Cricket Wireless 2012 Annual Report Download - page 118

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LEAP WIRELESS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Company’s carrying value that resulted from the transaction. See “Note 6. Significant Acquisitions and Other
Transactions” for additional information on the spectrum swap. As such, the Company was required to perform
an interim goodwill impairment test. In conducting the interim impairment test, the Company determined its fair
value by using the average market capitalization during the month of October, which was selected because that
was the month in which the spectrum swap transaction closed. Consistent with the Company’s annual
impairment test conducted in the third quarter, the Company continued to apply a control premium of 30% to its
average market capitalization. The carrying value of the Company’s goodwill was $31.9 million as of
October 31, 2012. The value of the Company’s net assets as of October 31, 2012 was $528.0 million and the fair
value of the Company, based upon the average market capitalization during the month of October and an
assumed control premium of 30%, was $621.2 million. As such, the Company determined that no impairment
condition existed on an interim basis and the Company was not required to perform the second step of the
goodwill impairment test.
The closing price of Leap common stock was $6.65 on December 31, 2012 and Leap’s market capitalization
was above the Company’s book value as of such date. Since that time, the closing price of Leap common stock
has ranged from a high of $7.05 per share to a low of $5.51 per share. If the price of Leap common stock
continues to trade at or near current levels or certain triggering events were to occur, the Company may be
required to perform the second step of its goodwill impairment test on an interim basis to determine the fair value
of its net assets, which may require the Company to recognize a non-cash impairment charge for some or all of
the $31.9 million carrying value of its goodwill.
Based upon the Company’s annual impairment test conducted during the third quarter of 2011, it was
determined that no impairment condition existed because the book value of the Company’s net assets as of
August 31, 2011 was $676.1 million and the fair value of the Company, based upon its average market
capitalization during the month of August and an assumed control premium of 30%, was $848.4 million.
Note 6. Significant Acquisitions and Other Transactions
Other Transactions
On November 26, 2012, the Company entered into an intra-market license exchange agreement with a
subsidiary of T-Mobile USA, Inc., (“T-Mobile”) and Cellco Partnership dba Verizon Wireless (“Verizon
Wireless”) involving various markets in Philadelphia, Wilmington and Atlantic City. Completion of the license
exchange is subject to customary closing conditions, including the consent of the FCC. The wireless licenses to
be transferred under the license exchange agreements have been classified in assets held for sale at their carrying
value of $136.2 million in the consolidated balance sheets as of December 31, 2012.
On October 1, 2012, the Company assigned to various entities affiliated with T-Mobile spectrum in various
markets in Alabama, Illinois, Missouri, Minnesota and Wisconsin in exchange for 10 MHz of additional AWS
spectrum in Phoenix, Houston and two other Texas markets. The transactions also included intra-market
exchanges between the Company and T-Mobile in Philadelphia, Wilmington, Atlantic City and various markets
in Texas and New Mexico. The Company recognized a non-cash gain on the transaction of approximately $106.4
million related to the excess of the fair value over carrying value of the spectrum exchanged by the Company in
this transaction.
On August 28, 2012, the Company acquired 12 MHz of 700 MHz A block spectrum in Chicago from
Verizon Wireless for $204 million and the Company and Savary Island sold to Verizon Wireless excess PCS and
AWS spectrum in various markets across the U.S. for $360 million. The Company recognized a net gain of
$130.4 million in connection with these transactions.
104