Cricket Wireless 2010 Annual Report Download - page 99

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accounting policy, which was applied retrospectively, increased both service revenue and cost of service by
$139.9 million, $98.2 million and $73.1 million for the years ended December 31, 2010, 2009 and 2008,
respectively. This change in accounting policy does not change previously reported operating income (loss) or
net loss.
The Company changed its accounting policy to the gross basis of revenue reporting because under the “all
inclusive” rate plans that the Company introduced in 2010, the Company absorbs the variability resulting from
periodic regulatory rate changes. In addition, payment of regulatory fees and telecommunications tax surcharges are
ultimately the responsibility of the Company. Further, the Company also believes the change to a gross basis of
reporting for these items is the prevailing practice within the wireless telecommunications industry, making the
Company’s financial information more comparable to that of other companies within its industry.
Note 3. Basis of Presentation and Significant Accounting Policies
Basis of Presentation
The consolidated financial statements have been prepared in accordance with accounting principles generally
accepted in the United States of America (“GAAP”). GAAP requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and
liabilities and the reported amounts of revenues and expenses. By their nature, estimates are subject to an inherent
degree of uncertainty. Actual results could differ from management’s estimates.
Principles of Consolidation
The consolidated financial statements include the operating results and financial position of Leap and its
wholly-owned subsidiaries and consolidated joint ventures. The Company consolidates its non-controlling interest
in Savary Island in accordance with the authoritative guidance for the consolidation of variable interest entities
because Savary Island is a variable interest entity and the Company has entered into an agreement with Savary
Island’s other member which establishes a specified purchase price in the event that it exercises its right to sell its
membership interest to the Company. The Company consolidates STX Wireless in accordance with the
authoritative guidance for consolidations based on the voting interest model. All intercompany accounts and
transactions have been eliminated in the consolidated financial statements.
Segment and Geographic Data
The Company operates in a single operating segment and a single reporting unit as a wireless communications
carrier that offers digital wireless services in the United States. As of and for the years ended December 31, 2010,
2009 and 2008, all of the Company’s revenues and long-lived assets related to operations in the United States.
Revenues
The Company’s business revenues principally arise from the sale of wireless services, devices (handsets and
broadband modems) and accessories. Wireless services are provided primarily on a month-to-month basis. In
general, the Company’s customers are required to pay for their service in advance and the Company does not require
customers to sign fixed-term contracts or pass a credit check. Service revenues are recognized only after payment
has been received and services have been rendered.
In August 2010, the Company introduced new rate plans for all of its Cricket services, eliminated certain fees
(such as activation, reactivation and regulatory fees) and telecommunications taxes and ceased offering a free first
month of service to new Cricket Wireless and Cricket Broadband customers when they purchase a new device and
activate service. Prior to August 2010, when the Company activated service for a new customer, it typically sold that
customer a device bundled with a period of free service. Under each approach, in accordance with the authoritative
guidance for revenue arrangements with multiple deliverables, the sale of a device along with service constitutes a
93
LEAP WIRELESS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)