Sprint - Nextel 2007 Annual Report Download - page 101

SPRINT NEXTEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
roaming, directory assistance, and operator-assisted calling and miscellaneous fees, such as activation, upgrade,
late payment, reconnection and early termination fees 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 Emerging Issues Task Force, or EITF, Issue No. 00-21, Revenue Arrangements with Multiple
Deliverables, and SAB No. 104, Revenue Recognition. 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, when rendered.
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.
Regulatory fees and costs are recorded gross in accordance with EITF Issue No. 06-3, How Taxes Collected
From Customers and Remitted to Governmental Authorities Should be Presented in the Income Statement (That
Is, Gross Versus Net Presentation). The largest component of the regulatory fees is universal service fund, which
represented about 2% of net operating revenue in 2007, 2006 and 2005.
The accounting estimates related to the recognition of revenue in the results of operations require us to make
assumptions about future billing adjustments for disputes with customers, unauthorized usage, future returns and
mail-in rebates on handset sales.
Dealer Commissions
We account for compensation programs with our dealers in accordance with EITF Issue No. 01-9,
Accounting for Consideration Given by a Vendor to a Customer (Including a Reseller of the Vendor’s Products).
Any cash consideration given by us to a dealer or end-user customer is presumed to be a reduction of revenue
unless we receive, or will receive, an identifiable benefit in exchange for the consideration, and the fair value of
such benefit can be reasonably estimated, in which case the consideration will be presented as a selling expense.
We compensate our dealers using specific compensation programs related to the sale of our handsets and our
subscriber service contracts, or both. When a commission is earned by a dealer solely due to a selling activity
relating to wireless service, the cost is recorded as a selling expense. When a commission is earned by a dealer
due to the dealer selling one of our handsets, the cost is recorded as a reduction to equipment revenue.
Advertising Costs
We recognize advertising expense as incurred. These expenses include production, media and other
promotional and sponsorship costs. Advertising expenses totaled $1.8 billion in 2007, $1.6 billion in 2006 and
$1.4 billion in 2005.
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 11
for additional information.
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