Cricket Wireless 2011 Annual Report Download - page 124

LEAP WIRELESS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Savary Island Venture
Cricket owns an 85% non-controlling membership interest in Savary Island, which holds wireless spectrum
in the upper Midwest portion of the U.S. and which leases a portion of that spectrum to Cricket. Cricket service
was previously offered in greater Chicago and Southern Wisconsin by Denali Spectrum, LLC (“Denali”), an
entity in which the Company owned an 82.5% non-controlling membership interest. On December 27, 2010,
immediately prior to Cricket’s purchase of the remaining 17.5% controlling membership interest in Denali that it
did not previously own, Denali contributed all of its wireless spectrum outside of its Chicago and Southern
Wisconsin operating markets and a related spectrum lease to Savary Island, a newly formed venture, in exchange
for an 85% non-controlling membership interest. Savary Island acquired this spectrum as a “very small business”
designated entity under FCC regulations. Ring Island Wireless, LLC (“Ring Island”) contributed $5.1 million of
cash to Savary Island in exchange for a 15% controlling membership interest. On March 31, 2011, Denali and its
subsidiaries were merged with and into Cricket, with Cricket as the surviving entity.
Under the amended and restated limited liability company agreement of Savary Island (the “Savary Island
LLC Agreement”), Ring Island has the right 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. The Company has 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.
Savary Island has guaranteed Cricket’s put obligations under the Savary Island LLC Agreement, which guaranty
is secured on a first-lien basis by certain assets of Savary Island. Under the Savary Island LLC Agreement,
Savary Island is also required to make monthly mandatory distributions to Ring Island. Savary Island is also
party to a management services agreement with Cricket, pursuant to which Cricket provides management
services to Savary Island in exchange for a management fee.
The Company attributes profits and losses to Ring Island’s redeemable non-controlling interests each
reporting period. To the extent that 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 (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. However, the Company would not reduce the carrying amount of the
redeemable non-controlling interest below the redemption price. Both the attribution of profit or loss and the
accretion of the redeemable non-controlling interest are presented as a component of accretion of redeemable
non-controlling interests and distributions, net of tax, in the consolidated statements of operations. As of
December 31, 2011 and December 31, 2010, this redeemable non-controlling interest had a carrying value of
$5.3 million.
At the closing of the formation of the venture, Savary Island assumed $211.6 million of the outstanding
loans then owed by Denali and its subsidiaries to Cricket. In connection with Savary Island’s assumption of such
loans, Cricket, Savary Island and Savary Island’s subsidiaries entered into an amended and restated senior
secured credit agreement, dated as of December 27, 2010 (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 additional $5.0 million to fund its
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