Annual Report Analysis-Sprint-Nextel
Prepared for Intermediate Accounting I
Professor Christine Errico
April 7, 2012

Table of Contents
Title Page 1
Table of Contents 2
Introduction 3
Report of Independent Registered Public Accounting Firm 4
Related Party Transactions 5
Asset/Liability Trends 6
Largest Assets 6
Largest Liabilities 7
Stocks 7
Income Statement 9
Trend in Net Income 10
Comprehensive Loss 11
Cash Flow Statement 12
Trends in Cash from Operations 12
Investing Activities 13
Conclusion 13
Works Cited 14
Annual Report Analysis-Sprint-Nextel
Introduction
I am doing my report on Sprint Nextel not because they were the first network telecommunications company to go 100% digital fiber optic in 1987. Or the first company to offer commercial Internet access in 1992. Or the only US telecommunications company providing long distance, local and wireless services in 1993. Or for being the first wireless carrier to complete a nationwide Third Generation (3G) 1X network upgrade in 2002. Not for the fact that they sponsor the Nascar Sprint Cup Series. Or the fact that they wrote down $29.7 billion of the $36 billion it paid for Nextel in 2008. Or the fact that they did not turn my service off after being three months behind on my phone bill. I am doing my report on Sprint Nextel because I believe they have the best customer service of any company I have ever done business with. My report takes a look into the Annual Report of Sprint Nextel with regard to the Independent Registered Public Accounting Firm, Related Party Transactions, discusses the largest assets and liabilities that the company has as of 2011. I comment on the Stocks of Sprint Nextel, as well my observation of the Income Statement, the Comprehensive Loss Statement, as well as the Cash Flow Statement. I show trends in Net Income and Cash from Operations and talk about their two largest Investing Activities.
Sprint was founded in 1899 by Cleyson Brown and begins the Brown Telephone Company. By the mid-1970s, the company's aggressive growth strategies had firmly established it as the nation's largest independent local telephone provider, which is still true today. In 2005 Sprint merged with Nextel. At the end of the 2nd quarter of 2010 Sprint had served more than 48.1 million customers in the United States, making Sprint one of the largest wireless carriers. Sprint Nextel offers a comprehensive range of wireless and wireline communications services bringing the freedom of mobility to consumers, businesses and government users. Sprint Nextel served more than 55 million customers at the end of 2011 and is widely recognized for developing, engineering and deploying innovative technologies, including the first wireless 4G service from a national carrier in the United States; offering industry-leading mobile data services, leading prepaid brands including Virgin Mobile USA, Boost Mobile, and Assurance Wireless; instant national and international push-to-talk capabilities; and a global Tier 1 Internet backbone. Newsweek ranked Sprint No. 3 in its 2011 Green Rankings, listing it as one of the nation's greenest companies, the highest of any telecommunications company (Sprint Nextel, 2012).
Report of Independent Registered Public Accounting Firm
Sprint Nextel’s external auditors are KPMG LLP. KPMG LLP, the audit, tax and advisory firm, is the U.S. member firm of KPMG International Cooperative ("KPMG International"). KPMG International’s member firms have 145,000 professionals, including more than 8,000 partners, in 152 countries (Klynveld, Peat, Marwick, and Goerdeler. [KMPG], 2012).
They have audited the consolidated balance sheets of Sprint Nextel Corporation and subsidiaries as of December 31, 2011 and 2010, and the related consolidated statements of comprehensive loss, cash flows and shareholders’ equity for each of the years in the three-year period ended December 31, 2011. They also audited Sprint Nextel Corporation’s internal control over financial reporting as of December 31, 2011, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). They did not audit the financial statements of Clearwire Corporation and its consolidated Clearwire communications, LLC, a 51.5% owned investee company. The financial statements of Clearwire were audited by other auditors whose report has been furnished to us, and our opinion, insofar as it relates to the amounts included, is based solely on the report of the other auditors. In their opinion, based on their audits and the report of the other auditors, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Sprint Nextel Corporation and subsidiaries as of December 31, 2011 and 2010, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2011, in conformity with U.S. generally accepted accounting principles. Also in their opinion, Sprint Nextel Corporation maintained, in all material respects, effective internal control over financial reporting as of December 31, 2011, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.
