Sprint - Nextel 2008 Annual Report Download - page 76

SPRINT NEXTEL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Allowance for Doubtful Accounts
An allowance for doubtful accounts is established sufficient to cover probable and reasonably estimable
losses. Because of the number of subscriber accounts, it is not practical to review the collectibility of each of
those accounts individually to determine the amount of allowance for doubtful accounts each period, although
some account level analysis is performed with respect to large wireless and wireline subscribers. The estimate of
allowance for doubtful accounts considers a number of factors, including collection experience, aging of the
accounts receivable portfolios, credit quality of the subscriber base, estimated proceeds from future bad debt
sales and other qualitative considerations, including macro-economic factors. Amounts written off against the
allowance for doubtful accounts, net of recoveries, were $487 million, $826 million, and $952 million in 2009,
2008 and 2007, respectively.
Device and Accessory Inventory
Inventories are stated at the lower of cost or market. Cost is determined by the first-in, first-out (FIFO)
method. Costs of devices and related revenues generated from device sales (equipment net subsidy) are
recognized at the time of sale. Expected equipment net subsidy is not recognized prior to the time of sale because
the promotional discount decision is generally made at the point of sale and because the equipment net subsidies
are expected to be recovered through service revenues.
The net realizable value of devices and other inventory is analyzed on a regular basis. This analysis
includes assessing obsolescence, sales forecasts, product life cycle, marketplace and other considerations. If
assessments regarding the above factors adversely change, we may be required to sell devices at a higher subsidy
or potentially record expense in future periods prior to the point of sale.
Property, Plant and Equipment
Property, plant and equipment (PP&E), including improvements that extend useful lives, are recognized
at cost. Depreciation on property, plant and equipment is generally calculated using the straight-line method
based on estimated economic useful lives of 3 to 30 years for buildings and improvements and network
equipment, site costs and related software and 3 to 12 years for non-network internal use software, office
equipment and other. Leasehold improvements are depreciated over the shorter of the lease term or the estimated
useful life of the respective assets. We calculate depreciation on certain network assets using the group life
method. Accordingly, ordinary asset retirements and disposals on those assets are charged against accumulated
depreciation with no gain or loss recognized. Gains or losses associated with all other asset retirements or
disposals are recognized in the consolidated statements of operations. Depreciation rates for assets using the
group life method are revised periodically as required under this depreciation method. Repair and maintenance
costs and research and development costs are expensed as incurred.
We capitalize costs for network and non-network software developed or obtained for internal use during
the application development stage. These costs are included in PP&E and, when the software is placed in service,
are depreciated over estimated useful lives of 3 to 5 years. Costs incurred during the preliminary project and
post-implementation stage, as well as maintenance and training costs, are expensed as incurred.
Investments
Short-term investments are recognized at amortized cost and classified as current assets on the
consolidated balance sheets when the original maturities at purchase are greater than three months but less than
one year. Certain investments are accounted for using the equity method based on the Company’s ownership
interest and ability to exercise significant influence. Accordingly, the initial investment is recognized at cost and
subsequently adjusted to recognize the Company’s share of earnings or losses of the investee in each reporting
period subsequent to the investment date.
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