Clearwire 2007 Annual Report Download - page 78

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including software, such as the sale of a NextNet base station with a software maintenance contract, the Company
applied the accounting guidance in accordance with SOP No. 97-2, Software Revenue Recognition. Revenue was
allocated to each element of the transaction based upon its fair value as determined by vendor specific objective
evidence (“VSOE”). VSOE of fair value for all elements of an arrangement was based upon the normal pricing and
discounting practices for those products and services when sold separately.
Software maintenance services included technical support and the right to receive unspecified upgrades and
enhancements on a when-and-if available basis. Fees for software maintenance services were typically billed
annually in advance of performance of the services with provisions for subsequent annual renewals. The related
revenues were deferred and recognized ratably over the respective maintenance terms, which typically were one to
two years.
Product Warranty — NextNet, a wholly-owned subsidiary until sold in August 2006, sold base station
equipment and CPE to third parties. NextNet generally warranted new technology equipment sold to the purchaser
to be free from defects in material and workmanship for two years for system infrastructure and one year for CPE. A
warranty provision was made for estimated product repair at the time of the sale based upon the Company’s
historical trends. In connection with the sale of NextNet to Motorola, the Company retained responsibility for a
portion of the warranty costs on equipment sold during the period that NextNet was a wholly-owned subsidiary of
the Company, and therefore, maintained a liability related to this obligation through August 2007. Information
about warranty cost and warranty liability is as follows (in thousands):
Balance — January 1, 2006 ................................................ $ 234
Provision ............................................................ 1,636
Costs incurred ........................................................ (522)
Liability transferred upon sale of NextNet .................................... (338)
Balance — December 31, 2006.............................................. 1,010
Provision ............................................................ —
Costs incurred ........................................................ (408)
Write-off of remaining liability transferred upon sale of NextNet ................... (602)
Balance — December 31, 2007.............................................. $ —
Advertising Costs — Advertising costs are expensed as incurred. Advertising expense was $49.2 million,
$38.4 million and $13.8 million for the years ended December 31, 2007, 2006 and 2005, respectively.
Research and Development — Research and development costs are expensed as incurred.
Net Loss per Share — The Company calculates net loss per share in accordance with SFAS No. 128, Earnings
Per Share (“SFAS No. 128”). Under the provisions of SFAS No. 128, basic net loss per common share is
computed by dividing income or loss available to common stockholders by the weighted-average number of
common shares outstanding during the period. Diluted net loss per common share is computed by dividing income
or loss available to common stockholders by the weighted-average number of common and dilutive common stock
equivalents outstanding during the period. Common stock equivalents typically consist of the common stock
issuable upon the exercise of outstanding stock options, warrants and restricted stock using the treasury stock
method. The effects of potentially dilutive common stock equivalents are excluded from the calculation of diluted
loss per share if their effect is antidilutive.
Accounting Change: Share-Based Compensation — On January 1, 2006, the Company adopted
SFAS No. 123(R), Share-Based Payment (“SFAS No. 123(R)”), which requires the measurement and recognition
of compensation expense for all share-based awards made to employees and directors based on estimated fair
values.
70
CLEARWIRE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)