Metro PCS 2007 Annual Report Download - page 111

MetroPCS Communications, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2007, 2006 and 2005
F-12
Revenues and Cost of Service
The Company’ s wireless services are provided on a month-to-month basis and are paid in advance. Revenues
from wireless services are recognized as services are rendered. Amounts received in advance are recorded as
deferred revenue. Long-term deferred revenue is included in other long-term liabilities. Cost of service generally
includes direct costs of operating the Company’ s networks.
Effective July 1, 2003, the Company adopted Emerging Issues Task Force (“EITF”) No. 00-21, “Accounting for
Revenue Arrangements with Multiple Deliverables,” (“EITF No. 00-21”). The consensus also supersedes certain
guidance set forth in U.S. Securities and Exchange Commission (“SEC”) Staff Accounting Bulletin Number 101,
“Revenue Recognition in Financial Statements,” (“SAB 101”). SAB 101 was amended in December 2003 by Staff
Accounting Bulletin Number 104, “Revenue Recognition,” (“SAB 104”). The consensus addresses the accounting
for arrangements that involve the delivery or performance of multiple products, services and/or rights to use assets.
Revenue arrangements with multiple deliverables are divided into separate units of accounting and the consideration
received is allocated among the separate units of accounting using the residual method of accounting.
The Company determined that the sale of wireless services through its direct and indirect sales channels with an
accompanying handset constitutes a revenue arrangement with multiple deliverables. Upon adoption of EITF
No. 00-21, the Company began dividing these arrangements into separate units of accounting, and allocating the
consideration between the handset and the wireless service using the residual method of accounting. Consideration
received for the wireless service is recognized at fair value as service revenue when earned, and any remaining
consideration received is recognized as equipment revenue when the handset is delivered and accepted by the
customer.
Equipment revenues arise from the sale of handsets and accessories. Revenues and related costs from the sale of
handsets in the Company’ s retail locations are recognized at the point of sale. Handsets shipped to independent
retailers are recorded as deferred revenue and deferred charges upon shipment by the Company and are recognized
as equipment revenues and related costs when service is activated by its customers. Revenues and related costs from
the sale of accessories are recognized at the point of sale. The costs of handsets and accessories sold are recorded in
cost of equipment.
Sales incentives offered without charge to customers related to the sale of handsets are recognized as a reduction
of revenue when the related equipment revenue is recognized. At December 31, 2005, customers had the right to
return handsets within 7 days or 60 minutes of usage, whichever occurred first. In January 2006, the Company
expanded the terms of its return policy to allow customers the right to return handsets within 30 days or 60 minutes
of usage, whichever occurs first.
Federal Universal Service Fund (“FUSF”) and E-911 fees are assessed by various governmental authorities in
connection with the services that the Company provides to its customers. The Company reports these fees on a gross
basis in service revenues and cost of service on the accompanying statements of income and comprehensive income.
For the years ended December 31, 2007, 2006 and 2005, the Company recorded approximately $94.0 million, $44.3
million and $24.6 million, respectively, of FUSF and E-911 fees. Sales, use and excise taxes are reported on a net
basis in selling, general and administrative expenses on the accompanying statements of income and comprehensive
income.
Software Costs
In accordance with Statement of Position (“SOP”) 98-1, “Accounting for Costs of Computer Software Developed
or Obtained for Internal Use,” (“SOP 98-1”), certain costs related to the purchase of internal use software are
capitalized and amortized over the estimated useful life of the software. For the years ended December 31, 2007,
2006 and 2005, the Company capitalized approximately $9.2 million, $8.8 million and $2.7 million, respectively, of
purchased software costs under SOP 98-1, that is being amortized over a three-year life. The Company amortized
software costs of approximately $5.5 million, $2.8 million and $0.8 million for the years ended December 31, 2007,
2006 and 2005, respectively. Capitalized software costs are classified as office equipment.