Cricket Wireless 2010 Annual Report Download

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THE FULL SPECTRUM
2010 Annual Report

Table of contents

  • Page 1
    2010 Annual Report THE FULL SPECTRUM

  • Page 2
    ... set forth under the caption "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report on Form 10-K for the year ended December 31, 2010. FORWARD-LOOKING STATEMENTS This annual report contains "forward-looking statements" within the meaning of the...

  • Page 3
    ... of the registrant was approximately $801,693,696, based on the closing price of Leap common stock on the NASDAQ Global Select Market on June 30, 2010 of $12.98 per share. The number of shares of registrant's common stock outstanding on February 18, 2011 was 78,653,765. Documents incorporated...

  • Page 4

  • Page 5
    LEAP WIRELESS INTERNATIONAL, INC. ANNUAL REPORT ON FORM 10-K For the Year Ended December 31, 2010 TABLE OF CONTENTS Page PART I Item 1. Business ...Item 1A. Risk Factors ...Item 1B. Unresolved Staff Comments ...Item 2. Properties ...Item 3. Legal Proceedings ...Item 5. ... 2 20 41 41 42 PART II ...

  • Page 6
    (This page intentionally left blank)

  • Page 7
    ... services from other carriers at cost-effective rates; • our ability to maintain effective internal control over financial reporting; • our ability to attract, motivate and retain an experienced workforce, including members of senior management; • future customer usage of our wireless services...

  • Page 8
    ... and unlimited text messaging, along with mobile web, 411 services, navigation and data back-up. In addition to our Cricket Wireless voice and data services, we offer Cricket Broadband, our unlimited mobile broadband service, which allows customers to access the internet through their computers for...

  • Page 9
    ...-cost leader in wireless telecommunications. Cricket Business Strategy • Target Customers in the Value Segment. Our Cricket products and services are designed to appeal to customers who are seeking increased value. We provide unlimited nationwide voice, data and mobile broadband wireless services...

  • Page 10
    ... fees or credit checks. Our most popular Cricket Wireless rate plans bundle certain features with unlimited local and U.S. long distance service and unlimited text messaging along with mobile web, 411 services, navigation and data back-up. We also offer a flexible payment option, BridgePayTM...

  • Page 11
    ... mobile broadband service offering. Like our Cricket Wireless unlimited service plans, our unlimited mobile broadband service allows customers to access the internet through their computers for a low, flat rate with no long-term commitments or credit checks, and brings low-cost broadband data...

  • Page 12
    ... to provide voice and data services at costs that are generally substantially lower than most traditional wireless carriers. Our EvDO networks provide high quality, concentrated coverage and capacity in local population centers serving the areas where our customers live, work and play. During 2010...

  • Page 13
    ...sites and switching centers. In addition to our Cricket network footprint, we have entered into roaming relationships with other wireless carriers that provide our customers with nationwide voice and data roaming services over an extended service area covering approximately 285 million POPs. We have...

  • Page 14
    .... Management Agreement. Cricket and Savary Island are parties to a management services agreement, pursuant to which Cricket provides management services to Savary Island in exchange for a monthly fixed management fee until Savary Island commences the build-out of its wireless spectrum, and a monthly...

  • Page 15
    ...in STX Wireless over multiple closings in the event that the block of shares of Leap common stock issuable to Pocket at the closing of the purchase would be greater than 9.9% of the total number of shares of Leap common stock then issued and outstanding. To the extent the redemption price for Pocket...

  • Page 16
    ... and Verizon Wireless each offer mobile broadband services. In addition, Clearwire Corporation has launched unlimited 4G wireless broadband service in a number of markets in which we offer Cricket Broadband. Best Buy also recently launched a mobile broadband product using Sprint's wireless network...

  • Page 17
    ... use of this spectrum for voice, data and mobile broadband services. Taking advantage of such developments, at least one new entrant, LightSquared, has announced plans to launch a new wholesale, nationwide 4G-LTE wireless broadband network integrated with satellite coverage to allow partners...

  • Page 18
    ..., the FCC has allocated additional spectrum that can be used for two-way mobile wireless voice, data and broadband services, including AWS spectrum. The FCC has licensed six frequency blocks consisting of one 20 MHz license in each of 734 cellular market areas, or CMAs; one 20 MHz license and one 10...

  • Page 19
    ...launch of new markets over the past three years, we and Denali worked with several incumbent government and commercial licensees to clear AWS spectrum. In the event that we or Savary Island determine to launch additional new markets in the future using AWS spectrum, or to enhance network coverage or...

  • Page 20
    ... our business, financial condition or results of operations. FCC rules also require that local exchange carriers and most commercial mobile radio service providers, including providers like Cricket, allow customers to change service providers without changing telephone numbers. For wireless service...

  • Page 21
    ...with our USF obligations could subject us to significant fines or forfeitures. Wireless carriers may be designated as Eligible Telecommunications Carriers, or ETCs, and may receive universal service support funding for providing service to customers using wireless service in high cost areas or to 15

  • Page 22
    ... universal support received by commercial mobile wireless ETC providers. In May 2008, the FCC adopted an interim cap on payments to ETCs under the USF relating to providing wireless service in high cost areas, pending comprehensive reform that is now under consideration by the agency. Future action...

