Sprint - Nextel 2008 Annual Report Download - page 35

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Interest Expense
Interest expense increased $88 million, or 7%, in 2009 as compared to 2008, as fewer capital projects
led to a decrease of $111 million of capitalized interest partially offset by a decrease of $56 million related to a
$1.5 billion decline in the weighted average long-term debt balance between the comparative periods. In
addition, we had $35 million of interest credits in 2008 related to the reversal of accrued interest due to the
completion of income tax audits. Interest expense decreased $71 million in 2008 as compared to 2007, due to the
reduction in our average effective interest rates, partially offset by an increase in the weighted average long-term
debt balance. The effective interest rate on the weighted average long-term debt balance of $21.4 billion, $22.9
billion and $21.8 billion was 6.8%, 6.6% and 6.9% for 2009, 2008 and 2007, respectively. See “Liquidity and
Capital Resources” for more information on the Company’s financing activities.
Equity in Losses of Unconsolidated Investments, net
This item consists mainly of our proportionate share of earnings or losses from our equity method
investments. Equity losses of $649 million associated with the investment in Clearwire represent the Company’s
proportionate share of Clearwire’s net loss for 2009, plus a pre-tax loss of $154 million ($96 million after tax)
related to the dilution of our investment in Clearwire from 53% to 51% during the first quarter 2009. During the
fourth quarter 2009, we invested approximately $1.1 billion in Clearwire which increased our economic
ownership to 56%. Prospectively, from the date of this subsequent investment, our equity income (loss) from
Clearwire will represent our proportionate share of Clearwire’s results of operations based on our increased
economic interest. We expect Clearwire to continue to generate a net loss as it continues build out of its 4G
network.
Other income, net
The following table provides additional information of items included in “Other income, net” for the
years ended December 31, 2009, 2008 and 2007.
Year Ended December 31,
2009 2008 2007
(in millions)
Interest income ........................................... $ 34 $ 97 $151
Realized gain (loss) from investments ......................... (29) (24) 253
Gain from non-controlling interest in VMU .................... 151 — —
Other ................................................... 1 16 (3)
Total ................................................. $157 $ 89 $401
Interest income decreased $63 million, or 65%, in 2009 as compared to 2008, primarily due to lower
interest rates. Interest income decreased $54 million, or 36%, in 2008 as compared to 2007, primarily due to
lower interest rates and the recognition of interest income on income tax settlements of $31 million in 2007. A
realized gain of $253 million was recognized in 2007, primarily related to the sale of a portion of our equity
interest in VMU and a dilution of our ownership percentage to 14.1% in conjunction with their initial public
offering of stock. As a result of the fourth quarter 2009 acquisition of VMU, a non-cash gain of $151 million
($92 million after tax) was recognized related to the estimated fair value over net carrying value of our
previously held non-controlling interest in VMU.
Income Tax Benefit
As a result of our pre-tax losses, the consolidated effective tax rate was a benefit of approximately 30%,
31% and 1% in 2009, 2008 and 2007, respectively. The 2009 effective tax rate was reduced by a $281 million net
increase to the valuation allowance for federal and state deferred tax assets related to net operating and capital
loss carryforwards. The 2008 and 2007 effective tax rates were reduced by $794 million of the $963 million
non-cash goodwill impairment in 2008 and $29.3 billion of the $29.6 billion non-cash goodwill impairment in
2007 as substantially all of the charges are not separately deductible for tax purposes. Additional information
related to items impacting the effective tax rates can be found in note 11 of Notes to the Consolidated Financial
Statements.
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