Clearwire 2010 Annual Report Download - page 86

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Interest Capitalization — We capitalize interest related to our owned spectrum licenses and the related
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, software under development and spectrum licenses accounted for as intangible assets with
indefinite useful lives. 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.
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.
Revenue Recognition — We primarily earn revenue by providing access to our high-speed wireless networks.
Also included in revenue are leases of CPE and additional add-on services, including personal and business email
and static Internet Protocol. Revenue from retail subscribers is billed one month in advance and recognized ratably
over the contracted service period. Revenues associated with the sale of CPE and other equipment to subscribers is
recognized when title and risk of loss is transferred to the subscriber. Shipping and handling costs billed to
subscribers are classified as revenue. Activation fees charged to the subscriber are deferred and recognized as
revenues on a straight-line basis over the average estimated life of the subscriber relationship of 3 years.
Revenue from wholesale subscribers is billed one month in arrears and recognized ratably over the contracted
service period. Revenues are generally recognized based on terms defined in our commercial agreements with our
wholesale partners. We are currently engaged in ongoing negotiations with Sprint to resolve issues related to
wholesale pricing under our commercial agreements. See Note 12, Commitments and Contingencies, for further
information. As a result, the amount of revenue recognized during 2010 related to Sprint wholesale arrangements is
based on pricing proposed by Sprint. We expect to collect the revenue recognized to date.
Revenue arrangements with multiple deliverables are divided into separate units of accounting based on the
deliverables’ relative fair values if there is objective and reliable evidence of fair value for all deliverables in the
arrangement. When we are the primary obligor in a transaction, are subject to inventory risk, have latitude in
establishing prices and selecting suppliers, or have several but not all of these indicators, gross revenue is recorded.
If we are not the primary obligor and amounts earned are determined using a fixed percentage, a fixed-payment
schedule, or a combination of the two, we record the net amounts as commissions earned. Promotional discounts
treated as cash consideration are recorded as a reduction of revenue.
Advertising Costs — Advertising costs are expensed as incurred or the first time the advertising occurs.
Advertising expense was $213.9 million, $99.1 million and $7.5 million for the years ended December 31, 2010,
2009 and 2008, respectively.
Research and Development — Research and development costs are expensed as incurred and primarily relate
to costs incurred while assessing how external devices perform on our networks. Research and development
expense was $7.0 million, $6.4 million and $350,000 for the years ended December 31, 2010, 2009 and 2008,
respectively.
Net Loss per Share — Basic net loss per Class A Common Share is computed by dividing net loss attributable
to Clearwire Corporation by the weighted-average number of Class A Common Shares outstanding during the
81
CLEARWIRE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)