Quarterly report pursuant to Section 13 or 15(d)

Summary of Significant Accounting Policies

 v2.3.0.11
Summary of Significant Accounting Policies
 6 Months Ended
Jun. 30, 2011
Summary of Significant Accounting Policies [Abstract]  
Summary of Significant Accounting Policies
(3) Summary of Significant Accounting Policies
     Use of Estimates
          In presenting unaudited consolidated financial statements, management makes estimates and assumptions that affect the reported amounts and accompanying notes. Estimates, by their nature, are based on judgment and available information at this time. Actual results could differ materially from those estimates.
          Significant estimates inherent in the preparation of the accompanying unaudited consolidated financial statements include revenue recognition, asset impairment, useful lives of our satellites, share-based payment expense, and valuation allowances against deferred tax assets. Economic conditions in the United States could have a material impact on our accounting estimates.
     Recent Accounting Pronouncements
          In May 2011, the FASB issued Accounting Standards Update No. 2011-04, Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and International Financial Reporting Standards (Topic 820) — Fair Value Measurement (ASU 2011-04), to provide a consistent definition of fair value and ensure that the fair value measurement and disclosure requirements are similar between U.S. GAAP and International Financial Reporting Standards. ASU 2011-04 changes certain fair value measurement principles and enhances the disclosure requirements particularly for level 3 fair value measurements. The amendments are not expected to have a significant impact on companies that apply U.S. GAAP. This standard is effective for interim and annual periods beginning after December 15, 2011 and will be applied prospectively. We are currently evaluating the impact of our pending adoption of ASU 2011-04 on our consolidated financial statements.
          In June 2011, the FASB issued Accounting Standards Update No. 2011-05, Comprehensive Income (Topic 220) — Presentation of Comprehensive Income (ASU 2011-05), to require an entity to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. ASU 2011-05 eliminates the option to present the components of other comprehensive income as part of the statement of equity. The standard does not change the items which must be reported in other comprehensive income, how such items are measured or when they must be reclassified to net income. This standard is effective for interim and annual periods beginning after December 15, 2011 and will be applied retrospectively. ASU 2011-05 affects financial statement presentation only and will have no impact on our results of operations.
     Earnings per Share (“EPS”)
          Basic net income per common share is calculated using the weighted average common shares outstanding during each reporting period. Diluted net income per common share adjusts the weighted average common shares outstanding for the potential dilution that could occur if common stock equivalents (convertible debt and preferred stock, warrants, stock options, restricted stock and restricted stock units) were exercised or converted into common stock, calculated using the treasury stock method. Common stock equivalents of approximately 96,155,764 and 686,407,346 for the three months ended June 30, 2011 and 2010, respectively, and 109,334,669 and 692,011,065 for the six months ended June 30, 2011 and 2010, respectively, were excluded from the calculation of diluted net income per common share as the effect would have been anti-dilutive.
                                 
    For the Three Months     For the Six Months  
    Ended June 30,     Ended June 30,  
(in thousands, except per share data)   2011     2010     2011     2010  
Net income available to common stockholders
  $ 173,319     $ 15,272     $ 251,440     $ 56,870  
Effect of assumed conversions
    9,625       —       19,250       —  
 
                       
Net income available to common stockholders and assumed conversions
  $ 182,944     $ 15,272     $ 270,690     $ 56,870  
 
                               
Average common shares outstanding-basic
    3,744,375       3,683,595       3,739,731       3,682,750  
Dilutive effect of equity instruments
    3,059,922       2,680,360       3,050,998       2,674,757  
 
                       
Average common shares outstanding-diluted
    6,804,297       6,363,955       6,790,729       6,357,507  
 
                       
Net income per common share
                               
Basic
  $ 0.05     $ 0.00     $ 0.07     $ 0.02  
 
                       
Diluted
  $ 0.03     $ 0.00     $ 0.04     $ 0.01  
 
                       
     Accounts Receivable
          Accounts receivable, net, is stated at amounts due from customers net of an allowance for doubtful accounts. Our allowance for doubtful accounts considers historical experience, the age of amounts due, current economic conditions and other factors that may affect the counterparty’s ability to pay.
          Accounts receivable, net, consists of the following:
                 
    June 30,     December 31,  
    2011     2010  
Gross accounts receivable
  $ 112,661     $ 131,880  
Allowance for doubtful accounts
    (11,827 )     (10,222 )
 
           
Total accounts receivable, net
  $ 100,834     $ 121,658  
 
           
          Receivables from distributors include billed and unbilled amounts due from OEMs for radio services included in the sale or lease price of vehicles, as well as billed amounts due from retailers. Receivables from distributors consist of the following:
                 
    June 30,     December 31,  
    2011     2010  
Billed
  $ 43,997     $ 30,456  
Unbilled
    37,017       37,120  
 
           
Total
  $ 81,014     $ 67,576  
 
           
     Inventory
          Inventory consists of finished goods, refurbished goods, chip sets and other raw material components used in manufacturing radios. Inventory is stated at the lower of cost, determined on a first-in, first-out or market basis. We record an estimated allowance for inventory that is considered slow moving, obsolete or whose carrying value is in excess of net realizable value. The provision related to products purchased for resale in our direct to consumer distribution channel and components held for resale by us is reported as a component of Cost of equipment in our unaudited consolidated statements of operations. The provision related to inventory consumed in our OEM and retail distribution channel is reported as a component of Subscriber acquisition costs in our unaudited consolidated statements of operations.
          Inventory, net, consists of the following:
                 
    June 30,     December 31,  
    2011     2010  
Raw materials
  $ 25,870     $ 18,181  
Finished goods
    27,430       24,492  
Allowance for obsolescence
    (20,983 )     (20,755 )
 
           
Total inventory, net
  $ 32,317     $ 21,918  
 
           
     Fair Value of Financial Instruments
          The fair value of a financial instrument is the amount at which the instrument could be exchanged in an orderly transaction between market participants to sell the asset or transfer the liability. As of June 30, 2011 and December 31, 2010, the carrying amounts of cash and cash equivalents, accounts and other receivables, and accounts payable approximated fair value due to the short-term nature of these instruments.
          The fair value for publicly traded instruments is determined using quoted market prices while the fair value for non-publicly traded instruments is based upon estimates from a market maker and brokerage firm. As of June 30, 2011 and December 31, 2010, the carrying value of our debt was $3,024,960 and $3,217,578, respectively; and the fair value approximated $3,488,874 and $3,722,905, respectively.
     Reclassifications
          Certain amounts in our prior period consolidated financial statements have been reclassified to conform to our current period presentation.