Cricket Wireless 2012 Annual Report Download - page 92

To the extent the redemption price for Pocket’s non-controlling membership interest varies from the value
of Pocket’s net interest in STX Wireless at any period (after the attribution of profits or losses), the value of such
interest is accreted to the redemption price for such interest with a corresponding adjustment to additional paid-in
capital. For the years ended December 31, 2012 and 2011, we recorded a net accretion benefit of approximately
$0.7 million and $8.9 million, respectively, to bring the carrying value of Pocket’s membership interests in STX
Wireless to its estimated redemption value.
In accordance with the STX LLC Agreement, STX Wireless made pro-rata tax distributions of $9.1 million
and $3.0 million to Cricket and Pocket, respectively, in connection with their estimated tax liabilities resulting
from STX Wireless’ earnings for the year ended December 31, 2012. During the year ended December 31, 2011,
STX Wireless made similar pro-rata tax distributions of $5.7 million and $1.7 million to Cricket and Pocket,
respectively. We recorded these tax distributions to Pocket as an adjustment to additional paid-in-capital in the
consolidated balance sheets and as a component of accretion of redeemable non-controlling interests and
distributions, net of tax, in the consolidated statements of comprehensive income. The distributions made to
Cricket were eliminated in consolidation.
On July 12, 2012, STX Wireless made an optional pro-rata cash distribution of $50.7 million and $16.2
million to Cricket and Pocket, respectively. Under the STX LLC Agreement, this optional distribution to Pocket
(plus an annual return, as discussed above), is deducted from the purchase price payable to Pocket in the event of
a put, call or mandatory buyout following a change of control of Leap.
At the closing of the formation of the joint venture, STX Wireless entered into a loan and security
agreement with Pocket pursuant to which, commencing in April 2012, STX Wireless agreed to make quarterly
limited-recourse loans to Pocket out of excess cash in an aggregate principal amount not to exceed $30 million,
which loans are secured by Pocket’s membership interests in STX Wireless. As of December 31, 2012, Pocket
had approximately $8.3 million in aggregate principal amount of outstanding borrowings under the loan and
security agreement. Borrowings under the loan and security agreement bear interest at 8.0% per annum,
compounded annually, and will mature on the earlier of October 2020 and the date on which Pocket ceases to
hold any membership interests in STX Wireless. Cricket has the right to set off all outstanding principal and
interest under this loan and security agreement against the payment of the purchase price for Pocket’s
membership interests in STX Wireless in the event of a put, call or mandatory buyout following a change of
control of Leap. Accordingly, outstanding borrowings and accrued interest under the loan and security agreement
have been recorded as a deduction from the purchase price payable to Pocket as discussed above in the
consolidated balance sheets and as a component of accretion of redeemable non-controlling interests and
distributions, net of tax, in the consolidated statements of comprehensive income. The offset of the outstanding
borrowings and accrued interest against the purchase price for Pocket’s membership interest, coupled with the
accretion benefit recorded to adjust the redemption value of Pocket’s net interest in STX Wireless, brought the
carrying value of Pocket’s membership interests in STX Wireless to an estimated redemption value of $64.5
million and $90.7 million as of December 31, 2012 and December 31, 2011, respectively.
In a separate transaction, on January 3, 2011, we acquired Pocket’s customer assistance call center for
$850,000. We accounted for this transaction as a business purchase combination in accordance with the
authoritative guidance for business combinations. A portion of the purchase price was assigned to property and
equipment and the remaining amount was allocated to goodwill.
During 2011, we completed the integration of Cricket and Pocket operating assets in the South Texas region
to enable the combined network and retail operations of the STX Wireless joint venture to operate more
efficiently. During the year ended December 31, 2011, we incurred approximately $26.4 million, of such
integration costs, which were recorded in impairments and other charges within our consolidated statements of
comprehensive income.
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