Cricket Wireless 2011 Annual Report Download

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5@=E
4=1CA
7<<=D/B3
FOCUSED
on smart growth
LEAP WIRELESS 2011 ANNUAL REPORT

Table of contents

  • Page 1
    FOCUSED on smart growth LEAP WIRELESS 2011 ANNUAL REPORT 4=1CA 7

  • Page 2
    FOCUSED on smart growth We have broadened our message to reach customers we call "real life value seekers" - people who aspire to have the best wireless experience at the best value, no matter where they live or what they earn.

  • Page 3
    ... value on a national scale. STRATEGIC PROGRESS In 2010, we transformed our business by rolling out smart devices, nationwide voice and 3G data coverage, and value-rich rate plans that include taxes and fees. In 2011, we continued executing on our strategy to deliver solid results. It was a year of...

  • Page 4
    ... of the customer lifecycle - from activation to billing, payment options and upgrades and every touch point in between. • Expanded distribution: We doubled our national retail presence to more than 11,500 locations with the biggest names in the business - Best Buy, Walmart and Dollar General - and...

  • Page 5
    ... and ringback tones in a wireless rate plan for one monthly fee. Until now, the digital music world was built around a computer and a credit card. With Muve Music, we have created a complete music experience for a new market: customers whose lives revolve around a mobile phone and cash as a form...

  • Page 6
    ... sets - with better cameras, bigger screens and faster processors. We also continue to evaluate all of the available options to deliver high-value devices to our customers, from operating systems to 4G smartphones and tablets at attractive price points. And with a service plan refresh slated for...

  • Page 7
    ... San Diego, CA (Address of Principal Executive Offices) 92111 (Zip Code) (858) 882-6000 (Registrant's telephone number, including area code... closing price of Leap common stock on the NASDAQ Global Select Market on June 30, 2011 of $16.23 per share. The number of shares of registrant's common stock ...

  • Page 8

  • Page 9
    LEAP WIRELESS INTERNATIONAL, INC. ANNUAL REPORT ON FORM 10-K For the Year Ended December 31, 2011 TABLE OF CONTENTS Page Item 1. Item 1A. Item 1B. Item 2. Item 3. Item 4. Item 5. PART I Business ...Risk Factors ...Unresolved Staff Comments ...Properties ...Legal Proceedings ...Mine Safety ...

  • Page 10
    [THIS PAGE INTENTIONALLY LEFT BLANK]

  • Page 11
    ... of senior management; • future customer usage of our wireless services, which could exceed our expectations, and our ability to manage or increase network capacity to meet increasing customer demand; • our ability to acquire additional spectrum in the future at a reasonable cost or on a timely...

  • Page 12
    ... our nationwide sales presence by offering Cricket products and services in thousands of additional mass-market retail locations, and we expect to continue expanding our distribution in the future. The foundation of our business is to provide unlimited, nationwide wireless services and to design and...

  • Page 13
    ...cost provider of 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 14
    ... contracts, early termination fees or credit checks. Our most popular Cricket Wireless service plans bundle unlimited local and U.S. long distance service and unlimited text messaging with mobile web, 411 services, navigation, data back-up and other features. The service plans we currently offer are...

  • Page 15
    ... wireless providers in part because of this streamlined sales approach. We sell our Cricket devices and service through direct and indirect channels of distribution. Our direct channel is comprised of our own Cricket retail stores. As of December 31, 2011, we had approximately 220 direct locations...

  • Page 16
    ...-DO, or EvDO, network in each of our markets that delivers outstanding quality, capacity and high-speed data services. In operating our network, we monitor quality metrics, including dropped call rates and blocked call rates. We design our networks to provide voice and data services at costs that we...

  • Page 17
    ... with national facilities-based wireless providers and their prepaid affiliates or brands, local and regional carriers, non-facilitiesbased mobile virtual network operators, or MVNOs, voice-over-internet-protocol service providers, traditional landline service providers, cable companies, and mobile...

  • Page 18
    ... Sprint Nextel, T-Mobile and Verizon Wireless. 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 offers a mobile broadband product using Sprint's wireless network. These service offerings...

