual assets liabilities within wireless reporting unit also requires us make significant estimates assumptions allocation requires several analyses determine fair value assets liabilities including among others customer relationships fcc licenses trademarks current replacement costs certain property plant equipment related analyses conjunction annual assessment goodwill impairment reassessed remaining useful lives longlived assets concluded appropriate addition prior goodwill analysis discussed performed recoverability test wireless longlived assets accordance sfas 144 included cash flow projections wireless operations along cash flows associated eventual disposition longlived assets included estimated proceeds sale fcc licenses trade names customer relationships undiscounted future cash flows wireless longlived assets exceeded net book value result impairment charge recorded see note 1 additional details regarding longlived asset impairment testing policies indefinite lived intangibles identified fcc licenses sprint boost mobile® trademarks indefinite lived intangible assets addition goodwill considering expected use assets regulatory economic environment within used effects obsolescence use sprint boost mobile trademarks highly respected brands positive connotations legal regulatory contractual limitations associated trademarks cultivate protect use brands hold several kinds fcc licenses deploy wireless services 19 ghz personal communications services pcs licenses utilized cdma network 800 mhz 900 mhz licenses utilized iden sprint nextel corporation notes consolidated financial statementscontinued network 25 ghz licenses use first generation wireless internet access services also hold 25 ghz 19 ghz fcc licenses currently utilize networks operations long act within requirements constraints regulatory authorities renewal extension licenses reasonably certain minimal cost fcc licenses authorize wireless carriers use radio frequency spectrum renewable reusable resource deplete exhaust time aware technology developed would render spectrum obsolete currently changes competitive legislative environments would put question future need spectrum licenses fourth quarter 2007 also tested indefinite lived intangibles impairment comparing asset’s respective net book value estimates fair value determined using direct value method concluded impairment necessary assets fcc licenses combined single unit accounting following unit accounting guidance prescribed eitf issue 027 unit accounting testing impairment indefinitelived intangible assets except fcc licenses 25 ghz band tested separately single unit accounting definite lived intangibles definite lived intangible assets consist primarily customer relationships amortized two five years using sum years’ digits method believe best reflects estimated pattern economic benefits consumed definite lived intangible assets primarily include certain rights affiliation agreements reacquired connection acquisitions pcs affiliates nextel partners amortized remaining terms affiliation agreements straightline basis nextel direct connect® trade names amortized ten years date sprintnextel merger straightline basis weighted average amortization period acquired definite lived intangibles eight years 2007 seven years 2006 see note 2 information regarding increases gross carrying value definite lived intangible assets spectrum reconfiguration obligations discussed note 13 costs incurred pursuant report order relate spectrum infrastructure expended accounted either property plant equipment additions sprint nextel corporation notes consolidated financial statementscontinued fcc licenses intangible asset consistent accounting policies following table represents payments directly attributable performance report order inception program excluded table estimated reconfiguration costs incurred date included property plant equipment consolidated balance sheet based allocations reconfiguration activities normal network growth estimated allocations may vary depending key assumptions including subscribers call volumes factors life reconfiguration program result amount allocated reconfiguration activity subject change based additional assessments made course reconfiguration program since transition administrator ta fcc yet reached agreement methodology calculating amount submitted credit cannot provide assurance granted full credit certain allocated network costs note 4 longterm debt capital lease obligations december 31 2007 sprint nextel parent corporation 41 billion debt outstanding including commercial paper addition 178 billion longterm debt issued wholly owned subsidiaries fully unconditionally guaranteed sprint nextel indentures financing arrangements certain subsidiaries contain provisions limit cash dividend payments subsidiary common stock held parent corporation transfer cash form advances subsidiaries parent corporation generally restricted sprint nextel corporation notes consolidated financial statementscontinued december 31 2007 463 million outstanding debt comprised certain secured notes capital lease obligations mortgages secured 17 billion gross property plant equipment assets currently compliance restrictive financial covenants associated borrowings provision indebtedness requires repayment event downgrade ratings service senior notes december 31 2007 209 billion convertible senior serial redeemable notes cash interest notes payable semiannually arrears notes redeemable discretion may choose redeem notes applicable redemption price plus accrued unpaid interest 607 million aggregate principal amount 525 notes due 2010 convertible time prior redemption repurchase maturity option holders shares series 1 common stock effective conversion price 5365 per share plus 1137 cash 1000 principal amount december 31 2007 senior notes also included 117 million debt associated consolidated variable interest entity 2007 paid total 14 billion cash early redemptions senior notes redeemed entirety follows • 150 million iwo holdings inc’s senior secured floating rate notes due 2012 redeemed january 2007 153 million cash • 420 million ubiquitel operating company’s 9875 senior notes due 2011 redeemed march 2007 451 million cash • 475 million nextel partners inc’s 8125 senior notes due 2011 redeemed july 2007 494 million cash • 251 million alamosa delaware inc’s 11 senior notes due 2010 redeemed july 2007 264 million cash june 2007 completed sale 750 million principal amount floating rate notes due 2010 cash interest payable quarterly arrears march 28 june 28 september 28 december 28 year rate threemonth london interbank offered rate libor plus 40 basis points may redeem notes prior maturity notes senior unsecured obligations rank equal right payment unsecured senior indebtedness november 2006 completed sale 20 billion principal amount 60 senior serial redeemable notes due 2016 cash interest payable semiannually arrears june 1 december 1 year commencing june 1 2007 annual rate 60 may choose redeem notes time redemption price equal greater 100 principal amount sum present values remaining scheduled payments principal interest discounted redemption date semiannual basis us treasury note interest rate remaining term plus 30 basis points plus case accrued interest notes senior unsecured obligations rank equal right payment unsecured senior indebtedness sprint nextel corporation notes consolidated financial statementscontinued 2006 7125 478 senior notes matured aggregate principal balance 16 billion paid cash paid total 27 billion cash 2006 early redemptions redeemed entirety follows • redeemed outstanding 95 senior notes due 2011 outstanding principal balance 85 million 60 senior notes due 2007 outstanding principal balance 16 billion • redeemed nextel partners’ 15 convertible senior notes due 2008 outstanding principal balance 140 million • redeemed alamosa’s 13625 senior notes due 2011 120 senior notes due 2009 125 notes due 2011 aggregate outstanding principal balance 247 million • redeemed us unwired’s first priority senior secured floating rate notes due 2010 outstanding principal balance 125 million iwo holdings inc’s 1075 senior discount notes due 2015 outstanding principal balance 140 million • redeemed 9375 senior subordinated secured notes due 2009 floating rate senior secured notes due 2011 alamosa subsidiary aggregate outstanding principal balance 334 million weighted average effective interest rate related senior notes 70 2007 71 2006 effective interest rate includes effect interest rate swap agreements accounted fair value hedges see note 9 additional information regarding interest rate swaps credit facilities revolving bank credit facility provides total unsecured financing capacity 60 billion december 31 2007 26 billion outstanding letters credit includes 25 billion letter credit required fcc’s report order 379 million commercial paper backed facility resulting 30 billion available revolving credit also additional 8 million outstanding letters credit december 31 2007 used various financial obligations backed bank credit facility march 2007 entered 750 million unsecured loan agreement export development canada december 31 2007 borrowed 750 million available agreement loan mature march 2012 terms loan provide interest rate equal libor plus spread varies depending credit ratings may choose prepay loan whole part time december 19 2005 entered bank credit facility consisted five year 60 billion revolving credit facility also 364 day 32 billion term loan terms loan provide interest rate equal libor prime rate plus spread varies depending credit ratings bank credit facility include rating trigger would allow lenders involved terminate facility event credit rating downgrade 60 billion revolving credit facility also subject facility fee total facility payable quarterly facility fees vary 4 15 basis points based upon credit ratings facility replaced existing credit agreement included 40 billion revolving credit facility 22 billion term loan credit facility requires compliance financial ratio test defined credit agreement maturity dates loans may accelerate comply financial ratio test december 31 2007 compliance financial ratio test credit facility also obligated repay loans certain change control events occur borrowings facility unsecured credit facility also contains covenants limit ability subsidiaries incur additional indebtedness including guaranteeing obligations entities creating liens consolidate merge sell substantially assets enter transactions affiliates sprint nextel corporation notes consolidated financial statementscontinued ability borrow additional amounts credit facility may restricted provisions included public notes limit incurrence additional indebtedness certain circumstances availability borrowings facility also subject satisfaction waiver specified borrowing conditions december 31 2007 satisfied conditions facility 2006 retired 32 billion term loan portion proceeds received connection spinoff embarq also repaid terminated credit facility assumed part nextel partners acquisition 500 million outstanding term loan provided 100 million revolving credit facility outstanding borrowings commercial paper april 2006 commenced commercial paper program reduced borrowing costs allowing us issue shortterm debt lower rates available 60 billion revolving credit facility 20 billion program backed revolving credit facility reduces amount borrow facility extent commercial paper outstanding december 31 2007 379 million commercial paper outstanding included current maturities longterm debt weighted average interest rate 5765 remaining weighted average maturity 15 days capital lease obligations december 31 2007 106 million capital lease obligations primarily use communication switches future maturities longterm debt capital lease obligations years subsequent december 31 2007 scheduled annual principal payments longterm debt including bank credit facility capital lease obligations outstanding december 31 2007 follows seventh series redeemable preferred shares march 31 2006 redeemed cash outstanding seventh series preferred shares stated value 1000 per share aggregate face amount 247 million approximated carrying value time redemption dividends 673 per share paid quarterly march 31 2006 sprint nextel corporation notes consolidated financial statementscontinued note 5 supplemental balance sheet information sprint nextel corporation notes consolidated financial statementscontinued note 6 severance exit costs asset impairments 2007 total severance exit costs asset impairment costs aggregated 440 million compared 207 million 2006 43 million 2005 2007 included 44 million loss sale operations velocita wireless asset impairment 2007 asset impairments 163 million primarily attributable wireless segment included writeoff cell site development costs abandoned sites would used based management’s strategic network plans sale velocita wireless closing retail stores due integration efforts 2006 asset impairments 69 million related software applications abandonment various assets including certain cell sites construction wireless segment 2005 asset impairments 44 million related various software applications severance exit costs activity beginning first quarter 2007 order improve cost structure reduced fulltime headcount result terminations recorded 194 million across wireless wireline segments related severance liability corresponding charge severance expense completed majority headcount reductions march 31 2007 finalized reductions end year addition recorded lease exit costs 83 million 2007 beginning second half 2005 rationalized cost structure resulting sprintnextel merger pcs affiliates nextel partners acquisitions merger integration efforts affected many areas business operations including network information technology customer care general administrative functions activities resulted 138 million severance lease exit costs associated work force reductions across segments reported consolidated statements operations year ended december 31 2006 following tables provide summary severance exit costs liability exclusive exit costs expected associated business combinations accordance sfas nos 88 112 146 sprint nextel corporation notes consolidated financial statementscontinued 1 excluded table severance exit costs 27 million 2006 allocated local segment prior spinoff embarq included discontinued operations consolidated statement operations exit costs associated business combinations connection exit activities related business combinations recorded certain costs associated dispositions integration activities accordance requirements eitf issue 953 exit costs primarily related termination fees associated leases contractual arrangements well severance related costs associated work force reductions year ended december 31 2007 recorded 30 million adjustments exit costs adjusted purchase price allocations actions resulted adjustments accrued liabilities goodwill related 2006 2007 acquisitions activity presented table sprint nextel corporation notes consolidated financial statementscontinued note 7 income taxes income tax benefit expense allocated continuing operations consists following differences caused effective income tax rates vary 35 federal statutory rate income taxes related continuing operations follows income tax benefit expense allocated items follows 1 amounts recorded directly shareholders’ equityaccumulated comprehensive loss consolidated balance sheets sprint nextel corporation notes consolidated financial statementscontinued 2 amounts recorded directly shareholders’ equitypaidin capital consolidated balance sheets 3 amount recorded directly shareholders’ equityretained earnings consolidated balance sheet recognize deferred income taxes temporary differences carrying amounts assets liabilities financial statement purposes tax bases deferred tax assets also recorded operating loss capital loss tax credit carryforwards sources differences give rise deferred income tax assets liabilities december 31 2007 2006 along income tax effect follows foreign income included income loss continuing operations totaled 132 million 2007 52 million 2006 27 million 2005 material unremitted earnings foreign subsidiaries 2006 2005 acquired 756 million 28 billion respectively potential income tax benefits related net operating loss carryforwards capital loss carryforwards tax credit carryforwards sprintnextel merger pcs affiliate nextel partners acquisitions 1999 acquired 193 million potential tax benefits related net operating loss carryforwards acquisitions broadband fixed wireless companies 1998 acquired 229 million potential tax benefits related net operating loss carryforwards controlling interest acquisition wireless joint venture call pcs restructuring benefits acquisitions subject certain realization restrictions various tax laws december 31 2007 valuation allowance 477 million remains deferred tax benefits valuation allowance provided time acquisition recognized 2008 first reduce goodwill intangibles resulting application purchase method accounting transactions goodwill intangibles related acquisition reduced zero additional tax benefits recognized would reduce income tax expense adjustment valuation allowance 2008 would recorded statement operations following guidance recently issued sfas 141r sprint nextel corporation notes consolidated financial statementscontinued connection pcs restructuring required reimburse former cable company partners joint venture net operating loss tax credit carryforward benefits generated pcs restructuring realization us produces cash benefit would otherwise realized reimbursement equal 60 net cash benefit received us made former cable company partners shares stock unexpired carryforward benefits subject requirement total 187 million december 31 2007 federal operating loss carryforwards 28 billion state operating loss carryforwards 105 billion related loss carryforwards federal tax benefits 979 million state tax benefits 740 million addition available income tax purposes federal alternative minimum tax net operating loss carryforwards 23 billion state alternative minimum tax net operating loss carryforwards 651 million loss carryforwards expire varying amounts 2027 also available capital loss carryforwards 129 million related capital loss carryforwards tax benefits 45 million expire 2009 also available 672 million federal state income tax credit carryforwards december 31 2007 included amount 397 million income tax credits expire varying amounts 2027 remaining 275 million expire valuation allowance related deferred income tax assets decreased 230 million 2007 decreased 117 million 2006 2007 decrease primarily related reclassification liabilities accordance adoption fin 48 use capital loss valuation allowance previously provided 2006 decrease primarily related use capital loss valuation allowance previously provided expiration state net operating losses valuation allowance provided believe likely deferred income tax assets net valuation allowance realized based current income tax laws expectations future taxable income stemming reversal existing deferred tax liabilities ordinary operations uncertainties surrounding income tax law changes shifts operations state taxing jurisdictions future operating income levels may however affect ultimate realization deferred income tax assets evaluated qualitative factors uncertainties concerning company industry found provide continuing evidence requiring valuation allowance currently recognize related realization tax benefit net operating loss tax credit carryforwards december 31 2007 fasb interpretation 48 adopted provisions fin 48 january 1 2007 fin 48 clarifies accounting uncertainty income taxes recognized enterprise’s financial statements accordance sfas 109 prescribes recognition threshold measurement attribute financial statement recognition measurement tax position taken expected taken tax return cumulative effect adopting fin 48 generally recorded directly retained earnings however extent adoption fin 48 resulted revaluation uncertain tax positions acquired purchase business combination cumulative effect recorded adjustment goodwill remaining corresponding purchase business combination result adoption fin 48 recognized 20 million increase liability unrecognized tax benefits accounted 24 million increase goodwill 4 million increase retained sprint nextel corporation notes consolidated financial statementscontinued earnings january 1 2007 total unrecognized tax benefits attributable uncertain tax positions january 1 2007 606 million upon adoption fin 48 reclassified majority liability unrecognized tax benefits deferred tax liabilities remainder netted deferred tax assets upon adoption total unrecognized tax benefits included items would favorably affect income tax provision 89 million recognized total unrecognized tax benefits attributable uncertain tax positions december 31 2007 654 million december 31 2007 total unrecognized tax benefits included items would favorably affect income tax provision 108 million recognized recognize interest related unrecognized tax benefits interest expense interest income recognize penalties additional income tax expense december 31 2007 accrued liability income tax related interest 71 million accrued liability penalties 13 million reconciliation beginning ending amount unrecognized tax benefits follows file income tax returns us federal jurisdiction state jurisdiction imposes income tax also file income tax returns number foreign jurisdictions however foreign income tax activity immaterial internal revenue service irs currently examining 2005 2006 consolidated federal income tax returns 2005 returns certain subsidiaries effectively completed examination consolidated returns related years prior 2005 reached settlement agreements appeals division irs examination issues dispute following irs exam years 20002002 unresolved disputed issues 20032004 irs examination awaiting consideration appeals division irs however immaterial consolidated financial statements irs also examining 2001 premerger 2005 consolidated income tax returns subsidiary nextel communications inc also involved multiple state income tax examinations related various years beginning 1995 various stages examination administrative review appellate process based current knowledge proposed adjustments aforementioned examinations anticipate adjustments would result material change financial position also believe reasonably possible significant increases decreases liability unrecognized tax benefits next twelve months current uncertain tax positions note 8 fair value financial instruments determined estimated fair values financial instruments using available market information appropriate valuation methodologies however considerable judgment required interpreting market data develop fair value estimates result estimates presented necessarily indicative amounts could realize required pay current market exchange use different market assumptions well estimation methodologies may material effect estimated fair value amounts sprint nextel corporation notes consolidated financial statementscontinued carrying amounts estimated fair values financial instruments yearend follows 1 cash equivalents accounts receivable deposits accounts payable accrued expenses items excluded table carrying amount consolidated balance sheets approximate carrying amounts due short term nature financial instruments valuation method marketable securities investments primarily quoted market prices derivative instruments estimates using available market information appropriate valuation methodologies debt available market prices estimates using available market data information appropriate valuation methodologies letters credit outstanding letters credit totaled 26 billion december 31 2007 2006 pursuant terms report order described note 13 required establish letter credit amount 25 billion provide assurance funds available pay relocation costs incumbent users 800 megahertz mhz spectrum connection band reconfiguration process letter credit outstanding 60 billion revolving credit facility letter credit subject fees competitively determined market place also use letters credit provide credit support various financial obligations note 9 derivative instruments hedging activities risk management policies derivative instruments typically include interest rate swaps stock warrants option contracts foreign currency forward option contracts primarily use derivative instruments hedge exposure market risks associated unfavorable movements interest rates equity prices foreign currencies board directors authorized us enter derivative transactions comply risk management policies interest rate risk caused potential adverse movements interest rates affect earnings cash flows specific interest rate risks include risk increasing interest rates variablerate debt risk increasing interest rates new refinanced fixedrate debt sprint nextel corporation notes consolidated financial statementscontinued exposure strategic investments companies includes risk unfavorable changes market prices could adversely affect earnings cash flows may also obtain equity rights companies usually form warrants purchase common stock companies equity rights typically obtained connection commercial agreements strategic investments foreign exchange risk management program focuses reducing transaction exposure optimize consolidated cash flow enter forward option contracts foreign currencies reduce impact changes foreign exchange rates primary transaction exposure results net payments made received overseas communications companies completing international calls made domestic customers operations international subsidiaries interest rate derivatives december 31 2007 held fair value interest rate swaps notional value 10 billion swaps entered hedges fair value portion senior notes maturities ranging 2008 2012 semiannual basis pay floating rate interest equal sixmonth libor plus fixed spread receive average interest rate equal coupon rates stated underlying senior notes interest rate swaps meet required criteria sfas 133 amended order apply shortcut method accounting instruments critical terms swaps perfectly match corresponding terms hedged debt shortcut method assume interest rate swaps perfectly effective hedging interest rate risk recognize changes fair values interest rate swaps currently gain loss within income expense consolidated statements operations accordance sfas 133 amended shortcut method changes fair value hedging instrument offset equal change fair value underlying debt impact earnings fourth quarter 2005 entered series interest rate collars associated issuance debt embarq time spinoff may 17 2006 derivative instruments qualify hedge accounting treatment consolidated financial statements changes fair value instruments recognized earnings discontinued operations period change 2006 fair value derivatives increased resulting 43 million gain tax derivatives settled upon completion spinoff equity derivatives 2005 entered series option contracts associated investment nii holdings designed hedge exposure risk unfavorable changes price nii holdings’ common shares first contract written 17 million common shares nii holdings designated hedging instrument therefore changes fair value derivative instrument recognized earnings period change prior settlement settled first option contract march 31 2006 conjunction sale 17 million common shares nii holdings recognized gain 37 million sale underlying shares partially offset loss 23 million change fair value option contract 2006 resulting net gain 14 million recorded income remaining option contracts written total 13 million common shares nii holdings related forecasted sale shares fourth quarter 2006 designated effective cash flow hedges forecasted transaction pursuant sfas 133 amended derivative implementation group issue g20 assessing measuring effectiveness purchased option used cash flow hedge sprint nextel corporation notes consolidated financial statementscontinued fourth quarter 2006 sold remaining investment 13 million common shares nii holdings settled remaining option contracts using common shares nii holdings borrowed stock loan agreements recognized gain 396 million sale underlying shares partially offset realized loss 251 million change fair value option contracts resulting net gain 145 million recorded income also recorded 53 million income tax expense fourth quarter 2006 relating transaction result sale nii holdings shares settlement option contracts well reversal deferred tax liability relating nii holdings shares use borrowed shares settle option contracts accounted collateralized borrowing resulting increase 866 million prepaid expenses current assets accrued expenses current liabilities fair value underlying shares 2006 recognized financing cash inflow 866 million related borrowing equal investing cash outflow related collateral posted borrowed shares collateralized borrowing terminated january 2007 note 10 shareholders’ equity articles incorporation authorize 6620000000 shares capital stock follows • 6000000000 shares series 1 voting common stock par value 200 per share • 500000000 shares series 2 voting common stock par value 200 per share • 100000000 shares nonvoting common stock par value 001 per share • 20000000 shares preferred stock par value per share classes common stock series 1 common stock holders series 1 common stock entitled one vote per share matters submitted action shareholders series 2 common stock holders series 2 common stock entitled 10 one vote per share otherwise rights substantially identical series 1 common stock 75 million shares series 2 common stock outstanding december 31 2007 nonvoting common stock 38 million shares nonvoting common stock issued sprintnextel merger august 2005 motorola subsidiary holders nonvoting common shares december 2006 motorola subsidiary exercised right convert nonvoting common shares equal number shares series 1 common stock resulting 623 million decrease paidin capital reduction treasury shares shown consolidated statements shareholders’ equity dividends paid dividend 0025 per share series 1 common stock series 2 common stock quarters 2007 2006 third fourth quarters 2005 dividend 0025 per share nonvoting common stock quarters 2006 third fourth quarters 2005 paid dividend 0125 per share series 1 common stock series 2 common stock first two quarters 2005 sprint nextel corporation notes consolidated financial statementscontinued share repurchase program july 25 2006 board directors authorized purchase 60 billion series 1 common stock open market purchases authorization expired january 2008 december 31 2007 repurchased 185 million shares series 1 common stock 35 billion average price 1877 per share common stock reserved future grants december 31 2007 series 1 common stock reserved future grants plans providing grant stock options equitybased awards future grants employees stock purchase plan future issuances various arrangements included accumulated comprehensive loss components accumulated comprehensive loss follows note 11 sharebased compensation december 31 2007 sponsored four equity incentive plans 2007 omnibus incentive plan 2007 plan 1997 longterm incentive program 1997 program nextel incentive equity plan nextel plan management incentive stock option plan misop well employees stock purchase plan espp may 8 2007 shareholders approved 2007 plan may grant stock options stock appreciation rights restricted stock restricted stock units performance shares performance units equitybased cash awards employees outside directors certain service providers options generally granted exercise price equal market value underlying shares grant date generally vest annual basis three years generally contractual term ten years employees directors granted restricted stock units required pay shares generally must remain employed us continue serve member board directors restrictions lapse typically three years employees one year directors human capital compensation committee hccc board directors one executive officers hccc authorize provided 2007 plan determine terms equitybased award february 11 2008 made certain amendments 2007 plan comply new tax regulations including new regulations section 409a internal revenue code new grants made 1997 program nextel plan misop sprint nextel corporation notes consolidated financial statementscontinued 2007 number shares available 2007 plan increased 8 million number shares available 2007 plan increased shares originally granted 1997 program nextel plan misop forfeited expired otherwise terminated december 31 2007 201 million common shares available 2007 plan 1997 program previously authority grant options restricted shares restricted stock units equitybased awards directors employees december 31 2007 awards acquire 80 million shares outstanding 1997 program 1997 program options generally granted exercise price equal market value underlying shares grant date however 2005 option awards certain senior level executives exercise price equal 110 market value underlying shares grant date options granted 2007 2006 generally vest annual basis three years contractual term ten years options granted 2006 generally vest annual basis four years also contractual term ten years addition restricted stock units awarded certain senior level executives 2005 many restricted stock units granted 2006 2007 contain performance provisions achievement defined levels wireless subscriber additions adjusted operating income depreciation amortization cumulative free cash flow operations postpaid wireless subscriber retention andor qualitative quantitative factors restricted stock units granted 2007 threeyear performance period vest third anniversary date award performance provision achievement awards prior 2007 typically evaluated one year grant point may increase decrease number awards employee eligible receive extent performance provisions achieved vesting awards remain outstanding subject remaining term employment service discussed prior 2005 restricted shares nonvested shares granted officers key employees 1997 program nextel plan outstanding nextel deferred shares nonvested shares constitute agreement deliver shares upon performance service defined period time grants options purchase nextel common shares converted time sprintnextel merger nonvested shares options purchase number common shares december 31 2007 awards acquire 48 million common shares outstanding nextel plan options granted prior sprintnextel merger exercise price equal market value underlying shares grant date options vest monthly basis periods four years contractual term ten years employees required pay nonvested shares however must remain employed us restrictions shares lapse nonvested shares generally vest service period ranging several months four years accelerated vesting schedule may triggered event change control accelerated vesting triggered respect certain deferred shares options granted prior sprintnextel merger result sprintnextel merger misop granted stock options employees eligible receive annual incentive compensation eligible employees could elect receive stock options lieu portion target incentive annual incentive compensation plans options generally became exercisable december 31 year granted maximum contractual term ten years misop also granted stock options executives lieu longterm incentive compensation ltipmisop options ltipmisop options generally became exercisable third december 31 following grant date maximum term ten years misop options granted exercise prices equal market price underlying common stock grant date december 31 2007 options buy 30 million common shares outstanding misop connection sprintnextel merger vesting certain equitybased awards issued 1997 program misop nextel plan accelerated following termination employment sprint nextel corporation notes consolidated financial statementscontinued certain award recipients january 2005 adopted retention program designed retain senior executives key personnel completion sprintnextel merger oneyear period following merger program terminated employment program participant cause within one year sprintnextel merger certain unvested equitybased awards held participant vested automatically nextel plan within one year sprintnextel merger terminated cause employment holder equitybased award granted plan case specified executives holder terminated employment good reason defined plan holder’s unvested equitybased awards vested automatically espp eligible employees may subscribe quarterly purchase shares series 1 common stock payroll deductions 20 eligible compensation purchase price equal 90 market value last trading day quarterly offering period aggregate number shares purchased employee may exceed 9000 shares 25000 fair market value calendar year subject limitations imposed section 423 internal revenue code december 31 2007 plan authorized purchase 19 million shares net elections made 2007 employees participating fourth quarter 2007 offering period espp purchase 992000 common shares issued first quarter 2008 employees purchased shares 1178 per share currently use treasury shares satisfy sharebased awards new shares treasury shares available adoption sfas 123r effective january 1 2006 adopted sfas 123r supersedes sfas 123 accounting stockbased compensation sfas 123r requires us measure cost employee services received exchange award equitybased securities using fair value award date grant recognize cost period award recipient required provide service us exchange award awards liability instruments employees would remeasured fair value reporting date settlement pretax sharebased compensation cost charged net income loss sharebased award plans 265 million 2007 361 million 2006 303 million 2005 pretax sharebased compensation cost charged income continuing operations sharebased award plans 265 million 2007 338 million 2006 254 million 2005 total sharebased compensation 2005 234 million related stockbased grants issued december 31 2002 37 million related recombination two tracking stocks 32 million related separation certain employees employed us prior sprintnextel merger total income tax benefit recognized consolidated financial statements sharebased award compensation 96 million 2007 138 million 2006 111 million 2005 total income tax benefit recognized statement operations related continuing operations sharebased award compensation 96 million 2007 129 million 2006 93 million 2005 december 31 2007 211 million total unrecognized compensation cost related sharebased award plans expected recognized weighted average period 161 years cash received exercise sharebased payment arrangements 344 million 2007 405 million 2006 432 million 2005 actual tax benefit realized tax deductions exercise sharebased payment arrangements totaled 4 million 2007 6 million 2006 6 million 2005 sprint nextel corporation notes consolidated financial statementscontinued sharebased payment plans options restricted stock units nonvested shares outstanding december 31 2007 awards graded vesting recognized using straightline method forfeitures estimated 2007 2006 2005 sharebased awards using 4 weighted average annual rate options fair value option award estimated grant date using blackscholes option valuation model riskfree rate used 2007 2006 2005 based zerocoupon us treasury bond term equal expected term options volatility used implied volatility traded options common shares historical volatility common shares period approximates expected term options expected dividend yield used estimated based historical dividend yield factors expected term options granted estimated using simplified method defined average vesting term contractual term options outstanding december 31 2007 include options granted 2007 plan 1997 program nextel plan misop discussed 1 values risk free interest rate expected term adjusted spinoff embarq based 10955 conversion rate 2 2006 2007 based estimate expected volatility implied volatility exchange traded options consistent guidance sab 107 sharebased payment 2005 expected volatility based historical volatility summary status options option plans december 31 2007 changes year ended december 31 2007 presented sprint nextel corporation notes consolidated financial statementscontinued december 31 2007 150 million total unrecognized compensation cost related unvested options cost expected recognized weightedaverage period 145 years total intrinsic value options exercised 150 million 2007 264 million 2006 267 million 2005 restricted stock units fair value restricted stock unit award calculated using share price date grant restricted stock units consist units granted 2007 plan 1997 program discussed 1 evaluate performance conditions restricted stock units end performance period restricted stock units granted 2007 three year performance period therefore december 31 2007 units categorized either performance met performance met performance period yet lapsed adjustments original grants categorized forfeited december 31 2007 61 million total unrecognized compensation cost related restricted stock units expected recognized weightedaverage period 2 years total fair value restricted stock units vested 78 million 2007 49 million 2006 4 million 2005 weightedaverage grant date fair value restricted stock units granted 2007 1843 per unit compared 2404 per unit 2006 2461 per unit 2005 certain restricted stock units outstanding december 31 2007 entitled dividend equivalents paid cash performancebased restricted stock units entitled dividend equivalent payments applicable performance period completed dividend equivalents paid restricted stock units charged retained earnings accumulated deficit paid nonvested shares nonvested shares consist restricted shares granted 1997 program deferred shares granted nextel plan discussed unrecognized compensation cost related nonvested shares material sprint nextel corporation notes consolidated financial statementscontinued note 12 segments two reportable segments wireless wireline segments organized products services may 2006 operated third reportable segment local communications business provided local long distance voice data services classified discontinued operations see note 15 information executives use segment earnings primary measure evaluate segment performance make resource allocation decisions segment earnings defined wireless wireline operating income segment expenses depreciation amortization severance exit costs asset impairments merger integration expenses solely directly attributable segment expenses income items excluded segment earnings managed corporate level second quarter 2007 modified segment earnings exclude merger integration costs solely directly attributable segment change material segment earnings 2007 wireless segment includes revenue wide array wireless mobile telephone wireless data transmission services sale wireless equipment wireless segment together thirdparty pcs affiliates offer digital wireless service 50 states puerto rico us virgin islands wireline segment includes revenue domestic international wireline voice data communication services cable multiple systems operators resell long distance service andor use back office systems network assets support local long distance telephone services provided cable facilities generally account transactions segments based fully distributed costs believe approximate fair value certain transactions pricing set using market rates segment financial information follows sprint nextel corporation notes consolidated financial statementscontinued sprint nextel corporation notes consolidated financial statementscontinued 1 intersegment revenues consist primarily long distance services provided wireless segment resale wireless customers 2 included 2007 corporate results operating expenses related planned deployment next generation broadband wireless network 3 see note 6 additional information severance exit costs asset impairments 4 merger integration expenses generally nonrecurring nature primarily include costs launch common customer interfacing systems processes integration planning activities 2007 costs also included certain costs provide wireless devices operate seamlessly cdma iden networks certain customer care costs retain employees costs related rebranding integration costs 5 included 2006 2005 corporate results historical net revenues related operating costs certain consumer wireline customers transferred embarq connection spinoff operating results previously reported local segment reflect activity date spinoff operating results reflected discontinued operations due continuing involvement consumer wireline customers wholesale long distance agreement embarq agreement became effective date spinoff 6 corporate assets allocated operating segments consist primarily cash equivalents corporate headquarters campus assets managed corporate level corporate capital expenditures incurred mainly various administrative assets operating expenses related corporate assets allocated segment 7 corporate includes assets discontinued operations related embarq 8 corporate includes amounts related planned deployment next generation broadband wireless network sprint nextel corporation notes consolidated financial statementscontinued net operating revenues service products follows 1 revenues eliminated consolidation consist primarily long distance services provided wireless segment resale wireless customers 2 included 2006 2005 corporate results historical net revenues certain consumer wireline customers transferred embarq connection spinoff revenues previously reported local segment reflect activity date spinoff revenues reflected discontinued operations due continuing involvement consumer wireline customers wholesale long distance agreement embarq agreement became effective date spinoff sprint nextel corporation notes consolidated financial statementscontinued note 13 commitments contingencies september 2004 us district court district kansas denied motion dismiss shareholder lawsuit alleging 2001 2002 proxy statements false misleading violation federal securities laws extent described new employment agreements certain senior executives without disclosing according allegations replacement executives inevitable allegations made amended complaint lawsuit originally filed 2003 asserted us certain current former officers directors seek recover decline value tracking stocks class period parties stipulated case proceed class action defendants denied plaintiffs’ allegations intend defend matter vigorously allegations original complaint asserted claims defendants former independent auditor dismissed court april 2004 recently filed motion dismiss amended complaint summary judgment awaiting decision motion dismiss amended complaint denied parties engaged discovery various suits proceedings claims including purported class actions typical large business enterprise pending us subsidiaries possible determine ultimate disposition proceedings whether resolved consistent beliefs expect outcome proceedings individually aggregate material adverse effect financial condition results operations spectrum reconfiguration obligations recent years operations number public safety communications systems 800 mhz block spectrum experienced interference believed result operations commercial mobile radio service cmrs providers operating adjacent frequencies geographic area 2001 nextel filed proposal fcc would result efficient use spectrum reconfiguration spectrum licenses spectrum allocations 700 800 900 mhz bands thereby resolve many interference problems 2004 following rulemaking consider proposals solve public safety interference issue fcc adopted report order included new rules regarding interference 800 mhz band comprehensive plan reconfigure 800 mhz band february 2005 nextel accepted report order necessary order became effective report order required nextel undertake number obligations accept modifications fcc licenses assumed obligations merged nextel august 2005 report order provides exchange portion fcc spectrum licenses fcc implementing modifications licenses specifically report order modified number fcc licenses 800 mhz band including many licenses implemented rules reconfigure spectrum 800 mhz band 36month phased transition process also obligated us surrender holdings 700 mhz spectrum band certain portions holdings 800 mhz spectrum band fund cost incurred public safety systems incumbent licensees reconfigure 800 mhz spectrum band report order received licenses 10 mhz nationwide spectrum 19 ghz band required relocate reimburse incumbent licensees band costs relocation another band designated fcc reconfiguration process completed geographic region involves reaching agreement coordinating numerous processes incumbent licensees region well vendors contractors performing much reconfiguration permitted continue use spectrum 800 mhz band surrendered report order reconfiguration process however part sprint nextel corporation notes consolidated financial statementscontinued reconfiguration process regions must cease using portions surrendered 800 mhz spectrum able commence use replacement 800 mhz spectrum contributed capacity constraints experienced iden network particularly capacity constrained markets impacted performance iden network affected markets report order requires us complete 800 mhz band reconfiguration within 36month period ending june 2008 subject certain exceptions particularly respect markets border mexico canada complete 19 ghz band reconfiguration within 315month period originally ending september 2007 recently extended discussed result events within control fail complete reconfiguration responsibilities within designated time periods either 800 mhz 19 ghz reconfigurations fcc could take actions us enforce report order actions could adverse operating financial impacts us could material believe based experiences date 800 mhz reconfiguration completed within applicable fcc designated time period due primarily circumstances largely outside control september 11 2007 fcc issued third memorandum opinion order third moo fcc ordered among things june 2008 vacate many 800 mhz channels currently use even applicable public safety licensee ready relocate vacated spectrum based upon reports filed 800 mhz ta discussions public safety licensees believe significant number large public safety agencies able complete reconfigurations june 2008 occur third moo provides would longer access significant portion 800 mhz spectrum sudden significant decrease network capacity results requirements third moo could adversely affect performance iden network compensate could attempt construct additional sites acquire additional spectrum extent possible markets network investments possible may required curtail subscriber additions incent certain existing subscribers iden services use powersource devices move cdma network capacity limitation alleviated particularly replacement 800 mhz spectrum available length time degradation network performance market could result higher subscriber churn market loss significant number subscribers could adversely affect results operations believe third moo consistent terms report order understanding reconfiguration process described report order served basis nextel consented terms addition believe process third moo adopted legally deficient number respects accordingly october 12 2007 filed appeal us court appeals dc circuit november 27 2007 us court appeals granted motion expedition setting forth accelerated briefing schedule result decision court fcc’s june 2008 deadline fcc filed briefs court oral arguments scheduled begin march 18 2008 addition part report order reconfiguration 19 ghz band required completed september 7 2007 september 5 2007 along association maximum service television inc mstv national association broadcasters nab society broadcast engineers sbe filed joint petition requesting additional 29 months complete transition broadcast auxiliary service bas frequencies 2025 mhz november 6 2007 fcc granted waiver january 5 2008 complete bas transition 2025 mhz december 6 2007 sprint nextel mstv nab sbe submitted consensus plan completing transition bas sprint nextel corporation notes consolidated financial statementscontinued licensees complete bas transition september 2009 fcc subsequently extended waiver bas relocation date march 5 2008 encouraged bas licensees new entrant mobilesatellite service licensees continue discussing ways share use spectrum transition completed report order requires us make payment us treasury conclusion band reconfiguration process extent value 19 ghz spectrum received exceeds total value licenses spectrum positions 700 mhz 800 mhz bands surrendered decision plus actual costs incur retune incumbents facilities report order fcc determined report order purposes calculating payment amount value 19 ghz spectrum 49 billion aggregate value 700 mhz spectrum 800 mhz spectrum surrendered net 800 mhz spectrum received part exchange 21 billion potential payment us treasury results minimum cash expenditures 28 billion us report order fcc designated independent transition administrator monitor facilitate review expenditures 800 mhz band reconfiguration precise methodology evaluating confirming internal network costs yet established ta may agree costs submit external internal costs appropriate subject credit may incur certain costs part reconfiguration process receive credit potential payment us treasury addition financial reconciliation required completed end reconfiguration implementation determine whether value spectrum rights received exceeds total value spectrum rights surrendered ii qualifying costs referred required pay difference us treasury described based fcc’s determination values spectrum rights received surrendered nextel minimum obligation incurred report order 28 billion report order also provides qualifying costs incur part reconfiguration plan including costs reconfigure infrastructure spectrum positions used offset minimum obligation 28 billion however obligated pay full amount costs relating reconfiguration plan even costs exceed amount inception program december 31 2007 incurred approximately 11 billion costs directly attributable spectrum reconfiguration program amount include internal network costs preliminarily allocated reconfiguration program capacity sites modifications may request credit reconfiguration program successful appeal third moo estimate based experience date reconfiguration program information currently available unlikely required make payment us treasury belief dependent significant assumptions including final licensee costs associated relocating licensees canadian mexican border regions currently approved border plans include apportioned internal network costs actual results could differ estimates addition entitled receive reimbursement mobilesatellite service licensees pro rata portion costs clearing portion 19 ghz spectrum licensees may unable unwilling reimburse us share costs estimate approximately 200 million unsuccessful appeal third moo anticipate additional costs would likely material required terms report order delivered 25 billion letter credit provide assurance funds available pay relocation costs incumbent users 800 mhz spectrum although report order provides possibility periodic reductions amount letter credit reductions requested made december 31 2007 sprint nextel corporation notes consolidated financial statementscontinued december 31 2007 remaining liability 59 million associated estimated portion reconfiguration costs represents best estimate amounts paid report order would benefit infrastructure spectrum positions costs incurred pursuant report order relate spectrum infrastructure expended accounted either property plant equipment additions fcc licenses intangible asset consistent accounting policies see note 3 information operating leases lease various equipment office facilities retail outlets kiosks switching facilities transmitter receiver sites operating leases noncancelable portion leases ranges monthly 25 years leases exceptions provide automatic renewal options escalations either fixed based consumer price index rent abatements along rent escalations included computation rent expense calculated straightline basis lease term lease term leases includes initial noncancelable term plus least one renewal period exercise related renewal option options reasonably assured cell site leases generally provide initial noncancelable term five seven years five renewal options five years december 31 2007 rental commitments operating leases including lease renewals reasonably assured consisted mainly leases cell switch sites real estate information technology network equipment office space commitments future years follows total rental expense 20 billion 2007 18 billion 2006 12 billion 2005 communication towers lease transaction may 2005 closed transaction global signal inc global signal acquired exclusive rights lease operate 6500 communications towers owned us negotiated lease term greater remaining terms underlying ground leases 15 years present 32 years assuming successful renegotiation underlying ground leases end current lease terms subleased space 6400 towers global signal sublease arrangement accounted operating lease since maintain ownership towers continue reflect towers consolidated balance sheet closing received proceeds 12 billion recorded liabilities consolidated balance sheet deferred rental income recognized reduction lease expense related subleasing arrangement straightline basis remaining terms underlying ground leases sprint nextel corporation notes consolidated financial statementscontinued commitments party commitments includes service spectrum network capacity executory contracts connection conducting business december 31 2007 minimum amounts due commitments follows amounts actually paid agreements likely higher due variable components agreements significant variable components determine ultimate obligation owed include items hours contracted subscribers factors addition party various arrangements conditional nature obligate us make payments upon occurrence certain events delivery functioning software product environmental compliance environmental compliance remediation expenditures result mainly operation standby power generators telecommunications equipment expenditures arise connection standards compliance permits occasional remediation usually related generators batteries fuel storage light fcc’s new requirement carriers increase use generators batteries cell sites installation costs likely increase however cannot assess certainty impact future compliance remediation obligations believe future environmental compliance remediation expenditures material adverse effect financial condition results operations identified seven former manufactured gas plant sites nebraska currently owned operated us may owned operated entities acquired centel corporation formerly subsidiary embarq agreed share environmental liabilities arising former manufactured gas plant sites three sites part ongoing settlement negotiations administrative consent orders environmental protection agency epa two sites initial site assessments conducted nebraska department environmental quality ndeq regulatory actions followed two remaining sites regulatory action epa ndeq centel entered agreements potentially responsible parties share costs connection five seven sites working assess scope nature sites potential responsibility expected material sprint nextel corporation notes consolidated financial statementscontinued note 14 quarterly financial data unaudited 2006 acquired several companies financial results acquired companies included quarterly financial data either date respective acquisition start month closest acquisitions also acquired northern pcs august 2007 whose results material consolidated results operations see note 2 information regarding business combinations 1 fourth quarter 2007 performed annual assessment impairment goodwill result analyses described note 3 recorded noncash goodwill impairment charge 297 billion 2 net loss first quarter primarily due increased wireless equipment subsidy increase severance costs related workforce reductions 3 sum quarterly earnings per share amounts may equal annual amounts changes weighted average number shares outstanding year note 15 discontinued operations may 17 2006 completed spinoff local communications business known embarq corporation embarq offers regulated local communications services incumbent local exchange carrier provides suite communications services consisting local long distance voice data services including highspeed internet access required sfas 144 accounting impairment disposal longlived assets permitted sfas 95 statement cash flows results operations cash flows operating activities business presented discontinued operations periods presented sprint nextel corporation notes consolidated financial statementscontinued spinoff distributed pro rata shareholders one share embarq common stock every 20 shares held voting nonvoting common stock 149 million shares embarq common stock cash paid fractional shares distribution embarq common stock considered tax free transaction us shareholders except cash payments made lieu fractional shares generally taxable connection spinoff embarq transferred parent company 21 billion cash 45 billion embarq senior notes partial consideration condition transfer embarq local communications business embarq also retained 665 million debt obligations subsidiaries parent company transferred cash senior notes finance subsidiary sprint capital corporation satisfaction indebtedness owed parent company sprint capital may 19 2006 sprint capital sold embarq senior notes public received 44 billion net proceeds also connection spinoff entered separation distribution agreement related agreements embarq provide generally party responsible respective assets liabilities businesses following spinoff embarq provide certain transition services relating respective businesses specified periods costbased prices transition services primarily include billing field support information technology real estate services also entered agreements pursuant embarq provide specified services commercial rates time spinoff outstanding options purchase common stock held employees embarq cancelled replaced options purchase embarq common stock outstanding options purchase common stock held directors employees remained us adjusted multiplying number shares subject options 10955 dividing exercise price number order account impact spinoff value shares time spinoff completed generally restricted stock units awarded pursuant equity incentive plans held employees time spinoff including held employees became employees embarq treated manner similar treatment outstanding shares common stock spinoff holders restricted stock units received one embarq restricted stock unit every 20 restricted stock units held outstanding deferred shares granted nextel incentive equity plan represent right receive shares common stock adjusted multiplying number deferred shares 10955 cash paid holders deferred shares lieu fractional shares results operations local communications business follows 1 includes results may 17 2006 sprint nextel corporation notes consolidated financial statementscontinued note 16 subsequent events severance exit costs management announced january 2008 intend streamline cost structure work force reduction reduced utilization outsourced services contractors elimination thirdparty distribution points companyowned retail locations reduction workforce completed using combination involuntary voluntary separation plans expect record charge severance related costs associated workforce reduction 4000 internal positions first quarter 2008 record charge related exit costs associated elimination certain distribution points retail locations incur throughout 2008 credit facility february 27 2008 drew 25 billion principal amount revolving credit facility 500 million borrowing capacity available revolving credit facility sprint nextel corporation schedule ii valuation qualifying accounts years ended december 31 2007 2006 2005 schedule reflects continuing operations 1 amounts charged accounts consist receivable reserves billing collection services provide certain pcs affiliates uncollectible accounts recovered affiliates 2005 2006 amounts include allowance recorded merger nextel pcs affiliates nextel partners acquisitions 2 accounts written net recoveries 3 amount represents increases valuation allowance deferred tax assets related primarily purchase price allocations sprintnextel merger pcs affiliates nextel partners acquisitions 4 amount represents valuation allowances longer required due utilization expiration income tax carryforwards 5 amount includes beginning balance adjustment reclassification valuation allowance liabilities accordance adoption fin 48 6 amount represents increases valuation allowance deferred tax assets related purchase price allocation pcs affiliate acquisitions item 15 exhibits financial statement schedules 1 consolidated financial statements sprint nextel corporation filed part report listed index consolidated financial statements 2 consolidated financial statements clearwire corporation filed part report listed index consolidated financial statements 3 following exhibits filed part report filed furnished required schedules andor exhibits filed furnished sec upon request sprint furnish sec upon request copies instruments defining rights holders longterm debt exceeding 10 total assets sprint signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized sprint nextel corporation registrant daniel r hesse daniel r hesse chief executive officer president date february 24 2012 pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities indicated 24th day february 2012 daniel r hesse daniel r hesse chief executive officer president principal executive officer joseph j euteneuer joseph j euteneuer chief financial officer principal financial officer ryan h siurek ryan h siurek vice president controller principal accounting officer signatures sprint nextel corporation registrant pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities indicated 24th day february 2012 james h hance jr v janet hill james h hance jr chairman v janet hill director robert r bennett frank ianna robert r bennett director frank ianna director gordon bethune svenchrister nilsson gordon bethune director svenchrister nilsson director larry c glasscock larry c glasscock director william r nuti director daniel r hesse rodney oneal daniel r hesse director rodney oneal director sprint nextel corporation index consolidated financial statements report independent registered public accounting firm board directors shareholders sprint nextel corporation audited accompanying consolidated balance sheets sprint nextel corporation subsidiaries december 31 2011 2010 related consolidated statements comprehensive loss cash flows shareholders equity years threeyear period ended december 31 2011 also audited sprint nextel corporations internal control financial reporting december 31 2011 based criteria established internal control integrated framework issued committee sponsoring organizations treadway commission coso sprint nextel corporations management responsible consolidated financial statements maintaining effective internal control financial reporting assessment effectiveness internal control financial reporting included managements report internal control financial reporting responsibility express opinion consolidated financial statements opinion companys internal control financial reporting based audits audit financial statements clearwire corporation consolidated subsidiary clearwire communications llc collectively clearwire 515 owned investee company sprint nextel corporations investment clearwire included 18 billion 31 billion december 31 2011 december 31 2010 respectively equity losses clearwire included 16 billion 13 billion years 2011 2010 respectively audit financial statements clearwire audited auditors whose report furnished us opinion insofar relates amounts included clearwire based solely report auditors conducted audits accordance standards public company accounting oversight board united states standards require plan perform audits obtain reasonable assurance whether financial statements free material misstatement whether effective internal control financial reporting maintained material respects audits consolidated financial statements included examining test basis evidence supporting amounts disclosures financial statements assessing accounting principles used significant estimates made management evaluating overall financial statement presentation audit internal control financial reporting included obtaining understanding internal control financial reporting assessing risk material weakness exists testing evaluating design operating effectiveness internal control based assessed risk audits also included performing procedures considered necessary circumstances believe audits provide reasonable basis opinions companys internal control financial reporting process designed provide reasonable assurance regarding reliability financial reporting preparation financial statements external purposes accordance generally accepted accounting principles companys internal control financial reporting includes policies procedures 1 pertain maintenance records reasonable detail accurately fairly reflect transactions dispositions assets company 2 provide reasonable assurance transactions recorded necessary permit preparation financial statements accordance generally accepted accounting principles receipts expenditures company made accordance authorizations management directors company 3 provide reasonable assurance regarding prevention timely detection unauthorized acquisition use disposition companys assets could material effect financial statements inherent limitations internal control financial reporting may prevent detect misstatements also projections evaluation effectiveness future periods subject risk controls may become inadequate changes conditions degree compliance policies procedures may deteriorate opinion based audits report auditors consolidated financial statements referred present fairly material respects financial position sprint nextel corporation subsidiaries december 31 2011 2010 results operations cash flows years threeyear period ended december 31 2011 conformity us generally accepted accounting principles also opinion sprint nextel corporation maintained material respects effective internal control financial reporting december 31 2011 based criteria established internal control integrated framework issued committee sponsoring organizations treadway commission sprint nextel corporation adopted accounting guidance regarding accounting business combinations equity method investments 2009 presentation consolidated statement comprehensive loss 2011 kpmg llp kansas city missouri february 27 2012 sprint nextel corporation consolidated balance sheets see notes consolidated financial statements sprint nextel corporation consolidated statements comprehensive loss see notes consolidated financial statements sprint nextel corporation consolidated statements cash flows see notes consolidated financial statements sprint nextel corporation consolidated statements shareholders equity millions 1 see note 14 information regarding common shares see notes consolidated financial statements sprint nextel corporation notes consolidated financial statements index sprint nextel corporation notes consolidated financial statements note 1 description operations sprint nextel corporation including consolidated subsidiaries “sprint” “we” “us” “our” “company” communications company offering comprehensive range wireless wireline communications products services designed meet needs individual consumers businesses government subscribers resellers organized operations meet needs targeted subscriber groups focused communications solutions incorporate capabilities wireless wireline services result acquisition virgin mobile usa inc virgin mobile november 24 2009 ipcs inc ipcs december 4 2009 operations virgin mobile ipcs consolidated prospectively respective acquisition dates wireless segment includes retail wholesale affiliate service revenue wide array wireless voice data transmission services equipment revenue sale wireless devices accessories us puerto rico us virgin islands wireline segment includes revenue domestic international wireline voice data communication services including services cable multiple systems operators resell local long distance services use back office systems network assets support telephone service provided cable facilities primarily residential enduser subscribers sprints fourth generation 4g technology capabilities currently exist mobile virtual network operator mvno wholesale relationship clearwire corporation consolidated subsidiary clearwire communications llc together clearwire 515 noncontrolling economic interest sprint investors offering 4g services utilize clearwires 4g worldwide interoperability microwave access wimax technology available markets services supported technology give subscribers compatible devices highspeed access internet variety sophisticated data services see note 3 addition october 2011 announced intention deploy long term evolution lte technology part network modernization plan network vision note 2 summary significant accounting policies information consolidation policies estimates consolidated financial statements include accounts wholly owned subsidiaries control controlling financial interest significant intercompany transactions balances eliminated consolidation investments sprint maintains majority ownership lacks full decision making ability major issues accounted using equity method sprints significant equity investment clearwire sprint controlling vote ability control operating financial policies consolidated financial statements prepared conformity accounting principles generally accepted united states gaap requires management company make estimates assumptions affect reported amounts assets liabilities revenues expenses disclosure contingent assets liabilities date consolidated financial statements estimates inherently subject judgment actual results could differ certain prior period amounts reclassified conform current period presentation subsequent events evaluated disclosure date financial statements filed securities exchange commission sec summary significant accounting policies cash equivalents cash equivalents generally include highly liquid investments maturities time purchase three months less investments may include money market funds certificates deposit us government governmentsponsored debt securities corporate debt securities municipal securities bankrelated securities credit debit card transactions process sprint nextel corporation notes consolidated financial statements allowance doubtful accounts allowance doubtful accounts established sufficient cover probable reasonably estimable losses number subscriber accounts practical review collectibility accounts individually determine amount allowance doubtful accounts period although account level analysis performed respect large wireless wireline subscribers estimate allowance doubtful accounts considers number factors including collection experience aging accounts receivable portfolios credit quality subscriber base qualitative considerations including macroeconomic factors amounts written allowance doubtful accounts net recoveries adjustments 519 million 437 million 487 million 2011 2010 2009 respectively device accessory inventory inventories stated lower cost market cost determined firstin firstout fifo method costs devices related revenues generated device sales equipment net subsidy recognized time sale expected equipment net subsidy recognized prior time sale promotional discount decision generally made point sale equipment net subsidies expected recovered service revenues net realizable value devices inventory analyzed regular basis analysis includes assessing obsolescence sales forecasts product life cycle marketplace considerations assessments regarding factors adversely change may required sell devices higher subsidy potentially record expense future periods prior point sale property plant equipment property plant equipment ppe including improvements extend useful lives recognized cost depreciation property plant equipment generally calculated using straightline method based estimated economic useful lives 3 30 years buildings improvements network equipment site costs related software 3 12 years nonnetwork internal use software office equipment leasehold improvements depreciated shorter lease term estimated useful life respective assets calculate depreciation certain network assets using group life method accordingly ordinary asset retirements disposals assets charged accumulated depreciation gain loss recognized gains losses associated asset retirements disposals recognized consolidated statements comprehensive loss depreciation rates assets revised periodically account changes related managements strategic objectives technological changes obsolescence repair maintenance costs research development costs expensed incurred capitalize costs network nonnetwork software developed obtained internal use application development stage costs included ppe software placed service depreciated estimated useful lives 3 5 years costs incurred preliminary project postimplementation stage well maintenance training costs expensed incurred investments shortterm investments recognized amortized cost classified current assets consolidated balance sheets original maturities purchase greater three months less one year certain investments accounted using equity method based companys ownership interest ability exercise significant influence accordingly initial investment recognized cost subsequently adjusted recognize companys share earnings losses investee reporting period subsequent investment date equity method investments evaluated otherthantemporary impairment regular basis otherthantemporary impairment occurs estimated fair value investment carrying value difference determined recoverable evaluation requires significant judgment regarding among things severity duration decline value ability intent hold securities recovery financial condition liquidity nearterm prospects issuer specific events factors sprint nextel corporation notes consolidated financial statements longlived asset impairment sprint evaluates longlived assets including intangible assets subject amortization impairment whenever events changes circumstances indicate carrying amount asset group may recoverable asset groups determined lowest level identifiable cash flows largely independent cash flows groups assets liabilities probable undiscounted future cash flows sufficient recover asset groups carrying amount impairment determined excess asset groups net carrying value estimated fair value refer note 8 additional information asset impairments certain assets yet deployed business including network equipment cell site development costs software development periodically assessed determine recoverability network equipment cell site development costs expensed whenever events changes circumstances cause company conclude assets longer needed meet managements strategic network plans deployed software development costs expensed longer probable software project deployed network equipment removed network also periodically assessed determine recoverability continue operational challenges including retaining attracting subscribers future cash flows company may sufficient recover carrying value wireless asset group could record asset impairments material sprints consolidated results operations financial condition 2011 assessed recoverability wireless asset group includes tangible intangible longlived assets subject amortization well indefinitelived intangible assets included cash flow projections wireless operations along cash flows associated eventual disposition longlived assets included estimated proceeds assumed sale federal communications commission fcc licenses intangible assets indefinitelived intangible assets indefinitelived intangible assets primarily consists goodwill fcc licenses acquired primarily fcc auctions business combinations deploy wireless services certain trademarks goodwill represents excess consideration paid estimated fair value net tangible identifiable intangible assets acquired business combinations determining whether intangible asset goodwill indefinitelived consider expected use assets regulatory economic environment within used effects obsolescence use assess indefinitelived intangible assets impairment least annually necessary frequently whenever events changes circumstances indicate asset may impaired indicators may include sustained significant decline market capitalization since previous impairment assessment significant decline expected future cash flows significant adverse change legal factors business climate unanticipated competition andor slower growth rates among others benefit plans provide defined benefit pension plan certain postretirement benefits certain employees sponsor defined contribution plan employees december 31 2011 2010 fair value pension plan assets certain postretirement benefits aggregate 14 billion 13 billion respectively fair value projected benefit obligations aggregate 22 billion 19 billion respectively result plans underfunded approximately 800 million 600 million december 31 2011 2010 respectively recorded net liability consolidated balance sheets estimated contributions totaling approximately 125 million expected paid 2012 offset pension liability recorded equity component accumulated comprehensive loss net tax including 2011 2010 net actuarial loss 349 million 171 million respectively change net liability plan 2011 affected primarily decrease discount rate 60 54 used estimate projected benefit obligation intend make future cash sprint nextel corporation notes consolidated financial statements contributions pension plan amount necessary meet minimum funding requirements according applicable benefit plan regulations december 31 2005 pension plan amended freeze benefit plan accruals participants objective investment portfolio pension plan achieve longterm nominal rate return net fees exceeds plans longterm expected rate return investments funding purposes 825 2011 meet objective investment strategy governed asset allocation policy whereby targeted allocation percentage assigned asset class follows 50 us equities 15 international equities 15 fixed income investments 10 real estate investments 10 investments including hedge funds actual allocations allowed deviate target allocation percentages plus minus 5 investments pension plan measured fair value recurring basis determined using quoted market prices estimated fair values december 31 2011 57 investment portfolio valued quoted prices active markets identical assets 26 valued using quoted prices similar assets active inactive markets observable inputs 17 valued using unobservable inputs supported little market activity defined contribution plan participants may contribute portion eligible pay plan payroll withholdings company matched 100 participants contributions 4 eligible compensation january 1 2009 march 6 2009 fixed matching contributions totaled 32 million 2009 effective compensation paid march 6 2009 2010 amount matching contribution discretionary determined board directors company based upon formula related profitability company profitability levels attained company matched percentage participants contributions maximum percentage eligible compensation determined board remainder 2009 matched 100 participants contributions 113 eligible compensation cash totaling 20 million 2010 amount discretionary match 07 9 million 2011 company reinstated fixed matching contribution matching 100 participants contributions 2 eligible compensation total amount 31 million also made discretionary match 12 20 million based upon attainment certain profitability levels revenue recognition operating revenues primarily consist wireless service revenues generated device accessory sales revenues wholesale operators third party affiliates well long distance voice data internet revenues service revenues consist fixed monthly recurring charges variable usage charges roaming data text messaging premium service usage miscellaneous fees activation upgrade late payment reconnection early termination fees certain regulatory related fees recognize service revenues services rendered equipment revenue title passes dealer enduser subscriber recognize revenue access charges services charged fixed amounts ratably service period net credits adjustments service discounts billing disputes fraud unauthorized usage recognize excess wireless usage long distance revenue contractual rates per minute minutes used additionally recognize excess wireless data usage based kilobytes onetime use charges use premium services rendered result cutoff times multiple billing cycles month required estimate amount subscriber revenues earned billed end billing cycle end reporting period estimates based primarily rate plans effect historical usage billing patterns regulatory fees costs recorded gross largest component regulatory fees universal service fund represented 2 net operating revenues 2011 2010 2009 accounting estimates related recognition revenue results operations require us make assumptions future billing adjustments disputes subscribers unauthorized usage future returns mailin rebates device sales dealer commissions cash consideration given us dealer enduser subscriber presumed reduction sprint nextel corporation notes consolidated financial statements revenue unless receive identifiable benefit exchange consideration fair value benefit reasonably estimated case consideration recorded selling expense compensate dealers using specific compensation programs related sale devices subscriber service contracts commission earned dealer solely due selling activity relating wireless service cost recorded selling expense commission earned dealer due dealer selling one devices cost recorded reduction equipment revenue pointofsale discounts devices directly sourced distributors recognized sales expense advertising costs recognize advertising expense incurred selling general administrative expense advertising expenses totaled 14 billion years ended december 31 2011 2010 15 billion year ended december 31 2009 new accounting pronouncements september 2009 financial accounting standards board fasb modified accounting multipledeliverable revenue arrangements certain revenue arrangements include software elements modifications alter methods previously required allocating consideration received multipleelement arrangements require revenue allocation based relative selling price method including arrangements containing software components nonsoftware components function together deliver products essential functionality modifications effective beginning first quarter 2011 material effect consolidated financial statements july 2010 fasb amended requirements disclosures credit quality financing receivables allowance credit losses result amendments entity required disaggregate portfolio segment class certain existing disclosures provide certain new disclosures financing receivables related allowance credit losses new disclosures end reporting period effective fiscal year ending december 31 2010 disclosures activity occurs reporting period effective first quarter 2011 neither material effect consolidated financial statements may 2011 fasb issued authoritative guidance regarding fair value measurement amendments achieve common fair value measurement disclosure requirements us gaap ifrss resulted common requirements measuring fair value disclosing information fair value measurement us gaap international financial reporting standards ifrs including consistent definition term fair value amendments effective beginning first quarter 2012 however expect effect adoption material fasb issued authoritative guidance regarding comprehensive income presentation comprehensive income june 2011 subsequently revised december 2011 amends existing guidance present total comprehensive income components net income components comprehensive income either one continuous statement comprehensive income two consecutive financial statements guidance eliminates option present components comprehensive income statement changes shareholders equity amendments effective beginning first quarter 2012 early adoption permitted require retrospective application effect presentation information primary financial statements early adopted new presentation requirements resulted reporting components comprehensive income loss consolidated statements comprehensive loss rather consolidated statements shareholders equity previously reported september 2011 fasb issued authoritative guidance regarding testing goodwill impairment intended reduce cost complexity annual goodwill impairment test providing entities option performing qualitative assessment determine whether impairment testing necessary revised standard effective annual interim goodwill impairment tests performed beginning first quarter 2012 early adoption permitted certain circumstances early adopted provisions standard part annual assessment goodwill effect financial statements sprint nextel corporation notes consolidated financial statements note 3 investments components investments follows marketable equity securities investments marketable equity securities recognized fair value considered availableforsale securities accordingly unrealized holding gains losses securities recognized accumulated comprehensive income loss net related income tax realized gains losses measured reclassified accumulated comprehensive income loss earnings based identifying specific investments sold otherthantemporary impairment exists equity method investment clearwire sprints ownership interest sprints investment clearwire part plan participate 4g wireless broadband market sprint offers 4g products utilizing clearwires 4g wireless broadband network available markets december 31 2011 sprint holds approximately 515 noncontrolling economic interest clearwire form 705 million class b nonvoting common interests class b nonvoting clearwire communications llc 486 noncontrolling voting interest form 628 million shares class b voting common stock class b voting clearwire corporation together “class b common interests” carrying value december 31 2011 totaled approximately 17 billion share clearwire corporation class b voting together one clearwire communications llc class b nonvoting exchangeable one share clearwire corporations class common stock publicly traded security sprint elect buy back shares previously surrendered class b nonvoting shares excess class b voting shares could sold separately subject certain restrictions addition class b common interests sprint holds note receivable clearwire issued 2008 fixed interest rate 12 maturity date december 2015 carrying value note receivable includes accretion premium fees 2009 rollover 178 million 177 million december 31 2011 2010 respectively carrying value sprints class b common interests together carrying value note receivable included line item investments sprints consolidated balance sheets november 30 2011 sprint entered new agreements clearwire established longterm pricing terms 4g services wimax lte terms agreements sprint required pay clearwire 926 million total course 2012 2013 exchange unlimited wimax services years agreements also establish longterm usagebased pricing lte services 2012 beyond wimax services 2014 beyond terms sprint may also make series refundable prepayments 350 million lte services clearwire achieves certain buildout targets network specifications june 2013 obtains purchase commitments lte services customers payments beginning 2013 applied towards lte usage remaining term contract addition agreement provided improved terms competitive pricing rewholesaling wimax services sprint beginning 2012 lastly part agreements january 2 2012 sprint provided 150 million clearwire exchange promissory note stated interest rate 115 matures two installments 75 million plus accrued interest january 2013 january 2014 sprint sole discretion choose offset amounts payable clearwire promissory note amounts owed sprint mvno agreement sprint nextel corporation notes consolidated financial statements december 13 2011 clearwire closed public equity offering sold approximately 2012 million shares class common stock public offering price 200 per share conjunction public offering separate private transaction sprint exercised preemptive rights purchase approximately 1736 million class b voting shares 1736 million class b nonvoting shares aggregate purchase price approximately 331 million equity transactions resulted dilution sprints noncontrolling economic interest voting interest pretax dilution loss 27 million included equity losses clearwire equity losses summarized financial information equity losses clearwire 17 billion 13 billion 803 million years ended december 31 2011 2010 2009 respectively sprints losses investment clearwire consist sprints share clearwires net loss adjustments noncash impairment investment gains losses associated dilution sprints ownership interest resulting clearwires equity issuances items recognized clearwire corporation affect sprints economic interest sprints equity losses clearwire 2011 2010 include charges approximately 361 million 97 million respectively associated clearwires writeoff certain network assets longer meet strategic plans year ended december 31 2011 also includes 135 million pretax impairment reflecting sprints reduction carrying value investment clearwire estimated fair value pretax dilution loss 27 million equity losses clearwire 2009 included pretax dilution loss 154 million recognized first quarter representing finalization ownership percentages subsequent november 2008 formation summarized financial information clearwire follows sprints recoverability financial reporting measurement date evaluate excess sprints carrying value estimated fair value investment clearwire determine excess implied unrealized loss otherthantemporary evaluation considers among things observable unobservable inputs including clearwires market capitalization including historical volatility associated clearwires common stock duration decline clearwires average trading stock price sprints carrying value potential tax benefits governance rights associated class b nonvoting interests expectation duration ongoing relationship well factors based evaluation december 31 2011 recognized noncash impairment 135 million fourth quarter 2011 reflect reduction best sprint nextel corporation notes consolidated financial statements estimate fair value associated class b nonvoting interests based evaluation factors described determination estimate fair value nonpublic security class b nonvoting interest subject significant judgment uncertainty clearwire related party transactions sprints equity method investment clearwire includes agreements resell wireless data services utilizing clearwires 4g network addition clearwire utilizes sprint network provide dual mode service customers areas access 4g network yet available accounts payable accrued expense liabilities clearwire totaling 77 million december 31 2011 cost services products totaling 405 million year ended december 31 2011 included consolidated financial statements related purchase 4g services note 4 financial instruments cash equivalents accounts notes receivable accounts payable carried cost approximates fair value shortterm investments consisting primarily time deposits treasury securities totaling 150 million 300 million december 31 2011 2010 respectively recorded amortized cost respective carrying amounts approximate fair value fair value marketable equity securities totaling 43 million 39 million december 31 2011 2010 respectively measured recurring basis using quoted prices active markets estimated fair value longterm debt financing capital lease obligations including current maturities based current market prices interest rates following table presents carrying amounts estimated fair values current longterm debt financing capital lease obligations sprint nextel corporation notes consolidated financial statements note 5 property plant equipment property plant equipment consists primarily network equipment longlived assets used provide service subscribers first quarter 2012 formalized plans decommission roughly onethird total nextel platform 9600 towers end 2012 also expect completed transition customers nextel platform sprint platform end 2013 allow us decommission remainder nextel platform sites result first quarter 2012 revised estimates expected useful lives certain assets asset retirement obligations end 2013 exact timing acceleration dependent upon assets expected phased service addition increasing data usage subscribers expected require additional data capacity equipment compatible deployment network visions multimode technology result estimated useful lives equipment shortened compared similar prior capital expenditures date network vision equipment deployed inservice incremental effect accelerated depreciation expense 2012 2013 expected material consolidated financial statements connection network vision certain spectrum licenses previously placed service prepared intended use qualifying activities performed related network vision interest expense primarily related carrying value spectrum licenses capitalized construction progress within property plant equipment interest capitalized connection construction longlived assets totaled 413 million 13 million 12 million years ended december 31 2011 2010 2009 respectively construction progress including capitalized interest associated network vision began 2011 expected depreciated using straightline method based estimated economic useful lives expected depreciated weighted average useful life approximately eight years assets placed service network equipment site costs related software includes switching equipment cell site towers site development costs radio frequency equipment network software digital fiber optic cable transport facilities transmissionrelated equipment buildings improvements principally consists owned general office facilities retail stores leasehold improvements nonnetwork internal use software office equipment primarily consists furniture information technology systems equipment vehicles construction progress depreciated placed service primarily includes materials transmission related equipment labor engineering site development costs interest costs relating construction development network components property plant equipment related accumulated depreciation follows sprint nextel corporation notes consolidated financial statements note 6 intangible assets indefinitelived intangible assets 1 net reduction goodwill 14 million result purchase price allocation adjustments recognized first quarter 2010 associated 2009 acquisitions virgin mobile ipcs primarily related deferred tax assets liabilities hold 19 gigahertz ghz 800 megahertz mhz 900 mhz fcc licenses authorizing use radio frequency spectrum deploy wireless services also hold fcc licenses yet placed service intend use accordance fcc requirements long company acts within requirements constraints regulatory authorities renewal extension licenses reasonably certain minimal cost aware technology developed would render spectrum obsolete concluded licenses indefinitelived intangible assets sprint boost mobile trademarks also identified indefinitelived intangible assets 2011 conducted annual assessment estimated fair value indefinitelived intangible assets goodwill determined adjustment necessary goodwill represents excess consideration paid estimated fair value net tangible identifiable intangible assets acquired business combinations fourth quarter 2009 acquired virgin mobile ipcs resulted recognition 373 million goodwill 2010 sprint finalized purchase price allocations associated acquisitions goodwill recoverability assessment carrying value sprints goodwill included wireless segment represents wireless reporting unit estimate fair value wireless reporting unit using discounted cash flow marketbased valuation models fair value wireless reporting unit exceeds net book value goodwill impaired testing necessary net book value wireless reporting unit exceeds estimated fair value estimate fair value goodwill determine amount impairment loss determination estimated fair value wireless reporting unit requires significant estimates assumptions estimates assumptions primarily include limited transactions within wireless industry related control premiums discount rate terminal growth rate operating income depreciation amortization oibda capital expenditure forecasts due inherent uncertainty involved making estimates actual results could differ estimates evaluate merits significant assumption individually aggregate used determine fair value wireless reporting unit reasonableness 2011 conducted annual assessment goodwill determined adjustment necessary sprint nextel corporation notes consolidated financial statements intangible assets subject amortization sprints customer relationships amortized using sum years digits method reduce gross carrying value associated accumulated amortization specified intangible assets become fully amortized 2011 reduced gross carrying value accumulated amortization approximately 16 billion associated fully amortized intangible assets primarily related customer relationships connection acquisitions nextel partners inc virgin mobile intangible assets primarily include certain rights affiliation agreements reacquired connection acquisitions affiliates nextel partners inc amortized remaining terms affiliation agreements straightline basis nextel direct connect virgin mobile trade names amortized straightline basis 2011 conducted annual assessment recoverability intangible assets subject amortization determined adjustment necessary sprint nextel corporation notes consolidated financial statements note 7 longterm debt financing capital lease obligations december 31 2011 sprint nextel corporation parent corporation 80 billion principal debt outstanding including amounts drawn credit facilities addition 115 billion principal longterm debt issued whollyowned subsidiaries guaranteed parent approximately 67 billion fully unconditionally guaranteed indentures financing arrangements certain subsidiaries debt contain provisions limit cash dividend payments subsidiary common stock transfer cash form advances subsidiaries parent corporation generally restricted december 31 2011 12 billion outstanding debt comprised certain notes financing capital lease obligations mortgages secured 793 million property plant equipment assets net gross book value 12 billion cash interest payments net amounts capitalized 413 million 13 million 12 million totaled 10 billion 15 billion 14 billion years ended december 31 2011 2010 2009 respectively notes consist senior notes serial redeemable senior notes guaranteed notes unsecured well secured notes ipcs secured solely underlying assets ipcs company may elect pay interest portion ipcs secured notes entirely cash increasing principal amount cash interest remaining notes generally payable semiannually arrears approximately 188 billion notes redeemable companys discretion applicable redemption price plus accrued interest sprint nextel corporation notes consolidated financial statements november 9 2011 company issued 10 billion principal 1150 senior notes due 2021 30 billion principal 900 guaranteed notes due 2018 interest payable semiannually may 15 november 15 company option may redeem either issue notes time prior maturity change control event defined supplemental indentures occurs prior company rated “investment grade” applicable rating agencies holders right subject certain conditions require company repurchase notes purchase price equal 101 aggregate principal amount notes repurchased plus accrued unpaid interest date repurchase indentures supplemental indentures also contain covenants limit companys ability sell substantially assets merge consolidate companies certain subsidiaries restrictions granting liens creditors 2018 guaranteed notes guaranteed companys whollyowned subsidiaries guarantee existing credit agreements january 31 2011 company paid 165 billion principal plus accrued unpaid interest outstanding sprint capital corporation 7625 senior notes scheduled addition december 29 2011 redeemed outstanding 20 billion sprint capital corporation 8375 senior notes due march 2012 principal plus accrued unpaid interest addition 33 million loss recognized result early retirement june 28 2010 company paid 750 million principal plus accrued unpaid interest outstanding floating rate senior notes scheduled weighted average effective interest rate related notes credit facilities 70 2011 69 2010 credit facilities october 2011 credit facility amended prospectively redefine earnings interest taxes depreciation amortization certain nonrecurring items adjusted ebitda within ratio total indebtedness trailing four quarters adjusted ebitda exclude costs comprising equipment net subsidy defined amended agreement extent costs exceed 11 billion six consecutive fiscal quarters ending march 31 2013 amount added back related exclusion cannot exceed 175 billion four consecutive fiscal quarters limited 27 billion aggregate six consecutive fiscal quarters ending march 31 2013 borrowing capacity facility also increased 150 million 22 billion december 31 2011 11 billion letters credit includes 10 billion letter credit required fccs report order reconfigure 800 mhz band outstanding 22 billion revolving bank credit facility result company 11 billion borrowing capacity available revolving bank credit facility december 31 2011 terms credit facility provide interest rate equal london interbank offered rate libor plus spread varies depending companys credit ratings november 23 2011 company paid 250 million plus accrued unpaid interest amounts outstanding export development canada edc loan due 2012 december 31 2011 unsecured loan agreement edc fully drawn repayments outstanding amounts cannot redrawn addition edc loan agreement amended december 2011 provide terms similar amended revolving bank credit facility financing capital lease obligations approximately 3000 cell sites sold subsequently leased back space terms extend 2021 renewal options additional 20 years cell sites continue reported part property plant equipment due continued involvement property sold transaction accounted financing capital lease obligations primarily use communication switches sprint nextel corporation notes consolidated financial statements covenants december 31 2011 company compliance restrictive financial covenants associated borrowings default borrowings could trigger defaults debt obligations turn could result maturities accelerated certain indentures govern outstanding notes also require compliance various covenants including limitations incurrence indebtedness liens company subsidiaries defined terms indentures currently restricted paying cash dividends ratio total indebtedness trailing four quarters adjusted ebitda defined amended credit facility discussed exceeds 25 10 company also obligated repay credit facilities certain changeofcontrol events occur future maturities longterm debt financing obligation capital lease obligations scheduled principal payments longterm debt financing obligation capital lease obligations outstanding december 31 2011 follows note 8 severance exit costs asset impairments liabilities severance exit costs recognized based upon nature cost incurred involuntary separation plans completed within guidelines written involuntary separation plan liability recognized probable reasonably estimable voluntary separation plans vsp liability recognized vsp irrevocably accepted employee onetime termination benefits additional severance pay benefit payouts exit costs lease termination costs liability measured recognized initially fair value period liability incurred subsequent changes liability recognized adjustments period change severance exit costs associated business combinations recorded results operations incurred sprint nextel corporation notes consolidated financial statements severance exit costs activity 2011 recognized 28 million 25 million wireless 3 million wireline severance costs associated actions fourth quarter 2011 2010 recognized costs 8 million 11 million wireless offset benefit 3 million wireline primarily related increase exit costs incurred second fourth quarter 2010 associated vacating certain office space longer utilized partially offset reduction estimate total severance costs associated workforce reduction announced november 2009 recognized 400 million 307 million wireless 93 million wireline severance exit costs related primarily reduction workforce announcements 2009 following provides activity severance exit costs liability included “accrued expenses current liabilities” within consolidated balance sheets asset impairments 2011 2010 2009 recorded asset impairments 78 million 125 million 47 million respectively primarily related network asset equipment wireless segment longer necessary managements strategic plans sprint nextel corporation notes consolidated financial statements note 9 supplemental financial information 1 includes liabilities amounts 121 million 123 million december 31 2011 2010 respectively checks issued excess associated bank balances yet presented collection sprint nextel corporation notes consolidated financial statements note 10 income taxes income tax expense benefit consists following differences caused effective income tax rates vary 35 federal statutory rate income taxes follows income tax expense benefit allocated items follows 1 amounts recognized accumulated comprehensive loss 2 amounts recorded directly shareholders equitypaidin capital consolidated balance sheets sprint nextel corporation notes consolidated financial statements deferred income taxes recognized temporary differences carrying amounts assets liabilities financial statement purposes tax bases deferred tax assets also recorded operating loss capital loss tax credit carryforwards sources differences give rise deferred income tax assets liabilities december 31 2011 2010 along income tax effect follows realization deferred tax assets including net operating loss carryforwards dependent generation future taxable income sufficient realize tax deductions carryforwards credits however recent history consecutive annual losses addition uncertainty concerning forecasted income beyond 2011 reduces ability rely expectations future income evaluating ability realize deferred tax assets valuation allowances deferred tax assets recognized determined likely asset realized result company recognized increase valuation allowance 13 billion 16 billion years ended december 31 2011 2010 respectively deferred tax assets primarily related federal state net operating loss carryforwards generated period increase carrying amount sprints valuation allowance years ended december 31 2011 2010 excess amounts recognized change valuation allowance current period income tax expense primarily associated tax effect items reflected comprehensive income accounts expiration net operating loss tax credit carryforwards expect record significant tax benefits future net operating losses circumstances justify recognition benefits believe likely remaining deferred income tax assets net valuation allowance realized based current income tax laws expectations future taxable income stemming reversal existing deferred tax liabilities uncertainties surrounding income tax law changes shifts operations state taxing jurisdictions future operating income levels may however affect ultimate realization deferred income tax assets income tax expense 254 million 166 million years ended december 31 2011 2010 respectively primarily attributable taxable temporary differences amortization fcc licenses fcc licenses amortized 15 years income tax purposes licenses indefinite life amortized financial statement reporting purposes difference results net deferred income tax expense since taxable temporary difference cannot scheduled reverse loss carryforward period sprint nextel corporation notes consolidated financial statements addition 2011 59 million expense recorded result effect changes corporate state income tax laws 59 million 38 million recognized within state income taxes net federal income tax effect 21 million recognized change valuation allowance table 2011 2010 2009 incurred 194 million 210 million 3 million respectively foreign income loss included loss income taxes material unremitted earnings foreign subsidiaries cash paid income taxes net 35 million 31 million 2011 2009 respectively cash refunds income taxes received net 139 million 2010 1998 acquired 229 million potential tax benefits related net operating loss carryforwards controlling interest acquisition wireless joint venture call pcs restructuring benefits acquired pcs restructuring subject certain realization restrictions various tax laws required reimburse former cable company partners joint venture net operating loss tax credit carryforward benefits generated pcs restructuring realization us produces cash benefit would otherwise realized reimbursement equal 60 net cash benefit received us made former cable company partners shares stock december 31 2011 unexpired carryforward benefits subject requirement total 59 million maintained valuation allowance entire amount tax benefits december 31 2011 federal operating loss carryforwards 95 billion state operating loss carryforwards 144 billion related loss carryforwards recorded federal tax benefits 32 billion net state tax benefits 650 million consideration valuation allowances approximately 545 million federal net operating loss carryforwards expire 2016 2019 remaining 90 billion expire varying amounts 2020 2031 state operating loss carryforwards expire varying amounts 2031 addition available income tax purposes federal alternative minimum tax net operating loss carryforwards 97 billion state alternative minimum tax net operating loss carryforwards 24 billion loss carryforwards expire varying amounts 2031 also available capital loss carryforwards 144 million related capital loss carryforwards tax benefits 52 million capital loss carryforwards 109 million expire 2013 remaining 35 million expire 2014 2015 also available 471 million federal state income tax credit carryforwards december 31 2011 included amount 23 million income tax credits expire prior 2015 296 million expire varying amounts 2015 2031 remaining 152 million expire unrecognized tax benefits established uncertain tax positions based upon estimates regarding potential future challenges positions largest amount greater fifty percent likely realized upon ultimate settlement estimates updated reporting date based facts circumstances information available interest related unrecognized tax benefits recognized interest expense penalties recognized additional income tax expense total unrecognized tax benefits attributable uncertain tax positions december 31 2011 2010 225 million 228 million respectively december 31 2011 total unrecognized tax benefits included items would favorably affect income tax provision 187 million recognized without offsetting valuation allowance adjustment december 31 2011 2010 accrued liability income tax related interest penalties 26 million 28 million respectively sprint nextel corporation notes consolidated financial statements reconciliation beginning ending amount unrecognized tax benefits follows file income tax returns us federal jurisdiction state jurisdiction imposes income tax also file income tax returns number foreign jurisdictions however foreign income tax activity immaterial internal revenue service irs currently conducting examination 2007 2008 2009 consolidated income tax returns settlement agreements reached appeals division irs examination issues dispute years prior 2007 issues immaterial consolidated financial position results operations involved multiple state income tax examinations related various years beginning 1996 various stages examination administrative review appellate process based current knowledge examinations administrative reviews appellate processes believe reasonably possible number uncertain tax positions may resolved next twelve months could result reduction 85 million unrecognized tax benefits note 11 spectrum hosting network vision multimode network technology designed utilize single base station capable handling various spectrum bands including 800 mhz 19 ghz spectrum well spectrum bands owned accessed parties june 2011 entered 15year arrangement lightsquared lp lightsquared inc collectively “lightsquared” terms arrangement conjunction network vision deployment agreed deploy operate lte network capable utilizing 16 ghz spectrum licensed available lightsquared term arrangement service refer “spectrum hosting” arrangement contains contingencies related possible interference issues lightsquareds spectrum including right sprint terminate arrangement certain conditions met lightsquared december 31 2011 company received 310 million advanced payments lightsquared future services performed spectrum hosting agreement beginning december 2011 series amendments arrangement modified among things extend date sprint right terminate arrangement suspend sprints obligation incur cost expense related performance original agreement amended arrangement sprint reason including limited fcc action inaction reason may terminate agreement march 15 2012 april 30 2012 lightsquared secures lenders consent modifications agreement sprints right terminate deferred june 25 2012 continue december 31 2012 addition parties definitively agreed approximately 236 million total 310 million advanced payments made lightsquared represent payment incremental costs obligations incurred sprint original agreement support lightsquared parties agreed amount irrevocably unconditionally paid subject dispute claim lightsquared accordingly sprint refund approximately 74 million lightsquareds initial prepayments sprint nextel corporation notes consolidated financial statements 65 million paid earlier lightsquareds lenders consent march 15 2012 remaining 9 million remain subject termination unwind provisions original agreement returned lightsquared upon termination less additional incremental cost obligations incurred sprint support lightsquared event arrangement terminated lightsquareds material breach nonpayment insolvency sprint maintains second lien certain lightsquareds assets including spectrum assets 236 million recorded current liability recognized operating income net associated costs event termination assuming uncertainties resolved alternatively sprint lightsquared agree proceed hosting arrangement 236 million recognized revenue hosting services performed note 12 commitments contingencies litigation claims assessments number cases allege sprint communications company lp failed obtain easements property owners installation fiber optic network 1980s filed various courts several cases sought certification nationwide classes one case nationwide class certified 2003 nationwide settlement claims approved us district court northern district illinois objectors appealed preliminary approval order seventh circuit court appeals overturned settlement remanded case trial court proceedings reached agreement principle settle claims amount material consolidated financial position results operations court issued preliminary approval settlement july 17 2008 september 10 2009 court announced would approve settlement court decide whether settlement fair best interest class members denied jurisdictional grounds result agreement terminated parties continued efforts reach settlement begun settle suits statewide basis received final court approval settlements north dakota alabama idaho illinois expect resolution matter material adverse effect consolidated financial position results operations january 6 2011 us district court district kansas denied motion dismiss shareholder lawsuit bennett v sprint nextel corp alleges company three former officers violated section 10b securities exchange act 1934 rule 10b5 failing adequately disclose certain alleged operational difficulties subsequent sprintnextel merger purportedly issuing false misleading statements regarding writedown goodwill complaint originally filed march 2009 brought behalf alleged purchasers company stock october 26 2006 february 27 2008 motion certify january 6 2011 order interlocutory interim appeal denied discovery begun believe complaint without merit intend defend matter vigorously expect resolution matter material adverse effect financial position results operations five related shareholder derivative suits filed company certain present andor former officers directors first murphy v forsee filed state court kansas april 2009 removed federal court stayed court pending resolution motion dismiss bennett case second randolph v forsee filed july 2010 state court kansas removed federal court remanded back state court third rosswilliams v bennett et al filed state court kansas february 1 2011 fourth suit price v forsee et al filed state court kansas april 15 2011 fifth suit hartleib v forsee et al filed federal court kansas july 14 2011 cases essentially stayed proceed discovery bennett case expect resolution matters material adverse effect financial position results operations various suits proceedings claims either asserted unasserted including purported class actions typical large business enterprise possible pending us subsidiaries interpretation certain laws regulations including related various state matters sales use property taxes found mistaken could result payments us possible determine sprint nextel corporation notes consolidated financial statements ultimate disposition proceedings whether resolved consistent beliefs expect outcome proceedings individually aggregate material adverse effect financial position results operations spectrum reconfiguration obligations 2004 fcc adopted report order included new rules regarding interference 800 mhz band comprehensive plan reconfigure 800 mhz band “report order” report order provides exchange portion 800 mhz fcc spectrum licenses requires us fund cost incurred public safety systems incumbent licensees reconfigure 800 mhz spectrum band addition received licenses 10 mhz nationwide spectrum 19 ghz band however required relocate reimburse incumbent licensees band costs relocation another band designated fcc minimum cash obligation 28 billion report order however obligated pay full amount costs relating reconfiguration plan even costs exceed 28 billion required terms report order letter credit secured provide assurance funds available pay relocation costs incumbent users 800 mhz spectrum submit qualified 800 mhz relocation costs fcc review potential letter credit reductions periodic basis result reviews letter credit reduced 25 billion start project 10 billion december 31 2011 approved fcc total payments directly attributable performance report order inception program approximately 31 billion 252 million incurred related fcc licenses 2011 reimbursements mobile satellite service mss entrants incurred costs generally accounted either property plant equipment additions fcc licenses although costs incurred date exceeded 28 billion costs reviewed accepted eligible transition administrator regardless continue estimate total eligible direct costs attributable spectrum reconfigurations exceed minimum cash obligation 28 billion estimate dependent significant assumptions including final licensee costs associated relocating licensees mexican border region currently approved border plan addition entitled receive reimbursement mss entrants pro rata portion costs clearing portion 19 ghz spectrum december 31 2011 received 135 million reimbursements mss entrants recognized reduction fcc licenses satisfies reimbursements expect receive completion 800 mhz band reconfiguration initially required june 26 2008 fcc continues grant 800 mhz public safety licensees additional time complete band reconfigurations turn delays sprints access 800 mhz replacement channels accordingly continue transition 800 mhz replacement channels consistent public safety licensees reconfiguration progress however anticipate continuing reconfiguration progress sufficient support 800 mhz portion sprint’s network vision rollout completed 19 ghz incumbent relocation reimbursement obligations second half 2010 operating leases lease various equipment office facilities retail outlets kiosks switching facilities cell sites operating leases noncancelable portion leases ranges monthly 20 years leases exceptions provide automatic renewal options escalations either fixed based consumer price index rent abatements along rent escalations included computation rent expense calculated straightline basis lease term lease term leases includes initial noncancelable term plus least one renewal period noncancelable term less ten years exercise related renewal option options reasonably assured cell site leases generally provide initial noncancelable term five twelve years five renewal options five years sprint nextel corporation notes consolidated financial statements process renegotiating cell site leases connection network vision includes spectrum hosting capabilities result lease renegotiations completed december 31 2011 resulted increase future operating lease costs related cell sites majority increase future costs period beyond 2016 due term extension agreements rental commitments operating leases including lease renewals reasonably assured consisted mainly leases cell switch sites real estate information technology network equipment office space december 31 2011 operating lease commitments future years follows total rental expense 19 billion 2011 18 billion 2010 2009 commitments party commitments includes service spectrum network capacity executory contracts connection conducting business september 2011 finalized four year minimum purchase agreement apple smartphone devices estimated approximately 155 billion term agreement ultimate spend apple depend many variables including anticipated rate future subscriber growth number different devices offered cost devices offered anticipate exceeding current contractual minimum commitment iphone® four year period december 31 2011 minimum amounts due commitments follows amounts actually paid agreements likely higher due variable components agreements significant variable components determine ultimate obligation owed include items hours contracted subscribers factors addition party various arrangements conditional nature obligate us make payments upon occurrence certain events delivery functioning software product note 13 compensation plans december 31 2011 sprint sponsored four incentive plans 2007 omnibus incentive plan 2007 plan 1997 longterm incentive program 1997 program nextel incentive equity plan nextel plan management incentive stock option plan misop together compensation plans sprint also sponsors employee stock purchase plan espp 2007 plan may grant share nonshare based awards including stock options stock appreciation rights restricted stock restricted stock units performance shares performance units equitybased cash awards employees outside directors eligible sprint nextel corporation notes consolidated financial statements individuals defined plan options issued offer exchange offer described generally granted exercise price equal market value underlying shares grant date generally vest annual basis three four years generally contractual term ten years restricted stock units generally performance service requirements service requirements vesting periods ranging one three years performancebased restricted stock units awarded 2011 2010 three distinct oneyear performance periods granted period performance objectives established usually first quarter calendar year employees directors granted restricted stock units required pay shares generally must remain employed us continue serve member board directors restrictions lapse typically three years employees one year directors compensation committee board directors one executive officers compensation committee authorize provided 2007 plan determine terms share nonshare based award new grants made 1997 program nextel plan misop 2011 number shares available reserved future grants 2007 plan totaled approximately 165 million common shares number shares available 2007 plan includes shares originally granted 1997 program nextel plan misop forfeited expired otherwise terminated totaled approximately 10 million shares 2011 december 31 2011 restricted stock units options acquire 56 million shares outstanding 2007 plan restricted stock units options acquire 9 million shares outstanding 1997 program options acquire 3 million shares outstanding nextel plan options acquire 5 million common shares outstanding misop espp eligible employees may subscribe quarterly purchase shares series 1 common stock payroll deductions 20 eligible compensation effective april 1 2009 purchase price equal 95 market value last trading day quarterly offering period modified 90 market value previous periods aggregate number shares purchased employee may exceed 9000 shares 25000 fair market value calendar year subject limitations imposed internal revenue code december 31 2011 espp approximately 77 million common shares authorized reserved future purchases net elections made employees participating fourth quarter 2011 offering period espp purchase 15 million common shares issued first quarter 2012 employees purchased shares 221 per share currently use new shares satisfy sharebased awards treasury shares available compensation costs cost employee services received exchange sharebased awards classified equity measured using estimated fair value award date grant cost recognized period award recipient required provide service exchange award awards instruments classified liabilities measured estimated fair value reporting date settlement sharebased compensation cost related awards graded vesting recognized using straightline method pretax share nonshare based compensation charges incentive plans included net loss 73 million 2011 70 million 2010 81 million 2009 net income tax benefit expense recognized consolidated financial statements sharebased compensation awards 13 million 2011 18 million 2010 3 million 2009 december 31 2011 42 million total unrecognized compensation cost related nonvested incentive awards expected recognized weighted average period 160 years cash received exercise sharebased payment arrangements net shares surrendered employee tax obligations 9 million 2011 7 million 2010 insignificant 2009 sprint nextel corporation notes consolidated financial statements options fair value option award estimated grant date using blackscholes option valuation model based several assumptions including riskfree interest rate volatility expected dividend yield expected term options outstanding december 31 2011 include options granted 2007 plan 1997 program nextel plan misop discussed riskfree interest rate used based zerocoupon us treasury bond term equal expected term options volatility used implied volatility traded options common shares expected dividend yield used estimated based historical dividend yield factors expected term options granted estimated using simplified method defined average vesting term contractual term historical data expected represent future expected term equity awards due severance activities last several years following table provides estimated fair value assumptions used determining fair value option awards granted 2011 2010 2009 summary status options option plans december 31 2011 changes year ended december 31 2011 presented sprint nextel corporation notes consolidated financial statements restricted stock units fair value restricted stock unit award calculated using share price date grant restricted stock units outstanding consist units granted 2007 plan 1997 program discussed summary status restricted stock units december 31 2011 changes year ended december 31 2011 presented total fair value restricted stock units vested years ended december 31 2011 2010 2009 15 million 40 million 53 million respectively weightedaverage grant date fair value restricted stock units granted 2011 425 per unit compared 348 per unit 2010 296 per unit 2009 certain restricted stock units outstanding december 31 2011 entitled dividend equivalents paid cash dividends declared paid common shares performancebased restricted stock units entitled dividend equivalent payments applicable performance service criteria met note 14 shareholders equity per share data articles incorporation authorize 6620000000 shares capital stock follows • 6000000000 shares series 1 voting common stock par value 200 per share • 500000000 shares series 2 voting common stock par value 200 per share • 100000000 shares nonvoting common stock par value 001 per share • 20000000 shares preferred stock par value per share classes common stock series 1 common stock holders series 1 common stock entitled one vote per share matters submitted action shareholders 30 billion shares series 1 common stock outstanding december 31 2011 series 2 common stock holders series 2 common stock entitled 10 one vote per share otherwise rights substantially identical series 1 common stock 2009 certain holders series 2 common stock exercised rights convert 398 million series 2 shares 398 million series 1 shares resulting 80 million 785 million reduction common shares paidin capital respectively corresponding 865 million reduction treasury shares 2011 remaining 35 million series 2 shares converted 35 million series 1 shares resulting 38 million 168 million reduction common shares paidin capital respectively corresponding 206 million reduction treasury shares result shares series 2 common stock outstanding december 31 2011 sprint nextel corporation notes consolidated financial statements treasury shares common stock repurchased us recorded cost treasury shares result reduction shareholders equity reissue treasury shares part shareholder approved stockbased compensation programs well upon conversion outstanding securities convertible common stock shares reissued determine cost using fifo method dividends declare dividends common shares 2011 2010 2009 currently restricted paying cash dividends terms revolving bank credit facility described note 7 accumulated comprehensive loss components accumulated comprehensive loss net tax follows per share data basic loss per common share calculated dividing net loss weighted average number common shares outstanding period diluted earnings loss per common share adjusts basic earnings loss per common share computed using treasury stock method effects potentially dilutive common shares effect antidilutive potentially dilutive common shares issuable equitybased compensation plans average market price exceeded exercise price 27 million 30 million 28 million shares december 31 2011 2010 2009 respectively potentially dilutive shares antidilutive 2011 2010 2009 therefore effect determination dilutive weighted average number shares outstanding note 15 segments sprint operates two reportable segments wireless wireline • wireless primarily includes retail wholesale affiliate revenue wide array wireless voice data transmission services equipment revenue sale wireless devices accessories us puerto rico us virgin islands • wireline primarily includes revenue domestic international wireline voice data communication services including services cable multiple systems operators resell local long distance services use back office systems network assets support telephone service provided cable facilities primarily residential enduser subscribers sprint nextel corporation notes consolidated financial statements define segment earnings wireless wireline operating loss income segment expenses depreciation amortization severance exit costs goodwill asset impairments solely directly attributable segment expense income items excluded segment earnings managed corporate level transactions segments generally accounted based market rates believe approximate fair value company generally reestablishes rates beginning fiscal year past several years industrywide trend lower rates due increased competition wireline wireless communications companies well cable internet service providers segment financial information follows sprint nextel corporation notes consolidated financial statements 1 intersegment revenues consist primarily wireline services provided wireless segment resale wireless subscribers 2 net consists primarily severance exit costs asset impairments offset gains asset dispositions exchanges see note 8 additional information severance exit costs asset impairments 3 corporate assets allocated operating segments consist primarily cash equivalents corporate headquarters campus equity method investment clearwire assets managed corporate level assets related 4g wireless broadband business subsequently contributed clearwire corporate capital expenditures include various administrative assets contributed clearwire sprint nextel corporation notes consolidated financial statements 1 revenues eliminated consolidation consist primarily wireline services provided wireless segment resale use wireless customers sprint nextel corporation notes consolidated financial statements note 16 quarterly financial data unaudited 1 sum quarterly earnings per share amounts may equal annual amounts changes weighted average number shares outstanding year report independent registered public accounting firm board directors stockholders clearwire corporation bellevue washington audited accompanying consolidated balance sheets clearwire corporation subsidiaries “company” december 31 2011 2010 related consolidated statements operations cash flows stockholders’ equity comprehensive loss three years period ended december 31 2011 consolidated financial statements responsibility company’s management responsibility express opinion consolidated financial statements based audits conducted audits accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether consolidated financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion consolidated financial statements present fairly material respects financial position clearwire corporation subsidiaries december 31 2011 2010 results operations cash flows three years period ended december 31 2011 conformity accounting principles generally accepted united states america deloitte touche llp seattle washington february 16 2012 clearwire corporation subsidiaries consolidated balance sheets see notes consolidated financial statements clearwire corporation subsidiaries consolidated statements operations see notes consolidated financial statements clearwire corporation subsidiaries consolidated statements cash flows see notes consolidated financial statements clearwire corporation subsidiaries consolidated statements stockholders’ equity comprehensive loss years ended december 31 2011 2010 2009 see notes consolidated financial statements clearwire corporation subsidiaries notes consolidated financial statements 1 description business leading provider fourth generation 4g wireless broadband services build operate next generation mobile broadband networks provide highspeed mobile internet residential internet access services communities throughout countryour current 4g mobile broadband network operates worldwide interoperability microwave access technology 80216e standard refer mobile wimax december 31 2011 offered services 88 markets united states covering estimated 1342 million people including estimated 1319 million people covered 4g mobile broadband networks 71 markets 4g mobile broadband network provides connection anywhere within coverage area current 4g mobile broadband markets united states offer services retail channels wholesale partners sprint nextel corporation refer sprint accounts substantially wholesale sales date offers services 4g markets currently focused growing revenue continuing build wholesale business leveraging retail business reducing expenses seeking additional capital current business continue development network long term need greatly expand revenue base increasing sales existing wholesale partners primarily sprint adding additional wholesale partners successful either believe necessary deploy long term evolution lte technology currently adopted wireless operators united states including sprint next generation wireless technology deploying lte believe able take advantage leading spectrum position offer offload data capacity sprint existing future mobile broadband service providers resale customers cost effective basis december 31 2011 believe sufficient cash fund nearterm liquidity needs business next 12 months based cash short term investments hand end quarter expected impact recent expense reductions cash expect receive mobile wimax services retail business sprint new agreement signed november 2011 refer november 2011 4g mvno amendment see note 17 related party transactions information expect operations generate cumulative positive cash flows next twelve months business fails perform expect incur unforeseen expenses may required raise additional capital near term fund current business including deployment lte network also believe may need raise substantial additional capital fund business meet financial obligations beyond next 12 months 2 summary significant accounting policies accompanying financial statements prepared accordance accounting principles generally accepted united states america refer us gaap pursuant rules regulations securities exchange commission refer sec following summary significant accounting policies principles consolidation consolidated financial statements include assets liabilities results operations whollyowned subsidiaries control controlling financial interest investments entities control primary beneficiary ability exercise significant influence operating financial policies accounted equity method intercompany transactions eliminated consolidation noncontrolling interests consolidated balance sheets include thirdparty investments entities consolidate wholly classify noncontrolling interests part equity allocate net income loss comprehensive income loss equity transactions noncontrolling interests accordance applicable ownership percentages also continue attribute noncontrolling interests share losses even attribution results deficit noncontrolling interest balance see note 15 stockholders equity information financial statement presentation reclassified certain prior period amounts conform current period presentation clearwire corporation subsidiaries notes consolidated financial statements continued information operating segments based internal organization reporting revenue operating income loss based upon internal accounting methods operating segments defined components enterprise separate financial information available evaluated regularly chief operating decision maker decision making group deciding allocate resources assessing performance chief operating decision maker chief executive officer operate single reportable segment provider 4g wireless broadband services united states prior june 30 2011 identified two reportable segments united states international operations result strategic decision focus investment united states market second quarter 2011 committed sell operations belgium germany spain principally represent remaining international operations goal complete sales within one year result substantially international operations assets liabilities classified accounted held sale reported discontinued operations subsequent june 30 2011 remaining international assets comprised primarily investments international affiliates notes receivable assets asset group discontinued operations measured lower carrying amount fair value less cost sell fair value assets asset group calculated based information initial negotiations net loss discontinued operations year ended december 31 2011 included 598 million charges associated adjusting carrying value assets asset group fair value less cost sell impairment charges recorded prior assets classified held sale net loss discontinued operations years ended december 31 2010 included 104 million impairment charges impairment charges recorded discontinued operations year ended december 31 2009 see note 18 discontinued operations discussion unless otherwise indicated information notes consolidated financial statements relates continuing operations international subsidiaries generally use local currency functional currency assets liabilities translated exchange rates effect balance sheet date resulting translation adjustments recorded within accumulated comprehensive income loss income expense accounts translated average monthly exchange rates effects changes exchange rates designated functional currency transaction denominated recorded foreign currency transaction gains losses recorded net loss discontinued operations attributable clearwire corporation consolidated statement operations use estimates preparing financial statements conformity us gaap requires management make complex subjective judgments nature judgments subject inherent degree uncertainty judgments based historical experience terms existing contracts observance trends industry information provided subscribers information available outside sources appropriate additionally changes accounting estimates reasonably likely occur period factors could material impact financial statements presentation financial condition changes financial condition results operations significant estimates inherent preparation accompanying financial statements include impairment analysis spectrum licenses indefinite lives including judgments impairment indicator may occurred estimates fair value spectrum licenses recoverability determination useful lives longlived assets include property plant equipment intangible assets tax valuation allowances determination sublease rentals computation ceasetouse tower operating lease liability valuation derivatives cash equivalents cash equivalents consist money market mutual funds highly liquid shortterm investments original maturities three months less cash equivalents stated cost approximates market value cash equivalents exclude cash contractually restricted operational purposes maintain cash equivalent balances financial institutions exceed federally insured limits experienced losses related balances management believes credit risk related balances minimal restricted cash restricted cash consists primarily amounts set aside satisfy certain contractual obligations classified current noncurrent asset based designated purpose majority restricted cash designated satisfy certain vendor contractual obligations investments investment portfolio comprised primarily us government agency issues classify marketable debt securities availableforsale investments securities stated estimated fair value investments available current operations recorded shortterm investments original maturities greater three months remaining maturities less one year investments maturities one clearwire corporation subsidiaries notes consolidated financial statements continued year recorded longterm investments unrealized gains losses recorded within accumulated comprehensive income loss realized gains losses measured reclassified accumulated comprehensive income loss basis specific identification method account certain investments using equity method based ownership interest ability exercise significant influence accordingly record investment initially cost adjust carrying amount investment recognize share earnings losses investee reporting period cease recognize investee losses investment basis zero recognize realized losses declines fair value investments cost basis judged otherthantemporary determining whether decline fair value otherthantemporary consider various factors including market price investment ratings financial condition nearterm prospects issuer length time extent fair value less cost basis intent ability hold investment maturity period time sufficient allow anticipated recovery market value judged decline fair value otherthantemporary realized loss equal decline reflected consolidated statement operations new cost basis investment established fair value measurements fair value price would received sell asset paid transfer liability orderly transaction market participants measurement date determining fair value use various methods including market cost income approaches based approaches utilize certain assumptions market participants would use pricing asset liability including assumptions risk threetier hierarchy inputs used measuring fair value prioritizes inputs used methodologies measuring fair value assets liabilities follows level 1 quoted market prices active markets identical assets liabilities level 2 observable market based inputs unobservable inputs corroborated market data level 3 unobservable inputs corroborated market data financial assets financial liabilities classified entirety based lowest level input significant fair value measurements assessment significance particular input fair value measurement requires judgment may affect valuation assets liabilities measured placement within fair value hierarchy maximize use observable inputs minimize use unobservable inputs developing fair value measurements listed prices quotes available fair value based upon internally developed available models primarily use inputs marketbased independently sourced market parameters including limited interest rate yield curves volatilities equity debt prices credit curves utilize certain assumptions market participants would use pricing financial instrument including assumptions risk credit inherent default risk degree management judgment involved determining fair value dependent upon availability quoted market prices observable market parameters assets liabilities trade actively quoted market prices observable market parameters minimal judgment involved measuring fair value observable market prices parameters fully available management judgment necessary estimate fair value addition changes market conditions may reduce availability reliability quoted prices observable data instances use certain unobservable inputs cannot validated reference readily observable market exchange data rely certain extent assumptions market participant would use pricing security internally derived values compared nonbinding values received brokers independent sources available see note 12 fair value information accounts receivable accounts receivables stated amounts due subscribers wholesale partners net allowance doubtful accounts see note 17 related party transactions information regarding accounts receivable balances related parties inventory primarily consists customer premise equipment refer cpe accessories sold retail subscribers stated lower cost net realizable value cost determined average cost method record inventory writedowns obsolete slowmoving items based inventory turnover trends historical experience clearwire corporation subsidiaries notes consolidated financial statements continued property plant equipment property plant equipment refer ppe stated cost net accumulated depreciation calculated straightline basis estimated useful lives assets placed service network construction expenditures recorded construction progress network asset placed service time asset transferred appropriate ppe category capitalize costs additions improvements including salaries benefits related overhead costs associated constructing ppe interest costs related construction estimated useful life equipment determined based historical usage identical similar equipment consideration given technological changes industry trends could impact network architecture asset utilization leasehold improvements recorded cost amortized lesser estimated useful lives related lease term including renewals reasonably assured maintenance repairs expensed incurred ppe assessed impairment whenever events changes circumstances indicate carrying amount asset may recoverable events circumstances exist determine recoverability assets carrying value estimating expected undiscounted future cash flows directly associated expected arise direct result use disposal asset expected undiscounted future cash flows less carrying amount asset loss recognized difference fair value asset carrying value purposes testing impairment longlived assets including ppe intangible assets definite useful lives spectrum license assets united states combined single asset group represents lowest level identifiable cash flows largely independent assets liabilities management believes utilizing assets group represents highest best use assets consistent managements strategy utilizing spectrum licenses integrated basis part nationwide networks ppe united states impairment losses recorded years ended december 31 2011 2010 2009 addition analyses described periodically assess certain assets yet deployed networks including equipment cell site development costs classified construction progress assessment includes provision differences recorded amounts results physical counts provision excessive obsolete equipment see note 5 property plant equipment information internally developed software capitalize costs related computer software developed obtained internal use interest costs incurred period development software obtained internal use generally enterpriselevel business finance software customized meet specific operational needs costs incurred application development phase capitalized amortized useful life software placed service generally three years periodically assess capitalized software costs placed service determine whether projects longer expected completed capitalized cost associated projects expected completed written costs recognized preliminary project phase postimplementation phase well maintenance training costs expensed incurred spectrum licenses spectrum licenses primarily include owned spectrum licenses indefinite lives owned spectrum licenses definite lives favorable spectrum leases indefinite lived spectrum licenses acquired stated cost amortized owned spectrum licenses united states issued fixed time renewals licenses occurred routinely nominal cost moreover determined currently legal regulatory contractual competitive economic factors limit useful lives owned spectrum licenses therefore licenses accounted intangible assets indefinite lives impairment test intangible assets indefinite useful lives consists comparison fair value intangible asset carrying amount carrying amount intangible asset exceeds fair value impairment loss recognized amount equal excess fair value determined estimating discounted future cash flows directly associated expected arise direct result use eventual disposition asset spectrum licenses indefinite useful lives assessed impairment annually frequently event indicates asset might impaired impairments periods presented indefinite lived intangible assets united states favorable spectrum leases stated cost net accumulated amortization assessed impairment whenever events changes circumstances indicate carrying amount asset may recoverable carrying value spectrum leases amortized straightline basis estimated useful lives lease term including expected renewal periods applicable impairment losses favorable spectrum leases years ended december 31 2011 2010 2009 intangible assets intangible assets consist subscriber relationships trademarks patents clearwire corporation subsidiaries notes consolidated financial statements continued stated cost net accumulated amortization calculated using either straightline method accelerated method assets estimated remaining useful lives intangible assets assessed impairment whenever events changes circumstances indicate carrying amount asset may recoverable impairment losses intangible assets united states years ended december 31 2011 2010 2009 derivative instruments hedging activities policy hedging activities executed manage exposures arising normal course business purpose creating speculative positions trading record derivatives balance sheet fair value either assets liabilities accounting changes fair value derivatives depends intended use derivative whether qualifies hedge accounting 2010 issued exchangeable notes included embedded exchange options qualified derivative instruments required accounted separately host debt instruments recorded derivative financial instruments fair value embedded exchange options refer exchange options qualify hedge accounting future changes fair value derivative instruments recognized currently earnings time exchange options exercised expire see note 11 derivative instruments information addition event issuance new equity securities exchangeable convertible capital stock refer new securities certain existing equityholders entitled preemptive rights allow purchase prorata share new securities issuance price less underwriting discounts right considered derivative required recorded fair value see note 11 derivative instruments information debt issuance costs debt issuance costs initially capitalized deferred cost amortized interest expense effective interest method expected term related debt unamortized debt issuance costs related extinguishment debt expensed time debt extinguished recorded income expenses net consolidated statements operations unamortized debt issuance costs recorded assets consolidated balance sheets interest capitalization capitalize interest related owned spectrum licenses related construction network infrastructure assets well development software internal use capitalization interest commences preconstruction period administrative technical activities includes obtaining leases zoning approvals building permits ceases construction substantially complete available use suspend substantially construction activity interest capitalized construction progress software development spectrum licenses accounted intangible assets indefinite useful lives interest capitalization based rates applicable borrowings outstanding period balance qualified assets construction period capitalized interest reported cost network assets software assets depreciated useful lives assets income taxes record deferred income taxes based estimated future tax effects differences financial statement tax basis assets liabilities using tax rates expected effect temporary differences reverse deferred tax assets also recorded net operating loss capital loss tax credit carryforwards valuation allowances recorded reduce deferred tax assets amount considered likely realized also apply recognition threshold tax position required meet recognized financial statements policy recognize interest related unrecognized tax benefits interest expense interest income recognize penalties additional income tax expense revenue recognition primarily earn revenue providing access highspeed wireless networks also included revenue sales leases cpe additional addon services including personal business email 4g mobile broadband markets offer services retail channels wholesale partners believe geographic diversity retail subscriber base minimizes risk incurring material losses due concentration credit risk sprint major wholesale customer accounts substantially wholesale sales date comprise approximately 39 total revenues year ended december 31 2011 clearwire corporation subsidiaries notes consolidated financial statements continued revenue consisted following thousands revenue retail subscribers billed one month advance recognized ratably contracted service period revenues associated sale cpe equipment subscribers recognized title risk loss transferred subscriber shipping handling costs billed subscribers classified revenue revenues wholesale subscribers billed one month arrears generally recognized earned based terms defined commercial agreements wholesale partners 2011 majority wholesale revenues derived agreement sprint agreement revenues earned sprint utilized network usagebased pricing included volume discounts november 2011 entered november 2011 4g mvno amendment sprint among things provides unlimited access wimax network 2012 2013 one flat price see note 17 related party transactions information provisions new agreement october 2009 financial accounting standards board refer fasb issued new accounting guidance amends revenue recognition multipleelement arrangements expands disclosure requirements related arrangements new guidance amends criteria separating consideration multipledeliverable arrangements establishes selling price hierarchy determining selling price deliverable eliminates residual method allocation requires application relative selling price method allocating arrangement consideration deliverables adopted new accounting guidance january 1 2011 adoption new guidance material impact financial statements april 18 2011 signed series agreements sprint refer april 2011 sprint wholesale amendments wherein among things parties agreed new usagebased pricing structure applies 4g wireless broadband services purchased sprint agreed pay us 282 million settle outstanding disputes related prior usage refer settlement amount april 2011 sprint wholesale amendments explicitly linked one another settlement amount treated partial consideration revenue arrangement multiple deliverables allocated separate units accounting based deliverables relative selling prices revenuegenerating activities value attributed april 2011 sprint wholesale amendments included permission sprint resell 4g wireless broadband services wholesale basis companies ability turn resell 4g wireless broadband services wholesale basis additional pricing discounts sprint relative prices paid resellers certain 4g wireless broadband services new prices paid us 3g wireless service allocate arrangement consideration multiple deliverables selling price hierarchy used determine selling price deliverables accordance selling price hierarchy selling price deliverable based vendorspecific objective evidence refer vsoe available thirdparty evidence refer tpe vsoe available estimated selling price neither vsoe tpe available neither vsoe tpe available identified revenuegenerating activities april 2011 sprint wholesale amendments determined estimated selling price revenuegenerating activity using discounted cash flow model considering provisions april 2011 sprint wholesale amendment market conditions well entityspecific factors key assumptions determining estimated selling price deliverable include limited estimated incremental revenue new activities based forecasted subscriber growth rates usage levels estimated profit margin discount rate 282 million consideration received allocated identified deliverable april 2011 sprint wholesale amendments based relative estimated selling price revenue attributable delivered elements recognized currently revenue attributable undelivered elements deferred recognized undelivered elements expected delivered remaining term agreements advertising costs advertising costs expensed incurred first time advertising occurs advertising clearwire corporation subsidiaries notes consolidated financial statements continued expense 764 million 2139 million 991 million years ended december 31 2011 2010 2009 respectively net loss per share basic net loss per class common share computed dividing net loss attributable clearwire corporation weightedaverage number class common shares clearwire corporation refer class common shares outstanding period diluted net loss per class common share computed dividing net loss attributable clearwire corporation weightedaverage number class common shares dilutive class common share equivalents outstanding period class common share equivalents generally consist class common shares issuable upon exercise outstanding stock options warrants restricted stock using treasury stock method effects potentially dilutive class common share equivalents excluded calculation diluted net loss per class common share effect antidilutive two classes common stock class b potential exchange clearwire communications llc class b common interests refer class b common interests together clearwire corporation class b common stock refer class b common stock class common stock may dilutive effect due certain tax effects “if converted” basis shares issuable upon conversion exchangeable notes may also dilutive effect see note 16 net loss per share information operating leases operating leases spectrum licenses towers certain facilities equipment use operations certain spectrum licenses leased thirdparty holders educational broadband service refer ebs spectrum licenses granted federal communications commission refer fcc ebs licenses authorize provision certain communications services ebs channels certain markets throughout united states account spectrum leases executory contracts similar operating leases signed leases unmet conditions required become effective amortized conditions met included spectrum licenses accompanying consolidated balance sheets leases require upfront payments leases containing scheduled rent escalation clauses record minimum rental payments straightline basis term lease including expected renewal periods appropriate leases containing tenant improvement allowances rent incentives record deferred rent liability deferred rent amortized term lease including expected renewal periods appropriate reduction rent expense periodically terminate unutilized tower leases early termination available terms lease advise landlords intention renew time notify landlords intention renew recognize ceasetouse tower lease liability based remaining lease rentals adjusted prepaid deferred rent recognized lease reduced estimated sublease rentals could reasonably obtained property recent accounting pronouncements may 2011 fasb issued new accounting guidance amending fair value measurement achieve common fair value measurement disclosure requirements us gaap international financial reporting standards new guidance largely consistent existing fair value measurement principles us gaap expand existing disclosure requirements make amendments clarification regarding application highest best use valuation premise concepts application blockage factors premiums discounts measuring fair value financial instruments managed within portfolio instruments classified within shareholders equity disclosure requirements enhanced significant change requiring entities disclose quantitative information unobservable inputs used recurring level 3 fair value measurement description valuation processes used qualitative discussion sensitivity measurements addition entities must report level fair value hierarchy assets liabilities recorded fair value fair value required disclosed new accounting guidance effective interim annual periods beginning december 15 2011 early adoption prohibited new accounting guidance primarily amend disclosure requirements related fair value measurement expect adoption impact financial condition results operations june 2011 fasb issued new accounting guidance presentation comprehensive income new guidance eliminates current option present components comprehensive income part statement changes stockholders equity instead entity option present total comprehensive income components net income components comprehensive income either single continuous statement comprehensive income two separate consecutive statements new accounting guidance effective fiscal years interim periods within years beginning december 15 2011 early adoption permitted full retrospective application required december 2011 fasb issued amendment accounting guidance presentation clearwire corporation subsidiaries notes consolidated financial statements continued comprehensive income deferred effective date provisions pertaining reclassification adjustments new accounting guidance amend presentation requirements comprehensive income expect adoption impact financial condition results operations 3 charges resulting cost savings initiatives connection cost savings initiatives year ended december 31 2011 total approximately 5800 unutilized tower leases either terminated early termination available terms lease advised landlords intention renew connection lease termination initiative incurred lease termination costs recognized ceasetouse tower lease liability based remaining lease rentals leases subject termination actions reduced estimated sublease rentals could reasonably obtained charge lease termination activities net previously recorded deferred rent liabilities associated leases includes cancellation fees addition current contract requires us continue payments certain executory costs remaining terms leases accrued liability costs see note 5 property plant equipment description write costs projects classified construction progress related leases cost savings initiatives undertaken 2010 2011 include workforce reductions recorded employee termination costs transfer daytoday customer care service management customers teletech holdings inc outsourcing operation maintenance support mobile wimax network ericsson inc refer ericsson recorded related employee termination exit costs see note 14 sharebased payments description continued vesting clearwire corporation refer clearwire equity grants certain former employees charges type cost reconciliation associated accrued liability follows thousands 1 lease contract termination costs year ended december 31 2011 include noncash credits 432 million representing reversal deferred rent balances ceaseuse date 378 million accrued executory costs relating unused tower sites current contract requires us continue payments remaining term 2 based current estimates total costs activities expected significantly different incurred date 3 34 million recorded within accounts payable accrued expenses 456 million recorded current liabilities 1170 million recorded longterm liabilities consolidated balance sheets significant adjustments liability year 4 accrual lease termination costs includes 176 million accrual costs related certain unused backhaul circuits current contract requires us continue payments remaining term year ended december 31 2011 1459 million recorded cost goods services network costs 196 million recorded selling general administrative expenses year ended december 31 2010 entire expense 117 million recorded selling general administrative expenses none costs incurred year ended december 31 2009 clearwire corporation subsidiaries notes consolidated financial statements continued 4 investments december 31 2011 2010 consisted following thousands debt securities include investments collateralized debt obligations refer cdos supported preferred equity securities insurance companies financial institutions stated final maturity dates 2033 2034 fourth quarter 2011 sold cdos total proceeds 139 million reclassified gain 49 million accumulated comprehensive income expense net consolidated statements operations representing difference cost 90 million total proceeds received also auction market preferred securities issued monoline insurance company perpetual final stated maturity auction market preferred securities fully written fair value december 31 2011 2010 otherthantemporary impairment losses recorded years ended december 31 2011 2010 year ended december 31 2009 recorded otherthantemporary impairment loss 100 million related debt securities 5 property plant equipment property plant equipment december 31 2011 2010 consisted following thousands clearwire corporation subsidiaries notes consolidated financial statements continued entered lease arrangements related network construction equipment meet criteria capital leases december 31 2011 2010 recorded capital lease assets original cost 812 million 730 million respectively within network base station equipment third quarter 2011 result intent deploy lte network evaluated remaining useful lives network equipment concluded wimax related network assets expected continue service supporting customers change remaining useful lives appropriate time continue monitor estimated useful lives network equipment plans continue evolve adjustments lives would likely result increased depreciation expense future periods construction progress primarily composed costs incurred process completing network projects yet placed service addition costs related completing network projects yet placed service balance december 31 2011 also includes 1344 million network base station equipment yet assigned project 156 million costs related information technology refer corporate projects charges associated property plant equipment periodically assess assets yet deployed networks including equipment cell site development costs classified construction progress assessment includes provision differences recorded amounts results physical counts provisions excessive obsolete equipment 2011 evaluated costs included construction progress conjunction plan deploy lte alongside existing wimax network shift managements strategic network plans focus areas high usage concentration projects longer fit within deployment plans abandoned related costs written network equipment required support future network deployment plans written expected salvage value assessment resulted writedowns network equipment cell site development costs outlined table follows addition fourth quarter 2011 reviewed remaining costs construction progress conjunction november 2011 4g mvno amendment resulted shift usagebased payments flat rate unlimited access wimax network 2012 2013 see note 17 related party transactions discussion also periodically assess certain assets associated corporate operations yet placed service projects longer expected completed written expected fair value 2011 certain internallydeveloped software projects abandoned additionally connection savings initiatives year ended december 31 2011 identified evaluated terminated certain unutilized tower leases longer fit within managements deployment plan early termination available terms lease advised landlords intention renew costs projects included construction progress related leases initiated terminations written see note 3 charges resulting cost savings initiatives discussion costs associated lease terminations incurred following losses associated ppe years ended december 31 2011 2010 2009 thousands 1 included cost goods services network costs consolidated statements operations clearwire corporation subsidiaries notes consolidated financial statements continued 6 spectrum licenses owned leased spectrum licenses december 31 2011 2010 consisted following thousands indefinitelived owned spectrum licenses spectrum licenses issued sitespecific widearea basis authorize wireless carriers use radio frequency spectrum provide service certain geographical areas united states licenses generally acquired asset purchase business combination cases acquire licenses directly governmental authority spectrum leases prepaid spectrum also lease spectrum third parties hold spectrum licenses leases accounted executory contracts treated like operating leases upfront consideration paid thirdparty holders leased licenses inception lease agreement capitalized prepaid spectrum lease costs expensed term lease agreement including expected renewal terms applicable favorable spectrum leases 10 billion recorded asset result purchase accounting november 2008 amortized lease term december 31 2011 future amortization spectrum licenses spectrum leases prepaid lease costs excluding pending spectrum transition costs expected follows thousands expect renewal periods leases renewed us costs renew immaterial clearwire corporation subsidiaries notes consolidated financial statements continued 7 intangible assets intangible assets december 31 2011 2010 consisted following thousands december 31 2011 future amortization intangible assets expected follows thousands evaluate patent renewals case basis based renewal costs clearwire corporation subsidiaries notes consolidated financial statements continued 8 supplemental information liabilities current liabilities current liabilities consisted following thousands longterm liabilities longterm liabilities consisted following thousands 1 see note 17 related party transactions detail regarding deferred revenue balances related parties clearwire corporation subsidiaries notes consolidated financial statements continued 9 income taxes income tax provision consists following years ended december 31 2011 2010 2009 thousands income tax rate computed using federal statutory rates reconciled reported effective income tax rate follows clearwire corporation subsidiaries notes consolidated financial statements continued components deferred tax assets liabilities december 31 2011 2010 follows thousands determine deferred income taxes based estimated future tax effects differences financial statement tax bases assets liabilities using tax rates expected effect temporary differences reverse net operating loss refer nol capital loss tax credit carryforwards utilized december 31 2011 united states federal tax nol carryforwards approximately 287 billion 283 billion subject certain annual limitations imposed section 382 internal revenue code 1986 nol carryforwards begin expire 2021 5210 million tax nol carryforwards foreign jurisdictions 3248 million statutory expiration date 1962 million begins expire 2015 company subject change control test section 382 internal revenue code met would limit annual utilization prechange control nol carryforwards well ability use certain unrealized builtin losses tax deductions determined section 382 testing result underwritten public offering 201250000 shares class common stock 4025 million december 13 2011 change control section 382 deemed occurred believe result annual section 382 limitation resulted change control occurred december 13 2011 permanently unable use significant portion nol carryforwards arose change control offset future table income recorded valuation allowance deferred tax assets extent determined likely items either expire able realize benefits future deductibility uncertain relates united states tax jurisdiction determined temporary taxable difference associated investment clearwire communications llc refer clearwire communications fully reverse within carryforward period nols accordingly represents relevant future taxable income file income tax returns clearwire subsidiaries united states federal jurisdiction various state foreign jurisdictions december 31 2011 tax returns clearwire years 2003 2010 remain open examination internal revenue service various state tax authorities addition legacy clearwire corporation refer old clearwire acquired united states foreign entities operated prior 2003 acquired entities generated losses income tax purposes certain tax returns remain open examination united states foreign tax authorities tax years far back 1998 result plans sell operations spain belgium germany believe certain intercompany loans related international operations considered uncollectible federal income tax purposes would increase deferred tax liability discontinued operations approximately 1550 million along corresponding deferred tax expense discontinued operations clearwire corporation subsidiaries notes consolidated financial statements continued policy recognize interest related unrecognized tax benefits interest expense interest income recognize penalties additional income tax expense december 31 2011 material uncertain tax positions therefore accrued interest penalties related uncertain tax positions 10 longterm debt net longterm debt december 31 2011 2010 consisted following thousands 1 represents weighted average effective interest rate based yearend balances 2 coupon rate based 3month libor plus spread 550 3 included current liabilities consolidated balance sheet 4 december 31 2011 par value approximately 1140 million secured assets classified network base station equipment 1 represents weighted average effective interest rate based yearend balances 2 coupon rate based 3month libor plus spread 550 3 included current liabilities consolidated balance sheet 4 december 31 2011 par value approximately 1324 million secured assets classified network base station equipment senior secured notes rollover notes fourth quarter 2009 clearwire communications completed offerings 252 billion 12 senior secured notes due 2015 refer senior secured notes used 116 billion proceeds retire indebtedness senior term loan facility assumed old clearwire recognized gain extinguishment debt 83 million net transaction costs senior secured notes provide biannual payments interest june december connection issuance senior secured notes also issued 2525 million notes sprint comcast corporation refer comcast identical terms senior secured notes refer rollover notes replacement equal amounts indebtedness senior term loan facility see note 21 subsequent events description debt issuance activities subsequent year ended december 31 2011 december 2010 clearwire communications issued additional 1750 million senior secured notes substantially terms holders senior secured notes rollover notes right require us repurchase notes upon occurrence change control event sale certain assets price 101 principal amount 100 principal amount respectively plus unpaid accrued interest repurchase date prior december 1 2012 may redeem 35 aggregate principal amount senior secured notes redemption price 112 aggregate principal amount plus unpaid accrued interest repurchase date december 1 2012 may redeem part senior secured notes paying makewhole premium stated terms plus unpaid accrued interest repurchase date payment obligations senior secured notes rollover notes guaranteed certain domestic subsidiaries senior basis secured certain assets subsidiaries firstpriority lien basis senior secured notes rollover notes contain limitations activities among things include incurring additional indebtedness guarantee indebtedness making distributions payment dividends certain restricted payments investments making certain payments indebtedness entering agreements restrict distributions restricted subsidiaries selling otherwise disposing assets merger consolidation sales substantially assets entering transactions affiliates creating liens issuing certain preferred stock similar equity securities making investments acquiring assets secondpriority secured notes december 2010 clearwire communications completed offering 5000 million 12 secondpriority secured notes due 2017 refer secondpriority secured notes secondpriority secured notes provide biannual payments interest june december holders secondpriority secured notes right require us repurchase notes upon occurrence change control event sale certain assets price 101 principal amount 100 principal amount respectively plus unpaid accrued interest repurchase date prior december 1 2013 may redeem 35 aggregate principal amount secondpriority secured notes redemption price 112 aggregate principal amount plus unpaid accrued interest repurchase date december 1 2014 may redeem part secondpriority secured notes paying makewhole premium stated terms plus unpaid accrued interest repurchase date payment obligations secondpriority secured notes guaranteed certain domestic subsidiaries senior basis secured certain assets subsidiaries secondpriority lien basis secondpriority secured notes contain limitations activities senior secured notes rollover notes exchangeable notes december 2010 clearwire communications completed offerings 7292 million 825 exchangeable notes due 2040 refer exchangeable notes exchangeable notes provide biannual payments interest june december exchangeable notes subordinated senior secured notes rollover notes rank equally right payment secondpriority secured notes holders exchangeable notes right exchange notes class common stock time prior maturity date right settle exchange delivering cash shares class common stock subject certain conditions initial exchange rate note 1412429 shares per 1000 note equivalent initial exchange price approximately 708 per share subject adjustments upon occurrence certain corporate events upon exchange make additional cash payment provide additional shares accrued unpaid interest makewhole premium additional interest holders exchangeable notes right require us repurchase notes upon occurrence fundamental change event price 100 principal amount plus unpaid accrued interest repurchase date holders elect exchange exchangeable notes connection occurrence fundamental change entitled additional shares specified based date event occurs price paid per share class common stock fundamental change maximum number shares issuable per note exceed 1694915 shares holders exchangeable notes option require us repurchase cash exchangeable notes december 1 2017 2025 2030 2035 price equal 100 principal amount notes plus unpaid accrued interest repurchase date december 1 2017 may option redeem part exchangeable notes price equal 100 principal amount notes plus unpaid accrued interest redemption date payment obligations exchangeable notes guaranteed certain domestic subsidiaries priority secondpriority secured notes upon issuance exchangeable notes recognized derivative liability representing embedded exchange feature estimated fair value 2315 million associated debt discount exchangeable notes discount accreted expected life approximately 7 years exchangeable notes using effective interest rate method see note 11 derivative instruments additional discussion derivative liability vendor financing notes 2010 entered vendor financing facility refer vendor financing facility allowed us obtain 1600 million