Sprint - Nextel 2005 Annual Report Download - page 83

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subject to significant fluctuations in fair market value due to volatility of the stock market and industries in which
the companies operate. These securities, which are classified in investments and marketable securities on the
accompanying consolidated balance sheets, include equity method investments, investments in private securities,
available-for-sale securities and equity derivative instruments.
We entered into a series of option contracts associated with our investment in NII Holdings in order to hedge the
price risk associated with this security. The first of these contracts did not qualify for hedge accounting and the
changes in fair value of the derivative instrument are recognized in earnings during the period of change. Based
on these contracts and market prices on December 31, 2005, a 10% increase or decrease in NII Holdings’ market
price would result in a decrease or increase of approximately $7 million. Changes in the market price will also
affect the fair value of our holdings in NII Holdings; however, we will not recognize such gains or losses unless
the investment is sold. See note 12 of the Notes to the Consolidated Financial Statements appearing at the end of
this annual report on Form 10-K for further detail of these derivative instruments.
In certain business transactions, we are granted warrants to purchase the securities of other companies at fixed
rates. These warrants are supplemental to the terms of the business transaction and are not designated as hedging
instruments.
During 2002 and 2003, we entered into variable prepaid forward contracts to monetize equity securities held as
available for sale. The derivatives have been designated as cash flow hedges to reduce the variability in expected
cash flows related to the forecasted sale of the underlying equity securities. These prepaid contracts were settled
between the fourth quarter 2004 and fourth quarter 2005.
Item 8. Financial Statements and Supplementary Data
The consolidated financial statements required by this item begin on page F-1 of this annual report on Form 10-K
and are incorporated herein by reference. The financial statement schedule required under Regulation S-X is filed
pursuant to Item 15 of this annual report on Form 10-K and is incorporated herein by reference.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Not applicable.
Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Disclosure controls are procedures that are designed with the objective of ensuring that information required to
be disclosed in our reports under the Securities Exchange Act of 1934, such as this Form 10-K, is reported in
accordance with the SEC’s rules. Disclosure controls are also designed with the objective of ensuring that such
information is accumulated and communicated to management, including the Chief Executive Officer and Chief
Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
In connection with the preparation of this Form 10-K as of December 31, 2005, under the supervision and with
the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we
carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and
procedures. Based on this evaluation, the Chief Executive Officer and Chief Financial Officer each concluded
that the design and operation of the disclosure controls and procedures were effective as of December 31, 2005 in
providing reasonable assurance that information required to be disclosed in reports we file or submit under the
Securities Exchange Act of 1934 is accumulated and communicated to management, including the Chief
Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required
disclosure and in providing reasonable assurance that the information is recorded, processed, summarized and
reported within the time periods specified in the SEC’s rules and forms.
72