Cricket Wireless 2010 Annual Report Download - page 58

Amounts allocated to equipment revenues and related costs from the sale of devices are recognized when
service is activated by new customers. Revenues and related costs from the sale of accessories and upgrades for
existing customers are recognized at the point of sale. The costs of devices and accessories sold are recorded in cost
of equipment. In addition to devices that we sell directly to our customers at Cricket-owned stores, we sell devices to
third-party dealers, including mass-merchant retailers. These dealers then sell the devices to the ultimate Cricket
customer, similar to the sale made at a Cricket-owned store. Sales of devices to third-party dealers are recognized as
equipment revenues only when service is activated by customers, since the level of price reductions and
commissions ultimately available to such dealers is not reliably estimable until the devices are sold by such
dealers to customers. Thus, revenues from devices sold to third-party dealers are recorded as deferred equipment
revenue and the related costs of the devices are recorded as deferred charges upon shipment by us. The deferred
charges are recognized as equipment costs when the related equipment revenue is recognized, which occurs when
service is activated by the customer.
Through a third-party provider, our customers may elect to participate in an extended warranty program for the
devices they purchase. We recognize revenue on replacement devices sold to our customers under the program
when the customer purchases the device.
Sales incentives offered to customers and commissions and sales incentives offered to our third-party dealers
are recognized as a reduction of revenue when the related service or equipment revenue is recognized. Customers
have limited rights to return devices and accessories based on time and/or usage, and customer returns of devices
and accessories have historically been insignificant.
Amounts billed by us in advance of customers’ wireless service periods are not reflected in accounts receivable
or deferred revenue since collectability of such amounts is not reasonably assured. Deferred revenue consists
primarily of cash received from customers in advance of their service period and deferred equipment revenue
related to devices sold to third-party dealers.
Universal Service Fund, E-911 and other telecommunications-related regulatory fees are assessed by various
federal and state governmental agencies in connection with the services that we provide to our customers. Any
regulatory fees and telecommunications taxes collected from customers are recorded in service revenues and
amounts owed and remitted to government agencies are recorded in cost of service.
Fair Value of Financial Instruments
The authoritative guidance for fair value measurements defines fair value for accounting purposes, establishes
a framework for measuring fair value and provides disclosure requirements regarding fair value measurements. The
guidance defines fair value as an exit price, which is the price that would be received upon sale of an asset or paid
upon transfer of a liability in an orderly transaction between market participants at the measurement date. The
degree of judgment utilized in measuring the fair value of assets and liabilities generally correlates to the level of
pricing observability. Assets and liabilities with readily available, actively quoted prices or for which fair value can
be measured from actively quoted prices in active markets generally have more pricing observability and require
less judgment in measuring fair value. Conversely, assets and liabilities that are rarely traded or not quoted have less
pricing observability and are generally measured at fair value using valuation models that require more judgment.
These valuation techniques involve some level of management estimation and judgment, the degree of which is
dependent on the price transparency of the asset, liability or market and the nature of the asset or liability. We have
categorized our assets and liabilities measured at fair value into a three-level hierarchy in accordance with the
guidance for fair value measurements.
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