Sprint - Nextel 2010 Annual Report Download - page 104

Interest Capitalization — We capitalize interest related to our owned spectrum licenses and the related construction of
our network infrastructure assets, as well as the development of software for internal use. 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 or when we suspend
substantially all construction activity. Interest is capitalized on construction in progress, software under development 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 or software assets and depreciated over the useful lives 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 networks. Also
included in revenue are leases of CPE and additional add-on services, including personal and business email and static Internet
Protocol. Revenue from retail subscribers 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 subscribers is recognized when title and risk of loss is
transferred to the subscriber. Shipping and handling costs billed to subscribers are classified as revenue. Activation fees charged
to the subscriber are deferred and recognized as revenues on a straight-line basis over the average estimated life of the
subscriber relationship of 3 years.
Revenue from wholesale subscribers is billed one month in arrears and recognized ratably over the contracted service
period. Revenues are generally recognized based on terms defined in our commercial agreements with our wholesale partners.
We are currently engaged in ongoing negotiations with Sprint to resolve issues related to wholesale pricing under our
commercial agreements. See Note 12, Commitments and Contingencies, for further information. As a result, the amount of
revenue recognized during 2010 related to Sprint wholesale arrangements is based on pricing proposed by Sprint. We expect to
collect the revenue recognized to date.
Revenue arrangements with multiple deliverables are divided into separate units of accounting based on the deliverables’
relative fair values if 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 $213.9 million, $99.1 million and $7.5 million for the years ended December 31, 2010, 2009 and 2008,
respectively.
Research and Development — Research and development costs are expensed as incurred and primarily relate to costs
incurred while assessing how external devices perform on our networks. Research and development expense was $7.0 million,
$6.4 million and $350,000 for the years ended December 31, 2010, 2009 and 2008, respectively.
Net Loss per Share — Basic net loss per Class A Common Share is computed by dividing net loss attributable to
Clearwire Corporation by the weighted-average number of Class A Common Shares outstanding during the
Table of Contents CLEARWIRE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS —(CONTINUED)
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