  • Page 23
    Copyright Office determines in the future not to extend this exemption for an extended period of time and this prevents us from "flashing" devices or activating "reflashed" devices on our network, this could have a material adverse impact on our business, financial condition and results of ...

  • Page 24
    ...wireless services which may similarly affect seasonal trends. For example, we utilize a program which allows existing customers to activate an additional line of voice service on a previously activated Cricket device not currently in service. Customers accepting this offer receive a free first month...

  • Page 25
    ... region and president of Verizon Wireless Messaging Services. Prior to joining Verizon Wireless, Mr. Young held senior management positions with PrimeCo Personal Communications from 1995 to 2000 and with U.S. West, Inc. from 1991 to 1995. Mr. Young holds a B.S. in business management from Florida...

  • Page 26
    ... and retain a growing customer base, our current business plans and financial outlook may be harmed. We Face Increasing Competition Which Could Have a Material Adverse Effect on Demand for Cricket Service. The wireless telecommunications industry is very competitive. In general, we compete with...

  • Page 27
    ... and Verizon Wireless each offer mobile broadband services. In addition, Clearwire Corporation has launched unlimited 4G wireless broadband service in a number of markets in which we offer Cricket Broadband. Best Buy also recently launched a mobile broadband product using Sprint's wireless network...

  • Page 28
    ... a number of our Cricket service offerings, offering "all-inclusive" service plans, eliminating certain late fees we previously charged to customers who reinstated their service after having failed to pay their monthly bill on time, entering into a new wholesale agreement and nationwide data roaming...

  • Page 29
    ...above, including the size of our service areas, network performance and reliability issues, our device and service offerings, customer perceptions of our services, customer care quality and wireless number portability. Managing these factors and customers' expectations is essential in attracting and...

  • Page 30
    ...which permits us to offer Cricket wireless services outside our current network footprint using Sprint's network. We have agreed, among other things, to provide a minimum of $300 million of revenue under the agreement over its initial five-year term (against which we can credit up to $100 million of...

  • Page 31
    ...element of our business strategy is to offer consumers unlimited wireless services for a flat rate without requiring them to enter into a fixed-term contract or pass a credit check. We provide nationwide voice, data and mobile broadband wireless services through our own Cricket network footprint and...

  • Page 32
    ..." rate plans and our new Muve Music service. We have also pursued activities to strengthen and expand the available network service area for Cricket products and services, which have included enhancing network coverage and capacity in our existing markets, entering into agreements to provide Cricket...

  • Page 33
    ... stock, depository shares, rights and warrants. The securities under this registration statement may be offered from time to time, separately or together, directly by us or through underwriters, at amounts, prices, interest rates and other terms to be determined at the time of any offering. If new...

  • Page 34
    outstanding indebtedness, which could make it more difficult or expensive for us to borrow in the future and could affect the trading prices of our secured and unsecured senior notes. To Service Our Indebtedness and Fund Our Working Capital and Capital Expenditures, We Will Require a Significant ...

  • Page 35
    ... have a material adverse impact on our business, financial condition and future cash flows. On September 13, 2010, 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...

  • Page 36
    ... to technological changes and to offer, on a timely basis, services that meet customer demands. Competitors have begun providing competing wireless telecommunications service through the use of developing 4G technologies, such as WiMax and LTE. We currently plan to deploy next-generation LTE network...

  • Page 37
    ... provided to us by a manufacturer and subsequently sold in connection with our services, our ability to add and maintain customers for Cricket service could be materially adversely affected by negative public reactions. There also are some safety risks associated with the use of wireless devices...

  • Page 38
    ... our cost of providing service. Any failure in or interruption of systems that we or third parties maintain to support ancillary functions, such as billing, point of sale, inventory management, customer care and financial reporting, could materially impact our ability to timely and accurately...

  • Page 39
    ... on our business, financial condition and results of operations. In addition, we rely on third-party intellectual property and digital content to provide certain of our wireless services to customers. In early 2011, we launched Muve Music, an unlimited music download service designed specifically...

  • Page 40
    ... that would adversely affect our business, impose new costs or require changes in current or planned operations. In addition, state regulatory agencies are increasingly focused on the quality of service and support that wireless carriers provide to their customers and several agencies have proposed...

  • Page 41
    ... 2011. We provide nationwide voice, data and mobile broadband wireless services through our own Cricket network footprint and through roaming and wholesale agreements that we have entered into with other carriers. Cricket Wireless customers generally use their handsets for voice calls for an average...

  • Page 42
    ...of customers' use of our network and roaming or wholesale services we expect to provide in the future, we may be forced to raise the price or alter the service offerings of our wireless or mobile broadband services, further limit data quantities or speeds, otherwise limit the number of new customers...

  • Page 43
    ... market prices decline as a result of the sale prices in FCC auctions. In addition, the price of wireless licenses could decline as a result of the FCC's pursuit of policies designed to increase the number of wireless licenses available in each of our markets. For example, during recent years, the...

  • Page 44
    ...not to use our service and current customers may choose to terminate service. Such events could limit our ability to grow our customer base, which could have a material adverse effect on our business, financial condition and operating results. If We Experience High Rates of Credit Card, Subscription...

  • Page 45
    ... number of securities to be sold in the public market, these sales could reduce the trading price of Leap common stock. These sales also could impede our ability to raise future capital. Our Directors and Affiliated Entities Have Substantial Influence over Our Affairs, and Our Ownership Is Highly...

