Sprint - Nextel 2011 Annual Report Download - page 34

Table of Contents
Interest Expense
Interest expense decreased $453 million, or 31%, in 2011 as compared to 2010, primarily due to a $400 million increase in the amount of interest capitalized.
The increase in capitalized interest is related to our plan to deploy certain spectrum licenses as part of Network Vision that were not previously utilized. The reduction in
interest expense also includes a decrease of $115 million as a result of the repayment of $1.65 billion of Sprint Capital Corporation 7.625% senior notes in January 2011.
The decrease was partially offset by increases in interest expense of $54 million as a result of the November 2011 Sprint Nextel Corporation issuance of $1 billion in
principal of 11.50% senior notes due 2021 and $3 billion in principal of 9.00% guaranteed notes due 2018. Interest expense increased $14 million, or 1%, in 2010 as
compared to 2009. This increase was primarily due to higher effective interest rates on our average long-term debt balances and increased costs on our revolving credit
facilities, which include the accelerated amortization of previously unamortized debt issuance costs from the retirement of our former credit facility in May 2010 partially
offset by reductions in interest expense previously recorded as a result of favorable tax outcomes. The effective interest rate, which includes capitalized interest, on the
weighted average long-term debt balance of $19.1 billion, $20.6 billion, and $21.4 billion was 7.4%, 7.2%, and 6.8% for 2011, 2010 and 2009, respectively. See
“Liquidity and Capital Resources” for more information on the Company's financing activities.
Equity in Losses of Unconsolidated Investments, net
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, heavily invested in building its network and acquiring
other assets necessary to expand its WiMAX business during 2009 and 2010, which resulted in increased operating losses and reduced liquidity. In August 2011,
Clearwire announced its intention to deploy an LTE network subject to the availability of additional funding. In December 2011, Clearwire issued additional equity and
raised net proceeds of approximately $716 million. Additionally, in January 2012, Clearwire issued additional indebtedness and raised net proceeds of approximately
$295 million. We expect Clearwire to continue to generate net losses in the near term as it executes its business plan, including the deployment of an LTE network. Our
intent to hold our investment in Clearwire is based, in part, on our growing subscriber base of 4G WiMAX subscribers that utilize Clearwire's network and our intent to
sell 4G WiMAX devices through 2012.
Equity in losses of unconsolidated investments primarily consists of our proportionate share of losses from our equity method investments. Equity losses
associated with our 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 and other items recognized by Clearwire Corporation that do not effect Sprint's economic interest.
Equity in losses from Clearwire were $1.7 billion, $1.3 billion, and $803 million for 2011, 2010 and 2009, respectively. Equity in losses from Clearwire for 2011 and
2010 include charges of approximately $361 million and $97 million respectively, which are associated with Clearwire's write-off of certain network and other assets that
no longer meet their strategic plans. The year ended December 31, 2011 also includes a $135 million pre-tax impairment reflecting the reduction of our investment in
Clearwire to its estimated fair value and a dilution loss of approximately $27 million associated with the fourth quarter reduction of our non-controlling economic interest
related to Clearwire's equity issuance. The 2009 equity in losses of Clearwire include a pre-tax dilution loss of $154 million 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. Additional declines in the value of Clearwire may require us to evaluate the decline in relation to the
carrying value of our investment in Clearwire. A conclusion by us that additional declines in the value of Clearwire are other than temporary could result in an additional
impairment, which could be material.
On November 30, 2011, Sprint entered into new agreements with Clearwire that established long-term pricing terms for 4G services, both WiMAX and LTE.
Under terms of the agreements, Sprint is required to pay Clearwire $926 million in total over the course of 2012 and 2013 in exchange for unlimited WiMAX services
during those years. The agreements also establish long-term usage-based pricing for LTE services in 2012 and beyond and WiMAX services in 2014 and beyond. Under
the terms Sprint may also make a series of refundable prepayments up to $350 million for LTE services, if Clearwire achieves certain build-out targets and network
specifications by June 2013 or obtains purchase commitments for LTE services from other customers. These payments, beginning in 2013,
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