Sprint Nextel Corporation adopted accounting guidance regarding accounting for business combinations and equity method investments in 2009, and presentation of the consolidated statement of comprehensive loss in 2011(Sprint Nextel, 2012).
Related Party Transactions Sprint's equity method investment in Clearwire includes agreements by which they resell wireless data services utilizing Clearwire's 4G network. In addition, Clearwire utilizes the Sprint network to provide dual mode service to its customers in those areas where access to a 4G network is not yet available. Accounts payable, accrued expense and other liabilities to Clearwire totaling $77 million as of December 31, 2011 and cost of services and products totaling $405 million for the year ended December 31, 2011 are included in their consolidated financial statements related to our purchase of 4G services (Sprint-Nextel, 2012).
Asset/Liability Trends
Although debt as a percent of total capital increased at Sprint Nextel Corp. over the last fiscal year to 63.95%, it is still in-line with the Wireless Telecommunication Services industry's norm. Additionally, there are enough liquid assets to satisfy current obligations. Accounts Receivable are typical for the industry, with 33.82 days’ worth of sales outstanding. Last, inventories seem to be well managed as the Inventory Processing Period is typical for the industry, at 15.19 days Businessweek. 2012).
Largest Assets For the most recent year presented (2011) the three largest assets of Sprint Nextel are Intangibles Assets at $22,069,000 which includes FCC licenses and other plus definite-lived intangible assets net. Second is Property, plant and equipment, net at $14,009.000 which includes land and improvements, building and improvements, construction in progress minus accumulated depreciation and depletion. The third is Cash and Equivalents at $5,447,000 which generally includes highly liquid investments with maturities at time of purchase of three months or less. Which may include money market funds, certificates of deposit, US government and government sponsored debt securities, corporate debt securities, municipal securities, bank related securities and credit and debit card transactions.

All values USD millions | Fiscal year is January-December | Assets | 2008 | 2009 | 2010 | 2011 | Cash and Cash Equivalents | $22,886 | $23,089 | $22,345 | $22,069 | Property, Plant and Equipment | $22,373 | $18,280 | $15,214 | $14,009 | Intangible Assets | $3,691 | $3,819 | $5,173 | $5,447 |

Largest Liabilities For the most recent year presented (2011) the three largest liabilities of Sprint Nextel are Long-term debt of $20,266,000 which consist of senior notes, serial redeemable senior notes, and guaranteed notes, all of which are unsecured, as well as secured notes of iPCS, which are secured solely with underlying assets of iPCS. In addition, credit facilities of Sprint Nextel Corporation, financing obligations, capital lease obligations, and net premiums. Second is Deferred Income Tax at $6,986,000, which includes deferred tax liabilities for current and long term assets, including property, plant and equipment, intangibles, investments and other. Third, is a Non-current liability at 4,205,000 which include deferred rental income-communication towers, deferred rent, accrued taxes-unrecognized tax benefits, deferred revenue, post-retirement benefits and other non-current employee related liabilities. All values USD millions | Fiscal year is January-December | Liabilities | 2008 | 2009 | 2010 | 2011 | Long term debt | $20,992 | $20,293 | $18,535 | $20,266 | Deferred Income Tax | $7,184 | $6,693 | $6,802 | $6,986 | Non-current Liabilities | $4,178 | $3,558 | $3,880 | $4,205 | | | | | |
Stocks
Shareholders' Equity and Per Share Data
Our articles of incorporation authorize 6,620,000,000 shares of capital stock as follows: • 6,000,000,000 shares of Series 1 voting common stock, par value $2.00 per share; • 500,000,000 shares of Series 2 voting common stock, par value $2.00 per share; • 100,000,000 shares of non-voting common stock, par value $0.01 per share; and • 20,000,000 shares of preferred stock, no par value per share.
