Sprint - Nextel 2010 Annual Report Download - page 42

CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Sprint applies those accounting policies that management believes best reflect the underlying business and economic
events, consistent with accounting principles generally accepted in the United States. Sprint's more critical accounting policies
include those related to the basis of presentation, allowance for doubtful accounts, valuation and recoverability of our equity
method investment in Clearwire, valuation and recoverability of long-lived assets, evaluation of goodwill and indefinite-lived
assets for impairment, and accruals for taxes based on income. Inherent in such policies are certain key assumptions and
estimates made by management. Management periodically updates its estimates used in the preparation of the financial
statements based on its latest assessment of the current and projected business and general economic environment. These
critical accounting policies have been discussed with Sprint's Board of Directors. Sprint's significant accounting policies are
summarized in the Notes to the Consolidated Financial Statements.
Basis of Presentation
The consolidated financial statements include the accounts of Sprint and its consolidated subsidiaries. Investments
where Sprint maintains majority ownership, but lacks full decision making ability over all major issues, are accounted for using
the equity method. Governance for Sprint's major unconsolidated investment, Clearwire, is based on Clearwire board
representation for which Sprint does not have a majority vote.
Allowance for Doubtful Accounts
We maintain an allowance for doubtful accounts for estimated losses that result from failure of our subscribers to
make required payments. Our estimate of the 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. To the extent that actual loss experience differs significantly from
historical trends, the required allowance amounts could differ from our estimate. A 10% change in the amount estimated to be
uncollectible would result in a corresponding change in bad debt expense of about $19 million for the Wireless segment and $1
million for the Wireline segment.
Valuation and Recoverability of our Equity Method Investment in Clearwire
We assess our equity method investment for other-than-temporary impairment when indicators such as decline in
quoted prices in active markets indicate a value below the carrying value of our investment. This evaluation requires significant
judgment regarding, but not limited to, the severity and duration of decline in market prices; the ability and intent to hold the
securities until recovery; financial condition, liquidity, and near-term prospects of the issuer, specific events, and other factors.
Sprint's assessment that an investment is not other-than-temporarily impaired could change in the future due to changes in facts
and circumstances.
Sprint owns a 54% ownership interest in Clearwire for which the carrying value as of December 31, 2010 was $3.1
billion while the value of such investment based on Clearwire's closing stock price was $2.7 billion. Sprint's ability to recover
the carrying value of its investment depends, in part, upon Clearwire's ability to obtain sufficient funding to support its
operations and its ability to successfully develop, deploy, and maintain its 4G network. A decline in the estimated fair value of
Clearwire that would be deemed to be other-than-temporary could result in a material impairment to the carrying value of our
investment. We do not intend to sell our 54% economic interest in the foreseeable future, and recoverability of our equity
investment is not affected by short-term fluctuations in Clearwire's stock price. Accordingly, we expect to fully recover the
carrying value of our investment in Clearwire.
Valuation and Recoverability of Long-lived Assets
Long-lived assets consist primarily of property, plant and equipment and intangible assets subject to amortization.
Changes in technology or in our intended use of these assets, as well as changes in economic or industry factors or in our
business or prospects, may cause the estimated period of use or the value of these assets to change.
Property, plant and equipment are generally depreciated on a straight-line basis over estimated economic useful lives.
Certain network assets are depreciated using the group life method. Depreciable life studies are performed periodically to
confirm the appropriateness of depreciable lives for certain categories of property, plant and equipment. These studies take into
account actual usage, physical wear and tear, replacement history and assumptions about technology evolution. When these
factors indicate that an asset's useful life is different from the previous assessment, we depreciate the remaining book values
prospectively over the adjusted remaining estimated useful life. Depreciation rates for assets using the group life method are
revised periodically as required under this method. Changes made as a result of depreciable life studies and rate changes
generally do not have a material effect on depreciation expense.
Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the
carrying amount may not be recoverable. Long-lived asset groups were determined based upon certain factors including
assessing the lowest level for which identifiable cash flows are largely independent of the cash flows of other groups of assets
and liabilities. If the total of the expected undiscounted future cash flows is less than the carrying amount of our assets, a loss is
recognized for the difference between the estimated fair value and carrying value of the assets. Impairment analyses, when
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