Sprint - Nextel 2012 Annual Report Download - page 130

Table of Contents
SPRINT NEXTEL CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Device and Accessory Inventory
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.
Property, 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.
Investments
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.
Long
- Lived Asset Impairment
Sprint evaluates long
- lived assets, including intangible assets subject to amortization, for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset group may not be recoverable. Asset groups are determined at the lowest level for which
identifiable cash flows are largely independent of cash flows of other groups of assets and liabilities. When it is probable that undiscounted future
cash flows will not be sufficient to recover an asset group's carrying amount, an impairment is determined by the excess of the asset group's net
carrying value over the estimated fair value. Refer to note 9 for additional information on asset impairments.
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