  • Page 19
    ... 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 20
    .... In connection with the launch of new markets, 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 21
    ...-controlling membership interests in an entity that holds a wireless license generally may be bought or sold without FCC approval. Although we cannot assure you that the FCC will approve or act in a timely fashion upon any pending or future requests for approval of assignment or transfer of control...

  • Page 22
    ... 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 23
    ... high-cost areas, to be known as the Connect America Fund, or CAF. The CAF will replace legacy high-cost support mechanisms that currently provide funding to wireless and other ETCs. Among other things, the new CAF program will place greater limits on the total amount of high-cost support available...

  • Page 24
    ...; number pooling rules; rules governing billing, subscriber privacy and customer proprietary network information; roaming obligations; rules that require wireless service providers to configure their networks to facilitate electronic surveillance by law enforcement officials; rate averaging...

  • Page 25
    ...of allowing customers to bring in unlocked, or "reflashed," phones that they already own and may have used with another wireless carrier, and activate them on our network. To the extent that the Copyright Office determines in the future not to extend this exemption for an extended period of time and...

  • Page 26
    ... 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 of service on the additional line of service after paying an activation fee. We...

  • Page 27
    ... Officer, President and Director Executive Vice President and Chief Financial Officer Executive Vice President, Strategy Executive Vice President and Chief Operating Officer Executive Vice President and Chief Technical Officer Executive Vice President, Field Operations Senior Vice President, General...

  • Page 28
    ... 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 29
    ... in customer activity, promotional activity, competition in the wireless telecommunications market, our launch of network services in new markets and varying national economic conditions. Our current business plans assume that we will continue to increase our customer base over time, providing us...

  • Page 30
    ... Sprint Nextel, T-Mobile and Verizon Wireless. 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 offers a mobile broadband product using Sprint's wireless network. These service offerings...

  • Page 31
    ... 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 32
    ...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 33
    ... an affiliate of Sprint Nextel which we use to offer Cricket services in nationwide retailers outside of our current network footprint. We and Sprint amended the agreement in July 2011 to, among other things, revise the amount of the annual minimum revenue commitments for the years 2011 and 2013. We...

  • Page 34
    ...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 35
    ...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 customers with nationwide voice and data roaming services...

  • Page 36
    ... 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...

  • Page 37
    costs. Our failure to effectively manage and integrate STX Wireless or other new partnerships that we may enter into or companies or businesses that we could acquire could have a material adverse effect on our business, financial condition and results of operations. Our Significant Indebtedness ...

  • Page 38
    ...credit rating. Any future adverse credit ratings 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, our convertible senior notes and our common stock. To Service Our Indebtedness and Fund Our Working...

  • Page 39
    ... 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...

  • Page 40
    ... 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 nextgeneration technologies, such as LTE, WiMax and HSPA+. We currently plan to deploy LTE network technology...

  • Page 41
    ...enable us to provide LTE at service levels that will meet future customer expectations. We currently have an average of 23 MHz of spectrum in the markets we operate, which generally include an initial spectrum reserve that we plan to use to deploy LTE. The national wireless carriers against which we...

  • Page 42
    ...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 while operating vehicles...

  • Page 43
    ... years, we have upgraded a number of our significant, internal business systems, including implementing a new inventory management system, a new point-of-sale system and a new customer billing system. The implementation of significant new systems often involves delays and disruptions in connection...

  • Page 44
    ...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, including Muve Music, an unlimited music download service we offer that is designed specifically for...

  • Page 45
    ... and services to our customers. Action by Congress or Government Agencies May Increase Our Costs of Providing Service or Require Us to Change Our Services. The FCC regulates the licensing, construction, modification, operation, ownership, sale and interconnection of wireless communications systems...

  • Page 46
    ...; number pooling rules; rules governing billing, subscriber privacy and customer proprietary network information; roaming obligations; rules that require wireless service providers to configure their networks to facilitate electronic surveillance by law enforcement officials; rate averaging...

  • Page 47
    ...most popular Cricket Wireless service plans bundle unlimited local and U.S. long distance service and unlimited text messaging, with mobile web, 411 services, navigation, data back-up and other features, for a fixed monthly fee to more effectively compete with other telecommunications providers. Our...

