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Table of Contents
Index to Consolidated Financial Statements
CLEARWIRE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS —(CONTINUED)
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:
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.
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 11, 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 15, 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 cash flows which
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