Sprint - Nextel 2008 Annual Report Download - page 137

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CLEARWIRE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Cash Equivalents and Investments
Where quoted prices for identical securities are available in an active market, we use quoted market prices
to determine the fair value of investment securities and cash equivalents, and they are classified in Level 1 of the
valuation hierarchy. Level 1 securities include U.S. Treasuries and money market mutual funds for which there
are quoted prices in active markets.
For other debt securities which are classified in Level 3, we use discounted cash flow models to estimate the
fair value using various methods including the market and income approaches. In developing these models, we
utilize certain assumptions that market participants would use in pricing the investment, including assumptions
about risk and the risks inherent in the inputs to the valuation technique. We maximize the use of observable
inputs in the pricing models where quoted market prices from securities and derivatives exchanges are available
and reliable. We also use certain unobservable inputs that cannot be validated by reference to a readily
observable market or exchange data and rely, to a certain extent, on management’s own assumptions about the
assumptions that market participants would use in pricing the security. We use many factors that are necessary to
estimate market values, including interest rates, market risks, market spreads, timing of contractual cash flows,
market liquidity, review of underlying collateral and principal, interest and dividend payments.
Derivatives
Derivatives are classified in Level 3 of the valuation hierarchy. To estimate fair value, we use an income
approach whereby we estimate net cash flows and discount the cash flows at a risk-adjusted rate. The inputs
include the contractual terms of the derivatives, including the period to maturity, payment frequency and
day-count conventions, and market-based parameters such as interest rate forward curves and interest rate
volatility. A level of subjectivity is used to estimate the risk of our non-performance or that of our counterparties.
The following table summarizes our financial assets and liabilities by level within the valuation hierarchy at
December 31, 2009 (in thousands):
Quoted
Prices in
Active
Markets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Total
Fair Value
Financial assets:
Cash and cash equivalents ............ $1,698,017 $— $ — $1,698,017
Short-term investments ............... $2,106,661 $— $ — $2,106,661
Long-term investments ............... $ 74,516 $— $13,171 $ 87,687
The following table summarizes our financial assets and liabilities by level within the valuation hierarchy at
December 31, 2008 (in thousands):
Quoted
Prices in
Active
Markets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Total
Fair Value
Financial assets:
Cash and cash equivalents ............ $1,206,143 $— $ — $1,206,143
Short-term investments ............... $1,901,749 $— $ — $1,901,749
Long-term investments ............... $ — $— $18,974 $ 18,974
Financial liabilities:
Interest rate swaps ................... $ — $— $21,591 $ 21,591
F-71