  • Page 48
    ... by one or more wireless providers occurs; or • 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...

  • Page 49
    ... calls from other carriers on our network, or result in significant costs to us for past and future termination charges. Any of these changes could have a material adverse effect on our business, financial condition and operating results. We resell third party long distance services in connection...

  • Page 50
    ... 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 or Dealer Fraud, Our...

  • Page 51
    ... on the then-prevailing market price of Leap common stock. If any of Leap's stockholders cause 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 could also impede our ability to raise future capital. We Could...

  • Page 52
    ... issue shares under these stock plans, they can be freely sold in the public market after the recipient satisfies any vesting period applicable to the shares. 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...

  • Page 53
    ... 220 retail locations in our markets, including stores ranging in size from approximately 400 square feet to 10,000 square feet. As of December 31, 2011, we leased office space totaling approximately 200,000 square feet for our corporate headquarters in San Diego. We use these offices for...

  • Page 54
    ...Dialing System." DNT alleged that we used, encouraged the use of, sold, offered for sale and/or imported voice and data service and wireless modem cards for computers designed to be used in conjunction with cellular networks and that such acts constituted both direct and indirect infringement of DNT...

  • Page 55
    ... 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 reporting purposes. High($) Low($) Calendar Year - 2010...

  • Page 56
    ... These tables should be read in conjunction with "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Item 8. Financial Statements and Supplementary Data" included elsewhere in this report. 2011 2010 Year Ended December 31, 2009 2008 2007 Statement of...

  • Page 57
    ... pass a credit check. Our primary service is Cricket Wireless, which offers customers unlimited nationwide voice and data services for a flat monthly rate. Our most popular Cricket Wireless service plans bundle unlimited local and U.S. long distance and unlimited text messaging, with mobile web, 411...

  • Page 58
    ... customers have chosen to upgrade their handsets, frequently to smartphones or Muve Music devices, and to select more comprehensive service plans, including plans that offer data and/or music services. These changes have generally led to higher average monthly revenue per user as customers subscribe...

  • Page 59
    ... 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 of service on the additional line of service after paying an activation fee. We...

  • Page 60
    ... the total consideration received, less amounts allocated to the wireless service period (generally the customer's monthly service plan), as equipment revenue. Amounts allocated to equipment revenues and related costs from the sale of devices are recognized when service is activated by new customers...

  • Page 61
    ... revenue related to devices sold to third-party dealers. Universal Service Fund, E-911 and other telecommunications-related regulatory fees are assessed by various federal and state governmental agencies in connection with the services that we provide to our customers. The service plans we currently...

  • Page 62
    ...occurred during the year ended December 31, 2011 that indicated that the carrying value of any long-lived assets may not be recoverable. In August 2010, we entered into a wholesale agreement which we use to offer Cricket services in nationwide retailers outside of our current network footprint. This...

  • Page 63
    ... highest and best use of the assets, and the value of the wireless licenses would not be significantly impacted by a sale of one or a portion of the wireless licenses, among other factors. Savary Island's wireless licenses cover geographic areas that include certain Cricket operating markets, and as...

  • Page 64
    ... 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 2011 because trading prices during...

  • Page 65
    ...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...

  • Page 66
    ...or she activates a Cricket service. We recognize a gross customer addition for each Cricket Wireless, Cricket Broadband and Cricket PAYGo line of service activated. For our Cricket Wireless and Cricket Broadband services, the customer must pay his or her service amount by the payment due date or his...

  • Page 67
    ...is generally not able to make or receive calls or access the internet. Any call attempted by a suspended customer is routed directly to our customer service center in order to arrange payment. If a new customer does not pay all amounts due on his or her first bill within 30 days of the due date, the...

  • Page 68
    ... % of 2010 Service Revenues Change from Prior Year Dollars Percent 2011 2010 Revenues: Service revenues ...Equipment revenues ...Total revenues ...Operating expenses: Cost of service (exclusive of the items shown separately below) ...Cost of equipment ...Selling and marketing ...General and...

