Sprint - Nextel 2012 Annual Report Download - page 62

Table of Contents
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Sprint applies those accounting policies that management believes best reflect the underlying business and economic events, consistent
with accounting principles generally accepted in the United States. Sprint's more critical accounting policies include those related to the basis of
presentation, allowance for doubtful accounts, valuation and recoverability of our equity method investment in Clearwire, valuation and recoverability
of long
- lived assets, and evaluation of goodwill and indefinite - lived assets for impairment. Inherent in such policies are certain key assumptions and
estimates made by management. Management regularly updates its estimates used in the preparation of the financial statements based on its latest
assessment of the current and projected business and general economic environment. These critical accounting policies have been discussed with
Sprint's Board of Directors. Sprint's significant accounting policies are summarized in the Notes to the Consolidated Financial Statements.
Basis of Presentation
The consolidated financial statements include the accounts of Sprint and its consolidated subsidiaries. Investments where Sprint maintains
majority ownership, but lacks full decision making ability over all major issues, are accounted for using the equity method. Governance for Sprint's
major unconsolidated investment, Clearwire, is based on Clearwire board representation for which Sprint does not have the ability to control the
actions of Clearwire.
Allowance for Doubtful Accounts
We maintain an allowance for doubtful accounts for estimated losses that result from failure of our subscribers to make required payments.
Our estimate of the 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. To the extent that actual loss experience differs significantly from
historical trends, the required allowance amounts could differ from our estimate. A
10% change in the amount estimated to be uncollectible would
result in a corresponding change in bad debt expense of approximately
$18 million for the Wireless segment and $1 million for the Wireline segment.
Valuation and Recoverability of our Equity Method Investment in Clearwire
We assess our equity method investment for other
- than - temporary impairment when indicators such as decline in quoted prices in active
markets indicate a value below the carrying value of our investment. This evaluation requires significant judgment regarding, but not limited to, the
severity and duration of decline in market prices; the ability and intent to hold the securities until recovery; financial condition, liquidity, and near
- term
prospects of Clearwire; specific events, and other factors.
At each financial reporting measurement date, we evaluate the excess, if any, of Sprint's carrying value over the estimated fair value of our
investment in Clearwire to determine if such excess, an implied unrealized loss, is other
- than - temporary. Our evaluation considers, among other things,
Clearwire's market capitalization, volatility associated with Clearwire's common stock, and the duration of a decline in Clearwire's average trading stock
price below Sprint's carrying value. Our evaluation also considers tax benefits associated with our Class B non
- voting common interests in Clearwire
Communications LLC, governance rights, and our expectation of the duration of our ongoing relationship, as well as other factors. The carrying value
of our equity method investment in Clearwire as of
December 31, 2012 totaled approximately $674 million . Each $0.10 per share change in the value of
Clearwire's traded stock price results in a
$73.9 million change in the estimated fair value of our equity investment based on Sprint's equity interest as
of
December 31, 2012 .
Valuation and Recoverability of Long
- lived Assets
Long
- lived assets consist primarily of property, plant and equipment and intangible assets subject to amortization. Changes in technology
or in our intended use of these assets, as well as changes in economic or industry factors or in our business or prospects, may cause the estimated
period of use or the value of these assets to change.
Property, plant and equipment are generally depreciated on a straight
- line basis over estimated economic useful lives. Certain network
assets are depreciated using the group life method. Depreciable life studies are performed periodically to confirm the appropriateness of depreciable
lives for certain categories of property, plant and equipment. These studies take into account actual usage, physical wear and tear, replacement history
and
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