Cricket Wireless 2011 Annual Report Download - page 93

respect to their estimated tax liabilities resulting from STX Wireless’ earnings relating to the year ending
December 31, 2011. We recorded the distribution 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 operations. The distribution made to Cricket was
eliminated in consolidation.
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. Such loans will 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.
During 2011, we completed the integration of the Cricket and Pocket operating assets in the South Texas
region so that the combined network and retail operations of the STX Wireless joint venture operate more
efficiently. During the year ended December 31, 2011, we incurred approximately $26.4 million of integration
charges relating primarily to certain leased cell site and retail store locations contributed to STX Wireless that it
no longer uses, which were recorded in impairments and other charges within our consolidated statements of
operations. As of December 31, 2011, integration activities were substantially complete and we do not expect to
incur additional significant integration costs.
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.
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 us. 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 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, or 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. We have recorded this obligation to purchase Ring Island’s controlling membership interest in
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