  • Page 69
    ... month of service we previously provided new customers and generally equalized the prices that new and existing customers paid for handsets. The year-over-year decrease was also driven by decreases in the number of new Cricket Broadband customers due to increased device pricing, reduced marketing...

  • Page 70
    ... a reduction in the average selling price of our devices to new and upgrading customers in connection with our introduction of "all-inclusive" service plans in 2010, in which we eliminated the free first month of service and instead decreased the prices of our devices, and an increase in commissions...

  • Page 71
    ... in the number of devices sold. The increase in the average cost per device sold to new and upgrading customers during the period was largely attributable to our introduction of smartphones in 2010, as well as customer acceptance of our new Muve Music enabled devices in 2011. Cost of equipment...

  • Page 72
    ... upgrade of our networks in existing markets. Impairments and Other Charges 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 our joint venture STX Wireless...

  • Page 73
    ... net income of investees, net reflects our share of net income (loss) of regional wireless service providers in which we hold investments. Interest Income Interest income decreased $0.8 million and $2.8 million during the years ended December 31, 2011 and December 31, 2010, respectively, compared to...

  • Page 74
    ... July 2011, Leap's board of directors designated Cricket Music Holdco, LLC (a wholly-owned subsidiary of Cricket, or Cricket Music) and Cricket Music's wholly-owned subsidiary Cricket Music Operations, LLC, or Music Operations, as "Unrestricted Subsidiaries" under the indentures governing our senior...

  • Page 75
    ... are, in the opinion of management, necessary for a fair statement of our results of operations for the interim periods presented (in thousands, except per share data): March 31, 2011 Three Months Ended June 30, September 30, 2011 2011 December 31, 2011 Revenues ...Operating income (loss) ...Net...

  • Page 76
    ... Three Months Ended June 30, September 30, 2011 2011 March 31, 2011 December 31, 2011 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...

  • Page 77
    ... future service revenue. In addition, ARPU provides management with a useful measure to compare our subscriber revenue to that of other wireless communications providers. Our customers are generally disconnected from service after a specified period following their failure to either pay a monthly...

  • Page 78
    ... pay the first bill they receive following initial activation are deducted from our gross customer additions in the month in which 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...

  • Page 79
    ... 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, 2011 Three Months Ended June 30, September 30, 2011 2011...

  • Page 80
    ... 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, 2011 Three Months Ended June 30, September 30, 2011 2011 December 31, 2011...

  • Page 81
    ... network and other business assets to allow us to continue to provide customers with highquality service. In addition, we plan to continue to strengthen and expand our distribution, including through the wholesale agreement we have entered into, which we use to offer Cricket services in nationwide...

  • Page 82
    ...to monitor our ability to service our debt and to assess our capacity to incur additional debt under the indentures governing Cricket's secured and unsecured senior notes. Also, as our markets and product offerings continue to develop and our business continues to grow, we expect that increased cash...

  • Page 83
    ... the sale lease-back financing related to certain of our telecommunications towers and related assets. Net cash used in financing activities was $12.5 million for the year ended December 31, 2010, which included the effects of the following transactions: • We issued $1,200 million of 7.75% senior...

  • Page 84
    ... 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 85
    ...shares of Leap common stock are not listed for trading on any of the New York Stock Exchange, the NASDAQ Global Market or the NASDAQ Global Select Market (or any of their respective successors). Leap may not redeem the notes at its option. Unsecured Senior Notes Due 2015 In June 2008, Cricket issued...

  • Page 86
    ...of (1) the redemption price of such notes at July 15, 2012 plus (2) all remaining required interest payments due on such notes through July 15, 2012 (excluding accrued but unpaid interest to the date of redemption), computed using a discount rate equal to the Treasury Rate plus 50 basis points, over...

  • Page 87
    ... 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 88
    ... bear interest at the rate of 7.75% per year, payable semi-annually in cash in arrears, which interest payments commenced 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 89
    ... the redemption price of such notes at October 15, 2015 plus (2) all remaining required interest payments due on such notes through October 15, 2015 (excluding accrued but unpaid interest to the date of redemption), computed using a discount rate equal to the Treasury Rate plus 50 basis points, over...