  • Page 46
    ... shares under these stock plans, they can be freely sold in the public market. If any of Leap's stockholders causes a large number of securities to be sold in the public market, these sales could reduce the trading price of Leap common stock. These sales also could impede our ability to raise future...

  • Page 47
    ... of Financial Condition and Results of Operations - Liquidity and Capital Resources" of this report. On September 13, 2010, our board of directors adopted a Tax Benefit Preservation Plan as a measure intended to help preserve our ability to use our NOL carryforwards and to deter acquisitions of Leap...

  • Page 48
    ... System." DNT alleges that we use, encourage the use of, sell, offer for sale and/or import voice and data service and wireless modem cards for computers designed to be used in conjunction with cellular networks and that such acts constitute both direct and indirect infringement of DNT's patent...

  • Page 49
    ... Hargray Wireless directly and/or indirectly infringe its patent by providing cellular telephone service and by using and inducing others to use a patented digital cellular telephone system by using cellular telephones, Bluetooth devices, and cellular telephone infrastructure made by companies such...

  • Page 50
    ... 2002 and 2006, we failed to comply with certain federal postal regulations that required us to update customer mailing addresses in exchange for receiving certain bulk mailing rate discounts. As a result, the DOJ has asserted that we violated the False Claims Act, or the FCA, and are therefore...

  • Page 51
    ... for trading on the NASDAQ Global Select Market under the symbol "LEAP." The following table sets forth the high and low closing prices per share of our common stock on the NASDAQ Global Select Market for the quarterly periods indicated, which correspond to our quarterly fiscal periods for financial...

  • Page 52
    ... and "Item 8. Financial Statements and Supplementary Data" included elsewhere in this report. During the fourth quarter of 2010, we elected to change the method of accounting for regulatory fees and telecommunications taxes paid with respect to our service plans, including Universal Service Fund and...

  • Page 53
    2010 2009 Year Ended December 31, 2008 2007 2006 Diluted loss per share attributable to common stockholders: Loss before cumulative effect of change in accounting principle ...$ Cumulative effect of change in accounting principle...Diluted loss per share(2)...$ Shares used in per share ...

  • Page 54
    ... and unlimited text messaging, along with mobile web, 411 services, navigation and data backup. In addition to our Cricket Wireless voice and data services, we offer Cricket Broadband, our unlimited mobile broadband service, which allows customers to access the internet through their computers for...

  • Page 55
    ... of our Cricket Broadband and Cricket PAYGo services, our new "all-inclusive" rate plans and our new Muve Music service. We have also pursued activities to strengthen and expand the available network service area for Cricket products and services. In recent years, new Cricket markets were launched...

  • Page 56
    ... and March 2010, we revised a number of our Cricket Wireless service plans to provide additional features previously only available in our higher-priced plans, to eliminate certain fees we previously charged customers who changed their service plans and to include unlimited nationwide roaming and...

  • Page 57
    ... financial statements. Revenues Our business revenues principally arise from the sale of wireless services, devices (handsets and broadband modems) and accessories. Wireless services are provided primarily on a month-to-month basis. In general, our customers are required to pay for their service...

  • Page 58
    ... when service is activated by new customers. Revenues and related costs from the sale of accessories and upgrades for existing customers are recognized at the point of sale. The costs of devices and accessories sold are recorded in cost of equipment. In addition to devices that we sell directly to...

  • Page 59
    ... which permits us to offer Cricket wireless services outside our current network. We believe that this agreement will allow us to strengthen and expand our distribution and provides us with greater flexibility with respect to our network expansion plans. As a result, we have determined to spend...

  • Page 60
    ... are issued with a stated term (ten years in the case of PCS licenses and fifteen years in the case of AWS licenses), wireless licenses are considered to be indefinite-lived intangible assets because we expect to provide wireless service using the relevant licenses for the foreseeable future, PCS...

  • Page 61
    ... method we use to determine the fair value of our wireless licenses is the market approach. Under this method, we determine fair value by comparing our wireless licenses to sales prices of other wireless licenses of similar size and type that have been recently sold through government auctions and...

  • Page 62
    ... average number of shares of Leap common stock outstanding during such month and the average closing price of Leap common stock during such month. We considered the month of August to be an appropriate period over which to measure average market capitalization in 2010 because trading prices during...

  • Page 63
    ... value of stock options using an option valuation model is affected by our stock price, as well as assumptions regarding a number of complex and subjective variables. Through June 30, 2010, the volatility assumption was based on a combination of the historical volatility of Leap common stock and the...

  • Page 64
    ... have a material adverse impact on our business, financial condition and future cash flows. On September 13, 2010, 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...

  • Page 65
    ...the customer is generally not able to make or receive calls or access the internet via our Cricket Broadband service, as applicable. Any call attempted by a suspended Cricket Wireless customer is routed directly to our customer service center in order to arrange payment. For our Cricket Wireless and...

  • Page 66
    ..., 2009 % of 2009 Service Revenues Change from Prior Year Dollars Percent Revenues: Service revenues ...Equipment revenues ...Total revenues ...Operating expenses: Cost of service (exclusive of items shown separately below) ...Cost of equipment ...Selling and marketing ...General and administrative...

