Cricket Wireless 2012 Annual Report Download - page 65

The closing price of Leap common stock was $6.65 on December 31, 2012 and Leap’s market capitalization
was above our 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, we may be required to perform the second step
of our goodwill impairment test on an interim basis to determine the fair value of our net assets, which may
require us to recognize a non-cash impairment charge for some or all of the $31.9 million carrying value of our
goodwill.
Based upon our annual impairment test conducted during the third quarter of 2011, we determined that no
impairment condition existed because the book value of our net assets as of August 31, 2011 was $676.1 million
and the fair value of our company, based upon our average market capitalization during the month of August and
an assumed control premium of 30%, was $848.4 million.
Based upon on our annual impairment test conducted during the third quarter of 2010, the book value of our
net assets exceeded the fair value of our company, determined based upon our average market capitalization
during the month of August 2010 and an assumed control premium of 30%. We therefore performed the second
step of the assessment to measure the amount of any impairment. Under step two of the assessment, we
performed a hypothetical purchase price allocation as if our company was being acquired in a business
combination and estimated the fair value of our identifiable assets and liabilities. This step of the assessment
indicated that the implied fair value of our goodwill was zero, as the fair value of our identifiable assets and
liabilities as of August 31, 2010 exceeded the fair value of our company. As a result, we recorded a non-cash
impairment charge of $430.1 million in the third quarter of 2010, reducing the carrying amount of our goodwill
at that time to zero.
Income Taxes
We calculate income taxes in each of the jurisdictions in which we operate. This process involves
calculating the current tax expense or benefit and any deferred income tax expense or benefit resulting from
temporary differences arising from differing treatments of items for tax and accounting purposes. These
temporary differences result in deferred tax assets and liabilities. Deferred tax assets are also established for the
expected future tax benefits to be derived from our NOL carryforwards, capital loss carryforwards and income
tax credits.
We periodically assess the likelihood that our deferred tax assets will be recoverable from future taxable
income. To the extent we believe it is more likely than not that our deferred tax assets will not be recovered, we
must establish a valuation allowance. As part of this periodic assessment for the year ended December 31, 2012,
we weighed the positive and negative factors and, at this time, we do not believe there is sufficient positive
evidence to support a conclusion that it is more likely than not that all or a portion of our deferred tax assets will
be realized, except with respect to the realization of a $1.9 million Texas Margins Tax, or TMT, credit.
Accordingly, at December 31, 2012 and 2011, we recorded a valuation allowance offsetting substantially all of
our deferred tax assets. We will continue to monitor the positive and negative factors to assess whether we are
required to continue to maintain a valuation allowance. At such time as we determine that it is more likely than
not that all or a portion of the deferred tax assets are realizable, the valuation allowance will be reduced or
released in its entirety, with the corresponding benefit reflected in our tax provision. Deferred tax liabilities
associated with wireless licenses and investments in certain joint ventures cannot be considered a source of
taxable income to support the realization of deferred tax assets because these deferred tax liabilities will not
reverse until some indefinite future period when these assets are either sold or impaired for book purposes.
We have substantial federal and state 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. As of
December 31, 2012, we had federal and state NOLs of approximately $2.6 billion and $2.0 billion, respectively,
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