financing entering notes refer vendor financing notes january 31 2011 utilized 603 million vendor financing facility year ended december 31 2010 january 31 2011 amended vendor financing facility refer amended vendor financing facility extended facility allows us obtain 950 million financing january 31 2012 utilized 33 million amended vendor financing facility year ended december 31 2011 coupon rate terms vendor financing notes amended vendor financing facility identical original notes entered 2010 except mature 2015 capital lease obligations 2010 entered capital lease facilities allowed us obtain 990 million financing 4 year terms august 16 2011 addition also lease certain network construction equipment capital leases 12 year lease terms future payments future payments longterm debt see note 13 commitments contingencies interest expense interest expense included consolidated statements operations years ended december 31 2011 2010 2009 consisted following thousands 1 includes noncash amortization deferred financing fees classified assets consolidated balance sheets 11 derivative instruments holders’ exchange rights contained exchangeable notes issued december 2010 constitute embedded derivative instruments required accounted separately debt host instrument fair value result clearwire corporation subsidiaries notes consolidated financial statements continued upon issuance exchangeable notes recognized exchange options estimated fair value 2315 million derivative liability exchange options indexed class common stock notional amount 1030 million shares mature 2040 apply hedge accounting exchange options therefore gains losses due changes fair value reported consolidated statements operations december 31 2011 2010 exchange options’ estimated fair value 82 million 1679 million respectively reported current liabilities consolidated balance sheets years ended december 31 2011 2010 recognized gains 1597 million 636 million respectively changes estimated fair value gains loss derivative instruments consolidated statements operations see note 12 fair value information regarding valuation exchange options addition event issuance new securities certain existing equityholders entitled preemptive rights allow purchase prorata share new securities issuance price less underwriting discounts right considered derivative required recorded fair value payment provision based existing equityholders prorata ownership interest clearwire apply hedge accounting derivative portion derivative settled december 13 2011 issuance class b common stock class b common interests sprint recorded charge 159 million year ended december 31 2011 gains loss derivative instruments consolidated statements operations representing value derivative see note 15 stockholders equity information recent sprint transaction fair value derivative determined among things probability new securities issuance probability existing equityholders participate new issuance extent participation 2009 two interest rate swap contracts based 3month libor combined notional 6000 million used swaps economic hedges interest rate risk related portion libor based longterm debt holding interest rate swap contracts trading speculative purposes apply hedge accounting swaps fourth quarter 2009 terminated swap contracts year ended december 31 2009 recognized net loss 70 million gains loss derivative instruments consolidated statements operations due changes fair value 12 fair value following description valuation methodologies pricing assumptions used financial instruments measured recorded fair value recurring basis financial statements classification instruments pursuant valuation hierarchy cash equivalents investments quoted prices identical securities available active market use quoted market prices determine fair value investment securities cash equivalents classified level 1 valuation hierarchy level 1 securities include us government agency issues money market mutual funds quoted prices active markets debt securities classified level 3 use discounted cash flow models estimate fair value using various methods including market income approaches developing models utilize certain assumptions market participants would use pricing investment including assumptions risk risks inherent inputs valuation technique maximize use observable inputs pricing models quoted market prices securities derivatives exchanges available reliable also use certain unobservable inputs cannot validated reference readily observable market exchange data rely certain extent management’s assumptions market participants would use pricing security use many factors necessary estimate market values including interest rates market risks market spreads timing contractual cash flows market liquidity review underlying collateral principal interest dividend payments derivatives exchange options classified level 3 valuation hierarchy estimate fair value exchange options use income approach based valuation models including option pricing models discounted cash flow models maximize use marketbased observable inputs models develop assumptions unobservable inputs based management estimates market participants’ assumptions pricing instruments clearwire corporation subsidiaries notes consolidated financial statements continued use trinomial option pricing model estimate fair value exchange options inputs include contractual terms instrument marketbased parameters interest rate forward curves stock price dividend yield level subjectivity applied estimate stock price volatility input stock price volatility based historical stock price volatility giving consideration estimates market participant adjustments general market conditions well companyspecific factors market trading volume expected future performance following table summarizes financial assets liabilities level within valuation hierarchy december 31 2011 thousands following table summarizes financial assets liabilities level within valuation hierarchy december 31 2010 thousands clearwire corporation subsidiaries notes consolidated financial statements continued following table presents change level 3 financial assets liabilities measured recurring basis year ended december 31 2011 thousands 1 included gain loss derivative instruments consolidated statements operations following table presents change level 3 financial assets liabilities measured recurring basis year ended december 31 2010 thousands 1 included gain loss derivative instruments consolidated statements operations following description fair value financial instruments hold subject fair value recognition debt instruments estimate fair value senior secured notes rollover notes secondpriority secured notes exchangeable notes used average indicative price several market makers estimate fair value vendor financing notes used income approach based contractual terms notes marketbased parameters interest rates level subjectivity applied estimate discount rate used calculate present value estimated cashflows clearwire corporation subsidiaries notes consolidated financial statements continued following table presents carrying value approximate fair value outstanding debt instruments december 31 2011 2010 thousands 1 carrying value december 31 2011 2010 net 2093 million 2301 million discount respectively arising separation exchange options debt host instrument fair value exchangeable notes incorporates value exchange feature recognized separately derivative consolidated balance sheets 13 commitments contingencies future minimum cash payments obligations continuing operations listed including optional expected renewal periods operating leases december 31 2011 follows thousands 1 includes 138 billion relating contractual interest payments exchangeable notes beyond expected repayment 2017 2 includes executory costs 530 million 3 payments include 433 million representing interest operating lease obligations commitments noncancelable operating leases consist mainly leased sites including towers rooftop locations office space certain leases provide minimum lease payments additional charges escalation clauses operating leases generally initial terms five years multiple renewal options additional fiveyear terms totaling 20 25 years operating lease obligations table include lease payments contractual lease term including remaining future lease payments leases notice intent renew sent result lease termination initiatives describe note 3 charges resulting cost savings initiatives operating lease payments assumed renewal periods include expected renewal periods leases renewal likely certain tower leases specify minimum number new leases commence december 31 2012 charges may apply commitments satisfied amounts include minimum commitment obligation clearwire corporation subsidiaries notes consolidated financial statements continued spectrum lease obligations certain leases provide minimum lease payments additional charges escalation clauses leased spectrum agreements terms 30 years expense recorded related spectrum operating leases follows thousands spectrum service credits commitments provide clearwire services certain lessors launched markets reimburse lessors certain capital equipment thirdparty service expenditures term lease accrue monthly obligation services equipment based total estimated available service credits divided term lease obligation reduced actual invoices presented paid lessors years ended december 31 2011 2010 2009 satisfied 45 million 987000 779000 respectively related commitments maximum remaining commitment december 31 2011 1050 million expected incurred term related lease agreements generally range 1530 years purchase agreements purchase commitments takeorpay obligations andor volume commitments equipment noncancelable addition obligations include minimum purchase commitments certain suppliers time goods services regardless whether suppliers fully deliver include among things agreements backhaul subscriber devices related services addition party various arrangements conditional nature create obligation make payments upon occurrence certain events actual delivery acceptance products services possible predict timing amounts may due conditional arrangements amounts included table also excludes blanket purchase order amounts orders subject cancellation termination discretion quantity goods services purchased payment terms unknown purchase orders firm commitments legal proceedings fully described involved variety lawsuits claims investigations proceedings concerning intellectual property business practices commercial matters determine whether accrue estimated loss contingency particular legal proceeding assessing whether loss deemed probable reasonably estimated reassess views estimated losses quarterly basis reflect impact developments matters involved legal proceedings inherently unpredictable matters involved often present complex legal factual issues vigorously pursue defenses legal proceedings engage discussions possible resolve matters terms favorable us including pursuing settlements believe may cost effective result company possible however business financial condition results operations future periods could materially adversely affected increased litigation expense significant settlement costs andor unfavorable damage awards april 2009 purported class action lawsuit filed clearwire us llc superior court king county washington group five plaintiffs chad minnick et al lawsuit generally alleges disseminated false advertising quality reliability services imposed unlawful early termination fee refer etf invoked allegedly unconscionable provisions terms service detriment subscribers among things lawsuit seeks determination alleged claims may asserted classwide basis order declaring certain provisions terms service including etf provision void unenforceable injunction prohibiting us collecting etfs false advertising restitution early termination fees paid subscribers equitable relief award unspecified damages attorneys’ fees plaintiffs subsequently amended complaint adding seven additional plaintiffs removed case united states district court western district washington july 23 2009 filed motion dismiss amended complaint court stayed discovery pending ruling motion clearwire corporation subsidiaries notes consolidated financial statements continued february 2 2010 granted motion dismiss entirety plaintiffs appealed ninth circuit court appeals march 29 2011 court appeals entered order certifying question supreme court washington requesting guidance question washington state law parties briefed issue washington supreme court issues opinion court appeals continue considering appeal district court’s dismissal claims first amended complaint case early stages litigation outcome unknown possible loss range possible loss cannot reasonably estimated date report september 2009 purported class action lawsuit filed clearwire king county superior court brought representative plaintiff rosa kwan complaint alleges placed unlawful telephone calls using automatic dialing announcing devices engaged unlawful collection practices seeks declaratory injunctive andor equitable relief actual statutory damages federal state law october 1 2009 removed case united states district court western district washington parties stipulated allow second amended complaint plaintiffs filed december 23 2009 filed motion dismiss amended complaint february 22 2010 court granted motion dismiss part dismissing certain claims prejudice granting plaintiff leave amend complaint plaintiff filed third amended complaint adding additional state law claims joining bureau recovery purported collection agency codefendant january 27 2011 court granted parties’ stipulation allowing plaintiff file fourth amended complaint adding two new class representatives filed motions compel newlyadded customer plaintiffs arbitrate individual claims january 3 2012 court denied without prejudice motions compel arbitration factual issues resolved evidentiary hearing court set june 26 2012 date hearing case early stages litigation outcome unknown possible loss range possible loss cannot reasonably estimated date report november 2010 purported class action lawsuit filed clearwire angelo dennings us district court western district washington complaint generally alleges slow network speeds network demand highest network management violates agreements subscribers contrary company’s advertising marketing claims plaintiffs also allege subscribers review terms service prior subscribing subscribers cancel service due network management charge etf restocking fee claim unconscionable circumstances claims asserted include breach contract breach covenant good faith fair dealing unjust enrichment plaintiffs seek class certification unspecified damages restitution declaratory judgment clearwire’s etf restocking fee unconscionable alleged circumstances injunction prohibiting clearwire engaging alleged deceptive marketing charging etfs interest attorneys’ fees costs january 13 2011 filed concurrent motions compel arbitration alternative dismiss complaint failure state claim upon relief may granted response clearwire’s motions plaintiff abandoned fraud claim amended complaint fourteen additional plaintiffs eight separate jurisdictions plaintiff added new claims violation consumer protection statutes various state laws march 31 2011 clearwire filed concurrent motions 1 compel newlyadded plaintiffs arbitrate individual claims 2 alternatively stay case pending united states supreme court’s decision att mobility llc v concepcion 09893 3 dismiss complaint failure state claim upon relief may granted plaintiffs oppose clearwire’s motion stay litigation pending concepcion parties stipulated stay litigation april 27 2011 us supreme court decided concepcion result expect renew motion compel arbitration case early stages litigation outcome unknown possible loss range possible loss cannot reasonably estimated date report march 2011 purported class action filed clearwire us district court eastern district california case newton v clearwire inc sic alleges clearwire’s network management advertising practices constitute breach contract unjust enrichment unfair competition california’s business professions code sections 17200 et seq violation california’s consumers’ legal remedies act plaintiff contends clearwire’s advertisements “no speed cap” “unlimited data” false misleading plaintiff alleges clearwire breached contracts customers delivering internet service advertised plaintiff also claims slow data speeds due clearwire’s network management practices plaintiff seeks class certification declaratory injunctive relief unspecified restitution andor disgorgement fees paid clearwire service unspecified damages interest fees costs june 9 2011 clearwire filed motion compel arbitration awaiting court’s decision motion case early stages litigation outcome unknown possible loss range possible loss cannot reasonably estimated date report addition matters described often involved certain proceedings seek monetary clearwire corporation subsidiaries notes consolidated financial statements continued damages relief based upon information currently available us none claims expected material effect business financial condition results operations indemnification agreements currently party indemnification agreements certain officers members board directors liabilities recorded consolidated balance sheets indemnification agreements probable estimable 14 sharebased payments december 31 2011 56616537 shares available grant old clearwire 2008 stock compensation plan refer 2008 plan authorizes us grant incentive stock options nonqualified stock options stock appreciation rights restricted stock restricted stock units refer rsus stock awards employees directors consultants grants awarded 2008 plan made available discretion compensation committee board directors authorized unissued shares authorized issued shares reacquired combination thereof share grants generally vest ratably four years stock options expire later ten years date grantwith adoption 2008 plan additional share grants granted old clearwire 2007 stock compensation plan old clearwire 2003 stock option plan sharebased compensation expense based estimated grantdate fair value award recognized net estimated forfeitures shares expected vest graded vesting schedule straightline basis requisite service period separately vesting portion award insubstance multiple awards continued vesting certain former employees pursuant managed services agreement ericsson network operations employees transferred ericsson agreement continue vest clearwire equity grants twelve months following transition ericsson june 2011 subject certain continuing employment requirements addition equity grants scheduled vest year subsequent twelvemonth anniversary transition also vest twelvemonth anniversary applicable us gaap original equity grants considered modified way previous expense recognized related unvested portion awards reversed value awards vested recognized vesting period modified award addition equity awards granted nonemployees fair value awards must remeasured period vesting change fair value recognized currently earnings based fair value awards december 31 2011 total unrecognized compensation cost approximately 39 million expected recognized six months ending june 30 2012 stock option rsu exchange second quarter 2011 completed stock option rsu exchange refer exchange offer exchange offer period commenced may 9 2011 expired june 7 2011 exchange offer eligible employees able exchange outstanding stock options purchase shares class common stock lesser number rsus stock option eligible exchange exercise price greater 700 made offer employees united states held eligible stock options date offer commenced actively employed clearwire one subsidiaries excluding members board directors chief executive officer former employees nonunited states employees pursuant exchange offer 4390002 eligible stock options tendered representing 917 total options eligible exchange surrendered options canceled june 7 2011 exchange june 8 2011 granted total 1812144 new rsus 2008 plan accordance applicable exchange offer conversion ratios applicable us gaap exchange accounted modification existing awards incremental sharebased compensation expense resulting exchange offer approximately 21 million recognized new vesting periods ranging two four years restricted stock units grant rsus certain officers employees 2008 plan rsus generally vest fouryear period clearwire corporation subsidiaries notes consolidated financial statements continued fair value rsus based grantdate fair market value common stock equals grant date market price summary rsu activity including effects continued vesting certain former employees exchange offer years ended december 31 2011 2010 2009 presented december 31 2011 10749723 rsus outstanding total unrecognized compensation cost approximately 183 million expected recognized weightedaverage period approximately 127 years ended december 31 2011 2010 2009 used forfeiture rate 89 715 775 respectively determining compensation expense rsus stock options granted options certain officers employees 2008 plan options generally vest fouryear period fair value option grants estimated date grant using blackscholes option pricing model clearwire corporation subsidiaries notes consolidated financial statements continued summary option activity including effects continued vesting certain former employees exchange offer january 1 2009 december 31 2011 presented intrinsic value options exercised years ended december 31 2011 2010 2009 23 million 105 million 23 million respectively december 31 2011 aggregate intrinsic value options outstanding price class common stock less option exercise prices information regarding stock options outstanding exercisable december 31 2011 follows clearwire corporation subsidiaries notes consolidated financial statements continued fair value option grant estimated date grant using blackscholes option pricing model using following assumptions years ended december 31 2010 2009 options granted 2011 fair value option grants 2010 2009 43 million 186 million respectively options granted 2011 total fair value options vested years ended december 31 2011 2010 2009 66 million 98 million 58 million respectively total unrecognized sharebased compensation costs related nonvested stock options outstanding december 31 2011 approximately 359000 expected recognized weighted average period less one year years ended december 31 2011 2010 2009 used forfeiture rate 1009 1266 respectively determining compensation expense options sharebased compensation expense recognized plans years ended december 31 2011 2010 2009 follows thousands years ended december 31 2011 2010 2009 reversed 239 million 98 million 36 million respectively sharebased compensation expense related forfeiture rsus options recognized yet earned years ended december 31 2011 2010 2009 recorded 37 million 109 million 24 million respectively additional sharebased compensation expense related acceleration vesting extension exercise period certain rsus options 15 stockholders’ equity class common stock class common stock represents common equity clearwire holders class common stock entitled one vote per share class entitled 100 dividends distributions made clearwire exception certain minimal liquidation rights provided class b common stockholders described share class common stock participates ratably proportion total number shares class common stock issued clearwire holders class common stock 100 economic interest clearwire considered controlling interest purposes financial reporting upon liquidation dissolution winding class common stock entitled assets remaining payment debts liabilities clearwire exception certain minimal liquidation rights provided class b common stockholders described clearwire corporation subsidiaries notes consolidated financial statements continued class b common stock class b common stock represents noneconomic voting interests clearwire identical class common stock holders class b common stock entitled one vote per share however rights receive distributions stock dividends paid proportionally outstanding class b common stockholder upon liquidation clearwire amount equal par value per share 00001 per share except sprint holders include comcast time warner cable inc refer time warner cable bright house networks llc refer bright house intel corporation refer intel eagle river holdings llc refer eagle river along sprint collectively refer participating equityholders class b common stock hold entitled hold equivalent number class b common interests substance reflects economic stake clearwire accomplished exchange feature provides holder right time exchange one share class b common stock plus one class b common interest one share class common stock second quarter 2011 sprint surrendered 774 million shares class b common stock reduce voting interest clearwire approximately 536 approximately 497 immediately transaction reduce sprints economic interest clearwire subsidiaries holds ownership class b common interests remained approximately 536 end second quarter 2011 result equity offering sprint equity purchase defined stock compensation activity sprints voting economic interests declined 486 515 respectively december 31 2011 equity offering december 13 2011 closed offering 201250000 shares class common stock 4025 million underwritten public offering refer equity offering net proceeds equity offering approximately 3841 million deducting underwriting discounts commissions expenses december 13 2011 sprint holdco llc exercised preemptive rights equityholders agreement dated november 28 2008 amended december 8 2010 refer equityholders agreement purchase new securities representing pro rata share securities equity offering refer sprint equity purchase result sprint equity purchase 173635000 shares class b common stock corresponding number class b common interests issued sprint holdco llc proceeds approximately 3314 million accordance provisions equityholders agreement sprint holdco llc purchased securities per share purchase price equal purchase price equity offering net underwriting discounts pricing provision meets definition derivative instrument recorded charge 159 million value portion derivative upon closing sprint equity purchase gain loss derivative instruments consolidated statements operations year ended december 31 2011 clearwire corporation subsidiaries notes consolidated financial statements continued following table lists voting interests clearwire december 31 2011 1 holders class b common stock hold equivalent number class b common interests except sprint december 31 2011 sprint holds 705359348 class b common interests clearwire communications representing 515 economic interests intel comcast time warner cable bright house collectively refer strategic investors sprint shares class b common stock equal voting rights clearwire’s class common stock limited economic rights unlike holders class common stock holders class b common stock right dividends right proceeds liquidation par value class b common stock sprint strategic investors hold economic rights ownership class b common interests google inc refer google owns shares class common stock clearwire communications interests clearwire sole holder voting interests clearwire communications clearwire controls 100 decision making clearwire communications consolidates 100 operations clearwire also holds outstanding clearwire communications class common interests representing 33 economics clearwire communications december 31 2011 holders class b common interests remaining 67 economic interests intended times number clearwire communications class common interests held clearwire equal number shares class common stock issued clearwire nonvoting clearwire communication units designated either clearwire communications class common interests held clearwire class b common interests held sprint strategic investors classes nonvoting clearwire communication units participate distributions clearwire communications equal proportionate basis clearwire corporation subsidiaries notes consolidated financial statements continued following shows effects changes clearwire’s ownership interests clearwire communications thousands dividend policy declared paid cash dividends class b common stock currently expect retain future earnings use operations expansion business anticipate paying cash dividends foreseeable future addition covenants indenture governing senior secured notes impose significant restrictions ability pay cash dividends stockholders noncontrolling interests clearwire communications clearwire communications consolidated clearwire hold 100 voting interest clearwire communications therefore holders class b common interests represent noncontrolling interests consolidated subsidiary result income loss consolidated clearwire decreased proportion outstanding noncontrolling interests warrants december 31 2011 1400001 warrants outstanding expiration date march 12 2012 375000 warrants outstanding expiration date november 13 2013 holders may exercise warrants time exercise prices ranging 300 4800 clearwire corporation subsidiaries notes consolidated financial statements continued accumulated comprehensive income following table presents change components accumulated comprehensive income years ended december 31 2011 2010 2009 thousands 16 net loss per share basic net loss per share net loss per share attributable holders class common stock calculated based following information thousands except per share amounts clearwire corporation subsidiaries notes consolidated financial statements continued subscription rights distributed december 21 2009 purchase shares class common stock class common stockholders record december 17 2009 warrant holders certain holders rsus represent dividend distribution certain participating equityholders google class common stockholders record holding approximately 102 million shares entitled subscription rights agreed exercise transfer rights fair value rights distributed 575 million 051 per share class common stock certain outstanding warrants meet definition participating securities terms provide participation distributions class common stock prior exercise therefore twoclass method used compute net loss per share year ended december 31 2009 result fair value rights distributed warrant rsu holders 95 million increased net loss attributable class common stockholders diluted net loss per share potential exchange class b common interests together class b common stock class common stock dilutive effect diluted net loss per share due certain tax effects exchange would result increase number class common stock outstanding corresponding increase net loss attributable class common stockholders elimination noncontrolling interests’ allocation extent class b common interests class b common stock converted class common stock clearwire communications partnership structure would longer exist clearwire would required recognize tax provision related indefinite lived intangible assets shares issuable upon conversion exchangeable notes included computation diluted net loss per share year ended december 31 2010 “if converted” basis since result dilutive purpose computation change fair value exchange options interest expense exchangeable notes reversed period year ended december 31 2011 shares issuable upon conversion exchangeable notes excluded computation diluted net loss per share inclusion would antidilutive clearwire corporation subsidiaries notes consolidated financial statements continued net loss per share attributable holders class common stock diluted basis assuming conversion class b common interests class b common stock applicable conversion exchangeable notes calculated based following information thousands except per share amounts diluted weighted average shares include effects following potential common shares inclusion would antidilutive thousands calculated presented basic diluted net loss per share class common stock class b common stock net loss per share calculated since contractually participate distributions clearwire corporation subsidiaries notes consolidated financial statements continued 17 related party transactions number strategic commercial relationships third parties significant impact business operations financial results relationships sprint strategic investors google eagle river ericsson switch data inc dashwire inc motorola solutions inc related parties relationships include agreements pursuant sell wireless broadband services certain related parties wholesale basis related parties resell respective end user subscribers sell services terms defined contractual agreements following amounts related party transactions included consolidated financial statements thousands rollover notes connection issuance senior secured notes november 24 2009 issued notes sprint comcast identical terms senior secured notes time related parties may hold debt senior secured notes debtholders would entitled receive interest payments us relationships among certain stockholders directors officers clearwire sprint whollyowned subsidiary sprint holdco llc owns largest interest clearwire effective voting interest approximately 486 economic interest clearwire communications approximately 515 intel google comcast time warner cable bright house eagle river collectively owned 233 interest clearwire 2011 eagle river held warrants entitling purchase 613333 shares class common stock exercise price 1500 per share expired may 7 2011 december 31 2011 eagle river held warrants purchase 375000 shares class common stock exercise price 300 per share expiration date november 13 2013 clearwire sprint eagle river google strategic investors party equityholders’ agreement sets forth certain rights obligations equityholders respect governance clearwire transfer restrictions common stock rights first refusal preemptive rights among things addition also entered number commercial agreements sprint google strategic investors outlined 4g mvno agreement nonexclusive 4g mvno agreement refer 4g mvno agreement comcast mvno ii llc twc wireless llc bhn spectrum investments llc sprint spectrum lpwhich refer sprint spectrum sell wireless broadband services parties 4g mvno agreement purposes purchasers marketing reselling wireless broadband services respective end user subscribers wireless broadband services provided 4g mvno agreement include standard network services request parties certain nonstandard network services sell services prices defined 4g mvno agreement sprint wholesale relationship clearwire corporation subsidiaries notes consolidated financial statements continued april 2011 entered april 2011 sprint wholesale amendment whereby agreed new usagebased pricing structure applied 4g wireless broadband services purchased sprint spectrum sprint spectrum agreed subject certain exceptions pay us minimum 3000 million services 2011 5500 million 2012 prepay another 1750 million twoyear period services purchased beyond covered minimum commitment pay us approximately 282 million settlement amount described november 2011 entered november 2011 4g mvno amendment result minimum payments april 2011 sprint wholesale amendment replaced provisions november 2011 4g mvno amendment november 2011 4g mvno amendment sprint spectrum pay us 9259 million unlimited 4g mobile wimax services resale retail subscribers 2012 2013 approximately twothirds payable service provided 2012 remainder service provided 2013 9259 million 1759 million paid offset principal interest due 1500 million promissory note described sprint commitment agreement section issued us sprint part november 2011 4g mvno amendment also agreed elimination device minimum fees 2011 usage based pricing wimax services 2013 lte service beginning 2012 also agreed sprint spectrum may rewholesale wireless broadband services subject certain conditions agreed operate wimax network calendar year 2015 subject satisfaction certain network buildout conditions sprint agreed prepay us another 3500 million installments certain milestones achieved future services provided sprint lte network amount nature prepayment subject reduction certain circumstances including event fail meet initial lte deployment build targets june 30 2013 fail meet certain network specifications also agreed collaborate sprint lte network design architecture deployment including site selection sprint committed use commercially reasonable efforts support certain specified chipset ecosystems launch devices roam lte network including laptop cards smartphones 2013 november 2011 4g mvno amendment also provides additional conditions sale core spectrum assets necessary operate wimax lte networks including agreeing allow sprint spectrum opportunity make offers purchase excess spectrum event propose sell spectrum twelve months ended december 31 2011 2010 received 4343 million 274 million respectively sprint 4g broadband wireless services amounts received sprint 4g broadband wireless services twelve months ended december 31 2011 include 282 million settlement amount december 31 2011 105 million deferred revenue included current liabilities longterm liabilities representing unused portion settlement amount recognized 2011 amounts due 2011 usage recognized accounts receivable related services provided december 31 2011 766 million recorded accounts receivable relating sprint twelve months ended december 31 2011 wholesale revenue recorded attributable sprint comprised approximately 39 total revenues substantially wholesale revenues sprint commitment agreement november 2011 entered commitment agreement sprint holdco llc refer commitment agreement part agreement consummate equity offering generates gross proceeds least 4000 million sprint holdco llc agreed exercise preemptive rights equityholders agreement purchase securities representing sprint holdco llcs pro rata share securities issued offering 7000 million terms commitment agreement sprint also agreed provide us aggregate principal amount 1500 million january 3 2012 pursuant promissory note issued clearwire communications refer sprint promissory note sprint promissory note bear interest 115 per annum aggregate principal amount 750 million maturing january 2 2013 remaining 750 million principal amount maturing january 2 2014 previously paid sprint may offset amounts payable us sprint promissory note including interest payments due sprint clearwire communications 4g mvno agreement amended sprint promissory note provides certain events default including among things default payment principal interest material breach clearwire communications respect obligations sprint spectrum 4g mvno agreement amended termination cancellation 4g mvno agreement amended time prior january 2 2014 certain customary bankruptcyrelated events upon occurrence event default sprint may offset apply sprint promissory note deposits credits indebtedness payment obligations property claims owing clearwire communications affiliates sprint promissory note entered conjunction november 2011 4g mvno amendment amounts due may offset clearwire corporation subsidiaries notes consolidated financial statements continued payments due november 2011 4g mvno amendment treated deferred revenue accounting purposes associated interest costs recorded reduction 9259 million payable sprint unlimited wimax service calendar years 2012 2013 addition terms commitment agreement successfully consummated equity offering agreed use commercially reasonable best efforts consummate offering firstpriority senior secured debt amount equal approximately 50 net cash proceeds equity offering earliest practicable time thereafter see note 21 subsequent events discussion issuance debt subsequent december 31 2011 december 13 2011 pursuant commitment agreement sprint holdco llc purchased 173635000 shares class b common stock corresponding number class b common interests aggregate purchase price 3314 million see note 15 stockholders equity discussion 3g mvno agreement entered nonexclusive 3g mvno agreement sprint spectrum lp refer 3g mvno agreement whereby sprint agrees sell code division multiple access refer cdma mobile voice data communications service refer pcs service purpose resale retail customers pcs service includes sprint’s existing core network services network elements information enable third party provide services network core network enablers subject certain limitations exceptions new core network services core network enablers certain customized services twelve months ended december 31 2011 2010 paid 178 million 97 million respectively sprint 3g wireless services provided sprint us sprint master site agreement november 2008 entered master site agreement sprint refer master site agreement pursuant sprint established contractual framework procedures leasing tower antenna collocation sites leases specific sites negotiated sprint us request lessee leased premises may used lessee activity connection provision wireless communications services including attachment antennas towers sites term master site agreement ten years date agreement signed term lease specific site five years lessee right extend term additional 20 years monthly fee increase 3 per year lessee also responsible utility costs certain additional fees years ended december 31 2011 2010 2009 recorded rent expense agreement 554 million 527 million 282 million respectively master agreement network services november 2008 entered master agreement network services refer master agreement network services various sprint affiliated entities refer sprint entities pursuant sprint entities established contractual framework procedures us purchase network services sprint entities may order various services sprint entities including ip network transport services data center colocation tollfree services access following business platforms voicemail instant messaging services locationbased systems media server services sprint entities provide service level agreement consistent service levels provided similarly situated subscribers pricing specified separate product attachments type service general pricing based midpoint fair market value service sprint entities’ fully allocated cost providing service term master agreement network services five years lessee right extend term additional five years additionally accordance master agreement network services sprint entities assumed certain agreements backhaul services certain strategic investors contain commitments extend five years davis wright tremaine llp law firm davis wright tremaine llp serves primary outside counsel handles variety corporate transactional tax litigation matters mr wolff served board directors january 6 2011 october 24 2011 former chief executive officer married partner davis wright tremaine llp partner mr wolff’s spouse entitled share portion firm’s total profits although received compensation directly us years ended december 31 2011 2010 2009 paid 28 million 32 million 41 million davis wright tremaine llp legal services respectively ericsson inc ericsson provides network deployment services us including site acquisition construction management services addition second quarter 2011 entered managed services agreement ericsson operate maintain support network dr hossein eslambolchi currently sits board directors consulting agreement ericsson part consulting agreement dr eslambolchi received payments services ericsson received compensation directly us related relationship ericsson clearwire corporation subsidiaries notes consolidated financial statements continued year ended december 31 2011 paid 411 million ericsson network management services master services agreement november 2008 entered master services agreement sprint entities pursuant sprint entities established contractual framework procedures us purchase application services sprint entities term master services agreement five years right extend term additional five years intel market development agreement entered market development agreement intel refer intel market development agreement pursuant committed deploy mobile wimax networks promote use certain notebook computers mobile internet devices networks intel would develop market sell support wimax embedded chipsets use certain notebook computers mobile internet devices may used networks intel market development agreement last term seven years date agreement intel option renew agreement successive one year terms maximum 13 additional years provided intel meets certain requirements google spectrum agreement entered spectrum agreement google november 2008 pursuant make available google certain excess 25 ghz spectrum various markets experimental usage google development alternative applications thirdparties operating direction approval google us google spectrum agreement provides initial term five years terminable either party default party google products services agreement november 2008 entered products services agreement google refer google products services agreement pursuant google would collaborate variety products services google products services agreement term three years expired november 2011 18 discontinued operations result strategic decision focus investment united states market second quarter 2011 committed sell operations belgium germany spain expect sales completed 2012 businesses comprised substantially remaining operations previously reported international segment associated results operations financial position separately reported discontinued operations periods presented results operations financial position presented periods prior second quarter 2011 include businesses reported international segment sale businesses ireland poland romania individually immaterial separate disclosure prior periods summarized financial information discontinued operations shown thousands clearwire corporation subsidiaries notes consolidated financial statements continued clearwire corporation subsidiaries notes consolidated financial statements continued 19 quarterly financial information unaudited summarized quarterly financial information years ended december 31 2011 2010 follows thousands except per share data 20 parent company condensed financial statements terms agreements governing indebtedness clearwire communications subsidiary clearwire subsidiary significantly restricted making dividend payments loans advances clearwire restrictions resulted restricted net assets defined securities exchange commission rule 408e3 regulation sx clearwire’s subsidiary exceeding 25 consolidated net assets clearwire subsidiaries following condensed parentonly financial statements clearwire account investment clearwire corporation subsidiaries notes consolidated financial statements continued communications equity method accounting financial statements read conjunction consolidated financial statements clearwire subsidiaries notes thereto clearwire corporation condensed balance sheets clearwire corporation condensed statements operations clearwire corporation subsidiaries notes consolidated financial statements continued clearwire corporation condensed statements cash flows 21 subsequent events january 27 2012 clearwire communications received proceeds 2948 million net debt issuance costs offering senior secured notes par value 3000 million due 2016 bearing interest 1475 refer 2016 senior secured note tranche 2016 senior secured note tranche substantially terms senior secured notes see note 10 longterm debt net information item 15 exhibits financial statement schedules 1 consolidated financial statements sprint corporation filed part report listed index consolidated financial statements 2 consolidated financial statements clearwire corporation date acquisition filed part report listed index consolidated financial statements 3 exhibits filed part report listed exhibit index signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized sprint corporation registrant daniel r hesse daniel r hesse chief executive officer president date february 24 2014 pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities indicated 24th day february 2014 daniel r hesse daniel r hesse chief executive officer president principal executive officer joseph j euteneuer joseph j euteneuer chief financial officer principal financial officer paul w schieber jr paul w schieber jr vice president controller principal accounting officer signatures sprint corporation registrant pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities indicated 24th day february 2014 masayoshi son daniel r hesse masayoshi son chairman daniel r hesse director ronald fisher frank ianna ronald fisher vice chairman frank ianna director gordon bethune michael g mullen gordon bethune director michael g mullen director robert r bennett robert r bennett director sara martinez tucker director marcelo claure marcelo claure director exhibit index filed furnished required schedules andor exhibits filed furnished sec upon request pursuant item 601b2 regulation sk sprint corporation index consolidated financial statements index consolidated financial statements report independent registered public accounting firm board directors stockholders sprint corporation overland park kansas audited accompanying successor consolidated balance sheets sprint corporation subsidiaries company december 31 2013 2012 related successor consolidated statements comprehensive loss statement stockholders equity statement cash flows period october 5 2012 date incorporation december 31 2012 year ended december 31 2013 also audited companys internal control financial reporting december 31 2013 based criteria established internal control integrated framework 1992 issued committee sponsoring organizations treadway commission companys management responsible consolidated financial statements maintaining effective internal control financial reporting assessment effectiveness internal control financial reporting included accompanying managements report internal control financial reporting responsibility express opinion consolidated financial statements opinion companys internal control financial reporting based audits conducted audits accordance standards public company accounting oversight board united states standards require plan perform audits obtain reasonable assurance whether consolidated financial statements free material misstatement whether effective internal control financial reporting maintained material respects audits consolidated financial statements included examining test basis evidence supporting amounts disclosures financial statements assessing accounting principles used significant estimates made management evaluating overall financial statement presentation audit internal control financial reporting included obtaining understanding internal control financial reporting assessing risk material weakness exists testing evaluating design operating effectiveness internal control based assessed risk audits also included performing procedures considered necessary circumstances believe audits provide reasonable basis opinions companys internal control financial reporting process designed supervision companys principal executive principal financial officers persons performing similar functions effected companys board directors management personnel provide reasonable assurance regarding reliability financial reporting preparation financial statements external purposes accordance generally accepted accounting principles companys internal control financial reporting includes policies procedures 1 pertain maintenance records reasonable detail accurately fairly reflect transactions dispositions assets company 2 provide reasonable assurance transactions recorded necessary permit preparation financial statements accordance generally accepted accounting principles receipts expenditures company made accordance authorizations management directors company 3 provide reasonable assurance regarding prevention timely detection unauthorized acquisition use disposition companys assets could material effect financial statements inherent limitations internal control financial reporting including possibility collusion improper management override controls material misstatements due error fraud may prevented detected timely basis also projections evaluation effectiveness internal control financial reporting future periods subject risk controls may become inadequate changes conditions degree compliance policies procedures may deteriorate opinion consolidated financial statements referred present fairly material respects financial position sprint corporation subsidiaries december 31 2013 2012 related successor results operations cash flows period october 5 2012 date incorporation december 31 2012 year ended december 31 2013 conformity accounting principles generally accepted united states america also opinion company maintained material respects effective internal control financial reporting december 31 2013 based criteria established internal control integrated framework 1992 issued committee sponsoring organizations treadway commission discussed notes 1 3 consolidated financial statements july 10 2013 softbank corp completed merger sprint communications inc formerly sprint nextel corporation sprint corporation acquiring company sprint communications inc applied acquisition method accounting merger date deloitte touche llp kansas city missouri february 24 2014 index consolidated financial statements report independent registered public accounting firm board directors stockholders sprint corporation audited accompanying consolidated balance sheet sprint communications inc formerly sprint nextel corporation subsidiaries predecessor company december 31 2012 related consolidated statements comprehensive loss cash flows stockholders’ equity 191 day period ended july 10 2013 years twoyear period ended december 31 2012 consolidated financial statements responsibility predecessor company’s management responsibility express opinion consolidated financial statements based audits audit financial statements clearwire corporation consolidated subsidiary clearwire communications llc collectively clearwire december 31 2012 twoyear period ended december 31 2012 2011 predecessor company’s investment clearwire included 674 million december 31 2012 equity losses clearwire included 11 billion 17 billion years 2012 2011 respectively financial statements clearwire december 31 2012 twoyear period ended december 31 2012 2011 audited auditors whose report furnished us opinion insofar relates amounts included clearwire based solely report auditors conducted audits accordance standards public company accounting oversight board united states standards require plan perform audits obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion based audits report auditors consolidated financial statements referred present fairly material respects financial position predecessor company december 31 2012 results operations cash flows 191 day period ended july 10 2013 years twoyear period ended december 31 2012 conformity us generally accepted accounting principles sprint communications inc adopted accounting guidance regarding presentation consolidated statement comprehensive loss 2011 testing indefinitelived intangible assets impairment 2012 kpmg llp kansas city missouri october 21 2013 index consolidated financial statements sprint corporation consolidated balance sheets see notes consolidated financial statements index consolidated financial statements sprint corporation consolidated statements comprehensive loss see notes consolidated financial statements index consolidated financial statements sprint corporation consolidated statements cash flows see notes consolidated financial statements index consolidated financial statements sprint corporation consolidated statements stockholders equity millions index consolidated financial statements sprint corporation consolidated statement stockholders equity continued millions 1 successor period beginning october 5 2012 ending december 31 2012 approximately 3 million shares class b common stock starburst ii inc issued outstanding immaterial value shares exchanged within issuance common stock softbank upon acquisition see notes consolidated financial statements index consolidated financial statements sprint corporation notes consolidated financial statements index consolidated financial statements sprint corporation notes consolidated financial statements note 1 description operations sprint corporation including consolidated subsidiaries communications company offering comprehensive range wireless wireline communications products services designed meet needs individual consumers businesses government subscribers resellers organized operations meet needs targeted subscriber groups focused communications solutions incorporate capabilities wireless wireline services wireless segment includes retail wholesale affiliate service revenue wide array wireless voice data transmission services equipment revenue sale wireless devices accessories us puerto rico us virgin islands wireline segment includes revenue domestic international wireline voice data communication services including services cable multiple systems operators resell local long distance services use back office systems network assets support telephone service provided cable facilities primarily residential enduse subscribers july 10 2013 softbank corp certain whollyowned subsidiaries together softbank completed merger softbank merger sprint nextel corporation sprint nextel contemplated agreement plan merger dated october 15 2012 amended merger agreement bond purchase agreement dated october 15 2012 amended bond agreement result softbank merger starburst ii inc starburst ii whollyowned subsidiary softbank became parent company sprint nextel immediately thereafter starburst ii changed name sprint corporation sprint nextel changed name sprint communications inc addition connection closing softbank merger sprint corporation became successor registrant sprint nextel rule 12g3 securities exchange act 1934 exchange act entity subject reporting requirements exchange act filings securities exchange commission sec subsequent close softbank merger addition order align softbank’s reporting schedule board directors approved change fiscal year end march 31 effective march 31 2014 result expect file additional annual report form 10k transition period january 1 2014 march 31 2014 see note 3 significant transactions additional information regarding softbank merger related transactions unless context otherwise requires references sprint us company mean sprint corporation consolidated subsidiaries periods presented inclusive successor predecessor periods described references sprint communications sprint communications inc consolidated subsidiaries connection change control result softbank merger sprint communications assets liabilities adjusted fair value closing date softbank merger consolidated financial statements distinguish predecessor period predecessor relating sprint communications periods prior softbank merger successor period successor relating sprint corporation formerly known starburst ii periods subsequent incorporation starburst ii october 5 2012 successor financial information includes activity accounts sprint corporation year ended december 31 2013 includes activity accounts sprint communications inclusive consolidation clearwire corporation clearwire prospectively 174day period following completion softbank merger postmerger period beginning july 11 2013 accounts operating activity successor periods october 5 2012 date inception december 31 2012 january 1 2013 july 10 2013 consist solely activity starburst ii prior close softbank merger primarily related merger expenses incurred connection softbank merger recognized selling general administrative expense interest related 31 billion convertible bond sprint communications inc issued starburst ii predecessor financial information represents historical basis presentation sprint communications periods prior softbank merger result preliminary valuation assets acquired liabilities assumed fair value time softbank merger financial statements successor period presented measurement basis different predecessor period sprint communications historical cost therefore comparable see note 3 significant transactions additional information regarding softbank merger index consolidated financial statements sprint corporation notes consolidated financial statements july 9 2013 sprint communications completed acquisition remaining equity interests clearwire already approximately 35 billion net cash acquired 500 per share clearwire acquisition consideration paid allocated assets acquired liabilities assumed based estimated preliminary fair values time clearwire acquisition effects clearwire acquisition included predecessor period financial information therefore included allocation consideration transferred closing date softbank merger note 2 summary significant accounting policies information consolidation policies estimates consolidated financial statements include accounts 100 owned subsidiaries control controlling financial interest intercompany transactions balances eliminated consolidation prior close clearwire acquisition applied equity method accounting investment clearwire controlling vote ability control operating financial policies consolidated financial statements prepared conformity accounting principles generally accepted united states us gaap requires management company make estimates assumptions affect reported amounts assets liabilities revenues expenses disclosure contingent assets liabilities date consolidated financial statements significant estimates assumptions used limited depreciable lives assets fair value identified purchased tangible intangible assets business combination fair value assessments purposes impairment testing litigation reserves completed several significant transactions 2013 see note 3 significant transactions assigning fair market values assets acquired liabilities assumed date acquisition merger requires use significant judgments regarding estimates assumptions ultimate responsibility resides management material acquisitions mergers retain services certified valuation specialists assist assigning estimated values certain acquired assets assumed liabilities including intangible assets acquired intangible assets excluding goodwill valued using discounted cash flow methodology based future cash flows specific type intangible asset purchased estimated fair value fcc licenses determined use greenfield direct value method estimates fair value estimating discounted future cash flows hypothetical startup business fair value customer relationships estimated using excess earnings approach estimates fair value estimating discounted future cash flows existing subscribers measurement date trademarks valued using relief royalty approach estimates amount market participant would pay utilize sprint’s trademarks approaches incorporate various estimates assumptions significant projected revenue growth rates earnings margins forecasted cash flows based discount rate terminal growth rate management projects revenue growth rates earnings margins cash flows based historical operating results acquired entity expected future performance general macroeconomic environment net property plant equipment valued using cost approach estimates fair value property plant equipment needed replace functionality provided existing property plant equipment assumed liabilities valued based estimates anticipated expenditures incurred satisfy assumed obligations including contractual liabilities assumed require exercise professional judgment assumed contracts may favorable unfavorable terms must valued acquisition merger date valuation subject management judgment regarding evaluation interpretation contract terms relation economic circumstances market rates leased property assume performance obligation subscribers acquisition merger date deferred revenue obligation recognized judgment required evaluate whether future performance obligation exists assign value performance obligation index consolidated financial statements sprint corporation notes consolidated financial statements estimates inherently subject judgment actual results could differ allocations purchase price acquisitions mergers based estimates fair value net assets acquired discussed subject finalization purchase price allocation measurement period measurement period company adjust assets liabilities new information obtained facts circumstances existed acquisition date known would changed recognition andor measurement assets liabilities date changes qualify measurement period adjustment included current period earnings certain prior period amounts reclassified conform current period presentation subsequent events evaluated disclosure date financial statements filed sec summary significant accounting policies cash equivalents cash equivalents generally include highly liquid investments maturities time purchase three months less investments may include money market funds certificates deposit us government governmentsponsored debt securities corporate debt securities municipal securities bankrelated securities credit debit card transactions process allowance doubtful accounts allowance doubtful accounts established cover probable reasonably estimable losses number subscriber accounts practical review collectibility accounts individually determine amount allowance doubtful accounts period although account level analysis performed respect large wireless wireline subscribers estimate allowance doubtful accounts considers number factors including collection experience aging accounts receivable portfolios credit quality subscriber base qualitative considerations including macroeconomic factors amounts written allowance doubtful accounts net recoveries adjustments 98 million successor year ended december 31 2013 374 million 549 million 519 million predecessor 191day period ended july 10 2013 years ended december 31 2012 2011 respectively device accessory inventory inventories stated lower cost market cost determined firstin firstout fifo method costs devices related revenues generated device sales equipment net subsidy recognized time sale expected equipment net subsidy recognized prior time sale promotional discount decision generally made point sale equipment net subsidies expected recovered service revenues net realizable value devices inventory analyzed regular basis analysis includes assessing obsolescence sales forecasts product life cycle marketplace considerations assessments regarding factors adversely change may required sell devices higher subsidy potentially record expense future periods prior point sale property plant equipment property plant equipment ppe including improvements extend useful lives recognized cost depreciation property plant equipment generally calculated using straightline method based estimated economic useful lives 3 30 years buildings improvements network equipment site costs related software 3 12 years nonnetwork internal use software office equipment leasehold improvements depreciated shorter lease term estimated useful life respective assets calculate depreciation certain network assets using group life method accordingly ordinary asset retirements disposals assets charged accumulated depreciation gain loss recognized gains losses associated asset retirements disposals recognized consolidated statements comprehensive loss depreciation rates assets revised periodically account index consolidated financial statements sprint corporation notes consolidated financial statements changes related managements strategic objectives technological changes obsolescence repair maintenance costs research development costs expensed incurred capitalize costs network nonnetwork software developed obtained internal use application development stage costs included ppe software placed service depreciated estimated useful lives 3 5 years costs incurred preliminary project postimplementation stage well maintenance training costs expensed incurred investments shortterm investments recognized amortized cost classified current assets consolidated balance sheets original maturities purchase greater three months less one year certain investments accounted using equity method based companys ownership interest ability exercise significant influence accordingly initial investment recognized cost subsequently adjusted recognize companys share earnings losses investee reporting period subsequent investment date longlived asset impairment sprint evaluates longlived assets including intangible assets subject amortization impairment whenever events changes circumstances indicate carrying amount asset group may recoverable asset groups determined lowest level identifiable cash flows largely independent cash flows groups assets liabilities carrying amount longlived asset group recoverable exceeds fair value impairment loss recognized equal excess asset group’s carrying value estimated fair value see note 9 severance exit costs asset impairments additional information asset impairments certain assets yet deployed business including network equipment cell site development costs software development periodically assessed determine recoverability network equipment cell site development costs expensed whenever events changes circumstances cause company conclude assets longer needed meet managements strategic network plans deployed software development costs expensed longer probable software project deployed network equipment removed network also periodically assessed determine recoverability experience significant operational challenges including retaining attracting subscribers future cash flows company may sufficient recover carrying value wireless asset group could record asset impairments material sprints consolidated results operations financial condition indefinitelived intangible assets indefinitelived intangible assets primarily consist goodwill fcc licenses acquired primarily fcc auctions business combinations deploy wireless services certain trademarks goodwill represents excess consideration paid estimated fair value net tangible identifiable intangible assets acquired business combinations determining whether intangible asset goodwill indefinitelived consider expected use assets regulatory economic environment within used effects obsolescence use assess indefinitelived intangible assets impairment least annually occurs first quarter necessary frequently whenever events changes circumstances indicate asset may impaired indicators may include sustained significant decline market capitalization since previous impairment assessment significant decline expected future cash flows significant adverse change legal factors business climate unanticipated competition andor slower growth rates among others index consolidated financial statements sprint corporation notes consolidated financial statements benefit plans provide defined benefit pension plan certain postretirement benefits certain employees sponsor defined contribution plan employees successor year ended december 31 2013 predecessor year ended december 31 2012 fair value pension plan assets certain postretirement benefit plan assets aggregate 18 billion 16 billion respectively fair value projected benefit obligations aggregate 23 billion 27 billion respectively result plans underfunded approximately 500 million 11 billion successor year ended december 31 2013 predecessor year ended december 31 2012 respectively recorded net liability consolidated balance sheets estimated contributions totaling approximately 685 million expected paid 2014 offset pension liability recorded equity component accumulated comprehensive income loss net tax including 93 million 404 million successor period ended december 31 2013 predecessor year ended december 31 2012 respectively amortized selling general administrative sprints consolidated statement comprehensive loss change net liability plan 2013 affected primarily increase discount rate 43 53 used estimate projected benefit obligation intend make future cash contributions pension plan amount necessary meet minimum funding requirements according applicable benefit plan regulations december 31 2005 pension plan amended freeze benefit plan accruals participants objective investment portfolio pension plan achieve longterm nominal rate return net fees exceeds plans longterm expected rate return investments funding purposes 775 2013 meet objective investment strategy 2013 governed asset allocation policy whereby targeted allocation percentage assigned asset class follows 41 us equities 18 international equities 21 fixed income investments 10 real estate investments 10 investments including hedge funds actual allocations allowed deviate target allocation percentages plus minus 5 december 1 2013 target allocation percentage assigned asset class revised follows 38 us equities 16 international equities 28 fixed income investments 9 real estate investments 9 investments including hedge funds longterm expected rate return investment funding purposes 775 2014 investments pension plan measured fair value recurring basis determined using quoted market prices estimated fair values december 31 2013 49 investment portfolio valued quoted prices active markets identical assets 33 valued using quoted prices similar assets active inactive markets observable inputs 18 valued using unobservable inputs supported little market activity defined contribution plan participants may contribute portion eligible pay plan payroll withholdings 2013 company matched 100 participants pretax roth contribution aggregate first 3 eligible compensation 50 participants pretax roth aggregate contribution next 2 eligible compensation maximum matching contribution 4 predecessor years ended 2012 2011 company matched 50 participants contributions 2 eligible compensation fixed matching contributions totaled approximately 35 million successor year ended 2013 32 million 30 million 31 million predecessor 191day period ended july 10 2013 years ended 2012 2011 respectively prior 2013 company also made discretionary matching contributions determined board directors company equal 100 participants contributions 395 eligible compensation 60 million predecessor year ended 2012 12 eligible compensation 20 million predecessor year ended 2011 based upon attainment certain profitability levels revenue recognition operating revenues primarily consist wireless service revenues generated device accessory sales revenues wholesale operators thirdparty affiliates well long distance voice data index consolidated financial statements sprint corporation notes consolidated financial statements internet revenues service revenues consist fixed monthly recurring charges variable usage charges miscellaneous fees activation fees directory assistance roaming equipment protection late payment early termination charges certain regulatory related fees net service credits generally recognize service revenues services rendered assuming revenue recognition criteria met recognize equipment revenue corresponding costs devices title risk loss passes indirect dealer enduse subscriber incentives retain acquire subscribers new devices discounted prices recorded reduction equipment revenue upon activation device service contract recognize revenue access charges services charged fixed amounts ratably service period net credits adjustments service discounts billing disputes fraud unauthorized usage recognize excess wireless voice usage long distance revenue contractual rates per minute minutes used additionally recognize excess wireless data usage based kilobytes onetime use charges use premium services rendered result cutoff times multiple billing cycles month required estimate amount subscriber revenues earned billed end billing cycle end reporting period estimates based primarily rate plans effect historical usage billing patterns regulatory fees costs recorded gross largest component regulatory fees universal service fund represented 2 net operating revenues 2013 2012 2011 accounting estimates related recognition revenue results operations require us make assumptions future billing adjustments disputes subscribers unauthorized usage future returns mailin rebates device sales dealer commissions cash consideration given us dealer enduse subscriber presumed reduction revenue unless receive identifiable benefit exchange consideration fair value benefit reasonably estimated case consideration recorded selling expense compensate dealers using specific compensation programs related sale devices subscriber service contracts commission earned dealer solely due selling activity relating wireless service cost recorded selling expense commission earned dealer due dealer selling one devices cost recorded reduction equipment revenue commissions generally earned upon sale device service enduse subscriber incentive payments dealers sales associated devices service contracts classified contrarevenue extent incentive payment reimbursement loss device selling expense amount associated selling effort incentive payments certain indirect dealers purchase iphone® directly apple recognized selling expense device activated sprint service plan sprint recognize equipment revenue cost products transactions severance exit costs liabilities severance exit costs recognized based upon nature cost incurred involuntary separation plans completed within guidelines written involuntary separation plan liability recognized probable reasonably estimable voluntary separation plans vsp liability recognized vsp irrevocably accepted employee onetime termination benefits additional severance pay benefit payouts exit costs lease termination costs liability measured recognized initially fair value period liability incurred subsequent changes liability recognized adjustments period change severance exit costs associated business combinations recorded results operations incurred compensation plans december 31 2013 sprint sponsored three incentive plans 2007 omnibus incentive plan 2007 plan 1997 longterm incentive program 1997 program nextel incentive equity plan nextel plan together compensation plans sprint previously also sponsored management incentive stock option plan misop deregistered first quarter 2012 outstanding options misop expired sprint also sponsors employee stock purchase plan espp 2007 plan may grant share index consolidated financial statements sprint corporation notes consolidated financial statements nonshare based awards including stock options stock appreciation rights restricted stock restricted stock units performance shares performance units equitybased cash awards employees outside directors eligible individuals defined plan december 31 2013 number shares available reserved future grants 2007 plan espp totaled approximately 195 million common shares compensation committee board directors one executive officers compensation committee authorize provided 2007 plan determine terms share nonshare based award new grants made 1997 program nextel plan use new shares satisfy sharebased awards treasury shares available fair value option award estimated grant date using blackscholes option valuation model based several assumptions including riskfree interest rate volatility expected dividend yield expected term successor year ended 2013 company granted 17 million stock options weighted average grant date fair value 363 per share based upon assumptions risk free interest rate 201 weighted average expected volatility 423 expected dividend yield 0 expected term 75 years general options granted exercise price equal market value underlying shares grant date vest annual basis three four years contractual term ten years december 31 2013 48 million options outstanding 34 million options exercisable fair value restricted stock unit award calculated using share price date grant restricted stock units generally performance service requirements service requirements vesting periods ranging one three years employees directors granted restricted stock units required pay shares generally must remain employed us continue serve member board directors restrictions lapse typically three years employees one year directors certain restricted stock units outstanding december 31 2013 entitled dividend equivalents paid cash dividends declared paid common shares performancebased restricted stock units entitled dividend equivalent payments applicable performance service criteria met successor year ended 2013 company granted 18 million service performancebased restricted stock units weighted average grant date fair value 623 per share predecessor 191day period ended july 10 2013 approximately 2 million service performancebased restricted stock units granted weighted average grant date fair value 596 per share december 31 2013 restricted stock unit awards totaling 33 million outstanding compensation costs cost employee services received exchange sharebased awards classified equity measured using estimated fair value award date grant cost recognized period award recipient required provide service exchange award awards instruments classified liabilities measured estimated fair value reporting date settlement sharebased compensation cost related awards graded vesting recognized using straightline method pretax share nonshare based compensation charges incentive plans included net loss 98 million successor period ended december 31 2013 37 million predecessor 191day period ended july 10 2013 82 million 73 million predecessor years ended 2012 2011 respectively net income tax benefit recognized consolidated financial statements sharebased compensation awards 34 million successor period ended december 31 2013 2 million predecessor 191day period ended july 10 2013 14 million 13 million predecessor years ended 2012 2011 december 31 2013 126 million total unrecognized compensation cost related nonvested incentive awards expected recognized weighted average period 214 years advertising costs recognize advertising expense incurred selling general administrative expense advertising expenses totaled 697 million successor period ended december 31 2013 858 million predecessor 191day period ended july 10 2013 14 billion predecessor years ended december 31 2012 2011 index consolidated financial statements sprint corporation notes consolidated financial statements new accounting pronouncements december 2011 financial accounting standards board fasb issued authoritative guidance regarding disclosures offsetting assets liabilities requires common disclosure requirements allow investors better compare assess effect offsetting arrangements financial statements prepared us gaap financial statements prepared ifrs standard effective beginning first quarter 2013 requires retrospective application affects disclosures footnotes financial statements october 2012 fasb tentatively decided limit scope authoritative guidance derivatives repurchase agreements securities lending securities borrowing arrangements january 2013 fasb issued additional clarifying guidance limited scope disclosure requirements derivatives repurchase agreements reverse purchase agreements securities lending securities borrowing transactions either offset accordance specific criteria contained us gaap subject master netting arrangement similar agreement based scope revision authoritative guidance impact existing disclosures february 2013 fasb issued authoritative guidance regarding comprehensive income reporting amounts reclassified accumulated comprehensive income amends existing guidance requires single location presentation effects certain significant amounts reclassified component accumulated comprehensive income based source statement comprehensive loss income line items affected reclassification guidance effective beginning first quarter 2013 material effect consolidated financial statements amounts reclassified comprehensive income loss consisting primarily recognition periodic pension costs realized holding gains losses immaterial periods presented july 2013 fasb issued authoritative guidance regarding income taxes topic 740 presentation unrecognized tax benefit net operating loss carryforward similar tax loss tax credit carryforward exists consensus fasb emerging issues task force amends existing guidance related financial presentation unrecognized tax benefits requiring entity net unrecognized tax benefits deferred tax assets available samejurisdiction loss tax carryforwards would apply settlement uncertain tax positions amendments effective beginning first quarter 2014 early adoption permitted applied prospectively unrecognized tax benefits exist effective date expected material effect consolidated financial statements note 3 significant transactions acquisition assets us cellular november 6 2012 sprint communications entered definitive agreement united states cellular corporation us cellular acquire personal communications services pcs spectrum subscribers parts illinois indiana michigan missouri ohio including chicago st louis markets 480 million cash sprint communications agreed connection acquisition reimburse us cellular certain network shutdown costs markets costs expected approximately 160 million net present value basis event sprint communications reimbursement obligation exceed 200 million undiscounted basis additional spectrum used supplement sprints coverage areas addition sprint communications us cellular entered transition services agreements services provided us cellular period closing prior transfer acquired subscribers sprints network transaction closed may 17 2013 total purchase price approximately 605 million 32 million allocated spectrum customer relationships respectively acquisition remaining interest clearwire july 9 2013 clearwire acquisition date sprint communications completed clearwire acquisition immediately prior completion clearwire acquisition sprint communications owned 739010818 shares clearwire common stock representing approximately 501 noncontrolling voting interest total issued outstanding common stock result clearwire acquisition share index consolidated financial statements sprint corporation notes consolidated financial statements common stock clearwire par value 00001 per share shares owned sprint communications converted right receive 500 per share cash consideration paid totaled approximately 35 billion net cash acquired 198 million approximately 125 million cash consideration accrued expenses current liabilities consolidated balance sheet dissenting shares relating stockholders exercised appraisal rights consideration fair value consideration measured estimated fair value element consideration transferred clearwire acquisition date determined sum cash transferred clearwire stockholders included 125 million cash held escrow dissenting shares b estimated fair value clearwire shares held sprint communications immediately preceding acquisition c sharebased payment awards replacement awards exchanged awards held clearwire employees fair value consideration transferred based reliable measure element consideration determined market price clearwire common shares clearwire acquisition date noncash consideration estimated fair value consideration transferred based market price clearwire common shares determined using closing price nasdaq clearwire acquisition date consisted following 1 equals estimated fair value sprint communications previouslyheld equity interest clearwire valued 440 per share represented approximate 12 discount sprint communications acquisition price shares held sprint communications prior clearwire acquisition date difference 440 per share merger consideration 500 represents estimate control premium would generally included valuation sprint communications noncontrolling interest 2 47 million liability paid cash pursuant clearwire merger agreement acquisitionrelated costs included selling general administrative results operations clearwire acquisition totaled approximately 19 million 2 million recognized predecessor year ended 2012 17 million recognized predecessor 191day period ended july 10 2013 preliminary purchase price allocation consideration transferred preliminarily allocated assets acquired liabilities assumed based estimated fair values time clearwire acquisition preliminary allocation consideration transferred based managements judgment evaluating several factors including preliminary valuation assessment additional analysis including limited value intangible assets associated tax impacts could result change total amount goodwill preliminary allocation represents managements current best estimate fair value amounts could change additional information obtained evaluated adjustments made since initial purchase price allocation decreased recorded goodwill approximately 283 million primarily attributable reduction approximately 270 million made deferred tax liabilities result additional analysis remaining adjustments insignificant total acquisitionrelated costs contingent acquisitionrelated costs paid incurred sprint communications approximately 7 million recorded expense predecessor period following table summarizes preliminary purchase price allocation consideration clearwire acquisition index consolidated financial statements sprint corporation notes consolidated financial statements excess consideration transferred estimated fair values assets acquired liabilities assumed recorded goodwill includes expected synergies combining businesses cost synergies reduced networkrelated expenses elimination redundant assets enhanced spectrum positions expected provide greater network coverage none goodwill resulting acquisition allocated wireless segment deductible income tax purposes identifiable intangible assets acquired clearwire acquisition include following fcc licenses consist 25 gigahertz ghz spectrum acquired favorable spectrum tower leases resulted favorable difference terms clearwire tower spectrum leases acquired current market terms leases clearwire acquisition date see note 7 intangible assets consolidated statement comprehensive loss period july 10 2013 december 31 2013 following supplemental information presents financial results clearwire operations included consolidated statement comprehensive loss period july 10 2013 december 31 2013 softbank transaction discussed softbank merger completed july 10 2013 softbank merger date sprint communications inc stockholders received consideration combination cash stock subject proration cash consideration paid softbank merger 141 billion net cash acquired 25 billion estimated fair value 22 interest sprint corporation issued existing stockholders sprint communications inc softbank provided equity contribution 19 billion sprint close index consolidated financial statements sprint corporation notes consolidated financial statements softbank merger distributed existing stockholders intended used general corporate purposes addition pursuant bond agreement october 15 2012 sprint communications inc issued bond starburst ii principal amount 31 billion interest rate 1 maturity date october 15 2019 converted 590476190 shares sprint communications inc common stock 525 per share immediately prior close softbank merger result completion softbank merger subsequent open market stock purchases softbank owns approximately 80 outstanding voting common stock sprint corporation sprint stockholders remaining approximately 20 december 31 2013 consisted common shares issued pursuant merger agreement consideration transferred fair value consideration transferred measured estimated fair value element consideration transferred softbank merger date determined sum cash transferred sprint communications stockholders b number shares sprint issued sprint communications stockholders c sharebased payment awards replacement awards exchanged awards held sprint employees fair value consideration transferred based reliable measure element consideration determined market price sprint common shares july 11 2013 noncash consideration estimated fair value consideration transferred based market price sprint common stock determined using closing price sprint common stock new york stock exchange july 11 2013 investments softbank consisted following fair value investments softbank determined based cash transferred including 31 billion purchase bond 19 billion close softbank merger mergerrelated costs included selling general administrative results operations softbank merger totaled approximately 129 million 32 million recognized 2012 97 million recognized 2013 successor period preliminary purchase price allocation consideration transferred preliminarily allocated assets acquired liabilities assumed based estimated fair values softbank merger date inclusive clearwire acquisition described preliminary allocation consideration transferred based managements judgment evaluating several factors including preliminary valuation assessment additional analysis including limited value intangible assets associated tax impacts could result change total amount goodwill preliminary allocation represents managements current best estimate fair value amounts could change additional information obtained evaluated addition approximately 46 million certain mergerrelated fees sprint communications acquiree contingent upon closing softbank merger fees recorded expense subsequent close transaction however fees reflected preliminary purchase price allocation total acquisitionrelated costs approximately 73 million contingent mergerrelated costs paid incurred softbank behalf accounting acquirer formerly starburst ii recorded expense 2013 successor period adjustments made since initial purchase price allocation decreased recorded goodwill approximately 385 million indefinitelived intangible assets increased approximately 254 million due additional analysis performed index consolidated financial statements sprint corporation notes consolidated financial statements management fourth quarter 2013 related value assigned certain fcc licenses deferred tax liabilities decreased approximately 126 million primarily due adjustments related fcc licenses remaining adjustments insignificant following table summarizes preliminary purchase price allocation consideration transferred excess consideration transferred estimated fair values assets acquired liabilities assumed recorded goodwill includes expected synergies cost synergies related scaled purchasing additional cost savings goodwill resulting softbank merger allocated wireless segment substantially expected deductible income tax purposes gross contractual receivables acquired included within current assets totaled approximately 34 billion estimated fair value 32 billion difference estimated amount sprint communications allowance doubtful accounts softbank merger date identifiable intangible assets acquired softbank merger include following indefinitelived intangible assets consist 19 ghz 800 megahertz mhz 900 mhz 25 ghz fcc licenses well sprint boost mobile trademarks intangible assets subject amortization consist customer relationships favorable spectrum tower leases resulting favorable difference terms tower spectrum leases acquired current market terms leases softbank merger date virgin mobile trade name see note 7 intangible assets index consolidated financial statements sprint corporation notes consolidated financial statements pro forma financial information following unaudited pro forma consolidated results operations assume softbank merger clearwire acquisition completed january 1 2012 2013 2012 respectively unaudited pro forma financial information prepared illustrate pro forma effect combination sprint communications clearwire using consideration transferred acquisition date though acquisition date transaction occurred january 1 2012 preparation pro forma financial information also assumed preliminary purchase price allocation consideration transferred among assets acquired liabilities assumed acquiree pro forma financial information adjusts actual combined results items recurring nature directly attributable clearwire acquisition softbank merger pro forma net loss provided excludes certain nonrecurring items sprints gain previously held interest clearwire transaction costs associated clearwire acquisition softbank merger result pro forma financial information presented excludes net gain 14 billion see note 4 investments acquisition related costs approximately 169 million pro forma financial information prepared based estimates assumptions management believes reasonable necessarily indicative consolidated financial position results operations sprint would achieved clearwire acquisition andor softbank merger actually occurred january 1 2012 historical date reflective expected actual financial positions results operations future period note 4 investments components investments follows bond investment together bond derivative successor period relate convertible bond issued sprint communications inc see note 8 longterm debt financing capital lease obligations starburst ii connection bond agreement see note 3 significant transactions accounted availableforsale investment carried estimated fair value starburst ii marketable equity securities investments marketable equity securities recognized fair value considered availableforsale securities accordingly unrealized holding gains losses securities recognized accumulated comprehensive loss net related income tax realized gains losses measured reclassified index consolidated financial statements sprint corporation notes consolidated financial statements accumulated comprehensive loss income expense net sprints consolidated statement comprehensive loss based identifying specific investments sold otherthantemporary impairment exists consolidation clearwire sprints ownership interest equity earningslosses immediately prior clearwire acquisition sprint communications held approximately 501 noncontrolling voting interest 60 noncontrolling economic interest clearwire corporation well 441 noncontrolling economic interest clearwire communications llc whollyowned subsidiary clearwire corporation together clearwire carrying value totaled 325 million prior close clearwire acquisition applied equity method accounting investment clearwire equity losses clearwire 482 million 11 billion 17 billion predecessor period ended july 9 2013 predecessor years ended december 31 2012 2011 respectively equity losses investment clearwire consisted share clearwires net loss adjustments noncash impairment investment gains losses associated dilution ownership interest resulting clearwires equity issuances derivative losses associated change fair value embedded derivative included exchangeable notes clearwire sprint items recognized clearwire corporation affect economic interest sprints equity losses predecessor period ended july 9 2013 includes 65 million derivative loss associated change fair value embedded derivative equity losses clearwire predecessor years ended december 31 2012 2011 included 204 million 135 million respectively pretax impairment reflecting reduction carrying value investment clearwire estimated fair value pretax dilution loss 27 million year ended december 31 2011 predecessor years ended december 31 2012 2011 also included charges approximately 41 million 361 million respectively associated clearwires writeoff certain network assets longer met strategic plans subsequent clearwire acquisition clearwire consolidated whollyowned subsidiary sprint connection acquisition sprint recorded pretax gain approximately 29 billion gain previouslyheld equity interests predecessor consolidated statement comprehensive loss immediately preceding clearwire acquisition resulting difference estimated fair value interests owned prior acquisition 500 per share offer price less estimated control premium approximately 060 carrying value approximately 325 million previouslyheld equity interests summarized financial information clearwire periods preceding clearwire acquisition follows index consolidated financial statements sprint corporation notes consolidated financial statements note 5 financial instruments cash equivalents accounts notes receivable accounts payable carried cost approximates fair value shortterm investments consisting primarily time deposits commercial paper treasury securities totaling approximately 11 billion 18 billion successor year ended december 31 2013 predecessor year ended december 31 2012 respectively recorded amortized cost respective carrying amounts approximate fair value using quoted prices active markets fair value marketable equity securities totaling 49 million successor year ended december 31 2013 45 million predecessor year ended december 31 2012 respectively measured recurring basis using quoted prices active markets estimated fair value majority current longterm debt excluding bond credit facilities determined based quoted prices active markets using observable inputs derived principally corroborated observable market data march 31 2013 outstanding carrying value credit facilities totaled 945 million predecessor approximated fair value time transfer transferred estimated fair value using observable inputs estimated fair value using unobservable inputs due lack available pricing source estimate fair value bond issued sprint communications inc starburst ii see note 3 significant transactions related bond derivative convertible bond pricing model used based relevant interest rates conversion feature significant inputs observable market significant unobservable inputs used fair value measurement bond related bond derivative credit condition companies probability timing conversion discount lack marketability significant increases decreases inputs isolation would result could resulted significantly lower higher fair value measurement immediately preceding close softbank merger july 10 2013 bond converted shares sprint communications result balance bond related bond derivative december 31 2013 following table presents carrying amounts estimated fair values current longterm debt availableforsale bond investment related bond derivative index consolidated financial statements sprint corporation notes consolidated financial statements following reconciliation recurring unobservable assets note 6 property plant equipment property plant equipment consists primarily network equipment longlived assets used provide service subscribers result network modernization shutdown nextel platform estimated useful lives related equipment shortened causing incremental depreciation charges period implementation incremental effect accelerated depreciation expense totaled approximately 800 million predecessor 191day period ended july 10 2013 21 billion predecessor year ended december 31 2012 majority related shortened useful lives nextel platform assets periods components property plant equipment related accumulated depreciation predecessor successor periods follows network equipment site costs related software includes switching equipment cell site towers site development costs radio frequency equipment network software digital fiber optic cable transport facilities transmissionrelated equipment buildings improvements principally consists owned general office facilities retail stores leasehold improvements nonnetwork internal use software office equipment primarily consists furniture information technology systems equipment vehicles construction progress depreciated placed service primarily includes materials transmission related equipment labor engineering site development costs interest costs relating construction development network index consolidated financial statements sprint corporation notes consolidated financial statements note 7 intangible assets indefinitelived intangible assets december 31 2013 hold 19 ghz 800 mhz 900 mhz 25 ghz fcc licenses authorizing use radio frequency spectrum deploy wireless services long company acts within requirements constraints regulatory authorities renewal extension licenses reasonably certain minimal cost accordingly concluded fcc licenses indefinitelived intangible assets 1 net additions successor period ended december 31 2013 consist approximately 62 million deposits made acquire additional fcc licenses pending fcc approval predecessor period january 1 2013 july 10 2013 sprint acquired approximately 605 million 19 ghz spectrum 119 billion 25 ghz spectrum us cellular clearwire respectively see note 3 significant transactions net additions predecessor period also included approximately 91 million costs related 2004 fcc report order reconfigure 800 mhz band report order see note 12 commitments contingencies amounts reflected july 11 2013 column represents preliminary estimated fair value class indefinitelived intangible assets resulting softbank merger see note 3 significant transactions trademarks include sprint boost mobile tradenames also identified indefinitelived intangible assets net additions fcc licenses period july 11 2013 december 31 2013 primarily result work related report order see note 12 commitments contingencies goodwill represents excess consideration paid estimated fair value net tangible identifiable intangible assets acquired business combinations recognized 64 billion goodwill associated softbank merger successor period see note 3 significant transactions goodwill recoverability assessment carrying value sprints goodwill included wireless segment represents wireless reporting unit estimate fair value wireless reporting unit using discounted cash flow marketbased valuation models fair value wireless reporting unit exceeds net book value goodwill impaired testing necessary net book value wireless reporting unit exceeds estimated fair value estimate fair value goodwill determine amount impairment loss result preliminary remeasurement assets acquired liabilities assumed connection softbank index consolidated financial statements sprint corporation notes consolidated financial statements merger sprint recognized goodwill estimate fair value softbank merger date since goodwill reflected estimate fair value cushion fair value excess carrying value softbank merger date risk associated potential goodwill impairment future reporting periods heightened company finalized valuation associated softbank merger additional changes valuation associated impact purchase price allocation could result change amount goodwill reflected financial statements future reporting periods determination estimated fair value wireless reporting unit requires significant estimates assumptions estimates assumptions primarily include limited transactions within wireless industry related control premiums discount rate terminal growth rate earnings interest taxes depreciation amortization ebitda capital expenditure forecasts due inherent uncertainty involved making estimates actual results could differ estimates evaluate merits significant assumption individually aggregate used determine fair value wireless reporting unit reasonableness intangible assets subject amortization customer relationships amortized using sumofthemonths digits method definitelived intangible assets amortized using straight line method estimated useful lives respective assets reduce gross carrying value associated accumulated amortization specified intangible assets become fully amortized amortization expense related favorable spectrum tower leases recognized cost services third quarter 2013 recorded 69 billion customer relationships 884 million favorable spectrum leases 589 million favorable tower leases 520 million trademarks 52 million intangible assets result preliminary allocation softbank merger clearwire acquisition see note 3 significant transactions index consolidated financial statements sprint corporation notes consolidated financial statements note 8 longterm debt financing capital lease obligations 1 notes clearwire communications llc also direct obligations clearwire finance inc guaranteed certain clearwire subsidiaries december 31 2013 sprint corporation parent corporation 90 billion principal amount senior notes outstanding addition december 31 2013 outstanding principal amount senior notes issued sprint communications inc sprint capital corporation guaranteed notes issued sprint communications inc secured notes issued ipcs inc ipcs exchangeable notes issued clearwire communications llc totaling 203 billion principal amount longterm debt issued 100 owned subsidiaries fully unconditionally guaranteed sprint corporation indentures financing arrangements governing certain subsidiaries debt contain provisions limit cash dividend payments subsidiary common stock except case notes issued secured assets clearwire communications llc ipcs inc transfer cash form advances subsidiaries parent corporation generally restricted index consolidated financial statements sprint corporation notes consolidated financial statements december 31 2013 19 billion outstanding debt comprised certain notes financing capital lease obligations mortgages secured 157 billion property plant equipment assets net gross cash interest payments net amounts capitalized 30 million 278 million 413 million totaled 10 billion 14 billion 10 billion years ended december 31 2013 successor 2012 predecessor 2011 predecessor respectively cash interest payments net amounts capitalized 29 million totaled 814 million predecessor 191day period ended july 10 2013 respectively weighted average effective interest rate related notes credit facilities 64 successor year ended december 31 2013 89 75 predecessor 191day period ended july 10 2013 year ended december 31 2012 notes december 31 2013 outstanding notes consist senior notes guaranteed notes exchangeable notes clearwire communications llc unsecured well secured notes ipcs clearwire communications llc secured solely respective underlying assets ipcs clearwire communications llc cash interest notes generally payable semiannually arrears december 31 2013 approximately 288 billion aggregate principal amount notes redeemable companys discretion thenapplicable redemption prices plus accrued interest december 31 2013 approximately 201 billion aggregate principal amount senior notes guaranteed notes provide holders right require us repurchase notes change control triggering event defined applicable indentures supplemental indentures occurs december 31 2013 approximately 300 million aggregate principal amount clearwire communications llc notes approximately 181 million aggregate principal amount ipcs secured notes provide holders right require us repurchase notes change control occurs required make change control offer cash payment equal 101 aggregate principal amount notes repurchased plus accrued unpaid interest upon close clearwire acquisition clearwire communications llc 825 exchangeable notes due 2040 became exchangeable time holder’s option fixed amount cash equal 70621 1000 principal amount notes surrendered result 444 million total cash consideration payable upon exchange 629 million principal amount notes outstanding classified current debt obligation remaining carrying value notes classified longterm debt obligation debt issuances september 11 2013 sprint corporation issued 225 billion aggregate principal amount 7250 notes due 2021 425 billion aggregate principal amount 7875 notes due 2023 private placement 144a transaction registration rights interest notes payable semiannually march 15 september 15 notes guaranteed sprint communications inc december 12 2013 sprint corporation issued 25 billion aggregate principal amount 7125 notes due 2024 private placement 144a transaction registration rights interest notes payable semiannually june 15 december 15 notes guaranteed sprint communications inc debt retirements may 1 2013 company paid 300 million principal amount upon maturity outstanding ipcs inc secured floating rate notes due 2013 september 11 2013 december 1 2013 approximately 28 billion principal amount clearwire communications llcs 12 senior secured notes due 2015 retired october 30 2013 december 1 2013 500 million principal amount clearwire communications llcs 12 secondpriority secured notes due 2017 retired addition paid approximately 180 million call premiums associated retirements index consolidated financial statements sprint corporation notes consolidated financial statements credit facilities company 30 billion unsecured revolving bank credit facility expires february 2018 borrowings revolving bank credit facility bear interest rate equal london interbank offered rate libor plus spread varies depending company’s credit ratings december 31 2013 approximately 914 million letters credit outstanding credit facility including letter credit required report order see note 12 commitments contingencies result outstanding letters credit directly reduce availability borrowings facility company approximately 21 billion borrowing capacity available december 31 2013 unsecured loan agreement export development canada edc agreement secured equipment credit facility amended march 12 2013 june 24 2013 respectively provide terms similar revolving bank credit facility except terms edc agreement secured equipment credit facility repayments outstanding amounts cannot redrawn december 31 2013 edc agreement fully drawn december 31 2013 fully drawn first second tranche secured equipment credit facility totaling 10 billion made two equal regularly scheduled principal repayments one predecessor 191day period ended july 10 2013 successor year ended december 31 2013totaling 111 million 2013 cost funds facility includes fixed interest rate 203 export credit agency premiums fees total equate expected effective interest rate approximately 6 based assumptions timing amounts drawdowns facility secured lien equipment purchased ericsson inc fully unconditionally guaranteed sprint communications inc financing capital lease obligations approximately 3000 cell sites sold subsequently leased back terms extend 2021 renewal options additional 20 years cell sites continue reported part property plant equipment due continued involvement property sold transaction accounted financing capital lease obligations primarily use wireless network equipment covenants certain indentures govern outstanding notes also require compliance various covenants including covenants limit ability company subsidiaries sell substantially assets limit ability company subsidiaries incur indebtedness liens defined terms indentures supplemental indentures december 31 2013 company compliance restrictive financial covenants associated borrowings default borrowings could trigger defaults certain debt obligations turn could result maturities accelerated revolving bank credit facility bank agreements currently restricted paying cash dividends ratio total indebtedness adjusted ebitda defined applicable agreement exceeds 25 10 index consolidated financial statements sprint corporation notes consolidated financial statements future maturities longterm debt financing obligation capital lease obligations aggregate amount maturities longterm debt financing obligation capital lease obligations outstanding december 31 2013 follows millions note 9 severance exit costs asset impairments severance exit costs activity successor year ended december 31 2013 well predecessor 191day period ended july 10 2013 year ended 2012 recognized lease exit costs associated decommissioning nextel platform access exit costs related payments continue made backhaul access contracts longer receiving economic benefit successor year ended december 31 2013 well predecessor 191day period ended july 10 2013 year ended 2011 also recognized severance costs associated reductions work force december 2013 company recorded 165 million severance charge associated reduction force plan order reduce operating costs also expect incur additional severance charges first quarter 2014 certain parts plan become finalized majority cash payments associated plan expected made end 2014 result network modernization completion significant transactions see note 3 significant transactions expect incur additional exit costs future related transition existing backhaul architecture replacement technology network efforts associated integration significant transactions evaluation future use clearwire 4g broadband network among initiatives additional exit costs expected range approximately 225 million 325 million majority expected incurred first quarter 2016 following provides activity severance exit costs liability included accounts payable accrued expenses current liabilities within consolidated balance sheets 1 191day period ended july 10 2013 recognized net costs 478 million solely attributable wireless segment 2 191day period ended july 10 2013 recognized costs 58 million 55 million wireless 3 million wireline 3 151 million 133 million wireless 18 million wireline recognized 191day period ended july 10 2013 35 million recognized cost services products 116 million recognized severance exit costs asset impairments index consolidated financial statements sprint corporation notes consolidated financial statements 4 year ended december 31 2012 recognized costs 196 million solely attributable wireless segment 5 year ended december 31 2012 recognized costs 44 million 21 million wireless 23 million wireline cost services products 6 year ended december 31 2011 recognized costs 28 million 25 million wireless 3 million wireline 7 july 11 2013 opening balance takes account purchase price adjustments relates softbank merger 8 year ended december 31 2013 recognized costs 56 million 54 million wireless 2 million wireline 9 year ended december 31 2013 recognized costs 219 million 191 million wireless 28 million wireline 10 year ended december 31 2013 19 million solely attributable wireline recognized cost services products 34 million solely attributable wireless recognized severance exit costs assets impairments asset impairments asset impairments successor year ended december 31 2013 predecessor 191day period ended july 10 2013 recorded asset impairments 102 million 78 million predecessor years ended 2012 2011 respectively asset impairments 2012 consisted 18 million assets associated decision utilize fiber backhaul expect cost effective rather microwave backhaul 66 million capitalized assets longer intend deploy result termination spectrum hosting arrangement lightsquared first quarter 2012 18 million related network asset equipment 13 million wireless 5 million wireline longer necessary managements strategic plans asset impairments 2011 primarily related network asset equipment wireless segment longer necessary managements strategic plans index consolidated financial statements sprint corporation notes consolidated financial statements note 10 supplemental financial information 1 successor balances december 31 2012 primarily consisted interest receivable accrued taxes insignificant therefore excluded table 2 includes liabilities amounts 134 million 117 million successor year ended december 31 2013 predecessor year ended december 31 2012 respectively checks issued excess associated bank balances yet presented collection index consolidated financial statements sprint corporation notes consolidated financial statements note 11 income taxes income tax expense consists following differences caused effective income tax rates vary 35 us federal statutory rate income taxes follows income tax expense benefit allocated items follows 1 amounts recognized accumulated comprehensive income loss deferred income taxes recognized temporary differences carrying amounts assets liabilities financial statement purposes tax bases deferred tax assets also recorded operating loss capital loss tax credit carryforwards sources differences give rise deferred index consolidated financial statements sprint corporation notes consolidated financial statements income tax assets liabilities december 31 2013 2012 along income tax effect follows 1 deferred tax assets liabilities successor year ended december 31 2012 considered immaterial realization deferred tax assets including net operating loss carryforwards dependent generation future taxable income sufficient realize tax deductions carryforwards credits however history annual losses reduces ability rely expectations future income evaluating ability realize deferred tax assets valuation allowances deferred tax assets recognized determined likely asset realized result company recognized income tax expense increase valuation allowance 708 million successor year ended december 31 2013 14 billion 18 billion predecessor 191day period ended july 10 2013 year ended december 31 2012 respectively deferred tax assets primarily related losses incurred period currently realizable expenses recorded period currently deductible income tax purposes remaining decrease carrying amount valuation allowance successor year ended december 31 2013 primarily related net impact acquisition accounting softbank merger clearwire acquisition predecessor year ended december 31 2012 remaining increase carrying amount valuation allowance primarily associated tax effect items reflected comprehensive income loss accounts expect record significant tax benefits future net operating losses circumstances justify recognition benefits believe likely remaining deferred income tax assets net valuation allowance realized based current income tax laws expectations future taxable income stemming reversal existing deferred tax liabilities uncertainties surrounding income tax law changes shifts index consolidated financial statements sprint corporation notes consolidated financial statements operations state taxing jurisdictions future operating income levels may however affect ultimate realization deferred income tax assets income tax expense 45 million 154 million 254 million successor year ended december 31 2013 predecessor years ended december 31 2012 2011 respectively primarily attributable taxable temporary differences amortization fcc licenses income tax expense 16 billion predecessor 191day period ended july 10 2013 primarily attributable taxable temporary differences 29 billion gain previouslyheld equity interests clearwire gain previouslyheld equity interests clearwire principally attributable increase fair value fcc licenses held clearwire fcc licenses amortized 15 years income tax purposes licenses indefinite life amortized financial statement reporting purposes temporary differences result net deferred income tax expense since cannot scheduled reverse loss carryforward period addition year ended december 31 2012 69 million tax benefit recorded result successful resolution various state income tax uncertainties 2011 59 million expense recorded result effect changes corporate state income tax laws successor year ended december 31 2013 predecessor 191day period ended july 10 2013 years ended december 31 2012 2011 generated 263 million 238 million 319 million 194 million respectively foreign income included loss income taxes material unremitted earnings foreign subsidiaries cash paid received income taxes insignificant successor year ended december 31 2013 predecessor years ended december 31 2012 2011 well predecessor 191day period ended july 10 2013 december 31 2013 federal operating loss carryforwards 166 billion state operating loss carryforwards 185 billion foreign net operating loss carryforwards 834 million related loss carryforwards recorded federal tax benefits 58 billion net state tax benefits 858 million foreign tax benefits 277 million consideration valuation allowances approximately 981 million federal net operating loss carryforwards expire 2016 2020 remaining 156 billion expire varying amounts 2021 2034 state operating loss carryforwards expire varying amounts 2034 foreign operating loss carryforwards 460 million expire remaining foreign operating loss carryforwards expire varying amounts starting 2015 addition available income tax purposes federal alternative minimum tax net operating loss carryforwards 171 billion state alternative minimum tax net operating loss carryforwards 39 billion loss carryforwards expire varying amounts 2034 also available capital loss carryforwards 216 million related capital loss carryforwards tax benefits 82 million capital loss carryforwards expire 2014 2017 also available 447 million federal state income tax credit carryforwards december 31 2013 included amount 7 million income tax credits expire prior 2016 317 million expire varying amounts 2016 2034 remaining 123 million expire unrecognized tax benefits established uncertain tax positions based upon estimates regarding potential future challenges positions largest amount greater fifty percent likely realized upon ultimate settlement estimates updated reporting date based facts circumstances information available interest related unrecognized tax benefits recognized interest expense penalties recognized additional income tax expense total unrecognized tax benefits attributable uncertain tax positions successor year ended december 31 2013 predecessor 191day period ended july 10 2013 year ended december 31 2012 166 million 182 million 171 million respectively successor year ended december 31 2013 total unrecognized tax benefits included items would favorably affect income tax provision 153 million recognized without offsetting valuation allowance adjustment successor year ended december 31 2013 predecessor 191day period ended july 10 2013 year ended december 31 2012 accrued liability income tax related interest penalties 3 million 7 million 5 million respectively index consolidated financial statements sprint corporation notes consolidated financial statements reconciliation beginning ending amount unrecognized tax benefits follows file income tax returns us federal jurisdiction state jurisdiction imposes income tax also file income tax returns number foreign jurisdictions however foreign income tax activity immaterial settlement agreements reached appeals exam division internal revenue service irs examination issues dispute years prior 2010 issues immaterial consolidated financial statements december 31 2013 federal income tax examinations handled irs exam division issues handled irs appeals division involved multiple state income tax examinations related various years beginning 1996 various stages examination administrative review appellate process based current knowledge examinations administrative reviews appellate processes believe reasonably possible number uncertain tax positions may resolved next twelve months could result reduction 25 million unrecognized tax benefits federal state statutes limitations assessment tax liability generally lapse three four years respectively date tax returns filed however income tax attributes carried forward net operating loss carryforwards may challenged adjusted taxing authorities time prior expiration statute limitations tax year utilized note 12 commitments contingencies litigation claims assessments march 2009 stockholder brought suit bennett v sprint nextel corp us district court district kansas alleging sprint communications three former officers violated section 10b exchange act rule 10b5 failing adequately disclose certain alleged operational difficulties subsequent sprintnextel merger purportedly issuing false misleading statements regarding writedown goodwill plaintiff seeks class action status purchasers sprint communications common stock october 26 2006 february 27 2008 january 6 2011 court denied motion dismiss subsequently motion certify january 6 2011 order interlocutory appeal denied discovery continuing plaintiff moved certify class bondholders well owners common stock sprint communications opposed motion sprint communications believes complaint without merit intends continue defend matter vigorously expect resolution matter material adverse effect financial position results operations addition five related stockholder derivative suits filed sprint communications certain present andor former officers directors first murphy v forsee filed state court kansas april 8 2009 removed federal court stayed court pending resolution motion index consolidated financial statements sprint corporation notes consolidated financial statements dismiss bennett case second randolph v forsee filed july 15 2010 state court kansas removed federal court remanded back state court third rosswilliams v bennett et al filed state court kansas february 1 2011 fourth price v forsee et al filed state court kansas april 15 2011 fifth hartleib v forsee et al filed federal court kansas july 14 2011 cases essentially stayed bennett case discovery phase expect resolution matters material adverse effect financial position results operations april 19 2012 new york attorney general filed complaint alleging sprint communications fraudulently failed collect pay 100 million new york sales taxes receipts sale wireless telephone services since july 2005 complaint seeks recovery triple damages well penalties interest sprint communications moved dismiss complaint june 14 2012 july 1 2013 court entered order denying motion dismiss large part although dismiss certain counts parts certain counts sprint communications appealed order argument motion scheduled february 2014 believe complaint without merit intend continue defend matter vigorously expect resolution matter material adverse effect financial position results operations july 23 2012 sec issued formal order investigation relating sprint communications sales tax collection july 2 2013 sec notified sprint communications closing investigation intend recommend enforcement action eight related stockholder derivative suits filed sprint communications certain current former officers directors suit alleges generally individual defendants breached fiduciary duties sprint communications stockholders allegedly permitting failing disclose actions alleged suit filed new york attorney general one suit filed louisiana municipal police employees retirement system dismissed federal court two suits pending state court johnson county kansas five suits pending federal court kansas suits stayed expect resolution matters material adverse effect financial position results operations addition sprint communications inc received several complaints purporting assert claims behalf sprint communications stockholders alleging members board directors breached fiduciary duties agreeing softbank merger otherwise challenging transaction five cases consolidated state court johnson county kansas ufcw local 23 employers pension fund et al v bennett et al filed october 25 2012 iron workers midsouth pension fund et al v hesse et al filed october 25 2012 city dearborn heights act 345 police fire retirement system v sprint nextel corp et al filed october 29 2012 testani et al v sprint nextel corp et al filed november 1 2012 patten et al v sprint nextel corp et al filed november 1 2012 two cases filed federal court district kansas entitled gerbino et al v sprint nextel corp et al filed november 15 2012 steinberg et al v bennett et al filed may 16 2013 consolidated gerbino cases stayed pending resolution state cases plaintiffs state cases indicated intend challenge transaction completed intend defend cases vigorously expect resolution matters material effect financial position results operations sprint communications inc also defendant complaint filed stockholders clearwire corporation asserting claims breach fiduciary duty sprint communications related claims otherwise challenging clearwire acquisition initially five suits filed chancery court delaware crest financial limited v sprint nextel corp et al filed december 12 2012 katsman v prusch et al filed december 20 2012 feigeles et al v clearwire corp et al filed december 28 2012 litwin et al v sprint nextel corp et al filed january 2 2013 acp master ltd et al v sprint nextel corp et al filed april 26 2013 suits except acp master ltd suit voluntarily dismissed plaintiffs acp master ltd suit also filed suit requesting appraisal fair value clearwire stock three cases filed state court king county washington cases dismissed prejudice sprint communications intends defend acp master ltd cases vigorously cases still preliminary stages yet determined effect lawsuits financial position results operations index consolidated financial statements sprint corporation notes consolidated financial statements sprint currently involved numerous court actions alleging sprint infringing various patents cases effectively seek monetary damages small number cases brought companies sell products seek injunctive relief well cases progressed various degrees small number may go trial otherwise resolved adverse resolution cases could require us pay significant damages cease certain activities cease selling relevant products services many circumstances would indemnified monetary losses incur respect actions suppliers service providers expect resolution cases material adverse effect financial position results operations october 2013 fcc enforcement bureau began issue notices apparent liability nals lifeline providers imposing fines intracarrier duplicate accounts identified government audit function audits also identified small percentage potentially duplicative intracarrier accounts related assurance wireless business nal yet issued respect sprint know one issued able reasonably estimate amount claim penalties might asserted however based information currently available claim asserted fcc sprint believe amount ultimately paid would material company’s results operations financial position various suits inquiries proceedings claims either asserted unasserted including purported class actions typical large business enterprise intellectual property matters possible pending us subsidiaries interpretation certain laws regulations including related various federal state matters sales use property taxes charges found mistaken could result payments us possible determine ultimate disposition proceedings whether resolved consistent beliefs expect outcome proceedings individually aggregate material adverse effect financial position results operations spectrum reconfiguration obligations 2004 fcc adopted report order included new rules regarding interference 800 mhz band comprehensive plan reconfigure 800 mhz band report order provides exchange portion 800 mhz fcc spectrum licenses requires us fund cost incurred public safety systems incumbent licensees reconfigure 800 mhz spectrum band also exchange received licenses 10 mhz nationwide spectrum 19 ghz band minimum cash obligation 28 billion report order however obligated pay full amount costs relating reconfiguration plan even costs exceed 28 billion required terms report order letter credit secured provide assurance funds available pay relocation costs incumbent users 800 mhz spectrum total payments directly attributable performance report order inception program approximately 33 billion primarily payments incurred year ended december 31 2013 related fcc licenses incurred costs generally accounted either property plant equipment additions fcc licenses although costs incurred december 31 2013 exceeded 28 billion costs reviewed accepted eligible transition administrator completion 800 mhz band reconfiguration initially required june 26 2008 fcc continues grant 800 mhz public safety licensees additional time complete band reconfigurations turn delays access 800 mhz replacement channels accordingly continue transition 800 mhz replacement channels consistent public safety licensees reconfiguration progress may 24 2012 fcc revised rules authorize sprint deploy wireless broadband services cdma lte 800 mhz spectrum including channels become available sprint upon completion 800 mhz band reconfiguration program anticipate continuing reconfiguration progress sufficient support 800 mhz portion network modernization january 2013 submitted request declaratory ruling fcc requesting two items declare sprint owe antiwindfall payment us treasury exceeded 28 billion required expenditures ii fcc remove 850 index consolidated financial statements sprint corporation notes consolidated financial statements million minimum letter credit allow reductions based quarterly estimates remaining obligations request declaratory ruling pending fcc future minimum commitments december 31 2013 minimum estimated amounts due operating leases spectrum leases service credits purchase orders commitments follows operating leases lease various equipment office facilities retail outlets kiosks switching facilities cell sites operating leases noncancelable portion leases generally ranges monthly 15 years leases exceptions provide automatic renewal options escalations either fixed based consumer price index rent abatements along rent escalations included computation rent expense calculated straightline basis lease term lease term leases includes initial noncancelable term plus least one renewal period noncancelable term less ten years exercise related renewal option options reasonably assured cell site leases generally provide initial noncancelable term five twelve years 5 renewal options five years 2011 2012 renegotiated cell site leases connection network modernization shutdown nextel platform rental commitments operating leases including lease renewals reasonably assured consisted mainly leases cell switch sites real estate information technology network equipment office space total rental expense 13 billion successor year ended 2013 20 billion 19 billion predecessor years ended 2012 2011 respectively rental expense predecessor 191day period ended july 10 2013 10 billion total rent expense increased 2012 compared 2011 primarily result rent leveling charges associated renegotiated cell site leases 2011 2012 spectrum leases service credits certain spectrum leases provide minimum lease payments additional charges escalation clauses leased spectrum agreements terms 30 years weighted average remaining lease term december 31 2013 approximately 23 years including renewal terms expect renewal periods spectrum leases renewed us also commitments provide services certain lessors launched markets reimburse lessors certain capital equipment thirdparty service expenditures term lease accrue monthly obligation services equipment based total estimated available service credits divided term lease obligation reduced actual invoices presented paid lessors successor period ended december 31 2013 satisfied 1 million related commitments maximum remaining commitment december 31 2013 100 million expected incurred term related lease agreements generally range 15 30 years purchase orders commitments party commitments includes among things service spectrum network equipment devices executory contracts connection conducting business amounts actually paid agreements likely higher due variable components agreements significant variable components determine ultimate obligation owed include items hours contracted subscribers factors addition party various arrangements conditional index consolidated financial statements sprint corporation notes consolidated financial statements nature obligate us make payments upon occurrence certain events delivery functioning software product possible predict timing amounts may due conditional arrangements amounts included table note 13 stockholders equity per share data certificate incorporation authorizes 10020000000 shares capital stock follows • 9000000000 shares common stock par value 001 per share • 1000000000 shares nonvoting common stock par value 001 per share • 20000000 shares preferred stock par value 00001 per share classes common stock voting common stock holders common stock entitled one vote per share matters submitted action stockholders approximately 39 billion shares common stock outstanding december 31 2013 treasury shares common stock repurchased us recorded cost treasury shares result reduction stockholders equity reissue treasury shares part stockholder approved stockbased compensation programs well upon conversion outstanding securities convertible common stock shares reissued determine cost using fifo method dividends declare dividends common shares 2013 2012 2011 currently restricted paying cash dividends terms revolving bank credit facility see note 8 longterm debt financing capital lease obligations accumulated comprehensive income loss components accumulated comprehensive income loss net tax follows per share data basic net loss per common share calculated dividing net loss weighted average number common shares outstanding period diluted net loss per common share adjusts basic net loss per common share computed using treasury stock method effects potentially dilutive common shares effect antidilutive outstanding options restricted stock units exclusive participating securities effect computation dilutive weighted average number shares outstanding effect would antidilutive approximately 70 million 61 million 78 million 71 million shares successor year ended december 31 2013 predecessor 191day period ended july 10 2013 years ended 2012 2011 respectively addition successor year ended december 31 2013 55 million shares issuable warrant issued softbank close softbank merger treated potentially dilutive securities warrant exercisable 525 per share option softbank whole part time within fiveyear term index consolidated financial statements sprint corporation notes consolidated financial statements note 14 segments sprint operates two reportable segments wireless wireline • wireless primarily includes retail wholesale affiliate revenue wide array wireless voice data transmission services equipment revenue sale wireless devices accessories us puerto rico us virgin islands • wireline primarily includes revenue domestic international wireline voice data communication services including services cable multiple systems operators resell local long distance services use back office systems network assets support telephone services provided cable facilities primarily residential enduse subscribers define segment earnings wireless wireline operating loss income segment expenses depreciation amortization severance exit costs goodwill impairments asset impairments items solely directly attributable segment representing items nonrecurring unusual nature expense income items excluded segment earnings managed corporate level transactions segments generally accounted based market rates believe approximate fair value company generally reestablishes rates beginning fiscal year past several years industrywide trend lower rates due increased competition wireline wireless communications companies well cable internet service providers segment financial information follows index consolidated financial statements sprint corporation notes consolidated financial statements index consolidated financial statements sprint corporation notes consolidated financial statements 1 intersegment revenues consist primarily wireline services provided wireless segment resale use wireless subscribers 2 net successor year ended december 31 2013 consists 309 million severance exit costs 100 million business combination fees paid unrelated parties connection transactions softbank clearwire 75 million included corporate segment 25 million included wireless segment classified selling general administrative expenses partially offset 7 million insurance reimbursement towards 2012 hurricanerelated charges included wireless segment classified contraexpense cost services expense net predecessor 191day period ended july 10 2013 consists 652 million severance exit costs 53 million business combination fees paid unrelated parties connection transactions softbank clearwire included corporate segment classified selling general administrative expenses partially offset 22 million favorable developments connection e911 regulatory taxrelated contingency net predecessor year ended december 31 2012 consists 196 million lease exit costs 102 million asset impairment charges partially offset net operating income 236 million associated termination spectrum hosting arrangement lightsquared gain 29 million spectrum swap transactions benefit 17 million resulting favorable developments relating access cost disputes associated prior periods net predecessor year ended december 31 2011 consists 106 million severance exit costs asset impairments associated shutdown nextel platform 3 includes 45 million hurricanerelated charges predecessor year ended december 31 2012 classified consolidated statements comprehensive loss follows 21 million contrarevenue net operating revenues wireless 20 million cost services products 17 million wireless 3 million wireline 4 million selling general administrative expenses wireless segment also includes 19 million business combination charges fees paid unrelated parties necessary proposed transactions softbank clearwire included corporate segment classified selling general administrative expenses index consolidated financial statements sprint corporation notes consolidated financial statements 1 revenues eliminated consolidation consist primarily wireline services provided wireless segment resale use wireless subscribers 2 wireless services related wireless segment predecessor year ended december 31 2012 excludes 21 million hurricanerelated contrarevenue charges reflected net operating revenues consolidated statement comprehensive loss index consolidated financial statements sprint corporation notes consolidated financial statements note 15 quarterly financial data unaudited 1 sum quarterly earnings per share amounts may equal annual amounts changes weighted average number shares outstanding year index consolidated financial statements sprint corporation notes consolidated financial statements note 16 relatedparty transactions clearwire relatedparty transactions sprints relationship clearwire whollyowned subsidiary includes agreements resell wireless data services utilizing clearwires 4g network addition clearwire subscribers utilize third generation 3g sprint network provides dualmode service subscribers areas access 4g network available cost services products included consolidated statements comprehensive loss related agreement purchase 4g services clearwire totaled 207 million predecessor period january 1 2013 clearwire acquisition 417 million 405 million predecessor years ended december 31 2012 2011 respectively softbank relatedparty transactions addition agreements arising relating softbank merger sprint softbank entered various arrangements softbank parties third parties softbank parties also parties including international wireless roaming wireless wireline call termination real estate services transactions agreements immaterial successor year ended december 31 2013 note 17 subsequent events february 10 2014 unsecured revolving bank credit facility amended provide additional lender commitments bring total capacity 30 billion 33 billion index consolidated financial statements independent auditors report board directors stockholders clearwire corporation bellevue washington audited accompanying consolidated financial statements clearwire corporation subsidiaries company comprise consolidated balance sheet july 9 2013 related consolidated statements operations comprehensive loss cash flows stockholders equity 190 days ended july 9 2013 related notes consolidated financial statements managements responsibility consolidated financial statements management responsible preparation fair presentation consolidated financial statements accordance accounting principles generally accepted united states america includes design implementation maintenance internal control relevant preparation fair presentation consolidated financial statements free material misstatement whether due fraud error auditors responsibility express opinion consolidated financial statements based audit conducted audit accordance auditing standards generally accepted united states america standards require plan perform audit obtain reasonable assurance whether consolidated financial statements free material misstatement audit involves performing procedures obtain audit evidence amounts disclosures consolidated financial statements procedures selected depend auditor’s judgment including assessment risks material misstatement consolidated financial statements whether due fraud error making risk assessments auditor considers internal control relevant companys preparation fair presentation consolidated financial statements order design audit procedures appropriate circumstances purpose expressing opinion effectiveness companys internal control accordingly express opinion audit also includes evaluating appropriateness accounting policies used reasonableness significant accounting estimates made management well evaluating overall presentation consolidated financial statements believe audit evidence obtained sufficient appropriate provide basis audit opinion consolidated financial statements referred present fairly material respects financial position clearwire corporation subsidiaries july 9 2013 results operations cash flows 190 days ended july 9 2013 accordance accounting principles generally accepted united states america emphasis matter discussed note 1 consolidated financial statements effective july 9 2013 sprint communications inc acquired outstanding stock clearwire corporation business combination accounted purchase result acquisition clearwire corporation became consolidated subsidiary sprint corporation date opinion modified respect matter seattle washington february 21 2014 index consolidated financial statements report independent registered public accounting firm board directors stockholders clearwire corporation bellevue washington audited accompanying consolidated balance sheet clearwire corporation subsidiaries “company” december 31 2012 related consolidated statements operations comprehensive loss cash flows stockholders’ equity two years period ended december 31 2012 consolidated financial statements responsibility company’s management responsibility express opinion consolidated financial statements based audits conducted audits accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether consolidated financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion consolidated financial statements present fairly material respects financial position clearwire corporation subsidiaries december 31 2012 results operations cash flows two years period ended december 31 2012 conformity accounting principles generally accepted united states america seattle washington february 21 2014 index consolidated financial statements clearwire corporation subsidiaries consolidated balance sheets see notes consolidated financial statements index consolidated financial statements clearwire corporation subsidiaries consolidated statements operations see notes consolidated financial statements index consolidated financial statements clearwire corporation subsidiaries consolidated statements comprehensive loss see notes consolidated financial statements index consolidated financial statements clearwire corporation subsidiaries consolidated statements cash flows see notes consolidated financial statements index consolidated financial statements clearwire corporation subsidiaries consolidated statements stockholders’ equity 190 days ended july 9 2013 years ended december 31 2012 2011 see notes consolidated financial statements index consolidated financial statements clearwire corporation subsidiaries notes consolidated financial statements 1 description business clearwire corporation including consolidated subsidiaries clearwire us company provider fourth generation 4g wireless broadband services build operate next generation mobile broadband networks provide highspeed mobile internet residential internet access services communities throughout country current 4g mobile broadband network operates worldwide interoperability microwave access technology 80216e standard refer mobile wimax current 4g mobile broadband markets united states offer services retail channels wholesale partners sprint acquisition december 17 2012 entered agreement plan merger sprint nextel corporation refer merger agreement pursuant sprint nextel corporation agreed acquire outstanding shares clearwire corporation class b common stock refer class common stock class b common stock respectively currently owned sprint nextel corporation softbank corp refer softbank affiliates merger refer sprint acquisition closed july 9 2013 refer acquisition date became whollyowned subsidiary sprint communications inc formerly known sprint nextel corporation refer sprint indirect whollyowned subsidiary sprint corporation closing sprint acquisition outstanding shares common stock converted automatically right receive 500 per share cash without interest refer merger consideration result sprint acquisition resulting change ownership control acquisition method accounting applied sprint pusheddown us included consolidated financial statements periods presented subsequent acquisition date result new basis presentation based estimated fair values assets liabilities successor period beginning day following consummation merger estimated fair values based managements judgment evaluating several factors including preliminary valuation assessment accompanying consolidated financial statements notes represent period time prior sprint acquisition reflect adjustments made result sprint acquisition including acquisition method accounting prior sprint acquisition sprint applied equity method accounting investment clearwire’s accompanying consolidated financial statements included exhibit sprint’s form 10k required regulation sx rule 309 note purchase agreement connection merger agreement december 17 2012 entered note purchase agreement refer note purchase agreement clearwire communications llc refer clearwire communications clearwire finance inc together clearwire communications refer issuers sprint agreed purchase us election aggregate principal amount 8000 million 100 exchangeable notes due 2018 refer sprint notes ten monthly installments 800 million first business day month refer draw date beginning january 2013 pendency merger notes accrue interest 100 per annum exchangeable shares class common stock exchange rate 66667 shares per 1000 aggregate principal amount notes equivalent price 150 per share subject antidilution protections see note 9 longterm debt net information index consolidated financial statements clearwire corporation subsidiaries notes consolidated financial statements continued liquidity date invested heavily building maintaining networks history operating losses expect significant losses future expect operations generate cumulative positive cash flows next twelve months expect meet funding needs near future cash investments held july 9 2013 cash receipts mobile wimax services retail wholesale business sprint 2011 november 4g mvno amendment additionally anticipate receiving funds sprint deployment time division duplex refer tdd long term evolution refer lte network use additional spectrum specified 2011 november 4g mvno amendment whollyowned subsidiary sprint extent able fund business retail wholesale revenue streams expect receive funding shortfall sprint continue going concern least next twelve months 2 summary significant accounting policies accompanying financial statements prepared accordance accounting principles generally accepted united states america refer us gaap following summary significant accounting policies principles consolidation consolidated financial statements include assets liabilities results operations whollyowned subsidiaries control controlling financial interest investments entities control primary beneficiary ability exercise significant influence operating financial policies accounted equity method intercompany transactions eliminated consolidation noncontrolling interests consolidated balance sheets include thirdparty investments entities consolidate wholly classify noncontrolling interests part equity allocate net loss comprehensive income loss equity transactions noncontrolling interests accordance applicable ownership percentages also continue attribute noncontrolling interests share losses even attribution results deficit noncontrolling interest balance see note 14 stockholders equity information financial statement presentation reclassified certain prior period amounts conform current period presentation use estimates preparing financial statements conformity us gaap requires management make complex subjective judgments nature judgments subject inherent degree uncertainty judgments based historical experience terms existing contracts observance trends industry information provided subscribers information available outside sources appropriate additionally changes accounting estimates reasonably likely occur period factors could material impact financial statements presentation financial condition changes financial condition results operations significant estimates inherent preparation accompanying financial statements include impairment analysis spectrum licenses indefinite lives including judgments impairment indicator may occurred estimates fair value spectrum licenses recoverability determination useful lives longlived assets include property plant equipment intangible assets tax valuation allowances valuation derivatives cash equivalents cash equivalents consist money market mutual funds highly liquid shortterm investments original maturities three months less cash equivalents stated cost index consolidated financial statements clearwire corporation subsidiaries notes consolidated financial statements continued approximates market value cash equivalents exclude cash contractually restricted operational purposes maintain cash equivalent balances financial institutions exceed federally insured limits experienced losses related balances management believes credit risk related balances minimal restricted cash restricted cash consists primarily amounts satisfy certain contractual obligations classified current noncurrent asset based designated purpose majority restricted cash designated satisfy certain lease obligations investments investment portfolio comprised primarily us government agency marketable debt securities classify marketable debt securities availableforsale investments securities stated estimated fair value investments recorded shortterm investments original maturities greater three months remaining maturities less one year investments maturities one year recorded longterm investments unrealized gains losses recorded within accumulated comprehensive income loss realized gains losses measured reclassified accumulated comprehensive income loss basis specific identification method account certain investments using equity method based ownership interest ability exercise significant influence accordingly record investment initially cost adjust carrying amount investment recognize share earnings losses investee reporting period cease recognize investee losses investment basis zero july 9 2013 december 31 2012 balance equity method investees 0 recognize realized losses declines fair value investments cost basis judged otherthantemporary determining whether decline fair value otherthantemporary consider various factors including market price investment ratings financial condition nearterm prospects issuer length time extent fair value less cost basis intent ability hold investment maturity period time sufficient allow anticipated recovery market value judged decline fair value otherthantemporary realized loss equal excess cost basis fair value recorded consolidated statements operations new cost basis investment established fair value measurements fair value price would received sell asset paid transfer liability orderly transaction market participants measurement date determining fair value consider principal advantageous market asset liability would transact necessary consider assumptions market participants would use pricing asset liability accounting guidance fair value measurement requires entity maximize use observable inputs minimize use unobservable inputs measuring fair value standard establishes fair value hierarchy based level independent objective evidence surrounding inputs used measure fair value financial assets financial liabilities classified hierarchy based lowest level input significant fair value measurement assessment significance particular input fair value measurement requires judgment may affect valuation assets liabilities measured placement within fair value hierarchy index consolidated financial statements clearwire corporation subsidiaries notes consolidated financial statements continued threetier hierarchy inputs used measuring fair value prioritizes inputs used methodologies measuring fair value assets liabilities follows level 1 quoted market prices active markets identical assets liabilities level 2 inputs quoted prices observable asset liability quoted prices similar assets liabilities active markets quoted prices identical assets liabilities less active markets modelderived valuations significant inputs observable derived principally corroborated observable market data level 3 unobservable inputs significant fair value measurement cannot corroborated market data listed prices quotes available fair value based upon internally developed available models primarily use inputs marketbased independently sourced market parameters including limited interest rate curves volatilities equity prices credit curves use judgment determining certain assumptions market participants would use pricing financial instrument including assumptions discount rates credit spreads degree management judgment involved determining fair value dependent upon availability observable market parameters assets liabilities trade actively quoted market prices observable market parameters minimal judgment involved measuring fair value observable market prices parameters fully available management judgment necessary estimate fair value addition changes market conditions may reduce availability reliability quoted prices observable data see note 11 fair value information accounts receivable accounts receivables stated amounts due subscribers wholesale partners net allowance doubtful accounts see note 15 related party transactions information regarding accounts receivable balances related parties inventory primarily consists customer premise equipment refer cpe accessories sold retail subscribers stated lower cost net realizable value cost determined average cost method record inventory writedowns obsolete slowmoving items based inventory turnover trends historical experience property plant equipment property plant equipment excluding construction progress stated cost net accumulated depreciation calculated straightline basis estimated useful lives assets placed service network construction expenditures recorded construction progress network asset placed service time asset transferred appropriate property plant equipment refer ppe category capitalize costs additions improvements including salaries benefits related overhead costs associated constructing ppe interest costs related construction estimated useful life ppe determined based historical usage identical similar equipment consideration given technological changes industry trends could impact network architecture asset utilization leasehold improvements recorded cost amortized lesser estimated useful lives related lease term including renewals reasonably assured included within network base station equipment recorded capital leases generally amortized lease term maintenance repairs expensed incurred ppe assessed impairment whenever events changes circumstances indicate carrying amount asset may recoverable events circumstances exist determine recoverability assets carrying value estimating expected undiscounted future cash flows directly associated expected arise direct result use disposal asset expected undiscounted future cash flows less carrying amount asset loss recognized difference fair value asset carrying value purposes testing impairment longlived assets including ppe intangible assets definite useful lives spectrum license assets combined single asset group represents lowest level identifiable cash flows index consolidated financial statements clearwire corporation subsidiaries notes consolidated financial statements continued largely independent assets liabilities management believes utilizing assets group represents highest best use assets consistent managements strategy utilizing spectrum licenses integrated basis part nationwide network ppe impairment losses recorded 190 days ended july 9 2013 years ended december 31 2012 2011 addition analyses described periodically assess certain assets yet deployed networks including equipment cell site development costs classified construction progress assessment includes provision differences recorded amounts results physical counts provision excessive obsolete equipment see note 4 property plant equipment information internally developed software capitalize costs related computer software developed obtained internal use interest costs incurred period development software obtained internal use generally enterpriselevel business finance software customized meet specific operational needs costs incurred application development phase capitalized amortized useful life software placed service generally three years periodically assess capitalized software costs placed service determine whether projects longer expected completed capitalized cost associated projects expected completed written costs recognized preliminary project phase postimplementation phase well maintenance training costs expensed incurred spectrum licenses spectrum licenses primarily include owned spectrum licenses indefinite lives favorable spectrum leases indefinite lived spectrum licenses acquired stated cost amortized owned spectrum licenses united states issued fixed time renewals licenses occurred routinely nominal cost moreover determined currently legal regulatory contractual competitive economic factors limit useful lives owned spectrum licenses therefore licenses accounted intangible assets indefinite lives impairment test intangible assets indefinite useful lives consists comparison fair value intangible asset carrying amount carrying amount intangible asset exceeds fair value impairment loss recognized amount equal excess estimated fair value spectrum licenses determined use greenfield direct value method estimates value estimating discounted future cash flows hypothetical startup business spectrum licenses indefinite useful lives assessed impairment annually frequently event indicates asset might impaired impairments periods presented indefinite lived intangible assets favorable spectrum leases stated cost net accumulated amortization assessed impairment whenever events changes circumstances indicate carrying amount asset may recoverable carrying value spectrum leases amortized straightline basis estimated useful lives lease term including expected renewal periods applicable impairment losses favorable spectrum leases 190 days ended july 9 2013 years ended december 31 2012 2011 intangible assets intangible assets consist subscriber relationships trademarks patents stated cost net accumulated amortization calculated using either straightline method accelerated method assets estimated remaining useful lives intangible assets assessed impairment whenever events changes circumstances indicate carrying amount asset may recoverable impairment losses intangible assets 190 days ended july 9 2013 years ended december 31 2012 2011 derivative instruments hedging activities policy hedging activities executed manage exposures arising normal course business purpose creating speculative positions trading record derivatives balance sheet fair value either assets liabilities accounting changes fair value derivatives depends intended use derivative whether qualifies hedge accounting index consolidated financial statements clearwire corporation subsidiaries notes consolidated financial statements continued 2010 issued exchangeable notes included embedded exchange options refer exchange options qualified derivative instruments required accounted separately host debt instruments recorded derivative financial instruments fair value embedded exchange options qualify hedge accounting future changes fair value derivative instruments recognized currently earnings time exchange options exercised expire see note 10 derivative instruments information debt issuance costs debt issuance costs initially capitalized deferred cost amortized interest expense effective interest method expected term related debt unamortized debt issuance costs related extinguishment debt expensed time debt extinguished recorded income expenses net consolidated statements operations unamortized debt issuance costs considered longterm recorded assets consolidated balance sheets interest capitalization capitalize interest related construction network infrastructure assets well development software internal use capitalization interest commences preconstruction period administrative technical activities includes obtaining leases zoning approvals building permits ceases construction substantially complete available use suspend substantially construction activity interest capitalized construction progress software development interest capitalization based rates applicable borrowings outstanding period balance qualified assets construction period capitalized interest reported cost network assets software assets depreciated useful lives assets see note 4 property plant equipment income taxes record deferred income taxes based estimated future tax effects differences financial statement tax basis assets liabilities using tax rates expected effect temporary differences reverse deferred tax assets also recorded net operating loss capital loss tax credit carryforwards valuation allowances recorded reduce deferred tax assets amount considered likely realized also apply recognition threshold tax position required meet recognized financial statements policy recognize interest related unrecognized tax benefits interest expense interest income recognize penalties additional income tax expense revenue recognition primarily earn revenue providing access highspeed wireless networks also included revenue sales cpe additional addon services 4g mobile broadband markets offer services retail channels wholesale partners believe geographic diversity retail subscriber base minimizes risk incurring material losses due concentration credit risk sprint major wholesale customer accounts substantially wholesale revenues date comprises approximately 36 total revenues 190 days ended july 9 2013 years ended december 31 2012 2011 revenue consisted following thousands revenue retail subscribers billed one month advance recognized ratably service period revenues associated sale cpe equipment recognized title risk loss transferred billed shipping handling costs classified revenue index consolidated financial statements clearwire corporation subsidiaries notes consolidated financial statements continued revenue arrangements multiple deliverables divided separate units available revenue allocated using vendorspecific objective evidence thirdparty evidence selling prices otherwise estimated selling prices utilized revenue attributable delivered elements recognized currently revenue attributable undelivered elements deferred recognized undelivered elements expected delivered remaining term agreements exception universal service fee refer usf regulatory surcharge taxes fees collected customers excluded revenues usf recorded gross basis included revenues billed customers usf included revenue 190 days ended july 9 2013 years ended december 31 2012 2011 09 million 28 million 39 million respectively 190 days ended july 9 2013 years ended december 31 2012 2011 substantially wholesale revenues derived agreements sprint november 2011 entered november 2011 4g mvno amendment result minimum payments previous amendment 4g mvno agreement entered sprint april 2011 replaced provisions november 2011 4g mvno amendment november 2011 4g mvno amendment sprint paying us 9259 million unlimited 4g mobile wimax services resale retail subscribers 2012 2013 approximately twothirds paid service provided 2012 remainder paid service provided 2013 part november 2011 4g mvno amendment also agreed usage based pricing wimax services 2013 lte service beginning 2012 2011 revenues wholesale subscribers billed one month arrears generally recognized earned based terms defined commercial agreements wholesale partners 2011 substantially wholesale revenues derived agreement sprint agreement revenues earned sprint utilized network usagebased pricing included volume discounts advertising costs advertising costs expensed incurred first time advertising occurs advertising expense 226 million 697 million 764 million 190 days ended july 9 2013 years ended december 31 2012 2011 respectively operating leases operating leases spectrum licenses towers certain facilities equipment use operations certain spectrum licenses leased thirdparty holders educational broadband service refer ebs spectrum licenses granted fcc ebs licenses authorize provision certain communications services ebs channels certain markets throughout united states account spectrum leases executory contracts similar operating leases signed leases unmet conditions required become effective amortized conditions met included spectrum licenses accompanying consolidated balance sheets leases require upfront payments leases containing scheduled rent escalation clauses record minimum rental payments straightline basis term lease including expected renewal periods appropriate leases containing tenant improvement allowances rent incentives record deferred rent classified liability deferred rent amortized term lease including expected renewal periods appropriate reduction rent expense periodically terminate unutilized tower leases early termination available terms lease advise landlords intention renew time notify landlords intention renew recognize ceasetouse tower lease liability based remaining lease rentals adjusted prepaid deferred rent recognized lease reduced estimated sublease rentals could reasonably obtained property discontinued operations result strategic decision focus investment united states market second quarter 2011 committed sell operations belgium germany spain businesses comprised substantially remaining operations previously reported international segment year ended december 31 2012 completed sale operations germany belgium index consolidated financial statements clearwire corporation subsidiaries notes consolidated financial statements continued spain associated results operations years ended december 31 2012 2011 separately reported discontinued operations summarized financial information discontinued operations show thousands new accounting pronouncements december 2011 financial accounting standards board fasb issued authoritative guidance regarding disclosures offsetting assets liabilities requires common disclosure requirements allow investors better compare assess effect offsetting arrangements financial statements prepared us gaap financial statements prepared ifrs standard effective beginning first quarter 2013 requires retrospective application affects disclosures footnotes financial statements october 2012 fasb tentatively decided limit scope authoritative guidance derivatives repurchase agreements securities lending securities borrowing arrangements january 2013 fasb issued additional clarifying guidance limited scope disclosure requirements derivatives repurchase agreements reverse purchase agreements securities lending securities borrowing transactions either offset accordance specific criteria contained us gaap subject master netting arrangement similar agreement based scope revision authoritative guidance impact existing disclosures february 2013 fasb issued authoritative guidance regarding comprehensive income reporting amounts reclassified accumulated comprehensive income amends existing guidance requires single location presentation effects certain significant amounts reclassified component accumulated comprehensive income based source statement comprehensive loss income line items affected reclassification guidance effective beginning first quarter 2013 material effect consolidated financial statements amounts reclassified comprehensive income consisting primarily recognition foreign currency gains immaterial periods presented july 2013 fasb issued authoritative guidance regarding income taxes topic 740 presentation unrecognized tax benefit net operating loss carryforward similar tax loss tax credit carryforward exists consensus fasb emerging issues task force amends existing guidance related financial presentation unrecognized tax benefits requiring entity net unrecognized tax benefits deferred tax assets available samejurisdiction loss tax carryforwards would apply settlement uncertain tax positions amendments effective beginning first quarter 2014 early adoption permitted applied prospectively unrecognized tax benefits exist effective date expected material effect consolidated financial statements index consolidated financial statements clearwire corporation subsidiaries notes consolidated financial statements continued 3 investments july 9 2013 december 31 2012 consisted following thousands first quarter 2012 sold auction market preferred securities recorded gain 33 million income expense net consolidated statements operations representing total proceeds received longer collateralized debt obligations auction market preferred securities otherthantemporary impairment losses recorded 190 days ended july 9 2013 years ended december 31 2012 2011 4 property plant equipment property plant equipment july 9 2013 december 31 2012 consisted following thousands entered lease arrangements related network construction equipment meet criteria capital leases july 9 2013 december 31 2012 recorded capital lease assets original cost 1518 million 1128 million respectively within network base station equipment construction progress primarily composed costs incurred process completing network projects yet placed service balance july 9 2013 included 1455 million costs related completing network projects yet placed service 381 million network base station equipment yet assigned project 04 million costs related information technology refer corporate projects index consolidated financial statements clearwire corporation subsidiaries notes consolidated financial statements continued charges associated property plant equipment periodically assess assets yet deployed networks including equipment cell site development costs classified construction progress evaluate losses related 1 shortage loss incurred deploying equipment 2 reserve excessive obsolete equipment yet deployed network 3 abandonment network corporate projects longer expected deployed addition charges incurred normal course business assessment includes evaluating impact changes business plans strategic network plans assets 2012 solidified tddlte network architecture including identifying sites expect overlay tddlte technology first phase deployment projects required deploy tddlte technology sites longer viable due development tddlte network architecture abandoned related costs written addition network equipment required support network deployment plans sparing requirements written estimated salvage value incurred following charges associated ppe 190 days ended july 9 2013 years ended december 31 2012 2011 thousands 1 included cost goods services network costs consolidated statements operations 2 year ended december 31 2012 140 million related retail operations included selling general administrative expense consolidated statements operations 5 spectrum licenses owned leased spectrum licenses july 9 2013 december 31 2012 consisted following thousands indefinitelived owned spectrum licenses spectrum licenses issued sitespecific widearea basis authorize wireless carriers use radio frequency spectrum provide service certain index consolidated financial statements clearwire corporation subsidiaries notes consolidated financial statements continued geographical areas united states licenses generally acquired asset purchase business combination cases acquire licenses directly governmental authority spectrum leases prepaid spectrum also lease spectrum third parties hold spectrum licenses leases accounted executory contracts treated like operating leases upfront consideration paid thirdparty holders leased licenses inception lease agreement capitalized prepaid spectrum lease costs expensed term lease agreement including expected renewal terms applicable favorable spectrum leases 10 billion recorded asset result purchase accounting november 2008 amortized lease term july 9 2013 future amortization spectrum licenses spectrum leases prepaid lease costs excluding pending spectrum transition costs expected follows thousands 6 intangible assets intangible assets july 9 2013 december 31 2012 consisted following thousands july 9 2013 future amortization intangible assets expected follows thousands index consolidated financial statements clearwire corporation subsidiaries notes consolidated financial statements continued evaluate patent renewals case basis based renewal costs 7 supplemental information liabilities current liabilities current liabilities consisted following thousands longterm liabilities longterm liabilities consisted following thousands index consolidated financial statements clearwire corporation subsidiaries notes consolidated financial statements continued 1 see note 15 related party transactions detail regarding balances related parties 8 income taxes income tax provision benefit consists following 190 days ended july 9 2013 years ended december 31 2012 2011 thousands income tax rate computed using federal statutory rates reconciled reported effective income tax rate follows index consolidated financial statements clearwire corporation subsidiaries notes consolidated financial statements continued components deferred tax assets liabilities july 9 2013 december 31 2012 follows thousands determine deferred income taxes based estimated future tax effects differences financial statement tax bases assets liabilities using tax rates expected effect temporary differences reverse net operating loss refer nol capital loss tax credit carryforwards utilized july 9 2013 excluding nol carryforwards permanently unable use discussed united states federal tax nol carryforwards approximately 201 billion 135 billion subject certain annual limitations imposed section 382 internal revenue code nol carryforwards begin expire 2021 4354 million tax nol carryforwards foreign jurisdictions 4261 million statutory expiration date 93 million begins expire 2015 also federal capital loss carryforwards 2275 million also subject certain annual limitations imposed section 382 internal revenue code capital loss carryforwards begin expire 2015 2017 us federal nol carryforwards capital loss carryforwards total subject annual limitations imposed section 382 internal revenue code currently project company generate capital gain income utilize capital loss carryforwards however company generates sufficient capital gain income enable utilization capital loss carryforwards excess 2275 million nol carryforwards 2275 million may longer available offset future taxable income recorded valuation allowance deferred tax assets extent determined likely items either expire able realize benefits future deductibility uncertain relates united states tax jurisdiction determined temporary taxable difference associated investment clearwire communications llc refer clearwire communications fully reverse within carryforward period nols accordingly represent relevant future taxable income sprint holdco llc refer sprint exchanged 575 million clearwire communications class b common interests refer class b common interests corresponding number shares class b common stock equal number shares class common stock refer sprint exchange july 5 2013 intel capital wireless investment corporation 2008a refer intel index consolidated financial statements clearwire corporation subsidiaries notes consolidated financial statements continued exchanged 656 million class b common interests corresponding number shares class b common stock equal number shares class common stock refer intel exchange july 9 2013 sprint exchange intel exchange resulted significant changes financial statement tax basis respectively clearwire interest clearwire communications well decrease amount temporary differences reverse within nol carryforward period see discussion deferred tax assets primarily represent nol carryforwards associated clearwires operations prior formation company november 28 2008 portion partnership losses allocated clearwire formation company subject change control test section 382 internal revenue code met would limit annual utilization prechange control nol carryforward well ability use certain unrealized built losses future tax deductions believe sprint acquisition occurred july 9 2013 combined issuances class common stock certain third party investor transactions involving class common stock since september 27 2012 resulted change control section 382 internal revenue code result change control changes control occurred september 27 2012 december 13 2011 respectively believe permanently unable use significant portion nol carryforwards credit carryforwards collectively referred tax attributes arose change control offset future taxable income result annual limitations sections 382 383 internal revenue code utilization tax attributes following ownership change determined approximately 203 billion united states nol carryforwards expire unutilized united states tax attributes presented net limitations addition subsequent changes ownership purposes sections 382 383 internal revenue code could diminish use remaining united states tax attributes recognized deferred tax liability difference financial statement carrying value tax basis partnership interest relates united states tax