  • Page 90
    ...customer usage of our network resources. As previously noted, we currently plan to deploy next-generation LTE network technology across approximately two-thirds of our current network footprint over the next two to three years. We successfully launched a commercial trial market in late 2011 and plan...

  • Page 91
    ...an affiliate of Sprint Nextel which we use to offer Cricket services in nationwide retailers outside of our current network footprint. We and Sprint amended the agreement in July 2011 to, among other things, revise the amount of the annual minimum revenue commitments for the years 2011 and 2013. The...

  • Page 92
    ...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 93
    ... 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...

  • Page 94
    ... Island is also required to make monthly mandatory distributions to Ring Island. Savary Island is also party to a management services agreement with Cricket, pursuant to which Cricket provides management services to Savary Island in exchange for a management fee. We attribute profits and losses...

  • Page 95
    ... 31, 2011; and (2) Cricket's obligation under the Savary Island Credit Agreement to loan Savary Island up to $5.0 million to fund its working capital needs. Recent Accounting Pronouncements In May 2011, the Financial Accounting Standards Board or FASB issued Accounting Standards Update No. 2011-04...

  • Page 96
    ... varies year to year at rates ranging from approximately 5.0%8.3% and compounds annually. 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 operations. Our investment portfolio consists of highly liquid...

  • Page 97
    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 98
    ... shares issued and outstanding ...Common stock - authorized 160,000,000 shares, $.0001 par value; 78,924,049 and 78,437,309 shares issued and outstanding at December 31, 2011 and 2010, respectively ...Additional paid-in capital ...Accumulated deficit ...Accumulated other comprehensive loss ...Total...

  • Page 99
    ... thousands, except per share data) 2011 Year Ended December 31, 2010 2009 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 100
    LEAP WIRELESS INTERNATIONAL, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) Year Ended December 31, 2010 2009 2011 Operating activities: Net loss ...Adjustments to reconcile net loss to net cash provided by operating activities: Share-based compensation expense ...Depreciation and ...

  • Page 101
    LEAP WIRELESS INTERNATIONAL, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (In thousands, except share amounts) Additional Paid-In Capital Accumulated Other Comprehensive Income (Loss) Common Stock Shares Amount Accumulated Deficit Total Balance at December 31, 2008 ...69,515,526 ...

  • Page 102
    ...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 103
    ... the total consideration received, less amounts allocated to the wireless service period (generally the customer's monthly service plan), as equipment revenue. Amounts allocated to equipment revenues and related costs from the sale of devices are recognized when service is activated by new customers...

  • Page 104
    ... new customers, store operating costs (such as retail associates' salaries and rent), and salary and overhead charges associated with selling and marketing functions. General and Administrative. General and administrative expenses primarily include call center and other customer care program costs...

  • Page 105
    ... into service and units designated for the replacement of damaged customer devices, and are stated at the lower of cost or market using the average cost method. Devices sold to third party dealers and nationwide retailers are recorded as deferred charges upon shipment of the devices by the Company...

  • Page 106
    ... 31, 2011 that indicated that the carrying value of any long-lived assets may not be recoverable. In August 2010, the Company entered into a wholesale agreement with an affiliate of Sprint Nextel which the Company uses to offer Cricket services in nationwide retailers outside of its current network...

  • Page 107
    ... events or changes in circumstances indicate that an impairment condition may exist. The Company's annual impairment test is conducted each year during the third quarter as further discussed in Note 5. Wireless Licenses The Company operates networks under Personal Communications Services ("PCS") and...

  • Page 108
    ... 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 109
    ...a limited number of vendors for payment processing services. Loss or disruption of these services could materially adversely affect the Company's business. The networks the Company operates do not, by themselves, provide national coverage and it must pay fees to other carriers who provide roaming or...

  • Page 110
    ..., 2011, 2010 and 2009, respectively. Share-based Compensation The Company accounts for share-based awards exchanged for employee services in accordance with the authoritative guidance for share-based payments. Under the guidance, share-based compensation expense is measured at the grant date, based...

  • Page 111
    ... condition and future cash flows. On August 30, 2011, 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 help preserve the Company's ability to use its NOL...