  • Page 67
    ..., 2008 exclude changes in customers that occurred during the nine months ended September 30, 2008 in the Hargray Wireless markets in South Carolina and Georgia that we acquired in April 2008. We completed the upgrade of the Hargray Wireless networks and introduced Cricket service in these markets in...

  • Page 68
    ... year. A 41% increase in handset and broadband data card sales volume was partially offset by a reduction in the average cost per device sold, primarily due to the expansion of our low-cost handset offerings and the expansion of our Cricket PAYGo product offerings. Selling and Marketing Expenses...

  • Page 69
    ...expenditures on the future deployment of next-generation LTE technology and to defer our previously planned network expansion activities, we also recorded an impairment charge of $46.5 million relating to long-lived assets during the year ended December 31, 2010. These costs were previously included...

  • Page 70
    ... regional wireless service providers in which we hold investments. Interest Income Interest income decreased $2.8 million during the year ended December 31, 2010 compared to the corresponding period of the prior year. This decrease was primarily attributable to a decline in short-term interest rates...

  • Page 71
    ..., 2009 and 2008, respectively, related to changes in our effective state income tax rate. For the year ended December 31, 2010, our effective state income tax rate increased as a result of the expansion of our operating footprint in fiscal 2009 into new, higher-taxing states. This increase in our...

  • Page 72
    ... the consolidated financial statements. Quarterly Financial Data (Unaudited) As noted above, during the fourth quarter of 2010, we elected to change the method of accounting for regulatory fees and telecommunications taxes paid with respect to our service plans, including Universal Service Fund and...

  • Page 73
    ... unaudited condensed consolidated financial statements (in thousands): As noted above, during the fourth quarter of 2010, we elected to change the method of accounting for regulatory fees and telecommunications taxes paid with respect to our service plans, including Universal Service Fund and E-911...

  • Page 74
    ... the information provided by financial statement measures with several customer-focused performance metrics that are widely used in the telecommunications industry. These metrics include average revenue per user per month, or ARPU, which measures average service revenue per customer; cost per gross...

  • Page 75
    ... over time, to help evaluate how changes in our business, including changes in our service offerings, affect average revenue per customer, and to forecast future service revenue. In addition, ARPU provides management with a useful measure to compare our subscriber revenue to that of other wireless...

  • Page 76
    ... they are disconnected; as a result, these customers are not included in churn. Customers of our Cricket Wireless and Cricket Broadband service are generally disconnected from service approximately 30 days after failing to pay a monthly bill, and pay-in-advance customers who ask to terminate their...

  • Page 77
    ... for business planning purposes and to measure our performance relative to that of our competitors. In addition, we believe that adjusted OIBDA and similar measures are widely used by investors, financial analysts and credit rating agencies as measures of our financial performance over time and...

  • Page 78
    ... total service revenues used in the calculation of ARPU to service revenues, which we consider to be the most directly comparable GAAP financial measure to ARPU (in thousands, except weighted-average number of customers and ARPU): March 31, 2010 Three Months Ended June 30, September 30, 2010 2010...

  • Page 79
    ... total costs used in the calculation of CCU to cost of service, which we consider to be the most directly comparable GAAP financial measure to CCU (in thousands, except weightedaverage number of customers and CCU): March 31, 2010 Three Months Ended June 30, September 30, 2010 2010 December 31, 2010...

  • Page 80
    ... market transactions. Our current business expansion efforts include activities to enhance our network capacity in our existing markets, thereby allowing us to offer our customers an even higher-quality service area. In addition, we plan to begin deployment of next-generation LTE network technology...

  • Page 81
    ...our business and financial condition related to our indebtedness. Cash Flows The following table shows cash flow information for the three years ended December 31, 2010, 2009 and 2008 (in thousands): 2010 Year Ended December 31, 2009 2008 Net cash provided by operating activities...Net cash used in...

  • Page 82
    ... repayment of principal in connection with an amendment to the senior secured credit agreement. • We sold an aggregate of 7,000,000 shares of Leap common stock in an underwritten public offering, resulting in aggregate net proceeds of $263.7 million. • We issued common stock upon the exercise of...

  • Page 83
    ...at the rate of 4.50% per year, payable semi-annually in cash in arrears, which interest payments commenced in January 2009. The notes are Leap's general unsecured obligations and rank equally in right of payment with all of Leap's existing and future senior unsecured indebtedness and senior in right...

  • Page 84
    ... approved by the board of directors, (4) Leap is liquidated or dissolved or holders of common stock approve any plan or proposal for its liquidation or dissolution or (5) shares of Leap common stock are not listed for trading on any of the New York Stock Exchange, the NASDAQ Global Market or the...

  • Page 85
    ... bear interest at the rate of 7.75% per year, payable semi-annually in cash in arrears, which interest payments commenced in November 2009. The notes are guaranteed on a senior secured basis by Leap and each of its existing and future domestic subsidiaries (other than Cricket, which is the issuer...

  • Page 86
    ...bear interest at the rate of 7.75% per year, payable semi-annually in cash in arrears, which interest payments will commence in April 2011. The notes are guaranteed on an unsecured senior basis by Leap and each of its existing and future domestic subsidiaries (other than Cricket, which is the issuer...

