Sprint - Nextel 2015 Annual Report Download - page 166

Table of Contents
Index to Consolidated Financial Statements
CLEARWIRE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS —(CONTINUED)
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.
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