Covenants: As of December 31, 2011, the Company is in compliance with all restrictive and financial covenants associated with its borrowings. A default under any of our borrowings could trigger defaults under our other debt obligations, which in turn could result in the maturities being accelerated. Certain indentures that govern our outstanding notes also require compliance with various covenants, including limitations on the incurrence of indebtedness and liens by the Company and its subsidiaries, as defined by the terms of the indentures. We are currently restricted from paying cash dividends because our ratio of total indebtedness to trailing four quarters adjusted EBITDA, as defined in the amended credit facility discussed above, exceeds 2.5 to 1.0. The Company is also obligated to repay the credit facilities if certain change-of-control events occur (Sprint Nextel Corp., 2011, p. F-21).
Series 1 Common Stock the holders of our Series 1 common stock are entitled to one vote per share on all matters submitted for action by the shareholders. There were about 3.0 billion shares of Series 1 common stock outstanding as of December 31, 2011. Series 2 Common Stock the holders of our Series 2 common stock are entitled to 10% of one vote per share, but otherwise have rights that are substantially identical to those of the Series 1 common stock. In 2009, certain holders of our Series 2 common stock exercised their rights to convert 39.8 million Series 2 shares to 39.8 million Series 1 shares, resulting in an $80 million and $785 million reduction to common shares and paid-in capital, respectively, and a corresponding $865 million reduction in treasury shares. In 2011, the remaining 35 million Series 2 shares were converted to 35 million Series 1 shares, resulting in a $38 million and $168 million reduction in common shares and paid-in capital, respectively, and a corresponding $206 million reduction in treasury shares. As a result, there were no shares of Series 2 common stock outstanding as of December 31, 2011.
Treasury Shares: Shares of common stock repurchased by us are recorded at cost as treasury shares and result in a reduction of shareholders' equity. We reissue treasury shares as part of our shareholder approved stock-based compensation programs, as well as upon conversion of outstanding securities that are convertible into common stock. When shares are reissued, we determine the cost using the FIFO method. Dividends: We did not declare any dividends on our common shares in 2011, 2010, or 2009. We are currently restricted from paying cash dividends by the terms of our revolving bank credit facility (Sprint Nextel Corp., 2011, p.F-33).
Income Statement Sprint-Nextel uses a consolidated multi-step income statement. Sprint's Ownership Interest as of December 31, 2011, Sprint holds approximately 51.5% of a non-controlling economic interest in Clearwire in the form of 705 million Class B non-voting common interests (Class B Non-voting) in Clearwire Communications LLC and a 48.6% non-controlling voting interest in the form of 628 million shares of Class B voting common stock (Class B Voting) of Clearwire Corporation (together, “Class B Common Interests”) for which the carrying value, as of December 31, 2011, totaled approximately $1.7 billion. In addition to Class B Common Interests, Sprint holds a note receivable from Clearwire issued in 2008 with a fixed interest rate of 12% and a maturity date of December 2015. On November 30, 2011, Sprint entered into new agreements with Clearwire that established long-term pricing terms for 4G services, both WiMAX and LTE. Under terms of the agreements, Sprint is required to pay Clearwire $926 million in total over the course of 2012 and 2013 in exchange for unlimited WiMAX services during those years. The agreements also establish long-term usage-based pricing for LTE services in 2012 and beyond and WiMAX services in 2014 and beyond. Under the terms Sprint may also make a series of refundable prepayments up to $350 million for LTE services, if Clearwire achieves certain build-out targets and network specifications by June 2013 or obtains purchase commitments for LTE services from other customers. Lastly, as part of the agreements, on January 2, 2012, Sprint provided $150 million to Clearwire in exchange for a promissory note with a stated interest rate of 11.5% that matures in two installments of $75 million plus accrued interest in January 2013 and in January 2014. Sprint, at its sole discretion, can choose to offset any amounts payable by Clearwire under this promissory note against amounts owed by Sprint under the MVNO agreement.
Trend in Net Income Year-to-Date | 2011 | 2010 | 2009 | 2008 | Revenues Year-to-Date | 33,679,000 | 32,563,000 | 32,260,000 | 35,635,000 | Income Year-to-Date from Total Operations | -2,890,000 | -3,456,000 | -2,436,000 | -2,796,000 |

Year over year, Sprint Nextel Corporation has been able to grow revenues from $32.6B to $33.7B. More impressively, the company has been able to reduce the percentage of sales devoted to selling, general and administrative costs from 28.98% to 28.48%. This was a driver that led to an improvement in the bottom line from a loss of $3.5B to a smaller loss of $2.9B from 2010 to 2011 (Businessweek.com 2012).
