Ally,
<I find it a bit odd that "deferred revenue" of around $282 million in included in Other Current Liabilities, since deferred revenue is not a cash payable item>
Why is that odd? That is the current portion of the deferred revenue. It infers that the long term upfront lease payment are a liability which GX owes to the buyer. A liability in the sense that service is to be performmed by GX. A service valued at $282 Million in the current period. Cash has already changed hands. It has nothing to do with a swap. It is standard accounting.
So hold the Yikes! Yikes which in fact does infer something amiss when, in fact, all is correct and spelled out in front of you. (I'm sorry but I have to say your whole question and Yikes comment is part of the problem. People don't understand, they don't know, Yikes! feeds that fear and frenzy. Ok?)
Your answer is within this:
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Operating Leases
In addition, the Company offers customers flexible bandwidth products to multiple destinations and many of the contracts for subsea circuits entered into are part of a service offering. Consequently, the Company defers revenue related to those circuits and amortizes the revenue over the appropriate term of the contract. Accordingly, the Company treats cash received prior to the completion of the earnings process as deferred revenue.
Sales-Type Leases
Revenue from Capacity Purchase Agreements ("CPAs") that meet the criteria of sales-type lease accounting are recognized in the period that the rights and obligations of ownership transfer to the purchaser, which occurs when (i) the purchaser obtains the right to use the capacity, which can only be suspended if the purchaser fails to pay the full purchase price or fulfill its contractual obligations, (ii) the purchaser is obligated to pay Operations, Administration and Maintenance ("OA&M") costs and (iii) the segment of a system related to the capacity purchased is available for service. Certain customers who have entered into CPAs for capacity have paid deposits toward the purchase price which have been included as deferred revenue in the accompanying consolidated balance sheets.
Prior to July 1, 1999, substantially all CPAs were treated as sales-type leases as described in Statement of Financial Accounting Standards No. 13, "Accounting for Leases" ("SFAS 13"). On July 1, 1999, the Company adopted Financial Accounting Standards Board Interpretation No. 43, "Real Estate Sales, an interpretation of FASB Statement No. 66" ("FIN 43"), which requires prospective transactions to meet the criteria set forth in Statement of Financial Accounting Standards No. 66, "Accounting for Sales of Real Estate" ("SFAS 66") to qualify for sales-type lease accounting. Since sales of terrestrial capacity did not meet the new criteria, the terrestrial portion of CPAs executed subsequent to June 30, 1999 were recognized over the terms of the contracts, as services.
For the years ended December 31, 2000, 1999 and 1998, $350 million, $728 million and $419 million in revenue, respectively, was recognized using sales- type lease accounting.
Percentage-of-Completion
Revenue and estimated profits under long-term contracts for undersea telecommunication installation by Global Marine Systems are recognized under the percentage-of-completion method of accounting, whereby sales and profits are recognized as work is performed based on the relationship between actual costs incurred and total estimated costs to complete. Provisions for anticipated losses are made in the period in which they first become determinable.
Completed Contract
Revenue from product sales and related installation by IPC Communications, Inc. is recognized upon completion of the installation except for revenue from sales to distributors, which is recognized upon shipment. Under contract provisions, customers may be progress-billed prior to the completion of the installations. The revenue related to these advance payments is deferred until the system installations are completed. Contracts for maintenance are billed in advance, and are recorded as deferred revenue and recognized ratably over the contractual periods.
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