Sprint - Nextel 2013 Annual Report Download - page 133

Table of Contents
Index to Consolidated Financial Statements
SPRINT CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Internet revenues. Service revenues consist of fixed monthly recurring charges, variable usage charges and miscellaneous fees such as activation fees, directory
assistance, roaming, equipment protection, late payment and early termination charges, and certain regulatory related fees, net of service credits. We generally
recognize service revenues as services are rendered, assuming all other revenue recognition criteria are met. We recognize equipment revenue and
corresponding costs of devices when title and risk of loss passes to the indirect dealer or end
- use subscriber. Incentives to retain and acquire subscribers, such
as new devices at discounted prices, are recorded as a reduction to equipment revenue upon activation of the device with a service contract. 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 voice 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. The largest component of the regulatory fees is universal service fund, which
represented about 2% of net operating revenues in
2013, 2012 and 2011.
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 subscribers, unauthorized usage, future returns and mail
- in rebates on device sales.
Dealer Commissions
Cash consideration given by us to a dealer or end
- use subscriber 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
recorded as a selling expense. We compensate our dealers using specific compensation programs related to the sale of our devices 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 devices, the cost is recorded as a reduction to equipment revenue. Commissions
are generally earned upon sale of device, service, or both, to an end
- use subscriber. Incentive payments to dealers for sales associated with devices and service
contracts are classified as contra
- revenue, to the extent the incentive payment is reimbursement of loss on the device, and selling expense for the amount
associated with the selling effort. Incentive payments to certain indirect dealers who purchase the iPhone® directly from Apple are recognized as selling expense
when the device is activated with a Sprint service plan because Sprint does not recognize any equipment revenue or cost of products for those transactions.
Severance and Exit Costs
Liabilities for severance and exit costs are recognized 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, a liability is recognized when it is probable and reasonably estimable. For voluntary
separation plans (VSP) a liability is recognized when the VSP is irrevocably 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. Severance and exit costs associated
with business combinations are recorded in the results of operations when incurred.
Compensation Plans
As of December 31, 2013 , Sprint sponsored three incentive plans: the 2007 Omnibus Incentive Plan (2007 Plan); the 1997 Long - Term Incentive
Program (1997 Program); and the Nextel Incentive Equity Plan (Nextel Plan) (together, "Compensation Plans"). Sprint previously also sponsored the
Management Incentive Stock Option Plan (MISOP), which was deregistered in the first quarter 2012 after all outstanding options under the MISOP expired.
Sprint also sponsors an Employee Stock Purchase Plan (ESPP). Under the 2007 Plan, we may grant share
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