Sprint - Nextel 2011 Annual Report Download - page 115

Table of Contents
CLEARWIRE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
stated at cost net of accumulated amortization. Amortization is calculated using either the straight-line method or an accelerated method over the assets' estimated
remaining useful lives. Other intangible assets are assessed for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset
may not be recoverable. There were no impairment losses for our other intangible assets in the United States in the years ended December 31, 2011, 2010 and 2009.
Derivative Instruments and Hedging Activities - It is our policy that hedging activities are executed only to manage exposures arising in the normal course of
business and not for the purpose of creating speculative positions or trading. We record all derivatives on the balance sheet at fair value as either assets or liabilities. The
accounting for changes in the fair value of derivatives depends on the intended use of the derivative and whether it qualifies for hedge accounting.
During 2010, we issued exchangeable notes that included embedded exchange options which qualified as derivative instruments and are required to be accounted
for separately from the host debt instruments and recorded as derivative financial instruments at fair value. The embedded exchange options, which we refer to as the
Exchange Options, do not qualify for hedge accounting, and as such, all future changes in the fair value of these derivative instruments will be recognized currently in
earnings until such time as the Exchange Options are exercised or expire. See Note 11, Derivative Instruments, for further information.
In addition, in the event of an issuance of new equity securities or securities exchangeable or convertible into capital stock, which we refer to as New Securities,
certain existing equityholders are entitled to pre-emptive rights which allow them to purchase their pro-rata share of the New Securities at the issuance price less any
underwriting discounts. This right is considered a derivative that is required to be recorded at fair value. See Note 11, Derivative Instruments, for further information.
Debt Issuance Costs - Debt issuance costs are initially capitalized as a deferred cost and amortized to interest expense under the effective interest method over the
expected term of the related debt. Unamortized debt issuance costs related to extinguishment of debt are expensed at the time the debt is extinguished and recorded in
other income (expenses), net in the consolidated statements of operations. Unamortized debt issuance costs are recorded in other assets in the consolidated balance sheets.
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. Our policy is to recognize any interest related to
unrecognized tax benefits in interest expense or interest income. We recognize penalties as additional income tax expense.
Revenue Recognition - We primarily earn revenue by providing access to our high-speed wireless networks. Also included in revenue are sales and leases of CPE
and additional add-on services, including personal and business email. In our 4G mobile broadband markets, we offer our services through retail channels and through our
wholesale partners. We believe that the geographic diversity of our retail subscriber base minimizes the risk of incurring material losses due to concentration of credit risk.
Sprint, our major wholesale customer, accounts for substantially all of our wholesale sales to date, and comprise approximately 39% of total revenues during the year
ended December 31, 2011.
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