Sprint - Nextel 2011 Annual Report Download - page 128

Table of Contents
premium or additional interest.
The holders of the Exchangeable Notes have the right to require us to repurchase all of the notes upon the occurrence of a fundamental change event at a price of
100% of the principal amount plus any unpaid accrued interest to the repurchase date. The holders who elect to exchange the Exchangeable Notes in connection with the
occurrence of a fundamental change will be entitled to additional shares that are specified based on the date on which such event occurs and the price paid per share of
Class A Common Stock in the fundamental change, with a maximum number of shares issuable per note not to exceed 169.4915 shares. The holders of the Exchangeable
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otes have the option to require us to repurchase for cash the Exchangeable Notes on December 1, 2017, 2025, 2030 and 2035 at a price equal to 100% of the principal
amount of the notes plus any unpaid accrued interest to the repurchase date. On or after December 1, 2017, we may, at our option, redeem all or part of the Exchangeable
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otes at a price equal to 100% of the principal amount of the notes plus any unpaid accrued interest to the redemption date.
Our payment obligations under the Exchangeable Notes are guaranteed by certain domestic subsidiaries in the same priority as the Second-Priority Secured Notes.
Upon issuance of the Exchangeable Notes, we recognized a derivative liability representing the embedded exchange feature with an estimated fair value of $231.5
million and an associated debt discount on the Exchangeable Notes. The discount is accreted over the expected life, approximately 7 years, of the Exchangeable Notes
using the effective interest rate method. See Note 11, Derivative Instruments, for additional discussion of the derivative liability.
Vendor Financing Notes
During 2010, we entered into a vendor financing facility, which we refer to as the Vendor Financing Facility, which allowed us to obtain up to $160.0 million of
financing by entering into notes, which we refer to as Vendor Financing Notes, until January 31, 2011. We utilized $60.3 million of the Vendor Financing Facility for the
year ended December 31, 2010.
On January 31, 2011, we amended the Vendor Financing Facility, which we refer to as the Amended Vendor Financing Facility, which extended the facility and
now allows us to obtain up to $95.0 million of financing until January 31, 2012. We utilized $3.3 million of the Amended Vendor Financing Facility for the year ended
December 31, 2011. The coupon rate and terms of the Vendor Financing Notes under the Amended Vendor Financing Facility are identical to the original notes entered
into during 2010, except that they mature in 2015.
Capital Lease Obligations
During 2010, we have entered into capital lease facilities which allowed us to obtain up to $99.0 million of financing with 4 year terms, until August 16, 2011. In
addition, we also lease certain network construction equipment under capital leases with 12 year lease terms.
Future Payments — For future payments on our long-term debt see Note 13, Commitments and Contingencies.
Interest Expense — Interest expense included in our consolidated statements of operations for the years ended December 31, 2011, 2010 and 2009, consisted of the
following (in thousands):
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The holders’ exchange rights contained in the Exchangeable Notes issued in December 2010 constitute embedded derivative instruments that are required to be
accounted for separately from the debt host instrument at fair value. As a result,
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Year Ended December 31,
2011 2010 2009
Interest payments $ 484,599 $ 346,984 $ 145,416
Accretion of debt discount and amortization of debt premium, net(1) 40,216 14,479 64,183
Capitalized interest (18,823) (208,595) (140,168)
$ 505,992 $ 152,868 $ 69,431
(1) Includes non-cash amortization of deferred financing fees which are classified as Other assets on the consolidated balance sheets.
11. Derivative Instruments