Comprehensive Income (Loss) Sprint Nextel had comprehensive income (loss) of -$290,000,000 in 2011, -$150,000,000 in 2010, and $172,000,000 in 2009 from unrecognized net periodic pension and other postretirement benefits: net actuarial gain (loss) less amortization of actuarial gain/loss and prior service cost included in net loss (taken from Consolidated Statements of Comprehensive Loss). The FASB issued authoritative guidance regarding Comprehensive Income: Presentation of Comprehensive Income in June 2011 that amends existing guidance to present the total of other comprehensive income in either one continuous statement of comprehensive income or in two consecutive financial statements. They will become effective beginning the first quarter 2012 with early adoption permitted, require retrospective application, and will only effect presentation of information in their primary financial statements. They early adopted the new presentation requirements that resulted in reporting the components of comprehensive income
(loss) in the Consolidated Statements of Comprehensive Loss, rather than the Consolidated Statements of Shareholders’ Equity, as previously reported (Sprint Nextel, 2011).
Cash Flow Statement Sprint Nextel uses the indirect method on its consolidated statements of cash flows. The FASB, in promulgating GAAP for the statement of cash flows, stated its preference for the direct method, however while both methods are used in practice, the direct method is infrequently used. You arrive at net cash from operating activities indirectly by starting with reported net income and working backwards to convert that amount to a cash basis. Two types of adjustments to net income are needed. First, components of net income that do not affect cash are reversed. Second, we make adjustments for changes in operating assets and liabilities during the period that indicate that amounts included as components of net income are not the same as cash flows for those components. In the indirect method, positive adjustments to net income are made for decreases in related assets and increases in related liabilities, while negative adjustments are made for increases in those assets and decreases in those liabilities (Spiceland, Sepe, Nelson, 2011).
Trends in Cash from Operations

Investing Activities The two largest items included on the Consolidated Statement of Cash Flow from investing activities are Capital expenditures at -$3,130,000,000 in 2011, at -$1,935,000,000 in 2010 and at -$1,603,000,000 in 2009. Second, are Proceeds from sales and maturities of short-term investments at $980,000,000 in 2011, at $155,000,000 in 2010, and at $573,000,000 in 2009. Capital expenditure is money spent to acquire or upgrade physical assets such as buildings and machinery (Investorwords, 2012).
Conclusion
Sprint Nextel was ranked No. 3 by Newsweek in its 2011 Green Rankings, the highest of any telecommunications company. In the opinion of KPMG LLP, Sprint Nextel external auditors the consolidated financial statements present fairly the financial position of Sprint Nextel Corporation and subsidiaries as of December 31, 2011 are in conformity with U.S. generally accepted accounting principles. The company has enough liquid assets to satisfy current obligations. . Sprint Nextel is currently restricted from paying cash dividends by the terms of their revolving bank credit facility. They use a multi-step consolidated income statement as well as the indirect method for the statement of cash flows. They have a debt of $290,000,000 in 2011. Cash from Operations is down from the year before but still 3.69 billion for 2011.

Works Cited
Bloomberg Businessweek. (2112). Telecommunication services sector » wireless telecommunication services industry» s. Retrieved from http://investing.businessweek.com/research/stocks/financials/financials.asp?ticker=S:US
Capital expenditure definition. (2012). Retrieved from http://www.investorwords.com/703/capital_expenditure.html KPMG. Who we are. (2012). Retrieved April 4, 2012, from http://www.kpmg.com/us/en/whatwedo/Pages/default.aspx Spiceland, J.Sepe, J. Nelson, M. (2011). Intermediate Accounting, 6th Edition. McGraw-Hill Learning Solutions, 2011. p. 201-202.
Sprint-Nextel: Annual Report on Form 10-K for the year ended December 31, 2011. (2012). Retrieved from http://search.babylon.com/?q=sprint+annual+report+2011&babsrc=NT_ss&s=web&as= &rlz=0&t=1