jurisdiction determined temporary taxable difference associated investment partnership completely reverse within carryforward period nols portion temporary difference reverse within carryforward period nols represents relevant future taxable income management reviewed facts circumstances including history nols projected future tax losses determined appropriate record valuation allowance portion deferred tax assets deemed realizable result sprint exchange intel exchange net decrease amount temporary difference reverse within nol carryforward period therefore management determined appropriate increase valuation allowance recorded deferred tax assets along recording corresponding deferred tax expense continuing operations income tax expense reflected condensed consolidated statements operations continuing operations primarily reflects united states deferred taxes certain state taxes file income tax returns clearwire subsidiaries united states federal jurisdiction various state foreign jurisdictions july 9 2013 tax returns clearwire years 2003 2012 remain open examination internal revenue service various state tax authorities policy recognize interest related unrecognized tax benefits interest expense interest income recognize penalties additional income tax expense july 9 2013 material uncertain tax positions therefore accrued interest penalties related uncertain tax positions index consolidated financial statements clearwire corporation subsidiaries notes consolidated financial statements continued 9 longterm debt net longterm debt july 9 2013 december 31 2012 consisted following thousands 1 represents weighted average effective interest rate based yearend balances 2 coupon rate based 3month libor plus spread 550 secured 700 unsecured included balance unsecured notes par amount 152 million july 9 2013 3 july 9 2013 par amount approximately 1380 million secured assets classified network base station equipment remaining par amount unsecured 4 included current liabilities consolidated balance sheet 5 discount sprint notes accreted interest expense straightline basis life notes due magnitude initial discount discussion see sprint notes index consolidated financial statements clearwire corporation subsidiaries notes consolidated financial statements continued 1 represents weighted average effective interest rate based yearend balances 2 coupon rate based 3month libor plus spread 550 secured 700 unsecured included balance unsecured notes par amount 46 million december 31 2012 3 december 31 2012 par amount approximately 1188 million secured assets classified network base station equipment 4 included current liabilities consolidated balance sheet notes 2015 senior secured notes fourth quarter 2009 clearwire communications completed offerings 252 billion 12 senior secured notes due 2015 refer 2015 senior secured notes 2015 senior secured notes provide biannual payments interest june december connection issuance 2015 senior secured notes also issued 2525 million notes sprint comcast identical terms 2015 senior secured notes replacement equal amounts indebtedness senior term loan facility december 2010 clearwire communications issued additional 1750 million 2015 senior secured notes substantially terms holders 2015 senior secured notes right require us repurchase notes upon occurrence certain change control events sale certain assets price 101 principal amount 100 principal amount respectively plus unpaid accrued interest repurchase date change control excludes change control permitted holders including limited sprint successors respective affiliates december 1 2012 may redeem part 2015 senior secured notes paying makewhole premium stated terms plus unpaid accrued interest repurchase date payment obligations 2015 senior secured notes guaranteed certain domestic subsidiaries senior basis secured certain assets subsidiaries firstpriority lien basis 2015 senior secured notes contain limitations activities among things include incurring additional indebtedness guarantee indebtedness making distributions payment dividends certain restricted payments investments making certain payments indebtedness entering agreements restrict distributions restricted subsidiaries selling otherwise disposing assets merger consolidation sales index consolidated financial statements clearwire corporation subsidiaries notes consolidated financial statements continued substantially assets entering transactions affiliates creating liens issuing certain preferred stock similar equity securities making investments acquiring assets see note 16 subsequent events 2016 senior secured notes january 2012 clearwire communications completed offering senior secured notes par value 3000 million due 2016 bearing interest 1475 refer 2016 senior secured notes 2016 senior secured notes provide biannual payments interest june december holders 2016 senior secured notes right require us repurchase notes upon occurrence specific kinds changes control price 101 principal plus unpaid accrued interest repurchase date change control excludes change control permitted holders including limited sprint successors respective affiliates certain circumstances clearwire communications required use net proceeds sale assets make offer purchase 2016 senior secured notes offer price equal 100 principal amount plus unpaid accrued interest payment obligations 2016 senior secured notes guaranteed certain domestic subsidiaries senior basis secured certain assets subsidiaries firstpriority lien basis 2016 senior secured notes contain limitations activities 2015 senior secured notes secondpriority secured notes december 2010 clearwire communications completed offering 5000 million 12 secondpriority secured notes due 2017 refer secondpriority secured notes secondpriority secured notes provide biannual payments interest june december holders secondpriority secured notes right require us repurchase notes upon occurrence certain change control events sale certain assets price 101 principal amount 100 principal amount respectively plus unpaid accrued interest repurchase date change control excludes change control permitted holders including limited sprint successors respective affiliates prior december 1 2013 may redeem 35 aggregate principal amount secondpriority secured notes redemption price 112 aggregate principal amount plus unpaid accrued interest repurchase date december 1 2014 may redeem part secondpriority secured notes paying makewhole premium stated terms plus unpaid accrued interest repurchase date payment obligations secondpriority secured notes guaranteed certain domestic subsidiaries senior basis secured certain assets subsidiaries secondpriority lien basis secondpriority secured notes contain limitations activities 2015 senior secured notes see note 16 subsequent events exchangeable notes december 2010 clearwire communications completed offerings 7292 million 825 exchangeable notes due 2040 refer exchangeable notes exchangeable notes provide biannual payments interest june december exchangeable notes subordinated 2015 senior secured notes 2016 senior secured notes rank equally right payment secondpriority secured notes holders exchangeable notes right exchange notes class common stock time prior maturity date right settle exchange delivering cash shares class common stock subject certain conditions initial exchange rate note 1412429 shares per 1000 note equivalent initial exchange price approximately 708 per share subject adjustments upon occurrence certain corporate events refer exchangeable notes exchange rate upon exchange make additional cash payment provide additional shares accrued unpaid interest makewhole premium additional interest index consolidated financial statements clearwire corporation subsidiaries notes consolidated financial statements continued holders exchangeable notes right require us repurchase notes upon occurrence fundamental change including change control event price 100 principal amount plus unpaid accrued interest repurchase date holders elect exchange exchangeable notes connection occurrence fundamental change entitled additional shares specified based date event occurs price paid per share class common stock fundamental change maximum number shares issuable per note exceed 1694915 shares per 1000 note stock price less 590 per share subject certain adjustments additional shares shall added exchange rate upon consummation sprint acquisition 1000 principal amount exchangeable notes changed right exchange principal amount exchange notes cash equal product merger consideration multiplied exchangeable notes exchange rate holders exchangeable notes option require us repurchase cash exchangeable notes december 1 2017 2025 2030 2035 price equal 100 principal amount notes plus unpaid accrued interest repurchase date december 1 2017 may option redeem part exchangeable notes price equal 100 principal amount notes plus unpaid accrued interest redemption date payment obligations exchangeable notes guaranteed certain domestic subsidiaries priority secondpriority secured notes upon issuance exchangeable notes recognized derivative liability representing embedded exchange feature estimated fair value 2315 million associated debt discount exchangeable notes discount accreted expected life approximately 7 years exchangeable notes using effective interest rate method see note 10 derivative instruments additional discussion derivative liability first quarter 2012 clearwire communications entered securities purchase agreements certain institutional investors refer exchange transaction pursuant clearwire issued 380 million shares class common stock aggregate price 835 million refer purchase price clearwire communications repurchased 1000 million aggregate principal amount plus accrued unpaid interest exchangeable notes total price equal purchase price see note 16 subsequent events sprint notes connection merger agreement entered note purchase agreement issuers sprint agreed purchase us election aggregate principal amount 800 million notes maturing june 1 2018 ten monthly installments 80 million interest notes 1 payable semiannually june december elected forego january february june 2013 draws elected take march april may 2013 draws received 240 million sprint right exchange notes held connection note purchase agreement clearwire class common stock clearwire class b common stock clearwire communications class b common units applicable exchange rate time prior maturity date july 9 2013 applicable exchange rate 66667 shares clearwire class common stock clearwire class b common stock clearwire communications class b common units per 1000 principal equivalent exchange price approximately 150 per share sprint notes guaranteed issuers existing whollyowned domestic subsidiaries sprint notes expressly subordinated 2015 2016 senior secured notes rank equally right payments issuers guarantors existing future senior indebtedness senior existing future subordinated indebtedness sprint notes contain financial operating covenants sprint notes contain beneficial conversion feature refer bcf recorded companys stock price greater exchange price commitment date therefore settlement index consolidated financial statements clearwire corporation subsidiaries notes consolidated financial statements continued date draw sprint notes bcf calculated based closing price settlement date less exchange price 150 per share multiplied number shares clearwire class common stock issued amount bcf draw limited proceeds received draw bcf recognized discount debt increase additional paidin capital consolidated balance sheets debt discount accreted date issuance stated maturity interest expense consolidated statements operations straightline basis see note 16 subsequent events july 9 2013 compliance debt covenants vendor financing notes vendor financing facility refer vendor financing facility allows us obtain financing entering notes refer vendor financing notes vendor financing notes mature 2014 2015 coupon rates based 3month libor plus spread 550 700 secured unsecured notes respectively capital lease obligations certain network equipment acquired capital lease facilities inception capital lease lower either present value minimum lease payments required lease fair value equipment recorded capital lease obligation initial noncancelable term capital leases three twelve years may include one renewal options end initial lease term may exercised discretion lease payments initial lease term fixed renewal periods established inception lease interest expense recognized using effective interest rate method based rate imputed using contractual terms lease agreements may contain change control provisions certain agreements change control may exclude change control permitted holders including limited sprint successors respective affiliates agreements may reference circumstances involving change control resulting clearwires credit rating falling “caa1” rated moodys investors service upon occurrence change control lessor may require payment predetermined casualty value leased equipment future payments future payments longterm debt see note 12 commitments contingencies interest expense interest expense included consolidated statements operations 190 days ended july 9 2013 years ended december 31 2012 2011 consisted following thousands 1 year ended december 31 2012 included 25 million coupon interest relating exchangeable notes settled noncash exchange transaction 2 includes noncash amortization deferred financing fees classified assets consolidated balance sheets index consolidated financial statements clearwire corporation subsidiaries notes consolidated financial statements continued 10 derivative instruments holders’ exchange rights contained exchangeable notes constitute embedded derivative instruments required accounted separately debt host instrument fair value result upon issuance exchangeable notes recognized exchange options estimated fair value 2315 million derivative liability result exchange transaction 1000 million par value exchangeable notes retired related exchange options notional amount 141 million shares settled fair value exchange options indexed class common stock notional amount 889 million shares july 9 2013 december 31 2012 mature 2040 apply hedge accounting exchange options therefore gains losses due changes fair value reported consolidated statements operations july 9 2013 exchange options estimated fair value 0 december 31 2012 exchange options’ estimated fair value 53 million reported current liabilities consolidated balance sheets 190 days ended july 9 2013 years ended december 31 2012 2011 recognized gains 53 million 14 million 1597 million respectively changes estimated fair value gains derivative instruments consolidated statements operations see note 11 fair value information regarding valuation exchange options 11 fair value following description valuation methodologies pricing assumptions used financial instruments measured recorded fair value recurring basis financial statements classification instruments pursuant valuation hierarchy cash equivalents investments quoted prices identical securities available active market use quoted market prices determine fair value investment securities cash equivalents classified level 1 valuation hierarchy level 1 securities include us government treasury bills actively traded us government treasury notes money market mutual funds quoted prices active markets quoted net asset values published money market mutual fund supported active market investments classified level 2 valuation hierarchy securities quoted prices available similar investments active markets identical similar investments markets active use consensus pricing independent external valuation sources level 2 securities include us government agency discount notes us government agency notes derivatives exchange options classified level 3 valuation hierarchy estimate fair value exchange options used income approach based valuation models including option pricing models discounted cash flow models maximized use marketbased observable inputs models developed assumptions unobservable inputs based management estimates market participants’ assumptions pricing instruments upon consummation sprint acquisition 1000 principal amount exchangeable notes changed right exchange principal amount exchange notes amount cash equal product 500 multiplied ii exchange rate 1412429 therefore holders option 1000 exchangeable notes tendered exchange 70621 redemption price 0706 given equity underlying exchange options longer exists closing sprint acquisition value redemption less par alternatively spot price 500 less strike price option 708 fair value exchange option immediately prior closing merger 0 index consolidated financial statements clearwire corporation subsidiaries notes consolidated financial statements continued following table summarizes financial assets level within valuation hierarchy july 9 2013 thousands following table summarizes financial assets liabilities level within valuation hierarchy december 31 2012 thousands following table presents change level 3 financial assets liabilities measured recurring basis 190 days ended july 9 2013 thousands 1 included gain derivative instruments consolidated statements operations index consolidated financial statements clearwire corporation subsidiaries notes consolidated financial statements continued following table presents change level 3 financial assets liabilities measured recurring basis year ended december 31 2012 thousands 1 included gain derivative instruments consolidated statements operations following description fair value financial instruments hold subject fair value recognition debt instruments estimate fair value 2015 senior secured notes 2016 senior secured notes secondpriority secured notes exchangeable notes used average indicative price several market makers level subjectivity applied estimate fair value sprint notes use market approach benchmarking price sprint notes exchangeable notes adjusting differences critical terms tenor strike price options well liquidity estimate fair value vendor financing notes used income approach based contractual terms notes marketbased parameters interest rates level subjectivity applied estimate discount rate used calculate present value estimated cash flows following table presents carrying value approximate fair value outstanding debt instruments july 9 2013 2012 thousands 1 carrying value july 9 2013 december 31 2012 net 1530 million 1651 million discount respectively arising separation exchange options debt host instrument fair value exchangeable index consolidated financial statements clearwire corporation subsidiaries notes consolidated financial statements continued notes incorporates value exchange feature recognized separately derivative consolidated balance sheets see note 9 longterm debt net additional discussion 2 carrying value july 9 2013 net 2273 million discount arising bcf see note 9 longterm debt net additional discussion 12 commitments contingencies future minimum cash payments obligations continuing operations listed including optional expected renewal periods operating leases july 9 2013 follows thousands 1 principal interest payments beyond 2017 represent potential principal interest payments exchangeable notes beyond expected repayment 2017 2 payments include 413 million representing interest expense recorded related spectrum operating leases follows thousands operating lease obligations commitments noncancelable operating leases consist mainly leased sites including towers rooftop locations office space certain leases provide minimum lease payments additional charges escalation clauses operating leases generally initial terms five seven years multiple renewal options additional fiveyear terms totaling 20 25 years operating lease obligations table include lease payments contractual lease term plus one renewal period include remaining future lease payments leases notice intent renew sent result lease termination initiatives estimated lease term utilized lease expense recognition purposes leases includes initial noncancelable term plus one renewal period index consolidated financial statements clearwire corporation subsidiaries notes consolidated financial statements continued spectrum lease obligations certain leases provide minimum lease payments additional charges escalation clauses leased spectrum agreements terms 30 years weighted average remaining lease term july 9 2013 approximately 23 years including renewal terms expect renewal periods spectrum leases renewed us spectrum service credits commitments provide clearwire services certain lessors launched markets reimburse lessors certain capital equipment thirdparty service expenditures term lease accrue monthly obligation services equipment based total estimated available service credits divided term lease obligation reduced actual invoices presented paid lessors 190 days ended july 9 2013 years ended december 31 2012 2011 satisfied 12 million 33 million 45 million respectively related commitments maximum remaining commitment july 9 2013 1017 million expected incurred term related lease agreements generally range 1530 years purchase agreements included table purchase commitments takeorpay obligations andor volume commitments equipment noncancelable table also includes obligations include minimum purchase commitments certain suppliers time goods services regardless whether suppliers fully deliver include among things agreements backhaul subscriber devices related services addition party various arrangements conditional nature create obligation make payments upon occurrence certain events actual delivery acceptance products services possible predict timing amounts may due conditional arrangements amounts included table also excludes blanket purchase order amounts orders subject cancellation termination discretion quantity goods services purchased payment terms unknown purchase orders firm commitments legal proceedings fully described involved variety lawsuits claims investigations proceedings concerning intellectual property business practices commercial matters determine whether accrue estimated loss contingency particular legal proceeding assessing whether loss deemed probable reasonably estimated reassess views estimated losses quarterly basis reflect impact developments matters involved legal proceedings inherently unpredictable matters involved often present complex legal factual issues vigorously pursue defenses legal proceedings engage discussions possible resolve matters terms favorable us including pursuing settlements believe may cost effective result company possible however business financial condition results operations future periods could materially adversely affected increased litigation expense significant settlement costs andor unfavorable damage awards throughout legal proceedings disclosure use terms clearwire company refer clearwire corporation clearwire communications llc clear wireless llc subsidiaries consumer employment purported class actions investigations april 2009 purported class action lawsuit filed clearwire us llc superior court king county washington group five plaintiffs chad minnick et al lawsuit generally alleges disseminated false advertising quality reliability services imposed unlawful early termination fee refer etf invoked allegedly unconscionable provisions terms service detriment subscribers november 2010 purported class action lawsuit filed clearwire angelo dennings us district court western district washington complaint generally alleges slow network speeds network demand highest network management violates index consolidated financial statements clearwire corporation subsidiaries notes consolidated financial statements continued agreements subscribers contrary companys advertising marketing claims plaintiffs also allege subscribers review terms service prior subscribing subscribers cancel service due network management charge etf restocking fee claim unconscionable circumstances march 2011 purported class action filed clearwire us district court eastern district california case newton v clearwire inc sic alleges clearwires network management advertising practices constitute breach contract unjust enrichment unfair competition californias business professions code sections 17200 et seq violation californias consumers legal remedies act plaintiff contends clearwires advertisements “no speed cap” “unlimited data” false misleading plaintiff alleges clearwire breached contracts customers delivering internet service advertised plaintiff also claims slow data speeds due clearwires network management practices parties collectively settled three lawsuits settlement process administration accrued estimated amount anticipate pay settlement current liabilities amount accrued considered immaterial financial statements august 2012 richard wuest filed purported class action clearwire california superior court san francisco county plaintiff alleges clearwire violated californias invasion privacy act penal code 630 notably §6327 prohibits recording communications made cellular cordless telephone without consent parties communication plaintiff seeks class certification statutory damages injunctive relief costs attorney fees pre post judgment interest removed matter federal court november 2 2012 filed answer complaint may 31 2013 plaintiff filed first amended complaint adding two clearwire call vendors lawsuit filed answer july 15 2013 discovery begun class certification briefing scheduled spring 2014 litigation early stages outcome unknown estimate potential loss cannot made time september 6 2012 washington state attorney generals office served clearwire corporation civil investigative demand pursuant rcw 1986110 demand seeks information documents furtherance attorney general offices investigation possible unfair trade practices failure properly disclose contractual terms misleading advertising october 22 2012 responded demand outcome investigation unknown estimate potential loss cannot made time april 2013 kenneth lindsay former employee others filed purported collective class action lawsuit us district court district minnesota clear wireless llc workforce logic llc plaintiffs allege claims individually behalf purported nationwide collective class fair labor standards act refer fsla april 9 2010 present lawsuit alleges defendants violated flsa notably sections 201 207 relevant regulations regarding failure pay minimum wage failure pay hours worked breaks work performed clock scheduled work shifts overtime improper deductions improper withholding wages commissions bonuses plaintiffs seek back wages unpaid wages overtime liquidated damages attorney fees costs filed answer complaint april 30 2013 january 2014 magistrate judge granted plaintiffs’ motion conditional class certification filed objections ruling district judge litigation early stages outcome unknown estimate potential loss cannot made time shareholder actions april 26 2013 stockholders acp master ltd aurelius capital master ltd aurelius opportunities fund ii llc filed suit delaware court chancery company directors sprint holdco refer acp action december 20 2013 entities filed amended complaint naming defendants sprint corporation sprint communications inc former directors company starburst inc softbank corp amended acp action alleges directors company breached fiduciary duties connection sprintclearwire transaction “merger” sprint breached duties owed plaintiff stockholders virtue status “controlling” stockholder entities index consolidated financial statements clearwire corporation subsidiaries notes consolidated financial statements continued aided abetted alleged breaches duties acp action seeks declaration sprint director defendants breached fiduciary duties entities aided abetted breach declaration special committee majorityofminority conditions insufficient safeguards defendants bear burden proving “entire fairness” transaction declaration note purchase agreement product defendants’ breach fiduciary duties finding merger unfair plaintiffs rescission merger unspecified damages fees expenses defendants moved dismiss acp action january 2014 october 23 2013 plaintiffs acp action filed new lawsuit delaware court chancery company complaint asks court appraisal “fair value” plaintiffs’ stock clearwire order clearwire pay plaintiffs “fair value” plus interest costs company filed answer november 2013 discovery begun case acp action early stages outcome unknown estimate potential losses cannot made time addition matters described often involved certain proceedings seek monetary damages relief based upon information currently available us none claims expected material effect business financial condition results operations 13 sharebased payments july 9 2013 25226048 shares available grant clearwire corporation 2008 stock compensation plan refer 2008 plan authorizes us grant incentive stock options nonqualified stock options stock appreciation rights restricted stock restricted stock units refer rsus performance based rsus stock awards employees directors consultants grants awarded 2008 plan made available discretion compensation committee board directors authorized unissued shares authorized issued shares reacquired combination thereof restricted stock units grant rsus performance based rsus certain officers employees 2008 plan rsus generally performance service requirements service requirements vesting periods ranging two four years fair value rsus based grantdate fair market value common stock equals grant date market price performance rsus awarded 2012 one two years performance periods granted performance objectives established first quarter 2012 index consolidated financial statements clearwire corporation subsidiaries notes consolidated financial statements continued summary rsu activity 190 day period ended july 9 2013 years ended 2012 2011 presented july 9 2013 29902490 rsus outstanding total unrecognized compensation cost approximately 384 million expected recognized weightedaverage period approximately 11 years stock options granted options certain officers employees 2008 plan options generally vest fouryear period expire later ten years date grant fair value option grants estimated date grant using blackscholes option pricing model index consolidated financial statements clearwire corporation subsidiaries notes consolidated financial statements continued summary option activity january 1 2011 july 9 2013 presented intrinsic value options exercised 190 days ended july 9 2013 year ended december 31 2011 01 million 23 million respectively option exercises period ended december 31 2012 july 9 2013 aggregate intrinsic value options outstanding 13 million index consolidated financial statements clearwire corporation subsidiaries notes consolidated financial statements continued information regarding stock options outstanding exercisable july 9 2013 follows options granted 2013 2012 2011 total fair value options vested 190 days ended july 9 2013 years ended december 31 2012 2011 05 million 07 million 66 million respectively total unrecognized share based compensation costs related nonvested stock options outstanding july 9 2013 approximately 01 million expected recognized weighted average period approximately four months sharebased compensation expense based estimated grantdate fair value award recognized net estimated forfeitures shares expected vest graded vesting schedule straightline basis requisite service period separately vesting portion award insubstance multiple awards sharebased compensation expense recognized plans 190 days ended july 9 2013 years 2012 2011 follows thousands see note 16 subsequent events 14 stockholders’ equity class common stock class common stock represents common equity clearwire holders class common stock entitled one vote per share class entitled 100 dividends distributions made clearwire exception certain minimal liquidation rights provided class b common index consolidated financial statements clearwire corporation subsidiaries notes consolidated financial statements continued stockholders described share class common stock participates ratably proportion total number shares class common stock issued clearwire holders class common stock 100 economic interest clearwire considered controlling interest purposes financial reporting upon liquidation dissolution winding class common stock entitled assets remaining payment debts liabilities clearwire exception certain minimal liquidation rights provided class b common stockholders described class b common stock class b common stock represents noneconomic voting interests clearwire identical class common stock holders class b common stock entitled one vote per share however rights receive distributions stock dividends paid proportionally outstanding class b common stockholder upon liquidation clearwire amount equal par value per share 00001 per share sole holder sprint entitled hold equivalent number class b common interests substance reflects economic stake clearwire accomplished exchange feature provides holder right time exchange one share class b common stock plus one class b common interest one share class common stock july 5 2013 sprint completed exchange 575 million shares class b common interests corresponding number shares class b common stock equal number shares class common stock pursuant amended restated operating agreement dated november 28 2008 governing clearwire communications july 9 2013 intel completed exchange 656 million shares class b common interests corresponding number shares class b common stock equal number shares class common stock pursuant amended restated operating agreement dated november 28 2008 governing clearwire communications july 9 2013 prior consideration sprint acquisition sprints economic interest clearwire subsidiaries equal voting interest approximately 501 following table lists voting interests clearwire july 9 2013 1 holders class b common stock hold equivalent number class b common interests result sprint acquisition share clearwire corporation common stock par value 00001 per share shares owned sprint softbank corp affiliates converted right receive 500 per share cash index consolidated financial statements clearwire corporation subsidiaries notes consolidated financial statements continued clearwire communications interests clearwire sole holder voting interests clearwire communications clearwire controls 100 decision making clearwire communications consolidates 100 operations clearwire also holds outstanding clearwire communications class common interests representing 559 economics clearwire communications july 9 2013 holders class b common interests remaining 441 economic interests intended times number clearwire communications class common interests held clearwire equal number shares class common stock issued clearwire nonvoting clearwire communication units designated either clearwire communications class common interests held clearwire class b common interests held sprint intel classes nonvoting clearwire communication units participate distributions clearwire communications equal proportionate basis following shows effects changes clearwire’s ownership interests clearwire communications thousands dividend policy declared paid cash dividends class b common stock currently expect retain future earnings use operations anticipate paying cash dividends foreseeable future addition covenants indentures governing senior secured notes impose significant restrictions ability pay cash dividends stockholders noncontrolling interests clearwire communications clearwire communications consolidated clearwire hold 100 voting interest clearwire communications therefore holders class b common interests represent noncontrolling interests consolidated subsidiary result income loss consolidated clearwire decreased proportion outstanding noncontrolling interests conversion class b common interests corresponding number class b common stock class common stock recorded issuance common stock net issuance costs capital transactions consolidated statement stockholders equity index consolidated financial statements clearwire corporation subsidiaries notes consolidated financial statements continued warrants first quarter 2013 issued warrant purchase 20 million shares class common stock exercise price 175 per share related spectrum lease agreement warrants expire january 29 2019 connection sprint acquisition warrants settled lump sum cash amount equal amount merger consideration exceeded exercise price warrants addition prior closing merger sprint 375000 warrants outstanding exercise price 300 warrants settled lump sum cash amount equal amount merger consideration exceeded exercise price warrants 15 related party transactions number strategic commercial relationships third parties significant impact business operations financial results relationships sprint intel comcast time warner cable bright house google eagle river ericsson related parties relationships include agreements pursuant sell wireless broadband services certain related parties wholesale basis related parties resell respective end user subscribers sell services terms defined contractual agreements following amounts related party transactions included consolidated financial statements thousands sprint merger agreement december 17 2012 entered merger agreement pursuant sprint agreed acquire outstanding shares class b common stock currently owned index consolidated financial statements clearwire corporation subsidiaries notes consolidated financial statements continued sprint july 9 2013 sprint completed acquisition clearwire corporation subsidiaries see note 1 description business see note 16 subsequent events note purchase agreement connection merger agreement december 17 2012 certain subsidiaries also entered note purchase agreement sprint agreed purchase us election aggregate principal amount 800 million 100 exchangeable notes due 2018 ten monthly installments 800 million elected forego first two draws january 2013 february 2013 note purchase agreement reduced aggregate principal amount available 640 million elected take march april may draws received 2400 million sprint addition elected forego june draw see note 9 longterm debt net information rollover notes connection issuance 2015 senior secured notes november 24 2009 issued notes sprint comcast identical terms 2015 senior secured notes time related parties may hold portions longterm debts debtholders would entitled receive interest payments us relationships among certain stockholders directors officers clearwire prior completion sprint acquisition sprint two whollyowned subsidiaries sprint holdco sn uhc 1 inc owns largest interest clearwire effective voting economic interest approximately 501 conversion class b common interests corresponding number class b common stock class common stock comcast intel bright house together voting interest clearwire approximately 130 july 9 2013 prior consummation merger sprint clearwire sprint intel comcast bright house party equityholders’ agreement sets forth certain rights obligations equityholders respect governance clearwire transfer restrictions common stock rights first refusal preemptive rights among things 4g mvno agreement nonexclusive 4g mvno agreement refer 4g mvno agreement comcast mvno ii llc twc wireless llc bright house sprint spectrum lpwhich refer sprint spectrum sell wireless broadband services parties 4g mvno agreement purposes purchasers marketing reselling wireless broadband services respective end user subscribers wireless broadband services provided 4g mvno agreement include standard network services request parties certain nonstandard network services sell services prices defined 4g mvno agreement sprint wholesale relationship november 2011 4g mvno amendment sprint paying us fixed amount unlimited 4g mobile wimax services resale retail subscribers 2013 portion paid offset principal interest due 1500 million promissory note issued us sprint january 3 2012 refer sprint promissory note sprint promissory note aggregate principal amount 1500 million bears interest 115 per annum january 2 2013 offset 836 million principal related accrued interest reduce principal amount owe sprint promissory note 750 million maturing january 2 2014 previously paid sprint may offset amounts payable us sprint promissory note including interest payments due sprint clearwire communications 4g mvno agreement amended sprint promissory note entered conjunction november 2011 4g mvno amendment amounts due may offset payments due november 2011 4g mvno amendment treated deferred revenue accounting purposes associated interest costs recorded reduction payable sprint unlimited wimax service calendar year 2013 index consolidated financial statements clearwire corporation subsidiaries notes consolidated financial statements continued part 4g mvno agreement also agreed usage based pricing wimax services 2013 lte service beginning 2012 also agreed sprint may rewholesale wireless broadband services subject certain conditions agreed operate wimax network calendar year 2015 190 days ended july 9 2013 years ended december 31 2012 2011 received 2312 million 5373 million 4343 million respectively sprint 4g broadband wireless services 190 days ended july 9 2013 years ended december 31 2012 2011 wholesale revenue recorded attributable sprint comprised approximately 36 total revenues substantially wholesale revenues 3g mvno agreement entered nonexclusive 3g mvno agreement sprint spectrum refer 3g mvno agreement whereby sprint agrees sell code division multiple access mobile voice data communications service purpose resale retail customers data communications service includes sprint’s existing core network services network elements information enable third party provide services network core network enablers subject certain limitations exceptions new core network services core network enablers certain customized services 190 days ended july 9 2013 years ended december 31 2012 2011 paid 10 million 44 million 178 million respectively sprint 3g wireless services provided sprint us sprint master site agreement november 2008 entered master site agreement sprint refer master site agreement pursuant sprint established contractual framework procedures leasing tower antenna collocation sites leases specific sites negotiated sprint us request lessee leased premises may used lessee activity connection provision wireless communications services including attachment antennas towers sites term master site agreement ten years date agreement signed term lease specific site five years lessee right extend term additional 20 years monthly fee increase 3 per year lessee also responsible utility costs certain additional fees 190 days ended july 9 2013 years ended december 31 2012 2011 made rent payments agreement 355 million 596 million 558 million respectively master agreement network services november 2008 entered master agreement network services refer master agreement network services various sprint affiliated entities refer sprint entities pursuant sprint entities established contractual framework procedures us purchase network services sprint entities may order various services sprint entities including ip network transport services data center colocation tollfree services access following business platforms voicemail instant messaging services locationbased systems media server services sprint entities provide service level agreement consistent service levels provided similarly situated subscribers pricing specified separate product attachments type service general pricing based midpoint fair market value service sprint entities’ fully allocated cost providing service term master agreement network services five years right extend term additional five years additionally accordance master agreement network services sprint entities assumed certain agreements backhaul services contain commitments extend five years ericsson inc ericsson provides network deployment services us including site acquisition construction management services addition second quarter 2011 entered managed services agreement ericsson operate maintain support network dr hossein eslambolchi member board directors prior sprint acquistion consulting agreement ericsson part consulting agreement dr eslambolchi received payments services ericsson received compensation directly us related relationship ericsson 190 days ended july 9 index consolidated financial statements clearwire corporation subsidiaries notes consolidated financial statements continued 2013 years ended december 31 2012 2011 paid 439 million 769 million 411 million respectively ericsson network management services 16 subsequent events evaluated subsequent events february 24 2014 date consolidated financial statements issued following events occurred subsequent july 9 2013 sprint acquisition july 9 2013 sprint completed acquisition clearwire corporation subsidiaries result sprint acquisition resulting change ownership control acquisition method accounting applied sprint pusheddown us included consolidated financial statements periods presented subsequent acquisition date resulted new basis presentation based estimated fair values assets liabilities successor period beginning day following consummation merger longterm debt net using equity contributions sprint available cash retired 2015 senior secured notes secondpriority secured notes december 2013 september 2013 sprint exchanged outstanding sprint notes 160000800 shares class b common stock amount class b common interests october 17 2013 issuers entered supplemental indenture related exchangeable notes 1 permitted periodic reports filed sprint rather clearwire corporation sec satisfy issuers reporting related obligations event sprint communications unconditionally guarantee exchangeable notes 2 agreed use commercially reasonable efforts obtain credit ratings exchangeable notes two national rating agencies july 19 2013 clearwire communications clearwire finance inc entered 30 billion credit agreement refer sprint credit agreement sprint communications inc sprint agrees make revolving credit loans us subject terms conditions set forth agreement interest rate outstanding loans libor rate preceding interest payment date plus applicable margin 400 475 based moodys sp ratings interest payment date last business day fiscal quarter maturity date sprint credit agreement july 1 2017 sprint credit agreement permitted incur indebtedness unless agreed sprint written consent december 31 2013 sprint credit agreement outstanding balance 3155 million sharebased payments connection sprint acquisition outstanding unexercised option purchase shares common stock whether vested canceled exchange lump sum cash amount equal amount merger consideration exceeded exercise price option less applicable withholding taxes connection sprint acquisition rsu granted nonemployee member board directors refer director rsu canceled exchange lump sum cash payment equal product merger consideration without interest number shares class common stock subject director rsu addition outstanding rsu granted prior december 17 2012 converted right receive cash payment equal product merger consideration number shares class common stock subject unvested rsu refer restricted cash account july 19 2013 holder restricted cash account received lump sum cash payment equal 50 restricted cash account balance less applicable tax withholdings remaining balance restricted cash index consolidated financial statements clearwire corporation subsidiaries notes consolidated financial statements account vest paid upon earlier original vesting schedule unvested rsus ii one year anniversary merger provided however holder restricted cash account also paid remaining balance upon involuntary termination holders employment addition rsu granted december 17 2012 refer unvested 2013 rsu converted right receive cash payment equal product merger consideration without interest number shares class common stock subject unvested 2013 rsu refer 2013 restricted cash account 2013 restricted cash account unvested vest paid accordance original vesting conditions award provided however holder 2013 restricted cash account also paid prorata portion 2013 restricted cash account upon involuntary termination holders employment related party transactions july 19 2013 clearwire corporation entered services agreement sprintunited management company whollyowned subsidiary sprint corporation refer management company whereas management company provide certain services clearwire corporation parent company clearwire communications subsidiaries stated management fee based schedule set forth agreement fees due 2013 july 19 2013 clearwire communications including direct indirect subsidiaries defined agreement refer licensees entered spectrum usage agreement sprint spectrum lp whollyowned subsidiary sprint corporation affiliated entities defined agreement refer users licensees allow users use spectrum holdings licensees equipment deployed users using spectrum subject terms defined agreement users shall pay licensees annual spectrum use fee set forth agreement beginning 2014 january 2 2014 offset payments due november 2011 4g mvno amendment treated deferred revenue 836 million principal related accrued interest repay amount owed us sprint promissory note item 15 exhibits financial statement schedules 1 consolidated financial statements sprint corporation filed part annual report listed index consolidated financial statements 2 exhibits filed part annual report listed exhibit index item 16 form 10k summary none signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized sprint corporation registrant marcelo claure marcelo claure chief executive officer date may 24 2018 pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities indicated 24th day may 2018 marcelo claure marcelo claure chief executive officer principal executive officer michel combes michel combes president chief financial officer principal financial officer paul w schieber jr paul w schieber jr vice president controller principal accounting officer signatures sprint corporation registrant pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities indicated 24th day may 2018 masayoshi son marcelo claure masayoshi son chairman marcelo claure director ronald fisher michel combes ronald fisher vice chairman michel combes director patrick doyle gordon bethune patrick doyle director gordon bethune director julius genachowski admiral michael g mullen julius genachowski director admiral michael g mullen director sara martinez tucker sara martinez tucker director exhibit index exhibit description form incorporated reference filedfurnished herewith sec file exhibit filing date 101 formatted xbrl extensible business reporting language 101ins xbrl instance document 101sch xbrl taxonomy extension schema document 101cal xbrl taxonomy extension calculation linkbase document 101def xbrl taxonomy extension definition linkbase document 101lab xbrl taxonomy extension label linkbase document 101pre xbrl taxonomy extension presentation linkbase document filed furnished required filing excludes certain schedules exhibits pursuant item 601b2 regulation sk registrant agrees furnish supplementally securities exchange commission upon request commission provided however registrant may request confidential treatment pursuant rule 24b2 securities exchange act 1934 amended schedules exhibits furnished sprint corporation index consolidated financial statements index consolidated financial statements report independent registered public accounting firm stockholders board directors sprint corporation opinions financial statements internal control financial reporting audited accompanying consolidated balance sheets sprint corporation subsidiaries company march 31 2018 2017 related consolidated statements operations comprehensive income loss cash flows stockholders equity three years period ended march 31 2018 related notes collectively referred financial statements also audited companys internal control financial reporting march 31 2018 based criteria established internal control integrated framework 2013 issued committee sponsoring organizations treadway commission coso opinion financial statements referred present fairly material respects financial position company march 31 2018 2017 results operations cash flows three years period ended march 31 2018 conformity accounting principles generally accepted united states america also opinion company maintained material respects effective internal control financial reporting march 31 2018 based criteria established internal control integrated framework 2013 issued coso change accounting principle discussed note 2 financial statements company retrospectively adopted accounting standards update 201615 statement cash flows topic 230 classification certain cash receipts cash payments basis opinions companys management responsible financial statements maintaining effective internal control financial reporting assessment effectiveness internal control financial reporting included accompanying managements report internal control financial reporting responsibility express opinion financial statements opinion companys internal control financial reporting based audits public accounting firm registered public company accounting oversight board united states pcaob required independent respect company accordance us federal securities laws applicable rules regulations securities exchange commission pcaob conducted audits accordance standards pcaob standards require plan perform audits obtain reasonable assurance whether financial statements free material misstatement whether due error fraud whether effective internal control financial reporting maintained material respects audits financial statements included performing procedures assess risks material misstatement financial statements whether due error fraud performing procedures respond risks procedures included examining test basis evidence regarding amounts disclosures financial statements audits also included evaluating accounting principles used significant estimates made management well evaluating overall presentation financial statements audit internal control financial reporting included obtaining understanding internal control financial reporting assessing risk material weakness exists testing evaluating design operating effectiveness internal control based assessed risk audits also included performing procedures considered necessary circumstances believe audits provide reasonable basis opinions index consolidated financial statements definition limitations internal control financial reporting companys internal control financial reporting process designed provide reasonable assurance regarding reliability financial reporting preparation financial statements external purposes accordance generally accepted accounting principles companys internal control financial reporting includes policies procedures 1 pertain maintenance records reasonable detail accurately fairly reflect transactions dispositions assets company 2 provide reasonable assurance transactions recorded necessary permit preparation financial statements accordance generally accepted accounting principles receipts expenditures company made accordance authorizations management directors company 3 provide reasonable assurance regarding prevention timely detection unauthorized acquisition use disposition companys assets could material effect financial statements inherent limitations internal control financial reporting may prevent detect misstatements also projections evaluation effectiveness future periods subject risk controls may become inadequate changes conditions degree compliance policies procedures may deteriorate deloitte touche llp kansas city missouri may 24 2018 served companys auditor since 2012 index consolidated financial statements sprint corporation consolidated balance sheets see notes consolidated financial statements index consolidated financial statements sprint corporation consolidated statements operations see notes consolidated financial statements index consolidated financial statements sprint corporation consolidated statements comprehensive income loss see notes consolidated financial statements index consolidated financial statements sprint corporation consolidated statements cash flows see notes consolidated financial statements index consolidated financial statements sprint corporation consolidated statements stockholders equity millions see notes consolidated financial statements index consolidated financial statements sprint corporation notes consolidated financial statements index consolidated financial statements sprint corporation notes consolidated financial statements note 1 description operations sprint corporation including consolidated subsidiaries communications company offering comprehensive range wireless wireline communications products services designed meet needs individual consumers businesses government subscribers resellers wireless segment includes retail wholesale affiliate service revenue wide array wireless voice data transmission services equipment sales rentals sale lease wireless devices sale accessories us puerto rico us virgin islands wireline segment includes revenue domestic international wireline data communication services addition voice data ip communication services provided wireless segment july 10 2013 softbank corp subsequently changed name softbank group corp certain whollyowned subsidiaries together softbank completed merger softbank merger sprint nextel contemplated agreement plan merger dated october 15 2012 amended merger agreement bond purchase agreement dated october 15 2012 amended bond agreement result softbank merger starburst ii inc starburst ii became parent company sprint nextel immediately thereafter starburst ii changed name sprint corporation sprint nextel changed name sprint communications inc sprint communications result completion softbank merger softbank acquired approximate 78 interest sprint corporation subsequent open market stock purchases softbank owned approximately 85 outstanding common stock sprint corporation march 31 2018 note 2 summary significant accounting policies information basis consolidation estimates consolidated financial statements include accounts 100 owned subsidiaries control controlling financial interest intercompany transactions balances eliminated consolidation consolidated financial statements prepared conformity accounting principles generally accepted united states us gaap requires management company make estimates assumptions affect reported amounts assets liabilities revenues expenses disclosure contingent assets liabilities date consolidated financial statements significant estimates assumptions used limited allowance doubtful accounts estimated economic lives residual values property plant equipment fair value identified purchased tangible intangible assets business combination fair value assessments purposes impairment testing reclassification prior period amounts certain prior period amounts reclassified conform current period presentation result growing significance leasing program fiscal year 2017 disaggregated equipment revenue device sales device operating lease revenue consolidated statements operations revenue derived device sales reported new caption called equipment sales revenue derived device operating leases reported new caption called equipment rentals fiscal years ended march 31 2017 2016 disaggregated revenues 33 billion 18 billion respectively equipment revenue equipment rentals align changes made revenue presentation added two new captions within consolidated statements operations capture certain costs directly attributable leasing activities consisting cost equipment rentals exclusive depreciation equipment rentals fiscal years ended march 31 2017 2016 reclassed 481 million 321 million respectfully loss disposal property plant equipment net recoveries resulting writeoff leased devices net 494 million 277 million respectfully rental payments remitted mobile leasing solutions llc mls prior handset saleleaseback transaction cost equipment sales new caption called cost equipment rentals exclusive depreciation additionally disaggregated total depreciation network versus depreciation related equipment rentals network depreciation reported new caption called depreciation network depreciation derived equipment rentals reported new caption called depreciation index consolidated financial statements sprint corporation notes consolidated financial statements equipment rentals fiscal years ended march 31 2017 2016 disaggregated depreciation 31 billion 18 billion respectively depreciation equipment rentals total net operating revenues net operating expenses net income loss basic diluted earnings per share affected reclassifications summary significant accounting policies cash equivalents cash equivalents generally include highly liquid investments maturities time purchase three months less investments may include money market funds certificates deposit us government governmentsponsored debt securities corporate debt securities municipal securities bankrelated securities credit debit card transactions process carrying amounts approximate fair value shortterm investments shortterm investments generally include time deposits corporate debt securities commercial paper terms greater three months less one year date purchase carrying amounts recorded amortized cost approximate fair value interest earned recognized consolidated statements operations contractual term shortterm investments installment receivables carrying value installment receivables approximates fair value receivables recorded present value net deferred interest allowance credit losses time installment sale impute interest installment receivable record reduction revenue reduction face amount related receivable interest income recognized term installment contract service revenue categorize installment receivables prime subprime based upon subscriber credit profiles unbilled billedcurrent billedpast due based upon age receivable use proprietary scoring systems measure credit quality receivables using several factors credit bureau information subscriber credit risk scores service plan characteristics payment history subsequently monitored evaluate credit profiles prime subscriber receivables lower delinquency risk subprime subscriber receivables higher delinquency risk subscribers within subprime category may required make payment device accessory purchases installment receivables invoices yet generated customer considered unbilled installment receivables invoices generated past contractual due date considered billedcurrent installment receivables invoices generated payment approximately ten days past contractual due date considered billedpast due account balances writtenoff collection efforts unsuccessful future collection unlikely based length time day accounts become past due allowance doubtful accounts allowance doubtful accounts established cover probable reasonably estimable losses number subscriber accounts practical review collectability accounts individually determine amount allowance doubtful accounts period although account level analysis performed respect large wireless wireline subscribers estimate allowance doubtful accounts considers number factors including collection experience aging remaining accounts receivable portfolios credit quality subscriber base qualitative considerations including macroeconomic factors account balances written collection efforts unsuccessful future collection unlikely based length time day accounts become past due amounts written allowance doubtful accounts net recoveries adjustments 451 million 371 million 612 million years ended march 31 2018 2017 2016 respectively see note 3 installment receivables additional information relates allowance doubtful accounts specifically attributable installment receivables device accessory inventory inventories stated lower cost market cost determined firstin firstout fifo method company sells wireless devices separately conjunction service contract device sold service contract index consolidated financial statements sprint corporation notes consolidated financial statements may sold cost promotional discounts device expected recovered service contract net realizable value devices inventory analyzed regular basis analysis includes assessing obsolescence sales forecasts product life cycle marketplace considerations assessments regarding factors adversely change may sell devices lower prices record writedown inventory obsolete slowmoving items prior point sale property plant equipment property plant equipment ppe including improvements extend useful lives recognized cost depreciation ppe generally calculated using straightline method based estimated economic useful lives 3 30 years buildings improvements network equipment site costs related software 3 12 years nonnetwork internal use software office equipment leasehold improvements depreciated shorter lease term estimated useful life respective assets leased devices depreciated using straightline method estimated residual value generally term lease calculate depreciation certain network assets using group life method accordingly ordinary asset retirements disposals assets charged accumulated depreciation gain loss recognized gains losses associated asset retirements disposals recognized net consolidated statements operations depreciation rates assets revised periodically account changes related managements strategic objectives technological changes estimated residual values obsolescence changes estimates result adjustments depreciation expense prospectively estimated useful lives nonleased assets remaining period benefit devices leased customers repair maintenance costs research development costs expensed incurred capitalize costs network nonnetwork software developed obtained internal use application development stage costs included ppe software placed service depreciated estimated useful lives three five years costs incurred preliminary project postimplementation stage well maintenance training costs expensed incurred longlived asset impairment sprint evaluates longlived assets including intangible assets subject amortization impairment whenever events changes circumstances indicate carrying amount asset group may recoverable asset groups determined lowest level identifiable cash flows largely independent cash flows groups assets liabilities carrying amount longlived asset group recoverable exceeds fair value impairment loss recognized equal excess asset group’s carrying value estimated fair value see note 5 property plant equipment additional information longlived asset impairments certain assets yet deployed business including network equipment cell site development costs software development periodically assessed determine recoverability network equipment cell site development costs expensed whenever events changes circumstances cause company conclude assets longer needed meet managements strategic network plans deployed software development costs expensed longer probable software project deployed network equipment removed network also periodically assessed determine recoverability experience significant operational challenges including retaining attracting subscribers future cash flows company may sufficient recover carrying value wireless asset group could record asset impairments material sprints consolidated results operations financial condition indefinitelived intangible assets indefinitelived intangible assets primarily consist goodwill certain trademarks fcc licenses goodwill represents excess consideration paid estimated fair value net tangible identifiable intangible assets acquired business combinations determining whether intangible asset goodwill indefinitelived consider expected use assets regulatory economic environment within used effects obsolescence use assess indefinitelived intangible assets including goodwill index consolidated financial statements sprint corporation notes consolidated financial statements impairment least annually necessary frequently whenever events changes circumstances indicate asset may impaired analyses include determination fair value require considerable judgment highly sensitive changes underlying assumptions consequently assurance estimates assumptions made purposes estimating fair values indefinitelived assets including goodwill prove accurate prediction future sustained declines company’s operating results number wireless subscribers forecasted future cash flows growth rates assumptions well significant sustained declines company’s stock price related market capitalization could impact underlying key assumptions estimated fair values potentially leading future material impairment goodwill indefinitelived intangible assets see note 6 intangible assets additional information indefinitelived intangible asset impairments derivatives hedging company uses derivative instruments hedge exposure interest rate risks arising operating financing activities accordance risk management policies company hold issue derivative instruments trading speculative purposes derivatives recognized consolidated balance sheets fair values company becomes party derivative instrument intends apply hedge accounting formally documents hedge relationship risk management objective undertaking hedge includes designating instrument financial reporting purposes fair value hedge cash flow hedge net investment hedge accounting changes fair value derivative instrument depends whether company designated qualifying hedging relationship type hedging relationship march 31 2018 company held applied hedge accounting derivatives designated cash flow hedges changes fair value derivative designated hedging relationship recognized consolidated statements operations along ineffective portions changes fair value derivatives designated hedging relationships effective portion changes fair value derivative designated cash flow hedge recorded comprehensive income loss consolidated statements comprehensive income loss reclassified earnings period periods hedged item affects earnings derivative instruments designated hedges company assesses hedge’s inception ongoing basis whether derivatives used hedging transactions highly effective offsetting changes fair values cash flows hedged items highly effective means cumulative changes fair value derivative 80 125 cumulative changes fair value hedged item addition company determines derivative highly effective hedge accounting discontinued probable hedged forecasted transaction occur company discontinues hedge accounting affected portion forecasted transaction reclassifies gains losses accumulated comprehensive loss earnings consolidated statements operations derivative hedge relationship terminated hedged item sold extinguished terminated hedge accounting discontinued prospectively benefit plans provide defined benefit pension plan postretirement benefits certain employees sponsor defined contribution plan employees march 31 2018 2017 fair value pension plan assets certain postretirement benefit plan assets aggregate 14 billion period fair value projected benefit obligations aggregate 22 billion period result plans underfunded approximately 800 million march 31 2018 2017 recorded net liability consolidated balance sheets estimated contributions totaling approximately 82 million expected paid fiscal year 2018 offset pension liability recorded equity component accumulated comprehensive loss net tax including 30 million 35 million 29 million years ended march 31 2018 2017 2016 respectively amortized selling general administrative consolidated statements operations index consolidated financial statements sprint corporation notes consolidated financial statements change net liability plan year ended march 31 2018 affected change discount rate used estimate projected benefit obligation decreasing 43 year ended march 31 2017 41 year ended march 31 2018 change net liability plan year ended march 31 2017 affected higher expected actual rate return plan assets experienced year change discount rate used estimate projected benefit obligation year ended march 31 2017 change net liability plan year ended march 31 2016 affected change discount rate used estimate projected benefit obligation increasing 42 year ended march 31 2015 43 year ended march 31 2016 combined 9 million prior service credit resulting amendment one postretirement benefit plans 2015 intend make future cash contributions plan amount necessary meet minimum funding requirements according applicable benefit plan regulations december 31 2005 plan amended freeze benefit plan accruals participants objective investment portfolio pension plan achieve longterm nominal rate return net fees exceeds plans longterm expected rate return investments funding purposes 750 775 years ended march 31 2018 2017 respectively meet objective investment strategy sevenmonth period ended october 31 2017 governed asset allocation policy whereby targeted allocation percentage assigned asset class follows 38 us equities 16 international equities 28 fixed income investments 9 real estate investments 9 investments including hedge funds actual allocations allowed deviate target allocation percentages within range asset class defined investment policy november 1 2017 target allocation percentage assigned asset class revised follows 38 us equities 16 international equities 37 fixed income investments 9 real estate investments remains consistent march 31 2018 longterm expected rate return investments funding purposes 725 year ended march 31 2019 investments plan measured fair value recurring basis determined using quoted market prices estimated fair values march 31 2018 26 investment portfolio valued quoted prices active markets identical assets 64 valued using quoted prices similar assets active inactive markets observable inputs 10 valued using unobservable inputs supported little market activity majority used net asset value per share equivalent practical expedient measure fair value defined contribution plan participants may contribute portion eligible pay plan payroll withholdings company match 100 participants pretax roth contribution aggregate first 3 eligible compensation calendar year 2018 company matched 50 participants pretax roth contribution aggregate first 4 eligible compensation calendar years 2017 2016 company matched 100 participants pretax roth contribution aggregate first 3 eligible compensation 50 participants pretax roth contribution aggregate next 2 eligible compensation maximum matching contribution 4 calendar year 2015 fixed matching contributions totaled approximately 38 million 28 million 54 million fiscal years ended march 31 2018 2017 2016 respectively fiscal year ended march 31 2018 company also made discretionary matching contribution approximately 14 million determined compensation committee equal 100 participants pretax roth contribution aggregate first 4 eligible compensation 500 maximum based attainment certain profitability levels revenue recognition operating revenues primarily consist wireless service revenues generated device accessory sales revenues leasing device revenues wholesale operators thirdparty affiliates well long distance voice data internet revenues service revenues consist fixed monthly recurring charges variable usage charges miscellaneous fees roaming commissions equipment protection plans late payment early termination charges interest certain regulatory related fees net service credits adjustments generally recognize service revenues services rendered assuming revenue recognition criteria met recognize revenue access charges services charged fixed amounts ratably service period net credits adjustments service discounts billing disputes fraud unauthorized usage result cutoff times multiple billing cycles month required estimate amount subscriber revenues earned billed end billing cycle end reporting period estimates based primarily rate plans effect historical usage index consolidated financial statements sprint corporation notes consolidated financial statements billing patterns regulatory fees costs recorded gross largest component regulatory fees universal service fund represented 2 net operating revenues periods presented consolidated statements operations recognize equipment sales corresponding costs equipment sales title risk loss passes indirect dealer enduse subscriber assuming revenue recognition criteria met arrangements involving multiple deliverables equipment service revenue allocated deliverables based relative selling prices equipment sales limited amount noncontingent consideration received device sold subscriber equipment sales also reduced estimated amount imputed interest associated installment receivables subscribers elect finance purchase device 24month period subsidize cost device incentive retain acquire subscribers cost incentives recorded reduction revenue upon activation device service contract multipleelement arrangement includes option purchase monthly basis annual tradein right amount total arrangement consideration reduced estimated fair value tradein right guarantee remaining proceeds allocated amongst deliverables arrangement qualified subscribers lease device contractual period time end lease term subscribers option turn device continue leasing device purchase device accounting device leases involves specific determinations applicable lease accounting standards involve complex prescriptive provisions impact timing amount revenue recognized leased devices critical elements considered respect lease accounting economic life device fair value device including residual value lease devices qualifying subscribers also purchase service plan date substantially device leases classified operating leases revenues arrangements allocated amongst deliverables multipleelement arrangement considering relative fair values lease nonlease elements amount allocable operating lease element included within equipment rentals consolidated statements operations recognized ratably lease term typically two years less accounting estimates related recognition revenue require us make assumptions numerous factors future billing adjustments disputes subscribers unauthorized usage future returns mailin rebates device sales fair value tradein right total arrangement consideration dealer commissions cash consideration given us dealer enduse subscriber presumed reduction equipment sales unless receive identifiable benefit exchange consideration fair value benefit reasonably estimated case consideration generally recorded selling expense purchase inventory property plant equipment compensate dealers using specific compensation programs related sale devices subscriber service contracts commission earned dealer solely due selling activity relating wireless service cost recorded selling expense commissions generally earned upon sale device service enduse subscriber incentive payments dealers sales associated devices service contracts classified contrarevenue extent incentive payment reimbursement sprint discount passed customer dealer selling expense amount associated selling effort incentive payments certain indirect dealers purchase devices sources original equipment manufacturer oem recognized selling expense device activated sprint service plan sprint recognize equipment sales cost equipment sales transactions severance exit costs liabilities severance exit costs recognized based upon nature cost incurred involuntary separation plans completed within guidelines written involuntary separation plan liability recognized probable reasonably estimable voluntary separation plans vsp liability recognized vsp irrevocably accepted employee onetime termination benefits additional severance pay benefit payouts exit costs lease termination costs liability measured recognized initially fair value period liability incurred subsequent changes liability recognized adjustments index consolidated financial statements sprint corporation notes consolidated financial statements period change severance exit costs associated business combinations recorded results operations incurred compensation plans march 31 2018 sprint sponsored three incentive plans amended restated 2015 omnibus incentive plan 2015 plan 2007 omnibus incentive plan 2007 plan 1997 longterm incentive program 1997 programtogether compensation plans sprint also sponsors employee stock purchase plan espp 2015 plan may grant share nonshare based awards including stock options stock appreciation rights restricted stock restricted stock units performance shares performance units equitybased cash awards employees outside directors eligible individuals defined plan march 31 2018 number shares available reserved future grants 2015 plan espp totaled approximately 201 million common shares compensation committee board directors one executive officers compensation committee authorize provided 2015 plan determine terms share nonshare based award new grants made 2007 plan 1997 program use new shares satisfy sharebased awards treasury shares available fair value option award estimated grant date using blackscholes option valuation model based several assumptions including riskfree interest rate volatility expected dividend yield expected term year ended march 31 2018 company granted approximately 3 million stock options weighted average grant date fair value 398 per share based upon assumptions riskfree interest rate 193 265 expected volatility 419 518 expected dividend yield 0 expected term 55 65 general options granted exercise price equal market value underlying shares grant date vest annual basis three years contractual term ten years march 31 2018 29 million options outstanding 18 million options exercisable generally determine fair value restricted stock unit award based closing price companys common stock date grant restricted stock units generally performance service requirements service requirements vesting periods ranging one three years ended march 31 2018 2017 2016 also granted performancebased restricted stock units executive nonexecutive employees earned shares based upon achievement certain market conditions equal specified volumeweighted average prices companys common stock regular trading new york stock exchange 150day calendar period performance period specific grant performance period awards granted year ended march 31 2018 specified market criteria yet achieved within performance period upon achievement earned shares generally vest 50 four years grant date 50 five years grant date continuous service required vesting date awards granted years ended march 31 2017 2016 specified market criteria achieved threshold price target qualifying 100 payout however earned shares remain subject vesting requirements year ended march 31 2018 vesting schedule earned shares modified incremental impact compensation expense generally vest onethird two years grant date onethird three years grant date onethird four years grant date continuous service required vesting date fair value marketbased restricted stock units estimated date grant using monte carlo valuation methodology incorporates valuation possibility market condition may satisfied year ended march 31 2018 assumptions used monte carlo valuation model consistent use value stock options include riskfree interest rate 179 242 expected volatility 419 518 expected dividend yield 0 number restricted stock units ultimately vest increase depending upon future performance companys common stock achievement higher threshold price target performance period maximum payout 120 compensation cost related sharebased awards market conditions recognized regardless level threshold price target achievement employees directors granted restricted stock units required pay shares generally must remain employed us continue serve member board directors restrictions lapse typically three years employees one year directors certain restricted stock units outstanding march 31 2018 entitled dividend equivalents paid cash dividends declared paid common shares index consolidated financial statements sprint corporation notes consolidated financial statements performancebased restricted stock units entitled dividend equivalent payments applicable performance service criteria met year ended march 31 2018 company granted approximately 20 million service performancebased restricted stock units including market conditions weighted average grant date fair value 690 per share march 31 2018 approximately 78 million restricted stock unit awards outstanding compensation costs cost employee services received exchange sharebased awards classified equity measured using estimated fair value award date grant cost recognized period award recipient required provide service exchange award awards instruments classified liabilities measured estimated fair value reporting date settlement pretax share nonshare based compensation charges incentive plans included net income loss 182 million 93 million 75 million years ended march 31 2018 2017 2016 respectively net income tax benefit recognized consolidated financial statements sharebased compensation awards 65 million 33 million 20 million years ended march 31 2018 2017 2016 respectively march 31 2018 190 million total unrecognized compensation cost related nonvested incentive awards expected recognized weighted average period 198 years advertising costs recognize advertising expense incurred selling general administrative expense advertising expenses totaled 13 billion 11 billion 13 billion years ended march 31 2018 2017 2016 respectively variable interest entities vie vies entities lack sufficient equity permit entity finance activities without additional subordinated financial support parties equity investors ability make significant decisions relating entitys operations voting rights obligation absorb expected losses right receive residual returns entity common type vie special purposes entity spe spes commonly used securitization transactions order isolate certain assets distribute cash flows assets investors spes generally structured insulate investors claims spes assets creditors entities including creditors seller assets required consolidate assets liabilities vies deemed primary beneficiary primary beneficiary party power make decisions significantly affect economic performance vie obligation absorb losses right receive benefits could potentially significant vie new accounting pronouncements may 2014 financial accounting standards board fasb issued new authoritative literature revenue contracts customers subsequently modified several areas standard order provide additional clarity improvements new standard supersede much existing authoritative literature revenue recognition standard related amendments effective company fiscal year beginning april 1 2018 including interim periods within fiscal year two adoption methods available implementation standard update related recognition revenue contracts customers full retrospective method guidance applied retrospectively contracts reporting period presented subject allowable practical expedients modified retrospective method guidance applied current period presented recognizing cumulative effect change adjustment beginning balance retained earnings also requires additional disclosures comparing results previous guidance adopt standard using modified retrospective method along practical expedient apply new standard contracts completed date adoption referred open contracts currently anticipate standard material impact consolidated financial statements upon adoption future periods ultimate impact revenue expenses resulting application new index consolidated financial statements sprint corporation notes consolidated financial statements standard subject assessments dependent many variables including limited terms mix contractual arrangements customers based currently available information expect cumulative adjustment resulting initially applying new standard result reduction opening balance sheet accumulated deficit ranging 15 billion 18 billion pretax basis cumulative pretax adjustment expected inclusive following components • capitalize subsequently amortize commission costs currently expensed related new service contracts expected customer relationship period costs associated contract renewals expected amortized anticipated length service contract addition deferred contract cost asset assessed impairment periodic basis result expect cumulative adjustment related capitalized incremental costs obtain contract associated open contracts present approximately 11 billion 13 billion reduction accumulated deficit expect operating expenses lower shortterm due higher deferrals costs compared amortization prior period commission costs deferred open contracts • various changes timing revenue recognition allocation revenue equipment service revenue significant impact wireless subsidy contracts addition also expect interest installment billings entered directly customers represent significant financing component defined standard longer discount installment receivables upon contract inception result expect cumulative adjustment related changes represent approximately 400 million 500 million decrease accumulated deficit expect service revenue lower future periods generally due revenue allocated equipment sales changes customer billing timing cash flows presentation cash flows • bundled arrangements include lease service elements expect allocation customer consideration pattern revenue recognition consistent current practice new products offerings changes current offerings may yield significantly different impacts currently expected conclusions reassessed periodically based current facts circumstances identified implemented changes systems processes internal controls meet standards reporting disclosure requirements january 2016 fasb issued authoritative guidance regarding financial instruments amended guidance classification measurement financial instruments new guidance entities required measure equity investments consolidated accounted equity method fair value changes fair value recorded net income unless entity elected new practicability exception financial liabilities measured using fair value option entities required separately present comprehensive income portion changes fair value attributable instrumentspecific credit risk additionally guidance amends certain disclosure requirements associated fair value financial instruments standard effective company’s fiscal year beginning april 1 2018 including interim reporting periods within fiscal year company expect adoption guidance material impact consolidated financial statements february 2016 fasb issued authoritative guidance regarding leases subsequently modified several areas standard order provide additional clarity improvements new standard supersede much existing authoritative literature leases guidance requires lessees among things recognize rightofuse assets liabilities balance sheet leases lease terms longer twelve months standard effective company fiscal year beginning april 1 2019 including interim periods within fiscal year early application permitted entities required use modified retrospective application leases exist entered beginning earliest comparative period financial statements option elect certain transition reliefs company currently evaluating guidance assessing overall impact however expect adoption guidance material impact consolidated financial statements index consolidated financial statements sprint corporation notes consolidated financial statements june 2016 fasb issued authoritative guidance regarding financial instruments credit losses requires entities use current expected credit loss impairment model based expected losses rather incurred losses model entity would recognize impairment allowance equal current estimate contractual cash flows entity expect collect financial assets measured amortized cost entitys estimate would consider relevant information past events current conditions reasonable supportable forecasts result recognition lifetime expected credit losses standard effective companys fiscal year beginning april 1 2020 including interim reporting periods within fiscal year although early adoption permitted company expect adoption guidance material impact consolidated financial statements october 2016 fasb issued authoritative guidance regarding income taxes amended guidance income tax consequences intraentity transfers assets inventory new guidance entities required recognize income tax consequences intraentity transfer asset inventory transfer occurs thereby eliminating recognition exception within current guidance standard effective company’s fiscal year beginning april 1 2018 including interim reporting periods within fiscal year company expect adoption guidance material impact consolidated financial statements january 2017 fasb issued authoritative guidance amending business combinations clarifying definition business clarify definition business objective providing robust framework assist management evaluating whether transactions accounted acquisitions disposals assets businesses standard effective company fiscal year beginning april 1 2018 including interim periods within fiscal year amendments applied prospectively business combinations occur effective date january 2017 fasb issued authoritative guidance regarding intangibles goodwill simplifying test goodwill impairment simplifies goodwill impairment test eliminating requirement calculate implied fair value goodwill measure goodwill impairment charge step 2 test rather record impairment charge based excess carrying value fair value company early adopt standard annual goodwill impairment test fiscal year beginning april 1 2018 company expect adoption guidance material impact consolidated financial statements january 1 2018 company adopted authoritative guidance regarding statement cash flows classification certain cash receipts cash payments address diversity certain cash receipts cash payments presented classified statement cash flows provides guidance eight specific cash flow issues including among others beneficial interests securitization transactions separately identifiable cash flows application predominance principle debt prepayment debt extinguishment costs proceeds settlement corporateowned life insurance policies company adopted standard retrospective application consolidated statements cash flows standard impacted presentation cash flows related beneficial interests securitization transactions deferred purchase price associated accounts receivable facility resulting material reclassification cash inflows operating activities investing activities 105 billion 79 billion years ended march 31 2017 2016 respectively consolidated statements cash flows standard also impacted presentation cash flows related separately identifiable cash flows application predominance principal related direct channel leased devices resulting material reclassification cash outflows operating activities investing activities 31 billion 36 billion years ended march 31 2017 2016 respectively consolidated statements cash flows addition standard also impacted presentation cash flows related debt prepayment debt extinguishment costs resulted reclassification cash outflows operating activities financing activities 129 million costs incurred quarter ended june 30 2017 remainder incurred quarter ended march 31 2018 debt prepayment debt extinguishment costs year ended march 31 2017 2016 proceeds settlement corporateowned life insurance policies immaterial reclassification operating investing activities consolidated statements cash flows periods presented remaining cash flow issues addressed authoritative guidance impact statement cash flows periods presented january 1 2018 company adopted authoritative guidance regarding statement cash flows restricted cash requiring amounts generally described restricted cash restricted cash equivalents included cash equivalents reconciling beginningofperiod endofperiod total amounts shown statement cash index consolidated financial statements sprint corporation notes consolidated financial statements flows company adopted standard retrospective application consolidated statements cash flows adoption standard resulted decrease net cash used investing activities 72 million year ended march 31 2017 impact year ended march 31 2016 february 2018 fasb issued authoritative guidance reclassification certain tax effects accumulated comprehensive income provides entity ability reclassify certain tax effects accumulated comprehensive income loss retained earnings amended guidance allows reclassification stranded tax effects resulting tax cuts jobs act utilize portfolio approach releasing tax effects accumulated comprehensive loss elected adopt amended authoritative guidance january 1 2018 result reclassified 60 million accumulated comprehensive loss accumulated deficit consolidated balances sheets effect change us federal corporate tax rate gross deferred tax amounts related valuation allowances date enactment tax cuts jobs act items remaining accumulated comprehensive loss see note 10 income taxes note 3installment receivables certain subscribers option pay devices installments generally 24month period shortterm installment receivables recorded accounts notes receivable net longterm installment receivables recorded assets consolidated balance sheets october 2015 february 2017 installment receivables sold unaffiliated third parties purchasers treated sale financial assets derecognized receivables well related allowances result accounts receivable facility receivables facility amended february 2017 proceeds received purchasers exchange installment receivables recorded borrowings see note 7 longterm debt financing capital lease obligations following table summarizes installment receivables balance aging installment receivables gross basis credit category follows index consolidated financial statements sprint corporation notes consolidated financial statements activity deferred interest allowance credit losses installment receivables follows note 4 financial instruments company carries certain assets liabilities fair value fair value defined exit price representing amount would received sell asset paid transfer liability orderly transaction market participants measurement date threetier hierarchy inputs used measuring fair value prioritizes inputs based observability measurement date follows quoted prices active markets identical assets liabilities observable inputs quoted prices active markets identical assets liabilities unobservable inputs little market data require company develop assumptions market participants would use pricing asset liability carrying amount cash equivalents accounts notes receivable accounts payable approximates fair value shortterm investments recorded amortized cost respective carrying amounts approximate fair value would determined primarily using quoted prices active markets march 31 2018 shortterm investments totaled 24 billion consisted approximately 16 billion time deposits 765 million commercial paper march 31 2017 shortterm investments totaled 54 billion consisted approximately 30 billion time deposits 24 billion commercial paper fair value marketable equity securities totaling 57 million 46 million march 31 2018 2017 respectively measured recurring basis using quoted prices active markets except financing transaction handset saleleaseback tranche 2 mls terminated october 2017 see note 7 longterm debt financing capital lease obligations current longterm debt financings carried amortized cost company elected measure financing obligation mls fair value means better reflect economic substance arrangement eligible financial instrument elected fair value option fair value financing obligation determined outset arrangement using discounted cash flow model derived unobservable inputs customer churn rates customer upgrade probabilities likelihood sprint elect exchange option versus termination option upon customer upgrade gains losses resulting changes fair value financing obligation included “other income expense net” consolidated statements operations year ended march 31 2018 material change fair value financing obligation year ended march 31 2018 made principal repayments noncash adjustments totaling 385 million mls resulting principal balance fully paid addition financing obligation mls remaining debt estimated fair value determined based unobservable inputs primarily represents borrowings secured equipment credit facilities network equipment saleleaseback sales receivables facility see note 7 longterm debt financing capital lease obligations carrying amounts associated borrowings approximate fair value estimated fair value majority current longterm debt excluding secured equipment credit facilities sold wireless service installment billing future receivables borrowings network equipment saleleaseback tranche 2 transactions determined based quoted prices active markets using observable inputs derived principally corroborated observable market data index consolidated financial statements sprint corporation notes consolidated financial statements following table presents carrying amounts estimated fair values current longterm debt financing obligations note 5 property plant equipment property plant equipment consists primarily network equipment longlived assets used provide service subscribers noncash accruals included ppe excluding leased devices totaled 704 million 962 million 468 million march 31 2018 2017 2016 respectively following table presents components ppe related accumulated depreciation network equipment site costs related software includes switching equipment cell site towers site development costs radio frequency equipment network software digital fiber optic cable transport facilities transmissionrelated equipment buildings improvements principally consists owned general office facilities retail stores leasehold improvements nonnetwork internal use software office equipment leased devices primarily consists furniture information technology systems equipment vehicles leased devices construction progress depreciated placed service primarily includes materials transmission related equipment labor engineering site development costs interest costs relating construction development network sprint offers leasing program customers whereby qualified subscribers lease device contractual period time end lease term subscriber option turn device continue leasing device purchase device march 31 2018 substantially device leases classified operating leases purchases leased devices reported cash outflows capital expenditures leased devices consolidated statements cash flows devices depreciated using straightline method estimated residual value generally term lease index consolidated financial statements sprint corporation notes consolidated financial statements following table presents leased devices related accumulated depreciation years ended march 31 2018 2017 noncash transfers returned leased devices property plant equipment device accessory inventory lower net book value estimated fair value 661 million 456 million respectively year ended march 31 2017 repurchased remaining mls handset saleleaseback tranche 1 tranche 1 devices totaling 477 million part total devices sold 13 billion year ended march 31 2016 see note 7 longterm debt financing capital lease obligations march 31 2018 minimum estimated payments received leased devices follows millions year ended march 31 2018 recorded 868 million loss disposal property plant equipment net recoveries net losses resulted writeoff leased devices primarily associated lease cancellations prior scheduled customer lease terms customers return devices us 493 million included cost equipment rentals consolidated statements operations addition recorded 375 million losses related cell site construction costs longer recoverable result changes companys network plans included net consolidated statements operations year ended march 31 2017 recorded 509 million loss disposal property plant equipment net recoveries losses totaling 481 million resulted writeoff leased devices associated lease cancellations prior scheduled customer lease terms customers return devices us included cost equipment rentals consolidated statements operations addition recorded 28 million losses related cell site construction costs longer recoverable result changes companys network plans included net consolidated statements operations year ended march 31 2016 recorded 487 million loss disposal property plant equipment net recoveries losses result 65 million net losses recognized upon sale devices mls tranche 1 transaction represented difference fair value net book value devices sold 256 million losses writeoff leased devices associated lease cancellations prior scheduled customer lease terms customers return devices us included cost equipment rentals consolidated statements operations addition recorded 166 million losses due cell site construction costs network costs longer recoverable result changes companys network plans included net consolidated statements operations note 6 intangible assets indefinitelived intangible assets indefinitelived intangible assets consist fcc licenses acquired primarily fcc auctions business combinations certain trademarks goodwill march 31 2018 held 800 mhz 19 ghz 25 ghz fcc licenses authorizing use radio frequency spectrum deploy wireless services long company acts within requirements constraints regulatory authorities renewal extension licenses reasonably certain minimal cost accordingly concluded fcc licenses indefinitelived intangible assets sprint boost mobile trademarks also identified indefinitelived intangible assets index consolidated financial statements sprint corporation notes consolidated financial statements goodwill represents excess consideration paid estimated fair value net tangible identifiable intangible assets acquired business combinations year ended march 31 2018 sprint prwireless pr inc completed transaction combine operations puerto rico us virgin islands new entity named prwireless holdco llc companies contributed employees subscribers network assets spectrum transaction sprint prwireless pr inc approximate 68 32 preferred economic interest well 55 45 common voting interest new entity respectively sprints ownership represents controlling financial interest result consolidates entity presents noncontrolling interest consolidated financial statements consideration transferred sprint preliminarily allocated assets acquired liabilities assumed prwireless pr inc based estimated fair values time transaction preliminary purchase accounting adjustments represent managements current best estimate fair value could change additional information obtained evaluated beginning total assets liabilities new entity approximately 390 million 240 million respectively amounts approximately 270 million 220 million represent fair value prwireless pr inc asset liability contribution respectively increased corresponding financial statement line items sprint consolidated balance sheet march 31 2018 acquired assets primarily consist approximately 150 million fcc licenses 35 million intangible assets 85 million current fixed assets acquired liabilities consist approximately 170 million longterm debt 50 million current liabilities following provides activity indefinitelived intangible assets within consolidated balance sheets 1 year ended march 31 2018 net additions within fcc licenses include 479 million increase spectrum license exchanges described approximately 150 million spectrum licenses result transaction prwireless pr inc described 2 year ended march 31 2018 approximately 7 million added goodwill result transaction prwireless pr inc described 3 march 31 2018 accumulated impairment losses goodwill spectrum license exchanges first quarter fiscal year 2017 exchanged certain spectrum licenses carriers noncash transactions result recorded noncash gain 479 million represented difference fair value net book value spectrum transferred carriers resulting noncash investing activity fair value licenses received 921 million gain presented net consolidated statements operations year ended march 31 2018 index consolidated financial statements sprint corporation notes consolidated financial statements assessment impairment annual impairment testing date goodwill indefinitelived intangible assets january 1 year however test impairment annual tests event occurs circumstances change indicate asset may impaired case goodwill fair value reporting unit carrying amount record impairment years ended march 31 2018 2017 stock price march 31 2018 488 net book value per share price 658 however subsequent balance sheet date stock price increased 514 may 23 2018 quoted market price stock sole consideration fair value considerations include limited expectations future results well broad market industry data determination fair value requires considerable judgment highly sensitive changes underlying assumptions consequently assurance estimates assumptions made purposes goodwill spectrum licenses sprint boost mobile trade names impairment tests prove accurate prediction future sustained declines company’s operating results number wireless subscribers future forecasted cash flows growth rates assumptions well significant sustained declines company’s stock price related market capitalization could impact underlying key assumptions estimated fair values potentially leading future material impairment goodwill indefinitelived intangible assets intangible assets subject amortization customer relationships amortized using sumofthemonths digits method definitelived intangible assets amortized using straightline method estimated useful lives respective assets reduce gross carrying value associated accumulated amortization specified intangible assets become fully amortized amortization expense related favorable spectrum tower leases recognized cost services consolidated statements operations index consolidated financial statements sprint corporation notes consolidated financial statements note 7 longterm debt financing capital lease obligations 1 sprint communications inc 200 million 925 senior notes due 2022 unsecured march 31 2018 march 31 2018 sprint corporation parent corporation 120 billion aggregate principal amount senior notes outstanding addition march 31 2018 outstanding principal amount senior notes issued sprint communications sprint capital corporation guaranteed notes issued sprint communications sprint communications secured term loan secured revolving bank credit facility edc agreement secured equipment credit facilities receivables facility certain obligations collectively totaled 216 billion principal amount longterm debt sprint corporation fully unconditionally guaranteed indebtedness issued 100 owned subsidiaries although certain financing agreements restrict ability sprint communications subsidiaries distribute cash sprint corporation ability subsidiaries distribute cash respective parents including sprint communications generally restricted march 31 2018 approximately 148 billion aggregate principal amount outstanding debt comprised certain notes financing capital lease obligations secured substantially assets company cash interest payments net amounts capitalized 55 million 44 million 51 million totaled 25 billion 27 billion 24 billion years ended march 31 2018 2017 2016 respectively weighted average effective interest rate related notes credit facilities 62 year ended march 31 2018 64 years ended march 31 2017 2016 index consolidated financial statements sprint corporation notes consolidated financial statements notes march 31 2018 outstanding notes consisted senior notes guaranteed notes unsecured well senior secured notes associated spectrum financing transactions cash interest notes payable semiannually arrears exception spectrum financing senior secured notes payable quarterly march 31 2018 327 billion aggregate principal amount notes redeemable companys discretion thenapplicable redemption prices plus accrued interest march 31 2018 265 billion aggregate principal amount senior notes senior secured notes guaranteed notes provided holders right require us repurchase notes change control triggering event defined applicable indentures supplemental indentures occurs may 2018 successfully completed consent solicitations respect certain series sprint corporation sprint communications senior notes result merger transactions fully described note 17 subsequent events consummated constitute change control defined applicable indentures december 1 2017 clearwire communications llc exchangeable notes retired pursuant terms indenture provided notes could tendered holder’s option called option date case 100 par value plus accrued interest threemonth period ended june 30 2017 pursuant cash tender offer sprint communications retired 388 million principal amount outstanding 8375 notes due 2017 12 billion principal amount outstanding 9000 guaranteed notes due 2018 threemonth period ended march 31 2018 sprint communications retired additional 47 million principal amount outstanding 9000 guaranteed notes due 2018 incurred costs 131 million consisted call redemption premiums tender expenses removed unamortized premiums 66 million associated retirements resulting loss early extinguishment debt 65 million included expense income net consolidated statements operations addition threemonth period ended september 30 2017 sprint communications retired remaining 912 million principal amount outstanding 8375 notes due 2017 february 2018 sprint corporation issued 15 billion aggregate principal amount 7625 senior notes due 2026 guaranteed sprint communications interest payable semiannually march 1 september 1 spectrum financings october 2016 certain subsidiaries sprint communications restricted subsidiaries sprint communications sprint capital corporations indentures transferred certain directly held thirdparty leased spectrum licenses collectively spectrum portfolio whollyowned bankruptcyremote special purpose entities collectively spectrum financing spes spectrum portfolio represented approximately 14 sprints total spectrum holdings mhzpops basis used collateral raise initial 35 billion senior secured notes 2016 spectrumbacked notes bearing interest 336 per annum 70 billion securitization program 2016 spectrumbacked notes repayable fiveyear term interestonly payments first four quarters amortizing quarterly principal payments thereafter commencing december 2017 september 2021 year ended march 31 2018 made scheduled principal repayments 438 million resulting total principal amount outstanding related 2016 spectrumbacked notes 31 billion march 31 2018 875 million classified current portion longterm debt financing capital lease obligations consolidated balance sheets march 2018 issued additional 39 billion aggregate principal amount senior secured notes existing 70 billion securitization program consisting two series senior secured notes first series notes totaled 21 billion aggregate principal amount bears interest 4738 per annum quarterly interestonly payments june 2021 amortizing quarterly principal amounts thereafter commencing june 2021 march 2025 second series notes totaled approximately 18 billion aggregate principal amount bears interest 5152 per annum quarterly interestonly payments june 2023 amortizing quarterly principal amounts thereafter commencing june 2023 march 2028 spectrum portfolio also serves collateral first spectrum notes issuance remains substantially identical original portfolio october 2016 index consolidated financial statements sprint corporation notes consolidated financial statements simultaneously october 2016 offering sprint communications entered longterm lease spectrum financing spes ongoing use spectrum portfolio spectrum lease executory contract accounting purposes treated similar manner operating lease sprint communications required make monthly lease payments spectrum financing spes market rate lease payments guaranteed sprint corporation certain subsidiaries none restricted subsidiaries sprints indentures sprint communications secured together obligations another transaction document substantially assets entities pari passu basis aggregate cap 35 billion grant security secured term loan revolving bank credit facility edc defined agreement sufficient service senior secured notes lease also constitutes collateral senior secured notes spectrum financing spes whollyowned sprint subsidiaries entities consolidated intercompany activity eliminated spectrum financing spe separate legal entity separate creditors entitled prior upon liquidation spectrum financing spe satisfied spectrum financing spes assets prior assets spectrum financing spe becoming available sprint accordingly assets spectrum financing spes available satisfy debts obligations owed creditors sprint obligations spectrum financing spes notes paid full credit facilities secured term loan revolving bank credit facility february 3 2017 entered credit agreement 60 billion consisting 40 billion sevenyear secured term loan matures february 2024 20 billion secured revolving bank credit facility expires february 2021 march 31 2018 approximately 151 million letters credit outstanding secured revolving bank credit facility including letter credit required report order see note 11 commitments contingencies result outstanding letters credit directly reduce availability borrowings company approximately 18 billion borrowing capacity available secured revolving bank credit facility march 31 2018 bank credit facility requires ratio leverage ratio total indebtedness trailing four quarters earnings interest taxes depreciation amortization nonrecurring items defined bank credit facility adjusted ebitda exceed 475 10 fiscal quarter ending december 31 2018 fiscal quarter ending march 31 2019 december 31 2019 leverage ratio must exceed 375 10 leverage ratio must exceed 35 10 fiscal quarter ended march 31 2020 fiscal quarter ending thereafter expiration facility term loan interest rate equal libor plus 250 basis points secured revolving bank credit facility interest rate equal libor plus spread varies depending leverage ratio year ended march 31 2018 made principal repayments totaling 40 million secured term loan resulting total principal amount 40 billion outstanding march 31 2018 consideration sevenyear secured term loan entered fiveyear fixedforfloating interest rate swap 20 billion notional amount designated cash flow hedge effective portion changes fair value recorded comprehensive income loss consolidated statements comprehensive income loss ineffective portion recorded interest expense current period earnings consolidated statements operations fair value interest rate swap approximately 41 million march 31 2018 recorded asset consolidated balance sheets approximately 2 million march 31 2017 recorded liability consolidated balance sheets prwireless term loan threemonth period ended december 31 2017 sprint prwireless pr inc completed transaction combine operations puerto rico us virgin islands new entity prior formation new entity prwireless pr inc incurred 178 million principal amount debt secured term loan became debt new entity upon transaction close secured term loan bears interest 525 plus libor expires june 2020 amounts repaid early may drawn effective date transaction march 31 2018 prwireless pr llc borrowed additional 5 million made principal repayments totaling 1 million secured term loan resulting 182 million total principal amount outstanding additional 20 million remaining index consolidated financial statements sprint corporation notes consolidated financial statements available march 31 2018 sprint provided unsecured guarantee repayment secured term loan obligations secured portion facility limited assets new entity borrower edc agreement march 31 2018 edc agreement provided security covenant terms similar secured term loan revolving bank credit facility however terms edc agreement repayments outstanding amounts cannot redrawn march 31 2018 total principal amount borrowings edc facility 300 million secured equipment credit facilities finnvera plc finnvera secured equipment credit facility provided ability borrow 800 million finance network equipmentrelated purchases nokia solutions networks us llc usa facilitys availability borrowing expired october 2017 borrowings contingent upon amount timing networkrelated purchases made sprint year ended march 31 2018 drew 160 million made principal repayments totaling 126 million facility resulting total principal amount 174 million outstanding march 31 2018 ksure secured equipment credit facility provides ability borrow 750 million finance network equipmentrelated purchases samsung telecommunications america llc facility divided three consecutive tranches varying size september 2017 amended secured equipment credit facility extend borrowing availability december 2018 borrowings contingent upon amount timing networkrelated purchases made sprint year ended march 31 2018 made principal repayments totaling 65 million facility resulting total principal amount 194 million outstanding march 31 2018 delcredere ducroire dd secured equipment credit facility provided ability borrow 250 million finance network equipmentrelated purchases alcatellucent usa inc september 2017 amended secured equipment credit facility restore previously expired commitments 150 million year ended march 31 2018 drew 150 million made principal repayments totaling 23 million facility resulting total principal amount 159 million outstanding march 31 2018 borrowings finnvera ksure dd secured equipment credit facilities secured liens respective network equipment purchased pursuant facilitys credit agreement addition repayments outstanding amounts borrowed secured equipment credit facilities cannot redrawn facilities fully unconditionally guaranteed sprint communications sprint corporation secured equipment credit facilities certain key covenants similar secured term loan revolving bank credit facility accounts receivable facility transaction overview receivables facility provides us opportunity sell certain wireless service receivables installment receivables future amounts due customers lease certain devices us purchasers maximum funding limit receivables facility 43 billion right decide much cash receive sale maximum amount cash available us varies based number factors march 31 2018 represents approximately 50 total amount eligible receivables sold purchasers march 31 2018 total amount borrowings receivables facility 24 billion total amount available drawn 12 billion however subsequent march 31 2018 sprint repaid approximately 11 billion borrowings receivables facility reducing outstanding borrowings approximately 13 billion february 2017 receivables facility amended sprint regained effective control receivables transferred purchasers obtaining right certain circumstances repurchase subsequent february 2017 amendment proceeds received purchasers exchange transfer wireless service installment receivables recorded borrowings draws repayments receivables facility reported financing activities consolidated statements cash flows cash collected repurchased receivables continues recognized investing activities index consolidated financial statements sprint corporation notes consolidated financial statements consolidated statements cash flows october 2017 receivables facility amended among things extend maturity date november 2019 reallocate purchasers commitments wireless service installment future lease receivables may 2018 26 28 46 respectively may 2018 allocation purchasers commitments wireless service installment future lease receivables 26 18 56 respectively year ended march 31 2018 drew 27 billion repaid 22 billion purchasers prior february 2017 amendment wireless service installment receivables sold purchasers treated sale financial assets derecognized receivables well related allowances recognized net proceeds received cash provided operating activities consolidated statements cash flows total proceeds sale receivables comprised combination cash recognized operating activities within consolidated statements cash flows deferred purchase price dpp realized us upon either ultimate collection underlying receivables sold purchasers upon sprints election receive additional advances cash purchasers subject total availability receivables facility cash collections dpp recognized investing activities consolidated statements cash flows fees associated sales recognized selling general administrative consolidated statements operations date february 2017 amendment subsequent february 2017 amendment sale wireless service installment receivables reported financings consistent historical treatment sale future lease receivables associated fees recognized interest expense consolidated statements operations result february 2017 amendment repurchased wireless service installment receivables totaling 31 billion subsequent cash collections recognized investing activities year ended march 31 2017 prior february 2017 amendment noncash investing activities wireless service installment receivables related dpp totaling 14 billion year ended march 31 2016 noncash investing activities wireless service installment receivables related dpp totaling 12 billion transaction structure sprint contributes certain wireless service installment future lease receivables well associated leased devices sprints whollyowned consolidated bankruptcyremote special purpose entities spes sprints direction spes sold continue sell wireless service installment future lease receivables purchasers bank agent behalf purchasers leased devices remain spes sales initiated continue depreciated estimated useful life march 31 2018 wireless service installment lease receivables contributed spes included accounts notes receivable net consolidated balance sheets 28 billion longterm portion installment receivables included assets consolidated balance sheets 147 million march 31 2018 net book value devices contributed spes approximately 60 billion spe separate legal entity separate creditors entitled prior upon liquidation spe satisfied spe’s assets prior assets spe becoming available sprint accordingly assets spe available pay creditors sprint affiliates spe although collections receivables excess amounts required repay advances yield fees purchasers creditors spes may remitted sprint term receivables facility sales eligible receivables spes generally occur daily settled monthly basis sprint pays fee drawn undrawn portions receivables facility subsidiary sprint services receivables exchange monthly servicing fee sprint guarantees performance servicing obligations receivables facility variable interest entity sprint determined certain purchasers multiseller assetbacked commercial paper conduits considered variable interest entities lack sufficient equity finance activities sprints interest receivables purchased conduits considered variable interest sprints interest assets represent less 50 total activity conduits index consolidated financial statements sprint corporation notes consolidated financial statements financing obligations network equipment saleleaseback april 2016 sprint sold leased back certain network equipment unrelated bankruptcyremote special purpose entities collectively network leaseco network equipment acquired network leaseco consisted primarily equipment located cell towers used collateral raise approximately 22 billion borrowings external investors including softbank principal interest payments borrowings external investors repaid staggered unequal payments january 2018 year ended march 31 2018 made principal repayments totaling 19 billion resulting financing obligation fully repaid network leaseco variable interest entity sprint primary beneficiary result sprint required consolidate network leaseco consolidated financial statements included network leasecos debt related financing cash inflows proceeds received reflected cash provided financing activities consolidated statements cash flows payments made network leaseco reflected principal repayments interest expense respective terms sprint exercised option purchase equipment end leaseback term nominal amount intercompany transactions network leaseco sprint eliminated consolidated financial statements handset saleleasebacks transaction structure sprint sold certain iphone® devices leased customers mls company formed group equity investors including softbank subsequently leased devices back agreements sprint generally maintained customer leases continued collect record lease revenue customer remitted monthly rental payments mls leaseback periods agreements sprint contributed devices associated customer leases whollyowned consolidated bankruptcyremote special purpose entities sprint spe lessees spe lessees sold devices transferred certain specified customer leaseend rights obligations right receive proceeds customers elected purchase device end customer lease term mls exchange combination cash dpp settled repayment mlss senior loan obligations senior subordinated loan obligations return mlss equity holders reduced extent mls experienced loss device either returned sold amount less expected residual value device extent devices dpp balance event mls sold devices returned customers price greater expected device residual value sprint potential share excess proceeds spe lessees retained rights underlying customer leases right receive rental payments device leaseback period aforementioned certain specified customer leaseend rights spe lessee separate legal entity separate creditors entitled prior upon liquidation spe lessee satisfied spe lessee’s assets prior assets spe lessee becoming available sprint accordingly assets spe lessee available pay creditors sprint affiliates spe lessees obligated pay full monthly rental payments device lease mls regardless whether customers make lease payments devices leased whether customer lease canceled sprint guaranteed mls subject cap 20 aggregate cash purchase price performance agreements undertakings spe lessees transaction documents handset saleleaseback tranche 2 may 2016 sprint entered tranche 2 transferred devices net book value approximately 13 billion mls exchange cash proceeds totaling 11 billion dpp 186 million proceeds accounted financing accordingly devices remained property plant equipment net consolidated balance sheets continued depreciate assets estimated residual values generally respective customer lease terms year ended march 31 2018 made principal repayments noncash adjustments totaling 385 million mls october 2017 sprint terminated tranche 2 pursuant terms repaid outstanding amounts index consolidated financial statements sprint corporation notes consolidated financial statements proceeds received reflected cash provided financing activities consolidated statements cash flows payments made mls reflected principal repayments interest expense elected account financing obligation fair value accordingly changes fair value financing obligation recognized income expense net consolidated statements operations course arrangement handset saleleaseback tranche 1 december 2015 sprint entered tranche 1 recorded sale removed devices balance sheet classified leasebacks operating leases cash proceeds received transaction reflected cash provided investing activities consolidated statements cash flows payments made mls leaseback reflected cost equipment rentals consolidated statements operations rent expense related mls totaled 494 million 277 million years ended march 31 2017 2016 respectively reflected cash flows operations december 2016 sprint terminated tranche 1 repurchasing devices related customer leaseend rights obligations mls additionally leaseback canceled rental payments owed mls related tranche 1 tower financing 2008 sold subsequently leased back approximately 3000 cell sites approximately 2000 remain march 31 2018 cell sites continue reported part property plant equipment net consolidated balance sheets due continued involvement property sold transaction accounted financing obligation march 31 2018 150 million amortized 2021 capital lease obligations may 2016 sprint closed transaction shentel acquire one wholesale partners ntelos holdings corporation ntelos total consideration transaction included 181 million net present value basis notes payable shentel sprint satisfy obligations notes payable expected term five six years remaining obligation 138 million march 31 2018 remainder capital lease obligations 347 million march 31 2018 primarily use wireless network equipment covenants certain indentures agreements require compliance various covenants including covenants limit ability company subsidiaries sell substantially assets limit ability company subsidiaries incur indebtedness liens require maintain certain financial ratios defined terms indentures supplemental indentures financing arrangements march 31 2018 company compliance restrictive financial covenants associated borrowings default borrowings could trigger defaults certain debt obligations turn could result maturities accelerated secured revolving bank credit facility currently restricted paying cash dividends ratio total indebtedness adjusted ebitda defined applicable agreements exceeds 25 10 future maturities longterm debt financing capital lease obligations aggregate amount maturities longterm debt financing capital lease obligations outstanding march 31 2018 follows millions index consolidated financial statements sprint corporation notes consolidated financial statements note 8 severance exit costs severance exit costs consist lease exit costs primarily associated tower cell sites access exit costs related payments continue made backhaul access contracts longer receiving economic benefit severance costs associated reductions work force following provides activity severance exit costs liability included accounts payable accrued expenses current liabilities within consolidated balance sheets 1 year ended march 31 2018 recognized benefit 2 million 5 million benefit wireless 3 million costs wireline 2 year ended march 31 2018 recognized costs 79 million 73 million wireless 6 million wireline 3 year ended march 31 2018 recognized costs 3 million 10 million benefit wireless 13 million costs wireline severance exit costs 4 year ended march 31 2017 recognized costs 17 million 14 million wireless 3 million wireline 5 year ended march 31 2017 recognized costs 20 million 19 million wireless 1 million wireline 6 year ended march 31 2017 recognized 2 million solely attributable wireline cost services 29 million 12 million wireless 17 million wireline severance exit costs continually refine network strategy evaluate potential network initiatives improve overall performance network additionally major cost cutting initiatives expected continue reduce operating expenses improve operating cash flows result ongoing activities may incur future material charges associated lease access exit costs severance asset impairments accelerated depreciation among others index consolidated financial statements sprint corporation notes consolidated financial statements note 9 supplemental financial information 1 includes liabilities amounts 66 million 69 million march 31 2018 2017 respectively payments issued excess associated bank balances yet presented collection index consolidated financial statements sprint corporation notes consolidated financial statements note 10 income taxes sprint corporation parent affiliated group corporations join filing us federal consolidated income tax return additionally file income tax returns state jurisdiction imposes income tax certain state jurisdictions sprint subsidiaries file combined tax returns certain softbank affiliated entities state tax expense benefit determined utilizing separate return approach sprint subsidiaries file standalone basis also file income tax returns number foreign jurisdictions however foreign income tax activity immaterial cash paid received income tax purposes insignificant periods presented december 22 2017 us government enacted comprehensive tax legislation commonly referred tax cuts jobs act tax act tax act makes broad complex changes us tax code including limited 1 reducing us federal corporate tax rate 35 21 2 changing rules related uses limitations net operating loss carryforwards created tax years beginning december 31 2017 3 bonus depreciation allow full expensing qualified property 4 creating new limitation deductible interest expense 5 eliminating corporate alternative minimum tax 6 new tax rules related foreign operations section 15 internal revenue code stipulates fiscal year ending march 31 2018 blended federal statutory tax rate 315 based applicable tax rates effectiveness tax act number days year differences caused effective income tax rates differ us federal statutory rate income taxes follows 1 exclusive 21 billion federal state release included tax benefit tax act line index consolidated financial statements sprint corporation notes consolidated financial statements income tax benefit expense consists following income tax benefit expense allocated items follows 1 amounts recognized accumulated comprehensive loss recognized provisional estimate 71 billion noncash tax benefit income continuing operations remeasurement deferred tax assets liabilities due changes tax laws included tax act remeasurement deferred taxes impact cash flows remeasurement driven two provisions tax act first result corporate tax rate reduction 35 21 recognized 50 billion noncash tax benefit income continuing operations remeasurement deferred tax assets liabilities secondly tax act included provision whereby net operating losses generated tax years beginning december 31 2017 may carried forward indefinitely realization deferred tax assets including net operating loss carryforwards dependent generation future taxable income sufficient realize tax deductions carryforwards credits provision tax act modifying carryforward period net operating losses changed assessment ability recognize deferred tax assets certain deductible temporary differences projected realized tax years indefinitelived carryforward period assessing ability realize deferred tax assets considered taxable temporary differences indefinitelived assets fcc licenses available source future taxable income source income previously considered could scheduled reverse period definitelived deductible temporary differences result change assessment recognized 21 billion noncash tax benefit income continuing operations reduce valuation allowance believe likely remaining deferred tax assets net valuation allowance realized based current income tax laws including modified tax act expectations future taxable income stemming reversal existing deferred tax liabilities uncertainties surrounding income tax law changes shifts operations state taxing jurisdictions future operating income levels may however affect ultimate realization deferred income tax assets index consolidated financial statements sprint corporation notes consolidated financial statements deferred income taxes recognized temporary differences carrying amounts assets liabilities financial statement purposes tax bases deferred tax assets also recorded net operating loss capital loss tax credit carryforwards sources differences give rise deferred income tax assets liabilities march 31 2018 2017 along income tax effect follows december 22 2017 sec issued staff accounting bulletin 118 sab 118 addresses income tax accounting implications tax act purpose sab 118 address uncertainty diversity view applying asc topic 740 income taxes reporting period tax act enacted sab 118 addresses situations accounting incomplete certain income tax effects tax act upon issuance company’s financial statements reporting period included enactment date sab 118 allows provisional estimate recorded reasonable estimate impact tax act additionally sab 118 allows measurement period finalize impacts tax act extend beyond one year date enactment estimates used determining balance deferred tax assets liabilities subject changes tax laws included tax act addition estimates used determining timing reversals deferred tax assets liabilities assessing ability realize certain deferred tax assets impacted valuation allowance adjustment recorded part effects tax act additional information analysis required accurately determine deferred tax assets liabilities effected tax act well determine reversal pattern deferred tax assets liabilities assessing ability realize deferred tax assets accordance sab 118 recorded provisional estimate 71 billion noncash tax benefit income continuing operations consolidated statements operations amount reasonable estimate tax effects tax act financial statements continue analyze effects tax act financial statements operations record additional impacts identified measurement period provided sab 118 income tax benefit 71 billion year ended march 31 2018 primarily attributable impact tax act previously discussed index consolidated financial statements sprint corporation notes consolidated financial statements income tax expense 435 million year ended march 31 2017 primarily attributable taxable temporary differences tax amortization fcc licenses tax expense 136 million pretax gains spectrum license exchanges increased deferred tax liability fcc license temporary differences addition increased state income tax valuation allowance 89 million result shift operations among whollyowned subsidiaries organizational restructuring occurred year income tax expense 141 million year ended march 31 2016 primarily attributable tax expense resulting taxable temporary differences tax amortization fcc licenses partially offset tax benefits reversal state income tax valuation allowance deferred tax assets changes state income tax laws enacted year result organizational restructuring drove sustained increase profitability specific legal entities revised estimate regarding ability realize involved entities deferred state tax assets recorded state tax benefit 90 million years ended march 31 2018 2017 2016 generated 109 million 204 million 343 million respectively foreign income loss included income loss income taxes consolidated statements operations material unremitted earnings foreign subsidiaries march 31 2018 federal net operating loss carryforwards 139 billion state net operating loss carryforwards 160 billion foreign net operating loss carryforwards 953 million related loss carryforwards recorded federal tax benefits 29 billion net state tax benefits 952 million foreign tax benefits 297 million consideration valuation allowances approximately 703 million federal net operating loss carryforwards expire fiscal years 2018 2022 remaining 132 billion expire varying amounts fiscal years 2023 2034 state net operating loss carryforwards expire varying amounts fiscal year 2036 foreign net operating loss carryforwards 550 million expire remaining foreign net operating loss carryforwards expire varying amounts fiscal years 2018 2036 also available 353 million federal state income tax credit carryforwards march 31 2018 included amount 12 million income tax credits expire prior fiscal year 2019 306 million expire varying amounts fiscal years 2019 2037 remaining 35 million expire unrecognized tax benefits established uncertain tax positions based upon estimates regarding potential future challenges positions largest amount greater fifty percent likely realized upon ultimate settlement estimates updated reporting date based facts circumstances information available interest related unrecognized tax benefits recognized interest expense penalties recognized additional income tax expense unrecognized tax benefits attributable uncertain tax positions 239 million 190 million march 31 2018 2017 respectively march 31 2018 unrecognized tax benefits included items would favorably affect income tax provision 217 million recognized without offsetting valuation allowance adjustment accrued liability income tax related interest penalties insignificant periods presented reconciliation beginning ending amount unrecognized tax benefits follows currently examination us internal revenue service involved multiple state income tax examinations related various years beginning 1996 various stages examination administrativejudicial review appellate process based current knowledge examinations administrative index consolidated financial statements sprint corporation notes consolidated financial statements judicial reviews appellate processes believe reasonably possible uncertain tax positions may resolved next twelve months could result reduction 34 million unrecognized tax benefits federal state statutes limitations assessment tax liability generally lapse three four years respectively date tax returns filed however income tax attributes carried forward net operating loss carryforwards may challenged adjusted taxing authorities time prior expiration statute limitations tax year utilized note 11 commitments contingencies litigation claims assessments march 2009 stockholder brought suit bennett v sprint nextel corp us district court district kansas alleging sprint communications three former officers violated section 10b exchange act rule 10b5 failing adequately disclose certain alleged operational difficulties subsequent sprintnextel merger purportedly issuing false misleading statements regarding writedown goodwill district court granted final approval settlement august 2015 material impact financial statements five stockholder derivative suits related 2009 stockholder suit filed sprint communications certain present andor former officers directors first murphy v forsee filed state court kansas april 8 2009 removed federal court stayed court pending resolution motion dismiss bennett case second randolph v forsee filed july 15 2010 state court kansas removed federal court remanded back state court third rosswilliams v bennett et al filed state court kansas february 1 2011 fourth price v forsee et al filed state court kansas april 15 2011 fifth hartleib v forsee et al filed federal court kansas july 14 2011 cases essentially stayed bennett case pending reached agreement principle settle matters agreeing governance provisions paying plaintiffs attorneys fees immaterial amount court approved settlement reduced plaintiffs attorneys fees april 27 2018 court appeals state kansas affirmed settlement ruling appeals possible april 19 2012 new york attorney general filed complaint alleging sprint communications fraudulently failed collect pay 100 million new york sales taxes receipts sale wireless telephone services since july 2005 complaint also seeks recovery triple damages state false claims act well penalties interest sprint communications moved dismiss complaint june 14 2012 july 1 2013 court entered order denying motion dismiss large part although dismiss certain counts parts certain counts sprint communications appealed order intermediate appellate court affirmed order trial court october 20 2015 court appeals new york affirmed decision appellate court tax statute requires us collect remit disputed taxes petition certiorari us supreme court grounds federal preemption denied paid principal amount tax issue protest suit pending parties engaged discovery trial court continue defend matter vigorously expect resolution matter material adverse effect financial position results operations eight related stockholder derivative suits filed sprint communications certain current former officers directors suit alleges generally individual defendants breached fiduciary duties sprint communications stockholders allegedly permitting failing disclose actions alleged suit filed new york attorney general one suit filed louisiana municipal police employees retirement system dismissed federal court two suits filed state court johnson county kansas one suits dismissed premature five suits pending federal court kansas remaining kansas suits stayed pending resolution attorney generals suit expect resolution matters material adverse effect financial position results operations sprint communications also defendant complaint filed several stockholders clearwire corporation clearwire asserting claims breach fiduciary duty sprint communications related claims otherwise challenging clearwire acquisition acp master ltd et al v sprint nextel corp et al filed april 26 2013 chancery court delaware plaintiffs acp master ltd suit also filed suit requesting appraisal fair value clearwire stock trial cases took place october november 2016 july 21 2017 index consolidated financial statements sprint corporation notes consolidated financial statements delaware chancery court ruled sprints favor cases found breach fiduciary duty determined value clearwire shares delaware appraisal statute 213 per share plus statutory interest plaintiffs filed appeal april 23 2018 delaware supreme court affirmed ruling delaware chancery court entirety sprint currently involved numerous court actions alleging sprint infringing various patents cases effectively seek monetary damages small number cases brought companies sell products seek injunctive relief well cases progressed various degrees small number may go trial otherwise resolved adverse resolution cases could require us pay significant damages cease certain activities cease selling relevant products services many circumstances would indemnified monetary losses incur respect actions suppliers service providers expect resolution cases material adverse effect financial position results operations october 2013 fcc enforcement bureau began issue notices apparent liability nals lifeline providers imposing fines intracarrier duplicate accounts identified government audit function audits also identified small percentage potentially duplicative intracarrier accounts related assurance wireless business nal yet issued respect sprint know one issued able reasonably estimate amount claim penalties might asserted however based information currently available claim asserted fcc sprint believe amount ultimately paid would material company’s results operations financial position various suits inquiries proceedings claims either asserted unasserted including purported class actions typical large business enterprise intellectual property matters possible pending us subsidiaries march 31 2018 accrued 114 million associated state tax matter interpretation certain laws regulations including related various federal state matters sales use property taxes charges found mistaken could result payments us possible determine ultimate disposition proceedings whether resolved consistent beliefs expect outcome proceedings individually aggregate material adverse effect financial position results operations year ended march 31 2018 sprint settled several related patent infringement lawsuits received payments approximately 350 million excluding legal fees incurred included net within operating income consolidated statements operations spectrum reconfiguration obligations 2004 fcc adopted report order included new rules regarding interference 800 mhz band comprehensive plan reconfigure 800 mhz band report order provides exchange portion 800 mhz fcc spectrum licenses requires us fund cost incurred public safety systems incumbent licensees reconfigure 800 mhz spectrum band also exchange received licenses 10 mhz nationwide spectrum 19 ghz band minimum cash obligation 28 billion report order however obligated continue pay full amount costs relating reconfiguration plan although costs exceeded 28 billion required terms report order letter credit secured provide assurance funds available pay relocation costs incumbent users 800 mhz spectrum letter credit initially 25 billion reduced course proceeding 115 million march 31 2018 since inception program incurred payments approximately 36 billion directly attributable performance report order including approximately 15 million year ended march 31 2018 incurred substantially costs accounted additions fcc licenses remainder property plant equipment based expenses date third party administrators audits exceeded 28 billion minimum cash obligation required fcc october 12 2017 fcc released declaratory ruling met minimum cash obligation report order concluded sprint required make payments us treasury completion 800 mhz band reconfiguration initially required june 26 2008 public safety reconfiguration nearly complete across country exception states arizona california texas new index consolidated financial statements sprint corporation notes consolidated financial statements mexico fcc continues grant remaining 800 mhz public safety licensees additional time complete band reconfigurations turn delays access 800 mhz replacement channels areas nonborder areas states band reconfiguration complete sprint received replacement spectrum 800 mhz band sprint deploying 3g cdma 4g lte spectrum combination spectrum 19 ghz 25 ghz bands future minimum commitments march 31 2018 minimum estimated amounts due operating leases spectrum leases service credits purchase orders commitments follows operating leases lease various equipment office facilities retail outlets kiosks switching facilities cell sites operating leases noncancelable portion leases generally ranges monthly 15 years leases exceptions provide automatic renewal options escalations either fixed based consumer price index rent abatements along rent escalations included computation rent expense calculated straightline basis lease term lease term cell site leases majority leases includes initial noncancelable term plus least one renewal period noncancelable term less ten years exercise related renewal option options reasonably assured cell site leases generally provide initial noncancelable term five twelve years five renewal options five years rental commitments operating leases including lease renewals reasonably assured consisted mainly leases cell switch sites real estate information technology network equipment office space total rental expense 27 billion 31 billion 29 billion years ended march 31 2018 2017 2016 respectively spectrum leases service credits certain spectrum leases provide minimum lease payments additional charges renewal options escalation clauses leased spectrum agreements generally terms 30 years expect renewal periods spectrum leases exercised us also commitments provide services certain lessors reimburse lessors certain capital equipment thirdparty service expenditures term lease accrue monthly obligation services equipment based total estimated available service credits divided term lease obligation reduced services provided actual invoices presented paid lessors period ended march 31 2018 satisfied 6 million related commitments maximum remaining commitment march 31 2018 77 million expected incurred term related lease agreements generally range 15 30 years purchase orders commitments party commitments includes among things service spectrum network equipment devices asset retirement obligations executory contracts connection conducting business amounts actually paid agreements likely higher due variable components agreements significant variable components determine ultimate obligation owed include items hours contracted subscribers factors addition party various arrangements conditional nature obligate us make payments upon occurrence certain events delivery functioning software product index consolidated financial statements sprint corporation notes consolidated financial statements possible predict timing amounts may due conditional arrangements amounts included table note 12 stockholders equity per share data certificate incorporation authorizes 10020000000 shares capital stock follows • 9000000000 shares common stock par value 001 per share • 1000000000 shares nonvoting common stock par value 001 per share • 20000000 shares preferred stock par value 00001 per share classes common stock voting common stock holders common stock entitled one vote per share matters submitted action stockholders approximately 40 billion shares common stock outstanding march 31 2018 treasury shares common stock repurchased us recorded cost treasury shares result reduction stockholders equity reissue treasury shares part stockholder approved stockbased compensation programs well upon conversion outstanding securities convertible common stock shares reissued determine cost using fifo method dividends declare dividends common shares periods presented consolidated financial statements currently restricted paying cash dividends terms secured revolving bank credit facility see note 7 longterm debt financing capital lease obligations accumulated comprehensive loss components accumulated comprehensive loss net tax follows per share data basic net income loss per common share calculated dividing net income loss weighted average number common shares outstanding period diluted net income loss per common share adjusts basic net income loss per common share computed using treasury stock method effects potentially dilutive common shares effect antidilutive year ended march 31 2018 computation diluted net income loss per common share includes effect dilutive securities consisting approximately 61 million options restricted stock units addition 18 million shares attributable warrants 14 million relate warrant held softbank outstanding options purchase shares totaling 6 million included computation diluted net income loss per common share would antidilutive outstanding options restricted stock units exclusive participating securities effect computation dilutive weighted average number shares outstanding effect would antidilutive approximately 114 million 73 million years ended march 31 2017 2016 respectively addition 62 million total shares issuable warrants 55 million relate shares issuable warrant held softbank warrant issued softbank close merger softbank exercisable 525 per share option softbank whole part time prior july 10 2018 index consolidated financial statements sprint corporation notes consolidated financial statements note 13 segments sprint operates two reportable segments wireless wireline • wireless primarily includes retail wholesale affiliate revenue wide array wireless voice data transmission services revenue sale wireless devices handsets tablets accessories equipment rentals devices leased customers generated us puerto rico us virgin islands • wireline primarily includes revenue domestic international wireline voice data communication services provided communications companies targeted business subscribers addition wireless segment define segment earnings wireless wireline operating income loss segment expenses depreciation amortization severance exit costs goodwill impairments asset impairments items solely directly attributable segment representing items nonrecurring unusual nature expense income items excluded segment earnings managed corporate level transactions segments generally accounted based market rates believe approximate fair value company generally reestablishes rates beginning fiscal year past several years industrywide trend lower rates due increased competition wireline wireless communications companies well cable internet service providers segment financial information follows index consolidated financial statements sprint corporation notes consolidated financial statements 1 intersegment revenues consist primarily wireline services provided wireless segment resale use wireless subscribers 2 year ended march 31 2018 includes 107 million hurricanerelated charges classified consolidated statements operations follows 33 million contrarevenue net operating revenues 48 million cost services 21 million selling general administrative expenses 5 million net within wireless segment addition year ended march 31 2018 includes 51 million charge related regulatory fee matter classified cost services consolidated statements operations 3 net year ended march 31 2018 consists 80 million severance exit costs 364 million loss disposal property plant equipment consisted 370 million loss related cell site construction costs longer recoverable result changes index consolidated financial statements sprint corporation notes consolidated financial statements network plans offset 6 million gain addition year ended march 31 2018 included 479 million noncash gain related spectrum license exchanges carriers net reductions 305 million primarily associated legal settlements favorable developments pending legal proceedings combined 5 million reversal previously accrued contract termination costs related termination relationship general wireless operations inc radioshack net year ended march 31 2017 consists 66 million severance exit costs 140 million state tax matter combined legal reserves related pending legal suits proceedings 28 million loss disposal property plant equipment related cell site construction costs longer recoverable result changes network plans addition year ended march 31 2017 included 354 million noncash gain related spectrum license exchanges carriers 140 million contract termination costs primarily related termination preexisting wholesale arrangement ntelos result shentel transaction combined costs related termination relationship radioshack net year ended march 31 2016 consists 409 million severance exit costs combined 193 million legal reserves related various pending legal suits proceedings 166 million loss disposal property plant equipment related cell site construction costs network costs longer recoverable result changes companys network plans partially offset 20 million income resulting revision estimate previously recorded reserve 1 revenues eliminated consolidation consist primarily wireline services provided wireless segment resale use wireless subscribers 2 wireless services related wireless segment year ended march 31 2018 excludes 33 million hurricanerelated contrarevenue charges reflected net operating revenues consolidated statements operations 3 sprint longer reporting lifeline subscribers due regulatory changes resulting tighter program restrictions excluded subscribers customer base periods presented including assurance wireless prepaid brand subscribers wholesale lifeline mobile virtual network operators mvno tables reflect reclassification related assurance wireless prepaid revenue within wireless segment wireless services 360 million 323 million year ended march 31 2017 2016 respectively revenue associated subscribers wholesale lifeline mvnos continues remain following change index consolidated financial statements sprint corporation notes consolidated financial statements note 14 quarterly financial data unaudited 1 sum quarterly earnings per share amounts may equal annual amounts changes weighted average number shares outstanding year note 15 relatedparty transactions softbank relatedparty transactions addition agreements arising relating softbank merger sprint entered various arrangements softbank controlled affiliates softbank parties third parties softbank parties also parties including arrangements international wireless roaming wireless wireline call termination real estate logistical management services brightstar arrangements brightstar us inc brightstar whereby brightstar provides supply chain inventory management services us indirect channels whereby sprint may sell new used devices new accessories brightstar purposes facilitate certain arrangements extended 700 million credit line brightstar assist purchasing distribution devices accessories result shifted concentration credit risk away indirect channel partners brightstar subsidiary softbank expect softbank provide necessary support ensure brightstar fulfill obligations us agreements however assurance softbank provide support supply chain inventory management arrangement included among things brightstar may purchase inventory oems sell directly indirect dealers compensation services remit per unit fees brightstar device sold dealers retailers indirect channels years ended march 31 2018 2017 2016 incurred fees arrangements totaling 93 million 64 million 102 million respectively recognized cost equipment sales selling general administrative expenses consolidated statements operations selling general administrative expenses include additional costs included amounts material additionally arrangement brightstar whereby perform certain reverse logistics including device buyback tradein technology related services quarter ended september 30 2017 entered arrangement brightstar whereby accessories previously procured us sold customers direct channels procured consigned us brightstar amounts billed sale accessory inventory remitted brightstar exchange efforts sell accessory inventory owned brightstar receive fixed fee brightstar device activated direct channels year ended march 31 2018 sprint earned fees arrangements 154 million recognized revenue within service revenue consolidated statements operations index consolidated financial statements sprint corporation notes consolidated financial statements amounts included consolidated financial statements associated arrangements brightstar follows addition amounts associated supply chain inventory management arrangements discussed sprint earned fees brightstar subsidiary billing collecting payments subscribers certain insurance programs approximately 38 million 100 million 103 million brightstar subsidiary years ended march 31 2018 2017 2016 respectively recognized service revenue consolidated statements operations softbank november 2015 april 2016 sprint entered tranche 1 tranche 2 respectively mls company formed group equity investors including softbank sell leaseback certain devices currently leased customers total cash proceeds approximately 22 billion softbanks initial equity investment mls totaled 79 million brightstar provides reverse logistics remarketing services mls respect devices december 2016 tranche 1 terminated associated devices repurchased sprint mls cash proceeds mls repurchased equity units investors including softbank october 2017 sprint terminated tranche 2 pursuant terms repaid outstanding amounts april 2016 sprint sold leased back certain network equipment network leaseco network equipment acquired network leaseco consolidated us used collateral raise approximately 22 billion borrowings external investors including 250 million softbank principal interest payments borrowings external investors repaid staggered unequal payments january 2018 year ended march 31 2018 made principal repayments totaling 19 billion resulting financing obligation fully repaid see note 7 longterm debt financing capital lease obligations transactions agreements softbank parties aggregate immaterial period ended march 31 2018 index consolidated financial statements sprint corporation notes consolidated financial statements note 16 guarantor financial information september 11 2013 sprint corporation issued 225 billion aggregate principal amount 7250 notes due 2021 425 billion aggregate principal amount 7875 notes due 2023 private placement transaction registration rights december 12 2013 sprint corporation issued 25 billion aggregate principal amount 7125 notes due 2024 private placement transaction registration rights issuances fully unconditionally guaranteed sprint communications subsidiary guarantor 100 owned subsidiary sprint corporation parentissuer connection foregoing november 2014 company sprint communications completed offer exchange notes new issue substantially identical exchange notes registered securities act 1933 receive proceeds exchange offer addition february 24 2015 sprint corporation issued 15 billion aggregate principal amount 7625 notes due 2025 february 20 2018 sprint corporation issued 15 billion aggregate principal amount 7625 senior notes due 2026 fully unconditionally guaranteed sprint communications years ended march 31 2018 2017 noncash equity distributions nonguarantor subsidiaries subsidiary guarantor approximately 128 billion noncash equity contributions subsidiary guarantor nonguarantor subsidiaries approximately 450 million respectively result organizational restructuring tax purposes also replaced 244 billion shortterm payables intercompany notes issued subsidiary guarantor nonguarantor subsidiaries year ended march 31 2018 notes subordinated unaffiliated third party obligations sprint corporation subsidiaries subsidiary guarantors secured revolving bank credit facility subsidiary guarantor currently restricted paying cash dividends parentissuer nonguarantor subsidiary ratio total indebtedness adjusted ebitda defined applicable agreement exceeds 25 10 sprint receivables facility providing sale eligible wireless service installment certain future lease receivables april 2016 sprint entered tranche 2 transaction sell leaseback certain leased devices separate network equipment saleleaseback transaction sell leaseback certain network equipment october 2016 sprint transferred certain directly held thirdparty leased spectrum licenses whollyowned bankruptcyremote special purpose entities part spectrum financing transaction connection receivables facility tranche 2 spectrum financing transaction sprint formed certain whollyowned bankruptcyremote subsidiaries included nonguarantor subsidiaries condensed consolidated financial information addition bankruptcyremote special purpose entities formed connection network equipment saleleaseback transaction sprint subsidiaries included nonguarantor subsidiaries condensed consolidated financial information separate legal entity separate creditors entitled prior upon liquidation satisfied assets prior assets becoming available sprint see note 7 longterm debt financing capital lease obligations accounted investments subsidiaries using equity method presented condensed consolidating financial information index consolidated financial statements sprint corporation notes consolidated financial statements condensed consolidating balance sheet index consolidated financial statements sprint corporation notes consolidated financial statements condensed consolidating balance sheet index consolidated financial statements sprint corporation notes consolidated financial statements condensed consolidating statement comprehensive income loss index consolidated financial statements sprint corporation notes consolidated financial statements condensed consolidating statement comprehensive income loss index consolidated financial statements sprint corporation notes consolidated financial statements condensed consolidating statement comprehensive income loss index consolidated financial statements sprint corporation notes consolidated financial statements condensed consolidating statement cash flows index consolidated financial statements sprint corporation notes consolidated financial statements condensed consolidating statement cash flows index consolidated financial statements sprint corporation notes consolidated financial statements condensed consolidating statement cash flows index consolidated financial statements sprint corporation notes consolidated financial statements note 17 subsequent events april 29 2018 entered business combination agreement tmobile us inc tmobile huron merger sub llc delaware limited liability company whollyowned subsidiary tmobile merger company superior merger sub corporation delaware corporation whollyowned subsidiary tmobile merger company merger sub starburst inc delaware corporation starburst galaxy investment holdings inc delaware corporation galaxy together starburst softbank us holdcos limited purposes set forth therein deutsche telekom ag deutsche telekom deutsche telkom holding bv dt holding softbank group corp pursuant business combination agreement upon terms subject conditions described therein softbank us holdcos merge tmobile merger company tmobile merger company continuing surviving entity whollyowned subsidiary tmobile holdco mergers immediately following holdco mergers merger sub merge sprint continuing surviving corporation whollyowned indirect subsidiary tmobile merger together holdco mergers merger transactions pursuant business combination agreement effective time holdco mergers issued outstanding shares common stock galaxy 001 par value per share issued outstanding shares common stock starburst 001 par value per share held softbank group capital limited private limited company incorporated england wales whollyowned subsidiary softbank sole stockholder galaxy starburst softbank uk converted softbank uk receive aggregate number shares common stock tmobile par value 000001 per share tmobile common stock equal product x 010256 exchange ratio aggregate number shares common stock company par value 001 company common stock held softbank us holdcos collectively immediately prior effective time holdco mergers ii effective time merger share company common stock issued outstanding immediately prior effective time merger shares company common stock held softbank us holdcos held company treasury stock converted right receive number shares tmobile common stock equal exchange ratio softbank affiliates receive amount tmobile common stock per share company common stock sprint stockholders immediately following merger transactions deutsche telekom softbank expected hold approximately 42 27 fullydiluted shares combined company respectively remaining approximately 31 fullydiluted shares combined company held public stockholders consummation merger transactions contemplated business combination agreement collectively transactions subject obtaining consent holders majority outstanding shares common stock favor adoption business combination agreement company stockholder approval subsequent execution business combination agreement softbank entered support agreement softbank support agreement pursuant agreed cause softbank us galaxy starburst deliver written consent favor adoption business combination agreement constitute receipt company stockholder approval april 25 2018 softbank beneficially owned approximately 8485 company common stock outstanding terms softbank support agreement softbank affiliates generally prohibited transferring ownership company common stock prior earlier consummation merger termination business combination agreement accordance terms consummation transactions also subject obtaining consent holders majority outstanding shares tmobile common stock favor issuance tmobile common stock merger transactions tmobile stock issuance approval favor amendment restatement tmobiles certification incorporation entirety form tmobile charter amendment collectively tmobile stockholder approval subsequent execution business combination agreement deutsche telekom entered support agreement deutsche telekom support agreement pursuant agreed deliver written consent favor tmobile stock issuance tmobile charter amendment constitute receipt tmobile stockholder approval april 25 2018 deutsche telekom beneficially owned approximately 635 tmobile common stock outstanding terms deutsche telekom support agreement deutsche telekom affiliates generally prohibited transferring ownership tmobile common stock prior earlier consummation merger termination business combination agreement accordance terms index consolidated financial statements sprint corporation notes consolidated financial statements consummation transactions also subject satisfaction waiver legally permitted certain conditions including among things accuracy representations warranties performance covenants parties ii effectiveness registration statement shares tmobile common stock issued merger transactions approval listing shares nasdaq global select market nasdaq iii receipt certain regulatory approvals including approvals federal communications commission applicable state public utility commissions expiration termination applicable waiting period hartscottrodino antitrust improvements act 1976 favorable completion review committee foreign investments united states cfius iv specified minimum credit ratings tmobile closing date transactions giving effect merger least two three credit rating agencies subject certain qualifications v material adverse effect respect company tmobile since date business combination agreement business combination agreement contains representations warranties covenants customary transaction nature company softbank tmobile deutsche telekom subject restrictions ability solicit alternative acquisition proposals provide information engage discussion third parties regarding proposals except limited circumstances permit company’s tmobile’s boards directors comply respective fiduciary duties subject certain exceptions parties agreed use reasonable best efforts take cause taken actions necessary consummate transactions including respect obtaining required government approvals business combination agreement also contains certain termination rights company tmobile event tmobile terminates business combination agreement connection failure satisfy closing condition related specified minimum credit ratings noted certain circumstances tmobile may required pay sprint 600 million pursuant terms business combination agreement tmobile softbank deutsche telekom also enter amended restated stockholders’ agreement stockholders agreement become effective upon closing transactions provide board directors combined company consist fourteen members comprising nine directors designated deutsche telekom least two independent four directors designated softbank least two independent tmobile’s chief executive officer stockholders agreement also set forth certain consent rights softbank deutsche telekom certain material transactions tmobile contain noncompete apply softbank deutsche telekom respective affiliates subject certain exceptions time softbank’s deutsche telekom’s ownership tmobile reduced agreed threshold addition pursuant terms business combination agreement softbank deutsche telekom enter proxy lockup right first refusal agreement plr agreement become effective upon closing transactions set forth certain rights obligations respect shares tmobile common stock owned softbank deutsche telekom respective affiliates among terms rights obligations require softbank agree vote shares tmobile common stock directed deutsche telekom restrict softbank transferring shares tmobile common stock subject certain exceptions set forth plr agreement addition plr agreement impose certain restrictions softbank’s deutsche telekom’s ability transfer shares tmobile common stock four year period following closing transactions provide softbank deutsche telekom right first refusal respect proposed transfers shares tmobile common stock party subject case certain exceptions limitations set forth plr agreement result plr agreement tmobile expected continue “controlled company” purposes nasdaq rules following consummation merger provides tmobile exemptions certain corporate governance requirements nasdaq rules item 15 exhibits financial statement schedules 1 consolidated financial statements sprint corporation filed part annual report listed index consolidated financial statements 2 exhibits filed part annual report listed exhibit index item 16 form 10k summary none signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized sprint corporation registrant michel combes michel combes chief executive officer president date may 29 2019 pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities indicated 29th day may 2019 michel combes michel combes chief executive officer president principal executive officer andrew davies andrew davies chief financial officer principal financial officer paul w schieber jr paul w schieber jr vice president controller principal accounting officer signatures sprint corporation registrant pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities indicated 29th day may 2019 marcelo claure masayoshi son marcelo claure executive chairman masayoshi son director ronald fisher michel combes ronald fisher vice chairman michel combes director patrick doyle gordon bethune patrick doyle director gordon bethune director julius genachowski stephen kappes julius genachowski director stephen kappes director admiral michael g mullen sara martinez tucker admiral michael g mullen director sara martinez tucker director exhibit index filed furnished required filing excludes certain schedules exhibits pursuant item 601b2 regulation sk registrant agrees furnish supplementally securities exchange commission upon request commission provided however registrant may request confidential treatment pursuant rule 24b2 securities exchange act 1934 amended schedules exhibits furnished sprint corporation index consolidated financial statements index consolidated financial statements report independent registered public accounting firm stockholders board directors sprint corporation opinions financial statements internal control financial reporting audited accompanying consolidated balance sheets sprint corporation subsidiaries company march 31 2019 2018 related consolidated statements operations comprehensive loss income cash flows changes equity three years period ended march 31 2019 related notes collectively referred financial statements also audited companys internal control financial reporting march 31 2019 based criteria established internal control integrated framework 2013 issued committee sponsoring organizations treadway commission coso opinion financial statements referred present fairly material respects financial position company march 31 2019 2018 results operations cash flows three years period ended march 31 2019 conformity accounting principles generally accepted united states america also opinion company maintained material respects effective internal control financial reporting march 31 2019 based criteria established internal control integrated framework 2013 issued coso change accounting principle discussed note 2 consolidated financial statements effective april 1 2018 company adopted accounting standards update 201409 revenue contracts customers topic 606 amended using modified retrospective method basis opinions companys management responsible financial statements maintaining effective internal control financial reporting assessment effectiveness internal control financial reporting included accompanying managements report internal control financial reporting responsibility express opinion financial statements opinion companys internal control financial reporting based audits public accounting firm registered public company accounting oversight board united states pcaob required independent respect company accordance us federal securities laws applicable rules regulations securities exchange commission pcaob conducted audits accordance standards pcaob standards require plan perform audits obtain reasonable assurance whether financial statements free material misstatement whether due error fraud whether effective internal control financial reporting maintained material respects audits financial statements included performing procedures assess risks material misstatement financial statements whether due error fraud performing procedures respond risks procedures included examining test basis evidence regarding amounts disclosures financial statements audits also included evaluating accounting principles used significant estimates made management well evaluating overall presentation financial statements audit internal control financial reporting included obtaining understanding internal control financial reporting assessing risk material weakness exists testing evaluating design operating effectiveness internal control based assessed risk audits also included performing procedures considered necessary circumstances believe audits provide reasonable basis opinions index consolidated financial statements definition limitations internal control financial reporting companys internal control financial reporting process designed provide reasonable assurance regarding reliability financial reporting preparation financial statements external purposes accordance generally accepted accounting principles companys internal control financial reporting includes policies procedures 1 pertain maintenance records reasonable detail accurately fairly reflect transactions dispositions assets company 2 provide reasonable assurance transactions recorded necessary permit preparation financial statements accordance generally accepted accounting principles receipts expenditures company made accordance authorizations management directors company 3 provide reasonable assurance regarding prevention timely detection unauthorized acquisition use disposition companys assets could material effect financial statements inherent limitations internal control financial reporting may prevent detect misstatements also projections evaluation effectiveness future periods subject risk controls may become inadequate changes conditions degree compliance policies procedures may deteriorate deloitte touche llp kansas city missouri may 29 2019 served companys auditor since 2012 index consolidated financial statements sprint corporation consolidated balance sheets see notes consolidated financial statements index consolidated financial statements sprint corporation consolidated statements operations see notes consolidated financial statements index consolidated financial statements sprint corporation consolidated statements comprehensive loss income see notes consolidated financial statements index consolidated financial statements sprint corporation consolidated statements cash flows see notes consolidated financial statements index consolidated financial statements sprint corporation consolidated statements changes equity millions see notes consolidated financial statements index consolidated financial statements sprint corporation notes consolidated financial statements index consolidated financial statements sprint corporation notes consolidated financial statements note 1 description operations sprint corporation including consolidated subsidiaries communications company offering comprehensive range wireless wireline communications products