Sprint - Nextel 2012 Annual Report Download - page 173

Table of Contents
CLEARWIRE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
The accounting guidance for fair value measurement requires an entity to maximize the use of observable inputs and minimize the use of
unobservable inputs when measuring fair value. The standard establishes a fair value hierarchy based on the level of independent, objective evidence
surrounding the inputs used to measure fair value. Financial assets and financial liabilities are classified in the hierarchy based on the lowest level of
input that is significant to the fair value measurement. 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.
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:
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 curves, volatilities, equity prices, and credit
curves. We use judgment in determining certain assumptions that market participants would use in pricing the financial instrument, including
assumptions about discount rates and credit spreads. The degree of management judgment involved in determining fair value is dependent upon the
availability of 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. 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 Note 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.
Property, Plant and Equipment
— Property, plant and equipment, excluding construction in progress, is stated at cost, net of accumulated
depreciation. Depreciation is calculated on a straight - line basis over the estimated useful lives of the assets once the assets are placed in service. Our
network construction expenditures are recorded as construction in progress until the network or other asset is placed in service, at which time the
asset is transferred to the appropriate property, plant and equipment, which we refer to as PP&E, category. We capitalize costs of additions and
improvements, including salaries, benefits and related overhead costs associated with constructing PP&E and interest costs related to construction.
The estimated useful life of PP&E is determined based on historical usage of identical or similar equipment, with consideration given to technological
changes and industry trends that could impact the network architecture and asset utilization. Leasehold improvements are recorded at cost and
amortized over the lesser of their estimated useful lives or the related lease term, including renewals that are reasonably assured. Included within
Network and base station equipment is equipment recorded under capital leases which is generally being amortized over the lease term. Maintenance
and repairs are expensed as incurred.
PP&E is assessed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be
recoverable. When such events or circumstances exist, we determine the recoverability of the asset's carrying value by estimating the expected
undiscounted future cash flows that are directly associated with and that are expected to arise as a direct result of the use and disposal of the asset. If
the expected undiscounted future cash flows are less than the carrying amount of the asset, a loss is recognized for the difference between the fair
value of the asset and its carrying value. For purposes of testing impairment, our long
- lived assets, including PP&E and intangible assets with definite
useful lives, and our spectrum license assets are combined into a single asset group. This represents the lowest level for which there are identifiable
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Level 1:
Quoted market prices in active markets for identical assets or liabilities.
Level 2:
Inputs other than quoted prices that are observable for the asset or liability such as quoted prices for similar assets or liabilities in
active markets; quoted prices for identical assets or liabilities in less active markets; or model
- derived valuations in which significant
inputs are observable or can be derived principally from, or corroborated by, observable market data.
Level 3:
Unobservable inputs that are significant to the fair value measurement and cannot be corroborated by market data.