Sprint - Nextel 2010 Annual Report Download - page 30

Equity in Losses of Unconsolidated Investments, net
This item consists mainly of our proportionate share of losses from our equity method investments. Equity losses
associated with the investment in Clearwire consists of Sprint's share of Clearwire's net loss and other adjustments such as
gains or losses associated with the dilution of Sprint's ownership interest resulting from Clearwire's equity issuances. Equity in
losses from Clearwire were $1.3 billion, $803 million, and $142 million for 2010, 2009 and 2008, respectively. The 2009
equity in losses of Clearwire include a pre-tax dilution loss of $154 million ($96 million after tax) recognized in the first
quarter 2009, representing the finalization of ownership percentages associated with the formation of Clearwire, which was
subject to change based on the trading price of Clearwire stock during the 90 days subsequent to the November 2008 closing.
Clearwire owns and operates a next generation mobile broadband network that provides high-speed residential and
mobile internet access services and residential voice services in communities throughout the country. Clearwire is an early
stage company, and as such, has heavily invested in building its network and acquiring other assets necessary to expand the
business during 2009 and 2010, which has resulted in increased operating losses and reduced liquidity. We expect Clearwire to
continue to generate significant net losses in the near term as it executes its business plan.
Other income, net
The following table provides additional information of items included in “Other income, net” for each of the three
years ended December 31, 2010.
Interest income
Realized loss from investments
Gain on previously held non-controlling interest in Virgin Mobile
Other
Total
Year Ended December 31,
2010
(in millions)
$ 35
(3)
—
14
$ 46
2009
$ 34
(29)
151
1
$ 157
2008
$ 97
(24)
—
16
$ 89
Interest income remained relatively stable in 2010, as compared to 2009. Interest income decreased $63 million, or
65%, in 2009 as compared to 2008, primarily due to lower interest rates. Realized loss from investments decreased $26 million,
or 90%, in 2010, as compared to 2009 primarily due to fewer sales of marketable securities. As a result of the acquisition of
Virgin Mobile, a non-cash gain of $151 million ($92 million after tax) was recognized in the fourth quarter 2009 related to the
estimated fair value over net carrying value of our previously held non-controlling interest in Virgin Mobile.
Income Tax (Expense) Benefit
The consolidated effective tax rate was an expense of approximately 5% in 2010 and a benefit of approximately 30%
and 31% in 2009 and 2008, respectively. The income tax expense for 2010 and the benefit for 2009 include a $1.4 billion and
$281 million net increase to the valuation allowance for federal and state deferred tax assets related to net operating loss
carryforwards generated during the periods. We do not expect to record significant tax benefits on future net operating losses
until our circumstances justify the recognition of such benefits. The 2008 income tax benefit includes $278 million related to
non-cash goodwill impairment 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 10 of Notes to the Consolidated Financial
Statements.
Segment Earnings - Wireless
Wireless segment earnings are primarily a function of wireless service revenue, costs to acquire subscribers, network
and interconnection costs to serve those subscribers and other Wireless segment operating expenses. The costs to acquire our
subscribers include the net cost at which we sell our devices, referred to as subsidies, as well as the marketing and sales costs
incurred to attract those subscribers. Network costs primarily represent switch and cell site costs and interconnection costs,
which generally consist of per-minute usage fees and roaming fees paid to other carriers. The remaining costs associated with
operating the Wireless segment include the costs to operate our customer care organization and administrative support. Wireless
service revenue, costs to acquire subscribers, and variable network and interconnection costs fluctuate with the changes in our
subscriber base and their related usage, but some cost elements do not fluctuate in the short term with these changes. The
following table provides an overview of the results of operations of our Wireless segment for each of the three years ended
December 31, 2010.
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