services designed meet needs individual consumers businesses government subscribers resellers wireless segment includes retail wholesale affiliate service revenue wide array wireless voice data transmission services equipment sales rentals sale lease wireless devices sale accessories us puerto rico us virgin islands wireline segment includes revenue domestic international wireline data communication services addition data allinternet protocol ip communication services provided wireless segment july 10 2013 softbank corp subsequently changed name softbank group corp certain whollyowned subsidiaries together softbank completed merger softbank merger sprint nextel contemplated agreement plan merger dated october 15 2012 amended merger agreement bond purchase agreement dated october 15 2012 result softbank merger starburst ii inc starburst ii became parent company sprint nextel immediately thereafter starburst ii changed name sprint corporation sprint nextel changed name sprint communications inc sprint communications result completion softbank merger softbank acquired approximate 78 interest sprint corporation subsequent open market stock purchases softbank owned nearly 85 outstanding common stock sprint corporation march 31 2019 april 29 2018 announced entered business combination agreement tmobile us inc tmobile merge allstock transaction fixed exchange ratio 010256 tmobile shares sprint share equivalent 975 sprint shares tmobile share merger transactions immediately following merger transactions deutsche telekom ag softbank group corp expected hold approximately 42 27 fullydiluted shares combined company respectively remaining 31 fullydiluted shares combined company held public stockholders board directors consist 14 directors nine nominated deutsche telekom ag four nominated softbank group corp final director ceo combined company combined company named tmobile result merger transactions expected able rapidly launch nationwide 5g network accelerate innovation increase competition us wireless video broadband industries merger transactions subject customary closing conditions including certain state federal regulatory approvals regulatory approval federal communications commission fcc department justice doj expected first half calendar year 2019 sprint tmobile completed hartscottrodino filing doj may 24 2018 june 18 2018 parties filed fcc merger applications including public interest statement july 18 2018 fcc accepted applications filing established public comment period merger transaction formal comment period concluded october 31 2018 merger transactions received clearance committee foreign investment united states december 17 2018 awaiting regulatory approvals april 27 2019 parties business combination agreement extended outside date defined business combination agreement july 29 2019 note 2 summary significant accounting policies information basis consolidation estimates consolidated financial statements include accounts 100 owned subsidiaries control controlling financial interest intercompany transactions balances eliminated consolidation consolidated financial statements prepared conformity accounting principles generally accepted united states us gaap requires management company make estimates assumptions affect reported amounts assets liabilities revenues expenses disclosure contingent assets liabilities date consolidated financial statements significant estimates assumptions used limited allowance doubtful accounts estimated economic lives residual values property plant equipment fair value identified purchased tangible intangible assets business combination fair value assessments purposes impairment testing index consolidated financial statements sprint corporation notes consolidated financial statements certain prior period amounts reclassified conform current period presentation summary significant accounting policies cash equivalents cash equivalents generally include highly liquid investments maturities time purchase three months less investments may include money market funds certificates deposit us government governmentsponsored debt securities corporate debt securities municipal securities bankrelated securities credit debit card transactions process carrying amounts approximate fair value shortterm investments shortterm investments generally include time deposits corporate debt securities commercial paper terms greater three months less one year date purchase carrying amounts recorded amortized cost approximate fair value interest earned recognized consolidated statements operations contractual term shortterm investments installment receivables carrying value installment receivables generally approximates fair value receivables recorded present value net deferred interest allowance credit losses certain installment sales indirect channel impute interest installment receivable record corresponding contract asset reduction face amount related receivable interest income recognized term installment contract service revenue categorize installment receivables prime subprime based upon subscriber credit profiles unbilled billedcurrent billedpast due based upon age receivable use proprietary scoring systems measure credit quality receivables using several factors credit bureau information subscriber credit risk scores service plan characteristics payment history subsequently monitored evaluate credit profiles prime subscriber receivables lower delinquency risk subprime subscriber receivables higher delinquency risk subscribers within subprime category may required make payment device accessory purchases installment receivables invoices yet generated customer considered unbilled installment receivables invoices generated past contractual due date considered billedcurrent installment receivables invoices generated payment approximately ten days past contractual due date considered billedpast due account balances writtenoff collection efforts unsuccessful future collection unlikely based length time day accounts become past due allowance doubtful accounts allowance doubtful accounts established cover probable reasonably estimable losses number subscriber accounts practical review collectability accounts individually determine amount allowance doubtful accounts period although account level analysis performed respect large wireless wireline subscribers estimate allowance doubtful accounts considers number factors including collection experience aging remaining accounts receivable portfolios credit quality subscriber base qualitative considerations including macroeconomic factors account balances written collection efforts unsuccessful future collection unlikely based length time day accounts become past due amounts written allowance doubtful accounts net recoveries adjustments 360 million 451 million 371 million years ended march 31 2019 2018 2017 respectively see note 3 installment receivables additional information relates allowance doubtful accounts specifically attributable installment receivables device accessory inventory inventories stated lower cost market cost determined firstin firstout fifo method company sells wireless devices separately conjunction service contract device sold service contract may sold cost promotional discounts device expected recovered service contract index consolidated financial statements sprint corporation notes consolidated financial statements net realizable value devices inventory analyzed regular basis analysis includes assessing obsolescence sales forecasts product life cycle marketplace considerations assessments regarding factors adversely change may sell devices lower prices record writedown inventory obsolete slowmoving items prior point sale property plant equipment property plant equipment ppe including improvements extend useful lives recognized cost depreciation ppe generally calculated using straightline method based estimated economic useful lives 3 30 years buildings improvements network equipment site costs related software 3 12 years nonnetwork internal use software office equipment leasehold improvements depreciated shorter lease term estimated useful life respective assets leased devices depreciated using straightline method estimated residual value generally term lease calculate depreciation certain network assets using group life method accordingly ordinary asset retirements disposals assets charged accumulated depreciation gain loss recognized gains losses associated asset retirements disposals recognized net consolidated statements operations depreciation rates assets revised periodically account changes related managements strategic objectives technological changes estimated residual values obsolescence changes estimates result adjustments depreciation expense prospectively estimated useful lives nonleased assets remaining period benefit devices leased customers repair maintenance costs research development costs expensed incurred capitalize costs network nonnetwork software developed obtained internal use application development stage costs included ppe software placed service depreciated estimated useful lives three five years costs incurred preliminary project postimplementation stage well maintenance training costs expensed incurred longlived asset impairment sprint evaluates longlived assets including intangible assets subject amortization impairment whenever events changes circumstances indicate carrying amount asset group may recoverable asset groups determined lowest level identifiable cash flows largely independent cash flows groups assets liabilities carrying amount longlived asset group recoverable exceeds fair value impairment loss recognized equal excess asset group’s carrying value estimated fair value see note 5 property plant equipment additional information longlived asset impairments certain assets yet deployed business including network equipment cell site development costs software development periodically assessed determine recoverability network equipment cell site development costs expensed whenever events changes circumstances cause company conclude assets longer needed meet managements strategic network plans deployed software development costs expensed longer probable software project deployed network equipment removed network also periodically assessed determine recoverability experience significant operational challenges including retaining attracting subscribers future cash flows company may sufficient recover carrying value assets asset groups could record asset impairments material sprints consolidated results operations financial condition indefinitelived intangible assets indefinitelived intangible assets primarily consist goodwill certain trademarks fcc licenses goodwill represents excess consideration paid estimated fair value net tangible identifiable intangible assets acquired business combinations determining whether intangible asset goodwill indefinitelived consider expected use assets regulatory economic environment within used effects obsolescence use assess indefinitelived intangible assets including goodwill impairment least annually necessary frequently whenever events changes circumstances indicate asset may impaired result annual evaluation recorded noncash impairment charge 20 billion related goodwill wireless reporting unit year ended march 31 2019 index consolidated financial statements sprint corporation notes consolidated financial statements evaluations include determination fair value require considerable judgment highly sensitive changes underlying assumptions consequently assurance estimates assumptions made purposes estimating fair values indefinitelived assets including goodwill prove accurate prediction future sustained declines company’s operating results number wireless subscribers forecasted future cash flows growth rates assumptions well significant sustained declines company’s stock price related market capitalization could impact underlying key assumptions estimated fair values potentially leading additional future material impairment goodwill indefinitelived intangible assets see note 6 intangible assets additional information indefinitelived intangible asset impairments derivatives hedging company uses derivative instruments hedge exposure interest rate risks arising operating financing activities accordance risk management policies company generally hold issue derivative instruments trading speculative purposes derivatives recognized consolidated balance sheets fair values company becomes party derivative instrument intends apply hedge accounting formally documents hedge relationship risk management objective undertaking hedge includes designating instrument financial reporting purposes fair value hedge cash flow hedge net investment hedge accounting changes fair value derivative instrument depends whether company designated qualifying hedging relationship type hedging relationship march 31 2019 company held applied hedge accounting derivatives designated cash flow hedges changes fair value derivative designated hedging relationship recognized consolidated statements operations changes fair value derivative designated cash flow hedge recorded comprehensive loss income consolidated statements comprehensive loss income reclassified earnings period periods hedged item affects earnings derivative instruments designated hedges company assesses hedge’s inception ongoing basis whether derivatives used hedging transactions highly effective offsetting changes fair values cash flows hedged items highly effective means cumulative changes fair value derivative 80 125 cumulative changes fair value hedged item addition company determines derivative highly effective hedge accounting discontinued probable hedged forecasted transaction occur company discontinues hedge accounting affected portion forecasted transaction reclassifies gains losses accumulated comprehensive loss earnings consolidated statements operations derivative hedge relationship terminated hedged item sold extinguished terminated hedge accounting discontinued prospectively benefit plans provide defined benefit pension plan postretirement benefits certain employees sponsor defined contribution plan employees march 31 2019 2018 fair value pension plan assets certain postretirement benefit plan assets aggregate 14 billion period fair value projected benefit obligations aggregate 22 billion period result plans underfunded approximately 800 million march 31 2019 2018 recorded net liability consolidated balance sheets estimated contributions totaling approximately 77 million expected paid fiscal year 2019 offset pension liability recorded equity component accumulated comprehensive loss net tax including net actuarial losses 49 million 30 million years ended march 31 2019 2018 respectively net actuarial gain 35 million year ended march 31 2017 amortized income expense net consolidated statements operations change net liability plan year ended march 31 2019 affected lower expected actual rate return plan assets experienced year change discount rate used estimate projected benefit obligation year ended march 31 2019 change net liability plan year ended march 31 2018 affected change discount rate used estimate projected benefit obligation decreasing 43 year ended march 31 2017 41 index consolidated financial statements sprint corporation notes consolidated financial statements year ended march 31 2018 change net liability plan year ended march 31 2017 affected higher expected actual rate return plan assets experienced year change discount rate used estimate projected benefit obligation year ended march 31 2017 intend make future cash contributions plan amount necessary meet minimum funding requirements according applicable benefit plan regulations december 31 2005 plan amended freeze benefit plan accruals participants objective investment portfolio pension plan achieve longterm nominal rate return net fees exceeds plans longterm expected rate return investments funding purposes 725 750 years ended march 31 2019 2018 respectively meet objective investment strategy sevenmonth period ended october 31 2017 governed asset allocation policy whereby targeted allocation percentage assigned asset class follows 38 us equities 16 international equities 28 fixed income investments 9 real estate investments 9 investments including hedge funds actual allocations allowed deviate target allocation percentages within range asset class defined investment policy november 1 2017 target allocation percentage assigned asset class revised follows 38 us equities 16 international equities 37 fixed income investments 9 real estate investments remains consistent march 31 2019 longterm expected rate return investments funding purposes 700 year ended march 31 2020 investments plan measured fair value recurring basis determined using quoted market prices estimated fair values march 31 2019 27 investment portfolio valued quoted prices active markets identical assets 64 valued using quoted prices similar assets active inactive markets observable inputs 9 valued using unobservable inputs supported little market activity majority used net asset value per share equivalent practical expedient measure fair value defined contribution plan participants may contribute portion eligible pay plan payroll withholdings company match 100 participants pretax roth contribution aggregate first 3 eligible compensation calendar years 2019 2018 company matched 50 participants pretax roth contribution aggregate first 4 eligible compensation calendar years 2017 2016 fixed matching contributions totaled approximately 47 million 38 million 28 million fiscal years ended march 31 2019 2018 2017 respectively revenue recognition earn revenue contracts customers primarily provision telecommunications services sale rental wireless devices accessories net operating revenues primarily consist wireless wireline service revenues generated device accessory sales revenues wholesale operators thirdparty affiliates contracts customers may involve multiple performance obligations include services wireless devices combination thereof allocate transaction price performance obligation based relative standalone selling price contracts customers servicerelated components total transaction price typically consist fixed monthly recurring charges variable usage charges miscellaneous fees activation fees international long distance roaming commissions device insurance program late payment administrative fees certain regulatoryrelated fees net service credits contracts involving multiple performance obligations equipment service revenue allocated based relative standalone selling price performance obligation generally recognize revenue allocated service performance obligations services rendered result timing multiple billing cycles throughout month required estimate amount subscriber revenues earned billed end billing cycle end reporting period estimate defer amounts billed earned end reporting period estimates based primarily rate plans effect historical usage billing patterns regulatory fees costs recorded gross largest component regulatory fees universal service fund represented 1 net operating revenues years ended march 31 2019 2018 2 year ended march 31 2017 consolidated statements operations recognize equipment sales corresponding costs equipment sales title risk loss passes indirect dealer enduse subscriber assuming revenue recognition criteria met typically occurs index consolidated financial statements sprint corporation notes consolidated financial statements point sale direct channel sales freightonboard dealer destination indirect channel sales year ended march 31 2019 equipment sales indirect dealers approximately 35 billion subsidized postpaid prepaid wireless contracts subsidize cost device incentive retain acquire subscribers recognize revenue equipment rentals subject leasing contracts accordance classification lease term operating leases upon transfer control equipment capital leases qualified subscribers lease device contractual period time end lease term subscribers option return device continue leasing device purchase device accounting device leases involves specific determinations applicable lease accounting standards involve complex prescriptive provisions impact timing amount revenue recognized leased devices critical elements considered respect lease accounting economic life device fair value device including residual value lease devices qualifying subscribers also purchase service plan date substantially device leases classified operating leases revenues arrangements allocated amongst deliverables multipleelement arrangement considering relative fair values lease nonlease elements amount allocable operating lease element included within equipment rentals consolidated statements operations recognized ratably lease term typically two years less multipleelement arrangement includes option purchase monthly basis annual tradein right amount total arrangement consideration reduced estimated fair value tradein right guarantee remaining proceeds allocated amongst deliverables arrangement performance obligations performance obligations related wireless segment involve provision equipment service circumstances equipment performance obligations provided customer part subsidized installment billing contracts part standalone equipment sales satisfied title risk loss passes indirect dealer enduse subscriber assuming revenue recognition criteria met typically occurs point sale direct channel sales freightonboard dealer destination indirect channel sales recognize revenue equipment rentals subject leasing contracts accordance classification lease term operating leases upon transfer control equipment capital leases wireless service performance obligations typically satisfied 24 months subsidized installment billing contracts substantive termination penalties buyonegetone bogo contracts 18 30 months leasing contracts one month traditional installment billing contracts amounts due subsidized equipment due point sale amounts due equipment subject operating capital lease invoiced collected monthly term lease amounts due equipment subject installment billing note invoiced collected monthly term note typically 24 30 months handsets 12 18 months accessories financing component exists relation subsidized installment billing wireless contracts however consider financing component quantitatively qualitatively significant installment billing contracts durations longer one year installment billing contracts durations one year less elected apply practical expedient adjust transaction price effects financing component amounts due wireless services typically invoiced collected monthly relevant service period wireless contracts generally involve variable consideration expected adjustments total transaction price related expected future price concessions product returns service refunds wireless contracts include consideration resulting monthly customer charges intended partially recover taxes imposed company including fees related universal service fund fees based customers estimated monthly voice usage therefore allocated corresponding distinct months wireless services update estimates related return refund obligations wireless equipment services quarterly basis returns refunds typically provided 14 days contract inception individual customers 30 days business customers performance obligations related wireline business involve provision services corporate customers wireline service performance obligations typically satisfied period 24 36 months amounts due services invoiced collected periodically relevant service period wireline contracts subject significant amounts variable consideration charges intended partially recover taxes imposed company including fees related universal service fund fees based customers estimated monthly usage therefore allocated corresponding distinct months wireline services wireline contracts provide index consolidated financial statements sprint corporation notes consolidated financial statements customer monthly options purchase goods services prices commensurate standalone selling prices goods services determined contract inception significant judgments accounting estimates judgments related recognition revenue require us make assumptions numerous factors future billing adjustments future returns total contract consideration eg contracts include customer incentives consideration payable customer use output methods recognize revenue performance obligations satisfied time ie service performance obligations output methods measure progress toward satisfying performance obligation basis direct measurements goods services transferred date relative remaining goods services promised contract management asserts method reasonably represents transfer goods services customer prepaid contracts provide customer ability redeem fixed prepayments future goods services utilize proportional amount redemptions customer comparison total expected amount redemptions estimate progress toward satisfaction performance obligations postpaid contracts unlimited amounts monthly service wireline contracts utilize time elapsed relation total contract duration estimate progress toward satisfaction performance obligations determining amounts revenue recognize use following methods inputs assumptions • determination transaction price include fixed determinable charges per contracts part total transaction price extent variable consideration constrained include probabilityweighted estimate variable amount within total transaction price update assumptions duration contract accept noncash consideration customers direct payment purchase equipment contract inception purchase ongoing services subject certain restrictions may purchase used equipment customers entering new subscriber contract payment purchase used equipment may equal market value circumstances expected difference purchase price market value used equipment treated adjustment total transaction price customers contract inception • assessment estimates variable consideration wireless contracts generally involve variable consideration must allocated amongst performance obligations contract inception expected adjustments total transaction price related customer equipment rebates b customer retention credits c product returns service refunds able reasonably estimate contract inception based upon historical experience similar identical contracts similar identical customers wireline contracts generally subject significant amounts variable consideration consider variable consideration constrained purpose estimating total transaction price allocated performance obligations • allocation transaction price allocate total transaction price contracts amongst performance obligations based upon relative standalone selling prices performance obligations use observable external pricing performance obligations sold standalone basis evidence standalone selling prices discounts premiums built transaction prices typically allocated proportionately performance obligations within contracts exclusive performance obligations delivery accessories consistently sold standalone selling price regardless bundling exception estimated wireless customer retention credits treated reduction portion total transaction price allocated service revenue • measurement returns refunds similar obligations estimated separately separate product service types based upon historical experience similar contracts similar types customers total transaction price reduced amount estimated return refund similar obligation relation sale amount recorded current liability unless estimates changed relevant obligation satisfied index consolidated financial statements sprint corporation notes consolidated financial statements costs acquire customer contract compensate dealers retail employees using specific compensation programs sales commissions compensation programs generally earned upon sale devices service contracts enduse subscriber incremental direct costs obtain fulfill contracts customers sales commissions deferred amortized consistent transfer related good service capitalize incremental commissions directly related acquisition renewal customer contracts extent costs expected recovered capitalized costs amortized straightline basis shorter expected customer life expected benefit related directly costs assess capitalized contract acquisition asset impairment quarterly basis impair capitalized costs extent carrying amount capitalized cost exceeds remaining amount consideration expect receive exchange goods services related cost less b expected costs related directly providing goods services yet recognized expenses severance exit costs liabilities severance exit costs recognized based upon nature cost incurred involuntary separation plans completed within guidelines written involuntary separation plan liability recognized probable reasonably estimable voluntary separation plans vsp liability recognized vsp irrevocably accepted employee onetime termination benefits additional severance pay benefit payouts exit costs lease termination costs liability measured recognized initially fair value period liability incurred subsequent changes liability recognized adjustments period change severance exit costs associated business combinations recorded results operations incurred compensation plans march 31 2019 sprint sponsored three incentive plans amended restated 2015 omnibus incentive plan 2015 plan 2007 omnibus incentive plan 2007 plan 1997 longterm incentive program 1997 program together compensation plans sprint also sponsors employee stock purchase plan espp 2015 plan may grant share nonshare based awards including stock options stock appreciation rights restricted stock restricted stock units performance shares performance units equitybased cash awards employees outside directors eligible individuals defined plan march 31 2019 number shares available reserved future grants 2015 plan espp totaled approximately 190 million common shares compensation committee board directors one executive officers compensation committee authorize provided 2015 plan determine terms share nonshare based award new grants made 2007 plan 1997 program use new shares satisfy sharebased awards treasury shares available fair value option award estimated grant date using blackscholes option valuation model based several assumptions including riskfree interest rate volatility expected dividend yield expected term year ended march 31 2018 company granted approximately 3 million stock options weighted average grant date fair value 398 per share based upon assumptions riskfree interest rate 193 265 expected volatility 419 518 expected dividend yield 0 expected term 55 65 general options granted exercise price equal market value underlying shares grant date vest annual basis three years contractual term ten years company grant stock options year ended march 31 2019 march 31 2019 22 million options outstanding 18 million options exercisable generally determine fair value restricted stock unit award based closing price companys common stock date grant restricted stock units generally performance service requirements service requirements vesting periods ranging one three years ended march 31 2018 2017 also granted performancebased restricted stock units executive nonexecutive employees earned shares based upon achievement certain market conditions equal specified volumeweighted average prices companys common stock regular trading index consolidated financial statements sprint corporation notes consolidated financial statements new york stock exchange 150day calendar period performance period specific grant performance period awards granted year ended march 31 2018 specified market criteria yet achieved within performance period upon achievement earned shares generally vest 50 four years grant date 50 five years grant date continuous service required vesting date awards granted year ended march 31 2017 specified market criteria achieved threshold price target qualifying 100 payout however earned shares remain subject vesting requirements year ended march 31 2018 vesting schedule earned shares modified incremental impact compensation expense generally vest onethird two years grant date onethird three years grant date onethird four years grant date continuous service required vesting date fair value marketbased restricted stock units estimated date grant using monte carlo valuation methodology incorporates valuation possibility market condition may satisfied year ended march 31 2018 assumptions used monte carlo valuation model consistent use value stock options include riskfree interest rate 179 242 expected volatility 419 518 expected dividend yield 0 number restricted stock units ultimately vest increase depending upon future performance companys common stock achievement higher threshold price target performance period maximum payout 120 compensation cost related sharebased awards market conditions recognized regardless level threshold price target achievement awards granted year ended march 31 2019 employees directors granted restricted stock units required pay shares generally must remain employed us continue serve member board directors restrictions lapse typically three years employees one year directors certain restricted stock units outstanding march 31 2019 entitled dividend equivalents paid cash dividends declared paid common shares performancebased restricted stock units entitled dividend equivalent payments applicable performance service criteria met year ended march 31 2019 company granted approximately 17 million service performancebased restricted stock units including market conditions weighted average grant date fair value 535 per share march 31 2019 approximately 71 million restricted stock unit awards outstanding compensation costs cost employee services received exchange sharebased awards classified equity measured using estimated fair value award date grant cost recognized period award recipient required provide service exchange award awards instruments classified liabilities measured estimated fair value reporting date settlement pretax share nonshare based compensation charges incentive plans included net income loss 132 million 182 million 93 million years ended march 31 2019 2018 2017 respectively net income tax benefit recognized consolidated financial statements sharebased compensation awards 30 million 65 million 33 million years ended march 31 2019 2018 2017 respectively march 31 2019 102 million total unrecognized compensation cost related nonvested incentive awards expected recognized weighted average period 160 years advertising costs recognize advertising expense incurred selling general administrative expense advertising expenses totaled 11 billion 13 billion 11 billion years ended march 31 2019 2018 2017 respectively variable interest entities vie vies entities lack sufficient equity permit entity finance activities without additional subordinated financial support parties equity investors ability make significant decisions relating entitys operations voting rights obligation absorb expected losses right receive residual returns entity common type vie special purposes entity spe spes commonly used securitization transactions order isolate certain assets distribute cash flows index consolidated financial statements sprint corporation notes consolidated financial statements assets investors spes generally structured insulate investors claims spes assets creditors entities including creditors seller assets required consolidate assets liabilities vies deemed primary beneficiary primary beneficiary party power make decisions significantly affect economic performance vie obligation absorb losses right receive benefits could potentially significant vie new accounting pronouncements accounting pronouncements adopted current year may 2014 financial accounting standards board fasb issued new authoritative literature revenue contracts customers topic 606 standard update along related subsequently issued updates clarifies principles recognizing revenue develops common revenue standard us gaap new standard supersedes much existing authoritative literature revenue recognition topic 605 standard update also amends current guidance recognition costs obtain fulfill contracts customers incremental costs obtaining direct costs fulfilling contracts customers deferred amortized consistent transfer related good service upon adoption company applied standard contracts completed referred open contracts company adopted standard update beginning april 1 2018 using modified retrospective method requires cumulative effect initially applying standard recognized date application beginning april 1 2018 recorded pretax cumulative effect 17 billion 13 billion net tax reduction april 1 2018 opening balance accumulated deficit results reporting periods beginning april 1 2018 presented topic 606 amounts reported prior periods adjusted continue reported accounting standards effect periods see note 8 revenues contracts customers additional information related revenues contract costs including qualitative quantitative disclosures required topic 606 january 2016 fasb issued authoritative guidance regarding financial instruments amended guidance classification measurement financial instruments new guidance entities required measure equity investments consolidated accounted equity method fair value changes fair value recorded net income unless entity elected new practicability exception financial liabilities measured using fair value option entities required separately present comprehensive income portion changes fair value attributable instrumentspecific credit risk additionally guidance amends certain disclosure requirements associated fair value financial instruments company adopted standard update beginning april 1 2018 retrospective basis resulting pretax cumulative effect 12 million 8 million net tax opening balance accumulated deficit october 2016 fasb issued authoritative guidance regarding income taxes amended guidance income tax consequences intraentity transfers assets inventory new guidance entities required recognize income tax consequences intraentity transfer asset inventory transfer occurs thereby eliminating recognition exception within current guidance company adopted standard april 1 2018 modified retrospective basis impact consolidated financial statements january 2017 fasb issued authoritative guidance amending business combinations clarifying definition business clarify definition business objective providing robust framework assist management evaluating whether transactions accounted acquisitions disposals assets businesses company adopted standard april 1 2018 prospective application future business combinations january 2017 fasb issued authoritative guidance regarding intangibles goodwill simplifying test goodwill impairment simplifies goodwill impairment test eliminating requirement calculate implied fair value goodwill measure goodwill impairment charge step 2 test rather record impairment charge based excess carrying value fair value company adopted standard april 1 2018 impact consolidated financial statements date adoption index consolidated financial statements sprint corporation notes consolidated financial statements cumulative aftertax effect changes made consolidated balance sheet adoption topic 606 asus effective company april 1 2018 follows significant impact upon adoption topic 606 april 1 2018 recognition deferred contract cost asset 12 billion recorded costs acquire customer contract consolidated balance sheets incremental contract acquisition costs paid open contracts date adoption capitalizing subsequently amortizing commission costs previously expensed related new service contracts expected customer relationship period costs associated contract renewals amortized anticipated length service contract operating expenses lower fiscal year 2019 topic 606 compared amounts recorded topic 605 due higher deferrals costs compared amortization prior period commission costs deferred open contracts date adoption permitted topic 606 index consolidated financial statements sprint corporation notes consolidated financial statements reconciliation adjustments adoption topic 606 relative topic 605 consolidated statements operations balance sheets follows index consolidated financial statements sprint corporation notes consolidated financial statements significant impacts financial statement results reported topic 606 compared topic 605 current reporting period follows • consideration paid customers behalf customers included reduction total transaction price customer contracts resulting contract asset amortized service revenue term contract result income statement impact reflects increase equipment sales offset reduction wireless service revenue previous standard consideration paid customers behalf customers recognized reduction revenue selling general administrative expense • costs acquire customer contract renewal capitalized amortized selling general administrative expenses expected customer relationship period length service contract respectively previous standard commission costs expensed incurred • deferred tax liabilities increased temporary differences established upon adoption topic 606 primarily attributable costs acquire customer contract income tax purposes commission costs continue expensed incurred accounting pronouncements yet adopted february 2016 fasb issued authoritative guidance regarding leases subsequently modified several areas standard order provide additional clarity improvements new standard supersedes much existing authoritative literature leases guidance requires lessees among things recognize rightofuse assets lease liabilities balance sheet leases lease terms longer twelve months july 2018 fasb made targeted improvements standard including providing additional optional transition method entity initially applies standard adoption date including election certain transition reliefs recognizes cumulative effect adjustment opening balance retained earnings period adoption standard effective company fiscal year beginning april 1 2019 including interim periods within fiscal year company adopt new leasing standard using modified retrospective transition method date initial application april 1 2019 comparative period financial statements disclosures adjusted upon transition companies elect various practical expedients completed assessment transition practical expedients concluded elect practical expedients allow company reassess whether contract lease contains lease including land easements classification leases whether previously incurred costs eligible deferral initial direct costs additionally expect elect use hindsight determining lease term transition prospectively elect separate lease nonlease components classes assets arrangements lessee index consolidated financial statements sprint corporation notes consolidated financial statements company elected modified retrospective transition method assets liabilities recognized solely result transaction company deemed owner construction previous literature construction completed derecognized transition company funded certain construction costs concluded prepaid lease payments consequently amounts carried depreciated balance approximately 06 billion included associated finance lease rightofuse assets additionally company party several leaseback arrangements due complexity arrangements completed assessment impact upon adoption currently anticipate standard material impact consolidated balance sheets upon adoption future periods excluding impacts associated leaseback arrangements currently estimate upon adoption company recognize lease liability least 70 billion impact expected inclusive following • recognition lease liability rightofuse assets operating leases previously recorded rightofuse asset adjusted recognized balances associated operating leases including prepaid deferred rent ceaseuse liabilities favorable unfavorable intangible assets • impact election apply hindsight determining lease term lease liability generally include payments initial noncancelable lease term lease arrangements lessor company expect adoption standard material impact standard modifies classification accounting salestype direct finance leases substantially companys current handset leases classified operating leases company expect material salestype direct financing leases future periods company process implementing significant new lease solutions process internal controls order meet leasing standards reporting disclosure requirements june 2016 november 2018 fasb issued authoritative guidance regarding financial instruments credit losses requires entities use current expected credit loss impairment model based expected losses rather incurred losses model entity would recognize impairment allowance equal current estimate contractual cash flows entity expect collect financial assets measured amortized cost within scope standard entitys estimate would consider relevant information past events current conditions reasonable supportable forecasts result recognition lifetime expected credit losses standard effective companys fiscal year beginning april 1 2020 including interim reporting periods within fiscal year although early adoption permitted company expect adoption guidance material impact consolidated financial statements june 2018 fasb issued authoritative guidance regarding compensation stock compensation expands scope asc topic 718 include sharebased payment transactions acquiring goods services nonemployees standard effective company fiscal year beginning april 1 2019 including interim periods within fiscal year early adoption permitted company currently evaluating guidance assessing overall impact however expect adoption guidance material impact consolidated financial statements august 2018 fasb issued authoritative guidance regarding fair value measurement disclosure framework eliminates adds modifies certain disclosure requirements fair value measurements standard effective company fiscal year beginning april 1 2020 including interim periods within fiscal year early adoption permitted company currently evaluating guidance assessing overall impact however expect adoption guidance material impact consolidated financial statements august 2018 fasb issued authoritative guidance regarding intangibles goodwill internaluse software aligns requirements customer capitalize implementation costs incurred hosting arrangement service contract requirements capitalizing implementation costs incurred develop obtain internaluse software standard effective company fiscal year beginning april 1 2020 including interim periods within fiscal year early adoption permitted company currently evaluating guidance assessing overall impact index consolidated financial statements sprint corporation notes consolidated financial statements note 3installment receivables certain subscribers option pay devices installments generally 24month period shortterm installment receivables recorded accounts notes receivable net longterm installment receivables recorded assets consolidated balance sheets following table summarizes installment receivables balance aging installment receivables gross basis credit category follows activity deferred interest allowance credit losses installment receivables follows note 4 financial instruments company carries certain assets liabilities fair value fair value defined exit price representing amount would received sell asset paid transfer liability orderly transaction market participants measurement date threetier hierarchy inputs used measuring fair value prioritizes inputs based observability measurement date follows quoted prices active markets identical assets liabilities observable inputs quoted prices active markets identical assets liabilities unobservable inputs little market data require company develop assumptions market participants would use pricing asset liability index consolidated financial statements sprint corporation notes consolidated financial statements carrying amount cash equivalents accounts notes receivable accounts payable approximates fair value shortterm investments recorded amortized cost respective carrying amounts approximate fair value would determined primarily using quoted prices active markets march 31 2019 shortterm investments consisted 67 million commercial paper march 31 2018 shortterm investments totaled 24 billion consisted approximately 16 billion time deposits 765 million commercial paper fair value marketable equity securities totaling 1 million 57 million march 31 2019 2018 respectively measured recurring basis using quoted prices active markets current longterm debt inclusive financings carried amortized cost debt estimated fair value determined based unobservable inputs primarily represents borrowings secured equipment credit facilities sales receivables accounts receivable facility receivables facility see note 7 longterm debt financing capital lease obligations additional information carrying amounts associated borrowings approximate fair value estimated fair value majority current longterm debt excluding secured equipment credit facilities sold wireless service installment billing future receivables determined based quoted prices active markets using observable inputs derived principally corroborated observable market data following table presents carrying amounts estimated fair values current longterm debt financing obligations note 5 property plant equipment property plant equipment consists primarily network equipment leased devices longlived assets used provide service subscribers noncash accruals included ppe excluding leased devices totaled 12 billion 704 million 962 million march 31 2019 2018 2017 respectively following table presents components ppe related accumulated depreciation network equipment site costs related software includes switching equipment cell site towers site development costs radio frequency equipment network software digital fiber optic cable transport facilities transmissionrelated equipment buildings improvements principally consist owned general office facilities retail stores leasehold improvements nonnetwork internal use software office equipment leased devices primarily index consolidated financial statements sprint corporation notes consolidated financial statements consists furniture information technology systems equipment vehicles leased devices construction progress depreciated placed service primarily includes materials transmission related equipment labor engineering site development costs interest costs relating construction development network sprint offers leasing program customers whereby qualified subscribers lease device contractual period time end lease term subscriber option return device continue leasing device purchase device march 31 2019 substantially device leases classified operating leases purchases leased devices reported cash outflows capital expenditures leased devices consolidated statements cash flows devices depreciated using straightline method estimated residual value generally term lease following table presents leased devices related accumulated depreciation years ended march 31 2019 2018 noncash transfers returned leased devices property plant equipment device accessory inventory lower net book value estimated fair value 879 million 661 million respectively noncash accruals included leased devices totaled 185 million 256 million 158 million march 31 2019 2018 2017 respectively march 31 2019 minimum estimated payments received leased devices follows millions years ended march 31 2019 2018 2017 recorded 11 billion 868 million 509 million respectively loss disposal property plant equipment net recoveries net losses resulted writeoff leased devices primarily associated lease cancellations prior scheduled customer lease terms customers return devices us losses 643 million 493 million 481 million years ended march 31 2019 2018 2017 respectively included cost equipment rentals consolidated statements operations years ended march 31 2019 2018 2017 recorded 492 million 375 million 28 million respectively losses primarily related cell site construction costs network equipment longer recoverable result changes network plans included net consolidated statements operations note 6 intangible assets indefinitelived intangible assets indefinitelived intangible assets consist fcc licenses acquired primarily fcc auctions business combinations certain trademarks goodwill march 31 2019 held 800 mhz 19 ghz 25 ghz fcc licenses authorizing use radio frequency spectrum deploy wireless services long company acts within requirements constraints regulatory authorities renewal extension licenses reasonably certain minimal cost accordingly concluded fcc licenses indefinitelived intangible assets sprint boost mobile trademarks also identified indefinitelived intangible assets goodwill represents excess consideration paid estimated fair value net tangible identifiable intangible assets acquired business combinations index consolidated financial statements sprint corporation notes consolidated financial statements year ended march 31 2018 sprint prwireless pr inc completed transaction combine operations puerto rico us virgin islands new entity named prwireless holdco llc companies contributed employees subscribers network assets spectrum transaction sprint prwireless pr inc approximate 68 32 preferred economic interest well 55 45 common voting interest new entity respectively sprints ownership represents controlling financial interest result sprint consolidates entity presents noncontrolling interest consolidated financial statements consideration transferred sprint allocated assets acquired liabilities assumed prwireless pr inc based estimated fair values time transaction beginning total assets liabilities new entity approximately 380 million 245 million respectively amounts approximately 275 million 225 million represented fair value prwireless pr inc asset liability contribution respectively increased corresponding financial statement line items sprint consolidated balance sheet march 31 2018 acquired assets primarily consisted approximately 145 million fcc licenses 50 million intangible assets 80 million current fixed assets acquired liabilities consisted approximately 180 million longterm debt 45 million current liabilities following provides activity indefinitelived intangible assets within consolidated balance sheets 1 year ended march 31 2018 net additions within fcc licenses include 479 million increase spectrum license exchanges described approximately 145 million spectrum licenses result transaction prwireless pr inc described 2 year ended march 31 2018 7 million added goodwill result transaction prwireless pr inc described 3 march 31 2019 accumulated impairment losses goodwill 20 billion see discussion spectrum license exchanges first quarter fiscal year 2017 exchanged certain spectrum licenses carriers noncash transactions result recorded noncash gain 479 million represented difference fair value net book value spectrum transferred carriers resulting noncash investing activity fair value licenses received 921 million gain presented net consolidated statements operations year ended march 31 2018 assessment impairment annual impairment testing date goodwill indefinitelived intangible assets january 1 year however test impairment annual tests event occurs circumstances change indicate asset may impaired case goodwill fair value reporting unit carrying amount stock price march 31 2019 565 net book value per share price 639 however subsequent balance sheet date stock price increased 691 may 28 2019 quoted market price stock sole consideration fair value considerations include limited expectations future results well broad market industry data index consolidated financial statements sprint corporation notes consolidated financial statements year ended march 31 2019 company completed annual impairment testing goodwill assigned wireless reporting unit using quantitative approaches determine fair value wireless reporting unit included weighted calculation income market approaches rely significant unobservable inputs including limited management’s forecasts projected revenue adjusted ebitda cash flows result lower net customer additions sustained negative free cash flow necessary maintain competitive network failures meet prior forecasted projections updated projected cash flows wireless reporting unit updated projections reflected declines longterm revenue adjusted ebitda compared prior projections result impairment testing concluded carrying value wireless reporting unit excess estimated fair value 20 billion january 1 2019 result goodwill impairment charge amount recorded consolidated statements operations year ended march 31 2019 record impairment goodwill year ended march 31 2018 furthermore record impairment indefinitelived intangible assets years ended march 31 2019 march 31 2018 determination fair value requires considerable judgment highly sensitive changes underlying assumptions consequently assurance estimates assumptions made purposes goodwill spectrum licenses sprint boost mobile trade names impairment tests prove accurate prediction future sustained declines company’s operating results number wireless subscribers future forecasted cash flows growth rates assumptions well significant persistent declines company’s stock price related market capitalization could impact underlying key assumptions estimated fair values potentially leading additional future material impairment goodwill indefinitelived intangible assets intangible assets subject amortization customer relationships amortized using sumofthemonths digits method definitelived intangible assets amortized using straightline method estimated useful lives respective assets reduce gross carrying value associated accumulated amortization specified intangible assets become fully amortized amortization expense related favorable spectrum tower leases recognized cost services consolidated statements operations index consolidated financial statements sprint corporation notes consolidated financial statements note 7 longterm debt financing capital lease obligations march 31 2019 sprint corporation 120 billion aggregate principal amount senior notes outstanding addition march 31 2019 outstanding principal amount senior notes issued sprint communications sprint capital corporation guaranteed notes issued sprint communications sprint communications secured term loans secured revolving bank credit facility edc agreement secured equipment credit facilities receivables facility certain obligations collectively totaled 219 billion principal amount longterm debt sprint corporation fully unconditionally guaranteed indebtedness issued 100 owned subsidiaries although certain financing agreements restrict ability sprint communications subsidiaries distribute cash sprint corporation ability subsidiaries distribute cash respective parents including sprint communications generally restricted march 31 2019 approximately 161 billion aggregate principal amount outstanding debt comprised certain notes financing capital lease obligations secured substantially assets company cash interest payments net amounts capitalized 74 million 55 million 44 million totaled 26 billion 25 billion 27 billion years ended march 31 2019 2018 2017 respectively weighted average effective interest rate related notes credit facilities 65 62 64 years ended march 31 2019 2018 2017 respectively index consolidated financial statements sprint corporation notes consolidated financial statements notes march 31 2019 outstanding notes consisted senior notes guaranteed notes unsecured well senior secured notes associated spectrum financing transactions cash interest notes payable semiannually arrears exception spectrum financing senior secured notes payable quarterly march 31 2019 301 billion aggregate principal amount notes redeemable companys discretion thenapplicable redemption prices plus accrued interest march 31 2019 239 billion aggregate principal amount senior notes senior secured notes guaranteed notes provided holders right require us repurchase notes change control triggering event defined applicable indentures supplemental indentures occurs may 2018 successfully completed consent solicitations respect certain series sprint corporation sprint communications sprint capital corporation senior notes result sprint corporation sprint communications consent solicitations proposed merger transaction tmobile consummated constitute change control defined applicable indentures governing notes effective december 31 2018 sprint defeased 200 million aggregate principal amount sprint communications 925 debentures due 2022 included deposit us treasury securities trustee provide future interest principal payments notes maturity defeasance resulted reductions shortterm investments current portion longterm debt financing capital lease obligations consolidated balance sheets december 31 2018 november 2018 sprint communications retired 18 billion aggregate principal amount upon maturity outstanding 9000 guaranteed notes spectrum financing october 2016 certain subsidiaries sprint communications restricted subsidiaries sprint capital corporations indentures transferred certain directly held thirdparty leased spectrum licenses collectively spectrum portfolio whollyowned bankruptcyremote special purpose entities collectively spectrum financing spes spectrum portfolio represented approximately 14 sprints total spectrum holdings mhzpops basis used collateral raise initial 35 billion senior secured notes 2016 spectrumbacked notes bearing interest 336 per annum 70 billion securitization program 2016 spectrumbacked notes repayable fiveyear term interestonly payments first four quarters amortizing quarterly principal payments thereafter commencing december 2017 september 2021 year ended march 31 2019 made scheduled principal repayments 875 million resulting total principal amount outstanding related 2016 spectrumbacked notes 22 billion march 31 2019 875 million classified current portion longterm debt financing capital lease obligations consolidated balance sheets march 2018 amended transaction documents governing securitization program allow issuance 70 billion notes outstanding pursuant securitization program subject certain conditions among things may require contribution additional spectrum also march 2018 issued approximately 39 billion aggregate principal amount senior secured notes existing 70 billion securitization program consisting two series senior secured notes first series notes totaled 21 billion aggregate principal amount bears interest 4738 per annum quarterly interestonly payments june 2021 amortizing quarterly principal amounts thereafter commencing june 2021 march 2025 second series notes totaled approximately 18 billion aggregate principal amount bears interest 5152 per annum quarterly interestonly payments june 2023 amortizing quarterly principal amounts thereafter commencing june 2023 march 2028 spectrum portfolio also serves collateral 2016 spectrumbacked notes remains substantially identical original portfolio october 2016 simultaneously october 2016 offering sprint communications entered longterm lease spectrum financing spes ongoing use spectrum portfolio spectrum lease executory contract accounting purposes treated similar manner operating lease sprint communications required make monthly lease payments spectrum financing spes market rate lease payments guaranteed sprint corporation certain subsidiaries none restricted subsidiaries sprint capital corporations indentures sprint communications secured together obligations another transaction document index consolidated financial statements sprint corporation notes consolidated financial statements substantially assets entities pari passu basis aggregate cap 35 billion grant security secured term loan revolving bank credit facility edc defined agreement sufficient service outstanding series senior secured notes lease also constitutes collateral senior secured notes spectrum financing spes whollyowned sprint subsidiaries entities consolidated intercompany activity eliminated spectrum financing spe separate legal entity separate creditors entitled prior upon liquidation spectrum financing spes satisfied spectrum financing spes assets prior assets spectrum financing spes becoming available sprint accordingly assets spectrum financing spes available satisfy debts obligations owed creditors sprint obligations spectrum financing spes spectrumbacked senior secured notes paid full june 2018 obtained consent control party spectrumbacked senior secured notes indenture amend indenture proposed merger transaction tmobile consummated constitute change control defined indenture credit facilities secured term loan revolving bank credit facility february 3 2017 entered 60 billion credit agreement consisting 40 billion sevenyear secured term loan initial term loan matures february 2024 20 billion secured revolving bank credit facility expires february 2021 march 31 2019 118 million letters credit outstanding secured revolving bank credit facility including letter credit required report order see note 12 commitments contingencies additional information result outstanding letters credit directly reduce availability borrowings company approximately 19 billion borrowing capacity available secured revolving bank credit facility march 31 2019 bank credit facility requires ratio leverage ratio total indebtedness trailing four quarters earnings interest taxes depreciation amortization nonrecurring items defined bank credit facility adjusted ebitda exceed 375 10 fiscal quarter ending december 31 2019 leverage ratio must exceed 35 10 fiscal quarter ended march 31 2020 fiscal quarter ending thereafter expiration facility initial term loan interest rate equal libor plus 250 basis points secured revolving bank credit facility interest rate equal libor plus spread varies depending leverage ratio year ended march 31 2019 made principal repayments initial term loan totaling 40 million resulting total principal amount outstanding initial term loan 39 billion march 31 2019 consideration initial term loan entered fiveyear fixedforfloating interest rate swap 20 billion notional amount designated cash flow hedge effective portion changes fair value recorded comprehensive loss income consolidated statements comprehensive loss income ineffective portion recorded interest expense current period earnings consolidated statements operations fair value interest rate swap 13 million 41 million march 31 2019 2018 respectively recorded assets consolidated balance sheets november 26 2018 credit agreement amended among things authorize incremental secured term loans incremental term loans totaling 20 billion 11 billion borrowed february 26 2019 remaining 900 million borrowed incremental term loans mature february 2024 interest rates equal libor plus 300 basis points increased total credit facility 80 billion prwireless term loan threemonth period ended december 31 2017 sprint prwireless pr inc completed transaction combine operations puerto rico us virgin islands new entity prior formation new entity prwireless pr inc incurred debt secured term loan became debt new entity upon transaction close secured term loan bears interest 525 plus libor expires june 2020 amounts repaid early may drawn year ended march 31 2019 joint venture borrowed 18 million made principal repayments totaling 2 million resulting total principal amount outstanding 198 million march 31 index consolidated financial statements sprint corporation notes consolidated financial statements 2019 additional 2 million remaining available sprint provided unsecured guarantee repayment secured term loan obligations secured portion facility limited assets joint venture borrower edc agreement march 31 2019 edc agreement provided security covenant terms similar secured term loan revolving bank credit facility however terms edc agreement repayments outstanding amounts cannot redrawn march 31 2019 total principal amount outstanding edc facility 300 million secured equipment credit facilities finnvera plc finnvera secured equipment credit facility provided ability finance network equipmentrelated purchases nokia solutions networks us llc usa year ended march 31 2019 made principal repayments totaling 82 million facility resulting total principal amount 92 million outstanding march 31 2019 ksure secured equipment credit facility provides ability finance network equipmentrelated purchases samsung telecommunications america llc october 2018 amended secured equipment credit facility extend borrowing availability september 2019 borrowings contingent upon amount timing network equipmentrelated purchases made sprint year ended march 31 2019 drew 331 million made principal repayments totaling 75 million facility resulting total principal amount 450 million outstanding march 31 2019 delcredere ducroire dd secured equipment credit facility provided ability finance network equipmentrelated purchases alcatellucent usa inc year ended march 31 2019 made principal repayments totaling 40 million facility resulting total principal amount 119 million outstanding march 31 2019 borrowings finnvera ksure dd secured equipment credit facilities secured liens respective network equipment purchased addition repayments outstanding amounts borrowed secured equipment credit facilities cannot redrawn facilities fully unconditionally guaranteed sprint communications sprint corporation secured equipment credit facilities certain key covenants similar secured term loan revolving bank credit facility accounts receivable facility transaction overview receivables facility provides us opportunity sell certain wireless service receivables installment receivables future amounts due customers lease certain devices us unaffiliated third parties purchasers maximum funding limit receivables facility 45 billion right decide much cash receive sale maximum amount cash available us varies based number factors march 31 2019 represents approximately 50 total amount eligible receivables sold purchasers march 31 2019 total amount outstanding receivables facility 26 billion total amount available drawn 867 million however subsequent march 31 2019 sprint repaid 800 million receivables facility reducing amounts outstanding 18 billion february 2017 receivables facility amended sprint regained effective control receivables transferred purchasers obtaining right certain circumstances repurchase subsequent february 2017 amendment proceeds received purchasers exchange transfer wireless service installment receivables recorded borrowings repayments borrowings receivables facility reported financing activities consolidated statements cash flows cash collected repurchased receivables subsequent february 2017 amendment recognized investing activities consolidated statements cash flows june 2018 receivables facility amended among things extend maturity date june 2020 increase maximum funding limit 200 million reduce financing costs add monthtomonth lease receivables eligible receivables leases extend past original lease term change purchasers commitment allocations purchasers commitments allocated 22 wireless index consolidated financial statements sprint corporation notes consolidated financial statements service receivables 78 combined pool installment receivables future lease receivables monthtomonth lease receivables year ended march 31 2019 drew 69 billion repaid 67 billion purchasers prior february 2017 amendment wireless service installment receivables sold purchasers treated sale financial assets derecognized receivables well related allowances recognized net proceeds received cash provided operating activities consolidated statements cash flows total proceeds sale receivables comprised combination cash recognized operating activities within consolidated statements cash flows deferred purchase price dpp realized us upon either ultimate collection underlying receivables sold purchasers upon sprints election receive additional advances cash purchasers subject total availability receivables facility cash collections dpp recognized investing activities consolidated statements cash flows fees associated sales recognized selling general administrative consolidated statements operations date february 2017 amendment subsequent february 2017 amendment sale wireless service installment receivables reported financings consistent historical treatment sale future lease receivables associated fees recognized interest expense consolidated statements operations transaction structure sprint contributes certain wireless service installment future lease receivables well associated leased devices sprints whollyowned consolidated bankruptcyremote special purpose entities spes sprints direction spes sold continue sell wireless service installment future lease receivables purchasers bank agent behalf purchasers leased devices remain spes sales initiated continue depreciated estimated useful life march 31 2019 wireless service installment lease receivables contributed spes included accounts notes receivable net consolidated balance sheets 25 billion longterm portion installment receivables included assets consolidated balance sheets 231 million march 31 2019 net book value devices contributed spes 66 billion spe separate legal entity separate creditors entitled prior upon liquidation spe satisfied spe’s assets prior assets spe becoming available sprint accordingly assets spe available pay creditors sprint affiliates spe although collections receivables excess amounts required repay advances yield fees purchasers creditors spes may remitted sprint term receivables facility sales eligible receivables spes generally occur daily settled monthly basis sprint pays fee drawn undrawn portions receivables facility subsidiary sprint services receivables exchange monthly servicing fee sprint guarantees performance servicing obligations receivables facility variable interest entity sprint determined certain purchasers multiseller assetbacked commercial paper conduits considered variable interest entities lack sufficient equity finance activities sprints interest receivables purchased conduits considered variable interest sprints interest assets represent less 50 total activity conduits financing obligations capital lease obligations tower financing 2008 sold subsequently leased back approximately 3000 cell sites approximately 1750 remain march 31 2019 terms extend 2021 renewal options additional 20 years cell sites continue reported part property plant equipment net consolidated balance sheets due continued involvement property sold transaction accounted financing obligation march 31 2019 109 million index consolidated financial statements sprint corporation notes consolidated financial statements capital lease obligations may 2016 sprint closed transaction shentel acquire one wholesale partners ntelos holdings corporation ntelos total consideration transaction included 181 million net present value basis notes payable shentel sprint satisfy obligations notes payable expected term five six years remaining obligation 151 million march 31 2019 remainder capital lease obligations 278 million march 31 2019 primarily use wireless network equipment covenants certain indentures agreements require compliance various covenants including covenants limit ability company subsidiaries sell substantially assets limit ability company subsidiaries incur indebtedness liens require maintain certain financial ratios defined terms indentures supplemental indentures financing arrangements march 31 2019 company compliance restrictive financial covenants associated borrowings default borrowings could trigger defaults certain debt obligations turn could result maturities accelerated secured revolving bank credit facility currently restricted paying cash dividends ratio total indebtedness adjusted ebitda defined applicable agreements exceeds 25 10 future maturities longterm debt financing capital lease obligations aggregate amount maturities longterm debt financing capital lease obligations outstanding march 31 2019 follows millions note 8 revenues contracts customers company adopted topic 606 beginning april 1 2018 using modified retrospective method upon adoption company applied standard contracts completed referred open contracts operate two reportable segments wireless wireline disaggregation revenue disaggregate revenue based upon differences accounting underlying performance obligations accounting differences related performance obligations driven various factors including type product offering provided type customer expected timing payment goods services index consolidated financial statements sprint corporation notes consolidated financial statements following table presents disaggregated reported revenue category contract assets liabilities relationship satisfaction performance obligations collection payments customer vary depending upon type contract wireless subsidized contracts payment related equipment performance obligations partially collected upfront partially collected related service period resulting contract asset position contract inception traditional wireless installment billing contracts full amount consideration related equipment performance obligations recognized receivable contract inception collected ratably accordance payment terms attached installment note traditional wireless installment billing contracts subject accounting contract duration one month therefore result recognition contract position wireless installment billing contracts include substantive termination penalty customers receive monthly service credit offset monthly payments applicable installment billing notes amount total transaction price allocated equipment performance obligations less amount recognized noncontingent receivable customer contract inception resulting contract liability position wireless leasing contracts amount cash received inception generally larger amount upfront revenue allocated recognized rental income results contract liability contract inception often partially composed deferred rental income prepaid contracts initiated indirect channel customers may purchase device discount company often reimburse dealer portion discount expected recovered future sales monthly service results contract asset position contract inception circumstances prepaid customers prepay account balances used purchase future wireless goods services amounts recognized contract liability point prepayments redeemed goods services related performance obligations satisfied wireline contracts record contract position either contract asset contract liability depending upon specific facts circumstances contract including reflect differences amount revenue allocated equipment delivered upfront contractually stated price equipment collect nonrefundable upfront payments customers related installation activation capitalize incremental commissions directly related acquisition renewal customer contracts extent costs expected recovered capitalized costs amortized straightline basis shorter expected customer life expected benefit related directly costs index consolidated financial statements sprint corporation notes consolidated financial statements following table presents opening closing balances contract assets contract liabilities receivables balances well capitalized costs associated contracts customers 1 fluctuation correlates directly execution new customer contracts invoicing collections customers normal course business 2 revenue recognized year ended march 31 2019 included within beginning contract liability balance amounts 10 billion remaining performance obligations aggregate amount total transaction price allocated performance obligations contracts existing balance sheet date wholly partially unsatisfied end reporting period expected time frame satisfaction wholly partially unsatisfied performance obligations follows millions amounts disclosed relate allocation revenue amongst performance obligations contracts existing balance sheet date differences timing revenue recognition receivables cash collection result amounts necessarily reflected contract liability balance sheet date included amounts 30 billion year ending march 31 2020 340 million year ending march 31 2021 respectively related allocation total transaction price future operating lease revenues additionally amounts disclosed include estimates variable consideration applicable wireless contracts generally involve variable consideration expected adjustments total transaction price related future price concessions product returns service refunds able reasonably estimate contract inception based upon historical experience similar contracts similar types customers accordance practical expedients • amounts disclosed include revenue allocated wholly partially unsatisfied performance obligations accounting contract duration contract inception less 12 months includes expected revenues traditional installment billing contracts onemonth accounting contract duration • amounts disclosed include variable consideration resulting monthly customer charges intended partially recover taxes imposed company including fees related universal service fund fees based customers estimated monthly voice usage therefore allocated corresponding distinct months wireless services index consolidated financial statements sprint corporation notes consolidated financial statements • amounts disclosed include variable consideration resulting monthly charges wireless wholesale customers fees based customers monthly usage capacity therefore allocated corresponding distinct months wireless services wireline contracts generally subject significant amounts variable consideration charges intended partially recover taxes imposed company including fees related universal service fund fees based customers estimated monthly usage therefore allocated corresponding distinct months wireline services recognized revenue invoiced accordance practical expedient wireline contracts typically provide customer monthly options purchase goods services prices commensurate standalone selling prices goods services determined contract inception note 9 severance exit costs severance exit costs consist lease exit costs primarily associated tower cell sites access exit costs related payments continue made backhaul access contracts longer receiving economic benefit severance costs associated reductions work force following provides activity severance exit costs liability included accounts payable accrued expenses current liabilities within consolidated balance sheets net expenses included net within consolidated statements operations 1 year ended march 31 2019 recognized costs 25 million wireless 2 year ended march 31 2019 recognized costs 23 million 15 million wireless 8 million wireline 3 year ended march 31 2019 recognized costs 37 million 26 million wireless 11 million wireline severance exit costs 4 year ended march 31 2018 recognized benefit 2 million 5 million benefit wireless 3 million costs wireline 5 year ended march 31 2018 recognized costs 79 million 73 million wireless 6 million wireline 6 year ended march 31 2018 recognized costs 3 million 10 million benefit wireless 13 million costs wireline severance exit costs continually refine network strategy evaluate potential network initiatives improve overall performance network additionally major cost cutting initiatives expected continue reduce operating expenses improve operating cash flows result ongoing activities may incur future material charges associated lease access exit costs severance asset impairments accelerated depreciation among others index consolidated financial statements sprint corporation notes consolidated financial statements note 10 supplemental financial information 1 includes liabilities amounts 75 million 66 million march 31 2019 2018 respectively payments issued excess associated bank balances yet presented collection index consolidated financial statements sprint corporation notes consolidated financial statements note 11 income taxes sprint corporation parent affiliated group corporations join filing us federal consolidated income tax return additionally file income tax returns state jurisdiction imposes income tax certain state jurisdictions sprint subsidiaries file combined tax returns certain softbank affiliated entities state tax expense benefit determined utilizing separate return approach sprint subsidiaries file standalone basis also file income tax returns number foreign jurisdictions however foreign income tax activity immaterial cash paid net refunds received income tax purposes years ended march 31 2019 2018 2017 40 million 25 million 22 million respectively us federal statutory tax rates years ended march 31 2019 2018 2017 21 315 35 respectively tax cuts jobs act tax act enacted december 2017 reduced corporate income tax rate effective january 1 2018 differences caused effective income tax rates differ us federal statutory rates years ended march 31 2019 2018 2017 respectively follows 1 exclusive 21 billion federal state release included tax benefit tax act line year ended march 31 2018 income tax benefit expense consists following index consolidated financial statements sprint corporation notes consolidated financial statements income tax benefit expense allocated items follows 1 amounts recognized accumulated comprehensive loss income tax benefit 35 million year ended march 31 2019 primarily attributable impact state law changes enacted period partially offset expense attributable organizational restructuring adjustments primarily driven change carrying value deferred tax assets liabilities temporary differences addition effective tax rate impacted nondeductible penalties related litigation state new york settled period 19 billion 20 billion noncash impairment charge related goodwill substantially charge separately deductible tax purposes income tax benefit 71 billion year ended march 31 2018 primarily attributable impact tax act recognized 71 billion noncash tax benefit net income loss remeasurement deferred tax assets liabilities due changes tax laws included tax act remeasurement deferred taxes impact cash flows remeasurement driven two provisions tax act first result corporate tax rate reduction 35 21 recognized 50 billion noncash tax benefit income continuing operations remeasurement deferred tax assets liabilities secondly tax act included provision whereby net operating losses generated tax years beginning december 31 2017 may carried forward indefinitely realization deferred tax assets including net operating loss carryforwards dependent generation future taxable income sufficient realize tax deductions carryforwards credits provision tax act modifying carryforward period net operating losses changed assessment ability recognize deferred tax assets certain deductible temporary differences projected realized tax years indefinitelived carryforward period assessing ability realize deferred tax assets considered taxable temporary differences indefinitelived assets fcc licenses available source future taxable income source income previously considered could scheduled reverse period definitelived deductible temporary differences result change assessment recognized 21 billion noncash tax benefit income continuing operations reduce valuation allowance income tax expense 435 million year ended march 31 2017 primarily attributable taxable temporary differences tax amortization fcc licenses tax expense 136 million pretax gains spectrum license exchanges increased deferred tax liability fcc license temporary differences addition increased state income tax valuation allowance 89 million result shift operations among whollyowned subsidiaries organizational restructuring occurred year deferred income taxes recognized temporary differences carrying amounts assets liabilities financial statement purposes tax bases deferred tax assets also recorded net operating loss capital loss tax credit carryforwards sources differences give rise deferred income tax assets liabilities march 31 2019 2018 along income tax effect follows index consolidated financial statements sprint corporation notes consolidated financial statements tax act enacted december 2017 made broad complex changes us tax code including limited 1 reducing us federal corporate tax rate 35 21 2 changing rules related uses limitations net operating loss carryforwards created tax years beginning december 31 2017 3 eliminating corporate alternative minimum tax 4 new tax rules related foreign operations accordance asc topic 740 income taxes staff accounting bulletin 118 sab 118 made reasonable estimate impacts tax act recorded estimate period ended december 31 2017 sab 118 allows measurement period extend beyond one year date enactment complete accounting impacts tax act december 31 2018 analysis sab 118 completed including limited remeasurement deferred tax assets liabilities analysis resulted material adjustments provisional estimate recorded period ended december 31 2017 years ended march 31 2019 2018 2017 generated 61 million 109 million 204 million respectively foreign loss income included income loss income taxes consolidated statements operations material unremitted earnings foreign subsidiaries march 31 2019 federal net operating loss carryforwards 213 billion state net operating loss carryforwards 163 billion foreign net operating loss carryforwards 392 million related loss carryforwards recorded federal tax benefits 45 billion net state tax benefits 937 million foreign tax benefits 145 million consideration valuation allowances approximately 411 million federal net operating loss carryforwards expire fiscal years 2019 2023 136 billion expire fiscal years 2024 2034 73 billion expire approximately 159 billion state net operating loss carryforwards expire varying amounts fiscal year 2038 approximately 402 million expire foreign net operating loss carryforwards 22 million expire remaining foreign net operating loss carryforwards expire varying amounts fiscal years 2019 2037 index consolidated financial statements sprint corporation notes consolidated financial statements also available 356 million federal state income tax credit carryforwards march 31 2019 included amount 22 million income tax credits expire prior fiscal year 2020 296 million expire varying amounts fiscal years 2020 2038 remaining 38 million expire unrecognized tax benefits established uncertain tax positions based upon estimates regarding potential future challenges positions largest amount greater fifty percent likely realized upon ultimate settlement estimates updated reporting date based facts circumstances information available interest related unrecognized tax benefits recognized interest expense penalties recognized additional income tax expense unrecognized tax benefits attributable uncertain tax positions 242 million 239 million march 31 2019 2018 respectively march 31 2019 unrecognized tax benefits included items would favorably affect income tax provision 221 million recognized without offsetting valuation allowance adjustment accrued liability income tax related interest penalties insignificant periods presented reconciliation beginning ending amount unrecognized tax benefits follows currently examination us internal revenue service involved multiple state income tax examinations related various years beginning 1996 various stages examination administrativejudicial review appellate process based current knowledge examinations administrativejudicial reviews appellate processes believe reasonably possible uncertain tax positions may resolved next twelve months could result reduction 18 million unrecognized tax benefits federal state statutes limitations assessment tax liability generally lapse three four years respectively date tax returns filed however income tax attributes carried forward net operating loss carryforwards may challenged adjusted taxing authorities time prior expiration statute limitations tax year utilized note 12 commitments contingencies litigation claims assessments april 22 2019 complaint filed federal court new york company two executive officers capacities lawsuit entitled meneses et al v sprint corporation et al purportedly brought behalf class sprint shareholders alleges january 2019 april 2019 defendants violated federal securities laws rules failing properly disclose certain postpaid net subscriber additions driven free lines included less valuable tablet nonphone devices well prepaid postpaid migrations plaintiff seeks damages reasonable costs attorneys’ fees company believes lawsuit without merit april 19 2012 new york attorney general filed complaint alleging sprint communications fraudulently failed collect pay 100 million new york sales taxes receipts sale wireless telephone services since july 2005 complaint also sought recovery triple damages state false claims act well penalties interest sprint communications moved dismiss complaint june 14 2012 july 1 2013 court entered order denying motion dismiss large part although dismiss certain counts parts certain counts sprint communications appealed order intermediate appellate court affirmed order trial court index consolidated financial statements sprint corporation notes consolidated financial statements october 20 2015 court appeals new york affirmed decision appellate court tax statute required us collect remit disputed taxes petition certiorari us supreme court grounds federal preemption denied previously paid principal amount tax issue protest suit pending december 21 2018 sprint communications state new york settled dispute well unrelated tax matter result company recognized additional 50 million litigation expense year ended march 31 2019 eight related stockholder derivative suits filed sprint communications certain current former officers directors suit alleges generally individual defendants breached fiduciary duties sprint communications stockholders allegedly permitting failing disclose actions alleged suit filed new york attorney general one suit filed louisiana municipal police employees retirement system dismissed federal court two suits filed state court johnson county kansas one suits dismissed premature five suits pending federal court kansas remaining kansas suits stayed pending resolution attorney generals suit expect resolution matters material adverse effect financial position results operations sprint currently involved numerous court actions alleging sprint infringing various patents cases effectively seek monetary damages small number cases brought companies sell products seek injunctive relief well cases progressed various degrees small number may go trial otherwise resolved adverse resolution cases could require us pay significant damages cease certain activities cease selling relevant products services many circumstances would indemnified monetary losses incur respect actions suppliers service providers expect resolution cases material adverse effect financial position results operations various suits inquiries proceedings claims either asserted unasserted including purported class actions typical large business enterprise intellectual property matters possible pending us subsidiaries interpretation certain laws regulations including related various federal state matters sales use property taxes charges found mistaken could result payments us possible determine ultimate disposition proceedings whether resolved consistent beliefs expect outcome proceedings individually aggregate material adverse effect financial position results operations threemonth period ended september 30 2018 settled state tax matter previously accrued 114 million material impact financial position results operations upon final settlement spectrum reconfiguration obligations 2004 fcc adopted report order included new rules regarding interference 800 mhz band comprehensive plan reconfigure 800 mhz band report order provides exchange portion 800 mhz fcc spectrum licenses requires us fund cost incurred public safety systems incumbent licensees reconfigure 800 mhz spectrum band also exchange received licenses 10 mhz nationwide spectrum 19 ghz band minimum cash obligation 28 billion report order however obligated continue pay full amount costs relating reconfiguration plan although costs exceeded 28 billion required terms report order letter credit secured provide assurance funds available pay relocation costs incumbent users 800 mhz spectrum letter credit initially 25 billion reduced course proceeding 78 million march 31 2019 since inception program incurred payments approximately 36 billion directly attributable performance report order including 43 million year ended march 31 2019 incurred substantially costs accounted additions fcc licenses remainder property plant equipment based expenses date thirdparty administrators audits exceeded 28 billion minimum cash obligation required fcc october 12 2017 fcc released declaratory ruling met minimum cash obligation report order concluded sprint required make payments us treasury recently reported fcc virtually public safety reconfiguration complete across country including along southern border markets delayed due coordination efforts mexico accordingly sprint received full allotment replacement spectrum 800 mhz band sprint faces index consolidated financial statements sprint corporation notes consolidated financial statements impediments deploying 3g cdma 4g lte spectrum combination spectrum 19 ghz 25 ghz bands small number nonpublic safety operators must still complete certain retuning work complete administrative tasks states along southern border however remaining activities impact sprint’s operations future minimum commitments march 31 2019 minimum estimated amounts due operating leases spectrum leases service credits purchase orders commitments follows operating leases lease various equipment office facilities retail outlets kiosks switching facilities cell sites operating leases noncancelable portion leases generally ranges monthly 15 years leases exceptions provide automatic renewal options escalations either fixed based consumer price index rent abatements along rent escalations included computation rent expense calculated straightline basis lease term lease term cell site leases majority leases includes initial noncancelable term plus least one renewal period noncancelable term less ten years exercise related renewal option options reasonably assured cell site leases generally provide initial noncancelable term five twelve years five renewal options five years rental commitments operating leases including lease renewals reasonably assured consisted mainly leases cell switch sites real estate information technology network equipment office space total rental expense 28 billion 27 billion 31 billion years ended march 31 2019 2018 2017 respectively spectrum leases service credits certain spectrum leases provide minimum lease payments additional charges renewal options escalation clauses leased spectrum agreements generally terms 30 years expect renewal periods spectrum leases exercised us also commitments provide services certain lessors reimburse lessors certain capital equipment thirdparty service expenditures term lease accrue monthly obligation services equipment based total estimated available service credits divided term lease obligation reduced services provided actual invoices presented paid lessors year ended march 31 2019 satisfied 5 million related commitments maximum remaining commitment march 31 2019 77 million expected incurred term related lease agreements generally range 15 30 years purchase orders commitments party commitments includes among things service spectrum network equipment devices asset retirement obligations executory contracts connection conducting business amounts actually paid agreements likely higher due variable components agreements significant variable components determine ultimate obligation owed include items hours contracted subscribers factors addition party various arrangements conditional nature obligate us make payments upon occurrence certain events delivery functioning software product possible predict timing amounts may due conditional arrangements amounts included table index consolidated financial statements sprint corporation notes consolidated financial statements note 13 stockholders equity per share data certificate incorporation authorizes 10020000000 shares capital stock follows • 9000000000 shares common stock par value 001 per share • 1000000000 shares nonvoting common stock par value 001 per share • 20000000 shares preferred stock par value 00001 per share classes common stock voting common stock holders common stock entitled one vote per share matters submitted action stockholders approximately 41 billion shares common stock outstanding march 31 2019 treasury shares common stock repurchased us recorded cost treasury shares result reduction stockholders equity reissue treasury shares part stockholder approved stockbased compensation programs well upon conversion outstanding securities convertible common stock shares reissued determine cost using fifo method dividends declare dividends common shares periods presented consolidated financial statements currently restricted paying cash dividends terms secured revolving bank credit facility see note 7 longterm debt financing capital lease obligations accumulated comprehensive loss components accumulated comprehensive loss net tax follows index consolidated financial statements sprint corporation notes consolidated financial statements per share data computation basic diluted net loss income per common share attributable sprint follows 1 year ended march 31 2018 dilutive securities attributable warrants include 14 million shares issuable warrant held softbank close merger softbank warrant issued 525 per share july 10 2018 softbank exercised warrant full purchase 55 million shares sprint common stock 287 million 2 potentially dilutive securities included computation diluted net loss income per common share would antidilutive note 14 segments sprint operates two reportable segments wireless wireline • wireless primarily includes retail wholesale affiliate revenue wide array wireless voice data transmission services revenue sale wireless devices handsets tablets accessories equipment rentals devices leased customers generated us puerto rico us virgin islands • wireline primarily includes revenue domestic international wireline communication services provided communications companies targeted business subscribers addition wireless segment define segment earnings wireless wireline operating income loss segment expenses depreciation amortization severance exit costs goodwill impairments asset impairments items solely directly attributable segment representing items nonrecurring unusual nature expense income items excluded segment earnings managed corporate level transactions segments generally accounted based market rates believe approximate fair value company generally reestablishes rates beginning fiscal year impact intercompany pricing rate changes wireline segment earnings affect consolidated results operations wireless segment equivalent offsetting impact cost services index consolidated financial statements sprint corporation notes consolidated financial statements segment financial information follows index consolidated financial statements sprint corporation notes consolidated financial statements 1 year ended march 31 2019 includes 32 million hurricanerelated reimbursements classified consolidated statements operations follows 3 million revenue net operating revenues 6 million cost services 1 million selling general administrative expenses 22 million net within wireless segment year ended march 31 2018 includes 107 million hurricanerelated costs classified consolidated statements operations follows 33 million contrarevenue net operating revenues 48 million cost services 21 million selling general administrative expenses 5 million net within wireless segment addition year ended march 31 2018 includes 51 million charge related regulatory fee matter classified cost services consolidated statements operations 2 intersegment revenues consist primarily wireline services provided wireless segment resale use wireless subscribers 3 year ended march 31 2019 includes 346 million mergerrelated costs recorded selling general administrative expenses consolidated statements operations 4 year ended march 31 2019 company completed annual impairment testing goodwill assigned wireless reporting unit result recorded noncash impairment charge 20 billion see note 6 intangible assets 5 net year ended march 31 2019 consists 85 million severance exit costs primarily due access termination charges lease exit costs reductions work force year ended march 31 2019 includes 492 million loss disposal property plant equipment primarily related cell site construction costs network equipment longer recoverable result changes network plans addition year ended march 31 2019 includes 15 million gain sale certain assets 74 million litigation expense 34 million associated purchase certain leased spectrum assets upon termination related spectrum leases resulted accelerated recognition unamortized favorable lease balances net year ended march 31 2018 consists 80 million severance exit costs 364 million loss disposal property plant equipment consisted 370 million loss related cell site construction costs longer recoverable result changes network plans slightly offset 6 million gain addition year ended march 31 2018 included 479 million noncash gain related spectrum license exchanges carriers net reductions 305 million primarily associated legal settlements favorable developments pending legal proceedings combined 5 million reversal previously accrued contract termination costs related termination relationship general wireless operations inc radioshack net year ended march 31 2017 consists 66 million severance exit costs 140 million state tax matter combined legal reserves related pending legal suits proceedings 28 million loss disposal property plant equipment related cell site construction costs longer recoverable result changes network plans addition year ended march 31 2017 included 354 million noncash gain related spectrum license exchanges carriers 140 million contract termination costs primarily related termination preexisting wholesale arrangement ntelos result shentel transaction combined costs related termination relationship general wireless operations inc radioshack index consolidated financial statements sprint corporation notes consolidated financial statements 1 revenues eliminated consolidation consist primarily wireline services provided wireless segment resale use wireless subscribers 2 service revenue related wireless segment year ended march 31 2019 excludes 3 million hurricanerelated revenue reimbursements reflected net operating revenues consolidated statements operations service revenue related wireless segment year ended march 31 2018 excludes 33 million hurricanerelated contrarevenue costs reflected net operating revenues consolidated statements operations 3 sprint longer reporting lifeline subscribers due regulatory changes resulting tighter program restrictions excluded subscribers customer base periods presented including assurance wireless prepaid brand subscribers wholesale lifeline mobile virtual network operators mvno tables reflect reclassification related assurance wireless prepaid revenue within wireless segment wireless services 360 million year ended march 31 2017 revenue associated subscribers wholesale lifeline mvnos continues remain following change index consolidated financial statements sprint corporation notes consolidated financial statements note 15 quarterly financial data unaudited 1 quarter ended march 31 2019 company completed annual impairment testing goodwill assigned wireless reporting unit result recorded noncash impairment charge 20 billion see note 6 intangible assets 2 sum quarterly earnings per share amounts may equal annual amounts changes weighted average number shares outstanding year note 16 relatedparty transactions addition agreements arising relating softbank merger sprint entered various arrangements softbank controlled affiliates softbank parties third parties softbank parties also parties including arrangements international wireless roaming wireless wireline call termination real estate logistical management services brightstar arrangements brightstar us inc brightstar whereby brightstar provides supply chain inventory management services us indirect channels whereby sprint may sell new used devices new accessories brightstar purposes facilitate certain arrangements extended 700 million credit line brightstar assist purchasing distribution devices accessories result shifted concentration credit risk away indirect channel partners brightstar subsidiary softbank expect softbank provide necessary support ensure brightstar fulfill obligations us arrangements however assurance softbank provide support supply chain inventory management arrangement included among things brightstar may purchase inventory original equipment manufacturers sell directly indirect dealers compensation services remit per unit fees brightstar device sold dealers retailers indirect channels years ended march 31 2019 2018 2017 incurred fees arrangements totaling 65 million 93 million 64 million respectively recognized cost equipment sales selling general administrative expenses consolidated statements operations additionally arrangement brightstar whereby perform certain reverse logistics including device buyback tradein technology related services threemonth period ended september 30 2017 entered arrangement brightstar whereby accessories previously procured us sold customers direct channels procured consigned us brightstar amounts billed sale accessory inventory remitted brightstar exchange efforts sell accessory inventory owned brightstar received fixed fee brightstar device activated direct channels august 2018 arrangement amended received share profits associated sale accessory inventory owned brightstar years ended march 31 2019 2018 sprint earned fees index consolidated financial statements sprint corporation notes consolidated financial statements arrangements 194 million 154 million respectively recognized revenue within service revenue consolidated statements operations amounts included consolidated financial statements associated supply chain inventory management arrangements brightstar follows softbank included “other liabilities” 83 million payable softbank affiliate reimbursement legal consulting fees connection proposed merger tmobile paid third parties behalf sprint index consolidated financial statements sprint corporation notes consolidated financial statements note 17 guarantor financial information september 11 2013 sprint corporation issued 225 billion aggregate principal amount 7250 notes due 2021 425 billion aggregate principal amount 7875 notes due 2023 private placement transaction registration rights december 12 2013 sprint corporation issued 25 billion aggregate principal amount 7125 notes due 2024 private placement transaction registration rights issuances fully unconditionally guaranteed sprint communications subsidiary guarantor 100 owned subsidiary sprint corporation parentissuer connection foregoing november 2014 company sprint communications completed offer exchange notes new issue substantially identical exchange notes registered securities act 1933 receive proceeds exchange offer addition february 24 2015 sprint corporation issued 15 billion aggregate principal amount 7625 notes due 2025 february 20 2018 sprint corporation issued 15 billion aggregate principal amount 7625 senior notes due 2026 fully unconditionally guaranteed sprint communications years ended march 31 2019 2018 noncash equity distributions nonguarantor subsidiaries subsidiary guarantor approximately 874 million 128 billion respectively result organizational restructuring tax purposes march 31 2019 240 billion intercompany notes issued subsidiary guarantor nonguarantor subsidiaries notes subordinated unaffiliated thirdparty obligations sprint corporation subsidiaries subsidiary guarantors secured revolving bank credit facility subsidiary guarantor currently restricted paying cash dividends parentissuer nonguarantor subsidiary ratio total indebtedness adjusted ebitda defined applicable agreement exceeds 25 10 sprint receivables facility providing sale eligible wireless service installment certain future lease receivables october 2016 sprint transferred certain directly held thirdparty leased spectrum licenses whollyowned bankruptcyremote special purpose entities part spectrum financing transaction connection receivables facility spectrum financing transaction sprint formed certain whollyowned bankruptcyremote subsidiaries included nonguarantor subsidiaries condensed consolidated financial information separate legal entity separate creditors entitled prior upon liquidation satisfied assets prior assets becoming available sprint see note 7 longterm debt financing capital lease obligations additional information accounted investments subsidiaries using equity method presented condensed consolidating financial information index consolidated financial statements sprint corporation notes consolidated financial statements condensed consolidating balance sheet index consolidated financial statements sprint corporation notes consolidated financial statements condensed consolidating balance sheet index consolidated financial statements sprint corporation notes consolidated financial statements condensed consolidating statement comprehensive loss income index consolidated financial statements sprint corporation notes consolidated financial statements condensed consolidating statement comprehensive income loss index consolidated financial statements sprint corporation notes consolidated financial statements condensed consolidating statement comprehensive loss income index consolidated financial statements sprint corporation notes consolidated financial statements condensed consolidating statement cash flows index consolidated financial statements sprint corporation notes consolidated financial statements condensed consolidating statement cash flows index consolidated financial statements sprint corporation notes consolidated financial statements condensed consolidating statement cash flows item 15 exhibits financial statement schedules 1 consolidated financial statements sprint nextel corporation filed part report listed index consolidated financial statements 2 consolidated financial statements clearwire corporation filed part report listed index consolidated financial statements 3 following exhibits filed part report filed furnished herewith schedules andor exhibits filed furnished sec upon request portions exhibit omitted filed separately sec pursuant request confidential treatment sprint furnish sec upon request copies instruments defining rights holders longterm debt exceeding 10 total assets sprint signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized sprint nextel corporation registrant daniel r hesse daniel r hesse chief executive officer president date february 24 2011 pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities indicated 24th day february 2011 daniel r hesse daniel r hesse chief executive officer president robert h brust robert h brust chief financial officer ryan h siurek ryan h siurek vice president controller principal accounting officer signatures sprint nextel corporation registrant pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities indicated 24th day february 2011 james h hance jr v janet hill james h hance jr chairman v janet hill director robert r bennett frank ianna robert r bennett director frank ianna director gordon bethune svenchrister nilsson gordon bethune director svenchrister nilsson director larry c glasscock larry c glasscock director william r nuti director daniel r hesse rodney oneal daniel r hesse director rodney oneal director sprint nextel corporation index consolidated financial statements page reference sprint consolidated financial statements report kpmg llp independent registered public accounting firm consolidated balance sheets december 31 2010 2009 consolidated statements operations years ended december 31 2010 2009 2008 consolidated statements cash flows years ended december 31 2010 2009 2008 consolidated statements shareholders equity years ended december 31 2010 2009 2008 notes consolidated financial statements clearwire consolidated financial statements report deloitte touche llp independent registered public accounting firm consolidated balance sheets december 31 2010 2009 consolidated statements operations years ended december 31 2010 2009 2008 consolidated statements cash flows years ended december 31 2010 2009 2008 consolidated statements stockholders equity comprehensive loss years ended december 31 2010 2009 2008 notes consolidated financial statements report independent registered public accounting firm board directors shareholders sprint nextel corporation audited accompanying consolidated balance sheets sprint nextel corporation subsidiaries december 31 2010 2009 related consolidated statements operations cash flows shareholders equity years threeyear period ended december 31 2010 also audited sprint nextel corporations internal control financial reporting december 31 2010 based criteria established internal control integrated framework issued committee sponsoring organizations treadway commission coso sprint nextel corporations management responsible consolidated financial statements maintaining effective internal control financial reporting assessment effectiveness internal control financial reporting included managements report internal control financial reporting responsibility express opinion consolidated financial statements opinion companys internal control financial reporting based audits audit financial statements clearwire corporation consolidated subsidiary clearwire communications llc collectively “clearwire” 54 owned investee company sprint nextel corporations investment clearwire december 31 2010 31 billion equity losses clearwire 13 billion year ended december 31 2010 financial statements clearwire audited auditors whose report furnished us opinion insofar relates amounts included clearwire based solely report auditors conducted audits accordance standards public company accounting oversight board united states standards require plan perform audits obtain reasonable assurance whether financial statements free material misstatement whether effective internal control financial reporting maintained material respects audits consolidated financial statements included examining test basis evidence supporting amounts disclosures financial statements assessing accounting principles used significant estimates made management evaluating overall financial statement presentation audit internal control financial reporting included obtaining understanding internal control financial reporting assessing risk material weakness exists testing evaluating design operating effectiveness internal control based assessed risk audits also included performing procedures considered necessary circumstances believe audits provide reasonable basis opinions companys internal control financial reporting process designed provide reasonable assurance regarding reliability financial reporting preparation financial statements external purposes accordance generally accepted accounting principles companys internal control financial reporting includes policies procedures 1 pertain maintenance records reasonable detail accurately fairly reflect transactions dispositions assets company 2 provide reasonable assurance transactions recorded necessary permit preparation financial statements accordance generally accepted accounting principles receipts expenditures company made accordance authorizations management directors company 3 provide reasonable assurance regarding prevention timely detection unauthorized acquisition use disposition companys assets could material effect financial statements inherent limitations internal control financial reporting may prevent detect misstatements also projections evaluation effectiveness future periods subject risk controls may become inadequate changes conditions degree compliance policies procedures may deteriorate opinion based audits report auditors consolidated financial statements referred present fairly material respects financial position sprint nextel corporation subsidiaries december 31 2010 2009 results operations cash flows years threeyear period ended december 31 2010 conformity us generally accepted accounting principles also opinion sprint nextel corporation maintained material respects effective internal control financial reporting december 31 2010 based criteria established internal control integrated framework issued committee sponsoring organizations treadway commission company adopted accounting guidance regarding accounting business combinations equity method investments 2009 kpmg llp kansas city missouri february 24 2011 sprint nextel corporation consolidated balance sheets see notes consolidated financial statements sprint nextel corporation consolidated statements operations see notes consolidated financial statements sprint nextel corporation consolidated statements cash flows see notes consolidated financial statements sprint nextel corporation consolidated statements shareholders equity millions 1 see note 13 information regarding common shares 2 november 28 2008 recorded 424 million gain deconsolidation net assets contributed clearwire net 260 million related taxes see notes consolidated financial statements sprint nextel corporation notes consolidated financial statements index page reference 1 description operations 2 summary significant accounting policies information 3 investments 4 financial instruments 5 property plant equipment 6 intangible assets 7 longterm debt financing capital lease obligations 8 severance exit costs asset impairments 9 supplemental financial information 10 income taxes 11 commitments contingencies 12 compensation plans 13 shareholders equity per share data 14 segments 15 quarterly financial data unaudited sprint nextel corporation notes consolidated financial statements note 1 description operations sprint nextel corporation including consolidated subsidiaries “sprint” “we” “us” “our” “company” communications company offering comprehensive range wireless wireline communications products services designed meet needs individual consumers businesses government subscribers resellers organized operations meet needs targeted subscriber groups focused communications solutions incorporate capabilities wireless wireline services result acquisition virgin mobile usa inc virgin mobile november 24 2009 ipcs inc ipcs december 4 2009 operations virgin mobile ipcs consolidated prospectively respective acquisition dates wireless segment includes retail wholesale service revenue wide array wireless mobile telephone wireless data transmission services equipment revenue sale wireless devices accessories us puerto rico us virgin islands wireline segment includes revenue domestic international wireline voice data communication services including services cable multiple systems operators resell local long distance service use back office systems network assets support telephone services provided cable facilities sprints fourth generation 4g technology capabilities exist mobile virtual network operator mvno relationship clearwire corporation consolidated subsidiary clearwire communications llc together clearwire 54 economic interest clearwire deploying worldwide interoperability microwave access wimax technology new network markets serve services supported technology give subscribers compatible devices highspeed access internet variety increasingly sophisticated data services see note 3 note 2 summary significant accounting policies information consolidation policies estimates consolidated financial statements include accounts wholly owned subsidiaries control controlling financial interest significant intercompany transactions balances eliminated consolidation investments sprint maintains majority ownership lacks full decision making ability major issues accounted using equity method sprints significant equity investment clearwire sprint controlling vote ability control operating financial policies consolidated financial statements prepared conformity accounting principles generally accepted united states gaap requires management company make estimates assumptions affect reported amounts assets liabilities revenues expenses disclosure contingent assets liabilities date consolidated financial statements estimates inherently subject judgment actual results could differ certain prior period amounts reclassified conform current period presentation subsequent events evaluated disclosure date financial statements filed securities exchange commission sec summary significant accounting policies cash equivalents cash equivalents generally include highly liquid investments maturities time purchase three months less investments may include money market funds certificates deposit us government governmentsponsored debt securities corporate debt securities municipal securities bankrelated securities credit debit card transactions process allowance doubtful accounts allowance doubtful accounts established sufficient cover probable reasonably estimable losses number subscriber accounts practical review collectibility accounts individually determine amount allowance doubtful accounts period although account level analysis performed respect large wireless wireline subscribers estimate allowance doubtful accounts considers number factors including collection experience aging accounts receivable portfolios credit quality subscriber base qualitative considerations including macroeconomic factors amounts written allowance doubtful accounts net recoveries adjustments 437 million 487 million 826 million 2010 2009 2008 respectively sprint nextel corporation notes consolidated financial statements device accessory inventory inventories stated lower cost market cost determined firstin firstout fifo method costs devices related revenues generated device sales equipment net subsidy recognized time sale expected equipment net subsidy recognized prior time sale promotional discount decision generally made point sale equipment net subsidies expected recovered service revenues net realizable value devices inventory analyzed regular basis analysis includes assessing obsolescence sales forecasts product life cycle marketplace considerations assessments regarding factors adversely change may required sell devices higher subsidy potentially record expense future periods prior point sale property plant equipment property plant equipment ppe including improvements extend useful lives recognized cost depreciation property plant equipment generally calculated using straightline method based estimated economic useful lives 3 30 years buildings improvements network equipment site costs related software 3 12 years nonnetwork internal use software office equipment leasehold improvements depreciated shorter lease term estimated useful life respective assets calculate depreciation certain network assets using group life method accordingly ordinary asset retirements disposals assets charged accumulated depreciation gain loss recognized gains losses associated asset retirements disposals recognized consolidated statements operations depreciation rates assets using group life method revised periodically required depreciation method repair maintenance costs research development costs expensed incurred capitalize costs network nonnetwork software developed obtained internal use application development stage costs included ppe software placed service depreciated estimated useful lives 3 5 years costs incurred preliminary project postimplementation stage well maintenance training costs expensed incurred investments shortterm investments recognized amortized cost classified current assets consolidated balance sheets original maturities purchase greater three months less one year certain investments accounted using equity method based companys ownership interest ability exercise significant influence accordingly initial investment recognized cost subsequently adjusted recognize companys share earnings losses investee reporting period subsequent investment date equity method investments evaluated otherthantemporary impairment regular basis otherthantemporary impairment occurs estimated fair value investment carrying value difference determined recoverable evaluation requires significant judgment regarding among things severity duration decline value ability intent hold securities recovery financial condition liquidity nearterm prospects issuer specific events factors longlived asset impairment sprint evaluates longlived assets including intangible assets subject amortization impairment whenever events changes circumstances indicate carrying amount asset group may recoverable asset groups determined lowest level identifiable cash flows largely independent cash flows groups assets liabilities probable undiscounted future cash flows sufficient recover asset groups carrying amount impairment determined excess asset groups net carrying value estimated fair value refer note 8 additional information asset impairments sprint nextel corporation notes consolidated financial statements certain assets yet deployed business including network equipment cell site development costs software development periodically assessed determine recoverability network equipment cell site development costs expensed whenever events changes circumstances cause company conclude assets longer needed meet managements strategic network plans deployed software development costs expensed longer probable software project deployed network equipment removed network also periodically assessed determine recoverability continue operational challenges including obtaining retaining subscribers future cash flows company may sufficient recover carrying value wireless asset group could record asset impairments material sprints consolidated results operations financial condition 2010 assessed recoverability wireless asset group includes tangible intangible longlived assets subject amortization well indefinitelived intangible assets included cash flow projections wireless operations along cash flows associated eventual disposition longlived assets included estimated proceeds assumed sale fcc licenses trademarks customer relationships estimated undiscounted future cash flows wireless longlived assets exceeded carrying amount result impairment charge recorded addition reassessed remaining useful lives longlived assets concluded appropriate indefinitelived intangible assets goodwill represents excess consideration paid estimated fair value net tangible identifiable intangible assets acquired business combinations indefinitelived intangible assets include federal communications commission fcc licenses acquired primarily fcc auctions business combinations deploy wireless services certain trademarks determining whether intangible asset goodwill indefinitelived consider expected use assets regulatory economic environment within used effects obsolescence use assess indefinitelived intangible assets impairment least annually necessary frequently whenever events changes circumstances indicate asset may impaired indicators may include sustained significant decline market capitalization since previous impairment assessment significant decline expected future cash flows significant adverse change legal factors business climate unanticipated competition andor slower growth rates among others benefit plans provide defined benefit pension plan certain postretirement benefits certain employees sponsor defined contribution plan employees december 31 2005 pension plan amended freeze benefit plan accruals participants objective investment portfolio pension plan achieve longterm nominal rate return net fees exceeds plans longterm expected rate return investments funding purposes 85 2010 meet objective investment strategy governed asset allocation policy whereby targeted allocation percentage assigned asset class follows 50 us equities 15 international equities 15 fixed income investments 10 real estate investments 10 investments including hedge funds actual allocations allowed deviate target allocation percentages plus minus 5 investments pension plan measured fair value recurring basis determined using quoted market prices estimated fair values december 31 2010 60 investment portfolio valued quoted prices active markets identical assets 25 valued using quoted prices similar assets active inactive markets observable inputs 15 valued using unobservable inputs supported little market activity december 31 2010 2009 fair value plan assets aggregate 13 billion 12 billion respectively fair value projected benefit obligations aggregate 19 billion 16 billion respectively result plans underfunded approximately 600 million 400 million december 31 2010 2009 respectively recorded net liability consolidated balance sheets estimated contributions totaling approximately 150 million expected paid 2011 sprint nextel corporation notes consolidated financial statements offset pension liability recorded equity component accumulated comprehensive loss net tax including 2010 2009 adjustments 139 million 140 million respectively change net liability plan 2010 affected primarily decrease discount rate 675 60 used estimate projected benefit obligation intend make future cash contributions pension plan amount necessary meet minimum funding requirements according applicable benefit plan regulations defined contribution plan participants may contribute portion eligible pay plan payroll withholdings company matched 100 participants contributions 5 eligible compensation 2008 4 eligible compensation january 1 2009 march 6 2009 fixed matching contributions totaled 32 million 119 million 2009 2008 respectively effective compensation paid march 6 2009 2010 amount matching contribution discretionary determined board directors company based upon formula related profitability company profitability level attained company could match percentage participants contributions maximum percentage eligible compensation determined board remainder 2009 matched 100 participants contributions 113 eligible compensation cash totaling 20 million 2010 amount discretionary match 07 9 million revenue recognition operating revenues primarily consist wireless service revenues generated device accessory sales revenues wholesale operators third party affiliates well long distance voice data internet revenues service revenues consist fixed monthly recurring charges variable usage charges roaming data text messaging premium service usage miscellaneous fees activation upgrade late payment reconnection early termination fees certain regulatory related fees recognize service revenues services rendered equipment revenue title passes dealer enduser subscriber recognize revenue access charges services charged fixed amounts ratably service period net credits adjustments service discounts billing disputes fraud unauthorized usage recognize excess wireless usage long distance revenue contractual rates per minute minutes used additionally recognize excess wireless data usage based kilobytes onetime use charges use premium services rendered result cutoff times multiple billing cycles month required estimate amount subscriber revenues earned billed end billing cycle end reporting period estimates based primarily rate plans effect historical usage billing patterns regulatory fees costs recorded gross largest component regulatory fees universal service fund represented 2 net operating revenues 2010 2009 2008 accounting estimates related recognition revenue results operations require us make assumptions future billing adjustments disputes subscribers unauthorized usage future returns mailin rebates device sales dealer commissions cash consideration given us dealer enduser subscriber presumed reduction revenue unless receive identifiable benefit exchange consideration fair value benefit reasonably estimated case consideration recorded selling expense compensate dealers using specific compensation programs related sale devices subscriber service contracts commission earned dealer solely due selling activity relating wireless service cost recorded selling expense commission earned dealer due dealer selling one devices cost recorded reduction equipment revenue advertising costs recognize advertising expense incurred selling general administrative expense advertising expenses totaled 14 billion year ended december 31 2010 15 billion years ended december 31 2009 2008 sprint nextel corporation notes consolidated financial statements new accounting pronouncements june 2009 financial accounting standards board fasb issued authoritative literature regarding amendments fasb interpretation 46r changes various aspects accounting disclosures interests variable interest entities accounting transfers financial assets issued order improve relevance representational faithfulness comparability information reporting entity provides financial statements transfer financial assets effects transfer financial position financial performance cash flows transferors continuing involvement transferred financial assets guidance effective beginning january 2010 material effect consolidated financial statements september 2009 fasb modified accounting multipledeliverable revenue arrangements certain revenue arrangements include software elements modifications alter methods previously required allocating consideration received multipleelement arrangements require revenue allocation based relative selling price method including arrangements containing software components nonsoftware components function together deliver products essential functionality modifications effective prospectively fiscal year ending december 31 2011 expected material effect consolidated financial statements january 2010 fasb issued authoritative guidance regarding improving disclosures fair value measurements requires new amended disclosure requirements classes assets liabilities inputs valuation techniques transfers levels fair value measurements accounting distributions shareholders components stock cash clarifies accounting distributions shareholders offer ability elect receive entire distribution cash shares equivalent value guidance effective beginning january 2010 material effect consolidated financial statements july 2010 fasb amended requirements disclosures credit quality financing receivables allowance credit losses result amendments entity required disaggregate portfolio segment class certain existing disclosures provide certain new disclosures financing receivables related allowance credit losses new disclosures end reporting period effective fiscal year ending december 31 2010 disclosures activity occurs reporting period effective first fiscal quarter 2011 disclosure requirements effective fiscal year ending december 31 2010 material effect consolidated financial statements requirements effective first fiscal quarter 2011 expected material effect consolidated financial statements concentrations risk motorola mobility inc motorola solutions inc collectively motorola sole source devices offer nextel brand except blackberry® devices although handset supply agreement motorola structured provide competitivelypriced devices cost iden devices generally higher devices incorporate similar multifunction capability difference may make difficult costly us offer devices prices attractive potential subscribers addition higher cost iden devices requires us absorb larger part cost offering devices new existing subscribers may reduce growth profitability also must rely motorola develop devices capable supporting features services offer subscribers services iden network provide maintenance support idenbased infrastructure decision motorola discontinue inability either company continue manufacturing maintaining supporting idenbased infrastructure devices could material adverse effect us ability complete spectrum reconfiguration plan connection fccs report order described note 11 dependent part motorola sprint nextel corporation notes consolidated financial statements note 3 investments components investments follows marketable equity securities investments marketable equity securities recognized fair value considered availableforsale securities accordingly unrealized holding gains losses securities recognized accumulated comprehensive income loss net related income tax realized gains losses measured reclassified accumulated comprehensive income loss earnings based identifying specific investments sold otherthantemporary impairment exists gross unrealized holding gains losses insignificant 2010 2009 equity method investment clearwire sprints ownership interest sprints investment clearwire part longterm plan participate 4g wireless broadband market benefit clearwires entry market sprint investors offering 4g products utilizing clearwires 4g wireless broadband network available markets sprint holds 54 noncontrolling interest clearwire form 532 million shares class b voting common stock class b voting clearwire corporation 532 million class b nonvoting common interests class b nonvoting clearwire communications llc together “class b common interests” carrying value december 31 2010 totaled 31 billion share clearwire corporation class b voting together one clearwire communications llc class b nonvoting exchangeable one share clearwire corporations class common stock publicly traded security addition class b common interests december 31 2010 sprint holds note receivable clearwire carrying value 177 million fixed interest rate 12 maturity date december 2015 note receivable carrying value december 31 2009 175 million carrying value sprints class b common interests together carrying value note receivable included line item investments sprints consolidated balance sheet equity losses clearwire 13 billion 803 million 142 million years ended december 31 2010 2009 2008 respectively sprints losses investment clearwire consists sprints share clearwires net loss adjustments gains losses associated dilution sprints ownership interest resulting clearwires equity issuances equity losses clearwire 2009 included pretax dilution loss 154 million 96 million tax recognized first quarter representing finalization ownership percentages subsequent november 2008 formation clearwires liquidity september 30 2010 clearwire reported available cash shortterm investments approximately 14 billion based clearwires projections time clearwire expect cash shortterm investments sufficient cover estimated liquidity needs next twelve months without additional financing sources clearwire forecasted cash shortterm investments would depleted early middle 2011 thus clearwire required raise additional capital nearterm order continue operations reported also needs raise substantial additional capital longterm fully implement business plans amount additional capital required clearwire depends number factors many difficult predict outside control may change current projections prove incorrect result clearwires expected continued losses operations uncertainty ability obtain sufficient additional capital clearwire reported september 30 2010 substantial doubt ability continue going concern sprint nextel corporation notes consolidated financial statements third quarter 2010 clearwire reported actively pursuing various initiatives raise additional capital including discussions number major shareholders third parties number options including potential strategic transactions additional debt equity financings andor asset sales special committee clearwires board directors formed explore strategic alternatives including transactions may involve sale realignment ownership governance company december 2010 clearwire successfully raised 14 billion debt financing combination issuance secured exchangeable notes result debt issuance december 31 2010 clearwire longer reported substantial doubt ability continue going concern clearwires ability raise sufficient additional capital longterm acceptable terms remains uncertain sprints recoverability sprints ability recover carrying value 31 billion december 31 2010 depends part upon clearwires ability obtain sufficient additional funding support operations ability successfully develop deploy maintain 4g network december 31 2010 carrying value sprints equity investment clearwire represents 582 per share based assumed exchange class b common interests class common stock market price clearwires publicly traded stock 515 per share december 31 2010 uncertainty regarding clearwires timing ability obtain sufficient additional funding could result significant changes clearwires stock price value decline estimated fair value clearwire would deemed otherthantemporary could result material impairment carrying value investment intend sell 54 economic interest foreseeable future recoverability equity investment affected shortterm fluctuations clearwires stock price accordingly expect fully recover carrying value investment clearwire summarized financial information clearwire follows sprint nextel corporation notes consolidated financial statements note 4 financial instruments cash equivalents accounts notes receivable accounts payable carried cost approximates fair value shortterm investments consisting primarily time deposits treasury securities totaling 300 million 105 million december 31 2010 2009 respectively recorded amortized cost respective carrying amounts approximate fair value fair value marketable equity securities totaling 39 million 43 million december 31 2010 2009 respectively measured recurring basis using quoted prices active markets estimated fair value longterm debt financing capital lease obligations including current maturities based current market prices interest rates following table presents carrying amounts estimated fair values current longterm debt financing capital lease obligations note 5 property plant equipment property plant equipment consist primarily network equipment longlived assets used provide service subscribers changes technology intended use assets including ability successfully test deploy network modernization plan network vision well changes economic industry factors business prospects may cause estimated period use value assets change network equipment site costs related software includes switching equipment cell site towers site development costs radio frequency equipment network software digital fiber optic cable transport facilities transmissionrelated equipment buildings improvements principally consists owned general office facilities retail stores leasehold improvements nonnetwork internal use software office equipment primarily consists furniture information technology systems equipment vehicles construction progress depreciated placed service primarily includes materials transmission related equipment labor engineering site development costs interest costs relating construction development network interest capitalized connection construction longlived assets totaled 13 million 12 million 123 million years ended december 31 2010 2009 2008 respectively components property plant equipment related accumulated depreciation follows sprint nextel corporation notes consolidated financial statements note 6 intangible assets indefinitelived intangibles 1 net reduction goodwill 14 million result purchase price allocation adjustments recognized first quarter 2010 associated 2009 acquisitions virgin mobile ipcs primarily related deferred tax assets liabilities hold fcc licenses authorizing use radio frequency spectrum deploy wireless services 19 gigahertz ghz licenses utilized cdma network 800 megahertz mhz 900 mhz licenses utilized iden network also hold fcc licenses yet placed service intend use accordance fcc requirements long company acts within requirements constraints regulatory authorities renewal extension licenses reasonably certain minimal cost aware technology developed would render spectrum obsolete concluded licenses indefinitelived intangible assets sprint boost mobile trademarks identified indefinitelived intangible assets 2010 conducted annual assessment estimated fair value indefinitelived intangible assets goodwill determined adjustment necessary goodwill represents excess consideration paid estimated fair value net tangible identifiable intangible assets acquired business combinations fourth quarter 2009 acquired virgin mobile ipcs resulted recognition 373 million goodwill 2010 sprint finalized purchase price allocations associated acquisitions goodwill recoverability assessment carrying value sprints goodwill included wireless segment represents wireless reporting unit estimate fair value wireless reporting unit using discounted cash flow marketbased valuation models fair value wireless reporting unit exceeds net book value goodwill impaired testing necessary net book value wireless reporting unit exceeds estimated fair value estimate fair value goodwill determine amount impairment loss determination estimated fair value wireless reporting unit requires significant estimates assumptions estimates assumptions primarily include limited transactions within wireless industry related control premiums discount rate terminal growth rate operating income depreciation amortization oibda capital expenditure forecasts due inherent uncertainty involved making estimates actual results could differ estimates evaluate merits significant assumption individually aggregate used determine fair value wireless reporting unit reasonableness 2010 conducted annual assessment goodwill determined adjustment necessary sprint nextel corporation notes consolidated financial statements intangible assets subject amortization sprints customer relationships amortized using sum years digits method customer relationships amortize reach end amortization period remove gross accumulated amounts associated fully amortized intangible assets 2010 reduced gross carrying value accumulated amortization 103 billion associated fully amortized intangible assets primarily related customer relationships associated nextel acquisition 2005 intangible assets primarily include certain rights affiliation agreements reacquired connection acquisitions affiliates nextel partners inc amortized remaining terms affiliation agreements straightline basis nextel direct connect virgin mobile trade names amortized straightline basis note 7 longterm debt financing capital lease obligations 1 january 2011 500 million 750 million export development canada loan amended extend maturity date 2012 2015 reflected table sprint nextel corporation notes consolidated financial statements december 31 2010 sprint nextel corporation parent corporation 43 billion principal debt outstanding including credit facilities addition 151 billion principal longterm debt issued whollyowned subsidiaries guaranteed parent approximately 103 billion fully unconditionally guaranteed indentures financing arrangements certain subsidiaries debt contain provisions limit cash dividend payments subsidiary common stock transfer cash form advances subsidiaries parent corporation generally restricted december 31 2010 13 billion outstanding debt comprised certain notes financing capital lease obligations mortgages secured 11 billion gross property plant equipment assets cash interest payments totaled 15 billion year ended december 31 2010 14 billion years ended december 31 2009 2008 notes consist senior serial redeemable senior notes unsecured secured notes ipcs secured solely underlying assets ipcs company may elect pay interest portion ipcs secured notes entirely cash increasing principal amount cash interest remaining notes generally payable semiannually arrears approximately 184 billion notes redeemable companys discretion applicable redemption price plus accrued interest june 28 2010 company paid 750 million principal plus accrued unpaid interest outstanding floating rate senior notes scheduled weighted average effective interest rate related senior notes 69 2010 65 2009 august 11 2009 company issued 13 billion principal senior notes due 2017 interest payable semiannually february 15 august 15 fixed rate 8375 company may redeem notes time prior maturity notes unsecured senior obligations rank equally existing unsecured senior indebtedness change control event defined related indenture occurs sprint required make offer repurchase notes cash price equal 101 principal amount may 2009 outstanding 638 senior notes due 2009 repaid totaling 600 million plus accrued unpaid interest september 16 2009 outstanding 525 convertible senior notes due 2010 redeemed 100 principal amount totaling 607 million plus accrued unpaid interest credit facilities may 21 2010 company entered new 21 billion unsecured revolving bank credit facility expires october 2013 replaced 45 billion credit facility due expire december 2010 december 31 2010 14 billion letters credit includes 13 billion letter credit required fccs report order reconfigure 800 mhz band outstanding 21 billion revolving bank credit facility result company 700 million borrowing capacity available revolving bank credit facility december 31 2010 terms credit facility provide interest rate equal london interbank offered rate libor plus spread varies depending companys credit ratings december 31 2010 unsecured loan agreement export development canada edc fully drawn terms similar revolving bank credit facility terms edc loan repayments outstanding amounts cannot redrawn 2009 repaid 10 billion remaining outstanding balance 45 billion credit facility financing capital lease obligations approximately 3000 cell sites sold subsequently leased back space terms extend period 10 years beginning 2008 renewal options additional 20 years cell sites continue reported part property plant equipment due continued involvement property sold transaction accounted financing capital lease obligations primarily use communication switches fourth quarter 2010 exercised option terminate relationship variable interest entity resulted repayment financing capital lease obligations 105 million sprint nextel corporation notes consolidated financial statements covenants december 31 2010 company compliance restrictive financial covenants associated borrowings default borrowings could trigger defaults debt obligations turn could result maturities accelerated certain indentures govern outstanding notes also require compliance various covenants including limitations incurrence indebtedness liens company subsidiaries defined terms indentures december 31 2010 54 economic interest clearwire result clearwire could considered subsidiary certain agreements relating indebtedness whether clearwire could considered subsidiary debt agreements subject interpretation december 2010 result amendment clearwire equityholders agreement sprint obtained right unilaterally surrender voting securities reduce voting security percentage 50 could eliminate potential clearwire considered subsidiary sprint certain actions defaults clearwire would viewed subsidiary result breach covenants including potential crossdefault provisions certain agreements relating indebtedness however believe unilateral rights obtained december significantly mitigate possibility event would crossdefault sprints debt obligations currently restricted paying cash dividends ratio total indebtedness trailing four quarters earnings interest taxes depreciation amortization certain nonrecurring items defined credit facility adjusted ebitda exceeds 25 10 company also obligated repay credit facilities certain changeofcontrol events occur future maturities longterm debt financing obligation capital lease obligations scheduled annual principal payments longterm debt financing obligation capital lease obligations outstanding december 31 2010 follows note 8 severance exit costs asset impairments liabilities severance exit costs recognized based upon nature cost incurred involuntary separation plans completed within guidelines written involuntary separation plan liability recognized probable reasonably estimable voluntary separation plans vsp liability recognized vsp irrevocably accepted employee onetime termination benefits additional severance pay benefit payouts exit costs lease termination costs liability measured recognized initially fair value period liability incurred subsequent changes liability recognized adjustments period change severance exit costs associated business combinations recorded results operations incurred sprint nextel corporation notes consolidated financial statements severance exit costs activity 2010 recognized costs 8 million 11 million wireless offset benefit 3 million wireline primarily related increase exit costs incurred second fourth quarter 2010 associated vacating certain office space longer utilized partially offset reduction estimate total severance costs associated workforce reduction announced november 2009 recognized 400 million 307 million wireless 93 million wireline severance exit costs related primarily reduction workforce announcements 2009 2008 recognized 355 million 270 million wireless 62 million wireline 23 million corporate severance exit costs related separation employees continued organizational realignment initiatives following provides activity severance exit costs liability included “accrued expenses current liabilities” within consolidated balance sheets asset impairment 2010 2009 recorded asset impairments 125 million 47 million respectively primarily related network asset equipment wireless segment longer necessary managements strategic plans 2008 recorded asset impairments 480 million primarily related cell site development costs network asset equipment wireless segment longer necessary managements strategic plans sprint nextel corporation notes consolidated financial statements note 9 supplemental financial information 1 includes liabilities amounts 123 million 150 million december 31 2010 2009 respectively checks issued excess associated bank balances yet presented collection sprint nextel corporation notes consolidated financial statements note 10 income taxes income tax expense benefit consists following differences caused effective income tax rates vary 35 federal statutory rate income taxes follows income tax expense benefit allocated items follows 1 amounts recorded directly shareholders equityaccumulated comprehensive loss consolidated balance sheets 2 amounts recorded directly shareholders equitypaidin capital consolidated balance sheets sprint nextel corporation notes consolidated financial statements deferred income taxes recognized temporary differences carrying amounts assets liabilities financial statement purposes tax bases deferred tax assets also recorded operating loss capital loss tax credit carryforwards sources differences give rise deferred income tax assets liabilities december 31 2010 2009 along income tax effect follows valuation allowances deferred tax assets recognized determined likely asset realized realization deferred tax assets including net operating loss carryforwards dependent generation future taxable income sufficient realize tax deductions carryforwards credits however recent history consecutive annual losses reduces ability rely expectations future income evaluating ability realize deferred tax assets result company recognized increase valuation allowance 16 billion 301 million years ended december 31 2010 2009 respectively deferred tax assets primarily related federal state net operating loss carryforwards generated period increase carrying amount sprints valuation allowance year ended december 31 2010 excess amounts recognized change valuation allowance current period income tax expense primarily associated tax effect items reflected comprehensive income accounts expiration net operating loss tax credit carryforwards increase carrying amount sprints valuation allowance year ended december 31 2009 excess amounts recognized change valuation allowance 2009 income tax benefit primarily associated tax effect fourth quarter 2009 acquisitions virgin mobile ipcs expiration net operating loss tax credit carryforwards valuation allowance related deferred income tax assets decreased 12 million 2008 expect record significant tax benefits future net operating losses circumstances justify recognition benefits believe likely deferred income tax assets net valuation allowance realized based current income tax laws expectations future taxable income stemming reversal existing deferred tax liabilities uncertainties surrounding income tax law changes shifts operations state taxing jurisdictions future operating income levels may however affect ultimate realization deferred income tax assets income tax expense 166 million year ended december 31 2010 primarily attributable taxable temporary differences amortization fcc licenses fcc licenses amortized 15 years income tax purposes licenses indefinite life amortized financial statement reporting purposes difference results net deferred income tax expense since taxable temporary difference cannot scheduled reverse loss carryforward period income tax expense related temporary difference fcc licenses partially offset state income tax benefits recorded losses certain states state income tax benefits recorded reduction liability unrecognized tax benefits sprint nextel corporation notes consolidated financial statements 2010 2009 2008 incurred 210 million 3 million 55 million respectively foreign income loss included loss income taxes material unremitted earnings foreign subsidiaries cash refunds income taxes received net 139 million 30 million 2010 2008 respectively cash paid income taxes net 31 million 2009 1998 acquired 229 million potential tax benefits related net operating loss carryforwards controlling interest acquisition wireless joint venture call pcs restructuring benefits acquired pcs restructuring subject certain realization restrictions various tax laws required reimburse former cable company partners joint venture net operating loss tax credit carryforward benefits generated pcs restructuring realization us produces cash benefit would otherwise realized reimbursement equal 60 net cash benefit received us made former cable company partners shares stock december 31 2010 unexpired carryforward benefits subject requirement total 133 million maintained valuation allowance entire amount tax benefits december 31 2010 federal operating loss carryforwards 78 billion state operating loss carryforwards 125 billion related loss carryforwards federal tax benefits 27 billion net state tax benefits 589 million approximately 227 million federal operating loss carryforwards expire 2011 remaining 76 billion expire varying amounts 2017 2030 state operating loss carryforwards expire varying amounts 2030 addition available income tax purposes federal alternative minimum tax net operating loss carryforwards 73 billion state alternative minimum tax net operating loss carryforwards 20 billion loss carryforwards expire varying amounts 2030 also available capital loss carryforwards 143 million related capital loss carryforwards tax benefits 51 million capital loss carryforwards 109 million expire 2013 remaining 34 million expire 2014 also available 473 million federal state income tax credit carryforwards december 31 2010 included amount 115 million income tax credits expire prior 2014 207 million expire varying amounts 2014 2030 remaining 151 million expire unrecognized tax benefits established uncertain tax positions based upon estimates regarding potential future challenges positions largest amount greater fifty percent likely realized upon ultimate settlement estimates updated reporting date based facts circumstances information available interest related unrecognized tax benefits recognized interest expense penalties recognized additional income tax expense total unrecognized tax benefits attributable uncertain tax positions december 31 2010 december 31 2009 228 million 284 million respectively december 31 2010 total unrecognized tax benefits included items would favorably affect income tax provision 188 million recognized without offsetting valuation allowance adjustment december 31 2010 2009 accrued liability income tax related interest penalties 28 million 49 million respectively reconciliation beginning ending amount unrecognized tax benefits follows 2010 reduction unrecognized tax benefits principally attributable income tax settlements us federal state jurisdictions 2009 reduction unrecognized tax benefits principally attributable income tax settlements us federal jurisdiction file income tax returns us federal jurisdiction state jurisdiction imposes income tax also file income tax returns number foreign jurisdictions however foreign income tax activity immaterial internal revenue service irs currently conducting examination 2007 2008 consolidated income tax returns settlement agreements reached appeals division irs examination issues dispute years prior 2007 issues immaterial consolidated financial position results operations sprint nextel corporation notes consolidated financial statements involved multiple state income tax examinations related various years beginning 1996 various stages examination administrative review appellate process based current knowledge examinations administrative reviews appellate processes believe reasonably possible number uncertain tax positions may resolved next twelve months could result reduction 90 million unrecognized tax benefits note 11 commitments contingencies litigation claims assessments number cases allege sprint communications company lp failed obtain easements property owners installation fiber optic network 1980s filed various courts several cases sought certification nationwide classes one case nationwide class certified 2003 nationwide settlement claims approved us district court northern district illinois objectors appealed preliminary approval order seventh circuit court appeals overturned settlement remanded case trial court proceedings reached agreement principle settle claims amount material consolidated financial position results operations court issued preliminary approval settlement july 17 2008 september 10 2009 court announced would approve settlement court decide whether settlement fair best interest class members denied jurisdictional grounds result agreement terminated parties continued efforts reach settlement expect resolution matter material adverse effect consolidated financial position results operations december 2010 us district court district kansas granted summary judgment favor sprint defendants class action lawsuit filed 2003 alleged 2001 2002 proxy statements false misleading violation federal securities laws extent described new employment agreements certain senior executives without disclosing according allegations replacement executives inevitable appeal taken decision case closed january 6 2011 us district court district kansas denied motion dismiss shareholder lawsuit bennett v sprint nextel corp alleges company three former officers violated section 10b securities exchange act 1934 rule 10b5 failing adequately disclose certain alleged operations difficulties subsequent sprintnextel merger purportedly issuing false misleading statements regarding writedown goodwill complaint originally filed march 2009 allegedly brought behalf purchasers company stock october 26 2006 february 27 2008 january 20 2011 moved certify january 6th order interlocutory appeal believe complaint without merit intend defend matter vigorously expect resolution matter material adverse effect consolidated financial position results operations two related shareholder derivative suits filed company certain present andor former officers directors first murphy v forsee filed state court kansas april 2009 removed federal court stayed court pending resolution motion dismiss bennett case second randolph v forsee filed july 2010 state court kansas removed federal court remanded back state court parties discussing schedule cases going forward light pendency bennett case currently engaged arbitration clearwire relating pricing service clearwires 4g network dualmode wireless handsets used sprint customers pursuant mvno agreement clearwire cost timing resolution matter cannot determined time expect resolution matter material adverse effect consolidated financial position results operations various suits proceedings claims including purported class actions typical large business enterprise pending us subsidiaries possible determine ultimate disposition proceedings whether resolved consistent beliefs expect outcome proceedings individually aggregate material adverse effect consolidated financial position results operations spectrum reconfiguration obligations 2004 fcc adopted report order included new rules regarding interference 800 mhz band comprehensive plan reconfigure 800 mhz band “report order” report order provides exchange portion 800 mhz fcc spectrum licenses requires us fund cost incurred public safety systems incumbent licensees reconfigure 800 mhz spectrum band addition received licenses 10 mhz nationwide spectrum 19 ghz band however required relocate reimburse incumbent licensees band costs relocation another band designated fcc sprint nextel corporation notes consolidated financial statements minimum cash obligation approximately 28 billion report order however obligated pay full amount costs relating reconfiguration plan even costs exceed 28 billion required terms report order letter credit secured provide assurance funds available pay relocation costs incumbent users 800 mhz spectrum submit qualified 800 mhz relocation costs fcc review potential letter credit reductions periodic basis result reviews letter credit reduced 25 billion start project 13 billion december 31 2010 approved fcc following table represents payments directly attributable performance report order inception program 1 excluded table reconfiguration costs incurred date based allocations reconfiguration activities normal network improvements methodology calculated costs approved independent transition administrator designated fcc review expenditures result amount allocated reconfiguration activity subject change based additional assessments made course reconfiguration program expended costs generally accounted either property plant equipment additions fcc licenses intangible asset costs expended date exceeded 28 billion however costs reviewed accepted eligible transition administrator regardless continue estimate total direct costs attributable spectrum reconfigurations exceed minimum cash obligation 28 billion estimate dependent significant assumptions including final licensee costs associated relocating licensees canadian border region border plan adopted fcc mexican border region currently approved border plan addition entitled receive reimbursement mobile satellite service mss entrants pro rata portion costs approximately 200 million clearing portion 19 ghz spectrum september 29 2010 fcc affirmed obligation mss entrants reimburse us pursuing expeditious implementation fccs decision although uncertainty around mss entrants ability reimburse however fccs decision recognizes uncertainty allows us pursue avenues obtain reimbursement entrants affiliates completion 800 mhz band reconfiguration initially required june 26 2008 fcc continues grant 800 mhz public safety licensees additional time complete band reconfigurations turn delays sprints access 800 mhz replacement channels october 2008 fcc order march 31 2010 target date us begin relinquish 800 mhz channels regionbyregion basis prior receiving fccdesignated 800 mhz replacement channels march 31 2010 however fcc granted sprints request delay march 31 2010 deadline one year march 31 2011 21 markets public safety licensees yet moved sprints replacement channels requested additional extension deadline small subset 21 markets public safety licensees yet moved sprints replacement channels accordingly continue transition 800 mhz replacement channels consistent public safety licensees reconfiguration progress completed 19 ghz incumbent relocation reimbursement obligations second half 2010 operating leases lease various equipment office facilities retail outlets kiosks switching facilities cell sites operating leases noncancelable portion leases ranges monthly 20 years leases exceptions provide automatic renewal options escalations either fixed based consumer price index rent abatements along rent escalations included computation rent expense calculated straightline basis lease term lease term leases includes initial noncancelable term plus least one renewal period exercise related renewal option options reasonably assured cell site leases generally provide initial noncancelable term five seven years five renewal options five years sprint nextel corporation notes consolidated financial statements december 31 2010 rental commitments operating leases including lease renewals reasonably assured consisted mainly leases cell switch sites real estate information technology network equipment office space commitments future years follows millions total rental expense 18 billion 2010 2009 2008 commitments party commitments includes service spectrum network capacity executory contracts connection conducting business december 31 2010 minimum amounts due commitments follows millions amounts actually paid agreements likely higher due variable components agreements significant variable components determine ultimate obligation owed include items hours contracted subscribers factors addition party various arrangements conditional nature obligate us make payments upon occurrence certain events delivery functioning software product sprint nextel corporation notes consolidated financial statements note 12 compensation plans december 31 2010 sprint sponsored four incentive plans 2007 omnibus incentive plan 2007 plan 1997 longterm incentive program 1997 program nextel incentive equity plan nextel plan management incentive stock option plan misop together compensation plans sprint also sponsors employee stock purchase plan espp 2007 plan may grant share nonshare based awards including stock options stock appreciation rights restricted stock restricted stock units performance shares performance units equitybased cash awards employees outside directors certain service providers options issued offer exchange offer described generally granted exercise price equal market value underlying shares grant date generally vest annual basis three four years generally contractual term ten years restricted stock units generally performance service requirements service requirements vesting periods ranging one three years performancebased restricted stock units awarded 2010 three distinct oneyear performance periods granted period performance objectives established employees directors granted restricted stock units required pay shares generally must remain employed us continue serve member board directors restrictions lapse typically three years employees one year directors compensation committee board directors one executive officers compensation committee authorize provided 2007 plan determine terms equitybased award new grants made 1997 program nextel plan misop 2010 number shares available reserved future grants 2007 plan increased 25 million approximately 174 million common shares number shares available 2007 plan increased shares originally granted 1997 program nextel plan misop forfeited expired otherwise terminated including portion shares surrendered companys exchange offer completed second quarter 2010 december 31 2010 restricted stock units options acquire 52 million shares outstanding 2007 plan restricted stock units options acquire 12 million shares outstanding 1997 program options acquire 4 million shares outstanding nextel plan options acquire 11 million common shares outstanding misop espp eligible employees may subscribe quarterly purchase shares series 1 common stock payroll deductions 20 eligible compensation effective april 1 2009 purchase price equal 95 market value last trading day quarterly offering period modified 90 market value previous periods aggregate number shares purchased employee may exceed 9000 shares 25000 fair market value calendar year subject limitations imposed internal revenue code december 31 2010 espp approximately 81 million common shares authorized reserved future purchases includes 80 million shares authorized second quarter 2009 net elections made 2010 employees participating fourth quarter 2010 offering period espp purchase 1 million common shares issued first quarter 2011 employees purchased shares 400 per share currently use treasury shares satisfy sharebased awards new shares treasury shares available compensation costs cost employee services received exchange sharebased awards classified equity measured using estimated fair value award date grant cost recognized period award recipient required provide service exchange award awards instruments classified liabilities measured estimated fair value reporting date settlement sharebased compensation cost related awards graded vesting recognized using straightline method pretax compensation charges included net loss compensation plans 70 million 2010 81 million 2009 272 million 2008 net income tax benefit expense recognized consolidated financial statements sharebased compensation awards 18 million 2010 3 million 2009 101 million 2008 december 31 2010 58 million total unrecognized compensation cost related nonvested sharebased awards expected recognized weighted average period 198 years cash received exercise sharebased payment arrangements net shares surrendered employee tax obligations 7 million 2010 insignificant 2009 57 million 2008 sharebased payment plans options restricted stock units outstanding december 31 2010 forfeitures estimated sharebased awards using 94 weighted average annual rate sprint nextel corporation notes consolidated financial statements options fair value option award estimated grant date using blackscholes option valuation model based several assumptions including riskfree interest rate volatility expected dividend yield expected term riskfree interest rate used based zerocoupon us treasury bond term equal expected term options volatility used implied volatility traded options common shares expected dividend yield used estimated based historical dividend yield factors expected term options granted estimated using simplified method defined average vesting term contractual term historical data expected represent future expected term equity awards due severance activities last several years second quarter 2010 company completed exchange offer certain outstanding vested options could exchanged new options granted plan prior may 17 2009 ii scheduled expire offer closed iii exercise price greater 654 per share iv outstanding held eligible employees defined offer preestablished exchange ratios determined manner intended result estimated fair value new options approximately equal aggregate estimated fair value eligible options surrendered date exchange offer expired june 16 2010 resulting voluntary surrender cancellation 276 million vested options exchange issuance 68 million unvested options exercise price unvested options 464 per share estimated grant date fair value 238 per option subject twoyear vesting period contractual term seven years exchange resulted estimated additional compensation costs approximately 5 million recognized ratably twoyear vesting period following table provides estimated fair value assumptions used determining fair value option awards granted 2010 2009 2008 summary status options option plans december 31 2010 changes year ended december 31 2010 presented sprint nextel corporation notes consolidated financial statements restricted stock units estimated fair value restricted stock unit award calculated using share price date grant restricted stock units outstanding consist units granted 2007 plan including units exchanged business combinations 1997 program discussed summary status restricted stock units december 31 2010 changes year ended december 31 2010 presented fair value restricted stock units vested years ended december 31 2010 2009 2008 40 million 53 million 41 million respectively weightedaverage grant date fair value restricted stock units granted 2010 348 per unit compared 296 per unit 2009 603 per unit 2008 restricted stock units outstanding december 31 2010 entitled dividend equivalents paid cash performancebased restricted stock units entitled dividend equivalent payments applicable performance criteria met note 13 shareholders equity per share data articles incorporation authorize 6620000000 shares capital stock follows • 6000000000 shares series 1 voting common stock par value 200 per share • 500000000 shares series 2 voting common stock par value 200 per share • 100000000 shares nonvoting common stock par value 001 per share • 20000000 shares preferred stock par value per share classes common stock series 1 common stock holders series 1 common stock entitled one vote per share matters submitted action shareholders 30 billion shares series 1 common stock outstanding december 31 2010 series 2 common stock holders series 2 common stock entitled 10 one vote per share otherwise rights substantially identical series 1 common stock 35 million shares series 2 common stock outstanding december 31 2010 2009 certain holders series 2 common stock exercised rights convert 398 million series 2 shares 398 million series 1 shares resulting 80 million 785 million reduction common shares paid capital respectively corresponding 865 million reduction treasury shares treasury shares common stock repurchased us recorded cost treasury shares result reduction shareholders equity reissue treasury shares part shareholder approved stockbased compensation programs well upon conversion outstanding securities convertible common stock shares reissued determine cost using fifo method dividends declare dividends common shares 2010 2009 2008 currently restricted paying cash dividends terms revolving bank credit facility described note 7 sprint nextel corporation notes consolidated financial statements accumulated comprehensive loss components accumulated comprehensive loss net tax follows per share data basic loss per common share calculated dividing net loss weighted average number common shares outstanding period diluted earnings loss per common share adjusts basic earnings loss per common share computed using treasury stock method effects potentially dilutive common shares effect antidilutive potentially dilutive common shares issuable equitybased compensation plans average market price exceeded exercise price 30 million 28 million shares december 31 2010 2009 respectively shares december 31 2008 potentially dilutive shares antidilutive 2010 2009 2008 therefore effect determination dilutive weighted average number shares outstanding note 14 segments sprint operates two reportable segments wireless wireline • wireless primarily includes retail wholesale revenue wide array wireless mobile telephone wireless data transmission services sale wireless devices accessories us puerto rico us virgin islands • wireline primarily includes revenue domestic international wireline voice data communication services including services cable multiple systems operators resell local long distance service use back office systems network assets support telephone services provided cable facilities define segment earnings wireless wireline operating loss income segment expenses depreciation amortization severance exit costs goodwill asset impairments merger integration expenses solely directly attributable segment expenses income items excluded segment earnings managed corporate level transactions segments generally accounted based market rates believe approximate fair value company generally reestablishes rates beginning fiscal year past several years industrywide trend lower rates due increased competition wireline wireless communications companies well cable internet service providers segment financial information follows sprint nextel corporation notes consolidated financial statements sprint nextel corporation notes consolidated financial statements 1 intersegment revenues consist primarily wireline services provided wireless segment resale wireless subscribers 2 net consists primarily severance exit costs asset impairments offset gains asset dispositions exchanges merger integration expenses 130 million also included net 2008 representing costs primarily incurred integrate systems processes networks related sprint merger nextel see note 8 additional information severance exit costs asset impairments 3 included corporate eliminations results 2008 operating expenses 354 million related nextgeneration broadband wireless network contributed clearwire transaction closed november 28 2008 4 corporate assets allocated operating segments consist primarily cash equivalents corporate headquarters campus equity method investment clearwire assets managed corporate level assets related 4g wireless broadband business subsequently contributed clearwire corporate capital expenditures include various administrative assets contributed clearwire sprint nextel corporation notes consolidated financial statements 1 revenues eliminated consolidation consist primarily wireline services provided wireless segment resale use wireless customers sprint nextel corporation notes consolidated financial statements note 15 quarterly financial data unaudited 1 sum quarterly earnings per share amounts may equal annual amounts changes weighted average number shares outstanding year 2 first quarter 