Sprint - Nextel 2006 Annual Report Download - page 56

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these business combinations, depreciation expense increased 10% as a result of an increase in cell sites in
service and the capitalized costs incurred to modify existing switches and cell sites to enhance the capacity of
our networks, partially offset by the reduction in value of assets associated with the impairment of our
property, plant and equipment in 2004.
Amortization expense increased $2.5 billion in 2006 from 2005 and increased $1.3 billion in 2005 from 2004,
primarily due to the amortization of the value of customer relationships and other definite lived intangible
assets acquired in connection with the Sprint-Nextel merger and the PCS Affiliate and Nextel Partners
acquisitions. See note 7 to the Notes to Consolidated Financial Statements appearing at the end of this annual
report on Form 10-K for additional information regarding our definite lived intangible assets.
Interest Expense
Interest expense in 2006 increased $239 million as compared to 2005 due to the additional indebtedness
assumed in connection with the Sprint-Nextel merger and the PCS Affiliate and Nextel Partners acquisitions.
The effective interest rate on our average long-term debt balance of $23.3 billion in 2006 was 6.9%. The
effective interest rate on our average long-term debt balance of $19.7 billion in 2005 was 6.7%. This increase
is primarily related to debt assumed as part of the acquisitions in 2006 with, on average, higher interest rates
relative to our existing debt. The effective interest rate on our average long-term debt balance of $17.4 billion
in 2004 was 7.1%. The decrease in our effective interest rate between 2005 and 2004 primarily relates to
lower effective interest rates on the assumed Nextel long-term debt. The effective interest rate includes the
effect of interest rate swap agreements that are discussed in note 10 of the Notes to Consolidated Financial
Statements appearing at the end of this annual report on Form 10-K. As of December 31, 2006, the average
floating rate of interest on the interest rate swaps was 8.3%, while the weighted average coupon on the
underlying debt was 7.2%. See “— Liquidity and Capital Resources” for more information on our financing
activities.
Interest Income
Interest income includes dividends received from certain investments in equity securities and interest earned
on marketable debt securities and cash equivalents. In 2006, interest income increased 28% as compared to
2005 primarily due to the higher interest rates on the cash equivalents balances as well as interest income
recognized in relation to a favorable tax audit settlement for the years 1995 to 2002. This increase was
partially offset by the decrease in cash investment balances due to debt retirements, purchases of common
stock and acquisitions. In 2005, interest income increased as compared to 2004 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 the Federal funds rates during 2005.
Equity in (Losses) Earnings of Unconsolidated Investees, net
Under the equity method of accounting, we record our proportional share of the earnings or losses of the
companies in which we have invested and have the ability to exercise significant influence over, up to the
amount of our investment in the case of losses. We recorded $6 million of equity method losses during 2006,
primarily due to our ownership interests in E-wireless. We recorded $107 million of equity method earnings in
2005 primarily related to Nextel Partners. Our $41 million of equity method losses in 2004 primarily related
to our investment in Virgin Mobile USA.
Realized Gain on Sale or Exchange of Investments
During 2006, we recognized a gain from the sale of investments of $205 million, primarily due to $433 million
of gains on the sales of our investment in NII Holdings, Inc., partially offset by a loss of $274 million from
the change in fair value of an option contract associated with our investment in NII Holdings, as described in
note 10 of the Notes to Consolidated Financial Statements appearing at the end of this annual report on
Form 10-K.
We recognized a gain of $62 million from the sale of our equity method and other investments in 2005, which
primarily consisted of gains related to our investments in Call-Net Enterprises, Inc., NII Holdings and
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