Sprint - Nextel 2006 Annual Report Download - page 87

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We prepare our consolidated financial statements in conformity with accounting principles generally accepted
in the United States, which require management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the
consolidated financial statements and the reported amounts of revenues and expenses during the reporting
period. Due to the inherent uncertainty involved in making those estimates, actual results could differ from
those estimates. Areas in which significant estimates have been made include, but are not limited to, the
allowance for doubtful accounts receivable, inventory obsolescence, tax valuation allowances, useful lives for
property, plant and equipment and definite lived intangible assets, intangible asset impairment analyses and tax
accruals.
Certain prior period amounts have been reclassified to conform to the current period presentation.
Significant Accounting Policies
Cash and Cash Equivalents
Cash equivalents generally include highly liquid investments with original maturities at purchase of three
months or less. These investments include money market funds, U.S. government and government-sponsored
debt securities, corporate debt securities, municipal securities and bank-related securities. All securities meet
our investment policy guidelines and are stated at cost.
Supplemental Cash Flow Information from Continuing Operations
2006 2005 2004
Year Ended December 31,
(in millions)
Interest paid, net of capitalized interest................................ $1,589 $1,232 $1,203
Interest received ................................................ 303 229 60
Income taxes paid (received) ....................................... 247 97 (70)
Our non-cash activities included the following:
2006 2005 2004
Year Ended December 31,
(in millions)
Common stock issued
Acquisition of Nextel .......................................... $ — $35,645 $ —
Vested stock option awards exchanged in acquisition of Nextel ........... — 639 —
Conversion of non-voting common shares to voting common shares........ 623 — —
Employee benefit stock plans .................................... 44 90 53
Earthlink common stock used to extinguish debt ........................ — 90 48
Investments
We record our investments in marketable equity securities at fair value as we consider them available-for-sale
securities. Accordingly, we record unrealized holding gains and losses on these securities in accumulated other
comprehensive income (loss), net of related income tax. Realized gains or losses are reclassified from
accumulated other comprehensive income (loss) into earnings based on specific identification. During 2006
and 2005, we recognized gross unrealized holding gains of $6 million and $143 million, and gross unrealized
losses of $8 million in 2006, on equity securities. See note 10 for information regarding our sale of NII
Holdings, Inc. available-for-sale securities in 2006. Certain other equity securities are accounted for at cost.
We record our investments in debt securities, including auction rate securities, at amortized cost and classify
these securities as current assets on the consolidated balance sheets when the original maturities at purchase
are greater than 90 days but less than one year. Interest on investments in debt securities is reinvested and
F-10
SPRINT NEXTEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)