Sprint - Nextel 2005 Annual Report Download - page 74

Interest Income
Interest income for 2005, 2004 and 2003 includes dividends received from our investments in equity securities
and interest earned on marketable debt securities. The $177 million increase in interest income from 2004 to
2005 is primarily due to the increase in the average cash and cash equivalents balances due to the Sprint-Nextel
merger. Interest income also benefited from a 200 - basis point increase in Federal funds rates during 2005.
Equity in Earnings (Losses) of Unconsolidated Subsidiaries
Under the equity method of accounting, we record our proportional share of the losses of the company in which
we have invested, up to the amount of our investment. We recorded $110 million of net equity in earnings of
unconsolidated subsidiaries in 2005, primarily the result of recording $137 million of equity in earnings
associated with our ownership interest in Nextel Partners, the majority of which related to a release by Nextel
Partners of a significant portion of its deferred tax valuation allowance in the third quarter 2005.
We recorded $39 million and $77 million of equity in losses of unconsolidated subsidiaries during 2004 and
2003, respectively, primarily driven by our investments in Virgin Mobile. Our equity in losses of unconsolidated
subsidiaries decreased from 2003 to 2004 because, during 2004, our recorded losses from Virgin Mobile reached
the amount of our investment and we suspended the recognition of our equity in Virgin Mobile’s losses at that
time. Additional information regarding our equity method investments can be found in note 5 of the Notes to the
Consolidated Financial Statements appearing at the end of this annual report on Form 10-K.
Loss on Retirement of Debt
We recorded charges of $60 million and $21 million in 2004 and 2003, respectively, to expense the carrying
value of debt premiums due to the early retirement of debt. We did not incur any charges due to the early
retirement of debt during 2005. Additional information regarding our long-term debt can be found in note 9 of
the Notes to the Consolidated Financial Statements appearing at the end of this annual report on Form 10-K.
Other, net
We recognized $71 million of gains on the sale of investments during 2005. During the year, we realized a gain
of $15 million from our sale of 5 million shares of our investment in NII Holdings Inc. We also used 10.5 million
shares of our investment in Earthlink, Inc. to settle certain variable prepaid forward contracts for a gain of $9
million. Additionally, during 2005, Rogers Communications, Inc. acquired Call-Net Enterprises, Inc., in which
we held an equity method investment. This acquisition resulted in a gain of $18 million. In December 2005, we
sold our remaining investment in Barak I.T.C. (1995) – The International Telecommunications Services Corp.
Ltd. for a nominal amount, and reversed previously-recognized losses of $28 million.
We recognized $15 million of gains on the sale of investments during 2004. These gains were primarily
attributable to transactions involving our investment in Earthlink. We used 5.6 million shares to settle certain
variable prepaid forward contracts and sold an additional 1 million shares of this investment for gains totaling
$11 million.
During 2003, we sold 10.8 million shares of our investment in Earthlink for a loss of $3 million.
Our derivative transactions are used principally for hedging purposes. However, we entered into several
derivative instruments during 2005 that did not qualify for hedge accounting treatment. As a result, all changes in
the fair values of these instruments were reflected in our results of operations in the period in which the change
occurred. During 2005, we recognized approximately $27 million of losses due to the change in fair values of
these instruments. Additional information regarding our derivative instruments and hedging activities can be
found in note 12 of Notes to the Consolidated Financial Statements appearing at the end of this annual report on
Form 10-K.
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