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Leap Wireless International Inc. Reports Operating Results (10-Q)

August 10, 2009 | About:
10qk

Leap Wireless International Inc. (LEAP) filed Quarterly Report for the period ended 2009-06-30.

Leap Wireless is a customer-focused company providing innovative mobile wireless services that are targeted to meet the needs of customers who are under-served by traditional communications companies. With a commitment to predictability simplicity and value as the foundation of our business Leap pioneered Cricket? service a simple and affordable wireless alternative to traditional landline service. Cricket service offers customers unlimited anytime minutes within the Cricket calling area over a high-quality all-digital CDMA network. Leap Wireless International Inc. has a market cap of $1.32 billion; its shares were traded at around $17.06 with and P/S ratio of 0.67.

Highlight of Business Operations:

of December 31, 2007, to approximately 67.2 million covered POPs as of December 31, 2008 and to approximately 91.1 million covered POPs as of June 30, 2009. This network expansion, together with organic customer growth in our existing markets, has resulted in substantial additions of new customers, as our total end-of-period customers increased from 1.67 million customers as of December 31, 2005, to 2.23 million customers as of December 31, 2006, to 2.86 million customers as of December 31, 2007, to 3.84 million customers as of December 31, 2008 and to 4.54 million customers as of June 30, 2009. In addition, our total revenues have increased from $957.8 million for fiscal 2005, to $1.17 billion for fiscal 2006, to $1.63 billion for fiscal 2007 and to $1.96 billion for fiscal 2008, and from $943.2 million for the six months ended June 30, 2008 to $1.18 billion for the six months ended June 30, 2009.

As our business activities have expanded, our operating expenses have also grown, including increases in cost of service reflecting the increase in customers, the costs associated with the launch of new products and markets and the broader variety of products and services provided to our customers; increased depreciation expense related to our expanded networks; and increased selling and marketing expenses and general and administrative expenses generally attributable to expansion into new markets, selling and marketing to a broader potential customer base, and expenses required to support the administration of our growing business. In particular, total operating expenses increased from $901.4 million for fiscal 2005, to $1.17 billion for fiscal 2006, to $1.57 billion for fiscal 2007 and to $1.91 billion for fiscal 2008, and from $903.7 million for the six months ended June 30, 2008 to $1.16 billion for the six months ended June 30, 2009. During this period, we also incurred substantial additional indebtedness to finance the costs of our business expansion and acquisitions of additional wireless licenses. As a result, our interest expense has increased from $30.1 million for fiscal 2005, to $61.3 million for fiscal 2006, to $121.2 million for fiscal 2007 and to $158.3 million for fiscal 2008, and from $63.8 million for the six months ended June 30, 2008 to $90.9 million for the six months ended June 30, 2009.

Primarily as a result of the factors described above, our net income of $30.7 million for fiscal 2005 decreased to a net loss of $24.7 million for fiscal 2006, a net loss of $75.2 million for fiscal 2007 and a net loss of $141.6 million for the year ended December 31, 2008, and our net loss of $41.5 million for the six months ended June 30, 2008 increased to a net loss of $108.5 million for the six months ended June 30, 2009. We believe, however, that the significant initial costs associated with building out and launching new markets and further expanding our existing business will provide substantial future benefits as the new markets we have launched continue to develop, our existing markets mature and we continue to add subscribers and generate additional revenues.

Our wireless licenses in our operating markets are combined into a single unit of account for purposes of testing impairment because management believes that utilizing these wireless licenses as a group represents the 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. Our non-operating licenses are tested for impairment on an individual basis. As of June 30, 2009, the carrying values of our operating and non-operating wireless licenses were $1,867.9 million and $51.7 million, respectively. An impairment loss is recognized on our operating wireless licenses when the aggregate fair value of the wireless licenses is less than their aggregate carrying value and is measured as the amount by which the licenses aggregate carrying value exceeds their aggregate fair value. An impairment loss is recognized on our non-operating wireless licenses when the fair value of a wireless license is less than its carrying value and is measured as the amount by which the licenses carrying value exceeds its fair value. Any required impairment losses are recorded as a reduction in the carrying value of the wireless license and charged to results of operations.

As a result of the valuation analysis discussed above, the fair value of our wireless licenses increased by approximately 3% from September 2007 to September 2008 (as adjusted to reflect the effects of our acquisitions and dispositions of wireless licenses during the period). As of September 30, 2008, the fair value of our wireless licenses significantly exceeded their carrying value. At that time, the aggregate fair value of our individual wireless licenses was $2,237.3 million, which when compared to their respective aggregate carrying value of $1,836.6 million, yielded significant excess fair value.

As of September 30, 2008, the aggregate fair value and carrying value of our individual operating wireless licenses was $2,173.2 million and $1,783.6 million, respectively. If the fair value of our operating wireless licenses had declined by 10% as of September 30, 2008, we would not have recognized any impairment loss. As of September 30, 2008, the aggregate fair value and carrying value of our individual non-operating wireless licenses was $64.1 million and $53.0 million, respectively. If the fair value of our non-operating wireless licenses had declined by 10% as of September 30, 2008, we would have recognized an impairment loss of approximately $2.2 million.

Read the The complete ReportLEAP is in the portfolios of Bill Miller of Legg Mason Value Trust, Jean-Marie Eveillard of Arnhold & S. Bleichroeder Advisers, LLC.

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