2009 recorded 154 million noncash loss representing finalization ownership percentages clearwire fourth quarter 2009 recorded noncash gain 151 million related noncontrolling interest virgin mobile well increase tax valuation allowance 306 million report independent registered public accounting firm board directors stockholders clearwire corporation kirkland washington audited accompanying consolidated balance sheets clearwire corporation subsidiaries “company” december 31 2010 2009 related consolidated statements operations cash flows stockholders’ equity comprehensive loss three years period ended december 31 2010 consolidated financial statements responsibility company’s management responsibility express opinion consolidated financial statements based audits conducted audits accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether consolidated financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion consolidated financial statements present fairly material respects financial position company december 31 2010 2009 results operations cash flows three years period ended december 31 2010 conformity accounting principles generally accepted united states america deloitte touche llp seattle washington february 22 2011 clearwire corporation subsidiaries consolidated balance sheets see notes consolidated financial statements clearwire corporation subsidiaries consolidated statements operations see notes consolidated financial statements clearwire corporation subsidiaries consolidated statements cash flows see notes consolidated financial statements clearwire corporation subsidiaries consolidated statements stockholders’ equity comprehensive loss years ended december 31 2010 2009 2008 see notes consolidated financial statements clearwire corporation subsidiaries notes consolidated financial statements 1 description business leading provider 4g wireless broadband services build operate next generation mobile broadband networks provide highspeed mobile internet residential access services well residential voice services communities throughout country 4g mobile broadband network provides connection anywhere within coverage area 2010 focused building augmenting networks increasing retail wholesale subscriber bases expanding wholesale partnerships obtaining additional capital increased number people covered networks 724 million 2010 increased total subscriber base almost 37 million subscribers december 31 2010 offered services 88 markets united states covering estimated 1142 million people including estimated 1120 million people covered 4g mobile broadband network 71 markets ended year approximately 11 million retail 33 million wholesale subscribers deployed mobile worldwide interoperability microwave access refer wimax technology based ieee 80216e standard launched markets using 25 ghz federal communications commission refer fcc licenses december 31 2010 remaining 17 markets united states continue operate legacy network technology internationally december 31 2010 networks covered estimated 29 million people offer 4g mobile broadband services seville malaga spain pre4g network brussels ghent belgium 2011 focus improving operating performance business seeking raise additional capital continue operation expansion business development 4g mobile broadband network company background started operations january 1 2007 developmental stage company representing collection assets related liabilities activities accounted various legal entities whollyowned subsidiaries sprint nextel corporation refer sprint parent nature assets held sprint legal entities primarily 25 ghz federal fcc licenses certain property plant equipment related wimax network acquisition assets funded parent sprint acquired significant amounts fcc licenses behalf past purchases presented part opening business equity principal operations commence january 1 2007 time operations qualified business pursuant rule 1101d regulation sx january 1 2007 november 28 2008 conducted business wimax operations sprint refer sprint wimax business objective developing next generation wireless broadband network may 7 2008 sprint announced entered definitive agreement legacy clearwire corporation refer old clearwire combine next generation wireless broadband businesses form new independent company called clearwire corporation refer clearwire addition five independent partners including intel corporation google inc comcast corporation time warner cable inc bright house networks llc collectively refer investors agreed invest 32 billion clearwire subsidiary clearwire communications llc refer clearwire communications november 28 2008 refer closing old clearwire sprint wimax business completed combination form clearwire investors contributed total 32 billion new equity clearwire communications prior closing activities certain assets sprint wimax business transferred single legal entity contributed clearwire communications close exchange equity interest clearwire transactions described collectively referred transactions immediately transactions owned 100 voting interests 27 economic interests clearwire communications consolidate controlled subsidiary clearwire holds assets interests clearwire communications clearwire corporation subsidiaries notes consolidated financial statements continued closing old clearwire sprint wimax business combined form new independent company clearwire consolidated financial statements clearwire subsidiaries results sprint wimax business january 1 2008 november 28 2008 include results combined entities thereafter period november 29 2008 december 31 2010 financial reporting purposes sprint wimax business determined accounting acquirer accounting predecessor assets acquired liabilities assumed old clearwire accounted fair value accordance purchase method accounting results operations included consolidated financial results beginning november 29 2008 accounts financial statements clearwire period january 1 2008 november 28 2008 prepared separate records maintained sprint accounts financial statements include allocations expenses sprint therefore may necessarily indicative financial position results operations cash flows would resulted functioned standalone operation sprint directly assigned possible certain costs us based actual use shared services costs include network related expenses office facilities treasury services human resources supply chain management shared services cash management performed consolidated basis sprint processed payables payroll transactions behalf assets liabilities specifically identifiable us included • cash equivalents investments activity cash balances recorded business equity • accounts payable processed centrally sprint passed us intercompany accounts included business equity • certain accrued liabilities passed us intercompany accounts included business equity statement cash flows prior closing presents activities paid sprint behalf financing activities include funding advances sprint presented business equity since sprint managed financing activities centralized basis net cash used operating activities net cash used investing activities capital expenditures acquisitions fcc licenses patents represent transfers expenses assets paid sprint subsidiaries cash payments made us income taxes interest prior closing 2 summary significant accounting policies accompanying financial statements prepared accordance accounting principles generally accepted united states america pursuant rules regulations securities exchange commission refer sec following summary significant accounting policies principles consolidation consolidated financial statements include assets liabilities results operations whollyowned subsidiaries control controlling financial interest investments entities control primary beneficiary ability exercise significant influence operating financial policies accounted equity method intercompany transactions eliminated consolidation noncontrolling interests consolidated balance sheets include thirdparty investments entities consolidate wholly classify noncontrolling interests part equity include net income loss attributable noncontrolling interests net income loss allocate net income loss comprehensive income loss equity transactions noncontrolling interests accordance applicable ownership percentages also continue attribute noncontrolling interests share losses clearwire corporation subsidiaries notes consolidated financial statements continued even attribution results deficit noncontrolling interest balance see note 14 stockholders’ equity information reclassifications 2010 reclassified losses abandonment impairment network assets cost goods services network costs separate line item consolidated statements operations also reclassified costs associated ongoing maintenance network assets deployed selling general administrative expense cost goods services network costs additionally reclassified certain amounts accounts payable accrued expenses current liabilities conform 2010 presentation certain reclassifications made prior period amounts use estimates accounting policies require management make complex subjective judgments nature judgments subject inherent degree uncertainty judgments based historical experience terms existing contracts observance trends industry information provided subscribers information available outside sources appropriate additionally changes accounting estimates reasonably likely occur period factors could material impact financial statements presentation financial condition changes financial condition results operations significant estimates inherent preparation accompanying financial statements include impairment analysis spectrum licenses indefinite lives recoverability determination useful lives longlived assets include property plant equipment intangible assets tax valuation allowances valuation derivatives subsequent events evaluated subsequent events occurring date financial statements issued cash equivalents cash equivalents consist money market mutual funds highly liquid shortterm investments original maturities three months less cash equivalents stated cost approximates market value cash equivalents exclude cash contractually restricted operational purposes maintain cash equivalent balances financial institutions exceed federally insured limits experienced losses related balances management believes credit risk related balances minimal restricted cash restricted cash consists primarily amounts set aside satisfy certain contractual obligations classified current noncurrent asset based designated purpose majority restricted cash designated satisfy certain vendor contractual obligations investments investment portfolio comprised us government agency issues debt securities value securities subject market credit volatility period investments held sale maturity classify marketable debt securities availableforsale investments securities stated estimated fair value investments available current operations recorded shortterm investments original maturities greater three months remaining maturities less one year investments maturities one year recorded longterm investments unrealized gains losses recorded within accumulated comprehensive income loss realized gains losses measured reclassified accumulated comprehensive income loss basis specific identification method recognize realized losses declines fair value investments cost basis judged otherthantemporary determining whether decline fair value otherthantemporary consider various factors including market price available investment ratings financial condition nearterm prospects issuer length time extent fair value less cost basis intent ability hold investment maturity period time sufficient allow clearwire corporation subsidiaries notes consolidated financial statements continued anticipated recovery market value judged decline fair value otherthantemporary realized loss equal decline reflected consolidated statement operations new cost basis investment established account certain investments using equity method based ownership interest ability exercise significant influence accordingly record investment initially cost adjust carrying amount investment recognize share earnings losses investee reporting period cease recognize investee losses investment basis zero fair value measurements fair value price would received sell asset paid transfer liability orderly transaction market participants measurement date determining fair value use various methods including market cost income approaches based approaches utilize certain assumptions market participants would use pricing asset liability including assumptions risk threetier hierarchy inputs used measuring fair value prioritizes inputs used methodologies measuring fair value assets liabilities follows level 1 quoted market prices active markets identical assets liabilities level 2 observable market based inputs unobservable inputs corroborated market data level 3 unobservable inputs corroborated market data financial assets financial liabilities classified entirety based lowest level input significant fair value measurements assessment significance particular input fair value measurement requires judgment may affect valuation assets liabilities measured placement within fair value hierarchy maximize use observable inputs minimize use unobservable inputs developing fair value measurements listed prices quotes available fair values debt securities derivatives based upon internally developed available models primarily use inputs marketbased independently sourced market parameters including limited interest rate yield curves volatilities equity debt prices credit curves utilize certain assumptions market participants would use pricing financial instrument including assumptions risk credit inherent default risk degree management judgment involved determining fair value financial instrument dependent upon availability quoted market prices observable market parameters financial instruments trade actively quoted market prices observable market parameters minimal judgment involved measuring fair value observable market prices parameters fully available management judgment necessary estimate fair value addition changes market conditions may reduce availability reliability quoted prices observable data instances use certain unobservable inputs cannot validated reference readily observable market exchange data rely certain extent assumptions market participant would use pricing security internally derived values compared nonbinding values received brokers independent sources available see note 11 fair value information accounts receivable accounts receivables stated amounts due subscribers wholesale partners net allowance doubtful accounts inventory primarily consists customer premise equipment refer cpe accessories sold subscribers stated lower cost net realizable value cost determined average cost method record inventory writedowns obsolete slowmoving items based inventory turnover trends historical experience property plant equipment property plant equipment refer ppe stated cost net accumulated depreciation calculated straightline basis estimated useful lives clearwire corporation subsidiaries notes consolidated financial statements continued assets placed service network construction expenditures recorded construction progress network asset placed service time asset transferred appropriate ppe category capitalize costs additions improvements including salaries benefits related overhead costs associated constructing ppe interest costs related construction estimated useful life equipment determined based historical usage identical similar equipment consideration given technological changes industry trends could impact network architecture asset utilization leasehold improvements recorded cost amortized lesser estimated useful lives related lease term including renewals reasonably assured maintenance repairs expensed incurred ppe assessed impairment whenever events changes circumstances indicate carrying amount asset may recoverable events circumstances exist determine recoverability asset’s carrying value estimating expected undiscounted future cash flows directly associated expected arise direct result use asset expected undiscounted future cash flows less carrying amount asset loss recognized difference fair value asset carrying value purposes testing impairment longlived assets including ppe intangible assets definite useful lives spectrum license assets united states combined single asset group represents lowest level identifiable cash flows largely independent assets liabilities management believes utilizing assets group represents highest best use assets consistent management’s strategy utilizing spectrum licenses integrated basis part nationwide networks internationally purposes testing impairment longlived assets consisting ppe definitelived intangible assets spectrum assets primarily combined single asset group country operate third quarter 2010 due continued losses significant uncertainties surrounding ability obtain required liquidity fund operating capital needs management concluded adverse change circumstances existed requiring us assess recoverability carrying value longlived assets based assessment determined carrying value longlived assets united states recoverable primarily supported fair value spectrum licenses management determined similar assessment necessary fourth quarter year ended december 31 2010 recorded impairment losses 66 million relating ppe longlived assets international operations ppe impairment losses recorded years ended december 31 2009 2008 addition analyses described periodically assess certain assets yet deployed networks including equipment cell site development costs assessment includes provision identified differences recorded amounts results physical counts writeoff network equipment cell site development costs whenever events changes circumstances cause us conclude assets longer needed meet management’s strategic network plans deployed substantial completion prior build plans due uncertainty extent timing future expansion networks reviewed network projects process projects longer fit within management’s strategic network plans abandoned related costs written resulting charge approximately 1800 million see note 4 property plant equipment information internally developed software capitalize costs related computer software developed obtained internal use interest costs incurred period development software obtained internal use generally enterpriselevel business finance software customized meet specific operational needs costs incurred application development phase capitalized amortized useful life software generally three years costs recognized preliminary project phase postimplementation phase well maintenance training costs expensed incurred clearwire corporation subsidiaries notes consolidated financial statements continued spectrum licenses spectrum licenses primarily include owned spectrum licenses indefinite lives owned spectrum licenses definite lives favorable spectrum leases indefinite lived spectrum licenses acquired stated cost amortized owned spectrum licenses united states issued fixed time renewals licenses occurred routinely nominal cost moreover determined currently legal regulatory contractual competitive economic factors limit useful lives owned spectrum licenses therefore licenses accounted intangible assets indefinite lives impairment test intangible assets indefinite useful lives consists comparison fair value intangible asset carrying amount carrying amount intangible asset exceeds fair value impairment loss recognized amount equal excess fair value determined estimating discounted future cash flows directly associated expected arise direct result use eventual disposition asset spectrum licenses indefinite useful lives assessed impairment annually frequently event indicates asset might impaired internationally recorded impairment charge 26 million year ended december 31 2010 related indefinitelived spectrum assets ireland conjunction sale operations ireland impairment indefinite lived intangible assets periods presented spectrum licenses definite useful lives favorable spectrum leases stated cost net accumulated amortization assessed impairment whenever events changes circumstances indicate carrying amount asset may recoverable carrying value definite lived licenses spectrum leases amortized straightline basis estimated useful lives lease term including expected renewal periods applicable impairment losses spectrum licenses definite useful lives favorable spectrum leases years ended december 31 2010 2009 2008 intangible assets intangible assets consist subscriber relationships trademarks patents stated cost net accumulated amortization calculated using either straightline method accelerated method assets’ estimated remaining useful lives intangible assets assessed impairment whenever events changes circumstances indicate carrying amount asset may recoverable year ended december 31 2010 recorded impairment losses 15 million relating definitelived intangible assets ireland conjunction sale operations impairment losses intangible assets years ended december 31 2009 2008 derivative instruments hedging activities normal course business may exposed effects interest rate changes limited exposure adopting established risk management policies procedures including use derivative instruments policy derivative transactions executed manage exposures arising normal course business purpose creating speculative positions trading record derivatives balance sheet fair value either assets liabilities accounting changes fair value derivatives depends intended use derivative whether qualifies hedge accounting december 2010 issued exchangeable notes included embedded exchange options qualified embedded derivative instruments required accounted separately host debt instruments recorded derivative financial instruments fair value embedded exchange options qualify hedge accounting future changes fair value derivative instruments recognized currently earnings time embedded exchange options exercised expire see note 10 derivative instruments information debt issuance costs debt issuance costs initially capitalized deferred cost amortized interest expense effective interest method expected term related debt unamortized debt issuance costs related extinguishment debt expensed time debt extinguished recorded income expenses net consolidated statements operations unamortized debt issuance costs recorded assets consolidated balance sheets clearwire corporation subsidiaries notes consolidated financial statements continued interest capitalization capitalize interest related owned spectrum licenses related construction network infrastructure assets well development software internal use capitalization interest commences preconstruction period administrative technical activities includes obtaining leases zoning approvals building permits ceases construction substantially complete available use suspend substantially construction activity interest capitalized construction progress software development spectrum licenses accounted intangible assets indefinite useful lives interest capitalization based rates applicable borrowings outstanding period balance qualified assets construction period capitalized interest reported cost network assets software assets depreciated useful lives assets income taxes record deferred income taxes based estimated future tax effects differences financial statement tax basis assets liabilities using tax rates expected effect temporary differences reverse deferred tax assets also recorded net operating loss capital loss tax credit carryforwards valuation allowances recorded reduce deferred tax assets amount considered likely realized also apply recognition threshold tax position required meet recognized financial statements revenue recognition primarily earn revenue providing access highspeed wireless networks also included revenue leases cpe additional addon services including personal business email static internet protocol revenue retail subscribers billed one month advance recognized ratably contracted service period revenues associated sale cpe equipment subscribers recognized title risk loss transferred subscriber shipping handling costs billed subscribers classified revenue activation fees charged subscriber deferred recognized revenues straightline basis average estimated life subscriber relationship 3 years revenue wholesale subscribers billed one month arrears recognized ratably contracted service period revenues generally recognized based terms defined commercial agreements wholesale partners currently engaged ongoing negotiations sprint resolve issues related wholesale pricing commercial agreements see note 12 commitments contingencies information result amount revenue recognized 2010 related sprint wholesale arrangements based pricing proposed sprint expect collect revenue recognized date revenue arrangements multiple deliverables divided separate units accounting based deliverables’ relative fair values objective reliable evidence fair value deliverables arrangement primary obligor transaction subject inventory risk latitude establishing prices selecting suppliers several indicators gross revenue recorded primary obligor amounts earned determined using fixed percentage fixedpayment schedule combination two record net amounts commissions earned promotional discounts treated cash consideration recorded reduction revenue advertising costs advertising costs expensed incurred first time advertising occurs advertising expense 2139 million 991 million 75 million years ended december 31 2010 2009 2008 respectively research development research development costs expensed incurred primarily relate costs incurred assessing external devices perform networks research development expense 70 million 64 million 350000 years ended december 31 2010 2009 2008 respectively net loss per share basic net loss per class common share computed dividing net loss attributable clearwire corporation weightedaverage number class common shares outstanding clearwire corporation subsidiaries notes consolidated financial statements continued period diluted net loss per class common share computed dividing net loss attributable clearwire corporation weightedaverage number class common shares dilutive class common share equivalents outstanding period class common share equivalents generally consist class common shares issuable upon exercise outstanding stock options warrants restricted stock using treasury stock method effects potentially dilutive class common share equivalents excluded calculation diluted net loss per class common share effect antidilutive two classes common stock class b potential exchange clearwire communications class b common interests together class b common stock clearwire class common stock may dilutive effect diluted net loss per share due certain tax effects “if converted” basis shares issuable upon conversion exchangeable notes may dilutive effect diluted net loss per share see note 15 net loss per share information operating leases operating leases spectrum licenses towers certain facilities equipment use operations certain spectrum licenses leased thirdparty holders educational broadband service refer ebs spectrum licenses granted fcc ebs licenses authorize provision certain communications services ebs channels certain markets throughout united states account spectrum leases executory contracts similar operating leases signed leases unmet conditions required become effective amortized conditions met included spectrum licenses accompanying consolidated balance sheets leases require upfront payments leases containing scheduled rent escalation clauses record minimum rental payments straightline basis term lease including expected renewal periods appropriate leases containing tenant improvement allowances rent incentives record deferred rent liability deferred rent amortized term lease including expected renewal periods appropriate reduction rent expense foreign currency international subsidiaries generally use local currency functional currency assets liabilities translated exchange rates effect balance sheet date resulting translation adjustments recorded within accumulated comprehensive income loss income expense accounts translated average monthly exchange rates effects changes exchange rates designated functional currency transaction denominated recorded foreign currency transaction gains losses recorded consolidated statement operations concentration risk believe geographic diversity subscriber base retail nature product minimizes risk incurring material losses due concentrations credit risk recent accounting pronouncements october 2009 financial accounting standards board refer fasb issued new accounting guidance amends revenue recognition multipleelement arrangements expands disclosure requirements related arrangements new guidance amends criteria separating consideration multipledeliverable arrangements establishes selling price hierarchy determining selling price deliverable eliminates residual method allocation requires application relative selling price method allocating arrangement consideration deliverables new accounting guidance effective fiscal years beginning june 15 2010 adopt new accounting guidance beginning january 1 2011 anticipate adoption new accounting guidance significant effect financial condition results operations clearwire corporation subsidiaries notes consolidated financial statements continued 3 investments december 31 2010 2009 consisted following thousands years ended december 31 2009 2008 recorded otherthantemporary impairment loss 100 million 170 million respectively related debt securities loss recorded 2010 debt securities include investments collateralized debt obligations refer cdos supported preferred equity securities insurance companies financial institutions stated final maturity dates 2033 2034 variable rate debt instruments whose interest rates normally reset approximately every 30 90 days auction process december 31 2010 total fair value cost security interests cdos 153 million 90 million respectively total fair value cost security interests cdos december 31 2009 132 million 90 million respectively also auction market preferred securities issued monoline insurance company perpetual final stated maturity july 2009 issuer’s credit rating downgraded cc caa2 standard poor’s moody’s rating services respectively total fair value cost auction market preferred securities written 0 current market conditions allow us estimate auctions debt securities resume ever secondary market develop securities result debt securities classified longterm investments cost fair value investments december 31 2010 contractual yearstomaturity presented thousands clearwire corporation subsidiaries notes consolidated financial statements continued 4 property plant equipment property plant equipment december 31 2010 2009 consisted following thousands entered lease arrangements related network construction equipment meet criteria capital leases december 31 2010 recorded capital lease assets original cost 730 million within network base station equipment construction progress primarily composed costs incurred process completing network projects balance december 31 2010 also includes 2898 million network base station equipment yet assigned project 566 million cpe intend lease 979 million costs related information technology refer corporate projects periodically assess certain assets yet deployed networks including equipment cell site development costs assessment includes provision identified differences recorded amounts results physical counts writeoff network equipment cell site development costs whenever events changes circumstances cause us conclude assets longer needed meet management’s strategic network plans deployed substantial completion prior build plans due uncertainty extent timing future expansion networks reviewed network projects process projects longer fit within management’s strategic network plans abandoned related costs written clearwire corporation subsidiaries notes consolidated financial statements continued incurred following losses associated property plant equipment years ended december 31 2010 2009 2008 thousands 1 includes impairment losses 74 million spectrum licenses intangible assets 2 included cost goods services network costs consolidated statements operations 5 spectrum licenses owned leased spectrum licenses december 31 2010 2009 consisted following thousands indefinite definitelived owned spectrum licenses spectrum licenses issued sitespecific widearea basis authorize wireless carriers use radio frequency spectrum provide service certain geographical areas united states internationally licenses generally acquired asset purchase business combination cases acquire licenses directly governmental authority applicable country licenses considered indefinitelived intangible assets except licenses acquired spain germany considered definitelived intangible assets due limited license renewal history countries spectrum leases prepaid spectrum also lease spectrum third parties hold spectrum licenses leases accounted executory contracts treated like operating leases upfront consideration paid thirdparty holders leased licenses inception lease agreement capitalized prepaid spectrum lease costs expensed term lease agreement including expected renewal terms applicable part purchase accounting transactions favorable spectrum leases 10 billion recorded closing favorable component acquired spectrum leases capitalized asset amortized lease term clearwire corporation subsidiaries notes consolidated financial statements continued december 31 2010 future amortization spectrum licenses spectrum leases prepaid lease costs excluding pending spectrum transition costs expected follows thousands expect renewal periods leases renewed us costs renew immaterial 6 intangible assets intangible assets december 31 2010 2009 consisted following thousands december 31 2010 future amortization intangible assets expected follows thousands evaluate patent renewals case basis based renewal costs 7 liabilities current liabilities current liabilities consisted following thousands connection cost reduction initiatives associated workforce reductions announced fourth quarter 2010 accrued approximately 47 million december 31 2010 related severance costs accounts payable accrued expenses longterm liabilities longterm liabilities consisted following thousands clearwire corporation subsidiaries notes consolidated financial statements continued 8 income taxes income tax provision consists following years ended december 31 2010 2009 2008 thousands income tax rate computed using federal statutory rates reconciled reported effective income tax rate follows clearwire corporation subsidiaries notes consolidated financial statements continued components deferred tax assets liabilities december 31 2010 2009 follows thousands determine deferred income taxes based estimated future tax effects differences financial statement tax bases assets liabilities using tax rates expected effect temporary differences reverse net operating loss capital loss tax credit carryforwards utilized pursuant transactions assets old clearwire subsidiaries combined spectrum certain assets sprint wimax business conjunction acquisition old clearwire sprint wimax business assets along 32 billion capital investors contributed clearwire communications clearwire sole holder voting interests clearwire communications clearwire controls 100 decision making clearwire communications consolidates 100 operations clearwire communications treated partnership united states federal income tax purposes therefore pay income tax united states current deferred tax consequences arise partner level including clearwire balances associated timing deductions prepaid expenses associated nonunited states operations temporary difference clearwire closing basis difference associated investment partnership consequently recorded deferred tax liability difference financial statement carrying value tax basis hold interest clearwire communications date transactions recorded valuation allowance deferred tax assets extent determined likely items either expire able realize benefits future deductibility uncertain relates united states tax jurisdiction determined temporary taxable difference associated investment clearwire communications fully reverse within carryforward period net operating losses accordingly represents relevant future taxable income file income tax returns clearwire subsidiaries united states federal jurisdiction various state foreign jurisdictions december 31 2010 tax returns clearwire years 2003 2009 remain open examination internal revenue service various state tax authorities clearwire corporation subsidiaries notes consolidated financial statements continued addition old clearwire acquired united states foreign entities operated prior 2003 acquired entities generated losses income tax purposes certain tax returns remain open examination united states foreign tax authorities tax years far back 1998 december 31 2010 united states federal tax net operating loss carryforwards approximately 219 billion portion net operating loss carryforward subject certain annual limitations imposed section 382 internal revenue code 1986 net operating loss carryforwards begin expire 2021 3272 million tax net operating loss carryforwards foreign jurisdictions 1668 million statutory expiration date 1603 million begins expire 2015 remainder 97000 begins expire 2011 policy recognize interest related unrecognized tax benefits interest expense interest income recognize penalties additional income tax expense december 31 2010 material uncertain tax positions therefore accrued interest penalties related uncertain tax positions 9 longterm debt net longterm debt december 31 2010 2009 consisted following thousands 1 represents weighted average effective interest rate based yearend balances 2 coupon rate based 3month libor plus spread 550 3 included current liabilities consolidated balance sheet 1 represents weighted average effective interest rate based yearend balances clearwire corporation subsidiaries notes consolidated financial statements continued notes senior secured notes rollover notes fourth quarter 2009 clearwire communications completed offerings 252 billion 12 senior secured notes due 2015 refer senior secured notes used 116 billion proceeds retire indebtedness senior term loan facility assumed old clearwire recognized gain extinguishment debt 83 million net transaction costs senior secured notes provide biannual payments interest june december connection issuance senior secured notes also issued 2525 million notes sprint comcast identical terms senior secured notes refer rollover notes replacement equal amounts indebtedness senior term loan facility december 2010 clearwire communications issued additional 1750 million senior secured notes identical terms holders senior secured notes rollover notes right require us repurchase notes upon occurrence change control event sale certain assets price 101 principal amount 100 principal amount respectively plus unpaid accrued interest repurchase date prior december 1 2012 may redeem 35 aggregate principal amount senior secured notes redemption price 112 aggregate principal amount plus unpaid accrued interest repurchase date december 1 2012 may redeem part senior secured notes paying makewhole premium stated terms plus unpaid accrued interest repurchase date payment obligations senior secured notes rollover notes guaranteed certain domestic subsidiaries senior basis secured certain assets subsidiaries firstpriority lien basis senior secured notes rollover notes contain limitations activities among things include incurring additional indebtedness guarantee indebtedness making distributions payment dividends certain restricted payments investments making certain payments indebtedness entering agreements restrict distributions restricted subsidiaries selling otherwise disposing assets merger consolidation sales substantially assets entering transactions affiliates creating liens issuing certain preferred stock similar equity securities making investments acquiring assets secondpriority secured notes december 2010 clearwire communications completed offering 500 million 12 secondpriority secured notes due 2017 refer secondpriority secured notes secondpriority secured notes provide biannual payments interest june december holders secondpriority secured notes right require us repurchase notes upon occurrence change control event sale certain assets price 101 principal amount 100 principal amount respectively plus unpaid accrued interest repurchase date prior december 1 2013 may redeem 35 aggregate principal amount secondpriority secured notes redemption price 112 aggregate principal amount plus unpaid accrued interest repurchase date december 1 2014 may redeem part secondpriority secured notes paying makewhole premium stated terms plus unpaid accrued interest repurchase date payment obligations secondpriority secured notes guaranteed certain domestic subsidiaries senior basis secured certain assets subsidiaries secondpriority lien basis secondpriority secured notes contain limitations activities senior secured notes rollover notes exchangeable notes december 2010 clearwire communications completed offerings 7292 million 825 exchangeable notes due 2040 refer exchangeable notes exchangeable notes provide biannual payments interest june december exchangeable notes subordinated senior secured notes rollover notes rank equally right payment secondpriority secured notes clearwire corporation subsidiaries notes consolidated financial statements continued holders exchangeable notes right exchange notes clearwire corporation’s class common stock refer class common stock time prior maturity date right settle exchange delivering cash shares class common stock subject certain conditions initial exchange rate note 1412429 shares per 1000 note equivalent initial exchange price approximately 708 per share subject adjustments upon occurrence certain corporate events upon exchange make additional cash payment provide additional shares accrued unpaid interest makewhole premium additional interest holders exchangeable notes right require us repurchase notes upon occurrence fundamental change event price 100 principal amount plus unpaid accrued interest repurchase date holders elect exchange exchangeable notes connection occurrence fundamental change entitled additional shares specified based date event occurs price paid per share class common stock fundamental change maximum number shares issuable per note exceed 1694915 shares holders exchangeable notes option require us repurchase cash exchangeable notes december 1 2017 2025 2030 2035 price equal 100 principal amount notes plus unpaid accrued interest repurchase date december 1 2017 may option redeem part exchangeable notes price equal 100 principal amount notes plus unpaid accrued interest redemption date payment obligations exchangeable notes guaranteed certain domestic subsidiaries priority secondpriority secured notes upon issuance exchangeable notes recognized derivative liability representing embedded exchange feature estimated fair value 2315 million associated debt discount exchangeable notes discount accreted expected life approximately 7 years exchangeable notes using effective interest rate method see note 10 derivative instruments additional discussion derivative liability vendor financing notes 2010 entered vendor financing facility allowing us obtain 1600 million financing entering notes refer vendor financing notes january 31 2011 vendor financing notes coupon rate based 3month libor plus spread 550 due quarterly mature 2014 utilized 603 million vendor financing facility 2010 january 31 2011 vendor financing facility amended allow us obtain additional 950 million financing january 31 2012 coupon rate terms notes amended facility identical original vendor financing notes except mature 2015 capital lease obligations 2010 entered capital lease facilities allow us obtain 990 million financing 4 year terms august 16 2011 addition also lease certain network construction equipment capital leases 12 year lease terms december 31 2010 approximately 1324 million outstanding debt comprised vendor financing notes capital lease obligations secured assets classified network base station equipment future payments future payments longterm debt see note 12 commitments contingencies clearwire corporation subsidiaries notes consolidated financial statements continued interest expense interest expense included consolidated statements operations years ended december 31 2010 2009 2008 consisted following thousands 10 derivative instruments holders’ exchange rights contained exchangeable notes issued december 2010 constitute embedded derivative instruments required accounted separately debt host instrument fair value result upon issuance exchangeable notes recognized exchange options refer exchange options estimated fair value 2315 million derivative liability exchange options indexed class common stock notional amount 1030 million shares mature 2040 apply hedge accounting exchange options therefore gains losses due changes fair value reported consolidated statements operations december 31 2010 exchange options’ estimated fair value 1679 million reported current liabilities consolidated balance sheet year ended december 31 2010 recognized gain 636 million changes estimated fair value since inception gain loss derivative instruments consolidated statements operations see note 11 fair value information regarding valuation exchange options 2009 two interest rate swap contracts based 3month libor combined notional 6000 million used swaps economic hedges interest rate risk related portion longterm debt interest rate swaps used reduce variability future interest payments libor based debt holding interest rate swap contracts trading speculative purposes apply hedge accounting swaps therefore gains losses due changes fair value reported income expense net consolidated statements operations year ended december 31 2009 recognized net loss 70 million undesignated swap contracts fourth quarter 2009 terminated swap contracts paid swap counterparties 184 million consisted 147 million mark market losses 37 million accrued interest 11 fair value following description valuation methodologies pricing assumptions used financial instruments measured recorded fair value recurring basis financial statements classification instruments pursuant valuation hierarchy cash equivalents investments quoted prices identical securities available active market use quoted market prices determine fair value investment securities cash equivalents classified level 1 valuation hierarchy level 1 securities include us government agency issues money market mutual funds quoted prices active markets debt securities classified level 3 use discounted cash flow models estimate fair value using various methods including market income approaches developing models utilize certain assumptions market participants would use pricing investment including assumptions risk risks inherent inputs valuation technique maximize use observable inputs clearwire corporation subsidiaries notes consolidated financial statements continued pricing models quoted market prices securities derivatives exchanges available reliable also use certain unobservable inputs cannot validated reference readily observable market exchange data rely certain extent management’s assumptions market participants would use pricing security use many factors necessary estimate market values including interest rates market risks market spreads timing contractual cash flows market liquidity review underlying collateral principal interest dividend payments derivatives classified level 3 valuation hierarchy estimate fair value use income approach based valuation models including option pricing models discounted cash flow models maximize use marketbased observable inputs models develop assumptions unobservable inputs based management estimates market participants’ assumptions pricing instruments use trinomial option pricing model estimate fair value exchange options inputs include contractual terms instrument marketbased parameters interest rate forward curves stock price dividend yield level subjectivity applied estimate stock price volatility stock price volatility based historical stock price volatility giving consideration estimates market participant adjustments general market conditions well companyspecific factors market trading volume expected future performance following table summarizes financial assets liabilities level within valuation hierarchy december 31 2010 thousands following table summarizes financial assets liabilities level within valuation hierarchy december 31 2009 thousands clearwire corporation subsidiaries notes consolidated financial statements continued following table presents change level 3 financial assets liabilities measured recurring basis year ended december 31 2010 thousands 1 included gain loss derivative instruments consolidated statements operations following table presents change level 3 financial assets liabilities measured recurring basis year ended december 31 2009 thousands 1 included income expense net consolidated statements operations 2 included gain loss derivative instruments consolidated statements operations year ended december 31 2010 recognized losses 108 million nonrecurring fair value measurements categorized level 3 measurements certain assets held used international subsidiaries longer hold assets december 31 2010 following description fair value financial instruments hold subject fair value recognition debt instruments estimate fair value senior secured notes rollover notes secondpriority secured notes exchangeable notes used average indicative price several market makers estimate fair value vendor financing notes used income approach based contractual terms notes marketbased parameters interest rates level subjectivity judgment used estimate appropriate discount rate calculate present value estimated cashflows clearwire corporation subsidiaries notes consolidated financial statements continued following table presents carrying value approximate fair value outstanding debt instruments december 31 2010 2009 thousands 1 carrying value december 31 2010 net 2301 million discount arising separation exchange options debt host instrument 12 commitments contingencies future minimum payments obligations listed including optional expected renewal periods operating leases december 31 2010 follows thousands 1 includes executory costs 362 million 2 payments include 541 million representing interest spectrum operating lease obligations commitments noncancelable operating leases consist mainly leased spectrum license fees office space equipment leased sites including towers rooftop locations certain leases provide minimum lease payments additional charges escalation clauses certain tower leases specify minimum number new leases commence december 31 2011 charges apply commitments satisfied leased spectrum agreements terms 30 years operating leases generally initial terms five years multiple renewal options additional fiveyear terms totaling 20 25 years clearwire corporation subsidiaries notes consolidated financial statements continued expense recorded related spectrum operating leases follows thousands spectrum commitments provide clearwire services certain lessors launched markets reimbursement capital equipment thirdparty service expenditures lessors term lease accrue monthly obligation services equipment based total estimated available service credits divided term lease obligation reduced actual invoices presented paid lessors years ended december 31 2010 2009 2008 satisfied 987000 779000 76000 respectively related commitments maximum remaining commitment december 31 2010 1077 million expected incurred term related lease agreements generally range 1530 years december 31 2010 signed agreements acquire approximately 99 million new spectrum subject closing conditions transactions expected completed within next twelve months network equipment purchase obligations purchase commitments takeorpay obligations andor volume commitments equipment noncancelable outstanding purchase orders network equipment believe delivery likely occur purchase obligations purchase obligations include minimum purchases committed purchase suppliers time andor unconditional purchase obligations guarantee make minimum payment suppliers goods services regardless whether suppliers fully deliver include among things agreements backhaul subscriber devices related services addition party various arrangements conditional nature create obligation make payments upon occurrence certain events actual delivery acceptance products services possible predict timing amounts may due conditional arrangements amounts included table also excludes blanket purchase order amounts orders subject cancellation termination discretion quantity goods services purchased payment terms unknown purchase orders firm commitments amdocs agreement march 31 2009 entered customer care billing services agreement amended refer amdocs agreement amdocs software systems limited refer amdocs provide customized customer care billing platform refer platform us connection provision services establishment platform amdocs also license certain software us initial term amdocs agreement seven years terms amdocs agreement required pay amdocs licensing fees implementation fees monthly subscriber fees reimbursable expenses addition amdocs agreement contains detailed terms governing implementation maintenance platform performance specifications acceptance testing charges credits payments warranties legal proceedings fully described involved variety lawsuits claims investigations proceedings concerning intellectual property business practices commercial matters determine whether accrue estimated loss contingency particular legal proceeding assessing whether loss deemed probable reasonably estimated reassess views estimated clearwire corporation subsidiaries notes consolidated financial statements continued losses quarterly basis reflect impact developments matters involved legal proceedings inherently unpredictable matters involved often present complex legal factual issues vigorously pursue defenses legal proceedings engage discussions possible resolve matters terms favorable us possible however business financial condition results operations future periods could materially adversely affected increased litigation expense significant settlement costs andor unfavorable damage awards april 22 2009 purported class action lawsuit filed clearwire us llc superior court king county washington group five plaintiffs hawaii minnesota north carolina washington chad minnick et al lawsuit generally alleges disseminated false advertising quality reliability services imposed unlawful early termination fee refer etf invoked unconscionable provisions terms service detriment subscribers among things lawsuit seeks determination alleged claims may asserted classwide basis order declaring certain provisions terms service including etf provision void unenforceable injunction prohibiting us collecting etfs false advertising restitution early termination fees paid subscribers equitable relief award unspecified damages attorneys’ fees may 27 2009 amended complaint filed served adding seven additional plaintiffs including individuals new mexico virginia wisconsin june 2 2009 plaintiffs served amended complaint removed action united states district court western district washington july 23 2009 filed motion dismiss amended complaint court stayed discovery pending ruling motion court granted motion dismiss entirety february 2 2010 plaintiffs filed notice appeal ninth circuit court appeals oral argument ninth circuit court appeals took place november 3 2010 court yet ruled appeal case early stages litigation outcome unknown estimate potential loss cannot made time september 1 2009 served purported class action lawsuit filed king county superior court brought representative plaintiff rosa kwan complaint alleges placed unlawful telephone calls using automatic dialing announcing devices engaged unlawful collection practices seeks declaratory injunctive andor equitable relief actual statutory damages federal state law october 1 2009 removed case united states district court western district washington october 22 2009 court issued stipulated order granting plaintiff october 29 2009 file amended complaint parties stipulated allow second amended complaint plaintiffs filed december 23 2009 filed motion dismiss fully briefed january 15 2010 february 22 2010 court granted motion dismiss part dismissing certain claims prejudice granting plaintiff leave amend complaint plaintiff filed third amended complaint adding additional state law claims joining bureau recovery refer bor purported collection agency codefendant parties stipulated plaintiff may file fourth amended complaint adding two new class representatives clearwire’s response fourth amended complaint due march 3 2011 plaintiffs’ motion class certification due april 7 2011 case early stages litigation outcome unknown estimate potential loss cannot made time engaged ongoing negotiations sprint resolve issues related wholesale pricing sprint 4g smartphone usage commercial agreements sprint october 29 2010 received notice sprint initiating arbitration process resolve issues november 22 2010 response notice commenced arbitration action sprint american arbitration association refer aaa primary dispute parties relates pricing paid us smartphone usage sprint’s subscribers 4g network particular parties disputing proper interpretation enforceability 4g mvno agreement respect options smartphone pricing filed statement claim sprint december 14 2010 january 21 2011 sprint answered statement claim asserted counterclaims seeking related relief 4g mvno agreement february 7 2011 clearwire filed reply sprint’s counterclaims denying material allegations sprint’s response counterclaims asserting various affirmative defenses action clearwire corporation subsidiaries notes consolidated financial statements continued proceed single arbitrator appointed yet final hearing dates scheduled finally part arbitration action parties served various notices preserving rights arbitrate certain invoices relating multimode devices submitted parties 3g mvno 4g mvno agreements arbitration action commenced regard invoices time process early stages outcome unknown november 15 2010 purported class action filed angelo dennings clearwire us district court western district washington complaint generally alleges slow network speeds network demand highest network management violates agreements subscribers contrary company’s advertising marketing claims plaintiffs also allege subscribers review terms service prior subscribing subscribers cancel service due network management charge etf restocking fee claim unconscionable circumstances claims asserted include violations computer fraud abuse act breach contract breach covenant good faith fair dealing unjust enrichment plaintiffs seek class certification unspecified damages restitution declaratory judgment clearwire’s etf restocking fee unconscionable alleged circumstances injunction prohibiting clearwire engaging alleged deceptive marketing charging etfs interest attorneys’ fees costs plaintiff indicated file amended complaint adding additional class representatives march 3 2011 amended complaint filed clearwire’s responsive motions due march 31 2011 case early stages litigation outcome unknown estimate potential loss cannot made time addition matters described often involved certain proceedings seek monetary damages relief based upon information currently available us none claims expected material adverse effect business financial condition results operations indemnification agreements currently party indemnification agreements certain officers members board directors liabilities recorded consolidated balance sheets indemnification agreements probable estimable 13 sharebased payments connection closing assumed old clearwire 2008 stock compensation plan refer 2008 plan old clearwire 2007 stock compensation plan refer 2007 plan old clearwire 2003 stock option plan refer 2003 plan share grants generally vest ratably four years expire later ten years date grant grants awarded 2008 plan made available discretion compensation committee board directors authorized unissued shares authorized issued shares reacquired combination thereof december 31 2010 55324492 shares available grant 2008 plan authorizes us grant incentive stock options nonqualified stock options stock appreciation rights restricted stock restricted stock units stock awards employees directors consultants adoption 2008 plan additional stock options granted 2007 plan 2003 plan sharebased compensation expense based estimated grantdate fair value award recognized net estimated forfeitures shares expected vest graded vesting schedule straightline basis requisite service period separately vesting portion award insubstance multiple awards restricted stock units connection transactions old clearwire restricted stock units refer rsus issued outstanding closing exchanged oneforone basis rsus equivalent terms following clearwire corporation subsidiaries notes consolidated financial statements continued closing granted rsus certain officers employees 2008 plan rsus generally vest fouryear period fair value rsus based grantdate fair market value common stock equals grant date market price summary rsu activity years ended december 31 2010 2009 2008 presented total fair value grants 2010 2009 2008 706 million 480 million 29 million respectively intrinsic value rsus released years ended december 31 2010 2009 2008 295 million 79 million 32 million respectively december 31 2010 14675653 rsus outstanding total unrecognized compensation cost approximately 503 million expected recognized weightedaverage period approximately 16 years ended december 31 2010 2009 2008 used forfeiture rate 715 775 750 respectively determining compensation expense rsus stock options connection transactions old clearwire stock options issued outstanding closing exchanged oneforone basis stock options equivalent terms following closing granted options certain officers employees 2008 plan options generally vest fouryear period fair value option grants estimated date grant using blackscholes option pricing model clearwire corporation subsidiaries notes consolidated financial statements continued summary option activity january 1 2008 december 31 2010 presented intrinsic value options exercised years ended december 31 2010 2009 2008 105 million 23 million 15000 respectively clearwire corporation subsidiaries notes consolidated financial statements continued information regarding stock options outstanding exercisable december 31 2010 follows fair value option grant estimated date grant using blackscholes option pricing model using following assumptions years ended december 31 2010 2009 2008 fair value option grants 2010 2009 43 million 186 million respectively addition options issued exchange part transactions fair value option grants 2008 954000 total fair value options vested years ended december 31 2010 2009 2008 98 million 58 million 815000 respectively total unrecognized sharebased compensation costs related nonvested stock options outstanding december 31 2010 approximately 58 million expected recognized weighted average period approximately 13 years ended december 31 2010 2009 2008 used forfeiture rate 1009 1266 respectively determining compensation expense options clearwire corporation subsidiaries notes consolidated financial statements continued sharebased compensation expense recognized plans years ended december 31 2010 2009 2008 follows thousands years ended december 31 2010 2009 2008 recorded 109 million 24 million 0 respectively additional compensation expense related accelerated vesting options rsus sprint equity compensation plans connection transactions certain sprint wimax business employees became employees clearwire currently hold unvested sprint stock options rsus sprint’s equity compensation plans refer collectively sprint plans underlying share awards issued sprint plans sprint common stock sprint plans allow continued plan participation long employee remains employed sprint subsidiary affiliate sprint plans options generally granted exercise price equal market value underlying shares grant date generally vest period four years contractual term ten years rsus generally performance service requirements vesting periods ranging one three years rsus granted second quarter 2008 included quarterly performance targets granted performance targets met therefore grant date awards remaining service requirement vesting period six months following last day applicable quarter employees granted rsus required pay shares generally must remain employed sprint subsidiary restrictions lapse typically three years less december 31 2010 35257 unvested options 66451 unvested rsus outstanding sharebased compensation associated employees incurred sprint behalf sprint provided us fair value options rsus reporting period must remeasured based fair value equity instruments reporting period instruments vested total unrecognized sharebased compensation costs related unvested stock options rsus outstanding december 31 2010 6000 27000 respectively expected recognized approximately one year 14 stockholders’ equity class common stock class common stock represents common equity clearwire holders class common stock entitled one vote per share class entitled 100 dividends distributions made clearwire exception certain minimal liquidation rights provided class b common stockholders described share class common stock participates ratably proportion total number shares class common stock issued clearwire holders class common stock 100 economic interest clearwire considered controlling interest purposes financial reporting upon liquidation dissolution winding class common stock entitled assets remaining payment debts liabilities clearwire exception certain minimal liquidation rights provided class b common stockholders described clearwire corporation subsidiaries notes consolidated financial statements continued class b common stock class b common stock represents noneconomic voting interests clearwire holders stock considered noncontrolling interests purposes financial reporting identical class common stock holders class b common stock entitled one vote per share however rights receive distributions stock dividends paid proportionally outstanding class b common stockholder upon liquidation clearwire amount equal par value per share 00001 per share holder class b common stock holds equivalent number clearwire communications class b common interests substance reflects economic stake clearwire accomplished exchange feature provides holder right time exchange one share class b common stock plus one clearwire communications class b common interest one share class common stock private placement november 9 2009 entered investment agreement refer investment agreement sprint comcast corporation refer comcast intel corporation refer intel time warner cable inc refer time warner cable bright house networks llc refer bright house eagle river holdings llc refer eagle river collectively refer participating equityholders providing additional equity investments participating equityholders new debt investments certain investors investment agreement sets forth terms transactions pursuant participating equityholders invested clearwire communications aggregate approximately 1564 billion exchange 213369711 shares clearwire communications nonvoting class b common interest clearwire communications voting interests refer private placement investment certain participating equityholders rollover notes private placement consummated three closings november 9 2009 participating equityholders contributed aggregate approximately 1057 billion cash exchange 144231268 clearwire communications class b common interests clearwire communications voting interests collectively refer clearwire communications interests pro rata based respective investment amounts refer closing first investment closing december 21 2009 participating equityholders contributed aggregate approximately 4403 million cash exchange 60066822 clearwire communications interests refer closing second investment closing march 2 2010 participating equityholders contributed aggregate approximately 665 million cash exchange 9071621 clearwire communications interests refer consummation purchase third investment closing private placement participating equityholders agreed invest clearwire communications total 1564 billion exchange clearwire communications interests following amounts millions except interests clearwire corporation subsidiaries notes consolidated financial statements continued immediately following receipt participating equityholders clearwire communications interests participating equityholders agreed contribute clearwire communications voting interests exchange equal number shares clearwire’s class b common stock par value 00001 per share investment agreement exchange purchase sprint comcast time warner cable bright house clearwire communications class b common interests clearwire communications voting interests amounts exceeding certain amounts stipulated investment agreement clearwire communications agreed pay fee refer allotment fee equal following amounts fee payable cash clearwire communications class b common interests clearwire communications voting interests option participating equityholder second investment closing clearwire communications delivered portion allotment fee 69 million cash 95 million clearwire communications class b common interests valued 733 per interest equal number clearwire communications voting interests sprint 27 million cash comcast 14 million cash time warner cable 275000 cash bright house third investment closing clearwire communications paid remaining allotment fee 32 million aggregate clearwire communications delivered applicable allotment fee sprint onehalf cash onehalf form clearwire communications class b common interests valued 733 per interest equal number clearwire communications voting interests comcast time warner cable bright house networks cash clearwire holds outstanding clearwire communications class common interests outstanding clearwire communications voting interests representing 25 economics 100 voting rights clearwire communications december 31 2010 following table lists interests clearwire december 31 2010 1 holders class b common stock hold equivalent number clearwire communications class b common interests clearwire corporation subsidiaries notes consolidated financial statements continued sprint investors google inc refer google shares class b common stock equal voting rights clearwire’s 00001 par value class common stock limited economic rights unlike holders class common stock holders class b common stock right dividends right proceeds liquidation par value class b common stock sprint investors google hold economic rights ownership clearwire communications class b common interests google owns shares class common stock investment agreement clearwire committed rights offering pursuant rights purchase shares class common stock granted holder class common stock along certain participating securities december 17 2009 refer rights offering distributed subscription rights exercisable 93903300 shares class common stock subscription right entitled shareholder purchase 04336 shares class common stock subscription price 733 per share subscription rights expired exercised june 21 2010 participating equityholders google waived respective rights participate rights offering respect shares class common stock hold applicable record date connection rights offering rights purchase 396 million shares class common stock exercised aggregate purchase price 2903 million clearwire communications interests clearwire sole holder voting interests clearwire communications clearwire controls 100 decision making clearwire communications consolidates 100 operations clearwire also holds outstanding clearwire communications class common interests representing 25 economics clearwire communications december 31 2010 holders class b common interests remaining 75 economic interests following shows effects changes clearwire’s ownership interests clearwire communications thousands nonvoting clearwire communication units designated either clearwire communications class common interests held clearwire communications class b common interests held sprint investors exception google classes nonvoting clearwire communication units participate distributions clearwire communications equal proportionate basis clearwire corporation subsidiaries notes consolidated financial statements continued holder clearwire communications class b common interests holds equivalent number shares clearwire’s class b common stock entitled time exchange one share class b common stock plus one clearwire communications class b common interest one share class common stock intended times number clearwire communications class common interests held clearwire equal number shares class common stock issued clearwire similarly intended times sprint investor except google hold equal number shares class b common stock clearwire communications class b common interests dividend policy declared paid cash dividends class b common stock since closing currently expect retain future earnings use operations expansion business anticipate paying cash dividends foreseeable future addition covenants indenture governing senior secured notes impose significant restrictions ability pay cash dividends stockholders distribution subscription rights part rights offering represents stock dividend distribution noncontrolling interests clearwire communications clearwire communications consolidated clearwire hold 100 voting interest clearwire communications therefore holders clearwire communications class b common interests represent noncontrolling interests consolidated subsidiary result income loss consolidated clearwire decreased proportion outstanding noncontrolling interests december 31 2010 clearwire level noncontrolling interests represent approximately 75 noneconomic voting interests warrants old clearwire warrants issued outstanding closing exchanged oneforone basis warrants purchase class common stock equivalent terms fair value warrants exchanged 185 million included calculation purchase consideration using blackscholes option pricing model share price 662 holders may exercise warrants time exercise prices ranging 300 4800 old clearwire granted holders warrants registration rights covering shares subject issuance warrants december 31 2010 16031219 warrants outstanding expiration date may 17 2011 1400001 warrants outstanding expiration date march 12 2012 375000 warrants outstanding expiration date november 13 2012 clearwire corporation subsidiaries notes consolidated financial statements continued 15 net loss per share basic net loss per share net loss per share attributable holders class common stock calculated based following information thousands except per share amounts subscription rights distributed december 21 2009 purchase shares class common stock class common stockholders record december 17 2009 warrant holders certain holders rsus represent dividend distribution certain participating equityholders google class common stockholders record holding approximately 102 million shares entitled subscription rights agreed exercise transfer rights fair value rights distributed 575 million 051 per share class common stock certain outstanding warrants meet definition participating securities terms provide participation distributions class common stock prior exercise therefore twoclass method used compute net loss per share result fair value rights distributed warrant rsu holders 95 million increased net loss attributable class common stockholders diluted net loss per share potential exchange clearwire communications class b common interests together class b common stock class common stock dilutive effect diluted net loss per share due certain tax effects exchange would result increase number class common stock outstanding corresponding increase net loss attributable class common stockholders elimination noncontrolling interests’ allocation extent clearwire communications class b common interests class b common stock converted class common stock clearwire communications partnership structure would longer exist clearwire would required recognize tax provision related indefinite lived intangible assets shares issuable upon conversion exchangeable notes included computation diluted net loss per share year ended december 31 2010 “if converted” basis since result dilutive purpose computation change fair value exchange options interest expense exchangeable notes reversed period clearwire corporation subsidiaries notes consolidated financial statements continued net loss per share attributable holders class common stock diluted basis assuming conversion clearwire communications class b common interests class b common stock conversion exchangeable notes calculated based following information thousands except per share amounts higher net loss per share diluted basis due hypothetical loss partnership status clearwire communications upon conversion clearwire communications class b common interests class b common stock conversion noncontrolling interests discussed well hypothetical conversion exchangeable notes diluted weighted average shares include effects following potential common shares inclusion would antidilutive thousands clearwire corporation subsidiaries notes consolidated financial statements continued contingent shares year ended december 31 2010 relate clearwire communications class b common interests clearwire communications voting interests issued participating equityholders upon third investment closing interests exchanged class common stock contingent shares year ended december 31 2009 primarily relate clearwire communications class b common interests clearwire communications voting interests issued participating equityholders upon second third investment closings interests combined basis exchanged class common stock second investment closing december 21 2009 third investment closing march 2 2010 contingent shares year ended december 31 2008 relate purchase price share adjustment 28235294 million shares class common stock equity issuance cw investment holdings 588235 shares class common stock issued february 2009 calculated presented basic diluted net loss per share class common stock class b common stock net loss per share calculated since contractually participate distributions clearwire prior closing equity whollyowned division sprint calculate present net loss per share period january 1 2008 november 28 2008 16 business segments information operating segments based internal organization reporting revenue operating income loss based upon internal accounting methods operating segments defined components enterprise separate financial information available evaluated regularly chief operating decision maker decision making group deciding allocate resources assessing performance chief operating decision maker chief executive officer december 31 2010 2009 2008 identified two reportable segments united states international businesses report business segment information follows thousands clearwire corporation subsidiaries notes consolidated financial statements continued clearwire corporation subsidiaries notes consolidated financial statements continued 17 related party transactions number strategic commercial relationships third parties significant impact business operations financial results relationships sprint investors eagle river switch data inc dashwire inc motorola inc bell canada well others discussed related parties relationships include agreements pursuant sell wireless broadband services certain related parties wholesale basis related parties resell respective end user subscribers sell services terms defined contractual agreements following amounts related party transactions included consolidated financial statements thousands rollover notes connection issuance senior secured notes november 24 2009 also issued 2525 million notes sprint comcast identical terms senior secured notes proceeds rollover notes used retire principal amounts owed sprint comcast senior term loan facility time related parties may hold debt senior secured notes debtholders would entitled receive interest payments us sprint preclosing financing amount amended credit agreement result transactions assumed liability reimburse sprint preclosing financing amount required pay 2130 million plus related interest 45 million sprint cash first business day closing remainder added sprint tranche amended credit agreement senior term loan facility clearwire corporation subsidiaries notes consolidated financial statements continued amount 1792 million 2009 repaid senior term loan facility proceeds senior secured notes rollover notes sprint assigned possible certain costs us based actual use shared services included office facilities management services including treasury services human resources supply chain management shared services closing direct assignment costs possible practical sprint used indirect methods including time studies estimate assignment costs us allocated us management fee allocations costs reevaluated periodically sprint charged us management fees services 1711 million year ended december 31 2008 additionally entered lease agreements sprint various switching facilities transmitter receiver sites recorded rent expense 364 million year ended december 31 2008 relationships among certain stockholders directors officers clearwire sprint whollyowned subsidiary sprint holdco llc owns largest interest clearwire effective voting economic interest clearwire approximately 54 investors collectively owned 28 interest clearwire eagle river holder 35922958 shares outstanding class common stock 2612516 shares class b common stock represents approximate 4 ownership interest clearwire eagle river inc refer eri manager eagle river entity controlled craig mccaw former director clearwire mr mccaw affiliates significant investments telecommunications businesses may compete us currently future likely mr mccaw affiliates continue make additional investments telecommunications businesses december 31 2010 eagle river held warrants entitling purchase 613333 shares class common stock exercise price 1500 per share expiration date may 17 2011 warrants purchase 375000 shares class common stock exercise price 300 per share expiration date november 13 2013 certain officers directors provide additional services eagle river eri affiliates separately compensated entities compensation paid individuals eagle river eri andor affiliates services addition compensation paid us following closing clearwire sprint eagle river investors agreed enter equityholders’ agreement set forth certain rights obligations equityholders respect governance clearwire transfer restrictions common stock rights first refusal preemptive rights among things addition also entered number commercial agreements sprint investors outlined additionally wife mr salemme former executive vice president strategy policy external affairs serving consultant group vice president time warner cable directly involved transactions time warner cable davis wright tremaine llp law firm davis wright tremaine llp serves primary outside counsel handles variety corporate transactional tax litigation matters mr wolff currently sits board directors former chief executive officer married partner davis wright tremaine llp partner mr wolff’s spouse entitled share portion firm’s total profits although received compensation directly us years ended december 31 2010 2009 2008 paid 32 million 41 million 907000 davis wright tremaine llp legal services respectively include fees paid old clearwire ericsson inc ericsson inc refer ericsson provides network deployment services us including site acquisition construction management services dr hossein eslambolchi currently sits clearwire corporation subsidiaries notes consolidated financial statements continued board directors consulting agreement ericsson part consulting agreement dr eslambolchi received payments services ericsson received compensation directly us related relationship ericsson year ended december 31 2010 capitalized 89 million costs paid ericsson network base station equipment 18 million included accounts payable current liabilities master site agreement entered master site agreement sprint refer master site agreement pursuant sprint established contractual framework procedures leasing tower antenna collocation sites leases specific sites negotiated sprint us request lessee leased premises may used lessee activity connection provision wireless communications services including attachment antennas towers sites term master site agreement ten years closing term lease specific site five years lessee right extend term additional 20 years monthly fee increase 3 per year lessee also responsible utility costs certain additional fees years ended december 31 2010 2009 2008 recorded rent expense 527 million 282 million 28 million respectively master agreement network services entered master agreement network services refer master agreement network services various sprint affiliated entities refer sprint entities pursuant sprint entities established contractual framework procedures us purchase network services sprint entities may order various services sprint entities including ip network transport services data center colocation tollfree services access following business platforms voicemail instant messaging services locationbased systems media server services sprint entities provide service level agreement consistent service levels provided similarly situated subscribers pricing specified separate product attachments type service general pricing based midpoint fair market value service sprint entities’ fully allocated cost providing service term master agreement network services five years lessee right extend term additional five years additionally accordance master agreement network services sprint entities assumed certain agreements backhaul services certain investors contain commitments extend five years master services agreement entered master services agreement sprint entities refer master services agreement pursuant sprint entities established contractual framework procedures us purchase application services sprint entities may order various application services sprint entities including human resources applications supply chain finance applications device management services data warehouse services creditaddress check help desk services repair services applications customer trouble management coverage map applications network operations support applications services specific services requested us identified statements work completed sprint entities us sprint entities provide service levels consistent service levels sprint entities provide affiliates services pricing specified separate statement work type service term master services agreement five years right extend term additional five years 4g mvno agreement entered nonexclusive 4g mvno agreement closing comcast mvno ii llc twc wireless llc bhn spectrum investments llc sprint spectrum lp refer 4g mvno agreement sell wireless broadband services parties 4g mvno agreement purposes purchasers marketing reselling wireless broadband services respective end user subscribers wireless broadband services provided 4g mvno agreement include standard network services request parties certain nonstandard network services sell services prices defined 4g mvno agreement engaged ongoing clearwire corporation subsidiaries notes consolidated financial statements continued negotiations sprint resolve issues related wholesale pricing sprint 4g smartphone usage commercial agreements see note 12 commitments contingencies information 3g mvno agreement entered nonexclusive 3g mvno agreement sprint spectrum lp refer 3g mvno agreement whereby sprint agrees sell code division multiple access refer cdma mobile voice data communications service refer pcs service purpose resale retail customers pcs service includes sprint’s existing core network services network elements information enable third party provide services network core network enablers subject certain limitations exceptions new core network services core network enablers certain customized services intel market development agreement entered market development agreement intel refer intel market development agreement pursuant committed deploy mobile wimax networks promote use certain notebook computers mobile internet devices networks intel would develop market sell support wimax embedded chipsets use certain notebook computers mobile internet devices may used networks intel market development agreement last term seven years date agreement intel option renew agreement successive one year terms maximum 13 additional years provided intel meets certain requirements intel elects renew agreement maximum 20year term agreement thereafter automatically renew successive one year renewal periods either party terminates agreement may terminated either party 30 days written notice termination certain circumstances pay intel portion revenues received certain retail subscribers using certain intelbased notebook computers mutually agreed devices networks certain period time subject certain qualifications pay intel activation fees qualifying intelbased device activated networks initial term google products services agreement entered products services agreement google refer google products services agreement pursuant google collaborate variety products services google provide advertising services us use certain websites devices utilize google advertising services exclusive basis retail subscribers google pay us percentage revenue google generates advertising services google also provide suite hosted communications services including email instant messaging calendar functionality us integration desktop portal offering furthermore support opensource android platform work google offer certain google applications explore working google variety potential products services google products services agreement term three years google spectrum agreement entered spectrum agreement google refer google spectrum agreement pursuant make available google certain excess 25 ghz spectrum various markets experimental usage google development alternative applications thirdparties operating direction approval google us thirdparty use spectrum beyond used wimax technology cannot manner interfere use spectrum wimax technology subject availability revenue generated spectrum usage wimax technology shared google us addition parties agree form joint technology team manage activities outlined google spectrum agreement google spectrum agreement provides initial term five years date agreement google spectrum agreement terminable either party default party 18 quarterly financial information unaudited summarized quarterly financial information years ended december 31 2010 2009 follows thousands except per share data 19 parent company condensed financial statements terms agreements governing indebtedness clearwire communications subsidiary clearwire subsidiary significantly restricted making dividend payments loans advances clearwire restrictions resulted restricted net assets defined securities exchange commission rule 408e3 regulation sx clearwire’s subsidiary exceeding 25 consolidated net assets clearwire subsidiaries following condensed parentonly financial statements clearwire account investment clearwire communications equity method accounting financial statements read conjunction consolidated financial statements clearwire subsidiaries notes thereto described note 1 description business clearwire formed november 28 2008 therefore condensed statement operation condensed statement cash flow 2008 included activity november 29 2008 december 31 2008 clearwire corporation subsidiaries notes consolidated financial statements continued clearwire corporation condensed balance sheets clearwire corporation subsidiaries notes consolidated financial statements continued clearwire corporation condensed statements operations clearwire corporation subsidiaries notes consolidated financial statements continued clearwire corporation condensed statements cash flows item 15 exhibits financial statement schedules reports form 8k 1 consolidated financial statements sprint filed part report listed index financial statements financial statement schedule exhibits 2 consolidated financial statement schedule sprint filed part report listed index financial statements financial statement schedule exhibits financial statement schedules required related instructions inapplicable therefore omitted 3 following exhibits filed part report exhibits 3 articles incorporation bylaws articles incorporation amended filed exhibit 31 amendment 6 sprint corporation’s registration statement form 8a relating fon common stock filed december 17 2003 incorporated herein reference b bylaws amended filed exhibit 3b sprint corporation’s quarterly report form 10q quarter ended september 30 2003 incorporated herein reference 4 instruments defining rights sprint’s security holders rights sprint’s equity security holders defined fifth sixth seventh eighth articles sprint’s articles incorporation see exhibit 3a b provision regarding kansas control share acquisition act article ii section 5 bylaws provisions regarding stockholders’ meetings set forth article iii bylaws provisions regarding capital stock committee set forth article iv section 12 bylaws see exhibit 3b c amended restated rights agreement dated november 23 1998 sprint corporation umb bank na rights agent filed exhibit 41 amendment 1 sprint corporation’s registration statement form 8a relating sprint’s pcs group rights filed november 25 1998 incorporated herein reference amendment dated march 28 2003 amended restated rights agreement registrant umb na rights agent filed exhibit 42 amendment 3 sprint corporation’s registration statement form 8a relating sprint’s pcs group rights filed april 2 2003 incorporated herein reference e tracking stock policies sprint corporation amended filed exhibit 4c sprint corporation’s annual report form 10ka year ended december 31 2001 incorporated herein reference f amended restated standstill agreement dated november 23 1998 among sprint corporation france telecom deutsche telekom ag filed exhibit 4e posteffective amendment 2 sprint corporation’s registration statement form s3 3358488 incorporated herein reference amended master transfer agreement dated january 21 2000 among france telecom deutsche telekom ag nab nordamerika beteiligungs holding gmbh atlas telecommunications sa sprint corporation sprint global venture inc jv entities set forth schedule ii thereto filed exhibit 2 sprint corporation’s current report form 8k dated january 26 2000 incorporated herein reference g indenture dated october 1 1998 among sprint capital corporation sprint corporation bank one na trustee filed exhibit 4b sprint corporation’s quarterly report form 10q quarter ended september 30 1998 incorporated herein reference supplemented first supplemental indenture dated january 15 1999 among sprint capital corporation sprint corporation bank one na trustee filed exhibit 4b sprint corporation’s current report form 8k dated february 2 1999 incorporated herein reference supplemented second supplemental indenture dated october 15 2001 among sprint capital corporation sprint corporation bank one na trustee filed exhibit 99 sprint corporation’s current report form 8ka dated october 17 2001 incorporated herein reference h indenture dated october 1 1998 sprint corporation bank one na trustee filed exhibit 4a sprint corporation’s quarterly report form 10q quarter ended september 30 1998 incorporated herein reference supplemented first supplemental indenture dated january 15 1999 sprint corporation bank one na trustee filed exhibit 4a sprint corporation’s current report form 8k dated february 2 1999 incorporated herein reference purchase contract agreement dated august 10 2001 sprint corporation bank one national association purchase contract agent filed exhibit 4e sprint corporation’s quarterly report form 10q quarter ended september 30 2001 incorporated herein reference j form corporate units certificates including form purchase contract included exhibit purchase contract agreement filed exhibit 4e sprint corporation’s quarterly report form 10q quarter ended september 30 2001 incorporated herein reference k pledge agreement dated august 10 2001 among sprint corporation bank one national association collateral agent purchase contract agent filed exhibit 4g sprint corporation’s quarterly report form 10q quarter ended september 30 2001 incorporated herein reference l remarketing agreement dated august 10 2001 among sprint corporation sprint capital corporation bank one national association purchase contract agent ubs warburg llc remarketing agent filed exhibit 4h sprint corporation’s quarterly report form 10q quarter ended september 30 2001 incorporated herein reference terms 6 notes due 2006 including form note filed exhibit 4i sprint corporation’s quarterly report form 10q quarter ended september 30 2001 incorporated herein reference 10 material agreements registration rights agreement dated november 23 1998 among sprint corporation telecommunications inc comcast corporation cox communications inc filed exhibit 102 amendment 1 sprint corporation registration statement form s3 33364241 incorporated herein reference b standstill agreement dated may 26 1996 sprint corporation telecommunications inc filed exhibit 10g sprint corporation annual report form 10k year ended december 31 1998 incorporated herein reference c 364day credit agreement dated june 24 2003 among sprint corporation sprint capital corporation borrowers initial lenders named therein initial lenders citibank na administrative agent citigroup global markets inc jp morgan securities inc joint lead arrangers book managers jp morgan chase bank syndication agent bank america na deutsche bank ag new york branch ubs ag cayman islands branch documentation agents filed exhibit 10a sprint corporation’s quarterly report form 10q quarter ended june 30 2003 incorporated herein reference 10 executive compensation plans arrangements executive deferred compensation plan amended summary amendments executive deferred compensation plan filed exhibit 10i sprint corporation’s annual report form 10k year ended december 31 2000 incorporated herein reference e management incentive stock option plan amended f 1997 longterm stock incentive program amended filed exhibit 4 posteffective amendment 2 sprint corporation’s registration statement form s8 3359349 incorporated herein reference g sprint supplemental executive retirement plan amended filed exhibit 10l sprint corporation’s annual report form 10ka year ended december 31 2001 incorporated herein reference h amended restated centel directors deferred compensation plan filed exhibit 10m sprint corporation’s annual report form 10k year ended december 31 1999 incorporated herein reference executive management incentive plan filed exhibit 10k sprint corporation’s annual report form 10k year ended december 31 1993 incorporated herein reference management incentive plan amended filed exhibit 10r sprint corporation’s annual report form 10k year ended december 31 2000 incorporated herein reference k retirement plan directors amended filed exhibit 10u sprint corporation’s annual report form 10k year ended december 31 1996 incorporated herein reference l key management benefit plan amended filed exhibit 10g sprint corporation’s quarterly report form 10q quarter ended september 30 1996 incorporated herein reference agreement regarding special compensation post employment restrictive covenants sprint corporation one executive officers mr betts filed exhibit 10h sprint corporation’s quarterly report form 10q quarter ended march 31 1996 incorporated herein reference n director’s deferred fee plan amended filed exhibit 10v sprint corporation’s annual report form 10k year ended december 31 1999 incorporated herein reference form indemnification agreements sprint corporation directors officers filed exhibit 10e sprint corporation’s quarterly report form 10q quarter ended june 30 2003 incorporated herein reference p summary executive officer benefits board directors benefits fees q special incentive plan filed exhibit 10g sprint corporation’s quarterly report form 10q quarter ended september 30 2000 incorporated herein reference r executive agreement dated july 30 2001 among sprint corporation sprintunited management company len lauer filed exhibit 10bb sprint corporation’s annual report form 10ka year ended december 31 2001 incorporated herein reference employment agreement dated march 19 2003 among sprint corporation sprintunited management company gary forsee filed exhibit 10c sprint corporation’s quarterly report form 10q quarter ended march 31 2003 incorporated herein reference letter agreement dated april 9 2003 separation agreement dated april 9 2003 among sprint corporation sprintunited management company ronald lemay filed exhibit 10d sprint corporation’s quarterly report form 10q quarter ended march 31 2003 incorporated herein reference u separation agreement dated may 12 2003 among sprint corporation sprintunited management company william esrey filed exhibit 99b sprint corporation’s current report form 8k dated june 10 2003 incorporated herein reference v form award agreement awarding restricted stock units directors filed exhibit 10g sprint corporations quarterly report form 10q quarter ended june 30 2003 incorporated herein reference w form award agreement awarding restricted stock units stock options executive officers filed exhibit 10h sprint corporations quarterly report form 10q quarter ended june 30 2003 incorporated herein reference x employment agreements compensation arrangements sprint corporation certain executive officers messrs blessing dellinger fuller gerke janzen kissinger stout ms walker 12 computation ratio earnings fixed charges 16 letter securities exchange commission ernst young 21 subsidiaries registrant 23 consent independent auditors 31 certification chief executive officer pursuant securities exchange act 1934 rule 13a14a b certification chief financial officer pursuant securities exchange act 1934 rule 13a14a 32 certification chief executive officer pursuant 18 usc section 1350 adopted pursuant section 906 sarbanesoxley act 2002 b certification chief financial officer pursuant 18 usc section 1350 adopted pursuant section 906 sarbanesoxley act 2002 sprint furnish securities exchange commission upon request copy instruments defining rights holders longterm debt total amount securities authorized said instruments listed exceed 10 total assets sprint b reports form 8k sprint filed current report form 8ka dated october 14 2003 filed december 2 2003 reported audit committee board directors determined sprint’s independent auditor ernst young llp would replaced kpmg llp independent auditor sprint year ending december 31 2004 action effectively dismissed ernst young sprint’s independent auditor yearended december 31 2004 however ernst young continue sprint’s independent auditor year ended december 31 2003 sprint filed current report form 8k dated october 23 2003 reported announced third quarter 2003 results news release furnished exhibit current report included following financial information sprint corporation consolidated statements operations sprint corporation consolidated balance sheets sprint corporation condensed consolidated cash flow information sprint corporation reconciliation nongaap liquidity measures sprint corporation fon group operating statistics sprint corporation pcs group operating statistics sprint filed current report form 8k dated december 1 2003 reported kpmg llp engaged independent auditors sprint year ending december 31 2004 sprint filed current report form 8k dated december 8 2003 reported announced appointment two new independent directors e linn draper jr chairman president chief executive officer american electric power company gerald l storch vice chairman target corporation sprint board directors sprint filed current report form 8k dated february 3 2004 reported announced fourth quarter fullyear results news release furnished exhibit current report included following information sprint corporation consolidated statements operations sprint corporation consolidated balance sheets sprint corporation condensed consolidated cash flow information sprint corporation reconciliation nongaap liquidity measures sprint corporation fon group operating statistics sprint corporation pcs group operating statistics sprint corporationfon grouplocal division selected information sprint filed current report form 8k dated february 28 2004 reported board directors approved recombination pcs common stock fon common stock effective april 23 2004 notice shareholders included exhibit current report sprint filed current report form 8k dated february 29 2004 reported announced board directors approved recombination pcs common stock fon common stock news release furnished exhibit current report sprint filed current report form 8k dated march 2 2004 reported announced appointment two new independent directors gordon bethune chairman board chief executive officer continental airlines inc deborah henretta president proctor gamble’s global baby care division sprint board directors signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized date march 8 2004 pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities indicated 8th day march 2004 gary forsee gary forsee chairman chief executive officer robert j dellinger robert j dellinger executive vice president chief financial officer john p meyer john p meyer senior vice president controller principal accounting officer signatures sprint corporation registrant pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities indicated 8th day march 2004 dubose ausley dubose ausley director linda k lorimer linda k lorimer director gordon bethune director charles e rice charles e rice director e linn draper jr director louis w smith louis w smith director gary forsee gary forsee director gerald l storch director deborah henretta director stewart turley stewart turley director irvine hockaday jr irvine hockaday jr director index financial statements financial statement schedule exhibits 12computation ratio earnings fixed charges 21subsidiaries registrant 23consent independent auditors 31a certification chief executive officer pursuant securities exchange act 1934 rule 13a14a 31b certification chief financial officer pursuant securities exchange act 1934 rule 13a14a 32a certification chief executive officer pursuant 18 usc section 1350 adopted pursuant section 906 sarbanesoxley act 2002 32b certification chief financial officer pursuant 18 usc section 1350 adopted pursuant section 906 sarbanesoxley act 2002 management report sprint corporation’s management responsible integrity objectivity information contained document management responsible consistency reporting information ensuring accounting principles generally accepted united states used discharging responsibility management maintains comprehensive system internal controls supports extensive program internal audits made organizational arrangements providing appropriate divisions responsibility established communication programs aimed assuring policies procedures principles business conduct understood practiced employees financial statements included document audited ernst young llp independent auditors audits conducted using auditing standards generally accepted united states report included herein board directors’ responsibility financial statements pursued mainly audit committee audit committee composed entirely directors officers employees sprint meets periodically internal auditors independent auditors without management present assure respective responsibilities fulfilled internal independent auditors full access audit committee discuss auditing financial reporting matters gary forsee gary forsee chairman chief executive officer robert j dellinger robert j dellinger executive vice president chief financial officer report independent auditors board directors shareholders sprint corporation audited accompanying consolidated balance sheets sprint corporation sprint december 31 2003 2002 related consolidated statements operations comprehensive income loss cash flows shareholders’ equity three years period ended december 31 2003 audits also included financial statement schedule listed index financial statements financial statement schedule exhibits financial statements schedule responsibility management sprint responsibility express opinion financial statements schedule based audits conducted audits accordance auditing standards generally accepted united states standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion financial statements referred present fairly material respects consolidated financial position sprint december 31 2003 2002 consolidated results operations cash flows three years period ended december 31 2003 conformity accounting principles generally accepted united states also opinion related financial statement schedule considered relation basic financial statements taken whole presents fairly material respects information set forth therein discussed note 1 notes consolidated financial statements sprint adopted statement financial accounting standards sfas 142 goodwill intangible assets effective january 1 2002 discussed note 1 sprint adopted sfas 123 accounting stockbased compensation amended sfas 148 accounting stockbased compensationtransition disclosure amendment fasb statement 123 effective january 1 2003 discussed note 4 notes consolidated financial statements sprint adopted sfas 143 accounting asset retirement obligations effective january 1 2003 ernst young llp kansas city missouri february 3 2004 consolidated statements operations millions 1 effects including incremental shares associated options restricted stock units employees stock purchase plan shares antidilutive basic loss per share diluted loss per share reflect calculation consolidated statements operations pcs group periods presented year ended december 31 2001 fon group see accompanying notes consolidated financial statements consolidated statements comprehensive income loss millions see accompanying notes consolidated financial statements consolidated balance sheets millions see accompanying notes consolidated financial statements consolidated balance sheets continued millions except per share data see accompanying notes consolidated financial statements consolidated statements cash flows millions see accompanying notes consolidated financial statements consolidated statements shareholders’ equity millions sprint corporation 1 december 31 2003 accumulated comprehensive loss consists 738 million additional minimum pension liability 17 million unrealized net gains related investments derivatives see accompanying notes consolidated financial statements notes consolidated financial statements sprint corporation 1 summary significant accounting policies tracking stock formation november 1998 sprint’s shareholders approved allocation sprint’s assets liabilities two groups fon group pcs group well creation fon stock pcs stock addition sprint purchased remaining ownership interests sprint spectrum holding company lp phillieco lp together sprint pcs minority interest cox communications pcs lp cox pcs sprint acquired ownership interests telecommunications inc comcast corporation cox communications inc cable partners exchange sprint issued cable partners lowvote pcs shares warrants acquire additional pcs shares sprint also issued cable partners shares new series preferred stock convertible pcs shares purchase cable partners’ interests referred pcs restructuring 1999 second quarter sprint acquired remaining minority interest cox pcs also november 1998 sprint reclassified publicly traded common shares one share fon stock ½ share pcs stock recapitalization taxfree shareholders addition class common shares owned france telecom ft deutsche telekom ag dt reclassified shares representing fon stock pcs stock transactions referred recapitalization ft dt longer hold class common shares fon pcs shares fon common stock pcs common stock intended reflect financial results economic value fon pcs groups however classes common stock sprint group intended track accordingly fon pcs shareholders subject risks related equity investment sprint’s businesses assets liabilities shares fon common stock pcs common stock represent direct legal interest assets liabilities allocated either group rather represent direct equity interest assets liabilities whole sprint’s board may subject restrictions sprint’s articles incorporation change allocation assets liabilities comprise fon group pcs group without shareholder approval considerations relating tracking stocks discussed note 20 recombination tracking stocks announced recombination fon common stock pcs common stock intended track performance fon group pcs group respectively fon common stock pcs common stock classes common stock sprint common stock group intended track holders fon common stock pcs common stock subject risks related equity investment sprint’s businesses assets liabilities therefore market prices fon common stock pcs common stock may accurately reflect performance group intended track announcement completion recombination price tracking stocks may reflect expectation single common stock result recombination rather reflecting performance groups sprint single board directors consequently board directors owes separate duties holders either fon common stock pcs common stock conflicts interest holders fon common stock pcs common stock transactions fon group pcs group dealings third parties could resolved board directors detriment holders one class common stock recombination tracking stocks events would benefited holders one tracking stocks benefit sprint shareholders basis consolidation presentation consolidated financial statements include accounts sprint wholly owned subsidiaries controls investments entities sprint exercises significant influence control accounted using equity method see note 2 consolidated financial statements prepared using accounting principles generally accepted united states principles require management make estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities reported amounts revenues expenses actual results could differ estimates certain prioryear amounts reclassified conform currentyear presentation reclassifications effect results operations shareholders’ equity previously reported classification operations sprint’s business divided three segments global markets division local division pcs wireless telephony products services business global markets division global markets division provides broad suite communications services targeted domestic business residential customers multinational corporations communications companies services include domestic international voice data communications using various protocols internet protocol frame relay data service transfers packets data sprint’s network managed network services additionally global markets division provides local services using sprint’s facilities leased facilities using unbundled network elements provided carriers total 36 states district columbia global markets division selling cable telephone market arrangements cable companies resell sprint long distance service use sprint back office systems network assets support local telephone service provided cable facilities addition global markets division provides consulting services international data communications global markets division also includes operating results wireless high speed data cable tv service operations broadband fixed wireless companies 2001 sprint announced would halt deployment multipoint multichannel distribution services mmds services using current direct sight access technology current customers continue receive service third quarter 2003 sprint’s ongoing evaluation business use mmds spectrum resulted decision end pursuit residential fixed wireless strategy decision required impairment analysis asset resulting pretax noncash charge 12 billion sprint focusing efforts broad range alternative strategies sprint continuing invest spectrum monitoring technology industry developments involved efforts achieve favorable regulatory rulings respect spectrum division also includes investments earthlink inc earthlink internet service provider callnet enterprises inc callnet long distance provider canada certain telecommunications investments ventures local division local division consists mainly regulated local phone companies serving approximately 79 million access lines 18 states local division provides local voice data services including digital subscriber line dsl customers within franchise territories access phone customers carriers local division’s local network nationwide long distance services residential customers located within franchise territories sales telecommunications equipment services within specified calling areas residential business customers local division provides wireless services customers franchise territories agency relationships dsl enables high speed transmission data existing copper telephone lines sprint pcs group pcs group includes sprint’s wireless pcs operations yearend 2003 pcs group together third party affiliates operated pcs systems 300 metropolitan markets including 100 largest us metropolitan areas pcs group licenses serve entire us population including puerto rico us virgin islands service offered pcs group third party affiliates reaches quarter billion people pcs group combined wholesale affiliate partners served 20 million customers end 2003 pcs group provides nationwide service combination • operating digital network major us metropolitan areas using code division multiple access technology cdma digital spreadspectrum wireless technology allows large number users access single frequency band assigning code speech bits sending scrambled transmission encoded speech air reassembling speech original format • affiliating companies use cdma mainly around smaller us metropolitan areas • roaming providers’ analog cellular networks using multimode multiband handsets • roaming providers’ digital networks use cdma sprint pcs customers use phones roaming agreements countries united states including areas • asia pacific including china guam hong kong new zealand • canada mexico • central south america including argentina bolivia chile colombia ecuador guatemala paraguay uruguay • major caribbean islands sprint launched nationwide third generation 3g capability 2002 third quarter capability allows efficient utilization network voice calls made using 3genabled handsets also provides enhanced data services service marketed “pcs vision” allows consumer business customers use visionenabled pcs devices exchange instant messages exchange personal corporate email take send receive pictures play games fullcolor graphics polyphonic sounds browse internet wirelessly speeds 144 kbps average speeds 50 70 kbps pcs group supplements network affiliation arrangements companies use cdma arrangements companies offer pcs services using sprint’s spectrum sprint brand name cdma networks built operated expense several affiliates experiencing financial difficulties evaluating completed restructuring activities two affiliates filed bankruptcy protection made claims sprint bankruptcy courts one affiliate filed suit sprint several affiliates disputing refusing pay amounts owed sprint reserves established expected provide ultimate resolution disputes sprint negotiations affiliates regarding restructuring relationship sprint reached agreements several affiliates including two largest completed restructuring activities sprint amended existing agreements provide simplified pricing mechanism well refining changing various business processes amended agreements cover approximately 40 customers served affiliates agreements provide simplified predictable longterm pricing service bureau fees stability rates charged interarea service fees addition sprint companies settled significant outstanding disputes revised terms agreements expected immaterial impact future pcs group results pcs group also includes investment virgin mobile usa joint venture market wireless services principally youth prepay segments investment accounted using equity method pcs group also provides pcs services companies resell pcs services customers retail basis brand companies bear costs acquisition billing customer service intergroup transactions allocations intergroup transactions pcs group uses long distance operation fon group interexchange carrier purchases wholesale long distance resale customers additionally fon group provides pcs group caller id services various goods services charges pcs group items totaled 675 million 2003 672 million 2002 570 million 2001 also included amounts charges goods capitalized pcs group capitalized charges totaled 6 million 2003 4 million 2002 12 million 2001 service charges less capitalized charges included fon group’s net operating revenues pcs group’s costs services products pcs group provides fon group access network telemarketing various services charges fon group items totaled 9 million 2003 20 million 2001 2002 pcs group credited fon group 46 million credit primarily related proceedings initiated federal communications commission fcc 2001 consider number issues regarding compensation arrangements carriers exchange local long distance traffic including issue whether wireless carriers allowed charge long distance carriers terminating long distance calls wireless customers fon group charges pcs group return investment capital carrying charge use corporate owned capital assets charges pcs group item totaled 42 million 2003 33 million 2002 11 million 2001 amounts included fon group’s nonoperating income pcs group’s operating expenses allocation shared services sprint directly assigns possible certain general administrative costs fon group pcs group based actual use services direct assignment costs possible practical sprint uses indirect methods including time studies estimate allocation costs group cost allocation methods time studies include factors general marketing headcount derived operating unit’s relative share predefined category referenced eg headcount sprint believes costs allocated comparable costs would incurred groups would operating standalone basis fon group provides facilities information services certain services pcs group charges pcs group services totaled 505 million 2003 359 million 2002 236 million 2001 also included amounts charges capitalized pcs group capitalized charges totaled 24 million 2003 20 million 2002 19 million 2001 service charges less capitalized charges included pcs group’s operating expenses increase charges primarily reflects transition pcs group shared facilities managed fon group previously pcs group separate facilities thus direct cost pcs group direct costs facilities dropped proportionately allocated shared services additional costs shared services totaled approximately 10 billion 2003 568 million 2002 542 million 2001 percentage costs allocated pcs group approximately 43 2003 31 2002 23 2001 balance allocated fon group increase total costs shared services driven consolidation sprint’s network information technology billing accounts receivable organizations announced 2002 result synergies consolidations group direct costs services dropped proportionately allocated shared services allocation shared services may change discretion sprint’s board require shareholder approval allocation group financing activities groups managed sprint centralized basis debt incurred sprint behalf groups specifically allocated reflected financial statements applicable group interest expense allocated pcs group based interest rate substantially equal rate would able obtain third parties wholly owned sprint subsidiary without benefit guarantee sprint member fon group interest rate higher rate sprint obtains borrowings difference sprint’s actual interest rate charged pcs group reflected reduction fon group’s interest expense totaled 374 million 2003 336 million 2002 288 million 2001 amounts reflected “intergroup interest charge” consolidated statements operations fon group earned intergroup interest income pcs group incurred intergroup interest expense 15 million 2001 primarily related fon group’s ownership pcs group debt securities sprint redeemed securities 2001 fourth quarter result redemption fon group recognized 11 million pretax gain “other income expense net” pcs group recorded 11 million pretax loss “discount premium early retirement debt” sprint’s centralized cash management program one group may advance funds group advances accounted shortterm borrowings groups bear interest market rate substantially equal rate group would able obtain third parties shortterm basis allocation group financing activities may change discretion sprint’s board require shareholder approval allocation federal state income taxes sprint files consolidated federal income tax return certain state income tax returns include fon group pcs group results sprint adopted tax sharing agreement provided allocation income taxes two groups fon group’s income taxes calculated files returns exclude pcs group pcs group’s income taxes reflect pcs group’s incremental cumulative impact sprint’s consolidated income taxes intergroup tax payments satisfied date sprint’s related tax payment due refund received applicable tax authority original tax sharing agreement applied tax years ending december 31 2001 december 2001 sprint adopted continuation tax sharing arrangement except elimination certain provisions addressing certain types acquisitions restructurings never became operable original agreement income taxes sprint records deferred income taxes based temporary differences carrying amounts assets liabilities financial reporting purposes tax bases revenue recognition sprint recognizes operating revenues accordance staff accounting bulletin 104 revenue recognition operating revenues recognized services rendered products delivered customers certain sprint’s bundled products services determined revenue arrangements multiple deliverables total consideration received arrangements allocated measured using units accounting within arrangement based relative fair values certain installation fees deferred amortized average life service advertising expense sprint recognizes advertising expense incurred expenses include production media promotional sponsorship costs advertising expenses totaled 778 million 2003 863 million 2002 11 billion 2001 cash equivalents cash equivalents generally include highly liquid investments original maturities three months less stated cost approximates market value sprint uses controlled disbursement banking arrangements part cash management program outstanding checks included accounts payable totaled 208 million yearend 2003 192 million yearend 2002 sprint sufficient funds available fund outstanding checks presented payment allowance doubtful accounts reserve reflects estimate accounts receivable collectibility requires management’s judgement based historical trending industry norms recognition current market indicators general economic conditions predictive future economic viability customer base investments debt securities investments marketable debt securities classified available sale reported estimated fair value based quoted market prices interest investments debt securities reinvested recorded “other income expense net” consolidated statements operations gross unrealized holding gains losses reflected consolidated balance sheets adjustments “shareholders’ equityaccumulated comprehensive income loss” net related income taxes investments equity securities investments marketable equity securities classified available sale reported estimated fair value based quoted market prices gross unrealized holding gains losses reflected consolidated balance sheets adjustments “shareholders’ equityaccumulated comprehensive income loss” net related income taxes impairment losses investments equity securities recorded “other income expense net” consolidated statements operations investment’s market value declines sprint’s cost basis temporary basis inventories fon group stated lower cost principally firstin firstout method market value inventories pcs group stated lower cost principally firstin firstout method replacement value property plant equipment property plant equipment recorded cost generally ordinary asset retirements disposals charged accumulated depreciation gain loss recognized cost property plant equipment generally depreciated straightline basis estimated economic useful lives repair maintenance costs expensed incurred capitalized interest capitalized interest totaled 86 million 2003 118 million 2002 174 million 2001 capitalized interest fon group totaled 7 million 2003 18 million 2002 30 million 2001 capitalized interest pcs group totaled 79 million 2003 100 million 2002 144 million 2001 capitalized interest incurred connection pcs group’s fon group’s construction capital assets goodwill intangibles effective january 1 2002 sprint adopted statement financial accounting standards sfas 142 goodwill intangible assets upon adoption statement amortization goodwill indefinite life intangibles ceased accumulated amortization december 31 2001 reduced carrying value assets see note 6 additional information regarding sfas 142 treatment goodwill intangibles goodwill represents excess purchase price fair value net assets acquired business combinations accounted purchases book value goodwill 44 billion yearend 2003 2002 sprint evaluates goodwill impairment annual basis whenever events circumstances indicate assets may impaired sprint determines impairment comparing net assets reporting unit identified sprint’s operating segments respective fair value event unit’s net assets exceed fair value implied fair value goodwill must determined assigning unit’s fair value asset liability unit excess fair value reporting unit amounts assigned assets liabilities implied fair value goodwill impairment loss measured difference goodwill carrying value implied fair value indefinite life intangibles sprint identified spectrum licenses sprint’s trademark indefinite life intangibles considering expected use assets regulatory economic environment within used effects obsolescence use pcs group acquired spectrum licenses fcc operate pcs service provider additionally pcs group incurred costs related microwave relocation constructing pcs network global markets division acquired spectrum licenses broadband fixed wireless companies acquired 1999 spectrum licenses integral operation business fact cannot operate major portions business without long sprint acts within requirements constraints regulatory authorities renewal extension licenses reasonably certain spectrum licenses authorize wireless carriers use radio frequency spectrum renewable reusable resource deplete exhaust time present competing technology horizon would render spectrum obsolete currently changes competitive legislative environments would put question future need spectrum licenses sprint trademark highly respected brand positive connotations current market assessments rank one recognizable brands united states sprint legal regulatory contractual limitations associated trademark sprint cultivates protects use brand sprint evaluates recoverability indefinite lived intangible assets annual basis whenever events circumstances indicate assets might impaired sprint determines impairment comparing asset’s respective carrying value estimates fair value using best information available requires use estimates judgments projections event impairment exists loss recognized based amount carrying value exceeds fair value asset 2003 third quarter global markets division recorded pretax noncash charge 12 billion related writedown fair value mmds spectrum december 31 2003 wireless pcs spectrum trademark value impaired book value indefinite life intangibles 34 billion yearend 2003 46 billion yearend 2002 definite life intangibles definite life intangibles include value sprint’s patents previously included value associated pcs group customer base acquisition 2002 intangible associated pcs customer base approximately 746 million became fully amortized time accumulated amortization reduced carrying value asset sprint evaluates recoverability definite life intangible assets events circumstances indicate assets might impaired sprint determines impairment comparing asset’s respective carrying value estimates sum future cash flows expected result sprint’s asset undiscounted without interest charges carrying amount recoverable amount loss recognized based amount carrying value exceeds fair value asset definite life intangibles amortized useful lives yearend 2003 averaged 10 years amortization assets totaled 1 million 2003 4 million 2002 148 million 2001 restructuring activity june 2002 financial accounting standards board fasb issued sfas 146 accounting costs associated exit disposal activities standard provides accounting guidance costs associated exit disposal activities nullifies emerging issues task force eitf issue 943 liability recognition certain employee termination benefits costs exit activity including certain costs incurred restructuring standard revised guidance liability cost associated exit disposal activity incurred sprint adopted standard effective january 1 2003 restructuring activities occurring date earnings per share earnings per share eps computed individually fon group pcs group part recapitalization class common share owned ft dt reclassified share represented right one share fon stock ½ share pcs stock order give effect ft dt interests determining earnings per share number shares fon stock pcs stock represented shares class common stock included calculation weighted average fon pcs common stock outstanding yearend 2003 shares class common stock outstanding yearend 2001 outstanding class common stock longer represented shares fon stock fon group’s dilutive securities mainly options restricted stock units totaled 23 million shares 2003 12 million shares 2002 2001 dilutive securities dilutive effect loss per share fon group incurred net loss dilutive securities pcs group mainly include options convertible preferred stock restricted stock units equity units securities dilutive effect loss per share pcs group incurred net losses 2003 2002 2001 result diluted loss per share equaled basic loss per share options granted exercise prices currently higher market options considered antidilutive included dilutive calculation fon group’s antidilutive securities totaled 71 million 2003 87 million 2002 36 million 2001 pcs group’s antidilutive securities totaled 63 million 2003 64 million 2002 27 million 2001 effective january 1 2003 sprint adopted sfas 145 rescission fasb statements 4 44 64 amendment fasb statement 13 technical corrections upon adoption statement gains losses extinguishment debt required reported income expense previously reported extraordinary item result sprint restated 2001 eps continuing operations pcs group reflect one cent loss extinguishment debt previously reported extraordinary item stockbased compensation effective january 1 2003 sprint adopted sfas 123 accounting stockbased compensation amended sfas 148 accounting stockbased compensationtransition disclosure amendment fasb statement 123 using prospective method upon adoption sprint began expensing fair value stockbased compensation grants modifications settlements made january 1 2003 following table illustrates effect net income earnings per share stockbased compensation included net income effect net income earnings per share grants issued december 31 2002 sprint applied fair value recognition provisions sfas 123 compensation costs expensed vesting period award using straightline method amount compensation cost recognized date least equal vested portion award sprint recognized pretax charges 37 million related stockbased grants issued 2003 2002 pretax charges 7 million recognized grants restricted stock made 2002 previous years 2003 second quarter sprint recognized pretax charges 15 million noncash expense connection separation agreements sprint william esrey former chairman chief executive officer ronald lemay former president chief operating officer j richard devlin former executive vice presidentgeneral counsel external affairs corporate secretary charges associated accounting modifications accelerated vesting extended exercise periods stock options granted prior periods required sfas 123 fon options exercise prices approximately two times market price modification date pcs options exercise prices five times market price modification date charge earnings second quarter approximately one cent per share fon group pcs group additional 21 million pretax impact separation agreements recognized included pro forma table 2 investments december 31 2003 sprint carried 548 million investment asset value 125 million included “current assetsother” 423 million “other assets” december 31 2002 311 million investment asset value included “other assets” material investment types amounts include investments debt securities second half 2003 sprint invested marketable debt securities amount 500 million interest investments reinvested recognized “other income expense net” consolidated statements operations sprint recognized approximately 3 million interest income investments 2003 accumulated unrealized holding gains immaterial december 31 2003 december 31 2003 investments marketable debt securities totaled 503 million 125 million included “current assetsother” 177 million included “other assets” consolidated balance sheets remaining 201 million original remaining maturities purchase less 90 days included “cash equivalents” sprint marketable debt securities december 31 2002 investments equity securities cost investments marketable equity securities primarily made earthlink common stock 134 million 95 million yearend 2003 2002 respectively accumulated unrealized holding gains 38 million net 23 million tax yearend 2003 comparatively yearend 2002 accumulated unrealized holding losses 12 million net 8 million tax accumulated unrealized holding gains 6 million net 4 million tax gains losses included “accumulated comprehensive income loss” consolidated balance sheets yearend 2003 sprint held 189 million shares earthlink common stock reflected “other assets” consolidated balance sheets shares hedged variable prepaid forward contracts maturing november 2004 november 2005 2003 second quarter sprint sold 108 million earthlink common shares 66 million shares sold earthlink inc open market sprint recognized 3 million loss sales 2001 third quarter sprint sold 184 million common shares earthlink 228 million net loss sale 25 million included “other income expense net” sprint’s consolidated statements operations cost method investments december 31 2003 sprint longer carried cost method investment related earthlink preferred shares 2003 second quarter sprint converted remaining cost method investment earthlink preferred shares 18 million shares earthlink common stock earthlink common stock marketable equity security december 31 2002 sprint’s cost method investment earthlink preferred shares 116 million included “other assets” consolidated balance sheets 2002 second quarter sprint completed analysis valuation investment resulted writedown 241 million market value charge included “other income expense net” sprint’s consolidated statements operations 2002 sprint converted 9 million shares earthlink preferred stock 88 million shares earthlink common stock 2001 sprint converted 93 million shares earthlink preferred stock 89 million shares earthlink common stock equity method investments yearend 2003 2002 investments accounted using equity method consisted primarily pcs group’s investment virgin mobile usa yearend 2001 investments accounted using equity method included pcs group’s investments pegaso telecomunicaciones sa de cv pegaso svc bidco lp bidco virgin mobile usa well fon group’s investments earthlink intelig telecommunicacoes ltda intelig investments reflected “other assets” consolidated balance sheets certain equity method investments carried zero value virgin mobile usa sprint’s investment virgin mobile usa 41 million yearend 2003 101 million yearend 2002 sprint determined virgin mobile usa variable interest entity therefore carries equity investment joint venture virgin group originally entered 2001 fourth quarter virgin mobile usa launched services june 2002 second quarter sprint entered new agreement virgin group funding virgin mobile usa terms agreement sprint agreed fund 150 million majority form discounted network services remainder cash virgin group agreed fund 150 million cash december 31 2003 sprint satisfied 100 cash funding commitment approximately 70 network services contribution additionally 2003 third quarter sprint’s board directors authorized additional cash funding joint venture amount 30 million 20 million provided joint venture december 31 2003 finally 2003 third quarter sprint subsidiary agreed guarantee 20 million termloan facility entered virgin mobile usa fund working capital needs facility expires december 31 2004 required perform sprint would acquire virgin mobile usa’s subscriber base fair value guarantee recorded “noncurrent liabilitiesother” consolidated balance sheets amount 5 million bidco 2002 pcs group’s investment bidco dissolved 2002 fourth quarter sprint received 5 million final share fcc’s return deposit licenses nextwave spectrum auction receiving 38 million 2002 second quarter representing 85 share deposit licenses dissolution 5 million loss recognized pegaso 2002 third quarter pcs group sold investment pegaso telefonica moviles sprint also reached agreement pegaso shareholders pegaso payment connection cancellation sprint’s services contract sprint’s book investment pegaso zero due previous recognition share losses sprint received 28 million telefonica moviles third quarter october 2002 received additional final payment net foreign withholding tax 35 million investment pegaso investments 2002 fourth quarter sprint liquidated partnership received cash proceeds 148 million associated transaction sprint extinguished 150 million borrowing partnership sprint recorded 1 million loss investment 2002 second quarter callnet canadian longdistance provider finalized comprehensive recapitalization proposal altered fon group’s existing ownership investment carried zero value since 2000 fourth quarter sprint invested approximately 16 million new callnet shares part recapitalization since equity method investment sprint recognized previously unrecognized losses amount additional investment additionally sprint callnet agreed new ten year branding technology services agreement sprint receives royalties 2001 third quarter sprint completed analysis valuation investment intelig resulted 157 million writedown charge included “other income expense net” sprint’s consolidated statement operations combined unaudited summarized financial information 100 basis entities accounted using equity method follows 3 financial instruments fair value financial instruments sprint estimates fair value financial instruments using available market information appropriate valuation methodologies result following estimates necessarily represent values sprint could realize current market exchange amounts comprehensively revalued purposes financial statements since december 31 2003 therefore estimates fair value yearend 2003 may differ significantly amounts presented carrying amounts estimated fair values sprint’s financial instruments yearend follows 1 yen held deposit satisfy certain capital lease obligations see note 8 additional information 2 equity units include senior notes 1725 billion purchase contract adjustment payment liability 13 million 2003 31 million 2002 see note 9 information equity units carrying amounts sprint’s cash equivalents approximate fair value yearend 2003 2002 estimated fair value investments securities based quoted market prices estimated fair value longterm debt based quoted market prices publicly traded issues estimated fair value equity units based quoted market prices estimated fair value issues based either blackscholes pricing model present value estimated future cash flows using discount rate based risks involved quoted market prices available accounting derivative instruments accounting standard sfas 133 accounting derivative instruments hedging activities became effective sprint january 1 2001 establishes accounting reporting standards derivative instruments including certain derivative instruments embedded contracts hedging activities requires recognition derivatives balance sheet fair value regardless hedging relationship designation accounting changes fair value derivative instruments depends whether derivatives qualify hedge relationships types relationships designated based exposures hedged changes fair value derivatives designated fair value hedges recognized earnings along fair value changes hedged item changes fair value derivatives designated cash flow hedges recorded comprehensive income loss recognized earnings hedged item affects earnings changes fair value derivative instruments qualify hedge relationship designation recognized earnings risk management policies sprint’s derivative instruments include interest rate swaps stock warrants variable prepaid forward contracts credit forward contracts foreign currency forward contracts sprint’s derivative transactions used principally hedging purposes comply boardapproved policies senior finance management receives frequent status updates outstanding derivative positions sprint enters interest rate swap agreements manage exposure interest rate movements achieve optimal mixture floating fixedrate debt minimizing liquidity risk interest rate swap agreements designated fair value hedges effectively convert sprint’s fixedrate debt floating rate receipt fixedrate amounts exchange floatingrate interest payments life agreement without exchange underlying principal amount sprint enters interest rate swap agreements designated cash flow hedges reduce impact interest rate movements future interest expense effectively converting portion floatingrate debt fixed rate certain business transactions sprint granted warrants purchase securities companies fixed rates warrants supplemental terms business transactions designated hedging instruments sprint enters variable prepaid forward contracts reduce variability expected cash flows related forecasted sale underlying equity securities held available sale sprint enters fair value hedges credit forward contracts hedge changes fair value certain debt issues sprint’s foreign exchange risk management program focuses reducing transaction exposure optimize consolidated cash flow sprint enters forward contracts options foreign currencies reduce impact changes foreign exchange rates sprint’s primary transaction exposure results payments made received overseas telecommunications companies completing international calls made sprint’s domestic customers operation international subsidiaries interest rate swaps interest rate swaps met required criteria derivative accounting rules assumption perfect effectiveness resulting recognition changes fair value earnings life swap sprint held cash flow hedges fair value hedges interest rate swaps periods presented sprint held fair value hedges 2003 sprint recorded 26 million asset 2003 resulting changes fair value interest rate swaps increase value swaps recorded “other assets” consolidated balance sheets swaps deemed perfectly effective offset recorded underlying “longterm debt” 2001 upon adoption sfas 133 sprint recorded cumulative reduction comprehensive income loss 9 million reduction results recognizing fair value interest rate swap cash flow hedges recorded “cumulative effect change accounting principle” consolidated statements comprehensive income loss net derivative losses included accumulated comprehensive income loss december 31 2001 reclassified earnings matured 2002 sprint recorded 12 million pretax increase comprehensive income loss year ended december 31 2002 resulting gains cash flow hedges change comprehensive income loss included “net unrealized gains losses qualifying cash flow hedges” consolidated statements comprehensive income loss sprint recorded 4 million reduction comprehensive income loss year ended december 31 2001 result losses cash flow hedges stock warrants stock warrants designated hedging instruments changes fair value derivative instruments recognized earnings period change sprint’s net derivative losses stock warrants less 1 million 2003 sprint recorded net derivative losses earnings 3 million tax year ended december 31 2002 due changes fair value stock warrants sprint recorded net derivative gains earnings 2 million tax year ended december 31 2001 due changes fair value stock warrants 2001 upon adoption sfas 133 sprint recorded cumulative adjustment net income 2 million net tax 1 million 2 million cumulative adjustment due recognizing fair value stock warrants designated hedging instruments recorded “cumulative effect changes accounting principles net” consolidated statements operations net purchased equity options net purchased equity options embedded variable prepaid forward contracts designated cash flow hedges sprint recorded 37 million tax decrease year ended december 31 2003 comprehensive income loss 17 million tax increase year ended december 31 2002 resulting gains losses cash flow hedges net purchased equity options held year ended december 31 2001 changes comprehensive income loss included “net unrealized gains losses qualifying cash flow hedges” consolidated statements comprehensive income loss credit forward contracts sprint held fair value hedges credit forward contracts 2003 2002 hedge changes fair value certain debt issues high correlation credit forward contracts debt issues hedged fluctuations value credit forward contracts generally offset changes fair value debt issues nominal amount recorded 2003 2002 hedge consolidated statements operations 2003 credit forward contracts settled foreign currency contracts foreign currency forward contracts held period designated hedges defined sfas 133 changes fair value derivative instruments recognized earnings period change sprint outstanding open forward contracts buy various foreign currencies 2 million yearend 2003 2 million yearend 2002 3 million yearend 2001 forward contracts open yearend 2003 2002 2001 original maturities six months less net gain loss recorded reflect fair value contracts recorded period incurred including hedge costs underlying gains losses net losses 2 million 03 million 08 million recorded 2003 2002 2001 concentrations credit risk sprint’s accounts receivable subject concentration credit risk sprint controls credit risk interest rate swap agreements foreign currency contracts credit approvals dollar exposure limits internal monitoring procedures event nonperformance counterparties sprint’s accounting loss would limited net amount would entitled receive terms applicable interest rate swap agreement foreign currency contract however sprint anticipate nonperformance counterparties agreements 4 asset retirement obligations sprint adopted sfas 143 accounting asset retirement obligations january 1 2003 standard provides accounting guidance legal obligations associated retirement longlived assets result acquisition construction development normal operation assets according standard fair value asset retirement obligation aro liability recognized period 1 legal obligation retire longlived asset exists 2 fair value obligation based retirement cost settlement date reasonably estimable upon initial recognition aro liability related asset retirement cost capitalized increasing carrying amount related longlived asset sprint’s network primarily located owned leased property utility easements fon group majority leased property requirement remediation retirement remainder fon group’s leased property predominately pcs group’s leased property potential remediation obligations sprint expects maintain property necessary component infrastructure required maintain fcc licensing calculating required aro liability sprint evaluated extent remediation may requested lessors associated costs likelihood probability lessors require remediation lease agreements timing remediation may occur resultant estimate ultimate disposition requirements immaterial adoption standard january 1 2003 depreciation accretion expense adoption sfas 143 affected cost removal historically recorded fon group’s local division consistent regulatory requirements industry practice local division historically accrued costs removal depreciation reserves costs removal meet sfas 143 definition aro liability upon adoption sfas 143 fon group recorded reduction historical depreciation reserves approximately 420 million remove accumulated excess cost removal resulting cumulative effect change accounting principle credit 258 million net tax consolidated statements operations impact accounting change income loss continuing operations decrease fon group’s 2003 depreciation expense approximately 40 million increase 2003 expenses incurred removal costs approximately 20 million recognized incurred year following table illustrates effect fon group’s net income loss sprint applied sfas 143 2002 2001 5 restructuring asset impairments restructuring activity 2003 fourth quarter sprint recognized charges organizational redesign initiatives restructuring company wide effort create customer focused organization sprint transformation decision resulted pretax charges 59 million 2003 fourth quarter consisting entirely severance costs associated work force reductions connection transformation sprint expects aggregate pretax charge approximately 80 million additional charges employee termination costs recorded subsequent periods impact sprint’s divisions severance charges associated involuntary separation approximately 2000 employees december 31 2003 approximately 800 employee separations completed 2003 fourth quarter pcs group announced termination development new billing platform pcs billing platform termination decisions resulted pretax charges 351 million 2003 fourth quarter charge asset impairments 339 million remaining 12 million accrued contractual obligations 2003 second quarter sprint announced winddown web hosting business restructurings global markets division operations also occurred continuing effort create efficient cost structure global markets web hosting winddown decisions resulted pretax charges 348 million 2003 second quarter 2 million 2003 third quarter 26 million 2003 fourth quarter charge asset impairments 316 million charge employee terminations 15 million remaining 45 million accrued facility lease terminations connection winddown web hosting business sprint record additional charges facility lease terminations customer migration employee termination winddown costs subsequent periods severance charges associated involuntary employee separation approximately 600 employees december 31 2003 approximately 350 employee separations completed sprint expects aggregate pretax charge approximately 440 million sprint expects pay majority severance exit costs next nine months 2002 fourth quarter sprint announced consolidation network information technology billing accounts receivable organizations well areas sprint ongoing effort streamline operations maintain competitive cost structure one sprint consolidation decisions resulted 146 million pretax charge consisting severance costs associated work force reductions totaling 58 million remaining 88 million accrued exit costs primarily associated termination real estate leases severance charge associated involuntary employee separation approximately 2100 employees 2003 fourth quarter sprint completed analysis true original estimates analysis resulted 12 million reduction liabilities remaining commitment reclassified current noncurrent liabilities 2002 fourth quarter pcs group announced would reduce operating expenses work force reduction pcs consolidation action undertaken create competitive cost structure business resulted 43 million pretax charge severance costs totaled 25 million remaining 18 million accrued exit costs primarily associated termination real estate leases severance charge associated involuntary employee separation approximately 1600 employees 2003 fourth quarter sprint completed analysis true original estimates analysis resulted 5 million reduction liabilities remaining commitment reclassified current noncurrent liabilities 2002 third quarter sprint announced restructuring integrating esolutions’ web hosting sales mobile computing consulting marketing product sales support capabilities sprint business integrating esolutions’ customer service operations network services additionally sprint announced global markets division would discontinue offering internally supporting facilitiesbased digital subscriber line dsl services customers collectively global markets consolidation decisions resulted 202 million pretax charge asset impairments 142 million severance costs totaled 22 million remaining 38 million accrued exit costs associated termination real estate leases contractual obligations severance charge associated involuntary employee separation approximately 1100 employees 2003 fourth quarter sprint completed analysis true original estimates analysis resulted 18 million reduction associated asset impairment charge 15 million reduction liabilities remaining commitment reclassified current liabilities 2002 first quarter pcs group announced plans close five pcs customer solution centers well additional steps reduce operating costs network sales distribution customer solutions business units pcs customer service center closures decisions resulted 23 million pretax charge severance costs 13 million remaining 10 million exit costs primarily termination real estate leases severance charge associated involuntary employee separation approximately 2600 employees 2002 third quarter sprint performed analysis finalize restructuring estimates recorded 2002 first quarter analysis resulted 6 million reduction liabilities remaining commitment reclassified current liabilities 2001 fourth quarter sprint terminated efforts provide sprint ion consumer business offerings announced plans reduce operating costs business units comprise fon group efforts included consolidation streamlining marketing network operations well streamlining corporate support functions sprint ion termination decisions resulted 1813 million pretax charge asset impairments 1327 million severance costs totaled 231 million remaining 256 million accrued exit costs including termination supplier agreements real estate leases contractual obligations severance charge associated involuntary employee separation approximately 6000 employees 2002 third quarter sprint performed analysis restructuring estimates recorded 2001 fourth quarter analysis resulted reserve reduction 2002 third quarter 42 million 34 million reduction associated asset impairment charge 2003 fourth quarter sprint completed analysis finalize revised estimates analysis resulted 20 million reduction liabilities remaining commitment reclassified current noncurrent liabilities activity summarized follows 2001 activity related sprint ion termination restructuring included severance cash expenditures 31 million additional pension obligations 40 million exit costs expenditures 7 million 19 million noncash exit costs asset impairments 2003 third quarter fon group’s global markets division recorded pretax noncash charge 12 billion related writedown fair value mmds spectrum sprint’s ongoing evaluation business use asset resulted decision end pursuit residential fixed wireless strategy decision required impairment analysis asset sprint focusing efforts broad range alternative strategies sprint continuing invest spectrum monitoring technology industry developments involved efforts achieve favorable regulatory rulings respect spectrum 2003 first quarter pcs group recorded charge asset impairment 10 million charge associated termination software development project 2002 fourth quarter sprint recorded charges asset impairment 56 million fon group recorded network asset impairment related global markets division 14 million pcs group recorded asset impairment 42 million representing abandoned network projects 6 goodwill intangible assets sprint adopted sfas 142 january 1 2002 standard prescribes accounting treatment identifiable intangibles goodwill initial recognition upon adoption standard amortization goodwill indefinite life intangibles ceased accumulated amortization december 31 2001 reduced carrying value assets periodic impairment testing assets required definite life intangibles continue amortized useful lives sprint identified spectrum licenses include related microwave relocation costs trademark indefinite life intangibles 2003 third quarter fon group’s global markets division recorded pretax noncash charge 12 billion asset impairment expense related writedown fair value mmds spectrum sprint’s ongoing evaluation business use asset resulted decision end pursuit residential fixed wireless strategy decision required impairment analysis asset using comparable market prices sprint focusing efforts broad range alternative strategies sprint continuing invest spectrum monitoring technology industry developments involved efforts achieve favorable regulatory rulings respect spectrum goodwill indefinite life intangibles tested impairment 2003 fourth quarter impairment existed following pro forma table adjusts net income loss basic diluted earnings loss per share 2001 exclude amortization net related tax effects goodwill indefinite lived intangibles 7 shortterm borrowings current maturities longterm debt sprint’s consolidated shortterm borrowings current maturities longterm debt yearend follows 1 borrowings incurred financing agreement entered 2002 secure repayment loans lenders granted security interest certain fon group trade accounts receivable sprint’s weighted average interest rate related borrowings 25 yearended 2002 2 result fon group’s repayment senior notes allocated debt reflected intergroup debt eliminated consolidated balance sheet yearend 2003 11 billion current maturities intergroup debt pcs group balance sheet comprised senior notes purchased fon group first third quarters 2003 result fon group’s prepayment notes allocated debt reflected intergroup debt pcs group balance sheet intergroup debt eliminated consolidated balance sheet 2003 third quarter sprint repaid scheduled maturities 334 million current maturities longterm debt consisted 34 million senior notes interest rates ranging 57 59 300 million export development canada loan interest rate 28 sprint recorded discount 3 million associated repayment senior notes june 2003 sprint entered new revolving credit facility syndicate banks 10 billion facility unsecured springing liens structured 364day credit line subsequent oneyear 10 billion termout option sprint intend draw facility march 2003 sprint completed tender offer purchase 442 million principal amount current senior notes scheduled maturity notes interest rate 57 maturity date november 15 2003 premium 6 million paid part tender offer notes allocated pcs group reflected longterm debt pcs group paid 36 million total fon group 2003 fourth quarter scheduled pay remaining 406 million 2004 second quarter march 2003 sprint completed tender offer purchase 635 million principal amount longterm senior notes scheduled maturity notes allocated pcs group reflected longterm debt time tender offer pcs scheduled repay fon group borrowing 2004 second quarter yearend 2003 allocated debt reflected current maturities intergroup debt pcs group balance sheet see discussion note 8 february 2003 sprint prepaid 455 million balance outstanding relating global markets division accounts receivable asset securitization facility yearend 2003 sprint total unused lines credit 22 billion addition sprint standby letters credit serving backup various obligations approximately 134 million yearend 2003 borrowings sprint may incur ultimately limited certain debt covenants sprint could borrow additional 67 billion yearend 2003 restrictive debt covenants restrictive covenant contained new revolving credit facility referenced exhibit 10c annual report form 10k limits debt defined agreement multiple income adjusted various items set forth agreement restrictive covenant contained pcs group global markets division accounts receivable asset securitization facilities sprint currently compliance debt covenants associated borrowings 8 longterm debt capital lease obligations sprint’s consolidated longterm debt capital lease obligations yearend follows 1 borrowings incurred sprint allocated applicable group sprint’s weighted average effective interest rate related borrowings 72 yearended 2003 73 yearended 2002 2003 effective interest rate includes effect interest rate swap agreements see note 3 details regarding interest rate swaps weighted average effective interest rate related borrowings allocated pcs group approximately 90 yearended 2003 91 yearended 2002 see note 1 detailed description sprint allocates financing groups 2 result fon group’s prepayment senior notes allocated debt reflected intergroup debt eliminated consolidated balance sheet scheduled principal payments next five years follows included schedule payments made connection various capital lease obligations substantial portion capital lease payments japanese yen sprint already satisfied obligation depositing present value future yen payment obligations various banks amounts included consolidated balance sheet “other assets” based december 31 2003 outstanding balances total japanese capital lease payments included schedule 28 million 2004 60 million 2005 104 million 2006 6 million 2007 2003 third quarter sprint repaid scheduled maturities 84 million local division’s first mortgage bonds interest rates ranging 91 93 maturity dates ranging 2019 2021 sprint recorded premium 5 million associated repayment march 2003 sprint completed tender offer purchase 635 million principal amount longterm senior notes scheduled maturity notes interest rate 59 maturity date may 1 2004 premium 13 million paid part tender offer notes allocated pcs group reflected longterm debt time tender offer result fon group’s repayment notes allocated debt reflected intergroup debt pcs group balance sheet notes scheduled paid fon group 2004 second quarter yearend 2003 allocated debt reflected current maturities intergroup debt pcs group balance sheet intergroup debt eliminated consolidated balance sheet december 2002 sprint repaid 150 million notes payable relating revolving credit facility sprint made 150 million investment entity provided credit time formed 1997 sprint liquidated investment received cash distribution approximating original investment december 2002 sprint repaid scheduled maturities 67 million longterm unsecured debt allocated fon group borrowings interest rates ranging 60 71 maturities ranging 2006 2008 resulted discount 4 million sprint march 2002 sprint issued 5 billion debt securities private placement borrowings interest rates ranging 79 88 maturities ranging 2005 2032 proceeds allocated 5 fon group 95 pcs group used repay debt general corporate purposes condition sale securities sprint conducted exchange offer allowed original securities exchanged substantially identical securities registered securities exchange commission sec exchange offer completed june 2002 2001 fourth quarter sprint issued 175 billion debt securities private placement borrowings interest rate 60 mature 2007 proceeds allocated approximately 60 fon group 40 pcs group used repay debt fund capital investments working capital requirements condition sale securities sprint conducted exchange offer allowed original securities exchanged substantially identical securities registered sec exchange offer terminated february 2002 2001 fourth quarter sprint redeemed scheduled maturities 558 million senior notes senior discount notes pcs group notes interest rates ranging 110 125 resulted discount sprint 6 million charge “other income expense net” 7 million related recognition deferred debt costs 2001 first quarter sprint repaid scheduled maturities 18 million first mortgage bonds allocated fon group bonds interest rate 99 resulted charge “other income expense net” 1 million related recognition deferred debt costs 2001 first quarter sprint issued 24 billion debt securities borrowings interest rates ranging 71 76 mature 2006 2011 proceeds allocated pcs group used repay debt fund capital investments working capital requirements substantially sprint’s senior notes including senior notes issued connection sprint’s equity units issued sprint capital corporation whollyowned finance subsidiary fully unconditionally guaranteed sprint parent corporation indentures financing agreements certain subsidiaries contain provisions limiting cash dividend payments subsidiary common stock held sprint result 551 million subsidiaries’ 30 billion total retained earnings restricted yearend 2003 flow cash form advances subsidiaries sprint generally restricted december 2003 960 million debt outstanding represents first mortgage debt capital lease obligations secured 155 billion gross property plant equipment sprint complied restrictive financial covenants relating debt arrangements yearend 2003 9 equity unit notes 2001 third quarter sprint completed registered offering 69 million equity units stated amount 25 net proceeds issuance approximately 17 billion deducting underwriting discount offering expenses proceeds allocated pcs group used repay debt fund capital investments working capital requirements equity unit initially consists corporate unit corporate unit consists purchase contract 25 principal amount senior notes sprint’s wholly owned subsidiary sprint capital corporation corporate unit may converted holder treasury unit consisting purchase contract treasury portfolio zerocoupon us treasury securities substituting treasury securities notes holder equity unit owns underlying notes treasury portfolio pledges notes portfolio sprint secure obligations purchase contract purchase contract component equity unit purchase contract obligates holder purchase obligates sprint sell august 17 2004 variable number newly issued shares pcs common stock ranging approximately 58 million 70 million shares depending market price pcs common stock december 31 2003 market prices sprint would obligated issue maximum number shares sprint make quarterly contract adjustment payments 1125 25 stated amount per year purchase contract settled although right defer payments august 17 2004 fair value obligation classified liability consolidated balance sheets contingently issuable shares included diluted earnings per share calculation effect currently antidilutive notes initially bear interest payable quarterly arrears rate 6 per annum sprint obligated remarket notes 2004 time interest rate reset notes mature august 17 2006 event failed remarketing sprint exercise rights secured party notes pledged sprint collateral purchase contracts use working capital would required retire notes event notes classified longterm consolidated balance sheets corporate units listed new york stock exchange symbol “sde” 10 redeemable preferred stock redeemable preferred stock outstanding yearend follows seventh series preferred stock part pcs restructuring sprint issued cable partners new series convertible preferred stock currently convertible approximately 65 pcs shares seventh series share converted holder earlier redeemed sprint seventh series preferred stock become mandatorily redeemable tenth anniversary pcs restructuring 2008 fifth series preferred stock sprint’s fifth series preferred stock redeemed full 2003 sprint holder fifth series preferred stock agreed sprint would repurchase outstanding shares march 14 2003 repurchase price 100000 per share plus accrued dividends 11 common stock first quarter 2003 france telecom converted 344 million shares series 3 pcs common stock shares series 1 pcs common stock time ft converted 216 million shares pcs common stock underlying class ft common stock series 1 pcs common stock upon issuance pcs shares underlying class ft common stock underlying shares pcs fon stock par value class ft common stock automatically reduced 000 per share 050 per share according amended schedule 13d filed ft sec sold shares series 1 pcs common stock june 2003 fourth quarter 2003 class ft shares cancelled result neither france telecom deutsche telekom shares class common stock pcs common stock fon common stock 2001 fourth quarter 04 million shares pcs common stock underlying class dt common stock converted shares series 1 pcs common stock conversion class dt shares cancelled 2001 third quarter sprint completed registered offering 235 million shares series 1 pcs common stock net proceeds issuance approximately 561 million deducting underwriting discount offering expenses proceeds used repay debt fund capital investments working capital requirements conjunction offering dt sold 57 million shares pcs common stock sprint receive proceeds sale shares dt upon sale 212 million shares pcs common stock underlying class dt common stock 358 million shares series 3 pcs common stock converted shares series 1 pcs common stock 2001 second quarter sprint completed registered offering behalf ft dt sold 1748 million shares fon common stock sprint receive proceeds offering upon sale 862 million shares fon common stock underlying class common stock 886 million shares series 3 fon common stock converted shares series 1 fon common stock classes common stock series 1 fon common stockdesignated general publicat end 2003 authorized shares totaled 25 billion issued outstanding shares totaled 9043 million series 1 pcs common stockdesignated general publicat end 2003 authorized shares totaled 30 billion issued outstanding shares totaled 8480 million series 2 fon common stockdesignated cable partnersat end 2003 authorized shares totaled 500 million shares issued series 2 pcs common stockdesignated cable partnersat end 2003 authorized shares totaled 10 billion issued outstanding shares totaled 1874 million common stock reserved future grants yearend 2003 common stock reserved future grants stock option plans employees stock purchase plan future issuances various arrangements follows sprint fon group sprint pcs group shareholder rights plan sprint’s shareholder rights plan one half preferred stock purchase right attached share fon stock pcs stock rights may redeemed sprint 001 per right expire june 2007 unless extended rights exercisable certain takeover events occur entitled following • fon stock right entitles holder purchase 11000 share unit par preferred stocksixth series 275 per unit • pcs stock right entitles holder purchase unit par preferred stockeighth series 150 per unit preferred stocksixth series voting cumulative accrues dividends quarterly basis generally equal greater 100 per share 2000 times total per share amount fon common stock dividends preferred stockeighth series features sixth series applies pcs shares preferred stocksixth series preferred stockeighth series issued outstanding yearend 2003 2002 12 stockbased compensation effective january 1 2003 sprint adopted sfas 123 amended sfas 148 using prospective method upon adoption sprint began expensing fair value stockbased compensation grants modifications settlements made january 1 2003 fon group paid 10 million pcs group compensate net amount pcs stockbased compensation granted fon group employees less fon stockbased compensation granted pcs group employees fon group paid pcs group 73 million 2002 160 million 2001 stockbased compensation value paid stockbased compensation determined time grants 2000 sprint board directors approved exchange program give sprint employees election cancel stock options granted 2000 exchange equal number new options granted future generally extended vesting schedules members sprint’s board directors eligible exchange program terms exchange program 162 million fon options 131 million pcs options cancelled november 10 2000 new options granted may 11 2001 exercise price market price date total 157 million fon options 124 million pcs options granted management incentive stock option plan management incentive stock option plan misop 2003 sprint granted stock options employees eligible receive annual incentive compensation eligible employees could elect receive stock options lieu portion target incentive sprint’s annual incentive compensation plans options generally became exercisable december 31 year granted maximum term 10 years misop sprint also granted stock options executives lieu longterm incentive compensation ltipmisop options ltipmisop options generally become exercisable third december 31 following grant date maximum term 10 years misop options granted exercise prices equal market price underlying common stock grant date yearend 2003 plan authorized options buy approximately 500 million fon shares approximately 410 million pcs shares many granted december 2003 board directors passed resolution capping shares authorized misop plan current level additional shares authorized amended terms plan 2004 2005 longterm stock incentive program 1997 longterm stock incentive program 1997 program sprint grant stock options restricted stock restricted stock units equity based awards directors employees board directors adopted stock option plan sop restricted stock plan pursuant 1997 program predecessor plan 2004 awards stock options generally made sop awards restricted stock made restricted stock plan certain awards restricted stock units granted executive officers directors 2003 made directly 1997 program february 2004 board directors combined sop restricted stock plan 1997 program future stock options restricted stock restricted stock units equity awards made directly shares authorized 1997 program 1997 program evergreen plan means number shares available grant increases year 2007 awards may granted plan january 1 2004 number shares authorized 1997 program increased approximately 136 million fon shares 155 million pcs shares employees directors granted restricted stock units required pay shares must remain employed sprint member board directors restrictions shares lapse restricted stock units granted 2003 officers generally vest rate 333 per year beginning one year grant date restricted stock units granted 2003 directors vest three years sop sprint granted stock options directors employees options generally become exercisable rate 25 per year beginning one year grant date maximum term 10 years sop options granted exercise prices equal market price underlying common stock grant date yearend 2003 plan authorized options buy approximately 748 million fon shares approximately 617 million pcs shares many granted extent options granted time plans combined shares remained available grant options 1997 program combination plans first quarter 2003 sprint entered employment contract gary forsee serve sprint’s chief executive officer chairman board employment contract sprint granted stock options mr forsee vest subject continued employment sprint early 2001 sprint entered new employment contracts mr esrey mr lemay second quarter 2003 contracts terminated connection separation agreements agreed sprint mr esrey mr lemay separation agreements included option modifications accelerated vesting extended exercise periods stock options granted prior years sprint’s restricted stock plan sprint granted restricted stock officers key employees granted restricted stock required pay shares must remain employed sprint restrictions shares lapse restricted stock generally vests rate 333 per year beginning one year grant date yearend 2003 plan authorized issuance approximately 27 million fon shares 26 million pcs shares available grant restricted stock 1997 program combination plans employees stock purchase plan sprint’s espp employees may elect purchase fon common stock pcs common stock price equal 85 market value grant exercise date whichever less yearend 2003 plan authorized purchase approximately 149 million fon shares approximately 400 million pcs shares elections made employees participating 2003 offering espp purchase 2004 approximately 18 million fon shares 72 million pcs shares 2003 amendment sprint’s espp established annual purchase date end offering period lieu interim quarterly purchases fair value disclosures following tables reflect weighted average fair value per option granted well significant weighted average assumptions used determining fair values using blackscholes pricing model 2001 two sop grants presented result exchange program individuals accept excluded exchange program granted 2001 sop options january accepted exchange program granted 2000 2001 sop options may accordance terms offer fon common stock pcs common stock employees stock purchase plan 2003 espp offering employees elected purchase approximately 18 million fon 72 million pcs shares using blackscholes pricing model weighted average fair value 411 per share fon election 252 per share pcs election 2002 espp offering employees purchased approximately 42 million fon 87 million pcs shares using blackscholes pricing model weighted average fair value 189 per share fon election 145 per share pcs election 2001 espp offering employees purchased approximately 20 million fon 55 million pcs shares using blackscholes pricing model weighted average fair value 437 per share fon election 792 per share pcs election stock options activity sop misop follows fon common stock pcs common stock following tables summarize outstanding exercisable options yearend 2003 fon common stock pcs common stock 13 employee benefit plans defined benefit pension plan sprint employees covered noncontributory defined benefit pension plan benefits plan participants belonging unions based negotiated schedules nonunion participants pension benefits based years service participants’ compensation sprint uses december 31 measurement date defined benefit pension plan following table shows changes projected benefit obligation plan’s accumulated benefit obligation 3730 million december 31 2003 3255 million december 31 2002 following table shows changes plan assets yearend funded status amounts recognized consolidated balance sheets plan follows amounts recognized consolidated balance sheets consist amounts consolidated balance sheets include accrued pension expense 426 million yearend 2003 718 million yearend 2002 fon group 127 million yearend 2003 89 million yearend 2002 pcs group accordance sfas 87 employers’ accounting pensions yearend 2003 2002 sprint recorded additional minimum pension liability representing excess unfunded accumulated benefit obligation plan assets accrued pension costs recognition additional pension liability also resulted intangible asset equal unrecognized prior service costs charge equity comprehensive income loss following table sets forth amounts yearended 2003 2002 tax effect charge “accumulated comprehensive income loss” 12 million 2003 444 million 2002 resulted net charge “accumulated comprehensive income loss” 8 million yearended 2003 691 million yearended 2002 fon group resulted net charge “accumulated comprehensive income loss” 17 million yearended 2003 22 million yearended 2002 pcs group net pension expense credit consisted following net periodic pension expense credit fon group 64 million 2003 26 million 2002 66 million 2001 net periodic pension expense credit pcs group 44 million 2003 24 million 2002 18 million 2001 weightedaverage assumptions used determine net periodic pension costs weighted average assumptions used determine benefit obligations december 31 2003 assumption regarding expected longterm rate return plan assets 90 set assuming longterm return equities would 103 based historical performance past 75 years trust’s investments would generate longterm return 60 based advice independent consultants beginning 2003 assumption chosen investment policy called 75 target weighting equities weighted average two assumed returns approximately 90 plan’s asset allocations december 31 2003 2002 asset category follows pension trust invested welldiversified portfolio securities pension savings trust committee established investment policy specifies asset allocation targets ranges trust equities 65 10 debt 15 5 real estate 10 5 alternatives 10 5 revision investment policy 2003 increased allocation real estate introduced new category defined alternatives asset category diversified portfolio investments consisting equity fixedincome instruments 2003 contribution 400 million temporarily invested debt securities suitable real estate alternatives investments identified funding real estate alternatives categories expected completed 2004 pension trust holds sprint securities sprint contributed 300 million pension plan january 27 2004 contribution expected made 2004 following benefit payments reflect expected future service appropriate expected paid defined contribution plans sprint sponsors defined contribution savings plans covering employees participants may contribute portions