Cricket Wireless 2011 Annual Report Download - page 109

LEAP WIRELESS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Concentrations
The Company generally relies on one key vendor for billing services, a limited number of vendors for
device logistics, a limited number of vendors for its voice and data communications transport services and a
limited number of vendors for payment processing services. Loss or disruption of these services could materially
adversely affect the Company’s business.
The networks the Company operates do not, by themselves, provide national coverage and it must pay fees
to other carriers who provide roaming or wholesale services to the Company. The Company currently relies on
roaming agreements with several carriers for the majority of its voice services and generally on one key carrier
for its data roaming services. The Company has also entered into a wholesale agreement which the Company
uses to offer Cricket services in nationwide retailers outside of its current network footprint. If the Company
were unable to obtain or maintain cost-effective roaming or wholesale services for its customers in
geographically desirable service areas, the Company’s competitive position, business, financial condition and
results of operations could be materially adversely affected.
Operating Leases
Rent expense is recognized on a straight-line basis over the initial lease term and those renewal periods that
are reasonably assured as determined at lease inception. The difference between rent expense and rent paid is
recorded as deferred rent and is included in other long-term liabilities in the consolidated balance sheets. Rent
expense totaled $260.6 million, $252.5 million and $234.8 million for the years ended December 31, 2011, 2010
and 2009, respectively.
Asset Retirement Obligations
The Company recognizes an asset retirement obligation and an associated asset retirement cost when it has a
legal obligation in connection with the retirement of tangible long-lived assets. These obligations arise from
certain of the Company’s leases and relate primarily to the cost of removing its equipment from such lease sites
and restoring the sites to their original condition. When the liability is initially recorded, the Company capitalizes
the cost of the asset retirement obligation by increasing the carrying amount of the related long-lived asset. The
liability is initially recorded at its present value and is accreted to its then present value each period, and the
capitalized cost is depreciated over the useful life of the related asset. Accretion expense is recorded in cost of
service in the consolidated statements of operations. Upon settlement of the obligation, any difference between
the cost to retire the asset and the liability recorded is recognized in operating expenses in the consolidated
statements of operations.
The following table summarizes the Company’s asset retirement obligations as of and for the years ended
December 31, 2011 and 2010 (in thousands):
Year Ended
December 31,
2011 2010
Asset retirement obligations, beginning of year .......................... $31,663 $25,749
Liabilities incurred .............................................. 193 270
Liabilities assumed by STX Wireless in connection with the formation of the
joint venture .................................................. (828) 3,272
Accretion expense ............................................... 3,061 2,503
Decommissioned sites ............................................ (1,170) (131)
Asset retirement obligations, end of year ............................... $32,919 $31,663
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