Sprint - Nextel 2006 Annual Report Download - page 48

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Income (loss) from continuing operations increased 21% in 2006 as compared to 2005 and improved from a
loss to income in 2005 as compared to 2004, primarily due to a decrease in impairment charges. In 2004, we
recorded a $3.5 billion asset impairment charge related to our long distance network. In addition, income
(loss) from continuing operations increased due to revenue growth as a result of the business combinations
discussed above, partially offset by increases to cost of service primarily due to higher volume in roaming and
interconnection expenses. For additional information, see “— Segment Results of Operations” and “—
Consolidated Information” below.
Net income (loss) decreased 26% in 2006 as compared to 2005 primarily as a result of the Embarq spin-off.
Net income improved in 2005 from a net loss in 2004 primarily as a result of the $3.5 billion asset impairment
charge in 2004 related to our long distance network. For additional information, see “— Segment Results of
Operations” and “— Consolidated Information” below.
Presented below are results of operations for our Wireless and Long Distance segments, followed by a
discussion of results of operations on a consolidated basis.
Segment Results of Operations
Wireless
Our Wireless segment results of operations for the year ended December 31, 2006 include the results of
acquired companies from either the date of the acquisition or the start of the month closest to the acquisition
date. As such, the results of acquired companies are included as of the following dates: Enterprise
Communications Partnership and Alamosa Holdings, Inc. from February 1, 2006, Velocita Wireless Holding
Corporation from March 1, 2006 and Nextel Partners and UbiquiTel Inc. from July 1, 2006. The year ended
December 31, 2005 results include the results of operations of Nextel and US Unwired, Inc. from August 12,
2005, Gulf Coast Wireless from October 1, 2005 and IWO Holdings from November 1, 2005.
Wireless 2006 2005 2004 2006 vs 2005 2005 vs 2004
Year Ended December 31, Change from Previous Year
(dollars in millions)
Service .............................. $31,059 $19,289 $12,529 61% 54%
Wholesale, affiliate and other .............. 859 892 608 (4)% 47%
Total services revenue ................. 31,918 20,181 13,137 58% 54%
Cost of services ........................ (7,933) (5,379) (3,720) 47% 45%
Service gross margin .................... $23,985 $14,802 $ 9,417 62% 57%
Service gross margin percentage ............ 75% 73% 72%
Equipment revenue ..................... $ 3,197 $ 2,147 $ 1,510 49% 42%
Cost of products ....................... (4,921) (3,272) (2,381) 50% 37%
Equipment net subsidy ................. $ (1,724) $ (1,125) $ (871) 53% 29%
Equipment net subsidy percentage .......... (54)% (52)% (58)%
Selling, general and administrative expense.... $(10,572) $ (6,733) $ (4,434) 57% 52%
Wireless segment earnings ................ 11,689 6,944 4,112 68% 69%
Severance, lease exit costs, asset impairments
and other
(1)
......................... (175) (105) (25) 67% NM
Depreciation
(1)
......................... (5,232) (3,364) (2,571) 56% 31%
Amortization
(1)
........................ (3,854) (1,335) (6) 189% NM
Wireless operating income ................ 2,428 2,140 1,510 13% 42%
NM — Not Meaningful
(1) Severance, lease exit costs, asset impairments and other, depreciation and amortization are discussed in
the Consolidated Information section.
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