pay plans union employees sprint matches contributions based negotiated amounts sprint matches contributions nonunion employees fon stock pcs stock matching contribution equal 25 participants’ contributions 6 pay second half 2003 75 first half 2003 2002 2001 matching contribution equal 50 participants’ contributions 6 pay addition sprint may discretion board directors provide additional matching contributions based performance fon stock pcs stock compared dow jones total market telecom index sprint’s total matching contributions 72 million 2003 84 million 2002 103 million 2001 fon group recorded expenses 64 million 2003 62 million 2002 85 million 2001 sprint’s matching contributions pcs group recorded matching contribution expenses 8 million 2003 22 million 2002 18 million 2001 postretirement benefits sprint provides postretirement medical benefits employees postretirement life insurance retirees employees retired certain dates eligible benefits cost reduced cost employees retire certain dates eligible benefits sharedcost basis sprint funds accrued costs benefits paid sprint uses december 31 measurement date postretirement benefit plans medicare prescription drug improvement modernization act 2003 act signed law president bush december 8 2003 act contains subsidies employers provide prescription drug coverage retirees accordance fasb staff position fas 1061 measures accumulated post retirement benefit obligation net periodic benefit cost financial statements note reflect effects act plan specific authoritative accounting guidance act yet issued yet resolved fasb issued sprint apply guidance required 2001 third quarter sprint adopted amendments two postretirement benefit plans result amendments life insurance benefit eliminated employees retiring 2003 postretirement medical insurance plan replaced sprintfunded account managed employee plan amendment sprint retiree medical insurance plan reduced accumulated postretirement benefit obligation reduced employee benefits attributed employee service already rendered sprint recognized curtailment gain amendment 120 million 75 million tax following table shows changes accumulated postretirement benefit obligation amounts included consolidated balance sheets yearend follows amounts accrued postretirement benefit costs included consolidated balance sheets 881 million yearend 2003 902 million yearend 2002 fon group 5 million yearend 2003 3 million yearend 2002 pcs group net postretirement benefits cost consisted following weightedaverage assumptions used determine net periodic postretirement benefit costs fon group recorded net periodic postretirement benefit expense 53 million 2003 29 million 2002 45 million 2001 pcs group recorded net periodic postretirement benefit expense 1 million 2003 2002 2001 assumed health care cost trend rates december 31 assumed health care cost trend rates significant effect amounts reported health care plans onepercentagepoint change assumed health care cost trend rates would following effects details plan assets investment policies strategies assumptions provided based immateriality sprint plans contribute postretirement benefit plan amount equal value benefits premiums paid following benefit payments reflect expected future service appropriate expected paid 14 income taxes income tax expense benefit allocated continuing operations consists following differences caused sprint’s effective income tax rates vary 35 federal statutory rate income taxes related continuing operations follows income tax expense benefit allocated items follows 1 amounts recorded directly “shareholders’ equityaccumulated comprehensive income loss” consolidated balance sheets 2 amounts recorded directly “shareholders’ equitycapital excess par stated value” consolidated balance sheets sprint recognizes deferred income taxes temporary differences carrying amounts assets liabilities financial statement purposes tax bases sources differences give rise deferred income tax assets liabilities yearend 2003 2002 along income tax effect follows management believes likely deferred income tax assets net valuation allowance realized based current income tax laws expectations future taxable income stemming reversal existing deferred tax liabilities ordinary operations uncertainties surrounding income tax law changes shifts operations state taxing jurisdictions future operating income levels may however affect ultimate realization deferred income tax assets valuation allowance related deferred income tax assets increased 47 million 2003 decreased 113 million 2002 sprint reached definitive agreement sell directory publishing business rh donnelley due anticipated gain sale sprint recognized 292 million tax benefits third quarter 2002 previously recorded investment losses foreign component income loss continuing operations totaled 141 million 273 million 234 million 2003 2002 2001 respectively 1999 sprint acquired approximately 193 million potential tax benefits related net operating loss carryforwards acquisitions broadband fixed wireless companies 1998 sprint acquired approximately 229 million potential tax benefits related net operating loss carryforwards pcs restructuring benefits acquisitions pcs restructuring subject certain realization restrictions various tax laws valuation allowance provided total benefits subsequently recognized reduce goodwill intangibles resulting application purchase method accounting transactions connection pcs restructuring pcs group required reimburse fon group cable partners net operating loss tax credit carryforward benefits generated pcs restructuring realization pcs group produces cash benefit would otherwise realized reimbursement equal 60 net cash benefit received pcs group made fon group cash cable partners shares sprint stock carryforward benefits subject requirement total 259 million includes 229 million acquired pcs restructuring yearend 2003 sprint federal operating loss carryforwards approximately 59 billion state operating loss carryforwards approximately 116 billion related loss carryforwards federal tax benefits 21 billion state tax benefits 808 million addition sprint available income tax purposes federal alternative minimum tax net operating loss carryforwards 44 billion state alternative minimum tax net operating loss carryforwards 920 million loss carryforwards expire varying amounts 2023 sprint also available 398 million federal state income tax credit carryforwards yearend 2003 included amount 292 million income tax credits expire varying amounts 2023 remaining 106 million expire 15 discontinued operations 2002 third quarter sprint reached definitive agreement sell directory publishing business rh donnelley 223 billion cash sale closed january 3 2003 pretax gain recognized 2003 214 billion 132 billion tax accordance sfas 144 accounting impairment disposal longlived assets sprint presented assets liabilities results operations directory publishing business discontinued operation consolidated financial statements summary financial information follows 16 commitments contingencies litigation claims assessments march 2003 settlements subject court approval announced derivative action securities class action filed institutional stockholders settlements approved december 2003 derivative settlement includes adoption certain corporate governance enhancements certain restrictions stock options individual defendants payment plaintiff’s attorneys’ fees sprint stock sprint recognized 5 million 2003 first quarter “other income expense net” securities class action settlement provides payment total 50 million plaintiff class sprint recognized 45 million representing settlement amount net undisputed insurance coverage 2003 first quarter “other income expense net” 2003 third fourth quarters sprint recorded total 35 million insurance recoveries related action sprint expect recover additional insurance related action number putative class action cases allege sprint failed obtain easements property owners installation fiber optic network filed various courts several cases sought certification nationwide classes one case nationwide class certified however nationwide settlement claims approved us district court northern district illinois enjoined similar cases objectors appealed preliminary approval order injunction seventh circuit court appeals 2001 sprint accrued estimated settlement costs suits july 2002 federal communications commission released declaratory ruling matter referred federal district court western district missouri sprint’s suit att corporation collection terminating access charges fcc ruled although nothing prohibited wireless carriers charging access networks interexchange carriers required pay charges absent contractual obligation decision affirmed dc circuit court appeals management believes adequate provisions recorded pcs group’s results operations april may 2003 three putative class action lawsuits filed us district court district kansas individual participants sprint retirement savings plan centel retirement savings plan bargaining unit employees sprint corporation committees administer two plans various current former officers sprint november 2003 consolidated amended complaint filed naming additional officers directors fidelity management plan trustee defendants december 2003 two additional complaints making identical allegations filed lawsuits consolidated single judge lawsuits allege defendants breached fiduciary duties plans violated erisa statutes including fon pcs stock among thirty investment options offered plan participants lawsuits seek recover decline value fon pcs stock class period various suits proceedings claims including purported class actions typical business enterprise pending sprint possible determine ultimate disposition proceedings whether resolved consistent sprint’s beliefs sprint expects outcome proceedings individually aggregate material adverse effect financial condition results operations sprint business segments commitments fon group minimum purchase commitments various vendors 2009 outstanding commitments yearend 2003 approximately 12 billion 900 million yearend 2002 outstanding commitments consist primarily network equipment maintenance access commitments advertising marketing expenses related normal business operations well 2003 commitments related information technology services approximately 70 2003 purchase commitment incurred within next twelve months pcs group minimum purchase commitments various vendors 2008 outstanding commitments yearend 2003 approximately 18 billion 16 billion yearend 2002 outstanding commitments consist primarily network equipment maintenance handset purchases access commitments information technology services advertising marketing expenses related normal business operations well 2003 commitments related customer support provided third parties approximately 35 2003 purchase commitment incurred within next twelve months operating leases sprint’s minimum rental commitments yearend 2003 noncancelable operating leases consisting mainly leases data processing equipment real estate cell switch sites office space follows sprint’s gross rental expense totaled 12 billion 2003 13 billion 2002 12 billion 2001 rental commitments subleases contingent rentals executory costs significant table excludes renewal options related certain cell switch site leases renewal options subject escalation clauses generally fiveyear terms 17 additional financial information segment information sprint divided three segments global markets division local division pcs wireless telephony products services business also known pcs group consists primarily wholesale distribution telecommunications products sprint manages segments operating income loss level reporting items operating income loss held corporate level attributed fon group pcs group reconciliation operating income loss net income loss shown face consolidated statements operations consolidation information sprint generally accounts transactions segments based fully distributed costs sprint believes approximate fair value certain transactions pricing set using market rates segment financial information follows nm meaningful 1 affiliated revenues 2002 net adjustment wireless access revenue previously recorded global markets division pcs group 2 revenues eliminated consolidation consist primarily local access charged global markets division local division equipment purchases product distribution business interexchange services provided local division long distance services provided pcs group resale pcs customers internal business use caller id services provided local division pcs group handset purchases pcs group access pcs network corporate capital expenditures incurred mainly sprint’s world headquarters campus 3 see note 5 notes consolidated financial statements additional information 2003 2002 2001 94 sprint’s revenues equipment services provided within united states 98 sprint’s property plant equipment united states equipment sales one retail chain subsequent service revenues generated sales customers represent approximately 21 pcs group’s net operating revenues 2003 22 2002 24 2001 net operating revenues product services follows 1 beginning 2002 equipment revenue periods presented reported part revenues reclassification impact total net operating revenues 2 revenues eliminated consolidation consist primarily local access charged global markets division local division equipment purchases product distribution business interexchange services provided local division long distance services provided pcs group resale pcs customers internal business use caller id services provided local division pcs group handset purchases pcs group access pcs network 3 prior 2003 elimination information global markets division tracked specific products services level eliminations considered voice revenues allowance doubtful accounts sprint’s allowance doubtful accounts follows supplemental cash flows information sprint’s cash paid received interest income taxes follows sprint’s noncash activities included following pro forma information longterm disability plan fourth quarter 2003 conjunction periodic review liability medical coverage participants sprint’s long term disability plan determined liability balance sheet relating costs incurred periods prior 2003 understated 114 million expense properly recorded years ended december 31 2002 december 31 2001 would decreased annual earnings per share fon group less 002 per share prior periods would impacted pcs group’s reported loss per share periods impact prior years’ annual financial statements material sprint recorded additional expense 114 million 72 million aftertax 2003 fourth quarter appropriately reflect liability december 31 2003 adjustment decreased fon group’s earnings continuing operations 2003 fourth quarter 66 million increased pcs group’s loss continuing operations 6 million liability understated principally reliance inaccurate report identifying plan participants process corrections instituted accurately report information future expense properly recorded respective periods would impacted annual income loss continuing operations net income amount impact annual income loss continuing operations diluted earnings loss per common share shown 18 recently issued accounting pronouncements december 2003 fasb revised sfas 132 employers’ disclosures pensions postretirement benefits statement adds disclosures required sfas 132 effective 2003 yearend financial statements additional disclosures required types assets plan investment policies plan obligations plan contributions defined benefit pension plans defined benefit postretirement plans interim periods beginning december 15 2003 additional disclosures required net periodic benefit cost plan contributions guidance change requirements measurement recognition pension postretirement benefit plans prescribed sfas 87 employers’ accounting pensions sfas 88 employers’ accounting settlements curtailments defined benefit pension plans termination benefits sfas 106 employers’ accounting postretirement benefits pensions sprint adopted statement effective december 31 2003 see note 13 discussion 19 quarterly financial data unaudited 1 effects including incremental shares associated options restricted stock units espp shares antidilutive basic earnings per share diluted earnings per share reflect calculation fon group 2003 third quarter pcs group reported periods 20 subsequent events unaudited dividend declaration february 2004 sprint’s board directors declared dividends 125 cents fon common stock dividends paid march 31 2004 virgin mobile usa february 2004 sprint’s board directors authorized additional cash funding joint venture approximately 22 million recombination tracking stock february 28 2004 sprint’s board directors decided recombine tracking stocks return single common stock result share pcs common stock convert automatically 050 shares fon common stock april 23 2004 fon stock represent outstanding common stock sprint recombination sprint continue present consolidated financial information include group level information recombination impact sprint’s current presentation required segment information litigation resultant recombination early march 2004 six purported class action lawsuits relating recombination tracking stocks filed sprint directors pcs common stockholders one suit filed supreme court state new york state’s trial court remaining five filed district court johnson county kansas actions allege breach fiduciary duty connection approval recombination seek injunctive relief monetary damages new directors march 2004 two new independent directors gordon bethune chairman board chief executive officer continental airlines inc deborah henretta president proctor gamble’s global baby care division appointed sprint board directors sprint corporation schedule iiconsolidated valuation qualifying accounts years ended december 31 2003 2002 2001 1 accounts written net recoveries prior period amounts restated reflect results sprint’s directory publishing business sold january 2003 discontinued operation item 15 exhibits financial statement schedules 1 consolidated financial statements sprint corporation filed part annual report listed index consolidated financial statements 2 consolidated financial statements clearwire corporation date acquisition filed part annual report listed index consolidated financial statements 3 exhibits filed part annual report listed exhibit index signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized sprint corporation registrant marcelo claure marcelo claure chief executive officer president date may 17 2016 pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities indicated 17th day may 2016 marcelo claure marcelo claure chief executive officer president principal executive officer tarek robbiati tarek robbiati chief financial officer principal financial officer paul w schieber jr paul w schieber jr vice president controller principal accounting officer signatures sprint corporation registrant pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities indicated 17th day may 2016 masayoshi son marcelo claure masayoshi son chairman marcelo claure director ronald fisher julius genachowski ronald fisher vice chairman julius genachowski director nikesh arora michael g mullen nikesh arora director michael g mullen director robert r bennett sara martinez tucker robert r bennett director sara martinez tucker director gordon bethune gordon bethune director exhibit index exhibit description form incorporated reference filedfurnished herewith sec file exhibit filing date 101 formatted xbrl extensible business reporting language 101ins xbrl instance document 101sch xbrl taxonomy extension schema document 101cal xbrl taxonomy extension calculation linkbase document 101def xbrl taxonomy extension definition linkbase document 101lab xbrl taxonomy extension label linkbase document 101pre xbrl taxonomy extension presentation linkbase document filed furnished required schedules andor exhibits filed furnished sec upon request pursuant item 601b2 regulation sk sprint corporation index consolidated financial statements index consolidated financial statements report independent registered public accounting firm board directors stockholders sprint corporation overland park kansas audited accompanying successor consolidated balance sheets sprint corporation subsidiaries company march 31 2016 2015 related successor consolidated statements operations comprehensive loss cash flows stockholders equity years ended march 31 2016 2015 threemonth period ended march 31 2014 year ended december 31 2013 also audited companys internal control financial reporting march 31 2016 based criteria established internal control integrated framework 2013 issued committee sponsoring organizations treadway commission companys management responsible consolidated financial statements maintaining effective internal control financial reporting assessment effectiveness internal control financial reporting included accompanying managements report internal control financial reporting responsibility express opinion consolidated financial statements opinion companys internal control financial reporting based audits conducted audits accordance standards public company accounting oversight board united states standards require plan perform audits obtain reasonable assurance whether consolidated financial statements free material misstatement whether effective internal control financial reporting maintained material respects audits consolidated financial statements included examining test basis evidence supporting amounts disclosures financial statements assessing accounting principles used significant estimates made management evaluating overall financial statement presentation audit internal control financial reporting included obtaining understanding internal control financial reporting assessing risk material weakness exists testing evaluating design operating effectiveness internal control based assessed risk audits also included performing procedures considered necessary circumstances believe audits provide reasonable basis opinions companys internal control financial reporting process designed supervision companys principal executive principal financial officers persons performing similar functions effected companys board directors management personnel provide reasonable assurance regarding reliability financial reporting preparation financial statements external purposes accordance generally accepted accounting principles companys internal control financial reporting includes policies procedures 1 pertain maintenance records reasonable detail accurately fairly reflect transactions dispositions assets company 2 provide reasonable assurance transactions recorded necessary permit preparation financial statements accordance generally accepted accounting principles receipts expenditures company made accordance authorizations management directors company 3 provide reasonable assurance regarding prevention timely detection unauthorized acquisition use disposition companys assets could material effect financial statements inherent limitations internal control financial reporting including possibility collusion improper management override controls material misstatements due error fraud may prevented detected timely basis also projections evaluation effectiveness internal control financial reporting future periods subject risk controls may become inadequate changes conditions degree compliance policies procedures may deteriorate opinion successor consolidated financial statements referred present fairly material respects financial position sprint corporation subsidiaries march 31 2016 2015 related results operations cash flows years ended march 31 2016 2015 threemonth period ended march 31 2014 year ended december 31 2013 conformity accounting principles generally accepted united states america also opinion company maintained material respects effective internal control financial reporting march 31 2016 based criteria established internal control integrated framework 2013 issued committee sponsoring organizations treadway commission discussed notes 1 3 consolidated financial statements july 10 2013 softbank corp completed merger sprint communications inc formerly sprint nextel corporation sprint corporation acquiring company sprint communications inc applied acquisition method accounting merger date deloitte touche llp kansas city missouri may 17 2016 index consolidated financial statements report independent registered public accounting firm board directors stockholders sprint corporation audited accompanying consolidated statements operations comprehensive loss cash flows stockholders’ equity sprint communications inc formerly sprint nextel corporation subsidiaries predecessor company 191 day period ended july 10 2013 consolidated financial statements responsibility predecessor company’s management responsibility express opinion consolidated financial statements based audit conducted audit accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audit provides reasonable basis opinion consolidated financial statements referred present fairly material respects results predecessor companys operations cash flows 191 day period ended july 10 2013 conformity us generally accepted accounting principles kpmg llp kansas city missouri october 21 2013 except note 18 date june 18 2014 index consolidated financial statements sprint corporation consolidated balance sheets see notes consolidated financial statements index consolidated financial statements sprint corporation consolidated statements operations see notes consolidated financial statements index consolidated financial statements sprint corporation consolidated statements comprehensive loss see notes consolidated financial statements index consolidated financial statements sprint corporation consolidated statements cash flows index consolidated financial statements sprint corporation consolidated statements cash flows continued see notes consolidated financial statements index consolidated financial statements sprint corporation consolidated statements stockholders equity millions 1 successor period beginning october 5 2012 ending december 31 2012 approximately 3 million shares class b common stock starburst ii inc issued outstanding immaterial value shares exchanged connection issuance common stock softbank upon completion merger see notes consolidated financial statements index consolidated financial statements sprint corporation notes consolidated financial statements index consolidated financial statements sprint corporation notes consolidated financial statements note 1 description operations sprint corporation including consolidated subsidiaries communications company offering comprehensive range wireless wireline communications products services designed meet needs individual consumers businesses government subscribers resellers wireless segment includes retail wholesale affiliate service revenue wide array wireless voice data transmission services equipment revenue sale lease wireless devices sale accessories us puerto rico us virgin islands wireline segment includes revenue domestic international wireline data communication services addition voice data ip communication services wireless segment july 9 2013 clearwire acquisition date sprint communications completed acquisition remaining equity interests clearwire defined already approximately 35 billion net cash acquired 500 per share clearwire acquisition consideration paid allocated assets acquired liabilities assumed based estimated fair values clearwire acquisition date effects clearwire acquisition included predecessor period financial information therefore included allocation consideration transferred softbank merger date defined july 10 2013 softbank merger date softbank corp certain whollyowned subsidiaries together softbank completed merger softbank merger sprint nextel corporation sprint nextel contemplated agreement plan merger dated october 15 2012 amended merger agreement bond purchase agreement dated october 15 2012 amended bond agreement result softbank merger starburst ii inc starburst ii whollyowned subsidiary softbank became parent company sprint nextel immediately thereafter starburst ii changed name sprint corporation sprint nextel changed name sprint communications inc addition connection closing softbank merger sprint corporation became successor registrant sprint nextel rule 12g3 securities exchange act 1934 exchange act entity subject reporting requirements exchange act filings securities exchange commission sec subsequent close softbank merger addition order align softbank’s reporting schedule changed fiscal year end march 31 effective march 31 2014 result annual report also includes threemonth transition period january 1 2014 march 31 2014 well comparable threemonth unaudited period january 1 2013 march 31 2013 references herein fiscal year 2014 2015 refer twelvemonth periods ending march 31 2015 2016 respectively see note 3 significant transactions additional information regarding softbank merger related transactions unless context otherwise requires references sprint us company mean sprint corporation consolidated subsidiaries periods presented inclusive successor predecessor periods described references sprint communications sprint communications inc consolidated subsidiaries connection change control result softbank merger sprint communications assets liabilities adjusted fair value closing date softbank merger consolidated financial statements distinguish predecessor period predecessor relating sprint communications periods prior softbank merger successor period successor relating sprint corporation formerly known starburst ii periods subsequent incorporation starburst ii october 5 2012 successor financial information represents activity accounts sprint corporation includes activity accounts starburst ii prior softbank merger date sprint communications inclusive consolidation clearwire corporation whollyowned subsidiary clearwire communications llc together clearwire prospectively following softbank merger date beginning july 11 2013 postmerger period accounts operating activity starburst ii prior softbank merger date primarily related merger expenses incurred connection softbank merger recognized selling general administrative expense interest related 31 billion convertible bond sprint communications inc issued starburst ii predecessor financial information represents historical basis presentation sprint communications periods prior softbank merger date result valuation assets acquired liabilities assumed fair value softbank merger date financial statements successor period presented measurement basis different predecessor period sprint communications historical cost therefore comparable index consolidated financial statements sprint corporation notes consolidated financial statements note 2 summary significant accounting policies information basis consolidation estimates consolidated financial statements include accounts 100 owned subsidiaries control controlling financial interest intercompany transactions balances eliminated consolidation prior clearwire acquisition date applied equity method accounting investment clearwire controlling vote ability control operating financial policies consolidated financial statements prepared conformity accounting principles generally accepted united states us gaap requires management company make estimates assumptions affect reported amounts assets liabilities revenues expenses disclosure contingent assets liabilities date consolidated financial statements significant estimates assumptions used limited allowance doubtful accounts estimated economic lives residual values property plant equipment fair value identified purchased tangible intangible assets business combination fair value assessments purposes impairment testing certain prior period amounts reclassified conform current period presentation change accounting principle april 2015 financial accounting standards board fasb issued authoritative guidance regarding interest imputation interest requires debt issuance costs related recognized debt liability presented balance sheet direct deduction carrying amount debt liability consistent debt discounts august 2015 fasb added securities exchange commission paragraphs guidance address presentation subsequent measurement debt issuance costs associated lineofcredit arrangements elected adopt guidance early full retrospective application effective january 1 2016 debt issuance costs associated unused credit facilities remain assets consolidated balance sheets continue amortized term facilities allowed guidance prior period debt issuance costs debt totaling 189 million reclassified assets longterm debt financing capital lease obligations consolidated balance sheets march 31 2015 adoption guidance material effect consolidated financial statements november 2015 fasb issued authoritative guidance regarding balance sheet classification deferred taxes simplifies presentation deferred income taxes requiring deferred income tax liabilities assets classified noncurrent consolidated balance sheets elected early adopt guidance january 1 2016 applied prospectively therefore prior periods retrospectively adjusted adoption guidance material effect consolidated financial statements change estimate estimating value returned inventory evaluate many factors obtain information support estimated value used devices useful lives year ended march 31 2015 observed sustained value extended useful lives handsets leading increase estimated value returned inventory result revised methodology assumptions used estimating value returned handsets year ended march 31 2015 change estimate accounted prospective basis effect change estimate included cost products consolidated statements operations reduced operating loss approximately 80 million 002 per basic diluted share year ended march 31 2015 addition change resulted increase device accessory inventory consolidated balance sheet approximately 80 million summary significant accounting policies cash equivalents cash equivalents generally include highly liquid investments maturities time purchase three months less investments may include money market funds certificates deposit us government index consolidated financial statements sprint corporation notes consolidated financial statements governmentsponsored debt securities corporate debt securities municipal securities bankrelated securities credit debit card transactions process carrying amounts approximate fair value installment receivables beginning october 2015 sprint sold derecognized installment receivables well related allowances deferred interest prior initiating sales installment receivables carrying value installment receivables approximated fair value receivables recorded present value net deferred interest allowance credit losses time installment sale imputed interest installment receivable recorded reduction revenue reduction face amount related receivable interest income recognized term installment contract service revenue categorized installment receivables prime subprime based upon subscriber credit profiles unbilled billedcurrent billedpast due based upon age receivable used proprietary scoring systems measure credit quality receivables using several factors credit bureau information subscriber credit risk scores service plan characteristics payment history subsequently monitored evaluate credit profiles prime subscriber receivables lower delinquency risk subprime subscriber receivables higher delinquency risk subscribers within subprime category may required make payment device accessory purchases installment receivables invoices yet generated customer considered unbilled installment receivables invoices generated past contractual due date considered billed current installment receivables invoices generated payment approximately ten days past contractual due date considered billed past due account balances writtenoff collection efforts unsuccessful future collection unlikely based length time day accounts become past due allowance doubtful accounts allowance doubtful accounts established cover probable reasonably estimable losses number subscriber accounts practical review collectability accounts individually determine amount allowance doubtful accounts period although account level analysis performed respect large wireless wireline subscribers estimate allowance doubtful accounts considers number factors including collection experience aging remaining accounts receivable portfolios credit quality subscriber base qualitative considerations including macroeconomic factors account balances writtenoff collection efforts unsuccessful future collection unlikely based length time day accounts become past due amounts written allowance doubtful accounts net recoveries adjustments 612 million 752 million 106 million 98 million successor years ended march 31 2016 2015 threemonth transition period ended march 31 2014 year ended december 31 2013 374 million 105 million predecessor 191day period ended july 10 2013 unaudited threemonth period ended march 31 2013 respectively see note 5 installment receivables additional information relates allowance doubtful accounts specifically attributable installment receivables device accessory inventory inventories stated lower cost market cost determined firstin firstout fifo method company sells wireless devices separately conjunction service contract device sold cost related revenues generated device sales recognized time sale cost related revenues device sales recognized prior time sale promotional discount decision generally made point sale cost device sales subsidy program expected recovered service revenues net realizable value devices inventory analyzed regular basis analysis includes assessing obsolescence sales forecasts product life cycle marketplace considerations assessments regarding factors adversely change may sell devices higher prices record writedown inventory obsolete slowmoving items prior point sale index consolidated financial statements sprint corporation notes consolidated financial statements property plant equipment property plant equipment ppe including improvements extend useful lives recognized cost depreciation property plant equipment generally calculated using straightline method based estimated economic useful lives 3 30 years buildings improvements network equipment site costs related software 3 12 years nonnetwork internal use software office equipment leasehold improvements depreciated shorter lease term estimated useful life respective assets leased devices depreciated using straightline method estimated residual value generally term lease calculate depreciation certain network assets using group life method accordingly ordinary asset retirements disposals assets charged accumulated depreciation gain loss recognized gains losses associated asset retirements disposals recognized consolidated statements operations depreciation rates assets revised periodically account changes related managements strategic objectives technological changes estimated residual values obsolescence changes estimates result adjustment depreciation prospectively estimated useful lives nonleased assets remaining period benefit devices leased customers repair maintenance costs research development costs expensed incurred capitalize costs network nonnetwork software developed obtained internal use application development stage costs included ppe software placed service depreciated estimated useful lives three five years costs incurred preliminary project postimplementation stage well maintenance training costs expensed incurred longlived asset impairment sprint evaluates longlived assets including intangible assets subject amortization impairment whenever events changes circumstances indicate carrying amount asset group may recoverable asset groups determined lowest level identifiable cash flows largely independent cash flows groups assets liabilities carrying amount longlived asset group recoverable exceeds fair value impairment loss recognized equal excess asset group’s carrying value estimated fair value see note 7 property plant equipment additional information longlived asset impairments certain assets yet deployed business including network equipment cell site development costs software development periodically assessed determine recoverability network equipment cell site development costs expensed whenever events changes circumstances cause company conclude assets longer needed meet managements strategic network plans deployed software development costs expensed longer probable software project deployed network equipment removed network also periodically assessed determine recoverability experience significant operational challenges including retaining attracting subscribers future cash flows company may sufficient recover carrying value wireless asset group could record asset impairments material sprints consolidated results operations financial condition indefinitelived intangible assets indefinitelived intangible assets primarily consist goodwill certain trademarks fcc licenses goodwill represents excess consideration paid estimated fair value net tangible identifiable intangible assets acquired business combinations determining whether intangible asset goodwill indefinitelived consider expected use assets regulatory economic environment within used effects obsolescence use assess indefinitelived intangible assets including goodwill impairment least annually necessary frequently whenever events changes circumstances indicate asset may impaired analyses include determination fair value require considerable judgment highly sensitive changes underlying assumptions consequently assurance estimates assumptions made purposes estimating fair values indefinitelived assets including goodwill prove accurate prediction future continued sustained declines company’s operating results forecasted future cash flows growth rates assumptions well significant sustained declines company’s stock price related market capitalization could impact underlying key assumptions estimated fair values potentially leading index consolidated financial statements sprint corporation notes consolidated financial statements future material impairment goodwill indefinitelived intangible assets see note 8 intangible assets additional information indefinitelived intangible asset impairments benefit plans provide defined benefit pension plan postretirement benefits certain employees sponsor defined contribution plan employees june 2014 company’s board directors approved plan amendment sprint retirement pension plan offer certain terminated participants begun receive plan benefits opportunity voluntarily elect receive benefits immediate lump sum distribution upon expiration election period completion cash payments november 28 2014 lump sum distribution totaling approximately 560 million created settlement event resulted 59 million charge reflected net consolidated statements operations reduction projected benefit obligation approximately 300 million impacted settlement well change mortality tables change discount rate used estimate projected benefit obligation march 31 2016 2015 fair value pension plan assets certain postretirement benefit plan assets aggregate 13 billion periods fair value projected benefit obligations aggregate 22 billion periods result plans underfunded approximately 900 million march 31 2016 2015 recorded net liability consolidated balance sheets estimated contributions totaling approximately 50 million expected paid fiscal year 2016 offset pension liability recorded equity component accumulated comprehensive loss net tax including 29 million 393 million 147 million 93 million successor years ended march 31 2016 2015 threemonth transition period ended march 31 2014 year ended december 31 2013 respectively amortized selling general administrative sprints consolidated statements operations change net liability plan successor year ended march 31 2016 affected change discount rate used estimate projected benefit obligation increasing 42 successor year ended march 31 2015 43 successor year ended march 31 2016 combined 9 million prior service credit resulting amendment one postretirement benefit plans 2015 change net liability plan successor year ended march 31 2015 affected impact settlement event projected benefit obligation combined change discount rate used estimate projected benefit obligation decreasing 49 successor threemonth transition period ended march 31 2014 42 successor year ended march 31 2015 change net liability plan successor threemonth transition period ended march 31 2014 year ended december 31 2013 affected primarily change discount rate used estimate projected benefit obligation decreasing 53 49 successor threemonth transition period ended march 31 2014 intend make future cash contributions plan amount necessary meet minimum funding requirements according applicable benefit plan regulations december 31 2005 plan amended freeze benefit plan accruals participants objective investment portfolio pension plan achieve longterm nominal rate return net fees exceeds plans longterm expected rate return investments funding purposes 775 march 31 2016 2015 meet objective investment strategy year ended march 31 2016 governed asset allocation policy whereby targeted allocation percentage assigned asset class follows 38 us equities 16 international equities 28 fixed income investments 9 real estate investments 9 investments including hedge funds actual allocations allowed deviate target allocation percentages within range asset class defined investment policy investments plan measured fair value recurring basis determined using quoted market prices estimated fair values march 31 2016 31 investment portfolio valued quoted prices active markets identical assets 49 valued using quoted prices similar assets active inactive markets observable inputs 20 valued using unobservable inputs supported little market activity defined contribution plan participants may contribute portion eligible pay plan payroll withholdings successor years ended march 31 2016 2015 threemonth transition period ended march 31 2014 year ended december 31 2013 company matched 100 participants pretax roth index consolidated financial statements sprint corporation notes consolidated financial statements contribution aggregate first 3 eligible compensation 50 participants pretax roth contribution aggregate next 2 eligible compensation maximum matching contribution 4 fixed matching contributions totaled approximately 54 million 71 million 15 million 35 million successor years ended march 31 2016 2015 threemonth transition period ended march 31 2014 year ended december 31 2013 respectively 32 million 15 million predecessor 191day period ended july 10 2013 unaudited threemonth period ended march 31 2013 respectively effective january 1 2016 company match 50 participants pretax roth contribution aggregate first 4 eligible compensation revenue recognition operating revenues primarily consist wireless service revenues generated device accessory sales revenues leasing device revenues wholesale operators thirdparty affiliates well long distance voice data internet revenues service revenues consist fixed monthly recurring charges variable usage charges miscellaneous fees activation fees directory assistance roaming equipment protection late payment early termination charges interest certain regulatory related fees net service credits adjustments generally recognize service revenues services rendered assuming revenue recognition criteria met recognize revenue access charges services charged fixed amounts ratably service period net credits adjustments service discounts billing disputes fraud unauthorized usage result cutoff times multiple billing cycles month required estimate amount subscriber revenues earned billed end billing cycle end reporting period estimates based primarily rate plans effect historical usage billing patterns regulatory fees costs recorded gross largest component regulatory fees universal service fund represented 2 net operating revenues periods presented consolidated statements operations recognize equipment revenue corresponding costs equipment title risk loss passes indirect dealer enduse subscriber assuming revenue recognition criteria met arrangements involving multiple deliverables equipment service revenue allocated deliverables based relative selling prices equipment revenue limited amount noncontingent consideration received device sold subscriber equipment revenue also reduced estimated amount imputed interest associated installment receivables subscribers elect finance purchase device 24month period subsidize cost device incentive retain acquire subscribers cost incentives recorded reduction revenue upon activation device service contract qualified subscribers lease device contractual period time end lease term subscribers option turn device continue leasing device purchase device accounting device leases involves specific determinations applicable lease accounting standards involve complex prescriptive provisions impact timing amount revenue recognized leased devices critical elements considered respect lease accounting economic life device fair value device including residual value lease devices qualifying subscribers also purchase service plan date substantially device leases classified operating leases revenues arrangements included within equipment revenue consolidated results operations allocated considering relative fair values lease nonlease elements included multipleelement arrangement amount arrangement consideration allocated operating lease element recognized ratably lease term typically two years multipleelement arrangement includes option purchase monthly basis annual tradein right amount total arrangement consideration reduced estimated fair value tradein right guarantee remaining proceeds allocated amongst deliverables arrangement accounting estimates related recognition revenue require us make assumptions numerous factors future billing adjustments disputes subscribers unauthorized usage future returns mailin rebates device sales fair value tradein right total arrangement consideration dealer commissions cash consideration given us dealer enduse subscriber presumed reduction equipment revenue unless receive identifiable benefit exchange consideration fair value index consolidated financial statements sprint corporation notes consolidated financial statements benefit reasonably estimated case consideration generally recorded selling expense purchase inventory compensate dealers using specific compensation programs related sale devices subscriber service contracts commission earned dealer solely due selling activity relating wireless service cost recorded selling expense commission earned dealer due dealer selling devices purchased us cost recorded reduction equipment revenue commissions generally earned upon sale device service enduse subscriber incentive payments dealers sales associated devices service contracts classified contrarevenue extent incentive payment reimbursement loss device selling expense amount associated selling effort incentive payments certain indirect dealers purchase devices sources original equipment manufacturer oem recognized selling expense device activated sprint service plan sprint recognize equipment revenue cost products transactions severance exit costs liabilities severance exit costs recognized based upon nature cost incurred involuntary separation plans completed within guidelines written involuntary separation plan liability recognized probable reasonably estimable voluntary separation plans vsp liability recognized vsp irrevocably accepted employee onetime termination benefits additional severance pay benefit payouts exit costs lease termination costs liability measured recognized initially fair value period liability incurred subsequent changes liability recognized adjustments period change severance exit costs associated business combinations recorded results operations incurred compensation plans march 31 2016 sprint sponsored three incentive plans 2015 omnibus incentive plan 2015 plan 2007 omnibus incentive plan 2007 plan 1997 longterm incentive program 1997 programtogether compensation plans sprint also sponsors employee stock purchase plan espp 2015 plan may grant share nonshare based awards including stock options stock appreciation rights restricted stock restricted stock units performance shares performance units equitybased cash awards employees outside directors eligible individuals defined plan march 31 2016 number shares available reserved future grants 2015 plan espp totaled approximately 133 million common shares compensation committee board directors one executive officers compensation committee authorize provided 2015 plan determine terms share nonshare based award new grants made 2007 plan 1997 program use new shares satisfy sharebased awards treasury shares available fair value option award estimated grant date using blackscholes option valuation model based several assumptions including riskfree interest rate volatility expected dividend yield expected term successor year ended march 31 2016 company granted approximately 12 million stock options weighted average grant date fair value 203 per share based upon assumptions risk free interest rate 144 206 weighted average expected volatility 420 695 expected dividend yield 0 expected term 55 years 65 years general options granted exercise price equal market value underlying shares grant date vest annual basis three years contractual term ten years march 31 2016 41 million options outstanding 21 million options exercisable generally determine fair value restricted stock unit award based closing price companys common stock date grant restricted stock units generally performance service requirements service requirements vesting periods ranging one three years successor year ended march 31 2016 granted performancebased restricted stock units senior management earned shares based upon achievement certain market conditions equal specified volumeweighted average prices company common stock regular trading new york stock exchange 150day calendar period fouryear period ending may 31 2019 earned shares vest 50 four years grant date 50 five years grant date continuous service required vesting date fair value marketbased restricted stock units estimated date grant using monte carlo valuation methodology incorporates valuation index consolidated financial statements sprint corporation notes consolidated financial statements possibility market condition may satisfied assumptions used monte carlo valuation model consistent use value stock options include risk free interest rate 120 166 expected volatility 537 708 expected dividend yield 0 number restricted stock units ultimately vest vary significantly depending upon performance specified market criteria certain threshold price level award forfeited entirety compensation cost related sharebased awards market condition recognized regardless whether market condition achieved employees directors granted restricted stock units required pay shares generally must remain employed us continue serve member board directors restrictions lapse typically three years employees one year directors certain restricted stock units outstanding march 31 2016 entitled dividend equivalents paid cash dividends declared paid common shares performancebased restricted stock units entitled dividend equivalent payments applicable performance service criteria met successor year ended march 31 2016 company granted approximately 28 million service performancebased restricted stock units including market conditions weighted average grant date fair value 306 per share march 31 2016 approximately 33 million restricted stock unit awards outstanding compensation costs cost employee services received exchange sharebased awards classified equity measured using estimated fair value award date grant cost recognized period award recipient required provide service exchange award awards instruments classified liabilities measured estimated fair value reporting date settlement pretax share nonshare based compensation charges incentive plans included net loss 75 million 86 million 35 million 98 million successor years ended march 31 2016 2015 threemonth transition period ended march 31 2014 year ended december 31 2013 respectively 37 million 17 million predecessor 191day period ended july 10 2013 unaudited three monthperiod ended march 31 2013 respectively net income tax benefit expense recognized consolidated financial statements sharebased compensation awards 20 million 34 million 12 million 34 million successor years ended march 31 2016 2015 threemonth transition period ended march 31 2014 year ended december 31 2013 respectively 2 million 1 million predecessor 191day period ended july 10 2013 unaudited threemonth period march 31 2013 respectively march 31 2016 90 million total unrecognized compensation cost related nonvested incentive awards expected recognized weighted average period 262 years advertising costs recognize advertising expense incurred selling general administrative expense advertising expenses totaled 13 billion 15 billion 408 million 697 million successor years ended march 31 2016 2015 threemonth transition period ended march 31 2014 year ended december 31 2013 respectively 858 million 409 million predecessor 191day period ended july 10 2013 unaudited threemonth period march 31 2013 respectively variable interest entities vie vies entities lack sufficient equity permit entity finance activities without additional subordinated financial support parties equity investors ability make significant decisions relating entitys operations voting rights obligation absorb expected losses right receive residual returns entity common type vie special purposes entity spe spes commonly used securitization transactions order isolate certain assets distribute cash flows assets investors spes generally structured insulate investors claims spes assets creditors entities including creditors seller assets required consolidate assets liabilities vies deemed primary beneficiary primary beneficiary party power make decisions significantly affect economic performance vie obligation absorb losses right receive benefits could potentially significant vie index consolidated financial statements sprint corporation notes consolidated financial statements new accounting pronouncements may 2014 fasb issued new authoritative literature revenue contracts customers issuance part joint effort fasb international accounting standards board iasb enhance financial reporting creating common revenue recognition guidance us gaap international financial reporting standards thereby improving consistency requirements comparability practices usefulness disclosures new standard supersede much existing authoritative literature revenue recognition july 2015 fasb deferred effective date standard result standard related amendments effective company fiscal year beginning april 1 2018 including interim periods within fiscal year early application permitted original effective date april 1 2017 fasb subsequently issued additional guidance several areas including implementation principal versus agent considerations recognition breakage certain prepaid storedvalue products requiring breakage liabilities accounted consistent breakage guidance revenue standard also clarified entity evaluate promised good service distinct within context contract allowed entities disregard goods services immaterial context contract entities allowed transition new standard either retrospective application recognizing cumulative effect company currently evaluating guidance including transition approach applied expect guidance material impact consolidated financial statements august 2014 fasb issued authoritative guidance regarding disclosure uncertainties entity’s ability continue going concern requires management assess entity’s ability continue going concern provide related footnote disclosures certain circumstances updated guidance requires management perform interim annual assessments whether conditions events considered aggregate raise substantial doubt entity’s ability continue going concern within one year date financial statements issued provide related disclosures required standard would effective company’s fiscal year beginning april 1 2016 including interim reporting periods within fiscal year although early adoption permitted company elected early adopt guidance effective january 1 2016 early adoption guidance material effect consolidated financial statements january 2015 fasb issued authoritative guidance extraordinary unusual items eliminating concept extraordinary items issuance part fasb’s initiative reduce complexity accounting standards current guidance entity required separately classify present disclose events transactions meet criteria extraordinary classification new guidance reporting entities longer required consider whether underlying event transaction extraordinary however presentation disclosure guidance items unusual nature occur infrequently retained expanded include items unusual nature infrequently occurring amendments effective company’s fiscal year beginning april 1 2016 although early adoption permitted applied beginning fiscal year company expect adoption guidance material effect consolidated financial statements february 2015 fasb issued authoritative guidance regarding consolidation provides guidance management evaluating whether consolidate certain legal entities updated guidance modifies evaluation criteria limited partnerships similar legal entities eliminates presumption general partner consolidate limited partnership affects consolidation analysis reporting entities involved variable interest entities particularly fee arrangements related party relationships legal entities subject reevaluation revised consolidation model standard effective company’s fiscal year beginning april 1 2016 including interim periods within fiscal year although early adoption permitted company currently evaluating newly issued guidance expect guidance material effect consolidated financial statements july 2015 fasb issued authoritative guidance regarding inventory simplifies subsequent measurement certain inventories replacing today’s lower cost market test lower cost net realizable value test net realizable value estimated selling prices ordinary course business less reasonably predictable costs completion disposal transportation standard effective company’s fiscal year beginning april 1 2017 including interim periods within fiscal year company expect adoption guidance material effect consolidated financial statements index consolidated financial statements sprint corporation notes consolidated financial statements september 2015 fasb issued authoritative guidance amending business combinations requires acquirer recognize adjustments provisional amounts identified measurement period reporting period adjustment amounts determined including cumulative effect change provisional amount accounting completed acquisition date adjustments related previous reporting periods since acquisition date must disclosed income statement line item either face income statement notes amendments applied prospectively adjustments occur effective date amendments effective company fiscal year beginning april 1 2016 including interim periods within fiscal year although early adoption permitted financial statements issued applied necessary future business combinations january 2016 fasb issued authoritative guidance regarding financial instruments amended guidance classification measurement financial instruments new guidance entities required measure equity investments consolidated accounted equity method fair value changes fair value recorded net income unless entity elected new practicability exception financial liabilities measured using fair value option entities required separately present comprehensive income portion changes fair value attributable instrumentspecific credit risk additionally guidance amends certain disclosure requirements associated fair value financial instruments standard effective company’s fiscal year beginning april 1 2018 including interim reporting periods within fiscal year company currently evaluating guidance assessing impact consolidated financial statements february 2016 fasb issued authoritative guidance regarding leases new standard supersede much existing authoritative literature leases guidance requires lessees among things recognize rightofuse assets liabilities balance sheet leases lease terms longer twelve months standard effective company fiscal year beginning april 1 2019 including interim periods within fiscal year early application permitted entities required use modified retrospective application leases exist entered beginning earliest comparative period financial statements option elect certain transition reliefs company currently evaluating guidance expect material impact consolidated financial statements however still assessing overall impact note 3 significant transactions acquisition remaining interest clearwire july 9 2013 sprint communications completed clearwire acquisition cash consideration paid totaled approximately 35 billion net cash acquired 198 million approximately 125 million cash consideration accrued within accrued expenses current liabilities consolidated balance sheet dissenting shares relating stockholders exercised appraisal rights fair value consideration measured estimated fair value element consideration transferred clearwire acquisition date determined sum approximately 37 billion cash transferred clearwire stockholders included 125 million cash relating dissenting shares b approximately 33 billion representing estimated fair value clearwire shares held sprint communications immediately preceding acquisition c approximately 59 million sharebased payment awards replacement awards exchanged awards held clearwire employees purchase price allocation consideration transferred allocated assets acquired liabilities assumed based estimated fair values clearwire acquisition date allocation consideration transferred based managements judgment evaluating several factors including valuation assessment management finalized purchase price allocation quarter ended june 30 2014 adjustments made since initial purchase price allocation decreased recorded goodwill approximately 269 million primarily attributable reduction approximately 270 million made deferred tax liabilities result additional analysis remaining adjustments insignificant index consolidated financial statements sprint corporation notes consolidated financial statements following table summarizes purchase price allocation consideration clearwire acquisition softbank transaction discussed softbank merger completed july 10 2013 sprint communications inc stockholders received consideration combination cash stock subject proration cash consideration paid softbank merger 141 billion net cash acquired 25 billion estimated fair value 22 interest sprint corporation issued existing stockholders sprint communications inc addition pursuant bond agreement october 15 2012 sprint communications inc issued bond starburst ii principal amount 31 billion interest rate 1 maturity date october 15 2019 converted 590476190 shares sprint communications inc common stock 525 per share immediately prior softbank merger date result completion softbank merger subsequent open market stock purchases softbank owned approximately 83 outstanding voting common stock sprint corporation sprint stockholders remaining approximately 17 march 31 2016 consideration transferred investments softbank fair value consideration transferred measured estimated fair value element consideration transferred softbank merger date determined sum approximately 166 billion cash transferred sprint communications inc stockholders b approximately 53 billion representing shares sprint issued sprint communications inc stockholders c approximately 193 million sharebased payment awards replacement awards exchanged awards held sprint employees additionally softbank invested approximately 50 billion form capital contributions sprint fair value investments softbank determined based cash transferred including 31 billion purchase bond 19 billion softbank merger date purchase price allocation consideration transferred allocated assets acquired liabilities assumed based estimated fair values softbank merger date inclusive clearwire acquisition described excess consideration transferred estimated fair values assets acquired liabilities assumed recorded goodwill resulting softbank merger allocated wireless segment allocation consideration transferred based managements judgment evaluating several factors including valuation assessment management finalized purchase price allocation quarter ended june 30 2014 adjustments made since initial purchase price allocation decreased recorded goodwill approximately 476 million indefinitelived intangible assets increased approximately 300 million due additional analysis performed management quarter ended december 31 2013 quarter ended june 30 2014 related value assigned certain fcc licenses remainder decrease due insignificant changes various accounts index consolidated financial statements sprint corporation notes consolidated financial statements following table summarizes purchase price allocation consideration transferred pro forma financial information following unaudited pro forma consolidated results operations assume softbank merger clearwire acquisition completed january 1 2013 unaudited pro forma financial information prepared illustrate pro forma effect combination sprint communications clearwire using consideration transferred acquisition date though acquisition date transaction occurred january 1 2013 preparation pro forma financial information also assumed purchase price allocation consideration transferred among assets acquired liabilities assumed acquiree pro forma financial information adjusts actual combined results items recurring nature directly attributable clearwire acquisition softbank merger pro forma net loss provided excludes certain nonrecurring items sprints gain previously held interest clearwire transaction costs associated clearwire acquisition softbank merger result pro forma financial information presented excludes net gain 14 billion acquisition related costs approximately 169 million pro forma financial information prepared based estimates assumptions management believes reasonable necessarily indicative consolidated financial position results operations sprint would achieved clearwire acquisition andor softbank merger actually occurred january 1 2013 historical date reflective expected actual financial positions results operations future period note 4 funding sources device leasing installment billing programs require greater use operating cash flows earlier part device contracts subscribers generally pay less upfront traditional subsidized programs accounts receivable facility handset saleleaseback tranche 1 transactions described designed mitigate significant use cash purchasing devices oems fulfill installment billing leasing programs addition 30 billion availability revolving credit facility see note 9 longterm debt financing capital lease obligations march 31 2016 also entered network saleleaseback transaction handset index consolidated financial statements sprint corporation notes consolidated financial statements saleleaseback tranche 2 provided 22 billion 11 billion respectively cash proceeds new unsecured financing facility 20 billion see note 19 subsequent events also provides liquidity business operations accounts receivable facility transaction overview accounts receivable facility receivables facility provides us opportunity sell certain wireless service installment receivables defined agreements unaffiliated third parties purchasers amended november 2015 include future amounts due customers lease certain devices us amendment increased maximum funding limit receivables facility 43 billion extended expiration november 2017 amount available receivables facility fluctuates time based total amount eligible receivables generated normal course business march 31 2016 total availability facility approximately 20 billion however result sales completed date total amount available drawn march 31 2016 94 million proceeds sale receivables comprised combination cash deferred purchase price receivable dpp sprints election decide much cash chooses receive sale maximum amount proceeds varies based number factors currently represents approximately 50 total amount receivables sold purchasers dpp realized us upon either ultimate collection underlying receivables sold purchasers upon sprints election receive additional advances cash purchasers subject total availability receivables facility wireless service installment receivables sold treated sale financial assets sprint derecognizes receivables well related allowances recognizes net proceeds received cash provided operating activities consolidated statements cash flows fees associated sales recognized selling general administrative consolidated statements operations sale future lease receivables treated financing transactions accordingly proceeds received reflected cash provided financing activities consolidated statements cash flows fees recognized interest expense consolidated statements operations transaction structure sprint contributes certain wireless service installment future lease receivables well associated leased devices sprints whollyowned consolidated bankruptcyremote spes sprints direction spes sold continue sell wireless service future lease installment receivables purchasers bank agent behalf purchasers leased devices remain spes sales initiated continue depreciated estimated useful life spe separate legal entity separate creditors entitled prior upon liquidation spe satisfied spe’s assets prior assets spe becoming available sprint accordingly assets spe available pay creditors sprint affiliates spe although collections receivables excess amounts required repay advances yield fees purchasers creditors spes may remitted sprint term receivables facility sprint retained interest receivables sold collection administrative responsibilities right dpp sales eligible receivables spes generally occur daily settled monthly basis sprint pays fee drawn undrawn portions receivables facility subsidiary sprint services receivables exchange monthly servicing fee sprint guarantees performance servicing obligations receivables facility dpp related wireless service installment receivables classified trading security within prepaid expenses current assets consolidated balance sheets recorded estimated fair value fair value dpp estimated using discounted cash flow model relies principally unobservable inputs nature credit class sold receivables subscriber payment history installment receivables sold estimated timing upgrades upgrade payment amounts upgrade options accretable yield dpp recognized interest revenue within net operating service revenue consolidated statements operations changes fair value dpp recognized selling general administrative consolidated statements index consolidated financial statements sprint corporation notes consolidated financial statements operations changes fair value dpp material impact consolidated statements operations year ended march 31 2016 changes unobservable inputs used determine fair value expected result material change fair value dpp wireless service receivable sales march 31 2015 sold approximately 18 billion wireless service receivables exchange 500 million cash reflected within change accounts notes receivable consolidated statement cash flows dpp 13 billion estimated fair value 12 billion accordance rights receivables facility april 2015 sprint elected temporarily suspend sales receivables spes remitted payments received purchasers reduce funded amount 500 million zero september 2015 sold wireless service receivables approximately 19 billion exchange 400 million cash 15 billion dpp estimated fair value 14 billion october 2015 january 2016 elected receive 300 million 125 million respectively cash reduced total amount dpp due sprint period initial sale september march 31 2016 cash collections previously sold wireless service receivables exceeded sales new receivables dpp decreased approximately 207 million march 31 2016 total amount available receivables facility associated wireless service receivables 43 million total fair value associated dpp 760 million installment receivable sales october 2015 sold installment receivables approximately 12 billion receivables facility exchange 100 million cash 11 billion dpp estimated fair value 10 billion november 2015 elected receive 400 million cash reduced total amount dpp due sprint period initial sale october march 31 2016 cash collections previously sold installment receivables exceeded sales new receivables dpp decreased approximately 227 million march 31 2016 remaining availability receivables facility associated installment receivables total fair value associated dpp 395 million future lease receivable sales february march 2016 sold approximately 12 billion total future lease receivables exchange cash proceeds 600 million difference amount sold cash received represents additional collateral lender sale accounted financing 600 million cash proceeds accordingly reflected debt consolidated balance sheets march 31 2016 amount available receivables facility associated future lease receivables 51 million continuing involvement sprint continuing involvement receivables sold spes purchasers subsidiary sprint services receivables additionally accordance receivables facility sprint required repurchase aged receivables written accordance sprints credit collection policies result subscriber nonpayment sprint recognizes assets liabilities applicable respect continuing involvement fair value sprints continuing involvement material impact financial statements march 31 2016 variable interest entity sprint determined certain purchasers multiseller assetbacked commercial paper conduits considered variable interest entities lack sufficient equity finance activities sprints interest service installment receivables purchased conduits comprised dpp due sprint considered variable interest assets represent less 50 total activity conduits handset saleleaseback tranche 1 november 2015 sprint entered agreements handset saleleaseback tranche 1 sell leaseback certain leased devices excluded receivables facility allowed us monetize devices including device residual values agreements mobile leasing solutions llc mls company formed group equity investors including softbank sprint maintains customer lease continue collect record lease revenue index consolidated financial statements sprint corporation notes consolidated financial statements customer remit monthly rental payments mls recognized cost products consolidated statements operations respective leaseback periods december 2015 sprint contributed 13 billion certain leased devices associated customer leases whollyowned consolidated bankruptcyremote special purpose entities sprint spe lessees spe lessees sold devices transferred certain specified customer lease end rights obligations right receive proceeds customers elect purchase device end customer lease term mls exchange proceeds totaling 11 billion cash purchase price dpp 126 million difference fair value net book value devices sold recognized loss disposal property plant equipment amount 65 million included net consolidated statements operations simultaneously sale devices mls leased back device spe lessees pursuant master lease agreement device lease exchange monthly rental payments made spe lessees mls monthly rental payments devices leased back us approximate amount cash received associated customer leases weighted average 17 month leaseback period see note 13 commitments contingencies rent expense related mls totaled 277 million year ended march 31 2016 reflected within cash flows operations spe lessees retain rights underlying customer leases right receive rental payments device leaseback period aforementioned certain specified customer lease end rights spe lessee separate legal entity separate creditors entitled prior upon liquidation spe lessee satisfied spe lessee’s assets prior assets spe lessee becoming available sprint accordingly assets spe lessee available pay creditors sprint affiliates settlement dpp occurs end agreement reduced extent mls experiences loss device either returned sold loss extent devices dpp balance dpp associated handset saleleaseback tranche 1 recorded assets consolidated balance sheets estimated net realizable value changes dpp prior settlement mls recorded adjustment rent expense cost products consolidated statements operations brightstar us inc brightstar subsidiary softbank provides reverse logistics remarketing services mls respect devices unless device lease terminated early spe lessees obligated pay full monthly rental payments device lease regardless whether customers make lease payments devices leased whether customer lease still effect sprint guaranteed mls performance agreements undertakings spe lessees transaction documents devices must returned mls subject purchase rights customers sprint act servicer mls extent needed end device leaseback period secure obligations spe lessees device lease spe lessees provide security interest mls among things customer leases event mls able sell returned devices price greater expected device residual value sprint potential share excess proceeds index consolidated financial statements sprint corporation notes consolidated financial statements note 5 installment receivables certain subscribers option purchase devices installments 24month period shortterm installment receivables recorded accounts notes receivable net longterm installment receivables recorded assets consolidated balance sheets beginning october 2015 sprint sold derecognized continues sell eligible installment receivables march 31 2016 amount ineligible installment receivables immaterial see note 4 funding sources following table summarizes installment receivables prior fiscal year sales commenced balance aging installment receivables gross basis credit category follows prior fiscal year sales commenced activity deferred interest allowance credit losses installment receivables follows index consolidated financial statements sprint corporation notes consolidated financial statements note 6 financial instruments carrying amount cash equivalents accounts notes receivable accounts payable approximates fair value sprint hold shortterm investments march 31 2016 shortterm investments consisting primarily commercial paper totaling approximately 166 million march 31 2015 recorded amortized cost respective carrying amounts approximate fair value fair value marketable equity securities totaling 46 million 40 million periods ended march 31 2016 2015 respectively measured recurring basis using quoted prices active markets estimated fair value majority current longterm debt excluding credit facilities future lease receivables determined based quoted prices active markets using observable inputs derived principally corroborated observable market data following table presents carrying amounts estimated fair values current longterm debt note 7 property plant equipment property plant equipment consists primarily network equipment longlived assets used provide service subscribers noncash accruals included property plant equipment excluding leased devices totaled 468 million 15 billion 20 billion 24 billion successor years ended march 31 2016 2015 threemonths ended march 31 2014 year ended december 31 2013 following table presents components property plant equipment related accumulated depreciation network equipment site costs related software includes switching equipment cell site towers site development costs radio frequency equipment network software digital fiber optic cable transport facilities transmissionrelated equipment buildings improvements principally consists owned general office facilities retail stores leasehold improvements nonnetwork internal use software office equipment leased devices primarily consists furniture information technology systems equipment vehicles leased devices construction progress depreciated placed service primarily includes materials transmission related equipment labor engineering site development costs interest costs relating construction development network september 2014 sprint introduced leasing program whereby qualified subscribers lease device contractual period time end lease term subscriber option turn device continue leasing index consolidated financial statements sprint corporation notes consolidated financial statements device purchase device march 31 2016 substantially device leases classified operating leases lease inception devices leased sprints direct channels reclassified inventory property plant equipment devices leased indirect channels sprint purchases device leased retailer lease inception devices depreciated using straightline method estimated residual value generally term lease following table presents leased devices related accumulated depreciation years ended march 31 2016 2015 noncash transfers leased devices approximately 32 billion 12 billion respectively along corresponding decrease device accessory inventory addition year ended march 31 2016 sold devices totaling 13 billion see note 4 funding sources noncash accruals included leased devices totaled approximately 159 million 182 million march 31 2016 2015 respectively devices purchased indirect dealers leased subscribers depreciation expense incurred leased devices years ended march 31 2016 2015 18 billion 206 million respectively march 31 2016 minimum estimated payments received leased devices including devices sold leased back handset saleleaseback tranche 1 follows millions year ended march 31 2016 recorded 487 million loss disposal property plant equipment included net consolidated statements operations losses result 65 million net losses recognized upon sale devices mls handset saleleaseback tranche 1 transaction represented difference fair value net book value devices sold 256 million losses writeoff leased devices associated lease cancellations prior scheduled customer lease terms customers return devices us customers continue return devices may material losses future periods addition recorded 166 million losses due cell site construction costs network costs longer recoverable result changes companys network plans successor threemonth transition period ended march 31 2014 recorded 75 million loss disposal property plant equipment included net consolidated statements operations primarily due network equipment assets longer necessary result changes managements strategic plans impairments threemonth period ended december 31 2014 recorded impairment loss 233 million included impairments consolidated statements operations reduce carrying value wireline asset group includes wireline longlived assets estimated fair value 918 million december 31 2014 index consolidated financial statements sprint corporation notes consolidated financial statements note 8 intangible assets indefinitelived intangible assets indefinitelived intangible assets consists fcc licenses acquired primarily fcc auctions business combinations certain trademarks goodwill march 31 2016 held 19 ghz 800 mhz 25 ghz fcc licenses authorizing use radio frequency spectrum deploy wireless services long company acts within requirements constraints regulatory authorities renewal extension licenses reasonably certain minimal cost accordingly concluded fcc licenses indefinitelived intangible assets sprint boost mobile trademarks also identified indefinitelived intangible assets goodwill represents excess consideration paid estimated fair value net tangible identifiable intangible assets acquired business combinations see note 3 significant transactions following provides activity indefinitelived intangible assets within consolidated balance sheets 1 net reduction trademarks year ended march 31 2015 approximately 19 billion related impairment sprint trade name see discussion 2 net additions goodwill successor year ended march 31 2015 approximately 192 million result purchase price allocation adjustments consisted 232 million increase recorded threemonth period ended march 31 2015 correct amount net deferred tax liabilities recognized connection softbank merger clearwire acquisition net 40 million decrease recorded threemonths ended june 30 2014 also associated softbank merger clearwire acquisition assessment impairment annual impairment testing date goodwill indefinitelived intangible assets january 1 year however test impairment annual tests event occurs circumstances change indicate asset may impaired case goodwill fair value reporting unit carrying amount record impairment year ended march 31 2016 since softbank merger date actual results expectations net postpaid handset subscriber additions lower forecasts used allocate purchase price assets acquired liabilities assumed quarter ended december 31 2014 determined recoverability carrying amount goodwill sprint trade name evaluated impairment determined carrying value sprint trade name exceeded estimated fair value 33 billion accordingly quarter ended december 31 2014 recorded impairment loss 19 billion included impairments consolidated statements operations stock price march 31 2016 348 net book value per share price 498 subsequent balance sheet date stock price decreased 344 may 13 2016 quoted market price stock sole consideration fair value considerations include limited expectations future results estimated control premium index consolidated financial statements sprint corporation notes consolidated financial statements determination fair value requires considerable judgment highly sensitive changes underlying assumptions consequently assurance estimates assumptions made purposes goodwill spectrum sprint trade name impairment tests prove accurate prediction future continued sustained declines company’s operating results future forecasted cash flows growth rates assumptions well significant sustained declines company’s stock price related market capitalization could impact underlying key assumptions estimated fair values potentially leading future material impairment goodwill indefinitelived intangible assets intangible assets subject amortization customer relationships amortized using sumofthemonths digits method definitelived intangible assets amortized using straight line method estimated useful lives respective assets reduce gross carrying value associated accumulated amortization specified intangible assets become fully amortized amortization expense related favorable spectrum tower leases recognized cost services consolidated statements operations index consolidated financial statements sprint corporation notes consolidated financial statements note 9 longterm debt financing capital lease obligations 1 notes clearwire communications llc also direct obligations clearwire finance inc guaranteed certain clearwire subsidiaries march 31 2016 sprint corporation parent corporation 105 billion aggregate principal amount senior notes outstanding addition march 31 2016 outstanding principal amount senior notes issued sprint communications inc sprint capital corporation guaranteed notes issued sprint communications inc exchangeable notes issued clearwire communications llc edc agreement secured equipment credit facilities installment payment obligations totaling 216 billion principal amount longterm debt issued 100 owned subsidiaries fully unconditionally guaranteed sprint corporation indenture governing secured notes clearwire communications llc restricts ability subsidiaries distribute cash parent although certain financing agreements restrict ability sprint communications inc subsidiaries distribute cash sprint corporation ability subsidiaries distribute cash respective parents including sprint communications inc generally restricted march 31 2016 approximately 21 billion aggregate principal amount outstanding debt comprised certain notes financing capital lease obligations secured 158 billion property plant equipment assets net cash interest payments net amounts capitalized 51 million 56 million 13 million 30 million totaled 24 billion 23 billion 559 million 10 billion successor years ended march 31 2016 2015 threemonth transition period ended march 31 2014 year ended december 31 2013 respectively cash interest payments net amounts capitalized 29 million 15 million totaled 814 million 305 million predecessor 191day period ended july 10 2013 unaudited threemonth period ended march 31 2013 respectively weighted average effective interest rate related notes credit facilities 64 61 62 64 successor years ended march 31 2016 2015 threemonth transition period ended march 31 2014 year ended december 31 2013 respectively 89 71 predecessor 191day period ended july 10 2013 unaudited threemonth period ended march 31 2013 respectively index consolidated financial statements sprint corporation notes consolidated financial statements notes march 31 2016 outstanding notes consisted senior notes guaranteed notes exchangeable notes unsecured well secured notes clearwire communications llc secured solely assets clearwire communications llc certain subsidiaries cash interest notes generally payable semiannually arrears march 31 2016 301 billion aggregate principal amount notes redeemable companys discretion thenapplicable redemption prices plus accrued interest march 31 2016 216 billion aggregate principal amount senior notes guaranteed notes provide holders right require us repurchase notes change control triggering event defined applicable indentures supplemental indentures occurs march 31 2016 300 million aggregate principal amount clearwire communications llc notes provide holders right require us repurchase notes change control occurs defined applicable indentures supplemental indentures required make change control offer cash payment equal 101 aggregate principal amount notes repurchased plus accrued unpaid interest upon close clearwire acquisition clearwire communications llc 825 exchangeable notes due 2040 became exchangeable time holder’s option fixed amount cash equal 70621 1000 principal amount notes surrendered result 444 million total cash consideration payable upon exchange 629 million principal amount notes outstanding classified current debt obligation remaining carrying value notes classified longterm debt obligation credit facilities bank credit facility company 33 billion unsecured revolving bank credit facility expires february 2018 borrowings revolving bank credit facility bear interest rate equal london interbank offered rate libor plus spread varies depending company’s credit ratings march 31 2016 approximately 320 million letters credit outstanding credit facility including letter credit required report order see note 13 commitments contingencies result outstanding letters credit directly reduce availability borrowings company approximately 30 billion borrowing capacity available revolving bank credit facility march 31 2016 required ratio leverage ratio total indebtedness trailing four quarters earnings interest taxes depreciation amortization nonrecurring items defined credit facility adjusted ebitda may exceed 625 10 quarter ending december 31 2016 60 10 fiscal quarter ending thereafter expiration facility allows us reduce total indebtedness purposes calculating leverage ratio subtracting total indebtedness amount cash contributed segregated reserve account provided cash contribution cash remaining hand operations exceeds 20 billion upon transfer cash contribution remain restricted extent longer required leverage ratio remain compliance edc agreement unsecured edc agreement provides covenant terms similar revolving bank credit facility however terms edc agreement repayments outstanding amounts cannot redrawn quarter ended december 2015 made scheduled principal repayment 500 million time repayment edc agreement also amended increase facility 250 million addition new tranche due december 2017 fully drawn accordingly march 31 2016 total principal amount borrowings edc facility 550 million secured equipment credit facilities eksportkreditnamnden ekn secured equipment credit facility provides covenant terms similar revolving bank credit facility 2013 fully drawn began repay ekn secured equipment credit facility totaling 10 billion used finance certain networkrelated purchases ericsson made regularly scheduled principal repayments totaling 254 million year ended march 31 2016 balance outstanding march 31 2016 254 million index consolidated financial statements sprint corporation notes consolidated financial statements finnvera plc finnvera secured equipment credit facility provides us ability borrow 800 million finance networkrelated purchases nokia solutions networks us llc usa facility initially could drawn upon many three consecutive tranches one tranche remaining available borrowing october 2017 borrowings contingent upon amount timing sprints networkrelated purchases year ended march 31 2016 drew 208 million facility made principal repayments totaling 56 million resulting total principal amount 196 million outstanding march 31 2016 ksure equipment credit facility provides ability borrow 750 million finance networkrelated purchases samsung telecommunications america llc facility divided three consecutive tranches varying size borrowings available may 2018 contingent upon amount networkrelated purchases made sprint year ended march 31 2016 drew 266 million facility resulting total principal amount 323 million outstanding march 31 2016 delcredere ducroire dd secured equipment credit facility provides ability borrow 250 million finance network equipmentrelated purchases alcatellucent usa inc year ended march 31 2016 drew 32 million facility resulting total principal amount 32 million outstanding march 31 2016 borrowings ekn finnvera ksure dd secured equipment credit facilities secured liens respective equipment purchased pursuant facilitys credit agreement addition repayments outstanding amounts borrowed secured equipment credit facilities cannot redrawn facilities fully unconditionally guaranteed sprint communications inc sprint corporation covenants four secured equipment credit facilities similar one another covenants revolving bank credit facility edc agreement financing capital lease obligations approximately 3000 cell sites sold subsequently leased back 2008 terms extend 2021 renewal options additional 20 years cell sites continue reported part property plant equipment net consolidated balance sheets due continued involvement property sold transaction accounted financing capital lease obligations primarily use wireless network equipment february march 2016 sold approximately 12 billion total future amounts due customers lease certain devices us exchange cash proceeds 600 million accounts receivable facility see note 4 funding sources difference amount sold cash received represents additional collateral lender sale accounted financing 600 million cash proceeds accordingly reflected debt consolidated balance sheets associated leased devices continue reported part property plant equipment net consolidated balance sheets continue depreciated estimated useful life covenants certain indentures agreements also require compliance various covenants including covenants limit ability company subsidiaries sell substantially assets limit ability company subsidiaries incur indebtedness liens require maintain certain financial ratios defined terms indentures supplemental indentures financing arrangements march 31 2016 company compliance restrictive financial covenants associated borrowings default borrowings could trigger defaults certain debt obligations turn could result maturities accelerated revolving bank credit facility certain agreements currently restricted paying cash dividends ratio total indebtedness adjusted ebitda defined applicable agreements exceeds 25 10 index consolidated financial statements sprint corporation notes consolidated financial statements future maturities longterm debt financing capital lease obligations aggregate amount maturities longterm debt financing capital lease obligations outstanding march 31 2016 follows millions note 10 severance exit costs severance exit costs consist lease exit costs primarily associated tower cell sites access exit costs related payments continue made backhaul access contracts longer receiving economic benefit severance costs associated reductions work force following provides activity severance exit costs liability included accounts payable accrued expenses current liabilities within consolidated balance sheets 1 recognized costs 176 million wireless successor year ended march 31 2016 offset 20 million income wireless resulting revision estimate previously recorded reserve 2 successor year ended march 31 2016 recognized costs 216 million 191 million wireless 25 million wireline 3 successor year ended march 31 2016 2 million solely attributable wireline recognized cost services 17 million solely attributable wireless recognized severance exit costs 4 recognized costs 13 million 12 million wireless 1 million wireline year ended march 31 2015 offset 41 million income wireless resulting revision estimate previously recorded reserve 5 successor year ended march 31 2015 recognized costs 253 million 218 million wireless 35 million wireline 6 successor year ended march 31 2015 recognized costs 38 million 33 million wireless 5 million wireline continually refine network strategy evaluate potential network initiatives improve overall performance network additionally commenced major cost cutting initiative may include headcount reductions among actions reduce operating expenses improve operating cash flows result ongoing activities may incur future material charges associated lease access exit costs severance asset impairments accelerated depreciation among others index consolidated financial statements sprint corporation notes consolidated financial statements note 11 supplemental financial information 1 includes liabilities amounts 66 million 90 million march 31 2016 2015 respectively checks issued excess associated bank balances yet presented collection index consolidated financial statements sprint corporation notes consolidated financial statements note 12 income taxes sprint corporation parent corporation affiliated group corporations join filing us federal consolidated income tax return additionally file income tax returns state jurisdiction imposes income tax certain state jurisdictions sprint subsidiaries intend file combined state tax returns certain softbank affiliates beginning year ended march 31 2016 state tax expense benefit determined utilizing separate return approach sprint subsidiaries file standalone basis also file income tax returns number foreign jurisdictions however foreign income tax activity immaterial cash paid received income tax purposes insignificant successor predecessor periods presented income tax expense consists following differences caused effective income tax rates vary 35 us federal statutory rate income taxes follows index consolidated financial statements sprint corporation notes consolidated financial statements income tax expense benefit allocated items follows 1 amounts recognized accumulated comprehensive loss deferred income taxes recognized temporary differences carrying amounts assets liabilities financial statement purposes tax bases deferred tax assets also recorded operating loss capital loss tax credit carryforwards sources differences give rise deferred income tax assets liabilities march 31 2016 2015 along income tax effect follows 1 see note 2 summary significant accounting policies information early adoption guidance regarding balance sheet classification deferred taxes realization deferred tax assets including net operating loss carryforwards dependent generation future taxable income sufficient realize tax deductions carryforwards credits however history annual losses reduces ability rely expectations future income evaluating ability realize deferred tax assets valuation allowances deferred tax assets recognized determined likely asset realized result company recognized income tax expense increase valuation allowance 939 million 911 million 82 million 708 million successor years ended march 31 2016 2015 threemonth transition period ended march 31 2014 year ended december 31 2013 respectively 14 billion 265 million index consolidated financial statements sprint corporation notes consolidated financial statements predecessor 191day period ended july 10 2013 unaudited threemonth period ended march 31 2013 respectively deferred tax assets primarily related losses incurred period currently realizable expenses recorded period currently deductible income tax purposes remaining increase 272 million carrying amount valuation allowance successor year ended march 31 2015 primarily related amounts recorded comprehensive loss income related pension net actuarial loss net impacts acquisition accounting softbank merger clearwire acquisition expect record significant tax benefits future net operating losses circumstances justify recognition benefits believe likely remaining deferred income tax assets net valuation allowance realized based current income tax laws expectations future taxable income stemming reversal existing deferred tax liabilities uncertainties surrounding income tax law changes shifts operations state taxing jurisdictions future operating income levels may however affect ultimate realization deferred income tax assets income tax expense 141 million successor year ended march 31 2016 primarily attributable tax expense resulting taxable temporary differences amortization fcc licenses partially offset tax benefits reversal state income tax valuation allowance deferred tax assets changes state income tax laws enacted year result organizational restructuring drove sustained increase profitability specific legal entities revised estimate regarding realizability involved entities deferred state tax assets recorded state tax benefit 90 million income tax benefit 574 million successor year ended march 31 2015 primarily attributable recognition tax benefit 19 billion sprint trade name impairment loss partially offset tax expense taxable temporary differences amortization fcc licenses period income tax expense 56 million 45 million successor threemonth transition period ended march 31 2014 year ended december 31 2013 respectively 38 million predecessor unaudited threemonth period ended march 31 2013 primarily attributable taxable temporary differences amortization fcc licenses income tax expense 16 billion predecessor 191day period ended july 10 2013 primarily attributable taxable temporary differences 29 billion gain previouslyheld equity interests clearwire gain previouslyheld equity interests clearwire principally attributable increase fair value fcc licenses held clearwire fcc licenses amortized 15 years income tax purposes licenses indefinite life amortized financial statement reporting purposes temporary differences result net deferred income tax expense since cannot scheduled reverse loss carryforward period successor years ended march 31 2016 2015 threemonth transition period ended march 31 2014 year ended december 31 2013 predecessor 191day period ended july 10 2013 unaudited threemonth period ended march 31 2013 generated 343 million 398 million 110 million 263 million 238 million 96 million respectively foreign income included loss income taxes consolidated statements operations material unremitted earnings foreign subsidiaries march 31 2016 federal operating loss carryforwards 196 billion state operating loss carryforwards 208 billion foreign net operating loss carryforwards 821 million related loss carryforwards recorded federal tax benefits 69 billion net state tax benefits 969 million foreign tax benefits 273 million consideration valuation allowances approximately 11 billion federal net operating loss carryforwards expire fiscal years 2016 2020 remaining 185 billion expire varying amounts fiscal years 2021 2034 state operating loss carryforwards expire varying amounts fiscal year 2035 foreign operating loss carryforwards 427 million expire remaining foreign operating loss carryforwards expire varying amounts starting fiscal year 2016 addition available income tax purposes federal alternative minimum tax net operating loss carryforwards 206 billion state alternative minimum tax net operating loss carryforwards 48 billion loss carryforwards expire varying amounts fiscal year 2034 also available capital loss carryforwards 217 million related capital loss carryforwards tax benefits 83 million approximately 213 million capital loss carryforwards expire prior fiscal year 2017 remaining 4 million expire varying amounts fiscal years 2017 2018 index consolidated financial statements sprint corporation notes consolidated financial statements also available 459 million federal state income tax credit carryforwards march 31 2016 included amount 3 million income tax credits expire prior fiscal year 2017 354 million expire varying amounts fiscal years 2017 2035 remaining 102 million expire unrecognized tax benefits established uncertain tax positions based upon estimates regarding potential future challenges positions largest amount greater fifty percent likely realized upon ultimate settlement estimates updated reporting date based facts circumstances information available interest related unrecognized tax benefits recognized interest expense penalties recognized additional income tax expense unrecognized tax benefits attributable uncertain tax positions 166 million 163 million march 31 2016 2015 respectively march 31 2016 unrecognized tax benefits included items would favorably affect income tax provision 155 million recognized without offsetting valuation allowance adjustment accrued liability income tax related interest penalties insignificant periods presented reconciliation beginning ending amount unrecognized tax benefits follows settlement agreements reached appeals exam division internal revenue service irs examination issues dispute years prior 2010 issues immaterial consolidated financial statements march 31 2016 federal income tax examinations handled irs exam division issues handled irs appeals division involved multiple state income tax examinations related various years beginning 1996 various stages examination administrative review appellate process based current knowledge examinations administrative reviews appellate processes believe reasonably possible number uncertain tax positions may resolved next twelve months could result reduction 20 million unrecognized tax benefits federal state statutes limitations assessment tax liability generally lapse three four years respectively date tax returns filed however income tax attributes carried forward net operating loss carryforwards may challenged adjusted taxing authorities time prior expiration statute limitations tax year utilized note 13 commitments contingencies litigation claims assessments march 2009 stockholder brought suit bennett v sprint nextel corp us district court district kansas alleging sprint communications three former officers violated section 10b exchange act rule 10b5 failing adequately disclose certain alleged operational difficulties subsequent sprintnextel merger purportedly issuing false misleading statements regarding writedown goodwill district court granted final approval settlement august 2015 material impact financial statements five stockholder derivative suits related 2009 stockholder suit filed sprint communications certain present andor former officers directors first murphy v forsee filed state court kansas april 8 2009 removed federal court stayed court pending resolution motion dismiss index consolidated financial statements sprint corporation notes consolidated financial statements bennett case second randolph v forsee filed july 15 2010 state court kansas removed federal court remanded back state court third rosswilliams v bennett et al filed state court kansas february 1 2011 fourth price v forsee et al filed state court kansas april 15 2011 fifth hartleib v forsee et al filed federal court kansas july 14 2011 cases essentially stayed bennett case pending reached agreement principle settle matters agreeing governance provisions paying plaintiffs attorneys fees immaterial amount hearing approve settlement set may 26 2016 april 19 2012 new york attorney general filed complaint alleging sprint communications fraudulently failed collect pay 100 million new york sales taxes receipts sale wireless telephone services since july 2005 complaint also seeks recovery triple damages false claims act well penalties interest sprint communications moved dismiss complaint june 14 2012 july 1 2013 court entered order denying motion dismiss large part although dismiss certain counts parts certain counts sprint communications appealed order intermediate appellate court affirmed order trial court october 20 2015 court appeals new york affirmed decision appellate court tax statute requires us collect remit disputed taxes petition certiorari us supreme court grounds federal preemption pending accrued 180 million year ended march 31 2016 associated matter continue defend matter vigorously expect resolution matter material adverse effect financial position results operations eight related stockholder derivative suits filed sprint communications certain current former officers directors suit alleges generally individual defendants breached fiduciary duties sprint communications stockholders allegedly permitting failing disclose actions alleged suit filed new york attorney general one suit filed louisiana municipal police employees retirement system dismissed federal court two suits filed state court johnson county kansas one suits dismissed premature five suits pending federal court kansas remaining kansas suits stayed pending resolution attorney generals suit expect resolution matters material adverse effect financial position results operations sprint communications inc also defendant complaint filed stockholders clearwire corporation asserting claims breach fiduciary duty sprint communications related claims otherwise challenging clearwire acquisition acp master ltd et al v sprint nextel corp et al filed april 26 2013 chancery court delaware motion dismiss suit denied discovery substantially complete motion summary judgment pending plaintiffs acp master ltd suit also filed suit requesting appraisal fair value clearwire stock discovery case consolidated breach fiduciary duty case substantially complete trial scheduled begin october 2016 sprint communications intends defend acp master ltd cases vigorously expect resolution matters material adverse effect financial position results operations sprint currently involved numerous court actions alleging sprint infringing various patents cases effectively seek monetary damages small number cases brought companies sell products seek injunctive relief well cases progressed various degrees small number may go trial otherwise resolved adverse resolution cases could require us pay significant damages cease certain activities cease selling relevant products services many circumstances would indemnified monetary losses incur respect actions suppliers service providers expect resolution cases material adverse effect financial position results operations october 2013 fcc enforcement bureau began issue notices apparent liability nals lifeline providers imposing fines intracarrier duplicate accounts identified government audit function audits also identified small percentage potentially duplicative intracarrier accounts related assurance wireless business nal yet issued respect sprint know one issued able reasonably estimate amount claim penalties might asserted however based information currently available claim asserted fcc sprint believe amount ultimately paid would material company’s results operations financial position index consolidated financial statements sprint corporation notes consolidated financial statements various suits inquiries proceedings claims either asserted unasserted including purported class actions typical large business enterprise intellectual property matters possible pending us subsidiaries interpretation certain laws regulations including related various federal state matters sales use property taxes charges found mistaken could result payments us possible determine ultimate disposition proceedings whether resolved consistent beliefs expect outcome proceedings individually aggregate material adverse effect financial position results operations spectrum reconfiguration obligations 2004 fcc adopted report order included new rules regarding interference 800 mhz band comprehensive plan reconfigure 800 mhz band report order provides exchange portion 800 mhz fcc spectrum licenses requires us fund cost incurred public safety systems incumbent licensees reconfigure 800 mhz spectrum band also exchange received licenses 10 mhz nationwide spectrum 19 ghz band minimum cash obligation report order 28 billion however obligated pay full amount costs relating reconfiguration plan even costs exceed 28 billion required terms report order letter credit secured provide assurance funds available pay relocation costs incumbent users 800 mhz spectrum letter credit initially 25 billion reduced course proceeding 256 million march 31 2016 since inception program incurred payments approximately 35 billion directly attributable performance report order including approximately 75 million year ended march 31 2016 incurred substantially costs accounted additions fcc licenses remainder property plant equipment although costs incurred march 31 2016 exceeded 28 billion costs reviewed accepted eligible transition administrator year ended march 31 2015 received cash payment approximately 95 million represented reimbursement prior reconfiguration costs incurred us also benefited spectrum recently auctioned fcc expect reimbursements completion 800 mhz band reconfiguration initially required june 26 2008 public safety reconfiguration nearly complete across country exception states washington arizona california texas new mexico fcc continues grant remaining 800 mhz public safety licensees additional time complete band reconfigurations turn delays access 800 mhz replacement channels areas band reconfiguration complete sprint received replacement spectrum 800 mhz band sprint deploying 3g cdma 4g lte spectrum combination spectrum 19 ghz 25 ghz bands future minimum commitments march 31 2016 minimum estimated amounts due operating leases spectrum leases service credits handset saleleaseback tranche 1 purchase orders commitments follows operating leases lease various equipment office facilities retail outlets kiosks switching facilities cell sites operating leases noncancelable portion leases generally ranges monthly 15 years leases exceptions provide automatic renewal options escalations either fixed based consumer price index consolidated financial statements sprint corporation notes consolidated financial statements index rent abatements along rent escalations included computation rent expense calculated straightline basis lease term lease term leases includes initial noncancelable term plus least one renewal period noncancelable term less ten years exercise related renewal option options reasonably assured cell site leases generally provide initial noncancelable term five twelve years 5 renewal options five years rental commitments operating leases including lease renewals reasonably assured consisted mainly leases cell switch sites real estate information technology network equipment office space total rental expense 29 billion 26 billion 653 million 13 billion successor years ended march 31 2016 2015 threemonth transition period ended march 31 2014 year ended december 31 2013 respectively 10 billion 483 million predecessor 191day period ended july 10 2013 unaudited threemonth period ended march 31 2013 respectively spectrum leases service credits certain spectrum leases provide minimum lease payments additional charges renewal options escalation clauses leased spectrum agreements generally terms 30 years expect renewal periods spectrum leases renewed us also commitments provide services certain lessors reimburse lessors certain capital equipment thirdparty service expenditures term lease accrue monthly obligation services equipment based total estimated available service credits divided term lease obligation reduced services provided actual invoices presented paid lessors period ended march 31 2016 satisfied 4 million related commitments maximum remaining commitment march 31 2016 86 million expected incurred term related lease agreements generally range 15 30 years purchase orders commitments party commitments includes among things service spectrum network equipment devices asset retirement obligations executory contracts connection conducting business amounts actually paid agreements likely higher due variable components agreements significant variable components determine ultimate obligation owed include items hours contracted subscribers factors addition party various arrangements conditional nature obligate us make payments upon occurrence certain events delivery functioning software product possible predict timing amounts may due conditional arrangements amounts included table note 14 stockholders equity per share data certificate incorporation authorizes 10020000000 shares capital stock follows • 9000000000 shares common stock par value 001 per share • 1000000000 shares nonvoting common stock par value 001 per share • 20000000 shares preferred stock par value 00001 per share classes common stock voting common stock holders common stock entitled one vote per share matters submitted action stockholders approximately 40 billion shares common stock outstanding march 31 2016 treasury shares common stock repurchased us recorded cost treasury shares result reduction stockholders equity reissue treasury shares part stockholder approved stockbased compensation programs well upon conversion outstanding securities convertible common stock shares reissued determine cost using fifo method index consolidated financial statements sprint corporation notes consolidated financial statements dividends declare dividends common shares periods presented consolidated financial statements currently restricted paying cash dividends terms revolving bank credit facility edc agreement equipment credit facilities see note 9 longterm debt financing capital lease obligations accumulated comprehensive loss components accumulated comprehensive loss net tax follows per share data basic net loss per common share calculated dividing net loss weighted average number common shares outstanding period diluted net loss per common share adjusts basic net loss per common share computed using treasury stock method effects potentially dilutive common shares effect antidilutive outstanding options restricted stock units exclusive participating securities effect computation dilutive weighted average number shares outstanding effect would antidilutive approximately 73 million 56 million 60 million 70 million successor years ended march 31 2016 2015 threemonth transition period ended march 31 2014 year ended december 31 2013 respectively 61 million 74 million shares predecessor 191day period ended july 10 2013 unaudited threemonth period ended march 31 2013 respectively addition periods subsequent softbank merger 55 million shares issuable warrant issued softbank close softbank merger treated potentially dilutive securities impact computation dilutive weighted average number shares outstanding effect would antidilutive warrant exercisable 525 per share option softbank whole part time within fiveyear term note 15 segments sprint operates two reportable segments wireless wireline • wireless primarily includes retail wholesale affiliate revenue wide array wireless voice data transmission services equipment revenue sale wireless devices handset tablets accessories us puerto rico us virgin islands • wireline primarily includes revenue domestic international wireline voice data communication services provided communications companies targeted business subscribers addition wireless segment define segment earnings wireless wireline operating loss income segment expenses depreciation amortization severance exit costs goodwill impairments asset impairments items solely directly attributable segment representing items nonrecurring unusual nature expense income items excluded segment earnings managed corporate level transactions segments generally accounted based market rates believe approximate fair value company generally reestablishes rates beginning fiscal year past several years industrywide trend lower rates due increased competition wireline wireless communications companies well cable internet service providers index consolidated financial statements sprint corporation notes consolidated financial statements segment financial information follows index consolidated financial statements sprint corporation notes consolidated financial statements index consolidated financial statements sprint corporation notes consolidated financial statements index consolidated financial statements sprint corporation notes consolidated financial statements 1 intersegment revenues consist primarily wireline services provided wireless segment resale use wireless subscribers 2 impairments successor year ended march 31 2015 consist 19 billion trade name impairment related wireless segment 233 million impairment related wireline longlived assets 3 net successor year ended march 31 2016 consists 409 million severance exit costs combined 193 million legal reserves related various pending legal suits proceedings 166 million loss disposal property plant equipment related cell site construction costs network costs longer recoverable result changes companys network plans partially offset 20 million income resulting revision estimate previously recorded reserve losses totaling approximately 321 million relating writeoff leased devices associated lease cancellations 256 million loss sale devices mls handset saleleaseback tranche 1 transaction 65 million excluded net included within wireless segment earnings net successor year ended march 31 2015 consists 304 million severance exit costs combined 91 million legal reserves related various pending legal suits proceedings 59 million partial pension settlement partially offset 41 million income resulting revision estimate previously recorded reserve net successor threemonth transition period ended march 31 2014 consists 52 million severance exit costs 75 million loss disposal property plant equipment related network equipment assets longer necessary managements strategic plans net successor year ended december 31 2013 consists 309 million severance exit costs 100 million business combination fees paid unrelated parties connection transactions softbank clearwire 75 million included corporate segment 25 million included wireless segment classified selling general administrative expenses partially offset 7 million insurance reimbursement towards 2012 hurricanerelated charges included wireless segment classified contraexpense cost services expense net predecessor 191day period ended july 10 2013 unaudited threemonth period ended march 31 2013 consists 652 million 25 million respectively severance exit costs partially offset 22 million favorable developments connection e911 regulatory taxrelated contingency net predecessor 191day period ended july 10 2013 also includes 53 million business combination fees paid unrelated parties connection transactions softbank clearwire included corporate segment classified selling general administrative expenses index consolidated financial statements sprint corporation notes consolidated financial statements index consolidated financial statements sprint corporation notes consolidated financial statements 1 revenues eliminated consolidation consist primarily wireline services provided wireless segment resale use wireless subscribers note 16 quarterly financial data unaudited 1 sum quarterly earnings per share amounts may equal annual amounts changes weighted average number shares outstanding year index consolidated financial statements sprint corporation notes consolidated financial statements note 17 relatedparty transactions clearwire relatedparty transactions immediately prior clearwire acquisition sprint communications held approximately 501 noncontrolling voting interest 60 noncontrolling economic interest clearwire corporation well 441 noncontrolling economic interest clearwire communications llc carrying value totaled 325 million prior close clearwire acquisition applied equity method accounting investment clearwire equity losses clearwire 482 million 202 million predecessor 190day period ended july 9 2013 predecessor unaudited threemonth period ended march 31 2013 respectively equity losses investment clearwire consisted share clearwires net loss adjustments noncash impairment investment gains losses associated dilution ownership interest resulting clearwires equity issuances derivative losses associated change fair value embedded derivative included exchangeable notes clearwire sprint items recognized clearwire corporation affect economic interest sprints equity losses predecessor 190day period ended july 9 2013 include 65 million derivative loss associated change fair value embedded derivative subsequent clearwire acquisition clearwire consolidated whollyowned subsidiary sprint connection acquisition sprint recorded pretax gain approximately 29 billion gain previouslyheld equity interests predecessor consolidated statements operations immediately preceding clearwire acquisition resulting difference estimated fair value interests owned prior acquisition 500 per share offer price less estimated control premium approximately 060 carrying value approximately 325 million previouslyheld equity interests cost services included consolidated statements operations related agreement purchase 4g services clearwire totaled 207 million 101 million predecessor 190day period ended july 9 2013 predecessor unaudited threemonth period ended march 31 2013 respectively summarized financial information clearwire 190day period ended july 9 2013 preceded clearwire acquisition follows softbank relatedparty transactions addition agreements arising relating softbank merger sprint entered various arrangements softbank controlled affiliates softbank parties third parties softbank parties also parties including international wireless roaming wireless wireline call termination real estate logistical management services index consolidated financial statements sprint corporation notes consolidated financial statements brightstar arrangements brightstar whereby brightstar provides supply chain inventory management services us indirect channels whereby sprint may sell new used devices new accessories brightstar purposes provided 10 billion credit line brightstar facilitate certain arrangements result shifted concentration credit risk away indirect channel partners brightstar subsidiary softbank expect softbank provide necessary support ensure brightstar fulfill obligations us agreements however assurance softbank provide support supply chain inventory management arrangement included among things brightstar would purchase inventory oems sell directly indirect dealers compensation services remit per unit fees brightstar device sold dealers retailers indirect channels years ended march 31 2016 2015 incurred fees arrangements totaling 102 million 66 million respectively may also purchase new used devices accessories brightstar sold direct channels used fulfill service repair needs amounts included consolidated financial statements associated arrangements brightstar follows 1 amounts reported periods immaterial handset saleleaseback tranche 1 november 2015 sprint entered handset saleleaseback tranche 1 transaction mls company formed group equity investors including softbank sell leaseback certain devices currently leased customers total proceeds 11 billion see note 4 funding sources note 13 commitments contingencies transactions agreements softbank parties aggregate immaterial period ended march 31 2016 index consolidated financial statements sprint corporation notes consolidated financial statements note 18 guarantor financial information september 11 2013 sprint corporation issued 225 billion aggregate principal amount 7250 notes due 2021 425 billion aggregate principal amount 7875 notes due 2023 private placement transaction registration rights december 12 2013 sprint corporation issued 25 billion aggregate principal amount 7125 notes due 2024 private placement transaction registration rights issuances fully unconditionally guaranteed sprint communications inc subsidiary guarantor 100 percent owned subsidiary sprint corporation parentissuer connection foregoing registration rights agreements respect notes required company sprint communications inc use reasonable best efforts cause offer exchange notes new issue substantially identical exchange notes registered securities act 1933 accordingly november 2014 completed exchange offer notes compliance registration obligations receive proceeds exchange offer addition february 24 2015 sprint corporation issued 15 billion aggregate principal amount 7625 notes due 2025 fully unconditionally guaranteed sprint communications inc year ended march 31 2016 noncash equity contribution subsidiary guarantor nonguarantor subsidiaries result organizational restructuring tax purposes amount 15 billion subsidiary guarantors revolving bank credit facility finance agreements subsidiary guarantor currently restricted paying cash dividends parentissuer nonguarantor subsidiary ratio total indebtedness adjusted ebitda defined applicable agreement exceeds 25 10 sprint receivables facility providing sale eligible wireless service installment certain future lease receivables november 2015 sprint also entered handset saleleaseback tranche 1 transaction sell leaseback certain leased devices connection receivables facility handset saleleaseback tranche 1 sprint formed certain whollyowned consolidated bankruptcyremote spes spe lessees included nonguarantor subsidiaries condensed consolidated financial information spe lessee separate legal entity separate creditors entitled prior upon liquidation spe lessee satisfied spe lessee’s assets prior assets spe lessee becoming available sprint see note 4 funding sources guarantor financial information distinguishes predecessor period relating sprint communications periods prior softbank merger successor period relating sprint corporation formerly starburst ii periods subsequent incorporation starburst ii october 5 2012 additionally parentissuer column represents activities sprint corporation formerly starburst ii parentissuer financial information exists predecessor periods prior softbank merger accounted investments subsidiaries using equity method presented condensed consolidating financial information periods presented consolidated financial statements index consolidated financial statements sprint corporation notes consolidated financial statements condensed consolidating balance sheet index consolidated financial statements sprint corporation notes consolidated financial statements condensed consolidating balance sheet index consolidated financial statements sprint corporation notes consolidated financial statements condensed consolidating statement comprehensive loss index consolidated financial statements sprint corporation notes consolidated financial statements condensed consolidating statement comprehensive loss index consolidated financial statements sprint corporation notes consolidated financial statements condensed consolidating statement comprehensive loss index consolidated financial statements sprint corporation notes consolidated financial statements condensed consolidating statement comprehensive loss index consolidated financial statements sprint corporation notes consolidated financial statements condensed consolidating statement comprehensive loss index consolidated financial statements sprint corporation notes consolidated financial statements condensed consolidating statement comprehensive loss index consolidated financial statements sprint corporation notes consolidated financial statements condensed consolidating statement cash flows index consolidated financial statements sprint corporation notes consolidated financial statements condensed consolidating statement cash flows index consolidated financial statements sprint corporation notes consolidated financial statements condensed consolidating statement cash flows index consolidated financial statements sprint corporation notes consolidated financial statements condensed consolidating statement cash flows index consolidated financial statements sprint corporation notes consolidated financial statements condensed consolidating statement cash flows index consolidated financial statements sprint corporation notes consolidated financial statements condensed consolidating statement cash flows index consolidated financial statements sprint corporation notes consolidated financial statements note 19 subsequent events network equipment saleleaseback april 2016 certain whollyowned subsidiaries sprint entered agreements network equipment saleleaseback sell leaseback certain network equipment unrelated bankruptcyremote special purpose entities collectively network leaseco spes sprint sold certain network equipment book value approximately 30 billion network leaseco spes used collateral raise approximately 22 billion borrowings external investors including softbank network leaseco spes variable interest entities sprint identified primary beneficiary result sprint required consolidate network leaseco spes intercompany transactions balances network leaseco whollyowned sprint subsidiaries eliminated consolidation network assets involved transaction consisted primarily equipment located cell towers remain sprints consolidated financial statements continue depreciated principal interest payments borrowings external investors paid back staggered unequal payments january 2018 new unsecured financing facility april 2016 sprint communications entered unsecured financing facility 20 billion terms facility provide covenant terms similar revolving bank credit facility however repayments outstanding amounts cannot redrawn loan bears interest rate equal libor plus percentage varies depending time draw matures october 2017 amounts borrowed required repaid certain debt equity securities issued certain asset sales occur set forth specifically agreement may 17 2016 amounts drawn facility handset saleleaseback tranche 2 april 2016 sprint entered second transaction mls handset saleleaseback tranche 2 sell leaseback certain iphone® devices leased customers iphone forever iphone life programs contrast first mls transaction saleleaseback arrangement accounted financing transaction accordingly devices remain property plant equipment net consolidated balance sheets continue depreciated estimated residual values generally lease term proceeds received reflected cash provided financing activities consolidated statements cash flows payments made mls reflected principal repayments interest expense respective terms future changes fair value financing obligation recognized earnings course arrangement upon closing transaction may 2016 sprint sold leasedback approximately 13 billion book value leased devices cash proceeds totaling 11 billion dpp 186 million settled end arrangement subject certain device losses incurred mls shentel transaction april 2016 received regulatory approval transaction closed may 2016 series agreements entered august 2015 shenandoah telecommunications company shentel result shentel acquiring one wholesale partners ntelos holdings corp ntelos total consideration transaction acquire certain assets spectrum amend affiliate agreement shentel expand area shentel provides wireless service sprint customers favorable economic terms included approximately 195 million net present value basis notes payable shentel sprint satisfy obligations notes payable expected term five six years approximately 110 million total purchase price recorded loss quarter ended june 30 2016 related termination preexisting wholesale arrangement ntelos index consolidated financial statements independent auditors report board directors stockholders clearwire corporation bellevue washington audited accompanying consolidated financial statements clearwire corporation subsidiaries company comprise consolidated balance sheet july 9 2013 related consolidated statements operations comprehensive loss cash flows stockholders equity 190 days ended july 9 2013 related notes consolidated financial statements managements responsibility consolidated financial statements management responsible preparation fair presentation consolidated financial statements accordance accounting principles generally accepted united states america includes design implementation maintenance internal control relevant preparation fair presentation consolidated financial statements free material misstatement whether due fraud error auditors responsibility express opinion consolidated financial statements based audit conducted audit accordance auditing standards generally accepted united states america standards require plan perform audit obtain reasonable assurance whether consolidated financial statements free material misstatement audit involves performing procedures obtain audit evidence amounts disclosures consolidated financial statements procedures selected depend auditor’s judgment including assessment risks material misstatement consolidated financial statements whether due fraud error making risk assessments auditor considers internal control relevant companys preparation fair presentation consolidated financial statements order design audit procedures appropriate circumstances purpose expressing opinion effectiveness companys internal control accordingly express opinion audit also includes evaluating appropriateness accounting policies used reasonableness significant accounting estimates made management well evaluating overall presentation consolidated financial statements believe audit evidence obtained sufficient appropriate provide basis audit opinion consolidated financial statements referred present fairly material respects financial position clearwire corporation subsidiaries july 9 2013 results operations cash flows 190 days ended july 9 2013 accordance accounting principles generally accepted united states america emphasis matter discussed note 1 consolidated financial statements effective july 9 2013 sprint communications inc acquired outstanding stock clearwire corporation business combination accounted purchase result acquisition clearwire corporation became consolidated subsidiary sprint corporation date opinion modified respect matter deloitte touche llp seattle washington february 21 2014 index consolidated financial statements report independent registered public accounting firm board directors stockholders clearwire corporation bellevue washington audited accompanying consolidated balance sheet clearwire corporation subsidiaries “company” december 31 2012 related consolidated statements operations comprehensive loss cash flows stockholders’ equity two years period ended december 31 2012 consolidated financial statements responsibility company’s management responsibility express opinion consolidated financial statements based audits conducted audits accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether consolidated financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion consolidated financial statements present fairly material respects financial position clearwire corporation subsidiaries december 31 2012 results operations cash flows two years period ended december 31 2012 conformity accounting principles generally accepted united states america deloitte touche llp seattle washington february 21 2014 index consolidated financial statements clearwire corporation subsidiaries consolidated balance sheets see notes consolidated financial statements index consolidated financial statements clearwire corporation subsidiaries consolidated statements operations see notes consolidated financial statements index consolidated financial statements clearwire corporation subsidiaries consolidated statements comprehensive loss see notes consolidated financial statements index consolidated financial statements clearwire corporation subsidiaries consolidated statements cash flows see notes consolidated financial statements index consolidated financial statements clearwire corporation subsidiaries consolidated statements stockholders’ equity 190 days ended july 9 2013 years ended december 31 2012 2011 see notes consolidated financial statements index consolidated financial statements clearwire corporation subsidiaries notes consolidated financial statements 1 description business clearwire corporation including consolidated subsidiaries clearwire us company provider fourth generation 4g wireless broadband services build operate next generation mobile broadband networks provide highspeed mobile internet residential internet access services communities throughout country current 4g mobile broadband network operates worldwide interoperability microwave access technology 80216e standard refer mobile wimax current 4g mobile broadband markets united states offer services retail channels wholesale partners sprint acquisition december 17 2012 entered agreement plan merger sprint nextel corporation refer merger agreement pursuant sprint nextel corporation agreed acquire outstanding shares clearwire corporation class b common stock refer class common stock class b common stock respectively currently owned sprint nextel corporation softbank corp refer softbank affiliates merger refer sprint acquisition closed july 9 2013 refer acquisition date became whollyowned subsidiary sprint communications inc formerly known sprint nextel corporation refer sprint indirect whollyowned subsidiary sprint corporation closing sprint acquisition outstanding shares common stock converted automatically right receive 500 per share cash without interest refer merger consideration result sprint acquisition resulting change ownership control acquisition method accounting applied sprint pusheddown us included consolidated financial statements periods presented subsequent acquisition date result new basis presentation based estimated fair values assets liabilities successor period beginning day following consummation merger estimated fair values based managements judgment evaluating several factors including preliminary valuation assessment accompanying consolidated financial statements notes represent period time prior sprint acquisition reflect adjustments made result sprint acquisition including acquisition method accounting prior sprint acquisition sprint applied equity method accounting investment clearwire’s accompanying consolidated financial statements included exhibit sprint’s form 10k required regulation sx rule 309 note purchase agreement connection merger agreement december 17 2012 entered note purchase agreement refer note purchase agreement clearwire communications llc refer clearwire communications clearwire finance inc together clearwire communications refer issuers sprint agreed purchase us election aggregate principal amount 8000 million 100 exchangeable notes due 2018 refer sprint notes ten monthly installments 800 million first business day month refer draw date beginning january 2013 pendency merger notes accrue interest 100 per annum exchangeable shares class common stock exchange rate 66667 shares per 1000 aggregate principal amount notes equivalent price 150 per share subject antidilution protections see note 9 longterm debt net information index consolidated financial statements clearwire corporation subsidiaries notes consolidated financial statements continued liquidity date invested heavily building maintaining networks history operating losses expect significant losses future expect operations generate cumulative positive cash flows next twelve months expect meet funding needs near future cash investments held july 9 2013 cash receipts mobile wimax services retail wholesale business sprint 2011 november 4g mvno amendment additionally anticipate receiving funds sprint deployment time division duplex refer tdd long term evolution refer lte network use additional spectrum specified 2011 november 4g mvno amendment whollyowned subsidiary sprint extent able fund business retail wholesale revenue streams expect receive funding shortfall sprint continue going concern least next twelve months 2 summary significant accounting policies accompanying financial statements prepared accordance accounting principles generally accepted united states america refer us gaap following summary significant accounting policies principles consolidation consolidated financial statements include assets liabilities results operations whollyowned subsidiaries control controlling financial interest investments entities control primary beneficiary ability exercise significant influence operating financial policies accounted equity method intercompany transactions eliminated consolidation noncontrolling interests consolidated balance sheets include thirdparty investments entities consolidate wholly classify noncontrolling interests part equity allocate net loss comprehensive income loss equity transactions noncontrolling interests accordance applicable ownership percentages also continue attribute noncontrolling interests share losses even attribution results deficit noncontrolling interest balance see note 14 stockholders equity information financial statement presentation reclassified certain prior period amounts conform current period presentation use estimates preparing financial statements conformity us gaap requires management make complex subjective judgments nature judgments subject inherent degree uncertainty judgments based historical experience terms existing contracts observance trends industry information provided subscribers information available outside sources appropriate additionally changes accounting estimates reasonably likely occur period factors could material impact financial statements presentation financial condition changes financial condition results operations significant estimates inherent preparation accompanying financial statements include impairment analysis spectrum licenses indefinite lives including judgments impairment indicator may occurred estimates fair value spectrum licenses recoverability determination useful lives longlived assets include property plant equipment intangible assets tax valuation allowances valuation derivatives cash equivalents cash equivalents consist money market mutual funds highly liquid shortterm investments original maturities three months less cash equivalents stated cost index consolidated financial statements clearwire corporation subsidiaries notes consolidated financial statements continued approximates market value cash equivalents exclude cash contractually restricted operational purposes maintain cash equivalent balances financial institutions exceed federally insured limits experienced losses related balances management believes credit risk related balances minimal restricted cash restricted cash consists primarily amounts satisfy certain contractual obligations classified current noncurrent asset based designated purpose majority restricted cash designated satisfy certain lease obligations investments investment portfolio comprised primarily us government agency marketable debt securities classify marketable debt securities availableforsale investments securities stated estimated fair value investments recorded shortterm investments original maturities greater three months remaining maturities less one year investments maturities one year recorded longterm investments unrealized gains losses recorded within accumulated comprehensive income loss realized gains losses measured reclassified accumulated comprehensive income loss basis specific identification method account certain investments using equity method based ownership interest ability exercise significant influence accordingly record investment initially cost adjust carrying amount investment recognize share earnings losses investee reporting period cease recognize investee losses investment basis zero july 9 2013 december 31 2012 balance equity method investees 0 recognize realized losses declines fair value investments cost basis judged otherthantemporary determining whether decline fair value otherthantemporary consider various factors including market price investment ratings financial condition nearterm prospects issuer length time extent fair value less cost basis intent ability hold investment maturity period time sufficient allow anticipated recovery market value judged decline fair value otherthantemporary realized loss equal excess cost basis fair value recorded consolidated statements operations new cost basis investment established fair value measurements fair value price would received sell asset paid transfer liability orderly transaction market participants measurement date determining fair value consider principal advantageous market asset liability would transact necessary consider assumptions market participants would use pricing asset liability accounting guidance fair value measurement requires entity maximize use observable inputs minimize use unobservable inputs measuring fair value standard establishes fair value hierarchy based level independent objective evidence surrounding inputs used measure fair value financial assets financial liabilities classified hierarchy based lowest level input significant fair value measurement assessment significance particular input fair value measurement requires judgment may affect valuation assets liabilities measured placement within fair value hierarchy index consolidated financial statements clearwire corporation subsidiaries notes consolidated financial statements continued threetier hierarchy inputs used measuring fair value prioritizes inputs used methodologies measuring fair value assets liabilities follows level 1 quoted market prices active markets identical assets liabilities level 2 inputs quoted prices observable asset liability quoted prices similar assets liabilities active markets quoted prices identical assets liabilities less active markets modelderived valuations significant inputs observable derived principally corroborated observable market data level 3 unobservable inputs significant fair value measurement cannot corroborated market data listed prices quotes available fair value based upon internally developed available models primarily use inputs marketbased independently sourced market parameters including limited interest rate curves volatilities equity prices credit curves use judgment determining certain assumptions market participants would use pricing financial instrument including assumptions discount rates credit spreads degree management judgment involved determining fair value dependent upon availability observable market parameters assets liabilities trade actively quoted market prices observable market parameters minimal judgment involved measuring fair value observable market prices parameters fully available management judgment necessary estimate fair value addition changes market conditions may reduce availability reliability quoted prices observable data see note 11 fair value information accounts receivable accounts receivables stated amounts due subscribers wholesale partners net allowance doubtful accounts see note 15 related party transactions information regarding accounts receivable balances related parties inventory primarily consists customer premise equipment refer cpe accessories sold retail subscribers stated lower cost net realizable value cost determined average cost method record inventory writedowns obsolete slowmoving items based inventory turnover trends historical experience property plant equipment property plant equipment excluding construction progress stated cost net accumulated depreciation calculated straightline basis estimated useful lives assets placed service network construction expenditures recorded construction progress network asset placed service time asset transferred appropriate property plant equipment refer ppe category capitalize costs additions improvements including salaries benefits related overhead costs associated constructing ppe interest costs related construction estimated useful life ppe determined based historical usage identical similar equipment consideration given technological changes industry trends could impact network architecture asset utilization leasehold improvements recorded cost amortized lesser estimated useful lives related lease term including renewals reasonably assured included within network base station equipment recorded capital leases generally amortized lease term maintenance repairs expensed incurred ppe assessed impairment whenever events changes circumstances indicate carrying amount asset may recoverable events circumstances exist determine recoverability assets carrying value estimating expected undiscounted future cash flows directly associated expected arise direct result use disposal asset expected undiscounted future cash flows less carrying amount asset loss recognized difference fair value asset carrying value purposes testing impairment longlived assets including ppe intangible assets definite useful lives spectrum license assets combined single asset group represents lowest level identifiable cash flows index consolidated financial statements clearwire corporation subsidiaries notes consolidated financial statements continued largely independent assets liabilities management believes utilizing assets group represents highest best use assets consistent managements strategy utilizing spectrum licenses integrated basis part nationwide network ppe impairment losses recorded 190 days ended july 9 2013 years ended december 31 2012 2011 addition analyses described periodically assess certain assets yet deployed networks including equipment cell site development costs classified construction progress assessment includes provision differences recorded amounts results physical counts provision excessive obsolete equipment see note 4 property plant equipment information internally developed software capitalize costs related computer software developed obtained internal use interest costs incurred period development software obtained internal use generally enterpriselevel business finance software customized meet specific operational needs costs incurred application development phase capitalized amortized useful life software placed service generally three years periodically assess capitalized software costs placed service determine whether projects longer expected completed capitalized cost associated projects expected completed written costs recognized preliminary project phase postimplementation phase well maintenance training costs expensed incurred spectrum licenses spectrum licenses primarily include owned spectrum licenses indefinite lives favorable spectrum leases indefinite lived spectrum licenses acquired stated cost amortized owned spectrum licenses united states issued fixed time renewals licenses occurred routinely nominal cost moreover determined currently legal regulatory contractual competitive economic factors limit useful lives owned spectrum licenses therefore licenses accounted intangible assets indefinite lives impairment test intangible assets indefinite useful lives consists comparison fair value intangible asset carrying amount carrying amount intangible asset exceeds fair value impairment loss recognized amount equal excess estimated fair value spectrum licenses determined use greenfield direct value method estimates value estimating discounted future cash flows hypothetical startup business spectrum licenses indefinite useful lives assessed impairment annually frequently event indicates asset might impaired impairments periods presented indefinite lived intangible assets favorable spectrum leases stated cost net accumulated amortization assessed impairment whenever events changes circumstances indicate carrying amount asset may recoverable carrying value spectrum leases amortized straightline basis estimated useful lives lease term including expected renewal periods applicable impairment losses favorable spectrum leases 190 days ended july 9 2013 years ended december 31 2012 2011 intangible assets intangible assets consist subscriber relationships trademarks patents stated cost net accumulated amortization calculated using either straightline method accelerated method assets estimated remaining useful lives intangible assets assessed impairment whenever events changes circumstances indicate carrying amount asset may recoverable impairment losses intangible assets 190 days ended july 9 2013 years ended december 31 2012 2011 derivative instruments hedging activities policy hedging activities executed manage exposures arising normal course business purpose creating speculative positions trading record derivatives balance sheet fair value either assets liabilities accounting changes fair value derivatives depends intended use derivative whether qualifies hedge accounting index consolidated financial statements clearwire corporation subsidiaries notes consolidated financial statements continued 2010 issued exchangeable notes included embedded exchange options refer exchange options qualified derivative instruments required accounted separately host debt instruments recorded derivative financial instruments fair value embedded exchange options qualify hedge accounting future changes fair value derivative instruments recognized currently earnings time exchange options exercised expire see note 10 derivative instruments information debt issuance costs debt issuance costs initially capitalized deferred cost amortized interest expense effective interest method expected term related debt unamortized debt issuance costs related extinguishment debt expensed time debt extinguished recorded income expenses net consolidated statements operations unamortized debt issuance costs considered longterm recorded assets consolidated balance sheets interest capitalization capitalize interest related construction network infrastructure assets well development software internal use capitalization interest commences preconstruction period administrative technical activities includes obtaining leases zoning approvals building permits ceases construction substantially complete available use suspend substantially construction activity interest capitalized construction progress software development interest capitalization based rates applicable borrowings outstanding period balance qualified assets construction period capitalized interest reported cost network assets software assets depreciated useful lives assets see note 4 property plant equipment income taxes record deferred income taxes based estimated future tax effects differences financial statement tax basis assets liabilities using tax rates expected effect temporary differences reverse deferred tax assets also recorded net operating loss capital loss tax credit carryforwards valuation allowances recorded reduce deferred tax assets amount considered likely realized also apply recognition threshold tax position required meet recognized financial statements policy recognize interest related unrecognized tax benefits interest expense interest income recognize penalties additional income tax expense revenue recognition primarily earn revenue providing access highspeed wireless networks also included revenue sales cpe additional addon services 4g mobile broadband markets offer services retail channels wholesale partners believe geographic diversity retail subscriber base minimizes risk incurring material losses due concentration credit risk sprint major wholesale customer accounts substantially wholesale revenues date comprises approximately 36 total revenues 190 days ended july 9 2013 years ended december 31 2012 2011 revenue consisted following thousands revenue retail subscribers billed one month advance recognized ratably service period revenues associated sale cpe equipment recognized title risk loss transferred billed shipping handling costs classified revenue index consolidated financial statements clearwire corporation subsidiaries notes consolidated financial statements continued revenue arrangements multiple deliverables divided separate units available revenue allocated using vendorspecific objective evidence thirdparty evidence selling prices otherwise estimated selling prices utilized revenue attributable delivered elements recognized currently revenue attributable undelivered elements deferred recognized undelivered elements expected delivered remaining term agreements exception universal service fee refer usf regulatory surcharge taxes fees collected customers excluded revenues usf recorded gross basis included revenues billed customers usf included revenue 190 days ended july 9 2013 years ended december 31 2012 2011 09 million 28 million 39 million respectively 190 days ended july 9 2013 years ended december 31 2012 2011 substantially wholesale revenues derived agreements sprint november 2011 entered november 2011 4g mvno amendment result minimum payments previous amendment 4g mvno agreement entered sprint april 2011 replaced provisions november 2011 4g mvno amendment november 2011 4g mvno amendment sprint paying us 9259 million unlimited 4g mobile wimax services resale retail subscribers 2012 2013 approximately twothirds paid service provided 2012 remainder paid service provided 2013 part november 2011 4g mvno amendment also agreed usage based pricing wimax services 2013 lte service beginning 2012 2011 revenues wholesale subscribers billed one month arrears generally recognized earned based terms defined commercial agreements wholesale partners 2011 substantially wholesale revenues derived agreement sprint agreement revenues earned sprint utilized network usagebased pricing included volume discounts advertising costs advertising costs expensed incurred first time advertising occurs advertising expense 226 million 697 million 764 million 190 days ended july 9 2013 years ended december 31 2012 2011 respectively operating leases operating leases spectrum licenses towers certain facilities equipment use operations certain spectrum licenses leased thirdparty holders educational broadband service refer ebs spectrum licenses granted fcc ebs licenses authorize provision certain communications services ebs channels certain markets throughout united states account spectrum leases executory contracts similar operating leases signed leases unmet conditions required become effective amortized conditions met included spectrum licenses accompanying consolidated balance sheets leases require upfront payments leases containing scheduled rent escalation clauses record minimum rental payments straightline basis term lease including expected renewal periods appropriate leases containing tenant improvement allowances rent incentives record deferred rent classified liability deferred rent amortized term lease including expected renewal periods appropriate reduction rent expense periodically terminate unutilized tower leases early termination available terms lease advise landlords intention renew time notify landlords intention renew recognize ceasetouse tower lease liability based remaining lease rentals adjusted prepaid deferred rent recognized lease reduced estimated sublease rentals could reasonably obtained property discontinued operations result strategic decision focus investment united states market second quarter 2011 committed sell operations belgium germany spain businesses comprised substantially remaining operations previously reported international segment year ended december 31 2012 completed sale operations germany belgium index consolidated financial statements clearwire corporation subsidiaries notes consolidated financial statements continued spain associated results operations years ended december 31 2012 2011 separately reported discontinued operations summarized financial information discontinued operations show thousands new accounting pronouncements december 2011 financial accounting standards board fasb issued authoritative guidance regarding disclosures offsetting assets liabilities requires common disclosure requirements allow investors better compare assess effect offsetting arrangements financial statements prepared us gaap financial statements prepared ifrs standard effective beginning first quarter 2013 requires retrospective application affects disclosures footnotes financial statements october 2012 fasb tentatively decided limit scope authoritative guidance derivatives repurchase agreements securities lending securities borrowing arrangements january 2013 fasb issued additional clarifying guidance limited scope disclosure requirements derivatives repurchase agreements reverse purchase agreements securities lending securities borrowing transactions either offset accordance specific criteria contained us gaap subject master netting arrangement similar agreement based scope revision authoritative guidance impact existing disclosures february 2013 fasb issued authoritative guidance regarding comprehensive income reporting amounts reclassified accumulated comprehensive income amends existing guidance requires single location presentation effects certain significant amounts reclassified component accumulated comprehensive income based source statement comprehensive loss income line items affected reclassification guidance effective beginning first quarter 2013 material effect consolidated financial statements amounts reclassified comprehensive income consisting primarily recognition foreign currency gains immaterial periods presented july 2013 fasb issued authoritative guidance regarding income taxes topic 740 presentation unrecognized tax benefit net operating loss carryforward similar tax loss tax credit carryforward exists consensus fasb emerging issues task force amends existing guidance related financial presentation unrecognized tax benefits requiring entity net unrecognized tax benefits deferred tax assets available samejurisdiction loss tax carryforwards would apply settlement uncertain tax positions amendments effective beginning first quarter 2014 early adoption permitted applied prospectively unrecognized tax benefits exist effective date expected material effect consolidated financial statements index consolidated financial statements clearwire corporation subsidiaries notes consolidated financial statements continued 3 investments july 9 2013 december 31 2012 consisted following thousands first quarter 2012 sold auction market preferred securities recorded gain 33 million income expense net consolidated statements operations representing total proceeds received longer collateralized debt obligations auction market preferred securities otherthantemporary impairment losses recorded 190 days ended july 9 2013 years ended december 31 2012 2011 4 property plant equipment property plant equipment july 9 2013 december 31 2012 consisted following thousands entered lease arrangements related network construction equipment meet criteria capital leases july 9 2013 december 31 2012 recorded capital lease assets original cost 1518 million 1128 million respectively within network base station equipment construction progress primarily composed costs incurred process completing network projects yet placed service balance july 9 2013 included 1455 million costs related completing network projects yet placed service 381 million network base station equipment yet assigned project 04 million costs related information technology refer corporate projects index consolidated financial statements clearwire corporation subsidiaries notes consolidated financial statements continued charges associated property plant equipment periodically assess assets yet deployed networks including equipment cell site development costs classified construction progress evaluate losses related 1 shortage loss incurred deploying equipment 2 reserve excessive obsolete equipment yet deployed network 3 abandonment network corporate projects longer expected deployed addition charges incurred normal course business assessment includes evaluating impact changes business plans strategic network plans assets 2012 solidified tddlte network architecture including identifying sites expect overlay tddlte technology first phase deployment projects required deploy tddlte technology sites longer viable due development tddlte network architecture abandoned related costs written addition network equipment required support network deployment plans sparing requirements written estimated salvage value incurred following charges associated ppe 190 days ended july 9 2013 years ended december 31 2012 2011 thousands 1 included cost goods services network costs consolidated statements operations 2 year ended december 31 2012 140 million related retail operations included selling general administrative expense consolidated statements operations 5 spectrum licenses owned leased spectrum licenses july 9 2013 december 31 2012 consisted following thousands indefinitelived owned spectrum licenses spectrum licenses issued sitespecific widearea basis authorize wireless carriers use radio frequency spectrum provide service certain index consolidated financial statements clearwire corporation subsidiaries notes consolidated financial statements continued geographical areas united states licenses generally acquired asset purchase business combination cases acquire licenses directly governmental authority spectrum leases prepaid spectrum also lease spectrum third parties hold spectrum licenses leases accounted executory contracts treated like operating leases upfront consideration paid thirdparty holders leased licenses inception lease agreement capitalized prepaid spectrum lease costs expensed term lease agreement including expected renewal terms applicable favorable spectrum leases 10 billion recorded asset result purchase accounting november 2008 amortized lease term july 9 2013 future amortization spectrum licenses spectrum leases prepaid lease costs excluding pending spectrum transition costs expected follows thousands 6 intangible assets intangible assets july 9 2013 december 31 2012 consisted following thousands july 9 2013 future amortization intangible assets expected follows thousands index consolidated financial statements clearwire corporation subsidiaries notes consolidated financial statements continued evaluate patent renewals case basis based renewal costs 7 supplemental information liabilities current liabilities current liabilities consisted following thousands index consolidated financial statements clearwire corporation subsidiaries notes consolidated financial statements continued longterm liabilities longterm liabilities consisted following thousands 1 see note 15 related party transactions detail regarding balances related parties 8 income taxes income tax provision benefit consists following 190 days ended july 9 2013 years ended december 31 2012 2011 thousands income tax rate computed using federal statutory rates reconciled reported effective income tax rate follows index consolidated financial statements clearwire corporation subsidiaries notes consolidated financial statements continued components deferred tax assets liabilities july 9 2013 december 31 2012 follows thousands determine deferred income taxes based estimated future tax effects differences financial statement tax bases assets liabilities using tax rates expected effect temporary differences reverse net operating loss refer nol capital loss tax credit carryforwards utilized july 9 2013 excluding nol carryforwards permanently unable use discussed united states federal tax nol carryforwards approximately 201 billion 135 billion subject certain annual limitations imposed section 382 internal revenue code nol carryforwards begin expire 2021 4354 million tax nol carryforwards foreign jurisdictions 4261 million statutory expiration date 93 million begins expire 2015 also federal capital loss carryforwards 2275 million also subject certain annual limitations imposed section 382 internal revenue code capital loss carryforwards begin expire 2015 2017 us federal nol carryforwards capital loss carryforwards total subject annual limitations imposed section 382 internal revenue code currently project company generate capital gain income utilize capital loss carryforwards however company generates sufficient capital gain income enable utilization capital loss carryforwards excess 2275 million nol carryforwards 2275 million may longer available offset future taxable income recorded valuation allowance deferred tax assets extent determined likely items either expire able realize benefits future deductibility uncertain relates united states tax jurisdiction determined temporary taxable difference associated investment clearwire communications llc refer clearwire communications fully reverse within carryforward period nols accordingly represent relevant future taxable income sprint holdco llc refer sprint exchanged 575 million clearwire communications class b common interests refer class b common interests corresponding number shares class b common stock equal number shares class common stock refer sprint exchange july 5 2013 intel capital wireless investment corporation 2008a refer intel index consolidated financial statements clearwire corporation subsidiaries notes consolidated financial statements continued exchanged 656 million class b common interests corresponding number shares class b common stock equal number shares class common stock refer intel exchange july 9 2013 sprint exchange intel exchange resulted significant changes financial statement tax basis respectively clearwire interest clearwire communications well decrease amount temporary differences reverse within nol carryforward period see discussion deferred tax assets primarily represent nol carryforwards associated clearwires operations prior formation company november 28 2008 portion partnership losses allocated clearwire formation company subject change control test section 382 internal revenue code met would limit annual utilization prechange control nol carryforward well ability use certain unrealized built losses future tax deductions believe sprint acquisition occurred july 9 2013 combined issuances class common stock certain third party investor transactions involving class common stock since september 27 2012 resulted change control section 382 internal revenue code result change control changes control occurred september 27 2012 december 13 2011 respectively believe permanently unable use significant portion nol carryforwards credit carryforwards collectively referred tax attributes arose change control offset future taxable income result annual limitations sections 382 383 internal revenue code utilization tax attributes following ownership change determined approximately 203 billion united states nol carryforwards expire unutilized united states tax attributes presented net limitations addition subsequent changes ownership purposes sections 382 383 internal revenue code could diminish use remaining united states tax attributes recognized deferred tax liability difference financial statement carrying value tax basis partnership interest relates united states tax jurisdiction determined temporary taxable difference associated investment partnership completely reverse within carryforward period nols portion temporary difference reverse within carryforward period nols represents relevant future taxable income management reviewed facts circumstances including history nols projected future tax losses determined appropriate record valuation allowance portion deferred tax assets deemed realizable result sprint exchange intel exchange net decrease amount temporary difference reverse within nol carryforward period therefore management determined appropriate increase valuation allowance recorded deferred tax assets along recording corresponding deferred tax expense continuing operations income tax expense reflected condensed consolidated statements operations continuing operations primarily reflects united states deferred taxes certain state taxes file income tax returns clearwire subsidiaries united states federal jurisdiction various state foreign jurisdictions july 9 2013 tax returns clearwire years 2003 2012 remain open examination internal revenue service various state tax authorities policy recognize interest related unrecognized tax benefits interest expense interest income recognize penalties additional income tax expense july 9 2013 material uncertain tax positions therefore accrued interest penalties related uncertain tax positions index consolidated financial statements clearwire corporation subsidiaries notes consolidated financial statements continued 9 longterm debt net longterm debt july 9 2013 december 31 2012 consisted following thousands 1 represents weighted average effective interest rate based yearend balances 2 coupon rate based 3month libor plus spread 550 secured 700 unsecured included balance unsecured notes par amount 152 million july 9 2013 3 july 9 2013 par amount approximately 1380 million secured assets classified network base station equipment remaining par amount unsecured 4 included current liabilities consolidated balance sheet 5 discount sprint notes accreted interest expense straightline basis life notes due magnitude initial discount discussion see sprint notes index consolidated financial statements clearwire corporation subsidiaries notes consolidated financial statements continued 1 represents weighted average effective interest rate based yearend balances 2 coupon rate based 3month libor plus spread 550 secured 700 unsecured included balance unsecured notes par amount 46 million december 31 2012 3 december 31 2012 par amount approximately 1188 million secured assets classified network base station equipment 4 included current liabilities consolidated balance sheet notes 2015 senior secured notes fourth quarter 2009 clearwire communications completed offerings 252 billion 12 senior secured notes due 2015 refer 2015 senior secured notes 2015 senior secured notes provide biannual payments interest june december connection issuance 2015 senior secured notes also issued 2525 million notes sprint comcast identical terms 2015 senior secured notes replacement equal amounts indebtedness senior term loan facility december 2010 clearwire communications issued additional 1750 million 2015 senior secured notes substantially terms holders 2015 senior secured notes right require us repurchase notes upon occurrence certain change control events sale certain assets price 101 principal amount 100 principal amount respectively plus unpaid accrued interest repurchase date change control excludes change control permitted holders including limited sprint successors respective affiliates december 1 2012 may redeem part 2015 senior secured notes paying makewhole premium stated terms plus unpaid accrued interest repurchase date payment obligations 2015 senior secured notes guaranteed certain domestic subsidiaries senior basis secured certain assets subsidiaries firstpriority lien basis 2015 senior secured notes contain limitations activities among things include incurring additional indebtedness guarantee indebtedness making distributions payment dividends certain restricted payments investments making certain payments indebtedness entering agreements restrict distributions restricted subsidiaries selling otherwise disposing assets merger consolidation sales index consolidated financial statements clearwire corporation subsidiaries notes consolidated financial statements continued substantially assets entering transactions affiliates creating liens issuing certain preferred stock similar equity securities making investments acquiring assets see note 16 subsequent events 2016 senior secured notes january 2012 clearwire communications completed offering senior secured notes par value 3000 million due 2016 bearing interest 1475 refer 2016 senior secured notes 2016 senior secured notes provide biannual payments interest june december holders 2016 senior secured notes right require us repurchase notes upon occurrence specific kinds changes control price 101 principal plus unpaid accrued interest repurchase date change control excludes change control permitted holders including limited sprint successors respective affiliates certain circumstances clearwire communications required use net proceeds sale assets make offer purchase 2016 senior secured notes offer price equal 100 principal amount plus unpaid accrued interest payment obligations 2016 senior secured notes guaranteed certain domestic subsidiaries senior basis secured certain assets subsidiaries firstpriority lien basis 2016 senior secured notes contain limitations activities 2015 senior secured notes secondpriority secured notes december 2010 clearwire communications completed offering 5000 million 12 secondpriority secured notes due 2017 refer secondpriority secured notes secondpriority secured notes provide biannual payments interest june december holders secondpriority secured notes right require