  • Page 112
    ... of stock options, restricted stock awards, employee stock purchase rights and convertible senior notes. Since the Company incurred losses for the years ended December 31, 2011, 2010 and 2009, 7.8 million, 9.4 million and 9.3 million common share equivalents were excluded in the computation of...

  • Page 113
    LEAP WIRELESS INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) quoted prices or for which fair value can be measured from actively quoted prices in active markets generally have more pricing observability and require less judgment in measuring fair value. Conversely, ...

  • Page 114
    LEAP WIRELESS INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) At Fair Value as of December 31, 2010 Level 1 Level 2 Level 3 Total Assets: Money market funds ...Commercial paper ...U.S. government or government agency securities ...Total ... $- - - $- $168,831 17,494 ...

  • Page 115
    ... outstanding debt on a recurring basis. The fair value of the Company's outstanding long-term debt is determined primarily by using quoted prices in active markets and was $3,073.6 million and $2,876.8 million as of December 31, 2011 and December 31, 2010, respectively. Assets Measured at Fair Value...

  • Page 116
    ... revenue(4) ...Accrued sales, telecommunications, property and other taxes payable ...Accrued interest ...Other ... $ $ $ $ $ (1) Accounts receivable, net, consists primarily of amounts billed to third-party dealers for devices and accessories and amounts due from service providers related to...

  • Page 117
    ... these assets totaled $18.5 million and $4.5 million as of December 31, 2011 and 2010, respectively. (3) Deferred service revenue consists primarily of cash received from customers in advance of their service period. (4) Deferred equipment revenue relates to devices sold to third-party dealers which...

  • Page 118
    ..., and composition and concentration of the market's workforce in industry sectors identified as wireless-centric (e.g., real estate, transportation, professional services, agribusiness, finance and insurance). In connection with the Company's 2011 annual impairment test, the aggregate fair value...

  • Page 119
    ... average number of shares of Leap common stock outstanding during such month and the average closing price of Leap common stock during such month. The Company considered the month of August to be an appropriate period over which to measure average market capitalization in 2011 because trading prices...

  • Page 120
    ...exchange, Cricket received 10 MHz of additional wireless spectrum in seven existing Cricket markets in Texas, Colorado, Oklahoma and New Mexico and canceled a portion of the indebtedness owed by Savary Island to Cricket under the Savary Island Credit Agreement. In connection with the closing of this...

  • Page 121
    ... entered into a 10-year lease agreement with GTP to continue the Company's commercial use of the towers. Accordingly, the Company recorded a capital lease obligation of $25.8 million, which was equal to the proceeds received from GTP. STX Wireless Joint Venture Cricket service is offered in South...

  • Page 122
    ... of customer relationships, which are amortized on an accelerated basis over an estimated useful life of four years. Additionally, the Company recorded approximately $33.7 million of wireless licenses acquired in the transaction. Consistent with the Company's policy regarding the useful lives of...

  • Page 123
    ...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 124
    ... is also required to make monthly mandatory distributions to Ring Island. Savary Island is also party to a management services agreement with Cricket, pursuant to which Cricket provides management services to Savary Island in exchange for a management fee. The Company attributes profits and losses...

  • Page 125
    LEAP WIRELESS INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) working capital needs. In connection with the closing of the license exchange transaction with T-Mobile and its affiliates on November 30, 2011 (see "-Other Transactions" above), Savary Island assigned 10 MHz ...

  • Page 126
    ...the Company's board of directors designated Cricket Music Holdco, LLC, a wholly-owned subsidiary of Cricket ("Cricket Music"), and Cricket Music's wholly-owned subsidiary Cricket Music Operations, LLC ("Music Operations") as "Unrestricted Subsidiaries" under the indentures governing Cricket's senior...

  • Page 127
    ...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 128
    ...shares of Leap common stock are not listed for trading on any of the New York Stock Exchange, the NASDAQ Global Market or the NASDAQ Global Select Market (or any of their respective successors). Leap may not redeem the notes at its option. Unsecured Senior Notes Due 2015 In June 2008, Cricket issued...

