Sprint - Nextel 2008 Annual Report Download - page 121

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CLEARWIRE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Interest Capitalization — We capitalize interest related to our owned spectrum licenses and the related
construction of our network infrastructure assets. Capitalization of interest commences with pre-construction
period administrative and technical activities, which includes obtaining leases, zoning approvals and building
permits, and ceases when the construction is substantially complete and available for use (generally when a
market is launched). Interest is capitalized on construction in progress and spectrum licenses accounted for as
intangible assets with indefinite useful lives. Interest capitalization is based on rates applicable to borrowings
outstanding during the period and the balance of qualified assets under construction during the period.
Capitalized interest is reported as a cost of the network assets and depreciated over the useful life of those assets.
Income Taxes — We record deferred income taxes based on the estimated future tax effects of differences
between the financial statement and tax basis of assets and liabilities using the tax rates expected to be in effect
when the temporary differences reverse. Deferred tax assets are also recorded for net operating loss, capital loss,
and tax credit carryforwards. Valuation allowances, if any, are recorded to reduce deferred tax assets to the
amount considered more likely than not to be realized. We also apply a recognition threshold that a tax position
is required to meet before being recognized in the financial statements.
Revenue Recognition — We primarily earn revenue by providing access to our high-speed wireless network.
Also included in revenue are leases of CPE and additional add-on services, including personal and business email
and static Internet Protocol. Revenue from customers is billed one month in advance and recognized ratably over
the contracted service period. Revenues associated with the sale of CPE and other equipment to customers is
recognized when title and risk of loss is transferred to the customer. Shipping and handling costs billed to
customers are classified as revenue. Activation fees charged to the customer are deferred and recognized as
revenues on a straight-line basis over the average estimated life of the customer relationship of 3 years.
Revenue arrangements with multiple deliverables are divided into separate units of accounting based on the
deliverables’ relative fair values if the there is objective and reliable evidence of fair value for all deliverables in
the arrangement. When we are the primary obligor in a transaction, are subject to inventory risk, have latitude in
establishing prices and selecting suppliers, or have several but not all of these indicators, gross revenue is
recorded. If we are not the primary obligor and amounts earned are determined using a fixed percentage, a fixed-
payment schedule, or a combination of the two, we record the net amounts as commissions earned. Promotional
discounts treated as cash consideration are recorded as a reduction of revenue.
Advertising Costs — Advertising costs are expensed as incurred or the first time the advertising occurs.
Advertising expense was $99.1 million, $7.5 million and $0 for the years ended December 31, 2009, 2008 and
2007, respectively.
Research and Development — Research and development costs are expensed as incurred. Research and
development expense was $6.4 million, $350,000 and $0 for the years ended December 31, 2009, 2008 and 2007,
respectively.
Net Loss per Share — Basic net loss per common share is computed by dividing loss attributable to
common stockholders by the weighted-average number of common shares outstanding during the period. Diluted
net loss per common share is computed by dividing loss attributable to common stockholders by the weighted-
average number of common shares and dilutive common stock equivalents outstanding during the period.
Common stock equivalents typically consist of the common stock issuable upon the exercise of outstanding stock
options, warrants and restricted stock using the treasury stock method. The effects of potentially dilutive
common stock equivalents are excluded from the calculation of diluted loss per share if their effect is
antidilutive. We have two classes of common stock, Class A and Class B. See Note 16, Net Loss Per Share, for
further information.
F-55