us repurchase notes upon occurrence certain change control events sale certain assets price 101 principal amount 100 principal amount respectively plus unpaid accrued interest repurchase date change control excludes change control permitted holders including limited sprint successors respective affiliates prior december 1 2013 may redeem 35 aggregate principal amount secondpriority secured notes redemption price 112 aggregate principal amount plus unpaid accrued interest repurchase date december 1 2014 may redeem part secondpriority secured notes paying makewhole premium stated terms plus unpaid accrued interest repurchase date payment obligations secondpriority secured notes guaranteed certain domestic subsidiaries senior basis secured certain assets subsidiaries secondpriority lien basis secondpriority secured notes contain limitations activities 2015 senior secured notes see note 16 subsequent events exchangeable notes december 2010 clearwire communications completed offerings 7292 million 825 exchangeable notes due 2040 refer exchangeable notes exchangeable notes provide biannual payments interest june december exchangeable notes subordinated 2015 senior secured notes 2016 senior secured notes rank equally right payment secondpriority secured notes holders exchangeable notes right exchange notes class common stock time prior maturity date right settle exchange delivering cash shares class common stock subject certain conditions initial exchange rate note 1412429 shares per 1000 note equivalent initial exchange price approximately 708 per share subject adjustments upon occurrence certain corporate events refer exchangeable notes exchange rate upon exchange make additional cash payment provide additional shares accrued unpaid interest makewhole premium additional interest index consolidated financial statements clearwire corporation subsidiaries notes consolidated financial statements continued holders exchangeable notes right require us repurchase notes upon occurrence fundamental change including change control event price 100 principal amount plus unpaid accrued interest repurchase date holders elect exchange exchangeable notes connection occurrence fundamental change entitled additional shares specified based date event occurs price paid per share class common stock fundamental change maximum number shares issuable per note exceed 1694915 shares per 1000 note stock price less 590 per share subject certain adjustments additional shares shall added exchange rate upon consummation sprint acquisition 1000 principal amount exchangeable notes changed right exchange principal amount exchange notes cash equal product merger consideration multiplied exchangeable notes exchange rate holders exchangeable notes option require us repurchase cash exchangeable notes december 1 2017 2025 2030 2035 price equal 100 principal amount notes plus unpaid accrued interest repurchase date december 1 2017 may option redeem part exchangeable notes price equal 100 principal amount notes plus unpaid accrued interest redemption date payment obligations exchangeable notes guaranteed certain domestic subsidiaries priority secondpriority secured notes upon issuance exchangeable notes recognized derivative liability representing embedded exchange feature estimated fair value 2315 million associated debt discount exchangeable notes discount accreted expected life approximately 7 years exchangeable notes using effective interest rate method see note 10 derivative instruments additional discussion derivative liability first quarter 2012 clearwire communications entered securities purchase agreements certain institutional investors refer exchange transaction pursuant clearwire issued 380 million shares class common stock aggregate price 835 million refer purchase price clearwire communications repurchased 1000 million aggregate principal amount plus accrued unpaid interest exchangeable notes total price equal purchase price see note 16 subsequent events sprint notes connection merger agreement entered note purchase agreement issuers sprint agreed purchase us election aggregate principal amount 800 million notes maturing june 1 2018 ten monthly installments 80 million interest notes 1 payable semiannually june december elected forego january february june 2013 draws elected take march april may 2013 draws received 240 million sprint right exchange notes held connection note purchase agreement clearwire class common stock clearwire class b common stock clearwire communications class b common units applicable exchange rate time prior maturity date july 9 2013 applicable exchange rate 66667 shares clearwire class common stock clearwire class b common stock clearwire communications class b common units per 1000 principal equivalent exchange price approximately 150 per share sprint notes guaranteed issuers existing whollyowned domestic subsidiaries sprint notes expressly subordinated 2015 2016 senior secured notes rank equally right payments issuers guarantors existing future senior indebtedness senior existing future subordinated indebtedness sprint notes contain financial operating covenants sprint notes contain beneficial conversion feature refer bcf recorded companys stock price greater exchange price commitment date therefore settlement index consolidated financial statements clearwire corporation subsidiaries notes consolidated financial statements continued date draw sprint notes bcf calculated based closing price settlement date less exchange price 150 per share multiplied number shares clearwire class common stock issued amount bcf draw limited proceeds received draw bcf recognized discount debt increase additional paidin capital consolidated balance sheets debt discount accreted date issuance stated maturity interest expense consolidated statements operations straightline basis see note 16 subsequent events july 9 2013 compliance debt covenants vendor financing notes vendor financing facility refer vendor financing facility allows us obtain financing entering notes refer vendor financing notes vendor financing notes mature 2014 2015 coupon rates based 3month libor plus spread 550 700 secured unsecured notes respectively capital lease obligations certain network equipment acquired capital lease facilities inception capital lease lower either present value minimum lease payments required lease fair value equipment recorded capital lease obligation initial noncancelable term capital leases three twelve years may include one renewal options end initial lease term may exercised discretion lease payments initial lease term fixed renewal periods established inception lease interest expense recognized using effective interest rate method based rate imputed using contractual terms lease agreements may contain change control provisions certain agreements change control may exclude change control permitted holders including limited sprint successors respective affiliates agreements may reference circumstances involving change control resulting clearwires credit rating falling “caa1” rated moodys investors service upon occurrence change control lessor may require payment predetermined casualty value leased equipment future payments future payments longterm debt see note 12 commitments contingencies interest expense interest expense included consolidated statements operations 190 days ended july 9 2013 years ended december 31 2012 2011 consisted following thousands 1 year ended december 31 2012 included 25 million coupon interest relating exchangeable notes settled noncash exchange transaction 2 includes noncash amortization deferred financing fees classified assets consolidated balance sheets index consolidated financial statements clearwire corporation subsidiaries notes consolidated financial statements continued 10 derivative instruments holders’ exchange rights contained exchangeable notes constitute embedded derivative instruments required accounted separately debt host instrument fair value result upon issuance exchangeable notes recognized exchange options estimated fair value 2315 million derivative liability result exchange transaction 1000 million par value exchangeable notes retired related exchange options notional amount 141 million shares settled fair value exchange options indexed class common stock notional amount 889 million shares july 9 2013 december 31 2012 mature 2040 apply hedge accounting exchange options therefore gains losses due changes fair value reported consolidated statements operations july 9 2013 exchange options estimated fair value 0 december 31 2012 exchange options’ estimated fair value 53 million reported current liabilities consolidated balance sheets 190 days ended july 9 2013 years ended december 31 2012 2011 recognized gains 53 million 14 million 1597 million respectively changes estimated fair value gains derivative instruments consolidated statements operations see note 11 fair value information regarding valuation exchange options 11 fair value following description valuation methodologies pricing assumptions used financial instruments measured recorded fair value recurring basis financial statements classification instruments pursuant valuation hierarchy cash equivalents investments quoted prices identical securities available active market use quoted market prices determine fair value investment securities cash equivalents classified level 1 valuation hierarchy level 1 securities include us government treasury bills actively traded us government treasury notes money market mutual funds quoted prices active markets quoted net asset values published money market mutual fund supported active market investments classified level 2 valuation hierarchy securities quoted prices available similar investments active markets identical similar investments markets active use consensus pricing independent external valuation sources level 2 securities include us government agency discount notes us government agency notes derivatives exchange options classified level 3 valuation hierarchy estimate fair value exchange options used income approach based valuation models including option pricing models discounted cash flow models maximized use marketbased observable inputs models developed assumptions unobservable inputs based management estimates market participants’ assumptions pricing instruments upon consummation sprint acquisition 1000 principal amount exchangeable notes changed right exchange principal amount exchange notes amount cash equal product 500 multiplied ii exchange rate 1412429 therefore holders option 1000 exchangeable notes tendered exchange 70621 redemption price 0706 given equity underlying exchange options longer exists closing sprint acquisition value redemption less par alternatively spot price 500 less strike price option 708 fair value exchange option immediately prior closing merger 0 index consolidated financial statements clearwire corporation subsidiaries notes consolidated financial statements continued following table summarizes financial assets level within valuation hierarchy july 9 2013 thousands following table summarizes financial assets liabilities level within valuation hierarchy december 31 2012 thousands following table presents change level 3 financial assets liabilities measured recurring basis 190 days ended july 9 2013 thousands 1 included gain derivative instruments consolidated statements operations index consolidated financial statements clearwire corporation subsidiaries notes consolidated financial statements continued following table presents change level 3 financial assets liabilities measured recurring basis year ended december 31 2012 thousands 1 included gain derivative instruments consolidated statements operations following description fair value financial instruments hold subject fair value recognition debt instruments estimate fair value 2015 senior secured notes 2016 senior secured notes secondpriority secured notes exchangeable notes used average indicative price several market makers level subjectivity applied estimate fair value sprint notes use market approach benchmarking price sprint notes exchangeable notes adjusting differences critical terms tenor strike price options well liquidity estimate fair value vendor financing notes used income approach based contractual terms notes marketbased parameters interest rates level subjectivity applied estimate discount rate used calculate present value estimated cash flows following table presents carrying value approximate fair value outstanding debt instruments july 9 2013 2012 thousands 1 carrying value july 9 2013 december 31 2012 net 1530 million 1651 million discount respectively arising separation exchange options debt host instrument fair value exchangeable index consolidated financial statements clearwire corporation subsidiaries notes consolidated financial statements continued notes incorporates value exchange feature recognized separately derivative consolidated balance sheets see note 9 longterm debt net additional discussion 2 carrying value july 9 2013 net 2273 million discount arising bcf see note 9 longterm debt net additional discussion 12 commitments contingencies future minimum cash payments obligations continuing operations listed including optional expected renewal periods operating leases july 9 2013 follows thousands 1 principal interest payments beyond 2017 represent potential principal interest payments exchangeable notes beyond expected repayment 2017 2 payments include 413 million representing interest expense recorded related spectrum operating leases follows thousands operating lease obligations commitments noncancelable operating leases consist mainly leased sites including towers rooftop locations office space certain leases provide minimum lease payments additional charges escalation clauses operating leases generally initial terms five seven years multiple renewal options additional fiveyear terms totaling 20 25 years operating lease obligations table include lease payments contractual lease term plus one renewal period include remaining future lease payments leases notice intent renew sent result lease termination initiatives estimated lease term utilized lease expense recognition purposes leases includes initial noncancelable term plus one renewal period index consolidated financial statements clearwire corporation subsidiaries notes consolidated financial statements continued spectrum lease obligations certain leases provide minimum lease payments additional charges escalation clauses leased spectrum agreements terms 30 years weighted average remaining lease term july 9 2013 approximately 23 years including renewal terms expect renewal periods spectrum leases renewed us spectrum service credits commitments provide clearwire services certain lessors launched markets reimburse lessors certain capital equipment thirdparty service expenditures term lease accrue monthly obligation services equipment based total estimated available service credits divided term lease obligation reduced actual invoices presented paid lessors 190 days ended july 9 2013 years ended december 31 2012 2011 satisfied 12 million 33 million 45 million respectively related commitments maximum remaining commitment july 9 2013 1017 million expected incurred term related lease agreements generally range 1530 years purchase agreements included table purchase commitments takeorpay obligations andor volume commitments equipment noncancelable table also includes obligations include minimum purchase commitments certain suppliers time goods services regardless whether suppliers fully deliver include among things agreements backhaul subscriber devices related services addition party various arrangements conditional nature create obligation make payments upon occurrence certain events actual delivery acceptance products services possible predict timing amounts may due conditional arrangements amounts included table also excludes blanket purchase order amounts orders subject cancellation termination discretion quantity goods services purchased payment terms unknown purchase orders firm commitments legal proceedings fully described involved variety lawsuits claims investigations proceedings concerning intellectual property business practices commercial matters determine whether accrue estimated loss contingency particular legal proceeding assessing whether loss deemed probable reasonably estimated reassess views estimated losses quarterly basis reflect impact developments matters involved legal proceedings inherently unpredictable matters involved often present complex legal factual issues vigorously pursue defenses legal proceedings engage discussions possible resolve matters terms favorable us including pursuing settlements believe may cost effective result company possible however business financial condition results operations future periods could materially adversely affected increased litigation expense significant settlement costs andor unfavorable damage awards throughout legal proceedings disclosure use terms clearwire company refer clearwire corporation clearwire communications llc clear wireless llc subsidiaries consumer employment purported class actions investigations april 2009 purported class action lawsuit filed clearwire us llc superior court king county washington group five plaintiffs chad minnick et al lawsuit generally alleges disseminated false advertising quality reliability services imposed unlawful early termination fee refer etf invoked allegedly unconscionable provisions terms service detriment subscribers november 2010 purported class action lawsuit filed clearwire angelo dennings us district court western district washington complaint generally alleges slow network speeds network demand highest network management violates index consolidated financial statements clearwire corporation subsidiaries notes consolidated financial statements continued agreements subscribers contrary companys advertising marketing claims plaintiffs also allege subscribers review terms service prior subscribing subscribers cancel service due network management charge etf restocking fee claim unconscionable circumstances march 2011 purported class action filed clearwire us district court eastern district california case newton v clearwire inc sic alleges clearwires network management advertising practices constitute breach contract unjust enrichment unfair competition californias business professions code sections 17200 et seq violation californias consumers legal remedies act plaintiff contends clearwires advertisements “no speed cap” “unlimited data” false misleading plaintiff alleges clearwire breached contracts customers delivering internet service advertised plaintiff also claims slow data speeds due clearwires network management practices parties collectively settled three lawsuits settlement process administration accrued estimated amount anticipate pay settlement current liabilities amount accrued considered immaterial financial statements august 2012 richard wuest filed purported class action clearwire california superior court san francisco county plaintiff alleges clearwire violated californias invasion privacy act penal code 630 notably §6327 prohibits recording communications made cellular cordless telephone without consent parties communication plaintiff seeks class certification statutory damages injunctive relief costs attorney fees pre post judgment interest removed matter federal court november 2 2012 filed answer complaint may 31 2013 plaintiff filed first amended complaint adding two clearwire call vendors lawsuit filed answer july 15 2013 discovery begun class certification briefing scheduled spring 2014 litigation early stages outcome unknown estimate potential loss cannot made time september 6 2012 washington state attorney generals office served clearwire corporation civil investigative demand pursuant rcw 1986110 demand seeks information documents furtherance attorney general offices investigation possible unfair trade practices failure properly disclose contractual terms misleading advertising october 22 2012 responded demand outcome investigation unknown estimate potential loss cannot made time april 2013 kenneth lindsay former employee others filed purported collective class action lawsuit us district court district minnesota clear wireless llc workforce logic llc plaintiffs allege claims individually behalf purported nationwide collective class fair labor standards act refer fsla april 9 2010 present lawsuit alleges defendants violated flsa notably sections 201 207 relevant regulations regarding failure pay minimum wage failure pay hours worked breaks work performed clock scheduled work shifts overtime improper deductions improper withholding wages commissions bonuses plaintiffs seek back wages unpaid wages overtime liquidated damages attorney fees costs filed answer complaint april 30 2013 january 2014 magistrate judge granted plaintiffs’ motion conditional class certification filed objections ruling district judge litigation early stages outcome unknown estimate potential loss cannot made time shareholder actions april 26 2013 stockholders acp master ltd aurelius capital master ltd aurelius opportunities fund ii llc filed suit delaware court chancery company directors sprint holdco refer acp action december 20 2013 entities filed amended complaint naming defendants sprint corporation sprint communications inc former directors company starburst inc softbank corp amended acp action alleges directors company breached fiduciary duties connection sprintclearwire transaction “merger” sprint breached duties owed plaintiff stockholders virtue status “controlling” stockholder entities index consolidated financial statements clearwire corporation subsidiaries notes consolidated financial statements continued aided abetted alleged breaches duties acp action seeks declaration sprint director defendants breached fiduciary duties entities aided abetted breach declaration special committee majorityofminority conditions insufficient safeguards defendants bear burden proving “entire fairness” transaction declaration note purchase agreement product defendants’ breach fiduciary duties finding merger unfair plaintiffs rescission merger unspecified damages fees expenses defendants moved dismiss acp action january 2014 october 23 2013 plaintiffs acp action filed new lawsuit delaware court chancery company complaint asks court appraisal “fair value” plaintiffs’ stock clearwire order clearwire pay plaintiffs “fair value” plus interest costs company filed answer november 2013 discovery begun case acp action early stages outcome unknown estimate potential losses cannot made time addition matters described often involved certain proceedings seek monetary damages relief based upon information currently available us none claims expected material effect business financial condition results operations 13 sharebased payments july 9 2013 25226048 shares available grant clearwire corporation 2008 stock compensation plan refer 2008 plan authorizes us grant incentive stock options nonqualified stock options stock appreciation rights restricted stock restricted stock units refer rsus performance based rsus stock awards employees directors consultants grants awarded 2008 plan made available discretion compensation committee board directors authorized unissued shares authorized issued shares reacquired combination thereof restricted stock units grant rsus performance based rsus certain officers employees 2008 plan rsus generally performance service requirements service requirements vesting periods ranging two four years fair value rsus based grantdate fair market value common stock equals grant date market price performance rsus awarded 2012 one two years performance periods granted performance objectives established first quarter 2012 index consolidated financial statements clearwire corporation subsidiaries notes consolidated financial statements continued summary rsu activity 190 day period ended july 9 2013 years ended 2012 2011 presented july 9 2013 29902490 rsus outstanding total unrecognized compensation cost approximately 384 million expected recognized weightedaverage period approximately 11 years stock options granted options certain officers employees 2008 plan options generally vest fouryear period expire later ten years date grant fair value option grants estimated date grant using blackscholes option pricing model index consolidated financial statements clearwire corporation subsidiaries notes consolidated financial statements continued summary option activity january 1 2011 july 9 2013 presented intrinsic value options exercised 190 days ended july 9 2013 year ended december 31 2011 01 million 23 million respectively option exercises period ended december 31 2012 july 9 2013 aggregate intrinsic value options outstanding 13 million index consolidated financial statements clearwire corporation subsidiaries notes consolidated financial statements continued information regarding stock options outstanding exercisable july 9 2013 follows options granted 2013 2012 2011 total fair value options vested 190 days ended july 9 2013 years ended december 31 2012 2011 05 million 07 million 66 million respectively total unrecognized share based compensation costs related nonvested stock options outstanding july 9 2013 approximately 01 million expected recognized weighted average period approximately four months sharebased compensation expense based estimated grantdate fair value award recognized net estimated forfeitures shares expected vest graded vesting schedule straightline basis requisite service period separately vesting portion award insubstance multiple awards sharebased compensation expense recognized plans 190 days ended july 9 2013 years 2012 2011 follows thousands see note 16 subsequent events 14 stockholders’ equity class common stock class common stock represents common equity clearwire holders class common stock entitled one vote per share class entitled 100 dividends distributions made clearwire exception certain minimal liquidation rights provided class b common index consolidated financial statements clearwire corporation subsidiaries notes consolidated financial statements continued stockholders described share class common stock participates ratably proportion total number shares class common stock issued clearwire holders class common stock 100 economic interest clearwire considered controlling interest purposes financial reporting upon liquidation dissolution winding class common stock entitled assets remaining payment debts liabilities clearwire exception certain minimal liquidation rights provided class b common stockholders described class b common stock class b common stock represents noneconomic voting interests clearwire identical class common stock holders class b common stock entitled one vote per share however rights receive distributions stock dividends paid proportionally outstanding class b common stockholder upon liquidation clearwire amount equal par value per share 00001 per share sole holder sprint entitled hold equivalent number class b common interests substance reflects economic stake clearwire accomplished exchange feature provides holder right time exchange one share class b common stock plus one class b common interest one share class common stock july 5 2013 sprint completed exchange 575 million shares class b common interests corresponding number shares class b common stock equal number shares class common stock pursuant amended restated operating agreement dated november 28 2008 governing clearwire communications july 9 2013 intel completed exchange 656 million shares class b common interests corresponding number shares class b common stock equal number shares class common stock pursuant amended restated operating agreement dated november 28 2008 governing clearwire communications july 9 2013 prior consideration sprint acquisition sprints economic interest clearwire subsidiaries equal voting interest approximately 501 following table lists voting interests clearwire july 9 2013 1 holders class b common stock hold equivalent number class b common interests result sprint acquisition share clearwire corporation common stock par value 00001 per share shares owned sprint softbank corp affiliates converted right receive 500 per share cash index consolidated financial statements clearwire corporation subsidiaries notes consolidated financial statements continued clearwire communications interests clearwire sole holder voting interests clearwire communications clearwire controls 100 decision making clearwire communications consolidates 100 operations clearwire also holds outstanding clearwire communications class common interests representing 559 economics clearwire communications july 9 2013 holders class b common interests remaining 441 economic interests intended times number clearwire communications class common interests held clearwire equal number shares class common stock issued clearwire nonvoting clearwire communication units designated either clearwire communications class common interests held clearwire class b common interests held sprint intel classes nonvoting clearwire communication units participate distributions clearwire communications equal proportionate basis following shows effects changes clearwire’s ownership interests clearwire communications thousands dividend policy declared paid cash dividends class b common stock currently expect retain future earnings use operations anticipate paying cash dividends foreseeable future addition covenants indentures governing senior secured notes impose significant restrictions ability pay cash dividends stockholders noncontrolling interests clearwire communications clearwire communications consolidated clearwire hold 100 voting interest clearwire communications therefore holders class b common interests represent noncontrolling interests consolidated subsidiary result income loss consolidated clearwire decreased proportion outstanding noncontrolling interests conversion class b common interests corresponding number class b common stock class common stock recorded issuance common stock net issuance costs capital transactions consolidated statement stockholders equity index consolidated financial statements clearwire corporation subsidiaries notes consolidated financial statements continued warrants first quarter 2013 issued warrant purchase 20 million shares class common stock exercise price 175 per share related spectrum lease agreement warrants expire january 29 2019 connection sprint acquisition warrants settled lump sum cash amount equal amount merger consideration exceeded exercise price warrants addition prior closing merger sprint 375000 warrants outstanding exercise price 300 warrants settled lump sum cash amount equal amount merger consideration exceeded exercise price warrants 15 related party transactions number strategic commercial relationships third parties significant impact business operations financial results relationships sprint intel comcast time warner cable bright house google eagle river ericsson related parties relationships include agreements pursuant sell wireless broadband services certain related parties wholesale basis related parties resell respective end user subscribers sell services terms defined contractual agreements following amounts related party transactions included consolidated financial statements thousands sprint merger agreement december 17 2012 entered merger agreement pursuant sprint agreed acquire outstanding shares class b common stock currently owned index consolidated financial statements clearwire corporation subsidiaries notes consolidated financial statements continued sprint july 9 2013 sprint completed acquisition clearwire corporation subsidiaries see note 1 description business see note 16 subsequent events note purchase agreement connection merger agreement december 17 2012 certain subsidiaries also entered note purchase agreement sprint agreed purchase us election aggregate principal amount 800 million 100 exchangeable notes due 2018 ten monthly installments 800 million elected forego first two draws january 2013 february 2013 note purchase agreement reduced aggregate principal amount available 640 million elected take march april may draws received 2400 million sprint addition elected forego june draw see note 9 longterm debt net information rollover notes connection issuance 2015 senior secured notes november 24 2009 issued notes sprint comcast identical terms 2015 senior secured notes time related parties may hold portions longterm debts debtholders would entitled receive interest payments us relationships among certain stockholders directors officers clearwire prior completion sprint acquisition sprint two whollyowned subsidiaries sprint holdco sn uhc 1 inc owns largest interest clearwire effective voting economic interest approximately 501 conversion class b common interests corresponding number class b common stock class common stock comcast intel bright house together voting interest clearwire approximately 130 july 9 2013 prior consummation merger sprint clearwire sprint intel comcast bright house party equityholders’ agreement sets forth certain rights obligations equityholders respect governance clearwire transfer restrictions common stock rights first refusal preemptive rights among things 4g mvno agreement nonexclusive 4g mvno agreement refer 4g mvno agreement comcast mvno ii llc twc wireless llc bright house sprint spectrum lpwhich refer sprint spectrum sell wireless broadband services parties 4g mvno agreement purposes purchasers marketing reselling wireless broadband services respective end user subscribers wireless broadband services provided 4g mvno agreement include standard network services request parties certain nonstandard network services sell services prices defined 4g mvno agreement sprint wholesale relationship november 2011 4g mvno amendment sprint paying us fixed amount unlimited 4g mobile wimax services resale retail subscribers 2013 portion paid offset principal interest due 1500 million promissory note issued us sprint january 3 2012 refer sprint promissory note sprint promissory note aggregate principal amount 1500 million bears interest 115 per annum january 2 2013 offset 836 million principal related accrued interest reduce principal amount owe sprint promissory note 750 million maturing january 2 2014 previously paid sprint may offset amounts payable us sprint promissory note including interest payments due sprint clearwire communications 4g mvno agreement amended sprint promissory note entered conjunction november 2011 4g mvno amendment amounts due may offset payments due november 2011 4g mvno amendment treated deferred revenue accounting purposes associated interest costs recorded reduction payable sprint unlimited wimax service calendar year 2013 index consolidated financial statements clearwire corporation subsidiaries notes consolidated financial statements continued part 4g mvno agreement also agreed usage based pricing wimax services 2013 lte service beginning 2012 also agreed sprint may rewholesale wireless broadband services subject certain conditions agreed operate wimax network calendar year 2015 190 days ended july 9 2013 years ended december 31 2012 2011 received 2312 million 5373 million 4343 million respectively sprint 4g broadband wireless services 190 days ended july 9 2013 years ended december 31 2012 2011 wholesale revenue recorded attributable sprint comprised approximately 36 total revenues substantially wholesale revenues 3g mvno agreement entered nonexclusive 3g mvno agreement sprint spectrum refer 3g mvno agreement whereby sprint agrees sell code division multiple access mobile voice data communications service purpose resale retail customers data communications service includes sprint’s existing core network services network elements information enable third party provide services network core network enablers subject certain limitations exceptions new core network services core network enablers certain customized services 190 days ended july 9 2013 years ended december 31 2012 2011 paid 10 million 44 million 178 million respectively sprint 3g wireless services provided sprint us sprint master site agreement november 2008 entered master site agreement sprint refer master site agreement pursuant sprint established contractual framework procedures leasing tower antenna collocation sites leases specific sites negotiated sprint us request lessee leased premises may used lessee activity connection provision wireless communications services including attachment antennas towers sites term master site agreement ten years date agreement signed term lease specific site five years lessee right extend term additional 20 years monthly fee increase 3 per year lessee also responsible utility costs certain additional fees 190 days ended july 9 2013 years ended december 31 2012 2011 made rent payments agreement 355 million 596 million 558 million respectively master agreement network services november 2008 entered master agreement network services refer master agreement network services various sprint affiliated entities refer sprint entities pursuant sprint entities established contractual framework procedures us purchase network services sprint entities may order various services sprint entities including ip network transport services data center colocation tollfree services access following business platforms voicemail instant messaging services locationbased systems media server services sprint entities provide service level agreement consistent service levels provided similarly situated subscribers pricing specified separate product attachments type service general pricing based midpoint fair market value service sprint entities’ fully allocated cost providing service term master agreement network services five years right extend term additional five years additionally accordance master agreement network services sprint entities assumed certain agreements backhaul services contain commitments extend five years ericsson inc ericsson provides network deployment services us including site acquisition construction management services addition second quarter 2011 entered managed services agreement ericsson operate maintain support network dr hossein eslambolchi member board directors prior sprint acquistion consulting agreement ericsson part consulting agreement dr eslambolchi received payments services ericsson received compensation directly us related relationship ericsson 190 days ended july 9 index consolidated financial statements clearwire corporation subsidiaries notes consolidated financial statements continued 2013 years ended december 31 2012 2011 paid 439 million 769 million 411 million respectively ericsson network management services 16 subsequent events evaluated subsequent events february 24 2014 date consolidated financial statements issued following events occurred subsequent july 9 2013 sprint acquisition july 9 2013 sprint completed acquisition clearwire corporation subsidiaries result sprint acquisition resulting change ownership control acquisition method accounting applied sprint pusheddown us included consolidated financial statements periods presented subsequent acquisition date resulted new basis presentation based estimated fair values assets liabilities successor period beginning day following consummation merger longterm debt net using equity contributions sprint available cash retired 2015 senior secured notes secondpriority secured notes december 2013 september 2013 sprint exchanged outstanding sprint notes 160000800 shares class b common stock amount class b common interests october 17 2013 issuers entered supplemental indenture related exchangeable notes 1 permitted periodic reports filed sprint rather clearwire corporation sec satisfy issuers reporting related obligations event sprint communications unconditionally guarantee exchangeable notes 2 agreed use commercially reasonable efforts obtain credit ratings exchangeable notes two national rating agencies july 19 2013 clearwire communications clearwire finance inc entered 30 billion credit agreement refer sprint credit agreement sprint communications inc sprint agrees make revolving credit loans us subject terms conditions set forth agreement interest rate outstanding loans libor rate preceding interest payment date plus applicable margin 400 475 based moodys sp ratings interest payment date last business day fiscal quarter maturity date sprint credit agreement july 1 2017 sprint credit agreement permitted incur indebtedness unless agreed sprint written consent december 31 2013 sprint credit agreement outstanding balance 3155 million sharebased payments connection sprint acquisition outstanding unexercised option purchase shares common stock whether vested canceled exchange lump sum cash amount equal amount merger consideration exceeded exercise price option less applicable withholding taxes connection sprint acquisition rsu granted nonemployee member board directors refer director rsu canceled exchange lump sum cash payment equal product merger consideration without interest number shares class common stock subject director rsu addition outstanding rsu granted prior december 17 2012 converted right receive cash payment equal product merger consideration number shares class common stock subject unvested rsu refer restricted cash account july 19 2013 holder restricted cash account received lump sum cash payment equal 50 restricted cash account balance less applicable tax withholdings remaining balance restricted cash index consolidated financial statements clearwire corporation subsidiaries notes consolidated financial statements account vest paid upon earlier original vesting schedule unvested rsus ii one year anniversary merger provided however holder restricted cash account also paid remaining balance upon involuntary termination holders employment addition rsu granted december 17 2012 refer unvested 2013 rsu converted right receive cash payment equal product merger consideration without interest number shares class common stock subject unvested 2013 rsu refer 2013 restricted cash account 2013 restricted cash account unvested vest paid accordance original vesting conditions award provided however holder 2013 restricted cash account also paid prorata portion 2013 restricted cash account upon involuntary termination holders employment related party transactions july 19 2013 clearwire corporation entered services agreement sprintunited management company whollyowned subsidiary sprint corporation refer management company whereas management company provide certain services clearwire corporation parent company clearwire communications subsidiaries stated management fee based schedule set forth agreement fees due 2013 july 19 2013 clearwire communications including direct indirect subsidiaries defined agreement refer licensees entered spectrum usage agreement sprint spectrum lp whollyowned subsidiary sprint corporation affiliated entities defined agreement refer users licensees allow users use spectrum holdings licensees equipment deployed users using spectrum subject terms defined agreement users shall pay licensees annual spectrum use fee set forth agreement beginning 2014 january 2 2014 offset payments due november 2011 4g mvno amendment treated deferred revenue 836 million principal related accrued interest repay amount owed us sprint promissory note item 15 exhibits financial statement schedules reports form 8k 1 consolidated financial statements sprint filed part report listed index financial statements financial statement schedule exhibits 2 consolidated financial statement schedule sprint filed part report listed index financial statements financial statement schedule exhibits 3 following exhibits filed part report exhibits 2 plan acquisition reorganization arrangement liquidation succession stock purchase agreement sprint corporation centel directories llc rh donnelley corporation dated september 21 2002 filed exhibit 2 sprint corporation current report form 8k dated september 21 2002 incorporated herein reference b supplemental agreement stock purchase agreement sprint corporation centel directories llc rh donnelley corporation dated december 31 2002 filed exhibit 2b sprint corporation current report form 8k dated january 3 2003 incorporated herein reference 3 articles incorporation bylaws articles incorporation amended filed exhibit 3a sprint corporations quarterly report form 10q quarter ended march 31 2002 incorporated herein reference b bylaws amended filed exhibit 32 amendment 4 sprint corporations registration statement form 8a relating sprints series 1 pcs common stock filed april 17 2002 incorporated herein reference 4 instruments defining rights sprints security holders rights sprints equity security holders defined fifth sixth seventh eighth articles sprints articles incorporation see exhibit 3a b provisions regarding stockholders meetings set forth article iii bylaws provisions regarding capital stock committee set forth article iv section 12 bylaws see exhibit 3b c rights agreement dated november 23 1998 sprint corporation umb bank na filed exhibit 41 amendment 1 sprint corporations registration statement form 8a relating sprints pcs group rights filed november 25 1998 incorporated herein reference tracking stock policies sprint corporation amended filed exhibit 4c sprint corporations annual report form 10ka year ended december 31 2001 incorporated herein reference e amended restated standstill agreement dated november 23 1998 among sprint corporation france telecom deutsche telekom ag filed exhibit 4e posteffective amendment 2 sprint corporations registration statement form s3 3358488 incorporated herein reference amended master transfer agreement dated january 21 2000 among france telecom deutsche telekom ag nab nordamerika beteiligungs holding gmbh atlas telecommunications sa sprint corporation sprint global venture inc jv entities set forth schedule ii thereto filed exhibit 2 sprint corporations current report form 8k dated january 26 2000 incorporated herein reference f indenture dated october 1 1998 among sprint capital corporation sprint corporation bank one na trustee filed exhibit 4b sprint corporations quarterly report form 10q quarter ended september 30 1998 incorporated herein reference supplemented first supplemental indenture dated january 15 1999 among sprint capital corporation sprint corporation bank one na trustee filed exhibit 4b sprint corporations current report form 8k dated february 2 1999 incorporated herein reference supplemented second supplemental indenture dated october 15 2001 among sprint capital corporation sprint corporation bank one na trustee filed exhibit 99 sprint corporations current report form 8ka dated october 17 2001 incorporated herein reference g indenture dated october 1 1998 sprint corporation bank one na trustee filed exhibit 4a sprint corporations quarterly report form 10q quarter ended september 30 1998 incorporated herein reference supplemented first supplemental indenture dated january 15 1999 sprint corporation bank one na trustee filed exhibit 4a sprint corporations current report form 8k dated february 2 1999 incorporated herein reference h purchase contract agreement dated august 10 2001 sprint corporation bank one national association purchase contract agent filed exhibit 4e sprint corporations quarterly report form 10q quarter ended september 30 2001 incorporated herein reference form corporate units certificates including form purchase contract included exhibit purchase contract agreement filed exhibit 4g filed exhibit 4f sprint corporations quarterly report form 10q quarter ended september 30 2001 incorporated herein reference j pledge agreement dated august 10 2001 among sprint corporation bank one national association collateral agent purchase contract agent filed exhibit 4g sprint corporations quarterly report form 10q quarter ended september 30 2001 incorporated herein reference k remarketing agreement dated august 10 2001 among sprint corporation sprint capital corporation bank one national association purchase contract agent ubs warburg llc remarketing agent filed exhibit 4h sprint corporations quarterly report form 10q quarter ended september 30 2001 incorporated herein reference l terms 6 notes due 2006 including form note filed exhibit 4i sprint corporations quarterly report form 10q quarter ended september 30 2001 incorporated herein reference 10 material agreements amended restated stockholders agreement among france telecom deutsche telekom ag sprint corporation dated november 23 1998 filed exhibit 10c sprint corporation annual report form 10k year ended december 31 1998 incorporated herein reference amended master transfer agreement dated january 21 2000 among france telecom deutsche telekom ag nab nordamerika beteiligungs holding gmbh atlas telecommunications sa sprint corporation sprint global venture inc jv entities set forth schedule ii thereto filed exhibit 2 sprint corporations current report form 8k dated january 26 2000 incorporated herein reference b amended restated registration rights agreement dated november 23 1998 among sprint corporation france telecom deutsche telekom ag filed exhibit 101 amendment 1 sprint corporation registration statement form s3 33364241 incorporated herein reference amended master transfer agreement dated january 21 2000 among france telecom deutsche telekom ag nab nordamerika beteiligungs holding gmbh atlas telecommunications sa sprint corporation sprint global venture inc jv entities set forth schedule ii thereto filed exhibit 2 sprint corporations current report form 8k dated january 26 2000 incorporated herein reference amended offering process agreement dated february 20 2001 among france telecom deutsche telekom ag nab nordamerika beteiligungs holding gmbh sprint corporation filed exhibit 10b sprint corporations annual report form 10k year ended december 31 2000 incorporated herein reference c registration rights agreement dated november 23 1998 among sprint corporation telecommunications inc comcast corporation cox communications inc filed exhibit 102 amendment 1 sprint corporation registration statement form s3 33364241 incorporated herein reference standstill agreements dated may 26 1996 sprint corporation telecommunications inc comcast corporation cox communications inc filed exhibit 10g sprint corporation annual report form 10k year ended december 31 1998 incorporated herein reference e 364day credit agreement dated august 9 2002 among sprint corporation sprint capital corporation borrowers initial lenders named therein initial lenders citibank na administrative agent salomon smith barney inc jp morgan securities inc joint lead arrangers book managers jp morgan chase bank syndication agent bank america na deutsche bank ag new york branch ubs ag stamford branch documentation agents filed exhibit 10a sprint corporations quarterly report form 10q quarter ended september 30 2002 incorporated herein reference 10 executive compensation plans arrangements f 1990 stock option plan amended g 1990 restricted stock plan amended h executive deferred compensation plan amended filed exhibit 10i sprint corporations annual report form 10k year ended december 31 1999 incorporated herein reference summary amendments executive deferred compensation plan filed exhibit 10i sprint corporations annual report form 10k year ended december 31 2000 incorporated herein reference management incentive stock option plan amended filed exhibit 99a sprint corporations registration statement form s8 33375664 incorporated herein reference j 1997 longterm stock incentive program amended filed exhibit 10k sprint corporations annual report form 10ka year ended december 31 2001 incorporated herein reference k sprint supplemental executive retirement plan amended filed exhibit 10l sprint corporations annual report form 10ka year ended december 31 2001 incorporated herein reference l amended restated centel directors deferred compensation plan filed exhibit 10m sprint corporations annual report form 10k year ended december 31 1999 incorporated herein reference executive longterm incentive plan filed exhibit 10j sprint corporations annual report form 10k year ended december 31 1993 incorporated herein reference n executive management incentive plan filed exhibit 10k sprint corporations annual report form 10k year ended december 31 1993 incorporated herein reference longterm incentive compensation plan amended filed exhibit 10i sprint corporations quarterly report form 10q quarter ended september 30 1996 incorporated herein reference p management incentive plan amended filed exhibit 10r sprint corporations annual report form 10k year ended december 31 2000 incorporated herein reference q retirement plan directors amended filed exhibit 10u sprint corporations annual report form 10k year ended december 31 1996 incorporated herein reference r key management benefit plan amended filed exhibit 10g sprint corporations quarterly report form 10q quarter ended september 30 1996 incorporated herein reference agreements regarding special compensation post employment restrictive covenants sprint corporation certain executive officers filed exhibit 10d sprint corporations quarterly report form 10q quarter ended september 30 1994 exhibit 10h sprint corporations quarterly report form 10q quarter ended march 31 1996 exhibit 10w sprint corporations annual report form 10k year ended december 31 1997 incorporated herein reference directors deferred fee plan amended filed exhibit 10v sprint corporations annual report form 10k year ended december 31 1999 incorporated herein reference u form contingency employment agreements sprint corporation certain executive officers filed exhibit 10h sprint corporations quarterly report form 10q quarter ended september 30 2000 incorporated herein reference v form indemnification agreements sprint corporation formerly united telecommunications inc directors officers filed exhibit 10s sprint corporations annual report form 10k year ended december 31 1991 incorporated herein reference w summary executive officer benefits board directors benefits fees x special compensation noncompete agreement dated march 26 2002 sprint corporation robert j dellinger filed exhibit 10b sprint corporations quarterly report form 10q quarter ended march 31 2002 incorporated herein reference special incentive plan filed exhibit 10g sprint corporations quarterly report form 10q quarter ended september 30 2000 incorporated herein reference z employment agreements dated february 26 2001 among sprint corporation sprintunited management company william esrey ronald lemay filed exhibit 10bb sprint corporations annual report form 10k year ended december 31 2000 incorporated herein reference aa executive agreement dated july 30 2001 among sprint corporation sprintunited management company len lauer filed exhibit 10bb sprint corporations annual report form 10ka year ended december 31 2001 incorporated herein reference bb special award stock plan 12 computation ratio earnings fixed charges 21 subsidiaries registrant 23 consent independent auditors sprint furnish securities exchange commission upon request copy instruments defining rights holders longterm debt total amount securities authorized said instruments listed exceed 10 total assets sprint b reports form 8k sprint filed current report form 8k dated november 14 2002 reported sprints chief executive officer chief financial officer filed securities exchange commission statements compliance 18 usc s1350 adopted pursuant s906 sarbanesoxley act 2002 respect sprints quarterly report form 10q quarter ended september 30 2002 sprint filed current report form 8k dated january 3 2003 reported closed sale directory business sprint filed current report form 8k dated february 5 2003 reported announced fourth quarter 2002 calendar year 2002 results news release regarding fourth quarter 2002 calendar year 2002 results included exhibit current report included following financial information sprint corporation consolidated statements operations sprint corporation consolidated balance sheets sprint corporation condensed consolidated cash flow information sprint corporation selected operating results sprint corporation pro forma selected operating results sprint fon group summary financial information sprint corporation directory publishing business sprint corporation pcs group net customer additions signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized sprint corporation registrant w esrey william esrey chairman chief executive officer date march 7 2003 pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities indicated 7th day march 2003 w esrey william esrey chairman chief executive officer robert j dellinger robert j dellinger executive vice president chief financial officer john p meyer john p meyer senior vice president controller principal accounting officer signatures sprint corporation registrant pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities indicated 7th day march 2003 dubose ausley linda k lorimer dubose ausley director linda k lorimer director w esrey charles e rice william esrey director charles e rice director irvine hockaday jr louis w smith irvine hockaday jr director louis w smith director ronald lemay stewart turley ronald lemay director stewart turley director certifications william esrey chairman chief executive officer certify 1 reviewed annual report form 10k sprint corporation 2 based knowledge annual report contain untrue statement material fact omit state material fact necessary make statements made light circumstances statements made misleading respect period covered annual report 3 based knowledge financial statements financial information included annual report fairly present material respects financial condition results operations cash flows registrant periods presented annual report 4 registrants certifying officers responsible establishing maintaining disclosure controls procedures defined exchange act rules 13a14 15d14 registrant designed disclosure controls procedures ensure material information relating registrant including consolidated subsidiaries made known us others within entities particularly period annual report prepared b evaluated effectiveness registrants disclosure controls procedures date within 90 days prior filing date annual report evaluation date c presented annual report conclusions effectiveness disclosure controls procedures based evaluation date 5 registrants certifying officers disclosed based recent evaluation registrants auditors audit committee registrants board directors persons performing equivalent function significant deficiencies design operation internal controls could adversely affect registrants ability record process summarize report financial data identified registrants auditors material weaknesses internal controls b fraud whether material involves management employees significant role registrants internal controls 6 registrants certifying officers indicated annual report whether significant changes internal controls factors could significantly affect internal controls subsequent date recent evaluation including corrective actions regard significant deficiencies material weaknesses date march 3 2003 w esrey william esrey chairman chief executive officer certifications robert j dellinger executive vice president chief financial officer certify 1 reviewed annual report form 10k sprint corporation 2 based knowledge annual report contain untrue statement material fact omit state material fact necessary make statements made light circumstances statements made misleading respect period covered annual report 3 based knowledge financial statements financial information included annual report fairly present material respects financial condition results operations cash flows registrant periods presented annual report 4 registrants certifying officers responsible establishing maintaining disclosure controls procedures defined exchange act rules 13a14 15d14 registrant designed disclosure controls procedures ensure material information relating registrant including consolidated subsidiaries made known us others within entities particularly period annual report prepared b evaluated effectiveness registrants disclosure controls procedures date within 90 days prior filing date annual report evaluation date c presented annual report conclusions effectiveness disclosure controls procedures based evaluation date 5 registrants certifying officers disclosed based recent evaluation registrants auditors audit committee registrants board directors persons performing equivalent function significant deficiencies design operation internal controls could adversely affect registrants ability record process summarize report financial data identified registrants auditors material weaknesses internal controls b fraud whether material involves management employees significant role registrants internal controls 6 registrants certifying officers indicated annual report whether significant changes internal controls factors could significantly affect internal controls subsequent date recent evaluation including corrective actions regard significant deficiencies material weaknesses date march 6 2003 robert j dellinger robert j dellinger executive vice president chief financial officer index financial statements financial statement schedule exhibits management report sprint corporations management responsible integrity objectivity information contained document management responsible consistency reporting information ensuring accounting principles generally accepted united states used discharging responsibility management maintains comprehensive system internal controls supports extensive program internal audits made organizational arrangements providing appropriate divisions responsibility established communication programs aimed assuring policies procedures principles business conduct understood practiced employees financial statements included document audited ernst young llp independent auditors audits conducted using auditing standards generally accepted united states report included herein board directors responsibility financial statements pursued mainly audit committee audit committee composed entirely directors officers employees sprint meets periodically internal auditors independent auditors without management present assure respective responsibilities fulfilled internal independent auditors full access audit committee discuss auditing financial reporting matters w esrey william esrey chairman chief executive officer robert j dellinger robert j dellinger executive vice president chief financial officer report independent auditors board directors shareholders sprint corporation audited accompanying consolidated balance sheets sprint corporation sprint december 31 2002 2001 related consolidated statements operations comprehensive income loss cash flows shareholders equity three years period ended december 31 2002 audits also included financial statement schedule listed index financial statements financial statement schedule exhibits financial statements schedule responsibility management sprint responsibility express opinion financial statements schedule based audits conducted audits accordance auditing standards generally accepted united states standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion financial statements referred present fairly material respects consolidated financial position sprint december 31 2002 2001 consolidated results operations cash flows three years period ended december 31 2002 conformity accounting principles generally accepted united states also opinion related financial statement schedule considered relation basic financial statements taken whole presents fairly material respects information set forth therein discussed note 1 notes consolidated financial statements effective january 1 2002 sprint adopted statement financial accounting standards 142 goodwill intangible assets ernst young llp kansas city missouri february 5 2003 consolidated statements operations millions 1 effects including incremental shares associated options employees stock purchase plan shares antidilutive basic loss per share diluted loss per share reflect calculation consolidated statements operations pcs group periods presented year ended december 31 2001 fon group see accompanying notes consolidated financial statements consolidated statements comprehensive income loss millions see accompanying notes consolidated financial statements consolidated balance sheets millions see accompanying notes consolidated financial statements consolidated balance sheets continued millions except per share data see accompanying notes consolidated financial statements consolidated statements cash flows millions see accompanying notes consolidated financial statements millions see accompanying notes consolidated financial statements notes consolidated financial statements sprint corporation 1 summary significant accounting policies tracking stock formation november 1998 sprints shareholders approved allocation sprints assets liabilities two groups fon group pcs group well creation fon stock pcs stock addition sprint purchased remaining ownership interests sprint spectrum holding company lp phillieco lp together sprint pcs minority interest cox communications pcs lp cox pcs sprint acquired ownership interests telecommunications inc comcast corporation cox communications inc cable partners exchange sprint issued cable partners special lowvote pcs shares warrants acquire additional pcs shares sprint also issued cable partners shares new series preferred stock convertible pcs shares purchase cable partners interests referred pcs restructuring 1999 second quarter sprint acquired remaining minority interest cox pcs also november 1998 sprint reclassified publicly traded common shares one share fon stock 12 share pcs stock recapitalization taxfree shareholders addition class common shares owned france telecom ft deutsche telekom ag dt reclassified shares representing fon stock pcs stock transactions referred recapitalization connection pcs restructuring ft dt purchased 51 million additional pcs shares presplit basis ft longer holds fon shares dt longer holds either fon pcs shares fon common stock pcs common stock intended reflect financial results economic value fon pcs groups however classes common stock sprint group intended track accordingly fon pcs shareholders subject risks related equity investment sprint sprints businesses assets liabilities shares fon common stock pcs common stock represent direct legal interest assets liabilities allocated either group rather represent direct equity interest assets liabilities whole sprints board may subject restrictions sprints articles incorporation change allocation assets liabilities comprise fon group pcs group without shareholder approval board discretion regarding tracking stocks sprints board discretion among things make operating financial decisions could favor one group subject restrictions sprints articles incorporation change allocation assets liabilities comprise fon group pcs group without shareholder approval applicable corporate law sprints board owes fiduciary duties sprints shareholders board directors owes separate duties holders either fon stock pcs stock tracking stock policies provide board resolving material matters holders fon stock pcs stock potentially divergent interests act best interests sprint common shareholders giving fair consideration potentially divergent interests holders separate classes sprint common stock policies may changed board without shareholder approval given boards discretion matters may difficult assess future prospects group based past performance basis consolidation presentation consolidated financial statements include accounts sprint wholly owned subsidiaries controls investments entities sprint exercises significant influence control accounted using equity method see note 2 consolidated financial statements prepared using accounting principles generally accepted united states principles require management make estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities reported amounts revenues expenses actual results could differ estimates certain prioryear amounts reclassified conform currentyear presentation reclassifications effect results operations shareholders equity previously reported classification operations sprints business divided three lines business global markets division local division pcs wireless telephony products services business global markets division global markets division provides broad suite communications services targeted domestic business residential customers multinational corporations communications companies services include domestic international voice data communications using various protocols internet protocol frame relay data service transfers packets data sprints network managed network services addition global markets division provides web applications hosting consulting services colocation services international data communications global markets division also includes operating results cable tv service operations broadband fixed wireless companies 2001 sprint announced would halt deployment multipoint multichannel distribution services mmds services using current direct sight access technology current customers continue receive service sprint pursuing alternative strategies respect spectrum leases licenses division also includes fon groups investments earthlink inc internet service provider callnet long distance provider canada intelig telecommunicacoes ltda long distance provider brazil certain telecommunications investments ventures local division local division consists mainly regulated local phone companies serving approximately 81 million access lines 18 states local division provides local voice data services including digital subscriber line dsl customers within franchise territories access phone customers carriers local divisions local network nationwide long distance services residential customers located within franchise territories sales telecommunications equipment services within specified calling areas residential business customers dsl enables high speed transmission data existing copper telephone lines sprint pcs group pcs group includes sprints wireless pcs operations yearend 2002 pcs group together third party affiliates operated pcs systems 300 metropolitan markets including 100 largest us metropolitan areas pcs group licenses serve entire us population including puerto rico us virgin islands service offered pcs group third party affiliates covers quarter billion people pcs group provides nationwide service combination operating digital network major us metropolitan areas using code division multiple access technology cdma digital spreadspectrum wireless technology allows large number users access single frequency band assigning code speech bits sending scrambled transmission encoded speech air reassembling speech original format affiliating companies use cdma mainly around smaller us metropolitan areas roaming providers analog cellular networks using multimode multiband handsets roaming providers digital networks use cdma pcs group supplements network affiliation arrangements companies use cdma arrangements companies offer pcs services sprint brand name cdma networks built operated expense several affiliates experiencing financial difficulties evaluating restructuring activities could face bankruptcy february 2003 one affiliate filed bankruptcy protection pcs group also includes investment virgin mobile usa joint venture market wireless services investment accounted using equity method pcs group also provides pcs services companies resell pcs services customers retail basis brand companies bear costs acquisition billing customer service intergroup transactions allocations intergroup transactions pcs group uses long distance operation fon group interexchange carrier purchases wholesale long distance resale customers additionally fon group provides pcs group caller id services various goods services charges pcs group items totaled 672 million 2002 570 million 2001 392 million 2000 also included amounts charges goods capitalized pcs group capitalized charges totaled 4 million 2002 12 million 2001 15 million 2000 service charges less capitalized charges included fon groups net operating revenues pcs groups costs services products pcs group provides fon group access network telemarketing various services charges fon group items totaled 20 million 2001 39 million 2000 2002 pcs group credited fon group 46 million credit primarily related proceedings initiated federal communications commission fcc 2001 consider number issues regarding compensation arrangements carriers exchange local long distance traffic including issue whether wireless carriers allowed charge long distance carriers terminating long distance calls wireless customers fon group charges pcs group return investment capital carrying charge use corporate owned capital assets charges pcs group item totaled 33 million 2002 11 million 2001 amounts included fon groups income pcs groups operating expenses allocation shared services sprint directly assigns possible certain general administrative costs fon group pcs group based actual use services direct assignment costs possible practical sprint uses indirect methods including time studies estimate allocation costs group cost allocation methods time studies include factors general marketing headcount derived operating units relative share predefined category referenced eg headcount sprint believes costs allocated comparable costs would incurred groups would operating standalone basis fon group provides facilities information services certain services pcs group charges pcs group services totaled 359 million 2002 236 million 2001 150 million 2000 also included amounts charges capitalized pcs group capitalized charges totaled 20 million 2002 19 million 2001 zero 2000 service charges less capitalized charges included pcs groups operating expenses costs shared services totaled approximately 568 million 2002 542 million 2001 605 million 2000 percentage costs allocated pcs group approximately 31 2002 23 2001 15 2000 balance allocated fon group allocation shared services may change discretion sprints board require shareholder approval allocation group financing activities groups managed sprint centralized basis debt incurred sprint behalf groups specifically allocated reflected financial statements applicable group interest expense allocated pcs group based interest rate substantially equal rate would able obtain third parties wholly owned sprint subsidiary without benefit guarantee sprint member fon group interest rate higher rate sprint obtains borrowings difference sprints actual interest rate charged pcs group reflected reduction fon groups interest expense totaled 336 million 2002 288 million 2001 237 million 2000 amounts reflected intergroup interest charge consolidated statements operations fon group earned intergroup interest income pcs group incurred intergroup interest expense 15 million 2001 19 million 2000 primarily related fon groups ownership pcs group debt securities sprint redeemed securities 2001 fourth quarter result redemption fon group recognized 11 million pretax gain expense net pcs group recorded 7 million aftertax extraordinary loss sprints centralized cash management program one group may advance funds group advances accounted shortterm borrowings groups bear interest market rate substantially equal rate group would able obtain third parties shortterm basis allocation group financing activities may change discretion sprints board require shareholder approval allocation federal state income taxes sprint files consolidated federal income tax return certain state income tax returns include fon group pcs group results sprint adopted tax sharing agreement provided allocation income taxes two groups fon groups income taxes calculated files returns exclude pcs group pcs groups income taxes reflect pcs groups incremental cumulative impact sprints consolidated income taxes intergroup tax payments satisfied date sprints related tax payment due refund received applicable tax authority original tax sharing agreement applied tax years ending december 31 2001 december 2001 sprint adopted continuation tax sharing arrangement except elimination certain provisions addressing certain types acquisitions restructurings never became operable original agreement income taxes sprint records deferred income taxes based temporary differences carrying amounts assets liabilities financial reporting purposes tax bases revenue recognition sprint recognizes operating revenues services rendered products delivered customers service activation certain installation fees deferred amortized average life service advertising expense sprint recognizes advertising expense incurred expenses include production media promotional sponsorship costs advertising expenses totaled 863 million 2002 11 billion 2001 2000 cash equivalents cash equivalents generally include highly liquid investments original maturities three months less stated cost approximates market value sprint uses controlled disbursement banking arrangements part cash management program outstanding checks included accounts payable totaled 192 million yearend 2002 550 million yearend 2001 sprint sufficient funds available fund outstanding checks presented payment investments equity securities investments marketable equity securities classified available sale reported fair value estimated based quoted market prices gross unrealized holding gains losses reflected consolidated balance sheets adjustments shareholders equityaccumulated comprehensive income net related income taxes impairment losses investments equity securities recorded expense net consolidated statements operations investments market value declines sprints cost basis temporary basis inventories fon group stated lower cost principally firstin firstout method market value inventories pcs group stated lower cost principally firstin firstout method replacement value property plant equipment property plant equipment recorded cost generally ordinary asset retirements disposals charged accumulated depreciation gain loss recognized cost property plant equipment generally depreciated straightline basis estimated economic useful lives repair maintenance costs expensed incurred capitalized interest capitalized interest totaled 118 million 2002 174 million 2001 175 million 2000 capitalized interest fon group totaled 18 million 2002 30 million 2001 22 million 2000 capitalized interest pcs group totaled 100 million 2002 144 million 2001 153 million 2000 capitalized interest incurred connection pcs groups fon groups construction capital assets goodwill intangibles effective january 1 2002 sprint adopted statement financial accounting standards sfas 142 goodwill intangible assets upon adoption statement amortization goodwill indefinite life intangibles ceased accumulated amortization december 31 2001 reduced carrying value assets see note 4 additional information regarding sfas 142 treatment goodwill intangibles goodwill represents excess purchase price fair value net assets acquired business combinations accounted purchases book value goodwill 44 billion yearend 2002 2001 sprint evaluates goodwill impairment annual basis whenever events circumstances indicate assets might impaired sprint determines impairment comparing net assets reporting unit identified sprints operating segments respective fair value event units net assets exceed fair value implied fair value goodwill must determined assigning units fair value asset liability unit excess fair value reporting unit amounts assigned assets liabilities implied fair value goodwill impairment loss measured difference goodwill carrying value implied fair value indefinite life intangibles sprint identified spectrum licenses sprints trademark indefinite life intangibles pcs group acquired spectrum licenses fcc operate pcs service provider additionally pcs group incurred costs related microwave relocation constructing pcs network global markets division acquired spectrum licenses broadband fixed wireless companies acquired 1999 book value indefinite life intangibles 46 billion yearend 2002 2001 sprint evaluates recoverability indefinite lived intangible assets annual basis whenever events circumstances indicate assets might impaired sprint determines impairment comparing assets respective carrying value estimates fair value using best information available requires use estimates judgments projections event impairment exists loss recognized based amount carrying value exceeds fair value asset definite life intangibles definite life intangibles include patents value associated pcs group customer base acquisition sprint evaluates recoverability definite life intangible assets events circumstances indicate assets might impaired sprint determines impairment comparing assets respective carrying value estimates sum future cash flows expected result companys asset undiscounted without interest charges carrying amount less recoverable amount loss recognized based amount carrying value exceeds fair value asset definite life intangibles amortized useful lives yearend 2002 averaged 10 years amortization assets totaled 4 million 2002 148 million 2001 317 million 2000 intangible associated pcs customer base approximately 746 million became fully amortized 2002 time accumulated amortization reduced carrying value asset earnings per share eps computed individually fon group pcs group part recapitalization class common share owned ft dt reclassified share represented right one share fon stock 12 share pcs stock order give effect ft dt interests determining earnings per share number shares fon stock pcs stock represented shares class common stock included calculation weighted average fon pcs common stock outstanding fon groups convertible preferred dividends totaled 1 million 2000 dilutive securities mainly options totaled 12 million shares 2002 115 million shares 2000 2001 dilutive securities dilutive effect loss per share fon group incurred net loss dilutive securities pcs group mainly include options warrants convertible preferred stock equity units securities dilutive effect loss per share pcs group incurred net losses 2002 2001 2000 result diluted loss per share equaled basic loss per share stockbased compensation december 31 2002 sprint three stockbased employee compensation plans described fully note 15 sprint accounts plans intrinsic value recognition measurement principles apb opinion 25 apb 25 accounting stock issued employees related interpretations based additional disclosure requirements sfas 148 accounting stockbased compensation transition disclosure following table illustrates effect net income earnings per share company applied fair value recognition provisions sfas 123 accounting stockbased compensation sprint intends begin expensing stockbased compensation 2003 see note 19 additional information 2 investments securities cost investments marketable securities included assets consolidated balance sheet 95 million 35 million yearend 2002 2001 respectively accumulated unrealized holding losses 20 million gross 12 million net income taxes accumulated unrealized holding gains 10 million gross 6 million net taxes yearend 2002 comparatively yearend 2001 accumulated unrealized holding gains 40 million gross 26 million net income taxes gains losses included accumulated comprehensive income sprint consolidated balance sheets sprints cost method investment earthlink preferred shares included assets consolidated balance sheet 116 million 410 million yearend 2002 2001 respectively 2002 second quarter sprint completed analysis valuation investment resulted writedown 241 million market value charge included expense net sprints consolidated statements operations 2002 sprint converted 9 million shares earthlink series convertible preferred stock 88 million shares earthlink common stock 2001 fourth quarter sprint converted 31 million shares earthlink series convertible preferred stock 3 million shares earthlink common stock 2001 third quarter sprint sold 125 million common shares earthlink 155 million converted sold 62 million shares series b convertible preferred stock earthlink 73 million net loss sales 25 million included expense net sprints consolidated statements operations 2001 first quarter sprint modified relationship earthlink resulted investment common stock longer accounted using equity method 2000 fourth quarter sprint recorded writedown securities cost basis 48 million due decline market value considered temporary 48 million charge included expense net sprints consolidated statements operations 2000 sprint used equity securities cost basis 94 million retire debt instruments see note 11 sprint recorded 45 million gain associated transaction included expense net sprints consolidated statements operations investments advances affiliates yearend 2002 investments accounted using equity method consisted primarily pcs groups investment virgin mobile usa yearend 2001 investments accounted using equity method consisted fon groups various investments pcs groups investments pegaso telecomunicaciones sa de cv pegaso svc bidco lp bidco virgin mobile usa yearend 2000 investments accounted using equity method consisted fon groups investments intelig earthlink investments pcs groups investment pegaso bidco 2002 pcs groups investment bidco dissolved 2002 fourth quarter sprint received 5 million final share fccs return deposit licenses nextwave spectrum auction receiving 38 million 2002 second quarter representing share 85 deposit licenses dissolution 5 million loss recognized fourth quarter 2002 sprint liquidated partnership received cash proceeds 148 million associated transaction sprint extinguished 150 million borrowing partnership sprint recorded 1 million loss investment third quarter 2002 pcs group sold investment pegaso telefonica moviles sprint also reached agreement pegaso shareholders pegaso payment connection cancellation companys services contract sprints book investment pegaso zero due previous recognition share losses sprint received 28 million telefonica moviles third quarter october 2002 received additional final payment net foreign withholding tax 35 million investment pegaso second quarter 2002 callnet canadian longdistance provider finalized comprehensive recapitalization proposal altered fon groups existing ownership investment carried zero value since 2000 fourth quarter sprint invested approximately 16 million new callnet shares part recapitalization since equity method investment sprint recognized previously unrecognized losses amount additional investment additionally sprint callnet agreed new ten year branding technology services agreement sprint receives royalties 2000 fourth quarter sprint completed analysis valuation equity method investments response changes telecommunications industry analysis resulted 87 million charge writedown investment callnet included expense net sprints consolidated statements operations second quarter 2002 new agreement entered virgin group funding virgin mobile usa terms agreement sprint fund 150 million majority form discounted network services remainder cash virgin group fund 150 million cash december 31 2002 sprint satisfied nearly 100 cash funding requirement approximately 10 network services contribution virgin mobile usa launched services june 2002 original joint venture entered 2001 fourth quarter 2001 third quarter sprint completed analysis valuation investment intelig resulted 157 million writedown charge included expense net sprints consolidated statement operations combined unaudited summarized financial information 100 basis entities accounted using equity method follows 3 restructuring asset impairment restructuring activity 2002 fourth quarter sprint announced consolidation network information technology billing accounts receivable organizations well areas company ongoing effort streamline operations maintain competitive cost structure one sprint consolidation decisions resulted 146 million pretax charge consisting primarily severance costs associated work force reductions charge severance costs totaled 58 million remaining 88 million accrued exit costs associated restructuring severance charge associated involuntary employee separation approximately 2100 employees december 31 2002 approximately 250 employee separations completed sprint expects pay majority severance exit costs next 12 months 2002 fourth quarter pcs group announced would reduce operating expenses work force reduction pcs consolidation action expected create competitive cost structure business decision resulted 43 million pretax charge consisting primarily severance costs associated work force reductions charge severance costs totaled 25 million remaining 18 million accrued exit costs associated restructuring severance charge associated involuntary employee separation approximately 1600 employees december 31 2002 approximately 1000 employee separations completed sprint expects pay majority severance exit costs next 12 months 2002 third quarter sprint announced restructuring integrating esolutions web hosting sales mobile computing consulting marketing product sales support capabilities sprint business integrating customer service operations network services additionally sprint announced global markets division would discontinue offering supporting facilitiesbased digital subscriber line dsl services customers collectively global markets division consolidation decisions resulted 202 million pretax charge consisting asset writeoffs severance costs associated work force reductions termination real estate leases contractual obligations charge asset impairments 142 million severance costs totaled 22 million remaining 38 million accrued exit costs associated restructuring severance charge associated involuntary employee separation approximately 1100 employees september 30 2002 substantially employee separations completed sprint expects pay majority severance exit costs third quarter 2003 2002 first quarter pcs group announced plans close five pcs customer solution centers well additional steps reduce operating costs network sales distribution customer solutions business units pcs customer service center closures decisions resulted 23 million pretax restructuring charge consisting severance costs associated work force reductions exit costs primarily termination real estate leases charge severance costs 13 million remaining 10 million exit costs severance charge associated involuntary employee separation approximately 2600 employees september 30 2002 substantially employee separations completed 2002 third quarter sprint performed analysis finalize restructuring estimates recorded 2002 first quarter analysis resulted reserve reduction 6 million primarily associated real estate lease terminations 2001 fourth quarter sprint terminated efforts provide sprint ion consumer business offerings announced plans reduce operating costs business units comprise fon group efforts included consolidation streamlining marketing network operations well streamlining corporate support functions sprint ion termination operating losses generated ion 11 million 2002 approximately 500 million 2001 2000 decisions resulted 1813 million pretax charge consisting asset writeoffs severance costs associated work force reductions termination supplier agreements real estate leases contractual obligations charge asset impairments 1327 million severance costs totaled 231 million remaining 256 million accrued exit costs associated restructuring severance charge associated involuntary employee separation approximately 6000 employees september 30 2002 substantially employee separations completed 2002 third quarter sprint performed analysis finalize restructuring estimates recorded 2001 fourth quarter analysis resulted reserve reduction third quarter 2002 42 million primarily associated exit costs 34 million reduction associated asset impairment charge activity summarized follows 2001 activity related sprint ion termination restructuring included severance cash expenditures 31 million additional pension obligations 40 million exit costs expenditures 7 million 19 million noncash exit costs asset impairments 2002 fourth quarter sprint recorded charges asset impairment 56 million fon group recorded network asset impairment related global markets division 14 million pcs group recorded asset impairment 42 million representing abandoned network projects 2000 fourth quarter sprint completed analysis valuation various fon group assets resulting reassessment fon groups business strategies response recent changes within overall telecommunications industry analysis resulted 238 million pretax charge primarily related impairment goodwill associated global markets divisions paranet operations 4 goodwill intangible assets sprint adopted sfas 142 goodwill intangible assets january 1 2002 standard prescribes accounting treatment identifiable intangibles goodwill initial recognition upon adoption standard amortization goodwill indefinite life intangibles ceased accumulated amortization december 31 2001 reduced carrying value assets periodic impairment testing assets required definite life intangibles continue amortized useful lives sprint identified spectrum licenses include related microwave relocation costs trademark indefinite life intangibles concurrent adoption 2002 fourth quarter sprint evaluated impairment goodwill indefinite life intangibles accordance standards guidance determined assets impaired following pro forma table adjusts net income loss basic diluted earnings loss per share 2001 2000 exclude amortization net related tax effects goodwill indefinite lived intangibles 5 merger termination july 13 2000 sprint worldcom inc announced boards directors companies terminated merger agreement previously announced 1999 result regulatory opposition merger 2000 second quarter sprint recognized pretax charge 187 million costs associated merger fon group recognized 163 million pcs group recognized 24 million 6 discontinued operations 2002 third quarter sprint reached definitive agreement sell directory publishing business rh donnelley 223 billion cash sale closed january 3 2003 sprint recognize pretax gain 214 billion 13 billion aftertax 2003 first quarter accordance sfas 144 accounting impairment disposal longlived assets sprint presented assets liabilities results operations directory publishing business discontinued operation consolidated financial statements summary financial information follows 2000 first quarter sprint sold interest global one france telecom deutsche telekom ag sprint received 11 billion cash repaid 276 million advances entire stake global one result sprints sale interest global one sprints aftertax gain sale 675 million reported discontinued operations 2000 7 cumulative effect changes accounting principles june 1998 financial accounting standards board fasb issued sfas 133 accounting derivative instruments hedging activities sfas 133 became effective sprint january 1 2001 establishes accounting reporting standards derivative instruments including certain derivative instruments embedded contracts hedging activities requires recognition derivatives balance sheet fair value regardless hedging relationship designation accounting changes fair value derivative instruments depends whether derivatives qualify hedge relationships types relationships designated based exposures hedged changes fair value derivatives designated fair value hedges recognized earnings along fair value changes hedged item changes fair value derivatives designated cash flow hedges recorded comprehensive income recognized earnings hedged item affects earnings changes fair value derivative instruments qualify hedge relationship designation recognized earnings upon adoption sfas 133 sprint recorded cumulative adjustment net income 2 million net tax 1 million cumulative reduction comprehensive income 9 million 2 million cumulative adjustment due recognizing fair value stock warrants held pcs group designated hedging instruments recorded cumulative effect changes accounting principles net sprints consolidated statements operations total fair value stock warrants held fon group date adoption material required transition adjustment earnings reduction comprehensive income results recognizing fair value cash flow hedges held fon group recorded cumulative effect change accounting principle sprints consolidated statements comprehensive income loss net derivative losses included accumulated comprehensive income december 31 2001 reclassified earnings 2002 second quarter sprint implemented sec staff accounting bulletin 101 revenue recognition financial statements fourth quarter 2000 effective beginning year bulletin requires activation installation fee revenues represent separate earnings process deferred recognized estimated service period associated incremental direct costs may also deferred extent revenues subject deferral fon group recorded 2 million charge cumulative effect change accounting principle 2000 8 employee benefit plans defined benefit pension plan fon group pcs group employees covered noncontributory defined benefit pension plan benefits plan participants belonging unions based negotiated schedules nonunion participants pension benefits based years service participants compensation sprints policy make plan contributions equal actuarially determined amount consistent federal tax regulations funding objective accumulate funds relatively stable rate participants working lives benefits fully funded retirement following table shows changes projected benefit obligation following table shows changes plan assets yearend funded status amounts recognized consolidated balance sheets plan follows amounts recognized consolidated balance sheets consist amounts included plan consolidated balance sheets include accrued pension expense 718 million yearend 2002 prepaid pension expense 474 million yearend 2001 fon group accrued pension expense 89 million yearend 2002 31 million yearend 2001 pcs group accordance sfas 87 company recorded additional minimum pension liability 1252 million representing excess unfunded accumulated benefit obligation plan assets accrued pension costs additional minimum pension liability 1217 million fon group 35 million pcs group december 31 2002 intangible asset equal unrecognized prior service costs 95 million established fon group remaining 1122 million fon group 35 million pcs group totaling 1157 million sprint resulted charge equity net taxes 691 million fon group 22 million pcs group totaling 713 million sprint december 31 2002 net pension credit consisted following net periodic pension income fon group 26 million 2002 66 million 2001 122 million 2000 net periodic pension expense pcs group 24 million 2002 18 million 2001 7 million 2000 weighted average assumptions december 31 consisted following defined contribution plans sprint sponsors defined contribution employee savings plans covering fon group pcs group employees participants may contribute portions pay plans union employees sprint matches contributions based negotiated amounts sprint matches contributions nonunion employees fon stock pcs stock matching equal 50 participants contributions 6 pay addition sprint may discretion board directors provide additional matching contributions based performance fon stock pcs stock compared telecommunications companies stock sprints matching contributions 105 million 2002 103 million 2001 2000 fon group recorded expenses 83 million 2002 85 million 2001 86 million 2000 sprints matching contributions pcs group recorded expenses 22 million 2002 18 million 2001 17 million 2000 yearend 2002 plans held 42 million fon shares market value 608 million dividends reinvested plan 20 million yearend 2002 plans held 52 million pcs shares market value 227 million postretirement benefits sprint provides postretirement benefits mainly medical life insurance fon group pcs group employees retired certain dates eligible benefits cost reduced cost employees retire certain dates eligible benefits sharedcost basis sprint funds accrued costs benefits paid 2001 third quarter sprint adopted amendments two postretirement benefit plans result amendments life insurance benefit eliminated employees retiring 2003 postretirement medical insurance plan replaced sprintfunded account managed employee plan amendment sprint retiree medical insurance plan reduced accumulated postretirement benefit obligation reduced employee benefits attributed employee service already rendered sprint recognized curtailment gain amendment 120 million 75 million tax following table shows changes accumulated postretirement benefit obligation amounts included consolidated balance sheets yearend follows amounts accrued postretirement benefit costs included consolidated balance sheets 902 million yearend 2002 927 million yearend 2001 fon group 3 million yearend 2002 2001 pcs group assumed 2003 annual health care cost trend rate 90 gradually decreasing ultimate level 5 2011 1 increase rates would increased 2002 accumulated postretirement benefit obligation estimated 100 million 1 decrease would reduced obligation estimated 83 million net postretirement benefits cost consisted following fon group recorded net periodic postretirement benefit expense 29 million 2002 45 million 2001 62 million 2000 pcs group recorded net periodic postretirement benefit expense 1 million 2002 2001 02 million 2000 measurement purposes assumed 2002 weighted average annual health care cost trend rates 85 medicare eligibility 90 medicare eligibility rates gradually decrease ultimate level 50 2010 10 increase rates would increased 2002 postretirement benefits service interest costs estimated 6 million 10 decrease would reduced 2002 postretirement benefits service interest costs estimated 5 million 9 income taxes income tax expense benefit allocated continuing operations consists following differences caused sprints effective income tax rates vary 35 federal statutory rate income taxes related continuing operations follows income tax expense benefit allocated items follows 1 amounts recorded directly shareholders equityaccumulated comprehensive income loss consolidated balance sheets 2 amounts recorded directly shareholders equity capital excess par stated value consolidated balance sheets sprint recognizes deferred income taxes temporary differences carrying amounts assets liabilities financial statement purposes tax bases sources differences give rise deferred income tax assets liabilities yearend 2002 2001 along income tax effect follows management believes likely deferred income tax assets net valuation allowance realized based current income tax laws expectations future taxable income stemming reversal existing deferred tax liabilities ordinary operations uncertainties surrounding income tax law changes shifts operations state taxing jurisdictions future operating income levels may however affect ultimate realization deferred income tax assets valuation allowance related deferred income tax assets decreased 113 million 2002 increased 88 million 2001 2002 sprint reached definitive agreement sell directory publishing business rh donnelley due anticipated gain sale sprint recognized 292 million tax benefits third quarter 2002 previously recorded investment losses foreign component income loss continuing operations totaled 273 million 234 million 236 million 2002 2001 2000 respectively 1999 sprint acquired approximately 193 million potential tax benefits related net operating loss carryforwards acquisitions broadband fixed wireless companies 1998 sprint acquired approximately 229 million potential tax benefits related net operating loss carryforwards pcs restructuring benefits acquisitions pcs restructuring subject certain realization restrictions various tax laws valuation allowance provided total benefits subsequently recognized reduce goodwill intangibles resulting application purchase method accounting transactions connection pcs restructuring pcs group required reimburse fon group cable partners net operating loss tax credit carryforward benefits generated pcs restructuring realization pcs group produces cash benefit would otherwise realized reimbursement equal 60 net cash benefit received pcs group made fon group cash cable partners shares series 2 pcs stock carryforward benefits subject requirement total 259 million includes 229 million acquired pcs restructuring yearend 2002 sprint federal operating loss carryforwards approximately 74 billion state operating loss carryforwards approximately 123 billion related loss carryforwards federal tax benefits 26 billion state tax benefits 858 million addition sprint available income tax purposes federal alternative minimum tax net operating loss carryforwards 56 billion state alternative minimum tax net operating loss carryforwards 14 billion loss carryforwards expire varying amounts 2022 10 shortterm borrowings current maturities longterm debt sprints consolidated shortterm borrowings current maturities longterm debt yearend follows 1 borrowings incurred financing agreement entered 2002 secure repayment loans lenders granted security interest certain fon group trade accounts receivable sprints weighted average interest rate related borrowings 25 yearended 2002 2 notes payable weighted average interest rate 27 yearend 2001 commercial paper weighted average interest rate 32 yearend 2001 yearend 2002 sprint notes payable commercial paper outstanding sprint bank notes payable totaling 635 million commercial paper borrowings totaling 32 billion yearend 2001 august 2002 sprint closed new 700 million global markets division accounts receivable asset securitization facility replaced previous 1 billion facility reduction size due primarily smaller gross receivable pool global markets division time versus 1999 original facility established new facility threeyear program subject annual renewals december 31 2002 sprint drawn 455 million facility collateralized approximately 15 billion gross receivables august 2002 sprint closed new 15 billion revolving bank credit facility unsecured springing liens structured 364day credit line subsequent oneyear 10 billion term option new facility replaced existing 2 billion facility would expired august 2003 previous periods unused 2 billion facility supported sprints reclassification shortterm borrowings longterm debt end 2001 sprint reclassified 2 billion commercial paper borrowings bank notes longterm debt end december 2002 sprint shortterm borrowings 455 million related previously noted global markets division asset securitization facility june 2002 sprint closed new pcs group accounts receivable asset securitization facility provides sprint 500 million additional liquidity threeyear facility subject annual renewals date sprint drawn facility december 31 2002 facility collateralized 11 billion gross receivables yearend 2002 sprint total unused lines credit 18 billion addition sprint standby letters credit serving backup various obligations approximately 125 million yearend 2002 11 longterm debt capital lease obligations sprints consolidated longterm debt capital lease obligations yearend follows 1 borrowings incurred sprint allocated applicable group sprints weighted average effective interest rate related borrowings 73 yearended 2002 69 yearended 2001 weighted average effective interest rate related borrowings allocated pcs group approximately 91 yearended 2002 87 yearended 2001 see note 1 detailed description sprint allocates financing groups 2 borrowings incurred financing agreement entered 1999 secure repayment loans lenders granted security interest certain fon group trade accounts receivable sprints weighted average interest rate related borrowings 45 yearended 2001 new financing agreement executed august 2002 new agreement included shortterm borrowings scheduled principal payments next five years follows 1 includes 300 million loan export development canada edc due 2004 edc canadian crown corporation devoted exclusively providing financial services support canadian exporters sprint historically made significant purchases canadianbased companies anticipate loan renewed included schedule payments made connection various capital lease obligations substantial portion payments japanese yen sprint already satisfied obligation depositing present value future yen payment obligations various banks amounts included consolidated balance sheet assets based december 31 2002 outstanding balances total payments included schedule 1 million 2003 24 million 2004 51 million 2005 96 million 2006 6 million 2007 december 2002 sprint repaid 150 million notes payable relating revolving credit facility sprint made 150 million investment entity provided credit time formed 1997 sprint liquidated investment received cash distribution approximating original investment december 2002 sprint repaid scheduled maturities 67 million longterm unsecured debt allocated fon group borrowings interest rates ranging 60 7125 maturities ranging 2006 2008 resulted 3 million aftertax extraordinary gain sprint march 2002 sprint issued 5 billion debt securities private placement borrowings interest rates ranging 79 88 maturities ranging 2005 2032 proceeds allocated 5 fon group 95 pcs group used repay debt general corporate purposes condition sale securities sprint conducted exchange offer allowed original securities exchanged substantially identical securities registered securities exchange commission sec exchange offer completed june 2002 2001 fourth quarter sprint issued 175 billion debt securities private placement borrowings interest rate 60 mature 2007 proceeds allocated approximately 60 fon group 40 pcs group used repay debt fund capital investments working capital requirements condition sale securities sprint conducted exchange offer allowed original securities exchanged substantially identical securities registered sec exchange offer terminated february 2002 2001 fourth quarter sprint redeemed scheduled maturities 558 million senior notes senior discount notes pcs group notes interest rates ranging 110 125 resulted aftertax extraordinary loss sprint less 1 million 2001 first quarter sprint repaid scheduled maturities 18 million first mortgage bonds allocated fon group bonds interest rate 99 resulted 1 million aftertax extraordinary loss sprint 2001 first quarter sprint issued 24 billion debt securities borrowings interest rates ranging 71 76 mature 2006 2011 proceeds allocated pcs group used repay debt fund capital investments working capital requirements 2000 fourth quarter sprint redeemed scheduled maturities 25 million debt allocated fon group borrowings weighted average interest rate 96 resulted 1 million aftertax extraordinary loss sprint 2000 second quarter sprint issued 125 billion debt securities borrowings matured 2002 interest rates ranging 69 76 proceeds allocated pcs group used repay debt fund capital investments working capital requirements 2000 first quarter sprint exchanged 66 million common shares sbc communications inc certain notes payable allocated fon group notes market value 275 million maturity date notes interest rate 83 2000 first quarter sprint repaid scheduled maturities 127 million notes payable allocated pcs group notes interest rate 78 resulted 3 million aftertax extraordinary loss sprint substantially sprints senior notes including senior notes issued connection sprints equity units issued sprint capital corporation whollyowned finance subsidiary fully unconditionally guaranteed sprint parent corporation indentures financing agreements certain sprints subsidiaries contain provisions limiting cash dividend payments subsidiary common stock held sprint result 545 million subsidiaries 19 billion total retained earnings restricted yearend 2002 flow cash form advances subsidiaries sprint generally restricted sprint gross property plant equipment totaling 161 billion either pledged security first mortgage bonds certain notes restricted use mortgaged property sprint complied restrictive financial covenants relating debt arrangements yearend 2002 12 equity unit offering 2001 third quarter sprint completed registered offering 69 million equity units stated amount 25 net proceeds issuance approximately 17 billion deducting underwriting discount offering expenses proceeds allocated pcs group used repay debt fund capital investments working capital requirements equity unit initially consists corporate unit corporate unit consists purchase contract 25 principal amount senior notes sprints wholly owned subsidiary sprint capital corporation corporate unit may converted holder treasury unit consisting purchase contract treasury portfolio zerocoupon us treasury securities substituting treasury securities notes holder equity unit owns underlying notes treasury portfolio pledges notes portfolio sprint secure obligations purchase contract purchase contract component equity unit purchase contract obligates holder purchase obligates sprint sell august 17 2004 variable number newly issued shares pcs common stock ranging approximately 58 million 70 million shares depending market price pcs common stock current market prices sprint would obligated issue maximum number shares sprint make quarterly contract adjustment payments 1125 25 stated amount per year purchase contract settled although right defer payments august 17 2004 fair value obligation classified liability consolidated balance sheets contingently issuable shares included diluted earnings per share calculation effect currently antidilutive notes initially bear interest payable quarterly arrears rate 6 per annum sprint obligated remarket notes 2004 time interest rate reset notes mature august 17 2006 corporate units listed new york stock exchange symbol sde 13 redeemable preferred stock redeemable preferred stock outstanding yearend follows seventh series preferred stock part pcs restructuring sprint issued cable partners new series convertible preferred stock currently convertible approximately 65 pcs shares seventh series share converted holder earlier redeemed sprint seventh series preferred stock become mandatorily redeemable tenth anniversary pcs restructuring 2008 fifth series preferred stock sprints fifth series preferred stock must repurchased redeemed full 2003 sprint holder fifth series preferred stock agreed sprint repurchase outstanding shares march 14 2003 repurchase price 100000 per share plus accrued dividends 14 common stock 2001 fourth quarter 04 million shares pcs common stock underlying class dt common stock converted shares series 1 pcs common stock conversion class dt shares cancelled 2001 third quarter sprint completed registered offering 235 million shares series 1 pcs common stock net proceeds issuance approximately 561 million deducting underwriting discount offering expenses proceeds used repay debt fund capital investments working capital requirements conjunction offering dt sold 57 million shares pcs common stock sprint receive proceeds sale shares dt upon sale 212 million shares pcs common stock underlying class dt common stock 358 million shares series 3 pcs common stock converted shares series 1 pcs common stock 2001 second quarter sprint completed registered offering behalf ft dt sold 1748 million shares fon common stock sprint receive proceeds offering upon sale 862 million shares fon common stock underlying class common stock 886 million shares series 3 fon common stock converted shares series 1 fon common stock classes common stock series 1 fon common stockdesignated general publicat end 2002 authorized shares totaled 25 billion issued outstanding shares totaled 8951 million series 1 pcs common stockdesignated general publicat end 2002 authorized shares totaled 30 billion issued outstanding shares totaled 6847 million series 2 fon common stockdesignated cable partnersat end 2002 authorized shares totaled 500 million shares issued series 2 pcs common stockdesignated cable partnersat end 2002 authorized shares totaled 10 billion issued outstanding shares totaled 2807 million series 3 fon common stockdesignated ft dtat end 2002 authorized shares totaled 12 billion outstanding shares series 3 pcs common stockdesignated ft dtat end 2002 authorized shares totaled 600 million issued outstanding shares totaled 344 million owned ft class ft common stockat end 2002 authorized shares totaled 100 million issued outstanding shares totaled 431 million share represents right 50 share series 1 pcs common stock common stock reserved future grants yearend 2002 common stock reserved future grants stock option plans employees stock purchase plan future issuances various arrangements follows sprint fon group sprint pcs group shareholder rights plan sprints shareholder rights plan one half preferred stock purchase right attached share fon stock pcs stock one preferred stock purchase right attached share class common stock rights may redeemed sprint 001 per right expire june 2007 unless extended rights exercisable certain takeover events occur entitled following fon stock right entitles holder purchase 11000 share unit par preferred stocksixth series 275 per unit pcs stock right entitles holder purchase unit par preferred stockeighth series 150 per unit class right entitles holder purchase 14 unit preferred stockeighth series 3750 per 14 unit preferred stocksixth series voting cumulative accrues dividends quarterly basis generally equal greater 100 per share 2000 times total per share amount fon common stock dividends preferred stockeighth series features sixth series applies pcs shares preferred stocksixth series preferred stockeighth series issued outstanding yearend 2002 2001 15 stockbased compensation 1999 fon 2000 pcs stock splits number shares related exercise prices outstanding options employees stock purchase plan espp share elections adjusted maintain total intrinsic value options value share elections 2002 fon group paid 73 million pcs group compensate net amount pcs stockbased compensation granted fon group employees less fon stockbased compensation granted pcs group employees fon group paid pcs group 160 million 2001 80 million 2000 stockbased compensation value paid stockbased compensation determined time grants 2000 options restricted stock outstanding one year date shareholder approval sprints proposed merger worldcom became fully vested date 2000 sprint board directors approved exchange program give sprint employees election cancel stock options granted 2000 exchange equal number new options granted future generally extended vesting schedules members sprints board directors eligible exchange program terms exchange program 162 million fon options 131 million pcs options cancelled november 10 2000 new options granted may 11 2001 exercise price market price date total 157 million fon options 124 million pcs options granted management incentive stock option plan management incentive stock option plan misop sprint grants stock options employees eligible receive annual incentive compensation eligible employees may elect receive stock options lieu portion target incentive sprints annual incentive compensation plans options generally become exercisable december 31 year granted maximum term 10 years misop sprint also grants stock options executives lieu longterm incentive compensation ltipmisop options ltipmisop options generally become exercisable third december 31 following grant date maximum term 10 years misop options granted exercise prices equal market price underlying common stock grant date yearend 2002 plan authorized options buy approximately 424 million fon shares approximately 323 million pcs shares many granted authorized number shares increased approximately 80 million fon shares 87 million pcs shares january 1 2003 stock option plan sprints 1990 stock option plan sop sprint grants stock options directors employees options generally become exercisable rate 25 per year beginning one year grant date maximum term 10 years sop options granted exercise prices equal market price underlying common stock grant date yearend 2002 plan authorized options buy approximately 674 million fon shares approximately 540 million pcs shares many granted early 2001 sprint entered new employment contracts mr esrey mr lemay designed insure longterm employment sprint provide competitive compensation link compensation shareholder value employment contracts combine supercede amend several earlier agreements sprint messrs esrey lemay return agreements sprint granted stock options extended vesting schedules employment mr esrey mr lemay 2000 sprint granted special stock options retention executives agreed defer benefit accelerated vesting stock options close cancellation proposed worldcom merger agreement designed retain executives following sprints special meeting shareholders connection proposed worldcom merger addition sprint granted portion annual option grants accelerated normally expected made early 2001 officers key employees granting options accelerated help retain employees 1997 sprint granted performancebased stock options mr esrey mr lemay fon group expensed 5 million 2000 pcs group expensed 3 million 2000 related performancebased stock options 2000 amounts reflect expense date shareholder approval proposed worldcom merger time options became vested additional 29 million expense related options included merger related costs sprints 2000 consolidated statements operations employees stock purchase plan sprints espp employees may elect purchase fon common stock pcs common stock price equal 85 market value grant exercise date whichever less yearend 2002 plan authorized purchase approximately 78 million fon shares approximately 87 million pcs shares elections made employees participating 2002 offering espp purchase 2003 approximately 34 million fon shares pcs shares fair value disclosures following tables reflect weighted average fair value per option granted well significant weighted average assumptions used determining fair values using blackscholes pricing model 2001 two sop grants presented result exchange program individuals accept excluded exchange program granted 2001 sop options january accepted exchange program granted 2000 2001 sop options may accordance terms offer fon common stock pcs common stock employees stock purchase plan 2002 espp offering fon group pcs group employees elected purchase 42 million fon 87 million pcs shares using blackscholes pricing model weighted average fair value 189 per share fon election 145 per share pcs election 2001 espp offering fon group pcs group employees elected purchase 20 million fon 55 million pcs shares using blackscholes pricing model weighted average fair value 437 per share fon election 792 per share pcs election 2000 espp offering fon group pcs group employees elected purchase 23 million fon 54 million pcs shares using blackscholes pricing model weighted average fair value 1299 per share fon election 2068 per share pcs election stock options activity sop misop follows fon common stock pcs common stock following tables summarize outstanding exercisable options yearend 2002 fon common stock pcs common stock 16 commitments contingencies litigation claims assessments september 30 2002 us district court district kansas granted substantial part motion defendants sprint certain directors officers dismiss purported class action lawsuit alleging violation federal securities laws initially filed june 2001 new england healthcare employees pension fund institutional shareholders allegations dismissed assert defendants knew april 2000 sprints proposed merger worldcom would rejected regulatory authorities failed publicly disclose information plaintiffs seek damages unspecified amount december 2000 amalgamated bank institutional shareholder filed derivative action purportedly behalf sprint certain current former officers directors jackson county missouri circuit court complaint alleges individual defendants breached fiduciary duties sprint unjustly enriched making undisclosed amendments sprints stock option plans failing disclose certain information concerning regulatory approval proposed merger sprint worldcom overstating sprints earnings first quarter 2000 plaintiff seeks damages paid sprint unspecified amount july 2002 federal communications commission released declaratory ruling matter referred federal district court western district missouri sprints suit att corp collection terminating access charges fcc ruled although nothing prohibited wireless carriers charging access networks interexchange carriers required pay charges absent contractual obligation fcc referred matter back western district missouri decision appealed dc circuit court appeals management believes adequate provisions recorded pcs groups results operations number putative class action cases allege sprint failed obtain easements property owners installation fiber optic network process seeking certification nationwide classes settlement negotiations directed nationwide industrywide settlement claims resulted agreement yet approved court sprint recorded charge estimated settlement costs 24 million fourth quarter 2001 various suits arising ordinary course business pending sprint possible determine ultimate disposition proceedings sprint believes outcome proceedings individually aggregate material adverse effect financial condition results operations sprint fon group pcs group commitments pcs group purchase commitments various vendors purchase handsets equipment 2007 outstanding commitments yearend 2002 approximately 15 billion outstanding commitments yearend 2001 approximately 2 billion fon group purchase commitments various vendors network equipment 2005 outstanding commitments yearend 2002 approximately 460 million outstanding commitments yearend 2001 approximately 489 million operating leases sprints minimum rental commitments yearend 2002 noncancelable operating leases consisting mainly leases data processing equipment real estate cell switch sites office space follows sprints gross rental expense totaled 13 billion 2002 12 billion 2001 10 billion 2000 rental commitments subleases contingent rentals executory costs significant table excludes renewal options related certain cell switch site leases renewal options subject escalation clauses generally fiveyear terms may exercised time 17 financial instruments fair value financial instruments sprint estimates fair value financial instruments using available market information appropriate valuation methodologies result following estimates necessarily represent values sprint could realize current market exchange amounts comprehensively revalued purposes financial statements since december 31 2002 therefore estimates fair value yearend 2002 may differ significantly amounts presented carrying amounts estimated fair values sprints financial instruments yearend follows 1 yen held deposit satisfy certain capital lease obligations see note 11 additional information 2 equity units include senior notes 1725 billion purchase contract adjustment payment liability 31 million see note 12 information equity units 1 yen held deposit satisfy certain capital lease obligations see note 11 additional information 2 equity units include senior notes 1725 billion purchase contract adjustment payment liability 49 million see note 12 information equity units carrying amounts sprints cash equivalents approximate fair value yearend 2002 2001 estimated fair value investments securities based quoted market prices estimated fair value longterm debt based quoted market prices publicly traded issues estimated fair value equity units based quoted market prices estimated fair value issues based either blackscholes pricing model present value estimated future cash flows using discount rate based risks involved quoted market prices available accounting derivative instruments accounting standard june 1998 fasb issued sfas 133 accounting derivative instruments hedging activities statement became effective sprint january 1 2001 establishes accounting reporting standards derivative instruments including certain derivative instruments embedded contracts hedging activities requires recognition derivatives balance sheet fair value regardless hedging relationship designation accounting changes fair value derivative instruments depends whether derivatives qualify hedge relationships types relationships designated based exposures hedged changes fair value derivatives designated fair value hedges recognized earnings along fair value changes hedged item changes fair value derivatives designated cash flow hedges recorded comprehensive income recognized earnings hedged item affects earnings changes fair value derivative instruments qualify hedge relationship designation recognized earnings risk management policies sprint selectively enters interest rate swap cap agreements manage exposure interest rate changes debt sprint also enters forward contracts options foreign currencies reduce impact changes foreign exchange rates sprints derivative transactions used principally hedging purposes comply boardapproved policies sprint enters interest rate swap agreements minimize exposure interest rate movements achieve optimal mixture floating fixedrate debt minimizing liquidity risk interest rate swap agreements designated fair value hedges effectively convert sprints fixedrate debt floating rate receipt fixedrate amounts exchange floatingrate interest payments life agreement without exchange underlying principal amount sprint enters interest rate swap agreements designated cash flow hedges reduce impact interest rate movements future interest expense effectively converting portion floatingrate debt fixed rate certain business transactions sprint granted warrants purchase securities companies fixed rates warrants supplemental terms business transactions designated hedging instruments sprints foreign exchange risk management program focuses reducing transaction exposure optimize consolidated cash flow sprints primary transaction exposure results net payments made overseas telecommunications companies completing international calls made sprints domestic customers forward contracts function natural hedges used offset impact foreign currency fluctuations payments derivative accounting standard sprints derivative instruments include interest rate swaps stock warrants net purchased equity options embedded forward sale contracts credit forward contracts foreign currency forward contracts sprints derivative transactions used principally hedging purposes comply boardapproved policies senior finance management receives frequent status updates outstanding derivative positions interest rate swaps interest rate swaps met required criteria derivative accounting rules assumption perfect effectiveness resulting recognition changes fair value earnings upon adoption life swap sprint held cash flow hedges fair value hedges interest rate swaps periods presented sprint longer holds interest rate swaps 2001 upon adoption sfas 133 sprint recorded cumulative reduction comprehensive income 9 million reduction results recognizing fair value interest rate swap cash flow hedges recorded cumulative effect change accounting principle sprints consolidated statements comprehensive income loss net derivative losses included accumulated comprehensive income december 31 2001 reclassified earnings matured 2002 sprint recorded 12 million pretax increase comprehensive income year ended december 31 2002 resulting gains cash flow hedges change comprehensive income included net unrealized gains losses qualifying cash flow hedges consolidated statements comprehensive income loss sprint recorded 4 million reduction comprehensive income year ended december 31 2001 result losses cash flow hedges stock warrants stock warrants designated hedging instruments changes fair value derivative instruments recognized earnings period change sprint recorded net derivative losses earnings 3 million tax year ended december 31 2002 due changes fair value stock warrants sprint recorded net derivative gains earnings 2 million tax year ended december 31 2001 due changes fair value stock warrants 2001 upon adoption sfas 133 sprint recorded cumulative adjustment net income 2 million net tax 1 million 2 million cumulative adjustment due recognizing fair value stock warrants designated hedging instruments recorded cumulative effect changes accounting principles net sprints consolidated statements operations net purchased equity options net purchased equity options designated cash flow hedges changes value recognized comprehensive loss sprint recorded 17 million tax increase year ended december 31 2002 resulting gains cash flow hedges net purchased equity options held year ended december 31 2001 changes comprehensive income included net unrealized gains losses qualifying cash flow hedges consolidated statements comprehensive income loss credit forward contracts sprint held fair value hedges credit forward contracts 2002 hedge changes fair value certain debt issues high correlation credit forward contracts debt issues hedged fluctuations value credit forward contracts generally offset changes fair value debt issues difference change fair value credit forward contracts underlying debt issues nominal foreign currency contracts foreign currency forward contracts held period designated hedges changes fair value derivative instruments recognized earnings period change sprint outstanding open forward contracts buy various foreign currencies 2 million yearend 2002 3 million yearend 2001 26 million yearend 2000 forward contracts open yearend 2002 2001 2000 original maturities six months less net gain loss recorded reflect fair value contracts recorded period incurred including hedge costs net losses 03 million 08 million recorded 2002 2001 net gain 04 million recorded 2000 concentrations credit risk sprints accounts receivable subject concentration credit risk sprint controls credit risk interest rate swap agreements foreign currency contracts credit approvals dollar exposure limits internal monitoring procedures event nonperformance counterparties sprints accounting loss would limited net amount would entitled receive terms applicable interest rate swap agreement foreign currency contract however sprint anticipate nonperformance counterparties agreements 18 additional financial information segment information sprint divided three main lines business global markets division local division pcs wireless telephony products services business also known pcs group consists primarily wholesale distribution telecommunications products sprint manages segments operating income loss level reporting items operating income loss held corporate level attributed fon group pcs group reconciliation operating income net income shown face consolidated statements operations consolidation information sprint generally accounts transactions segments based fully distributed costs sprint believes approximate fair value segment financial information follows nm meaningful 1 affiliate revenues 2002 net adjustment wireless access revenue previously recorded global markets division pcs group 2 revenues eliminated consolidation consist primarily local access charged global markets division local division equipment purchases product distribution business interexchange services provided local division long distance services provided pcs group resale pcs customers internal business use caller id services provided local division pcs group handset purchases pcs group access pcs network corporate capital expenditures incurred mainly sprints world headquarters campus 3 see note 3 notes consolidated financial statements additional information 4 2000 second quarter sprint recognized pretax charge associated terminated worldcom merger 2002 2001 94 sprints revenues equipment services provided within united states 2000 equipment services provided within united states generated 95 sprints revenues 98 sprints property plant equipment united states equipment sales one retail chain subsequent service revenues generated sales customers represent approximately 22 pcs groups net operating revenues 2002 24 2001 2000 net operating revenues product services follows 1 beginning 2002 equipment revenue periods presented reported part revenues reclassification impact total net operating revenues 2 revenues eliminated consolidation consist primarily local access charged global markets division local division equipment purchases product distribution business interexchange services provided local division long distance services provided pcs group resale pcs customers internal business use caller id services provided local division pcs group handset purchases pcs group access pcs network supplemental cash flows information sprints cash paid received interest income taxes follows sprints noncash activities included following 19 recently issued accounting pronouncements june 2001 fasb issued sfas 143 accounting asset retirement obligations standard provides accounting guidance legal obligations associated retirement longlived assets result acquisition construction development normal operation asset according standard fair value asset retirement obligation aro liability recognized period 1 legal obligation retire longlived asset exists 2 fair value obligation based retirement cost settlement date reasonably estimable upon initial recognition aro liability related asset retirement cost capitalized increasing carrying amount related longlived asset sfas 143 effective fiscal years beginning june 15 2002 sprint adopt standard effective january 1 2003 sprints network primarily located leased property fon group majority leased property requirement remediation retirement remainder fon groups leased property predominately pcs groups leased property remediation requirements leases termination date certainty necessary component infrastructure required maintain fcc licensing reason sprints obligations meet aro liability recognition criteria established standard time accordingly sprint record aro liability either fon group pcs group upon adoption standard fon group local division historically accrued costs removal depreciation reserves consistent regulatory requirements industry practice costs removal meet sfas 143 definition aro liability upon adoption sfas 143 fon group expects record reduction historical depreciation reserves approximately 420 million remove accumulated excess cost removal resulting cumulative effect change accounting principle credit consolidated statements operations 270 million net tax ongoing impact accounting change based recent retirement experience expected increase fon groups net income reduced depreciation expense less 15 million annually pcs group effect adoption standard april 2002 fasb issued sfas 145 rescission fasb statements 4 44 64 amendment fasb statement 13 technical corrections provisions related sfas 4 effective fiscal years beginning may 15 2002 provisions related sfas 13 effective transactions occurring may 15 2002 provisions statement effective financial statements issued may 15 2002 rescission sfas 4 reporting gains losses extinguishment debt sfas 64 extinguishment debt satisfy sinkingfund requirements requires gains losses extinguishment debt reported income expense gains losses would reported extraordinary items unusual nature occur infrequently amendment sfas 13 accounting leases requires modifications capital leases give rise operating lease classification treated saleleaseback provided sprint timely adopt statement rescission statement 4 adopted january 1 2003 june 2002 fasb issued sfas 146 accounting costs associated exit disposal activities effective financial statements exit disposal activities initiated december 31 2002 statement nullifies eitf issue 943 liability recognition certain employee termination benefits costs exit activity allowed recognition liability exit disposal activities upon managements intent exit dispose activity statement requires liability costs associated exit disposal activity recognized liability incurred sprint adopt statement exit disposal activities initiated december 31 2002 december 2002 fasb issued sfas 148 accounting stockbased compensationtransition disclosure statement amends sfas 123 accounting stockbased compensation provisions statement effective interim annual financial statements fiscal years ending december 15 2002 statement provides alternative methods transition voluntary change fair value based method accounting stockbased employee compensation also statement amends disclosure requirements sfas 123 require prominent disclosures annual interim financial statements method accounting stockbased employee compensation effect method used reported results sprint continues apply apb 25 recognition measurement principles complied new disclosure requirements statement see note 1 disclosures sprint begin expense fair value stockbased employee compensation beginning 2003 first quarter sprint apply method prescribed sfas 123 amended sfas 148 new separate grants options made january 1 2003 november 2002 emerging issues task force eitf fasb reached consensus eitf 0021 accounting revenue arrangements multiple element deliverables issue addresses account arrangements may involve multiple revenuegenerating activities ie delivery performance multiple products services andor rights use assets applying guidance separate contracts party entered near time presumed package consideration measured allocated separate units based relative fair values consensus guidance applicable agreements entered quarters beginning june 15 2003 sprint adopt new accounting effective july 1 2003 company currently evaluating impact change 20 quarterly financial data unaudited 1 effects including incremental shares associated options espp shares antidilutive basic earnings per share diluted earnings per share reflect calculation fon reported fourth quarter 2001 pcs reported periods amounts restated reflect results sprints directory publishing business sold january 2003 discontinued operation 21 subsequent events unaudited sale directory publishing business january 2003 sprint closed sale directory publishing business sprint publishing advertising rh donnelley approximately 223 billion cash pretax gain 214 billion sale yielded aftertax cash proceeds approximately 21 billion dividend declaration february 2003 sprints board directors declared dividends 125 cents fon common stock dividends paid march 31 2003 accounts receivable securitization facility february 2003 outstanding balance 455 million global markets division accounts receivable asset securitization facility prepaid 700 million facility remains place funds available redrawn time sprint corporation schedule iiconsolidated valuation qualifying accounts years ended december 31 2002 2001 2000 1 accounts written net recoveries certain prioryear amounts reclassified conform current year presentation prior period amounts restated reflect results sprints directory publishing business sold january 2003 discontinued operation item 15 exhibits financial statement schedules 1 consolidated financial statements sprint nextel filed part report listed index consolidated financial statements financial statement schedule 2 financial statement schedule sprint nextel filed part report listed index consolidated financial statements financial statement schedule 3 following exhibits filed part report filed herewith schedules andor exhibits filed furnished sec upon request portions exhibit omitted filed separately sec pursuant request confidential treatment sprint nextel furnish sec upon request copies instruments defining rights holders longterm debt exceeding 10 total assets sprint nextel signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized sprint nextel corporation registrant daniel r hesse daniel r hesse chief executive officer president date february 27 2009 pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities indicated 27th day february 2009 daniel r hesse daniel r hesse chief executive officer president robert h brust robert h brust chief financial officer christopher j gregoire christopher j gregoire vice president principal accounting officer signatures sprint nextel corporation registrant pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities indicated 27th day february 2009 sprint nextel corporation index consolidated financial statements financial statement schedule report independent registered public accounting firm board directors shareholders sprint nextel corporation audited accompanying consolidated balance sheets sprint nextel corporation subsidiaries december 31 2008 2007 related consolidated statements operations cash flows shareholders’ equity years threeyear period ended december 31 2008 connection audits consolidated financial statements also audited financial statement schedule iivaluation qualifying accounts also audited sprint nextel corporation’s internal control financial reporting december 31 2008 based criteria established internal controlintegrated framework issued committee sponsoring organizations treadway commission coso sprint nextel corporation’s management responsible consolidated financial statements financial statement schedule maintaining effective internal control financial reporting assessment effectiveness internal control financial reporting included management’s report internal control financial reporting responsibility express opinion consolidated financial statements financial statement schedule opinion company’s internal control financial reporting based audits conducted audits accordance standards public company accounting oversight board united states standards require plan perform audits obtain reasonable assurance whether financial statements free material misstatement whether effective internal control financial reporting maintained material respects audits consolidated financial statements included examining test basis evidence supporting amounts disclosures financial statements assessing accounting principles used significant estimates made management evaluating overall financial statement presentation audit internal control financial reporting included obtaining understanding internal control financial reporting assessing risk material weakness exists testing evaluating design operating effectiveness internal control based assessed risk audits also included performing procedures considered necessary circumstances believe audits provide reasonable basis opinions company’s internal control financial reporting process designed provide reasonable assurance regarding reliability financial reporting preparation financial statements external purposes accordance generally accepted accounting principles company’s internal control financial reporting includes policies procedures 1 pertain maintenance records reasonable detail accurately fairly reflect transactions dispositions assets company 2 provide reasonable assurance transactions recorded necessary permit preparation financial statements accordance generally accepted accounting principles receipts expenditures company made accordance authorizations management directors company 3 provide reasonable assurance regarding prevention timely detection unauthorized acquisition use disposition company’s assets could material effect financial statements inherent limitations internal control financial reporting may prevent detect misstatements also projections evaluation effectiveness future periods subject risk controls may become inadequate changes conditions degree compliance policies procedures may deteriorate opinion consolidated financial statements referred present fairly material respects financial position sprint nextel corporation subsidiaries december 31 2008 2007 results operations cash flows years threeyear period ended december 31 2008 conformity us generally accepted accounting principles also opinion related financial statement schedule considered relation basic consolidated financial statements taken whole presents fairly material respects information set forth therein also opinion sprint nextel corporation maintained material respects effective internal control financial reporting december 31 2008 based criteria established internal controlintegrated framework issued committee sponsoring organizations treadway commission discussed note 2 consolidated financial statements company changed method quantifying errors 2006 kpmg llp kansas city missouri february 27 2009 sprint nextel corporation consolidated balance sheets see notes consolidated financial statements sprint nextel corporation consolidated statements operations see notes consolidated financial statements sprint nextel corporation consolidated statements cash flows see notes consolidated financial statements sprint nextel corporation consolidated statements shareholders’ equity millions sprint nextel corporation consolidated statements shareholders’ equitycontinued millions 1 previously reported accumulated deficit december 31 2007 decreased 136 million related goodwill impairment charge depreciation adjustments made 2008 see note 2 information 2 see note 11 information regarding common shares 3 see note 2 details adoption sab 108 4 see note 9 details adoption fin 48 5 november 28 2008 recorded 424 million gain deconsolidation net assets contributed clearwire net 260 million related taxes see note 3 details transaction see notes consolidated financial statements sprint nextel corporation notes consolidated financial statements note 1 description operations communications company offering comprehensive range wireless wireline communications products services designed meet needs individual consumers businesses government subscribers organized operations meet needs targeted customer groups focused communications solutions incorporate capabilities wireless wireline services one three largest wireless companies united states based number wireless subscribers extensive wireless networks global long distance tier 1 internet backbone series 1 voting common stock trades new york stock exchange symbol “s” offer digital wireless service 50 states puerto rico us virgin islands sprint® brand name utilizing wireless code division multiple access cdma technology offer digital wireless services nextel® brand name using integrated digital enhanced network iden® technology offer wireless services postpaid prepaid payment basis including boost mobile® prepaid wireless service one largest providers long distance services one largest carriers internet traffic nation november 28 2008 closed transaction clearwire corporation subsidiary clearwire communications llc refer consolidated basis clearwire combine nextgeneration wireless broadband businesses closing contributed 33 billion net assets including 25 gigahertz ghz spectrum worldwide interoperability microwave access wimax related assets exchange received 370 million class b common shares common interests clearwire corporation clearwire communications llc respectively december 31 2008 represented approximately 53 voting power clearwire corporation approximately 53 economic interests clearwire communications ownership percentage subject change based trading price clearwire’s stock 90 days close accordingly february 26 2009 ownership percentage adjusted 51 book value investment december 31 2008 39 billion represents share clearwire’s net assets expect book value investment decline due settlement post closing 90day ownership adjustment also expected decline immediate future account share clearwire’s losses clearwire deploying wimax technology fourth generation 4g technology new network markets serve services supported technologies give subscribers compatible devices highspeed access internet variety increasingly sophisticated data services may 17 2006 spunoff shareholders local communications business known embarq corporation comprised primarily local segment reported consolidated financial statements prior periods results operations operating cash flows business presented discontinued operations periods presented footnotes accompanying consolidated financial statements reflect continuing operations unless otherwise noted exclude information related embarq see note 16 additional information regarding transaction note 2 summary significant accounting policies information consolidation policies consolidated financial statements include accounts wholly owned subsidiaries control controlling financial interest significant intercompany transactions balances eliminated consolidation use equity method account equity investments unconsolidated entities ability exercise significant influence operating financial policies recognize changes proportionate share equity entities resulting equity transactions adjustments investment shareholders’ equity balances sprint nextel corporation notes consolidated financial statementscontinued estimates adoption sab 108 reclassifications prepare consolidated financial statements conformity accounting principles generally accepted united states require management make estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities date balance sheet well reported amounts revenues expenses reporting periods due inherent uncertainty involved making estimates actual results could differ estimates fourth quarter 2007 performed annual goodwill analysis recorded noncash goodwill impairment charge 29729 billion subsequently determined certain net assets assigned wireless reporting unit consequently 2007 goodwill impairment charge reduced 80 million 29649 billion also reduced 2007 depreciation expense 90 million 56 million aftertax 5711 billion 5621 billion due principally revision depreciation expense relating property plant equipment previous acquisition assets loaded asset subledger depreciation calculated systematically rather manually result foregoing 2007 net loss per share 29444 billion 1027 respectively compared previously reported amounts 29580 billion 1031 respectively accompanying december 31 2007 consolidated balance sheet reflects immaterial adjustments goodwill property plant equipment deferred tax liabilities accumulated deficit effective january 1 2006 adopted staff accounting bulletin sab 108 considering effects prior year misstatements quantifying misstatements current year financial statements recorded 81 million increase deferred rent liability related cumulative effect certain lease accounting misstatements december 31 2005 addition reduced retained earnings 50 million recorded 31 million deferred tax asset certain prior period amounts reclassified conform current period presentation significant accounting policies cash equivalents cash equivalents generally include highly liquid investments maturities time purchase three months less investments include money market funds us government governmentsponsored debt securities corporate debt securities municipal securities bankrelated securities credit debit card transactions process supplemental cash flow information continuing operations sprint nextel corporation notes consolidated financial statementscontinued noncash activities included following investments record investments debt securities amortized cost classify securities current assets consolidated balance sheets original maturities purchase greater 90 days less one year interest investments debt securities reinvested included interest income consolidated statements operations record investments marketable equity securities fair value consider availableforsale securities accordingly record unrealized holding gains losses securities accumulated comprehensive income loss net related income tax realized gains losses measured reclassified accumulated comprehensive income loss earnings based identifying specific investments sold otherthantemporary impairment exists account additional contributions increase investments distributions dividends investee decrease investment record investment nonmarketable equity securities cost account certain investments using equity method based ownership interest ability exercise significant influence accordingly record investment initially cost adjust carrying amount investment recognize share earnings losses investee reporting period subsequent investment date cease recognize investee losses investment basis zero evaluate investments otherthantemporary impairment quarterly basis otherthantemporary impairment occurs fair value investment carrying value determine difference recoverable near future evaluation requires significant judgment regarding limited severity duration impairment ability intent hold securities recovery financial condition liquidity nearterm prospects issuer specific events factors allowance doubtful accounts establish allowance doubtful accounts receivable sufficient cover probable reasonably estimable losses number accounts practical review collectibility accounts individually determine amount allowance doubtful accounts period although perform account level analysis respect large wireless wireline subscribers estimate allowance doubtful accounts considers number factors including collection experience aging accounts receivable portfolios credit quality subscriber base estimated proceeds future bad debt sales qualitative considerations including macroeconomic factors sprint nextel corporation notes consolidated financial statementscontinued device accessory inventory inventories handsets accessories wireless segment stated lower cost market determine cost firstin firstout fifo method handset costs related revenues generated handset sales handset subsidies recognized time sale recognize expected handset subsidies prior time sale promotional discount decision generally made point sale expect recover handset subsidies service revenues analyze realizable value handset inventory quarterly basis analysis includes assessing obsolescence sales forecasts product life cycle marketplace considerations assessments regarding factors change may required sell handsets higher subsidy potentially record expense future periods prior point sale extent expect unable sell handsets service contract property plant equipment record property plant equipment ppe including improvements extend useful lives cost ppe primarily includes network equipment site costs buildings improvements software office equipment nonnetwork internal use software depreciated placed service well network asset inventory construction progress depreciated placed service network equipment site costs software includes switching equipment cell site towers base transceiver stations site development costs radio frequency equipment internal use software digital fiber optic cable conduit transport facilities transmissionrelated equipment buildings improvements principally consists owned general office facilities retail stores leasehold improvements nonnetwork internal use software office equipment primarily consists furniture information technology systems equipment vehicles network asset inventory construction progress primarily includes materials transmission related equipment labor engineering site development costs interest costs relating construction development network capitalized interest incurred connection construction capital assets totaled 123 million 2008 127 million 2007 113 million 2006 repair maintenance costs research development costs expensed incurred capitalize costs network nonnetwork software developed obtained internal use application development stage costs included ppe software placed service depreciated estimated useful lives 85 years costs incurred preliminary project postimplementation stage well maintenance training costs expensed incurred cost ppe generally depreciated straightline basis estimated economic useful lives amortization assets recorded capital leases recorded depreciation expense depreciate leasehold improvements shorter lease term estimated useful life respective assets depreciate buildings network equipment site costs software estimated useful lives 30 years 94 assets depreciated lives five 15 years nonnetwork internal use software office equipment depreciable property plant equipment estimated useful lives 12 years 87 assets depreciated lives three five years calculate depreciation certain assets using group life method accordingly ordinary asset retirements disposals assets charged accumulated depreciation gain loss recognized gains losses associated nonmonetary exchanges asset retirements disposals nonnetwork equipment recorded within asset impairments consolidated statement operations sprint nextel corporation notes consolidated financial statementscontinued since changes technology changes intended use assets well changes broad economic industry factors may cause estimated period use assets change perform annual studies confirm appropriateness depreciable lives categories ppe studies take account actual usage physical wear tear replacement history assumptions technology evolution calculate remaining life asset base factors indicate useful lives ppe different previous assessment depreciate remaining book values prospectively adjusted estimated useful lives review longlived assets impairment whenever events changes circumstances indicate carrying amount may recoverable determine longlived asset groups based upon certain factors including assessing lowest level identifiable cash flows largely independent cash flows groups assets liabilities asset groups consist wireless wireline wireless asset group currently includes intangible assets wireless property plant equipment indicators impairment include limited sustained significant decrease market price cash flows expected derived asset groups significant change extent manner assets group utilized significant amount judgment involved determining occurrence indicator impairment requires evaluation recoverability longlived assets total expected undiscounted future cash flows less carrying amount assets loss recognized difference estimated fair value book value assets impairment analyses performed based current business technology strategy views growth rates business anticipated future economic regulatory conditions expected technological availability see note 4 additional information addition analyses described periodically assess certain assets yet deployed business including network equipment cell site development costs software development determine impairment charge required network equipment cell site development costs impaired whenever events changes circumstances cause us conclude assets longer needed meet management’s strategic network plans deployed software development costs impaired longer probable software project deployed also periodically assess network equipment removed network determine impairment charge required see note 7 additional information continue challenges retaining subscribers continue assess impact rebanding iden network management may conclude future periods certain cdma iden assets either deployed redeployed case would recognize noncash impairment charge could material results operations financial condition intangible assets goodwill indefinite lived intangibles goodwill represents premium paid fair value net tangible intangible assets acquired business combinations also acquired several kinds federal communications commission fcc licenses primarily fcc auctions business combinations deploy wireless services identified fcc licenses sprint boost mobile trademarks indefinite lived intangible assets addition previously recorded goodwill considering expected use assets regulatory economic environment within used effects obsolescence use refer note 4 additional description impairment testing policies assets sprint nextel corporation notes consolidated financial statementscontinued definite lived intangible assets definite lived intangible assets consist primarily customer relationships amortized two five years using sum years’ digits method believe best reflects estimated pattern economic benefits consumed definite lived intangible assets primarily include certain rights affiliation agreements reacquired connection acquisitions third party affiliates provide service cdma network pcs affiliates nextel partners inc amortized remaining terms affiliation agreements straightline basis nextel direct connect trade names amortized ten years date sprintnextel merger straightline basis also evaluate remaining useful lives definite lived intangible assets reporting period determine whether events circumstances warrant revision remaining periods amortization would addressed prospectively review longlived intangible asset groups impairment policy described property plant equipment whenever events changes circumstances indicate carrying amount may recoverable impairment analyses performed based current business technology strategy views growth rates business anticipated future economic regulatory conditions expected technological availability addition annual goodwill test requires us determine implied fair value goodwill also evaluate recorded value longlived assets impairment income taxes income taxes accounted using assetliability approach accordance statement financial accounting standards sfas 109 accounting income taxes deferred tax assets liabilities determined based temporary differences financial reporting tax bases assets liabilities applying enacted statutory tax rates effect year differences expected reverse deferred tax assets also recorded net operating loss capital loss tax credit carryforwards required estimate amount taxes payable refundable current year deferred tax liabilities assets future tax consequences events reflected consolidated financial statements tax returns taxing jurisdiction operate process requires management make assessments regarding timing probability ultimate tax impact record valuation allowances deferred tax assets determine likely asset realized additionally establish reserves uncertain tax positions based upon judgment regarding potential future challenges positions recognize interest related unrecognized tax benefits interest expense interest income recognize penalties additional income tax expense adopted financial accounting standards board fasb interpretation 48 accounting uncertainty income taxes fin 48 january 1 2007 accounting estimates related liability uncertain tax positions require us make judgments regarding sustainability uncertain tax position based technical merits determine likely tax position sustained based technical merits record impact position consolidated financial statements largest amount greater fifty percent likely realized upon ultimate settlement estimates updated reporting date based facts circumstances information available also required assess reporting date whether reasonably possible significant increases decreases unrecognized tax benefits occur next twelve months see note 9 information sprint nextel corporation notes consolidated financial statementscontinued benefit plans provide defined benefit pension plan certain postretirement benefits certain employees sponsor defined contribution plan employees december 31 2008 2007 fair value plan assets aggregate 896 million 14 billion respectively fair value benefit obligations aggregate 17 billion 16 billion respectively result aggregated amount underfunded plans 805 million december 31 2008 217 million december 31 2007 recorded liability consolidated balance sheet offset liability recorded equity component accumulated comprehensive loss net tax including 2008 adjustment 379 million funded status plan affected primarily significant decrease fair value plan assets caused poor performance financial markets 2008 slight decrease discount rate used calculate benefit obligation intend make future cash contributions defined benefit pension plan amount necessary meet minimum funding requirements according applicable benefit plan regulations estimate funding contribution range approximately 100 million 200 million 2009 time sprintnextel merger extend plan participation defined benefit pension plan postretirement benefits nextel employees amended postretirement medical benefit plan include employees designated work embarq employees employed us prior sprintnextel merger born 1956 december 31 2005 pension plan also amended freeze benefit plan accruals participants designated work embarq following spinoff may 17 2006 connection spinoff embarq accrued pension benefit obligations postretirement benefit obligations participants designated work embarq related plan assets transferred embarq aggregate plan activity including net expense 2 million 2008 18 million 2007 34 million 2006 related disclosures material us december 31 2008 2007 defined contribution plan participants may contribute portion eligible pay plan payroll withholdings 2008 2007 2006 matched cash 100 participants’ contributions 5 eligible compensation prior years participants’ contributions matched common stock total matching contributions 119 million 2008 128 million 2007 126 million 2006 derivative instruments hedging activities recognize derivative instruments either assets liabilities consolidated balance sheets measure instruments fair value changes fair value derivatives recorded period current earnings comprehensive income loss depending use derivative whether qualifies hedge accounting use derivative instruments hedging risk management purposes hedging activity may done purposes mitigating risks associated asset liability committed transaction probable forecasted transaction primarily exposed market risk associated unfavorable movements interest rates equity prices foreign currencies enter derivative transactions speculative trading purposes inception ongoing basis assess whether derivative qualifies hedge accounting continues highly effective offsetting changes cash flows fair value hedged item derivative instrument longer expected highly effective hedge accounting discontinued hedge ineffectiveness included current period earnings sprint nextel corporation notes consolidated financial statementscontinued treasury shares common stock repurchased us recorded cost treasury shares result reduction shareholders’ equity reissue treasury shares part shareholder approved stockbased compensation programs well upon conversion outstanding securities convertible common stock shares reissued determine cost using fifo method revenue recognition operating revenues primarily consist wireless service revenues generated handset accessory sales revenues wholesale operators pcs affiliates well long distance voice data internet revenues service revenues consist fixed monthly recurring charges variable usage charges roaming directory assistance operatorassisted calling miscellaneous fees activation upgrade late payment reconnection early termination fees certain regulatory related fees recognize service revenues services rendered equipment revenue title passes dealer enduser customer recognize revenue access charges services charged fixed amounts ratably service period net credits adjustments service discounts billing disputes fraud unauthorized usage recognize excess wireless usage long distance revenue contractual rates per minute minutes used additionally recognize excess wireless data usage based kilobytes onetime use charges use premium services rendered result cutoff times multiple billing cycles month required estimate amount subscriber revenues earned billed end billing cycle end reporting period estimates based primarily rate plans effect historical usage billing patterns regulatory fees costs recorded gross largest component regulatory fees universal service fund represented 2 net operating revenue 2008 2007 2006 accounting estimates related recognition revenue results operations require us make assumptions future billing adjustments disputes subscribers unauthorized usage future returns mailin rebates handset sales dealer commissions cash consideration given us dealer enduser customer presumed reduction revenue unless receive identifiable benefit exchange consideration fair value benefit reasonably estimated case consideration recorded selling expense compensate dealers using specific compensation programs related sale handsets subscriber service contracts commission earned dealer solely due selling activity relating wireless service cost recorded selling expense commission earned dealer due dealer selling one handsets cost recorded reduction equipment revenue advertising costs recognize advertising expense incurred expenses include production media promotional sponsorship costs advertising expenses totaled 15 billion 2008 18 billion 2007 16 billion 2006 sprint nextel corporation notes consolidated financial statementscontinued sharebased compensation measure cost employee services received exchange award equitybased securities using fair value award date grant recognize cost period award recipient required provide service us exchange award awards liability instruments employees would measured fair value reporting date settlement sharebased compensation cost related awards graded vesting recognized using straightline method see note 12 additional information severance exit costs recognize liabilities severance exit costs based upon nature cost incurred involuntary separation plans completed within guidelines written involuntary separation plan record liability probable reasonably estimable voluntary separation plans vsp liability recorded vsp irrevocably accepted employee onetime termination benefits additional severance pay benefit payouts exit costs lease termination costs liability measured recognized initially fair value period liability incurred subsequent changes liability recognized adjustments period change business combination occurred record severance lease exit costs part purchase price allocation see note 7 additional information earnings loss per common share basic earnings loss per common share calculated dividing net income loss available common shareholders weighted average number common shares outstanding period diluted earnings loss per common share adjusts basic earnings loss per common share effects potentially dilutive common shares effect antidilutive potentially dilutive common shares include dilutive effects shares issuable equity plans computed using treasury stock method dilutive effects shares issuable upon conversion convertible senior notes computed using ifconverted method shares issuable equity plans antidilutive 2008 incurred net loss continuing operations 11 million shares issuable upon assumed conversion convertible senior notes could potentially dilute earnings per common share future however excluded calculation diluted loss per common share 2008 due antidilutive effects additionally december 31 2008 130 million average shares issuable equity plans exercise prices exceeded average market price could also potentially dilute earnings per common share future shares issuable equity plans antidilutive 2007 incurred net loss continuing operations 11 million shares issuable upon assumed conversion convertible senior notes could potentially dilute earnings per common share future however excluded calculation diluted loss per common share 2007 due antidilutive effects additionally december 31 2007 124 million average shares issuable equity plans exercise prices exceeded average market price could also potentially dilute earnings per common share future dilutive shares issuable equity plans used calculating earnings per common share 22 million shares 2006 11 million shares issuable upon assumed conversion convertible senior notes could potentially dilute earnings per common share future however excluded sprint nextel corporation notes consolidated financial statementscontinued calculation diluted earnings per common share 2006 due antidilutive effects additionally december 31 2006 115 million average shares issuable equity plans exercise prices exceeded average market price could also potentially dilute earnings per common share future significant new accounting pronouncements december 2007 fasb issued sfas 141r business combinations replaces sfas 141 business combinations originally issued june 2001 sfas 141r apply business combinations acquisition date january 1 2009 statement could material impact us respect business combinations completed effective date significant changes include limited acquirer recording 100 assets liabilities including goodwill acquired business generally fair values acquisitionrelated transaction restructuring costs expensed rather included part purchase price allocation process addition effective date reversals valuation allowances related acquired deferred tax assets changes acquired income tax uncertainties related business combinations even completed prior statement’s effective date generally recognized earnings december 2007 fasb issued sfas 160 noncontrolling interests consolidated financial statements statement amends accounting research bulletin 51 consolidated financial statements establish accounting reporting standards noncontrolling interest subsidiary deconsolidation subsidiary sfas 160 effective quarterly reporting period ending march 31 2009 enter arrangement effective date standard required consolidate noncontrolling interest would report noncontrolling interest’s equity component shareholders’ equity consolidated balance sheet report component net income loss comprehensive income loss attributable noncontrolling interest separately certain changes ownership interests treated equity transactions new standard gain loss recognized upon loss control subsidiary recognized consolidated statement operations practice differs current policy recognizing gains losses component equity addition amount gain loss measured using fair value noncontrolling interest date control ceases march 2008 fasb issued sfas 161 disclosures derivative instruments hedging activities statement amends sfas 133 accounting derivative instruments hedging activities requiring expanded disclosures entity’s derivative instruments hedging activities sfas 161 effective quarterly reporting period ending march 31 2009 process evaluating impact statement disclosures included notes consolidated financial statements concentrations risk accounts notes receivable subject concentration credit risk exposed risk loss would occur counterparty defaults derivative transaction used hedging risk management purposes exposure controlled credit approvals continual review monitoring counterparties legal review contracts event nonperformance counterparties accounting loss would limited net amount would entitled receive terms applicable interest rate swap agreement foreign currency contract however anticipate nonperformance counterparties contracts sprint nextel corporation notes consolidated financial statementscontinued motorola inc sole source equipment supports iden network handsets offer nextel brand except primarily blackberry® devices although handset supply agreement motorola structured provide competitivelypriced handsets cost iden handsets generally higher handsets incorporate similar multifunction capability difference may make difficult costly us offer handsets prices attractive potential subscribers addition higher cost iden handsets requires us absorb larger part cost offering handsets new existing subscribers increased costs handset subsidy expenses may reduce growth profitability also must rely motorola develop handsets equipment capable supporting features services offer subscribers services iden network including dualmode handsets decision motorola discontinue inability motorola continue manufacturing supporting enhancing idenbased infrastructure handsets would material adverse effect us addition iden technology widely adopted fewer subscribers wireless technologies expect time less likely manufacturers motorola willing make significant financial commitment required license develop manufacture iden infrastructure equipment handsets ability complete spectrum reconfiguration plan connection fcc’s report order described note 14 dependent part motorola cdma handsets use products obtained qualcomm’s products found infringe certain patents owned broadcom corporation united states district court enjoined qualcomm infringement allowed sunset provision expired january 31 2009 qualcomm supplied us alternative technologies broadcom may continue challenge alternatives broadcom initiated suits qualcomm claims could subject us costly litigation court could determine alternative technologies still infringe broadcom’s patents andor court could require us cease providing certain qualcomm products note 3 investments debt securities interest investments debt securities reinvested included interest income consolidated statement operations 2008 2007 2006 recognized 6 million 31 million 122 million interest income respectively securities furthermore 2008 recorded unrealized holding losses 8 million securities investments equity securities investments held approximately 64 million 100 million marketable nonmarketable equity securities december 31 2008 2007 respectively included investments accompanying consolidated balance sheet 2008 2007 recorded gross unrealized holding gains less 1 million sprint nextel corporation notes consolidated financial statementscontinued 10 million respectively 2008 also recorded gross unrealized holding losses 21 million related securities 2006 recorded gross unrealized holding gains related nii holdings inc securities 205 million gross unrealized holding losses related securities 2 million see note 10 information regarding sale nii holdings securities 2006 addition held 49 million 51 million investments december 31 2008 2007 respectively also included investments accompanying consolidated balance sheet equity method investments december 31 2008 investments accounted using equity method primarily consisted investment clearwire virgin mobile usa llc vmu clearwire corporation november 28 2008 closed transaction clearwire corporation subsidiary clearwire communications llc refer consolidated basis clearwire combine nextgeneration wireless broadband businesses closing contributed 33 billion net assets including 25 ghz spectrum wimax related assets collectively referred sprint wimax business exchange received 370 million class b common shares common interests clearwire corporation clearwire communications llc respectively december 31 2008 represented approximately 53 voting power clearwire corporation approximately 53 economic interests clearwire communications ownership percentage subject change based trading price clearwire’s stock 90 days close accordingly february 26 2009 ownership percentage adjusted 51 carrying value investment december 31 2008 39 billion represents share clearwire’s net assets net share clearwire’s losses adjustments expect book value investment decline due settlement post closing 90day ownership adjustment also expected decline immediate future account share clearwire’s losses transaction accounted reverse acquisition accordance sfas 141 sprint wimax business accounting acquirer predecessor reporting purposes sprint wimax business considered accounting acquirer control key management decisions therefore interest clearwire accounted equity method investment recorded pretax gain within equity 684 million 424 million tax related difference share clearwire’s net assets upon close 33 billion net assets contributed clearwire addition contribution assets clearwire also received 32 billion cash investment comcast corporation intel capital time warner cable inc google inc bright house networks trilogy equity partners prior closing transaction continued invest development wimax services selected markets brand name xohm operations contributed clearwire terms agreement clearwire reimbursed us 213 million cash approximate 388 million financing provided nextgeneration wireless broadband business april 1 2008 closing transaction remaining amount repaid form interest bearing note matures may 2011 reimbursement accounted reduction initial investment clearwire sprint nextel corporation notes consolidated financial statementscontinued book value per share clearwire 1065 per share december 31 2008 compared december 31 2008 clearwire stock price 493 stock price continued decline subsequent balance sheet date december 31 2008 concluded decline temporary expect stock price recover near future based upon following factors • clearwire continues develop wimax network accordance business plan value derived discounted cash flows materially different one agreed upon part transaction valued clearwire 17 per share • clearwire owns right use true nationwide footprint 25 ghz fcc licenses provides clearwire significantly spectrum used wireless broadband internet services competitor • clearwire strong liquidity position may need additional funding build network appears immediate need access debt markets • wimax technology launched successfully two markets baltimore portland service footprint continue grow additional markets throughout 2009 believe investment recover part clearwire addresses network build plans near term intent ability hold investment recovery indicated value investment less investment basis 33 days yearend short time duration particularly considering volatility stock markets uncertain economy continue evaluate investment clearwire every quarter update conclusions based upon facts circumstances place time facts circumstance change example clearwire’s stock price continues remain depressed level possible may record impairment future periods investment could material results operations financial condition virgin mobile usa account investment vmu using equity method december 31 2008 held approximate 14 ownership interest continued ability exercise significant influence vmu continues use network mobile virtual network operator mvno agreement equity losses incurred related investment excess investment balance remains zero december 31 2008 october 16 2007 vmu made initial public offering stock conjunction initial public offering sold approximately 48 ownership interest cash proceeds approximately 155 million ownership percentage vmu reduced also