Cricket Wireless 2010 Annual Report Download - page 90

Pursuant to the authoritative accounting guidance for non-controlling interests and variable interest entities,
we are deemed to maintain “control” of Savary Island for accounting purposes through our 85% non-controlling
membership interest. At formation, the net equity in Savary Island was comprised of $156.1 million representing
the carrying value of wireless licenses contributed by Denali and $211.6 million of loans owed by Denali to Cricket
that were assumed by Savary Island, plus $5.1 million in cash contributed by Ring Island. We recorded a
redeemable non-controlling interest representing Ring Island’s 15% proportionate share of the net equity in Savary
Island, which at the time of formation, resulted in a deficit balance of approximately $7.6 million, in mezzanine
equity as a component of redeemable non-controlling interest. Additionally, at the time of formation, we recorded a
pre-tax gain of approximately $12.7 million, which effectively arose from the requirement to adjust the value of
Ring Island’s controlling membership interest from its initial $5.1 million cash contribution to its proportionate
share of Savary Island’s net equity, or the initial value of the redeemable non-controlling interest, a deficit of
$7.6 million. Since we are deemed to maintain “control” for accounting purposes over the Savary Island venture
through our 85% non-controlling membership interest, the gain was recorded to additional paid-in capital.
Under the Savary Island LLC Agreement, Ring Island has the option to put its entire controlling membership
interest in Savary Island to Cricket during the 30-day period commencing on the earlier to occur of May 1, 2012
(based on current FCC rules) and the date of a sale of all or substantially all of the assets, or the liquidation, of
Savary Island, and during any 30-day period commencing after a breach by Cricket of its obligation to pay spectrum
lease fees or fund working capital loans under the Savary Island Credit Agreement (see below) which breach has
continued for 120 days after written notice of breach. The purchase price for such sale is an amount equal to Ring
Island’s equity contributions to Savary Island less any optional distributions made pursuant to the Savary Island
LLC Agreement, plus $150,000 if the sale is consummated prior to May 1, 2017 without incurring any unjust
enrichment payments. If the put option is exercised, the consummation of the sale will be subject to FCC approval.
We have recorded this obligation to purchase Ring Island’s controlling membership interest in Savary Island as a
component of redeemable non-controlling interest in the consolidated balance sheets. As of December 31, 2010,
this non-controlling interest had a carrying value of $5.3 million. Under the Savary Island LLC Agreement, Savary
Island is also required to make monthly mandatory distributions to Ring Island.
To the extent the redemption price for Ring Island’s controlling membership interest exceeds the value of Ring
Island’s net interest in Savary Island at any period, the value of such interest is accreted to the redemption price for
such interest with a corresponding adjustment to additional paid-in capital. Accordingly, we recorded a
$12.8 million adjustment to accrete the value of such interest to its redemption value. We have recorded the
obligation to purchase all of Ring Island’s membership interest in Savary Island as a component of redeemable non-
controlling interests in our consolidated balance sheets. As of December 31, 2010, this redeemable non-controlling
interest had a carrying value of $5.3 million.
In connection with Savary Island’s assumption of $211.6 million of the outstanding loans owed to Cricket
under the Denali senior secured credit agreement, Cricket, Savary Island and Savary Island’s existing wholly-owned
subsidiaries entered into an amended and restated senior secured credit agreement dated as of December 27, 2010,
or the Savary Island Credit Agreement, to amend and restate the terms of the Denali senior secured credit agreement
applicable to the assumed loans. Under the Savary Island Credit Agreement, Cricket also agreed to loan Savary
Island up to an incremental $5.0 million to fund its working capital needs. As of December 31, 2010, borrowings
under the Savary Island Credit Agreement totaled $211.6 million. Loans under the Savary Island Credit Agreement
(including the assumed loans) accrue interest at the rate of 9.5% per annum and such interest is added to principal
annually. All outstanding principal and accrued interest is due in May 2021. Outstanding principal and accrued
interest are amortized in quarterly installments commencing May 2018. However, if Ring Island exercises its put
under the Savary Island LLC Agreement prior to such date, then the amortization commencement date under the
Savary Island Credit Agreement will be the later of the amortization commencement date and the put closing date.
Savary Island may prepay loans under the Savary Island Credit Agreement at any time without premium or penalty.
The obligations of Savary Island and its subsidiaries under the Savary Island Credit Agreement are secured by all of
the personal property, fixtures and owned real property of Savary Island and its subsidiaries, subject to certain
permitted liens. The Savary Island Credit Agreement and the related security agreements contain customary
representations, warranties, covenants and conditions.
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