  • Page 87
    ... interest to the date of redemption), computed using a discount rate equal to the Treasury Rate plus 50 basis points, over (b) the principal amount of such notes. The notes may be redeemed, in whole or in part, at any time on or after October 15, 2015, at a redemption price of 103.875%, 102.583% and...

  • Page 88
    ... wireless networks, and other planned capital projects. STX Wireless Joint Venture Cricket service is offered in South Texas by its joint venture STX Operations. Cricket controls STX Operations through a 75.75% controlling membership interest in its parent company STX Wireless. In October 2010...

  • Page 89
    ...in STX Wireless over multiple closings in the event that the block of shares of Leap common stock issuable to Pocket at the closing of the purchase would be greater than 9.9% of the total number of shares of Leap common stock then issued and outstanding. To the extent the redemption price for Pocket...

  • Page 90
    ... 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...

  • Page 91
    ... spectrum, we sold the spectrum to STX Wireless for $4.0 million. Wholesale Agreement On August 2, 2010, we entered into a wholesale agreement with an affiliate of Sprint Nextel which permits us to offer Cricket wireless services outside our current wireless footprint using Sprint's network. The...

  • Page 92
    ... and compounds annually. On October 28, 2010, LCW Operations repaid all amounts outstanding under its variable rate senior secured credit facility. As a result, we do not expect fluctuations in interest rates to have a material adverse effect on our business, financial condition or results of...

  • Page 93
    Item 8. Financial Statements and Supplementary Data REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Stockholders of Leap Wireless International, Inc.: In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of ...

  • Page 94
    LEAP WIRELESS INTERNATIONAL, INC. CONSOLIDATED BALANCE SHEETS (In thousands, except share amounts) December 31, 2010 2009 Assets Cash and cash equivalents ...Short-term investments ...Inventories ...Deferred charges ...Other current assets ...Total current assets ...Property and equipment, net ......

  • Page 95
    LEAP WIRELESS INTERNATIONAL, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share data) 2010 Year Ended December 31, 2009 2008 Revenues: Service revenues ...$2,482,601 Equipment revenues ...214,602 Total revenues ...Operating expenses: Cost of service (exclusive of items shown...

  • Page 96
    LEAP WIRELESS INTERNATIONAL, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) 2010 Year Ended December 31, 2009 2008 Operating activities: Net loss ...Adjustments to reconcile net loss to net cash provided by operating activities: Share-based compensation expense...Depreciation and ...

  • Page 97
    LEAP WIRELESS INTERNATIONAL, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (In thousands, except share amounts) Accumulated Other Comprehensive Income (Loss) Common Stock Shares Amount Additional Paid-In Capital Accumulated Deficit Total Balance at December 31, 2007 ...68,674,435 ...

  • Page 98
    ...Cricket service offerings provide customers with unlimited nationwide wireless services for a flat rate without requiring a fixed-term contract or a credit check. The Company's primary service is Cricket Wireless, which offers customers unlimited nationwide voice and data services for a flat monthly...

  • Page 99
    ... customers to sign fixed-term contracts or pass a credit check. Service revenues are recognized only after payment has been received and services have been rendered. In August 2010, the Company introduced new rate plans for all of its Cricket services, eliminated certain fees (such as activation...

  • Page 100
    ... Company recognizing the total consideration received, less amounts allocated to the wireless service period (generally the customer's monthly rate plan), as equipment revenue. Amounts allocated to equipment revenues and related costs from the sale of devices are recognized when service is activated...

  • Page 101
    LEAP WIRELESS INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) Cost of Equipment. Cost of equipment primarily includes the cost of devices and accessories purchased from third-party vendors and resold to the Company's customers in connection with its services, as well as ...

  • Page 102
    LEAP WIRELESS INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) dependent on the price transparency of the asset, liability or market and the nature of the asset or liability. The Company has categorized its assets and liabilities measured at fair value into a three-level ...

  • Page 103
    ... to offer Cricket wireless services outside of its current network footprint. The Company believes that this agreement will allow it to strengthen and expand its distribution and provides it with greater flexibility with respect to its network expansion plans. As a result, the Company determined to...

  • Page 104
    ... recorded upon adoption of fresh-start reporting and are being amortized on a straight-line basis over their estimated useful lives of fourteen years. Customer relationships acquired in connection with the Company's acquisition of Hargray Wireless, LLC ("Hargray Wireless") in 2008 and the formation...

  • Page 105
    ...Cricket wireless services outside of its current network footprint. If the Company were unable to obtain or maintain cost-effective roaming or wholesale services for its customers in geographically desirable service areas, the Company's competitive position, business, financial condition and results...

  • Page 106
    LEAP WIRELESS INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) The following table summarizes the Company's asset retirement obligations as of and for the years ended December 31, 2010 and 2009 (in thousands): Year Ended December 31, 2010 2009 Asset retirement ...

  • Page 107
    ... a material adverse impact on its business, financial condition and future cash flows. On September 13, 2010, the Company's 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...

  • Page 108
    LEAP WIRELESS INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) Basic and Diluted Earnings (Loss) Per Share Basic earnings (loss) per share is computed by dividing net income (loss) available to common stockholders by the weighted-average number of common shares ...