  • Page 129
    ... 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 130
    ... the redemption price of such notes at May 15, 2012 plus (2) all remaining required interest payments due on such notes through May 15, 2012 (excluding accrued but unpaid interest to the date of redemption), computed using a discount rate equal to the Treasury Rate plus 50 basis points, over (b) the...

  • Page 131
    ... bear interest at the rate of 7.75% per year, payable semi-annually in cash in arrears, which interest payments commenced 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 132
    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 133
    ... of the Company's deferred tax assets (liabilities) are summarized as follows (in thousands): As of December 31, 2011 2010 Deferred tax assets: Net operating loss carryforwards ...Wireless licenses ...Capital loss carryforwards ...Reserves and allowances ...Share-based compensation ...Deferred...

  • Page 134
    ... them. 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, the Company's board of directors adopted a Tax Benefit Preservation Plan to help deter acquisitions of Leap common stock that could...

  • Page 135
    ... 1,872,703 shares of common stock were available for future awards. Certain of the Company's stock options and restricted stock awards include both a service condition and a market condition that relates only to the timing of vesting. These stock options and restricted stock awards generally vest in...

  • Page 136
    ...-average grant date fair value of employee stock options granted (excluding options granted in connection with the stock option exchange program discussed below) during the years ended December 31, 2011, and 2010 was $6.22 and $7.14 per share, respectively, which was estimated using the following...

  • Page 137
    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, 2011 and 2010 is as follows (in thousands, except per share data): WeightedAverage Exercise Price Per Share ...

  • Page 138
    ... of the Company's restricted stock award activity as of and for the years ended December 31, 2011 and 2010 is as follows (in thousands, except per share data): WeightedAverage Grant Date Fair Value Per Share Number of Shares Restricted stock awards outstanding at December 31, 2009 ...Shares issued...

  • Page 139
    ... these deferred stock units will be issued and vest upon the completion of a three year service period. The Company has estimated the total number of shares that will vest and the related share-based expense in accordance with the authoritative guidance for share-based payments with performance...

  • Page 140
    ...." DNT alleged that the Company used, encouraged the use of, sold, offered for sale and/or imported voice and data service and wireless modem cards for computers designed to be used in conjunction with cellular networks and that such acts constituted both direct and indirect infringement of DNT...

  • Page 141
    ... Sprint Nextel which the Company uses to offer Cricket services in nationwide retailers outside of the Company's current network footprint. The Company and Sprint amended the agreement in July 2011 to, among other things, revise the amount of the annual minimum revenue commitments for the years 2011...

  • Page 142
    ... Company, the Issuing Subsidiary, the Guarantor Subsidiary, Non-Guarantor Subsidiaries (STX Wireless, Savary Island, Cricket Music and their respective subsidiaries) and total consolidated Leap and subsidiaries as of December 31, 2011 and December 31, 2010 and for the years ended December 31, 2011...

  • Page 143
    LEAP WIRELESS INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) Condensed Consolidating Balance Sheet as of December 31, 2011 (unaudited and in thousands): Guarantor Parent Company Consolidating and Non-Guarantor Eliminating Subsidiaries Adjustments Consolidated Issuing ...

  • Page 144
    LEAP WIRELESS INTERNATIONAL, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) Condensed Consolidating Balance Sheet as of December 31, 2010 (unaudited and in thousands): Guarantor Parent Company Consolidating and Non-Guarantor Eliminating Subsidiaries Adjustments Consolidated Issuing ...

  • Page 145
    ... Adjustments Consolidated Issuing Subsidiary Revenues: Service revenues ...$ Equipment revenues ...Other revenues ...Total revenues ...Operating expenses: Cost of service (exclusive of items shown separately below) ...Cost of equipment ...Selling and marketing ...General and administrative...

  • Page 146
    ... Adjustments Consolidated Issuing Subsidiary Revenues: Service revenues ...$ Equipment revenues ...Other revenues ...Total revenues ...Operating expenses: Cost of service (exclusive of items shown separately below) ...Cost of equipment ...Selling and marketing ...General and administrative...