recognized 85 million previously deferred credit 180 million related capital previously returned vmu us consequently recognized total gain 240 million 2007 remaining 95 million return capital recorded liabilities consolidated balance sheet due fact vmu originally obtained debt financing order return capital time initial public offering vmu also repaid outstanding debt us amount 45 million related credit extended vmu 2006 participation revolving credit facility sprint nextel corporation notes consolidated financial statementscontinued note 4 intangible assets indefinite lived intangibles 1 2007 recorded additional goodwill 113 million associated premium paid northern pcs services llc pcs affiliate offsetting increase net adjustments 390 million principally due adjustment fair value fcc licenses adjustment net assets nextel partners relating dilution ownership interest nextel partners prior acquisition 2 2008 contributed 25 billion fcc licenses clearwire acquired 10 billion fcc licenses normal course business including requirements report order addition reduced fcc licenses 265 million due reversal unrecognized tax benefits see note 9 additional information goodwill represents premium paid fair value net tangible intangible assets acquired business combinations fourth quarters 2008 2007 performed annual assessments impairment goodwill result assessments described recorded noncash goodwill impairment charges 963 million 296 billion years ended december 31 2008 2007 respectively charges presented separately statement operations relate solely wireless segment substantial majority charges deductible tax purposes charges result violation covenants debt instruments result annual assessments longer goodwill consolidated balance sheet december 31 2008 goodwill impairment testing policy review goodwill impairment annually fourth quarter wireless reporting unit level equivalent reported wireless operating segment also analyze whether indicators impairment exist quarter significant amount judgment involved determining indicator impairment occurred indicators may include sustained significant decline share price market capitalization decline expected future cash flows significant adverse change legal factors business climate unanticipated competition testing recoverability longlived wireless assets andor slower growth rates among others estimate fair value wireless reporting unit using discounted expected future cash flows supported results various market approach valuation models fair value wireless reporting unit exceeds net book value goodwill impaired testing necessary net book value wireless reporting unit exceeds fair value perform second test measure amount impairment loss measure amount impairment charge determine implied fair value goodwill manner wireless reporting unit acquired business combination sprint nextel corporation notes consolidated financial statementscontinued specifically allocate fair value wireless reporting unit assets liabilities unit including unrecognized intangible assets hypothetical calculation would yield implied fair value goodwill implied fair value goodwill less goodwill recorded consolidated balance sheet record impairment charge difference methodologies estimates assumptions performed extensive valuation analyses utilizing income market approaches goodwill assessment process following describes valuation methodologies used derive fair value wireless reporting unit • income approach determine estimated fair value discount expected cash flows wireless reporting unit estimate future cash flows considering current economic conditions trends estimated future operating results views growth rates anticipated future economic regulatory conditions availability necessary technology network infrastructure handsets devices discount rate used represents estimated weighted average cost capital reflects overall level inherent risk involved wireless operations rate return outside investor would expect earn estimate cash flows beyond final year model use terminal value approach use estimated operating income depreciation amortization final year model adjust estimate normalized cash flow apply perpetuity growth assumption discount perpetuity discount factor determine terminal value incorporate present value resulting terminal value estimate fair value • marketbased approach corroborate results income approach described estimate fair value wireless reporting unit using several marketbased approaches including guideline company method focuses comparing risk profile growth prospects select reasonably similarguideline publicly traded companies determination estimated fair value wireless reporting unit assets liabilities within wireless reporting unit requires significant estimates assumptions estimates assumptions primarily include limited discount rate terminal growth rates operating income depreciation amortization oibda capital expenditures forecasts due inherent uncertainty involved making estimates actual results could differ estimates evaluate merits significant assumption individually aggregate used determine fair value wireless reporting unit well fair values corresponding assets liabilities within wireless reporting unit reasonableness goodwill assessments fourth quarter 2007 conducted annual impairment assessment 307 billion goodwill approximately 263 billion goodwill recorded connection recent business combinations nextel communications inc nextel partners inc acquisitions certain pcs affiliates approximately 44 billion goodwill recorded acquisitions previous years fourth quarter 2007 economic conditions began decline experienced sustained significant decline stock price reduced market capitalization reflected wireless segment’s lower expected performance due large part fewer expected net subscriber additions previous periods expected would able produce net postpaid subscriber additions 2007 however quarter reported loss 683000 postpaid subscribers postpaid subscribers ever lost quarter time sprint nextel corporation notes consolidated financial statementscontinued also updated forecasted cash flows wireless reporting unit fourth quarter 2007 several factors led reduction forecasted cash flows including among others ability attract retain subscribers particularly subscribers iden based services highly competitive environment expected reductions voice revenue per subscriber costs acquiring subscribers costs operating wireless networks based results 2007 assessment net book value wireless reporting unit exceeded fair value hypothetical purchase price allocation estimated fair value goodwill 978 million decrease fair value goodwill due lower forecasted cash flows wireless reporting unit well substantial excess fair value book value customer relationships fcc licenses trade names consequently reduced goodwill recorded prior assessment 296 billion 978 million december 31 2007 fourth quarter 2008 conducted annual assessment goodwill impairment quarter economic conditions significantly deteriorated due part ongoing credit crisis financial markets consolidated market capitalization continued considerable pressure derived fair value wireless reporting unit remained book value throughout quarter updated forecasted cash flows wireless reporting unit fourth quarter 2008 several factors led reduction fair value wireless reporting unit 2008 goodwill impairment analysis compared 2007 goodwill impairment analysis including among others discount rate ability attract retain subscribers particularly postpaid subscribers expected reductions average voice revenue per postpaid subscriber costs operating wireless networks based results 2008 assessment net book value wireless reporting unit exceeded fair value performed hypothetical purchase price allocation fair value goodwill zero decrease fair value goodwill due lower forecasted cash flows wireless reporting unit well substantial excess fair value book value fcc licenses trade names consequently reduced goodwill zero december 31 2008 longlived assets conjunction annual assessments goodwill impairment performed recoverability test wireless longlived assets included cash flow projections wireless operations along cash flows associated eventual disposition longlived assets included estimated proceeds assumed sale fcc licenses trade names customer relationships undiscounted future cash flows wireless longlived assets exceeded net book value result impairment charge recorded addition reassessed remaining useful lives longlived assets concluded appropriate see note 2 additional details regarding longlived asset impairment testing policies indefinite lived intangibles also identified fcc licenses sprint boost mobile trademarks indefinite lived intangible assets considering expected use assets regulatory economic environment within used effects obsolescence use cultivate protect use brands sprint boost mobile legal regulatory contractual limitations associated trademarks hold several kinds fcc licenses deploy wireless services 19 ghz personal communications services licenses utilized cdma network 800 megahertz mhz 900 mhz licenses utilized iden network november 28 2008 held 25 ghz licenses subsequently contributed clearwire also hold 19 ghz fcc licenses currently utilize networks sprint nextel corporation notes consolidated financial statementscontinued operations long act within requirements constraints regulatory authorities renewal extension licenses reasonably certain minimal cost fcc licenses authorize wireless carriers use radio frequency spectrum renewable reusable resource deplete exhaust time aware technology developed would render spectrum obsolete currently changes competitive legislative environments would put question future need spectrum licenses fourth quarter 2008 tested indefinite lived intangibles impairment comparing asset’s respective net book value estimates fair value determined using direct value method concluded impairment existed assets fcc licenses combined two units accounting consisted 800 mhz 900 mhz 19 ghz bands one unit accounting 25 ghz band another unit accounting licenses 25 ghz band subsequently contributed clearwire november 28 2008 accordingly one unit accounting future analyses definite lived intangibles weighted average amortization period acquired definite lived intangibles ten years 2008 eight years 2007 sprint nextel corporation notes consolidated financial statementscontinued note 5 longterm debt financing capital lease obligations 1 consolidated result controlling financial interest december 31 2008 sprint nextel parent corporation 47 billion debt outstanding includes indebtedness credit facilities addition 158 billion principal longterm debt issued whollyowned subsidiaries guaranteed debt fully unconditionally guaranteed sprint nextel corporation including debt finance subsidiary sprint capital corporation indentures financing arrangements certain subsidiaries contain provisions limit cash dividend payments subsidiary common stock held parent corporation transfer cash form advances subsidiaries parent corporation generally restricted december 31 2008 895 million outstanding debt comprised certain secured notes financing capital lease obligations mortgages secured 907 million gross property plant equipment assets sprint nextel corporation notes consolidated financial statementscontinued currently compliance restrictive financial covenants associated borrowings provision indebtedness requires repayment event downgrade rating service senior notes december 31 2008 189 billion senior convertible senior serial redeemable notes making payments 13 billion 235 million 250 million towards early redemption june 2008 6125 senior notes due november 2008 extinguishment september 2008 us unwired inc’s 10 second priority senior secured notes due 2012 extinguishment alamosa delaware inc’s 85 senior notes due 2012 respectively remaining senior notes unsecured cash interest notes payable semiannually arrears december 31 2008 approximately 168 billion notes redeemable discretion applicable redemption price plus accrued unpaid interest 607 million aggregate principal amount 525 notes due 2010 convertible time prior redemption repurchase maturity option holders shares series 1 common stock effective conversion price 5365 per share plus 1137 cash 1000 principal amount 2007 paid total 14 billion cash early redemptions senior notes redeemed entirety including 150 million iwo holdings inc’s senior secured floating rate notes due 2012 420 million ubiquitel operating company’s 9875 senior notes due 2011 475 million nextel partners inc’s 8125 senior notes due 2011 251 million alamosa delaware inc’s 11 senior notes due 2010 also 2007 completed sale 750 million principal amount floating rate notes due 2010 cash interest payable quarterly arrears march 28 june 28 september 28 december 28 year rate threemonth london interbank offered rate libor plus 40 basis points may redeem notes prior maturity notes senior unsecured obligations rank equal right payment unsecured senior indebtedness 2006 completed sale 20 billion principal amount 60 senior serial redeemable notes due 2016 cash interest payable semiannually arrears june 1 december 1 year commencing june 1 2007 annual rate 60 may choose redeem notes time redemption price equal greater 100 principal amount sum present values remaining scheduled payments principal interest discounted redemption date semiannual basis us treasury note interest rate remaining term plus 30 basis points plus case accrued interest notes senior unsecured obligations rank equal right payment unsecured senior indebtedness weighted average effective interest rate related senior notes 65 2008 70 2007 effective interest rate includes effect interest rate swap agreements accounted currently previously fair value hedges see note 10 additional information regarding interest rate swaps credit facilities february 2008 drew 25 billion revolving bank credit facility proceeds used repay 17 billion senior notes second third quarters 2008 also repaid 15 billion revolving bank credit facility third fourth quarters 2008 december 31 2008 21 billion letters credit including 20 billion letter credit required report order reconfigure 800 mhz band outstanding 45 billion unsecured revolving bank credit facility result outstanding borrowings revolving bank credit facility outstanding letters credit directly impacts availability revolving bank credit facility 14 billion borrowing capacity available revolving bank credit facility december 31 2008 terms loan provide interest rate equal libor plus spread varies depending credit ratings sprint nextel corporation notes consolidated financial statementscontinued march 2007 entered 750 million unsecured loan agreement export development canada december 31 2008 borrowed 750 million available agreement loan mature march 2012 terms loan provide interest rate equal libor plus spread varies depending credit ratings may choose prepay loan whole part time commercial paper april 2008 repaid full commercial paper outstanding commercial paper program commenced 2006 20 billion program backed revolving credit facility reduced amount could borrow facility extent commercial paper outstanding financing obligation september 23 2008 closed transaction towerco acquisition llc sold 3084 cell sites owned us subsequently leased space cell sites period ten years renewal options additional 20 years due continued involvement property sold accounted transaction financing transaction recorded total proceeds received financing obligation continue report cell sites part property plant equipment depreciated 698 million financing obligation includes net cash proceeds 645 million approximately 20 million received first quarter 2009 pursuant unwind escrow agreement along adjustments capital lease obligations december 31 2008 87 million capital lease obligations primarily use communication switches covenants december 31 2008 compliance restrictive financial covenants associated borrowings november 3 2008 entered agreement amend terms conditions revolving bank credit facility giving us greater flexibility regarding financial covenants pursuant amendment ratio total indebtedness trailing four quarters earnings interest taxes depreciation amortization certain nonrecurring charges increased 35 10 425 10 december 31 2008 ratio 30 10 certain domestic subsidiaries guaranteed revolving bank credit facility revolving bank credit facility may pay cash dividends unless ratio total indebtedness less 25 10 maturity dates loans credit facilities may accelerate comply covenants also obligated repay loans certain change control events occur indentures govern outstanding senior notes also require comply various covenants including limitations incurrence indebtedness liens us subsidiaries default credit facilities could trigger defaults debt obligations including senior notes turn could result maturities certain debt obligations accelerated sprint nextel corporation notes consolidated financial statementscontinued future maturities longterm debt financing obligation capital lease obligations years subsequent december 31 2008 scheduled annual principal payments longterm debt including bank credit facility financing obligation capital lease obligations outstanding december 31 2008 follows note 6 supplemental balance sheet information sprint nextel corporation notes consolidated financial statementscontinued note 7 severance exit costs asset impairments 2008 total severance exit costs asset impairment costs aggregated 817 million compared 440 million 2007 207 million 2006 severance exit costs activity 2008 recorded 355 million severance lease termination costs related separation employees continued organizational realignment initiatives amounts 235 million severance costs 35 million lease exit costs related wireless segment 55 million severance costs 7 million lease exit costs related wireline segment remaining 23 million severance costs related corporate segment 2007 order improve cost structure reduced fulltime headcount result terminations recorded 159 million 35 million expenses wireless wireline segments respectively addition recorded lease exit costs 83 million 2007 including 71 million related wireless segment 12 million related wireline segment 2006 rationalized cost structure resulting sprintnextel merger pcs affiliates nextel partners acquisitions merger integration efforts affected many areas business operations including network information technology customer care general administrative functions activities resulted 138 million severance lease exit costs associated work force reductions 102 million 36 million recorded wireless wireline segments respectively sprint nextel corporation notes consolidated financial statementscontinued following tables provide summary severance exit costs liability exclusive exit costs associated business combinations 1 excluded table severance exit costs 27 million 2006 allocated local segment prior spinoff embarq included discontinued operations consolidated statement operations asset impairment 2008 recorded asset impairments 435 million primarily related cell site development costs network asset equipment wireless segment longer necessary management’s strategic plans addition also recorded losses disposition assets 27 million 2008 2007 asset impairments 163 million primarily attributable wireless segment included writeoff cell site development costs abandoned sites would used based management’s strategic network plans sale velocita wireless closing retail stores due integration efforts 2006 asset impairments 69 million related software applications abandonment various assets including certain cell sites construction wireless segment sprint nextel corporation notes consolidated financial statementscontinued note 8 fair value carry certain assets liabilities fair value changes fair value recognized consolidated financial statements period make estimates regarding valuation assets liabilities measured fair value preparing consolidated financial statements assets liabilities primarily include availableforsale debt equity securities accounted pursuant sfas 115 accounting certain investments debt equity securities interest rate derivatives stock warrants january 1 2008 adopted provisions sfas 157 fair value measurements financial nonfinancial assets liabilities recognized fair value consolidated financial statements recurring basis adoption statement change previous accounting financial assets liabilities provisions sfas 157 applied nonfinancial assets liabilities recognized fair value consolidated financial statements nonrecurring basis beginning january 1 2009 upon application remaining provisions sfas 157 january 1 2009 provide additional disclosures regarding nonrecurring fair value measurements including review indefinite lived intangible assets sfas 157 changed definition fair value defined previous statements “price would received sell asset paid transfer liability orderly transaction market participants measurement date” market assumptions readily available use assumptions reflect market participants would use pricing asset liability measurement date valuation approaches determining fair value include market income andor cost approaches sfas 157 also established hierarchy classifies inputs used measure fair value hierarchy prioritizes use inputs used valuation techniques three levels based observable unobservable inputs observable inputs market participants would use pricing asset liability developed based market data obtained sources independent us unobservable inputs require judgment inputs described reflect assumptions market participants would use pricing asset liability developed based best information available circumstances hierarchy broken three levels based reliability inputs used measure fair value fall different levels disclose item based lowest level input significant fair value measure significant assets liabilities utilize unobservable level 3 inputs following fair value hierarchy table presents information regarding assets liabilities measured fair value recurring basis december 31 2008 sprint nextel corporation notes consolidated financial statementscontinued 1 level 1fair value based quoted prices active markets identical assets liabilities ability access level 1 inputs generally reflect fair value adjusted assets liabilities utilizing level 1 inputs include exchange traded equity securities exchange traded debt securities us government securities 2 level 2fair value based quoted prices markets active markets similar assets liabilities inputs quoted prices observable inputs directly observable corroborated observable market data may necessary make adjustments level 2 inputs account illiquidity difference asset liability quote relates actual asset liability measured fair value assets liabilities valued utilizing level 2 inputs include derivative instruments actively traded carrying amounts estimated fair values financial instruments yearend follows 1 cash equivalents accounts notes receivable deposits accounts payable accrued expenses items excluded table carrying amount consolidated balance sheets approximate fair value due short term nature 2 estimated fair value debt based available market prices estimates using available market data information appropriate valuation methodologies note 9 income taxes income tax benefit expense allocated continuing operations consists following sprint nextel corporation notes consolidated financial statementscontinued differences caused effective income tax rates vary 35 federal statutory rate income taxes related continuing operations follows income tax benefit expense allocated items follows 1 amounts recorded directly shareholders’ equityaccumulated comprehensive loss consolidated balance sheets 2 amounts recorded directly shareholders’ equitypaidin capital consolidated balance sheets 3 amount recorded directly shareholders’ equityretained earnings consolidated balance sheet sprint nextel corporation notes consolidated financial statementscontinued recognize deferred income taxes temporary differences carrying amounts assets liabilities financial statement purposes tax bases deferred tax assets also recorded operating loss capital loss tax credit carryforwards sources differences give rise deferred income tax assets liabilities december 31 2008 2007 along income tax effect follows 2008 incurred 55 million foreign loss included loss income continuing operations 2007 2006 132 million 52 million respectively foreign income included loss income continuing operations material unremitted earnings foreign subsidiaries 1998 acquired 229 million potential tax benefits related net operating loss carryforwards controlling interest acquisition wireless joint venture call pcs restructuring benefits acquired pcs restructuring subject certain realization restrictions various tax laws required reimburse former cable company partners joint venture net operating loss tax credit carryforward benefits generated pcs restructuring realization us produces cash benefit would otherwise realized reimbursement equal 60 net cash benefit received us made former cable company partners shares stock december 31 2008 unexpired carryforward benefits subject requirement total 183 million maintained valuation allowance entire amount tax benefits december 31 2008 federal operating loss carryforwards 40 billion state operating loss carryforwards 114 billion related loss carryforwards federal tax benefits 14 billion state tax benefits 780 million approximately 300 million federal operating loss carryforwards expire prior 2013 remaining 37 billion expire varying amounts 2018 2028 state operating loss carryforwards expire varying amounts 2028 sprint nextel corporation notes consolidated financial statementscontinued addition available income tax purposes federal alternative minimum tax net operating loss carryforwards 37 billion state alternative minimum tax net operating loss carryforwards 814 million loss carryforwards expire varying amounts 2028 also available capital loss carryforwards 211 million related capital loss carryforwards tax benefits 74 million capital loss carryforwards 129 million expire 2009 remaining 82 million expire 2013 also available 650 million federal state income tax credit carryforwards december 31 2008 included amount 124 million income tax credits expire prior 2013 240 million expire varying amounts 2013 2028 remaining 286 million expire valuation allowance related deferred income tax assets decreased 12 million 2008 230 million 2007 2008 decrease primarily related utilization expiration income tax carryforwards reclassification deferred tax liabilities 2007 decrease primarily related reclassification liabilities accordance adoption fin 48 use capital loss valuation allowance previously provided believe likely deferred income tax assets net valuation allowance realized based current income tax laws expectations future taxable income stemming reversal existing deferred tax liabilities ordinary operations uncertainties surrounding income tax law changes shifts operations state taxing jurisdictions future operating income levels may however affect ultimate realization deferred income tax assets evaluated qualitative factors uncertainties concerning company industry found provide continuing evidence requiring valuation allowance currently recognize related realization tax benefit net operating loss tax credit carryforwards december 31 2008 fasb interpretation 48 adopted provisions fin 48 january 1 2007 fin 48 clarifies accounting uncertainty income taxes recognized enterprise’s financial statements accordance sfas 109 prescribes recognition threshold measurement attribute financial statement recognition measurement tax position taken expected taken tax return cumulative effect adopting fin 48 generally recorded directly retained earnings however extent adoption fin 48 resulted revaluation uncertain tax positions acquired purchase business combination cumulative effect recorded adjustment goodwill remaining corresponding purchase business combination result adoption fin 48 recognized 20 million increase liability unrecognized tax benefits accounted 24 million increase goodwill 4 million increase retained earnings january 1 2007 total unrecognized tax benefits attributable uncertain tax positions january 1 2007 606 million upon adoption fin 48 reclassified majority liability unrecognized tax benefits deferred tax liabilities remainder netted deferred tax assets upon adoption total unrecognized tax benefits included items would favorably affect income tax provision 89 million recognized total unrecognized tax benefits attributable uncertain tax positions december 31 2008 december 31 2007 449 million 654 million respectively december 31 2008 total unrecognized tax benefits included items would favorably affect income tax provision 336 million recognized sprint nextel corporation notes consolidated financial statementscontinued recognize interest related unrecognized tax benefits interest expense interest income recognize penalties additional income tax expense december 31 2008 december 31 2007 accrued liability income tax related interest 40 million 71 million respectively accrued liability penalties 13 million december 31 2008 2007 reconciliation beginning ending amount unrecognized tax benefits follows 2008 reduction unrecognized tax benefits principally attributable income tax settlements lapses statute limitations various tax jurisdictions majority unrecognized tax benefits originally acquired purchase business combinations intangible assets reduced file income tax returns us federal jurisdiction state jurisdiction imposes income tax also file income tax returns number foreign jurisdictions however foreign income tax activity immaterial internal revenue service irs effectively completed examination consolidated returns related years prior 2007 reached settlement agreements appeals division irs examination issues dispute years prior 2003 unresolved disputed issues 20032006 irs examinations various stages consideration appeals division irs however immaterial consolidated financial position irs also completed examination 2001 premerger 2005 consolidated income tax returns subsidiary nextel communications inc disputed issues premerger nextel examination awaiting consideration appeals division immaterial consolidated financial position addition involved multiple state income tax examinations related various years beginning 1996 various stages examination administrative review appellate process based current knowledge examinations administrative reviews appellate processes believe reasonably possible many uncertain tax positions may resolved next twelve months could result reduction approximately 200 million unrecognized tax benefits sprint nextel corporation notes consolidated financial statementscontinued note 10 derivative instruments hedging activities derivative instruments typically include interest rate swaps stock warrants option contracts foreign currency forward option contracts primarily use derivative instruments hedge exposure market risks associated unfavorable movements interest rates equity prices foreign currencies board directors authorized us enter derivative transactions comply risk management policies interest rate derivatives december 31 2008 hold interest rate swaps december 31 2007 fair value interest rate swaps 7 million swaps entered hedges fair value portion senior notes met required criteria sfas 133 amended recognize changes fair values interest rate swaps gain loss within expense income consolidated statements operations accordance sfas 133 amended shortcut method changes fair value hedging instrument offset equal change fair value underlying debt net impact earnings fourth quarter 2005 entered series interest rate collars associated issuance debt embarq time spinoff may 17 2006 derivative instruments qualify hedge accounting treatment consolidated financial statements changes fair value instruments recognized earnings discontinued operations period change 2006 fair value derivatives increased resulting 43 million gain tax derivatives settled upon completion spinoff equity derivatives 2005 entered series option contracts associated investment nii holdings designed hedge exposure risk unfavorable changes price nii holdings’ common shares first contract written 17 million common shares nii holdings designated hedging instrument therefore changes fair value derivative instrument recognized earnings period change prior settlement settled first option contract march 31 2006 conjunction sale 17 million common shares nii holdings recognized gain 37 million sale underlying shares partially offset loss 23 million change fair value option contract 2006 resulting net gain 14 million recorded income remaining option contracts written total 13 million common shares nii holdings related forecasted sale shares fourth quarter 2006 designated effective cash flow hedges forecasted transaction fourth quarter 2006 sold remaining investment 13 million common shares nii holdings settled remaining option contracts using common shares nii holdings borrowed stock loan agreements recognized gain 396 million sale underlying shares partially offset realized loss 251 million change fair value option contracts resulting net gain 145 million recorded income also recorded 53 million income tax expense fourth quarter 2006 relating transaction result sale nii holdings shares settlement option contracts well reversal deferred tax liability relating nii holdings shares use borrowed shares settle option contracts accounted collateralized borrowing resulting increase 866 million prepaid expenses current assets accrued expenses current liabilities fair value underlying shares 2006 recognized financing cash inflow 866 million related borrowing equal investing cash outflow related collateral posted borrowed shares collateralized borrowing terminated january 2007 sprint nextel corporation notes consolidated financial statementscontinued note 11 shareholders’ equity articles incorporation authorize 6620000000 shares capital stock follows • 6000000000 shares series 1 voting common stock par value 200 per share • 500000000 shares series 2 voting common stock par value 200 per share • 100000000 shares nonvoting common stock par value 001 per share • 20000000 shares preferred stock par value per share classes common stock series 1 common stock holders series 1 common stock entitled one vote per share matters submitted action shareholders 28 billion shares series 1 common stock outstanding december 31 2008 series 2 common stock holders series 2 common stock entitled 10 one vote per share otherwise rights substantially identical series 1 common stock 75 million shares series 2 common stock outstanding december 31 2008 nonvoting common stock 38 million shares nonvoting common stock issued sprintnextel merger august 2005 motorola subsidiary holders nonvoting common shares december 2006 motorola subsidiary exercised right convert nonvoting common shares equal number shares series 1 common stock resulting 623 million decrease paidin capital reduction treasury shares shown consolidated statements shareholders’ equity dividends declare dividends common shares 2008 declared paid dividend 0025 per share series 1 common stock series 2 common stock quarters 2007 2006 dividend 0025 per share nonvoting common stock quarters 2006 share repurchase program july 25 2006 board directors authorized program purchase 60 billion series 1 common stock open market purchases repurchase shares program 2008 program expired repurchased 185 million shares series 1 common stock 35 billion average price 1877 per share 2006 2007 sprint nextel corporation notes consolidated financial statementscontinued common stock reserved future grants december 31 2008 series 1 common stock reserved future grants plans providing grant stock options equitybased awards future grants employees stock purchase plan future issuances various arrangements included accumulated comprehensive loss components accumulated comprehensive loss follows note 12 sharebased compensation december 31 2008 sponsored four equity incentive plans 2007 omnibus incentive plan 2007 plan 1997 longterm incentive program 1997 program nextel incentive equity plan nextel plan management incentive stock option plan misop well employees stock purchase plan espp may 8 2007 shareholders approved 2007 plan may grant stock options stock appreciation rights restricted stock restricted stock units performance shares performance units equitybased cash awards employees outside directors certain service providers options generally granted exercise price equal market value underlying shares grant date generally vest annual basis three years generally contractual term ten years employees directors granted restricted stock units required pay shares generally must remain employed us continue serve member board directors restrictions lapse typically three years employees one year directors compensation committee board directors one executive officers compensation committee authorize provided 2007 plan determine terms equitybased award february 11 2008 november 5 2008 made certain amendments 2007 plan comply new tax regulations including new regulations section 409a internal revenue code new grants made 1997 program nextel plan misop 2008 number shares available 2007 plan increased 27 million number shares available 2007 plan increased shares originally granted 1997 program nextel plan misop forfeited expired otherwise terminated december 31 2008 177 million common shares available 2007 plan sprint nextel corporation notes consolidated financial statementscontinued 1997 program previously authority grant options restricted shares restricted stock units equitybased awards directors employees december 31 2008 awards acquire 65 million shares outstanding 1997 program 1997 program options generally granted exercise price equal market value underlying shares grant date options granted 2008 2007 2006 generally vest annual basis three years contractual term ten years restricted stock units granted 2008 2007 2006 generally performance service requirements vesting periods ranging one three years furthermore restricted stock units granted second quarter 2008 included quarterly performance targets awards however granted performance targets met therefore grant date awards remaining service requirement vest six months following last day applicable quarter nextel plan outstanding nextel deferred shares nonvested shares constitute agreement deliver shares upon performance service defined period time grants options purchase nextel common shares converted time sprintnextel merger nonvested shares options purchase number common shares december 31 2008 awards acquire 33 million common shares outstanding nextel plan options granted prior sprintnextel merger exercise price equal market value underlying shares grant date options vest monthly basis periods four years contractual term ten years employees required pay nonvested shares however must remain employed us restrictions shares lapse nonvested shares generally vest service period ranging several months four years accelerated vesting schedule may triggered event change control accelerated vesting triggered respect certain deferred shares options granted prior sprintnextel merger result sprintnextel merger misop granted stock options employees eligible receive annual incentive compensation eligible employees could elect receive stock options lieu portion target incentive annual incentive compensation plans options generally became exercisable december 31 year granted maximum contractual term ten years misop also granted stock options executives lieu longterm incentive compensation ltipmisop options ltipmisop options generally became exercisable third december 31 following grant date maximum term ten years misop options granted exercise prices equal market price underlying common stock grant date december 31 2008 options buy 26 million common shares outstanding misop connection sprintnextel merger vesting certain equitybased awards issued 1997 program misop nextel plan accelerated following termination employment certain award recipients january 2005 adopted retention program designed retain senior executives key personnel completion sprintnextel merger oneyear period following merger program terminated employment program participant cause within one year sprintnextel merger certain unvested equitybased awards held participant vested automatically nextel plan within one year sprintnextel merger terminated cause employment holder equitybased award granted plan case specified executives holder terminated employment good reason defined plan holder’s unvested equitybased awards vested automatically espp eligible employees may subscribe quarterly purchase shares series 1 common stock payroll deductions 20 eligible compensation purchase price equal 90 market value last trading day quarterly offering period aggregate number shares purchased employee may exceed 9000 shares 25000 fair market value calendar year sprint nextel corporation notes consolidated financial statementscontinued subject limitations imposed section 423 internal revenue code december 31 2008 espp authorized purchase 11 million shares net elections made 2008 employees participating fourth quarter 2008 offering period espp purchase 4 million common shares issued first quarter 2009 employees purchased shares 167 per share currently use treasury shares satisfy sharebased awards new shares treasury shares available adoption sfas 123r effective january 1 2006 adopted sfas 123r supersedes sfas 123 accounting stockbased compensation sfas 123r requires us measure cost employee services received exchange award equitybased securities using fair value award date grant recognize cost period award recipient required provide service us exchange award awards liability instruments employees would remeasured fair value reporting date settlement pretax sharebased compensation charges included net loss income sharebased award plans 272 million 2008 265 million 2007 361 million 2006 pretax sharebased compensation cost charges included income continuing operations sharebased award plans 272 million 2008 265 million 2007 338 million 2006 total income tax benefit recognized consolidated financial statements sharebased award compensation 101 million 2008 96 million 2007 138 million 2006 total income tax benefit recognized statement operations related continuing operations sharebased award compensation 101 million 2008 96 million 2007 129 million 2006 december 31 2008 129 million total unrecognized compensation cost related sharebased award plans expected recognized weighted average period 141 years cash received exercise sharebased payment arrangements net shares surrendered employee tax obligations 57 million 2008 344 million 2007 405 million 2006 actual tax benefit realized tax deductions exercise sharebased payment arrangements less 1 million 2008 totaled 4 million 2007 6 million 2006 sharebased payment plans options restricted stock units outstanding december 31 2008 forfeitures estimated sharebased awards using 65 weighted average annual rate options fair value option award estimated grant date using blackscholes option valuation model riskfree rate used 2008 2007 2006 based zerocoupon us treasury bond term equal expected term options volatility used implied volatility traded options common shares expected dividend yield used estimated based historical dividend yield factors expected term options granted estimated using simplified method defined average vesting term contractual term options outstanding december 31 2008 include options granted 2007 plan 1997 program nextel plan misop discussed sprint nextel corporation notes consolidated financial statementscontinued 1 values risk free interest rate expected term adjusted spinoff embarq based 10955 conversion rate 2 based estimate expected volatility implied volatility exchange traded options consistent guidance sab 107 sharebased payment summary status options option plans december 31 2008 changes year ended december 31 2008 presented december 31 2008 61 million total unrecognized compensation cost related unvested options cost expected recognized weightedaverage period 150 years total intrinsic value options exercised 9 million 2008 150 million 2007 264 million 2006 sprint nextel corporation notes consolidated financial statementscontinued restricted stock units fair value restricted stock unit award calculated using share price date grant restricted stock units consist units granted 2007 plan 1997 program discussed 1 evaluate performance conditions restricted stock units end performance period restricted stock units granted 2008 2007 2006 generally performance service requirements vesting periods ranging one three years furthermore restricted stock units granted second quarter 2008 included quarterly performance targets awards however granted performance targets met therefore grant date awards remaining service requirement reflected future service required column december 31 2008 68 million total unrecognized compensation cost related restricted stock units expected recognized weightedaverage period 133 years total fair value restricted stock units vested 41 million 2008 78 million 2007 49 million 2006 weightedaverage grant date fair value restricted stock units granted 2008 603 per unit compared 1843 per unit 2007 2404 per unit 2006 restricted stock units outstanding december 31 2008 entitled dividend equivalents paid cash performancebased restricted stock units entitled dividend equivalent payments applicable performance period completed dividend equivalents paid restricted stock units charged accumulated deficit paid note 13 segments two reportable segments wireless wireline segments organized products services may 2006 operated third reportable segment local communications business provided local long distance voice data services classified discontinued operations see note 16 information sprint nextel corporation notes consolidated financial statementscontinued chief executive officer uses segment earnings primary measure evaluate segment performance make resource allocation decisions define segment earnings wireless wireline operating loss income segment expenses depreciation amortization severance exit costs goodwill asset impairments merger integration expenses solely directly attributable segment expenses income items excluded segment earnings managed corporate level wireless segment includes revenue wide array wireless mobile telephone wireless data transmission services sale wireless equipment wireless segment together remaining thirdparty pcs affiliates offer digital wireless service 50 states puerto rico us virgin islands wireline segment includes revenue domestic international wireline voice data communication services cable multiple systems operators resell local long distance services andor use back office systems network assets support telephone services provided cable facilities generally account transactions segments based fully distributed costs believe approximate fair value certain transactions related commercial services pricing set using market rates segment financial information follows sprint nextel corporation notes consolidated financial statementscontinued sprint nextel corporation notes consolidated financial statementscontinued 1 intersegment revenues consist primarily long distance services provided wireless segment resale wireless subscribers 2 included corporate results operating expenses related planned deployment nextgeneration broadband wireless network contributed clearwire transaction closed november 28 2008 refer note 3 information 3 see note 7 additional information severance exit costs asset impairments 4 merger integration expenses generally nonrecurring nature primarily include costs launch common customer interfacing systems processes integration planning activities 2007 costs also included certain costs provide wireless devices operate seamlessly cdma iden networks certain customer care costs retain employees costs related rebranding integration costs 5 included 2006 corporate results historical net revenues related operating costs certain consumer wireline subscribers transferred embarq connection spinoff operating results previously reported local segment reflect activity date spinoff operating results reflected discontinued operations due continuing involvement consumer wireline subscribers wholesale long distance agreement embarq agreement became effective date spinoff 6 corporate assets allocated operating segments consist primarily cash equivalents corporate headquarters campus equity method investment clearwire assets managed corporate level assets related 4g wireless broadband business subsequently contributed clearwire refer note 3 information corporate capital expenditures include various administrative assets contributed clearwire operating expenses related corporate assets allocated segment sprint nextel corporation notes consolidated financial statementscontinued net operating revenues service products follows 1 revenues eliminated consolidation consist primarily long distance services provided wireless segment resale wireless subscribers 2 included 2006 corporate results historical net revenues certain consumer wireline subscribers transferred embarq connection spinoff revenues previously reported local segment reflect activity date spinoff revenues reflected discontinued operations due continuing involvement consumer wireline subscribers wholesale long distance agreement embarq agreement became effective date spinoff sprint nextel corporation notes consolidated financial statementscontinued note 14 commitments contingencies number cases allege sprint communications company lp failed obtain easements property owners installation fiber optic network 1980’s filed various courts several cases sought certification nationwide classes one case nationwide class certified 2003 nationwide settlement claims approved us district court northern district illinois objectors appealed preliminary approval order seventh circuit court appeals overturned settlement remanded case trial court proceedings parties proceeded litigation andor settlement negotiations state basis settlement negotiations coordinated cases pending louisiana tennessee louisiana claims separately settled amount material company settlement given final approval court time appeal approval expired reached agreement principle settle claims states excluding tennessee amount material us court issued preliminary approval settlement july 17 2008 court process considering objections settlement september 2004 us district court district kansas denied motion dismiss shareholder lawsuit alleging 2001 2002 proxy statements false misleading violation federal securities laws extent described new employment agreements certain senior executives without disclosing according allegations replacement executives inevitable allegations made amended complaint lawsuit originally filed 2003 asserted us certain current former officers directors seek recover decline value tracking stocks class period parties stipulated case proceed class action defendants denied plaintiffs’ allegations intend defend matter vigorously allegations original complaint asserted claims defendants former independent auditor dismissed court april 2004 motion dismiss amended complaint denied parties engaged discovery connection sprintnextel merger 2005 disclosed several pcs affiliates filed lawsuits various courts alleging sprintnextel merger would result breaches exclusivity provisions commercial affiliation agreements subsidiaries exception ipcs wireless inc ipcs suits disposed september 24 2008 illinois supreme court denied petition appeal contract dispute ipcs result illinois circuit court decision august 2006 holding sprint’s merger nextel breached sprint’s agreement ipcs upheld judge case entered order requiring sprint cease owning operating managing iden network parts certain midwestern states illinois iowa michigan missouri nebraska wisconsin small portion indiana make ipcs territory october 15 2008 filed motion asking illinois supreme court reconsider decision hear appeal grounds circuit court decision infringed upon fcc’s authority determine ownership use telecommunications licenses grounds injunction entered circuit court violates illinois public policy illinois supreme court declined hear appeal increased time compliance order 360 days began run january 30 2009 also filed motion asking circuit court reconsider decision light newlydiscovered evidence produced ipcs earlier circuit court proceeding circuit court denied motion appealed denial continue believe circuit court injunction erroneous contrary public policy continue oppose vigorously unsuccessful efforts challenge injunction may depreciate iden assets ipcs markets accelerated basis andor pursue strategic alternatives sprint nextel corporation notes consolidated financial statementscontinued various suits proceedings claims including purported class actions typical large business enterprise pending us subsidiaries possible determine ultimate disposition proceedings whether resolved consistent beliefs expect outcome proceedings individually aggregate material adverse effect financial condition results operations spectrum reconfiguration obligations 2004 fcc adopted report order included new rules regarding interference 800 mhz band comprehensive plan reconfigure 800 mhz band interference believed caused result operations commercial mobile radio service providers operating frequencies adjacent number public safety communication systems geographic area assumed obligations inherent report order august 2005 merged nextel communications inc report order provides exchange portion 800 mhz fcc spectrum licenses requires us fund cost incurred public safety systems incumbent licensees reconfigure 800 mhz spectrum band addition received licenses 10 mhz nationwide spectrum 19 ghz band however required relocate reimburse incumbent licensees band costs relocation another band designated fcc report order requires us make payment us treasury conclusion band reconfiguration process extent value 19 ghz spectrum received exceeds total value licenses spectrum 700 mhz 800 mhz bands surrendered decision plus actual costs qualifying costs incur retune incumbents facilities report order fcc determined report order purposes calculating payment amount value 19 ghz spectrum 49 billion aggregate value 700 mhz spectrum 800 mhz spectrum surrendered net 800 mhz spectrum received part exchange 21 billion potential payment us treasury results minimum cash obligation 28 billion us report order however obligated pay full amount costs relating reconfiguration plan even costs exceed 28 billion following table represents payments directly attributable performance report order inception program 1 excluded table estimated reconfiguration costs incurred date included property plant equipment consolidated balance sheet based allocations reconfiguration activities normal network improvements methodology calculated costs approved transition administrator ta result amount allocated reconfiguration activity subject change based additional assessments made course reconfiguration program sprint nextel corporation notes consolidated financial statementscontinued inception program december 31 2008 incurred approximately 18 billion costs directly attributable spectrum reconfiguration program expended costs generally accounted either property plant equipment additions fcc licenses intangible asset estimate based experience date reconfiguration program information currently available total direct costs attributable complete spectrum reconfigurations range 32 36 billion neither actual amounts incurred december 31 2008 range total direct costs estimated complete spectrum reconfigurations includes internal network costs preliminarily allocated reconfiguration program capacity sites modifications may request credit reconfiguration program estimate dependent significant assumptions including final licensee costs associated relocating licensees canadian border region border plan adopted fcc mexican border region currently approved border plan addition entitled receive reimbursement mobilesatellite service licensees pro rata portion costs clearing portion 19 ghz spectrum licensees may unable unwilling reimburse us share costs estimate approximately 200 million accordingly believe unlikely required make payment us treasury fcc designated independent ta monitor facilitate review expenditures 800 mhz band reconfiguration required terms report order delivered 25 billion letter credit provide assurance funds available pay relocation costs incumbent users 800 mhz spectrum report order provides possibility periodic reductions amount letter credit 2008 determined based information available us total cost reconfiguring incumbent users 800 mhz likely less 25 billion ta reviewed forecasts recommended fcc 529 million reductions letter credit based costs incurred june 30 2008 fcc concurred ta’s requests letter credit reduced 20 billion respect timing report order required completion 800 mhz band reconfiguration within 36month period ending june 26 2008 exception made respect markets border mexico canada october 30 2008 fcc released order granting us relief previously requested respect june 26 2008 completion date whereby staged milestonebased reduction used interleaved spectrum would otherwise required surrender june 26 2008 addition defining progress benchmarks determine amount spectrum relinquish regionbyregion basis fcc adopted deadline march 31 2010 time may required relinquish portions 800 mhz interleaved spectrum advance completion rebanding receipt remaining replacement spectrum order alleviates spectrum constraints may faced result original june 26 2008 completion date exception respect markets border canada clarified may 9 2008 fcc issued canadian border plans included 30month deadline completion operating leases lease various equipment office facilities retail outlets kiosks switching facilities transmitter receiver sites operating leases noncancelable portion leases ranges monthly 25 years leases exceptions provide automatic renewal options escalations either fixed based consumer price index rent abatements along rent escalations included computation rent expense calculated straightline basis lease term lease term leases includes initial noncancelable term plus least one renewal period exercise related renewal option options reasonably assured cell site leases generally provide initial noncancelable term five seven years five renewal options five years sprint nextel corporation notes consolidated financial statementscontinued december 31 2008 rental commitments operating leases including lease renewals reasonably assured consisted mainly leases cell switch sites real estate information technology network equipment office space commitments future years follows total rental expense 18 billion 2008 20 billion 2007 18 billion 2006 commitments party commitments includes service spectrum network capacity executory contracts connection conducting business december 31 2008 minimum amounts due commitments follows amounts actually paid agreements likely higher due variable components agreements significant variable components determine ultimate obligation owed include items hours contracted subscribers factors addition party various arrangements conditional nature obligate us make payments upon occurrence certain events delivery functioning software product environmental compliance environmental compliance remediation expenditures result mainly operation standby power generators telecommunications equipment expenditures arise connection standards compliance permits occasional remediation usually related generators batteries fuel storage light fcc’s desire carriers increase use generators batteries cell sites installation costs likely increase however cannot assess certainty impact future compliance remediation obligations believe future environmental compliance remediation expenditures material adverse effect financial condition results operations identified seven former manufactured gas plant sites nebraska currently owned operated us may owned operated entities acquired centel corporation formerly subsidiary embarq agreed share environmental liabilities arising former manufactured gas plant sites three sites part ongoing settlement negotiations sprint nextel corporation notes consolidated financial statementscontinued administrative consent orders environmental protection agency epa two sites initial site assessments conducted nebraska department environmental quality ndeq regulatory actions followed two remaining sites regulatory action epa ndeq centel entered agreements potentially responsible parties share costs connection five seven sites working assess scope nature sites potential responsibility expected material note 15 quarterly financial data unaudited 1 fourth quarter 2008 performed annual goodwill analysis recorded noncash goodwill impairment charge 963 million addition recorded asset impairments losses dispositions assets lease exit costs 511 million 2 fourth quarter 2007 performed annual goodwill analysis recorded noncash goodwill impairment charge 29649 billion 3 sum quarterly earnings per share amounts may equal annual amounts changes weighted average number shares outstanding year note 16 discontinued operations may 17 2006 completed spinoff local communications business known embarq corporation embarq offers regulated local communications services incumbent local exchange carrier provides suite communications services consisting local long distance voice data services including highspeed internet access required sfas 144 accounting impairment disposal longlived assets permitted sfas 95 statement cash flows results operations cash flows operating activities business presented discontinued operations periods presented spinoff distributed pro rata shareholders one share embarq common stock every 20 shares held voting nonvoting common stock 149 million shares embarq common stock cash paid fractional shares distribution embarq common stock considered tax free transaction us shareholders except cash payments made lieu fractional shares generally taxable sprint nextel corporation notes consolidated financial statementscontinued connection spinoff embarq transferred parent company 21 billion cash 45 billion embarq senior notes partial consideration condition transfer embarq local communications business embarq also retained 665 million debt obligations subsidiaries parent company transferred cash senior notes finance subsidiary sprint capital corporation satisfaction indebtedness owed parent company sprint capital may 19 2006 sprint capital sold embarq senior notes public received 44 billion net proceeds also connection spinoff entered separation distribution agreement related agreements embarq provide generally party responsible respective assets liabilities businesses following spinoff embarq provide certain transition services relating respective businesses specified periods costbased prices transition services primarily include billing field support information technology real estate services also entered agreements pursuant embarq provide specified services commercial rates time spinoff outstanding options purchase common stock held employees embarq cancelled replaced options purchase embarq common stock outstanding options purchase common stock held directors employees remained us adjusted multiplying number shares subject options 10955 dividing exercise price number order account impact spinoff value shares time spinoff completed generally restricted stock units awarded pursuant equity incentive plans held employees time spinoff including held employees became employees embarq treated manner similar treatment outstanding shares common stock spinoff holders restricted stock units received one embarq restricted stock unit every 20 restricted stock units held outstanding deferred shares granted nextel plan represent right receive shares common stock adjusted multiplying number deferred shares 10955 cash paid holders deferred shares lieu fractional shares results operations local communications business follows note 17 subsequent events january 2009 announced response anticipated pressure subscribers revenues profitability 2009 intend align cost structure reduced revenues expected fewer subscribers cost reduction program designed reduce labor costs workforce reduction 8000 positions expect workforce reduction largely completed end first quarter 2009 record charge excess 300 million associated severance related costs time reduction workforce completed using combination involuntary voluntary separation plans sprint nextel corporation schedule ii valuation qualifying accounts years ended december 31 2008 2007 2006 schedule reflects continuing operations 1 amounts charged accounts consist receivable reserves billing collection services provide certain pcs affiliates uncollectible accounts recovered affiliates 2006 amounts include allowance recorded merger nextel pcs affiliates nextel partners acquisitions 2 accounts written net recoveries 3 amount represents increases valuation allowance deferred tax assets related primarily purchase price allocations sprintnextel merger pcs affiliates nextel partners acquisitions 4 amount represents valuation allowances longer required due utilization expiration income tax carryforwards 5 amount includes beginning balance adjustment reclassification valuation allowance liabilities accordance adoption fin 48 6 amount represents increases valuation allowance deferred tax assets related purchase price allocation pcs affiliate acquisitions 7 amount represents utilization expiration income tax carryforwards reclassification deferred tax liabilities item 15 exhibits financial statement schedules portions exhibit omitted filed separately sec pursuant request confidential treatment sprint nextel furnish sec upon request copy instruments defining rights holders longterm debt exceed 10 total assets sprint nextel signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized date march 7 2006 pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities indicated 7th day march 2006 gary forsee gary forsee chief executive officer paul n saleh paul n saleh chief financial officer william g arendt william g arendt senior vice president controller principal accounting officer signatures sprint nextel corporation registrant pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities indicated 7th day march 2006 sprint nextel corporation index financial statements financial statement schedule exhibits 12 computation ratio earnings combined fixed charges preferred stock dividends 21 subsidiaries registrant 23 consent kpmg llp independent registered public accounting firm 23 b consent ernst young llp independent registered public accounting firm 31 certification chief executive officer pursuant securities exchange act 1934 rule 13a14a 31 b certification chief financial officer pursuant securities exchange act 1934 rule 13a14a 32 certification chief executive officer pursuant 18 usc section 1350 adopted pursuant section 906 sarbanesoxley act 2002 32 b certification chief financial officer pursuant 18 usc section 1350 adopted pursuant section 906 sarbanesoxley act 2002 management report management responsible integrity objectivity information contained document management responsible consistency reporting information ensuring accounting principles generally accepted united states used discharging responsibility management maintains comprehensive system internal controls supports extensive program internal audits made organizational arrangements providing appropriate divisions responsibility established communication programs aimed assuring policies procedures principles business conduct understood practiced employees 2005 2004 consolidated financial statements included document audited kpmg llp independent registered public accounting firm 2003 consolidated financial statements included document audited ernst young llp independent registered public accounting firm audits conducted using standards public company accounting oversight board united states kpmg’s ernst young’s reports consents included herein board directors’ responsibility consolidated financial statements pursued mainly audit committee audit committee composed entirely directors officers employees sprint nextel meets periodically company’s internal auditors independent registered public accounting firm without management present assure respective responsibilities fulfilled internal auditors independent registered public accounting firm full access audit committee discuss auditing financial reporting matters gary forsee gary forsee president chief executive officer paul n saleh paul n saleh executive vice president chief financial officer report independent registered public accounting firm board directors shareholders sprint nextel corporation audited accompanying consolidated balance sheets sprint nextel corporation formerly known sprint corporation subsidiaries december 31 2005 2004 related consolidated statements operations comprehensive income loss cash flows shareholders’ equity years ended december 31 2005 2004 connection audits consolidated financial statements also audited financial statement schedule ii consolidated valuation qualifying accounts years ended december 31 2005 2004 consolidated financial statements financial statement schedule responsibility company’s management responsibility express opinion consolidated financial statements financial statement schedule based audits conducted audits accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion consolidated financial statements referred present fairly material respects financial position sprint nextel corporation subsidiaries december 31 2005 2004 results operations cash flows years ended december 31 2005 2004 conformity us generally accepted accounting principles also opinion related financial statement schedule years ended december 31 2005 2004 considered relation basic consolidated financial statements taken whole presents fairly material respects information set forth therein discussed note 1 consolidated financial statements company adopted provisions fasb interpretation 47 accounting conditional asset retirement obligations fourth quarter 2005 also audited accordance standards public company accounting oversight board united states effectiveness sprint nextel corporation’s internal control financial reporting december 31 2005 based criteria established internal controlintegrated framework issued committee sponsoring organizations treadway commission coso report dated march 7 2006 expressed unqualified opinion management’s assessment effective operation internal control financial reporting kpmg llp mclean virginia march 7 2006 report independent registered public accounting firm board directors shareholders sprint nextel corporation audited management’s assessment included management’s report internal control financial reporting appearing item 9a controls procedures sprint nextel corporation formerly known sprint corporation maintained effective internal control financial reporting december 31 2005 based criteria established internal controlintegrated framework issued committee sponsoring organizations treadway commission coso sprint nextel corporation’s management responsible maintaining effective internal control financial reporting assessment effectiveness internal control financial reporting responsibility express opinion management’s assessment opinion effectiveness company’s internal control financial reporting based audit conducted audit accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether effective internal control financial reporting maintained material respects audit included obtaining understanding internal control financial reporting evaluating management’s assessment testing evaluating design operating effectiveness internal control performing procedures considered necessary circumstances believe audit provides reasonable basis opinion company’s internal control financial reporting process designed provide reasonable assurance regarding reliability financial reporting preparation financial statements external purposes accordance generally accepted accounting principles company’s internal control financial reporting includes policies procedures 1 pertain maintenance records reasonable detail accurately fairly reflect transactions dispositions assets company 2 provide reasonable assurance transactions recorded necessary permit preparation financial statements accordance generally accepted accounting principles receipts expenditures company made accordance authorizations management directors company 3 provide reasonable assurance regarding prevention timely detection unauthorized acquisition use disposition company’s assets could material effect financial statements inherent limitations internal control financial reporting may prevent detect misstatements also projections evaluation effectiveness future periods subject risk controls may become inadequate changes conditions degree compliance policies procedures may deteriorate opinion management’s assessment sprint nextel corporation maintained effective internal control financial reporting december 31 2005 fairly stated material respects based criteria established internal controlintegrated framework issued committee sponsoring organizations treadway commission coso also opinion sprint nextel corporation maintained material respects effective internal control financial reporting december 31 2005 based criteria established internal controlintegrated framework issued committee sponsoring organizations treadway commission coso also audited accordance standards public company accounting oversight board united states consolidated balance sheets sprint nextel corporation subsidiaries december 31 2005 2004 related consolidated statements operations comprehensive income loss cash flows shareholders’ equity years ended december 31 2005 2004 related financial statement schedule years ended december 31 2005 2004 report dated march 7 2006 expressed unqualified opinion consolidated financial statements related financial statement schedule mclean virginia kpmg llp march 7 2006 report independent registered public accounting firm board directors shareholders sprint nextel corporation audited accompanying consolidated statements operations comprehensive income loss cash flows shareholders’ equity sprint nextel corporation formerly sprint corporation year ended december 31 2003 audit also included financial statement schedule year ended december 31 2003 listed index financial statements financial statement schedule exhibits financial statements schedule responsibility management sprint nextel corporation responsibility express opinion financial statements schedule based audit conducted audit accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audit provides reasonable basis opinion financial statements referred present fairly material respects consolidated results operations cash flows sprint nextel corporation year ended december 31 2003 conformity us generally accepted accounting principles also opinion related financial statement schedule year ended december 31 2003 considered relation basic financial statements taken whole presents fairly material respects information set forth therein ernst young llp kansas city missouri february 3 2004 except note 3 date april 23 2004 note 23 date november 2 2004 sprint nextel corporation consolidated statements operations years ended december 31 2005 2004 2003 see accompanying notes consolidated financial statements sprint nextel corporation consolidated statements comprehensive income loss years ended december 31 2005 2004 2003 see accompanying notes consolidated financial statements sprint nextel corporation consolidated balance sheets december 31 2005 2004 see accompanying notes consolidated financial statements sprint nextel corporation consolidated statements cash flows years ended december 31 2005 2004 2003 see accompanying notes consolidated financial statements sprint nextel corporation consolidated statements shareholders’ equity years ended december 31 2005 2004 2003 millions 1 december 31 2005 accumulated comprehensive loss consists 818 additional minimum pension liability offset 80 unrealized net gains related investments derivatives 12 foreign currency translation adjustment 2 2004 voting common stock dividends paid paidin capital quarterly period retained earnings deficit position see accompanying notes consolidated financial statements sprint nextel corporation notes consolidated financial statements note 1 summary operations significant accounting policies operations global communications company offering comprehensive suite wireless wireline communications products services designed meet needs targeted customer groups individuals business government customers although operations divided three lines business wireless long distance local organized sales distribution efforts focus needs two distinct customer types individuals businesses government agencies enable us create customerfocused communications solutions one three largest wireless companies united states based number wireless subscribers extensive wireless networks global long distance tier 1 internet backbone series 1 voting common stock trades new york stock exchange nyse symbol “s” together third party affiliates referred pcs affiliate nextel partners inc offer digital wireless service 50 states puerto rico us virgin islands pcs affiliates commercial arrangements us provide wireless personal communication services pcs sprint® brand name certain midsized tertiary us markets wireless networks built operated expense using spectrum licensed controlled us nextel partners provides digital wireless communications services nextel brand name certain midsized tertiary us markets wireless networks built operated expense offer wide array wireless mobile telephone wireless data transmission services networks utilize code division multiple access cdma integrated digital enhanced network iden® technologies market wireless services provided cdma network sprint brand deploying highspeed evolution data optimized evdo technology across cdma network first introduced evdo commercially second quarter 2005 continue expand evdo additional markets operate alldigital long distance tier 1 internet protocol ip network provide broad suite wireline communications services targeted domestic business residential customers multinational corporations communications companies also provide regulated local exchange telephone services long distance voice data services including digital subscriber line dsl services telecommunicationsrelated services customers local service areas also operate wholesale product distribution business entire business expected spunoff shareholders second quarter 2006 known embarq corporation see note 25 information basis consolidation presentation august 12 2005 subsidiary merged nextel communications inc aggregate consideration 378 billion connection nextel merger changed name sprint nextel corporation sprint nextel august 12 2005 acquired us unwired inc 968 million cash also acquired gulf coast wireless limited partnership 211 million cash october 3 2005 well iwo holdings inc 192 million cash october 20 2005 companies wholly owned subsidiary sprint nextel transaction accounted purchase see note 2 discussion transactions accompanying consolidated financial statements include accounts wholly owned subsidiaries control well variable interest entities primary sprint nextel corporation notes consolidated financial statements continued beneficiary significant intercompany transactions balances eliminated consolidation use equity method account equity investments unconsolidated entities exercise significant influence operating financial policies control recognize changes proportionate share unconsolidated subsidiaries’ equity resulting equity transactions adjustments investment shareholders’ equity balances use cost method account equity investments unconsolidated entities see note 5 additional information prepare consolidated financial statements conformity accounting principles generally accepted united states require management make estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities date financial statements reported amounts revenues expenses reporting period due inherent uncertainty involved making estimates actual results could differ estimates certain priorperiod amounts reclassified conform current period presentation 2005 determined recategorization certain costs services products selling general administrative would consistent current industry practices accordingly reclassified 11 billion expenses years ended december 31 2004 2003 costs primarily consist certain customer care information technology costs wireless long distance segments revenue recognition operating revenues primarily consist wireless service revenues generated handset accessory sales revenues wholesale operators pcs affiliates well long distance local voice data internet revenues recognize operating revenues services rendered products delivered customers accordance securities exchange commission sec staff accounting bulletin 104 revenue recognition emerging issues task force eitf issue 0021 revenue arrangements multiple deliverables revenues consist fixed monthly recurring charges variable usage charges equipment charges miscellaneous fees activation fees directory assistance operatorassisted calling equipment protection late payment charges certain regulatory fees recognize revenue access charges services charged fixed amounts ratably service period net credits adjustments service discounts billing disputes fraud unauthorized usage recognize excess usage long distance revenue contractual rates per minute minutes used result cutoff times multiple billing cycles month required estimate amount subscriber revenues earned billed end billing cycle end reporting period estimates based primarily rate plans effect historical usage billing certain bundled products services primarily wireless determined revenue arrangements multiple deliverables total consideration received arrangements allocated measured using units accounting within arrangement based relative fair values recognize revenue handset sales title handset passes dealer end user customer classify handset sales equipment revenue wireless offerings include wireless phones service contracts sold together companyoperated stores activation fee revenue associated direct channel sales recognized time related wireless phone sold classified equipment sales wireless activation fees earned prior 2003 adoption eitf issue 0021 deferred amortized estimated average life end user customer certain activation fees associated unbundled sales wireless segment deferred amortized estimated average life end user customer certain installation fees associated local segment deferred amortized estimated average life customer sprint nextel corporation notes consolidated financial statements continued advertising expense recognize advertising expense incurred expenses include production media promotional sponsorship costs advertising expenses totaled 14 billion 2005 989 million 2004 946 million 2003 research development recognize research development expense incurred research development expenses totaled 47 million 2005 32 million 2004 16 million 2003 income taxes deferred tax assets liabilities determined based temporary differences financial reporting tax bases assets liabilities applying enacted statutory tax rates effect year differences expected reverse future tax benefits net operating loss carryforwards recognized extent realization benefits considered likely see note 13 information earnings loss per common share basic earnings loss per common share calculated dividing income loss available common shareholders weighted average number common shares outstanding period diluted earnings per common share adjust basic earnings per common share effects potentially dilutive common shares potentially dilutive common shares primarily include dilutive effects shares issuable equity plans computed using treasury stock method dilutive effects shares issuable upon conversion convertible senior notes computed using ifconverted method dilutive securities consisting shares issuable equity plans used calculating earnings per common share 205 million shares 2005 103 million shares issuable upon assumed conversion convertible senior notes could potentially dilute earnings per common share future excluded calculation diluted earnings per common share 2005 due antidilutive effects additionally 656 million shares issuable equity plans could also potentially dilute earnings per common share future excluded calculation diluted earnings per common share 2005 exercise prices exceeded average market price period shares issuable equity plans antidilutive 2004 incurred net losses continuing operations although used determination earnings per common share 2004 dilutive securities totaled 123 million shares 2004 88 million shares issuable equity plans could potentially dilute earnings per common share future excluded calculation diluted earnings per common share 2004 exercise prices exceeded average market price period shares issuable equity plans antidilutive 2003 incurred net losses continuing operations although used determination earnings per common share 2003 dilutive securities totaled 30 million shares 2003 103 million shares issuable equity plans could potentially dilute earnings per common share future excluded calculation diluted earnings per common share 2003 exercise prices exceeded average market price period sprint nextel corporation notes consolidated financial statements continued stockbased compensation effective january 1 2003 adopted statement financial accounting standards sfas 123 accounting stockbased compensation amended sfas 148 accounting stockbased compensation transition disclosure using prospective method upon adoption began expensing fair value stockbased compensation grants modifications settlements made january 1 2003 using blackscholes optionpricing model following table illustrates effect net income loss earnings per common share stockbased compensation included net income loss effect net income loss earnings loss per common share grants issued december 31 2002 applied fair value recognition provisions sfas 123 compensation costs expensed vesting period award using straightline method amount compensation cost recognized date least equal vested portion award recognized pretax charges 234 million 81 million 37 million 2005 2004 2003 related stockbased grants issued december 31 2002 2005 recognized pretax charges 32 million noncash compensation expense connection sprint employee separations result nextel merger charges associated accounting modifications accelerated vesting extended exercise periods stock options granted prior periods required sfas 123 prior april 23 2004 two tracking stocks fon tracking stock represented operations assets long distance local operations pcs tracking stock represented operations assets wireless operations april 23 2004 recombined two tracking stocks result 2004 recognized pretax charges 48 million noncash compensation expense related recombination fon common stock pcs common stock required sfas 123 accounted conversion pcs stock options fon stock options modification accordingly applied stock option expensing fon stock options resulting conversion pcs stock options granted january 1 2003 connection recognized pretax charges 37 million 2005 2003 recognized pretax charges 15 million noncash expense connection separation agreements us former executives charges associated accounting modifications accelerated vesting extended vesting exercise periods stock options granted prior periods required sfas 123 sprint nextel corporation notes consolidated financial statements continued cash equivalents cash equivalents generally include highly liquid investments original maturities three months less investments include money market funds us government governmentsponsored debt securities corporate debt securities municipal securities repurchase agreements bankrelated securities meet investment policy guidelines stated cost approximates market value december 31 2005 93 million restricted cash included prepaid expenses current assets consolidated balance sheets see note 9 information prior year amounts auction rate securities reclassified cash equivalents marketable securities supplemental cash flow information noncash activities included following investments debt securities classify investments marketable debt securities availableforsale therefore report fair value based quoted market prices interest investments debt securities reinvested recorded interest income accompanying consolidated statements operations record unrealized holding gains losses comprehensive income loss net related income taxes investments equity securities classify investments marketable equity securities availableforsale therefore report fair value based available market information record unrealized holding gains losses comprehensive income loss net related income taxes realized gains losses recorded earnings calculated using average cost assess declines value individual investments determine whether decline otherthantemporary thus investment impaired make assessment considering available evidence including changes general market conditions specific industry individual company data length time extent market value less cost financial condition nearterm prospects individual company intent ability hold investment record sprint nextel corporation notes consolidated financial statements continued impairment losses investments equity securities income expense accompanying consolidated statements operations investment’s market value declines cost basis otherthantemporary basis allowance doubtful accounts establish allowance doubtful accounts receivable sufficient cover probable reasonably estimable losses practical review collectibility account individually determine amount allowance doubtful accounts receivable period reserve reflects estimate accounts receivable believe uncollectible consider number factors establishing allowance portfolio customers including historical collection experience current economic trends estimates forecasted writeoffs agings accounts receivable portfolio factors inventories handsets wireless stated lower cost market determine cost firstin firstout fifo method handset costs excess revenues generated handset sales handset subsidies expensed time sale recognize expected handset subsidies prior time sale promotional discount decision made point sale andor expect recover handset subsidies service revenues inventories long distance local stated lower cost market property plant equipment record property plant equipment including improvements extend useful lives cost property plant equipment generally depreciated straightline basis estimated economic useful lives amortization assets recorded capital leases recorded depreciation expense amortize leasehold improvements shorter lease terms estimated useful lives assets depreciate buildings network equipment software estimated useful lives 31 years approximately 70 5 15 years office equipment depreciable property plant equipment estimated useful lives 30 years approximately 70 3 5 years repair maintenance costs expensed incurred calculate depreciation certain assets using group life method accordingly ordinary asset retirements disposals charged accumulated depreciation gain loss recognized capitalize costs network nonnetwork software developed obtained internal use application development stage costs included property plant equipment software placed service amortized estimated useful lives 10 years costs incurred preliminary project stage well maintenance training costs expensed incurred software projects development periodically assess probability deployment business determine impairment charge required since changes technology intended use assets well changes broad economic industry factors may cause estimated period use value assets change perform annual internal studies confirm appropriateness depreciable lives categories property plant equipment studies utilize models take account actual usage physical wear tear replacement history assumptions technology evolution use certain instances actuarially determined probabilities calculate remaining life asset base factors indicate property sprint nextel corporation notes consolidated financial statements continued plant equipment assets may useful long originally anticipated depreciate remaining book values remaining estimated useful lives 2004 extended depreciable life certain highcapacity transmission equipment eight years twelve years due slower anticipated evolution technology extension life decreased 2004 depreciation expense long distance approximately 74 million network equipment software includes switching equipment cell site towers base transceiver stations radio frequency equipment internal use software metallic cable wire facilities digital fiberoptic cable conduit poles central office transport facilities transmissionrelated equipment buildings improvements principally consists owned general office facilities leasehold improvements retail stores nonnetwork internal use software office equipment principally consists furniture information technology equipment vehicles network asset inventory construction progress primarily includes materials transmission related equipment labor engineering site development interest costs relating construction development network assets construction depreciated placed service gross property plant equipment aggregated business segment follows review longlived assets impairment whenever events changes circumstances indicate carrying amount may recoverable total expected undiscounted future cash flows less carrying amount assets loss recognized difference fair value carrying value assets impairment analyses performed based current business technology strategy views growth rates business anticipated future economic regulatory conditions expected technological availability asset retirement obligations accordance sfas 143 accounting asset retirement obligations record asset retirement obligation associated asset retirement cost legal obligation connection retirement tangible longlived assets adoption sfas 143 january 1 2003 affected cost removal historically recorded local segment consistent regulatory requirements industry practice local segment historically accrued costs removal depreciation reserves costs removal meet sfas 143 definition asset retirement obligation upon adoption sfas 143 recorded reduction historical depreciation reserves approximately 420 million remove accumulated excess cost removal resulting cumulative effect change accounting principle credit net tax accompanying consolidated statements operations 258 million sprint nextel corporation notes consolidated financial statements continued financial accounting standards board fasb interpretation 47 fin 47 accounting conditional asset retirement obligations issued 2005 interpreting application sfas 143 fin 47 requires recognition liability legal obligations perform asset retirement activity timing method settlement conditional future event adopted fin 47 fourth quarter 2005 resulting recognition asset retirement obligations local segment environmental remediation requirements contractual obligations estimated settlement dates determined asset retirement obligations comprised removal disposal asbestos company buildings removal environmental cleanup fuel storage tanks used standby power supply systems decommissioning leased building spaces asset retirement obligation exists recognized situations local granted easements rightsofway municipalities private landowners route cable facilities cable facilities buried however metallic fiber cable aboveground companyowned poles local also contracts utilities connect cable wire poles estimated settlement date obligations indeterminate upon adoption fourth quarter 2005 asset retirement obligation 33 million related asset 6 million cumulative adjustment due change accounting principle net tax 16 million recorded capitalized interest capitalized interest totaled 55 million 2005 57 million 2004 59 million 2003 capitalized interest incurred connection construction capital assets sfas 34 capitalization interest costs requires assets construction incurring interest cost payment cash incurrence interestbearing liability order qualify interest capitalization intangible assets goodwill indefinite life intangibles conformity sfas 142 goodwill intangible assets amortize indefinite life intangibles consist federal communications commission fcc licenses goodwill sprint boost mobile trade names required test assets impairment least annually whenever events changes circumstances indicate carrying amount may recoverable perform annual review impairment fourth quarter year using direct value method goodwill represents excess purchase price fair value net assets acquired business combinations accounted purchases virtually goodwill allocated wireless segment determine impairment goodwill comparing net assets reporting unit identified operating segments respective fair values event unit’s net assets exceed fair value implied fair value goodwill must determined assigning unit’s fair value asset liability unit excess fair value reporting unit amounts assigned assets liabilities implied fair value goodwill impairment loss measured difference goodwill carrying value implied fair value fcc licenses indefinite lived intangibles determine impairment comparing asset’s respective carrying value estimates fair value using direct value method requires use estimates judgments projections event impairment exists loss recognized based amount carrying value exceeds fair value asset accordance eitf issue 0207 unit accounting testing impairment indefinitelived intangible assets fcc licenses combined single unit accounting impairment testing purposes 2005 assisted annual impairment review independent third party valuation firm concluded december 31 2005 impairments existed sprint nextel corporation notes consolidated financial statements continued definite life intangibles definite life intangibles include value associated acquired wireless subscriber bases customer relationships nextel direct connectsm trade names value patents evaluate recoverability definite life intangible assets events circumstances indicate assets might impaired determine impairment comparing asset’s respective carrying value estimates sum future cash flows expected result asset undiscounted without interest charges carrying amount recoverable amount loss recognized based amount carrying value exceeds fair value asset customer relationships amortized estimated customer lives using sum years’ digits method believe best reflects estimated pattern economic benefits consumed definite life intangibles amortized estimated useful lives using straight line method derivative instruments hedging activities recognize derivative instruments either assets liabilities consolidated balance sheets measure instruments fair value accordance sfas 133 accounting derivative instruments hedging activities amended changes fair value derivatives recorded period current earnings comprehensive income loss depending use derivative whether qualifies hedge accounting use derivative instruments hedging risk management purposes hedging activity may done purposes mitigating risks associated asset liability committed transaction probable forecasted transaction primarily exposed market risk associated unfavorable movements interest rates equity prices foreign currencies enter derivative transactions speculative trading purposes inception ongoing basis assess whether derivative qualifies hedge accounting continues highly effective offsetting changes cash flows fair value hedged item derivative instrument longer expected highly effective hedge accounting discontinued hedge ineffectiveness included current period earnings formally document hedging relationships hedging instrument hedged item well risk management objectives strategies undertaking various hedge transactions restructuring employee severance costs june 2002 fasb issued sfas 146 accounting costs associated exit disposal activities standard provides accounting guidance liability cost associated exit disposal activity incurred adopted standard effective january 1 2003 restructuring activities occurring date employee termination benefits paid directly associated restructuring activities recorded accordance sfas 112 employers’ accounting postemployment benefits liabilities termination benefits provided employees recognized sfas 112 costs probable estimable debt financing costs amortize debt financing costs interest expense terms underlying obligations using effective interest method sprint nextel corporation notes consolidated financial statements continued note 2 business combinations 2005 acquired nextel communications us unwired gulf coast wireless iwo holdings transactions accounted purchase method required sfas 141 business combinations sfas 141 requires total purchase price acquired entities allocated assets acquired liabilities assumed based fair values respective merger dates allocation process requires analysis customer relationships acquired contractual rights assumed contractual commitments legal contingencies identify record fair value assets acquired liabilities assumed valuing acquired assets assumed liabilities fair values based limited quoted market prices available intent respect whether assets purchased held sold abandoned expected future cash flows current replacement cost similar capacity certain fixed assets market rate assumptions contractual obligations appropriate discount rates growth rates nextel communications inc august 12 2005 subsidiary sprint corporation merged nextel result sprint acquired 100 outstanding common shares nextel wholly owned subsidiary sprint nextel provides wireless voice data services united states transaction consummated part overall strategy offer comprehensive selection voice data multimedia products services results nextel’s operations included consolidated financial statements since merger date aggregate consideration paid merger follows expect spin local telecommunications business shareholders taxfree basis mitigate risk sprint nextel stock issued merger would preclude taxfree treatment ensure sprint corporation would treated acquiring entity accounting purposes merger agreement provided allocation cash shares sprint nextel common stock determined date merger ensure former nextel shareholders would slightly less 50 equity interests sprint nextel pursuant allocation nextel common shareholders received 969 million cash 1452 billion shares sprint nextel voting nonvoting common stock aggregate 084629198 126750218 shares stock exchange share nextel stock connection merger amended articles incorporation increase 65 billion number shares common stock authorized issuance value newly issued shares calculated using average per share closing sales prices sprint corporation series 1 common stock nyse period two business days two business days december 15 2004 announcement merger sprint nextel corporation notes consolidated financial statements continued addition nextel stockbased awards converted sprint nextel stockbased awards shares issuable employee stock option plan exercise prices awards adjusted based exchange ratio 13 shares sprint nextel common stock share nextel common stock represents approximately 104 million shares sprint nextel common stock aggregate value awards calculated applying fair value method sfas 123 amended sfas 148 resulted 11 billion stockbased awards fair value calculated stockbased awards outstanding date completion merger include options purchase shares deferred shares incurred approximately 78 million direct acquisition costs associated financial advisory legal services included total purchase price paid premium ie goodwill fair value net tangible identified intangible assets nextel number potential strategic financial benefits expected realized result merger including limited following • combination extensive network spectrum assets enables us offer consumers businesses government agencies wide array broadband wireless integrated communications services • combination nextel’s strength business government wireless services position consumer wireless data services including services supported global ip network enables us serve broader customer base • size scale combined company comparable two largest competitors expected enable operating efficiencies either company could achieve • ability position us strategically fastest growing areas communications industry allocation purchase price approach estimation fair values nextel intangible assets primarily based income approach valuation technique involved following • preparation discounted cash flow analyses • determination fair value identified significant intangible assets • reconciliation individual assets’ returns weighted average cost capital • allocation excess purchase price fair values identifiable assets liabilities acquired goodwill purchase method accounting assets liabilities nextel recorded respective fair values date merger process finalizing valuations assets including investments property plant equipment intangible assets certain liabilities given size merger fair values set forth based preliminary valuations subject adjustment additional information obtained additional information includes may limited following valuations property plant equipment plans relative disposition certain assets acquired exit certain contractual arrangements expected involuntary termination employees connection integration activities rationalization combined work force finalized adjustments goodwill sprint nextel corporation notes consolidated financial statements continued may result following table summarizes preliminary estimated fair values assets acquired liabilities assumed related deferred income taxes acquisition date amounts reported september 30 2005 reflect estimated fair values acquisition date august 12 2005 plus adjustments made third quarter 2005 adjustments listed table include purchase price allocation adjustments made fourth quarter 2005 fourth quarter 2005 net increase made goodwill amount 24 million primarily due adjustments liabilities connection merger includes recognition involuntary termination benefits costs associated termination contracts exit activities rationalization property plant equipment identification loss contingencies existence prior consummation merger prior end purchase price allocation period information becomes available respect material premerger contingencies related asset liability impairment probable amount reasonably estimated items included purchase price allocation management continues finalize plans rationalizing certain redundant assets activities facilities software infrastructure assets integrate combined companies plans affect many areas combined company including sales marketing network information technology customer care general administrative functions connection activities expect incur significant costs next several years associated dispositions integration activities management process finalizing plans expects execute plans next years expect finalization certain integration plans result adjustments purchase price allocation acquired assets assumed liabilities nextel may also result need adjust useful lives certain network property plant equipment 2005 recorded 197 million costs recognized eitf issue 953 recognition liabilities connection purchase business combination well purchase accounting guidance liabilities assumed purchase business combination costs primarily associated nextel employee retention bonuses earned date merger severance benefits involuntary separations nextel employees additional liabilities termination benefits provided involuntarily separated nextel employees expected recognized liabilities assumed purchase business combination sprint nextel corporation notes consolidated financial statements continued property plant equipment acquired fair values preliminarily allocated property plant equipment acquired merger follows weighted average remaining useful lives 6 years network assets 3 years building improvements 2 years nonnetwork internal use software office equipment assets goodwill intangibles acquired goodwill resulting merger nextel allocated wireless segment goodwill includes portion value assembled workforce separately classified goodwill accordance sfas 141 goodwill spectrum licenses boost mobile trademark considered indefinite lives amortized rather reviewed annually impairment frequently indicators impairment exist definite life intangibles include 95 billion associated nextel’s customer relationships amortized five years using sum years’ digits method believe approximately reflects estimated pattern economic benefits consumed definite life intangibles primarily include nextel direct connectsm trademarks amortized 10 years straightline basis see note 7 information regarding amortization expense assets accordance sfas 109 accounting income taxes deferred income tax liability recorded goodwill since tax deductible deferred income tax liabilities recorded net assets acquired reverse tax benefit accompanying consolidated statements operations proportion amortization period related intangibles upon writeoff disposition longterm debt assumed fair value longterm debt assumed merger date follows sprint nextel corporation notes consolidated financial statements continued pro forma financial information following pro forma consolidated results operations assume merger nextel completed january 1 2005 2004 years ended december 31 2005 2004 respectively pro forma amounts represent historical operating results sprint nextel adjustments purchase accounting conform accounting policies affect net operating revenues costs services products selling general administrative expenses depreciation amortization interest expense income expense income taxes elimination intercompany activity affiliate acquisitions 2005 acquired three pcs affiliates believe acquisitions nextel partners pcs affiliates acquired date give us control distribution services sprint nextel brands provide us strategic financial benefits associated larger customer base expanded network coverage include number markets favorable growth competitive characteristics us unwired inc august 12 2005 acquired us unwired pcs affiliate purchase price 968 million cash december 31 2005 majority purchase price preliminarily allocated goodwill amount 872 million customer relationships amount 276 million see note 7 information regarding amortization expense customer relationships process completing valuation us unwired’s assets liabilities well internal studies assets property plant equipment intangible assets certain liabilities commercial contracts final may result additional adjustments purchase price allocation acquired assets assumed liabilities us unwired gulf coast wireless limited partnership october 3 2005 acquired gulf coast wireless pcs affiliate 211 million cash net 134 ownership interest held us unwired inc december 31 2005 majority purchase price preliminarily allocated intangible assets including goodwill amount 220 million customer relationships 48 million see note 7 information regarding amortization expense customer relationships process completing valuation gulf coast wireless’ assets liabilities well internal studies assets property plant equipment intangible assets certain liabilities commercial contracts final may result additional adjustments purchase price allocation acquired assets assumed liabilities gulf coast wireless iwo holdings inc october 20 2005 acquired iwo holdings pcs affiliate 192 million cash december 31 2005 excess purchase price fair value net assets acquired preliminarily allocated sprint nextel corporation notes consolidated financial statements continued intangible assets including goodwill amount 249 million customer relationships 94 million see note 7 information regarding amortization expense customer relationships process completing valuation iwo holdings’ assets liabilities well internal studies assets property plant equipment intangible assets certain liabilities commercial contracts final may result additional adjustments purchase price allocation acquired assets assumed liabilities iwo holdings results operations 2005 affiliate purchase acquisitions included consolidated financial statements respective dates acquisition pro forma information provided 2005 affiliate acquisitions impact prior periods would immaterial acquisitions subsequent december 31 2005 january 31 2006 completed acquisition enterprise communications partnership pcs affiliate 77 million cash february 1 2006 completed acquisition alamosa holdings inc largest pcs affiliate 34 billion cash february 21 2006 acquired 94 voting stock velocita wireless holding corporation 157 million cash expect acquire remaining 6 velocita wireless may 2006 additional 7 million cash velocita wireless owns operates nationwide digital packetswitched wireless data network 900 mhz frequency band note 3 recombination tracking stock april 23 2004 recombined two tracking stocks share pcs common stock automatically converted 050 shares fon common stock conversion pcs common stock fon common stock resulted increase fon common stock outstanding 5185 million shares april 23 2004 april 23 2004 fon group pcs group ceased exist common stock represents operations assets including wireless long distance local operations financial statements shown recombination occurred earliest period presented earnings per common share 2003 per share amounts restated reflect recombination fon common stock pcs common stock identical conversion ratio 050 conversion ratio also applied dilutive pcs securities mainly stock options employee stock purchase plan shares convertible preferred stock restricted stock units determine diluted weighted average shares consolidated basis sprint nextel corporation notes consolidated financial statements continued following previously reported earnings per common share information fon group pcs group 1 effects including potentially dilutive pcs securities antidilutive included diluted weighted average common shares outstanding pcs group included calculation diluted earnings per common share 2 earnings per common share amounts may add due rounding sprint nextel corporation notes consolidated financial statements continued note 4 supplemental balance sheet information sprint nextel corporation notes consolidated financial statements continued note 5 investments specific investment types related carrying amounts include investments debt securities investments debt securities including auction rate securities original remaining maturities purchase greater 90 days less one year classified current assets marketable securities accompanying consolidated balance sheets also invested debt securities original remaining maturities purchase 90 days less securities included cash equivalents accompanying consolidated balance sheets interest debt securities reinvested recognized interest income accompanying consolidated statements operations recognized approximately 96 million interest income investments 2005 compared 11 million 2004 accumulated unrealized holding gains losses immaterial 2005 2004 investments equity securities december 31 2005 617 million marketable equity securities relates investment nii holdings inc common stock reflected current assets marketable securities accompanying consolidated balance sheets acquired investment part merger nextel third quarter 2005 fair value 892 million 2005 received approximately 376 million cash recognized 15 million gain sale portion holdings nii holdings common stock continue hold 147 million shares following twoforone stock split november 2005 less 10 outstanding common stock nii holdings entered series option contracts associated planned sale remaining investment nii holdings mature fourth quarter 2006 see note 12 additional information 2005 connection maturity remaining earthlink variable prepaid forward contracts 105 million shares earthlink common stock used settle approximately 90 million forward contracts recorded outstanding longterm debt recognized 9 million gain transactions 2004 connection maturity certain earthlink variable prepaid forward contracts 56 million shares used settle approximately 48 million forward contracts recorded outstanding longterm debt sold additional 10 million shares open market upon settlement contracts recognized 11 million gain transactions december 31 2005 held 18 million shares earthlink common stock valued 20 million see note 12 additional information sprint nextel corporation notes consolidated financial statements continued hold approximately 97 million investments december 31 2005 included investments accompanying consolidated balance sheets accumulated unrealized holding gains net tax resulting investments equity securities 90 million december 31 2005 42 million december 31 2004 included accumulated comprehensive loss accompanying consolidated balance sheets equity method investments december 31 2005 investments accounted using equity method consisted primarily investments nextel partners virgin mobile usa llc investments reflected investments accompanying consolidated balance sheets nextel partners inc owned approximately 30 outstanding common stock nextel partners carrying value 23 billion december 31 2005 recorded 137 million equity earnings associated ownership interest nextel partners majority related release nextel partners significant portion deferred tax valuation allowance result merger nextel shareholders nextel partners october 2005 exercised right require us purchase fair market value 70 outstanding shares nextel partners stock already december 2005 nextel partners announced purchase price share nextel partners stock right determined 2850 result aggregate amount payable shareholders nextel partners closing 65 billion including amounts payable upon conversion debt securities settlement options purchase subject customary regulatory approvals currently expected completed end second quarter 2006 virgin mobile usa llc december 31 2005 held 49 ownership interest virgin mobile usa since virgin mobile usa’s inception contributed approximately 180 million venture form cash discounted network services thereby satisfying 100 original commitments 2004 advanced 10 million virgin mobile usa form loan repaid 2005 additional 10 million advanced form loan january 2005 applying equity method accounting recognized losses extent investment except terms joint venture agreement guaranteed 20 million distribution event liquidation july 2005 received approximately 200 million virgin mobile usa representing loan repayment 20 million return capital 180 million resulting negative investment balance 180 million december 31 2005 virgin mobile usa funded distribution proceeds loan although obligation provide future funding joint venture return distribution accounted return capital negative investment result repayment terms joint venture agreement longer hold right guaranteed distribution liquidation investment virgin mobile usa 20 million december 31 2004 rogers communications inc july 2005 rogers communications inc rci acquired callnet enterprises inc stock transaction including common shares class b shares callnet owned us prior callnet’s sprint nextel corporation notes consolidated financial statements continued acquisition rci accounted investment callnet equity method investment carried zero basis previously recognized carryover losses rci stock received exchange recorded fair value equity security investment gain 18 million recognized subsequent changes value investment recorded comprehensive income combined unaudited summarized financial information reported investees accounted using equity method follows carrying amount investment nextel partners exceeds amount underlying equity net assets 21 billion due purchase price accounting applied time sprintnextel merger difference principally related customer relationships spectrum licenses goodwill customer relationship portion amortized seven years using sum years digits’ method portion related spectrum licenses goodwill amortized note 6 fair value financial instruments determined estimated fair values financial instruments using available market information appropriate valuation methodologies however considerable judgment required interpreting market data develop fair value estimates result estimates presented necessarily indicative amounts could realize required pay current market exchange use different market assumptions well estimation methodologies may material effect estimated fair value amounts sprint nextel corporation notes consolidated financial statements continued carrying amounts estimated fair values financial instruments yearend follows cash equivalents marketable securities restricted cash accounts receivable deposits accounts payable accrued expenses due short term nature items carrying amounts reasonable estimates fair value marketable debt equity securities estimate fair value securities based quoted market prices december 31 2005 2004 marketable debt equity securities included within marketable securities investments consist following longterm debt fair value longterm debt including current portion estimated based available market prices senior notes loans bank credit facility derivative instruments fair value instruments based estimates using available market information appropriate valuation methodologies see note 12 additional information redeemable preferred stock estimate fair value securities using available market data value debt instrument embedded optionality letters credit outstanding letters credit totaled 26 billion december 31 2005 123 million december 31 2004 pursuant terms report order described note 15 required establish sprint nextel corporation notes consolidated financial statements continued letter credit amount 25 billion provide assurance funds available pay relocation costs incumbent users 800 mhz spectrum connection band reconfiguration process obtained letter credit using borrowing capacity nextel’s existing revolving credit facility continues supported new credit facility entered december 2005 letter credit reflects fair value condition underlying purpose subject fees competitively determined market place also use letters credit provide credit support various financial obligations concentrations risk accounts receivable subject concentration credit risk exposed risk loss would occur counterparty defaults derivative transaction used hedging risk management purposes exposure controlled credit approvals continual review monitoring counterparties legal review contracts event nonperformance counterparties accounting loss would limited net amount would entitled receive terms applicable interest rate swap agreement foreign currency contract however anticipate nonperformance counterparties contracts rely motorola inc provide us technology improvements designed expand idenbased wireless voice capacity improve services motorola provides iden infrastructure equipment used iden network substantially iden handset devices motorola expected continue sole source supplier iden infrastructure iden handsets except blackberry® devices manufactured research motion rim ability timely efficiently implement spectrum reconfiguration plan connection fcc’s report order dependent part motorola note 7 intangible assets indefinite life intangibles identified goodwill spectrum licenses sprint boost mobile trademarks indefinite life intangibles considering expected use assets regulatory economic environment within used effects obsolescence use sprint nextel corporation notes consolidated financial statements continued substantially goodwill allocated wireless segment goodwill includes portion value assembled workforce separately classified goodwill accordance sfas 141 changes carrying value goodwill follows hold several kinds licenses deploy services 19 gigahertz ghz pcs licenses utilized cdma network 800 megahertz mhz 900 mhz licenses utilized iden network 25 ghz licenses use first generation wireless internet access services also hold 25 ghz 19 ghz fcc licenses currently utilize networks operations long act within requirements constraints regulatory authorities renewal extension licenses reasonably certain minimal cost spectrum licenses authorize wireless carriers use radio frequency spectrum renewable reusable resource deplete exhaust time present competing technology horizon would render spectrum obsolete currently changes competitive legislative environments would put question future need spectrum licenses sprint boost mobile trademarks highly respected brands positive connotations legal regulatory contractual limitations associated trademarks cultivate protect use brands definite life intangibles definite life intangibles consist primarily customer relationships 95 billion acquired merger nextel customer relationships amortized three five years using sum years’ digits method believe best reflects estimated pattern economic benefits consumed definite life intangibles primarily include nextel direct connectsm trade names amortized 10 years straightline basis based definite life intangibles december 31 2005 amortization expense 32 billion 2006 25 billion 2007 18 billion 2008 11 billion 2009 05 billion 2010 spectrum reconfiguration obligations february 7 2005 nextel accepted terms conditions report order fcc implemented spectrum reconfiguration plan designed eliminate interference public safety operators 800 mhz band terms report order prior august 12 2005 merger date nextel surrendered spectrum rights 700 mhz spectrum band certain portions spectrum rights 800 mhz band received spectrum rights 19 ghz band spectrum rights different part 800 mhz band undertook pay costs incurred nextel third parties connection reconfiguration plan based fcc’s determination values spectrum rights received relinquished nextel minimum obligation incurred report order 28 billion report order also provides qualifying costs incur part reconfiguration plan including costs reconfigure infrastructure spectrum positions used offset minimum obligation 28 billion however obligated pay full amount costs relating reconfiguration plan even costs exceed amount sprint nextel corporation notes consolidated financial statements continued report order requires us complete reconfiguration plan within 36month period subject certain exceptions particularly respect markets border mexico canada result events within control fail complete reconfiguration plan within 36month period could subject actions could material addition financial reconciliation required completed 2008 end reconfiguration implementation time required make payment us department treasury extent value spectrum rights received exceeds total value spectrum rights surrendered ii qualifying costs referred august 12 2005 recorded liability 403 million associated thenestimated portion reconfiguration costs represented best estimate amounts paid report order would benefit infrastructure spectrum positions december 31 2005 reduced estimate 137 million reduction goodwill reflect updated estimates costs incurred pursuant report order relate spectrum infrastructure expended accounted either property plant equipment additions spectrum license intangible asset consistent accounting capitalization policy certain reconfiguration costs submit fcc appointed transition administrator seeking credit 28 billion obligation based estimated allocations reconfiguration activity normal network growth estimated allocations may vary depending key assumptions including subscribers call volumes factors life reconfiguration program result amount allocated reconfiguration activity subject change based final assessments made conclusion reconfiguration program process since transition administrator fcc yet reached agreement methodology calculating amount submitted credit cannot provide assurance granted full credit certain network costs note 8 restructuring asset impairments organizational realignment late 2003 initiated companywide effort create efficient cost structure realigning internal resources enhance focus needs preferences two distinct consumer typesbusinesses individuals conjunction marketfacing realignment also undertook initiatives improve productivity recognized related pretax charges 59 million 2003 130 million 2004 primarily associated severance benefits associated involuntary employee separation approximately 5400 employees completed substantially activities related realignment fourth quarter 2005 completed analysis finalize original estimates analysis resulted 11 million reduction liabilities remaining 6 million commitment reclassified current liabilities web hosting winddown 2003 announced winddown web hosting services offered long distance decision resulted 316 million pretax charge asset impairments winddown along related restructurings long distance operations also resulted pretax charges 60 million 2003 63 million 2004 9 million 2005 primarily related facility lease terminations december 31 2005 substantially activities associated winddown completed however continue obligated facility leases expire 2007 2014 wireless billing platform termination 2003 announced termination development new billing platform wireless decision resulted pretax charges 351 million consisting 339 million asset impairments 12 million sprint nextel corporation notes consolidated financial statements continued contractual obligations 2004 recorded expense reduction 2 million result finalizing contractual obligations associated action 2005 2004 2003 restructuring activity summarized follows note 2003 also finalized estimates related prior years’ restructuring activities resulting 52 million reduction liabilities reclassification remaining liabilities current liabilities sprint nextel corporation notes consolidated financial statements continued asset impairments 2005 incurred 77 million asset impairment related writeoff removal service certain internaluse software systems longer utilized local also incurred 19 million asset impairments related hurricane damage substantially recovered insurance carriers also 2005 recorded 50 million asset impairments related writedown various software applications 2004 determined business conditions events occurring 2004 impacting long distance operations constituted “triggering event” requiring evaluation recoverability long distance longlived assets pursuant sfas 144 accounting impairment disposal longlived assets industrywide business conditions events included continuing impacts highlycompetitive long distance market related aggressive pricing recent changes regulatory climate negatively impacting longterm ability long distance bridge last mile consumer small business market segments product substitution customers’ accelerated demands costeffective advanced ipdriven telecommunications solutions requiring transparent wireline wireless connectivity light industrywide business conditions events reevaluated strategy financial forecasts 2004 evaluations asset recoverability performed lowest asset group level identifiable cash flows largely independent cash flows assets asset groups due integrated nature long distance network conducted testing asset group long distance entity level excluding assets held sale lowest level identifiable cash flows available concluded fiberoptic backbone constituted primary asset long distance asset group accordingly cash flows projected remaining useful life fiberoptic backbone cash flow projections reflect estimated future operating results considering relevant circumstances events estimated capital expenditures required maintain increase service potential asset group resulting undiscounted future cash flows less carrying value long distance asset group requiring asset group reduced fair value fair value asset group determined discounting cash flow projections 10 discount rate reflecting riskadjusted weighted average cost capital resulting fair value asset group required 352 billion pretax noncash impairment charge reducing net carrying value long distance property plant equipment 60 229 billion september 30 2004 also 2004 completed sale wholesale dial ip business 34 million resulting pretax noncash charge 21 million 2003 recorded pretax noncash charge 12 billion related writedown carrying value brs spectrum evaluation business use asset resulted decision end pursuit residential fixed wireless strategy decision required impairment analysis asset result merger increased brs spectrum holdings intend use spectrum combination spectrum holdings offer wireless interactive multimedia services sprint nextel corporation notes consolidated financial statements continued note 9 longterm debt capital lease obligations longterm debt capital lease obligations yearend follows senior notes december 31 2005 214 billion principal amount convertible senior serial redeemable notes balance primarily consists newly acquired debt merger nextel 58 billion acquisition pcs affiliates 659 million existing debt one subsidiaries 149 billion cash interest notes payable semiannually arrears may choose redeem notes applicable redemption price plus accrued unpaid interest 607 million aggregate principal amount 525 notes convertible option holders series 1 common stock time prior redemption repurchase maturity effective conversion price 5723 per share december 31 2005 senior notes also included 130 million debt associated consolidated variable interest entity weighted average effective interest rate related borrowings 70 yearended december 31 2005 71 yearended 2004 effective interest rate includes effect interest rate swap agreements accounted fair value hedges see note 12 details regarding interest rate swaps february 2006 completed redemption outstanding 95 senior redeemable notes due 2011 85 million aggregate principal amount outstanding december 31 2005 december 31 2005 recorded 93 million restricted cash prepaid expenses current assets satisfy obligation sprint nextel corporation notes consolidated financial statements continued bank credit facilities december 31 2005 bank credit facilities provide total unsecured financing capacity 102 billion borrowed 32 billion 25 billion outstanding letters credit resulting 45 billion available revolving credit december 19 2005 entered new bank credit facility consisting five year 60 billion revolving credit facility 364 day 32 billion term loan total unsecured financing capacity 92 billion terms new loan interest rate equates london interbank offered rate libor prime rate plus spread varies depending applicable borrower’s guarantor’s credit ratings 60 billion revolving credit facility also subject facility fee total facility payable quarterly facility fees vary 4 15 basis points based upon credit ratings facility replaces existing nextel credit agreement included 40 billion revolving credit facility 22 billion term loan connection execution new credit agreement 32 billion term loan used refinance outstanding term loan revolving credit loans existing nextel credit agreement terminated connection entering new credit agreement transaction related term loan accounted modification debt accordance eitf issue 9619 debtor’s accounting modification exchange debt instruments terms new loan substantially different terms original loan thus 15 million unamortized premium associated original 22 billion loan amortized remaining life new loan refinancing revolving credit facility accounted accordance eitf issue 9814 debtor’s accounting changes lineofcredit revolvingdebt arrangements borrowing capacity new facility greater borrowing capacity original facility unamortized discount plus debt issue costs deferred amortized remaining term new facility thus 9 million unamortized discount 4 million debt issue costs amortized remaining life new facility 25 billion letters credit outstanding nextel credit agreement remain outstanding new 60 billion revolving credit facility also additional 118 million outstanding letters credit december 31 2005 used various financial obligations credit facility requires compliance financial ratio test defined credit agreement maturity dates loans may accelerate comply financial ratio test december 31 2005 compliance financial ratio test credit facility also obligated repay loans certain change control events occur borrowings facility unsecured ability borrow additional amounts credit facility may restricted provisions included public notes limit incurrence additional indebtedness certain circumstances availability borrowings facility also subject satisfaction waiver specified borrowing conditions december 31 2005 satisfied conditions facility credit facility also contains covenants limit ability subsidiaries incur additional indebtedness including guaranteeing obligations entities creating liens consolidating merging selling substantially assets entering transactions affiliates although covenants similar contained previous credit facility revised new credit facility provide us greater operating flexibility sprint nextel corporation notes consolidated financial statements continued june 2005 entered revolving credit facility 10 billion facility unsecured structured 364day credit line subsequent oneyear 10 billion termout option connection execution new credit agreement december 16 2005 amended facility allow nextel participate new facility outstanding borrowings facility december 31 2005 debentures december 31 2005 400 million principal amount debentures balance comprised 50 million principal amount 675 debentures due 2013 150 million principal amount 900 debentures due 2019 200 million principal amount 925 debentures due 2022 cash interest debentures payable semiannually arrears debentures redeemable prior maturity mortgage bonds december 31 2005 465 million first mortgage bonds cash interest bonds payable semiannually arrears bonds made redeemable nonredeemable bonds secured 136 billion gross property plant equipment capital lease obligations december 31 2005 163 million capital lease obligations primarily use communication switches secured 415 million gross property plant equipment december 2005 terminated two accounts receivable asset securitization facilities provided us 12 billion additional liquidity neither facility outstanding balance terminated scheduled expire 2006 indentures financing agreements certain subsidiaries contain provisions limiting cash dividend payments subsidiary common stock held us result 432 million subsidiaries’ 27 billion total retained earnings restricted december 31 2005 flow cash form advances subsidiaries us generally restricted currently compliance restrictive financial covenants associated borrowings provision indebtedness requires repayment event downgrade ratings service 2004 retirements 2004 purchased retired total 14 billion senior notes scheduled maturities exchange cash result recorded loss due premium paid 60 million wroteoff 12 million unamortized debt costs associated repayment also paid 13 million cash complete early buy certain capital lease obligations 2003 retirements 2003 purchased retired 15 billion longterm debt scheduled maturities prepayments consisted current maturities 300 million export development canada loan interest rate 28 34 million senior notes interest rates ranging 57 59 prepayments sprint nextel corporation notes consolidated financial statements continued also included 84 million local’s first mortgage bonds interest rates ranging 91 93 maturity dates ranging 2019 2021 recorded loss due premium paid 2 million associated prepayments also completed tender offer purchase 11 billion principal amount senior notes scheduled maturities notes interest rates ranging 57 59 maturity dates ranging 2003 2004 loss recorded due premium paid 19 million associated prepayments future maturities longterm debt capital lease obligations years subsequent december 31 2005 scheduled annual principal payments longterm debt including bank credit facility capital lease obligations outstanding december 31 2005 follows included schedule payments made connection various capital lease obligations substantial portion capital lease payments japanese yen already satisfied obligation depositing present value future yen payment obligations various banks amounts included accompanying consolidated balance sheet assets note 10 equity unit notes 2001 completed registered offering 69 million equity units stated amount 25 equity unit initially consisted corporate unit corporate unit consisted forward purchase contract 25 principal amount senior notes whollyowned subsidiary sprint capital corporation corporate unit could converted holder treasury unit consisting forward purchase contract treasury portfolio zerocoupon us treasury securities substituting treasury securities notes underlying notes treasury portfolio pledged us secure holder’s obligations forward purchase contract forward purchase contract component equity units forward purchase contracts originally obligated holders purchase obligated us sell august 17 2004 variable number newly issued shares pcs common stock became fon common stock result recombination forward purchase contracts included provision permitting equity unit holders benefit “participate” dividends declared common stock contract period august 17 2004 forward purchase contracts settled issuance approximately 35 million shares fon common stock exchange 17 billion cash sprint nextel corporation notes consolidated financial statements continued notes originally issued part equity units interest rate 60 notional amount 17 billion may 2004 purchased 750 million principal amount notes scheduled maturity result recognized 29 million loss income due premium paid writeoff unamortized debt issuance costs interest rate notes reset 48 may 24 2004 successful remarketing notes longer pledged secure obligations original forward purchase contracts december 31 2005 880 million remarketed notes due august 2006 included current portion longterm debt capital lease obligations accompanying consolidated balance sheets note 11 seventh series redeemable preferred stock redeemable preferred stock outstanding yearend follows seventh series preferred stock currently convertible approximately 325 shares voting common stock seventh series share seventh series preferred stock mandatorily redeemable november 2008 stated value plus accrued unpaid dividends february 28 2006 notices sent holders seventh series preferred stock intent redeem preferred stock expect close march 31 2006 redemption price 1000 per outstanding share plus accumulated unpaid dividends note 12 derivative instruments hedging activities risk management policies derivative instruments typically include interest rate swaps stock warrants option contracts foreign currency forward option contracts primarily use derivative transactions hedge exposure market risks associated unfavorable movements interest rates equity prices foreign currencies board directors authorized us enter derivative transactions comply risk management policies interest rate risk changes interest rates could adversely affect earnings cash flows specific interest rate risks include risk increasing interest rates shortterm debt risk increasing interest rates planned new fixed rate longterm financing risk increasing interest rates planned refinancings using longterm fixed rate debt exposure strategic investments companies includes risk unfavorable changes market prices could adversely affect earnings cash flows may also obtain equity rights companies usually form warrants purchase common stock companies equity rights typically obtained connection commercial agreements strategic investments sprint nextel corporation notes consolidated financial statements continued foreign exchange risk management program focuses reducing transaction exposure optimize consolidated cash flow enter forward option contracts foreign currencies reduce impact changes foreign exchange rates primary transaction exposure results net payments made received overseas telecommunications companies completing international calls made domestic customers operations international subsidiaries interest rate swaps december 31 2005 held fair value interest rate swaps notional value 1 billion swaps entered hedges fair value portion senior notes interest rate swaps maturities ranging 2008 2012 semiannual basis pay floating rate interest equal sixmonth libor plus fixed spread receive average interest rate equal coupon rates stated underlying senior notes december 31 2005 rate would pay averaged 70 rate would receive 72 interest rate swaps meet required criteria sfas 133 accounting derivative instruments hedging activities amended order apply shortcut method accounting instruments shortcut method assume interest rate swaps perfectly effective hedging interest rate risk result recognize changes fair values instruments accumulated comprehensive loss consolidated balance sheets impact earnings life swap held fairvalue hedges 2005 2004 interest rate swap activity generated net liability 18 million december 31 2005 compared net asset 19 million december 31 2004 resulting changes fair value interest rate swaps deemed perfectly effective offset recorded underlying longterm debt fourth quarter 2005 entered series interest rate collars associated anticipated issuance debt local time expected spinoff 2006 collars designated cash flow hedges local’s standalone financial statements variability interest payments would result change interest rates debt issued time spinoff however forecasted interest payments debt occur subsidiary spunoff derivative instruments qualify hedge accounting treatment consolidated financial statements changes fair value instruments recognized earnings period change fourth quarter 2005 fair value derivatives decreased resulting pretax loss 18 million december 31 2005 stock warrants stock warrants designated hedging instruments changes fair value derivative instruments recognized earnings period change net derivative gains stock warrants immaterial periods presented equity options also entered series option contracts associated investment nii holdings inc first contracts designated hedging instrument changes fair value derivative instrument recognized earnings period change fair value instrument resulted pretax loss 9 million december 31 2005 remaining instruments designated cash flow hedges meet required criteria sfas 133 derivative implementation group issue g20 assessing measuring effectiveness purchased option used cash flow hedge order assume option contracts perfectly effective hedging market risk associated investment nii holdings result recognize changes fair values remaining sprint nextel corporation notes consolidated financial statements continued instruments accumulated comprehensive loss consolidated balance sheets impact earnings life hedging relationship changes fair value instruments resulted unrealized loss 16 million december 31 2005 unrealized losses included accumulated comprehensive loss consolidated balance sheets derivative instruments settled december 31 2006 net purchased equity options embedded variable prepaid forward contracts designated cash flow hedges 2005 used 105 million shares earthlink common stock settle prepaid forward contracts resulted 9 million pretax gain variable prepaid forward contracts outstanding december 31 2005 foreign currency forward option contracts foreign currency forward option contracts held 2005 2004 designated hedges defined sfas 133 accounting derivative instruments hedging activities amended changes fair value derivative instruments recognized earnings period change activity associated contracts immaterial periods presented note 13 income taxes income tax expense benefit allocated continuing operations consists following differences caused effective income tax rates vary 35 federal statutory rate income taxes related continuing operations follows sprint nextel corporation notes consolidated financial statements continued income tax expense benefit allocated items follows 1 amounts recorded directly shareholders’ equityaccumulated comprehensive income loss accompanying consolidated balance sheets 2 amounts recorded directly shareholders’ equitypaidin capital accompanying consolidated balance sheets recognize deferred income taxes temporary differences carrying amounts assets liabilities financial statement purposes tax bases sources differences give rise deferred income tax assets liabilities yearend 2005 2004 along income tax effect follows foreign income loss included income loss continuing operations totaled 27 million 2005 203 million 2004 141 million 2003 material unremitted earnings foreign subsidiaries sprint nextel corporation notes consolidated financial statements continued 2005 acquired approximately 28 billion potential income tax benefits related net operating loss carryforwards capital loss carryforwards tax credit carryforwards nextel pcs affiliates acquisitions 1999 acquired approximately 193 million potential tax benefits related net operating loss carryforwards acquisitions broadband fixed wireless companies 1998 acquired approximately 229 million potential tax benefits related net operating loss carryforwards controlling interest acquisition wireless joint venture call pcs restructuring benefits acquisitions subject certain realization restrictions various tax laws december 31 2005 valuation allowance 820 million remains deferred tax benefits valuation allowance provided subsequently recognized first reduce goodwill intangibles resulting application purchase method accounting transactions goodwill intangibles related acquisition reduced zero additional tax benefits recognized would reduce tax expense connection pcs restructuring required reimburse former cable company partners joint venture net operating loss tax credit carryforward benefits generated pcs restructuring realization us produces cash benefit would otherwise realized reimbursement equal 60 net cash benefit received us made former cable company partners shares stock unexpired carryforward benefits subject requirement total 202 million december 31 2005 federal operating loss carryforwards approximately 70 billion state operating loss carryforwards approximately 127 billion related loss carryforwards federal tax benefits 25 billion state tax benefits 872 million addition available income tax purposes federal alternative minimum tax net operating loss carryforwards 55 billion state alternative minimum tax net operating loss carryforwards 11 billion loss carryforwards expire varying amounts 2025 also available capital loss carryforwards approximately 12 billion related capital loss carryforwards tax benefits 431 million included capital loss carryforward amount 966 million expires 2006 remaining capital loss carryforward expires varying amounts 2009 also available 556 million federal state income tax credit carryforwards december 31 2005 included amount 350 million income tax credits expire varying amounts 2025 remaining 206 million expire valuation allowance related deferred income tax assets increased 401 million 2005 increased 50 million 2004 2005 increase primarily related nextel pcs affiliate acquisitions management believes likely deferred income tax assets net valuation allowance realized based current income tax laws expectations future taxable income stemming reversal existing deferred tax liabilities ordinary operations uncertainties surrounding income tax law changes shifts operations state taxing jurisdictions future operating income levels may however affect ultimate realization deferred income tax assets evaluated qualitative factors uncertainties concerning industry found provide continuing evidence requiring valuation allowance currently recognize related realization tax benefit net operating loss tax credit carryforwards december 31 2005 additionally establish reserves despite belief tax return positions fully supportable certain positions could challenged positions may fully sustained note 14 discontinued operations 2002 reached definitive agreement sell directory publishing business held local segment rh donnelley 22 billion cash sale closed january 3 2003 pretax gain recognized 2003 21 billion 13 billion tax accordance sfas 144 accounting impairment sprint nextel corporation notes consolidated financial statements continued disposal longlived assets presented results operations directory publishing business discontinued operation accompanying consolidated financial statements summary financial information follows prior years reported cash flows attributable discontinued operations combined basis single amount 2005 cash flows longer reported single amount combined cash flows continuing operations note 15 commitments contingencies litigation claims assessments 2005 several pcs affiliates filed lawsuits various courts alleging merger sprint nextel would result breaches exclusivity provisions management agreements subsidiaries suits brought ubiquitel operating company ipcs wireless inc horizon personal communications inc bright personal communications services llc subsidiaries ipcs wireless northern pcs services llc lawsuits seek among things enjoin us engaging certain postmerger business conduct respective service areas pcs affiliates unspecified damages caused alleged breach ubiquitel horizon personal communications bright personal communications services entered forbearance agreements us governing certain business practices addressed litigation decision rendered trial court lawsuits subsidiaries intend defend lawsuits vigorously march 2004 eight purported class action lawsuits relating recombination tracking stocks filed us directors holders pcs common stock seven lawsuits consolidated district court johnson county kansas eighth pending new york voluntarily stayed consolidated lawsuit alleges breach fiduciary duty connection allocations wireline operations wireless operations recombination tracking stocks breach fiduciary duty recombination lawsuit seeks rescind recombination monetary damages early 2005 court denied defendants’ motion dismiss complaint discovery proceeding defendants denied plaintiffs’ allegations intend defend matter vigorously 2003 certain participants sprint nextel retirement savings plan sprint nextel centel retirement savings plans bargaining unit employees filed suit us district court district kansas us committees administer plans plan trustee various current former directors officers consolidated lawsuit alleges defendants breached fiduciary duties plans violated employee retirement income security act 1974 erisa statutes making company matching contribution company stock including company stock among thirty investment options offered plan participants lawsuit seeks recover decline value tracking stocks class period settlement agreement filed court subject final court approval settlement calls us make certain changes savings plans allow vesting certain sprint nextel stock accounts certain former employees distribute 4 million cash former employees longer accounts savings plans insurance coverage cash component settlement sprint nextel corporation notes consolidated financial statements continued september 2004 us district court district kansas denied motion dismiss shareholder lawsuit alleging 2001 2002 proxy statements false misleading violation federal securities laws extent described new employment agreements certain senior executives without disclosing according allegations replacement executives inevitable allegations made amended complaint lawsuit originally filed 2003 asserted us certain current former officers directors seek recover decline value tracking stocks class period parties stipulated case proceed class action defendants denied plaintiffs’ allegations intend defend matter vigorously allegations original complaint asserted claims defendants former independent auditor dismissed court april 2004 number putative class action cases allege sprint communications company lp failed obtain easements property owners installation fiber optic network 1980’s filed various courts several cases sought certification nationwide classes one case nationwide class certified 2002 nationwide settlement claims approved us district court northern district illinois objectors appealed preliminary approval order seventh circuit court appeals overturned settlement remanded case trial court proceedings parties proceeding litigation andor settlement negotiations state basis 2001 accrued expense reflecting estimated settlement costs suits various suits proceedings claims including purported class actions typical business enterprise pending us subsidiaries possible determine ultimate disposition proceedings whether resolved consistent beliefs expect outcome proceedings individually aggregate material adverse effect financial condition results operations business segments spectrum reconfiguration obligations february 7 2005 nextel accepted terms conditions report order fcc implemented spectrum reconfiguration plan designed eliminate interference public safety operators 800 mhz band terms report order prior august 12 2005 merger date nextel surrendered spectrum rights 700 mhz spectrum band certain portions spectrum rights 800 mhz band received spectrum rights 19 ghz band spectrum rights different part 800 mhz band undertook pay costs incurred nextel third parties connection reconfiguration plan based fcc’s determination values spectrum rights received relinquished nextel minimum obligation incurred report order 28 billion report order also provides qualifying costs incur part reconfiguration plan including costs reconfigure infrastructure spectrum positions used offset minimum obligation 28 billion however obligated pay full amount costs relating reconfiguration plan even costs exceed amount see note 7 information operating leases lease various equipment office facilities retail outlets kiosks switching facilities transmitter receiver sites spectrum operating leases noncancelable portion leases ranges monthly 25 years leases exceptions provide automatic renewal options escalations either fixed based consumer price index rent abatements along rent escalations included computation rent expense calculated straightline basis lease term lease term leases includes initial noncancelable term plus least one renewal period exercise sprint nextel corporation notes consolidated financial statements continued related renewal option options reasonably assured cell site leases generally provide initial noncancelable term 5 7 years 5 renewal options 5 years december 31 2005 rental commitments operating leases including lease renewals reasonably assured consisted mainly leases cell switch sites real estate data processing equipment office space follows millions total rental expense 14 billion 2005 11 billion 2004 12 billion 2003 leasehold improvements depreciated lesser estimated useful life asset lease term including renewal option periods reasonably assured commitments party service contracts connection conducting business minimum amounts due significant agreements 2427 million 2006 1885 million 2007 1412 million 2008 1180 million 2009 603 million 2010 577 million thereafter amounts actually paid agreements likely higher due variable components agreements significant variable components determine ultimate obligation owed include items hours contracted subscribers factors addition party various arrangements conditional nature obligate us make payments upon occurrence certain events delivery functioning software product 5 billion open purchase orders goods services december 31 2005 enforceable legally binding specify significant terms recorded liabilities december 31 2005 outstanding commitments consist primarily network equipment maintenance access commitments advertising marketing information technology services customer support provided third parties handset purchases expenses related normal business operations expect substantially commitments become due next twelve months services rendered goods received certain service contracts process renegotiated result merger nextel could result changes minimum commitments could material environmental compliance identified seven sites currently owned operated us formerly contained manufactured gas plants may owned operated entities acquired one subsidiaries acquired current land owner site columbus nebraska working environmental protection agency epa pursuant administrative consent order amounts expended pursuant order expected material negotiating epa whether clean required two additional sites addition subsidiary entered agreements another potentially responsible party share costs connection four sites including two epa involved sprint nextel corporation notes consolidated financial statements continued working assess scope nature sites potential responsibility environmental compliance remediation expenditures result mainly operation standby power generators telecommunications equipment expenditures arise connection standards compliance permits occasional remediation usually related generators batteries fuel storage although cannot assess certainty impact future compliance remediation obligations believe future environmental compliance remediation expenditures material adverse effect financial condition results operations note 16 capital stock rights authority issue 6620000000 shares capital stock follows • 6000000000 shares series 1 voting common stock par value 200 per share • 500000000 shares series 2 voting common stock par value 200 per share • 100000000 shares nonvoting common stock par value 001 per share • 20000000 shares preferred stock par value per share classes common stock series 1 common stock holders series 1 common stock entitled one vote per share matters submitted action shareholders series 2 common stock holders series 2 common stock entitled 10 one vote per share otherwise rights substantially identical series 1 common stock paid dividend 0025 per share common stock series 1 common stock series 2 nonvoting common stock third fourth quarters 2005 nonvoting common stock issued sprintnextel merger august 2005 paid dividend 0125 per share common stock series 1 first two quarters 2005 quarters 2004 2003 dividend 0125 per share common stock series 2 first two quarters 2005 last three quarters 2004 common stock series 2 issued time recombination pcs common stock fon common stock april 2004 sprint nextel corporation notes consolidated financial statements continued common stock reserved future grants december 31 2005 series 1 common stock reserved future grants plans providing grant stock options equitybased awards future grants employees stock purchase plan future issuances various arrangements included note 17 stock plans management incentive stock option plan management incentive stock option plan misop 2003 granted stock options employees eligible receive annual incentive compensation eligible employees could elect receive stock options lieu portion target incentive annual incentive compensation plans options generally became exercisable december 31 year granted maximum term 10 years misop also granted stock options executives lieu longterm incentive compensation ltipmisop options ltipmisop options generally became exercisable third december 31 following grant date maximum term 10 years misop options granted exercise prices equal market price underlying common stock grant date new options may granted plan april 2005 december 31 2005 options buy approximately 400 million common shares outstanding longterm stock incentive program 1997 longterm stock incentive program 1997 program grant stock options restricted stock restricted stock units equity based awards directors employees 1997 program number shares available grant increases year 2007 awards may granted plan april 2007 january 1 2006 number shares authorized 1997 program increased approximately 438 million shares december 31 2005 plan authorized equitybased awards approximately 1460 million common shares 610 million common shares remained available employees directors granted restricted stock units required pay shares must remain employed us continue serve member board directors restrictions shares lapse addition beginning 2005 awards number restricted stock units granted based performance criteria well 2005 awards vest 100 three years date grant 2005 stock option awards executives holding titles senior vice president including chief executive officer strike price equal 110 market value underlying stock grant date executives received stock options strike price equal 100 fair market value grant date 2005 stock option award participants vest 25 per year anniversaries date grant maximum term 10 years sprint nextel corporation notes consolidated financial statements continued restricted stock plan granted restricted stock officers key employees granted restricted stock required pay shares must remain employed us restrictions shares lapse restricted stock vests rate 333 per year first three anniversaries grant date restricted stock granted 2005 sprint retention program employment holder equity award involuntarily terminated cause within one year nextel merger unvested equity awards held holder least one year end holders’ severance period fully vest time nextel incentive equity plan result sprintnextel merger outstanding nextel deferred shares constitute agreement transfer shares upon performance service defined period time grants options purchase shares nextel common stock converted sprint nextel series 1 deferred shares options purchase number shares sprint nextel series 1 common stock equal number shares nextel common stock subject corresponding nextel options deferred shares multiplied 13 corresponding adjustment option strike price nextel incentive equity plan nextel equity plan approved nextel’s shareholders nextel merger plan provides issuance directors officers employees consultants common stock giving effect conversion ratio merger upon exercise issuance variety forms equity rights including grants options purchase stock deferred shares december 31 2005 plan authorized equitybased awards approximately 1329 million common shares 485 million common shares remained available typically nonqualified stock options purchase stock granted nextel equity plan options currently outstanding generally • granted prices equal exceeding market value stock grant date • vest monthly basis periods four years • expire ten years date grant option holder’s employment involuntarily terminated within one year effective date change control nextel case specified executives employee terminates employment “good reason” defined plan holder’s unvested options immediately vest otherwise become payable subject limits change control deemed occurred result sprintnextel merger nextel equity plan also provides grant deferred shares cost selected employees generally consideration future services deferred shares generally vest service period ranging several months four years accelerated vesting schedule may triggered event change control accelerated vesting triggered respect certain deferred shares granted prior sprintnextel merger result sprintnextel merger employee stock purchase plan employees stock purchase plan espp eligible employees may subscribe quarterly purchase shares series 1 common stock payroll deductions 20 eligible compensation purchase price equal 90 market value last trading day quarter aggregate number shares purchased employee may exceed 9000 shares 25000 fair market value calendar year subject limitations imposed section 423 internal revenue code sprint nextel corporation notes consolidated financial statements continued december 31 2005 plan authorized purchase approximately 256 million shares net elections made 2005 employees participating fourth quarter 2005 offering espp purchase approximately 720000 common shares first quarter 2006 employees purchased shares 2111 fair value disclosures connection nextel merger nextel stock options converted sprint nextel stock options shares issuable exercise prices options adjusted based exchange ratio 13 shares sprint nextel common stock share nextel common stock value awards calculated applying fair value method sfas 123 amended sfas 148 fair value calculated stock options outstanding date completion merger following table reflects weighted average fair value per option granted well significant weighted average assumptions used determining fair values using blackscholes pricing model converted nextel stock options well stock options issued 1997 program following information related pcs common stock adjusted reflect recombination tracking stocks restricted stock units granted 35 million restricted stock units 2005 vest three years 11 million restricted stock units performance based weighted average fair value per unit 2476 employees stock purchase plan prior sprintnextel merger nextel employees elected nextel associate stock purchase plan purchase approximately 244000 shares common stock result sprintnextel merger issued shares former nextel employees using blackscholes pricing model weighted average fair value 342 per share 2004 espp offering ended june 2005 employees elected purchase approximately 36 million common shares using blackscholes pricing model weighted average fair value 319 per share 2003 espp offering ended june 2004 employees elected purchase approximately 18 million fon 72 million pcs shares using blackscholes pricing model weighted average fair value 411 per share fon election 252 per share pcs election recombination tracking stocks elections purchase pcs shares converted elections purchase fon shares sprint nextel corporation notes consolidated financial statements continued stock options activity stock option plans follows following summary status employees’ stock options outstanding exercisable december 31 2005 number shares exercisable weighted average exercise prices 1456 million shares 2710 2005 1014 million shares 2904 2004 1033 million shares 2936 2003 note 18 employee benefit plans defined benefit pension plan legacy sprint employees participants noncontributory defined benefit pension plan benefits plan participants belonging unions based negotiated schedules nonunion participants pension benefits based years service participants’ compensation sprint nextel corporation notes consolidated financial statements continued time merger nextel extend plan participation former nextel employees additionally december 31 2005 pension plan amended freeze benefit accruals plan participants designated work embarq amendment treated curtailment sfas 88 employers’ accounting settlements curtailments defined benefit pension plans termination benefits recognized 4 million curtailment loss amendment also resulted 233 million reduction projected benefit obligation offset existing unrecognized losses use december 31 measurement date pension plan following table shows changes projected benefit obligation plan’s accumulated benefit obligation 46 billion december 31 2005 41 billion december 31 2004 following table shows changes plan assets funded status amounts recognized accompanying consolidated balance sheets plan follows sprint nextel corporation notes consolidated financial statements continued amounts recognized accompanying consolidated balance sheets consist accordance sfas 87 employers’ accounting pensions december 31 2005 2004 recorded additional minimum pension liability representing excess unfunded accumulated benefit obligation plan assets accrued pension costs recognition additional pension liability also resulted intangible asset equal unrecognized prior service costs charge equity comprehensive income loss following table sets forth amounts tax effect charge accumulated comprehensive income loss 38 million 2005 10 million 2004 12 million 2003 resulted net charge accumulated comprehensive income loss 58 million 2005 8 million 2004 25 million 2003 also maintain nonqualified defined benefit plan provide supplemental retirement benefits certain executives addition benefits provided qualified pension plan 2005 additional minimum pension liability 2 million recognized nonqualified defined benefit plan charge accumulated comprehensive income loss 1 million net taxes 2004 additional minimum pension liability 20 million recognized nonqualified defined benefit plan charge accumulated comprehensive income loss 13 million net taxes net pension expense consisted following sprint nextel corporation notes consolidated financial statements continued weightedaverage assumptions used determine net periodic pension costs weighted average assumptions used determine benefit obligations choosing discount rate actuaries construct hypothetical portfolio bonds rated aa better produces cash flow matching projected benefit payments plan average yield portfolio used discount rate benchmark december 31 2005 measurement date exercise produced range yields 567 587 discount rate set 575 december 31 2004 measurement date bond matching described produced range yields 586 604 guiding us set discount rate 60 2005 assumption regarding expected longterm return plan assets 875 unchanged prior year revising target asset allocation policy second half 2003 reduce pension trust’s exposure equities obtained two investment consulting firms forwardlooking estimates expected longterm returns portfolio invested according revised target policy average two firms’ estimates 877 guiding reduction assumed longterm return prior year’s 90 875 validate assumption year estimates provided third party actuaries plan’s asset allocations asset category follows pension trust invested welldiversified portfolio securities employee benefits committee established investment policy specifies asset allocation targets ranges trust equities 65 10 debt 15 5 real estate 10 5 alternatives 10 5 pension trust holds sprint nextel securities following benefit payments reflect expected future service appropriate expected paid millions sprint nextel corporation notes consolidated financial statements continued plan expected split two plans connection spinoff embarq contributions expected made spinoff preliminary estimates contributions 100 million sprint nextel pension trust asset performance changes interest rates period leading anticipated plan spinoff could significantly affect estimates defined contribution plans sponsor defined contribution savings plans covering employees participants may contribute portions pay plans union employees match contributions based negotiated amounts december 31 2005 matched contributions nonunion premerger sprint employees shares company stock matching contribution equal 30 participants’ contributions 6 pay 2005 25 participants’ contributions 2004 second half 2003 matching contribution first half 2003 75 merger date december 31 2005 matched contributions premerger nextel employees 4 pay total matching contributions 56 million 2005 29 million 2004 72 million 2003 2006 premerger nextel plan terminated participants covered plan eligible enroll amended sprint nextel plan amended plan longer match contributions company stock match participants’ contributions 5 pay postretirement benefits provide postretirement medical benefits certain employees also provide postretirement life insurance employees retired certain dates employees retired certain dates eligible medical benefits cost reduced cost employees retire certain dates eligible medical benefits sharedcost basis fund accrued costs benefits paid use december 31 measurement date postretirement benefit plans prescription drug coverage available medicare beginning 2006 amended retiree medical plans third quarter 2005 largely eliminate prescription drug coverage medicareeligible retirees amendment precipitated remeasurement retiree medical expense using 525 discount rate july 1 2005 remeasurement date amendment decreased accumulated postretirement benefit obligation apbo 250 million decreased 2005 benefit expense 13 million time nextel merger extend plan participation retiree medical plan former nextel employees amended plan include employees designated work embarq legacy sprint employees born prior 1956 attribution period used accrue retiree medical benefits begins age 50 amendment immediate impact apbo expense 2004 amended certain retiree medical plans standardize plan design effective january 1 2005 eliminating differences benefit levels amendments decreased accumulated postretirement benefit obligation apbo related postretirement benefits approximately 35 million decreased 2004 net benefit expense 5 million result amendments also recognized thenanticipated effects 2003 medicare prescription drug improvement modernization act contains subsidy employers provide prescription drug coverage retirees actuarially equivalent medicare part 2004 planned provide coverage analysis retiree prescription drug claims data determined retiree prescription drug benefit actuarially equivalent estimating effects act estimates participation rates per capita claims costs changed effect recognizing federal subsidy related act 2004 67 million reduction apbo 11 million reduction 2004 net benefit cost accounted retiree medical benefit plan accordance fasb staff position 1062 sprint nextel corporation notes consolidated financial statements continued following table shows changes accumulated postretirement benefit obligation amounts included accompanying consolidated balance sheets follows net postretirement benefits cost consisted following weightedaverage assumptions used determine net periodic postretirement benefit costs sprint nextel corporation notes consolidated financial statements continued assumed health care cost trend rates assumed health care cost trend rates significant effect amounts reported health care plans onepercentagepoint change assumed health care cost trend rates would following effects millions plan assets totaled 42 million 43 million december 31 2005 2004 target 60 allocation equities 40 allocation debt plans hold sprint nextel securities plan contribute postretirement benefit plan amount equal value benefits premiums paid expected benefit payments reflect expected future service appropriate follows millions note 19 communication towers lease transaction may 2005 closed transaction global signal inc global signal acquired exclusive rights lease operate approximately 6560 communications towers owned us negotiated lease term greater remaining terms underlying ground leases approximately 17 years present 32 years assuming successful renegotiation underlying ground leases end current lease terms subleased space approximately 6350 towers global signal sublease arrangement accounted operating lease see note 15 additional information maintain ownership towers continue reflect towers accompanying consolidated balance sheet closing received proceeds approximately 12 billion recorded liabilities accompanying consolidated balance sheet deferred rental income recognized reduction lease expense related subleasing arrangement straightline basis remaining terms underlying ground leases note 20 segment footnote divided three main lines business wireless long distance local generally manage segments operating income loss level reporting items operating income loss managed corporate level reconciliation operating income net income shown face accompanying consolidated statements operations sprint nextel corporation notes consolidated financial statements continued generally account transactions segments based fully distributed costs believe approximate fair value certain transactions pricing set using market rates segment financial information follows nm meaningful 1 includes north supply prior years included segment reporting purposes however due planned spin embarq expected include north supply north supply operations reclassified local segment periods presented sprint nextel corporation notes consolidated financial statements continued 2 revenues eliminated consolidation consist primarily local access charged long distance local long distance services provided wireless resale wireless customers internal business use caller id services provided local wireless handset purchases wireless access wireless network corporate assets allocated operating segments consist primarily cash equivalents operational headquarters campus assets managed corporate level corporate capital expenditures incurred mainly various administrative assets improvements operational headquarters campus operating expenses related corporate assets allocated segment 3 see note 8 additional information 4 operating expenses include 608 million merger integration costs primarily associated nextel merger pcs affiliate acquisitions anticipated spinoff embarq reflected unallocated corporate selling general administrative expense 2005 2004 2003 95 revenues services equipment provided within united states 99 property plant equipment united states net operating revenues services products follows sprint nextel corporation notes consolidated financial statements continued 1 includes north supply prior years included segment reporting purposes however due planned spinoff embarq expected include north supply north supply operations reclassified local segment periods presented 2 revenues eliminated consolidation consist primarily local access charged long distance local long distance services provided wireless resale wireless customers internal business use caller id services provided local wireless handset purchases wireless access wireless network note 21 recently issued accounting pronouncements sfas 123r december 2004 fasb issued sfas 123r sharebased payment statement requires entity recognize cost employee services received sharebased payment transactions use fairvaluebased methods recognizing cost statement effective us january 1 2006 voluntarily adopted fair value accounting sharebased payments effective january 1 2003 sfas 123 amended sfas 148 using prospective method upon adoption began expensing fair value stockbased compensation grants modifications settlements made january 1 2003 connection tracking stock recombination required sfas 123 accounted conversion pcs stock options fon stock options modification accordingly applied stock option expensing fon stock options resulting conversion pcs stock options granted january 1 2003 connection nextel merger accounted conversion nextel stock options sprint nextel stock options modification accordingly applied stock option expensing unvested stock options beginning merger date revised standard require us begin recognize compensation cost unvested common stock options granted employees january 1 2003 outstanding january 1 2006 requirement recognize expense unvested grants expected immaterial us sfas 151 november 2004 fasb issued sfas 151 inventory costsan amendment arb 43 chapter 4 statement requires items idle facility expense excessive spoilage double freight rehandling costs recognized currentperiod charges regardless whether meet definition abnormal provided arb 43 chapter 4 inventory pricing statement effective inventory costs incurred fiscal years beginning june 15 2005 expect adoption standard material impact financial statements note 22 quarterly financial data unaudited sprint nextel corporation notes consolidated financial statements continued 1 april 23 2004 recombined two tracking stocks share pcs common stock automatically converted 05 shares fon common stock per share amounts restated reflect recombination fon common stock pcs common stock earliest period presented identical conversion ratio 05 conversion ratio also applied dilutive pcs securities mainly stock options employee stock purchase plan shares convertible preferred stock restricted stock units determine diluted weighted average shares consolidated basis 2 effects including incremental shares associated options restricted stock units espp shares antidilutive basic earnings per common share diluted earnings per common share reflect calculation third quarter 2004 note 23 restatements previously issued financial statements november 2004 restated previously issued financial statements correct error related calculation interest capitalized construction financial statements also restated apply adjustment previously recorded disclosed 2003 fourth quarter related liability medical coverage participants longterm disability plan appropriate pre2003 periods note 24 subsequent event february 2006 board directors declared dividends 25 cents common stock shareholders record close business march 10 2006 dividends payable march 31 2006 note 25 pending transaction spinoff local telecommunications business decided spinoff local communications business shareholders embarq corporation date spinoff assets liabilities historical financial results reported local segment financial statements removed financial statements reported embarq’s separate company financial statements currently process identifying assets liabilities transferred new company expect receive approximately 66 billion form cash senior notes present embarq’s results operations periods wholly owned subsidiary discontinued operation spinoff occurs anticipate spinoff completed second quarter 2006 sprint nextel corporation schedule ii consolidated valuation qualifying accounts years ended december 31 2005 2004 2003 1 amounts charged accounts consist receivable reserves billing collection services provide certain pcs affiliates uncollectible accounts recovered affiliates 2005 amount includes allowance recorded merger nextel pcs affiliate acquisitions 2 accounts written net recoveries 3 amount represents increases valuation allowance deferred income tax assets related primarily purchase price allocations nextel merger pcs affiliate acquisitions