Sprint - Nextel 2011 Annual Report Download - page 76

Table of Contents
SPRINT NEXTEL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
A
llowance
f
or Doubt
f
ul 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 and other qualitative considerations, including macro-
economic factors. Amounts written off against the allowance for doubtful accounts, net of recoveries and other adjustments, were $519 million, $437 million, and $487
million in 2011, 2010 and 2009, respectively.
D
evice and Accessor
y
Inventor
y
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.
P
ropert
y
, 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 comprehensive loss. Depreciation rates for assets are revised periodically to account
for changes, if any, related to management's strategic objectives, technological changes or obsolescence. 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.
I
nvestments
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.
Equity method investments are evaluated for other-than-temporary impairment on a regular basis. Other-than-temporary impairment occurs when the
estimated fair value of an investment is below the carrying value, and the difference is determined to not be recoverable. This evaluation requires significant judgment
regarding, among other things, the severity and duration of the decline in value, 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.
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