Sprint - Nextel 2008 Annual Report Download - page 54

Download and view the complete annual report

Please find page 54 of the 2008 Sprint - Nextel annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 158

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114
  • 115
  • 116
  • 117
  • 118
  • 119
  • 120
  • 121
  • 122
  • 123
  • 124
  • 125
  • 126
  • 127
  • 128
  • 129
  • 130
  • 131
  • 132
  • 133
  • 134
  • 135
  • 136
  • 137
  • 138
  • 139
  • 140
  • 141
  • 142
  • 143
  • 144
  • 145
  • 146
  • 147
  • 148
  • 149
  • 150
  • 151
  • 152
  • 153
  • 154
  • 155
  • 156
  • 157
  • 158

‰one or more of the markets in which we compete being impacted by changes in political, economic
or other factors such as monetary policy, legal and regulatory changes or other external factors over
which we have no control; and
‰other risks referenced from time to time in this report, including in Part I, Item 1A “Risk Factors”
and other filings of ours with the SEC.
The words “may,” “could,” “estimate,” “project,” “forecast,” “intend,” “expect,” “believe,” “target,”
“plan,” “providing guidance” and similar expressions are intended to identify forward-looking statements.
Forward-looking statements are found throughout this Management’s Discussion and Analysis of Financial
Condition and Results of Operations, and elsewhere in this report. The reader should not place undue reliance on
forward-looking statements, which speak only as of the date of this report. We are not obligated to publicly
release any revisions to forward-looking statements to reflect events after the date of this report, including
unforeseen events.
FINANCIAL STRATEGIES
General Risk Management Policies
Our board of directors has adopted a financial risk management policy that authorizes us to enter into
derivative transactions, and all transactions comply with the policy. We do not purchase or hold any derivative
financial instruments for speculative purposes with the exception of equity rights obtained in connection with
commercial agreements or strategic investments, usually in the form of warrants to purchase common shares.
Derivative instruments are used for hedging and risk management purposes even if not designated as
such for purposes of accounting. Hedging activities may be done for various purposes, including, but not limited
to, mitigating the risks associated with an asset, liability, committed transaction or probable forecasted
transaction. We seek to minimize counterparty credit risk through stringent credit approval and review processes,
credit support agreements, continual review and monitoring of all counterparties, and thorough legal review of
contracts. Exposure to market risk is controlled by regularly monitoring changes in hedge positions under normal
and stress conditions to ensure they do not exceed established limits.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
We are primarily exposed to the market risk associated with unfavorable movements in interest rates,
foreign currencies, and equity prices. The risk inherent in our market risk sensitive instruments and positions is
the potential loss arising from adverse changes in those factors.
Interest Rate Risk
The communications industry is a capital intensive, technology driven business. We are subject to
interest rate risk primarily associated with our borrowings. Interest rate risk is the risk that changes in interest
rates could adversely affect earnings and cash flows. Specific interest rate risk includes: the risk of increasing
interest rates on floating-rate debt and the risk of increasing interest rates for planned new fixed rate long-term
financings or refinancings.
About 90% of our debt as of December 31, 2009 was fixed-rate debt. While changes in interest rates
impact the fair value of this debt, there is no impact to earnings and cash flows because we intend to hold these
obligations to maturity unless market and other conditions are favorable.
We perform interest rate sensitivity analyses on our variable rate debt. These analyses indicate that a one
percentage point change in interest rates would have an annual pre-tax impact of $18 million on our consolidated
statements of operations and cash flows for the year ended December 31, 2009. We also perform a sensitivity
analysis on the fair market value of our outstanding debt. A 10% decline in market interest rates would cause an
$872 million increase in the fair market value of our debt to $20.9 billion.
Foreign Currency Risk
We also enter into forward contracts and options in foreign currencies to reduce the impact of changes
in foreign exchange rates. Our foreign exchange risk management program focuses on reducing transaction
52