Sprint - Nextel 2014 Annual Report Download - page 163

Table of Contents
Index to Consolidated Financial Statements
CLEARWIRE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS —(CONTINUED)
F-80
During 2010, we issued exchangeable notes that included embedded exchange options, which we refer to as
the 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 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 10, 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
considered long-term and recorded in Other assets in the consolidated balance sheets.
Interest Capitalization — We capitalize interest related to the 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 and software under
development. 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. See Note 4, Property, Plant
and Equipment.
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 of CPE and additional add-on services. 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 revenues to date, and
comprises approximately 36% of total revenues during the 190 days ended July 9, 2013 and the years ended
December 31, 2012 and 2011.
Revenue consisted of the following (in thousands):
190 Days Ended
July 9, Year Ended December 31,
2013 2012 2011
Retail and other revenue $ 424,723 $ 796,225 $ 759,805
Wholesale revenue 240,879 468,469 493,661
Total revenues $ 665,602 $ 1,264,694 $ 1,253,466
Revenue from retail subscribers is billed one month in advance and recognized ratably over the service period.
Revenues associated with the sale of CPE and other equipment is recognized when title and risk of loss is
transferred. Billed shipping and handling costs are classified as revenue.