Sprint - Nextel 2006 Annual Report Download - page 92

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and Internet revenues. Service revenues consist of fixed monthly recurring charges, variable usage charges and
miscellaneous fees such as activation fees, directory assistance, operator-assisted calling, equipment protection,
late payment charges and certain regulatory related fees. We recognize service revenues as services are
rendered and equipment revenue when title passes to the dealer or end-user customer, in accordance with
Securities and Exchange Commission, or SEC, Staff Accounting Bulletin, or SAB, No. 104, Revenue
Recognition, and EITF Issue No. 00-21, Revenue Arrangements with Multiple Deliverables. We recognize
revenue for access charges and other services charged at fixed amounts ratably over the service period, net of
credits and adjustments for service discounts, billing disputes and fraud or unauthorized usage. We recognize
excess wireless usage and long distance revenue at contractual rates per minute as minutes are used.
Additionally, we recognize excess wireless data usage based on kilobytes and one-time use charges, such as
for the use of premium services, as incurred. As a result of the cutoff times of our multiple billing cycles each
month, we are required to estimate the amount of subscriber revenues earned but not billed from the end of
each billing cycle to the end of each reporting period. These estimates are based primarily on rate plans in
effect and our historical usage and billing patterns.
Certain of our bundled products and services, primarily in our Wireless segment, are considered to be revenue
arrangements with multiple deliverables. Total consideration received in these arrangements is allocated and
measured using units of accounting within the arrangement (i.e., service and handset contracts) based on
relative fair values. The activation fee revenue associated with these arrangements in our direct sales channels
is classified as equipment sales at the time the related handset is sold. For transactions in our indirect sales
channels, the activation fee is solely linked to the service contract with the subscriber. Accordingly, the
activation fee revenue is deferred and amortized over the estimated average service life of the end-user
customer.
Severance and Lease Exit Costs
We recognize liabilities for severance and lease exit costs based upon the nature of the cost to be incurred. For
involuntary separation plans that are completed within the guidelines of our written involuntary separation
plan, we record the liability when it is probable and reasonably estimable in accordance with SFAS No. 112,
Employers’ Accounting for Postemployment Benefits. For voluntary separation plans, or VSP, the liability is
recorded in accordance with SFAS No. 88, Employers’ Accounting for Settlements and Curtailments of Defined
Benefit Pension Plans and for Termination Benefits, when the VSP is accepted by the employee. For one-time
termination benefits, such as additional severance pay or benefit payouts, and other exit costs, such as lease
termination costs, the liability is measured and recognized initially at fair value in the period in which the
liability is incurred, with subsequent changes to the liability recognized as adjustments in the period of change,
in accordance with SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities. When a
business combination has occurred, we record severance and lease exit costs as part of the purchase price
allocation in accordance with EITF Issue No. 95-3, Recognition of Liabilities in Connection with a Purchase
Business Combination. See note 8 for more information.
Advertising Costs
We recognize advertising expense as incurred. These expenses include production, media and other promo-
tional and sponsorship costs. Advertising expenses totaled $1.6 billion in 2006, $1.4 billion in 2005, and
$923 million in 2004.
Share-Based Compensation
We measure the cost of employee services received in exchange for an award of equity-based securities using
the fair value of the award on the date of the grant, and we recognize that cost over the period that the award
recipient is required to provide service to us in exchange for the award. Any awards of liability instruments to
employees would be measured at fair value at each reporting date through settlement. See note 4 for additional
information.
F-15
SPRINT NEXTEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)