Sprint - Nextel 2015 Annual Report Download - page 100

Table of Contents
Index to Consolidated Financial Statements
SPRINT CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
contribution (in aggregate) on the first 3% of eligible compensation and 50% of the participants' pre-tax and Roth contribution (in aggregate) on the next 2% of
eligible compensation up to a maximum matching contribution of 4% . Fixed matching contributions totaled approximately $54 million , $71 million , $15 million
and $35 million for the Successor years ended March 31, 2016 and 2015 , the three-month transition period ended March 31, 2014 and year ended December 31,
2013 , respectively, and $32 million and $15 million for the Predecessor 191-day period ended July 10, 2013 and unaudited three-month period ended March 31,
2013, respectively. Effective January 1, 2016, the Company match is 50% of the participants' pre-tax and Roth contribution (in aggregate) on the first 4% of
eligible compensation.
Revenue Recognition
Operating revenues primarily consist of wireless service revenues, revenues generated from device and accessory sales, revenues from leasing a device,
revenues from wholesale operators and third-party affiliates, as well as long distance voice, data and 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, interest, and certain regulatory related fees, net of service credits and other adjustments. We generally recognize service revenues as
services are rendered, assuming all other revenue recognition criteria are met. 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. 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 the Universal Service Fund, which represented no more than 2% of net operating
revenues for all periods presented in the consolidated statements of operations.
We recognize equipment revenue and corresponding costs of equipment when title and risk of loss passes to the indirect dealer or end-use subscriber,
assuming all other revenue recognition criteria are met. For arrangements involving multiple deliverables such as equipment and service, revenue is allocated to the
deliverables based on their relative selling prices. Equipment revenue is limited to the amount of non-contingent consideration received when the device is sold to a
subscriber. Equipment revenue is also reduced by the estimated amount of imputed interest associated with installment receivables for subscribers who elect to
finance the purchase of a device for up to a 24 -month period. When we subsidize the cost of the device as an incentive to retain and acquire subscribers, the cost of
these incentives is recorded as a reduction to revenue upon activation of the device and a service contract.
Qualified subscribers can lease a device for a contractual period of time. At the end of the lease term, subscribers have the option to turn in their device,
continue leasing their device or purchase the device. Accounting for device leases involves specific determinations under applicable lease accounting standards,
which involve complex and prescriptive provisions. These provisions impact the timing and amount of revenue recognized for our leased devices. The critical
elements that are considered with respect to our lease accounting are the economic life of the device and the fair value of the device, including the residual value.
We only lease devices to qualifying subscribers that also purchase a service plan. To date, substantially all of our device leases were classified as operating leases.
Revenues under these arrangements are included within equipment revenue on the consolidated results of operations and are allocated considering the relative fair
values of the lease and non-lease elements included in the multiple-element arrangement. The amount of the arrangement consideration allocated to the operating
lease element is recognized ratably over the lease term, which is typically two years.
If a multiple-element arrangement includes an option to purchase, on a monthly basis, an annual trade-in right, the amount of the total arrangement
consideration is reduced by the estimated fair value of the trade-in right or the guarantee and the remaining proceeds are then allocated amongst the other
deliverables in the arrangement.
The accounting estimates related to the recognition of revenue require us to make assumptions about numerous factors such as future billing
adjustments for disputes with subscribers, unauthorized usage, future returns, mail-in rebates on device sales, the fair value of a trade-in right and the total
arrangement consideration.
Dealer Commissions
Cash consideration given by us to a dealer or end-use subscriber is presumed to be a reduction of equipment revenue unless we receive, or will receive,
an identifiable benefit in exchange for the consideration, and the fair value of such
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