  • Page 109
    LEAP WIRELESS INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) of the significance of a particular... provides a summary of the changes in the fair value of the Company's Level 3 assets (in thousands). Year Ended December 31, 2010 2009 Beginning balance, January 1 ...Total ...

  • Page 110
    ... the Company's outstanding long-term debt is determined primarily by using quoted prices in active markets and was $2,876.8 million and $2,715.7 million as of December 31, 2010 and 2009, respectively. Assets Measured at Fair Value on a Nonrecurring Basis The table below summarizes the non-financial...

  • Page 111
    LEAP WIRELESS INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) Note 5. Supplementary Financial Information Supplementary Balance Sheet Information (in thousands): As of December 31, 2010 2009 Other current assets: Accounts receivable, net(1): ...$ Prepaid expenses ......

  • Page 112
    LEAP WIRELESS INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) (1) Accounts receivable, consists primarily of amounts billed to third-party dealers for devices and accessories and amounts due from service providers related to interconnect and roaming agreements, net of ...

  • Page 113
    LEAP WIRELESS INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) considered the month of August to be an appropriate period over which to measure average market capitalization in 2010 because trading prices during that period reflected market reaction to the Company's most ...

  • Page 114
    ...are issued with a stated term (ten years in the case of PCS licenses and fifteen years in the case of AWS licenses), wireless licenses are considered to be indefinitelived intangible assets because the Company expects to provide wireless service using the relevant licenses for the foreseeable future...

  • Page 115
    ... the Company uses to determine the fair value of its wireless licenses is the market approach. Under this method, the Company determines fair value by comparing its wireless licenses to sales prices of other wireless licenses of similar size and type that have been recently sold through government...

  • Page 116
    ... 1, 2010, STX Operations began providing Cricket service to approximately 700,000 customers, of which approximately 323,000 were contributed by Pocket, with a network footprint covering approximately 4.4 million POPs. The Company accounted for the acquisition of Pocket's business as a business...

  • Page 117
    ..., the wireless licenses acquired have an indefinite useful life. Transaction-related expenses totaling approximately $1.4 million were recorded as general and administrative expenses in the Company's consolidated statement of operations. The Company has not presented pro forma financial information...

  • Page 118
    ...in STX Wireless over multiple closings in the event that the block of shares of Leap common stock issuable to Pocket at the closing of the purchase would be greater than 9.9% of the total number of shares of Leap common stock then issued and outstanding. To the extent the redemption price for Pocket...

  • Page 119
    ... #66 and to fund a portion of the costs of the construction and operation of the wireless network using such license. As of September 30, 2010, borrowings under the Denali Credit Agreement totaled $542.9 million (excluding accrued interest). In connection with the contribution of assets by Denali...

  • Page 120
    ... a loss on the sale transaction of $0.2 million for the year ended December 31, 2010. Immediately following the closing of the acquisition of the Corpus Christi, Texas spectrum, the Company sold the spectrum to STX Wireless for $4.0 million. On March 30, 2010, Cricket acquired an additional 23...

  • Page 121
    ... upon the closing of the transaction. Wholesale Agreement On August 2, 2010, the Company entered into a wholesale agreement with an affiliate of Sprint Nextel which permits the Company to offer Cricket wireless services outside the Company's current wireless footprint using Sprint's network. The...

  • Page 122
    LEAP WIRELESS INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) and a $15.0 million increase to redeemable non-controlling interests (formerly referred to as minority interests) as of December 31, 2008. The Company has retrospectively applied the guidance for non-...

  • Page 123
    LEAP WIRELESS INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) Values of Redeemable Non-controlling Interests The following table provides a summary of the changes in the values of the Company's redeemable noncontrolling interests (in thousands): Year Ended December 31, ...

  • Page 124
    ...at the rate of 4.50% per year, payable semi-annually in cash in arrears, which interest payments commenced in January 2009. The notes are Leap's general unsecured obligations and rank equally in right of payment with all of Leap's existing and future senior unsecured indebtedness and senior in right...

  • Page 125
    ... approved by the board of directors, (4) Leap is liquidated or dissolved or holders of common stock approve any plan or proposal for its liquidation or dissolution or (5) shares of Leap common stock are not listed for trading on any of the New York Stock Exchange, the NASDAQ Global Market or the...

  • Page 126
    ... bear interest at the rate of 7.75% per year, payable semi-annually in cash in arrears, which interest payments commenced in November 2009. The notes are guaranteed on a senior secured basis by Leap and each of its existing and future domestic subsidiaries (other than Cricket, which is the issuer...

  • Page 127
    ...bear interest at the rate of 7.75% per year, payable semi-annually in cash in arrears, which interest payments will commence in April 2011. The notes are guaranteed on an unsecured senior basis by Leap and each of its existing and future domestic subsidiaries (other than Cricket, which is the issuer...

  • Page 128
    ... interest to the date of redemption), computed using a discount rate equal to the Treasury Rate plus 50 basis points, over (b) the principal amount of such notes. The notes may be redeemed, in whole or in part, at any time on or after October 15, 2015, at a redemption price of 103.875%, 102.583% and...

  • Page 129
    LEAP WIRELESS INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) Maturities of Long-Term Debt Obligations The aggregate maturities of the Company's long-term debt obligations, excluding the effects of discount accretion on its $1,100 million of 7.75% senior secured notes ...

