Cricket Wireless 2012 Annual Report Download - page 102

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LEAP WIRELESS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
would the Company record equipment revenues or cost of equipment when these devices were activated.
Amounts paid to the logistics provider would be recorded as deferred costs upon shipment of devices to the
dealers and retailers and in cost of equipment when service is activated by the customer.
The Company amended the terms of the arrangement, effective December 1, 2012, such that the Company’s
third-party dealers and nationwide retailers will no longer purchase handsets and other devices directly from the
logistics provider. The logistics provider will continue to assist with the management of the Company’s supply
chain efforts, including planning, purchasing and fulfillment. Prior to this amendment, during the fourth quarter
of 2012, the Company’s third-party dealers and nationwide retailers purchased and sold approximately $20.5
million of handsets and other devices from the logistics provider.
Through a third-party provider, the Company’s customers may elect to participate in an extended warranty
program for devices they purchase. The Company recognizes revenue on replacement devices sold to its
customers under the program when the customer purchases the device.
The Company participates in the federal government’s Lifeline program and is designated as an eligible
telecommunications carrier in certain states in which it provides wireless services. Under this program, the
Company offers discounted wireless services to qualified customers and generally receives reimbursement for a
portion of the subsidized services. The Company recognizes revenue under this program only after amounts
eligible for reimbursement have been determined and services have been rendered.
Sales incentives offered to customers and commissions and sales incentives offered to the Company’s 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 the Company 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, including nationwide retailers.
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 the Company provides to its
customers. The service plans the Company currently offers are “all-inclusive” of telecommunications and
regulatory fees, in that the Company does not separately bill and collect amounts owed and remitted to
government agencies from its customers. For the Company’s legacy service plans, which are not “all-inclusive,”
the Company separately bills and collects from its customers amounts owed and remitted to government
agencies. Regulatory fees and telecommunications taxes separately billed and collected from the Company’s
customers are recorded in service revenues. Amounts owed to government agencies are recorded in cost of
service. During the years ended December 31, 2012, 2011 and 2010 the total amount of regulatory fees and
telecommunications taxes separately billed and collected from customers and recorded in service revenues was
$9.4 million, $32.6 million and $108.4 million, respectively. Sales, use and excise taxes for all service plans are
reported on a net basis.
Costs and Expenses
The Company’s costs and expenses include:
Cost of Service. The major components of cost of service are: charges from other communications
companies for long distance, roaming and content download services provided to the Company’s customers;
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