Sprint - Nextel 2005 Annual Report Download - page 136

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SPRINT NEXTEL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Notes
The Notes were originally issued as part of the equity units and had an interest rate of 6.0% for a notional amount
of $1.7 billion. In May 2004, we purchased $750 million principal amount of the Notes before their scheduled
maturity. As a result, we recognized a $29 million loss in other income due to the premium paid and the write-off
of unamortized debt issuance costs.
The interest rate on the Notes was reset to 4.8% on May 24, 2004, after a successful remarketing, and after the
remarketing the Notes were no longer pledged to secure the obligations under the original forward purchase
contracts.
As of December 31, 2005, $880 million of the remarketed Notes, which are due in August 2006, are included in
current portion of long-term debt and capital lease obligations on the accompanying consolidated balance sheets.
Note 11. Seventh Series Redeemable Preferred Stock
The redeemable preferred stock outstanding at year-end is as follows:
December 31,
2005 2004
(in millions)
Seventh series preferred stock – stated value $1,000 per share, 300,000 shares authorized,
246,766 shares outstanding, voting, cumulative $6.73 quarterly dividend rate ........... $ 247 $ 247
The Seventh series preferred stock is currently convertible into approximately 32.5 shares of voting common
stock for each Seventh series share. The Seventh series preferred stock is mandatorily redeemable in November
2008 at the stated value plus any accrued but unpaid dividends. On February 28, 2006, notices were sent out to
holders of our Seventh series preferred stock with our intent to redeem the preferred stock. We expect to close on
March 31, 2006 for a redemption price of $1,000 per outstanding share plus accumulated unpaid dividends.
Note 12. Derivative Instruments and Hedging Activities
Risk Management Policies
Our derivative instruments typically include interest rate swaps, stock warrants, option contracts, and foreign
currency forward and option contracts. We primarily use our derivative transactions to hedge our exposure to the
market risks associated with unfavorable movements in interest rates, equity prices, and foreign currencies. Our
board of directors has authorized us to enter into derivative transactions, and all transactions comply with our risk
management policies.
Interest rate risk is the risk that changes in interest rates could adversely affect earnings or cash flows. Specific
interest rate risks include the risk of increasing interest rates on short-term debt, the risk of increasing interest
rates for planned new fixed rate long-term financing and the risk of increasing interest rates for planned
refinancings using long-term fixed rate debt.
Exposure to strategic investments in other companies includes the risk that unfavorable changes in market prices
could adversely affect earnings and cash flows. We may also obtain equity rights in other companies, usually in
the form of warrants to purchase common stock of the companies. These equity rights are typically obtained in
connection with commercial agreements or strategic investments.
F-41