  • Page 130
    LEAP WIRELESS INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) The components of the Company's deferred tax assets (liabilities) are summarized as follows (in thousands): As of December 31, 2010 2009 Deferred tax assets: Net operating loss carryforwards ...Wireless ...

  • Page 131
    LEAP WIRELESS INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) federal and state taxable losses, respectively. During the year ended December 31, 2009, the Company recorded a $117.8 million increase to its valuation allowance, which primarily consisted of $104.2 million ...

  • Page 132
    LEAP WIRELESS INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) Stock Options The estimated fair value of the Company's stock options is determined using the Black-Scholes model. All stock options were granted with an exercise price equal to the fair value of the common ...

  • Page 133
    LEAP WIRELESS INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) A summary of the Company's stock option award activity as of and for the years ended December 31, 2010 and 2009 is as follows (in thousands, except per share data): WeightedAverage Exercise Price per Share ...

  • Page 134
    LEAP WIRELESS INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) A summary of the Company's restricted stock award activity as of and for the years ended December 31, 2010 and 2009 is as follows (in thousands, except per share data): WeightedAverage Grant Date Fair Value ...

  • Page 135
    LEAP WIRELESS INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) Allocation of Share-based Compensation Expense Total share-based compensation expense related to all of the Company's share-based awards for the years ended December 31, 2010, 2009 and 2008 was allocated as ...

  • Page 136
    ... System." DNT alleges that the Company uses, encourages the use of, sells, offers for sale and/or imports voice and data service and wireless modem cards for computers designed to be used in conjunction with cellular networks and that such acts constitute both direct and indirect infringement of DNT...

  • Page 137
    ... made false and misleading statements about Leap's internal controls, business and financial results, and customer count metrics. The claims were based primarily on the November 9, 2007 announcement that the Company was restating certain of its financial statements and statements made in its August...

  • Page 138
    LEAP WIRELESS INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) Other Litigation, Claims and Disputes In addition to the matters described above, the Company is often involved in certain other matters which generally arise in the ordinary course of business and seek ...

  • Page 139
    ... entity. Condensed consolidating financial information of the Guarantor Parent Company, the Issuing Subsidiary, the Guarantor Subsidiary, non-Guarantor Subsidiaries and total consolidated Leap and subsidiaries as of December 31, 2010 and 2009 and for the years ended December 31, 2010, 2009 and 2008...

  • Page 140
    LEAP WIRELESS INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) Condensed Consolidating Balance Sheet as of December 31, 2010 (in thousands): Guarantor Parent Company Issuing...31,094 64,843 72,415 $4,834,823 Total assets ...$1,208,274 Liabilities and Stockholders' Equity ...

  • Page 141
    LEAP WIRELESS INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) Condensed Consolidating Balance Sheet as of December 31, 2009 (in thousands): Guarantor Parent Company Consolidating and Eliminating Adjustments Issuing Subsidiary Guarantor Subsidiary Non-Guarantor ...

  • Page 142
    LEAP WIRELESS INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) Condensed Consolidating Statement of Operations for the Year Ended December 31, 2010 (in thousands): Guarantor Parent Company Consolidating and Eliminating Adjustments Issuing Subsidiary Guarantor Subsidiary...

  • Page 143
    LEAP WIRELESS INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) Condensed Consolidating Statement of Operations for the Year Ended December 31, 2009 (in thousands): Guarantor Parent Company Consolidating and Eliminating Adjustments Issuing Subsidiary Guarantor Subsidiary...

  • Page 144
    LEAP WIRELESS INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) Condensed Consolidating Statement of Operations for the Year Ended December 31, 2008 (in thousands): Guarantor Parent Company Consolidating and Eliminating Adjustments Issuing Subsidiary Guarantor Subsidiary...

  • Page 145
    ...Guarantor Parent Company Consolidating and Guarantor Non-Guarantor Eliminating Subsidiary Subsidiaries Adjustments Consolidated Issuing Subsidiary Operating activities: Net cash provided by (used in) operating activities ...Investing activities: Acquisition of a business ...Purchases of and change...

  • Page 146
    LEAP WIRELESS INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) Condensed Consolidating Statement of Cash Flows for the Year Ended December 31, 2009 (in thousands): Guarantor Parent Company Consolidating and Eliminating Adjustments Issuing Subsidiary Guarantor Subsidiary...

  • Page 147
    LEAP WIRELESS INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) Condensed Consolidating Statement of Cash Flows for the Year Ended December 31, 2008 (in thousands): Guarantor Parent Company Consolidating and Eliminating Adjustments Issuing Subsidiary Guarantor Subsidiary...

  • Page 148
    ...which is included in "Item 8. Financial Statements and Supplementary Data" of this report. (d) Changes in Internal Control over Financial Reporting There were no changes in our internal control over financial reporting during the three months ended December 31, 2010 that have materially affected, or...

  • Page 149
    ... on January 14, 2010 by our Board to increase the number of shares reserved for issuance under the 2009 Inducement Plan by 100,000 shares of Leap common stock. (3) Excludes 2,020,605 and 97,950 shares of restricted stock issued under the 2004 Plan and 2009 Inducement Plan, respectively, which are...

