Cricket Wireless 2012 Annual Report Download - page 59

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Critical Accounting Policies and Estimates
Our discussion and analysis of our results of operations and liquidity and capital resources are based on our
consolidated financial statements, which have been prepared in accordance with accounting principles generally
accepted in the United States of America, or GAAP. These principles require us to make estimates and judgments
that affect our reported amounts of assets and liabilities, our disclosure of contingent assets and liabilities and our
reported amounts of revenues and expenses. On an ongoing basis, we evaluate our estimates and judgments,
including those related to revenue recognition and the valuation of deferred tax assets, long-lived assets and
indefinite-lived intangible assets. We base our estimates on historical and anticipated results and trends and on
various other assumptions that we believe are reasonable under the circumstances, including assumptions as to
future events. These estimates form the basis for making judgments about the carrying values of assets and
liabilities that are not readily apparent from other sources. By their nature, estimates are subject to an inherent
degree of uncertainty. Actual results may differ from our estimates.
We believe that the following critical accounting policies and estimates involve a higher degree of judgment
or complexity than others used in the preparation of our consolidated financial statements.
Principles of Consolidation
The consolidated financial statements include the operating results and financial position of Leap and its
wholly-owned subsidiaries as well as the operating results and financial position of STX Wireless and its wholly-
owned subsidiaries. We consolidate 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.
The consolidated financial statements also include the operating results and financial position of Savary
Island Wireless, LLC, or Savary Island, and its wholly-owned subsidiaries prior to their merger with and into
Cricket on December 28, 2012. Prior to October 1, 2012, we consolidated our non-controlling membership
interest in Savary Island in accordance with the authoritative guidance for the consolidation of variable interest
entities because Savary Island was a variable interest entity and, among other factors, we had entered into an
agreement with Savary Island’s other member that established a specified purchase price in the event that it
exercised its right to sell its membership interest to us. On October 1, 2012, we acquired the remaining 15%
controlling membership interest in Savary Island and Savary Island and its wholly-owned subsidiaries became
direct and indirect wholly-owned subsidiaries, respectively, of Cricket.
Revenues
Our 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. Our customers
are required to pay for their service in advance and we do 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.
When we activate service for a new customer, we often sell that customer a device along with a period of
service. In accordance with the authoritative guidance for revenue arrangements with multiple deliverables, the
sale of a device along with service constitutes a multiple element arrangement. Under this guidance, once a
company has determined the best estimate of selling price of the elements in the sales transaction, the total
consideration received from the customer must be allocated among those elements on a relative selling price
basis. Applying the guidance to these transactions results in our recognition of the total consideration received,
less amounts allocated to the wireless service period (generally the customer’s monthly service plan), as
equipment revenue.
Amounts allocated to equipment revenues and related costs from the sale of devices are recognized when
service is activated by new customers. Revenues and related costs from the sale of devices and accessories to
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