Cricket Wireless 2011 Annual Report Download - page 39

The restrictions in the indentures governing Cricket’s secured and unsecured senior notes could limit our
ability to make borrowings, obtain debt financing, repurchase stock, refinance or pay principal or interest on our
outstanding indebtedness, complete acquisitions for cash or debt or react to changes in our operating
environment. Any credit agreement or indenture that we may enter into in the future may have similar or more
onerous restrictions.
Under the indentures governing our secured and unsecured senior notes and convertible senior notes, if
certain “change of control” events occur, each holder of notes may require us to repurchase all of such holder’s
notes at a purchase price equal to 101% of the principal amount of secured or unsecured senior notes, or 100% of
the principal amount of convertible senior notes, plus accrued and unpaid interest.
If we default under any of the indentures governing our secured or unsecured senior notes or convertible
senior notes because of a covenant breach or otherwise, all outstanding amounts thereunder could become
immediately due and payable. We cannot assure you that we would be able to obtain a waiver should a default
occur. Any acceleration of amounts due would have a material adverse effect on our liquidity and financial
condition, and we cannot assure you that we would have sufficient funds to repay all of the outstanding amounts
under the indentures governing our secured and unsecured senior notes and convertible senior notes.
Our Ability to Use Our Net Operating Loss Carryforwards to Reduce Future Possible Tax Payments
Could Be Negatively Impacted if There Is an “Ownership Change” (as Defined Under Section 382 of the
Internal Revenue Code); Our Tax Benefit Preservation Plan May Not Be Effective to Prevent an
Ownership Change.
We have substantial federal and state net operating losses, or NOLs, for income tax purposes. Subject to
certain requirements, we may “carry forward” our federal NOLs for up to 20 years to offset future taxable
income and reduce our income tax liability. For state income tax purposes, the NOL carryforward period ranges
from five to 20 years. At December 31, 2011, we had federal and state NOLs of approximately $2.5 billion
(which begin to expire in 2022 for federal income tax purposes and of which $37.2 million will expire at the end
of 2012 for state income tax purposes). While these NOL carryforwards have a potential to be used to offset
future ordinary taxable income and reduce future cash tax liabilities by approximately $973.6 million, our ability
to utilize these NOLs will depend upon the availability of future taxable income during the carryforward period
and, as such, there is no assurance we will be able to realize such tax savings.
Our ability to utilize NOLs could be further limited if we were to experience an “ownership change,” as
defined in Section 382 of the Internal Revenue Code and similar state provisions. In general terms, an ownership
change can occur whenever there is a cumulative shift in the ownership of a company by more than
50 percentage points by one or more “5% stockholders” within a three-year period. The occurrence of such a
change in our ownership would generally limit the amount of NOL carryforwards we could utilize in a given year
to the aggregate fair market value of Leap common stock immediately prior to the ownership change, multiplied
by the long-term tax-exempt interest rate in effect for the month of the ownership change.
The determination of whether an ownership change has occurred for purposes of Section 382 is complex
and requires significant judgment. The occurrence of such an ownership change would accelerate cash tax
payments we would be required to make and likely result in a substantial portion of our NOLs expiring before we
could fully utilize them. As a result, any restriction on our ability to utilize these NOL carryforwards could have
a material adverse impact on our business, financial condition and future cash flows.
In 2011, trading in Leap common stock increased the risk of an ownership change under Section 382 of the
Internal Revenue Code. Accordingly, on August 30, 2011, our board of directors adopted a Tax Benefit
Preservation Plan to help deter acquisitions of Leap common stock that could result in an ownership change
under Section 382 and thus help preserve our ability to use our NOL carryforwards. The Tax Benefit
Preservation Plan is designed to deter acquisitions of Leap common stock that would result in a stockholder
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