  • Page 150
    ... under the Leap Wireless International, Inc. Employee Stock Purchase Plan, and 797,284 shares reserved for issuance under the 2004 Plan. The information required by this item relating to beneficial ownership of Leap common stock is incorporated by reference to the 2011 Proxy Statement under the...

  • Page 151
    ... (a) Financial Statements and Financial Statement Schedules Documents filed as part of this report: 1. Financial Statements: The financial statements of Leap listed below are set forth in Item 8 of this report for the year ended December 31, 2010: Report of Independent Registered Public Accounting...

  • Page 152
    ...and Futurewei Technologies, Inc. Private Label PCS Services Agreement between Sprint Spectrum L.P. and Cricket Communications, Inc. dated as of August 2, 2010. Amended and Restated Credit Agreement, dated as of December 27, 2010, by and among Cricket Communications, Inc., Savary Island Wireless, LLC...

  • Page 153
    ... to the Leap Wireless International, Inc. 2004 Stock Option, Restricted Stock and Deferred Stock Unit Plan Form of Stock Option Grant Notice and Non-Qualified Stock Option Agreement (February 2008 Vesting). Form of Stock Option Grant Notice and Non-Qualified Stock Option Agreement (Five-Year Vesting...

  • Page 154
    ... 24b-2 under the Securities Exchange Act of 1934. # Management contract or compensatory plan or arrangement in which one or more executive officers or directors participates. (1) Filed as an exhibit to Leap's Annual Report on Form 10-K for the fiscal year ended December 31, 2009, filed with the SEC...

  • Page 155
    ...incorporated herein by reference. (21) Filed as Appendix A to Leap's Definitive Proxy Statement filed with the SEC on April 10, 2009, and incorporated herein by reference. (22) Filed as an exhibit to Leap's Annual Report on Form 10-K for the fiscal year ended December 31, 2006, filed with the SEC on...

  • Page 156
    .... February 24, 2011 LEAP WIRELESS INTERNATIONAL, INC. By: /s/ S. DOUGLAS HUTCHESON S. Douglas Hutcheson Chief Executive Officer, President and Director Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the...

  • Page 157
    ... entity. Condensed consolidating financial information of the Guarantor Parent Company, the Issuing Subsidiary, the Guarantor Subsidiary, non-Guarantor Subsidiaries and total consolidated Leap and subsidiaries as of December 31, 2010 and 2009 and for the years ended December 31, 2010, 2009 and 2008...

  • Page 158
    LEAP WIRELESS INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) Condensed Consolidating Balance Sheet as of December 31, 2010 (in thousands): Guarantor Parent Company Issuing...31,094 64,843 72,415 $4,834,823 Total assets ...$1,208,274 Liabilities and Stockholders' Equity ...

  • Page 159
    LEAP WIRELESS INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) Condensed Consolidating Balance Sheet as of December 31, 2009 (in thousands): Guarantor Parent Company Issuing Subsidiary Guarantor Subsidiary Non-Guarantor Subsidiaries Consolidating and Eliminating ...

  • Page 160
    LEAP WIRELESS INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) Condensed Consolidating Statement of Operations for the Year Ended December 31, 2010 (in thousands): Guarantor Parent Company Consolidating and Eliminating Adjustments Issuing Subsidiary Guarantor Subsidiary...

  • Page 161
    LEAP WIRELESS INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) Condensed Consolidating Statement of Operations for the Year Ended December 31, 2009 (in thousands): Guarantor Parent Company Consolidating and Eliminating Adjustments Issuing Subsidiary Guarantor Subsidiary...

  • Page 162
    LEAP WIRELESS INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) Condensed Consolidating Statement of Operations for the Year Ended December 31, 2008 (in thousands): Guarantor Parent Company Consolidating and Eliminating Adjustments Issuing Subsidiary Guarantor Subsidiary...

  • Page 163
    LEAP WIRELESS INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) Condensed Consolidating Statement of Cash Flows for the Year Ended December 31, 2010 (in thousands): Guarantor Parent Company Consolidating and Guarantor Non-Guarantor Eliminating Subsidiary Subsidiaries ...

  • Page 164
    LEAP WIRELESS INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) Condensed Consolidating Statement of Cash Flows for the Year Ended December 31, 2009 (in thousands): Guarantor Parent Company Consolidating and Eliminating Adjustments Issuing Subsidiary Guarantor Subsidiary...

  • Page 165
    LEAP WIRELESS INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) Condensed Consolidating Statement of Cash Flows for the Year Ended December 31, 2008 (in thousands): Guarantor Parent Company Consolidating and Eliminating Adjustments Issuing Subsidiary Guarantor Subsidiary...

  • Page 166
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  • Page 167
    ... Classification Benchmark as Telecommunications and Telecommunications Equipment, including providers of fixed-line and mobile telephone services, and makers and distributors of high-technology communication products. The total return for our stock and for each index assumes the reinvestment of...

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  • Page 171
    ... our cost of reproduction. The common stock of the Company is traded on the NASDAQ® Global Select Market under the symbol "LEAP." To date the Company has not paid cash dividends and does not anticipate paying cash dividends in the foreseeable future. Copyright © 2011 Leap Wireless International...

  • Page 172
    Leap Wireless International, Inc. 5887 Copley Drive San Diego, California 92111 T: (858) 882-6000 F: (858) 882-6070 www.leapwireless.com