Sprint - Nextel 2007 Annual Report Download - page 124

SPRINT NEXTEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
In the fourth quarter 2006, we sold our remaining investment of about 13 million common shares of NII Holdings
and settled the remaining option contracts using common shares of NII Holdings borrowed under stock loan
agreements. We recognized a gain of $396 million from the sale of the underlying shares, partially offset by a
realized loss of $251 million from the change in fair value of the option contracts, resulting in a net gain of
$145 million recorded to other income. We also recorded $53 million of income tax expense in the fourth quarter
2006 relating to this transaction as a result of the sale of the NII Holdings shares and the settlement of the option
contracts, as well as the reversal of a deferred tax liability relating to the NII Holdings shares. The use of
borrowed shares to settle the option contracts was accounted for as a collateralized borrowing, resulting in an
increase of $866 million to prepaid expenses and other current assets and accrued expenses and other current
liabilities for the fair value of the underlying shares. In 2006, we recognized a financing cash inflow of
$866 million related to the borrowing and an equal investing cash outflow related to collateral posted for the
borrowed shares. The collateralized borrowing was terminated in January 2007.
Note 10. Shareholders’ Equity
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.
Classes of Common Stock
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.
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. There were about 75 million shares
of Series 2 common stock outstanding as of December 31, 2007.
Non-Voting Common Stock
About 38 million shares of our non-voting common stock was issued in the Sprint-Nextel merger in August
2005 to Motorola and its subsidiary, the only holders of non-voting common shares. In December 2006,
Motorola and its subsidiary exercised their right to convert the non-voting common shares into an equal number
of shares of our Series 1 common stock, resulting in a $623 million decrease in paid-in capital and a reduction in
treasury shares, as shown in the consolidated statements of shareholders’ equity.
Dividends
We paid a dividend of $0.025 per share on the Series 1 common stock and the Series 2 common stock in
each of the quarters of 2007 and 2006 and in the third and fourth quarters of 2005 and a dividend of $0.025 per
share on the non-voting common stock in each of the quarters of 2006 and in third and fourth quarters 2005. We
paid a dividend of $0.125 per share on the Series 1 common stock and the Series 2 common stock in the first two
quarters of 2005.
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