  • Page 147
    ... Adjustments Consolidated Issuing Subsidiary Revenues: Service revenues ...$ Equipment revenues ...Other revenues ...Total revenues ...Operating expenses: Cost of service (exclusive of items shown separately below) ...Cost of equipment ...Selling and marketing ...General and administrative...

  • Page 148
    ... activities: Net cash provided by (used in) operating activities ...$ Investing activities: Acquisition of a business ...Purchases of and change in prepayments for purchases of property and equipment ...Purchases of wireless licenses and spectrum clearing costs ...Proceeds from sales of wireless...

  • Page 149
    ... activities: Net cash provided by (used in) operating activities ...$ Investing activities: Acquisition of a business ...Purchases of and change in prepayments for purchases of property and equipment ...Purchases of wireless licenses and spectrum clearing costs ...Purchases of investments ...Sales...

  • Page 150
    ... Issuing Subsidiary Operating activities: Net cash provided by (used in) operating activities ...$ Investing activities: Purchases of and change in prepayments for purchases of property and equipment ...Purchases of wireless licenses and spectrum clearing costs ...Proceeds from sale of wireless...

  • Page 151
    ... Act reports is recorded, processed, summarized and reported within the time periods specified by the SEC and that such information is accumulated and communicated to management, including our CEO and CFO as appropriate, to allow for timely decisions regarding required disclosure. In designing and...

  • Page 152
    ... public accounting firm, as stated in their report 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...

  • Page 153
    ... which Leap common stock is authorized for issuance. Number of securities to be issued upon exercise of outstanding options and rights Weighted-average exercise price of outstanding options and rights Number of securities remaining available for future issuance under equity compensation plans Plan...

  • Page 154
    ... 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 1,946,777 and 109,475 shares of restricted stock issued under the 2004 Plan and 2009 Inducement Plan, respectively, which are subject...

  • Page 155
    ... of Common Stock Certificate. Tax Benefit Preservation Plan, dated as of August 30, 2011, between Leap Wireless International, Inc. and Mellon Investor Services LLC, which includes the Form of Right Certificate as Exhibit B and the Summary of Rights to Purchase Preferred Shares as Exhibit C. Amended...

  • Page 156
    ... August 30, 2011, to 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, Savary...

  • Page 157
    ... Offer Letter dated January 4, 2011 between Cricket Communications, Inc. and Raymond J. Roman. Leap Wireless International, Inc. 2004 Stock Option, Restricted Stock and Deferred Stock Unit Plan. First Amendment to the Leap Wireless International, Inc. 2004 Stock Option, Restricted Stock and Deferred...

  • Page 158
    ... International, Inc. First Amendment to the 2009 Employment Inducement Equity Incentive Plan of Leap Wireless International, Inc. Form of Stock Option Grant Notice and Non-Qualified Stock Option Agreement (Four-Year Time Based Vesting) granted under the 2009 Employment Inducement Equity Incentive...

  • Page 159
    ... 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 160
    ... reference. (17) Filed as an exhibit to Leap's Current Report on Form 8-K, dated November 30, 2011, filed with the SEC on December 1, 2011, and incorporated herein by reference. (18) Filed as an exhibit to Leap's Annual Report on From 10-K for the fiscal year ended December 31, 2004, filed with the...

  • Page 161
    ... Proxy Statement filed with the SEC on April 10, 2009, and incorporated herein by reference. (29) 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 March 1, 2007, and incorporated herein by reference. (30) Filed as an exhibit...

  • Page 162
    ... the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. February 17, 2012 LEAP WIRELESS INTERNATIONAL, INC. By: /s/ S. DOUGLAS HUTCHESON S. Douglas Hutcheson Chief Executive Officer, President and Director Pursuant to the requirements of...

  • Page 163
    ...Designed and produced by Mentus Annual Reports, San Diego, California. www.mentusannualreports.com Senior Vice President, Supply Chain Management Leonard C. Stephens Director Chief Executive Officer Loral Space & Communications Inc. Senior Vice President, Human Resources Matthew P. Stoiber STOCK...

  • Page 164
    Leap Wireless International, Inc. 5887 Copley Drive San Diego, California 92111 T 1-858-882-6000 F 1-858-882-6070 W leapwireless.com + www.leapwireless.com/ar2011