Cricket Wireless 2012 Annual Report Download - page 60

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 nationwide 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
of the devices 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.
In 2012, we entered into an arrangement with a third-party logistics provider to manage the planning,
purchasing and fulfillment of handsets and other devices. The arrangement was structured, if fully implemented,
to allow our third-party dealers and nationwide retailers to purchase handsets and other devices directly from the
logistics provider, such that we, in most cases, would not hold title to, or have risk of loss for, the related device
inventory shipped to our dealers. As a result, we would not record deferred equipment revenues or deferred
charges on our balance sheet for the devices when shipped nor would we 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.
We amended the terms of the arrangement, effective December 1, 2012, such that our 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 our supply chain efforts, including
planning, purchasing and fulfillment. Prior to this amendment, during the fourth quarter of 2012, our third-party
dealers and nationwide retailers purchased and sold approximately $20.5 million of handsets and other devices
from the logistics provider.
Through another third-party provider, our customers may elect to participate in an extended warranty
program for devices they purchase. We recognize revenue on replacement devices sold to its customers under the
program when the customer purchases the device.
We participate in the federal government’s Lifeline program and are designated as an eligible
telecommunications carrier in certain states in which we provide wireless services. Under this program, we offer
discounted wireless services to qualified customers and generally receive reimbursement for a portion of the
subsidized services. We recognize 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 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 that are billed 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 we provide to our customers. The
service plans we currently offer are “all-inclusive” of telecommunications and regulatory fees, in that we do not
separately bill and collect amounts owed and remitted to government agencies from our customers. For our
legacy service plans, which are not “all-inclusive,” we separately bill and collect from our customers amounts
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