Sprint - Nextel 2011 Annual Report Download - page 113

Table of Contents
CLEARWIRE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
year are recorded as long-term investments. Unrealized gains and losses are recorded within accumulated other comprehensive income (loss). Realized gains and losses
are measured and reclassified from accumulated other comprehensive income (loss) on the basis of the specific identification method.
We account for certain of our investments using the equity method based on our ownership interest and our ability to exercise significant influence. Accordingly, we
record our investment initially at cost and we adjust the carrying amount of the investment to recognize our share of the earnings or losses of the investee each reporting
period. We cease to recognize investee losses when our investment basis is zero.
We recognize realized losses when declines in the fair value of our investments below their cost basis are judged to be other-than-temporary. In determining
whether a decline in fair value is other-than-temporary, we consider various factors including market price, investment ratings, the financial condition and near-term
prospects of the issuer, the length of time and the extent to which the fair value has been less than the cost basis, and our intent and ability to hold the investment until
maturity or for a period of time sufficient to allow for any anticipated recovery in market value. If it is judged that a decline in fair value is other-than-temporary, a
realized loss equal to the decline is reflected in the consolidated statement of operations, and a new cost basis in the investment is established.
Fair Value Measurements - Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market
participants at the measurement date. In determining fair value, we use various methods including market, cost and income approaches. Based on these approaches, we
utilize certain assumptions that market participants would use in pricing the asset or liability, including assumptions about risk. The three-tier hierarchy for inputs used in
measuring fair value, which prioritizes the inputs used in the methodologies of measuring fair value for assets and liabilities, is as follows:
Level 1: Quoted market prices in active markets for identical assets or liabilities
Level 2: Observable market based inputs or unobservable inputs that are corroborated by market data
Level 3: Unobservable inputs that are not corroborated by market data
Financial assets and financial liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurements. Our
assessment of the significance of a particular input to the fair value measurement requires judgment, and may affect the valuation of the assets and liabilities being
measured and their placement within the fair value hierarchy.
We maximize the use of observable inputs and minimize the use of unobservable inputs when developing fair value measurements. If listed prices or quotes are not
available, fair value is based upon internally developed or other available models that primarily use, as inputs, market-based or independently sourced market parameters,
including but not limited to interest rate yield curves, volatilities, equity or debt prices, and credit curves. We utilize certain assumptions that market participants would
use in pricing the financial instrument, including assumptions about risk, such as credit, inherent and default risk. The degree of management judgment involved in
determining fair value is dependent upon the availability of quoted market prices or observable market parameters. For assets or liabilities that trade actively and have
quoted market prices or observable market parameters, there is minimal judgment involved in measuring fair value. When observable market prices and parameters are
not fully available, management judgment is necessary to estimate fair value. In addition, changes in market conditions may reduce the availability and reliability of
quoted prices or observable data. In these instances, we 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 our own assumptions about the assumptions that a market participant would use in pricing the security. These internally derived
values are compared with non-binding values received from brokers or other independent sources, as available. See Note 12, Fair Value, for further information.
Accounts Receivable - Accounts receivables are stated at amounts due from subscribers and our wholesale partners net of an allowance for doubtful accounts. See
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ote 17, Related Party Transactions, for further information regarding accounts receivable balances with related parties.
Inventory - Inventory primarily consists of customer premise equipment, which we refer to as CPE, and other accessories sold to retail subscribers and is stated at
the lower of cost or net realizable value. Cost is determined under the average cost method. We record inventory write-downs for obsolete and slow-moving items based
on inventory turnover trends and historical experience.
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